Question

Ulysses Polytropos Ltd is an Australian company which manufactures travel products including suitcases, backpacks, wallets, hiking gear, clothing and other sundry travel-related items. The market for these products is characterised by fashion conscious customers, innovation in design, high levels of competition and product costs pressure from cheaper but high quality-products from a variety of manufacturers around Asia. The market continues to grow which creates new opportunities but also attracts new entrants into the market. Ulysses Polytropos operates at the high quality, and high price, end of the market and has in recent years seen a decline in demand for its products despite the overall buoyant market. This has been attributed to demand for cheaper products as well as domestic customers buying online from around the world. In order to address this decline, the company has tried to change its research and development division but has struggled to attract employees with the vision to take the company forward.

In order to reduce production costs, the organisation invested in new manufacturing plant and reorganised the factory layout to create more efficient processes. This required a significant investment, only some of which was able to be financed by long-term bank loans. Ulysses Polytropos has fully drawn down on its bank overdraft facility, the banks are unwilling to provide further funds and, in order to manage cash flows, creditor payment days have extended, leading to difficult relations with some key suppliers who will no longer do business with the company.

The forecast for the coming 12 months shows the cash position worsening so additional funds will be required to allow the company to continue meeting its obligations. The directors believe that it will take another 18 to 24 months to turn the business around and move back into profitability. The bank overdraft is being reviewed in two months’ time and the directors are confident that additional funds will be made available to allow the company to continue to trade for the next two years and then they will see the business become successful again.

Required:

1. Identify and explain any indicators that there are doubts about Ulysses Polytropos Ltd’s ability to continue as a going concern.

2. Identify the procedures you would carry out to determine if Ulysses Polytropos was a going concern.

Answer 1

1.

The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to carry out its commitments, obligations, objectives, and so on. In other words, the company will not have to liquidate or be forced out of business.

SO in Case there is

First Indicator of Doubt about Going Concern is Research & Development not take place as they meet the market requirement that is market want Fashionable and attractive product but after the change or R&D Division they also Fail.

Second Indicator is that Creditor payment extended and leading to difficult relations with some key suppliers who will no longer do business with the company ,which is also not good sign to carry on going concern.

Third Indicator is cash position worsening

Ulysses Polytropos has fully drawn down on its bank overdraft facility, the banks are unwilling to provide further funds and, in order to manage cash flows.

But there is Still hope to continue as going concern

2.

procedures to carry out to determine Ulysses Polytropos was a going concern is that there is

directors believe that it will take another 18 to 24 months to turn the business around and move back into profitability.and there is some of lenders provide long term loans,

bank overdraft is being reviewed in two months’ time and the directors are confident that additional funds will be made available to allow the company to continue to trade for the next two years and then they will see the business become successful again.

So upto 2 year they become suffer some loss but thereafter they make profit.