Letter of Advice

1505 WordsAug 31, 20117 Pages
Nelson & Irvine Accounting Consultancy 18 Copenhagen Street MOUNT GRAVATT QLD 4122 Mr Joe Doyle 62 Highfields Avenue MANLY QLD 4179 9 September 2010 Dear Mr Doyle Joe Doyle’s Investment and Business Structure Enquiry Please find below advice on investment options for your photographic studio concerning business structure and the security of an investment in Billabong International Ltd. 1. Facts You have come into $500,000 worth of inheritance which you wish to invest $250,000 into the initiation of a photographic studio business and the other $250,000 in shares at Billabong International Ltd. You also indicated that Paul Jones has offered to invest $50,000 in the studio wishing to have no further monetary or…show more content…
This is important as it provides accountability for the company. As outlined in the AASB framework, notes are a form of supplementary information that may include information about items in the financial statements, risks of the entity, and any resources not disclosed in the balance sheet. This additional information provides investors with relevant information to assess the business on and evaluate what they can expect from an investment in the company. In calculating the solvency of a business, a clear indication of its financial position can be determined. Solvency describes the ability of a business’s assets to cover its liabilities if they fall due. From certain figures in the balance sheet, the current ratio can be calculated. This ratio divides total current assets by total current liabilities. If a company is solvent, this ratio will be greater than 1; in this case it is 3.3, which indicates that the current assets can cover the current liabilities three times over and is therefore indicative of a financially stable company. The majority of the debt of Billabong is tied up in unsecured borrowings. Unsecured borrowings are when no security is taken by the lender. The bank or finance company offers you a loan if they are confident you will be able to repay it. During the year, the secured cash advance facilities were replaced with the

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