MAE203P EXAM
PACK 2023
QUESTIONS WITH ANSWERS
,MAE203P
EXAM
PACK 2023
QUESTIONS AND
ANSWERS
, MAE203P TUTORIAL LETTER 201 Semester 1 2022
QUESTION 1 (25 marks)
1.1 Straight line method refers to simple interest whereas reducing balance method refers to
compound interest. Hence straight line represent investment method where interest is accrued
over a given period of time while the reducing balance method, interest is earned all the time
from the day the investment id made.
ANY EXAMPLE WILL DO:
Example: Janet invest R40 500 with STANLIB for 5 years. Determine her amount at the end of 5
year period if the bank decided to offer:
a) 12.5 % p.a. on simple interest.
b) 12.5 % p.a. on compound interest.
SOLUTIONS: Given; P = R40 500.00, n = 5 years, i = 12.5% p.a.
Straight line method: Reducing balance method
A = P(1 + i x n) A = P(1 + i)n
= 40500(1+0.125 x 5) =40500(1 + 0.125)5
= R65812.50 = R72982.32
Concluding remarks: Reducing balance method offers best reward than a straight line method
on an investment as can be seen from the above example.
One may also choose to explain these terms in terms of depreciation as long as the correct
formulae are used in one specific example to outline the distinction. (10)
1.2 Clearly defining the differences between the given concepts:
1.2.1 Nominal rates refers to the stated interest rate a lender advertises whereas Effective rate
refers to actual interest rate a borrower is charged by the lender. (4)
1.2.2 Hire purchase is a short term loan agreement in which interest is calculated as simple
interest on the full amount of the loan over the entire repayment period. while Inflation
refers to the average increase in the cost of goods and services over a period of time. (4)
1.3 Three disadvantages of using internet banking include:
the cost implications as one needs to have a computer or cellphone to use.
hence the access issues become a reality as majority lives in rural with poor internet signal
the security concerns as criminals advance as technology advances
banks shut down their websites for routine maintenance from time to time as such clients
cannot access their accounts even on emergency. (3)
1.4 The fixed costs in a budget are costs that remain the same (constant) and are presumed not to
change anytime soon whereas variable costs refers to those that actually change all the time
once the budget gets implemented. (4)
Page 1 of 8
, QUESTION 2 (25 marks)
2.1 The statement of financial position tells the owner of the business how much money the
business and how well his or her business is using and managing that money. Such statement
does list the assets, liabilities, and equity of an organization as of the report date. The
information on the statement of financial position can be used for a number of financial
analyses, such as comparing debt to equity or comparing current assets to current liabilities.
(5)
2.2 Differences between a current asset and a current liability: (10)
Current assets Current liabilities
A current asset is cash or any asset that can Current liabilities are debts that are due
be reasonably converted to cash within a within 12 months. These includes among
period of one year. Such asset include others:
-Short-term notes payable refers to loans
-Short-term investments classified as cash
that are due upon demand.
equivalents except non-current assets. -Accounts payable which refers to money
-Receivables refer to what the business is owed to suppliers
owed by customers and has not been paid. - Overdrafts refer to short term advances
-Cash and cash equivalents thus the actual made by the bank
currency that is available for use. -Rental payments the business make for
-Inventories refer any raw materials, or renting buildings, land and other
equipment.
completed products and those that are still
Wages which are often owed to the
in production process. employees of the business.
2.3 A manager may use the Profit and Loss account when managing a business in the following ways:
Monitoring whether the business has made a profit or any loss over a given financial year.
To get the sense of how the profit or loss in 1) came about by categorizing costs between
the “operating costs “and the “cost of sales”
Hence decide on how to increase the profit margin,
Similarly, identify further areas that require reduction in expenditure budget
Do all these checks and balances all the time. (5)
2.4 Banks make profits in the following ways:
Service fees charge to clients for accessing any of their services.
Interest fee-charges for example on overdrafts, personal and home loans.
Invests in assets such as buildings which are then rent out to private and public businesses
Banks get money from customers’ investments such as fixed deposits
Banks purchase money from the Reserve Bank which in turn, rent out to businesses and
individuals.
In general, banks have both assets and liabilities on which their core business is based. (5)
Page 2 of 8
PACK 2023
QUESTIONS WITH ANSWERS
,MAE203P
EXAM
PACK 2023
QUESTIONS AND
ANSWERS
, MAE203P TUTORIAL LETTER 201 Semester 1 2022
QUESTION 1 (25 marks)
1.1 Straight line method refers to simple interest whereas reducing balance method refers to
compound interest. Hence straight line represent investment method where interest is accrued
over a given period of time while the reducing balance method, interest is earned all the time
from the day the investment id made.
ANY EXAMPLE WILL DO:
Example: Janet invest R40 500 with STANLIB for 5 years. Determine her amount at the end of 5
year period if the bank decided to offer:
a) 12.5 % p.a. on simple interest.
b) 12.5 % p.a. on compound interest.
SOLUTIONS: Given; P = R40 500.00, n = 5 years, i = 12.5% p.a.
Straight line method: Reducing balance method
A = P(1 + i x n) A = P(1 + i)n
= 40500(1+0.125 x 5) =40500(1 + 0.125)5
= R65812.50 = R72982.32
Concluding remarks: Reducing balance method offers best reward than a straight line method
on an investment as can be seen from the above example.
One may also choose to explain these terms in terms of depreciation as long as the correct
formulae are used in one specific example to outline the distinction. (10)
1.2 Clearly defining the differences between the given concepts:
1.2.1 Nominal rates refers to the stated interest rate a lender advertises whereas Effective rate
refers to actual interest rate a borrower is charged by the lender. (4)
1.2.2 Hire purchase is a short term loan agreement in which interest is calculated as simple
interest on the full amount of the loan over the entire repayment period. while Inflation
refers to the average increase in the cost of goods and services over a period of time. (4)
1.3 Three disadvantages of using internet banking include:
the cost implications as one needs to have a computer or cellphone to use.
hence the access issues become a reality as majority lives in rural with poor internet signal
the security concerns as criminals advance as technology advances
banks shut down their websites for routine maintenance from time to time as such clients
cannot access their accounts even on emergency. (3)
1.4 The fixed costs in a budget are costs that remain the same (constant) and are presumed not to
change anytime soon whereas variable costs refers to those that actually change all the time
once the budget gets implemented. (4)
Page 1 of 8
, QUESTION 2 (25 marks)
2.1 The statement of financial position tells the owner of the business how much money the
business and how well his or her business is using and managing that money. Such statement
does list the assets, liabilities, and equity of an organization as of the report date. The
information on the statement of financial position can be used for a number of financial
analyses, such as comparing debt to equity or comparing current assets to current liabilities.
(5)
2.2 Differences between a current asset and a current liability: (10)
Current assets Current liabilities
A current asset is cash or any asset that can Current liabilities are debts that are due
be reasonably converted to cash within a within 12 months. These includes among
period of one year. Such asset include others:
-Short-term notes payable refers to loans
-Short-term investments classified as cash
that are due upon demand.
equivalents except non-current assets. -Accounts payable which refers to money
-Receivables refer to what the business is owed to suppliers
owed by customers and has not been paid. - Overdrafts refer to short term advances
-Cash and cash equivalents thus the actual made by the bank
currency that is available for use. -Rental payments the business make for
-Inventories refer any raw materials, or renting buildings, land and other
equipment.
completed products and those that are still
Wages which are often owed to the
in production process. employees of the business.
2.3 A manager may use the Profit and Loss account when managing a business in the following ways:
Monitoring whether the business has made a profit or any loss over a given financial year.
To get the sense of how the profit or loss in 1) came about by categorizing costs between
the “operating costs “and the “cost of sales”
Hence decide on how to increase the profit margin,
Similarly, identify further areas that require reduction in expenditure budget
Do all these checks and balances all the time. (5)
2.4 Banks make profits in the following ways:
Service fees charge to clients for accessing any of their services.
Interest fee-charges for example on overdrafts, personal and home loans.
Invests in assets such as buildings which are then rent out to private and public businesses
Banks get money from customers’ investments such as fixed deposits
Banks purchase money from the Reserve Bank which in turn, rent out to businesses and
individuals.
In general, banks have both assets and liabilities on which their core business is based. (5)
Page 2 of 8
