Question

QUESTION 1 40 MARKS Below are the statements of financial position of PPC Ltd for the financial year ending 31 December 2019 and 2018 together with additional information related to other events in the 31 December 2019 financial year. PPC Balance Sheet as at 31 December 2019 2019 2018 Assets Cash Accounts receivables Inventory Prepaid expenses Long-term investments Land Buildings and equipment Accumulated depreciation TOTAL ASSETS 30 000 410 000 300 000 20 000 50 000 560 000 2 000 000 -800 000 2 570 000 50 000 460 000 320 000 15 000 25 000 300 000 1 900 000 -770 000 2 300 000 Liabilities & Equity Accounts payable Accrued Liabilities Bonds issued Long term loan Ordinary Share capital, R2 par value Paid-in-capital in excess of par value Retained earnings TOTAL LIABILITIES & EQUITY 300 000 40 000 500 000 150 000 200 000 710 000 670 000 2 570 000 120 000 50 000 800 000 0 160 000 550 000 620 000 2 300 000 Additional Information about 2019 transactions and events • Net income was R110 000 • Depreciation expense on buildings and equipment was R60 000 Sold equipment with a cost of R50 000 and accumulated depreciation of R30 000 for cash of R17 000 Declared and paid dividends of R60 000

Answer 1

() Cash Flow statement for PPC Limited For the year ended 31.12.2019 Particulars Amount Amount 110000 60000 3000 Cash Flow from Operating Activities Net Income (+) Depreciation (+) Loss on sale of equipments (50000-30000-17000) (Increase/Decrease in Current Assets Decrease in accounts Receivables Decrease in Inventory Increase in prepaid exp Increase/Decrease) in Current Liabilities Increase in accounts Payable Decrease in accrued Liabilities 50000 20000 -5000 180000 -10000 298000 Net Cash Provided by operating Activities 408000 Cash Flow from Investing Activities 17000 Sale of equipments Purchase of Building & equipments Purchase Long term investments Purchase Land - 150000 -25000 -260000 Net Cash Provided by Investing Activities -418000 Cash Flow from Financing Activities Divinded Paid Issue Long term loan payable Paid Bonds Payable Share issued -60000 150000 -300000 200000 Net Cash Provided by Financing Activities -10000 Net Increase/Decrease) In cash -20000 Beginning Cash 50000 Closing Cash 30000 (ii) Liquidity & Solvency Ratio (A) Liquidity Ratio 2019 2018 1) Current Ratio (Current Assets/Current Liabilities) ((30000+410000+300000+2 (50000+460000+320000+ 0000)/(300000+40000)) 15000)/(120000+50000)) 4.97 2.24 2) Quick Ratio (Current Assets-Inventories/Current Liabilities) ((30000+410000+300000+2 ((50000+460000+320000+ 0000-300000) 15000-320000)/ /(300000+40000)) (120000+50000)) 1.35 3.09 (B) Solvancy Ratio 2019 2018 1) Debt To Equity Ratio (Total Debt/Total Equity) ((500000+150000)/(200000 800000)/(160000+55000 +710000+670000)) 0+620000)) 0.41 0.60 2) Debt To Assets Ratio (Total Debt/Total Assets) ((500000+150000)/2570000) (800000/2300000) 0.25 0.35 (iii) Cash Flow statement By analysing Cash Flow we can say that cash generated by PPC was mainly used in Investment in Plant & Machinery & Investment Cash generated from Financing activities via share capital is used in bond repayment Ratio Analysis Liquidity position in 2018 was good which become bad in 2019 as investment in current assets increased. Both can be seen through Current Ratio & Quick Ratio Debt position of the company is come to reduced as compared in 2018 it can be seen in both solvancy ratio.