Use the information provided below to answer the following questions: (25 Marks)

3.1 Prepare the Pro Forma Statement of Comprehensive Income for the year ended 31 (6 May 2022 using the percentage-of-sales method. marks)

(14 marks)

3.2Prepare the Pro Forma Statement of Financial Position as at 31 May 2022. 3.3 Is the company likely to experience liquidity problems during the financial year ended (5

31 May 2022? Motivate your answer with the relevant ratios. marks) INFORMATION

The following information was provided by Sharpe Ltd, which has an authorised share capital of 350 000 ordinary shares:

SHARPE LTD STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MAY 2021

Sales Cost of sales Gross profit Expenses Profit before tax Company tax (30% of pre-tax profit)

R

3 200 000 (2 400 000) 800 000 (400 000) 400 000 (120 000)

Profit after tax

SHARPE LTD

STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2021

ASSETS Non-current assets Fixed/Tangible assets

Current assets

Inventories Accounts receivable Cash and cash equivalents

Total assets

280 000

R

1 400 000 1 400 000 1 200 000

400 000 600 000 200 000

2 600 000

EQUITY AND LIABILITIES

Shareholders equity

Ordinary share capital (300 000 shares) Retained earnings

Non-current liabilities

Long-term loan

Current liabilities

Accounts payable Company tax payable Total equity and liabilities

Additional information

1 300 000

600 000 700 000 800 000

800 000

500 000

488 000 12 000 2 600 000

1. Sales for the year ended 31 May 2022 are expected to total R3 600 000. Total purchases of inventories for resale are forecast at R2 750 000. All purchases and sales are on credit.

2. An old machine (Cost price R200 000; Accumulated depreciation R180 000) is expected to be sold at carrying value on 31 May 2022 and new machinery with a cost price of R800 000 will be purchased on the same date. Total depreciation for the year ended 31 May 2022 is expected to be R140 000.

3. The companys closing inventory is likely to change directly with changes in sales for the financial year ended 31 May 2022.

4. Accounts receivable would be based on a collection period of 36.5 days, whilst 73 days accounts payable would be outstanding.

5. Cash and cash equivalents are expected to remain unchanged.

6. The remaining unissued shares are expected to be sold at R2.20 each on 30 June 2021.

7. R200 000 of the long-term loan will be repaid during the financial year ended 31 May 2022.

8. Company tax payable on 31 May 2022 will equal one tenth of the tax liability on the Pro Forma Statement of Comprehensive Income.

9. A final dividend of 50 cents per share is expected to be recommended on 31 May 2022 and will be payable during July 2022.

10. The amount of external non-current funding required must be calculated.