QUESTION 1

(10 Marks)

REQUIRED

Use the information provided below to prepare the Pro Forma Statement of Financial Position of Galaxy Traders as at 31 December 2020:

INFORMATION

The Statement of Financial Position of Galaxy Traders as at 31 December 2019 after its first year of operations is shown below:

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019

R

ASSETS

Non-current assets

360 000

Property, plant and equipment

360 000

Current assets

1 530 000

Inventories

720 000

Accounts receivable

270 000

Cash

540 000

1 890 000

EQUITY AND LIABILITIES

Equity

1 692 000

Capital

1 692 000

Current liabilities

198 000

Accounts payable

198 000

1 890 000

Additional information for 2020:

1. The budgeted sales and purchases figures for 2020 are as follows:

Sales Purchases

First quarter R1 890 000 R1 086 750

Second quarter R1 980 000 R1 138 500

Third quarter R2 070 000 R1 190 250

Fourth quarter R1 980 000 R1 138 500

2. 90% of the sales are collected in the quarter of the sale and 10% in the quarter following the sale.

3. The net profit for the year ended 31 December 2020 is expected to be 20% of sales.

4. 75% of the inventory purchases are paid for in the quarter of purchase and the remaining 25% is paid

for in the quarter following the purchase.

5. The inventory balance at the end of each quarter is expected to be the same as the end of the last

quarter of 2019 viz. R720 000.

6. The annual depreciation on property, plant and equipment is expected to amount to R72 000.

7. The proprietor's drawings for 2020 are estimated at R480 000.

8. A loan of R600 000 is expected to be obtained at the end of December 2020 for expansion initiatives

commencing January 2021. The repayment period for the loan is ten years.

9. The cash balance must be calculated (balancing figure).