David is the new accountant for a company that builds small aeroplanes for hobby enthusiasts: Bachelor of Business Accounting, Assignment, WSU, Australia

Purpose:

This assignment aims to reinforce and extend students’ knowledge and understanding of key topics in this course (HC1010) including Overview of Accounting, Organisational Structure & the Reporting Environment, Corporate Governance, Statement of Financial Position, Statement of Financial Performance, Cash Flow Statement, Financial Statement Analysis, Accounting for Business Transactions, Cost Concepts & Behaviour, Preparation of Budgets, and Cost-Volume Profit-Analysis through independent research and application of knowledge and skills.

Assignment Details:

David is the new accountant for a company that builds small aeroplanes for hobby enthusiasts. The company, HobbyAero Ltd, employs 200 people. About 3 years ago, the company underwent a major expansion of its aeroplane-building facilities because of increased demand for its aeroplanes from overseas buyers. To do this it borrowed $10 million through a loan from a bank.

The loan agreement contains the following clauses:

i) HobbyAero is to maintain a current ratio of at least 2:1

ii) The after-tax profit margin must be at least 10 per cent
If the company fails to meet either ratio in any year, the $10 million is immediately payable.

Last year the government removed a 20% tariff on small aeroplanes and the company has had difficulty competing against international competitors. Consequently, the company has had to reduce its profit margins to compete with overseas suppliers.