FBS 310 Assignment 2022
Table of Content
Executive Summary…………………………………………………………………page 3
Detailed Report………………………………………………………………………page 5
Industry Analysis…………………………………………………………….page 5
Discussion……………………………………………………………page 5
Recommendations & Actions………………………………………page 8
Accounting Treatment: Revenue & Industry Purchases………………...page 8
Working Capital Issues……………………………………………………..page 11
Discussion……………………………………………………………page 11
Recommendations & Actions………………………………………page 14
Risk Identification……………………………………………………………page 16
Discussion……………………………………………………………page 16
Recommendations & Actions………………………………………page 16
Relevant Costing Analysis: Cape Town Opportunity…………………….page
19
Discussion……………………………………………………………page 19
Recommendations & Actions………………………………………page 19
Annexure A (attached separately)
References…………………………………………………………………………..page 20
©2022 Mr. Bcom
, Executive Summary
Courageous Fashions (Pty) Ltd, hereafter referred to as “Courageous”, is a clothing
manufacturer that has been based in South Africa since its date of inception in 1948.
Courageous has asked for assistance with regard to cash flow issues as a result of
COVID-19, and risk identification as a result of inadequate implementation of internal
controls and recommended solutions. Courageous has also been presented with a
new opportunity which it is unsure that it should accept. Along with these, they have
requested that a full industry analysis be performed on the South African clothing
industry.
The purpose of this report is to assist Courageous’ management in making decisions
regarding these issues and possible solutions, as well as expand on the results of
the industry analysis.
Prioritisation and Key Recommendations:
An industry analysis was performed and it was concluded that Courageous must
review that it is acting in line with its moral code and the law, and should take
corrective action if it is not. Legally, according to the PESTEL analysis performed,
Courageous are within the norm but there are concerns regarding its ethical standing
due to the Xeroso supplier who does not comply with SEDEX. Courageous should
also ensure that they focus on investing more of their resources in locally produced
materials as it will benefit them on a few different fronts.
An explanation of the recognition of revenue and purchases was done to assist Mr
Penz, Courageous’ sales director, with his misunderstanding of the accounting
principles accompanying the recognition of revenue and purchases. It was
concluded that the accounting team is not “playing foul” as per Mr Penz’s accusation,
and accounted for the recognition of revenue and purchases correctly.
An explanation and calculation of the working capital cycle was conducted and
resulted in a long working capital cycle for Courageous. Following the discovery of a
long working capital cycle, recommendations and solutions to shortcomings in the
working capital cycle were made. Additionally, assistance was required in assessing
whether to grant additional discount to a long-term debtor, as well as whether or not
to accept a new debtor based off of their credit application and financial statements.
It was recommended that neither of these should be allowed due to their potential
influence on the working capital of Courageous.
There are strategic, operational and financial risks that the Courageous faces. These
include risks such as price cutting or employee turnover rate (Strategic), import risks,
COVID-19 and production delays due to insufficient designers (Operational) and,
FOREX and credit terms of A-list customers (Financial). To minimise the risks
mentioned, Courageous’ management should look at more reliable suppliers,
implementing a healthy and sustainable work environment, designing a back up
plan for asset/equipment investments and policies, employing more designers,
investing into hedge funds, and reconsider their credit terms that they grant.
©2022 Mr. Bcom
Table of Content
Executive Summary…………………………………………………………………page 3
Detailed Report………………………………………………………………………page 5
Industry Analysis…………………………………………………………….page 5
Discussion……………………………………………………………page 5
Recommendations & Actions………………………………………page 8
Accounting Treatment: Revenue & Industry Purchases………………...page 8
Working Capital Issues……………………………………………………..page 11
Discussion……………………………………………………………page 11
Recommendations & Actions………………………………………page 14
Risk Identification……………………………………………………………page 16
Discussion……………………………………………………………page 16
Recommendations & Actions………………………………………page 16
Relevant Costing Analysis: Cape Town Opportunity…………………….page
19
Discussion……………………………………………………………page 19
Recommendations & Actions………………………………………page 19
Annexure A (attached separately)
References…………………………………………………………………………..page 20
©2022 Mr. Bcom
, Executive Summary
Courageous Fashions (Pty) Ltd, hereafter referred to as “Courageous”, is a clothing
manufacturer that has been based in South Africa since its date of inception in 1948.
Courageous has asked for assistance with regard to cash flow issues as a result of
COVID-19, and risk identification as a result of inadequate implementation of internal
controls and recommended solutions. Courageous has also been presented with a
new opportunity which it is unsure that it should accept. Along with these, they have
requested that a full industry analysis be performed on the South African clothing
industry.
The purpose of this report is to assist Courageous’ management in making decisions
regarding these issues and possible solutions, as well as expand on the results of
the industry analysis.
Prioritisation and Key Recommendations:
An industry analysis was performed and it was concluded that Courageous must
review that it is acting in line with its moral code and the law, and should take
corrective action if it is not. Legally, according to the PESTEL analysis performed,
Courageous are within the norm but there are concerns regarding its ethical standing
due to the Xeroso supplier who does not comply with SEDEX. Courageous should
also ensure that they focus on investing more of their resources in locally produced
materials as it will benefit them on a few different fronts.
An explanation of the recognition of revenue and purchases was done to assist Mr
Penz, Courageous’ sales director, with his misunderstanding of the accounting
principles accompanying the recognition of revenue and purchases. It was
concluded that the accounting team is not “playing foul” as per Mr Penz’s accusation,
and accounted for the recognition of revenue and purchases correctly.
An explanation and calculation of the working capital cycle was conducted and
resulted in a long working capital cycle for Courageous. Following the discovery of a
long working capital cycle, recommendations and solutions to shortcomings in the
working capital cycle were made. Additionally, assistance was required in assessing
whether to grant additional discount to a long-term debtor, as well as whether or not
to accept a new debtor based off of their credit application and financial statements.
It was recommended that neither of these should be allowed due to their potential
influence on the working capital of Courageous.
There are strategic, operational and financial risks that the Courageous faces. These
include risks such as price cutting or employee turnover rate (Strategic), import risks,
COVID-19 and production delays due to insufficient designers (Operational) and,
FOREX and credit terms of A-list customers (Financial). To minimise the risks
mentioned, Courageous’ management should look at more reliable suppliers,
implementing a healthy and sustainable work environment, designing a back up
plan for asset/equipment investments and policies, employing more designers,
investing into hedge funds, and reconsider their credit terms that they grant.
©2022 Mr. Bcom
