ASSIGNMENT 2 SEMESTER : FINANCIAL ACCOUNTING (FA) - imm
Page 1 of 8
ASSIGNMENT 2ND SEMESTER
:
FINANCIAL ACCOUNTING (FA)
STUDY UNITS COVERED
:
STUDY UNITS 1 - 4
DUE DATE
:
3:00 p.m. 21 AUGUST 2012
TOTAL MARKS
:
100
INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete ‘Instructions to Students for Completing and Submitting Assignments’ must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1. You are required to submit ONE assignment per subject. 2. The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%. 3. Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4. Number all the pages of your assignment (page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5. The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations. 6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment. 7. Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8. The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 21 August 2012. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 21 August 2012 and up to 5:00 p.m. the following day after which no assignments will be accepted. 9. If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website: www.immgsm.ac.za, on Friday, 5 October 2012.
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 2 of 8
Answer ALL the questions
QUESTION 1
[30]
The following balances appeared, amongst others, in the books of Bradley and Co at the 1 January 2011: Account Trade debtors Provision for doubtful debts Inventory Bank Equipment Accumulated depreciation on equipment Vehicles Accumulated depreciation on vehicles Trade creditors
Note 1 1 2
R 45 500 1 250 26 000 65 000 ? ? 120 000 36 000 27 000
3 3 4 4
The following additional information has not yet been accounted for in the books of Bradley and Co: 1. During the 2011 financial year R28 000 was received from debtors in settlement of their accounts. A debtor, Mr X, was declared insolvent and will have to be written off. However, of his debt of R2 000, 75% will be received in cash from the insolvent’s estate and the remainder will be written off as irrecoverable. It has been estimated that the provision for doubtful debts will have to be adjusted to R1 450. 2. Bradley and Co purchased R16 500 worth of goods for resale from its supplier on credit. Goods costing R12 000 were sold during the year (the sales were correctly recorded in the bank account). A customer who was unhappy with the colour of the unit purchased from Bradley and Co returned it for a cash refund. It was originally sold to her for R1 800 (cost price 600). The owner Mr Brad took R2 300 worth of stock for his personal use. 3. The following information was extracted from Bradley and Co’s fixed asset register, relating to its only item of equipment. The accountant only processed the first year of depreciation relating to this item and since then forgot to update the register. Asset:
Minolta Industrial Photocopier
Class of Asset: Cost Price: Date:
Equipment R185 000 Depreciation:
31/12/2008
Assignment 2nd Semester 2012
Date of Purchase:
1/1/2008
Rate of Depreciation:
20% pa. reducing balance method
Accumulated Depreciation
Net book value
R 37 000
R37 000
R148 000
© IMM Graduate School of Marketing FA
Page 3 of 8
4. The vehicles are depreciated using the straight line method at 15% pa. 5. Accumulated depreciation refers to the cumulative total of all depreciation written off on each asset in the prior years of operations. 6. Other than the points mentioned above it can be assumed that the balances remained unchanged by year end. Required: 1.1
Refer to note 1 above and answer the following: a) Calculate the amount to be written off as bad debts relating to Mr X. (1) b) Process the general journal entry to account for the amount calculated in (a) above. Use the format provided below. (2) Details Debit Credit
c)
Calculate the amount that would have to be processed to adjust the provision for doubtful debts and explain how this adjustment would be treated in the financial statements of the business. (2)
1.2
Refer to note 2 above. Provide the general journal entry to account for the transaction whereby Mr Brad took stock for his personal use. (2)
1.3
Refer to note 3 above and answer the following: a) Complete the fixed asset register for the 2009, 2010 and 2011 financial years. Use the headings provided in the register to guide you, i.e.: (6) Date:
Depreciation:
31/12/2008 31/12/2009 31/12/2010 31/12/2011
b)
1.4
Accumulated Depreciation R 37 000
Net book value R37 000
R148 000
Calculate the depreciation expense amount, relating to vehicles, that would be disclosed in the income statement for the year ended December 2011. (2)
Using the information and balances provided, complete the assets section as it would appear in the statement of financial position (balance sheet) of Bradley and Co as at 31 December 2011: A format, with required headings, is provided below. Remember to show all workings.
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 4 of 8
Balance Sheet (Statement of Financial Position) of Bradley and Co as at 31 December 2012 – Extract ASSETS R Non-current assets ….. Current assets ….. TOTAL ASSETS (15)
QUESTION 2
[20]
Scarlett and Son is run as a sole trader by Mr John Scarlett and it specialises in selling outdoor furniture. You have been given the following transactions for the month of March 2011.
On 3 March the owner contributed additional capital into the business. It comprised of R5 000 cash and he also transferred his second-hand vehicle with a fair value of R85 000 into the name of the business. On 12 March Mr Scarlett purchased patio chairs for resale using the company credit card. The supplier gave him a cash discount of R1 200 which represented 20% off the purchase price. The discount was deducted directly from the price at the point of sale. A debtor paid her account on 16 March with a cash cheque of R2 632. The accountant banked the cheque received on the same day. This payment was received within 30 days and as a result the debtor was given a 6% early settlement discount. On 25 March the staff salaries were paid. The monthly payroll figure amounted to R162 000. On 28 March Scarlett paid his suppliers an amount owing on an account of R7 200. On 31 March Scarlett and Son’s fixed deposit (investment) at XYZ Bank reached its date of maturity and the capital R15 000 was paid into the business’s current bank account. At the same date the last month’s interest on the capital value was paid into the current account. The fixed deposit rate was 12% per year payable monthly.
Required: 2.1
Date E.G.
Show the effect of each of the above transactions on the accounting elements of Scarlett and Son for the month ended March 2011. Use the headings provided below. Be sure to show the effect on each element by showing +/- AND indicating the accounts being affected. Be sure to show each account and amount separately. ASSETS + 2 100 Bank
INCOME + 2 100 Sales
CAPITAL
EXPENSES
LIABILITIES
(20)
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 5 of 8
QUESTION 3
[40]
THIS QUESTION CONSISTS OF 2 UNRELATED PARTS PART A
[20]
‘Wonders of Fashion’ is a large fashion retailer that stocks a wide range of fashion
labels. The financial director has recently asked for your assistance in analysing the financial statements. In order to facilitate various decisions he has provided you with the following financial information: Wonders of Fashion Statement of Comprehensive Income for the years ended 31 December 2011 2010 Revenue 123 999 879 120 607 873 Cost of sales (85 657 057) (78 395 467) Gross profit 38 342 822 42 212 406 Net operating costs (22 204 983) (26 617 448) Operating profit 16 137 839 15 594 958 Dividend received 45 000 45 000 Interest income 1 292 756 1 101 000 Profit before interest and tax 17 475 595 16 740 958 Interest paid (3 873 379) (4 770 000) Profit before tax 13 602 216 11 970 958 Taxation (4 680 969) (4 140 842) Profit attributable to ordinary shareholders 8 921 247 7 830 116 Cents 458.67
Earnings per share
Cents 460.59
The market price per share at the end of the respective years was: 2011
2010
R36.68
R34.99
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 6 of 8
Wonders of Fashion Statement of Financial Position as at 31 December 2011
2010
Assets Non-current assets Property, plant and equipment Investments
39 768 700 260 000
46 416 200 270 000
Current assets Inventory Trade receivables Accrued income Cash and cash equivalents Total assets
43 601 177 3 750 000 25 928 570 75 000 13 847 607 83 629 877
28 672 370 4 120 000 24 528 570 23 800 0 75 358 570
Equity and liabilities Capital and reserves Share capital Revaluation surplus Retained profit
53 640 857 34 980 000 800 000 17 860 857
37 557 051 24 500 000 800 000 12 257 051
Non-current liabilities Long-term loan
17 000 000 17 000 000
22 000 000 22 000 000
Current liabilities Trade payables SARS VAT control Current portion of loan Shareholders for dividends Accrued expenses Bank overdraft Total equity and liabilities
12 989 020 2 665 740 1 321 839 14 000 5 000 000 3 767 441 220 000 0 83 629 877
15 801 519 2 850 000 2 599 837 18 000 5 000 000 3 361 438 180 000 1 792 244 75 358 570
Required: 3.1
Using the above information, help the financial director in calculating the following ratios for the 2010 and 2011 financial years: a) Current ratio (2) b) Inventory turnover ratio (using final inventory figures not averages.) (2) c) Quick ratio (2) d) Return on equity (2) e) Price earnings ratio (2) Round all answers off to 2 decimal points where necessary. 3.2
If you were a creditor of this company provide comment on the liquidity of Wonders of Fashion by referring to two ratios calculated in 3.1 above. (5)
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 7 of 8
3.3
Although financial statement analysis can provide useful information about a company’s operations and its financial condition, this type of analysis has some potential problems and limitations and it must be used with care and judgement. Discuss some problems and limitations of financial statement analysis. (3)
3.4
Comment on Wonders of Fashion’s asset management/efficiency relating specifically to stock management by making reference to the inventory turnover ratio calculated in (3.1). (2)
PART B
[20]
Take-u-There (Pty) Ltd operates in the tourism industry. The company’s office is situated in the Cradle of Mankind and specialises in nature walks and game viewings for local and international tourists. Mr Jones, the managing director, wishes to expand his business operations and open another office in the Magaliesburg to exploit the scenery there. Mr Jones has approached ADRS Bank to arrange a long-term loan of R1 500 000 (with an interest rate of 14% per annum) to enable him to start his operations in the Magaliesburg. Mr Jones has given the bank manager a copy of the latest statement of comprehensive income (income statement) and statement of financial position (balance sheet). Extract from the Statement of Comprehensive Income (28 February) R000’s R000’s 2011 2010 Sales Cost of sales Operating expenses Finance expense Taxation Profit for the period
8 532 6 399 1 345 243 228 317
7 425 5 495 1 174 149 216 391
Extract from the Statement of Financial Position (28 February) R000’s 2011 Total assets Ordinary share capital Retained earnings/accumulated profits/distributable reserves Mortgage loan Accounts payable Short-term loans
Current ratio Quick ratio Debt ratio
Assignment 2nd Semester 2012
2:1 1:1 0.21
Industry averages Interest cover ratio Debt: Equity Return on assets
7 466 3 590 959 1 013 486 1 418
R000’s 2010 6 142 2 989 837 1 013 432 871
6 times 50% 8%
© IMM Graduate School of Marketing FA
Page 8 of 8
Required: 3.5 Calculate and briefly discuss the two most relevant ratios (mentioned in the industry averages) for 2010 and 2011 that ADRS Bank would examine for analysis of Take-u-There (Pty) Ltd’s use of debt in order to finance its new operations with the loan of R1 500 000. You may make reference to other figures that may be of relevance to the bank in formulating your answer. (17) (Show all workings and round off your answers to 1 decimal place.) 3.6 Calculate the percentage change in sales from 2010 to 2011 as well as the profit margin on sales for both years and comment on your findings. (3) QUESTION 4
[10]
Yoville Enterprises is a trading entity with a February year end. They use the FIFO inventory system stipulated by the International Financial Reporting Standards to value their stock. The following information has been provided for the year ended February 2012: 1. Inventory movements were made up as follows. Number of units R per unit Units in stock at 1 March 2011 6 000 18 Purchases (April 2011) 12 000 22 Sales (April – June 2011) 9 000 45 Purchases (July 2011) 8 000 25 Sales (August – November 2011) 7 000 45 * Yoville Enterprises closed its store in November 2011 for extensive renovations and only reopened for sales to the public in the next financial year. 2. Amongst Yoville Enterprises’ operating expenses was the following: A payment for R30 000 that related to an advertising campaign that was due to run from 1 November 2011 for a year. The entire contract was paid up front and was treated as an expense. Required: 4.1
Using the information in point 1 above, calculate the gross profit as it would appear in the trading section of the statement of comprehensive income (income statement) for the year ended February 2012. (Clearly show all calculations behind cost of sales.) (8)
4.2
Using the information in point 2 above, calculate the correct amount that should have been accounted for as an expense for the year ended February 2012 when correctly applying the matching principle. Go on to indicate the impact if any on the statement of financial position (balance sheet) of Yoville Enterprises. (2) ASSIGNMENT TOTAL: 100
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
ASSIGNMENT 2ND SEMESTER
:
FINANCIAL ACCOUNTING (FA)
STUDY UNITS COVERED
:
STUDY UNITS 1 - 4
DUE DATE
:
3:00 p.m. 21 AUGUST 2012
TOTAL MARKS
:
100
INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete ‘Instructions to Students for Completing and Submitting Assignments’ must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1. You are required to submit ONE assignment per subject. 2. The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%. 3. Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4. Number all the pages of your assignment (page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5. The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations. 6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment. 7. Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8. The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 21 August 2012. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 21 August 2012 and up to 5:00 p.m. the following day after which no assignments will be accepted. 9. If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website: www.immgsm.ac.za, on Friday, 5 October 2012.
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 2 of 8
Answer ALL the questions
QUESTION 1
[30]
The following balances appeared, amongst others, in the books of Bradley and Co at the 1 January 2011: Account Trade debtors Provision for doubtful debts Inventory Bank Equipment Accumulated depreciation on equipment Vehicles Accumulated depreciation on vehicles Trade creditors
Note 1 1 2
R 45 500 1 250 26 000 65 000 ? ? 120 000 36 000 27 000
3 3 4 4
The following additional information has not yet been accounted for in the books of Bradley and Co: 1. During the 2011 financial year R28 000 was received from debtors in settlement of their accounts. A debtor, Mr X, was declared insolvent and will have to be written off. However, of his debt of R2 000, 75% will be received in cash from the insolvent’s estate and the remainder will be written off as irrecoverable. It has been estimated that the provision for doubtful debts will have to be adjusted to R1 450. 2. Bradley and Co purchased R16 500 worth of goods for resale from its supplier on credit. Goods costing R12 000 were sold during the year (the sales were correctly recorded in the bank account). A customer who was unhappy with the colour of the unit purchased from Bradley and Co returned it for a cash refund. It was originally sold to her for R1 800 (cost price 600). The owner Mr Brad took R2 300 worth of stock for his personal use. 3. The following information was extracted from Bradley and Co’s fixed asset register, relating to its only item of equipment. The accountant only processed the first year of depreciation relating to this item and since then forgot to update the register. Asset:
Minolta Industrial Photocopier
Class of Asset: Cost Price: Date:
Equipment R185 000 Depreciation:
31/12/2008
Assignment 2nd Semester 2012
Date of Purchase:
1/1/2008
Rate of Depreciation:
20% pa. reducing balance method
Accumulated Depreciation
Net book value
R 37 000
R37 000
R148 000
© IMM Graduate School of Marketing FA
Page 3 of 8
4. The vehicles are depreciated using the straight line method at 15% pa. 5. Accumulated depreciation refers to the cumulative total of all depreciation written off on each asset in the prior years of operations. 6. Other than the points mentioned above it can be assumed that the balances remained unchanged by year end. Required: 1.1
Refer to note 1 above and answer the following: a) Calculate the amount to be written off as bad debts relating to Mr X. (1) b) Process the general journal entry to account for the amount calculated in (a) above. Use the format provided below. (2) Details Debit Credit
c)
Calculate the amount that would have to be processed to adjust the provision for doubtful debts and explain how this adjustment would be treated in the financial statements of the business. (2)
1.2
Refer to note 2 above. Provide the general journal entry to account for the transaction whereby Mr Brad took stock for his personal use. (2)
1.3
Refer to note 3 above and answer the following: a) Complete the fixed asset register for the 2009, 2010 and 2011 financial years. Use the headings provided in the register to guide you, i.e.: (6) Date:
Depreciation:
31/12/2008 31/12/2009 31/12/2010 31/12/2011
b)
1.4
Accumulated Depreciation R 37 000
Net book value R37 000
R148 000
Calculate the depreciation expense amount, relating to vehicles, that would be disclosed in the income statement for the year ended December 2011. (2)
Using the information and balances provided, complete the assets section as it would appear in the statement of financial position (balance sheet) of Bradley and Co as at 31 December 2011: A format, with required headings, is provided below. Remember to show all workings.
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 4 of 8
Balance Sheet (Statement of Financial Position) of Bradley and Co as at 31 December 2012 – Extract ASSETS R Non-current assets ….. Current assets ….. TOTAL ASSETS (15)
QUESTION 2
[20]
Scarlett and Son is run as a sole trader by Mr John Scarlett and it specialises in selling outdoor furniture. You have been given the following transactions for the month of March 2011.
On 3 March the owner contributed additional capital into the business. It comprised of R5 000 cash and he also transferred his second-hand vehicle with a fair value of R85 000 into the name of the business. On 12 March Mr Scarlett purchased patio chairs for resale using the company credit card. The supplier gave him a cash discount of R1 200 which represented 20% off the purchase price. The discount was deducted directly from the price at the point of sale. A debtor paid her account on 16 March with a cash cheque of R2 632. The accountant banked the cheque received on the same day. This payment was received within 30 days and as a result the debtor was given a 6% early settlement discount. On 25 March the staff salaries were paid. The monthly payroll figure amounted to R162 000. On 28 March Scarlett paid his suppliers an amount owing on an account of R7 200. On 31 March Scarlett and Son’s fixed deposit (investment) at XYZ Bank reached its date of maturity and the capital R15 000 was paid into the business’s current bank account. At the same date the last month’s interest on the capital value was paid into the current account. The fixed deposit rate was 12% per year payable monthly.
Required: 2.1
Date E.G.
Show the effect of each of the above transactions on the accounting elements of Scarlett and Son for the month ended March 2011. Use the headings provided below. Be sure to show the effect on each element by showing +/- AND indicating the accounts being affected. Be sure to show each account and amount separately. ASSETS + 2 100 Bank
INCOME + 2 100 Sales
CAPITAL
EXPENSES
LIABILITIES
(20)
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 5 of 8
QUESTION 3
[40]
THIS QUESTION CONSISTS OF 2 UNRELATED PARTS PART A
[20]
‘Wonders of Fashion’ is a large fashion retailer that stocks a wide range of fashion
labels. The financial director has recently asked for your assistance in analysing the financial statements. In order to facilitate various decisions he has provided you with the following financial information: Wonders of Fashion Statement of Comprehensive Income for the years ended 31 December 2011 2010 Revenue 123 999 879 120 607 873 Cost of sales (85 657 057) (78 395 467) Gross profit 38 342 822 42 212 406 Net operating costs (22 204 983) (26 617 448) Operating profit 16 137 839 15 594 958 Dividend received 45 000 45 000 Interest income 1 292 756 1 101 000 Profit before interest and tax 17 475 595 16 740 958 Interest paid (3 873 379) (4 770 000) Profit before tax 13 602 216 11 970 958 Taxation (4 680 969) (4 140 842) Profit attributable to ordinary shareholders 8 921 247 7 830 116 Cents 458.67
Earnings per share
Cents 460.59
The market price per share at the end of the respective years was: 2011
2010
R36.68
R34.99
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 6 of 8
Wonders of Fashion Statement of Financial Position as at 31 December 2011
2010
Assets Non-current assets Property, plant and equipment Investments
39 768 700 260 000
46 416 200 270 000
Current assets Inventory Trade receivables Accrued income Cash and cash equivalents Total assets
43 601 177 3 750 000 25 928 570 75 000 13 847 607 83 629 877
28 672 370 4 120 000 24 528 570 23 800 0 75 358 570
Equity and liabilities Capital and reserves Share capital Revaluation surplus Retained profit
53 640 857 34 980 000 800 000 17 860 857
37 557 051 24 500 000 800 000 12 257 051
Non-current liabilities Long-term loan
17 000 000 17 000 000
22 000 000 22 000 000
Current liabilities Trade payables SARS VAT control Current portion of loan Shareholders for dividends Accrued expenses Bank overdraft Total equity and liabilities
12 989 020 2 665 740 1 321 839 14 000 5 000 000 3 767 441 220 000 0 83 629 877
15 801 519 2 850 000 2 599 837 18 000 5 000 000 3 361 438 180 000 1 792 244 75 358 570
Required: 3.1
Using the above information, help the financial director in calculating the following ratios for the 2010 and 2011 financial years: a) Current ratio (2) b) Inventory turnover ratio (using final inventory figures not averages.) (2) c) Quick ratio (2) d) Return on equity (2) e) Price earnings ratio (2) Round all answers off to 2 decimal points where necessary. 3.2
If you were a creditor of this company provide comment on the liquidity of Wonders of Fashion by referring to two ratios calculated in 3.1 above. (5)
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
Page 7 of 8
3.3
Although financial statement analysis can provide useful information about a company’s operations and its financial condition, this type of analysis has some potential problems and limitations and it must be used with care and judgement. Discuss some problems and limitations of financial statement analysis. (3)
3.4
Comment on Wonders of Fashion’s asset management/efficiency relating specifically to stock management by making reference to the inventory turnover ratio calculated in (3.1). (2)
PART B
[20]
Take-u-There (Pty) Ltd operates in the tourism industry. The company’s office is situated in the Cradle of Mankind and specialises in nature walks and game viewings for local and international tourists. Mr Jones, the managing director, wishes to expand his business operations and open another office in the Magaliesburg to exploit the scenery there. Mr Jones has approached ADRS Bank to arrange a long-term loan of R1 500 000 (with an interest rate of 14% per annum) to enable him to start his operations in the Magaliesburg. Mr Jones has given the bank manager a copy of the latest statement of comprehensive income (income statement) and statement of financial position (balance sheet). Extract from the Statement of Comprehensive Income (28 February) R000’s R000’s 2011 2010 Sales Cost of sales Operating expenses Finance expense Taxation Profit for the period
8 532 6 399 1 345 243 228 317
7 425 5 495 1 174 149 216 391
Extract from the Statement of Financial Position (28 February) R000’s 2011 Total assets Ordinary share capital Retained earnings/accumulated profits/distributable reserves Mortgage loan Accounts payable Short-term loans
Current ratio Quick ratio Debt ratio
Assignment 2nd Semester 2012
2:1 1:1 0.21
Industry averages Interest cover ratio Debt: Equity Return on assets
7 466 3 590 959 1 013 486 1 418
R000’s 2010 6 142 2 989 837 1 013 432 871
6 times 50% 8%
© IMM Graduate School of Marketing FA
Page 8 of 8
Required: 3.5 Calculate and briefly discuss the two most relevant ratios (mentioned in the industry averages) for 2010 and 2011 that ADRS Bank would examine for analysis of Take-u-There (Pty) Ltd’s use of debt in order to finance its new operations with the loan of R1 500 000. You may make reference to other figures that may be of relevance to the bank in formulating your answer. (17) (Show all workings and round off your answers to 1 decimal place.) 3.6 Calculate the percentage change in sales from 2010 to 2011 as well as the profit margin on sales for both years and comment on your findings. (3) QUESTION 4
[10]
Yoville Enterprises is a trading entity with a February year end. They use the FIFO inventory system stipulated by the International Financial Reporting Standards to value their stock. The following information has been provided for the year ended February 2012: 1. Inventory movements were made up as follows. Number of units R per unit Units in stock at 1 March 2011 6 000 18 Purchases (April 2011) 12 000 22 Sales (April – June 2011) 9 000 45 Purchases (July 2011) 8 000 25 Sales (August – November 2011) 7 000 45 * Yoville Enterprises closed its store in November 2011 for extensive renovations and only reopened for sales to the public in the next financial year. 2. Amongst Yoville Enterprises’ operating expenses was the following: A payment for R30 000 that related to an advertising campaign that was due to run from 1 November 2011 for a year. The entire contract was paid up front and was treated as an expense. Required: 4.1
Using the information in point 1 above, calculate the gross profit as it would appear in the trading section of the statement of comprehensive income (income statement) for the year ended February 2012. (Clearly show all calculations behind cost of sales.) (8)
4.2
Using the information in point 2 above, calculate the correct amount that should have been accounted for as an expense for the year ended February 2012 when correctly applying the matching principle. Go on to indicate the impact if any on the statement of financial position (balance sheet) of Yoville Enterprises. (2) ASSIGNMENT TOTAL: 100
Assignment 2nd Semester 2012
© IMM Graduate School of Marketing FA
