FINANCIAL PROJECTIONS AND CAPITAL EXPENDITURE OF ELSIES LIMITED

Elsies Limited is a nationally recognised supplier of catering equipment. It offers safe and secure shopping via its online store and its state$-$of$-$the$-$art premises in each of the provinces of South Africa. The company offers a wide selection of catering equipment and supplies at competitive prices. The target market includes restaurants, hotels, hostels and spaza shops. Their products carry an industry$-$leading warranty that is backed by good after$-$sales service and availability of spares. The company was established in $2015$ with an authorised share capital of $1500000$ ordinary shares of which $900000$ were issued at R$2$ each at the initial public offering in $2015.$

The financial manager and her team were in the process of forecasting the financial performance for $2024$ and financial position of the company as of $31$ December $2024.$ The starting point was the following figures that were obtained from the financial statements for the year ended $31$ December $2023$:

The sales amounted to R$9600000,$ and the cost price of the goods sold was R$7200000.$ Operating expenses totaled R$1200000$ whilst the company tax amounted to R$336000.$ The carrying value of the fixed assets was R$4200000$ whilst the inventories, trade debtors and cash reflected values of R$1200000,$ R$1800000$ and R$600000$ respectively. The ordinary share capital balance remained unchanged since the establishment of the company in $2015$ whilst the undistributed profits of the company accumulated to R$2100000.$ An amount of R$2400000$ was owed to Jip Bank for a long$-$term loan. The amount owed to trade creditors was R$1467000$ and the company tax payable to SARS was R$33000.$

The following predictions were made for the financial year ended $31$ December $2024$:

Sales are expected to increase by $25\%.$ Seventy$-$five percent $(75\%)$ of the total sales is estimated to be on credit. Company tax will be calculated at $27\%$ of the pre$-$tax profit and $10\%$ of this amount is expected to be unpaid on $31$ December $2024.$ A final dividend of R$400000$ is expected to be declared on $31$ December $2024,$ and is payable during $2025.$ The unsold shares are expected to be issued on $31$ March $2024$ at R$3$ each. The amount owed by trade debtors will be based on a collection period of $54\mathrm{.}75$ days. The company$$s closing inventory and the amount owed to trade creditors are expected to change directly with the change in sales in $2024.$ A new machine with a cost price of R$700000$ will be purchased during January $2024.$ Depreciation for $2024($included in the operating expenses$)$ is expected to amount to R$300000.$ R$760000$ will be paid to Jip Bank during $2024$ and this amount includes R$360000$ for interest. The cash balance must be calculated $($balancing figure$).$

Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during $2025.$ The company desires a minimum required rate of return of $12\%.$ The machine will cost R$2000000$ plus R$400000$ for installation and is predicted to have a useful life of five years. A salvage value of R$100000$ is estimated. The machine is expected to increase cash inflows by R$800000$ per year but will require the employment of two new machine operators at R$100000$ per year for each operator, and it will require maintenance and repairs averaging R$40000$ per year. Depreciation will be calculated using the straight$-$line method.

Prepare the following pro forma statements:

$1\mathrm{.}1$

Statement of Comprehensive Income for the year ended $31$ December $2024$ using the percentage$-$of$-$sales method. $(4)$

$1\mathrm{.}2$

Statement of Financial Position as of $31$ December $2024.(14)$