nswer ALL questions. [20 MARKS]

The master budget of Levis Limited for 2020 has largely been completed. All that remains is

the preparation of the statement of financial position as at 31 December 2020. The

management of Levis Limited is also in the process of identifying investment opportunities for

2021. Two projects have been identified and your assistance is required in undertaking

capital investment appraisal.

QUESTION 1 (10 Marks)

Use the following information to prepare the Pro Forma Statement of Financial Position of

Levis Limited as at 31 December 2020. Where applicable, round off amounts to the nearest

Rand.

INFORMATION

The sales of Levis Limited for 2019 amounted to R6 000 000. The sales for 2020 are

expected to increase by R2 000 000. All sales are on credit.

Accounts payable must be calculated using the percentage-of-sales method.

Accounts receivable is based on a collection period of 30 days.

The following ratios are forecast for 2020:

Gross margin 25%

(Net) Profit margin 10%

All purchases of inventory are on credit. Purchases for 2020 are projected at R5

000 000.

The business expects to show a net increase in cash of R100 000 during 2020.

Machinery with a cost price of R800 000 and accumulated depreciation of R800 000

is expected to be scrapped at the end of 2020. Machinery with a cost price of R4

800 000 will be purchased to replace the machinery that will be scrapped. Total

depreciation for 2020 is estimated to be R600 000.

200 000 ordinary shares at R4 each are expected to be sold during January 2020.

Dividends of R600 000 are expected to be recommended by the directors at the

end of December 2020. The dividends will be paid during 2021.

R1 100 000 will be paid to Sen Bank during 2020. This includes R400 000 for

interest on loan.

The amount of external funding (non-current debt) required must be calculated.

The Statement of Financial Position of Levis Limited as at 31 December 2019 is as

follows:

Levis limited

Statement of Financial Position as at 31 December 2019

R

ASSETS

Non-current assets 4 000 000

Fixed/Tangible assets 4 000 000

Current assets 5 800 000

Inventories

Accounts receivable

Cash and cash equivalents

3 880 000

1 600 000

320 000

Total assets 9 800 000

EQUITY AND LIABILITIES

Shareholders' equity 4 680 000

Ordinary share capital

Retained earnings

3 400 000

1 280 000

Non-current liabilities 4 400 000

Long-term loan (Sen Bank) 4 400 000

Current liabilities 720 000

Accounts payable 720 000

Total equity and liabilities 9 800 000