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TERM 3
GRADE 11 ASSESSMENT TASK
CASE STUDY/PROJECT
BUDGETS
75 MARKS
Due date: MONDAY 29 AUGUST 2012. Late assignments will be penalised 10% per a school day late.
ADBODYED IN THIS TASK:
11.2.3
Prepare cash budget for sole trader
11.3.5
Identify and analyse ethical behaviour applicable to the financial environment with reference to accountability and transparency.
11.3.6
Demonstrate knowledge of internal audit processes.
BACKGROUD INFORMATION
Hunk Body Shop in Rondebosch, is solely owned by Naed Remlap. He has been satisfied with the results of His business to date. Within the next three months He intends to move premises and the business will be required to make a loan repayment of R100 000. Naed is confident that He will have no problem in meeting these commitments.
His reasons for His confidence are:
? He has R56 000 in the Bank at the moment and profits over the next three months will improve this cash balance.
? His creditors have allowed His 60 days to settle His accounts, but He has made a point of settling them much earlier in order to develop a good reputation for His business.
? He has granted His debtors terms of 30 days but some of them have been slow in paying. He is confident that He can rectify this minor problem.
? He aims to keep between two to three months’ stock on hand at all times in order to attend to the needs of all His customers.
Being an expert in Accounting, you do not share Naed’s confidence about His liquidity situation. Naed has provided you with certain information concerning His business.
INSTRUCTIONS
Study the information provided by Naed to answer the following questions:
1. Is Naed’s Body Shop in a good or bad liquidity position on
28 February 2012? Quote the appropriate liquidity ratios in your answer.
2. Calculate the following at 28 February 2012:
2.1 Period of stock on hand (in days)
2.2 Average payment period by debtors (in days)
2.3 Average creditors payment period (in days).
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2.4 Comment briefly on the above calculations. Are these appropriate for Naed’s Body Shop?
3. Prepare the Cash Budget for the period 1 March 2012 to
31 May 2012.
4. Quote from the Cash Budget in answering the following questions:
4.1 Is Naed’s Body Shop likely to experience a liquidity problem within the next three months? Explain the main reasons for your answer.
4.2 Naed is hoping to place a full page colour advertisement in the local press for the entire month of March and He is hoping to open a second shop in Newlands in June. In your opinion, should
He continue to pursue these plans? What advise do you offer to solve his cash flow problems?
5. To ensure effective and reliable forecasting Naed must consider the following:
? Past transactions
? External factors
? Management
? Contractual obligations
? Internal control and Ethical business practices
Research and write short notes on the above factors.
INFORMATION
1. The following figures were extracted from the financial statements at the year end 28 February:
2012
2011
Sales (half are on credit)
600 000
Cost of Sales
384 000
Interest on loan (16% p.a.)
18 600
Bad debts
20 000
Overhead expenses
180 000
Inventories (all trading stock)
85 000
75 000
Trade debtors
60 000
76 000
Cash
?
56 000
Trade Creditors
40 000
70 000
Loan from Rand Bank: Current portion
50 000
45 000
Long term portion
55 000
105 000
2. In order to compile His cash budget, Naed has listed His expectations for the next financial year, commencing on 1 March 2012:
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2.1 The 50% mark up will be maintained. Suppliers have agreed not to increase prices for the next three months.
2.2 Sales volumes for the year ending 28 February 2011 are expected to increase by 10%. Cash sales are expected to comprise half of the total sales.
2.3 One sixth of Naed’s sales take place in March when Rondebosch Boys’ High has its annual dance; the rest of the sales occur evenly throughout the year.
2.4 Half the trade debtors on 28 February 2012 are expected to settle their accounts during March. The other half will settle in April. No further bad debts are expected from this group of debtors.
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2.5 Naed aims to get His debtors to pay quicker but does not expect to have immediate success in this regard. He will grant 5% cash discount to His future debtors if they settle their accounts in the month following the transaction month. He expects 60% of debtors to take advantage of this offer. 36% of debtors should pay in the second month after their purchase and 4% are expected to be bad debts.
2.6 Trade creditors all relate to the purchase of stock. He intends to pay all the trade creditors in the month following the purchase of stock.
2.7 All stock is purchased on credit. Whenever stock is sold, it is replaced in the same month.
2.8 Naed draws R12 000 per month to cover household expenses.
2.9 In terms of the loan agreement, R50 000 will have to be repaid at the beginning of May. The interest is calculated and paid monthly.
2.10 The shop will be moving to new premises in April 2012. The expected cost of the move,
R30 000, will need to be paid at the time of the move. All other expenses are spread evenly throughout the year. No increases are expected for the next three months.
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RUBRIC:
CRITERIA
0 2 MARKS
3 MARKS
5 6 MARKS
Liquidity position
Mention of the ratios
At least one ratio calculated correctly
The calculations of both ratios are accurately calculated
CRITERIA
4 MARK
8 MARKS
12 MARKS
Calculation and
Comments
1 calculated correctly:
? Period of stock on hand
? Average payment period by debtors
? Average creditors period
2 calculated correctly:
? Period of stock on hand
? Average payment period by debtors
? Average creditors period
3 calculated correctly:
? Period of stock on hand
? Average payment period by debtors
? Average creditors period
3 MARKS
7 MARKS
Comments
A brief comment made on each ratio
Comments
A brief comment made on each and reasons given for its appropriateness to Naed’s Body Shop. Working out is shown
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Preparation of Cash Budget
As per Memorandum
TOTAL 50 MARKS
CRITERIA
0 2 MARK
3 4 MARKS
5 8 MARKS
Comments from Cash Budget
Stating whether liquidity problems will be experienced
Explaining in detail the reasons for the answer
Gives solutions to solve liquidity problems.
0 2 MARKS
3 4 MARKS
5 8 MARKS
Giving a reason for opening a second shop
Briefly gives reasons on solving cash flow problems
Explains in details the reasons on solving the cash flow problems
Layout
0 2 MARKS
3 4 MARKS
Poor to average
Good to excellent
CRITERIA
1 MARK
2 MARKS
3 MARKS
4 MARKS
5 MARKS
Effective and reliable forecasting
Comments on this factor show that the learner has little/no understanding of effective and reliable forecasting. No research evident
Comments on this factor show that the learner has some understanding on effective and reliable forecasting. No research evident
Comments on this factor show understanding on effective and reliable forecasting. Little evidence on research
Good comments on this factor and shows understanding on effective and reliable forecasting. Evident that research was done
Excellent comments on this factors and shows understanding on effective and reliable forecasting. Evident that extensive research was done
External factors
Comments on this factor show that the learner has little/no understanding of effective and reliable forecasting. No research evident
Comments on this factor show that the learner has some understanding on effective and reliable forecasting. No research evident.
Comments on this factor show understanding on effective and reliable forecasting. Little evidence on research
Good comments on this factor and shows understanding on effective and reliable forecasting. Evident that research was done
Excellent comments on this factors and shows understanding on effective and reliable forecasting. Evident that extensive research was done
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Management
Comments on this factor show that the learner has little/no understanding of effective and reliable forecasting. No research evident
Comments on this factor show that the learner has some understanding on effective and reliable `forecasting. No research evident
Comments on this factor show understanding on effective and reliable forecasting. Little evidence on research
Good comments on this factor and shows understanding on effective and reliable forecasting. Evident that research was done
Excellent comments on this factors and shows understanding on effective and reliable forecasting. Evident that extensive research was done
Contractual obligations
Comments on this factor show that the learner has little/no understanding of effective and reliable forecasting. No research evident
Comments on this factor show that the learner has some understanding on effective and reliable
forecasting. No research evident
Comments on this factor show understanding on effective and reliable forecasting. Little evidence on research
Good comments on this factor and shows understanding on effective and reliable forecasting. Evident that research was done
Excellent comments on this factors and shows understanding on effective and reliable forecasting. Evident that extensive research was done
Internal control
Comments on this factor show that the learner has little/no understanding of effective and reliable forecasting. No research evident
Comments on this factor show that the learner has some understanding on effective and reliable
forecasting. No research evident
Comments on this factor show understanding on effective and reliable forecasting. Little evidence on research
Good comments on this factor and shows understanding on effective and reliable forecasting. Evident that research was done
Excellent comments on this factors and shows understanding on effective and reliable forecasting. Evident that extensive research was done
Ethical business practices
Comments on this factor show that the learner has little/no understanding of effective and reliable forecasting. No research evident
Comments on this factor show that the learner has some understanding on effective and reliable
forecasting. No research evident
Comments on this factor show understanding on effective and reliable forecasting. Little evidence on research
Good comments on this factor and shows understanding on effective and reliable forecasting. Evident that research was done
Excellent comments on this factors and shows understanding on effective and reliable forecasting. Evident that extensive research was done
TOTAL
Attachments:
See attached ….pdf