$[$OFFICIAL$]$

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 year$-$end, 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 $31$st

December $2022$ : $-$

Sales R$645,000$

Selling Expenses $3\%$ of Sales

Depreciation R$12,650$

Cost of Sales $80\%$ of Sales

General & Admin Expenses R$17,000$

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 $35\%.$

The following balances were also extracted from the accounts as at the close of trading on $31$st

December $2022$: $-$

Debtors R$123,700$

Ordinary Share Capital R$80,000$

Cash on Hand R$13,300$

Bank Overdraft R$24,670$

Stock R$60,000$ and Creditors R$65,030$

At the beginning of $2022,$ the balance on the retained income account was R$151,000,$ and the Net Book Value of Fixed Assets stood at R$162,350.$ No additional Fixed Assets were purchased during the year. Tom and his management team had identified new markets and predicted exciting growth for $2012.$

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 L$-$T loan of up to R$100,000.$ Estimates for the year ahead were: $-$

Sales Up by $40\%$

General & admin Expenses R$21,760$

Interest Paid R$11,100$

Cost of Sales $80\%$ of Sales

Selling Expenses $3\%$ of Sales

Depreciation R$12,650$

The corporate taxation rate remained the same, and to reduce required borrowings, Smith agreed not to take any dividends in $2023.$

They predicted the following for Balance Sheet accounts at $31$st December $2023$ :$-$

No additional share capital was to be raised

Cash requirements would grow to R$34,270$ by year$-$end

Creditors were expected to come down to R$47,500$

Stock levels would need to increase to R$84,000$ 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 L$-$T 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 $31$st December $2022-10$ marks

b$)$ The Balance Sheet as at $31$st December $2022-10$ marks

c$)$ A full set of pro$-$forma financial statements $($Income Statement, Balance Sheet & Cash Flow

Statement$)$ for the year ahead. Grid provided for Cash Flow Statement $-10$ marks

d$)$ Calculate all the ratios in the attached grid $-10$ 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 $-$