Practice Work: Week 5 Q1. The following information is provided about Ricky Handwoven Carpets: ( in 000s)
Question:
Practice Work: Week 5
Q1. The following information is provided about Ricky Handwoven Carpets: ( in 000s)
| Ricky Handwoven Carpets | ||
| Balance Sheet | ||
| 2022 | 2023 | |
| Cash | 58 | 73 |
| Receivables | 4,579 | 3,928 |
| Inventories | 3,624 | 6,415 |
| Total Current Assets | 8,261 | 10,416 |
| Non Current Assets | ||
| Property Plant & Equipment | 28,763 | 25,049 |
| Receivables | 2,000 | 2,000 |
| Non-current assests | 30,763 | 28,626 |
| Total Assets | 39,024 | 37,465 |
| Current liabilities | ||
| Bank borrowings | 5,000 | 7,500 |
| Trade creditors | 2,500 | 2,473 |
| Provisions | 643 | 610 |
| Total Current Liabilities | 8,143 | 10,583 |
| Non-Current liabilities | ||
| Bank loan | 22,000 | 20,000 |
| Provisions | 547 | 510 |
| Total Non-current liabilities | 22,547 | 20,510 |
| Total liabilities | 30,690 | 31,093 |
| Net Assets | 8,334 | 6,372 |
| Equity | ||
| Contributed capital | 5,000 | 5,000 |
| Retained profits | 3,334 | 1,372 |
| Total Equity | 8,334 | 6,372 |
| Ricky Handwoven Carpets | ||
| Income statement | ||
| 2022 | 2023 | |
| Revenue | 20,007 | 19,943 |
| Expenses | 13,305 | 15,428 |
| Gross Profit | 6,702 | 4,515 |
| Operating Expenses | 3,486 | 3,047 |
| Profit before tax | 3,216 | 1,468 |
| Income tax expense | 1,254 | 572 |
| Net profit | 1,962 | 896 |
Additional information:
- Inventory value in 2021 was $992 and Account receivables in 2021 $2128 (in 000s).
- The company is a subsidiary of an American group quoted on the NYSE.
2. Your audit firm provides the audit report for the NY and the Australian office.
3. The company manufactures carpets and 80% is for export.
4. Wool, the primary raw material, is purchased in Australia. The management has informed you that the recent fall in wool prices has improved your profitability
5. The US parent company is displeased with the Australian subsidiaries performance in 2022 and intends to pay close attention to its performance in 2023.
6. 80% of the company's account receivables are overseas customers with a 60-day credit term.
7. There have been complains about the quality of the carpets.
Required:
- Perform the following ratio analysis.
| Current ratio | ||
| Quick ratio | ||
| Average inventories | ||
| Inventory turnover ratio | ||
| Accounts receivable turnover ratio | ||
| Return on sales ratio | ||
| Debt-to-equity ratio | ||
| Gross margin ratio |
2. Based solely on your calculations above, identify areas that you should investigate further. Explain why.
3. Identify the potential risk factors (financial and non-financial) that might indicate chances of fraud in the area of:
a. Inventories
b. Receivables
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