Directorate: Curriculum FET

ACCOUNTING

Grade 12 Revision

Cash Flow Statement andFinancial indicators

Answer Book

2

Activity 1: (Taken from March 2015)

1.1 What is the main purpose of a Cash Flow Statement?

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1.2 Calculate the missing amounts (indicated by a, b, c and d) in the Fixed/ Tangible Asset Note for the year ended 31 October 2014.

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Workings Amount

a

b

c

d

1.3 CLASSICO LIMITEDCASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2014CASH FLOW FROM OPERATING ACTIVITIES

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Cash generated from operations 1 985 500

Interest paid (175 500)

Taxation paid

Dividends paid

CASH FLOW FROM INVESTING ACTIVITIES

CASH FLOW FROM FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING

CASH AND CASH EQUIVALENTS AT END

2

3

1.4Decisions by

directorsReason to support

John's opinionReason to support directors' decision(other than improving

cash flow)

Issued more shares

Sold fixed assets

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1.5 Calculate the acid-test ratio.

4

Calculate the earnings per share.

3

Calculate the return on average shareholders' equity.

5

Calculate the debt-equity ratio.

3

3

4

1.6 The directors are proposing that the business operations be expanded in the new financial year. One of the directors suggested that they finance the expansions by taking a loan of R1 000 000, instead of issuing new shares to the public. Quote and explain TWO financial indicators to support his opinion.

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1.71.7.1 Calculate the amount of dividends Bongani would earn for the

financial year ending 31 October 2014.

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1.7.2 Should Bongani be satisfied with the dividend policy of Classico Limited? Quote and explain relevant financial indicators to support your answer.

4

4

5

1.7.3 Quote and explain ONE relevant financial indicator, other than dividends, to discourage Bongani from selling his shares. Your answer must include the actual figure/ratio/percentage.

4

TOTAL MARKS

75

5

6

Activity 2 (Taken from June 2015)

2.1 CASH GENERATED FROM OPERATIONS

Depreciation 178 000

Interest expense 52 000

Operating profit before changes in working capital

10Cash generated from operations

2.2 MAXIE LTDCASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015CASH EFFECTS OF OPERATING ACTIVITIES

CASH EFFECTS OF INVESTING ACTIVITIES

CASH EFFECTS OF FINANCING ACTIVITIES 160 000Proceeds of shares issued 1 000 000

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Share repurchased (540 000)Repayment of loan (300 000)

NET CHANGE IN CASH AND CASH EQUIVALENTSCash and cash equivalents (1 March 2014)Cash and cash equivalents (28 February 2015)

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7

2.3.1 Calculate the current ratio.

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2.3.2 Calculate the debt-equity ratio.

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2.3.3 Calculate the net asset value per share.

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2.4 On 1 March 2014 additional shares were issued at R5,00 each. Will the existing shareholders be satisfied with this price? Explain. Quote relevant financial indicators with figures in your explanation.

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7

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2.5 The directors decided to pay back a large portion of the loan. Do you think that this was a wise decision? Quote TWO relevant financial indicators and figures to support your answer.

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2.6 Besides paying back the loan, the directors have taken other major decisions that have affected the cash balances. State TWO other major decisions (exceeding R200 000) and quote the figures from the Cash Flow Statement. In EACH case, state how the decision will affect the future of the company.

DECISION(with figures) FUTURE EFFECT ON COMPANY

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8

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2.7.1 Choose the correct word from those given in brackets. Write down the word and briefly explain your choice.

Maxie Ltd received a/an (unqualified/qualified/disclaimer) auditors' report.

Briefly explain your choice.

3

2.7.2 Explain the consequences of this auditors' report for the chief executive officer (CEO) and/or the company. State TWO points.

Point 1:

Point 2:

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TOTAL MARKS

65

9

10

Activity 3 (Taken from November 2012)

3.1 Write down the missing words.

3.1.1

3.1.2

3.1.3

3.1.4

3.1.510

3.2.1 Calculate the acid-test ratio.

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3.2.2 Calculate the earnings per share (in cents).

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3.2.3 Calculate the net asset value per share (in cents).

3

10

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3.2.4

3.2.5

Calculate the percentage return on average shareholders' equity.

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Calculate the figures that will appear in the Cash Flow Statement for:

Repayment of loans

2Proceeds of issue of ordinary shares

3

Fixed assets purchased (Note that fixed assets with a book value of R105 000 were sold at carrying value.)

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11

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3.3 3.3.1 James is of the opinion that Pomi Ltd is handling its working capital more effectively and is in a better liquidity situation than Kwela Ltd. Explain and quote THREE financial indicators to support his opinion.

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3.3.2 Which company is making more use of loans? Quote a financial indicator for each company.

Explain whether or not it was a good idea for that company to make use of loans. Quote ONE financial indicator.

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12

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3.3.3 Kwela Ltd has a better percentage return, earnings and dividends than Pomi Ltd. Explain and quote THREE financial indicators for each company.

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3.3.4 Explain why the existing shareholders of Kwela Ltd are happy with the current market value of their shares. Quote a financial indicator/figures to support your answer.

Explain why the existing shareholders of Pomi Ltd are very disappointed with the current market value of their shares. Quote a financial indicator/figures to support your answer.

4

13

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3.4 How would these audit reports influence James in deciding in which company to buy shares?

Explanation on the audit report of Kwela Ltd

Explanation on the audit report of Pomi Ltd

5

TOTAL MARKS

70

14

15

Activity 4 (Taken from November 2013)4.1 Refer to Information 8 regarding the special programmes that are

published with the financial statements in the annual report.

4.1.1 Main benefit of crime prevention programme for the company:

Main benefit of training programme for the company:

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4.1.2 Apart from the points mentioned above, why would the directors want to mention these programmes in the annual report? Explain.

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4.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2013

CASH EFFECTS OF OPERATING ACTIVITIESCash generated from operationsInterest paid (168 000)

Income tax paid A

Dividends paid B

CASH EFFECTS OF INVESTING ACTIVITIES (314 000)Fixed assets purchased (400 000)Proceeds from sale of fixed assets 86 000

CASH EFFECTS OF FINANCING ACTIVITIESProceeds of shares issued CRepurchase of shares D

Increase/Decrease in loans E

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Net change in cash and cash equivalents FCash and cash equivalents (1 March 2012) G

Cash and cash equivalents (28 February 2013) 78 000

4.3 Calculate the following financial indicators for the financial year 15

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ending 28 February 2013:

4.3.1 Percentage net profit after tax on sales

3

4.3.2 Debt-equity ratio

3

4.3.3 Return on average shareholders' equity (ROSHE)

5

16

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4.4 The directors are of the opinion that the operating efficiency of the company has improved. Quote and explain TWO financial indicators (with figures) to support their opinion.

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4.5 The shareholders are happy with their return, earnings and dividends. Quote and explain THREE financial indicators (with figures) to support their opinion.

Comment on shareholders' return:

Comment on earnings:

Comment on dividends:

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17

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4.6 New shares were issued at the beginning of the financial year at R10,00 each. As an existing shareholder, would you be satisfied with this issue price?

Yes/No:

Quote TWO financial indicators (with figures) to explain your opinion:

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4.7 A large loan repayment was made. Comment on whether this was a good idea or not. Quote TWO financial indicators (with figures) to support your comment.

4

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4.8 Apart from the dividends and the loan, what other major decisions by the directors are reflected in the Cash Flow Statement? State TWO major decisions and quote the relevant figures. Also explain how EACH of these decisions would benefit the company in future.

Decision 1 (with figures) Explanation of benefit to company

Decision 2 (with figures) Explanation of benefit to company

6

TOTAL MARKS

60

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Activity 5 (Taken from November 2014)

5.1

Calculate the missing amounts (indicated by a, b and c) in the Fixed/Tangible Asset Note for the year ended 28 February 2014.

NO. WORKINGS AMOUNT

a

b

12

c

5.2

METEOR SUPERMARKETS LTD

CASH FLOW STATEMENT FOR YEAR ENDED 28 FEBRUARY 2014Cash flow from operating activities

Cash generated from operations 969 600

Interest paid (88 500)

Cash flow from investing activities

31

Cash flow from financing activities

Net change in cash and cash equivalentsCash and cash equivalents at beginning of year 2 488 000Cash and cash equivalents at end of year

20

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5.3 At the AGM, a shareholder stated that the Cash Flow Statement reflects poor decisions by the directors. Explain TWO points, with relevant figures, to support his opinion.

Point 1:

Point 2:

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5.4 5.4.1 Calculate the net asset value per share for 2014.

3

5.4.2 Calculate the debt-equity ratio for 2014.

3

21

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5.5 Comment on the liquidity position of the company. Quote THREE relevant financial indicators (actual figures/ratios/percentages) and their trends.

Financial indicator 1 and trend:

Financial indicator 2 and trend:

Financial indicator 3 and trend:

General comment:

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5.6 The directors decided to increase the loan during the current financial year. Quote TWO financial indicators (actual figures/ ratios/percentages) that are relevant to their decision. Explain why this was a good decision, or not.

Financial indicator 1:

Financial indicator 2:

Explanation:

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5.7 The Bakker family owns 740 000 shares in this company. Explain the effect that the repurchase of shares on 31 December 2013 had on their control of the company. Give a calculation(s) to support your answer.

5

TOTALMARKS

75

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