QUESTION 1

You are expected to demonstrate your knowledge on all aspects about the Cash Flow Statement and interpretations thereof.

INFORMATION:

The directors of RONEO Limited realized that the company could have cash-flow challenges in the next financial year. They have therefore approached you, as the internal auditor, to assist them. The company imports computers from Tokyo. The cost to import has significantly increased and a loan had to be negotiated to be able to carry the high cost of freight, import duties and transport to the warehouses in South Africa. This cost will automatically increase the cost price of the computers. The directors realized that, if the above cost was part of operating expenses, it would have been unwise to negotiate a loan to cover the cost. The selling price of computers had to be adjusted to carry the additional cost. The selling price of the computers is now higher than the competitors prices.

Additional warehouses were built. More delivery vans and equipment were purchased to accommodate the growth of the company. However, with the increase of cost, the directors are concerned about the future and the analysis and interpretation of the

SECTION A [60 MARKS]

financial statements is very important for their budgeting and future decision making process.

A. Extract from the Income Statement for the year ended 28 February 2015:

28

February 2015

2 401 200 (960 480) 1 440 720 ? 123 525

Sales

Cost of Sales Gross Profit

N

B.

epreciation Interest on Loan Income tax

D

74

?

?

? 108 000

1 140 000 ?

? 1489 500

820

et Income before tax

Distributable reserves/ Retained Income:

Balance on 28 February 2014

Net Profit after tax

Buy back of shares for more than the average price

Dividends (interim dividends, R81 000 and declared at the end of the year, ...?)

Balance on 28 February 2015

Ordinary share capital:

90 000 249 200

C.

444 000 Ordinary shares issued on 28 February 2014

66 000 Additional shares issued on 1 March 2014

(10 000) Bought back at average price , R 2-98 per share 500 000 Ordinary shares issued on 28 February 2015

D

Extract from the Balance Sheet as at 28 February 2015 28 February 2015

Tangible/Fixed assets 1 926 612

28 February 2014

1 568 250 60 000

Fixed Deposit

112 500

Current Assets

Inventories 345

096

622 - 900

500

500 000

000

230

500 150 000

276 750

148 626 3 420 35 874

1 230 000

1 140 000 90 000

675 000

184 500

101 520 - 86 400 -

552

618

461 250

Trade and other receivables

SARS (Income tax)

Cash and cash equivalents

Shareholders equity

Ordinary share capital Retained income

Non-current liabilities Current liabilities

Trade and other payables

Bank Overdraft

Shareholders for dividends SARS: Income tax

Notes to the Balance Sheet:

Cost Price

Accumulated depreciation Carrying value on 28/02/13

Movements

Additions at cost

Disposals at carrying value

206

1 597

1 489 108

720

274

112 21 135

E

580

TANGIBLE ASSETS

2014

Land and Buildings

Vehicles

Equipment

Total

1 183 050

0 1 183 050 ?

450 000

(162 000) 288 000

? (57 600)

?

356 400

522 000 (165 600)

162 000

(64 800) 97 200 ?

0

?

129 600

216 000 (86 400)

1 795 050

(226 800 1 568 250

? (57 600)

?

1 926 612

2 178 612 (252 000)

0 Depreciation 0

Carrying value on 28/02/14

Cost Price

Accumulated depreciation

1 440 612

1 440 612 0

Additional information:

1 The following information related to the shareholders equity of Roneo Limited:

Registered on 1 January 2012 with an authorized share capital of 3 500 000

ordinary shares.

444 000 shares were issued on 28 February 2012.

An additional 66 000 shares were issued on 1 March 2014, the beginning

of the financial year.

A shareholder who is immigrating has requested the company to buy back his

shares. The directors decided to buy-back 10 000 shares at market value of R4, 50. The average price of the issued shares is R2, 98 each.

2 On 28 February 2015 Roneo Limited bought a new vehicle from Sun Motors and traded in an old vehicle at a cost price of R144 000. The carrying value of the old vehicle was R57600.

3 Non-current liabilities consist of a loan that was obtained from Madiba Bank at an interest rate of 18% p.a. The loan was increased during the year to be able to accommodate the high import and freight costs. The full interest for the accounting period has been paid and recorded.