QUESTION 3 (20 MARKS)

REQUIRED

Use the information provided below to prepare the following for Mustang Enterprises for January and February

2024.

3.1 Debtors Collection Schedule (4 marks)

3.2 Cash Budget. (16 marks)

INFORMATION

The following information was supplied by Mustang Enterprises:

1. Mustang Enterprises expects to have an unfavourable bank balance of R40 000 on 31 December 2023.

2. The monthly sales were projected as follows:

2023 Units

November 44 000

December 53 000

2024 Units

January 47 000

February 31 000

3. The selling price is R20 per unit (excluding any discounts). All the goods produced each month are

expected to be sold in the same month. Sixty percent (60%) of the sales is expected to be on credit and

the balance is for cash. Thirty percent (30%) of the cash sales is subject to a discount of 10%.

4. Credit sales are usually collected as follows:

20% in the month of sale, and these debtors receive a 5% discount.

75% in the month after the sale, and the rest is usually written off as bad debts.

5. Manufacturing overheads are paid monthly. The overheads are expected to amount to R65 000 for

December 2023, including R5 000 for depreciation. Manufacturing overheads are expected to increase

by 5% each month.

6. Labour costs amount to R6 per unit and are paid in the month in which they are incurred. Labour costs

per unit are expected to increase by 9% with effect from 01 February 2024.

7. Materials cost R7 per unit (excluding any discounts). All the materials are purchased for cash to take

advantage of a discount of 7.5%.

8. R200 000 is expected to be invested in a fixed deposit account on 01 February 2024. Interest at 9%

per annum is receivable monthly, commencing February 2024.

9. Selling and administrative costs are paid monthly and are expected to total R56 000 for February 2024,

after an increase of 12% takes place on 01 February 2024.QUESTION FOUR (20 MARKS)

REQUIRED

Use the information provided below to answer the following questions.

Note: Use the formulas provided in the formula sheet only (that appear after QUESTION 5). Answers to the

ratios must be expressed to two decimal places.

4.1 What percentage of the sales is made up of net income? (2 marks)

4.2 Calculate TWO (2) appropriate liquidity ratios and comment on the liquidity of the

company. (6 marks)

4.3 Calculate the relevant ratios and comment on the effectiveness with which the company

has employed the debtors and creditors. (6 marks)

4.4 Calculate TWO (2) appropriate ratios that would be used to assess the profitability of the

company by examining the income from operations and the after-tax returns earned.

Comment on your calculations. (6 marks)

INFORMATION

Excerpts of financial data of Markram Limited for 2022 are as follows:

Statement of Comprehensive Income for the year ended 31 December 2022

R

Sales 6 000 000

Cost of sales 4 000 000

Opening inventory 200 000

Purchases ?

Closing inventory 500 000

Operating profit 1 200 000

Interest expense 200 000

Profit before tax 1 000 000

Company tax 270 000Statement of Financial Position as at 31 December 2022

R

Non-current assets 3 500 000

Inventories 500 000

Accounts receivable 1 400 000

Cash 2 000

Bank overdraft 30 000

Ordinary share capital 940 000

Retained earnings 132 000

Long-term loan 3 600 000

Accounts payable 700 000

Additional information

Ninety percent (90%) of the sales is on credit.

All purchases are on credit.

Credit terms to debtors are 60 days and credit terms from suppliers are 90 day