ACFI3005 : Auditing and Assurance Sportastic is an Australian Listed Company - Accounting Assignment Help

Assignment Task:

Task:

Background

Sportastic is an Australian listed company producing luxury, high-tech and specialised sport shoes. The company receives its stock from production suppliers in China and distributes its products in Australia. The company has consistently maintained its profit after tax rate at around 10% annually up to the year ended June 2021, providing shareholders with a consistent dividend stream.

To stay competitive in the industry, from August 2020 the company launched a new model, where the lower mould can automatically adjust itself to avoid foot injury. The company has already made a substantial investment acquiring assets for this new model. While this new model has a short three-year lifecycle, the board of directors have been convinced that the new product will help to increase revenues by 10% and maintain the profit rate. To finance the new product investment, the company borrowed an additional $4 000 000 in September 2020 for three years. In addition, a long-term loan of $5 000 000 is due in August, 2021.

Production of the new model has been undertaken by the current suppliers in China. The new model was released to the Australian market in January 2021. Significant marketing costs to promote the new product, followed by an ongoing advertising campaign, have resulted in a large increase in promotional expense. Based on actual figures for the first six months ended 31 December 2020, the company released to the public a forecast of a 10% profit after tax rate for the year ended 30 June, 2021. As advised by management, turnover has not been impacted by COVID lockdowns due to strong demands from online sales.

The sporting product industry has become quite competitive since 2019, particularly with new large international players from the US and France entering the Australian market, offering high-tech shoes at very affordable prices. While the new Sportastic product generated a high level of revenues since being released, there has been an increase in product returns due to technical problems and an increase in negative feedback from customers. In addition, there have been issues related to poor quality control from suppliers in China. A few shipments were returned for repair. However, it has been reported that invoices for these shipments were fully paid. Sportastic pays its suppliers in USD, and there has been a sensitive fluctuation of exchange rates between AUD and USD due to market uncertainties, particularly in light of the trade disputes between Australia and China.

In the last nine months, there have been issues reported related to the process of handling customer returns and the unusual high amount of product returns recorded. For products having technical issues, customers are allowed to return the faulty item to a store within 12 months. Store staff can then write off the item returned and provide customers with a new item. Most store staff are young and employed on a casual basis, often moving on after a year or two. The company is using a perpetual inventory system, where all stock movements are captured and current balance of stock is always available. Stocktakes are conducted annually, at the end of the financial year.

Financial Information:

Estimated Actual Actual

Account 30-Jun 30-Jun 30-Jun 2021 2020 2019

Sales Revenue 157,309,796 143,008,906 135,425,100

Product returns -7,078,941 -2,574,160 - 2,708,502

FX Gain/Loss 805,041 -11,230 120,301

Other Revenue 4,460,400 1,001,062 712,356

Total revenue 155,496,296 141,424,578 133,549,255

COS 83,374,192 81,515,076 78,546,558

Salaries expenses 28,315,763 21,451,336 20,313,765

Administration expenses 11,011,686 10,010,623 8,125,506

Selling expenses 7,865,490 5,720,356 5,417,004

Borrowing Costs 3,845,700 3,311,423 2,945,001

Total expenses 134,412,831 122,008,815 115,347,834

Profit before income tax 21,083,466 19,415,763 18,201,421

Income Tax expense 5,270,866 5,048,098 4,550,355

Profit after income tax 15,812,599 14,367,665 13,651,066

Current assets

Cash 10,650,120 12,061,680 10,575,150

Accounts Receivable 21,845,000 20,580,400 18,757,824

Inventory 16,102,457 13,254,785 12,540,125

Total current assets 48,597,577 45,896,865 41,873,099

Non-current assets

Property, plant and equipment 25,140,124 19,250,123 18,600,825

Intangible assets 9,845,145 7,420,154 7,543,500

Total non-current assets 34,985,269 26,670,277 26,144,325

Total assets 83,582,846 72,567,142 68,017,424

Current Liabilities

Accounts Payable 22,564,012 20,156,000 19,875,050

Interest Bearing Liabilities 7,500,000 6,500,000 8,500,000

Total current liabilities 30,064,012 26,656,000 28,375,050

Non-current liabilities

Deferred tax liabilities 1,400,451 2,650,041 2,580,147

Interest-bearing liabilities 22,000,000 18,000,000 16,500,000

Total non-current liabilities 23,400,451 20,650,041 19,080,147

Total liabilities 53,464,463 47,306,041 47,455,197

Equity 30,118,383 25,261,101 20,562,227

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