Accounting English Paper 1 2015 Questions and Answers Part 2

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  • Comment on whether or not Jane’s strategy of adjusting the selling prices has benefitted the business. Provide figures to support your answer.

  • Excellent answer = 4 marks; Good = 3; Average = 2; Poor = 1; Incorrect = 0

  • Expected response: ΠΠΠΠ

  • The strategy was successful in December, but Jane then increased the selling price significantly in January. She has not reduced the selling prices when cost prices decreased. Her competitors will probably decrease prices when possible to increase their market share.

Provide two points to assist Jane in improving internal control in her business.

Any two points ΠΠ ΠΠ

Possible responses:

  • Regular stock counts to check that no stock goes missing.

  • Division of duties to check that all sales are recorded properly, and that stock purchased is properly secured.

  • Reconsider pricing policy to reduce stock to acceptable levels.

Question 3

Choose a description from Column B that matches a term/concept in Column A. Write only the letter (A–E) next to the question number (3.1.1–3.1.5).

Choose a description from Column B that matches a term/concept in Column A

3.1.1

B

Π

3.1.2

E

Π

3.1.3

A

Π

3.1.4

C

Π

3.1.5

D

Π

Ordinary Share Capital

Ordinary Share Capital

850 000 Π ordinary shares in issue at beginning of

year

5 737 500 Π

150 000 shares repurchased during the year

(150 000 Π x R6,75 Π)

(1 012 500) Π

700 000 Π ordinary shares in issue at end of year

operation, one part correct

4 725 000 Ρ

Retained Income

Retained Income

Balance on 1 July 2013

181 900 Π

Net profit after income tax

813 600 Π

Shares repurchased (150 000 Π x 0,65 Π)

(97 500) Π

Ordinary share dividends

operation, one part correct

(595 000) Ρ

Interim (paid)

315 000 Π

Final (recommended) (700 000 x 40 cents)

280 000 ΠΠ

Balance on 30 June 2014

operation, one part correct

303 000 Ρ

Trade and Other Receivables

Trade and Other Receivables

Net trade debtors (118 370 Π – 6 100 Π + 11 700 Π

123 970 Π

SARS: Income tax (320 900 Π – 316 400) (813 600 x/72)

4 500 Π

Prepaid expenses

12 430 ΠΠ

Total

operation, one part correct

140 900 Ρ

Bargain Traders LTD Balance Sheet on 30 June 2014

Bargain Traders LTD Balance Sheet on 30 June 2014

Assets

Non-Current Assets

operation

4 985 600 Ρ

Fixed/Tangible Assets

balancing figure

4 865 600 Ρ

Fixed deposit

120 000 Π

Current Assets

890 300 Π

Inventory(355 700 Π+ 9 500 Π)

365 200 Π

Trade and other receivables

140 900 Π

Cash and cash equivalents (351 200 Π+ 33 000 Π)

384 200 Π

Total Assets

See Total Equity and Liabilities

5 875 900 Ρ

Equity and Liabilities

Shareholders’ Equity

operation

5 028 000 Ρ

Ordinary share capital

4 725 000 Ρ

303 000 Ρ

Non-Current Liabilities

227 800 Ρ

Loan: Drake Bank (295 000 Π + 31 200 Π – 98 400 ΠΠ)

one part correct

Current Liabilities

operation

620 100 Ρ

Trade and other payables (197 000 Π + 11 700 Π + 33 000 Π)

241 700 Π

Shareholders for dividends

280 000 Ρ

Current portion of loan

98 400 Π

Total Equity and Liabilities

5 875 900 Ρ

Calculate the net asset value (NAV) on 30 June 2014.

5 028 000 Π÷ 700 000 Π = 718,3 cents Π

Comment on the price offered for the shares that were repurchased. Quote relevant financial indicators (actual figures/ratios/ percentages) to support your comment.

  • Good answer with figures = 3; Satisfactory = 2; Weak = 1; Incorrect = 0 ΠΠΠ

  • Shares were repurchased for R7,40 each.

  • The NAV on 30 June 2014 was 718 cents (696 cents in 2013).

An upward trend:

  • The market price at the time was R9,25. Indication that investors are interested in the company.

  • The price offered was conservative. The company benefitted from this transaction. (But shareholders who left might not be satisfied.)

Calculate Kyle Mason’s percentage shareholding after the proposed share buy-back on 31 August 2014.

Calculate Kyle Mason's percentage shareholding after the proposed share buy-back on 31 August 2014

Π

x = 51,6% Ρ

one part correct

(700 000 – 90 000)

As another shareholder, discuss your concern regarding the proposed repurchase of shares. Give TWO questions you would ask the directors at the annual general meeting.

Concern: ΠΠ

  • Any comment explaining the shift to major shareholder

  • Kyle Mason will own more than 50% of the company. (He has deliberately influences this.)

  • He can entrench himself as CEO for a longer period. The % shareholding has had a major effect on control.

Questions: (Any two) ΠΠ ΠΠ

1. Were the other directors aware of the strategy of Mason?

2. Why is it necessary to reduce the capital of the company?

3. The company is shrinking, is this intentional?

4. Why do this so soon after an earlier reduction in capital?

5. At what price will these shares be bought back?

6. How will this affect liquidity (current ratio is relatively low)?