Prestige Timekeepers (Pty) Limited is a small private company owned and managed by Alfred Kango. The entity offers a watch repair service, specializing in the chiming grandpa and mantel watches. Alfred has no accounting training but keeps a close watch on bank balances. He was pleased when he saw the statement of cash flows that Fourie & Associates, a firm of chartered accountants, prepared for his business. He noticed that cash had increased from R3 700 at the beginning of the year to R24 780 at the end of the year. Alfred argued that because the cash balances had increased by R21 080 and the company had paid a cash dividend of R25 000 to his as the sole shareholder, the business must have earned a profit of R46 080 during the year. He confirmed his understanding by pointing out the cash generated from operations of R46 080 on the statement provided by Fourie & Associates. Extract from the statement of cashflows for the reporting period ended 30 September 2021 Cash received from customers R86,250 Cash paid for operating expenses (40,170) Cash generated from operations 46,080 Dividends (25,000) Net cash increase 21,080 Cash at the beginning of the period 3.700 Cash at the end of 30 September 2021 24,780 Alfred was furious when he looked at the statement of profit or loss. He learned that the profit of the company was reported as R26 410. After thinking about it for some time, he visits Fourie & Associates offices to seek explanation. Unfortunately, the accountant who had prepared the cash flow statement and the statement of profit or loss was away due to ill health. He shows you the printouts and asks you to explain how, in a year where cash increased by R21 080 and a cash distribution of R25 000 was made, the business had only registered a profit of R26 410. Alfred argues, "this cannot be! I needed a good profit record to approach the bank for a loan to expand the business. The bank manager will not accept my application. My company has no receipts for depreciation expenses". Statement of profit or loss for the reporting period ended 30 September 2021 Rent Revenue Fees R73,750 Expenses: (47,340) Depreciation: vehicles (6,000) Depreciation: equipment (7,400) Parts supplies used (6,040) Insurance-expired portion of prepaid insurance (1,310) (9,900) Repairs (1,830) Wages (12, 100) Water and electricity (2,760) Profit for the period before taxation 26,410 On examining the accounting records of Prestige Timekeepers (Pty) Limited, you note the following movements in the ledger account balances from 30 September 2020 to 30 September 2021: (1) The balance on accounts receivable decreased from R17 900 to R5400. (ii) The account payable (all owing to the supplier of parts supplies) decreased from R17 200 to R11 230. (iii) The balance on the parts supplies on hand account decreased from R1 200 to R830. (iv) The balance on insurance prepaid in advance account increased by R180. (v) The balance of municipal rates and taxes payable account increased by R90. (vi) The balance on the wages payable account decreased by R540. (vii) Parts supplies costing R5 670 were purchased on credit during the year. (viii) No property, plant and equipment were purchased or sold during the year. You are required to: a) Explain the flaws in the Alfred's reasoning, clearly defining any terms in your answer. Hint: see to it that you answer Alfred's concerns. [8 marks] b) Prepare a reconciliation schedule to reconcile the profit for the period on the statement of profit or loss and the cash generated from operations on the statement of cash flows. Provide a one-sentence explanation of each reconciling item in your reconciliation schedule [8 marks] c) Provide workings (in T-Account format] or other understandable schedules to support the calculations of the following amount: Cash received from customers R 86 250 Cash paid for operating expenses R 40 170