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3.1 AUDIT REPORTS Choose an audit opinion from COLUMN B that best describes the audit report in COLUMN A - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
3.1 AUDIT REPORTS Choose an audit opinion from COLUMN B that best describes the audit report in COLUMN A. Write the letter only (A–C) next to the numbers (3.1.1 – 3.... show full transcript
Worked Solution & Example Answer:3.1 AUDIT REPORTS Choose an audit opinion from COLUMN B that best describes the audit report in COLUMN A - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
3.2.1 Prepare the Retained Income note to the Balance Sheet.
Answer
To prepare the Retained Income note:
- Balance on 1 March 2016: R74,480
- Funds used to repurchase shares: (R40,000 x R1.25) = R50,000
- Net profit after income tax: R681,720
- Ordinary share dividends: (R389,200)
- Interim dividend: R179,200
- Final dividend: R210,000
Retained Income Balance on 28 February 2017:
R300,000
Step 2
3.2.2 Complete the Balance Sheet on 28 February 2017.
Answer
The Balance Sheet as at 28 February 2017:
ASSETS
- Non-current assets:
- Fixed assets: R4,060,545
- Fixed Deposit: R250,000
- Current assets:
- Inventories (Trading Stock): R222,600
- Trade and other receivables: ?
- Cash and cash equivalents: (R212,400 + R165,000) = R377,400
TOTAL ASSETS: R5,200,000
EQUITY AND LIABILITIES
- Shareholders' equity:
- Ordinary share capital: ?
- Retained income: R300,000
- Non-current liabilities:
- Loan: Dube Bank: ?
- Current liabilities:
- Trade and other payables: ?
- SARS: Income tax: R28,260
TOTAL EQUITY AND LIABILITIES: R5,200,000
Step 3
3.2.3 Do a calculation to show the number of shares that Bakkies must buy to gain control of the company.
Answer
To calculate the number of shares Bakkies must buy:
-
Total shares before the new shares: 800,000 (50%)
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Total shares after the shares are sold: 800,000 + 400,001 = 1,200,001
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Bakkies currently owns 42% of the total shares, equivalent to 252,000 shares (42% of 600,000).
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To gain control, Bakkies needs more than 50% of 1,200,001 shares.
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Calculation: 800,000 imes 50 rac{1}{100} + 1 ext{ or } (50 rac{1}{100} + 400,001) = 600,000.
So, the total shares needed for control are 600,000 (51%), meaning Bakkies must buy:
- Required shares = 800,000 - 252,000 = 148,000 shares (in batches of 100).
Step 4
3.2.4 How will this expense be explained (disclosed) in the published annual report?
Answer
This expense will be disclosed in the annual report as a commitment to employee development. It will highlight the company’s investment in human resources and mention the expected benefits from improved employee skills, productivity, and retention.