Question

Please answer if you have the correct knowledge becuase this is the second times i posted this question. i was not happy with the last answer. For example , Question d), the answer so short and general, and not answer the qestion properly. Thank you so much.

Balance Sheet
For Magnificent Homeware Ltd
As At 31 March 2018
	2018		2017			2016
	$(000)		$(000)			$(000)
Current assets
Bank	-		-			1,804
Accounts receivable	5,200		3,250			1,620
Allowance for bad debts	(210)		(350)			(380)
Inventory	4,120		2,550			1,850
Total current assets	9,110		5,450			4,894
Non-current assets
Plant & equipment	5,480		4,900			4.300
Retail shop Wellington	2,000		-			-
Total non-current assets	7,480		4,900			4.300
Total assets	16,590		10,350			9,194
Current liabilities
Bank overdraft	380		350			-
Mortgage	200		100			100
Accounts payable	2,200		2,026			2,890
Total current liabilities	2,780		2,476			2,990
Non-current liabilities
Mortgage	3,000		1,600			1,600
Total liabilities	5,500		4,076			4,540
Net assets	10,810		6,274			4,654
Shareholders’ equity
Shares	200		200			200
Retained profits	6,074		4,454			3,036
Net profit after tax for the year	4,536		1,620			1,418
Shareholders’ equity	10,810				6,274			4,654

b) Using the financial information above, provide analytical calculations (supported by formulae and figures) for the purpose of reviewing the financial performance and the financial position of Magnificent Homeware Ltd. Your focus should be to highlight matters of significant concern and trends that appear unusual.  


c) From the analysis in (b) above, what are the audit risk factors for inventory and accounts receivable?

d) How would the financial statement analysis in (b) above assist to plan your audit approach for Magnificent Homeware Ltd?

e) From the information above (excluding the financial statements) list the potential problem areas and any major concerns (where there could be risk or material misstatement) that you will need to consider as part of the plan for the 2018 audit for this company. You must provide brief reasons why each of the areas you have listed require special consideration. You should be able to comment on at least 10 areas.

Answer 1

(b)

Ratio Analysis

1. Current Ratio= Current Assets/Current Liabilities

Particulars	2018	2017	2016
Current Assets	9110	5450	4894
Current Liabilities	2780	2476	2990
Ratio	3.28	2.20	1.64

The current ratio is increasing year by year. It means that the company's current assets are sufficient to fulfill it's current liabilities. the company is capable of meeting its short term commitments.

2.Long term Debts to Equity Ratio

Particulars	2018	2017	2016
Long Term Debts	3000	1600	1600
Equity	10810	6274	4654
Ratio	.0.28	0.26	0.34

Analysis- An ideal Long-term Debt to Equity ratio should be 2. the debts of the compny are not even equal to the equity.The company is not leveraged. It can take the tax benfits of leverge by using more debt in it's capital Structure.

3. Return on Equity

Profit after taxes/ Shareholder's fund

Working note : Shreholder's fund= Opening Shares+Retained Earnings

Particulars	2018	2017	2016
Profit	4536	1620	1418
Shareholder's fund	6274	4654	3236
Ratio	72.30	34.81	43.82

The company's profitability is increased this year.

(c) In the absence of information for sales for the years, analysis for inventory and account receivables is not done.