QUESTION 1 (20 Marks)
BUDGETS
The following information has been projected by the management of GORGEOUS TRADING for the forecast period 01 September 2024 to 31 October 2024.
Information:
|
PROJECTIONS |
ACTUAL | BUDGETED | ||
| JULY | AUGUST | SEPTEMBER | OCTOBER | |
| Cash Sales | 150 000 | 100 000 | 120 000 | 140 000 |
| Credit Sales | 100 000 | 80 000 | 60 000 | 90 000 |
| Purchases | 70 000 | 60 000 | 100 000 | 70 000 |
2. Collections of credit sales from debtors:
• 50 % in the month of sales
• 30 % one month after the sales
• 15 % two months after the sales
• Balance due is irrecoverable and must be written off as bad debts.
3. All purchases are on credit and creditors are paid one month after purchase less10% discount.
4. A fixed deposit of R15 000 is maturing on 20 September 2024. An interest of R2 000 will also be due on this date.
5. Salaries amounts to R30 000 per month. However, an increase of 8% will come into effect from 01 October 2024.
6. An air-conditioned system costing R25 000 is scheduled to be purchased and installed for cash in October 2024.
7. Variable expenses are expected to be R18 000 per month and expected to increase by R2 000 with effect from 01 October 2024.
8. The owner withdraws R20 000 cash each month for her personal use.
9. A loan repayment of R50 000 is made annually on 01 September.
10. The expected Bank balance on 01 September is an unfavorable bank balance of R7 850.
Required:
1.1 Debtors Collection Schedule for the budgeted period, September to October 2024. (6 marks)
1.2.Statement of Cash Budget for the Budgeted period, September to October 2024. (14 marks)
QUESTION 2 (20 Marks)
RATIO ANALYSIS
The following information was extracted from the records of FLAMBOYANT WHOLESALERS for the year ended 29 February 2024.
Information :
Extract
| Flamboyant Wholesalers
Statement of comprehensive Income for the year ended 29 February 2024. |
|
| Sales [ all credit ] | 300 000 |
| Less : Cost of sales | ( 180 000 ) |
| Gross Profit | 120 000 |
| Add : Operating Income | 30 000 |
| Gross Income | 150 000 |
| Less : Operating Expenses | ( 50 000 ) |
| Operating Profit | 100 000 |
| Less : Interest Expenses | ( 20 000 ) |
| Net Profit for the year | 80 000 |
Extract
| Flamboyant Wholesalers
Statement of Financial Positionas at 29 February 2024. |
||
| ASSETS | ||
| Non- Current Assets | 950 000 | |
| Current assets | 360 000 | |
| Inventory | 110 000 | |
| Debtors | 80 000 | |
| Bank | 170 000 | |
| 1 310 000 | ||
| EQUITY and LIABILITIES | ||
| Owner’s Equity | 890 000 | |
| Non-Current Liability | 300 000 | |
| Current Liabilities | 120 000 | |
| 1 310 000 | ||
NB : Inventory on 01 March 2023 was ,R90 000
Required: Calculate the following ratios.
NB : Where applicable, round off your answers to two decimal places.
Gross margin (2 marks)
Inventory turnover(Use average Inventory) (3 marks)
Debtors collection period (3 marks)
Return on assets (3 marks)
Total Debt to equity (3 marks)
Current ratio (3 marks)
Return on own capital (3 marks)
QUESTION 3 (20 Marks)
CAPITAL EXPENDITURE DECISIONS
Fantastic Construction is investigating the possibility of purchasing a new generator. The research department has submitted the following information.
| Investment amount | R 200 000 | |
| Economic life | 4 years | |
| Scrap value | nil | |
| Cost of capital | 14% | |
| Year | Cash Flow | Profit |
| 1 | 70 000 | 20 000 |
| 2 | 75 000 | 25 000 |
| 3 | 68 000 | 18 000 |
| 4 | 65 000 | 15 000 |
Required:
The payback period [ answer in years, months and days ] (4 marks)
The accounting rate of return. (4 marks)
The net present value. (6 marks)
Would a cost of capital of 15% be acceptable when calculating the NPV of the project ? Motivate your answer. (6 marks)
Answers to Above Questions on Financial Management
Answer 1: The debtors collection schedule for the budgeted period, September to October 2024 is calculated as follows:
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