you are the auditor of globe ltd a manufacturer


You are the auditor of Globe Ltd, a manufacturer of colour printers. You have closely scrutinised the financial reports of the company and are concerned about its 'going concern status'. The summarised financial reports for the past three years plus the unaudited draft accounts for the current year are shown below.

Globe Pty Ltd

 

 

 

 

 

2009

2010

2011

2012

Statement of Financial Performance $'000s

 

 

 

 

Sales

131

196

266

298

Cost of Goods Sold

(116)

(175)

(231)

(262)

Gross Profit

15

21

35

36

Other Expenses

(14)

(27)

(39)

(48)

Interest

(2)

(10)

(15)

(25)

Net Profit (Loss)

(1)

(16)

(19)

(37)

 

 

 

 

 

Statement of Financial Position $'000s

2009

2010

2011

2012

Current assets





Debtors

22

32

50

72

Inventory

25

35

52

63

Total current assets

47

67

102

135

Non-current assets





Property, plant and equipment

37

92

100

111

Total assets

84

159

202

246

Current liabilities





Creditors

40

45

82

112

Bank Overdraft

16

51

62

78

Total current liabilities

56

96

144

190

Non-current liabilities





Secured loan

0

50

50

50

Total liabilities

56

146

194

240

 

 

 

 

 

Capital and Reserves





Share capital

3

3

3

3

Retained earnings

25

10

5

3

Total Liabilities and Owners Equity

84

159

202

246

In an attempt to expand into overseas markets, Globe automated a lot of its operations in 2010 with the purchase of some highly sophisticated plant and machinery. The new plant and machinery was largely financed with a secured variable loan of $50,000 and a bank overdraft facility.

The company purchases the component parts that make up the printers from a variety of local and overseas suppliers. The company has plans to broaden its sales base (currently 85% of its sales are to one discount chain store) to both local and overseas markets. This broadening of the company's sales base revolves around the development and production of a state of the art printer that will be tailored to meet the needs of the top end of the market. The new printer however will require a significant amount of money that the directors hope will come via a new public issue of shares and promises of loans and other forms of assistance from business acquaintances of the CEO, Mr. Beam Laser.

Required:

1. For each year (2009, 2010, 2011 & 2012) calculate the following ratios: Net profit ratio, Gross profit ratio, Working Capital ratio, Quick asset ratio, Debt to total assets ratio.

2. With reference to each one of the five ratios in turn and the other information provided explain what the results of your calculations indicate for Globe Ltd's going concern.

3. What other audit techniques could the auditor use to indicate whether Globe Ltd has a going concern problem?

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