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MANCOSA: ACCOUNTING AND FINANCIAL MANAGEMENT (20) QUESTION 1 The following information was extracted from the accounting records of Belle Mare Limited: Statement of Comprehensive Income for the vear ended 31 December 2018 (R) 2017 (R) 1 200 000 1856 000 Sales (750 000) (1 280 000) Cost of sales 450 000 576 000 Gross profit (212 000) (291 200) Operating expenses 26 000 30 000 Depreciation 186 000 261 200 Other operating expenses 238 000 284 800 Operating profit (72 000) (24 000) Interest on mortgage loan 166 000 260 800 Profit before tax (58 100) (90 240) Income tax 107 900 170 560 Profit after tax Statement of Financial Position as at 31 December 2017 (R) 2018 (R) ASSETS 2 444 000 2 464 160 Non-current assets 2 444 000 2 464 160 Property, plant and equipment 336 000 356 000 Current assets Inventories (all Trading Inventory) Trade & other receivables 250 000 120 000 40 000 196 000 2820 160 64 000 22 000 2 780 000 Cash & cash equivalents 2018 (R) 2017 (R) EQUITY AND LIABILITIES 1980 000 2 437 560 Equity Ordinary share capital (issued at R10 each) Retained income Non-current liability (Mortgage loan, 12 % p.a. ) Current liabilities Trade &other payables South African Revenue Services (income tax) Shareholders for dividends 1 760 000 220 000 600 000 200 000 138 000 2 180 000 257 560 200 000 182 600 98 000 8 600 76 000 6 000 56 000 2 820 160 2 780 000 Additional information New shares were issued on 1 January 2018. Interim and final dividends for the year ended 31 December 2018 amounted to R133 000. Fixed assets were sold at carrying (book) value during the year for R144 000. Study the information provided above by Belle Mare Ltd and prepare the Statement of Cash Flows using the indirect method) for the year ended 31 December 2018. Required: QUESTION 2 The Statement of Comprehensive Income provided below was obtained from the accounting records of (20) Oreamonline Limited: Statement of Comprehensive Income for the year ended 31 August 2018 (Extract) R Sales 5 000 000 Cost of sales (1 900 000) Gross profit 3 100 000 Operating expenses Operating profit (700 000) 2 400 000 Interest income 50 000 Interest expense Profit before tax 2 200 000 Income tax (630 000) Net profit 1570 000 Required: 2.1 Explain SIX (6) reasons why shareholders and financial managers would be interested in the Statement of Comprehensive Income. (6) 2.2 Calculate the interest expense for the year ended 31 August 2018. (3) 2.3 Explain the accounting treatment of sales returns and allowances. (3) 2.4 Interest has been calculated at 8 % per year on the amount invested. Assume that there was no investments during the year, determine the value of the investment. change in (2) 2.5 Which method of depreciation will result in lower net profit in the early years of the life of the asset? Explain why. (3) 2.6 Of what significance is the operating profit to investors? (3) QUESTION 3 Universal Ltd plans to manufacture a new product and the following information is applicable: (20) 40 000 units at R140 each Estimated sales for the year 2019 Estimated costs for the year 2019 R72 per unit Direct material R12 per unit Direct labour R110 000 per annum Factory overheads (all fixed) Selling expenses Administrative expenses (all fixed) 30% of sales R180 000 per annum Required: Calculate the following independently: 3.1 Break-even quantity. (4) (3) (3) (6) (4) 3.2 Break-even value. 3.3 Break-even quantity, if the direct labour cost is increased by R2 per unit. 3.4 Selling price per unit, if the profit per unit is R12. 3.5 New break-even quantity and value if the selling price is increased by 5 %. QUESTION 4 (20) 4.1 Rover Traders is considering selling a refrigerator to a customer on credit. The cost of the refrigerator is R8 000 and the selling price is R10 000. A credit term of 2/10 net 30 was agreed upon. The cost of capital to Rover Traders is 15 %. Required: Use the information given above to answer the following questions: 4.1.1 Calculate the profit that Rover Traders would make if the account is settled within 10 days. 4.1.2 Should the customer fail to pay the amount due and the account is written off after 90 days, what (4) would be the loss to the firm? (3) 4.2 The annual sales of product Y of Govender Limited is 400 000 units. The purchase price is R12 per unit. The carrying cost of product Y amounts to 30 % of the unit purchase price. The ordering cost is R45 per order. Required: Use the information provided above by Govender Limited to calculate the: 4.2.1 Economic order quantity (EOQ). 4.2.2 Number of orders that need to be placed each year. (5) (2) 4.3 Jumbo Enterprises plans to borrow R1 000 000 for one year. The stated interest rate is 15% per annum Required: Use the information provided above to calculate the effective interest rate if: 4.3.1 the interest is discounted 4.3.2 there is a 25% compensating balance requirement (3) (3) 340 QUESTION 5 Dolby Enterprises has the option to invest in machinery in Projects M and N but finance is only available to invest (20) in one of them. Project M Project N (R) 450 000 (R) 450 000 Initial cost Net profit: Year 1 36 000 69 000 Year 2 75 000 69 000 Year 3 102 000 69 000 Year 129 000 69 000 1. Assume that all cash flows take place at the end of the vear except the original investment in the project which takes place at the beginning of the project. 2. Project M machinery is expected to be disposed of at the end of year 5 with a scrap value of R60 000. 3. Project N machinery is expected to be disposed of at the end of year 5 with a nil scrap value. 4. Depreciation is calculated on a straight-line basis. 5. The discount rate to be used by the company is 12 % . 5.1 Required: Use the information provided above by Dolby Enterprises to answer the following questions: 5.1.1 Calculate the Payback Period of Project N. (Answer must be expressed in years and months.) 5.1.2 Calculate the Accounting Rate of Return (on average investment) of Project M. (Answer must be expressed to two decimal places.) 5.1.3 Calculate the Net Present Value of each project. (Round off amounts to the nearest Rand.) 5.1.4 Using your answers from question 5.1.3, which project should be chosen? Why? (3) (4) (6) (2) 5.2 A machine with a purchase price of R418 000 is estimated to eliminate manual operations and save the company R130 000 cash per year. The machine will last 5 years and have no residual value at the end of its useful life. Required: Calculate the Internal Rate of Return (answer expressed to two decimal places). (5) Assignment format Your assignment should include a Table of Contents page and a bibliography. Text: Arial or Times New Roman (12); Spacing 1% lines. All text must be justified at each margin. Where applicable, use formats and formulas from your study guide. Start each question on a new page. Number each solution according to the numbering in the assignment handbook. You may make use of a spreadsheet (e.g. Microsoft Excel) to assist you only with the construction of tables and formats. Solutions generated by software packages will not be marked. No marks will be awarded if only the final answers are given. All relevant workings/steps must be shown

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