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.
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Globe Pty Ltd
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|
|
|
|
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2009
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2010
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2011
|
2012
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Statement of Financial Performance $'000s
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|
|
|
|
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Sales
|
131
|
196
|
266
|
298
|
|
Cost of Goods Sold
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(116)
|
(175)
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(231)
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(262)
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Gross Profit
|
15
|
21
|
35
|
36
|
|
Other Expenses
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(14)
|
(27)
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(39)
|
(48)
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Interest
|
(2)
|
(10)
|
(15)
|
(25)
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Net Profit (Loss)
|
(1)
|
(16)
|
(19)
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(37)
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Statement of Financial Position $'000s
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2009
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2010
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2011
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2012
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Current assets
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|
|
|
|
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Debtors
|
22
|
32
|
50
|
72
|
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Inventory
|
25
|
35
|
52
|
63
|
|
Total current assets
|
47
|
67
|
102
|
135
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Non-current assets
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|
|
|
|
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Property, plant and equipment
|
37
|
92
|
100
|
111
|
|
Total assets
|
84
|
159
|
202
|
246
|
|
Current liabilities
|
|
|
|
|
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Creditors
|
40
|
45
|
82
|
112
|
|
Bank Overdraft
|
16
|
51
|
62
|
78
|
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Total current liabilities
|
56
|
96
|
144
|
190
|
|
Non-current liabilities
|
|
|
|
|
|
Secured loan
|
0
|
50
|
50
|
50
|
|
Total liabilities
|
56
|
146
|
194
|
240
|
|
|
|
|
|
|
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Capital and Reserves
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|
|
|
|
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Share capital
|
3
|
3
|
3
|
3
|
|
Retained earnings
|
25
|
10
|
5
|
3
|
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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?