Read the Case Study below and answer ALL of the questions that follow.

Smart$-$Pack $($Pty$)$ Ltd $($Smart$-$Pack$)$ was incorporated in January $2010$ by Alicia Florrick and her husband, Peter Florrick. Smart$-$Pack is a privately owned South African company, with Alicia as the Chief Executive Officer and Peter as the Chief Financial Officer. Neither Alicia nor Peter are chartered accountants, but both have extensive experience in running successful businesses. The company has three non$-$executive directors on the Board of Directors. The company$$s head office is situated in the Waterfall Business Park in Johannesburg, with a manufacturing plant and warehouse in the neighbouring city of Germiston.

Over the years, Smart$-$Pack has grown rapidly to become a medium$-$sized manufacturing company that supplies various forms of packaging solutions such as plastic shopping bags, cardboard boxes, crates and polystyrene bases to its wide and established customer base.

To aggressively grow sales, Smart$-$Pack successfully expanded its business into sub$-$Saharan Africa $($predominantly Lesotho and Botswana$)$ during January $2018.$ Smart$-$Pack is registered for value$-$added tax $($VAT$)$ as a category C vendor.

The previous auditor resigned on $16$ November $2018$ with immediate effect, due to irreconcilable differences between the engagement partner and the Smart$-$Pack Board. This related to the audit fees that were charged. Accordingly, Decker and Young Inc. $($Decker and Young$)$ was appointed as the new independent external auditor on $30$ November $2018,$ for the $31$ December $2018$ year$-$end audit. Decker and Young is a medium$-$sized auditing, tax and advisory firm. The previous auditors did make prior year working papers available to Decker and Young and based thereon the new engagement partner is satisfied that reliance can be placed on all opening balances for the current financial year audit.

Smart$-$Pack is currently experiencing cash flow difficulties and is operating at the limit of its overdraft facilities. Therefore, Alicia requested that the signed audited financial statements be available by $4$ February $2019,$ as Smart$-$Pack wants to apply for increased bank overdraft facilities from Invest Bank. Invest Bank requires audited financial statements that comply with International Financial Reporting Standards $($IFRSs$).$ The company$$s poor cash flow position is largely due to poor working capital management. The poor working capital management was first noticed in the South African operations but has been worsened by the increased production needs to service the new Lesotho and Botswana business lines.

You are a first$-$year trainee accountant in the audit and assurance division of Decker and Young focusing on manufacturing enterprises. In addition to the above information, you have received the following:

Documentation reference Description

Memo B

Planning notes on trade receivables and related items

MEMO B PLANNING NOTES ON TRADE RECEIVABLES AND RELATED ITEMS

Christine Tlaka is the senior sales and trade receivables accountant with extensive relevant experience. She is not a chartered accountant but has a Bachelor$$s Degree in Accounting Sciences. She is assisted by John Mzini, a part$-$time, third$-$year accounting student.

All Smart$-$Pack$$s sales transactions are on $30$ days$$ credit from date of invoice and subject to terms and conditions. Smart$-$Pack currently does not have written sales agreements with their customers. All invoices are accompanied by delivery notes, which are signed by the relevant customer upon delivery.

When customers place orders $($usually telephonically$),$ Christine issues invoices with reference to the price list that Peter approves on a monthly basis. Smart$-$Pack$$s expansion of its business into Lesotho and Botswana has been a great success. There is potential for significant growth in both these countries, as well as other African countries. As a result, Smart$-$Pack sales have grown significantly compared to the prior year. Sales to customers in Lesotho and Botswana are invoiced in the applicable foreign currency and delivered directly to the customers.

Smart$-$Pack currently does not perform reconciliations on any of their customer accounts, but does send monthly statements to all customers via email. Payments received from a specific customer are allocated to that customer$$s longest outstanding invoice first.

The following is an extract from the financial reporting system:

Notes $20182017$ R R

Sales in South Africa

$25630000$

$32000000$

Sales in Lesotho

$17440000$

$-$

Sales in Botswana

$18400000$

$-$

Total sales

$61470000$

$32000000$

Cost of sales

B$1$

$(48258500)$

$(22500000)$

Gross profit

$13211500$

$9500000$

Net profit $/($loss$)$

$(47750)$

$(1425450)$

Note

B$1$ The R$2800000-$facilitation fee paid to P&P to ensure preferential procurement is included in FY$2018$s cost of sales figure.

Description Notes $20182017$ R R

Total trade receivables

$14612100$

$5752000$

Customers from South Africa

$54601005752000$

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