(Solved by Humans)-ZIM Inc. (ZIM) is a high-technology company that develops, designs, and manufactures

Question

ZIM Inc. (ZIM) is a high-technology company that develops, designs, and manufactures telecommunications equipment. ZIM was founded in Year 5 by Dr. Alex Zimmer, the former assistant head of research and development at a majorette phone company. He and the director of marketing left the company to found ZIM. ZIM has been very successful. Sales reached $8.3 million in its first year and have grown by 80% annually since then. The key to ZIM’s success has been the sophisticated software contained in the equipment it sells. ZIM’s board of directors recently decided to issue shares to raise funds for strategic objectives through an initial public offering of common shares. The shares will be listed on a major Canadian stock exchange. ZIM’s underwriter, Mitchell Securities, believes that an offering price of 18 to 20 times the most recent fiscal year ’s earnings per share can be achieved. This opinion is based on selected industry comparisons. ZIM has announced its intention to go public, and work has begun on the preparation of a preliminary prospectus. It should be filed with the relevant securities commissions in 40 days. The offering is expected to close in about 75 days. The company has a July 31 year-end. It is now September 8, Year 8. You, a CA, work for Chesther Chathan, Chartered Accountants, and the auditors of ZIM since its inception. You have just been put in charge of ZIM’s audit, due to the sudden illness of the senior. ZIM’s year-end audit has just commenced. At the same time, ZIM’s staff and the underwriters are working 15-hour days trying to write the prospectus, complete the required legal work, and prepare for the public offering. The client says that the audit must be completed so that the financial statements can go to the printer in 22 days. ZIM plans to hire a qualified chief financial officer as soon as possible. An extract from ZIM’s accounting records is found in Exhibit II. You have gathered the information in Exhibit III from the client. You have been asked by the audit partner to prepare a memo dealing with the key accounting issues. Required: Prepare the memo.