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

The internal auditor is employed by the company to set up functional internal control processes. Their role ensures that the company adheres to regulations and internal policies.

A shareholder is a person who invests in a company by buying shares, thereby owning a part of the company and having a claim on part of its assets and earnings.

External auditors are appointed by shareholders to give an unbiased opinion on the financial statements. Their independent assessment assures stakeholders of the financial integrity of the company.

Ordinary share capital is the amount initially invested by shareholders in exchange for shares. For So-Fine Ltd, the balance can be calculated based on the number of shares issued and their nominal value.

The Cash Flow Statement should reflect the inflows and outflows from operating, investing, and financing activities. The figures aligned with the provided information should be entered in the respective sections.

The percentage operating profit on sales can be calculated using the formula:
ext{Percentage Operating Profit} = rac{ ext{Operating Profit}}{ ext{Sales}} imes 100 Substituting the values:
ext{Percentage Operating Profit} = rac{697,000}{8,652,000} imes 100 = 8.1\\%

The dividend per share (DPS) can be calculated using the formula:
ext{DPS} = rac{ ext{Total Dividends Paid}}{ ext{Number of Shares}}
For example, if total dividends paid are R450,000 and the number of shares is 1,500,000, then
ext{DPS} = rac{450,000}{1,500,000} = R0.30

The price of R9.10 charged by Castro Ltd is above the average market price. This premium suggests that investors see potential for growth, but it may also dilute existing shareholders' value if too many new shares are issued.

The issue of new shares has generally improved financial gearing as it reduces reliance on debt.

• Debt-Equity Ratio: This may decrease, indicating lower financial risk.
• Return on Equity (ROE): Could increase as profits are spread over a larger equity base, thereby potentially improving shareholder returns.

If Henry holds 300,000 shares which represent 60% of total shares, the total shares would be:
ext{Total Shares} = rac{300,000}{0.60} = 500,000
To maintain his 60% holding after the issue of 200,000 new shares, he needs to buy:

• Shares needed:
  $ext{Shares to buy} = ext{Total Shares after Issue} imes 0.60 - ext{Current Shares}$
  $= (500,000 + 200,000) imes 0.60 - 300,000 = 120,000$
  To find total cost:
  $120,000 imes R9.10 = R1,092,000$

Ronki Ltd's liquidity should be assessed using indicators such as:

• Current Ratio: A ratio below 1 indicates potential liquidity issues.
• Quick Ratio: This ratio provides insight into whether current assets can cover current liabilities excluding inventory.

The repurchase price shows a premium over the market price, which generally reflects confidence in the company’s future profitability and can be attractive to shareholders, indicating a positive outlook.

Henry benefits from the share repurchase in several ways:

1. Increase in Value: By reducing the number of shares in circulation, each remaining share may increase in value.
2. Tax Efficiency: Share buybacks can be more tax-efficient than dividends.
3. Enhanced Earnings Per Share (EPS): With fewer shares outstanding, the EPS could improve, making his investment more valuable.