Accounting for Managers: Interpreting accounting information for decision-making

98 ACCOUNTING FOR MANAGERS

Table 7.11 Carrington Printers’ Balance Sheet

Fixed assets

Land and buildings at cost less depreciation 1,000,000

Plant and equipment at cost less depreciation 450,000

1,450,000

Current assets

Debtors 500,000

Inventory 450,000

950,000

Less creditors due within one year

Creditors 850,000

Bank overdraft 250,000

1,100,000

Net current liabilities −150,000

Total assets less current liabilities 1,300,000

Less creditors due after one year −750,000

Total net assets 550,000

Capital and reserves

Issued capital 100,000

Profit and loss account 450,000

Shareholders’ funds 550,000

gradual detrimental impact on Carrington that had taken place at the time of the
audit. Although aware of the cash flow tightening experienced by the company,
the auditors signed the accounts, being satisfied that the business could be treated
as a going concern.
As a result of the problems identified above, Carrington approached its bankers
for additional loans. However, the bankers declined, believing that existing loans
had reached the maximum percentage of the asset values against which they were
prepared to lend. The company attempted a sale and leaseback of its land and
buildings (through which a purchaser pays a market price for the property, with
Carrington becoming a tenant on a long-term lease). However, investors interested
in the property were not satisfied that Carrington was a viable tenant and the
propertywasunabletobesoldonthatbasis.
Cash flow pressures continued and the shareholders were approached to
contribute additional capital. They were unable to do so and six months after
the Balance Sheet was produced the company collapsed, and was placed into
receivership and subsequently liquidation by its bankers.