QUESTION ONE RATIO ANALYSIS (20 Marks) TRANSFORMATION LTD Information extracted from the Statement of Comprehensive Income Statement for the past two years: 2020 (R) 2019 (R) Sales 2 600 000 2 000 000 Cost of sales (1 800 000) (1 195 000) Gross Profit 800 000 805 000 Operating Expenses (425 500) (218 000) Depreciation 35 000 29 000 Other operating Expenses 390 500 189 000 Operating Profit 374 500 587 000 Interest on mortgage loan (38 000) (210 000) Net profit before tax 356 500 377 000 Income Tax (125 600) (86 250) Net profit after tax 210 900 290 750 formation outstad from ubacutamont of cianocition for the actor ADDITIONAL INFORMATION New shares were issued on the first day of the financial year. Interim and final dividends for the year ended 31 December 2020 amounted to R 180 000 Fixed assets were sold at carrying (book) value during the year for R 220 000. Required: 1.1 Calculate the following ratios for 2020. Where applicable, round off answers to decimal places. 1.1.1 Profit margin (2 marks) 1.1.2 Inventory turnover (2 marks) 1.1.3 Return on capital employed (2 marks) 1.1.4 Earnings per share (2 marks) 1.1.5 Earnings retention ratio (2 marks) 1.1.6 Current ratio (2 marks) 1.1.7 Debt to equity (2 marks) 2.2 Comment briefly but meaningfully on the following ratios: 2.2.1 (2 marks) 2020 1:2:1 2019 0:42:1 Acid test ratio 2.2.2 (2 marks) Debtor collection period 35 days 28 days 2.2.3 (2 marks) Return on assets 9.6% 6.6% QUESTION TWO FINANCIAL PROJECTIONS (20 Marks) Sunglass Hut specialises in manufacturing a particular brand of sunglasses. The following information has been extracted from their projected accounting records for 2020. Sunglasses are sold at a fixed price of R40 a pair The estimated sales volume is as follows: April, 9 000 units May, 7 000 units June, 8 000 units Management policy is to maintain a closing finished goods inventory each month at a level equal to 30% of the next months budgeted sales. To make one pair of sunglasses, 2.5 kg of raw material at R5 per kg is required. Other production costs per unit as at 31 March 2020 were as follows: Direct labour, R7 Factory overheads, RS With effect from 01 May 2020, the direct labour costs is expected to increase by 10% and the factory overheads by 5%. REQUIRED 2.1 Prepare a Production Schedule in units indicating the number of units that must be produced for May 2020. (6 marks) 2.2 Calculate the expected total cost of production for May 2020. (9 marks) 2.3 Calculate the expected cost of sales of sunglasses for May 2020. (5 marks) QUESTION THREE CASH BUDGET (20 Marks) Miracles LTD The information provided below was extracted from the accounting records of Miracles Ltd for the financial year ended 31 August 2020: R Sales Cost of sales Rent income Salaries and wages Advertising Taxes and rates Other operating expenses 1 350 000 380 000 30 270 180 000 85 000 4 500 225 000 Additional information: 1. Sales are divided equally each month. Sales are expected to increase by 10% for the financial year ending 31 August 2021. 2. Fifty percent (50%) of the sales are for cash and the balance is on credit. Debtors normally pay their accounts as follows: 40% in the month of sale; 55% one month after the sales. The balance is usually written off as bad debts. 3. All inventories are expected to be priced at cost plus 25%. 4. Inventories are kept at a constant level. All purchases are for cash. 5. In terms of the lease agreement, rent is received monthly. 6. Advertising is paid for monthly and is estimated to be 10% of each month's purchases (inventory). 7. Salaries and wages will increase by 12% with effect from 01 October 2020. 8. Taxes and rates are paid monthly. 9. Other operating expenses are paid for in the month in which they are incurred. 10. On 31 August 2020 the company's favourable bank balance is R12 000. REQUIRED: Prepare each of the following for September and October 2020 from the information provided above (round of answers to the nearest whole number). 3.1 Debtors collection schedule (4 marks) 3.2 Cash budget (16 marks) Information extracted from the Statement of Financial Position for the past two years: 2020 (R) 2019 (R) ASSETS Non-current assets Property, plant and equipment (fixed assets) Current Assets Inventories (all trading stock) Trade & other receivables Cash & cash equivalents 2 596 550 2 596 550 416 000 160 000 40 000 216 000 3 012 550 2 333 000 2 333 000 384 000 275 000 87 000 22 000 2 714 000 2020 (R) 2019 (R) EQUITY AND LIABILITIES Equity Ordinary share capital (issued at R10 each) Share premium Retained Income Non-Current liability (Mortgage loan, 12% p.a) Current liabilities Trade & other payables SARS (income tax) Shareholders for dividends 3 515 540 2 750 000 380 000 385 540 250 000 271 000 145 000 11 000 115 000 2 850 000 2 300 000 220 000 330 000 800 000 292 000 210 000 8 000 74 000 4 036 540 3 942 000 QUESTION ONE RATIO ANALYSIS (20 Marks) TRANSFORMATION LTD Information extracted from the Statement of Comprehensive Income Statement for the past two years: 2020 (R) 2019 (R) Sales 2 600 000 2 000 000 Cost of sales (1 800 000) (1 195 000) Gross Profit 800 000 805 000 Operating Expenses (425 500) (218 000) Depreciation 35 000 29 000 Other operating Expenses 390 500 189 000 Operating Profit 374 500 587 000 Interest on mortgage loan (38 000) (210 000) Net profit before tax 356 500 377 000 Income Tax (125 600) (86 250) Net profit after tax 210 900 290 750 formation outstad from ubacutamont of cianocition for the actor ADDITIONAL INFORMATION New shares were issued on the first day of the financial year. Interim and final dividends for the year ended 31 December 2020 amounted to R 180 000 Fixed assets were sold at carrying (book) value during the year for R 220 000. Required: 1.1 Calculate the following ratios for 2020. Where applicable, round off answers to decimal places. 1.1.1 Profit margin (2 marks) 1.1.2 Inventory turnover (2 marks) 1.1.3 Return on capital employed (2 marks) 1.1.4 Earnings per share (2 marks) 1.1.5 Earnings retention ratio (2 marks) 1.1.6 Current ratio (2 marks) 1.1.7 Debt to equity (2 marks) 2.2 Comment briefly but meaningfully on the following ratios: 2.2.1 (2 marks) 2020 1:2:1 2019 0:42:1 Acid test ratio 2.2.2 (2 marks) Debtor collection period 35 days 28 days 2.2.3 (2 marks) Return on assets 9.6% 6.6% QUESTION TWO FINANCIAL PROJECTIONS (20 Marks) Sunglass Hut specialises in manufacturing a particular brand of sunglasses. The following information has been extracted from their projected accounting records for 2020. Sunglasses are sold at a fixed price of R40 a pair The estimated sales volume is as follows: April, 9 000 units May, 7 000 units June, 8 000 units Management policy is to maintain a closing finished goods inventory each month at a level equal to 30% of the next months budgeted sales. To make one pair of sunglasses, 2.5 kg of raw material at R5 per kg is required. Other production costs per unit as at 31 March 2020 were as follows: Direct labour, R7 Factory overheads, RS With effect from 01 May 2020, the direct labour costs is expected to increase by 10% and the factory overheads by 5%. REQUIRED 2.1 Prepare a Production Schedule in units indicating the number of units that must be produced for May 2020. (6 marks) 2.2 Calculate the expected total cost of production for May 2020. (9 marks) 2.3 Calculate the expected cost of sales of sunglasses for May 2020. (5 marks) QUESTION THREE CASH BUDGET (20 Marks) Miracles LTD The information provided below was extracted from the accounting records of Miracles Ltd for the financial year ended 31 August 2020: R Sales Cost of sales Rent income Salaries and wages Advertising Taxes and rates Other operating expenses 1 350 000 380 000 30 270 180 000 85 000 4 500 225 000 Additional information: 1. Sales are divided equally each month. Sales are expected to increase by 10% for the financial year ending 31 August 2021. 2. Fifty percent (50%) of the sales are for cash and the balance is on credit. Debtors normally pay their accounts as follows: 40% in the month of sale; 55% one month after the sales. The balance is usually written off as bad debts. 3. All inventories are expected to be priced at cost plus 25%. 4. Inventories are kept at a constant level. All purchases are for cash. 5. In terms of the lease agreement, rent is received monthly. 6. Advertising is paid for monthly and is estimated to be 10% of each month's purchases (inventory). 7. Salaries and wages will increase by 12% with effect from 01 October 2020. 8. Taxes and rates are paid monthly. 9. Other operating expenses are paid for in the month in which they are incurred. 10. On 31 August 2020 the company's favourable bank balance is R12 000. REQUIRED: Prepare each of the following for September and October 2020 from the information provided above (round of answers to the nearest whole number). 3.1 Debtors collection schedule (4 marks) 3.2 Cash budget (16 marks) Information extracted from the Statement of Financial Position for the past two years: 2020 (R) 2019 (R) ASSETS Non-current assets Property, plant and equipment (fixed assets) Current Assets Inventories (all trading stock) Trade & other receivables Cash & cash equivalents 2 596 550 2 596 550 416 000 160 000 40 000 216 000 3 012 550 2 333 000 2 333 000 384 000 275 000 87 000 22 000 2 714 000 2020 (R) 2019 (R) EQUITY AND LIABILITIES Equity Ordinary share capital (issued at R10 each) Share premium Retained Income Non-Current liability (Mortgage loan, 12% p.a) Current liabilities Trade & other payables SARS (income tax) Shareholders for dividends 3 515 540 2 750 000 380 000 385 540 250 000 271 000 145 000 11 000 115 000 2 850 000 2 300 000 220 000 330 000 800 000 292 000 210 000 8 000 74 000 4 036 540 3 942 000