4.1 Calculate the following for 2018: 4.1.1 % operating expenses on sales 4.1.2 Acid-test ratio 4.1.3 % return on shareholders' equity 4.2 Calculate the following figures that will appear in the 2018 Cash Flow Statement: 4.2.1 Change in investments: 4.2.2 Income tax paid 4.2.3 Fixed assets sold (at carrying value) 4.3 Cash flow and financing activities: 4.3.1 Explain why the directors are satisfied with the improvement in cash and cash equivalents since 1 July 2016 - NSC Accounting - Question 4 - 2018 - Paper 1

The acid-test ratio (or quick ratio) is calculated using the formula:

ext{Acid-Test Ratio} = rac{ ext{Current Assets} - ext{Inventories}}{ ext{Current Liabilities}}

From the data:

• Current Assets = R2,427,000
• Inventories = R1,244,000
• Current Liabilities = R1,652,000

Thus, ext{Acid-Test Ratio} = rac{2,427,000 - 1,244,000}{1,652,000} = 0.72

To find the return on shareholders' equity, use the formula:

ext{% Return on Shareholders' Equity} = rac{ ext{Net Income}}{ ext{Shareholders' Equity}} imes 100

Given:

• Net Income = R951,500
• Shareholders' Equity = R1,191,000

Thus, ext{% Return on Shareholders' Equity} = rac{951,500}{1,191,000} imes 100 = 79.95\%

To determine the change in investments:

Assuming the change is calculated as: $ext{Change in Investments} = ext{Investments at end} - ext{Investments at start}$

If previous year's investments were R25,000 less; Then: $ext{Change in Investments} = ext{Current Value} - 25,000$

Income tax paid can be calculated using:

$ext{Income Tax Paid} = ext{Estimated Income Tax} - ext{Tax Credits}$

For example: Assume previous year tax was R819,000 and credits are R89,000: $ext{Income Tax Paid} = 819,000 - 89,000 = R730,000$

The carrying value of fixed assets sold can be calculated as:

$ext{Carrying Value of Fixed Assets Sold} = ext{Sale Price} - ext{Accumulated Depreciation}$

Assuming: If Total assets sold was R4,560,000 and depreciation was R25,000: $ext{Carrying Value} = 4,560,000 - 25,000 = 4,535,000$

The directors' satisfaction stems from a consistent increase in cash flows and improved liquidity. In 2018, cash equivalents led to reduced reliance on credit due to enhanced revenue generation. The improved cash position facilitates operational efficiency and mitigates financial risks.

1. Issued shares (Rights issue) to raise R/m.

2. Sale of fixed assets worth R305,000 (Accumulated Depreciation included).

3. Obtained a loan of R600,000 to finance the purchase.

These decisions increased capital employed by leveraging both equity and debt, leading to a higher asset base.

Indicators:

1. Debt-to-Equity Ratio increased due to new loan financing.
2. Asset Turnover Ratio improved as assets were better utilized.

In 2017, they repurchased shares, which was not repeated in 2018. This could be due to a strategic focus on retaining cash for reinvestment in growth opportunities instead.

Total interim dividends paid is calculated as:

$ext{Total Interim Dividends} = ext{Total Shares} imes ext{Dividends Per Share}$

Total shares = 800,000; Interim dividends = R240,000.

Interim Dividends per share: ext{Interim Dividends} = rac{240,000}{800,000} = R0.30

Dudu's total dividends are calculated based on her shares:

$ext{Total Dividends} = (380,000 imes 0.30) + (110,000 imes 0.75)$

Calculating: Total = R114,000 + R82,500 = R196,500. Thus, she earned R481,500 in total.

For every five shares owned, one additional is offered:

Total {\text{shares owned}} = rac{490,000}{5} = 98,000. The additional shares should be calculated against the new shares offered, with a minimum requirement of 98,000.