Accounting and Financial Management

PROJECT
Postgraduate Diploma in Business Management
PROGRAMME
Postgraduate Diploma in Family Business Management
Bachelor of Business Administration Honours
MODULE
Accounting and Financial Management
YEAR
One (1)
INTAKE
January 2024
TOTAL MARKS
100 marks
FORMATIVE ASSESSMENT 2
(100 MARKS)
QUESTION 1
(20 Marks)
REQUIRED
Study the Statement of Cash Flows given below and answer the following questions:
1.1
Calculate the following:
1.1.1
Decrease in payables
(2 marks)
1.1.2
Interest income.
(2 marks)
1.2
Did the company increase or decrease its non-current liabilities? Also indicate the
amount.
1.3
(3 marks)
State THREE (3) significant changes to the financial position that are evident in this
Statement of Cash Flows that the Statement of Comprehensive Income would not reveal.
(3 marks)
1.4
Comment on the following:
1.4.1
Decrease in inventory of R100 000
(2 marks)
1.4.2
Increase in receivables of R900 000
(2 marks)
1.4.3
Cash flows from operating activities of R3 400 000
(2 marks)
1.4.4
Non-current assets purchased for R3 800 000
(2 marks)
1.4.5
Increase in investments of R1 400 000.
(2 marks)
INFORMATION
BENNETON LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022
R
Cash flows from operating activities
3 400 000
Operating profit/Income from operations
6 000 000
Adjustments to convert to cash from operations
Non-cash flow adjustments
1 400 000
Add: Depreciation
1 400 000
Profit before working capital changes
7 400 000
Working capital changes
(1 200 000)
Decrease in inventory
100 000
Increase in receivables
(900 000)
Decrease in payables
?
Cash generated from operations
6 200 000
Interest paid
(400 000)
Investment income
?
Dividends paid
(1 600 000)
Income tax paid
(1 140 000)
Cash flows from investing activities
(5 200 000)
Non-current assets purchased
(3 800 000)
Increase in investments
(1 400 000)
Cash flows from financing activities
?
Increase/Decrease in long-term borrowings
?
Net increase in cash and cash equivalents
60 000
Cash and cash equivalents at beginning of year
(40 000)
Cash and cash equivalents at end of year
20 000
QUESTION 2
(20 Marks)
REQUIRED
2.1
Use the information provided below to calculate the ratios for 2022 (expressed to two decimal places)
that would reflect each of the following. Note: Use the formulas provided in the formula sheet only (that
appear after QUESTION 5).
2.1.1 The efficiency with which the company can produce and sell its products before
extraneous costs are deducted.
(2 marks)
2.1.2 The amount of time taken by the company to pay its trade debts.
(2 marks)
2.1.3 A measurement of the ability of management to use the company’s net assets to generate
sales revenue.
(2 marks)
2.1.4 The amount of profit that the company generates in relation to its equity and borrowed
capital.
(2 marks)
2.1.5 The portion of the company’s profit that is allocated to each outstanding ordinary share.
(2 marks)
2.1.6 The percentage of the profit that has been put back into the company.
(2 marks)
2.2
Comment on the following ratios by stating TWO (2) significant points in each case:
2022
2021
2.2.1
Profit margin (Net profit margin)
10.27%
7.85%
(2 marks)
2.2.2
Price earnings ratio
7.25 times
5.32 times
(2 marks)
2.2.3
Return on assets
42.86%
33.25%
(2 marks)
2.2.4
Debt to assets
46.43%
55.67%
(2 marks)
INFORMATION
Excerpts of the financial data of Premier Limited for 2022 are as follows:
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022
R
Sales
7 500 000
Cost of sales
4 800 000
Operating profit
1 200 000
Interest expense
100 000
Profit before tax
1 100 000
Company tax
330 000
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022
R
Assets
Non-current assets
1 400 000
Inventories
650 000
Accounts receivable
450 000
Cash
300 000
2 800 000
Equity and liabilities
Ordinary share capital (500 000 shares)
1 200 000
Retained earnings
300 000
Long-term loan
600 000
Accounts payable
500 000
Dividends payable
200 000
2 800 000
Additional information
1.
All purchases and sales of inventory are on credit.
2.
Inventories amounted to R550 000 on 31 December 2021.
3.
Interim dividends paid on 10 July 2022 amounted to R108 000.
QUESTION 3
3.1
(20 Marks)
REQUIRED
Study the information given below and answer each of the following questions independently.
The
expanded contribution margin model must be used to answer questions 3.1.2 and 3.1.3.
3.1.1
Calculate the margin of safety (as a percentage, expressed to two decimal places).
3.1.2
Calculate the number of units that must be sold if the company desires an operating profit
of R2 700 000.
3.1.3
(4 marks)
(4 marks)
Suppose the company wants to spend an additional R240 000 on advertising and reduce
the selling price by R8 per unit, with the expectation that the sales volume will increase by
20%. Is this a good idea? Motivate your answer.
(4 marks)
INFORMATION
Viking Ltd manufactures a product that sells for R108 each. Production and sales are presently 100 000 units
per year. Variable manufacturing costs are R54.60 per unit, of which R10.00 per unit are for overheads.
Salespersons earn a commission of 5% of sales. Fixed costs amount to R2 720 000 for manufacturing
overheads and R1 180 000 for selling and administrative activities.
3.2
REQUIRED
Use the information given below to calculate the following. The expanded contribution margin model must
be used to answer questions 3.2.2 and 3.2.3.
3.2.1
Variable costs per unit
(2 marks)
3.2.2
Break-even value using the contribution margin ratio
(2 marks)
3.2.3
Selling price per unit that will enable the company to break even if the variable costs
amount to R260 per unit. (Ignore the contribution margin ratio of 40%.)
INFORMATION
The following information regarding a product manufactured by Abel Limited is available:
Fixed costs per annum
R2 000 000
Selling price per unit
R400
Contribution margin ratio
40%
Expected sales are 20 000 units.
(4 marks)
QUESTION 4
(20 Marks)
REQUIRED
Use the information provided below to prepare the following:
4.1
Budgeted Statement of Comprehensive Income for the year ended 30 June 2024.
(5 marks)
4.2
Budgeted Statement of Financial Position as at 30 June 2024.
(15 marks)
INFORMATION
MARBURG LTD
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2023
R
Sales
4 800 000
Cost of sales
(3 600 000)
Gross profit
1 200 000
Expenses
(600 000)
Profit before tax
600 000
Company tax (30% of pre-tax profit)
(180 000)
Profit after tax
420 000
MARBURG LTD
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2023
R
ASSETS
Non-current assets
2 100 000
Fixed/Tangible assets
2 100 000
Current assets
1 800 000
Inventories
600 000
Accounts receivable
900 000
Cash and cash equivalents
300 000
Total assets
3 900 000
EQUITY AND LIABILITIES
R
Shareholders’ equity
1 950 000
Ordinary share capital (450 000 shares)
900 000
Retained earnings
1 050 000
Non-current liabilities
1 200 000
Long-term loan
1 200 000
Current liabilities
750 000
Accounts payable
732 000
Company tax payable
18 000
Total equity and liabilities
3 900 000
Additional information
1)
Sales for the year ended 30 June 2024 are budgeted at R5 600 000. Ninety percent (90%) of the
sales is expected to be on credit. The gross margin for the year ended 30 June 2024 is expected to
increase as goods would be sold at cost plus 40%. The percentage of expenses to sales is expected
to remain unchanged.
2)
The authorized share capital of Marburg Limited consists of 550 000 ordinary shares. The unissued
shares are expected to be sold on 02 January 2024 at R3 each.
3)
A final dividend of 16 cents per share is expected to be recommended on 30 June 2024 and is
payable during August 2024.
4)
R400 000 of the long-term loan will be repaid during the financial year ended 30 June 2024.
5)
Accounts receivable would be based on a collection period of 73 days.
6)
The company’s closing inventory will change directly with changes in sales for the financial year
ended 30 June 2024.
7)
An old delivery vehicle (Cost price R600 000; Accumulated depreciation R540 000) is expected to be
sold for R100 000 on 30 June 2024 and a new delivery vehicle with a cost price of R800 000 will be
purchased on the same date to replace it. Total depreciation for the year ended 30 June 2024 is
expected to be R300 000.
8)
Accounts payable will change directly in response to changes in sales for the financial year ended 30
June 2024.
9)
Company tax payable on 30 June 2024 is expected to equal to 10% of the total tax reflected on the
Budgeted Statement of Comprehensive Income.
10)
Cash and cash equivalents must be calculated (balancing figure).
QUESTION 5
(20 Marks)
Note: Where discount factors are required use only the 4 decimals present value tables that appear in the
module guide.
5.1
REQUIRED
Use the information provided below to calculate the following:
5.1.1
Payback Period (expressed in years, months and days)
(3 marks)
5.1.2
Accounting Rate of Return on initial investment (expressed to two decimal places)
(4 marks)
5.1.3
Internal Rate of Return (expressed to two decimal places). Your answer must include
two NPV calculations (using consecutive rates/percentages) and interpolation.
(6 marks)
INFORMATION
Gillette Manufacturers intends investing in a machine. The following details relate to this machine:
Purchase price
R800 000
Expected useful life
4 years
Scrap value
R40 000
Minimum required rate of return
15%
Expected net profit:
1st year
R60 000
2nd year
R80 000
3rd year
R110 000
4th year
R120 000
Depreciation is calculated using the straight-line method. Ignore taxes.
5.2
REQUIRED
Study the information provided below and answer the following questions:
5.2.1
5.2.2
Compute the Net Present Value of the project. (Show the calculations of the present
values as well as the net present value.)
(6 marks)
Should the new project be considered for acceptance? Why?
(1 mark)
INFORMATION
Mabel Ltd is looking at the possibility of investing in a project. The project would cost R1 000 000 and it is
expected to have a scrap value of R200 000. Working capital of R100 000 would be required at the start of
the project and it would be recovered at the end of the useful life of the project. It is estimated that the project
would generate cash revenues of R800 000 per year and the cash operating expenses would total R420 000
per year. The project is expected to have a useful life of five years. The cost of capital is 15%. Ignore taxes.
TOTAL: 100 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
Page 1 of 4
ACCOUNTING AND FINANCIAL MANAGEMENT
TUTORIAL LETTER
2024
Read this tutorial letter first before starting your studies and assessments.
Contents
Page
1.
Introduction
2
2.
Communication with your lecturer
2
3.
Tutorial matter
2
4.
Advice on study
2
5.
Advice on the assessments (case study and project)
3
6.
Case study/Project format
4
7.
General
4
ACCOUNTING AND FINANCIAL MANAGEMENT
1.
INTRODUCTION
A special welcome to you, dear student, to the module Accounting and Financial Management. I am sure that you
will find this module very interesting and beneficial to you both personally and career-wise.
This tutorial letter is intended to assist you with getting started with your studies and your assessments.
2.
COMMUNICATION WITH YOUR LECTURER
Use the “Ask the Academic” link on MancosaConnect.
3.
TUTORIAL MATTER
The tutorial matter for this module consists of the following:
·
One module guide;
·
Tutorial letter.
Refer to your module guide for the prescribed and recommended reading.
4.
ADVICE ON STUDY
n
You are advised to read the theoretical aspects, study the illustrative examples provided and work through the
self-assessment activities (without first referring to the solutions) for each of units in the module guide. Check
your answers with the solutions in the module guide. If your answer differs from that of the solution, ascertain the
reason for this. If you do not perform well, it may be necessary to
·
study the unit again;
·
study the illustrative exercise to ascertain how the answers were arrived at;
·
then do the self-assessment activity again.
You should do this till you get at least 75% of your work correct. Although this is time-consuming, you will get to
understand the study material well and remember it too.
Many students do not heed this advice and consequently find it difficult to be well prepared for the exams.
n
Start working with your assessments as soon as they are made available to you. Don’t procrastinate. There’s
a lot to study.
n
Submit your assessments on time.
n
Remember that the assessments do not cover all the work that you should know for the OSA.
n
The most effective way of improving your understanding of quantitative questions is to work out as many
examples/exercises as possible. Past exam/OSA papers, your module guide and textbooks are sources for
obtaining questions.
n
You are advised to study approximately 6 hours per week.
5.
ADVICE ON THE ASSESSMENTS (Case study and Project)
n
Before you commence with the assessments make sure that you have at least worked carefully through the
relevant units in the module guide. It will be useful for you to work through examples like those in the
assessments first.
n
Formats and formulas may vary from book to book. You are required to use the formats and formulas from the
module guide.
n
Where applicable use the two present value tables (4 decimals) that are also included in your module guide.
Present value tables with fewer than four decimals are not accepted.
n
If the question requires a calculation, show all the relevant steps. This, for example, includes the calculation of
the present values of the net cash flows to determine the NPV and the calculation of two NPVs (using consecutive
rates) and interpolation to determine the IRR.
n
For questions related to “Cost-Volume-Profit relationships” you advised to make use of the expanded contribution
margin model, as far as possible. In some instances the question prescribes it.
n
Answers to ratios must be expressed to two decimal places and must be fully stated with e.g. days; %; times; :1
otherwise full marks will not be awarded.
n
Where an interpretation is required of the information in the question or an interpretation is required of an answer,
you are advised to also read your prescribed and recommended books to assist you. Referencing is required if
you use information from research.
n
Remember to include a table of contents and bibliography.
6.
CASE STUDY/PROJECT FORMAT
?
Your case study/project should include a Table of Contents page and a bibliography.
?
Text: Arial or Times New Roman (12); Spacing 1½ lines. All text must be justified at each margin.
?
Use the formats and formulas from your module guide.
?
Number each solution according to the numbering in the case study/project.
?
Solutions generated by software packages will not be marked.
?
Where applicable, the relevant workings/steps must be shown.
?
Referencing is required if you use information from research.
7.
GENERAL
We would like to wish you every success in your studies.