FORMATIVE ASSESSMENT $1$

$[100$ MARKS$]$

Answer ALL questions

QUESTION ONE

$(25$ Marks$)$

$1\mathrm{.}1$ Explain the significance of cash budgets in financial planning for businesses.

$(5)$

$1\mathrm{.}2$ INFORMATION

The information provided below was taken from the books of Modern Traders for the financial year ended $31$ May $2024.$ Extract of statement of comprehensive income for the year ended $31$ May $2024$

$\begin{array}{cc}?& R\\ \text{S}\text{a}\text{l}\text{e}\text{s}& 480000\\ \text{C}\text{o}\text{s}\text{t}of\text{s}\text{a}\text{l}\text{e}\text{s}& 240000\\ \text{R}\text{e}\text{n}\text{t}\text{i}\text{n}\text{c}\text{o}\text{m}\text{e}& 12000\\ Advertising& 4800\\ \text{S}\text{a}\text{l}\text{a}\text{r}\text{i}\text{e}\text{s}\text{a}\text{n}\text{d}\text{w}\text{a}\text{g}\text{e}\text{s}& 72000\\ \text{R}\text{a}\text{t}\text{e}\text{s}\text{a}\text{n}\text{d}\text{t}\text{a}\text{x}\text{e}\text{s}& 1200\\ \text{O}\text{t}\text{h}\text{e}\text{r}\text{o}\text{p}\text{e}\text{r}\text{a}\text{t}\text{i}\text{n}\text{g}\text{e}\text{x}\text{p}\text{e}\text{n}\text{s}\text{e}\text{s}& 96000\end{array}$

Additional information

All inventories are priced at cost plus $25\%.$

Sales are divided equally each month. Sales are expected to increase by $18\%$ for the financial year ending $31$ May $2025.$

Fifty percent $(50\%)$ of the sales are for cash and the balance is on credit. Debtors normally pay their accounts as follows:

$40\%$ in the month of the sale, and these debtors are entitled to a $5\%$ discount; $55\%$ one month after the sale

The balance is usually written off as bad debts.

$2.$ Purchases for June and July are expected to be R$20000$ per month. All purchases are for cash.

$3.$ In terms of the lease agreement rent is received monthly. The rent for the year ending $31$ May $2025$ is expected to be $10\%$ more than the previous twelve months.

$4.$ Advertising is paid for monthly and is estimated to be $8\%$ of each month's sales.

$5.$ Salaries and wages will increase by $10\%$ with effect from $01$ July $2024.$

$6.$ Rates and taxes are paid in one instalment for the year during July $2024.$ Rates are calculated at $80$ cents $($R$0\mathrm{.}80)$ per R $100$ on the value of the premises. The premises are valued at R$300000.$

$7.$ Other operating expenses are expected to increase by $5\%$ and are spread evenly throughout the year.

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

$8.$ On $31$ May $2024$ an unfavourable bank balance of R$18000$ appeared in the ledger of Modern Traders.

REQUIRED

Prepare each of the following for June and July $2024$ from the information provided below. $($Provide separate monetary columns for each month.$)$

$1\mathrm{.}2\mathrm{.}1$ Debtors collection schedule

$1\mathrm{.}2\mathrm{.}2$ Cash budget