QUESTION 2: (12 MARKS)

The following information has been extracted from the records of All Aboard Ltd. that sells small boats and boating accessories across the country. The following information has been extracted for the year ended 30 September 2018.

All Aboard Ltd

Extract from the statement of profit or loss and other comprehensive income for the year ended 30 September 2018

	R
Gross profit	2 400 000
Other operating expenses	(1 580 000)
Operating profit	820 000
Other operating income
Profit on sale of equipment	12 000
Profit from operations	832 000
Financing activities
Investment income dividends	68 000
Interest on mortgage bond	(164 000)
Profit before tax	736 000
Income tax	(187 040)
Profit for the year	548 960

All Aboard Ltd

Cash flow statement for the year ended 30 September 2018

	R
Cash flow from operating activities	115 960
Cash received from customers	5 850 000
Cash paid to suppliers and employees	(5 010 000)
Net cash generated by operations	840 000
Dividends received	68 000
Interest received	-
Dividends paid	(410 000)
Interest paid	(164 000)
Tax paid (income tax & VAT)	(218 040)
Cash flow from investment activities	(1 644 400)
Increase in investments	(314 400)
Purchase of land for expansion	(1 200 000)
Proceeds from sale of machinery	30 000
New equipment for expansion	(160 000)
Cash flow from financing activities	1 000 000
Increase in mortgage bond	550 000
Issue of ordinary shares	450 000
Net increase(decrease) in cash and cash equivalents	(528 440)
Cash & cash equivalents at beginning of period	29 000
Cash & cash equivalents at end of period	(499 440)

REQUIRED:

2.1 You are the Financial Manager of All Aboard Ltd. The shareholders asked you to explain why the company is so cash-strapped; while the CEO is telling them they are making profits. By using the financial information provided to you above, write a formal e-mail to the shareholders explaining the reasons for the misunderstanding. (12)

Email Format

At a minimum, a formal email should contain all of the following elements:

• Subject line. Be specific, but concise. ...
• Salutation. Address the recipient by name, if possible. ...
• Body text. This section explains the main message of the email. ...
• Signature. Your email closing should be formal, not informal.