10.1.3 FINANCIAL PLANNING AND REPORTING 201
QUESTION ONE
[100]
[25]
The financial statements of AA limited and AB Limited for the year ended 31 August 2021
are presented below: Both companies are wholesale of cleaning products
Statement of Comprehensive Income
AA Limited
AB Limited
Sales
20,000,000
10,000,000
Cost of Sales
15,000,000
6,000,000
Gross profit
Operating
expenses
5,000,000
4,000,000
1,000,000
1,000,000
Operating profit
4,000,000
3,000,000
Interest expense
500,000
300,000
Profit before Tax
3,500,000
2,700,000
Dividend
1,000,000
700,000
Profit after Tax
2,500,000
2,000,000
Statement of Financial Position
Fixed Assets
Buildings
200,000
150,000
Equipment
100,000
100,000
300,000
250,000
Inventory
2,500,000
2,000,000
Debtors
3,000,000
2,000,000
Current Assets
_____________________________________________________________________________
21
Bank
1,500,000
1,000,000
7,000,000
5,000,000
7,300,000
5,250,000
Share Capital
200,000
100,000
Retained Earnings
5,100,000
3,350,000
5,300,000
3,450,000
2,000,000
1,800,000
2,000,000
1,800,000
7,300,000
5,250,000
Total Assets
Equity and Liabilities
Current Liabilities
Creditors
Total Equity and
Liabilities
Required:
Used the information above to calculate and evaluate the following ratios for both the
companies and which you prefer. Where applicable, round off answers correctly to two
decimal places):
1.1 Current ratio
(3)
1.2 Liquidity ratio
(3)
1.3 Debtors collection peri
(3)
1.4 Creditors payment period – (Use the cost of sales
(3)
1.5 Stock turnover
(3)
1.6 Return on equity (ROC
(3)
1.7 Asset turnover (Total assets)
(4)
1.8 Which company would you prefer to invest in and
give a reason
(3)
_____________________________________________________________________________
22
QUESTION TWO
[25]
You are provided with figures extracted from the financial statements of Khan Limited
Information:
Khan Limited
Statement of Comprehensive Income for the year ended 31 December 2021
Sales
10,000,000
Directors remuneration
(1,400,000)
Bad debts
(100,000)
Audit fees
(130,000)
Depreciation
(200,000)
Operating profit
1,700,000
Interest expense
(170,000)
Net profit before tax
1,530,000
Income tax
(610,000)
Net income after tax
920,000
Khan Limited
Statement of Financial Position as at 31 December 2021
2021
Assets
Non-current assets
Fixed assets (Note 1)
Shares in SK (Pty) Ltd
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total Assets
7,150,000
7,000,000
150,000
2,140,000
1,300,000
790,000
50,000
9,290,000
2020
5,120,000
5,000,000
120,000
2,380,000
1,100,000
1,200,000
80,000
7,500,000
Shareholders’ Equity and
Liabilities
_____________________________________________________________________________
23
Ordinary shareholders’ equity
Ordinary share
capital (issued @ R5.00)
Share premium
Retained income
Non-current liabilities
Loan from AJ Limited
Current liabilities
Creditors
Total Equity and Liabilities
6,670,000
5,150,000
5,000,000
4,000,000
800,000
870,000
1,440,000
1,440,000
1,180,000
1,180,000
9,290,000
600,000
550,000
1,160,000
1,160,000
1,190,000
1,190,000
7,500,000
Notes to the Financial Statements
1. Fixed Assets
Carrying value at beginning of year
Cost
Accumulated depreciation
Land &
buildings
Vehicles
Equipment
?
2,700,000 -
Total
5,000,000
?
2,700,000 - -
?
?
800,000
Movements
Additions at cost
Depreciation for the year
Disposals at carrying value
Carrying value at end of year
Cost
Accumulated depreciation
?
- ?
350,000
(200,000)
400,000
?
-
2,100,000
2,100,000
- -
?
?
?
?
?
?
?
7,000,000
A portion of the land and buildings were sold at book value. The vehicles were purchased on
the last day of the accounting period and all the depreciation relates to equipment.
2. Cash and Cash Equivalents
Bank
2021
2020
48,000
80,000
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24
Cash float
3. Retained Income
Retained income at beginning of year
Net profit after tax
Dividends paid and declared
Retained income at end of year
-
2,000
50,000
2021
80,000
2020
550,000
600,000
920,000
450,000
(600,000)
(500,000)
870,000
550,000
688,000
738,000
30,000
50,000
62,000
94,000
400,000
308,000
1,180,000
1,190,000
4. Trade and Other
Payables Trade creditors
Expenses payable (Interest on loan*)
SARS (Income tax)
Shareholders for dividends
* Interest on loan is not capitalised
Required:
2.1 You are required to fill in the missing figures in the note to the Statement of financial
position for Fixed assets.
(8)
2.2 Cash Flow Statement for the year ended 31 December 2021.
The business bought a significant amount of new fixed assets. What did they buy and
how did they pay for these fixed assets? Provide figures to support your answer. (17)
_____________________________________________________________________________
25
QUESTION THREE
[25]
The following information pertains to SK Traders for the three months ended 30 June 2021:
Actual
April
R
Budgeted
May
June
R
R
Sales (20% for cash and 80% on credit)
380,000
420,000
460,000
Purchases (10% for cash 90% on credit)
250,000
300,000
340,000
Salaries and wages paid
50,000
70,000
70,000
Cash expenses
28,000
32,000
36,000
2,000
2,000
2,000
Depreciation
•
It is expected that debtors will settle their accounts as follows: 20% in the month of
sale
70% in the month after the month of sale, and 5% in the second month after
the month of sale
•
The remaining 5% is usually written off as bad debts.
•
Trade creditors are paid in the month after the purchases at a discount of 5%.
•
50% of the salaries and wages are weekly wages. Because wages are paid
weekly, usually 10% of the wages are paid in the month following the month in
which they were incurred.
•
Expenses are paid as they arise.
•
The favourable bank balance on 1 May was R20 000.
Required:
Prepare the Cash Budget of SK Traders for June and July 2021.
26
QUESTION FOUR
[25]
4.1 An amount of R1 500 is deposited in a bank paying an annual interest rate of
4.3%, compounded quarterly. Find the balance after 6 years.
(2)
4.2 Your goal is to accumulate R30 000 after 17 years from now. How much must you
invest now to have, at an interest rate of 8% compounded semi-annually?
(2)
4.3 If R500 accumulated to R700 in 5 years with a certain interest compounded
quarterly, what is the rate of interest?
(2)
4.4 A debt of R5000 is to be amortised by 5 quarterly payments made at 3 month
intervals. If interest is charged at the rate of 12% convertible quarterly, find the
period payment and construct an amortisation schedule.
Round the payment up to the nearest cent.
(2)
4.5. SK Handelaars is a logistics company based in Polokwane, South Africa.
They are deciding whether to pay out R120 000 in excess cash in the form of an
extra dividend or implement a share buyback/repurchase. Their profits for the current
year are R1.95 per share and the share sells for R18.
(7)
27
Their summarised balance sheet prior to the dividend payment is as follows
(all figures in ZAR).
Equity
800 000
Debt
200 000
Tangible assets
600 000
Inventories
5 000
Receivables
275 000
Bank/cash
120 000
Evaluate each alternative by:
a) Calculating the number of shares in issue.
(2)
b) The dividends per share (for the first alternative and pay the dividend).
(2)
c) Calculate: the new share price, the Earnings per share and the
price-earnings ratio.
d) What alternative do you consider to be the best? Why?
(4)
(2)