Photo AI
Choose ONE word/term for each of the following descriptions from the list below - NSC Accounting - Question 5 - 2017 - Paper 1
Question 5
Choose ONE word/term for each of the following descriptions from the list below. Write only the word/term next to the question number (5.1.1–5.1.4) in the ANSWER BOO... show full transcript
Worked Solution & Example Answer:Choose ONE word/term for each of the following descriptions from the list below - NSC Accounting - Question 5 - 2017 - Paper 1
Step 1
Step 2
Step 3
Step 4
Step 5
5.2.1 Prepare the following notes on 31 December 2016: - Ordinary share capital - Retained income
Answer
Ordinary Share Capital
- The authorized share capital is 800,000 ordinary shares.
- Issued share capital as of 31 December 2016 is R4,752,000 (660,000 shares issued).
Retained Income
- The retained income as of 31 December 2016 is R637,000.
Step 6
5.2.2 Complete the CASH EFFECTS OF OPERATING ACTIVITIES section of the Cash Flow Statement. Show workings.
Answer
Cash Effects of Operating Activities
- Cash generated from operations: R1,237,000
- Interest paid: R100,000
- Income tax paid: R292,000
- Dividends paid: R510,000
Workings
- Net cash from operating activities = Cash generated from operations - Interest paid - Income tax paid - Dividends paid
- Net cash = R1,237,000 - R100,000 - R292,000 - R510,000 = R335,000.
Step 7
5.2.3 Calculate the following amounts that will appear in the Cash Flow Statement. State whether these are inflows or outflows. - Change in fixed deposit - Proceeds on disposal of equipment
Answer
- Change in fixed deposit: R300,000 (Inflows)
- Proceeds on disposal of equipment: R212,400 (Inflows)
Step 8
5.2.4 Calculate the following financial indicators on 31 December 2016: - Mark-up percentage on cost - Debt-equity ratio - Net asset value (in cents)
Answer
Financial Indicators
-
Mark-up percentage on cost:
- Calculation: ext{Mark-up percentage} = rac{ ext{Gross Profit}}{ ext{Sales}} imes 100 = rac{1,890,000}{6,090,000} imes 100 = 31%
-
Debt-equity ratio:
- Calculation:
ext{Debt-equity ratio} = rac{ ext{Total Liabilities}}{ ext{Total Equity}} = rac{1,000,000}{4,752,000} = 0.21
- Calculation:
-
Net asset value (NAV) (in cents):
- Calculation:
ext{NAV} = rac{ ext{Total Assets} - ext{Total Liabilities}}{ ext{Number of Shares}} = rac{5,389,000 - 1,000,000}{660,000} = 817 cents
- Calculation:
Step 9
5.2.5 The financial director was questioned about the decision to increase the loan. Explain what he should say to justify this decision. Quote TWO financial indicators (with figures).
Answer
Justification for Increasing the Loan
-
Debt-equity ratio increased:
- The ratio moved from 0.1 to 0.21, highlighting that while debt has increased, it is still at a manageable level.
-
Return on Average Capital Employed (ROACE) improved:
- The ROACE increased from 21.3% to 21.8%, suggesting that the company is generating better returns on its investment.
Step 10
5.2.6 Ashraf is unhappy with the dividend pay-out policy for 2016. Provide a conclusion to support his opinion.
Answer
Conclusion on Dividend Policy
Ashraf is justified in his concerns regarding the dividend pay-out policy, as the pay-out ratio has dropped from 81.9% to 49.6%, which does not meet his expectations based on prior years.
Step 11
5.2.6 Explain TWO points to support the company’s decision regarding dividends for 2016.
Answer
-
Retained Earnings: The company retained funds to reinvest in the firm, reducing reliance on external financing for expansion.
-
Future Growth Prospects: The company is positioned to grow and potentially yield higher dividends in subsequent years, driven by expected expansions.
Step 12
5.2.7 Comment on the re-purchase price paid for the 40 000 shares on 30 December 2016. Provide TWO financial indicators (with figures) in your comment.
Answer
Comment on Re-purchase Price
-
Net Asset Value (NAV): The NAV is 817 cents, indicating a strong asset base for shareholders.
-
Market Price of Shares: The market price is 848 cents, suggesting that the repurchase price (R7.20) was reasonable compared to current market values, benefiting shareholders.