Question $1(5$ marks$)$

Twelve months after the COVID$-19$ lockdown, Muscles and Sweat $($Pty$)$ Ltd were forced to liquidate and close down permanently. Muscles and Sweat $($Pty$)$ Ltd was a publicly listed company before its liquidation.

Sam was a shareholder in Muscles and Sweat $($Pty$)$ Ltd and is very unhappy about having lost a large part of his investment. He asked you whether the directors of the Muscles and Sweat $($Pty$)$ Ltd can be held responsible given the following requirements contained in the King Code:

"The governing body should govern risk and opportunity in a way that supports the organization in defining its core purpose and to set and achieve strategic objectives."

Explain to Sam whether the King Code will be applicable, and under which circumstances the directors could be held accountable. Your answer should include a reference to all relevant sources of corporate governance requirements.

Q$2$ Thabo is one of your clients. He has been approached by a friend who is a business owner and has been asked to lend funds to the business. Thabo has provided you with the following financial information:

Ratio of long$-$term liability to capital employed:

$10\%$

Current ratio:

$2$:$1$

Acid test ratio:

$1$

Explain to Thabo how to interpret these ratios and what it would mean regarding the business loan and the risk attached to such a loan.