School furnishers (Pty) Ltd manufacture and supply quality desks to schools. The following financial statements of School furnishers (Pty) Ltd are provided to you: Statement of profit or loss and other comprehensive income for the year ended 28 February 2022. Revenue Cost of sales Gross profit Operating costs Distribution costs Administrative expenses Other expenses Net operating profit /(loss) Interest and other income Earnings before interest and tax (EBIT) Interest expense Profit before tax Income tax expense Net profit 2022 R000 \begin{tabular}{|r|} \hline 11225 \\ (7844) \\ \hline 3381 \\ (998) \\ (450) \\ (20) \\ (121) \\ \hline 1792 \\ 4477 \\ \hline 2069 \\ (952) \\ \hline 1117 \\ \hline(313) \\ \hline 804 \\ \hline \end{tabular} 2021 R000 \begin{tabular}{|r|} \hline 6558 \\ (4023) \\ \hline 2535 \\ (596) \\ (155) \\ (174) \\ (150) \\ \hline 1460 \\ 3998 \\ \hline 1858 \\ \hline(458) \\ \hline 1400 \\ \hline(392) \\ \hline 1008 \\ \hline \end{tabular} Statement of financial position as at 28 February 2022. ASSETS Non-current assets Property, plant and equipment Other investments Total non-current assets Current assets inventories Trade and other receivables Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LABULTIES Capital and reserves Share capital Retained earnings Total equity Non-current liabilities Interest-bearing borrowings Deferred tax Total non-curtent labaities Current liabilities Trade and other payables Current tax payable Current provisions Total current habilities Additional information: 1. School furnishers (Pty) Ltd have 2 million issued shares: 2. The opening balance of inventory as at 01/03/2020 was R102 000 . 3. The amount of sales on credit is 70% of revenue for both years. 4. The profitability and performance ratios (based on book values) were correctly calculated as follows: ROE 23,28\% (2021: 38,04\%) and ROA 22,88\% (2021: 50,09\%) 5. Actual credit purchases amounted to R9 167000 (2021: R4 590 000). Assume 365 days per year. 6. The credit terms of the supplier is 2/10 net 40 and is strictly enforced. 7. The cost of normal short-term funding (e.g., a bank overdraft) is 20%. 8. Value added tax (VAT) is calculated at 15% and must be taken into account where relevant. REQUIRED: a) Name and explain the main reason why creditors are users of the financial information of a company. (2) b) Show the formulas and detailed calculations of the following ratios for School furnishers (Pty) Ltd for both financial years 2021 and 2022 : (i) Operating profit margin (ii) Asset turnover rate (iii) Payable (creditor) days (iv) Cash ratio (and explain what the ratio for 2022 implies) c) Under separate headings, list ONE advantage and ONE disadvantage of using trade accountspayable (trade creditors) as a type of finance (short-term credit). (2) d) Calculate the nominal annual cost of credit if School furnishers (Pty) Ltd follows the policy of paying for the purchases on the latest date allowed and advise School furnishers (Pty) Ltd on why they should or should not forfeit discounts by postponing payments. [Round your final answer to two decimal places] (5) [26]
