GRADE 12 ACCOUNTING: TERM 3 CASE STUDY BUDGETING: INFORMATION SHEET

JOHN’S DELIVERY SERVICES
The information relates to John’s Delivery Services for the budget period July – September 2022.
John Dew, the owner, started the business on 1 July 2022, after he was retrenched from his previous employment at a large delivery service company.

John’s investment (capital contribution) in the business comprises:

• His retrenchment package which amounted to R580 000.
• The following fixed assets, at carrying value on 1 July 2022.

To supplement his capital contribution, he has negotiated, and received a loan from Plus Bank for R240 000. The money was deposited into the business bank account on 1 July 2022. The terms of the loan are as follows:

• R6 000 to be paid at the end of each month, commencing on 31 July 2022
• Interest at 14% p.a. payable on the last day of each month (not capitalised).

John also has a fixed deposit that will mature on 31 July 2022. This earns interest at 8,5% p.a. (not capitalised). He intends to use this money and the interest, for business purposes.
On 1 July 2022, John purchased a used bakkie for R165 000 in the name of the business, and uses the same depreciation policy for both business vehicles. He employed his cousin, Vinny, to drive this bakkie, making deliveries to clients. Vinny earns a monthly salary of R16 000.
John runs the business from premises that he rented from the inception of the business, and pays a fixed monthly rental of R5 500. The premises has a garage for the vehicles, a workshop and an office. He employs his friend as the maintenance and general handyman, who earns R6 000 per month, and a receptionist who manages the clients and the general office administration duties. She is paid R1 120 per week (5 days per week; 4 weeks per month; 7 hours per day).
Delivery services are offered to cash and credit customers. Fee income from cash customers accounts for 30% of the budgeted total fee income. Although credit terms are 30 days, John expects 45% of outstanding accounts to be settled in the month of services rendered and 55% to be received in the month following the month of services being rendered.
Packing material and other consumable stores are related to the provision of services and is budgeted at 25% of the total fee income.

• 60% of these supplies are purchased on credit.
• Creditors are paid in the month following the month of purchases, to receive the 5% early-payment discount.

The receptionist requested that John reduce her terms of employment as she wants to take up another part-time job opportunity as a tutor for evening class learners, commencing on 1 September 2022.
John agreed to this proposal as the receptionist is mainly needed in the mornings. As from 1 September, she will work for only 4 hours per day (instead of the 7 hours) and her pay will be adjusted accordingly.
Extract from the Cash Budget for the Budget period:

Incomplete Debtors Collection Schedule:

Comparison of PROJECTED figures and ACTUAL figures for July 2022:

TOTAL: 50