Accounting Business Reporting for Decision Making

CHAPTER 13 Financing the business 535

it had expanded into many new markets, yet not all of the stores were profitable. The large number of

unprofitable stores impacted on the overall performance and the ability of Borders to pay its debts. This,

combined with people spending less on luxury purchases like books and music, and the emergence and

attraction of online companies, led to the demise of Borders Group.

Temporary cash shortages may be overcome by arranging emergency loans. However, as a general

rule, the more desperate the need, the higher the cost of emergency funds.

REALITY CHECK

Borders Group

Borders Group, Inc. was an international book and music retailer. The company employed approxi-

mately 19 500 people throughout the United States, primarily in its Borders and Waldenbooks stores.

At 30 January 2010, the company operated 511 Borders superstores around the world, including

508 in the US and 3 in Puerto Rico.

Borders Group, Inc. formerly operated stores in Australia, New Zealand and Singapore. However,

these were sold off to Pacific Equity Partners (which owned rival Angus & Robertson) in 2008, then were

later sold again to RedGroup Retail. The stores continued to operate under the unaffiliated Borders Asia

Pacific brand until RedGroup was placed into voluntary administration in February 2011.

On 16 February 2011, Borders Group, Inc. applied for bankruptcy protection and began liquidating

more than 200 of its stores in the United States. Despite an offer from the private-equity investor Jahm

Najafi, which ultimately fell through, Borders was unable to find a buyer before its 17 July 2011 bidding

deadline, and therefore began liquidating its remaining 399 retail outlets on 22 July 2011.

The Borders.com website has been replaced by a redirect to the website, effectively shutting down

Borders.com entirely.

Sources: Adapted from information from Borders Group Inc. 2010, Form 10-K, http://www.sec.gov; Greenblat, E, Steger,

J & Zappone, C 2011, ‘Owners move to salvage Borders, Angus & Robertson’, The Irrigator, 18 February, http://www.irrigator.

com.au; Spector, M & Trachtenberg, JA 2011, ‘Borders forced to liquidate, close all stores’, The Wall Street Journal,

19 July, http://online.wsj.com.

VALUE TO BUSINESS

•   Entities manage cash with regard to these issues:

• the need to have sufficient cash to meet commitments


• the timing of cash flows


• the cost of cash


• the cost of not having enough cash.
  • An entity must always have sufficient cash on hand to meet its financial obligations if it does not
  wish the business community to regard it as insolvent. Entities can plan the timing of many types
  of cash flows, the main exceptions being the payment of wages and taxes. The cost of holding
  cash comprises the opportunity cost of holding currency or cash deposits, rather than short-term
  securities, and the cost of ensuring physical security of currency. On the other hand, the cost of not
  having enough cash at the required time may be the loss of the business.

13.3 Managing accounts receivable

LEARNING OBJECTIVE 13.3 Discuss the management of accounts receivable.

Accounts receivable are a normal and often a significant asset class of many entities. In 2015, retail

chain JB Hi-Fi Ltd had 13.2 per cent of its current assets represented by accounts receivable and the

Qantas Group had 18.9 per cent. Even retail stores that you might think would not have receivables do

extend credit to their better customers.