Yummy Pops Ltd. is 100 percent owned by Pops Holding Ltd. The company has been profitable in the past. However, it has incurred a loss in the current year ended December 31, 2018. The parent company has indicated it is considering selling Yummy if it incurs another loss.
In response, Yummy is looking into producing private label beverages, which has a higher gross margin than its regular product line, for the supermarket chain, ValueMart Inc. In order to produce ValueMart’s private label products, Yummy needs to expand its packaging facility.

To finance its expansion, the company has applied to the Canada Business Bank. The bank has indicated that before it will approve the loan application it requires audited financial statements for 2018. It also wants to ensure the entity has a current ratio of 2:1.
This is the first year your firm, Peters and Peters, has audited Yummy. Graves and Collins, LLP, had been Yummy’s auditors for many years; however, due to a disagreement over revenue recognition method, Yummy did not reappoint Graves and Collins.

REQUIRED
a. Based upon the case facts, which benchmark would be most appropriate for overall materiality:
i. Current year’s assets.
ii. Current year’s net income.
iii. Previous year’s net income.
iv. Current year’s revenue.
v. An average of current year’s net assets and net income.
b. Provide an explanation for your choice.
c. What benchmark percentage is most appropriate? Use case facts to support your choice.