QUESTION 4

INFORMATION

The following information relates to Provalis Limited:

1. Total sales are as follows:

Actual Budgeted

September

October

November

December

R510 000

R535 000

R560 000

R625 000

2. Seventy percent of sales are on credit. Credit sales are collected as follows:

- 60% one month after sale

- 35% two months after sale

- 5% is written off as bad debts

3. Total purchases are as follows:

Actual Budgeted

September October November December

R226 000 R190 000 R325 000 R410 000

80% of purchases are on credit. Creditors are paid one month after purchase.

4. Monthly rentals of R12 000 are received. These rentals are expected to increase by 10% from 1 November.

5. An amount of R120 000 was invested in a call account on 1 March at an interest rate of 10% per annum. Interest is paid out on the 30th of every month. 6. Rates of R12 500 are paid annually on 30 November.

7. Electricity for October amounted to R35 000. This is expected to increase by 20% from 1 November due to tariff increases.

8. The company has three delivery vehicles. The actual fuel cost in October was R2 600 per vehicle. This is expected to increase by 4% from 1 November due to fuel price increases.

9. The three delivery vehicles are sent for their annual service in December every year. The service is expected to amount to R4 500 per vehicle.

10. A new motor vehicle will be purchased for the finance director in December as part of his performance bonus. The total cost of the vehicle will amount to R220 000. A deposit of 10% will be paid at this time and the remainder will be paid off in equal monthly instalments beginning on 30 January.

11. Office equipment is leased in terms of an operating lease and monthly payments of R18 000 are paid on the 30th of every month.

12. The company rents an office building of 200 m2. Rent is paid at R80/m2. The rental is expected to increase by 10% from 1 November.

13. Full time employees salaries amount to R90 000 per month. Additional staff bonuses totaling R20 000 will be paid in December

14. Four part-time employees are appointed and earn a commission. The total monthly commission paid to the four employees is expected to amount to 10% of total monthly sales. Commissions are paid one month after sales.

15.The company has a loan of R120 000 with Nedbank. This loan is being repaid over thirty-six months and has an interest rate of 7.5%. The monthly installment of R3 865 is paid on the 30th of every month.

16. The company is expected to have a favourable bank balance of R89 000 on 31 October.

4.1 Compile a debtors collection schedule for Provalis Limited for November and December. (6 marks)

4.2 Compile a cash budget for Provalis Limited for November and December. (14 marks) (where applicable, round off amounts to the nearest rand)