Dwayne$$s Gym is a popular gym located in the Warrenton suburb of Gqeberha. Mr Dwayne is

the sole proprietor of the gym. He is under investigation by the authorities for an alleged money

laundering scheme. It is suspected that he laundered money for criminals for a fee through his

legitimate gym business.

The first key phase of money laundering is the $$placement$$ of $$dirty$$ money generated from

criminal activities, in a legitimate business in order for it to be subsequently used or disbursed

in a seemingly legitimate way. In the case of Dwayne$$s Gym, this can be achieved by$,$ for

example, the making of direct small cash deposits by criminals into the gym$$s bank account,

thereby mixing $$dirty$$ cash with the cash from legitimate gym members creating fictitious

income$),$ or even by the criminals paying for some of the gym$$s legitimate expenses in cash.

Thereafter the legitimate gym business may employ various tactics to $$layer$($the second key

phase of money laundering$)$ the dirty money through a series of transactions and bookkeeping

tricks. This is achieved, for example, by buying gym equipment, investing in sports memorabilia

to use as decoration in the gym, etc. Mr Dwayne purchased rowing memorabilia to the value of

R$340000$ via the internet on $16$ November $2021.$ However, he was not satisfied with the quality

of the products and returned it for a credit refund a month later. Additionally, he also purchased

a limited$-$edition wooden canoe on $17$ December $2021,$ for R$464000$ and later sold this canoe

for R$470000$ during January $2022.$

Finally, the now $$cleaned$$ money goes through the $$integration$$ phase, the third key phase of

money laundering. Essentially this entails using the money in the gym in what appears to be a

legitimate way. If Mr Dwayne is indeed guilty of facilitating money laundering for criminals, he

would typically need to$,$ for example, sell some of the assets he acquired in the layering stage

or create fake expense accounts.

It is worth noting that, in the placement stage the criminals could pay for some of the gym$$s

legitimate expenses in cash. Now, at the integration stage, the gym could simply allocate these

funds to another kind of $($fictitious$)$ expense, as the gym still has legitimate money in its bank

account that have not been used for legitimate expenses. The end result is the same $$ the gym

has expenses, and they are paid. It is the series of events through which they are paid that

facilitates the act of money laundering.

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Mr Dwayne$$s triplets are all South$-$African rowing champions. They$$ve all taken part in

international competitions since they were $14$ years old $($in $2021).$ Mr Dwayne has accompanied

his children on trips to Nigeria, Mozambique and Senegal. He is a VIP member of the South

African Flying High Club, which earns him $$miles$$ every time he travels outside of South Africa.

He prefers taking large sums of cash with him on these trips and distributes equal amounts to

each of his three children to transport in their luggage.

Below is the statement of financial position and statement of comprehensive income for

Dwayne$$s Gym. Review the financial information and answer questions $1\mathrm{.}1$ to $1\mathrm{.}4$ that follow.

STATEMENT OF FINANCIAL POSITION ON $31$ DECEMBER $2022$

$31-$Dec$-22$

R

$31-$Dec$-21$

R

Assets

Property and gym equipment $1,320,0001,720,000$

Non$-$current assets $1,320,0001,720,000$

Cash $111,800340,000$

Accounts receivable $1,400,000800,000$

Inventory $190,000180,000$

Current assets $1,701,8001,320,000$

Total assets $3,021,8003,040,000$

Equity

Owner$$s equity $300,000300,000$

Retained earnings $1,381,8001,110,000$

Equity attributable to owners of the Company $1,681,8001,410,000$

Total equity $1,681,8001,410,000$

Liabilities

Trade and other payables $1,140,000980,000$

Current liabilities $1,140,000980,000$

Loans and borrowings $200,000650,000$

Non$-$current liabilities $200,000650,000$

Total liabilities $1,340,0001,630,000$

Total equity and liabilities $3,021,8003,040,000$

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STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED $31$ DECEMBER $2022$

$2022$

R

$2021$

R

Continuing operations

Revenue $5,950,0004,450,000$

Membership fees $4,000,0003,000,000$

Personal training $1,200,0001,100,000$

Merchandise sales $400,000300,000$

Locker rentals $350,00050,000$

Cost of sales $1,375,0001,175,000$

Trainer salaries $1,000,000900,000$

Merchandise cost $375,000275,000$

Gross profit $4,575,0003,275,000$

Operating expenses $983,200400,000$

Rent $990,000720,000$

Marketing $300,000100,000$

Depreciation $25,000300,000$

Insurance $80,000150,000$

Administrative expenses $325,00075,000$

Results from operating activities $($earnings

before interest and tax$)1,871,8001,530,000$

Interest and taxes $490,000420,000$

Net income $1,381,8001,110,000$ Perform a horizontal analysis on the financial information given above

and show all your calculations. $1\mathrm{.}3$ or the allegations that Mr Dwayne is laundering money for criminal