How often Analysis of financial information is asked

Where it was asked

• May/Jun 202232 marks
• May/Jun 201820 marks
• May/Jun 201526 marks

The questions

1. May/Jun 2022, Q1.42 marks · multiple choice

   Five statements are given: (1) they are permitted to offer shares to the public; (2) they may have more than 50 shareholders; (3) the company name must end with 'Ltd'; (4) the board must have at least one director or any other minimum number stipulated in the memorandum of incorporation; (5) they are subject to fewer disclosure and transparency requirements than before the new Companies Act. Identify which combination of these statements are NOT characteristics of a private company.

2. May/Jun 2022, Q3(a)6 marks

   WikWok Limited has supplied two financial statements for analysis. The statement of profit or loss and other comprehensive income for the year ended 31 December 2021 (with 2020 comparatives, all figures in R'000) shows: revenue of R7 200 (2020: R3 000); cost of sales of R4 800 (2020: R1 500); operating costs of R228 (2020: R223); distribution costs of R213 (2020: R186); administrative expenses of R325 (2020: R287); other expenses of R82 (2020: R60); net operating profit of R1 552 (2020: R744); interest and other income of R8 (2020: R6); interest expense of R40 (2020: R30); profit before tax of R1 520 (2020: R720); income tax expense of R760 (2020: R360); and net profit of R760 (2020: R360). The statement of financial position as at 31 December 2021 shows, under non-current assets, property, plant and equipment of R3 200 (2020: R1 420) and other investments of R640 (2020: R480), giving total non-current assets of R3 840 (2020: R1 900). Current assets comprise inventories of R2 600 (2020: R1 580), trade and other receivables, and cash and cash equivalents of Rnil (2020: R300), giving total current assets of R3 180 (2020: R2 440) and total assets of R7 020 (2020: R4 340). Equity and reserves consist of share capital of R2 000 (2020: R2 000), a revaluation reserve of R246 (2020: R246) and retained earnings of R1 634 (2020: R874), giving total equity of R3 880 (2020: R3 120). Non-current liabilities comprise interest-bearing borrowings of R300 (2020: R200) and deferred tax of R40 (2020: R60), totalling R340 (2020: R260). Current liabilities comprise trade and other payables of R1 800 (2020: R420), current tax payable of R400 (2020: R360), a bank overdraft of R400 (2020: Rnil) and current provisions of R200 (2020: R180), totalling R2 800 (2020: R960), so that total equity and liabilities amount to R7 020 (2020: R4 340). Additional information: WikWok Limited has 4 million authorised shares, of which 2 million ordinary shares have been issued; no fixed assets were sold or traded in during the year; credit sales represented 95% of revenue in both years; the dividend per share was 8 cents in 2021 (2020: 5 cents); a 360-day year (30 days per month) must be assumed; and value added tax (VAT) is charged at 15%. For all calculations in this question, work to four decimal places and round your final answers to two decimal places. You are required to calculate five ratios for WikWok Limited for both 2021 and 2020, as set out below. For WikWok Limited, calculate the gross profit (GP) margin for both 2021 and 2020. You must show the formula used and the detailed calculation, provide a description or explanation of what a GP margin indicates, state whether the ratio has increased or decreased from 2020 to 2021, and give a possible reason or explanation for the change.

3. May/Jun 2022, Q3(b)6 marks

   WikWok Limited has supplied two financial statements for analysis. The statement of profit or loss and other comprehensive income for the year ended 31 December 2021 (with 2020 comparatives, all figures in R'000) shows: revenue of R7 200 (2020: R3 000); cost of sales of R4 800 (2020: R1 500); operating costs of R228 (2020: R223); distribution costs of R213 (2020: R186); administrative expenses of R325 (2020: R287); other expenses of R82 (2020: R60); net operating profit of R1 552 (2020: R744); interest and other income of R8 (2020: R6); interest expense of R40 (2020: R30); profit before tax of R1 520 (2020: R720); income tax expense of R760 (2020: R360); and net profit of R760 (2020: R360). The statement of financial position as at 31 December 2021 shows, under non-current assets, property, plant and equipment of R3 200 (2020: R1 420) and other investments of R640 (2020: R480), giving total non-current assets of R3 840 (2020: R1 900). Current assets comprise inventories of R2 600 (2020: R1 580), trade and other receivables, and cash and cash equivalents of Rnil (2020: R300), giving total current assets of R3 180 (2020: R2 440) and total assets of R7 020 (2020: R4 340). Equity and reserves consist of share capital of R2 000 (2020: R2 000), a revaluation reserve of R246 (2020: R246) and retained earnings of R1 634 (2020: R874), giving total equity of R3 880 (2020: R3 120). Non-current liabilities comprise interest-bearing borrowings of R300 (2020: R200) and deferred tax of R40 (2020: R60), totalling R340 (2020: R260). Current liabilities comprise trade and other payables of R1 800 (2020: R420), current tax payable of R400 (2020: R360), a bank overdraft of R400 (2020: Rnil) and current provisions of R200 (2020: R180), totalling R2 800 (2020: R960), so that total equity and liabilities amount to R7 020 (2020: R4 340). Additional information: WikWok Limited has 4 million authorised shares, of which 2 million ordinary shares have been issued; no fixed assets were sold or traded in during the year; credit sales represented 95% of revenue in both years; the dividend per share was 8 cents in 2021 (2020: 5 cents); a 360-day year (30 days per month) must be assumed; and value added tax (VAT) is charged at 15%. For all calculations in this question, work to four decimal places and round your final answers to two decimal places. You are required to calculate five ratios for WikWok Limited for both 2021 and 2020, as set out below. For WikWok Limited, calculate the current ratio for both 2021 and 2020. You must show the formula used and the detailed calculation, provide a description or explanation of what the current ratio indicates, state whether the ratio has increased or decreased from 2020 to 2021, and give a possible reason or explanation for the change.

4. May/Jun 2022, Q3(c)6 marks

   WikWok Limited has supplied two financial statements for analysis. The statement of profit or loss and other comprehensive income for the year ended 31 December 2021 (with 2020 comparatives, all figures in R'000) shows: revenue of R7 200 (2020: R3 000); cost of sales of R4 800 (2020: R1 500); operating costs of R228 (2020: R223); distribution costs of R213 (2020: R186); administrative expenses of R325 (2020: R287); other expenses of R82 (2020: R60); net operating profit of R1 552 (2020: R744); interest and other income of R8 (2020: R6); interest expense of R40 (2020: R30); profit before tax of R1 520 (2020: R720); income tax expense of R760 (2020: R360); and net profit of R760 (2020: R360). The statement of financial position as at 31 December 2021 shows, under non-current assets, property, plant and equipment of R3 200 (2020: R1 420) and other investments of R640 (2020: R480), giving total non-current assets of R3 840 (2020: R1 900). Current assets comprise inventories of R2 600 (2020: R1 580), trade and other receivables, and cash and cash equivalents of Rnil (2020: R300), giving total current assets of R3 180 (2020: R2 440) and total assets of R7 020 (2020: R4 340). Equity and reserves consist of share capital of R2 000 (2020: R2 000), a revaluation reserve of R246 (2020: R246) and retained earnings of R1 634 (2020: R874), giving total equity of R3 880 (2020: R3 120). Non-current liabilities comprise interest-bearing borrowings of R300 (2020: R200) and deferred tax of R40 (2020: R60), totalling R340 (2020: R260). Current liabilities comprise trade and other payables of R1 800 (2020: R420), current tax payable of R400 (2020: R360), a bank overdraft of R400 (2020: Rnil) and current provisions of R200 (2020: R180), totalling R2 800 (2020: R960), so that total equity and liabilities amount to R7 020 (2020: R4 340). Additional information: WikWok Limited has 4 million authorised shares, of which 2 million ordinary shares have been issued; no fixed assets were sold or traded in during the year; credit sales represented 95% of revenue in both years; the dividend per share was 8 cents in 2021 (2020: 5 cents); a 360-day year (30 days per month) must be assumed; and value added tax (VAT) is charged at 15%. For all calculations in this question, work to four decimal places and round your final answers to two decimal places. You are required to calculate five ratios for WikWok Limited for both 2021 and 2020, as set out below. For WikWok Limited, calculate the receivable days (debtors collection period) for both 2021 and 2020. You must show the formula used and the detailed calculation, provide a description or explanation of what the ratio indicates, state whether it has increased or decreased from 2020 to 2021, and give a possible reason or explanation for the change.

5. May/Jun 2022, Q3(d)6 marks

   WikWok Limited has supplied two financial statements for analysis. The statement of profit or loss and other comprehensive income for the year ended 31 December 2021 (with 2020 comparatives, all figures in R'000) shows: revenue of R7 200 (2020: R3 000); cost of sales of R4 800 (2020: R1 500); operating costs of R228 (2020: R223); distribution costs of R213 (2020: R186); administrative expenses of R325 (2020: R287); other expenses of R82 (2020: R60); net operating profit of R1 552 (2020: R744); interest and other income of R8 (2020: R6); interest expense of R40 (2020: R30); profit before tax of R1 520 (2020: R720); income tax expense of R760 (2020: R360); and net profit of R760 (2020: R360). The statement of financial position as at 31 December 2021 shows, under non-current assets, property, plant and equipment of R3 200 (2020: R1 420) and other investments of R640 (2020: R480), giving total non-current assets of R3 840 (2020: R1 900). Current assets comprise inventories of R2 600 (2020: R1 580), trade and other receivables, and cash and cash equivalents of Rnil (2020: R300), giving total current assets of R3 180 (2020: R2 440) and total assets of R7 020 (2020: R4 340). Equity and reserves consist of share capital of R2 000 (2020: R2 000), a revaluation reserve of R246 (2020: R246) and retained earnings of R1 634 (2020: R874), giving total equity of R3 880 (2020: R3 120). Non-current liabilities comprise interest-bearing borrowings of R300 (2020: R200) and deferred tax of R40 (2020: R60), totalling R340 (2020: R260). Current liabilities comprise trade and other payables of R1 800 (2020: R420), current tax payable of R400 (2020: R360), a bank overdraft of R400 (2020: Rnil) and current provisions of R200 (2020: R180), totalling R2 800 (2020: R960), so that total equity and liabilities amount to R7 020 (2020: R4 340). Additional information: WikWok Limited has 4 million authorised shares, of which 2 million ordinary shares have been issued; no fixed assets were sold or traded in during the year; credit sales represented 95% of revenue in both years; the dividend per share was 8 cents in 2021 (2020: 5 cents); a 360-day year (30 days per month) must be assumed; and value added tax (VAT) is charged at 15%. For all calculations in this question, work to four decimal places and round your final answers to two decimal places. You are required to calculate five ratios for WikWok Limited for both 2021 and 2020, as set out below. For WikWok Limited, calculate the return on assets (ROA) using carrying values (book values) for both 2021 and 2020. You must show the formula used and the detailed calculation, provide a description or explanation of what a return on assets ratio indicates, state whether it has increased or decreased from 2020 to 2021, and give a possible reason or explanation for the change.