Tomy is a key customer of Rubber (Pty) Ltd (hereafter Rubber), a well-established South
African shoe sole provider. The two companies share the same year-end.
When Tomy experienced the sudden increase in sales, Rubber extended an interest-free loan
of R2 050 000 on 1 February 2020 in order to enable Tomy to cater for the increase in supply.
Tomy used the loan immediately as follows:
 Purchase of land – R350 000
 Construction of factory building on land purchased (completed 1 July 2020 and brought
into use immediately after completion) – R1 200 000
 Purchase of Machine B (new) – R800 000 (brought into use on 1 July 2020)
 Deductible expenditure – R200 000
 Purchase of Trading Stock – R500 000 ( R50 000 still on hand on 31 December 2020)
Tomy was able to justify the loan and repayments of the loan as the company signed a contract
with a local customer on 15 December 2019 and delivered R1 200 000 of takkies on
1 February 2020. The local customer informed Tomy during August 2020 that they were
liquidated and that Tomy will not receive any further payment from them. Tomy has written off
the outstanding debt as bad debts at the end of the financial year.
In an attempt to raise cash reserves, Tomy issued 100 000 ordinary shares on
18 August 2020, of which Rubber purchased 88 000 shares. Rubber did not own any of Tomy’s
shares before this date. Tomy now has 120 000 ordinary shares in issue.
Tomy approached Rubber as Tomy was not able to repay the amount due on the outstanding
loan. The total amount was still due. Rubber acknowledged that Tomy’s financial situation was
due to unforeseen circumstances and agreed to write off 80% of each of the balances owing
by Tomy, except for the land that Rubber agreed to write off the full amount owing on
30 December 2020.

REQUIRED
Calculate and motivate the income tax consequences of the above transactions and events
for Tomy for the year of assessment ended on 31 December 2020

Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 2019 and 2020 (in thousands of dollars):

QUESTIONS:

1. Classify the cost items in the table into cost-of-quality (COQ) categories. Calculate the ratio of each COQ category to revenues in each of the 2 years.

2. Calculate the percentage change in each COQ category and total COQ and comment on the results:

a) What is considered insider trading?

Multiple Choice

• All of the other statements describe insider trading.

• Marlene, an individual investor, buys shares in a company because her financial analysis of the company suggests that it is undervalued.

• Bill buys shares after the company's earnings announcement because he personally knows the auditor who audited the company's earnings announcement / press release.

• Chris, a hedge fund manager, purchases a 5% stake in a company because he wants to install his colleagues on to the company's board of directors.

• Karen sells shares in a company before the earnings announcement because her brother-in-law, who's the CEO, said that EPS will fall short of market expectations.

b).

Which of the following statements is true about the classified income statement?

Multiple Choice

• Income tax expense is subtracted from operating income to obtain pre-tax income.

• Net income is computed by subtracting operating expenses from gross profit.

• Cost of goods sold is the difference between net sales revenue and gross profit.

• Gross sales revenue is the first line of the income statement; contra-revenues is the second line; and net sales revenue is the third line.

• Dividend expense is classified as a non-operating (other) item on the income statement.

Life Symphony Enterprises (LSE) produces health and beauty products with manufacturing and distribution facilities all over the UK. The company currently employs 1,000 employees with an annual turnover of £30m. Sally Mason is the Group Management Accountant of the firm and her primary role includes supporting other staff working in various divisions in making decisions on cost management; divisional performance evaluation and operational priorities. This week, she has received several queries from various offices. You, as a promising intern, has been appointed to assist her in various investigations. In your interview for this position, you had demonstrated your knowledge in various management accounting issues, for instance, cost classifications, behavioural analysis, cost reporting under marginal and variable costing, traditional costing system, Activity-based costing system and variance analysis. Sally is really looking forward to working with you and on your fifth day in the job, she has handed you email trails, notes and conversation with her colleagues. You have arranged all materials in order and found the following:

1. On 10^th February, 2020 John Beecroft from the group’s Hull Division sent her an email asking for some clarification on cost calculation. The division estimates overhead costs as £12 per machine hour. John observed that in the last few months, the estimated overhead costs could not predict the product cost well. John sent the following 8 occurrences as evidence:

Sally’s note suggests that counting overheads as a variable cost probably cause the inaccurate estimates though she put several interrogative signs (???) suggesting further investigation.

Write an email/ note on behalf of Sally to John explaining the possible causes of distorted overhead cost per machine hour by exhibiting an application of any management accounting technique that may provide a better result.  

Pasti Berhad values advertise and sell residential property on behalf of its customers. The company has been in business for only a short time and is preparing a cash budget for the first four months of the year 2020. The expected sales of residential properties are as follows.

The average price of each property is RM180,000 and Pasti Berhad charges a fee of 3% of the value of each property sold. Pasti Berhad receives 1% in the month of sale and the remaining 2% in the month after sale. The company has ten employees who are paid monthly. The average salary per employee is RM36,000 per year. If more than 20 properties are sold each month, each employee will be paid in that month a bonus of RM1,500 for each additional property sold.

Variable expenses are incurred at the rate of 50% of the value of each property sold and these expenses are paid in the month of sale. Fixed overheads of RM44,300 per month are paid in the month in which they arise. Pasti Berhad pays interest every three months on a loan of RM200,000 at a rate of 6% per year. The last interest payment in each year is paid in December.

Outstanding tax liability of RM95,800 is due to be paid in April. In the same month, Pasti Berhad intends to dispose of surplus vehicles, with a net book value of RM15,000, for RM20,000. The cash balance at the start of January 2020 is expected to be a deficit of RM40,000.

Required:
a) Prepare a monthly cash budget for the period from January to April. Your budget must clearly indicate each item of income and expenditure, and the opening and closing monthly cash balances.
b) Discuss the factors to be considered by Pasti Berhad in planning ways to invest any cash surplus forecast by its cash budgets.
c) Discuss the TWO (2) advantages and TWO (2) disadvantages to Pasti Berhad of using overdraft finance to fund any cash shortages forecast by its cash budgets.

Question # 2.   

You are the external auditor of Suleman and Stock Ltd. The CEO, Ahsan Suleman, has contacted you because the company is considering setting up an internal audit department for the first time and he is looking for some guidance as to what is required for an effective internal audit department.

Required:

Explain the key considerations Ahsan Suleman should consider when setting up an internal audit department.

A shareholder's group is lodging a protest against your company. The shareholder's group claimed that the mean tenure for the chief executive office (CEO) was at least 10 years. A survey of 21 companies reported in the Wall Street Journal found a sample mean tenure of 9 years for CEOs with a standard deviation of s=5.3 years. Test whether this is significant evidence that the mean tenure is less. (Please use calculator not table)

You have been hired as a controller of Hughes Co., a small but growing business that manugactures high end electronics distributed through retail superstores. You plan to prepare the current-year budget based on the previous year's actual revenues and expenses. The company has never had a formal budget.

Write a memo to the CEO justifying the need to establish a formal budget. Discuss the advantages and disadvantagers of the budget process.

List the following information of Camping World Inc.

CEO:

President:

CFO:

Are any of the above names famous? If so who and what are they known? What were some reasons for the stock price to fluctuate besides the usual stock market conditions. List specific examples reasons that help the stock price rise (tailwinds) or caused the stock to drop (headwinds). In at least 300 words write your recommendations for this company.