Reference no: EM132949128

Question

Bell Ltd is an Indonesian based company that prepares its financial statements using Indonesian GAAP. The company's financial results at 31 December 2020 were as follows:

Net profit $1,300,000
Shareholder's Equity 8,000,000
Total Assets 9,300,000
Net cash flows from operating activities 2,000,000

Bell Ltd has expanded its operations into Australia and is considering raising capital in Australia. Bell Ltd approached a private venture capital firm for a $5,000,000 loan. The venture capital firm uses a ratio to assess the Company's ability to generate cash flows from operations. The ratio is as follows:

· Net cash from operating activities to net profit ratio [net cash from operating activities/net profit].
· The generally acceptable ratio is 1.5. As Bell Ltd's accountant, you note the policy differences between the accounts that are prepared using local GAAP in Indonesia and IFRS as required in Australia.
· The venture capital firm uses IFRS as a basis for its decisions.

Additional Information:
1. The company used the LIFO method for inventory valuation. IFRS only permits the use of FIFO method. The inventory valuations for the current and previous period are as follows under the two methods:
Current Period Previous Period
FIFO $650,000 $850,000
LIFO $550,000 $690,000
2. The company engages in research and development activities and during the current financial year it paid $400,000 for research and development. It had capitalised the entire amount in its Balance Sheet (Statement of Financial Position) and recognised it as an asset. However, $250,000 of the total amount does not qualify to be capitalised under IFRS and needs to be expensed and recognised in the Statement of Profit or Loss.
3. Dividends received of $200,000 and Interest received of $400,000 have been included in cash flows from operating activities. Dividends and interest received have traditionally been classified as financing activities in prior years and there is no significant reason for any policy change.
4. Five years ago the company had acquired goodwill in a business combination. The amount of Goodwill was $450,000. The company amortises goodwill over a ten year period. An amortisation expense of $45,000 was recorded in the current period as well as total accumulated amortisation of $225,000 for the five years. IFRS does not permit amortisation of goodwill.
5. The company is conservative in its accounting values and decided to record a provision of $60, 000 in the current accounting period for any future repairs that may be undertaken to its manufacturing plant. However, there was no contractual obligation to incur any expenditure due to major repairs expected to be undertaken in future years. Hence, this provision for future repairs cannot be recognised in the financial statements in accordance with IFRS.

Required:
Will Bell Ltd be able to obtain the financing from the Australian venture capital firm? Show all calculations.