THE UNIVERSITY OF ZAMBIA

FINANCIAL MANAGEMENT TEST TWO

SUNDAY 12 NOVEMBER, 2023

TOTAL MARKS – 100: TIME ALLOWED: THREE (3) HOURS

INSTRUCTIONS TO CANDIDATES
1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so
that you understand what to do in each question.
2. This paper is divided into TWO (2) sections:
Section A: twenty multiple choice compulsory multiple choice questions.
Section B: one (o1) compulsory question.
3. Enter your name on the front of the answer booklet.
4. The marks shown against the requirement(s) for each question should be taken as an indication
of the expected length and depth of the answer.
5. All workings must be done in the answer booklet.
6. Present legible and tidy work.
SECTION A:
ATTEMPT BOTH QUESTIONS.
QUESTION ONE
Mayuka Ltd was established in 2009 to sell a wide range of sportswear and equipments.
Since its incorporation, the company has grown rapidly and demand for its products
continues to rise. Below is the most recent financial information related to Mayuka Ltd.
INCOME STATEMENT FOR THE YEAR ENDING 30 JUNE, 2023.
K
Sales 659,500
Cost of sales (421,500)
Gross profit 238,000
Administration expenses (155,000)
Selling & distribution expenses (46,500)
Finance expenses (7,000)
Net profit before taxation 29,500
Tax @ 30% (8,850)
Net profit for the year 20,650

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE, 2023.

K K
Non-current assets 83,500
Current assets:
Inventories 25,500
Receivables 108,411
Total current assets 133,911
Total Assets 217,411
Capital & Liabilities:
Ordinary shares (K1 per share) 24,500
Retained profit 20,500
45,000
Liabilities amount falling after one year:
16% Secured Bank loan 19,500
Liabilities amount falling within one year:
Payables 137,411
Taxation 5,500
Proposed dividend 500
Bank overdraft 9,500
152,911
Total equity and liabilities 217,411
Since its incorporation, Mayuka Ltd has been operating without a qualified Accountant.
However, the managing director recently became concerned with the financial position of
the company and therefore decided to appoint a qualified Accountant. According to
Managing Director’s opinion, the company was overtrading and the working capital was not
properly financed. The bank overdraft limit for Mayuka Ltd stands at K7.5million and the
company is currently negotiating an increase.
The following information relates to the business sector for Mayuka Ltd:
Average inventory turnover period 30 days
Average payable period 45 days
Average receivable period 30 days
Current ratio 1.5
Acid test ratio 1.0
Sales/non- current asset ratio 2.5
Required:
(a) Explain briefly the term overtrading and state its possible causes. (10 marks)
(b) Using the financial information above, evaluate whether or not Mayuka Ltd is
overtrading. (20 marks)
(c) As a newly appointed Accountant, write a report to the Managing Director of Mayuka
Ltd discussing the following:
(i) The possible consequences of overtrading and how the situation can best be
managed.
(ii) How the financing of working capital can be arranged in terms of short and
long term sources of finance for Mayuka Ltd. (20 marks)
(Total: 50 marks)

Question 2
Explain five investment appraisal methods including their advantages and disadvantages (50
marks)