Budgeting Accounting Grade 12 Study Guide and Notes

Budgeting Accounting Grade 12 Study Guide and Notes. Both budgeting and accounting are fiscal systems or processes that involve the planning, allocating, and disbursing of monetary resources. This results in an interrelationship and a need for coordination between these two fiscal disciplines.

Budgeting Accounting Grade 12 Study Guide and Notes

How to use this study guide

The main intention of this study guide is to address the challenges with specific areas of subject content that was poorly answered in the past nsc papers. This is informed by the detailed question-by-question analysis and findings provided in the diagnostic reports. The material presented in this booklet focuses on the progression across the fet phase and the content overlap, as illustrated in the table below.

Grade 12 learners (and teachers) must first address prior knowledge (concepts and calculations), before moving to the more challenging aspects of analyzing, interpreting and commenting. The next logical step is to tackle examination-type questions with the understanding that all questions will make provision for the different cognitive levels.

This study guide provides:

• Explanatory notes comprising simple definitions, examples, formulae and short-cuts (handy hints).
• Short focus-activities to test specific skills and content.
• Application activities in the form of examination-type questions.
• Adapted questions from past examination papers.

Plan of Action:

• You need to master the basic skills by using this manual, together with all other resources such as textbooks and study guides, to obtain more practice
  examples.
• Test your knowledge by attempting a variety of examination questions.
• Make notes of your shortcomings and start the process again until you are able to get the correct answers to the activities

Study and examination tips

Know the paper: General structure and layout.

• The Accounting paper is one 3-hour paper for 300 marks.
• It consists of 6 compulsory questions; the marks per question range from 30 to 80 marks. Each question comprises a number of sub-questions that catering for the different cognitive levels.
• The content covered must conform to the requirements of CAPS, as follows:

The trend in past papers was as follows:

• Question 1, 2 and 6 are generally shorter questions (30 – 45 marks).
• Question 3 and 4 are generally the longer questions, comprising Financial Statements, the Cash Flow Statement and Interpretation.
• The question paper comes with a specially prepared ANSWER BOOK, with appropriate space, formatting and certain details, which means you can answer the questions in any order.

Strategy:
√ Budgeting forms part of the Managerial Accounting field and, together with Manufacturing, it must constitute 20% – 25% of the paper.
√ Past trends show that the topic is normally assessed in Question 5 or 6 and is 30 – 40 marks; ± 20 marks will require calculations and the balance will be on analysis and interpretation.

√ Examiners will switch between the Cash Budget and the Projected Income Statement. There are subtle differences in interpretation, but the calculations are similar. (Detailed explanations are provided in Section 5 of this document).
√ The calculations require good arithmetical ability, which is developed over a period of time, and starting in Grade 7.
√ These skills must include calculating percentages, increases, decreases or specific amounts using equations.
√ Interpretation requires good comprehension ability. Be mindful of the language of the paper, and practice using many past papers.

Overview of the topic: Budgeting

What are some of the words that come to mind?

Discuss the words that are confusing Piet.
Make a list of other relevant words/ terms that came up in your discussion/ brainstorming session.
An EXPLANATION that highlights the purpose of budgeting:
Budgeting is an internal control tool that involves projecting business results, using existing
business information as well as other external factors, making adjustments and taking decisions to achieve the objectives of the business.

Summary of the topic:

Start-up Activity: Do I understand the difference between Receipts, Payments, Income and Expenses?
Place the correct amount in the respective column/s. Amounts can apply to more than one column.

What are we expected to cover in Grade 12?

• Back to basics
  • Concepts and terminology from previous Grades.
  • The difference between the Cash Budget and the Projected Income Statement. o Purpose of preparing a Cash Budget or a Projected Income Statement.
• Arithmetical ability
  • Calculate missing amounts in the budget.
  • Calculate amount/s for specific items using information from the budget, such as the loan balance or the total cost of a vehicle purchased.
    • The answers are usually:
      specific amounts, percentages, increases, decreases or ratio relationships.
• Analysis and Interpretation
  • Compare Actual vs Budgeted figures:
    • Provide possible reasons for differences.
    • Provide solutions (internal controls).
  • Consider ethical issues in terms of cash management and adherence to the budget.
  • Problem solving:
    • Control of cash, debtors, creditors, stock
    • Business decisions such as buy/rent fixed assets, sales and profitability.

Unpacking the sections of the budget:

4.1 Sales and collection from debtors

EXAMPLE: Cash sales amounts to 30% of total sales.
Calculate the missing amounts.

RECEIPT-TREND FROM DEBTORS: (Must equal 100% of credit sales)

• Percentage of credit sales, over 2, 3 or 4 months.
• First portion (part) collected in the month of sale or in the month following the sales month:
  • Is there a discount offered for receipts in the first month?
  • Is provision made for bad debts?

EXAMPLE: The trend in the way debtors settle their accounts is as follows: 20% pay in the month of sale and receive a 5% discount.
35% pay in the month following the month of sale.
40% pay two months after the sales month.
The balance are bad debts.

4.2 Purchases and payments to creditors

At times, payment is made early to take advantage of a discount.

TOTAL PURCHASE AMOUNTS: (two possible options)

DO THE CALCULATIONS:

• The business maintains a base stock. Stock is replaced monthly.
  • Calculate the cash and credit purchases for the three months.
  • Identify the amount that will be paid in May 2017.
• Total sales:
  

  2017 March April May R320 000 R350 000 R365 000

• Profit mark-up is 60% on cost.
• 20% of purchases are paid for in cash.
• Creditors are paid two months after the month of purchase.

LET’S PRACTICE: (Sales and Purchases)

The following information appeared in the books of Mouse Traders:

REQUIRED:
1.1 Complete the Debtors’ Collection Schedule for June and July 2018.
1.2 Complete the section of the Cash Budget to show cash sales, cash from debtors, cash
purchases and payments to creditors.

INFORMATION:

1. The business uses a profit mark-up of 75% on cost.
2. Sales:
   • Cash Sales account for 20% of total sales.
   • Debtors pay according to the following pattern:
     • 30% in the month of sales, subject to a 5% discount.
     • 50% in the month following the sales month.
     • 18% two months after the sales month.
3. Purchases:
   • The business maintains a base stock. Stock is replaced in the same month that sales take place.
   • Credit purchases makes up 60% of total purchases.
   • Creditors are paid two months after the month of purchase.
4. Schedule of total sales:
   

   MARCH	APRIL	MAY	JUNE	JULY
   R61 250	R73 500	R64 750	R78 750	R70 000

4.3 UNPACKING THE BUDGET: Examples of different calculations

ADDITIONAL INFORMATION:

1. Cash sales is 30% of total sales.
   February total sales is R130 000.
   130 000 x 30%
   39 000
2. The amount must come from a Debtors Collection Schedule that must be prepared.
3. Rent income increases by 8% from 9 200 x 108%
   1 February 2017. 9 200 x 8% = 736; 9 200 + 736
   9 936
4. Cash purchases accounts for 20% of total purchases. Total purchases for February 2017 is R81 000.
   81 000 x 20%
   16 200
5. Credit purchases are paid in 60 days (two months after purchase).
   18 500 x 80/20
   74 000
6. Insurance will increase by 5% in March. 2 457 x 100/105
   2 340
7. The loan was received on 31 January 2017. A fixed instalment and interest are paid on the last day of each month.
   Interest is not capitalized.
   _{360 000}
   (400 000 – 40 000) x 12% x 1/12
   3 600
8. The business has four sales assistants; each earns the same wage. One sales assistant will receive a special bonus of 60% of her salary in March.
   9 040/4 = 2 260 x 60%
   9 040 + 1 356
   (3 x 2 260) + (2 260 + 1 356)
   10 396
9. Advertising is estimated at a fixed percentage of monthly cash sales.
   1 080/36 000 x 100 = 3%;
   33 000 x 3%
   990
10. Sundry expenses increase by 5%  each month.
    2 400 x 105% = 2 520 x 105%
    2 646
11. Closing balance for the previous month is the opening balance for the next month.
    41 200
12. Surplus/ Deficit + Opening balance = Closing Balance
    y + 41 200 = 39 500 y = 39 500 – 41 200
    (1 700)

LET’S PRACTICE: (Calculations)
The following information appeared in the records of Abram Traders.

REQUIRED:
2.1 Complete the Debtors Collection Schedule.
2.2 Calculate the missing amounts in the budget for May and June.
2.3 Calculate the amount of the Fixed Deposit invested on 1 June.

INFORMATION:
A. Information for the budget period March – June 2018.

B. Additional Information:

• 25% of total sales are cash sales.
• Debtors pay according to the following trend:
  60% pay in the month following the transaction month.
  37% pay in the 2nd month after the transaction month.
  03% written off as bad debt.
• Stock is replaced in the month it was sold. A base stock is maintained.
  • Goods are sold at a mark-up of 50% on cost.
  • All purchases are made on credit. Creditors are paid in the following month and receive a 4% discount.
• Salaries and wages:
  • The manager will receive a 10% increase on 1 June.
  • The business employs three sales assistants on the same wage. They will receive a 6% inflationary increase on 1 May. One sales assistant will receive a bonus of 50% of her wages in June.
• Sundry expenses increase by 5% on the previous month.
• Rent income will increase by 9% on 1 May.
• Interest on loan is not capitalized. It is paid at the end of each month at 12% p.a. R50 000 of the loan will be paid on 31 May.
• The owner will draw R5 500 per month. R1 200 will comprise stock.
• The sales staff receive a commission equal to a fixed percentage of total sales.
• The advertising budget will increase by 6% on 1 June.
• A fixed deposit was invested on 1 June. Interest of 9% p.a. is receivable on 30 June.

ACTIVITY 1:

The information provided below relates to Brakpan Stationers.

REQUIRED:
1.1 Explain the importance of comparing budgeted figures with actual figures achieved for the same period. (2)
1.2 Calculate the missing amounts (indicated by a, b and c) in the Debtors’ Collection Schedule for the budgeted period March to May 2015. (4)
1.3 Calculate the following budgeted figures:
1.3.1 Total sales for March 2015. (2)
1.3.2 Payments to creditors during May 2015. (4)
1.3.3 Salaries of the shop assistants for April 2015. (3)
1.3.4 The % increase in the salary of the manager expected in May 2015. (3)
1.3.5 Amount of the additional loan expected to be acquired on 1 April 2015. (3)
1.4 An official of the local municipality has offered to recommend Brakpan Stationers supply the municipality with stationery to the value of R500 000.
However, he will only do this if he receives a cash payment of R20 000 from the owner.
What advice would you offer? State TWO points. (4)
1.5 The owner’s wife is angry that he has not been adhering to the cash budget. The owner says that he deliberately did not keep to the budget because he wanted to improve the overall results of the business.

• Identify THREE over-payments in April. Provide the figures to support your answer.
  Provide a valid reason for each over-payment to support the owner’s decisions. (6)
• Explain how the difference of opinion with his wife can be avoided in future. (2)
• State TWO other strategies that the owner and his wife could consider in future to improve the results of the business. (2)

INFORMATION

1. Sales and debtors’ collection:
   • TOTAL sales for April 2015 and May 2015 have been estimated as follows:
     

     April 2015	70 000
     May 2015	78 750

   • 80% of all sales are cash sales. The rest of the sales are on credit.
   • Debtors are expected to pay as follows:
     • 60% within the month of sale, subject to a 4% discount.
     • 38% in the month following the month of sale.
     • 2% of debts are written off in the second month following the month of sale.
   • Debtors’ collection schedule:
     

     	CREDIT SALES R	MARCH  R	APRIL  R	MAY R
     February	31 500	11 970
     March	10 500	a	3 990
     April	14 000		8 064	b
     May	c
     			18 018	12 054

2. Purchase of merchandise and payments to creditors:
   • A fixed-stock base is kept, i.e. the stock sold is replaced at the end of that month.
   • The business uses a mark-up of 75% on cost.
   • 70% of all merchandise is purchased on credit.
   • Creditors are paid in full in the month following the month of purchase.
3. Salaries:
   Shop assistants
   • The business has 12 shop assistants who are employed on equal pay in March 2015.
     Nine of the shop assistants are entitled to a bonus equal to 80% of the monthly salary in April 2015.
   • All shop assistants will receive a general increase in May 2015.
4. Loan:
   An additional loan will be taken from Atlantic Bank on 1 April 2015. The interest rate is 14% p.a.
5. Extract from the Cash Budget for the three months ending 31 May 2015:

ACTIVITY 2:

You are provided with a partially completed Projected Income Statement for Dawn Distributors for the period 1 October 2015 to 31 December 2015. It was prepared by the bookkeeper.

REQUIRED:
2.1 List TWO items on the Projected Income Statement,that would not appear on a Cash Budget. (2)
2.2 Fill in the missing amounts denoted by A to E on the Projected Income Statement. (16)
2.3 Take the following additional information into account and calculate the following:
2.3.1 The percentage increase in the wages of cleaners in December 2015. (4)
2.3.2 The monthly salary due to the sales manager in December 2015. (4)
2.3.3 Total credit sales expected in December 2015. (3)
2.3.4 The balance of the loan on 1 November 2015. (3)

INFORMATION:

1. The business uses a mark-up percentage of 60% on cost.
2. Credit sales comprise 75% of total sales.
   Sales are expected to increase by 10% per month and by 20% during December.
3. The business employs a sales manager and an administration manager. The sales manager earns R300 more than the administration manager (per month). The managers are entitled to an increase of 8% p.a. from 1 December 2015.
4. R20 000 of the loan is repayable on 30 November 2015. Interest on loan at 9% p.a. is payable every quarter. The next payment is due on 1 January 2016.
5. Advertising expense per month is budgeted at a fixed percentage of total sales.
6. Income tax is estimated to be 30% of the net profit before tax.

G. INFORMATION FROM THE PROJECTED INCOME STATEMENT FOR OCTOBER TO DECEMBER 2015.

4.4 ANALYSING AND INTERPRETING BUDGET INFORMATION

Frequently asked Questions (FAQ)

• Comparing ACTUAL AMOUNTS to BUDGETED AMOUNTS.
  The difference is referred to as a VARIANCE.

  ACTUAL AMOUNT	EXPLANATION
  Well controlled	The actual amount is equal to or very close to the budgeted amount.
  Over-budget	Under-spending. The amount is significantly lower than the budgeted amount.
  Under-budget	Over-spending. The amount is significantly higher than the budgeted amount.

  • Possible reason for the difference (variance).
  • Possible solutions/ advice/ recommendations (internal controls).
    

    ACTUAL AMOUNT	POSSIBLE REASON	SOLUTION/ADVICE
    Well controlled	Well managed and communicated.
    Over-budget	Incorrect budgeting; trying to cut costs; lack of supervision; negligence. unrealistic budgeting.	Adjust the budget; do not attempt to cut the cost of essential services; always consult the budget.
    Under-budget	Lack of supervision; no company rules; abusing privileges, unrealistic budgeting.	Investigate; set rules; supervise; adjust the budget if necessary.
    	RELATE THE REASON/ ADVICE TO THE SPECIFIC ITEM BEING ANALYSED.

EXAMPLE:
Kobus is concerned about the following items, which were under/ over budget for February 2016:

Explain why each of the items reflects a problem for the business and advise Kobus regarding each case.

• OTHER INTERPRETIVE SCENARIOS:
  • Related Receipts (income) and Payments (expenses)
    • Sales is influenced and affected by Advertising, Delivery Expenses, Commission Expenses and Packing Material.
  • Rent or buy decisions
    • Property or fixed assets such as machinery. Take into consideration the availability of finance, the cost of borrowing, the long-term benefits of the asset etc.
  • Identifying steps taken by the owner to correct/ improve the cash-flow situation:
    • Observe the pattern of the cash balance (positive/ overdraft).
    • Wasteful expenditure.
    • Introduction of additional capital, loans or investments.

ACTIVITY 3:
Below is information relating to DIY Hardware. The business is owned by John Temba. His inexperienced bookkeeper, Mabel, has prepared a Cash Budget.

REQUIRED:
3.1 Identify TWO items that Mabel has incorrectly entered in the Cash Budget. (4)
3.2 Apart from the items mentioned above, name TWO other items in the Payments Section of the Cash Budget that would NOT appear in a Projected Income Statement. (4)
3.3 After correcting all the errors John has identified the following:

Identify or calculate A and B. Indicate negative figures in brackets. (3)
3.4 Identify or calculate the missing figures C and D in the extract from the Cash Budget. (7)
3.5 Complete the Debtors’ Collection Schedule for February 2013. (10)
3.6 Calculate the percentage increase in salary and wages from 1 February 2013. (2)
3.7 Calculate the interest on the fixed deposit for January 2013. (2)
3.8 John pays Speedy Deliveries to deliver hardware to his customers free of charge. He budgets for this at a rate of 8% of total monthly sales.
3.8.1 Calculate the delivery expense figure budgeted for January 2013. (2)
3.8.2 John is of the opinion that the delivery service is costing him too much.
Which TWO points should John consider before deciding on whether or not to discontinue this service? (4)
3.9 On 31 January 2013 you identified the figures below. Explain what you would say to John about each of the following items at the end of January 2013. Give ONE point of advice in each case. (9)

3.10 John will have a problem with replacing his old computers and cash registers in March 2013. The cost of these items amounts to R150 000 and he expects them to last 5 years. However, he does not have cash available to pay for this. His options are:

• Raise a new loan at an interest rate of 14% p.a. to be repaid over 36 months.
• Hire (Lease) the assets from IT Connect Ltd at R5 100 per month.
• Invite his friend James to become an equal partner in the business and provide capital of R150 000.
  John realizes that all three options have the advantage of not requiring the R150 000 outlay in March 2013.

Consider each of these options and explain ONE other advantage and ONE disadvantage of each option. Provide figures to support your answer. (6)

INFORMATION:

1. Sales, purchase of stock and cost of sales:
   • Total sales for November 2012 to February 2013 were as follows:
     • November: R150 000
     • December: R200 000
     • January: R160 000
     • February: R140 000
   • 60% of all sales are cash sales; the rest is credit sales.
   • The mark-up is 33.3% on cost of sales at all times.
   • Stock is replaced on a monthly basis.
   • 50% of all purchases are cash, the rest is on credit.
2. Debtors’ collection:
   Debtors are expected to pay as follows:
   • 30% of debtors pay their accounts in the month of sale (current).
   • 50% pay in the month following the sales transaction month (30 days).
   • 8% pay in the second month (60 days).
   • 2% are written off.
3. Creditors’ payment:
   Creditors are paid in the month after purchases, so as to receive a 5% discount.
4. EXTRACT FROM THE CASH BUDGET FOR JANUARY AND FEBRUARY 2013
   

   	JAN 2013	FEB 2013
   RECEIPTS
   Cash sales	96 000	84 000
   Collection from debtors	70 000	?
   Interest on fixed deposit (7% p.a.)	?	0
   Fixed deposit: Magic Bank maturing on 1 Feb. 2013	0	42 000
   Commission income	?	?
   Rent income	8 500	8 800
   PAYMENTS
   Salary and wages	15 000	16 800
   Stationery	1 000	1 000
   Telephone	?	?
   Payment to creditors	71 250	D
   Cash purchase of stock	C	52 500
   Repayment of existing loan		100 000
   Furniture bought on credit	30 000
   Delivery expense for delivery of hardware to customers	?	11 200
   Training of staff	2 000	2 000
   Advertising	1 600	1 400
   Depreciation	12 500	12 500
   Sundry expenses	3 500	3 600
   Drawings by owner	?	?
   Vehicle expenses	0	500

ACTIVITY 4: (40 marks; 25 minutes)
4.1 Explain why:
4.1.1 Depreciation and bad debts will not appear in a Cash Budget. (2)
4.1.2 A cash budget is different from a Projected Income Statement. (2)

4.2 KIT KAT DISTRIBUTORS LTD
You are provided with information for the budget period November and December 2018.

REQUIRED:
4.2.1 Complete the Debtors’ Collection Schedule. (12)
4.2.2 Calculate the missing amounts in the Cash Budget denoted by (i) to (iv). (20)
4.2.3 Comment on the internal controls on collection from debtors and payment to creditors. Provide TWO points. (4)

INFORMATION:
A. Cash sales amount to 40% of total sales.
Goods are marked-up by 25% on cost.
B. Debtors are granted credit terms of 30 days. The actual collection trend revealed that:

• 50% of debtors pay in the month of the sale to receive a 5% discount.
• 30% is received in the month following the month of sales.
• 18% is collected in the second month after the sale.
• 2% of debtors is written off.

C. Stock is replaced in the month it was sold, i.e. a base stock is maintained.
D. 80% of stock is bought on credit. Creditors are paid in full in the month following the month the purchase was made.
E. Salaries and wages are expected to remain the same for the budget period. Staff members on leave in December will receive their pay in November – the total amount is R35 600.
F. A loan will be received from a director, Thabo, on 1 November 2018, at 13% interest p.a. Interest is not capitalised. A fixed monthly instalment and interest will be paid at the end of each month.
G. The company will pay an interim dividend in December. H Rent increased by 8% on 1 November 2018.
I. Incomplete Debtors’ Collection Schedule:

J. Information from the Projected Income Statement:

K Incomplete Cash Budget for 2018:

5. CHECK YOUR ANSWERS

Start-up Activity
Place the correct amount in the respective column/s.
Note that amounts can go in more than one column.

EXAMPLE: Cash sales amounts to 30% of total sales.
Calculate the missing amounts.

Debtors’ Collection Schedule:

DO THE CALCULATIONS: PURCHASES AND PAYMENTS TO CREDITORS

1.1 LET’S PRACTICE: (Sales and Purchases)

1.2 CASH BUDGET (EXTRACT)

Workings: Calculation of the cost of sales and credit purchases:

LET’S PRACTICE (Calculations)
2.1 DEBTORS COLLECTION SCHEDULE

2.2 CASH BUDGET FOR THE PERIOD 1 MAY – 30 JUNE

2.3 Calculate the amount of the Fixed Deposit invested on 1 June.

• 540 x 12 = 72 000
  9%

ACTIVITY 1: BRAKPAN STATIONERS
1.1 Explain the importance of comparing budgeted figures with actual figures achieved for the same period.
One valid explanation

• Deviations can be determined and remedial measures can be put in place.
• Establish whether the budgeting was realistic.
• To identify trends of mismanagement of cash. (2)

1.2 Calculate the missing amounts (indicated by a, b and c) in the Debtors’ Collection Schedule for the budgeted period March to May 2015 (4)

1.3.1 Calculate budgeted total sales for March 2015. (2)

• 10 500 x 100/20 = 52 500

1.3.2 Calculate the amount budgeted for payments to creditors during May 2015. (4)

•        40 000
  70 000 x 100/175 x 70% = 28 000 any one part correct
  or
  12 000/30 x 70 = 28 000

1.3.3 Calculate the budgeted salaries of the shop assistants for April 2015. (3)

• 102 000/12 = 8 500 8 500 x 3 = 25 500
  15 300 x 9 = 137 700
  25 500 + 137 700 = 163 200 any one part correct
  OR: 102 000 one mark + 61 200 one mark = 163 200
  (102 000 X 80% X 9/12)

1.3.4 Calculate the % increase in the salary of the manager expected in May 2015. (3)

• 3 200 (1 mark)
  (19 200 – 16 000) /16 000 = 20% any one part correct

1.3.5 Calculate the amount of the additional loan expected to be acquired on 1 April 2015. (3)

• 875 x (100 x12) /14 = 75 000 any one part correct

1.4 An official of the local municipality has offered to recommend that Brakpan Stationers supply the municipality with stationery to the value of R500 000. However, he will only do this if he is paid R20 000 in cash.
Give advice in this regard. State TWO points.
Any two suggestions (4)

• This is actually a bribe, which is unethical.
• If this information is made public, it will have a negative effect on the business.
• The owner must submit a formal tender to secure a contract through the normal processes.

1.5 Identify THREE over-payments made in April. Provide figures to support your answer. Provide a valid reason for each over-payment to support the decision taken. (6)

1.6 Explain how this difference of opinion with his wife can be avoided in future.

• They should have a specific meeting to determine the budget jointly and the owner should consult his wife before spending on unbudgeted items.

State TWO other strategies that the owner and his wife could consider in future to improve the results of the business.
Any two valid points:

• Advertise monthly. / Reduce the number of shop assistants.
• Reinstate deliveries to customers. / Negotiate longer credit terms with suppliers.

ACTIVITY 2 : DAWN DISTRIBUTORS
2.1 Identify TWO items that Mabel has incorrectly entered in the Cash Budget.
Any TWO

• Cost of sales / Discount received / Depreciation / Trading stock deficit

2.2

2.3.1 The percentage increase in wages that the cleaners will receive in December 2015.

•          176
  (3 376 – 3 200) x 100 = 5,5% (one part correct)
  3 200

2.3.2 The monthly salary due to the Sales Manager in December 2015.

• (17 100 – 300) = 8 400 (8 400 + 300) x 108% = 9 396 (one part correct)
  2

2.3.3 Total credit sales expected in December 2015.

• (99 000 x 160% ) x 75% = 118 800 (one part correct)
  OR
  132 000 X 120% = 158 400 X 75% = 118 800

2.3.4 The balance of the loan on 1 November 2015.

• 585 x 1200/9 = 78 000 (one part correct)

ACTIVITY 3: DIY HARDWARE
3.1 Identify TWO items that Mabel has incorrectly entered in the Cash Budget.
Two items

• Depreciation
• Furniture bought on credit

3.2 Apart from the items above, name TWO other items in the Payments Section of the Cash Budget that would NOT appear in a Projected Income Statement.
Any two items
Expected responses:

• Payment to creditors / Repayment of loan / Purchase of vehicle / Drawings Cash purchases of stock

3.3 Identify or calculate A and B. Indicate negative figures in brackets.

3.4 Identify or calculate the missing figures C and D in the extract from the Cash Budget

3.5 Complete the Debtors’ Collection Schedule for February 2013.

3.6 Calculate the % increase in salary and wages with effect from 1 February 2013.

• 1 800 /15 000 x 100 = 12 %

3.7 Calculate interest on the fixed deposit for January 2013.

• 42 000 x 7% / 12 = R245

3.8.1 Calculate delivery expenses for January 2013.

• R160 000 x 8% = R12 800

3.8.2 John is of the opinion that the delivery service is costing him too much. Which TWO points should John consider before deciding whether or not to discontinue this service?
Two factors

• Whether his competitors are offering the service or not.
• What the reaction from his customers will be should he withdraw the service.
• The possibility of charging customers for the delivery service.
• The possibility of finding a cheaper delivery service.
• The possibility of using his own vehicle instead of sub-contracting this service.

3.9 Explain what you would say to John about each item at the end of January 2013. Give ONE point of advice in each case.

3.10 Consider each of the options below and explain ONE other advantage and ONE disadvantage related to each option.

ACTIVITY 4 :
4.1 Explain why:
4.1.1 Depreciation and bad debts will not appear in a Cash Budget.
Any valid explanation.

• Non-cash items are not included in a cash budget.
• A cash budget only includes cash receipts and cash payments.

4.1.2 A cash budget is different from a Projected Income Statement.
Any valid explanation.

• A cash budget includes receipts and payments and shows plans for cash management. It shows the surplus/ deficit and the bank balance.
• The PIS shows income and expenses (including non-cash items) and projects the profit or loss per month (for the budget period).

4.2 KIT KAT DISTRIBUTORS LTD
4.2.1

4.2.2 Calculate:

1. Cash sales for December:
   210 000 X 40/60 = 140 000
2. Rent income amount for November:
   19 710 x 100/108 = 18 250
3. Payments to creditors for November:
   186 000 x 100/60 = 310 000
   310 000 x 100/125 = 248 000
   248 000 x 80%
   = 198 400
4. Salaries and wages for December:
   180 600 – 35 600 – 35 600
   = 109 400
5. Loan instalment (including interest) for December:
   _{138 000} 
   (13 625 – 1 625) + (150 000 – 12 000) x 13% x 1/12
   12 000                                1 495 (three marks)
   = 13 495

4.2.3 Comment on the internal controls for collection from debtors and payments to creditors. Provide TWO points.
Any TWO valid points.

• Only 50% of the debtors comply with the credit terms.
• The cash from debtors does not cover the payments to creditors every month.
• 80% of stock is bought on credit. / Only 20% is cash purchase of stock.
• As cash sales is a greater percentage of total sales, it may be wise to increase the percentage of cash purchases.
• Taking advantage of short-term credit is only beneficial if it eases cash-flow problems.

6. Thank you

This Accounting module on the Analysis and Interpretation of financial information was developed by Mr P Govender, Mr A Leeuw, Mr M.P Shabalala, Mr Dorian Olifant and Ms ZJM Mampana (Subject Specialists, PED)
A special mention must be made of Mr Mzikaise Masango, the DBE curriculum specialist who, in addition to his contribution to the development of the guide, also coordinated and finalised the process.
These officials contributed their knowledge, experience and in some instances unpublished which they have gathered over the years to the development of this resource. The Department of Basic Education (DBE) gratefully acknowledges these officials for giving up their valuable time, families and expertise to develop this resource for the children of our country.
Administrative and logistical support was provided by Mr Noko Malope and Ms Vhuhwavho Magelegeda. These officials were instrumental in the smooth and efficient management of the logistical processes involved in this project.