CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company. 5.1 Refer to Information C. Prepare the Asset Disposal Account in respect of equipment sold on 31 August 2015. 5.2 Refer to Information C. Calculate the amounts indicated by (a) to (c). 5.3 Calculate the following figures which will appear in the Cash Flow Statement for the year ended 28 February 2016: (Show ALL workings.) 5.3.1 Income tax paid 5.3.2 Net change in cash and cash equivalents 5.4 Prepare the section of the cash effects on financing activities of the Cash Flow Statement for the year ended 28 February 2016. 5.5 Calculate the following financial indicators for the financial year ended 28 February 2016: (Round off your calculation to ONE decimal point or the nearest cent, where applicable.) 5.5.1 Net asset value per share 5.5.2 Return on average shareholders' equity 5.5.3 Debt-equity ratio 5.6 Refer to Information F. 5.6.1 The directors are not satisfied with the liquidity position. Quote and explain THREE relevant financial indicators (with figures) to support this statement. 5.6.2 The directors decided to increase the loan during the current financial year. Explain why this was a good decision. Quote and explain TWO financial indicators (with figures) in your answer. 5.6.3 The directors were pleased with the price that the company paid to buy back the 40 000 shares. Give a suitable reason why the directors felt that way. Quote relevant financial indicators (with figures) to support your answer.

NSC Accounting Cash Flow Statements: CASH FLOW STATEMENT, ANALYSIS AN

CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company - NSC Accounting - Question 5 - 2016 - Paper 1

Question 5

CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2016, taken from... show full transcript

Worked Solution & Example Answer:CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company - NSC Accounting - Question 5 - 2016 - Paper 1

Step 1

Prepare the Asset Disposal Account in respect of equipment sold on 31 August 2015.

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Answer

To prepare the Asset Disposal Account, list the equipment sold alongside proceeds from sale and accumulated depreciation:

Assets Disposal Account
-------------------------
Date              | Description        | Amount
----------------------------------------------------
2015-08-31       | Equipment sold     | R120,000
2015-08-31       | Accumulated Depreciation | R46,560
2015-08-31       | Proceeds from Sale | R73,440
----------------------------------------------------
Total             |                    | R120,000

This format provides clarity on the assets disposed of and their financial impacts.

Step 2

Calculate the amounts indicated by (a) to (c).

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Answer

For calculations:

(a) Using the formula:

ext{Amount} = ext{3,900,000} - ext{2,000,000} = ext{1,900,000}

(b) Sold: 80 x 160 for 12 = R15,000

(c) Depreciation taken: 20% on R348,000, giving:

ext{Depreciation Expense} = R69,680 ext{ (348,000 x 20%)}

Step 3

Calculate the income tax paid.

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Answer

To find the income tax paid:

ext{Income Tax Paid} = ext{(1,240,000 - 882,800)} + ext{Adjustment} = R294,100

Step 4

Calculate the net change in cash and cash equivalents.

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Answer

This can be calculated as follows:

ext{Net Change} = ext{549,580} - ext{82,000} - ext{641,580} = R(18,000)

Step 5

Prepare the section of the cash effects on financing activities of the Cash Flow Statement.

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Answer

In the Cash Flow Statement for financing activities, list:

Proceeds from shares issued: R1,350,000
Buy back of shares: (R172,000)
Mortgage loan: R1,550,000

This leads to total cash inflow/outflow for financing activities.

Step 6

Calculate the net asset value per share.

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Answer

Using the formula for net asset value per share:

ext{NAV per Share} = rac{5,950,800}{1,500,000} imes 100 = 396.7 ext{ cents}

Step 7

Calculate the return on average shareholders' equity.

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Answer

Return on average shareholders' equity is calculated as:

ext{Return} = rac{892,800}{5,147,900} imes 100 = 17.3 ext{ %}

Step 8

Calculate the debt-equity ratio.

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Answer

The debt-equity ratio is calculated as:

ext{Debt-Equity Ratio} = rac{1,950,000}{5,950,800} ightarrow 0.33 : 1

Step 9

Quote and explain THREE relevant financial indicators to support the liquidity position statement.

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Answer

Current ratio showed an increase from 1.8 in 2015 to 3.3 in 2016, indicating better liquidity.
Acid test ratio improved from 1.2 in 2015 to 1.6 in 2016.
Stock turnover declined from 5 times to 3 times, which highlights efficiency issues in liquidity.

Step 10

Explain why increasing the loan during the current financial year was a good decision. Quote and explain TWO financial indicators.

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Answer

Increasing the loan can be beneficial due to:

Return on Total Capital Employed (ROTC) increased from 21.2% to 24.2%, indicating effective use of funds.
Debt-equity ratio improved, suggesting less reliance on owner funds. This disperses risk.

Step 11

Give a suitable reason why the directors felt pleased with the buyback of shares.

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Answer

The share buyback was executed at R4.30 per share, lower than previous market prices, indicating sound financial management:

Paid below market average (R4.50) - indicates better cash management.
Positive indicator in terms of shareholders' value creation.

CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company - NSC Accounting - Question 5 - 2016 - Paper 1

Worked Solution & Example Answer:CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company - NSC Accounting - Question 5 - 2016 - Paper 1

Prepare the Asset Disposal Account in respect of equipment sold on 31 August 2015.

Calculate the amounts indicated by (a) to (c).

Calculate the income tax paid.

Calculate the net change in cash and cash equivalents.

Prepare the section of the cash effects on financing activities of the Cash Flow Statement.

Calculate the net asset value per share.

Calculate the return on average shareholders' equity.

Calculate the debt-equity ratio.

Quote and explain THREE relevant financial indicators to support the liquidity position statement.

Explain why increasing the loan during the current financial year was a good decision. Quote and explain TWO financial indicators.

Give a suitable reason why the directors felt pleased with the buyback of shares.

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