Question

Using analytical procedures to assess risk at Emms Ltd

Emms Ltd, is a manufacturer of laser printers. Tyrone has closely scrutinised the financial reports of the company and is concerned about its status as a going concern. Tyrone has calculated various ratios which are provided below.

	2016	2017	2018	2019
Net profit ratio	-0.5%	-7%	-6%	-10%
Gross profit ratio	12%	11%	13%	12%
Current ratio	0.8:1	0.7:1	0.7:1	0.7:1
Quick asset ratio	0.4:1	0.31:1	0.35:1	0.38:1
Debt to total assets ratio	66%	92%	96%	98%
Inventory turnover	4.5	4.6	4.4	4.2
Receivables turnover	5.5	5.4	5.3	4.1

Tyrone also tells you that in an attempt to expand into overseas markets, Emms automated a lot of its operations in 2017 with the purchase of some highly sophisticated plant and machinery. The new plant and machinery was largely financed with a secured variable loan of $50,000 and a bank overdraft facility.

Emms purchases the parts that make up the printers from a variety of local and overseas suppliers. Emms has plans to broaden its sales base to both local and overseas markets (currently 85% of its sales are to one discount office supplies chain). This broadening of the company's sales base revolves around the development and production of a state of the art printer that will be tailored to meet the needs of the premium end of the market. The development of the new printer however will require a significant injection of capital that the directors hope will come via a new public issue of shares and promises of loans and other forms of assistance from business acquaintances of the CEO.

Question 3

• Emms Ltd’s going concern, with reference to the ratios and the other information provided.
• Other audit techniques Tyrone can use to indicate whether Emms Ltd has a going concern problem.

Answer 1

Inventory that C-c of company is a good to very Good are not Turnover Ratio It is also not 4.6 . So All the above ensure Ratio Other Techniques to indicate Going contern Statuse o financial Measures & credit to or Net current • Adverse key financial Realid Negative operating cash flows. • Indication of withdrawks of financial Support bycreditors inability to comply with tums of loan Agrements changes from •Net Liability ccybe on delivery transachone liability position. © - Opeyaring masures: Management Intention to líquidate the entity loss of key Management without Replacement Difficulties loss of Major" Markets . Emergence of Highly successful compehtors. Othey Measures : Labour . 3 Non complianu with capital and statutory requirements Government Policy Gninsured or undey inswird catastrophy when they Advorse occur. REDMI NOTE 5 PRO

Determinaron y Gysing concern status using Analytical O Preotechures ③. Net Profit Ramo . percentage was It 바 can 12% 2016 2017 -0.5% -7% Co. is facing, loss continuously continuously. In 2016 Net loss 0:37, got increased in 2017 to 7%. Inreusly impact Going Concern Status of company ② - Gross profit Raho Gross profit Radio is also decuasing 3 Current Raho 0:8:1 0.7: 1 Current Assets current liabilities This raho is below 1 ie current liabilities are in excess of woont Assets the worst situation. Going cancern status may be in danger 6. Quick Ralio 0.4:1 0.31:1 cwiet Asset - Inventory current liabilities an indicahr of company's short-term liquidity position and measures company's ability to meet its Short term obligation with its most liquid assets This ratio is also showing negative sign towards Cy-C. 6 - Debt to Tostal Assets Ratio 66% in 2017, it's & 92% of Total Assets are finanud cruditors. It has negative impact lysing Concern. It is 92% by 병