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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
Question 4
4.1 CONCEPTS: MATCHING Choose an accounting concept from COLUMN B that matches the questions in COLUMN A. Write only the letter (A–D) next to the number (4.1.1–4.1.3... show full transcript
Worked Solution & Example Answer: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
Step 1
4.1.1 To what extent does the business rely on borrowed funds?
Answer
The concept that matches this question is D: Liquidity. Liquidity refers to the ability of a company to meet its short-term obligations and is often assessed through various financial ratios, including the current ratio and quick ratio.
Step 2
Step 3
4.1.3 Is the business able to pay its short-term debts in the next financial year?
Answer
The related concept is A: Profitability. While profitability generally indicates the company's ability to generate profit, it also influences its capability to sustain operations and settle short-term debts.
Step 4
4.2.1 Prepare the Share Capital note to the Balance Sheet on 30 June 2017.
Answer
The Share Capital note on the Balance Sheet should detail the issued share capital of 880,000 ordinary shares. It is summarized as follows:
- Ordinary shares on 1 July 2016: 800,000
- Shares issued on 1 October 2016: 200,000
- Shares repurchased on 31 March 2017: (120,000)
- Closing balance on 30 June 2017: 880,000 shares.
- Total capital: R8,412,800.
Step 5
4.2.2 Calculate the following amounts to be used in the Cash Flow Statement:
Answer
To calculate the amounts:
- Dividends paid: R320,000 + R514,000 - R264,000 = R570,000
- Income tax paid: R31,000 + R22,300 - R314,400 = (R261,100) \
- Change in investment: R120,000 - R80,000 = R40,000
- Change in loans: R1,250,000 - R950,000 = R300,000.
Step 6
Step 7
4.2.4 Complete the net change in cash and cash equivalents section of the Cash Flow Statement.
Answer
The cash balance at the beginning of the year was R98,500, and at the end of the year, it was R2,500,000; thus:
Net change in cash = Ending balance - Starting balance = R2,500,000 - R98,500 = R2,401,500.
Step 8
4.2.5 Calculate the following financial indicators on 30 June 2017:
Answer
Calculating the financial indicators:
- Gross profit percentage = (Gross Profit / Sales) * 100 = (R4,290,000 / R11,440,000) * 100 = 37.5%.
- Net asset value per share = Total assets / Total shares = R8,801,400 / 880,000 shares = R10.00 per share.
- Return on average shareholders’ equity = (Total profit / Total equity) * 100, which equates to R733,600 / R8,801,400 * 100 = 8.33%.
Step 9
4.2.6 Were the directors justified in increasing the loan? Explain. Quote TWO financial indicators (with figures) in your answer.
Answer
Yes, the directors were justified in increasing the loan as indicators show a sustainable financial position:
- Debt/equity ratio = 0.1:1, indicating low debt levels.
- Return on capital employed (ROCE) increased from 11.3% to 12.5%, signifying effective capital generation.
Step 10
4.2.7 Explain why the shareholders are not satisfied with the dividend pay-out policy and their return earned.
Answer
Shareholders express dissatisfaction due to retained earnings for growth rather than dividends, with:
- Dividend pay-out policy showing 61.9% in 2016 down to 68.8% in 2017.
- Return earned seen as diminishing despite an increase in return on shareholders’ equity to 8.8%.
Step 11
4.2.8 Comment on the price paid to repurchase the shares on 31 March 2017.
Answer
The repurchase price is R10.00, which reflects fair market value as:
- The NAV was R9.78, showing good value for shareholders.
- The price doesn't compromise shareholder equity, reflecting a responsible financial strategy.