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PAPER 1 TOPICS

NOTES AND QUESTIONS ENGLISH

ACCOUNTING GRADE 12

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TABLE OF CONTENTS

Topics Page

1 Breakdown of paper one and paper two topics 3

2 Income statement and Notes 4-32

3 Calculation of the correct Profit 33-48

4 Balance Sheet and Notes 49-75

5 Cash Flow Statements and Analysis 76-109

and Interpretation of Financial Statements

6 Audit Reports 110-120

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SUMMARY OF ACCOUNTING CONTENT ACROSS TWO PAPERS

Grade 12 Implementation date: 2020
GRADE 12: PAPER 1 GRADE 12: PAPER 2

Recording, Reporting and Evaluation of Financial Information & Corporate Manufacturing, Forecasting & Internal Auditing and Control
Governance
12.1.1 Concepts relating to companies 12.2.1 Analysis & interpretation of reconciliations: bank, debtors, creditors, age-analysis
12.1.2 Concepts relating to GAAP & IFRS 12.2.2 Value Added Tax - Input, Output & calculations
12.1.3 Unique ledger accounts of companies & interpretation thereof 12.2.3 Manufacturing concepts
Manufacturing: Production Cost Statement & Notes; Abridged (short-form) Income
12.1.4 Accounting equation of companies 12.2.4
Statement & Notes
12.1.5 Adjustments & final accounts of companies; Trial balances 12.2.5 Analysis & interpretation of cost information, unit costs & break-even point
12.1.6 Income Statement (Statement of Comprehensive Income) of companies 12.2.6 Analysis & interpretation of Cash Budget for sole traders and companies
12.1.7 Balance Sheet (Statement of Financial Position) & Notes of companies 12.2.7 Analysis & interpretation of Projected Income Statement for sole traders and companies
12.2.8 Application of internal control & audit processes: cash, fixed assets, inventories, debtors,
12.1.8 Cash Flow Statement of companies
creditors, income & expenses (including salaries/wages) & including financial indicators #
12.1.9 Analysis and interpretation of financial statements of companies * 12.2.9 Recording & control of fixed assets including depreciation & asset disposal
Analysis and interpretation of published financial statements & audit report of
12.1.10 12.2.10 Perpetual and periodic stock systems; valuation and control of inventories
companies
Valuation of fixed assets for reporting purposes including additions, depreciation
12.1.11 12.2.11 Ethical behaviour in financial environments
& disposal
12.1.12 Ethical behaviour and corporate governance in financial environments
12.1.13 Inventory valuation for reporting purposes (FIFO, WA & Specific Identification)
12.1.14 Professional bodies & Code of conduct
12.1.15 Legislation governing companies (overview only)
12.1.16 Close corporations (not examinable)

* Financial Indicators for Financial Reporting (Grade 12 Paper 1) # Financial Indicators for Internal Control (Grade 12 Paper 2)
Gross profit on sales; Gross profit on cost of sales; Net profit on sales; Operating expenses Profitability - Gross profit on cost of sales; Net profit on sales; Operating expenses on sales;
on sales; Operating profit on sales; Current ratio; Acid test ratio; Stock turnover rate; Stock Operating profit on sales
holding period; Average debtors’ collection period; Average creditors’ payment period; Liquidity - Stock turnover rate; Stock holding period; Average debtors’ collection period; Average
Solvency ratio; Debt equity ratio (gearing); Return on shareholders’ equity; Return on total creditors’ payment period
capital employed; Net asset value per share; Dividends per share; Earnings per share;
Dividend pay-out rate

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INCOME STATEMENT AND NOTES

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CONTENT ON COMPANIES FINANCIAL STATEMENTS – INCOME STATEMENT

Income Statement reflects the trading results in the form of Profit or Loss for a specific
accounting period, usually a year. The net income or net loss is obtained by subtracting
expenses from the revenue.
In grade 10 the financial statements of the Sole Trader were introduced, in grade 11 the
Partnership and grade 12 the Companies are introduced.

NOTE: The structure of the trading section and operating activities (income and
expenses) are similar for all the three forms of ownership

FORMAT OF STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT)

Notes R
Trading
Sales xxx Section
Cost of sales ( xxx)
Gross Profit xxxxx
Other Operating Income xxxxx
Discount received xxx Operating
Rent income xxx income
Profit on sales of assets xx
Bad debts recovered xxx
Provision for bad debts adjustment (if decreased) xxx
Etc. xxx
Gross Operating Income xxxxx
Operating
Operating Expenses (xxx)
expenses
Advertising xxx
Salaries and wages xxx
Insurance xxx
Provision for bad debts adjustment (if increased) xxx New
Bad debts xxx expense
Sundry expenses xxx accounts
Audit fees xxx unique to
Directors fees xxx companies
Trading stock deficit xxx
Depreciation xxx
Loss on sale of assets xxx
Etc. xxx
Operating Profit (Loss) xxxxx
Interest Income 1 xxx
Profit (loss) before interest expense / finance cost xxxxx
Interest expense / Finance cost 2 (xxx)
Income tax is
Profit (Loss) before tax xxxxx subtracted
Taxation (xxx)
Net Profit (Loss) for the year 9 xxxxx

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DIFFERENCE BETWEEN THE COMPANY AND TWO FORMS OF OWNERSHIP

Sole Trader /Partnership Company

xxxx Operating Profit (Loss) xxxxx
Operating Profit (Loss) x Interest Income 1 xxx
Interest Income 1 xxx Profit (loss) before interest
xxxx expense xxxxx
Profit (loss) before interest expense x Interest expense / Finance cost 2 (xxx)
Interest expense / Finance cost 2 (xxx) Profit (Loss) before tax xxxxx
xxxx Taxation (xxx)
Net Profit (Loss) for the year x Net Profit (Loss) for the year 9 xxxxx

Inclusion of
tax
expense

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ACTIVITY 1 (ASC JUNE 2019)

INCOME STATEMENT AND NOTES 71 Marks

4.1 Choose a term in COLUMN B that matches an explanation in COLUMN A. Write

only the letters (A– E) next to the question numbers (4.1.1 to 4.1.4) in the ANSWER
BOOK.

COLUMN A COLUMN B
4.1.1 Reflects the financial position of the A Audit report
business on a specific date
B Cash Flow Statement
4.1.2 Shows whether the business made a
profit or loss C Balance Sheet

4.1.3 Provides details about the movement D Income Statement

of money with regard to operating,
investing and financing activities E Directors' report

4.1.4 Provides an unbiased opinion on the

reliability of the financial statements of
a business
(4 x 1) (4)

4.3 MVVS LTD

The information relates to the financial year ended 31 March 2019.

REQUIRED:

4.3.1 Complete the Statement of Comprehensive Income (Income Statement) for

the year ended 31 March 2019. (53)

4.3.2 Complete the following notes to the Balance Sheet:

 Fixed/Tangible Asset Note (8)

 Ordinary share capital (6)

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INFORMATION:
Figures extracted from the Pre-adjustment Trial Balances on 31 March:

2019 2018
R R
Ordinary share capital 9 300 000 4 800 000
Mortgage loan: Sapphire Bank 1 430 200 1 658 000
Land and buildings 12 500 000 12 500 000
Vehicles 1 377 000 750 000
Equipment ? 398 000
Accumulated depreciation on vehicles ? 475 000
Accumulated depreciation on equipment ? 117 500
Provision for bad debts ? 30 100
Trading stock 364 200
Debtors' control 578 000
Sales 10 563 280
Cost of sales 6 236 000
Rent income 99 500
Directors' fees 1 262 100
Water and electricity 218 000
Telephone 75 600
Audit fees 104 000
Sundry expenses 61 001
Salaries and wages 1 280 000
Employer's contributions (medical, pension and UIF) 316 000
Bad debts 22 300
Consumable stores 53 200
Interest income ?
Insurance 79 500
Depreciation (on equipment sold) 1 750
Interest on loan ?
Bad debts recovered 6 000
Ordinary share dividends (interim) 375 000

Adjustments and additional information:

A. A credit invoice for R36 720 (after deducting a 10% trade discount) issued on 31
March 2019, was not recorded. Goods are marked up at 70% on cost.
B. The physical stock count on 31 March 2019 revealed the following on hand:
 Trading stock, R334 500
 Consumable stores, R3 400
C. Debtor S Magnum was declared insolvent. His estate paid R2 000, which was
20% of his debt. The difference must be written off as a bad debt.
D. R1 800 was received from a debtor, J Misting, whose debt had previously been
written off. The bookkeeper incorrectly credited the amount to the Debtors'
Control Account. Correct the error.
E. Adjust the provision for bad debts to R28 500.

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F. Insurance includes an annual premium of R51 000 paid for the period 1 January
2019 to 31 December 2019.
G. An employee was left out of the Salaries Journal for March 2019. The following
details are applicable:
 Net salary of the employee, R9 100
 The deductions by the employer totalled 30% of the gross salary
 Employer's contributions were R2 200
H. Interest on loan is capitalised. A fixed monthly repayment (including interest) of
R25 400 was paid for the financial year.
I. Fixed assets and depreciation:
(i) Vehicles:
 Details for the three vehicles are as follows:

Accumulated depreciation
Cost price Date purchased
31 March 2018
1 R350 000 R315 000 1 October 2013
2 R400 000 R160 000 1 April 2016
3 R627 000 30 November 2018

 Vehicles are depreciated at 20% p.a. on cost.

(ii) Equipment:
 Equipment was sold for R9 600 cash on 31 August 2018. Only the
following entries in respect of this sale were processed:

Cost price 28 000

Accumulated depreciation at the date of disposal 21 500
Depreciation for the current financial year 1 750

 Depreciation on the remaining equipment is calculated at R92 500 after

taking all of the above into account.
J. Interest income is the missing figure in the Income Statement.
K. Income tax is calculated at 28% of the net profit. The net profit before tax was
R691 000.

L. Shares and dividends:

 The company has an authorised share capital of 8 000 000 shares.
 The company had 1 200 000 shares in issue on 1 April 2018.
 150 000 shares were repurchased on 30 November 2018. EFT payments
totalling R825 000 were made for these shares.
 850 000 additional shares were issued on 30 September 2018.

71 Marks

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ACTIVITY 1: ANSWER SHEET INCOME STATEMENT AND NOTES

4.1
4.1.1 4.1.3
4
4.1.2 4.1.4

4.3 MVVS LTD

4.3.1 Statement of Comprehensive Income (Income Statement) for the year ended 31
March 2019

Sales
Cost of sales
Gross profit
Operating income
Rent income 99 500

Gross operating income

Operating expenses
Directors' fees 1 262 100
Water and electricity 218 000
Telephone 75 600
Audit fees 104 000
Sundry expenses 61 001

Operating profit
Interest income
Profit before interest expense
Interest expense
Net profit before tax 691 000
Income tax
Net profit after tax
53
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4.3.2 NOTES TO THE BALANCE SHEET

Fixed/Tangible Assets

Land and
Vehicles Equipment
buildings
Carrying value at beginning of
12 500 000 275 000 280 500
financial year
Cost 12 500 000 750 000 398 000
Accumulated depreciation - (475 000) (117 500)
Movements
Additions at cost - -
Disposals at carrying value - -
Depreciation - (94 250)
Carrying value at end of
12 500 000
financial year
Cost 12 500 000 1 377 000
Accumulated depreciation - 8

Ordinary share capital

Authorised:
8 000 000 shares
Issued:
1 200 000 shares in issue at beginning

TOTAL MARKS

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ACTIVITY 2 NSC NOV 2018

CONCEPTS,INCOME STATEMENT AND NOTES

3.1 Indicate where EACH of the following items would be placed in the financial
statements by choosing a term from the list below. Write only the answer next
to the question numbers (3.1.1 to 3.1.4) in the ANSWER BOOK.

non-current assets; current assets; equity;

operating expenses; operating income

3.1.1 Trade and other receivables

3.1.2 Adjustments of provision for bad debts (decrease)
3.1.3 Fixed deposit maturing in three years' time
3.1.4 Trading stock deficit (4)
3.2 TEMBISO LTD
You are provided with information for the financial year ended
28 February 2018.
REQUIRED:
Complete the following for the year ended 28 February 2018:
3.2.1 Income Statement (Statement of Comprehensive Income) (28)
3.2.2 Notes to the Balance Sheet (Statement of Financial Position) for:
 Ordinary share capital (7)
 Retained income (7)
INFORMATION:
A. Balances/Totals on 28 February:
2018 2017
Ordinary share capital 8 816 000 6 976 000
Retained income 384 600 376 600
Loan: LSO Bank ? 1 725 500
Trade creditors 414 120
SARS: Income tax (provisional payments) 341 800
Sales ?
Cost of sales 4 856 000
Total operating income 879 440
Salaries and wages 501 200
Audit fees 65 400
Rent expense 79 240
Directors' fees 497 800
Sundry expenses 91 680
Interest on fixed deposit ?
Interest on loan 242 500

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B. Adjustments and additional information:

(a) Sale of goods:

The company maintains a mark-up of 40% on cost. Note that old
goods costing R96 000 (included in cost of sales) were sold at 10%
below cost price.

(b) Audit fees:

75% of the annual fees have been paid.

(c) Directors' fees:

The company has three directors who earn the same fee. One
director was paid two months in advance.

(d) Rental:
A storeroom was rented from 1 June 2017 at R11 200 per month.
Rent increased by 7,5% on 1 December 2017. Provide for
outstanding rent.

(e) Loan: LSO Bank

 Fixed monthly repayments, including interest, are R31 600.
 Capitalised interest amounted to R242 500 for the year ended
28 February 2018.
 Interest for the next financial year is expected to be R162 000.
 Part of the loan will be repaid within the next financial year.

(f) Income tax for 2018:

 R31 300 is still due to SARS.
 The correct net profit after tax is R959 400.

(g) Share capital and dividends:

Authorised share capital: 1 600 000 ordinary shares

1 March 2017 80% of the shares were in issue.

1 May 2017 300 000 shares were repurchased at
R465 000 above the average share price.
31 August 2017 Interim dividends paid: 30 cents per share.
31 October 2017 Additional shares were issued.
28 February 2018 Final dividends were declared.

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ACTIVITY 2 NSC ,NOV 2018

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CONCEPTS,INCOME STATEMENT AND NOTES

3.1
3.1.1
3.1.2
3.1.3
3.1.4 4

3.2.1 TEMBISO LTD

INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2018
Sales
Cost of sales (4 856 000)
Gross profit
Other operating income 879 440
Gross income
Operating expenses
Salaries and wages 501 200

Operating profit
Interest income
Net profit before interest expense
Interest expense
Net profit before tax
Income tax
Net profit after tax 959 400 28

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3.2.2 ORDINARY SHARE CAPITAL

AUTHORISED SHARE CAPITAL

1 600 000 ordinary shares

ISSUED SHARE CAPITAL

1 480 000 Ordinary shares on 28 February 2018 8 816 000 7

RETAINED INCOME

Balance on 1 March 2017 376 600

Ordinary share dividends 7

Balance on 28 February 2018

TOTAL MARKS

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ACTIVITY 3 ASC JUNE 2017

CONCEPTS ,TANGIBLE ASSETS AND INCOME STATEMENT

4.1 Choose a description from COLUMN B that matches the term in COLUMN A. Write only
the letter (A– D) next to the question number (4.1.1– 4.1.4) in the ANSWER BOOK, for
example 4.1.5 E.

COLUMN A COLUMN B
4.1.1 Income Statement A reflects the source of funds and
how they were used
4.1.2 Balance Sheet
B reflects the opinion on the reliability
4.1.3 Cash Flow Statement of the financial statements

4.1.4 Independent Audit Report C reflects the financial position of a

business on a particular date

D reflects profit or loss for a financial

period
(4 x 1) (4)

4.2 MTOMBENI LTD

The information relates to Mtombeni Limited for the financial year ended
28 February 2017.

REQUIRED:

4.2.1 Refer to Information A and B and calculate:

 Carrying value of the vehicle sold on 30 November 2016 (5)

 Total depreciation on equipment on 28 February 2017 (7)

4.2.2 Prepare the Income Statement (Statement of Comprehensive Income) for

the year ended 28 February 2017. (54)

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INFORMATION:
Information extracted from the Pre-adjustment Trial Balance on 28 February
2017:

Balance Sheet Accounts Section

Land and buildings 1 600 000
Vehicles ?
Equipment 250 000
Accumulated depreciation on equipment (01/03/2016) 85 000
Trading stock 386 500
Debtors' control 88 500
Provision for bad debts 3 650
Mortgage loan: Quick Bank 1 056 000
Nominal Accounts Section
Sales 5 500 000
Cost of sales 3 150 000
Debtors' allowances 32 500
Directors' fees 380 000
Audit fees 54 000
Bad debts 13 600
Rent income 169 500
Interest on loan ?
Insurance 19 220
Salaries and wages 475 000
Bad debts recovered 4 750
Consumable stores 67 500
Bank charges 7 760
Sundry expenses 140 085
Interest income ?

Adjustments and additional information:

A. No entries were made for a vehicle sold on 30 November 2016 for
R97 700 cash. Details of the vehicle:
 Cost price, R190 000
 Accumulated depreciation (1 March 2016), R72 000
 Depreciation rate: 20% p.a. on cost
B. Provide for depreciation as follows:
 On remaining vehicles – R138 000 for the financial year
 On equipment at 10% p.a. on the diminishing-balance method
NOTE: New equipment costing R32 000 was purchased and
recorded on 1 September 2016.
C. Goods sold on credit to debtor, J Gander, for R15 000 were not recorded.
The mark-up is 60% on cost price.
D. A physical stocktaking on 28 February 2017 reflected trading stock of
R374 000.
E. Consumable stores used during the financial year amounted to R61 700.

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F. The account of debtor, L Maseko, must be written off as irrecoverable,

R1 900.

G. Entries on the February 2017 Bank Statement not yet recorded in the
books of the company:

 Bank charges, R870

 Debit order payment for the monthly insurance premium, R1 780

H. Provision for bad debts must be adjusted to R4 030.

I. Loan statement received reflected the following:

Balance: 1 March 2016 1 356 000

Interest ?
Repayment during the financial year 300 000
Balance: 28 February 2017 1 200 000

J. An employee, H Brooks, who commenced work on 1 February 2017, was

omitted from the Salaries Journal. Details of his salary for February 2017
are:

DEDUCTIONS CONTRIBUTIONS
GROSS
PENSION PENSION
SALARY PAYE UIF UIF
FUND FUND
13 500 2 190 1 080 135 1 620 135

NOTE: All contributions are recorded as part of salaries and wages.

K. The rent income was increased by R1 500 per month from

1 November 2016. The tenant has not paid the rent for February 2017 yet.

L. Interest income is the missing figure in the Income Statement.

M. Income tax is calculated at 28% of net profit.

N. Net profit after tax amounted to R864 000.

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ACTIVITY3 ASC JUNE 2017

CONCEPTS ,TANGIBLE ASSETS AND INCOME STATEMENT

4.1
4.1.1
4.1.2
4.1.3
4.1.4
4

4.2 MTOMBENI LTD

4.2.1 Calculate: Carrying value of the vehicle sold on 30 November 2016

5
Calculate: Total depreciation on equipment on 28 February 2017

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4.2.2 MTOMBENI LTD

Income Statement (Statement of Comprehensive Income) for the year ended
28 February 2017:
Sales (5 500 000
Cost of sales (3 150 000

Operating expenses
Directors' fees 380 000
Audit fees 54 000

Operating profit
Interest income
Net profit after interest income

Net profit before tax

Income tax
Net profit after tax 864 000

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ACTIVITY 4 ASC JUNE 2015

4.1 CONCEPTS – GAAP PRINCIPLES ,INCOME STATEMENT AND NOTES

REQUIRED:

Choose an explanation from COLUMN B that matches a concept in COLUMN A.

Write only the letter (A– E) next to the question number
(4.1.1– 4.1.4) in the ANSWER BOOK.

COLUMN A COLUMN B
(CONCEPT) (EXPLANATION)
4.1.1 Historical cost A Figures used in financial statements
should be realistic (conservative).
4.1.2 Matching
B All important items should be
4.1.3 Going concern shown separately in financial
statements.
4.1.4 Materiality
C Income and expenses must be
recorded in the correct financial
year.

D Financial statements are prepared

with the understanding that the
company will continue operating
in the future.

E All assets are recorded at their

original cost price.
(4 x 1) (4)

4.2 PRINCE LIMITED

You are provided with information for the financial year ended 28 February 2015.

REQUIRED:

4.2.1 Complete the Income Statement for the year ended 28 February 2015. (42)

4.2.2 Prepare the Ordinary Share Capital Note. (8)

4.2.3 Prepare the Retained Income Note. (11)

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INFORMATION:
EXTRACT FROM THE PRE-ADJUSTMENT TRIAL BALANCE ON
28 FEBRUARY 2015
Balance Sheet Accounts Section Dr Cr
Ordinary share capital 6 800 000
Retained income (1 March 2014) 1 368 000
Loan: Y-Lend Bank 1 609 000
Trading stock 1 910 000
Bank 626 200
Petty cash 6 605
Debtors' control 792 000
Creditors' control 974 600
SARS (Income tax) 523 600
Provision for bad debts 43 600
Fixed deposit: Money Bank (8%) 990 000
Nominal Accounts Section
Sales ?
Cost of sales 14 974 000
Rent income 374 950
Interest on fixed deposit 53 260
Bad debts recovered 4 150
Audit fees 147 600
Advertising 960 000
Salaries and wages 1 300 000
Directors' fees 1 130 000
Packing material 76 200
Sundry expenses ?
Bad debts 24 000
Ordinary share dividends ?

ADJUSTMENTS AND ADDITIONAL INFORMATION:

A. Selling prices are determined by using a mark-up of 40% on cost. However,

trade discounts of R53 600 were allowed to special customers during the
financial year.
B. The physical stocktaking on 28 February 2015 reflected the following stock
on hand:
 Trading stock R1 890 000
 Packing material R8 500
C. An amount of R20 500 is still outstanding to a director for his fees.
D. Total depreciation for the year is R299 200.
E. A debtor, B Khozo, with an outstanding balance of R42 000, has left the
country. His account must be written off as irrecoverable.
F. The provision for bad debts must be adjusted to 5% of the outstanding
debtors.

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G. One of the employees was on sick leave and was omitted from the Salary
Journal for February 2015. His salary details are as follows:
Employers'
Gross salary Deductions Net salary
contribution
? R5 000 R12 000 R3 000

All employers' contributions are debited to the Salaries and Wages

Account.
H. Make provision for the outstanding interest on fixed deposit. The fixed
deposit has not changed during the financial year. Interest is not
capitalised.
I. The rent income includes rent received for March 2015. The rent income
increased by R1 425 on 1 September 2014.
J. The loan statement received from Y-Lend Bank on 28 February 2015
indicated the following:

R
Balance at beginning of financial year 2 509 000
Repayments during financial year 900 000
Interest capitalised ?
Balance at end of financial year 1 984 000

K. Income tax for the financial year was calculated as R540 000. This is 30%
of the net profit before tax.

L. The figure for sundry expenses is the balancing figure in the Income
Statement.

M. Shares and dividends:

 The authorised ordinary share capital consists of 1 000 000 ordinary

shares of which 70% was issued before 1 March 2014.

 Interim dividends of 80 cents per share was declared and paid on

1 September 2014.

 During October 2014 a further 100 000 shares were issued at R12
each. This was properly recorded.

 On 28 February 2015 a final dividend of 65 cents per share was

declared.

 On 28 February 2015 it was decided to buy back 160 000 shares

from a dissatisfied shareholder at R9,10 per share. This transaction
has not been recorded yet.
65

ACTIVITY 4 ASC , JUNE 2015

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CONCEPTS – GAAP PRINCIPLES ,INCOME STATEMENT AND NOTES

4.1 Write only the letter (A– E) next to the question number.

4.1.1
4.1.2
4.1.3
4.1.4
4

4.2.1 See Income Statement on the next page.

4.2.2 Ordinary Share Capital Note

Authorised
1 000 000 ordinary shares

Issued
Shares in issue on 1 Mar. 2014
Shares issued during the year at
R12 each
Shares bought back (average
issued price of _______)
Shares in issue on 28 Feb. 2015
8

4.2.3 Retained Income Note

Balance at beginning of financial year

Dividends

Balance at end of financial year

11

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4.2.1 PRINCE LIMITED

INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015

Sales
Cost of sales (14 974 000)
Gross profit
Other income

Gross operating income

Operating expenses
Auditors' fees 147 600
Advertising 960 000

Operating profit

Income tax (540 000)

42

TOTAL
MARKS

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ACTIVITY 5 NSC, NOV 2016

3.1 CONCEPTS AND INCOME STATEMENT

Choose the correct term to complete each of the following statements. Write only
the term next to the question number (3.1.1– 3.1.4) in the ANSWER BOOK.

cash and cash equivalents; current asset; non-current asset; income;

net working capital; expense; current liability; non-current liability

3.1.1 Interest on a bank overdraft is a/an ...

3.1.2 Consumable stores on hand are a/an ...

3.1.3 The portion of a loan to be paid during the next financial year is regarded
as a/an …in the Balance Sheet.

3.1.4 The difference between current assets and current liabilities is known
as … (4 x 1) (4)

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3.3 INCOME STATEMENT

You are provided with information relating to Fralezi Ltd for the financial year
ended 30 June 2016.

REQUIRED:

Complete the Income Statement for the financial year. (60)

INFORMATION:

Figures extracted from the Pre-adjustment Trial Balance on 30 June 2016:

R
Balance Sheet Accounts
Mortgage loan: Parys Bank 333 200
Bank (favourable) 482 000
Debtors' control 116 500
Trading stock 209 500
Provision for bad debts 3 732
Nominal Accounts
Sales (less allowances) 4 777 300
Cost of sales ?
Directors' fees 375 000
Salaries and wages 365 540
Sundry expenses ?
Depreciation 124 260
Audit fees 23 000
Repairs 100 000
Rent income 101 900
Interest income ?
Bad debts recovered 10 540
Packing material 13 600
Advertising 20 596
Loss of computer due to theft 9 300
Ordinary share dividends 200 000

Adjustments and additional information:

A. A credit note for R35 700 issued to a debtor, dated 27 June 2016, was not
recorded. The cost price of these goods was R21 000. The goods were
placed back into stock.

B. The business prices its goods at a mark-up of 70% on cost. Trade discount
of R297 200 was allowed on invoices to certain customers.

C. Adjust the provision for bad debts of debtors to 4%.

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D. Stock counts on 30 June 2016 revealed the following on hand:

 Trading stock, R225 500

 Packing material, R3 700

E. External auditors are owed a further R7 250.

F. Interest on the loan is capitalised and has not been recorded yet. The loan
statement from Parys Bank on 30 June 2016 reflected a closing balance
of R372 920.

G. Corrections must be made in respect of a computer that was stolen on

31 March 2016.

The bookkeeper completed the following page in the Fixed Assets Register,
using the incorrect method of depreciation:

SUNCREST COST DEPRECIATION BOOK

COMPUTER VALUE
1 July 2014 R42 000 R42 000
30 June 2015 R8 400 R33 600
31 March 2016 R6 300 R27 300

Insurance pay-out R18 000

Loss of computer due to R9 300
theft

Depreciation on this asset should have been calculated at 20% p.a. on the
diminishing-balanced method.

H. The monthly rent did not change during the year. During April 2016 the
tenant paid R6 000 for repairs to the premises. He deducted this from his
rent for May 2016, as repairs are the responsibility of the company. The
repairs were not recorded. The rent for July 2016 was received and
deposited during June 2016.

I. Advertising consists of a monthly contract with the local newspaper for the
entire financial year. Advertising was paid for 11 months only. From
1 April 2016, the contract rate was decreased by R152 per month.

J. Net profit after tax is R504 000.

Use the following percentages to calculate certain missing figures:

 Operating profit on sales: 15%

 Income tax rate: 28% of net profit

64

ACTIVITY 5 NSC, NOV 2016

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CONCEPTS AND INCOME STATEMENT

3.1
3.1.1

3.1.2

3.1.3

3.1.4
4

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3.3 FRALEZI LTD

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2016
Sales

Cost of sales

Gross profit
Other income

Operating expenses

Directors' fees

Salaries and wages

Sundry expenses

Operating profit
Interest income
Profit before interest expense
Interest expense
Net profit before tax
Income tax for the year
Net profit after tax 504 000

TOTAL MARKS: 64 60

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ACTIVITY 6 ( Extracted from DBE Training Manual 2020)

Using Financial Indicators to complete the Income Statement

REQUIRED

Calculate the missing amounts to complete the abridge Income Statement below.

A. Relevant financial indicators:

Profit mark-up on cost (gross profit) 75%
% operating income on sales 16%
% operating profit on sales 22%
Income tax rate 28%
B. Incomplete Income Statement:
Sales 7 612 500
Cost of sales
Gross profit
Operating income

Gross operating income

Operating expenses

Operating profit
Interest income 22 250
Profit before interest expense
Interest expense
Net profit before income tax
Income tax (448 000)
Net profit after income tax

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How to earn easy marks when completing the Income Statement

You must know the FORMAT of the Income Statement.

Always start with the PRE ADJUSTMENT FIGURES FROM TRIAL BALANCE or
information extracted when preparing the income statement.
Start with NOMINAL ACCOUNTS ITEMS
RECORD THE FIGURES IN INCOME STATEMENT to earn part/free marks
START WITH ADJUSTMENTS – you will also have to consider amounts in the Balance Sheet
Section
[More marks are allocated to adjustments]
Income received in advance and prepaid expenses are DEDUCTED
Accrued income and accrued expenses are ADDED
Remember to DEDUCT debtors’ allowances from sales
If goods are returned ,cost of sales must also REDUCE

ALWAYS SHOW your WORKINGS IN BRACKETS to earn part marks

Easy marks – Income statement

Gross Profit, Other income, Gross income, operating expenses, operating profit, net profit
before tax, net profit after tax. METHOD MARKS [maximum of 7 marks]
Learners will earn METHOD MARKS for the correct *OPERATION on expenses and
income items- workings will benefit learners whose final answers are NOT ACCURATE

*OPERATION-refers to the following signs: division, subtraction, addition and

multiplication

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CALCULATE THE CORRECT NET PROFIT

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ACTIVITY 1 NSC,NOV 2019

TANGIBLE ASSETS AND CALCULATION OF CORRECT NET PROFIT AFTER TAX

4.2 VISIV LTD

The financial year ended on 28 February 2019.
REQUIRED:
4.2.1 Calculate:
 Amounts for (i) and (ii) in the Fixed Assets Register (5)
 Profit/Loss on sale of asset (2)
 Fixed assets carrying value on 28 February 2019 (4)
4.2.2 Calculate the correct net profit after tax for the year ended
28 February 2019. Indicate (+) for increase and (– ) for decrease. (9)
INFORMATION:

A. Fixed assets:
A delivery vehicle was sold on 31 October 2018 but no entries were made to
record this transaction.
Details of vehicle sold:

Delivery Vehicle X43

Date purchased: 1 March 2016
Date sold: 31 October 2018 Sold for: R195 000
(cash)

Depreciation rate: 25% p.a. (diminishing-balance method)

CARRYING
COST DEPRECIATION
VALUE
28 February 2017 R400 000 R100 000 R300 000
28 February 2018 75 000 225 000
31 October 2018 (i) (ii)

B. List of balances/totals on 28 February 2019 (before taking into account

all adjustments below):
Ordinary share capital R8 152 000
Retained income (1 March 2018) 865 300
Mortgage loan: Prati Bank 1 758 000
Fixed assets (carrying value) 10 190 000
Fixed deposit: Prati Bank (balancing figure) ?
Trading stock 1 102 000
Net trade debtors 1 090 000
Bank (favourable) ?
SARS: Income tax (provisional tax payments) 155 000
Creditors' control 1 906 800

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C. Net profit before tax, R822 700, was calculated before correcting the
following:

 Provision for bad debts must be increased by R65 000.

 R9 800 of an advertising contract applies to the next financial year.

 A tenant paid rent of R334 000 for the period 1 March 2018 to
31 March 2019. Rent was increased by R3 000 per month from
1 January 2019.

 Depreciation and profit/loss on the vehicle sold must be recorded.

 A further R43 000 is owed for income tax.

20

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ACTIVITY 1 NOV 2019

4.2 VISIV LTD

4.2.1 (i) Calculate: Depreciation for the current year

Workings Answer

(ii) Calculate: Carrying value of vehicle sold

Workings Answer

Calculate: Profit/Loss on sale of asset

Workings Answer

Calculate: Fixed assets carrying value on 28 February 2019

Workings Answer

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4.2.2 Calculate the correct net profit after tax for the year ended
28 February 2019. Indicate (+) for increase and (– ) for decrease.

Workings Answer

Incorrect net profit before tax 822 700

Correct net profit after tax 9

TOTAL MARKS

20

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ACTIVITY 2: CALCULATION OF CORRECT NET PROFIT AFTER TAX

(NOV 2015)

13

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ACTIVITY 2 NSC 2015 NOV

TOTAL MARKS

13

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ACTIVITY 3 PRELIM KZN 2019

WESTVILLE LTD

The following information relates to Westville Ltd. The financial year ended
28 February 2019.

REQUIRED:

3.2 Calculate the correct Net Profit after tax for the financial year ended
28 February 2019. (19)

INFORMATION:

A. The following items appeared in the Pre-Adjustment Trial Balance on

28 February 2019:
Ordinary share capital (180 000 shares) 28 February 2019 R 909 000
Retained income (4 December 2018) 130 000
Loan: M.G.M Bank 1 140 000
Fixed asset at carrying value ?
Fixed deposit 700 000
SARS: Income Tax (Provisional tax payment) (Dr) 267 000
Creditors control 43 000
Debtors control 44 800
Provision for bad debts 1 700
Trading stock 92 400
Consumable stores on hand (Packing material) 12 000
Bank overdraft 5 000
Petty cash 1 500

B. On 4 December 2018, the directors approved the repurchase of 20 000

shares at R9.00 each. This transaction was properly recorded.

C. The net profit before tax was incorrectly calculated as R1 449 200.

D. The following information was not taken into account:

(i) The director’ s fees of R625 000 was paid to two directors.
One of the two directors requested his fees for March 2019 be paid
in February 2019, due to financial problems. All two directors
receive the same monthly salary.

(ii) 80% of the packing material were used during the financial year.

(iii) A debtor B. Zulu, who owes R1 200, has been declared insolvent
his estate paid R480. This amount was received and not recorded.
Write off the balance.

(iv) Rent income of R177 600 was received for 14 months. The rent
was increased on 1 September 2018 by 10%.

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(v) An interim dividend of R55 820 was paid on 1 September 2018, but
was debited incorrectly to the salaries account.

(vi) A debtor with a credit balance of R1 000 on 28 February 2019 must

be transferred to the Creditors ledger.

(vii) The loan statement from KZN Bank reflected the following:
Balance at beginning of financial year R 1 500 000
Repayment during the year (was recorded) ?
Interest capitalised 157 500
Balance at the end of financial year 1 140 000

The capital portion of the repayment of the loan for the next financial
year remains the same as the current financial year.

(viii) Outstanding cheque on the Bank Reconciliation Statement on

28 February 2019 included:

Cheque Date of Name of Reason for Amount

No. Cheque payee cheque
401 21 Feb 2019 BB Stores On R3 000
account

(ix) Income tax amount to R255 000 and is equal to 30% of the net profit
before tax.

(x) A final dividend of 75 cents per share was declared on 28

February 2019.

19

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ACTIVITY 3 KZN 2019

3.2 Net profit before tax 1 449 200

Operating profit before interest expense

Interest expense

Net profit before tax

Income tax

Net profit after tax 19

TOTAL MARKS

19

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ACTIVITY 4 PRELIM GP 2017

3.2 AMARA LIMITED

The following information relates to Amara Limited. The financial year ended on 28
February 2017.

REQUIRED:

3.2.1 Refer to Information B.

Calculate the Net Profit after Tax. (10)

INFORMATION:

A. Extract of a list of Balances/Totals on 28 February 2017

Balance Sheet Accounts Section R

Ordinary share capital ?
Retained income (1 March 2016) 540 000
Land and Buildings 5 002 000
Equipment (1 March 2016) 700 000
Accumulated depreciation on equipment (1 March 2016) 263 750
Fixed Deposit: GP Bank 260 000
Trade and other receivables 696 000
Cash float 12 000
Loan: GP Bank 1 140 000
Creditors’ Control 294 600
Bank Overdraft 52 000
SARS: Income Tax 300 000
Nominal Accounts Section
Rent income 177 600
Dividends on ordinary shares 96 000

B. Net Profit for the year

The Internal Auditor found that the following adjustments were NOT taken into
account when the Net Profit before Tax, R1 024 400 was calculated.
 The telephone account, R3 000 for February 2017 was not yet paid.
 Insurance amount of R4 500 was prepaid.
 Rent Income for March and April 2017 was already received. The
rent was increased on 1 September 2016 by 10%. The Rent
Income account showed an amount of R177 600 in the General
Ledger.
 Stationery of R500 was on hand on 28 February 2017.
 The Income Tax for the year is calculated at 28% of net profit before
tax.

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C. Shares and Dividends

(i) Authorised share capital comprises 400 000 ordinary shares.

(ii) On 1 March 2016: 160 000 shares for R4 000 000 were in issue.

(iii) On 31 August 2016: The directors decided to buy back 50 000 shares
from the family of a deceased shareholder, at R30 per share. These
shares are NOT entitled to final dividends.

(iv) On 1 January 2017: 100 000 shares were issued at R17,50 each.

(v) The directors declared a final dividend of 80 cents per share on

28 February 2017.

D. Fixed Assets

(i) Equipment, R250 000 was purchased on 1 December 2016. No

equipment was sold during the year.

(ii) The depreciation account was debited with a total amount of R76 250 for
the year.

E. Non-current Liabilities

The loan statement from GP Bank reflected the following:

Balance at beginning of financial year R1 500 000

Repayments during the year R?
Interest capitalised R157 500
Balance at end of financial year R1 140 000

The capital portion of the repayment of the loan for the next financial year
remains the same as the current financial year.
10

ACTIVITY 4 PRELIM GP 2017

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3.2 AMARA LIMITED

3.2.1 Calculate the Net Profit after Tax.

R
Incorrect Net Profit before Tax 1 024 400 10

Net profit before tax

Income Tax
Net Profit after tax

TOTAL MARKS

10

ACTIVITY 5 PRELIM NC 2017

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The information relates to ENG Limited for the financial year ended 30 June 2017.

REQUIRED:

3.1 Calculate the correct NET PROFIT AFTER TAX for the financial year
ended 30 June 2017. (12)

INFORMATION:

A The following items appeared in the Pre-adjustment Trial Balance on

30 June 2017:

R
Ordinary share capital ?
Retained income (4 January 2017) 126 100
Loan: TG Bank 72 400
Fixed Assets at carrying value ?
SARS (Income tax) Dr 108 000
SARS (PAYE) Cr 5 800
Creditors for salaries 13 000
Debtors’ Control 34 000
Provision for bad debts 1 900
Consumable Stores on hand (packing material) 12 000
Trading stock 98 000
Creditors' control 23 700
Bank overdraft 3 400
Petty cash 300

B The net profit before tax was incorrectly calculated as R324 000.

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C The following information were not taken into account by the bookkeeper:

(i) The directors fees of R21 000 and audit fees of R5 000 for June 2017
were not paid yet.

(ii) Stock to the value of R5 600 was destroyed in a fire. The insurance
company agreed to pay R4 800.

(iii) 80% of the packing material were used during the financial year.

(iv) According to the loan agreement an instalment of R20 000 and interest,
will be paid annually to TG Bank. The bookkeeper correctly recorded the
amount paid to TG Bank on 30 June 2017 as follows:

Debit: Loan: TG Bank R37 600

Credit: Bank R37 600

(v) Outstanding cheques on the Bank Reconciliation Statement on

30 June 2017 include:
Cheque Date of Name of Reason for
Amount
no. cheque payee cheque
362 24 June 2017 Eskom Electricity R2 400
375 25 July 2017 Waytons On account R1 500

(vi) An interim dividend of R30 000 was paid on 1 December 2016, but was
debited incorrectly to the salaries account.

(vii) Debtors with credit balances totalling R700 on 30 June 2017 must be
transferred to the Creditors’ Ledger.

(viii) Provide for income tax at 28% of the net profit.

(ix) SHARE CAPITAL : (all entries were recorded)

 The company is registered with an authorized share capital of
600 000 ordinary shares.
 On 1 July 2016, 125 000 shares were in issue. The average share
price at this time was R4,00.
 On 25 September 2016, the company issued an additional 75 000
shares at R6,80 each.
 On 4 January 2017, the directors approved the repurchase of 20 000
shares at R9,00 each.
(x) FINAL DIVIDENDS:
 A final dividend of 75 cent per share was declared on 30 June 2017.
 Only shares in issue on 30 June 2017 qualified for these dividends.

12

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ACTIVITY FIVE PRELIM NC 2017 , QUESTION 3

3.1 Calculate the correct NET PROFIT AFTER TAX for the year ended
30 June 2017.

Incorrect profit before tax R324 000

12

TOTAL MARKS

12

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BALANCE SHEET

BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

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The Balance Sheet is a Financial Statement that is usually prepared at the end of an
accounting period (a financial year) to show the financial position of a business in terms of
its assets, liabilities and equity.
Balance sheet has been introduced in previous grades, the diagram below indicates
progression in different grades. The Equity section of the Balance sheet is the only difference
in different grades.

Grade 10 Grade 11 Grade 12

Owner’ xxxx Partners’ xxxx Shareholders’ xxxx

Equity Equity Equity
Capital 7 xxxx Capital 7 xxxx Ordinary Share 7 xxxx
Current xxxx Capital
Account 8 Retained Income 8 xxxx

COMPANIES STATEMENT OF FINANCIAL POSITION (BALANCE SHEET

Notes R
ASSETS
NON-CURRENT ASSETS xxxxx
Tangible/ Fixed assets 3 xxxx

Financial assets
Fixed deposits xxxxx

CURRENT ASSETS xxxxx

Inventories 4 xxx
Trade and other debtors 5 xxx
Cash and cash equivalents (Include fixed deposit maturing in 12 months ) 6 xxx
TOTAL ASSETS XXXXX

EQUITY AND LIABILITIES Equity

CAPITAL AND RESERVES / SHAREHOLDERS’ EQUITY xxxxx accounts
Ordinary share capital 7 xxxx
Retained income 8 xxx

NON-CURRENT LIABILITIES xxxx

Mortgage bond (maturation period longer than 12 months) xxxxCreditors
include
SARS-
CURRENT LIABILITIES xxxxxincome tax
Trade and other creditors 9 xxx payable and
Bank overdraft xxx Shareholder
s for
Short-term loans (portion of long term loan payable within 12 dividends
months) xxxx
TOTAL EQUITY AND LIABILITIES XXXXX

ACTIVITY 1 NSC NOV 2019

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BALANCE SHEET 70 marks

4.1 Choose an explanation in COLUMN B that matches the term in COLUMN A. Write
only the letters (A– E) next to the question numbers (4.1.1 to 4.1.5) in the
ANSWER BOOK.

COLUMN A COLUMN B
4.1.1 Internal auditor A appointed by shareholders to manage
a company
4.1.2 Memorandum of
incorporation (MOI) B the body responsible for registration
of all companies
4.1.3 Limited liability
C employed by a company to ensure
4.1.4 Director good internal control procedures

4.1.5 Companies and D indicates that a company has a legal

Intellectual Property personality of its own
Commission (CIPC)
E the document that establishes the
rules and procedures of a company
(5 x 1) (5)

4.2 VISIV LTD

The financial year ended on 28 February 2019.

REQUIRED:
4.2.1 Calculate:

 Amounts for (i) and (ii) in the Fixed Assets Register (5)
 Profit/Loss on sale of asset (2)
 Fixed assets carrying value on 28 February 2019 (4)

4.2.2 Calculate the correct net profit after tax for the year ended
28 February 2019. Indicate (+) for increase and (– ) for decrease. (9)

4.2.3 Refer to Information A– H. Prepare the following on 28 February 2019:

 Retained Income Note (9)

 Statement of Financial Position (Balance Sheet). (27)
 NOTE: Show workings. Certain figures are provided in the
ANSWER BOOK.

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INFORMATION:

A. Fixed assets:
A delivery vehicle was sold on 31 October 2018 but no entries were made to
record this transaction.
Details of vehicle sold:
Delivery Vehicle X43
Date purchased: 1 March 2016
Date sold: 31 October 2018 Sold for: R195 000 (cash)
Depreciation rate: 25% p.a. (diminishing-balance method)
CARRYING
COST DEPRECIATION
VALUE
28 February 2017 R400 000 R100 000 R300 000
28 February 2018 75 000 225 000
31 October 2018 (i) (ii)

B. List of balances/totals on 28 February 2019 (before taking into account

all adjustments below):
Ordinary share capital R8 152 000
Retained income (1 March 2018) 865 300
Mortgage loan: Prati Bank 1 758 000
Fixed assets (carrying value) 10 190 000
Fixed deposit: Prati Bank (balancing figure) ?
Trading stock 1 102 000
Net trade debtors 1 090 000
Bank (favourable) ?
SARS: Income tax (provisional tax payments) 155 000
Creditors' control 1 906 800

C. Net profit before tax, R822 700, was calculated before correcting the
following:
 Provision for bad debts must be increased by R65 000.

 R9 800 of an advertising contract applies to the next financial year.

 A tenant paid rent of R334 000 for the period 1 March 2018 to
31 March 2019. Rent was increased by R3 000 per month from
1 January 2019.

 Depreciation and profit/loss on the vehicle sold must be recorded.

 A further R43 000 is owed for income tax.

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D. Ordinary shares:
DATE DETAILS
1 March 2018 2 000 000 shares in issue; total book value R7 600 000
31 May 2018 360 000 shares repurchased at R4,10 each
1 October 2018 800 000 new shares issued
28 February 2019 2 440 000 shares in issue

E. Dividends:
 Interim dividends were paid in September 2018, R295 200.
 Final dividends of 20c per share were declared on 28 February 2019.

F. A creditor with a debit balance of R7 600 must be transferred to the Debtors'

Ledger.

G. A cheque for R75 000, dated 30 April 2019, was issued to a supplier in
February.

H. After processing all adjustments:

 The current ratio is 0,8 : 1.
 The current liabilities totalled R2 900 000.
 The current portion of the loan is the balancing figure.

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ACTIVITY 1 NSC NOV 2019

QUESTION 4

4.1 4.1.1
4.1.2
4.1.3
4.1.4
4.1.5 5

4.2 VISIV LTD

4.2.1 (i) Calculate: Depreciation for the current year

Workings Answer

(ii) Calculate: Carrying value of vehicle sold

Workings Answer

5
Calculate: Profit/Loss on sale of asset
Workings Answer

2
Calculate: Fixed assets carrying value on 28 February 2019
Workings Answer

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4.2.2 Calculate the correct net profit after tax for the year ended
28 February 2019. Indicate (+) for increase and (– ) for decrease.
Workings Answer
Incorrect net profit before tax 822 700

Correct net profit after tax 9

4.2.3 RETAINED INCOME NOTE:

Balance at beginning 865 300

Ordinary share dividends

Balance at end 9

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VISIV LTD
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
ON 28 FEBRUARY 2019
ASSETS
Non-current assets

Fixed assets

Fixed deposit

Current assets

Inventories 1 102 000

Cash and cash equivalents

TOTAL ASSETS

EQUITY AND LIABILITIES

Ordinary shareholders' equity

Ordinary share capital 8 152 000

Non-current liabilities

Current liabilities 2 900 000

Current portion of loan

TOTAL EQUITY AND LIABILITIES 27

TOTAL MARKS
70

ACTIVITY 2 NSC NOV 2018

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FINANCIAL STATEMENTS AND AUDIT REPORT 75 marks

3.1 Indicate where EACH of the following items would be placed in the financial
statements by choosing a term from the list below. Write only the answer next
to the question numbers (3.1.1 to 3.1.4) in the ANSWER BOOK.

non-current assets; current assets; equity;

operating expenses; operating income

3.1.1 Trade and other receivables

3.1.2 Adjustments of provision for bad debts (decrease)

3.1.3 Fixed deposit maturing in three years' time

3.1.4 Trading stock deficit (4)

3.2 TEMBISO LTD
You are provided with information for the financial year ended
28 February 2018.
REQUIRED:
Complete the following for the year ended 28 February 2018:
3.2.1 Income Statement (Statement of Comprehensive Income) (28)

3.2.2 Notes to the Balance Sheet (Statement of Financial Position) for:

 Ordinary share capital (7)
 Retained income (7)
3.2.3 Equity and Liabilities section of the Balance Sheet (16)
INFORMATION:
A. Balances/Totals on 28 February:
2018 2017
Ordinary share capital 8 816 000 6 976 000
Retained income 384 600 376 600
Loan: LSO Bank ? 1 725 500
Trade creditors 414 120
SARS: Income tax (provisional payments) 341 800
Sales ?
Cost of sales 4 856 000
Total operating income 879 440
Salaries and wages 501 200
Audit fees 65 400
Rent expense 79 240
Directors' fees 497 800
Sundry expenses 91 680
Interest on fixed deposit ?
Interest on loan 242 500

B. Adjustments and additional information:

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(a) Sale of goods:

The company maintains a mark-up of 40% on cost. Note that old
goods costing R96 000 (included in cost of sales) were sold at 10%
below cost price.

(b) Audit fees:

75% of the annual fees have been paid.

(c) Directors' fees:

The company has three directors who earn the same fee. One
director was paid two months in advance.

(d) Rental:
A storeroom was rented from 1 June 2017 at R11 200 per month.
Rent increased by 7,5% on 1 December 2017. Provide for
outstanding rent.

(e) Loan: LSO Bank

 Fixed monthly repayments, including interest, are R31 600.

 Capitalised interest amounted to R242 500 for the year
ended 28 February 2018.
 Interest for the next financial year is expected to be
R162 000.
 Part of the loan will be repaid within the next financial year.

(f) Income tax for 2018:

 R31 300 is still due to SARS.

 The correct net profit after tax is R959 400.

(g) Share capital and dividends:

Authorised share capital: 1 600 000 ordinary shares

1 March 2017 80% of the shares were in issue.

1 May 2017 300 000 shares were repurchased at
R465 000 above the average share price.
31 August 2017 Interim dividends paid: 30 cents per share.
31October 2017 Additional shares were issued.
28February 2018 Final dividends were declared.

TOTAL MARKS
75

ACTIVITY 2 NSC NOV 2018

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QUESTION 3

3.1
3.1.1
3.1.2
3.1.3
3.1.4
4

3.2.1 TEMBISO LTD

INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2018

Sales
Cost of sales (4 856 000)
Gross profit
Other operating income 879 440
Gross income
Operating expenses
Salaries and wages 501 200

Operating profit
Interest income
Net profit before interest expense
Interest expense
Net profit before tax
Income tax
Net profit after tax 959 400 28

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3.2.2 ORDINARY SHARE CAPITAL

AUTHORISED SHARE CAPITAL

1 600 000 ordinary shares

ISSUED SHARE CAPITAL

1 480 000 Ordinary shares on 28 February 2018 8 816 000 7

RETAINED INCOME

Balance on 1 March 2017 376 600

Ordinary share dividends

Balance on 28 February 2018 7

3.2.3 EQUITY AND LIABILITIES SECTION OF THE BALANCE SHEET

SHAREHOLDERS' EQUITY
Ordinary share capital 8 816 000
Retained income

NON-CURRENT LIABILITIES

CURRENT LIABILITIES
Trade and other payables

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 16

TOTAL MARKS:75

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ACTIVITY 3 NSC 2017 , QUESTION 3

FIXED ASSETS, BALANCE SHEET 65 marks

The following information relates to Odette Ltd. The financial year ended on
28 February 2017.

REQUIRED:

3.1 Refer to Information B.

Calculate the missing amounts denoted by (a) to (e). (22)
3.2 Complete the Balance Sheet (Statement of Financial Position) on
28 February 2017. Show workings. (37)

INFORMATION:
A. Amounts extracted from the records on 28 February 2017:

Balance Sheet accounts section R

Ordinary share capital ?
Retained income (28 February 2017) 520 000
Fixed assets (carrying value) ?
Loan from Beque Bank 284 000
Trading stock 408 880
Net trade debtors 67 200
Fixed deposit: Elze Bank ?
Bank (favourable) ?
SARS: Income tax (provisional payments) 209 000
Creditors' control 184 000
Nominal accounts section (pre-adjustment amounts)
Insurance 30 200
Rent income 108 450
Electricity 42 000

B. Fixed assets:

LAND AND
VEHICLES EQUIPMENT TOTAL
BUILDINGS
Cost 350 000 460 000
Accumulated depreciation (315 000)
Carrying value (01/03/2016) (a) 35 000
Movements:
Additions 325 000 422 550 0
Disposals 0 0 (d)
Depreciation (b) (13 766)
Carrying value (28/02/2017) 2 550 000 (c) 50 994 (e)
Cost 772 550 340 000
Accumulated depreciation

 Depreciation on vehicles is calculated at 20% p.a. on cost.

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 The company has two vehicles on 28 February 2017. One of these vehicles was
purchased on 1 September 2016.

 Extract from the Fixed Assets Register in respect of equipment sold:

Fridge (Model X3)

Date purchased: 1 March 2014
Date sold: 31 December 2016 Sold for: R81 250

Depreciation rate: 10% p.a. (diminishing-balance method)

COST DEPRECIATION BOOK VALUE
28 February 2015 R120 000 R12 000 R108 000
29 February 2016 ? ?
31 December 2016 ? ?

C. The electricity account for February 2017, R5 600, was still outstanding.

D. The provision for bad debts must be increased by R270.

E. An additional insurance policy was taken out on 1 November 2016. The annual
premium of R10 200 was paid and recorded.

F. The rent for February 2017 has not been received yet. The rent increased by 15%
on 1 July 2016.

G. Net profit after tax, R518 000, was calculated after taking into account all the
adjustments above. Income tax is 30% of the net profit.

H. 75% of the authorised share capital of 900 000 shares was in issue. The directors
declared a final dividend of 24 cents per share on 28 February 2017.

I. Extract from Beque Bank loan statement:

Balance on 1 March 2016 R376 000

Instalments (including interest) R92 000
Interest capitalised R48 000
Balance on 28 February 2017 ?
NOTE:
 Interest has not been entered in the books.
 R50 000 of the loan balance will be settled in the next financial year.

J. The net asset value per share on 28 February 2017 is 620 cents.

K. The current ratio is 2,1 : 1 on 28 February 2017.

TOTAL MARKS: 65

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ACTIVITY THREE NSC 2017 , QUESTION 3

3.1
(a) Calculate the carrying value of Land and Buildings on 1 March 2016.

2
(b) Calculate the total depreciation on Vehicles on 28 February 2017.

6
(c) Calculate the carrying value of Vehicles on 28 February 2017.

4
(d) Calculate the carrying value of Equipment sold on 31 December 2016.

6
(e) Calculate the total carrying value of Fixed Assets on 28 February 2017.

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3.2 BALANCE SHEET OF ODETTE LTD ON 28 FEBRUARY 2017

ASSETS 

NON-CURRENT ASSETS

CURRENT ASSETS

Inventory 408 880

Trade and other receivables

Cash and cash equivalents

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS' EQUITY

Ordinary share capital

Retained income 520 000

NON-CURRENT LIABILITIES

CURRENT LIABILITIES

TOTAL EQUITY AND LIABILITIES 37

TOTAL MARKS:65

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ACTIVITY 4 NSC FEB 2018

BALANCE SHEET 58 Marks

4.1 Choose a description from COLUMN B that matches the term in

COLUMN A. Write only the letter (A– E) next to the question number
(4.1.1– 4.1.5) in the ANSWER BOOK.

COLUMN A COLUMN B
4.1.1 Income Statement A an explanation of the operations of the
company during a financial year
4.1.2 Balance Sheet
B reflects whether or not the shareholders
4.1.3 Cash Flow Statement can rely on the financial statements

4.1.4 Directors' report reflects the profit/loss of the company for

C the year
4.1.5 Independent audit report
reflects the effect of the operating,
D financing and investing activities on the
cash resources

E reflects the net worth of the company

(5 x 1) (5)

4.2 ORBIT LTD

Refer to the information from the records of Orbit Ltd for the financial year
ended 30 June 2017.

REQUIRED:

4.2.1 Prepare the following notes to the Balance Sheet:

(a) Ordinary share capital

(8)
(b) Retained income
(11)

4.2.2 Complete the Balance Sheet on 30 June 2017. Where notes are not
required, show ALL workings in brackets. (28)

4.2.3 The CFO (chief financial officer), Barry Wright, has convinced the
company to buy back a further 400 000 shares from his close relative
during the next financial year. Barry currently owns 1 904 400 shares
in this company, which is 46% of the issued shares.

As a shareholder, explain your concern regarding the proposed

buy-back of shares. Provide calculations to support your concern. (6)

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INFORMATION:

A. Extract from the books on 30 June 2017:

Fixed/Tangible assets (carrying value) ?

Fixed deposit: Morocco Bank 380 000
Ordinary share capital (1 July 2016) 3 150 000
Retained income (1 July 2016) 874 000
Bank (favourable) 250 700
Loan: Helping Bank 302 400
Trading stock 478 000
Debtors' control 317 000
Creditors' control 239 800
Income received in advance 6 600
SARS: Income tax (provisional payments) 390 000
Dividends on ordinary shares (interim dividends) 630 000

B. Share capital:

 The business has an authorised share capital of 6 000 000 shares.

 70% of the shares were in issue on 1 July 2016.
 60 000 ordinary shares were repurchased from a disgruntled
shareholder on 1 December 2016. The company paid R3,50 per
share. This was paid and recorded on 1 December 2016.
C. A final dividend of 22 cents per share was declared on 30 June 2017. Only
shares in the share register qualify for final dividends.

D. The following adjustments have not been taken into account yet:

 Provision for bad debts is set at 5% of the outstanding debtors.

 Insurance included an annual premium of R31 800, paid for the period
1 October 2016 to 30 September 2017.
E. The loan statement from Helping Bank reflected the following:

Balance on 1 July 2016 R480 000

Repayments during financial year (including interest) R177 600
Interest capitalised R57 600
Balance on 30 June 2017 ?

R40 000 of the loan will be paid back in the next financial year.

F. Income tax for the year amounted to R408 800. This was calculated at
28% of the corrected net profit.

58

ACTIVITY FOUR NSC FEB 2018

QUESTION 4

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4.1
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5 5

4.2 ORBIT LTD

4.2.1
(a) ORDINARY SHARE CAPITAL
Authorised
6 000 000 shares
Issued

(b) RETAINED INCOME

Balance on 1 July 2016 874 000

Ordinary share dividends

Balance on 30 June 2017 11

4.2.2 ORBIT LTD

BALANCE SHEET ON 30 JUNE 2017

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ASSETS

NON-CURRENT ASSETS
Fixed/Tangible Assets
Fixed deposit 380 000

CURRENT ASSETS
Inventory 478 000

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS' EQUITY
Ordinary share capital
Retained income

NON-CURRENT LIABILITIES

Loan: Helping Bank

CURRENT LIABILITIES

Trade and other payables

TOTAL EQUITY AND LIABILITIES 28

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4.2.3 As a shareholder, explain your concern regarding the proposed

buy-back of shares. Provide calculations to support your concern.

TOTAL MARKS
65

ACTIVITY 5 ASC 2018 , QUESTION 4

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BALANCE SHEET 70 marks

4.1 CONCEPTS
Indicate whether the following statements are TRUE or FALSE. Write only 'true'
or 'false' next to the question numbers (4.1.1 to 4.1.5) in the ANSWER BOOK

4.1.1 A fixed deposit maturing within the next 12 months will be shown as
cash and cash equivalent in the Balance Sheet.
4.1.2 Earnings per share are calculated using the net profit before tax.

4.1.3 Net current assets are also referred to as net working capital.
4.1.4 Provision for bad debts is a liability.
4.1.5 Total capital employed consists only of ordinary shareholders' capital
and retained income. (5 x 1) (5)

4.2 MODISE LTD

The information below relates to Modise Ltd. The financial year ended on
28 February 2018.
REQUIRED:
4.2.1 Prepare the Retained Income Note to the Balance Sheet on
28 February 2018. (12)
4.2.2 Complete the Balance Sheet on 28 February 2018. Show ALL workings. (38)

4.2.3 The directors want to give R500 000 to a local school. Give TWO
reasons why companies take such decisions. (4)
INFORMATION:

A. Extract of balances on 28 February 2018:

R
Ordinary share capital 13 650 000
Retained income (1 March 2017) 567 000
Fixed assets at carrying value ?
Fixed deposit: Peoples Bank ?
Loan from director 630 000
Debtors' control 554 000
Provision for bad debts (1 March 2017) 31 300
Bank (favourable) ?
Trading stock 1 015 000
Consumable stores on hand 25 000
Creditors' control ?
Expenses prepaid 19 240
SARS: Income tax (provisional tax payments) 900 000

B. Share capital:
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 The authorised share capital of Modise Ltd is 6 500 000 ordinary

shares.

 On 20 February 2018, 250 000 shares were repurchased at

25 cents above the average share price. This has been recorded.

 On 28 February 2018, the ordinary share capital comprised

4 550 000 ordinary shares.

C. Dividends:

 Interim dividends of R672 000 were paid on 28 August 2017.

 A final dividend of 36 cents per share was declared on

28 February 2018. All shares (including the shares repurchased
on 20 February 2018) qualify for final dividends.

D. Net profit before tax:

 After taking all relevant information into account, the net profit before
tax was accurately calculated to be R3 400 000.

 Income tax at 27% of the net profit must be taken into account.

E. Fixed deposit:
The interest on the fixed deposit was R48 000. The fixed deposit was
invested on 1 May 2017 at 8% p.a.

F. Loan from director:

 The interest-free loan was received on 1 September 2015.

 This loan is to be repaid over six years in equal monthly instalments.

The first repayment was made on 30 September 2015. All payments
have been made to date.
G. Provision for bad debts:
The provision for bad debts must be adjusted to 6% of the outstanding
debtors.
H. The current ratio calculated after all adjustments was 1,5 : 1.

TOTAL MARKS
70

ACTIVITY FIVE ASC 2018 , QUESTION 4

QUESTION 4
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4.1
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
5

4.2 MODISE LTD

4.2.1 RETAINED INCOME NOTE

Balance at beginning of year R567 000

Ordinary share dividends

Balance at end of year 12

4.2.2 MODISE LTD

BALANCE SHEET ON 28 FEBRUARY 2018

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ASSETS
Non-current assets
Fixed assets

Current assets
Inventories

TOTAL ASSETS

EQUITY AND LIABILITIES

Ordinary shareholders' equity
Ordinary share capital 13 650 000

Non-current liabilities

Current liabilities 2 600 000

Trade and other payables
Shareholders for dividends
SARS: Income tax

TOTAL EQUITY AND LIABILITIES

38

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4.2.3 The directors want to give R500 000 to a local school.

Give TWO reasons why companies take such decisions.

TOTAL MARKS
70

How to earn easy marks when completing the Balance Sheet

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Learners should know the FORMAT of the Balance Sheet

Always start with the PRE ADJUSTMENT FIGURES FROM TRIAL BALANCE or
information extracted when preparing the Balance Sheet
Start with BALANCE SHEET ACCOUNTS ITEMS
RECORD THE FIGURES in the BALANCE SHEET to earn part/free marks
START WITH ADJUSTMENTS – you will also have to consider amounts in the Nominal
Accounts Section. [More marks are allocated to adjustments

ALWAYS SHOW your WORKINGS IN BRACKETS to earn part marks

Ratios/Financial indicators that are important for balance sheet calculations

 If the CURRENT RATIO is 2:1, the figure of the current liabilities is R200 000 then the
missing figure of the current assets must be R200 000 x 2 = R400 000.
 ACID TEST RATIO can be used to calculate the stock figure.
 DEBT EQUITY RATIO can be used to calculate either the shareholders’ equity or the
loan figure.

Easy marks earned when preparing the balance sheet

ADDITION OF: Current Assets, Non - Current Assets , Total Assets ,Shareholders
equity, Current Liabilities , Total equity and liabilities [6 marks]
TRANSFERRING of correct OR incorrect amounts from notes :
Balance of Retained Income [From note 8]
Balance of Share Capital [from note 7]
Dividends Recommended [from note 8]
Method mark on final answer for Non-Current Liabilities

11 MARKS If the examiner test only the equity and liabilities section, NOTE -the marks
exclude the adjustments.

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CASH FLOW AND INTERPRETATION OF

FINANCIAL STATEMENTS

CASH FLOW STATEMENT AND ANALYSIS AND INTERPRETATION OF FINANCIAL

STATEMENTS

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Main purpose of the Cash Flow Statement:

Reflects on the effect of business activities on the cash resources in terms of:
 how cash was generated
 how cash was utilised

Business activities are divided into three broad types of activities namely: operating,
investing and financing activities.

Operating activities:
 The main income-earning activities of the company.
 They are directly related to the main objective of a company.
 The cash generated by operating activities is perhaps the most significant indicator of a
company’ s success because this relates to the main purpose of establishing the
company.

Investing activities:
 These activities involve the actual establishment of the infrastructure of a business in
order for it to be in a position to earn income.

Financing activities:
 Activities involved in funding the infrastructure of the company.
 They result in the change in the size and composition of the debt and the capital
funding.

The Format of the Cash Flow Statement

CASH FLOW STATEMENT FOR THE YEAR ENDING Special notes:

……
Cash effect of operating activities XXX  Should be positive at all times if
company is successful.
Cash effects of investing activities XXX  Depends on decisions made by
directors
Cash effects of financing activities XXX  Depends on decisions made by
directors
Net change in cash and cash equivalents XXX  Depends on the above points
Cash and cash equivalents at the beginning of XXX
year
Cash and cash equivalents at the end of year XXX  Positive total will assist liquidity

The use of brackets in a CFS (Cash flow Statement) will indicate an OUTFLOW of cash.

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WHERE DO I FIND THE INFORMATION TO PREPARE A CASH FLOW STATEMENT?

Information to prepare the CFS is usually obtained from prepared Financial Statements, and
additional information provided to explain certain figures on the Statements; summarised as
follows:

Sales xxx
Less: Cost of sales (xxx)
Gross Profit xxx
Income Statement
Add: Other operating income xxx
Less: operating expenses (xxx)
Operating profit xxx
Operating
Activities Current Assets
Inventories xxx
Trade and other receivables xxx
Balance Sheet Cash and Cash Equivalents xxx

Current liabilities
Trade and other payables xxx

Non-current Assets
Investing
Balance Sheet Tangible/Fixed Assets xxx
Activities
Financial Assets/Fixed deposit xxx

Financing Shareholders’ Equity xxx

Balance Sheet
Activities Non-current liabilities xxx

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CASHFLOW STATEMENT FORMAT

CASH FLOW STATEMENT

Notes R
Cash flows from operating activities XXXX
Cash generated from operations 1 XXX
Interest paid (XXX)
Dividends paid 3 (XXX)
Taxation paid 4 (XXX)

Cash flows from investing activities (XXXX)

Purchase of non-current assets 5 (XXX)
Proceeds from sale of non-current assets XXX
Investments matured/repaid XXX

Cash flows from financing activities XXXX

Proceeds from issue of shares XXX
Proceeds from long-term borrowings XXX
Payment of long-term loans (XXX)
Net change in cash and cash equivalents 2 ( XXXX)
Cash and cash equivalents at beginning of year 2 XXX
Cash and cash equivalents at end of year 2 XXX

CHECK NOTES TO THE CASH FLOW STATEMENT

AND EXAM TIPS AT THE END OF THIS SECTION

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ACTIVITY 1 NSC NOV 2019

QUESTION 5: CASH FLOW STATEMENT AND INTERPRETATION 75 marks

5.1 Three financial statements are provided as options in which each of the following
items would appear. Choose the financial statement and write only the letter
(A– C) next to the question numbers (5.1.1 to 5.1.4) in the ANSWER BOOK, e.g.
5.1.5 D.

A Statement of Financial Position (Balance Sheet)

B Statement of Comprehensive Income (Income Statement)
C Cash Flow Statement

5.1.1 Profit on sale of a fixed asset

5.1.2 Amount due to shareholders for final dividends payable

5.1.3 Total amount spent on the repurchase of shares

5.1.4 Total income tax amount for the current financial year (4 x 1) (4)

5.2 SUNSET LTD

The financial year ended on 28 February 2019.

REQUIRED:

5.2.1 Calculate the following figures for the 2019 Cash Flow Statement:

 Income tax paid (4)

 Dividends paid (4)
 Proceeds of shares issued (6)
 Fixed assets purchased (5)

5.2.2 Calculate financial indicators for the year ended 28 February 2019:

 % operating profit on sales (4)

 Net asset value per share (4)
 Debt-equity ratio (4)

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INFORMATION FOR SUNSET LTD:

A. Information from Income Statement on 28 February 2019:

Sales R8 725 000

Gross profit 3 525 000
Depreciation 408 000
Operating profit 2 033 900
Interest expense 441 000
Income tax 477 900
Net profit after tax 1 138 000

B. Information from Balance Sheet on 28 February:

2019 2018
Fixed assets (carrying value)* R11 835 100 R10 658 000
SARS: Income tax 18 000 Cr 63 000 Dr
Shareholders' equity 8 625 000 10 065 000
Ordinary share capital 7 724 000 9 300 000
Loan: Funza Bank 3 500 000 2 800 000
Shareholders for dividends 372 000 195 000

*NOTE: Fixed assets were sold at carrying value, R490 000.

C. Share capital and dividends:

NUMBER
SHARE CAPITAL DETAILS OF SHARES
OF SHARES
1 March 1 500 000 In issue at R6,20 per share
2018
30 April 300 000 Repurchased at R6,90 per share
1 January 40 000 New shares issued
2019 28 1 240 000 In issue
February

DIVIDENDS DIVIDENDS PER SHARE

Final 2 March 2018 Paid 13 cents
Interim 31 August 2018 Paid 35 cents
Final 28 February 2019 Declared 30 cents

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5.3 HORIZON LTD and OPTIMA LTD

Refer to Information D to F.

Mike Mbele owns shares and is a director in both these companies.

He recently invested another R420 000 in each company by buying shares on the
JSE at market value as follows:

HORIZON LTD OPTIMA LTD

R8,40 R4,00

REQUIRED:

NOTE: Provide figures, financial indicators or calculations in EACH case to

support your comments and explanations.

5.3.1 Purchase of shares:

 Explain why directors should be interested in the price of their

companies' shares on the JSE. (2)
 Calculate the number of additional shares in Horizon Ltd that Mike was
able to buy on the JSE in 2019. (3)
 Comment on the price that Mike paid for these shares and give TWO
reasons why he might have been satisfied to pay this price. (6)

5.3.2 Dividends and earnings:

 Explain your opinion on which company has the better dividend

pay-out policy. (6)
 Compare and comment on the % return on equity earned by EACH
company. (4)
 Mike feels that the earnings per share (EPS) of Optima Ltd is much
better than that of Horizon Ltd. Explain why he feels this way. (5)

5.3.3 Refer to the Cash Flow Statements.

The poor economy has negatively affected Horizon Ltd more than Optima
Ltd.

 Explain TWO decisions taken by the directors of Horizon Ltd in

response to the state of the economy, and how these decisions will
affect the company in future. (6)
 Explain TWO decisions taken by the directors of Optima Ltd that
affect risk and gearing. Quote and comment on TWO financial
indicators. (8)

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D. Shareholding of Mike Mbele in two companies:

HORIZON LTD OPTIMA LTD

Number of shares bought in 2017 580 000 shares 1 430 000 shares
Total shares issued by each
1 240 000 shares 2 600 000 shares
company
Additional shares bought by Mike ? 105 000 shares
Mike's % shareholding before
46,8% 55,0%
buying additional shares

E. Financial indicators and additional information on 28 February 2019:

HORIZON LTD OPTIMA LTD

Earnings per share (EPS) 97 cents 83 cents
Dividends per share (DPS) 65 cents 80 cents
Debt-equity ratio 0,1 : 1 0,7 : 1
% return on average equity 6,2% 18,2%
% return on average capital
9,4% 15,1%
employed
Net asset value (NAV) 750 cents 445 cents
Additional information:
Interest rate on loans 12,0% 12,0%
Interest on investments 6,5% 6,5%

F. Extracts from Cash Flow Statements for year ended 28 February 2019:

HORIZON LTD OPTIMA LTD

Cash flows from investing
R2 700 000 (R2 730 000)
activities
Purchase of fixed assets 0 (1 580 000)
Sale of fixed assets 1 800 000 0
Change in investments 900 000 (1 150 000)

Cash flows from financing

(2 670 000) 4 000 000
activities
Proceeds of new shares
0 200 000
issued
Shares repurchased (1 070 000) 0
Cash effects of long-term loan (1 600 000) 3 800 000

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ACTIVITY 1 NSC NOV 2019

QUESTION 5

5.1 5.1.1
5.1.2
5.1.3
5.1.4 4

5.2 SUNSET LTD

5.2.1 Calculate: Income tax paid

Workings Answer

4
Calculate: Dividends paid
Workings Answer

4
Calculate: Proceeds of shares issued
Workings Answer

6
Calculate: Fixed assets purchased
Workings Answer

5.2.2 Calculate financial indicators for the year ended 28 February 2019:

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% operating profit on sales

Workings Answer

4
Net asset value per share
Workings Answer

4
Debt-equity ratio
Workings Answer

5.3 HORIZON LTD and OPTIMA LTD

5.3.1 Explain why directors should be interested in the price of their companies'
shares on the JSE.

2
Calculate the number of additional shares in Horizon Ltd that Mike was
able to buy on the JSE in 2019.
Workings Answer

3
Comment on the price that Mike paid for these shares and provide TWO
reasons why he might have been satisfied to pay this price. 6

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5.3.2 Explain your opinion on which company has the better dividend pay-out
policy. Quote figures.

6
Compare and comment on the % return on equity earned by EACH
company. Quote figures.

Mike feels that the earnings per share (EPS) of Optima Ltd is much better
than that of Horizon Ltd. Explain why he feels this way. Quote figures or
calculations.

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5.3.3 Explain TWO decisions taken by the directors of Horizon Ltd in response
to the state of the economy, and how these decisions will affect the
company in future.
Decision 1 (with figures):

Decision 2 (with figures):

Effect on Horizon Ltd in future:

6
Explain TWO decisions taken by the directors of Optima Ltd that affect
risk and gearing. Quote and comment on TWO financial indicators.
Decision 1 (with figures):

Decision 2 (with figures):

Quote and comment on TWO financial indicators that affect risk and
gearing.

TOTAL MARKS

75

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ACTIVITY 2 NSC NOV

2018

QUESTION 4: CASH FLOW STATEMENT AND INTERPRETATION 70 marks

You are provided with information about Vooma Limited for the past two financial years
ended 30 June. The company is situated in KZN and trades in racing bikes.

REQUIRED:
NOTE: Provide figures or financial indicators (ratios or percentages) and
comparisons with the previous year to support comments or explanations.

4.1 Calculate the following for 2018:

4.1.1 % operating expenses on sales (2)

4.1.2 Acid-test ratio (4)

4.1.3 % return on shareholders' equity (4)

4.2 Calculate the following figures that will appear in the 2018 Cash Flow
Statement:

4.2.1 Change in investments (2)

4.2.2 Income tax paid (4)

4.2.3 Fixed assets sold (at carrying value) (5)

4.3 Cash flow and financing activities:

4.3.1 Explain why the directors are satisfied with the improvement in cash
and cash equivalents since 1 July 2016. (3)

4.3.2 Decisions and gearing in 2018:

 Identify THREE decisions that the directors made to pay for land
and buildings. (6)
 Explain how these decisions affected:
- Capital employed
- Financial gearing (Quote TWO indicators.) (6)

4.3.3 From the Cash Flow Statement identify ONE decision made by the
directors in 2017 that they did NOT make in 2018, besides the points
mentioned above. Give a possible reason for the decision
in 2017. (3)

4.4 Dividends, returns and shareholding for the 2018 financial year:

 On 1 July 2017 there were 800 000 shares in issue.

 On 31 December 2017 interim dividends were paid.
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 On 1 January 2018, 200 000 shares were issued to existing shareholders.

 On 30 June 2018 final dividends of 75 cents per share were declared on all
shares, but have not yet been paid.

4.4.1 Calculate for the 2018 financial year:

 Total interim dividends paid (3)

 Interim dividends per share (3)

4.4.2 Calculate total dividends earned by Dudu Mkhize for the 2018
financial year. Her shareholding is:

SHARES PURCHASE PRICE

PURCHASED
31 August 2016 380 000 shares R7,00
1 January 2018 110 000 shares R20,00
TOTAL 490 000 shares (5)

4.4.3 On 1 January 2018 each shareholder was offered two shares for
every five shares owned. Dudu did not buy enough shares to become
the majority shareholder.

Calculate the minimum number of additional shares that Dudu should

have bought. (3)

4.5 The directors decided to buy land and buildings in two other provinces in 2018
to solve the problem of low sales that they had previously had in KZN.

4.5.1 Explain:

 Why it was necessary to purchase properties in other provinces

instead of in KZN (2)
 Whether the decision to purchase these properties had the desired
effect on sales (3)
 Another strategy they used to solve the problem of low sales (3)

4.5.2 The CEO, Ben Palo, wants to communicate other good news to the
shareholders at the AGM. Give advice on what he should say about
the following topics:

 Earnings per share (3)

 % return earned (3)
 Share price on the JSE (3)

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INFORMATION FOR THE YEAR ENDED 30 JUNE:

A. FIGURES IDENTIFIED FROM INCOME STATEMENT:

2018 2017
Sales R13 182 000 R7 740 000
Number of bikes sold 1 750 bikes 900 bikes
Mark-up % 58% 72%
Cost of sales 8 330 000 4 500 000
Gross profit 4 852 000 3 240 000
Operating expenses 1 900 000 1 500 000
Depreciation 412 000 275 000
Income tax 819 000 444 000
Net profit after tax 1 911 000 1 036 000

B. EXTRACT FROM BALANCE SHEET ON 30 JUNE:

2018 2017
Fixed assets (carrying value) R12 154 000 R8 031 000
Investments 625 000 600 000
Current assets 2 427 000 2 090 000
Inventories 1 652 000 1 250 000
Trade and other receivables 365 000 820 000
SARS: Income tax 0 15 000
Cash and cash equivalents 410 000 5 000
Shareholders' equity 12 112 000 7 191 000
Non-current liabilities (Loan) 1 850 000 2 600 000
Current liabilities 1 244 000 930 000
Trade and other payables 420 000 515 000
Shareholders for dividends 750 000 280 000
SARS: Income tax 74 000 0
Bank overdraft 0 135 000

C. CASH FLOW STATEMENT:

2018 2017
Cash flows from operating activities R1 850 000 R1 046 000
Cash generated from operations 3 322 000 1 989 000
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Interest paid ? (260 000)

Dividends paid (520 000) (254 000)
Income tax paid ? (429 000)

Cash flows from investing activities (4 560 000) (167 000)

Purchases of land and buildings (4 840 000) 0
Sale of fixed assets ? 383 000
Change in investments ? (550 000)

Cash flows from financing activities 3 250 000 (400 000)

Share capital issued 4 000 000 0
Shares repurchased 0 (1 000 000)
Change in non-current liabilities (750 000) 600 000

Cash and cash equivalents: Net change 540 000 479 000
Opening balance (130 000) (609 000)
Closing balance 410 000 (130 000)

D. FINANCIAL INDICATORS:
2018 2017
Mark-up % achieved 58% 72%
Operating expenses on sales ? 19,4%
Debt-equity ratio 0,2 : 1 0,4 : 1
Acid-test ratio ? 0,9 : 1
Return on shareholders' equity ? 14,4%
Return on capital employed 20,8% 17,8%
Earnings per share 208 cents 130 cents
Dividends per share ? 70 cents
Dividend pay-out rate 50% 54%
Net asset value per share 1 211 cents 899 cents
Market price on stock exchange 2 800 cents 2 100 cents
Interest on loans 12% 12%

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ACTIVITY 2 NSC 2018 NOV

4.1 CALCULATION OF FINANCIAL INDICATORS FOR 2018

4.1.1 Calculate: % operating expenses on sales

Workings Answer

2
4.1.2 Calculate: Acid-test ratio
Workings Answer

4
4.1.3 Calculate: % return on shareholders' equity
Workings Answer

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4.2 FIGURES FOR 2018 CASH FLOW STATEMENT

4.2.1 Calculate: Change in investments

Workings Answer

2
4.2.2 Calculate: Income tax paid
Workings Answer

4
4.2.3 Calculate: Fixed assets sold (at carrying value)
Workings Answer

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4.3 EXPLANATIONS ON CASH FLOW STATEMENT

4.3.1 Explain why the directors are satisfied with the improvement in cash and
cash equivalents since 1 July 2016. Quote figures.

3
4.3.2 Identify THREE decisions that the directors made to pay for land and
buildings.

Decision 1
(with figures)

Decision 2
(with figures)

Decision 3
(with figures)
6
Explain how these decisions affected the capital employed in the 2018
financial year. Quote figures.

Explain how these decisions affected the financial gearing in the 2018
financial year. Quote TWO indicators and their figures.

6
4.3.3 From the Cash Flow Statement identify ONE decision made by the
directors in 2017 that they did NOT make in 2018, besides the points
mentioned above. Give a possible reason for the decision in 2017.

Decision (with figures) Possible reason

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4.4 DIVIDENDS, RETURNS AND SHAREHOLDING

4.4.1 Calculate: Total interim dividends paid for the 2018 financial year

Workings Answer

Calculate: Interim dividends per share for the 2018 financial year

Workings Answer

6
4.4.2 Calculate total dividends earned by Dudu Mkhize for the 2018 financial
year.

Workings Answer

4.4.3 Calculate the minimum number of additional shares that Dudu should
have bought.

Workings Answer

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4.5.1 Explain why it was necessary to purchase properties in other provinces

instead of in KZN.

2
Explain whether the decision to purchase these properties had the
desired effect on sales. Quote figures.

3
Explain another strategy they used to solve the problem of low sales.
Quote figures.

4.5.2 Give advice on what Ben Palo should say about the following topics:

Advice on what to say on earnings per share:

3
Advice on what to say on % return earned:

3
Advice on what to say on share price on the JSE:

TOTAL MARKS

70

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ACTIVITY 3 NSC NOV 2017

QUESTION 4: CASH FLOW STATEMENT AND INTERPRETATION 85 marks

4.1 Choose a term to complete each of the following statements. Write only the term
next to the question number (4.1.1– 4.1.4) in the ANSWER BOOK.

shareholder(s); external auditor(s); director(s); internal auditor(s)

4.1.1 … are appointed by the shareholders to manage the company.

4.1.2 The ... is employed by the company to set up functional internal control
processes.

4.1.3 A …is a person who invests in a company by buying shares.

4.1.4 … are appointed by shareholders to give an unbiased opinion on the

financial statements. (4 x 1) (4)

4.2 SO-FINE LTD

The given information relates to So-Fine Ltd for the financial year ended
31 August 2017.

REQUIRED:
4.2.1 Prepare the following notes to the Balance Sheet on 31 August 2017:
 Ordinary share capital (7)
 Retained income (9)
4.2.2 Complete the Cash Flow Statement by inserting only the details and
figures indicated by a question mark (?). (19)

4.2.3 Calculate the following financial indicators on 31 August 2017:

 Percentage operating profit on sales (3)
 Debt-equity ratio (4)
4.2.4 Calculate the dividends per share (DPS) of a shareholder who owned
the same number of shares for the entire financial period. (4)

INFORMATION:
A. Information from the Income Statement for the financial year ended
31 August 2017:
Sales R8 652 000
Operating expenses 1 760 000
Depreciation 320 000
Interest expense 86 100
Operating profit 697 000
Income tax 187 770
Net profit after income tax 438 130

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B. Information from the Balance Sheet on 31 August:

2017 2016
(R) (R)
Fixed assets (carrying value) 6 177 000 4 975 000
Fixed deposits 220 000 300 000
Loan: Dolphin Bank 985 000 450 000
Current assets 619 600 663 300
Current liabilities 490 000 614 300
Shareholders' equity ? ?
Ordinary share capital 5 292 000 ?
Retained income ? 147 370
Cash and cash equivalents 23 400 2 500
Bank overdraft - 65 100
Shareholders for dividends 168 000 120 000
SARS: Income tax 11 800 (Cr) 2 400 (Dr)

C. Share capital and dividends

 The authorised share capital comprises 1 200 000 ordinary shares.

 900 000 ordinary shares were in issue on 1 September 2016.

 The company issued 150 000 ordinary shares at R6,30 per share on
1 May 2017.

 70 000 ordinary shares were repurchased from shareholders on

30 August 2017. A cheque for R437 500 was issued for these
shares. These shareholders qualify for final dividends.

 An interim dividend of 12 cents per share was paid on

1 February 2017.

 A final dividend was declared on 30 August 2017.

D. Fixed assets: Transactions during the current financial year.

 Old equipment was sold for cash at the carrying value of R324 000.

 Additional equipment and delivery vehicles were purchased.

(See QUESTION 4.3 on the next page.)

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4.3 CASTRO LTD AND RONKI LTD

You are provided with information relating to two companies.

BACKGROUND INFORMATION:

 Henry Harries owns 300 000 shares in each company.

 Castro Ltd issued 200 000 new shares only to existing shareholders at
the average issue price (R9,10). These funds were used to establish
a new branch. No new loans were raised.

 Ronki Ltd paid R4 800 000 to repurchase 320 000 shares.

REQUIRED:

NOTE: Where comments or explanations are required, quote financial

indicators and figures to support your answer.

CASTRO LTD

4.3.1 Comment on the price of R9,10 charged by Castro Ltd for the new
shares issued. (3)

4.3.2 Explain how the issue of new shares has affected the financial gearing
and risk of Castro Ltd. Quote TWO financial indicators. (6)

4.3.3 Henry had the option to buy some of the new shares issued by Castro
Ltd. He had saved sufficient funds (interest rate 5% p.a.) for this
purpose.

 If Henry wanted to retain his 60% shareholding in the company,

how many shares would he have had to buy and how much
would he have had to pay? (5)

 Henry decided NOT to buy these shares. Apart from the

% shareholding, explain TWO reasons why he has made a
mistake by not taking up this option. (6)

RONKI LTD

4.3.4 Comment on the liquidity of Ronki Ltd. Quote TWO financial

indicators. (6)

4.3.5 Comment on the price paid by Ronki Ltd for the repurchase
(buy-back) of shares. (3)

4.3.6 Explain THREE ways in which Henry has benefited from the
repurchase of the shares by Ronki Ltd. (6)

ADDITIONAL INFORMATION:
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Financial indicators and additional information from annual reports:

CASTRO LTD RONKI LTD
2017 2016 2017 2016
Debt-equity ratio 0,5 : 1 0,8 : 1
Current ratio 1,9 : 1 3,5 : 1
Acid-test ratio 1,1 : 1 1,7 : 1
Stock-holding period 54 days 54 days
Number of shares in issue 700 000 500 000 580 000 900 000
Average share issue price R9,10 R10,20
Price paid for share
R15,00
repurchase
Price of share on JSE R12,00 R15,00
Net asset value per share R10,73 R11,38 R13,30 R13,22
% return on shareholders'
23% 17% 16% 13%
equity
% return on total capital
20% 15%
employed
Earnings per share 140 cents 196 cents 266 cents 171 cents
Total dividends R357 000 R325 000 R928 000 R928 000
Dividends per share 51 cents 65 cents 160 cents 103 cents

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ACTIVITY 3 NSC NOV 2017

QUESTION 4

4.1
4.1.1
4.1.2
4.1.3
4.1.4
4

4.2 SO-FINE LTD

4.2.1 ORDINARY SHARE CAPITAL

AUTHORISED SHARE CAPITAL

1 200 000 ordinary shares

ISSUED SHARE CAPITAL

900 000 Ordinary shares on 1 September 2016

Ordinary shares on 31 August 2017 5 292 000 7

RETAINED INCOME
Balance on 1 September 2016 147 370
Net profit after income tax 438 130

Ordinary share dividends

Balance on 31 August 2017 9

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4.2.2 SO-FINE LTD

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 AUGUST 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations
Interest paid
Dividends paid
Income tax paid ?
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets ?
? ?
Change in investments
CASH FLOWS FROM FINANCING ACTIVITIES
? ?
? ?
Change in non-current liabilities

Net change in cash and cash equivalents ?

Cash and cash equivalents – opening balance ?
Cash and cash equivalents – closing balance ? 19

4.2.3 Calculate the percentage operating profit on sales.

3
Calculate the debt-equity ratio.

4.2.4 Calculate the dividends per share (DPS) of a shareholder who owned the
same number of shares for the entire financial period.

4.3 CASTRO LTD

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4.3.1 Comment on the price of R9,10 charged by Castro Ltd for the new
shares issued.

4.3.2 Explain how the issue of new shares has affected the financial gearing
and risk of Castro Ltd. Quote TWO financial indicators.

4.3.3 If Henry wanted to retain his 60% shareholding in the company, how
many shares would he have had to buy?

3
How much would he have had to pay?

2
Henry decided NOT to buy these shares. Apart from the
% shareholding, explain TWO reasons why he has made a mistake by
not taking up this option.

Reason 1:

Reason 2:

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RONKI LTD

4.3.4 Comment on the liquidity of Ronki Ltd. Quote TWO financial indicators.

4.3.5 Comment on the price paid by Ronki Ltd for the repurchase (buy-back)
of shares.

4.3.6 Explain THREE ways in which Henry has benefited from the repurchase
of the shares by Ronki Ltd.

Point 1:

Point 2:

Point 3:

TOTAL MARKS

85

NOTES TO CASH FLOW STATEMENT

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CHANGES IN CASH AND CASH EQUIVALENTS:

 This is the last part of the Cash Flow Statement (Refer to Format above).
 This is also the net effect of the three different business activities on the cash assets.

CASH FLOW STATEMENT FOR THE YEAR ENDING ……

Cash effect of operating activities XXX
Cash effects of investing activities XXX
Cash effects of financing activities XXX
Net change in cash and cash equivalents XXX
Cash and cash equivalents at the beginning of year XXX
Cash and cash equivalents at the end of year XXX

If the opening bank balance is UNFAVOURABLE at BEGINNING of year, DEDUCT

Petty Cash and Cash float to determine the actual bank balance.

NOTE : CASH GENERATED FROM OPERATIONS

Profit before taxation xxx
Adjustments in respect of:
Interest paid ADD amount xxx Disclosed separately in CFS
Depreciation ADD amount xxx No effect on cash
Operating profit before changes in working capital xxxx
Changes in working capital xxxx
(Increase) / decrease in inventories (xxx)
(Increase) / decrease in trade and other receivables xxx Exclude SARS-Income tax
Increase / (decrease) in trade and other payables # #(xxx) Check information below
Cash generated from operations xxxx

# # Exclude SARS-Income tax and Shareholders for dividends

Reason – separately disclosed in the CFS ( Cash flow statement )

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NOTE : DIVIDENDS PAID

Amounts in financial statements (xxx) Outflow - always bracketed Already
Balance on last day of previous year (xxx) Outflow - always bracketed paid
Balance on last day of current year xxx NOT bracketed - NOT paid
Dividends paid (xxxx)

OR LEDGER ACCOUNT

Shareholders for Dividends

Bank ???? Balance b/d
Balance c/d Dividends

Balance b/d

NOTE: TAXATION PAID

Amounts in financial statements (xxx) Outflow - always bracketed
Balance beginning of year (credit bal.) (xxx) Outflow - always bracketed
Balance end of year (credit bal.) xxx NOT bracketed – NOT paid
Taxation paid (xxxx)

OR LEDGER ACCOUNT

SARS (INCOME TAX)

Balance b/d 6 700 Income tax 403 200
Bank ??? Assumed
Balance c/d 2 100 Figures
403 200 403 200
Balance b/d 2 100

Exam tips
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Tips on how to calculate the payments disclosed in the Cash flow Statement
Dividends paid Dividends OWING the previous year plus INTERIM dividends
Tangible Assets  Use the Ledger ( Asset ) account to determine the asset bought
bought  Note 3 on Tangible Assets – BOTTOM-UP CALCULATIONS are
reliable for accurate figures and signs.
Repurchase of Record the ACTUAL AMOUNT PAID for shares that are equivalent to
the average value of shares plus the above average value recorded in
Shares
the Retained Income note.
Cash and Cash If the business has the Bank overdraft and the favourable balance
under assets (Petty cash, Cash float etc.) at the beginning of the year,
Equivalents
determine the difference of the two opening balances BEFORE the
calculation of the Net change in cash and cash equivalents.

Always BRACKET THE OUTFLOWS OF CASH

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Classification Financial Indicators Formulae Answer

Gross profit on sales Gross profit x 100 %

Sales 1
Profitability Gross profit on cost of Gross profit x 100 %
sales Cost of sales 1
Operating profit on sales Operating profit x 100 %
Sales 1
Operating expenses on Operating exp x 100 %
sales Sales 1
Net profit before tax on Net profit before tax x 100 %
sales Sales 1
Net profit after tax on Net profit after tax x 100 %
sales Sales 1

Solvency Solvency ratio Total assets : Total liabilities Ratio

:1

Current ratio Current assets : Current liabilities Ratio

:1
Acid test ratio Current assets - inventories : Current Ratio
Liquidity liabilities :1
Stock turnover rate Cost of sales Times per
Average Stock year
Stock holding period Average Stock x 365 Days or
Cost of sales 1 months
Average debtors collection Average Debtors x 365 Days or
period Credit Sales 1 months
Average creditors Average Creditors x 365 Days or
payment period Credit Purchases 1 months

Return on Shareholders’ Net profit after tax x 100 %

Return Equity (ROSHE) Shareholders’ Equity 1

Return on Capital Net profit before tax + interest on loan x100 %

Employed (ROTCE) Average Capital Employed 1

Capital Employed is:

Aver Shareholders Equity + Average Loans
Earnings Per Share
Net profit after tax x 100 Cents
Number of issued shares issued 1

Return Dividends Per Share Interim +Final dividends x 100 Cents

Number of issued shares issued 1

Net Asset value per share Shareholders’ Equity x 100 Cents

Number of issued shares issued 1

Financial Debt -equity ratio (gearing) Non-current liabilities : Shareholders’ Ratio

risk/Gearing equity :1

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FINANCIAL INDICATORS
Basic knowledge needed to master financial indicators
 Knowledge of formulae
 Classification of financial indicators
 Commenting – identify indicators, analyse ( indicate trends and quote figures)
 Compare financial indicators that are related
 Compare and analyse performance of two different companies
NOTE – adequate knowledge of financial statements is key to mastering of this section

Related Financial indicators that should be compared

NAV Market value of shares Higher market price indicate that
shareholders have confidence in
companies shares
ROSHE Rate of investments ROSHE-determines if the
business should invest the funds
elsewhere.
ROTCE Rate of interest on ROTCE-ABOVE interest rate is
positively geared or favourable
loan
BELOW interest rate –negatively
geared (unfavourable to use
loans)
Debt Equity Rate of interest on Debt-Equity measure degree of
financial risk
loan
Lower ratio indicate
creditworthiness
Use of borrowed funds is
favourable when interest rates
are low
Earnings per share Dividends per share Earnings are distributed, and
some may be retained for future
expansion of business.
Debtors Collection period Creditors Payment Longer period for creditor’ s
payment is preferable – money
period
can be collected from debtors.
The payment period is within 90
days.

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AUDIT REPORTS

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ACTIVITY 1 NSC 2019 , QUESTION 4

AUDIT REPORTING 9 Marks

4.1 AUDIT REPORT FOR YEAR-END 28 FEBRUARY 2019

The financial statements of Visiv Ltd) were audited. You are provided with
extracts from the audit report.

Extracts from the audit report:

Basis for audit report

Point 1 We were unable to obtain sufficient audit evidence to support the
amounts provided for certain income and expense items ...
Point 2 Furthermore, the repurchase of shares on 31 May 2018 is not in
accordance with provisions of the Companies Act, 1973 (Act 71 of
2008), as the liquidity of the company has been compromised …

Opinion
Point 3 Because of the significance of the matters described above, we
do not express an opinion …

REQUIRED:
4.1.1 Refer to Point 3.
What type of audit report did the company receive? (1)
4.1.2 Refer to Point 1.
Give TWO examples of audit evidence that the auditors would have
required regarding this problem.
(2)

4.1.3 Refer to Point 2.

 Apart from the current ratio, identify and calculate ONE other
financial indicator that the auditors would have used in deciding
on this opinion.
(4)
 Explain what the directors could have done to prevent this
comment by the auditors. Provide TWO points.
(2)

INFORMATION
After processing all adjustments:
 The current ratio is 0, 8: 1.
 The current liabilities totalled R2 900 000.
9

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ACTIVITY 1 NSC NOV 2019

4.3 AUDIT REPORT

4.3.1 What type of audit report did the company receive?

4.3.2 Give TWO examples of audit evidence that the auditors would have
required regarding this problem.

Example 1

Example 2
2

4.3.3 Apart from the current ratio, identify and calculate ONE other financial
indicator that the auditors would have used in deciding on this opinion.
Identify ONE other financial indicator:

Calculate the financial indicator:

4
Explain what the directors could have done to prevent this comment by
the auditors. Provide TWO points.

Point 1

Point 2
2

9 MARKS

ACTIVITY 2 NSC NOV 2018

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3.3 AUDIT REPORT 13 Marks

Extracts from the audit report of Tembiso Ltd are provided.

INFORMATION:

To Shareholders

We have audited the financial statements set out on pages 8 to

52 ...

Opinion

Point 1 In our opinion the financial statements present fairly, in all material
respects, the financial position of the company as at
28 February 2018 …

Point 2 … in accordance with International Financial Reporting Standards

(IFRS) and the requirements of the Companies Act (Act 71 of 2008)
of South Africa.

Basis for Opinion

Point 3 We are independent of the company ...

Point 4 We have fulfilled our ethical responsibilities, which are consistent with
international standards …

Point 5 … and the audit evidence obtained is sufficient and appropriate to

provide a basis for our opinion.

REQUIRED:

3.3.1 Refer to points 1 to 3.

\Why did the auditors mention these points? Give ONE explanation
for EACH point. (5)

3.3.2 Refer to points 4 and 5.

Explain TWO examples of:

 Ethical responsibilities
 Audit evidence (8)

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ACTIVITY 2 NSC NOV 2018

3.3 AUDIT REPORT

3.3.1
Point 1 Opinion

Point 2 IFRS and Companies Act

Point 3 Independent

3.3.2
Point 4 TWO examples of ethical responsibilities:

Example 1:

Example 2:

Point 5 TWO examples of audit evidence:

Example 1:

Example 2:

13 MARKS

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ACTIVITY 3 ASC JUNE 2019

CONCEPTS AND AUDIT EPORT 13 Marks

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ACTIVITY 3 ASC JUNE 2019

CONCEPTS AND AUDIT REPORTS

13 MARKS
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ACTIVITY 4 ASC JUNE 2018

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ACTIVITY 4 ASC NOV 2018

11 MARKS

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ACTIVITY 5 NSC FEB 2018

4.3 AUDIT REPORT: DF ENTERPRISES LTD

REQUIRED:

4.3.1 Choose the correct word(s) from those given in brackets. Write only
the word(s) next to the question number (4.3.1(a)– 4.3.1(b)) in the
ANSWER BOOK.

(a) The audit report is completed by the (internal/external) auditor. (1)

(b) The (directors/shareholders/auditors) are responsible for the

preparation of the financial statements. (1)

4.3.2 Refer to the audit report below.

(a) The audit report below indicates a/an (qualified/unqualified)

opinion. (1)

(b) Explain why the shareholders should be concerned about this

audit report. State TWO points. (4)

INFORMATION:

EXTRACT FROM THE AUDIT REPORT OF DF ENTERPRISES LTD

Basis for Qualification of Opinion

Source documents for expenditure amounting to R550 000 could not be
traced.

Audit Opinion
In our opinion, except for the effects of the unsubstantiated expenditure
described in the Basis for Qualification of Opinion paragraph, the financial
statements fairly represent the financial position of the company on 30 June
2017 and the results of their operations and cash flows for the year ended,
in accordance with the International Financial Reporting Standards, and in
the manner required by the Companies Act (Act 61 of 1973) of South Africa.

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ACTIVITY 6 NSC 2017

3.3 AUDIT REPORT 6 Marks

An extract of the independent audit report of Karin Ltd for the financial year
ended on 28 February 2017 is provided.

REQUIRED:

As a shareholder, what concerns would you have regarding this audit report?
Explain THREE points. (6)

INFORMATION:

EXTRACT FROM THE AUDIT REPORT OF KARIN LTD

We have audited the annual financial statements of Karin Ltd for the year ended
28 February 2017. These financial statements are the responsibility of the
company's directors.

Basis for Disclaimer of Opinion

In the course of our audit we established that bonuses paid to directors,
amounting to R9,8 million, had not been authorised by the Remunerations
Committee.

Audit Opinion
Because of the significance of the matters described above, we have not been
able to obtain sufficient audit evidence to provide a basis for an audit opinion.
Accordingly, we do not express an opinion on the financial statements of Karin
Ltd for the year ended 28 February 2017.

Bongani and Botha, Chartered Accountants (SA)

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Paper One Topics – Questions