Reference no: EM13379658
QUESTION 1
REQUIRED
Study the information provided below and answer the following questions:
1.1 Explain the changes that possibly took place during 2013 in respect of:
1.1.1 Financing activities
1.1.2 Investing activities
1.2 Calculate the Distribution costs for 2013.
1.3 Was there a change in the tax rate during 2013? Explain.
1.4 Critically assess the performance of the company from the information provided.
The Income Statement and simplified extract of the Statement of Changes in Equity for Kontiki Ltd are provided below:
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Kontiki Ltd
Income Statement for the year ended 31 December
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2013 (R)
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2012 (R1
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Sales
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9 000 000
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8 000 000
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Cost of sales
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(3 900 000)
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(3 400 01)3)
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Gross profit
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5 100 000
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_ 4 600 000
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Other operating income
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300 000
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280 000
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Distribution costs
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?
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?
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Administrative expenses
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(1 200 000)
I
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(1 100 000)
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Operating profit
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1 200 000
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1 080 000
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Finance income
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11 000
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5 400
,
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Finance expenses
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(8 700)
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(17 600)
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Profit before tax
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1 202 300
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1 067 800
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Income tax
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(360 690)
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(320 340)
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Net profit
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841 610
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747 460
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Kontiki Ltd
Statement of Changes in Equity for the year ended 31 December 2013 (simplified extract)
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(R)
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Balance at 31 December 2012
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2 900 000
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Profit for the year
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841 610
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Dividends
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(380 000)
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Balance at 31 December 2013
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3 361 610
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1. Depreciation for the year amounted to:
2013: R400 000
2012: R600 000
QUESTION 2
REQUIRED
2.1 Use the Information provided below to calculate the ratios for 2013 that would reflect each of the following (Where applicable, round off answers to two decimal places):
2.1.1 The percentage of each sales Rand that remain after all costs and expenses other than interest and taxes are deducted
2.1.2 The number of times more that investors are willing to pay for each Rand of the company's earnings
2.1.3 The proportion of the total assets that are financed by external funding
2.1.4 The ability of the company to repay its short-term debts during adverse business conditions
2.1.5 The Rand amount of distributions during the period on behalf of each ordinary share Issued
2.1.6 An Indication of the percentage of profit that has been put back into the company
2.2 Comment on the following ratios that have been calculated for Leo Limited. Provide two significant comments for each ratio.
2.2.1 Gross margin
2.2.2 Return on capital employed
Excerpts of financial data of Leo Limited for 2013 are as follows:
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Income statement for the year ended 31 December 2013
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R
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Sales
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3
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250 000
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Cost of sales
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2
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200 000
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Operating profit
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332 000
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Interest expense
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44 COO
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Profit before tax
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288 000
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Tax
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70 000
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Balance sheet as at 31 December 2013
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Assets
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Non-current assets
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980 COC
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Inventories
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1300
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000
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Accounts receivable
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388
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000
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Cash
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4
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000
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2 672 DX)
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Equity and liabilities
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Ordinary share capital (352 000 shares)
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704
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000
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Retained earnings
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576
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000
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Long-term loan (12% p.a.)
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420
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000
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Accounts payable
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822
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000
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Dividends payable (for 2013)
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100
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000
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Bank overdraft
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50 OCO
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2 672 000
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1. All purchases and sales were on credit
2. Inventories on 31 December 2012 amounted to R1200 DX.
3. Dividends paid during 2013 amounted to R50000.
4. The following ratios were calculated for 2013 and 2012:
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2013
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2012
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Gross margin
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32.31%
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36.77%
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Return on capital employed
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19.53%
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24.52%
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5. The market price of the share for 2013 and 2012 was R13 and R12 respectively.
QUESTION 3
REQUIRED
Study the information given below and answer the following questions independently:
3.1 Calculate the contribution margin ratio and thereafter use this ratio to determine the sales value required to achieve an annual operating profit of R1200 000.
3.2 Calculate the margin of safety (as a percentage) for 2015.
3.3 Suppose Colbert Enterprises is considering a R20 per unit decrease In the selling price of the product, with the expectation that this would Increase annual sales by 25%. Is this a good idea? Motivate your answer with the relevant calculations.
3.4 What price does Colbert Enterprises have to charge for each unit of the product to break even, if all 28 000 units produced are sold?
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Fixed manufacturing costs per year
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R480000
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Variable manufacturing costs per unit
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R76
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Selling price per unit
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R200
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Marketing costs:
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Advertising
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R14 000 per month
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Sales personnel's salaries and commission
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R40000 per month plus 6% of sales
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Administration costs:
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Salaries
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RS2 000 per month
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Other office costs
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R44 000 per month plus R12 per unit sold
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QUESTION 4
Study the information given below and answer the following questions:
4.1.1 Calculate the total Operating Profit (Loss) for 2015 if the special order is accepted. Based on your calculations, should the special order be accepted? Why?
4.1.2 Calculate the total costs that are relevant to the special order only (45 000 units).
INFORMATION
The following Budgeted Income Statement is for a manufacturer which has received a special order to sell 45 000 units of a product at R33 per unit during January 2015. Planned sales for 2015 (excluding the special order) are 120 000 units which represents 80% of Its plant capacity. The manufacturer has no intention of increasing plant capacity if the special order is accepted.
Budgeted Income Statement for the year ended 31 December 2015
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R
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Sales (120000 units)
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5 760 000
(4 680 000)
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Manufacturing costs:
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Direct materials
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1 800
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000
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Direct labour
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720
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000
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........ Fixed overheads
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960
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000
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Variable overheads
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1200
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000
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Gross profit
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1 080
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000
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Fixed selling, general and administrative costs
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(360 000)
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Operating profit
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720 000
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4.2 REQUIRED
Study the Information given below and answer the following questions:
4.2.1 Calculate the total Direct Labour Efficiency Variance. Also indicate whether the variance is favourable or unfavourable.
4.2.2 Explain two possible causes of an unfavourable Direct Labour Efficiency Variance.
INFORMATION
The details regarding the composition and weekly wages of the employees engaged on a job scheduled to be completed in 17 weeks are as follows:
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Standard
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Actual
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Weekly wage
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Category of
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Number of
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rate per
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Number of
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Weekly wages rate per
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employees
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employees
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employee
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employees
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employee
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Skilled
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114
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R750
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108
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R825
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Semi-skilled
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90
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R500
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75
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R550
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QUESTION 5
5.1 REQUIRED
Calculate the following from the information given below:
5.1.1 Accounting Rate of Return (on average investment)
5.1.2 Calculate the internal Rate of return. Use Interpolation to arrive at your answer.
INFORMATION
Conquesta Umited is considering the purchase of Machine X, details of which are provided below:
Year R
Initial investment 0 (750 000)
Scrap value 5 100 000
Net cash Inflows: 1 240 000
2 320 000
3 190 000
4 116 000
5 180 000
The cost of capital Is 12%. Depredation Is calculated using the straight-line method.
5.2 REQUIRED
Study the information given below and determine, on the basis of its Net Present Value (NPV), whether the Investment should be favourably considered.
INFORMATION
Lotus Ltd plans an investment In non-current assets costing R3 000 000. The non-current assets will have a four-year ilfe, with the following expected profits:
Year 1 R324000
Year 2 R720000
Year 3 R100000
Year 4 R150000
Finance for inventories and debtors amounting to 8200 000 will be required at the start of the project. Trade credit will provide R110 000 of this amount. All the working capital will be recovered at the end of year 4. The expected scrap value of the non-current assets at the end of year 4 Is R375000. The cost of capital Is 12%.