Major Assignment Questions-
Q1. The directors of Efficient Distributors Ltd are concerned at the results of trading activities reported for the year ended 30 June 20X6, and failure to keep within the limit of the bank overdraft ($12000).
They request that a comprehensive survey be made of the financial state of the company, and provide the following information: (attached)
Required -
a. Analyse the company's financial position, indicating the causes of the present situation and recommending future policy. What are the implications of continuation of the company's present practices?
b. Indicate any limitation of your analysis.
c. What additional information (if any) would you like to assist you with your analysis?
Q2. Ethics Case Study
Allandale Ltd is a company that builds small luxury boats and employs 500 people. The company has been operating for 10 years. Two years ago the company underwent a major expansion of its boat-building facilities because of increased demand for its boats from overseas buyers. To do this it borrowed $20 million through a mortgage loan with a major bank.
The loan agreement contains the following clauses:
i. Allendale is to maintain a current ratio of at least 2:1.
ii. the after-tax return on assets must be at least 10 per cent.
If the company fails to meet either ratio in any year, the $20 million is immediately repayable.
Last year the government removed a 10 per cent tariff on small luxury boats and the company has had difficulty competing in overseas markets. Consequently, the company has had to reduce its profit margin in order to compete against suppliers from other countries.
Tom Lyons is the accountant of Allandale Ltd, and he has completed the preliminary financial results for the current year. Based on these results, the current ratio is 2.1:1 and the return on assets is 11 per cent. However, Tom has some concerns about the following items:
1. One boat that was still unsold at year-end is recorded in the balance sheet at $500,000. However, Tom is certain that the most it could be sold for is $350,000.
2. An overseas customer who ages the company $1 million has recently informed Allandale Ltd that they are in severe financial and will only be able to pay half the amount owing. The balance in the provision for doubtful debts is only $300,000.
If Tom recognises the decline in the net realisable value of $150,000 and the $200,000 uncollectable account in excess of the provision, the company's current ratio will fall to 1.6:1 and the return on assets to 2 per cent. This would result in a call for immediate repayment of the $20 million loan. In turn, this would force the company into bankruptcy and Tom and his best friends will lose their jobs.
Discuss
a. The ethical problems faced by Tom
b. What Tom should do?
Q3. Giggling Brothers, wholesalers of fine wines, has been trading profitably for a number of years using a manual accounting system. However, the company has experienced, every six months or so, severe cash-flow problems caused by a number of factors including the excessive purchase of 'special price' stock from vineyards, inappropriate timing of stock purchases relative to sales, inadequate control of accounts receivable and mis-timed marketing drives. Giggling Brothers management believes that many of these problems are caused by inadequate and untimely feedback from the accounting department. For example, purchasing department staffs maintain that they are given inadequate financial information by the accounting department, and that the sales department consistently misrepresents expected sales. Sales department staff considers that management has unrealistic expectations of their performance and that the accounting department does not keep them sufficiently informed about the collectability of outstanding accounts receivable. Additionally, accounting department staff maintains that they are not consulted with regard to expenditure on purchases or given sufficient information about the credit history of customers. Management believes that the implementation of a computerised accounting and reporting system would obviate most of these problems.
Required -
a. What type of accounting and reporting information system should be designed for Giggling Brothers?
b. What benefits would such a system offer to the business and how might the information produced be incorporated into the planning process?
c. Suggest how Giggling Brothers might best evaluate the cost against the benefit of implementing a new system.
d. Who do you think should be involved in the design and development of operating specifications for the new system?
e. Do you think that an examination and evaluation of the approaches used by the firm's competitors would be of benefit to Giggling Brothers?
References-
Puttee, C., Vitale, C. & Laing, G. (2011). Eight Dialogues on Business Ethics: Aspects of Ethical Behaviour in the Corporate Sector. e-Journal of Social & Behavioural Research in Business. 2(2), 1-17.
Kirkham, R. (2012). Liquidity Analysis Using Cash Flow Ratios and Traditional Ratios: The Telecommunications Sector in Australia. Journal of New Business Ideas & Trends. 10(1), 1-13.
Laing, G. (2013). Different Strategic Types Operating in the Same Industry: A Multiple Case Study. Business Management and Strategy. 4(1), 71-85.
Attachment:- Assignment.rar