Auditing and Assurance Services

Auditing and Assurance Services

Balance sheet of Rightnow Ltd as of 30th June 2012

The Trail Balance of Roghtnow Lts for the year 2012 ended on 30th June is as follow:

RightnowLtd

Adjusted Trial Balance

As at 30th June 2012

Debits

Credits

Cash at bank

100,000

Marketable securities

750,000

Accounts receivable

740,000

Allowance for doubtful debts

30,000

Inventories

800,000

Prepaid expenses

60,000

Land

180,000

Buildings

1,560,000

Accumulated depreciation - buildings

210,000

Equipment

1,840,000

Accumulated depreciation- equipment

420,000

Accounts payable

690,000

Loan payable (due 30 June 2013)

750,000

Accrued expenses payable

60,000

Convertible notes

2,000,000

Share capital- ordinary

1,200,000

Retained earnings

670,000

6,030,000

6,030,000



Based on the trail Balance the balance sheet for the year ended 2012 as on 30th June is as follow:

RightnowLtd

Adjusted Trial Balance

As at 30th June 2012

 

Debits

Credits

Assets

 

 

Current Assets

 

 

Cash at bank

100,000

 

Marketable securities

750,000

 

Accounts receivable

740,000

 

Allowance for doubtful debts

 

30,000

Inventories

800,000

 

Prepaid expenses

60,000

 

Tital Current Assets

 

2,420,000

Fixed Assets

 

 

Land

180,000

 

Buildings

1,560,000

 

Accumulated depreciation - buildings

 

210,000

Equipment

1,840,000

 

Accumulated depreciation- equipment

 

420,000

Total Fixed Assets

 

2,950,000

Total Assets

 

5,370,000

Liabilities

 

 

Current Liabilities

 

 

Accounts payable

 

690,000

Loan payable (due 30 June 2013)

 

750,000

Accrued expenses payable

 

60,000

Total Current Liabilities

 

1500,000

Long term Liabilities

 

 

Convertible notes

 

2,000,000

Total Long term Liabilities

 

2,000,000

Total Liabilities

 

3,500,000

Shareholder Equity

 

 

Share capital- ordinary

 

1,200,000

Retained earnings

 

670,000

Total Shareholder equity

 

1,870,000

Total Shareholder equity and Liabilities

 

5,370,000

Ratio Analysis with respect to Convertible Notes

The convertible notes is a financial instrument that a company uses as a means of investment in a trust or company. The company whoso ever buys the convertible notes as a source of money and pays certain interest rate and requires to be paid back at the date of expiration. However, there is an option available on convertible notes that it could be either paid back in monetary value or in form of ownership in terms of shares or units from the company. The conversion note agreement taken into consideration by the rightnow Ltd states that. Rightnow Ltd has issued convertible notes under an agreement to maintain net assets, defined in the agreement as assets minus all liabilities except the convertible notes, at an amount not less than 2 times the amount of the convertible notes issued. Also under the agreement, current ratio is to be maintained at not less than100%of the convertible notes issued. Based on this agreement the comparative ratios have been calculated to take into account the current financial position of the company. In an effort to analyze the liquidity position of the company because convertible note agreement is linked to the liquidity and activity performance of the company. Therefore the financial ratios of the Rightnow Ltd reflecting the relevant performance of the company are described and estimated below.

Liquidity Ratios

Liquidity ratios measure the company's capability to pay its debt commitment in time. We have measured two ratios of liquidity to evaluate Rightnow Ltd ability to fulfill its debt obligations.

 

Current Ratio

Current ration is the measures the company's capacity to fulfill its short term commitments, it is computed by dividing current liabilities to current assets The current ratio of Rightnow Ltd is calculated as 1.613. This reflects the very strong liquidity position of the company mainly because of maintenance of higher net assets which is calculated as 1,870,000 and total assets of 5,370,000 in comparison of total liabilities of 3,500,000. The current assets are comprised of cash at bank. Marketable securities, accounts receivables, inventories, and prepaid expenses, where as the current liabilities are comprised of loan payable, accounts payable and accrued expenses ...