QUESTION 1 (20 MARKS)
REQUIRED
Use the information provided below to prepare the following for Millwall Enterprises:
1.1 Budgeted Statement of Comprehensive Income for the year ended 31 December 2023. (8 marks)
1.2 Budgeted Statement of Financial Position as at 31 December 2023. (12 marks)
INFORMATION
The financial statements of Millwall Enterprises for the first year of operations are shown below:
| Statement of Comprehensive Income for the year ended 31 December 2022 | |
| R | |
| Sales | 16 000 000 |
| Cost of sales | (9 200 000) |
| Gross profit | 6 800 000 |
| Variable selling and administrative expenses | (2 400 000) |
| Fixed selling and administrative expenses | (800 000) |
| Net profit | 3 600 000 |
| Statement of Financial Position as at 31 December 2022 | |
| ASSETS | R |
| Non-current assets | 800 000 |
| Property, plant and equipment | 800 000 |
| Current assets | 3 400 000 |
| Inventories | 1 600 000 |
| Accounts receivable | 600 000 |
| Cash | 1 200 000 |
| 4 200 000 | |
| EQUITY AND LIABILITIES | |
| Equity | 3 800 000 |
| Current liabilities | 400 000 |
| Accounts payable | 400 000 |
| 4 200 000 | |
| Additional information for 2023 is as follows: | ||
| 1. | The sales budget for 2023 is as follows: | |
| First quarter | R4 200 000 | |
| Second quarter | R4 400 000 | |
| Third quarter | R4 600 000 | |
| Fourth quarter | R4 400 000 | |
2.
Seventy-five percent (75%) of the sales is collected in the quarter of the sale and 25% in the quarter following the sale.
3. The gross margin ratio for 2023 is expected to be the same as for 2022.
4. The inventory balance at the end of each quarter is expected to be the same as the end of the last
quarter of 2022 viz. R1 600 000.
5. Inventory is purchased in the quarter of the expected sale. Seventy five percent (75%) of inventory
purchases is paid for in the quarter of the purchase and twenty five percent (25%) is paid for in the quarter following the purchase.
6. Variable selling and administrative expenses will vary in the same ratio to sales as for 2022.
7. Fixed selling and administrative expenses will be the same as for 2022 and will include the annual
depreciation of R160 000 on property, plant and equipment
8. The proprietor’s drawings are expected to be R1 040 000.
9. A long-term investment of R3 000 000 will be made on 31 December 2023.
10. The cash balance must be calculated (balancing figure).
QUESTION 2 (20 MARKS)
2.1
REQUIRED
Use the information given below to calculate cost of sales for October 2023 and the value of closing inventory
as at 31 October 2023 using the following methods of inventory valuation:
2.1.1 First-in-first-out (5 marks)
2.1.2 Last-in-first-out (5 marks)
2.1.3 Weighted average cost. (Express the average cost per unit in Rands and cents.) (5 marks)
INFORMATION
The following information for October 2023 was extracted from the records of Desi Limited related to the only product that it sells:
| Date | Transaction details |
| 01 | The opening inventory comprised 2 000 units at R17 each. |
| 04 | An invoice was received for 43 000 units purchased at R18 each. |
| 09 | Returned 3 000 damaged units (purchased on 04 October 2023) to the supplier. |
| 14 | Purchased 44 000 units at R19 each. |
| 27 | An invoice was received for 14 000 units purchased at R20 each. |
| 31 | Sold 75 000 units during October 2023. |
2.2
REQUIRED
Study the information given below and calculate the economic order quantity. (5 marks)
INFORMATION
The average monthly usage of an item that costs R10 each and sells for R15 each is 750 units. The holding cost is estimated to be 10% of the unit cost price. The cost to place an order is R20.
QUESTION 3 (20 MARKS)
REQUIRED
Use the information provided below to prepare the following for January and February 2024:
3.1 Debtors Collection Schedule (4 marks)
3.2 Cash Budget. (16 marks)
INFORMATION
The following information was provided by Seebaran Enterprises:
1. Seebaran Enterprises had an unfavourable bank balance of R40 000 on 31 December 2023.
2. Actual and budgeted credit sales are as follows:
| December 2023 | January 2024 | February 2024 |
| R1 152 000 | R1 080 000 | R1 296 000 |
3.
Credit sales usually make up 80% of the total sales. Cash sales make up the balance.
4. Credit sales are normally collected as follows:
• 30% in the month in which the transaction takes place, and these customers are entitled to a 5%
discount.
• 65% in the following mont h
The rest is usually written off as bad debts.
5. Actual and budgeted purchases of inventory are as follows:
| December 2023 | January 2024 | February 2024 |
| R1 002 000 | R804 000 | R930 000 |
6.
Fifty percent (50%) of the purchases is for cash. The remainder is paid one month after the purchase. (Two entries are required.)
7. The monthly salaries amount to R288 000. Salaries are expected to increase by 9.5% with effect from 01 February 2024 for those employees who presently make up 80% of the salary bill. The salaries of the
remaining 20% are expected to increase by 6.5%.
8. Interest at 18% per annum on the loan balance is paid monthly. The loan balance on 31 December 2023
was R720 000 and a repayment of R180 000 will be made on 01 February 2024.
9. Part of the building is sublet to a tenant and rent is collected monthly. The lease agreement for the year
ended 31 January 2024 reflected the rental as R345 600 per annum. The rental will increase by 10% with effect from 01 February 2024.
10. Other operating expenses amount to R72 000 per month. This amount includes R10 000 for
depreciation. Operating expenses are paid for in the month in which they are incurred.
QUESTION 4 (20 MARKS)
REQUIRED
4.1 Use the information provided below to answer the following questions.
Note: Use the formulas provided in the formula sheet only (that appear after QUESTION 5). Answers to the ratios must be expressed to two decimal places.
4.1.1 An indication of the company’s profitability after deducting the cost of goods sold from the
revenue.
(2 marks)
4.1.2 A measure of the net profit earned as a percentage of sales that the company generates. (2 marks)
4.1.3 The amount of time that it takes for the clients of Libra Limited to settle their debts. (2 marks)
4.1.4 The time taken by the company to settle its debts with the trade suppliers. (2 marks)
4.1.5 A measure of how well the company generated profits for the shareholders. (2 marks)
4.1.6 A measure of the company’s ability to pay its short-term debts within one year. (2 marks)
4.1.7 The capacity of the company to pay its short-term debts using just its most liquid assets. (2 marks)
4.2
Comment briefly but meaningfully on the following ratios:
| 2023 | 2022 | ||
| Inventory turnover | 5.47 times | 7.12 times | (2 marks) |
| Return on assets | 39.47% | 46.15% | (2 marks) |
| Debt to assets | 36.84% | 26.64% | (2 marks) |
INFORMATION
Excerpts of financial data of Libra Limited for 2023 are as follows:
| Statement of Comprehensive Income for the year ended 31 December 2023 | |
| R | |
| Cost of sales | 2 600 000 |
| Gross profit | 1 400 000 |
| Operating profit | 600 000 |
| Interest expense | 40 000 |
| Profit before tax | 560 000 |
| Company tax (27%) | ? |
| Statement of Financial Position as at 31 December 2023 | R |
| Non-current assets | 780 000 |
| Inventories | 500 000 |
| Accounts receivable | 240 000 |
| Equity | 960 000 |
| Long-term loan | 340 000 |
| Accounts payable | 180 000 |
| Bank overdraft | 40 000 |
Additional information
The ratio of credit sales to cash sales is 3:1 respectively.
Fifty percent (50%) of the merchandise was purchased on credit.
Inventories on 31 December 2022 amounted to R450 000.
QUESTION 5 (20 MARKS)
Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that
appear after the formula sheet.
5.1
REQUIRED
Study the information given below and calculate the following:
Net Present Value. (Show the calculations of the present values as well as the net present value.) (5 marks)
Internal Rate of Return if the machine has no salvage value. Your answer must include two net present value calculations (using consecutive rates/percentages) and
interpolation. (6 marks)
INFORMATION
LTA Limited is considering the purchase of a machine. The company desires a minimum required rate of return of 12%. The machine will cost R2 200 000 plus R200 000 for installation costs. A useful life of six years is anticipated. The machine is predicted to have a salvage value of R80 000. The machine is expected to increase cash inflows by R780 000 per year and increase cash expenses by R220 000 per year.
5.2
REQUIRED
Study the information given below and calculate the following:
Payback Period of Project B (expressed in years, months and days). (3 marks)
Accounting Rate of Return on average investment of both projects (expressed to two decimal places) (6 marks)
INFORMATION
The following data relate to two investment projects, only one of which may be selected:
| Project A | Project B | |
| R | R | |
| Initial capital expenditure | 900 000 | 900 000 |
| Net cash inflow per year: | ||
| Year 1 | 450 000 | 170 000 |
| Year 2 | 360 000 | 190 000 |
| Year 3 | 270 000 | 430 000 |
| Year 4 | 180 000 | 470 000 |
| Expected salvage (scrap) value | 180 000 | 0 |
Note:
■ Depreciation is calculated using the straight-line method.
■ The cost of capital is 15%.
Answers on Above Questions on Financial Planning and Control
Answer 1: The Budgeted Statement of Comprehensive Income for the year ended 31 December 2023 for the Millwall Enterprises is prepared as follows:
Get completed answers on the questions above on financial planning and control from the accounting assignment help South Africa experts of Student Life Saviour.
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