6.annexure F-HFMN330-1-JAN-JUN2023-FA1-GT-V3-31012023-3

ANNEXURE F-FORMATIVE ASSESSMENT 1
HIGHER EDUCATION PROGRAMMES
Academic Year 2023: January-June

Formative Assessment 1: Financial Management (HFMN330-1)
NQF Level, credits 7, 10
Weighting: 20%
Assessment Type: Essay Questions
Educator: G.Toringepi
Examiner: G. Toringepi
Due Date: 31 March 2023
Total: 100 Marks
Instructions:
• This paper consists of four (4) questions.
• It is based on units 1- 4 (Chapters 1-6) of your prescribed textbook.
• All questions are compulsory.
• SHOW ALL CALCULATIONS
• Your assessment must be typed using:
• Font: Arial
• Font size: 12
• Line spacing: 1.5
The following Learning Outcomes are assessed in this assessment:
• Apply the fundamental principles of financial management

• Evaluate the possible impact of fundamental economic variables on the
financial management of a firm.
• Summarise financial information in the financial statements
• Prepare the cash flow statement
• Differentiate between the cash flow statement and statement of financial
position
55 HFMN330-1-JAN-JUN2023-FA1-GT-V3-31012023
Question 1 [27 marks]
1.1 (12 marks)
Briefly explain the term exchange rate and discuss the four factors that cause a change in a
floating exchange rate.
1.2 (15 marks)

Future Ltd is a coal mining company situated Bloemfontein in South Africa. The
company is not as large as some of their competitors, but because of their prime
location on a large placer deposit containing coal in the earth’s crust, they are able to
cope well with the demands of production and competition from other, larger mining
corporations.
Lately, several incidents resulting from labour disputes between mine management
and the miners themselves have resulted in prolonged strikes. These strikes disrupt
production and result in a drop in output that causes significant financial turmoil within
the firm. Future Ltd are forced to sell off several prime acres above the rich deposit in
order to ensure that they remain solvent.
The CFO for Future Ltd calls an urgent meeting of the executive board. Several of
Future’s newer shareholders have expressed their dismay at the drop in their equity
and want to know why their share value is not as it was when they originally invested.
The CEO tasks the CFO with explaining to the shareholders why their equity has
dropped and why their claims are being labelled as ‘residual’ by the company.
Required:
Discuss some of the reasons that the CFO might use to justify the drop in shareholder
equity to their shareholders. (15 marks)
Tops Ltd presents you with the following extract from their books for the year ended 28
February 2023.
Sales 19 000 000 Rent paid 30 000

Inventory (1 March 2022) 110 000 Telephones 125 600
Purchases 7 148 000 Water and electricity 191 200
Inventory (28 February 2023) 1 550 000 Interest expense 20 200
Advertising 300 000 Non-current assets 15 000 000
Salaries and wages 1 950 000 Ordinary shares 12 187 000
Insurance 145 000 Retained earning 1 500 150
Depreciation 800 000 Cash 150 681
Maintenance 215 000 Accounts receivables 1 581 265
Fuel 180 100 Inventory 1 540 310
Printing 150 100 Accounts payable 1 110 541
Postage and courier expense 9 000 Long-term liabilities 1 315 315
Additional information:
• Assume no secondary tax is payable

• Taxation charged at 28%
Required:
Prepare statement of financial performance for the year ended 28 February 2023.
(23 Marks)
3.1
Kim lives in South Africa where the following Consumer Price Index CPI) levels for the
entire county were recorded across two years:
• January 2021 – December 2021 = 47.3
• January 2022–December 2022 = 44.5
Required:
Using these figures, calculate the increase or decrease in the inflation rate across these two
years to 3 decimal places. Based on calculations above, what effect might be expected on
the nominal rate of interest. (8 marks)
3.2
ABC Ltd runs a successful company in small town in Durban. The company’s cash flow
statement for the year ended 28 February 2023 is as follows:
Notes
Cash flows from operating activities (a)
Cash receipts from customers 6 186 880
Cash paid to suppliers and employees (4 879 000)
Cash generated from operations 1 (b)
Interest received -
Interest paid (9 500)
Dividends received -
Dividends paid (140 500)
Taxation paid (650 000)
Cash flows from investing activities (c)
Purchase of non-current assets (750 000)
Proceeds from non-current assets 15 000
Cash flows from financing activities (d)
Proceeds from the issue of share capital 480 000
Proceeds from long-term borrowings 450 000
Net change in cash and cash equivalents (e)
Cash and cash equivalents: beginning of year 80 470
Cash and cash equivalents: end of year (f)
Required
Fill in the missing figures (from a – f) for the cash flow statement in the table above, and
explain the function of the cash flow statement in contrast to the statement of financial
position. (18 marks)
Lions Ltd presents you with the following extract from their books for the year ended 31
January 2023.
Statement of financial performance for the year ended 31 January 2023

Sales 75 105 000
Less cost of sales 28 142 040
Opening inventory 1 571 000
Purchases 28 158 154
Closing inventory (1 587 114)
Gross profit 46 962 960
Less operating expenses (14 210 510)
Earnings before interest and taxes 32 752 450
Less interest expense (140 000)
Earnings before tax 32 612 450
Less tax (28%) (9 131 486)
Earnings after tax 23 480 964
Net profit distributed as follows:

Dividends to ordinary shareholders 5 406 005
Retained earnings 18 074 959
23 480 964
Statement of financial position as at 31 January 2023

Non-current assets 90 158 111 Shareholder’s interest
Ordinary shares 82 494 804
Current assets Retained earnings 8 690 543
Cash 450 000 Long-term debt 1 236 694
Account receivable 1 590 000 Current liabilities
Inventory 1 114 930 Accounts payable 891 000
Total assets 93 313 041 Equity and liabilities 93 313 041
Additional information
• Number of ordinary shares issued 82 494 804 @ 1 000cents each

• Current market price per share 4 550 cents
Industrial averages
Ratio Industrial average

EPS 192 cents
DPS 86 cents
P/E 13
Debt ratio 13%
Debt-equity ratio 26%
Times interest ratio 29
Required:
Calculate the basic debt and securities market ratios of a firm based on the above financial
statements. Clearly show the formula you used as well as your calculations.
(24 Marks)
TOTAL: 100 MARK

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ANNEXURE F-FORMATIVE ASSESSMENT 1

HIGHER EDUCATION PROGRAMMES

Academic Year 2023: January-June

The following Learning Outcomes are assessed in this assessment:

• Apply the fundamental principles of financial management

Question 1 [27 marks]

1.1 (12 marks)

1.2 (15 marks)

Question 2 [23 marks]

Sales 19 000 000 Rent paid 30 000

• Assume no secondary tax is payable

Question 3 [26 marks]

• January 2022–December 2022 = 44.5

Question 4 [24 marks]

Statement of financial performance for the year ended 31 January 2023

Net profit distributed as follows:

Statement of financial position as at 31 January 2023

• Number of ordinary shares issued 82 494 804 @ 1 000cents each

Ratio Industrial average

TOTAL: 100 MARK

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