Refer to Information A - NSC Accounting - Question 6 - 2019 - Paper 1
Question 6
Refer to Information A.
Identify TWO items in the Cash Budget that will not appear in a Projected Income Statement.
Calculate the missing amounts indicated by (... show full transcript
Worked Solution & Example Answer:Refer to Information A - NSC Accounting - Question 6 - 2019 - Paper 1
Step 1
Identify TWO items in the Cash Budget that will not appear in a Projected Income Statement.
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Answer
Drawings
Cash from Debtors
These items do not contribute directly to income generation, as the Cash from Debtors reflects collection rather than revenue recognition, and Drawings are not a business expense.
Step 2
Calculate the missing amounts indicated by (i) to (iii) in the Cash Budget for June and July 2019.
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Answer
(i) Rent Income, June 2019:
Using the formula:
t = rac{9 180}{100} imes 108 = 8 500
(ii) Fixed deposit: Protea Bank, July 2019:
Using the formula:
t = rac{400}{100} imes 6 imes 12 = 80 000
(iii) Cash Purchases of Trading Stock, July 2019:
Using the formula:
t = (760 000 imes 60 ext{%}) = 456 000
Step 3
Calculate the total purchases for April 2019.
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Answer
Total purchases for April 2019 are calculated as follows:
t = 192 000 ext{ (given)}
Therefore, total purchases amount to 480 000.
Step 4
Complete the Debtors' Collection Schedule for July 2019.
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The Debtors' Collection Schedule for July 2019 can be filled as:
May: 30 ext{% of } 576 000 = 172 800
June: 65 ext{% of } 558 000 = 362 370
July: 30 ext{% of } 855 000 = 243 675
Total for July: 533 430.
Step 5
Comment on the following: Effect of the advertising on sales.
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Answer
Advertising was over budget by R28 800 (80 ext{%}). This did not result in a proportionate increase in sales, indicating that advertising was ineffective in converting views to purchases.
Step 6
Comment on the following: Payment to creditors.
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Creditors were underpaid by R75 000. If this trend continues, they may reduce credit limits, affecting future business operations.
Step 7
Identify TWO strategies (except advertising) that the business used to achieve sales targets for May 2019.
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Increased the credit sales by R36 000 (R412 000 more than cash sales).
Introduced Delivery Service priced at R19 000.
Step 8
Explain whether these were good strategies, or not. Provide ONE point with figures.
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The strategies were not effective. Collection from debtors was poor, leading to a cash flow challenge of R95 000, which reflects poorly on overall business management despite increased sales.
