SUPPLEMENTARY ONLINE SUMMATIVE ASSESSMENT

Postgraduate Diploma in Business Management

Postgraduate Diploma in Family Business Management

MODULE Accounting and Financial Management

Answer ANY FIVE (5) questions in this section.

Answer the questions from the information provided.

1.1 Calculate the Retained Income balance as at 31 December 2020. (2 marks)

1.2 Calculate the interest expense for the year ended 31 December 2020. (2 marks)

1.3 Did the company increase its cash balance from 31 December 2019 to 31 December 2020? Motivate (3 marks)
your answer with the relevant calculations.

1.4 Calculate the amount that would appear for the “purchase of property, plant and equipment” in the (3 marks)
cash flow statement for the year ended 31 December 2020.

1.5 What is the likely impact on the following if the LIFO method of inventory valuation is used instead of (6 marks)
FIFO during periods of rising prices?
1.5.1 Carrying value of inventory in the Statement of Financial Position. (3 marks)

1.5.2 Cost of sales in the Statement of Comprehensive Income. (3 marks)

1.6 Without making use of any ratios, provide an interpretation of the following over the two-year period: (4 marks)
1.6.1 Investments (2 marks)

1.6.2 Loan (2 marks)

INFORMATION

THE FOLLOWING INFORMATION WAS EXTRACTED FROM THE ACCOUNTING RECORDS OF NAVARONE LIMITED
FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2020 AND 2019:

NAVARONE LIMITED

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER:

2020 2019

R’000 R’000

ASSETS

Non-current assets 462 468 301 830

Investments 20 400 52 500

Current assets ? ?

Inventories 75 342 94 728

Accounts receivable 77 658 88 068

Cash ? ?

Total assets 631 266 490 266

EQUITY AND LIABILITIES

Equity ? ?

Share capital 160 200 147 000

Retained income ? ?

Non-current liabilities 185 604 152 496

Loan 185 604 152 496

Current liabilities 92 070 59 706

Accounts payable 74 730 38 052

Other current liabilities 17 340 21 654

Total equity and liabilities ? ?

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER:

2020 2019

R’000 R’000

Sales 432 972 286 998

Cost of sales 240 540 144 180

Gross profit 192 432 142 818

Operating expenses 60 828 49 656

Depreciation 22 038 8 580

Other selling, general and administrative expenses 38 790 41 076

Operating profit 131 604 93 162

Investment income 8 232 12 474

Interest expense ? ?

Profit before tax 104 568 81 240

Income tax 31 370 24 372

Net profit 73 198 56 868

1. The number of shares in issue as at 31 December 2020 was 8 010 000.

2. The credit terms to customers are 30 days.

3. Property, plant and equipment were purchased during the year but none were sold.

4. All purchases of inventory and sales are on credit.

QUESTION 2 (20 Marks)

Use the information from QUESTION 1 to answer the following questions.

2.1 Calculate the ratios for 2020 (answers expressed to two decimal places) that would reflect each of (14 marks)
the following:
2.1.1 The percentage of the company’s net profit to its revenue. (2 marks)

2.1.2 An indication of the number of times inventory has been replaced in a year. (2 marks)

2.1.3 The number of days that the company takes to pays its suppliers. (2 marks)

2.1.4 An indication of the operating profit produced by the total assets of the company. (2 marks)

2.1.5 The efficiency with which the company uses its net assets to produce sales. (2 marks)

2.1.6 A measurement of the amount of net income earned per share of stock in issue. (2 marks)

2.1.7 The percentage of the total assets that were paid for with borrowed funds. (2 marks)

2.2 Provide TWO (2) significant comments for each of the following ratios: (6 marks)
2.2.1 Gross margin (2020: 44.44%; 2019: 49.76%) (2 marks)

2.2.2 Debtors collection period (2020: 65.47 days; 2019: 112 days) (2 marks)

2.2.3 Current ratio (2020: 1.83:1; 2019 3.16:1) (2 marks)

QUESTION 3 (20 Marks)

Study the information given below and answer each of the following questions independently:

3.1 Calculate the margin of safety (in Rands). (4 marks)

3.3 Suppose Abbot Enterprises wants to make provision for a 10% increase in variable costs and a 5% (4 marks)
increase in fixed manufacturing overheads. To compensate for this, the company wants to increase
the selling price by R7 per unit. Will the operating profit increase? Show your calculations.

3.4 Would you recommend an advertising campaign costing R20 000 that would increase the sales (4 marks)
volume by 10%? Motivate your answer.

3.5 Calculate the selling price per unit that will enable the company to earn an operating profit of R195 (4 marks)
000.

INFORMATION

The following budgeted information regarding a product produced by Abbot Enterprises is available:

The product is sold at R100 per unit. Employees involved in the manufacture of the product are paid R40 per hour. The
labour time per unit is 0.5 hours. The materials used in the manufacture of the product cost R30 per unit. The selling
costs are estimated at R10 per unit sold. Fixed manufacturing overheads and fixed administrative costs are expected to
cost R300 000 and R180 000 respectively. Production and sales are estimated at 15 000 units.

QUESTION 4 (20 Marks)

Answer the questions from the information provided.

4.1 Use the information provided below to answer the following questions: (7 marks)
4.1.1 Calculate the profit that Lotus Suppliers would make if the account is settled within 10 days. (4 marks)

4.1.2 Should the customer fail to pay the amount due and the account is written off after 90 days, how (3 marks)
much would be the loss to Lotus Suppliers?

INFORMATION

Lotus Suppliers is considering selling a refrigerator to Jane on credit. The cost of the refrigerator is R12 500 and the
selling price is R20 000. Credit terms of 2/10 net 60 were agreed upon. The cost of capital to Lotus Suppliers is 15%.

4.2 Use the information given below to calculate the number of orders that need to be placed annually (6 marks)
based on the economic order quantity.

INFORMATION

The annual sales of a product sold by Bellagio Limited is 3 600 000 units. The purchase price is R12 per unit. The
carrying cost of inventory amounts to 25% of the purchase price. The ordering cost is R24 per order.
4.3 Calculate the effective interest rate from the information given below if: (7 marks)
4.3.1 the interest is paid in advance. (4 marks)

4.3.2 there is a 20% compensating balance requirement. (3 marks)

Benson Limited plans to borrow R2 000 000 for one year. The stated interest rate is 15%

QUESTION 5 (20 Marks)

Use the information given below to prepare the Cash Budget for January, February and March 2022.

INFORMATION

Some of the items in the Projected Statement of Financial Position as at 31 December 2021 of Lincoln Limited are as
follows:

Current assets R

Debtors/Accounts receivable 650 000

Current liabilities

Bank 20 000

Creditors (for material purchases) 160 000

Additional information

The following forecasts have been made by Lincoln Limited for the first three months of 2022:

1. The sales manager anticipates the following sales volumes at a constant price of R200 per unit:

January February March

2 600 units 3 200 units 3 900 units

2. The unit costs of production include the following:

Materials R65 per unit

Direct labour R52 per unit

3. The purchases manager expects to purchase materials to manufacture the following quantities each month:

January February March

3 100 units 3 800 units 4 600 units

No inventories of materials are held at the end of each month.

4. Sixty percent (60%) of the materials are purchased for cash in order to take advantage of a 5% discount and the
balance is purchased on credit. Creditors are paid in the month after the purchase.

5. Direct labour costs are incurred in line with production and are paid during the month in which they were incurred.

6. Variable overheads are R26 per unit produced from January to February, and R29 per unit from March onwards.
Fixed overheads are estimated at R90 000 per month, including R10 000 for depreciation. Overheads are payable
in the month in which they are incurred.

7. The production manager intends purchasing machinery worth R130 000 on 31 March 2022 on credit. A deposit of
20% is payable immediately and the balance of the debt plus finance charges of R20 000 will be paid in five equal
monthly instalments, commencing April 2022.

8. The company will invest 20% of the sales (before any discounts) in excess of R500 000 in a notice deposit
account each month.

9. The rent expense for the year ended 31 December 2022 is expected to cost R73 200 per annum and is payable
monthly. Note the rental increases by 10% with effect from 01 November each year.
QUESTION 6 (20 Marks)

Answer the questions from the information provided. Where applicable, use the present value tables provided in
APPENDICES 1 and 2 that appear after QUESTION 6.

6.1 Use the information provided to answer the following questions: (9 marks)
6.1.1 Compute the Net Present Value. (6 marks)

6.1.2 Calculate the Payback Period (expressed in years, months and days). (3 marks)

INFORMATION

Abann Limited is looking at the possibility of investing in a new machine. The machine would cost R1 800 000, and its
cash operating expenses would total R360 000 per year. The equipment would last for five years. At the end of five
years, the equipment would be sold for R140 000. On the benefit side, it is estimated that the new equipment would
generate cash sales of R800 000 per year. The cost of capital is 12%.

6.2 Use the information provided below to calculate the following: (11 marks)
6.2.1 Calculate the Accounting Rate of Return on initial investment (expressed to two decimal places). (4 marks)

6.2.2 Calculate the Internal Rate of Return (expressed to two decimal places). (6 marks)

6.2.3 Should the management of East Coast Manufacturers consider investing in this machine? Why? (1 marks)

INFORMATION

East Manufacturers is considering manufacturing and marketing a new product. The project involves purchasing a
special machine for R250 000 plus installation costs of R50 000. The expected useful life of the machine is five years
with no salvage value anticipated. The net profit per year is expected to be R30 000. The straight-line method of
depreciation is used. The minimum required rate of return is 12%.

END OF PAPER
 APPENDIX 1 Present value of R1

Number
of 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25%
Periods

1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 0.8000

2 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944 0.6400

3 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787 0.5120

4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.5158 0.4987 0.4823 0.4096

5 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019 0.3277

6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.4104 0.3898 0.3704 0.3521 0.3349 0.2621

7 0.9327 0.8706 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.3332 0.3139 0.2959 0.2791 0.2097

8 0.9235 0.8535 0.7894 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.2660 0.2487 0.2326 0.1678

9 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938 0.1342

10 0.9053 0.8203 0.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615 0.1074

11 0.8963 0.8043 0.7224 0.6496 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505 0.3173 0.2875 0.2607 0.2366 0.2149 0.1954 0.1778 0.1619 0.1476 0.1346 0.0859

12 0.8874 0.7885 0.7014 0.6246 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186 0.2858 0.2567 0.2307 0.2076 0.1869 0.1685 0.1520 0.1372 0.1240 0.1122 0.0687

13 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897 0.2575 0.2292 0.2042 0.1821 0.1625 0.1452 0.1299 0.1163 0.1042 0.0935 0.0550

14 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3405 0.2992 0.2633 0.2320 0.2046 0.1807 0.1597 0.1413 0.1252 0.1110 0.0985 0.0876 0.0779 0.0440

15 0.8613 0.7430 0.6419 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.2394 0.2090 0.1827 0.1599 0.1401 0.1229 0.1079 0.0949 0.0835 0.0736 0.0649 0.0352

16 0.8528 0.7284 0.6232 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176 0.1883 0.1631 0.1415 0.1229 0.1069 0.0930 0.0811 0.0708 0.0618 0.0541 0.0281

17 0.8444 0.7142 0.6050 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 0.1696 0.1456 0.1252 0.1078 0.0929 0.0802 0.0693 0.0600 0.0520 0.0451 0.0225

18 0.8360 0.7002 0.5874 0.4936 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799 0.1528 0.1300 0.1108 0.0946 0.0808 0.0691 0.0592 0.0508 0.0437 0.0376 0.0180

19 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 0.1377 0.1161 0.0981 0.0829 0.0703 0.0596 0.0506 0.0431 0.0367 0.0313 0.0144

20 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.0611 0.0514 0.0433 0.0365 0.0308 0.0261 0.0115

25 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923 0.0736 0.0588 0.0471 0.0378 0.0304 0.0245 0.0197 0.0160 0.0129 0.0105 0.0038

30 0.7419 0.5521 0.4120 0.3083 0.2314 0.1741 0.1314 0.0994 0.0754 0.0573 0.0437 0.0334 0.0256 0.0196 0.0151 0.0116 0.0090 0.0070 0.0054 0.0042 0.0012

40 0.6717 0.4529 0.3066 0.2083 0.1420 0.0972 0.0668 0.0460 0.0318 0.0221 0.0154 0.0107 0.0075 0.0053 0.0037 0.0026 0.0019 0.0013 0.0010 0.0007 0.0001

50 0.6080 0.3715 0.2281 0.1407 0.0872 0.0543 0.0339 0.0213 0.0134 0.0085 0.0054 0.0035 0.0022 0.0014 0.0009 0.0006 0.0004 0.0003 0.0002 0.0001 *

60 0.5504 0.3048 0.1697 0.0951 0.0535 0.0303 0.0173 0.0099 0.0057 0.0033 0.0019 0.0011 0.0007 0.0004 0.0002 0.0001 0.0001 * * * *
 APPENDIX 2

Present value of a regular annuity of R1 per period for and periods

Number
of 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
Periods

1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333

2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465 1.5278

3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399 2.1065

4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386 2.5887

5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906

6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114 3.9975 3.8887 3.7845 3.6847 3.5892 3.4976 3.4098 3.3255

7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.9224 3.8115 3.7057 3.6046

8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372

9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282 5.1317 4.9464 4.7716 4.6065 4.4506 4.3038 4.1633 4.0310

10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925

11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951 6.2065 5.9377 5.6869 5.4527 5.2337 5.0286 4.8364 4.6560 4.4865 4.3271

12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137 6.4924 6.1944 5.9176 5.6603 5.4206 5.1971 4.9884 4.7932 4.6105 4.4392

13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034 6.7499 6.4235 6.1218 5.8424 5.5831 5.3423 5.1183 4.9095 4.7147 4.5327

14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.2293 5.0081 4.8023 4.6106

15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061 7.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.3242 5.0916 4.8759 4.6755

16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237 7.3792 6.9740 6.6039 6.2651 5.9542 5.6685 5.4053 5.1624 4.9377 4.7296

17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216 7.5488 7.1196 6.7291 6.3729 6.0472 5.7487 5.4746 5.2223 4.9897 4.7746

18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014 7.7016 7.2497 6.8399 6.4674 6.1280 5.8178 5.5339 5.2732 5.0333 4.8122

19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 7.3658 6.9380 6.5504 6.1982 5.8775 5.5845 5.3162 5.0700 4.8435

20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136 7.9633 7.4694 7.0248 6.6231 6.2593 5.9288 5.6278 5.3527 5.1009 4.8696

25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 9.0770 8.4217 7.8431 7.3300 6.8729 6.4641 6.0971 5.7662 5.4669 5.1951 4.9476

30 25.8077 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737 9.4269 8.6938 8.0552 7.4957 7.0027 6.5660 6.1772 5.8294 5.5168 5.2347 4.9789

40 32.8347 27.3555 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574 9.7791 8.9511 8.2438 7.6344 7.1050 6.6418 6.2335 5.8713 5.5482 5.2582 4.9966

50 39.1961 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335 10.9617 9.9148 9.0417 8.3045 7.6752 7.1327 6.6605 6.2463 5.8801 5.5541 5.2623 4.9995

60 44.9550 34.7609 27.6756 22.6235 18.9293 16.1614 14.0392 12.3766 11.0480 9.9672 9.0736 8.3240 7.6873 7.1401 6.6651 6.2402 5.8819 5.5553 5.2630 4.9999