KG Entertainment plans to build and open two new theatres to be used for theatrical productions (400 seats in each) during the 2023 financial year. KG Entertainment plans to build and own its theatrical theatres in the future and diversify into the movie theatre market. This change in strategy is motivated by the high cost of leasing theatrical premises and establishing some form of diversification. The company has historically leased premises and lease agreements are generally for 10-year periods with five-year renewal options. Commercial banks have adopted the view that theatre buildings provide limited security for loans due to their specialised nature and use. Shareholders and the executive board are unwilling to provide personal suretyship to secure loans. In addition, they consider the interest rate to be very high in comparison to normal property finance rates. The cinema and theatre industry has been facing stiff competition from digital streaming platforms such as Netflix, which offers a wide variety of content at an affordable price. STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED/ENDING 31 JULY Actual Budget Budget 2023 2023 2024 R'000 R'000 R'000 Revenue Ticket sales Beverage sales Cost of sales Ticketing agent commission Contractor fees for new shows Beverage costs New show stage props Notes 1 2 3 60 000 50 000 10 000 -21 700 -1 500 -900 -4 000 -300 58 140 47 561 10 579 -23 457 -1 760 -998 -4 560 -450 70 500 57 500 13 000 -25 200 -2 200 -1.000 -4 500 -500 Musicians and artist fees Gross profit Overheads Depreciation Marketing costs Salaries and wages Rental of premises Travelling and accommodation Utility costs Other overheads Profit from operations Net interest income/ finance costs Profit before tax 4 5 6 (0) Seats Ticket sold Trading weeks at each theatre Theatres open and trading for the year 5,7 5 5 8 -15 000 38 300 -1 638 -900 -7 000 -18 000 -3 000 -800 -2 000 4 962 200 5 162 -15 689 34 683 -1 788 -1 459 -7 305 -19 000 -3 678 -7 80 -1.900 Budget 2023 400 714 285 48 9 1 227 1 -1 226 Notes: 1. KG sells the majority of its ticket sales through an independent ticketing agent (Compu-see), which has a national call centre and internet-based infrastructure. 2. Commission of 4% is paid to Compu-see. Both the budgeted and actual ticketing agent commission for the 2023 financial year amounts to 4% of said face value of the tickets. Budgeted and actual attendance statistics and ticket sales are summarised below: Actual 2023 400 -17 000 45 300 650 432 48 -3 000 -1.900 -8 000 -20 520 -4 000 -1.000 9 -2 200 4 680 -4 600 80 Budget 2024 400 766 664 48 11 Number of shows per week at each theatre Maximum number of tickets available 9 1 555 200 1 555 200 3. Construction costs incurred for stage props for new shows are expensed in the year in which they are incurred. 4. Buildings are depreciated over 20 years on a straight-line basis. 5. Utility, marketing, travelling and accommodation and other overhead costs are fixed in nature. 1 900 800 6. Budgeted rental escalations are 8% based on the terms of lease agreements. 7. The majority of the traveling and accommodation costs relate to expenses incurred by cast members traveling to different cities and their accommodation costs. 8. Finance cost is fixed in nature. Required: 2.1 Calculate the number of tickets that need to be sold in the 2024 financial year to break even. Assume that 80% of all ticket sales will occur through the independent ticketing agent. (30 Marks) Breakdown of mark allocation Instructions: 1. Make use of Microsoft Excel for this question. 2. Prepare a notes area and make use of cell referencing, functions and formulas as far as possible. 3. Present the solution in Normal and Formula view. Normal view - (21 Marks) Formula view - (9 Marks) KG Entertainment plans to build and open two new theatres to be used for theatrical productions (400 seats in each) during the 2023 financial year. KG Entertainment plans to build and own its theatrical theatres in the future and diversify into the movie theatre market. This change in strategy is motivated by the high cost of leasing theatrical premises and establishing some form of diversification. The company has historically leased premises and lease agreements are generally for 10-year periods with five-year renewal options. Commercial banks have adopted the view that theatre buildings provide limited security for loans due to their specialised nature and use. Shareholders and the executive board are unwilling to provide personal suretyship to secure loans. In addition, they consider the interest rate to be very high in comparison to normal property finance rates. The cinema and theatre industry has been facing stiff competition from digital streaming platforms such as Netflix, which offers a wide variety of content at an affordable price. STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED/ENDING 31 JULY Actual Budget Budget 2023 2023 2024 R'000 R'000 R'000 Revenue Ticket sales Beverage sales Cost of sales Ticketing agent commission Contractor fees for new shows Beverage costs New show stage props Notes 1 2 3 60 000 50 000 10 000 -21 700 -1 500 -900 -4 000 -300 58 140 47 561 10 579 -23 457 -1 760 -998 -4 560 -450 70 500 57 500 13 000 -25 200 -2 200 -1.000 -4 500 -500 Musicians and artist fees Gross profit Overheads Depreciation Marketing costs Salaries and wages Rental of premises Travelling and accommodation Utility costs Other overheads Profit from operations Net interest income/ finance costs Profit before tax 4 5 6 (0) Seats Ticket sold Trading weeks at each theatre Theatres open and trading for the year 5,7 5 5 8 -15 000 38 300 -1 638 -900 -7 000 -18 000 -3 000 -800 -2 000 4 962 200 5 162 -15 689 34 683 -1 788 -1 459 -7 305 -19 000 -3 678 -7 80 -1.900 Budget 2023 400 714 285 48 9 1 227 1 -1 226 Notes: 1. KG sells the majority of its ticket sales through an independent ticketing agent (Compu-see), which has a national call centre and internet-based infrastructure. 2. Commission of 4% is paid to Compu-see. Both the budgeted and actual ticketing agent commission for the 2023 financial year amounts to 4% of said face value of the tickets. Budgeted and actual attendance statistics and ticket sales are summarised below: Actual 2023 400 -17 000 45 300 650 432 48 -3 000 -1.900 -8 000 -20 520 -4 000 -1.000 9 -2 200 4 680 -4 600 80 Budget 2024 400 766 664 48 11 Number of shows per week at each theatre Maximum number of tickets available 9 1 555 200 1 555 200 3. Construction costs incurred for stage props for new shows are expensed in the year in which they are incurred. 4. Buildings are depreciated over 20 years on a straight-line basis. 5. Utility, marketing, travelling and accommodation and other overhead costs are fixed in nature. 1 900 800 6. Budgeted rental escalations are 8% based on the terms of lease agreements. 7. The majority of the traveling and accommodation costs relate to expenses incurred by cast members traveling to different cities and their accommodation costs. 8. Finance cost is fixed in nature. Required: 2.1 Calculate the number of tickets that need to be sold in the 2024 financial year to break even. Assume that 80% of all ticket sales will occur through the independent ticketing agent. (30 Marks) Breakdown of mark allocation Instructions: 1. Make use of Microsoft Excel for this question. 2. Prepare a notes area and make use of cell referencing, functions and formulas as far as possible. 3. Present the solution in Normal and Formula view. Normal view - (21 Marks) Formula view - (9 Marks)