Accounting Grade 12 Study Guide 2023
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Dlamini BonoloAccounting Grade 12 Study Guide 2023
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Dlamini BonoloAccounting 2023 1 Paper 1
ACCOUNTING
QUESTIONS
2023
PAPER 1
MARKING GUIDELINE
S
T
F
Accounting 2023 2 Paper 1
I A
N T
A E
N M
C E
I N
A T
L S
Accounting 2023 3 Paper 1
QUESTION 1
1.1 Calculate: Cost of stock damaged
WORKINGS ANSWER
(9 000 – 7 750 – 1 185) two marks (6 579 000 / 9 000) two marks
65 one part correct x 731 if divided by units
OR Ledger format 47 515
one part correct
6 579 000 5 665 250 7 750 x 731 ignore brackets
one mark two marks 6 531 485
866 235 three marks
1 185 x 731
one mark
47 515 5
1.2.1 Calculate: Profit/loss on sale of delivery vehicle
WORKINGS ANSWER
34 000
If 170 000 is x 20% or x 9/12
ignore sign
170 000 – 25 500 – 140 000 need not show P/L
144 500 three marks 4 500
one part correct
Be alert to alternative arrangement / calculation, such as
& if 140 000 is offset
140 000 – 144 500 = – 4 500
against carrying value
-170 000 + 25 500 + 140 000 = -4 500
5
1.2.2 Calculate: Total depreciation for the year
Depreciation before adjustments 328 200
Depreciation on vehicle sold 25 500
See workings in 1.2.1
4 200
Depreciation on alarm system if =7 200 or x7/12
(48 000 x 15%) one mark
TOTAL DEPRECIATION 357 900
one part correct
4
NOTE: The amounts calculated above must be transferred to
QUESTION 1.3.1, the Statement of Comprehensive Income.
Accounting 2023 4 Paper 1
1.3. Statement of Comprehensive Income for the year ended
1 28 February 2022.
Sales 9 355 250
Cost of sales (5 665 250)
Gross profit 3 690 000
Other income 200 000 *
Commission income 4 560
(12 150 x 2)
Rent income (183 600 – 24 300 ) 159 300 *
Bad debts recovered 33 700
Provision for bad debts adjustment (85 840 – 83 400 2 440
Gross operating income 8 3 890 000
Operating expenses GOI – OP (3 315 000)
Directors' fees 1 124 000
Audit fees 83 000
Salaries and wages and contributions
1 399 230 *
(1 381 500 + 11 525+ 3 235+ 990 + 1 980)
Security expenses (72 500 – 13 500 ) 59 000 *
Stock loss/stock written off/trading stock deficit see 1.1 47 515
Depreciation see 1.2.2 357 900
Loss on sale of asset ** see
4 500
1.2.1
Sundry expenses balancing figure 239 855 5
Operating profit 15 575 000
Interest income PBIE – OP 76 250
Profit before interest expense NPBT + Int Exp 651 250
Interest expense (142 250)
Net profit before tax NPAT + Inc tax 509 000
Income tax (152 700)
Net profit after tax 5 356 300 28
* one part correct
** If calculated as profit in 1.2.1 award method mark under op. income; check if carrying
value is greater or less than R140 000 to assess P/L
-1 foreign items (max -2)
Ignore brackets where applicable, check operation to award the method mark
Accounting 2023 5 Paper 1
1.3. Extract of the Statement of Financial Position on 28 February 2022
2
EQUITY AND LIABILITIES
ORDINARY SHAREHOLDERS' EQUITY 7 762 500
Ordinary share capital 6 670 000
Retained income SE – OSC 3 1 092 500
NON-CURRENT LIABILITIES 1 025 075
Mortgage loan
1 280 750 – 1 159 000 two marks
264 000 – 142 250 two marks
1 159 000 – (121 750 x 1,1 OR + 12 175) 1 025 075*
one part correct 133 925 three marks
5
CURRENT LIABILITIES 746 925 *
Trade and other payables
452 300 *
(428 000 + 24 300 see 1.3.1 Rent Income)
Current portion of loan# see loan above 133 925
Shareholders for dividends# 138 000
SARS: Income tax# (152 700 – 130 000) **
See 1.3.1 or 356 300 x 30/70
^SARS:IT can be calculated independent of the SOCI; must be CL
** If –130 000 22 700
Check if Income Tax in SOCI is greater or less than 130 000
# Inspect if any of # are included in T&OP; award total marks applicable
SE + NCL + CL 10
Accept total reflected at the top
9 534 500
* one part correct 18
-1 F foreign items (max -2)
For misplaced items mark workings only
-1 P max (if no, or inappropriate details)
TOTAL MARKS
60
Accounting 2023 6 Paper 1
QUESTION 2
2.1 Calculate the value of the closing stock of formal suits that was omitted
from the stock sheets on 30 June 2021.
WORKINGS ANSWER
230 – 24 240 – 206 / if both unit totals add up to 240
(206 x R2 850) + (34 x R2 600) R675 500
one part correct
5
2.2 Calculate: Correct net profit after tax for the year ended 30 June 2021.
Indicate '+' for increase and '–' for decrease.
NO. WORKINGS AMOUNT
Incorrect net profit before tax 4 918 950
(i) Audit fees
+ 123 600
No part marks
(ii) Interest on loan
4 028 000 – 3 755 000 or – 273 000 #
4 028 000 one mark + (420 000 – 4 175 000) one mark
(iii) Rent income (two marks; no part marks)
(5 500 – 750)
4 750 x 2
Be aware of different methods – 9 500 #
(77 000 x 4/14) one mark one mark one mark
22 000 – 3000 = 19 000 x2 ÷4
(iv) Income tax
#
(1 200 000 + 85 250) must add prov tax + amount owed – 1 285 250
Net profit after tax 3 474 800
one part correct 12
# operation and – sign or accept use of brackets
total must include the NP figure
2.3 Retained Income Note on 30 June 2021
-1 P (if no details) -*brackets to earn full marks
Balance at beginning
Net profit after tax see 1.2 3 474 800
Shares repurchased ignore workings (78 000)*
Dividends for the year ignore workings (1 170 000)*
Balance at end 3 240 000
5
Accounting 2023 7 Paper 1
JIMO LTD
STATEMENT OF FINANCIAL POSITION ON 30 JUNE 2021
ASSETS
NON-CURRENT ASSETS
Fixed assets
Financial assets
CURRENT ASSETS 8 700 000
Inventories 4 198 500+ 675 500 – 14 000 4 860 000 *
see 2.1
Trade and other receivables
(3 668 810 + 8 000 + 123 600 + 11 000 ) 3 811 410 *
audit fees transfer
Cash and cash equivalents balancing figure
28 590
accept negative amount
TOTAL ASSETS see total E+L 12 16 762 000
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY 9 720 000 *
(1 800 000 x 540/100 or R5,40) Must use NAV
Ordinary share capital Must be the balancing figure< 6 480 000 <
Retained income 4 3 240 000
NON-CURRENT LIABILITIES 3 842 000
Mortgage loan
(3 755 000 + 273 000 ) – 186 000 3 842 000 *
see 1.2 (ii) 5
CURRENT LIABILITIES (8 700 000 – Inventories) / 1,2
3 200 000
Or T&OR + CCE / 1,2
Trade and other payables
1 253 000 + 9 500 + 11 000 – 14 000 see Inventories 1 259 500 *
rent income 1 400 x 10
Shareholders for dividends see 1.3 / given 1 170 000 #
Current portion of loan see NCL 186 000 #
SARS: Income tax 85 250 #
Bank overdraft balancing figure 499 250
TOTAL EQUITY AND LIABILITIES 12 16 762 000 *
# inspect if included with T&OP *one part correct 33
-1 foreign items max -2 presentation -1 max -2
TOTAL MARKS
55
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Accounting 2023 8 Paper 1
QUESTION 3
3.1.1 (i) Calculate: Carrying value of the vehicle on hand on 1 March 2020
Workings Answer
460 000 – 396 750 63 250
No part marks
2
(ii) Calculate: Depreciation on vehicles for the year
Workings Answer
510 000 x 15% x 4/12 = 25 500 one part correct
460 000 x 15% = 69 000; CV is 63 250.
88 749
Depreciation is therefore 63 250 – R1,00 = 63 249 one part correct
5
(iii) Calculate: Carrying value of equipment sold
Workings Answer
360 000 – 285 000 -41 080 2 marks
75 000 – 36 600 – 4 480 33 920
one part correct
OR: 75 000 – (36 600 + 4 480 ) 4
3.1.2 Calculate: Profit/Loss on the sale of equipment
Workings Answer
If 40 000 - (iii)
40 000 – 33 920 6 080 2
3.2 Calculate: Trading stock deficit
Workings Answer
18 x 4 050 R72 900
(8 100 000 / 2 000) one part correct
NOTE: The relevant figures calculated above must be transferred to
the Income Statement.
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Accounting 2023 9 Paper 1
3.3 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2021
# also award from bottom up if COS calc is done *one part correct
Sales 15 325 200 – 648 000
14 677 200 *#
6 966 000 x 2,2
Cost of sales (6 966 000)
Gross profit Operation 5 7 711 200
Other income Operation 175 000
Profit on sale of asset* see 3.1.2 6 080 *
Provision for bad debts adj. 7 030 – 6 110 920
*
Rent income 173 000+ 9 000 – 14 000
182 000 two marks - 5 000 three marks 168 000 *
182 000 x 12 / 13
Gross operating profit Operation 10 7 886 200 *
Operating expenses Operation (6 286 200) *
Salaries and wages 1 468 120
Depreciation 31 281 + 88 749 see 3.1.1 120 030 *
Trading stock deficit see 3.2 72 900
Bad debts 19 200 + 800 20 000
*
Audit fees 91 000 + 39 000 or 91 000 / 0,7
130 000 *
Directors' fees 3 330 000 + 180 000 or 39/37 3 510 000 *
Repairs 476 000 + 9 000 485 000
*
2 160 two marks
Advertising 25 680 + 2 400 – 240 27 840 *
Sundry expenses 452 310
Operating profit GOI – OE 22 1 600 000 *
Interest income 25 000
Profit before interest expense Operation 1 625 000 *
Interest expense balancing figure (75 000)
Net profit before tax Operation 1 550 000
Income tax for the year 1 054 000 x 32/68 (496 000)
Net profit after tax * one part correct 6 1 054 000
43
-1 foreign items i.e. B/S items (max -2); for misplaced items
TOTAL MARKS
60
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Accounting 2023 10 Paper 1
QUESTION 4
4.1
4.1.1 Internal auditor
4.1.2 External auditor
4.1.3 Directors
3
4.2 PRUDENCE LTD
4.2.1 ORDINARY SHARE CAPITAL
900 000 Balance on 1 March 2021 7 650 000 *
1 200 000 x 75% 900 000 x 8,50* see below No. of shares x ASP*
(80 000) Shares repurchased any one part correct
(680 000)
# do not accept 136 000
ignore brackets 80 000 x R8,50*
as a final answer
150 000 Shares issued on 1 December 2021 984 000
balancing figure
970 000
operation & Balance on 28 February 2022 7 954 000
one part correct 7
RETAINED INCOME
Balance on 1 March 2021 753 000
Check operation from bottom up; [ + OSD + SRepur – NPAT] balancing figure
Net profit after tax 438 000 x 70/30 1 022 000
Shares repurchased (136 000)
Ordinary share dividends (443 000)
Interim + Final Div
Interim dividends 820 000 x 28 cents 229 600
OR 28% / 0,28 one part correct
Final dividends 213 400
Balance on 28 February 2022 1 196 000
7
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Accounting 2023 11 Paper 1
4.2.2 STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2022
ASSETS
NON-CURRENT ASSETS TA – CA 12 030 000
Fixed assets NCA – FD 11 781 000
Fixed deposit 489 000 – 240 000 4 249 000
CURRENT ASSETS 2 080 000
Inventory 966 600
balancing figure
Trade and other receivables
875 000 – 26 250 + 25 600 – 17 950 + 12 000* 868 400
12 800 one mark Operation;
Prov for BD Rent inc Trf debtor SARS one part correct
(23 640 + 2 610) (12 800 + 12 800) (450 000 – 438 000) See principle 4
(102 400 x 2/8)
Cash and cash equivalents (240 000 + 5 000 ) 245 000
two marks
TOTAL ASSETS see total SHE+NCL+CL 14 110 000
12
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY 9 150 000
Ordinary share capital 7 954 000
Retained income 1 196 000
NON-CURRENT LIABILITIES 9 150 000 x 0,4 3 660 000 *
Loan: XY Bank 2 3 660 000
*Award TWO marks if calculation shown on this line
CURRENT LIABILITIES 2 080 000 / 1,6 1 300 000
Trade and other payables 647 500
617 450 + 48 000 – 17 950 Operation one part correct
Audit fees Trf Debtor See principle 4
Shareholders for dividends** 213 400
Current portion of loan** 228 000
**May be part of workings of T&OP
211 100
Bank overdraft operation; balancing figure
can be negative
TOTAL EQUITY AND LIABILITIES SE + NCL + CL 10 14 110 000 28
TOTAL MARKS
45
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Accounting 2023 12 Paper 1
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Accounting 2023 13 Paper 1
QUESTION 5
5.1 Calculate the value of the closing stock on 28 February 2021 using the
weighted-average method.
WORKINGS ANSWER
11 005 000 Two marks 1 704 000 one
2 433 000 + 8 572 000 x 2 400 = part correct and x 2 400
4 000 + 11 500
15 500 Two marks 5
5.2 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2021
Sales GP x 260/160 24 182 600
Cost of sales GP x 100/160 (9 301 000)
Gross profit 4 14 881 600
Other income operation, one part correct 203 400
Bad debts recovered 5 800
Rent income (208 250 – 17 000 ) 191 250 *
Provision for bad debt adjustment (9 800 – 9 350) 450
Profit on sale of asset (88 400 – 82 500) 5 900
Gross operating income 9 GP + OI 15 085 000
Operating expenses operation (13 065 600)
Directors' fees. 4 836 000
Audit fees 497 200
Advertising 342 400
Sundry expenses 88 000
Trading stock deficit (2 000 000 - 1 704 000 ) see 5,1 296 000
34 000 two marks\
Salaries and wages (6 425 000 + 23 800+10 200+ 4 500) 6 463 500 *
Depreciation (41 250 + 337 000 + 90 500 468 750 *
Packing material (45 800 – 6 100) 39 700
Bad debts (28 800 + 5 250) 34 050
Operating profit 17 2 019 400
Interest income balancing figure 57 000
Profit before interest expense 2 076 400
Interest expense (2 150 000 – 710 400 – 1 652 000 ) OF 1 652 000 – 1439 000 (212 400)
Net profit before tax NPAT + IT 1 864 000
Income tax NPAT x 28/72 (521 920)
Net profit after tax 7 1 342 080 37
-1 foreign items (-1 maks); misplaced items, mark only operation and ignore brackets, control workings * one part correct
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Accounting 2023 14 Paper 1
5.3 RETAINED INCOME NOTE
Balance at beginning of financial year 2 978 000
Net profit after tax 1 342 080
Buy back of shares (250 000 x R0,25) (62 500)
Dividends operation (1 900 500)
Interim 672 000
Final (3 412 500 x R0,36) operation one part correct 1 228 500
Balance at end of financial year 2 357 080
operation one part correct
8
TOTAL MARKS
50
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Accounting 2023 15 Paper 1
QUESTION 6
6.1
6.1.1 C
6.1.2 A
6.1.3 D
6.1.4 B
4
6.2 GLOBAL TRADING LTD
6.2.1 Calculation of the correct net profit after tax
Accept bracket instead of – If no sign, accept + Positive/Negative effect & figure must be
correct. Foreign entries –1 (max -2)
Incorrect net profit 1 089 238
i. 10 600 – 7 800 + 2 800
Cost (8 712 ÷ 90% ÷ 160%) = 6 050
ii. 8 712 – 6050 + 2 662
Operation, one part correct
iii. 5 600 + 5 600 + 11 200
iv. + 5 400
648 000 ÷ 54 x 6 OR
v. 648 000 ÷ 4,5 ÷ 2 - 72 000
Operation, one part correct
vi. - 30 000
vii. - 3 300
x4
viii. 7 200 ÷ 6 = 1 200 Operation, + 4 800
one part correct
Correct net profit before tax 1 010 800
Operation, one part correct
Income tax (333 564)
Net profit after tax Check operation, NP – tax 677 236 22
6.2.2 SHARE CAPITAL
Shares issued at the beginning of
3 000 000 the year 3 900 000
one part correct
(250 000) Shares bought back @ R1,30 (325 000)
1 000 000 Shares issued at R3,20 3 200 000
3 750 000 one part correct
6 775 000 7
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Accounting 2023 16 Paper 1
6.2.3 RETAINED INCOME
Balance at the beginning of the year 1 190 264
Net profit after tax see 6.2.1 677 236
250 000 shares repurchased at R1,20
One part correct, must be brackets (300 000)
Dividends One part correct, must be in brackets (385 000)
Interim 110 000
Final (0,10 x 2 750 000 ) One part correct 275 000
Balance at the end of the year
Operation, one part correct 1 182 500 8
6.2.4 GLOBAL TRADING LIMITED
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022
EQUITY AND LIABILITIES
ORDINARY SHAREHOLDERS' EQUITY Operation
7 957 500
Ordinary share capital 6 775 000
See 1.2.3
Retained income (2) 1 182 500
NON-CURRENT LIABILITIES
243 000
Loan: Custom Bank (354 000 – 111 000) (4)
243 000
CURRENT LIABILITIES Operation
669 714
Trade and other payables (166 800 + #5 450 +
72 000+ 2 600 + #3 300 ) *250 150
directors fee deb led rent income Operation, one part correct
SARS – Income tax (333 564 – 300 000)
Operation, one part correct *33 564
Shareholders' for dividends See 1.2.3
*275 000
Shortterm loan
*111 000
TOTAL EQUITY AND LIABILITIES 19
(13)
*Items under CL may be combined 8 870 214
#Income received in advance (5 450 + 3 300 = 8 750) two marks
Foreign entries –1 (max –2) Presentation/Incorrect or incomplete details –1 (max –2)
TOTAL MARKS
45
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Accounting 2023 17 Paper 1
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Accounting 2023 18 Paper 1
QUESTION 7
KELLY LTD
7.1 Retained income note on 28 February 2022.
Balance on 1 March 2021 57 480
Net profit after tax (306 280 ✓x 69/31✓) 681 720 *
Shares repurchased (40 000 x 1,25) (50 000)
Ordinary share (389 200) *
Interim dividends (640 000 x 0,28 cents) 179 200
Final dividends 210 000
Balance on 28 February 2022 must subtract BBS & OSD 300 000
11
7.2 STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2022.
ASSETS
NON-CURRENT ASSETS 4 190 900
Fixed assets 3 940 900
Fixed deposit (415 000 – 165 000) 250 000
CURRENT ASSETS (CLx1,5) 1 332 300
Inventories 222 600
Trade and other receivables balancing figure 1 022 300
Cash and cash equivalents See FD
(212 400 ✓ + 165 000☑ - 290 000 ✓✓) 87 400
see RI 50 000 one mark: 240 000 AVE one mark
TOTAL ASSETS See total E & L 5 523 200
EQUITY AND LIABILITIES
Shareholders’ equity
(640 000 – 40 000) ✓ x 650 cents✓ must x NAV* 3 900 000
Ordinary share capital balancing figure /(600 000 x 6 Average price) 3 600 000
Retained income see R I 300 000
NON-CURRENT LIABILITIES 735 000
Loan (1 155 000 – 420 000✓✓) 735 000
CURRENT LIABILITIES 888 200
Trade and other payables 231 920
Shareholders for dividends See R I 210 000
SARS: Income tax (306 280✓ – 280 000✓) 26 280
Current portion of loan See Non-C L 420 000
TOTAL EQUITY AND LIABILITIES 5 523 200 ☑* 27
*one part correct
-1 foreign item (-2 max) misplaced items must be marked wrong. Current liability items maybe combined.
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Accounting 2023 19 Paper 1
7.3.1 Calculate the number of shares that Paul must buy to gain control of the
company.
400 000 – 252 000 = 148 000 + 1 or + 100 one part correct
Or
408 000 one mark – 252 000 two marks = 156 000 one mark
Accept: 800 000 x 51% = 408 000 (in this case Paul must buy 156 000 shares) 4
7.3.2 Paul wants to buy shares at the current Net asset value without
advertising them to the public. As an existing shareholder, why would
you not be satisfied with this arrangement? Explain. Provide TWO points.
TWO valid points
▪ The issue of these shares must be transparent and legal (i.e., in terms of a
decision taken by the Board of Directors; it must not contravene the MOI, the
Prospectus or the Companies Act.
▪ It would be unethical for Paul to pay a price for the share that is below the
Market price as this would dilute the average share price (which could lead to
a decline in market price).
▪ It would be unfair and unethical for Paul to benefit in this way as he would be
abusing his position in the company (and other directors or shareholders 4
would be disadvantaged).
7.4 Kelly Ltd is planning to spend R500 000 on staff development and
training over the next two years. Explain where this amount should be
shown in the published annual report, and provide a reason for your
answer.
EXPLANATION REASON
In the Directors Report It has not yet been paid so it cannot be
shown in the Statement of
Comprehensive Income.
It is important for the directors to
create a good impression to the
readers of the financial report.
It will highlight the company’s
compliance with the King Code /
Emphasis on the triple bottom line 4
TOTAL MARKS
50
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Accounting 2023 20 Paper 1
QUESTION 8
8.1 Indicate where EACH of the following items would be placed in the
financial statements by choosing a term from the list below.
8.1.1 Non-current assets
8.1.2 Operating expense
8.1.3 Operating income
3
8.2.1 LULU LTD
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Sales (4 960 000 – 120 000) x 1,50 = 7 260 000 * 7 362 000 *
120 000 x 85% = 102 000 *
Cost of sales (4 960 000)
Gross profit Operation 6 2 402 000
Other operating income 765 800
Gross income Operation 3 167 800
Operating expenses 2 (2 059000) *
Salaries and wages 955 400
Audit fees (96 900 + 64 600 ) 161 500 *
Directors fees (702 000 – 54 000 ) x 36/39 648 000 *
Rent expense (128 800 + 15 400 ) 144 200 *
Sundry expenses 149 900
Operating profit 15 1 108 000 *
Interest income balancing figure (accept a -ve figure) 337 700
Net profit before interest expense NPBT + Interest expense 1 445 700 *
Interest expense (242 500)
Net profit before tax NPAT + Inc Tax 1 203 200
Income tax (298 300 + 39 400 ) (337 700) *
Net profit after tax 6 865 500 29
Foreign items -1 max *one part correct
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Accounting 2023 21 Paper 1
8.2.2 ORDINARY SHARE CAPITAL
AUTHORISED SHARE CAPITAL
1 500 000 ordinary shares
ISSUED SHARE CAPITAL If no brackets, check operation
1 125 000 Ordinary shares on 1 March 2021 6 750 000
(200 000) Shares repurchased (ASP: R6,00) (1 200 000)
2 475 000
operation
275 000 Shares issued balancing figure
operation
1 200 000 Ordinary shares on 28 February 2022 8 025 000 7
RETAINED INCOME If no brackets, check operation
Balance on 1 March 2021 balancing figure 838 950
Net profit after tax 865 500
Shares repurchased (200 000 x R1,40) (280 000)
Ordinary share dividends (585 750)
Interim dividends (925 000 x 0,27) one part correct 249 750
Final dividends 336 000
Balance on 28 February 2022 838 700 8
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Accounting 2023 22 Paper 1
8.2.3 EQUITY AND LIABILITIES SECTION OF THE BALANCE SHEET
SHAREHOLDERS' EQUITY 8 863 700
Ordinary share capital 8 025 000
Retained income see 8.2.2 2 838 700
NON-CURRENT LIABILITIES 1 371 600
Loan LSO Bank 31 600 x 12 379 200 – 162 000
(1 725 500– 379 200+ 242 500 ) – 217 200
1 371 600 *
1 588 800 four marks 7
CURRENT LIABILITIES 1 305 400 *
Trade and other payables
(632 800 + 64 600 + 15 400 ) 712 800 *
audit fees rent expense
Shareholders for dividends 336 000
SARS: Income tax 39 400
Current portion of loan 217 200
TOTAL SHAREHOLDERS' EQUITY AND 11 540 700
LIABILITIES 9 SE + NCL + CL 18
TOTAL MARKS
65
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Accounting 2023 23 Paper 1
QUESTION 9
9.1 DADDABUY LIMITED
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2021
20 720 000 2 marks
Sales (14 800 000 x 140/100 – 120 000 ) 20 600 000 *
Cost of sales (14 800 000)
Gross profit 5 5 800 000 *
Other Operating income 235 500 *
Rent income (252 000 – 21 600 ) 230 400 *
Provision for bad debts adjustment (42 800 – 37 700) 5 100
Gross operating income 8 6 035 500 *
Operating expenses GOI - OP (3 941 500)
Directors’ fees 1 525 000
Salaries and wages 865 350
Bad debts 22 500
Audit fees (145 600 + 14 400) 160 000
Advertising (555 000 – 8 000 ) 547 000 *
Consumable stores (72 600 – 4 800) 67 800
Sundry expenses balancing figure 647 051
Trading stock deficit (1 905 000 – 1 899 000) 6 000
Loss on sale of asset (24 000 – 14 000 + 9 000 ) 1 000 *
Depreciation (29 999 +40 000 + 900 + 28 900
99 799 *
)
Operating profit 23 2 094 000
Interest income (19 000 + 2 000) OR 600 000 x 7/100 x 6/12 21 000
Profit before interest expense 2 115 000
Interest expense (1 850 000 + 850 000 – 2 460 000) (240 000)
Net profit before tax NP + Tax 1 875 000
Income tax (525 000)
Net profit after tax 7 1 350 000 44
Foreign items -1 (max -2) *operation one part correct
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Accounting 2023 24 Paper 1
9.2 RETAINED INCOME
Balance at the beginning of the year 455 600
Net profit after tax see IS 1 350 000
800 000 x 5% 11,20 one mark – 9,00 one mark one part correct
(88 000)
Shares repurchased (40 000 x R2,20 )
one part correct
Dividends on ordinary shares (832 000)
Interim dividends paid 480 000
one part correct
Final dividends declared (800 000 x 0,44) 352 000
Balance at the end of the year Operation: must –div and sh rep,
885 600
one part correct 11
TOTAL MARKS
55
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Accounting 2023 25 Paper 1
QUESTION 10
10.1
10.1.1 Current assets
10.1.2 Operating income Accept recognizable abbreviations
e.g. NCA
10.1.3 Non-current asset
10.1.4 Operating expense
4
10.2.1 ZEKINA LTD
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2022
Sales (4 950 000 x 145%) + (47 000 x 85%)
( 7 177 500 + 39 950 ) 7 217 450 *
OR (7 245 650 - 28 200)
Cost of sales (4 997 000)
6 Gross profit Operation 2 220 450
Other operating income 619 550
Gross income Operation 2 840 000
2 Operating expenses (1 115 000) *
Salaries and wages 475 600
Advertising (8 640 x 4/6) 5 760
Audit fees (61 120 x 100/80 ) OR (61 120 + 15 280) 76 400 *
Rent expense (66 760 + 5 480 ) 72 240 *
Directors fees (420 540 x 45/43 )
440 100 *
OR (420 540 + 19 560)
Sundry expenses 44 900
14 Operating profit 1 725 000 *
Interest income balancing figure (accept a neg. figure) 27 500
Net profit before interest expense NPBT + Interest expense 1 752 500 *
Interest expense (833 000 – 723 400) (109 600)
Net profit before tax NPAT + Inc Tax 1 642 900
Income tax (450 000 + 42 900 ) (492 900) *
8 Net profit after tax 1 150 000 30
Foreign items (e.g. Balance Sheet items/dividends; see Principle 1) -1 max *one part correct
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Accounting 2023 26 Paper 1
10.2.2 ORDINARY SHARE CAPITAL
ISSUED SHARE CAPITAL If no brackets, check operation
900 000 Ordinary shares on 1 March 2021 5 175 000
(250 000) Shares repurchased (ASP: R5,75) (1 437 500) * if x 5,75
operation
150 000 Shares issued balancing figure 945 000 operation
800 000 Ordinary shares on 28 February 2022 4 682 500 7
RETAINED INCOME If no brackets, check operation
Balance on 1 March 2021 222 000
Net profit after tax 1 150 000
Shares repurchased (262 500)
Ordinary share dividends (419 000)
Interim dividends 195 000
Final dividends (800 000 x 0,28) 224 000
Balance on 28 February 2022 690 500 7
10.2.3 EQUITY AND LIABILITIES SECTION OF STATEMENT OF FINANCIAL POSITION
SHAREHOLDERS' EQUITY 5 373 000
Ordinary share capital 4 682 500
Retained income 690 500
NON-CURRENT LIABILITIES 708 050
Loan CSS Bank (833 000 – 124 950 ) 708 050 *
CURRENT LIABILITIES 850 850
Trade and other payables 459 000 *
Shareholders for dividends 224 000
SARS: Income tax 42 900
Current portion of loan 124 950
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 6 931 900 12
* one part correct
TOTAL MARKS
60
QUESTION 11
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Accounting 2023 27 Paper 1
11.1 JARDIM LIMITED
STATEMENT OF COMPREHENSIVE INCOME – 28 FEBRUARY 2021
Sales 6 720 000
Cost of sales (4 200 000)
Gross profit 3 2 520 000
Other operating income 204 200
Discount received 3 800
Rent income (236 200 – 35 800) 200 400
Gross operating income 6 2 724 200
Operating expenses (1 734 500)
Discount allowed 6 500
Audit fees (99 900 + 33 300) 133 200
Director’s fees (673 400 – 18 200 ) OR 673 400 /37x36 655 200
Sundry expenses 939 600
Operating profit 9 989 700
Interest income balancing figure 26 800
Profit before interest expense 1 016 500
Interest expense (56 500)
Profit before tax NPAT + Inc Tax 960 000
Income tax (259 200)
Net profit after tax 5 700 800 23
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Accounting 2023 28 Paper 1
11.1. ORDINARY SHARE CAPITAL
2
AUTHORISED
2 000 000 SHARES
ISSUED
1 200 000 Ordinary shares (opening balance) 8 400 000
(60 000) Ordinary shares repurchased x R7 (420 000)
140 000 Ordinary shares issued 1 400 000
1 280 000 Ordinary shares (closing balance) 9 380 000 7
11.1.2 RETAINED INCOME
Balance in the beginning of the year 315 800
Net profit after tax 700 800
Repurchase of shares (60 000 x R1,40) (84 000)
Dividends (509 600)
Interim 228 000
Final (1 280 000 x 22 cent) 281 600
Balance at the end of the year 423 000 8
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Accounting 2023 29 Paper 1
11.1.3 JARDIM LIMITED
STATEMENT OF FINANCIAL POSISTION ON 28 FEBRUARY 2021
ASSETS
NON-CURRENT ASSETS TA – CA 9 353 000
Fixed assets at carrying value Balancing figure 8 903 000
Fixed deposit 3 450 000
CURRENT ASSETS CL X 1,8 1 890 000
Inventories CL X 0.7 735 000
Trade and other receivables
796 000 – 38 300+ 18 200– 10 000 765 900
Operation, one part correct
Cash and cash equivalents balancing figure 389 100
TOTAL ASSETS Transfer OE + L 9 11 243 000
EQUITY AND LIABILITIES
ORDINARY SHAREHOLDERS' EQUITY 9 803 000
Ordinary share capital See 11.1.2 9 380 000
Retained income See 11.1.2 2 423 000
NON-CURRENT LIABILITIES 390 000
Mortgage loan: LL Bank
390 000
570 000 – 180 000 4
CURRENT LIABILITIES 1 050 000
Trade and other payables
576 000
516 900 + 35 800 + 33 300– 10 000
Shareholders for dividends See 11.1.2 281 600
Current portion of loan 180 000
SARS: Income tax balancing figure 12 400
TOTAL EQUITY AND LIABILITIES Operation 9 11 243 000
27
Foreign entries -1 (max -2)
TOTAL MARKS
65
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Accounting 2023 30 Paper 1
QUESTION 12
12.1 Choose the correct term to complete each of the following statements. Write only
the term next to the question number (12.1.1–12.1.3) in the ANSWER BOOK
12.1.1 Current asset P
12.1.2 Non-current asset
12.1.3 Current liability
3
12.2.1 GENERAL LEDGER OF HLABAHLABA LTD
ASSET DISPOSAL ACCOUNT
Accumulated
80 000
Feb 1 Equipment Feb 1 depreciation on
equipment 43 000
32 000 + 11 000
Bank 33 900
Loss on sale of
3 100R
80 000 80 000
*Rone part correct
12.2.2 WORKINGS ANSWER
(i) 3 450 000 – 2 870 000 580 000
no part marks
2
(ii) 450 000
780 000 – 330 000 2 no part marks
330 000 x 20% = 66 000
(iii) 94 000
5 One part correct
7
240 000 x 20% x /12 = 28 000
(iv) 37 000
80 000 – 43 000 see 12.2.1 3 One part correct
12
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Accounting 2023 31 Paper 1
12.2.3 HAVENGA LTD
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2022
Sales 4 800 000 – 34 900 + 24 000 4 789 100 *
Cost of sales 3 000 000 + 15 000 (3 015 000) *
8 Gross profit 1 774 100 *
Other income 178 270 *
Discount received 6 488
Rent income 151 000 + 12 500 163 500
Provision for bad debts 18 482– 10 200 8 282 *
10 Gross income 1 952 370 *
Operating expenses (1 175 230) *
Salaries and wages 116 000
Consumable stores 33 800 + 2 900– 4 850 31 850 *
Bad debts 18 600 + 5 600 24 200 *
Directors fees 612 000 + 36 000 648 000 *
Discount allowed 4 680
Audit fees 21 980
Advertising 24 696 – 2 016 22 680 *
Bank charges 11 300 + 1 450 12 750
Insurance 36 400 + 3 480 39 880 *
Sundry expenses 79 410
Trading stock deficit 188 400 – 15 000 – 164 700 8 700 *
Depreciation see 12.2.2 162 000
Loss on sale of asset see 12.2.1 3 100
30 Operating profit 777 140 *
Interest expense (690 + 42 000 (42 690) *
Net profit before income tax 734 450
Income tax NPbT x 30% (220 335)
8 Net profit after income tax *operation, one part correct 514 115 * 56
TOTAL MARKS
80
QUESTION 13
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Accounting 2023 32 Paper 1
13.1 Choose a term to complete each of the following statements.
13.1.
Directors
1
13.1.
Internal ouditor
2
13.1.
Shareholder
3
13.1.
External auditor 4
4
13.2. Calculate the missing figures (i) to (v) from the Fixed Asset note.
1
Workings Answer
(i) 7 949 999 – 5 749 999 2 200 000
(ii) 380 000 x 15/100 = 57 000 BUT 37 999
(iii) 38 000 – (ii) 1
100 100 three marks
(iv) 180 000 - (86 000 + 14 100 79 900
Asset disposal see (iv) = R14 100
(v) New 360 000 x 20/100 x 6/12 = 36 000 102 900
Old = 52 800 16
RETAINED INCOME
Balance on 1 March 2020 342 000
Net profit after income tax (437 400x 73/27) 1 182 600 *
Shares repurchased (80 000 x R2,20 )
(176 000) *
operation, one part correct
Ordinary share dividends operation, one part correct
(430 000)
and must be in brackets
Interim 155 000
Final 275 000
Balance on 28 February 2021 operation, one part correct 918 600 10
* - Operation – one part correct
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Accounting 2023 33 Paper 1
13.2.2 DYNAMO LTD
BALANCE SHEET ON 28 FEBUARY 2021
ASSETS
Non-current assets 9 175 000
Tangible assets balancing 8 657 200
figure
Fixed deposit at Bunny Bank 517 800 (3)
Current assets CL 1 275 000
1,5:1
Inventories CL 595 000
0,7:1
Trade & other receivables balancing 410 000
figure
Cash & cash equivalents 270 000
(55 500 + 4 500 + 210 000 ) one part correct
TOTAL ASSETS 10 450 000 (11)
EQUITY & LIABILITIES
Ordinary shareholders’ equity 9 600 000 - 1 100 8 500 000
100
Ordinary share capital balancing 7 581 400
figure
Retained income see 918 600 (4)
13.2.1
Non-current liabilities 1 100 000
Mortgage loan: Long Bank 1 367 000 – three marks
(1 750 000 + 262 500 – 645 500 – 267 000 1 100 000 (5)
Current liabilities 850 000
Trade & other payables balancing 297 100
figure
SARS – Income Tax (437 400 – 426 500) 10 900
one part correct
Shareholders for dividends see 275 000
13.2.1
Current portion of loan see 267 000
loan
TOTAL EQUITY & LIABILITIES 10 450 000 (7)
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Accounting 2023 34 Paper 1
30
TOTAL MARKS
60
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Accounting 2023 35 Paper 1
C
C S A
A T L
S A C
R
H T A U
A
E N L O
T
F M D A F
I
L E T
O
O N I
S
W T O
S N
S
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Accounting 2023 36 Paper 1
QUESTION 1
1.1 1.1.1 Solvency
1.1.2 Profitability
1.1.3 Gearing 3
1.2 EAGLE LTD
1.2.1 RETAINED INCOME NOTE ON 28 FEBRUARY 2022
Balance on 1 March 2021 516 000
inspect operations from bottom (+ OSD + SBB - NPAT)
Net profit after tax 908 400
Shares repurchased 120 000 x R1,40 (168 000)
Ordinary share dividends operation (873 600)
Interim dividends 710 400
Final dividends 1 360 000 x 1360 000 x 12c 163 200
Balance on 28 February 2022 382 800 7
1.2.2 Calculate: Income tax paid
WORKINGS ANSWER
OR:
Accept brackets here
389 300 – 21 300 – 14 400 21 300 389 300
353 600
OR: one part correct;
353 600
– 389 300 + 21 300 + 14 400 14 400
4
Calculate: Funds used to repurchase shares
WORKINGS ANSWER
120 000 x 8,80 = 1 056 000 three marks
120 000 x 1,40 = 168 000 see 2.2.1 1 224 000
both parts to be added
OR: one part correct
120 000 x 10,20 = 1 224 000
one mark three marks 5
Calculate: Net change in cash and cash equivalents
WORKINGS ANSWER
44 700 + 133 000 - 8 000
4
one mark two marks 169 700
OR: 44 700 + 125 000 one part correct
must be positive
one mark two marks
OR: 133 000 + 36 700
OR: mark one column only and ignore brackets
Net change 169 700 169 700
Opening balance 133 000 one mark 125 000 two marks
Closing balance 36 700 two marks 44 700 one mark
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Accounting 2023 37 Paper 1
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Accounting 2023 38 Paper 1
1.2.3 Calculate: Debt-equity ratio
WORKINGS ANSWER
0,2 : 1
one part correct
2 886 000 : 12 350 800 in form x : 1
3
Calculate: % return on average capital employed
WORKINGS ANSWER
1 297 700 one mark + 382 000 one mark
1 679 700 x 100* 11,3%
one part correct
½ (15 236 800 + 14 450 000) must use average (½)
½ [(12 350 800 + 2 886 000) + (10 750 000 + 3 700 000)] must include OSHE + NCL
% sign not necessary
½ [(12 350 800 + 10 750 000) + (2 886 000 + 3 700 000)] accept 11,32
14 843 400 two marks
5
Calculate: Dividends per share
WORKINGS ANSWER
710 400 / 1 480 000 x 100
48c + 12c 60c
one part correct
must be interim + final dividends
TOTAL MARKS
35
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Accounting 2023 39 Paper 1
QUESTION 2
2. Ordinary Share Capital Note on 28 February 2021
1
800 000 Ordinary shares at the beginning 6 400 000
100 000 New shares issued balancing figure 1 250 000
Must subtract repurchased
(255 000)
(30 000) Repurchased 30 000 shares at R8,50 If one part correct
do not accept 36 000
870 000 Shares at the end of the year 7 395 000
# if answer of 255 000 is correct, award two marks if R8,50 is not shown 6
2. Calculate the following financial indicators on 28 February 2021:
2
% operating expenses on sales
WORKINGS ANSWER
20%
1 458 600 x 100* one part correct;
7 293 000
Check numerator / denominator
2
Dividend per share
WORKINGS ANSWER
( no part marks ) Assume cents if not specified.
(162 000/900 000)
18 cents + 22 cents OR 0,18 + 0,22 40 cents &
18c 22c &Workings must be inspected
two marks one mark in this case to earn the mark.
162 000 + 191 400
900 000 870 000 See below ‘&’.
No marks for denominator if the same figure is used for interim & final
dividends. 4
% return on average shareholders' equity
WORKINGS ANSWER
985 500 x 100* 13,6% *
½ (6 450 000 + 8 038 100) one part correct
14 488 100 two marks calculated as a %
7 244 050 three marks
5
* x 100 does not constitute ‘one part correct’
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Accounting 2023 40 Paper 1
2.3 CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY
2021
Figures are NOT required in shaded areas.
For use of reversed signs, ensure that only one option is consistently used
CASH FLOW FROM OPERATING ACTIVITIES 1 180 000
Cash generated from operations
Interest paid
Taxation paid (1 350 000 – 985 500) one mark
35 900 + 364 500 + 29 100 (429 500)
Be aware of signs reversed, use of brackets or ledger account formats
Dividends paid 115 300 + 162 000
OR: 115 300 + 353 400 – 191 400 (277 300)
Be aware of signs reversed & use of brackets or ledger account formats
6
CASH FLOW FROM INVESTING ACTIVITIES (1 320 000)
CASH FLOW FROM FINANCING ACTIVITIES 409 000
Shares issued see 2.1 1 250 000
Shares repurchased 36 000 one mark two m.marks
255 000 + (30 000 x 1,20) OR 30 000 x (291 000)
R9,70
see 2.1 (if R1,20 above ASP)
Loan repaid 8 (550 000)
NET CHANGE IN CASH AND CASH EQUIVALENTS 269 000
from top (OA + IA + FA)
(75 200)
CASH AND CASH EQUIVALENTS AT BEGINNING One mark if figure
correct but no brackets
CASH AND CASH EQUIVALENTS AT END 4 193 800
18
*one part correct and must indicate correct operation & correct use of brackets;
If no brackets, assume answer is an inflow of cash – award marks for workings only;
TOTAL MARKS
35
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Accounting 2023 41 Paper 1
QUESTION 3
3.1
3.1.1 Directors' report
3.1.2 Internal
3.1.3 Limited 3
3.2 USANDA LIMITED
3.2.1 Calculate: Income tax paid
Workings Answer
(1 777 000 – 1 243 900) one mark
69 300 + 533 100 – 19 800 R582 600
one part correct
4
Calculate: Dividends paid
Workings Answer
495 000 two marks
247 500 + (835 000 – 340 000 )
R742 500
one part correct 4
3.2.2 CASH EFFECTS OF FINANCING ACTIVITIES (2 625 500) *
Proceeds from shares issued
2 345 000 two marks 680 000 *
9 555 000 + (335 000 x R7,00) – 11 220 000
Funds used to repurchase shares
335 000 x 9,50 (3 182 500)
Change in loan
2 080 000 – 1 930 000 or 270 000 – 420 000 (150 000) *
(2 080 000 – 420 000 + 270 000) 35 000 x 12 11
* one part correct
NET CHANGE IN CASH AND CASH EQUIVALENTS 56 000
Cash (opening balance) 154 700 – 90 000 64 700
Cash (closing balance) 120 700
4
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Accounting 2023 42 Paper 1
3.2.3 Calculate financial indicators for the year ended 28 February 2021:
% operating profit on sales
Workings Answer
2 262 100 x 100 12,7%
17 800 000 1 one part correct
must x100
Expressed as a % (sign not necessary) Not 0,127
2
Acid-test ratio
Workings Answer
(659 500 – 276 500) two marks 0,6 :1
or (262 300 + 120 700) two marks one part correct
383 000 : 611 900 4
% return on average shareholders' equity (ROSHE)
Workings Answer
1 243 900 x 100 11,4%
½ (11 985 000 + 9 891 400) 11,37%
21 876 400 one mark one part correct
10 938 200 two marks
Expressed as a % (sign not necessary) Not 0,113 4
Dividend payout rate (%)
Workings Answer
495 000/1 650 000 = 30 cents
30 cents + 20 cents; one mark each 67,6%
50 cents x 100 one other part correct
74 cents 1
or
OR 835 000 x 100 (2021 Total. div) 67,1%
1 243 900 1 (2021 NPATax) one other part correct
Accept 67% / 68% 4
TOTAL MARKS
40
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Accounting 2023 43 Paper 1
QUESTION 4
4.1
4.1.1 current asset
4.1.2 financing activity or operating activity
(due to technicality / display reason)
4.1.3 directors' report 3
4.2 JANTJES LIMITED
4.2.1 WORKINGS Accept T- accounts ANSWER
(i) Carrying value of vehicles on 1 March 2021
1 510 000
2 350 000 – 840 000
(ii) Total depreciation on equipment
640 000 x 10% = 64 000 (CV is 28 000) 28 000 one mark
Old: 28 000 – 1 = 27 999 36 124
any one part correct
New: 195 000 x 10 % x [5/12] = 8 125
any one part correct
(iii) Carrying value of the vehicle sold
Current Depreciation:
80 000 x 20% x [9/12] = 12 000 one mark one method mark
OR 298 000 – 286 000 = 12 000 68 000
252 000 – 172 000 – 12 000 one part correct one part correct
80 000
OR: 252 000 – (172 000 + 12 000)
184 000 two marks + one m.mark 11
4.2.2 Calculate the following amounts for the 2022 Cash Flow Statement:
WORKINGS ANSWER
Fixed assets purchased
334 124 two marks (Depreciation)
2.2.1 (iii) 2.2.1 (ii)
7 988 000 – 68 000 – 298 000 – 36 124 – 8 746 500
Accept alternative arrangement for calculations e.g. signs reversed, ledger / note format. 1 160 624
one part correct
Calculating CV(CB) from Note:
one mark one mark one mark one mark one mark
1 144 000 + 186 876 – 8 746 500 + 6 450 000 – 195 000
OR: –1 144 000 – 186 876 + 8 746 500 – 6 450 000 + 195 000 6
Dividends paid
288 000 two marks
180 000 + 552 500 – 264 500
OR: signs reversed or ledger -288 000 two marks
468 000
one part correct
one mark one mark one mark
–180 000 – 552 500 + 264 500 4
Decrease in loan
Payments – interest = 456 000 – 216 000
OR: Beginning – end = 2 057 600 – 1 817 600 240 000
one part correct
OR: signs reversed or ledger format
–456 000 + 216 000 OR –2 057 600 + 1 817 600 3
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Accounting 2023 44 Paper 1
4.2.3 NET CHANGE IN CASH AND CASH EQUIVALENTS (254 000) *
*One mark if no bracket
Opening balance 129 000 + 5 000 134 000
Or 129 000
Closing balance – 125 000 + 5 000 must have brackets
(120 000)
Or (125 000) 4
4.2.4 Calculate the following financial indicators on 28 February 2022:
WORKINGS ANSWER
% mark-up achieved
75%
5 400 000 x 100* operation; one part correct
7 200 000 1 & as a %;
(12 600 000 – 5 400 000) sign not necessary
3
Acid-test ratio
(1 323 000 – 514 500) two marks; no part marks 1,1 : 1
operation; one part correct
808 500 : 735 000 & if in form x : 1
4
Net asset value per share (NAV)
8 840 700 x 100* (for cents) 768,8 cents
1 150 000 operation; one part correct
cannot be %
(1 000 000 + 200 000 – 50 000) one mark
assume R or c if no sign
accept 769 cents
or R7,69
3
% return on average shareholders' equity (ROSHE)
609 200 x 100* 7,4%
½ (7 600 000 + 8 840 700) operation; one part correct
as a %
16 440 700 one mark
sign not necessary
8 220 350 two marks
4
* x 100 is not considered as one part correct
TOTAL MARKS
45
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Accounting 2023 45 Paper 1
QUESTION 5
5.1.1 Calculate: Debt-equity ratio
WORKINGS ANSWER
0,2 : 1
2 450 000 : 10 387 600 one part correct
3
5.1.2 Calculate: Net asset value per share
WORKINGS ANSWER
10 387 600 x 100 cents 1 298,5 cents
800 000 one part correct
accept 1298/1299
5.1.3 Calculate: Dividend pay-out rate
WORKINGS ANSWER
77 OR 22%
45 + 32 x 100 631 400 x 100 one part correct
350 1 2 870 000
4
5.1.4 Calculate: Return on average shareholders' equity (ROSHE)
WORKINGS ANSWER
2 870 000 x 100 33,2%
/2 (10 387 600 + 6 910 000)
1
1 one part correct
Accept 33%
8 648 800
4
5.2.1 For the Cash Flow Statement calculate: Change in receivables
WORKINGS ANSWER Inflow/Outflow
418 000 – 390 000 28 000 Outflow
3
5.2.2 For the Cash Flow Statement calculate: Change in payables
WORKINGS ANSWER Inflow/Outflow
536 000 – 359 200 176 800 Inflow
Ignore brackets and operations 3
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Accounting 2023 46 Paper 1
5.3.1 Calculate: Taxation paid
WORKINGS ANSWER
1 085 000 – 124 000 – 354 000
607 000
one part correct
OR
–1 085 000 + 124 000 + 354 000
4
5.3.2 Calculate: Dividends paid
WORKINGS ANSWER
(820 000 x 0.45) twee punte
210 000 + 369 000 OF 579 000
one mark one mark one mark one part correct
210 000 + 631 400 – 262 400
see 3.1.3
4
5.3.3 Calculate: Proceeds from sale of fixed assets
WORKINGS ANSWER
8 865 000 – 1 360 000 + 785 000 – 8 878 000
OR 588 000
one mark one mark one mark one mark one part correct
8 878 000 + 1 360 000 – 785 000 – 8 865 000
5
5.3.4 Calculate: Funds used for the repurchase of shares
WORKINGS ANSWER
one mark one mark one mark one mark
20 000 x R13,65 OR 182 000 + 91 000 273 000
one part correct
20 000 x 9,10 20 000 x 4,55
2
TOTAL MARKS
35
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Accounting 2023 47 Paper 1
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Accounting 2023 48 Paper 1
QUESTION 6
6.1
6.1.1 Internal auditor 6.1. Director
3
6.1.2 Independent auditor 6.1. Cash Flow Statement
4
4
6.2.1 (i) Calculate the mark-up % for the year
9 000 000 – 5 625 000 x 100
5 625 000
two marks
3 375 000 x 100 = 60% Operation, one part correct
5 625 000 4
(ii) Calculate the % return on shareholders' equity
931 000________ x 100
½ (6 450 000 + 7 500 000 )
= 931 000_ x 100 = 13,4% Operation, one part correct
6 975 000 5
three marks
(iii) Calculate the net asset value per share
7 500 000 x 100
700 000
= 1 071,4 cents per share/ R10,71 per share Operation, one part correct 3
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Accounting 2023 49 Paper 1
6.2.2 Calculate the missing amounts in the Cash Flow Statement
represented by letters (a) to (d). Indicate whether the amount is an
inflow or outflow.
No Workings Answer
(a) Bal 18 000 I/tax 399 000
Bank 349 000
Bal 32 000 (349 000) 5
Operation, one part correct
and the answer must be in
brackets
18 000 – 399 000 + 32 000 OR
– 18 000 + 399 000 – 32 000 mark line
(b)
4 326 000 + 380 000 – 3 357 000 –
1 489 000 OR 140 000
Operation, one part correct
1 489 000 + 3 357 000 – 380 000 – and the answer must be 5
4 326 000 mark line without brackets
(c)
5 950 000 + 425 000 – 5 200 000
1 175 000
Operation, one part correct
OR and the answer must be 4
without brackets
100 000 x 11,75
(d)
(587 500)
50 000 x 11,75 Operation, one part correct
and the answer must be in 3
brackets
6.2.3 (i) The total dividends for the financial year.
201 500 + 105 000 – 71 500 = 235 000 one part correct
OR
4
one mark one mark one mark one part correct
1 250 000 + 931 000 – 162 500 – 1 550 000 = 468 000
(ii) The balance of the loan on 30 June 2022.
950 000 + 850 000 = 1 800 000 OR
7 500 000 x 0,24 = 1 800 000
2
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Accounting 2023 50 Paper 1
6.2.4 The Cash Flow Statement highlights some important decisions
taken by the directors. Explain TWO of these crucial decisions.
Quote figures to support your answer. Explain how these decisions
would benefit the company.
TWO decisions with figures
Explanation of decisions benefiting the company
Decisions (with figures) Explanation of benefits
Fixed assets purchased for Improve profit-earning capacity/existing
R3 357 000 tangible assets may be obsolete.
Issue of additional shares for To finance the purchasing of tangible
R1 175 000 assets.
Buy back of shares for Keeps existing shareholders happy/
R425 000 Dissatisfied shareholders can leave the
company.
Increase in loan by R850 000 To finance the fixed assets/ purchases
of tangible assets.
6
TOTAL MARKS
45
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Accounting 2023 51 Paper 1
QUESTION 7
7.1 Complete the Note for Reconciliation between net profit before tax
and cash generated from operations for the year ended 30 June
2022:
Net profit before tax
Adjustment in respect of:
Depreciation 16 645
Interest on loan 120 000
Operating profit before changes in working
capital 4
7.2.1 Calculate: Taxation paid
WORKINGS ANSWER
197 600 – 4 000 – 10 375 183 225 *
4
7.2.2 Calculate: Fixed assets purchased
WORKINGS ANSWER
16 645 + 19 430+ 1 541 940 – 944 800 633 215 *
6
7.2.3 Calculate: Shares issued
WORKINGS ANSWER
100 000 x R15 R1 500 000
2
7.2.4 Calculate: Funds used for the repurchase of shares
WORKINGS ANSWER
(10 000 x R16.00) R160 000
(10 000 x R12,50 + 10 000 x R3,50) 2
7.2.5 Calculate: Net change in cash and cash equivalents
WORKINGS ANSWER
Net change in cash and cash equivalents 239 400
Cash and cash equivalents at the beginning (150 50
(153 000 – 2 500) 0)
Cash and cash equivalents at the end 88 900 4
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Accounting 2023 52 Paper 1
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Accounting 2023 53 Paper 1
7.3.1 Calculate: Earning per share
WORKINGS ANSWER
322 400 X 100*
190 000 1 169,68 cents or 170
one part correct
must be cents
4
7.3.2 Calculate: Debt-equity ratio
WORKINGS ANSWER
350 000 : 2 499 900 0,14 : 1
or 0,1 : 1
one part correct
must be in ratio: 1 3
7.3.3 Calculate: Return on average capital employed
WORKINGS ANSWER
640 000 Two marks 25,4% ☑
520 000 + 120 000 X 100* or 25,40%
½ (2 849 900 + 2 187 500 ) 1 one part correct
must be in %
5 037400
2 518 700 two marks 6
TOTAL MARKS
35
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Accounting 2023 54 Paper 1
QUESTION 8
8.1 Calculate the following financial indicators on 28 February 2022:
% operating expenses on sales
WORKINGS ANSWER
1 859 000 x 100* 22%
8 450 000 one part correct
2
Dividend per share
WORKINGS ANSWER
18 cents + 22 cents
40 cents
one part correct
3
Debt equity ratio
WORKINGS ANSWER
1 950 000 : 9 576 600 0,2:1
one part correct
3
Net asset value per share
WORKINGS ANSWER
9 576 600 x 100* 987 cent
970 000 one part correct
3
% return on average shareholders' equity
WORKINGS ANSWER
975 500 x 100*
½ (9 576 600 + 7 350 000) 11,5% *
16 926 600 two marks one part correct
8 463 300 three marks
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Accounting 2023 55 Paper 1
8.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY
2022
Figures are NOT required in shaded areas.
For use of reversed signs, ensure that only one option is consistently used
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
Interest paid
Taxation paid
(– 27 650 + 474 500 – 19 180 ) (427 670) *
Be aware of signs reversed, use of brackets or ledger account formats
Dividends paid (133 200 + 180 000 )
OR: 133 200 + (393 400 – 213 400) (313 200) *
Be aware of signs reversed & use of brackets or ledger account formats 7
CASH FLOW FROM INVESTING ACTIVITIES
CASH FLOW FROM FINANCING ACTIVITIES 1 151 000 *
Shares issued (200 000 x 12) 2 400 000
Shares repurchased
9 600 000 / 1 000 000 = 9,60
(324 000 )*
288 000 + 36 000
(30 000 x 9,60) + (30 000 x 1,20)
Loan repaid 9 (925 000)
NET CHANGE IN CASH AND CASH EQUIVALENTS 115 300
CASH AND CASH EQUIVALENTS AT BEGINNING (76 800)
18 400 – 95 200
CASH AND CASH EQUIVALENTS AT END 3 38 500
*one part correct and must indicate correct operation & correct use of brackets;
19
TOTAL MARKS
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Accounting 2023 56 Paper 1
QUESTION 9
9.1 ORDINARY SHARE CAPITAL
AUTHORISED
700 000 ordinary shares
ISSUED
Ordinary shares at the beginning of
500 000 4 500 000
the year
200 000 shares issued during the year 2 500 000
Balancing amount
shares repurchased during the year (300 000)
(30 000)
(x R10 ) one part correct
670 000 Ordinary shares at the end of the
Operation; one 6 700 000
year
part correct 7
9.2 Calculate the missing figures indicated by (a) to (g) in the Cash Flow
Statement.
NOTE: Indicate the correct flow of cash in the finale answer.
Calculation Answer
350 000 + 24 000 + 36 000
(a) OR mark the line (410 000)
One part correct
–350 000 – 24 000 – 36 000
30 000 x 11,50
(b) OR (345 000)
One part correct
30 000 x 10,00 + 30 000 x 1,50
(c) 2 500 000
See 9.1
(d) 1 680 000 – 600 000 1 080 000
(e) 125 000 + (f) 315 000
(f) (220 000) + 30 000 (190 000)
(g) 125 000
14
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Accounting 2023 57 Paper 1
9.3 The Cash Flow Statement highlights some significant (important)
decisions taken by the directors over the past year. Explain TWO of these
significant decisions. Quote figures to support your answer.
Any TWO decisions Quoting of figures
Purchasing of fixed assets for new branches R2 285 000
Issue of new share: R2 500 000 see 3.1
Acquisition of loan: R1 080 000 see (d) above
Fixed deposit matured: R550 000
Explain how these decisions would benefit the company and the
shareholders.
Any valid explanation on benefits to the company
Expanding the company leads to more profits in the future/ Improves
operating efficiency – business can earn greater profits.
Issue of new shares will enable the business to use funds for expansion/
decrease the overdraft/purchased fixed assets
Financial asset matured resulted to pay off bank overdraft, R220 000. 6
9.4 At the AGM, the directors announce that the company will:
Conduct training of all employees in terms of morals and ethics
Donate funds towards cleaning up the environment
Explain why this is necessary although this will cost the company a lot of
money each year. State THREE points.
Any THREE valid points Part-marks for unclear / incomplete answers
Will create better working environment
Corporate responsibility towards the community – increase goodwill
Published financial statements will look good
Encourages new shareholders – favourable effect on share price
Company gives to the community
Improves company’s image / profitability
This is a form of publicity
King Code advises this.
Tax deductable
6
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Accounting 2023 58 Paper 1
9.5 Calculate the acid test ratio:
1 320 000
= 1 760 000 – 440 000 : 880 000
= 1,5: : 1 One part correct; show as x : 1
4
Calculate the net asset value per share:
7 705 000 x 100
670 000 see 3.1
= 1 150 cents One part correct
3
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40
QUESTION 10
10.1
10.1.1 C
10.1.2 D
10.1.3 A
3
10.2.1 Cash generated from Operations
Net profit before tax (1 120 800 + 2 615 200) 3 736 000
Depreciation 338 300
Interest expense 963 000
Profit before changes in working capital
Net change in working capital
Change in inventories (717 000 – 471 000) 246 000
Change in accounts receivables (563 000 – 489 000) (74 000)
Change in accounts payable (612 000 – 570 000) (42 000)
Cash generated from operations 5 167 300 7
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Accounting 2023 59 Paper 1
10.2.2 CASH EFFECTS OF OPERATING ACTIVITIES
Cash generated from operations 5 167 300
Interest paid (338 300)
Income tax paid
(– 12 300 + 1 120 800 – 9 900 ) Or (1 098 600)
(+12 300 - 1 120 800 + 9 900 )
Dividends paid (1 200 000 x 35c = 420 000 + 150 000)
OR (150 000 + 733 600 – 313 600 ) Or (570 000)
(- 150 000 - 733 600 + 313 600 ) 9
10.2.3 WORKINGS ANSWER
Calculate: Fixed Assets purchased
Signs can be reverse/use of brackets fine/T- account
1 320 000
7 110 000 + 685 700 + 338 300 – 6 814 000 one part correct
5
Calculate: Funds used to repurchase shares
80 000 x 7,30 584 000 + 52 000 636 000
one part correct 4
Calculate: Net change in cash and cash equivalents
112 000 + 36 400 148 400
2
10.2.4 WORKINGS ANSWER
Calculate: Debt-equity ratio
5 400 000: 8 320 000 0,7 : /0.65:1
one part correct
2
Calculate: % return on shareholders’ equity
2 615 200 _______ x 100
½ (8 320 000 + 7 500 000) 1 33.1 %
7 910 000 one part correct and ÷ 2
4
Calculate: Dividend pay-out rate
35c one mark + 28c one mark
63/232 x 100 27,2%
one part correct
4
TOTAL MARKS
40
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Accounting 2023 60 Paper 1
QUESTION 11
11.1 CASH GENERATED FROM OPERATIONS
Net profit before Income tax 100 000
Adjustments for : Depreciation 58 000
Interest expense 27 380
Changes in working capital
Decrease in inventory 12 000
Increase in debtors (59 720)
Increase in creditors 9 850
CASH GENERATED FROM OPERATIONS 147 510 5
11.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
CASH EFFECTS OF OPERATING ACTIVITIES
Cash generated from operations
Interest paid
Income tax paid
(37 000)
(10 000 + 4 000 + 23 000 )
Dividends paid 32 000
(54 000)
(22 000 + 60 000 – 28 000 )
CASH EFFECTS OF INVESTING ACTIVITIES
Fixed assets purchased
(204 000)
(549 000+ 58 000 + 17 000 – 420 000 )
Proceeds from disposal of fixed assets 17 000
CASH EFFECTS OF FINANCING ACTIVITIES
Proceeds from shares issued 238 000
Decrease in loan (40 000)
NET CHANGE IN CASH AND CASH EQUIVALENTS 40 130
Cash and cash equivalents at the beginning of the year (9 000)
Cash and cash equivalents at the end of the year 31 130 17
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11.3 Calculate the following financial indicators on 31 December 2020:
Acid Test Ratio
306 450 – 61 000 = 245 450
(210 320 + 31 130 + 4 000) : (120 550 + 10 000 + 22 000)
245 450 * : 158 400 *
130 400+28 000
= 1,55 : 1 or 1,6 : 1 operation one part correct
5
Debt/equity ratio
130 000 : 751 000
= 0,17 : 1 or 0,2 : 1 operation one part correct
3
Return on Shareholders’ equity (ROSHE)
77 000 x 100 = 12,3% operation one part correct
½ (496 000 + 751 000 )
623 500
5
TOTAL MARKS
35
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Accounting 2023 62 Paper 1
QUESTION 12
12.1 CASH GENERATED FROM OPERATIONS
Net profit before Income tax 180 600
Adjustments for : Depreciation 66 900
Interest expense 44 380
Changes in working capital
Decrease in inventory 17 000
Increase in debtors (82 950)
Increase in creditors 40 650
CASH GENERATED FROM OPERATIONS 6
12.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
CASH EFFECTS OF OPERATING ACTIVITIES
Cash generated from operations
Interest paid
Income tax paid
(66 500)
(39 600 + 12 400 + 14 500 )
Dividends paid 37 000 two marks
8 (56 000)
(19 000 + 69 000 – 32 000 )
CASH EFFECTS OF INVESTING ACTIVITIES
Fixed assets purchased
5 (412 100)
(1 436 000+ 277 000– 66 900 – 1 234 000 )
Proceeds from disposal of fixed assets
CASH EFFECTS OF FINANCING ACTIVITIES
Proceeds from shares issued
Decrease in loan
NET CHANGE IN CASH AND CASH EQUIVALENTS (74 850)
Cash and cash equivalents at the beginning of the year 59 450
4 Cash and cash equivalents at the end of the year (15 400) 17
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12.3. Calculate the following financial indicators on 28 February 2022
1
Acid Test Ratio
312 050 – 60 000
252 050 : 219 950
= 1,1 : 1 or 1,2 : 1 operation one part correct
4
Debt/equity ratio
830 000 : 2 800 000
= 0,29 : 1 or 0,3 : 1 operation one part correct
3
Return on Shareholders’ equity (ROSHE)
141 000 x 100
½ (2 800 000 + 2 600 000 )
2 700 000
= 5,2% operation one part correct
5
TOTAL MARKS
35
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Accounting 2023 64 Paper 1
QUESTION 13
MOEKETSI LIMITED
13.1. Prepare the following note cash generated from operations
1
Net profit before tax 995 900
Adjustment for :
Depreciation 144 000
Interest on loan/expense 94 500
Profit before changes in working capital 1 234 400
check operation
Changes in Working capital 100 600
check operation
Increase in inventory (280 000 – 245 000) (35 000)
Decrease in debtors 141 600
(228 400 – [348 000 + 22 000]) one part correct
370 000 – 2 marks
Decrease in creditors
(215 000– [200 000 + 9 000] ) (6 000)
209 000 – 2 marks
Cash generated from operations 1 335 000
Check operation
14
13.2 Calculate the amount that would appear in the Cash Flow
Statement for:
13.2.1 Taxation paid
+ 268 890+ 44 400 + 23 110 = 336 400 one part correct
– 268 890 – 44 400 – 23 110 = – 336 4000
(268 890) (44 400) (23 110) = (336 400)
Accept alternative presentations (signs reversed / ledger account)
4
Dividends paid
185 000 + (387 000– 222 000 ) = 350 000 one part correct
OR 185 000 + 165 000 two marks = 350 000
Accept alternative presentations (signs reversed / ledger account) 4
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Accounting 2023 65 Paper 1
13.2.3
Cash flows from financing activities (2 414 000)
Check operation
Proceeds from the issue of share capital
4 550 000 – 260 000 + 5 010 000 720 000
Repurchase of shares (40 000 x R7,40) (296 000)
Repayment of long-term borrowings (2 838 000) 8
Net change in cash equivalents 316 550
Cash and cash equivalents – beginning
(18 400 – 211 500) (193 100)
Cash and cash equivalents – end 123 450
5
TOTAL MARKS
35
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I
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A R
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QUESTION 1
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Accounting 2023 67 Paper 1
1.1
1.1.1 C
1.1.2 D
1.1.3 A
3
1.2 JESSIE LTD
1.2.1 Mike has informed the board of directors that he has identified and
rectified a number of incidents of fruitless and wasteful expenditure in
the company's records. Provide TWO financial indicators that justify the
success of Mike's strategies. Quote figures and trends.
Financial indicator Figures and trends
% operating expenses on sales has decreased (from 27,8%) to 14,8% /
by 46,8% / by 13% (points)
% net profit on sales has increased (from 10,3%) to 24,7% / by 139,8% /
by 14,4% (points)
* Mark-up % is a deliberate decision; ignore if mentioned.
Max -1 for superfluous additional financial indicators mentioned. 4
1.2.2 Explain whether the change in the dividend pay-out rate in 2022 will
benefit the company or not. Quote figures and trends.
Dividend pay-out rate decreased (from 97,6%) to 46,6% / by 52,3% / by 51%
(points).
OR: Retained 53,4% of earnings this year (compared to 2,4% last year)
OR: Retained 51% more than last year.
Explanation part marks for incomplete / partial / unclear response
Response to benefit company: They retained funds for future expansion /
Intentions to increase productivity and maintain growth achieved this year.
Response for no benefit to the company: Consider reasons and award marks
accordingly e.g. if investors are discouraged from investing it could affect the market
price of the shares. 3
Sue Lee, a shareholder who owns 5 000 shares, is satisfied with the
dividends she has received despite the change in the dividend policy.
Explain why she feels this way. Quote figures and trends.
Explanation figures and trends
NOTE: Candidates might mention other financial indicators to compensate for the decline in
the dividend pay-out rate. Do not penalise for superfluous indicators in this sub-question.
The DPS of 190c in 2022 is higher than the 120c received in 2021 /
70 cents per share more this year / 58,3% more.
She earned R3 500 more this (R9 500-R6 000 or 5 000 x 70c).
Dividend yield was 9.9% or 10,3% (190/1920 or 190/1841) / in
comparison to the value of the share she is earning a good return of 9,9%
/ 10,3% 3
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Accounting 2023 69 Paper 1
1.2.3 Some shareholders feel that Mike was reckless when he increased the
loan by R3,35 million soon after his appointment as CFO. Explain why
you do not agree with them. Provide TWO points, with financial
indicators, figures and trends.
Indicator: Debt/equity ratio
Figures & trends: increased (from 0,2 : 1) to 0,3 : 1 / by 0,1 : 1
Indicator: % return on average capital employed (ROTCE)
Figures & trends: increased / improved (from 7,5%) to 16,9% / by 9,4%
(points) / by 125,3%
Explanation:
Still lowly geared / low financial risk / does not rely too much on borrowed
capital.
The company enjoys positive gearing / ROTCE is greater than interest
rate of 7,2% / making effective use of loan to generate profits. 6
1.2.4 Refer to Information C and D.
Calculate Brent's % shareholding on 28 February 2022.
WORKINGS ANSWER
(300 000/4)
300 000 + 75 000 x 100 28,3%
1 325 000 one part correct
5
Brent and Kerina decided that they would combine their votes at the
upcoming annual general meeting (AGM).
Explain ONE possible reason for this decision, with figures.
Accept figures calculated above Part marks for partial / unclear responses
Figures Explanation (mention whether their combined shares are >50% or not)
Combining their shares gives them a clear majority of 54,7% (28,3% +
26,4%) / the other shareholders own 45,3% of the shares / they would enjoy
more than 50% of the voting rights / they will be in a position to have more
control over major decisions / influence decisions.
If combined shares are calculated as less than 50% mark explanation
accordingly e.g. they still do not own more than 50% / they are not majority
shareholders / their influence on the company might increase / this is not
going to help them in controlling decisions at the AGM. 3
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Accounting 2023 70 Paper 1
As an existing shareholder, explain why you would be concerned about
the strategy of Brent and Kerina. Provide TWO points.
Very open-ended: accept any valid points Responses will differ if combined
votes are <50%
TWO different possible concerns Part marks for partial / unclear
responses
Whether they will use their powers to benefit the company / have other
unethical motives (e.g. corruption)
Whether they want to gain financially through high directors fees in future
Their past experience in directing a company: their skills and knowledge
Their understanding of the responsibility / powers of majority shareholders
Their willingness to serve on the Board / sacrifice their time
Their attitude: Whether they will support the CEO, CFO and other
directors / whether this is an amicable decision or an aggressive effort to
gain control / whether they will work as a team with a friendly approach or
not
Quality of their contributions / issues they might have raised at previous
AGMs
Effect on the company if one of them discontinues the coalition / sells
shares and is no longer a shareholder / possibility of instability in
decision-making
Examples of responses for <50% shareholding: minority shareholders
have rights and are able to express opinions; although not a majority greater
combined % is still significant 4
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Accounting 2023 71 Paper 1
1.2. Refer to Information A, B and C.
5
Explain THREE points, relating to the financial results of the company,
besides those mentioned above that the Remunerations Committee can use
to justify offering Mike an improved package to remain at Jessie Ltd. Quote
relevant financial indicators, figures and trends.
part marks for incomplete / partial / unclear response
NOTE: Explanations could be common to different financial indicators
Financial or other Explanation of evidence: 1. 2. 3.
indicator e.g. trend and figures / improvement / additional comment /
1. 2.3. insight to justify improved package / benefit to company (could
be implied)
Mark-up % Increased (from 60%) to 70% and they were still able to
increase gross profit / customers are confident about
product quality
Earnings per share Increased to 408c / (from 123c) to 408c / by 231,7%, is a
(EPS) clear indication of improved productivity or profitability.
ROSHE Increased to 20,7% / (from 7,3%) to 20,7% / by 13,4%
points / 183,6%. Shareholders would be pleased with the
improved returns as well as it being better than interest on
alternative investments (4,5%)
Solvency ratio Although this declined (from 5,3:1) to 3,6:1 this was due to
the fact that large loans had been received and the funds
were positively used in the company
Net asset value Improved to 1 841c / (from 1 685c) to 1 841c / by 156c /
per share (NAV) 9,3%. An improvement in growth (assets > liabilities)
The market value Increased to 1 920c / (from 1 540c) to 1 920 / by 380c / by
(market price) 24,7%. A clear indication of increased demand for shares /
Treat as a investor confidence.
separate point
Other indicators (which might not include traditional financial indicators):
Issue price of Shares issued at R21,00 which is higher than the market
new shares value. This indicates that shareholders were happy to
invest more, taking into account the trends.
Offer of additional Additional 265 000 shares issued at R21 generated
shares / ‘rights additional capital of R5,6m / shareholders were confident
issue’ of higher returns in future / shares could be issued to Mike
to motivate him to stay in the company. 9
TOTAL MARKS
40
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Accounting 2023 72 Paper 1
QUESTION 2
2.1 2.1.1 D Return on equity
2.1.2 A Liquidity Accept abbreviations if
understandable
2.1.3 B Gearing
2.1.4 C Solvency 4
2.2 FLEXI LTD AND BROOM LTD
2.2.1 Profitability:
Quote and explain TWO financial indicators to show which company is
managing its expenses more efficiently, and is thereby more profitable.
Quote figures and trends. part marks for incomplete / partial / unclear responses
Any TWO financial indicators (explaining trend) from Broom Ltd with figures
If figures are shown for Flexi Ltd, award marks to names of indicators (max 2 marks)
Quote figures and trends for any two indicators below
% Operating expenses on sales improved / decreased (from 17%) to 13,6% /
by 20% / by 3,4% points (accept 3,4%)
% OP on sales increased (from 20,5%) to 24,2% / by 18% / by 3,7% points
(accept 3,7%)
% NP on sales increased (from 16%) to 19,6% / by 22,5% / by 3,6% points
(accept 3,6%)
All indicators show an improvement in profits / expenses well managed. 4
2.2.2 Dividends, earnings & returns:
Comment on the dividend pay-out policy of Flexi Ltd. Explain why this is
an irresponsible change in policy. Provide TWO points. Quote figures
and trends.
Trend (with figures)
part marks for incomplete / partial / unclear responses (e.g. mentioning only DPS or only EPS)
Responses for 2 marks for figures & trends:
The pay-out rate increased (from 59%) to 115% / by 94,9% / 56% points
(accept 56%)
In 2021 they paid DPS of 92c compared EPS of 80c (i.e. 12c from retained
income).
Although the EPS dropped from 138 cents to 80 cents (by 58 cents) / DPS
was 10 cents more than last year (82c to 92c) and DPS now exceeds EPS
(by 12c / 92c to 80c).
Explanation / comment on decision
part marks for incomplete / partial / unclear responses; figures may be included in the explanation
Expected comments – any one valid comment for two marks e.g.
Company is depleting Retained Income reserve (which can be more
effectively used to rebuild profitability)
The company is trying to keep shareholders happy / trying to influence
market price of shares by increasing dividends / equalizing dividends over
several years. 4
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Accounting 2023 74 Paper 1
Comment on the % return on shareholders' equity of EACH company.
Quote figures and trends.
Financial indicator with figures & trend
Flexi Ltd:
ROSHE dropped from 12,2% to 7,6% / by 37,7% / 4,6 % points (accept 4,6%)
Broom Ltd:
ROSHE improved from 10,7% to 14,1% / by 31,8% / 3,4% points (accept
3,4%)
Additional comment in each case
Figures may be included in the explanation; candidates are NOT required to mention a specific figure for the
alternative rate; do not penalise for incorrect rates on investments (as these could vary from 4% to 14%)
Flexi Ltd: Refer to / compare alternative investments e.g. fixed deposit
Broom Ltd: Refer to / compare alternative investments e.g. fixed deposit
Comment for 1 mark only (to cover both companies):
If candidates only mention increased / decreased / good / bad without
alternative investments. 4
A shareholder feels that the earnings per share (EPS) in Broom Ltd are
better than that in Flexi Ltd. Explain why you agree with him. Quote
figures or calculations.
To get full marks, must compare EPS to Value of share (MP / NAV) for Flexi Ltd with figures
part marks for incomplete / partial / unclear responses
To get full marks, must compare EPS to Value of share (MP / NAV) for Broom Ltd with figures
part marks for incomplete / partial / unclear responses
Expected responses for four marks (two marks per company):
EPS to NAV is 7,4% in Flexi Ltd and 11,4% in Broom Ltd
EPS to MP for 2021 is 8,1% in Flexi Ltd (80/990) and 10,9% (72/660) in
Broom Ltd
EPS on MP for 2020 is 7,1% in Flexi Ltd (80/1130) and 11,7% (72/615) in
Broom Ltd
Flexi Ltd earned 80c on a share valued at 990c/1 081c while Broom Ltd
earned 72c on a share valued at 660c/632c.
OR: Other comparisons for each company for only one mark in each company:
Flexi Ltd EPS decreased from 138c to 80c whilst Broom increased from 65c to
72c
Flexi EPS is calculated on a smaller number of share (700 000) so it looks good;
Broom’s EPS is calculated on a larger number of shares (1 500 000) 4
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Accounting 2023 75 Paper 1
2.2.3 Shareholding of Bob Yates in both companies:
Comment on the price paid for the shares repurchased by
Flexi Ltd. Provide TWO points. Quote figures.
Figures may be included in the explanation
Any TWO valid points (2 marks each), at least one of which must be related to a financial
indicator with figures:
Compare with figures R13,20 to MP of R9,90 or R11,30
Compare with figures R13,20 to NAV of R 10,81 or R11,28
Compare with figures R13,20 to any other value (e.g. average issue price)
Any other general comment without figures e.g. compromised the funds
(liquidity) / Bob abused his status to enrich himself / MP also shows a
decreasing trend / no demand for shares / could drop the price further
(apply part marks for simple or incomplete or partial answers). 4
Calculate the number of shares that Bob purchased in Broom Ltd with
the money he received from the share buyback at Flexi Ltd.
WORKINGS ANSWER
150 000 x 13,20
1 980 000 300 000 shares
R6,60
one part correct
Explain the effect of the share repurchase on the % shareholding of Bob
Yates in EACH company. Quote figures and trends.
Explanation on % shareholding Comparison in Flexi Ltd with figures
Explanation on % shareholding Comparison in Broom Ltd with figures
Be aware of combined explanation with figures
Flexi Ltd:
Bob was the majority shareholder (51%)
He now has only 40,5% of the shares (283 500 / 700 000) so he has lost
majority status.
Broom Ltd:
Bob had 41,8% of the shares 460 000 + 300 000
He now has 50,7% of the shares (760 000 / 1 500 000) see 3.2.3
He is now the majority shareholder (or based on calculation in 3.2.3)
OR: There was no share repurchase in Broom Ltd, so that would not affect his
% shareholding which was 41,8% (two marks)
OR: As he bought 300 000 shares in Broom Ltd, he is now the majority
shareholder (50,7%). 4
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2.2.4 Financing strategies and gearing:
Explanation of decisions taken by the directors of Broom Ltd (two
marks):
Any ONE decision Figure
Increased the share capital by R2 640 000 or (400 000 shares) OR
Decreased the loan by R400 000 OR
Net increase of R2 240 000 to total capital employed
Explain ONE benefit (two marks):
Explanation of benefit Award part marks for partial / unclear / incomplete responses
All the money generated is spent on lasting items (fixed assets) which could
generate further profits in future
Improved debt/equity ratio / reduced debt/equity (low risk) / improved
creditworthiness in future
Improved % return on average capital employed. 4
Explain how the decisions taken by Flexi Ltd on its capital employed
has affected the risk and gearing of the business. Quote TWO financial
indicators (with figures and trends).
TWO financial indicators (with figures)
Debt/equity is now / increased (from 0,4 : 1) to 1,1 : 1 / by 0,7 : 1
ROTCE is now / decreased (from 16,1%) to 10,2% / by 36,6% / by 5.9% points
(accept 5,9%)
Explanation could be combined with figures or separate; both risk & gearing must be
mentioned. Ignore reference to % ROSHE (i.e. do not penalise)
Award part marks for partial / unclear / incomplete responses
High risk due to increase in loan
The business in experiencing negative gearing (ROTCE is lower than
interest rate of 13%) 6
TOTAL MARKS
40
QUESTION 3
3.1
3.1.1 CP
3.1.2 E
3.1.3 B
3.1.4 A 4
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3.2 SCI-FI GEEKS LTD
3.2.1 The directors are satisfied with the improvement in the current ratio and
the acid-test ratio. Explain why you would disagree with them. Quote
TWO financial indicators in your response.
Financial indicators Figures Explanation part marks for incomplete answer
The stock holding period increased from 32 days to 102 days (or 70 days).
Average debtors' collection period increased from 31 days to 46 days (15
days)
The difference between current ratio (2,4 : 1) and acid test ratio (1,0 : 1)
reflects that there is an over-investment in stock.
Any ONE valid explanation; part marks for incomplete / unclear explanation
Too much liquid assets (cash) tied up in stock (stock piling)
High stock volumes create security problems
Stock can easily become obsolete due to advancements in technology
rendering the stock unsaleable. 6
3.2.2 Comment on the dividend per share over the two years. Quote figures.
ONE valid comment with figures
The DPS dropped from 90 cents (in 2020) to 72 cents (in 2021)
Shareholders received 18 cents less; or a 20% drop. 2
Explain the change in the dividend payout rate. Quote figures.
Explanation
The dividend pay-out rate increased from 69% (90/130) to 136,5% or
72/58
Give a reason for this change.
ONE valid point (with figure)
Directors attempted to please the shareholders for the low profitability
Compensation for using funds retained in previous financial years.
No plans for growth / expansions (no need to retain additional funds) 4
A shareholder felt that they should be satisfied with the dividends they
received as it is better than last year. Explain why you agree with him.
Quote figures.
Explanation figure
EPS dropped from 130c to 58c (by 72 cents / 55%) but DPS dropped from 90c to
72c (by 18 cents / 20%)
If the policy was maintained at 69% of EPS, they would have received 40 cents.
The drop in the market price from 540 cents to 410 cents reflects a dividend yield
(DPS/MP) of 17,7% this year compared to 16,7% last year. 3
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3.2.3 Comment on the risk and gearing for both years. Quote TWO financial
indicators (with figures).
Debt/equity ratio increased from 0,3 : 1 to 0, 4: 1 (or by 0,1 : 1)
ROTCE decreased from 39% to 23,2% (or 15,8%)
Any valid comment on the above part marks for partial answers
Increased borrowing not effectively used to increase / improve profitability
Although still positively geared (ROTCE exceeds interest rate), the drop in
profitability / downward trend is a concern.
Although there is low financial risk, the company is more reliant on own
capital 6
3.2.4 Existing shareholders are dissatisfied that the new shares issued on
1 April 2020 were sold to the CEO, Ida Shark. Give TWO reasons why you
consider their feelings to be justified. Quote figures.
TWO reasons financial indicators and figures
The CEO bought the shares at R1,50 each (375 000/250 000); exercising
undue influence over the issue price; receiving preferential treatment;
against the Companies Act which requires that shares be advertised; lack
of transparency;
The market price is 410 cents; NAV is 332 cents; Company lost out on
potential additional funding as shares could have been sold at a price in
that range, or on the stock exchange. 6
3.2.5 The Cash Flow Statement reflected a positive change in R980 000.
Provide TWO points why this should still be a concern to directors.
Quote figures.
TWO points Figures
Cash flow from operating activities is R148 080
Large increase in loan, R651 500 / high interest payment R232 000
contributed to negative cash flow from operations
Very high payment for dividends, R925 000
Cash from investing activities, R101 580
Additional shares issued, R375 000 4
TOTAL MARKS
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35
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QUESTION 4
4.1 Profitability / Operating efficiency:
Identify and explain which company has been more efficient in controlling its
operating activities. Quote TWO financial indicators.
Nigel Ltd
If Vrede Ltd is identified give max 1 mark to each indicator name only (max 2)
TWO indicators: name of indicators figures (comparison or implied)
-1 for additional incorrect financial indicators provided (max -1)
% Operating expenses on sales 23,0% is lower than that of Vrede 23,9% / diff:
0,9% points
% Operating profit on sales 19,9% is better than Vrede 13,6% / diff: 6,3 % points
% Net profit on sales 9,2% is better than Vrede Ltd 7,0% / diff: 2,2% points 5
4.2 Liquidity:
Identify and explain which company has better liquidity financial indicators. Quote
TWO financial indicators.
Vrede Ltd or Nigel Ltd Names of indicators with figures
current ratio; 1,8 : 1 (Vrede) or 1,2 : 1 (Nigel) / diff: 0,6 :1
acid test ratio; 0,7 : 1 (Vrede) or 0,5 : 1 (Nigel) / diff: 0,2 : 1
stock turnover rate 11 times (Vrede) 23 or times (Nigel) / diff: 12 times 3
Explain ONE concern you have over the liquidity of the other company. Quote ONE
financial indicator.
Explanation company not mentioned above (with financial indicator and figures)
Nigel Ltd: Acid test ratio 0,5 : 1 or current ratio 1,2 : 1 might indicate poor
management of working capital or cash flow / difficult to meet short term debts /
stock turnover rate of 23 times might indicate stock is too low to meet demand
Vrede Ltd: Stock turnover rate 11 times (decreased from 12) / or acid-test ratio
of 0,7 : 1 could indicate higher stock levels / lower demand for product 2
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4.3 Dividends:
Comment on the difference between the dividend pay-out policies
implemented by the directors of the two companies and explain ONE
possible reason for EACH of their decisions in their respective
companies. Quote figures or indicators.
COMMENT ON POLICIES POSSIBLE REASON
(with figures) FOR DECISION
Dividend pay-out rate is Trying to keep shareholders
74,8% / company gives satisfied with their investment
VREDE 74,8% of EPS to To allow for expansion / growth
LTD shareholders Decided to hold funds in
Comment They only retain 25,2% as reserve for contingencies
Figure/s a reserve for the company (conservative approach)
+ Paid 190c DPS of 254c Strike a balance between
Reason EPS (75%) / retained 64c appeasing shareholders and
for future growth ensuring continuity /
sustainability
Dividend pay-out rate is Trying to keep shareholders
NIGEL 107,4% / used retained satisfied with their investment
LTD income to pay dividends Directors want to create
Comment Dividends of 440c exceeds positive image of company or
Figure/s the EPS of 410c / negative its directors (for re-election)
+ effect of 30c Aggressive decision / attempt
Reason to convince shareholders about
strategies 6
4.4 Gearing, risk, financing and investing activities:
Explain the specific decisions taken by the directors of EACH company
that have affected gearing and risk. Quote rand amounts.
-1 for superfluous items if more than 2 decisions provided in either company (max -1)
Award one mark in each case to decision & amount:
VREDE Issued shares R9 900 000
LTD Repaid loan R2 500 000
Do not accept: Fixed assets or Investments
Award one mark in each case to decision & amount:
NIGEL Shares repurchased R7 540 000
LTD Increased loan R3 000 000
Do not accept: Fixed assets or Investments 4
Comment on the gearing and risk of Nigel Ltd. Quote TWO financial
indicators.
( Comments could be combined or separate )
Indicators (with amounts) mention / imply high risk mention / imply positive gearing
Debt/equity ratio of 1,3 : 1; high financial risk / an over-reliance on borrowed
capital / bordering on insolvency
ROTCE of 16,2% indicates positively gearing (better than interest rate of 12%);
making effective use of capital employed to generate profits. 4
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At the Nigel Ltd AGM, an angry shareholder said that the directors'
aggressive strategies would probably lead to the failure of the
company in future. Explain TWO points why the shareholder might feel
this way.
TWO valid items identified (figures not required)
Part-marks for unclear answers Accept other valid alternatives
Overall comment could be embedded in comments on strategies: candidates must
mention why these decisions could create problems for the company e.g. increase risk, poor
cash flow, could lead to big losses, poor image, unsettle shareholders
Shares repurchased (R7 540 000) – big cash flow problems / creating false impression
of the share value (downsizing) / did not check to solvency ratio
Increase in loan (R3 000 000) – placing the company at high financial risk / at risk of
increase in interest rates
Disposal of assets (R730 000) – reducing productive capacity
Redeeming fixed deposit (R150 000) – investment opportunity lost / more should have
been invested / should there be any unforeseen setbacks in the future, the business
could will find it difficult to meet all financial obligations (solvency issue)
The company focuses on making profits rather than long-term sustainability / placing the
company at risk (solvency issues)
Also accept: high dividends (107,4% or R2,64m) affects cash flow or solvency 5
4.5 Shareholders' assessment of market prices of shares:
Explain by quoting figures or indicators and, for each company, identify a factor that
would have affected the market price of the shares. Comparison of MP to NAV is essential in
each case but may be implied. Only one figure is necessary. Part-marks for partial or incomplete answers.
Market price of R24 is below NAV of R32,95 / by R8,95
Identify factor (figures not required): Accept other valid alternatives
VREDE Low demand or reluctance to buy shares in this company / ROSHE dropped /
LTD retained income less than previous year / conservative decision making by
directors / scared to take bold decisions / poor image of company or directors
/ lack of confidence in management
Market price of R32 is better than the NAV of R23,08 / by R8,92
Identify factor (figures not required): Accept other valid alternatives
NIGEL
LTD Shares are in demand / investors have confidence in company / improved
returns (ROSHE) / high dividends or pay-out rate / risk takers / confident /
dynamic management (aggressive) / Good or positive image 6
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4. Shareholding of Jay Sonto in Vrede Ltd and Nigel Ltd:
6
Provide calculations to show the change in Jay's % shareholding in Nigel Ltd
over the financial year.
320 000 / 600 000 x 100 = 53,3% Implied comparison
Also accept: Changed (from 37,2%) to 53,3% / by 16,1% points / by 43,3%.
Comment on his % shareholding in EACH company.
VREDE LTD He is still a minority shareholder (little influence on decisions)
Any ONE point His % shareholding dropped further (from 33,3% to 22,2%)
Figures not Did not buy additional shares when shares were issued
required
If calculation is more than 50%:
He is now a majority shareholder as a result of the repurchase of the
NIGEL LTD shares / shareholding increased
Any ONE point Decrease in share capital resulted in increased % shareholding which
Figures not has made him the majority decision-maker
required If calculation is less than 50%:
He is still a minority shareholder (little influence on decisions)
His % shareholding increased / dropped 4
Calculate the total profit or loss he is currently making on his shares in EACH
company.
VREDE LTD NIGEL LTD
If candidate says that there was no profit or If candidate says that there was no profit or
loss because the shares have not yet been loss because the shares have not yet been
sold 2 marks sold 2 marks
Invested: 200 000 x 27 = R5 400 000 Invested: 320 000 x 15 = R4 800 000
Now worth: 200 000 x 24 Now worth: R320 000 x 32
R4 800 000 R10 240 000
Loss of investment: R600 000 Growth in investment: R5 440 000
OR: OR:
3 x 200 000 = R600 000 17 x 320 000 = R5 440 000
Also accept 11,1% two marks Also accept 113,3% two marks
Advise if it is wise to sell 19 000 shares in Nigel Ltd, or not.
ONE valid point (with figures) could be influenced by on profit / loss above
Part-marks cold be awarded for unclear or partial answers
Expected responses:
It is wise to sell because the share price is currently high (R32,00)
It might not be wise to sell if the share price increases above R32 in future.
He will raise R608 000 in total (19 000 x R32)
He will gain a profit of R323 000 on this sale
He will still be a majority shareholder (301 000/600 000 = 50,2%) 6
TOTAL MARKS
45
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QUESTION 5
5.1
5.1.1 B
5.1.2 C
5.1.3 A
3
5.2 LIBRA LIMITED
5.2.1 Identify TWO other liquidity indicators which also show that the
company is likely to have serious liquidity concerns in future. Explain
ONE point in EACH case (with figures).
Any TWO financial indicators with figures and explanation
Stockholding period Increased from 43 days to 78 days
Danger of stock becoming obsolete
Average debtors' collection Increased from 32.6 days to 58.9 days
period Slower collections will negatively affect the
cash flow
4
5.2.2 Comment on how the increase in the loan affected the risk and gearing
in 2021. Quote TWO financial indicators. State ONE point in EACH case
(with figures).
Financial indicator (with figures) Explanation
POINT 1 Debt/equity ratio Increased from 0,2:1 to 0,7:1 / by 0,5:1.
Higher financial risk taken by the company.
Business make more use of loans
POINT 2 ROTCE decreased from 9,1% to 6,4% / by 2,7%
Company is negatively geared as the return is lower than
interest on borrowing funds
Do not make effective use of loans 6
Explain whether the decision to purchase additional property had the
desired effect on demand for this product (with figures).
Explanation Figures
Sales has decreased by R2 574 000/ from R11 550 000 to R8 976 000
with 22,3%
Decrease in the mark-up% from 75% to 60% did not lead to an increase
in sales / 15% decrease. 3
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5.2.3 Explain why the public was not interested in buying the new shares
issued at R6,00 per share. Quote THREE financial indicators (excluding
indicators stated in QUESTION 4.2.2). State ONE point in EACH case
(with figures).
Financial indicator (with figures) Explanation
Do not have trust in the business, as shown through:
EPS decreased from 102 cent (to 54 cent) by 48 cents
DPS decreased from 90 cent (to 65 cents) by 65 cent.
Dividend pay-out rate declined from 88,2% to 46,3%
Return on average shareholders' equity decreased from 5,3% to 4,9%
Company is experiencing problems in maintaining reasonable profit levels
Shareholders not receiving reasonable returns as dividends
Below the interest earned on other investments 9
5.2.4 State TWO different points to justify their opinion. Quote figures or
financial indicators.
TWO valid points
POINT 1 Buys has given himself a 45% increase
The other directors did not receive an increase (maintained at
R600 000 each)
POINT 2 Profitability has declined over the 2 years
As indicated by the EPS from 102c to 54c; ROSHE from 5,3% to
4,9% ROTCE from 9,1% to 6,4%
4
5.2.5 Explain why the other directors were unhappy with the price paid for the
shares repurchased from Anton Buys. State TWO points. Quote
financial indicators or figures to support EACH point.
Explanation Figures
POINT 1
The shares were repurchased for R4,68/R4,89 more than
the Net asset value per share
This indicates an inflated price paid
POINT 2 The shares repurchase price is also R6,20/R5,90 more than
the market price of the shares
Unreasonable amount paid 4
Give a calculation to show whether the repurchase of these shares
affected Anton Buys' status as majority shareholder, or not.
WORKINGS ANSWER
1 240 000 x 100 50,6%
2 450 000 1 OR
OR 52,3%
1 240 000 x 100 One part correct
2 370 000 1 3
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5.2.6 Explain what is meant by good corporate governance and explain why it
is important to the shareholders.
Explanation importance to shareholders
Managing the business on sound business and ethical principles
Looking after the interest of all role players (including the community) by
being fair, equitable, transparent……
Importance for shareholders accept short incomplete answers as long it is understadible
Image of the business/goodwill
Improvement in share price
potential investors will be attracted
Trust in management
3
Explain a possible reason why Anton Buys says he will vote against the
proposal by Excellence Ltd.
ONE point
He will lose his majority control on the Board
He may also lose his CEO status
He may be investigated for negligence
He will not be able to manipulate his remuneration in future
2
Explain why you agree with the directors.
ONE valid point
He has taken irresponsible decisions; enriched himself
2
Give the directors advice on how they should handle this.
ONE valid point
Call up a special meeting of shareholders
Issue a grievance report
Start disciplinary proceedings (investigations/enquiry on
mismanagement)
2
TOTAL MARKS
45
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QUESTION 6
6.1.1 Zee Ltd is more liquid than Ryan Ltd. Quote and explain TWO financial
indicators (with figures) to prove your agreement.
Quoting of indicator
Explanation by Zee
Comparison with Ryan
Current ratio of Zee Ltd is 1,7 : 1 and of Ryan Ltd is 5,8 : 1. Zee Ltd has
enough current assets to cover its current liabilities, whereas Ryan Ltd is
holding too much of its funds in the form of current assets, which may not
result in a return for the business.
Acid test ratio of Zee Ltd is 0,8 : 1, and of Ryan Ltd is 3,7 : 1. Even if Zee
Ltd is not able to sell all of his trading stock, he should still be able to cover
his short term debt. Ryan Ltd is holding much of his current assets in the
form of trading stock (stockpiling).
Debtors' collection period for Ryan Ltd is 55 days whereas Zee Ltd is
collecting from their debtors within 26 days. Debtors are paying Zee Ltd
much sooner than the debtors of Ryan Ltd.
6
6.1.2
Which company uses more loans? Quote and explain a financial indicator to
support your answer. Explain whether this is a good idea or not.
Zee Ltd
Debt/equity ratio is 1,9 : 1 for Zee Ltd and 0,2 : 1 for Ryan Ltd
Explain whether this is a good idea or not.
It is not a good idea.
Return on capital employed for Zee Ltd is 12,4 % which means that the return
he is earning is lower than the interest he is paying on the loan, 14% (negative
gearing)
6.1.3 Explain why you think the market price of Ryan Ltd's shares is much
better than that of Zee Ltd. Quote and explain TWO financial indicators
to support your answer.
Comparing market price and NAV of Zee Ltd
Comparing market price and NAV of Ryan Ltd
Market price of Zee Ltd is 590 cents which are lower than the net asset value
of 625 cents, OR the market price is 35 cents lower than the net asset value.
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Market price of Ryan Ltd is 755 cents which are higher than the net asset
value of 605 cents, OR the market price is 150 cents higher than the net
asset value. Ryan Ltd is thus able to fetch a price higher than the value of the
shares in the books of the company. 4
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6.1.4
Which company is more likely to expand its business? Explain your answer by
using relevant calculations.
Dividend pay-out rate of Zee Ltd: 182 x 100 = 101,7%
179
Dividend pay-out rate of Ryan Ltd: 537 x 100 = 66,1%
813
Ryan Ltd is giving 66,1% and Zee Ltd 101,7% of their profit as dividends;
therefore, Ryan Ltd will be more likely than Zee Ltd to expand their business.
6.1.5 Ryan Ltd has a better percentage return, earnings and dividends than
Zee Ltd. Explain THREE financial indicators to support this opinion.
Financial indicator
Figures
Explanation
% ROSHE for Ryan Ltd (28,5%) is much higher than that of Zee Ltd
(11,5%).
EPS for Ryan Ltd is 813 cents whereas Zee Ltd is only earning 179 cents
per share.
DPS for Ryan Ltd is 637 cents whereas Zee Ltd it is only 182 cents per
share 9
TOTAL MARKS
30
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QUESTION 7
7.1.
7.1.1 Solvency
7.1.2 Risk/gearing
7.1.3 Profitable
7.1.4 Return
7.1.5 Liquidity
5
7.2.1 Jack is of the opinion that KAT Ltd is handling its working capital more
effectively and is in a better liquidity situation than KIT Ltd. Explain and
quote THREE financial indicators to support his opinion.
Financial indicator
Quoting of figures
Explanation
A combined explanation may be provided. Figures must be provided but not necessarily for both companies;
candidates cannot get full marks if superfluous indicators are used; if candidates provide additional irrelevant
indicators, search for the correct ones in the answer provided by the candidates and award marks accordingly.
For those who provide more than three options, penalty of -1 for an irrelevant indicator (max -2)
Current ratio of KAT Ltd is 1,5 : 1 and KIT Ltd is 6,0 : 1 ( KIT Ltd.’s ratio is 4
times bigger). KAT has enough current assets to cover his current liabilities
whereas KIT Ltd is holding too much of his funds in the form of current
assets which may not results in a return for the business.
Acid test ratio of KAT Ltd is 0,9 : 1 and of KIT Ltd is 2,8 : 1 ( KIT Ltd.’s ratio
is 3 times bigger) . Even if KAT is not able to sell all of his trading stock he
should still be able to cover his short term debt. KIT Ltd is holding much of
his current assets in the form of trading stock (stock piling).
Period of which enough stock is on hand for KAT Ltd is 88 days and for KIT
Ltd is 150 days (almost 6 months). KAT Ltd has enough stock for 3 months
which is appropriate for a company selling running shoes as styles of shoes
normally change seasonally. KIT Ltd is holding stock for too long, styles will
change and clients will not be interested in buying outdated styles resulting
in absolute stock.
Debtor’s average collection period of KAT Ltd is 25 days which is within the
normal/acceptable credit terms and is much lower than the 53 days of KIT
Ltd. 9
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7.2.2 The operating efficiency of KIT Ltd are better than that of KAT Ltd. Quote
and explain ONE financial indicator to support your opinion.
Good answer = 2 marks each; partial = 1 mark; incorrect = 0
Operating expenses on sales of KIT 37,9% lower than that of KAT Ltd 44,5%,
which indicates that KIT Ltd has better control of expenses.
Operating profit on sales of KIT Ltd 10,1% higher than that of KAT Ltd 7,3%,
which indicates that apart from the better control over his expenses (KIT) there
has been a slightly higher mark-up% applied as well. 2
7.2.3 Which company uses more loans? Quote a financial indicator to support
your answer.
KAT Ltd.
Debt/equity ratio 2 : 1 for KAT and 0,3 : 1 for KIT Ltd.
Explain whether this is a good idea or not. In each case, quote a financial
indicator to support your answer.
It is not a good idea.
ROTCE for KAT Ltd is 13,6% which means that the return they are earning
is lower than the interest (15%) he is paying on the loan (negatively gearing) 6
7.2.4 Compare and comment on the dividends pay-out policies of the both
companies.
Financial indicator or explanation Comparison and comment
thereof with figures.
Do not accept comparison of the DPS only.
Must mention both companies.
Can get 1 mark.
DPS 240 cents.
EPS 410 cents.
KIT Or 2 Marks
KAT Ltd is distributing a
Ltd higher percentage of income
Distributes 58.5% of earned, 5% comes from
earnings retained income.
DPS 185 cents. KIT Ltd pays 58.5% and
EPS 176 cents. retained 41.5% for future
KAT growth.
Or 2 marks
Ltd
Distributes 105% of
earnings
8
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7.2.5 KIT Ltd has a better percentage return, earnings and dividends than KAT
Ltd. Explain by quoting THREE financial indicators to support
this opinion.
Financial indicator Figures Explanation
● % ROSHE for KIT Ltd is much higher (21,3%) than that of KAT Ltd (11.2%).
● EPS for KIT Ltd is 410 cents whereas KAT Ltd is only earning 176 cents per
share.
● DPS for KIT Ltd is 240 cents whereas for KAT Ltd it is only 185 cents per
share.
7.2.6 Explain why the existing shareholders of KIT Ltd are happy with this.
Quote a financial indicator/figure to support your answer.
Comparing market price and NAV of KIT Ltd Figures
Market price of KIT Ltd is 750 cents which is higher than the NAV of 609 cents
OR market price is 141 cents higher than the NAV. KIT Ltd is thus able to show 3
a price higher than the value of the shares in the books of the company.
Explain why the existing shareholders of KAT Ltd are very disappointed
with this. Quote a financial indicator/figure to support your answer.
Comparing market price and NAV of KAT Ltd Figures
3
Market price of KAT Ltd is 885 cents which is lower than the NAV of 939 cents
OR market price is 54 cents lower than the NAV.
TOTAL MARKS
45
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QUESTION 8
8.1 If Bennie decides to use all his R240 000 by investing in only one of
these companies, calculate how many shares he could buy in each
company at the current market price on the JSE.
Highland Ltd: 240 000 / 6 = 40 000 shares
Lowfield Ltd: 240 000 / 12 = 20 000 shares
4
8.2 Bennie is of the opinion that Highland Ltd has the better control over its
net current assets and liquidity. Explain why he feels this way. Quote
THREE financial indicators.
Financial indicator Trend
Current ratio is 2,1:1 and Lowfield is 0,9 : 1
Acid-test ratio is 1,1 : 1 and Lowfield and is 0,4:1
Stock turnover rate is 8 times per year and Lowfield is 2 times
Debtors are paying in 28 days. And Lowfield 45 days 6
8.3 Comment on the value of the shares of the two companies on the
Johannesburg Securities Exchange (JSE). Explain how this should
influence Bennie choice of company.
Financial indicator Trend
HIGHLAND LTD
Financial indicator: JSE price 600c ≤ NAV 740c
Explanation:
The net asset value of the shares is higher than the market price which
indicates there is less demand for these shares OR their shares might be
under-priced.
LOWFIELD LTD
Financial indicator: JSE price 1 200c > NAV 1 080c
Explanation:
Market price is higher than the NAV which indicates there is good demand for
these shares OR their shares might be over-priced. 6
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8.4 Compare and comment on the dividend pay-out policies of the two
companies.
Trend Comment
HIGHLAND LTD: Distributes 50% of earnings
Comment
Keep money back for future expansions / No need to obtain a loan
LOWFIELD LTD: Distributes 100% of earnings
Comment
Distribute all the money / Keep shareholders happy /
Directors to be re-elected 6
8.5 Bennie is of the opinion that the earnings per share (EPS) of Highland
Ltd of 520 cents is actually better than the 690 cents of Lowfield Ltd.
Explain why his reasoning is correct.
Excellent answer with figures: 4 marks; Good: 3 marks; Satisfactory: 2 marks; Weak: 1 mark
EPS to NAV is 70,3% (520/740) in Highland Ltd and 63,9% (690/1 080) in
Lowfield Ltd
OR
EPS to MP is 86,7% in Highland Ltd (520/600) and 57,5% (690/1 200) in
Lowfield Ltd
OR
The share price of Lowfield Ltd (1 200c) is double that of Highland Ltd (600c)
but the EPS of Lowfield Ltd is not double that of Highland Ltd. 4
8.6 Comment on the degree of risk and gearing of each company. Explain
how this should influence Bennie’s choice of company.
Financial indicators comment
HIGHLAND LTD
Debt equity ratio is 1,3 : 1
Return on total capital employed is 16,1%
Explanation:
Highland Ltd has low risk – more reliant on share capital.
Negative gearing - does not make effective use of loan to generate profit
ROTCE is higher than interest on loan.
LOWFIELD LTD
Financial indicator:
Debt equity ratio is 0,4 : 1
Return on total capital employed is 9,3%
Explanation:
Lowfield Ltd has high risk – more reliant on loan.
Positive gearing – makes effective use of loan to generate profit.
ROTCE is lower than interest rate on loan 8
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8.7 Apart from the points mentioned above, explain what Bennie should
also look for in a company regarding the following and provide a reason
for each explanation:
Type of Audit report
Type Comment
Unqualified audit report.
To provide a reasonable assurance that the financial statements are reliable,
and that the auditors have not come across any fraud or error. 3
Reputation of the directors
They must have a good reputation / appropriate experience and hard-
working/good work ethic.
To ensure that the shareholders’ investment is in good hands as they are
running the company with shareholders’ money. 3
TOTAL MARKS
40
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QUESTION 9
9.1 CONCEPTS
4.1.1 B
4.1.2 D
4.1.3 C
4.1.4 A
4
9.2 MALINDE LTD
9.2.1 Comment on the overall liquidity position of the company. Quote
THREE relevant financial indicators (with figures).
Quoting of financial indicators Quoting of figures
Current ratio increased from 2,1:1 to 2,5:1
Acid-test ratio decreased from 1,4:1 to 1,3:1
Debtors' collection period decreased from 35 to 27 days
Creditors' payment period decreased from 57 to 44 days
Any valid comment Part-marks for unclear / incomplete answers
The business is liquid/should have no problem in paying off its short-term
debts.
Although the liquidity is good, are we paying the creditors’ too soon.
8
9.2.2 The directors decided to change the dividend pay-out policy in 2020.
Provide calculations that indicate the policy change.
In 2020, the company paid 40/160 cents – 25%
In 2021, the company paid 180/200 cents – 90%
OR pay out increased from 25% to 90% OR with 65% four marks
For one mark each:
DPS increased from 40 to 180 cents (by 140 cents) per share
EPS increase from 160 to 200 cents (by 40 cents) per share
Explain the effect of this change of policy on the company. State TWO
points.
TWO valid points Part-marks for unclear / incomplete answers
Retained income decreased and this could affect future growth
(expansion) of the business.
It would influence the share price / increase demand for the shares
It could motivate shareholders to vote for the directors at the AGM
Cashflow problem (one mark) 8
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9.2.3 One of the directors feels that the company should pay back the loan
as soon as possible. What are your views about this? Quote and
explain TWO relevant financial indicators with figures.
Quoting of financial indicators Quoting of figures Explanation
The debt/equity ratio decreased from 0,5:1 to 0,3:1.
The business is lowly geared. Low risk.
The ROTCE dropped from 14% to 12%.
The company is receiving a return (12%) that is less than the interest rate
(14%) (negatively geared). They are not using the loans effectively to
generate a profit. It was a good decision to pay back the loan.
6
9.2.4 Explain why the shareholders are satisfied with the market price of the
shares on the JSE. Quote figures/financial indicators. 6
Quoting of financial indicators Quoting of figures Explanation
Increased from 800 cents to 960 cents./ increased by 160 cents
The market price is higher than the NAV of 770 cents
Explanation
There is a demand for shares in this company.
Investors are interested in buying shares.
Explain why the shareholders are satisfied with the price at which the
shares were repurchased. Quote figures/financial indicators.
Explanation Figures
The company paid 800 cents per share although the market value at the end
of the year was 960 cents. / The company paid 160 cents less than the
market value 3
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QUESTION 10:
10.1 Shareholders are not satisfied with the liquidity position of the
business. Explain why you think they may be correct. Quote and
explain TWO financial indicators (with figures).
TWO financial indicators comparative figures with trend comment
Current ratio increased from 1,3 : 1 to 2,2 : 1
Acid-test ratio decreased from 0,9 : 1 to 0,6 : 1
Average debtors’ collection period increased from 33 days to 45 days
The current ratio improved because of an increase in stock, the acid test ratio
exposed the fact that the business is holding too much stock /cash tied up in
stock/stockpiling/ debtors are also not paying on time, placing strain on cash
reserves/
Need to increase cash sales, lower stock levels if they do not want to have a
problem in the future.
Do not accept Average Creditors Payment period – it was necessary to bring this closer to credit terms of 60 days. 6
10.2 Certain directors feel that the decision to increase the loan was a poor
decision. Do you agree with this view? Explain. Quote TWO financial
indicators and figures.
TWO financial indicators comparative figures with trend
Comment on risk on gearing mention of interest on loan
Debt/equity ratio increased from 0,1 : 1 to 0,5 : 1
Increasing the loan has increased the financial risk; the business is moving into a
position of high risk; more reliance on borrowed capital
ROTCE decreased from 14,2% to 10,2%
The business is not making effective use of the loan, as it moved into a position of
negative gearing whereby the return is now lower than the interest rate at present
(12%) 8
10.3 Comment on the dividend pay-out policy adopted by the directors.
Provide TWO reasons why you think directors decided on this policy.
Quote figures.
DPP decreased from 86,3% to 43,9%
TWO valid reasons part marks for incomplete/partial answers
The business is retaining more of the earnings (56,1%) to place more emphasis
on growth/expansion
The business is experiencing liquidity issues and want to address this
They paid higher dividends last year, and plan to compensate shareholders with
better dividends in the future. 6
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10.4 Charlie Tiger owns 420 000 shares in the company on 1 March 2021.
This has remained unchanged during the financial year.
10.4.1 Calculate Charlie’s % shareholding after the issue of shares on
1 May 2021, and after the repurchase of shares on 28 February 2022.
AFTER ISSUE OF SHARES AFTER REPURCHASE OF SHARES
420 000 x 100 = 46,7% 420 000 x 100 = 50,9%
900 000 825 000
5
10.4.2 Comment on your findings above. Provide TWO points.
TWO valid comments (must mention majority shareholding)
part marks for incomplete/partial answers
Charlie lost his majority status when he did not buy any shares when
shares were issued on 1 May 2021;
He was very interested in being the majority shareholder, and used his
close friend’s shares to gain control of the company;
His behaviour was unethical and under-handed as he used senior
status to influence the directors to buy back the shares;
He wants to be a majority shareholder so that he can take significant
decisions without any opposition to his feelings. 4
10.4.3 Comment on whether the price paid to repurchase the shares on 28
February 2022 was fair or not. Quote TWO financial indicators (with
figures).
TWO financial indicators comparative figures with trend comment
The NAV increased from 930 cents to 938 cents
The market price decreased from 940 cents to 932 cents
Although the NAV increased, potential shareholders are not interested
in buying shares in the company; MP is lower by 8 cents
The drop in demand is an indication that there are problems in the
business;
R12,50 was too high a price to pay – this has compromised the cash
flow of the business that is already experiencing liquidity problems;
This is an inflated price and has benefitted his friend 6
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QUESTION 11
11.1 MOTLOUNG LTD.
11.1.1 Comment on the price of R9,10 charged by Motloung Ltd for the new
shares issued.
Compare issue price to market price or NAV Part-marks for partial or incomplete explanations
Figures R12,00 or R10,73 Could quote differences e.g R2,90 or R1,63
Expected responses:
The shares were issued at the average issue price. The existing
shareholdres are being rewarded as the price is lower than the R12,00
charged at the JSE and the NAV of R10,73.
The shares could have been issued at the market price of R12,00 or the
NAV of R10,73 (they diluted the value of the shares) 3
11.1.2 Explain how the issue of new shares has affected the financial gearing
and risk of Motloung Ltd. Quote TWO financial indicators.
Explanation Financial indicator Figures
Superfloues indicators (i.e. more than two indicators) -1 (max -1)
Expected responses :
Gearing has improved – less risk (as there was an issue of new shares)
Debt -equity ratio decrease from 0,8 : 1 to 0,5 : 1 (met 0,3:1)
ROTCE improved (due to increased efficiency / profits on new branch).
From 15% tot 20% (by 5% or 33,3%)
candidates may also compare ROTCE to theit estimate or current interest rate 6
11.1.3 If Andre wanted to retain his 60% shareholding in the company, how
many shares would he have had to buy?
(700 000 x 60%) – (500 000- x 60%) = 120 000
420 000 300 000
Two marks one method mark (if x 60%)
OR (200 000 x 60%) = 120 000 3
How much would he have had to pay?
120 000 shares at R9,10 each = R1 092 000 if = number of shares (above) x R9,10
2
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André 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.
Explanation Figures
Partial marks for partial or incomplete answers
Expected responses: any two
His dividends would have increased by R61 200 (51c x 120 000 shares).
It is more than the interest he earns on his savings account of R54 600.
(1 092 000 see above x 5%).
He could buy shares for capital growth – bought the shares at R9,10 and
then he could sell it on the JSE for R12,00. / Total profit could have been
R348 000 / would be a good buy as R12,00 exceeds the NAV R10,73.
He could have earned more dividends on bigger investments (51c/910c =
5,6%).
ROSHE would be 23% more on the bigger investment.
He would lose 120 000 votes at the AGM. 6
MOKOATSI LTD.
11.1.4 Comment on the liquidity of Mokoatsi Ltd. Quote TWO financial
indicators.
Explanation: Superfloues indicators (i.e. more than two indicators) -1 (max -
1)
The liquidity situation has improved / is able to meet current debts / liquidity
ratios have decreased / liquidity ratios are more efficient
Financial indicator any two Figures
Current ratio improved/decreased from 3,5 : 1 to 1,9 : 1
Acid test ratio has improved/decrease (from 1,7 : 1 to 1,1 : 1
Stock-holding period appears to be efficient at 54 days (less than 2
months) 6
11.1.5 Comment on the price paid by Mokoatsi Ltd for the repurchase
(buy-back) of shares.
Expected response: part-marks for partial or incomplete explanations
The company is paying a premium above the average price in order to
entice shareholders to give up their shares / they wanted to increase returns
by decreasing equity / this is a fair value same as the price on the JSE
Compare price paid (R15,00) with Any one figure
market value R15,00
Net asset value R13,30
Average issue price of shares R10,20 3
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11.1.6 Explain THREE ways in which André has benefited from the
repurchase of the shares by Mokoatsi Ltd.
Explanations Figures
Expected responses: Three different responses.
He has now become the majority shareholder. His 300 000 shares are
51,7% of the total shares (33,3% before the buy-back).
Due to the reduced number of shares, his returns has improved i.e.
EPS has increased by 95c / from 171c to 266c / ROCHE increased
from 13% to 16%. (NOTE: EPS and ROSHE reinforce the same point).
The reduced number of shares could have contributed to an increase in
the DPS by 57c / by 55,3% / from 103c to 160c (Directors may have
maintained the dividend pay-out policy). 6
11.1.7 Discuss whether the buyback had any effect on the dividend pay-out
policy of Mokoatsi Ltd
Explanations Figures
Expected responses: No, 2020 and 2021 remained at 60,2%
103/171 = 60.2%
160/266= 60.2% 5
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QUESTION 12
SUZI LIMITED
12.1. Calculate the following: (Show calculations to one decimal
1 point.)
Percentage operating profit on total sales
____ 2 940 000____
14 700 000 x 100 = 20% operation one part correct; must be %
3
Net asset value per share
____ 9 712 500____
925 000 x 100 = 1050 cent operation one part correct
3
Debt/equity ratio
3 885 000 : 9 712 500 = = 0,4:1 operation one part correct must be x:1
3
12.2 Comment on the liquidity position of the business. Quote
THREE financial indicators (with figures) in your explanation.
Financial indicators and figures
Valid comment
Any three Financial indicators:
Current ratio improve from 1,2 : 1 to 1,9 : 1
Acid test ratio improve from 0,8 : 1 to 1,2 : 1
Debtors’ collection period: 40 days to 29 days
General comment:
The liquidity has generally improved. The business is able to pay
short term debts with current assets.
Improvement in collections from debtors – reached the desired 30 8
days.
(Do not accept creditors’ payment period as an option.)
12.3 Calculate the dividend payout rate for both years of the business
and explain the effect of this on the business.
2019
175/175 = 100%
2020
90/180 = 50%
Comment
In 2020, the directors retained 50% of the earnings (or paid out
50%). 6
There may have been plans for expansions or growth of the
company.
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12.4 Some shareholders feel that the company paid back too much of
the loan. What would you say to them? Make reference to TWO
financial indicators with relevant figures to motivate your
response.
Financial indicators and figures
Valid comment
Financial indicator
Debt/equity: improved from 0,8 : 1 to 0,4 : 1 see 3.1.1
ROTCE: improved from 18% to 22%
Interest rate on loans: 11%
General comment:
The company is lowly geared (not making extensive use of
borrowed funds). It is also positively geared (ROTCE is higher
than interest rate).
It was not necessary for the company to pay large portions of the
loan as long as it is generating a better return on investment than the
6
cost of borrowing (interest).
12.5 A shareholder complained about the issue price of the new
shares on 1 April 2020. Why do you think she complained?
Quote TWO financial indicators with figures in your explanation
Financial indicators and figures
Valid comment
Financial indicators :
NAV: 950 cents in 2019 – 1 050 cents in 2020
Market price of shares: 1 000 cents in 2015 – 1 100 in 2016
Comment
The company is showing growth in share value.
New shares were issued (920 cents) at below the NAV and
market price.
The new shareholders benefitted from the low price they paid.
The company lost out on an opportunity to generate
additional funds from the issue of these shares.
The directors’ intentions may be questioned.
The shareholder is justified in complaining – this must be 6
raised at the AGM
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C
O G
R O
P V
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QUESTION 1: CORPORATE GOVERNANCE
1.1 The Johannesburg Securities Exchange (JSE) Refer to paragraph 1.
Explain why companies might want to be listed on the JSE.
ONE valid point part marks for incomplete / partial / unclear response
The public can participate in the purchase of shares / easier access to potential 2
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investors / tapping the global investment environment (internet)
Adds to the prestige of the company (due to additional listing requirements &
publicity)
Ensures compliance with Companies Act and other regulations (e.g. BBEEE
scores, audit requirements)
Easier to access additional funds by advertising new issue of shares / ongoing
advertising through JSE publications
The public can make their shares available to other potential investors if they
want to 'cash in' their investments / facilitates transfer of shares /
Constant update of share prices will indicate investor confidence / demand for
shares / a good image of the company.
Explain why the JSE would not tolerate 'incorrect, false and
misleading financial results' from companies that are listed.
Explanation part-marks for incomplete/unclear responses
They will not deceive the public as it is their role to ensure that sound business
management practices are in place / do not want to cast doubts about their
operations
Would want to avoid any legal action against the JSE for misleading
shareholders / Reputation of JSE may become questionable.
JSE is a vital organisation in facilitating capital funds that stimulate the
economy / leads to creation of jobs / public relies on credible information.
JSE competes with international stock markets / need to guard their activities /
ensure adherence to rules & regulations. 2
1.2 Audit reports
Refer to paragraph 2.
Explain the difference between a qualified audit report and a
disclaimer of opinion audit report.
Qualified Report Disclaimer Report could be a combined or implied explanation
Combined response for 2 marks: Part-marks for partial / unclear answers
A qualified report mentions only specific items which are of concern to the auditor;
while a disclaimer report means that the auditors are refusing to express an
opinion.
Examples of separate responses for 1 mark each:
Qualified audit report: The external auditors identified a few areas of
concern / does not allow them to give an unqualified audit report / internal
control processes / audit evidence might be deficient.
Disclaimer report: The external auditors refuse to, or were unable to, obtain
sufficient evidence to support an audit opinion / the company does not exercise
reliable internal control processes / management was incompetent in
performing basic recording and reporting tasks / financial statements do not
adhere to GAAP & IFRS. 2
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1.3 Concerns of shareholders Refer to paragraphs 1, 2 and 3.
This is a very open-ended question; be alert to any other valid responses
As a concerned shareholder, what questions would you raise at the AGM? Provide
THREE different questions. In EACH case explain an appropriate reason.
Any three valid questions Any three valid reasons
Part marks for incomplete / unclear / partial responses Reasons to be appropriate to the questions.
The same reason could apply to more than
Excellent / very good = 2 marks one question / could be verbatim from
Good / satisfactory = 1 mark scenario.
Questions you would raise at the AGM One reason for each question
Why do the disqualified directors For a company listed on the
seem to have no skills and/or JSE highly qualified directors
QUESTION experience in governance issues? are required.
Why are there no criteria for
directors’ appointments?
Why did the board not take Poor audit reports will severely
immediate action over the affect the company and the
QUESTION
qualified and disclaimer audit market price of its shares.
reports?
Why have they not implemented The board should have taken
disciplinary procedures on these prompt action to prevent further
QUESTION
directors (before the JSE problems.
disqualified them)?
Why were very important roles It is reckless to allocate
QUESTION allocated to these directors? important tasks to directors who
cannot carry them out.
Why do the board and the other The board and the other
directors appear to be negligent directors could lay themselves
or careless in appointing or votingopen to legal claims due to
QUESTION
for the unskilled directors at the negligence / failure to screen
AGM? directors and conduct
background checks.
Where will the funds come from to Transparency required by King
pay the R6,5m fine? Code in all processes.
QUESTION
Profits or retained income could
be negatively affected.
How has the financial stability or Fraud infinancial statements
QUESTION profitability of the company been could negatively affect the
affected by this incident? company’s sustainability
How are the vacant non-executive The shareholders and the board
QUESTION directors’ posts going to be filled? must not vote for or appoint
directors who lack vital skills.
What measures will the board put Transparency / accountability /
in place to prevent this fraud in improving controls.
QUESTION future? What control measures
does the Audit & Risk committee
have in place? 9
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QUESTION 2
2.1 Explain why a qualified audit report is not a good reflection of a company.
Provide TWO points.
TWO points part marks for incomplete / unclear / partial answers
Certain information on financial statements are not clear / missing.
There is insufficient audit evidence for significant items; Auditors cannot
verify certain information.
Lack of internal controls; possible negligence or colluding.
Negative impact in the future; consequences on the image / share price due
to decreased demand for shares (from potential shareholders)
Existing shareholders might decide to sell their shares 4
2.2 Explain why it is important for a company to include non-executive as well
as executive directors on the Board of Directors.
TWO points part marks for incomplete / unclear / partial answers
Executive directors are involved with internal functioning (operations) of the
company / hands-on / decisions may be based on a narrow view.
Non-executive directors have a wider perspective of the business
environment;
They would exercise a watch-dog role; keep executive directors on check.
More regular inputs than an internal auditor.
Their inputs would be unbiased and independent.
Need to protect their positions by closely monitoring internal processes. 4
2.3 According to the Companies Act, 2008 (Act 11 of 2008), a company must
have a Remunerations Committee.
Explain the role/responsibility of this committee and give a reason why this
committee is necessary.
EXPLANATION:
Review all salaries, bonuses and other earnings
To prevent directors from paying themselves too much
They must approve, and give advice on the proposals re fees, bonuses etc.
REASON:
To ensure fairness / transparency in the payment of fees/salaries
To prevent fraud / corruption / wastage
Detect mismanagement or fraudulent activities
They can compare the remuneration / earnings against financial information
of other companies in the industry (comparability)
3
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2.4 Directors engage with clients on a regular basis in an effort to negotiate
contracts and to increase sales and services.
Explain why there should be a company policy for all gifts, donations or
favours received by the directors from clients to be declared to the board
by the directors concerned. Provide TWO points.
TWO points part marks for incomplete / unclear / partial answers
Transparency in awarding contracts, tenders or appointing service providers;
Could result in not appointing the best suited client for the job / not adhering
to or flouting company policy.
Policy would prevent colluding with service providers;
Directors / service providers would know the consequences of not abiding by
policy and therefore not be tempted to engage in fraudulent activities /
corruption.
This could be viewed as bribery for contracts.
This could be viewed as nepotism (if family and friends involved)
To protect the image of the business.
Conflict of interest (which could be corrupt / fraudulent).
4
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QUESTION 3
3.1 Explain how you would respond to the CEO's statement. State TWO points.
TWO points part marks for incomplete/unclear/partial answers
Any valid explanations, e.g.
The company depends on the community for its success / it is part of a
community that supports it.
The wellbeing of its employees will have an effect on the profits of the
company through which the CEO is remunerated.
The company should focus on its responsibility and growth rather than
relying on government or other institutions.
They should work with government to achieve common goals of
uplifting the community / not independently.
The government should set a good example by eliminating crime and
corruption.
The King Code has established the guidelines for CSR which
companies should comply with.
According to labour law, companies are responsible for skills
development.
Examples of 1-mark responses:
Community is important / employees must be happy / rules are in place 4
3.2 State whether Franco Ltd is a public or private company.
Public 1
Explain why employees and investors (shareholders) were distressed by this
incident.
Comment on employees:
part marks for incomplete/unclear answers one-word answers might be sufficient
Any valid point
Future employment / retrenchment
No wage increases / bonuses / overtime
Losing benefits in the future e.g. pension, medical aid
Company may close down / lead to further unemployment
Uncertain economy / jobs are scarce / high unemployment rate
Comment on investors (shareholders):
part marks for incomplete/unclear answers one-word answers might be sufficient
Any valid point
Their investments / savings are now depleted or lost due to a decrease
in the share price
Loss of earnings (dividends) / Unable to cope with daily living costs
Low investor confidence in directors / auditors (due to their negligence
or deliberate fraudulent activities) / disciplinary processes that need to
be followed
Would make it difficult / impossible to sell their shares because of the
reputation of the company 4
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Explain what went wrong in the company to allow for this fraud to occur.
State THREE different/separate points.
Any THREE valid responses
Explanations must indicate factors that affect points in the scenario i.e. not verbatim repetition
from of the scenario.
part marks for incomplete/unclear answers
Unreliable audit reports / external or internal auditors were biased or
negligent
Directors have been acting out of character / in an unethical or fraudulent
way (criminal activity)
Personnel expected / influenced to follow irregular practices which are
being sanctioned or overlooked by senior managers
Bribery / collusion / kickback payments / producing or overlooking material
transactions
Lack of regular / effective internal control measures (e.g. internal audits,
division of duties) in place
No proper application of GAAP / IFRS in compiling financial statements
6
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QUESTION 4
4.1
4.1.1 Limited
4.1.2 Payables
4.1.3 Materiality
3
4.2 ACCOUNT ACCOUNT
NO. AMOUNT A O L
DEBITED CREDITED
Shareholders for
4.2.1 dividends
Bank 136 000 – 0 –
Ordinary share
4.2.2 Bank
capital
450 000 + + 0
SARS: Income tax
4.2.3 Income tax
338 200 0 – + 9
4.3.1 Identify the type of audit report that the company received. Give a
reason for your answer.
TYPE OF REPORT
Unqualified
REASON Any valid reason
The audit report indicates 'fairly present'.
The auditors did not identify any problems. 2
4.3.2 Explain why the auditor referred to pages 8 to 23
Any suitable explanation part mark for unclear/incomplete answers
The auditors are responsible only for the reports presented on these pages
The audited financial reports are found on these pages of the full report
given to the shareholders.
2
Explain why the auditor referred to International Financial Reporting
Standards and the Companies Act of South Africa
Any suitable explanation part mark for unclear/incomplete answers
The audit and the financial records of the company are in compliance with
both local and international requirements / it affects presentation of financial
statements. 2
4.3.3 Name any TWO items of audit evidence that the auditors may have used.
Any suitable evidence
Stock sheets/fixed assets register/source documents/bank statements/
contracts signed 2
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15
QUESTION 5
5.1 Comment on the audit reports of both companies. If you want to buy
shares in a company, explain how the report will affect your decision
concerning the shares you would purchase in the company.
Metsi Ltd: Comment on Explanation
Metsi Ltd received an unqualified report which means that you can rely on the
financial information in the financial statements decide on purchasing the
shares.
Just Water Ltd: Comment on Explanation
Just Water Ltd received a disclaimer audit report. It means that
Peter cannot rely fully on the financial statements in deciding on investing in
the company.
In which company should you rather invest?
Metsi Ltd 5
5.2
5.2. C 5.2.3 D
1
5.2. A 5.2.4 B
2 4
5.3 The purpose of a business rescue plan is to provide a company with
temporary supervision and protection against its creditors, to give
them a 'breathing space' to reorganise and restructure its financial
affairs. Name TWO parties who might be affected by a business rescue
plan.
Any 2 (one mark each)
Creditors, shareholders, employees, trade unions, SARS, Banks, Directors 2
5.4 Who is the audit report addressed to? Give a reason for your answer.
The shareholders. They are the owners of the company and have
appointed the auditors. 2
5.5 Give TWO examples of audit evidence that the auditors would have
required to complete the audit.
Any two – one mark each
Asset registers; Journals; Debtors' statements; Physical inspections; Signed
contracts; Source documents (list e.g. invoice, receipts, etc. only one mark); 2
Creditors' statements; Bank statements
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QUESTION 6
6.1 Explain what is meant by Corporate Governance.
Any TWO valid explanation ✓✓
● It is essentially the set of rules that govern the way companies
control and manage the business. 2
6.2 Provide TWO examples of corporate governance that would occur
in a company.
Any TWO valid examples ✓✓ ✓✓
● Respect of human rights
● Transparency of executive salaries
● Implementation of code of conduct for employees 4
6.3 Give TWO examples of audit evidence
Any TWO valid examples ✓✓ ✓✓ Part-mark for partial answers
Source documents (provided by external organisations, provide
verification).
Records such as asset registers, stock records etc.
Policies and procedures of the company.
Check the internal controls and the efficiency of the internal audit.
Report of an audit committee which assess the internal and external
audit processes / internal auditors report on ensuring internal
controls.
Any valid proof of entries in the books or financial statements 4
concerning cash.
6.4 Explain why an independent auditor would want to see that the
following GAAP principles that are applied: ✓✓ ✓✓
● Matching - To see if incomes and expenses are recorded in the
correct financial period.
● Going concern- For both the Income Statement and Balance Sheet
are prepared as if there is no intention to stop or limit the operation of
the business 4
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6.5 Refer to paragraph 3. Explain why you would be satisfied with this
audit report opinion. ✓✓✓
Good = 3; Satisfactory = 2; Poor = 1; Incorrect = 0)
● The auditors have stated that they are satisfied with all aspects of the
financial reporting by the directors.
● This is a standard reporting – (fairly presented).
● No negative comment reported.
● The auditors have not stated that the report is qualified or withheld. 3
● The auditor’s report is unqualified.
6.6 To whom is an audit report addressed? Give reason for your
answer.
Shareholders ✓
Reason: ✓✓
Accept short explanations; may be phrased differently
Part-marks for unclear/incomplete explanation
Independent auditors are appointed by the shareholders/the
shareholders are the owners of the company. 3
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QUESTION 7
7.1 Choose an explanation from column B that matches the term in column A.
Write only the letter (A – C) next to the question numbers (4.1.1 to 4.1.3) in
the ANSWER BOOK.
7.1.1 B
7.1.2 A
7.1.3 C
3
7.2.1 Explain why the auditors found it necessary to stipulate the page
numbers (that is 8 to 20) in this report.
They are only responsible for the pages that have been stipulated in the
auditor’s report 1
7.2.2 Explain why the Companies Act makes it a requirement for public
companies to be audited by an independent auditor.
The auditors need to be unbiased and neutral.
The directors must have no influence over the auditors so that the auditors
can pass an honest opinion on the reliability of the financial statements. 2
7.2.3 Explain TWO major consequences for Bennie Brink should he be
negligent in performing his duties.
He could lose his credentials as a CA if he is found guilty for negligence by
the professional body.
He could lose his job and never practice as a CA ever again in South Africa.
He could be given a fine or even a prison sentence if found guilty. 2
7.2.4 Kallie Berg, the major shareholder and managing director,
has informed the auditors that he intends to buy the
unissued shares himself next year without advertising the
new issue to the other shareholders or the public. What
advice should the auditors give to Kallie? Briefly explain.
Any valid explanation
This is unethical and the issue of new shares should be
advertised to all according to the Memorandum of Incorporation,
as this is a public company.
The other shareholders will be disadvantaged, as Kallie will be
increasing his shareholding percentage, which will effectively
reduce the returns and dividends of other shareholders.
By offering the shares on the open market the company could
raise more money than if they sold at an agreed price to one
buyer. 2
TOTAL MARKS
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QUESTION 8
8.1 TRANSACTION ANALYSIS
If blank assume 0; -1 per line for foreign entry; Mark sign + or – independent of the details
ACCOUNT ACCOUNT
AMOUNT A E L
DEBITED CREDITED
8.1.1 Bank Share capital 150 000 + + 0
Dividends on
Shareholders for
8.1.2 ordinary shares 35 000 0 - +
dividends
SARS : Income
8.1.3 Bank 76 000 - 0 -
tax 10
8.3 AUDIT REPORT
8.3.1 Where and to whom is this audit report expected to be presented?
Any one valid answer
Where
At the Annual General Meeting (AGM)
On the Annual Report to shareholders
On financial publications and newspapers
Whom
Shareholders 2
8.3.2 Provide TWO points why the independent auditors make reference
to pages 14 – 36 of the Annual Report.
Any two valid points part marks for incomplete / partial answers
The financial statements are contained in those pages of the Annual
Report; other reports are also included in the Annual Report, which
were not prepared or inspected by them.
The auditors are responsible for a certain part of the report.
4
Directors are responsible for parts of the report as prepared by them
8.3.3 Explain TWO points on the impact of this report on the company.
Any two valid points part marks for incomplete / partial answers
Prospective investors may no longer be interested to this company
(impact on demand for shares / market price)
Existing shareholders may want to sell their shares.
It will ruin the reputation/image of the company.
Will reduce the value of shares on the JSE
4
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20
QUESTION 9:
9.1 Briefly explain your understanding of ‘good corporate governance’.
ONE valid point part marks for incomplete/partial answers
Running the business in an ethical and transparent way;
Looking after the interest of the employees, the community, the environment and all
other stakeholders involved in the company;
Ensuring proper rules and procedures are in place and being implemented;
Engaging all role players in matters that affect them 2
9.2 Explain why a company must have their financial statements audited by an
external auditor.
ONE valid point part marks for incomplete/partial answers
This is a requirement of the company’s act – to protect shareholders
Shareholders are members of the public and this gives them confidence in the
financial statements – that they are reliable and credible
The external auditors have no interest in the business and will provide an unbiased
view of the situation. 2
9.3 Identify the type of audit opinion that the company received, and provide a
reason for your answer.
TYPE:
Qualified
REASON: part marks for incomplete/partial answers
The marketing expenses could not be verified.
Did not mention “fairly represent” in all respects.
They were satisfied, except for the marketing expense which had no documentation
as evidence. 3
9.4 Explain why the independent auditor did not follow the request of the CEO.
Provide TWO reasons.
TWO reasons part marks for incomplete/partial answers
He would be going against the standards and ethics of his profession.
It is unethical, amounts to fraudulent behaviour – aimed to deceive.
He has a code of conduct to uphold/will face disciplinary action if discovered
He could lose his licence to operate as an auditor.
He will tarnish the reputation of his company (bad public image). 4
Provide TWO possible consequences of this audit report, for the CEO and
the company.
TWO points part marks for incomplete/partial answers
The share price of the business will drop/poor image of the business
The commitment of the CEO will be questioned – enquiry/disciplinary action
Shareholders would want to sell their shares
Demand for shares will drop 4
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15
QUESTION 10
10.1
Point 1 Opinion ONE valid point
The auditors found no problem to report / unqualified report / statistical
sampling used / met the required standard
2
Point 2 IFRS and Companies Act ONE valid point Part-mark for partial answer
Must cover local & global points
Companies operate in local and international contexts / may have local
and international shareholders / compliance with national and
international laws and standards / companies may operate in a global
market / shareholders (investors) may come from all parts of the world /
readers in any country can understand how financial statements are
prepared or presented. 2
Point 3 Independent ONE valid point Part-mark for partial answer
Their opinion is unbiased / they have no personal interest in the company
/ No conflict of interest / They are authentic. They have high international
standards of professionalism to maintain / They have a code of conduct. 2
10.2
Point 4 ONE example of ethical responsibilities:
Part-mark for partial answer
No colluding with management to overlook any material matter.
No accepting bribes or engaging in corruption.
Care taken in completing the audit and expressing the opinion.
The readers can rely on the information in the financial statements.
Being honest in their duties / have integrity / truthfulness / unbiased.
Complying with King Code or GAAP / Keep up to date with new
requirements. 2
Point 5 ONE example of audit evidence:
Part-mark for partial answer
Check the internal controls and the efficiency of the internal audit.
Source documents (provided by external organisations, provide
verification).
Records such as asset registers, stock records etc.
Policies and procedures of the company.
Report of an audit committee which assess the internal and external audit
processes / Internal auditors report on ensuring internal controls are
efficient). 2
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QUESTION 11
11.1 Accounting equation
ACCOUNT ACCOUNT
NO. AMOUNT A O L
DEBITED CREDITED
e.g. Directors' fees Bank 45 000 – – 0
11.1. SARS – – 0 –
1 Income tax Bank 244 000
11.1. + + 0
2 Bank Share capital 180 000
11.1. Dividend on Shareholders 0 – +
3 ordinary shares for dividends 51 300
12
11.2. To whom is the audit report addressed?
1
Shareholders
2
11.2. Who has to ensure that the financial statements are prepared
2 and presented at the annual general meeting?
Directors /CFO
2
11.2. What type of report receive Franna Limited
3
Unqualified
2
11.2. Explain why the independent auditors referred to pages 14–31 in
4 the report.
Pages they audited responsible for
2
TOTAL MARKS
20
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