Mr.Salim has started a new business of selling of Handloom items. purchases these items from a...

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Mr.Salim has started a new business of selling of Handloom items. purchases these items from a factory situated in Dubai and sells to local customers at a price which give him reasonable amount of profit. All gets well in the first year and he earns some income from the business. Не He needs more money to expand his business. He decides to ask his friend Mr. Said to invest in the business. Having seen the potential of Mr. Salim s business, Mr. Said wants to invest, but neither he wants to manage nor wants to have ultimate liability for the debts of the business in case business fails. He therefore suggested that they should set up a partnership firm. He will be the owner of the firm and will be entitled to get profits. On the other hand, Mr. Salim, would be the Manager and be paid a salary. At the end of the first year of trading when Mr. Said receives copy of the financial statements, he finds that Profits are much lower than what was expected. Mr. Said seeks solution for his following problems; (a) Mr. Said knows that Mr. Salim is paid salary so he may not care for low profits. (b) Mr. Said is concerned by the level of profits and feels that he wants further assurance on the accounts. (c) He does not know whether the accounts give a true and fair view of the last year's trading because the profits do not seem as high as those Mr.Salim had predicted when he agreed to invest. d) Give your opinion and justifiable solutions to above problems and also state essential qualities of a successful auditor. Mr.Salim has started a new business of selling of Handloom items. purchases these items from a factory situated in Dubai and sells to local customers at a price which give him reasonable amount of profit. All gets well in the first year and he earns some income from the business. Не He needs more money to expand his business. He decides to ask his friend Mr. Said to invest in the business. Having seen the potential of Mr. Salim s business, Mr. Said wants to invest, but neither he wants to manage nor wants to have ultimate liability for the debts of the business in case business fails. He therefore suggested that they should set up a partnership firm. He will be the owner of the firm and will be entitled to get profits. On the other hand, Mr. Salim, would be the Manager and be paid a salary. At the end of the first year of trading when Mr. Said receives copy of the financial statements, he finds that Profits are much lower than what was expected. Mr. Said seeks solution for his following problems; (a) Mr. Said knows that Mr. Salim is paid salary so he may not care for low profits. (b) Mr. Said is concerned by the level of profits and feels that he wants further assurance on the accounts. (c) He does not know whether the accounts give a true and fair view of the last year's trading because the profits do not seem as high as those Mr.Salim had predicted when he agreed to invest. d) Give your opinion and justifiable solutions to above problems and also state essential qualities of a successful auditor.

Answer rating: 100% (QA)

a The assumption of Mr Said my be true at some extent as Mr Salim would not be much concern about the higher profit as he is getting a fixed amount As ... View the full answer