The Wright family owns Medequip Pty Ltd, which imports medical equipment and distributes it to doctors and hospitals. They are considering borrowing $80 000 to purchase a new delivery van that will help to increase sales by approximately 10%-20% within the following year.
Medequip owners believe they have an outdated computer system which does not allow for an efficient way of preparing accounts and financial statements. The owners are considering updating the software and hardware of their computing system. They estimate that the updated system which will cost around $32000. Is it worth spending this amount?
The Wright family also wants to maximise their profits by not declaring all cash sales and using the personal expenses to claim as tax deductible items with the Australian Taxation Office (AT0). They believe this would help the business pay less company tax to the government. Provide advice on this practice.
You have been employed as a junior accountant at KPMG and your boss has given you a project, which is to analyse Medequip’s performance. Using the information provided and your calculations, prepare a report that will help the shareholders of Medequip Pty Ltd if it is advisable to borrow to finance the purchase of a new delivery van and if so what method of finance would be best. In your report provide advice to the Wright family by discussing:
- the trends in liquidity, solvency and profitability to help decide on whether to purchase the vehicle and computing system and the best way of financing these assets
- some major factors the owners should consider and how the updated system would benefit the business
- the ethical and legal considerations and consequences for not disclosing accurate financial information to the ATO
required for staff to operate the new system. They need to take into account the cost of training and time required to train personnel. If this is too expensive and involves too much disruption that may jeopardise earnings, then it might not be worthwhile in upgrading the computer system yet. The level of security is also important to consider as information should be treated confidential, and the owners must decide the number of staff they would provide access to the data.