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3.1 Complete the Income Statement for the year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
3.1 Complete the Income Statement for the year ended 28 February 2017. Note that some information is included in the ANSWER BOOK. 3.2 Prepare the following notes to... show full transcript
Worked Solution & Example Answer:3.1 Complete the Income Statement for the year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
Complete the Income Statement for the year ended 28 February 2017
Answer
The income statement can be prepared as follows:
Income Statement for the Year Ended 28 February 2017
Sales: R8,400,000
Cost of Sales: R5,250,000
Gross Profit: R3,150,000
Other Income (Commission + Rent): R84,000
Operating Income: R3,234,000
Salaries and Wages: R824,000
Depreciation: R216,500
Sundry Expenses: R622,800
Operating Profit: R1,540,700
Interest Expense: R53,000
Net Profit Before Tax: R1,487,700
Income Tax at 32%: R396,800
Net Profit After Tax: R843,200
Step 2
Prepare the following notes to the Balance Sheet: Ordinary share capital
Answer
The ordinary share capital note is prepared as follows:
Ordinary Share Capital
Authorised Share Capital: R1,200,000
Issued Share Capital on 1 March 2016: 1,200,000
Shares issued during the year: 756,000
Shares repurchased: 250,000
Shares outstanding on 28 February 2017: 950,000
Balance as at 28 February 2017: R3,040,000
Step 3
Prepare the following notes to the Balance Sheet: Retained income
Answer
The retained income note is calculated as follows:
Retained Income
Balance on 1 March 2016: R674,500
Funds used for share buyback: R250,000
Net profit after tax: R843,200
Dividends paid: R1,140,000
Balance as at 28 February 2017: R560,200
Step 4
Complete the EQUITY AND LIABILITIES section of the Balance Sheet.
Answer
EQUITY AND LIABILITIES
Shareholders’ Equity
- Ordinary Share Capital: R3,040,000
- Retained Income: R560,200
Total Shareholders' Equity: R3,600,200
Non-current Liabilities
- Loan: Anca Bank: R487,000
Current Liabilities
- Trade and other payables: R861,600
Total Shareholders' Equity and Liabilities: R4,851,800
Step 5
Calculate B Sly's percentage shareholding in the company before and after the share buy-back.
Answer
Before the buy-back:
B Sly’s shares = 480,000
Total shares issued = 1,200,000
Percentage = ( \frac{480,000}{1,200,000} \times 100 = 40% )
After the buy-back:
Remaining shares = 950,000
Percentage = ( \frac{480,000}{950,000} \times 100 \approx 50.53% )
Step 6
Explain why the other shareholders will be concerned about this transaction.
Answer
The concerns of other shareholders may include the following:
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Majority Shareholder: B Sly becomes the majority shareholder after the buy-back, giving her greater control over company decisions.
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Influence on Leadership: The ability to influence the appointment of directors and executive positions can create conflict.
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Ethical Considerations: Concerns about insider trading and fairness in decision-making processes may arise.