Purchasing and Financing 2024

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Inspection of the accounts This primarily concerns the balance sheet and the income statement, for at least the previous three years. In many cases a financial plan will be called for, to give information about the prospects for investment and income. Customers not required to keep accounts will present tax statements, statements of turnover or income receipts. 7. LOAN REPAYMENT In general, we can differentiate between the following types of loan. o Fixed rate loans require repayment in a lump-sum with interim interest payments. o Instalment credit loans require repayment in fixed instalments with reduced interest. o Annual fixed sum repayment loans require repayment of a fixed annual sum at increased redemption, but reduced interest. It is of cause possible to get a combination of these loan types. Student can calculate the repayment on a loan. In the examples and tasks below “Instalment” refers to the amount payable on the outstanding capital amount. EXAMPLE 1: The debt is R10 000, the interest rate is 10 % and the instalment is R2 500. – Then Year Remaining debt Interest Instalment Total annual re-payment 1 R10 000 R1 000 R2 500 R3 500 2 R 7 500 R 750 R2 500 R3 250 3 R 5 000 R 500 R2 500 R3 000 4 R 2 500 R 250 R2 500 R2 750 Totals R2 500 R10 000 R12 500 The following should be clear from example 1: o This is an Instalment Credit Loan o The sum of the instalments is equal to the original debt o Borrowing money is costly (R2 500 in interest in this case) EXAMPLE 2: The debt is R10 000, the interest rate is 10% and the annual re-payment is R3 000. – Then Year Remaining debt Interest Instalment Total repayment 1 R10 000 R1 000 R2 000 R3 000 2 R 8 000 R 800 R2 200 R3 000 3 R 5 800 R 580 R2 420 R3 000 4 R 3 380 R 338 R2 662 R3 000 5 R 718 R 72 R 718 R 790 Totals R2 790 R10 000 R12 790 36
The following should be clear from example 1: o This is an Annual Fixed Sum Repayment Loan o The sum of the instalments is still equal to the original debt o The interest is somewhat more in this example. o There is still an amount of R718 outstanding at the end of year 4 In practice though it is common to find a combination of the two types of loans in that the loan will be calculated as an instalment credit loan, but repayments will be scheduled as if it was an annual fixed sum repayment loan. For example: The total repayment is calculated at R12 500 as in Example 1 and is then divided by the term (4 years) so that a fixed amount of R3 125 is paid each year. In the examples given above the interest was calculated per year, but it is common in practice to calculate the interest on a monthly or even a daily basis and when taking out a lone you should be aware of the specific terms of the agreement. INDIVIDUAL ASSIGNMENT: Complete the tables below for the following cases: Debt R30 000, interest rate 15 % and instalment R7 500 Year Remaining debt 1 2 3 4 5 Interest Instalment Total annual re-payment Loan R10 000, interest rate 15 % and lump sum repayment payable after 4 years. Year Remaining debt Interest Instalment Total annual re-payment 1 2 3 4 5 Loan 40.000, interest 10 % and R10 000 annually Year Remaining debt 1 2 3 4 5 Interest Instalment Total annual re-payment 37
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