Title | Engineering and Associates |
---|---|
Author | Anonymous User |
Course | Accounting |
Institution | Swinburne University of Technology |
Pages | 3 |
File Size | 112.6 KB |
File Type | |
Total Downloads | 45 |
Total Views | 153 |
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Engineering and Associates: a scenario about the demise of a company Mum and dad started the business back in the 1960’s making plastic “Learner plates”, before cardboard and sticker ones were introduced. The business soon grabbed the market for “L plates”. Throughout the 1970’s the business grew, with its first hired staff member in 1971 and going from partnership to corporate standing in 1972. But things really took off in 1979 when they got the contract to manufacture parts for Toyota’s production line. These came in the form of dashboards, hat shelf and centre console (arm rest console). For many years they successfully and profitably manufactured these plastic extrusion moulded car parts. They also got the contract to supply Ford Motor Company with similar parts. Eventually they were able to give up making plastic number plates. The company employed 100 workers at their peak. The parts were made to within 1/10,000 mm of possible error (calibration). Nowadays although dad still visited the site mum no longer was able or willing to go. The oldest son Craig is now the managing director and other family members were employed in various positions, including the Sarah the daughter-in-law as head of finance. Now although Sarah had no formal accounting training she has been given the role of supervising the accountant. The accountant, George, is not any relation of the family. George receives little help from Sarah and is very overloaded with work. Staff morale was poor because the family members paid little attention to their work, and went home as early as possible. They also drew money very generously from the company’s bank account for living and for other private purposes. SEE more details of this below the balance sheet. Then in the last five years things took a turn for the worse. It started out at the new car yards, where the demand for the Australian produced Toyotas and Fords had softened. The number of days that cars were on average in the yard increased significantly, from 58 days to 87 days. And this was with big discounts off the recommended price. The Toyotas and Fords found increased competition from established brands like Mazda, Honda and Nissan, but also new brands like Hyundai, Kia and Skoda. To make matters worse the Australian market is a small market by global standards, and the price of skilled labour and factory workers here is not very competitive when it comes to overseas car factories like in Thailand, South Korea and South Africa. Finally, the market in Australia was hit by the rising Aussie dollar which made imports cheaper. So a car produced overseas such as in South Korea became relatively cheaper. This made the locally produced Toyotas and Fords relatively more expensive. So eventually Ford decided to announce it was closing all its car plants in Australia; and Toyota followed with a similar decision only months later. All the parts manufacturers including Engineering and Associates, who had a contract with these car makers, including axle makers, seat makers, gear box makers were going to lose the majority of their customers and sales, in one big hit.
As the years passed and the announced date of closure of the Ford and Toyota plants loomed up, Engineering and Associates were caught off guard. They had anticipated the fall off in production when the last car in Toyota and Ford rolled off their assembly line, but they had not made serious enough attempts to start to diversify and approach new, potential customers. The competition in the plastic extruded moulding industry was fierce. Then disaster struck, with Craig being diagnosed with a rare and debilitating heart disease. Craig had to take a lot of time off work to attend hospitals for treatment. $000s Assets
$000s
Liabilities 250
Stock (note 11)
400
Bank Overdraft
Debtors (note 10)
360
Creditors (Note 2)
340
Sundry current assets (note 7)
ATO (Note 3)
175
670
Plant & Equipment at WDV (note 8)
7860
Accrued workers entitlements (Note 4)
Mot Vehicles at WDV (note 9)
120
Accrued workers redundancies (note 5)
Buildings (note 1)
800
Bank loan (20 years) (note 13)
2 850
Loan to director Craig (note 12)
870
Accrued expenses (Note 6)
25
875
Owner’s Equity
Shareholders’ Funds
Paid up capital (note 14)
1 000
Retained Earnings
4 815
TOTAL
11 000
11 000 TOTAL
What could be worse? Well things were about to be a whole lot worse. You see the company had always expanded, hiring staff full time and had plenty of work for them. They were not aware of
the difficulties involved in removing full time ongoing staff. There were enormous costs in paying out a lump sum for their annual leave and long service leave owing, but no one had warned them about the redundancy entitlements. Sure, enough the redundancy entitlements were in their EBA, but some staff had been with Engineering and Associates for over 30years and the redundancies for many of them were a payout figure of over $25,000 each. Each time they decided regrettably to let another worker go, they were going more into debt. Shown below is an unclassified Balance Sheet taken from their accounts at30 November 2019 (of last year.)...