Question: Speedster Ltd commenced trading in 1986 as
Speedster Ltd commenced trading in 1986 as a wholesaler of lightweight travel accessories. The company was efficient and traded successfully until 2000 when new competitors entered the market selling at lower prices which Speedster could not match. The company has gradually slipped into losses and the bank is no longer prepared to offer overdraft facilities. The directors are considering liquidating the company and have prepared the following statement of financial position and supporting information:
Supporting information:
(i) The freehold land has a market value of £960,000 if it continues in use as a warehouse. There is a possibility that planning permission could be obtained for a change of use allowing the warehouse to be converted into apartments. If planning permission were to be obtained, the company has been advised that the land would have a market value of £2,500,000.
(ii) The net realizable values on liquidation of the other assets are:
Plant and equipment ……………………..£1,200,000
Inventory …………………………………………£450,000
Trade receivables ……………………………£1,050,000
(iii) An analysis of the payables indicated that there would be £300,000 owing to preferential creditors for wages, salaries and taxes.
(iv) Liquidation costs were estimated at £200,000.
Required:
Prepare a statement showing the distribution on the basis that:
(a) planning permission was not obtained; and
(b) planning permission was obtained.
Transcribed Image Text:
Statement of Financial Position £000 £000 Non-current assets Freehold land at cost 1,500 Plant and equipment (NBV) 1,800 Current assets Inventories 600 Trade receivables 1,200 1,800 Current liabilities Payables Bank overdraft (secured on the plant and equipment) 1,140 1,320 2,460 Net current assets (660) Non-current liabilities Secured loan (secured on the land) (1,200) 1,440 Financed by Ordinary shares of £l each Statement of comprehensive income 3,000 (1,560) 1,440
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