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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
3.2.1 Prepare the Retained Income note to the Balance Sheet
Answer
To prepare the Retained Income note for Ruhi Ltd:
Retained Income Note on 28 February 2017
- Balance on 1 March 2016: R57 480
- Funds used to repurchase shares: -R50 000
- Net profit after income tax: R681 720
- Ordinary share dividends: -R389 200
- Interim dividend: -R179 200
- Final dividend: -R210 000
Total Retained Income on 28 February 2017: R300 000
Step 2
3.2.2 Complete the Balance Sheet as at 28 February 2017
Answer
To prepare the Balance Sheet:
Balance Sheet as at 28 February 2017
ASSETS
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Non-current assets:
- Fixed assets: R4 060 545
- Fixed deposit: R250 000
-
Current assets:
- Inventories (Trading Stock): R222 600
- Trade and other receivables: R889 455
- Cash and cash equivalents: R377 400
Total Assets: R5 200 000
EQUITY AND LIABILITIES
-
Shareholders’ equity:
- Ordinary share capital: R3 900 000
- Retained income: R300 000
-
Non-current liabilities:
- Loan: Dube Bank: R707 030
-
Current liabilities:
- Trade and other payables: R231 920
- Shareholders for dividends: R124 770
Total Equity and Liabilities: R5 200 000
Step 3
3.2.3 Do a calculation to show the number of shares that Bakkies must buy to gain control of the company
Answer
To calculate the number of shares:
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Total issued shares: 800,000
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Bakkies' current shareholding: 42% of 800,000 = 336,000 shares
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Control requires more than 50%, hence:
- Shares needed for control: 800,000 * 50% = 400,000 shares
- Shares Bakkies must buy: 400,000 - 336,000 = 64,000 shares
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Since shares are sold in batches of 100, Bakkies would need to buy at least 64,000 shares.
Step 4
Explain why an existing shareholder would not be satisfied
Answer
An existing shareholder may not be satisfied due to the following reasons:
- Legal obligation: It is illegal and unethical to act against the laws prescribed by the Companies Act.
- Market disadvantage: This arrangement could disadvantage existing shareholders since Bakkies would pay less than the market price, which might impact the value of their shares.
Step 5
3.2.4 How will the staff development expense be explained in the published annual report?
Answer
The R300,000 expense for staff development over the next two years will be disclosed in the annual report under the section for employee-related expenses. This will illustrate the company's commitment to employee development and training as part of its operational expenses.