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AFE3692 Assignment 2 Question 1 (20 marks) The following information is available for United Ltd for the year ended 30 June 2019: Authorised share capital: 2 000 000 Ordinary shares of N$ 2 1 000 000 8% preference shares of N$ 3 The following are account balances extracted from the general ledger as at 30 June 2019 in NS: 1 000 000 Issued ordinary share capital Issued 6% preference share capital 500 000 50 000 Share premium Retained earnings 180 000 Revaluation reserve 15 000 General reserve 600 000 Land and Buildings 800 000 Loan from ABSA bank 500 000 The following transactions pertains to the current year ending 30 June 2020: 1. On 01 September 2019 the company offered 500 000 ordinary shares at N$ 2.50 and 200 000 8% preference shares at N$ 3 to the public. All share application money was received on 25 September 2019. On 01 October 2019 all shares were allotted to the respective applicants and share certificates issued. 2. A valuation was undertaken by Ms. Aggie Swartz, a member of the Property Valuation Association, who valued the land and buildings at N$ 1 000 000, being the current market value at 30 June 2020. 3. The directors took a decision to declare a dividend of 50c per share to every shareholder on the share registry as at 30 June 2020. The dividend is only payable on 12 August 2020. 4. On 31 May 2020, N$ 50 000 of the loan was repaid. 5. Profit for the year amounted to N$ 500 000. 6. Preference share capital is part of equity. Required: 1. Prepare the statement of changes in equity for the year ended 30 June 2020 to comply with the requirements of the Companies act (Act 71 of 2008) and International Financial Reporting Standards (IFRS) (20 marks). Question 2 (17 marks) ABC Limited is a public listed company dealing with fast moving consumer goods. The authorized share capital consists of 5 000 000 equity shares of no par value of which 1 500 000 shares had already been issued. ABC Limited Trial Balance as at 28 February 2020 DEBIT NS CREDIT NS 2 000 000 625 000 80 000 50 000 4070 000 640 000 250 000 100 000 550 000 129 000 131 000 Equity share capital Retained earnings Revaluation surplus Dividend Land and buildings-cost Accumulated depreciation-building Equipment at cost Accumulated depreciation Equipment Long term loan Inventory Accounts receivable Accounts payable Bank Sales Cost of sales Finance costs Salaries and wages Depreciation Advertising Sales commission Telephone expenses Electricity 70 500 65 500 5 250 000 3 750 000 70 000 606 000 130 000 10 000 15 000 13 500 25 500 9 315 500 9 315 500 Additional information: 1. Property, plant and equipment is depreciated using straight line method. The amount for depreciation is to be allocate as follows: (i) Buildings NS 80 000 and (ii) Equipment NS 50 000 2. The amount of dividend relates to what was declared and paid during the year. 3. The property is used for all major business operations. The buildings which costs N$ 4 000 000 on 1 March 2019 were valued on 28 February 2020 to fair value of N$ 3 360 000. The office block occupies 60% of the buildings and the rest is occupied by the warehouse. 4. The equipment is shared by both administrative and sales personnel to dispatch documents to third parties. Any expense related thereof should allocated equally between the administrative and sales. 5. Salaries and wages amounting to N$ 321 000 was paid to office staff and the balance to sales department staff. Sales commission relates to an amount paid to sales agents. 6. N$ 7 500 of the telephone expenses was incurred by the sales employees and the remaining amount by the office staff. 7. During the year the business offered 500 000 shares for N$ 800 000. 8. The income tax expense for the year ended 28 February 2020 is N$ 176 610. Required: 1. Prepare the statement of profit or loss and other comprehensive income for the year ended 28 February 2020 according to the function method to comply with the requirement Companies Act 71 of 2008 and IFRS. (17 marks) Question 3 (34 marks) Etunda Ltd is a retailer shop that specializes in the selling of agricultural implements. The following financial information is extracted from the financial statements of Etunda Ltd. Etunda Ltd Statement of Financial position as at 31 December 2020 NS 2019 NS ASSETS Non-current assets Land and buildings at revaluation Plant and machinery at cost price Accumulated depreciation on plant and machinery Net Book Value 280 000 380 000 (70 000) 310 000 240 000 348 000 (56 000) 292 000 Current assets Inventory Trade and other recivables Cash and cash equivalents 440 000 153 600 216 000 70 400 1 030 000 344 000 154 800 189 200 0 876 000 EQUITY AND LIABILITIES Share capital Accumulated profit Revaluation reserve 460 000 260 000 40 000 760 000 300 000 200 000 0 500 000 Non-current liabilities Long-term loan 40 000 80 000 Current liabilities Trade and other payables Shareholders for dividends Bank overdraft 230 000 210 000 20 000 0 1 030 000 296 000 186 400 0 109 600 876 000 Statement of profit or loss and other comprehensive income for the year ended 31 December 2020 (Abstract) Revenue Cost of sales Profit before tax Tax NS 380 000 160 000 112 000 32 000 Profit for the year 80 000 The following information was communicated to you: A new machine was purchased during the year to replace an old machine. The old machine was originally purchased for NS 12 000 sold for NS 3 200. On selling date, the accumulated depreciation was N$ 7 600. Land and building was revalued on 1 June 2020 to NS 280 000 Included in trade and other payables is an amount owed to Inland and Revenue: 2020 2019 NS NS 10 000 14 400 Interest paid during the year amounted to NS 28 000. Depreciation amounted to NS 21 600 for the year. Dividends were declared during the current year. . Required: 1. Prepared the statement of cash flows (direct method) for Etunda Ltd for the year ended 31 December 2020 in accordance with IFRS. (28 marks) 2. Prepare the note for the reconciliation of profit before tax with cash flow from operating activities (6 marks). No comparative figures are required. Question 5 (29 marks) Mola Mola Waves Ltd is a retailer of surfing boards and swimming wear, with stores throughout the coast of Namibia. The company's most recent summarised financial statements, together with comparative figures for the previous two years are given below: Mola Mola Waves Ltd STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2020 2019 2018 NS '000 N$ 000 N$ 000 ASSETS Non-current assets Property, plant and equipment 640 580 Current assets 2 520 2 200 Inventory 1 240 1 050 Trade and other receivables 1 270 1 100 Cash 10 50 TOTAL ASSETS 3 160 2 780 560 1 800 830 910 60 2 360 EQUITY AND LIABILITIES Equity NS 1 Ordinary share capital Retained earnings Non-current liabilities Long-term borrowings 720 200 520 700 200 500 680 200 480 640 400 400 1 800 560 Current liabilities Trade and other payables Tax payable Bank overdraft TOTAL EQUITY LIABILITIES 20 1 220 3 160 1 680 620 40 1 020 2 780 1 280 600 40 640 2 360 AND The comparative ratios for years 2019 and 2018 have already been computed. Use the year-end figures (do not use averages) 2019 Gross profit percentages 33.6% Operating profit percentages 5.3% Return on total assets 6.5% Interest bearing debt to interest bearing debt + equity 67% Interest cover (times) 2.0 times Current ratio 1.3 Quick (Acid-test) ratio Inventory holding period 128 days Receivables collection period 89 days Payable payment period Total asset turnover 1.6 times 2018 34.0% 5.0% 5.9% 60% 3.8 times 1.4 0.8 121 days 88 days 88 days 1.6 times 0.7 75 days b) Write a report to the regional manager which analyses the financial performance and position of Mola Mola Waves Ltd for the period covered by the financial statements. (17 marks) (NB: your report may take any form you wish, but should specifically address the particular concern of the bank regarding the rapidly increasing overdraft. Therefore, your report should identify aspects of poor performance which could have contributed to the increase in the overdraft, and further information that might be useful to the decisions on whether or not to approve the company's request