FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING & AUDITING

BACC 402/435: FINANCIAL STATEMENTS ANALYSIS
ASSIGNMENT 2
JANUARY – JUNE 2024

Instructions
• All assignments must be typed using New Times Roman font size 12, 1.5 line spaced,
referenced using 6th Edition APA Guidelines, justified both sides, include a
standardized cover page and uploaded as a SINGLE PDF file.
• It is the responsibility of the student to upload their assignments in time to avoid
inconveniences due to internet failure, system failure, power outages or any other
unforeseen circumstances. NO submission extensions will be granted by the
Department after the deadline.
• All queries for this assignment must be directed to the Course Leader whose contact
details are on the List of Course Leaders available on My Vista.
• Plagiarism is a serious academic offence. Credit will be given for well written and
referenced assignments. Please refer to the Tutorial Letter and other resources for
more information on academic writing.

ASSIGNMENT TWO
Question 1

You are given the following information:

JD Mufakwadziya consolidated profit and loss account for year ended 31 July 2023
2023 2022
$000 $000
Turnover from continuing operations 730,913 601,295
Cost of sales (621,894) (503,699)
Gross profit 109,019 97,596
Administrative expenses (34,036) (27,511)
Operating profit 74,983 70,085
Net interest payable (18,844) (16,517)
Profit on ordinary activities before tax 56,139 53,568
Tax on profit on ordinary activities (19,744) (18,152)
Profit on ordinary activities after tax 36,395 35,416
Dividends (7,434) (6,902)
Retained profit for the year 28,961 28,514

JD Mufakwadziya
Group balance sheet at 31 July 2023

2023 2022
$000 $000
Fixed assets Tangible assets 773,823 745,041
773,823 745,041
Current assets
Stocks 9,601 8,594
Debtors due after more than one year 8,448 7,682
Debtors due after less than one year 9,017 8,237
Investments 3,301 1,203
Cash 15,160 13,609
42,527 38,325
Creditors due within one year (135,361) (122,919)
Net current liabilities (92,834) (84,594)
Total assets less current liabilities 680,989 660,447
Creditors due after one year (299,942) (292,915)
Provisions for liabilities and charges (62,419) (57,399)
318,628 310,133
Capital and reserves
Called-up share capital 4,149 4,292
Share premium account 126,739 124,819
Capital redemption reserve, 165
Revaluation reserve 22,439 23,386
Profit and loss account 165,136 157,636
Equity shareholders’ funds 318,628 310,133

Required:
Calculate the following Ratios and briefly comment on their implications.

i. Operating return on equity

ii. Financial leverage multiplier
iii. Return on capital employed
iv. Asset turnover
v. Net profit margin
vi. Current ratio
Question 2
(a) According to IAS 16, the cost of an item of PPE comprises its purchase price, including
import duties and non-refundable purchase taxes, plus any directly attributable costs of
bringing the asset to working condition for its intended use.
Required:
State 5 directly attributable costs that can be included (5 marks)

(b) An asset having an economic life of five years with an initial cost of $11,000 has
estimated residual value $1,000.
Required:
Calculate the yearly depreciation charges using the following methods:
(i) Straight line method (4 marks)
(ii) Reducing balance method (8 marks)
(iii) Sum of digits method (8 marks)

Question 3

The standard on Revenue (IAS18) says that, with regard to transactions involving the
rendering of services, revenue should be recognised by taking into account the transaction's
stage of completion at the reporting date, provided that the outcome of the transaction can be
estimated reliably. This is the case when the following conditions are satisfied.
i) The amount of revenue can be measured reliably;
ii) It is probable that the economic benefits associated with the transaction will flow to the
entity;
iii) The stage of completion of the transaction at the end of the reporting period can be
measured reliably and
iv) The costs incurred on the transaction and the costs to complete it can be measured
reliably.

Required:
Briefly explain the principles of revenue recognition related to the rendering of services in the
following:
a) Installation fees
b) Servicing fees
c) Insurance agency commissions
d) Financial service fees
e) Tuition fees
f) Franchise fees
g) Fees from the development of customised software
h) Interest, royalties and dividends (25 Marks)