Corporate Accounting Report: Going Concern and Debt Covenant Analysis

This report delves into the critical aspects of corporate accounting, specifically examining the concepts of going concern and debt covenants within the context of RFG's financial reports. It analyzes the implications of financial challenges, such as significant losses, liabilities, and loan repayment obligations, on the company's ability to continue as a going concern. The report highlights the importance of maintaining financial ratios and adhering to debt covenants, as well as the potential consequences of breaches. It discusses strategies for managing debt, including asset sales and restructuring, and emphasizes the need for proactive measures to maintain lender support and ensure long-term financial stability. The analysis references RFG's annual and interim reports, along with academic sources, to provide a comprehensive understanding of these vital accounting principles.

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Corporate Accounting

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Table of Contents
Question 3........................................................................................................................................3
Question 4........................................................................................................................................4
References........................................................................................................................................6

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Question 3
Going concern is an important requirement which is to be maintained by the business and it will
have to be ensured in the reports which are being prepared. The going concern aspect is taken
into account by the RFG and it has ensured that all the accounts are prepared in accordance with
the same. The comment has been made on the going concern due to the factors which have been
presented in the reports. It has been identified that there is the loss which is incurred in the
company and it is amounting to the $111.1 million and thus has been presented in the income
statement of the company (RFG, 2018). In addition to this, there are various liabilities which the
company is required to meet in the current year and they are for $182.3 million. They will have
to be paid but company is not having the required cash position and only the balance of $7.6
million is available as the cash flow from operations which is present. The amount of the loan
which will be paid to the syndicate is $258.8 million and due to all of these situations a comment
on the going concern of the company has been made. The company has made various changes in
its strategies which are formulated in context of franchise and that has resulted in the impairment
loss of $123.7 million.
The repayment of the syndicate bank loan is to be made and in that, all the proceeds which are
available with the help of the sale program will be used. The company was required to face the
restructuring program in the present period but bank has provided it with the waiver of the same
and now the restructuring will be made afterward (RFG, 2018). There is the need to maintain the
contract and if there will be any default then the loan will remain overdue. All of these issues
have raised the question on the going concern of the company. The covenants are required to be
maintained and it is needed that support which is available from the syndicate shall be continued.
There is a high amount of the risk which is involved and various uncertainties exist which puts
the company in the unfavorable circumstances.
The going concern is affected by all of them and it has been identified that it is safe for the
coming period but for term sustainability, there will have to be some specific steps which are to
be made (Kuruppu, Laswad and Oyelere, 2012). As the continuance will be made for at least a
year, all the accounts are prepared by considering the going concern assumption.

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Question 4
The business requires funds and for that, there is the need to take the debts from the marker. In
such circumstances there are various contracts which are prepared between the involved parties
which are considered to be the debt covenants. A company is required to maintain some of the
financial ratios and the restriction in relation to them is specified in the agreement which is
required to be followed (Gamba and Triantis, 2014). There is the right available with the lender
to take the required action in the situation of breach of contract by the company. They can ask
for the refund of their amount or can demand any other thing which will be an adverse aspect for
the company.
The waiver is provided to RFG by the syndicate bank regarding the testing which was to be
performed in December 2018 but now this will be carried in March 2019. This is the time which
is available with the company and will be focusing on taking such actions by which the position
will be maintained. The leverage is available in the balance sheet and it will be required by the
company to take certain steps by which the position of the company can be improved. There will
be consideration of the various alternatives by which the debts which are present in the accounts
of the company can be reduced (RFG, 2018). There will be the availability of the funds which
will be made with the help of the sale of assets that are expected to be made. The amount which
will be collected in this process will then be used for the repayment of the loan which has been
taken and is due.
The company will be required to take all the actions as earliest as possible so that the position
can be enhanced. The lenders have provided with the time but they still have all the rights and
can take the test at their option at any time. This requires the company to take the action by
which the position of the business will be maintained in continuous manner. If this will be done
then only, the support will be available from the syndicate bank (RFG, 2019). The bank will be
supporting when it will be sure that company has the proper position and there is no risk in
providing the funds to the company. The company will be having the required amount which can
be used to carry several operations and that will help it in attaining the growth. The reliance shall
not be placed on single lender and due to this all the alternative options which are available with
the company for the funding are required to be analyzed. This will be done so that the company

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can consider them in case of the emergency and the appropriate security is maintained.

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References
Gamba, A. and Triantis, A.J. (2014) How effectively can debt covenants alleviate financial
agency problems?. Available at SSRN 2101645.
Kuruppu, N., Laswad, F. and Oyelere, P. (2012) Assessing going concern: The practical value of
corporate failure models and auditors' perceptions. Pacific Accounting Review, 24(1), pp.33-50.
RFG. (2018) Annual report 2018. [Online] Available at:
https://www.rfg.com.au/wp-content/uploads/2018/RFGAnnualReport2018.pdf [Accessed 8
September 2019]
RFG. (2018) Appendix 4D Interim Financial Report Half-Year Ended 31 December 2018.
[Online] Available at:
https://www.rfg.com.au/wp-content/uploads/2019/02/RFG1H19FinancialStatements.pdf
[Accessed 8 September 2019]
RFG. (2018) UPDATE ON DEBT FACILITIES. [Online] Available at:
https://www.rfg.com.au/wp-content/uploads/2018/12/ASX-
Announcement_UpdateonDebtFacilities21_12_18.pdf [Accessed 8 September 2019]
RFG. (2019) 1H19 Results & Update. [Online] Available at:
rfg.com.au/wp-content/uploads/2019/02/1H19ResultsAnnouncement.pdf [Accessed 8 September
2019]