4.1 Choose a term to complete each of the following statements - NSC Accounting - Question 4 - 2017 - Paper 1

The appropriate term is Internal Auditor. An internal auditor is responsible for evaluating and improving the effectiveness of risk management, control, and governance processes within the organization.

The correct term here is Shareholder. A shareholder is someone who purchases shares of a company, thereby obtaining ownership in that company.

This statement is completed with External Auditors. External auditors are independent professionals who are tasked with auditing the financial statements of a company to ensure accuracy and compliance with accounting standards.

To prepare the notes:

• Ordinary Share Capital: The total issued ordinary shares are 1,200,000 at a total value of R5,292,000.
• Retained Income: This is represented by the balance at the start of the year plus the net profit after tax, totaling R438,130.

For Cash Flow from Operating Activities, the cash generated from operations is calculated as:

$ext{Cash from Operations} = Sales - Operating Expenses = R8,652,000 - R1,760,000 = R6,892,000$

For Investing Activities, we have cash inflows and outflows from the purchase of fixed assets. For Financing Activities, it includes proceeds from the issuance of shares and any repurchases.

The percentage operating profit on sales can be calculated using the formula:

ext{Percentage Operating Profit} = rac{ ext{Operating Profit}}{ ext{Sales}} imes 100

Substituting the values:

rac{R697,000}{R8,652,000} imes 100 = 8.1\%

To calculate the dividends per share (DPS), use the formula:

ext{DPS} = rac{ ext{Total Dividends}}{ ext{Number of Shares}}

Assuming total dividends distributed is R168,000 for share capital of 1,000,000:

DPS = rac{168,000}{1,000,000} = R0.168

The price of R9.10 reflects the average market price at which shares are valued. Investors may perceive this as favorable if it aligns with the market value, but it also implies dilution of existing shares. Hence, it indicates the right pricing strategy for new equity financing.

Financial Gearing has decreased due to the increased equity capital. The Debt-Equity Ratio improved from 0.8 to 0.1, reflecting reduced risk for shareholders. Additionally, the Return on Capital Employed (ROCE) should be analyzed before and after the issue for better understanding.

Henry owns 300,000 shares. To maintain 60% shareholding post-issue:

• Current shares = 700,000; New total = 700,000 + x, where x = new shares.

The calculation for the shares he needs to buy is:

$300,000 = 0.6 imes (700,000 + x) \\ ext{Thus,} \\ x = 120,000$

With the price at R9.10, cost =

$120,000 imes R9.10 = R1,092,000$

The liquidity ratios of Ronki Ltd indicate decreased financial flexibility. The Current Ratio has reduced to 1.5 and the Quick Ratio further lowered, implying potential difficulties meeting short-term obligations.

Ronki Ltd’s buy-back price of R15 is higher than the market average (R10.20), suggesting a strategic move to enhance share value and reduce the number of outstanding shares, ultimately benefiting remaining shareholders.

1. Increased Ownership Percentage: With shares being repurchased, his percentage ownership increases.
2. Potential Price Increase: The repurchase could lead to an increase in share price due to reduced supply.
3. Improved earnings per share (EPS): Fewer shares in circulation means a potential rise in EPS, benefiting his investment returns.