Suppose, you are working as a loan officer in a bank. Mr. Ali, the owner of the sole proprietorship applied for loan of Rs. 100,000 for further expansion of his business. Mr. Ali prepared the Financial Statements of the business which has been approved by the famous chartered accountant firm. The strong financial position as well as performance of his business since last three years makes Mr.Ali more confident this time to borrow the said amount.

Suppose, you are working as a loan officer in a bank. Mr. Ali, the owner of the sole proprietorship applied for loan of Rs. 100,000 for further expansion of his business. Mr. Ali prepared the Financial Statements of the business which has been approved by the famous chartered accountant firm. The strong financial position as well as performance of his business since last three years makes Mr.Ali more confident this time to borrow the said amount.

Do you think, lending decision based on the relationship between assets and liabilities guarantee to pay debts? Briefly explain. ”
 

IDEA SOLUTION:-

No, the decision is no link with the assets and liabilities of the business as a guarantee to pay debts.

Because Creditors look to solvency of owner, rather than financial position of business.

Refrence.

Page # 107 ,, under the heading Sole proptership line#5

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