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Complete the Income Statement for the year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
Complete the Income Statement for the year ended 28 February 2017. Note that some information is included in the ANSWER BOOK. --- Sales 8 400 000 Cost of Sales 5 2... show full transcript
Worked Solution & Example Answer:Complete the Income Statement for the year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
3.2.1 Ordinary share capital
Answer
The authorized share capital of the company was 1,200,000 ordinary shares.
On 1 March 2016, there were 1,020,000 ordinary shares in issue. In the financial year, 756,000 shares were issued, and 800,000 shares were repurchased.
Thus, the number of shares on 28 February 2017 is calculated as follows:
a)
ext{Shares on 28 February 2017} = ext{Ordinary shares on 1 March 2016} + ext{Shares issued} - ext{Shares repurchased}
= 1,020,000 + 756,000 - 800,000 = 975,000.
b) The ordinary share capital on 28 February 2017 is therefore 975,000 shares.
Step 2
3.2.2 Retained income
Answer
To calculate retained income on 28 February 2017, we start with the balance on 1 March 2016 of R674,500.
Funds used for the share buyback of 250,000 shares at R4.95 per share equals:
ext{Funds used} = 250,000 imes 4.95 = R1,237,500.
Next, we need to account for ordinary dividends paid:
- Ordinary share dividends totaled R720,000.
- An interim dividend of R420,000 was also paid.
Thus, retained income at the end of the year is calculated as follows:
ext{Retained income} = ext{Balance on 1 March 2016} + ext{Net profit after tax} - ext{Ordinary share dividends} - ext{Interim dividends}
= 674,500 + 843,200 - 720,000 - 420,000 = R560,700.
Step 3
3.3 Complete the EQUITY AND LIABILITIES section of the Balance Sheet.
Answer
The equity section includes the ordinary share capital amounting to R3,600,200 and retained income of R560,700, summing to:
ext{Total Equity} = ext{Ordinary Share Capital} + ext{Retained Income} = R3,600,200 + R560,700 = R4,160,900.
For the non-current liabilities section, the loan balance from Anca Bank is R487,000, which includes interest.
Lastly, current liabilities include accounts payable and provision for expenses amounting to R861,200.
Summing it up, the total equity and liabilities section of the balance sheet is:
ext{Total liabilities and equity} = R4,160,900 + R487,000 + R861,200 = R5,509,100.
Step 4
3.4.1 Calculate B Sly's percentage shareholding in the company before and after the buy-back.
Answer
Before the buy-back:
The total number of shares before the buy-back equals 1,200,000 ordinary shares, with B Sly holding 480,000 shares.
Thus, her shareholding percentage is calculated as follows:
ext{Percentage} = rac{480,000}{1,200,000} imes 100 = 40\\%.
After the buy-back:
After B Sly's buy-back of 250,000 shares, the total shares in circulation decreased to:
ext{Total shares after buy-back} = 1,200,000 - 250,000 = 950,000.
Her new shareholding is 480,000 shares, thus:
ext{New percentage} = rac{480,000}{950,000} imes 100 = 50.53\\%.
Step 5
3.4.2 Explain why the other shareholders will be concerned about this transaction.
Answer
The other shareholders may express concern regarding B Sly’s buy-back of shares for several reasons:
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Majority Shareholder: After the buy-back, B Sly holds more than 50\%, giving her significant control over company decisions.
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Influence on Decisions: With majority ownership, she may influence board appointments and major corporate decisions unilaterally.
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Ethical Concerns: If B Sly has insider information or is perceived to be using her position to benefit at the expense of other shareholders, trust may erode.
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Lack of Transparency: Other shareholders might feel excluded from important discussions, raising issues about corporate governance.