Aboom Ltd has been operating for several years in the agricultural sector. Its statement of financial position
Question:
Aboom Ltd has been operating for several years in the agricultural sector. Its statement of financial position as at 31 December, 2012 is as follows:
Property, plant and equipment
Investment
Current Assets Inventories Receivables
Current Liabilities
Band overdraft 36,800
Trade payables 50,700
Short Term Credit 10,000
Net current liabilities
12% Medium-Term Facility
Net Assets
Financed By Stated Capital Capital Surplus Income Surplus
GHC GHC
350,800
40,200
391,000
46,700
38,400
85,100
(97,500)
(12,100)
378,600 (80,000)
298,600
400,000
26,400 (127,800)
298,600
Additional Information
1) The Stated Capital is made up of:
GHC Ordinary Share (1,000,000 shares @ GHC0.10 each) 100,000
14% cumulative Preference Shares 300,000
400,000
2) The Preference Share dividends have not been paid for the past two years. The shareholders have agreed to waive this if the company can re-organize its operations.
3) The providers of short and medium term credit facilities are demanding immediate payment of interest which has been outstanding for the past four years. This has not been included in the accounts. As an option, the providers are prepared to waive the interest plus 40% of the medium-term facility if the directors can provide a suitable re-organization plan
4) Obsolete inventories amount to GHC6,200.
5) The present value of the future cash flows from investment as at 31st December 2012 was GH¢21,000. However, if it is sold on that date, the net sale proceeds would be GH¢16,400.
6) A major customer – Danso Ltd has gone into receivership. The liquidator has advised that creditors should expect not more than GHC0.15 in every cedi in respect of their account balances. Meanwhile, Danso owes 60% of the trade receivables. Of the remaining 40%; only 55% is also collectible.
8) Liquidation expenses would amount to GHC11,250.
9) The short-term credit and bank overdraft are to be settled immediately. The ordinary shareholders are prepared to take up new shares for this.
Required:
(i) Advise the Directors of Aboom Ltd whether to re-organize the company or wind up.
(ii) Prepare a Statement of Financial Position as at 1 January 2013 if the company is re-organized.
Expert Answer:
i Advice to the Directors of Aboom Ltd whether to reorganize the company or wind up Based on the information provided it appears that Aboom Ltd is fac... View the full answer
