QUESTION 1 (20) 1.1 XML Limited presented the Statement of Comprehensive Income below for its most recent financial year. R Sales 743 000 402 000 341 000 Cost of sales Gross profit Operating expenses Income from operations 145 000 196 000 Other income 1 100 26 000 171 100 Other expenses Profit before tax Income tax Net profit 60 000 111 100 1.1.2 1.1.1 Explain the difference between "sales" and "other income". (4) XML Limited would like to earn a large gross profit by selling its products at a much higher price than its cost. Describe two factors that may prevent it from doing so. Explain how cost of sales operating expenses and other expenses are different from one another. 1.1.4 Explain why cost of sales, operating expenses, other expenses and income tax are listed separately in the Statement of Comprehensive Income rather than being lumped together as one item. (2) Explain why the Statement of Comprehensive Income presented above is inadequate to provide a proper interpretation of the financial result of XML Limited for the financial year. (2) (2) (3) 1.1.3 1.1.5 1.2 The Statement of Comprehensive Income for 2019 and 2018 given below were extracted from the accounting records of Teddy Manufactures limited: Teddy Manufactures Limited Statement of Comprehensive Income for the year ended 31 December 2018 2019 (R) 1 003 600 (905 600) Net sales Cost of sales Gross profit 901 300 (744 300) Selling, general and administrative expenses Income from operations 98 000 (92 000) 6 000 157 000 (65 000) 92 000 Other income/expenses Non-operating income Interest expense Profit before tax 124 500 (90 500) 18 000 (57 000) Income tax Net profit 40 000 (12 000) 28 000 53 000 (15 900) 37 100 Required: Refer to the Statement of Comprehensive Income of Teddy Manufacturers Limited for 2019 and 2018 and comment on the performance of the company including the operating profit earned. Take into account that the profit margin (percentage Profit after tax to sales) for the industry was 4.51% in 2018 and 2.60% in 2019. (4) 1.3 Name THREE transactions that improves cash flow but does not increase profit. (3) QUESTION 2 (20) As a financial manager of Xerox Enterprises, you are required to analyse two proposed capital investments, Projects A and B. Each has a cost of R100 000, and the cost of capital for each project is 12%. Depreciation on each project is estimated at R25 000 per year. The projects' expected profit are as follows: Proiect A Proiect B Year 1 2 3 4 R40 000 R5 000 R5 000 (R15 000) R10 000 R10 000 R10 000 R10 000 Required 2.1 Calculate the payback period for each project (In years, months and days). 2.2 Calculate the NPV for each project. 2.3 Indicate with a reason which project should be chosen by Xerox Enterprises. 2.4 Calculate the ARR for project A. (8) (8) (1) (3) QUESTION 3 (20) The information given below was extracted from the accounting records of Casper Limited, a partnership business with Bruce and Lee as partners. INFORMATION Extract from the ledger of Casper Limited on 30 June 2020: CR DR R Capital: Bruce 400 000 Capital: Lee 300 000 Current a/c: Bruce (01 July 2019) 45 000 Current a/c Lee (01 July 2019) 42 000 Drawings: Bruce 95 000 Drawings: Lee 110 000 The following must be taken into account: 1. On 30 June 2020 the Profit and Loss account reflected a net profit of R940 000. 2. Partners are entitled to interest at 14% p.a. on their capital balances. Note: Bruce decreased his capital contribution by R90 000 on 01 July 2019. This capital decrease has been recorded. 3. Partners are entitled to the following monthly salaries: Bruce R13 000 for the first ten months of the financial year and R15 000 for the next two months. Lee R10 000 per month throughout the year. 4. Partner Lee is entitled to a bonus equal to 10% of the net profit before any of the above appropriations have been taken into account. 5. The remaining profit/shortfall must be shared equally between Bruce and Lee. REQUIRED Prepare the Statement of Changes in Equity for the year ended 30 June 2020. QUESTION 4 The following budgeted details for 2020 relate to a product manufactured by Kito Limited: (20) Sales Variable cost per unit sold Total fixed cost Sales volume R50 000 R7.50 R12 500 2 500 units Consider the following situations independently: 4.1 Calculate the operating profit. (3) 4.2 Suppose sales increase by R10 000 without changes to any costs. By what amount will contribution margin and operating profit increase? (2) 4.3 Suppose fixed costs increase by R3 000. By how much must sales increase if operating profit was to remain unchanged? 2) 4.4 Would you recommend an advertising programme costing R5 000 that would generate an additional R10 000 of sales? Why? (2) 4.5 Calculate the volume of sales required to achieve an operating profit of R20 000 (3) Consider the following situations independently and in each case motivate your answer by doing the relevant calculations: 4.6 Should management consider a drop of R2 per unit in the selling price if sales volume is expected to increase by 200 units? (4) 4.7 Should management adopt the following proposal? Decrease the selling price by R4 and increase marketing costs by R8 000 with the expectation of an increase in sales to 5 000 units. QUESTIONS Xavi Limited supplies components for TV sets. Required Use the information provided below to: 5.1 Prepare a Debtors collection schedule for June and July 2020. (6) 5.2 Prepare the Cash budget for June and July 2020. (14) Note: Where applicable, round off all amounts to the nearest Rand. (20) Information 1. The following figures are available: Actual (2020) April R 120 000 50 000 March R 96 000 100 000 400 800 Sales Purchases Sales commission Wages May R 60 000 160 000 1 200 800 Estimated (2020) June July R R 160 000 200 000 84 000 60 000 800 400 ? ? 600 800 . 40% of all sales are for cash. 35% of all purchases are for cash. Collections for credit sales are as follows: 20% is collected in the month of the sale and a 2% discount is granted on these collections. 60% is collected in the month following the month of sale. 15% is collected in the second month following the month of sale. The remaining 5% is written off as bad debts. 2. Xavi Limited will make an investment of R50 000 in fixed deposit on 01 June 2020. Interest of R500 per month is expected to be received from 30 June 2020. 3. Creditors are paid 2 months after the date of invoice. 4. Rent expense amounts to R8 000 per month and is payable on the first day of each month. 5. Wages will be increased by 10% in June 2020 and will increase by a further 5% in July 2020. 6. A new machine is expected to be purchased for R10 000 cash in July 2020. 7. Commission is paid to sales personnel in the month following the month in which it was earned. 8. On 31 May 2020 Xavi Limited had a bank overdraft of R28 000. QUESTION 1 (20) 1.1 XML Limited presented the Statement of Comprehensive Income below for its most recent financial year. R Sales 743 000 402 000 341 000 Cost of sales Gross profit Operating expenses Income from operations 145 000 196 000 Other income 1 100 26 000 171 100 Other expenses Profit before tax Income tax Net profit 60 000 111 100 1.1.2 1.1.1 Explain the difference between "sales" and "other income". (4) XML Limited would like to earn a large gross profit by selling its products at a much higher price than its cost. Describe two factors that may prevent it from doing so. Explain how cost of sales operating expenses and other expenses are different from one another. 1.1.4 Explain why cost of sales, operating expenses, other expenses and income tax are listed separately in the Statement of Comprehensive Income rather than being lumped together as one item. (2) Explain why the Statement of Comprehensive Income presented above is inadequate to provide a proper interpretation of the financial result of XML Limited for the financial year. (2) (2) (3) 1.1.3 1.1.5 1.2 The Statement of Comprehensive Income for 2019 and 2018 given below were extracted from the accounting records of Teddy Manufactures limited: Teddy Manufactures Limited Statement of Comprehensive Income for the year ended 31 December 2018 2019 (R) 1 003 600 (905 600) Net sales Cost of sales Gross profit 901 300 (744 300) Selling, general and administrative expenses Income from operations 98 000 (92 000) 6 000 157 000 (65 000) 92 000 Other income/expenses Non-operating income Interest expense Profit before tax 124 500 (90 500) 18 000 (57 000) Income tax Net profit 40 000 (12 000) 28 000 53 000 (15 900) 37 100 Required: Refer to the Statement of Comprehensive Income of Teddy Manufacturers Limited for 2019 and 2018 and comment on the performance of the company including the operating profit earned. Take into account that the profit margin (percentage Profit after tax to sales) for the industry was 4.51% in 2018 and 2.60% in 2019. (4) 1.3 Name THREE transactions that improves cash flow but does not increase profit. (3) QUESTION 2 (20) As a financial manager of Xerox Enterprises, you are required to analyse two proposed capital investments, Projects A and B. Each has a cost of R100 000, and the cost of capital for each project is 12%. Depreciation on each project is estimated at R25 000 per year. The projects' expected profit are as follows: Proiect A Proiect B Year 1 2 3 4 R40 000 R5 000 R5 000 (R15 000) R10 000 R10 000 R10 000 R10 000 Required 2.1 Calculate the payback period for each project (In years, months and days). 2.2 Calculate the NPV for each project. 2.3 Indicate with a reason which project should be chosen by Xerox Enterprises. 2.4 Calculate the ARR for project A. (8) (8) (1) (3) QUESTION 3 (20) The information given below was extracted from the accounting records of Casper Limited, a partnership business with Bruce and Lee as partners. INFORMATION Extract from the ledger of Casper Limited on 30 June 2020: CR DR R Capital: Bruce 400 000 Capital: Lee 300 000 Current a/c: Bruce (01 July 2019) 45 000 Current a/c Lee (01 July 2019) 42 000 Drawings: Bruce 95 000 Drawings: Lee 110 000 The following must be taken into account: 1. On 30 June 2020 the Profit and Loss account reflected a net profit of R940 000. 2. Partners are entitled to interest at 14% p.a. on their capital balances. Note: Bruce decreased his capital contribution by R90 000 on 01 July 2019. This capital decrease has been recorded. 3. Partners are entitled to the following monthly salaries: Bruce R13 000 for the first ten months of the financial year and R15 000 for the next two months. Lee R10 000 per month throughout the year. 4. Partner Lee is entitled to a bonus equal to 10% of the net profit before any of the above appropriations have been taken into account. 5. The remaining profit/shortfall must be shared equally between Bruce and Lee. REQUIRED Prepare the Statement of Changes in Equity for the year ended 30 June 2020. QUESTION 4 The following budgeted details for 2020 relate to a product manufactured by Kito Limited: (20) Sales Variable cost per unit sold Total fixed cost Sales volume R50 000 R7.50 R12 500 2 500 units Consider the following situations independently: 4.1 Calculate the operating profit. (3) 4.2 Suppose sales increase by R10 000 without changes to any costs. By what amount will contribution margin and operating profit increase? (2) 4.3 Suppose fixed costs increase by R3 000. By how much must sales increase if operating profit was to remain unchanged? 2) 4.4 Would you recommend an advertising programme costing R5 000 that would generate an additional R10 000 of sales? Why? (2) 4.5 Calculate the volume of sales required to achieve an operating profit of R20 000 (3) Consider the following situations independently and in each case motivate your answer by doing the relevant calculations: 4.6 Should management consider a drop of R2 per unit in the selling price if sales volume is expected to increase by 200 units? (4) 4.7 Should management adopt the following proposal? Decrease the selling price by R4 and increase marketing costs by R8 000 with the expectation of an increase in sales to 5 000 units. QUESTIONS Xavi Limited supplies components for TV sets. Required Use the information provided below to: 5.1 Prepare a Debtors collection schedule for June and July 2020. (6) 5.2 Prepare the Cash budget for June and July 2020. (14) Note: Where applicable, round off all amounts to the nearest Rand. (20) Information 1. The following figures are available: Actual (2020) April R 120 000 50 000 March R 96 000 100 000 400 800 Sales Purchases Sales commission Wages May R 60 000 160 000 1 200 800 Estimated (2020) June July R R 160 000 200 000 84 000 60 000 800 400 ? ? 600 800 . 40% of all sales are for cash. 35% of all purchases are for cash. Collections for credit sales are as follows: 20% is collected in the month of the sale and a 2% discount is granted on these collections. 60% is collected in the month following the month of sale. 15% is collected in the second month following the month of sale. The remaining 5% is written off as bad debts. 2. Xavi Limited will make an investment of R50 000 in fixed deposit on 01 June 2020. Interest of R500 per month is expected to be received from 30 June 2020. 3. Creditors are paid 2 months after the date of invoice. 4. Rent expense amounts to R8 000 per month and is payable on the first day of each month. 5. Wages will be increased by 10% in June 2020 and will increase by a further 5% in July 2020. 6. A new machine is expected to be purchased for R10 000 cash in July 2020. 7. Commission is paid to sales personnel in the month following the month in which it was earned. 8. On 31 May 2020 Xavi Limited had a bank overdraft of R28 000