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ACC 20013: Accounting, Economics and Finance

   

Added on  2020-03-16

12 Pages2992 Words51 Views
Running Head: ACCOUNTINGAccountingName of the Student:Name of the University:Authors Note:

ACCOUNTING1Table of ContentsIntroduction......................................................................................................................................2Background......................................................................................................................................2Prospect of Fundraising...................................................................................................................3Manipulation of accounts and Accounting policy...........................................................................3Corporate Governance and transparency in financial reporting......................................................5Appointment of administrator, receiver, and liquidator..................................................................6Position of creditors re receivership and liquidation.......................................................................7Directors Duty.................................................................................................................................8Conclusion:......................................................................................................................................9References:....................................................................................................................................10

ACCOUNTING2IntroductionUntil 2016 Dick Smith Holdings Limited was a top name in the electronic components,electronic goods, and electronic project kits market in Australia. The company had a wide chainof retail stores that used to sell these electronic products to the consumers. Dick Smith foundedthe company in the year 1968 in Sydney with him and his wife as the owners of the company;however, in the year 1982 Woolworths Limited acquired the company. In the year 2016, thecompany was dissolved by creditors’ liquidation process.It is shocking to imagine that a company of $520 Million in valuation could fall sodramatically with in a period of three years, i.e. from 2013 to 2015. The dramatic fall of thecompany was due to the evens that occur during this period of three years that ultimately resultedin the dissolution of the company by creditors’ liquidation process in the year 2016. Analyzingand assessing the reasons of this dramatic collapse of one of the brightest companies inAustralian Stock Exchange is the main objective of this document (Bill 2016). Though it seemsthat the ending story of Dick Smith Company has been written during these three year periodfrom 2013 to 2015 however, it was nearly a half century ago that it was almost predestined thatthe company will end up in liquidation process which materialized at the beginning of 2016. Inearly January 2016 the company’s banks called in the administrator to bring an end to thecorporate veil of the company. The brief time that the company was listed in ASX and theprosperity of the company even shorter period was only an illusion. BackgroundThe period in which the company was in the hands of Woolworths Limited since it wasacquired the company in the year 1982. During that period even when Woolworths wasperforming excellently, the company never mentioned its acquired company, i.e. Dick Smith as a

ACCOUNTING3well performer that should have made the investors as well as other stakeholders more aware ofthe probable fate of the company. In the year, 2012 Woolworths Limited took the company offits hands by transferring the company to Anchorage Capital. Anchorage Capital brought thecompany at a price of $115 Million in the year 2012, the company i.e. Dick Smith had no cash inhand at that time. A year later the company was floated with a valuation of $520 Million is aclear indication that the valuation was a faux and there was significant manipulation inaccounting records to come up with that valuation (Giacalone and Rosenfeld 2013). Prospect of FundraisingIn the year 2013, the company in its prospectus for fund raising asked its investors toinvest in the business to earn substantial amount of return on their investments by showing thevaluation of the company at $520 Million. As already mentioned there was significantmanipulation to the accounts of the company to show such enormous valuation of a companywhich Anchorage Capital was bringing at a price of $115 Million with little cash in its hand. Thewindow dressing of financial statements though helped the company initially but finally it thelack luster performance of the company caught up with it thus, resulted in subsequent dissolutionof the company. Manipulation of accounts and Accounting policyThe income statements of the company is analyzed for the last few years to assess howthe accounts have been manipulated by the management to suppress the deteriorating operatingand financial condition of the company over the last five years. According to the financialstatements of the company sales in the year 2012 was $1369.5 Million which is far outstretchedthan the actual sales. The Profit after tax of the company in the year 2012 of $13.2 Million againan aberration of its actual performance. As a result of the manipulation of accounting records the

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