Effects of Ifrs

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IFNS 401, FACC412, FACC 403 and FINREP 411: 2009 Mod 1, SUPP

QUESTION 1 (25 marks)

The following trial balance for the year ended 31 December 2008 of Smart Limited is presented to you:

| Debit/(Credit)|
| R|
| |
Preference share capital| (40 000)|
Ordinary share capital| (200 000)|
Share premium| (63 000)|
Non-distributable reserve| (90 000)|
Retained earnings (31/12/2007)| (221 000)|
Land| 320 000|
Office equipment at cost| 100 000|
Vehicles at cost (used for distribution)| 60 000|
Accumulated depreciation – office equipment| (24 000)| Accumulated depreciation – vehicles | (18 000)|
Investments at cost| 120 000|
Bank| 30 000|
Accounts receivable| 40 000|
Accounts payable| (25 000)|
SA Revenue Service| (15 000)|
Sales| (380 000)|
Dividends received| (10 000)|
Inventory (31/12/2007)| 90 000|
Purchases of goods| 185 000|
Depreciation – office equipment | 12 000|
Depreciation – vehicles | 8 000|
Other operating expenses| 25 000|
Administrative expenses| 10 000|
Distribution expenses| 15 000|
Interest paid| 12 000|
Salaries and wages (50% admin, 50% distribution)| 30 000| Income tax expense| 29 000|
| |
| -|

IFNS 401, FACC412, FACC 403 and FINREP 411: 2009 Mod 1, SUPP

Additional information

1. Inventory is valued at R 80 000 on 31 December 2008. 2. Dividends to the amount of R 23 000 were paid on 31 December 2008, but this has not yet been accounted for in the above trial balance. 3. A transfer of R 5 000 to the asset replacement reserve must still be made for the year ended 31 December 2008.

REQUIRED:

Prepare the statement of comprehensive income (according to the classification of expenses by function) and the statement of changes in equity for Smart Limited for the year ended 31 December 2008 in accordance with Statement IAS 1 – Presentation of financial statements.

Notes to the financial statements are not required.

QUESTION 2 (20 marks)

1.1One technique in financial analysis is to make use of common sized statements. a) Describe the technique.
b) What is the biggest benefit of the technique. (5 marks)

1.2State the most important reason why a credit grantor would be interested in a) Liquidity ratios.
b) Profitability ratios.
c) Leverage ratios.
d) Capital structure/solvency.
e) Securities of income.(5 marks)

1.3 When making use of financial analysis, you have to be aware of the limitations of the very financial statements that you are analysing. List 5 serious limitations inherent in financial statements and at least one important consequence of each limitation. (10 marks)

IFNS 401, FACC412, FACC 403 and FINREP 411: 2009 Mod 1, SUPP

QUESTION 3 (20 MARKS)

The following information is available concerning the financial results of Berrywood Limited for the year ended 31st December 2008:

Cash sales as a % of total sales10%
Rate of Tax30%
Gross Profit %25%
Net profit after taxR 140 000
Interest paid on short term loansR 40 000
Gross profitR 800 000
Receivables collection period (days)35
Inventory on hand (months)2,0
Issued share capital – ordinary shares of R2 eachR 220 000
Long term loans at 15% interestR 90 000
Ordinary dividend50c

REQUIRED :

Calculate the following for 2008.

2.1Break even turnover.(4 marks)
2.2Ordinary dividend cover.(3 marks)
2.3Profit from operations.(4 marks)
2.4Safety margin.(2 marks)
2.5The value of receivables.(3 marks)
2.6The value of inventory.(2 marks)
2.7Interest cover.(2 marks)

IFNS 401, FACC412, FACC 403 and FINREP 411: 2009 Mod 1, SUPP

QUESTION 4 (25...
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