F9 Valuation

Aztec plc has identified Inca Limited as a possible acquisition target. Inca Limited earned €675,000 in pre-tax profits in the most recent reported accounts.

Inca Limited’s most recent SOFP is as follows:

Summary Statement of Financial Position as at 31st March 2020

€000’s
Assets

Land 2,656
Buildings 3,900
Plant 335
Investment – Libyan Investment 200
Office Equipment 34
Total Non-Current Assets 7,125

Current Assets

Inventories 285
Trade Receivables 320
Total Current Assets 605

Total Assets 7,730

Equity

Issued Share Capital 4,000
Retained Profits 1,150
Equity attributable to the owners of the company 5,150

Liabilities

10% Debentures 2028 2,000

Non-current Liabilities 2,000

Trade Payables 174
Bank Overdraft 29
Tax Payable 93
Current Liabilities 284
Total Liabilities 2,580

Total Equity & Liabilities 7,730

Appendix 1 continued

Additional information is provided:

• Obsolete inventories included on 31 March 2020 SOFP total €63,000.

• €41,000 of trade receivables are unlikely to be recoverable.

• An independent valuation of Land values it at €2,850,000.

• Contingent liabilities not included on the SOFP total €410,000.

• The investment is a 6-year Libyan Dinar (LD) cash deposit translated at 55 LD = 1 euro.

You have reviewed Aztec plc’s plans for the acquisition. The following points are relevant:

• All assets with the exception of plant will be taken over by Aztec plc.

• Aztec plc will immediately redeem debentures at a premium of 30% to par.

• Aztec plc will close a depot and expects savings of €350,000 pre-tax each year from this closure.

• Aztec plc is capitalised at a multiple of six times post-tax earnings. This will be discounted by 25% for the purpose of valuing Inca Limited.

• Both companies pay corporation tax at 30% and the current exchange rate is 65LD = 1 euro.

Requirement:

The Board of Aztec plc has retained you as an advisor

They have requested that you prepare an earnings and net assets based valuation of Inca Limited.