Page 1 of 6 ASSIGNMENT 2 ND SEMESTER : FINANCIAL MANAGEMENT () CHAPTERS COVERED : CHAPTERS 1-8, 10 & 21-24 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 2012. 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, www.immgsm.ac.za, on Friday, 5 October 2012.
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 R120 000. 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 2011. (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 4.5 4.0 Quick ratio 2.0 3.1 Inventory turnover 6.0 10.4 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)
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 R88 000 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 machines @ R2 000 per month. Salaries of staff operating the machinery and managing the process @ 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 R4 800. 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 R44 000 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 150 22 13/07/2011 Sales 380 36 6/08/2011 Purchases 210 24 21/08/2011 Sales 160 36
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 R3 000. 2. The owner contributed his personal equipment to the value of R65 000 as well as cash of R12 000 into the books of WhyMe Ltd. 3. Purchased R12 000 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 R86 000 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 R2 600. 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 1. - 3 000-3 000
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 192 000 Accumulated depreciation (22 000) PPE at carrying value 170 000 Investment in shares 3 000 Non-current assets 173 000 Inventories (stock) 30 000 Trade receivables 45 000 Cash and cash equivalents 24 000 Current assets 99 000 Total assets 272 000 Equity and liabilities Share capital 50 000 Reserves 4 000 Retained earnings 28 000 Ordinary shareholders equity 82 000 Preference shares 28 000 Shareholders equity 110 000 Total equity 110 000 Long-term debt 80 000 Non-current liabilities 80 000 Trade payables 25 000 Bank overdraft 1 000 Tax payable 1 000 Dividends payable 5 000 Short-term loans 50 000 Current liabilities 82 000 Total equity and liabilities 272 000
Page 6 of 6 Statement of comprehensive income 2009 Turnover 150 000 Cost of sales and services rendered (70 000) Gross profit 80 000 Operating expenses (40 000) Operating income 4 000 Operating profit 44 000 Investment income 2 000 Finance cost (14 660) Profit before tax 31 340 Tax (9 400) Profit after tax 21 940 Preference share dividends (2 800) Attributable earnings 19 140 Ordinary dividends (10 000) Retained earnings (for the year) 9 140 Additional information: Purchases on credit for the year amount to R50 000. Lease payments of R10 000 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