Financial Statements Analysis: Letsatsi and Bofelo

Question 1: Letsatsi Financial Statements Analysis

Question 1

Letsatsi is a public listed manufacturing entity. Its summarised financial statements are shown below.

Statements of financial position as at 30 September:

	2021	2020
	P000	P000
Assets
Non-current assets
PPE	17,600	24,500
Investments at fair value	2,400	4,000
	20,000	28,500
Currents assets
Inventory and work-in-progress	2,200	1,900
Trade receivables	2,200	2,800
Tax asset	600	nil
Bank	1,200	100
	6,200	4,800

Total assets	26,200	33,300

Equity and liabilities
Equity
Equity shares of P1 each	13,000	12,000
Share premium	1,000	nil
Revaluation surplus	nil	4,500
Retained earnings	3,600	6,500
	17,600	23,000
Non-current liabilities
Bank loan	4,000	5,000
Deferred tax	1,200	700
Current liabilities
Trade payables	3,400	2,800
Current tax payable	nil	1,800

Total equity and liabilities	26,200	33,300

The following information has been obtained from the Chairman’s Statement and the notes to the financial statements:

‘Market conditions during the year ended 30 September 2021 proved very challenging due largely to difficulties in the global economy as a result of global pandemic which has led to steep falls in share prices and property values. Letsatsi has not been immune from these effects and our properties have suffered impairment losses of P6 million in the year.’

The excess of these losses over previous surpluses has led to a charge to cost of sales of P1.5 million in addition to the normal depreciation charge.

‘Our portfolio of investments at fair value through profit or loss has been ‘marked to market’ (fair valued) resulting in a loss of P1.6 million (included in administrative expenses).’

There were no additions to or disposals of non-current assets during the year.

‘In response to the downturn we have unfortunately had to make a number of employees redundant incurring severance costs of P1.3 million (included in cost of sales) and undertaken cost savings in advertising and other administrative expenses.’

‘The difficulty in the credit markets has meant that the finance cost of our variable rate bank loan has increased from 4.5% to 8%. In order to help cash flows, we made a rights issue during the year and reduced the dividend per share by 50%.’

‘Despite the above events and associated costs, the Board believes our underlying performance has been quite resilient in these difficult times.’

Analyse and discuss the financial performance and position of Letsatsi as portrayed by the above financial statements and the additional information provided.

Your analysis should be supported by any SEVEN profitability, liquidity and gearing and other appropriate ratios (up to 7 marks available). (Total: 20 marks)

Question 2
Below are extracts from the financial statements of an entity Bofelo:

Statement of profit or loss and other comprehensive income for the year ended 31 March 2021

	Pm
Revenue	1,162
Cost of sales	(866)
Gross profit	296
Distribution costs	(47)
Administrative expenses	(103)
Profit from operations	146
Interest receivable	79
Finance costs	(55)
Profit before tax	170
Income tax expense	(24)
Profit for the year	146
Other comprehensive income
Gain on revaluation	251
Total comprehensive income for the year	397

Additional information:

• Profit from operations includes depreciation on the property, plant and equipment of P22 million. The revaluation reserve relates wholly to property, plant and equipment.

• During the year ended 31 March 2021, plant and machinery costing P1,464 million, which had a carrying amount of P424 million, was sold for P250 million.

• During the year ended 31 March 2021, 25 million 20thebe shares were issued at a premium of P2.80.

• Dividends paid during the year were P56 million

Produce a statement of cash flows for Bofelo for the year ended 31 March 2021 in compliance with IAS 7 Statement of Cash Flows using the indirect method. (20 Marks)

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