Question

In December 20.8, Finch Limited was planning its financial needs for the coming year.

As a first indication, the firm’s management required a pro forma Statement of Financial Position as at 31 December 20.9 to gauge the financial needs at that time.

Estimated financial condition as at 31 December 20.8 was reflected in this Statement of Financial Position :

ASSETS	R
Non-current assets	451 800
Property, plant and equipment	843 000
Accumulated depreciation	(434 600)
Other non-current assets	43 400
Current assets	2 982 400
Inventories	1 825 400
Accounts receivable	722 400
Cash and cash equivalents	434 600
Total assets	3 434 200
EQUITY AND LIABILITIES
Equity	992 800
Ordinary share capital	624 000
Retained income	368 800
Non-current liabilities	240 000
Mortgage bond	240 000
Current liabilities	2 201 400
Accounts payable	612 300
Other current liabilities	1 589 100
Total equity and liabilities	3 434 200

Additional information

Note : Please show all workings

Operations for the following year were projected using the following working assumptions to plan the financial results:

• Sales (all credit) were forecast at R20 900 000, with a gross margin of 8.2%.

• Purchases (all credit) are expected to total R19 450 000.

• Accounts receivable would be based on a collection period of 12 days, while 24 days accounts payable

  would be outstanding.

• Depreciation is expected to be R62 800 for the year.

• A mortgage loan repayment of R20 000 is expected to be made.

• Other current liabilities will be allowed to fluctuate with seasonal needs.

• Capital expenditures were scheduled at R42 000 for a delivery van and R72 000 for warehouse

  improvements.

• Profit after tax is expected at a level of 0.19% of sales.

• Dividends for the year were scheduled at R25 000.

• Cash balances are desired to be no less than R300 000.

Answer 1

Assets	Amount	working
Non current assets
Property Plant & Equipment	843000	no change
Acc dep	-497400	434600+62800
Delivery Van	42000	New purchase
Other non current assets	115400	43400+72000
Current assets
Inventories	2089200	calculation shown below
Accounts receivable	687123	20900000X12/365
Cash and cash equivalents	300000	Given
Total assets	3579323
EQUITY AND LIABILITIES
Ordinary share capital	624000	no change
Retained Income	383510	368800 + 14710
Non-current liabilities
Mortgage bond	220000	240000 - 20000
Current liabilities
Accounts payable	1278904	19450000 X 24/365
Other current liabilities	1072909	bal figure
Total equity and liabilities	3579323

Sales	20900000
Profit after tax	39710
Dividends paid	-25000
Balance carried to retained income	14710

Gross margin	1713800
Purchases	19450000
Opening stock	1825400
Less:
Sales	20900000
Closing stock	2089200

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