ASHITI LIMITED Bashiti Limited was incorporated on 1 July 2021. The Chief Financial Officer (CFO) has requested you as senior accountant to prepare a report that will be presented by him to the potential investor, K. Strydom. Strydom lacks background knowledge of how companies are run as legal entities or even raise their capital. EQUIRED he first section of the report should include the following questions that have een raised by K.Strydom. 1.1 Definition of the following company concepts : - Companies Act (71 Of 2008) - Separation of ownership - Memorandum of incorporation - Limited liability - Provisional Income tax Mention advantages of listing a company at the JSE Provide reasons why companies shicuid comply with IFRS when completing the financial statements Explain the roles of Directors Explain in detail how average issue price is calculated How does retaining of profit benefits a company.

**1.1 Definitions of Company Concepts** - **Companies Act (71 of 2008):** The Companies Act is a statute governing the incorporation, operation, and regulation of companies within its jurisdiction. In South Africa, the Companies Act (71 of 2008) provides a legal framework outlining the rights, duties, and responsibilities of companies, directors, and shareholders, ensuring transparency and accountability in corporate governance. - **Separation of Ownership:** Separation of ownership refers to the division between the owners (shareholders) of a company and those who manage its day‐to‐day operations (managers or directors). This separation creates a structure whereby the shareholders invest capital but typically do not oversee operational decisions, while managers run the business. This concept is central to modern corporate governance and is often observed in publicly listed companies. - **Memorandum of Incorporation (MOI):** The Memorandum of Incorporation is a foundational company document that sets out the rights, duties, and responsibilities of shareholders, directors, and others within the company. It outlines the company’s structure, objectives, internal rules, and governance framework. Essentially, the MOI acts as a contract between the company and its stakeholders. - **Limited Liability:** Limited liability is a legal structure whereby a company’s shareholders are responsible for its debts and obligations only to the extent of the capital they have invested. This means personal assets of the shareholders are protected, and they are not liable for the company's losses beyond their investment in the company's shares. - **Provisional Income Tax:** Provisional income tax is a method of tax payment in which companies make estimated tax payments during the financial year rather than paying a single lump sum after the fiscal year-end. These payments are based on expected taxable income and help spread the tax burden over the year. The final tax liability is adjusted at year-end when the actual income is determined. --- **Advantages of Listing a Company on the JSE (Johannesburg Stock Exchange)** - **Access to Capital:** Listing on the JSE provides access to a broader pool of investors, enabling the company to raise capital more easily for expansion and growth initiatives. - **Improved Liquidity:** Shares listed on the exchange tend to have higher liquidity, which means investors can buy and sell shares with relative ease. - **Enhanced Credibility and Visibility:** A JSE listing often enhances the company's profile, improving its credibility and instilling investor confidence. - **Better Valuation:** Listed companies are typically subject to regular market evaluation, potentially leading to a better valuation and more transparency in financial reporting. - **Attractive to Institutional Investors:** The regulated environment makes the company more attractive to institutional investors, who often have mandates to invest only in fully-regulated markets. --- **Reasons Why Companies Must Comply with IFRS When Completing Financial Statements** - **Comparability:** International Financial Reporting Standards (IFRS) provide a common accounting framework that allows investors and other stakeholders to compare financial statements across companies and jurisdictions reliably. - **Transparency:** IFRS compliance ensures that a company’s financial statements present a true and fair view of its financial position, thereby increasing transparency and investor confidence. - **Credibility:** Adhering to internationally recognized accounting standards enhances the credibility of the financial statements, facilitating access to international markets and financing. - **Regulatory Compliance:** In many countries, including South Africa, IFRS is mandated or widely accepted, so adherence becomes a legal as well as best practice requirement for companies. - **Facilitates Investment Decisions:** With uniform and understandable financial reporting, stakeholders can make better-informed investment decisions. --- **Roles of Directors** - **Strategic Direction:** Directors are responsible for setting the strategic direction of the company. They define long-term goals and oversee major decisions that affect the company’s future. - **Fiduciary Duties:** Directors must act in the best interests of the company and its shareholders, maintaining high standards of honesty, integrity, and responsibility. - **Risk Management:** They are charged with ensuring that adequate risk management and internal control systems are in place to protect the company’s assets and ensure its sustainability. - **Compliance and Governance:** Directors ensure the company complies with all legal, regulatory, and ethical standards. They are responsible for overseeing the company’s adherence to its own policies and the external regulatory framework. - **Financial Oversight:** A key role is to monitor and review the company’s financial performance, including approval of financial statements and overseeing the audit process. - **Resource Allocation:** Directors work on allocating the company’s resources efficiently to support growth and operational excellence. --- **Calculation of Average Issue Price** To calculate the average issue price of shares, the following formula is used: \[ \text{Average Issue Price} = \frac{\text{Total Funds Raised}}{\text{Total Number of Shares Issued}} \] - **Step 1: Determine Total Funds Raised.** This involves summing up all amounts received from issuing shares. - **Step 2: Determine Total Number of Shares Issued.** This includes all shares issued during the particular offering or period. - **Step 3: Divide Step 1 by Step 2.** The result gives the weighted average price per share. For example, if a company raises \( F \) amount by issuing \( S \) shares, then the average issue price is given by: \[ \text{Average Issue Price} = \frac{F}{S} \] This approach takes into account varying prices at which shares might be issued during different tranches, effectively providing a single price metric for valuation. --- **How Retaining Profit Benefits a Company** - **Reinvestment for Growth:** Retained profits can be reinvested in the business to fund new projects, acquire assets, or enhance operational capabilities, thereby driving future growth. - **Improved Financial Stability:** By retaining profits, a company improves its reserves, which can act as a buffer during economic downturns or unforeseen financial challenges. - **Reduction of Debt Dependence:** With more internal funds available, a company may rely less on external borrowing. This decreases interest costs and financial risk. - **Increased Shareholder Value:** Although immediate dividends might be lower, reinvested profits have the potential to increase the company’s long-term value, ultimately benefiting shareholders through capital appreciation. - **Flexibility in Strategic Initiatives:** Retained earnings provide the financial flexibility to pursue strategic initiatives such as acquisitions, research and development, or market expansion, allowing the company to adapt to changing market conditions. - **Strengthening Creditworthiness:** A robust reserve of retained earnings improves a company’s credit profile, enabling better terms when borrowing in the future.