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.