Mr. Hans Goldmann, CEO
Mrs. Virginia Sacks, CFO
Licorice Manufacturing, Inc
2237 Orange Street
Marietta, FL 32475
Dear Mr. Goldman and Mrs. Sacks:
Thank you for choosing us as your business consultant. I am writing to explain the difference between the book value of the plant assets reported in the balance sheet and the price a potential buyer offers to purchase the plant.
The figures in the balance sheet reflect the adjusted book value of the assets. Generally Accepted Accounting Principles (GAAP) in the U.S. requires that balance sheets report long term fixed assets, such as plant, equipment, land, and etc., at historical cost, adjusted for any improvements and depreciation. As we audited the balance sheet of your company, we found that the assets were fairly presented according to GAAP. The value of the licorice plant reported in the most recent balance sheet is calculated based on the original cost of the plant minus accumulated depreciation since its adoption. The depreciation method applied to individual assets in the plant is consistent with your company’s accounting police and GAAP. We conducted a comparative analysis on balance sheets for previous 3 years and found no inconsistence regarding the valuation of fixed assets.
The price a potential buyer offers to purchase the plant, however, is based on both subjective and objective measurements that may or may not meet all the GAAP reporting requirements. Asset valuation can be subjective because there is no figure on the balance sheet telling the value of the company’s brand name,