Clean Air Ltd (Clean Air) had been a successful air conditioner manufacturer for many years. During the
Question:
Clean Air Ltd (Clean Air) had been a successful air conditioner manufacturer for many years. During the past two years, Clean Air has conducted research into new environmentally friendly ways to cool air without using electricity. In 2018, Clean Air made a decision to raise capital to enable it to conduct more research. It also planned to expand its business by manufacturing portable solar powered air conditioners. The board estimated it would need $100,000. After much consideration the Board decided to borrow the $100,000.00 from Vast Bank. Vast Bank would provide the loan only if Clean Air granted the bank a security interest over Clean Air’s assets. For some months Clean Air’s business expanded as planned but then a competitor, Pure Air Pty Ltd, developed a more effective solar powered air conditioner and Clean Air’s sales began to decline rapidly. Clean Air is now finding it hard to pay its contractors and suppliers on time and is failing to make regular loan repayments to Vast Bank. It is also experiencing serious cash flow problems and can no longer pay the lease payments on its factory. The directors of Clean Air approach you for advice.
Required:
a) Discuss whether, based on the facts given, the company is solvent.
b) Discuss what course of action the directors should take if they are concerned about the company’s solvency.
c) Discuss whether Vast Bank can appoint a receiver. Assuming it can, explain the process of such an appointment.
Ethics in Accounting A Decision Making Approach
ISBN: 978-1118928332
1st edition
Authors: Gordon Klein