MBA4807
EXAM SOLUTIONS
SEMESTERV 01 – 2023
SECTION A
1
a) Debt ratio is 0.50:
Debt Ratio = Total Debt / Total Assets
Given that the Debt Ratio is 0.50, we can rearrange the formula to calculate the total
debt:
Total Debt = Debt Ratio * Total Assets
Total Debt = 0.50 * R7,300 = R3,650
b) Current ratio is 1.30:
Current Ratio = Current Assets / Current Liabilities
Given that the Current Ratio is 1.30, we can rearrange the formula to calculate the
total current assets:
Current Assets = Current Ratio * Current Liabilities
Current Assets = 1.30 * R1,900 = R2,470
c) Acid-test ratio is 0.40:
Acid-test Ratio = (Current Assets - Inventories) / Current Liabilities
Given that the Acid-test Ratio is 0.40, we can rearrange the formula to calculate the
value of Current Assets - Inventories:
(Current Assets - Inventories) = Acid-test Ratio * Current Liabilities
(Current Assets - Inventories) = 0.40 * R1,900 = R760
d) Share capital is R185:
This value is already given as R185.
e) Long-term debt:
Long-term debt = Total Debt - Current Liabilities
Long-term debt = R3,650 - R1,900 = R1,750
f) Total liabilities and equity:
Total liabilities and equity = Total Debt + Share capital + Retained earnings
Total liabilities and equity = R3,650 + R185 + R3,465 = R7,300
2
1
The ethical dilemma in this case is the potential conflict between following Thembi's
instructions to omit the balance sheet and the responsibility to provide accurate and
, complete financial information to the banker. If you follow Thembi's instructions, it may
affect the banker's ability to make an informed decision about granting the loan. The
banker may be misled or unaware of the true financial position and risks associated
with Thandi Cleaners. This can have consequences for both Thembi and the banker
if the loan is approved based on incomplete or misleading information.
2
As the chief financial officer and payroll clerk, you have a responsibility to maintain
ethical standards and ensure the accuracy and completeness of financial information.
Your role is to provide reliable financial data that reflects the true financial position of
the business. It is your duty to act in the best interest of the company and its
stakeholders, including providing accurate information to the banker.
3
No, the banker will not have all the relevant information needed for decision making if
the balance sheet is not provided. The balance sheet provides essential information
about the company's assets, liabilities, and equity, which are crucial for assessing the
financial health, solvency, and overall risk profile of the business. Without the balance
sheet, the banker may lack a comprehensive understanding of Thandi Cleaners'
financial position and may not be able to make an informed lending decision.
4
The information provided by Thembi, excluding the balance sheet, may not be neutral
because it omits a crucial financial statement that provides a comprehensive snapshot
of the company's financial status. The omission of the balance sheet can skew the
overall picture and misrepresent the financial position of the business. This lack of
neutrality may lead to a misinterpretation of the company's financial health and risk
assessment.
5
In this situation, it is important to prioritize ethical behavior and fulfill your responsibility
to provide accurate and complete financial information. To ensure transparency and
integrity, you should inform Thembi about the importance of including the balance
sheet in the documentation provided to the banker. By doing so, you uphold
professional standards and avoid misleading or withholding essential financial
information. If Thembi insists on excluding the balance sheet, it may harm both the
banker, who may make a decision based on incomplete information, and potentially
Thembi herself, if the loan is approved without a proper assessment of the business's
financial position and risks.
3
a) A business can earn large profits but have a small balance of retained earnings if it
distributes a significant portion of its profits as dividends to shareholders. Retained
earnings represent the accumulated profits that have not been distributed as
dividends. If a business consistently pays out a substantial portion of its profits as
dividends, the retained earnings balance will remain small despite earning large
profits.
b) A business can have a steady stream of net income over a six-year period and still
experience a cash shortage due to various reasons:
EXAM SOLUTIONS
SEMESTERV 01 – 2023
SECTION A
1
a) Debt ratio is 0.50:
Debt Ratio = Total Debt / Total Assets
Given that the Debt Ratio is 0.50, we can rearrange the formula to calculate the total
debt:
Total Debt = Debt Ratio * Total Assets
Total Debt = 0.50 * R7,300 = R3,650
b) Current ratio is 1.30:
Current Ratio = Current Assets / Current Liabilities
Given that the Current Ratio is 1.30, we can rearrange the formula to calculate the
total current assets:
Current Assets = Current Ratio * Current Liabilities
Current Assets = 1.30 * R1,900 = R2,470
c) Acid-test ratio is 0.40:
Acid-test Ratio = (Current Assets - Inventories) / Current Liabilities
Given that the Acid-test Ratio is 0.40, we can rearrange the formula to calculate the
value of Current Assets - Inventories:
(Current Assets - Inventories) = Acid-test Ratio * Current Liabilities
(Current Assets - Inventories) = 0.40 * R1,900 = R760
d) Share capital is R185:
This value is already given as R185.
e) Long-term debt:
Long-term debt = Total Debt - Current Liabilities
Long-term debt = R3,650 - R1,900 = R1,750
f) Total liabilities and equity:
Total liabilities and equity = Total Debt + Share capital + Retained earnings
Total liabilities and equity = R3,650 + R185 + R3,465 = R7,300
2
1
The ethical dilemma in this case is the potential conflict between following Thembi's
instructions to omit the balance sheet and the responsibility to provide accurate and
, complete financial information to the banker. If you follow Thembi's instructions, it may
affect the banker's ability to make an informed decision about granting the loan. The
banker may be misled or unaware of the true financial position and risks associated
with Thandi Cleaners. This can have consequences for both Thembi and the banker
if the loan is approved based on incomplete or misleading information.
2
As the chief financial officer and payroll clerk, you have a responsibility to maintain
ethical standards and ensure the accuracy and completeness of financial information.
Your role is to provide reliable financial data that reflects the true financial position of
the business. It is your duty to act in the best interest of the company and its
stakeholders, including providing accurate information to the banker.
3
No, the banker will not have all the relevant information needed for decision making if
the balance sheet is not provided. The balance sheet provides essential information
about the company's assets, liabilities, and equity, which are crucial for assessing the
financial health, solvency, and overall risk profile of the business. Without the balance
sheet, the banker may lack a comprehensive understanding of Thandi Cleaners'
financial position and may not be able to make an informed lending decision.
4
The information provided by Thembi, excluding the balance sheet, may not be neutral
because it omits a crucial financial statement that provides a comprehensive snapshot
of the company's financial status. The omission of the balance sheet can skew the
overall picture and misrepresent the financial position of the business. This lack of
neutrality may lead to a misinterpretation of the company's financial health and risk
assessment.
5
In this situation, it is important to prioritize ethical behavior and fulfill your responsibility
to provide accurate and complete financial information. To ensure transparency and
integrity, you should inform Thembi about the importance of including the balance
sheet in the documentation provided to the banker. By doing so, you uphold
professional standards and avoid misleading or withholding essential financial
information. If Thembi insists on excluding the balance sheet, it may harm both the
banker, who may make a decision based on incomplete information, and potentially
Thembi herself, if the loan is approved without a proper assessment of the business's
financial position and risks.
3
a) A business can earn large profits but have a small balance of retained earnings if it
distributes a significant portion of its profits as dividends to shareholders. Retained
earnings represent the accumulated profits that have not been distributed as
dividends. If a business consistently pays out a substantial portion of its profits as
dividends, the retained earnings balance will remain small despite earning large
profits.
b) A business can have a steady stream of net income over a six-year period and still
experience a cash shortage due to various reasons:
