Joe seeks your assistance in assessing these investment options. He has five particular concerns, as outlined below.
1. Regarding his photographic studio, which would be a better option for a structure, a company or a partnership? Is a company a safer way of organizing a business than a partnership or is the reverse situation actually true - i.e. are partnerships a safer investment than companies? Joe would like you to answer this question fully, setting out the advantages and disadvantages of both the partnership and company business structures and relating this information to his situation.
2. Joe is primarily basing his opinion about investing in Billabong International Ltd on its popularity and profile within the international surfing world. He has accessed the company's 2009 Annual Report, but is concerned about whether it can be trusted. Do its compliance with all of the required international accounting standards and the fact that it is audited ensure its accuracy? Joe would like you to explain this, and also explain the significance of the Notes, particularly Note 1, which he finds confusing. In addition, he wants to know if there are any other aspects of the accounts that would justify his confidence in the safety of this investment.
3. While Joe believes that Billabong International Ltd is in a strong financial position (that is, it has a substantial asset base) he finds it difficult to follow some of the information provided in the Annual Report and is thus unsure as to which figures to compare and contrast. For example, is Billabong International Ltd solvent? Joe would like some reassurance about this. He would like you to analyse the debt/liabilities position of the company in general and to explain the significance of the borrowings. He is particularly interested in whether they are secured or unsecured (refer to Note 23). Do these liabilities threaten the future survival of the company?
4. The final issue of concern to Joe is that while Billabong International Limited has paid dividends in the past, can he be sure that they will continue to do so? On the basis of the company's past record of paying dividends, what annual income could he expect to receive from an investment of $250,000? How would this compare to the dividend reinvestment scheme? What are the advantages and disadvantages to Joe of taking his dividends in cash or additional shares?
Required:
1. Prepare a Letter of Advice for Joe in which you fully address each of the issues he raised, as outlined above, and respond to his inquiries about options for structuring his business and making a secure investment.
Within this process you must ensure that you explain thoroughly all relevant accounting terms such as: "financial position", "solvent", "borrowings", and fully analyse the relevant information provided in the 2009 Billabong International Ltd Annual Report.
The current address for Joe Doyle is: 62 Highfields Avenue, Manly QLD 4179.
You may use any address that you feel is appropriate for the Nelson & Irvine accounting firm.
2. Complete a record of the Letter of Advice experience in your Student Portfolio, print and submit with your Letter of Advice.
Note: we have a guest, specialist staff member coming along to the first part of the Week 7 lectures to take you through how to set up your student portfolio.
Letter of Advice Resources: Karyn Gonano will provide a lecture on preparing a letter of Advice in Week 3, and a set of materials. Jodie Nelson and Helen Irvine will respond to queries about the Assignment on Blackboard's Discussion Board. Queries are to relate to the process, or clarification of the assignment requirements, rather than to the content. Students are expected to research these issues themselves. The AYB200 Assignment Criteria Sheet provides students with a detailed list of expectations and marking guide relating to the Letter of Advice Online resources that will be helpful include (but are not limited to) websites such as ASX, AASB and Billabong International Ltd, and databases accessed through the QUT's library. A selection of media articles will be placed on Blackboard behind Assignment.