Question 1 (35 marks)

Presented here are a Statement of Income and Retained Earnings and Comparative Balance Sheets for Madison Gardens Pty Ltd, which operates a national chain of sporting goods stores.

Statement of Income and Retained Earnings for the Year ended ended 31 December 2016

Retained Earnings date is actually 1/1/2016 and not 1/1/2017 12000

A. Prepare a statement of cash flows for Madison Gardens Pty (Ltd) for the year ended December 31, 2016, using the indirect method in the Operating Activities section of the statement. (15) B. Madison Gardens (Pty) Ltds management is concerned with its short-term liquidity and its solvency over the long run. To help management evaluate these, compute the following ratios, rounding all answers to the nearest one-tenth of a percent:

1. Current ratio

2. Acid-test ratio

3. Cash flow from operations to current liabilities ratio

4. Accounts receivable turnover ratio

5. Number of days' sales in receivables

6. Inventory turnover ratio

7. Number of days' sales in inventory

8. Debt-to-equity ratio

9. Debt service coverage ratio

10. Cash flow from operations to capital expenditures ratio (10)

C. Comment on Madison gardens liquidity and its solvency. What additional information do you need to fully evaluate the company? (10)

R48000 Net sales Cost of goods so Gross R36000 12000 neral and admin expense 6000 ating income Interest expense Income before tax 280 Income tax expense Net income 3440 Preference dividends Income available to ordi Ordinary dividends 500 To retained Earnings 2840 Retained Earnings 1/1/2017 Retained Earnings t 14 ar Comparative Balance Sheets as at ber 31 2015 2016 Cash 840 2700 12500 Accounts receivable Invento 100 aid insurance al current 4000 12000 3700 R12 Accumulated ciation 3000 Total long-term Asset R1 Total Assets R33740 R 276 Accounts Pa Taxes Payable 1600 Notes Pavable 2400 Current portion of mortgage bond Total current Liabilities 14500 11000 Mortqage Bond Total liabilities 1400 15900 1600 12600 Preference shares 1000 1000 Ordinary shares Retained earnings 14840 Total 15000 R33 740 R 27600