Finance Assignment - Financial Management

Page 1 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

ASSIGNMENT 1 ST

SEMESTER : FINANCIAL MANAGEMENT (FM)

CHAPTERS COVERED : CHAPTERS 1 – 8, 10 & 21 - 24

LEARNER GUIDE : UNITS 1 – 4 & 8

DUE DATE : 3:00 p.m. 19 MARCH 2013

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 in a typed format, on plain A4 paper. Unless otherwise specified, this assignment must be completed within a limit of 1500 words, excluding the bibliography. Students who exceed the word limit may find that only part of the submitted assignment will be marked.

6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front 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 19 March 2013. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 19 March 2013 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 3 May 2013.

Page 2 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

SPECIFIC INSTRUCTIONS: Answer ALL the questions The use of calculators is permitted. 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.

QUESTION 1 [25] Mark each of the accounts listed in the following table as follows: 1.1 In column (1), indicate in which statement – income statement (IS) or balance

sheet (BS) – the account belongs.

1.2 In column (2), indicate whether the account is a current asset (CA), current liability (CL), expense (E), non-current asset (NCA), non-current liability (NCL), revenue (R) or shareholder’s equity (SE). The type of account must be in terms of IS and BS entries and not the basic accounting equation (BAE).

(1) (2)

Account name Statement Type of account

Trade and other payables (Creditors)

Trade receivables (Debtors)

Accumulated depreciation

Administrative expense

Buildings

Cash

Ordinary share capital (at par)

Cost of goods sold

Depreciation

Equipment

General expense

Finance cost

Inventories

Land

Long-term debt

Machinery

Short-term borrowings

Operating expense

Preference share capital

Redeemable preference share dividends

Retained earnings

Sales revenue

Selling expense

Taxation on profits

Vehicles

Page 3 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

QUESTION 2 [40]

The following pre-adjusted balances have been extracted from the general ledger of Trendline Traders for the year ended 31 December 2012.

R

Capital 2 000 000

Cash at bank 90 000

Buildings 600 000

Vehicles 300 000

Furniture 210 000

Salaries 215 000

Lights and Water 15 500

Carriage on sales 22 000

Commission received 19 300

Rent received 14 000

Insurance 4 800

Packing Material 10 200

Drawings 13 500

Bad Debts 15 200

Debtors 313 800

Creditors 287 700

Accumulated Depreciation: Vehicles 150 000

Accumulated Depreciation: Furniture 95 000

ADDITIONAL INFORMATION a. The following transactions took place in respect of the particular product that

Trendline Traders sold during 2012.

b. Depreciation must be provided for the current year as follows:

i. Vehicles – 20% per annum on the cost price ii. Furniture – 10% per annum on the reducing balance method (No vehicles or items of furniture were bought or sold during the year)

c. Trendline Traders requires a 30% mark-up on cost price.

d. Trendline Traders uses a periodic inventory system. Ignore VAT.

Date

Units Cost price per unit

01-Jan-12 Stock on hand 10 000 R 100

03-Feb-12 Issued stock 4 000

04-Mar-12 Received stock 16 000 R 120

05-Jun-12 Issued stock 4 000

06-Aug-12 Issued stock 6 000

31-Dec-12 Returned stock to supplier: 2 000 units received on 4 March.

Page 4 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

REQUIRED:

2.1. Calculate the value of the closing stock using the FIFO method. (10) Use the following format and show the balance after each transaction.

Received Issued Balance

Date Units Price Amount Units Price Amount Units Price Amount

2.2 2.2.1 Prepare the income statement (statement of comprehensive income)

for the year ended 31 December 2012. (17) 2.2.2 Prepare the balance sheet (statement of financial position) as at

31 December 2012. (13) QUESTION 3 [21] Your friend Joe is planning to open a small gymnasium and he has asked you as marketing expert to help him determine the viability of the gymnasium. Initial costs have been estimated to be as follows:

Refurbishment of the premises R 120 000

Training equipment R 80 000

Sauna equipment R 60 000

R 260 000

These initial costs will be depreciated to a zero book value over 5 years. The gymnasium will result in annual maintenance charges of R26 000 and annual insurance charges of R13 000. It is estimated that the variable operating costs will be approximately R60 per month per member. The R60 excludes a 5% commission calculated on each membership fee that Joe will pay to his sales people. Market research has shown that an annual membership fee of R3 200 per member can be charged. REQUIRED: 3.1 Calculate the annual unit contribution expected to be realised. (3) 3.2 Calculate the number of members required to break-even. (5) 3.3 Calculate the break-even revenue. (2)

3.4 Assume that Joe wants to make a profit of R89 000. How many members

does Jo need to enrol and what will be the value of his revenue to break-even at the required level of profit? (You may assume that the commission rate and all other costs remain unchanged.) (4)

Page 5 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

Joe is considering a more aggressive approach to marketing and intends spending R20 000 on advertising as well as increasing the sales commission to 6% and reducing the membership fee to R3 000. As a result of his strategy he would like to make a profit of R70 000.

3.5 Assuming all other costs remain unchanged calculate the number of

members he needs to enrol in order to break-even. (7) QUESTION 4 [14] Provided on the next page are a statement of financial position (balance sheet) and a statement of comprehensive income (income statement) correctly prepared for a given entity for the 2012 financial period. Required: 4.1 Using the given financial statements calculate the following ratios for the

2012 financial year, rounded off to the nearest second decimal:

(Note: averages are not required and you may assume 360 days in the year and all sales are on credit.)

4.1.1 Total asset turnover (2)

4.1.2 Mark up % (2)

4.1.3 Current ratio (2)

4.1.4 Debtors collection period (2)

4.1.5 Creditors Payment Period (2) (Assume average daily credit purchases of R50 000)

4.1.6 Quick ratio (2)

4.2 Based on your answers for 4.1.3 – 4.1.6 comment generally on the liquidity

and activity of the given entity for 2012. (2)

Page 6 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

Statement of financial position

Assets 2012

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 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 7 of 7

© IMM Graduate School of Marketing Assignment: 1

st Semester 2013 FM

Statement of comprehensive income 2012

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

ASSIGNMENT TOTAL: 100