Study the Statement of Cash Flows provided below and answer the following questions:
Calculate the following:
Company tax paid (3 marks)
Carrying value (Book value) of the machinery sold. (2 marks)
Identify TWO (2) items from this statement of cash flows that increase the cash balance but do not increase the profit. (2 marks)
Did the company issue any ordinary shares during the financial year ended 30 June 2021? Motivate your answer. (3 marks)
Comment on the following.
Cash flow from operating activities, (R920 000) (2 marks)
Increase in inventory, (R1 800 000) (2 marks)
Increase in receivables, (R1 000 000) (2 marks)
Non-current assets purchased, (R600 000) (2 marks)
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 | |
|
R |
|
| 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) |
|
Profit before working capital changes |
2 580 000 |
|
Working capital changes |
(2 400 000) |
|
Increase in inventory |
(1 800 000) |
| Increase in receivables | (1 000 000) |
|
Increase in payables |
400 000 |
|
Cash generated from operations |
180 000 |
|
Interest paid |
(100 000) |
|
Dividends paid |
(400 000) |
|
Company tax paid |
? |
|
Cash flows from investing activities |
(420 000) |
|
Non-current assets purchased |
(600 000) |
|
Proceeds from disposal of machinery |
180 000 |
|
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 proposal.(8 marks)
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 R240000. The sales volume is expected to increase by 16 000 units.
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 |
Study the information provided below and calculate the following:
Break-even value (4 marks)
Sales value required to achieve an operating profit of R80 000, after spending an additional R400 000 on advertising. (4 marks)
INFORMATION
A summary of the budgeted Statement of Comprehensive Income of Mac’s Eatery for July 2023 is as follows:
| R | |
| 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):
Debtors Collection Schedule (4 marks)
Cash Budget (16 marks)
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.
Study the information given below and answer the following questions:
Calculate the Payback Period of Project B (expressed in years, months and days). (3 marks)
Calculate the Accounting Rate of Return on initial investment of Project A (expressed to two decimal places).(4 marks)
Calculate the Net Present Value (NPV) of both projects. (6 marks)
Based on the NPV, which project should be chosen? Why? (1 marks)
| 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 |
¦ The straight-line method of depreciation is used.
¦ The cost of capital is 15%.
¦ Ignore taxes.
Use the information provided below to answer the following questions:
Calculate the Internal Rate of Return (expressed to two decimal places) using interpolation. (5 marks)
Should the machine be purchased? Why? (1 marks)
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
5.1.1
Calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the following:
The percentage of profit on sales that the company produced from its operations prior to considering finance charges and taxes. (2 marks)
The amount of time it takes for the clients of Supreme Limited to settle their debts. (2 marks)
The efficiency with which the company used its net assets to produce revenue. (2 marks)
The efficiency of the company in using all its capital to generate profits. (2 marks)
The proportion of the profit after tax that is kept back in the company as retained earnings. (2 marks)
A measure of the company’s ability to pay its short-term debts within one year. (2 marks)
A measure of the proportion of the total assets that are financed by creditors instead of investors. (2 marks)
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:
2.2
Study the information given below and calculate the percentage by which the selling price per unit must increase, to increase operating profit by 10%. (Assume that there are no changes to the sales volume, total variable costs or fixed costs.)
| 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 |
Get completed answers on above accounting questions
Answer 1: The calculation of company tax paid based on the Statement of Cash Flows is performed as follows:
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