Financial Analysis of ABC Management-Free-Samples for Students

Question: You are asked to provide a report to the ABCs management to analyze these accounting issues and their implications for the bank loan. Answer: Providing a report to ABCs management to analyse the accounting issues and their implications on loans: The first accounting issue that can be identified from the situation is the crediting of revenue, receivables and cash recorded in the balance sheet. The main accounting issues are that the company is not delivering the required level of products to the customers, as payment is conducted on advance basis. Hence, the record of the transaction in revenue, accounts receivable and cash is not adequate. This accounting issue will directly allow the company to support its loan requirements, while the actual financial position of the organisation will be at risk. The company is actually not attaining the required level sales, which they need to be in both accounts receivable and cash conversion. Therefore, the loan requirements are being met by the company from this transaction level, whereas the accounting issue can be identified from the relevant transaction that is been conducted. This mainly violates the basic accounting principles as prepaid income cannot be disclosed under receivables of an organisation (Amiraslani, Iatridis Pope, 2013). Thus, the accounting issue needs to be resolved for maintaining the relevant loan obligation of the organisation. The second scenario directly indicates the relevant problems, which is been faced by the organisation in its inventory maintenance system. The overall frozen lunch packages needs to be scraped due to the allegation that is been imposed by Canadian Food Inspection Agency. The company mainly needs to maintain the required level of inventory for the successful completion of the loan process. However, the scenario could directly reflect on the possibility of the loan process not being complete, as the overall inventory of the organisation is deemed to be damaged. The overall inventory is mainly connected to food, which is one of the perishable, goods and any kind of bad news might hamper sales of the organisation. Hence, the inventory level of the organisation was mainly reduced, which directly violates requirement of the loan. This issue might directly reduce the overall loan capability of the organisation, which in turn might negatively affect its loan allowed by the bank. Loughran Mc Donald (2016) mentioned that without adequate requirement fulfilment banks does not provide the loan, which is needed by the organisation to support its obligation. Thus, the relevant decline in inventory level could adversely affect its loan. This situation mainly increases the overall accounts receivables of the organisation, which will mainly support the loan requirements of the organisation. The overall increment in the accounts receivable due to the selling of frozen lunch packages could also have a positive impact on the inventory section of the organisation. This increment in both accounts receivables and inventory accumulation of the company could eventually raise the loan amount. However, the selling price of the account receivables is relatively less and loan amount could only be processed in selling price to the stores. In this context, Vogel (2014) stated that distribution of product at lower selling prices could eventually increase sales and attract more customers for the company. The situation will have no impact on the loan requirements, as the inventory and accounts receivables level will relevantly increase from the decisions made by the organisation. Hence, the situation could directly increase the receiv ables of the organisation and support loan requirements. The last situation mainly indicates the overall loyalty program, which is been launched by the organisation in support its selling activities. With the help of the overall loyalty program the company is mainly able to generate higher revenue from investment, as a boost in sales could be seen. This relevant increment in sales could directly indicate that the company is able to generate and produce higher number of ordinary lunch packages to support its rising demand. The loyalty program has directly boosted the sales to 50,000 packages in 3 months, which indicates the higher revenue that is generated from the operations. However, this could directly reduce the accounts receivables and inventory of the organisation at the end of 31st Dec, upon receiving payments from the stores. Hence, the accounting issue could directly have a negative impact on the loan requirement fulfilments, as the receivables of the organisation could substantially decrease (Wang, 2014). This decline in inventory and receivables could directly have a negative impact on the bank loan, which might lead to cancelation of the loan. References Amiraslani, H., Iatridis, G. E., Pope, P. F. (2013).Accounting for Asset Impairment: A Test for IFRS Compliance Across Europe: a Research Report by the Centre for Financial Analysis and Reporting Research, Cass Business School. Cass Business School. Loughran, T., McDonald, B. (2016). Textual analysis in accounting and finance: A survey.Journal of Accounting Research,54(4), 1187-1230. Sullivan, S. D., Mauskopf, J. A., Augustovski, F., Caro, J. J., Lee, K. M., Minchin, M., ... Shau, W. Y. (2014). Budget impact analysisprinciples of good practice: report of the ISPOR 2012 Budget Impact Analysis Good Practice II Task Force.Value in health,17(1), 5-14. Vogel, H. L. (2014).Entertainment industry economics: A guide for financial analysis. Cambridge University Press. Wang, C. (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer.Journal of Accounting Research,52(4), 955-992. Warren, C. S., Reeve, J. M., Duchac, J. (2013).Financial managerial accounting. Cengage Learning.