CASH FLOW STATEMENTS
STEP BY STEP
The three main activities
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2008
Notes
Cash flows from operating activities
82 000
Cash generated from operations
Interest paid
Dividends paid
Taxation paid
1
*3
*4
Cash flows from investing activities
(49 000)
Buy fixed Assets
Sell fixed Assets
[increase] / decrease fixed deposit
*5
Cash flows from financing activities
105 000
Buy back of shares
issue of shares
Increase long-term borrowings
[Decrease] of long-term loans
Net change in cash and cash equivalents (balancing amount)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Balance
Receipts
b/d
Balance
b/d
R
BANK
5 000 Payments
410 000 Balance
415 000
143 000
2
2
2
c/d
138 000
5 000
143 000
272 000
143 000
415 000
NOTE I
Reconciliation between profit before taxation and cash generated from operations
INFORMATION
1
420 000
300 000
60 000
16 000
6 000
8 000
30 000
Page
Extract from the Income Statement
Sales
Cost of sales
Wages
Depreciation
Interest on loans
Sundry expenses
Net income before tax
Extract from the Balance sheet
Inventories
Trade and other receivables (debtors)
Trade and other payables (creditors)
2022
160 000
60 000
20 000
2021
200 000
70 000
14 000
REQUIRED
Note 1 of the Cash flow statement
NOTE 1
1.Reconciliation between profit before taxation and cash generated from operations
Profit before taxation
Adjustments in respect of:
Interest paid
Depreciation
Operating profit before changes in working capital
Changes in working capital
(Increase) / decrease in inventories
(Increase) / decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Cash generated from operations
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Notes
R
Cash flows from operating activities
Cash generated from operations
1
Interest paid
subtract
Exercise 1
Extract from Income Statement for the year ended 28 February 2024
Depreciation
Interest on loan (16% p.a.)
Net profit before tax
R203 000
86 400
1 020 350
Income tax
306 105
Net profit after tax
714 245
2
QAZXS
Page
1.
Figures from the Balance Sheet and Notes on 28 February 2024
2024
Ordinary shareholders' equity
2023
?
2 572 500
Ordinary share capital
1 800 000
1 233 000
Share premium
1 313 400
916 500
Retained income
?
423 000
2 790 000
3 824 500
Loan (18% p.a.)
500 000
850 000
Inventories
381 000
408 000
Cash and cash equivalents
1 155 000
3 000
Trade and other receivables
1 640 000
1 198 500
Trade debtors
1 640 000
1 150 000
-
48 500
Trade and other payables
1 803 355
2 011 500
Trade creditors
1 534 355
1 030 000
Accrued expenses (Telephone)
8 000
8 700
SARS (Income tax)
69 000
-
Shareholders for dividends
192 000
57 700
-
915 100
Fixed/Tangible assets
SARS (Income tax)
Bank overdraft
Reconciliation between profit before
taxation and cash generated from
operations
Net profit before tax
Adjustments in respect of:
Depreciation
Interest expense
Operating profit before changes in working
capital
Changes in working capital
3
Cash generated from operations
Page
2.
Try this one:
INFORMATION
BALANCE SHEET ON 28 FEBRUARY 2015
Notes
2015
2014
1 102 550
829 700
942 550
729 700
Fixed deposit
160 000
100 000
CURRENT ASSETS
427 150
499 800
ASSETS
NON-CURRENT ASSETS
Tangible assets
3
Inventories
4
287 500
325 000
Trade and other receivables
5
138 150
122 300
Cash and cash equivalents
6
1 500
52 500
1 529 700
1 329 500
779 500
612 000
TOTAL ASSETS
Share capital
7
614 600
449 000
Retained income
8
164 900
163 000
NON-CURRENT LIABILITIES
370 000
400 000
Loan: ABC Bank
370 000
CURRENT LIABILITIES
380 200
317 500
309 200
317 500
71 000
0
1 529 700
1 329 500
Trade and other payables
Bank overdraft
TOTAL EQUITY AND LIABILITIES
9
Page
SHAREHOLDERS’ EQUITY
4
EQUITY AND LIABILITIES
TRY THIS ONE: Extract from the financial statements for the year ended 28 February 2015
Sales
1 750 000
Cost of sales
1 100 000
Depreciation
103 650
Interest on loan
52 000
Net profit before tax
????
Income tax
75 600
Net profit after tax
194 400
Dividends on ordinary shares
192 500
Included in Trade and other receivables:
SARS (income tax)
2015
2014
3 650 dr
5 800 dr
2015
2014
Included in Trade and other payables:
Shareholders for dividends
123 200
115 500
Fixed assets were sold at carrying value during the year, R72 500
Page
5
Reconciliation between profit before taxation and cash generated from operations
NOTE 2 - Cash and cash equivalents
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
2023
112 400
62 000
32 400
18 000
2023
2022
113 200
56 200
21 800
35 200
2022
17 000
500
500
18 000
34 200
500
500
35 200
Cash and cash equivalents consist of
Bank
Cash float
Petty cash
REQUIRED
Note 2 of the Cash flow statement
NOTE 2
2.
Cash & cash equivalents
Bank
Cash float
Petty cash
NET CHANGE
2023
2022
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2023
Net change in cash and cash equivalents
(balancing
2
amount)
Cash and cash equivalents at beginning of year
2
Cash and cash equivalents at end of year
2
Let’s try on our own
Information extracted from the Balance Sheet:
4 399 040
400 000
170 460
226 000
4 500
3 509 660
2 710 000
799 660
1 000 000
690 340
3 290 000
550 000
570 000
340 000
4 260
2 608 160
2 100 000
508 160
1 500 000
364 000
282 100
6
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 2024
Page
28 February 2025
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2025
Net change in cash and cash equivalents
(balancing
2
amount)
Cash and cash equivalents at beginning of year
2
Cash and cash equivalents at end of year
2
123557687980
Note 3 - Dividends paid
Note 4 - Taxation paid
Extract from the Income Statement
Notes
Sales
Cost of sales
Gross profit
Operating expenses
Wages
Depreciation
Sundry expenses
Operating profit
Profit before interest expense
Interest expense / financing costs
Net profit before tax
Taxation
Net profit after tax for the year
9
Notes to the financial statements
Retained income
Balance last day of previous year
Net profit after tax
R
1 600 000
(1 000 000)
600 000
(450 000)
400 000
40 000
10 000
150 000
150 000
(20 000)
130 000
(61 000)
69 000
24 000
69 000
93 000
(60 000)
(24 000)
(36 000)
33 000
dividends
Paid
Recommended
Balance last day of current year
Additional information
Trade and other payables
SARS (Income tax)
Shareholders for dividends
2022
5 400
36 000
2021
6 200
20 000
Page
3. Dividends paid
Amounts in financial statements
Balance on last day of previous year
Balance on last day of current year
Dividends paid
7
NOTE 3
OR
SHAREHOLDERS FOR DIVIDENDS
NOTE 4
4. Taxation paid
Amounts in financial statements
Balance on last day of previous year
Balance on last day of current year
Taxation paid
OR
SARS (INCOME TAX)
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Notes
Cash flows from operating activities
Cash generated from operations
1
Interest paid
Dividends paid
*3
Taxation paid
*4
R
Let’s try on our own
Extract from the Income Statement for the year ended 28 February 2025:
Interest on loan (capitalised)
Net profit before tax
Income tax for the year (30%)
Net profit after tax
4 250 000
462 000
2 600 000
780 000
1 820 000
8
Cost of sales
Page
B
Extract from the financial records on 28 February:
2025
2024
1 335 000
1 240 000
Inventories (all trading stock)
920 000
780 000
Debtors control
345 000
429 000
Cash and cash equivalents
5 000
31 000
SARS (Income tax)
65 000
0
Current liabilities
1 316 600
1 070 000
Creditors control
288 000
378 000
Current assets
Shareholders for dividends
921 600
SARS (Income tax)
Bank overdraft
0
72 000
107 000
0
Dividends for the year :
Interim dividends R770 000
Final dividends R921 600
3. Dividends paid
Amounts in financial statements
Balance on last day of previous year
Balance on last day of current year
Dividends paid
OR
SHAREHOLDERS FOR DIVIDENDS
9
E
620 000
Page
C
NOTE 4
4. Taxation paid
Amounts in financial statements
Balance on last day of previous year
Balance on last day of current year
Taxation paid
OR
SARS (INCOME TAX)
Notes 5 - Tangible assets purchased
INFORMATION
You are provided with figures extracted from the financial statements of ABC limited.
Vehicles were sold at carrying value during the financial year for R12 000.
Extract from the Income statement
Depreciation
2022
42 000
Extract from the Notes to the financial statements
2022
Vehicles (at cost)
290 000
Accumulated depreciation
151 000
Carrying value
139 000
2021
204 000
116 000
88 000
REQUIRED
- Note 5 of the Cash flow statement
- Show how the cash flows from investing activities would appear on the face of the Cash flow
statement
VEHICLES (cost)
Page
10
OR
VEHICLES (carry value)
NOTE 5
5. Tangible assets purchased
Land and buildings
Equipment
Vehicles
Outflow – assets bought
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Notes
R
Cash flows from investing activities
Purchase of non-current assets
*5
Proceeds from sale of non-current assets
Another example of Note 5 - Tangible assets purchased
You are provided with figures extracted from the financial statements of ABC limited.
Equipment was sold at book value during the year for R3 000
Extract from the Income statement – 2022:
Depreciation R8 200
Extract from the Notes to the financial statements
2022
Land and buildings
420 000
Equipment (carrying value)
88 000
Carrying value
508 000
2021
300 000
78 000
378 000
Calculation of assets bought
ASSETS
Page
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Notes
R
Cash flows from investing activities
Purchase of non-current assets
*5
Proceeds from sale of non-current assets
11
NOTE 5
5. Tangible assets purchased
Land and buildings
Equipment
Let’s try again
A.
Fixed Assets
 Unused vehicle was sold at book value at the end of the year for
R55 080.
 New property was bought during the year.
B
Depreciation
C.
Information extracted from the Balance Sheet:
350 880
Tangible/ Fixed Assets (carrying
value)
28 February 2025
28 February 2024
4 399 040
3 290 000
ASSETS
NOTE 5
5. Tangible assets purchased
Land and buildings
Equipment
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2025
Notes
R
Cash flows from investing activities
Purchase of non-current assets
*5
Proceeds from sale of non-current assets
Financing activities
2022
170 000
20 000
2021
136 000
14 000
Non-Current Liabilities
198 000
216 000
Page
EQUITY AND LIABILITIES
Share capital and reserves
Ordinary share capital
Retained income
12
INFORMATION
You are provided with figures extracted from the financial statements of ABC limited.
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Notes
R
Cash flows from financing activities
Buy back of shares
Proceeds from issue of shares
Proceeds from long-term borrowings
Payment of long-term loans
Let’s try on our own
Extract from the Balance Sheet of Frankfurt Ltd. on 31 August 2025.
2025
2024
Ordinary share capital
1 932 000
2 000 000
Retained income
1 413 800
1 156 000
Loan
1 622 000
300 000
(ii) Ordinary share capital:
1 000 000 Shares in issue at beginning of year
2 000 000
200 000 Additional shares issued on 30 November 2024
520 000
280 000 Shares repurchased on 31 May2025
(588 000)
920 000 Issue shares on 31 August 2025
1 932 000
Repurchase of shares
(266 000)
Dividends:
(337 200)
Interim
144 000
Final
193 200
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2025
Notes
R
Cash flows from financing activities
Buy back of shares
Proceeds from issue of shares
Proceeds from long-term borrowings
Payment of long-term loans
13
(iii) Retained income:
Page
A.
EXAMPLE EXERCISE
COMPLETE THE CASH FLOW STATEMENT OF PEACHES LTD FOR THE YEAR ENDING 29 FEB 2022
Extract from the INCOME STATEMENT FOR THE YEAR ENDING 29 FEB 2022
Interest on loan
11 500
Interest on overdraft
2 100
Depreciation
?
Income tax
108 900
Cost of sales
700 800
BALANCE SHEET
NOTES
2022
2021
1
543 800
529 800
Current assets
218 500
124 700
Inventory
106 200
69 000
111 800
55 200
Cash and equivalents
500
500
TOTAL ASSETS
762 300
654 500
Shareholders equity
600 000
505 000
Share capital
515 000
440 000
85 000
65 000
40 000
80 000
ASSETS
Non-current assets
Fixed assets
Trade and other receivables
2
Non-current liabilities
3
Page
Retained Income
14
EQUITIES AND LIABILITIES
Current Liabilities
122 300
69 500
110 500
64 500
Bank overdraft
11 800
5 000
TOTAL EQUITIES AND LIABILITIES
762 300
654 500
Trade and other payables
4
NOTES
1 Fixed assets
 Fixed assets consists of Land and buildings and Equipment
 Land and buildings showed no movements


Equipment with a cost price of R20 000 was sold for cash at book value
R4 000.
New equipment to the value of R60 000 was purchased
2. Trade and other receivables
2022
2021
Trade debtors
89 300
48 700
Prepaid expenses
2 000
2 000
Accrued Income
6 000
4 500
SARS(income tax)
14 500
-
111 800
55 200
3 Retained Income
Net profit after tax
?
Dividends
(113 100)
Retained Income end of the year
85 000
Page
65 000
15
2022
Retained Income beginning of the year
4 Trade and other payables
Trade creditors
2022
76 000
2021
38 000
Deferred income
5 000
3 000
Accrued Expenses
7 000
3 500
SARS(income tax)
-
4 000
Shareholders for dividends
22 500
16 000
110 500
64 500
ygzyh
CASH FLOW STATEMENT OF PEACHES LTD FOR THE YEAR ENDED
Notes
Buy back of shares
issue of shares
INCREASE loan
DECREASE loan
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
3
4
5
16
Buy fixed assets
Sell fixed assets
Increase / decrease fixed deposit
CASH FLOW FROM FINANCING ACTIVITIES
1
Page
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
Interest paid
Dividends paid
Income Tax paid
CASH FROM INVESTING ACTIVITIES
1. RECONCILIATION BETWEEN PROFIT BEFORE TAXATION
AND CASH GENERATED FROM OPERATIONS
Adjustments for:
Plus Depreciation
Plus Interest Paid
Operating profit before changes in working capital
Changes in working Capital
Inventory
Receivables/debtors
Payables / creditors
2.CASH AND CASH EQUIVALENTS
Bank
Cash float
Petty cash
3.
Net changes
2022
2021
SHAREHOLDERS FOR DIVIDENDS
4
SARS (INCOME TAX)
Page
17
ASSETS
MORE CASH FLOW
QUESTIONS
QUESTION 1 pre-lim 2020 free state practice paper
1
1.1 NOSIBONA LTD.
You are provided with information relating to Nosibona Ltd. for the financial
year ended 30 June 2020.
REQUIRED:
1.1.1 Refer to Information C.
Calculate the amounts denoted by (i) to (iv) on the Fixed Asset note.
(13)
1.1.2 Complete the Cash Flow Statement Ltd for the year ended 30 June
2020. Some of the details and figures have been entered in the
ANSWER
BOOK.
(22)
1.1.3 Refer to Information E.
The minutes of the annual general meeting reflected the following
statement: ‘We, the shareholders, express our concern over the
directors’ decision to repurchase 80 000 shares during this financial
year.’

Provide ONE for the concern expressed. Quote evidence from the
Cash Flow Statement that supports this concern.
(4)

An investigation of this matter revealed that Jurgen Benade, the
shareholder in question, is a close friend of the financial director.
18
(2)
Page
Why would this fact be a problem, if you were a shareholder?
INFORMATION:
A.
Information extracted from the Income Statement on 30 June 2020:
Sales
5 611 000
Operating profit
1 410 550
Interest on loan
86 760
Net profit after tax
926 650
B.
Figures extracted from the Balance sheet and notes on 30 June:
Shareholders’ equity
Ordinary share capital
Fixed assets
Mortgage loan
Inventories
Bank overdraft
Cash in bank
Shareholders for dividends
2020
R3 017 300
R2 287 500
?
1 142 000
759 600
905 000
0
30 000
2019
R2 195 150
R2 040 000
3 948 600
920 000
589 500
96 200
5 200
60 000
C. Fixed/Tangible assets
Carrying value - 1 July 2019
Cost
Accumulated depreciation
Movement
Additions at cost
Disposals at carrying value
Depreciation
Carrying value - 30 June 2020
Cost
Accumulated depreciation
Land and
Buildings
3 452 000
3 452 000
0
(i)
0
0
4 522 800
4 522 800
0
Vehicles
Equipment
413 400
(ii)
(458 600)
83 200
340 000
(256 800)
0
(102 800)
(iii)
(iv)
0
(22 630)
456 000
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 2019:
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
Equipment was purchased during the year. No equipment was sold.

Depreciation policy: Vehicles: 20% on cost
Equipment: 15% on carrying value
Page

19
NOTE: Vehicle 3 was sold at its carrying value during the year.
D. S hare s



Additional shares were issued during July 2019.
Jurgen Benade, a shareholder, convinced the directors to repurchase his 80
000 shares, after he noticed the poor liquidity and profitability situation of the
company. He was paid R4,20 per share The average share price at the time
was R3,05.
Number of shares in issue on 30 June 2020 was 750 000.
E. Dividends
Total dividends paid and declared for the financial year ended 30 June 2020
amounted to R170 000
1.1.3 Provide ONE for the concern expressed. Quote evidence from the
Cash Flow Statement that supports this concern.
The business is experiencing cash-flow problems and technically should not
compromise liquidity by spending on share buyback
The business has a very big overdraft of R905 000.
Large investment in fixed assets, R1 186 800
Increase in loan was necessary, R222 000
Why would this fact be a problem, if you were a shareholder?
This is a conflict of interest; and is unethical; preferential treatment;
Possible insider trading (using privileged information)
Page
20
The shares were repurchased at a price higher than the average issue price although the
business has a very big overdraft.
NOSIBONA LTD
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2020
Notes
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
Interest paid
1
Dividends paid
3
Income Tax paid
4
CASH FROM INVESTING ACTIVITIES
Buy fixed assets
Sell fixed assets
5
(625 000)
Increase / decrease fixed deposit
CASH FLOW FROM FINANCING ACTIVITIES
Buy back of shares
issue of shares
INCREASE loan
DECREASE loan
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Page
21
Cash and cash equivalents at end of the year
QUESTION 2 PRE-LIM 2020 MP
You are provided with information relating to Gugu Limited for the year ended
30 June 2020. Gugu Limited is a public company listed on the JSE Securities
Exchange. They are based in Pretoria and they sell office stationery.
The directors of Gugu Limited decided to open new branches in Brakpan and
Emalahleni halfway through the year.
REQUIRED:
2.1
2.2
2.3
2.4
Complete the note for Ordinary share capital to the Balance Sheet on 30 June
2020.
(8)
Calculate the missing figures indicated by (a) to (g) in the Cash Flow Statement.
NOTE: The answer must indicate the correct sign.
(13)
The Cash Flow Statement highlights some significant (important) decisions taken
by the directors over the past year. Explain TWO of these significant decisions.
Quote figures to support your answer. Also explain how these decisions would
benefit the company and the shareholders.
(6)
At the AGM, the directors announce that the company will:


Conduct training of all employees in terms of morals and ethics
Donate funds towards cleaning up the environment
Explain why this is necessary although this will cost the company a lot of money
each year. State THREE points.
(6)
INFORMATION:
A. EXTRACT FROM INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2020
426 000
Net profit after tax
904 000
Page
22
Income tax
22 | P a g e
B. EXTRACT FROM BALANCE SHEET AT 30 JUNE 2020
2020
2019
Non-current assets
5 492 000
3 493 000
Fixed assets
5 192 000
2 773 000
Financial assets
300 000
720 000
Current assets
2 557 000
2 508 000
Inventories
1 640 000
1 510 000
810 000
960 000
0
18 000
107 000
20 000
8 049 000
6 001 000
Ordinary shareholders' equity
4 989 000
3 924 000
Ordinary share capital
3 776 000
3 084 000
Retained income
1 213 000
840 000
Non-current liabilities
1 980 000
700 000
Mortgage loan: Jozi Bank
1 980 000
700 000
Current liabilities
1 080 000
1 377 000
Trade and other payables
705 000
819 000
SARS (Income tax)
32 000
0
Shareholders for dividends
275 000
240 000
0
250 000
ASSETS
Trade and other receivables
SARS (Income tax)
Cash and cash equivalents
TOTAL ASSETS
Page
Bank overdraft
23
EQUITY AND LIABILITIES
23 | P a g e
Current portion of loan
TOTAL EQUITY AND LIABILITIES
C.
2020
2019
68 000
68 000
8 049 000
6 001 000
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2020
CASH FLOW FROM OPERATING ACTIVITIES
?
Cash generated from operations
?
Interest paid
(134 000)
Dividends paid
(496 000)
Income tax paid
(a)
CASH FLOW FROM INVESTING ACTIVITIES
?
Purchase of fixed assets
(3 357 000)
Proceeds from sale of fixed assets
140 000
Proceeds from financial assets matured
420 000
CASH FLOW FROM FINANCING ACTIVITIES
?
(b)
Proceeds with issue of shares
(c)
Change in loan
(d)
Net change in cash and cash equivalents
(e)
Cash and cash equivalents beginning of year
(f)
Cash and cash equivalents at the end of year
(g)
Page
24
Repurchase of shares
24 | P a g e
D.
2.1
Shareholding for the 2020 financial year

Authorised share capital: 1 200 000 ordinary shares

On 1 July 2019 there were 1 020 000 shares in issue.

On 1 January 2020 all the unissued shares were issued.

On 31 May 2020, 20 000 shares were repurchased at R4,20 per share, which is R1
above the average issue price.
ORDINARY SHARE CAPITAL
AUTHORISED
1 200 000 ordinary shares
ISSUED
1 020 000
2.2
Ordinary shares at the beginning of
the year
3 084 000
Ordinary shares at the end of the year
3 776 000
8
Calculate the missing figures indicated by (a) to (g) in the Cash Flow
Statement.
NOTE: The answer must indicate the correct sign.
Calculation
Answer
(a)
(b)
(c)
(d)
(e)
25 | P a g e
13
Page
(g)
25
(f)
2.3
The Cash Flow Statement highlights some significant (important) decisions
taken by the directors over the past year. Explain TWO of these significant
decisions. Quote figures to support your answer.
Any TWO decisions  
Quoting of figures  




Investment in fixed assets for new branches R3 357 000
Acquisition of loan: R1 280 000
Financial assets matured: R420 000
Issue of new share: R756 000
Do not accept repurchase of shares and sale of assets – not significant decisions
Explain how these decisions would benefit the company and the
shareholders.
Any valid explanation on benefits to the company 
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2.4
Expanding the company leads to more profits in the future/ Improves operating
efficiency – business can earn greater profits
Payment of loan will lead to savings on interest expense
Financial asset matured resulted to eradication of bank overdraft, R230 000
Issue of new shares will enable the business to use funds for expansion to
generate more profits/improves cash flow- business can take advantage of
investment opportunities
Improve debt-equity ratio/risk/gearing
6
At the AGM, the directors announce that the company will:
 Conduct training of all employees in terms of morals and ethics
 Donate funds towards cleaning up the environment
Explain why this is necessary although this will cost the company a lot of
money each year. State THREE points.
Will create better working environment
Corporate responsibility towards the community – increase goodwill
Published financial statements will look good
Encourages new shareholders – favourable effect on share price
Company gives to the community
Improves company’s image / profitability
This is a form of publicity
King Code advises this.
Tax deductable
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Part-marks for unclear / incomplete answers
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Any THREE valid points   
QUESTION 3 2020 PRE-LIM KZN
NKANDLA LIMITED
You are provided with information for the financial year ended 30 June 2020.
REQUIRED:
1.2.1 Prepare the ‘Ordinary share capital’ note.
(8)
1.2.2 Complete the Cash Flow Statement for the year ended 30 June 2020.
(32)
1.2.3 The Cash Flow Statement reflects some important decisions taken by
the directors.
Apart from the dividends, identify TWO good decisions. Explain the
effect of each decision on the company. Quote figures.
(4)
INFORMATION:
Extract from the Income Statement on 30 June 2020:
(R)
61 000
82 000
257 400
75 600
Depreciation
Interest on loan
Net profit before tax
Income tax
B.
Extract from the Balance Sheet on 30 June:
2019
(R)
1 201 500
185 000
4 495 400
4 200 000
295 400
560 000
Dr 8 000
210 000
2 000
17 100
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Fixed assets (at carrying value )
Financial assets
Shareholders’ equity
Ordinary share capital
Retained income
Loan
SARS : income tax
Shareholders for dividends
Cash and cash equivalent
Bank overdraft
2020
(R)
1 505 400
195 000
7 683 200
7 644 000
39 200
400 000
Cr 12 500
174 000
2 922 000
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A.
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C. Shares:
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Authorised share capital is 2 000 000 ordinary shares.
On 30 June 2019, 1 200 000 ordinary shares had been issued.
On 1 January 2020, 40 000 shares were repurchased at R4.10
O n 30 Jun e 2 0 20 , a ll sh a re s th a t we r e u n -issue d a s a t
30 June 2019 were issued.
D. Di vi de nds:
E.

Interim dividends of 20 cents per share were declared and paid on
31 December 2019.

Final dividends were declared on 30 June 2020.
Fixed assets:


F.
An old vehicle was sold at its book (carrying) value of R23 500 during
the financial year.
Additional fixed assets were purchased during the financial year.
Financial indicators:
Solvency
% gross profit on cost of sales
% operating expenses on sales
% operating profit on sales
30 June 2020
3.3 : 1
63%
31.5%
12.7%
30 June 2019
2.1
:1
51%
39.2%
6.5%
Ordinary share
capital Authorised:
2 000 000
shares Issued:
Shares in issue at the beginning
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1 200 000
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Cash Flow Statement for the year ended 30 June 2020
Notes
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
Interest paid
1
Dividends paid
3
Income Tax paid
4
CASH FROM INVESTING ACTIVITIES
Buy fixed assets
Sell fixed assets
5
639 100
Increase / decrease fixed deposit
CASH FLOW FROM FINANCING ACTIVITIES
Buy back of shares
issue of shares
INCREASE loan
DECREASE loan
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Apart from the dividends, identify TWO good decisions. Explain the effect of
Consequence
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each decision
on the company. Quote figures.
Decision
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