Project

Bachelor of Business Administration Honours

PROGRAMME Postgraduate Diploma in Family Business Management

Postgraduate Diploma in Business Management

MODULE Accounting and Financial Management

INTAKE July 2022
YEAR 1
TOTAL MARKS 100

Formative Assessment 2
SECTION A [100 MARKS]

Answer ALL the questions in this section.

Study the Statement of Cash Flows provided below and answer the following questions:

1.1 Calculate the following:

1.1.1 Company tax paid (3 marks)

1.1.2 Carrying value (Book value) of the machinery sold. (2 marks)

1.2 Identify TWO (2) items from this statement of cash flows that increase the cash balance but do not (2 marks)
increase the profit.

1.3 Did the company issue any ordinary shares during the financial year ended 30 June 2021? (3 marks)
Motivate your answer.

1.4 Comment on the following.

1.4.1 Cash flow from operating activities, (R920 000) (2 marks)

1.4.2 Increase in inventory, (R1 800 000) (2 marks)

1.4.3 Increase in receivables, (R1 000 000) (2 marks)

1.4.4 Non-current assets purchased, (R600 000) (2 marks)

1.4.5 Increase in long-term borrowings, R800 000 (2 marks)

INFORMATION

The Statement of Cash Flows provided below was obtained from the records of Mitre Ltd:

MITRE LTD

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021

Cash flows from operating activities (920 000)

Profit before interest and tax/Operating profit 2 200 000

Non-cash flow adjustments 380 000

Depreciation 400 000

Profit on disposal of machinery (20 000)

2 580 000
Profit before working capital changes

(2 400 000)
Working capital changes

(1 800 000)
Increase in inventory

Increase in receivables (1 000 000)

400 000
Increase in payables

Cash generated from operations 180 000

Interest paid (100 000)

Dividends paid (400 000)

Company tax paid ?

Cash flows from investing activities (420 000)

(600 000)
Non-current assets purchased

180 000
Proceeds from disposal of machinery

Cash flows from financing activities ?

Proceeds from issue of ordinary shares ?

Increase in long-term borrowings 800 000

Net decrease in cash and cash equivalents (540 000)

Cash and cash equivalents at the beginning of the year 600 000

Cash and cash equivalents at the end of the year 60 000

Answer the questions from the information provided. As far as possible use the contribution margin
model to present your answers.

2.1 Use the information provided below to calculate the expected Operating Profit/Loss of each (8 marks)
proposal.

INFORMATION

The following budgeted information for the year ended 30 June 2023 was provided by Aster Ltd, a manufacturer of a
single product:

Sales (R30 per unit) R4 800 000

Total variable costs (R2 880 000)

Total fixed costs (R1 600 000)

Operating profit R320 000

The sales manager suggested two proposals to improve the expected operating profit:

¦ Proposal A involves launching an improved marketing campaign. This would involve an additional R360 000
outlay for advertising. Sales commission will increase by R2 per unit. Sales are expected to increase by 25%
above the budgeted sales volume, with no change in the unit selling price.

¦ Proposal B involves a 10% reduction in the unit selling price. Fixed selling overheads will reduce by R240
000. The sales volume is expected to increase by 16 000 units.

2.2 Study the information given below and calculate the percentage by which the selling price per unit (4 marks)
must increase, to increase operating profit by 10%. (Assume that there are no changes to the sales
volume, total variable costs or fixed costs.)
 INFORMATION

Melton Ltd sells only one product. The following information, which includes all costs, is available for the month
ended July 2022:

Variable costs R800 000

Fixed costs R600 000

Operating profit R600 000

2.3 Study the information provided below and calculate the following:
2.3.1 Break-even value (4 marks)

2.3.2 Sales value required to achieve an operating profit of R80 000, after spending an additional R400 (4 marks)
000 on advertising.

INFORMATION

A summary of the budgeted Statement of Comprehensive Income of Mac’s Eatery for July 2023 is as follows:

Sales 1 600 000

Expenses 1 760 000

Operating loss (160 000)

Additional information:

¦ Mac’s Eatery’s expenses are classified as fixed or variable. The fixed expenses (included in the statement
above) are estimated at R800 000.

Use the information provided below to prepare the following for Warner Limited for August and
September 2023 (using separate monetary columns for each month):

3.1 Debtors Collection Schedule (4 marks)

3.2 Cash Budget (16 marks)

 INFORMATION

Warner Limited sells computers. The following information is available to assist in the preparation of its cash budget
for August and September 2023:

1. An unfavourable bank balance of R22 500 is expected on 31 July 2023.

2. Sixty percent (60%) of all the sales are for cash; the balance is on credit. Cash sales for June and July 2023
are forecasted at R72 000 and R144 000 respectively. Sales are expected to increase by 10% per month
from August 2023. Sixty percent (60%) of the credit sales is collected in the month after the sale. The
remainder is collected two months after the sale.

3. Warner Limited sells its computers at cost plus 50%. All the computers that are sold each month are
replaced in the same month. All purchases are on credit and creditors are paid two months after the
purchase.

4. Salaries and wages amount to R44 000 for August, 10% more than the amount for July.

5. Rent expense amounts to R48 000 per annum, payable monthly. Insurance is estimated at R36 000 for the
year and is payable in September. Rates are estimated at R54 000 per year, paid half-yearly in August and
February in equal instalments. Monthly administration costs of R18 000 (excluding R3 000 for depreciation)
are payable in the month in which they are incurred.

6. Advertising expenses are expected to be 6% of the monthly sales and are paid one month in arrears.

7. Machinery with a cost price of R200 000 is expected to be purchased during August 2023. A deposit of R40
000 will be paid in August and the balance is payable in five equal instalments commencing September 2023.

8. A long-term loan of R100 000 at 15% per annum interest is to be raised on 01 September 2023. Interest is
payable monthly with the first interest payment to be made on 30 September 2023.

Answer the questions from the information provided.

4.1 Study the information given below and answer the following questions:
4.1.1 Calculate the Payback Period of Project B (expressed in years, months and days). (3 marks)

4.1.2 Calculate the Accounting Rate of Return on initial investment of Project A (expressed to two (4 marks)
decimal places).

4.1.3 Calculate the Net Present Value (NPV) of both projects. (6 marks)

4.1.4 Based on the NPV, which project should be chosen? Why? (1 marks)
 INFORMATION

The following data relate to two investment projects, only one of which may be selected:

Project A Project B

R R

Initial capital expenditure 1 400 000 1 400 000

Net profit per year:

Year 1 670 000 270 000

Year 2 540 000 280 000

Year 3 410 000 650 000

Year 4 270 000 710 000

Expected scrap value 400 000 0

Note:

¦ The straight-line method of depreciation is used.

¦ The cost of capital is 15%.

¦ Ignore taxes.

4.2 Use the information provided below to answer the following questions:
4.2.1 Calculate the Internal Rate of Return (expressed to two decimal places) using interpolation. (5 marks)

4.2.2 Should the machine be purchased? Why? (1 marks)

 INFORMATION

Leo Limited has identified a new machine that it is considering for purchase. The machine would cost R600 000 and
a further amount of R100 000 is payable for its installation. The machine is estimated to have a useful life of five
years. At the end of five years, the machine would be donated. It is expected that the new machine would generate
cash revenues of R450 000 per year, and its cash operating expenses would total R250 000 per year. The cost of
capital is 15%.

Use the information provided below to answer the following questions.

5.1 Calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the
following:
5.1.1 The percentage of profit on sales that the company produced from its operations prior to (2 marks)
considering finance charges and taxes.

5.1.2 The amount of time it takes for the clients of Supreme Limited to settle their debts. (2 marks)

5.1.3 The efficiency with which the company used its net assets to produce revenue. (2 marks)

5.1.4 The efficiency of the company in using all its capital to generate profits. (2 marks)

5.1.5 The proportion of the profit after tax that is kept back in the company as retained earnings. (2 marks)

5.1.6 A measure of the company’s ability to pay its short-term debts within one year. (2 marks)

5.1.7 A measure of the proportion of the total assets that are financed by creditors instead of investors. (2 marks)

5.2 Comment on your answers in questions 5.1.4, 5.1.5 and 5.1.6 above. (6 marks)

INFORMATION

The following information was extracted from the accounting records of Supreme Limited for the financial years ended
31 December 2021 and 2020:
SUPREME LIMITED

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER:

2021 2020

R’000 R’000

ASSETS

Property, plant and equipment 221 034 124 665

Investments 10 200 26 250

Inventories 37 671 47 364

Accounts receivable 38 829 44 034

Cash 7 899 2 820

EQUITY AND LIABILITIES

Share capital 102 332 73 500

Retained income 74 464 65 532

Loan (18%) 92 802 76 248

Accounts payable 46 035 29 853

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER:

2021 2020

R’000 R’000

Sales 216 486 143 499

Cost of sales 120 270 72 090

Operating profit 65 802 46 581

Investment income 4 116 6 237

Interest expense 17 634 12 198

Profit before tax 52 284 40 620

Net profit 36 599 28 434

Note:

1. All sales are on credit.

2. R’000

Dividends for the year ended 31 December 2021 22 232