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MODULE NAME: MODULE CODE:

APPLIED ACCOUNTING AND FINANCE FOR MANAGERS FIAM8421p/w
APPLIED ACCOUNTING AND FINANCE FOR MANAGERS FIAM8411p

ASSESSMENT TYPE: EXAMINATION (PAPER ONLY)

TOTAL MARK ALLOCATION: 120 MARKS
TOTAL HOURS: 2 HOURS (+10 minutes reading time)
INSTRUCTIONS:
1. Please adhere to all instructions in the assessment booklet.
2. Independent work is required.
3. Five minutes per hour of the assessment to a maximum of 15 minutes is dedicated to
reading time before the start of the assessment. You may make notes on your question
paper, but not in your answer sheet. Calculators may not be used during reading time.
4. You may not leave the assessment venue during reading time, or during the first hour or
during the last 15 minutes of the assessment.
5. Ensure that your name is on all pieces of paper or books that you will be submitting. Submit
all the pages of this assessment’s question paper as well as your answer script.
6. Answer all the questions on the answer sheets or in answer booklets provided. The phrase
‘END OF PAPER’ will appear after the final set question of this assessment.
7. Remember to work at a steady pace so that you are able to complete the assessment within
the allocated time. Use the mark allocation as a guideline as to how much time to spend on
each section.
Additional instructions:
1. This is a CLOSED BOOK assessment.
2. Calculators are allowed.
3. Answer All Questions.
4. Show all calculations, where applicable (marks may be awarded for this).

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Examination Outcomes
Learning Unit/s Objectives covered in this exam: LU1 – 7

At the end of this assessment, students should be able to (Module Outcomes):

 Analyse financial statements in order to evaluate the internal and stakeholder financial status.
 Apply knowledge and understanding of the accounting process in a business environment.
 Analyse the impact of poor financial management on an organisation’s decision making.
 Discuss the budgeting and standard costing of an organisation.

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Question 1 (Marks: 20)

Beryll and Sheryl are twin sisters. They started a coffee shop 5 years ago, and it has since grown to
five outlets in and around Johannesburg. The business is registered as a private company, Twin
Coffees, double the fun! They currently own two of the premises from which two of the outlets are
run, the rest of the premises are being rented.

The two sisters are both keen to expand the operations of the business into other areas, but they
realize that they will need to take their coffee shop to the people and are looking to invest in three
food trucks. This is new to them, and they need assistance and advice on issues such as supply
logistics, personnel recruitment, and management of a substantially increased business.

They will also need funds. They estimated that they need at least R600 000 for the three food trucks.
They currently have minimal credit accounts and are unsure of their credit rating, they are also not
keen on giving up any portion of the ownership to someone else.

Beryll and Sheryl have approached you, a business advisor, to assist them with the expansion.

Required:

Q.1.1 Explain the feasibility of a bank loan through setting out the advantages and (10)
disadvantages of this form of financing for the proposed expansion.

Q.1.2 The twins also want to know how the existing business operations and working (10)
capital can be applied for the expansion, in the case of not being able to secure a
loan.

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Question 2 (Marks: 20)

The following balances appeared in the pre-adjusted trial balance of Mama’s Food Truck, a sole
trader, on 28 February 2023.
Mama’s Food Truck
Pre-adjustment trial balance as at 28 February 2023
Debit Credit
R R
Capital 54 800
Drawings 28 000
Loan: Family Trust 14 500
Vehicles (at carrying value) 136 000
Inventory 11 035
Bank 15 800
Sales 292 250
Cost of sales 120 820
Advertisements 4 440
Interest expense 1 450
Telephone 3 505
Depreciation 14 000
Salary expenses 24 730
Stationary 1 770
R361 550 R361 550

Additional information:
Provision must still be made for the payment of the rent of the equipment. The rental of the
equipment is R2 400 per month and the rental agreement came into effect on 1 May 2022.

Required:
Prepare the statement of profit or loss and other comprehensive income for the year ended 28
February 2023 of Mama’s Food Truck, according to the requirements of the Companies Act, 2008
and International Financial Reporting Standards (IFRS).

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Question 3 (Marks: 20)

Strata Limited’s available profit for distribution after tax is R4 000 000 for the financial year ending
30 June 2022. The company’s dividend policy is to distribute 40% of the available profits to the
shareholders. Strata Limited has 250 000 ordinary shares in issue. The current share price is R60 per
ordinary share.

Required:
Show all formulas and workings. Round to two decimal places.
Q.3.1 Calculate the dividend per ordinary share. (5)

Q.3.2 Calculate the earnings per share. (4)

Q.3.3 Calculate the price/earnings ratio. (4)

Q.3.4 Analyse the three ratios and give your opinion with regards to the effective (7)
management of Strata Limited from the viewpoint of a current shareholder.

Question 4 (Marks: 30)

Wilcox Limited is a manufacturing entity. They successfully tendered to manufacture a specific
product for the next three years. They have identified two machines that will fulfill all their
requirements:

Machine A:
The cost of machine A is R675 000, and it can manufacture 60 000 units per annum.
Machine A has a residual value of R55 000 at the end of year 3.

Machine B:
The cost of machine B is R900 000, and it can manufacture 90 000 units per annum.
Machine B has a residual value of R80 000 at the end of year 3.

Wilcox Limited depreciates machinery using the straight-line method at 15% per annum.

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The demand for the product is as follow:

Year 1: 90 000 units
Year 2: 60 000 units
Year 3: 50 000 units

The accounting profit is estimated at R6 per unit.

Required:
Round all Rand values to the nearest Rand.
Q.4.1 Calculate the payback period of machine A. (24)
Show all workings.

Q.4.2 The financial director calculated the ARR (accounting rate of return) for machine A (6)
and machine B as 21.5% and 19.3% respectively. She is of the opinion that it should
be used as the deciding element to consider when choosing the machine, while the
production manager is adamant that they should select the machine that can
manufacture the most units per annum.

Which machine will the financial director select based on the ARR percentages and
why? Discuss whether you agree with the approach of the financial director.

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Question 5 (Marks: 30)

Family First Limited manufactures furniture. They budget on manufacturing 2 800 units of
children’s bed sets annually; each unit uses 1.5 labour hours. Production overhead absorption
rates had been budgeted as follows for the current financial year:

Variable production overhead R32.30 per labour hour

Fixed production overhead R75.70 per labour hour

The actual level of production for the year was 2 860 units. The actual expense on variable
production overhead for the year was R133 804; and the actual expense on fixed production

overhead for the year was R325 250.

Required:
Round all Rand values to the nearest Rand.
Q.5.1 The directors are concerned about the method applied to calculate the expenses of (4)
the entity and the effect this has on the financial statements.
Explain to the directors whether they should be concerned about the costing method
applied in the accounting records.

Q.5.2 The viewpoint of the use of budgets differs from manager to manager. Some view it (6)
as a waste of time, while others feel it has a lot of benefits.
Describe the activities involved that are undertaken once the decision was made to
prepare a budget, to ensure that the budget process is beneficial to the entity.

Q.5.3 Calculate the variable production overhead variance for Family First Limited for the (10)
year and indicate whether it is favorable or adverse.

Q.5.4 Calculate the fixed production overhead variance for Family First Limited for the year (10)
and indicate whether it is favorable or adverse.

END OF PAPER

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