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3.1 AUDIT REPORTS Choose an audit opinion from COLUMN B that best describes the audit report in COLUMN A - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
3.1 AUDIT REPORTS Choose an audit opinion from COLUMN B that best describes the audit report in COLUMN A. Write the letter only (A–C) next to the numbers (3.1.1 – 3.... show full transcript
Worked Solution & Example Answer:3.1 AUDIT REPORTS Choose an audit opinion from COLUMN B that best describes the audit report in COLUMN A - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
Step 2
Step 3
Step 4
3.2.1 Prepare the Retained Income note to the Balance Sheet
Answer
To compile the retained income for Ruhi Ltd as of 28 February 2017, we start with the retained income on 1 March 2016, adjust for funds used to repurchase shares, subtract dividends, and include the net profit after tax. The note should look like this:
- Balance on 1 March 2016: R74,480
- Minus funds used to repurchase shares: R(50,000)
- Plus net profit after tax: R681,720
- Minus ordinary share dividends: R(389,200)
- Plus interim dividend: R179,200
- Final dividend declared: R210,000
- Balance on 28 February 2017: R300,000
Step 5
3.2.2 Complete the Balance Sheet
Answer
The balance sheet should include the following sections, with values matching the provided totals:
ASSETS
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Non-current assets
- Fixed Assets: R4,060,540
- Fixed Deposit: R250,000
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Current assets
- Inventories: R222,600
- Trade and other receivables: R213,920
- Cash and cash equivalents: R377,400
TOTAL ASSETS: R5,200,000
EQUITY AND LIABILITIES
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Shareholders' equity
- Ordinary share capital: R3,900,000
- Retained income: R300,000
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Non-current liabilities
- Loan: Dube Bank: R707,030
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Current liabilities
- Trade and other payables: R213,920
- SARS: Income tax: R26,280
- Current portion of loan: R124,770
TOTAL EQUITY AND LIABILITIES: R5,200,000
Step 6
3.2.3 Do a calculation to show the number of shares that Bakkies must buy to gain control of the company
Answer
To determine the number of shares that Bakkies must acquire, we first need to find out the threshold for controlling interest, which is 51% of total issued shares.
Calculating the total shares:
- Total shares: 800,000
- Shares needed for control: 800,000 * 0.51 = 408,000
Bakkies currently owns 42% of the issued shares:
- Existing shares owned: 800,000 * 0.42 = 336,000
- Additional shares needed: 408,000 - 336,000 = 72,000
Thus, Bakkies must purchase at least 72,000 shares to achieve control.
Step 7
Bakkies wants to buy the shares at the current net asset value without advertising them to the public. As an existing shareholder, why would you not be satisfied with this arrangement? Explain. Provide TWO points.
Answer
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The arrangement could lead to a dilution of value for existing shareholders since Bakkies is looking to acquire shares without public disclosure. This lack of transparency might raise concerns about fairness in the valuation of shares.
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There are legal obligations concerning share purchases. The Companies Act mandates disclosure in the prospectus, and bypassing this procedure may contravene shareholder rights and market regulations.
Step 8
3.2.4 How will this expense be explained (disclosed) in the published annual report?
Answer
The expense for staff development and training will be disclosed in the annual report as part of the company's commitment to improving employee skills and capabilities. This will be noted in the operational expenses section, emphasizing the company's investment in human resources and indicating ongoing efforts to enhance workforce efficiency.