Need answer to Q1&2 Urgently

25 MARKS QUESTION 1 a) The objective of financial statements is to enable users make economic decisions based on the information contained in the income statement, balance sheet and cash flow statement. One of the most important principles that underpin financial statements is the matching principle. This principle states that revenues should be matched with expenses that were incurred to generate it. In the balance sheet, assets should be matched with liabilities and equity while in the cash flow statement the sources and uses of cash are matched. Accrual accounting is used to implement the matching principle in the income statement and balance sheet. REQUIRED Marks if any of the users below were to make decisions on how financial statements should be prepared, what do you think would be their focus, and what principle/'s do you think would underpin the financial statements. Short term lenders such as banks NNN Long-term equity investors Tax authorities b) Lunga (Pty) Lid, a retailer has the following working capital accounts. 2020 2019 2018 Year Current Assets 2000 1500 1000 Cash 6000 4000 2000 Accounts receivables 800 4500 2000 Inventory 16000 10000 5000 Total current assets Current Liabilities 4500 3500 2000 Accounts payables 3500 1500 500 Short-term liabilities 5000 Total current liabilities 8000 2500 REQUIRED Marks (1) For years 2018 - 2020, calculate and comment on Lunga's liquidity position based on i) Current ratio Quick ratio Cash ratio (2) Describe and calculate other useful indicators of firm's liquidity that can be calculated from Lunga's Balance sheet information provided/.. (3) Using the results of parts (1) and (2), discuss the limitations of the current ratio as a measure of liquidity for Lunga. (4) List other ratios that would be useful to confirm your analysis. State what you would expect these ratios to show. 3 QUESTION 2 25 MARKS After long negotiations, Marks & Spencer (M&S) merger with David Jones occurred in 2020. The combination of these two companies provides significant advantages that will benefit them and their customers. The group will have increased scale that will drive significant efficiencies and economies through enhanced global sourcing and the ability to leverage shared seasonality and trends, improving value for the customer and overall profitability. Each business will be well equipped to compete with global retailers in their respective markets. To finance this deal, M&S issued a 7%, 10-year bond with a face value of R50 000 000 on the 1 January 2019. The market interest rate at the time of issuance was 9%. The coupon payment would be made twice a year which will be on the 31st July and 31 January. This is the only long-term liability that M&S has in the balance sheet. Below is the extract of M&S group balance sheet for 2020 and 2021. 2020 Total Assets 2019 180 000 000 Equity 120 000 000 109 000 000 85 000 000 REQUIRED Marks (a) At what price was this bond issued? 5 (b) Amortize this bond and show the outstanding liability at the end of the first five years (round up to the nearest million) 5 (c) Clearly indicate by use of figures (where possible) the effect of issuing this bond on the following in 2019 and 2020: i) Interest recorded in the income statement li) CFO NN NN ii) CFF v) Outstanding liabilities in the balance sheet (d) What is the impact of issuing this bond on the trend of net income of M&S N (e) Calculate leverage ratios of M&S and comment on its solvency status in 2020 and 2021 TOTAL 25