AFE 3102 Auditing Written Assignment Nathan Gourmet Ltd3102AFE AuditingWritten AssignmentNathan Gourmet Ltd (Nathan) manufactures, supplies, and retails quality gourmet cooking ingredients to the home kitchen and sm

AFE 3102 Auditing Written Assignment – Nathan Gourmet Ltd

3102AFE Auditing

Written Assignment

Nathan Gourmet Ltd (Nathan) manufactures, supplies, and retails quality gourmet cooking ingredients to the home kitchen and small restaurant markets. Recently Nathan has extended its product range to include ‘ready-to-cook’ meals suitable for dinner parties, with customers ordering from a set menu. In addition, they have opened a number of small cafes where customers can sample the company’s product range.

 

Nathan currently has 25 outlets of varying sizes, and has undertaken a focused marketing and promotion strategy, and the acquisition of a number of smaller competitors over the past couple of years in order to expand its business.

 

Nathan’s management team is experienced, all managers having been with the company for more than five years, with the exception of the new Chief Finance Officer (CFO), who joined the company in May 2014.

 

Nathan installed a new computer system in August 2013. The system was installed by a professional computer company, and the old and new systems were run parallel for three months. The new system allows each outlet to process its own stocktake results, accounts payable invoices and payments. Management has experienced no major problems with the new system to date.

 

Your firm has acted as the external auditor of Nathan since 2010, and you are currently carrying out the planning for the 30 June 2014. Nathan has an internal audit group that may be able to assist you with this year’s audit for the first time.

 

Nathan has provided you with the following publish financial information in respect of the year ended 30 June 2014.

 

 

 

 

Nathan Gourmet Ltd

Income statement for the year ended 30 June 2014

  2014 2013
  $’000 $’000
Revenue    
Cafe revenue    
Food 75,445 76,520
Beverages 23,603 21,420
Other 9,000
Store revenue    
Food and beverages 203,368 189,610
Ready-to-cook range 11,560 15,932
Other revenue 6,560 3,098
Total revenue 329,536 306,580
 

Total cost of sales

 

177,056

 

159,132

Gross profit    
Cafe    
Food 46,770 53,270
Beverages 23,610 21,420
Other 8,730
Store    
Food and beverages 68,640 66,780
Ready-to-cook range 4,730 5,978
Total gross profit 152,480 147,448
 

Direct wages

 

18,312

 

22,198

Direct expenses – cafe 12,914 15,082
Direct expenses – stores _4,858 _7,072
Total direct expenses 36,084 44,352
Indirect expenses    
Advertising 266 370
Cleaning 2,748 2,560
Depreciation 4,210 4,196
Fees and permits 586 578
Indirect wages 13,424 14,610
Interest 16,538 10,422
Payroll on-costs 9,010 7,830
Repairs and maintenance 4,960 5,304
Security contractors _1,092 ___986
Total indirect expenses 52,834 46,856
Total expenses 88,918 91,208
Operating profit before tax 63,562 56,240
Income tax expenses
 

Net profit

______

$63,562

======

______

$56,240

======

 

 

 

 

 

Nathan Gourmet Ltd

publish statement of financial position as at 30 June 2014

    2014 2013
  Note $’000 $’000
Current assets      
Cash   100 64
Receivables (a) 34,858 24,690
Inventories   _67,262 44,640
Total current assets   102,220 69,394
 

Non-current assets

     
Receivables (a) 52 90
Property, plant and equipment (b) 436,642 442,314
Other (c) 95,190 70,296
Total non-current assets   531,884 512,700
Total assets   634,104 582,094
 

Current liabilities

     
Accounts payable and borrowings (d) 313,588 300,008
Provisions   _52,000 _56,000
Total current liabilities   365,588 356,008
 

Non-current liabilities

     
Borrowings (d) 44,000 44,000
Provisions   19,654 40,786
Total non-current liabilities   63,654 84,786
Total liabilities   429,242 440,794
 

Net assets

   

$204,862

=======

 

$141,300

=======

 

Shareholder’s equity

     
Share capital (100,000,000 shares @1 per share)   100,000 100,000
Reserves   120,000 120,000
Accumulated losses   (15,138) (78,700)
 

Total shareholder’s equity

   

$204,862

 

$141,300

 

 

 

 

Nathan Gourmet Ltd

Notes to the publish financial report

    2014 2013
    $’000 $’000
(a) Receivables – current    
  Trade debtors 36,858 26,510
  less Provision for doubtful debts (2,000) (1,820)
    34,858 24,690
  Receivables – non-current    
  Amounts owing from related parties ____52 ____90
  Amounts owing from related parties represents a 4 year loan made to CFO.

 

(b) Property, plant and equipment    
  Freehold land at cost 280,082 280,082
  Buildings at cost 148,380 148,380
  less Accumulated depreciation _(11,340) _(7,560)
  Total buildings 137,040 140,820
  Plant and equipment at cost 27,280 25,612
  less Accumulated depreciation (7,760) (4,200)
  Total plant and equipment _19,520 _21,412
  Total property, plant and equipment 436,642 442,314
       
(c) Other –non-current    
  Investment project    
  Capital works in progress at cost* 24,448
  Site lease, liquor and entertainment licence 6,200
  Development expenditure at cost 13,314
       
  Deferred tax asset 11,228 30,296
  Goodwill at cost 40,000 40,000
    95,190 70,296
 

 

* On 15 January 2014, Nathan entered into a number of agreements for the construction and development of a restaurant and entertainment complex, and its leasing upon completion. This is Nathan’s first venture into the hospitality industry.

     
Aggregate capital expenditure contracted for 30 June2014 for the construction and development of the restaurant and entertainment complex not provided for in the financial information.

 

  Payable no later than one year 57,728  
  Payable later than one year, not later than two years 33,432  
   

 

91,160  
           

 

(d) Accounts payable and borrowings – current    
  Bank overpublish (secured) 201,908 192,768
  Accounts payable 111,680 107,240
    313,588 300,008
  Borrowings – non-current    
  Secured loan _44,000 _44,000
 

The loans and other bank accommodation are secured against the remaining property, plant and equipment. These loans are subject to a covenant agreement which specified that the company maintain the following ratios:

· net tangible asset ratio which is positive

· a positive current ratio

 

 

Required:

(i) The Engagement Partner has requested you to carry out preliminary analytical procedures based on the publish financial information provided. She suggests that as a minimum, you address four profitability ratios (including gross profit margin for each individual cafe and store revenue, profit margin, return on total assets, and return on shareholders’ equity), three liquidity ratios [acid-test (quick) ratio, inventory turnover ratio, and days in inventory], and two solvency ratios (debt to total assets, and times interest earned) over the period 2013 to 2014. Use an Excel spreadsheet to calculate these ratios. Produce a working sheet which shows the formulae that you have used to calculate these ratios on Excel (10 Marks); and

 

(ii) Produce a covering memorandum to your Engagement Partner (no more than 1000 words) identifying FOUR (4) areas of inherent risk, and discuss the effects of your findings on your audit plan (10 Marks).

 

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