QUESTION 1 (65 marks) Level Up Ltd (Level Up) is a construction entity with offices strategically located in Johannesburg, Port Elizabeth, Cape Town, and Durban. The entitys construction activities are conducted in the same way and traditional format as most mainstream construction entities. Level Up is listed on the main board of the Johannesburg Stock Exchange (JSE) in the industrial sector and its shares are currently trading on the exchange at R119 per share. The financial yearend of the entity is 31 July, and the entity has recently published its audited 2023-financial year annual financial statements. The following are extracts of Level Ups 2023 financial statements:

Note 1 Level Up obtained a R4 980 000 five-year loan from Delta National Bank precisely two financial years ago. According to the loan agreement, interest compounds annually at 3.2% above the South African government bond rate. Instalments are payable annually on the anniversary of the loan. The effective interest rate for a 5 year South African government bond is currently 8.34%. Note 2 Trade and other payables consist of suppliers that provide material and other equivalent utilities to Level Up in order for Level Up to perform its business activities and services. These suppliers do not charge interest for credit purchases as long as the agreed repayment periods are met. Note 3 After carefully analysing and evaluating the financial statements, internal management reports, budgeted cash flows and future plans; the Directors of Level Up has determined that R28 000 000 is available which the entity wish to give back to shareholders. This value can either be distributed to shareholders as dividends or by repurchasing shares from the current shareholders. The Directors of Level Up are currently evaluating both options.

REQUIRED:

1.5. Identify and explain the 3 (three) most evident financial risks which Level Up Ltd are exposed to and provide 2 (two) recommendations how each financial risk can be mitigated or managed. (13 marks)

1.6. Briefly discussed 3 (three) United Nations (UN) sustainable development goals with which Level Up Ltd may encounter conflicts with considering the entities business activities. (6 marks)

\begin{tabular}{|l|r|r|r|} \hline \multicolumn{4}{|c|}{ Level Up Ltd } \\ \hline & & \multicolumn{2}{|c|}{ Retained earnings } \\ \hline & Notes & 2023 & 2022 \\ & & R 'm & R' m \\ \hline Opening balance & & 2263 & 1832 \\ \hline Profit for the year & 3 & 601 & 535 \\ \hline Dividends & 3 & 0 & (104) \\ \hline Closing balance & & 2864 & 2263 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline \multicolumn{3}{|c|}{ Level Up Ltd } \\ \hline \multicolumn{3}{|c|}{ Statement of Comprehensive Income for the year ended 31 July 2023 } \\ \hline \multirow{2}{*}{ Revenue } & 2023 & 2022 \\ & R 'm & R'm \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline (Cost of sales) & (618) & (578) \\ \hline Gross profit & 1714 & 1601 \\ \hline (Selling and marketing expenses) & (187) & (176) \\ \hline (Administration expenses) & (201) & (189) \\ \hline (Other operating expenses) & (346) & (323) \\ \hline \begin{tabular}{l} Profit before interest and tax \\ expenses \end{tabular} & 980 & 913 \\ \hline (Finance costs) & (115) & (122) \\ \hline Profit before tax expense & 865 & 791 \\ \hline (Income tax expense) & (264) & (256) \\ \hline Profit for the year & 601 & 535 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline Retained earnings & & 2864 & 2263 \\ \hline Total equity & & 5984 & 5383 \\ \hline \multicolumn{4}{|l|}{ Non-Current Liabilities } \\ \hline Long-term borrowings & 1 & 2989 & 3985 \\ \hline Total Non-Current Liabilities & & 2989 & 3985 \\ \hline \multicolumn{4}{|l|}{ Current Liabilities } \\ \hline Trade and other payables & 2 & 871 & 799 \\ \hline Short-term borrowings & 1 & 996 & 996 \\ \hline Total current liabilities & & 1867 & 1795 \\ \hline \multirow[t]{2}{*}{ Total Equity and Liabilities } & & 10840 & 11163 \\ \hline & & Singular & Singular \\ \hline Number of shares in issue & & 52000000 & 52000000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline \multicolumn{4}{|c|}{ Level Up Ltd } \\ \hline \multicolumn{4}{|c|}{ Statement of Financial Position as at 31 July 2023} \\ \hline & Notes & 2023 & 2022 \\ \hline & & Rm & R'm \\ \hline \multicolumn{4}{|l|}{ ASSETS } \\ \hline \multicolumn{4}{|l|}{ Non-Current Assets } \\ \hline Property, plant and equipment & & 10261 & 10581 \\ \hline Total Non-Current Assets & & 10261 & 10581 \\ \hline \multicolumn{4}{|l|}{ Current Assets } \\ \hline Inventory & & 230 & 243 \\ \hline Receivables & & 161 & 182 \\ \hline Cash and bank & & 188 & 157 \\ \hline Total Current Assets & & 579 & 582 \\ \hline Total Assets & & 10840 & 11163 \\ \hline \multicolumn{4}{|l|}{ EQUITY AND LIABILITIES } \\ \hline \multicolumn{4}{|l|}{ Equity } \\ \hline Ordinary shares capital & & 3120 & 3120 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|r|} \hline \multicolumn{4}{|c|}{ Level Up Ltd } \\ \hline & & \multicolumn{2}{|c|}{ Retained earnings } \\ \hline & Notes & 2023 & 2022 \\ & & R 'm & R' m \\ \hline Opening balance & & 2263 & 1832 \\ \hline Profit for the year & 3 & 601 & 535 \\ \hline Dividends & 3 & 0 & (104) \\ \hline Closing balance & & 2864 & 2263 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline \multicolumn{3}{|c|}{ Level Up Ltd } \\ \hline \multicolumn{3}{|c|}{ Statement of Comprehensive Income for the year ended 31 July 2023 } \\ \hline \multirow{2}{*}{ Revenue } & 2023 & 2022 \\ & R 'm & R'm \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline (Cost of sales) & (618) & (578) \\ \hline Gross profit & 1714 & 1601 \\ \hline (Selling and marketing expenses) & (187) & (176) \\ \hline (Administration expenses) & (201) & (189) \\ \hline (Other operating expenses) & (346) & (323) \\ \hline \begin{tabular}{l} Profit before interest and tax \\ expenses \end{tabular} & 980 & 913 \\ \hline (Finance costs) & (115) & (122) \\ \hline Profit before tax expense & 865 & 791 \\ \hline (Income tax expense) & (264) & (256) \\ \hline Profit for the year & 601 & 535 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline Retained earnings & & 2864 & 2263 \\ \hline Total equity & & 5984 & 5383 \\ \hline \multicolumn{4}{|l|}{ Non-Current Liabilities } \\ \hline Long-term borrowings & 1 & 2989 & 3985 \\ \hline Total Non-Current Liabilities & & 2989 & 3985 \\ \hline \multicolumn{4}{|l|}{ Current Liabilities } \\ \hline Trade and other payables & 2 & 871 & 799 \\ \hline Short-term borrowings & 1 & 996 & 996 \\ \hline Total current liabilities & & 1867 & 1795 \\ \hline \multirow[t]{2}{*}{ Total Equity and Liabilities } & & 10840 & 11163 \\ \hline & & Singular & Singular \\ \hline Number of shares in issue & & 52000000 & 52000000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline \multicolumn{4}{|c|}{ Level Up Ltd } \\ \hline \multicolumn{4}{|c|}{ Statement of Financial Position as at 31 July 2023} \\ \hline & Notes & 2023 & 2022 \\ \hline & & Rm & R'm \\ \hline \multicolumn{4}{|l|}{ ASSETS } \\ \hline \multicolumn{4}{|l|}{ Non-Current Assets } \\ \hline Property, plant and equipment & & 10261 & 10581 \\ \hline Total Non-Current Assets & & 10261 & 10581 \\ \hline \multicolumn{4}{|l|}{ Current Assets } \\ \hline Inventory & & 230 & 243 \\ \hline Receivables & & 161 & 182 \\ \hline Cash and bank & & 188 & 157 \\ \hline Total Current Assets & & 579 & 582 \\ \hline Total Assets & & 10840 & 11163 \\ \hline \multicolumn{4}{|l|}{ EQUITY AND LIABILITIES } \\ \hline \multicolumn{4}{|l|}{ Equity } \\ \hline Ordinary shares capital & & 3120 & 3120 \\ \hline \end{tabular}