Organisation : SAICA – South African Institute of Chartered Accounts
Exam : Part I – Qualifying Examination
Document Type : Sample Question Paper
Category or Subject : Initial Test Of Competence
Website : https://www.saica.co.za/LearnersStudents/Examinations/ExamInformation/PastExamPapers/InitialTestofCompetencePartIQualifying/tabid/1168/language/en-ZA/Default.aspx
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Question – 1 : https://www.southafricain.com/uploads/1705-Question1.pdf
Question – 2 : https://www.southafricain.com/uploads/1705-Question-2.pdf
SAICA Part I – Qualifying Examination Question Paper
Question 1 : 79 marks
Nortan Africa Holdings Ltd (‘NAH’) is an industrial engineering company whose main business activities are the design, manufacture and marketing of specialised air- and gas- handling equipment for use in the mining and industrial sectors.
Related : ACCA Exam Sample Questions Paper : www.southafricain.com/1700.html
The company was established in 2002 and listed on the Johannesburg Stock Exchange in 2005 at R8,00 per share. NAH is a subsidiary of Nortan International Holdings Plc, a Scottish company founded by Tanya North, a highly-qualified and well-respected engineer.
Financial performance and related information :
NAH has traded profitably in recent years, recording growth in revenue and operating profit in excess of 10% per annum. This success is largely attributable to the company’s Broad-Based Black Economic Empowerment (B-BBEE) status, which has enabled NAH to secure numerous contracts when tendering for work. NAH’s competitors all have lower B-BBEE ratings.
1 The majority of NAH’s revenue is derived from the sale of fans, heat exchangers and cleaning equipment. This represented 82% of total revenue in the financial year ended 31 December 2015 (‘FY2015’). The balance of revenue is attributable to the sale of equipment and systems that reduce atmospheric pollution generated by industrial plants.
2 Administrative expenses in 2015 include a provision for bonuses of R3 515 330 in terms of the management incentive scheme introduced in 2015.
3 Investment income relates to interest earned at an average rate of 5,75% per annum (FY2014: 5,53%) on NAH’s excess cash, which is invested in interest-bearing savings accounts.
4 The company pays income tax at a rate of 28%.
5. NAH has declared and paid dividends equivalent to 50% of its after-tax profits in each of the past five years. NAH generally declares one dividend every year in February after finalisation of its annual results by the board of directors and pays the dividend to shareholders at the end of March. This dividend policy is expected to be maintained for the foreseeable future.
Share buyback programme :
1. At a recent board meeting one of the agenda items discussed was entitled ‘Excess cash – share buyback proposal’. This proposal was tabled by two senior managers who are part of NAH’s senior management team but not executive directors.
2. NAH currently has a ‘lazy’ balance sheet with far too much excess cash – the company’s cash is essentially ‘burning holes in NAH’s pockets’;
3. The excess cash should be returned to shareholders who would be happy to receive a significant cash receipt which should subsequently improve NAH’s ROE ratio; and
4. A share buyback is a more tax efficient method to distribute surplus cash to shareholders than a special dividend.
Contact Address :
17 Fricker Road