Mini- Case Going- Concern Reporting

1. Using the excel spreadsheet provided, and the recommended consequential disclosures as a basis you your analysis, what recommendations would you give Phillips on each of the items listed below? In each case, justify your recommendations and estimate how much the decision will change the “true” value of the company and its value in the eyes of an investor in a private company.

Consulting Group to reduce inventory levels in its main plant. After six weeks, however, work-inprocess inventory had actually increased by 13%.

Issue: Have the directors of the company breached their duties mainly related to the company’s insolvent trading.

The financial performance of the company over the years six t thirteen is shown in table no 7. The data includes Revenue generated over the years, Earning per share, Return on Investment and Stock Prices. Chart 5 shows that there has been a decline in the revenues generated. Charts 6 to 8 all show a decline in Earnings per Share, Return on Equity and Stock Prices suggesting a poor financial performance by the company.

The reporting party (RP) stated she held a telephone interview with Aurora Drake DOB: 9/1/98. The RP stated Aurora disclosed shortly after her placement in the facility on 9/24/14 she observed the residents smoking in the back yard of the home. According to the RP Aurora began smoking shortly after the encounter. Aurora stated a staff person named Kate would supply her with cigarettes. Aurora stated she observed a staff person named Shawna share the same cigarette with a resident named Austin. The RP stated Aurora was constantly belittled and harassed. The RP asked Aurora of incidents of her interactions with staff. Aurora stated around last Christmas after returning from a visit with her mother, staff person Kate called her a "spoiled little bitch.' The

These refer to the limitations and restrictions that may prevent a business or organisation from certain actions. (Mrs Atkins)

The reporting party (RP) stated resident Frank Barrell DOB: 6/5/33 was admitted into the facility on 11/15/16 and passed away on 12/15/16. The RP disclosed the facility failed to offer the resident food. According to the RP, Mr. Barrell was a Hospice resident and would sleep several hours a day. Consequently the facility had failed to wake Mr. Barrell for his meals and not provide meals for him in his room. The RP stated when her employee would arrive and asked Mr. Barrell if he had eaten he would respond "no." Furthermore, the RP disclosed of an incident when an employee arrived after 10AM and Mr. Barrell had not had breakfast. The hospice employee went to the kitchen in search of food and was informed due to the resident sleeping through

Reviewing GM's financial information in GM Exhibit 1 and its stock price in GM Exhibit 2, when do you first see signs of GM's impending financial distress?

4. A number of economic factors in the United States during 2008 might have accelerated Deloitte & Touche’s decision to issue an audit opinion modified to disclose going-concern uncertainties. Chief among the many factors was a dramatic change in the ability to create new lines of credit, which dried up the flow of money and slowed new economic growth and the buying and selling of assets. There were other factors as well, including the cheap credit which made it too easy for people to buy houses or make other investments based on pure speculation. Cheap credit created more money in the system and people wanted to spend that money. The housing market decline also caused a chain reaction in the economy. Individuals and investors could no longer sell their homes for a quick profit causing massive losses in mortgage backed securities and many banks and investment firms began bleeding money.

2. Weak Financial Performance A significant number of its vendors demand accelerated payments or require cash on delivery, such demands could have an adverse impact on its operating cash flow and result in severe stress on its liquidity. A downgrade in its credit ratings or a general disruption in the credit markets could make it more difficult for it to access funds, refinance indebtedness, obtain new funding or issue securities.

Open-ended questions such as these will generate energy in the class, though the instructor should take care to limit the amount of time spent in this phase of the class, since students will find it easy to offer observations about the firm’s apparent strategy and financial performance. By letting the students assess the problems of this company in a nondirective fashion, the instructor can gauge students’ abilities and build students’ “ownership” of the analysis. The next three questions are a directive approach to problem assessment and could supplement this question or be used in place of it.

Based on the text above, and the financial data provided (Tables 4.11-4.13), to what extent was it inevitable that Woolworths would fail as a business? Justify your view, using suitable ratios to support your judgment. (35 MARKS)

(C) Externalities -- Companies produce some type of external cost that affects the community. The company would not voluntarily reduce or

Covenant’s balance sheet and income statement is a comparison of the years 2010, 2009, and 2008, and shows the company as struggling due to the current economy situation. The company’s total current assets decreased by 10.50% and include cash, short-term investment as well as inventory. The company had an increase of 9.23% in their total liabilities that was due to increases in their long-term debt as well as other liabilities. The net tangible assets for Covenant showed an increase of 7.24% over the twelve-month period. The income statement showed a decrease of 8.9% in the company’s gross profit during 2011. It also showed

The first Indication of financial distress is when firm does not have enough liquid assets (short-term assets) to cover (pay for) current