Downloaded from Stanmorephysics.

com

ACCOUNTING
Grade 12
Chapter 10

Budgets
THEORY

WORKSHEET & MEMO

Compiled by
MRS CW BRIMECOMBE
1
Downloaded from Stanmorephysics.com
TABLE OF CONTENTS Page
1. Introduction 3

2. The purpose of preparing a budget. 3

3. Factors to consider when budgeting 3

4. Two types of budgets 3

5. Terminology 4

6. Format of a cash budget 5

7. Format projected income statement 6

8. Debtors’ collection schedule 6

9. Creditors payment schedule 10

10. Examples of challenging calculations: 13
loan & fixed deposit
11. Internal control 16

THIS BOOKLET CONSIST OF 17 PAGES

2
 Downloaded from Stanmorephysics.com
1. INTRODUCTION

EXPECTED RECEIPTS
AND PAYMENTS

MONITOR
WILL THE BUSINESS BE ABLE TO SURVIVE?
DO WE NEED TO BORROW MONEY?
DO WE HAVE THE POTENTIAL TO EXPAND IN THE FUTURE?
DID WE OVERSPENT OR UNDER BUDGET?

2. THE PURPOSE OF PREPARING A BUDGET.

 Prevents over expenditure.
 Prevents people or a business from spending more than they are expecting to receive
within a specified period.
 Prevents people from debts.
 It prevents business from bank overdrafts.
 It shows changes in spending habits.
 It helps prioritising expenditure.
 It is an internal control measure for receipts and payments.

3. FACTORS TO CONSIDER WHEN BUDGETING

 Inflation
 The economy
 Exchange rate if goods are imported
 Competitors
 Market trends
 Use past transactions to budget accurately

4. TWO TYPES OF BUDGETS

CASH BUDGET PROJECTED INCOME STATEMENT
•Expected inflow and outflow of cash •Expected income and expenses for the
•Expected deficit or surplus year which include all transactions, cash
•Expected bank balance and credit.
•Only cash transactions, no credit •Expected profit or loss.
transactions •Only income and expenses
•All non-cash itemes excluded like bad •No assets and liabilities
debts, depreciation, profit/loss on sales of •A forecast of expected net profit or loss
an asset, discount received, discount for a specific period in the future
allowed.
•A forecast of expected cash position
(receipts and payments) for a specific
period in the future.

3
 Downloaded from Stanmorephysics.com
5. TERMINOLOGY
• Actual cash received and paid out on a monthly basis.
• The business needs to know when they will need large
Cash amounts of money so that they can borrow money or
increase their capital.
Budget • The business needs to know if they have excess cash on
hand to take advantage of new business opportunties.

Deficit • Total payments exceeds the total receipts.

Surplus • Total receipts exceeds the total payments.

Profit • Total income exceeds the total expenses

Loss • Total expenses exceeds the total income

• How long does it take debtors to pay us.

Debtors • Debtors must pay based on the credit terms (30 days,
60 days etc.)
collection • However, debtors does not adhere to credit terms.
period • The business will estimate a percentage based on past
experiences how debtors will pay on a monthly basis.

Creditors •Payment to our creditors (suppliers) based on their credit terms.

payment •Must use the COST OF SALES. Determine what percentage will
be bought cash and which percentage on credit.
period
• Similar to a Statement of Comprehensive Income except
on a monthly basis.
Projected • Income shown in the month it will be earned, irrespective
Income of when the cash will be received.
• Expenses shown in the month in which it will incurre,
Statement irrespective if it has been paid or not.
• Ensure that the business is profitable

•Stock is replaced monthly.

Fixed stock •As soon as stock is sold, it will be replaced in the same month.
base •The stock remains constant from month to month.

4
 Downloaded from Stanmorephysics.com
6. FORMAT OF A CASH BUDGET

 Form of ownership a sole trader or a company.

 If the form of ownership is a company, payments will be made towards SARS,
dividends, repurchase of shares. Earnings would include the selling of shares.

CASH BUDGET FOR THE PERIOD 1 JANUARY 2022 TO 31 MARCH 2022.

SPECIFIC PERIOD EXAMPLE 3 MONTHS

JANUARY FEBRUARY MARCH TOTAL

Cash Receipts
Cash sales
Cash from debtors
Sales of tangible assets
Loan received LIST OF ITEMS AS
Fixed deposit matures INFLOW OF CASH
“All cash received from an
income”
Additional capital contributed

TOTAL RECEIPTS (A) 300 000 350 000 320 000 970 000

Cash Payments
Cash purchase trading stock
Payment to creditors
Purchase of tangible assets
LIST OF ITEMS AS
Repayment of loan
OUTFLOW OF CASH
Investment into a fixed deposit
Drawings (cash)
“All payments of expenses”

TOTAL PAYMENTS (B) 220 000 345 000 340 000 905 000

Surplus/ deficit (A minus B) 80 000 5 000 (20 000) 65 000

Opening balance 40 000 120 000 125 000 40 000
Closing balance 120 000 125 000 105 000 105 000

COMPLETING THE CASH BUDGET:

 Total receipts minus total payments equals surplus or deficit.
 Opening balance is your bank balance in the beginning.
 Surplus plus opening balance equals closing balance. Be careful if you have a deficit
and a bank overdraft! A deficit and the bank overdraft must be shown in brackets.
 The closing balance at the end of the month becomes your opening balance the
following month.
 Refer to the total column: The opening balance will be the bank balance in the
beginning (January). The closing balance must be equal to the closing balance
(March). If it is the same, you have done it correctly.

5
 Downloaded from Stanmorephysics.com
7. FORMAT PROJECTED INCOME STATEMENT
 Know your formats if a Projected Income Statement is asked based on a company.
 IN EXAMPLE BELOW:
The mark-up percentage is 100% on cost.
Based on a Sole Trader
JANUARY FEBRUARY MARCH TOTAL
Sales 800 000 960 000 816 000 2 576 000
100 (400 000) (480 000) (408 000) (1 288 000)
Cost of sales (CP=SP x 200)

Gross profit 400 000 480 000 408 000 1 288 000
Other operating income 210 000 250 000 300 000 760 000

ALL INCOME ON A MONTHLY BASIS

IRRESPECTIVE IF RECEIVED OR NOT. THIS
INCLUDES NON-CASH ITEMS.

Gross operating income 610 000 730 000 708 000 2 048 000
Operating expenses (457 500) (569 400) (566 400) (1 593 300)
`
ALL EXPENSES ON A MONTHLY BASIS
IRRESPECTIVE IF PAYMENT WAS MADE OR
NOT. THIS INCLUDES NON-CASH ITEMS.

Operating profit/Loss 152 500 160 600 141 600 454 700
Interest income 2 000 2 000 2 000 6 000
Profit before interest expense 154 500 162 600 143 600 460 700
Interest expense (1 800) (1 800) (1 800) (5 400)
Net profit/ Loss 152 700 160 800 141 800 455 300

8. DEBTORS COLLECTION SCHEDULE

SALES

Cash budget CASH SALES 80 000 (40%)

Debtors’ collection schedule CREDIT SALES 120 000 (60%)

Projected Income Statement TOTAL SALES 200 000 (100%)

 Goods are sold cash and on credit.

 The cash sales will always appear in the cash budget.
(R80 000÷R200 000 x 100 = 40%)
 The credit sales will be used to complete the debtor’s collection schedule, to
calculate the expected payment received from debtors based on past experiences.
(R120 000÷R200 000 x 100 = 60%)
 The total sales will always appear in the Projected Income Statement. The total sales
are equal to 100%

6
 Downloaded from Stanmorephysics.com
EXAMPLE:

INFORMATION
1. Projected sales:
January R600 000
February R900 000
March R750 000
April R727 500
May R800 000
60% of sales will be on credit.

2. Debtors are expected to pay as follows:

 40% within the same month of sale, subject to a 5% discount.
 35% in the month following the sale.
 20% in the second month following the sale.
 5% of debts are written off after 60 days.
WORKINGS:

JAN FEB MARCH APRIL MAY

TOTAL 600 000 900 000 750 000 727 500 800 000
Cash (40%) 240 000 360 000 300 000 291 000 320 000
Credit (60%) 360 000 540 000 450 000 436 500 480 000

JAN 40% 35% 20% 5%

R360 000 Discount: R126 000 R72 000 BAD
R7 200 DEBT
Payment: R18 000
R136 800
FEB 40% 35% 20% 5%
R540 000 Discount: R189 000 R108 000 BAD DEBT
R10 800 R27 000
Payment:
R205 200
MARCH 40% 35% 20%
R450 000 Discount: R157 500 R90 000
R9 000
Payment:
R171 000
APRIL 40% 35%
R436 500 Discount: R152 775
R8 730
Payment:
R165 870
MAY 40%
R480 000 Discount:
R9 600
Payment:
R182 400
PAYMENT R136 800 R331 200 R432 000 R431 370 R425 175

7
 Downloaded from Stanmorephysics.com
 Calculate the credit sales that should go into the
debtor’s collection schedule to find out the payment
from debtors.
 Calculate the percentage expected from debtors for
each month.
 If discount is allowed, first calculate the percentage
expected and then calculate the discount allowed and
the amount expected from debtors.
40% - 5%

40% = Amount
Amount x 5% = Discount
Amount x 95% = Payment from debtor

 Discount allowed and bad debts is a non-cash item, it

will appear in the Projected Income Statement.
SOLUTIONS:
DEBTORS COLLECTION SCHEDULE:
CREDIT SALES MARCH APRIL MAY
JANUARY R360 000 R72 000
FEBRUARY R540 000 R189 000 R108 000
MARCH R450 000 R171 000 R157 500 R90 000
APRIL R436 500 R165 870 R152 775
MAY R480 000 R182 400
PAYMENT TO DEBTORS R432 000 R431 370 R425 175

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts
Cash sales 300 000 291 000 320 000 911 000
Cash from debtors 432 000 431 370 425 175 1 288 545

EXTRACT OF THE PROJECTED INCOME STATEMENT:

MARCH APRIL MAY TOTAL
Operating expenses
Discount allowed 9 000 8 730 9 600 27 330
Bad debts 18 000 27 000 45 000

8
 Downloaded from Stanmorephysics.com
Always know how to work backwards.
Refer to May:
JAN FEB MARCH APRIL MAY
MAY 40%
CREDIT Discount:
SALES? R9 600
Payment: ?

FINDING FIGURES:

1. To calculate the payment from debtors:

95
𝑅9 600 × = 𝑅182 400
5

2. To calculate the credit sales:

100 Alternative:
𝑅9 600 × = 𝑅192 000 100
5 𝑅182 400 × = 𝑅192 000
95
Then Then
100 100
𝑅192 000 × = 𝑅480 000 𝑅192 000 × = 𝑅480 000
40 40

3. To calculate the total cash sales:

40 Alternative:
𝑅480 000 × = 𝑅320 000 100
60 𝑅480 000 × = 𝑅800 000
60

Then
R800 000 – R480 000 = R320 000

4. To calculate the total sales:

100
𝑅480 000 × = 𝑅800 000
60

FINDING PERCENTAGES:

JAN FEB MARCH APRIL MAY

MAY Discount:
R480 000 R9 600
Payment:
R182 400

1. Percentage expected by debtors:

𝑅192 000
(𝑅9 600 + 𝑅182 400)
× 100 = 40%
𝑅480 000

9
 Downloaded from Stanmorephysics.com
2. Percentage discount:
R9 600 + R182 400 = R192 000 Alternative:
𝑅9 600 40
∴ × 100 = 5% 𝑅480 000 × = 𝑅192 000
𝑅192 000 100
𝑅9 600
∴ × 100 = 5%
𝑅192 000

3. Percentage payment from debtors:

R9 600 + R182 400 = R192 000 Alternative:
𝑅182 400 40
∴ × 100 = 95% 𝑅480 000 × = 𝑅192 000
𝑅192 000 100
𝑅182 400
∴ × 100 = 95%
𝑅192 000

9. CREDITORS PAYMENT SCHEDULE

SALES

Cash budget CASH SALES 80 000 (40%)

Debtors’ collection schedule CREDIT SALES 120 000 (60%)

Projected Income Statement TOTAL SALES 200 000 (100%)

The business uses a mark-up percentage of 100% on cost.

COST OF SALES

TRADING STOCK (CASH) 40 000

TRADING STOCK (CREDIT) 60 000

TOTAL 100 000 Projected Income Statement

TRADING STOCK

CASH (25%) 25 000 COST OF SALES (CASH) 40 000

Cash
budget COST OF SALES (CREDIT) 60 000
CREDIT (75%) 75 000
TOTAL 100 000
Creditors’ payment schedule

 We need to know what the goods cost (cost of sales).

 The stock sold monthly needs to be replace.
 We need to know how much will be bought cash and which on credit.
 We need to know when we will pay for the stock bought on credit and to take
advantage of discount received for prompt payment.

10
 Downloaded from Stanmorephysics.com
EXAMPLE:

INFORMATION
1. Projected sales:
January R600 000
February R900 000
March R750 000
April R727 500
May R800 000
60% of sales will be on credit.
2. Stock is replenished monthly. The business uses a mark-up of 100% on cost. 20%
of stock is bought for cash. The balance is paid as follows:
 30% in the month of the purchase to earn a discount of 5%.
 The balance is paid equally over 60 days.

WORKINGS:
JAN FEB MARCH APRIL MAY
Sales 600 000 900 000 750 000 727 500 800 000
Cost of sales (300 000) (450 000) (375 000) (363 750) (400 000)
Cash (20%) 60 000 90 000 75 000 72 750 80 000
Credit (80%) 240 000 360 000 300 000 291 000 320 000
JAN 30% 35% 35%
R240 000 R72 000 R84 000 R84 000
Discount:
R3 600 R240 000 x 70% = R168 000
Payment:
R68 400
FEB 30% 35% 35%
R360 000 R108 000 R126 000 R126 000
Discount:
R5 400 R360 000 x 70% = R252 000
Payment:
R102 600
MARCH 30% 35% 35%
R300 000 R90 000 R105 000 R105 000
Discount:
R4 500 R300 000 x 70% = R210
Payment: 000
R85 500
APRIL 30% 35%
R291 000 R87 300 R101 850
Discount:
R4 365 R291 000 x 70%
= R203 700÷2
Payment:
R82 935
MAY 30%
R320 000 R96 000
Discount:
R4 800
Payment:
R91 200
PAYMENT R68 400 R186 600 R295 500 R313 935 R298 050

11
 Downloaded from Stanmorephysics.com
 Step 1: Calculate the cost of sales using the mark-up %.
 Step 2: Calculate the cash purchase and the credit purchase using the cost of sales
figure.
 Step 3: Calculate the payment to the creditors using the credit purchases.
30% is paid in the same month which means 70% is paid equally over 60 days.
(70% ÷2=35% over each month).
30% - 5%

30% = Amount
Amount x 5% = Discount
Amount x 95% = Payment from debtor

SOLUTIONS:
CREDITORS PAYMENT SCHEDULE:
CREDIT PURCHASES MARCH APRIL MAY
JANUARY 240 000 84 000
FEBRUARY 360 000 126 000 126 000
MARCH 300 000 85 500 105 000 105 000
APRIL 291 000 82 935 101 850
MAY 320 000 91 200
PAYMENT TO CREDITORS 295 500 313 935 298 050

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts

Cash Payment
Cash purchase of trading stock 75 000 72 750 80 000 227 750
Payment to creditors 295 500 313 935 298 050 907 485

EXTRACT OF THE PROJECTED INCOME STATEMENT:

MARCH APRIL MAY TOTAL
Sales 750 000 727 500 800 000 2 277 500
Cost of Sales (375 000) (363 750) (400 000) (1 138 750)
Gross profit 375 000 363 750 400 000 1 138 750

Other operating income

Discount received 4 500 4 365 4 800 13 665

The same as above in the debtors’ schedule,

know how to work backwards to find missing
figures and percentages.

12
 Downloaded from Stanmorephysics.com
10. EXAMPLES OF CHALLENGING CALCULATIONS:
LOAN & FIXED DEPOSIT
LOAN

1. Calculate the loan amount.

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts

Cash Payment
Interest on loan 5 000 5 000 5 000 15 000

WORKINGS ANSWER
12 1 Alternative:
𝑥× × = 5 000 12 3
100 12 𝑥× × = 15 000
100 12
12𝑥
∴ = 5 000 36𝑥
1 200 ∴ = 15 000
1 200
∴ 12𝑥 = 5 000 × 1 200
∴ 36𝑥 = 15 000 × 1 200
6 000 000 R500 000
∴𝑥= 18 000 000
12 ∴𝑥=
36
Alternative:

100
𝑅5 000 × 12 × = 𝑅500 000
12

2. Calculate the loan repayment amount.

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts

Cash Payment
Interest on loan 5 000 5 000 4 500 14 500

13
Downloaded from Stanmorephysics.com
WORKINGS ANSWER
R5 000 – R4 500 = R500 Alternative:
12 1
𝑥× × = 500
100 12 R5 000 – R4 500 = R500

12𝑥 100
∴ = 500 𝑅500 × 12 × = 𝑅50 000
1 200 12

∴ 12𝑥 = 500 × 1 200

600 000
∴𝑥=
12
Alternative:
April May
12 1 R50 000
𝑥× × = 5 000 12 1
100 12 𝑥× × = 4 500
100 12
12𝑥
∴ = 5 000 12𝑥
1 200 ∴ = 4 500
1 200
∴ 12𝑥 = 5 000 × 1 200
∴ 12𝑥 = 4 500 × 1 200
6 000 000
∴𝑥= 5 400 000
12
∴𝑥=
12
∴ 𝑥 = 500 000
∴ 𝑥 = 450 000

R500 000 – R450 000

3. Calculate the % interest on loan

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts
Loan received 500 000

Cash Payment
Interest on loan 5 000 5 000

14
Downloaded from Stanmorephysics.com
WORKINGS ANSWER
𝑥 1 Alternative:
𝑅500 000 × × = 5 000
100 12
500 000𝑥 12
∴ = 5 000 𝑅5 000 × × 100
1 200 500 000
12%
∴ 500 000𝑥 = 5 000 × 1 200 = 12%

6 000 000
∴𝑥=
500 000

FIXED DEPOSIT

1. Calculate by how much the interest rate dropped from March to April.

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts
Fixed deposit 60 000 60 000
Interest on fixed deposit 525 250 250 1 025

Cash Payment
Fixed deposit 30 000 30 000

WORKINGS ANSWER
March April
𝑥 1 𝑥 1
𝑅60 000 × × = 525 𝑅30 000 × × = 250
100 12 100 12
60 000𝑥 30 000𝑥
∴ = 525 ∴ = 250
1 200 1 200

∴ 60 000𝑥 = 525 × 1 200 ∴ 30 000𝑥 = 250 × 1 200

630 000 300 000

∴𝑥= ∴𝑥=
60 000 30 000 10,5%-10%
=0,5%
∴ 𝑥 = 10,5% ∴ 𝑥 = 10%

Alternative
March April

12 12
𝑅525 × × 100 = 10,5% 𝑅250 × × 100 = 10%
60 000 30 000

∴ 𝟏𝟎, 𝟓% − 𝟏𝟎% = 𝟎, 𝟓%

15
 Downloaded from Stanmorephysics.com
2. Calculate how much was reinvested in March.

EXTRACT OF THE CASH BUDGET:

MARCH APRIL MAY TOTAL
Cash Receipts
Fixed deposit 60 000 60 000
Interest on fixed deposit 525 200 200 925

Cash Payment
Fixed deposit ? ?

 The interest rate is 10,5% in March and is expected to increase by 1,5% in

April.

WORKINGS ANSWER
12 1 Alternative:
𝑥× × = 200
100 12
100
12𝑥 𝑅200 × × 12
∴ = 200 12
1 200
R20 000
∴ 12𝑥 = 200 × 1 200

240 000
∴𝑥=
12

11. INTERNAL CONTROL

 The Cash Budget and the Projected Income Statement form part of internal control.
 At the end of each month, the actual figures must be checked against the projected
figures.
 Differences needs to be investigated.
 When comparing actual figures with budgeted figures, calculate the % variance.
 When commenting to see if we have managed our expenses well, do not just look
at it as a stand a lone expense. Example, we could have overspent on advertising,
but our sales went up. Comment on the advertising in relation to sales.

EXAMPLE 1: COMPARING ACTUAL FIGURES WITH BUDGETED FIGURES:

Item Budgeted Actual Under/over budget

Collection from debtors 280 000 167 600 Under
Telephone 4 480 7 000 Over

16
Downloaded from Stanmorephysics.com
COLLECTION FROM DEBTORS
VARIANCE PROBLEM
 Budget R280 000 and actual  Collections are much lower than expected.
R167 600.  This will cause a cash flow problem.
 Under budget R112 400.  Internal control of debtors is poor.
112 400
 280 000 × 100 = 40,1%

TELEPHONE
VARIANCE PROBLEM
 Budget R4 480 and actual  Staff may possibly use the telephone for
R7 000. personal calls.
 Over spent R2 520.
2 520
 4 480 × 100 = 56,3%

Note: In both cases you could be asked to give advice to solve the problem!

EXAMPLE 2: COMPARING ACTUAL FIGURES WITH BUDGETED FIGURES:

Item Budgeted Actual Under/over budget

Sales 500 000 650 000 Over
Telephone 5 600 7 000 Over

 Each employee was instructed to call existing and potential clients during the
month.

150 000
 Sales increased by R150 000. The sales increased by 30% (500 000 × 100 =
30%).
 Telephone expense increased by R1 400. The telephone expense increased by
1 400
25% (5 600 × 100 = 25%).
 The telephone expense was well managed. Employees were instructed to phone
clients. This had a positive effect on the sales as the sales increased by 30%.

TAKE NOTE THE DIFFERENCE

BETWEEN EXAMPLE 1 AND
EXAMPLE 2!!!

17
 Downloaded from Stanmorephysics.com
I8

ACCOUNTING
Grade 12

Chapter 10
Budgets
WORKSHEET

Compiled by
MRS BRIMECOMBE
1
 Downloaded from Stanmorephysics.com
TABLE OF CONTENTS Page
1. Activity 1 3
2. Activity 2 6

3. Activity 3 9
4. Activity 4 17

5. Activity 5 22

THIS BOOKLET CONTAINS 28 PAGES

Accounting – Grade 12 Chapter 10 All Rights Reserved.

 Downloaded from Stanmorephysics.com
ACTIVITY 1

DEBTORS COLLECTION SCHEDULE

You are provided with the information related to GNA Stationers.

REQUIRED:

1.1 Why is it necessary to prepare a Debtors’ Collection Schedule?

1.2 Prepare the Debtors Collection Schedule for the months of January, February, and
March 2022.

1.3 Calculate the total cash sales from January, February, and March.

1.4 Calculate the following:

a) The estimated bad debts to be written off for the period January to March 2022.

b) The total estimated amount still owed by debtors at the end of March 2022.

1.5 Refer to the January sales.

a) Calculate the percentage increase in sales.

b) Why are the January sales predicted to increase and then slowly decline from
February?

1.6 Comment on the debtors’ collection policy and give advice.

INFORMATION:

1. TOTAL SALES:

ACTUAL BUDGETED
OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH
236 000 240 000 360 000 432 000 400 000 368 000
 Credit sales amounts to 65% of the total sales.

2. Debtors are allowed 30 days to pay. Debtors pay according to the following trend:

 30% settle in accounts in the month of sales and receive a 5% discount.

 45% settle accounts in the following month.
 18% settle accounts in the second month following the month of sale.
 Provision is made for bad debts in the third month following the month of sale.

3
 Downloaded from Stanmorephysics.com
ANSWER BOOK
ACTIVITY 1

DEBTORS COLLECTION SCHEDULE

1.1 Why is it necessary to prepare a Debtors’ Collection Schedule?

1.2 Prepare the Debtors Collection Schedule for the months of January, February, and
March 2022.

CREDIT SALES JANUARY FEBRUARY MARCH

November

December

January

February

March

PAYMENT TO DEBTORS

1.3 Calculate the total cash sales from January, February, and March.

JANUARY FEBRUARY MARCH

4
 Downloaded from Stanmorephysics.com
1.4 Calculate the following:

a) The estimated bad debts to be written off for the period January to March 2022.

WORKINGS ANSWER

b) The total estimated amount still owed by debtors at the end of March 2022.

WORKINGS ANSWER

1.5 Refer to the January sales.

a) Calculate the percentage increase in sales.

WORKINGS ANSWER

b) Why are the January sales predicted to increase and then slowly decline from
February?

5
 Downloaded from Stanmorephysics.com
1.6 Comment on the debtors’ collection policy and give advice

DEBTORS’ COLLECTION POLICY ADVICE

ACTIVITY 2
CREDITORS PAYMENT SCHEDULE
You are provided with the information related Choc Chip Biscuits for the forecast period
1 January 2022 to 31 May 2022. The business sells biscuits which has a shelf life of 1 month.

REQUIRED:

2.1 Complete the table on your Answer book to calculate the Gross Profit from January to
May 2022. Calculations must be rounded off to the nearest Rand.

2.2 Prepare the Creditors Payment Schedule.

2.3 If the expected yearly cost of sales is R6 500 000, calculate the number of months for
which there is enough stock on hand. Explain whether this is appropriate for the
business.

2.4 Give three disadvantages of keeping to much stock.

INFORMATION:

1. TOTAL CREDIT SALES:

ACTUAL BUDGETED
JANUARY FEBRUARY MARCH APRIL MAY
420 000 432 000 450 000 456 000 457 200

 60% of sales were on credit and 40% were cash sales.

6
 Downloaded from Stanmorephysics.com
2. ADDITIONAL INFORMATION:

 All goods are sold at a mark-up of 33 1⁄3% on cost.

 Credit purchases amount to 80% of all purchases.
 Creditors are paid as follows:
70% in the month of the purchase to earn a 2,5% discount.
30% in the month following the purchase.
 Stock will be replenished monthly. The company aims to keep a fixed base
inventory level of R500 000.

ANSWER BOOK

ACTIVITY 2
CREDITORS PAYMENT SCHEDULE

2.1 Complete the table on your Answer book to calculate the Gross Profit from January to
May 2022. Calculations must be rounded off to the nearest Rand.

JAN FEB MARCH APRIL MAY

Sales

Cost of sales

Gross Profit

2.2 CREDITORS PAYMENT SCHEDULE

CREDIT MARCH APRIL MAY

PURCHASES

FEBRUARY

MARCH

APRIL

MAY

PAYMENT TO CREDITORS

7
 Downloaded from Stanmorephysics.com
2.3 If the expected yearly cost of sales is R6 500 000, calculate the number of months for
which there is enough stock on hand. Explain whether this is appropriate for the
business.

Stock holding period:

Comment if this is appropriate for the business:

2.4 Give three disadvantages of keeping to much stock.

8
 Downloaded from Stanmorephysics.com
ACTIVITY 3

3.1 CASH BUDGET AND PROJECTED INCOME STATEMENT

The information provided was taken from the records of Cool Traders their financial year
ended 31 August 2022.

REQUIRED:

3.1.1 Explain the difference between the cash budget and projected income.

3.1.2 Mention two incomes that will not be included under receipts in the Cash Budget.

3.1.3 Refer to TRANSACTION 1.

a) Complete the Asset Disposal account on equipment sold.

b) Calculate the depreciation rate on vehicles.

3.1.4 Indicate amounts in the appropriate block for the Cash Budget and Projected
Income Statement for the month ending 30 September 2022.

TRANSACTIONS:
1. FIXED DATE OF COST PRICE ACCUMULATED DEPRECIATION
ASSETS PURCHASE ON 31 AUGUST 2022
Equipment 31 August 2019 R230 000 R150 000
Vehicles 1 March 2022 R340 000 R34 000

 An old tablet will be sold for cash on 30 September 2022. The cost price of the tablet
was R12 000, the accumulated depreciation on 31 August 2022 amounted to R7 200.
The business is expected to make a profit of R800.
 Depreciation on equipment is calculated at 15% p.a on cost.
 Depreciation on vehicles is calculated using diminishing balance method.

2. The owner plans to withdraw R30 000 in cash for personal use.

3. Projected sales, R400 000. The business uses a mark-up of 60% on cost. 75% of all
sales are on credit. The rest is for cash.

4. On 1 September 2022, R80 000 will be invested in a fixed deposit at 10,5% interest p.a.
Interest is not capitalized and will be received every quarter.

5. The rent paid for the financial year ended 31 August 2022 amounted to R166 560. This
included the rent for September 2022. The rent contract stipulates that the rent will
increase by 8% every year on 1 November.

6. Goods were purchase on credit in August. Creditors are paid in the month following the
month of purchase to take advantage of a 5% discount. The business is expected to
receive R3 750 discount in September.

9
 Downloaded from Stanmorephysics.com
7. The maintenance and repairs of R16 000 per month is expected to reduce by 7% during
September.

8. A sixth-month insurance contract for R9 000 will be paid on 25 September 2022.

R3 000 of this amount relates to the next financial year.

9. The business has 5 employees. The details for each employee each month are as
follow:
Gross wage Deductions Contributions
R6 500 1% towards UIF 1% towards UIF
5% towards Pension Fund 10% towards the Pension Fund.
 The employee who are owed his August wage, will be paid in September.

10. Trading stock were damaged due to a waterpipe that burst during August. The total loss
was R9 000. The insurance company agreed to cover 80% of the total damage. The
money is expected to be paid into our bank account in September.

3.2 INTERPRETATION OF BUDGETS

REQUIRED
3.2.1 Refer to INFORMATION A: Debtors’ Collection Schedule

 Complete the Debtors collection Schedule by filling in the missing amounts.

 Calculate the % debtors written off as irrecoverable.

3.2.2 Refer to INFORMATION B.

A new competitor commenced trading in the area in May 2022.

 Provide figures to illustrate the impact on sales in May.

 Explain THREE decisions that the owner took in June in response to the new
competitor. Quote figures or a calculation.

10
 Downloaded from Stanmorephysics.com
INFORMATION:
A. DEBTORS COLLECTION SCHEDULE

CREDIT SALES APRIL MAY JUNE

February 540 000 97 200
March ? ? 100 800
April 532 000 101 080 ? ?
May 500 000 ? 300 000
June 568 000 ?
PAYMENT TO DEBTORS

 Debtors are allowed a 5% discount for prompt payment in the same month.
 Debtors are written off as bad debts in the third month.

B. EXTRACT FROM THE PROJECTED INCOME STATEMENT

MAY JUNE
Projected Actual Projected Actual
Item sold 2 200 1 950 2 500 3 100
Selling price per item R375 R375 R375 R350
Cost price per item R250 R250 R250 R200
Sales R825 000 R731 250 R937 500 R1 085 000
Cost of sales (R550 000) (R487 500) (R625 000) (R620 000)
Gross Profit R275 000 R243 750 R312 500 R465 000

Commission: 55 000 55 000 55 000 82 500

Salesperson 2 employees 2 employees
Salary 40 000 40 000 40 000 20 000
2 employees 2 employees
Advertising 20 000 20 000 20 000 24 000
Staff training 8 000 8 000 8 000 13 800

11
 Downloaded from Stanmorephysics.com
ANSWER BOOK

ACTIVITY 3
3.1 CASH BUDGET AND PROJECTED INCOME STATEMENT
3.1.1 Explain the difference between the cash budget and projected income.

Cash Budget

Projected Income Statement

3.1.2 Mention two incomes that will not be included under receipts in the Cash Budget.

3.1.3 Refer to TRANSACTION 1.

a) Complete the Asset Disposal account on equipment sold.

ASSET DISPOSAL

12
 Downloaded from Stanmorephysics.com
b) Calculate the depreciation rate on vehicles.

3.1.4 Indicate amounts in the appropriate block for the Cash Budget and Projected Income
Statement for the month ending 30 September 2022.
SEPTEMBER 2022
Cash Budget Projected Income Statement
Transaction
Receipt Payment Income Expense
1

10

13
 Downloaded from Stanmorephysics.com
WORKINGS:
TRANSACTION 1:
Depreciation on equipment:

Depreciation on vehicles: TOTAL DEPRECIATION:

TRANSACTION 5: Rent expense

TRANSACTION 6: Payment to creditors

14
 Downloaded from Stanmorephysics.com
TRANSACTION 9: Wages

3.2 INTERPRETATION OF BUDGETS

3.2.1 DEBTORS COLLECTION SCHEDULE

CREDIT APRIL MAY JUNE

SALES

February 540 000 97 200

March 336 000

April 532 000 101 080

May 500 000 300 000

June 568 000

PAYMENT TO DEBTORS

Calculate the % debtors written off as irrecoverable.

15
 Downloaded from Stanmorephysics.com
3.2.2 A new competitor commenced trading in the area in May 2022.

Provide figures to illustrate the impact on sales in May.

Explain THREE decisions that the owner took in June in response to the new
competitor. Quote figures or a calculation.

Decision 1

Decision 2

Decision 3

16
 Downloaded from Stanmorephysics.com
ACTIVITY 4

REQUIRED:

4.1 Complete the following statement:

The main reason why trading stock deficit would not appear in the Cash Budget is
because it is a/an …………………….

4.2 Complete the Debtors’ Collection Schedule.

4.3 Calculate the total discount allowed during the budget period.

4.4 Calculate the following missing amounts indicated by (i) to (vii) in the Cash Budget for
April and May 2022.

4.5 Refer to information A.

 Calculate the % increase in rent.

 The owner is considering buying his own premises. What would the owner need to
consider in the cash budget during June.

4.6 The budgeted and actual figures for March are provided. The owner is concerned about
the discrepancies between the actual and budgeted amounts.

 Comment on the control over the expenses. Quote figures. Give advice regarding
each item.
MARCH
BUDGETED ACTUAL
Sales R740 000 R592 000
Advertising R37 000 R41 440
Delivery cost to customers R59 200 R50 912
Repairs on vehicles R20 000 R0

4.7 Refer to information A

The workers are dissatisfied with the increases they are going to receive in May. They
have not received a salary increase the past two years and had to work part time due to
covid. They indicated that they would strike if the owner does not pay attention to their
grievances as the cost of living increased substantially.

 Give a reason (with figures) that the owner can use to justify the increase he granted
to the workers in May 2022.
 Give a reason (with figures) why the employees can feel justified in their grievances.

17
 Downloaded from Stanmorephysics.com
INFORMATION

A. Extract from the Cash Budget for the two months ending May 2022.

RECEIPTS APRIL MAY

Cash sales 396 000 (i)
Commission income 45 000 (ii)
TOTAL RECEIPTS
PAYMENTS
Cash purchases (iii) 46 800
Payment to creditors (iv) 280 500
Rent expense 18 000 19 800
Salary: Manager 30 000 33 600
Salary: Workers (6 employees) 60 000 63 000
Delivery cost to customers 52 800 49 920
Repairs on vehicles (v) 21 218
Advertising 33 000 31 200
TOTAL PAYMENTS
Cash surplus/ deficit 48 000 (vii)
Bank balance at the beginning of the month (vi) 68 000
Bank balance at the end of the month. 68 000 (23 000)

B. Debtors are paid according to the following trend:

 55% - 30 days after the sale. 2,5% discount is allowed for prompt payment.
 25% - 60 days after sale
 18% - 90 days after sale
The rest is written off as irrecoverable 120 days after the sale.

C. Purchases and payments to creditors.

 85% of stock is purchased on credit.
 Stock sold is replaced in the month of sales.
 Creditors are paid one months after the purchase month.

D. Additional information
 Delivery cost is budgeted at 8% of sales. All goods are delivered to customers within
50km from premises are free of charge. Thereafter, the business charges a fixed
amount of R250 for a delivery.
 The commission income is expected to decrease by 20%.
 Repairs to vehicles is expected to increase by 3% from 1 May.

18
 Downloaded from Stanmorephysics.com
ANSWER BOOK
ACTIVITY 4

4.1 Complete the following statement:

The main reason why trading stock deficit would not appear in the Cash Budget is
because it is a/an …………………….

4.2 Complete the Debtors’ Collection Schedule.

CREDIT SALES APRIL MAY

JAN 328 000

FEB 320 000

MARCH 296 000

APRIL

MAY 249 600

PAYMENT TO DEBTORS

4.3 Calculate the total discount allowed during the budget period.

WORKINGS ANSWER

19
 Downloaded from Stanmorephysics.com
4.4 Calculate the following missing amounts indicated by (i) to (vii) in the Cash Budget for
April and May 2022.

WORKINGS ANSWER

i)

ii)

iii)

iv)

v)

vi)

vii)

20
 Downloaded from Stanmorephysics.com
4.5 Refer to information A.

% Increase in rent

Items to include in the Cash Budget for June:

4.6 Comment on the control over the expenses. Quote figures. Give advice regarding each
item.

EXPENSE COMMENT & FIGURES ADVICE

Advertising

Delivery cost
to customers

21
 Downloaded from Stanmorephysics.com

EXPENSE COMMENT & FIGURES ADVICE

Repairs to
vehicles

ACTIVITY 5
You are provided with the information from Sparkling Clean Limited. The company sells mops
and does not sell on credit. They also offer cleaning services. The financial year ends
30 September each year.

The company has an authorised share capital of 2 500 000 of which 60% had been in issue
on 1 September 2021.

REQUIRED:

5.1 Complete the Creditors Payment Schedule from July to September 2022.

5.2 Complete the Projected Income Statement for September 2022. Show your calculations
next to each item.

5.3 Refer to information C and H.

 Calculate the fixed deposit amount received during September.

 Calculate the % cash bonus the directors received during August.
 Calculate the number of shares in issue on 30 September 2022.

5.4 Refer to information C and G.

The internal auditor has noticed the following during August 2022:
BUDGETED ACTUAL VARIANCE
Cash sales 549 000 670 000 +22%
Fee income 220 000 165 000 -25%
Consumable stores 77 000 61 900 -19,6%
Packing materials 43 920 52 300 +19,1%
Comment on the control of packing materials and consumable stores. Quote figures
and calculations.

22
 Downloaded from Stanmorephysics.com
5.5 Refer to information C
The company would like to expand in the new financial year. They expect to raise
money during September but noticed that they will need another R480 000. They
approach Money bank who offered them the loan at an interest rate of 12,5% p.a. A
fixed monthly instalment of R7 000 (to cover loan repayments and interest) must be paid
over the full period of the loan. The interest will decline over the life of the loan. If the
company does expand, the projections are that the company will increase their profits by
18% in the first year.

 Identify THREE ways in which the company is expected to raise capital.

 Based on the Projected Income Statement for September, should the company
borrow an additional R480 000? Quote figures to motivate your answer.

INFORMATION:
A. Mark-up %, sales and fee income:

ACTUAL SALES PROJECTED SALES

May June July August September
R476 000 R459 000 R510 000 R549 000 R648 000
The mark-up% will increase from 70% to 80% from 1 August 2022.

ACTUAL FEE INCOME PROJECTED FEE INCOME

May June July August September
R230 000 R245 000 R241 000 R220 000 Decrease by 5%

B. Purchases and payments to creditors:

 10% of stock is bought cash and the rest on credit.

 Stock sold is replaced in the month of sales.
 Some creditors offer a discount for payment in the month of purchases.
 60% is paid in the month of purchase to earn a 5% discount.
 32% is settled in the month after the purchase transaction month.
 8% is settled in the second month after the purchase transaction month.

23
 Downloaded from Stanmorephysics.com
C. Cash budget for August and September.
AUGUST SEPTEMBER
RECEIPTS BUDGETED ACTUAL BUDGETED
Cash sales 549 000 670 000 648 000
Fee Income 220 000 165 000 ?
Proceeds from shares issued 900 000
(R4,50 per share)
Interest on fixed deposit (6%p.a.) 4 300 4 300 2 100
Disposal of equipment 13 750
Fixed deposit matured 0 0 ?

PAYMENTS
Cash purchase of stock 30 500 37 210 36 000
Payment to creditors
Audit fees 60 000
Directors fee 153 000 153 000 ?
SARS: Income tax 0 0 45 000
Salaries and wages 76 800 76 800 ?
UIF and Pension Fund 32 400 32 400 ?
Rent expense 75 000 75 000 ?
Consumable stores 77 000 61 900 ?
Packing materials 43 920 52 300 77 760

D. Salaries and wages:

 The salaries and wages consist of net salaries and wages. The salaries and wages
consist of the following:
DEDUCTIONS CONTRIBUTIONS
PAYE UIF Pension Fund UIF Pension Fund
25% 1% 10% 1% 15%
 The company is planning to stop the contribution towards the Pension Fund from
1 September 2022.

E. Equipment and Vehicles

 The company is expected to sell some of the old equipment for cash on
1 September 2022. The carrying value on 31 August 2022 is R23 250.
 The total depreciation expected for September – R14 850.

F. Rent expense
The company moved to new premises on 1 August 2022. They had to pay a deposit
equivalent to 2 months’ rent.

G. Consumable stores
 Consumable stores are used for the cleaning services.
 The consumable stores are calculated as a percentage of the fee income. It is
expected that the consumable stores as a percentage on fee income will increase by
3% in September.

24
 Downloaded from Stanmorephysics.com
H. Director’s fee
The company has three directors who earns the same monthly fee. One director will
retire from 1 September 2022. The directors received a cash bonus of R21 000 each
during August.

I. Income Tax
Income tax is calculated at 30% of the net profit.

ANSWER BOOK
ACTIVITY 5

5.1 Complete the Creditors Payment Schedule from July to September 2022.
CREDIT JULY AUGUST SEPTEMBER
PURCHASES

May

June

July

August

September

PAYMENT TO CREDITORS

25
 Downloaded from Stanmorephysics.com
5.2 PROJECTED INCOME STATEMENT
SEPTEMBER

Gross profit
Operating income

Gross operating income

Operating expenses

Operating profit
Interest income
Net profit before interest expense
Interest expense
Net profit before income tax
Income tax
Net profit after tax

26
 Downloaded from Stanmorephysics.com
5.3 Calculate the fixed deposit amount received during September.
WORKINGS ANSWER

Calculate the % cash bonus the directors received during August.

WORKINGS ANSWER

Calculate the number of shares in issue on 30 September 2022.

WORKINGS ANSWER

27
 Downloaded from Stanmorephysics.com
5.4 Comment on the control of consumable stores. Quote figure or calculations.

Comment on the control of packing materials. Quote figures or calculations.

5.5 Identify THREE ways in which the company is expected to raise capital.

Based on the Projected Income Statement for September, should the company borrow
an additional R480 000? Quote figures to motivate your answer.

28
Downloaded from Stanmorephysics.com

ACCOUNTING
Grade 12

Chapter 10
Budgets
WORKSHEET - MEMO

Compiled by
MRS BRIMECOMBE
1
Downloaded from Stanmorephysics.com

TABLE OF CONTENTS Page

1. Activity 1 3
2. Activity 2 5

3. Activity 3 7
4. Activity 4 13

5. Activity 5 17

THIS BOOKLET CONTAINS 20 PAGES

2
Downloaded from Stanmorephysics.com
ACTIVITY 1

DEBTORS COLLECTION SCHEDULE

1.1 Why is it necessary to prepare a Debtors’ Collection Schedule?

 Goods are sold for cash and on credit.

 A business needs to work out how much cash will be collected each month from
its projected sales so that it can prepare and accurate Cash Budget to plan its
monthly payments accurately.

WORKINGS:
OCT NOV DEC JAN FEB MARCH
TOTAL 236 000 240 000 360 000 432 000 400 000 368 000
Cash (35%) 82 600 84 000 126 000 151 200 140 000 128 800
Credit (65%) 153 400 156 000 234 000 280 800 260 000 239 200

OCT 30% 45% 18% 7% BD

NOV 30% 45% 18% 7% BD
DEC 30% 45% 18% 7% BD
JAN 30% 45% 18%
FEB 30% 45%
MARCH 30%

1.2 Prepare the Debtors Collection Schedule for the months of January, February, and
March 2022.

CREDIT JANUARY FEBRUARY MARCH

SALES

November 156 000 28 080

December 234 000 105 300 42 120

January 280 800 80 028 126 360 50 544

February 260 000 74 100 117 000

March 239 200 68 172

PAYMENT TO DEBTORS 213 408 242 580 235 716

3
Downloaded from Stanmorephysics.com
1.3 Calculate the total cash sales from January, February, and March.

JANUARY FEBRUARY MARCH

432 000 X 35% = 400 000 X 35% = 368 000 X 35% =

151 200 140 000 128 800

1.4 Calculate the following:

a) The estimated bad debts to be written off for the period January to March 2022.

WORKINGS ANSWER

October: 153 400 x 7% = 10 738

November: 156 000 x 7% = 10 920 38 038
December: 234 000 x 7% = 16 380

b) The total estimated amount still owed by debtors at the end of March 2022.
WORKINGS ANSWER

January: 280 800 x 7% =19 656

February: 260 000 x 25% = 65 000 252 096
March: 239 200 x 70% = 167 440

1.5 Refer to the January sales.

a) Calculate the percentage increase in sales.

WORKINGS ANSWER

72 000
(432 000 − 360 000) 20%
× 100
360 000

b) Why are the January sales predicted to increase and then slowly decline from
February?

 The business sells stationery.

 January is the beginning of the year before the schools starts and they
anticipate that the demand for stationery will then increase.

4
Downloaded from Stanmorephysics.com
1.6 Comment on the debtors’ collection policy and give advice

DEBTORS’ COLLECTION POLICY ADVICE

75% of the debtors does settle their Charge interest on overdue debtors’
accounts in 30 days. account.
18% of the debtors settle their account after Send out statement before the end
60 days and 7% of debtors is written off after of the month.
90 days. Follow up with outstanding debtors.
Although most debtors are settling their
account in 30 days, more can be done with
the 18% that is only settling their account
after 60 days and 7% written off after 90
days.

ACTIVITY 2
CREDITORS PAYMENT SCHEDULE

WORKINGS:
JAN FEB MARCH APRIL MAY
Cash Sales (40%) 280 000 288 000 300 000 304 000 304 800
Credit sales (60%) 420 000 432 000 450 000 456 000 457 200
Sales (100%) 700 000 720 000 750 000 760 000 762 000
Cost of sales (525 000) (540 000) (562 500) (570 000) (571 500)
100
𝐶𝑃 = 𝑆𝑃 ×
133.333
Cash (20%) 105 000 108 000 112 500 114 000 114 300
Credit (80%) 420 000 432 000 450 000 456 000 457 200
Jan 70% 30%
Feb 70% 30%
March 70% 30%
April 70% 30%
May 70%

5
Downloaded from Stanmorephysics.com
2.1 Complete the table on your Answer book to calculate the Gross Profit from January to
May 2022. Calculations must be rounded off to the nearest Rand.

JAN FEB MARCH APRIL MAY

Sales 700 000 720 000 750 000 760 000 762 000

Cost of sales (525 000) (540 000) (562 500) (570 000) (571 500)

Gross Profit 175 000 180 000 187 500 190 000 190 500

2.2 CREDITORS PAYMENT SCHEDULE

CREDIT MARCH APRIL MAY

PURCHASES

FEBRUARY 432 000 129 600

MARCH 450 000 307 125 135 000

APRIL 456 000 311 220 136 800

MAY 457 200 312 039

PAYMENT TO CREDITORS 436 725 446 220 448 839

2.3 If the expected yearly cost of sales is R6 500 000, calculate the number of months for
which there is enough stock on hand. Explain whether this is appropriate for the
business.
Stock holding period:
1
2
(500 000 + 500 000) 365
×
6 500 000 1
500 000 365
= ×
6 500 000 1
=28,1 days
Comment if this is appropriate for the business:
Yes
The period of stock on hand is less than 1 month.

6
Downloaded from Stanmorephysics.com
2.4 Give three disadvantages of keeping to much stock.

 Inventory can become obsolete.

 Inventory can go out of fashion.
 Too much working capital into inventory.

ACTIVITY 3
3.1 CASH BUDGET AND PROJECTED INCOME STATEMENT

3.1.1 Explain the difference between the cash budget and projected income.

Cash Budget

 The expected bank balance at the end of budget period.

 The expected cash receipts and payments over the budget period.
 The expected deficit or surplus over the budget period.

Projected Income Statement

 The expected net profit or loss for the budgeted period.

 The expected income and expenses for budget period.

3.1.2 Mention two incomes that will not be included under receipts in the Cash Budget.

 Discount received
 Profit on disposal of asset
 Trading stock surplus
 Provision for bad debts adjustment

3.1.3 Refer to TRANSACTION 1.

a) Complete the Asset Disposal account on equipment sold.

ASSET DISPOSAL
2022 2022
Sept Equipment 12 000 Sept Accumulated 7 350
depreciation on
equipment
(7 200 + 150)
Profit on disposal of 800 Bank 5 450
asset
12 800 12 800

7
Downloaded from Stanmorephysics.com
b) Calculate the depreciation rate on vehicles.

𝑥 6 Alternative:
𝑅340 000 × × = 𝑅34 000
100 12 34 000 12
𝑅2 040 000𝑥 × × 100 = 20%
∴ = 𝑅34 000 340 000 6
1 200
∴ 𝑅2 040 000𝑥 = 𝑅34 000 × 1 200
𝑅2 040 000𝑥 𝑅40 800 000
∴ =
𝑅2 040 000 𝑅2 040 000
∴ 𝑥 =20%

3.1.4 Indicate amounts in the appropriate block for the Cash Budget and Projected
Income Statement for the month ending 30 September 2022.

SEPTEMBER 2022
Cash Budget Projected Income Statement
Transaction
Receipt Payment Income Expense
1 5 450 800 7 975
2 30 000
3 100 000 400 000 250 000
4 80 000 700
5 12 960
6 71 250 3 750
7 14 880 14 880
8 9 000 1 500
9 42 185 36 075
10 36 000

8
Downloaded from Stanmorephysics.com
WORKINGS:

TRANSACTION 1:
Depreciation on equipment:
Sold: Remaining:
1 1
R12 000 x 15% x 12=R150 (R230 000 – R12 000) x 15% x 12
=R2 725
Depreciation on vehicles: TOTAL DEPRECIATION:
1 R150 + R2 725 + R5 100
(R340 000 – R34 000) X 20% X 12
=R7 975
=R5 100

TRANSACTION 5: Rent expense

2 x 100 = 200 108
2𝑥 × 11 (𝑥 × ) = 166 560
11 x 108 = 1 188 100
13,88𝑥 166 560
108 ∴ =
∴ × 𝑅166 560 = 𝑅12 960 13,88 13,88
1 388
∴ 𝑥 = 12 000
108
∴ 12 000 × = 12 960
100
TRANSACTION 6: Payment to creditors
95
𝑅3 750 × = 𝑅71 250
5
TRANSACTION 9: Wages
Gross wage: 5 x R6 500 = R32 500
UIF contribution: R32 500 x 1% = R325
Pension contribution: R32 500 x 10% = R3 250
Total expense: R32 500 + R325 + R3 250 = R36 075 or
𝟏𝟏𝟏
𝑹𝟔 𝟓𝟎𝟎 × = 𝑹𝟕 𝟐𝟏𝟓 × 𝟓 = 𝑹𝟑𝟔 𝟎𝟕𝟓
𝟏𝟎𝟎
Net wage: R32 500 – R325 – R1 625(R32 500 x 5%) = R30 550 or
R6 500 x 94% = R6 110 x 5=R30 550
UIF payment: R325 + R325 = R650
Pension Fund payment: R3 250 + R1 625 = R4 875
Total payment: R30 550 + R650 + R4 875 =R36 075
R36 075 + R6 110 (R30 550 ÷ 5) = R42 185

9
Downloaded from Stanmorephysics.com
3.2 INTERPRETATION OF BUDGETS

3.2.1 DEBTORS COLLECTION SCHEDULE

CREDIT SALES APRIL MAY JUNE
February 540 000 97 200
March 560 000 336 000 100 800
April 532 000 101 080 319 200 95 760
May 500 000 95 000 300 000
June 568 000 107 920
PAYMENT TO DEBTORS

WORKINGS:

(100%) Feb March April May June

Feb 20% 60% 18% 2%BD
R540 000 (540 000 × 20%) R324 000 R97 200 R10 800
R108 000 (540 000 × 60%)
(
𝟗𝟕 𝟐𝟎𝟎
× 𝟏𝟎𝟎) (540 000 × 2%)
𝟓𝟒𝟎 𝟎𝟎𝟎
DA: R5400
R102 600
March 20% 60% 18% 2%BD
R560 000 R112 000 R336 000 R100 800 R11 200
𝟏𝟎𝟎 𝟖𝟎𝟎 DA: R5 600 (560 000 × 60%) (560 000 × 2%)
× 𝟏𝟎𝟎
𝟏𝟖
R106 400
April 20% 60% 18%
R532 000 R106 400 R319 200 R95 760
𝟏𝟎𝟔 𝟒𝟎𝟎 (532 200 × 60%) (532 000 × 18%)
( × 𝟏𝟎𝟎)
𝟓𝟑𝟐 𝟎𝟎𝟎
DA-R5 320
R101 080
May 20% 60%
R500 000 R100 000 R300 000
𝟑𝟎𝟎 𝟎𝟎𝟎
DA-R5 000 ( × 𝟏𝟎𝟎)
𝟓𝟎𝟎 𝟎𝟎𝟎
R95 000
June 20%
R568 000 R113 600
DA-R5 680
R107 920

R102 600 R430 400 R534 280 R515 000 R503 680

10
Downloaded from Stanmorephysics.com

February:
𝟗𝟕 𝟐𝟎𝟎
× 𝟏𝟎𝟎 = 𝟏𝟖%, 𝟔𝟎 𝒅𝒂𝒚𝒔 (𝟐𝒏𝒅 𝒎𝒐𝒏𝒕𝒉 𝒂𝒇𝒕𝒆𝒓 𝒕𝒉𝒆 𝒕𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏𝒔)
𝟓𝟒𝟎 𝟎𝟎𝟎

April:
𝟏𝟎𝟏 𝟎𝟖𝟎 𝟏𝟎𝟔 𝟒𝟎𝟎
× 𝟏𝟎𝟎 = 𝟏𝟎𝟔 𝟒𝟎𝟎 ∴ 𝟓𝟑𝟐 𝟎𝟎𝟎 × 𝟏𝟎𝟎 = 𝟐𝟎% (𝒔𝒂𝒎𝒆 𝒎𝒐𝒏𝒕𝒉)
𝟗𝟓

𝑹𝟓𝟑𝟐 𝟎𝟎𝟎 × 𝟏𝟖% = 𝑹𝟗𝟓 𝟕𝟔𝟎 (𝑪𝒐𝒍𝒍𝒆𝒄𝒕𝒊𝒐𝒏 𝒊𝒏 𝑱𝒖𝒏𝒆)

May:
𝟑𝟎𝟎 𝟎𝟎𝟎
× 𝟏𝟎𝟎 = 𝟔𝟎%, 𝟑𝟎 𝒅𝒂𝒚𝒔 (𝒇𝒊𝒓𝒔𝒕 𝒎𝒐𝒏𝒕𝒉 𝒂𝒇𝒕𝒆𝒓 𝒕𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏 𝒎𝒐𝒏𝒕𝒉)
𝟓𝟎𝟎 𝟎𝟎𝟎

Credit sales for March:

𝑹𝟏𝟎𝟎 𝟖𝟎𝟎
× 𝟏𝟎𝟎 = 𝟓𝟔𝟎 𝟎𝟎𝟎
𝟏𝟖

May:
𝑅500 000 × 20% = 𝑅100 000
𝑅100 000 × 95% = 𝑅95 000

June:
𝑅568 000 × 20% = 𝑅113 600
𝑅113 600 × 95% = 𝑅107 920

Calculate the % debtors written off as irrecoverable.

April:
101 080
× 100 = 106 400
95
R532 000 – R106 400– R319 200 – R95 760 = R10 640
10 640
× 100 = 2%
532 000

Alternative:
Credit sales Feb March April May June
(100%) 20% 60% 18% 2%BD

98%

11
Downloaded from Stanmorephysics.com
3.2.2 A new competitor commenced trading in the area in May 2022.

Provide figures to illustrate the impact on sales in May.

 The budget sales were R825 000, but the actual was R731 250. The actual sales
were R93 750 less (11,3%) than budgeted.
or
 The number of units sold budgeted were 2 200 but the actual was 1 950. The
actual was 250 less (11,3%) than budgeted.

Explain THREE decisions that the owner took in June in response to the new
competitor. Quote figures or a calculation.

Decision 1 Although the mark-up % increased from 50% to 75%, the selling
price was reduced from R375 per item to R350 per item. The cost
price was also reduced from R250 to R200. This had a positive
affect on the number of items sold. The number of items sold was
600 more than budgeted and the business increased their gross
profit from R312 500 to R465 000.

Decision 2 The business budgeted R20 000 for advertising but overspent by
R4 000 (20%). This had a positive affect on sales as more units
were sold than budgeted.

Decision 3 The business shuffled the staff members and provided training. The
business budgeted R40 000 on salaries and only spend R20 000.
The number of staff members who earns a salary were reduced to 1
and were allocated to the sales department. More money was spent
on commission on sales. The budgeted was R55 000 but the actual
was R82 500. The number of employees increased from 2
employees to 3 employees.
The business budgeted R8 000 for training but the actual was
R13 800. An increase of 72,5%. The sales increased by 15,7%.

12
Downloaded from Stanmorephysics.com
ACTIVITY 4
4.1 Complete the following statement:

The main reason why trading stock deficit would not appear in the Cash Budget is
because it is a/an …………………….

A non cash item.

WORKINGS:
% Cash and credit sales:
296 000 𝟔𝟎
March: × 100 = 40% April: 𝑹𝟑𝟗𝟔 𝟎𝟎𝟎 × 𝟒𝟎 = 𝑹𝟐𝟔𝟒 𝟎𝟎𝟎
740 000

Jan Feb March April May

TOTAL 328 000 320 000 296 000 264 000 249 600

Jan 55% 25% 18%

R59 040
Feb 55% 25% 18%
R80 000 R57 600
March 55% 25%
R162 800 R74 000
DA-R4 070
R158 730
April 55%
R145 200
DA-R3 630
R141 570
May -

4.2 Complete the Debtors’ Collection Schedule.

CREDIT SALES APRIL MAY
JAN 328 000 59 040
FEB 320 000 80 000 57 600
MARCH 296 000 158 730 74 000
APRIL 264 000 141 570
MAY 249 600 -
PAYMENT TO DEBTORS

13
Downloaded from Stanmorephysics.com
4.3 Calculate the total discount allowed during the budget period.
WORKINGS ANSWER

March credit sales: R7 700

𝑅296 000 × 55% = 𝑅162 800
𝑅162 800 × 2,5% = 𝑅4 070
April credit sales:
𝑅264 000 × 55% = 𝑅145 200
𝑅145 200 × 2,5% = 𝑅3 630

4.4 Calculate the following missing amounts indicated by (i) to (vii) in the Cash Budget for
April and May 2022.

WORKINGS ANSWER

i) % credit sales for March:

296 000
× 100 = 40%
740 000

100% - 40% = 60% cash sales

60
May: 𝑅249 600 × 40 = 𝑅374 400 R374 400
Alternative using delivery cost:
100
𝑅49 920 × = 𝑅624 000
8

∴ 𝑅624 000 − 𝑅249 600 =R374 400

ii) R45 000 x 80% R36 000

iii) 15
𝑅280 500 × = 𝑅49 500
85
R49 500
Or
100
𝑅280 500 × 85 = 𝑅330 000 ∴R330 000 x 15% = R49 500

iv) April: Cost of sales:

100
𝑅280 500 × = 𝑅330 000
85
Mark %: Total sales: R396 000 + R264 000
R314 500
(660 000 − 330 000)
× 100 = 100%
330 000
100
∴ 740 000 × = 𝑅370 000 × 85% = 𝑅314 500
200

14
Downloaded from Stanmorephysics.com
WORKINGS ANSWER

v) 100 R20 600

R21 218 x 103

vi) R68 000 – R48 000 R20 000

vii) R68 000 + R23 000 (R91 000) or

R91 000 deficit

4.5 Refer to information A.

% Increase in rent

1 800
(19 800 − 18 000)
× 100 = 10%
18 000

Items to include in the Cash Budget for June:

 Rent income if the owner considers renting out some of the premises.
 Rates and taxes
 Repairs on building
 Insurance on property
 Repayment of loan which will include the capital amount and interest.

15
Downloaded from Stanmorephysics.com
4.6 Comment on the control over the expenses. Quote figures. Give advice regarding each
item.
EXPENSE COMMENT & FIGURES ADVICE

Advertising Overspent by R4 440 (by 12%).  Need to relook at the way

(41 440 − 37 000) in which advertising is done
× 100 = 12% as it was ineffective. The
37 000 actual sales were less than
The sales decreased by R148 000 budgeted.
(20%) yet the advertising cost  Identify the target market
increased by 12%. and ensure that advertising
is done to that specific
target market.

Delivery cost Spent R8 288 less (by 14%)  Install a tracking device to
to customers (59 200 − 50 912) see if the driver is using the
× 100 = 14% vehicle for private affairs.
59 200
Not well controlled. Delivery cost
is budgeted at 8% of total sales.
The sales decreased by 20%.
The business should have spent
R47 360 on actual sales, instead
they spent R50 912 on deliveries,
R3 552 (7,5%) more than they
should have.

Repairs to Budgeted R20 000 and spent  Ensure proper maintenance

vehicles nothing. is done on delivery
vehicles.
This is not well managed. With
 Outsource deliveries to
sales down, there should have
customers if vehicles go in
been less deliveries to the
for repairs so that the
customers so there is no excuse
business do not end up
for repairs not being done.
losing customers.
 If the business has more
than one vehicle, should
plan that repairs are done
at least once a year.

16
Downloaded from Stanmorephysics.com
4.7 The workers are dissatisfied with the increases they are going to receive in May. They
have not received a salary increase the past two years and had to work part time due to
covid. They indicated that they would strike if the owner does not pay attention to their
grievances as the cost of living increased substantially.
Give a reason (with figures) that the owner can use to justify the increase he granted to
the workers in May 2022.

 The business will experience cash flow problems from June. The business will have
a deficit of R91 000 and a negative bank balance of R23 000.
 The expected sales are decreasing monthly.
 The actual sales were 20% less than budgeted during March.
 The workers will receive a 5% increase which is in line with inflation.

Give a reason (with figures) why the employees can feel justified in their grievances.

 The salary of the manager increased by R3 600 (by 12%) which is more than the
inflation rate.
 Salaries of the employees which only increased by R3 000 (by 5%). Each employee
will receive a R500 increase which is R3 100 less than the manager and less than
the current inflation rate.

ACTIVITY 5
WORKINGS:
May June July August September
Sales R476 000 R459 000 R510 000 R549 000 R648 000
Cost of (R280 000) (R270 000) (R300 000) (R305 000) (R360 000)
Sales
Credit R252 000 R243 000 R270 000 R274 500 R324 000
purchases

May 60% 32% 8%

R20 160
June 60% 32% 8%
R77 760 R19 440
July 60% 32% 8%
R162 000 R86 400 R21 600
DR-R8 100
R153 900
August 60% 32%
R164 700 R87 840
DR-R8 235
R156 465
Sept 60%
R194 400
DR-R9 720
R184 680

17
Downloaded from Stanmorephysics.com
5.1 Complete the Creditors Payment Schedule from July to September 2022.
CREDIT JULY AUGUST SEPTEMBER
PURCHASES

May R252 000 R20 160

June R243 000 R77 760 R19 440

July R270 000 R153 900 R86 400 R21 600

August R274 500 R156 465 R87 840

September R324 000 R184 680

PAYMENT TO CREDITORS R251 820 R262 305 R294 120

5.2 PROJECTED INCOME STATEMENT

SEPTEMBER
Sales 648 000
100 (360 000)
Cost of Sales (648 000 x 180)
Gross profit 288 000
Operating income 218 720
95 209 000
Fee income (220 000 X 100)
Discount received (360 000 x 90%=324 000 x 60% x 5%) 9 720
Gross operating income 506 720
Operating expenses (447 730)
100 120 000
Salaries and wages (76 800 x )
64
Contributions (120 000 x 1%) 1 200
Rent expense (75 000 ÷ 3) 25 000
Consumable stores (77 000÷220 000 x 100=35%)(209 000 x 38%) 79 420
Depreciation 14 850
Loss on disposal of asset (23 250 -13 750) 9 500
Audit fees 60 000
Packing materials 77 760
Directors fee (153 000÷3=51 000 – 21 000=30 000 each x 2) 60 000
Operating profit 58 990
Interest income 2 100
Net profit before interest expense 61 090
Interest expense (0)
Net profit before income tax 61 090
Income tax (61 090 x 30%) (18 327)
Net profit after tax 42 763

18
Downloaded from Stanmorephysics.com
5.3 Calculate the fixed deposit amount received during September.
WORKINGS ANSWER

6 1
𝑥× × = (4 300 − 2100) Alternative:
100 12 R4 300 – R2 100= R2 200
6𝑥 100
= 2 200 𝑅2 200 × 12 × R440 000
1 200 6
6𝑥 = 2 200 × 1 200
6𝑥 2 640 000
=
6 6
𝑥 = 𝑅440 000

Calculate the % cash bonus the directors received during August.

WORKINGS ANSWER

Cash bonus: 21 000 x 3 = 63 000

Director’s fee: R153 000 – R63 000 = R90 000
63 000
× 100 = 70% 70%
90 000
Alternative: One directors’ fee
21 000
× 100 = 70%
30 000

Calculate the number of shares in issue on 30 September 2022.

WORKINGS ANSWER

900 000 ÷ R4,50 = 200 000 shares

2 500 000 x 60% = 1 500 000 shares at the beginning. 1 700 000 shares
∴ 1 500 000 + 200 000 = 1 700 000 shares in issue at the end

19
Downloaded from Stanmorephysics.com
5.4 Comment on the control of consumable stores. Quote figure or calculations.

 The actual fee income was 25% less than budgeted, yet consumables stores were
only 19,6% less.
 The consumable stores were budgeted at 35% of fee income, yet the actual figures
reflect 37,5%.
 The actual figure should have been R57 750 (R165 000 x 35%), but the actual was
R61 900. The business overspent by R4 150 (7,2% more).
 Consumables stores were not well managed.

Comment on the control of packing materials. Quote figures or calculations.

 The actual sales were 22% more than budgeted, yet packing materials was 19,1%
more than budgeted.
 The packing materials were budgeted at 8% of sales, yet the actual reflects 7,8%.
 The actual figure should have been R53 600 (R670 000 x 8%), but the actual was
R52 300. The business spent R1 300 less (2,4%).
 Packing materials were well managed.

5.5 Identify THREE ways in which the company is expected to raise capital.

 R900 000 from selling of shares.

 R440 000 from a fixed deposit that matured.
 Increased the mark-up % on cost from 70% to 80%. The sales are expected to
increase from R549 000 to R648 000 (by 18%).

Based on the Projected Income Statement for September, should the company borrow
an additional R480 000? Quote figures to motivate your answer.

 Yes
 The cost of borrowing money will be R7 000 per month. Interest will be R5 000 per
month and is expected to decline over the life of the loan. The expected net profit
after tax in September is R42 763.
 Expanding the company will generate 18% more in profits after the first year. The
cost of borrowing money is 12,5% which indicates that the company is positively
geared.

20