2 QUESTION 1 50 MARKS Timekeep Group is a global luxury retailer. The company produces jewellery, watches, and leather goods. Customers can get their hands on Timekeeps finery at its 86 boutiques scattered across the five provinces, as well as online. Each of Timekeeps luxury stores are operated independently, supported by central support services (market research, manufacturing, logistics, HR) and regional support platforms (distribution centres, IT, finance, after-sales). Timekeep Group Trial Balance for the year ended 31 December 2020 All amounts are in Rands Debit Credit Share Capital and Premium (Equity) 98 010 Retained earnings (Opening Balance) 62 348 Dividend payment 7 543 Interest payable 6 400 Trade and other Payables 20 856 Trade and other Receivables 42 555 Closing Inventory 31 December 2020 52 287 Plant and Equipment - Cost 88 500 Accumulated depreciation Plant and Equipment 1 January 2020 22 400 Buildings - Cost 126 624 Accumulated depreciation Building 1 January 2020 36 800 Intangible Assets - Cost 48 000 Accumulated amortisation Intangible Assets 1 January 2020 5 600 Income received in advance 5 800 Long term loan 54 425 Accrued liabilities 18 867 Cash and cash equivalents 32 019 Revenue 185 200 Cost of sales 92 500 Operating expenses 19 878 Interest expense 6 800 516 706 516 706 Timekeep Group had the following ratios at the end of the 2019 period: Timekeep Group Profitability ratios for the year ended 31 December 2019 Gross profit Margin 47.90% Net Profit Margin 12.35% Return on Assets 7.40% Return on Total Capital 12.60% Return on Equity 12.45% 3 Additional Notes 1. The buildings are depreciated using a 20-year useful life, the Plant and Equipment using a 5-year useful life and the intangible assets using a 4-year useful life on a straight-line basis. (The depreciation has not been included in the operating expenses line on the trial balance) 2. Timekeep Group acquired a 5-year trademark for R8 000 on 1 July 2020 from the Proudly South African Online Store. This trademark not only allows Timekeep the use of the prestigious logo, but also the ability to benefit from the Proudly South African marketing campaigns that encourage the purchases and procurement of certain goods (the purchase of this trademark together with its related depreciation has not been accounted for in the trial balance). 3. Bad debts to be written off amount to R2 850 (not accounted for in terms of the impacted accounts in the trial balance) 4. Timekeep Group made a payment for a one-pager advert for R4 500 to Emirates on the 1 September 2020. Emirates publishes monthly an in-flight magazine for travellers called Open Skies. Emirates had halted the publication of the magazine for the last quarter (September to December 2020) and had decided to resume magazine prints on 1 January 2021. Timekeeps advert will only be added in the January 2021 publication (not accounted for in terms of the impacted accounts in the trial balance). 5. The applicable tax rate is 28%. The taxation expense has not been recognised or paid as at 31 December 2020. 6. The extract of the Statement of Comprehensive Income for Timekeep Group following all the above adjustments (correctly accounted for) is as follows: Timekeep Group: Summarised Statement of Comprehensive Income as at 31 December 2020 All amounts are in Rands 2020 Profit before interest and tax 32 941.00 Profit after tax 18 821.38 7. The extract of the Statement of Financial Position for Timekeep Group following all the above adjustments (correctly accounted for) is as follows: Timekeep Group Summarised Statement of Financial Position as at 31 December 2020 All amounts are in Rands 2020 Current Assets 116 011 Current Liabilities 59 242 Total Assets 285 304 Total Equity 171 636 4 REQUIRED a) Prepare the Statement of Financial Position (Balance Sheet) of Timekeep Group as at 31 December 2020. Please make sure to show all your workings clearly Hint: You need a detailed profit for the period calculation (with all the necessary adjustments) for retained earnings Marks 36 (b) Calculate the profitability ratios of Timekeep Group for 2020 and assess and comment on the profitability for 2020 Hint: You need to disaggregate the ROE per Du Pont analysis 14 TOTAL 50