Question 1 [27 marks](12 marks)

Briefly explain the term exchange rate and discuss the four factors that cause a change in a floating exchange rate.(15 marks)
Future Ltd is a coal mining company situated Bloemfontein in South Africa. The company is not as large as some of their competitors, but because of their prime location on a large placer deposit containing coal in the earth’s crust, they are able to cope well with the demands of production and competition from other, larger mining corporations.
Lately, several incidents resulting from labour disputes between mine management and the miners themselves have resulted in prolonged strikes. These strikes disrupt production and result in a drop in output that causes significant financial turmoil within the firm. Future Ltd are forced to sell off several prime acres above the rich deposit in order to ensure that they remain solvent.
The CFO for Future Ltd calls an urgent meeting of the executive board. Several of Future’s newer shareholders have expressed their dismay at the drop in their equity and want to know why their share value is not as it was when they originally invested. The CEO tasks the CFO with explaining to the shareholders why their equity has dropped and why their claims are being labelled as ‘residual’ by the company.

Discuss some of the reasons that the CFO might use to justify the drop in shareholder equity to their shareholders. (15 marks)

Question 2 [23 marks]

Tops Ltd presents you with the following extract from their books for the year ended 28 February 2023.

Sales19 000 000Rent paid30 000
Inventory (1 March 2022)110 000Telephones125 600
Purchases7 148 000Water and electricity191 200
Inventory (28 February 2023)1 550 000Interest expense20 200
Advertising300 000Non-current assets15 000 000
Salaries and wages1 950 000Ordinary shares12 187 000
Insurance145 000Retained earning1 500 150
Depreciation800 000Cash150 681
Maintenance215 000Accounts receivables1 581 265
Fuel180 100Inventory1 540 310
Printing150 100Accounts payable1 110 541
Postage and courier expense9 000Long-term liabilities1 315 315

Additional information:

• Assume no secondary tax is payable
• Taxation charged at 28%

Prepare statement of financial performance for the year ended 28 February 2023.
(23 Marks)

Question 3 [26 marks]

Kim lives in South Africa where the following Consumer Price Index CPI) levels for the entire county were recorded across two years:
• January 2021 – December 2021 = 47.3

• January 2022–December 2022 = 44.5


Using these figures, calculate the increase or decrease in the inflation rate across these two years to 3 decimal places. Based on calculations above, what effect might be expected on the nominal rate of interest.


ABC Ltd runs a successful company in small town in Durban. The company’s cash flow statement for the year ended 28 February 2023 is as follows:

Cash flows from operating activities (a)
Cash receipts from customers 6 186 880
Cash paid to suppliers and employees (4 879 000)
Cash generated from operations1(b)
Interest received 
Interest paid (9 500)
Dividends received 
Dividends paid (140 500)
Taxation paid (650 000)
Cash flows from investing activities (c)
Purchase of non-current assets (750 000)
Proceeds from non-current assets 15 000
Cash flows from financing activities (d)
Proceeds from the issue of share capital 480 000
Proceeds from long-term borrowings 450 000
Net change in cash and cash equivalents (e)
Cash and cash equivalents: beginning of year 80 470
Cash and cash equivalents: end of year (f)


Fill in the missing figures (from a – f) for the cash flow statement in the table above, and explain the function of the cash flow statement in contrast to the statement of financial position. (18 marks)

Question 4 [24 marks]

Lions Ltd presents you with the following extract from their books for the year ended 31 January 2023.

Statement of financial performance for the year ended 31 January 2023
Sales 75 105 000
Less cost of sales 28 142 040
Opening inventory1 571 000 
Purchases28 158 154 
Closing inventory(1 587 114) 
Gross profit 46 962 960
Less operating expenses (14 210 510)
Earnings before interest and taxes 32 752 450
Less interest expense (140 000)
Earnings before tax 32 612 450
Less tax (28%) (9 131 486)
Earnings after tax 23 480 964
Net profit distributed as follows:  
Dividends to ordinary shareholders 5 406 005
Retained earnings 18 074 959
  23 480 964
Statement of financial position as at 31 January 2023
Non-current assets90 158 111Shareholder’s interest 
  Ordinary shares82 494 804
Current assets Retained earnings8 690 543
Cash450 000Long-term debt1 236 694
Account receivable1 590 000Current liabilities 
Inventory1 114 930Accounts payable891 000
Total assets93 313 041Equity and liabilities93 313 041

Additional information

  • Number of ordinary shares issued 82 494 804 @ 1 000cents each
  • Current market price per share 4 550 cents

Industrial averages 

RatioIndustrial average
EPS192 cents
DPS86 cents
Debt ratio13%
Debt-equity ratio26%
Times interest ratio29


 Calculate the basic debt and securities market ratios of a firm based on the above financial statements. Clearly show the formula you used as well as your calculations. (24 Marks)

Answers to Above Questions on Financial Management

Answer 1: 

The concept of exchange rate can be defined as the rate at which one currency can be exchanged with that of another currency. The four factors that cause a change in the floating exchange rate are inflation, interest rates, forex rate and current account deficit. In addition to this, there are other major factors that affect the floating exchange rate and these include government debt, terms of trade, economic performance, recession etc.

Hire the accounting assignment help South Africa experts to solve the above financial management questions correctly.

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