BAO2203: Corporate Accounting Analysis of Retail Food Group (RFG)

This report provides a comprehensive analysis of Retail Food Group's (RFG) financial performance. It examines the company's share price and profit trends over a three-year period, explaining the fluctuations based on revenue, expenses, and impairment losses. The report delves into the impairment charges, detailing the reasons behind them, such as franchise closures and changes in accounting policies. It also addresses the application of the going concern principle, highlighting the company's losses, liabilities, and reliance on asset sales and restructuring programs. Furthermore, the report explains debt covenants and their significance to RFG, along with the strategies management is implementing to improve performance, including cost-saving measures and asset sales. Finally, the report explores agency problems within the franchisor/franchisee relationship, identifying conflicts of interest and their impact on the business. The analysis is based on the provided financial reports and articles from VU collaborate, offering insights into RFG's challenges and strategic responses.

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BAO 2203 Corporate Accounting

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Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................4
Question 3........................................................................................................................................4
Question 4........................................................................................................................................5
Question 5........................................................................................................................................6
Question 6........................................................................................................................................7
References........................................................................................................................................8

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Question 1
Profitability is required to be maintained in the company but there are certain changes which are
made in the same every year. They are due to various reasons such as the change in the level of
the cost which is incurred. It is required that there shall be proper analyzation of the reasons
which are responsible for the same. There will be a proper collection of the data which will be
undertaken and then the evaluation will be made (RFG, 2018). With the change in the profit the
demand of the share will be also changing. This is because the profits will be paid to the
investor's ad they will be willing to purchase the shares of the company. This will be increasing
the demand and that will lead to the fluctuation in the share price in the market. This will be
evaluated by collecting all the information in this respect.
Particular
s
2016 2017 2018
Net profits 52963 61927 -306693
Share price 5.3238 4.6932 0.41
All of the changes which are taking place in the amount of the profits are identified and with
that, the change that is taking place in the share price is also identified. The profits have risen in
2017 as the revenues which were made in the company have also increased. After this in
2018nbthe expenses have risen in a great manner and that affected the profits of the year in
negative manner. There are losses which are made in the company. The expenses of the company
have raised and with that there is the consideration of the impairment losses which lead to the
losses in the year 2018 (Yahoo finance, 2019). It can be noted that the share price is also moving
with this change and when the profits were increasing the share price was also increasing. The
decline in the profits has led to the fall in the share price also. This is because in the year the
company is having the losses and will not be able to pay the dividends to the investors. They will
not be willing to invest more in the company and by that the demand in the market will be

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reduced which will be making the share price to fall.
Question 2
In the business, there are various assets and on them, the charge is created which is identified as
the impairment charge. RFG is also using this and there is the charge which is created in the
company which is amounting to $123.7 million. In the company, there are various changes
which have been made in the system and that has led to this charge. The franchises which are
operating at the losses will now be closed down and with that, all of the functions which are
involved in the company will be centralized (Peetathawatchai and Acaranupong, 2012). As the
stores will be there will be some change which will be taking place. The downfall in the
shareholder value has been identified and this is for the amount of $18.5 million. AASB 9
provides with the new methodology for the impairment and the same is made applicable in the
company. In this policy all the decisions will be made as per the credit losses which are expected
and not the actual losses which have been incurred. By the help of this the value which is
required to be identified as the impairment loss will be identified and recorded in the books.
The changes policy has been made applicable for the accounts receivables which were earlier
valued with the old method. This is required to be followed in respect of all the assets which are
impaired (RFG, 2017). The assets which are included in this are assets which are held for sale,
trade receivables, inventory, intangible assets, and property. The final results which are required
to be reported in the books will be identified with the help of the impairment testing that is to be
undertaken in the business.
The recognition will be made by considering the policy of the company. In that, the cost will be
deducted from the fair value and then the same will be compared with the writing down the value
of the asset. There will be impairment gain which will be made with the rise in the value and
vice-versa. The recognition will be made for one time and if they are identified then again the
losses will not be recorded.
Question 3
The business is required to be continued in the long run and that is identified as the going
concern which is considered in all the businesses. In the previous year, the recognition in the

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accounts of the company has been made as per the going concern. The comment has been made
on the going concern in the current year and this is because of the losses which have been made
in the current year and they are for the value of $111.1 million (RFG, 2018). They will be
required to be covered and with that, the current liabilities that are required to be borne by the
company amounts to $182.3 million.
All of these will have to be paid by the company but the operating cash flow position of the
company is not strong and there is only the balance of $7.6 million which is available with the
company. There is also the loan amounting to $258.8 million which is taken from the syndicate
bank and will have to be paid. They all are the reasons because of which the comment has been
made on the going concern (Carson et al., 2012). The company will also be required to bear the
impairment losses which have been identified. To cover up all of the expenses there is the
program which is launched and in that the assets of the company will be sold. This will help in
collecting the funds which will be used for the repayment of the liabilities. There is the lender
company which will be performing the restructuring program of the company and for the same,
there is the waiver which has been granted. The company has received the additional time which
will be used to undertake the actions for the improvement in the position of the business. If the
company will be breaching the contract then there will be a risk which will be involved and the
company will be facing the circumstances of the same.
The support of the syndicate bank is highly relevant and shall be maintained for the maintenance
of the going concern (Krishnan and Wang, 2014). In addition to this, there will be need to
manage the covenant in an effective manner by which the risk will be reduced and the going
concern will be managed. There is high risk involved and if any default will be made in any of
them then the company will be harming its going concern.
Question 4
Debt covenants are involved in all the businesses as it is the agreement which is made among the
creditors and company. All the companies take a loan and this is prepared in respect of them. In
all the companies there is the need to maintain the financial ratios and there is the limit which is
set in this respect. The company will be required to pay the complete amount back in case of any
default (Robin, Wu and Zhang, 2017). The debts have been taken from the syndicate bank in

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case of RFG and it is required to repay them in the limit. The waiver has been received from the
lender and it has been postponed the company is required to take the actions in this period with
which the position will be improved and the support will be received in a continuous manner.
The focus will be required to be made and there will be consideration of all the alternatives
which are available. They will be taken into account and will be used in case of the emergency.
The company will be taking such steps by which the leverage will be reduced in the balance
sheet.
The cash balance of the business will be increased with the help of the sale of assets as there will
be an amount which will be received (RFG, 2018). The same will be used by the company to
repay the debts and that will be reducing the leverage of the company. By the help of that, there
will be growth which will be maintained in the business and that will be beneficial for the
company.
Question 5
The business is required to maintain its position in an effective manner and that will be made
possible with the help of the various strategies which are applicable to the company. In the given
case there is the loss which is made in the current year and that is not a suitable position for the
company. In such a situation there is the need to make the strategy by which the improvement
will be made possible (Hatch, 2019). There will be no dividend strategy which will be adopted
and according to that the company will not be paying any dividend in the present year as the
income is not available.
The financial position is required to be improved and then only the dividends will be paid again
to the investors. There is an intensified strategy which is being followed for the business
transformation and in that there will be closing of the franchise stores which are not yielding any
returns to the company. There will be an improvement in all of the functions so that the overall
position of the company can be enhanced and one of the steps in this respect is the asset sale
program.
The company will be improving the position and will be enhancing the life of business for the
long run and more income will be earned. The cash that will be collected with the program will

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be used to repay the debts and by that, the burden of the company will be reduced. There will be
saving of the cost which is incurred in the current period. The same will then be used for further
expansion and also the dividends will be paid to the shareholders.
Question 6
Agency problems are the issues which are faced between the mangers and the shareholders
because of the conflict of the interest that arise. All of the individuals who are working in the
company involve some of the personal interest together with professional interest. The relation
that is maintained between the franchiser and franchisee is also the same and in that also there
are various such issues which are faced and identified to be the agency problems. The same has
been noted in case of the RFG where the director is involved in some personal interest (RFG,
2019). They are selling personal products in the store of the company by using the rand name.
By the help of this they are making the more earnings which are their personal interest.
This is the action which is being performed in the company and has been identified. There is the
objection which is made by the manager in this respect as it is against the policies of the
business. This is the situation in which the personal and professional interests are conflicting
with each other and will be considered as the agency problem. There is the loss which is
involved and the conflict is the reason for the same as the income has been reduced by this.
Therefore it is clear that in the franchiser and franchisee relation also there are various agency
problems which are involved and shall be taken into account. By the identification of them and
taking the proper steps in this respect, there will be avoidance of the situation which will save the
company from incurring losses. All of this will be in the interest of the company and shall be
maintained in an effective manner.

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References
Carson, E., Fargher, N.L., Geiger, M.A., Lennox, C.S., Raghunandan, K. and Willekens, M.
(2012) Audit reporting for going-concern uncertainty: A research synthesis. Auditing: A Journal
of Practice & Theory, 32(1), pp.353-384.
Hatch, P. (2019) RFG director's plan to sell her products to group's cafes raised concerns.
[Online] Available at: https://www.smh.com.au/business/companies/rfg-director-s-plan-to-sell-
her-products-to-group-s-cafes-raised-concerns-20190717-p5283j.html [Accessed 13 September
2019]
Krishnan, G.V. and Wang, C. (2014) The relation between managerial ability and audit fees and
going concern opinions. Auditing: A Journal of Practice & Theory, 34(3), pp.139-160.
Peetathawatchai, P. and Acaranupong, K. (2012) Are impairment indicators and losses
associated in Thailand?. Journal of Financial Reporting and Accounting, 10(1), pp.95-114.
RFG. (2017) Annual report 2017. [Online] Available at:
https://www.rfg.com.au/wp-content/uploads/2018/02/RFGLAnnualReport2017.pdf [Accessed 13
September 2019]
RFG. (2018) Annual report 2018. [Online] Available at:
https://www.rfg.com.au/wp-content/uploads/2018/RFGAnnualReport2018.pdf [Accessed 13
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 13 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 13 September 2019]

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RFG. (2019) 1H19 Results & Update. [Online] Available at:
rfg.com.au/wp-content/uploads/2019/02/1H19ResultsAnnouncement.pdf [Accessed 13
September 2019]
Robin, A., Wu, Q. and Zhang, H. (2017) Auditor quality and debt covenants. Contemporary
Accounting Research, 34(1), pp.154-185.
Yahoo finance. (2019) Retail Food Group Limited (RFG.AX). [Online] Available at:
https://finance.yahoo.com/quote/RFG.AX/history?
period1=1441305000&period2=1567535400&interval=1mo&filter=history&frequency=1mo
[Accessed 13 September 2019]