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MNGT6210 Accounting and Financial Management: Income Statement

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MNGT6210 Accounting and Financial Management

Question:

Question 1 (25 Marks)

Required

1.1 Explain the changes that possibly took place during 2019 in respect of:

1.1.1 Financing activities (2 marks)

1.1.2 Investing activities. (4 marks)

1.2 Calculate the distribution costs for 2019. (2 marks)

1.3 Of what significance is the statement of comprehensive income to potential investors? (2 marks)

1.4 If the interest rate on loans was 15% whilst the return on assets was 22%, how are the shareholders likely to interpret this? (3 marks)

1.5 Critically assess the performance of the company from the information provided. (12 marks)

Question 2 (25 Marks)

Required

2.1 Calculate the ratio for 2020 that would reflect each of the following. Where applicable, round off answers to two decimal places.

2.1.1 The extent to which the claims of short-term creditors are covered by assets that can be translated into cash in the short term (2 marks)

2.1.2 The extent to which long-term debt is covered by shareholders’ funds (3 marks)

2.1.3 The amount of funds available relative to sales, to pay the company’s expenses other than its cost of sales (3 marks)

2.1.4 The rand amount of distributions during the period on behalf of each ordinary share issued (3 marks)

2.1.5 An indication of the profit that has been put back into the company (3 marks)

2.1.6 The amount that investors are willing to pay for each rand of the company’s earnings (3 marks)

2.2 Provide TWO (2) ways of making an improvement with regard to each of the following ratios:

2.2.1 Debtors collection period (2 marks)

2.2.2 Operating margin. (2 marks)

Question  3 (25 Marks)

Required

Use the information provided below to prepare the following for Hemrock Ltd for August and September 2021. Use separate monetary columns for each month.

3.1 Debtors Collection Schedule (6 marks) 3.2 Cash Budget (19 marks)

Information
The following information was provided by Hemrock Ltd to assist in the preparation of its cash budget for August and September 2021:

1. The bank balance on 31 July 2021 is expected to be R45 000 (credit).

2. Sixty percent (60%) of all sales are for cash; the balance is on credit. Cash sales for June and July 2021 are expected to be R240 000 and R300 000 respectively. Cash sales are expected to increase by 5% per month while credit sales are expected to increase by 10% per month. Sixty percent (60%) of the credit sales is expected to be collected in the month of the sale for a cash discount of 2%. Thirty five percent (35%) is usually collected one month after the sale and the rest is written off as irrecoverable.

3. Hemrock Ltd sells its goods at cost plus 100%. The goods that are sold each month are replaced in the same month. All purchases are on credit and creditors are paid in the month after the purchase.

4. Salaries and wages are expected to cost R82 500 for September 2021 after a 10% increase takes effect from 01 September 2021.

5. Advertising expenses are expected to be 5% of the monthly sales, and are paid one month later.

6. Equipment with a cost price of R200 000 is expected to be purchased during August 2021. A deposit of 10% will be paid in August and the balance payable in six equal instalments commencing September 2021.

7. A long-term loan of R180 000 at 12% per annum interest is to be raised on 01 September 2021. Interest is payable quarterly in advance with the first interest payment to be made on 01 September 2021.

8. Other expenses, including depreciation of R4 000, are expected to amount to R46 000 each month and payments are made monthly.

9. An interim dividend of 6 cents per share is expected to be paid on 31 August 2021. The authorised share capital of Hemrock Ltd consists of 800 000 ordinary shares of which 500 000 shares were issued.

Question 4 (25 Marks)

Required

4.1 Calculate the Accounting Rate of return (on initial investment) of the first alternative. (5 marks)

4.2 Determine which of the two investment opportunities the company should choose. Motivate your answer by comparing the Net Present Value of each alternative. (15 marks)

4.3 Calculate the Internal Rate of Return of the first alternative, if no salvage value is expected. (5 marks)

MNGT6210 Accounting and Financial Management

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