Question 2 (20 marks)

Azania Motors is having a bad year. Net income is only R37000. Also, two important overseas customers are falling behind in their payments to Azania and the Accounts Receivable are increasing. The company desperately needs a loan. The Board of directors is considering ways to put the best face on the company's financial statements. Azania's bank closely examines cashflows from operations. Morati, Azania's financial controller suggests reclassifying some of the overdue Accounts receivables as long term or fixed assets. He explains to the board that removing the R80 000 increase in accounts receivable from Current Assets will increase net cash provided by operations. This approach may help Azania get a loan.

Required

1. Using only the amounts given, compute net cash provided by operations, both without and with reclassification of receivables. Which reporting makes Azania look better (5)

2. Identify the ethical issues (2 )

3. Who are the stakeholders? (2)

4. Analyse the issue from the economic, legal and ethical standpoint, what is the potential impact on all stakeholders? (5)

5. What should the board do? (2)

6. Under what conditions would the reclassification of the Receivables be considered (4)