Directorate: Curriculum FET

Grade 12 ACCOUNTING Term 3: Week 1

(Revised ATP)

TOPIC: Budgets (for Paper 2)

In Gr 10 and 11 you have learnt about...
• Basic budgeting concepts & basic calculations for budgeting:
Cash budget | projected receipts & payments | projected debtors' collection | projected creditors’ payments |
Projected Income Statement (Projected Statement of Comprehensive Income) | projected income (revenue) |
projected expenditure
• Integration of ethical issues, internal audit and internal control issues with regards to budgets of sole traders
In Gr 12 you will...
Go back to basics
o Basic concepts and terminology applicable to the budget of a sole trader and companies
o Differences between the Cash Budget and the Projected Income Statement (items included and monthly / annual
amounts)
o Purpose of preparing a Cash Budget or a Projected Income Statement
Improve your arithmetical ability
o Calculate missing amounts in the budget (based on monthly increase or decrease)
o Calculate amount/s for specific items using information from the budget, e.g. the capital amount of the Loan (from
monthly interest amounts), total cost of a vehicle purchased based on the monthly instalment or depreciation (in the
projected income statement)
o Answers are usually: specific amounts, percentages, increases, decreases or ratio's
Analyse and interpret budgets and the projected income statements (form opinions and comment):
o Compare actual vs budgeted figures:
- Provide possible reasons for differences
- Provide solutions (internal controls)
- Consider ethical issues in terms of cash management and adherence to budgeted figures
o Problem solving:
- Control of cash, debtors, creditors, stock, fixed assets
- Business decisions such as buy/rent fixed assets, sales and profitability

READ in your text book on the topic of Budgets

OR use the Gr 12 Revision Pack for more core notes and activities to do (pg. 49)
ALTERNATIVE digital resources:
Gr 12 Revision Pack Via Afrika Gr 12 Study Guide Lucem Gr 12 Teachers Guide
Gr12RevisionENG Via Gr 12 Acc SG (textbook and solutions in one)
Lucem Gr12 Acc Guide
Pg. 49
(Pg. 225)

BUDGETS
Cash Budget: It is a projection of the estimated monthly BANK balance (expected cash receipts less planned
payments) within a certain budgeting period. It is a tool to be used in management and internal control of cash.
The purpose of a budget is to:
• ensure that the business stays within their financial limits
• help the business to identify cash flow risks
• help the business to find funding, if necessary

Projected Income Statement: Preparing a projected Income Statement assists a business to decide whether it
can continue to operate with its projected PROFIT (projected future income less projected future expenses).

Gr 12 Accounting Term 3, 2020 (Revised) 1

 CONCEPTS
Cash Inflow Actual cash coming into the business.
Cash outflow Actual cash going out the business.
Income Earnings of the business.
Expense Cost incurred by the business
Surplus Receipts are more than the payments
Deficit Payments are more than the receipts
Debtors’ collection schedule A schedule (plan) for collecting outstanding debt from debtors over the
budgeting period
Creditors’ payment schedule A schedule (plan) of how the business will pay its creditors over the
budgeting period

Debtors' Collection Schedule

• This schedule is based on credit sales only
• You MAY be required to calculate total sales first and work back to credit sales
EXAMPLE: CASH Sales is 80% of total sales; therefore: Total Sales = Cash Sales x 100/80
CREDIT Sales is 20% of total sales OR Total Sales minus Cash Sales
NOTE: ALTERNATIVE calculation methods can save time, e.g. Credit Sales = Cash Sales x 20/80
• ALWAYS TOTAL the debtors’ collection schedule, if required. In an exam question, only certain amounts
may be required. Other rows/columns/blocks may be 'filled' (gray areas). DO NOT calculate these amounts
in the gray areas - it will not be marked and you will only be wasting valuable exam time.

Cash Budget
• In Gr 12 it may not be required to prepare a complete cash budget. You will be expected to analyse ('read')
a cash budget and complete certain calculations.
• ONLY do calculations that are required.
• The Receipts from Debtors amount will be calculated in a Debtors’ Collection Schedule
• The Payments to Creditors amount could be calculated in a Creditors Payment Schedule OR directly in the
budget.
REMEMBER: Purchases = Cost of Sales (Cash or Credit) IF the Purchases amount is not given
• A Cash deficit (payments are more than receipts) must be shown in brackets (R...) and must be subtracted
from a favourable Bank balance (and added to an overdraft or negative Bank balance) .
• The first month’s closing Bank balance is ALWAYS the opening balance of the next month.

Calculations usually included in Budgeting questions

Mark-up % Sales - Cost of sales X 100 Answer must be in:
Cost of sales …%
% Increase/Decrease New amount - Old amount X 100
Old amount …%

Amount to increase by a % Amount to change x (100 + % change)

e.g. [500 x (100% + 10%)] OR [500 x 1,1]
R... [R550]

Amount to decrease by a % Amount to change x (100 - % change)

e.g.[500 x (100% - 10%)] OR [500 x 0,9]
R... [R450]
Find amount in April, if May is given
Amount before increase/ (decreased by 10%) OR (increased by 10%)
decrease (work 'backward') (R450 x 100 ÷ 90) // (R495 x 100 ÷ 110)
R...
Apr: R500 R450
Given: Interest on loan: Amount of interest X 100 X 12 months
% p.a. and amount % interest R ….
Required: Calculate total Loan NB: Use the same calculation for fixed deposit

Gr 12 Accounting Term 3, 2020 (Revised) 2

Items NOT included in a Cash budget (Non-cash items)
Depreciation; Bad debts; Discount allowed; Discount received

Projected Income Statement (Projected Statement of Comprehensive Income)

Format for Projected Income Statement is similar to an Income Statement but shows monthly amounts over the
forecast / budgeted period.

Items NOT in Projected Income Statement

Purchase of fixed assets; Receipts from debtors; Payments made to creditors; Drawings (cash only);
Capital contributions from the owner (cash only);
For companies only: Issued shares; Buy back of shares

Internal control
- Compare actual to budgeted amounts. Possible problems related to expenses or income can be identified
and recommendations made based on these comparisons/issues
- Comment on whether the expense or income has been well controlled/managed or not.
EXAMPLE: Telephone actual expense is more than budgeted. It can mean that telephone usage is not well
controlled, OR it was expected to exceed the budgeted (planned) amount as telephonic marketing was used
to promote new product lines. ALWAYS READ ALL the information in a question to ensure your comment is
RELEVANT to the context of the question.

TIPS for BUDGETING IN THE EXAM

o ALWAYS determine the budget period (months) that you are working in.
o Know and understand simple calculations. See the table for calculations below.
o Make sure to add monthly receipts and payments (the amounts printed as well as those you entered) to
find TOTAL Receipts / TOTAL Payments per month. Total Receipts - Total Payments will give either the
monthly 'CASH SURPLUS' (receipts are greater than payments) OR 'CASH SHORTFALL/DEFICIT'
(receipts are smaller than payments) for a specific month.
o This surplus (or deficit) of Month 1 is added to (or subtracted from) the opening favourable (positive)
bank balance to calculate the closing bank balance.(The opposite is true for an unfavourable (negative)
bank balance.
o The closing balance of the current month is the opening balance of the following month.
o NOTE: ALWAYS show an overdraft (unfavourable) Bank balance (opening or closing) in BRACKETS

EXAMPLE (Budgets & Projected Income statement)

You are provided with the Cash Budget and the Projected Income Statement of Top Gardens. The business
sells plants, garden equipment and garden furniture, as well as providing gardening services.

Information on debtors and creditors

1 60% of total sales are cash sales.
2 Past trends indicate that debtors pay as follows:
o 50% pay in the month of sale and receive 5% discount
o 45% pay in the next month
o 5% is written off in the second month after sale.
3 The business receives cash for all services rendered.
4 60% of total purchases are cash purchases.
5 All creditors are paid in the month after purchase to receive a 5% discount.

Gr 12 Accounting Term 3, 2020 (Revised) 3

TOP GARDENS
CASH BUDGET FOR THE TWO MONTHS ENDED 30 APRIL 2020
MARCH 2020 APRIL 2020
RECEIPTS
Cash sales 63 600 52 200
Collections from debtors 36 880 35 610
Fee income 30 000 30 000
Interest of fixed deposit (10% p.a.) 700 700
Fixed deposit 0 84 000
Interest received on current account 106 280
Equipment sold 0 9 500
TOTAL RECEIPTS 131 286 212 290
PAYMENTS
Cash purchases of stock 39 750 32 625
Payments to creditors 22 088 25 175
Salaries and wages 10 000 10 800
Materials cost 3 000 3 000
Interest on loan (15% p.a.) 625 625
Payment of loan 0 50 000
Sundry expenses 3 600 3 600
TOTAL PAYMENTS 79 063 125 825
CASH SURPLUS/DEFICIT 52 223 86 465
BALANCE AT BEGINNING OF MONTH 31 800 84 023
CASH ON HAND AT END OF MONTH 84 023 170 488

PROJECTED STATEMENT of COMPREHENSIVE INCOME FOR TWO MONTHS ENDED 30 APRIL 2020
MARCH 2020 APRIL 2020
Sales 106 000 87 000
Less: Cost of sales (66 250) (54 375)
Gross profit 39 750 32 625
Income from services rendered 30 000 30 000
Add: Other operating income 1 162 2 025
Discount received 1 162 1 325
Profit on sale of asset 0 700
Gross operating income 70 912 64 650
Less Operating expenses (25 487) (25 337)
Salaries & wages 10 000 10 800
Trading stock deficit 660 540
Materials cost 3 000 3 000
Bad debts 1 700 1 860
Sundry expenses 3 600 3 600
Discount allowed 1 060 870
Depreciation (Equipment) 2 467 1 667
Depreciation (Vehicle) 3 000 3 000
Operating profit 45 425 39 313
Add: Interest income 806 980
Profit before interest expense 46 231 40 293
Less: Interest expense (625) (625)
Net profit 45 606 39 668

Gr 12 Accounting Term 3, 2020 (Revised) 4

QUESTIONS (answers are included in the lesson solutions via the QR code)

1 Calculate the carrying value of the equipment that was sold in April 2020.
2 Was the equipment sold on 1 April 2020 or 30 April 2020? Give a reason for your answer.
3 Depreciation is written off at 20% p.a. on cost of equipment. Calculate the cost price of the equipment sold.
4 Total Sales for January 2020 was R85 000. Do a calculation to confirm this amount if the bad debts for
March 2020 is only applicable to this sales.
5 Does the business have a policy to maintain trading stock at a fixed stock base (they only replace what they
sell)? Support your answer with a calculation.
6 Give a short explanation for the positive difference in the surplus between March and April
7 Explain the difference between the surplus on the Cash Budget and the Net profit on the Projected Income
Statement.
8 List three items that would never appear on a Cash Budget and explain why they do not appear on a Cash
Budget.
9 Explain why the payment of the loan does not appear on the Projected Income Statement but the Interest
on loan (Interest expense) does appear on the Projected Income Statement.
10 List two possible sources for the money that will be used to repay the loan.
11 What is the main reason for the budgeted decrease in the net profit over the two months?
12 Calculate the percentage mark-up applied by the business.

ACTIVITY
Calla Diesel owns Calla’s Transport, a business which offers a delivery service. You are provided with an
extract from the Cash budget for the period 1 April 2020 to 31 May 2020.

1.1 Complete the Debtors’ Collection Schedule.

1.2 Refer to the Cash Budget in Information 1 below.
Calculate the following:
• The amounts indicated A to D. (for A and B, refer to Information 4 below.)
• The amount of the loan on 1 April 2020
• The percentage increase in salaries on 1 May 2020

1.3 At the end of April 2020, the following actual figures were identified and compared to the budgeted
figures. Explain what you would mention to Calla about each of the items listed below and give ONE
point of advice in each case.
April 2020
BUDGETED ACTUAL
Fuel (petrol) 150 000 175 000
Collection from debtors 305 200 252 900
Advertising 500 500

Gr 12 Accounting Term 3, 2020 (Revised) 5

INFORMATION

1. CALLA’S TRANSPORT
EXTRACT FROM THE CASH BUDGET FOR THE PERIOD 1 APRIL 2020 TO 31 MAY 2020
APRIL MAY
CASH RECEIPTS
Fee income from cash customers
Collection from debtors 305 200
Rent income 13 080 A
Investment maturing on 2 April 2020 200 000
Interest on investment 12 000
TOTAL RECEIPTS 844 000 620 000

CASH PAYMENTS
Fuel (petrol) B 180 000
Insurance 12 800 17 000
Salaries 93 000 100 440
Telephone
Advertising 500 500
Purchase of vehicles (2 x R200 000) 0 400 000
Drawings 30 000 30 000
Maintenance 35 600 38 270
Interest on loan (11% p.a.) 8 800 8 800
TOTAL PAYMENTS 390 600 836 400
SURPLUS / SHORTFALL 453 400 C
Cash at beginning of the month 106 600 ?
Cash at the end of the month 560 000 D

2. Calla does deliveries of parts to certain suppliers, on credit.

Services rendered to clients on credit are as follows:
March (actual) R280 000
April (budgeted) R400 000
Mei (budgeted) R560 000

3. Debtors are expected to pay as follows:

• 35 % of debtors settle their accounts during the transaction month to benefit from a 2% discount
for prompt payment
• 60% settle accounts in the month following the transaction month
• 5% is written off thereafter

4. With effect from 1 May 2020, the budget for rent income will increase by 10% and that of fuel by 20%.

Gr 12 T3Wk1 solution

Gr 12 Accounting Term 3, 2020 (Revised) 6