EXERCISE 7.3 7.

You are the accountant of Eastern Cape Manufacturers, and have just prepared the following Statement of
Financial Position of the business at 28 February 2021:
EASTERN CAPE MANUFACTURERS
STATEMENT OF FINANCIAL POSITION
AT 28 FEBRUARY 2021
Note 2021 2020
R R
ASSETS
NON-CURRENT ASSETS
Land, at cost 600 000 300 000
Machinery, at carrying amount 400 000 400 000
1 000 000 700 000
CURRENT ASSETS
Inventory 200 000 160 000
Accounts receivable 150 000 160 000
Bank - 150 000
350 000 470 000

R1 350 000 R1 170 000

CAPITAL AND LIABILITIES

CAPITAL 1 870 000 790 000

NON-CURRENT LIABILITIES
Loan: Twenty-ten bank 200 000 180 000

CURRENT LIABILITIES
Bank overdraft 100 000 -
Accounts payable 180 000 200 000
280 000 200 000

R1 350 000 R1 170 000

NOTES:
1. Capital
Balance at 1 March 790 000 700 000
Add: Capital introduced (cash) 50 000 40 000
Profit 100 000 80 000
940 000 820 000
Less: Drawings 70 000 30 000
Balance at 28 February R870 000 R790 000

The following additional information is to be taken into account:

1. The drawings of R70 000 made in 2021 represents finished goods removed from inventory by
Mr Sanders for his personal use.

2. There were no disposals of property, plant and equipment during the year ended 28 February 2021.
Additional machinery was purchased for cash during the year ended 28 February 2021 at a cost of
R150 000.

3. Machinery has been depreciated at the rate of 20% per annum straight-line.

REQUIRED:

(a) Prepare the Statement of Cash Flows of Eastern Cape Manufacturers for the year ended 28 February
2021.

(b) Mr Sanders has asked you to explain why his business has ended the 2021 year with a large bank
overdraft, in spite of the fact that he has made a profit of R100 000.

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