SAICA MATHS AND ACCOUNTING
DEVELOPMENT CAMP
2024
LEARNER GUIDE GRADE 12
ACCOUNTING
REVISION DOCUMENT
PAPER 1 & PAPER 2 TOPICS
“Accounting is not just about numbers; it's the language of business, telling the story of a
company's past, present, and future”
KZN SAICA CAMP REVISION DOC 2024 - ACCN
Dear Grade 12 Accounting Learner,
We've picked out the activities in this book from recent National exams to make sure we
cover everything you need to know. If you do all the activities regularly, you'll be really
prepared for tests and exams.
Here's what you need to focus on:

Read the notes and tips for each topic carefully. They tell you what kinds of
questions to expect in exams and give you important info to understand the topic
better.

Plan your study time so you can practice managing your time during exams. Try to
find ways to save time when you're working on questions.

Do Accounting practice activities every day, especially after you’ve learned
something new in class.
 Remember these tips for exams:
1. Always read the instructions carefully before you start answering a question. Just do
what they ask.
2. Start with the easy questions first to boost your confidence.
3. Don’t spend too much time on one question. Move on to the next one if you’re stuck.
You can come back later if you have time.
4. Underline important words in questions so you know exactly what to do.
5. Show all your calculations clearly. You can use headings to organise your work.
Success in Accounting come from staying positive, being motivated and working hard.
Best wishes,
Accounting Educators – KZN SAICA CAMP 2024
P.J. Mahlobo; S. Sithole; X.M. Maduna; S. Ngobe
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
TABLE OF CONTENTS
PAPER ONE ACTIVITIES
ACTIVITY
A1
A2
TOPIC
Statement of Comprehensive Income and
Current Assets
Company Financial Statements
MARKS
4-6
60
7-8
50
B1
Retained Income Note, Cash Flow Statement
and Financial Indicators
35
B2
Cash Flow Statement and Financial Indicators
45
C1
Interpretation of Financial Information
40
C2
Interpretation of Financial Statements
40
D1
Corporate Governance
15
D2
Corporate Governance and Auditing
15
NOTES
Additional Information/THEORY QUESTIONS
Paper 1
9
10-11
12-13
14-15
16-17
18
Pg. 20-28
PAPER TWO ACTIVITIES
ACTIVITY
TOPIC
Page
MARKS
Page
E1
Bank Reconciliation
45
33-34
E2
Reconciliations and Debtors’ age analysis
35
35-37
F1
Inventory Valuation
30
F2
Cost Accounting
30
G1
Cost Accounting
35
G2
VAT and Inventory Valuation
45
H1
Budgeting
40
H2
Budgeting
45
NOTES
Additional Information/Questions for Paper 2
38-39
40-41
42-44
45-47
48-49
50-51
Pg. 52-56
Page 3 of 59
KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY A1: STATEMENT OF COMPREHENSIVE INCOME AND CURRENT
ASSETS
(60 marks; 45 minutes)
1.1
1.2
Choose a description from COLUMN B that matches the term in COLUMN A.
Write only the letter (A–E) next to the question numbers (1.1.1 to 1.1.4) in the
ANSWER BOOK.
1.1.1
COLUMN A
Independent auditor
1.1.2
Capital employed
1.1.3
Current liability
1.1.4
Financial asset
A
COLUMN B
investment such as a fixed deposit over
a three-year period
B
debt to be settled within 12 months
C
a staff member of a company who sets
up effective internal control procedures
D
total of Ordinary Shareholders' Equity
and Non-current Liabilities
E
expresses an unbiased opinion on the
reliability of financial statements
(4 x 1)
(4)
STARLIGHT LTD
The information relates to the financial year ended 28 February 2023.
The company trades in electrical items.
REQUIRED:
1.2.1
Refer to Information B (i).
Calculate the value of the closing stock of light bulbs on
28 February 2023, using the weighted-average method.
1.2.2
(4)
Refer to Information B (ii).
Calculate:
1.2.3

Profit or loss on disposal of vehicle
(5)

Total depreciation for the year
(7)
Complete the following:

Statement of Comprehensive
28 February 2023
Income
for
the
year

Current Assets section of the Statement of Financial Position
ended
(29)
(11)
NOTE: Some figures have been entered in the ANSWER BOOK.
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
INFORMATION:
A.
Extract from the Pre-adjustment Trial Balance on 28 February:
Balance Sheet accounts section
Loan: Pearl Bank
Vehicles
Accumulated depreciation on vehicles
Equipment
Accumulated depreciation on equipment
Fixed deposit: Pearl Bank
Trading stock
Debtors' control
Provision for bad debts
Bank (Dr)
SARS: Income tax (provisional tax payments)
Nominal accounts section
Sales
Cost of sales
Salaries and wages
Commission income
Rent income
Audit fees
Directors' fees
Sundry expenses
Bad debts
Interest on fixed deposit
Asset disposal (cash received on vehicle sold)
B.
2023
524 400
?
?
822 000
?
320 000
2 969 800
645 250
?
?
875 000
2022
690 000
1 250 000
420 000
774 000
360 000
21 020
17 850 000
10 200 000
?
85 900
89 700
155 200
2 015 000
219 760
16 200
?
91 500
Adjustments and additional information:
(i)
A physical stock count on 28 February 2023 revealed R2 774 800
stock on hand. However, this figure excludes the closing stock
figure for light bulbs. Note that the weighted-average method is
used to value the light bulbs.
Details of the light bulbs are as follows:
UNITS
Stock on 1 Mar. 2022
Purchases
Available for sale
8 000
47 000
55 000
Carriage on purchases
Stock on 28 Feb. 2023
1 700
UNIT PRICE
(R)
52
74
?
TOTAL
(R)
416 000
3 478 000
3 894 000
27 500
?
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
(ii)
Fixed assets and depreciation:
Vehicles:
 An old vehicle was sold for R91 500 on 30 November 2022.
The amount received was recorded but no further entries were
made.
Details of the vehicle sold:
Carrying value on 1 March 2022
R104 000
Depreciation: 20% p.a. on the diminishing-balance method

Depreciation on the remaining vehicles: R145 200
Equipment:
 Equipment is depreciated at 15% p.a. on cost.
 New equipment was bought on 31 July 2022.
(iii)
The auditors are owed a further R38 800 for the current financial
year.
(iv)
Received R9 000 from the insolvent estate of debtor Billy Croon.
His estate paid 80 cents to the rand of his outstanding balance. The
money received was recorded. The balance of his account must still
be written off.
(v)
The provision for bad debts must be increased to R25 720.
(vi)
Directors' fees:



The company has two directors who were appointed in 2019.
A third director was appointed on 1 October 2022.
The directors all earn the same monthly fee.
Directors' fees paid during the financial year have been
recorded, but one director has already been paid for March and
April 2023.
(vii)
Rent income includes the rent for March 2023 received from
the tenant. The monthly rent was increased by R1 170 on
1 January 2023.
(viii)
Loan: Pearl Bank



(ix)
Interest on the loan capitalised has not been recorded.
Fixed monthly repayments (including interest) have been paid
and correctly recorded for the financial year.
Interest on the loan amounts to 60% of the monthly repayments.
Income tax for the year was calculated to be R858 140.
60
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY A2 COMPANY FINANCIAL STATEMENT (50 marks; 40 minutes)
LEEDS LIMITED
The following information relates to Leeds Limited. The financial year ended on 30 June
2023. The business uses the perpetual inventory system.
REQUIRED:
2.1 Refer to Information B.
Calculate the correct net profit after tax for the year ended 30 June 2023. Indicate
a + for increase and a – for decrease.
(13)
2.2 Retained Income Note on 30 June 2023.
2.3
(7)
Prepare the Statement of Financial Position (Balance Sheet) on 30 June 2023.
Where notes are NOT required, workings must be shown.
(30)
INFORMATION:
A.
List of balances/totals on 30 June 2023:
BALANCE SHEET ACCOUNTS SECTION
Ordinary share capital
Retained income
Mortgage loan: Dune Bank
Fixed assets
Fixed deposit
Trading stock
Debtors’ control
Provision for bad debts (1 July 2022)
Cash and cash equivalents
(balancing figure)
SARS: Income Tax - Provisional payment
Accrued income
Creditors’ control
NOMINAL ACCOUNTS SECTION
Rent income
Insurance
2023
?
2 194 000
?
?
480 000
206 100
396 000
13 400
?
712 000
13 200
132 000
2022
8 000 000
?
122 400
48 500
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
B.
C.
Net profit before tax of R2 530 200 was determined BEFORE taking into account the
following information:
(i)
Trading stock on 30 June 2023 was valued at R186 300.
(iii)
Rent for July 2023 had been received in advance. Rent increased on 1
February 2023 with 10%.
(ii)
Provision for bad debts must be adjusted to R10 700.
(iv)
An annual insurance premium of R9 600 was paid for the period
1 March 2023 to 28 February 2024.
(v)
The auditor discovered that the loss on disposal of a vehicle, R7 300, was
incorrectly shown as a profit.
(vi)
Income tax amounts to R748 500 for the year.
Dividends and shares:
(i)
Interim dividends of R400 000 were paid on 31 December 2022.
(ii)
The directors declared a final dividend of 23 cents per share on
30 June 2023 on all shares issued to date. Shares repurchased on
30 May 2023 do not qualify for final dividends.
(iii)
Share capital:
1 July 2022
15 October 2022
30 May 2023
2 000 000 shares were in issue
500 000 new shares were issued at R6,00
each. This has been recorded.
20 000 shares were repurchased at R1,60
more than the average price. This has not
been recorded.
D.
A debtor’s credit balance of R3 600 in the Debtors’ Ledger must still be transferred to
his account in the Creditors’ Ledger.
E.
The current ratio on 30 June 2023 is 1,7 : 1.
50
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY B1: RETAINED INCOME NOTE, CASH FLOW STATEMENT AND
FINANCIAL INDICATORS
(35 marks; 25 minutes)
The information relates to Swallows Ltd for the financial year ended 28 February 2023.
REQUIRED:
1.1
Prepare the Retained Income Note for the year ended 28 February 2023.
1.2
Calculate the following figures for the 2023 Cash Flow Statement:


(9)
Change in loan
Proceeds from shares issued
(2)
(3)
1.3
Complete the Cash Effects of Operating Activities section of the Cash Flow
Statement.
1.4
Calculate the following financial indicators on 28 February 2023:



Current ratio
Net asset value
% return on total capital employed (ROTCE)
NOTE: The average capital employed is R20 343 500.
(10)
(2)
(4)
(5)
INFORMATION:
A.
Extract: Statement of Comprehensive Income on 28 February 2023
Sales
Depreciation
Interest on loan
Net profit after tax (tax rate: 30% on net profit)
B.
Extract: Statement of Financial Position on 28 February
Ordinary share capital
Retained income
Loan: Daisy Bank
Total current assets
Total current liabilities
Shareholders for dividends
SARS: Income tax
C.
R12 754 500
316 500
648 000
1 526 000
2023
R13 959 500
?
6 348 000
1 479 600
822 000
575 400
23 600 (Dr)
2022
R12 312 500
237 400
7 200 000
2 342 000
976 000
475 000
42 100
(Cr)
Share capital
1 250 000 Shares on hand on 1 March 2022
180 000 Shares repurchased on 1 May 2022. They do not qualify for dividends.
An EFT of R1 989 000 was issued for the repurchase.
? Shares issued on 1 October 2022 at R11,40 per share
1 370 000 Shares on hand on 28 February 2023
D.
Dividends


An interim dividend of 32c per share was paid on 31 August 2022.
A final dividend was declared on 28 February 2023.
35
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY B2
2.1
CASH FLOW STATEMENT & FINANCIAL INDICATORS
(45 marks; 36 minutes)
CONCEPTS
Choose the correct term to complete each of the following statements. Write only the
term next to the question numbers (2.1.1 to 2.1.4) in the ANSWER BOOK.
statement of comprehensive income;
current asset;
non-current asset;
statement of financial position; net working capital
2.1.1 Consumable stores on hand is a/an ...
2.1.2 A fixed deposit that will mature in two years is a/an ...
2.1.3 The difference between current assets and current liabilities is …
2.2
2.1.4 The statement reflecting the financial results of the company is called a/an …
(4)
OOSWES LTD
Information for the financial year ended 30 June 2023 is provided.
REQUIRED:
2.2.1 Prepare the Ordinary Share Capital Note to Statement of Financial
Position.
(7)
2.2.2 Calculate the following amounts for the Cash Flow Statement.
Show workings.


Income tax paid
Proceeds from the sale of fixed assets
(5)
(5)
2.2.3 Complete the following sections to the Cash Flow Statement


Cash flow from financing activities
Net change in cash and cash equivalents
(5)
(4)
2.2.4 The Cash Flow Statement reflects a significant inflow of cash
through financing activities. The Cash Flow Statement highlights
ways in which the directors used this inflow. Identify TWO ways,
with figures (exceeding R500 000). Explain how this will benefit
to the company.
(6)
2.2.5 Calculate the following financial indicators on 30 June 2023:

% return on average capital employed (ROTCE)
(Average capital employed amount to R11 433 075)
(5)

Dividend per share
(4)
INFORMATION:
Page 10 of 59
KZN SAICA CAMP REVISION DOC 2024 - ACCN
A.
Share Capital


B.
On 1 September 2022, the directors issued a further 80 000 ordinary shares at
R12,74.
On 1 February 2023 the company repurchased 40 000 shares from a disgruntled
shareholder. An EFT for R539 200 was made to the shareholder. The average
share price at the time was R12,07
Dividends


Interim dividends of 38 cents per share were paid on 15 December 2023.
Final dividends of R310 200 were declared on 30 June 2023.
C.
Extract from the Statement of Comprehensive Income for the year ended 30
June 2023
R
Depreciation
185 400
Interest expense (on loan)
214 500
Net profit after tax (income tax is calculated at 30% of the net profit)
1 025 850
D.
Extract from the Statement of Financial Position on 30 June 2023:
2023
2022
R
R
Fixed assets (carrying value)*
13 163 580
12 646 080
Fixed deposit: Flay Bank
225 000
150 000
Current assets
?
876 450
Inventories
554 200
271 500
Debtors
432 450
550 500
SARS: Income tax
0
16 950
Cash and cash equivalents
?
37 500
Shareholders' equity
11 844 500
?
Ordinary share capital
11 345 800
?
Retained income
498 700
212 250
Loan: Home Bank
2 100 000
1 275 000
Current liabilities
830 400
1 385 280
Creditors
487 500
631 500
Shareholders for dividends
310 200
540 000
SARS: Income tax
32 700
0
Bank overdraft
0
213 780
*Fixed assets at the cost price of R870 600 were purchased during the year.
45
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY C1: INTERPRETATION OF FINANCIAL INFORMATION
(40 marks; 35 minutes)
You are provided with information relating to Qumbu Ltd for the year ended
28 February 2023.
REQUIRED:
NOTE: Provide financial indicators with figures and trends to support your comments
or explanations (where applicable).
1.1
Liquidity
Explain whether or not the company is managing their working capital efficiently.
Quote TWO financial indicators.
1.2
(5)
% shareholding
Denise Taylor, the CEO, owned 540 000 shares in the company on
1 March 2022. She continued to buy additional shares on the JSE at various
times during the year. On 28 February 2023, Denise became the majority
shareholder as she then owned 51% of the shares in issue.
1.3

Calculate the total number of additional shares that Denise purchased.
(4)

Give ONE possible reason why Denise was determined to become the
majority shareholder.
(2)
Decisions by directors, risk and gearing
1.3.1
The Cash Flow Statement revealed decisions taken by the directors.
Identify TWO major decisions taken by the directors in 2023 that were
different to those from the previous year.
Give ONE reason for these decisions.
(6)
1.3.2
Explain the impact of these decisions on the degree of financial risk
over the two years. Quote ONE financial indicator.
(3)
1.3.3
Explain how these decisions affected the gearing of the company.
Quote ONE financial indicator.
(4)


1.4
1.5
Dividends and earnings
1.4.1
Certain shareholders expressed concern about the change in the
dividend payout policy. Explain TWO points to support their opinion.
(4)
1.4.2
Explain whether shareholders would be satisfied with the trend in the
% return and earnings of the company, as well as the dividends they
earned. Quote TWO financial indicators.
(6)
Comments at the annual general meeting
Some shareholders are angry about the trends of the following two issues
relating to the performance of the company:


Cash and cash equivalents at the end of the year
The market price of the shares on the JSE
In EACH case, provide evidence for the shareholders' concerns over these
trends, and explain why they would be concerned about the future prospects for
the company.
(6)
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
INFORMATION:
A.
B.
Financial indicators and additional information on 28 February:
% operating expenses on sales
% operating profit on sales
% net profit on sales
Debt-equity ratio
Current ratio
Acid-test ratio
Average debtors' collection period
Earnings per share
Dividends per share
Dividend payout rate
% return on average equity
% return on average capital employed
Net asset value per share
2023
14,1%
14,5%
10,4%
0,1 : 1
0,9 : 1
0,3 : 1
42,4 days
60 cents
64 cents
106,7%
5,7%
9,0%
1 007 cents
2022
12,0%
16,5%
10,9%
0,4 : 1
1,3 : 1
0,6 : 1
30,8 days
74 cents
50 cents
67,6%
7,2%
11,4%
980 cents
Market price of shares on JSE
Interest rate on loans
Interest rate on fixed deposits
850 cents
13%
7%
1 020 cents
13%
7%
Share capital and % shareholding:


C.
On 1 March 2022, the company issued an additional 300 000 shares.
On 28 February 2023, there were 1 500 000 shares in issue.
Extract from the Cash Flow Statement on 28 February:
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Shares
Loans
Net change in cash and cash equivalents
Cash and cash equivalents at beginning
Cash and cash equivalents at end
2023
R
(1 890 000)
2022
R
(652 000)
1 950 000
3 750 000
(1 800 000)
3 250 000
(250 000)
3 500 000
(836 000)
1 914 000
1 078 000
2 200 000
(286 000)
1 914 000
40
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY C2
INTERPRETATION OF FINANCIAL STATEMENTS
(40 marks; 32 minutes)
The following information relates to Vortex Ltd, a textile company. Their financial year
ends on 28 February each year.
NOTE:
Where comments or explanations are required, in EACH case, quote
financial indicators, figures and trends to support your answer.
REQUIRED:
2.1
Liquidity:
2.1.1 Comment on the change in the liquidity of Vortex Ltd. Quote TWO
financial indicators with figures.
(6)
2.1.2 Provide TWO suggestions on how the company can improve their liquidity
position. Make reference to specific financial indicators.
(4)
2.2
Return, earnings and market price on the JSE:
2.2.1 Comment on the % return and earnings per share of the company. Quote
TWO financial indicators with figures.
(4)
2.2.2 The shareholders of Vortex Ltd are not satisfied with the current market price
of their shares. Explain by quoting figures/indicators and identify a factor that
would have affected the market price of the shares.
(4)
2.3
Risk and gearing:
Comment on how Vortex Ltd is managing their risk and gearing. Quote TWO
financial indicators in your explanation.
(6)
2.4
Dividend pay-out policy:
3.4.1 Calculate the dividend pay-out policy for 2023.
(2)
3.4.2 Provide ONE possible reason why Vortex Ltd has decided to change
their dividend pay-out policy for 2023.
(2)
3.4.3 One of the directors feel that the dividend pay-out policy should have
remained constant. Give TWO possible reasons (with figures) for his
opinion.
(4)
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
2.5
Percentage shareholding:
Refer to information B:
An existing shareholder, Liyema Phato has sold some of his shares back to
Vortex Ltd:
2.5.1 Comment on the price paid for the repurchase by Vortex Ltd. Provide
TWO points and quote figures.
(4)
2.5.2
Calculate Liyema’s new % shareholding in Vortex Ltd.
(2)
2.5.3
Explain the effect of the repurchase on Liyema’s % shareholding in the
company. Quote trends/ figures to support your explanation.
(2)
INFORMATION:
A. FINANCIAL INDICATORS, INTEREST RATES AND MARKET PRICES OF SHARES
Mark-up % achieved
Current ratio
Average debtor’s collection period
Earnings per share (EPS)
Dividends per share
Dividend pay-out policy
Debt-equity ratio
% return on average equity (ROSHE)
% return on total capital employed (ROTCE)
Interest rate on loans
Interest rate on investments
Market price of shares on JSE
Net asset value per share (NAV)
2023
60%
3,1 : 1
45 days
72 cents
48 cents
?
0,6 : 1
5,3%
9%
12%
6,5%
840 cents
877 cents
2022
2,5 : 1
40 days
96 cents
48 cents
50%
0,2 : 1
8,7%
13%
12%
6,5%
920 cents
912 cents
B. EXTRACT FROM THE ACCOUNTING RECORDS OF 28 FEBRUARY 2023
2023
2022
Number of shares in issue
1 950 000
2 100 000
Repurchase price
R11
Number of shares owned by Liyema Phato at
942 000
1 092 000
end of year
% shareholding of Liyema Phato
?
52%
40
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KZN SAICA CAMP REVISION DOC 2024 - ACCN
ACTIVITY D1:
1.1
1.2
CORPORATE GOVERNANCE
(15 marks; 15 minutes)
Choose the correct word(s) from those given in brackets. Write only the word(s)
next to the question numbers (4.1.1 to 4.1.3) in the ANSWER BOOK.
1.1.1
The audit report presented in the annual report is addressed to the
(directors/shareholders) of a company.
1.1.2
A/An (qualified/unqualified) audit report will contribute to a favourable
image of the company.
1.1.3
A (qualified/disclaimer of opinion) report is received when the external
auditor refuses to express an opinion on the reliability of the financial
statements.
(3)
MBOMBELA LTD
Refer to the extract below.
Shareholders of the company were unhappy with reports about the chief
financial officer (CFO) and approached the board of directors for a special
meeting to discuss their concerns.
REQUIRED:
Explain THREE questions that the shareholders would want to raise with the
board of directors at the meeting.
NOTES FROM BOARD MEETINGS OF DIRECTORS
The CFO, Nestor Donald, commenced duty at Mbombela Ltd on 1 May 2018
with an annual salary of R1,8 million based on his qualifications of a master's
degree in Accounting Science and a doctorate from international universities.
In September 2022, Donald informed the board that he was offered a package
of R3,4 million by Rose Ltd, a competitor. In response to this, the board of
Mbombela Ltd decided to match the offer of Rose Ltd.
A whistle-blower (informant) alerted the chief executive officer (CEO) that
Donald has no post-graduate qualifications. It was subsequently discovered that
he had also lied about the job offer from Rose Ltd.
(6)
Page 16 of 59
1.3
NEPTUNE LTD
Refer to the information presented by the external auditors.
Concern was raised about the productivity of the business and the remuneration
(fees and salaries) of directors and employees.
REQUIRED:
Provide ONE point of possible mismanagement or corruption under EACH of
the following subheadings. Quote relevant figures to support your answer in
EACH case.


Payment of directors' fees
Salaries of other employees
(3)
(3)
Information identified by the external auditors on 30 April:
NOTE: Rand amounts are expressed in millions.
% change
R
General information:
Gross profit
Operating profit
Net profit
+ 8,1%
– 4,7%
– 3,0%
Directors' fees:
Chief executive officer
Chief financial officer
Other full-time directors
+ 37,6%
+ 44,4%
+ 5,0%
+ 45,0%
Average fee (per other directors)
- 3,3%
Other employees:
Salaries
Average salary (per employee)
+ 29,7%
+ 3,8%
2023
No.
Amount
R
2022
No.
335 m
101 m
96 m
11
1
1
9
90,8 m
26,0 m
12,6 m
52,2 m
310 m
106 m
99 m
8
1
1
6
5,8 m
275
91,3 m
332 000
Amount
R
66 m
18 m
12 m
36 m
6m
220
70,4 m
320 000
15
ACTIVITY D2
COMPANY
2.1
CORPORATE GOVERNNANCE AND AUDIT OF A
(15 marks; 12 minutes)
The board of directors have different committees with different functions.
Choose the function in COLUMN B that matches the committee in COLUMN A.
Write only the letter (A–D) next to the question numbers (4.1.1 to 4.1.4) in the
ANSWER BOOK.
COLUMN A
COLUMN B
2.1.1 Remuneration
committee
2.1.2 Risk committee
2.1.3 Audit committee
2.1.4 Social and ethics
committee
A. Ensure that the appointment of an auditor
complies with the Companies Act and the
legislation.
B. Monitor the impact of the public activities and
their products or service to the environment,
health and public safety.
C. Responsible for performing risk assessment
regularly.
D. Review salaries, bonuses and other earnings.
(4)
2.2
Who is the audit report addressed to? Give a reason for your answer.
(2)
2.3
The following is an extract from the independent auditor’s report of Thyme Ltd.
In our opinion the financial statements present fairly, in all material respects,
the financial position of the company as at 31 December 2022.
2.3.1 Identify the type of audit report issued by the auditor. Provide ONE reason
for your answer.
(3)
2.3.2 Explain the impact of such a report on the image of the company. State
ONE point.
(2)
2.4
Showmaster Ltd received one of the tenders to build houses worth R12 million
in the Giyani community. The Chief Financial Officer (CFO) of Showmaster Ltd
offers to pay 10% of the amount in cash to the Chief Executive Officer (CEO) of
the housing project if awarded the tender. The CFO wants to disclose this as
corporate social responsibility.
Mention possible implications for the CEO of the housing project, should
he accepts this offer. Explain TWO points.
(4)
15
Page 18 of 59
ADDITIONAL INFORMATIO N/ THEORY QUESTIONS FOR PAPER 1
Explain Buy-Back Shares
 Companies buy back their shares so to reduce the number of shares on the share market
 This is done for various reasons;
o increase the value of shares still available
o eliminate any threats by shareholders who may. be looking for a controlling stake.
 Tax reasons, as it is often less costly for shareholders to get cash in the form of a share buyback than
in the form of dividends.
PURPOSE OF CASH FLOW STATEMENTS
 Predict future cash flows
o ability of company to generate profits and favourable cash flows in future.
 Provide information re: financial resources to users of company financial statements
o Evaluate directors/management decisions
 Identify degree of risk
o Determine the ability to pay dividends to stockholders’ and payments to creditors.
o Show the relationship of net income to the business’s cash flows.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Principle
Brief definition
The financial affairs of the business are kept entirely separate from
1
Business entity
those of the owner.
2
Historical cost
All assets are valued at their original cost.
The assumption is that a business will continue for the foreseeable
3
Going concern
future.
Expenses are offset against income generated by those expenses.
4
Matching
Income and expense items are allocated to the correct time period.
Financial results are reflected on a conservative basis i.e. if in doubt,
5
Prudence
the pessimistic viewpoint is used.
Any information that is important to the reader must be highlighted or
6
Materiality
reflected separately.
MANIPULATION OF SHARE PRICES
 Manipulation of shares are illegal and unethical.
 This is a deliberate interference to the free and fair operations of the markets.
 The share prices are either inflated or deflated.
 Market manipulation harms the integrity of the securities and derivatives markets.
 This undermines public confidence in securities and derivatives markets .
 Authorities around the world have adequate systems in place to detect, investigate and prosecute
market manipulation.
 The JSE Surveillance Division in South Africa operates a system that identifies unusual price and
volume movements.
 Any person that manipulates the prices of shares will persecuted as this is regarded as a criminal
offence.
INSIDER TRADING
 Is also regarded as illegal and unethical.
 This is defined as any confidential price-sensitive knowledge and data that can provide an unfair
advantage when buying and selling shares of a publicly traded company.
 This is also a criminal offence.
Page 19 of 59
FALSE STATEMENTS
 Anyone presenting a false statement regarding information about a companies act will be contriving
the ethical code of conduct.
 E.g. that a company’s shares are sustainable.
 Issuing of false statements can harm the integrity of and undermine public confidence in markets.
 Directors of the company share the responsibility with the company to ensure the accuracy of
statements that are published.
 This is also a criminal offence.
ROLES OF SHAREHOLDERS
 A Shareholder is someone who owns shares in a company.
 They have rights to
o information about the company.
o to participate in general meetings
o to exercise their vote.
o to elect and dismiss members of the board and.
o to share in the profits of the business.
 The shareholders of any company have a responsibility to ensure that the company is well run and
well managed .
 They do this by monitoring the performance of the company and raising their objections or giving
their approval to the actions of the management of the company.
ROLES OF DIRECTORS
 The general duties mean a director must act in the interests of the company and not in the interests
of any other parties – including shareholders.
 Duty to act within the company’s powers. Directors must follow the rules and restrictions contained
in the constitution. They must use the powers delegated to them by the shareholders for the benefit
of the company.
 Duty to promote the success of the company. The underlying principle here is that every director has
a legal duty to try and act in such a way which, in their judgement, is most likely to bring ‘success’ to
the company.
 Duty to exercise independent judgement.
 Duty of skill, care and diligence. Every director must exercise reasonable care, skill and diligence in
everything they do for the company.
o As a director you must demonstrate the general knowledge and skill reasonably expected of a
person carrying out the functions you carry out in relation to the company. Therefore, a
managing director will be expected to have a knowledge of all areas of the business or to
have engaged people who can help them; and
o As a director you must also act in accordance with any specific general knowledge and skills
you actually have. Therefore, a director who is a qualified accountant would be expected to
show greater general knowledge, skills and interest in relation to financial aspects of the
company than another director who was not so qualified.
 Duty to avoid conflicts of interest. Directors must avoid any situations where they have any personal
or outside interests which will potentially come into conflict with the interests of the company.
 Duty not to accept benefits from third parties. A director of a company must not accept a benefit
from a third party arising from them being a director; or from their actions as a director.
 Duty to declare an interest in a proposed transaction or arrangemen.t
Page 20 of 59
BUSINESS RESCUE
 are processes put into place to facilitate the recovery of a company that is financially distressed by
providing for:
o the temporary supervision of the company, and the management of its affairs, business and
property, by a business rescue practitioner;
o a temporary moratorium (stay) on the rights of claimants against the company or in respect
of property in its possession; and
o the development and implementation, if approved, of a business rescue plan to rescue the
company by restructuring its business, property, debt, affairs, other liabilities and equity
REASONS FOR BUSINESS FAILURE
 Shortage of working capital
 Factors related to interest rates and the volatility of the Rand
 Mismanagement and/or fraud
 Discussion of circumstances in which businesses may be capable of being rescued
BENEFITS OF BUSINESS RESCUE
 Facilitates the rescue and rehabilitation of businesses.
 Preserves employment.
 Enhances value of businesses, maximises long-term returns for stakeholders and ideally.
ensures greater dividends than would accrue on insolvency.
 Reduces detrimental impact on economy.
 Enhances commercial certainty and expedites recovery
WHAT IS A BUSINESS RESCUE PRACTITIONER?
A business rescue practitioner is a person or two or more persons jointly appointed to oversee a
company during business rescue.
WHEN SHOULD A COMPANY BE RESCUED?
 Business rescue provisions should be available in the following circumstances:
o Where a business is not yet insolvent but is experiencing/expecting financial
difficulties.
o Where a business is in fact insolvent but has not yet been placed into liquidation.
o Where the business is in fact insolvent and has been placed into liquidation.
IMPORTANT PRINCIPLES FOR BUSINESS RESCUE
 Statement of principles as compiled by Insolvent International –
o Co-operation of creditors.
o Agreement by creditors to refrain from taking steps to enforce claims.
o Debtor to refrain from taking action which may prejudice creditors.
o Co-ordinated response of creditors.
o Creditors to be allowed access to information relating to the business in order to
enable a proper evaluation to be made.
o Arrangement between creditors relating to any standstill should reflect applicable law
and relative positions of creditors.
o Information to be made available to all relevant creditors and to be treated as
confidential.
o Repayment of additional funding provided during standstill period should be accorded
priority status.
Page 21 of 59
Briefly explain the difference in the work done by the internal auditor and the
independent (external) auditor.
 Internal auditor: Is employed by a company to establish and monitor internal control on an on-going
basis.
 Independent auditor: Is appointed by the shareholders to express an opinion on the annual financial
statements.
Why does the Companies Act make it a requirement for public companies to be audited?
 To protect the shareholders / separation of ownership from control
 To ensure that it is a fair reflection of financial statements
 To ensure that directors are not misrepresenting the figures
 To be accountable to stakeholders e.g. SARS shareholders
 Public funds are used
 To discourage fraud
Who would be interested in the audit opinion, and give a reason for the interest in the
opinion.
 Prospective investors (Financial Institutions) – To make investments
 Lenders – To see whether the company is solvent and security for their loans
 Suppliers – To see if amounts owed can be paid
 SARS – To calculated the tax accurately
 Competitors – To compare results
 Trade unions – For wage negotiations / job security
 Board of directors / CFO – To assess performance
 Government – For statistical information
 Registrar of Companies – To comply with legislation
At the AGM, one of the shareholders says that he is not happy with the words 'fairly
present' in the audit report. He wants the auditors to say that the financial statements are
'correct in all respects'. What explanation should be given to this shareholder?
 Auditors give reasonable assurance because they do not check everything in the books of
the company (sampling test only).
 Cost factor / time-consuming – if everything checked
The directors are not happy with the high audit fees reflected in the Income Statement.
Explain why improvement in internal control will have a positive effect on the external
auditors’ fees.
 Internal auditors will reduce mistakes made by employees
 External auditors will spend less time auditing the books.
 Admin should be in place – documents filed correctly
SAICA is one of the main professional bodies governing accountants in this country.
Explain the main roles performed by the SAICA.
 Disciplinary procedure against member who  Professional development / training / updated
is negligent
circulars
 Compliance with GAAP and IFRS
 Compliance with Code of Ethics / credibility
 Ensure high competence levels
 Control qualifications
 Market the profession
 Investigate complaints against members
Page 22 of 59
Explain why it is important for the independent auditor to be a member of a professional
body.
 So that readers of financial statements can have confidence in his opinion
 Assurance to the public that he/she is well trained on an on-going basis
 Disciplinary actions if negligent in performing duties
 Aware of latest trends e.g. IFRS, Companies Act, King Code
 Act in ethical manner (integrity, observe code of conduct)
 To benchmark quality of work
Refer to the underlined sentence in the following paragraph. Why do the auditors include
this sentence in their report? Briefly explain.
We have audited the annual financial statements of Star Limited set out on pages 6 to 15 for the
year ended 30 September 2013. These financial statements are the responsibility of the
company's directors. Our responsibility is to express an opinion on these financial statements
based on our audit.
 The auditor expresses an opinion, he/she does not prepare the financial statements.
 If the auditor has anything to do with preparing the financial statements, he will not be able to
express his opinion (conflict of interests, he would be biased).
 The auditor only checks on a test basis – the directors are responsible for the figures.
 The directors work in the company on a daily basis – they must be held liable for errors or fraud.
 The directors cannot delegate their responsibilities for the preparation of the financial statements.
Refer to the underlined words in paragraph - An audit includes:
Examining, on a test basis, evidence supporting the amounts in the financial statements;
Assessing the accounting principles used and significant estimates made by management;
Evaluating the overall financial statement presentation.
Give examples of ‘evidence’ that an auditor would use
Any valid proof of entries in the books or values in the books or financial statements concerning
cash, fixed assets, loans, stock e.g. bank statements, stock sheets counts, invoices (source
documents and supporting vouchers), fixed asset register.
Give examples of the ‘accounting principles’ he/she would assess as part of the audit.
Explain why the auditor would inspect this principle
Stock valuation method
Could lead to differences in profit
Valuation of fixed assets
Could lead to differences in profit or net asset value
(historical cost & depreciation)
Matching principle
Income & expenses must be matched in correct
accounting period
Prudence principle
Results must be conservatively reported
Going-concern principle
Affects valuation of assets
Refer to Paragraph - Audit opinion
In our opinion, the financial statements fairly present, in all material respects, the financial
position of the company at 30 September 2013 and the results of their operations and cash flow
for the year then ended in accordance with International Financial Reporting Standards, and in
the manner required by the Companies Act, 2008 in South Africa.
Page 23 of 59
Explain why you would you be satisfied with this audit opinion.
 The auditors have stated that they are satisfied with all aspects of the financial reporting by the
directors/company
 This is a standard report – cannot expect better (fairly presented)
 No negative comments reported – if the auditor had been dissatisfied about anything he would have
stated it here
 Complies with IFRS and Companies Act
The auditors have not stated the report is qualified or withheld.
Explain why the auditors found it necessary to stipulate the page numbers (i.e. 8 to 20) in
this report.
They are only responsible for the pages that have been stipulated in the auditors' report.
Explain why the Companies Act makes it a requirement for public companies to be
audited by an independent auditor.
The shareholders of a company need to have confidence in the company’s ability to look after
the investment.
Name major consequences for AUDITORS should they be negligent in performing their
duties.
 Can be sued.
 Not be re-appointed as auditors.
 Face disciplinary procedures by the professional body.
What actions would AUDITORS have to perform to verify the Fixed/Tangible Assets figure
in the Balance Sheet?
 Examine the financial records of the business - external audit.
 Assess the internal control of the business.
 Assess the accounting principles used by the business.
 Inspect the fixed asset register.
What is the purpose of an independent audit report and who is it addressed to?
Purpose:
To report on the company’s financial records and determine whether there is a fair presentation
of facts, and whether the policies are consistent with the previous year.
Addressed to: Shareholders.
Explain the difference between a qualified and an unqualified audit report?
An unqualified report is a report without any problems – good report
A qualified report reveals problems in certain areas of the company – all is not well.
The independent auditors want to qualify the report. What consequences could there be
for the company or its directors?.
 Existing shareholders would lose faith in the company and possibly sell their shares.
 Potential shareholders would not invest in the company.
 Could result in a drop in the market price of the shares.
 The financial statements would not be fairly presented.
 Suppliers will lose faith in the company.
 Internal control measures should be improved in order to prevent unethical transactions.
 Directors could lose their jobs.
Page 24 of 59
What is an external (independent) auditors' report?
 An opinion expressed by the independent auditor (appointed by the shareholders) on whether the
financial statements fairly present the results and state of affairs of the company.
 An opinion expressed by the independent auditor on his sample test of transactions of the company.
Why is it important for an external auditor to be 'independent'?
 Because of the separation of ownership of a company (by shareholders) from the control of a
company (by directors)
 It is essential that the external auditor be free to express an unbiased opinion that is not influenced
by others.
 Because the Companies Act requires the auditor to be independent.
 Because independence gives credibility to his report (it enables others to rely on the report).
Why is it important for an external auditor of a public company to be a member of a
professional body, such as SAICA?
 Assurance of his knowledge of accounting and auditing principles and procedures (all technical
aspects & legislation).
 Disciplinary procedures should he be negligent in his duties (code of conduct/code of professional
practice).
 Continuous professional training development.
Ensures standardisation of treatment of financial statements (IFRS etc.).
What is meant by a qualified audit report? Explain.
The independent auditors are specifically drawing attention to an aspect of the financial
statements that is of major concern to them.
How does this type of report affect the company and the shareholders? Explain.
The shareholders will not be able to rely on certain aspects of the financial statements when
making their decisions about their investment in the company. The company will get a bad
reputation and this will affect their ability to raise further capital or business in future.
The independent auditors issue a qualified report in respect of a business asset? Explain
why this is done.
The auditors are obviously not happy that this is a genuine business asset. The purchase has
affected the loans that have been raised and this has an effect on the profits earned. The
directors have misrepresented this asset in the balance sheet and in the directors' report. The
directors are receiving a benefit from this asset which should be declared in the financial
statements and might have tax implications.
Briefly explain the role of an independent auditor.
 The independent auditor expresses an opinion on the fair presentation of the financial statements.
 Watchdog role – look after the interests of the shareholders / public.

Why is this audit report addressed to the shareholders?
The auditors are appointed by the shareholders – they own the company but they do not have
access to the books and records of the company.
What is the significance of the reference CA (SA)?
The audit has been done by professionals with a CA qualification.
This provides assurance to the readers that the audit has been properly done.
Page 25 of 59
The auditor’s report refers to the International Financial Reporting Standards (IFRS).
Explain why auditors have to take IFRS into account in expressing their opinion?
 Requirement by auditing standards as the IFRS sets standards for preparation of financial
statements.
 This enables financial statements of different companies to be compared in South Africa and other
countries.
If you were a major shareholder in this company, what questions would you asked the
managing director at the special meeting?
Examples of expected responses (does not have to be in question form):
 How will this sponsorship benefit the company after a loss/profit for the financial year?
 What are the reasons for the loss/profit?
 What are the reasons for retaining my shareholding in the company?
 What plans and control measures does management have in place to prevent another loss?
 What other plans does management have in place to decrease the operating loss / ensure a
profit in future?
 How can you approve a sponsorship if a loan was needed?
 What response will be given to employees when only 8 % increase has been approved on
their salaries?
 Why has the number of sponsorship events decreased significantly? Are they focusing on
high-profile events only? Will it affect their overall profile?
At the AGM, the directors announce that the company will: conduct training of all
employees in terms of morals and ethics and donate funds towards cleaning up the
environment. Explain why this is necessary although this will cost the company a lot of
money each year.
 Training will improve customer service.
 Will create better working environment – employees/unions happier.
 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.
Explain why large companies are expected to be involved in community projects.
 The King Code covers the triple bottom line concepts i.e. economic, social and
environmental responsibilities OR
 Big companies rely on communities and the world around them in order to sustain profits.
The fact that they are contributing back to the community is the right thing to do.
Explain how the directors should reflect these projects in the annual report which is
published for shareholders.
The cost of these projects should be highlighted in the income statement or the notes to the
financial statements. The directors should fully inform all readers of the financial statements
about the nature of the projects and the good work that the company is doing
According to an article in the local newspaper, allegations are made that Tree Paper
Manufacturers are polluting the area by dumping their waste in a nearby field. Explain
how the owner would react to this article.
 He would be concerned about the manner in which this report affects the reputation of the business
(loss of goodwill).
 He should have the allegations investigated to know the true status of the report.
Page 26 of 59
If the allegations are true, how should the owner address the problem?
 If the waste does pollute the river, a proper waste-removal programme should be put in place or the
current waste-removal programme should be updated to prevent future pollution.
 He should inform the community of the plans to address the pollution.
 If an employee is guilty of dumping the waste, disciplinary actions should be taken.
This could affect the Cash Budget in several ways in future. Explain why the owner, Josh
Bogani, should be concerned about this.
 Any action taken could cost money and will have a negative impact on the Cash Budget. At the
moment, expenses are more than income, but the waste problem cannot be ignored.
 If the cost is passed onto customers through higher prices, this will affect demand for their products.
Who is responsible for ensuring that the financial statements are prepared?
Directors / financial director.
Briefly explain why a company has to have ‘Limited’ or ‘Ltd’ in its name.
 The owners’ (shareholders’) liability is limited to the amount they invested.
 The shareholders are not responsible for the debts of the company / the company is liable for
its liabilities.
 Limited liability.
 A company is a legal person in its own right.
 The Companies Act requires ‘Ltd’ in the name.
 The company is a public company.
Briefly explain what is meant by the following:
Share capital - The capital provided by the shareholders at the price at which shares are sold.
Retained income - The amount of profit not distributed by the company to shareholders
The auditors have told the directors that Directors Fees must be shown separately in the
financial statements and not part of Salaries and wages. The directors do not want to
change this. What is your opinion on this problem? Explain.
 Transparency regarding what the directors earn
 Shareholders have a right to know what directors earn
The JSE has suspended a company for not publishing the financial statements three
months after it was audited. The directors of another company are worried that a similar
problem could occur in their company. The auditors have withheld their report and the
company had to cancel the AGM without giving the shareholders a reason. Briefly explain
why this would be a serious problem for the company.
 A delay would cause shareholders to become suspicious
 Shareholders would not vote for these directors next year
 New shareholders will avoid the company and share prices could drop
 The directors would be guilty of a criminal offence. In terms of the Company’s Act they have
to produce financial statements within three months
 It will affect the ability to raise capital/loans in future as investors will be suspicious
Briefly explain the difference between solvency and liquidity.
Solvency: ability to pay off debts / ability to meet all debts in the long-term / TA:TL / TA >TL.
Liquidity: ability to pay off current / short-term debts / CA:CL / CA > CL.
Page 27 of 59
Many people feel that the market value of the share on the JSE indicates whether or not
the directors are doing a good job. Explain why the market value is so important in this
regard.
 The market value is the price at which shares are currently being sold.
 When the market price is higher than the price of the share when bought, it is an indication to
the shareholders that the company is doing well.
One of the directors Kazi has bought a computer at less than its carrying value resulting
in the business having a loss on sale of asset. Another director, Pulane Khoza, has
complained that Kazi has acted unethically in taking over the computer for at such a low
price. Kazi disagrees.
Give one opinion to support Pulane
 Kazi is benefiting from a very low charge on an asset that is worth a lot more to the company and
hence the shareholders are losing as a result of this transaction (a large loss was made on this
disposal).
 This sets a bad precedent for the company / misuse of his position as director; other employees
might feel entitled to similar benefits.
 The directors do not own the company; the shareholders are the owners of the company.
 There is also tax implications – the director should be paying tax on this ‘perk’.
 The transaction was not transparent – no discussion / disclosure on the disposal in advance.
 The asset was still of use to the company; the director has no right to take it.
Give one opinion to support Kazi.
 The computer is already more than three years old, and computers have a relatively short life span.
 The computer is out-dated; it will probably not be upgradeable.
 The depreciation at 10% on cost price for computers is unrealistic and should therefore have had a
lower carrying value
KiKi, the major shareholder and managing director, has informed the auditors that he
intends to buy the unissued shares himself next year without advertising the new issue
to the other shareholders or the public. What advice should the auditors give to KiKi?
Briefly explain.
Advice: This is unethical and the issue of new shares should be advertised to all according to
the Companies Act and King Code iii , as this is a public company.
Explanation: The other shareholders will be disadvantaged, as KiKi will be increasing his
shareholding percentage, which will effectively reduce the returns and dividends that the others
are earning. By offering the shares on the open market the company could raise more money
than if they sold at an agreed price to one buyer.
What is a Fixed Assets Register?
 Fixed Assets Register is the book in which all the assets owned by the business are recorded.
 It is a manual or computerized record of fixed assets.
 List all the assets owned by the business.
 It contains details of assets – make, model, specifications, quantity, rate, value,
supplier, receipts, issues, balance, location etc. It also has the date of receipt of the
asset & the payment voucher reference.
Explain how this register assists the internal auditor in the course of his duties
Can cross-check the physical counts of assets to the register and assists in ensuring that
depreciation and asset disposal figures are accurate.
Page 28 of 59
Explain an operational audit
Determines
 managing and utilizing its resources economically and efficiently;
 accomplishing its operational goals;
 safeguarding its assets; and
 complying with policies, procedures, laws and regulations.
An operational audit includes elements of the other audit types listed below.
What is the difference between an interim and final audit
Final - The date reflected is the end of the financial year. Audit is part of the annual plan.
Interim – Audit that has covers less than a year and is undertaken to detect errors and
that that fraud has not taken place.
The sampling procedure used was the selection of 24 payments. Why did auditors
sample only 24 payments?
The auditor cannot sample100% of the payments – this will be an impossible task
especially if the business is a large organisation
An auditor needs an efficient and effective way to reach a judgment about a population
that is too large to examine completely.
Why is creditors reconciliation important for any trading business
Creditors’ reconciliation ensures that comparisons are made to documents received from
outside organisations, or to figures in other aspects of the books. If differences can be
explained, then errors, omissions or fraud is minimised.
Discuss the basis for reasonable audit process
 Sufficient i.e. Adequate and convincing.
 Competent i.e. Reliable and best attainable.
 Relevant i.e. Supporting the observations and recommendations; consistent with objectives.
 Useful i.e. Help the organization to meets its objective
List three appropriate audit techniques that could have be used in the audit
process. Explain each technique clearly
Inquiry
 Auditor obtains information from the client in response to
questions.
 Although much evidence is obtained through inquiry, it
cannot be regarded as conclusive and may be biased in the
client’s favour.
Examination of
 Examine supporting evidence in client files
documents
Re-computation of
 Rechecking of computations consists of testing mathematical
data
accuracy.
 Rechecking of transfers of information involves seeing if
information is recorded consistently in the accounting records
Reprocessing
 Re-processing involves rechecking a sample of the
transactions
computations and transfers of information.
Vouching transactions  Examination of documents that support a recorded
transaction or amount.
 The direction of testing must be from the recorded item to
the supporting document.
 Tests existence or occurrence
Page 29 of 59
Documentation tracing
The primary tests for unrecorded items and therefore tests
the completeness assertion.
 The direction of testing must be from the supporting document to
the recorded item
Mention and discuss three points that makes this a good report
Accurate
Free from errors and distortions (purpose clearly communicated).
Objective
Fair, impartial and unbiased
Clear
Easy to understand and logical
Concise
Straight to the point without unnecessary details.
Constructive
Help the client to improve its performance (practical solution).
Complete
Should include all the relevant facts.
Timely
Well timed to enable timely decision on proposed
recommendations.

INTERNAL CONTROL
 Proper authorization of transactions.
 Accurate documentation:
o Filing the correct documents and the recording thereof provide evidence that financial
statements are accurate.
 Proper recording procedures
o Controls designed to ensure adequate recordkeeping include the creation of
 Invoices, receipts, cheques, debit notes, credit notes etc. that are easy to use
and sufficiently informative; the use of pre-numbered, consecutive documents;
and the timely preparation of documents.
 Safeguarding of records and restricted access.
 Division of duties (so that one employee serves as a check on another):
o Requires that different individuals be assigned responsibility for different elements of
related activities.
o For example, the same person who is responsible for an asset's recordkeeping should
not be responsible for physical control of that asset.
o Having different individuals perform these functions creates a system of checks and
balances.
 Proper management of resources (including human resources).
ASSET CONTROL PROCEDURE
 Tagging & labelling of assets – assets are labelled or tagged so that they can be easily
identified & their ownership established.
 Insurance of assets against theft, fire, flood etc.
 Physical inventory of assets at regular intervals.
 Log books for vehicles, construction equipment, generators etc:
o The log book records the details of use of the asset and is usually
maintained by the driver or operator.
o It helps in identifying personal use of assets.
o It is also used for calculating fuel consumption.
 Cross referencing of financial & fixed asset records – done to avoid payment to
supplier before assets are recorded in the Fixed Asset Register.
 For internal control purposes it is vital to reconcile the financial accounting records
with fixed asset records.
Page 30 of 59



Rules and procedures to govern the creation, use and maintenance of the asset
register and its information
Policies and procedures for maintaining the information on the asset register
It will include financial plans based on the value of the assets
o Short term plan to meet the shortfall in performance and condition
o Long term plan to meet demand for services, repairs and replacement of
assets
RATIOS AND ANALYSIS & INTERPETATION OF FINANCIAL STATEMENTS
PROFITABILITY RATIOS How profitable is the business and how well does it control its
expenses?
PERCENTAGE GROSS PROFIT ON SALES (GROSS MARGIN)
Gross Profit x 100
 Indicates total selling price greater than cost price
Sales
1
 Decrease in ratio could be attributed to:
o Competition
o Inflation
o Other cost factors e.g. increase in fuel price
o Reduction in selling price to sell product
PERCENTAGE GROSS PROFIT ON COST OF SALES (GROSS MARK-UP)
Gross Profit x 100
 Mark-up on selling price must equal ratio e.g. if mark-up is
Cost of Sales
1
25% then ratio must be 25%
 If this is not the case, then it can be attributed to the following:
o Shrinkage
o Products are not marked up correctly
o Theft occurring
o Too many discounts are offered
PERCENTAGE OPERATING EXPENSES ON SALES
Operating Expenses x 100
 Indicates how must of sales used to cover the running
Sales
1
expenses of the business.
 Trends will be favourable if expenses are dropping or at least
consistent.
PERCENTAGE OPERATING PROFIT ON SALES
Operating profit x 100
 Indicates how much of sales end up as operating profit.
Sales
1
 The trends are favourable if operating profit is increasing or at
least consistent.
NET PROFIT ON SALES (NET MARGIN)
Net Profit after Tax x 100
 Indicates how much of net profit after tax is attributed to sales
Sales
1
e.g. if the ratio is 10% it then means that 10 cents of R1 is
profit.
 The quicker turnover is increased, the greater will be the
accumulation of the 10 cents and the larger the net profit will
be.
Page 31 of 59
RETURN RATIOS are the shareholders earning a good return on the capital invested in the
business?
RETURN ON SHAREHOLDERS’ EQUITY
Net profit after tax
x 100  Return that the shareholders (owners) have achieved
Average shareholders’ equity
1
on the money invested in the business.
 Should the owners have rather invested elsewhere.
 Compare to returns achieved at financial institutions.
EARNINGS PER SHARE
Net profit after tax
x 100
Number of issued shares
1
=
cents per share


DIVIDEND PER SHARE
Ordinary dividends
x 100
Number of issued shares
1
=
cents per share
NET ASSET VALUE
Ordinary shareholders equity x
100
Number of issued shares
1
=
cents per
share





Indicates the amount that the business has earned for
every share that it has issued.
Compare with previous year.
Indicates the amount that the business has paid its
shareholders in the form of dividends.
Compare to previous year.
Indicates the amount that the business would
receive if it sold off all its’ asset at their book
value and paid all their liabilities.
This can be compared the market value of the
share and the average value per share.
The difference reflects investor confidence (or
lack thereof) in the business.
RETURN ON CAPITAL EMPLOYED
Profit before InterestExpense and Tax 100 The return on capital employed provides an
�
∗ Average Total Capital Employed
1 indication of what profits (earnings) can be
obtained with the total funds employed
*Total Capital Employed = Shareholders
Equity + Non-current Liabilities
SOLVENCY - Can the business pay off all its debts?
NET ASSETS
Assets – Liabilities = Equity
TOTAL ASSETS TO TOTAL LIABILITIES (SOLVENCY RATIO)
Total Assets : Total Liabilities
 Indicates whether the business will be able
to meet its liabilities.
= _____ : 1
 A business is solvent if assets exceeds its
liabilities
DEBT/EQUITY RATIO
Non-current Liabilities : Shareholders
equity
= ____ : 1


This ratio provides an insight into the capital
structure of the business.
A ratio e.g. of 0,4 : 1 indicates that for every
R1 capital invested by the shareholders, 40
cents was raised through long-term loans.
Page 32 of 59



It will also indicate the business’s ability to
raise additional capital through long-term
loans.
A lower ratio indicates that the business has
a higher creditworthiness and can therefore
more easily obtain additional financing
should it be required.
It is also favourable to make use of borrowed
capital when the interest rates are lower than
the return that can be earned by the
business in utilising those funds.
LIQUIDITY - Can the business pay off its immediate debts?
NET CURRENT ASSETS (Net working Capital)
Current assets – Current liabilities = Net current assets
CURRENT RATIO
Current Assets : Current
 Indicates whether the business can meet its
Liabilities
short-term obligations (debts)
 The ratio must not be too low or too high
= ____ : 1
 If low will not be able to meet its short-term
obligations
 Too high indicates that funds are being tied up
which could be more effectively utilised.
ACID TEST RATIO
Current Assets – Inventories :
Current Liabilities

= ____ : 1


DEBTORS COLLECTION PERIOD
Average debtors x 365 days

Credit sales
1

= ____ days

CREDITORS PAYMENT PERIOD
Average Creditors x 365 days
Credit purchases*
1

Indicates the real test of how liquid the
business is because it removes inventory
which is not easily converted into cash.
If too low the business will not be able to meet
its short-term obligations.
Too high indicates that funds are being tied up
which could be more effectively utilised.
This ratio indicates the final test of liquidity.
Indicates how long debtors will take to settle their
accounts.
A generally accepted norm is 30 days.
This will also depend on the business policy on
debtors payment.
It shows how long the business takes to pay it
creditors.
 A generally accepted norm is 90 days
= ____ days
 If the credit purchases is not given, then draw the
Trading stock account to calculate the amount.
 This will also depend on the business policy on
creditors payment
TRADING STOCK
Balance (from Balance sheet
Cost of Sales (from Income
of the previous year)
b/d
xxx
Statement)
xxx

Page 33 of 59
Bank/Creditors Control
(Purchases)
xxx*
xxxx
xxx
Balance
b/d
RATE OF STOCK TURNOVER
Cost of Sales
.

Average Stock

Balance (from Balance sheet
of the current year)
c/d
xxx
xxxx
Indicates how fast stock is being sold per year.
A higher rate will indicate that stock is sold faster
and more sales are generated.
= ____ times per year
 This also depends on the type of goods sold.
Perishable goods should have a faster turnover
rate.
NUMBER OF MONTHS (DAYS) STOCK ON HAND
Average stock x 12 (365) months
 Indicates the average quantity of stock on
(days)
hand.
Cost of Sales
1
 Inventory is a significant current asset.
Therefore changes in this ratio will have an
= ____ months (days)
impact on the current ratio.
 The comments will also depend on the type of
goods sold.
Page 34 of 59
PAPER 2
Page 35 of 59
ACTIVITY E1: BANK RECONCILIATION
1.1
1.2
(30 marks; 25 minutes)
Indicate whether the following statements are TRUE or FALSE. Write only 'true'
or 'false' next to the question numbers (1.1.1 to 1.1.3) in the ANSWER BOOK.
1.1.1
A credit balance on the Bank Statement means that the business has a
positive balance in the bank.
1.1.2
A debit card may be used to withdraw cash from an ATM.
1.1.3
A bank overdraft is a short-term loan that is transferred into the
business current bank account.
(3)
VIOLET STORES
The information was extracted from the records of the business for April 2023.


Violet uses the official Bank Statement which is available on the 25th of each
month to complete the monthly reconciliation process.
She also uses her EFT transaction records (renumbered) to complete the
Cash Payments Journal.
REQUIRED:
1.2.1
Update the totals for the Cash Receipts Journal and Cash Payments
Journal for April 2023. Use the table provided in the ANSWER BOOK.
(10)
1.2.2
Calculate the correct Bank Account balance on 30 April 2023.
(4)
1.2.3
Prepare the Bank Reconciliation Statement on 30 April 2023.
(9)
1.2.4
Violet noticed problems with the depositing of cash. Explain TWO
measures that she can use to address these problems.
(4)
Page 36 of 59
INFORMATION:
A.
Extract from the Bank Reconciliation Statement on 31 March 2023:
Favourable balance as per Bank Statement
Deposits not on Statement: 18 March 2023
28 March 2023
Outstanding EFTs: EFT 768
EFT 769
Favourable balance as per bank account



B.
The outstanding deposit on 18 March 2023 appeared on the April 2023
Bank Statement.
The deposit on 28 March 2023 appeared as R22 200. An investigation
revealed that the cashier has disappeared with the outstanding amount.
It was decided to write off the outstanding amount.
Both the EFTs were on the April Statement, but EFT 768 appeared with
the correct amount of R4 580.
The provisional totals in the Cash Journals before receiving the Bank
Statement:
Cash Receipts Journal: R115 600
C.
Cash Payments Journal: R217 800
Information on the April 2023 Bank Statement
None of these items appeared in the April Cash Journals:
Debit order: Brylet Municipality
Cash handling fees
Deposit: Y Marigold
Deposit: Bentley Microloans
Cash withdrawal
Investment matured
EFT transaction fees
EFT transaction fees
D.


The debit order to Brylet Municipality was for water and electricity.
Y Marigold, the tenant, deposited the monthly rent.
The deposit from Bentley Microloans did not relate to the business. The
bank was informed of this error.
The cash withdrawal of R740 was for fuel for the owner's vehicle.
The EFT transaction fees were duplicated on the Bank Statement in error.
The Cash Journals reflected the following entries that did not appear
on the April 2023 Bank Statement:



F.
R2 880
R220
R8 400
R65 000
R740
R18 300
R360
R360
Additional Information:



E.
R12 200
23 600
37 200
5 480
17 800
49 720
Deposit of R22 500 on 30 April 2023
EFT 883 for R9 520 for stationery purchased
EFT 884 for R12 530 for repairs to the buildings
Bank Statement balance on 30 April 2023: R?
30
Page 37 of 59
ACTIVITY E2 RECONCILIATIONS
(35 marks, 28 minutes)
2.1 BANK RECONCILIATION
AMANDLA STORES
The information relates to May 2023. The official bank statement, used for
reconciliation purposes, is emailed to the business on the 25th of each month.
REQUIRED:
2.1.1 Update the CRJ and CPJ totals in the table provided and calculate
the correct bank account balance in the General Ledger on
31 May 2023. Show ALL workings.
(9)
2.1.2 Prepare the Bank Reconciliation Statement on 31 May 2023.
(8)
2.1.3 Refer to INFORMATION D: Deposit of R22 500 on 20 May 2023.
Explain why the accountant should be concerned about this
deposit. Provide ONE point.
(2)
INFORMATION:
A. The Bank account in the General Ledger reflected a favourable balance of
R12 800 on 1 May 2023.
B. Before inspecting the May bank statement, the provisional totals in the May
journals were: CRJ: R114 600 and CPJ: R123 800.
C. Bank charges on May bank statement but not in the journal, R1 150.
D. Deposit, dated 20 May was not reflected on the bank statement, R22 500.
E. Deposit, dated 29 May was not reflected on the bank statement, R12 660.
F. EFT received from a debtor was correctly reflected as R5 300 on the bank
statement, but incorrectly recorded as R3 500 in the journal.
G. The debit order for cellphone data, R1 840, was not recorded in the relevant
journal. It was also incorrectly duplicated on the May bank statement.
H. EFT 778, dated 31 May, was not reflected on the bank statement, R16 200.
I. Rent received on 30 May, R12 000, was recorded in the journal from a proof of
payment received from the tenant. This did not appear on the statement.
J. Debit order for advertising appeared on the bank statement but not in the
journal, R740.
K. The bank statement closed with a balance of R? on 25 May 2023.
Page 38 of 59
2.2 CREDITORS RECONCILIATION
Complete the table in the ANSWER BOOK to show how the differences must be
treated to reconcile the Creditors Ledger Account balance with the statement
balance.
Write the amounts in the appropriate columns and indicate the increase or
decrease with a (+) or (-) with each amount.
Total the columns to show the correct balance at the end of February 2023.
(10)
INFORMATION:
Balance of Future Leaders account in the Creditors Ledger of New
Generation Suppliers
Balance on the statement received from Future Leaders
R21 130
R32 600
The following differences were identified:
A.
An invoice for R13 300 received from Future Leaders was correctly
recorded in the Creditors Ledger Account. The amount was incorrectly
recorded as
R11 200 on the statement.
B.
New Generation Suppliers entered a 10% discount relating to a payment of
R3 000 on 19 February 2023. Future Leaders did not approve this discount
stating that the payment was received late.
C.
Goods returned, R500, appeared on the statement received. The
bookkeeper of New Generation Suppliers forgot to record this transaction.
D.
Purchases of R3 035 from Future Leaders was recorded as a return in the
Creditors Ledger account.
E.
A direct transfer of R7 000 by New Generation Suppliers was recorded in
the Cash Payment Journal on 27 February 2023. A discount of R700 for
early payment was also recorded. The statement of account from Future
Leaders was dated 25 February 2023.
Page 39 of 59
DEBTORS AGE ANALYSIS
2.3
FRUITCO TRADERS
The Age Analysis below is extracted from the records of Fruitco Traders
for the month of January 2023.
REQUIRED:
Identify TWO problems shown in the Age Analysis below. Quote evidence
and figures to support your answer. In each case suggest an internal
measure to correct the problem.
(6)
INFORMATION:

Debtors are usually allowed to settle their accounts within 30 days.
Debtor
Credit
Limit
Amount
Owing
Current
30 Days
60 days
90
days +
Real Fruits
4 000
6 800
2 600
3 000
1 200
Melo Melon
7 000
7 000
7 000
Cool Berry
3 000
500
500
Little Lemon
5 000
5 500
0
1 000
2 100
2 400
19 800
10 100
4 000
3 300
2 400
35
Page 40 of 59
ACTIVITY F1: INVENTORY VALUATION
(35 marks; 30 minutes)
Mandie Jones is the owner of TV City that sells TV sets and has two branches (shops) in KZN.
The periodic stock system is used. No missing items were recorded for the financial year ended
28 February 2023.
1.1
Howick branch
This branch sells Arctic TV sets.
1.1.1
Calculate the value of the closing stock of the Arctic TV sets on
28 February 2023 using the first-in-first-out (FIFO) method.
(5)
1.1.2
Calculate the stockholding period (in days) using the closing stock figure
(3)
ARCTIC TV SETS
Opening stock: 1 March 2022
Purchases
May 2022
August 2022
September 2022
January 2023
Returns
Closing stock: 28 February 2023
Cost of sales
Sales
1.2
UNITS
280
1 600
500
400
400
300
60
COST PRICE
PER UNIT
TOTAL
AMOUNT
R3 800
3 950
4 000
4 100
4 100
6 310 000
R1 900 000
1 580 000
1 600 000
1 230 000
(246 000)
270
1 550
R5 000
?
R6 010 000
R7 750 000
Durban Branch
This branch sells Pacific and Caspian Smart TV sets.
Mandie was concerned about the following issues:


The Caspian Smart TV sets would be too expensive for her customers.
High stock levels in all her products might negatively affect the business.
Mandie expected to sell 1 000 Pacific TV sets in the 2023 financial year. She therefore
adjusted the selling price of the Pacific TV sets in September and asked the
bookkeeper to provide an analysis of the quarterly sales.
Refer to Information A and B.
1.2.1
Calculate the value of the closing stock of the Pacific TV sets on
28 February 2023 using the specific identification method.
(4)
1.2.2
Calculate the gross profit earned on sale of the new Caspian Smart TV sets.
(3)
Page 41 of 59
1.2.3
1.2.4
Comment on the quarterly sales of the Pacific TV sets and explain whether or
not Mandie's adjustment of the selling price was a wise decision. Quote figures
or calculations.



Comment on the stockholding periods of the Pacific and Caspian TV sets.
Explain how the different holding periods affect the business financially.
Explain what these periods indicate about the preferences of the
customers. Quote figures or calculations.
(4)
(4)
(4)
(4)
1.2.5
Provide TWO points of advice to Mandie on how she can rectify the high stock
levels of some of her products without reducing prices offered to customers
any further.
(4)
INFORMATION:
A.
Durban branch stock records
TV SETS
Cost price
Mark-up % on cost
Stock records
Stock on 1 March 2022
Purchases
May 2022
August 2022
September 2022*
Sales
PACIFIC
R9 300
Fluctuating
TOTAL
UNITS
(R)
350
3 255 000
800
7 440 000
400
3 720 000
400
3 720 000
765
9 408 500
CASPIAN SMART
R10 200
60%
TOTAL
UNITS
(R)
800
8 160 000
800
670
8 160 000
10 934 400
*The branch started selling the new Caspian Smart TV sets on 1 September 2022.
B.
Quarterly sales
The bookkeeper provided Mandie with the following analysis of quarterly sales and
stockholding periods:
SALES PER
QUARTER
Mar.–May
June–Aug.
Sep.–Nov.
Dec.–Feb.
Stockholding
period
UNITS
250
245
160
110
PACIFIC
SELLING
PRICE
PER TV
R13 500
13 500
10 300
9 800
184 days
CASPIAN SMART
TOTAL
SALES
UNITS
R3 375 000
3 307 500
1 648 000
1 078 000
340
330
TOTAL
SALES
R5 548 800
5 385 600
71 days
35
Page 42 of 59
ACTIVITY F2
2.1
MANUFACTURING
(40 marks, 32 minutes)
BLANKETS FOR HEALTH MANUFACTURERS
The following information was extracted from the records of Blankets for Health
Manufacturers. The financial year ended on 31 August 2023. The business
produces organic lightweight blankets.
REQUIRED:
2.1.1 Calculate the value of the closing stock of raw materials.
(5)
2.1.2 Calculate the direct material cost issued for production.
(4)
2.1.3 Calculate the direct labour cost.
(8)
2.1.4 Complete the production cost statement for the year ended
31 August 2023.
(11)
INFORMATION:
A. Raw material (Fabric):
Blankets for Health Manufacturers produced 16 160 blankets for the year ended
31 August 2023.
Opening stock
Closing stock
Number of Cost per
metres
metre
2 400
R160
3 600 metres @ R165
3 200 metres @ R170
B. Purchases and returns of raw material:
Number
of
metres
September 2022 purchases
11 000
October 2022 purchases
16 000
June 2023 purchases
4 000
June 2023 returns
( 400)
30 600
Total Amount
(R)
384 000
?
Cost per
metre
Total Amount
(R)
R160
R170
R165
R165
1 760 000
2 720 000
660 000
(66 000)
5 074 000
C. Labour cost:
 There are ten factory workers and each worked 1 920 hours per year, at a
rate of R30 per hour. Together they worked 560 hours of overtime at twice
the normal rate per hour.

The factory assistant is paid R84 000 for the year. She spends 75% of her
time cleaning the factory and 25% of the time sewing labels on the blankets.

The business contributes 1% to the UIF for all employees.
Page 43 of 59
D. Other costs for the financial year (after all the adjustments):
2023
2022
(R)
(R)
Total fixed costs per unit
254
225
?
205
 Factory overheads cost per unit
24
20
 Administration cost per unit
E. Stock balances that appeared in the books of Blankets for Health
Manufacturers:
Work in process
Finished goods stock
2023
(R)
45 370
?
2022
(R)
72 000
520 000
There were 840 completed blankets on hand at the end of the year.
2.2
TIMELESS TIMBERWORKS
Timeless Timberworks is a small manufacturing business that produces chopping
boards.
REQUIRED:
2.2.1 Calculate the break-even point for the year ended 31 October 2022. (6)
2.2.2 Calculate the units produced and sold for 2022.
(2)
2.2.3 Explain whether you think the owner, Phoebe, should or should not be
concerned about the profitability and production level of her business.
Provide TWO reasons and justify your answer by providing supporting
figures.
(4)
INFORMATION:
A. Every year all the goods produced, are sold.
B. Information taken from the financial records of Timeless Timberworks:
Direct material cost
Direct labour cost
Selling and distribution cost
Variable cost
Factory overhead cost
Administration cost
Selling price per unit
Units produced and sold
Break-even point
31 October 2022
Total cost
Unit cost
607 750
R5,50
508 300
R4,60
182 325
R1,65
1 298 375
R11,75
548 410
247 500
31 October 2022
R18,85
?
?
31 October 2021
R15
98 000
78 000
[40]
Page 44 of 59
ACTIVITY G1: COST ACCOUNTING
1.1
(45 marks; 35 minutes)
LADOO MANUFACTURERS
The business manufacturers leather purses. The financial year ended on 28 February
2023.
REQUIRED:
Refer to Information C.
1.1.1
1.1.2
Calculate the factory overhead cost.
(8)
Prepare the Production Cost Statement on 28 February 2023.
(10)
INFORMATION:
A.
Work-in-progress stock balance on 1 March 2022 was R542 000.
B.
Details of the workers in production:
Number of workers
Basic (normal) wage rate
Normal time hours worked by each worker
Overtime (in total)
C.
40
R60 per hour
1 920 hours
R1 142 000
The bookkeeper calculated the factory overhead cost at R2 638 600.
The following costs were omitted and must be taken into account:

Insurance is a fixed monthly premium for the entire financial year.
The amount paid, R235 950, includes the premium for March 2023. 2/3 of
this expense relates to the factory.

Water and electricity allocated to the office was R69 200. Note that water
and electricity is shared according to floor space, as follows:
Factory
560 m2
Sales
240 m2
Office
160 m2
The following entry must be corrected:
Rent of R316 000 was recorded in the factory overhead cost. However, the
bookkeeper used the incorrect ratio of 2 : 5 : 1 for Factory, Sales and Office.
The correct ratio is 5 : 2 : 1 respectively.
D.
Total prime cost for the year amounted to R12 500 000.
E.
Total production for the year, 33 500 units, were produced at a cost of R475 per
unit.
Page 45 of 59
STYLZ MAKER
1.2
The business manufactures designer shirts. The
30 April each year. The business is owned by Lez Styles.
financial
year
ends
on
REQUIRED:
NOTE:
Provide evidence in the form of figures or calculations to support the
comments and explanations required below.
1.2.1
Break-even point, production and profit:

Do a calculation to confirm that the break-even point for 2023 is correct.

Comment on the level of production and the break-even point for the past
two years. Explain whether Lez Styles would be happy about the trends in
these results and the profit he is earning. Provide figures or calculations.
(3)
(4)
1.2.2
Fixed costs:
Explain why Lez is not concerned about the fixed costs increasing to R6,1 m
in 2023. Quote figures.
1.2.3
1.2.4
(4)
Selling and distribution cost:

Identify how the selling and distribution costs in total and per unit changed
over the two years.

Explain TWO reasons why Lez deliberately wanted to adjust this cost.
(2)
(2)
Direct material and direct labour: Refer to Information A and C.
Lez made specific decisions to improve the business and its product.
Explain how the decisions he took have benefited the business by providing:

TWO separate points relating to the raw material

TWO separate points relating to the direct labour
(6)
(6)
INFORMATION:
A.
Lez's general strategic decisions with effect from 1 May 2023:



Lez decided to improve the quality of the shirts to be more competitive and to export
to retailers in other countries.
He changed to a new supplier of the fabric (raw materials) and employed some highly
skilled and creative workers to replace workers who resigned or retired.
Factory overheads for 2023 included a training programme for factory workers
(R600 000) and the hiring of equipment with the latest technology for R1,4 m per
year.
Page 46 of 59
B.
Production and cost
2023
2022
10 500 shirts
6 500 shirts
R1 830
4 815 shirts
R1 430
4 267 shirts
VARIABLE COSTS
Direct materials cost
Direct labour cost
Selling and distribution cost
2023
TOTAL
PER UNIT
R
R
5 916 000
563
3 780 000
360
936 000
89
1 200 000
114
2022
TOTAL
PER UNIT
R
R
3 047 500
469
1 787 500
275
960 000
148
300 000
46
FIXED COSTS
Factory overhead cost
Administration cost
6 100 000
5 600 000
500 000
581
533
48
4 100 000
3 600 000
500 000
631
554
77
TOTAL COST OF PRODUCTION
12 016 000
1 144
7 147 500
1 100
Number of units produced and
sold
Selling price
Break-even point
C.
Lez undertook a short course on managerial accounting to enable him to analyse the
production costs more effectively every month. He has analysed the following production
costs:
Raw materials:
Cost of fabric per metre
Metres of fabric per shirt (including wastage)
Fabric used in metres
2023
R200
1,8 metres
43 200 metres
2022
R110
2,5 metres
44 000 metres
Direct workers:
Number of direct workers
Average wages per worker p.a.
Hours per worker per year
Hours worked by all workers
Average number of shirts produced per worker
12 workers
R78 000
1 920 hours
23 040 hours
875 shirts
15 workers
R64 000
1 920 hours
28 800 hours
433 shirts
45
Page 47 of 59
ACTIVITY G2 INVENTORY VALUATION & VAT
2.1
(35 marks; 28 minutes)
INVENTORY VALUATION
Battery Hub, owned by Thando Sithole, sells two types of AA 6-pack unit batteries,
TURBO and SUPERCHARGE. The business uses the periodic inventory
system to record their stock.
o FIFO method is used for TURBO
o Weighted average method is used for SUPERCHARGE
REQUIRED:
2.1.1 Calculate the following for TURBO AA 6-pack units:
The value of the closing stock on 31 August 2023.

(6)
2.1.2 Calculate the average stock-holding period. Note that the cost of sales
amounted to R483 750 for the year ended 31 August 2023.
Comment on your findings above.
(6)
2.1.3 The owner is concerned about the sales of SUPERCHARGE AA 6-pack
units and is considering to discontinue this product line.
Calculate the following for SUPERCHARGE AA 6-pack units for the year
ended 31 August 2023:

The value of the closing stock.
(5)

The cost of sales of the SUPERCHARGE AA 6-pack units. (3)
2.1.4 Give TWO reasons why the owner must discontinue the sales of
SUPERCHARGE AA 6-pack units.
(4)
INFORMATION:
A.
Stock valuation methods:


B.
FIFO method for TURBO AA 6-pack units
Weighted average method for SUPERCHARGE AA 6-pack
units
Stock records showed the following balances:
Turbo AA 6-pack units
Supercharge AA 6-pack units
Number Price
of units per unit
Total
value
1 Sep 2022
2 000
R20
R40 000
800
R35
R28 000
31 Aug 2023
13 500
?
?
1 850
?
?
Date
Number of Price
units
per unit
Total
value
C. The following purchases and returns were reflected during the year:
Page 48 of 59
Supercharge AA 6-pack
units
Turbo AA 6-pack units
Number
Price per
of
unit
units
Total
value
Number Price per
Total value
of units
unit
TOTALS:
35 000
756 000
3 000
Sep 2022
(1 000)
R20
(20 000)
500
R35
Nov 2022
17 000
R20
R340 000
-
-
Feb 2023
7 000
1 000
R39, 70
R39 700
May 2023
9 000
R23
R207 000
-
-
-
May 2023
(2 000)
R23
(R46 000)
1 500
R42
R63 000
July 2023
5 000
-
-
-
N
R22,50 R157 500
R23,50 R117 500
120 200
R17 500
D. Sales for the year were reflected as follows:
Turbo AA 6-pack units
Number of Selling price
Units
23 500
R35
Total value
R822 500
Supercharge AA 6-pack units
Number of
units
1 950
Selling Price
Total value
R75
R146 250
E. Due to good internal control measures, there were no missing items.
Page 49 of 59
2.2
VAT
Battery Hub is a registered VAT vendor and uses the invoice basis to record VAT.
The standard VAT rate of 15% is applicable where necessary.
The information relates to the VAT period ended 31 August 2023.
REQUIRED:
2.2.1 Calculate the VAT amount payable/receivable to/from SARS.
(9)
2.2.2 The internal auditor discovered that two large credit sales transactions for
R598 000 during August 2023 were not recorded in the respective journal.
The owner insists that these will be recorded during September, due to
current cash flow problems. Comment on this.
(2)
INFORMATION:
Details of transactions
VAT
EXCLUSIVE
VAT
Invoices issued to credit sales
customers
Invoices received from suppliers
R1 415 880
R952 000
Credit notes received from
suppliers
R9 240
Discount allowed to debtors for
early payments of accounts
R5 520
Debtors accounts written off as
bad debts
Trading stock taken by owner for
personal use.
VAT
INCLUSIVE
R15 600
R17 940
R252
35
Page 50 of 59
ACTIVITY H1: BUDGETING
1.1
1.2
(40 marks; 30 minutes)
Show the amounts for the following transactions in the appropriate columns for the
Cash Budget and the Projected Statement of Comprehensive Income in the ANSWER
BOOK:
1.1.1
A computer costing R26 400 will be purchased for cash on 1 July 2023. Depreciation
will amount to R550 per month.
1.1.2
A fixed deposit of R90 000 will be invested on 1 July 2023. Interest at 9% p.a. will be
deposited into the business bank account at the end of each month.
(6)
ALICE FURNISHERS (PTY) LTD
The information relates to the budget period ending July 2023.
REQUIRED:
1.2.1
Complete the Debtors' Collection Schedule for July 2023.
(7)
1.2.2
Calculate missing figures (i) to (iii) on the Cash Budget provided.
(8)
1.2.3
Salaries of workers:

Calculate the % increase that workers will receive in July 2023.
(3)

Give TWO reasons why you think that workers would be satisfied with this
increase.
(2)
Advertising and delivery expenses: Refer to Information F.
1.2.4

Comment on the effectiveness of the advertising. Provide figures or
calculations.
(4)

Alice is satisfied with the control over delivery expenses. Provide figures
or calculations to justify her feelings.
(2)

Alice is, however, concerned about the control over each vehicle. Identify
a different issue (problem) for EACH vehicle that confirms her concern.
Provide figures or calculations to justify her feelings.
(4)
Provide TWO suggestions on how Alice can improve the use or efficiency
of the vehicles.
(4)

INFORMATION:
A.
Sales and cost of sales:
Sales
Cost of sales
B.
APRIL
1 260 000
900 000
MAY
1 274 000
910 000
JUNE
1 316 000
940 000
JULY
1 330 000
950 000
Credit sales comprise 70% of total sales. Debtors pay according to the following
trend:




20% pay in the month of sales and receive 7,5% discount.
55% pay in the month following the month of sale.
22% pay two months after the sales month.
The balance is written off thereafter.
Page 51 of 59
C.
Stock sold is replaced in the month of sales. A base stock is maintained. 80% of
stock is purchased on credit and creditors are paid two months
(60 days) after the month of purchase.
D.
Additional information:
The business plans to take a loan on 30 June 2023. This has been negotiated
with the bank at 11% p.a. interest, payable at the end of each month and
commencing on 31 July 2023.
E.
Extract from the Cash Budget:
JUNE 2023
(R)
394 800
854 952
131 600
(ii)
RECEIPTS
Cash sales
Collections from debtors
Commission income
Loan: Cheetah Bank
PAYMENTS
Cash purchase of stock
Payments to creditors
Directors' fees (two directors)
Salaries of workers (including drivers)
Advertising
Delivery expenses
Packing material
Interest on loan
Municipal services
Sundry expenses
F.
188 000
720 000
52 000
172 000
39 480
65 800
78 960
-
JULY 2023
(R)
(i)
?
133 000
190 000
(iii)
49 600
182 320
39 900
66 500
79 800
5 500
Advertising and delivery expenses:


The business has two delivery vehicles and offer a free delivery service to
customers.
The budget for delivery expenses is fixed at 5% of the budgeted sales, on an
average distance of 2 000 km to be covered.
Actual and budgeted figures for May 2023:
Sales
Advertising
Salaries of drivers
Delivery expenses
Petrol/Fuel
Maintenance
Kilometres covered
Date purchased
BUDGETED/
EXPECTED
1 274 000
38 220
30 000
63 700
47 700
16 000
2 000 km
ACTUAL
1 082 900
36 820
30 000
54 100
40 000
14 100
1 800 km
VEHICLE 1
VEHICLE 2
15 000
15 000
35 500
18 600
26 000
14 000
9 500
4 600
1 260 km
540 km
1 Mar. 2018 1 Mar. 2022
40
Page 52 of 59
ACTIVITY H2
BUDGETS
(40 marks; 32 minutes)
You are provided with information relating to DIY Hardware. The business is owned by Zahir
Naidoo.
REQUIRED:
2.1
Complete the following statement:
The main reason why bad debts would not appear in the Cash Budget is because
it is a/an …….
(2)
2.2
Calculate the missing amounts indicated by (a) to (d) in the Cash Budget for July
and August 2023.
(15)
2.3
Complete the Debtors' Collection Schedule.
(9)
2.4
Calculate the percentage increase in sundry expenses.
(4)
2.5
The Cash Budget for July and August 2023 indicates that this business will face serious
financial difficulties. Identify TWO items to support this statement. Quote relevant figures.
(4)
Refer to Information K.
Explain why each of the items reflects a problem for the business. State TWO
points in EACH case.
INFORMATION:
2.6
A.
(6)
Extract from the Cash Budget
CASH RECEIPTS
Cash sales
Cash from debtors
Rent income
Loan: Jilly Bank
Commission income
CASH PAYMENTS
Cash purchases of trading stock
Payments to creditors for stock
Salaries and wages
Loan instalment
Interest on loan
Insurance
Drawings
Delivery expenses
Sundry expenses
Cash surplus/(deficit)
Bank: Opening balance
Bank: Closing balance
JULY 2023
AUGUST 2023
(a)
178 600
3 300
19 000
237 600
?
(c)
201 600
30 000
(b)
32 350
61 240
2 480
19 800
31 000
87 600
257 500
28 250
61 240
5 600
(d)
2 480
19 800
31 000
89 790
(82 800)
(49 300)
Page 53 of 59
B.
The business has only one supplier. Commission of 5% of sales is receivable in the month
following the sales.
C.
Cash sales amount to 60% of total sales.
D.
Total sales for June 2023 were R380 000.
E.
20% of the trading stock is bought on credit. The creditor is paid in full in the month
following the month of purchase.
F.
Collection from debtors:



45% settle accounts in the month of sales and receive 5% discount.
50% settle accounts in the following month.
Provision is made for 5% bad debts.
G.
A storage room in the building has been let(rented) since 15 July 2023. The tenant was
required to pay only half the rent amount for July. He was informed that rent increases by
10% on 1 August each year.
H.
Sundry expenses are expected to increase by a fixed percentage each month.
I.
The loan, at 11.5% p.a. interest, will be taken out on 1 August 2023.


The loan will be repaid in 36 equal monthly instalments commencing on
31 August 2023.
Interest on the loan is also payable at the end of each month commencing on
31 August 2023. Interest is not capitalised.
J.
The bank has granted Zahir an overdraft facility of R44 000.
K.
Zahir is concerned about the following items, which were under/over budget for
June 2023:
Item
Collection from debtors
Drawings
Insurance
Budgeted
174 200
19 800
2 480
Actual
61 800
57 200
0
Under/over
budget
Under
Over
Under
40
Page 54 of 59
ADDITIONAL INFORMATION/THEORY QUESTION FOR PAPER 2
DEBTORS AGE ANALYSIS ASSISTING DEBTORS CONTROL
 Effective method of credit control.
 Action can be taken against debtors who do not comply by charging interest/legal action.
 Bad debts can be minimized.
 Make decisions based on age analysis of the debtor/s.
GRANTING OF CREDIT ACCORDING TO THE NATIONAL CREDIT ACT (NCA)
In June 2007, the government introduced a new law, the National Credit Act (NCA), which stipulates strict
requirements before granting credit to any customer.
Legal expert Neil Nene said: “The NCA was designed to save consumers from themselves. Before the
implementation of the NCA, many businesses had a field day. They were actively encouraging customers
to buy on credit in order to increase the sales volumes of their businesses. Now, they will have to apply
responsible measures before allowing customers to open new accounts.”
 Potential customers should be thoroughly screened in order to decrease bad debts.
 Customers are gullible and the National Credit Act is needed to save customers from themselves.
 Selling on credit will increase sales – if potential customers are screened, bad debts will not increase
with an increase in sales.
 Become aware of different policies and acts.
 Use Debt risk management technology when acquiring new clients. Potential customers should be
thoroughly screened in order to decrease bad debts.
PERSONAL DETAILS REQUIRED FROM DEBTORS
 It is essential for a business to know the addresses so that they can send statements promptly to debtors to
ensure that they pay on time.
 If any debtors do not settle their accounts it will be necessary for the business to take legal action against them
in which case the addresses will be essential in order to serve the legal documents on them.
 The National Credit Act requires a business to check whether a potential debtor can afford to purchase on credit.
Addresses are part of the personal history of the customer.
MEASURES FOR THE COLLECTION FROM DEBTORS
 Proper screening of debtors, i.e. check credit references.
 Offer discounts to debtors for paying within the 60-day period.
 Charge interest on overdue accounts.
 Follow up on outstanding debts with constant reminders or phone calls.
VAT
NEED FOR VAT
 South African government is responsible in providing its citizens with basic infrastructure.
 Income is needed to do this.
 VAT is the second biggest source of income.
PURPOSE OF VAT
 It is collected to improve the standard of living of people living in South Africa.
 It is a way to raise revenue to meet government expenditure.
OUTPUT TAX
The VAT that is charged to customers is called output tax.
INPUT TAX
VAT paid by you as a registered vendor on your purchases from another registered vendor; as well as VAT
paid on other business expenses (e.g. rent) are known as input tax.
Page 55 of 59
ZERO-RATE ITEMS
 Zero rate tax means that VAT is not paid on certain goods and services.
 This means that zero percent (0 %) is levied on supplies.

Goods export from SA
Mealie rice
Fruit and vegetables
Brown Bread
Dried lentils
Pilchards in cans
Brown wheaten meal
Mealies
Sardines in cans
Maize meal
Rice
Milk
Samp
Beans
Cultured milk
Cooking oil
Eggs
Milk powder
Edible legumes, pulses
Leguminous plants
Dairy powder blends
Petrol and diesel
International transport
Certain supplies made from farming
Services supplied outside SA
Agricultural or pastoral purposes (provided certain requirements are met)
Certain gold coins issued by SARB (including the Kruger Rand)
State subsidies and donations to welfare organisations
Transfer payments made by public authorities to vendors
VAT-EXEMPTED ITEMS



Certain goods and services are exempted from VAT.
This means that the supplier of services will bear the VAT on its purchases but does not levy the VAT
on its suppliers
The following goods and services are exempted from VAT:
o Passenger transport by road and rail
o The rental of residential accommodation
o Educational services in crèches, nursery schools, primary and secondary schools, after school
centres, universities and technikons.
o Insurance pension and life insurance benefits
o Medical services and medicines supplied by state and provincial hospitals and local authority
clinics
o The supply of goods and services by an employee organisation to its members to the extent that
the consideration consists of membership contributions.
ETHICS AND CONTROL
•
•
•
•
VAT – required by law, therefore accurate record keeping (physical books, source documents)
should be kept for a period of 5 years.
Vendors are required to provide correct and accurate information to SARS.
VAT evasion is illegal and unethical.
Every VAT vendor will be audited from time to time.
Page 56 of 59
MANUFACTURING
Direct materials
 Raw materials used to manufacture the product
 Include the purchase price of the raw materials and
the acquisition costs related to the purchase.
 Examples: Purchase of raw materials Carriage on
purchases / freight charges on raw materials
 Example: Product – Leather Boots
Direct material – Leather



 Example: Product – Leather Boots

Direct labour – Cutters, machinists
Indirect labour
 Employees not directly involved in the
manufacturing process
Indirect labour – supervisor, security, cleaners
Indirect materials
 Any other materials needed to manufacture the
product, but cannot be identified directly to specific
items
 Example: Product – Leather Boots
Indirect materials – cotton, glue
Factory Overheads
Prime costs/Direct cost
 Those costs which cannot be directly linked to the
 Total of direct labour
manufacturing of the items.
+
 Examples – indirect materials, indirect labour,
 Direct material costs.
depreciation on factory equipment, factory water
and electricity.
Work-in-process = Total cost of production
Raw materials
+
Direct labour
+
Factory overheads
Selling and distribution costs
Administration costs
 Costs incurred during the selling and distribution
 Costs incurred during the administration in operating
process.
the business
 Examples – commission for salespersons, fuel
 Examples – office insurance, sundry admin costs,
expenses for salespersons, Carriage on sales,
rent of office building, Salaries of admin staff,
Salaries of salespersons, depreciation on vehicles
depreciation on office equipment
of sales reps, bad debts
Fixed Costs
Variable Costs
 These are costs that are incurred irrespective of the
 These costs vary in direct proportion to the number
number of goods produced e.g. Salary of
of products produced e.g. raw materials, wages etc.
supervisor, factory rental etc.
 VARIABLE COST PER UNIT
������ �������� + ������ ������
FIXED COST PER UNIT
������� �������� + �������������� ����
+������� ��� ������������ ����
������ �� ����� ��������
������ �� ����� ��������
Unit cost

Direct labour
 Employees directly involved in the manufacturing
process
 Example: Direct labour, Direct wages, Factory wages,
Production wages,
Manufacturing wages
����� ���� �� ����������
������ �� ����� ��������
Break-even point
Break-even is when a business does not make a profit
or a loss
Income = expenses – i.e. sales required to cover total
costs
Fixed cost
No. of
Selling Price – Variable costs = products
Contribution per unit
= Selling price per unit - Variable
costs per unit
Page 57 of 59




ETHICS
Ethics refers to the way a business work
it is based on principles, values and beliefs.
A code of business ethics is only effective, if management communicates their values to all employees and
stakeholders.
The following are important ethical considerations for manufacturing
Product quality
 Product and services should meet the quality promised to the consumer.
 It must also meet all governmental regulations and specifications and be safe to the consumer.
 Management should inspect regularly for quality.
 Some production functions can be seriously harmful or damaging and therefore need to be monitored.
 The following are worth monitoring;
o Technology
 Especially with new technology which can be harmful to health, safety and the environment
 Technological advancements like genetically modified food, radiations from mobile phones, medical
equipment etc. are problems.
o
Defective services and products or products those are innately harmful like alcohol, tobacco, fast motor
vehicles, warfare, chemical manufacturing etc.
o
Animal testing and their rights or use of economically or socially deprived people for testing or
experimentation is another area of production ethics.
o
Ethics of transactions between the organization and the environment that lead to pollution, global warming,
increase in water toxicity and diminishing natural resources
Product age
 Indicating the date on products are important information to the consumer as to the life expectancy of a product.
Raw materials
 Ethical consideration taken into account when sourcing raw materials.
 These include consideration about the environment and the manner in which the raw materials are obtained.
 E.g. acquiring precious stones like diamonds should not involve the shedding of blood or oppressing people.
 Another has to do with scarce resources e.g. crude oil which is available in certain areas in the world.
 Any type of crisis in one of the major supplying countries automatically drives up the price of the raw material in
the other countries due to the increase in demand.
 No raw material must be illegally obtained or harmful to the environment from which it is obtained.
Support of local products
 This leads to more employment and raising the standard of living for South Africans.
 This can lead to a powerful tool to eradicating poverty.
Theft and fraud
 Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain
 Theft is taking property belonging to another without that person's consent.
 Risk assessment, awareness, control, deterrence and detection all have their part to play in the prevention of
fraud.
 E.g. Excessive shrinkage of raw materials could explain a host of fraudulent activity, from embezzlement to theft
of raw materials
Page 58 of 59
GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET
Gross profit x 100
Sales
1
Gross profit x 100
Cost of sales 1
Net profit before tax x 100
Sales
1
Net profit after tax x 100
Sales
1
Operating expenses x 100
Sales
1
Operating profit x 100
Sales
1
Total assets : Total liabilities
Current assets : Current liabilities
(Current assets – Inventories) : Current liabilities
Non-current liabilities : Shareholders' equity
(Trade & other receivables + Cash & cash equivalents) : Current liabilities
Average trading stock x 365
Cost of sales
1
Cost of sales
Average trading stock
.
(See Note 1 below)
Average debtors x 365
Credit sales
1
Average creditors x 365
Cost of sales
1
(See Note 2 below)
Net income after tax
Average shareholders' equity
x 100
1
Net income after tax
x 100
Number of issued shares
1
(See Note 3 below)
Net income before tax + Interest on loans
x 100
Average shareholders' equity + Average non-current liabilities
1
Shareholders' equity x 100
Number of issued shares
1
Dividends for the year
x 100
Number of issued shares
1
Interim dividends
x 100
Number of issued shares
1
Final dividends
x 100
Number of issued shares
1
Dividends per share x 100
Earnings per share
1
Dividends for the year x 100
Net income after tax
1
Total fixed costs
Selling price per unit – Variable costs per unit
.
NOTE:
1. Trading stock at the end of a financial year may be used if required in a question.
2. Credit purchases may be used instead of cost of sales (figures will be the same if stock is
constant). 3. If there is a change in the number of issued shares during a financial year, the weightedaverage
number of shares is used in practice.
Page 59 of 59