CASE STUDY
PROGRAMME
Postgraduate Diploma in Family Business Management
Postgraduate Diploma in Business Management
Bachelor of Business Administration Honours
MODULE
Accounting and Financial Management
YEAR
ONE (1)
INTAKE
January 2025
MARKS
100
FORMATIVE ASSESSMENT 1
[100 MARKS]
Answer ALL questions
Read the case study and answer the questions that follow:
COSMED LIMITED
Cosmed Limited was founded over twenty years ago. It started as a retailer with various stores that
sold health care products and cosmetics. The management of Cosmed Limited took advantage of the
changes in South African legislation in the year that it commenced operations (2003) by entering the
pharmacy market in December of the same year.
The company currently competes successfully in the personal care and pharmacy markets. The
statement of cash flows for the financial year ended 31 December 2023 shown below reveals a strong
cash position:
COSMED LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023
R
Cash flows from operating activities
17 000 000
Operating profit
30 000 000
Depreciation
7 000 000
Profit before working capital changes
37 000 000
Working capital changes
(6 000 000)
Decrease in inventory
500 000
Increase in receivables
(4 500 000)
Decrease in payables
?
Cash generated from operations
31 000 000
Interest paid
(2 000 000)
Investment income
?
Dividends paid
(8 000 000)
Company tax paid
(5 700 000)
Cash flows from investing activities
(26 000 000)
Non-current assets purchased
(19 000 000)
Investment
(7 000 000)
Cash flows from financing activities
?
Increase/Decrease in long-term borrowings
?
Net increase (decrease) in cash
300 000
Cash balance (31 December 2022)
8 700 000
Cash balance (31 December 2023)
9 000 000
2024
During 2024 the purchasing manager was able to negotiate for all the inventories to be purchased on
credit from its suppliers subject to credit terms of 60 days. The inventory balance increased from
R5 500 000 at the end of 2023 to R6 500 000 at the end of 2024. Cosmed Limited was able to pay
out an interim dividend of R1 850 000 during 2024. The profitability and financial position for 2024 are
evident in the following excerpts of the financial statements:
COSMED LIMITED
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2024
R
Sales
75 000 000
Cost of sales
48 000 000
Operating profit
12 000 000
Interest expense
1 000 000
Profit before tax
11 000 000
Tax
2 970 000
Profit after tax
8 030 000
COSMED LIMITED
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2024
R
ASSETS
Non-current assets (including investment)
35 000 000
Inventories
6 500 000
Accounts receivable
4 500 000
Cash
3 000 000
49 000 000
EQUITY AND LIABILITIES
Ordinary share capital (6 000 000 shares)
15 000 000
Retained earnings
9 000 000
Long-term loan
11 000 000
Accounts payable
9 000 000
Final dividend payable
5 000 000
49 000 000
Corporate social responsibility
Cosmed Limited engaged the services of an agency that specialises in aiding emerging entrepreneurs.
The agency approached the company to provide financial advice to a group of women who started
their own manufacturing entity (Umdloti Manufacturers). They needed advice related to break-even,
margin of safety and profitability. The following information was obtained from them:
They manufacture a product that sells for R270 each. Production and sales are presently 100 000
units per year. Manufacturing costs include direct materials cost of R70 per unit, direct labour cost of
R41.50 per unit, variable overheads of R25 per unit and fixed overheads of R7 000 000. The
salespersons earn a commission of 5% of sales. Fixed costs of R2 750 000 are incurred for selling
and administrative activities.
Capital budgeting: 2026
Cosmed Limited is looking at the possibility of investing in a project during 2026. Two projects are
under consideration. The cost of capital is 15%. Depreciation is calculated using the straight-line
method. Each project is expected to have a useful life of five years.
Project A
The project would cost R10 000 000. It is estimated that the project would generate revenues of
R8 000 000 per year and the cash operating expenses would total R4 800 000 per year. The project
is expected to have no scrap value.
Project B
This project would also cost R10 000 000 and is expected to generate net profits of R1 600 000 (Year
1), R1 500 000 (Year 2), R1 300 000 (Year 3), R1 100 000 (Year 4) and R1 000 000 (Year 5). The
project is expected to have a scrap value of R1 000 000.
QUESTION 1
(25 Marks)
REQUIRED
Refer to the statement of cash flows for the year ended 31 December 2023 and answer the following
questions:
1.1
Calculate the following:
1.1.1
Decrease in payables
(2 marks)
1.1.2
Investment income.
(2 marks)
1.2
Did the company increase or decrease its non-current liabilities? Motivate your
answer with the relevant calculations.
1.3
(3 marks)
Identify THREE (3) significant changes to the financial position that are evident in
this Statement of Cash Flows that the Statement of Comprehensive Income will
not reveal.
(3 marks)
1.4
Comment on the following:
1.4.1
Decrease in inventory of R500 000
(3 marks)
1.4.2
Increase in receivables of R4 500 000
(3 marks)
1.4.3
Cash flows from operating activities of R17 000 000
(3 marks)
1.4.4
Non-current assets purchased for R19 000 000
(3 marks)
1.4.5
Investment of R7 000 000.
(3 marks)
QUESTION 2
(25 Marks)
Refer to the statement of comprehensive income for the year ended 31 December 2024, statement of
financial position as at 31 December 2024 and additional information related to the 2024 financial year.
REQUIRED
Calculate the ratios for 2024 (fully stated to two decimal places e.g. 2.14:1; 23.67%) that would reflect
each of the following and comment on your answers. Use only the formulas provided in the formula
sheet that appear after Question 4 or in the module guide.
2.1
An indication of the profitability of the company after the cost of goods sold have
been deducted. (Note: A ratio of 30% was achieved in 2023.)
2.2
The amount of time the company takes to pay its suppliers after purchasing goods
and services on credit.
2.3
2.6
(4 marks)
The ability of the company to pay its short-term obligations using only its most liquid
assets.
2.5
(4 marks)
A measure of the profitability of the company’s own and borrowed capital
investment.
2.4
(4 marks)
(4 marks)
An indication of the company’s profitability per share. (Note: A ratio of 98.56 cents
per share was achieved in 2023.)
(4 marks)
The percentage of the profit that has been put back into the company.
(5 marks)
QUESTION 3
(25 Marks)
REQUIRED
Use the information provided by Umdloti Manufacturers to answer the following questions
independently. The expanded contribution margin model must be used to answer questions 3.2
and 3.3.
3.1
Calculate the margin of safety (as a percentage expressed to two decimal places).
3.2
Calculate the number of units that must be sold if an operating profit of R6 750 000
is desired.
3.3
(5 marks)
(5 marks)
Suppose the owners of Umdloti Manufacturers want to spend R600 000 more per
year on advertising and reduce the selling price by R20 per unit, with the
expectation that the sales volume will increase by 20%. Is this a good idea in
respect of profitability? Motivate your answer with the relevant calculations.
3.4
(5 marks)
Suppose the selling price is reduced by 10% and fixed costs drop by R500 000. By
what percentage (expressed to two decimal places) will the operating profit
decrease if the sales volume remains unchanged?
3.5
(5 marks)
Calculate the selling price per unit (expressed to the nearest cent) that will enable
the entity to break-even.
(5 marks)
QUESTION 4
(25 Marks)
REQUIRED
Refer to the investment opportunities for 2026 (Project A and Project B) and calculate the following.
Where discount factors are required use only the four decimals present value tables that appear after
the formula sheet or in the module guide. Ignore taxes.
4.1
Payback Period of both projects (expressed in years, months and days).
4.2
Accounting Rate of Return on initial investment of Project A (expressed to two
decimal places).
4.3
(5 marks)
Net Present Value of both projects. Your answers must include the calculations
of the present values and NPVs.
4.4
(6 marks)
(8 marks)
Internal Rate of Return (expressed to two decimal places) of Project A. Your
answer must include two net present value calculations (using consecutive cost
of capital rates/percentages) and interpolation.
(6 marks)
FORMULA SHEET
Gross profit
X
Sales
Operating profit
X
Sales
Profit after tax
X
Sales
100
Profit after tax
X
1
No. of ordinary shares issued
100
Dividends for the year
1
No. of ordinary shares issued
100
1
X
100
1
100
Retained earnings for the year
1
Profit due to ordinary shareholders
Cost of sales
Earnings per share – Dividend per share
Average inventory
Earnings per share
Accounts receivable
X
Credit sales
Accounts payable
X
Credit purchases
Market price per share
1
Earnings per share
365
Current assets
1
Current liabilities
Current assets – Inventory
Net assets
Current liabilities
X
Total assets
Operating profit
X
Capital employed
Profit after tax
X
100
Total debt
1
Total assets
100
Non-current debt
1
Equity
X
100
1
X
100
Operating profit
1
Interest expense
100
1
X
100
1
Sales
Operating profit
Equity
365
X
100
1
APPENDIX 1: Present value of R1
Number
of
Periods
1
2
3
4
5
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
25%
0.9901
0.9803
0.9706
0.9610
0.9515
0.9804
0.9612
0.9423
0.9238
0.9057
0.9709
0.9426
0.9151
0.8885
0.8626
0.9615
0.9246
0.8890
0.8548
0.8219
0.9524
0.9070
0.8638
0.8227
0.7835
0.9434
0.8900
0.8396
0.7921
0.7473
0.9346
0.8734
0.8163
0.7629
0.7130
0.9259
0.8573
0.7938
0.7350
0.6806
0.9174
0.8417
0.7722
0.7084
0.6499
0.9091
0.8264
0.7513
0.6830
0.6209
0.9009
0.8116
0.7312
0.6587
0.5935
0.8929
0.7972
0.7118
0.6355
0.5674
0.8850
0.7831
0.6931
0.6133
0.5428
0.8772
0.7695
0.6750
0.5921
0.5194
0.8696
0.7561
0.6575
0.5718
0.4972
0.8621
0.7432
0.6407
0.5523
0.4761
0.8547
0.7305
0.6244
0.5337
0.4561
0.8475
0.7182
0.6086
0.5158
0.4371
0.8403
0.7062
0.5934
0.4987
0.4190
0.8333
0.6944
0.5787
0.4823
0.4019
0.8000
0.6400
0.5120
0.4096
0.3277
6
7
8
9
10
0.9420
0.9327
0.9235
0.9143
0.9053
0.8880
0.8706
0.8535
0.8368
0.8203
0.8375
0.8131
0.7894
0.7664
0.7441
0.7903
0.7599
0.7307
0.7026
0.6756
0.7462
0.7107
0.6768
0.6446
0.6139
0.7050
0.6651
0.6274
0.5919
0.5584
0.6663
0.6227
0.5820
0.5439
0.5083
0.6302
0.5835
0.5403
0.5002
0.4632
0.5963
0.5470
0.5019
0.4604
0.4224
0.5645
0.5132
0.4665
0.4241
0.3855
0.5346
0.4817
0.4339
0.3909
0.3522
0.5066
0.4523
0.4039
0.3606
0.3220
0.4803
0.4251
0.3762
0.3329
0.2946
0.4556
0.3996
0.3506
0.3075
0.2697
0.4323
0.3759
0.3269
0.2843
0.2472
0.4104
0.3538
0.3050
0.2630
0.2267
0.3898
0.3332
0.2848
0.2434
0.2080
0.3704
0.3139
0.2660
0.2255
0.1911
0.3521
0.2959
0.2487
0.2090
0.1756
0.3349
0.2791
0.2326
0.1938
0.1615
0.2621
0.2097
0.1678
0.1342
0.1074
11
12
13
14
15
0.8963
0.8874
0.8787
0.8700
0.8613
0.8043
0.7885
0.7730
0.7579
0.7430
0.7224
0.7014
0.6810
0.6611
0.6419
0.6496
0.6246
0.6006
0.5775
0.5553
0.5847
0.5568
0.5303
0.5051
0.4810
0.5268
0.4970
0.4688
0.4423
0.4173
0.4751
0.4440
0.4150
0.3878
0.3624
0.4289
0.3971
0.3677
0.3405
0.3152
0.3875
0.3555
0.3262
0.2992
0.2745
0.3505
0.3186
0.2897
0.2633
0.2394
0.3173
0.2858
0.2575
0.2320
0.2090
0.2875
0.2567
0.2292
0.2046
0.1827
0.2607
0.2307
0.2042
0.1807
0.1599
0.2366
0.2076
0.1821
0.1597
0.1401
0.2149
0.1869
0.1625
0.1413
0.1229
0.1954
0.1685
0.1452
0.1252
0.1079
0.1778
0.1520
0.1299
0.1110
0.0949
0.1619
0.1372
0.1163
0.0985
0.0835
0.1476
0.1240
0.1042
0.0876
0.0736
0.1346
0.1122
0.0935
0.0779
0.0649
0.0859
0.0687
0.0550
0.0440
0.0352
16
17
18
19
20
0.8528
0.8444
0.8360
0.8277
0.8195
0.7284
0.7142
0.7002
0.6864
0.6730
0.6232
0.6050
0.5874
0.5703
0.5537
0.5339
0.5134
0.4936
0.4746
0.4564
0.4581
0.4363
0.4155
0.3957
0.3769
0.3936
0.3714
0.3503
0.3305
0.3118
0.3387
0.3166
0.2959
0.2765
0.2584
0.2919
0.2703
0.2502
0.2317
0.2145
0.2519
0.2311
0.2120
0.1945
0.1784
0.2176
0.1978
0.1799
0.1635
0.1486
0.1883
0.1696
0.1528
0.1377
0.1240
0.1631
0.1456
0.1300
0.1161
0.1037
0.1415
0.1252
0.1108
0.0981
0.0868
0.1229
0.1078
0.0946
0.0829
0.0728
0.1069
0.0929
0.0808
0.0703
0.0611
0.0930
0.0802
0.0691
0.0596
0.0514
0.0811
0.0693
0.0592
0.0506
0.0433
0.0708
0.0600
0.0508
0.0431
0.0365
0.0618
0.0520
0.0437
0.0367
0.0308
0.0541
0.0451
0.0376
0.0313
0.0261
0.0281
0.0225
0.0180
0.0144
0.0115
25
30
40
50
60
0.7798
0.7419
0.6717
0.6080
0.5504
0.6095
0.5521
0.4529
0.3715
0.3048
0.4776
0.4120
0.3066
0.2281
0.1697
0.3751
0.3083
0.2083
0.1407
0.0951
0.2953
0.2314
0.1420
0.0872
0.0535
0.2330
0.1741
0.0972
0.0543
0.0303
0.1842
0.1314
0.0668
0.0339
0.0173
0.1460
0.0994
0.0460
0.0213
0.0099
0.1160
0.0754
0.0318
0.0134
0.0057
0.0923
0.0573
0.0221
0.0085
0.0033
0.0736
0.0437
0.0154
0.0054
0.0019
0.0588
0.0334
0.0107
0.0035
0.0011
0.0471
0.0256
0.0075
0.0022
0.0007
0.0378
0.0196
0.0053
0.0014
0.0004
0.0304
0.0151
0.0037
0.0009
0.0002
0.0245
0.0116
0.0026
0.0006
0.0001
0.0197
0.0090
0.0019
0.0004
0.0001
0.0160
0.0070
0.0013
0.0003
*
0.0129
0.0054
0.0010
0.0002
*
0.0105
0.0042
0.0007
0.0001
*
0.0038
0.0012
0.0001
*
*
APPENDIX 2: Present value of a regular annuity of R1 per period for n periods
Number
of
Periods
1
2
3
4
5
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
0.9901
1.9704
2.9410
3.9020
4.8534
0.9804
1.9416
2.8839
3.8077
4.7135
0.9709
1.9135
2.8286
3.7171
4.5797
0.9615
1.8861
2.7751
3.6299
4.4518
0.9524
1.8594
2.7232
3.5460
4.3295
0.9434
1.8334
2.6730
3.4651
4.2124
0.9346
1.8080
2.6243
3.3872
4.1002
0.9259
1.7833
2.5771
3.3121
3.9927
0.9174
1.7591
2.5313
3.2397
3.8897
0.9091
1.7355
2.4869
3.1699
3.7908
0.9009
1.7125
2.4437
3.1024
3.6959
0.8929
1.6901
2.4018
3.0373
3.6048
0.8850
1.6681
2.3612
2.9745
3.5172
0.8772
1.6467
2.3216
2.9137
3.4331
0.8696
1.6257
2.2832
2.8550
3.3522
0.8621
1.6052
2.2459
2.7982
3.2743
0.8547
1.5852
2.2096
2.7432
3.1993
0.8475
1.5656
2.1743
2.6901
3.1272
0.8403
1.5465
2.1399
2.6386
3.0576
0.8333
1.5278
2.1065
2.5887
2.9906
6
7
8
9
10
5.7955
6.7282
7.6517
8.5660
9.4713
5.6014
6.4720
7.3255
8.1622
8.9826
5.4172
6.2303
7.0197
7.7861
8.5302
5.2421
6.0021
6.7327
7.4353
8.1109
5.0757
5.7864
6.4632
7.1078
7.7217
4.9173
5.5824
6.2098
6.8017
7.3601
4.7665
5.3893
5.9713
6.5152
7.0236
4.6229
5.2064
5.7466
6.2469
6.7101
4.4859
5.0330
5.5348
5.9952
6.4177
4.3553
4.8684
5.3349
5.7590
6.1446
4.2305
4.7122
5.1461
5.5370
5.8892
4.1114
4.5638
4.9676
5.3282
5.6502
3.9975
4.4226
4.7988
5.1317
5.4262
3.8887
4.2883
4.6389
4.9464
5.2161
3.7845
4.1604
4.4873
4.7716
5.0188
3.6847
4.0386
4.3436
4.6065
4.8332
3.5892
3.9224
4.2072
4.4506
4.6586
3.4976
3.8115
4.0776
4.3038
4.4941
3.4098
3.7057
3.9544
4.1633
4.3389
3.3255
3.6046
3.8372
4.0310
4.1925
11
12
13
14
15
10.3676
11.2551
12.1337
13.0037
13.8651
9.7868
10.5753
11.3484
12.1062
12.8493
9.2526
9.9540
10.6350
11.2961
11.9379
8.7605
9.3851
9.9856
10.5631
11.1184
8.3064
8.8633
9.3936
9.8986
10.3797
7.8869
8.3838
8.8527
9.2950
9.7122
7.4987
7.9427
8.3577
8.7455
9.1079
7.1390
7.5361
7.9038
8.2442
8.5595
6.8052
7.1607
7.4869
7.7862
8.0607
6.4951
6.8137
7.1034
7.3667
7.6061
6.2065
6.4924
6.7499
6.9819
7.1909
5.9377
6.1944
6.4235
6.6282
6.8109
5.6869
5.9176
6.1218
6.3025
6.4624
5.4527
5.6603
5.8424
6.0021
6.1422
5.2337
5.4206
5.5831
5.7245
5.8474
5.0286
5.1971
5.3423
5.4675
5.5755
4.8364
4.9884
5.1183
5.2293
5.3242
4.6560
4.7932
4.9095
5.0081
5.0916
4.4865
4.6105
4.7147
4.8023
4.8759
4.3271
4.4392
4.5327
4.6106
4.6755
16
17
18
19
20
14.7179
15.5623
16.3983
17.2260
18.0456
13.5777
14.2919
14.9920
15.6785
16.3514
12.5611
13.1661
13.7535
14.3238
14.8775
11.6523
12.1657
12.6593
13.1339
13.5903
10.8378
11.2741
11.6896
12.0853
12.4622
10.1059
10.4773
10.8276
11.1581
11.4699
9.4466
9.7632
10.0591
10.3356
10.5940
8.8514
9.1216
9.3719
9.6036
9.8181
8.3126
8.5436
8.7556
8.9501
9.1285
7.8237
8.0216
8.2014
8.3649
8.5136
7.3792
7.5488
7.7016
7.8393
7.9633
6.9740
7.1196
7.2497
7.3658
7.4694
6.6039
6.7291
6.8399
6.9380
7.0248
6.2651
6.3729
6.4674
6.5504
6.6231
5.9542
6.0472
6.1280
6.1982
6.2593
5.6685
5.7487
5.8178
5.8775
5.9288
5.4053
5.4746
5.5339
5.5845
5.6278
5.1624
5.2223
5.2732
5.3162
5.3527
4.9377
4.9897
5.0333
5.0700
5.1009
4.7296
4.7746
4.8122
4.8435
4.8696
25
30
40
50
60
22.0232
25.8077
32.8347
39.1961
44.9550
19.5235
22.3965
27.3555
31.4236
34.7609
17.4131
19.6004
23.1148
25.7298
27.6756
15.6221
17.2920
19.7928
21.4822
22.6235
14.0939
15.3725
17.1591
18.2559
18.9293
12.7834
13.7648
15.0463
15.7619
16.1614
11.6536
12.4090
13.3317
13.8007
14.0392
10.6748
11.2578
11.9246
12.2335
12.3766
9.8226
10.2737
10.7574
10.9617
11.0480
9.0770
9.4269
9.7791
9.9148
9.9672
8.4217
8.6938
8.9511
9.0417
9.0736
7.8431
8.0552
8.2438
8.3045
8.3240
7.3300
7.4957
7.6344
7.6752
7.6873
6.8729
7.0027
7.1050
7.1327
7.1401
6.4641
6.5660
6.6418
6.6605
6.6651
6.0971
6.1772
6.2335
6.2463
6.2402
5.7662
5.8294
5.8713
5.8801
5.8819
5.4669
5.5168
5.5482
5.5541
5.5553
5.1951
5.2347
5.2582
5.2623
5.2630
4.9476
4.9789
4.9966
4.9995
4.9999