Task B (part I)
Prepare the financial statements for 2016 in a format suitable for filing at Companies House. NOTE: Any workings to support the numbers may be included in an appendix headed “Appendix – workings do not part of the financial statements”
Task B (part II) – SEE 2nd ATTACHED DOCMENT
Complete sections A and G of the 2015-6 Annual Return for the company (remember to sign the form anonymously using your candidate number)
As the number of children who take part is the most critical factor in determining the costs and benefits then the data provided is for three scenarios: MOST LIKELY CASE (BASE CASE), MINIMUM CASE AND MAXIMUM CASE. You are required to cost up each scenario.
The cost of running the events will include the following:
Each regional group needs 3 packs of equipment in order than 3 races can be help simultaneously.
If there are less than 45,000 children there will be 3 regional groups set up.
It is assumed that Gross Profit margin remains the same as Current Year (as calculated in Task B) and that operating costs are not affected. The breakdown for the 2016 turnover is shown below. Additionally the marketing manager has estimated that marketing costs saved by investing in this promotion will be £25,000 in yr 1, £20,000 in yr 2 and £10,000 in yr 3&4 (BASE CASE AND MAXIMUM CASE). If only the minimum number of participants take part then only the first year’s savings will apply (MINIMUM CASE).
Performance Limited has been approached by an investor (VC) with an interest in acquiring the company.
VC owns other businesses in this industry including similar business in America, with a focus on children’s sporting goods. They have identified Performance Limited as a strategic purchase which would likely have a high synergistic value with their existing operations.
VC have approached Performance with an offer to purchase the whole company at the value shown for the Equity in the 2016 Statement of Financial Position (Net Asset Value) as filed at Companies House (Task B).
You are required to prepare a report to the directors discussing whether the directors should accept this offer.
In preparing your recommendation you should consider and explain why the net asset value may not best represent the value of Performance Limited. You should suggest alternative valuation methodologies and apply one recommended method to calculate a comparative current value of the company to compare to the offer being made. You should consider the additional facts below.
Forecast Information to consider
The sponsorship project has been a real success it is expected that the Company will achieve increased revenues for 2017 by 12%.
It is expected that revenue growth will exceed market growth by 10% per annum for the financial year ended 2018 and 8% in 2019 whilst they continue to expand. In 2020 & 2021 growth of 4% per annum is forecast and then growth is expected to settle at market rates.
Profit margins are expected to remain constant.
It should be noted that the three directors have been taking a combined salary of £110,000 (£45,000, £45,000 and £20,000). A comparative market salary would be in the region of £50k for a senior board member in a comparative company. However, a company of this size would only require two senior director level personnel.
A recent appraisal of the fixtures and fittings suggests that its fair value would be £20,500.
Performance has, in its inventory, some clothing designed specifically for Taylors Gym who are now in Administration. The personalised stock is shown in the accounts at £6,000 and the gym has a balance on account with Performance of £17,500. The administrators have indicated there will be no recovery of funds.
Discussions with the directors have assessed that there are no material non-recurring costs related to 2016’s accounts. The financial impact of the event should not be included as it was a one-off cost, although regard should be given to the additional equity when considering shareholders’ funds.