ACCOUNTING
COMPANIES
LEARNERS MANUAL GRADE 12:
TERM ONE
Topic 1
Topic 2
Companies Ledger accounts
Financial statements Notes to
Balance sheet
Topic 3
Topic 4
Company Financial statement:
Income
Company Financial statement:
Balance sheet (cont…)
Topic 5
Company Financial statement: Cash
Flow Statement
Topic 6
Analysis and interpretation of
financial statements
Topic 7
Cash flow Statement (cont….)
JENN TRAINING: GRADE 12 ACCOUNTING COMPANIES TERM ONE
1
CONTENTS
PAGE
TOPIC 1: Companies Ledger accounts
➢ Examination guideline
➢ Outcomes
➢ Concepts
➢ Activities
TOPIC 2: Financial statements Notes to Balance sheet
➢ Notes to balance sheet
➢ Activities
➢ Summative assessment
3
3
4
5- 13
14
15-23
23-25
TOPIC 3: Company Financial statement: Income
➢ Activities
➢ Worked example
➢ Activities
27-30
31-33
34-62
TOPIC 4: Company Financial statement: Balance sheet
➢ Activities
➢ Summative assessment 1
➢ Activities
➢ Worked Example
➢ Summative assessment 2
TOPIC 5: Company Financial statement: Cash Flow Statement
63-76
77-83
84-89
90-107
108-115
➢ Worked Example
➢ Activities
➢ Summative assessment 2
TOPIC 6 : Company Financial statement: Cash Flow Statement
116-124
125-130
130-136
➢ Concepts
➢ Formulae
➢ Activities
➢ Summative Assessment
TOPIC 7 : Cash flow Statement
136
137
138-153
154-159
➢ Activities
Bibliography
158-194
196
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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ICON DESCRIPTION
MIND MAP
BIBLIOGRAPHY
EXAMINATION
GUIDELINE
CONTENTS
ACTIVITIES
TERMINOLOGY
WORKED EXAMPLES
STEPS
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
3
Examination Guidelines
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EXAMINABLE CONTENT FOR GRADE 12 ACCOUNTING
GRADE 12: PAPER 2
Financial Reporting and Evaluation
Issuing of shares at issue price (no par
Concepts relating to companies
value, no share premium); buying back of
Includes: Concepts relating to GAAP
shares
& IFR
Includes: fixed asset valuation
Unique Ledger Accounts of
companies & interpretation thereof
Accounting equation of companies
Adjustments, final accounts & trial
balances of companies
Income Statement (Statement of
Comprehensive Income) of
Includes: fixed asset valuation and inventory
companies
valuation
Balance Sheet (Statement of
Financial Position) & Notes of
companies
Cash Flow Statement of companies
Includes all financial statements.
Analysis & interpretation of financial
statements of companies.
Analysis & interpretation of published
financial statements & audit report of
Includes: additions, depreciation & disposal
companies.
Valuation of fixed assets for reporting Integrates valuation methods: FIFO;
in financial statements
weighted average & specific identification.
Inventory valuation for reporting in
Role of independent auditors
financial statements
Professional bodies & Code of
conduct
Companies Act (general overview only)
Ethical behavior & corporate
governance in financial environments
Legislation governing companies
(overview only)
Outcomes
At the end of this topic learners should be able to:
• Know the concepts related to companies
• Understand financial statements and accounting equation of companies
• Explain the Balance sheet
• Interpret shares issue price and buying back of shares
• Understand fixed asset valuation and inventory valuation
• Know the Professional bodies and Code of conduct
• Explain ethical behavior and governance in the financial environment
• Know legislation about governing companies
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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TOPIC 1 : Company Ledger Accounts
1.1 Concepts:
Concepts
Authorized shares
Issued shares
Ordinary share capital
Dividends
Income tax
Provisional tax
Directors fees
Audit fees
Issue price
Buy back shares
Retained Income
Explanation
The maximum number of shares a company is allowed to sell
in order to raise capital.
The number of shares a company has already sold in order to
raise capital.
Capital raised through the issue of ordinary shares.
The portion of companies profit declared by directors to be
given to shareholder the dividends are always declared as a
number of cents per share.
• Interim dividends: Dividends declared during the year.
• Final dividends: Dividends declared at the end of the
financial year.
Portion of the net income payable to SARS as tax for the year.
Payment of an estimated amount of tax during the year to
SARS.
Fees paid to directors for services rendered. This is an
expense for the company.
Fees paid to auditors for services rendered. This is an expense
for the company.
The price at which shares are issued to the public.
Issued shares that have been repurchased by the company
and are retired or cancelled.
A portion of the profits after tax that are not paid out to the
shareholders in dividends but retained for future growth of the
company.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 1
You are provided with information relating to Clifton Ltd for the year ended 31 August
2012.
Required:
Use the following information to prepare:
1.1
Calculate the following:
▪
average share price on 1 September 2011
1.2
The entry in the Cash Payments Journal on 31 August 2012.
1.3
The following accounts in the general ledger:
▪ Ordinary share capital
▪ Retained income
▪ Bank
1.4
Calculate the following:
▪ average share price on 1 September 2012 (after the buy-back)
Information:
On 1 September 2011, Clifton Ltd had the following balances in their ledger:
▪ Ordinary share capital (600 000 shares), R3 834 000
▪ Retained income, R3 150 000.
The issued shares were made up as follows:
▪ 320 000 shares issued at R4,50 each
▪ 280 000 shares issued at R8,55 each.
On 31 August 2012 the directors decided to buy back 50 000 shares from four
shareholders at a price of R11,65 per share. The shareholders agreed to these terms and
direct electronic transfers were made to them from the bank account.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 1: Answer Book
1.1
Calculate the average share price on 1 September 2011
CASH PAYMENTS JOURNAL OF CLIFTON LTD – AUGUST 2012
CPJ8
Sundry accounts
Doc D Details
Fol Bank
Amount
Fol Details
1.2
1.3
GENERAL LEDGER OF CLIFTON LTD
ORDINARY SHARE CAPITAL
RETAINED INCOME
BANK
1.4
Calculate the average share price on 1 September 2012 (after the buyback)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 2
(48 marks; 28 minutes)
2.1 Concepts are listed in COLUMN A and explanations are listed in COLUMN B. Choose
an explanation from COLUMN B that matches a concept in COLUMN A. Write only the
(10)
letter (A – G) next to the question number.
COLUMN A
COLUMN B
2.1.1
Memorandum of
Incorporation
A
Shares are issued at issue price and the entire
proceeds are credited to the Ordinary Share Capital
account
2.1.2
Limited liability
B
Profits not distributed to shareholders but held
back for future expansion
2.1.3
Retired shares
C
A company’s issued share that has subsequently
been repurchased by the company and cancelled.
2.1.4
Issued share capital D
The owners of a company cannot be held responsible
for the debts incurred by the company.
2.1.5
Retained income
E
This company may not issue shares to the general
public
F
A document that sets out the rights, duties and
responsibilities of shareholders, directors and others
within a company.
G The number of shares that have actually been issued
2.2 COMPANY LEDGER ACCOUNTS
The information outlined below was extracted from the accounting records of Venus
Limited on 30 June 2012.
REQUIRED:
2.2
Complete the following ledger accounts for the year ended 30 June 2011:
2.2.1
Retained Income
(9)
2.2.2
SARS: Income Tax
2.2.3
Dividends on ordinary shares
(9)
2.2.4
Appropriation
(8)
(12)
Note:
The accounts must be properly balanced/closed off on 30 June 2012, the last day of the
financial year.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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INFORMATION
On 1 July 2011 the following balances, appeared amongst others in the books of Venus
Limited:
`````````````
Ordinary Share Capital (600 000 shares)
R1 860 000
Retained Income
SARS: Income Tax
(Cr)
Shareholders for dividends
1 400 000
96 000
120 000
Information relating to the financial year ending 30 June 2013
2011
July
8
The income tax and dividends due in respect of the previous year were
paid.
Dec.
31
The provisional income tax liability of the company was estimated at R300
000.
A cheque for this amount was issued to SARS.
Jan.
27
An interim dividend of 35 cent per share was declared and paid by the
directors of the company.
Febr
28
The company’s board of directors authorized the buy back of 85 000 shares
at R7.80 each. Made electronic payments to shareholders.
June
27
The total provisional income tax liability of the company was estimated at
R675 000. A cheque for the second provisional tax of the company, for the
year was issued to SARS.
30
The net profit for the year amounted to R2 300 000.
2012
The company is taxed at the rate of 30% of the net profit.
The directors declared a final dividend of 60 cents per share on all shares in
issue to date.
48
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 2: Answer Book
2.1
Choose an explanation from COLUMN B that matches a concept in COLUMN A.
2.1.1
2.1.2
2.1.3
2.1.4
2.1.5
08
2.1.1
GENERAL LEDGER OF VENUS LIMITED
RETAINED INCOME
9
2.1.2
SARS – INCOME TAX
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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2.1.3
DIVIDENDS ON ORDINARY SHARES
9
2.1.4
APPROPRIATION ACCOUNT
8
TOTAL MARKS
46
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 3
You are provided with the information relating to Mofokeng Traders for the year ended 30
June 2013.
REQUIRED:
1. Prepare the following ledger accounts:
3.1
3.2
3.3
3.4
3.5
Ordinary Share Capital
Retained Income
Dividends on ordinary shares
SARS (Income Tax)
Appropriation
The following balances appeared in the ledger on 1 July 2012:
Ordinary Share Capital (500 000 shares)
Retained Income
Bank
SARS (Income tax)
Shareholders for Dividends
R2 500 000
R 950 000
R1 500 000
R 17 000 (cr)
R 125 000
1 July 2012 The company issued a further 200 000 ordinary shares at R6.40 each. All the
monies were received and banked.
30 July 2012 SARS and Shareholders for dividends were paid the amounts due to them.
31 Dec 2012 The company paid provisional tax of R270 000 and interim dividends of 20
cents per share. This was applicable to all shareholders.
30 June 2013 At the end of the accounting period, the company made a second
provisional tax payment of R250 000
30 June 2013 The directors decided to buy 60 000 shares from a shareholder at R7.00 per
share. A cheque was issued to him.
30 June 2013 The directors declared a final dividend of 60 cents per share. This was
applicable to all shareholders including new shares issued and repurchased
shares.
30 June 2013 The net income before tax for the year was calculated at R1 700 000.
Income tax is calculated at 30% of net profit before tax.
The authorized share capital consists of 800 000 ordinary shares.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 3: Answer Book
GENERAL LEDGER OF VENUS LIMITED
ORDINARY SHARE CAPITAL
RETAINED INCOME
ORDINARY SHARE DIVIDENDS
SARS – INCOME TAX
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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APPROPRIATION ACCOUNT
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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TOPIC 2 : Company Financial Statement: Notes to Balance sheet
Ordinary share capital – Capital raised through the issue of ordinary shares.
Structure:
Ordinary Share capital
AUTHORISED
xxxx ordinary shares
ISSUED
xxxx shares issued at beginning of the year
xxxx shares at Rx each issued during the financial year
(xxxx) repurchased/ bought back x Average price
xxxx shares on closing date
xxxx
xxxx
(xxxx)
xxxx
N.B- The repurchase or buyback can happen in different times during the year so calculations
of average price will always differ based on given information.
Retained income - A portion of the profits after tax that are not paid out to the shareholders
in dividends but retained for future growth of the company.
Structure:
Retained Income
Balance on the last day of previous year
Net profit after tax for the year / period
Repurchase of shares
Ordinary dividends
Paid (interim)
Recommended (final)
Balance on the last day of the current year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
xxx
xxx
(xxx)
(xxx)
(xx)
(xx)
xxxx
15
Activity 1
NOTES TO BALANCE SHEET – HAROLD LTD.
The following information was taken from the records of Harold Ltd. The financial
year ends on 28 February 2018.
REQUIRED:
Prepare the following notes to the financial statements for the
year ended 28 February 2018.
Share Capital
• Ordinary
(
Income
• Retained
(
)
(9)
(10)
INFORMATION
A.
Balances taken from the records on 28 February 2018.
Ordinary share capital (see Information B)
Retained income (1 March 2017)
Loan from director
Fixed deposit: Rush Bank
Fixed assets at carrying value (1 March 2017)
Trading stock
Net Debtors (after Provision for bad debts was subtracted)
Creditors Control
Provision for bad debts
Bank (favourable)
Shareholders for dividends
SARS: Income Tax
Prepaid expenses
Accrued expenses
Depreciation for the year
R
13 702 000
1 704 000
1 346 000
?
11 428 400
?
289 000
495 000
15 550
?
?
989 000
6 400
12 000
990 000
B. Share capital:
• Harold Ltd is authorised to sell 7 500 000 shares.
• 3 400 000 shares were already issued on 1 March 2017 to the value
of R7 972 000.
• 1 200 000 new shares were issued on 1 November 2017.
• On 16 December 2017, 180 000 shares were repurchased from a
disgruntled shareholder at R2,30 more than the average share
price. The transaction was recorded.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 1: Answer Book
HAROLD LTD
Notes to the financial statements on 28 February 2018
Ordinary share capital
13 702 000
9
Retained income
Balance beginning of the year
1 704 000
Ordinary share dividends
10
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 2
BASO48 LTD.
You are provided with information relating to Baso48 Ltd. for the financial year ended 28
February 2017.
REQUIRED:
Prepare the following notes to the financial statements for the year ended 28 February
2017:
•
Ordinary Share capital
(7)
•
Retained income
(6)
A.
INFORMATION EXTRACTED FROM THE INCOME STATEMENT ON 28
FEBRUARY 2017
Gross profit
Net profit after tax
Income tax
Depreciation
Interest expense
B.
B.
5 300 000
3 250 800
1 393 200
?
45 000
EXTRACT FROM THE BALANCE SHEET ON 28 FEBRUARY:
Equity & Liabilities
Shareholders' equity
Share capital
Retained income
Current liabilities
SARS (Income tax)
Shareholders for dividends
SHARES AND DIVIDENDS
?
24 510 000
?
?
?
1 370 000
200 000
?
0
2 137 500
• Additional shares were issued on 30 August 2016.
• Shares were repurchased from certain shareholders at R9,00 per share during
October 2016.
• An interim dividend was paid on 31 July 2016.
• A final dividend of 50 cents per share was declared on
28 February 2017. Only shareholders on the current share register are entitled to
final dividends.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 2: Answer Book
ORDINARY SHARE CAPITAL
AUTHORISED
5 000 000
Ordinary shares
ISSUED
3 000 000
Ordinary shares in issue at the
beginning of the year @ R6.00
(1 290 000)
3 800 000
Ordinary shares at the end of the year
24 510 000
RETAINED INCOME
Balance at the beginning of the year
Net profit after tax
7
1 370 000
3 250 800
Dividends
Paid
1 200 000
Balance at the end of the year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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19
Activity 3
ALWAYS LIMITED
The information below relates to Always Ltd. for the financial year ended 28 February 2018.
REQUIRED:
1.
2.
Prepare the Ordinary share capital.
Prepare the Retained Income note on 28 February 2018.
INFORMATION:
A.
Balances extracted from the accounting records on 28 February
2018, unless otherwise stated.
R
Ordinary share capital
Retained income (28 February 2018)
Loan: Direct Lenders (See Information E.)
Fixed assets at carrying value (1 March 2017)
Fixed deposit: Gonow Bank
Trading stock
Creditors' control
Debtors' control
Provision for bad debts (1 March 2017)
Bank (favourable)
Accrued expenses (expenses payable)
Prepaid expenses
SARS: Income tax (provisional tax payments)
B.
C.
?
1 207 000
?
5 495 500
?
1 361 000
428 950
556 000
16 000
?
13 550
8 800
506 000
Share capital:
•
Always Ltd. is authorised to sell 3 000 000 ordinary shares.
•
1 500 000 shares were in issue on 1 March 2017, the beginning of
the financial year.
•
500 000 new shares were issued on 1 December 2017 at R3,00
per share.
•
100 000 shares were repurchased on 20 February 2018 from a
shareholder who was relocating to another country at R1,10 above
the average price. This transaction was properly recorded.
Net profit before tax:
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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D.
•
After taking into account all relevant information, the net profit before tax
was accurately calculated to be R1 900 000.
•
Income tax at the rate of 28% must still be brought into account.
Dividends:
•
An interim dividend of R420 000 was paid on 28 August 2017.
•
A final dividend of 44 cents per share was declared on
28 February 2018. All shares (including the shares repurchased on
20 February 2018) qualify for final dividends, which will be paid on
31 March 2018.
Activity 3: Answer Book
ORDINARY SHARE CAPITAL
AUTHORISED
3 000 000
Ordinary shares
ISSUED
Retained Income
Balance at beginning of year
Ordinary share dividends
Interim
420 000
Final
Balance at end of year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
21
Activity 4
AMARA LIMITED
The following information relates to Amara Limited. The financial year ended on 28
February 2017.
REQUIRED:
Prepare the following notes to the Balance Sheet (Statement of Financial
Position) for the year ended 28 February 2017.
•
•
(9)
(10)
Ordinary Share Capital
Retained Income
INFORMATION:
A.
Extract of a list of Balances/Totals on 28 February 2017
Balance Sheet Accounts Section
Ordinary share capital
Retained income (1 March 2016)
Land and Buildings
Equipment (1 March 2016)
Accumulated depreciation on equipment (1 March 2016)
Fixed Deposit: GP Bank
Trade and other receivables
Cash float
Loan: GP Bank
Creditors’ Control
Bank Overdraft
SARS: Income Tax
Nominal Accounts Section
Rent income
Dividends on ordinary shares
R
?
540 000
5 002 000
700 000
263 750
260 000
696 000
12 000
1 140 000
294 600
52 000
300 000
177 600
96 000
B.
Net Profit for the year
The profit after tax amounted to R720 000, the Income Tax for the year is calculated at
28% of net profit before tax.
C.
Shares and Dividends
(i)
Authorised share capital comprises 400 000 ordinary shares.
(ii)
On 1 March 2016: 160 000 shares for R4 000 000 were in issue.
(iii)
On 31 August 2016: The directors decided to buy back 50 000 shares from the
family of a deceased shareholder, at R30 per share. These shares are NOT
entitled to final dividends.
(iv)
On 1 January 2017: 100 000 shares were issued at R17,50 each.
(v)
The directors declared a final dividend of 80 cents per share on 28 February
2017.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 4: Answer Book
ORDINARY SHARE CAPITAL
AUTHORISED
Number of authorised ordinary shares: 400 000 shares
ISSUED
R
160 000 Ordinary shares at the beginning of the year
4 000 000
9
RETAINED INCOME
R
Balance at the beginning of the year
540 000
10
Balance at the end of the year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Summative Assessment
SO-FINE LTD
The given information relates to So-Fine Ltd for the financial year ended 31 August
2017.
REQUIRED:
Prepare the following notes to the Balance Sheet on 31 August 2017:
• Ordinary share capital
• Retained income
INFORMATION:
(7)
(9)
A. Information from the Income Statement for the financial year ended 31 August 2017:
Sales
Operating expenses
Depreciation
Interest expense
Operating profit
Income tax
Net profit after income tax
B.
R8 652 000
1 760 000
320 000
86 100
697 000
187 770
438 130
Information from the Balance Sheet on 31 August:
Fixed assets (carrying value)
Fixed deposits
Loan: Dolphin Bank
Current assets
Current liabilities
Shareholders' equity
Ordinary share capital
Retained income
Cash and cash equivalents
Bank overdraft
Shareholders for dividends
SARS: Income tax
2017
(R)
6 177 000
220 000
985 000
619 600
490 000
?
2016
(R)
4 975 000
300 000
450 000
663 300
614 300
?
5 292 000
?
?
147 370
23 400
168 000
11 800 (Cr)
2 500
65 100
120 000
2 400 (Dr)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
24
C.
Share capital and dividends
•
The authorised share capital comprises 1 200 000 ordinary shares.
•
900 000 ordinary shares were in issue on 1 September 2016.
•
The company issued 150 000 ordinary shares at R6,30 per share on 1 May 2017.
•
70 000
ordinary
shares
were
repurchased
from
shareholders
on
30 August 2017. A cheque for R437 500 was issued for these shares. These
shareholders qualify for final dividends.
•
An
interim
dividend
1 February 2017.
•
A final dividend was declared on 30 August 2017.
of
12
cents
per
share
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
was
paid
on
25
Summative Assessment: Answer Book
SO-FINE LTD
ORDINARY SHARE CAPITAL
AUTHORISED SHARE CAPITAL
1 200 000 ordinary shares
ISSUED SHARE CAPITAL
900 000
Ordinary shares on 1 September 2016
Ordinary shares on 31 August 2017
5 292 000
7
RETAINED INCOME
Balance on 1 September 2016
147 370
Net profit after income tax
438 130
Ordinary share dividends
`
Balance on 31 August 2017
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
9
26
TOPIC 3: Company Financial Statement: Income Statement
Challenging Adjustments
Activity 1
1.1 Directors Fees
a) Directors Fees R497 800
The company has three directors who earn same fee. One director was paid two
months in advance.
b) Directors Fees R736 000
The company has two directors. Each director receives the same monthly
remuneration. One of the directors did not received his director’s fee for one
month.
1.2 Bad debts
a) Bad debts R13 700
A debtor who owed R15 000 was declared bankrupt. His estate paid 60 c for
every rand owed. This was recorded. The balance of his account must be
written off as irrecoverable.
b) Bad debt R17 600
The insolvent estate of a debtor, J Mohlahli, paid out 45 c in the rand and made
a direct deposit of R2 025 on the 31 December 2018. The outstanding balance
must be written off. No entries were made to record the direct deposit and the
amount written off.
1.3 Interest on fixed deposit.
a) Fixed deposit: Nadia Bank R150 000
The interest on fixed deposit amounts to R5 250. The fixed deposit was invested
on 1 July 2018 at Nadia Bank at 7% interest pa. The financial year end on the 28
February 2019.
b)Fixed deposit (8,5% pa interests) R220 000
Interest on fixed deposit R9 350
Outstanding interest on fixed deposit must be taken into account. The fixed
deposit was invested on 1 June 2015. Interest on fixed deposit is not capitalised.
1.4 Interest on loan
a) Mortgage Loan: Thola Bank (interest rate 18% pa) R 1 200 000
Interest on loan R90 000
Provide for outstanding interest on loan. A payment of R300 000 was made
towards the loan on the 30 June 2018 and this was properly recorded. Financial
year ends 28 February 2019.
b) The interest on the mortgage loan has not been entered for the current financial
year. This interest is capitalised. At the start of the year, the balance on the loan
account was R874 000. Monthly repayments of R11 000 were all made on due
date. The loan statement from the bank reflects a balance of R835 000 at
30 June 2013.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
27
c) Interest on the loan was capitalised. The loan statement from Nosi Bank on
30 June 2012 reflects the following:
NOSI BANK
Loan statement on 30 June 2012
Balance on 1 July 2011
Interest charged
Monthly payments to Nosi Bank in terms of the loan
agreement (12 months x R4 500)
Balance on 30 June 2012
R341 800
?
R 54 000
R322 000
The interest expense for the year has not yet been entered in the books.
1.5 Sales/ Cost of sales
a) Sales is R3 640 000
Cost of sales R2 730 000
Debtors Allowances R20 000
• An invoice issued to a debtor for credit sales of R40 000 upon which a trade
discount of 20% was granted. These goods were sold at cost plus 331/3%
mark-up.
• A credit note issued to a debtor for merchandise returned, R65 000.The cost
price of this goods was R48 750. The goods were put back into stock.
N.B No entries were made for these.
b)
Sales is R5 590 000
Cost of sales R4 300 000
The business used the mark up percentage of 30% on cost. This was maintained for the
current financial period.
Goods with the cost price of R30 000 sold on credit was not recorded. 15% trade
discount was allowed on this sale.
A debtor returned goods valued at R2 600. These goods were sent back to the supplier.
a) Sales
R?
Cost of Sales
R14 974 000
Selling price are determined by using a mark-up of 40% on cost. However, trade
discount of R53 600 were allowed to special customers during the financial year.
b) Sales
R?
Cost of sales R8 200 000
Goods are sold at the mark-up of 60% on cost. The company held discounted
cash sales during the year to clear excess stock. The total of trade discount given
to customers was R702 000.
1.6 Insurance
a) Insurance R58 000
The insurance amounts include an annual premium of R24 000 covering the period 1
October 2017 until 30 September 2018 for insurance taken on delivery vehicle. The
financial year ends 28 February 2018.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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b) Insurance R21 000
Insurance premium were paid until 31 May 2017. Take into account the premium
was decreased by R250 per month from 1 February 2017
c) Insurance R53 800
The insurance premium on company vehicle were paid for eleven month.
Note that after the annual review of the policy, the premium was reduced by 8% on
1 November 2018
1.7 Rent Income
a) Pre-Adjustment Trial balance 28 February 2018
Rent Income R12 420
Adjustment
An office has been let to Fin-house Consultants since 01 April 2017. The business
received a monthly rent of R1 380 from them.
b) Pre-Adjustment trial balance 30 June 2018
Rent Income R105 000
Adjustment
The tenant paid the July and August rent in June 2018. The rent has increased by
R700 per month on 01 January 2018
c) Pre-Adjustment trial balance 29 February 2018
Rent Income R248 600
Adjustment
Rent income was increased by 10% on 1 November 2017. The February 2018 rent
is still outstanding.
d) Pre-Adjustment trial balance 30 June 2018
Rent Income R69 160
Adjustment
Rent income for July 2018 has already been received. The monthly rent was
increased by 10% on 1 May 2018.
e) Pre-Adjustment trial balance 30 June 2018
Rent Income R184 800
Adjustment
The tenant paid the rent for July and August 2018 in advance. Due to the poor
economic conditions it was agreed to reduce the rent by 10% on 01 January 2018.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Calculations/ Workings
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
30
Worked Example
You are provided with the Pre-Adjustment Trial Balance of a company,
Dunhill Ltd. on 28 February 2014.
REQUIRED:
Prepare the Income Statement for the year ended 28 February 2014.
PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2014
Balance Sheet Accounts Section
Ordinary share capital (2 240 000 shares)
Retained income
Vehicles at cost
Accumulated depreciation on vehicles
Equipment
Accumulated depreciation on equipment
Trading stock
Debtors control
Provision for bad debts
Creditors control
Loan: Spark Bank
Bank (Dr)
SARS: Income tax (Dr)
SARS: PAYE
Pensionfund
Fixed Deposit: Shark Bank
R
?
1 525 000
880 000
164 000
760 000
650 000
1 534 000
521 300
22 000
786 800
450 000
129 400
150 000
44 800
15 800
450 000
Nominal Accounts Section
Sales
Cost of sales
Salaries and wages
Directors’ fees
Audit fees
Employers’ contributions to pension and medical aid
Debtors allowances
Bank charges
Sundry Expenses
Bad debts
Rent income
Interest on fixed deposit
Repairs and maintenance
Consumable stores
Dividends on ordinary shares (interim)
5 970 000
3 200 000
821 000
840 000
88 000
81 000
70 000
28 000
89 730
12 100
234 950
27 000
125 600
39 500
55 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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ADJUSTMENTS AND ADDITIONAL INFORMATION:
1
The authorised share capital comprises 3 000 000 ordinary shares.
• There were 2 000 000 ordinary shares for R5 225 000 issue at
the beginning of the financial year.
• A futher 250 000 new ordinary shares were issued on
10 March 2013 at 250 cent each. These shares have been
properly recorded.
• The directors decided to buy back 10 000 shares from Ernie at
R3,10 per share.
An electronic transfer was made on
28 February 2014. He is still entitled to dividends during the
current financial year.
2
A debtor returned defective stock with a selling price of R15 000 (markup 50%). The stock was then returned to the suppliers, but no entries
have been made.
3
A debtor, M Spark was declared insolvent. His estate paid 40c in the
rand. R450 was already received and recorded. Write the rest off as
irrecoverable.
4
On 28 February 2014, R2 400 was received from J Jones, whose
account had previously been written off as irrecoverable. The amount
was entered in the Debtors’ control column in die CRJ.
5
The provision for bad debts must be adjusted to 4% of good book debts.
6
A physical stock count on 28 February 2014 reflected:
• Trading stock on hand R1 531 000.
• Consumable stores used R39 000.
7
Depreciation is calculated as follows:
• Vehicles is calculated at 20% p.a. on the diminishing balance
method. A new vehicle was purchased on 31 December 2013 for
R300 000. This has been properly recorded.
• Equipment is calculated at 15% p.a. on the cost price. This
equipment is very old and will be replaced in the near future.
8
The auditors, Froome are owed an extra R12 000 in fees.
9
An employee was omitted from the salaries journal. He has not been
paid. His details are as follows:
Deductions
PAYE
Pension
R2 880
R1 950
Employer’s contribution
Pension
R3 900
Net salary
10 538
10
The rent has been paid three month in advance.
NOTE:The monthly rent increased by R1 250 on 1 November 2013.
11
The loan statement from Spark Bank reflected the following:
Balance at beginning of financial year
Repayments during the year
Interest capitalised
Balance at end of financial year
12.
R17 000 still owed to SARS for Income tax.
13.
Final dividends of 15 cents per share were declared.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Worked Example: Solution
INCOME STATEMENT FOR THE YEAR ENDING 28 FEBRUARY 2014
Sales 5 970 000✓ – 70 000✓ – 15 000✓
 5 885 000
Cost of Sales 3 200 000✓ – 10 000✓✓
 3 190 000
Gross profit
 2 695 000
Other operating income
 187 539
Rent income 232 450✓ – 48 990✓✓
 183 460
Provision for bad debts adjustment
✓ 2 400
Bad debts recovered
✓ 1 679
16
Operating income
2 882 539
 (2 362 572)
Operating expenses
Directors’ fees
840 000
Bank charges
28 000
Repairs and maintenance
125 600
Sundry expenses
89 730
 836 3688
Salaries and wages 821 000✓+ 15 368✓
✓ 100 000
Audit fees 88 000✓ + 12 000✓
Employers contribution pension and medical aid
81 000✓ + 3 900✓
Bad Debts 12 100✓ + 675✓
 84 900
Consumable stores 39 500✓ - 500✓
✓ 39 000
 12 775
93 200
 203 199
Depreciation 83200✓ + 10 000✓ + 109 999✓✓
✓ 3 000
Trading stock deficit 1 534 000 - 1 531 000
22
Operating profit
 519 967
Interest income
27 000
Profit before interest expense
 546 967
Interest expense
✓ (75 000)
Profit before tax
471 967
✓ ✓ (167 000)
Income tax
Net profit for the year
6
 304 967
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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33
Activity 2
INCOME STATEMENT, NOTE TO THE BALANCE SHEET AND
AUDIT REPORT (65 marks; 40minutes)
2.1
Prepare the Income Statement.
(50)
2.2
Prepare the Note to the Balance Sheet for Trade and Other Receivables.
(10)
INFORMATION:
Extract from Pre-adjustment Trial Balance on 31 December 2015:
Balance Sheet Accounts Section
Ordinary share capital
Retained income (1 January 2015)
Loan from Paris Bank
Debtors' control
Creditors' control
Provision for bad debts
Trading stock
SARS: Income tax
Nominal Accounts Section
Sales
Cost of sales
Debtors'allowances
Sundry expenses
Bank charges
Audit fees
Packing materials
Repairs and maintenance
Commission income
Directors' fees
Salaries and wages
Employer's contributions
Interest on current bank account
Bad debts
Rent income
Dividends on ordinary shares
Debit
Credit
3 000 000
628 000
540 800
125 000
96 200
7 150
376 000
315 000
8 412 000
4 595 000
112 000
257 400
41 905
75 600
15 400
107 500
64 140
736 000
1 020 000
156 000
3 000
17 600
87 720
360 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Adjustments and additional information:
A.
Provide for R278 200 depreciation for the financial year.
B.
On 27 December 2015 P Maine, a debtor, returned merchandise.A
credit note for R1 600was issued to her. (The cost price was R900.)No
entries were made for the return of the merchandise. These items were
returned to stock.
C.
The insolvent estate of a debtor, J Jabaroo, paid out 45 cents in the rand
and made a direct deposit of R2 025 on 31 December 2015. The
outstanding balance must be written off. No entries were made to record
the direct deposit and the amount written off.
D.
The provision for bad debts must be increased to R8 000.
E.
The stock count on 31 December 2015 revealed:
•
•
Trading stock
Packing material
R369 100
R2 400
F.
The company has two directors. Each director receives the same
monthly remuneration. One of the directors did not receive his directors'
fee for December 2015.
G.
Interest on the loan from Paris Bank has not been entered yet. Interest
is capitalised. The loan statement received from Paris Bank reflected the
following:
Balance on 1 January 2015
Repayments made during the year
Balance on 31 December 2015
R601 600
R100 800
R540 800
H.
There was no change in the monthly rent during the financial year.The
tenant paid R6 000 for repairs to the premises. As Musica Limited is
responsible for all repairs, the tenant deducted this amount from the
rent, which he paid for November 2015. The repairs have not been
recorded, and the rent for December 2015 has not been received yet.
I.
An employee was left out of the Salaries Journal.
His details are:
Net salary
Deductions
Employer's contributions
J.
R12 150
R6 350
R5 050
Income tax for the year was correctly calculated at R300 300.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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2.3
AUDIT REPORT
You are provided with an extract from the independent audit report of
Sumba Ltd.
EXTRACT FROM THE AUDIT REPORT OF SUMBA LTD.
We found that internal control procedures were not adhered to and
documentation did not exist for a significant portion of the transactions tested.
Because of the significance of the matter described in the previous paragraph,
we have not been able to obtain sufficient audit evidence to provide a basis for
an audit opinion. Accordingly, we do not express an opinion on the financial
statements for the year ended 28 February 2014.
REQUIRED:
2.3.1
The audit report is an example of a/an (qualified/unqualified/disclaimer
of opinion) audit report.
(1)
2.3.2
Who is the audit report addressed to? Give a reason for your answer.
2.3.3
Explain why it is likely that this audit report will have a negative effect on
the value of the shares of this company on the JSE.
(2)
(2)
65
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 2: Answer Book
2.1
MUSICA LIMITED
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
Sales (8 412 000
Cost of sales (4 595 000
Gross profit
Other income
Commission income
64 140
Gross income
Operating expenses
Sundry expenses
257 400
Bank charges
41 905
Audit fees
75 600
Operating profit
Interest income
3 000
Profit before interest expense
Interest expense
Net profit before tax
Income tax
(300 300)
Net profit after tax
50
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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2.2
TRADE AND OTHER RECEIVABLES
2.3
AUDIT REPORT
2.3.1
The audit report is an example of a/an (qualified/unqualified/disclaimer
of opinion) audit report.
1
2.3.2
Who is the audit report addressed to? Give a reason for your answer.
2
2.3.3
Explain why it is likely that this audit report will have a negative effect
on the value of the shares of this company on the JSE.
2
TOTAL MARKS
65
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 3: INCOME STATEMENT, NOTES TO FINANCIAL
STATEMENTS AND AUDIT REPORT
(75 marks; 45 minutes)
3.1
CONCEPTS
Choose the correct word from those given in brackets. Write only the word next to
the question number (3.1.1–3.1.4) in the ANSWER BOOK.
3.1.1
3.1.2
3.1.3
3.1.4
3.2
In the event of bankruptcy, the shareholders are not responsible for the
debts of the business. This is because of (limited/unlimited) liability.
(1)
In the financial statements, debtors will be shown as trade and other
(equity/receivables/payables).
(1)
The portion of a loan that will have to be repaid within a year is a current
(liability/asset).
(1)
The (internal/external) auditor is employed by the company to set up and
audit internal control processes.
(1)
PIXIE LTD
The information below was extracted from the accounting records of Pixie Ltd on
28 February 2018.
REQUIRED:
3.2.1
3.2.2
Prepare the following notes to the Financial Statements for the year
ended 28 February 2018:
• Ordinary Share Capital
• Retained Income
(8)
(10)
Complete the Income statement for the year ended 28 February 2018.
(43)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Adjustments and additional information that need to be taken into
account:
1.
The company aims to achieve a mark-up percentage on cost of 90%,
but this year has only achieved an actual mark-up of 80%.
2.
Pixie Ltd has rented out their unused storeroom since 1 March 2014.
The rent at the beginning of the current financial year (1 March 2017)
was R1 750 per month. The lease agreement stipulates an annual
increase of 10% effective from 1 January each year. The rent for
March 2018 has already been received.
3.
Consumable stores used for the financial year amounted to R2 750.
4.
Merchandise to the value of R38 000 was damaged because of a
pipe burst during February 2018. After the claim, Elvis Insurance
agreed to pay R34 000 in March 2018.
5.
The inventory records reflect a trading stock deficit of R23 400 on
28 February 2018.
6.
The loan statement received from West Bank reflects the following:
R76 500
• Balance on 1 March 2017
12 500
• Repayments during the year, including interest
73 180
• Balance on 28 February 2018
Interest on loan is capitalised and has not been recorded yet.
7.
The employer’s contribution of R2 700 to the Rosa Medical Aid was
omitted from the Salary Journal. The amount will be paid in
March 2018. Contributions are recorded in the Salaries and wages
account.
8.
If the annual sales exceed R1 500 000, the two directors are each
rewarded a bonus of 10% of the amount exceeding R1 500 000. This
must still be recorded.
9.
Pixie Ltd paid a 40% deposit on their audit fees for the year. The
outstanding balance will be settled on 7 June 2018.
10. Included in the advertising cost for the year is a 12 month campaign
that was launched on 1 December 2017 on a local billboard at a cost
of R43 200. Advertisements will appear every second month starting
in December 2017.
11. A debtor, C Mawela, with an outstanding balance of R600, has left the
country. His account must be written off as irrecoverable.
12. The provision for bad debts must be decreased by R360.
13. Operating profit on sales was 22% for the year.
14. Sundry expenses is the missing figure in the Income Statement.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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3.3
AUDIT REPORT
You are provided with an extract from the audit report of Steinfeld Ltd. Read the
report and answer the questions that follow.
3.3.1
What is the main role of the independent auditor?
(2)
3.3.2
What type of audit report did Steinfeld Ltd receive: qualified, unqualified or
disclaimer of opinion?
(2)
3.3.3
If the debtors are adjusted, it will have a negative effect on the financial
results and position of the business. Because of the fact that the debt is
not written off, the asset value in the books is higher than it should be.
•
•
List TWO liquidity ratios/figures that will be affected by the decision not
to write off the debt.
(2)
The CEO argues that the debtor should rightfully remain in the books
until the lawsuit has been concluded. However, the auditor believes
that the amount should have been written off. Give TWO reasons why
the auditor feels this way.
(4)
INFORMATION:
Extract from the Independent Auditor’s Report
The directors neglected to disclose the following. Included in the Trade Debtors shown on
the Balance Sheet of 31 October 2018 and 31 October 2017 is an amount of R800 000
which is the subject of a lawsuit and against which no provision for bad debts has been
made. In our opinion, full provision of R800 000 should have been made in the year
ended 31 October 2017 and the amount written off as a bad debt in 2018.
Audit opinion
In our opinion, the financial statements fairly present the financial position of the
company at 31 October 2018, except for the financial effect of not making the provision
referred to in the previous paragraph.
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 3: Answer Book
3.1
CONCEPTS
3.1.1
3.1.2
3.1.3
3.1.4
4
3.2
PIXIE LTD
3.2.1
NOTES TO THE FINANCIAL STATEMENTS ON 28 FEBRUARY 2018
ORDINARY SHARE CAPITAL
AUTHORISED
400 000 ordinary shares
ISSUED
300 000 Ordinary shares in issue on 1 March 2017
1 275 000
Ordinary shares in issue on 28 February 2018
8
RETAINED INCOME
Balance on 1 March 2017
28 900
Dividends on ordinary shares
Balance on 28 February 2018
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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42
3.2.2
PIXIE LTD
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2018
Sales
1 800 000
Cost of sales
Gross profit
Other operating income
Gross operating income
Operating expenses
Operating profit
Net profit before interest expense
Net profit before tax
Net profit after tax
43
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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3.3
AUDIT REPORT
3.3.1 What is the main role of the independent auditor?
2
3.3.2 What type of audit report did Steinfeld Ltd receive: qualified, unqualified or
disclaimer of opinion?
2
3.3.3 •
List TWO liquidity ratios that will be affected by the decision not to write
off the debt.
•
The CEO argues that the debtor should rightfully remain in the books
until the lawsuit has been concluded. However, the auditor believes that
the amount should have been written off. Give TWO reasons why the
auditor feels this way.
6
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 4: INCOME STATEMENT, NOTES TO FINANCIAL
STATEMENTS AND ANALYSIS AND INTERPRETATION
(75 marks; 45 minutes)
4.1
CONCEPTS
REQUIRED:
4.1.1
What purpose does the Income Statement serve in the books of the
business enterprise?
(1)
The Companies Act makes it compulsory for Public Companies to
publish their financial statements. Give ONE reason.
(1)
4.1.3
Briefly describe the matching principle of GAAP.
(1)
4.1.4
Explain the difference between a receipt and an income.
(2)
4.1.2
4.2
PJF LTD.
The following information was taken from the books of PJF Ltd.
on 28 February 2014, the end of the financial year.
REQUIRED:
4.2.1
4.2.2
4.2.3
Prepare the Income Statement for the year ended
28 February 2014.
(42)
Complete the trade and other receivables notes to the financial
statements on 28 February 2014.
(11)
Calculate the following on 28 February 2014:
•
The rate at which depreciation on equipment is written off.
(5)
•
4.2.4
The value of trading stock as per physical stock count.
(You may draw a Trading stock account.)
(6)
Refer to Information C and comment on the operating efficiency of
PJF Ltd. Quote and explain TWO relevant financial indicators with
figures to support your opinion.
(6)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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INFORMATION:
A
The following balances and totals were extracted from the Pre-adjustment Trial
Balance of PJF Ltd. on 28 February 2014.
Balance Sheet Accounts Section
Ordinary share capital
Mortgage Loan: TVM Bank (interest rate: 18% p.a.)
Vehicles
Equipment
Accumulated depreciation on vehicles (1 March 2013)
Accumulated depreciation on equipment (1 March 2013)
Fixed Deposit: TVM Bank (interest rate: 12% p.a.)
Creditors Control
Debtors Control
Trading stock
Provision for bad debts (1 March 2013)
Bank
Pension fund
SARS (PAYE)
SARS (Income tax)
Nominal Accounts Section
Sales
Cost of sales
Debtors allowances
Insurance
Rent income
Salaries and wages
Interest on loan
Interest on fixed deposit
Packing material
Bad debts
Pension fund contributions
Bad debts recovered
B
8 000 000
1 200 000
?
950 000
1 350 000
450 000
900 000
660 000
458 500
740 900
21 985
45 200
45 400
64 100
100 000
3 640 000
2 730 000
20 000
53 800
168 000
260 000
90 000
108 000
52 000
14 000
36 200
3 400
Additional information and adjustments:
1.
The internal auditor discovered, among others, that entries in relation to the
following were never made:
•
An invoice issued to a debtor for credit sales of R40 000 upon which a
trade discount of 20% was granted. These goods were sold at cost plus
33⅓ % mark-up.
•
A credit note issued to a debtor for merchandise returned, R65 000.
The cost price of these goods was R48 750. The goods were put back
into stock.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
46
2.
JJ Makhaluza, a debtor who owed R12 000, was declared insolvent. From his
insolvent estate, the company received 60 cents in a rand and the balance was
written off as irrecoverable. No entries were made of these transactions.
3.
A Brandt whose account of R1 800 was written off as irrecoverable
subsequently settled the debt in full. The accountant has made the following
entry in this respect: Dr Bad Debts and Cr Debtors Control. Rectify the error.
4.
Adjust the provision for bad debts to R20 765.
5.
Packing material bought for R3 000 was erroneously posted to the trading
stock account. This must be corrected.
6.
R40 000 worth of packing material was used during the financial year.
7.
Trading stock deficit of R48 500 was uncovered after the physical stock count.
8.
The insurance premiums on company vehicles were paid for 11 months. Note
that after the annual review of the policy, the premium was reduced by 8% on1
November 2013.
9.
Included in the rent income amount is R48 000 annual rent for the period
1 June 2013 to 31 May 2014.
10.
The secretary to the general manager went on leave on 15 February 2014 and
was paid her March 2014 salary on that date. Her salary slip details are as
follows:
Gross salary:
PAYE: Deductions
Pension fund: Deductions
R18 000
2 160
1 440
The employer contributes R2 for every rand deducted from the employee
towards pension fund.
11.
Provide for outstanding interest on loan. A payment of R300 000 was made
towards the loan on 30 June 2013 and this was properly recorded.
12.
Depreciation on fixed assets for the current financial year must be provided as
follows:
On vehicles R100 000
On equipment R50 000 (on the diminishing balance method)
13.
Income tax for the financial year ended 28 February 2014 amounted to
R96 885. This must still be brought into account.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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C
Financial Indicators on 28 February:
Gross profit percentage on turnover/sales
Net profit before tax on turnover/sales
Operating expenses percentage on
turnover/sales
Acid test ratio
Current ratio
Earnings per share (EPS)
% return on average shareholders’ equity
Debt-equity ratio
2014
24.4%
9%
16.4%
2013
26.5%
11%
14.8%
0,9 : 1
1,9 : 1
100 cents
19%
0,49 : 1
0,7 : 1
1,6 : 1
120 cents
17%
0,31 : 1
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 4: Answer Book
4.1
CONCEPTS
4.1.1
4.1.2
4.1.3
4.1.4
5
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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4.2
PJF LTD.
4.2.1 INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2014
Sales (3 640 000
Cost of sales (2 730 000
Gross profit
Other income
Rent income (168 000
Bad debts recovered (3 400
Gross operating income
Operating expenses
Insurance (53 800
Salaries and wages (260 000
Packing material (52 000
Bad debts (14 000
Pension fund contributions (36 200
Depreciation
Trading stock deficit
Operating income
Interest income
108 000
Profit before interest expense
Interest expense
Profit before income tax
Income tax
Net profit for the year
42
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
50
NOTES TO FINANCIAL STATEMENTS
4.2.2 TRADE AND OTHER RECEIVABLES
Net trade debtors
Debtors control (458 500
11
4.2.3 CALCULATE THE FOLLOWING ON 28 FEBRUARY 2014.
The rate at which depreciation on equipment is written off
5
The value of trading stock on hand as per physical stock count
(You may draw up a Trading stock account)
6
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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4.2.4
Refer to Information C and comment on the profitability and/or
operating efficiency of PJF Ltd. Quote and explain TWO relevant
financial indicators with figures to support your opinion.
6
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 5: INCOME STATEMENT AND FIXED ASSETS
(70 marks; 40 minutes)
5.1
5.2
Choose a description from COLUMN B that matches the term in COLUMN A.
Write only the letter (A–D) next to the question number (5.1.1–5.1.4) in the
ANSWER BOOK, for example 5.1.1 E.
5.1.1
COLUMN A
Income Statement
5.1.2
Balance Sheet
5.1.3
Cash Flow Statement
5.1.4
Independent Audit Report
A
COLUMN B
reflects the source of funds and
how they were used
B
reflects the opinion on the reliability
of the financial statements
C
reflects the financial position of a
business on a particular date
D
reflects profit or loss for a financial
period
(4 x 1)
(4)
MTOMBENI LTD
The information relates to Mtombeni Limited for the financial year ended
28 February 2017.
REQUIRED:
5.2.1
Refer to Information A and B and calculate:
•
•
5.2.2
(5)
(7)
Carrying value of the vehicle sold on 30 November 2016
Total depreciation on equipment on 28 February 2017
Prepare the Income Statement (Statement of Comprehensive Income)
for the year ended 28 February 2017.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(54)
53
INFORMATION:
Information extracted
28 February 2017:
from
the
Pre-adjustment
Trial
Balance
on
Balance Sheet Accounts Section
Land and buildings
Vehicles
Equipment
Accumulated depreciation on equipment (01/03/2016)
Trading stock
Debtors' control
Provision for bad debts
Mortgage loan: Quick Bank
1 600 000
?
250 000
85 000
386 500
88 500
3 650
1 056 000
Nominal Accounts Section
Sales
Cost of sales
Debtors' allowances
Directors' fees
Audit fees
Bad debts
Rent income
Interest on loan
Insurance
Salaries and wages
Bad debts recovered
Consumable stores
Bank charges
Sundry expenses
Interest income
5 500 000
3 150 000
32 500
380 000
54 000
13 600
169 500
?
19 220
475 000
4 750
67 500
7 760
140 085
?
Adjustments and additional information:
A.
No entries were made for a vehicle sold on 30 November 2016 for
R97 700 cash. Details of the vehicle:
• Cost price, R190 000
• Accumulated depreciation (1 March 2016), R72 000
• Depreciation rate: 20% p.a. on cost
B.
Provide for depreciation as follows:
• On remaining vehicles – R138 000 for the financial year
• On equipment at 10% p.a. on the diminishing-balance method
NOTE: New equipment costing R32 000 was purchased and
recorded on 1 September 2016.
C.
Goods sold on credit to debtor, J Gander, for R15 000 were not
recorded. The mark-up is 60% on cost price.
D.
A physical stocktaking on 28 February 2017 reflected trading stock of
R374 000.
E.
Consumable stores used during the financial year amounted to R61 700.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
54
F.
The account of debtor, L Maseko, must be written off as irrecoverable,
R1 900.
G.
Entries on the February 2017 Bank Statement not yet recorded in the
books of the company:
•
•
Bank charges, R870
Debit order payment for the monthly insurance premium, R1 780
H.
Provision for bad debts must be adjusted to R4 030.
I.
Loan statement received reflected the following:
Balance: 1 March 2016
Interest
Repayment during the financial year
Balance: 28 February 2017
J.
1 356 000
?
300 000
1 200 000
An employee, H Brooks, who commenced work on 1 February 2017,
was omitted from the Salaries Journal. Details of his salary for
February 2017 are:
GROSS
SALARY
13 500
DEDUCTIONS
PENSION
PAYE
UIF
FUND
2 190
1 080
135
CONTRIBUTIONS
PENSION
UIF
FUND
1 620
135
NOTE: All contributions are recorded as part of salaries and wages.
K.
The rent income was increased by R1 500 per month from
1 November 2016. The tenant has not paid the rent for February 2017
yet.
L.
Interest income is the missing figure in the Income Statement.
M.
Income tax is calculated at 28% of net profit.
N.
Net profit after tax amounted to R864 000.
70
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
55
Activity 5: Answer Book
5.1
5.1.1
5.1.2
5.1.3
5.1.4
4
5.2
MTOMBENI LTD
5.2.1
Calculate: Carrying value of the vehicle sold on 30 November 2016
5
Calculate: Total depreciation on equipment on 28 February 2017
7
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
56
5.2.2
MTOMBENI LTD
Income Statement (Statement of Comprehensive Income) for the year
ended 28 February 2017:
Sales (5 500 000
Cost of sales (3 150 000
Operating expenses
Directors' fees
380 000
Audit fees
54 000
Operating profit
Interest income
Net profit after interest income
Net profit before tax
Income tax
Net profit after tax
864 000
54
TOTAL MARKS
70
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
57
Activity 6: INCOME STATEMENT, NOTES, RATIO ANALYSIS AND AUDIT
REPORT
(75 marks; 45 minutes)
6.1
WONGALETHU LTD
You are provided with information from the books of Wongalethu Ltd. The
financial year ended on 30 June 2017.
REQUIRED:
6.1.1
Prepare the
30 June 2017.
Income
Statement
for
the
year
6.1.2
Prepare the Trade and Other Receivables note.
6.1.3
Calculate the following financial indicators on 30 June 2017:
ended
(48)
(10)
•
Percentage net profit on turnover
(3)
•
Debt-equity ratio
(4)
6.1.4 The board of directors wants to acquire an additional loan to fund
expansions within the company. Comment on why you
think this is a
good idea or not. Quote TWO financial indicators
(with figures) to
support your opinion.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(4)
58
INFORMATION:
Extract from the Pre-adjustment Trial Balance on 30 June 2017:
Ordinary share capital
Retained income
Mortgage Loan: BB Bank (10,5%)
Fixed assets
Fixed deposit: BB Bank
Debtors Control
Creditors Control
Provision for bad debts
Trading stock
SARS (income tax)
Sales
Cost of sales
Rates and taxes
Bad debts
Insurance
Interest on loan
Rent income
Salaries and wages
Depreciation
Interest on fixed deposit
Sundry expenses
R
7 960 000
540 300
2 651 460
?
1 600 000
174 250
203 200
11 940
246 500
255 700
5 590 000
4 300 000
69 800
13 700
21 000
251 460
414 000
256 760
104 700
26 000
?
Additional information and adjustments:
The business used a mark-up percentage of 30% on cost. This was maintained
for the current financial period.
A.
Rates and taxes for June 2017 is outstanding, R11 800.
B.
Goods with a cost price of R30 000 sold on credit was not recorded. A
15% trade discount was allowed on this sale.
C.
A debtor returned goods valued at R2 600. These goods were sent back
to the supplier.
D.
A debtor who owed R15 000 was declared bankrupt. His estate paid 60
cents for every Rand owed. This was recorded. The balance of his
account must still be written off as irrecoverable.
E.
A cheque for R4 350 received from a debtor whose account was
previously written off as irrecoverable was not recorded.
F.
Provision for bad debts must be adjusted to 5% of outstanding debtors.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
59
G.
Trading stock on hand as per a physical stock count on
30 June 2017 amounted to R251 500. Note that an invoice for
R45 000 received from TPH Traders for goods purchased on credit must
still be recorded
H.
Insurance premiums were paid until 31 May 2017. Take into account that
the premium was decreased by R250 per month from
1 February 2017.
I.
Rent income included rent for July 2017. Note that rent was increased by
10% from 1 December 2016.
J.
The fixed deposit was increased by R800 000 on 1 January 2017, at the
same rate of 6.5% p.a. Provide for outstanding interest. Interest is not
capitalized.
K.
Income tax for the year amounted to R270 000.
L.
FINANCIAL INDICATORS CALCULATED ON 30 JUNE:
Net profit percentage on turnover
Debt-equity ratio
% return on total capital employed
6.2
2017
?
?
23,1%
2016
10,9%
0,4:1
18,9%
AUDIT REPORT
The following audit report appeared in a local newspaper.
REQUIRED:
Explain each audit opinion underlined in the extract below.
(6)
Gauteng Provincial Government Audit Report 2015/16
The Gauteng Department of Health received another qualified opinion
from the Auditor-General. All other departments received unqualified
opinions. The province's agencies also received unqualified opinions,
except G Fleet, which received a disclaimer.
eNCA 1 September 2015
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
60
Activity 6: Answer Book
WONGALETHU LTD.
6.1.1
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2017
Sales (5 590 000
Cost of sales (4 300 000
Gross profit
Other income
Rent income
Operating expenses
Operating profit
Interest income
Profit before interest expense
Interest expense
(251 460)
Profit before income tax
Income tax
Net profit for the year
630 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
48
61
6.1.2
Trade and other receivables
Debtors (174 250
10
6.1.3
Calculate the following financial indicators on 30 June 2017:
Net profit percentage on turnover
3
Debt-equity ratio
4
6.1.4
The board of directors wants to acquire an additional loan to fund
expansions within the company. Comment on why you think this is a
good idea or not. Quote TWO financial indicators (with figures) to
support your opinion.
4
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
62
6.2
Explain each audit opinion underlined in the extract below.
Audit report
Description (audit opinion)
Qualified
Unqualified
Disclaimer
6
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
63
TOPIC 3: Company Financial Statement: Notes to Balance Sheet &
Balance Sheet
Activity 1
1.Fixed Assets
A.
MAFUSA LTD
The information presented relates to the financial year ended 30 April 2016.
REQUIRED:
1.
Refer to Information C.
Calculate the missing amounts denoted by (a) to (d) for equipment in
the Fixed Asset Note. Show all workings.
Fixed assets:
(16)
Fixed assets comprise land and buildings and equipment.
Extract from the Fixed Asset Note:
Cost (1 May 2015)
Accumulated depreciation (1 May 2015)
Carrying value (1 May 2015)
Movements:
Additions
Disposals
Depreciation
Carrying value (30 April 2016)
EQUIPMENT
3 640 000
(a)
2 002 000
900 000
(b)
(c)
Cost (30 April 2016)
Accumulated depreciation (30 April 2016)
(d)
•
Equipment is depreciated at 15% p.a. on cost.
•
On 31 August 2015 old equipment costing R750 000 was sold for
cash at its carrying value. The accumulated depreciation on this
equipment was R491 750 on 1 May 2015.
•
On 1 December 2015 new equipment valued at R900 000 was
purchased.
•
There were no other movements.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
64
Answer Book
MAFUSA LTD
(a)
(b)
(c)
(d)
16
B) AMALINDA LTD
The following information appeared in the accounting records of Amalinda
LTD for the financial year ended 28 February 2015.
The authorised share capital of the business is 700 000 ordinary shares.
REQUIRED:
Complete the following notes to the balance sheet on 28 February 2015.
(a) Fixed (tangible) Assets
INFORMATION:
(15)
Balances and totals (amongst others):
28 February 2015
Land and buildings
Vehicles (cost)
Accumulated depreciation on vehicles
Equipment (cost)
Accumulated depreciation on equipment
Ordinary share capital
Retained income
Creditors control
Mortgage bond: Buck Bank
Shareholders for dividends
SARS: Income tax
Accrued income
Accrued expenses
Income tax
Ordinary share dividends (interim dividends)
2 500 000
562 500
?
400 300
189 540
?
?
203 900
2 340 500
?
25 500
13 460
19 220
281 400
252 000
(Cr)
1 March 2014
0
?
450 000
375 500
141 500
2 924 000
89 000
149 600
0
186 600
18 140 (Cr)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
65
Fixed Assets:
• On 1 April 2014, the business acquired a mortgage bond of
R2 500 000 to purchase the new buildings.
•
On 1 March 2014, the vehicles account comprised of four delivery
vehicles acquired on 1 March 2010, each for the same cost price.
•
On 1 November 2014, one of the vehicles was sold on credit at a loss
of R4 200.
•
On 1 December 2014, additional equipment was bought.
•
Vehicles are depreciated at 15% p.a. on cost and equipment is
depreciated at 20% p.a. on carrying value.
Answer Book
FIXED ASSETS
BUILDING
VEHICLES
EQUIPMENT
Cost (1/3/2014)
375 500
Accumulated Depreciation
(1/3/2014)
(450 000)
(141 500)
CARRYING VALUE (1/3/2014)
MOVEMENTS:
Additions
-
Disposals
Depreciation
(103 125)
CARRYING VALUE (28/2/2015)
2 500 000
Cost (28/2/2015)
2 500 000
562 500
Accumulated depreciation
(28/2/2015)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
400 300
(189 540)
15
66
C)
FIXED ASSETS
The following information relates to the fixed/tangible
Jabulani Hypermarket for the year ended 28 February 2015.
assets
of
REQUIRED:
1.
Refer to Information A, B and C. Calculate the amounts indicated
by (i)–(iii). Show the workings in the space provided in the
ANSWER BOOK.
(7)
2.
Refer to Information D. Prepare the Asset Disposal Account for the
computer sold on 30 November 2014.
(13)
3.
Refer to Information E. You are the internal auditor of
Jabulani Hypermarket. The owner has asked you to investigate the
control of trolleys and baskets used in the business.
(a)
Explain how the Fixed Assets Register will assist you in your
duties as internal auditor. Provide ONE point.
(2)
(b)
The stock of trolleys and baskets is classified as a fixed asset.
Give ONE suitable reason for this.
(2)
(c)
The owner has received numerous complaints from his
customers about the trolleys and baskets. On a busy day the
business often has up to 420 customers in the shop at the
same time.
Identify and explain THREE major problems (with figures)
relating to the control of the trolleys and baskets. In EACH
case, provide a valid,practical solution to improve the control
over these assets.
(9)
INFORMATION:
A.
Information from the financial statements for the year ended
28 February 2015:
FIXED/TANGIBLE ASSETS
Carrying value on 1 March 2014
Cost
Accumulated depreciation
Movement
Additions
Disposals at carrying value
Depreciation
Carrying value on 28 February 2015
Cost
Accumulated depreciation
LAND AND
BUILDINGS
2 500 000
2 500 000
0
VEHICLES
264 600
552 000
(287 400)
(ii)
0
0
3 200 000
3 200 000
0
0
0
EQUIPME
NT
(i)
900 000
(224 000)
470 000
(iii)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
67
B.
The business has two vehicles. The following details appeared in the
Fixed Assets Register:
Cost
Accumulated depreciation on 1 March 2014
Carrying value on 1 March 2014
NOTE:
C.
Vehicle1
240 000
(225 000)
15 000
Vehicle 2
312 000
(62 400)
249 600
Vehicle 1 is old and is reaching the end of its useful life.
The business provides for depreciation on its fixed assets as follows:
•
•
On vehicles at 25% p.a. on cost
On equipment at 20% p.a. on the diminishing-balance method.
Equipment comprises shopping baskets, trolleys, computers, fridges
and other general shop equipment.
D.
A computer was sold for cash to Mash Crusaders on
30 November 2014. A loss of R250 was incurred as the computer was
slightly damaged. According to the Fixed Assets Register, the computer
was originally purchased for R9 200. Accumulated depreciation on this
item was R6 400 on 1 March 2014.
E.
The following information refers to the trolleys and baskets of the
business:
Number of units on hand on 1 March 2014
Additional units purchased during the
financial year at R2 000 each for the trolleys
and R250 each for the baskets
Number of damaged units written off during
the financial year
Number of units on hand as per physical
count on 28 February 2015
Repair and maintenance cost for units during
the financial year
TROLLEYS
148
BASKETS
120
112
35
14
60
210
95
R1 800
R16 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
68
Answer Book
1.
NO.
(i)
CALCULATIONS
AMOUNT
(ii)
(iii)
7
2.
ASSET DISPOSAL
13
3.
(a)
Explain how the Fixed Assets Register will assist you in your
duties as internal auditor. Provide ONE point.
2
(b)
The stock of trolleys and baskets is classified as a fixed asset.
Give ONE suitable reason for this.
2
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
69
(c)
Identify and explain THREE major problems (with figures)
relating to the control of the trolleys and baskets. In EACH case,
provide a valid, practical solution to improve the control over
these assets.
PROBLEM WITH
FIGURES
PRACTICAL SOLUTION TO
IMPROVE INTERNAL CONTROL
Problem 1
Problem 2
Problem 3
9
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
70
D) MTOMBENI LTD
The information relates to Mtombeni Limited for the financial year ended 28 February
2017.
REQUIRED:
Refer to Information A and B and calculate:
• Carrying value of the vehicle sold on 30 November 2016
• Total depreciation on equipment on 28 February 2017
INFORMATION:
Information extracted
28 February 2017:
from
the
Pre-adjustment
Trial
(5)
(7)
Balance
on
Balance Sheet Accounts Section
Land and buildings
Vehicles
Equipment
Accumulated depreciation on equipment (01/03/2016)
Trading stock
Debtors' control
Provision for bad debts
Mortgage loan: Quick Bank
1 600 000
?
250 000
85 000
386 500
88 500
3 650
1 056 000
Nominal Accounts Section
Sales
Cost of sales
Debtors' allowances
Directors' fees
Audit fees
Bad debts
Rent income
Interest on loan
Insurance
Salaries and wages
Bad debts recovered
Consumable stores
Bank charges
Sundry expenses
Interest income
5 500 000
3 150 000
32 500
380 000
54 000
13 600
169 500
?
19 220
475 000
4 750
67 500
7 760
140 085
?
A.
No entries were made for a vehicle sold on 30 November 2016 for
R97 700 cash. Details of the vehicle:
• Cost price, R190 000
• Accumulated depreciation (1 March 2016), R72 000
• Depreciation rate: 20% p.a. on cost
B.
Provide for depreciation as follows:
• On remaining vehicles – R138 000 for the financial year
• On equipment at 10% p.a. on the diminishing-balance method
NOTE: New equipment costing R32 000 was purchased and
recorded on 1 September 2016.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
71
Answer Book
MTOMBENI LTD
Calculate: Carrying value of the vehicle sold on 30 November 2016
5
Calculate: Total depreciation on equipment on 28 February 2017
7
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
72
E)
RITCHIE TRADERS LIMITED
The following information was taken from the accounting records of Ritchie
Traders Limited. The company has an authorized share capital of 2 000 000
shares.
REQUIRED:
Prepare the note for fixed asset on 28 February 2015.
INFORMATION:
1.
(20)
The following balances appeared in the General Ledger of Ritchie
Traders Limited on 28 February 2015.
Ordinary share capital (400 000 shares)
2 400 000
Retained income (28 February 2015)
?
Land and Buildings
1 500 000
Equipment
450 000
Vehicles
765 000
Accumulated depreciation on equipment (1/3/2014)
156 000
Accumulated depreciation on vehicles
?
Fixed deposit: Kay Bank
?
Incomplete Fixed Asset Note
Carrying value at the
beginning of the year
Cost
Accumulated depreciation
Movements
Additions
Disposals
Depreciation
Carrying value at the end of
the year
Cost
Accumulated depreciation
Land &
Buildings
1 100 000
Vehicles
Equipment
?
?
1 100 000
(0)
?
?
390 000
(156 000)
?
(0)
(0)
1 500 000
240 000
(0)
?
120 000
?
?
?
1 500 000
(0)
740 000
?
450 000
?
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
73
Fixed Assets
Land and buildings
A new store was built during the financial year.
Vehicles
With the exception of the vehicle bought for R240 000 on 31 October 2014,
the business bought the other vehicles on 1 March 2011. No vehicles were
sold during the year.
Depreciation on vehicles is written off at 10% p.a. on the diminishing balance
method. This rate has been maintained over the years since the business
came into operation.
Equipment
Old equipment bought on 1 March 2011 for R60 000 was sold for cash on
31 August 2014 for R34 000. New equipment was bought for R120 000 was
bought on 1 September 2014 and was recorded properly.
Depreciation on equipment is written off at 10% p.a. on the cost price method.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
74
Answer Book
Fixed Asset Note
Carrying value at the
beginning of the year
Cost
Accumulated depreciation
Land &
Buildings
1 100 000
Vehicles
Equipment
1 100 000
390 000
(0)
(156 000)
Movements
Additions
Disposals
Depreciation
Carrying value at the end of
the year
Cost
240 000
(0)
(0)
1 500 000
(0)
1 500 000
740 000
Accumulated depreciation
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
120 000
450 000
20
75
Summative Assessment 1
Refer to the Fixed Asset Note and Information D.
Prepare the Asset Disposal Account on 28 February 2014.
(8)
Complete the Fixed Asset Note.
(16)
Incomplete Fixed Asset Note
Carrying value at the
beginning of the year
Cost
Accumulated depreciation
Movements
Additions
Disposals
Depreciation
Carrying value at the end of
the year
Cost
Accumulated depreciation
Land &
Buildings
2 000 000
2 000 000
0
1315 000
0
0
3 315 000
Vehicles
Equipment
410 000
(720 000)
500 000
0
3 315 000
0
800 000
(390 000)
100 000
810 000
Fixed Assets
Vehicles
With the exception of the delivery truck bought for R500 000 on 31 October
2013, the business has had all other vehicles for four years (including this
year). No vehicles were sold during the year.
Depreciation on vehicles is written off at 15% p.a. on the cost price method
and this rate has been maintained over the years since the business came
into operation.
Equipment
An old printer bought on 1 June 2011 for R? was sold for cash on 31 August
2013 at carrying value and in its place a new printer for R100 000 was bought
on 1 September 2013.
Depreciation on equipment is written off at 20% p.a. on the diminishing
balance method.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
76
Answer Book
ASSET DISPOSAL
2013
Aug
2013
Aug
31
31
8
FIXED ASSET NOTE
Land and
Buildings
Vehicles
Equipment
Carrying value at the beginning of
the year
2 000 000
410 000
Cost
2 000 000
800 000
Accumulated depreciation
0
(720 000)
(390 000)
1 315 000
500 000
100 000
Disposals (at carrying value)
0
0
Depreciation
0
Movements
Additions (at cost)
Carrying value at the end of the
year
3 315 000
Cost price
3 315 000
Accumulated depreciation
810 000
0
16
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
77
Activity 2: Trade & Other receivables
A) Adjustments and additional information:
Prepare the Note to the Balance Sheet for Trade and Other Receivables.
(10)
INFORMATION:
Balance Sheet Accounts Section
Retained income (1 January 2015)
Loan from Paris Bank
Debtors' control
Creditors' control
Provision for bad debts
SARS: Income tax
Nominal Accounts Section
Sales
Cost of sales
Debtors' allowances
Repairs and maintenance
Commission income
Interest on current bank account
Bad debts
Rent income
Debit
Credit
628 000
540 800
125 000
96 200
7 150
315 000
8 412 000
4 595 000
112 000
107 500
64 140
3 000
17 600
87 720
Adjustments and additional information:
On 27 December 2015 P Maine, a debtor, returned merchandise. A credit note for
R1 600was issued to her. (The cost price was R900.) No entries were made for the return
of the merchandise. These items were returned to stock.
The insolvent estate of a debtor, J Jabaroo, paid out 45 cents in the rand and made a
direct deposit of R2 025 on 31 December 2015. The outstanding balance must be written
off. No entries were made to record the direct deposit and the amount written off.
The provision for bad debts must be increased to R8 000.
There was no change in the monthly rent during the financial year. The tenant paid
R6 000 for repairs to the premises. As Musica Limited is responsible for all repairs, the
tenant deducted this amount from the rent, which he paid for November 2015. The repairs
have not been recorded, and the rent for December 2015 has not been received yet.
Income tax for the year was correctly calculated at R300 300.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
78
Answer Book
TRADE AND OTHER RECEIVABLES
10
B) Bargain Traders Ltd is a public company listed on the JSE. The
business has an authorized share capital of 1 000 000 ordinary shares.
REQUIRED:
Prepare the following notes to the Balance Sheet:
(a) Trade and other receivables
INFORMATION:
A.
The following was extracted from the books on 30 June 2014:
Fixed/Tangible assets (carrying value)
Fixed deposit: Swan Bank
Ordinary share capital (850 000 shares)
Retained income (1 July 2013)
Bank
Loan: Drake Bank
Trading stock
Net trade debtors (after deducting provision for bad debts)
Creditors' control
SARS: Income tax (provisional payments)
Dividends on ordinary shares (interim dividends)
(10)
?
120 000
5 737 500
181 900
351 200
295 000
355 700
118 370
197 000
320 900
315 000
B.
The following adjustments have not yet been taken into account:
• Insurance included an annual policy of R29 832 paid for on 1 December 2013.
• The provision for bad debts must be increased by R6 100.
• Unused packing material amounted to R9 500.
• A debtor with a credit balance of R11 700 is to be transferred to the Creditors'
Ledger.
• The bank reconciliation reflected a post-dated cheque for R33 000 dated 31
August 2014.
• The statement received from Drake Bank in respect of the loan reflected
interest capitalized of R31 200. Monthly repayments are R10 800 including
interest. These repayments will end in 2017.
• On 30 June 2014, a final dividend of 40 cents per share was declared.
C.
Net profit after tax, after taking into account the adjustments above, was
calculated as R813 600. The income tax rate is 28% of net profit before tax.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
79
Answer Book
TRADE AND OTHER RECEIVABLES
Net trade debtors
10
C) Thevarani Ltd is a public company with an authorized share capital of 750
000 ordinary shares. The information relates to the financial year ended
28 February 2014.
REQUIRED:
Complete the following notes to the Balance Sheet:
Show the workings in brackets.
Trade and other receivables.
INFORMATION:
1.
(7)
Extract of the Pre-Adjustment Trial Balance on 28 February 2014.
DEBITS
Ordinary share capital
Retained income (1 March 2013)
Loan: Sentry Bank
Fixed assets (carrying value)
Trading Stock
Debtors Control
Fixed deposit: Oxford Bank (7,5% pa)
Bank
SARS : Income tax(provisional payments)
Creditors control
Insurance
Rent income
Interest on fixed deposit
Total other/operating income
Ordinary share dividends (paid: 31 August 2013)
•
CREDITS
2 100 000
234 000
160 000
2 258 000
162 220
63 000
125 750
190 650
170 000
26 000
11 760
17 300
15 800
55 000
120 000
Income tax for the year was calculated to be R162 800. This must be taken into
account.
•
The rent for February 2014 was not yet received. The vacant storage space was
rented out since 1 December 2013.
•
An additional insurance policy on plant and equipment was taken out on 1 October
2013. The annual premium of R6 720 was paid.
•
The provision for bad debts was adjusted to 3% of the debtors control.
•
Audit fees of R4 500 were still outstanding on 28 February 2014.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
80
Answer Book
Trade and other receivables.
Debtors control
63 000
7
D) WONGALETHU LTD
You are provided with information from the books of Wongalethu Ltd. The
financial year ended on 30 June 2017.
REQUIRED:
Prepare the Trade and Other Receivables note.
(10)
INFORMATION:
Extract from the Pre-adjustment Trial Balance on 30 June 2017:
Fixed deposit: BB Bank
Debtors Control
Creditors Control
Provision for bad debts
SARS (income tax)
Rates and taxes
Bad debts
Insurance
Interest on loan
Rent income
Salaries and wages
Depreciation
Interest on fixed deposit
Sundry expenses
R
1 600 000
174 250
203 200
11 940
385 700
69 800
13 700
21 000
251 460
414 000
256 760
104 700
26 000
?
Additional information and adjustments:
The business used a mark-up percentage of 30% on cost. This was maintained for the
81
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
current financial period.
A.
Rates and taxes for June 2017 is outstanding, R11 800.
B.
Goods costing R30 000 sold on credit was not recorded. A 15% trade discount was
allowed on this sale.
C.
A debtor returned goods valued at R2 600. These goods were sent back to the
supplier.
D.
A debtor who owed R15 000 was declared bankrupt. His estate paid 60 cents for
every Rand owed. This was recorded. The balance of his account must still be
written off as irrecoverable.
E.
A cheque for R4 350 received from a debtor whose account was previously written
off as irrecoverable was not recorded.
F.
Provision for bad debts must be adjusted to 5% of outstanding debtors.
G.
Trading stock on hand as per a physical stock count on
30 June 2017 amounted to R251 500. Note that an invoice for
R45 000 received from TPH Traders for goods purchased on credit must still
be recorded
H.
Insurance premiums were paid until 31 May 2017. Take into account that the
premium
was
decreased
by
R250
per
month
from
1 February 2017.
I.
Rent income included rent for July 2017. Note that rent was increased by 10%
from 1 December 2016.
J.
The fixed deposit was increased by R800 000 on 1 January 2017, at the same
rate of 6.5% p.a. Provide for outstanding interest. Interest is not capitalized.
K.
Income tax for the year amounted to R270 000.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
82
Answer Book
Trade and other receivables
Debtors (174 250
10
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
83
Activity 3: Loan
A) INFORMATION:
1.
Extract from Income Statement for the year ended 31 August 2014
Cost of sales
Depreciation
Interest on loan (capitalised)
Income tax
Profit before tax
2.
2 502 000
124 280
60 000
300 000
1 000 000
Information extracted from the Post closing trial balance on
31 August 2014
2014
2013
Ordinary shareholders equity
3 849 600
1 730 000
Ordinary share capital
3 231 000
1 292 000
Retained income
618 600
438 000
Long-term liabilities (15% p.a)
100 000
760 000
Fixed assets/ Tangible assets
3 164 420
1 078 840
Trading stock
206 900
126 700
Cash and cash equivalents
500 000
5 000
SARS (income tax
CR 5 220
CR 8 280
Bank overdraft
650 640
B)
Long-term loan: Oka Lenders
R235 200
Financial Year end: 28 February 2017
Adjustment: The loan from Oka Lenders was originally received on 1 September
2015. The loan is to be repaid in equal monthly instalments over 5 years. The first
instalment was paid on 30 September 2015.
C) Loan: William Bank
R 482 600
Financial Year end: 28 February 2017
Adjustment: The loan statement from William Bank received on 28 February 2014
reflected interest capitalized at R81 400. This was not recorded in the books.
The business expects to settle 20% of the outstanding balance in the next financial
year.
D)
Balances/Totals on 28 February:
2018
Loan: LSO Bank
?
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
2017
1 725 500
84
Loan: LSO Bank
• Fixed monthly repayments, including interest, are R31 600.
• Capitalised interest amounted to R242 500 for the year ended 28 February 2018.
• Interest for the next financial year is expected to be R162 000.
• Part of the loan will be repaid within the next financial year.
Calculations:
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
85
Activity 4: Trade and other payables
A) AMALINDA LTD
The following information appeared in the accounting records of Amalinda
LTD for the financial year ended 28 February 2015.
REQUIRED:
(a)
Trade and other payables.
Note: All items in the Current Liabilities section of the Balance Sheet must be
included under Trade And Other Payables (except Bank Overdraft).
Creditors control
Mortgage bond: Buck Bank
Shareholders for dividends
SARS: Income tax
Accrued income
Accrued expenses
Income tax
Ordinary share dividends (interim dividends)
203 900
2 340 500
?
25 500
13 460
19 220
281 400
2520
(Cr)
(8)
149 600
0
186 600
18 140 (Cr)
Dividends:
• A final dividend of 32 cents per share was declared on
27 February 2015. All shareholders (including the shareholders of the
shares bought back) qualified for final dividends.
Answer Book
TRADE AND OTHER PAYABLES
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
86
B) You are provided with the Pre-Adjustment Trial Balance of a company, Dunhill
Ltd. on 28 February 2014.
REQUIRED:
Prepare the following notes to the Balance sheet:
• Trade and other payables
(16)
PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2014
Balance Sheet Accounts Section
R
Creditors control
786 800
Loan: Spark Bank
450 000
Bank (Dr)
129 400
SARS: Income tax (Dr)
150 000
SARS: PAYE
44 800
Pensionfund
15 800
Nominal Accounts Section
Salaries and wages
821 000
Directors’ fees
840 000
Audit fees
88 000
Employers’ contributions to pension and medical aid
81 000
Debtors allowances
70 000
Bank charges
28 000
Sundry Expenses
89 730
Bad debts
12 100
Rent income
234 950
Interest on fixed deposit
27 000
Repairs and maintenance
125 600
Consumable stores
39 500
Dividends on ordinary shares (interim)
55 000
• The auditors, Froome are owed an extra R12 000 in fees.
• An employee was omitted from the salaries journal. He has not
been paid. His details are as follows:
Employer’s
Net
Deductions
contribution
salary
PAYE
Pension
Pension
R2 880
R1 950
R3 900
10 538
•
•
The rent has been paid three month in advance.
NOTE:The monthly rent increased by R1 250 on 1 November
2013.
The loan statement from Spark Bank reflected the following:
Balance at beginning of financial year
Repayments during the year
Interest capitalised
Balance at end of financial year
•
R17 000 still owed to SARS for Income tax.
•
Final dividends of 15 cents per share were declared.
R948 000
R423 000
?
R600 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
87
Answer Book
TRADE AND OTHER PAYABLES
16
C) You are provided with information relating to Nongweleza Limited for the financial
year ended 30 June 2016.
REQUIRED:
Complete the following note:
Trade and other payables.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(16)
88
The following balances and totals were extracted from the Preadjustment Trial Balance of Nongweleza Ltd on 30 June 2016:
Balance Sheet Accounts Section
Mortgage Loan: MM Bank
1 200 000
Creditors Control
660 000
Pension fund
45 400
SARS: PAYE
64 100
SARS: Income tax (provisional tax payments)
100 000
Nominal Accounts Section
Audit fees
33 800
Insurance
20 000
Bad debts
14 000
Directors fees
260 000
Rent income
128 800
Salaries and wages
1 220 000
Pension fund contributions
36 200
Interest on loan
92 800
Interest on fixed deposit
79 829
Packing material
21 000
Bad debts recovered
2 760
Bank charges
3 200
Sundry expenses
77 100
Ordinary share dividends
180 000
The directors’ fees for June 2016, R260 000 is still outstanding.
An employee’s details were omitted from the Salaries Journal. He has not been
paid. His details are as follows:
Deductions
PAYE
Pension
2 880
1 950
Employer’s contribution
Pension
3 900
Net salary
10 538
The rent has been received three months in advance. The monthly rent
increased by 10% on 1 November 2015.
Final dividends were declared at 8 cents per share. 2 100 000 ordinary shares
were in issue on 30 June 2016.
Income tax of R198 016 was calculated at 28% of the net profit. This must still
be brought into account.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
89
Answer Book
TRADE AND OTHER PAYABLES
16
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
90
Worked Example:
Bargain Traders Ltd is a public company listed on the JSE. The business has an
authorized share capital of 1 000 000 ordinary shares.
Required:
1. Prepare the following notes to the balance sheet:
a) Ordinary share capital
(7)
b) Retained income
(10)
c) Trade and other receivables
(10)
2. Complete the balance sheet on the 30 June 2019. Where notes are not required
show all the workings in brackets to earn part marks.
INFORMATION:
A.
Issued share capital comprised 850 000 ordinary shares on 1 July 2018.
B.
The following was extracted from the books on 30 June 2019:
Fixed/Tangible assets (carrying value)
Fixed deposit: Mokhu Bank
Ordinary share capital (850 000 shares)
Retained income (1 July 2018)
Bank
Loan: Drake Bank
Trading stock
Net trade debtors (after deducting provision for bad debts)
Creditors' control
SARS: Income tax (provisional payments)
Dividends on ordinary shares (interim dividends)
?
120 000
5 737 500
181 900
351 200
295 000
355 700
118 370
197 000
320 900
315 000
C.
No entries have been made for the repurchase of shares. On 1 October 2018 the
business bought back 150 000 ordinary shares from certain shareholders. Although the
market price of the shares was R9,25, they accepted R7,40 for each share. These
shareholders were not entitled to interim dividends.
D.
The following adjustments have not yet been taken into account:
•
•
•
•
•
•
•
E.
Insurance included an annual policy of R29 832 paid for on 1 December 2018.
The provision for bad debts must be increased by R6 100.
Unused packing material amounted to R9 500.
A debtor with a credit balance of R11 700 is to be transferred to the Creditors'
Ledger.
The bank reconciliation reflected a post-dated cheque for R33 000 dated 31 August
2019.
The statement received from Sejane Bank in respect of the loan reflected interest
capitalized of R31 200. Monthly repayments are R10 800 including interest. These
repayments will end in 2020.
On 30 June 2019, a final dividend of 40 cents per share was declared.
Net profit after tax, after taking into account the adjustments above, was calculated as
R813 600. The income tax rate is 28% of net profit before tax.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
91
SOLUTION
1.
ORDINARY SHARE CAPITAL
850 000  ordinary shares in issue at beginning of
year
150 000 shares repurchased during the year
(150 000  x R6,75 )
operation, one part correct
700 000  ordinary shares in issue at end of year
operation, one part correct
5 737 500 
(1 012 500) 
4 725 000 
7
RETAINED INCOME
Balance on 1 July 2018
181 900 
Net profit after income tax
Shares repurchased (150 000  x 0,65 )
813 600 
operation, one part correct
Ordinary share dividends
operation, one part correct
(97 500) 
(595 000) 
Interim (paid)
315 000 
Final (recommended) (700 000 x 40 cents)
280 000 
Balance on 30 June 2019 operation, one part correct
303 000 
10
TRADE AND OTHER RECEIVABLES
Net trade debtors (118 370  – 6 100  + 11 700 )
SARS: Income tax (320 900  –
operation, one part correct
316 400 ) (813 600 x 28/72)
operation, one part correct
4 500 
12 430 
Prepaid expenses
TOTAL
123 970 
operation, one part correct
140 900 
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
10
92
2.
BARGAIN TRADERS LTD
BALANCE SHEET ON 30 JUNE 2019
ASSETS
NON-CURRENT ASSETS
4 985 600 
operation
or 6 096 500
Fixed/Tangible Assets
4 865 600 
balancing figure
or 5 976 500
3
Fixed deposit
CURRENT ASSETS
120 000 
890 300 
operation
or 506 100
365 200 
140 900 
384 200 or 0 
Inventory
(355 700 + 9 500 ) 9 500 could be T&OR
Trade and other receivables
see 3.2
Cash and cash equivalents
(351 200 + 33 000  - 1 110 000 = - 725 800 + 725 800)
TOTAL ASSETS
see Total Equity and Liabilities
9
5 875 900 
or 6 601 700
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Ordinary share capital
Retained income
NON-CURRENT LIABILITIES
Loan: Mokhu Bank
(295 000  + 31 200  – 98 400 )
CURRENT LIABILITIES
operation
see 3.2
see 3.2
3
5
5 028 000 
4 725 000 
303 000 
227 800
227 800
one part correct

620 100 
operation
or 1 345 900
Trade and other payables
(197 000  + 11 700  + 33 000 )
Shareholders for dividends
Current portion of loan
Bank overdraft
TOTAL EQUITY AND LIABILITIES
241 700 
280 000 
98 400 
see 3.2
see loan
725 800
operation
8
5 875 900 
or 6 601 700
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
28
93
Activity 1 BALANCE SHEET, INTERPRETATION AND ETHICS
(65 marks; 40 minutes)
You are presented with information from the records of Vijay Limited. The financial
year-end is 28 February 2014.
REQUIRED:
1.1
Prepare the following notes to the Balance Sheet:
1.1.1
1.1.2
1.2
Share capital
Retained income
(9)
(11)
Prepare the Balance Sheet (Statement of Financial Position) on
28 February 2014. Where notes are not required, show ALL workings in
brackets.
(26)
1.3
Calculate the return on average shareholders' equity for 2014.
(5)
1.4
From 2013 to 2014 the directors made a deliberate decision to change the
policy on the distribution of profits in the form of dividends. Comment on this
change. Quote financial indicators or figures to support your answer.
(4)
Comment on whether the shareholders should be satisfied with the
percentage return and the market price of their shares. Quote TWO relevant
financial indicators (actual figures/ratios/percentages) and their trends. Give
an additional comment in each case.
(6)
1.5
1.6
The external auditors, Hassan and Jacob, have employed Janet to work on
the audit of Vijay Ltd. Janet owns 10 000 shares in Vijay Ltd.
Explain why this is a problem and give a valid solution.
(4)
INFORMATION:
A.
The authorised share capital consists of 750 000 ordinary shares.
On 1 March 2013, only 60% of the shares were in issue.
B.
The following amounts were extracted from the records:
28 Feb. 2014
Ordinary share capital
?
Retained income
?
Total ordinary shareholders' equity
?
Fixed assets (carrying value)
?
Fixed deposit: Sam Bank
650 000
Loan: William Bank
482 600
Inventories
275 400
Debtors' Control
243 500
Creditors' Control
62 460
Cash in the bank and petty cash
336 600
Income received in advance (Rent)
12 120
Prepaid expenses (Insurance)
7 600
Provisional income tax payments
299 980
Interim dividends
270 000
28 Feb. 2013
3 215 000
322 500
3 537 500
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
94
C.
On 1 November 2013, the company issued a further 80 000 shares at R9,50
per share.
D.
On 28 February 2014, the directors decided to repurchase 75 000 ordinary
shares from the estate of a shareholder who had died. This shareholder had
originally purchased his shares on the JSE at various times and at different
prices. A repurchase price of R10,40 was accepted as being a fair price.
E.
On 27 February 2014, a final dividend of 40 cents per share was declared.
All shares, including the new shares issued and repurchased, qualify for final
dividends.
F.
The loan statement from William Bank received on 28 February 2014 reflected
interest capitalised at R81 400. This was not recorded in the books.
The business expects to settle 20% of the outstanding balance in the next
financial year.
G.
After all the above adjustments were taken into account the net profit before
tax was calculated to be R1 161 000. The income tax is calculated at 30% of
net income before tax.
H.
Financial indicators on 28 February:
Earnings per share (EPS)
Dividends per share (DPS)
Net asset value (NAV)
Return on shareholders' equity (ROSHE)
2014
170 cents
100 cents
846 cents
?
2013
82 cents
82 cents
786 cents
18,3%
I.
Additional information:
Market price of Vijay Ltd shares on JSE
Interest rate on alternative investments
2014
1 032 cents
9%
2013
1 060 cents
9%
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
95
Activity 1: Answer Book
1.1 1.1.1 SHARE CAPITAL
AUTHORISED SHARE CAPITAL
750 000 ordinary shares
ISSUED SHARE CAPITAL
Ordinary shares in issue on
1 March 2013
Ordinary shares issued during the
80 000
year
Ordinary shares re-purchased
(75 000)
(average price of _______)
Ordinary shares in issue on
________
28 February 2014
________
9
1.1.2 RETAINED INCOME
Balance on 1 March 2013
322 500
Ordinary share dividends
Balance on 28 February 2014
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
11
96
1.2 VIJAY LIMITED
BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON
28 FEBRUARY 2014
ASSETS
Non-current assets
Financial asset: Fixed deposit
650 000
Current assets
Inventories
275 400
Trade and other receivables
Cash and cash equivalents
336 600
TOTAL ASSETS
EQUITY AND LIABILITIES
Shareholders' equity
Non-current liabilities
Current liabilities
TOTAL EQUITY AND LIABILITIES
26
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
97
Activity 2: BALANCE SHEET AND AUDIT REPORT
(55 marks; 35 minutes)
You are presented with information from the records of Phasile Limited. The
financial year-end is 28 February 2017.
REQUIRED:
Prepare the Balance Sheet on 28 February 2017. (Where notes are not
required, show workings in brackets).
(45)
INFORMATION:
A.
List of balances extracted from the accounting records on 28 February 2017,
unless otherwise stated.
BALANCE SHEET ACCOUNTS SECTION
Ordinary share capital
Retained income
Loan from director
Fixed assets at carrying value (1 March 2016)
Trading stock
Debtors' Control
Provision for bad debts (1 March 2016)
Creditors’ Control
Bank – debit
Cash float
Fixed deposit: BNB Bank (R60 000 matures on 30 June
2017)
SARS: Income tax (provisional income tax payments)
B.
R
?
512 400
470 400
2 163 750
129 600
105 200
5 000
185 600
627 220
7 500
160 000
190 000
Details of Fixed assets
•
•
•
An old computer with a carrying value of R3 750 was sold.
Fixed assets totalling R350 000 were purchased.
Depreciation on fixed assets, R110 000.
C.
Share capital and dividends
• Phasile Ltd is authorised to sell 2 000 000 ordinary shares.
• 970 000 shares were in issue on 28 February 2017.
• Interim dividends paid on 31 August 2016, R160 000.
• A final dividend of 20 cents per share was declared on 28 February 2017.
D.
Loan from director
• The loan from director was originally received on 1 September 2015.
• The loan is to be repaid in equal monthly instalments over 5 years. The
first instalment was paid on 30 September 2015.
• Interest on loan is paid monthly and all payments are up to date. Interest is
not capitalised.
98
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
E.
Other information:
•
•
•
F.
Net profit and income tax
•
•
G.
Provision for bad debts must be increased by R 200.
Insurance included an annual premium of R8 640 paid for the period ended
30 June 2017.
The total of the Rent income account was R203 000 which includes the rent
for March and April 2017. Rent was increased by R1 800 per month from
1 October 2016.
After taking into account all relevant information, the net profit after tax was
accurately calculated to be R481 600.
The income tax rate is 30% of net income before tax.
Total capital employed amounted to R2 866 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
99
Activity 2: Answer Book
PHASILE LIMITED
BALANCE SHEET AS AT 28 FEBRUARY 2017
ASSETS
Non-current assets
Current assets
Inventories
129 600
TOTAL ASSETS
EQUITY AND LIABILITIES
Shareholders' equity
Non-current liabilities
Current liabilities
TOTAL EQUITY AND LIABILITIES
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
45
100
Activity 3: COMPANY FINANCIAL STATEMENTS: BALANCE SHEET
70 marks; 45 minutes)
CONCEPTS
REQUIRED:
3.1
Choose the correct word(s) from those given in brackets. Write only the
word(s) next to the question number (3.1.1–3.1.3) in the ANSWER BOOK.
3.1.1
In our opinion, the annual financial statements present fairly, in all
material respects, the financial position of Zolani Ltd. as at 29
February 2016.
(Qualified audit report/Unqualified audit report/Disclaimer report)
3.1.2
We have not been able to obtain sufficient audit evidence to
provide for an audit opinion. Accordingly, we cannot express an
opinion on the financial statements of Donald Ltd for the year
ended 29 February 2016.
(Qualified audit report/Unqualified audit report/ Disclaimer report)
3.1.3
(1)
In our opinion, except for the effect of the unauthorised interestfree loan to the Chief Operations Officer, the annual financial
statements present fairly, in all material respects, the financial
position of Van Rensburg Ltd.
(Qualified audit report/ Unqualified audit report/ Disclaimer report)
3.2
(1)
(1)
Kassie Ltd.
You are provided with information taken from the financial records of
Kassie Ltd. at the end of the financial year, 29 February 2016.
REQUIRED:
3.2.1
3.2.2
Prepare the following notes to financial statements on
29 February 2016:
A.
Share capital
(7)
B.
Retained Income
(9)
Prepare the Balance Sheet on 29 February 2016.
(Where applicable, show workings for part-marks)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(30)
101
3.2.3
3.2.4
3.2.5
3.2.6
Calculate the following financial indicators on 29 February 2016:
•
Net asset value per share
(3)
•
Percentage return on average shareholders' equity
(5)
From 2015 to 2016 the directors made a deliberate decision to change the
policy on the distribution of profits in the form of dividends. Explain this
change. Quote figures to support your answer.
(4)
The shareholders should be satisfied with the returns and earnings on their
shares. Quote and explain TWO financial indicators with figures to support
this opinion.
(4)
The company needs to raise funds by securing additional loans or issuing
new shares.
You are approached for advice. In providing advice, quote TWO relevant
financial indicators with figures to support your advice.
(5)
INFORMATION:
A.
Share Capital
• The company's authorised share capital consists of 1 000 000 ordinary shares.
• Six hundred thousand (600 000) of these shares were issued at 650 cents per
share by the end of the 2015 financial year.
• Seventy-five percent (75%) of the remaining shares were issued on 1 September
2015 at 800 cents a share.
thousand
(50
000)
shares
were
bought
back
on
• Fifty
31 January 2016 for 950 cents each.
B The following balances and totals were extracted from the records on 29 February
2016:
.
2016
Share capital
Retained income
Shareholders' equity
Fixed/Tangible assets
Fixed deposit: BB Bank (6% per annum)
Inventory
Trade and other receivables
Trade and other payables
Bank
SARS (Income tax)
(Dr)
Loan: CC Lenders (18% per annum)
Accrued expense
?
?
?
?
600 000
?
358 000
75 900
343 800
535 000
1 080 000
1 620
2015
3 900 000
850 000
4 750 000
5 944 000
?
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
102
Financial Indicators for the year ended 29 February 2016:
C
.
Debt/equity ratio
Dividends per share (DPS)
Earnings per share (EPS)
Current ratio
Acid test ratio
Net asset value per share
% return on average shareholders' equity
% return on total capital employed
Market share price
2016
0,18:1
70 cents
140 cents
1,5:1
?
?
?
27,2%
650 cents
2015
0,33:1
120 cents
120 cents
2,0:1
0,8:1
680 cents
15,2%
21,4%
600 cents
D Dividends
.
•
An interim dividend of 50 cents per share was paid on
31 August 2015.
•
A final dividend of 80 cents per share was recommended on
29 February 2016. Shares repurchased on 31 January 2016 do
not qualify for final dividends.
E.
Fixed Deposit
•
F.
G.
H.
I.
Interest on a fixed deposit is not capitalised and is calculated
at 6% p.a. and was earned for the first nine months only.
Outstanding interest must still be provided for.
•
30 % of the investment will mature on 30 November 2016. No
entry was made of this.
Loan from CC Lenders
•
The company successfully negotiated a loan from
CC Lenders on 1 March 2014. Interest is not capitalised.
•
The loan is repayable in five equal annual instalments at
the end of February each year. The February 2016
instalment has already been paid and recorded.
Debtors
•
A debtor's debit balance of R2 000 in the Debtors' Ledger
must still be transferred to his account in the Creditors'
Ledger.
Net profit before tax after the above mentioned information have
been taken into account amount to R1 700 000.
Other information:
•
Income tax equals 30% of the net profit.
•
The current ratio is 1,5 : 1.
70
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
103
Activity 3: Answer Book
3.1
Choose the correct word(s) from those given in brackets.
3.1.1
3.1.2
3
3.1.3
3.2.1 Notes to financial statements
3.2.1 (a)
SHARE CAPITAL
Authorized Share Capital
1 000 000
7
Ordinary shares
Issued Share Capital
600 000
Ordinary shares in issue at the beginning
of the year for 650 cents a share
3 900 000
(50 000)
3.2.1 (b)
RETAINED INCOME
Balance at the beginning of the year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
9
850 000
104
3.2
KASSIE LTD.
3.2.2 BALANCE SHEET ON 28 FEBRUARY 2016
ASSETS
NON-CURRENT ASSETS
Fixed assets
Fixed Deposit: BB Bank (600 000
CURRENT ASSETS
TOTAL ASSETS
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
NON-CURRENT LIABILITIES
Loan from CC Lenders (1 080 000
CURRENT LIABILITIES
TOTAL EQUITY AND LIABILITIES
30
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
105
3.2.3
Calculate the net asset value per share
3
Calculate the percentage return on average shareholders' equity.
5
3.2.4
From 2015 to 2016 the directors made a deliberate decision to
change the policy on the distribution of profits in the form of
dividends. Explain this change. Quote figures to support your
answer.
4
3.2.5
The shareholders should be satisfied with the returns and earnings
on their shares. Quote and explain TWO financial indicators with
figures to support this opinion.
4
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
106
3.2.6
The company needs to raise funds by securing additional loans or
issuing new shares.
You are approached for advice. In providing advice, quote TWO
relevant financial indicators with figures to support your advice.
5
70
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
107
Summative Assessment : CONCEPTS, BALANCE SHEET, AUDIT REPORT
FIXED ASSETS
(70 marks; 40 minutes)
2.1
AND
CONCEPTS
Choose ONE concept from the list provided for each example below. Write
only the concept next to the question number (2.1.1–2.1.4) in the
ANSWER BOOK.
Non-current liability, current liability, current asset, financial asset
2.2
2.1.1
A fixed deposit that matures at the end of 3 years period.
(1)
2.1.2
Consumable stores not used at the end of the financial year.
(1)
2.1.3
Amount due to SARS in respect of income tax.
(1)
2.1.4
Mortgage bond to finance the purchase of new property.
(1)
ALWAYS LIMITED
The information below relates to Always Ltd. for the financial year ended
28 February 2018.
REQUIRED:
2.2.1
Prepare the Retained Income note on 28 February 2018.
(10)
2.2.2
Prepare the Balance Sheet (Statement of Financial Position) on
28 February 2018. Show ALL workings.
(35)
INFORMATION:
A.
Balances extracted from the accounting records on 28 February
2018, unless otherwise stated.
R
Ordinary share capital
Retained income (20 February 2018)
Loan: Direct Lenders (See Information E.)
Fixed assets at carrying value (1 March 2017)
Fixed deposit: Gonow Bank
Trading stock
Creditors' control
Debtors' control
Provision for bad debts (1 March 2017)
Bank (favourable)
Accrued expenses (expenses payable)
Prepaid expenses
SARS: Income tax (provisional tax payments)
?
1 207 000
?
5 495 500
?
1 361 000
428 950
556 000
16 000
?
13 550
8 800
506 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
108
B.
C.
D.
E.
Share capital:
•
Always Ltd. is authorized to sell 3 000 000 ordinary shares.
•
1 500 000 shares were in issue on 1 March 2017, the beginning of the
financial year.
•
500 000 new shares were issued on 1 December 2017 at R3,00 per
share.
•
100 000 shares were repurchased on 20 February 2018 from a
shareholder who was relocating to another country at R1,10 above the
average price. This transaction was properly recorded.
Net profit before tax:
•
After taking into account all relevant information, the net profit before tax was
accurately calculated to be R1 900 000.
•
Income tax at the rate of 28% must still be brought into account.
Dividends:
•
An interim dividend of R420 000 was paid on 28 August 2017.
•
A final dividend of 44 cents per share was declared on
28 February 2018. All shares (including the shares repurchased on 20
February 2018) qualify for final dividends, which will be paid on
31 March 2018.
Loan: Direct Lenders
Balance on 1 March 2017
Repayment during the year (including interest)
259 500
Interest capitalised
223 500
Balance on 28 February 2018
•
F.
R 2 813 500
2 777 500
20% of the loan balance will be paid in the next financial year.
Provision for bad debts:
The provision for bad debts is maintained at 5% of the outstanding debtors.
G.
H.
Packing material to the value of R15 900 was on hand on
28 February 2018.
Fixed assets and depreciation:
No fixed assets were purchased or sold during the financial year.
Depreciation for the financial year ended 28 February 2018 was R275 000.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
109
I.
After all adjustments were taken into account on 28 February 2018 the
following ratio existed:
Debt-equity ratio
Current ratio
2.3
0,4: 1
2.1: 1
AUDIT REPORT
You are provided with an extract from the audit report of Nooitgedacht Ltd.
INFORMATION:
Extract from the audit report:
Audit Opinion
Because of the significance of the matter described above, we have not
been able to obtain sufficient audit evidence to provide a basis for an audit
opinion. Accordingly, we do not express an opinion on the financial
statements of Nooitgedacht Limited for the year ended 28 February 2018.
Promise Oliphant, Chartered Accountants (CA)
REQUIRED:
2.3.1
2.3.2
2.3.3
Choose the correct option indicated in brackets and provide a
reason for your choice. Nooitgedacht Ltd. received a/an
(qualified/unqualified/disclaimer of opinion) audit report.
(3)
Provide TWO possible consequences of this audit report on the
market price of the shares.
(4)
The managing director Billy Lindell, requested that his directors'
fees of R1,4 million be reflected under 'Salaries and wages' in the
Income Statement. As internal auditor, would you agree to his
request? Explain your answer.
(3)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
110
2.4
FIXED ASSETS
The following information relates to the fixed/tangible assets of MJV
Traders for the year ended 31 July 2017.
REQUIRED:
Calculate the amounts indicated by (i)–(iv). Show the workings.
(16)
INFORMATION:
A.
Information from the financial statements for the year ended
31 July 2017:
FIXED/TANGIBLE ASSETS
Carrying value on 1 August 2016
Cost price
Accumulated depreciation
Movement
Additions
Disposals at carrying value
Depreciation
Carrying value on 31 July 2017
Cost price
Accumulated depreciation
B.
Land and buildings
C.
Vehicles
LAND AND
BUILDINGS
VEHICLES
2 500 000
2 500 000
0
264 600
552 000
(287 400)
(iii)
900 000
(224 000)
0
0
0
(i)
0
0
3 200 000
3 200 000
0
EQUIPMENT
(iv)
(ii)
890 800
• Extensions to the buildings were done during the current financial year.
The business owns two vehicles. Details from the asset register is as
follows:
Cost
Accumulated depreciation on 1/8/2016
Carrying value on 1/8/2016
NISSAN
240 000
(225 000)
15 000
FORD
312 000
(62 400)
249 600
•
No vehicles were bought or sold during the year.
•
Depreciation is written off on vehicles at 25% p.a. on the cost price method.
D.
Equipment
A photocopier was sold for cash to Zibu Internet Shop on
30 April 2017. The photocopier was sold at a loss of R250 due to
damages. According to the Fixed Assets Register, the photocopier
was originally purchased for R9 200. Accumulated depreciation on
this item was R6 400 on 1 August 2016.
Depreciation on equipment is written off at 20% p.a. on the
diminishing balance method.
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
111
Summative Assessment 2: Answer Book
2.1
CONCEPTS
2.1.1
2.1.2
2.1.3
2.1.4
2.2.1
4
Retained Income
Balance at beginning of year
Ordinary share dividends
Interim
420 000
Final
Balance at end of year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
10
112
2.2.2
BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON
28 FEBRUARY 2018
ASSETS
NON-CURRENT ASSETS
Fixed assets
Fixed deposit: Gonow Bank
CURRENT ASSETS
TOTAL ASSETS
EQUITY AND LIABILITIES
ORDINARY SHAREHOLDERS' EQUITY
Ordinary share capital
NON-CURRENT LIABILITIES
CURRENT LIABILITIES
1 904 000
Trade and other payables
TOTAL EQUITY AND LIABILITIES
35
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
113
2.3.1
Nooitgedacht Ltd received a/an (qualified/unqualified/disclaimer
of opinion) audit report.
Choice :
Reason:
3
2.3.2
Provide TWO possible consequences of this audit report on the
market price of the shares.
4
2.3.3
The managing director Bibi Lindell, requested that his directors'
fees of R1,4 million be reflected under 'Salaries and wages' in the
Income Statement. As internal auditor, would you agree to his
request? Explain.
Would you agree?
Reason:
3
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
114
2.4
NO.
(i)
CALCULATIONS
AMOUNT
(ii)
(iii)
(iv)
16
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
115
TOPIC 5: Company Financial Statement: Cash Flow Statement
Worked Example
CASH FLOW STATEMENT
(31 marks; 20 minutes)
You are provided with information extracted from the records of Maxie Ltd for the
financial year ended 28 February 2015. When financial indicators are required to
support answers, you must provide the name of the financial indicator and the actual
figure, ratio or percentage.
REQUIRED:
1.1
Complete the note for Cash Generated from Operations for the year ended
28 February 2015.
(10)
1.2
Complete the Cash Flow Statement for the year ended 28 February 2015.
Some of the figures are entered in the ANSWER BOOK.
Where notes are not required, show ALL workings.
INFORMATION:
A.
Extract from the Income Statement for the year ended 28 February 2015
Depreciation
Interest expense
Income tax
Net profit after income tax
B.
(21)
R
178 000
52 000
93 520
240 480
Figures obtained from the Balance Sheet and notes on 28 February
Fixed assets (carrying value)
Financial assets (fixed deposit)
Current assets
Inventories
Trade debtors
SARS: Income tax
Cash and cash equivalents
Shareholders' equity
Ordinary share capital
Retained income
Non-current liabilities
Current liabilities
Trade creditors
Shareholders for dividends
SARS: Income tax
Bank overdraft
2015
R
2 568 730
150 000
413 600
194 600
214 000
5 000
2 392 480
2 016 000
376 480
500 000
239 850
124 800
96 000
6 300
12 750
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
2014
R
2 174 390
230 000
496 810
262 000
198 000
2 110
34 700
1 848 000
1 520 000
328000
800 000
253200
165 200
88 000
-
116
C.
Share capital
•
The business has an authorised share capital of 800 000 ordinary shares.
•
•
•
400 000 shares were issued before 28 February 2014.
On 1 March 2014 an additional 200 000 shares were issued at R5,00 each.
On 1 September 2014 the company repurchased 120 000 shares from a
dissatisfied shareholder at R4,50 each.
After the above transactions there were 480 000 shares in issue.
•
D.
Fixed assets
Extensions to the existing buildings were undertaken during July 2014.
There were no other movements of fixed assets during the financial year.
E.
Dividends
An interim dividend of R60 000 was paid on 30 September 2014.
The final dividend was declared on 28 February 2015.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
117
Worked Example: Solution
1.1
CASH GENERATED FROM OPERATIONS
Net profit before income tax (240 480 + 93 520)
334 000 
Depreciation
178 000
Interest expense
Operating profit before changes in working capital
1.2
52 000
564 000
Cash effects of changes in working capital
11 000 
Change in inventories (262 000 – 194 600)
67 400 
Change in receivables (214 000 – 198 000)
(16 000) 
Change in payables (165 200 – 124 800)
(40 400) 
Cash generated from operations
575 000 
10
MAXIE LTD
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015
CASH EFFECTS OF OPERATING ACTIVITIES
289 890 
Cash generated from operations
Interest paid
Income tax paid (93 520  – 2 110  – 6 300 )
575 000 
(52 000) 
Dividends paid (88 000  + 60 000 )
(85 110) 
(148 000) 
CASH EFFECTS OF INVESTING ACTIVITIES
(492 340) 
Purchase of fixed assets
(2 568 730  + 178 000  – 2 174 390 )
Investments matured (230 000 – 150 000)
(572 340) 
CASH EFFECTS OF FINANCING ACTIVITIES
80 000 
160 000
Proceeds of shares issued
1 000 000
Share repurchased
(540 000)
Repayment of loan
(300 000)
NET CHANGE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents (1 March 2014)
Cash and cash equivalents (28 February 2015)
(42 450) 
34 700 
(7 750) 
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
21
118
1.Reconciliation between profit before tax and cash generated from operations.
A) The information below was extracted from the books of Gadaffi Ltd. Study the
information and answer the questions that follow. The financial year ends on
28 February each year.
REQUIRED:
1. Complete the note to the Cash Flow Statement for reconciliation between profit
before taxation and cash generated from operations.
(10)
A.
Extract from the Income Statement:
28 February 2015
Sales
Depreciation
Interest expense
Net profit before tax
Income tax
B.
3 512 000
350 880
136 000
1 250 000
30%
Information extracted from the Balance Sheet:
28 February 2015
Tangible/ Fixed Assets (carrying
value)
Financial Assets (15%)
Inventories
Trade and other receivables (Note 1)
Cash and cash equivalent
Shareholders’ equity
Ordinary Share Capital
Retained income
Non-current liabilities
Trade and other payables (Note 2)
Bank overdraft
28 February 2014
4 399 040
3 290 000
400 000
170 460
226 000
4 500
3 509 660
2 710 000
799 660
1 000 000
690 340
550 000
570 000
340 000
4 260
2 608 160
2 100 000
508 160
1 500 000
364 000
282 100
Trade and other receivables:
28 February 2015
Trade debtors
SARS : Income tax
203 000
23 000
226 000
28 February 2014
340 000
340 000
Trade and other payables:
28 February 2015
Trade creditors
SARS: Income tax
Shareholders for dividends
28 February 2014
420 840
269 500
690 340
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
170 000
60 000
134 000
364 000
119
Answer Book
RECONCILIATION BETWEEN PROFIT BEFORE TAX AND CASH
GENERATE BY OPERATION
Net profit before tax
1 250 000
10
B) The following information relates to Hartenbos Ltd. The company has an Authorized
Share Capital of 1 500 000 ordinary shares, and the financial year ends on 31
October each year.
REQUIRED:
Prepare the following note to the Cash Flow Statement:
Cash generated from operating activities.
(15)
Extract from the Income Statement for the year ended
31 October 2016:
Depreciation
R156 800
Operating expenses
1 242 000
Operating income
1 021 200
Interest expense
46 000
Income tax
292 710
Net profit before tax
975 700
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
120
Extract from the Balance Sheet of Hartenbos Ltd. on 31 October 2016.
2016
2015
Fixed assets at carrying value
R1 734 190
R1 201 500
Current assets
376 000
325 400
Inventories
112 000
164 000
Trade and other receivables:
128 000
158 000
Trade debtors
SARS: Income tax
Expenses prepaid
119 800
8 200
102 000
56 000
Cash and cash equivalent
Shareholders’ equity
136 000
2 276 590
3 400
1 427 600
Ordinary Share Capital
Retained income
1 372 500
?
1 012 000
415 600
400 000
233 600
233 600
480 000
479 300
265 800
104 000
120 000
9 600
154 000
23 800
88 000
Long- term liabilities
Loan
Current liabilities
Trade and other payables:
Trade creditors
SARS: Income tax
Shareholders for dividends
Income received in advance
Bank overdraft
213 500
Answer Book
Prepare the following note to the Cash Flow Statement
Net profit before tax
975 700
Adjustment for :
Profit before changes in working capital
Changes in Working capital
15
Cash generated from operating activities
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
121
BASO48 LTD.
C) You are provided with information relating to Baso48 Ltd. for the financial year
ended 28 February 2017.
Complete the CASH GENERATED FROM OPERATIONS
NOTE on 28 February 2017.
(9)
INFORMATION EXTRACTED FROM THE INCOME STATEMENT ON 28 FEBRUARY
2017
Gross profit
Net profit after tax
Income tax
Depreciation
Interest expense
5 300 000
3 250 800
1 393 200
?
45 000
EXTRACT FROM THE BALANCE SHEET ON 28 FEBRUARY:
Assets
Non-current assets
Fixed assets
Fixed deposit
Current Assets
Inventories
Trade debtors
Accrued income
SARS (Income tax)
Cash and cash equivalents
Equity & Liabilities
Shareholders' equity
Share capital
Retained income
Non-current liabilities
Mortgage loan
Current liabilities
Trade and other payables
SARS (Income tax)
Shareholders for dividends
2017
2016
?
1 000 000
?
1 800 000
764 160
297 200
0
0
?
589 500
446 900
2 400
500 000
642 100
?
24 510 000
?
?
?
1 370 000
800 000
2 400 000
122 300
200 000
?
321 700
0
2 137 500
INVENTORIES
• No entries were made of defective goods amounting to
R4 560 returned to the supplier on 28 February 2017.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
122
Answer Book
CASH GENERATED FROM OPERATIONS
Gross operating profit before changes in working
capital
CHANGES IN WORKING CAPITAL
Change in inventory
6 127 160
(170 100)
9
D) Information is from the books of Booysendal Ltd, a public company listed on the
Johannesburg Securities Exchange (JSE). The financial year ends on 31 August
2017.
Prepare the following notes to the financial statements:
•
Reconciliation between profit before taxation and cash generated from
operations.
Extract from the Income Statement on 31 August 2017:
Sales
Directors remuneration
Audit fees
Depreciation
Interest expense
Income tax (28%)
(12)
R16 600 000
1 400 000
690 000
309 000
172 320
672 000
Extract from the Balance Sheets on 31 August 2017:
Fixed assets
Inventories
Trade and other receivables
Loan (interest capitalised)
Trade and other payables
2017
R
3 552 000
1 094 000
348 290
350 000
1 251 710
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
2016
R
2 532 000
1 462 000
364 680
750 000
1 462 000
123
NOTES TO THE FINANCIAL STATEMENTS
2017
2016
1. TRADE AND OTHER RECEIVABLES
Trade debtors
Income receivable/Accrued income
SARS (Income tax)
2. TRADE AND OTHER PAYABLES
333 000
15 290
0
311 000
12 680
41 000
Trade creditors
447 630
1 016 000
21 000
14 000
734 080
432 000
49 000
0
Deferred income/Income received in advance
Shareholders for dividends
SARS (Income tax)
Answer Book
NOTE 1 TO THE CASH FLOW STATEMENT
Reconciliation between profit before taxation and cash generated from
operations
Cash generated from operations
2 663 340
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
12
124
2.Operating Activities (Dividends & Taxation paid)
A) The following information relates to Hartenbos Ltd. The company has an Authorised
Share Capital of 1 500 000 ordinary shares, and the financial year ends on 31
October each year.
Calculate the amount that would appear on the Cash Flow Statement for:
Taxation paid
Dividends paid.
(4)
(4)
SHARE CAPITAL AND DIVIDENDS:
• The issued share capital on 1 November 2015 consisted of 460 000 shares
of R2,20 each.
• 160 000 Additional shares were issued on 1 November 2015 for R383 000.
• 10 000 shares were bought back from a shareholder on
31 October 2016 at a price of R0,25 above average price. These shares do
qualify for the final dividend.
•
Dividends paid:
Interim dividend paid on 31 May 2015
Extract from the Income Statement for the year
31 October 2016:
R72 000
ended
Depreciation
R156 800
Operating expenses
1 242 000
Operating income
1 021 200
Interest expense
46 000
Income tax
292 710
Net profit before tax
975 700
Extract from the Balance Sheet of Hartenbos Ltd. on 31 October 2016.
2016
2015
Trade and other receivables:
128 000
158 000
Trade debtors
SARS: Income tax
Trade and other payables:
Trade creditors
SARS: Income tax
Shareholders for dividends
119 800
8 200
233 600
104 000
120 000
102 000
265 800
154 000
23 800
88 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
125
Answer Book
Taxation Paid
Dividends Paid
B) The information provided below was taken from the books of Bergman Ltd., a public
company with an authorized share capital of 900 000 ordinary shares.
Calculate the following as they would appear in the Cash Flow Statement for the
year ended 28 February 2014. (Indicate whether it is an inflow or outflow.)
1.Dividends paid
(4)
2.Taxation paid
(4)
Trade and other receivables
Trade debtors
Accrued income
SARS (Income tax)
Mortgage loan (18% p.a.: TVM Bank)
Trade and other payables
Trade creditors
Income received in advance
SARS (Income tax)
Shareholders for dividends
2014
270 500
252 450
18 050
0
1 400 000
?
36 800
12 900
21 300
?
2013
112 200
96 400
0
15 800
920 000
509 300
48 300
10 000
0
451 000
Extract from the Income Statement for the year ended 28 February 2014.
Net profit before tax
Income tax
Net profit after tax
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
?
475 500
?
126
Shares and Share capital
•
•
•
The company’s authorised share capital consists of 900 000 ordinary
shares only.
A total of 600 000 was issued for R10 a share in 2010 while 40% of the
remaining shares were issued for R13 each on 1 September 2013.
Five percent (5%) of all shares previously issued at various times was
bought back for R15 each from the shareholders who left the company
on 28 February 2014.
Dividends
•
•
An interim dividend of 60 cents per share was paid on 30 June 2013.
A final dividend of 90 cents per share was recommended on
25 February 2014. The shares bought back will also qualify for the final
dividend.
Income Tax
Income tax is 30% of the net profit.
Answer Book
Taxation Paid
Dividends Paid
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
127
C) Calculate the following amounts to be used in the Cash Flow Statement:
Use brackets to indicate amounts that represent an outflow of cash.
•
•
A.
(4)
(4)
Dividends paid
Income tax paid
Extracts from the Income Statement on 30 June 2017:
R
1 048 000
314 400
Net profit before income tax
Income tax
B.
Extracts from the Balance Sheet on 30 June:
30 JUNE 2017
SARS: Income tax
Shareholders for dividends
C.
31 000 (Dr)
320 000
Share Capital:
The Authorised Share Capital comprises 1 200 000 shares.
1 July 2016
1 October 2016
31 March 2017
30 June 2017
D.
22 300 (Cr)
264 000
30 JUNE 2016
Issued share capital comprised 800 000 ordinary shares
Additional shares issued at R9,80 per share
120 000 shares repurchased at R10,00 per share
Closing balance comprised 880 000 ordinary shares
Dividends:
• Total dividends for the year amounted to R514 000.
• An interim dividend was paid on 1 December 2016 and a final dividend
was declared on 30 June 2017. Only shareholders on the share register
were entitled to dividends.
Answer Book
Taxation Paid
Dividends Paid
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
128
D) Calculate the following figures that will appear on the Cash Flow Statement:
•
•
(4)
(4)
Income tax paid
Dividends paid
Information extracted from the Income Statement on 30 June 2018:
Net profit before tax
Net profit after tax
1 500 000
1 050 000
Extract from the Balance Sheet on 30 June:
SARS : income tax
Shareholders for dividends
2018
Cr 12 400
?
2017
Dr 8 900
70 000
Shares:
• Authorized share capital is 2 000 000 ordinary shares.
• On 30 June 2017, 1 200 000 ordinary shares had been issued.
• On 1 January 2018, 40 000 shares were repurchased at R4.10. (These
shares do not qualify for final dividends.)
• On 30 June 2018, all shares that were un-issued as at 30 June 2017 were
issued.
Dividends:
• Interim dividends of 40 cents per share was declared and paid on
31 December 2017.
• Final dividend of 55 cents per share was declared.
Answer Book
Taxation Paid
Dividends Paid
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
129
E) You are provided with information relating to Snowhite Ltd. for the financial year
ended 31 March 2018. The business has an authorized share capital of 800 000
ordinary shares.
Calculate the following amounts that will appear in the Cash Flow Statement on 31
March 2018:
•
•
(3)
(4)
Dividends paid
Tax paid
Extract from the Income Statement for the year ended 31 March 2018:
Income tax
Net profit after income tax
125 000
500 480
Extract from the Balance Sheet on 31 March:
SARS: Income tax
Shareholders for dividends
SARS: Income tax
Share Capital:
DATE
31 March 2017
1 April 2017
1 October 2017
31 March 2018
2018
R
10 000
156 000
-
2017
R
113 000
12 000
DETAILS
50% of the authorised shares were issued
Additional 200 000 shares were issued at R6,05 each
120 000 shares at R1,15 above the average share price
480 000 shares in issue
Dividends for the financial year:
Interim dividends was paid on 30 October 2017
Final dividends declared on 31 March 2018
R84 000
156 000
Answer Book
Taxation Paid
Dividends Paid
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
130
3. Investing Activities (Fixed Assets Purchased and Sold)
A) The following information relates to Hartenbos Ltd. The company has an Authorized
Share Capital of 1 500 000 ordinary shares, and the financial year ends on 31
October each year.
Calculate the amount of fixed assets sold.
FIXED ASSETS :
Equipment was disposed at carrying value during the year.
New fixed assets were purchased for R720 000 during the year.
Extract from the Income Statement for the year ended
31 October 2016:
Depreciation
R156 800
Extract from the Balance Sheet of Hartenbos Ltd. on 31 October 2016.
2016
2015
Fixed assets at carrying value
R1 734 190
R1 201 500
Answer Book
B) You are provided with information relating to Phumlani LTD for the financial year
ended 30 June 2018.
Calculate the figure of fixed assets purchased that will appear on the Cash Flow
Statement:
Information extracted from the Income Statement on 30 June 2018:
Depreciation
180 000
Extract from the Balance Sheet on 30 June:
Fixed assets (at carrying value)
2018
3 350 000
2017
2 000 000
Fixed assets:
• Fixed assets were sold for cash at a carrying value of R200 000 during the financial
year. Fixed assets were also purchased during the financial year.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
131
Answer Book
C) You are provided with information about Vooma Limited for the past two financial
years ended 30 June. The company is situated in KZN and trades in racing bikes.
Calculate the following figures that will appear in the 2018 Cash Flow Statement:
Fixed assets sold (at carrying value)
(5)
FIGURES IDENTIFIED FROM INCOME STATEMENT:
2018
Depreciation
2017
412 000
275 000
EXTRACT FROM BALANCE SHEET ON 30 JUNE:
2018
Fixed assets (carrying value)
2017
R12 154 000
R8 031 000
CASH FLOW STATEMENT:
2018
2017
Cash flows from investing activities
Purchases of land and buildings
Sale of fixed assets
(4 840 000)
0
?
383 000
Answer Book
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
132
D) You are provided with information relating to Phumlani LTD for the financial year
ended 30 June 2018.
Calculate the following figures that will appear on the Cash Flow Statement:
(5)
• Purchases of fixed/tangible assets
Information extracted from the Income Statement on 30 June 2018:
Depreciation
180 000
Extract from the Balance Sheet on 30 June:
Fixed assets (at carrying value)
2018
3 350 000
2017
2 000 000
Fixed assets:
• Fixed assets were sold for cash at a carrying value of R200 000 during the financial
year. Fixed assets were also purchased during the financial year.
Answer Book
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
133
4. Financing Activities
A) Mika Limited provided you with extracts from their financial statements for the year
ended 29 February 2016, together with comparative figures for 2015.
Prepare the section of Cash Flow Statement showing the cash effects on financing
activities for the year ended 29 February 2016.
(9)
Extract from the financial statements:
Financial Assets (Fixed Deposits)
Ordinary Share Capital
Non-current Liabilities
ADDITIONAL INFORMATION:
29 Feb 2016
931 800
4 800 000
260 000
28 Feb 2015
1 006 000
3 200 000
1 880 000
•
320 000 shares were in issue at the beginning of the financial year.
•
On 1 April 2015 the company’s board of directors authorised the
buy-back of 20 000 shares from an unhappy shareholder. A repurchase
price was set at R17,00 per share. An electronic transfer of funds was
made to the shareholder.
•
150 000 new shares were issued on 1 September 2015.
Answer Book
Prepare the section of the cash effects on financing activities of the Cash
Flow Statement for the year ended 29 February 2016
CASH FLOW FROM FINANCING ACTIVITIES
9
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
134
B)The information below relates to Senzo Ltd.
Complete the section of the Cash Flow Statement for cash effects of financing
activities.
(12)
Figures from the Balance Sheet and notes:
Financial assets (fixed deposit)
Ordinary share capital
Non-current liabilities
28 FEBRUARY
2015
350 000
2 967 000
1 200 000
28 FEBRUARY
2014
600 000
2 520 000
500 000
Share capital:
•
•
•
•
Authorised share capital consists of 800 000 ordinary shares.
150 000 new ordinary shares were issued on 1 October 2014.
60 000 ordinary shares were repurchased on 1 January 2015 at 90 cents above the
average issue price of R4,30.
On 28 February 2015 the share register reflected that a total of 690 000 shares had
been issued to date.
Answer Book
CASH EFFECTS OF FINANCING ACTIVITIES
12
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
135
C)MAFUSA LTD
The information presented relates to the financial year ended 30 April 2016.
Complete the section on FINANCING ACTIVITIES in the Cash Flow Statement.
(7)
Information extracted from the Balance Sheet on 30 April 2016:
2016
(R)
200 000
6 660 000
1 800 000
Fixed deposit
Ordinary share capital
Non-current liabilities
2015
(R)
520 000
5 600 000
2 750 000
Share capital and dividends:
The business is registered with an authorized share capital of
1 200 000 ordinary shares.
1 May 2015
1 February 2016
25 April 2016
30 April 2016
The issued share capital consisted of 800 000
ordinary shares.
200 000 ordinary shares were issued at R8,00 per
share.
75 000 ordinary shares were repurchased from a
retired shareholder at a total cost of R600 000.
There were 925 000 shares in issue.
Answer Book
CASH FLOW FROM FINANCING ACTIVITIES
7
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
136
TOPIC 6 : Analysis and Interpretation of financial statements
Key Concepts/Terminology
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
137
Formulae
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
138
Activity 1
A) Liquidity
1. Comment on the liquidity position of the company. Quote THREE relevant financial
indicators (actual figures/ratios/percentages) and their trends.
INFORMATION
Financial indicators:
Debt-equity ratio
Net asset value per share (NAV)
Current ratio
Acid-test ratio
Stock turnover rate
Debtors' collection period
% return on average capital
employed
28 Feb.
2014
?
?
1,6 : 1
1,2 : 1
6,8 times
p.a.
40 days
28 Feb. 2013
0,1 : 1
617 cents
3,6 : 1
3,1 : 1
5,1 times p.a.
18,8%
16,4%
35 days
Answer Book
1.
Comment on the liquidity position of the company. Quote THREE
relevant financial indicators (actual figures/ratios/percentages)
and their trends.
Financial indicator 1 and trend:
Financial indicator 2 and trend:
Financial indicator 3 and trend:
General comment:
9
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
139
2.
FINANCIAL INDICATORS OF TWO COMPANIES
Your friend, James, wants to buy shares in a company which sells running
shoes. He asks you for advice and presents you with the following financial
indicators of two companies he is considering. Both companies have the
same number of shares.
KWELA LTD
POMI LTD
Market price per share on the JSE
750 cents
885 cents
Net asset value per share
609 cents
939 cents
Earnings per share
410 cents
176 cents
Dividends per share
240 cents
185 cents
% return on shareholders' equity
21,3%
11,2%
% return on total capital employed
32,6%
13,6%
% interest rate on loans
15,0%
15,0%
Debt/Equity ratio
0,3 : 1
2,0 : 1
Current ratio
6,0 : 1
1,5 : 1
Acid-test ratio
2,8 : 1
0,9 : 1
Period for which stock is on hand
150 days
88 days
Average debtors' collection period
53 days
25 days
REQUIRED:
Explain your answers to the following question. In each case compare and
quote financial indicators of both companies (actual figures, ratios or
percentages) to support your answer.
James is of the opinion that Pomi Ltd is handling its working capital
more effectively and is in a better liquidity situation than Kwela Ltd.
Explain and quote THREE financial indicators to support his
opinion.
(9)
Answer Book
2.
James is of the opinion that Pomi Ltd is handling its working capital
more effectively and is in a better liquidity situation than Kwela Ltd.
Explain and quote THREE financial indicators to support his opinion.
9
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
140
3.
In answering the following two questions, quote financial indicators in your
explanations:
•
•
Is there an improvement in the company’s ability to settle its short-term
debts? Explain.
Suggest TWO strategies the company could use to improve its cash flow
other than raising capital or loans.
(3)
(4)
FINANCIAL INDICATORS
28 Feb 2018
79,6%
28 Feb 2017
58.3%
24,9%
23,8%
Current ratio
0,6:1
1,4:1
Acid-test ratio
0,33:1
0,5:1
Stock holding period
73 days
91 days
Stock turnover rate
5 times
4 times
Debtors collection period
47,2 days
30,8 days
Earnings per share (EPS)
208 cents
214 cents
Dividend per share (DPS)
96 cents
52 cents
Return on shareholders’ equity (ROSHE)
?
21%
Return on Capital Employed (ROTCE)
?
24,3%
Debt / equity ratio
?
0,6:1
Net asset value per share (NAV)
?
745 cents
950 cents
850 cents
15%
15%
% Gross profit on sales
Net profit after tax on turnover
Market price of shares on the JSE
Interest on loan (rate)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
141
Answer Book
In answering the following two questions, quote financial indicators in
your explanations.
Is there an improvement in the company’s ability to settle its short-term
debts? Explain.
RATIO AND FIGURES
▪
COMMENT
Suggest TWO strategies the company could use to improve its cash flow
other than raising capital or loans.
•
•
4.
Refer to Information.
The directors are not satisfied with the liquidity position. Quote and explain
THREE relevant financial indicators (with figures) to support this statement.
(6)
Financial Indicators on 28 February:
Net profit after tax on sales
Current ratio
Debtors' collection period
Creditors' payment period
Acid-test ratio
Rate of stock turnover
Return on shareholders' equity
Return on total capital employed
Debt-equity ratio
Interest rate on loans
Net asset value per share
Market value per share
2016
31,9%
3,3 : 1
36 days
45 days
1,7 : 1
3 times
?
24,2%
?
10,5%
?
505 cents
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
2015
24,5%
1,8 : 1
28 days
80 days
1,2 : 1
5times
17,5%
21,2%
0,09 : 1
10,5%
362 cents
480 cents
142
Answer Book
4.
The directors are not satisfied with the liquidity position. Quote and
explain THREE relevant financial indicators (with figures) to support
this statement.
6
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
143
Activity 2 Financial Risk Gearing
1. Explain how the sale of new shares affected the risk and financial gearing of the
company. Quote TWO financial indicators.
A
(5)
SHARE CAPITAL
• 700 000 shares were in issue on 1 March 2017.
• On 31 March 2017, 60 000 shares were repurchased from
the estate of a deceased shareholder at R9,00 each.
• On 1 August 2017, 200 000 shares were issued at R7,00 each.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
144
B
FINANCIAL INDICATORS
28 Feb 2018
79,6%
28 Feb 2017
58.3%
24,9%
23,8%
Current ratio
0,6:1
1,4:1
Acid-test ratio
0,33:1
0,5:1
Stock holding period
73 days
91 days
Stock turnover rate
5 times
4 times
Debtors collection period
47,2 days
30,8 days
Earnings per share (EPS)
208 cents
214 cents
Dividend per share (DPS)
96 cents
52 cents
% Gross profit on sales
Net profit after tax on turnover
Return on shareholders’ equity (ROSHE)
Return on Capital Employed (ROTCE)
21%
32.2%
24,3%
0.3:1
0,6:1
Net asset value per share (NAV)
836 cents
745 cents
Market price of shares on the JSE
950 cents
850 cents
15%
15%
Debt / equity ratio
Interest on loan (rate)
Answer Book
Explain how the sale of new shares affected towards the risk and
financial gearing of the company. Quote TWO financial indicators.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
145
2.
One of the directors is of the opinion that the company should make more use of
loans. Comment on the degree of risk and gearing. Quote financial indicators
with figures.
(6)
The following financial indicators were calculated on 28 February:
Earnings per share
Dividends per share
Return on average capital employed
Return on average shareholders’equity
Net asset value per share
Interest rate on borrowed funds
Interest rate on investments
Debt-Equity ratio
2017
?
114 cents
43,6%
38,4%
?
15%
8%
?
2016
157 cents
104 cents
46,9%
55%
581 cents
15%
8%
1,2:1
ANSWER BOOK
One of the directors is of the opinion that the company should make
more use of loans. Comment on the degree of risk and gearing. Quote
financial indicators with figures.
6
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
146
3.The directors are proposing that the business operations be expanded in the new
financial year. One of the directors suggested that they finance the expansions by
taking a loan of R1 000 000, instead of issuing new shares to the public. Quote and
explain TWO financial indicators to support his opinion.
Financial indicators for the past two financial years:
31 October 2014
Current ratio
3,10 : 1
Acid-test ratio
2,3:1
Earnings per share
130 cents
Dividends per share
110 cents
Return on average shareholders' equity
23%
Debt-equity ratio
0,5:1
Return on average capital employed
26%
Net asset value per share
593 cents
Prices of Classico Ltd shares on the JSE
950 cents
Interest on fixed deposit
5,5%
Interest rate on loans
12%
(6)
31 October 2013
2,23 : 1
0,92 : 1
94 cents
75 cents
15%
0,34 : 1
18%
571 cents
725 cents
5,5%
12%
Answer Book
The directors are proposing that the business operations be expanded in
the new financial year. One of the directors suggested that they finance
the expansions by taking a loan of R1 000 000, instead of issuing new
shares to the public. Quote and explain TWO financial indicators to
support his opinion.
6
4.
The companies have made different decisions regarding the use of loans.
Comment on the degree of risk and financial gearing. Give ONE financial
indicator in EACH case for EACH company.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(7)
147
INFORMATION:
The following financial indicators/other information is from the records of
Grayson Ltd and Joni Ltd on 31 March 2016, the financial year-end:
Current ratio
Acid-test ratio
Stock-holding period
Return on average shareholders' equity
(ROSHE)
Debt-equity ratio
Return on average total capital employed
(ROTCE)
Earnings per share (EPS)
Dividends per share (DPS)
Net asset value per share (NAV)
Market price per share on the JSE
Interest rate on loans
Interest rate on fixed deposits
Percentage dividend pay-out
GRAYSON
LTD
1,65 : 1
1,20 : 1
38 days
JONI
LTD
4,40 : 1
0,85 : 1
184 days
16,1%
8,9%
0,85 : 1
0,1 : 1
27%
4%
540 cents
528 cents
1 200 cents
875 cents
14%
8%
98%
730 cents
292 cents
425 cents
763 cents
14%
8%
40%
ANSWER BOOK
4.
The companies have made different decisions regarding the use of
loans. Comment on the degree of risk and financial gearing. Give ONE
financial indicator in EACH case for EACH company.
DEGREE OF RISK
Financial indicator:
FINANCIAL GEARING
Financial indicator:
Financial indicator:
Financial indicator:
Grayson Ltd
Joni Ltd
Comment
7
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
148
Activity 3: Returns
1.
a) Calculate the return on average shareholders' equity for 2014.
(5)
b) Comment on whether the shareholders should be satisfied with the percentage
return and the market price of their shares. Quote TWO relevant financial indicators
(actual figures/ratios/percentages) and their trends. Give an additional comment in
each case.
(6)
A.
The authorised share capital consists of 750 000 ordinary shares.
On 1 March 2013, only 60% of the shares were in issue.
B.
The following amounts were extracted from the records:
28 Feb. 2014
Ordinary share capital
3 412 500
Retained income
435 700
Total ordinary shareholders' equity
?
Fixed assets (carrying value)
?
Fixed deposit: Sam Bank
650 000
Loan: William Bank
482 600
Inventories
275 400
Debtors' Control
243 500
Creditors' Control
62 460
Cash in the bank and petty cash
336 600
Income received in advance (Rent)
12 120
Prepaid expenses (Insurance)
7 600
Provisional income tax payments
299 980
Interim dividends
270 000
28 Feb. 2013
3 215 000
322 500
3 537 500
The net profit before tax was calculated to be R1 161 000. The income tax is calculated at
30% of net income before tax.
Answer Book
Calculate the return on average shareholders' equity for 2014.
5
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
149
Comment on whether the shareholders should be satisfied with the
percentage return and the market price of their shares. Quote TWO
relevant financial indicators (actual figures/ratios/percentages) and their
trends. Give an additional comment in each case.
6
2.
2.1
Calculate the following financial indicators on 30 June 2016:
•
•
•
•
2.2
2.3
The liquidity of the company has improved. Quote THREE financial
indicators to support this statement.
(4)
(3)
(5)
(3)
(6)
Dividend policy:
•
•
2.4
Acid-test ratio
Debt-equity ratio
% return on average shareholder's equity (ROSHE)
Net asset value per share (NAV)
Provide calculations to show the change in the dividend pay-out policy.
Explain why the directors decided to change the policy. State ONE
point with figures.
(4)
(2)
Mary is the CEO of the company. Her shareholding is as follows:
NUMBER OF
SHARES
420 000
DATE
PURCHASED
10 January 2015
%
SHAREHOLDING
46,7%
(a) Calculate Mary's % shareholding on 1 October 2015 after the
repurchase of shares.
(4)
(b) Explain how Mary has benefitted from the decision to
repurchase the shares.
(2)
(c)
The independent auditor discovered that Mary had made the
decision to repurchase the shares without informing the board of
directors.
Why should the independent auditor be concerned about this?
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(2)
150
INFORMATION:
A.
B.
Share capital and dividends:
•
900 000 shares were in issue on 1 July 2015.
•
75 000 ordinary shares were repurchased from the estate of a deceased
shareholder at R10,70 per share on 1 October 2015.
•
The company issued 125 000 ordinary shares at R10,80 per share on 1 April
2016.
•
The 2016 Cash Flow Statement reflected dividends paid of R434 250.
Extract from Income Statement for the year ended 30 June 2016:
R
Sales
Cost of sales
Operating profit
Income tax
Net profit after tax
C.
5 220 000
3 600 000
1 295 000
190 500
444 500
Extract from Balance Sheet on 30 June:
Fixed assets (carrying value)
Fixed deposit: Ken Bank
Current assets
Inventories (only trading stock)
Trade and other receivables (debtors)
Cash and cash equivalents
Shareholders' equity
Ordinary share capital
Retained income
Loan: Barbie Bank
Current liabilities
Trade and other payables
Shareholders for dividends
SARS: Income tax
Bank overdraft
2016
R
2015
R
17 420 950
250 000
1 015 000
564 000
246 000
205 000
10 050 750
?
?
8 000 000
635 200
420 000
209 000
6 200
-
14 683 300
380 000
456 000
281 500
167 000
7 500
9 540 000
9 180 000
360 000
4 500 000
1 479 300
683 400
162 000
23 400
610 500
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
151
D.
The following financial indicators were calculated on 30 June:
Current ratio
Acid-test ratio
Stock turnover rate
Debtors' collection period
Creditors' payment period
Solvency ratio
Debt-equity ratio
Return on total capital employed
(ROTCE)
Return on shareholders' equity (ROSHE)
Earnings per share (EPS)
Dividends per share (DPS)
Net asset value per share (NAV)
Market price
Interest rate on loans
2016
2015
1,6 : 1
?
8,5 times
36 days
63 days
2,2 : 1
?
0,3 : 1
0,1 : 1
10 times
43 days
63 days
2,6 : 1
0,5 : 1
8,2%
9,5%
?
51 cents
55 cents
?
1 000 cents
12%
6,2%
58 cents
35 cents
1 060 cents
1 030 cents
12%
Answer Book
2.1
Calculate the acid-test ratio on 30 June 2016.
4
Calculate the debt-equity ratio on 30 June 2016.
3
Calculate the % return on average shareholders' equity (ROSHE) for the
year ended 30 June 2016.
5
Calculate the net asset value per share (NAV) on 30 June 2016.
3
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
152
2.2
The liquidity of the company has improved. Quote THREE financial
indicators to support this statement. Provide figures and trends.
6
2.3
Provide calculations to show the change in the dividend pay-out policy.
4
Explain why the directors decided to change the policy. State ONE point
with figures.
2
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
153
2.4
(a) Calculate Mary's % shareholding on 1 October 2015 after the
repurchase of shares.
4
(b) Explain how Mary has benefitted from the decision to repurchase
the shares.
2
(c) The independent auditor discovered that Mary had made the
decision to repurchase the shares without informing the board of
directors. Why should the independent auditor be concerned about
this?
2
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
154
Summative Assessment
1
MAFUSA LTD
The information presented relates to the financial year ended 30 April 2016.
NOTE:
When financial indicators are required to support answers, you have to
give the name of the financial indicator and the actual figure, ratio
or percentage.
REQUIRED:
1.1
1.2
1.3
1.4
1.5
Calculate the following financial indicators on 30 April 2016:
• Return on average shareholders' equity
(5)
•
(3)
Net asset value
Comment on the overall liquidity position of the company. Quote THREE
relevant financial indicators (with figures).
The directors decided to change the dividend pay-out policy in 2016.
•
Provide calculations that indicate the policy change.
(4)
•
Explain the effect of this change of policy on the company.
State TWO points.
(4)
One of the directors feels that the company should pay back the loan as
soon as possible. What are your views about this? Quote and explain
TWO relevant financial indicators with figures.
(6)
Explain why the shareholders are satisfied with:
•
The market price of the shares on the JSE
(2)
•
The price at which the 75 000 shares were repurchased on
25 April 2016
(2)
In EACH case, quote figures/financial indicators.
INFORMATION:
A.
(8)
Information extracted from the Income Statement on 30 April 2016:
Operating profit
Interest expense
Net profit before income tax
Net profit after income tax
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
R
1 590 000
300 000
1 279 000
895 300
155
B.
Information extracted from the Balance Sheet on 30 April 2016:
Fixed deposit
Current assets
(including cash and cash equivalents)
Cash and cash equivalents
Shareholders' equity
Ordinary share capital
Retained income
Non-current liabilities
Current liabilities
Trade and other payables
Bank overdraft
Shareholders for dividends
SARS: Income tax
C.
2016
(R)
200 000
2015
(R)
520 000
946 550
887 250
125 750
7 166 850
6 660 000
506 850
1 800 000
526 750
285 600
0
231 250
9 900
54 750
6 142 800
5 600 000
542 800
2 750 000
509 500
232 800
92 000
176 000
8 700
Share capital and dividends:
The business is registered with an authorized share capital of 1 200 000
ordinary shares.
1 May 2015
The issued share capital consisted of 800 000
ordinary shares.
1 February 2016 200 000 ordinary shares were issued at R8,00 per
share.
25 April 2016
75 000 ordinary shares were repurchased from a
retired shareholder at a total cost of R600 000.
30 April 2016
There were 925 000 shares in issue.
D.
Total dividends for the financial year amounted to R871 250.
The following financial indicators were calculated on 30 April:
Current ratio
Acid-test ratio
Stock-holding period
Debtors' collection period
Creditors' payment period
Debt-equity ratio
Return on capital employed
Return on shareholder's equity
Earnings per share
Dividends per share
Net asset value per share
Market price per share (JSE)
Repurchase price per share
Interest rate of loan
2016
1,8 : 1
0,9 : 1
52 days
47 days
30 days
0,3 : 1
11%
?
107 cents
105 cents
?
960 cents
800 cents
14%
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
2015
1,7 : 1
1,3 : 1
68 days
30 days
30 days
0,4 : 1
13%
14,5%
112 cents
40 cents
768 cents
777 cents
13%
156
Answer Book
1.1
Calculate the return on average shareholders' equity.
5
Calculate the net asset value.
3
1.2
Comment on the overall liquidity position of the company. Quote
THREE relevant financial indicators (with figures).
8
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
157
1.3
The directors decided to change the dividend pay-out policy in 2016.
Provide calculations that indicate the policy change.
4
Explain the effect of this change of policy on the company. State TWO
points.
4
1.4
One of the directors feels that the company should pay back the loan
as soon as possible. What are your views about this? Quote and
explain TWO relevant financial indicators with figures.
6
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
158
1.5
Explain why the shareholders are satisfied with the market price of the
shares on the JSE (Quote figures/financial indicators.)
2
Explain why the shareholders are satisfied with the price at which the
75 000 shares were repurchased on 25 April 2016 (Quote figures/
financial indicators.)
2
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
159
LEARNER/TEACHER MANUAL
TOPIC:7 Cash Flow Statement
Activity 1: CASH FLOW STATEMENT AND INTERPRETATION
(75 marks; 45 minutes)
1.1
Choose a term from COLUMN B that matches the description in COLUMN
A. Write only the letter (A–D) next to the question number (1.1.1–1.1.4) in
the ANSWER BOOK, for example 1.1.5 E.
1.1.1
1.1.2
1.1.3
COLUMN A
Ability of the business to pay off all A
its debts
B
Ability of the business to pay off its
C
short-term debts
The benefit that shareholders
receive for investing in the
company
D
COLUMN B
gearing
return on equity
solvency
liquidity
1.1.4
The extent to which a company is
financed by loans
(4 x 1)
1.2
(4)
REID LTD
You are provided with information relating to Reid Ltd for the financial year
ended 30 June 2016.
Where financial indicators are required to support your answer, name
the financial indicator, the actual figure/ratio/percentage and trends.
REQUIRED:
1.2.1
Prepare the following notes to the Balance Sheet:
•
•
1.2.2
1.2.3
1.2.4
Ordinary share capital
Retained income
(7)
(9)
Calculate the following amounts for the Cash Flow Statement:
• Change in loan
• Income tax paid
Complete the extract from the Cash Flow Statement for cash and
cash equivalents.
Calculate the following financial indicators on 30 June 2016:
• Acid-test ratio
• Debt-equity ratio
• % return on average shareholder's equity (ROSHE)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(2)
(4)
(4)
(4)
(3)
(5)
160
•
1.2.5
(3)
Net asset value per share (NAV)
The liquidity of the company has improved. Quote THREE financial
indicators to support this statement.
1.2.6
(6)
Dividend policy:
•
•
1.2.7
Provide calculations to show the change in the dividend pay-out policy.
Explain why the directors decided to change the policy. State ONE point
with figures.
(4)
(2)
Mary is the CEO of the company. Her shareholding is as follows:
NUMBER OF
SHARES
420 000
DATE
PURCHASED
10 January 2015
%
SHAREHOLDING
46,7%
(a) Calculate Mary's % shareholding on 1 October 2015 after the
repurchase of shares.
(4)
(b) Explain how Mary has benefitted from the decision to repurchase
the shares.
(2)
(c)
The independent auditor discovered that Mary had made the
decision to repurchase the shares without informing the board of
directors.
Why should the independent auditor be concerned about this?
1.2.8
(2)
The Cash Flow Statement reflected fixed assets purchased to the
amount of R4,5 million.
•
•
Name TWO major sources of funding for these fixed assets with figures
(over R1 000 000 each).
State for EACH source whether it was a good or bad decision. Explain
your choice. Quote relevant financial indicators/figures to support your
opinion.
(4)
(6)
INFORMATION:
A.
Share capital and dividends:
•
900 000 shares were in issue on 1 July 2015.
•
75 000 ordinary shares were repurchased from the estate of a deceased
shareholder at R10,70 per share on 1 October 2015.
•
The company issued 125 000 ordinary shares at R10,80 per share on
1 April 2016.
•
The 2016 Cash Flow Statement reflected dividends paid of R434 250.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
161
B.
Extract from Income Statement for the year ended 30 June 2016:
R
Sales
Cost of sales
Operating profit
Income tax
Net profit after tax
C.
Extract from Balance Sheet on 30 June:
Fixed assets (carrying value)
Fixed deposit: Ken Bank
Current assets
Inventories (only trading stock)
Trade and other receivables (debtors)
Cash and cash equivalents
Shareholders' equity
Ordinary share capital
Retained income
Loan: Barbie Bank
Current liabilities
Trade and other payables
Shareholders for dividends
SARS: Income tax
Bank overdraft
D.
5 220 000
3 600 000
1 295 000
190 500
444 500
2016
R
2015
R
17 420 950
250 000
1 015 000
564 000
246 000
205 000
10 050 750
?
?
8 000 000
635 200
420 000
209 000
6 200
-
14 683 300
380 000
456 000
281 500
167 000
7 500
9 540 000
9 180 000
360 000
4 500 000
1 479 300
683 400
162 000
23 400
610 500
The following financial indicators were calculated on 30 June:
Current ratio
Acid-test ratio
Stock turnover rate
Debtors' collection period
Creditors' payment period
Solvency ratio
Debt-equity ratio
Return on total capital employed
(ROTCE)
Return on shareholders' equity
(ROSHE)
Earnings per share (EPS)
Dividends per share (DPS)
Net asset value per share (NAV)
Market price
Interest rate on loans
2016
2015
1,6 : 1
?
8,5 times
36 days
63 days
2,2 : 1
?
0,3 : 1
0,1 : 1
10 times
43 days
63 days
2,6 : 1
0,5 : 1
8,2%
9,5%
?
6,2%
51 cents
55 cents
?
1 000 cents
12%
58 cents
35 cents
1 060 cents
1 030 cents
12%
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
162
Activity 1
1.1
1.1.1
1.1.2
1.1.3
1.1.4
1.2.1
4
ORDINARY SHARE CAPITAL:
AUTHORISED SHARE CAPITAL
1 500 000 ordinary shares
ISSUED SHARE CAPITAL
900 000 Ordinary shares on 1 July 2015
9 180 000
7
RETAINED INCOME:
Balance on 1 July 2015
360 000
Net profit after tax
444 500
Balance on 30 June 2016
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
9
163
1.2.2
Calculate the change in loan for the Cash Flow Statement.
2
Calculate the income tax paid for the Cash Flow Statement.
4
1.2.3
Net change in cash and cash equivalents
4
1.2.4
Calculate the acid-test ratio on 30 June 2016.
4
Calculate the debt-equity ratio on 30 June 2016.
3
Calculate the % return on average shareholders' equity (ROSHE) for the
year ended 30 June 2016.
5
Calculate the net asset value per share (NAV) on 30 June 2016.
3
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
164
1.2.5
The liquidity of the company has improved. Quote THREE financial
indicators to support this statement. Provide figures and trends.
6
1.2.6
Provide calculations to show the change in the dividend pay-out policy.
4
Explain why the directors decided to change the policy. State ONE point
with figures.
2
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
165
1.2.7
(a) Calculate Mary's % shareholding on 1 October 2015 after the
repurchase of shares.
4
(b) Explain how Mary has benefitted from the decision to repurchase
the shares.
2
(c) The independent auditor discovered that Mary had made the
decision to repurchase the shares without informing the board of
directors. Why should the independent auditor be concerned about
this?
2
1.2.8
The Cash Flow Statement reflected fixed assets purchased to the
amount of R4,5 million.
Major sources of
funding with figures
(over R1 000 000 each)
Good/Bad
decision
Explanation with
financial indicators/figure
Source 1:
Source 2:
10
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
166
Activity 2: CASH FLOW STATEMENT AND INTERPRETATION
(65 marks; 35 minutes)
2.1 Match the terms/concepts in Column A with an appropriate description from
Column B. Write only the letter (A – E) next to the numbers in the ANSWER
BOOK.
COLUMN A
2.1.1 Solvency
2.1.2 Gearing
2.1.3 Liquidity
2.1.4 Profitability
A
COLUMN B
The operating efficiency of the business.
D
The ability of the business to meet it’s short
term obligations (debts).
The extent to which the business is making
use of loans (borrowed capital).
Total assets : total liabilities
E
The rate of return earned by shareholders.
B
C
(4)
2.2 MUMBAI LTD
The information relates to Mumbai Ltd for financial year ended on 30 April 2018.
REQUIRED:
2.2.1 Fill in the missing amounts on the partially completed Cash Flow
Statement. Show all workings in brackets.
(24)
2.2.2 Calculate the following financial indicators / ratios:
(i) Debt/equity ratio.
(ii) Return on average shareholders’ equity (ROSHE).
(iii) Net asset value per share (NAV).
(3)
(5)
(4)
2.2.3 Comment on the liquidity position of the business. Quote TWO relevant
financial indicates (with the trends) in your answer.
(4)
2.2.4 The CEO wants to increase the loan by an additional R300 000 to
finance extensions to the building. What advice would you offer her?
Quote TWO financial indicators (with figures) to support your advice.
(6)
2.2.5 The directors plan to issue additional shares at R6,00 per share in the
new year. Explain whether prospective investors will be eager to buy
shares in this business or not. Quote figures..
(4)
2.2.6 The existing shareholders are pleased with the performance of their
investment. Comment on the returns (ROSHE), earnings (EPS) and
dividends (DPS).
(6)
2.2.7 M. Mouse owned 220 000 shares on 1 May 2017. He was disappointed
that he did not increase his shareholding when additional shares were
issued on 1 January 2018.
• Do a calculation to show the change in his percentage shareholding.
• Explain why M. Mouse would be disappointed.
(3)
(2)
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
167
INFORMATION:
A.
Information extracted from the Income Statement on 30 April 2018:
Depreciation
83 720
Income tax
135 000
Net income after tax.
450 000
B.
Information extracted from the Balance Sheet on 30 April :
30 April 2018
Fixed assets (carrying value)
Fixed Deposit
SARS: Income tax
Cash and cash equivalents
Shareholders’ equity
Ordinary share capital
Retained income
Loan: Lands Bank
Bank overdraft
SARS: Income tax
Shareholders for dividends
C.
2 776 020
150 000
6 800 (Dr)
10 000
2 055 100
1 932 000
123 100
950 000
27 800
230 000
30 April 2017
2 304 500
280 000
42 600
1 633 500
1 596 000
37 500
1 050 000
22 600 (Cr)
100 800
Share capital information:
Authorized share capital of 750 000 ordinary shares.
Issued share capital:
420 000 Ordinary shares in issue on 1 May 2017
80 000 Additional shares issued on 1 January 2018
1 596 000
336 000
D.
New equipment was purchased during this financial year, but no fixed
assets were sold.
E.
An interim dividend of 32 cents per share was paid on 1 October 2017.
The new shareholders were not entitled to interim dividends.
A final dividend of 46 cents per share was declared on 30 April 2018.
F.
The following financial indicators were calculated:
30 APRIL 2018
Current ratio
Acid test ratio
Debt equity ratio
Return on shareholders’ equity (ROSHE)
Return on average capital employed (ROTCE)
Net asset value per share (NAV)
Earnings per share (EPS)
Dividends per share (DPS)
Market price of shares (on stock exchange)
Current interest rate on loans
1,3 : 1
0,4 : 1
?
?
23,5%
?
101 cents
78 cents
545 cents
9,5%
1 MAY 2017
1,6 : 1
0,7 : 1
0,64 : 1
17,5%
25,2%
389 cents
85 cents
65 cents
532 cents
9%
65
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
168
Activity 2
2.1
2.1.1
2.1.2
2.1.3
2.1.4
2.2
2.2.1
4
MUMBAI LTD
Cash Flow Statement for the year ended 30 April 2018
OPERATING ACTIVITIES
Cash generated from operations
Interest paid
(85 500)
Income tax paid
Dividends paid
INVESTING ACTIVITIES
FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
24
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
169
2.2.2
(i) Debt/equity ratio.
3
(ii) Return on average shareholders’ equity (ROSHE)
5
(iii) Net asset value per share (NAV).
4
2.2.3
Comment on the liquidity position of the business. Quote TWO
relevant financial indicates (with the trends) in your answer.
4
2.2.4
The CEO wants to increase the loan by an additional R300 000 to
finance extensions to the building. What advice would you offer her?
Quote TWO financial indicators (with figures) to support your advice.
6
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
170
2.2.5
The directors plan to issue additional shares at R6,00 per share in the
new year. Explain whether prospective investors will be eager to buy
shares in this business or not. Quote figures.
4
2.2.6
The existing shareholders are pleased with the performance of their
investment. Comment on the returns (ROSHE), earnings (EPS) and
dividends (DPS).
6
2.2.7
Do a calculation to show the change in his percentage shareholding.
Explain why M. Mouse would be disappointed.
5
65
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
171
Activity 3: CASH FLOW STATEMENT AND INTERPRETATION
(75 marks; 45 minutes)
3.1
TINAMERA Ltd
You are provided with information relating to Tinamera Ltd for the financial year
ended 30 June 2018.
REQUIRED:
3.1.1 Refer to Information C.
Complete the Fixed/Tangible Asset Note for the year ended 30 June 2018.
(15)
3.1.2 Complete the Cash Flow Statement Ltd for the year ended 30 June 2018. Some
of the details and figures have been entered in the ANSWER BOOK.
(25)
3.1.3 Calculate the following financial indicators on 30 June 2018:
•
•
•
Percentage operating profit on sales
Debt-equity ratio
Net asset value per share
(3)
(3)
(3)
3.1.4 Refer to Information E.
•
•
The following statement was taken from the minutes of the annual general
meeting: ‘We, the shareholders, would like to express our concern over the
directors’ decision to repurchase 80 000 shares during this financial year.’
Provide a reason supported by information from the Cash Flow Statement as
to why the shareholders feel this way.
(2)
After an investigation, it has come to light that Jim Jeffs, the shareholder from
whom the company repurchased the shares, is a close friend of the financial
director.
Briefly explain why you as a shareholder may find this to be a problem.
(2)
INFORMATION:
A.
Information extracted from the Income Statement on 30 June 2018:
Sales
5 611 000
Operating profit
1 410 550
Interest on loan
86 760
Net profit before tax
1 323 790
B.
Figures extracted from the Balance sheet and notes on 30 June:
2018
2017
Shareholder’s equity
R4 607 300
R3 808 100
Fixed assets
?
3 948 600
Mortgage loan
1 142 000
920 000
Inventories
759 600
589 500
Bank overdraft
?
91 000
Shareholders for dividends
30 000
60 000
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
172
C.
Fixed/Tangible assets
Carrying value - 1 July 2017
Cost
Accumulated depreciation
Movement
Additions at cost
Disposals at carrying value
Depreciation
Carrying value - 30 June 2018
Cost
Accumulated depreciation
Buildings
3 452 000
3 452 000
0
Vehicles
413 400
872 000
(458 600)
Equipment
83 200
340 000
(256 800)
?
0
0
4 522 800
4 522 800
0
0
?
?
?
?
0
?
?
Additional information in respect of fixed assets:
•
An extension to the office block was undertaken during the year.
•
The business had three vehicles at the beginning of the year. The
following details appeared in the Fixed Asset Register on 1 July 2017:
Vehicle 1
Vehicle 2
Vehicle 3
Cost
240 000
352 000
280 000
Accumulated depreciation
(225 000)
(70 400)
(163 200)
Carrying value
15 000
281 600
116 800
NOTE: Vehicle 1 is old and is reaching the end of its useful life.
Vehicle 3 was sold at its carrying value of R102 800 during the
year.
D.
•
Equipment of R116 000 was purchased on 1 December 2017. No
equipment was sold.
•
Depreciation policy: Vehicles: 20% on cost
Equipment: 15% on carrying value
Loan
The company took out an additional loan on 30 June 2018. Repayments on
the old loan, including interest totalled R164 760. Interest on loan is
capitalised.
E.
Shares
•
•
•
F.
Jim Jeffs, a shareholder, is very concerned about the liquidity and
profitability situation of the company and has decided to sell his shares.
The directors repurchased all 80 000 ordinary shares from him at a price
of R4,20 per share. The average issue price on this date was R3,05.
No new shares were issued.
Number of shares in issue on 30 June 2018 was 750 000.
Dividends
Total dividends paid and declared for the financial year ended 30 June 2018
amounts to R170 000.
173
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
3.2
INTERPRETATION OFFINANCIAL INDICATORS
Your friend, Phakamile, is a director in two companies. You are considering buying
shares in one of the companies. He presents you with the financial indicators of the
two companies. The companies are of similar size and they have issued the same
number of shares.
REQUIRED:
Study the financial indicators given and answer the questions that follow.
3.2.1 Which company uses more loans? Explain whether this is a good idea or not.
In each case, quote a financial indicator to support your answer.
(6)
3.2.2 According to Phakamile the liquidity indicators of Thabiso Ltd are better than
those of Lauren Ltd. Explain, quoting THREE financial indicators to support
his opinion.
(9)
3.2.3 Although the market price of the shares of Lauren Ltd is higher than those of
Thabiso Ltd, Phakamile is of the opinion that Thabiso Ltd’s shareholders are
more satisfied with the market price of their shares. Explain, quoting financial
indicators to support this opinion.
(4)
3.2.4 In which company is Phakamile a major shareholder? Support your answer
with a calculation.
(3)
FINANCIAL INDICATORS
Number of shares in issue
Phakamile’s shareholding
Market price per share on the JSE
Net asset value per share
Earnings per share
Dividends per share
% return on shareholders' equity
% return on total capital employed (before tax)
% interest rate on loans
Debt/Equity ratio
Current ratio
Acid-test ratio
Period for which enough stock is on hand
Debtors' average collection period
Thabiso Ltd
500 000
50 000
630 cents
520 cents
165 cents
182 cents
11,8%
12,4%
14%
1,8 : 1
1,7 : 1
0,8 : 1
80 days
26 days
Lauren Ltd
500 000
300 000
680 cents
790 cents
813 cents
552 cents
28,5%
30,3%
14%
0,3 : 1
5,8 : 1
3,7 : 1
140 days
55 days
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
174
Activity 3
3.1
TINAMERA LTD
3.1.1 FIXED ASSET NOTE TO THE BALANCE SHEET ON 30 JUNE 2018
Land and
Buildings
Vehicles
Equipment
Carrying value – 1 July 2017
3 452 000
413 400
83 200
Cost
3 452 000
872 000
340 000
0
(458 600)
(256 800)
Accumulated depreciation
Movements
Additions at cost
Disposal at carrying value
0
Depreciation
0
Carrying value – 30 June 2018
4 522 800
Cost
4 522 800
Accumulated depreciation
3.1.2
0
0
0
15
TINAMERA LTD
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
175
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2018
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
Interest paid
1 295 760
(86 760)
Dividends paid
Income tax paid
(625 000)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds of new loans
Repayment of loan
Net change in cash and cash equivalents
Cash and cash equivalents beginning of year
(91 000)
Cash and cash equivalents at the end of year
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
25
176
3.1.3
Calculate the percentage operating profit on sales
3
Calculate the debt-equity ratio
3
Calculate the net asset value per share
3
3.1.4
•
Provide a reason supported by information from the Cash Flow
Statement as to why the shareholders are concerned over the directors’
decision to repurchase 80 000 shares.
•
After an investigation, it has come to light that Jim Jeffs, the
shareholder from whom the company repurchased the shares, is a
close friend of the financial director. Explain briefly why you as a
shareholder may find this to be a problem.
4
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
177
3.2
INTERPRETATION OF FINANCIAL INDICATORS
3.2.1
Which company uses more loans? Quote a financial indicator to support
your answer.
Explain whether this is a good idea or not. Quote a financial indicator to
support your answer.
6
3.2.2
According to Phakamile the liquidity indicators of Thabiso Ltd are better
than those of Lauren Ltd. Explain, quoting THREE financial indicators to
support his opinion.
9
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
178
3.2.3
Although the market price of the shares of Lauren Ltd is higher than those
of Thabiso Ltd, Phakamile is of the opinion that Thabiso Ltd’s
shareholders are more satisfied with the market price of their shares.
Explain, quoting financial indicators to support this opinion.
4
3.2.4
In which company is Phakamile a major shareholder? Support your
answer with a calculation.
3
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
179
Activity 4
(70 marks; 40 minutes)
You are provided with information about Vooma Limited for the past two financial years
ended 30 June. The company is situated in KZN and trades in racing bikes.
REQUIRED:
NOTE:
Provide figures or financial indicators (ratios or percentages) and
comparisons with the previous year to support comments or explanations.
4.1
Calculate the following for 2018:
4.2
4.3
4.1.1
% operating expenses on sales
(2)
4.1.2
Acid-test ratio
(4)
4.1.3
% return on shareholders' equity
(4)
Calculate the following figures that will appear in the 2018 Cash Flow
Statement:
4.2.1
Change in investment.
(2)
4.2.2
Income tax paid
(4)
4.2.3
Fixed assets sold (at carrying value)
(5)
Cash flow and financing activities:
4.3.1
4.3.2
Explain why the directors are satisfied with the improvement in cash
and cash equivalents since 1 July 2016.
Decisions and gearing in 2018:
•
•
4.3.3
(3)
Identify THREE decisions that the directors made to pay for land
and buildings.
Explain how these decisions affected:
- Capital employed
- Financial gearing (Quote TWO indicators.)
From the Cash Flow Statement identify ONE decision made by the
directors in 2017 that they did NOT make in 2018, besides the
points mentioned above. Give a possible reason for the decision
in 2017.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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(6)
(6)
(3)
4.4
Dividends, returns and shareholding for the 2018 financial year:
•
•
•
•
On 1 July 2017 there were 800 000 shares in issue.
On 31 December 2017 interim dividends were paid.
On 1 January 2018, 200 000 shares were issued to existing shareholders.
On 30 June 2018 final dividends of 75 cents per share were declared on
all shares but have not yet been paid.
4.4.1
Calculate for the 2018 financial year:
•
•
4.4.2
Total interim dividends paid
Interim dividends per share
Calculate total dividends earned by Dudu Mkhize for the 2018
financial year. Her shareholding is:
31 August 2016
1 January 2018
TOTAL
4.4.3
(3)
(3)
SHARES
PURCHASED
380 000 shares
110 000 shares
490 000 shares
PURCHASE PRICE
R7,00
R20,00
(5)
On 1 January 2018 each shareholder was offered two shares for
every five shares owned. Dudu did not buy enough shares to
become the majority shareholder.
Calculate the minimum number of additional shares that Dudu
should have bought.
4.5
(3)
The directors decided to buy land and buildings in two other provinces in 2018
to solve the problem of low sales that they had previously had in KZN.
4.5.1
Explain:
•
•
•
4.5.2
Why it was necessary to purchase properties in other provinces
instead of in KZN
Whether the decision to purchase these properties had the
desired effect on sales
Another strategy they used to solve the problem of low sales
(2)
(3)
(3)
The CEO, Ben Palo, wants to communicate other good news to the
shareholders at the AGM. Give advice on what he should say about
the following topics:
•
•
•
Earnings per share
% return earned
Share price on the JSE
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(3)
(3)
(3)
181
INFORMATION FOR THE YEAR ENDED 30 JUNE:
A.
FIGURES IDENTIFIED FROM INCOME STATEMENT:
2018
Sales
Number of bikes sold
Mark-up %
R13 182 000
R7 740 000
1 750 bikes
900 bikes
58%
72%
Cost of sales
8 330 000
4 500 000
Gross profit
4 852 000
3 240 000
Operating expenses
1 900 000
1 500 000
Depreciation
412 000
275 000
Income tax
819 000
444 000
1 911 000
1 036 000
2018
2017
Net profit after tax
B.
2017
EXTRACT FROM BALANCE SHEET ON 30 JUNE:
Fixed assets (carrying value)
R12 154 000
R8 031 000
625 000
600 000
2 427 000
2 090 000
1 652 000
1 250 000
365 000
820 000
0
15 000
410 000
5 000
12 112 000
7 191 000
Non-current liabilities (Loan)
1 850 000
2 600 000
Current liabilities
1 244 000
930 000
Trade and other payables
420 000
515 000
Shareholders for dividends
750 000
280 000
74 000
0
0
135 000
Investments
Current assets
Inventories
Trade and other receivables
SARS: Income tax
Cash and cash equivalents
Shareholders' equity
SARS: Income tax
Bank overdraft
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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C.
CASH FLOW STATEMENT:
2018
R1 850 000
2017
R1 046 000
3 322 000
1 989 000
?
(260 000)
(520 000)
(254 000)
?
(429 000)
Cash flows from investing activities
(4 560 000)
(167 000)
Purchases of land and buildings
(4 840 000)
0
Sale of fixed assets
?
383 000
Change in investments
?
(550 000)
Cash flows from financing activities
3 250 000
(400 000)
Share capital issued
4 000 000
0
Shares repurchased
0
(1 000 000)
(750 000)
600 000
540 000
479 000
(130 000)
(609 000)
410 000
(130 000)
Cash flows from operating activities
Cash generated from operations
Interest paid
Dividends paid
Income tax paid
Change in non-current liabilities
Cash and cash equivalents:
Net change
Opening balance
Closing balance
D.
FINANCIAL INDICATORS:
2018
2017
58%
72%
?
19,4%
0,2 : 1
0,4 : 1
Acid-test ratio
?
0,9 : 1
Return on shareholders' equity
?
14,4%
20,8%
17,8%
Earnings per share
208 cents
130 cents
Dividends per share
?
70 cents
50%
54%
Net asset value per share
1 211 cents
899 cents
Market price on stock exchange
2 800 cents
2 100 cents
12%
12%
Mark-up % achieved
Operating expenses on sales
Debt-equity ratio
Return on capital employed
Dividend pay-out rate
Interest on loans
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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4.1
CALCULATION OF FINANCIAL INDICATORS FOR 2018
4.1.1
Calculate: % operating expenses on sales
Workings
Answer
2
4.1.2
Calculate: Acid-test ratio
Workings
Answer
4
4.1.3
Calculate: % return on shareholders' equity
Workings
Answer
4
4.2
FIGURES FOR 2018 CASH FLOW STATEMENT
4.2.1
Calculate: Change in investments
Workings
Answer
2
4.2.2
Calculate: Income tax paid
Workings
Answer
4
4.2.3
Calculate: Fixed assets sold (at carrying value)
Workings
Answer
5
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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4.3
EXPLANATIONS ON CASH FLOW STATEMENT
4.3.1
Explain why the directors are satisfied with the improvement in cash and
cash equivalents since 1 July 2016. Quote figures.
3
4.3.2
Identify THREE decisions that the directors made to pay for land and
buildings.
Decision 1
(with figures)
Decision 2
(with figures)
Decision 3
(with figures)
6
Explain how these decisions affected the capital employed in the 2018
financial year. Quote figures.
Explain how these decisions affected the financial gearing in the 2018
financial year. Quote TWO indicators and their figures.
6
4.3.3
From the Cash Flow Statement identify ONE decision made by the
directors in 2017 that they did NOT make in 2018, besides the points
mentioned above. Give a possible reason for the decision in 2017.
Decision (with figures)
Possible reason
3
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4.4
DIVIDENDS, RETURNS AND SHAREHOLDING
4.4.1
Calculate: Total interim dividends paid for the 2018 financial year
Workings
Answer
Calculate: Interim dividends per share for the 2018 financial year
Workings
Answer
6
4.4.2
Calculate total dividends earned by Dudu Mkhize for the 2018 financial
year.
Workings
Answer
5
4.4.3
Calculate the minimum number of additional shares that Dudu should
have bought.
Workings
Answer
3
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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4.5.1
Explain why it was necessary to purchase properties in other provinces
instead of in KZN.
2
Explain whether the decision to purchase these properties had the
desired effect on sales. Quote figures.
3
Explain another strategy they used to solve the problem of low sales.
Quote figures.
3
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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4.5.2
Give advice on what Ben Palo should say about the following topics:
Advice on what to say on earnings per share:
3
Advice on what to say on % return earned:
3
Advice on what to say on share price on the JSE:
3
TOTAL MARKS
70
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Activity 5
5.1
Three financial statements are provided as options in which each of the following
items would appear. Choose the financial statement and write only the letter
(A–C) next to the question numbers (5.1.1 to 5.1.4) in the ANSWER BOOK, e.g.
5.1.5 D.
A
B
C
5.2
Statement of Financial Position (Balance Sheet)
Statement of Comprehensive Income (Income Statement)
Cash Flow Statement
5.1.1
Profit on sale of a fixed asset
5.1.2
Amount due to shareholders for final dividends payable
5.1.3
Total amount spent on the repurchase of shares
5.1.4
Total income tax amount for the current financial year
(4 x 1)
(4)
SUNSET LTD
The financial year ended on 28 February 2019.
REQUIRED:
5.2.1
Calculate the following figures for the 2019 Cash Flow Statement:
•
•
•
•
5.2.2
Income tax paid
Dividends paid
Proceeds of shares issued
Fixed assets purchased
(4)
(4)
(6)
(5)
Calculate financial indicators for the year ended 28 February 2019:
•
•
•
% operating profit on sales
Net asset value per share
Debt-equity ratio
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
(4)
(4)
(4)
189
INFORMATION FOR SUNSET LTD:
A.
Information from Income Statement on 28 February 2019:
Sales
Gross profit
Depreciation
Operating profit
Interest expense
Income tax
Net profit after tax
B.
R8 725 000
3 525 000
408 000
2 033 900
441 000
477 900
1 138 000
Information from Balance Sheet on 28 February:
Fixed assets (carrying value)*
SARS: Income tax
Shareholders' equity
Ordinary share capital
Loan: Funza Bank
Shareholders for dividends
2019
R11 835 100
18 000 Cr
8 625 000
7 724 000
3 500 000
372 000
2018
R10 658 000
63 000 Dr
10 065 000
9 300 000
2 800 000
195 000
*NOTE: Fixed assets were sold at carrying value, R490 000.
C.
Share capital and dividends:
SHARE CAPITAL
2018
2019
Final
Interim
Final
1 March
30 April
1 January
28
February
NUMBER
OF SHARES
1 500 000
300 000
40 000
1 240 000
DIVIDENDS
2 March 2018
31 August 2018
28 February 2019
DETAILS OF SHARES
In issue at R6,20 per share
Repurchased at R6,90 per share
New shares issued
In issue
Paid
Paid
Declared
DIVIDENDS PER SHARE
13 cents
35 cents
30 cents
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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5.3
HORIZON LTD and OPTIMA LTD
Refer to Information D to F.
Mike Mbele owns shares and is a director in both these companies.
He recently invested another R420 000 in each company by buying shares on
the JSE at market value as follows:
HORIZON LTD
R8,40
OPTIMA LTD
R4,00
REQUIRED:
NOTE:
5.3.1
Provide figures, financial indicators or calculations in EACH case to
support your comments and explanations.
Purchase of shares:
•
•
•
5.3.2
(2)
(3)
(6)
Dividends and earnings:
•
•
•
5.3.3
Explain why directors should be interested in the price of their
companies' shares on the JSE.
Calculate the number of additional shares in Horizon Ltd that Mike
was able to buy on the JSE in 2019.
Comment on the price that Mike paid for these shares and give TWO
reasons why he might have been satisfied to pay this price.
Explain your opinion on which company has the better dividend
pay-out policy.
Compare and comment on the % return on equity earned by EACH
company.
Mike feels that the earnings per share (EPS) of Optima Ltd is much
better than that of Horizon Ltd. Explain why he feels this way.
(6)
(4)
(5)
Refer to the Cash Flow Statements.
The poor economy has negatively affected Horizon Ltd more than
Optima Ltd.
•
•
Explain TWO decisions taken by the directors of Horizon Ltd in
response to the state of the economy, and how these decisions will
affect the company in future.
Explain TWO decisions taken by the directors of Optima Ltd that
affect risk and gearing. Quote and comment on TWO financial
indicators.
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
191
(6)
(8)
D.
Shareholding of Mike Mbele in two companies:
Number of shares bought in 2017
Total shares issued by each
company
Additional shares bought by Mike
Mike's % shareholding before
buying additional shares
E.
OPTIMA LTD
1 430 000 shares
1 240 000 shares
2 600 000 shares
?
105 000 shares
46,8%
55,0%
Financial indicators and additional information on 28 February 2019:
Earnings per share (EPS)
Dividends per share (DPS)
Debt-equity ratio
% return on average equity
% return on average capital
employed
Net asset value (NAV)
Additional information:
Interest rate on loans
Interest on investments
F.
HORIZON LTD
580 000 shares
HORIZON LTD
97 cents
65 cents
0,1 : 1
6,2%
OPTIMA LTD
83 cents
80 cents
0,7 : 1
18,2%
9,4%
15,1%
750 cents
445 cents
12,0%
6,5%
12,0%
6,5%
Extracts from Cash Flow Statements for year ended 28 February 2019:
HORIZON LTD
Cash flows from investing
activities
Purchase of fixed assets
Sale of fixed assets
Change in investments
Cash flows from financing
activities
Proceeds of new shares
issued
Shares repurchased
Cash effects of long-term loan
OPTIMA LTD
R2 700 000
(R2 730 000)
0
1 800 000
900 000
(1 580 000)
0
(1 150 000)
(2 670 000)
4 000 000
0
200 000
(1 070 000)
(1 600 000)
0
3 800 000
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
192
QUESTION 5
5.1
5.1.1
5.1.2
5.1.3
5.1.4
5.2
SUNSET LTD
5.2.1
Calculate: Income tax paid
Workings
4
Answer
4
Calculate: Dividends paid
Workings
Answer
4
Calculate: Proceeds of shares issued
Workings
Answer
6
Calculate: Fixed assets purchased
Workings
Answer
5
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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5.2.2
Calculate financial indicators for the year ended 28 February 2019:
% operating profit on sales
Workings
Answer
4
Net asset value per share
Workings
Answer
4
Debt-equity ratio
Workings
Answer
4
5.3
5.3.1
HORIZON LTD and OPTIMA LTD
Explain why directors should be interested in the price of their
companies' shares on the JSE.
2
Calculate the number of additional shares in Horizon Ltd that Mike was
able to buy on the JSE in 2019.
Workings
Answer
3
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
194
Comment on the price that Mike paid for these shares and provide TWO
reasons why he might have been satisfied to pay this price.
Comment (with figures):
Reason 1 :
Reason 2:
6
5.3.2
Explain your opinion on which company has the better dividend pay-out
policy. Quote figures.
6
Compare and comment on the % return on equity earned by EACH
company. Quote figures.
Mike feels that the earnings per share (EPS) of Optima Ltd is much
better than that of Horizon Ltd. Explain why he feels this way. Quote
figures or calculations.
5
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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5.3.3
Explain TWO decisions taken by the directors of Horizon Ltd in response
to the state of the economy, and how these decisions will affect the
company in future.
Decision 1 (with figures):
Decision 2 (with figures):
Effect on Horizon Ltd in future:
6
Explain TWO decisions taken by the directors of Optima Ltd that affect
risk and gearing. Quote and comment on TWO financial indicators.
Decision 1 (with figures):
Decision 2 (with figures):
Quote and comment on TWO financial indicators that affect risk and
gearing.
8
TOTAL MARKS
75
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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Bibliography[hy
1. Department of Education Examination Paper.
2. Study and Master Grade 12
3. Mind the Gap
4. www.wikipidea.org
JENN TRAINING; GRADE 12 ACCOUNTING COMPANIES TERM ONE
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