Mastervincent
HRM3706 SUMMARISED NOTES
MAC3702 EXAM
PACK
FOR ASSISTANCE CONTACT
, lOMoARcPSD|32110785
Question 1
The following information was obtained from the financial statements of Together We Pass (TWP), an
unlisted company manufacturing leather products.
1. Abridged balance sheet at 28 February 20.15
ASSETS R
900 000
Non current assets 165 000
Current assets Debtors
Total assets Total assets
1 065 000
CAPITAL AND LIABILITIES
Capital and reserves 540 000
Ordinary shares of R1 each 200 000
10% Cumulative preference shares of R1 each 100 000
Accumulated profit 240 000
Non-current liabilities
18% Mortgage bond 400 000
Current liabilities 125 000
Creditors 85 000
Bank overdraft 40 000
Total capital and liabilities 1 065 000
© 2015 Together We Pass. All rights reserved.
pg. 2
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QUESTION 1 (continued)
2. The following is an extract from the income statement for the year ended 28 February 20.15
together with the previous two years' comparative figures:
20.13 20.14 20.15
R R R
Operating income 390 000 470 000 510 000
Interest paid
- mortgage bond (72 000) (72 000) (72 000)
- bank overdraft (6 000) (7 000) (8 000)
Net profit before tax 312 000 391 000 430 000
Taxation (124 800) (198 450) (215 000)
Net profit after 187 200 192 550 215 0
taxation
3. Additional information:
3.1 The tax rates were as follows:
20.13 - 40%
20.14 - 45%
20.15 - 50%
3.2 During 20.14 the company disposed of an investment at a loss of R50 000 which was not
deductible for tax purposes.
3.3 Director's remuneration was provided at R50 000 per annum. Similar businesses annually provide
R40 000 for director's remuneration.
3.4 The preference shares are not redeemable.
© 2015 Together We Pass. All rights reserved.
pg. 3
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, lOMoARcPSD|32110785
QUESTION 1 (continued)
Required:
(a) Determine, showing all calculations, the expected future earnings of the company, applying the
weighted average method.
(b) (i) Value the ordinary shares in the company by using the present value of future benefits method
and by assuming that the expected future earnings calculated under (a), will increase by 10% p.a. for
the next 3 years and will then remain unchanged. Similar businesses have a rate of return of 20%
which is considered fair.
(ii) Determine the value of the preference shares assuming that similar preference shares have a fair
yield of 9%.
(c) Determine TWP unlisted company’s net asset value per share on 29 February 20.12 and explain
why it differs from the value in (b)(i).
© 2015 Together We Pass. All rights reserved.
pg. 4
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HRM3706 SUMMARISED NOTES
MAC3702 EXAM
PACK
FOR ASSISTANCE CONTACT
, lOMoARcPSD|32110785
Question 1
The following information was obtained from the financial statements of Together We Pass (TWP), an
unlisted company manufacturing leather products.
1. Abridged balance sheet at 28 February 20.15
ASSETS R
900 000
Non current assets 165 000
Current assets Debtors
Total assets Total assets
1 065 000
CAPITAL AND LIABILITIES
Capital and reserves 540 000
Ordinary shares of R1 each 200 000
10% Cumulative preference shares of R1 each 100 000
Accumulated profit 240 000
Non-current liabilities
18% Mortgage bond 400 000
Current liabilities 125 000
Creditors 85 000
Bank overdraft 40 000
Total capital and liabilities 1 065 000
© 2015 Together We Pass. All rights reserved.
pg. 2
Downloaded by Vincent Cosmas ()
, lOMoARcPSD|32110785
QUESTION 1 (continued)
2. The following is an extract from the income statement for the year ended 28 February 20.15
together with the previous two years' comparative figures:
20.13 20.14 20.15
R R R
Operating income 390 000 470 000 510 000
Interest paid
- mortgage bond (72 000) (72 000) (72 000)
- bank overdraft (6 000) (7 000) (8 000)
Net profit before tax 312 000 391 000 430 000
Taxation (124 800) (198 450) (215 000)
Net profit after 187 200 192 550 215 0
taxation
3. Additional information:
3.1 The tax rates were as follows:
20.13 - 40%
20.14 - 45%
20.15 - 50%
3.2 During 20.14 the company disposed of an investment at a loss of R50 000 which was not
deductible for tax purposes.
3.3 Director's remuneration was provided at R50 000 per annum. Similar businesses annually provide
R40 000 for director's remuneration.
3.4 The preference shares are not redeemable.
© 2015 Together We Pass. All rights reserved.
pg. 3
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, lOMoARcPSD|32110785
QUESTION 1 (continued)
Required:
(a) Determine, showing all calculations, the expected future earnings of the company, applying the
weighted average method.
(b) (i) Value the ordinary shares in the company by using the present value of future benefits method
and by assuming that the expected future earnings calculated under (a), will increase by 10% p.a. for
the next 3 years and will then remain unchanged. Similar businesses have a rate of return of 20%
which is considered fair.
(ii) Determine the value of the preference shares assuming that similar preference shares have a fair
yield of 9%.
(c) Determine TWP unlisted company’s net asset value per share on 29 February 20.12 and explain
why it differs from the value in (b)(i).
© 2015 Together We Pass. All rights reserved.
pg. 4
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