Year ended $31$st March $2025$

Lindsey and Nicci sat down with you to try and predict what the combined new business would

achieve in the year ahead. The following was eventually agreed upon : $-$

$1.$ Sales would grow to R$6,200,000($all on credit$)$ and the lack of competition would allow them

to grow the gross profit to $40\%.$

$2.$ The ownership deal would look like this $$

a$.$ Lindsey was to have an effective $(1)/(3)$ share in Edutoys. To achieve this $4,000$ new

shares would be issued for the agreed value of R$1,000,000.$

b$.$ Mind$-$Muscle's assets were to be brought onto the Edutoys books at their NBV of

R$600,000$; the remaining R$400,000$ was to be raised as goodwill.

c$.$ This meant that the whole transaction could be concluded by book entry and no cash

needed to change hands at all.

$3.$ The depreciation policy was to remain unchanged. The new assets would push up the charge

for the year to R$90,800.$ Goodwill was to be amortised over $20$ years and a full year would be

charged for $2025.$

$4.$ Start$-$up problems with the ERP system had been ironed out and greater efficiency in stock

management was expected for the year ahead. Stock days were expected to come down to

$42\mathrm{.}5$ days.

$5.$ Pressure from suppliers meant that Nicci would have to start settling her accounts sooner.

Creditor days were reduced to $45$ days.

$6.$ General & Admin costs would grow to R$300,000,$ but the reduced competition would allow

Nicci to lower her marketing spend to about $3(1)/(2)\%$ of Sales.

$7.$ Neither the corporate tax rate of the dividend policy was to be changed for the forthcoming

year.

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$8.$ Nicci had no plans to pay her parents back this year as she felt she would need the cash to

fund the higher levels of business.

$9.$ Debtors were expected to amount to R$790,326$ by the end of March $2025.$

$10.$ Nicci felt that about R$20,300$ worth of cash on hand was required to keep the business liquid.

$11.$ The overdraft was expected to be reduced, but the budgeting exercise would expose the exact

value at year$-$end. The reduced overdraft was predicted to bring the interest bill for the year

down to R$15,300.$

Nicci has asked you to help him with the following : $-$

Use the gids attached and return them with your answer book

Section A:

$1.$ Finalise the accounts $($I$/$S and B$/$S$)$ for the year ended $31$st March $2024.$

$(15$ Marks$)$

$2.$ Use the information predicted by Nicci and Lindsey to construct the income statement and

balance sheet for the year ended $31$st Match $2025.$

$(15$ Marks$)$

$3.$ Extract a projected cash flow statement for the year ended $31$st March $2025.$

$(10$ Marks$)$

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Section B:

$1)$ Analyse the performance of the operations using RONA $=$ Po x A

$2)$ Analyse the performance of the business from a shareholders perspective using

ROE $=$ Pa x A x L

$3)$ Analyse the effect buying Mind$-$Muscle will have on Edutoys$$ profitability

$4)$ What effect will the purchase have on FA turnover? and comment on Nicci$$s depreciation &

amortisation policy

$5)$ Analyse Edutoys's Capital Structure. While the purchase without using cash was certainly

clever, was it the best thing for Edutoys$$s gearing?

$6)$ Consider the case and offer any additional advice that may help Nicci plan for the future and

maximise the business's potential.