Gym buddy Co. is an Irish sports clothing manufacturer. It has recently seen a decline in...

  

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Gym buddy Co. is an Irish sports clothing manufacturer. It has recently seen a decline in profitability owing to Covid 19. As a result, Gym buddy 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 Gym buddy's senior management team has been called for next week. The principle agenda items are an assessment of the current level of stress on the firm's 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 Gym buddy's 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, 30th September 2020 2. Forecast trading profit and loss for the six months ended 31st March 2021, in contribution form. 3. Cash forecast for the six months ended 31st March 2021. 4. Evaluation of Gym buddy's liquidity position and recommendations to improve it. You have ascertained the following information to assist with your assessment: ● Gym buddy 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 Oct 2015 and is repayable in full on 1st Oct 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 Gym buddy's sales and purchases are on 30-day credit terms. All other expenses are paid immediately on receipt of invoice. ● Gym buddy depreciates it's 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 Office furniture & equipment 10 years ● The following appendices are included: O Appendix 1: Trial balance extracted from Gym buddy's records @ 30th September 2020. O Appendix 2: Details of Go Online's new manufacturing line and financial projections for the six months from 1st November 2020 to 31st March 2021 Appendix 3: Abridged financial statements for two previous years to 30th September 2019 and 2018. O 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 2 - Financial projections for six months ended 31st March 2021 Go Online Gym buddy 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 lululemon athletica inc., Go Online proposes to diversify into the general leisure wear market with Gym buddy's 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 Gym buddy's 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: €43 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 wear market and the expected selling price of €250 (exclusive of VAT) per unit will reflect this. 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: Fixed costs Total October November December January February March 1,750,000 1,750,000. 1,750,000 1,750,000 1,750,000 1,750,000 Admin/sales salaries 10,500,000 Light & heat 3,064,500 510,750 510,750 510,750 510,750 510,750 510,750 1,168,500 1,168,500 1,168,500 1,168,500 1,168,500 Selling expenses 1,168,500 7,011,000 Advertising 135,300 135,300 135,300 135,300 811,800 135,300 135,300 492,000 492,000 Maintenance/repairs 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) Note: The following cost projections have been stated inclusive of VAT as follows: VAT @ 23% Selling expenses VAT @ 13.5% Light & heat Petrol Advertising 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 March 2021. No other product will be produced or sold during this period. Trading Profit & loss account Sales revenue Less: Cost of goods sold Gross profit Less expenses Profit for the year Balance sheet as at 30th April 2020 Non-current assets Current assets Total current assets Total assets Equity and liabilities Total equity Non-current liabilities Current liabilities Total current liabilities Total liabilities Total equity and liabilities Workings for trading, profit and loss account and balance sheet in €000 0 0 0 0 0 0 0 0 0 Gym buddy Co. is an Irish sports clothing manufacturer. It has recently seen a decline in profitability owing to Covid 19. As a result, Gym buddy 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 Gym buddy's senior management team has been called for next week. The principle agenda items are an assessment of the current level of stress on the firm's 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 Gym buddy's 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, 30th September 2020 2. Forecast trading profit and loss for the six months ended 31st March 2021, in contribution form. 3. Cash forecast for the six months ended 31st March 2021. 4. Evaluation of Gym buddy's liquidity position and recommendations to improve it. You have ascertained the following information to assist with your assessment: ● Gym buddy 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 Oct 2015 and is repayable in full on 1st Oct 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 Gym buddy's sales and purchases are on 30-day credit terms. All other expenses are paid immediately on receipt of invoice. ● Gym buddy depreciates it's 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 Office furniture & equipment 10 years ● The following appendices are included: O Appendix 1: Trial balance extracted from Gym buddy's records @ 30th September 2020. O Appendix 2: Details of Go Online's new manufacturing line and financial projections for the six months from 1st November 2020 to 31st March 2021 Appendix 3: Abridged financial statements for two previous years to 30th September 2019 and 2018. O 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 2 - Financial projections for six months ended 31st March 2021 Go Online Gym buddy 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 lululemon athletica inc., Go Online proposes to diversify into the general leisure wear market with Gym buddy's 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 Gym buddy's 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: €43 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 wear market and the expected selling price of €250 (exclusive of VAT) per unit will reflect this. 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: Fixed costs Total October November December January February March 1,750,000 1,750,000. 1,750,000 1,750,000 1,750,000 1,750,000 Admin/sales salaries 10,500,000 Light & heat 3,064,500 510,750 510,750 510,750 510,750 510,750 510,750 1,168,500 1,168,500 1,168,500 1,168,500 1,168,500 Selling expenses 1,168,500 7,011,000 Advertising 135,300 135,300 135,300 135,300 811,800 135,300 135,300 492,000 492,000 Maintenance/repairs 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) Note: The following cost projections have been stated inclusive of VAT as follows: VAT @ 23% Selling expenses VAT @ 13.5% Light & heat Petrol Advertising 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 March 2021. No other product will be produced or sold during this period. Trading Profit & loss account Sales revenue Less: Cost of goods sold Gross profit Less expenses Profit for the year Balance sheet as at 30th April 2020 Non-current assets Current assets Total current assets Total assets Equity and liabilities Total equity Non-current liabilities Current liabilities Total current liabilities Total liabilities Total equity and liabilities Workings for trading, profit and loss account and balance sheet in €000 0 0 0 0 0 0 0 0 0

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1 Trading Profit and Loss Account and Balance Sheet 30th September 2020 Trading Account Sales 50000 ... View the full answer