Teebok Co. is an Irish sportswear manufacturer. It has recently seen a decline in profitability owing to Covid 19. As a result, Teebok is faced with having to suspend its operations immediately unless it can find alternative markets to ensure the business can remain operational. The window to implement a new plan is very tight. Luckily, the production and sales directors had already assembled a team to devise a plan, referred to as Go Online, to diversify the business away from its reliance on the direct retail market . While much of the outline of Go Online is ready, it still requires input from the finance department. Although the team had intended to present Go Online at a strategy conference planned for later this year, events have now overtaken them and an emergency meeting of Teeboks senior management team has been called for next week. The principle agenda items are an assessment of the current level of stress on the firms liquidity and a discussion of the proposed Go Online which, it is hoped, can go into production quickly. To assist with these discussions, you are required to prepare a financial report package for the meeting regarding Teeboks current liquidity condition and the expected financial implications of the Go Online proposal under consideration. Your report package must include the following: 1. Trading, profit and loss account and balance sheet 31st March 2022 (20 m) 2. Forecast trading profit and loss for the six months ended 30th September 2022, in contribution form. (20 m) 3. Cash forecast for the six months ended 30th September 2022. (20 m) 4. Evaluation of Teebok s liquidity position and recommendations to improve it. (15 m) You have ascertained the following information to assist with your assessment: Teebok is registered for VAT and charges 23% VAT on its sales. VAT returns are submitted on-line following the end of each (calendar) two monthly period and payment is made by the 23rd of the relevant month. Ignore taxation other than VAT. A loan of 69,000,000 was taken out with Irish Bank plc on 1st October 2015 and is repayable in full on 1st October 2025. The interest rate on the loan is 10% per annum, payable quarterly on 1st January, 1st April, 1st July and 1st Oct each year. All Teeboks sales and purchases are on 30-day credit terms. All other expenses are paid immediately on receipt of invoice. Teebok depreciates its property, plant & equipment on a straight-line basis as follows: o Buildings 40 years o Machinery 20 years o Delivery vans 5 years o Fixtures & fittings 10 years o Office furniture & equipment 10 years The following appendices are included: o Appendix 1: Trial balance extracted from Teebok s records @31st March 2022. o Appendix 2: Details of Go Onlines new manufacturing line and financial projections for the six months to 30th September 2022 o Appendix 3: Abridged financial statements for two previous years to 30th September 2021 and 2020. Please note that whilst your report package is to include specified statements and reports, it is necessary to include all relevant data and conclusions into the financial assessment to ensure that the full economic impact is considered. Appendix 1 Trial Balance @31st March 2022 000 000 Share capital 50,000 Retained earnings @ 31st March 2021 206,655 Loan 69,000 Building (cost) 100,000 Building accumulated depreciation @ 31st March 2021 25,000 Machinery (cost) 85,000 Machinery accumulated depreciation @ 31st March 2021 12,750 Delivery vans (cost) 18,500 Delivery vans accumulated depreciation @ 31st March 2021 7,400 Fixtures & fittings (cost) 14,000 Fixtures & fittings accumulated depreciation @ 31st March 2021 4,200 Office furniture & equipment (cost) 13,500 Office furniture & equipment accumulated depreciation @ 31st March 2021 5,400 Inventory @ 1st April 2021 147,500 Trade receivables 87,300 Bank overdraft 15,950 Trade payables 45,700 VAT payable 6,220 Sales revenue 370,000 Purchases 248,750 Wages and salaries 62,500 Light and heat 7,250 Selling expenses 6,500 Advertising 3,000 Client entertainment 2,750 Legal and professional fees 1,500 Maintenance and repairs 4,800 Motor expenses 6,500 Office expenses 3,750 Interest expense 5,175 818,275 818,275 On 31st March 2022 the following expenses had not been accounted for. Teebok plans to pay the outstanding amounts in April 2022. o Wages - overtime for March 2022 3,200,000 o Petrol for delivery vans (inclusive of VAT @ 13.5%) 150,000 o Legal fees (inclusive of VAT @ 23%) 1,230,000 Inventory on hand @31st March 2022 is valued at 171,250,000 Amounts due from trade receivables at 31st March 2022 are expected to be received 50% in Apr and remainder in May. Amounts due to trade payables at 31st March 2022 are expected to be paid in full in April 2022. Appendix 2 Financial projections for six months ended 30th September 2022 Go Online Teebok produce high quality, durable, branded sport wear for athletes. This is an elite market reliant on high profile sporting event endorsements and branding. Having reviewed the success of companies such as Nike., Go Online proposes to diversify into the general leisure wear market with Teeboks own version of light-weight sport wear for general leisure use. As this product line will not be elite sport wear. it will be less expensive to produce but, as it is important not to compromise Teeboks quality reputation, it will still be more expensive to produce than competitor products. Direct costs per unit are forecast as Cost type Per unit Materials: 61.50 per meter (incl of VAT @ 23%) 2meters Labour: 15 per hour 7 hours Go Online will aim its product at the quality end of the leisure market and the expected selling price of 300 (exclusive of VAT) per unit will reflect this. 369 inclusive of VAT As it also envisages that the product line expanding in the future Go Online has provisionally signed up two well-known online influencers to promote the product and enhance its marketability for the next six months. These influencers will each be paid 25,000 + VAT @ 23% per month for the promotion campaign. Other cost projections to be considered are: Note: The following cost projections have been stated inclusive of VAT as follows: VAT @ 23% VAT @ 13.5% Selling expenses Light & heat Advertising Petrol Maintenance & repairs Motor expenses (note: 1,872,750 relates to petrol costs) Office expenses In order for this line to be considered successful, it must produce a profit of 12,000,000 by the end of September 2022. No other product will be produced or sold during this period. Calculate Sales using this target profit. (note need to use CVP formula) Fixed costs Apr May Jun Jul Aug Sep Total Admin/sales salaries 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000 10,500,000 Light & heat 510,750 510,750 510,750 510,750 510,750 510,750 3,064,500 Selling expenses 1,168,500 1,168,500 1,168,500 1,168,500 1,168,500 1,168,500 7,011,000 Advertising 135,300 135,300 135,300 135,300 135,300 135,300 811,800 Maintenance/repairs 492,000 492,000 492,000 492,000 492,000 492,000 2,952,000 Motor expenses 650,375 650,375 650,375 650,375 650,375 650,375 3,902,250 Office expenses 215,250 215,250 215,250 215,250 215,250 215,250 1,291,500 Depreciation (per depreciation policy) Loan interest (per loan agreement) The sales volume required to meet the profit target will be achieved incrementally as follows: Month Apr 10% May 10% Jun 10% Jul 10% Aug 20% Sept 40% (For example, Apr sales will be 10% of sales) Expected sales mix per month is expected to be 70% directly to the public via on-line cash sales in Teeboks existing on-line store and 30% credit sales on 30-day credit to retail outlets. It is expected that 50% of credit sales receipts will be received in the month following the sale with the remaining 50% received the following month. Inventory on hand @31st March 2022 cannot be used in the new product line. Material for the new production line will be bought in at the start of each month in the required amount to meet that months sales. No inventory of material will be held. All material will be purchased on 30 day credit and paid for in the month following purchase. All operating expenses will be paid in the month incurred. Endorsement fees will accrue over the six months and be paid 50% June and the remainder in Sept. No new investment in machinery or equipment is required for the next 6 months. Appendix 3 Abridged Financial Statements Income statement for year ended 31st March 2021 2020 000 000 Sales revenue 456,870 491,677 Less: Cost of goods sold (295,900) (323,551) Gross profit 160,970 168,126 Less expenses (117,160) (113,936) Profit for the year 43,810 54,190 Balance sheet as at 30th September 2021 2020 Non Current Assets 000 000 Property, plant & equipment 176, 250 135,870 Current assets Inventories 147,500 152,480 Trade receivables 80,350 70,690 Bank 2,950 29,460 Total current assets 230,800 252,630 Total assets 407,050 388,500 Equity and liabilities Share capital 50,000 50,000 Retained earnings 206,655 162,845 Total equity 256,655 212,845 Non-current liabilities Loan 69,000 69,000 Current liabilities Trade payables 43,205 75,465 VAT 32,960 26,320 Accrued expenses 5,230 4,870 Total current liabilities 81,395 106,655 Total liabilities 150,395 175,655 Total equity and liabilities 407,050 388,500