QUESTION 5 (10 marks) (20 Marks)

5.1 Company Fabulous Sweets wants to raise capital for investment into its operations that intends to manufacture sweets and chocolates. Discuss how they will raise capital with specific reference to authorised and share capital. (4 marks)

5.2 Cindy is happy since she is getting 10% dividends each year. Ambie is unhappy since she only receives dividends sporadically. Explain the background behind these two shareholders. (6 marks)

5.3 ABC Ltd has calculated a net profit before taxation of R250 000 for the year ended 31 December 2019. The taxation for the is calculated as 30% of net profit before taxation. Capital includes 300 000 x 8% preference shares valued at R1 each. Ordinary share capital consists of 250 000 shares at R1 each. The board of directors have decided to declare a dividend of R0,20 per share. The balance of retained profit at the beginning of the year was R250 000.

REQUIRED:

Prepare the abridged statement of comprehensive income for the year end 31 December 2019 (10 marks)

QUESTION 6 (20 Marks)

Statement of comprehensive income of ZZZ Ltd for the year ended 31 December 2018

	2018	2017
Sales	2 000	3 000
Cost of sales	1 500	2 350
Gross profit	1 040	1 150
Operating expenses	730	800
Operating profit	310	350
Interest and other income	50	50
Earnings before interest and taxation	260	300
Taxation	105	125
Net profit after taxation	155	175
Preference dividends	0	0
Earnings available to ordinary shareholders	155	175
Ordinary dividends	65	75
Retained profit for the year	90	100
Retained profit (1 November 20x8)	260	350
Retained profit (31 October 20x9)	350	450

	2018	2017
Assets
Non-current assets	1 265	1 300
Current assets	971	700
Inventory	300	300
Trade and other receivables	100	200
Cash and cash equivalents	571	200
Total assets	2 236	2 000
Equity and liabilities
Shareholders equity
Ordinary shares	600	600
Share premium	300	300
Retained profit	541	302
Non-current liabilities	500	500
Current liabilities	295	298
Trade and other payables	130	113
Accrued expenses	100	110
Shareholders for dividends	65	75
Total equity and liabilities	2 236	2 000

NOTES:

All sales are on credit

Assume a 365-day financial year

REQUIRED:

Calculate the following ratios for 2017 and 2018 and also state if there was an improvement or detoriation in the calculated ratio:

6.1 Gross profit margin

6.2 Acid test (quick) ratio

6.3 Inventory average number of days

6.4 Trade receivables average number of days

6.5 Trade payables average number of days

END OF PAPER