TT Ltd$.$

TT is a large, privately owned supermarket retail group based in the UK$.$ It

has a total of $30$ stores throughout the UK$.$ The business is family owned

and was founded by Gene Cooper who has recently stepped down as

chairperson. From $20$X$3,$ the business has been run by one of Gene's

children, Lindsay.

The company has always been debt averse but there is evidence that the

business is being held back by a lack of capital investment, especially in the

key areas of online sales and store layouts. As a result, Lindsay is

considering borrowing $200m$ to fund the cost of developing an online sales

division $($TT has no online sales activity at present$).$ The finance director also

wants to invest in a new double entry bookkeeping system as the current one

has led to misstatements and errors in the financial statements. Lindsay is

not convinced this is an important or beneficial investment, however.

TT are notorious for centralising services and functions, and the company has the

highest operating gearing ratio in the sector. Lindsay wants to continue with this

policy and has plans to centralise more retail store functions which will require

relocating staff to the head office. Many of these relocated staff will be required to

work on the new online sales project. As part of the year X$2$ audit, TT$\text{'}$s auditors

noticed that the organisation's incremental budgeting system required managers to

provide very little justification for their budget requests. They also identified

significant budgetary slack in TT$.$

$1)$ Comment upon the results of your ratio analysis and TT$$s operating

gearing ratio?

$2)$ Identify some of the key advantages for TT should they choose to invest in

an effective, automated bookkeeping system?