Question

From January 2015, Coffees R Us Pty Ltd (“CRU”), a small café, has rented space from Strip Shop Retailers Pty Ltd (“SSR”) at a strip of shops on Smith St. A clause in the lease agreement between CRU and SSR limits SSR from leasing any of the other shopfronts in Smith St to a direct competitor of CRU.

As at September 2017, CRU had accumulated debt of $6000 to SSR in late rental fees. CRU argued that it had suffered loss of trade as a result of SSR’s decision to rent space to another café, Organic Coffee Culture Pty Ltd (“OCC”), two doors down from CRU in April 2017, and that it was justified in not paying rent because it had lost more than $6000 in trade due to this alleged breach of the lease agreement.

In October 2017, SSR served a statutory demand upon the registered office of CRU under section 459E of the Corporations Act 2001 (Cth). The registered office was the office of CRU’s solicitors, however the company’s regular solicitor was on leave and did not bring the demand to the attention of CRU until 30 days had passed from the date of service. The solicitor advised CRU that it was too late to bring an application to set aside the statutory demand but that, if SSR applied to wind up CRU, CRU could then oppose the application. CRU told its solicitor that it is not in a position to pay the $6000 claimed by SSR, but that it is able to meet all other debts as they fall due.

On the 15^th of November 2017, SSR filed an application to wind up CRU under section 459P of the Corporations Act 2001 (Cth) relying on the presumption of insolvency arising under the statutory demand procedure.

A.    Advise Coffees R us Pty Ltd whether they can oppose SSR’s application to wind up the company and on what basis. [12 marks]

Answer 1

Coffees R us Pty Ltd

Ratio is an arithmetic tool which shows the relationship between any two figures. Financial ratios are the metrics used to derive quantitative relationship between financial items of financial statements to evaluate, analyze, and interpret the profitability, and overall performance of a company.

Return on investment is a financial metric which quantifies the earning power of the investment. It evaluates the profitability of the investor. ROI is expressed as a percentage.

Formula of ROI:

A high ROI indicates that the investment is efficient. On the other hand, a lower ROI indicates the inefficiency of the investment to earn profit.

Uses of ROI:

• Measure the profitability of the investment.

• ROI is used to compare the profitability of all investments of an investor which cautions the investor to settle with the highest ROI.

Limitations of ROI:

• ROI does not consider the holding period of the investment.

• ROI does not consider the non-financial benefits of the investment.

• Based on the investor's requirement, ROI computations can be easily adjusted to suit the requirements which might reveal entirely different results. Such results cannot be compared.

See more Accounting topics

Lesson on Return On Investment (roi)