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Happy Wholesalers ( Pty ) Ltd Happy Wholesalers' accountant had recently resigned and left before they had time to replace her. While the bookkeeper managed
Happy Wholesalers Pty Ltd
Happy Wholesalers' accountant had recently resigned and left before they had time to replace her.
While the bookkeeper managed to continue with all the necessary record keeping, it was now yearend,
and Tom Smith owner and managing director realised he had to do something fast! Knowing that you
had recently completed an excellent accounting and finance course at Gibs, he arranged to meet with
you and asked if you would help.
The bookkeeper has compiled the following operating summary for the year ended st
December :
Sales R
Selling Expenses of Sales
Depreciation R
Cost of Sales of Sales
General & Admin Expenses R
In addition, you were told that no interest had been paid during the year as you had gone into
overdraft for the first time just before the Balance Sheet date. Half of all Earnings after Tax were to be
paid out as a dividend, and the prevailing corporate tax rate was
The following balances were also extracted from the accounts as at the close of trading on st
December :
Debtors R
Ordinary Share Capital R
Cash on Hand R
Bank Overdraft R
Stock R
Creditors R
At the beginning of the balance on the retained income account was R and the Net Book
Value of Fixed Assets stood at R No additional Fixed Assets were purchased during the year.
Tom and his management team had identified new markets and predicted exciting growth for
However, their suppliers were tightening up on their settlement terms, and debtors were taking longer
and longer to pay. Thus, they suspected they would need more permanent funding than the overdraft
and had negotiated an LT loan of up to R Estimates for the year ahead were:
Sales Up by
General & admin Expenses R
Interest Paid R
Cost of Sales of Sales
Selling Expenses of Sales
Depreciation R
The corporate taxation rate remained the same, and to reduce required borrowings, Smith agreed not
to take any dividends in
They predicted the following for Balance Sheet accounts at st December :
No additional share capital was to be raised
Cash requirements would grow to R by yearend
Creditors were expected to come down to R
Stock levels would need to increase to R to support the increased trade volumes
No Fixed Assets would be bought or sold during the year
Debtors would increase in direct proportion to Sales
The overdraft facility was to be cancelled all necessary funding to be obtained from the LT L
The required borrowings would be determined by the balancing figure in the projected Balance Sheet
Tom Smith wished to hire you as a consultant and asked you to prepare the following for him, while
he continued his search for a new accountant
a An Income Statement for the year ended st December marks
b The Balance Sheet as at st December marks
c A full set of proforma financial statements Income Statement, Balance Sheet & Cash Flow
Statement for the year ahead. Grid provided for Cash Flow Statement marks
d Calculate all the ratios in the attached grid marks
e Comment on the ratios and the performance of the business. Tell the story of the business as
best as you can from the numbers. This commentary should not be longer than two pages
marks
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