Today is September 16, Year 2. You, CPA, work for

Today is September 16, Year 2. You, CPA, work for Garcia & Garcia LLP, a medium-sized firm located in Montreal. Jules Garcia calls you into his office. "CPA, I have a very special engagement for you. A friend of mine, Louise Martin, is starting a not-for-profit organization named MMB. MMB is going to be Quebec's first breast milk bank. Louise was unable to breastfeed her newborn and obtained donated breast milk for the first year of her daughter's life. She was lucky enough to live in British Columbia at the time, and had access to donated breast milk. She now lives in Montreal and hopes to give babies here the same access to breast milk that she and her daughter had." Jules provides you with infonnation on breast milk banking that he received from Louise (Exhibit ill). 

"The Breast Milk Agency (the Agency) is a government body that regulates breast milk banks. The role of the Agency is to eliminate the risk that a disease or contaminant is transferred in milk by ensuring controls are established to preclude contamination."

Jules continues, "To receive grants, MMB is req_uired to prepare financial statements that follow Canadian Accounting Standards for Not-for-Profit Organizations. Louise has limited accounting knowledge and is feeling overwhelmed with how to account for all the different types of donations. Please help her select appropriate accounting policies, where necessary, and draw her attention to accounting issues she might encounter."

Jules hands you notes from his meeting with Louise (Exhibit IV). "Please help her with any other issues that you identify."


Exhibit III:

BACKGROUND ON BREAST MILK BANKS

For mothers who are unable to meet their babies' nutritional needs with their own breast milk, pasteurized donor milk is a viable option. Donor breast milk is often used for babies who 

  • Are born prematurely, 
  • Have medical conditions that affect their ability to be breastfed (e .g., cleft palate), 
  • Are born to mothers with medical condit ions that affect their milk supply and quality (e.g .,breast cancer), or are adopted.

Women considering donating breast milk should ensure they adhere to the following guidelines:

  • Maintain a healthy diet
  • Limit exposure to pesticides and other contaminants, such as lead and mercury
  • Limit use of prescription drugs 
  • Avoid use of alcohol, tobacco, and illegal substances


Exhibit IV:

NOTES FROM JULES'S MEETING WITH LOUISE

 The federal government has provided Louise with a one-time grant of $100,000. The grant is intended specifically for the purchase of tangible capital assets and for other start-up costs and must only be used for these purposes. A local pediatrician who is very supportive of Louise's efforts, Dr. Sandra Oldmen, has donated $75,000. These two amounts should help fund operations until MMB can provide breast milk to mothers in need and recoup its costs. Louise has received the donation from Dr. Oldmen but is still waiting on the grant. MMB will not be operating as a registered charity, so Louise is not expecting a significant amount of cash funding, and therefore MMB will not provide donation receipts. Several public hospitals are interested in purchasing milk from MMB, and their budgets allow them to spend up to $8 per 120 millilitres. Many private clinics have ind icated that they are prepared to pay up to $20 per 120 millilitres. 

Louise notes that her email inbox is inundated with req_uests from women all across Canada who are willing to pay as much as $40 per 120 milli litres for donor milk to help their babies. Her goal in the first year is to provide donor mi lk to 20 babies for the first 12 months of their lives. She mentions that she is not exactly sure how she is going to decide which babies are most deserving, given her estimate that up to 500 babies in Canada each year require donor milk.

Louise expects that, after meeting her own baby's needs, each mother can donate approximately 15,000 milli litres of milk a year, and she expects them to donate for one year. Louise is uncertain about the number of donor mothers needed to fulfill her goal of providing donated milk to 20 babies in MMB's first year. She hopes to be able to double the number of recipients on an annual basis (in other words, 40 babies in the second year, 80 in the third, and so on). Considering this aggressive growth strategy, she wonders whether she will need to financially compensate the donor mothers for their milk, and if that is inconsistent with her not-for-profit objective. Louise has obtained the following guidelines on the quantity of breast milk a baby requires:

Age 0-6 months 6-12 months Quantity per Day 720 ml 600 ml


Louise expects a significant number of volunteers to donate their time to help run MMB. If she does not get enough volunteers, she may need to hire and pay additional staff. In addition to the volunteers, MMB will employ a lab technician, an employee in charge of milk donors, an employee in charge of operations and quality control, a receptionist, and Louise, the chief executive officer, with a total expected salary cost for all employees of $275,000 per year. Louise expects to spend approximately $60,000 on the freezers, pasteurizer, office furniture, computers, and software. She has priced some off-the-shelf inventory management software and expects it will cost about $500 per year.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...

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