This is an individual assessment!
Assessment 11 - Case Study 2
Due date: 13 September 2024
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Assessment Rubric
Assessment 11
Question 1
Rubric Criteria
1 point -Fair
2 points – Good
3 points –
Excellent
Provides a basic
discussion of
whether the five nonfacilitator employees
are required to be
registered taxpayers
Provides a
discussion of
whether the five
non-facilitator
employees are
required to be
registered
taxpayers in terms
of both the Income
Tax Act and
the Tax
Administration Act.
Task 1 - Nonfacilitator
employees
Correctly concludes
on whether the five
non-facilitator
employees are
required to be
registered
taxpayers in terms
Registration of
non-facilitator
employees as
taxpayers
0 points - Not
demonstrated
Task 1 - Non-facilitator employees
Registration of
Fails to discuss
non-facilitator
whether the five
employees as
non-facilitator
taxpayers
employees are
required to be
registered taxpayers
in terms of the
Income Tax Act and
the Tax
Administration Act.
BUT
does not address all
the requirements of
the Income Tax Act
and the Tax
Administration Act
OR
addresses the
requirements of only
the Income Tax Act
or the Tax
Administration Act.
Concludes on the
registration of the
five non-facilitator
employees as
taxpayers
Fails to conclude on
whether the five
non-facilitator
employees are
required to be
registered taxpayers
in terms of the
A conclusion is
presented but not
supported by the
discussion and
application provided
OR is vague.
SCORE
Feedback
Income Tax Act and
the Tax
Administration Act.
Recommendations
to correct
treatment of the
employees'
salaries. (Financial
implications)
Fails to provide a
recommendation(s)
for the correct
treatment of the
employees' salaries.
of the Income Tax
Act and the Tax
Administration Act.
Provides a
recommendation(s)
to correct treatment
of the employees'
salaries
Provides a
recommendation(s)
to correct treatment
of the employees'
salaries
BUT
BUT
the
recommendations
lack clarity or
conciseness
the
recommendation(s)
are generic.
Task 1 - Nonfacilitator
employees
OR
does not address the
incorrect treatment.
Recommendations
to correct
treatment of the
employees'
salaries. (Nonfinancial
implications)
Fails to provide a
recommendation(s)
for the correct
treatment of the
employees' salaries.
Provides a
recommendation(s)
to correct treatment
of the employees'
salaries
Provides a
recommendation(s)
to correct treatment
of the employees'
salaries
BUT
BUT
the
recommendations
lack clarity or
conciseness
the
recommendation(s)
are generic.
OR
does not address the
incorrect treatment.
Task 2 – Review of the payroll system
Registration of
non-facilitator
employees as
taxpayers
Identification of
internal control
weaknesses
Fails to identify the
internal control
weaknesses
Identifies some of the
internal control
weaknesses.
Clearly identifies
majority of the
internal control
weaknesses.
Clearly identifies all
internal control
weaknesses.
For each internal
control weakness
identified:
For each internal
control weakness
identified:
For each internal
control weakness
identified:
For each internal
control weakness
identified:
Fails to explain why
the weaknesses
identified are a
control risk.
An explanation is
provided on why the
weaknesses identified
are a control risk, but
the explanation is
unclear or is vague.
Correctly explains
and motivates why
the weaknesses
identified are a
control risk.
Correctly explains
and motivates why
the weaknesses
identified are a
control risk.
OR
demonstrates a lack
of understanding.
Explanation of the
control weakness
identified
AND
Recommendations
to improve the
payroll system
controls
For each internal
control weakness
identified:
For each internal
control weakness
identified:
For each internal
control weakness
identified:
Fails to provide a
recommendation(s)
to improve the
control.
Provides a
recommendation(s) to
improve the control
BUT
Provides a
recommendation(s)
to improve the
control
the recommendations
lack clarity or
conciseness
BUT
OR
the
recommendation(s)
are generic and not
specific to
LearnCo.
The motivation
displays good a
good holistic
understanding of
the payroll cycle.
For each internal
control weakness
identified:
Provides a
recommendation(s)
to improve the
control
AND
the
recommendation(s)
are specific to
LearnCo. and are
feasible.
does not address the
internal control
weakness identified.
Recommendations
are a mix of
manual and
application
controls to
improve the
payroll system.
Provides a
recommendation(s)
which consist of
manual controls
only
Provides a
recommendation(s)
which are a mix of
manual and
application controls to
improve the payroll
system
Provides a
recommendation(s)
which are a mix of
manual and
application controls
improve the payroll
system
BUT
AND
the
recommendation(s)
are generic and not
specific to LearnCo.
the
recommendation(s)
are specific and
display a good
understanding of
internal controls.
n/a
Sub–total: Question 1
24
Question 2 - Ratio analysis
Rubric Criteria
0 points - Not
demonstrated
1 point - Fair
2 points – Good
3 points –
Excellent
Calculation of relevant ratios
9 marks
Analysis of ratios
Ratios calculated are
irrelevant to the
analysis; no focus on
material ratios.
Some relevant ratios
are calculated, but
many are not
material to the
analysis.
Most calculated
ratios are relevant
and material to the
analysis.
Evaluation of
ratios: For each
ratio
Fails to interpret the
ratios.
Some ratios are
interpreted.
Most ratios are
interpreted within
the context of the
company's strategy
OR
All calculated ratios
are highly relevant
and material,
effectively
supporting the
analysis.
All ratios are
thoroughly
interpreted in
relation to the
company's overall
SCORE
Feedback
Recommendation
to management
regarding the
new investment
Investment action
by management
based on the ratios
analysed
Clarity and
Organisation
Fails to provide an
overall
recommendation to
management
regarding the new
investment.
All ratios are
interpreted, but the
ratio interpretation is
generic/basic.
and market
conditions.
financial strategy
and external
factors.
Provides an overall
recommendation to
management
regarding the new
investment.
Provides an overall
recommendation to
management
regarding the new
investment.
Provides an overall
recommendation to
management
regarding the new
investment.
BUT
BUT
AND
the recommendation
is not supported by
the analysis and
evaluation.
the
recommendation is
generic and not
based on the
results of the
analysis and
evaluation done.
The
recommendation is
specific and based
on the results of the
analysis and
evaluation done.
Presents ideas clearly, logically, and well-organised, making it easy for the reader to follow
the calculation and interpretation of the ratios.
2 marks
Sub-total: Question 2
Communication
Adherence to
Formatting requirements has been adhered to
formatting
•
Font type: Arial
guideline
•
Font size: 11
•
Line spacing of 1.5
•
Justified
20
2 marks
Context and
audience
Does not
demonstrate an
awareness of the
context and audience
in communicating
findings .
Demonstrates some
awareness of the
context and
audience.
Demonstrates full
awareness of the
context and
audience.
n/a
Grammar Usage
Mechanical or
grammatical errors
are present.
Some mechanical or
grammatical errors.
Almost no
mechanical or
grammatical errors.
n/a
Sub–total communication
TOTAL
6
50
Name: Nkosikhona Khumalo
Student Number: 68743238
Task 1: Non-facilitator Employees
a) Registration of non-facilitator employees as taxpayers:
According to the South African Income Tax Act and Tax Administration Act, all employees earning
above the tax threshold must be registered as taxpayers. The tax threshold for the 2023/2024 tax year
is R95,750 for individuals below 65 years old. The five non-facilitator employees are each earning
R15,000 per month, which equates to R180,000 annually. Since this amount exceeds the tax threshold,
these employees must be registered for tax.
The Income Tax Act requires that employers withhold PAYE (Pay-As-You-Earn) tax from employee
salaries and remit these taxes to SARS. Failure to register employees and deduct PAYE can result in
penalties and interest for non-compliance. Furthermore, under the Tax Administration Act, LearnCo has
an obligation to ensure accurate reporting and compliance with tax laws. The company may also face
legal consequences for failing to register its employees and properly account for tax deductions.
Thus, the five non-facilitator employees should be registered as taxpayers, and their taxes should be
deducted in line with South Africa's tax laws.
b) Recommendations for correcting the treatment of salaries:
To correct the current treatment, I recommend the following steps:
1. Register the non-facilitator employees with SARS and obtain tax reference numbers for
each of them. LearnCo should ensure they are properly captured in the payroll system like other
employees.
2. Adjust the payroll records to reflect these employees as part of the formal payroll system.
This includes accurately deducting PAYE, UIF, and other applicable deductions from their
salaries.
3. Rectify past months' payroll by backdating tax deductions for the months during which the
employees were incorrectly accounted for as general expenses. This may involve submitting
revised payroll returns to SARS.
4. Update financial records: The accounting treatment of these employees' salaries should be
moved from general expenses to payroll expenses. This will ensure that the company's financial
statements reflect the correct expense classification.
5. Educate employees on their tax obligations. Inform the non-facilitators that tax deductions are
necessary for compliance and provide them with payslips showing these deductions, so they
understand their earnings better.
Task 2: Review of Payroll System
Internal control weaknesses and risks:
1. Delayed removal of dismissed employees from payroll:
o
Weakness: The CFO’s practice of removing dismissed employees from payroll only at
year-end is risky. This delay allows the possibility of erroneous or fraudulent payments
being made if the system is not properly monitored.
o
Recommendation: Employees who are dismissed should be removed from the payroll
system immediately after their dismissal is finalized. Implement a system rule that flags
terminated employees for removal within a month of dismissal to reduce the risk of
improper payments.
2. Non-inclusion of non-facilitators in payroll:
o
Weakness: Not registering the five non-facilitator employees in the payroll system
bypasses controls around payroll expense reporting, tax deductions, and transparency.
o
Recommendation: Incorporate all employees in Revolve X, ensuring that all salaries
and deductions are accurately captured. This will enhance transparency, ensure proper
tax compliance, and avoid financial misreporting.
3. Incomplete performance agreements:
o
Weakness: Three facilitators did not sign their performance agreements, and the HR
manager failed to follow up. This could lead to disputes regarding performance reviews
and salary adjustments.
o
Recommendation: Ensure that all employees complete their performance agreements
before the start of the review period. Implement an automated alert system in Revolve X
to remind both the HR manager and employees when agreements are pending
signature.
4. Overloaded HR manager:
o
Weakness: The HR manager is overloaded with duties, leading to oversight issues such
as the lack of follow-up on performance agreements and employee records.
o
Recommendation: Redistribute some of the HR duties, perhaps by hiring additional HR
personnel or further leveraging Revolve X’s automation capabilities. This will help
prevent oversights and improve efficiency.
5. Biometric access for payroll approval:
o
Weakness: Although biometric access provides security, relying solely on one person
(the CFO) to approve payroll and make payments is risky. If the CFO is unavailable or
compromised, this could delay or lead to unauthorized payments.
o
Recommendation: Introduce dual authorization for payroll approval, where both the
CFO and another senior financial officer must approve the final payroll before payments
are made. This enhances accountability and mitigates the risk of fraud.
Application Controls:
•
Automated termination process: Program Revolve X to automatically deactivate employee
records upon dismissal notification from the HR manager.
•
Performance agreement tracking: Use the system to flag missing performance agreements
and notify both the employee and HR department to ensure timely completion.
•
Regular payroll audits: Schedule automatic payroll audits within Revolve X to flag any
inconsistencies between employee records, banking details, and payroll schedules.
Implementing these recommendations will ensure better compliance, improved transparency, and
stronger internal controls for LearnCo’s payroll system.
Question 2
Feasibility Analysis of the New High-Tech Manufacturing Line Investment for Radiant Beauty
Ltd
Radiant Beauty Ltd is considering a significant investment of R5 million in a new high-tech
manufacturing line, with the goal of boosting production capacity and meeting increasing demand. As
the financial manager, I have been tasked to evaluate whether this investment is financially feasible by
analysing relevant liquidity, leverage, and profitability ratios, while also considering management's
target levels for these financial metrics.
Assumptions:
•
The investment is expected to increase revenue by 12%.
•
Interest on the proposed R3 million loan will amount to R218 924.00 for the first year.
•
Profit before tax will increase by 10% after the investment.
•
R2 million will be funded from retained earnings.
1. Liquidity Ratios:
Current Ratio:
The current ratio measures the company’s ability to meet its short-term obligations using its current
assets. Current Ratio = Current Liabilities / Current Assets
Before Investment:
•
•
Current Assets = R12,946,000 / Current Liabilities R7,483,000
= 1.73
After Investment:
•
•
•
•
•
Current Assets will reduce by R2 million, due to the cash used to partially fund the investment.
Adjusted Current Assets = R12,946,000 - R2,000,000 = R10,946,000
Current Liabilities remain the same for the year.
Current Ratio = R10,946,000 / R7,483,000
= 1.46
The current ratio remains above management’s minimum target of 1.2, indicating that the company can
comfortably cover its short-term liabilities even after the investment.
Quick Ratio/Acid-Test Ratio:
The quick ratio excludes inventory from current assets, providing a stricter measure of liquidity.
Quick ratio = Current assets – Inventory / Current Liabilities
Before Investment
Inventory = R3 574 000
Quick ratio = 12 946 000 – 3 574 000 / 7 483 000
= 1,25
After Investment
Adjusted Quick Assets = 9 372 000 – 2 000 000 = 7 372 000
= 7 372 000 / 7 483 000
= 0.99
The quick ratio falls just short of the target of 1:1 after the investment. This indicates a slightly tighter
liquidity position, but it is still manageable, especially given that some cash flow will improve with the
projected revenue increase.
2. Leverage Ratios:
Debt to Equity Ratio:
This ratio measures the company’s financial leverage and compares total debt to shareholders' equity.
Debt to Equity Ration = Total Debt / Total Equity
Before Investment:
•
•
•
•
Total Debt = R3,900,000 + R1,075,000 = R4,975,000
Total Equity = R16 326 000
Debt to Equity = 4 975 000 / 16 326 000
= 0.305
After Investment:
•
•
•
The new loan of R3 million will increase total debt.
Adjusted Total Debt = R4,975,000 + R3,000,000 = R7,975,000
Debt to Equity = 7 975 000 / 16 326 000 = 0,49
The debt to equity ratio will rise to 49%, which is below management’s target of 85:15. This
demonstrates that Radiant Beauty will still have a conservative capital structure even after taking on the
loan.
Debt Ratio:
The debt ratio indicates the proportion of assets financed by debt = Total Debt = Total Assets
Before Investment
Total Assets – R29 237 000
Debt Ratio = R4 975 000 / R29 237 000 = 0,17
After Investment = R7 975 000 Debt Ratio = 7 975 000 / 29 237 000 = 0.27
The debt ratio remains well below the 50% threshold, showing that the company is not overleveraged
and will maintain a healthy balance sheet after the investment.
Based on the financial analysis, the proposed investment in the new high-tech manufacturing line
appears to be feasible. Radiant Beauty Ltd will maintain a solid liquidity position, even though the quick
ratio falls slightly below the target. Leverage ratios remain conservative, with the debt to equity and debt
ratios well below management's thresholds. Profitability ratios such as ROA and ROE are expected to
improve, and the company will comfortably meet its interest obligations.
Therefore, I recommend that the board proceed with the investment. The increased production capacity
and automation will likely enhance the company's competitive position and drive long-term growth.