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4.1 CONCEPTS: MATCHING Choose an accounting concept from COLUMN B that best 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 best matches the questions in COLUMN A. Write only the letter (A–D) next to the number (4.1.1–... show full transcript
Worked Solution & Example Answer:4.1 CONCEPTS: MATCHING Choose an accounting concept from COLUMN B that best matches the questions in COLUMN A - NSC Accounting - Question 4 - 2017 - Paper 1
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4.2.1 Prepare the Share Capital note to the Balance Sheet on 30 June 2017.
Answer
Share Capital on 30 June 2017:
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Authorised share capital comprises 1,200,000 shares.
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Issued share capital comprises 880,000 ordinary shares.
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Ordinary shares on 1 July 2016: 800,000
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Shares issued on 1 October 2016: 200,000 @ R9.80 = R1,960,000
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Shares repurchased on 31 March 2017: 120,000 @ R10.00 = (R1,200,000)
Final Ordinary Share Capital: R8,412,800.
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4.2.2 Calculate the following amounts to be used in the Cash Flow Statement:
Answer
Calculating these amounts involves identifying cash inflows and outflows related to the operations:
- Dividends Paid: Total Dividends of R514,000 to shareholders less Retained Earnings of R264,000 = R570,000 outflow.
- Income Tax Paid: Expenses incurred during the year totaling R314,400.
- Change in Investment: Change from R120,000 less R80,000 resulting in R40,000 inflow.
- Change in loans: New loan amount minus previous loan = R1,250,000 - R950,000 = R300,000 inflow.
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4.2.3 Calculate the cost of the additional equipment purchased.
Answer
The cost of additional equipment can be derived from the changes in fixed assets. Current fixed assets are R9,806,000, and previous assets were R8,410,000, with additional costs for extensions totaling R1,800,000, leading to a total cost calculation:
Cost of additional equipment = R9,806,000 - R8,410,000 + R1,800,000 = R545,600.
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4.2.5 Calculate the following financial indicators on 30 June 2017:
Answer
Gross Profit Percentage = (Gross Profit / Sales) * 100 = (R4,290,000 / R11,440,000) * 100 = 37.5%.
Net Asset Value per Share (NAV) = Total Shareholders' Equity / Number of Shares = R8,801,400 / 880,000 = R1,000.
Return on Average Shareholders' Equity = (Retained Income / Average Shareholders’ Equity) * 100 = (R733,600 / R8,801,400) * 100 = 8.3%.
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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 may be justified as the Debt/Equity ratio remained consistent at 0.1, which indicates a stable financial structure. Additionally, the return on capital employed (ROCE) increased from 11.3% to 12.5%, suggesting enhanced financial performance despite increased debt.
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4.2.7 Explain why the shareholders are not satisfied with the dividend pay-out policy and their return earned.
Answer
Shareholders may be dissatisfied due to the reduction in the Dividend Pay-out ratio from 61.9% in 2016 to 68.8% in 2017. This implies that a smaller proportion of earnings is distributed as dividends compared to retained earnings, limiting immediate gains to shareholders.
Step 11
4.2.8 Comment on the price paid to repurchase the shares on 31 March 2017. Quote TWO financial indicators (with figures) in your comments.
Answer
The price paid to repurchase shares at R10 each was at a premium compared to the NAV of R9.78 at the beginning of the year, indicating overvaluation. Additionally, this may signal that the firm is committed to shareholder value despite the premium, reflected in sustained earnings indicative of solid performance management.