Accounting Auditing

[Name of the Institute]

Accounting Auditing

Risk analysis of Right now Ltd

A.

Right Now LTD

Balance Sheet

For the Year Ended 30th June 2012

Assets

Liability & Owners Equity

Current Assets

Liabilities

Cash

100000

Current Liability

Account Receivables

740000

Accounts Payable

690000

less Allowance for Doubtful Debt

-30000

Loan Payable

750000

Inventories

800000

Accrued Expense

60000

Marketable Securities

750000

Net Current Liabilities

1500000

Prepaid Expenses

60000

Long Term Liability

Total Current Assets

2420000

Convertibles Notes

2000000

Total Long Term Liabilities

2000000

Fixed Assets

Owners Equity

Land

180000

Ordinary Share Capital

1200000

Building

1560000

Retained Earning

670000

Accumulated Depreciation Building

-210000

Owners Equity

1870000

Equipments

1840000

Accumulated Depreciation -Equipments

-420000

Total Fixed Assets

2950000

Total Assets

5370000

Total Liability & Stock Holders' Equity

5370000

B.

Financial Ratio Analysis

Ratios

Formula

Current Ratio

Current Assets/Current Liability

1.613333

Quick Ratio

Current Asset-Inventories/Current Liabilities

1.08

Debt to Equity Ratio

Total Debt/Total Equity

1.871658

The current ratio of the company “Right Now LTD” is good enough, company also possess the quick ratio of 1.08 which is also sufficient. (Royer, 2012) The debt to equity ratio of the company is 1.87, which indicates that the majority of the assets are financed through debt. Company is relying on debt more on debt, and retaining more. Overall performance of the company is good.

C.

No the company did not meet the condition of the agreement as according to the agreement, the assets should be maintained that is being defined in the agreement as assets minus the liabilities except the convertibles bonds at an amount of not less than 2 % of the amount of convertibles bonds issued, though current ratio has been maintained but the assets minus liabilities are not less than two times of the amounts for the issuance of the convertibles bonds.i.e.:

Total Assets

5370000

Total Liabilities

2000000

3370000

Two times of convertibles bonds

4000000

The organization who purchases the convertibles bonds are interested in these ratios in order to maintain the ratio of current assets over the current liabilities and also if the net assets are twice of the liabilities, (Rouse, 2011) as the bonds have been purchased that are convertible bonds, maintaining that ratio would help the firm in the time of need to pay off the debt of the convertibles bonds.

D.

Right now Ltd is ...