Financial Statements. Colorado & Utah Canyons Tour Company

Colorado & Utah Canyons Tour Company
Author's Name
Institutional Affiliation
Colorado & Utah Canyons Tour Company
Introduction
Hopkins, who is the founder, owner, and manager of Colorado & Utah Canyons Tour Company, has acquired our services in preparing and compiling an annual report of his company. The company has recently completed its first year of operations and has provided accounts for compilation engagement. Considering the limited business operations of the business together with its small size, the financial statements will take a few entries and accompanying notes. The business has gathered information regarding cash transactions it had incurred during the first year of operations. The accountants are provided with these details; however, the details regarding non-cash transactions are missing from the provided data. Accountants would need further information before they can compile the provided data in an understandable set of financial statements. The following report addresses key findings of the compilation engagement.
Unavailable Information
Although Hopkins have provided all the data which regarding tangible, easy-to-calculate, monetary transactions, there are a few non-monetary or subjective figures which he has ignored (Darden Business Publishing University of Virginia, 2015). Most common of these figures of income and expenses is depreciation which varies from business to business and asset to asset. Other similar entries of the financial statement, which are omitted from Hopkins’ accounts, include tax expense, contingent liabilities and provision of losses such as doubtful debt (Reutzel, 2018). All these pieces of information are further explained in the following paragraphs and are required from Hopkins before financial statements can be reliably compiled.
Provision for Depreciation
The company has not decided upon a reasonable estimate of depreciation expense on its capital assets. This provision for depreciation expense allows the business to accurately track the utilization of non-current assets in the creation of wealth for the business owners. Ignoring this figure would lead to misleading data about profitability. It owns and controls two sets of non-current assets which are snowmobiles and tourism equipment including ropes, snowshoes, and skis. First, of these sets, snowmobiles may enjoy a longer life and steady return; thus, we have accounted depreciation on them on a straight line basis. The latter of the two may give diminishing returns over its life and, thus, attracted a reducing balance estimate. However, these estimates need further validation from Hopkins who better understand the situation with these long-term assets.
Tax Expense
The company has not paid any tax for its year in operation. However, as it is expressing positive income, the company has accrued corporation tax over its profits. After considering depreciation expenses and interest paid on loan notes, the business will pay 21% of the tax for the earnings. It should be noted that the business will also deduct owner’s salary from the earnings to arrive at the taxable income figure because of the nature of the business, which is a corporation, as owners; salaries paid by companies are a...