Question: FINANCIAL ACCOUNTING : Question 2 Motsweding (Pty) Ltd is a medium size company that plans to acquire a large tract of land for its business

FINANCIAL ACCOUNTING : Question 2

Motsweding (Pty) Ltd is a medium size company that plans to acquire a large tract of land for its business expansion project. It has since applied for a significant loan amount from First Finance Bank to purchase the land.

The company hold current assets of R1 900 000 (R430 000 in cash) and current liabilities of R1 075 000. First Finance declined the loan application for several reasons including that the current ratio was below the industry benchmark of 2:1.

When Motsweding (Pty) Ltd was informed of the loan decline, the Financial Controller immediately paid R420 000 that was owed to several trade creditors. The company subsequently requested First Finance Bank to reconsider its loan application.

Required: 2.1 Based on the above-mentioned information, would you recommend that First Finance approve the loan application? Substantiate your recommendation. (10)

2.2 Do you consider the Financial Controllers actions ethical?

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