4.1 CONCEPTS: MATCHING Choose an accounting concept from COLUMN B that matches the questions in COLUMN A - NSC Accounting - Question 4 - 2017 - Paper 1

This question relates to the solvency of the business. The correct matching concept is B: Solvency.

This is concerned with liquidity, ensuring that obligations can be met. The correct matching concept is A: Liquidity.

The Share Capital note would be presented as follows:

Authorised share capital: 1,200,000 shares

Issued share capital:
- Ordinary shares on 1 July 2016: 800,000
- Shares issued on 1 October 2016: 200,000
- Shares repurchased: (120,000)
- Closing balance on 30 June 2017: 880,000

Total issued share capital: R8,412,800

• Dividends paid: (320,000 + 514,000 - 264,000) = (570,000)
• Income tax paid: (31,000 + 22,300 - 314,400) = (261,100)
• Change in investment: 120,000 - 80,000 = 40,000
• Change in loans: 1,250,000 - 950,000 = 300,000

The cost of additional equipment purchased is derived as follows:

Cost of additional equipment: Carrying value of new equipment - Carrying value of disposed equipment
= R1,800,000 - R440,400 = R1,359,600

Net change = Cash balance on 30 June 2017 - Cash balance on 1 July 2016

Calculating based on previous steps gives a net change in cash of (161,300).

• Gross profit percentage: (4,290,000 / 7,150,000) * 100 = 60%
• Net asset value per share (NAV): (8,801,400 / 880,000) = 1,000 cents
• Return on average shareholders’ equity: (rac{733,600}{7,821,800} imes 100 = 8.8 ext{%})

YES. The Debt/Equity ratio is consistent over the years at 0.1, and the Return on Capital Employed (ROTCE) increased from 11.3% to 12.5%, indicating a healthy leverage use.

Shareholders may be dissatisfied because dividends have decreased from 96% of EPS distributed last year to 69% this year. The return transitioned from 7.9% to 8.8%, which, although an increase, still isn't sufficient relative to previous distributions.

The price of R10.00 per share was fair as it remained consistent with the net asset value of R9.78 calculated at that time. This did not compromise shareholder interests.