2022 Gr 12 Accounting Study Pack Activities/Notes

PAPER 1
COMPANIES
COMPANY ACCOUNTS / FINANCIAL STATEMENTS
Company concepts
Authorised share capital | Issued Share capital | Shareholders' Equity (OSE) | Dividends (Interim / Final)
Shareholders for dividends | Income tax | SARS (income tax) | Provisional tax | Retained income
(Earnings less Dividends) | Earnings per share (Net profit after tax divided by number of issued shares)
Limited liability | CEO (Chief Executive Officer) | Directors (executive, non-executive, etc.) | Auditors (internal
and independent/external)

Parties involved in companies Documents/statements relating to companies

▪ Shareholders ▪ Statement of Comprehensive Income
▪ Directors/ Chief Executive officer (CEO) / CFO ▪ Statement of Financial Position
▪ Internal auditor vs Independent auditors ▪ Cash flow statement
▪ SARS ▪ Auditor’s report
▪ Directors' report
▪ Tax assessment

COMPANY ACCOUNTS 
Dr SARS (Income tax) Cr
Bank (payment of opening bal.) Balance b/d (opening)
Bank (provisional) Income tax (assessment for the year)
Tax calculated for the year;
Bank (second payment) amount in Statement of
Balance c/d = CR Balance b/d Balance c/d = DR Balance b/d Comprehensive Income
(Payable TO SARS) OR (Payable BY / Receivable from SARS)

Dr Dividends on ordinary shares Cr

Bank (interim dividend paid) Balance b/d (opening)
Shareholders for dividends Appropriation a/c
(dividends declared, not paid yet)

▪ Interim dividend is paid during the year

▪ Final dividend is declared at end of year - will only be paid in the next fin. Year (=Shareholders for dividends)
▪ Calculate dividends: Number of ISSUED shares X cent per share declared for dividends

NOTES on other accounts and NOTES to financial statements: 

▪ Appropriation account NEVER has a BALANCE
▪ Retained income has opening balance and closing balance
▪ Retained Income NOTE is just another format of the Retained Income account
▪ The opening balance for Shareholders for dividends a/c is the amount owed from previous year and the
closing balance should be the final dividends DECLARED at end of this year. This balance is shown in Trade
and other payables.

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2022 Gr 12 Accounting Study Pack Activities/Notes

STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) 

Format
Sales (- Debtors allowances) ADJUSTMENTS
(less) Cost of sales ( ) ▪ ALWAYS ADD: Accrued income; Accrued expenses
▪ ALWAYS SUBTRACT: Prepaid expenses; Income received in advance
Gross Profit 'A'
▪ Goods returned by debtors: Add selling price to Debtors' allowance and
Other operating income 'B' subtract from Debtors' control in Balance sheet; the Cost of these goods to
… … be subtracted from COS and add to Trading stock (in Balance sheet)
… … ▪ Subtract: Consumable stores on hand from total in the trial balance
Gross operating income 'A+B' ▪ Trading stock deficit/surplus - look out for adjustments affecting inventory
▪ Depreciation: Vehicles and Equipment - know the different methods to
Operating expenses ( ) 'C'
calculate depreciation for the year.
… … ▪ Bad debts: look out for adjustments affecting debtors
… … ▪ Provision for bad debts adjustment: bigger than the balance given
Operating profit '(A+B) - C' (Expense); smaller than balance given (Income)
(add) Interest income ▪ Contributions to UIF/Medical aid/Pension funds must be ADDED to Salaries
and wages
Profit before Interest expense
▪ Bad debt recovered: INCOME received from a debtor who was previously
(less) Interest expense ( ) written off. Include as income.
Profit before Income tax ▪ Insurance - use amount in the adjustment (outside the accounting period)
(less) Income tax ( ) and DEDUCT from Insurance

Net profit after income tax

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) 

Format
ASSETS
NON-CURRENT ASSETS
Fixed assets
Cash & Cash equivalents includes Bank, Cash float,
Financial assets: Fixed deposit Petty cash, Savings account and the portion of the fixed
CURRENT ASSETS deposit that matures. If Bank has an overdraft balance (CR
balance) it will NOT be shown here, but in current liabilities.
Inventory
Trade & other receivables
Cash & cash equivalents

TOTAL ASSETS
Short term portion of the loan
EQUITY & LIABILITIES If part of the loan is to be repaid (paid back) during the next
CAPITAL & RESERVES 12 months, this amount must be deducted and added to
current liabilities as a 'short-term loan'
Ordinary share capital
Retained income

NON-CURRENT LIABILITY
Long term loan
CURRENT LIABILITY
Trade & other payables
Bank overdraft
(IF Bank has a credit balance)
Short-term portion of loan
TOTAL EQUITY & LIABILITY

ALWAYS show ALL calculations in brackets,

where Notes are not required.

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2022 Gr 12 Accounting Study Pack Activities/Notes

Assets
Non-current assets
▪ Fixed assets are always shown at book/carrying value (Know the format of the Fixed Asset Note)
▪ Fixed deposit (a portion may mature during the next financial year = subtract and add to Cash and Cash
equivalents.
Current assets
▪ MUST be in correct order: Inventory; Trade & other receivables; Cash & cash equivalents
▪ Inventory includes consumable stores on hand
▪ Trade & other receivables:
o Debtors (remember to DEDUCT provision for bad debts)
o Could include the amount overpaid to SARS (DR balance)
o ADD Accrued income and Prepaid expenses
▪ Cash & cash equivalents: (see the bubble on the previous page)

Equity / Capital & Reserves

Ordinary share capital
▪ NEVER add Authorised Share capital (in the note) or show it in the Statement of Fin. Position
▪ Note on Ordinary share capital: (KNOW the format)

Ordinary Share Capital Note (Format) (Authorised section not always required)
Authorised
No. of registered xxx
shares Ordinary shares (DO NOT ADD to
amounts below)
Issued
No. of issued shares
(Beginning) Ordinary shares at beginning of year xxx
add No of new issues Ordinary shares during the year xxx
(subtract this
No. of shares) Ordinary shares repurchased at AVERAGE share price (R or c amount) ( xxx )
No. of issued shares
(end) Ordinary shares at end of the year xxxx

Retained income note (Format)

Balance at beginning of the year
(add) Net profit after tax
(less) Repurchase of shares
(No of repurchased shares x (buy back price minus average share price))
Ordinary share dividends
Paid (Interim dividend amount)
Recommended (Final dividends declared OR Shareholders for dividends at end of year)
Balance at the end of the year

Current liabilities
▪ Trade and other payables include:
o SARS amount (CR balance - we owe them)(Could be Income tax, PAYE, VAT)
o Accrued expenses
o Income received in advance
o Shareholders for dividends (declared amount only)
o Creditors for salaries + Contributions like UIF/Pension/Medical aid

EXAM TIPS:
▪ The Statement of Financial Position may be completed in 'parts', i.e. Assets or Equity and Liabilities only.
▪ Some subtotals and/or totals could be mathematically calculated where financial indicators are given,
e.g. Acid test ratio is 0,8 : 1 Required: Calculate Current Assets = Total current liabilities x 0,8
(NB: Current assets consist of Inventories + Trade and other receivables + Cash & Cash equivalents;
therefore, any one of these figures can be mathematically calculated)

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2022 Gr 12 Accounting Study Pack Activities/Notes

CASH FLOW STATEMENT 

Basic concepts
Purpose of cash flow statement | Cash inflow | Cash outflow | Operating activities | Investing activities
Financing activities | Change in working capital

CFS Format 
Cash flow from operating activities 1 Directors' decisions in CFS that affect 'Cash' flow
Cash generated from operations Ideally positive (business generates cash effectively)
Interest paid ( ) Compulsory
Dividends paid ( ) Decision
Income tax paid ( ) Compulsory

Cash flow from Investing activities 2 Ideally negative (in brackets) to show growth/expansion
Purchase of fixed assets ( ) Decision; Large amount will have a negative effect on
cash
Proceeds from sale of assets Decision; to replace outdated technology / improve productivity
(NEVER to make a 'profit'!!!)
Fixed deposits (Matures / Placed) Decision

Cash flow from Financing activities 3 Ideally positive (funding inflow to finance investing activities)
Proceeds from shared issued Decision;
Buying back of shares ( ) Decision
Proceeds/Repayment of loan Decision
Net change in cash & cash equivalent (1 + 2 + 3) Net result of the decisions
Cash & cash equivalent beginning of year NOTE:
Cash & cash equivalent end of year Major decisions are identified by LARGE amounts
Expansion or growth may also be driven by market share
and not only cash situation.

Note 1: Reconciliation between profit before tax and cash generated from operations
▪ Profit before tax - make sure you use the profit before tax from the Income Statement. If profit after tax is
given, remember to ADD back tax.
▪ Adjustments i.t.o. Depreciation and Interest expense. These figures are taken directly from the Income
statement and are ADDED to the profit before tax to give you the operating profit before changes in working
capital.
▪ Changes in working capital
o difference between the previous year and the current year’s figures
o exclude amount owed to Shareholders, Accrued interest and amount owed to SARS.
▪ Dividends paid calculation
o Use the information from Retained Income note and/or Trade & other Payables ( Shareholders for Dividends)
o Total dividends for year (Interim + Final) plus amount owing at beginning of year minus amount owing at
end of year
o OR Interim dividends paid during the year PLUS Shareholders for dividends BEGINNING of the year.
▪ Taxation paid calculation
Use information from Income statement (IS), Trade and other receivables (SARS = Debit balance) and Trade
and other payables (SARS = Credit balance). ONE of the following calculations must be used, depending on
the balances of SARS at beginning of the year (or previous year) and end of the year:
o Income tax (from IS) ADD SARS (credit balance, previous year) LESS SARS (credit balance, end of
year)
o Income tax (from IS) ADD SARS (credit balance, previous year) ADD SARS (debit balance, end of year)
o Income tax (from IS) LESS SARS (debit balance, previous year) LESS SARS (credit balance, end of
year)
o Income tax (from IS) LESS SARS (debit balance, previous year) ADD SARS (debit balance, end of year)

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2022 Gr 12 Accounting Study Pack Activities/Notes

▪ Investing Activities
o Information from Fixed/Tangible asset note; Combine/ Use TOTAL fixed assets, depending on how
information was given.
o Calculation for assets purchased OR sold:
Fixed assets @ carrying value (previous year/opening balances) 1
Depreciation (from IS) less 2
Assets purchased @ COST during the year* add 3
Assets sold @ carrying value during the year ** less 4
(ignore profit/loss on sale of asset)
Fixed assets @ carrying value (current year/closing balances) = 5
*IF assets purchased is not given, then calculate it: 5 + 4 + 2 - 1 = answer ('3') in brackets in CFS
**IF assets sold is not given, then calculate it: 5 - 3 + 2 - 1 = answer ('4') without brackets in CFS
o Investments: Fixed deposit made/placed: (use brackets); fixed deposit matures: NO brackets!

▪ Financing Activities
o Proceeds from shares issued during the year: NO Brackets (inflow)
o Shares bought back: SHOW brackets (outflow)
o Loans: Difference between current year and previous year:
Current year more than previous year = NO Brackets - inflow
Current year less than previous year = SHOW brackets - outflow (loan was paid)

▪ Net change in Cash and cash equivalents

ADD Operating activities PLUS Investing activities (IF it is negative, subtract!) PLUS Financing activities

Making comments on financial indicators:

▪ Compare:
o Goals set by the business, e.g., mark up% applied vs the mark-up actually reached
o Indicators of the same business over two financial years (to determine the increase / decrease / trend)
o Indicators of two or more businesses in the same industry
o Interest rates of alternative investments with ROSHE
o Interest rate of loans with ROTCHE
▪ Suggest alternative directions/actions to improve a declining situation

EXAM TIPS:
▪ You need to know the formula BUT do not write it down in the exams. (No marks are allocated for it - formula
sheet is given ONLY to remind you of the correct formula to use)
▪ Problem solving (creative thinking and own opinion) is integrated in the analysis and interpretation questions.
▪ You may be required to analyse possible investment in two companies (compare risk, gearing, return on
investment in both companies). [ENSURE that you understand financial gearing to be able to comment and
compare effectively]
▪ You may also compare two financial years in one and/or two companies.

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2022 Gr 12 Accounting Study Pack Activities/Notes

FINANCIAL INDICATORS
Financial statements are analysed to find answers to certain questions.
Structure your comments with these 'questions' (below) in mind
QUESTION TERM FINANCIAL INDICATOR FORMULA
% Gross profit on sales / GP
How profitable is the /Sales x 100 = … %
% Gross profit on CoS / GP
business; how well /CoS x 100 = … %
does it control its Profitability % Operating profit on sales OP
/Sales x 100 = … %
expenses and how and operating /
effective is the efficiency % Operating expenses on sales OE
business in its /Sales x 100 = … %
/
operation? % Net income on sales / NI
/Sales x 100 = … %
Current ratio  CA : CL
(CA - Inventory) : CL
Acid test ratio  (Debtors + Cash) : CL
Cost of Sales
Stock turnover rate / Average Trading Stock
Can the business The higher this number, the faster assets are
turned into cash
repay its short-term
Average Stock x 12 (365)
debts; is the operating
Liquidity Stock holding period / Cost of Sales 1 (1)
capital being handled
Debtors' collection period Average Debtors x 365
efficiently? Cash flow
Credit Sales
problems? / Aim is 30 days
Average Creditors x 365
Creditor's payment period Credit Purchases
• Good, when it takes longer to repay
/ creditors
• Negotiate for 90 days to avoid interest

Can the business Owners’ equity or Net assets

Solvency Total assets : total liabilities
repay its debt? (for sustainability/continuity) 
Net profit after Tax x 100
Return on shareholders’ Average SHE
equity (ROSHE)  Compare this % with alternative investments, e.g.
fixed deposit interest %
Net profit after Tax x 100 = …c
Earnings per share (EPS)  No. of shares issued 1
It shows the profit per share available for sharing
with shareholders
Dividends x 100 = …c
Do the owners earn a No. of shares issued 1
good return on their Return on Dividends per share (DPS)  It is the proportional share of the profit paid + owed
to shareholders.
capital invested in the investment **EPS - DPS = retained profit per share for future
business? expansion
Total SHE x 100 = …c
No. of shares issued 1
- Compare to issued or ave. price of shares and to
market (JSE) price of shares.
Net asset value per share
- If the NAVPS increases, it shows that profits are
(NAVPS)  retained; company is expanding and is wealth
growing.
- When company issues more shares, it should
be at NAV to retain wealth.

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2022 Gr 12 Accounting Study Pack Activities/Notes

LT Liabilities : SHE = (…. : 1)

SHE = Share capital + Retained Inc
- Creditworthiness = ability to obtain loans.
To what extent is the
business funded by
Debt : Equity ratio  - High risk/low creditworthiness = 0,5 : 1 to 1 : 1
(opt to issue shares)
- Low risk /high creditworthiness = 0,1 : 1 to 0,4
borrowed capital, and : 1 (borrow more)
to what degree does it - Compare this ratio before and after a change
affect the financial Risk / gearing in loans to show the change in risk levels
risk? Net Inc before tax and int. x 100
Can the business Ave. capital employed 1
borrow more money? [Capital employed = SHE + LT loans]
Return on total capital Compare to % interest on loans.
Is it worth it?
employed (ROTCE)  - Higher = high leverage; loans are used to expand
and improve return/ profit.
- Lower = low leverage; loans not used effectively
to improve return/profit. May not be able to repay
loans with interest.
NOTE:
Debt-Equity ratio shows risk and financial gearing (relationship between debt (loans) and own capital (shareholders’ equity):
▪ High risk relates to positive gearing (can expand/grow with loans obtained, although paying back may be challenging)
▪ Low risk relates to negative gearing (limited opportunities for expansion)
Financial Leverage refers to the USE of debt (loans) to accelerate (like the ‘gears’ in a vehicle) financial growth (wealth) and
expanding business operations.

GR 12 FORMULA SHEET with explanatory notes

Familiarise yourself with the layout of the formula sheet to use it effectively in exams

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2022 Gr 12 Accounting Study Pack Activities/Notes

AUDIT REPORTS 
(More details are available in the 2020 Revision Pack)

Basic concepts
Internal auditor | external (independent) auditor | audit opinion | unqualified opinion | qualified opinion
disclaimer of opinion | audit sampling | audit evidence | internal audit report | external audit report

▪ External audit reports are included in the published Financial Statements of companies.
▪ Shareholders, employees and creditors need to TRUST and BELIEF the financial statements prepared by the
internal auditors and approved by directors. Their ‘relationship’ with the company relies on these financial
statements.
▪ External auditors issue an OPINION on the published financial statements based on their external audit after
checking the reliability of the sampled audit evidence, e.g. internal controls that are in place, etc.
▪ THREE types of external audit opinions based on the auditors’ findings:
o Unqualified = a ‘clean’ audit; there are no issues/challenges found; shareholders may believe the
financial results reflected in the published financial statements.
o Qualified = some issues were found that can make statements less credible. Directors will have an
opportunity to explain or make changes to the statements.
o Disclaimer of opinion = Auditors are not willing to issue any opinion as the financial information are too
flawed and does not meet IFRS standards, which are ‘auditing rules’ standardised for all auditors.
▪ Auditors should be registered with a professional institution (SAICA, SAIPA, ACCA, SAIBA, etc.) for the
following reasons:
o Professionally recognition to work (practice) as an independent auditor
o Their qualifications are verified
o Act/Work within a professional code of conduct to be ethical and trustworthy

CORPORATE GOVERNANCE 
Basic concepts
Shareholders | directors | board of directors | executive directors | non-executive directors | management
committees | transparent & ethical management | management | control | CEO | CFO

In Gr 12 corporate governance entails:

▪ effective, responsible and ethical management of a company.
▪ a broader /deeper insight into managing and control in a company.

▪ DIRECTORS (on behalf of shareholders, the owners of the company) are responsible for managing
companies.
▪ Directors may hold shares in the company (this depends on the MOA of the company)
▪ Directors are members of the BOARD of DIRECTORS who are collectively in charge of the management of a
company’s business operations.
▪ They make strategic (long term) and operational (short term) decision [see the Cash Flow Statement for some
of the strategic decisions]
▪ Some management duties are given (delegated) to either individual directors or management committees.

Types of directors
▪ Executive directors: employed by the company; manage the day-to-day operations
▪ Non-executive (‘outside’) directors: they are not part of the executive team of directors but are part of the
board of directors
▪ CEO (Chief Executive Officer): chairperson (leader) of the board of directors
▪ CFO (Chief Financial Officer): responsible for managing the company’s financial strategies and operations;
reports directly to the CEO.

Management and/or Work committees

▪ These committees ensure accountability and transparency in managing and operate the company.
▪ They manage/address certain challenges relevant to the company, such as environmental awareness,
corruption and/or fraud, job creation, etc.
▪ Examples:
o Audit committee; remunerations committee; social & ethics committee; risk committee

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