MERRYLAND HIGH SCHOOLS – ENTEBBE

S5 ENTREPRENEURSHIP

INSTRUCTION: Do All numbers in your books

Cash flow statement

The following information is projections of Abigaba Enterprises Ltd
(i) Cash in Hand Shs 34,000,000, cash at bank (50,000,000)
(ii) Monthly cash sales Shs 12,000,000 but increase by 10% on the previous month’s sales.
(iii) The monthly commission received is expected to increase by 3% and 6% after the first two
months respectively.
(iv) Monthly cash purchases of 200, 300, 400 and 250 units of raw materials respectively are
projected at Shs 6,950 per unit.
(v) The business expected monthly donations in cash worth Shs 3,000,000 in April 2016. This is
expected to reduce by 10% after the next two months.
(vi) Old Vehicles shall be disposed off in the 2nd and 4th months by cheque at shs 4,000,000 and
shs 5,000,000 respectively.
(vii) The business hopes to obtain a loan in its first month worth shs 10,000,000 the principle is to
be paid in the 3rd and 4th months in equal installments.
(viii) The monthly interest on the loan is 10% payable on reducing balance method after one month
grace period from the month of acquisition.
(ix) Credit sales are shs 4,000,000; 6,000,000; 8,000,000 and 10,000,000 respectively. Collection
is 80% in the same month of sale and the remaining amount in the following month less 5%
cash discount on payment for credit sales received in the month of sale.
(x) The business shall purchase equipment in the first month at shs 40,000,000 paying shs
16,000,000 cash and the amount due in the ratio of 60%, ¼ and 15% in the following months.
(xi) A corporation tax of 30% is to be paid on each month’s total sales.

Required:
(a) Prepare a cash flow budget for fourth month’s period.
(b) Comment on the net cash stand
(c) Show the control measures employed to manage the flow of funds in business.

Taxation:
DAT’s Enterprises is a VAT registered business. It had a transaction with VAT exclusive as a given
below;
On 1st January 2016, bought 100 boxes of soap at shs 2,270,000 and sold each box of soap at shs
45,200 (VAT tax is 18%).
(a) Compute the;
(i) VAT on Purchases
(ii) VAT on sales
(iii) VAT refund DAT’s Enterprises will claim from URA.
 (b) DAT’s enterprises employees three workers, James, Joan and peter earning annual gross
salary of shs 8,400,000; 3,840,000 and 10,200,000 respectively. Workers are entitled to
housing and medical allowances which is 10% and 5% of their annual gross salaries.

Use t he monthly PAYE rate below;

Chargeable (monthly) income Tax Rate

Shs 10,000 + 20% of the amount by which

Exceeding shs 335,000 but not chargeable income exceeds shs 335,000
410,000
Shs 25,000 + 30% of the amount by which
Exceeding shs 410,000 chargeable income exceeds shs 410,000

Determine each worker’s PAYE per year payable to URA

(c) Advise the above business on the meaning of the following terms as used in taxation.
(i) Tax compliance
(ii) Tax Avoidance
(iii) Tax Evasion
(d) Show the enterprise the negative consequences it would face in case it fails to meet its tax
obligation

Financial Ratios:
The income statement below was extracted from the records of Malcom Wholesalers Ltd on 31st
/12/2012
Shs. (000) Shs. (000)

Net sales 25,000,000

Stock (1/1/2012) 3,500,000

Net purchases 9,500,000

Goods available for sale 13,000,000

Stock (31/12/2012) 2,500,000

Cost of sales (10,500,000)

Gross profit 14,500,000

Total operating expenses (8,300,000)

Net profit before tax 6,200,000

 The following balances were also available:
Total Creditors Shs 450,000,000
Total interest expenses Shs 620,000,000
Total current assets Shs 10,500,000,000
Cash balance Shs 3,000,000,000
Bank balance Shs 2,500,000,000
Total current liabilities Shs 7,500,000,000
Total fixed assets Shs 5,000,000,000

Calculate and interpret the following ratios;

(i) Working capital ratio
(ii) Interest cover
(iii) Inventory turnover period
(iv) Rate of creditors turnover
(v) Cash ratio
(vi) Rate of return on capital employed

S5 ENTREPRENEURSHIP EXERCISE

Question 1:

Given the following information below on K.Don Ltd.

- On 1st April, 2016 K.Don Ltd had a cash balance of Shs 10,000,000.
- It expected cash sales of Shs. 5,000,000 per month.
- Credit sales were to be Shs. 3,500,000 per month and payments would be made in the following
month.
- Monthly rent income from some of its properties was expected to be Shs. 1,000,000.
- Monthly purchases were Shs. 6,000,000.
- The monthly salary and wages bill was projected at Shs. 800,000.
- K.Don Ltd planned to purchase a welding machine in April at Shs. 12,000,000 and pay Shs. 5,000,000
cash. The balance was to be paid in two equal installments in the following months.
- Interest of Shs. 100,000 on the outstanding loan is payable after two months. The last installment
was paid on 31st March 2009. The principal will be paid in a single sum after six months.
- K.Don Ltd will finance any cash flow short falls with a loan from the bankers.
- The loan will attract a monthly interest of 5% per month, payable after two months. The principle
will be repaid in a single sum after twelve months.
Required
(a) Prepare a monthly cash flow statement for the three months period.
 (b) Suggest measures which should be taken by K.Don Ltd to avoid a deficit in the cash flow.

Question 2.

The following was obtained from the books of KANI LTD.

(i) On 1st July 2017, the company had a cash balance of Shs. 6,000,000
(ii) It expected ash sales of Shs. 3,000,000 per month; however, this is expected to reduce by
10% after two months.
(iii) The expected credit sales were Shs 1,600,000 per month, but payment would be made in the
following month.
(iv) The business expected donation in cash worth Shs. 800,000 per month but this is expected
to reduce by 12% after the first three months.
(v) The monthly rent income is to be Shs. 200,000; however it is expected to increase by 25%
after two months.
(vi) Immediately after the first two months, the expected income from other sources is projected
at Shs. 4,000,000 per month.
(vii) Kani Ltd planned to purchase a machine in July at Shs. 4,000,000. A down payment of Shs
2,000,000 was to be made and the balance is to be effected in installments of 6:3:1
respectively in the following months.
(viii) The business expects to acquire a loan from Equity Bank in August worth Shs. 5,000,000.
(ix) The month interest on this loan is 20% payable with effect from August.
(x) The expected monthly purchases are Shs 8,000,000, which is expected to reduce after 3
months by 20%.
(xi) The loan principle is to be effected in a single sum after one month.
(xii) The business hopes to acquire a debenture of Shs. 500,000 in August.
(xiii) Monthly payment for direct labour is valued at Shs 1,000,000.
(xiv) By 30th June 2017, the accrued electricity was Shs. 150,000, which was to be effected in the
following month.
Question 3

The following were projections made by TAJIRI RETAILERS for the months of March, April, May and June
2015

(i) The business had a net cash deficit of Shs 3,000,000 at the end of February 2015
(ii) The business expected monthly cash sales of Shs 10,000,000. However, this decreased by
20% after the first two months.
(iii) Monthly cash purchases were projected at shs 6,000,000. This was expected to be decreased
by 12% in the fourth month.
(iv) Credit sales were projected at shs 3,600,000 monthly with payments expected in the following
months.
(v) Monthly salary bill were shs 4,000,000, however this was to decline by shs 600,000 with
effect from the second month.
(vi) The business planned to get a loan of Shs 8,000,000 in April with a grace period of one month
payable in four equal installments.
(vii) The business was to sell old equipment worth Shs 2,000,000 in May and receive initial
payment of Shs 900,000 and the reminder the following month.
(viii) Loan interest to be paid monthly was 5% on the reducing balance after one month grace
period.
(ix) Rent received at the end of February was Shs 500,000.
(x) Rent receivable was increased by 10% monthly.
(xi) A computer worth Shs 5,000,000 was to be bought in March on hire purchase. Down payment
of Shs 2,000,000 was to be made and the remaining balance to be paid in the ratio of 60% and
40% in the coming months.
(xii) The business policy is to pay 2% commission to be made in March and payments were to be
effected in three equal installments after one month.
(xiii) Insurance of Shs 1,500,000 was paid at the end of June.

Required;

(a) Prepare the cash flow statement for the period from March to June 2015
(b) Comment on the trend of the net cat position of the business.
(c) Draft a financial policy to be adapted by the business for overcoming cash deficits.

EXERCISE
1. You have acquired a loan of Ugx. 18,000,000/= from Bank of Africa to clear your goods
from Uganda Revenue Authority. The borrowed money is to be repaid in the next 5 years at
an interest rate of 10% per year in 5 equal installments.
(a) Develop a loan amortization schedule you are to follow.
(b) Explain any three factors the bank will consider before issuing you with the funds
required
(c) Complete the loan application form issued to you by the bank
(d) How will you ensure proper handling of the borrowed funds?

2. You are operating a rapidly expanding large scale retail stationary business. You would
like to start a new branch and have other suppliers so as to meet the increasing demand.

(a) Write a letter of inquiry to one of the suppliers.

(b) Develop a budget for pre-operating expenses for the new branch.

(c) Prepare guidelines for presenting business products to customers.

(d) Draw a program for recovering money from debtors.

3. The following balances were extracted from MUKENE’s books of accounts on

31st/12/2016.
Shs.
 Net sales 20,000,000
Net purchases 11,000,000
Goods available for sale 16,000,000
Stock 01.01.2016 5,000,000
Stock 31.02.2016 4,000,000
Total operating expenses 6,000,000
Total fixed assets 8,000,000
Debtors 1,500,000
Creditors 3,000,000
Cash 900,000
Accrued rent 1,000,000
Bank 1,600,000

Required;
Calculate and interpret

(a) Inventory turnover.

(b) Credit payment period.
(c) Rate of return on employed capital
(d) Stock turnover period.
(e) Cash ratio.
(f) Profit markup

4. You intend to start a poultry project in your home town.

a) Identify any five (5) sources of capital for the business.
b) Write a letter to your supplier of materials for the damaged goods delivered.
c) Make a budget for fixed capital requirements of your project.

GUIDING QUESTIONS FOR FIELD ATTACHMENT

BACKGROUND OF THE BUSINESS
 What is the name and address of the business?
 Location of the business.
 Products offered by the business.
 SWOT analysis of the business.
 Nature of the business ownership and management.
 Birth of the business idea.
 Clients served (Market)
 Description of assets of the business.
 Mission statement.
 Vision statement.
MARKETING MANAGEMENT
 How do you price your products?
 How do you ensure proper customer care?
 What sales promotional strategies do you use?
 How often do you do market research and how do you do it?
 How do you distribute your products?
 How do you advertise your business?
 What challenges do you face while marketing?
 Briefly comment on your marketing plan
 What are the characteristics of your potential customers?
 Do you do marketing segmentation? What is the basis of this segmentation?

PRODUCTION MANAGEMENT
 Briefly talk about the production process of the business.
 What is your purchasing procedure/policy?
 How do you ensure proper inventory and sales management?
 How do you ensure production of quality products in your business?
 What are the guidelines on the use of machines?
 How do you ensure proper time management in your business?
 Comment on the nature of packaging of your products.

HUMAN RESOURCE MANAGEMENT

 How do you recruit workers?
 Do you have staff development scheme?
 How do you motivate your workers?
 How do you appraise your workers?
 How do you manage labour turnover?
FINANCIAL MANAGEMENT
 What source documents do you use in your business?
 How do you manage the flow of funds in your business?
 Comment on your financial plan.
 Of what importance is the financial record to your business?
 What types of taxes do you pay to the government?

BUSINESS FIELD ATTACHMENT – SAMPLE QUESTIONS

1. For any business enterprise you were attached to:
(a) Describe the nature of the business.
(b) How does the business you were attached to promote job satisfaction?
(c) i) What challenges did you face during the field attachment?
ii) How do you overcome the challenges you faced in (c) (i) above?
(d) Explain the entrepreneurial skills you acquired from the business you were attached
to.
2. For any field attachment you carried out:
(a) Describe how the business ensures efficient time management.
(b) (i) Identify any three threats to the business you were attached to.
(ii) Suggest any possible solutions to the threats you identified in (b) (i).
(c) Describe any four ways used by the business for internal communication.
(d) Draw the down ward communication flow for the business you were attached to.
(e) How does the business you were attached to:
(i) Maintain safety of its assets?
(ii) Maintain cleanliness?
(f) State and explain five reasons put forward by the business’ management for
undertaking staff training.
3. Referring to any field attachment you conducted:
(a) Identify the following;
(i) The strengths of the business.
(ii) The threats facing the business.
(b) How does the business you were attached to motivate its employees?
(c) Give the various ways used by the business to handle difficult customers.
(d) With clear evidence, show how good customer care manifests itself in the business.
(e) What challenges did you face during the field attachment?
4. For any business enterprise you were attached to:
(a) Describe the nature of the business.
(b) (i) Mention any tree social costs of the business you were attached to.
(ii) Describe the measures being employed by the business to overcome costs
stated in (b) (i) above.
(c) Explain the contribution of the community to the business you were attached.
(d) List any five administrative expenses of the business.
(e) What controls did the business you were attached to put in place to manage the flow
of funds?
(f) Mention any three marketing gaps of the business.
5. For any field attachment in which you were involved;
(a) Describe the negotiation skills that were used by the business owner.
(b) What social-cultural factors influenced the entrepreneur’s choice to of the business
opportunity?
(c) Explain the measures being taken to maintain the quality of purchases for the
business.
(d) Mention the techniques used by the entrepreneur to ensure effective
communication.
(e) (i) List the financial statement kept by the business.
(ii) State the purpose of each of the financial statements mentioned above.
(f) Explain any six responsibilities you were assigned while on your attachment.
(g) Explain any skills you acquired from the business you were attached to.
S.5 ENTREPRENEURSHIP EDUCATION PAPER 2 HOLIDAY WORK

Attempt the following questions:

Q1. The following information for the year ended 31st December 2016 relates

to Kazana Kabisa Enterprise:

Item Shs

Fixed capital 120,000,000

Turnover 175,000,000
Cash 4,000,000
Bank 28,250,000
Net purchases 109,800,000
Working capital 43,750,000
Sales at cost 135,000,000
Circulating capital 40,000,000
Sundry creditors 9,000,000
Closing stock 8,000,000
Borrowed capital 100,000,000
Current liabilities 16,000,000
Net profit for the year 35,000,000

Required to:
a) Calculate
i) Net profit percentage (03 marks)
ii) Gross profit mark-up (03 marks)
iii) Cash ratio (03 marks)
iv) Acid – test ratio (03 marks)
v) Working capital turnover ratio (03 marks)
 vi) Debt ratio (03 marks)
vii) Creditors’ turnover period (03 marks)
b) Interpret your answers in a(ii) and (vii) above. (04 marks)

Q2. Tajiri International intends to start an enterprise at the beginning of September 2017. The
projections of the proprietor are as follows:-

i) Cash sales are expected to be shs.50 million per month.

ii) Monthly credit sales are projected to be shs.30 million but two-thirds of the payment is
expected in the month of sale and the remaining amount to be received in two monthly
equal installments in the successive months.

iii) Total cash received from sales each month is subjected to 10% sales tax.

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iv) The business plans to obtain two debentures of shs.20 million each in the first and third
months of operation. Debenture interest of 10% per month is payable beginning one
month after the month of acquisition while the principal will be paid in two monthly
equal installments starting in the month following acquisition but with one month grace
interval.

v) Monthly commissions paid to sales agents are projected to be shs.2 million. However
this is expected to reduce by 15% after two months.

vi) Cash purchases per month are estimated to be shs.23 million which purchases on credit
are projected to be shs.10 million but payment is to be made in the following month.

vii) The owners of the business have resolved to capitalize the enterprise by making
payment of shs.10 million each month.

viii) Monthly income from donations is expected to be shs.25 million. Every month’s
donations will increase by 8%.

ix) The business plans to buy 4 trailer trucks worth shs.200 million paying half the cost as
down payment while the remaining amount is expected to be paid in nature below: 10%,
60% and 30% in the following months.

x) The business will finance any cash shortfalls with a loan from the bankers in the
following month. The loans will attract 5% monthly interest payable after two months
whereas the principal will be repaid in a single sum one month after the month of
acquisition.

Required:

a) Prepare a monthly cash flow statement for a four month-period. (21 marks)

b) Comment on the net cash position of the enterprise. (04 marks)

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Q3. The information below is extracted from the books of Lockdown Traders Ltd as at
31/12/2019

Details Shs

Stock 1/1/2019 2,000,000

Cash 1,600,000
Capital 6,660,000
Furniture 6,000,000
Machinery 2,400,000
Debtors 4,000,000
Creditors 2,600,000
Sales 18,000,000
Purchases 15,000,000
Carriage on sales 200,000
Rent 800,000
Insurance 400,000
Commission received 3,140,000
Returns inwards 400,000
Returns outwards 800,000
Discount received 1,600,000

Additional information;

(a) Stock 31/12/2019 shs 6,000,000.

(b) Rent accrued shs 100,000.

(c) Insurance amounting to shs 40,000.

(d) Make a provision for bad debts of 5%.

(e) Depreciate machinery by 5% per annum.

(f) On the day of stock taking to close the trading period cash shs 400,000 was taken by
the entrepreneurs for personal use.

Required;

(a) Prepare an Income statement for the period ending 31/12/2019. (15 marks)

(b) Prepare the Balance Sheet as at 31/12/2019. (10 marks)

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Q4. CODIV Holdings Ltd employs Jessy, Keturah, Godfrey, Madina and Sula earning monthly
income of shs.300,000, shs.400,000, shs.580,000, shs.700,000 and shs.1,500,000 respectively.

(a) Using the income tax rates given below, calculate the income tax payable by each of the

employees mentioned above. (15 marks)

Monthly income (shs) Tax liability

0 – shs 235,000 Nil

Shs 235,000 – shs 335,000 10% of the amount by which chargeable income exceeds
shs 235,000.

Shs 335,000 – shs 410,000 Shs 10,000 plus 20% of the amount by which chargeable
income exceeds shs 335,000.

Shs 410,000 – shs 10,000,000 Shs 25,000 plus 30% of the amount by which chargeable
income exceeds shs 410,000.

(b) Given the Value Added Tax (VAT) rate as 18%, calculate the VAT charged at each stage in

the table below; (10 marks)

Stage Activity Purchase price Selling price VAT payable

shs shs shs

I Producer 160,000,000

II Producer to wholesaler 160,000,000 192,000,000

III Wholesaler to retailer 192,000,000 240,000,000

IV Retailer to final consumer 240,000,000 320,000,000

V Final consumer 320,000,000