Liquidation of ABC Learning Centres

This assignment report provides a detailed analysis of the financial stress and liability issues that led to the liquidation of ABC Learning Centres. The report highlights the company's inability to manage its liabilities, which ultimately resulted in its closure. The assignment also recommends measures for businesses to take in order to avoid similar situations and provide guidance on how to overcome financial challenges.

ACCOUNTING

EXECUTIVE SUMMARY
In the present report it is discussed about the definition of accounting and its various
factors in ABC Learning centre of Australia. The introduction to the company and the services
provided is briefly discussed. It includes the causes and meaning of liquidation (wind up or
brought to an end of the company) of the centre and major factors that can arise liabilities of the
business is explained in detail. A brief about financial stress and how to overcome it is been
discussed below. In addition, Definition and importance of Ethics, governance, factors affects in
liabilities, recommendations and conclusion is discussed in detail.

Table of Contents
INTRODUCTION ..........................................................................................................................2
LIQUIDATION & LIABILITIES ..................................................................................................2
ETHICS AND GOVERNANCE ....................................................................................................4
MAJOR FACTORS IN LIABILITIES ...........................................................................................6
FINANCIAL STRESS ....................................................................................................................7
RECOMMENDATIONS/ FINDINGS ...........................................................................................9
CONCLUSION ...............................................................................................................................9
REFERENCES .............................................................................................................................10
1

INTRODUCTION
The process of keeping financial accounts is known as accounting. The measurement,
processing and communication of financial information about economic entities such as business
and corporations (Deegan, C., 2013). The company taken here is ABC Learning Company. It
was the worlds the largest provider of early childhood education services in Australia. In this
report the liquidation and the liabilities of the business will be explained in detail. Ethics,
governance, financial stress, major factors in liabilities and the recommendations will be
discussed in detail.
Source : (ABC Learning centres logo on HQ building in Brisbane, 2013.)
LIQUIDATION & LIABILITIES
Due to increase in liabilities the ABC Learning centre has turned to liquidation of the
company because the organisation was in heavy loss. It turned into lack of finance which created
a financial stress and lead the company in heavy financial crisis as a result of which the owners
wind up the education centre. The process by which a company is brought to an end. The assets
and property of the company are redistributed. Liquidation is also sometimes referred to winding
up or dissolution of a business company or organisation. It technically refers to the last stage of
liquidation. Types of liquidation in a company:
2
Illustration 1: ABC Learning Centres

 Voluntary liquidation: When the shareholders of ABC Learning centre decided that they
want to wind up a company that holds share in but the company in doing so cannot pay
back all the creditors. This is also called being insolvent which means not having enough
cash in the business.
1. Creditor’s voluntary liquidation: ABC Learning centre became insolvent due to lack of
financial sources made the shareholder to take the voluntary insolvency and to wind the
centre. The most common type of liquidation procedure. The service is used to close an
insolvent company and has a specific meaning but can slightly mislead (Bebbington,
Unerman and O'Dwyer, 2014). The insolvent company is most regularly identified as one
that cannot pay its creditors. Member’s voluntary liquidation: This is the same as the creditor’s voluntary liquidation
but the major difference that company does have enough money to pay all its debts but
the shareholders want to close the business down regardless.
 Compulsory liquidation: A court can make a wind up order forcing ABC Learning centre
into liquidation when petitioned by someone connected with the business.
Something that is a hindrance or that puts an individual or a group at a disadvantage or
something someone is responsible for or something that increases the chance of something
occurring is known as liability. Types of liabilities in a company: Legal liabilities: An accountant is liable for a client’s accounting misstatements. This
risk of being responsible for fraud or misstatement forces accountants to be
knowledgeable and employ all applicable accounting. Public liabilities: it is a part of law of tort which focuses on civil wrongs. An application
usually sues the respondent under common law based on negligence or damages (Zeff,
S.A., 2016). Product liabilities : the area of law in which manufacturers, distributors, suppliers,
retailers and others who make products available to the public are held responsible for the
injuries those products cause.
3

 Current liabilities: the liabilities are often understood as lose of the business that are to
be settled in cash within the fiscal year or the operating cycle of a given firm, whichever
period is longer.
 Long term liabilities: the long term liabilities are also called non current liabilities which
occurs with a future benefit over one year, such as notes payable that mature longer than
one year. This is shown on the right side of the balance sheet representing the sources of
funds, which are generally bounded in form of capital assets.
ETHICS AND GOVERNANCE
The ABC Learning centre followed the ethics and governance due to which they focused
less on their financial condition which increased the liabilities and lead them towards liquidation
of the company. It created a financial stress which lead the company in heavy financial crisis as
a result of which the owners wind up the education centre. The branch of philosophy that
involves systematizing, defending and recommending concepts of right or wrong conduct is
known as ethics. The applied ethics or professional ethics that examines ethical principles and
moral or ethical problems that arises in a business environment. The study of proper business
policies and practices regarding potentially controversial issues, such as corporate governance,
4
Illustration 2: Ethics and Governance in a business
Source: (Governance & Ethics 2016)

insider trading, bribery, discrimination, corporate social responsibility and fiduciary
responsibility is known as business ethics. Types of business ethics in a company: Honesty : ethical executives are honest and truthful in all their dealings and they do not
deliberately mislead or deceive others by misrepresentations, overstatements, partial
truths, selective omissions or any other's means (DRURY, C.M., 2013). Integrity : this demonstrate personal integrity and the courage of their convictions by
doing what they think is right even when there is great pressure to do otherwise they are
principled, honourable and upright, they will fight their own beliefs. Promise keeping and trustworthiness: these are worthy of trust and the candid in
supplying relevant information and correcting misapprehensions of fact they make every
reasonable effort to fulfil the letter and spirit of their promises and commitments. Loyalty: the trust worthy of trust, demonstrate fidelity and loyalty to persons and
institutions by friendship in adversity (Khairi, M.S. and Baridwan, Z., 2015). The support
and devotion to duty do not allow the employees to disclose information learned in
confidence for personal advantages. Fairness: this do not exercise power arbitrarily and do not use overreaching nor indecent
means to gain or maintain any advantage of other's mistake or difficulties. The equal
treatment is given to everyone without any discrimination. Leadership : these are conscious of their responsibilities and opportunities towards their
position of leadership and seek to be positive ethical role models by reasoning and ethical
decision making are highly prized (Kimball, T., 2017.).
 Accountability: acknowledge and accept personal accountability for the ethical quality of
their decisions and omissions to themselves, their colleagues, their companies and their
communities.
The processes of governing, whether undertaken by a government, market or the network
of an organisation or organised society (Chen and et.al., 2016). It relates to the processes of
interaction and decision making among the actors involved in a collective problem that lead to
the creation, reinforcement or reproduction of the social norms and institutions is known as
governance. Types of governance in a company:
5

 Democratic governance: beyond the issues if the institutions and forms of government it
covers the social coordination mechanism involved in political action and therefore relies
on two assumptions. Economic and financial governance: the economic and financial governance is an
essential prerequisite for promoting economic growth and reduce poverty. The objectives
for economic and financial governance are :
a) Promote macroeconomic policies to contribute to sustainable development.
b) Fight against corruption and money laundering.
c) Promote sound financial management. E- governance: it is a holistic concept that defines and assesses the impact that
information technology and communication have on government practices and
relationship between government and the whole society. Corporate governance: it relates to moral principles, values and practices that facilitate
the balance between economic and social goals and between individual and common
goals. Aims :
a) Provide for the responsibilities of management and directors (Brown, R. ed., 2014).
b) Ensure that corporations treat all their stakeholders.
 Environmental and natural governance : it refers to all processes, rules, practices and
institutions that contribute to the protection, management, conservation and exploitation
of biodiversity, ecosystem and mineral resources in their various modalities in
perspective reconciling sustainable development and poverty reduction.
MAJOR FACTORS IN LIABILITIES Understanding equity: the accounting equation details the relationship that transaction
have to a company's financial position. The general ledger can be divided into three
groups: liabilities which are payable accounts, assets which are the receivables and the
liabilities which are loss to the business.
6

 Owners draw: the owner withdraws cash from a sole proprietorship's equity account, it is
listed as an owner's draw transaction (Williams, J., 2014). Withdrawing the funds directly
from the equity account will reduce the business equity. Asset transaction: an increase in the liabilities reduces the overall equity in the business.
Liabilities indicate a payment that must be made. If a company hires a service for an
onsite repair, technical support or other task, the liabilities generated when the company
receive the invoice reduces the equity by increasing the total liabilities
 Liability transaction: the future sacrifices of economic benefits that the entity is
obligated to make the other entities result as the past. An increase in the liabilities to
reduce the overall equity in the business.
FINANCIAL STRESS
The condition where a company cannot meet, has difficulty paying off its financial
obligations to its creditors mainly due to the high rates of fixed costs is known as financial stress.
The condition in which the economic events that creates anxiety, worry or a sense of scarcity
7
Illustration 3: Financial stress in business
Source: (Zeff, S.A., 2016)

which is accompanied by a physiological stress response (Jaffe, A.E. and Irizarry, R.A., 2014).
The major signs of financial distress are:
 Poor profits indicates that the company is not experiencing financial health. This raises
the company's business risk and lowers the creditworthiness with the lenders, suppliers,
investors and bankers.
 Poor sales growth indicates that decline of sales in the market, the market has a negative
response for the company and in receiving its products and services based on its business
model.
 The financial crisis in a company or business is major factor to make the owner stressed
for their business.
The measures to be taken to manage the financial stress of a company: Create a budget: creating a budget help in planning to spend the money, it ensures that
the company always have the enough money to plan or purchase the things which are
essential for business. Budgeting also helps a business to remain out of the danger of
liquidation. Emergency funds: the best thing a business can have is to prepare itself with an
emergency fund to access to additional money (Smith, M., 2017). The emergency funds
help to over the problem like job loss, significant medical expenses, etc in a business. Outside helps: if the company is struggling to manage the budget and spending issues
they should defiantly opt to go outside help. Consult a finance planner for the better and
effective use of money for long term investment strategies that will help the employees of
the company to take easy retirement.
 Changes that have to be made: it can be often when a company can face financial issues
in their spending, income or the combination of both. If the company knows its financial
condition is not sound, it should take proper measures and the possible changes in the
plan should be made to know the loop poles in the business.
8

RECOMMENDATIONS/ FINDINGS
From the present report it can be recommended that, the company should manage
its liabilities by taking different measures to control or avoid the liquidation. The company
should follow the ethics such as honesty, integrity, Promise keeping and trustworthiness,
Loyalty, Fairness, Leadership and Accountability avoid raising of the controversial issues, to
recommend at the right concept of ethics for a business. The democratic governance, economic
and financial, e-governance, corporate governance and the environmental and natural governance
should be followed by the company which would have made or helped in making good and
better decision for company to be in profit (Christensen and et.al., 2015). It helps to solve the
collective problems which leads to the new and innovative creation of the business ideas, also it
helps in the reinforcement and reproduction of the social norms to get re-establish in the market.
The company should analyse the major factors affecting and creating liabilities in the business. It
should also observe the factors causing financial stress and the measures such as creating a
budget, emergency or the backup funds, outside help, changes that have to be made in the
present strategies and positive aspects of the strategies taken to lessen the issues.
SUMMARY
In order to focus on the present report, the definition of accounting in a brief with its
various factors which influenced ABC Learning centre in Australia is discussed. In the
introduction the services provided by the company and the causes of liquidation is discussed.
The meaning of the liquidation and its various types such as voluntary, creditors, members,
compulsory liquidation is discussed in detail. In addition, definition of Liabilities and the types
of it such as legal, public, product, current and long term liabilities are explained in detail. The
meaning of ethics, its importance in business and its various types such as honesty, integrity,
promise keeping and trustworthiness, loyalty, fairness, leadership and accountability is explained
in detail. The various types of governance such as democratic, economic and financial, e-
governance, corporate and environmental and natural governance and the definition of
governance is been discussed in detail. The major factors that can cause liabilities for a business
such as understanding equity, owners draw, asset transaction and liability transaction is
explained briefly. The meaning of financial stress, the major factors that causes stress and the
measures to be taken to lower the financial stress is explained. The recommendations are given
to manage liability and to take proper measures to overcome the issues in the business.
9

CONCLUSION
From the above report it can be concluded that, the company ABC Learning was wind up
in Australia due to lack of money which brought an end to the company in others words
liquidation and increasing liabilities of the business. From the above report it can be concluded
that, the company ABC Learning was wind up in Australia due to lack of money which brought
an end to the company in others words liquidation and increasing liabilities of the business.
10

REFERENCES
Books & Journals
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Brown, R. ed., 2014. A history of accounting and accountants. Routledge.
Chen and et.al., 2016. Two-stage regression analysis and biased estimates in accounting
research: An application of the Frisch-Waugh-Lovell theorem.
Christensen and et.al., 2015. Incentives or standards: What determines accounting quality
changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.
Deegan, C., 2013.Financial accounting theory. McGraw-Hill Education Australia.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Jaffe, A.E. and Irizarry, R.A., 2014. Accounting for cellular heterogeneity is critical in
epigenome-wide association studies. Genome biology, 15(2), p.R31.
Khairi, M.S. and Baridwan, Z., 2015. An empirical study on organizational acceptance
accounting information systems in Sharia banking. The International Journal of
Accounting and Business Society, 23(1), pp.97-122.
Smith, M., 2017. Research methods in accounting. Sage.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.
Online
ABC Learning centres logo on HQ building in Brisbane, 2013. [online]. Available through:
<http://http://www.abc.net.au/news/2013-10-16/generic-tv-still-of-close-up-of-abc-
learning/5025918>. [Accessed on 12th September 2017].
Governance & Ethics, 2016. [online]. Available through: <http://medicinea.net/ethics.htmlf>.
[Accessed on 12th September 2017].
11

Kimball, T., 2017. Types of Transactions That Affect the Equity of the Company. [online].
Available through: <http://smallbusiness.chron.com/types-transactions-affect-equity-
company-41730.html>. [Accessed on 12th September 2017].
12