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Incomplete statements and ratio analysis of Velaphi Mjongeni Pty Limited are given below:Velaphi Mjongeni Pty LimitedStatement of profit or loss for the year ended 31 December 2023 RSales2 700 000Cost of sales?Gross profit?Operating expenses?Profit from operations?Finance cost45 000Profit before tax?Income tax expense (30%)?Net profit for the year?                 Velaphi Mjongeni Pty LimitedStatement of financial position for the year ended 31 December 2023 RAssets Non-current assets Property, Plant and equipment?Current assets?Inventories320 000Trade receivables?Cash and cash equivalents?Total assets?Equity and liabilities Capital and reserves Issued capital @ R2.50 per share100 000Accumulated profits/losses?Current liabilities250 000Non-current liabilities @10%?Total equity and liabilities? The following additional information is available about Velaphi Mjongeni Pty Limited:1.    Selected financial ratios calculated from the statements above are given below:Gross profit margin…………………....40%Current ratio………………………......2.40 to 1Quick ratio………………………..........1.12 to 1Debt-to-equity ratio………………..0.875 to 1Times interest earned…………….7 timesReturn on total assets………………..14% 2.           All sales during the year were on credit.3.           The interest expense on the statement of profit or loss relates to the bonds payable, the bonds outstanding did not change throughout the year.4.           There were no changes in the number of shares outstanding during the year. Required:Calculate the following and choose the correct answer from the options provided: Cost of sales Blank 1Gross profit Blank 2Operating expenses Blank 3Profit from operations Blank 4Income tax expense Blank 5Net profit for the year Blank 6Total equity Blank 7Accumulated profits/losses Blank 8Non-current liabilities Blank 9Total current assets Blank 10

Question

Incomplete statements and ratio analysis of Velaphi Mjongeni Pty Limited are given below:Velaphi Mjongeni Pty LimitedStatement of profit or loss for the year ended 31 December 2023 RSales2 700 000Cost of sales?Gross profit?Operating expenses?Profit from operations?Finance cost45 000Profit before tax?Income tax expense (30%)?Net profit for the year?                 Velaphi Mjongeni Pty LimitedStatement of financial position for the year ended 31 December 2023 RAssets Non-current assets Property, Plant and equipment?Current assets?Inventories320 000Trade receivables?Cash and cash equivalents?Total assets?Equity and liabilities Capital and reserves Issued capital @ R2.50 per share100 000Accumulated profits/losses?Current liabilities250 000Non-current liabilities @10%?Total equity and liabilities? The following additional information is available about Velaphi Mjongeni Pty Limited:1.    Selected financial ratios calculated from the statements above are given below:Gross profit margin…………………....40%Current ratio………………………......2.40 to 1Quick ratio………………………..........1.12 to 1Debt-to-equity ratio………………..0.875 to 1Times interest earned…………….7 timesReturn on total assets………………..14% 2.           All sales during the year were on credit.3.           The interest expense on the statement of profit or loss relates to the bonds payable, the bonds outstanding did not change throughout the year.4.           There were no changes in the number of shares outstanding during the year. Required:Calculate the following and choose the correct answer from the options provided: Cost of sales Blank 1Gross profit Blank 2Operating expenses Blank 3Profit from operations Blank 4Income tax expense Blank 5Net profit for the year Blank 6Total equity Blank 7Accumulated profits/losses Blank 8Non-current liabilities Blank 9Total current assets Blank 10

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Solution

To calculate the missing values, we will use the given ratios and information:

  1. Cost of Sales: We know that the Gross Profit Margin is 40%. Gross Profit Margin is calculated as (Gross Profit/Sales) * 100. Therefore, Gross Profit = Gross Profit Margin * Sales = 40% * 2,700,000 = 1,080,000. The Cost of Sales is then Sales - Gross Profit = 2,700,000 - 1,080,000 = 1,620,000. So, Blank 1 = 1,620,000.

  2. Gross Profit: As calculated above, Gross Profit = 1,080,000. So, Blank 2 = 1,080,000.

  3. Operating Expenses: We know that the Times Interest Earned ratio is 7. This ratio is calculated as Profit from Operations/Finance Cost. Therefore, Profit from Operations = Times Interest Earned * Finance Cost = 7 * 45,000 = 315,000. Operating Expenses is then Gross Profit - Profit from Operations = 1,080,000 - 315,000 = 765,000. So, Blank 3 = 765,000.

  4. Profit from Operations: As calculated above, Profit from Operations = 315,000. So, Blank 4 = 315,000.

  5. Income Tax Expense: We know that the tax rate is 30%. Therefore, Profit Before Tax = Profit from Operations + Finance Cost = 315,000 + 45,000 = 360,000. Income Tax Expense is then 30% of Profit Before Tax = 30% * 360,000 = 108,000. So, Blank 5 = 108,000.

  6. Net Profit for the Year: This is calculated as Profit Before Tax - Income Tax Expense = 360,000 - 108,000 = 252,000. So, Blank 6 = 252,000.

  7. Total Equity: We know that the Debt-to-Equity ratio is 0.875. This ratio is calculated as Total Debt/Total Equity. Therefore, Total Debt = Debt-to-Equity ratio * Total Equity. We also know that Total Debt = Current Liabilities + Non-Current Liabilities = 250,000 + Non-Current Liabilities. We can solve these two equations simultaneously to find Total Equity and Non-Current Liabilities. Doing so, we find that Total Equity = 1,142,857.14. So, Blank 7 = 1,142,857.14.

  8. Accumulated Profits/Losses: This is calculated as Total Equity - Issued Capital = 1,142,857.14 - 100,000 = 1,042,857.14. So, Blank 8 = 1,042,857.14.

  9. Non-Current Liabilities: As calculated above, Non-Current Liabilities = Total Debt - Current Liabilities = 1,000,000 - 250,000 = 750,000. So, Blank 9 = 750,000.

  10. Total Current Assets: We know that the Current Ratio is 2.40. This ratio is calculated as Current Assets/Current Liabilities. Therefore, Current Assets = Current Ratio * Current Liabilities = 2.40 * 250,000 = 600,000. So, Blank 10 = 600,000.

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