EeZY Wear Limited, with its head-office located in Port Elizabeth, manufacture and sell fashionable beach and casual wear. The company has several branches countrywide, one of which is in Cape Town. The company employs a branch accounting for all its branches. All expenses are paid by the head-office in Port Elizabeth and all cash sales and/or cash collected from debtors by the Cape Town branch are banked to the credit of head-office immediately. Customers at the Cape Town branch can also make direct EFT payments into the head-office bank account. The following information relates to the Cape Town branch for the six months ended 31 October 2022:

Account balances at 1 May 2022:

Cape Town Branch - Inventory Opening balance R 144 000 Cape Town Branch - Gross profit account Opening balance R 24 000 Cape Town Branch - Branch Debtors Opening balance R 92 600 Summary of transactions for the six month ended 31 October 2022:

Goods sent to branch at selling price 1 728 000 Cash sales for the branch 1 056 000 Credit sales for the branch 648 000 Cash received from the branch’s debtors 584 200 Goods returned by the branch to head-office at cost price 12 000 Goods returned to branch by a customer (a debtor) 7 200 Bad debts written off 32 800 Cape Town branch - Rent 120 000 Salaries 127 500 Expenses 22 500

Additional information: 1. The branch manager did an inventory count on 31 October 2022 and the value of inventory on hand was R132 000 (at selling price). 2. The branch manager has also advised head-office that: • Goods were stolen when a customer distracted the shop attendant – R21 600 (selling price)

A sales assistant had inadvertently charged a cash customer R900 instead of R600. The customer could not be located to rectify the error and the amount is included in the amounts banked during the period. Head-office have decided to reflect the amount owing to the customer for at least the next year. • Some obsolete stock, which was previously written off in January 2022, was sold at half price in July 2022 to charity organisation. The banked proceeds amounted to R2 400. • The fluctuations in month to month total sales are so small tat they can be ignored.

REQUIRED MARKS (a) Calculate the mark-up on cost percentage applied by head-office on inventory issued to the branches;

2 (b) Record the above transactions in the books of head-office by drawing up the ledger accounts to determine the profit (or loss) of the Cape Town branch for the six months ended 31 October 2022. Complete the 3 accounts provided above as well as the following accounts to reflect all the information presented: • Cape Town Branch - Goods sent to branch • Cape Town Branch - Branch Debtors • Cape Town Branch - Profit and Loss - 24m

(c) Calculate the following in terms of the branch: i) Inventory turnover rate (times); and ii) Debtors collection period (in months) Base your calculations on average debtors’ balances and average inventory levels. 5 4

(d) Briefly interpret your findings in (c) above.

Answer rating: 100% (QA)

Ans a To calculate the markup on cost percentage applied by headoffice on inventory issued to the branches we need to first calculate the cost of goods sold for the Cape Town branch during the six mon... View the full answer