INDIVIDUAL ASSIGNMENT 2 (30%) CASE 1 Kinabalu Sdn Bhd (KSB) produces dairy products and has seasonal working capital requirements. These have been financed mainly by bank loans and overdraft facilities, now totalling RM1.2 million. A limit on dairy product prices and a new contract with the unions, which increased wages, caused a fall in the company's profit during the second half of 2018 and most of the financial year 2019. Sales increase over both these years due to an aggressive marketing strategy. In the early financial year 2020, the company's bank manager became aware of the deteriorating financial positions of KSB by studying a ratio analysis from the bank's computer system. This showed that specific key ratios, taken from the quarterly management account, were falling below the industry average and were moving downwards. The manager sent a copy of the analysis to the KSB's managing director, together with a letter expressing his concem. However, none of the ratios had fallen below the level specified in the loan agreement Three months later, the subsequent analysis showed that the current ratio had fallen below 2.0, the limit specified in the agreement. Legally, the bank could take action if the loan was not repaidin full within one month. The bank manager again forwarded the analysis to the managing director. However, this time the accompanying letter said that the bank would insist on immediate repayment of the loan unless it could show how the financial position could be improved. epaymezi The managing director said that the present sales level could not be continued without spending RM500,000 on extra plant and machinery in July 2020. This would need an increase in the loan and overdrafts from RM1.2 million to RM1.7 million. It is now July 2020. The accounts for the year ended 31 December 2019 are as follows: KSB Statement of Financial Position at 31 December 2019 2019 RM 1000 2018 RM 1000 2017 RM 1000 2016 RM '000 Fixed assets Land and buildings Plant and machinery Fixtures and fittings 540 200 510 430 490 630 260 740 200 20 30 120 960 1,060 950 1,200 Current assets Inventories Trade receivables Cash at bank 850 3,440 1,620 80 2,130 1,160 120 1,280 1,020 260 680 170 5,140 3,410 2,560 1,700 Current liabilities Trade payables Bank overdraft 800 1.750 590 1,050 130 620 0 0 1,180 800 620 2,340 2,800 Net current assets 2,230 1,760 1,080 Total assets Less: Current liabilities 3,760 3,290 2,710 2.280 Non-current liabilities Bank loan 600 300 0 0 3,160 2,990 2,710 2,280 Capital and reserves Issued share capital Accumulated profit Other reserves 850 1,630 680 850 1460 680 850 1,180 680 850 750 680 3.160 2,990 2,710 2.280 Acrobat Reader DC Sal Assignm... 37 66.7% le > KinondowStatement for the yerde 2015 2017 000 RM 500 2018 AMBOO Tumover Cost of Sales 114 11.00 11.00 30520 Groot 20 220 2210 TO 100 1780 130 360 Doncos A - Operating pro Despeye 600 0 TOO 250 Profile TY Nel Ne depreciation 60 50 00 310 dunyo 2017201 George Our 1 Cube brany Dettore Fondum Tec Pem 6 1 10 Meny C. Explain the sources of internal funds that are available to pay off the KSB's bank loan. (6 marks) INDIVIDUAL ASSIGNMENT 2 (30%) CASE 1 Kinabalu Sdn Bhd (KSB) produces dairy products and has seasonal working capital requirements. These have been financed mainly by bank loans and overdraft facilities, now totalling RM1.2 million. A limit on dairy product prices and a new contract with the unions, which increased wages, caused a fall in the company's profit during the second half of 2018 and most of the financial year 2019. Sales increase over both these years due to an aggressive marketing strategy. In the early financial year 2020, the company's bank manager became aware of the deteriorating financial positions of KSB by studying a ratio analysis from the bank's computer system. This showed that specific key ratios, taken from the quarterly management account, were falling below the industry average and were moving downwards. The manager sent a copy of the analysis to the KSB's managing director, together with a letter expressing his concem. However, none of the ratios had fallen below the level specified in the loan agreement Three months later, the subsequent analysis showed that the current ratio had fallen below 2.0, the limit specified in the agreement. Legally, the bank could take action if the loan was not repaidin full within one month. The bank manager again forwarded the analysis to the managing director. However, this time the accompanying letter said that the bank would insist on immediate repayment of the loan unless it could show how the financial position could be improved. epaymezi The managing director said that the present sales level could not be continued without spending RM500,000 on extra plant and machinery in July 2020. This would need an increase in the loan and overdrafts from RM1.2 million to RM1.7 million. It is now July 2020. The accounts for the year ended 31 December 2019 are as follows: KSB Statement of Financial Position at 31 December 2019 2019 RM 1000 2018 RM 1000 2017 RM 1000 2016 RM '000 Fixed assets Land and buildings Plant and machinery Fixtures and fittings 540 200 510 430 490 630 260 740 200 20 30 120 960 1,060 950 1,200 Current assets Inventories Trade receivables Cash at bank 850 3,440 1,620 80 2,130 1,160 120 1,280 1,020 260 680 170 5,140 3,410 2,560 1,700 Current liabilities Trade payables Bank overdraft 800 1.750 590 1,050 130 620 0 0 1,180 800 620 2,340 2,800 Net current assets 2,230 1,760 1,080 Total assets Less: Current liabilities 3,760 3,290 2,710 2.280 Non-current liabilities Bank loan 600 300 0 0 3,160 2,990 2,710 2,280 Capital and reserves Issued share capital Accumulated profit Other reserves 850 1,630 680 850 1460 680 850 1,180 680 850 750 680 3.160 2,990 2,710 2.280 Acrobat Reader DC Sal Assignm... 37 66.7% le > KinondowStatement for the yerde 2015 2017 000 RM 500 2018 AMBOO Tumover Cost of Sales 114 11.00 11.00 30520 Groot 20 220 2210 TO 100 1780 130 360 Doncos A - Operating pro Despeye 600 0 TOO 250 Profile TY Nel Ne depreciation 60 50 00 310 dunyo 2017201 George Our 1 Cube brany Dettore Fondum Tec Pem 6 1 10 Meny C. Explain the sources of internal funds that are available to pay off the KSB's bank loan. (6 marks)