CHAPTERS COVERED : CHAPTERS 1-8, 10 & LEARNER GUIDE : STUDY UNITS 1-4 & 8. DUE DATE : 3:00 p.m. 21 AUGUST 2012

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1 Page 1 of 6 ASSIGNMENT 2 ND SEMESTER : FINANCIAL MANAGEMENT () CHAPTERS COVERED : CHAPTERS 1-8, 10 & LEARNER GUIDE : STUDY UNITS 1-4 & 8 DUE DATE : 3:00 p.m. 21 AUGUST 2012 TOTAL MARKS : 100 INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete Instructions to Students for Completing and Submitting Assignments must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1. You are required to submit ONE assignment per subject. 2. The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%. 3. Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4. Number all the pages of your assignment (e.g. page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5. The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations. 6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment. 7. Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8. The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 21 August Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 21 August 2012 and up to 5:00 p.m. the following day, after which no assignments will be accepted. 9. If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website, on Friday, 5 October 2012.

2 Page 2 of 6 SPECIFIC INSTRUCTIONS: Answer ALL the questions. Show ALL calculations. Read all questions carefully to determine exactly what is required before attempting to answer. Number your answers clearly and set them out under appropriate headings and sub-headings. ANSWER ALL THE QUESTIONS QUESTION 1 [23] 1.1 Missing Trading Ltd, purchased a business delivery vehicle on the 1 st of January 2009 for R Calculate the amount of depreciation that would be recorded as the period expense for the third year of having the vehicle (i.e. 31 st December 2011) if the reducing balance method is used on vehicles at 15% pa. Also clearly state what the carrying value would be on the delivery vehicle at the 31 st December (Show all workings, clearly set out!) (5) 1.2 Taking into account the same delivery vehicle as in 1.1 above, calculate the depreciation per period if the straight line method is applied. (1) 1.3 Other than FIFO, state two (2) possible methods that could be considered when calculating the value of stock. (2) 1.4 The new owners of Bluegrass Natural Foods have hired you to help them diagnose and cure problems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an analysis of the company s short-term activity ratios. Your calculations and appropriate industry norms are listed. Ratio Bluegrass Industry norm Current ratio Quick ratio Inventory turnover Average collection period 73 days 52 days Average payment period 31 days 40 days a. What recommendations relative to the amount and the handling of inventory could you make to the new owners? (3) b. What recommendations relative to the amount and the handling of trade receivables could you make to the new owners? (3) c. What recommendations relative to the amount and the handling of trade and other payables could you make to the new owners? (3) d. What results, overall, would you hope your recommendations would achieve? Why might your recommendations not be effective? (6)

3 Page 3 of 6 QUESTION 2 [20] An education institution is considering the production and marketing of an internal textbook for its students and it does not wish to outsource this process. However, it needs to evaluate the viability of this initiative. The institution budgets its sales revenue from sales of this book for the first semester (being 6 months) to be R with 550 students taking the course. In order to produce this book the following costs will need to be incurred over the first semester: Rental of the printing R2 000 per month. Salaries of staff operating the machinery and managing the R6 786 for the entire semester. Paper & materials valued at R15 per book. Each toner/ink cartridge is expected to cover 120 books printed and each toner/ink cartridge costs R Each book costs R12 to bind. Required 2.1 Calculate the following (showing all workings): a) Selling price per book (1) b) Total fixed costs (3) c) The variable costs per book (4) 2.2 Calculate the number of books the institution would need to sell in order to break even. (4) 2.3 Using the figure calculated above show the break-even point in rands. (2) 2.4 Assuming that the institution wants to make a profit of R in the second semester and the rent is set to increase by 15%, how many books would it then have to sell to achieve this profit. *Round your answer up to the nearest whole unit (6) QUESTION 3 [12] Make m Nice adopts the FIFO method of valuing stock as according to the relevant accounting standards. On 1 June 2011 they had stock on hand of 300 units all valued at R25 per unit. The accountant is meticulous on keeping accurate records and she has attached the inventory records for the three month period from June August 2011 below: Date Details Quantity R per unit 12/06/2011 Purchases /07/2011 Sales /08/2011 Purchases /08/2011 Sales

4 Page 4 of 6 Required: Calculate and clearly indicate the closing inventory value as well as the gross profit made on sales at the end of the three month period for Make m Nice. Redraft the headings and format given below in order to correctly disclose your workings. Opening balance Purchases QTY Cost price p.u. Total Sales (380) Purchases Sales (160) Closing balance QUESTION 4 [15] Show the effect of the following transactions, relating to WhyMe Ltd, on the accounting equation. Note: Using the headings below as a guide, you need only indicate the amount under the relevant heading, debit or credit. Be sure to include a +/- to indicate the effect on each element. The first one has been done for you as an example. 1. The entity paid for rent for the month of R The owner contributed his personal equipment to the value of R as well as cash of R into the books of WhyMe Ltd. 3. Purchased R worth of goods for resale from a supplier on credit. 4. Interest was received on WhyMe Ltd s savings account for the month. The account has a balance of R and earns 12% per annum. The interest was paid directly into the current account of WhyMe Ltd. 5. WhyMe Ltd received an amount of R3 420 from a debtor who was settling the amount owed by it. This amount was the amount after a 5% settlement discount had been provided. 6. A new cash register was purchased by WhyMe Ltd for R R1 800 was paid for in cash and the remainder was put on our account with the supplier. ASSETS EQUITY LIABILITIES DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

5 Page 5 of 6 QUESTION 5 [30] The following 2009 financial statements of Missing Ltd are provided to you: Statement of financial position Assets 2009 Property, plant and equipment (PPE) at cost price Accumulated depreciation (22 000) PPE at carrying value Investment in shares Non-current assets Inventories (stock) Trade receivables Cash and cash equivalents Current assets Total assets Equity and liabilities Share capital Reserves Retained earnings Ordinary shareholders equity Preference shares Shareholders equity Total equity Long-term debt Non-current liabilities Trade payables Bank overdraft Tax payable Dividends payable Short-term loans Current liabilities Total equity and liabilities

6 Page 6 of 6 Statement of comprehensive income 2009 Turnover Cost of sales and services rendered (70 000) Gross profit Operating expenses (40 000) Operating income Operating profit Investment income Finance cost (14 660) Profit before tax Tax (9 400) Profit after tax Preference share dividends (2 800) Attributable earnings Ordinary dividends (10 000) Retained earnings (for the year) Additional information: Purchases on credit for the year amount to R Lease payments of R were made during the year. You are required to calculate the following ratios (assume 360 days in the year): Ratio Return on equity Profit margin on sales Operating profit margin Total asset turnover Mark up % Stock turnover Current ratio Quick ratio (acid test ratio) Debtors collection period Creditors collection period