In this assignment apply the principles of accounting including concepts which includes Revenue, Assets, Liability, Reporting as well different organizational performance measures which includes the use of financial ratios.
This task will also require a mix of practical application with some explanation. Be sure to read the question carefully and be comprehensive in your answers. Substantiate your answers.
Task: (Marks: 35)
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The below is the abbreviated financial statement of Alpha Technologies. Read the financial statements and answer the questions which follow.
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Alpha Technologies
Balance sheet as at 30 March 2021
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2019
R’000
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2020
R’000
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2021
R’000
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CAPITAL EMPLOYED
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Shareholders’ equity
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42 788
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46 344
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58932
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Ordinary share capital
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10 000
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10 000
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10 000
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Share Premium
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14 500
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14 500
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16 350
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Retained Income
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13 288
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16 844
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27 232
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Non-distributable reserves
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5 000
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5 000
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5000
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Long-term loans
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23 466
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25 416
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30 934
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66254
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71 760
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89 866
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EMPLOYMENT OF CAPITAL
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Fixed Assets
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53 670
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41 555
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73 678
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Investments
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8 750
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8 750
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3 400
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Net current Assets
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21 834
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21 455
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12 788
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Current assets
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30 499
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31 406
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28 133
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Inventory
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13 450
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15 788
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12 757
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Debtors
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12 455
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14 678
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12 943
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Cash and Cash equivalent
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4 594
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940
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2 433
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Current liabilities
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8665
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9 951
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15 345
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Creditors
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5 683
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6 342
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12 455
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Other liabilities
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2 982
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3 609
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2 890
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66 254
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71 760
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89 866
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Alpha Technologies purchases materials which are used in the construction of plastic moulding and pressed products. All purchases are made on credit. The company enters into contracts with their clients who are given credit terms.
Alpha Technologies
INCOME STATEMENT FOR THE YEAR ENDED 30 MARCH 2021
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2019
R’000
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2020
R’000
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2021
R’000
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Revenue
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43 468
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47 833
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72 162
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Cost of materials
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21 750
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24 030
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40 090
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Gross margin
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21 718
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23 803
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32 072
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Other income
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1 890
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2 079
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1 372
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23 608
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25 882
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33 444
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Operating expenses
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7 038
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8 276
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10 138
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Net operating profit
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16 570
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17 606
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23 306
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Interest expense
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4 220
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4 066
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5 878
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Net profit before tax
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12 350
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13 540
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17 428
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Taxation
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4 940
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5 144
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7 040
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Net profit after tax
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7 410
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8 396
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10 388
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Dividends
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4 400
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4 840
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0
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Retained income for the year
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3 010
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3 556
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10 388
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Retained income b.o.y
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10 278
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13 288
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16 844
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Retained income e.o.y
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13 288
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16 844
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27 232
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In 2020, it became apparent that there were considerable expansion opportunities which could be profitable. The financial management team are considering the impact of strategic changes in the company’s approach toward working capital management and capital structure which were introduced at the beginning of 2021 financial year. There is also some debate about the impact on revenue of changes in mark-ups.
Required:
1. Explain the changes in strategy implemented by the company relating to the mark-up of materials for the 2021 financial year and indicate the impact which this has had on margin and on return on total assets compared to the 2020 financial year.
2. Explain the changes in working capital management for the 2021 financial year with reference to inventory, debtors and creditors and indicate the impact which this has had on liquidity, compared to the 2020 financial year.