CCMM517 - Group assignment PDF

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CCMM 517 - eFundi test 3 (26 – 31 MAY 2021) FINANCIAL REPORTING GROUP ASSESSMENT TAKE NOTE: • Use the following information to complete the parts of the group assessment and answer the multiple choice questions on eFundi. • No assignments or answer sheets are submitted in the assignments tab on eFundi. • ONLY ONE ASSIGNMENT PER GROUP IS TO BE SUBMITTED BY THE SELECTED GROUP MEMBER ON THE TEST & QUIZZES TAB • You may use non-programmable calculators. PART 1: YOU ARE REQUIRED TO: Work out the following multiple choice questions together as a group. Only ONE member of the group has to answer (submit) the same questions on eFundi. 1.1

RAGGY DEALERS disclosed the following information in the statement of financial position:

Year Inventory

2016

2015

R220 000

R260 000

The information above represents the following effect in the cash flow statement: a) Cash inflow from investment activities of R40 000 b) Cash outflow from investment activities of R40 000 c) Cash outflow from operating activities R40 000 Cash inflow from operating activities of R40 000 1.2

What is the immediate effect of making a capital repayment on a loan on cash flow and profit? a) On profit – increase; and on cash – decrease. b) On profit – decrease; and on cash – decrease. c) On profit – decrease; and on cash – none. On profit – none; and on cash decrease.

1.3

KINGS Ltd has a current ratio of 1,6 : 1 and an acid test ratio (quick ratio) of 1,2 : 1. The company has R2 000 000 in sales and its current liabilities are R1 000 000. What is the value of the company’s current assets? R1 600 000 b) R1 200 000 c) R3 200 000 d) R2 400 000

1.4

CROWN Ltd has a current ratio of 0,6 : 1. Which of the following transactions would increase (improve) this ratio? a) Purchasing inventory on credit. b) Paying off long-term debt with cash. c) Collecting accounts receivable (debtors) in cash. Paying off accounts payable (creditors) with cash.

1.5

Which one of the following changes in an accounting ratio from one year to the next, would please a company’s management who is concerned with cash flow problems in their firm? An increase in the inventory turnover rate from one year to the next. b) A decrease in the creditor’s payment period from one year to the next. c) A decrease in the debt/equity ratio from one year to the next. d) An increase in the debtor’s collection period from one year to the next.

1.6

STORM Dealers disclosed the following information in their statement of financial position:

Year Debtors

2016

2015

R180 000

R150 000

The abovementioned information represents the following effect in the cash flow statement: a) Cash inflow from investment activities of R30 000 b) Cash outflow from investment activities of R30 000 Cash outflow from operating activities of R30 000 d) Cash inflow from operating activities of R30 000 1.7

For its most recent year a company had Sales (all on credit) of R830 000 and Cost of Sales of R525 000. At the beginning of the year its Debtors were R80 000 and its Inventory was R100 000. At the end of the year its Debtors were R86 000 and its Inventory was R110 000. What is the debtor's collection period in days? 36.5 days b) 57.7 days c) 46.2 days d) 35.2 days

1.8

Working capital is a measure of: a) Consistency b) Profitability Liquidity d) Efficiency

1.9

Ben’s Car Repair Shop started the year with total assets of R60 000 and total liabilities of R40 000. During the year the business recorded revenues (services rendered) of R100 000, expenses of R55 000, and dividends paid of R10 000. What is the net profit before tax reported by Ben’s Car Repair Shop for the year? a) R35 000 b) R20 000 c) R90 000 R45 000

1.10

A company has accounts receivable (debtors) of R200 000, money in the bank (dt) of R100 000, and current liabilities of R150 000. The company purchased R50 000 inventory on credit. After the purchase, the acid test ratio (quick ratio) will be: a) 2 : 1 b) 2,5 : 1 1,5 : 1 d) 1,75 : 1

1.11 a) b) c) d)

A decrease in selling and admin expenses would have an impact on which ratio? Debt equity ratio Debtor’s collection period Acid test ratio Gross profit percentage Net profit percentage

1.12

If a company changes from offering 30 days credit to customers to offering 60 days credit, which one of the following statements is correct? Cash generated from operating activities will increase Cash generated from operating activities will decrease Cash generated from financing activities will increase Cash generated from financing activities will decrease Cash generated from investment activities will decrease

a) c) d) e) 1.13

A company has total assets of R500 000 and non-current assets of R400 000. Current liabilities are R40 000. What is the current ratio? a) 12,5 : 1 b) 10 : 1 2,5 : 1 d) 2 : 1

PART 2 – QUESTION The following financial information was extracted from the accounting records of CELEB Ltd. CELEB Ltd Abbreviated statement of profit or loss and other comprehensive income for the year ended 28 February 2016 Sales (50% on credit) Cost of sales Net profit after tax

8 000 000 5 260 000 660 000

CELEB Ltd Statement of financial position on 28 February 2016 2016 Non-current assets 3 200 000

2015 3 000 000

Property, plant and equipment Current assets

3 200 000

3 000 000

3 240 000

2 500 000

Inventories (Stock) Trade and other receivables (Debtors)

1 840 000 1 200 000

1 500 000 950 000

Cash and cash equivalents

200 000

50 000

TOTAL ASSETS

6 440 000

5 500 000

Shareholders' equity Ordinary share capital

4 140 000 300 000

3 680 000 300 000

3 840 000

3 380 000

Non-current liabilities Mortgage Loan: Langa Bank @ 10% p.a.

900 000 900 000

1 000 000 1 000 000

Current liabilities

1 400 000

820 000

800 000 600 000

720 000 100 000

6 440 000

5 500 000

Retained income

Trade and other payables (Creditors) Short term bank loan @ 16% p.a. TOTAL EQUITY AND LIABILITIES

ADDITIONAL INFORMATION: The financial ratios for the 2015 financial year is provided below. All debtors of CELEB Ltd are on 90 days accounts and credit sales accounts for 50% of total sales. Financial ratios

2016

2015

2.1) Current ratio 2.2) Acid test ratio 2.3) Debtors collection period 2.4) Creditors payment period 2.5) Inventory turnover rate 2.6) Gross profit percentage 2.7) Net profit percentage 2.8) Return on equity 2.9) Debt equity ratio

? ? ? ? ? ? ? ? ?

3,05 : 1 1,22 : 1 89 days 47 days 3 times 37 % 9% 13 % 0,49

REQUIRED: Use the financial information provided to calculate and analyse the ratios and answer the multiple choice questions on eFundi (ASSUME 365 DAYS IN A YEAR). 2.1 Refer to the financial statements of CELEB Ltd. What is the current ratio for 2016?

b) c) d) e)

2,31 : 1 1,87 : 1 2,22 : 1 2,46 : 1 None of the above

2.2 What is the acid test ratio of CELEB Ltd for 2016? a) b) c) d)

2.3 a) c) d) e)

1,69 : 1 1,52 : 1 1,23 : 1 1,07 : 1 1:1 What is the debtor’s collection period in days of CELEB Ltd for 2016? 59,31 days 98,09 days 109,5 days 49,05 days None of the above

2.4

What is the creditor’s payment period in days of CELEB Ltd for 2016? a) 49,05 days 52,74 days c) 55,51 days d) 49,96 days e) None of the above

2.5

What is the inventory turnover rate (times per year) of CELEB Ltd for 2016?

b) c) d) e) 2.6 a) b) c) e) 2.7

3,15 times per year 3,63 times per year 3,69 times per year 2,58 times per year 4,20 times per year What is the gross profit percentage of CELEB Ltd for 2016? 12,55% 65,75% 8,25 % 34,25% None of the above

d) e)

What is the net profit percentage of CELEB Ltd for 2016? 12,55% 34,25% 8,25% 65,75% None of the above

b) c) d) e)

What is the return on equity of CELEB Ltd for 2016? 15,94% 16,9% 14% 16,24% 15%

a) b)

2.8

2.9 a) b) c) e)

What is the debt/equity ratio of CELEB Ltd for 2016? 1,8 0,49 0,34 0,56 None of the above

2.10

Which one of the following statements is true when analysing the movement of the debt/equity ratio of CELEB Ltd from 2015 to 2016? a) The debt/equity ratio decreased from 2015 to 2016, which entails that CELEB Ltd has more debt financing in 2016 when compared to 2015. b) The debt/equity ratio increased from 2015 to 2016, which entails that CELEB Ltd has less debt financing in 2016 when compared to 2015. CELEB Ltd has more debt than equity financing. d) CELEB Ltd has less debt than equity financing.

2.11 a) b) c)

CELEB Ltd’s liquidity: Improved from 2015 to 2016 as measured by the current ratio. Improved from 2015 to 2016 as measured by the acid test ratio. Deteriorated from 2015 to 2016 as measured by the current ratio, and is now below the norm of 2:1. Deteriorated from 2015 to 2016 as measured by the current ratio, but is still above the norm of 2:1.

2.12

Which one of the following statements is true when analysing the debtor’s collection period of CELEB Ltd? a) The debtor’s collection improved from 2015 to 2016, which is also good for the cash flow of CELEB Ltd. b) The debtor’s collection improved from 2015 to 2016, which is also bad for the cash flow of CELEB Ltd. The debtor’s collection worsened from 2015 to 2016, which is also bad for the cash flow of CELEB Ltd. d) The debtor’s collection worsened from 2015 to 2016, which is also good for the cash flow of CELEB Ltd.

2.13

Which one of the following statements could improve the debtor’s collection period of CELEB Ltd? a) Increase credit sales from 50% to 60%. Decrease the credit policy from offering 90 days to 60 days to debtors. c) Increase the credit policy from offering 90 days to 120 days to debtors. d) Do not charge any interest on outstanding debtor’s accounts.

2.14

Which one of the following statements is true when analysing the return on equity of CELEB Ltd? The return on equity increased from 2015 to 2016, and provides a healthy return to shareholders. b) The return on equity is not satisfactory, especially considering that financial institutions provide more interest on investments. c) The return on equity decreased from 2015 to 2016. d) The return on equity cannot increase when the gross profit percentage decreased.

2.15 Which one of the following statements is true when analysing the inventory turnover rate of CELEB Ltd? a) The inventory turnover rate decreased from 2015 to 2016. b) The inventory turnover rate increased from 2015 to 2016 which entails that inventory is moving slower in 2016 when compared to 2015. c) The inventory turnover rate decreased from 2015 to 2016, which entails that inventory is moving slower in 2016 when compared to 2015. The inventory is moving faster in 2016 when compared to 2015.

PART 3 – QUESTION The following information has been extracted from the records of Agri Vest Ltd that sells a range of agricultural equipment across the country. The following information has been extracted for the year ended 30 September 2018. Agri Vest Ltd Extract from the statement of profit or loss and other comprehensive income for the year ended 30 September 2018 R Gross profit Other operating expenses Operating profit

2 400 000 (1 580 000) 820 000

Other operating income Profit on sale of equipment Profit from operations

12 000 832 000

Financing activities Investment income – dividends Interest on mortgage bond Profit before tax Income tax Profit for the year

68 000 (164 000) 736 000 (187 040) 548 960

Agri Vest Ltd Cash flow statement for the year ended 30 September 2018 Cash flow from operating activities Cash received from customers Cash paid to suppliers and employees Net cash generated by operations Dividends received Interest received Dividends paid Interest paid Tax paid

R 115 960 5 850 000 (5 010 000) 840 000 68 000 (410 000) (164 000) (218 040)

Cash flow from investment activities Increase in investments Purchase of land for expansion Proceeds from sale of machinery New equipment for expansion

(1 644 400) (314 400) (1 200 000) 30 000 (160 000)

Cash flow from financing activities Increase in mortgage bond Issue of ordinary shares Net increase(decrease) in cash and cash equivalents Cash & cash equivalents at beg of period Cash & cash equivalents at end of period

1 000 000 550 000 450 000 (528 440) 29 000 (499 440)

REQUIRED: Use the financial information provided to answer the multiple choice questions on eFundi which your group has worked out together (only the selected group member submits the work). 3.1

Which one of the following statements is correct? a) Agri Vest Ltd had a positive cash flow for the year ended 30 September 2018. b) Agri Vest Ltd has a debit balance in the bank account on 30 September 2018 of R499 440. Agri Vest Ltd had a negative cash flow for the year ended 30 September 2018. d) Agri Vest Ltd had a credit balance in the bank account on 1 October 2017 of R29 000.

3.2

When analysing the cash flow statement of Agri Vest Ltd for the year ended 30 September 2018, it is evident that the largest portion of the negative cash flow can be attributed to: a) Operating activities Investment activities c) Financing activities d) The net loss

3.3

Which one of the following statements is correct when analysing the cash flow statement of Agri Vest Ltd for the year ended 30 September 2018, especially when considering cash flow from financing activities? Agri Vest Ltd had a positive cash flow from financing activities for the year ended 30 September 2018 of R1 000 000. b) Agri Vest Ltd had a negative cash flow from financing activities for the year ended 30 September 2018 of R1 000 000. c) The increase in the mortgage bond of R550 000 decreases the liability (loan). d) The issue of ordinary shares of R450 000 would result in a debit to equity.

3.4

When analysing the cash flow statement of Agri Vest Ltd for the year ended 30 September 2018, it is evident that a large portion of positive cash flow can be attributed to: a) Expanding the business. b) Profit earned for the year. c) The interest received. The increase in the liability (mortgage bond).

3.5

Which decision by the board through the financial year could have placed Agri Vest Ltd in a better cash position on 30 September 2018? a) Pay the creditors and suppliers earlier. b) Do not issue any shares. c) Increase the investment in land and new equipment. Do not declare or issue dividends.

PART 4: - NB!! •

• • •

ON EFUNDI (when the selected group member submits the answers under the tests & quizzes tab) - Provide the group's information (Initials, surname and student number) of all the members that participated in the group assessment. This information counts one mark. The mark obtained for the group assessment will ONLY be allocated to the members indicated here. All the other questions (Parts 1 – 3) counts two marks for each multiple choice question.

Example: MJ Botha, 13177396

TOTAL: [67]...