Question 2 40 marks (60 minutes) Ultra Mirrors (Pty) Ltd (hereafter referred to as "UM") is in the business of manufacturing a wide range of mirrors for both individual and corporate clients. The company is in the process of preparing their financial statements for the year ended 31 December 2021. You are a newly hired employee in the accounting department of UM and have been tasked with assisting in the preparation of the statement of cash flows. The following information has been provided to you: Account description Notes 1 2 3 4 2021 R' Dr/(Cr). 2 256 000 450 000 120 000 62 100 318 000 1 734 436 4 194 ??? (7 315) (22 000) 2020 R' Dr/(Cr) 2 256 000 600 000 80 000 45 000 242 000 41 275 0 0 (12 750) (14 470) 5 6 4 (200 960) (175 840) Land and Buildings (at cost) Vehicles (at cost) Machinery and Equipment (at cost) Trade Receivables Inventory Bank Prepaid Expenses Mortgage SARS Payable Trade Payables Accumulated depreciation (buildings) Accumulated depreciation (vehicles) Accumulated depreciation (machinery and equipment) Share Capital Dividend Declared Dividend Payable Sales Cost of Sales Tax Expense Other Income Operating Expenses 1 (112 500) (100 000) 2 7 (16 200) (1 250 000) 200 000 (50 000) (2 050 000) ??? 61 050 (55 500) 200 000 (15 000 (1 000 000) 150 000 (20 000 (1 455 200) 4 8 6,9 54 225 (33 250) 85 000 1. Vehicles UM purchased 4 delivery vehicles on 1 January 2019 at a cost of R150 000 each. The delivery vehicles have a residual value of R75 000 each with a useful life of 6 years. On 30 June 2021, UM sold one of the delivery vehicles at a profit of R11 250. The transaction was a cash sale. The profit on the sale of the delivery vehicle has correctly been included in other income. 2. Machinery and Equipment In order to meet the increased demand for their products, UM purchased an additional manufacturing machine on 1 July 2021. The invoice was only paid 30 days after purchase. Depreciation on the machinery and equipment has correctly been included in operating expenses. 3 3. Trade Receivables The allowance for credit losses increased from R5 000 to R6 500 during the year (these balances have been closed off to trade receivables). The increase in allowance for bad debts has correctly been included in operating expenses. 4. Inventory and Trade Payables Um achieves a consistent 45% gross profit margin. 5. Prepaid Expenses On 1 July 2021, UM entered into a contract for a 12-month fibre internet connection. UM paid upfront for the 12 months. Per the contract, the monthly charge is R699. The internet expense has correctly been included in operating expenses. 6. Mortgage On 1 January 2021, UM obtained a R1 000 000 mortgage from Nonstandard Bank. The mortgage bears interest at 12% per annum. The mortgage is repayable in 5 equal instalments, each due on 31 December (each payment is first allocated towards the interest, before being allocated to the capital portion). Interest accrued on the loan is also payable on 31 December every year. There was no other interest expense for the year, other than the interest incurred on this loan. Interest Expense has been correctly included in operating expenses. 7. Share Capital During the year, UM issued additional shares. R50 000 share issue costs were incurred and paid in cash. These share issue costs have been closed off to the cost of Equity. 8. Other Income Assume all other income (other than income pertaining to Point 1) to be from cash transactions. 9. Operating Expenses Assume operating expenses (other than expenses pertaining to depreciation, Point 3, Point 5 to be from cash transactions). Additional information: . Ignore VAT and dividend tax. UM prepares their statement of cash flows using the direct method. Round all amounts to the nearest Rand where applicable. All sales are on credit. . . You are required to: Marks (a) Prepare the Statement of Cash Flows for Ultra Mirrors (Pty) Ltd for the (40) financial year ending 31 December 2021. Comparative Figures and the reconciliation note are not required. Question 2 40 marks (60 minutes) Ultra Mirrors (Pty) Ltd (hereafter referred to as "UM") is in the business of manufacturing a wide range of mirrors for both individual and corporate clients. The company is in the process of preparing their financial statements for the year ended 31 December 2021. You are a newly hired employee in the accounting department of UM and have been tasked with assisting in the preparation of the statement of cash flows. The following information has been provided to you: Account description Notes 1 2 3 4 2021 R' Dr/(Cr). 2 256 000 450 000 120 000 62 100 318 000 1 734 436 4 194 ??? (7 315) (22 000) 2020 R' Dr/(Cr) 2 256 000 600 000 80 000 45 000 242 000 41 275 0 0 (12 750) (14 470) 5 6 4 (200 960) (175 840) Land and Buildings (at cost) Vehicles (at cost) Machinery and Equipment (at cost) Trade Receivables Inventory Bank Prepaid Expenses Mortgage SARS Payable Trade Payables Accumulated depreciation (buildings) Accumulated depreciation (vehicles) Accumulated depreciation (machinery and equipment) Share Capital Dividend Declared Dividend Payable Sales Cost of Sales Tax Expense Other Income Operating Expenses 1 (112 500) (100 000) 2 7 (16 200) (1 250 000) 200 000 (50 000) (2 050 000) ??? 61 050 (55 500) 200 000 (15 000 (1 000 000) 150 000 (20 000 (1 455 200) 4 8 6,9 54 225 (33 250) 85 000 1. Vehicles UM purchased 4 delivery vehicles on 1 January 2019 at a cost of R150 000 each. The delivery vehicles have a residual value of R75 000 each with a useful life of 6 years. On 30 June 2021, UM sold one of the delivery vehicles at a profit of R11 250. The transaction was a cash sale. The profit on the sale of the delivery vehicle has correctly been included in other income. 2. Machinery and Equipment In order to meet the increased demand for their products, UM purchased an additional manufacturing machine on 1 July 2021. The invoice was only paid 30 days after purchase. Depreciation on the machinery and equipment has correctly been included in operating expenses. 3 3. Trade Receivables The allowance for credit losses increased from R5 000 to R6 500 during the year (these balances have been closed off to trade receivables). The increase in allowance for bad debts has correctly been included in operating expenses. 4. Inventory and Trade Payables Um achieves a consistent 45% gross profit margin. 5. Prepaid Expenses On 1 July 2021, UM entered into a contract for a 12-month fibre internet connection. UM paid upfront for the 12 months. Per the contract, the monthly charge is R699. The internet expense has correctly been included in operating expenses. 6. Mortgage On 1 January 2021, UM obtained a R1 000 000 mortgage from Nonstandard Bank. The mortgage bears interest at 12% per annum. The mortgage is repayable in 5 equal instalments, each due on 31 December (each payment is first allocated towards the interest, before being allocated to the capital portion). Interest accrued on the loan is also payable on 31 December every year. There was no other interest expense for the year, other than the interest incurred on this loan. Interest Expense has been correctly included in operating expenses. 7. Share Capital During the year, UM issued additional shares. R50 000 share issue costs were incurred and paid in cash. These share issue costs have been closed off to the cost of Equity. 8. Other Income Assume all other income (other than income pertaining to Point 1) to be from cash transactions. 9. Operating Expenses Assume operating expenses (other than expenses pertaining to depreciation, Point 3, Point 5 to be from cash transactions). Additional information: . Ignore VAT and dividend tax. UM prepares their statement of cash flows using the direct method. Round all amounts to the nearest Rand where applicable. All sales are on credit. . . You are required to: Marks (a) Prepare the Statement of Cash Flows for Ultra Mirrors (Pty) Ltd for the (40) financial year ending 31 December 2021. Comparative Figures and the reconciliation note are not required