The credit sales form 25% of the sales and 25% of the cost of sales relate to credit sales.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Question 1 (10 marks)

The credit sales form 25% of the sales and 25% of the cost of sales relate to credit sales. Africa Lean Consulting has a 30-day payment incorporated in its terms of trade. It is considering increasing the credit facilities in order to increase sales in the short term.

Comment on the viability of this proposal and comment on the working capital management of AFRICA LEAN CONSULTING. 

TIPS: Comments should be then made about the comparison of the above. Sensible comparisons should be made and commented upon.

 

 

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Question 2 (20 marks)

Amanda Black and her team members are well known musicians who bring an element of fun into the enjoyment of music. They are famous throughout the world their music. Africa Lean Consulting. is considering sponsoring a concert in Benoni to promote the music and increase their sales in the process. The cost of the sponsorship will be R 0.5 million. The concert is scheduled to be held in Spring 2022 in a reputable venue. Africa Lean Consulting has approached your company for a loan for these funds. 

Assuming that the Balance Sheet would continue to remain the same as the current published accounts for the year ended 31 August 2021, till Spring 2022, until the proposed loan is granted, calculate the gearing of the company and comment on this and all other findings particularly on the qualifications of the audit report. 

TIPS: The following gearing ratios should be correctly calculated.

 

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Question 3 (20 marks)

The company has made a profit of R13,587 in the year 31st August 2012, yet has generated an operating cash OUTFLOW of R109,690.

a) Explain, using both facts and figures, how African Lean Consulting has made a profit yet has suffered a significant negative operating cashflow.   (10 marks)

b) Evaluate the significance of the cashflow statement when making credit decisions.         (6 marks)

c) If the adjustment outlined in the auditor’s opinion was put in place what effect would this have on the Profit and Loss Account and on the Cashflow Statement. (ignore any tax effect).            (4 marks)

 

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