SECTION B. [50 MARKS] Answer any TWO questions in this section. QUESTION 1 [25 MARKS] Read the following passage and answer the questions that follow: DIDO (Pvt) Ltd is a data management company operating in Palapye in Botswana. You are the financial manager for this company and the management has requested you to present a paper on short term financial management issues. DIDO (Pvt) Ltd has a permanent funding requirement of P135 000 in operating assets and seasonal funding requirements that vary between P0 and P990 000 and average P101 250. If the company can borrow short term funds at 6.25% and long term funds at 8%, and it can earn 5% on the investment of any surplus balances. The company has annual sales of P10 million, a cost of goods sold of 75% of sales, and purchases that are 65% of cost of goods sold. The company has an Average Age Inventory of 60 days, an Average Collection Period of 40 days and an Average Payment Period of 35 days.

Required: a. Calculate the companys cash conversion cycle. (4 marks) b. Calculate the annual cost of an aggressive strategy for seasonal funding. (6 marks) c. Calculate the annual cost of a conservative strategy for seasonal funding? (6 marks) d. Describe any two common techniques of managing inventory. (9 marks)

QUESTION 2 [25 MARKS] Explain in detail the key financial statements as mentioned below, and how these statements are analysed taking in to account all relevant information.? a. Statement of Financial Position (Balance Sheet) (8 marks) b. The Income statement (8 marks) c. The Cash Flow Statement (9 marks) QUESTION 3 [25 MARKS] Caroline commenced business on 1 January 2016 trading as Carolines kitchen Cabinets selling 3-K Kitchen furniture. She had opened a business bank account on 15 December 2015, paying P25 000 into it as her opening capital. On 21 December 2015, she rented premises, paying the first quarters rent, due on 25 December 2015, P1 200. Other expenditure in the same month was for the purchase of fixed assets for cash, P8 000, and inventory P20 000 which was bought on one months credit. Caroline Estimates that her other purchases and the sales for the year to 31 December 2016 will be as follows: 3 months to Purchases Sales March 31 12 000 15 000 June 30 18 000 24 000 September 30 21 000 30 000 December 31 15 000 36 000 - All purchases and sales will be on one months credit - Other expenditure in 2016 will be as follows: - January 5, purchase of motor van for cash P5 000, the van is to be depreciated annually at the rate of 20% on cost - Wages of P2 000 per month paid currently

- Caroline will draw P500 per month for living expenses. She plans to sell her private car in June for P3 500, and to pay the proceeds in to the business as additional capital. A friend has also promised to lend the business P6 000 in September 2016. - Carolines bank has agreed to allow overdraft facilities if they are required with interest at 10% per annum. Interest will be debited in the bank statements on the last day of each half year and will be calculated on the average overdraft, if any for the half year. For this purpose, the overdraft on the last day of the immediately preceding quarter is to be taken as the average for the half year.

Required: Prepare Carolines cash budget for the year to 31 December 2016 (25 marks)