QUESTION $1$

$(20$ Marks$)$

$1\mathrm{.}1$

Vietnam Limited

Statement of Comprehensive Income for the year ended $31$ December $2016($extracts$)$

R

Sales

$1779000$

Cost of sales

$(727200)$

Gross profit

$1051800$

Selling, general and administrative expenses

$(651800)$

Income from operations

$400000$

Interest income

$64000$

Interest expense

$(24000)$

Profit before tax

$440000$

Income tax $($@$30\%)$

$?$

Profit after tax

$?$

Earnings per share

$77$ cents

Required:

Study the statement of Comprehensive Income of Vietnam Limited for the year ended $31$ December $2016$ above and answer the following questions:

$1\mathrm{.}1\mathrm{.}1$

The earnings per share for the year ended $31$ December $2015$ was $89$ cents.

Comment on the earnings per share from the point of view of the shareholders.

$(2$ marks$)$

$1\mathrm{.}1\mathrm{.}2$

Provide two possible reasons why the gross profit margin is lower in $2016$ than in $2015.(63\%$ in $2015)$

$(4$ marks$)$

$1\mathrm{.}1\mathrm{.}3$

Calculate the income tax liability, profit after tax and recommend two ways in which the company can improve its profitability.

$(4$ marks$)$

$-$II$-2$

$1\mathrm{.}2$

Umlalazi Limited

Statement of Financial Position as at $31$ December $2016$

R

ASSETS

Non$-$current assets

$1500000$

Fixed assets $($Property and vehicles$)$

$1500000$

Current assets

$1335000$

Inventories

Trade and other receivables

Cash and cash equivalents

$900000$

$360000$

$75000$

Total assets

$2835000$

EQUITY AND LIABILITIES

Shareholders$$f equity

$945000$

Ordinary share capital

Retained earnings

$540000$

$405000$

Non$-$current liabilities

$450000$

Long$-$term loan

$450000$

Current liabilities

$1440000$

Trade and other payables

Notes payable

$240000$

$1200000$

Total equity and liabilities

$2835000$

Information

$$

Sales for the year is estimated to be R$3000000.$

$$

The business maintains a cash balance of R$75000.$

$$

Trade and other receivables represent $20\%$ of sales.

$$

Inventory represents $30\%$ of sales.

$$

A motor vehicle costing R$450000$ will be purchased in $2017.$ Total depreciation for $2017$ is expected to be R$225000.$

$$

Trade and other payables represent $5\%$ of sales.

$$

There will be no change in notes payable and share capital.

$$

Dividends of R$135000$ will be paid in $2017.$

$$

The business predicts a $10\%$ profit margin.

$$

R$60000$ of the long$-$term loan will be repaid during $2017.$

$$

The amount of external funding required must be calculated.

$-$II$-3$

Required

Use the percentage$-$of$-$sales method and the following information above to prepare the pro forma balance sheet of Umlalazi Limited as at $31$ December $2017.$

$(10$ marks$)$

QUESTION $2(20$ Marks$)$

Sussex Ltd

Information extracted from the Statement of Comprehensive Income for the year ended $28$ February:

$2017($R$)$

$2016($R$)$

Sales

$928000$

$600000$

Cost of sales

$(640000)$

$(375000)$

Gross profit

$288000$

$225000$

Operating expenses

$(145600)$

$(106000)$

Depreciation

$15000$

$13000$

Other operating expenses

$130600$

$93000$

Operating profit

$142400$

$119000$

Interest on mortgage loan

$(12000)$

$(36000)$

Net profit before tax

$130400$

$83000$

Income tax

$(45120)$

$(29050)$

Net profit after tax

$85280$

$53950$

Information extracted from the Statement of Financial Position as at $28$ February:

$2017($R$)$

$2016($R$)$

ASSETS

Non$-$current assets

$1232080$

$1222000$

Property, plant and equipment $($fixed assets$)$

$1232080$

$1222000$

Current assets

$178000$

$168000$

Inventories $($all Trading stock$)$

$60000$

$125000$

Trade & other receivables

$20000$

$32000$

Cash & cash equivalents

$98000$

$11000$

$1410080$

$1390000$

$-$II$-4$

EQUITY AND LIABILITIES

Equity

$1218780$

$990000$

Ordinary share capital $($issued at R$10$ each$)$

$950000$

$800000$

Share premium

$140000$

$80000$

Retained income

$128780$

$110000$

Non$-$current liability $($Mortgage loan, $12\%$ p$.$a$.)$

$100000$

$300000$

Current liabilities

$91300$

$100000$

Trade & other payables

$49000$

$69000$

SARS $($Income tax$)$

$4300$

$3000$

Shareholders for dividends

$38000$

$28000$

$1410080$

$1390000$

Additional information

$*$

New shares were issued on the first day of the financial year.

$*$

Interim and final dividends for the year ended $28$ February $2017$ amounted to R$66500.$

$*$

Fixed assets were sold at carrying $($book$)$ value during the year for R$72000.$

Required

$2\mathrm{.}1$

Calculate the following ratios for $2017.$ Where applicable, round off answers to two decimal places.

$2\mathrm{.}1\mathrm{.}1$

Net profit margin

$(2$ marks$)$

$2\mathrm{.}1\mathrm{.}2$

Inventory turnover

$(2$ marks$)$

$2\mathrm{.}1\mathrm{.}3$

Return on capital employed

$(2$ marks$)$

$2\mathrm{.}1\mathrm{.}4$

Earnings per share

$(2$ marks$)$

$2\mathrm{.}1\mathrm{.}5$

Earnings retention ratio

$(2$ marks$)$

$2\mathrm{.}1\mathrm{.}6$

Current ratio

$(2$ marks$)$

$2\mathrm{.}1\mathrm{.}7$

Debt to equity

$(2$ marks$)$

$2\mathrm{.}2$

Comment briefly but meaningfully on the following ratios:

$2017$

$2016$

$2\mathrm{.}2\mathrm{.}1$

Acid test ratio

$1\mathrm{.}4$: $1$

$0\mathrm{.}7$: $1$

$(2$ marks$)$

$2\mathrm{.}2\mathrm{.}2$

Debtors collection period

$38$ days

$30$ days

$(2$ marks$)$

$2\mathrm{.}2\mathrm{.}3$

Return on assets

$12\mathrm{.}5\%$

$7\mathrm{.}5\%$

$(2$ marks$)$

$-$II$-5$

QUESTION $3(20$ Marks$)$

The information provided below relates to Mthatha Enterprises.

$1.$ The bank account on $30$ September $2016$ was a favourable balance of R$7000.$

$2$