Answer ALL questions in this paper. [100 MARKS] QUESTION 1 (25 Marks) 1.1 REQUIRED Use the information provided below to prepare the following: 1.1.1 Pro Forma Statement of Comprehensive Income for the year ended 31 December 2019. (6 marks) 1.1.2 Pro Forma Statement of Financial Position as at 31 December 2019. The amount of non-current external funding required must be calculated. (14 marks)

INFORMATION

Momentum Ltd Pro Forma Statement of Comprehensive Income for the year ended 31 December 2018 R Sales 8 000 000 Cost of sales 6 000 000 Gross profit 2 000 000 Expenses 1 000 000 Profit before tax 1 000 000 Company tax 300 000 Profit after tax 700 000

Momentum Ltd Pro Forma Statement of Financial Position as at 31 December 2018 R

ASSETS Non-current assets 3 500 000 Fixed/Tangible assets 3 500 000 Current assets 3 000 000

Inventories Trade and other receivables Cash and cash equivalents Total assets

1 000 000 1 500 000 500 000 6 500 000

EQUITY AND LIABILITIES Shareholders equity 3 250 000

Ordinary share capital Retained earnings Non-current liabilities Long-term loan Current liabilities Trade and other payables Company tax payable Total equity and liabilities

1 500 000 1 750 000 2 000 000 2 000 000 1 250 000 1 000 000 250 000 6 500 000

1230 1

Additional information

1) The sales for the year ended 31 December 2019 are expected to amount to R9 000 000. 2) The gross margin percentage for 2018 will be maintained during 2019. 3) Expenses as a percentage of sales are expected to increase by 2.5 percentage points. 4) Company tax is calculated at 30% of the pre-tax profit. Company tax payable (outstanding) on 31 December 2019 is expected to equal 10% of the total tax. 5) A new machine costing R795 000 will be purchased during January 2019. Total depreciation for the year ended 31 December 2019 is expected to amount to R170 000. 6) The dividends for 2019 are expected to amount to R350 000 and these are payable during 2020. 7) Cash and cash equivalents are expected to remain unchanged. 8) Trade and other receivables represent approximately 18% of annual sales. 9) The companys closing inventory as well as trade and other payables will change directly with changes in sales during 2019. 10) 100 000 ordinary shares are expected to be sold during January 2019 at R2.50 per share. 11) R250 000 of the long-term loan will be repaid during March 2019.

1.2 Provide FIVE (5) reasons why it is necessary for business entities to prepare budgets. (5 marks)