ACN3084-2010-6-E-1 - UNIVERSITY EXAMINATIONS g umty U N l...

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Unformatted text preview: UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS g: umty U N l SA mm AC ”3084 Maleune 2010 FINANCIAL ANALYSIS. VALUATIONS AND RESTRUCTURING (ACCOUNTING 308) Duration 2 Hours 100 Marks EXAMINERS ' FIRST MRS C NEL MR MT NAMENG SECOND MR WD JONKER PROF M STEYN EXTERNAL PROF G VAN N VILJOEN Use of a non-programmable pocket calculator Is permrssible Thrs paper conSIsts of 9 pages, as well as tables A and 8 PLEASE NOTE: 1 Thrs paper consrsts of FOUR (4) questions, as well as the followmg tables (I) Table A - Present value of R1 after n years (II) Table B - Present value of R1 per annum for n years All questions must be answered Basrc workings, where applicable, must be shown Ensure that you are handed the correct examination SCFlpt (blue) by the Inwgllator EACH QUESTION MUST BE COMMENCED ON A SEPARATE PAGE A combined flnal mark of 50% :5 required to pass thus module The final mark Is calculated as follows (10% of marks obtained for the first two assngnments) + (90% of mark obtained In thrs examination) The year-mark Will only be taken Into account If a submlnlmum of 40% IS obtained for thus examination 0301-th PROPOSED TIMETABLE -_m _— _- [TURN OVER] 2 ACN3084 May/June 2010 QUESTION 1 (26 marks; 31 minutes) MABHIDA LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2010 R ASSETS Non-current assets 525 000 Fixed property at valuation 270 000 Other fixed assets at carrying amount 150 000 Goodwrll, patents and trademark 45 000 Trade Investments 5 250 Long-term loan 18 600 Listed Investments 3 900 Unlisted Investments 17 250 investment In unconsolidated subsrdiary at cost price 15 000 Current assets 255 000 Cash and cash equrvalents 15 000 Trade and other receivables 127 500 Inventory 1 12 500 TOTAL ASSETS 780 000 EQUITY AND LIABILITIES Capital and reserves 253 500 Equity 232 500 issued share capital (5000 ordinary shares of R750 each) Share premium Non-distributable reserves Distributable reserves — accumulated profit 12% Preference share capital (5000 of R300 each) Minority Interest Non-current liabilities 94 500 Interest bearing debt Debentures Long-term loans Deferred taxation Current liabilities 432 000 DIVIdends payable Trade and other payables Bank Short-term borrowrngs Current portion of long-term loans 5 550 112 950 180 000 127 500 6 000 TOTAL EQUITY AND LIABILITIES 780 000 [TURN OVER] 3 ACN3084 May/June 2010 QUESTION 1 (continued) MABHIDA LIMITED CONDOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2010 R Turnover 812 460 Gross profit . 243 738 Operating cost 61 740 Operating profit 181 998 Investment income Interest received on trade investments and long-term loans 2 436 Listed investments 234 Unlisted investments . .. . 1 380 Unconsolidated SUbSldlarleS 1 350 Profit from operations 187 398 Finance cost 63 975 Profit before taxation 123 423 Taxation . 45 486 Profit after taxation 77 937 Minority share In profit 1 200 Net profit from ordinary actiVities . 76 737 Unusual Item (impairment of goodwrll) . 7 500 Net profit for the year 69 237 Additional information: 1 No divrdends were declared for the 2010 financial year 2 One of the sub5idiaries of Mabhida Ltd has suffered losses and therefore goodwrll relating to this sub5idiary has been impaired by R7 500 3 Ignore deferred taxation REQUIRED: (a) Based on the finanCIal performance of Mabhida,Ltd, calculate the followmg Profitability ratios (i) Return on assets (3) (ii) Operating assets turnover rate (4) (iii) Net profit percentage (2) (b) Calculate the followmg Capital Structure ratios and also explain their Significance (0 Ordinary shareholders‘ equrty to total assets (3) (ii) Total OU‘lSIde funding to total assets (4) (c) Calculate the followmg Liquidity ratios and also explain their Significance (i) Current ratio (3) (ii) ACId test ratio (3) (d) Determine the total leverage effect (4) [26] [TURN OVER] 4 ACN3084 May/June 2010 QUESTION 2 (24 marks; 29 minutes) Lmdlkwe Enterprises (Pty) Ltd owns a number of beauty parlors The abridged statement of financnal posmon at 28 February 2010 Is as follows ABRIDGED STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2010 R ASSETS Non-current assets 800 000 Fixed property (Vacant land) Current assets 50 000 Bank Inventory 15 000 TOTAL ASSETS 850 000 EQUITY AND LIABILITIES Share capital and reserves . 750 000 Ordinary share capital 100 000 ordinary shares of R1 each 100 000 Retained profit 550 000 10% Cumulative preference shares of R1 each 100 000 Non-current liabilities 369 000 Mortgage over fixed property Current liabilities 31 000 Credltors TOTAL EQUITY AND LIABILITIES 850 000 The followrng Information regarding the 2010 financual year has been made available Net profit before Interest 480 000 Interest 72 000 Net profit before taxatlon 408 000 Taxatlon 102 900 Net profit after taxation 305 100 Additional information: 1 The salary of the accountant IS currently not market-related An agreement has been reached that the company would Increase the salary by R4 500 per month 2 The company suffered a capital loss of R65 000 durlng the 2010 financial year, whlch has erroneously been included In the profit before Interest 3 Assets in the statement of Manual posntlon are reflected at their current market values [TURN OVER] 5 ACN3084 Maleune 2010 QUESTION 2 (continued) 4 Preference share capital have preference for repayment over ordlnary share capital In case of a IIqUIdatlon These shares are not redeemable 5 The Interest expense comprises Interest on the mortgage The annual Instalment amounts to R142 409 The remaining period of the mortgage Is 4 years It bears Interest at 18% per annum 8 Assume the followmg - normal tax rate 1s 30% - a few Interest rate for Similar mortgages Is 15% per annum before tax — a far rate of return for Similar busmesses IS 18% before tax - a few rate of return for snmrlar preference shares IS 8% - a far rate of return for Similar ordinary shares IS 20% REQUIRED: (a) (b) (C) Determlne the value of the busmess actwrtles relating to the beauty parlor actIVItIes at 28 February 2010 by usmg the present value of future benefits method Assume that the expected future Income Will Increase by 10% per annum for the next two years. after which It would remain constant Round values off to the nearest rand (12) Determine the value of preference shares at 28 February 2010 (3) Determine the value of ordinary shares at 28 February 2010 by usmg the mtnnsrc value method Briefly explain the difference between the value of the busrness according to the value obtained In (a) above and the value of Its ordrnary shares (9) [24] [TURN OVER] 6 ACN3084 Maleune 2010 QUESTION 3 (26 marks; 31 minutes) Alberts, Black and Costa, who have been trading In partnership for a number of years, decrded to convert therr partnership Into a private company, ABC (Pty) Ltd On 28 February 2010, the proposed date of conversron, the abridged tnal balance of the partnership was as follows Debit Credit R R Fixed property . 702 000 Fmancral assets . . 8 000 Goodwrll 91 135 Amounts receivable 160 500 Cash In bank 13 370 Drawmgs - Alberts 30 000 Capital accounts Alberts 152 500 Black 162 450 Costa 255 000 Costa (secured long-term loan) 220 000 Amounts payable . 215 055 T605 005 1 005 005 Additional information: 1 Annual Interest pend on the partners’ capital accounts and on the secured loan were 15% and 9% respectlvely 2 Durrng the perrod 0110312009 to 28/02/2010 no Interest was provrded for, or paid on the capltal accounts of the partners This matter must be rectified before the conversron takes place Interest, based on the current trial balance balances of the partners' capital accounts, must be capitalized 3 Goodwrll Is undervalued by R58 865 4 Ordinary and preference shares are to be Issued for the full value of the partners' caprtal accounts 5 The marginal rate of taxation of the partners Is 40% 6 The profits and losses of the partnership are shared by Alberts, Black and Costa In the ratio 5 3 2 7 Annual salaries amounted to R Alberts - 150 000 Black . - 130 000 Costa .. 120 000 REQUIRED: (a) Calculate the requrred dIVIdend rate for preference shares Motlvate your answer (5) (b) Propose a capital structure for the company, clearly Indicating the rIghts attached to all classes of shares (21) [26] [TURN OVER] 7 ACN3084 MayIJune 2010 QUESTION 4 (24 marks; 29 minutes) The question conSIsts of eight multiple chorce questions Each question must be consrdered Independently, except where specufic reference IS made to Information In another question Each question has only one correct answer and must be answered In the followrng manner Example 41 42 43 44 45 46 47 48 (BED—IDOQOID 4 1 Determine the value of one Kruger rand corn, expressed In South African rand, based on the followrng Information Trade price of gold Exchange rate 1130 US dollar per ounce 1 US dollar = R130 Assume that these coms trade at 10% above the trade price of gold The value of a com amounts to (a) R8 249,00 (b) R1 243,00 (c) R9 073,90 (d) R7 424.10 (e) None of the above (3) 4 2 Determine the sustainable long-term growth rate based on a dwldend pay-out ratio of 25% of earnings and a rate of return on equrty of 16% (a) 20% (b) 1 2.8% (c) 16% (d) 12% (9) None of the above (3) 4 3 Determine the busmess cycle of a company. usmg the followmg information - Stock turnover pel’IOd 3 months - Average debtors' collection period 4 months - Average credrtors’ payment period 5 months Average Inventory (stock) (a) 1 month (b) 2 months (0) 5 months (d) 7 months 03) None of the above 3 months sales (3) [TURN OVER] 3 ACN3084 Maleune 2010 QUESTION 4 (continued) 4 4 Determine the cntical break-even turnover for a company If the management antucupates a gross profit percentage of 25% based on cost of sales, and total expenses of R330 000, which excludes finance cost of R60 000 (a) R538 000 (b) R1 942 000 (c) R3 120 000 (d) Information InsuffICIent to do the calculation (e) None of the above (3) Use the foliowmg Information to answer questions 4 5, 4.6, 4.7 and 4 8 The abridged trial balances of Coplant Ltd and Delprop Ltd are as follows Coplant Delprop Ltd Ltd R R Accumulated loss - 36 438 Piant and eqUIpment 474 540 383 750 Investments . 12 000 14 000 Current assets 220 110 475 222 706 650 909 410 Issued ordinary shares of R1 each 400 000 150 000 Accumulated profit 89 425 - Current liabilities 217 225 759 410 706 650 909 410 Additional information: 1 The Investment of Coplant Ltd consrsts of 20 000 shares In Delprop Ltd and that of Delprop Ltd consnsts of 10 000 shares In Coplant Ltd [TURN OVER] 9 ACN3084 Maleune 2010 QUESTION 4 (continued) 2 The companies have agreed to the followrng They WIII amalgamate and a new company, Wlllgro Ltd, Wlll be formed for thls purpose Wlth the exception of Inter-company Investments, Wlllgro Ltd w:ll take over all the assets and liabilities of Coplant Ltd and Delprop Ltd at their respective carrying amounts The purchase pnce Will be settled by means of the Issue of ordlnary shares of R1 each In Wlllgro Ltd Round all final answers off to the nearest rand 4 5 Identify the combination of amounts that represents the total value of Coplant Ltd and Delprop Ltd, excluding the Investments In each other (13} Coplant Ltd Delprop Ltd R477 425 R 99 562 R694 650 R858 972 R489 425 R150 000 R400 000 R113 562 None of the above (3) 4 6 Which one of the followmg combinatlon of percentages represents the Size of therr respective shareholdings an each other? (a) (b) (C) (d) (e) Coplant Ltd Delprop Ltd In Delprop Ltd In Coplant Ltd 13,33% 2,50% 8,00% 3,50% 1 3,33% 3,50% 8,00% 2,50% None of the above (3) 4 7 If the correct combination of figures calculated under 4 5 were Coplant Ltd R500 000 and Delprop Ltd R100 000 and under 4 6 were Coplant Ltd 5% and Delprop Ltd 20% respectively, Indicate which one of the followmg amounts represents the total value of Coplant Ltd R481 519 R51 0 1 01 R525 253 R477 425 None of the above (3) 4 8 If the same Information given under 4 7 Is used, Indicate which one of the followrng amounts represents the total value of Delprop Ltd (a) (b) (C) (d) (6) R163 765 R202 020 R205 051 R 99 562 None of the above (3) © UNISA 2010 [TURN OVER] ACN3084 Maleune 2010 8 I: a a Nnvm ENNNN whomo —F—FN (I) 2 3 9 g F ‘— ervm ohwoe RK.O 03.0 .no> tuna mg... 2 <2 5... 2<> mam—(<2. ugoxoogmzmmh.‘ w¢<m> 2 Kuhn: rm “.0 m=._<> hzmmmmm < 4mm<h .. < mamfir [TURN OVER] ACN3084 MayIJune 2010 (ii) FNMV‘ID Cir-DO) . . mango _ . . awmmvarfi 8o. . . 8a.. . . n8. . . 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