Question 3 [15 Marks] TARGET CASH AND CARRY (PTY) LTD (TARGET) Target is a food, general and household goods retailer located in Eldoraigne, Centurion and has been in operation for 15 years. The business Target sells food, general and household goods and also operates a bakery and butchery in the shop. A small section of the premises is sub-let to a lock and key business. The financial manager indicated that Target is expecting annual growth of 8% per annum from 2017 after the upgrade of the kitchen and butchery. Target has a long-term lease agreement for the premises, which will expire at the end of 2030. The outlay of the shop can be compared with its competitors i.e. Spar, Checkers and Pick n Pay. Concerns and current insurance policy The store experienced significant business interruption events recently and approached the insurance broker to advice on updating the business interruption section of an existing policy. The CRO insisted on having the policy updated early in the new financial year, which will be on 1 January 2017. The MPL (Maximum Potential Loss) is assessed as the total loss resulting from a potential fire that destroys the entire premises/business. The renewal date of the insurance policy coincides with the financial year. The Plant, Machinery, Stock and Contents are insured under a Fire Section, and the Business Interruption section follows the Fire section. Reinstatement can take up to 12 months, with business normalisation potentially another 6 months, so one should consider at least an 18-month indemnity period. Calculate the total estimated business interruption coverage amount based on the financial statements below. Show all your calculations. Question 3 [15 Marks] TARGET CASH AND CARRY (PTY) LTD (TARGET) Target is a food, general and household goods retailer located in Eldoraigne, Centurion and has been in operation for 15 years. The business Target sells food, general and household goods and also operates a bakery and butchery in the shop. A small section of the premises is sub-let to a lock and key business. The financial manager indicated that Target is expecting annual growth of 8% per annum from 2017 after the upgrade of the kitchen and butchery. Target has a long-term lease agreement for the premises, which will expire at the end of 2030. The outlay of the shop can be compared with its competitors i.e. Spar, Checkers and Pick n Pay. Concerns and current insurance policy The store experienced significant business interruption events recently and approached the insurance broker to advice on updating the business interruption section of an existing policy. The CRO insisted on having the policy updated early in the new financial year, which will be on 1 January 2017. The MPL (Maximum Potential Loss) is assessed as the total loss resulting from a potential fire that destroys the entire premises/business. The renewal date of the insurance policy coincides with the financial year. The Plant, Machinery, Stock and Contents are insured under a Fire Section, and the Business Interruption section follows the Fire section. Reinstatement can take up to 12 months, with business normalisation potentially another 6 months, so one should consider at least an 18-month indemnity period. Calculate the total estimated business interruption coverage amount based on the financial statements below. Show all your calculations
