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You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017. Note that some information is included in the ANSWER ... show full transcript
Worked Solution & Example Answer:You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
Complete the Income Statement for the year ended 28 February 2017
Answer
To complete the Income Statement, we start by calculating the Gross Profit, which is obtained by subtracting the Cost of Sales from the Sales revenue:
Next, we add other income such as commission and rent income:
- Commission income: R12,000
- Rent income: R72,000 (calculated as R61,900 + R10,100 + R2,700)
We sum these to find the total Gross Income:
Next, we deduct operating expenses, including salaries, depreciation, directors' fees, audit fees, and sundry expenses, to find the Operating Profit:
Finally, we calculate the net profit before tax, deduct tax, and arrive at the Net Profit after tax.
Step 2
Prepare the following notes to the Balance Sheet: Ordinary share capital
Answer
The Ordinary Share Capital note will detail the share capital structure of the company.
- Issued Share Capital on 1 March 2016: 1,020,000 ordinary shares
- Shares issued during the year: 756,000 ordinary shares
- Shares repurchased: 250,000 ordinary shares
Thus, the balance on 28 February 2017:
This will represent the Ordinary Share Capital in the Balance Sheet.
Step 3
Prepare the following notes to the Balance Sheet: Retained income
Answer
To calculate the Retained Income:
- Begin with the Retained Income balance on 1 March 2016: R674,500.
- Add the net profit after tax for the year: R843,200.
- Subtract dividends paid:
- Ordinary share dividends: R720,000
- Interim dividends: R420,000
Thus, the Retained Income on 28 February 2017 is:
Step 4
Complete the EQUITY AND LIABILITIES section of the Balance Sheet.
Answer
For the Equity and Liabilities section:
-
Shareholders' Equity:
- Ordinary Share Capital: R1,526,000
- Retained Income: R357,700
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Total Shareholders' Equity will be:
- Liabilities:
- Loan: Anca Bank: R487,000
- Current Liabilities will include trade and other payables.
This results in total Shareholders' Equity and Liabilities.
Step 5
Calculate B Sly's percentage shareholding in the company before and after the share buy-back.
Answer
To calculate B Sly's percentage shareholding:
Before the buy-back:
- Shares owned: 480,000 out of 1,200,000:
After the buy-back:
- After repurchase of 250,000 shares, total shares become 950,000:
Step 6
Explain why the other shareholders will be concerned about this transaction.
Answer
The other shareholders may be concerned for several reasons:
-
Majority Shareholder: After the buy-back, B Sly becomes the majority shareholder, which may enable her to exert undue influence over company decisions.
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Control Over Decisions: With a larger shareholding, she can have significant say in decisions like board appointments, which could affect corporate governance and accountability.
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Ethical Concerns: If perceived as unethical or conflicting, other shareholders might worry about her influence impacting the company's direction, especially regarding key appointments like the CEO.