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August 8th, 2017 
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| Answer both questions below. |
| IOF itself is not currently in administration and has been trading profitably, but the
position of the parent company means that its future viability must be called into question. |
| The Administrators have provided a statement of affairs for IOF, detailing the
realisable asset values in the event that the assets of the company are sold piecemeal as a gone concern. An extract of the realisable asset values and the outstanding trade payables are detailed below. |
| Asset statement
of financial position value as a going concern |
| £300k |
| £6m |
| Fixed charge assets:
Fixed tangible assets (land, plant and machinery, etc) Fixed intangible assets (goodwill, including brand name, etc) Floating charge assets: Inventory Trade receivables Cash |
| £2.2m |
| £1.1m
£0 £0 |
| Amount owed
£2.6m £600k £500k £60k |
| Trade payables (in no particular order):
Bank Trade payable Revenue and customs Salary and wages for the last few weeks (under £800 per employee rule) Shareholders |
| Assignment continues on page 3. |
| Assignment continued. |
| The current management team propose to retain 15 of the 19 shops currently owned
by IOF (old company), and close 4 of the units where low profits / losses are made due to high rent costs and where the property owner is unwilling to re-negotiate the leases. The terms of the remaining leases are currently more favourable, or revised terms have been agreed with the property owners. |
| The new company (IOFNC) intends to continue the brand name, which historically
has been strong, and hopes to retain much of the client base of IOF (old company). The new company also plans to develop and build its web presence further. Simon feels there is further potential to exploit the online market, and that some market share that is lost to online providers, can be regained. |
| The Administrators advise that all necessary statutory and other approvals have
been received. The Administrators recommend acceptance of the pre-pack sale to the trade payables as a whole, having unsuccessfully advertised for alternative purchasers over the last few weeks. The management of IOFNC (new company) have made an offer to the Administrators of £3m to purchase the majority of the business and assets of IOF (old company). For simplicity, this can be apportioned: |
| Floating charge assets:
Total assets: |
| Assignment continues on page 4. |
| Page 3 of 7 |
| From these assets, the directors have deducted the £600k of trade payable that
IOFNC (new company) will adopt responsibility for in calculating the purchase price of £3m. |
| Total bank facilities of £2.6m (£2.4m towards purchase plus £200k working capital) |
| Long-term loan: |
| The remaining consideration monies of £600k is going to be injected by the directors,
by way of equity, from their own resources. |
| An opening statement of financial position, together with 3 years income statement
forecasts, is provided below. In line with standard accounting procedure, asset values are shown at the (discounted) cost price, rather than market value. For information purposes, an extract of the last 3 years’ trading figures for IOF (old company) is also provided. |
| £000s |
| 2,200
300 |
| 1,100
– – |
| 100
2,000 |
| 600
600 600 |
| 1,000 |
| *Overdraft is not fully drawn.
** The company sells direct to the public and does not have any trade receivables. |
| Page 4 of 7 |
| Forecast income statement
Indoor and Outdoor Furniture New Co (IOFNC) (new company) |
| 2018
£000s 8,765 4733 4032 3,462 570 125 445 90 355 100 255 |
| Turnover
Cost of sales (COS) Gross profit Operating expenses Operating profit Interest payments Pre tax profit Taxation Profit after tax Dividends payable Retained profit |
| 2016
£000s 8261 3344 347 |
| 2015
£000s 9614 4135 529 |
| 2014
£000s 8619 3792 551 |
| Turnover
Gross profit Pre-tax profit |
| 43%
5.5% |
| Assignment continues on page 6. |
| Page 5 of 7 |
| Required: |
| 1. |
| Note: For the purposes of the return to trade payables’ calculation
in the pre-pack proposal, you should exclude trade payables who will stand outside of the arrangement and will be adopted by IOFNC (new company). |
| 2. |
| (35 marks) |
| Word count: Maximum 4,000 words including quotations and in-text citations. |
| The following resources are available to assist you with your assignment preparation.
They can all be found through your course website: |
| ·
· · · · |
| Page 6 of 7 |
| Recommended reading |
| Donnelly, R. (2010) PESTEL framework and Porter’s Five Forces. ifs Lead Tutor
article [pdf]. |
| PwC (2009) Insolvency in brief: A guide to insolvency terminology and procedure
[pdf]. |
| Walker, R. (2013) What drives a bank’s desire to lend to a customer? ifs Academic
Article [pdf]. |
| Useful websites |
| Gregory, J. (2013) Demand for new furniture boosts UK retailers [online]. |
| ifs KnowledgeBank, your e-library, is a collection of resources available to students
and is accessible through www.myifslearning.com |
| · |
| log in to https://kb.ifslearning.ac.uk with your ifs University College username and
password; select ‘Library Resources’ from the link on the right of the home page. |
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