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TABLE OF CONTENTS Page
1. Activity 1: Profitability 3
2. Activity 2: Liquidity 8
3. Activity 3: Return financial indicators 14
4. Activity 4: Solvency ratio 18
5. Activity 5: Gearing 21
6. Activity 6: Consolidated activity 23
7. Activity 7: Consolidated activity 29
THIS BOOKLET CONSIST OF 33 PAGES
ACTIVITY 1
PROFITABILITY
The following information appeared in the books of Fitbit Partners. They offer cross fit services
and sell gym equipment. The business is owned by Pat Simons and Roxy Smith. The business
uses a markup of 40% on cost.
REQUIRED
1.1 Complete the Statement of Comprehensive Income for the year ended 31 March 2022.
1.2 Calculate the following financial indicators for March 2022.
1.2.1 Percentage gross profit on sales
1.2.2 Percentage gross profit on cost of sales
1.2.3 Percentage operating expenses on sales
1.2.4 Percentage operating profit on sales.
1.3 Partner Roxy is concerned that too much trade discount is given to customers.
§ Comment and quote one financial indicator to support his concern
§ Except for trade discount, what other reasons could there be for not achieving their
aimed mark-up percentage.
1.4 Apart from the percentage gross profit on cost of sales, indicate if the business is
managing its expenses more efficiently and if more profitable compared to 2021. Quote
indicators to support your answer.
1.5 Consider the donation made by the partners to the local school. Why would the partners
make a donation?
INFORMATION
A. Extract from the Pre-Adjustment Trial Balance on 31 March 2022:
BALANCE SHEET ACCOUNT SECTION R
Debtors control 35 850
Provision for bad debts adjustment 2 100
Trading stock 80 000
Bank overdraft 18 000
NOMINAL ACCOUNT SECTION
Sales 878 550
Cost of sales ?
Debtors' allowances 22 550
Fee income 230 000
Bad debts 4 300
Asset disposal 9 550
Insurance 40 800
Telephone 27 600
Salaries and wages ?
Rates and taxes 52 100
Depreciation 67 000
Interest on fixed deposit 1 300
Interest on overdue debtors account 430
B. Adjustments
§ Trade discount on cash sales given to customers was R78 500.
§ An invoice received from JK Transport has not yet been recorded in the books. The
following appeared on the invoice:
JK SUPPLIERS INVOICE B45
25 March 2022
Fitbit Partners
Carriage on Purchase: R14,50 per km x 48 km R696
TOTAL R696
§ Partner Pat returned gym equipment with a selling price of R3 290. No entries were
made.
§ A debtor was declared insolvent on 21 March. His estate declared a dividend of 60c in
the Rand. R1 080 is expected to be received in April 2022. The balance of the account
must be written off as bad debts. No entries have been put through.
§ Included in the rates and taxes is amount of R7 800 paid for the period 1 January 2022
to 31 May 2022.
§ Issued a credit note to Mini Florence, a debtor for R630. Mini was overcharged on
fitness sessions conducted during March 2022.
§ Provision for bad debts must be calculated at 5% on book debts.
§ Interest on bank account is calculated on the balance on the last day of each month.
Interest is calculated at 3% on favourable balance and 17% on an unfavourable
balance.
§ Loan repayments were made during the year. These have been recorded. The total
interest on the loan for the financial year is R5 520.
§ The asset disposal reflects the book value of equipment which has been donated to the
local school. The selling price of R10 000 has not yet been entered.
§ A physical stock count on 31 March 2022 revealed trading stock of R79 576 on hand.
C. Financial indicators:
2022 2021
% Gross profit on sales ? 18%
% Gross profit on cost of sales ? 35%
% Operating expenses on sales ?% 34,1%
% Operating profit on sales ?% 8%
% Net profit on sales 9% 10,4%
ANSWER BOOK
ACTIVITY 1
PROFITABILITY
1.1 Statement of Comprehensive Income for the year ended 31 March 2022.
Sales
Cost of Sales
Gross profit
Other operating income
Fee income
Gross operating income
Operating expenses
Bad debts
Insurance
Telephone
Salaries and Wages
Rates and taxes
Depreciation
Operating profit
Interest income
Operating profit before interest expense
Interest expense
Net profit
1.2 Calculate the following financial indicators for March 2022.
1.2.1 Percentage gross profit on sales
1.2.2 Percentage gross profit on cost of sales
1.2.3 Percentage operating expenses on sales
1.2.4 Percentage operating profit on sales.
1.3 Partner Roxy is concerned that too much trade discount is given to customers.
Comment and quote one financial indicator to support his concern.
Except for trade discount, what other reasons could there be for not achieving their aimed
mark-up percentage.
1.4 Apart from the percentage gross profit on cost of sales, indicate if the business is managing
its expenses more efficiently and if more profitable compared to 2021. Quote indicators to
support your answer.
1.5 Consider the donation made by the partners to the local school. Why would the partners
make a donation?
ACTIVITY 2
LIQUIDITY
The following information was extracted from the records of JH Kitchen Supplies. The business
is owned by Partner James and Hallmark. They supply home appliance.
REQUIRED
2.1 Prepare the Statement of Financial Position (Balance Sheet) on 31 July 2022.
2.2 Calculate the acid test ratio for the year ended 31 July 2022. Comment on the current ratio
and the acid test ratio.
2.3 The total sales were R2 299 500 for the year ended 31 July 2022. 80% of the goods are
sold on credit.
§ Calculate the debtor’s collection period.
§ Does the business have effective control over their debtors? Quote figures to support
your answer.
§ Give the partners advice to improve the situation.
2.4 The business buys from suppliers in China. It takes on average 20 days for stock to be
delivered from China. The cost of sales was R4 200 per day.
§ How long will it take the business to sell their closing stock which is currently on hand?
Do you think that the business does have enough stock? Explain using figures to
support your answer.
2.5 Partner Hallmark is of the opinion that the business is selling stock much quicker. Quote
TWO financial indicators to support his opinion.
2.6 The total credit purchases were R1 379 700.
§ Calculate the creditors payment period.
§ Comment on the payment to our creditors.
INFORMATION
A. Extract from the trial balance on 31 July 2022.
BALANCE SHEET ACCOUNT SECTION R
Capital: James (31 July 2022) 700 000
Capital: Hallmark (31 July 2022) 700 000
Current account: James (31 July 2022) (dr) 23 000
Current account: Hallmark (31 July 2022) (cr) 58 000
Fixed asset
Fixed deposit: Bidvest Bank 150 000
Net trade debtors 169 800
Provision for bad debts adjustment 2 100
Trading stock 172 000
Bank ?
Loan: Force bank 415 200
Accrued income 4 750
Income received in advance 17 850
Prepaid expense 4 680
Creditors control 89 000
B. Additional information
i) The business has one manager who earned R274 800 per annum. He received a
salary increase of R1 800 from 1 February 2022. The business decided to employ
another manager on 1 July 2022 earning the same monthly salary after the increase.
The details of the salary is as follows:
§ SARS: PAYE, 18% on gross.
§ Pension fund, 15% on gross
§ UIF, 1% on gross.
The business contributes to the pension fund and UIF on a Rand-for Rand basis. The
new manager was left out of the Salaries Journal in error. The manager will get paid
on 5 August 2022.
ii) Stock taking took place on 25 July 2022 and the physical stock determined as
R175 000. However, on 26 and 27 July the following stock transactions took place
after stock taking:
§ One of the employees who are employed part-time is owed wages of R1 800 for
the last week in July. Upon the partners permission, he had taken trading stock
at cost for R750. The balance will be settled by the business in July.
§ Credit purchases, R36 422.
These transactions were omitted. The stock take figure must still be adjusted.
iii) A debtor whose debt had been written off previously honoured the amount of R2 800
on 20 June 2022. This transaction was recorded but on the credit side of debtors’
control.
iv) Loan repayments were made during the year. These have been recorded. The total
interest for the financial year is R44 800 according to the loan statement. Interest is
capitalized. In the next financial year, the loan repayments excluding interest will be
R8 500 per month.
v) Included in the cash and cash equivalents, is one third of the fixed deposit which will
mature in September 2023.
C. Extract from the Statement of financial Position on 31 July 2021:
Inventories 300 000
Trade debtors 257 000
Trade creditors 158 300
D. Financial indicators:
2022 2021
Gross profit on cost of sales 50% 40%
Current ratio 1,8:1 1,2:1
Acid test ratio ? 0,8:1
Debtors' collection period ? 32,5 days
Creditors payment period ? 25 days
Stock turnover rate 6 times 5,5 times
Stock holding period 60,8 days 66,4 days
ANSWER BOOK
ACTIVITY 2
LIQUIDITY
2.1 ASSETS
Non-current assets
Tangible / Fixed assets
Fixed deposit
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves / Owners’ equity
Capital
Current accounts
Non-current liabilities
Loan
Current liabilities
Trade and other payables
Current portion of loan
TOTAL EQUITY AND LIABILITIES
2.2 Calculate the acid test ratio for the year ended 31 July 2022. Comment on the current ratio
and the acid test ratio.
Acid test rate
Comment
2.3 The total sales were R2 299 500 for the year ended 31 July 2022. 80% of the goods are
sold on credit.
Debtors’ collection period
Does the business have effective control over their debtors? Quote figures to
support your answer.
Advice
2.4 The business buys from suppliers in China. It takes an average of 20 days for stock to be
delivered from China. The cost of sales was R4 200 per day.
§ How long will it take the business to sell their closing stock which is currently on hand?
§ Do you think that the business does have enough stock? Explain using figures to
support your answer.
2.5 Partner Hallmark is of the opinion that the business is selling stock much quicker. Quote
TWO financial indicators to support his opinion.
2.6 The total credit purchases were R1 379 700.
Calculate the creditors payment period.
Comment on the payment to our creditors.
ACTIVITY 3
RETURN FINANCIAL INDICATORS
You are provided with the information of Maxi Pet Supplies. Peter Roberts and Mikael Monks are
partners of Maxi Pet Supplies.
REQUIRED
Study the extract from the Post Closing Trial Balance of Maxi Pet Supplies on 30 June 2022.
3.1 Refer to INFORMATION B and C. Calculate the missing amounts denoted (A)-(G). Show
all calculations in the space provided to earn part marks.
3.2 Peter Roberts had his own business before he joined Maxi Pet Supplies. He is concerned
about whether he made the correct decision in forming a partnership with Mikael Monks.
3.2.1 What percentage of the total net income did he earn?
3.2.2 Calculate the % return on the partners’ equity.
3.2.3 Calculate the % returns for each partner.
3.2.4 Comment on Peter Roberts return. His earnings before he joined the partnership
was 78%. Provide ONE point.
INFORMATION
A Figures extract from the Post-Closing Trial Balance
30 June 2022 30 June 2021
TOTAL CAPITAL 1 650 000 1 600 000
Capital: Roberts ? 800 000
Capital: Monks 650 000 800 000
Fixed deposit: PE Bank (12%) 200 000
B. CURRENT ACCOUNT
Roberts Monks
Profit as per income statement E D
Salaries 361 920 A
Interest on capital 110 000 B
Bonus 42 000 42 000
Primary distribution of profits F 557 300
Final distribution of profits 77 268 C
Drawings during year
Retained income for the year G 10 812
Retained income at the beginning of the year 38 800 46 200
Retained income at the end of the year 11 988 57 012
C. ADDITIONAL INFORMATION
All adjustments have been done in preparation of the Post-Closing Trial Balance given
above for the year ending June 2022.
§ The partners earn 10% p.a. interest on their capital contribution for the first three
months. Roberts and Monks increased the interest by 2% effective 1 October 2021. The
same day Roberts increased his capital and Monks decreased his capital.
§ Roberts withdrew his full salary, R361 920. Partner Monks withdrew only 11 months
and received R399 000.
Note: Salaries are debited to the Drawings account. Salaries were increased by 8%
effective 1 January 2022.
§ Both partners are entitled to a 3,5% bonus on the net profit
§ Profits and losses are shared in the ratio 3:2.
ANSWER BOOK
ACTIVITY 3
RETURN FINANCIAL INDICATORS
3.1 Calculate the missing amounts denoted (A)-(G). Show all calculations in the space
provided to earn part marks.
NO CALCULATION ANSWER
G
3.2 Peter Roberts is concerned about whether he made the correct decision in forming a
partnership with Mikael Monks.
3.2.1 What percentage of the total net income did he earn?
3.2.2 Calculate the % return on the partners’ equity.
3.2.3 Calculate the % returns for each partner.
ROBERTS
MONKS
3.2.4 Comment on Peter Roberts return. His earnings before he joined the partnership was
78%. Provide ONE point.
ACTIVITY 4
SOLVENCY RATIO
REQUIRED
4.1 Prepare the Statement of Financial Position for the year ended 31 May 2022.
4.2 Calculate the solvency ratio for 2022.
4.3 Comment on the solvency situation in the business. The solvency ratio was 3,1:1 in 2021.
INFORMATION
A. Statement of financial Position on 31 May 2022
ASSETS
Non-current assets *
Tangible / Fixed assets *
Fixed deposit: ASBA Bank *
Current assets *
Inventories *
Trade and other receivables 123 138
Cash and cash equivalents *
Total assets
EQUITY AND LIABILITIES
Capital and reserves / Owners’ equity *
Capital 1 200 000
Current accounts
Non-current liabilities *
Loan: Capitec Bank *
Current liabilities 347 340
Trade and other payables *
Current portion of loan 90 000
Total equity and liabilities *
B. Additional information
§ The fixed deposit was taken out 2 years ago. The interest rate is fixed at 8,5% p.a.
Interest is not capitalized. Interest received during the year was R19 125.
§ 12,5% of the loan will be paid during 2023.
§ The current ratio for 2022 is 1,5:1
§ The acid test ratio for 2022 is 0,7:1
§ The percentage return on the partners equity is 39%. The net profit was R560 274 in
2022. The equity was R1 336 600 in 2021.
ANSWER BOOK
ACTIVITY 4
SOLVENCY RATIO
4.1 Statement of Financial Position on 31 May 2022.
ASSETS
Non-current assets
Tangible / Fixed assets
Fixed deposit: ASBA Bank
Current assets
Inventories
Trade and other receivables 123 138
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves / Owners’ equity
Capital 1 200 000
Current accounts
Non-current liabilities
Loan: Capitec Bank
Current liabilities 347 340
Trade and other payables
Current portion of loan 90 000
TOTAL EQUITY AND LIABILITIES
4.2 Calculate the solvency ratio for 2022.
4.3 Comment on the solvency situation in the business. The solvency ratio was 3,1:1 in 2021.
ACTIVITY 5
GEARING
The business is owned by two partners, Gillian and Hanna and is located in Pretoria. They want
to open another branch in Cape Town and will need funding. They will need to borrow R400 000
in order to expand.
REQUIRED
5.1 Calculate the owners’ equity amount for 2022.
5.2 Should the business consider taking out an additional loan? Explain using figures to
support your answer.
5.3 If the business decides not to take out the loan but to rather bring in another partner who
would provide the additional capital needed, how will that change their financial risk?
Explain
INFORMATION
2022
Debt-equity ratio 0,7:1
Interest on loan 18%
Return on equity 21,4%
Owners’ equity ?
Non-current liabilities R350 000
ANSWER BOOK
ACTIVITY 5
GEARING
5.1 Calculate the owners’ equity amount for 2022.
5.2 Should the business consider taking out an additional loan? Explain using figures to
support your answer.
Circle yes or no
Yes or No
Explain
5.3 If the business decides not to take out the loan but to rather bring in another partner who
would provide the additional capital needed, how will that change their financial risk?
Explain
ACTIVITY 6
CONSOLIDATED ACTIVITY
REQUIRED
6.1 Match the questions in Column A with the Term in Column B. Write only the letter (A-E)
next to the question number in the ANSWER BOOK.
COLUMN A COLUMN B
6.1.1 Can the business pay off all its debts? A Profitability
6.1.2 Are the partners earnings a good return on their capital B Risk/ Gearing
invested?
6.1.3 How well does the business control its expenses? C Liquidity
6.1.4 Can the business payoff is immediate debts without D Solvency
trouble?
6.1.5 Is the business financed by own capital or borrowed E Return
capital?
6.2 ANALYSIS AND INTERPRETATION
Study the accounting records of Tinker Bell Traders on 28 February 2022. The partners are Mrs
H Tinker and Miss G Bell. The business uses a mark-up of 60% on cost.
REQUIRED
6.2.1 Calculate the following financial indicators for the year ended 28 February 2022.
a) Percentage gross profit on cost of sales
b) Percentage operating expenses on sales
c) Average debtors’ collection period
d) Average creditors’ payment period
e) Stock turnover rate
f) Debt/equity ratio
g) Percentage return on investment by the business
h) Percentage return by Partner Bell.
6.2.2 The business tries to maintain a mark-up of 60% on cost price.
§ Comment on the percentage mark-up achieved. Quote figures to support your
answer.
§ Give Tinker and Bell advice to improve this.
6.2.3 Should the partners be concerned about the liquidity position? Quote THREE financial
indicators (with figures) to support your comment.
6.2.4 The business is considering acquiring a vehicle of R350 000 for deliveries to customers.
They will need to apply for additional financing from HP Bank. Do you think the bank
would consider financing the vehicle? Motivate your answer by quoting relevant
indicators and their trends.
6.2.5 Comment on the % return by the business and partner Bell. Quote financial indicators
with figures.
INFORMATION
A. EXTRACT FROM THE STATEMENT OF COMPRENSIVE INCOME ON 28 FEBRAURY
2022
Sales (90% on credit) 2 867 500
Cost of sales (Credit purchases constitute 85% of cost of sales) 1 850 000
Operating expenses 360 000
B. EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY
2022 2021
Inventories 95 000 125 000
Trade debtors 167 846 272 154
Capital 1 000 000 800 000
Current account 48 000 55 000
Loan: HP Bank (14%) 400 000 500 000
Trade creditors 237 320 239 444
C. THE FOLLOWING INDICATORS WERE CALCULATED ON 28 FEBRUARY.
2022 2021
Mark-up achieved ? 52%
Percentage operating expenses on sales ? 9,5%
Percentage net profit on sales 11,2% 18,4%
Acid test ratio 1,3:1 3,0:1
Stock turnover rate ? 14,5 times
Debtors’ collection period ? 45,7 days
Creditors payment period ? 34,4 days
Debt/Equity ? 0,6:1
Percentage return by Bell ? 57,4%
Percentage return by the business ? 54,3%
D. ADDITIONAL INFORMATION
TINKER BELL
Primary distribution of profit 145 000 ?
Final distribution of profits (24 000) (24 000)
Average equity 521 600 429 900
ANSWER BOOK
ACTIVITY 6
CONSOLIDATED ACTIVITY
6.1 Match the questions in Column A with the Term in Column B. Write only the letter (A-E) next
to the question number in the ANSWER BOOK.
6.1.1
6.1.2
6.1.3
6.1.4
6.1.5
6.2.1 Calculate the following financial indicators for the year ended 28 February 2022.
a) Percentage gross profit on cost of sales
b) Percentage operating expenses on sales
c) Average debtors’ collection period
d) Average creditors payment period
e) Stock turnover rate
f) Debt/equity ratio
g) Percentage return on investment by the business.
h) Percentage return by Partner Bell.
6.2.2 The business tries to maintain a mark-up of 60% on cost price.
COMMENT
ADVICE
6.2.3 Should the partners be concerned about the liquidity position? Quote THREE financial
indicators (with figures) to support your comment.
6.2.4 The business is considering acquiring a vehicle of R350 000 for deliveries to customers.
They will need to apply for additional financing from HP Bank. Do you think the bank
would consider financing the vehicle? Motivate your answer by quoting relevant
indicators and their trends.
6.2.5 Comment on the % return by the business and partner Bell. Quote financial indicators
with figures.
ACTIVITY 7
CONSOLIDATED ACTIVITY
The information provided was extracted from the Financial Statements of Best Furniture. The
business is owned by Naidoo and Mentz.
REQUIRED
7.1 Calculate the following financial indicators for the year ended 2022:
7.1.1 % Net profit on sales
7.1.2 Stock holding period
7.1.3 Acid test ratio
7.1.4 Debt-equity ratio
7.1.5 % Return earned by Naidoo on his average equity.
7.2 Comment on the return on owner’s equity as a business and the percentage return by
Naidoo.
7.3 The partners increased their capital by R100 000 each. How did this affect the gearing
and risk of the business. Quote financial indicators to support your answer.
7.4 Comment on the following financial indicators. Note that the intended mark-up is 120% on
cost of sales. Quote figures to support your answer.
• % Gross profit on cost of sales
• % Operating expenses on sales
7.5 Consider the working capital indicators. Have these items been efficiently controlled or
not?
INFORMATION
A. EXTRACT FROM THE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 30 JUNE 2022.
Sales 1 740 000
Cost of Sales 1 200 000
B. EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION
30 JUNE 30 JUNE 2021
Owners’ Equity 7062022
000 510 400
Capital: Naidoo 400 000 300 000
Capital: Mentz 300 000 200 000
Current Account: Naidoo (12 000) 3 000
Current Account: Mentz 18 000 7 400
Non-current liabilities (21%) 540 000
Current Assets 598 450
Current Liabilities 305 000
Inventory 219 600 288 000
C. FINANCIAL INDICATORS:
2022 2021
% Return earned on business equity 22% 27%
% Return earned by Naidoo ? 24%
% Return earned by Mentz 23% 23%
Debt: Equity ratio ? 1,2:1
Current ratio 2,3:1 2,9:1
Acid test ratio ? 1,5:1
Stock holding period ? 82 days
Average debtors’ collection period 33,2 days 55 days
% Operating expenses on turnover 36% 39%
% Gross profit on cost of sales 115% 100%
D. ADDITIONAL INFORMATION:
§ Partner Naidoo earned a total of R102 400 and Partner Mentz R93 000 for the year
ended 30 June 2022.
§ The debtors’ payment period is 30 days as per the credit policy.
§ Money can be invested at 10,5% interest p.a.
ANSWER BOOK
ACTIVITY 7
REQUIRED
7.1 Calculate the following financial indicators for the year ended 2022:
7.1.1 % Net profit on sales
7.1.2 Stock holding period
7.1.3 Acid test ratio
7.1.4 Debt-equity ratio
7.1.5 % Return earned by Naidoo on her average equity.
7.2 Comment on the return on owner’s equity as a business and the percentage return by
Naidoo.
Business
Partner Naidoo
7.3 The partners increased their capital by R100 000 each. How did this affect the gearing
and risk of the business. Quote financial indicators to support your answer.
7.4 Comment on the following financial indicators. Note that the intended mark-up is 120%
on cost of sales. Quote figures to support your answer.
Gross profit on cost of sales
Operating expenses on turnover
7.5 Consider the working capital indicators. Have these items been efficiently controlled or
not?
