4.1 Choose a term to complete each of the following statements - NSC Accounting - Question 4 - 2017 - Paper 1

The appropriate term here is 'Internal auditor'. An internal auditor plays a crucial role in risk management by evaluating the effectiveness of internal controls and ensuring compliance.

This statement is completed by the term 'Shareholder'. Shareholders are individuals or entities that own shares in a company, thus contributing to its capital.

The term that fits this statement is 'External auditors'. External auditors evaluate the financial statements of the company to provide an independent opinion, ensuring accuracy and compliance with regulations.

For the Balance Sheet as of 31 August 2017:

Ordinary Share Capital:

• 1,200,000 ordinary shares authorized.
• Issued 980,000 ordinary shares, after accounting for shares repurchased.

Retained Income:

• Retained income balance of R438,130 from the previous year.

In the Cash Flow Statement, the missing figures to be filled may include:

• Cash generated from operations: R945,000
• Tax paid: (R173,570)
• Net cash generated from operating activities: R771,430.
• Cash flows from financing activities: R320,000 as proceeds from the issue of shares.

The percentage operating profit on sales can be calculated using the formula: ext{Percentage Operating Profit} = rac{ ext{Operating Profit}}{ ext{Sales}} imes 100 Here, Operating Profit = R697,000 and Sales = R8,652,000, Thus, ext{Percentage Operating Profit} = rac{697,000}{8,652,000} imes 100 ext{ = }8.1 ext{%}.

To calculate the DPS, use the formula: ext{DPS} = rac{ ext{Total Dividends}}{ ext{Number of Shares}} With total dividends set at R168,000 and shares as 600,000: ext{DPS} = rac{168,000}{600,000} = 28 ext{ cents}.

The price of R9,10 as charged by Castro Ltd is lower than the market value per share, considering the issued shares and potential market fluctuations. This approach assures that existing shareholders remain invested, yet it may dilute the overall market perception of the company's share value.

The issuance of new shares affects financial gearing negatively as it increases equity, hence reducing reliance on debt financing. Two indicators to consider are:

1. Debt-Equity Ratio: Reduced from 0.8 to a lower ratio illustrates less debt in the capital structure.
2. Return on Total Capital Employed (ROCE): Since the new funds are directed towards growth, ROCE is expected to increase over time.

To retain a 60% shareholding in Castro Ltd, Henry would need 120,000 shares (60% of the new total 200,000 shares). He would have had to buy 120,000 shares at R9,10 per share. Total cost would be: $120,000 imes R9,10 = R1,092,000$.

Ronki Ltd's liquidity is indicated by its current and quick ratios. The current ratio dropped from 3.1 to 1.9 indicating potential liquidity issues, while the quick ratio decreased from 1.7 to 1.1 points to a less favorable position to meet short-term obligations.

The price paid by Ronki Ltd to repurchase shares at a premium over the average market price suggests a strategic move to consolidate ownership. The repurchase price of R15.00 respects shareholders' value, which shows an understanding of the market value dynamics.

Henry benefits from the repurchase in three key areas:

1. Increased Share Value: With fewer shares in circulation, the overall value of the remaining shares typically increases.
2. Enhanced Voting Power: With his existing shares intact, his voting power increases as fewer total shares remain, enhancing control per share.
3. Potential for Higher Dividends: Fewer shares may lead to a larger allocation of future profits back to remaining shareholders, improving dividend payouts.