Aboom Ltd has been operating for several years in the agricultural sector. Its statement of financial position as at 31 December, 2012 is as follows:

Property, plant and equipment Investment

Current Assets

Inventories Receivables

Current Liabilities

Bank overdraft Trade payables Short Term Credit

Non- current liabilities

12% Medium-Term Facility Net Assets

Financed By

Stated Capital

Capital Surplus Income Surplus

Additional Information

36,800 50,700 10,000

GH

46,700 38,400 85,100

(97,500)

GH 350,800 40,200 391,000

(12,400) 378,600

(80,000) 298,600

400,000 26,400

(127,800) 298,600

GH 100,000 300,000 400,000

i) The Stated Capital is made up of:

Ordinary Share (1,000,000 shares @ GH 0.10 each) 14% cumulative Preference Shares

ii) The Preference Share dividends have not been paid for the past two years. The shareholders have agreed to waive this if the company can re-organize its operations.

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iii) The providers of short and medium term credit facilities are demanding immediate payment of interest which has been outstanding for the past four years. This has not been included in the accounts.

As an option, the providers are prepared to waive the interest plus 40% of the

medium-term facility if the directors can provide a suitable re-organisation plan.

iv) Obsolete inventories amount to GH 6, 200.

v) The present value of the future cash flows from investment as at 31st December 2012 was GH21,000. However, if it is sold on that date, the net sale proceeds would be GH16,400.

vi) A major customer Danso Ltd has gone into receivership. The liquidator has advised that creditors should expect not more than GH 0.15 in every cedi in respect of their account balances. Meanwhile, Danso owes 60% of the trade

receivables. Of the remaining 40%;

vii) The Property, Plant and Equipment Book Value

only 55% is also collectible.

were analyzed as follows: Break-up Re-valued

Value Amount GH GH 80,200 195,000 42,300 120,500 32,100 95,000

Land & Building Plant & Equipment Computers

GH 140,700 99,500 110,600

viii) Liquidation expenses would amount to GH 11,250.

ix) The short-term credit and bank overdraft are to be settled immediately. The

ordinary shareholders are prepared to take up new shares for this.

Required:

a) Advise the Directors of Aboom Ltd whether to re-organize the company or wind up.

b) Prepare a Statement of Financial Position as at 1 January 2013 if the company is re-

organized.