Question
QUESTION 2 (25 Marks) REQUIRED 2.1 Use the information provided below to calculate the ratios for 2021 (expressed to two decimal places) that would reflect
QUESTION 2 (25 Marks)
REQUIRED
2.1 Use the information provided below to calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the following:
2.1.1 The time taken by the company to settle its debts with trade suppliers. (3 marks)
2.1.2 The amount of debt that the company uses to finance its assets. (3 marks)
2.1.3 The operational effectiveness of the company before considering interest income, interest expense and company tax. (3 marks)
2.1.4 The percentage of the profit that has been put back into the company. (3 marks)
2.1.5 What investors are willing to pay for the shares of the company with due consideration given to the profit generated by each share in the company. (3 marks)
2.2 Comment on the FIVE (5) ratios of Oslo Limited as compared to the industry average provided in the additional information. (10 marks)
INFORMATION
The information given below was extracted from the books of Oslo Limited:
OSLO LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDING 31 DECEMBER 2021
| R | |
| Sales | 2 145 000 |
| Cost of sales | (1 790 000) |
| Opening inventory | 347 000 |
| Purchases | ? |
| Closing inventory | (447 000) |
| Gross profit | 355 000 |
| Operating expenses | (244 660) |
| Operating profit | 110 340 |
| Interest Paid | (20 000) |
| Profit before tax | 90 340 |
| Company tax | (52 295) |
| Profit after tax | 65 045 |
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021
| R | |
| ASSETS | |
| Non-current assets | 215 500 |
| Property, plant and equipment | 215 500 |
| Current assets | 702 500 |
| Inventory | 447 000 |
| Debtors/Accounts receivables | 219 500 |
| Bank | 36 000 |
| TOTAL ASSETS | 918 000 |
| EQUITY AND LIABILITIES | |
| Equity | 414 855 |
| Ordinary share capital | 287 500 |
| Retained Income | 127 355 |
| Non Current Liabilities | 202 145 |
| Loan | 202 145 |
| Current Liabilities | 301 000 |
| Creditors/Accounts payable | 301 000 |
| Total Equties and Liabilities | 918 000 |
ADDITIONAL INFORMATION
Dividends for the year ended 31 December 2021 amounted to R39 027. There were 11 500 shares in issue.
The market price per share was R20.50 on 31 December 2021.
Credit terms to debtors are 30 days.
Ratios of Oslo Limited for 2021 as compared to the industry average are as follows:
| Ratio | Oslo Limited | Industry average |
| Acid test ratio | 0.85:1 | 1.1:1 |
| Current ratio | 2.33:1 | 2.75:1 |
| Debtors collection period | 37.35 days | 30 days |
| Inventory turnover | 4.51 times | 6 times |
| Return on Equity | 15.68% | 18.25% |
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The ASQ Auditing Handbook
Authors: J. P. Russell,
4th Edition
0873898478, 978-0873898478
