Answer ALL questions in this paper. [100 MARKS] QUESTION 1 (20 Marks) REQUIRED Refer to the extract below and suggest strategies that an enterprise can use to manage its cash and overdrafts effectively. INFORMATION Cash is an important part of working capital management. Companies need to have sufficient levels of cash in order to stay in business. The consequences of running out of cash are often disastrous, with many entities depending on bank overdrafts. On the other hand, a large amount of cash can be tied up in working capital, so a company managing it efficiently could benefit from additional liquidity and be less dependent on external financing. This is especially important for businesses that have limited access to external funding sources.

QUESTION 2 (20 Marks) 2.1 REQUIRED Use the information given below to calculate the value of closing inventory as at 31 March 2020 and value of issues to production for March 2020 using the: 2.1.1 Weighted average cost method. (5 marks) 2.1.2 First-in-first-out (FIFO) method. (5 marks) INFORMATION The following transactions of Dreamcoat Manufacturers, which uses the periodic inventory system, took place during March 2020 in respect of a component used in production: March 01 16 17 20 31 Opening inventory Purchased from a supplier Returned to the supplier (purchased on 16 March 2020) Purchased from supplier Issues to production during March 2020 4 000 units @ R20 per unit 15 000 units @ R21 per unit 2 000 units 3 000 units @ R22 per unit 16 000 units 2.2 REQUIRED Use the following financial data to prepare the Pro Forma Statement of Financial Position of Plexicor Inc. as at 31 December 2020. (10 marks) INFORMATION A financial manager at Plexicor Inc. has gathered the following financial data needed to prepare a Pro Forma Statement of Financial Position for the coming year ending 31 December 2020: Sales for 2020 is estimated to be R7 500 000. Trade and other receivables represent 12% of sales. Inventory represents 24% of sales. New equipment with a cost price of R900 000 will be purchased during 2020. Total depreciation for 2020 is estimated to be R500 000. Trade and other payables represent 18% of sales. 150 000 shares are expected to be issued at R2 each during the first quarter of 2020. The business predicts a 10% profit margin (net profit margin). Dividends amounting to R400 000 are expected to be declared at the end of 2020 and are payable during 2021. The long-term loan is estimated to be reduced by 10% during 2020. The amount of cash and cash equivalents must be determined (balancing figure). The Statement of Financial Position for the year ended 31 December 2019 is as follows:

PLEXICOR INC. STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 R ASSETS Non-current assets 4 100 000 Fixed/Tangible assets 4 100 000 Current assets 2 900 000 Inventories Trade and other receivables Cash and cash equivalents 1 800 000 900 000 200 000 Total assets 7 000 000 EQUITY AND LIABILITIES Equity 4 600 000 Ordinary share capital Retained earnings 3 300 000 1 300 000 Non-current liabilities 1 000 000 Long-term loan 1 000 000 Current liabilities 1 400 000 Trade and other payables 1 400 000 Total equity and liabilities 7 000 000

QUESTION 3 (20 Marks) REQUIRED 3.1 Use the information provided below to calculate the following ratios for 2019. Where applicable, round off answers to two decimal places. 3.1.1 Profit margin (2 marks) 3.1.2 Inventory turnover (2 marks) 3.1.3 Debtors collection period (2 marks) 3.1.4 Creditors payment period (2 marks) 3.1.5 Return on equity (2 marks) 3.1.6 Current ratio (2 marks) 3.1.7 Acid-test ratio (2 marks) 3.2 Refer to your answers in question 3.1 and comment on the ability of Taurus Limited to: 3.2.1 honour its short-term obligations without relying on the sale of its inventories. (2 marks) 3.2.2 collect debts arising from credit sales. (2 marks) 3.2.3 provide a satisfactory return for the investors. (2 marks) INFORMATION Excerpts of the financial data of Taurus Limited for 2019 are as follows: STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 R Sales 7 800 000 Cost of sales (5 280 000) Gross profit 2 520 000 Operating profit 796 000 Profit after tax 483 000 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 Assets R Non-current assets 2 470 000 Inventories 3 000 000 Accounts receivable 930 000 Cash 440 000 6 840 000

Equity and liabilities R Equity 3 160 000 Long-term loan 1 280 000 Accounts payable 1 400 000 Other current liabilities 1 000 000 6 840 000 Additional information 1. All purchases and sales of inventories were on credit. 2. Inventories on 31 December 2018 amounted to R2 800 000. 3. Credit terms to debtors are 30 days.

QUESTION 4 (20 Marks) REQUIRED Use the following information provided by Ruby Enterprises to prepare the: 4.1 Debtors Collection Schedule for January and February 2021. (4 marks) 4.2 Cash Budget for January and February 2021. (16 marks) Note: Where applicable, round off amounts to the nearest Rand. INFORMATION 1. Ruby Enterprises expects to have an unfavourable bank balance of R30 000 on 01 January 2021. 2. Credit sales are expected to be as follows: November 2020 December 2020 January 2021 February 2021 R270 000 R600 000 R276 000 R288 000 3. Credit sales usually make up 60% 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 took place, and these customers are entitled to a discount of 2%; * 65% in the following month. The rest is usually written off as bad debts. 5. Budgeted purchases of inventory are as follows: December 2020 January 2021 February 2021 R350 000 R280 000 R330 000 6. 60% of the purchases of inventory are for cash in order to take advantage of a 10% discount. The remainder is paid one month after the purchase. 7. Salaries for February 2021 are expected to amount to R117 600, 12% more than the salaries for January 2021. 8. Interest at 12% per annum on the loan balance is paid monthly. The loan balance as at 31 December 2020 is expected to be R300 000 and a repayment of R40 000 will be made on 01 February 2021. 9. Part of the building is sublet to a tenant and rent is collected monthly. The lease agreement for the year ended 31 January 2021 reflected the rental as R132 000 per annum. The rental will increase by 10% with effect from 01 February 2021. 10. Other operating expenses amount to R35 000 per month. This amount excludes R5 000 per month for depreciation. Operating expenses are paid for in the month in which they are incurred. 11. A decision was made to invest by purchasing 25 000 shares at R4 each in Venus Limited during February 2021.

QUESTION 5 (20 Marks) Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 5.1 REQUIRED Study the information given below and calculate the Net Present Value. (5 marks) INFORMATION Richmond Limited is considering the purchase of a machine. The machine will cost R1 200 000 plus installation costs of R250 000 and it is expected to have a useful life of five years. The machine is expected to generate cash flows of R560 000 per year and is also expected to have a salvage value of R50 000. Annual cash outflows are expected to amount to R200 000. The company desires a minimum required rate of return of 12%. 5.2 REQUIRED Use the information given below to calculate the following: 5.2.1 Payback Period of Project B (answer expressed in years, months and days). (3 marks) 5.2.2 Accounting Rate of Return (on average investment) of Project A (answer expressed to two decimal places). (4 marks) 5.2.3 Benefit Cost Ratio of Project A (answer expressed to three decimal places). (4 marks) 5.2.4 Internal Rate of Return of Project B (answer expressed to two decimal places). (4 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 400 000 400 000 Cost of capital 15% 15% Net cash flows per year: Year 1 200 000 134 000 Year 2 140 000 134 000 Year 3 120 000 134 000 Year 4 72 000 134 000 Expected resale value at end of year 4 (not included in the figures above) 40 000 0 Average annual profit 43 000 34 000