QUESTION ONE $(28$ Marks$)$

a$)$ Splash Car Wash in Kabwe spent a substantial amount of money on advertising in

late December $2019.$ The company$$s year$-$end date was December $31.$ The owner

of the car wash was concerned that this advertising campaign would reduce profits.

Required

i$.$ According to Splash Car Wash define an asset. $(4$ Marks$)$

ii$.$ Would the advertising represent an asset? Comment $(4$ Marks$)$

b$)$Some asset valuations using historical costs are highly relevant and very

representationally faithful, whereas others may be representationally faithful but lack

relevance. Some asset valuations based on fair values are highly relevant and very

representational faithful, whereas others may be relevant but lack representational

faithfulness.$$ Explain and provide examples of each. $(5$ Marks$)$

c$)$ A company president remarked, $$the operations of our company are such that we

can take advantage of only a minor amount of financial leverage.$$ Explain the likely

reasoning the company president had in mind to support this statement. $(5$ Marks$)$

d$)$ Venon Ltd$,$ a manufacturer, reported net income for Year $6$ of K$160000$ on sales of

K$435000.$ It declared preferred dividends of K$27\mathrm{.}5.$ Preferred shareholders$$ equity

totaled K$250000$ at both the beginning and end of Year $6.$ Common shareholders$$

equity totaled K$300000$ at the beginning of Year $6$ and K$370000$ at the end of Year

$4.$ Venon Ltd had no non$-$controlling interest in its equity. The company$$s total assets

were K$1500000$ at the beginning of Year $6$ and K$1550000$ at the end of Year $6.$

Compute the rate of ROCE for Year $6$ and disaggregate it into profit margin for

ROCE, assets turnover, and capital structure leverage ratio components.$(10$ Marks