Corporate Accounting Assignment: RFG Financial Performance Analysis

This report analyzes the financial performance of Retail Food Group (RFG), addressing key aspects of corporate accounting. The analysis includes an examination of RFG's share price and profit and loss statements over three years to evaluate business performance, alongside an assessment of impairment charges. The report also explores debt covenants, their implications, and why concerns were raised regarding RFG's compliance. Furthermore, the management strategies implemented to improve performance are discussed, along with an evaluation of their potential effectiveness. Finally, the report considers the application of the going concern principle and potential agency problems within the franchisor/franchisee relationship, offering a comprehensive overview of RFG's financial health and operational strategies. The report addresses all questions outlined in the assignment brief, drawing on provided resources and financial data.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the student
Name of the university
Authors note

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Executive summary
The overall study report discusses about the share price and profit and loss statements for the
last three years in order to develop the business performance. On the other hand the
impairment changes have been made over the RFG Company. On the other hand the debt
convents had made certain concerns with reference to the RFG Company. Lastly the
management strategies had been discussed also to improve performance.

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Table of Contents
Answer to question no 1.............................................................................................3
Answer to question no 2.............................................................................................4
Answer to question no 3.............................................................................................5
Answer to question no 4.............................................................................................7
Answer to question 5..................................................................................................9
Answer to question 6................................................................................................12
Conclusion....................................................................................................................13
References....................................................................................................................14

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Answer to question no 1
The retail food group RFG is an organisation of Australia dealing with process and
manufacture of processed foods since a longer period. However the company have made a
good amount of profits in the last financial year as well as in the current year also. However
the financial report prepared by the company auditors in the last financial year had conveyed
a long term profitability. On the other hand the company is listed in ASX 200 index and
trades actively in the market. On the other hand the current business performance of the
company have been reflected upon the financial statements, auditors report etc. however the
profitability statement, cash flow statement, statement of changes in equity had revealed all
possible opportunities that the company could cash in the near future.
The profit and loss statement is an important tool to measure overall business performance of
the company. Here the consolidated statement of profit and loss for the year ended 31st
December, 2018 have been used and a comparison is made based on the current year. From
the profitability statement it can be seen that the revenue from operation in the current year
had decreased to $170701 from $176782. However the cost of sales had been decreased in
the current year. Hence the same had affected over the company gross profit of the financial
year. It is seen that the profits have decreased to $55636 to $67903. Hence it is seen that the
overall decrease in the profit had affected to the overall business of the company. On the
other hand the additional company expenses like selling and marketing expense, office and
administration expense and other expenses have also varied quite much. However the
company had gained overall profitability in the current financial year. It is seen from this
aspect that despite of decrease in the current year gross profit, the company still had managed
to increase the overall profitability to approximately $115000 than the previous year. It can
be said that due to expansions of the business the company had managed to acquire good
profitability. However good profitability had also resulted in the increase of overall market

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share of the company. Since the company actively trades in ASX 200 index, it is quite
obvious that the performance will reflect over the share price. From the trade option it can be
said that the trend analysis of the company had been seen constantly decreased in the
financial year. In the month of July, august and September had been constantly decreased.
The current share exchange price of the company is $0.17 which had been initially $0.175 in
July. Hence it can be concluded from this statement that company had been facing a huge
challenge in order to sustain in the market. Increased amount of competition from the other
market players, low investment and average management had degraded the overall
sustainability of the company. Thus it is a key issue to deal with.
Answer to question no 2
The impairment or changes in determination of goodwill is one of the most important
aspect to be consider over the company rules and regulations determination. The regulations
are complex but it behold the fundamentals which are very easy to understand. Thus under
the new rules all the company goodwill will be adjusted and assigned to the company
reporting units. Thus the goodwill value might be tested to see whether the recorded value of
the goodwill is at all higher than the total value of the assets. Therefore if the fair value is less
than the carrying value, the goodwill is preferred to be impaired and the overall market
valuation of the shares will represent the market to market change. On the other hand the
impairment loss is an accounting principle which had described the permanent reduction in
the value of the company asset, normally a fixed asset. However for the impairment the total
profit, cash flow or other benefit that is expected to be generated as well as compared to the
same asset value. If it is found that the book value of the asset is exceeded in the cash flow or
benefit over the asset value. Thus the asset value had declined the company balance sheet to a
large extent. In order to check the impairment of RFG group it is seen that the company had
performed an assessment of the assets in accordance with the Australian accounting

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standards. It is seen that the group’s performance had recognised a $128 million of pre-tax
expense and provisions as follows. It is seen that the overall pre-tax value of the company is
calculated at $123.764 and the post- tax total is calculated at $104.152. The current tax,
deferred tax assets and deferred tax liabilities had also decreased in this process. From the
trade receivable it is seen that $13 million tax provision had been imposed and the same had
recognised expected losses over the trade receivable part. Hence the impairment had made
certain difference over all the trade receivable part. However the carrying amount is
decreased over the applicable loss allowances. From the investment part it is seen that $1
million approximately had been written off from the investment part in the current year
because of slow moving and obstacles stock valuation. The company vendor loan had caused
a change in the asset value of $7 million and the individual impairment value had been
recognised in this respect. Thus these assets are considered as the estimated recoverable
amount.
The property, tax and equipment’s had also subsequently written down in the current
financial year of almost $14 million dollars. These reduction in the asset value is related to
the reduction in the cost of discounted projects and redundant cost system in this case.
The impairment loss is also related to the aspect of intangible assets. The impairment
loss of the cash is recorded at $78 million dollar approx. for the period ended 31st December,
2019. The company had spent almost $50 million dollar in managing the goodwill value such
as brand recognition, bakery and coffee division, CSR division etc.
Answer to question no 3
The going concern principle is recognised as an assumption where an entity will
remain in the business for the foreseeable issue. Conversely it means that the entity will not
be forced to halt the operation and liquidate the assets value. These assets are considered as

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considered as very much low priced. Thus it can be said that by making these assumptions
the accountant is justified in deferring the recognitions of the assets value of the concerns
expense until in the later period when the entity is presumably in business by the use of the
assets value in most effective way as possible. Thus an entity is assumed to be a going
concern company in the absence of the significant information related to the company.
Considering an example related to this process is an entities liability to meet the basic
obligations of the same. Thus without the process of substantial debt asset procedure or the
debt obligations. Hence in such a case it can be said that the entity will be acquiring the asset
value and the intensity of the company operations will be intentionally closing the operations
and resale those assets to another party. If the company accountant believes that they don’t
want to continue as a going concern company, so they are subjected to a considerable amount
of assumption relating to the interpretation of the same. Here the company auditor’s ability
will be tested to the going concern concept.
These are certain aspects which are directly related to the going concern concept. These are
as follows-
 Negative trends over the company operation resulting process.
 Loan defaulters.
 Denial of the trade credit to the company by the suppliers.
 Unconditional long term commitments to the company.
 Hence due to these problem there has been a concern over the audit process in the
company.
In the same way the directors of RFG Food Company had shown their assistance to
the concept related to going concern principle. It is seen that from the company financial
report the group incurred a loss before the income tax from the continuing operation of $112

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million approximately for the year ended 31st December, 2018. Hence in that date the current
liabilities of the company has exceeded to that of the company current assets by $182.3
million. It includes the syndicate value is generated at $29 million approximately.
On the other hand the group’s ability to continue as a going concern concept is
dependent among the mantainence of the continuous report process. Thus by realizing the
potential sales structure of the company in the current year in the way that there are business
assets to be paid down the portions of the syndicated debt and securing the extensions of the
existing facilities or by raising alternate fund via debt or equity with related to the appropriate
terms and conditions. Furthermore there is also a chance of material misstatement. In this
case there is a significant change in the group ability to continue as a going concern concept.
Hence the concerns are not modified in the respect of this matter.
Answer to question no 4
Debt conversant are related to the main restrictions in the debt agreements that aim in
order to protect the lender like the creditors, debt holders and the investors by restricting the
basic activities of the borrowers or debtors. Thus the debt covenants are related to the
company lender and borrowers. These are as follows-
The debt restrictions could protect the lender and borrower by requiring or prohibiting
certain activities of the lender and borrowers. In other words the debt covenants should
restrict the borrower from making the decisions which could be detrimental to the company
decision making.
The debt restrictions could be benefited the borrower by reducing the cost of the
borrowing related to the interest and the higher credit ratings.
The debt covenants do not aim to the place of a burden on the borrower. The debt
covenants are used to solve the agency problems among the company management, debt

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holders and shareholders that arise the objectives of the borrower and lender. The process is
related to the debt covenants that can be either positive or negative.
The negative debt covenants state what the borrowers cannot do which includes the
following-
Incur additional long term debt which implies of additional borrowing and overall
subordination related to the original indenture.
 Payment of cash or dividend which exceeds the net value.
 Sell of certain asset.
 Enter into the certain type of leases.
 Combination to the way of another firm.
 Comprise and increase the salaries of certain employees.
Apart from this there is a positive debt covenant state what the borrower’s must do and
play include the following-
 To maintain certain financial ratios.
 To maintain the accounting records in accordance to the generally accepted
accounting principles.
 To provide full auditing report of the financial statements related to the audited fiscal
year.
 To perform the regular mantainence of real assets as collateral.
 The process can also look to maintain all the facilities related to the good working
condition.
 To maintain the life insurance policies related to certain key employees.
 To clear all the paid and due taxes.

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Cross default covenant where the company borrower is in default to lend any debt to the
company lender and the borrower is considered of all the debts.
Hence the most common ratio factor are used in the debt covenants include the following
aspects like-
 Debt to cash flow-
 Interest coverage.
 Fixed charge coverage.
 Tangible net worth.
 Debt to tangible net worth.
 Debt service coverage.
 Leverage ratio.
 Current ratio etc.
On the other hand the debt structure is also related directly to that of RFG group. In
the last financial year as on 31st December, 2018 the group borrowings are decreased to $259
million which is predominantly repaid towards the process of property and minor asset
changes regarding the asset valuation. On the other hand the debt covenants regarding to 31st
December, 2019 the company had suspended the financial covenants for the period ended 31st
December, 2018. Hence it can be said that the debt conveyance is very much related with the
issue faced by RFG food group overall.
Answer to question 5
The effective performance management theory is more than just creating an effective
work environment. It helps to create leadership, interpersonal management, constructing
feedback and teamwork. Even if it comes under different leadership facility of managing the
task in an effective process, aggregation of data and to keep the company managers

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motivated as always. Hence these are related to the strategies that makes the work more
effective and adequate.
Wide scope of resources
There are many areas which are needed to be considered as a process of performance
management. These are as follows-
Setting expectations of work performance and planning to meet the expectations and
meetings.
Offering the rewards and to praise for good performance as well as addressing the poor
performance.
Regularly rating the performance through effective summaries and reviews.
Continually develop the capacity for optimal performance measurement.
Therefore there are six performance measurement process which is directly related the RFG
group. These are as follows-
Define and communicate company goals
It is important that the employees of RFG groups always meet the performance
expectation. On the other hand the first step towards outlining the overall performance is to
make the employees clear about the work. Apart from this sometimes the employees are not
clear about the requirements and they do not ask for any follow up questions. Hence there
queries are left unsolved (Atanasov and Black 2016.).
Thus it is important for RFG group to constantly monitor the performance by use of
software, creating flow chart, sending out e- mail and outlining the goals and objectives

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overall. Further the company could hold meeting continuously to ask for feedback report of
work performance.
Management recognition process
One way to determine the granted results in the company workplace could look to
implement rewards and practise effective management techniques overall. It means that the
employees know about the expectation from them by the higher authority and look to focus
on meeting the targets. On the other hand the feedback report generated by the company
management is always important to provide proper communication to the employees and to
meet the goals have been meet. In the same way the RFG group could also look to recognise
the management in order to meet the performance (Figge and Hahn 2013).
 Set regular meetings to meet and discuss outcomes and results
 At the time of holding the meetings it is important to address the goals and clarify the
effective ideas which are to be addressed here-
 Follow up the peer advice.
 Discuss the peers and superiors with the team perspectives.
 To ensure that the team members meet their individual set of goals and objectives
overall every time (Malsch 2013).
Identify peer reviews
One of an important way to foster an effective performance management activity to
utilise the peer reviews technique also known as 360 degree approach. Again it is a feature
which can be effectively used for the performance management review. Hence the company