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You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017. Note that some information is included in the ANSWER ... show full transcript
Worked Solution & Example Answer:You are provided with information from the records of Gandhi Ltd for the financial 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
To complete the Income Statement:
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Sales: The sales figure is reported as R8,400,000.
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Cost of Sales (COS) and Gross Profit (GP):
- Given data indicates COS is reported as R5,250,000.
- Calculating Gross Profit:
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Other Income: The other income includes rental income of R72,000.
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Gross Income Calculation:
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Operating Expenses include salaries, wages, depreciation, and audit fees, among others:
- Salaries and Wages: R824,000
- Depreciation: R216,500
- Audit fees: R43,500.
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Sundry Expenses are considered to be a balancing figure.
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Net Profit before tax and Income Tax:
- Operating profit (after all expenses) = Income before interest – Interest = 1,293,500 – 53,000 = R1,240,000.
- Income tax at 32% = R396,800.
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Net Profit After Tax:
Step 2
Prepare the following notes to the Balance Sheet: Ordinary share capital
Answer
For the Ordinary Share Capital:
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Authorised Share Capital is R1,200,000, with a total of 1,200,000 shares.
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Issued Share Capital before any buy-back was R1,020,000 (on 1 March 2016).
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Shares bought during the year add up to 756,000 while shares repurchased on 28 February 2017 total 250,000.
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Total Outstanding Shares after buy-back are:
Total Shares = Initial Shares - Repurchased = 1,200,000 - 250,000 = 950,000
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The Balance as of 28 February 2017 thus reads R3,040,000, summing up the initial and buy-back figures appropriately.
Step 3
Prepare the following notes to the Balance Sheet: Retained income
Answer
For the Retained Income:
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Starting Balance on 1 March 2016 would be R674,500.
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Additions from the Net Profit after tax, which is R843,200.
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Deductions include the ordinary share dividends amount to R720,000 and interim dividends of R420,000.
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Final Balance as of 28 February 2017 can be calculated as:
This results in a balance to be finalized and reported as R560,200.
Step 4
Complete the EQUITY AND LIABILITIES section of the Balance Sheet
Answer
The completed Equity and Liabilities section should reflect:
- Shareholders’ Equity total at R4,851,000.
- This would reflect categories including ordinary share capital and retained income.
- Current Liabilities such as loans and trade payables would be aggregated to represent the artwork of financial standing for ratifying the company’s fiscal health.
Step 5
Calculate B Sly's percentage shareholding in the company before and after the share buy-back
Answer
To calculate B Sly's shareholding:
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Before the buy-back: B Sly owns 480,000 shares out of 1,200,000.
ext{Percentage} = rac{480,000}{1,200,000} imes 100 = 40 ext{%}
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After the buy-back: She owns 480,000 shares out of 950,000.
ext{Percentage} = rac{480,000}{950,000} imes 100 = 50.53 ext{%}
Step 6
Explain why the other shareholders will be concerned about this transaction
Answer
Other shareholders might be concerned due to several reasons:
- Majority Shareholding: After the buy-back, B Sly would be a majority shareholder, impacting decision-making.
- Directorial Influence: B Sly may gain undue influence over the appointment of directors.
- Ethical Concerns: The transaction raises issues of transparency and potential insider trading, which could undermine trust within the investor community.