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You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Question 3
You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017. **3.1 Complete the Income Statement for the year en... show full transcript
Worked Solution & Example Answer:You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017 - NSC Accounting - Question 3 - 2017 - Paper 1
Step 1
Complete the Income Statement for the year ended 28 February 2017
Answer
The income statement would include:
- Sales: R8,400,000
- Cost of Sales: R5,250,000
- Gross Profit: R3,150,000
- Rent Income: R72,000
- Commission Income: R12,000
- Total Income: R3,234,000
- Operating Expenses: R2,016,000
- Operating Profit: R1,218,000
- Interest Expense: R53,000
- Profit Before Tax: R1,240,000
- Income Tax: R396,800
- Net Profit After Tax: R843,200
Step 2
Prepare Ordinary share capital
Answer
The ordinary share capital is detailed as follows:
- Authorised Share Capital: 1,200,000 shares
- Ordinary Shares in Issue on 1 March 2016: 1,020,000
- Shares Issued During the Year: 756,000
- Total Shares After Issues: 1,776,000
- Shares Bought Back: 250,000
Thus, the total ordinary share capital on 28 February 2017:
- Remaining Shares After Buy-back: 1,526,000
- Ordinary Share Capital Amount: [Calculated based on shares remaining x R1]
Step 3
Prepare Retained Income
Answer
The retained earnings calculation includes:
- Balance on 1 March 2016: R674,500
- Total Dividends Paid: R720,000 (ordinary + interim)
- Net Profit After Tax for the Year: R843,200
Thus, retained income on 28 February 2017:
- Retained Income: R674,500 + R843,200 - R720,000 = R797,700
Step 4
Complete the EQUITY AND LIABILITIES section of the Balance Sheet
Answer
In the Balance Sheet it would look like this:
SHAREHOLDERS' EQUITY:
- Ordinary Share Capital: [As calculated earlier]
- Retained Income: R797,700
NON-CURRENT LIABILITIES:
- Loan: Anca Bank: R487,000
CURRENT LIABILITIES:
- Trade and Other Payables: [Value left to calculate]
- SARS: R396,800
Total Liabilities and Equity Balance: To ensure the equation balances.
Step 5
Calculate B Sly's percentage shareholding in the company before and after the share buy-back
Answer
Before the buy-back, B Sly had:
- Shareholding: 480,000 out of 1,200,000 = 40%.
After the buy-back, her shareholding became:
- Total shares after buy-back: 950,000
- New Shareholding Percentage: 480,000 / 950,000 * 100% = 50.5% (rounded to 51%)
Step 6
Explain why the other shareholders will be concerned about this transaction
Answer
The other shareholders may be concerned for several reasons:
- After the buy-back, B Sly becomes the majority shareholder, gaining significant influence.
- This could lead to unethical practices, as she could potentially place her affiliates in positions of power.
- Other shareholders might fear losing their influence or voice in the company decision-making process.