Issue 4: Alan Almond Company Receivable Analysis

Background

Alan Almond Company owes BCE $82,000 for a computer system installation purchased in March 2022. Due to financial difficulties caused by dropping almond prices, Alan Almond entered a repayment agreement with BCE in August 2022. The company made an initial payment in September, but has not made any further payments. Alan Almond received a "going concern" modification in its audit report for the year ending August 31, 2022. Layoffs helped the company break even for the year. Bankruptcy has been discussed but not deemed necessary at this point, with potential recovery for creditors uncertain.

Financial Analysis

At the date of both the audited annual statements (8/30/2022) and the interim statements (11/30/2022), potential bankruptcy could result in a recovery of 50-60 cents on the dollar for creditors. The sales agreement allows BCE to repossess the equipment, estimated to be worth $20,000-$30,000. Despite recent profits, future almond prices remain uncertain, with concerns about increased competition from India affecting the market.

Recommendation

Given the risk of bankruptcy and uncertainty surrounding repayment, Alan Almond should reflect a loss reserve in its financial statements to account for potential losses from the outstanding debt owed to BCE. This reserve should be based on a detailed assessment of risks and recovery likelihood in the event of bankruptcy. Additionally, the company should provide note disclosure to explain its financial struggles and the impact on creditors.