Use the following financial data to prepare the Pro Forma Statement of Financial Position of

Plexicor Inc. as at 31 December 2020. (10 marks)

INFORMATION

A financial manager at Plexicor Inc. has gathered the following financial data needs a Pro Forma

Statement of Financial Position for the coming year ending 31 December 2020:

Sales for 2020 is estimated to be R7 500 000.

Trade and other receivables represent 12% of sales.

Inventory represents 24% of sales.

New equipment with a cost price of R900 000 will be purchased during 2020. Total depreciation for 2020 is

estimated to be R500 000.

Trade and other payables represent 18% of sales.

150 000 shares are expected to be issued at R2 each during the first quarter of 2020.

The business predicts a 10% profit margin (net profit margin).

Dividends amounting to R400 000 are expected to be declared at the end of 2020 and are payable during

2021.

The long-term loan is estimated to be reduced by 10% during 2020.

The amount of cash and cash equivalents must be determined (balancing figure).

The Statement of Financial Position for the year ended 31 December 2019 is as follows:

PLEXICOR INC.

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019

R

ASSETS

Non-current assets 4 100 000

Fixed/Tangible assets 4 100 000

Current assets 2 900 000

Inventories

Trade and other receivables

Cash and cash equivalents

1 800 000

900 000

200 000

Total assets 7 000 000

EQUITY AND LIABILITIES

Equity 4 600 000

Ordinary share capital

Retained earnings

3 300 000

1 300 000

Non-current liabilities 1 000 000

Long-term loan 1 000 000

Current liabilities 1 400 000

Trade and other payables 1 400 000

Total equity and liabilities 7 000 000

QUESTION 3 (20 Marks)

REQUIRED

3.1 Use the information provided below to calculate the following ratios for 2019. Where applicable, round

off answers to two decimal places.

3.1.1 Profit margin (2 marks)

3.1.2 Inventory turnover (2 marks)

3.1.3 Debtors collection period (2 marks)

3.1.4 Creditors payment period (2 marks)

3.1.5 Return on equity (2 marks)

3.1.6 Current ratio (2 marks)

3.1.7 Acid-test ratio (2 marks)

3.2 Refer to your answers in question 3.1 and comment on the ability of Taurus Limited to:

3.2.1 honour its short-term obligations without relying on the sale of its inventories. (2 marks)

3.2.2 collect debts arising from credit sales. (2 marks)

3.2.3 provide a satisfactory return for the investors. (2 marks)

INFORMATION

Excerpts of the financial data of Taurus Limited for 2019 are as follows:

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019

R

Sales 7 800 000

Cost of sales (5 280 000)

Gross profit 2 520 000

Operating profit 796 000

Profit after tax 483 000

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019

Assets R

Non-current assets 2 470 000

Inventories 3 000 000

Accounts receivable 930 000

Cash 440 000

6 840 000

Equity and liabilities R

Equity 3 160 000

Long-term loan 1 280 000

Accounts payable 1 400 000

Other current liabilities 1 000 000

6 840 000

Additional information

1. All purchases and sales of inventories were on credit.

2. Inventories on 31 December 2018 amounted to R2 800 000.

3. Credit terms to debtors are 30 days.

QUESTION 4 (20 Marks)

REQUIRED

Use the following information provided by Ruby Enterprises to prepare the:

4.1 Debtors Collection Schedule for January and February 2021. (4 marks)

4.2 Cash Budget for January and February 2021. (16 marks)

Note: Where applicable, round off amounts to the nearest Rand.

INFORMATION

1. Ruby Enterprises expects to have an unfavourable bank balance of R30 000 on 01 January 2021.

2. Credit sales are expected to be as follows:

November 2020 December 2020 January 2021 February 2021

R270 000 R600 000 R276 000 R288 000

3. Credit sales usually make up 60% of the total sales. Cash sales make up the balance.

4. Credit sales are normally collected as follows:

* 30% in the month in which the transaction took place, and these customers are entitled to a discount of

2%;

* 65% in the following month.

The rest is usually written off as bad debts.

5. Budgeted purchases of inventory are as follows:

December 2020 January 2021 February 2021

R350 000 R280 000 R330 000

6. 60% of the purchases of inventory are for cash in order to take advantage of a 10% discount. The

remainder is paid one month after the purchase.

7. Salaries for February 2021 are expected to amount to R117 600, 12% more than the salaries for

January 2021.

8. Interest at 12% per annum on the loan balance is paid monthly. The loan balance as at 31 December

2020 is expected to be R300 000 and a repayment of R40 000 will be made on 01 February 2021.

9. Part of the building is sublet to a tenant and rent is collected monthly. The lease agreement for the year

ended 31 January 2021 reflected the rental as R132 000 per annum. The rental will increase by 10%

with effect from 01 February 2021.

10. Other operating expenses amount to R35 000 per month. This amount excludes R5 000 per month for

depreciation. Operating expenses are paid for in the month in which they are incurred.

11. A decision was made to invest by purchasing 25 000 shares at R4 each in Venus Limited during

February 2021.

QUESTION 5 (20 Marks)

Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after

QUESTION 5.

5.1 REQUIRED

Study the information given below and calculate the Net Present Value. (5 marks)

INFORMATION

Richmond Limited is considering the purchase of a machine. The machine will cost R1 200 000 plus installation

costs of R250 000 and it is expected to have a useful life of five years. The machine is expected to generate

cash flows of R560 000 per year and is also expected to have a salvage value of R50 000. Annual cash outflows

are expected to amount to R200 000. The company desires a minimum required rate of return of 12%.

5.2 REQUIRED

Use the information given below to calculate the following:

5.2.1 Payback Period of Project B (answer expressed in years, months and days). (3 marks)

5.2.2 Accounting Rate of Return (on average investment) of Project A (answer expressed to two

decimal places). (4 marks)

5.2.3 Benefit Cost Ratio of Project A (answer expressed to three decimal places). (4 marks)

5.2.4 Internal Rate of Return of Project B (answer expressed to two decimal places). (4 marks)

INFORMATION

The following data relate to two investment projects, only one of which may be selected:

Project A Project B

R R

Initial capital expenditure 400 000 400 000

Cost of capital 15% 15%

Net cash flows per year:

Year 1 200 000 134 000

Year 2 140 000 134 000

Year 3 120 000 134 000

Year 4 72 000 134 000

Expected resale value at end of year 4 (not included in the figures above) 40 000 0

Average annual profit 43 000 34 000