Ulysses Polytropos Ltd is an Australian company which manufactures travel products including suitcases, backpacks, wallets, hiking gear, clothing and other sundry travel-related items. The market for these products is characterised by fashion conscious customers, innovation in design, high levels of competition and product costs pressure from cheaper but high quality-products from a variety of manufacturers around Asia. The market continues to grow which creates new opportunities but also attracts new entrants into the market. Ulysses Polytropos operates at the high quality, and high price, end of the market and has in recent years seen a decline in demand for its products despite the overall buoyant market. This has been attributed to demand for cheaper products as well as domestic customers buying online from around the world. In order to address this decline, the company has tried to change its research and development division but has struggled to attract employees with the vision to take the company forward.

In order to reduce production costs, the organisation invested in new manufacturing plant and reorganised the factory layout to create more efficient processes. This required a significant investment, only some of which was able to be financed by long-term bank loans. Ulysses Polytropos has fully drawn down on its bank overdraft facility, the banks are unwilling to provide further funds and, in order to manage cash flows, creditor payment days have extended, leading to difficult relations with some key suppliers who will no longer do business with the company.

The forecast for the coming 12 months shows the cash position worsening so additional funds will be required to allow the company to continue meeting its obligations. The directors believe that it will take another 18 to 24 months to turn the business around and move back into profitability. The bank overdraft is being reviewed in two months time and the directors are confident that additional funds will be made available to allow the company to continue to trade for the next two years and then they will see the business become successful again.

Required:

1. Identify and explain any indicators that there are doubts about Ulysses Polytropos Ltds ability to continue as a going concern. (15 Marks)

2. Identify the procedures you would carry out to determine if Ulysses Polytropos was a going concern. (15 Marks)