Part A of examination paper

Transcription

1 Prof Johan Burger 2017 Managing Institutional Capacity 1 Diploma Programme in Public Accountability Module code ; twenty credits Preparation for November examination June examination MEMORANDUM

2 As with June paper: OPEN BOOK Answer in spaces provided. You may do calculations on your own scrap paper PART A: Working Capital Management (US marks) Questions 1 to 3 June paper posted on SUNLearn and discussed here

3 Question 1: Working capital cycle and average investment in working capital 10 marks Calculate working capital cycle, average investment in inventory, average investment in accounts receivable, average value of accounts payable and the average investment in working capital (Rand), assuming 365 days per year for Notsorich Local Municipality. The Municipality has R revenue per year, costs of services amount to 50% of total revenue, purchases for goods to use during service delivery amounts to 50% of costs of services. The average age of inventory is 50 days; average collection period is 60 days and average payment period 40 days.

4 To calculate: First write down all given or derived values: AAI = 50 days (given) ACP = 60 days (given) APP = 40 days (given) Revenue = R (given) Cost of services = R (50% of revenue) Purchases = R (50% of cost of services)

5 To calculate Then calculate equations and write down answers on lines in paper: Working capital cycle: AAI + ACP APP Working capital cycle: = 70 days

6 To calculate Then calculate equations and write down answers on lines in paper: Average investment in inventory: Inventory (R) = Cost of services x AAI Days of year = R x = R

7 To calculate Then calculate equations and write down answers on lines in paper: Average investment in accounts receivable: Accounts receivable (R) = Revenue x ACP Days of year = R x = R

8 To calculate Then calculate equations and write down answers on lines in paper: Average value of accounts payable: Accounts payable (R) = Purchases x APP Days of year = R x = R

9 Working Capital Cycle (Days) = AAI + ACP APP Inventory (R) = Cost of services x AAI Days of year Accounts receivable (R) = Revenue x ACP Days of year Add Deduct Average investment in working capital Accounts payable (R) = Purchases x APP Days of year 2017/11/16 9

10 To calculate Then calculate equations and write down answers on lines in paper: AVERAGE INVESTMENT IN WORKING CAPITAL = R R R = R

11 Question 2: Ratio analysis and interpretation 16 marks Analyse and interpret the Current and Acid Test and Turnover of Accounts Receivable ratios for the previous and current year and Annual Debtors Collection Rate for the current year of the municipal statements provided To calculate: Follow the arrows To interpret: Compare values with set standard and look at difference between two years where applicable

12 Test Number: US Generic Financial Statements STATEMENT OF FINANCIAL POSITION AT 30 JUNE ASSETS Net Assets and Liabilities Note Current Assets R R Inventory R R Non-current assets held for sale R R Trade receivables from exchange transactions R R Trade receivables from non-exchange transactions R R VAT receivable R 0 R Bank, cash and cash equivalents R R Operating lease assets R R Current portion of long-term receivables R R Non-current Assets R R Property, plant and equipment R R Intangible assets R R Investment property R R Heritage assets R R Long-term receivables R R Total Assets R R LIABILITIES Current Liabilities R R Consumer deposits R R Provisions R R Creditors R R Unspent conditional grants and receipts R R Operating lease liabilities R R VAT payable R R 0 Current portion of long-term liabilities R R Non-current Liabilities R R Long-term liabilities R R Retirement benefit liabilities R R Non-current provisions R R Trust fund R R Total Liabilities R R Total Assets and Liabilities R R NET ASSETS R R Statutory funds R R Accumulated surplus R R Total Net Assets R R Acceptable and improving to good Current Ratio = Current Assets Current Liabilities 2012: R = 1,736 R : R = 2,718 R

13 Test Number: US Generic Financial Statements STATEMENT OF FINANCIAL POSITION AT 30 JUNE ASSETS Net Assets and Liabilities Note Current Assets R R Inventory R R Non-current assets held for sale R R Trade receivables from exchange transactions R R Trade receivables from non-exchange transactions R R VAT receivable R 0 R Bank, cash and cash equivalents R R Operating lease assets R R Current portion of long-term receivables R R Non-current Assets R R Property, plant and equipment R R Intangible assets R R Investment property R R Heritage assets R R Long-term receivables R R Total Assets R R LIABILITIES Current Liabilities R R Consumer deposits R R Provisions R R Creditors R R Unspent conditional grants and receipts R R Operating lease liabilities R R VAT payable R R 0 Current portion of long-term liabilities R R Non-current Liabilities R R Long-term liabilities R R Retirement benefit liabilities R R Non-current provisions R R Trust fund R R Total Liabilities R R Total Assets and Liabilities R R NET ASSETS R R Statutory funds R R Accumulated surplus R R Total Net Assets R R Acceptable and improving to good Acid Test Ratio = Current Assets - Inventory Current Liabilities 2012: R R R = 1, : R R R = 2,702

14 Test Number: US Generic Financial Statements STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013 ASSETS Net Assets and Liabilities Note Current Assets R R Inventory R R Non-current assets held for sale R R Trade receivables from exchange transactions R R Trade receivables from non-exchange transactions R R VAT receivable R 0 R Bank, cash and cash equivalents R R Operating lease assets R R Current portion of long-term receivables R R Non-current Assets R R Property, plant and equipment R R Intangible assets R R Investment property R R Heritage assets R R Long-term receivables R R Total Assets R R LIABILITIES Current Liabilities R R Consumer deposits R R Provisions R R Creditors R R Unspent conditional grants and receipts R R Operating lease liabilities R R VAT payable R R 0 Current portion of long-term liabilities R R Non-current Liabilities R R Long-term liabilities R R Retirement benefit liabilities R R Non-current provisions R R Trust fund R R Total Liabilities R R Total Assets and Liabilities R R NET ASSETS R R Statutory funds R R Accumulated surplus R R Total Net Assets R R Turnover of Accounts Receivable = STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2013 Budget Actual Revenue Note Revenue from non-exchange transactions R R Property rates R R R R Fines R R R R Licences and permits R R R R Income from agency services R R R R Government grants and subsidies R R Revenue from exchange transactions R R Service charges R R R R Rental of facilities and equipment R R R R Interest earned - external investments R R R R Interest earned - outstanding receivables R R R R Other income R R R R Gains on disposal of property, plant and equipment R 0 R R R Total Revenue R R Expenditure R R Employee related costs R R R R Remuneration Accounts of councillors Receivable R R R R Bad debts R R R R Collection costs R R R R Depreciation and amortisation R R R R Repairs and maintenance R R R R Interest paid R R R R Bulk purchases R R R 0 R 0 Loss on disposal of property, plant and equipment R R Loss on revaluation of investment property R R R Contracted services R R R R General expenses R R R R Total Expenditure R R R R Surplus / (deficit) for the year R R Please note the following differences from the examples in the Learner Guide: The Generic Statement of Financial Position differs as follows from the examples in the Learner Guide: (1) There is no "overdraft" item. (2) In order to derive "consumer debtors", "trade receivables from exchange transactions" and "trade receivables from non-exchange transactions" (both under "current assets") must be added together. (3) There are no longer "call investment deposits" as seperate item, these are already included with "bank, cash and cash equivalents" (under "current assets"). The Generic Statement of Financial Performance refers to "interest earned - outstanding receivables whereas "interest earned outstanding debtors" has been used in the Learner Guide examples. 2 Revenue (credit) 2012: (R R R ) (R R R4 887) = R = 4,882 times R

15 Test Number: US Generic Financial Statements STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013 ASSETS Net Assets and Liabilities Note Current Assets R R Inventory R R Non-current assets held for sale R R Trade receivables from exchange transactions R R Trade receivables from non-exchange transactions R R VAT receivable R 0 R Bank, cash and cash equivalents R R Operating lease assets R R Current portion of long-term receivables R R Non-current Assets R R Property, plant and equipment R R Intangible assets R R Investment property R R Heritage assets R R Long-term receivables R R Total Assets R R LIABILITIES Current Liabilities R R Consumer deposits R R Provisions R R Creditors R R Unspent conditional grants and receipts R R Operating lease liabilities R R VAT payable R R 0 Current portion of long-term liabilities R R Non-current Liabilities R R Long-term liabilities R R Retirement benefit liabilities R R Non-current provisions R R Trust fund R R Total Liabilities R R Total Assets and Liabilities R R NET ASSETS R R Statutory funds R R Accumulated surplus R R Total Net Assets R R Turnover of Accounts Receivable = STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2013 Budget Actual Revenue Note Revenue from non-exchange transactions R R Property rates R R R R Fines R R R R Licences and permits R R R R Income from agency services R R R R Government grants and subsidies R R Revenue from exchange transactions R R Service charges R R R R Rental of facilities and equipment R R R R Interest earned - external investments R R R R Interest earned - outstanding receivables R R R R Other income R R R R Gains on disposal of property, plant and equipment R 0 R R R Total Revenue R R Expenditure R R Employee related costs R R R R Remuneration Accounts of councillors Receivable R R R R Bad debts R R R R Collection costs R R R R Depreciation and amortisation R R R R Repairs and maintenance R R R R Interest paid R R R R Bulk purchases R R R 0 R 0 Loss on disposal of property, plant and equipment R R Loss on revaluation of investment property R R R Contracted services R R R R General expenses R R R R Total Expenditure R R R R Surplus / (deficit) for the year R R Please note the following differences from the examples in the Learner Guide: The Generic Statement of Financial Position differs as follows from the examples in the Learner Guide: (1) There is no "overdraft" item. (2) In order to derive "consumer debtors", "trade receivables from exchange transactions" and "trade receivables from non-exchange transactions" (both under "current assets") must be added together. (3) There are no longer "call investment deposits" as seperate item, these are already included with "bank, cash and cash equivalents" (under "current assets"). The Generic Statement of Financial Performance refers to "interest earned - outstanding receivables whereas "interest earned outstanding debtors" has been used in the Learner Guide examples. 2 Revenue (credit) 2013: (R R R ) (R R R4 887) = R = 5,826 times R

16 To calculate: Follow the arrows To interpret: Compare values with set standard and look at difference between two years where applicable Turnover of accounts receivable: Below 6 times is inadequate Improvement from previous to current

17 Test Number: US Generic Financial Statements STATEMENT OF FINANCIAL POSITION AT 30 JUNE ASSETS Net Assets and Liabilities Note Current Assets R R Inventory R R Non-current assets held for sale R R Trade receivables from exchange transactions R R Trade receivables from non-exchange transactions R R VAT receivable R 0 R Bank, cash and cash equivalents R R Operating lease assets R R Current portion of long-term receivables R R Non-current Assets R R Property, plant and equipment R R Intangible assets R R Investment property R R Heritage assets R R Long-term receivables R R Annual debtors collection rate = year 20XX (current year) only Total Assets R R LIABILITIES Current Liabilities R R Consumer deposits R R Provisions R R Creditors R R Unspent conditional grants and receipts R R Operating lease liabilities R R VAT payable R R 0 Current portion of long-term liabilities R R Last 12 months receipts Last 12 months billed Non-current Liabilities R R Long-term liabilities R R Retirement benefit liabilities R R Non-current provisions R R Trust fund R R Total Liabilities R R Total Assets and Liabilities R R NET ASSETS R R Statutory funds R R Accumulated surplus R R Total Net Assets R R

18 Last 12 months receipts: (Trade receivables from exchange transactions PLUS Trade receivables from non-exchange transactions of PREVIOUS year in Statement of Financial Position) + ( Property Rates + Service Charges + Interest Earned from Outstanding Receivables of CURRENT year in Statement of Financial Performance) - (Trade receivables from exchange transactions PLUS Trade receivables from non-exchange transactions of CURRENT year in Statement of Financial Position) Divide by Last 12 months billed: Same as

19 (R R ) + (R R R ) - (R R ) Divide by (R R R )

20 R R R R = R R = 1,01 X 100 (to make percentage) = 101%

21 Question 3: Cost to give up discount 9 marks Notsorich Local Municipality has just procured goods from one of its suppliers to a value of R and was offered 2/10 net 30 EOM. Short term funding by means of a bank overdraft will cost the municipality 13 per cent. Assume 365 days in the year. Calculate cost to give up the discount and what the amount payable will be, all costs, interest on short term funding included, considered.

22 Purchase date (normal) credit period (offered) discount period Cost is loss if discount offer is not taken Cost is interest rate Time for which money must be borrowed or taken out of bank account if discount is taken

23 Cost to give up discount: Discount % x 365 days x 100 (100% - Discount %) (Credit period Discount period) 2 x 365 x 100 = 37,24 % Answer is higher than overdraft interest rate, therefore cost to give up discount is higher than cost of discount

24 Total interest on short term funding if discount is taken: R R8 800 (2 percent which is discount) R X 13% x 20/365 (interest on credit period minus discount period) = R Total amount payable, all costs considered: R R = R