Reference no: EM132985023

Thandi started trading on 02 January 2019 in Soweto as a sole proprietor selling ladies' and men's shoes. She considers her business venture to be a success thus far. On 01 December 2021 a new shopping mall is expected to open in Soweto. Thandi has already applied to be a tenant at the mall from 01 December 2021 and her application has been approved. Her loan agreement with an organisation that promotes entrepreneurship stipulates that she must pay interest every month at a rate of 12% p.a. and R120 000 (of her current loan balance of R300 000) on 01 December 2021.

She is of the view that she will have no difficulties with her move to the new mall (with a higher rental of R20 000 per month) and the loan repayment of R120 000 for the following reasons:

• The bank account of the business is expected to have a favourable balance of R60 000 on 30 September 2021 and she expects this balance to increase over the next quarter.
• Her creditors have granted her credit terms of 90 days but she still prefers to settle her accounts much earlier than that in order to earn a good credit reputation.
• Her credit terms to debtors are 30 days and nearly all of them pay on time.
• She usually keeps inventory to the value of R120 000 (cost price) at the end of each month in order to satisfy the needs of her customers.

Thandi has also provided the following figures which were extracted from her forecasted financial statements for the year ended 30 September 2021:

Sales 1 800 000
Cost of sales 1 200 000
Accounts receivable 39 273
Accounts payable 26 182

Thandi made the following additional forecasts for the financial year commencing 01 October 2021:

• Sales for the year ended 30 September 2022 are expected to increase by 10%. Twenty percent (20%) of the sales usually take place in December (due to the festive period). The rest of the sales usually occur evenly throughout the year.
• Fifty percent (50%) of the sales are usually for cash and the balance on credit.
• Experience has shown that forty percent (40%) of the credit sales are paid by debtors in the month of the sale in order to take advantage of a 5% discount. The balance is collected in the month after the sale.
• A mark-up of 100% on cost will be maintained throughout the year.
• All inventories that are sold are replaced in the same month. Sixty percent (60%) of the inventories is usually purchased by means of immediate electronic funds transfers and the balance is on credit. Trade creditors are paid in the month after the purchase.
• Thandi draws R18 000 cash from the bank account of the business each month for her personal use.
• The monthly rental for her store during December 2021 is expected to be 25% more than the rental of each of the preceding months.
• Other overhead expenses are budgeted at R300 000 for the year ended 30 September 2022. These expenses are spread evenly throughout the year.

REQUIRED

Question 1. Calculate and comment on the current ratio as at 30 September 2021.

Question 2. Use an appropriate ratio to comment on the collection from debtors for the year ended 30 September 2021.

Question 3. Prepare the Debtors Collection Schedule for the period 01 October 2021 to 31 December 2021. (Use separate monetary columns for each month.)

Question 4. Prepare the Cash Budget for the period 01 October 2021 to 31 December 2021. (Use separate monetary columns for each month.)

Question 5. Refer to the completed cash budget (see question 4) and comment on the cash position of Thandi's Shoe Store.

Question 6. Explain why the net profit/loss for the three months ended 31 December 2021 will be different from the cash surplus/shortfall of the same period.