QUESTION 1(20 MARKS)

REQUIRED: Luxor Limited had provided the following information relating to the previous financial year. Use the information to prepare the following:

1.1 Pro Forma Statement of Comprehensive Income for the year ended 31 December 2020. (9 Marks)

1.2 Pro Forma Statement of Financial Position as at 31 December 2020. (11 Marks)

Where applicable, round off amounts to the nearest Rand.

INFORMATION: Statement of Comprehensive Income For the year ended 31 December 2019

Sales 10 200 000 Cost of sales (7 140 000) Gross profit 3 060 000

Operating expenses (1 720 000) Depreciation 43 000 Electricity 220 000 Insurance 56 000 Motor repairs 22 000 Rates 60 000 Rent 720 000 Salaries and wages 480 000 Stationery 44 000 Telephone 75 000 Operating profit 1 340 000 Interest expense (116 000 Net profit for the year 1 224 000 Taxation (30%) (367 200) Net profit after tax 856 800

Statement of Financial Position 31 December 2019

ASSETS Non-current assets 2 514 000 Land and Buildings 2 200 000 Motor Vehicles 210 000 Motor Vehicles at cost 300 000 Accumulated depreciation on motor vehicles (90 000) Equipment 104 000 Equipment at cost 130 000 Accumulated depreciation on equipment (26 000)

Current Assets 1 736 000

Inventories 1 020 000 Trade debtors 306 000 Cash 410 000

Total assets 4 250 000

EQUITY AND LIABILITIES 3 422 000

Ordinary shares 1 000 000 Retained earnings 2 422 000

Non-current liabilities 420 000 Long term loan (ABSA) 420 000

Current liabilities 408 000 Trade creditors 408 000 Total equity and liabilities 4 250 000

Additional information:

Sales for 2020 are expected to increase by 8%. Sales are spread evenly throughout the year. 60% of sales are on credit.

Credit sales are collected as follows; o 40% in the month of sale and o 60% one month after the sale.

It is expected that the gross profit percentage for 2020 will be the same as in 2019.

Closing inventories for 2020 must be calculated using the percentage of sales method.

All purchases are on credit. Purchases are spread evenly over the twelve months of the year. Payments to creditors are made as follows: o 50% one month after purchase o 50% two months after purchase

Motor vehicles costing R120 000 are expected to be purchased on 1 July 2020.

Depreciation is provided at 20% per annum on the cost of motor vehicles and equipment.

A minimum cash balance of R400 000 must be maintained.

Rental expense is expected to increase by 8% with effect from 1 Jan 2020.

Salaries will increase by 6% with effect from 1 January 2020.

All other operating expenses are expected to increase by 10% for 2020.

It is expected that dividends of R50 000 will be declared and paid in December 2020.

R120 000 will be paid to ABSA during 2020. This includes R80 000 in interest. This will be the only interest expense for 2020.

The tax rate is expected to remain unchanged at 30% in 2020.

Any surpluses on the statement of financial position will be invested in long term financial instruments.

Any shortages on the statement of financial position will be funded by short term external creditors.

End

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