FORMATIVE ASSESSMENT $2$

Question ONE and TWO are based on the information provided below for Mia Limited:

INFORMATION

In December $2023,$ Mia 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 $2024$ to gauge the financial needs at

that time. The financial condition as at $31$ December $2023$ was reflected in this Statement of Financial Position:

Statement of Financial Position as at $31$ December $2023$

ASSETS

Non$-$current assets

Property, plant and equipment

Accumulated depreciation

Other non$-$current assets

Current assets

Inventories

Accounts receivable

Cash and cash equivalents

Total assets

EQUITY AND LIABILITIES

Equity

Ordinary share capital

Retained income

Non$-$current liabilities

Mortgage bond

Current liabilities

Accounts payable

ADDITIONAL INFORMATION:

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

$$ Sales were forecast at R$20900000.$

$$ Capital expenditures were scheduled at R$42000$ for a delivery van and R$72000$ for warehouse improvements.

$$ Depreciation is expected to be R$62800$ for the year.

$$ Inventories, Accounts receivable and Accounts payable are estimated to be $10\%,4\%$ and $6\%$ of sales respectively.

$$ Cash balances are desired to be no less than R$300000.$

$$ Net profit after tax is expected at a level of $0\mathrm{.}19\%$ of sales.

$$ Dividends for the year were estimated at R$25000.$

$$ A mortgage loan repayment of R$20000$ is expected to be made.

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

QUESTION ONE $(25$ Marks$)$

REQUIRED

$1\mathrm{.}1$ Use the information provided to Prepare the pro forma Statement of Financial Position as at $31$ December

$2024.$

$(20)$

$1\mathrm{.}2$ Discuss the purpose of projected financial statements in business planning and decision$-$making,

highlighting their significance for managerial decision$-$making, investor relations, and strategic

planning.

QUESTION TWO $(25$ Marks$)$

Using the information provided above, answer the following questions:

$2\mathrm{.}1$ Calculate the following ratios for the year ending $2023$:

$2\mathrm{.}1\mathrm{.}1$ Current ratio $(4)$

$2\mathrm{.}1\mathrm{.}2$ Debt to equity ratio $(3)$

$2\mathrm{.}1\mathrm{.}3$ Inventory turnover ratio $(4)$

$2\mathrm{.}1\mathrm{.}4$ Return on equity $(3)$

$2\mathrm{.}1\mathrm{.}5$ Acid test ratio $(3)$

$2\mathrm{.}1\mathrm{.}6$ Capital gearing ratio $(3)$

$2\mathrm{.}2$ Explain how the company's decision to maintain a cash balance of at least R$300,000$ affects its liquidity position.$(5)$