QUESTION
1

(
2
5
marks
)
Using the relevant information provided in the case study, prepare the following for Established Manufacturers
(
Pty
)
Ltd:
1
.
1
A Debtors scheduled for November

Question

QUESTION 
1
 
(
2
5
 ﻿marks
)
 ﻿Using the relevant information provided in the case study, prepare the following for Established Manufacturers 
(
Pty
)
 ﻿Ltd: 
1
.
1
 ﻿A Debtors scheduled for November 
2
0
2
5
,
 ﻿December 
2
0
2
5
,
 ﻿and January 
2
0
2
6
 
(
5
 ﻿marks
)
 
1
.
2
 ﻿A Cash flow projection for November 
2
0
2
5
,
 ﻿December 
2
0
2
5
,
 ﻿and January 
2
0
2
6
 
(
2
0
 ﻿marks
)
 ﻿Statement of Financial Position as of 
3
0
 ﻿June 
2
0
2
5
 ﻿Assets Property, Plant, and Equipment Cash and Cash Equivalents Total Equity and Liabilities The Road Ahead Looking forward to the next financial year, the management team identified opportunities and challenges. Sales were evenly distributed over the past 
1
2
 ﻿months and are expected to grow by 
5
%
 ﻿in the next financial year, while the cost of sales remains constant at 
6
5
%
 ﻿of total sales revenue. Cost pressures are real in the current economy and the following have been identified: Salaries and Wages were incurred evenly throughout the year. However, this is expected to increase by 
4
.
2
5
%
 ﻿after the anticipated industry
-
wide union negotiations in October Rent is paid quarterly, with the annual 
1
0
%
 ﻿increase effec

VIPSolutions · Accepted Answer

# Established Manufacturers (Pty) Ltd  
**Financial Projections for Nov 2025 – Jan 2026**

---

## 1.1 Debtors Schedule  
**Assumptions & Calculation Basis**  
- All monetary values in Rands (R).
- Sales grow 5% over prior year (even monthly distribution).
- 15% of sales are cash (with 1% discount).
- 85% of sales are on credit.
- Credit sales collection:  
  - 50% in 30 days  
  - 30% in 60 days  
  - 5% written off as bad debts  
- Debtors at year-end expected to double.
- Ignore VAT for simplicity unless specified.

### Step 1: Calculate Monthly Sales

Let last year’s total annual sales = $ S $  
New year sales: $ S_{\text{new}} = S \times 1.05 $  
Monthly sales: $ \frac{S_{\text{new}}}{12} $

Let’s denote monthly sales for 2025/26 as $ \text{Sales} = X $.

### Step 2: Debtors Balance Calculation per Month

**Credit Sales per Month:**  
$ \text{Credit Sales} = 85\% \times X $

**Collections:**  
- Current month (30 days): 50% of prior month’s credit sales
- Previous month (60 days): 30% of two months prior’s credit sales
- Bad debts: 5% of credit sales written off

**Debtors Closing Balance Formula:**  
$$
\text{Closing Debtors} = \text{Credit Sales of this month} 
+ \text{Credit Sales of previous month} 
- \text{Collections this month (from 1 and 2 months ago)} 
- \text{Bad debts}
$$

#### Schedule Table

| Month      | Credit Sales | Collections from Previous | Collections from 2 months ago | Bad Debts | Closing Debtors |
|------------|-------------|--------------------------|-------------------------------|-----------|-----------------|
| Nov 2025   | .85X       | .5×.85X (Oct)          | .3×.85X (Sep)               | .05×.85X (Nov) | See formula    |
| Dec 2025   | .85X       | .5×.85X (Nov)          | .3×.85X (Oct)               | .05×.85X (Dec) | See formula    |
| Jan 2026   | .85X       | .5×.85X (Dec)          | .3×.85X (Nov)               | .05×.85X (Jan) | See formula    |

**Template Calculation for November 2025:**

- Opening Debtors = Debtors at 31 Oct 2025 (given: double the prior year, but no actual value provided; use formula).
- Add: New Credit Sales (Nov)
- Less: Collections (from previous months)
- Less: Bad Debts

**If X is known, you can fill in the actual numbers.**

---

## 1.2 Cash Flow Projection  
**For November 2025, December 2025, January 2026**

### Key Cash Flow Components

- **Inflows:**
  - Cash sales (15% of monthly sales, less 1% discount)
  - Collections from debtors (as per schedule above)
  - Sale of old equipment (R800,000 payment in November)
- **Outflows:**
  - Purchases (50% of sales; 65% on credit, 35% cash; credit purchases paid in 60 days)
  - Salaries and wages (evenly, with 4.25% annual increase from October)
  - Rent (paid quarterly; consider timing)
  - Insurance (monthly, with July increase; not relevant in Nov-Jan)
  - Equipment deposit (12% of R1.2m = R144,000 in December)
  - Other expenses (interest, loan repayments, dividends if declared)

### Stepwise Cash Flow Template

| Month      | Nov 2025 | Dec 2025 | Jan 2026 |
|------------|----------|----------|----------|
| **Inflows**           |          |          |          |
| Cash Sales (15% - 1% discount) | .15X × .99 | .15X × .99 | .15X × .99 |
| Debtors Collections   | As per schedule | As per schedule | As per schedule |
| Equipment Sale        | 800,000  | -        | -        |
| **Total Inflows**     | =SUM     | =SUM     | =SUM     |
| **Outflows**          |          |          |          |
| Purchases (Cash)      | .35 × .5X | .35 × .5X | .35 × .5X |
| Purchases (Credit, paid current) | .65 × .5X (from 2 months prior) | .65 × .5X (from 2 months prior) | .65 × .5X (from 2 months prior) |
| Salaries & Wages      | (Annual salaries × 1.0425) / 12 | " | " |
| Rent                  | (Paid quarterly, check if Nov or Dec is payment month) | | |
| Insurance             | Monthly premium | | |
| Equipment Deposit     | -        | 144,000  | -        |
| Loan Repayments       | Short-term loan in Oct (done), term loan due Mar 2026 | | |
| Interest              | (Annual × 1.06) / 12 | | |
| Dividends             | As declared | | |
| **Total Outflows**    | =SUM     | =SUM     | =SUM     |
| **Net Cash Flow**     | Inflows - Outflows | Inflows - Outflows | Inflows - Outflows |
| **Opening Balance**   | (Oct closing: R -1,837,350) | Prior month closing | Prior month closing |
| **Closing Balance**   | Opening + Net Cash | Opening + Net Cash | Opening + Net Cash |

---

## 1.3 Notes

- **Actual numbers depend on the prior year’s sales and total for each item.**  
- **If more detailed figures are provided (e.g., salaries, rent, insurance amounts), they can be inserted directly.**
- **The above templates provide a structured approach for calculation.**

---

### Example Layout

#### Cash Flow Table (Partial Example)

| Description           | Nov 2025 | Dec 2025 | Jan 2026 |
|-----------------------|----------|----------|----------|
| **Opening Bank**      | (1,837,350) | ... | ... |
| Cash Sal

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