Required

From the scenario below identify features which might cause you to have doubts about Truckers' going concern status:

You are planning the audit of Truckers Co whose principal activities are road transport and warehousing services, and the repair of commercial vehicles. You have been provided with the draft accounts for the year end 30 June 20X2.

Draft 20X2 Actual 20X1

$'000 $'000

Summary income statement

Revenue 10,971 11,560

Cost of sales (10,203) (10,474)

Gross profit 768 1,086

Administrative expenses (782) (779)

Finance costs (235) (185)

Profit/(loss) for the period (249) 122

Summary balance sheet

Non-current assets 5,178 4,670

Current assets

Inventories of parts and consumables 95 61

Receivables 2,975 2,369

3,070 2,430

8,248 7,100

Share capital and reserves 3,544 3,793

Non-current liabilities

Bank loan 750 1,000

Finance lease liabilities 473 -

1,223 1,000

Current liabilities

Bank loan 250 -

Overdraft 1,245 913

Trade payables 1,513 1,245

Finance lease liabilities 207 -

Other payables 203 149

3,481 2,307

8,248 7,100

You have been informed by the managing director that the fall in revenue is due to:

The loss, in March, of a long-standing customer to a competitor; and

A decline in trade in the repair of commercial vehicles.

Due to the reduction in the repairs business, the company has decided to close the workshop and sell the equipment and spares inventories. No entries resulting from this decision are reflected in the draft accounts.

During the year, the company replaced a number of vehicles funding them by a combination of leasing and an increased overdraft facility. The facility is to be reviewed in January 20X3 after the audited accounts are available.

The draft accounts show a loss for 20X2 but the forecasts indicate a return to profitability in 20X3 as the managing director is optimistic about generating additional revenue from new contracts.