QUESTION 2 (15 Marks)

REQUIRED Use the following information to prepare the Pro Forma Statement of Financial Position of Govan Limited as at 31 December 2021.

INFORMATION

Sales for 2020 amounted to R4 000 000. Seventy percent (70%) of the sales were for cash and the balance on credit. The cash sales for 2021 are expected to increase by 30% whilst the credit sales are expected to increase by 40%.

Total purchases (all credit) are expected to amount to R3 000 000.

Trade and other receivables must be calculated using the percentage-of-sales method.

Accounts payable is based on a payment period of 73 days.

The company maintains a fixed inventory level of R2 000 000 at the end of each month.

Govan Limited expects to show a net decrease in cash of R200 000 during 2021.

Equipment with a cost price of R800 000 and accumulated depreciation of R600 000 is expected to be sold at the end of 2021 for R300 000. Additional property with a cost of R4 000 000 will be purchased during 2021. Total depreciation for 2021 is estimated at R800 000.

200 000 ordinary shares are expected to be sold at R3 each during January 2021.

The company predicts a 20% profit margin (net profit margin).

Dividends of R500 000 are expected to be paid by the company during 2021.

R1 000 000 will be paid to Jip Bank during 2021. This includes R300 000 for interest on loan.

The amount of external non-current funding required must be calculated.

GOVAN LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 R

ASSETS

Non-current assets 6 000 000

Fixed/Tangible assets 6 000 000

Current assets 3 840 000

Inventories 2 000 000

Trade and other receivables 1 680 000

Cash and cash equivalents 160 000

Total assets 9 840 000

EQUITY AND LIABILITIES

Shareholders equity 4 680 000

Ordinary share capital 3 300 000

Retained earnings 1 380 000

Non-current liabilities 4 000 000

Long-term loan (Jip Bank) 4 000 000

Current liabilities 1 160 000

Trade and other payables 1 160 000

Total equity and liabilities 9 840 000