Study Master Accounting Grade 12 Teacher S Guide

Study & Master
Accounting
CAPS
Grade
12
Grade
12
Teacher’s Guide
Elsabé Conradie • Derek Kirsch • Mandy Moyce
SM_Accounting_12_TG_CAPS_ENG.indd 1 2013/06/06 3:45 PM

Study & Master
Accounting
Grade 12
Teacher’s Guide
Elsabé Conradie • Derek Kirsch • Mandy Moyce

Consultant: Sophia M. Brink CA(SA) MCom.Tax
Acc 12 TG Book (12).indb 1

SM_Accounting_12_TG_TP_CAPS_ENG.indd 1 6/6/13 4:52:19
2013/06/06 3:41PM
PM
cambridge university press
Cambridge, New York, Melbourne, Madrid, Cape Town,

Singapore, São Paulo, Delhi, Mexico City
Cambridge University Press

The Water Club, Beach Road, Granger Bay, Cape Town 8005, South Africa
www.cup.co.za
© Cambridge University Press 2013
This publication is in copyright. Subject to statutory exception

and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2013
ISBN 978-1-107-38172-8
Editor: Christine de Nobrega

Typesetter: Brink Publishing and Design
Illustrator: Warren Brink (Brink Publishing)
Cover image: Fotostock SA
……………………………………………………………………………………………………………
Cambridge University Press has no responsibility for the persistence or
accuracy of URLs for external or third-party internet websites referred to in
this publication, and does not guarantee that any content on such websites is,
or will remain, accurate or appropriate. Information regarding prices, travel
timetables and other factual information given in this work are correct at
the time of first printing but Cambridge University Press does not guarantee
the accuracy of such information thereafter.
……………………………………………………………………………………………………………
notice to teachers
The photocopy masters in this publication may be photocopied or

distributed [electronically] free of charge for classroom use within the
school or institution which purchases the publication. Worksheets and
copies of them remain in the copyright of Cambridge University Press
and such copies may not be distributed or used in any way outside the
purchasing institution.
……………………………………………………………………………………………………………
If you want to know more about this book or any other Cambridge University Press
publication, phone us at +27 21 4127800, fax us at +27 21 419-8418 or send an e-mail to
[email protected]
Acc 12 TG Book (12).indb 2 6/6/13 4:52:19 PM

Contents
Section 1 Introduction 1
Section 2 Planning
Annual Teaching Plan 9
Daily Teaching Plan 10
Section 3 Assessment tasks
1. Written reports 21
2. Controlled tests 39
3. Projects 62
4. Examinations 65
5. Case studies 151
Section 4 Notes/tips for teachers 161
Section 5 Powerpoint® Presentations
Section 6 Solutions to activities
Chapter 1: Financial accounting of companies –
concepts, unique ledger accounts and bookkeeping 173
Final accounts, Post-closing Trial Balance, IFRS and GAAP 191
Chapter 3: Financial accounting of companies – Financial statements 203
analysis and interpretation of financial statements 235
analysis of published financial statements 252
Chapter 6: Ethics 258
Chapter 7: Interpretation and reporting on the movement of fixed assets 263
Chapter 8: Financial accounting of close corporations 270
Chapter 9: Internal control 272
Chapter 10: Inventory systems 276
Chapter 11: Reconciliations 289
Chapter 12: Value-added Tax (VAT) 305
Chapter 13: Cost Accounting and manufacturing businesses 318
Chapter 14: Budgeting 343
Chapter 15: Revision activities 367
Section 7 Moderation templates 405
Section 8 Answer sheet templates 413

Section 1
introduction
1. Subject objectives
It is essential that learners be made aware of the importance of Accounting and
its relevant application in modern-day career choices where entrepreneurial
skills are so vitally important. There should also be a concerted effort to
nurture an interest and passion for this subject in every learner.
Every learner should have their individual talents and abilities taken into
account so that this interest may be developed to each one‘s own full potential.
When teaching this subject, the following objectives should be achieved:
• To link the learners’ prior knowledge to the new subject content through
progression
• To approach the content in a meaningful manner with sufficient reference
to real-life situations
• To present the content in such a way that learners understand the content,
rather than just memorise subject matter
• To use a variety of presentation strategies
• To keep regular control over written work and to ensure that meaningful
evaluations take place
• To provide regular homework tasks so that learners can consolidate and
revise their work in this manner.
Moreover, it is our aim to convey to learners the knowledge and skills that
will provide an appropriate basis from which to build a successful career or
continue their studies in this subject area.
2. Books and portfolios

2.1 Exercise books
We recommend that learners should acquire the following exercise books for
Grade 12 Accounting:
• A General Ledger
• An eight-column journal
• A three-column cash book.
A workbook is available in which all the columns for each activity are already
drawn, and which will save considerable time, but not all learners will be able
to afford this.
2.2 Learner portfolios

A B4 envelope will serve the purpose of a learner’s portfolio very well. It
takes up very little space in the classroom, is inexpensive and ensures that the
assessment tasks of every learner are available for moderation in class in an
ordered manner. The following information needs to appear on front of the
envelope: Name and surname of the learner; grade and section; learning area
and grade; subject teacher.
section 1 • introduction 1

The portfolio also needs to contain the following divisions:
• Summaries / content / intervention page with statement of authenticity
• Control tests
• Examinations
• Case studies / presentations
• Project
• Informal assessments.
2.3 Intervention with learners

If a learner is repeatedly performing poorly or is creating problems, his or her
parents or caregivers need to be contacted. Any interaction with the parents
should be via letter or telephone, a record needs to be kept of all interaction
and has to be forwarded to the relevant grade supervisor..
You should try to be available for extra classes for at least one hour per week
– carefully record this as learner intervention.
The portfolios should never leave the classroom – the same applies to the
worksheets once they have been placed in the portfolio. After every test or
CASS activity, the learner intervention sheet (front page of the portfolio)
needs to be sent to the parents for signature – this is to keep parents
continually informed of the learner’s marks. Any intervention with the
parent/learner should also be recorded on this sheet, if the parent should
visit you during a parent evening.
2.4 Teacher portfolios

This portfolio should contain the following:
• Front page with relevant information
• Table of contents
• Subject guidelines
• Teacher timetable
• Mark sheets (the following information has to be indicated: Subject /
learning area, grade, learner’s name and marks, date of completion for
formal task, assessment sheet / subject of task / maximum mark that can
be achieved)
• Assessment programmes
• Yearly planner and daily planner
• Proof of moderation (internal and external)
• Policy documents (Curriculum and Assessment Policy Statement for
Accounting, The National Protocol for Assessment Grades R-12, National
Policy pertaining to the Programme and Promotion Requirements of the
National Curriculum statements Grades R-12, Education White Paper 6,
Special Needs Education (May 2001)
• Sections for the following:
Accounting: Control tests, examinations, case studies, written reports,
projects, informal assessments
The assessment matrix for both the exam paper and the marking
memorandum should be included with each section
• Learner information and interaction with parents / intervention
• Departmental information and circulars (Continuous Assessment
Guidelines document and Learning Areas / Subject guidelines)
• Memoranda of subject meetings.
2 section 1 • introduction

3. What is Accounting?
From CAPS document
Accounting focuses on measuring performance and processing and
communicating financial information about economic sectors. The
discipline ensures that principles such as ethical behaviour, transparency
and accountability are adhered to. It deals with the logical, systematic and
accurate selection and recording of financial information and transactions,
as well as the compilation, analysis, interpretation and communication of
financial statements and managerial reports for use by interested parties.
The subject encompasses accounting knowledge, skills and values the focus
on the financial accounting, managerial accounting and auditing fields.
These fields cover a broad spectrum of accounting concepts and skills to
prepare learners for a variety of career opportunities.
The table below indicates the main topics in the Accounting curriculum.
Curriculum Topic
1. Accounting concepts (terminology, definitions, double
entry, etc.)
2. GAAP principles
3. Bookkeeping (source documents, journals, ledgers,
Financial Trial Balances, etc.)
accounting
4. Accounting equation
(weighting:
5. Final accounts and financial statements (including
50–60%)
adjustments and ratios)
6. Salaries and wages
7. Value-added tax (VAT)
8. Reconciliations (bank, debtors and creditors)
Managerial
9. Cost accounting (manufacturing, etc.)
accounting
(weighting:
10. Budgeting
20–25%)
11. Indigenous bookkeeping systems (Grade 10 only)
Managing 12. Fixed assets
resources
13. Inventory
(weighting:
20–25%) 14. Ethics
15. Internal controls
4. The purpose of Accounting

From CAPS document
Accounting learners will be able to:
• record, analyse and interpret financial and other relevant data in order to
make informed decisions
• present and/or communicate financial information effectively by using
Generally Accepted Accounting Practices (GAAP) in line with current
developments and legislation
• develop and demonstrate an understanding of fundamental accounting
concepts
• relate skills, knowledge and values to real-life situations in order to ensure
the balance between theory and practice, in order to enter the world
of work and/or to move to higher education, and to encourage self-
development

• organise and manage their own finances and activities responsibly and
effectively
• apply principles to solve problems in a judicious and systematic manner in
familiar and unfamiliar situations, thus developing the ability to identify
and solve problems in the context of the various fields of Accounting
• develop critical, logical and analytical abilities and thought processes to
enable learners to apply skills to current and new situations
• develop the following characteristics:
– ethical behaviour
– sound judgement
– thoroughness
– orderliness
– accuracy
– neatness
• deal confidently with the demands of an accounting occupation manually
and/or electronically.
5. Time allocation for Accounting on the timetable

From CAPS document
The teaching time for Accounting is 4 hours per week per grade on the
timetable; that is, for Grades 10, 11 and 12.
6. Requirements to offer Accounting as a subject

From CAPS document
It is the responsibility of the school to provide the resources needed to offer
Accounting as a subject.
6.1 Each learner should have:
6.1.1 A textbook
6.1.2 Accounting stationery or a workbook
6.1.3 A calculator.
6.2 The teacher should have:
6.2.1 A variety of textbooks to be used as references
6.2.2 Policies, e.g. a summary of the King Code III
6.2.3 A partnership agreement
6.2.4 Legislation, e.g. Companies Act No. 71 of 2008
6.2.5 Codes of professional bodies, e.g. SAICA and SAIPA Codes
6.2.6 SARS brochures
6.2.7 Bank brochures
6.2.8 Access to a computer and the Internet.

7. Overview and progression of topics
TOPIC Grade 10 Grade 11 Grade 12
Indigenous Comparison of bookkeeping None None
bookkeeping systems of the informal and formal
systems sectors
Ethics Code of ethics and basic principles Identification and analysis of • Role of professional bodies for
of ethics for businesses ethical behaviour applicable accountants
to financial environments with • Disciplinary and punitive
reference to accountability, measures for non-compliance
transparency and sustainability with code of conduct
• Policies governing ethical
behaviour, viz. King Code III
• Basic principles of the
Companies Act
GAAP principles Applicable to sole traders Applicable to partnerships and Applicable to companies
non-profit organisations (clubs)
Internal control Basic internal control processes Demonstration of knowledge • Application of internal control
of internal audit processes, viz. and internal audit processes in a
division of duties, documentation, business environment
physical controls and internal • Understanding of the difference
audit between the roles of internal
and external auditors
Accounting Concepts related to sole traders Concepts related to partnerships Concepts related to companies
concepts and clubs and manufacturers
Bookkeeping Bookkeeping process for sole Unique entries and accounts for Unique entries and accounts for
traders partnerships and clubs companies
Reconciliations Preparation of debtors and Preparation of reconciliation Analysis and interpretation of
creditors lists to reconcile with statements by reconciling to bank bank, debtors and creditors
the debtors and creditors control and creditors statements reconciliations and age analysis
accounts
Accounting Analysis of transactions of sole Analysis of transactions of Analysis of transactions of
equation traders partnerships and clubs companies
Value-added Concepts of Value-added Tax Calculations of Value-added Tax Ledger accounts of Value-added
Tax Tax
Salaries and Explanation, calculation and None None
wages recording of salary and wage
scales, payments in the journals
and posts to the ledger
Fixed assets Calculation and recording of Recording of acquisition and Interpretation and reporting on
depreciation disposal of fixed assets movement, valuation and control
of fixed assets
Inventory Perpetual inventory system, • Explanation of the differences Validation and valuation of
concepts and entries in books between perpetual and periodic inventories using perpetual and
stock systems periodic stock systems:
• Recording of transactions using • Specific identification (of cost
periodic inventory system price per unit)
• First-in First out (FIFO)
• Weighted average
Final accounts • Preparation of final accounts of • Preparation of final accounts of • Preparation of final accounts of
and financial sole traders partnerships companies
statements • Preparation, analysis and • Preparation, analysis and • Preparation, analysis and
interpretation of financial interpretation of financial interpretation of financial
statements of sole traders statements of partnerships statements of companies
• Preparation of Statement of
Receipts and Payments for clubs
• Preparation of the financial
statements of clubs
• Differences in financial
statements of partnerships and
clubs
Cost accounting Cost concepts and basic Cost calculations and ledger Preparation, presentation, analysis
calculations accounts and interpretation of production
cost statement and unit costs
Budgeting Budget concepts Preparation and presentation Analysis, interpretation and
of cash budgets and Projected comparison of cash budgets and
Income Statements of sole traders Projected Income Statements of
sole traders and companies

8. What is assessment?
From CAPS document
Assessment is a continuous planned process of identifying, gathering and
interpreting information about the performance of learners, using various
forms of assessment.
Assessment should be both formal and informal. In both cases, regular
feedback should be provided to learners that enhance their learning experience.
8.1 Informal assessment

Informal assessment is a daily monitoring of a learner’s progress. This is done
through observations, discussions, practical demonstrations, learner-teacher
conferences, informal classroom interactions, etc. Informal assessment does not
need to be recorded and learners or teachers can mark these assessment tasks.
Informal assessment is very important for learners to learn and reflect
on their own performance and for teachers to identify learners who need
support in certain areas of the work completed.
Informal assessment tasks are indicated in italics in the Daily Teaching Plan in
Section 2: Planning of the Teacher’s Guide.
8.2 Formal assessment

All assessment tasks that make up a formal programme of assessment for the
year are regarded as Formal Assessment. Formal assessment tasks are marked
and formally recorded by the teacher for progression and certification
purposes. All Formal Assessment tasks are subject to moderation.
A programme of assessment should be included in the Teacher’s Portfolio.
Grade 12 programme of assessment

Term 1 Term 2 Term 3 Term 4
End-of-year examination
Mid-year examination
Trial examination
Written report
Assessment
Case study
Year-mark
Project
Total
Test
Test
1
Total
50 100 50 300 100 50 300 300
marks
Convert
10 20 20 20 10 10 20
to a mark 100 300 400
(50 ÷ 5) (100 ÷ 5) (50 ÷ 2,5) (300 ÷ 15) (100 ÷ 10) (50 ÷ 5) (300 ÷ 15)
out of:
8.3 Forms of assessment

Different forms of assessment should be used as formal assessment tasks
during the year.
Information regarding types of formal assessment tasks and when each
should be completed are underlined in the Daily Teaching Plan in Section 2:
Planning of this Teacher’s Guide.
Examples of formal assessment tasks are provided in Section 3: Assessment in
this Teacher’s Guide.

The following are examples of different forms of assessment.
8.3.1 Presentation
Presentations can be written or oral, but there must be evidence of the
presentation. All criteria used to assess the presentation must be discussed
with the learners prior to the commencement of the presentation. Where
the resources are available, the use of electronic presentations should be
encouraged.
8.3.2 Report
A report is generally the written evidence of a survey, analysis or
investigation. This will usually be shorter than a project and is specific as to
the topic. For example, a business has come to you for advice on whether the
business is experiencing liquidity problems. Often it implies consulting with
an expert for advice on some problem – therefore it links very closely with
problem-solving.
8.3.3 Case study

Learners are presented with a real-life situation, problem or incident that
relates to a particular topic. They are expected to assume a particular role in
articulating the position. They draw on their own experience, the experience
of peers or prior learning to interpret, analyse and solve the problem(s).
Newspaper articles, magazine articles, television or radio presentations
provide for excellent case studies. Learners read and/or listen, digest the
information and then make informed decisions. Questions can be from lower
order – direct quotes from the article – to higher order, when they are asked
to analyse comments and possibly make suggestions. Case studies are a very
good way of keeping the subject up to date and relevant.
8.3.4 Test
Two tests, written under controlled conditions, are prescribed for Grade 12.
These tests should adhere to the following.
• Tests are completed by all learners in the same grade on the same day.
• All learners write the same test.
• The tests are completed under examination conditions.
• Questions comply with year-end examination standards.
• Where there is more than one teacher, agreement is reached on the scope,
as well as the date and time of the test.
• Duration of each of these tests is at least one hour for 100 marks.
• Tests cover the different cognitive levels, as in the case of examinations.
• Tests also include “problem-solving” skills.
• Tests cover a range of integrated topics, as determined by the work
schedule and assessment plan.
• Of the two tests, one should be written in Term 1 and the other in Term 3.

8.3.5 Project
The project is mandatory and only one project is recommended per year.
When preparing a project, consider the following minimum requirements.
• Learners are given the necessary guidance prior to commencement of the
project and progress is monitored.
• Certain aspects of the project are completed in class to enable teachers to
monitor progress.
• All criteria used to assess project are discussed with learners.
• Generally, projects are given a longer period of time to complete as they
involve some sort of research, consolidation and selection of relevant
information and the preparation of a written document as evidence.
• Often projects can involve solving some form of problem.
• Research may form part of the project – the project is evidence of the
research conducted. However, this may not always be the case. For
example, the computerised accounting programme will not involve
research but rather develop skills.
We suggest that the project is dealt with towards the end of the first term
and handed in for submission during the second term.
8.3.6 Examination
Examinations are dealt with extensively in Section 2: Planning of this Teacher’s
Guide. However, here is some basic essential information with regards to
examinations.
Problem-solving
Approximately 10% of all examinations should address problem-solving
questions using critical and creative thinking. These include real-life problems
within the context of the Accounting curriculum. The problem-solving
questions must cover a range of cognitive skills (as discussed in Step 5 of
How to set up an examination paper – Section 3: Assessment tasks). “Surface”
problem-solving questions might involve recall or comprehension skills on
familiar scenarios, while “deep” problem-solving questions will generally
involve creative solutions in new and unfamiliar scenarios, all falling within
the ambit of the Accounting curriculum.
While ratios and analysis can form very interesting problem-solving
questions, the topic of problem-solving goes a lot further and should be
integrated into all aspects of the curriculum as learners develop the skills
to apply the knowledge acquired.
Here are some guidelines for dealing with “deep” problem-solving questions.
• Learners identify problems from the accounting information provided.
• Learners quote the relevant information to support their opinions on the
problems.
• Learners provide valid and appropriate solutions.

TERM 1
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10
Topic Companies – Unique Companies – Final accounts, financial statements and notes (Income Statement, Companies – Analysis and Companies
transactions Balance Sheet, Cash Flow Statement) interpretation – Analysis of
published
financial
statements
and audit
reports
Assessment Written report Informal Test
Accounting Grade 12
Annual Teaching Plan
TERM 2
Topic Ethics Close Inventory systems Reconciliations Value-added Tax (VAT) Examinations
Section 2
planning
Fixed assets corporations
s e c t i o n 2 • P la n n i n g
Internal
controls
Assessment Project Informal Mid-year examinations
TERM 3
Topic Cost Accounting – Production Cost Statement Budgeting Revision Examinations
with notes, Income Statement, unit costs,
break even
Assessment Test Case study Trial examinations
TERM 4
Topic Revision and examination preparation Examination Admin and
planning
Assessment Informal Final examination
6/6/13 4:52:20 PM
Grade 12 Accounting
Daily Teaching Plan
TERM 1
Week 1 (Companies – unique concepts, ledger accounts and bookkeeping)
Period 1 Concepts of Discuss concepts with regards to companies on Textbook Chapter 1
companies pp.2–7. pp.1–10
Do Activity 1.1 (p.8) with learners and mark. PowerPoint®
Discuss issuing of shares. Do example on p.9 on presentation
PowerPoint®.
Homework: Activity 1.2 (p.10)
Period 2 Company Mark Activity 1.2. Textbook Chapter 1
ledger Do Activity 1.3 (p.10) on the board. pp.10–18
accounts and PowerPoint®
Discuss income tax and dividends using
bookkeeping presentation
PowerPoint®.
Do examples on p.12 and p.15.
Homework: Activities 1.4 (p.14) and 1.5 (p.17)
Period 3 Company Mark Activities 1.4 and 1.5. Textbook Chapter 1
ledger Discuss retained income using PowerPoint®. pp.14–21
Do examples on pp.18–20.
Homework: Activity 1.6 (p.20) and informal
assessment 1.1 (p.21)
Period 4 Company Mark Activity 1.6 and informal assessment 1.1. Textbook Chapter 1
ledger Do Activity 1.7 (p.25) on the board. pp.14–25
ledger Do Activity 1.9 (p.25) in class and mark. pp.25–30
Discuss interest capitalized (pp.26–27).
Do example on p.28 on PowerPoint®.
ledger Discuss directors’ fees. Do example on p.31. pp.30–37
Discuss audit fees. Do example on p.33.
Discuss buying back shares. Do example on p.34.
Homework: Activities 1.11 (p.32), 1.12 (p.34) and
1.13 (p.36)
Period 3 Company Mark Activities 1.11, 1.12 and 1.13. Textbook Chapter 1
ledger Do Activity 1.14 (p.37) in class and mark. pp.35–38
ledger Do Activity 1.16 (p.38) in class. pp.38–39
ledger Do informal assessment 1.2 (p.40) in class and mark. pp.39–40
accounts and Identify learners who need support. PowerPoint®
Period 2 Formal Hand out Formal Assessment Task 1: Written Textbook Chapter 2
Assessment report and discuss with learners (see p. 22 in this pp.42–45
Task 1 Teacher’s Guide). Show learners where to find the PowerPoint®
IFRS and GAAP information in Chapters 1–6. presentation
Discuss IFRS and GAAP (pp.43–44).
Do Activity 2.1 (p.45) in class and mark.
10 s e c t i o n 2 • P la n n i n g

Period 3 GAAP Discuss year-end adjustments on pp.46–54. Textbook Chapter 2
Final accounts Discuss new adjustments on pp.55–58. pp.45–68
of a company Discuss the Trial Balance on p.60. PowerPoint®
presentation
Do Activities 2.2 (p.58) and 2.3 (p.61) in class.
Period 4 Final accounts Mark Activity 2.4. Textbook Chapter 2
of a company Discuss reversal of adjustments on p.69. pp.68–72
Do Activity 2.5 in class (p.70). PowerPoint®
presentation
Week 4 (Final accounts, GAAP and IFRS)
Period 1 Final accounts Mark Activity 2.6. Textbook Chapter 2
of a company Do informal assessment 2.1 (p. 72) in class and mark. pp.70–72
Identify learners that need support. PowerPoint®
presentation
Period 2 Financial Discuss financial statements of a company (p.74). Textbook Chapter 3
statements Discuss examples on pp.75–79 in class. pp.74–82
Discuss directors and audit reports (p.80). PowerPoint®
presentation
Do case study 3.1 (p.80) in class and mark.
Period 3 Financial Mark Activity 3.1. Textbook Chapter 3
statements Do example on pp.83–86. pp.82–87
Homework: Activity 3.2 (p.86) PowerPoint®
presentation
statements Homework: Activity 3.3 (p.88) pp.86–89
PowerPoint®
presentation
Week 5 (Final accounts / financial statements)
PowerPoint®
presentation
PowerPoint®
presentation
PowerPoint®
presentation
Period 4 Financial Hand in Formal Assessment Task 1: Written report Textbook Chapter 3
statements Mark Activity 3.6. pp.92–96
Homework: Informal assessment 3.1 (p.94) PowerPoint®
presentation
Week 6 (Financial statements)
Period 1 Financial Mark informal assessment 3.1. Identify learners that Textbook Chapter 3
statements need support. pp.95–97
Homework: Informal assessment 3.2 (p.96) PowerPoint®
presentation
Period 2 Financial Mark assessment 3.2. Identify learners that need Textbook Chapter 3
statements support. pp.96–103
Discuss Cash Flow Statements on pp.97–98. PowerPoint®
Do Activity 3.7 (p.98) orally in class. presentation
Do example on Cash Flow Statement on p.99 in
class.
Do Activity 3.8 (p.103) orally in class.
Period 3 Financial Do Activities 3.9 (p.104), 3.10 and 3.11 (p.107) in Textbook Chapter 3
statements class. pp.104–109
presentation
s e c t i o n 2 • P la n n i n g 11

statements Do Activities 3.13 and 3.14 (pp.111–112) in class. pp.109–117
Do Activities 3.15, 3.16 and 3.17 (pp.113–116) in PowerPoint®
class. presentation
Homework: Activities 3.18 and 3.19 (p.116)
Week 7 (Financial statements)
Period 1 Financial Mark Activities 3.18 and 3.19. Textbook Chapter 3
statements Do Activity 3.20 (p.118) in class. pp.116–120
presentation
PowerPoint®
presentation
PowerPoint®
presentation
PowerPoint®
presentation
Week 8 (Financial statements / analysis and interpretation of statements)
statements Homework: Informal assessment 3.3 (p.126) and case pp.125–128
study 3.1 (p.127) PowerPoint®
presentation
Period 2 Financial Mark case study 3.1. Textbook Chapter 3
statements Mark informal assessment 3.3. Identify learners that pp.126–128
need support with Cash Flow Statements. PowerPoint®
presentation
Period 3 Analysis and Introduction to analysis and interpretation of Textbook Chapter 4
interpretation financial statements of a company (pp.130–136). pp.130–146
of financial Do example on pp.137–143. PowerPoint®
statements of presentation
a company
Period 4 Analysis and Mark Activities 4.1 and 4.2. Textbook Chapter 4
interpretation Homework: Activity 4.3 (p.147) pp.144–149
of financial PowerPoint®
a company
Week 9 (Analysis and interpretation of statements)
Period 1 Analysis and Mark Activity 4.3. Textbook Chapter 4
a company
a company
a company
a company

Week 10 (Analysis and interpretation of statements / published financial statements)
a company
interpretation Do informal assessment 4.1 (p.158) in class and mark. pp.157–161
of financial Indentify learners that need support with analysis and PowerPoint®
statements of interpretation of financial statements. presentation
a company
Discuss articles in case study 4.1 on pp.160–161.
Period 3 Analysis of Do Activity 5.1 (p.164) orally in class. Textbook Chapter 5
published Discuss the annual report and published financial p.164
financial statements on pp.164–177. PowerPoint®
statements presentation
Do Activities 5.2 and 5.3 (p.178) orally in class.
and audit
Homework: Activity 5.4 (p.179) News papers
reports
Magazines
Period 4 Analysis of Mark Activity 5.4. Textbook Chapter 5
published Discuss corporate governance on p.180. p.62
financial PowerPoint®
Do Activities 5.5 and 5.6 (pp.180–181) in class and
mark.
and audit
Formal Assessment Task 3: Hand out project Newspapers
reports
on the analysis and interpretation of published
financial statements (see p.62 of this Teacher’s
Guide). Discuss marking rubric and guidelines
with learners.
Formal Assessment Task 2:
Write a controlled test during March test series – 100 marks / 1 hour – on the financial statements and
interpretation of financial statements.
Term 1: Formal assessment

Report: Ethical behaviour, King Code, professional bodies and audit reports 115 marks
(Task 1)
Controlled test (Task 2) 100 marks
TERM 2
Week 1 (Ethics and Fixed assets)
Period 1 Ethics Discuss the role of professional bodies on Textbook Chapter 6
pp.183–189. p.182–197
Discuss disciplinary procedures and punitive PowerPoint®
measures on p189–191. presentation
Discuss the King Code on pp.191–196.
Homework: Activities 6.1 (p.189), 6.2 (p.191)and 6.3
(p.197)
Period 2 Ethics Mark Activities 6.1, 6.2 and 6.3. Textbook Chapter 6
Discuss legislation governing companies on p.197–204
pp.197–201. PowerPoint®
Do Activity 6.4 (p.201) orally in class. presentation
Do case studies 6.1 and 6.2 in class and mark
(pp.202–204).
Period 3 Fixed assets Discuss theory with regards to assets, internal Textbook Chapter 7
auditing of assets on pp.206–208. pp.206–211
Do Activities 7.1 and 7.2 (pp.207–208) in class and PowerPoint®
mark. presentation
Discuss lifespan and age of assets on pp.209.
Homework: Activities 7.3 (p.211), 7.4, 7.5 and 7.6
(pp.213–214)

Period 4 Fixed assets Mark Activities 7.3, 7.4, 7.5 and 7.6. Textbook Chapter 7
Do Activities 7.7 and 7.8 (pp.214–216) in class and pp.211–217
mark. PowerPoint®
Homework: Informal assessments 7.1 and 7.2 presentation
(pp.216–217)
Formal Assessment Task 3: Discuss the learners’
progress with the assessment task. Answer
possible questions.
Week 2 (Fixed assets/ Close Corporations/ Internal control)
Period 1 Fixed assets Mark informal assessments 7.1 and 7.2. Identify Textbook Chapter 7
learners that need support with fixed assets. pp.216–217
PowerPoint®
presentation
Period 2 Close Discuss CCs on pp.219–223. Textbook Chapter 8
Corporations Do Activities 8.1 (p.222) and 8.2 (p.224) orally in pp.219–229
class. PowerPoint®
Discuss the differences between company and CC presentation
on p.224.
Homework: Informal assessment 8.1 (p.229)
Period 3 Close Mark informal assessment 8.1. Textbook Chapter 8

Corporations Discuss audit evidence, tests and procedures on p.229
Internal pp.231–233. PowerPoint®
control Homework: Activities 9.1 and 9.2 (p.234) presentation
Textbook Chapter 9
pp.231 – 234
PowerPoint®
presentation
Period 4 Internal Mark Activities 9.1 and 9.2. Textbook Chapter 9
control Discuss audit sampling on pp.235–239. pp.234 – 241
Do Activities 9.3 (p.238) and 9.4 (p.240) in class with PowerPoint®
learners. presentation
Discuss internal audit reports on pp.240–241.
Week 3 (Internal control/Inventory systems)
Period 1 Internal Mark Activity 9.5. Textbook Chapter 9
control Discuss the role between internal and external pp.241–245
Inventory auditors on pp.242–243. PowerPoint®
systems Do Activity 9.6 (p.243) in class and mark. presentation
Do case study 9.1 (p.244) in class and mark. Textbook Chapter 10
pp.247–250
Discuss control over stock and stock systems on
p.247. PowerPoint®
presentation
Period 2 Inventory Mark Activities 10.1 and 10.2. Textbook Chapter 10
systems Discuss validation of stock, loss of stock, insurance, pp.250–254
net realisable value and stock calculations. Discuss PowerPoint®
the FIFO method. presentation
Do example on p.252 using PowerPoint®.
Period 3 Inventory Formal Assessment 3: Hand in project. Textbook Chapter 10
systems Mark Activities 10.3 and 10.4. pp.254–256
Do example on pp.254–255. PowerPoint®
presentation
Do Activity 10.5 (p.256) in class.
Period 4 Inventory Mark Activity 10.6. Textbook Chapter 10
systems Discuss the weighted average method. Do pp.256–259
example on p.257. PowerPoint®
Do Activity 10.7 (p.258) in class. presentation

Week 4 (Inventory systems)
systems Discuss how the methods affect the financial pp.259–260
statements. Do example on p.260. PowerPoint®
Homework: Activity 10.9 (p.260) presentation

systems Do example on p.262. p.261––264
Do Activity 10.10 (p.263) in class and mark. PowerPoint®
presentation
Homework: Informal assessment 10.1 (p.264)
Period 3 Inventory Mark Informal assessment 10.1. Textbook Chapter 10
systems Do Informal assessment 10.2 (p.264) in class and p.264–266
mark. PowerPoint®
Homework: Informal assessment 10.3 (p.265) presentation
Period 4 Inventory Mark informal assessment 10.3. Identify learners that Textbook Chapter 10
systems need support with inventory valuation. p.265–266
PowerPoint®
presentation
Week 5 (Reconciliations)
Period 1 Reconciliations Discuss example on pp.268–269. Textbook Chapter 11
Do Activity 11.1 (p.270) with learners. pp.268–274
Discuss example on pp.270–271 and internal PowerPoint®
control over debtors and creditors. presentation
Period 2 Reconciliations Mark Activities 11.2 and 11.3. Textbook Chapter 11
Discuss example on pp.275–277. pp.272–278
Homework: Activities 11.4 and 11.5 (p.278) PowerPoint®
presentation
Do Activity 11.6 (p.279) in class. pp.278–281
presentation
Discuss debtors age analysis on p.281. pp.281–284
Do example and Activity 11.8 (p.282) in class. PowerPoint®
presentation
Homework: Activities 11.9 and 11.10 (pp.283–284)
Week 6 (Reconciliations)
Do example on pp.286–288. pp.284–289
presentation
Period 2 Reconciliations Mark Activity 11.11. Textbook Chapter 11
presentation
Period 3 Reconciliations Mark Activity 11.12. Textbook Chapter 11
Discuss bank reconciliations on p.292. pp.291–296
Do Activities 11.14 and 11.15 (pp.292–293) in class PowerPoint®
and mark. presentation
Period 4 Mark Activity 11.16. Textbook Chapter 11
Do Activities 11.17 and 11.18 (pp.296–297) in class pp.296–302
and mark. PowerPoint®
Homework: Informal assessments 11.1, 11.2, 11.3 and presentation
11.4 (pp.298–302)
Week 7 (Reconciliations/ VAT)
Period 1 Reconciliations Mark informal assessments 11.1. 11.2, 11.3 and Textbook Chapter 11
11.4. Identify learners that need support with pp.298–302
reconciliations. PowerPoint®
presentation

Period 2 VAT Discuss theory with regards to VAT and do example Textbook Chapter 12
on p.305. pp.304–318
Do Activity 12.1 (p.307) in class orally. PowerPoint®
Do examples on pp.307–309. presentation
Do Activities 12.2 and 12.3 (pp.309–310) in class.
Discuss risks and amount payable to SARS on
p.311.
Do example on pp.314–317.
Homework: Activities 12.4 (p.312), 12.5 (p.317) and
12.6 (p.318)
Period 3 VAT Mark Activities 12.4, 12.5 and 12.6. Textbook Chapter 12
Do examples on pp.319–322. pp.318–327
Do Activities 12.7 and 12.8 (p.323) in class. PowerPoint®
presentation
Do example on pp.324–325.
Period 4 VAT Mark Activity 12.9. Textbook Chapter 12
Do Activity 12.10 (p.327) in class and mark. pp.327–338
Discuss VAT 201 form. Do example on pp.331–337. PowerPoint®
presentation
Week 8 (VAT)
Do Activity 12.12 (p.338) in class and mark. pp.337–342
Do example on p.339. PowerPoint®
presentation
Period 2 VAT Mark Activities 12.13 and 12.14. Textbook Chapter 12
Homework: Activity 12.15 (p.342) pp.341–343
PowerPoint®
presentation
Discuss ethical issues, risks and internal control pp.343–347
relating to VAT on pp.343–346. PowerPoint®
Homework: Informal assessment 12.1 (p.347) presentation
Period 4 VAT Mark informal assessment 12.1. Identify learners that Textbook Chapter 12
need support with VAT. p.347
PowerPoint®
presentation
Week 9–10
Assessment task 4: Mid-year examination – minimum of 300 marks
The June exam paper should cover some of the following topics:
• GAAP principles
• Internal control and audit over debtors, creditors, cash, assets, the role of internal and external
auditors
• Ethics, professional bodies, King Code
• Companies concepts, bookkeeping, final accounts
• Financial statements – Income Statement, Balance Sheet, Cash Flow Statement
• Analysis and interpretation of financial statements
• Fixed assets
• Close corporations
• Reconciliations
• VAT

Research project (Task 3) 60 marks
Mid-year examination (Task 4) 300 marks

TERM 3
Week 1 (Cost accounting / Manufacturing)
Period 1 Cost Discuss types of manufacturing costs on p.349. Textbook Chapter 13
accounting Do Activity 13.1 (p.351) in class. pp.349–356
and PowerPoint®
Discuss costs according to behaviour on p.352.
Manufacturing presentation
Do Activities 13.2 (p.354) and 13.3 (p.355) in class.
Discuss break-even analysis on p.355 and do
example.
Period 2 Cost Mark Activities 13.4 and 13.5. Textbook Chapter 13
accounting Discuss productivity on p.356. pp.356–359
and PowerPoint®
Do Activities 13.6 and 13.7 (p.357) in class and
mark.
Homework: Activity 13.8 (p.358) and informal
assessment 13.1 (p.358)
Period 3 Cost Mark Activity 13.8 and informal assessment 13.1. Textbook Chapter 13
accounting Discuss manufacturing accounts in the General pp.358–369
and Ledger and the example on pp.360–366. PowerPoint®
Period 4 Cost Mark Activity 13.9. Textbook Chapter 13
accounting Discuss the Production Cost Statement on p.370. pp.367–373
and PowerPoint®
accounting Do Activity 13.12 (p.374) in class. pp.373–375
and PowerPoint®
accounting Discus analysing financial figures on p.376. pp.375–380
and PowerPoint®
accounting Homework: Activity 13.16 (p.380) pp.379–381
and PowerPoint®
and PowerPoint®
and PowerPoint®
accounting Homework: Informal assessment 13.2 (p.384) pp.383–385
and PowerPoint®
Period 3 Cost Mark informal assessment 13.2. Identify learners that Textbook Chapter 13
accounting need support. pp.383–393
and Discuss ethical issues and internal control relating PowerPoint®
Manufacturing to manufacturing on p.386. presentation
Homework: Activity 13.19 (p.388), case studies 13.1
and 13.2 (p.389)
Period 4 Cost Mark Activity 13.19, case studies 13.1 and 13.2. Textbook Chapter 13
accounting pp.383–393
and PowerPoint®

Week 4 (Budgets)
Period 1 Budgets Discuss budgets on pp.395–398. Textbook Chapter 14
Discuss Projected Income Statement on p.298. pp.395–402
Do Activity 14.1 (p.400) in class. PowerPoint®
presentation
Period 2 Budgets Mark Activity 14.2. Textbook Chapter 14
Do examples on pp.403–405. pp.402–408
presentation
presentation
presentation
Week 5 (Budgets)
Discuss cash budgets. Show example on p.416. pp.413–417
Do Activity 14.8 (p.416) in class. PowerPoint®
presentation
Do example on p.418. pp.417–420
presentation
Discuss analysing cash budgets and do example pp.420–426
on p.423. PowerPoint®

PowerPoint®
presentation
Week 6 (Budgets)
PowerPoint®
presentation
Discuss ethical challenges relating to budgets, pp.429–434
internal control and risks on p.431. PowerPoint®

Do informal assessment 14.1 (p.434) and mark. p.434
Identify learners that need support with budgets. PowerPoint®
presentation
Period 4 Budgets Formal Assessment task 6: Do case study on
Budgets in class (see p.152 of this Teacher’s Guide).
Week 7 (Revision)
Period 1 Revision – Do Activity 15.1 (p.437) in class and mark. Give Textbook Chapter 15
bookkeeping memo of Activity 15.2 (p.437) for learners to do at pp.437–440
of company home or at extra lessons. PowerPoint®
and asset Homework: Activities 15.3 and 15.4 (pp.438–439) presentation
disposal
Period 2 Revision Mark Activities 15.3 and 15.4. Textbook Chapter 15
– Income Homework: Activity 15.5 (p.440) pp.440–441
statement PowerPoint®
presentation

Period 3 Revision Mark Activity 15.5. Textbook Chapter 15
–Balance sheet Homework: Activity 15.6 (p.441) pp.441–442
PowerPoint®
presentation
Period 4 Revision – Mark Activity 15.6. Textbook Chapter 15
Cash flow and Homework: Activity 15.7 (p.443) pp.441–445
analysis of PowerPoint®
Week 8 (Revision)
Period 1 Revision – Mark Activity 15.7. Textbook Chapter 15
Audit reports Hand out memos for Activities 15.8–15.10 pp.443–453
and asset (pp.445–450) for learners to do on their own or PowerPoint®
disposal during extra lessons. presentation
Homework: Activities 15.11,15.12 and 15.13
(pp.451–453)
Period 2 Revision – Mark Activities 15.11, 15.12 and 15.13. Textbook Chapter 15
inventory Hand out memos for Activities 15.14 and 15.15 pp.453–457
valuation (pp.453–455). PowerPoint®
Do Activity 15.16 (p.455) in class and mark. presentation
Homework: Activities 15.17 and 15.18 (pp.456–457)
Period 3 Revision – Mark Activities 15.17 and 15.18. Textbook Chapter 15
reconciliations Hand out memos of Activities 15.19 and 15.20 pp.458–462
(pp.458–459) or do during extra lessons. PowerPoint®
Homework: Activities 15.21, 15.22 and 15.23 presentation
(pp.459–462)
Period 4 Revision – VAT Mark Activities 15.21, 15.22 and 15.23. Textbook Chapter 15
Do Activity 15.30 (p.469) with learners in class. pp.462–474
Hand out memos for the rest of the revision PowerPoint®
activities or do them during extra lessons presentation
(pp.462–474).
Week 9 –10 (examination)

Control test (Task 5) – Cost accounting 100 marks
Case study (Task 6) – Budgeting 50 marks
Trial examination (task 7) 300 marks
TERM 4
Week 1 till exam starts (Revision exercises)
Period 1 Revision Work out example papers or previous November Teacher’s Guide /
exercises papers. Exemplar papers
from department
Period 2 Revision Work out example papers or previous November
exercises papers.
exercises papers.
exercises papers.

End-of-year examination 300 marks

Section 3
assessment tasks
1. Form of assessment: Written reportS
Report
A report is generally the written evidence of a survey, analysis or
investigation. This will usually be shorter than a project and is specific to the
topic, for example, a business has come to you for advice on whether the
business is experiencing liquidity problems. Often it implies consulting with
an expert for advice on some problem – therefore it links very closely with
problem-solving.
Learners can also be asked to write a report after a field trip, for example
after visiting a local factory.
Suggestions
• This assessment task should be done in the first term.
• Learners can be divided in groups of two or three, or it can be done
individually.
• The teacher should discuss the requirements and marking rubric with the
learners when handing out the task.
• Learners can complete the report at home, but the teacher should
monitor their progress.
• The minimum total for the report should be 50 marks.
To the teacher:
Included in this file is the following report:
Report on ethical conduct, King Code, professional bodies, audit
reports and internal control
This report should be handed out during Week 3 of the first term, and the
learners should be given two weeks in which to work on it. The task should
be collected during Week 5 of the first term. The teacher must guide and
support learners during their research phase and constantly monitor their
progress. The total mark for this assessment task is 115 and should be scaled
down to a mark out of 50 according to the assessment guideline document.
Use the following formula:

Learner’s mark × 50 ÷ 115 to get a mark out of 50.
s e c t i o n 3 • assessme n t tasks 21

Assessment task: Written report
To be handed out to the learners
Ethical conduct, King Code, Professional bodies, Audit reports and

internal control
Marks: 115
INSTRUCTIONS
1. Ethical behaviour (40)
Following are examples of unethical behaviour with regards to companies.
Unethical behaviour Explanation Examples
Market manipulation It involves a deliberate attempt to Churning: When a trader places both buy and sell orders at
artificially increase or decrease a the same time to increase activity and therefore attract other
company’s share price. investors.
Painting the tape: When a group of traders create activity or
rumours to drive up the price of stock
Cornering: Purchasing enough of a particular stock to gain
control of the supply and be able to set the price for it
Illegal insider trading It involves buying or selling shares Tipping information or using tipped information: To do
while possessing important confidential trading in order to make a profit or avoid losses
information about a company.
Price fixing When companies on the same side in a If all cellphone service providers agree to sell airtime at the
market conspire to buy or sell a product same rate per unit, higher than reasonable
or service at a fixed price, or manipulate Or if those same service providers limit the amount of
the market by controlling supply and airtime available at certain times, and sell additional at a
demand much higher price (as demand goes up, they control the
selling price)
Corporate governance When directors do not act in the best Accounting fraud: When directors manipulate financial
failure interest of the shareholders indicators to mislead shareholders
Disclosure violations: When directors do not disclose accurate
and complete financial statements
Conflict of interest When there is a clash between Where an employee tries to perform a duty, but at the same
professional obligations and personal time tries to achieve personal gain
interest. Nepotism: The practice of giving one’s relatives unfair
advantages when one has power
Bribery and corruption When someone is guilty of dishonest When a person gives or receives something of value, like
practices, like bribery cash or gifts, for the purpose of influencing someone’s
actions or views
Read each of the following cases of illegal or unethical behaviour. State why it
is illegal / unethical and what the consequences could be for the guilty party.
• GHK Ltd. purchased 250 000 tons of coffee beans, which caused the
coffee bean prices to rise to their highest level ever.
• Two board members of Pegasus Ltd. were found guilty after it was
discovered that they sold and re-purchased the same securities in order to
generate activity and increase the price of their shares.
• The Chief Executive Officer (CEO) of a company learns before anyone
else that the company is to be sued for R700m for selling harmful
products. The CEO and two employees decide to sell their shares quickly
before this news becomes public.
• An employee of a company starts a business that provides similar services
to similar clients as those of her full-time employee.
• In order to secure a contract, one of the directors of a company offered a
government official the use of a company vehicle for free.
22 s e c t i o n 3 • assessme n t tasks

• One of the managers of a company employed his son, who starts and
finishes work when he wants and get a raise every year despite his poor
performance.
• In 2006, after an investigation, it was found that major companies in
the bread production industry in South Africa held meetings to discuss
pricing, agree on price increases and the timing of such increases.
• The CEO of the company instructs the accountant to enter the costs
involved in accommodation for the directors for holidays as ‘marketing
costs’.
• During the financial year a loan of R800 000 was granted to a company
and paid into their account. The CEO instructs the accountant to show
this as money received for services rendered, an income in the Income
Statement.
• Due to negligence and trying to cut costs, a company spilled dangerous
chemicals in a nearby river.
2. The King Code /Report
2.1 What is the purpose of the King Reports? (2)
2.2 What is the ‘triple bottom line’ that the King Code refers to? (3)
2.3 The work done by the internal and external auditor differs.
Briefly explain the work done by each group. (4)
3. Corporate Social Investment (4)
Give an example and an explanation on how a company can apply
Corporate Social investment. In your example, how does the company
serve to uplift the community?
4. Professional bodies (15)
What do the following abbreviations stand for, what is the aim of each
and what qualification does a person need to be a member of each?
• SAIGR
• SAIPR
• IRBA
5. What can happen to an auditor when that person, who is a member of
SAICA, is guilty of unprofessional or misconduct? (8)
6. What is the purpose of the International Financial Reporting
Standards (IFRS)? What is the difference between GAAP and IFRS? (6)
7. The King Report often mentions that a company should have good
internal control measures. Name three risks with regards to fixed assets
and name three control measures to minimise these risks. (12)

8. Audit reports
You are provided with the following extract taken from the report of
the independent auditors. Read through it and answer the questions
that follow. (21)
EXTRACT FROM THE REPORT OF THE INDEPENDENT AUDITORS
Paragraph 1 We have audited the annual financial statements of Mbekwa Limited set out on pages 8 to 17 for the year
ended 30 September 2012. These financial statements are the responsibility of the company’s directors.
Our responsibility is to express an opinion on these financial statements based on our audit.
Paragraph 2 An audit includes:
Examining, on a test basis, evidence supporting the amounts in the financial statements;
Assessing the accounting principles used and significant estimates made by management;
Evaluating the overall financial statement presentation.
Paragraph 3 Audit opinion
In our opinion, the financial statements fairly present, in all material respects, the financial position of the
company and the group at 30 September 2012 and the results of their operations and cash flows for the
year ended, in accordance with International Financial Reporting Standards, and in the manner required by
the Companies Act in South Africa
Theron Du Plessis Chartered Accountants (SA) 12 November 2012
8.1 Explain why it is important for the independent auditor to be a member

of a professional body. (2)
8.2 Explain the difference between a qualified, unqualified and negative
audit report. (6)
8.3 Refer to the underlined sentence in paragraph 1. Why do the auditors
include this sentence in their report? Briefly explain. (2)
8.4 Refer to the underlined words in paragraph 2:
(a) Give an example of ‘evidence’ that an auditor would use by
illustrating the audit trail of stock purchases. (6)
(b) Give ONE example of the ‘accounting principles’ he/she would
assess as part of the audit with regards to stock specifically.
Explain why the auditor would inspect this principle. (3)
8.5 Refer to paragraph 3. Explain why you should be satisfied with this
audit opinion. (2)
Due date: …………………………………………

Assessment task: Written report ANSWER SHEET
To be handed out to the learners
Ethical conduct, King Code, professional bodies, audit reports and

internal control
Marks: 115
NAME
1. Ethical behaviour
Crimes or unethical practices? Consequences for guilty persons?
GHK Ltd. purchased 250 000 tons of
coffee beans, which caused the coffee
bean prices to rise to their highest
level ever
Two board members of Pegasus Ltd. was
found guilty after it was discovered that
they sold and re-purchased the same
securities in order to generate activity
and increase the price of their shares.
The Chief Executive Officer (CEO) of a
company learns before anyone else that
the company is to be sued for R700m for
selling harmful products. The CEO and
two employees decide to sell their shares
quickly before this news becomes public.
An employee of a company starts a
business that provides similar services
to similar clients as those of her full-time
employee.
In order to secure a contract, one of
the directors of a company offered a
government official the use of a company
vehicle for free.
One of the managers of a company
employed his son, who starts and finishes
work when he wants and get a raise
every year despite his poor performance.
In 2006, after an investigation, it was
found that major companies in the bread
production industry in South Africa held
meetings to discuss pricing, agree on
price increases and the timing of such
increases.
The CEO of the company instructs the
accountant to enter the costs involved
in accommodation for the directors for
holidays as ‘Marketing costs’.
During the financial year a loan of R800
000 was granted to a company and paid
into their account. The CEO instructs
the accountant to show this as money
received for services rendered, an income
in the Income Statement.
Due to negligence and trying to cut costs,
a company spilled dangerous chemicals
in a nearby river.
40

2. King Code/Report
2.1 What is the purpose of the King Reports?
2.2 What is the ‘triple bottom line’ that the King Code refers to?
2.3 The work done by the internal and external auditor differs. Briefly
explain the work done by each group.

3. Give an example and an explanation on how a company can apply
4. What do the following abbreviations stand for, what is the aim of each
SAICA
SAIPA

5
IRBA

SAICA, is guilty of unprofessional or misconduct?

Standards (IFRS)? What is the difference between GAAP and IFRS?
and name three control measures to minimise these risks.
Risks Control measure
12

of a professional body.

audit report.

include this sentence in their report? Briefly explain.
8.4 (a) G
ive an example of ‘evidence’ that an auditor would use by
illustrating the audit trail of stock purchases.

8.4 (b) G
ive ONE example of the ‘accounting principles’ he/she would
assess as part of the audit with regards to stock specifically. Explain
why the auditor would inspect this principle.
8.5 Refer to paragraph 3. Explain why you should be satisfied with this
audit opinion.
Grand total: 115

Assessment task: Written report MARKING MEMORANDUM
To be used by the teacher
Ethical conduct, King Code, professional bodies, audit reports and

internal control
Marks: 115
Crimes or unethical practices? Consequences for guilty persons?
GHK Ltd. purchased 250 000 tons of Market manipulation – an attempt to GHK Ltd. should face charges in court. If
coffee beans, which caused the coffee artificially increase the price of coffee found guilty, they will be fined. The CEO
bean prices to rise to their highest level beans – called cornering could be disbarred from operating as
ever ✔✔ director.
✔✔
Two board members of Pegasus Ltd. was Market manipulation = churning or The two board members should face
found guilty after it was discovered that painting the tape = creating activity to charges in court. If found guilty, they will
they sold and re-purchased the same attract investors be fined. They could be disbarred from
securities in order to generate activity ✔✔ operating as board members.
and increase the price of their shares. ✔✔
The Chief Executive Officer (CEO) of a Illegal insider trading = selling shares They should face charges in court. The
company learns before anyone else that while possessing confidential information CEO could be disbarred from operating
the company is to be sued for R700m for ✔✔ as director. If found guilty, they will have
selling harmful products. The CEO and be pay back the profit they made from
two employees decide to sell their shares selling the shares and be fined.
quickly before this news becomes public. ✔✔
An employee of a company starts a Conflict of interest = a clash between Stop this practice.
business that provides similar services professional obligations and personal Disciplinary hearing – could lose his job.
to similar clients as those of her full-time interest Report to shareholders
employee. ✔✔ ✔✔
In order to secure a contract, one of This is bribery. Bribery or corruption is a criminal
the directors of a company offered a ✔✔ offence. Can be charged in court and
government official the use of a company face imprisonment, fines and forfeiture of
vehicle for free. their personal assets.
✔✔
One of the managers of a company Conflict of interest – nepotism ✔✔ This must stop. Should be reported to
employed his son, who starts and finishes board.
work when he wants and get a raise ✔✔
every year despite his poor performance.
In 2006, after an investigation, it was Price fixing This will be reported to the competition
found that major companies in the bread ✔✔ commission. They can be severely fined.
production industry in South Africa held ✔✔
meetings to discuss pricing, agree on
price increases and the timing of such
increases.
The CEO of the company instructs the Corporate governance failure. This is an The CEO could be disbarred from
accountant to enter the costs involved unethical attempt to distort the figures in operating as director.
in accommodation for the directors for the financial statements. The accountant could face disciplinary
holidays as ‘Marketing costs’. ✔✔ action in the company.
✔✔
During the financial year a loan of R800 This is unethical – definitely an attempt CEO will face legal charges – he can be
000 was granted to a company and paid to distort figures in the financial disqualification as a director.
into their account. The CEO instructs statements as it inflates the profit figure The accountant could also face legal and
the accountant to show this as money and decreases liabilities. disciplinary action.
received for services rendered, an income ✔✔ ✔✔
in the Income Statement.
Due to negligence and trying to cut costs Corporate governance failure The company will be severely fined.
a company spilled dangerous chemicals Pollution – abuse of the environment ✔✔
in a nearby river. The company did not act with
responsibility towards the environment
according to King III Report.
✔✔
40

2. King Code/Report
2.1 What is the purpose of the King Reports?
It gives guidelines on how to implement good business practice in the business.
OR
It stimulates integrated corporate strategies that are driven towards truly sustainable businesses.
✔✔
2.2 What is the ‘triple bottom line’ that the King Code refers to?
The impact a business has on all spheres in which it operates: economic ✔, social ✔ and
environmental ✔
2.3 The work done by the internal and external auditor differs. Briefly
explain the work done by each group.
Internal auditor: Employed by the company and monitor the activities of the company on an ongoing
basis
✔✔
External auditor: Employed by the shareholders to give an opinion on the financial statements of the
company
✔✔

3. Give an example and an explanation on how a company can apply
Any example ✔✔
Explanation ✔✔
4. What do the following abbreviations stand for, what is the aim of each
SAICA
South African Institute for Chartered Accountants ✔
To look after and promote the interest of the Chartered Accounting profession in SA
OR
To promote accounting, protect independency, set high standards for professional behaviour
✔✔
B.Com + Post-graduate degree in Accounting + qualifying exam + 3 years’ articles + ongoing

professional development ✔✔

SAIPA
South African Institute of Professional Accountants ✔
To look after the interest of accounting officers in SA ✔✔
Tertiary qualification in accounting + ongoing professional development ✔✔
IRBA
Independent Regulatory Board of Auditors ✔
To promote and look after the interests of Registered Auditors in SA ✔✔
Public Practice exam + ongoing professional development ✔✔

SAICA, is guilty of unprofessional or misconduct?
The punishment imposed by SAICA on a member found guilty of misconduct will depend on the severity of the offence. A
member who is found guilty of a minor transgression may be:
• cautioned; or
• reprimanded; or
• fined.
If a member is found guilty of a more serious act of misconduct, the member may be:
• suspended from membership; or
• struck off the membership roll.
The Professional Conduct Committee has limited sentencing powers and may only caution, reprimand or fine an offending
member. If the Professional Conduct Committee considers the offence to be so serious that it might warrant a more severe
penalty, such as suspension, it will refer the matter to the Disciplinary Committee.
• All complaints must be lodged with The Project Director: Legal Compliance and Discipline.
• The Project Director: Legal, Compliance and Discipline, will first verify whether the person complained against (the accused) is a
member of SAICA.
• If that person is a member of the Institute, the Project Director: Legal, Compliance and Discipline will consider the allegations.
• If there is a prima facie contravention of the by-laws, the accused will be notified of the complaint and given twenty-one (21)
days to respond to the complaint.
• If the period within which to respond lapses without a response being received, or if a response is procured but is not
satisfactory, then the matter will be referred either to:
– the Professional Conduct Committee (PCC) – if the allegations relate to a general allegation of professional conduct, or
– the Disciplinary Committee (DC) – if the matter relates to a serious allegation of misconduct.
• Where possible, SAICA shall seek to apply alternative dispute resolution measures, such as mediation and/or arbitration in an
effort to exhaust all possible avenues prior to putting matters through one of the committees that adjudicate over matters
(PCC or DC).
In instances where an accused provides the Institute with a response to a complaint against him/her and permits the Institute to
share his/her response with the complainant, the complainant will be offered twenty-one (21) days to respond thereto. Thereafter,
the matter shall either be resolved or referred to the appropriate committee for adjudication.
Any acceptable answer. Any 4 points × ✔✔

Standards (IFRS)? What is the difference between GAAP and IFRS?
Both IFRS and GAAP contain detailed statements covering specific areas of financial reporting. ✔✔
GAAP is specific for South Africa while as IFRS is a set of high-quality financial reporting standards
that can be used in all countries. ✔✔
The use of IFRS in many countries around the world has enhanced the comparability of financial
statements worldwide. ✔✔
Any acceptable answer

and name three control measures to minimise these risks.
Risks Control measure
Fixed assets can be stolen. ✔✔ Assets must be safeguarded / insured. ✔✔
Fixed assets can be used for personal benefit / Log book for use of vehicle / write down
misused by employees. ✔✔ kilometres ✔✔
Monitor use of assets / maintenance of assets.
Fixed assets not used effectively. ✔✔
✔✔
12

of a professional body.
So that the readers of the financial statements can have confidence in his opinion
OR
Assurance to the public/shareholders that he/she is well trained on an ongoing basis
OR
To benchmark quality of work ✔✔

audit report.
Unqualified: Without any problems = good report ✔✔
Qualified: Reveals problems in certain areas of the company = all is not well ✔✔
Negative: Auditor do not what to give a report = very bad ✔✔

include this sentence in their report? Briefly explain.
The auditor expresses an opinion, he/she does not prepare the financial statements
OR
The auditor only checks on a test basis - the directors are responsible for the figures.
✔✔
8.4 (a) G
ive an example of ‘evidence’ that an auditor would use by
illustrating the audit trail of stock purchases.
Authorisation was given for purchases. ✔
Invoice received is compared with the delivery note and stock delivered. ✔
Invoice received is entered correctly in the journal. ✔
Journal is posted correctly in the ledgers. ✔
Ledgers posted correctly to the Trial Balance. ✔
Entered correctly in the statements. ✔
8.4 (b) G
ive ONE example of the ‘accounting principles’ he/she would
assess as part of the audit with regards to stock specifically. Explain
why the auditor would inspect this principle
Prudence principle ✔ = stock should be valued at its net realisable value ✔ = conservative approach
✔
8.5 Refer to paragraph 3. Explain why you should be satisfied with this audit
opinion.
The auditors have stated that they are satisfied with all aspects of the financial reporting by the
directors. ✔✔
Grand total: 115

2. Forms of assessment: CONTROLLED Tests
Two tests, written under controlled conditions, are prescribed for Grade 12.
These tests should adhere to the following:
• All classes in the same grade complete the tests on the same day.
• All learners write the same test and complete them under examination
conditions.
• Questions must comply with year-end examination standards.
• Where there is more than one teacher, agreement must be reached on
the scope, as well as the date and time of the test.
• Duration of each of these tests should be at least one hour.
• Total for the tests should be 100 marks.
• Tests should cover the different cognitive levels as in examinations.
• Tests should also include problem-solving questions.
• Test should cover a range of integrated topics.
• The two tests should be written, one in term 1 and another in term 3.
The tests should cover some of the following topics:
Controlled test 1 – Term 1:

• Cash Flow Statement
• Analysis and interpretation of financial statements
Controlled test 2 – Term 3:

• Production Cost Statement
• Calculating unit costs
• Calculating breakeven point
• Ethics

Assessment task: Controlled Test 1
Cash Flow Statement and analysis and interpretation of financial
statements
Accounting Total: 100 marks

Grade 12Time: 1 hour
Date: March
You are provided with information relating to Qoba Ltd. for the financial
year ended 28 February 2017. The authorised share capital of the company is
500 000 shares. On 28 February 2017 310 000 shares were in issue. Round of
to two decimals if necessary.
Required
1. Refer to the note for Fixed/Tangible assets under Information
a. Calculate the fixed/tangible assets purchased. (4)
b. Prepare the Accumulated Depreciation on Equipment account for
the period 1 March 2016 to 28 February 2017 in the General Ledger.(16)
2. Cash Flow Statement
a. Complete the note for reconciliation of net profit before tax and
cash generated from operations. (19)
b. Complete the Cash Flow Statement for the year ended 28 February
2017. Where the note to the Cash Flow Statement was not required,
show the calculations in brackets. (24)
3. Calculate the following financial indicators for 2017:
a. Debt : equity ratio (Debt : Shareholders’ equity) (3)
b. Acid test ratio (4)
c. Earnings per share (4)
4. Comment on the debt : equity ratio and the return on capital employed.
Quote the figures of these financial indicators and comment on each. (4)
5. Comment on the liquidity position of the company on 28 February 2017.
Has liquidity improved or deteriorated? Use at least THREE financial
indicators from the table to motivate your answer. (7)
6. At the end of the 2016 financial period the directors were very concerned
about the cash-flow of the company. Is there an improvement with
regards to cash flow and liquidity at the end of the 2017 financial
period? List at least TWO significant changes or decisions that affected
the position of the company. Quote figures and ratios to support your
answer. (8)
7. The market price of the shares on the JSE was R6,05 on 28 February
2017. Would you be satisfied as a shareholder? Explain by quoting figures
and giving comment on financial indicators with regards to share price,
earnings and dividends. (7)

Information
The following were extracted from the financial statements on 28 February 2017
BALANCE SHEET 2017 2016
Shareholders’ equity 1 775 520 1 281 030
Share capital (310 000 shares issued end of 2017)
(225 600 shares issued end of 2016) 1 676 760 1 178 800
Retained income 98 760 102 230
Loan (16% interest p.a.) 165 000 450 000
Current liabilities 135 605 151 440

Trade and other payables 135 605 139 100
Bank overdraft – 12 340
Current assets 252 055 185 470

Inventory 95 075 134 500
Trade and other receivables 64 300 50 070
Cash and cash equivalents 92 680 900
INCOME STATEMENT 2017 2016

Net profit before tax 451 770 302 000
Income tax 176 240 93 640
Interest expense 47 600 72 000
NOTES FROM THE FINANCIAL STATEMENTS

FIXED/ TANGIBLE ASSETS Land and Vehicles Equipment
buildings
Carrying value beginning of the 1 426 000 226 600 44 400
year
Cost 1 426 000 340 000 90 000
Accumulated depreciation 0 (113 400) (45 600)
MOVEMENTS
Additions at cost ? 0 5 000
Disposals at carrying value 0 0 ?
Depreciation 0 (25 320) ?
Carrying value end of the current 1 586 000 201 280 36 790
year
Cost 1 586 000 340 000 83 000
Accumulated depreciation 0 (138 720) (46 210)
Notes
• Equipment with a cost price of R12 000 and accumulated depreciation
of R5 000 on 1 March 2016 was sold at the carrying value on 31 August
2016.
• The new equipment was purchased on 28 February 2017.
• Depreciation on equipment is provided at 15% on the diminishing
balance method.
• No vehicles was purchased or sold during the year.
• Extensions to land and building were made during the year.

TRADE AND OTHER RECEIVABLES
2017 2016
Trade debtors 63 100 44 200
Accrued income 1 200 1 000
SARS (income tax) – 4 870
64 300 50 070
TRADE AND OTHER PAYABLES

2017 2016
Trade creditors 34 715 65 900
Accrued expenses 2 900 3 200
SARS (income tax) 7 990 –
Shareholders for dividends 90 000 70 000
135 605 139 100
1. FINANCIAL INDICATORS
2017 2016
Debt : equity ratio ? 0,35 : 1
Return on average capital employed 27,2% 21,7%
Current ratio 1,8 : 1 1,2 : 1
Acid test ratio ? 0,34 : 1
Debtors collection period 35 days 40 days
Rate of stock turnover 11,2 times 7 times
Earnings per share ? 81 cents
Dividends per share 90 cents 88 cents
Net asset value per share R5,73 R5,68

ASSESSMENT TASK: CONTROLLED TEST 1 ANSWER SHEET
Cash Flow Statement and analysis and interpretation of financial
statements

Date: March
1.a. Calculate the fixed/tangible assets purchased.
1.b. General Ledger of Qoba Limited

Dr Accumulated Depreciation on Equipment Cr
Date Details Fol. Amount Date Details Fol. Amount
16
Show calculations here:
2.a.
Note to the Cash Flow Statement
Reconciliation between profit before tax and cash generated by operations
Net income before tax 451 770
Adjustment for:
Interest expense 47 600
Operating profit before changes in current capital

Changes in working capital
Cash generated by activities
19

Use the Appropriation account to show the calculation for share dividends:
Dr Appropriation account Cr
2.b.
QOBA Ltd.
CASH FLOW STATEMENT for the YEAR ENDED 28 FEBRUARY 2017
Cash flow from operating activities
Cash flow from investment activities
Cash flow from financing activities
Cash and cash equivalents end of previous year (11 440)

Cash and cash equivalents end of current year 92 680
24
3.a. Debt : equity ratio
3.b. Acid test ratio

3.c. Earnings per share
4. Comment on the debt : equity ratio and the return on capital employed. Quote the figures of
these financial indicators and comment on each.
5. Comment on the liquidity position of the company on 28 February 2017. Has liquidity improved
or deteriorated? Use at least THREE financial indicators from the table to motivate your answer.
6. At the end of the 2016 financial period the directors were very concerned about the cash-flow
of the company. Is there an improvement with regards to cash flow and liquidity at the end of
the 2017 financial period? List at least TWO significant changes or decisions that affected the
position of the company. Quote figures and ratios to support your answer.
Is there an improvement with regards to cash flow?
TWO SIGNIFICANT CHANGES / DECISIONS:
7. The market price of the shares on the JSE was R6,05 on 28 February 2017. Would you be
satisfied as a shareholder? Explain by quoting figures and giving comment on financial
indicators with regards to share price, earnings and dividends.

ASSESSMENT TASK: CONTROLLED TEST 1 MEMORANDUM
Cash Flow Statement and analysis and interpretation of financial statements

Date: March
1.a. Calculate the fixed/tangible assets purchased.
Land and buildings (1 586 000 – 1 426 000) = 160 000 ✔✔

Equipment   5 000 ✔ 
_________
  
165 000 ✔
1.b. General Ledger of Qoba Limited

Dr Accumulated Depreciation on Equipment Cr
2016 2016
Aug 31 Asset disposal ✔ ✔✔✔ 5 525 Mar 01 Balance b/d ✔ 45 600
Balance Cf ✔ 40 600 Aug 31 Depreciation ✔ ✔✔✔ 525
46 125 46 125
Sep 01 Balance Bd (✔) 40 600
2017
Feb 28 Depreciation ✔ ✔✔✔ 5 610
(✔) 46 210
16
Calculations:
Depreciation on sold equipment – 31 August 2016:
(12 000 – 5 000) × 15% × __ 6   = R525
 12
Depreciation on old equipment on 28 February 2017:
[(90 000-12 000) – 40 600] × 15% = R5 610
2.a.
Note to the Cash Flow Statement
Net income before tax 451 770
Adjustment for:
Depreciation (525✔ + 5 610✔ + 25 320✔) 31 455
Operating profit before changes in current capital (✔)530 825
Changes in working capital (✔) (11 160)
Decrease in inventory (134 500 ✔– 95 075✔) ✔39 425
Increase in debors (64 300✔ – (50 070✔ – 4 870✔)) ✔ (19 100)
Decrease in creditors [(139 100 ✔– 70 000✔) – (135 605✔ – 90 000✔ – 7 990✔)] ✔ (31 485)
Cash generated by activities (✔) 519 665
19

Calculations:
2017 2017
Feb 28 Income tax 176 240 Feb 28 Profit and loss 451 770
Share dividends 279 000 Retained income 102 230
Retained income 98 760
554 000 554 000
Work back to share dividends
2.b.
QOBA LTD.
Cash flow from operating activities (✔)49 685
Cash generated by activities (✔)519 665
Interest paid ✔ (47 600)
Dividends paid (–279 000✔✔✔✔ – 70 000✔ + 90 000✔) (259 000)
Income tax paid (–176 240 ✔+ 4 870✔ + 7 990✔) (163 380)

Cash flow from investment activities (✔)(158 525)
Fixed assets purchased (✔)(165 000)
Proceeds of asset disposal (12 000✔ – 9 025(✔)) 6 475
Cash flow from financing activities (✔)212 960
Proceeds from shares issued [(1 550 000 ✔– 1 128 000✔) + (126 760✔ – 50 800✔)] 497 960
Payment of loan (450 000✔ – 165 000✔) (285 000)
Net change in cash and cash equivalents ✔104 120

Cash and cash equivalents end of previous year (11 440)
Cash and cash equivalents end of current year 92 680
24
3.a. Debt : equity ratio

Non-current liabilities : shareholders’ equity
165 000 ✔: 1 775 520✔
= 0.09 : 1✔
3.b. Acid test ratio

Current assets – inventory : current liabilities
(252 055 ✔– 95 075✔) : 135 605✔
= 1,16 : 1✔

3.c. Earnings per share
Net profit after tax
_____________________
        
Number of issued shares
(451 770 – 176 240)✔ ____
 ___________________
  
     ×  100
1
  
(1 550 000 ÷ 5)✔
275 530 
 _______  × 100
310 000
= 88,88 ✔ cents per share✔
4. Comment on the debt : equity ratio and the return on capital employed. Quote the figures
of these financial indicators and comment on each.
The debt : equity ratio improved from 0,35 : 1 to 0,09 : 1, ✔

which means the company is very low geared and relies mostly on own capital and not foreign
capital. ✔
The return on capital employed increased from 21,7% to 27,2%.✔
This indicated that the company are earning more on the money(capital) they employ (use) in
the business – it is higher than the interest rate on the loan of 16% - very good. ✔
5. Comment on the liquidity position of the company on 28 February 2017. Has liquidity
improved or deteriorated? Use at least THREE financial indicators from the table to
motivate your answer.
Liquidity has improved. ✔

• Current ratio has improved from 1,2 to 1,8 : 1 from 2016 to 2017.
• Acid test ratio has improved from 0.34 to 1,16 : 1 from 2016 to 2017.
• The rate of stock turnover increase from 7 times to 11,2 times per year and this would have
had an positive effect on the liquidity.
• Debtors’ collection improved from 40 days to 35 days, but is still below the ideal time of
30 days.
✔✔ × 3 for any acceptable answer
6. At the end of the 2016 financial period the directors were very concerned about the cash-
flow of the company. Is there an improvement with regards to cash flow and liquidity at
the end of the 2017 financial period? List at least TWO significant changes or decisions that
affected the position of the company. Quote figures and ratios to support your answer.
Is there an improvement with regards to cash flow?
There is an improvement in cash flow as the bank balance increased from a negative balance
of R11 440 to a positive balance of R92 680. That results in an inflow of R104 120.✔✔
TWO SIGNIFICANT CHANGES / DECISIONS:

• The business sold off excess stock – stock decreased from R134 500 to R92 100 and this had
a positive effect on the cash flow
• Cash generated from operations is a positive amount of R519 665 which means that the
business generates cash from its operating activities.
• The loan was repaid, which means the short term loan as well as the interest on loan
decreased – this will have a positive effect on the cash flow as well as the liquidity
• The company issued shares – part of it was used to repay the loan and purchase fixed assets,
but the rest had a positive influence on the cash flow and liquidity, as cash increased
✔✔✔ × 2 for any acceptable change / decision

7. The market price of the shares on the JSE was R6,05 on 28 February 2017. Would you be
satisfied as a shareholder? Explain by quoting figures and giving comment on financial
indicators with regards to share price, earnings and dividends.
Yes, I would be satisfied. ✔

The market price is R6,05, which is above the net asset value of R5,73 on 28 February 2017.
✔✔
Earnings per share increased from 81 cents to 88,8 cents in 2017 ✔✔
Dividends per share increased slightly from 88 cents to 90 cents ✔✔

ASSESSMENT TASK: CONTROLLED TEST 2
Heading: Manufacturing, unit costs and breakeven point and Budgets

Date: September
Question 1 Cost accounting (52 marks: 31 minutes)
SECTION A: PRODUCTION COST STATEMENT [38]

You are provided with information relating to Hippo Rock Manufacturers
for the financial year ended 28 February 2019.
This business produces soccer jerseys, and sells these at a mark-up of 50% on
cost. They use the perpetual stock system for finished goods and the periodic
stock system for raw materials and indirect materials.
Required
1.1 Calculate the value of raw materials that was issued to the factory for the
year ended 28 February 2019. You may prepare the Raw Material Stock
account to assist with your calculations. (6)
1.2 Prepare the note for Factory overhead cost for the year ended
28 February 2019. (22)
1.3 Prepare the Production Cost Statement for the year ended
28 February 2019. (10)
Information
• The following balances appeared, among others, in the General Ledger
of Moore & Son at the beginning and end of the financial year:
1 March 2018 28 February 2019
Raw material stock 162 300 197 300
Work-in-process stock 123 000 109 800
Finished goods stock 87 500 112 400
Factory indirect material stock 6 220 7 130
Factory equipment 260 800 236 800
Transactions during the year:

Purchase of raw materials 1 022 900
Carriage of purchase on raw materials 19 640
Factory indirect material purchased 77 800
Wages to factory employees who make the jerseys 954 000
UIF contribution for factory employees 9 540
Salary paid to factory foreman 78 000
Wages paid to factory cleaner 38 000
Commission paid to sales staff 123 000
Maintenance of factory equipment 32 000
Water and electricity paid (see additional information) 187 000
Rent paid (see additional information) 110 500
Sundry expenses: Factory 192 800
Sundry expenses: Administration staff 330 000
Sundry expenses: Sales department 189 000
Factory equipment purchased on 1 January 2019 24 000

Additional information and adjustments
• An amount of R3 800 was still outstanding on the water and electricity
account for February 2019. Seventy per cent (70%) of all the water and
electricity was used in the factory.
• The rent expense is to be split across the various departments according
to floor area – the factory accounts for 800 square metres, the
administration offices 200 square metres and the sales department 300
square metres.
• Depreciation on factory equipment must be brought into account at 10%
per annum on the cost price. Take note that new equipment was
purchased on 1 January 2019, but no equipment was sold during the year.
SECTION B: UNIT COST AND BREAKEVEN ANALYSIS [14]

Required
1.4 Compare the unit costs of 2019 with those of 2018. Some of the unit
costs have been affected by inflation. In each of the following cases give a
possible reason (other than inflation) for the change:
a. Direct material cost per unit (2)
b. Direct labour cost per unit (2)
c. Factory overhead cost per unit (2)
1.5 Calculate the breakeven point for 2019. (5)
1.6 Comment on the breakeven point calculated in question 1.5. Should the
business be satisfied with the number of units produced? Explain. (3)
Information
• ZZZ Manufacturers made and sold 38 000 beds during the year ended 31
December 2019. They produced 20 000 beds in the previous year.
• Beds were sold at a fixed price of R540 in 2019 and at R500 in 2018.
• All items finished were sold. There was no work-in-process at the
beginning or end of the financial year.
• The following totals and unit costs were identified:
2019 2018
38 000 units produced 20 000 units produced
Total cost Unit cost Total cost Unit cost
Variable cost 12 553 300 330,35 6 414 000 320,70
Direct material cost 5 897 600 155,20 3 210 000 160,50
Direct labour cost 6 270 000 165 3 000 000 150
Selling and distribution cost 385 700 10,15 204 000 10,20
Fixed cost 1 035 880 27,26 909 400 45,47

Factory overhead cost 715 920 18,84 636 000 31,80
Administration cost 319 960 8,42 273 400 13,67
Total cost 13 589 180 357,61 7 323 400 366,17

Question 2 Budgets (48 marks: 29 minutes)
Elon Traders, a business that buys and sells toys, uses the perpetual stock
system and a profit mark up of 50% on cost price.
Required
Study the Cash Budget below and answer the questions which follow.
ELON TRADERS
CASH BUDGET FOR THE PERIOD 1 NOVEMBER 2018 TO 31 JANUARY 2019
CASH RECEIPTS November December January
Collections from debtors ? ? ?
Cash sales 252 000 648 000 252 000
Interest on current account 400 348
Proceeds from fixed deposit 49 440
TOTAL RECEIPTS ? ? ?
CASH PAYMENTS
Cash purchases of stock ? 216 000 66 000
Payment to creditors 212 800 ? 478 800
Wages to bookkeeper 20 800 20 800 20 800
Rent paid 17 000 17 000 18 700
Salaries to employees 176 000 162 000 174 960
Other operating expenses 33 200 34 400 35 600
Drawings 60 000 60 000 78 000
Deposit on new vehicle 70 000
Instalment on new vehicle 39 000
Interest on overdraft 1 350
TOTAL PAYMENTS ? 767 750 911 860
Cash surplus (deficit) (170 440) 173 530 (e)
Bank balance at the beginning of month 80 440 (b) (f)
Bank balance at the end of month (a) (c) (g)
Questions
2.1 Complete the debtors collection schedule using the information below.
(10)
• Sales and cost of sales
Actual sales Budgeted sales Cost of sales
October 2018 480 000 320 000
November 2018 420 000 280 000
December 2018 1 080 000 720 000
January 2019 420 000 220 000
• 40% of the total sales is sold on credit.

• Debtors are expected to pay their accounts as follows:
30% settle their accounts in the same month as the credit sale.
68% settle in the month following the transaction month.
2% is to be written off.
2.2 Using the information below: (8)

a. Calculate the cash purchase of stock during November.
b. How much will be paid to creditors during December?

Additional information
A fixed level of trading stock on hand is maintained throughout the year
through replacement on a monthly basis.
• Purchases of stock:
70% of stock is bought on credit.
Creditors are paid in full in the month following the month of purchase
to qualify for a 5% settlement discount.
2.3 Calculate (a)–(g) as indicated on the Cash Budget. (10)

2.4 Explain the possible reasons for the increase in sales in December and
contrast it against November’s and January’s sales. (4)
2.5 Study the salaries and wages figure from the Cash Budget. Salaries to
employees should have increased because sales increased in December?
Mr Elon’s is of the opinion that his staff should not get extra pay for
overtime worked. Is he acting ethically? (4)
2.6 Give one possible reason why Elon Traders could have cashed in on
their fixed deposit. (3)
2.7 Mr Elon, the owner of Elon Traders, discovered a new supplier that can
supply him with toys at a much cheaper price. A product that he bought
from his previous supplier for R30 and sold for R45, can be bought from
this new supplier for R23,50. Mr Elon is considering changing to this new
supplier but keeping his selling price at R45.
a. Should he consider keeping his selling price at R45 even though he is
getting the product at a cheaper price? (3)
b. Explain TWO factors he should consider before changing suppliers.(6)

ASSESSMENT TASK: CONTROLLED TEST 2 ANSWER SHEET

Date: September
Question 1
SECTION A
1.1 Calculate the value of raw materials that was issued to the factory for the year ended
28 February 2019. You may prepare the Raw Material Stock account to assist with your
calculations.
1.2 Factory overheads
22
1.3 Production Cost Statement for the year ended 28 February 2019
Prime / Direct cost
Total manufacturing cost
Balance of work-in-process beginning of the year
Balance of work-in-process end of the year
Cost of production of finished goods
22

SECTION B
1.4 Compare the unit costs of 2019 with those of 2018. Some of the unit costs have been
affected by inflation. In each of the following cases give a possible reason (other than
inflation) for the change:
1.4 a) Direct material cost per unit:
1.4 b) Direct labour cost per unit:
1.4 c) Factory overhead cost per unit:
2×3

1.5 Calculate the breakeven point for 2019.
Fixed cost
1.6 Comment on the breakeven point calculated above. Should the business be satisfied with
the number of units produced? Explain.

Question 2
ELON TRADERS
2.1 DEBTORS COLLECTION SCHEDULE
CREDIT SALES November December January
October 2018 192 000 130 560
November 2018 168 000 50 400
December 2018 432 000 0
January 2019 168 000 0
180 960
10
2.2 a. Calculate the cash purchase of stock during November.
2.3
Cash surplus (deficit) (170 440) 173 530
Bank balance at the beginning of month 80 440
Bank balance at the end of month
10
2.4 Explain the possible reasons for the increase in sales in December and contrast it against
November’s and January’s sales.

2.5 Study the salaries and wages figure from the Cash Budget above. Salaries to employees should
have increased because sales increased in December? Mr Elon’s is of the opinion that his staff
should not get extra pay for overtime worked. Is he acting ethically?
2.6 Give one possible reason why Elon Traders could have cashed in on their fixed Deposit.
2.7 Mr Elon, the owner of Elon Traders, discovered a new supplier that can supply him with toys at
a much cheaper price. A product that he bought from his previous supplier for R30 and sold
for R45, can be bought from this new supplier for R23,50. Mr Elon is considering changing to
this new supplier but keeping his selling price at R45.
Should he consider keeping his selling price at R45 even though he is getting the product at a
cheaper price?
Explain TWO factors he should consider before changing suppliers.

ASSESSMENT TASK: CONTROLLED TEST 2 MEMORANDUM
Date: September
Question 1
SECTION A
1.1 Calculate the value of raw materials that was issued to the factory for the year ended
28 February 2019. You may prepare the Raw Material Stock account to assist with your
calculations.
R162 300 ✔+ 1 022 900✔ + 19 640✔✔ – 197 300✔ = R1 007 540✔

Or
Dr Raw Material Stock Cr

Balance b/d 162 300 Raw materials issued 1 007 540
Purchases 1 022 900 Balance c/d 197 300
Carriage 19 640
1 204 840 1 204 840
Balance b/d 197 300
1.2 Factory overheads
Indirect material used(6 220✔ + 77 800✔✔ – 7 130✔) 76 890
Indirect labour (78 000✔ + 38 000✔) 116 000

Maintenance of factory equipment ✔32 000
Water and electricity (187 000 ✔+ 3 800✔) x 70% (if R130 900✔) ✔133 560
  800   ) 
Rent expense (110 500 ✔× _______ ✔68 000
1 300✔
Sundry expenses ✔192 800
  2   ✔
Depreciation [(236 800 × 10%✔✔✔) + (24 000 × 10% × ___   ✔✔) ✔24 080
12
643 330
22
1.3 Production Cost Statement for the year ended 28 February 2019
Prime / Direct cost ✔1 971 080

Direct material cost ✔1 007 540
Direct labour cost (954 000✔ + 9 540✔✔) 963 540
Factory overhead cost ✔643 330
Total manufacturing cost ✔2 614 410
Balance of work-in-process beginning of the year ✔123 000
2 737 410
Balance of work-in-process end of the year ✔ (109 800)
Cost of production of finished goods ✔2 627 610
10

SECTION B
1.4 Compare the unit costs of 2019 with those of 2018. Some of the unit costs have been
affected by inflation. In each of the following cases give a possible reason (other than
inflation) for the change:
1.4 a) Direct material cost per unit:
The business buys raw materials from a different supplier at cheaper prices ✔✔
or
Direct materials was used more efficiently – less wastage
1.4 b) Direct labour cost per unit:
Wages per hour has increased – wage increase ✔✔
Or
They had to work more overtime at 1,5 times normal time tariff
Or
Employees were less productive
1.4 c) Factory overhead cost per unit:
A greater number of units was produced than in 2010, therefore factory overheads per unit will
decrease as it is a fixed cost ✔✔
Or
Better control over expenses
2×3
1.5 Calculate the breakeven point for 2019.

Fixed  
cost
 __________________
   
Contribution per unit
✔✔
1 035 880  
=  _________________
   
(540✔ – 330,35✔)
 1 035 880
= _________   
 
209,65
= 4 941 units✔
1.6 Comment on the breakeven point calculated above. Should the business be satisfied with
the number of units produced? Explain.
They should produce 4 941 units to break even, but has produced 38 000 units in the year.✔
They could be satisfied as they exceeded the BEP by a significant quantity. ✔✔

Question 2
ELON TRADERS
2.1 DEBTORS COLLECTION SCHEDULE
CREDIT SALES November December January
October 2018 192 000 130 560 0 0
November 2018 168 000 50 400 ✔✔ 114 240
December 2018 432 000 0 ✔✔ 129 600 ✔✔ 293 760
January 2019 168 000 0 - ✔✔ 50 400
180 960 (✔)243 840 (✔) 344 160
10
2.2 a. Calculate the cash purchase of stock during November.

R280 000✔ × ____   30  ✔
  = R84 000✔
100
  70   ✔= R186 200✔
R280 000 ✔ × ____
100
R186 200 × 95% ✔= R176 890 ✔
2.3
Cash surplus (deficit) (170 440) 173 530 ✔✔(315 352)*
Bank balance at the beginning of month 80 440 ✔ (90 000) ✔83 530
Bank balance at the end of month ✔✔ (90 000) ✔✔ 83 530 ✔✔ (231 822)
* R596 508 – 911 860 = R315 352
10
2.4 Explain the possible reasons for the increase in sales in December and contrast it against
November’s and January’s sales.
The business sells toys and December is a time when customers buy toys.✔✔ The actual sales
in November are particularly low and January’s sales are expected to be in line with that of
November. ✔✔
2.5 Study the salaries and wages figure from the Cash Budget above. Salaries to employees should
have increased because sales increased in December? Mr Elon’s is of the opinion that his staff
should not get extra pay for overtime worked. Is he acting ethically?
Mr Elons is not acting ethically. His staff members are loyal to him and they should get extra
pay for overtime worked. ✔✔
It is against labour laws not to pay employees overtime if they worked for it. ✔✔

2.6 Give one possible reason why Elon Traders could have cashed in on their fixed Deposit.
They bought a new vehicle for the business and had to pay a deposit of R70 000 for the
vehicle. They needed the money from the fixed deposit to help pay for the deposit. ✔✔✔
2.7 Mr Elon, the owner of Elon Traders, discovered a new supplier that can supply him with toys at
a much cheaper price. A product that he bought from his previous supplier for R30 and sold
for R45, can be bought from this new supplier for R23,50. Mr Elon is considering changing to
this new supplier but keeping his selling price at R45.
Should he consider keeping his selling price at R45 even though he is getting the product
at a cheaper price?
No ✔
He is acting unethically. He should reduce his selling price and still make the same profit
mark-up of 50%. If he sells the goods at the same price he will be making a profit mark-up
of 90%. ✔✔
Explain TWO factors he should consider before changing suppliers.
He must check whether the goods are of the same quality as his previous suppliers goods.
✔✔✔
He must ensure that the new supplier will have enough stock to deliver and that the new
supplier is not a “fly-by-night” business. ✔✔✔
He must ensure that he will be getting the same service as from the previous supplier and that
he will be able to build a relationship with the new supplier. ✔✔✔
Any two acceptable answers × ✔✔✔

3. Forms of assessment: Projects
The project is mandatory and only one project is recommended per year.
When preparing a project, consider the following minimum requirements:
• Learners are given the necessary guidance prior to commencement of
the project and progress is monitored.
• Certain aspects of the project are completed in class to enable teachers to
monitor progress.
• All criteria used to assess project are discussed with learners.
• Generally, projects are given a longer period of time to complete as they
involve some sort of research, consolidation and selection of relevant
information and the preparation of a written document as evidence.
• Often projects can involve solving some form of problem.
• Research may form part of the project – the project is evidence of
the project conducted. However, this may not always be the case. For
example, the computerised accounting programme will not involve
research but rather develop skills.
Suggestions
• The project should be handed out and discussed with learners towards
the end of the first term.
• Projects are to be handed in during the second term.
• The teacher should monitor progress during the term.
Marks
• This project is out of 60 marks but CAPS requires a mark out of 50. To
scale down the mark from 60 to 50, apply the following formula:
Mark awarded to learner ÷ 60 × 50 = new mark out of 50

Assessment task: Research Project
Analysis and interpretation of financial statements
Accounting Grade 12Total: 60 marks
INSTRUCTIONS
Use the published financial statements of any company and prepare the
analysis and interpretation of the financial statements.
Do research on the following:
1. Advantages and disadvantages of a company when comparing a CC and
a partnership
2. Procedure with the purchase and selling of shares
3. Formation procedure of a public company when comparing a CC or
partnership
4. Study the published statements of the company you have chosen and
give a report on / show the following:
4.1 Information on the company:
What product do they offer?
At what price are the shares registered and what is the issued share
capital?
What is the market value of the shares at the moment?
4.2 Calculations and comments
Profit margin of the company – gross profit as percentage of turnover
Cost control of the company
Liquidity of the company
Debt/owner’s equity ratio (gearing) and solvency of the company
Returns earned by the company and the shareholders
Note: All calculations must be shown. Answers only will not earn
any marks.
4.3 Directors’ and audit reports
Explain the purpose of a directors’ report and an audit report is and give
a short summary of your chosen company’s directors’ and audit reports.
4.4 In terms of the King Report, state if the company shows commitment to
the local community and environment.
Requirements that the project must comply with:

• Must have a front page, a table of contents and bibliography with specific
Internet addresses.
• Must consist of a minimum of four typed or six written A4 pages.
• Must be stapled neatly; no need to bind it in a special way. No Flip files.
• Must staple this page to your project. You will be penalised if you lose
this page.
• The specific company’s financial statements you chose must be attached.
• No information may be copied directly from any source; therefore,
information must be interpreted and rewritten in your own words as far
as possible.
• It must be your own work.
Name: …………………………………………
Due date: …………………………………………

Assessment rubric
Section 0–1 2 3 4–5 Mark
achieved
General guidelines The requirements One or two of the Half of the The requirements
and instructions requirements are requirements have are fully fulfilled.
have not been met fulfilled. been met. Handed in on time.
or handed in late.
Technical quality Bad technical An attempt has Good presentation, Excellent
presentation, been made. Neat made full use of presentation,
untidy. Little effort. but shortcoming available sources. technically well-
still exists. prepared. Lots of
effort has been
made; impressive
final product.
Advantages and No advantages Advantages and Adequate A detailed
disadvantages and disadvantages disadvantages explanation of explanation of
mentioned. mentioned. advantages and advantages and
disadvantages disadvantages
given. given.
Procedure with the The procedure The procedure The procedure The procedure
purchase & sale of shares with purchase & with purchase with purchase & with purchase &
sale of shares was & sale of shares sale of shares was sale of shares was
explained badly. was explained well explained. explained very
reasonably. well.
Formation procedure of Procedures are Procedures Procedures Procedures are
company not explained/ are explained are explained fully explained.
explained badly. incompletely. reasonably in full.
Information from the Information from Information from Information from Information from
chosen company the company is the company is the company the company is
explained badly explained and is explained explained very well
and statement is statement is not reasonably and and statement is
not attached. attached. statement is attached in full.
attached.
Directors’ & Audit Reports Is not able to write Is able to write Is able to write a Is able to write a
a report; insight a report; insight relevant report relevant report
lacking. lacking. with good insight. with in depth
presentation with
good insight.
Commitment to the No examples Involvement in Involvement in Involvement in
local community and provided. community and community and community and
environment environment only environment environment
mentioned. mentioned and described and
described. opinion given.
0–3 4–6 7–8 9–10
Calculations and analysis of Calculations All calculations All calculations All calculations
financial statement incomplete and complete and 50% complete and 75% complete and
mostly wrong. correct. correct. between 80–100%
correct.
Comments on calculations Poor comments Some comments Good comments Excellent
made that show no are relevant. made but lack comments with
understanding. depth and insight. good insight
shown.
TOTAL MARK /60

4. Forms of assessment: Examinations
Step-by-step process on how to set up an examination paper
Step 1 Know the total value of the examination paper:
For mid-year examinations

Number of papers Time allocation Marks Topics
Grade 10 1 2 hours 200 marks In proportion
to time
devoted to
Grade 11 1 3 hours 300 marks
each topic
(as indicated
Grade 12 1 3 hours 300 marks in the work
schedule)
For trial examination (Grade 12 only)

Grade 12 1 3 hours 300 marks Full scope
Final examination
Grade 10 1 3 hours 300 marks Full scope
Externally set
Step 2 Know the content that is stipulated for the grade you are setting the
examination paper for:
Content stipulated specifically for the grade 80%
Content stipulated in previous grades, which impacts on the assessment of
20%
subsequent grades
F
or example, when setting a Grade 11 examination paper, 80% must
be examined on Grade 11 work and the other 20% on Grade 10 work
(only the work that impacts on Grade 11).
Step 3 Determine the weighting of the curriculum. The exam must be set
according to this weighting:
Accounting curriculum Weighting Approximate mark of exam paper
Financial accounting 50–60% 150–180 marks
Managerial accounting 20–25% 60–75 marks
Managing resources 20–25% 60–75 marks

he table below indicated the main topics in the Accounting
T
curriculum:
Curriculum Topic
Financial accounting 1. Accounting concepts (terminology, definitions, double
entry, etc.)
2. GAAP principles
3. Bookkeeping (source documents, journals, ledgers,
Trial Balances, etc.)
4. Accounting equation
5. Final accounts and financial statements (including
adjustments and ratios)
6. Salaries and wages
7. Value-added tax (VAT)
8. Reconciliations (bank, debtors and creditors)
Managerial accounting 9. Cost accounting (manufacturing, etc.)
10. Budgeting
Managing resources 11. Indigenous bookkeeping (Grade 10 only)
12. Fixed assets
13. Inventory
14. Ethics
15. Controls
lease note that while some of the topics are examined

P
independently, topics such as Ethics and Internal Controls must
be integrated throughout.
Step 4 Determine which topics can be examined independently, and then

determine the nature of each question; in other words, should
it be factual, data response, critical evaluation, problem solving,
application of knowledge, real-life situations, etc.
Step 5 Consider the cognitive levels when setting questions. Your

examination paper must cater for a range of cognitive levels and
learner abilities as shown below according to Bloom’s revised
taxonomy:
Cognitive level Skill Percentage of examination
paper
Basic thinking skills • Factual recall 30% of the paper
• Low-level comprehension
• Low-level application
Moderately high • More advanced application 40% of the paper
thinking skills • Interpretation
• Low-level analysis
Higher order thinking • Advanced analytical skills 30% of the paper
skills • Evaluation
• Creative problem-solving
Problem solving
Approximately 10% of all examinations should address problem-solving
questions using critical and creative thinking. These include real-life problems
within the context of the Accounting curriculum. The problem-solving
questions must cover a range of cognitive skills mentioned in this step.
‘Surface’ problem-solving questions might involve recall or comprehension
skills on familiar scenarios, while ‘deep’ problem-solving questions will

generally involve creative solutions in new and unfamiliar scenarios, all falling
within the ambit of the Accounting curriculum.
While ratios and analyses can form very interesting problem-solving
questions, the topic of problem-solving goes a lot further and should be
integrated into all aspects of the curriculum as that learners develop the skills
to apply the knowledge acquired.
Here are some guidelines for dealing with ‘deep’ problem-solving questions:
• Learners identify problems from the accounting information provided.
• Learners quote the relevant information to support their opinions on the
problems.
• Learners provide valid and appropriate solutions.
Step 6 Use the following table to help you set your examination paper
according to the different cognitive levels. Fill in the marks to make
up the range of abilities.
Question Low Medium High
Q1
Q2
Q3
Q4
Q5
Q6
Q7
Q8
Total mark
Desired mark 30% = 90 marks 40% = 120 marks 30% = 90 marks
Step 7 Decide on the structure of each question according to the above

cognitive level requirements. Your question should contain there
“action” words.
Knowledge Comprehension Application Analysis Synthesis Evaluation
Define Explain Draw up Compare Interpret Comment
Identify Distinguish Construct Analyse Do Recommend
Demonstrate Interpret Post Report on Motivate
List Prepare Discuss
Name Calculate Compare
Determine Advise
Apply
Step 8 Draw up the question and the memorandum simultaneously.

Once you memorandum is complete, compile an answer book for
the examination paper.
Step 9 Have the question and memorandum moderated before you have it
printed. Ensure that the mark allocation for each question is correct,
that there is enough space for the answers and that the numbering
agrees with the examination paper.


Use the following table to assist you in ensuring that your examination paper
was set according to the guidelines as in the CAPS document:
Grade 12 examination requirements:

Examination No. of Time Marks Content
Papers
Mid-year 1 3 hours 300 marks GAAP principles, Internal control and
examination audit over debtors, creditors, cash and
assets, The role of internal and external
auditors, Ethics, professional bodies and
King code
Companies concepts, bookkeeping, final
accounts
Financial statements – Income statement,
Balance sheet, Cash flow statement,
Analysing and interpretation of financial
statements, Fixed assets
Close corporations, Reconciliations, VAT
Trial examination 1 3 hours 300 marks Full scope
End of year 1 3 hours 300 marks Full scope (externally set)
examination
Layout of exam paper:

Question Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8
Topic Marks Marks Marks Marks Marks Marks Marks Marks
Financial
accounting
Managerial
accounting
Managing
resources
Total
/300

Grade 12 Time: 3 hours
June Accounting Marks: 300
INSTRUCTIONS
1. This question paper consists of FIVE compulsory questions. Answer ALL
the questions.
2. A special ANSWER BOOK is provided in which to answer the questions.
3. Where applicable workings must be shown in order to achieve part-
marks.
4. Candidates will forfeit marks for:
Important dates which are omitted
Using non-standardised abbreviations
Overwriting figures
Superfluous entries/foreign items
Using Tippex®
5. Non-programmable calculators may be used.
6. You may not use green or red ink but you may use a dark pencil.
7. You must attempt to comply with the suggested time allocation guide.
Question 1: 18 marks; 11 minutes

The topic of the question is: The subjects covered are:
Fixed assets and interpretation Managing resources
• Analyse and report on the disposal of assets
QUESTION 2: 42 marks; 25 minutes
Debtors and bank reconciliations Financial accounting
• Analyse and interpret reconciliations
Company concepts, financial statements and audit reports Financial accounting
• Concepts
• Prepare financial statements of a company
• Audit reports
Managerial Accounting
• Professional bodies
Cash Flow Statements Financial accounting
Interpretation of financial statements of a company & • Prepare financial statements of a company
ratios • Analyse the financial statements of a company
Inventory valuations and validations Managing resources
• Validate and calculate inventories
• Apply internal auditing processes
• Code of ethics

Question 1 Fixed assets (18 marks; 11 minutes)
Required
1.1 The bookkeeper insists that the Asset Disposal account is a Balance Sheet
account. The reasoning is that because this account deals with assets it
has to be a Balance Sheet account. Explain whether you agree with him
or not. (2)
1.2 Give two possible reasons for disposing of tangible assets. (2)
1.3 Complete the missing details in the ledger account marked [1] – [6] (6)
1.4 The depreciation rate on equipment is 15% p.a. on cost. The bookkeeper
made a mistake when updating the depreciation on the sold equipment
by calculating the amount for the entire year. Correct the error and
determine the profit/loss on disposal of the asset. (4)
1.5 Take the information from question 1.4 into account. State the amount
that will be shown in the Tangible Asset note for ‘Disposals at
carrying value’. (2)
1.6 Where in the financial statements is the R700 (or adjusted figure as
per question 1.4) recorded? (2)
Information
The following is the Asset Disposal account of Rheeder Suppliers to record the
sale of equipment for cash, prepared by a careless bookkeeper. The financial
year starts on 01 March 2014.
Dr Asset Disposal Cr
2014 2014 Accumulated depreciation on
Aug 31 [1] [2] 12 000 Aug 31 equipment GJ 5 640
[3] CRJ [4]
[5] [6] 700
12 000 12 000
Question 2 Reconciliations and Internal Control (63 marks; 38 minutes)
2.1 DEBTORS RECONCILIATION AND INTERNAL CONTROL [32 marks]
You are provided with information regarding Lawrence Traders. The

bookkeeper made a few mistakes when reconciling the Debtors Control
account with the Debtors List.
Required
2.1.1 N
ew customers of Lawrence Traders are required to provide
personal details, such as proof of residence, before opening an
account. Explain why this is necessary. Name TWO points. (4)
2.1.2 Prepare the correct Debtors List on 31 May 2012. (16)
2.1.3 Show how you would adjust the Debtors Control Account,
using the format provided in the Answer Book. (12)
Information
• The bookkeeper made a number of errors when preparing the Debtors
Control account in the General Ledger.
• The Debtors List and the Debtors Control account did not reconcile.
• The difference is R6 400.

The following summary was prepared on 31 May 2012:
Balance of the Debtors Control account R68 108
Total of the Debtors List R61 708

W Nortje 14 080
Wilson & Co 44 378
De La Bat Distributors 2 720
S Crous 530
Errors on the account of W Nortje

• Interest on the account was calculated incorrectly. Adjust for an
additional R86 interest. No entry has been made.
• An invoice issued to W Nortje for R924 has not been entered at all.
Errors on the account of Wilson & Co

• Wilson & Co claim that they paid R8 900 last month, but this is not
reflected on their statement. An investigation revealed that the payment
was received from Wilson & Co, but incorrectly posted to the account of
another debtor, De La Bat Distributors.
• An invoice of R3 200 was incorrectly reflected in the Debtors Ledger as a
credit entry. The control account in the General Ledger is correct.
Additional errors
• The account of S Crous must be written off as a bad debt. No entry has
been made.
• De La Bat Distributors are reflected in the Debtors Ledger as well as the
Creditors Ledger. Their credit balance of R1 645 in the Creditors Ledger
must be offset against their account in the Debtors Ledger.
2.2 BANK RECONCILIATION [31 marks]
You are provided with information relating to Lawrence Traders for April
2012.
Required
2.2.1 Calculate the balance of the Bank account on 1 April 2012. (3)
2.2.2 Calculate the correct totals for the CRJ and CPJ for April 2012 by
completing the tables provided in the Answer Book. (12)
2.2.3 Complete the Bank Reconciliation Statement on 30 April 2012. (13)
2.2.4 The owner is concerned about the deposit of R31 200 that
does not appear on the bank statement for March or April 2012.
Does he have reason to be concerned? (3)
Information
The Bank Reconciliation Statement on 31 March 2012 reflected the following:
Balance per bank statement R 1 142 (dr)
Outstanding deposit (dated 4 March 2012) R31 200
Outstanding deposit (dated 31 March 2012) R10 900
Outstanding cheques:
• No. 4 556 (dated 12 December 2011) R3 600
• No. 5 211 (dated 26 April 2012) R1 300
• No. 5 213 (dated 31 May 2012) R29 000
On 30 April the bank statement showed a positive balance of R21 890.

When the April bank statement from ABC Bank was compared with the
Cash Receipts Journal (CRJ) and Cash Payments Journal (CPJ) for April, the
following were noted:
Item 1 A deposit of R10 900 appeared on the bank statement for April 2012, but not in
the April journals.
Item 2 Cheque no. 4556 is stale and must be cancelled. The cheque was issued to
Rainbow Children’s Home as a donation, but got lost in the post.
Item 3 Cheque no. 5211 for R1 300 appeared on the bank statement for April 2012 as
R3 100. Upon investigation it was found that the cheque was issued to Pen &
Paper Stationers for stationery of R3 100. The bookkeeper made the mistake.
Item 4 A debtor deposited R1 107 directly into the bank account to settle his debt of
R1 230. This appeared on the bank statement but not in the journals.
Item 5 Bank charges of R233 and interest on the credit balance of R104 appeared on
the bank statement, but not in the journals.
Item 6 A sundry entry of R34 appeared on the bank statement on 15 April 2012. This
is a fraudulent entry by a bank employee. The R34 also appeared on the bank
statements of 15 February and 15 March and Lawrence Traders recorded these
amounts as ‘bank charges’ in the CPJ for February and March. AB Bank has
agreed to reverse all three amounts immediately. (This R34 is not included in
the R233 by item 5.)
Item 7 Cheque no. 5429 for R5 600 appeared in the CPJ but not on the bank statement.
Item 8 A deposit of R14 200 appeared in the CRJ on 30 April, but not on the bank
statement. The bank statement was closed off on 29 April 2012.
Question 3 Companies – Concepts, Financial

Statements and Audit Reports (92 marks; 55 minutes)
3.1 MATCHING ITEMS – COMPANY CONCEPTS [10 marks]
The information below was extracted from the financial records of HB Limited.
Required
Concepts relating to companies are listed in COLUMN A and explanations
are listed in COLUMN B. Choose an explanation from COLUMN B that
matches a concept in COLUMN A. Write only the letter (A – E) next to the
question number (3.1.1 – 3.1.5) in the Answer Book.
COLUMN A COLUMN B
3.1.1 Limited liability A. Guidelines for the preparation of financial
statements of companies to ensure a degree
of consistency
3.1.2 Good corporate governance B. Financial statements are prepared on the
assumption that the company will continue
operating for the foreseeable future.
3.1.3 GAAP and IFRS C. The ethical and responsible manner in which
a company is managed and directed.
3.1.4 Going concern D. Assets are recorded at the original purchase
price unless otherwise stated.
3.1.5 Historical cost E. The liability of shareholders is limited to the
amount of capital invested in the company.
(5 × 2 = 10)
3.2 AUDIT REPORTS [7 marks]

3.2.1 Why is it important for an external auditor to be ‘independent’? (2)
3.2.2 Why is it important for an external auditor of a public company
to be a member of a professional body, such as SAICA? (2)
3.2.3 You have been appointed as the external auditor of HP Limited.
The managing director, Albert Human, has asked you to reflect
his director’s fees of R1,2 million under Salaries and Wages in the
Income Statement. Would you agree to his request? Give a reason. (3)
72 s e c t i o n 3 • assessme n t tasks 72

3.3 FINANCIAL STATEMENTS AND FIXED ASSETS [75 marks]
You are provided with information relating to HB Limited for the year ended
30 June 2013.
Required
3.3.1 Prepare the Income Statement for the year ended 30 June 2013. (45)
3.3.2 Complete the following notes to the financial statements:
Fixed assets (21)
Trade and other creditors (9)
Information
Figures extracted from the Pre-adjustment Trial Balance on 30 June 2013
(Note: Not all the accounts are provided):
Debit Credit
Ordinary share capital (R10 per share) 2 800 000
Vehicles 320 000
Equipment 154 000
Accumulated depreciation on vehicles 155 000
Accumulated depreciation on equipment 76 200
Trading stock 219 546
Debtors control 43 000
Provision for bad debts 1 900
Creditors control 78 900
Mortgage loan from YZ Bank 300 000
Consumable stores on hand on 1 July 2012 1 034
SARS (income tax) 60 000
Sales 3 109 650
Cost of sales 2 066 600
Debtors allowances 9 650
Rent income 40 900
Directors’ fees 312 000
Audit fees 21 900
Salaries and wages 354 000
UIF contribution 3 680
Consumable stores 4 890
Bank charges 5 870
Bad debts 3 560
Sundry expenses 42 322
Adjustments and additional information

• The rent income was increased by R800 on 1 March 2013. The tenant has
not yet paid the rent for June 2013.
• The bookkeeper forgot to write back consumable stores on hand on 1
July 2012.
• According to a physical stocktaking done on 30 June 2012 the following
were on hand:
Trading stock R218 700
Consumable stores R1 320
• The details of an employee, R Subiso, who had been employed on 1 June
2013, was omitted from the Salaries Journal for June 2013. The details
were as follows:
Gross salary Deductions Contribution
PAYE P.F. UIF UIF
11 000 1 760 900 150 150
• The following entries appeared on the June bank statement, but had not
been recorded in the books of the company:

Bank charges, R523
A direct deposit by a debtor who had been written of as a bad debt in the
previous financial year, R1 300
• Provision for bad debts must be adjusted to R2 100.
• The following loan statement was received from YZ Bank on 30 June
2013. Interest on loan is capitalised.
Balance of loan on 1 July 2012 315 000
Interest capitalised ?
Monthly payment of loan (R4 000 × 12) (48 000)
Balance of loan on 30 June 2013 300 000
• Equipment was sold on 28 February 2013 for R3 000 cash. The details
from the fixed assets register were:
Cost price, R6 600
Accumulated depreciation at the beginning of the year, R3 465
Depreciation is calculated at 15% per annum on the cost price.
This asset disposal has not been recorded.
• Provide for depreciation as follows:
On vehicles at 20% p.a. on the diminishing balance. A new vehicle was
purchased on 1 April 2013 for R80 000 and correctly recorded.
On equipment at 15% p.a. on the cost price
• A final dividend of 45 cents per share was declared on 30 June 2013.
• Income tax is calculated at R68 040; that is, 28% of the net profit.
Question 4 Cash Flow Statement & Ratios (85 marks; 51 minutes)
The information was taken from the accounting records of Giovanni Traders
Limited for the years ended February 2011 and February 2012. Giovanni
Traders Limited has 500 000 ordinary shares authorised. On 1 March 2011
the company had 170 000 shares in issue and on 30 April 2011 new shares were
issued at R2 each.
Required
4.1 Prepare the Appropriation account in the General Ledger of Giovanni
Traders Ltd. for the period 1 March 2011 to 29 February 2012. (5)
4.2 Prepare the following notes to the Cash Flow Statement for February
2012:
4.2.1 Reconciliation between net profit before taxation and cash
generated by operations (17)
4.2.2 Dividends paid (5)
4.3 Prepare the Cash Flow Statement of Giovanni Traders Ltd. for the
year ended 29 February 2012. Where the notes are not asked, show
calculations in brackets. (22)
4.4 Calculate the number of new ordinary shares that were issued on
30 April 2011. (3)
4.5 Calculate the following financial indicators:
Debtors collection period for 2012 (use the average debtors in your
calculation)
Debt : Equity ratio
Return on shareholder’s equity
Earnings per share (15)
4.6 Comment on the liquidity position for 2012. Quote three relevant
financial indicators to support your answer. (8)
4.7 An existing shareholder is disappointed with the price of R2 at which the
new shares were sold. Quote a financial indicator to support his opinion
and comment on it. (4)

4.8 Will an investor be interested in buying shares in this company? Quote
figures for TWO financial indicators, other than those discussed above, to
support this opinion and comment on each. (6)
Information
Fixed assets
The following transactions have been correctly recorded in the books and are
reflected in the balances below:
• A vehicle was sold at carrying value for R12 000 cash (the original cost
was R23 000 and the accumulated depreciation at the date of disposal
was R11 000).
• Equipment was purchased for R24 000 during the year.
• An additional storeroom was built during the year.
Extract from the Income Statement

2012 2011
Sales (this includes credit sales of R426 320 for 2012) R608 820 R600 600
Cost of sales 405 880 400 400
Net profit before tax 210 000 154 800
Interest expense: Interest on loan 9 750 12 000
Depreciation ? 24 000
Income tax 73 500 54 180
Extracts from the Post-closing Trial Balances on 28/29 February

2012 2011
Shareholders’ equity 600 000 401 500
Ordinary share capital 500 000 340 000
Long-term liabilities (15% p.a.) 50 000 80 000
Fixed deposit – 10 000
Land and buildings 375 490 204 560
Vehicles at carrying value 138 400 184 540
Equipment at carrying value 118 320 122 320
Trading stock 103 450 53 350
Debtors control 64 150 52 650
Cash 11 360 –
Bank overdraft – 8 500
Creditors control 87 760 90 530
Expenses accrued / payable 16 800 12 750
SARS (income tax) 3 410 (Cr) 4 140 (Cr)
The following financial indicators have been calculated:

2012 2011
Acid test ratio 0,47 : 1 0,36 : 1
Stock turnover rate 5,2 times 5,3 times
Days stock on hand 71 days 70 days
Debtors collection period ? 55 days
Creditors payment period 60 days 60 days
Debt : Equity ratio ? 0,2:1
Return on average capital employed 38,8% 34,6%
Return on shareholders’ equity ? 25,1%
Earnings per share ? 50 cents
Dividends per share 39 cents 38 cents
Net asset value per share R2,40 R2,36

Question 5 Inventory Systems and Problem Solving (42 marks; 25 minutes)
5.1 INVENTORY SYSTEMS [30 marks]
You are provided with information relating to Nkewu Traders owned by

Siphokazi Nkewu. The business sells one type of leather bag that she imports
from Australia. The financial year ends 30 June. The business uses the
weighted average method to valuate their stock which uses the periodic stock
system.
Required
5.1.1 Calculate the value of the closing stock on 30 June 2012 using the
weighted average method. (6)
5.1.2 Calculate the following for the year ended 30 June 2012:
• Cost of sales
• Gross profit (9)
5.1.3 Use the figures in question 5.1.2 to calculate the percentage profit
achieved on cost of sales. (3)
5.1.4 Calculate the rate of stock turnover for 2012. (4)
5.1.5 In the previous financial year the gross profit was R360 000, the
mark-up percentage on cost price was 120% and the rate of stock
turnover was six times per year. Refer to your calculations in
questions 5.1.3 and 5.1.4 and comment whether the change in
mark-up percentage was a good decision by Siphokazi. (4)
5.1.6 Siphokazi wants to know what the value of the closing would have
been, had she used the FIFO method for stock valuation, and how
this would influence the gross profit (will it be more or less). Show
calculations. (4)
Information
Stock records of leather bags
Price per unit
Date Number of units (including import Total value
duties)
1 July 2011 430 R130 R55 900
30 June 2012 210 ? ?
Purchases of leather bags

During the financial year ending 30 June 2012 the following leather bags were
purchased:
Date No. of units Cost price Total Import Total import
per unit purchases duties per duties
unit
30 September 2011 600 R140 84 000 R10 6 000
1 November 2011 800 R150 120 000 R10 8 000
12 January 2012 500 R145 72 500 R12 6 000
15 May 2012 300 R160 48 000 R12 3 600
TOTAL 2 200 324 500 23 600
Returns of leather bags

Twenty bags from the November purchases that were not of good quality
were returned to the supplier. They apologised and credited the business
account with R3 200 (the cost price as well as the import duties).

Sales
There were 2 400 leather bags sold during the year for R720 000. The selling
price was kept constant at R300 per bag.
5.2 PROBLEM SOLVING [12 marks]
Thobani Allah is the owner of Cell-T, who sells cellular phones. She has
three different branches that are managed by Peter, Sarah and Sipho. She is
concerned that the branches are not running effectively and gave you the
following information to analyse for March 2012.
Required
Identify ONE problem at each branch. Quote figures to support the problem
identified and give Thobani advice on how to solve the problem in each case.
(12)
Information
Branch 1 Branch 2 Branch 3
Peter Sarah Sipho
Sales 310 000 170 000 400 000
Returns from customers for the month 15 500 21 000 20 000
Stock on hand 60 days 20 days 120 days
Monday to Monday to Monday to
Days worked per week
Friday Sunday Sunday
Stock stolen/lost in the month 4 units 3 units 15 units
Advertising R5 000 R10 000 R12 000

ACCOUNTING
Grade 12
June _______
Answer Book
Name of learner:
Educator:
Question Topic Total mark Mark achieved
1 Fixed assets and interpretation 18
2 Reconciliations 63
Company concepts, financial statements and audit

3 92
reports
4 Cash Flow Statements and ratios 85
5 Stock systems and problem solving 42
300
Question 1
1.1 The bookkeeper insists that the Asset Disposal account is a Balance
Sheet account. The reasoning is that because this account deals with
assets it has to be a Balance Sheet account. Explain whether you
agree with him or not.
1.2 Give two possible reasons for disposing of tangible assets.

1.3 Complete the missing details in the ledger account marked [1] – [6].
[1]
[2]
[3]
[4]
[5]
[6]
1.4 The depreciation rate on equipment is 15% p.a. on cost. The

bookkeeper made a mistake when updating the depreciation on
the sold equipment by calculating the amount for the entire year.
Correct the error and determine the profit/loss on disposal of the
asset.
1.5 Take the information from question 1.4 into account. State the
amount that will be shown in the Tangible Asset note for ‘Disposals
at carrying value’.
per question 1.4) recorded?
Question
18
total:

Question 2
2.1 DEBTORS RECONCILIATION AND INTERNAL CONTROL
2.1.1 New customers of Lawrence Traders are required to provide

account. Explain why this is necessary. Name TWO points.
2.1.2 Prepare the correct Debtors List on 31 May 2012.

Debtors List on 31 May 2012 R
W Nortje
Wilson & Co
De La Bat Distributors
S Crous
16
2.1.3 Adjust the Debtors Control account.

Amount Account debited Account credited
12

2.2 BANK RECONCILIATION
2.2.1 Calculate the balance of the Bank account on 1 April 2012.
2.2.2 CRJ CPJ
Incorrect totals 130 210 107 322
12
2.2.3
Bank Reconciliation Statement on 30 April 2012
Debit Credit
13

2.2.4 The owner is concerned about the deposit of R31 200 that does not
appear on the bank statement for March or April 2012. Does he have
reason to be concerned?
Question
63
total:
Question 3
3.1 MATCHING ITEMS – COMPANY CONCEPTS
3.1 Choose an explanation from COLUMN B that matches a concept in

COLUMN A.
COLUMN A COLUMN B
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
10
3.2.1 Why is it important for an external auditor to be ‘independent’?

3.2.2 Why is it important for an external auditor of a public company to
be a member of a professional body, such as SAICA?

The managing director, Albert Human has asked you to reflect
his Directors’ fees of R1,2 million under Salaries and Wages in the
Income Statement. Would you agree to his request? Give a reason.

3.3
FINANCIAL STATEMENTS AND FIXED ASSETS
Income Statement of HB Ltd. for the year ended 30 June 2013
Sales
Cost of sales
GROSS PROFIT
Other income
GROSS OPERATING INCOME
Operating expenses
OPERATING PROFIT (LOSS)
Interest expense
Profit (loss) before tax
Income tax
NET PROFIT (LOSS) FOR THE YEAR
45

3.3.2
Notes to the financial statements
1. FIXED ASSETS
Vehicles Equipment
Carrying value on 1 July 2012
Cost price
Accumulated depreciation
Movements
Additions at cost price
Asset disposal at carrying value
Depreciation
Carrying value on 30 June 2013
Cost price
21
2. TRADE AND OTHER CREDITORS

Trade creditors 78 900
Question
92
total:

Question 4
4.1 General Ledger of Giovanni Traders Ltd.

Dr Appropriation Account B6 Cr
2012 2012
Feb 29 Feb 29
4.2
Notes to the Cash Flow Statement
4.2.1 Reconciliation between profit before tax and cash generated by operations
Net profit before tax
Adjustment for:
Interest expense
Depreciation
Operating profit before changes in working capital
17
4.2.2
Dividends paid
Amount in financial statements
Balance at the beginning of the year
Balance at the end of the year

Calculations:
4.3
GIOVANNI TRADERS LTD.
Interest paid
Fixed assets purchased
Proceeds of asset disposal
Net change in cash & cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents end of current year
22
30 April 2011.

4.5.1 Debtors collection period for 2012
4.5.2 Debt : Equity ratio
4.5.3 Return on shareholders’ equity
4.5.4 Earnings per share

financial indicators to support your answer.
4.7 An existing shareholder is disappointed with the price of R2 at which

the new shares were sold. Quote a financial indicator to support his
opinion and comment on it.
4.8 Will an investor be interested in buying shares in this company?

Quote figures for TWO financial indicators, other than those
discussed above, to support this opinion and comment on each.
Question
85
total:

Question 5
5.1 INVENTORY SYSTEMS
weighted average method.
Cost of sales
Cost of sales
Gross profit

achieved on cost of sales.
5.1.4 Calculate the rate of stock turnover for 2012.
turnover was 6 times per year. Refer to your calculations in questions
5.1.3 and 5.1.4 and comment whether the change in mark-up
percentage was a good decision by Siphokazi.

calculations.
Value of closing stock – FIFO
Influence on gross profit
5.2 PROBLEM SOLVING

Problem (quote figures) Solution/Advice
BRANCH 1: Peter
BRANCH 2: Sarah
BRANCH 3: Sipho
12
Question
42
total:
Grand total: 300

Grade 12 Marking memorandum Time: 3 hours
June Accounting Marks: 300
Question 1
1.1 The bookkeeper insists that the Asset Disposal account is a Balance
Sheet account. The reasoning is that because this account deals with
assets it has to be a Balance Sheet account. Explain whether you
agree with him or not.
Disagree ✔
It is a nominal account. Asset Disposal is created to calculate the profit
or loss on the disposal of the asset ✔ as a convenience account.
1.2 Give two possible reasons for disposing of tangible assets.

Old ✔
Outdated/Obsolete ✔
There is no longer any use for it ✔
Any two or any other suitable reason
1.3 Complete the missing details in the ledger account marked [1] – [6].
[1] Equipment ✔
[2] GJ ✔
[3] Bank ✔
[4] R12 000 – R700 – R5 640 = R5 660 ✔
[5] Loss on sale of asset ✔
[6] GJ ✔

1.4 The depreciation rate on equipment is 15% p.a. on cost. The
bookkeeper made a mistake when updating the depreciation on
the sold equipment by calculating the amount for the entire year.
Correct the error and determine the profit/loss on disposal of the
asset.
6
R12 000 × 15% × __
 12  = R900
R12 000 – R5 660(✔) – (5 640 – 900✔) = R1 600✔ (Loss)✔

OR
R12 000 – [(5 640 – 1 800) + 900] ✔ = R7 260 ✔
R7 260 – 5 660 = R1 600✔ (loss ✔)
1.5 Take the information from question 1.4 into account. State the
amount that will be shown in the Tangible Asset note for ‘Disposals
at carrying value’.
R12 000 – [(5 640 – 1 800) + 900] = R 7 260 ✔(✔)
per 1.4) recorded?
Income Statement – under operating expenses ✔✔
Question
18
total:

Question 2
2.1 DEBTORS RECONCILIATION AND INTERNAL CONTROL
2.1.1 New customers of Lawrence Traders are required to provide

account. Explain why this is necessary. Name TWO points.
Possible explanation:
• They need to know the address so that they can send statements
to debtors to ensure that they pay on time.
• If debtors do not pay accounts and the business needs to take
legal action, they need the address to serve legal documents to
them.
• The National Credit Act requires a business to check whether
potential debtors can afford to purchase on credit. Addresses are
part of the personal history of a customer.
Any 2 × ✔✔
2.1.2 Prepare the correct Debtors List on 31 May 2012.

Debtors List on 31 May 2012 R
W Nortje (14 080✔ + 86✔ + 924✔) 15 090✔
Wilson & Co (44 378✔ – 8 900✔ + 3 200✔+ 3 200✔) 41 878✔
De La Bat Distributors( 2 720✔ + 8 900✔– 1 645✔) 9 975✔
S Crous (530 – 530✔) 0✔
66 943✔
16
2.1.3 Adjust the Debtors Control account.

Amount Account debited Account credited
R86✔ Debtors control ✔ Interest received ✔
R924✔ Debtors control ✔ Sales ✔
R530✔ Bad debts ✔ Debtors control ✔
R1 645✔ Creditors control ✔ Debtors control ✔
12

2.2 BANK RECONCILIATION
2.2.1 Calculate the balance of the Bank account on 1 April 2012.

(R31 200 + 10 900) – (1 142 + 3 600 + 1 300 + 29 000) ✔✔
OR
R31 200 + 10 900 – 1 142 – 3 600 – 1 300 – 29 000 ✔✔
= R7 058 (debit) ✔
2.2.2 CRJ CPJ
Incorrect totals 130 210 107 322
Donation ✔✔ 3 600
Stationery ✔✔ 1 800
Debtors control ✔✔ 1 107
Interest ✔ 104
Bank charges ✔ 233
Fraudulent entry ✔✔ 68
✔ 135 089 ✔ 109 355
12
2.2.3
Bank Reconciliation Statement on 30 April 2012
Debit Credit
Credit balance according to bank statement ✔✔ 21 890
Credit outstanding deposits: ✔✔ 31 200
✔✔ 14 200
Credit outstanding cheques:
No. 5213 ✔✔ 29 000
No. 5429 ✔✔ 5 600
Fraudulent entry ✔✔ 102
Debit balance according to Bank account ✔ 32 792
67 392 67 392
13

2.2.4 The owner is concerned about the deposit of R31 200 that does not
appear on the bank statement for March or April 2012. Does he have
reason to be concerned?
Yes ✔, all deposits should be made the same day. ✔✔
He should investigate the reasons for the deposit not made.
Question
63
total:
Question 3
3.1 MATCHING ITEMS – COMPANY CONCEPTS
3.1 Choose an explanation from COLUMN B that matches a concept in

COLUMN A.
COLUMN A COLUMN B
3.1.1 E. ✔✔ If more than
3.1.2 C. ✔✔ one response
3.1.3 A. ✔✔ per question,
3.1.4 B. ✔✔ mark incorrect
3.1.5 D. ✔✔
10
3.2.1 Why is it important for an external auditor to be ‘independent’?

Any valid explanation = ✔✔ Partially correct answer = ✔
Because of the separation of ownership of a company (by
shareholders) from the control of a company (by directors)
It is essential that the external auditor be free to express an unbiased
opinion that is not influenced by others.
Because the Companies Act requires the auditor to be independent
Because independence gives credibility to his report (it enables
others to rely on the report)

3.2.2 Why is it important for an external auditor of a public company to
be a member of a professional body, such as SAICA?
Any valid explanation = ✔✔ Partially correct answer = ✔
Assurance of his knowledge of accounting and auditing principles
and procedures (all technical aspects and legislation)
Disciplinary procedures should he be negligent in his duties (code of
conduct / code of professional practice)
Ensures standardisation of treatment of financial statements (IFRS)

The managing director, Albert Human has asked you to reflect
his Directors’ fees of R1,2 million under Salaries and Wages in the
Income Statement. Would you agree to his request? Give a reason.
Opinion: No ✔ Any valid reason ✔✔ One mark for partially
correct answer.
This is a material amount which is of interest to the shareholders
who have appointed the directors and it should therefore be shown
separately in the financial statements (concept of materiality).
It is a disclosable item (according to Companies Act) – not ethical to
hide the amount.
Transparency is an important characteristic in corporate governance.

3.3
FINANCIAL STATEMENTS AND FIXED ASSETS
Income Statement of HB Ltd. for the year ended 30 June 2013
Sales (3 109 650✔ – 9 650✔) 3 100 000
Cost of sales ✔ (2 066 600)
GROSS PROFIT ✔ 1 033 400
Other income (✔) 47 205
Rent income (40 900✔ + 4 300✔✔) 45 200
Bad debts recovered ✔✔ 1 300
Profit with asset disposal (4 125✔ + 3 000✔ – 6 600✔) 525
GROSS OPERATING PROFIT 1 080 425
Operating expenses (✔) (804 425)
Directors’ fees ✔ 312 000
Audit fees ✔ 21 900
Salaries and wages (354 000✔ + 11 000✔) 365 000
UIF contribution (3 680✔ + 150✔) 3 830
Consumable stores (4 890✔ + 1 034✔ – 1 320✔) 4 604
Bank charges (5 870 ✔+ 523✔) 6 393
Bad debts 3 560
Trading stock deficit (219 546 ✔– 218 700✔) ✔ 846
Depreciation (660✔✔ + 22 110✔✔ + 17 000✔✔ + 4 000✔✔) 43 770
Provision for bad debts adjustment ✔✔✔ 200
OPERATING PROFIT (LOSS) (✔) 276 000
Interest expense ✔✔ (33 000)
Profit (loss) before tax (✔) 243 000
Income tax ✔ (68 040)
NET PROFIT (LOSS) FOR THE YEAR ✔ 174 960
45
Rent income Depreciation

8y + 3(y + 800) = R40 900 Sold equipment:
8
y = R3 500 R6 600 × 15% × __
 12
  = R660
ASSET DISPOSAL
R3 500 + 800 = R4 300 Old equipment:
R147 400 × 15% = R22 110 Equity 6 600 Acc Depr. 4 125
Old vehicles: Profit 525 Bank 3 000

(R240 000 – 155 000) × 20% = R17 000
New vehicles:
3
R80 000 × 20% × __
 12
  = R4 000

3.3.2
Notes to the financial statements
1. FIXED ASSETS
Vehicles Equipment
Carrying value on 1 July 2012 ✔ 85 000 ✔ 77 800
Cost price ✔ 240 000 ✔ 154 000
Accumulated depreciation ✔ (155 000) ✔ (76 200)
Movements
Additions at cost price ✔ 80 000 -
Asset disposal at carrying value - ✔✔ (2 475)
Depreciation ✔✔ (21 000) ✔✔ (22 770)
Carrying value on 30 June 2013 ✔ 144 000 ✔ 52 555
Cost price ✔ 320 000 ✔ 147 400
Accumulated depreciation ✔✔ (176 000) ✔✔ (94 845)
21

SARS(PAYE) ✔ 1 760
SARS (income tax) (68 040 ✔ – 60 000 ✔) 8 040
Pension fund ✔ 900
UIF (150 ✔ + 150 ✔) 300
Creditors for salaries ✔ 8 190
Shareholders for dividends ✔✔ 126 000
224 090
Question
92
total:

Question 4
4.1 General Ledger of Giovanni Traders Ltd.

Dr Appropriation Account B6 Cr
2012 2012
Feb 29 Income tax ✔ 73 500 Feb 29 Retained income ✔ 61 500
Ordinary dividends ✔ 98 000 Profit and loss ✔ 210 000
Retained income ✔ 100 000
271 500 271 500
4.2
4.2.1 Reconciliation between profit before tax and cash generated by operations
Net profit before tax ✔ 210 000
Adjustment for:
Interest expense ✔ 9 750
Depreciation (34 140 ✔✔✔ + 28 000✔✔✔) 62 140
Operating profit before changes in working capital 281 890
Increase in inventory (103 450✔ – 53 350✔) (50 100)
Increase in receivables (64 150✔ – 52 650✔) (11 500)
Increase in payables [(87 760✔+16 800✔) – (90 530✔+12 750✔)] 1 280
Cash generated by activities 221 570
17
4.2.2
Dividends paid
Amount in financial statements (✔)(98 000)
Balance at the beginning of the year ✔ ✔ (30 000)
Balance at the end of the year ✔✔53 200
(74 800)

Calculations:
Depreciation
Vehicles Equipment
Carrying value – beginning of year 184 540 122 320
Additions – 24 000
Asset disposal (12 000) –
Depreciation – work back to these amounts (34 140) (28 000)
Carrying value end of the year 138 400 118 320
4.3
GIOVANNI TRADERS LTD.
Cash flow from operating activities (✔) 62 790
Cash generated by activities ✔ 221 570
Dividends paid (✔) (74 800)
Income tax paid (4 140 ✔ + 73 500 ✔ – 3 410 ✔) (74 230)
Cash flow from investment activities (✔) (172 930)
Fixed assets purchased (24 000 ✔ + 170 930 ✔✔)
(194 930)
Proceeds of asset disposal ✔12 000
Decrease in fixed deposit ✔✔10 000
Cash flow from financing activities (✔) 130 000
Proceeds from shares issued (500 000 ✔ – 340 000 ✔) 160 000
Decrease in loan (80 000 ✔ – 50 000 ✔) (30 000)
Net change in cash & cash equivalents (✔) 19 860
Cash and cash equivalents end of previous year ✔ (8 500)
Cash and cash equivalents end of current year ✔ 11 360
22

30 April 2011.
 160 000
______
2    ✔✔ = 80 000 ✔
4.5.1 Debtors collection period for 2012

 __12  (52 650 + 64 150)✔✔ 365
__________________
     × ___
       
426 320 ✔ 1
58 400   
=  ______ 365  
×  ___
426 320  1
= 50 days ✔

50 000 ✔ : 60 000 ✔
= 0,08 : 1✔
4.5.3 Return on shareholders’ equity

(210 000 – 73 500) ✔✔ ___
 __________________
1__     ×  100
  
1  
 2  (600 000 + 401 500)✔
136 500 
= ______
 500 100
___
750 ×   1  
= 27,3% ✔
4.5.4 Earnings per share
136 500  
 _______________
  100
___
(170 000 + 80 000) ×   1  
  136 500 ✔ 
__________ 100  
×  ___
   1
250 000 ✔✔
= 54,6 cents✔

financial indicators to support your answer.
The liquidity position improved, but it is still not good. ✔✔
Quoting figures – any three of the following (3 × ✔✔)

The current ratio improved from 0,7 : 1 to 1,1 : 1. ✔✔
The acid test ratio increased from 0,36 : 1 to 0,47 : 1. The liquid
assets do not cover the current liabilities. ✔✔
Stock turnover rate was constant. ✔✔
Debtors collection period improved slightly from 55 days to 50 days. ✔✔
Creditors payment period stayed constant on 60 days. ✔✔
The improvement of the ratio is because of the bank account that
now has a positive balance. ✔✔
4.7 An existing shareholder is disappointed with the price of R2 at which

the new shares were sold. Quote a financial indicator to support his
opinion and comment on it.
The shares are worth R2,40 according to the net asset value per
share. ✔✔
The company could have raised more capital if they sold it at a

higher price. ✔✔
4.8 Will an investor be interested in buying shares in this company?

Quote figures for TWO financial indicators, other than those
discussed above, to support this opinion and comment on each.
Yes / No ✔✔
Reasons for Yes:

• The return on capital employed increased from 34,6% to 38,8%.
• The return on shareholders’ equity improved from 25,1% to 27,3%.
• Earnings per share increased from 50 cents to 54 cents.
• Dividends per share increased from 39 cents to 38 cents.
Reasons for No:

• The liquidity situation of the business does not look good,
current ratio 1,1 : 1.
• The business will struggle to meet short-term obligations.
• Concern about future growth.
(2 quotes × ✔✔)
Question
85
total:

Question 5
5.1 INVENTORY SYSTEMS
weighted average method.
55 900 + 324 500 + 23    
600 – 3  200 ✔✔
 ______________________________
   
430 + 2 200 – 20✔
 400
= ______ 800
2 610  
= R153,56✔
210 ✔× R153,56 = R32 247,60 ✔ (R32 248,28)
Cost of sales
Opening stock ✔ 55 900,00
Purchases ✔ 324 500,00
Returns ✔ (3 200,00)
Import duties ✔ 23 600,00
Closing stock (✔) (32 247,60)
Cost of sales ✔ 368 552,40
Gross profit
Sales ✔ 720 000,00
Cost of sales (✔) (368 552,40)
Gross profit ✔ 351 447,60
achieved on cost of sales.
351 447,60✔
 __________  
 
368 552,40✔
= 95,4%✔
5.1.4 Calculate the rate of stock turnover for 2012.

368 552,40 ✔
 _____________________
1    (55 900 + 32      
__ 247,60) ✔✔
2
344 952,50
=  _________
44 073,80  
= 8,4 times✔

turnover was 6 times per year. Refer to your calculations in questions
5.1.3 and 5.1.4 and comment whether the change in mark-up
percentage was a good decision by Siphokazi.
Yes, the sales increase because the rate of stock of turnover increased
from 6 to 8,4 times per year. ✔✔
Gross profit increased from R350 000 to R351 447,60. ✔✔
calculations.
Value of closing stock – FIFO
210 × (R160 + R12) = R36 120✔✔
Influence on gross profit:

Gross profit will be more. ✔✔
5.2 PROBLEM SOLVING

Problem (quote figures) Solution/Advice
The sales of Branch 1 can increase
if they spent more on advertising
BRANCH 1: Peter Not enough spent on advertising ✔✔
and open the shop on from Mondays
to Sundays. ✔✔
Sales are poor (R170 000 compared to
R310 000 and R400 000). ✔✔ Sarah does not have enough stock on
BRANCH 2: Sarah Returns are high (12% compared to hand – she should investigate why
5% in other branches). there are so may returns. ✔✔
Too little stock on hand.
Sipho has a lot of stock on hand
Problem: control over stock.✔ (120 days) – he can sell some of
BRANCH 3: Sipho
15 units of stock stolen in a month. ✔ the excess stock and improve control
over stock. ✔✔
12
Question
42
total:
Grand total: 300

September Accounting Marks: 300
INSTRUCTIONS
1. This question paper consists of FIVE compulsory questions. Answer ALL
the questions.
2. A special ANSWER BOOK is provided in which to answer the questions.
3. Where applicable workings must be shown in order to achieve part-
marks.
4. Candidates will forfeit marks for:
Important dates which are omitted
Using non-standardised abbreviations
Overwriting figures
Using Tippex®
5. Non-programmable calculators may be used.
6. You may not use green or red ink but you may use a dark pencil.

Reconciliations and internal control Financial Accounting
• Reconciliation
Managing resources
• Internal control
Manufacturing Managerial accounting
• Analyse and report on cost information
• Prepare production statement
Financial statements of a company and audits Financial information
• Prepare financial statements, analyse and interpret
Managing resources
• Ethics
Company cash flow, asset disposal and ratios Financial information
• Prepare financial statements, analyse and interpret
Budgets Managerial accounting
• Prepare a debtors collection schedule
• Analyse and interpret a Cash Budget
Managing resources
• Code of ethics
Stock valuation and VAT Financial information
• VAT accounts and calculations
Managing resources
• Calculate and validate inventories
• Apply internal control and audit processes

Question 1 Reconciliations (34 marks; 20 minutes)
Claire Darwin, the financial director of Hamilton Ltd., is preparing

information for the external auditors. While putting the information
together she discovers a few issues that concern her:
• There is a possibility that cash is being stolen from the business.
• The employee responsible for purchases, Mr Joe Crooke, also handles the
creditors’ payments. Claire suspects that he had defrauded Hamilton Ltd.
by ordering personal goods for himself from the creditors. Hamilton Ltd.
has paid for these goods.
Required
Study the information provided. Then answer the questions that follow.
Information
Bank Reconciliation Statement on 30 September 2012
Debit Credit
Balance according to bank statement 31 876
Credit outstanding deposit (28 September 2012) 14 989
Credit outstanding deposit (12 August 2012) 21 332
Debit cheques not presented for payment:
No. 2213 (dated 4 April 2012) (donation) 600
No. 2217 (dated 2 September 2012) (purchases of 2 390
equipment)
No. 2234 (dated 15 October 2012) (payment of creditor) 8 700
Balance according to Bank account ? ?
Creditor’s reconciliation
A statement of account received from a creditor, Taylor Traders, on
28 September 2012, reflects that Hamilton Ltd. owes them R16 290.
According to Hamilton Ltd., the amount outstanding is only R7 380.
On investigation, it was found that:
• Returns recorded as R970 in the Creditors Ledger of Hamilton Ltd.
were recorded as R790 in the statement of account received from Taylor
Traders. Hamilton Ltd. has made an incorrect entry.
• An invoice of R1 600 was incorrectly recorded as a debit note by
Hamilton Ltd.
• Hamilton Ltd. received a discount of R50 on a payment of R500 on
14 September 2012. Taylor Traders however only entered the payment of
R500 and not the R50 discount. They will correct the error.
• An invoice received from Taylor Traders was correctly recorded by
Hamilton Ltd. as R2 050. In the statement received from Taylor Traders it
was incorrectly recorded as R5 020.
• The following transactions took place after the statement of account,
received from Taylor Traders, was closed off on 28 September:
Goods purchased for R5 490
A payment made to Taylor Traders for R8 000.
QUESTIONS
Relating to bank reconciliations:
1.1 Calculate the balance according to the Bank account on 30 September
2012. State if the bank account is positive or overdrawn. (3)

1.2 What entry will the bookkeeper have to make with regards to cheque
no. 2213 if it is still not presented for payment in the next month? This
cheque was issued to the Eagle Fishing Club during April 2012 as a
donation. (2)
1.3 Write down the number of the cheque that is post-dated. How should
this cheque be treated in the financial statements if it was the end of the
financial year? (3)
1.4 Explain why Claire might think that cash is being stolen from the
business. (2)
1.5 If you suspected that the bookkeeper was stealing money, explain three
ways you will look for audit evidence to back up your suspicion. (6)
Relating to creditors reconciliations:

1.6 Use the table in the Answer Book to indicate the differences that were
discovered when comparing the account of Taylor Traders in the
Creditors Ledger with the statement of account received from them.
Write only the amounts. Calculate the correct balance/total at the end.
(14)
1.7 What internal control measures can be taken to prevent employees
from defrauding the creditor system? Name two. (4)
Question 2 Manufacturing and Cost Accounting (54 marks; 32 minutes)
You are provided with information relating to Thobani’s T-shirt

Manufacturers for the year ended 29 February 2012.
SECTION A [10 marks]

Required
2.1 Match the work that a person would do in a manufacturing business with
the description of the employee and the division/department the cost
would be allocated to. Write only the letter (A–E and X-Z) next to the
question number (2.1.1–2.1.5) in the Answer Book. (10)
Column A Column B Column C
Work done Description of employee Division / Department
2.1.1 Makes the product or operates the A. Foreman/ X. Factory
machine that makes the product Foreperson
2.1.2 Does the books of the business and B. Sales Y. Administration
prepare the financial statements representative
2.1.3 Ensures that raw materials and C. Receptionist Z. Selling and
finished goods are not stolen and distribution
that the factory is productive
2.1.4 Does the marketing of the product D. Direct labourer
2.1.5 Answers the telephone and E. Bookkeeper
manages appointments
SECTION B [36 marks]

Required
2.2 Prepare the following:
2.2.1 Production Cost Statement for the year ended 29 February 2012,
with notes for direct material cost, factory overheads and sales and
distribution cost. Where notes are not asked, show calculations in
brackets. (33)
2.2.2 Calculate the cost of sales for the year ended 29 February 2012.
(3)

Information
The following were on hand at the beginning and end of the financial year:
1 March 2011 29 February 2012
Raw material stock R12 400 R9 800
Work-in-process stock R6 530 ?
Finished goods stock R10 689 R16 288
Indirect material:
Factory indirect materials R1 290 R1 980
Packing material R1 090 R1 220
The following purchases were made during the year:

• Material to produce the T-shirts, R136 700. A further R10 300 was paid
for carriage on these purchases.
• Indirect material for factory, R12 400
• Packing material, R5 300. These are treated as part of distribution cost.
• Office stationery, R1 200
Employees’ remuneration is as follows:

Direct labour R172 000, including contributions.
Earns a salary of R6 000 per month. He receives a UIF contribution

Factory foreman
of 1% and a pension contribution of 2% on his gross salary.
Office employees Total of R197 000, including contributions
Sales representative Earns commission of 10% on sales
Provide for depreciation on the assets. The fixed assets register shows the
following:
Cost price Accumulated Depreciation rate
depreciation
Factory equipment R130 000 R31 900 20% on the cost price
Office equipment R42 000 R12 100 10% on the
diminishing balance
Delivery vehicle R140 000 R124 000 15% on cost price
(note that the delivery
vehicle is very old)
• Rent for the year was R108 000. This is to be apportioned according to
floor area: Factory, 500 square metres; Office, 250 square metres, Sales
department, 150 square metres.
• Water and electricity for the administration department amounted to
R6 840, for the factory R12 300 and for the sales and distribution
department, R3 210.
• During the year the business produced 10 000 T-shirts and sold 9 890
T-shirts.
• The cost of production per finished T-shirt was R50,90.
• Goods were sold for cash, R840 650.
SECTION C [8 marks]
Required
2.3.1 Calculate the breakeven point for the year ended 29 February 2012.(5)
2.3.2 Comment on the breakeven point. Should the business be satisfied
with the number of units that are currently produced? Explain. (3)

Information
Total Per unit
Sales R840 650 R85
Variable cost R448 044 R44,95
Fixed cost R422 200 R42,49
Question 3 Company concepts, financial statements

and audit report (78 marks; 46 minutes)
3.1 COMPANY CONCEPTS AND AUDIT REPORTS [8 marks]
Choose an example from COLUMN B that matches the concept relating to

companies in COLUMN A. Write only the letter (A–E) next to the question
number (3.1.1–3.1.5) in the Answer Book. (8)
COLUMN A COLUMN B
3.1.1 Directors’ Report A. This an opinion issued by a qualified
person to state whether the financial
statement can be relied upon or not.
3.1.2 Independent Auditors Report B. In our opinion, the financial statements
fairly represent the financial position of
the company at 30 June 2011, except for
the marketing expense in the Income
Statement which could not be verified,
as no documentation existed for this
expenditure.
3.1.3 Qualified report C. This is a document which explains the
performance of the company and major
decisions that were taken.
3.1.4 Unqualified report D. In our opinion, the financial statements
fairly present, in all material respects,
the financial position of the company
at 29 February 2012 in accordance with
IFRS and in the manner required by the
Companies Act in South Africa.
3.2 COMPANY STATEMENTS [70 marks]
You are provided with information relating to Broomstix Ltd., a public

company that sells cleaning materials. The financial year ends 28 February
2014.
Required
3.2.1 Complete the Income Statement for the year ended
28 February 2014. (42)
3.2.2 Show the following notes to the Balance Sheet:
3.2.2.1 Trade and other receivables (9)
3.2.2.2 Trade and other payables (7)
3.2.3 Complete the Equity and Liabilities section of the Balance Sheet on
28 February 2014. Where the notes to the Balance Sheet are not asked,
show calculations in brackets. (12)

Information
BROOMSTIX LTD.
PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2014
Debit Credit
Balance Sheet accounts
Ordinary share capital (150 000 shares) 750 000
Land and buildings 1 130 000
Vehicles 180 000
Equipment 58 000
Mortgage loan from EC Bank 154 000
Bank 23 891
Petty cash 1 000
Nominal accounts
Sales 3 846 200
Rent income 66 000
Insurance 28 000
Packing material 19 220
Consumables 9 760
Audit fees 70 000
Bank charges 15 320
Discount allowed 6 100
Interest on overdraft 4 021
Dividends on ordinary shares 126 000
5 042 131 5 042 131
Adjustments and additional information

• A debtor returned goods that he did not order. The selling price was R6
480 and the mark-up was 80% on cost.
• The directors are owed a further R50 000 and the auditors are owed
another R12 000.
• The bank statement for March 2014 arrived after the Trial Balance had
been drawn up. The following items have not been entered:
Bank charges, R1 090
Interest on overdraft, R438
A dishonoured cheque of R1 800, received from a debtor in payment of
his account of R2 000
• Rent has been received for 15 months.
• The provision for bad debts must be adjusted to 5% of outstanding
debtors.

• The amount for insurance includes an annual insurance of R2 700 that
was paid on 1 October 2013.
• The physical stock count at the end of the year revealed the following:
Trading stock, R331 500
Packing materials, R1 890
• Depreciation is to be written off at the following rates:
On equipment at 10% p.a. on cost. Note that new equipment costing
R12 000 was bought on 1 September 2013 and properly recorded.
On vehicle at 20% p.a. on the diminishing balance
• Interest on the mortgage loan is capitalised (added to the loan). The
loan statement reflects that interest of R16 940 has not been recorded in
the books of the company. During the next 12 months the loan will be
reduced by R30 000.
• One of the employees took an advance of R2 000 on his salary of
March 2014, as his daughter was getting married. No entry has been
made of this.
• A final dividend of 80 cents per share has been declared at the end of the
financial year.
• Income tax must be recorded at 28% of net profit.
Question 4 Cash Flow Statement, asset disposal

and analysis and interpretation (60 marks; 35 minutes)
The information was extracted from the financial records of MC Traders

on 30 June 2013, the end of the financial year. They are authorized to issue
600 000 shares. By 30 June 2013 they have issued 270 000 of these shares.
Required
4.1 Prepare the Asset Disposal account in the General Ledger of MC Traders
on 31 December 2012. (8)
4.2 Show the note for reconciliation between profit before taxation and
cash generated from operations to the Cash Flow Statement for the
year ended 30 June 2013. (13)
4.3 Complete the Cash Flow Statement for the year ended 30 June 2013.
Note that some of the amounts have already been entered in the
Answer Book. If the note to the Cash Flow Statement is not required,
please show calculations in brackets. (15)
4.4 Calculate the following financial indicators for 2013:
4.4.1 Acid test ratio (4)
4.4.2 Debt : Equity ratio (4)
4.4.3 Net asset value per share (3)
4.5 Comment on the liquidity situation of the company. (6)
4.6 The company wants to expand their operations in the next financial year
and therefore they will need more fixed assets such as land and buildings.
How do you suggest should they finance this? Give two options and
explain why you suggest this. (4)
4.7 One of the shareholders of MC Traders was offered R2,80 per share.
Should he accept this offer? (3)

Information
The following totals were extracted from the financial statements:
Balance Sheet 2013 2012
Share capital 810 000 660 000
Land and buildings 700 000 700 000
Equipment 290 000 260 000
Accumulated depreciation on equipment 157 700 133 200
Loan: AB Bank (11% interest on loan) 90 000 130 000
SARS (income tax) 6 770(cr) 8 760(dr)
Debtors 134 900 156 700
Creditors 268 900 234 600
Inventory 356 000 124 000
Cash and cash equivalents 45 600 98 700
Income Statement balances

2012
Net profit (loss) after tax 129 670
Income tax 62 066
Fixed assets
Equipment purchased on 1 July 2010 for R40 000, was sold on 31 December
2012 at the carrying value. Depreciation on equipment is calculated at 15%
p.a. on the cost price.
Financial indicators
2013 2012
Acid test ratio ? 0.9:1
Stock holding period 129 days 67 days
Debt : equity ratio ? 0,16:1
Percentage return on capital employed 21% 21%
Net asset value per share ? 361,53 cent
Question 5 Budgets (35 marks; 21 minutes)
Click-Click Camera is a small business in the town mall that sells cameras and
accessories.
At the end of November 2012, Click-Click Camera compared their actual
results with their projected figures. They then used these to prepare figures
for the budget for December 2012.
Required
Study the information provided. Then answer the questions that follow.

Information
Extract from the Projected Income Statement for Click-Click Camera
Projected figures Actual figures for Projected figures
for Nov 2012 Nov 2012 for Dec 2012
Sales 120 000 80 000 150 000
Cost of sales (80 000) (59 250) (100 000)
Advertising 10 000 3 000 10 000
Repairs and maintenance of delivery 500 6 400 500
vehicle
Telephone 1 200 3 458 1 200
Rent expense 6 500 6 500 7 020
Stationery 500 500 500
Extract from the Cash Budget for Click-Click Camera

Budget for Nov Actual figures for Budget for Dec
2012 Nov 2012 2012
RECEIPTS
Collection from debtors 72 000 40 000 90 000
PAYMENTS
Purchases of trading stock 80 000 20 000 40 000
Advertising 10 000 3 000 2 000
Stationery 5 600 5 000 120
Extract from an article in the magazine Shop Talk – South Africa, November 2012
The upheaval in world economic markets, high interest rates and slowing economic growth are all
contributing to many South African businesses having a decrease in turnover. Especially businesses
selling luxury items are feeling the chill of the economic climate …
QUESTIONS
5.1 Some items such as stationery could appear in both the Projected Income
Statement and the Cash Budget, but the amounts are different in the two
statements. Explain why. (2)
5.2 Name two possible reasons for the actual sales being much less than the
predicted sales for November 2012. (4)
5.3 Do you think Click-Click Camera was realistic in their prediction for
sales for December 2012? Explain. (3)
5.4 The mark-up percentage predicted for November 2012 was 50% on
cost price. Calculate the mark-up that was actually achieved. Give two
possible reasons for the difference. (8)
5.5 With what percentage is the business expecting the rent to increase on
1 December 2012? (3)
5.6 Collections of debtors:
5.6.1 Does this business have a good policy with regards to
collection from debtors? Explain. (3)
5.6.2 State two points how they can improve the credit policy. (4)
5.7 Comment on each of the following items with regards to the following:
• The amount projected and the actual amount for November
• The projection/budget for December 2012
5.7.1 Telephone (4)
5.7.2 Purchases of trading stock (4)

Question 6 Inventory and vat (39 marks; 26 minutes)
Charlotte’s Chocolate Factory is a business that buys and sells one type of
chocolate, Fifi Bars. It is owned by Lisa Brink and Sarah Raal.
Required
Refer to the information provided to answer the questions that follow.
Information
• The business has been operating since 1 July 2011 and is registered for
VAT. VAT returns are submitted every two months.
• The first financial year ends on 30 June 2012.
• Chocolate purchases for July 2011 to April 2012 amounted to R360 704
(excluding VAT) for a total of 24 000 Fifi Bars. The chocolate cost R13
(excluding VAT) per slab in July 2011, and the price has risen steadily since
then.
Summary of transactions that took place during May and June 2012
Value (VAT exclusive) VAT @ 14%
Sales for May and June 2012 R144 000 R20 160
(70% cash; 30% credit)
Discount allowed to customers R1 200 R168
Bad debts written off R7 200 R1 008
Chocolate slabs purchased on credit
4 May 2011: 1 600 slabs @ R16 each R25 600 R3 584
5 June 2012: 1 200 slabs @ R17 each R20 400 R2 856
Returns to creditors (80 slabs @ R17 each) R1 360 R190,40
Other purchases and payments R36 000 R5 040
• The information in bullet 2 above was used to prepare the VAT Control
account on 30 June 2012:
Dr VAT Control Cr
2012 2012
May 15 Bank CPJ 9 840 May 01 Balance b/d 9 840
2012 2012
Jun 30 (6.1.5) CRJ 168 Jun 30 (6.1.4) CRJ 14 112
Debtors control GJ 1 008 Debtors control DJ 6 048
Creditors control CJ 6 440 (6.1.6) CAJ 190,40
Bank CPJ 5 040
Balance c/d ?
? ?
2012
Jul 01 Balance b/d ?
• The quality of the chocolates is very important. If chocolates are melted,

slightly squashed or damaged in any way, it is written of to a Damaged
Stock account and given to employees.
• The periodic stock system is in use. 1 400 slabs are on hand on 30 June
2012, after some stock had to be written off in June 2012.

QUESTIONS
Relating to VAT:
6.1 Choose the most correct answer for each of the following.
(Refer to the first three bullets of the information provided.) (12)
6.1.1 It is compulsory for a business to register as a VAT vendor when
they have a turnover of more than:
A R200 000
B R300 000
C R500 000
D R1 000 000
6.1.2 The amount payable to SARS is calculated by saying:
A Output VAT – Input VAT
B Input VAT – Output VAT
C Output VAT + Input VAT
6.1.3 The balance of R9 840 on 1 May 2012 in the VAT Control account
represents the VAT payable for:
A July 2011 to April 2012
B March and April 2012
C April 2012
D May and June 2012
6.1.4 The missing detail for the amount of R14 112 on the credit side of
the VAT Control account is:
A Bank
B Cost of Sales
C Debtors control
D Sales
6.1.5 The missing detail for the amount of R168 on the debit side of
the VAT Control account is:
A Bank
B Debtors control
C Sales
D Discount allowed
6.1.6 The missing detail for the amount of R190,40 on the credit side
of the VAT Control account is:
A Creditors allowances
B Creditors control
C Bank
D Discount received
6.2 Calculate the amount payable to SARS on 30 June 2012. (2)
Relating to stock systems and valuation:

6.3 Lisa and Sarah cannot agree on the stock valuation method that should
be used to value the stock on 30 June 2012. (Refer to information
provided.)
6.3.1 Calculate the weighted average price per unit (excluding VAT)
for the year ended 30 June 2012. (5)
6.3.2 Calculate the value of closing stock on hand (excluding VAT)
on 30 June 2012 using the weighted average method. (3)
6.3.3 Calculate the value of closing stock on hand (excluding VAT)
using FIFO. (5)

6.4 Lisa would like to alternate between using a weighted average and a
FIFO method, depending on which will result in the higher cost of sales.
However, Sarah thinks FIFO is most suitable for the business.
6.4.1 Why do you think Lisa wants to increase the value of cost of
sales in the financial statements? (2)
6.4.2 The bookkeeper does not agree with Lisa’s suggestion. He says it
does not comply with the requirements of International Financial
Reporting Standards (IFRS) or Generally Accepted Accounting
Practice (GAAP). Why not? (2)
6.4.3 Do you agree with Sarah’s suggestion of using FIFO? Explain. (3)
6.5 Sarah suspects that more chocolates are being written off by the
bookkeeper and given to employees than is necessary.
6.5.1 What is a risk with regards to this type of product (chocolates)
and what internal control measure can be put into place to
prevent this risk? (3)
6.5.2 Suggest one possible control measure to prevent theft of
chocolates being disguised as damaged stock. (2)

ACCOUNTING
Grade 12
September _______
Answer Book
Name of learner:
Educator:
Question Topic Total mark Mark achieved
1 Reconciliation 34
2 Manufacturing 54
3 Financial statements of a company and audits 78
4 Company cash flow and ratios 60
5 Budgets 35
6 Stock control & VAT 39
300
Report mark calculations

September examination 300 75
Assessment task: Control test 100 25
Assessment task: Written report 110
Report mark 100
Question 1
1.1 Calculate the balance according to the Bank account on 30

September 2012. State if the bank account is positive or overdrawn.

1.2 What entry will the bookkeeper have to make with regards to
cheque no. 2213 if it is still not presented for payment in the next
month? This cheque was issued to the Eagle Fishing Club during
April 2012 as a donation.
Debit
Credit
1.3 Write down the number of the cheque that is post-dated. How
should this cheque be treated in the financial statements if it was the
end of the financial year?
business.
1.5 If you suspected that the bookkeeper was stealing money, explain
three ways you will look for audit evidence to back up your
suspicion.

1.6 Use the table in the Answer Book to indicate the differences that
were discovered when comparing the account of Taylor Traders in
the Creditors Ledger with the statement of account received from
them. Write only the amounts. Calculate the correct balance/total at
the end.
Reconciliation statement of
Creditors Ledger of Hamilton Ltd.
Taylor Traders
Balance R7 380 R16 290
1.
2.
3.
4.
5.
Balance
14

from defrauding the creditor system? Name two.
Question
34
total:

Question 2
SECTION A [10 marks]
2.1 Match the work that a person would do in a manufacturing business

with the description of the employee and the division/department
the cost would be allocated to. Write only the letter (A–E and X-Z)
next to the question number (2.1.1–2.1.5) in the Answer Book.
Work done Description of Division/
employee Department
(A, B, C, D or E) (X,Y or Z)
2.1.1 Makes the product or operates the
machine that makes the product
2.1.2 Does the books of the business and
prepare the financial statements
2.1.3 Ensures that raw materials and finished
goods are not stolen and that the factory is
productive
2.1.4 Does the marketing of the product
2.1.5 Answers the telephone and manages
appointments
10
SECTION B
2.2.1
THOBANI’S T-SHIRT MANUFACTURERS
PRODUCTION COST STATEMENT FOR THE YEAR ENDED 29 FEBRUARY 2012
Direct costs
Direct material cost
Direct labour cost
Factory overheads
Total manufacturing cost
Work-in-process at the beginning of the year 6 530
Work-in-process at the end of the year

DIRECT MATERIAL COST
Raw materials at the beginning of the year 12 400
Raw material stock at the end of the year (9 800)
FACTORY OVERHEADS
12
SELLING AND DISTRIBUTION COST
12

SECTION C [8 marks]
2.3.1 Calculate the breakeven point for the year ended 29 February 2012.

with the number of units that are currently produced? Explain.
Question
54
total:

Question 3
3.1 COMPANY CONCEPTS and AUDIT REPORTS
3.1 Choose an example from COLUMN B that matches the concept

relating to companies in COLUMN A. Write only the letter (A–E)
3.1.1
3.1.2
3.1.3
3.1.4
3.2 COMPANY STATEMENTS
3.2.1
Broomstix Ltd.
Income Statement for the year ended 28 February 2014
Sales
Cost of sales
GROSS PROFIT
Other income
Rent income
GROSS OPERATING INCOME

Operating expenses
Insurance
Packing material
Consumables 9 760
Directors’ fees
Audit fees
Bank charges
Discount allowed
OPERATING PROFIT (LOSS) BEFORE INTEREST EXPENSE

Interest expense
Profit (loss) before tax 837 800
Income tax
NET PROFIT (LOSS) FOR THE YEAR 603 216
42

3.2.2
NOTES TO THE BALANCE SHEET
1. TRADE AND OTHER RECEIVABLES
Trade debtors
Provision for bad debts
Net trade debtors

3.2.3
EQUITY AND LIABILITIES
Shareholders’ equity 1 153 516
Share capital 750 000
Non-current liabilities
Mortgage loan from EC Bank
Current liabilities
Trade and other payables
TOTAL EQUITY AND LIABILITIES
12
Question
78
total:

Question 4
4.1 General ledger of MC Traders Ltd.

2012 2012
Dec 31 Dec 31
Calculations
4.2
Net profit before tax
Adjustment for:
Depreciation 39 500
13

4.3
MC TRADERS LTD.
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2013
Interest paid (14 300)
Tax Paid
Divdidends paid (126 900)
Fixed assets purchased (70 000)
Proceeds of asset disposal
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents end of current year
15
4.4.1 Acid test ratio

4.4.3 Net asset value per share
4.5 Comment on the liquidity situation of the company.

4.6 The company wants to expand their operations in the next financial
year and therefore they will need more fixed assets such as land and
buildings. How do you suggest should they finance this? Give two
options and explain why you suggest this.
Should he accept this offer?
Question
60
total:
Question 5
5.1 Some items such as stationery could appear in both the Projected
Income Statement and the Cash Budget, but the amounts are
different in the two statements. Explain why.

5.2 Name two possible reasons for the actual sales being much less than
the predicted sales for November 2012.
sales for December 2012? Explain.
cost price. Calculate the mark-up that was actually achieved. Give
two possible reasons for the difference.
Mark-up actually achieved
Reasons

5.5 With what percentage is the business expecting the rent to increase
on
1 December 2012?
5.6.1 Does this business have a good policy with regards to collection from
debtors? Explain.
Yes / No
Explanation
5.6.2 State two points how they can improve the credit policy.
5.7 Comment on each of the following items with regards to the

following:
5.7.1 Telephone

5.7.2 Purchases of trading stock
Question
35
total:
Question 6
(Refer to the first three bullets of the information provided.)
6.1.1 6.1.4
6.1.2 6.1.5
6.1.3 6.1.6
12
6.2 Calculate the amount payable to SARS on 30 June 2012.
6.3.1 Calculate the weighted average price per unit (excluding VAT) for
the year ended 30 June 2012.

6.3.2 Calculate the value of closing stock on hand (excluding VAT) on 30
June 2012 using the weighted average method.
6.3.3 Calculate the value of closing stock on hand (excluding VAT) using
FIFO.
6.4.1 Why do you think Lisa wants to increase the value of cost of sales in
the financial statements?
Practice (GAAP). Why not?

6.4.3 Do you agree with Sarah’s suggestion of using FIFO? Explain.
Yes / No
Reason
6.5.1 What is a risk with regards to this type of product (chocolates) and
what internal control measure can be put into place to prevent this
risk?
Risk
Internal control
6.5.2 Suggest one possible control measure to prevent theft of chocolates

being disguised as damaged stock.
Question
39
total:

September Accounting Marks: 300
Question 1
1.1 Calculate the balance according to the Bank account on 30

September 2012. State if the bank account is positive or overdrawn.
R31 876 + 600 + 2 390 + 8 700 – 14 989 – 21 332
= R7 245✔✔
overdraft✔
1.2 What entry will the bookkeeper have to make with regards to
cheque no. 2213 if it is still not presented for payment in the next
month? This cheque was issued to the Eagle Fishing Club during
April 2012 as a donation.
Debit: Bank ✔
Credit: Donations ✔
1.3 Write down the number of the cheque that is post-dated. How
should this cheque be treated in the financial statements if it was the
end of the financial year?
No. 2234 ✔
Add to Bank ✔
Add to Creditors Control ✔
business.
The bank reconciliation shows a missing (outstanding) deposit since
12 August 2012.
It appears that rolling of cash is occurring.
✔✔ (Any acceptable answer)

1.5 If you suspected that the bookkeeper was stealing money, explain
three ways you will look for audit evidence to back up your suspicion.
Compare receipts to deposit slips.
Check the bank statement and bank reconciliation to see if all
transactions are recorded.
Look for cash payments that have not been properly authorised.
Check authenticity of source documents.
(Any acceptable answer) (✔✔ × 3)
1.6 Use the table in the Answer Book to indicate the differences that were
discovered when comparing the account of Taylor Traders in the
Creditors Ledger with the statement of account received from them.
Write only the amounts. Calculate the correct balance/total at the end.
Reconciliation statement of
Creditors Ledger of Hamilton Ltd.
Taylor Traders
Balance R7 380 R16 290
1. R180 ✔✔
2. R3 200 ✔✔
3. (50) ✔✔
4. (2 970) ✔✔
5. 5 490 ✔✔
(8 000) ✔✔
Balance R10 760 (✔) R10 760 (✔)
14

from defrauding the creditor system? Name two.
Division of duties – same person should not be ordering goods and
paying creditors.
Spot checks should be done to compare invoices and payments with
entries in the journals.
Question
34
total:

Question 2
SECTION A
2.1 Match the work that a person would do in a manufacturing business

with the description of the employee and the division/department
the cost would be allocated to. Write only the letter (A–E and X-Z)
Work done Description of Division/Department
employee (X,Y or Z)
(A, B, C, D or E)
2.1.1 Makes the product or operates the

D✔ X✔
machine that makes the product
2.1.2 Does the books of the business and

E✔ Y✔
prepare the financial statements
2.1.3 Ensures that raw materials and finished

goods are not stolen and that the factory A✔ X✔
is productive
2.1.4 Does the marketing of the product B✔ Z✔
2.1.5 Answers the telephone and manages

C✔ Y✔
appointments
10
SECTION B
2.2.1
THOBANI’S T-SHIRT MANUFACTURERS
Direct costs (✔) 321 600
Direct material cost (✔) 149 600
Direct labour cost ✔ 172 000
Factory overheads ✔ 184 170
Total manufacturing cost 505 770
Work-in-process at the beginning of the year 6 530
512 300
Work-in-process at the end of the year ✔ (3 300)
Cost of production of finished goods ✔✔ 509 000

DIRECT MATERIAL COST
Raw materials at the beginning of the year 12 400
Purchases ✔ 136 700
Carriage on purchases ✔ 10 300
Raw material stock at the end of the year (9 800)
149 600
FACTORY OVERHEADS
Indirect material (1 290 + 12 400 – 1 980) ✔✔✔ 11 710
Factory foreman (72 000 + 720 + 1 440) ✔✔✔ 74 160
Depreciation (130 000 × 20%) ✔✔ 26 000
 500  )
Rent (108 000 × ____ ✔✔ 60 000
900
Water and electricity ✔ 12 300
(✔) 184 170
12
SELLING AND DISTRIBUTION COST

Packing material (1 090 + 5 300 – 1 220) ✔✔✔ 5 170
Commission (840 650 × 10%) ✔✔ 84 065
Depreciation (140 000 – 124 000 – 1) ✔✔✔ 15 999
 150  )
Rent (108 000 × ____ ✔✔ 18 000
900
Water and electricity ✔ 3 210
(✔) 126 444
12

R10 689✔ + 509 000(✔) – 16 288✔
= R503 401
SECTION C [8 marks]
2.3.1 Calculate the breakeven point for the year ended 29 February 2012.
422 200✔ 
 ___________   
85✔– 44,95✔
 422 200  
= ______
40,05✔
= 10 542 (10 541,8) units✔

with the number of units that are currently produced? Explain.
No✔
They are produced 10 000 units and sold 9 890 units. That is less than
the breakeven point, which means they will be making a loss. ✔✔
(Any acceptable answer)
Question
54
total:
Question 3
3.1 COMPANY CONCEPTS and AUDIT REPORTS [8 marks]
3.1 Choose an example from COLUMN B that matches the concept

relating to companies in COLUMN A. Write only the letter (A–E)
3.1.1 C ✔✔ 3.1.3 B ✔✔
3.1.2 A ✔✔ 3.1.4 D ✔✔

3.2 COMPANY STATEMENTS
3.2.1
Broomstix Ltd.
Sales (3 846 200✔ – 26 200✔ – 6 480✔) 3 813 520
Cost of sales (2 011 300✔ – 3 600✔✔) (2 007 700)
GROSS PROFIT (✔) 1 805 820
Rent income (66 000✔ – 13 200✔✔) 52 800
Provision for bad debts: adjustment ✔✔✔ 484
GROSS OPERATING INCOME 1 859 104

Operating expenses (✔) (999 905)
Insurance (28 000 ✔ – 1 575 ✔✔) 26 425
Packing material (19 220✔ – 1 890 ✔) 17 330
Consumables 9 760
Directors fees (300 000✔ + 50 000 ✔) 350 000
Audit fees (70 000 ✔ + 12 000 ✔) 82 000
Bank charges (15 320 ✔ + 1 090 ✔) 16 410
Discount allowed (6 100 ✔ – 200 ✔) 5 900
Depreciation (21 200 ✔✔ + 4 600 ✔✔ + 600 ✔✔) 26 400
Trading stock deficit (330 000 ✔ + 3 600 ✔ – 331 500✔) 2 100
OPERATING PROFIT (LOSS) BEFORE INTEREST EXPENSE (✔) 859 199
Interest expense (4 021✔ + 438✔ + 16 940✔) (21 399)
Income tax (837 800 × 28%) of (603 216 × [28/72]) ✔ (234 584)
NET PROFIT (LOSS) FOR THE YEAR 603 216
42
Calculations for adjustments:

Depreciation on equipment:
R46 000 × 10% = R4 600
R12 000 × 10% × __ 6    
 12 = R600
Depreciation on vehicles:
(R180 000 – 74 000) × 20% = R21 200

3.2.2
NOTES TO THE BALANCE SHEET
Trade debtors (37 000 ✔ + 2 000 ✔ – 6 480 ✔) 32 520
Provision for bad debts ✔ (1 626)
Net trade debtors (✔) 30 894
Creditors for salaries ✔✔2 000
Prepaid expenses ✔1 575
(✔)34 469

Accrued expenses (50 000 ✔ + 12 000 ✔) 62 000
Income received in advance ✔13 200
  80   )
Shareholders for dividends (150 000 × ____ ✔✔120 000
100
SARS (income tax) (234 584(✔) – 226 630 ✔) 7 954
255 984
3.2.3
Shareholders’ equity 1 153 516
Share capital 750 000
Mortgage loan from EC Bank (154 000 ✔ +16 940 ✔ – 30 000 ✔) 140 940
Current liabilities 315 203
Trade and other creditors (✔) 255 984
Short-term loan ✔✔ 30 000
Bank overdraft (23 891 ✔ + 1 090 ✔ + 438 ✔ + 1 800 ✔ + 2 000 ✔) 29 219
TOTAL EQUITY AND LIABILITIES ✔ 1 609 659
12
Question
78
total:

Question 4
4.1 General ledger of MC Traders Ltd.

Dec 31 Equipment ✔ ✔ 40 000 Dec 31 equipment ✔ ✔✔✔ 15 000
2012
31 Dec 31 Bank ✔ ✔ 25 000
40 000 40 000
Calculations
30/06/2010
30/06/2011
31/12/2011
R40 000 × 15%
R40 000 × 15%
6
R40 000 × 15% ×  __
12    
= R6 000
= R6 000
= R3 000
} R15 000
4.2
Net profit before tax (129 670 + 62 066) ✔✔ 191 736
Adjustment for:
Depreciation 39 500
Operating profit before changes in working capital (✔) 245 536
Decrease in debtors (156 700✔ – 134 900✔) ✔ 21 800
Increase in stock (356 000✔ – 124 000✔) ✔ (232 000)
Increase in creditors (268 900✔ – 234 600✔) ✔ 34 300
Cash generated by activities 69 636
13

4.3
MC TRADERS LTD.
Cash flow from operating activities (✔) (118 100)
Cash generated by activities ✔ 69 636
Tax paid (62 066 – 8 760 – 6 770) or (8 760 – 62 066 + 6 770) ✔✔✔ (46 536)
Divdidends paid (126 900)
Cash flow from investment activities (✔) (45 000)
Proceeds of asset disposal (✔) 25 000
Cash flow from financing activities (✔) 110 000
Proceeds from shares issued (810 000✔ – 660 000✔) 150 000
Payment on loan (130 000✔ – 90 000✔) (40 000)
Net change in cash and cash equivalents ✔ (53 100)
Cash and cash equivalents at the beginning of the year ✔ 98 700
Cash and cash equivalents end of current year ✔ 45 600
15
4.4.1 Acid test ratio

536 500 – 356 000 : 335 670
= 180 500 ✔✔ : 335 670 ✔
= 0,5 : 1 ✔

90 000 ✔ : (810 000 + 133 310) ✔✔
90 000 : 943 310
= 0,095 : 1 ✔

4.4.3 Net asset value per share
943 310 ✔  
 _________ 100  
×  ___
 
270 000 ✔ 1
= 349,37 cents ✔
OR
= R3,49
4.5 Comment on the liquidity situation of the company.

The current ratio increased from 1,3 : 1 to 1,6 : 1 ✔ but the acid test
ratio decreased from 0,9 : 1 to 0,5 : 1 in 2012. ✔
The reason for this is the increase in stock.
The stock holding period increased from 67 days to 129 days. ✔✔
They should sell off excess stock – too much stock on hand – it
can become obsolete – will have positive influence on cash flow
situation. ✔✔
4.6 The company wants to expand their operations in the next financial
year and therefore they will need more fixed assets such as land and
buildings. How do you suggest should they finance this? Give two
options and explain why you suggest this.
They can issue more shares ✔ – they have only issued 270 000 of the
600 000 authorised shares. ✔
They can take out a loan ✔– their debt : equity ratio is 0,095 : 1 and
the return on capital employed is 21%, while the interest on loan is
only 11%. ✔
Should he accept this offer?
No✔
The shares are worth R3,49 and he is only offered R2,80 per
share✔✔

Question 5
5.1 Some items such as stationery could appear in both the Projected
Income Statement and the Cash Budget, but the amounts are
different in the two statements. Explain why.
The Cash Budget predicts the inflow/outflow of cash whereas the
Projected Income Statement shows the predicted income earned or
expense incurred for that period.
e.g. All the stationery will be bought in October, but only used over
the next couple of months. ✔✔
5.2 Name two possible reasons for the actual sales being much less than
the predicted sales for November 2012.
The economic climate
The advertisements not taking place – spent R7 000 less on
advertisements than planned
Prediction was unrealistic
sales for December 2012? Explain.
Yes ✔
In December clients will spent more because it is the Christmas
holidays. ✔✔
OR
No ✔
The economic climate is not good – people as spending less money
on luxury items such as cameras. ✔✔

cost price. Calculate the mark-up that was actually achieved. Give
two possible reasons for the difference.
Mark-up actually achieved:
 80 000 ✔ – 59   
250
_________________
    100  
✔ ×  ___
1
59 250 ✔
20 750
= ______ 100  
 ×  ___
 59 250  1
= 35% ✔
Reasons:
They gave discounts to clients in order to increase their stock
turnover.
Increase in the cost price from suppliers while the selling price stayed
the same.
5.5 With what percentage is the business expecting the rent to increase
on
1 December 2012?
 7 020 – 6 500

_____________   ✔  
   100  
×  ___ 1
6 500 ✔
 6520
= _____ 100
___
500   ×   1  
= 8% ✔
5.6.1 Does this business have a good policy with regards to collection from
debtors? Explain.
Yes/No: No ✔
Explanation:
They only collected 56% of the debtors they predicted/budgeted.
They only collected R40 000 instead of the budgeted figure of
R72 000.
Sales is 33% less than predicted, but debtors is 44,4% less than
predicted.

5.6.2 State two points how they can improve the credit policy.
Do credit background check on customers before allowing credit
purchases.
Credit limit – debtors are not allowed to purchase more than a
certain amount on credit.
Discount for early payment / interest on overdue accounts.
5.7 Comment on each of the following items with regards to the following:
5.7.1 Telephone
The business does not have good control over this expense. They
spent R2 258 (188%) more than predicted/budgeted. ✔✔
The projection for December should be adjusted or they should
investigate the over-spending on telephone expenses – are employees
using it for personal use? ✔✔
5.7.2 Purchases of trading stock

They spent 75% less on purchases and sales was only 33% less than
predicted. ✔✔
OR
They are purchasing R60 000 less than the budget (R20 000 instead of
R80 000).
They are planning to purchase only R40 000 in December. They are
not replenishing stock. This could lead to shortages in stock and
losing clients. ✔✔
Question
35
total:
Question 6 Inventory and VAT (39 marks; 26 minutes)
(Refer to the first three bullets of the information provided.)
6.1.1 D ✔✔ 6.1.4 A ✔✔
6.1.2 A ✔✔ 6.1.5 B ✔✔
6.1.3 B ✔✔ 6.1.6 B ✔✔
12

6.2 Calculate the amount payable to SARS on 30 June 2012.
R7 694,40 ✔✔
6.3.1 Calculate the weighted average price per unit (excluding VAT) for
the year ended 30 June 2012.
360 704 + 25 600     +20 400 – 1 360✔✔
 ______________________________
     
24 000 + 1 600 + 1 200 – 80✔✔
 405
= ______ 344
26 720  
= R15,17✔
6.3.2 Calculate the value of closing stock on hand (excluding VAT) on 30

June 2012 using the weighted average method.
1 400 ✔ × R15,17 ✔ = R21 238 ✔
6.3.3 Calculate the value of closing stock on hand (excluding VAT) using
FIFO.
(1 200 – 80) 1 120 @ R17 = R19 040 ✔✔
(1 400 – 1 120) 280 @ R16 = R4 480 ✔✔
R19 040 + R4 480 = R23 520 ✔
6.4.1 Why do you think Lisa wants to increase the value of cost of sales in
the financial statements?
It decreases gross profit /net profit and therefore decreases tax
liability. ✔✔

Practice (GAAP). Why not?
The business must stay consistent from one year to the next in order
to compare results.
Not ethically correct to manipulate profit by changing policies
(Any acceptable answer) ✔✔
6.4.3 Do you agree with Sarah’s suggestion of using FIFO? Explain.

Yes ✔
Reason: The nature of the product dictates that one should use FIFO
/ Chocolate will lose its quality over time – its perishable. ✔✔
OR
No ✔
All stock will be displayed at the same time, allowing customers to
choose at random.
Cheaper product –will sell large quantities. Weighted average better.
✔✔
6.5.1 What is a risk with regards to this type of product (chocolates) and what
internal control measure can be put into place to prevent this risk?
Risk: they can be damaged (melted/squashed) quite easily ✔
Internal control: Keep the stock at a cool temperature –
refrigeration/air conditioning
Should be stored in sturdy boxes / Manager supervises handling of
stock / restricted access ✔✔
6.5.2 Suggest one possible control measure to prevent theft of chocolates

being disguised as damaged stock.
Write-offs to be authorised by either Lisa or Sarah.
Incentives for reduced wastage
Division of duties – between manager and employees
Wasted stock can be sold to employees at a reduce price, rather than
given, etc. ✔✔
Question
39
total:

5. Forms of assessment: Case studies
Learners are presented with a real-life situation, problem or incident that

relates to a particular topic. They are expected to assume a particular role in
articulating the position. They draw on their own experience, the experience
of peers or prior learning to interpret, analyse and solve the problem(s).
Newspaper articles, magazine articles, television or radio presentations
provide for excellent case studies. Learners read and/or listen, digest the
information and then make informed decisions. Questions can be from lower
order – direct quotes from the article – to higher order when they are asked
to analyse comments and possibly make suggestions. Case studies are a very
good way of keeping the subject up to date and relevant.

Assessment: Case study on budgets
MARKS: 50
TIME: 5 hours (not in teaching plan)
This case study looks at the Cash Budget of a company which is not showing
good cash management. The CEO has asked you to investigate the problem
and write a report to her on your findings. This is an individual task and
requires you to study the Cash Budget thoroughly and do certain important
calculations.
Section A
The CEO of Megaphone Ltd. is not happy about the fact that the company
will be showing a bank overdraft at the end of the budgeted period August
2018. She has asked you, the CFO, to explain to the board of directors why
the company is budgeting for an overdraft.
You are part of the financial advisory team that will draw up a report to
present to the CEO and the board, justifying why the company is budgeting
for a bank overdraft at the end of August.
Required
1. Use the Cash Budget provided to calculate the following:
a. The percentage cash sales and the percentage cash purchases
maintained by the company
b. The percentage increase in Directors’ Fees and Wages and Salaries
in July 2018. (You will need to include all of this information in your
report.) (no marks)
2. Which amounts contributed to the significant improvement in
the bank balance at the end of June and July 2018? Explain. (6)
3. Write a report to the CEO to highlight the following:
a. Should the CEO be concerned about the cash projections for
the three months? Give reasons. (4)
b. What are the areas of concern? Mention and explain at least
five points. (15)
c. How can the company improve on the situation? List at
least five points. (15)

Information
MEGAPHONE LTD.
CASH BUDGET FOR THREE MONTHS ENDING 31 AUGUST 2018
Jun Jul Aug
RECEIPTS
Cash sales 160 200 171 000 189 000
Receipts from debtors 333 618 356 529 384 562
Ordinary share capital – 393 000 –
Loan received – 15% p.a. 300 000 – –
Proceeds from fixed deposit 120 000 – –
Sale of redundant equipment – – 44 573
TOTAL RECEIPTS 913 818 920 529 618 135
PAYMENTS
Cash purchases 267 000 285 000 270 000
Payments to creditors 63 000 66 750 71 250
Interest on loan – – 3 750
Directors remuneration 210 000 241 500 241 500
Audit fees 30 000 – –
Sundry expenses 84 000 87 000 90 000
Income tax – – 114 000
Dividends – – 261 000
Wages and salaries 150 000 159 000 159 000
TOTAL PAYMENTS 804 000 839 250 1 210 500
Cash surplus (deficit) 109 818 81 279 (592 365)
Bank balance at beginning of month (36 000) 73 818 155 097
Bank balance at end of month 73 818 155 097 (437 268)
DEBTORS COLLECTION SCHEDULE

Jun Jul Aug
Month Credit Sales
April 2018 319 200 47 880 0 0
May 2018 352 800 176 400 52 920 0
June 2018 373 800 109 338 186 900 56 070
July 2018 399 000 0 116 709 199 500
August 2018 441 000 0 0 128 992
TOTALS 333 618 356 529 384 562
Additional information
• A fixed stock base is maintained.
• The business works on a mark up of 60% on cost.
• The business budgets for 5% bad debts, written off after the second
month after the sales took place.
• The terms of the credit agreement with debtors state that they have
30 days in which to pay, but past trends show that it takes 60 days to
collect the money from the debtors.
• Debtors are allowed a discount of 2,5% for early settlement.
• All creditors are paid within 30 days.
• The financial year ends on the last day of February each year.

Section B
Required
4. At the end of June 2018 the CFO asks you to compile a report on the
following:
a. Areas in which the company performed well (4)
b. Areas where there are still problems (6)
This report will be discussed at the next board meeting.
Information
Jun budget Jun actual
RECEIPTS
Cash sales 160 200 169 200
Receipts from debtors 333 618 235 200
Loan received – 15% p.a. 300 000 300 000
Proceeds from fixed deposit 120 000 120 000
TOTAL RECEIPTS 913 818 824 400
PAYMENTS
Cash purchases 267 000 300 600
Payments to creditors 63 000 90 000
Directors remuneration 210 000 210 000
Audit fees 30 000 36 000
Sundry expenses 84 000 60 000
Wages and salaries 150 000 150 000
TOTAL PAYMENTS 804 000 846 600
Cash surplus (deficit) 109 818 (22 200)
Bank balance at beginning of month (36 000) (36 000)
Bank balance at end of month 73 818 (58 200)
Answer sheet: Case study on budgets

Hand out to learners
Section A
Question 1 is not for marks but it helps you to formulate answers for the
question which follow:
1. a. Percentage cash sales and the percentage cash purchases maintained
by the company
Cash sales

Cash purchases
1. b. P
ercentage increase in Directors’ Fees and Wages and Salaries in July
2018
Directors’ fees
Wages and salaries

2. Which amounts contributed to the significant improvement in the
bank balance at the end of June and July 2018? Explain. (6)
3. a. Should the CEO be concerned about the cash projections for the
three months? Give reasons. (4)
3. b. What are the areas of concern? Mention and explain at least

five points. (15)


3. c. H
ow can the company improve on the situation? List at least
5 points. (15)
Section B
4. a. Areas in which the company has performed well: (4)

4. b. Areas where there are still problems: (6)
Memorandum for assessment: Case study on budgets

Note to teacher
This is an individual task which can be handed out in class and done under
your supervision or it could be done at home. This task should take about 5
hours or 5 lessons.
Learners need to critically study the cash budget and offer advice to the CEO.
An answer sheet is provided but you can ask them to type up the answers and
present their findings formally as a report.
Section A
Question 1 is not for marks but it helps the learner formulate answers for
the question which follow:
1. a. Percentage cash sales and the percentage cash purchases maintained
by the company
Cash sales
160 200 ×  ___
Credit sales June – 373 800  ______ 100  = 30%
534 000  1
Cash sales June – 160 200
Total sales 534 000
Cash purchases
 534 000
______
160   100  = 333 750 (cost of sales)
 ×  ___
1
267
______000 100
 ×  ___
 333 750  1  = 80%

1. b. P
ercentage increase in Directors’ Fees and Wages and Salaries in
July 2018
Directors’ fees
31 500   
241 500 – 210 000 = 31 500  ______ 100  = 15%
×  ___
210 000  1
Wages and salaries
9 000 ×  ___
159 000 – 150 000 = 9 000  ______ 100  = 6%
150 000    1
2. Which amounts contributed to the significant improvement in the

bank balance at the end of June and July 2018? Explain. (6)
The loan of R300 000 ✔✔ was received during June as well as the proceeds
from the fixed deposit of R120 000 ✔✔ which expired.
In July additional ordinary shares to the value of R393 000 ✔✔ were sold
to the public.
3. a. Should the CEO be concerned about the cash projections for the
three months? Give reasons. (4)
Most learners will say yes and will comment on the fact that the company
starts off in June with an overdraft of R36 000 and ended off with a
projected overdraft of R437 268 in August.
Even though there were significant injections of cash by way of the
loan, fixed deposit and additional shares, the company will still realise an
overdraft at the end of August.
2 × 2 ✔✔ for any feasible points, whether yes or no.
3. b. What are the areas of concern? Mention and explain at least

five points. (15)
5 × ✔✔✔ for any of the following discussion points:
• Only 30% of sales are for cash.
• 5% of debtors do not settle their accounts at all and must be written off.
• Debtors do not stick to the terms of the credit agreement and pay in
60 days instead of 30 days.
• 80% of purchases are for cash.
• Creditors are being paid in 30 days, far sooner than debtors are settling.
• Interest was only paid from August, which will have the effect of
increasing the loan amount.
• Directors have received a 15% increase in July.
• Employees only received a 6% increase in July.
• High dividends are paid to shareholders.
• Business seems to be profitable because provisional income tax is being
paid, yet cash flow is negative.
• And so on.
✔ for naming the point ✔✔ for discussing the point and showing understanding
If learner discusses by comparing, the following then 5 marks for each
discussion item:
• Debtors (credit sales) vs cash sales
• Creditors (credit purchases) vs cash purchases
• Directors fees vs Wages and Salaries
• Dividends and provisional income tax

3. c. H
ow can the company improve on the situation? List at least
five points. (15)
• Encourage debtors to pay earlier – offer a higher discount than 2,5%
for early settlement.
• Charge debtors interest on overdue accounts.
• Offer trade discounts for cash sales.
• Increase the percentage of credit purchases.
• Re-negotiate the terms of the credit agreement with creditors.
• Negotiate discount when paying creditors early.
• Decrease expenses.
• Directors to take a lower increase; 15% is too high.
• If possible rather sell more shares than taking out a loan.
• Pay a lower dividend or even no interim dividend.
• And so on.
✔ for naming the point; ✔✔ for discussing the point and showing understanding
Section B
4. a. Areas in which the company has performed well: (4)
• Cash sales were higher. ✔✔
• Sundry expenses were lower. ✔✔
4. b. Areas where there are still problems: (6)

• Debtors are not meeting their commitments. ✔✔
• Higher cash purchases ✔✔
• Higher payments to creditors ✔✔
• Bank overdraft is realised instead of a positive bank balance. ✔✔
• Audit fees are higher. ✔✔
Any other reasonable answer 3 × ✔✔

Section 4
NOTES/TIPS FOR TEACHERS
CHAPTER 1: Financial accounting of companies – concepts,

unique ledger accounts and bookkeeping
Progression of this topic
Grade 10: Concepts, ledger accounts and bookkeeping of sole traders
Grade 11: Concepts, ledger accounts and bookkeeping of partnerships
Grade 12: Concepts, ledger accounts and bookkeeping of companies
Requirements for this chapter
• Define and explain accounting concepts unique to companies
• Complete the bookkeeping of companies
• Complete transactions for companies, including issuing of shares at issue
price, buying back of shares, capitalising loans and calculating income
tax, dividends and directors’ fees
• Analyse and indicate the effect of transactions on the accounting
equation of a company
• Integrate ethical considerations relating to companies – roles of
shareholders and directors, manipulation of share prices, corporate
governance, etc.
• Apply GAAP principles and IFRS.
Difficulties often experienced by learners with this chapter
• A lot of these concepts are totally foreign to some the learners and
should be discussed in class.
• They often find it hard to follow the bookkeeping trail from journals, to
ledger, to trial balance to financial statements.
• Buying back of shares is a new, abstract concept that learners will find
hard to understand.
• Interest capitalised should be explained step-by-step.
Suggestions, tips and tricks for teaching this chapter and overcoming difficulties
of learners
• You can get them interested in these new concepts by telling them
how the JSE operates and maybe getting a stockbroker to come and talk
to them.
• Follow the accounting trail with them step-by-step on the board from
the journals, to the ledger accounts, to the Trial Balance and the financial
statements.
• Explain the effect and reason of all new concepts on the accounting
equation.
• The written report in this Teachers Guide is a great way for the learners
to discover some of these concepts themselves.
• Integration:
– All the GAAP principles should be integrated and are often
mentioned throughout this chapter.
– Ethical issues should be discussed and integrated throughout this
chapter
s e c t i o n 4 • notes / tips for teachers 161

CHAPTER 2: Financial accounting of companies –
Final accounts, Post-closing Trial Balance, Ifrs and Gaap
Grade 10: Preparation of final accounts of sole traders
Grade 11: Preparation of final accounts of partnerships
Grade 12: Preparation of final accounts of companies
Requirements of this chapter
• Explain the accounting cycle and accounting period
• Define and explain International Financial Reporting Standards (IFRS)
and General Accepted Accounting Practice (GAAP), including all
concepts, rules and principles
• Complete the bookkeeping of companies
• Do all the required year-end adjustments, including Trading stock
deficit/surplus, consumable stores on hand, depreciation (on cost price/
straight line, on diminishing balance methods), bad debts and bad debts
recovered, correction of errors/omissions, accrued income (receivable),
income received in advance (deferred), expenses prepaid, accrued
expenses (payable), provision for bad debts, interest capitalised and
adjustments related to income tax and to the payment and declaration
of dividends
• Prepare the final accounts of a company: Trading account, Profit and loss
account and Appropriation account
• Prepare the Pre-Adjustment, Post-Adjustment and Post-Closing
Trial Balance
• Reversing adjustments, i.e. accruals, income received in advance
and prepayments
• The learners often find the adjustments very difficult.
• The necessity of doing closing transfers and adjustments must be
emphasised.
of learners
• Do all the different GAAP principles at the beginning of the chapter.
• Let them learn steps for the closing transfers; the learners understand
better when given steps to follow.
• When doing revision of adjustments, show the writing back of
the adjustment as well – do this step by step on the board, not
on transparency, using different colour pens to write in balances,
adjustments and closing transfers.
• Use T-accounts and timelines when explaining adjustments.
• Do the first activity of each new adjustment with them on the board
and then give the next activity for homework – once again, repetition is
important.
• When showing learners the short cuts to do adjustments on the Pre-
adjustment Trial Balance, show it on a transparency; do not only tell
them, show them.
• Integration:
– Internal control over stock can be integrated when doing trading
stock deficit, and control over assets when doing depreciation etc.
162 s e c t i o n 4 • notes / tips for teachers

CHAPTER 3: Financial accounting of companies –
Financial statements
Grade 10: Preparation of financial statements of sole traders
Grade 11: Preparation of financial statements of partnerships
Grade 12: Preparation of financial statements of companies
• Prepare the financial statements of a company
• Do the following yearend adjustments: Trading stock deficit/surplus;
Consumable stores on hand, Depreciation (on cost price/straight line,
on diminishing balance methods), Bad debts and Bad debts recovered
and the correction of errors/omissions, Accrued income (receivable)
/ Income received in advance (deferred), Expenses prepaid / Accrued
expenses (payable), Provision for bad debts, Adjustments related to
income tax and to the payment and declaration of dividends
• Integrate reporting and control of fixed assets
governance, etc.
• Integrate internal audit and control processes relating to companies
• Apply GAAP principles and IFRS:
• The learners often find the adjustments very difficult.
• The format of the Income Statement, Balance Sheet, Cash Flow
Statement and notes needs to be precise – learners should learn this by
heart.
of learners
• Start by showing them the bigger picture using the accounting cycle
(PowerPoint®).
• Do the first Income Statement, Balance Sheet and Cash Flow Statement
on the board with them, step by step.
• After that you can use transparencies or PowerPoint® presentations.
• Use T-accounts and time lines to explain the adjustments.
• Integration:
– Internal control can be integrated throughout this chapter.
CHAPTER 4: Financial accounting of companies – analysis and

interpretation of financial statements
Grade 10: Analysis and interpretation of financial statements of sole traders
Grade 11: Analysis and interpretation of financial statements of
partnerships
Grade 12: Analysis and interpretation of financial statements of companies
• Calculate and comment on the following financial indicators: Gross profit
on sales, Gross profit on cost of sales, Net profit on sales, Operating
expenses on sales, Operating profit on sales, Current ratio, Acid test ratio,

Stock turnover rate, Stock holding period, Average debtors collection
period, Average creditors collection period, Solvency ratio, Debt equity
ratio, Return on shareholders’ equity, Return on total capital employed,
Net asset value per share, Dividends per share, Earning per share
• Integrate reporting and control of fixed assets
governance, etc.
• Integrate internal audit and control processes relating to companies
• Giving comments on the results found
• When to use which financial indicator
of learners
• Use the PowerPoint® presentation or write on the board and a
transparency simultaneously to show the learners where to get the
information they need to do the analysis.
• When talking about the comments on results found, give learners
different scenarios on which they might need to comment.
• Give learners a summary of the different formulas/ratios and let them
write a class test so that they can learn these.
• Integration – Internal control over stock, assets, debtors and creditors can
be integrated throughout this chapter.
CHAPTER 5: Financial accounting of companies – analysis of

published financial statements
Grade 10: None
Grade 11: None
Grade 12: Analysis of a company’s published financial statements and
annual reports
• Analyse and interpret the published Statement of Comprehensive
Income of a public company
• Analyse and interpret the published Statement Financial Position of a
public company
• Analyse and interpret the published Statement of Cash Flows of a public
company
• Analyse and interpret the published Directors’ Report of a public
company
• Analyse and interpret the published Independent Auditor’s Report of a
public company
• Discuss issues of good corporate governance
• Discuss the ethical issues arising from corporate governance
• Learners might struggle with the new terminology, especially the
terminology in the published financial statements.
of learners
• Help learners with the difficult terms, you might want to get a finance
dictionary for you classroom.

• Work through this chapter before you hand out the project as this
chapter will equip them with enough knowledge to complete the project.
• Suggested methods of teaching this chapter:
– Use relevant examples and try and find a variety of different
published financial statements.
– Class discussion is important as it will expand the learners
understanding of the terminology and financial language.
• Integration: This chapter fits well with Chapters 1 to 4 and the
understanding of these chapters is important in order to have meaningful
discussions when dealing with this chapter.
CHAPTER 6: Ethics
Grade 10: Code of ethics and basic principles of ethics for businesses
Grade 11: Identification and analysis of ethical behaviour applicable
to financial environments with reference to accountability,
transparency and sustainability
Grade 12: • Role of professional bodies for accountants
• Disciplinary and punitive measures for non-compliance with
code of conduct
• Policies governing ethical behaviour, such as King Code III
• Basic principles contained in Companies Act
• Understand the role of professional bodies
• Demonstrate knowledge of disciplinary and punitive measures that are
applied for non-compliance with the Code of Professional Conduct
• Understand the King Code III policies governing ethical behaviour in the
financial environment
• Understand various aspects of the legislation governing companies
prescribed in the Companies Act, including:
– Legislation relating to directors
– Business rescue
– Dispute resolution
– The appointment of a social and ethics committee
– Provisions relating to transparency and accountability
• Comprehension and understanding of new terminology
• Introduction of many new concepts
• Difficulty in relating to the practical application of these concepts
of learners
• In this chapter, new terminology and many new concepts are introduced,
so it may take a while for learners comprehend this section. We suggest
that you pay special attention to explanations and practical examples
in order to help the learners understand the new terms and become
comfortable with the new concepts.
– Role play
– Group or class discussion
– Case studies
– Newspaper articles.

• Integration: This topic is integrated with other topics in the Learner’s
Book, so many of the concepts discussed in this chapter will be reinforced
later in the year. These concepts should become clearer once they are
dealt with in relation to other topics in later chapters.
CHAPTER 7: Interpretation and reporting on the movement

of fixed assets
Grade 10: Record the acquisition of fixed assets and calculation and
depreciation of fixed assets
Grade 11: Record the disposal of fixed assets
Grade 12: Interpretation and reporting on the movements of fixed assets
• Make informed decisions on the outcome of the movement of fixed
assets
• Determine the age of an asset
• Determine the lifespan of an asset
• Interpret on the asset disposal process
• Report on asset disposal
• Calculate how often an asset needs to be replaced
• Know what the GAAP principles are with regards to fixed assets
• Relate to ethical issues pertaining to fixed assets
• Understand and discuss internal audit and internal control processes with
regards to fixed assets
• Learners must have thorough knowledge of the work dealt with in
Grades 10 and 11 in order to undertake this higher order process of
interpreting the movement of fixed assets.
• The concept of asset disposal, especially during the year, is always a
difficult process to understand.
• The terminology and understanding of the difference between
accumulated depreciation and depreciation is what they struggle with as
well as the historical cost concept.
of learners
• Use real-life examples when explaining this section of work especially
when explaining the audit and control processes.
• Do thorough revision of the asset disposal process taught in Grade 11 but
don’t spend too much time on it.
• Reinforce the terminology of this section especially the understanding
thereof.
• Class discussions on the role of the fixed asset manager, control of fixed
assets and audit processes.
• Find examples where mismanagement of assets took place and discuss.
• Use case studies in order to relate this content to real-life situations.
• Use newspaper articles in order to facilitate discussion.
• Look at newspaper advertisements in order for them to get an
understanding of the actual value of certain assets.
• Integration: The chapters on ethics, controls and GAAP are often
integrated into this section.

CHAPTER 8: Financial accounting of close corporations
Grade 10: None
Grade 11: None
Grade 12: Definition and explanation of accounting concepts unique to
close corporations
• Define and explain the following concepts unique to a close corporation:
– Founding statement
– Members
– Loans to members
– Loans from members
– Distribution to members
• Compare a close corporation and a public company and know the
differences with regards to:
– Formation
– Ownership
– Distribution of profits
– Taxation
• Compare the financial statements of a public company and a CC and
know the differences.
• Identifying the differences in the financial statements of companies and
close corporations, particularly with regards to terminology.
• Learners must have a good understanding of the financial statements of a
company in order to compare it to that of a close corporation.
of learners
• This is a purely theoretical chapter, no bookkeeping.
• Allow learners to study the theory and gain and understanding of
the work.
– Use real-life examples when discussing this chapter.
– Use the CCs Act to help explain this chapter.
• Remember that CCs are being phased out but as long as they are around
they will remain relevant in the curriculum.
CHAPTER 9: Internal control

Grade 10: Basic internal control processes
Grade 11: Demonstration of knowledge of internal audit concepts,
processes and procedures
Grade 12: • Application of internal control and internal audit processes
in a business environment
• Understanding the difference between the roles of internal
and external auditors
• Demonstrate knowledge of the application of internal control and
internal audit processes in a business environment relating to:
– Gathering audit evidence
– Audit sampling

– Internal audit reports
– Accountable management of resources
• Understand the difference between the roles of internal and external
auditors.
• Comprehension and understanding of many new concepts
• Difficulty in relating to the practical application of these concepts
of learners
• In this chapter many new concepts are introduced, so it may take a while
for learners comprehend this section. We suggest that you pay special
attention to explanations and practical examples in order to help the
learners understand and become comfortable with the new concepts.
– Role play
– Group or class discussion: In these discussions the learners can:
• Identify the potential risks associated with various business
activities
• Suggest various internal control procedures that could be used to
protect the business against these risks
• Draw up a list of the types of internal audit procedures that could
be used to assess whether these internal controls are managing
the risks effectively.
– Case studies
– Newspaper articles
• Integration: This topic is integrated with other topics in the Learner’s
Book, so many of the concepts discussed in this chapter will be reinforced
later in the year. These concepts should become clearer once they are
dealt with in relation to other topics in later chapters.
CHAPTER 10: Inventory systems

Grade 10: Recording stock using the perpetual stock system
Grade 11: Recording stock using the periodic stock system
Grade 12: Validation and valuation and calculation of inventories of
businesses using the perpetual and periodic stock systems
• Know the difference between an stock administrative system and an stock
valuation system
• Know the difference between the Perpetual and Periodic stock
administrative systems
• Know how to valuate stock using the FIFO method of stock valuation
• Know how to valuate stock using the weighted average method of stock
valuation
• Understand what the specific identification (of cost price per unit) is
• Apply GAAP principles with regards to stock
• Apply ethics and internal control and audit processes with regards to
stock
• They often struggle with the different approaches between the two
methods, FIFO and weighted average method.

• They struggle to apply the different methods when using the perpetual
or periodic methods.
of learners
• Help them understand that the stock systems are validation methods; in
other words, calculating gross profit and the FIFO and weighted average
methods are valuation methods or how to calculate the value of closing
stock.
– Start this chapter with revision and an understanding of the perpetual
and periodic systems.
– Then introduce the FIFO and weighted average methods.
– Learners must do lots of practice activities in order to master
this section.
CHAPTER 11: Reconciliations

Grade 10: Preparation of Debtors and Creditors Lists to reconcile with the
Debtors Control and Creditors Control accounts
Grade 11: Reconciliation of bank statement with Cash Journals in order to
prepare the Bank Reconciliation Statement
Grade 12: Analysis and interpretation of bank, debtors and creditors
reconciliations
• Understand the Debtors Control and Creditors Control accounts
• Understand the Debtors and Creditors Lists
• Reconcile the Debtors and Creditors Lists with the control accounts
• Reconcile creditors statements with their personal accounts in the
Creditors Ledger
• Analyse and interpret the debtors age analysis
• Analyse and interpret bank statements and Bank Reconciliation
Statements
• In order for learners to master this section they must have a good
understanding of the work covered in Grades 10 and 11 (see progression
above).
• The only new aspects in this section in Grade 12 are the reconciliation
of creditors’ accounts with the Creditors Ledger and the debtors age
analysis.
• Learners find the volume of the work in this chapter difficult to master.
If they struggle they must revisit their Grades 10 and 11 understanding
and try and master that first.
of learners
• In this chapter learners are only supposed to analyse and interpret bank,
debtors and creditors reconciliations. Explain to them what it means to
analyse and interpret.
– Explain this chapter in sections starting with bank reconciliation first.
There will be no time to go back and redo the Grade 11 work, so
encourage learners to revise by themselves.

– Go through each sub-section systematically by doing creditors and
debtors separately.
• Integration: The chapters on ethics and internal control fit well here so
integrate this into your discussions when introducing each sub-section.
CHAPTER 12: Value-added Tax (VAT)

Grade 10: Concepts of value-added tax
Grade 11: Calculations of value-added tax
Grade 12: VAT Control ledger account
• Calculate the amount payable to or receivable from the South African
Revenue Services (SARS)
• Complete the VAT Control ledger account from given information
• Integrate ethical, internal control and internal audit issues relating to VAT
• Some learners may get confused with the difference between output tax
and input tax.
• Also many learners have difficulty understanding and accounting for VAT
adjustments.
of learners
• This chapter relies on a good understanding of the basic principles of
VAT and the VAT calculations, which were introduced in Grades 10 and
11. Therefore, we have included a fairly comprehensive revision sections
at the beginning of the chapter. We suggest that you use this section to
help your learners to consolidate their knowledge before you proceed
with the new Grade 12 content.
• VAT adjustments: Although it is useful for your learners to have a basic
understanding of how VAT adjustments affect output and input tax, the
main focus should be on whether the adjustment increases or decrease
the amount of VAT payable to SARS.
• Calculating the amount of VAT payable to or receivable from SARS:
Although we have shown both methods of dealing with VAT adjustments
in this calculation, it may be easier for some learners to choose one
method and stick to it.
• Completing the VAT Control account: emphasise to your learners, that
when the amount of VAT payable to SARS increases this account must
be credited and when the amount of VAT payable to SARS decreases, it
must be debited.
– Role play: For example, put learners into groups representing VAT
vendors, debtors and creditors (suppliers). The VAT vendors can
then pretend to purchase goods and services from the creditors and
sell products to the debtors. They should then calculate the VAT
amounts included in each of the transactions and determine whether
the amounts should be accounted for as input or output tax. They
can then pretend to write off debts as irrecoverable, receive and
allow discounts and return goods. For each of these transactions,
the learners should calculate the VAT amounts and determine the
method that should be used to account for the VAT adjustment.

Finally, they can calculate the amount payable to or receivable from
the SARS and draw up the VAT Control account for the period.
– Remember, “practice makes perfect”, so try to get your learners to
complete as many of the activities in this chapter as possible.
CHAPTER 13: Cost Accounting and manufacturing businesses

Grade 10: Cost concepts and basic calculations
Grade 11: Cost calculations and ledger accounts
Grade 12: Preparation, presentation, analysis, interpretation and reporting
on cost information for manufacturing enterprises
• Define and explain concepts unique to a manufacturing business
• Prepare a Production Cost Statement with notes for manufacturing costs
• Prepare a short from Income Statement with notes for administration
cost and selling and distribution costs
• Calculate the following: Gross profit on finished goods sold, Variable and
fixed cost, Cost of production using variable and fixed cost, Cost per unit,
Contribution per unit, Breakeven point, Total cost of production
• Integrate ethical issues relating to manufacturing such as: product quality,
product age, productivity, raw materials, support for local products, price
fixing, theft and fraud
• Integrate internal control and audit processes relating to manufacturing.
• Comprehension and understanding of new terminology and concepts
• Understanding and calculating the breakeven point
• Understanding how to allocate and record the manufacturing costs in the
various General Ledger accounts and notes of a manufacturing business
of learners
• Show the relation between the General Ledger accounts and the
statements and notes. For example, the Raw material stock account is
exactly the same as the note for Direct material cost. The Work-in-process
account is the same as the Production Cost Statement.
– Role play: For example, put learners into groups and let each group
choose a product that is manufactured. The groups must then
identify examples of each of the different types of costs involved in
the manufacturing process for that product.
– Practical activities: such as manufacturing popcorn or fudge and then
performing breakeven calculations based on real information
• If possible, arrange an outing to a local factory so that the learners
can get a real sense of the different types of costs involved in the
manufacturing environment.
• The best way to master the preparation of statements is to practise. So
get your learners to complete as many of the activities in this chapter
as possible. Remember to provide them with solutions so that they can
identify and learn from their mistakes.

CHAPTER 14: Budgeting
Grade 10: Budget concepts
Grade 11: Preparation and presentation of Cash Budgets and Projected
Income Statements of sole traders
Grade 12: Analysis, interpretation and comparison of Cash Budgets and
Projected Income Statements of sole traders and companies
• Analyse, interpret and compare Projected Income Statements for sole
traders or companies
• Analyse, interpret and compare Cash Budgets for sole traders or
companies
• Integrate ethical issues relating to budgeting and projections
• Integrate internal audit and control processes relating to budgets and
projections by comparing budget to actual figures
• Even learners who are strong at drawing up Cash Budgets and Projected
Income Statements often struggle when in comes to analysing,
interpreting and comparing the information presented in these budgets.
• Learners often have difficulty in writing well-structured answers when
required to provide an explanation for the questions asked in this section.
• Learners also often do not provide sufficient information when
answering these types of questions.
of learners
• In order to analyse, interpret and compare budgets, it is very important
for learners to first be able to draw up budgets. Therefore, we have
included some revision of the Grade 11 work in this chapter. We suggest
that you use the revision activities to help your learners to consolidate
their knowledge before you proceed with the new Grade 12 content.
• Although the types of questions that are asked in this section may
vary considerably, it is important that your learners develop a standard
approach to answering many of these questions. (e.g. when answering
comparison type questions: learners should provide the amount by which
the item increased/decreased; the percentage increase/decrease; the
reason for the change; whether this had a positive or negative impact on
the business and the corrective action that could be taken.)
– Role play: For example, put learners into groups and each group
must pretend to be holding a management/board meeting in which
they discuss the actual results of a business and compare these results
to the business’s budgets (use past exam paper questions if possible).
Learner should try to:
• Identify any positive and negative results/variations;
• Provide reasons for any significant variations; and
• Suggest actions that should be taken by management to rectify
any problem areas.
• As mentioned in Grade 11, learners should always bear in mind that the
Cash Budget is used to forecast the future cash position of a business
and thus only involves expected cash transactions; whereas the Projected
Income Statement is used to predict the future profitability of a business,
and thus deals with expected income and expenses.

Section 6
SOLUTIONS TO ACTIVITIES
CHAPTER 1
Financial accounting of companies – concepts, unique ledger
accounts and bookkeeping
Activity 1.1 LB page 8
Column A: Person / Institution Column B: Description

1. promoters B. the initial group of people who decided to start
a company
2. shareholders E. the owners of a company and who have voting
rights
3. Registrar of Companies K. issues a registration certificate so that a company
can start doing business
4. independent auditor F. expresses an opinion on the financial statement
and indicates whether the reader can rely on the
financial statements
5. Chief Executive Officer (CEO) H. the managing director who controls the work of
the other directors
6. SARS G. the institution to which a company must pay tax
on the profit earned
7. company secretary I. attends all Board and sub-committee meetings
and ensures that all the legal matters relating to a
company are attended to
8. JSE A. provides a market where shares can be traded
freely under a regulated procedure
9. executive director C. involved in the day-to-day management of the
company and a member of the Board
10. non-executive director D. a member of the Board not involved in the day-
to-day management of the company; brings
independent judgment to the Board
11. Social and Ethics Committee J. attends all Board and sub-committee meetings
and ensures that all the legal matters relating to a
company are attended to
1. Cash Receipts Journal of Xoseka Ltd. for July 2019 CRJ

Doc. Day Details Fol. Analysis of Bank Sundry accounts
no. receipts Amount Details
31 Shareholders B1 420 000 420 000 420 000 Ordinary share capital
B6
s e c t i o n 6 • Chap t e r 1 173

2. General Ledger of Xoseka Ltd.
Dr Ordinary Share Capital B1 Cr
2019
July 31 Bank CRJ 420 000
Dr Bank B6 Cr
2019
Jul 31 Ordinary share capital CRJ 420 000
3. Effect on the accounting equation

Assets Owner’s Equity Liabilities
Effect Reason Effect Reason Effect Reason
+420 000 Cash increase +420 000 Increase in
ordinary share
capital
4.
Xoseka Traders Ltd.
NOTES TO THE FINANCIAL STATEMENTS
7. ORDINARY SHARE CAPITAL
AUTHORISED
Number of ordinary authorised shares: 110 000 shares
ISSUED
0 ordinary shares in issue at 01 July 2019
60 000 additional shares issued during the financial year at issue price R7,00 each 420 000
60 000 ordinary shares in issue at 30 June 2020 420 000
1. General Journal of Francken Traders Ltd. for May 2018 GJ

Doc. Day Details Fol. Debit Credit
no.
31 Bank B6 301 000
Ordinary Share capital B1 301 000
(Issued 70 000 shares @ R4,30 each)
2. General Ledger of Francken Ltd.

2018
Mar 01 Balance b/d 200 000
May 31 Bank CRJ 301 000
501 000

+301 000 Cash increase +301 000 Increase in
ordinary share
capital
174 s e c t i o n 6 • Chap t e r 1

4.
Francken Limited
AUTHORISED
ISSUED
50 000 ordinary shares in issue at 01 March 2018 200 000
70 000 additional shares issued during the financial year at issue price R4,30 each 301 000
120 000 ordinary shares in issue at 28 February 2019 501 000
1. The entry for this transaction can be done in the General Journal or the
Cash Payments Journal.
General Journal of Tungata Traders Ltd. for May 2018 GJ
no.
28 Income tax 171 000
(570 000 × 30%)
Cash Payments Journal of Tungata Traders Ltd. for 2020/21 CPJ

Date Details Fol. Bank Sundry accounts
Amount Details
2020
Aug 31 SARS 91 000 91 000 SARS (income tax)
2021
Feb 28 SARS 86 000 86 000 SARS (income tax)

Date Assets Owner’s Equity Liabilities
2020 –91 000 Cash –91 000 Debt to SARS
31 Aug decreased decrease
2021 –86 000 Cash –86 000 Debt to SARS
28 Feb decreased decrease
2021 –171 000 Income tax +171 000 Debt to SARS
28 Feb – decrease increase
remaining
profit

3. General Ledger of Tungata Traders Ltd.
Dr SARS (Income Tax) B12 Cr
2020 2021
Aug 31 Bank CPJ 91 000 Feb 28 Income tax (570 000 × 30%) GJ 171 000
2021
Feb 28 Bank CPJ 86 000 Balance c/d 6 000
177 000 177 000
2021 2022
Mar 01 Balance b/d 6 000 Feb 28 Income tax (620 000 × 30%) 186 000
Aug 31 Bank CPJ 82 000
2022
Feb 28 Bank CPJ 94 000
Balance c/d 4 000
186 000 186 000
2022
Dr Income Tax N22 Cr

2021 2021
Feb 28 SARS (income tax) GJ 171 000 Feb 28 Appropriation account GJ 171 000
171 000 171 000
2022 2022
186 000 186 000
4.
NOTES TO THE FINANCIAL STATEMENTS ON 28 FEBRUARY 2021
Trade debtors –

8. TRADE AND OTHER PAYABLES
Trade creditors –
1. The entry for this transaction can be done in the General Journal or the
Cash Payments Journal.
General Journal of Tungata Traders Ltd. for February 2021 GJ
no.
28 Dividends on ordinary shares 54 400
Shareholders for dividends 54 400
34
(Final dividends declared (160 000 ×  ___
100
  ) )

Cash Payments Journal of Tungata Traders Ltd. for August 2020 CPJ
Doc. Day Details Fol. Bank Sundry accounts
No. Amount Details
31 Shareholders 25 600 25 600 Dividends on ordinary shares
16   
160 000 × ___
 100

2020 –25 600 Cash –25 600 Dividends –
31 Aug decrease distribution
of profit
2021 –54 400 Dividends – +54 400 Debt to
28 Feb distribution Shareholder
of profit for dividends
increase
3. General Ledger of Tungata Traders Ltd.

Dr Shareholders for Dividends B13 Cr
2021 2021
Apr 02 Bank CPJ 54 400 Feb 28 Dividends on ordinary shares GJ 54 400
54 400 54 400
2022
Feb 28 Dividends on ordinary shares GJ 72 000
Dr Dividends on Ordinary Shares N24 Cr

2020 2021
Aug 31 Bank (160 000 × 0,16) CPJ 25 600 Feb 28 Appropriation account GJ 80 000
2021 Shareholders for dividends
Feb 28 (160 000 x×0,34) GJ 54 400
80 000 80 000
2021 2022
Aug 31 Bank (160 000 × 0,18) CPJ 28 800 Feb 28 Appropriation account GJ 100 800
2022 Shareholders for dividends
Feb 28 (160 000 × 0,45) GJ 72 000
100 800 100 800
4.
Trade creditors –

Trade creditors –

1. General Ledger of Zoey Ltd.

Dr Appropriation account F3 Cr
2020 2020
Feb 29 Income tax GJ 159 600 Feb 29 Profit and loss account GJ 532 000
Dividends on ordinary shares GJ 148 960 Retained income GJ 210 000
Retained income GJ 433 440
742 000 742 000
Dr Retained Income B2 Cr
2020 2019
Feb 29 Appropriation account GJ 210 000 Mar 01 Balance b/d 210 000
2020
Feb 29 Appropriation account GJ 433 440
2. General Journal of Zoey Ltd. for February 2020 GJ

no.
29 Retained income 210 000
Appropriation account 210 000
(Write back Retained income from previous
year)
Profit and loss account 532 000
Appropriations account 532 000
(Carry net profit over from profit and loss to
appropriation account)
Income tax 159 600
(Calculate new balance for retained income)
3.
NOTE TO FINANCIAL STATEMENTS ON 29 FEBRUARY 2020
8. RETAINED INCOME
Balance on 1 March 2019 210 000
Net profit after tax (532 000 – 159 600) 372 400
Dividends (148 960)
Balance on 29 February 2020 433 440

Informal assessment 1.1 LB page 21
Marks: 24Time: 12 minutes
Column A: Concept Column B: Explanation

1. Authorised shares K. the maximum number of shares a company is
permitted to issue according to its MOI ✔✔
2. Issued shares J. the number of shares that a company has
decided to issue up to a certain date ✔✔
3. Issue price G. the price at which shares are sold ✔✔
4. Dividends A. the portion of the earnings distributed to the
shareholders ✔✔
5. Interim dividends F. dividends that are paid during the financial year
✔✔
6. Final dividends H. dividends that are declared, but not yet paid, at
the end of the financial year ✔✔
7. Income tax C. the portion of the profit that the government is
entitled to and is paid over to SARS ✔✔
8. Provisional income tax L. payments that are made to SARS during the
financial year (six months after financial year-end)
✔✔
9. Legal entity B. an entity that has the capacity to enter into
agreements or contracts, assume obligations,
incur and pay debts, sue and be sued in its own
right, and to be held responsible for its actions
✔✔
10. Limited liability D. the investor is not personally responsible for the
debts and obligations of the company ✔✔
11. Separation of ownership from I. shareholders own the company, but the directors
control run the company ✔✔
12. Retained income E a portion of the earnings that are kept by the
company for future use ✔✔
[12 × 2 = 24]
1. Cash Payments Journal of Alexi Traders Ltd. for February 2023 CPJ
Doc. Day Name of Payee Fol. Bank Sundry accounts
no Amount Details
368 31 SARS B8 58 700 58 700 SARS (income tax)
369 31 Shareholders N22 70 000 70 000 Dividends on ordinary shares
2. General Journal of Alexi Traders Ltd. for February 2023 GJ

no.
28 Income tax N21 84 000
SARS (income tax) B8 84 000
(Income tax for the year taken into account)
Dividends on ordinary shares N22 60 000
Shareholders for dividends B9 60 000
(A dividend of 15% of share capital declared)
Appropriation account F3 280 000
Income tax N21 84 000
Dividends on ordinary shares N22 130 000
Retained income B2 66 000
(Closing transfers)

3. General Ledger of Alexi Traders Ltd.
2023

2022 2023
Aug 31 Bank CPJ 58 700 Feb 28 Income tax GJ 84 000
2023
28 Balance c/d 4 000
84 000 84 000
2023
Dr Shareholders for Dividends B9 Cr

2023

2023 2023
Calculation of dividends
R100 000 × 0,70 = R70 000
R400 000 × 15% = R60 000
Dr Dividends on Ordinary Shares N22 Cr

2022 2023
Aug 31 Bank CPJ 70 000 Feb 28 Appropriation account GJ 130 000
2023
Feb 28 Shareholders for dividends GJ 60 000
130 000 130 000
Dr Appropriation account N23 Cr

2013 2013
Feb 28 Income tax GJ 84 000 Feb 28 Profit and loss GJ 280 000
Dividends on ordinary shares GJ 130 000
280 000 280 000

General Ledger of Ngoma Limited

Dr Retained Income Cr
2020 2019
2020
Dr SARS (Income Tax) Cr

2019 2019
Mar 15 Bank CPJ 5 300 Mar 01 Balance b/d 5 300
2020
2020
Feb 25 Bank CPJ 61 040 Balance c/d 7 820
121 120 121 120
2020
Dr Shareholders for Dividends Cr

2019 2019
2020
Dr Income Tax Cr
2020 2020
Dr Dividends on Ordinary Shares Cr

2019 2020
Sep 17 Bank CPJ 20 000 Feb 29 Appropriation account GJ 60 000
2020
60 000 60 000
2020 2020
381 600 381 600

General Ledger of Popeye Ltd.

2020
Nov 30 Bank CRJ 35 000
310 000
2021 2020
2021

2020 2021
Mar 01 Balance b/d 6 780 Feb 28 Income tax GJ 138 000
Aug 31 Bank CPJ 53 200
2021
Balance c/d 4 500
138 000 138 000
2021

2020 2020
2021
Dr Income Tax Cr
2021 2021

2020 2021
2021
Feb 28 Shareholders for dividends GL 54 000
81 500 81 500

2021 2021
508 750 508 750
1. General Ledger of Lindiwe Ltd.

Dr Loan: AB Bank B10 Cr
2017 2016
Feb 28 Bank CPJ 18 000 Mar 01 Bank CRJ 100 000
2017
Balance c/d 92 500 Feb 28 Interest on loan GJ 10 500
110 500 110 500
2017
Dr Interest on Loan N13 Cr

2017 2017
Feb 28 Loan: AB bank GJ 10 500 Feb 28 Profit and loss account GJ 10 500
10 500 10 500

Payments –18 000 Cash in bank –18 000 Loan
on loan decrease decrease
during the
year
28 Feb –10 500 Interest on +10 500 Loan
2017 loan is an increased
Interest expense
capitalised
3.
Extract from Statement of Financial Position on 28 February 2017
OWNER’S EQUITY AND LIABILITIES
Loan: AB Bank (92 500 – 18 000) 74 500
Current liabilities
Short-term portion of loan: AB Bank 18 000

1. Cash Payments Journal of KLR Ltd. for June 2019 CPJ

Doc. Day Details Fol. Bank Sundry accounts
no Amount Details
877 30 P Dingaan 131 000 131 000 Directors’ fees

2019 –131 000 Cash –131 000 Directors’
30 Jun decrease fees –
expense
3. General Ledger of KLR Ltd.

Dr Bank B10 Cr
2019
Jun 30 Directors’ fees CPJ 131 000
Dr Directors’ fees N12 Cr

2019
Jun 30 Bank CPJ 131 000
1. General Journal of KLR Ltd. for February 2018 GJ

no.
28 Audit fees 9 760
Accrued expense 9 760
(Audit fees payable)

2018 –9 760 Audit fees – + 9 760 Accrued
Feb expense expenses
increase
3. General Ledger of KLR Ltd.

Dr Accrued Expenses B21 Cr
2018
Feb 28 Audit fees GJ 9 760
Dr Audit fees N13 Cr

2018
Feb 28 Accrued expenses GJ 9 760

1. General Ledger of SJ Ltd.

2018 2018
Oct 31 Bank 90 000 Jul 01 Balance b/d 600 000
Balance c/d 510 000
600 000 600 000
2018
Nov 01 Balance b/d 510 000
2018 2018
Oct 31 Bank 6 000 Jul 01 Balance b/d 78 900
Dr Bank B6 Cr
2018 Ordinary share capital and Retained
Oct 31 income 96 000

Buy –96 000 Cash –90 000 Ordinary
back of decrease share capital
shares decrease
–6 000 Retained
income
decrease
3.
SJ LIMITED
NOTES TO THE FINANCIAL STATEMENTS ON 30 JUNE 2019
7. ISSUED SHARE CAPITAL
200 000 ordinary shares in issue at 1 July 2018 600 000
30 000 ordinary shares bought back during the financial year (90 000)
170 000 ordinary shares in issue at 30 June 2019 510 000
General Ledger of ACE Ltd.

2017 2017
Nov 01 Bank 125 000 Mar 01 Balance b/d 1 250 000
Balance c/d 1 125 000
1 250 000 1 250 000
2017
Dec 01 Balance b/d 1 125 000

2017 2017
Nov 01 Bank 15 000 Mar 01 Balance b/d 162 150
2018
Feb 28 Appropriation account 147 150
162 150 162 150
2018
Feb 28 Appropriation account 236 750
Dr Loan: XY Bank B8 Cr
2018 2017
Feb 28 Bank 28 800 Mar 01 Balance b/d 120 000
2018
Balance c/d 104 400 Feb 28 Interest on loan 13 200
133 200 133 200
2018

2017 2018
Mar 01 Balance b/d 7 665 Feb 28 Income tax 146 400
Aug 31 Bank 63 000
2018
Feb 27 Bank 71 000
28 Balance c/d 4 735
146 400 146 400
2018
Dr Shareholders For Dividends B13 Cr

2017 2017
Mar 30 Bank 60 000 Mar 01 Balance b/d 60 000
60 000 60 000
2018
Feb 28 Dividends on ordinary shares 162 000
Dr Interest On Loan N19 Cr

2018 2018
Feb 28 Loan: XY Bank 13 200 Feb 28 Profit and loss account 13 200
13 200 13 200
Dr Audit Fees N20 Cr

2017 2017
Mar 30 Bank 5 200 Mar 01 Accrued expenses 5 200
5 200 5 200
2018 2018
Feb 28 Accrued expenses 6 450 Feb 28 Profit and loss account 6 450
6 450 6 450

2018 2018
Feb 28 SARS(income tax) 146 400 Feb 28 Appropriation account 146 400
146 400 146 400
Dr Dividends On Ordinary Shares N22 Cr

2017 2018
Sep 30 Bank 90 000 Feb 28 Appropriation account 252 000
2018
Feb 28 Shareholders for dividends 162 000
252 000 252 000
R500 000 × 0,18 = R90 000

R450 000 × 0,36 = R162 000
Dr Appropriation Account F3 Cr
2018 2018
Feb 28 Income tax 146 400 Feb 28 Retained income 147 150
Dividends on ordinary shares 252 000 Profit and loss account 488 000
635 150 635 150
1. Cash Payments Journal of Mega Ltd. for the year ended 29 February 2020 CPJ
Date Name of payee Bank Sundry accounts
Amount Details
2019 10 SARS 4 790 4 790 SARS(income tax)
Mar Shareholders 18 000 18 000 Shareholders for dividends
Apr 01 TYJ Chartered Accountants 9 900 9 900 Audit fees
Jun 30 H Dingaan 43 200 43 200 Directors’ fees
Aug 25 SARS 44 120 44 120 SARS(income tax)
Oct 18 Shareholders 54 000 54 000 Dividends on ordinary shares
Dec 01 Shareholders 44 000 41 000 Ordinary share capital
3 000 Retained income
2020
Feb 15 SARS 29 700 29 700 SARS(income tax)

2. Entries in the General Journal of Mega Ltd. for the year ended
29 February 2020 GJ
no.
2019 01 Accrued expenses 9 900
Mar
Audit fees 9 900
(Reversal of adjustment)
2020 27 Interest on loan 31 500
Feb
Loan: AB Bank 31 500
(Interest on loan capitalised)
Feb 28 Profit and losses 260 000
Appropriation accounts 260 000
(Transfer of net profit)
(125 789 – 3 000)
Income tax 78 000
SARS(income tax) 78 000
(Tax for the year)
(Final dividends declared)
Income tax 78 000
(54 000 + 106 000)
(Closing transfers) 144 789
No. Assets Owner’s Equity Liabilities

1. +500 000 Cash +500 000 Ordinary
increased share capital
increased
2. –54 000 Cash –54 000 Debt to
decreased shareholders
for dividends
decreased
3. –34 600 Cash –34 600 Debt to SARS
decreased decreased
4. –132 000 Cash –132 000 Dividends
decreased - division of
profits
5. –23 100 Cash –23 100 Directors’
decreased fees –
expense
6. –153 000 Cash –150 000 Ordinary
decreased share capital
decreased
–3 000 Retained
income
decreased
7. –16 700 Interest +16 700 Loan
on loan – increased
expense

No. Assets Owner’s Equity Liabilities
8. –8 600 Audit fees – +8 600 Accrued
expense expenses
increased
9. –111 800 Dividends – +111 800 Debt to
division of shareholders
profits for dividends
increased
10. –67 800 Income tax – +67 800 Debt to SARS
decrease in increased
net profit
Date General Ledger Accounting equation

Account Account Amount Assets Owner’s Liabilities
debited credited equity
2014 SARS Bank 7 982 –7 982 0 –7 982
12 Mar (income tax)
20 Mar Shareholders Bank 35 000 –35 000 0 –35 000
for dividends
30 Mar Audit fees Bank 7 900 –7 900 –7 900 0
30 Apr Bank Ordinary 128 000 +128 000 +128 000 0
share capital
31 Jul SARS Bank 36 120 –36 120 –36 120
(income tax)
31 Aug Dividends Bank 36 000 –36 000 –36 000
on ordinary
shares
30 Sep Directors’ Bank 22 800 –22 800 –22 800
fees
31 Jan Ordinary Bank 32 000 –32 500 –32 500
share capital
Retained Bank 500
income
28 Feb Interest on Loan: LK 26 250 –26 250 +26 250
loan Bank
Income tax SARS 104 200 –104 200 +104 200
(income tax)
Dividends Shareholders 70 000 –70 000 +70 000
on ordinary for dividends
shares

General Ledger of Carlton Ltd.
1.
Dr Ordinary Share Capital Cr
2017
Mar 01 Balance b/d ✔ 720 000
2017
Sep 15 Bank CRJ ✔✔ 212 500
✔✔ 932 500
[5]

2.
2017 2018
Mar 01 Balance b/d ✔ 9 450 Feb 28 Income tax ✔ GJ ✔ 93 000
Aug 31 Bank ✔ CPJ ✔ 42 400
2018
Feb 27 Bank ✔ CPJ ✔ 38 100
Balance c/d ✔ 3 050
93 000 93 000
2018
[9]
3.
2017 2018
Aug 31 Bank ✔ CPJ ✔✔ 90 900 Feb 28 Appropriation account ✔ GJ ✔✔✔ 139 875
2018
Feb 28 Shareholders for dividends ✔ GJ ✔✔✔ 48 975
139 875 139 875
[11]
4.
2018 2018
Feb 28 Income tax ✔ GJ ✔ 93 000 Feb 28 Profit and loss ✔ GJ ✔ 310 000
Dividends on ordinary shares ✔ GJ ✔ 139 875 Accumulated profit ✔ GJ ✔ 99 000
Accumulated profit ✔ GJ ✔ 176 125
409 000 409 000
[10]

CHAPTER 2
Financial accounting of companies – Final accounts, Post-
closing Trial Balance, IFRS and GAAP
Column A Column B
1. Business entity concept E. If the owner’s insurance is paid with a business
cheque, it will be entered in the books as
drawings.
2. Historical cost rule A. An asset will be entered in the assets account at
its original cost price.
3. Rule of prudence F. Inventory will always be shown at its lowest of
cost price or net realisable value, and not at the
amount the business can possibly receive for it
upon sales.
4. Matching concept C. Stationery unused at the end of a financial year
will be seen as an asset and not an expense for
that financial period.
5. Materiality principle D. All information relevant for decision making
should be provided – irrelevant information
should not be highlighted.
6. Going concern concept B. It must be assumed that a business will
continue for the foreseeable future as this could
affect the valuation of assets such as inventory
and stationery on hand.
Adjustment Account debited Account credited Amount

1. On 1 June 2018 the business received R560 from
debtor, V Buhrman, previously been written
off as a bad debt. The bookkeeper incorrectly Debtors control Bad debts recovered R560
posted the amount to the Debtors Control
account.
2. Goods with a selling price of R752 were returned
by debtor C Taylor. No entry was made of this Debtors allowances Debtors control R752
transaction. The business uses a mark-up of 60%
on cost price. Trading stock Cost of sales R470
3. After taking the transaction above into account,

the Trading Stock account in the business’s books
shows a balance of R61 700. Trading stock deficit Trading stock R3 100
According to a physical stock take on 30 June
2018 the trading stock on hand is R58 600.
4. Stationery worth R1 090 was not used during Consumable stores
Stationery R1 090
the financial year. on hand
5. Depreciation on equipment should be
calculated at 10% per annum on the cost price. Accumulated
The cost price of equipment is R67 900 and the Depreciation depreciation on R6 790
accumulated depreciation on equipment is equipment
R32 100.
6. Depreciation on vehicles should be calculated
at 15% per annum on the diminished balance. Accumulated
The cost price of vehicles is R130 000 and Depreciation depreciation on R12 480
the accumulated depreciation on vehicles is vehicles
R46 800.

Adjustment Account debited Account credited Amount
7. Debtor G Baxter, who owes the business R1 040,
has been declared insolvent. We received 30c Bank Debtors control R312
in the rand on 29 June 2018. The rest should
be written off as a bad debt. No entry has been
made in this regard.
Bad debts Debtors control R728
8. Provision for bad debts should be increased by Provision for bad Provision for bad
R103
R103. debts: adjustment debts
9. Received the following from the bank:
Statement of fixed deposit at QT Bank

Balance on 1 July 2017 8 000
Fixed deposit: QT Interest on fixed
Interest capitalised 640 R640
bank deposit
Balance on 30 June 2018 8 640
The interest must be entered in the business’s

books.
10. Rent of R3 900 has been received from a tenant Income received in
Rent income R3 900
one month in advance, for July 2018. advance
11. An amount of R8 000 is owed to the
Audit fees Accrued expense R8 000
independent auditor for his services.
12. An annual insurance premium of R7 800 was
paid on 1 September 2017. It expires on 31 Prepaid expense Insurance R1 300
August 2018.
13. Income tax for the year is calculated at 28% of R249 200
net profit. See Appropriation account below for Income tax SARS (income tax)
net profit. (R890 000 × 28%)
14. The interim dividend paid during the financial

year was R240 000. This was entered in the Dividends on Shareholders for R279 000
books. On 30 June 2018 the directors declared a ordinary shares dividends 186  )
(150 000 ×  ____
100
final dividend of 186c per share.
2. General Ledger of Thobani Traders Ltd.

Dr Appropriation account F3 Cr
2018 2018
Jun 30 Income tax GJ 249 200 Jun 30 Profit and loss account GJ 890 000
Dividends on ordinary shares
(140 000 + 279 000) GJ 419 000 Retained income GJ 198 700
1 088 700 1 088 700
1. R1 200 000 / 300 000 shares = R4 per share

2. Authorised shares – Issued shares = 500 000 – 300 000 = 200 000 shares
available
3. Debit: Bank
Credit: Ordinary share capital
4. They need to retain some of the profit in order to pay shareholders for
dividends in the next financial year and to use in expanding the company
activities.
5. For transparency; so that the shareholders can see what amount were
paid towards directors’ fees
192 s e c t i o n 6 • c hap t e r 2

6. Profit and Loss account
7. The internal auditor will make sure that all internal control measures
of the company are in place and effective. The internal auditor is an
employee of the company and is paid a salary by the company.
The independent auditor is not an employee of the company and does
not earn a salary at the company. The independent auditor verifies the
credibility and reliability of the financial statements.
8. The directors serving on the audit committee will appoint and
independent auditor. But the appointment must be approved by the
shareholders at the AGM.
9. Debit: Audit fees
Credit: Accrued expenses
10. The provisional tax payments were R3 208 more than the income tax for
the year.
 100
11. R212 912 × ___ 28  = R760 400
12. R212 912 + R3 208 = R216 120
13. SARS (Income Tax) will have a credit balance; in other words, it’s a liability,
and the business owes SARS money.
14. R249 000 – R159 000 = R90 000 interim dividends was paid
159 000 
15.  ______
300 000 = 53c per share
1.
Board Limited
Post-adjustment Trial Balance as at 28 February 2019
Balance Sheet accounts Debit Credit
Ordinary share capital 180 000
Equipment 56 500
Accumulated depreciation on equipment (16 200 + 8 060) 24 260
Vehicles 86 000
Accumulated depreciation on vehicles (23 000 + 8 600) 31 600
Loan: HP Bank (17% p.a.) 50 000
Trading stock (190 000 + 1 980 – 3 980) 188 000
Debtors control (105 000 – 4 950 – 3 120) 96 930
Bank 14 000
Cash float 1 000
SARS (income tax) (60 400 – 65 177) 4 777
Accrued expenses (3 750 + 2 125) 5 875
Accrued income 2 400
Prepaid expenses 1 500
Consumable stores on hand 1 300

Nominal accounts
Sales 920 000
Cost of sales (392 000 – 1 980) 390 020
Debtors allowances (8 500 + 4950) 13 450
Commission income (20 000 + 2 400) 22 400
Rent paid 44 000
Insurance 12 500
Interest on loan (6 375 + 2 125) 8 500
Bad debts (19 200 + 3 120) 22 320
Directors’ fees (150 000 – 1 500) 148 500
Audit fees (13 925 + 3 750) 17 675
Sundry expenses (8 200 – 1 300) 6 900
Dividends on ordinary shares (12 800 + 25 600) 38 400
Trading stock deficit 3 980
Provision for bad debts adjustment 800
Depreciation (8 600 + 8 060) 16 660
Income tax 65 177
1 326 512 1 326 512
2. General Ledger of Board Limited

2019 2018
2019

2019 2019
Feb 28 Balance b/d 60 400 Feb 28 Income tax GJ 65 177
Balance c/d 4 777
65 177 65 177
2019

2019 2019
Feb 28 Balance b/d 12 800 Feb 28 Appropriation account GJ 38 400
Shareholders for dividends GJ 25 600
38 400 38 400

Dr Trading account Cr
2019 2019
Feb 28 Cost of sales (392 000 – 1 980) GJ 390 020 Feb 28 Sales (920 000 – 8 500 – 4 950) GJ 906 550
Profit and loss account GJ 516 530
906 550 906 550
Dr Profit and Loss account Cr

2019 2019
Feb 28 Rent expense GJ 44 000 Feb 28 Trading account GJ 516 530
Salaries and wages GJ 90 000 Rent income (20 000 + 2 400) GJ 22 400
Insurance GJ 12 500 Interest on current account GJ 1 200
Interest on loan (6 375 + 2 125) GJ 8 500
Bad debts (19 200 + 3 120) GJ 22 320
Directors’ fees (150 000 – 1 500) GJ 148 500
Audit fees (13 925 + 3 750) GJ 17 675
Sundry expenses (8 200 – 1 300) GJ 6 900
Trading stock deficit GJ 3 980
Provision for bad debts adjustments GJ 800
Depreciation (8 600 + 8 060) GJ 16 660
Appropriation account GJ 168 295
540 130 540 130
2019 2019
178 295 178 295

3.
Board Limited
Post-closing Trial Balance as at 28 February 2019
Debit Credit
Equipment 56 500
Vehicles 86 000
Loan: HP Bank (17% p.a.) 50 000
Bank 14 000
Cash float 1 000
Accrued expenses (3 750 + 2 125) 5 875
Accrued income 2 400
Consumables on hand 1 300
447 630 447 630
General Ledger of Board Ltd.

Dr Accrued Expenses Cr
2019 2019
Mar 01 Audit fees 3 750 Mar 01 Balance b/d 5 875
Interest on loan 2 125
5 875 5 875
Dr Accrued Income Cr
2019 2019
Mar 01 Balance b/d 2 400 Mar 01 Rent income 2 400
2 400 2 400
Dr Consumable Stores On Hand Cr

2019 2019
Mar 01 Balance b/d 1 300 Mar 01 Stationery 1 300
1 300 1 300

Dr Prepaid Expenses Cr
2019 2019
Mar 01 Balance b/d 1 500 Mar 01 Directors fees 1 500
1 500 1 500
Nominal accounts
Dr Audit Fees Cr
2019
Mar 01 Accrued expenses 3 750
Dr Interest On Loan Cr
2019
Mar 01 Accrued expenses 2 125
Dr Rent Income Cr
2019
Mar 01 Accrued income 2 400
Dr Stationery Cr
2019
Mar 01 Consumable stores on hand 1 300
Dr Directors’ Fees Cr
2019
Mar 01 Prepaid expenses 1 500

1. General Journal of Zola Ltd. for June 2019 GJ

Date Details Fol. Debit Credit
30 Stationery 244
Consumable stores on hand 244
Stationery 390
Trading stock 2 400
(107 600 – 105 200)
Audit fees 80 000
Rent income 5 550
Income received in advance 5 550
  3    )
(27 750 × ___
15
Insurance 2 600
  4    )
(7 800 × ___
12
Loan: ASD Bank 20 040
Provision for bad debts 324
Provision for bad debts - adjustment 324
(28 300 × 4% = 1 132) (1 456 – 1 132)
Depreciation 26 700
Accumulated depreciation on 20 800
vehicles
Accumulated depreciation on 5 900
equipment
((140 000 – 36 000) × 20% = 20 800
59 000 × 10% = 5 900)
Income tax 203 812
Bank 63 000

2.
Zola Ltd.
Post-Adjustment Trial Balance as at 30 June 2019
Fol. Debit Credit
Ordinary share capital (800 000 – 60 000) 740 000
Retained income (230 802 – 3 000) 227 802
Loan: ASD Bank (167 000 + 20 040) 187 040
Vehicles 140 000
Equipment 59 000
(36 000 + 20 800)
(13 000 + 5 900)
Trading stock (107 600 – 2 400) 105 200
Provision for bad debts (1 456 – 324) 1 132
Bank (95 928 – 63 000) 32 928
Petty cash 2 000
SARS (income tax) (198 000 – 203 812) 5 812
Consumable stores on hand (1 March 2018) 390
Prepaid expense 2 600
Nominal accounts
Sales 4 977 280
Rent income (27 750 – 5 550) 22 200
Stationery (3 210 + 244 – 390) 3 064
Insurance (21 000 – 2 600) 18 400
Advertisements 30 000
Directors fees 340 000
Bank charges 19 562
Bad debts 4 346
Sundry operating expenses 31 600
(118 000 + 140 000)
Provision for bad debts: adjustment 324
Audit fees 80 000
Depreciation (20 800 + 5 900) 26 700
Income tax 203 812
6 727 622 6 727 622

3.
General Ledger of Zola Ltd.
2019 2019
Jun 30 Bank 60 000 Jun 30 Balance b/d 800 000
Balance c/d 740 000
800 000 800 000
2019
Jul 01 Balance b/d 740 000
2019 2019
Jun 30 Bank 3 000 Jun 30 Balance b/d 230 802
230 802 230 802
2019
Jun 30 Appropriation account 493 890

2019 2019
Jun 30 Balance b/d 198 000 Jun 30 Income tax 203 812
Balance c/d 5 812
203 812 203 812
2019
Dr Dividends On Ordinary Shares Cr

2019 2019
Jun 30 Balance b/d 118 000 Jun 30 Appropriation account 258 000
258 000 258 000
Dr Stationery Cr
2019 2019
Jun 30 Balance b/d 3 210 Jun 30 Consumable stores on hand 390
Consumable stores on hand 244 Profit and loss 3 064
3 454 3 454
Dr Trading Account Cr
2019 2019
Jun 30 Cost of sales 3 100 000 Jun 30 Sales (4 977 280 – 17 280) 4 960 000
Profit and loss 1 860 000
4 960 000 4 960 000

Dr Profit And Loss Account Cr
2019 2019
Jun 30 Salaries and wages 580 000 Jun 30 Trading account 1 860 000
Stationery 3 064 Rent income 22 200
Insurance 18 400 Interest on current account 1 488
Advertisements 30 000 Provision for bad debts -adjustment 324
Directors fees 340 000
Bank charges 19 562
Bad debts 4 346
Sundry operating expenses 31 600
Audit fees 80 000
Depreciation 26 700
1 884 012 1 884 012
Dr Appropriation Account Cr
2019 2019
Jun 30 Income tax 203 812 Jun 30 Profit and loss 727 900
Dividends on ordinary shares 258 000 Retained income 227 802
955 702 955 702
Zola Ltd.
Post-Closing Trial Balance as at 30 June 2019
Fol. Debit Credit
Ordinary share capital (800 000 – 60 000) 740 000
Loan: ASD Bank (167 000 + 20 040) 187 040
Vehicles 140 000
Equipment 59 000
Accumulated depreciation on vehicles
(36 000 + 20 800) 56 800
Accumulated depreciation on equipment
(13 000 + 5 900) 18 900
Trading stock (107 600 – 2 400) 105 200
Provision for bad debts (1 456 – 324) 1 132
Bank (95 928 – 63 000) 32 928
Petty cash 2 000
SARS (income tax) (198 000 – 203 812) 5 812
Consumable stores on hand (1 July 2018) 390
Prepaid expense 2 600
1 792 418 1 792 418

1.1 FALSE – net profit is calculated in the Profit and Loss account ✔✔
1.2 FALSE – it is a distribution of net profit ✔✔
1.3 TRUE ✔✔
1.4 TRUE ✔✔
1.5 TRUE ✔✔
1.6 FALSE – Interim dividend are paid during the year – final dividends
are declared end of the year. ✔✔
1.7 TRUE ✔✔ (7 × 2)
2.1 It is a reversal of adjustment – rent that was received in advance
in the previous financial year. ✔✔
2.2 Year end adjustment – deduct R2 233 from the Rent Income
account for rent received in advance. ✔✔
2 233 – 2  
030  
2.3  ___________ 100  = 10% ✔✔
×  ___
2 030   1 (3 × 2)

CHAPTER 3
Financial accounting of companies – Financial statements
Case study 3.1 LB page 80
1. All directors and employees

2.1 Conflict of interest is when there is a clash between professional
obligations and personal interest where an employee tries to perform a
duty, but at the same time tries to achieve personal gain.
2.2 Insider trading is an illegal practice where an employee uses confidential
information to do trading on the stock exchange to his/her own
advantage.
2.3 Illegal anti-competitive activities such as an attempt to monopolise a
trade, or price-fixing
2.4 Corruption is when someone is guilty of dishonest practices, like bribery.
Bribery is when a person gives or receives something of value, like cash
or gifts, for the purpose of influencing someone’s actions or views.
3. Conflict of interest, accepting inappropriate gifts, unacceptable business
conduct
4. Compliance with laws and regulations and ethical conduct principles
5. They have a toll-free Ethics Line where employees can report any activity
of fraud, theft, breach of ethics or other risks. They also have awareness
programmes to make employees aware of unethical behaviour.
6. After an investigation, the guilty party will have a hearing, after which the
person can be warned, fined or dismissed.
7.
Column A Column B
1. Engaged with government departments C. Responsible drinking
to explore co-operative ventures to
address alcohol abuse
2. Supported numerous education for A. Sustaining our communities
employment initiatives (in addition to
Stellemploy and Bergzicht) including
sponsoring bursary schemes at higher
education institutes
3. A number of initiatives including skills E. Economic equity
training, succession planning, retention
strategies, internships and bursaries
have been implemented to address
transformation
4. Implemented the Greenhouse Gas B. Preserving our environment
reporting database for all South African
operations and submitted their first
report to the Carbon Disclosure Project
(CDP)
5. A plan to address certain aspects of King D. Good corporate governance
III was approved for implementation
during 2011 and progress was
monitored by the audit and risk
committee and reported to the Board

Column A Column B
1. Income Statement B. Reflects the financial results (profit/loss)
for the company for the financial period
2. Statement of Financial Position (Balance C. Gives the status of the company’s assets,
Sheet) owner’s equity and liabilities
3. Cash Flow Statement D. Shows the movement of cash in terms
of operating, investing and financing
activities and the effect it had on the
liquid funds of the company
4. Directors’ report E. A written, verbal explanation, of a
company’s operations during a financial
year
5. Independent Audit report A. Reflects whether or not the shareholders
can rely on the financial statements
6. Certificate of Incorporation I. A document issued by the Registrar of
Companies that indicates the formation
of a new legal entity; allows a company
to start trading
7. Memorandum of Incorporation (MOI) J. A document that sets out rights, duties
and responsibilities of shareholders,
directors and others within and relation
to a company
8. Shares register K. A record that is kept of every shareholder
and the number of shares he/she owns
9. Tax assessment H. A document issued by SARS that states
the amount of income tax a company
needs to pay
10. Notice of AGM G. An invitation to shareholders to a formal
meeting that is held once a year
11. Prospectus F. Used to advertise a company and to give
information to potential shareholders
12. Companies Act M. Regulates all matters pertaining to
companies
13. The King III Report L. A report on corporate governance in
South Africa

1.
Bobby Limited
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2019
Note R
Sales (863 210 – 9 710) 853 500
Cost of sales (448 990)
Gross profit 404 510
Other operating income (56 765)
Rent income (29 900 – 2 300) 27 600
Commission received (22 740 + 4 900) 27 640
Provision for bad debts adjustments 225
Profit on sale of assets 1 300
Gross operating income 461 275

Operating expenses (297 584)
Packaging material (7 452 – 988) 6 464
Bad debts (1 870 + 700) 2 570
Insurance (12 000 – 2 100) 9 900
Municipal services 13 670
Bank charges 987
Telephone 9 363
Audit fees 15 630
Depreciation (5 000 + 22 840) 27 840
Operating profit (loss) 163 691

Interest expense 2 (11 600)
Income tax (59 230)
Net profit (loss) for the year 8 92 861

Bobby Limited
STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2019
Note R
ASSETS
NON-CURRENT ASSETS 519 060
Fixed/tangible assets 3 519 060
CURRENT ASSETS 99 633

Inventories 4 60 308
Trade and other receivables 5 38 825
Cash and cash equivalents 6 500
TOTAL ASSETS 618 693

SHAREHOLDERS’ EQUITY 437 071
Share capital 7 363 260
Retained income 8 73 811
NON-CURRENT LIABILITIES 82 900

Mortgage loan 82 900
CURRENT LIABILITIES 98 722

Trade and other payables 9 89 600
Bank overdraft (11 522 – 2 400) 9 122
TOTAL EQUITY AND LIABILITIES 618 693
Bobby Limited
NOTES TO THE FINANCIAL STATEMENTS AT 28 FEBRUARY 2019
2. INTEREST EXPENSE
On loans 11 600
11 600
3. FIXED/TANGIBLE ASSETS
Land and Vehicles Equipment Total
buildings
Carrying value at beginning 400 000 114 200 33 800 548 000
of year
Cost 400 000 160 000 50 000 610 000
Accumulated depreciation (45 800) (16 200) (62 000)
Movements
Disposals at carrying value (1 100) (1 100)
Depreciation (22 840) (5 000) (27 840)
Carrying value at end of year 400 000 91 360 27 700 519 060
Cost 400 000 160 000 43 000 603 000

4. INVENTORIES
60 308

Trade debtors (34 200 – 700) 33 500
Provision for bad debts (1 675)
Net trade debtors 31 825
Expenses prepaid 2 100
Income accrued (receivable) 4 900
38 825
6. CASH AND CASH EQUIVALENTS

Bank –
Petty cash 500
500

AUTHORISED
ISSUED
110 000 ordinary shares in issue at the beginning of the year 238 260
50 000 additional shares issued during the financial year at issue price
R2,50 each 125 000
160 000 ordinary shares in issue at the end of the year 363 260
8. RETAINED INCOME
Balance at the beginning of the year 52 950
Net profit after tax for the year 92 861
Dividends on ordinary shares (72 000)
Paid 40 000
Recommended/Declared 32 000
Balance at the end of the year 73 811

Expenses accrued (payable) 15 630
Income received in advance (deferred) 2 300
SARS – income tax (59 230 – 46 800) 12 430
89 600

1.
Queen Traders Limited
Note R
Sales (1 275 128 – 1 953) 1 273 175
Other operating income 28 806
Rent income (32 900 – 4 700) 28 200
Profit on sale of assets 580
Provision for bad debts adjustments 26

Telephone 7 670
Water and electricity 8 960
Bad debts (1 214 + 280) 1 494
Insurance (16 800 – 5 040) 11 760
Stationery (1 750 – 215) 1 535
Rental expense 28 420
Bank charges 2 824
Wages 93 845
Audit fees 15 200
Trading stock deficit (35 423 – 34 845) 578
Depreciation (8 832 + 18 750) 27 582

Interest income 1 4 000
Profit (loss) before income expense 85 308
Income tax (39 352)

2.
Balance Sheet (STATEMENT OF FINANCIAL POSITION) AT 28 FEBRUARY 2018
Note R
ASSETS
Fixed deposit: Unibank 53 750



Loan from King Bank 35 000

Short-term loans 10 000
3.
1. INTEREST INCOME
On investments 3 750
On current bank account 250
4 000
2. INTEREST EXPENSE
On loans 7 700
On overdraft 156
7 856

Land and
buildings Vehicles Equipment Total
Carrying value at beginning
of year 324 000 68 750 46 080 438 830
Cost 324 000 125 000 72 000 521 000
Movements
Additions 100 000 100 000
Disposals at carrying value (1 920) (1 920)
Depreciation (18 750) (8 832) (27 582)
Cost 424 000 125 000 64 760 603 760
4. INVENTORIES
35 060

Trade debtors (7 480 – 280) 7 200
Provision for bad debts (288)
SARS – income tax (41 254 – 39 352) 1 902
13 854

Bank (51 540 + 2 500) 54 040
Cash float 250
Petty cash 120
54 410

AUTHORISED
ISSUED
R4,25 each 106 250
8. RETAINED INCOME
Paid 42 750

93 993
1.
Simlin Limited
Note R
Sales (772 500 – 500) 772 000
Other operating income 61 540
Rent income (65 280 – 5 280) 60 000
Discount received 1 100
Bad debts recovered 290

Bank charges 3 040
Audit fees 14 460
Salaries and wages (105 000 + 4 000) 109 000
Pension fund contribution (920 + 40) 960
Bad debts (710 + 800) 1 510
Stationery (860 – 100) 760
Discount allowed 940
Insurance (12 000 – 4 620) 7 380
Trading stock deficit [(42 480 + 250) – 42 340] 390
Depreciation (2 400 + 10 500 + 31 800) 44 700

Income tax (48 580)

2.
Simlin Limited
Balance Sheet (STATEMENT OF FINANCIAL POSITION) AT 28 FEBRUARY 2019
Note R
ASSETS



Loan from Help Us Bank 50 000

3.
Simlin Limited
1. INTEREST INCOME
On loans 13 000
Land and
of year 660 000 106 000 11 800 777 800
Cost 660 000 200 000 16 000 876 000
Movements
Additions 70 000 70 000
Depreciation (42 300) (2 400) (44 700)
Cost 660 000 270 000 16 000 946 000

4. INVENTORIES
42 440

Trade debtors 37 000
39 770

Bank 70 380
Cash float 800
Petty cash 700
71 880

AUTHORISED
ISSUED
R2 each (100 000)
8. RETAINED INCOME
Paid 60 000

Trade creditors (11 000 + 250) 11 250
SARS – income tax (if a credit balance) 3 580
SARS (PAYE) (220 + 850) 1 070
Creditors for salaries 3 070
Pension Fund (80 + 40) 120
47 370

1. General Ledger of WOW Traders Ltd.

2022 2022
178 059 178 059
2.
WOW Traders Ltd. Limited
BALANCE SHEET AT 28 FEBRUARY 2022
Note R
ASSETS
Financial assets
Fixed deposit: VIP Bank 50 000



Mortgage loan from POW Bank 8 000


WOW Traders Ltd.
Land and
of year 150 000 23 200 236 173 436
Cost 150 000 26 000 2 950 178 950
Movements
Additions 1 200 1 200
Depreciation (2 600) (622) (3 222)
Carrying value at end of year 150 000 20 600 814 171 414
Cost 150 000 26 000 4 150 180 150
4. INVENTORIES
Consumable stores on hand 1 475
14 322

Trade debtors 6 800
Provision for bad debts (252)
SARS – income tax (65 000 – 63 875) 1 125
Expenses prepaid 675
Income accrued (receivable) 350
8 698

Bank 17 446
Cash float 750
18 196

AUTHORISED
ISSUED
R1,10 each 11 000
8. RETAINED INCOME
Net profit after tax for the year (148 422 – 63 875) 84 547
Paid 7 000

25 446
Activity 3.6 (challenge) LB page 92
1.
LEX LTD.
Sales (2 260 720 – 3 520 – 2 880) 2 254 320
Cost of sales (1 254 000 – 1 600) (1 252 400)
Gross profit 1 001 920
Other income 120 351
Income from repairs (108 660) 108 660
Rent income (10 530 + 990) 11 520
Profit with asset disposal 171
Gross operating income 1 122 271
Wages and salaries (170 000 + 5 000) 175 000
Pension fund contribution (12 450 + 400) 12 850
Advertisements (8 120 – 4 000) 4 120
Depreciation (891 + 14 558) 15 449
Gross operating profit (loss) 243 661
Interest expense (7 200 + 2 100) (9 300)
Income tax (96 701)
Net profit (loss) for the year 137 660
Calculations
Rent income:
 110
4x + 7(x × ___
100  = R10 530
 110
x = 900 × ___
100   990
Depreciation on sold equipment:
(12 000 – 2 280) × 10% × __11  = R891
 12
Depreciation on old equipment:
[(245 000 – 12 000) – (89 700 + 891- 3 171)] × 10% = R14 558
Asset Disposal
Equity 12 000 Acc. Depreciation 3 171
Profit 171 Debtors control 9 000

2.
LEX LTD.
BALANCE SHEET ON 28 FEBRUARY 2018
ASSETS
NON-CURRENT ASSETS 1 131 022
Fixed assets ( 1 000 000 + (245 000 -89 700)
– (12 000 – 891 – 2 280) – (891 + 14 558) 1 131 022

Inventories (190 540 + 1 600 – 1 090) 191 050
Cash and cash equivalents (132 100 + 1 200) 133 300
Trade and other debtors 59 408
TOTAL ASSETS 1 514 780
EQUITY & LIABILTIES

Ordinary share capital 1 267 990

Loan: AB bank (70 000 – 10 000) 60 000

Trade and other creditors
(34 760 + 2 100 + 1 600 + 200 + 400 + 3 200 + 60 000) 102 260
Current portion of loan 10 000

TOTAL EQUITY AND LIABILITIES 1 514 780
3.
LEX LTD.
3.1
TRADE AND OTHER RECEIVABLES
Trade debtors (25 300 – 2 880 + 9 000) 31 420
Income accrued 990
SARS (income tax) (120 820 – 96 701) 24 119
59 408
3.2
Share capital
AUTHORISED
ISSUED
Ordinary shares in issue at the beginning of the year 932 990
R6,70 each 335 000
Ordinary shares in issue at the end of the year 1 267 990

3.3
Retained Income
Net profit (loss) after tax for the year 137 660
Paid 70 000
Declared 60 000
1. General Ledger of Jumaats Ltd.

Dr Trading Stock Cr
2019 2019
Feb 28 Balance b/d ✔ 112 673 Feb 28 Loss due to fire ✔ ✔ 5 300
Trading stock deficit ✔ ✔✔ 3 173
Balance c/d ✔ 104 200
112 673 112 673
2019
[8]
2. Problem:
They do not have control over who enters the store room and safety
measures in the store room are not good. ✔✔
Trading stock deficit could be due to theft. ✔✔
Solution:
Store room should be locked – only one person allowed access. ✔✔ [6]
3.1 Matching principle ✔✔
3.2 Materiality principle ✔✔ [4]

4.
JUMAATS LTD.
Sales (4 326 592 – 1 708) ✔✔ 4 324 884
Cost of sales ✔ (2 700 120)
Gross profit (✔) 1 624 764
Current income (89 760 + 310) ✔✔ 90 070
Rent income (14 300 – 1100) ✔✔ 13 200
Bad debts recovered ✔✔ 600
Gross operating income 1 728 634
Operating expenses (1 296 382)
Wages and salaries ✔ 810 000
Pension fund contribution ✔ 8 100
Advertisements ✔ 20 000
Insurance (12 300 – 2 520) ✔✔✔ 9 780
Water and electricity (19 788 + 899) ✔✔ 20 687
Telephone ✔ 11 642
Directors fees ✔ 310 000
Audit fees ✔ 26 200
Sundry expenses (39 200 – 112) ✔✔ 39 088
Provision for bad debts adjustment ✔✔ 192
Loss due to fire ✔✔ 5 300
Trading stock deficit (✔) 3 173
Loss with asset disposal (4 800✔ – 3 380✔✔ – 1 000✔) 420
Depreciation (31 520✔✔ + 280✔✔) 31 800
Operating profit (loss) (✔) 432 252
Interest income ✔✔✔ 3 000
Profit (loss) before tax (✔) 435 252
Income tax ✔ (139 280)
Net profit (loss) after tax (✔) 295 972
[44]


1. General Ledger of PIC Ltd.
2014 2014
Mar 12 Bank ✔ ✔ 4 879 Mar 01 Balance b/d ✔ 4 879
2015
Jun 30 Bank ✔ ✔ 34 890 Feb 28 Income tax ✔ ✔ 127 980
Oct 25 Bank ✔ ✔44 600
2015
Feb 15 Bank ✔ ✔ 21 900
28 Balance c/d ✔ 26 590
132 859 132 859
2015
[13]
Dr Dividends on ordinary shares Cr

2014 2015
Aug 31 Bank ✔ ✔ 55 000 Feb 28 Appropriation account ✔ ✔ 78 200
2015
Feb 28 Shareholders for dividends ✔ ✔✔ 23 200
78 200 78 200
[7]
2015 2015
Feb 28 Income tax ✔ ✔ 127 980 Feb 28 Profit and loss account ✔ ✔ 289 000
Dividends on ordinary shares ✔ ✔ 78 200 Retained income ✔ ✔ 46 321
Retained income ✔ ✔ 129 141
335 321 335 321
[10]
2.
PIC Limited
EXTRACT FROM THE BALANCE SHEET AT 28 FEBRUARY 2015
Note R
SHAREHOLDERS’ EQUITY ✔ 743 941
Share capital ✔ 1 ✔ 614 800
Retained income✔ 2 ✔ 129 141

Loan from AB Bank ✔ ✔✔✔ 180 000
CURRENT LIABILITIES ✔ 108 910

Trade and other payables ✔ 3 ✔ 88 910
Short-term loans ✔ ✔ 20 000
TOTAL EQUITY AND LIABILITIES ✔ 1 032 851
[15]

3.
PIC Limited
AUTHORISED
Number of ordinary authorised shares: ✔ 500 000 shares
ISSUED
250 000 ordinary shares in issue at the beginning of the year✔ ✔ 530 000
40 000 additional shares issued during the financial year ✔ ✔✔84 800
290 000 ordinary shares in issue at the end of the year✔ ✔614 800
[8]
2. RETAINED INCOME
Balance at the beginning of the year ✔ 46 321
Net profit (loss) after tax for the year ✔ 161 020
Dividends on ordinary shares ✔ (78 200)
Paid ✔ 55 000
Recommended ✔ 23 200
Balance at the end of the year ✔ 129 141
[6]

Trade creditors ✔ 36 980
Expenses accrued (payable)✔ ✔ 1 250
Income received in advance (deferred)✔ ✔ 890
Shareholders for dividends✔ ✔ 23 200
SARS – income tax✔ ✔✔ 26 590
✔88 910
[11]
1. It identifies where the money came from (inflow) and what the money
was spent on (outflow).
2. A payment of any expense; this must be a non-cash item.
3. Money is borrowed therefore the company will receive money. This is an
inflow of cash.
4. Money is invested therefore the company will deposit the money into a
fixed deposit, which is an outflow of cash.
5. Any two of the following:
Bad debts
Depreciation
Trading stock deficit
Discount allowed
Any other non-cash item
6. Advantages are:
• Shareholders can distinguish between operating, investing and
financing activities.
• They can see whether the business is a generator of cash through it
operations.
• They can see whether the business is investing in future growth or
capital development projects.
• They can monitor the sale of additional shares and borrowed capital.

Column Description Where found: Income Where found in In which General Ledger
A Statement or Balance the Cash Flow account it will be found
Sheet Statement
a Profit before tax Income Statement Note 1 Appropriation
b Depreciation Income Statement Note 1 Accumulated depreciation
Interest on loan
c Interest expense Balance Sheet and Note 4 Note 1 Interest on overdraft
Trading stock
Consumable stores on
d Inventory Note 10 Note 1 hand
Debtors control
Accrued income
e Trade debtors Balance Sheet and Note 6 Note 1 Prepaid expenses
Creditors control
Accrued expenses and
f Trade creditors Balance Sheet and Note 9 Note 1 IRIA
g Bank Note 6 Note 2 Bank
h Cash float Note 6 Note 2 Cash float
i Petty cash Note 6 Note 2 Petty cash
Dividends on ordinary
shares
j Dividends on ordinary shares Note 8 Note 3 Appropriation
k Dividends paid Note 9 Note 3 shares
shares
Shareholders for
l Dividends declared Note 8 and Note 9 Note 3 dividends
Income tax
m Taxation Income Statement Note 4 SARS (income tax)
n SARS (income tax) Note 9 Note SARS (income tax)
o SARS (income tax) Note 5 Note 4 SARS (income tax)
p Land and buildings Note 3 Note 5 Land and buildings
q Vehicles Note 3 Note 5 Vehicles
r Equipment Note 3 Note 5 Equipment
s Disposal of tangible assets Note 3 Note 1 Asset disposal
t Ordinary share capital Balance Sheet and Note 7 Note 2 Ordinary share capital
u Fixed deposit expired Balance Sheet Note 2 Fixed deposit
Note 1 and
v Mortgage bond Balance Sheet Note 5 Mortgage bond
Reconciliation of profit before tax and cash generated from operations

Profit before tax 151 690
Adjustment for:
Depreciation 15 000
Interest paid 12 650

Changes in working capital (7 615)

Decrease in inventory (82 000 – 71 500) 10 500
Increase in receivables (65 920 + 1 000) – (78 160 + 1 250) (12 490)
Decrease in payables (72 350 + 310) – (66 800 + 235) (5 625)
Note 1: Reconciliation of profit before tax and cash generated from operations
Profit before tax 77 390
Adjustment for:
Depreciation (5 800 + 4 300) 10 100
Interest paid (4 000 + 250) 4 250
Increase in inventory (25 000)
Increase in receivables (4 080)
Decrease in payables (9 200)
Cash generated from operations 53 460
Reconciliation of profit before tax and cash generated from operations

Profit before tax (146 434 + 30 956) 177 390
Adjustment for:
Depreciation (9 080 + 8 780) 17 860
  6    ) + 250]
Interest paid [(20 000 × 9,5%) + (14 000 × 9,5% × ___ 2 815
12
Increase in inventory (53 400 – 97 500) (44 100)
Decrease in receivables (62 150 + 2 000) – (48 610 + 3 000) 12 540
Decrease in payables (41 215 + 1 750) – (30 750 + 980) (11 235)
Calculations
Depreciation
Accumulated depreciation on vehicles Accumulated depreciation on equipment
b/d 25 720 AD 7 760 b/d 21 790
Dep *9 080 c/d 22 810 Dep *8 780
34 800
R34 800 – 25 720 = R9 080

R15 000 – 7 240 = R7 760
Interest on mortgage bond

9,5 6
R20 000 × ___
 100   ×  __
12   = R950
9,5 6 _____
1 615 
R34 000 × ___
 100   ×  __
12   =  2 565 


Net change 2009 2008
Bank
(121 070 – 55 021) 66 049 121 070 55 021
Petty cash – 750 750
Cash float 400 1 000 600
66 449 122 820 56 371

Bank (15 200 – 2 130) (17 330) (2 130) 15 200
Petty cash 200 800 600
Cash float – 1 100 1 100
(17 130) (230) 16 900
3. DIVIDENDS PAID
Dividends for year as reflected in financial statements (75 000)
Balance at the beginning of the year (18 000)
Dividends paid (58 000)
3. DIVIDENDS PAID
4. INCOME TAX PAID

Income tax for year as reflected in financial statements (27 230)
Balance at the beginning of the year Cr (5 236)
Balance at the end of the year Cr 3 461
Income tax paid (29 005)
4. INCOME TAX PAID

Balance at the beginning of the year Dr 4 810

4. INCOME TAX PAID

Balance at the end of the year Dr (2 410)
5. FIXED ASSETS PURCHASED

Land and buildings (650 000 – 590 000) (60 000)
Vehicles (100 000)
Equipment (82 100 – 72 100) (10 000)
(170 000)
Vehicles
b/d 365 000 Asset disposal 125 000
Bought *100 000 c/d 340 000
Calculation
R125 000 + 340 000 – 365 000 = R100 000
Brimstone Limited
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2019
Note R
Cash effects of operating activities 81 960
Cash generated (utilised) from operations 1 295 060
Dividends paid 3 (115 200)
Income tax paid 4 (71 300)
Cash effects of investing activities (271 640)

Purchase of fixed assets 5 (280 000)
Proceeds from sale of fixed assets 8 360
Cash effects of financing activities 80 000

Proceeds from shares issued 120 000
Long-term loans received/paid (40 000)
Net change in cash and cash equivalents 2 (109 680)

Cash and cash equivalents at the beginning of the year 2 169 680
Cash and cash equivalents at the end of the year 2 60 000

Brimstone Limited
NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED
28 FEBRUARY 2019
1. RECONCILIATION BETWEEN NET PROFIT BEFORE TAX AND CASH GENERATED

FROM OPERATIONS
Net profit before taxation 270 000
Adjustments in respect of:
Depreciation 7 680
Cash effects of changes in working capital (9 220)
Change in inventory (3 460)
Change in receivables 57 708
Change in payables (63 468)

Bank (109 680) 60 000 169 680
3. DIVIDENDS PAID
4. INCOME TAX PAID


Land and buildings (200 000)
Vehicles (80 000)
(280 000)

Crafty Furn Limited

Note R


Long-term loans received/paid 50 000
Net change in cash and cash equivalents 2 31 700

Cash and cash equivalents at the beginning of the year 2 (17 500)
Crafty Furn Limited

NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED
28 FEBRUARY 2019

FROM OPERATIONS
Depreciation (21 000 + 64 000) 85 000
Interest expense (18 000 + 8 000) 26 000
Cash effects of changes in working capital (65 440)
Change in inventory (144 600 – 141 440) 3 160
Change in receivables (81 600 – 95 500) (13 900)
Change in payables (75 700 – 21 000) (54 700)

Bank 30 700 10 700 (20 000)
Cash float 800 3 000 2 200
Petty cash 200 500 300
31 700 14 200 (17 500)
3. DIVIDENDS PAID

4. INCOME TAX PAID
Balance at the beginning of the year Dr 7 000

Vehicles (150 000)
Equipment (80 000)
(390 000)
Calculations
1. Equipment Accumulated depreciation on equipment
Balance b/d 194 000 Asset disposal 50 000 Asset disposal 26 000 Balance b/d 54 000
Bought 80 000 Balance c/d 224 000 Balance c/d 49 000 Depreciation 21 000
Selling price of equipment sold

R50 000 – 24 000 = R26 000 (carrying value = selling price)
2. Vehicles Accumulated depreciation on vehicles

Balance b/d 329 000 Balance b/d 109 000
Bought 150 000 Depreciation 64 000
479 000 173 000
3. Appropriation account
Income tax 90 000 Profit and loss 220 200
shares 65 060 Retained income 75 000
4. Interest on loan
R150 000 × ___ 16   × __
 100 6   = R18 000
 12
16 __
R200 000 ×  ___ 6
100   ×  12   = R8 000

Paarl Outdoor LTD.

1. CASH FLOW STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2019
Note
Cash effects from operating activities 124 975
Cash generated from operations 1 1 043 225
Cash effects from investment activities (155 000)

Purchases of assets 5 (240 000)
Proceeds from asset disposal (150 000 – 65 000) 85 000
Fixed deposit matured 10 000
Cash effects from financing activities 174 000

Proceeds from shares issued (2304 000 – 2100 000) 204 000
Loan decrease (30 000)

Cas hand cash equivalents at the end of the year 2 88 975
NOTES TO THE CASH FLOW STATEMENT

1. RECONCILIATION OF NET INCOME BEFORE TAX AND CASH GENERATED
FROM OPERATIONS.
Net profit before tax 957 000
Depreciation 56 000
Interest expense( 19 250 + 17 600) 36 850
Operating profit before change in working capital 1 049 850
Cash effect of change in working capital (6 625)
Change in stock (129 800)
Change in receivables(550 000 + 10 000) -(455 000 + 15 000) 80 000
Change in payables (414 700 +8 800) - (370 700 + 9 625) 43 175
Cash generated from operations 1 043 225
Calculating net profit before tax

Income tax 450 000 Retained income 12 000
Dividends 484 000 Profit and loss 957 000
969 000 969 000

Cash and cash equivalents 143 975 88 975 (55 000)

3. DIVIDENDS PAID
Amount in financial statements(308 000 + 176 000) (484 000)
4. INCOME TAX PAID

Amount in income statement (450 000)

(445 400)
Dr SARS (income tax) Cr

Balance b/d 2 200 Income tax 450 000
Bank 445 400
Balance c/f 2 400
450 000 450 000
Balance b/d 2 400

Carrying value beginning of year 1 732 625
Plus additions – work back to this amount 250 000
Less asset disposal (85 000)
Less depreciation (56 000)
Carrying value end of the year 1 841 625
1. General Ledger of Joele Ltd.

Dr Asset Disposal B6 Cr
2019 2019
Nov 30 Vehicles 80 000 Nov 30 Accumulated depreciation on vehicles 44 000
Bank 36 000
80 000 80 000
Calculations
1 March 2017 – 28 Feb 2018: 80 000 × 20% = 16 000
1 March 2018 – 28 Feb 2019: 80 000 × 20% = 16 000
1 March 2019 – 30 Nov 2019: 80 000 × 20% × __ 9   
 12 12 000 
=  ______
44 000 

2.
2020 2020
Dividends on ordinary shares 138 600 Profit and loss 180 000
232 200 232 200
3.
JOELE LIMITED
Cash Flow Statement for the year ended 28 February 2020
Notes
Cash effects from operating activities 34 520
Cash from operations 1 200 170
Cash effects from investing activities (103 920)

Proceeds on sale of fixed assets 36 000
Cash effects from financing activities 171 000
Proceeds from shares issued (180 000 × 70c) 126 000
Loan payments (14 400)
Loan increase (75 000 + 12 000 + new loan –14 400 = 132 000) 59 400
Net change in cash and cash equivalents 101 600

Cash and cash equivalents at beginning of year (8 000)
Cash and cash equivalents at end of year 93 600
NOTES TO THE CASH FLOW STATEMENT

1. RECONCILIATION BETWEEN PROFIT BEFORE TAXATION AND CASH
GENERATED FROM OPERATION
Net profit Before taxation 180 000
Adjustments in respect of: 40 120
Depreciation 28 120
Cash effect of changes in working capital (19 950)
Increase in inventory (29 950)
Decrease in receivables 3 000
Increase in payables 7 000

Cash and cash equivalents 101 600 93 600 (8 000)

3. DIVIDENDS PAID
Amount in financial statements (50 400 + 88 200) (138 600)
Balance beginning of year (40 000)
Balance end of year 88 200)
(90 400)
4. INCOME TAX PAID

Amount in income statement (54 000)
Balance beginning of year (4 000)
Balance end of year (5 250)
(63 250)

Carrying value beginning of year 246 200
Plus additions– work back to this amount 139 920
Less asset disposal (36 000)
Less depreciation (28 120)
Carrying value end of the year 322 000
Liberty Limited
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
Note R
Cash generated (utilised) from operations ✔ 1 223 055
Dividends paid ✔ 3 (54 000)
Income tax paid ✔ 4 (54 812)
Cash effects of investing activities ✔ (340 000)

Purchase of fixed assets ✔ 5 (340 000)
Cash effects of financing activities ✔ 230 000

Proceeds from shares issued ✔✔✔ 60 000
Long-term loans received/paid ✔✔✔ 170 000
Net change in cash and cash equivalents ✔ 2 (43 957)

Cash and cash equivalents at the beginning of the year ✔ 2 38 157
Cash and cash equivalents at the end of the year ✔ 2 ✔ (5 800)
[17]

Liberty Limited
NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019

FROM OPERATIONS
Net profit before taxation ✔ 150 430
Depreciation (79 000 – 35 200) ✔✔✔ 43 800
Operating profit before changes in working capital ✔ 242 430
Cash effects of changes in working capital ✔ (19 375)
Change in inventory (30 600 – 45 800) ✔✔✔ (15 200)
Change in receivables (48 285 – 56 240) ✔✔✔ (7 955)
Change in payables (56 320 – 60 100) ✔✔✔ 3 780
Cash generated from operations ✔ 223 055
[17]

Bank ✔ (43 957) ✔ (6 000) ✔37 957
Cash float – ✔200 ✔200
✔(43 957) (5 800) 38 157
[6]
3. DIVIDENDS PAID
Dividends for year as reflected in financial statements ✔✔ (60 000)
Balance at the beginning of the year ✔✔ (18 000)
Balance at the end of the year ✔✔ 24 000
[6]
4. INCOME TAX PAID

Income tax for year as reflected in financial statements ✔✔ (60 172)
Balance at the beginning of the year Cr ✔✔ (1 840)
Balance at the end of the year Cr ✔✔ 7 200
[6]

Land and buildings (450 000 – 230 000) ✔✔ (220 000)
Vehicles and equipment (300 000 – 180 000) ✔✔ (120 000)
(340 000)
[4]
Calculation for interim dividend

R400 000 × 0,09 = R36 000

Short explanation of case Unethical behaviour Consequences

1. Batt Bros – market was Market manipulation – Sanctions against the
inflated because of false painting the tape respondents of more than
press releases R40 million
2. GHJ Energy – employees Illegal insider trading The respondents received
used confidential market bans and monetary
information for personal gain penalties of two to three
times the amounts they
gained through their insider
trading
3. Capital G Financial Services Illegal insider trading Pay an administrative penalty
– tipping of confidential of R2,1 million
information
4. Extreme Real Estate – not Corporate governance failure Penalties totalling R350 000
disclosing important – disclosure violations
information in financial
statements
5. Kanton - they inflated Corporate governance failure
earnings and hid debt. – misstatement of financial
information
6. Maureng - he touted Market manipulation – Fined R280 000
the stock in an internet painting the tape
blog where he alluded to
conversations with the
CEO of PEC who stated that
important good news was
about to surface about the
company while he purchased
large volumes of the stock

CHAPTER 4
Financial accounting of companies – analysis and
interpretation of financial statements
Financial indicator Formulae / ratio: Indication of….
Gross profit ____

% Gross profit on cost of sales (turnover) ___________
    ×  100
      Mark-up %
Cost of sales 1
Gross profit ____

% Gross profit on sales (turnover) __________
     ×  100
     Mark-up %
Sales 1
Operating profit ____

% Operating profit on sales (turnover) ______________
    
   ×  100
   Control over expenses (Cost control)
Sales 1
Net profit after tax ____

% Net profit on sales (turnover) ________________
    
   ×  100
Sales 1
% Operating expenses on sales Operating expenses ____

_________________
      
  ×  100
(turnover) Sales 1
Current ratio Current assets : Current liabilities Liquidity
(Current assets – Inventory)

Acid test ratio Liquidity
Current liabilities
Net working capital Current assets – Current liabilities Liquidity
Stock turnover rate   Cost of  

sales
___________________
    Control over stock
Average trading stock
Average stock ___ 12

Stock holding period  ____________
  
   ×      Control over stock
Cost of sales 1
Average debtors ____

Average debtors collection period  ______________
  
    ×  365   Control over debtors
Credit sales 1
Average creditors ____

_______________ 365
Average creditors payment period     
   ×      Control over creditors
Credit purchases 1
Solvency ratio Total asset : Total liabilities If assets exceed liabilities
Long term liabilities Degree of financial risk. How business is

Debt: Equity ratio
Shareholders’ equity financed
Net profit after tax How much the owners earned on the
Return on shareholders‘ equity _________________________
         100
 × ____  
Average shareholders‘ equity 1 capital invested in business
Return on total capital employed How effective funds used through

×  100
Profit before tax + finance cost (EBIT) ____
___________________________
             
(ROACE) Average capital employed 1 operating activities were
Shareholders‘ equity The price that can be charged for a share

Net asset value per share (NAVPS)  _____________________
    100
   × ____   
Number of shares issued 1 – value per share
Dividends on ordinary shares ____ The amount paid out to shareholder per
Dividends per share (DPS)  _________________________
   
     ×  100  
Number of shares issued 1 share
Net profit after tax

Earnings per share (EPS) _____________________
      100
   × ____    The income earned per share
Number of shares issued 1
s e c t i o n 6 • c hap t e r 4 235

gross profit ___

1. Percentage gross profit on cost price = __________ ×  100
  cost price   1  
2012 2011
748 440   
 ________ 100   
×  ___ 776 040   
________ 100  
×  ___
1 496 880  1   1 293 400  1
= 50% = 60%
Comments
• It decreased by 10%.
• It could be because of the following: the business decided to lower profit
percentage; sales, incorrect stocktaking, stock loss due to theft or damage
(periodic inventory system only).
net profit ___
2. Percentage net profit of turnover = ________
 turnover  ×  100
1  
2012 2011
196 720   
 ________ 100   
×  ___ 99 336   
________ 100  
×  ___
2 245 320  1   2 069 440 1
= 8,8% = 4,8%
Comments
• The ratio improved by 4% especially due to lower interest, as the loan
decreased, thus the cost control is better.
• It is nevertheless still low. For every R1 sales, 8,8 cents remains as profit.
cost of sales 
3. Stock turnover rate =  ___________  100
× ___
   1  
average stock
 100
= 1 496 880/ __12  (27 860 + 35 140) × ___1  
 1 31
496 880
= ________
500  
 ×  ___100  
1
= 47,52 times per year
Comments
• The stock turnover rate increased from 2011 to 2012, from 42 to 47,52
times a year.
• This should help to increase the profitability of the company.
• The increase in rate of stock turnover could be because of a decrease in
mark-up percentage.
4. Solvency
Total assets : total liabilities
= 893 020 : (40 000 + 122 100)
= 893 020 : 162 100
= 5,5 : 1
Comment
• Total assets cover total liabilities 5,5 times in 2012 and the company’s
solvency is therefore very good.
5. Current ratio
current assets : current liabilities
2012 2011
75 220 : 122 100 80 490 : 183 090
= 0,62 : 1 = 0,4 : 1

Comments
• The current ratio has improved slightly from 2011 to 2012.
• It is however very low. Not enough current assets to cover current
liabilities.
• The company may find it problematic to honour short-term obligations.
• They urgently need to adress this problem, by getting more cash on
hand.
6. Debtors collection period

average debtors ___
 _____________       ×  365
1  
credit sales
 __12  (38 821 + 32 863) 365
=  _______________ × ___
211 935  
     1  
35 842 
= ______
 211 365  
×  ___
935   1
= 61,7 days
Comments
• The company must try to collect all debts within 30 days – its credit
control is not good.
• The company could improve this problem by awarding discount to
customers who pay quickly, or by charging interest on all overdue
accounts.
• This could be the reason they are having liquidity problems.
7. Creditors payment period

average creditors ___ 365
 ______________   
   ×     
1
credit purchases
 __12  (62 300 + 127 570) 365
=  ________________ × ___
987 064  
     1  
94 935 
= ______
 987 365  
×  ___
064   1
= 35 days
Comment
• The company must negotiate a term of 60–90 days with creditors to pay
off debts.
8. Debt/shareholders’ equity
Long term liabilities : shareholders’ equity
= 40 000 : 730 920
= 0,05 : 1
Comments
• The debt/shareholders’ equity ratio is very good.
• The company has a low gearing, and is creditworthy.
• Although the company is struggling with short-term obligations, its own
capital is much more than its borrowed capital.

9. Return on average shareholders’ equity
net profit after tax
 _______________________
        100
 × ___1  
average shareholder’s equity
196 720   ×  ___
=  _________________ 100  
1    (730 920  
__ + 564 200) 1
2
196 720 
= ______
 647 100
___
560 ×   1  
= 30,4%
Comments
• The return on average shareholders’ equity has improved significantly
from 2011 to 2012.
• It shows shareholders that the money invested in the company is used
effectively.
10. Return on average capital employed

profit before interest expense ___
 _______________________
        ×  100
1  
average capital employed
314 720
=  ________________________________
    × ___  100
1    (730 920 + 40   
__ 000 + 564 200 + 160 000) 1  
2
314 720 
= ______
 747 100
___
560 ×   1  
= 42%
Comments
• The company has a yield of 42% on capital employed.
• It is much more than the interest paid on borrowed capital.
• The company is yielding a good return on the capital employed.

11. Earnings per share (EPS) = ____________________
      100
   × ___
1  
number of shares issued
2012 2011
196 720 
 ______ 100 
___ 99 336 
______ 100
___
100 000 ×   1    92 000 ×   1  
= 196, 72c per share = 107,97c per share
Comments
• The EPS improved by 88,75c per share from 2011 to 2012.
• It can probably be ascribed to the profitability of the company, which has
increased considerably.
dividends on ordinary shares ___

12. Dividends per share (DPS) = _______________________
         ×  100
1  
2012 2011
80 000   
 ______ 100   
×  ___ 50 000 
______ 100
___
100 000  1   92 000 ×   1  
= 80c per share = 54,3c per share
Comments
• The dividends per share increased by 25,7c from 2011 to 2012.
• The shareholders should be satisfied.
• It indicates that the directors have confidence in the sustainable growth
of the company.

shareholder’s equity
13. Net asset value per share = ____________________
      100
   × ___
1  
2012 2011
730 920 
 ______ 100 
___ 564 200  
______ 100
___
100 000 ×   1    92 000 ×   1  
= 730,9c = 613,3c
Comments
• The net asset value per share increased by 117,6c from 2011 to 2012.
• This means the shares are now worth more.
• This can be compared to the market price.
gross profit ___

1. Percentage gross profit on sales = __________
    
 ×  100
1  
sales
2013 2012
352 000  
 _______________
  100 
___ 340 000  
_______________ 100
___
375 000 + 341 000 ×   1     
365 000 + 315 000 ×   1  
352 000 
 ______ 100 
___ 340 000 
______ 100
___
716 000 ×   1   680 000 ×   1  
= 49,2% = 50%
Comments
• The gross profit percentage decreased from 2012 to 2013.
• It could be ascribed to sales, incorrect stock takes, stock loss due to theft
or damage (periodic inventory system only).
operating expenses ___

2. Operating expenses as percentage on sales = _______________
      
  ×  100
1  
sales
2012 2011
150 350 
 ______ 100 
___ 156 335 
______ 100
___
716 000 ×   1    680 000 ×   1  
= 21% = 23%
Comment
• Cost control improved marginally from 2013 to 2013 as far as operating
expenses are concerned – note that interest expense increased dramatically.
3. Number of months’ stock on hand

average stock __
 ___________   ×  12
1  
cost of sales
 __12  (47 770 + 30 120) 12
=  _______________
364 000  
   × __
  1  
38 945 
= ______
 364 12  
×  __
000   1
= 1,3 months’ stock on hand
Comment
• The company must be careful for the old stock to become obsolete.

4. Current ratio
a. Current ratio = current assets : current liabilities
= 104 000 : 94 500
= 1,1 : 1
b. Acid test ratio = (current assets – stock) : current liabilities
= (104 000 – 47 770) : 94 500
= 56 230 : 94 500
= 0,6 : 1
Comments
• The liquidity ratios do not look good.
• The company will have a hard time meeting its short-term
responsibilities.
• The current assets do not cover the current liabilities.
5. Debtors collection period

average debtors ___
 _____________       ×  365
1  
credit sales
 __12  (53 926 + 51 726) 365
=  _______________ × ___
375 000  
     1  
52 826 
= ______
 375 365  
×  ___
000   1
= 51 days

average creditors ___ 365
 ______________   
   ×     
1
credit purchases
 __12  (54 500 + 42 300) 365
=  _______________ × ___
379 775  
     1  
48 400 
= ______
 379 365  
×  ___
775   1
= 46,5 days
7. Suggestions for improving liquidity

• The company must try to meet it is profitability targets, for example,
by improving its stock control.
• Cost control must improve by cutting operating expenses where
possible.
• Rate of stock turnover could improve.
• Debtors must pay sooner (within 30 days).
8. Debt/shareholders’ equity ratio

Long-term liabilities : shareholders’ equity
= 400 000 : 286 000
= 1,4 : 1
Comments
• The company has a high gearing and is not creditworthy.
• This is a high risk – highly geared.

9. Additional shares should be issued for the following reasons:
• The company already has a high gearing and is not creditworthy.
• If a loan were to be taken out, it would make the situation worse, as
the company is already struggling to meet short-term obligations –
the interest and payments associated with a loan will be a negative
factor.
• Loan capital is already more than own capital – issuing shares would
improve the situation.
• It will also improve their liquidity situation.
10. Return on average shareholders’ equity

 _______________________
        100
 × ___1  
average shareholder’s equity
82 500  
=  _________________ 100  
   ×  ___
1    (286 000 + 258
__ 500) 1
2
82 500 
= ______
 272 100  
×  ___
250   1
= 30,3%

profit before interest expense ___
 _______________________
        ×  100
1  
average capital employed
201 650
=  _________________________________
    × ___  100
1    (286 000 + 258  
__ 500 + 400 000 + 140 000) 1  
2
201 650 
= ______
 542 100
___
250 ×   1  
= 37,2%
Comments
• The company achieved a yield of 37,2% on capital employed.
• It is considerably more than interest paid on loan capital.

12. Earnings per share (EPS) = ____________________
       × ___  100
1  
2013 2012
82 500 
 ______ 100 
___ 85 465 ×  ___
______ 100  
83 000 ×   1    83 000  1
= 99,4c per share = 102,9c per share
Comment
• The EPS decreased from 2012 to 2013.
dividends on ordinary shares ___

13. Dividends per share (DPS) = _______________________
         ×  100
1  
2013 2012
55 000 
 ______ 100 
___ 78 490 
______ 100
___
83 000 ×   1    83 000 ×   1  
= 66,3c per share = 94,6c per share
Comments
• The dividends per share decreased from 2012 to 2013.
• The shareholders may feel unhappy.

shareholders’ equity
14. Net asset value per share = ____________________
      100
   × ___
1  
2013 2012
286 000  
 ______ 100 
___ 258 500  
______ 100
___
83 000 ×   1    83 000 ×   1  
= 344,6c = 311,5c
Comments
• Net asset value per share has increased by 33,1c from 2012 to 2013.
• In 2013 it is 44,6c above par value.
1. a. (120 700 – 60 700) : 80 000

= 60 000: 80 000
= 0,75 : 1
b. • The acid test ratio increased from 2018 to 2019.
• They don’t have enough liquid assets to cover current liabilities.
• The company may struggle to meet short-term obligations.
2. Any two of the following measures are acceptable:
• Arrange quicker collection from debtors.
• Negotiate period of 90 days with creditors to pay back debts.
• Increase rate of stock turnover.
3. 150 000 : (225 000 + 75 000)
= 150 000 : 300 000
= 0,5 : 1
4. Favourable. The learners should motivate their answers as follows:
• The company has a low gearing and is creditworthy – own capital is
twice as much as loan capital.
• Return on capital employed is 26,3%, while finance charges related to
loans are only 14,5%.
5. Any one of the following recommendations is acceptable:
• Issue shares for the full R200 000 taking into consideration that the
company is registered to issue 400 000. Currently, only 100 000 shares
are issued.
• The company is struggling to meet short-term obligations – a loan
and the associated interest will increase this burden.
OR
• Issue shares for R100 000 and take out a loan for R100 000. In this way
the balance between debt/shareholders’ equity remains positive.
200 000 + 25 000  
6.  _____________________ + 75 000  100  
   × ___
100 000  1
300
= ______ 000
 100 000  100
 ×  ___
1  
= 300c
No, I would not consider selling for R2,80 per share, since the net asset
value per share is R3.
7. EPS
97 500 
= ______
 100 100  
×  ___
000   1
= 97,5c per share

DPS
50 000 
= ______
 100 100  
×  ___
000   1
= 50c per share
Yes, shareholders can be satisfied. Of the 97,5 cents profit per share, the
shareholders are paid 50 cents.
420 000 – 300

1.  ______________000  
  
1,5 
 1201,5000
= ______    
= 80 000 shares
2. Current ratio
• It has improved from 0,84 : 1 to 1,11 : 1.
Acid test ratio
• It has increased from 0,38 : 1 to 0,47 : 1.
• The liquidity of the company has improved, but it is still not
acceptable.
• They should try to increase the acid test ratio to at least 1 : 1, so that
there is enough liquid assets to cover current liabilities.
average inventory ___
3.  _______________   
    ×  365
1  
cost of sales
 __12  (63 350 + 103 450) 365
=   ________________ × ___
405 880  
     1  
83 400 
= ______
 405 365  
×  ___
880   1
= 75 days
average debtors ___
4.  _____________       ×  365
1  
credit sales
 __12  (52 650 + 64 150) 365
=   _______________ × ___
426 150  
     1  
58 400 
= ______
 426 365  
×  ___
320   1
= 50 days
5.  ____________________
      
 210 000 – 73
= _____________
420 000 ÷  
500
   
1,50
136 500 
= ______
 280 000 
= 48,75c/share
6.  ______________________
    100
   × ___
1  
average shareholder’ equity
136 500
=  ______________________________________________
      × ___  100
1    (300 000 + 40   
__ 000 + 60 000 + 420 000 + 80 000 + 100 000) 1  
2
136
______
=  500 000 500  100  
 ×  ___
1
= 27,3%

7. Net asset value per share
shareholders’  interest
 ____________________
   × ___ 100
number of shares issued 1  
420 000 + 80 000 + 100 000  100  

=  ______________________
   × ___
  
280 000  1
600 000 
= ______
 280 100
___
000 ×   1  
= 2,14 cents per share
No, the shares are worth more than R2,00.
8. • T
hey can sell off excess stock before it becomes obsolete (more than
2 months’ stock on hand).
• They should try to collect debtors within 30 days.
1. a. Date of additional loan

100 000 × ___ 20   ×  __
 100 12  = 20 000
12
20 000 × ___ 20   ×  __
 100 x   = 1 000 (interest on the additional loan)
12
4 000x
 ______  
  = 1 000
12
333,3x = 1 000
x = 3 months
Therefore, 31 November or 1 December 2010
b. Current ratio
235 960 : 38 010
= 6,2 : 1
Acid test ratio
(109 560 + 23 800) : 38 010
= 3,5 : 1
c. Gearing ratio as on 28 February 2011
120 000 : 756 550
= 0,16 : 1
d. Return on average shareholders’ equity on 28 February 2011
214 200 – 85  
 _________________ 100  
680  ×  ___
1    (546 110 +  
__ 756 550) 1
2
128 520 
= ______
 651 100
___
330 ×   1  
= 19,7%
2. Comments
• Liquidity has improved.
• There are enough current assets to cover current liabilities.
• The company will be able to pay current liabilities.
201 600 × 100
3. a.  ______
360 000 
= 56 cents per share
b. Net asset value per share
756 550   
 ________ 100  
×  ___
1 060 000  1
Comment
• No, my shares are worth much more than 65 cents. The value of the
share is 71 cents. I will be able to get more for my shares.

c. Yes, I would consider buying this share.
Any five of the following reasons could be given:
• The market value of 80 cents per share is above the net asset value of
71 cents per share.
• Market sentiment is high for this particular share and company.
• This company has a low gearing. (A favourable debt equity ratio)
• They are paying out a fair dividend of 11 cents per share.
• This company is very liquid. (They have enough current assets in
order to pay current liabilities.)
• If I were to buy this share for 80 cents, I might be overcapitalising
because the net asset value is only 71 cents.
• The return on average shareholders’ equity is quite average, 19,7%.
d. The following three investments were made:
• Some of it was used to finance operating activities. There was a
negative cash flow of R41 620 from its operations.
• They purchased additional tangible assets.
• It was used to repay the bank overdraft.
e. Any two of the following reasons:
• The vehicle could have been too old and maintenance costs could
have been too high.
• It was on longer of any use to the company and was replaced by a
newer model.
• It could also have been too heavy on fuel.
f. For two reasons:
• Depreciation is a non-cash item.
• It decreases the net profit in the Income Statement.
g. The business could have purchased more stock and therefore cash would
have decreased.
h. The following activities should be mentioned:
• The fixed deposit expired.
• An additional loan was acquired.
• Shares were sold.
• A vehicle/tangible asset was sold.
i. Debtors (any three of the reasons below)
• There is more outstanding debt in 2011 than in 2010.
• The debt collection policy must be monitored to ensure that debtors
will pay during the next financial year.
• Debtors are not paying their debt soon enough.
• The business could have slacked on their credit policy by allowing too
much debt and by not verifying the creditworthiness of debtors.
Creditors (both reasons)
• There was an outflow of cash to creditors during the current year.
• Although the company is maintaining its creditworthiness it might be
paying its creditors too soon.
j. Shareholders should be happy as they are earning a good return on their
investment. However, the business should retain some of its profits for
future development projects.

1. Comments on liquidity
Opinion: The company does not have any liquidity problems.
Reason: The operating capital ratio has increased and meets the accepted
average of 2 : 1.
The acid test ratio has increased and meets the accepted average of 1 : 1.
The stock turnover velocity has increased.
2. Explanation to the director with regards to operating profit and net profit
• The difference was caused by an increase in interest expense.
• Operating profit was calculated before interest expense and net profit
after interest expense.
• The increase in interest expense is as a result of an increase in loans.
• The increase in the debt/owner’s equity interest ratio indicates an
increase in loans.
• The decrease in solvability indicates an increase in loans.
3. Advice with regards to loan
• Borrow the money.
• The debt/owner’s equity interest ratio has increased of 0,09 : 1 to
0,34 : 1.
• If a loan is taken out, this will increase even further, but the business
will still be low-geared.
OR
• Do not borrow the money.
• The return on total capital employed has decreased by 32% to 23%.
• The loan has an interest rate of 19%, which is still slightly below the
rate of 23%.
4. Explanation on the performance of the company:
• Return on shareholders’ interest has decreased by 37% to 32%.
• This is, however, still higher than the interest that could be earned on
alternative investments.
• DPS has increased of 19c to 25c.
• This means that less income was retained in the company as more
payments in the form of dividends were made to the shareholders.
• EPS has decreased by 35c to 30c.
• However, this is still reasonable when one takes into account is that
the market value per share has also decreased.
• Shareholders should be satisfied if they look at DPS, but less satisfied
when observing return on shareholders’ interest and EPS.
5. Purchase of additional shares:
Opinion: Yes
Two reasons:
• DPS has increased.
• NAV has increased.
• The price at which shares are offered is less than the market price and
NAV.
OR
Opinion: No
Two reasons:
• VPA has decreased.
• Although the price offered is less than the market value, the market
value has gone down.

1.
Geco Limited
Note R
Cash generated (utilised) from operations (100 000 + 58 000 + 27
380 – 37 870) 1 147 510
Dividends paid (–60 000 – 22 000 + 28 000) 3 (54 000)
Income tax paid (–23 000 – 10 000 – 4 000) 4 (37 000)

Purchase of fixed assets (320 000 – 180 000) + (58 000 – 40 000) 5 (210 000)
Proceeds from sale of fixed assets (40 000 – 17 000) 23 000

Proceeds from shares issued (678 000 – 440 000) 238 000
Long-term loans received/paid (170 000 – 130 000) (40 000)
Net change in cash and cash equivalents (31 000 + 9 000) 2 40 130
Calculations
1. R28 000 + 30 000 = R58 000
2. R27 000 + 380 = R27 380
Dividends paid
Amount in financial statements (60 000)
Balance on the last day of previous year (22 000)
Balance on the last day of current year 28 000
(54 000)
Appropriation account
Income tax 23 000 Retained income 56 000
Taxation paid
Amount in Income Statement (23 000)
Balance on the last day of previous year Cr (10 000)
Balance on the last day of current year Dr (4 000)
(37 000)
Vehicles Accumulated depreciation on vehicles

Asset Asset
Balance b/d 200 000 disposal 40 000 disposal 17 000 Balance b/d 38 000
Balance c/d 160 000 Balance c/d 49 000 Depreciation 28 000

2. Acid test ratio
R210 000 + 30 130 + 1 000 + 4 000 + 320 = R245 450
R130 000 + 28 000 + 400 = R158 400
245 450 : 158 400
The acid test ratio is 1,55 : 1.
Comments
• Liquidity has improved from 2010 to 2011.
• The company has sufficient current assets to cover current liabilities. This
was not the case in 2010.
• The company seems to have sold more on credit in 2011 and therefore
has a higher outstanding debt. The company must ensure that it collects
this debt in the next year so that liabilities can be paid.
3. Net asset value

620 000 + 58 000  
+ 73
 _____________________ 000  100  
   × ___
775 000  1
751 000
______
=  775 000  
4. a. Average debtors collection period

 12  (150 000 + 210 000) 365
__
 _________________   
1 295 100    × ___
    1  
 1180 000   

= ________
295 100 
365  
×  ___
1
= 51 days (The accepted average is 30 days.)
Comments
• The company should encourage debtors to pay sooner because on average
debtors are paying within 51 days, whereas the accepted average for debtors
is 30 days.
• They could encourage timeous payment by granting discounts for early
payment or by charging interest on overdue accounts.
b. Average creditors payment period

 21  (130 000 + 210 000) 365
__
  _________________    × ___
541 200  
    1  
125 000 
= ______
 541 365
___
200 ×   1  
= 84 days (The accepted average is 90 days.)
Comment
• They are paying creditors within 84 days, which is acceptable because the
accepted average is 90 days. By doing this they are avoiding being charged
interest and are earning discount for prompt payment.
5. Average stock
(73 000 + 61 000) ÷ 2
= 67 000
Cost of sales
100  
1 295 100 × ___
 180
= 719 500
 719
= ______500
67 000  
= 11 times per year

Marks: 80Time: 1 hour
1.1 General Ledger of White Water Adventures

Dr Accumulated Depreciation on Vehicles Cr
2010 2010
Aug 31 Asset disposal ✔✔ 60 000 Mar 01 Balance b/d ✔ 118 000
Balance c/d ✔ 67 000 Aug 31 Depreciation ✔ 9 000
127 000 127 000
Sep 01 Balance b/d ✔ 67 000
2011
Feb 28 Depreciation ✔✔ 13 000
80 000
[8]
Accumulated depreciation on the vehicle sold

Cost price – carrying value = accumulated depreciation
R110 000 – 50 000 = R60 000
1.2
2010 2010
Aug 31 Vehicles ✔ 110 000 Aug 31 Accumulated depreciation on vehicles ✔ 60 000
Bank ✔ 50 000
110 000 110 000
[3]
1.3
2011 2011
Feb 28 Income tax ✔ 58 800 Feb 28 Profit and loss ✔ 196 000
Dividends on ordinary shares ✔✔58 690 Retained income ✔ 157 220
Retained income ✔235 730
353 220 353 220
[6]
Accumulated depreciation on equipment

Balance 11 700
Depreciation 12 600
24 300

2.1–2.3
White Water Adventures Limited
NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2011

FROM OPERATIONS
Net profit before taxation ✔ 196 000
Depreciation (9 000 ✔ + 13 000 (✔) + 12 600 ✔✔ 34 600
Operating profit before changes in working capital ✔ 248 100
Cash effects of changes in working capital (✔) (38 800)
Change in inventory✔ (189 000 – 204 000) ✔✔ (15 000)
Change in receivables ✔ (148 400 – 181 300) ✔✔ (32 900)
Change in payables ✔ (74 300 – 83 400) ✔✔ 9 100
Cash generated from operations (✔) 209 300
[18]
2. INCOME TAX PAID

Income tax for year as reflected in financial statements ✔ (58 800)
Balance at the beginning of the year Cr ✔✔ (9 900)
Balance at the end of the year Dr ✔✔ (6 800)
Income tax paid ✔ (75 500)
[6]
3. DIVIDENDS PAID
Dividends for year as reflected in financial statements (✔) (58 690)
Balance at the beginning of the year ✔✔ (20 000)
Balance at the end of the year ✔✔ 35 000
Dividends paid (✔) (43 690)
[6]
3.
4. CASH FLOW FROM FINANCING ACTIVITIES
Cash flow from financing activities ✔ 165 000
Proceeds from shares issued (575 000 + 350 000) ✔✔ 225 000
Payment of long-term loans (200 000 – 140 000) ✔✔ (60 000)
[5]
4.1 Profit mark-up on credit sales

430 000 – 268 750 = 161 250
161 250 ✔  
 _________ 100  
×  ___
 
268 750 ✔ 1
= 60% ✔
Comments
• It is costlier to administer credit sales. ✔
• The costs incurred to administer credit sales thus increase operating
expenses. ✔
[5]

4.2 Net asset value per share on 28 February 2011:
575 000 – 350
number of shares = 200 000 + ( ______________ 000 ) 
  
2,25 
= 200 000 + 100 000
= 300 000 shares ✔✔
575 000 + 235 730  
 _______________  100
× ___ 810 730 ✔✔  
__________ 100  
×  ___
300 000  
  1  =   300 000   1
= 270,24 cents ✔ [5]
4.3 Comments
• Shares were sold at R2,25 per share.
• Shares were sold for less that the net asset value of 270 cents per
share.
• Investors bought shares at a very good price.
• The company wanted to ensure that the shares were bought and
therefore offered the shares at a reasonable price.
• The NAV per share is always lower than the market price, because
assets are valued at historical cost.
(Any four) [4]
4.4 Any two of the following ways are acceptable:

• The loan was repaid.
• Tangible assets were purchased.
• Additional stock was purchased.
• The bank overdraft was repaid. [2 × 2]
4.5 Average debtors collection period for the year ended 28 February 2011
148 400 + 181
 _______________ 300    365
× ___
430 000  
  1  
 164 850 ✔✔   
= __________ 365  
×  ___
  1
430 000 ✔
= 139,93 rounded up to 140 days ✔ [4]
4.6 Any three of the following options are acceptable:

• Collect outstanding debts from debtors within 30 days.
• Charge interest on overdue accounts.
• Allow discounts for prompt payment.
• Send out a reminder as soon as an account is overdue.
• Increase cash sales.
• Negotiate a longer payment period with creditors.
• Hold a sale and try to encourage cash payment only.
• Sell more shares. [2 × 3]
Teacher: Ask three learners to each read an article aloud in class. Ask the rest
of the class to make observations, stating whether the article was positive or
negative, and quoting extracts from the articles to support their answer.

CHAPTER 5
Financial accounting of companies – analysis of published
financial statements
1. The Statement of Comprehensive Income reflects the operating profit,

income tax and net profit for the financial year.
2. The Statement of Financial Position reflects the net worth of the
company as well as its assets and liabilities.
3. The Statement of Cash Flows shows how the operating activities of the
company have affected the liquid funds of the company.
4. The Independent Auditor’s Report expresses in verbal terms how
the company has performed over the past year and explains other
information not found in the financial statements.
5. The Directors’ Report expresses an opinion on whether the financial
statements of the company are reliable or not.
1. The independent auditor expresses an opinion on the fair presentation of

the financial statements. They look after the interest of the shareholders
by examining the financial report presented by the company’s directors to
verify or discredit the validity of the report.
2. The directors appoint the independent auditor at the AGM and the
audit and risk committee must verify the independence of the auditing
company.
3. An unqualified audit report – also known as a clean report means
that the external auditor finds the financial statements to be free from
discrepancies and that it gives a true and fair view of the financial
reporting framework used in preparing and presenting the financial
statements.
A qualified audit report – is issued when the external auditor encounters
one or two situation that do not comply with GAAP however the rest of
the financial statements are fairly presented.
4. Qualified report
5. An adverse audit report is issued when the external auditor determines
that the financial statements of the company being audited are materially
misleading and when considered as a whole do not conform to the
principles of GAAP.
Shareholders will become suspicious of the competence of the directors
and might not vote for them at the next annual general meeting. They
will lose confidence in the ability of the company to run the company
well. The directors are hiding information from the shareholders and this
is illegal. They could face criminal charges.
a. Liquidity ratios affected are: current ratio, acid test ratio and average
debtors collection period. These will reflect higher more favourable
results improving the liquidity results.
Market value ratios are: net asset value and earnings per share. These
will also appear higher and show favourable results.

The solvency ratio will also be inflated by the decision.
b. Matching principal – not writing off the debt or providing for bad
debts in the applicable year when the debt was incurred.
Concept of materiality – The directors neglected to disclose the
information which had a relevant effect on the financial statements.
1. An unqualified report
2. They should be satisfied.
The financial statements are fairly presented and no irregularities were
found.
3. The auditors are saying that they only take responsibility for the pages
that were specified in their Auditor’s Report.
4. Because the general public can invest in a public company, the
shareholders have to be assured that the company is looking after their
investment. The company’s financials must be audited to reassure
shareholders that their investment is safe. The auditing company must be
an outside, independent firm who has not vested interest in the company
they are auditing.
5. a. She should inform her manager and she needs to be taken off the
team. She might be biased in her audit opinion and this is seen as a
familiarity threat to the independence and objectivity of the audit.
b. No it would not be an objective audit and will bring to question the
independence of the audit.
1. An adverse opinion
2. Shareholders will become suspicious of the competence of the directors
and might not vote for them at the next AGM. They will lose confidence
in the ability of the company to run the company well. The directors are
hiding information from the shareholders and this is illegal. They could
face criminal charges.
3. It is the requirements of the auditing standards as the IFRS sets the
standards for the preparation of financial statements. It also enables
financial statements of different companies to be compared in South
Africa and in other countries. Financial statements are uniformly
prepared and auditing companies audit all companies according to the
same standard and set principles.
4. Auditors must be governed by a professional code of conduct to which
they are held accountable. This professional body, like SAICA, accredits
the qualification of the auditor and lays down the code of conduct to
which they must adhere. They are answerable to this code and their
professionalism is questioned when they infringe this code.
5. They could be reprimanded by their company and professional body,
depending on the severity of the infringement they could also have their
names struck off the professional body’s role and will not be able to
practice as a CA (Charted Accountant) again.

6.
Section extracted from an audit report Message the auditor is conveying to the
shareholders
We have audited the annual financial statements The auditors are only responsible for and report
of Murray and Solomon set out on pages 20 – 41 on the pages in the annual financial statement
for the year ended 31 December 2020. as set out in their audit report.
These financial statements are the responsibility The auditor is saying that they did not prepare
of the company’s directors. Our responsibility the financial statement and that it was the
is to express an opinion on these financial responsibility of the directors. It is merely their
statements based on our audit. responsibility to express an opinion on the
statements presented to them.
An audit includes: 1. The auditor is saying that they only tested
1. Examining on a test basis, evidence a sample of the accounting records (source
supporting the amounts in the financial documents, bank statements, financial
statements; …. records, etc.) to prove the amounts as
2. Assessing the accounting principles used and presented in the statements.
significant estimates made by management; 2. These amounts were tested against the GAAP
…. principals as laid out in IFRS.
3. Evaluating the overall financial statement 3. The financial statements are presented in an
presentation … acceptable way according to the prescribed
format as laid out in the Companies Act.
Audit opinion: Unqualified opinion
In our opinion, the financial statements fairly The auditors are communicating that the
present, in all material respects, the financial company’s financials are “clean”, unbiased
position of the company at 30 June 2020 and and fairly presented. This is the best report a
the results of their operations and cash flows company can get from an auditor.
for the year then ended in accordance with
International Financial Reporting Standards
(IFRS) and in the manner required by the
Companies Act in South Africa.
Column A Column B
1. Accountability H. Being held answerable for ensuring that
the daily operations of the company are
exercised diligently and with due care in
order to achieve the best possible outcome
for all
2. comply with legislation E. Adhering to what is laid down in the
Companies Act and the laws of the country
3. Transparency I. All relevant information must be disclosed

to shareholders and nothing must be hidden
from them
4. Risk management J. Expecting in advance that the company
might face danger and threats and planning
in such a way as to avoid them
5. Independence F. Being free from influence, bias and conflict
of interest
6. Fairness in dealing with C. Treating everyone equitably and not

stakeholders favouring any particular party above the
other
7. Sensitivity to social and D. When making a decision, having a
environmental issues consideration for any factor that might
impact society at large
8. Responsible management G. Taking responsibility for something that
should be carried out as part of the duties
at work
9. Fraud A. An intentional manipulation of information
or data in order to commit a crime
10. Ethical decisions B. All decisions are made and are guided by set
values and principles

1. The board of directors must ensure good corporate governance within

the organisation.
2. Discipline, responsibility, fairness, social responsibility, transparency and
accountability
3. The King Code III refers to a multi-faceted range of stakeholders.
Individual – the company’s employees, suppliers, financial institutions,
shareholders, etc.
Societal – the company’s competitors, neighbouring shops, schools,
hospitals, environmental issues, etc.
Economic – job creation, imports and exports, buying proudly South
African
Social – sports clubs, recreational centres, etc.
Every company has a corporate responsibility to govern their affairs in
the best interest of all and not to just be concerned about the bottom
line.
4. Prima Clothing Ltd. should consider the view of the environmentalists.
They will be viewed in a negative light if they just continue with
construction without doing an environmental impact assessment. This
matter could end up in court and would give them a bad name. Good
corporate governance encourages societal and environmental awareness.
5. Societal and environmental issues
For the teacher:

Calculations for the analysis of the audit financial statement of Shoprite
Holdings Ltd.
Margin ratios:
Gross profit on sales
2011 2010
14 673 369 
_________ 100 
___ _________  100
13 524 592 × ___
 72 297 777 ×   1   67 402 440  1  
= 20,3% = 19,7%
Gross profit on cost of sales
2011 2010
14 673 369 
_________
 57 100 
___ 13 524 592 × ___
_________  100
624 408 ×   1    54 147 848  1  
= 25,5% = 24,5%
Net profit on sales
2011 2010
2 529 542 
_________
 72  100
× ___ 2 287 296   
_________  100
× ___
297 777    
1   67 402 440  1  
= 3,5% = 3,4%
Operating expenses on sales
*added together Depreciation + amortisation + Operating leases + Employee
benefits + Other expenses
2011 2010
 *12
__________  100
542 516 × ___ *11 340 279  
__________ 100
___
72 297 777    
1    67 402 440 ×   1  
= 17,3% = 16,8%

Operating profit on sales
2011 2010
3 907 718 
_________
 72  100
× ___ 3 387 037   
_________  100
× ___
297 777    
1    67 402 440  1  
= 5,4% = 5,0%
Liquidity and efficiency ratios:
Current ratio
2011 2010
11 357 577 : 12 450 311 10 416 433 : 10 985 656
= 0,9 : 1 = 0,95 : 1
Acid test ratio
2011 2010
4 301 710 : 12 450 311 4 301 895 : 10 985 656
= 0,35 : 1 = 0,39 : 1
Stock holding period
*average stock used
**average stock not used
2011 2010
6 585 197* 
_________ 365 
___ 6 114 638**  
_________ 365
___
 57 624 408 ×   1    54 147 848 ×   1  
= 41,7 days = 41,2 days
Stock turnover rate
2011 2010
 57 424 408 
_________
6 585 197   
54 147 848  
_________
6 114 538
= 8,75 times = 8,86 times
Financial leverage ratios:
Solvency ratio
2011 2010
20 703 757 : 13 560 307 17 991 697 : 12 019 681
= 1,5 : 1 = 1,5 : 1
Debt : equity ratio
*borrowings
2011 2010
23 578* : 7 143 450 18 914* : 5 972 016
= 0,003 : 1 = 0,003 : 1
Return ratios:
Return on average shareholders’ equity
*average equity
**average equity not used
2011 2010
 2 529 542 
_________  100
× ___
   2 287 296 
_________  100
× ___
6 557 733*
 
1    5 972 016**
   1  
= 38,6% = 38,3%

Return on average capital employed
*average capital employed
**average capital employed not used
2011 2010
 3 876 368 + 125
________________
  
  
964 × ___
   100  
1   
3 399 088 +   
93  
_______________    100
690 × ___
1  
6 581 588* 5 993 550**
= 68,1% = 58,3%
Market value ratios:
Net asset value per share
2011
 7543
143 450 000  
___________
479 460 (obtained from report)
= 1 314,4
Earnings per share
2011: This amount was given in the statement of comprehensive income.
Dividends per share
2011: This amount was given in the notes to the statements in the report.

CHAPTER 6
Ethics
1. a. Learners should provide several relevant points such as:

• Professional bodies provide assurance of the quality of their
members, which provides employers, clients and the general
public with confidence in the ability and professional competence
of their members.
• Professional bodies set educational standards.
• Professional bodies development of curricula.
• Professional bodies accredit training institutions.
• Professional bodies provide and distribute learning material.
• Professional bodies set and administer professional admission
examinations.
• Professional bodies assess practical experience.
• Professional bodies award qualifications.
b. Learners should provide several relevant points such as:
• Professional bodies provide their members with on-going support
and training in order to ensure that they remain up to date with
the latest developments in their profession.
• Professional bodies organise conferences, seminars and workshops.
• Professional bodies publish professional journals or magazines.
• Professional bodies distribute newsletters.
• Professional bodies maintain website and update content on a
regular basis.
• Professional bodies provide a network for professionals to meet
and discuss their field of expertise.
c. Learners should provide several relevant points such as:
• Professional bodies usually prescribe a code of conduct for their
members.
• This code sets out the standards of professional and ethical
behaviour that are required by their profession.
• Members are required to adhere strictly to this code.
• The code of conduct is enforced by the disciplinary function of the
professional body.
• The disciplinary function of the professional body investigates
complaints against members, implements disciplinary procedures
and takes action against members found guilty of non-compliance
or improper conduct

2.
Professional body Abbreviation Professional title Designation
The South African Institute of Chartered

SAICA Chartered Accountant CA(SA)
Accountants
The South African Institute of Professional

SAIPA Professional Accountant
Professional Accountants Accountant (SA)
The Independent Regulatory Board for

IRBA Registered Auditor RA
Auditors
The Institute of Internal Auditors South

IIA SA Internal Auditor CIA
Africa
The Chartered Institute of Management

CIMA Management Accountant ACMA
Accountants
3. a. Integrity requires accountants and auditors to be honest, open and

straightforward in all their professional and business relationships. It is
essential that accountants and auditors adhere to this principle, since
their clients and various other interested parties rely on the information
and opinions that they provide to be truthful and accurate.
b. Objectivity requires accountants and auditors to not allow bias,
conflict of interest or undue influence of others to override
professional or business judgments. It is essential that accountants
and auditors adhere to this principle, since their clients and various
other interested parties rely on the information and opinions that
they provide to be impartial and fair.
c. Professional competence requires accountants and auditors to maintain
their professional knowledge and skill at the level required of their
profession. It is essential that accountants and auditors adhere to this
principle, since their clients expect to receive competent professional
services based on up to date technical and professional standards.
d. Confidentiality requires accountants and auditors to respect the
confidentiality of information acquired as a result of professional and
business relationships. It is essential that accountants and auditors
adhere to this principle, since their clients rely on them to not disclose
any such information to third parties without proper authority (unless
there is a legal or professional duty to disclose such information).
1. The purpose of professional body’s disciplinary function is to ensure that

the members of the professional body behave professionally and ethically
and to protect the public from unscrupulous practices and unprofessional
or unethical conduct from its members. This is achieved by:
• enforcing the professional bodies code of conduct
• investigating complaints against members
• implementing disciplinary procedures
• taking action against members found guilty of non-compliance or
improper conduct.
2. Any three of the following examples of misconduct:
• Breach of professional confidentiality – disclosing confidential
information to a third party without authority to do so.
• Unethical conduct – any conduct that is immoral or dishonest in
any way.

• Conflict of interest or improper relationships – providing professional
serves to a client on a matter, which is at odds with own personal
financial interests of the professional or the interests of another client.
• Criminal convictions – being convicted of a crime
• Excessive charging – charging exorbitant fees, which are well above
the rates recommended or prescribed by the professional body.
• Unprofessional conduct – acting in an unprofessional manner.
• Pretending to be a CA(SA) when not qualified – pretending or
claiming to be a registered chartered accountant, which is in fact a
criminal offence.
• Failure to uphold professional competence and due care in the
performance of professional’s duties – providing professional
serves without having the necessary skills or acting in a reckless,
irresponsible or careless manner.
• Unauthorised advertising – advertising that is not permitted by the
professional body.
• Breach of the Continuing Professional Development Policy – not
adhering to the rules and requirements of the professional body
relating on-going training and skills development.
3. The punitive measures in order of severity (starting with the least severe
and ending with the most severe) are:
• cautioned
• reprimanded
• fined
• suspended
• struck off.
4. A criminal offence
1. King III principle being applied: “The board should ensure that the company
is and is seen to be a responsible corporate citizen.”
Good governance: The board is upholding the company’s duty of good
corporate citizenship, by helping the local community. The board is also
ensuring that the company is seen to be a good corporate citizen by
branding the soccer jerseys with the company name and logo; this will
help to enhance the company’s reputation and promote its public image.
2. King III principle not being applied: “The board should appreciate that
strategy, risk, performance and sustainability are inseparable.”
Unethical behaviour: Dumping waste in into a river is unethical. The
board is thus not fulfilling its ethical responsibility and social obligation to
ensure that the company operates in a sustainable manner and consider
the interests of society. Furthermore, this strategy shows that the boards’
lack of appreciation that strategy, risk, performance and sustainability
are inseparable. Besides being unethical, the companies overall economic
performance will be affected by the bad publicity and due to poor
environmental and social performance.
3. King III principle not being applied: “The board should ensure the integrity
of the company’s integrated report.”
Poor governance: The board should ensure that the company prepares an
annual integrated report, which discloses the company’s economic, social
and environmental performance in a transparent manner. The board has
not fulfilled this responsibility and has failed in its obligation to ensure

the integrity of the company’s integrated report. The board should
ensure that the company’s annual integrated report discloses:
• the positive social performance regarding the sponsorship; and
• the negative environmental performance relating to the dumping
of waste.
4. King III principle not being applied: “Companies should remunerate
directors and executives fairly and responsibly.”
Unethical behaviour: Directors should certainly be well paid as they
usually perform a vital role in ensuring the success of a company;
they often work extremely hard and they carry a huge burden of
responsibility. However, paying directors exorbitant amounts, particularly
when a company hasn’t performed well, is unethical. Directors should be
remunerated fairly and remuneration policies should be linked to their
contribution to company performance.
5. King III principle being applied: “The board should ensure that the
company’s ethics are managed effectively.”
Good governance: The board is upholding its responsibility to build,
promote and sustain an ethical corporate culture in the company. The
board is ensuring that the code of conduct is adhered to by all members
of the company and that the company‘s ethical standards are integrated
into all the company‘s strategies and operations.
1. C. 2. G. 3. F. 4. B. 5. H. 6. A. 7. E. 8. D.
1. The social and ethics committee is required to monitor the company’s

activities relating to issues such as social and economic development;
good corporate citizenship and the environment. The social and ethics
committee must inform the board of any matters that require the board’s
attention and must report to the shareholders at the company’s annual
general meeting.
2. “The board should provide effective leadership based on an ethical
foundation” and “The board should ensure that the company’s ethics are
managed effectively”.
3. In terms of the Companies Act and King III, directors have a duty and
a responsibility to manage the company’s ethics. However, directors
often have limited opportunity to personally assess the business’s ethical
behaviour and risk. They thus need to ensure that there are independent
processes in place to measure and monitor the ethics of the company.
The directors can then use this information to make informed decisions
and take action to improve the company’s ethics.
4. Any three of the following:
• Fines – a company may be fined for carrying out an unethical act (e.g.
polluting)
• Legal settlements – legal action may be taken against a company over
an ethical issue and may result in the company having to pay a legal
settlement.
• Falling share price – bad publicity regarding a company’s ethics can
have a negative effect on a company’s share price

• Eroded market and customer confidence – bad publicity regarding
a company’s ethics can cause customers to lose confidence in the
company. These customers may choose to rather use a competitor’s
products or services and thus the company will lose some of its share
of the market.
5. Any five of the following:
• It increases brand equity.
• It favours easier access to capital.
• It favours a lower cost of capital.
• It enhances employee commitment.
• It enhances customer loyalty.
• It supports the recruitment and retention of top talent for employees
and the board.
• It supports good stakeholder relationships.
6. Many sources of competitive advantage can be easily and quickly copied.
However, an ethical culture and reputation offers a source of competitive
advantage that cannot be easily copied, cannot be bought and takes a
long time to establish.
1. a. The remuneration to be paid to directors

The company’s remuneration policy
b. The remuneration to be paid to directors
c. The new Companies act stipulates that “a company may pay
remuneration to its directors for their service as directors, provided
that such remuneration may only be paid in accordance with a special
resolution approved by the shareholders within the preceding two-
year period.”
d. King III principle: “Companies should remunerate directors and
executives fairly and responsibly.”
2. a. A special resolution is a binding decision requiring the support of at
least 75% of the shareholders’ votes.
b. A non-binding advisory vote is a vote that is merely used to indicate
the shareholders’ opinion on a matter, but which is not binding on
the company (i.e. it is not enforceable).
3. a. Transparency
b. Accountability
4. a. The social and ethics committee
b. The primary function of the social and ethics committee is to
monitor the company’s activities relating to, amongst other, social
and economic development; good corporate citizenship; the
environment; consumer relationships and certain employment-
related matters.
5. Any appropriate reason, such as:
• Shareholders who were not in favour of the pay increase sold their
shares.
• Shareholders sold their shares because they felt that this would have a
negative impact on the profits of the company.
• The news of the pay increase made the shares less attractive to
potential investors.
• The negative publicity surrounding this announcement has scared
away shareholders and potential investors.

CHAPTER 7
Interpretation and reporting on the movement of fixed assets
1.
General Ledger
No. Transaction
Account debited Account credited
e.g. Equipment Bank Bought equipment for cash
a. Vehicles Creditors Control Bought a vehicle on credit
b. Creditors Control Equipment Returned equipment to a creditor
Owner gave equipment to the

c. Equipment Capital
business as her capital contribution
Bought a building and took out
d. Land and Buildings Mortgage Bond a mortgage loan to finance the
purchase
Received a refund on defective
e. Bank Equipment
equipment returned
2. R245 000 + 525 + 2 150 = R247 675

3. c. R185 000
4. No he cannot. Although the actual value is R160 000 he only paid R85 000
for the vehicle. He will be committing fraud because he will be inflating
the vehicle in his books. According to the historical cost principle, the
asset must be recorded at its original cost not its original value. He will
not be applying double entry because his bank account will decrease
(credit) by R85 000 but he wants to increase (debit) his vehicles account
by R160 000.
5. Enter the asset in the asset register.
Insure the asset.
Safeguard the asset against theft. Fit a tracking device when buying a
vehicle, etc.
1. A book in which all asset owned by the business is recorded.

2. She will be able to refer to the fixed assets register to determine the
age of the asset. This will assist her in ensuring that the assets are being
maintained properly. The fixed asset register will also help her with
taking proper physical stock of the assets. She will know how many item
need to be in the business. This will ensure that items don’t get stolen.

3.
Column A Column B
1. Assets are recorded in the books at their E. Historical cost principle
original cost.
2. The collective amount written off D. Accumulated depreciation
against the assets cost price over a
period of time.
3. Assets which makes the administrative F. Equipment
process easy to manage
4. Assets which are bought for the purpose B. Fixed assets
of generating an income
5. The imputed expense written off against A. Depreciation
the asset’s cost price every year
4. a. Mike could face disciplinary action for taking equipment without

permission and benefiting from it financially.
b. No, the equipment does not belong to him so he cannot hire it
out and benefit from it. The equipment belongs to the company he
works for.
c. Put policies in place and explain them to staff (educate staff )
If staff use equipment for work purposes then the equipment must
be returned to a senior member of staff and record must be kept of
who took equipment.
Equipment must be kept in a safe place and only certain members of
staff must be allowed to access the equipment.
Any other reasonable answer
d. To ensure that assets are not being stolen
To ensure that they are being used efficiently and not being abused
To ensure that assets get maintained regularly and that they are in
proper working order
To check when assets need to be replaced
Accumulated
Historical cost price Carrying value
depreciation
Vehicle A R145 000 R87 000 R58 000
Vehicle B R230 000 R69 000 R161 000
Depreciation on Vehicle A – R145 000 × [10/100] = R14 500

Depreciation on Vehicle B – R230 000 × [10/100] = R23 000
R145 000  
1. a.  ________
R14 500 = 10 years (useful life)
R87 000 
b.  _______
R14 500 = 6 years (age of asset)
c. R195 000 – 161 000 = R34 000 (replacement rate of vehicle B)
2. a. The historical cost principle
b. Prudence principle
c. Assets – Liabilities = Net Worth
If the company increases the value of the building then assets will
increase, liabilities will stay the same and therefore net worth will
increase.
Teacher: Learners can use any figures to explain as long as net worth
increases.

3. Company might not need two vehicles.
They might want to replace one with a newer model.
The vehicle might be becoming too expensive to maintain.
They might want a bigger or smaller vehicle because the current one is
not meeting their needs.
Any valid answer
4. So that it can plan as to when a new asset must be bought.
It is costly for businesses to keep old, outdated assets as they become very
expensive to maintain.
Old assets damage and break easily. This can affect operational efficiency.
5. They would need to know how long they would keep an asset before
they need to replace it.
It helps in planning for the future.
They will want to get the most out of the asset, in other words the best
economic benefit for the time that they own the asset.
Activity 7.4 (baseline assessment) LB page 213
1. The cost price method was applied.

Annual depreciation is the same amount (R6 750) each year and is
calculated at 10%on the cost price.
2.  67 500
______
6 750  = 10 years
3. 1 March 2001 to 1 March 2013
= 12 years
4. Any of the reasons below:
• The business needed to upgrade and buy a newer model.
• The vehicle was old and maintenance costs could have been too high.
• The vehicle was no longer useful to the business.
5. Yes, they kept this vehicle for 12 years while the useful life was 10 years.
They made R15 000 profit on the sale of this vehicle, so it must have been
in a good condition.
1. The diminishing balance method was used.

The depreciation amount decreases from year to year and is calculated at
20% on the carrying value.
2. 1 September 2017 to 1 March 2021
= 3 _12 years
3. They could have replaced this vehicle for a newer more modern model.
The vehicle could no longer be useful to the business.
(This vehicle was only 3 _21 years old, so high maintenance costs could not
be a reason for selling the vehicle.)
4. Selling price – carrying value = profit
R75 000 – 73 728 = R1 272 profit was made on the sale of the vehicle.
5. No. This vehicle was only 3 _12 years old. Although they made a profit of
R1 272 on the sale of the vehicle, they could have kept it for much longer.
They did not make good use of this vehicle.

Fixed asset register of Tandi’s Builders Folio 7

Description: Makita bench saw
Date of purchase: 01 March 2016 Date sold: 29 February 2020
Purchased from: Tools for Africa Sold to: Peter’s Wood Works
Cost: R3 500 Sold for: R1 500 on credit
Depreciation: 10% p.a. on the diminishing balance
Accumulated
Date Depreciation depreciation Carrying value
28 February 2017 350,00 350,00 3 150,00
28 February 2018 315,00 665,00 2 835,00
28 February 2019 283,50 948,50 2 551,50
29 February 2020 255,15 1 203,65 2 296,35
2. Selling price – carrying value = loss

R1 500 – 2 296,35 = R796,35 is a loss on sale of the asset
3. The owner will be able to be more productive and manufacture more
stock items.
The business will earn more profits.
4. a. Computers will have a higher depreciation rate because they lose
value faster than vehicles.
b. Computers will be replaced more often because of rapid
technological advancements and new innovations in the computer
industry.
1. The business purchased two vehicles.

2. One was bought on credit and the other in cash.
3. They sold one vehicle on 1 September 2020.
4. They kept this vehicle for one year.
5. The vehicle probably did not meet the business’s needs.
6. It must have been traded in, because a new vehicle was purchased on
credit on the same day that the old vehicle was sold.
7. The selling price of the vehicle
General Ledger of West Manufacturing (Pty) Ltd.

Dr Asset Disposal B6 Cr
2020 2020
Sep 01 Vehicles GJ 60 000 Sep 01 Accumulated depreciation on vehicles GJ 12 000
Profit on sale of asset GJ 6 000 Creditors control GJ 54 000
66 000 66 000
8. Yes. The business had this vehicle for just one year and received only
R6 000 less than what they originally paid for it.

1. General Ledger of Mkefa Resources Ltd.

Aug 31 Equipment GJ 1 400 Aug 31 equipment GJ 780
Debtors control GJ 620
1 400 1 400
Cost price: R11 400 + 2 300 – 12 300 = R1 400

Accumulated depreciation on equipment: R3 420 + 1 230 – 3 870 = R780
2. Account debited: Depreciation

Account credited: Accumulated depreciation on vehicles
3. Effect of transaction on accounting equation

+ 62 500 0 + 62 500
4. R300 000 + 120 250 + 8 430 = R428 680 will be disclosed.

5. According to the prudence concept
Informal assessment 7.1 (challenge) LB page 216

1.
3. FIXED / TANGIBLE ASSETS
Land and
of year 1 850 000 ✔ 48 000 ✔82 960 ✔1 980 960
Cost price 1 850 000 480 000 ✔170 000 2 500 000
Accumulated depreciation – ✔(432 000) (87 040) (519 040)
Movements:
Additions ✔450 000 – ✔23 000 473 000
Disposals at carrying value – – (16 384) (16 384)
Depreciation – (47 999) ✔(16 592) ✔(64 591)
Carrying value at end of year 2 300 000 ✔1 ✔72 984 ✔2 372 985
Cost 2 300 000 480 000 143 000 2 923 000
Accumulated depreciation -- ✔(479 999) (70 016) ✔(550 015)
[14]

Calculations
(a) R2 300 000 – 1 850 000 = R450 000
(b) R473 000 – 450 000 = R23 000
(c) R2 500 000 – 480 000 – 1 850 000 = R170 000
(d) R170 000 – 87 040 = R82 960
(e) R82 960 × 20% = R16 592
(f ) R143 000 – 70 016 = R72 984
(g) R480 000 × 10% = 48 000 × 9 years = R432 000
If the vehicle is depreciated at 10% on cost and the depreciation for the
current year is R47 999 then we must have had the vehicle for 9 years.
10% on cost implies that the lifespan is 10 years.
(h) R480 000 – 423 000 = R48 000
(i) R432 000 + 47 999 = R479 999
(j) R480 000 – 479 000 = 1
2. Any asset must hold value in the books. An asset will be depreciated up
to R1 and in the last year it will not be depreciated to its full value but to
R1 below that (e.g. R47 999 instead of R48 000).✔✔ [2]
3. Asset Disposal
Equipment Accumulated depreciation on
(170 000 + 23 000 – 143 000) ✔✔✔50 000 equipment
(50 000 – 16 384) ✔✔33 616
Donation ✔✔16 384
50 000 50 000
[7]
4.1 Shareholder A did not want to sell the equipment because he is aware of
his social responsibility and felt that donating the equipment will:
Give the business a good name. ✔
They can write off the donation as a tax write off which reduces the
tax liability. ✔
The company is adhering to good corporate governance and is
socially aware.✔ [3]
4.2 Shareholder B wants to make a profit of R7 200. This will increase the
company’s income in the Income Statement, thus increasing the net
profit. Because the company will show a higher net profit the company
is more likely to be able to borrow money and will show a high return
on profits.✔✔✔ [3]
5. It would have increased operating profits and net profits on the Income
Statement. ✔ It would have increased cash and cash equivalents on the
Balance Sheet. ✔ [2]

1. Depreciation for half year on vehicle sold = R1 350 ✔

Depreciation for 1 year = R1 350 × 2 ✔ = R2 700 ✔
R2 700   
 _______ 100  
✔ ×  ___
R27 000  1
= 10% ✔ [5]
2. Fixed instalment method ✔✔

Accumulated depreciation not taken off cost price ✔✔
(Any acceptable answer) [4]
Vehicles
2016 2016
Mar 01 Balance b/d ✔ 81 000 Aug 31 Asset disposal ✔ 27 000
Balance c/d 54 000
81 000 81 000
Sep 01 Balance b/d ✔ 54 000
Accumulated Depreciation on Vehicles

2016 2016
Aug 31 Asset disposal ✔ 22 950 Mar 01 Balance b/d ✔ 38 400
Balance c/d 16 800 Aug 31 Depreciation 1 350
39 750 39 750
Sep 01 Balance b/d 16 800
2017
Feb 28 Depreciation ✔ 5 400
✔ 22 200
Carrying value on 28 February 2017

= Cost price – accumulated depreciation
= R64 000 ✔ – 22 200 ✔
= R31 800 ✔ [6]
3. Balance: accumulated depreciation 31 August 2016

(39 750 – 22 950) 16 800 ✔✔
Depreciation (10% of 54 000) 5 400 ✔✔
R22 200 ✔ [5]
4. Cost 27 000 ✔✔
Accumulated depreciation (22 950) ✔✔
R 4 050 ✔✔ [6]
5. Profit = 9 000 ✔ – 4 050 ✔✔= R4 950 ✔✔ [5]
6. Depreciation for the year = R1 350 ✔✔ + 5 400 ✔✔= R6 750 ✔✔ [6]

CHAPTER 8
Financial accounting of close corporations
1. Legal entity: The business and the owner are two separate economic
entities. The business has legal persona and in the eyes of the law it can
enter into legal agreements with other businesses.
2. Limited liability: The owners of the business with limited liability are
not liable for the debts of the business. Their personal assets cannot be
attached if the business goes bankrupt. The business is totally liable for its
own debts.
3. Members
4. Minimum of 1 and maximum of 10
5. Founding statement (CK1 form)
6. More flexible to run / easier to administer
Easier to form and less expensive to operate
Suitable for smaller businesses
Can be owned by 1 to 10 members
Legal entity
7. Close Corporations Act (69 of 1984)
8. It dissolves only when insolvent or deregistered. A CC will continue to
operate even if one of the members sells their members interest or dies.
9. An Accounting Officer
10. A CC does not have to submit audited financial statements.
Public company Close corporation
Founded by completing a _____. Memorandum of Association Founding Statement
Name of business must end with _____. Ltd. CC
Number of owners No limit 1 to 10
What are the owners referred to as? Shareholders Members
____ are responsible for the day-to-day

Directors Members
management.
Legal persona? (yes/no) Yes Yes
Continuity Unlimited continuity Unlimited continuity
Shareholders have limited liability for Members have limited liability for the
Liability of the owners
the debts of the company debts of the CC
Share of the profits is called _____. a dividend distribution to members
The company is liable for the tax on net

Taxation The CC is liable for the tax on net profit.
profit.
Must submit audited financial Is not required to submit audited
Auditing financial statements
statements to the registrar financial statements

Informal assessment 8.1 (open book assessment) LB page 229

1.1 Rent income: Crouch ✔
Salary: Owen ✔
Remuneration: Accounting officer ✔ [3]
1.2 Directors’ fees ✔ [1]
1.3 Yes, it is not a requirement for a CC to be audited but if they are
audited then they will have an expense called Audit Fees in the Income
Statement. ✔✔ [2]
2. Loans to members are an asset and interest income is earned on the
loans. A member needing money will borrow it from the CC and pay the
CC interest on the loan. ✔✔
Loans from members are a liability and the CC pays interest on the loan.
If the CC needs money it can borrow from a member and pay interest to
the member on the borrowed money. The interest is usually lower than a
bank will charge. ✔✔ [4]
3. Loans to members are a non-current asset. ✔
Members’ contributions are the capital the members contribute. ✔
Loans from members are a non-current liability. ✔ [3]
4.1 Notes 4, 8, 9, 10, 12 ✔✔✔✔✔ [5]
4.2 Notes 1, 2, 11 ✔✔✔ [3]
4.3 Notes 3, 5, 6, 7 ✔✔✔✔ [4]

CHAPTER 9
Internal control
Column A Column B
Audit procedure Description
1. Inspection C. a physical examination of records
2. Observation E. monitoring activities being performed
3. Inquiry G. asking employees questions about the duties

they perform
4. Re-performance F. re-performing tasks that have already been

performed
5. Confirmation A. verifying internal records against data

received from an external source
6. Analytical review D. includes ratio analysis, trend analysis and

comparisons with historical information and
forecasts
7. Reconciliation B. comparing two sets of similar data and
resolving the differences between them
1. Audit evidence is the information that internal auditors gather during

the course of an audit, which they use to form their conclusions and to
support their opinions and recommendations.
2. Sufficient, reliable, relevant and useful
3. a. tests of control
b. tests of detail
4. Compliance tests involve the review of internal control processes to
determine whether the controls are working as intended and are being
adhered to and applied correctly. These tests provide evidence regarding
the existence and effectiveness of the internal controls.
Substantive tests involve testing, checking and verifying the detail and
accuracy of financial and operating information. These tests provide evidence
regarding the completeness, validity and correctness of the information.
5. a. Confirmation
b. Re-performance
c. Analytical review
d. Reconciliation
e. Observation
f. Inspection
g. Inquiry
1. Because it is not feasible or practical for internal auditors to test and

check every transaction, document and record of a business

2.
Statistical sampling Non-statistical sampling
Objective approach Subjective approach
Based on mathematics Based on auditor’s judgement
Sample is expected to be representative of the Sample is not intended to be representative of

population. the population.
Audit sample is selected randomly. Audit sample is purposely biased.
Generally more time consuming and thus more Generally less time consuming and thus less
expensive. expensive.
Not appropriate for small populations Can be applied to small populations
3.
Column A: Sampling term Column B: Description
1. Population D. the entire set of items that are being considered for
testing
2. Population size C. the total number of items in the population
3. Audit sample A. the set of items selected for testing
4. Audit sample size E. The total number of items in the audit sample
5. Sample selection B. the process that is used to select the audit sample
Column A: Sampling technique Column B: Description

1. Random number sampling F. Audit sample items are selected on a completely
random basis.
2. Systematic or interval E. Audit sample items are selected using a fixed

sampling interval between selections, with a random start.
3. Stratified sampling A. A population is divided into sub-groups and then

independent audit samples are selected from
each of sub-groups.
4. Cluster sampling C. Audit sample items are selected by randomly
selecting bunches of naturally grouped items.
5. Judgmental sampling B. Audit sample items are specifically selected by

the internal auditor and are thus purposely biased
or skewed.
6. Haphazard sampling D. Audit sample items are selected at random
without following a structured or statistical
approach.
1. • T
o provide assurance on those areas where risks are being effectively
managed and controlled
• To document and highlight those areas where risk management and
control is inadequate
• To provide recommendations for improvement in those areas where
the management and control of risk was found to be inadequate

2. Management (or the audit committee or the board of directors)
3. a. The internal auditors report conveys the internal auditors’
recommendations for improvement to management and thus plays
an important role in convincing management to take action.
The internal audit report reflects the value, quality and image of
the entire internal auditing function, and is often the main source of
contact that senior management has with internal auditing.
b. An internal auditors report should:
• be prepared and issued on time
• contain information that is accurate and complete
• be clearly written, logical and easily understood
• be convincing, yet concise and to the point
• be written in an objective and constructive manner.
4. Interim reports are reports that are made during the course of the audit.
5. • Inform management of a significant finding that requires immediate
attention
• Update management on the progress of a lengthy audit
• Notify management of a significant change in the scope of the audit
1. chief audit executive

2. independent
3. appropriate, sufficient, effectively deployed
4. monitor
5. accountable
6. internal auditing
7. external auditing
8. independent contractors
9. shareholders
10. financial
11. activities audited
12. financial
13. periodically / yearly / annually
14. public
15. co-operation / collaboration
Case study 9.1 (challenge) LB page 244
1. The use of recycling material to manufacture products

The use of renewable energy
• By using recycling material they reduce their production costs.
• By using renewable energy they reduce their production and
operational costs.
• The business received free publicity because people are interested in
businesses that are environmentally conscious and that operate in a
sustainable manner.
• The sales of the business increased because people like to support
businesses that are environmentally conscious and that operate in a
sustainable manner.

3. CIA – Certified Internal Auditor
Professional body – The Institute of Internal Auditors South Africa
(IIA SA)
4. CA – Chartered Accountant
Professional body – The South African Institute of Chartered
Accountants (SAICA)
5. No. It will not be physically viable or economically beneficial to perform
such extensive testing anymore.
6. Audit sampling
7. The following are some of the points that should be included in the
report to management:
Appropriateness of internal audit resources
• Themba and Sally are both relatively inexperienced internal auditors.
• Themba has valuable experience and expertise relating to internal
control systems and procedures in a manufacturing enterprise.
• As a CA, Sally should have valuable technical knowledge and
expertise in accounting.
• However, neither has much knowledge of statistics or experience in
auditing computer-based systems.
Recommendations
The skill deficiencies relating to statistics (for audit sampling) and
auditing computer-based systems should be addressed by either:
• sending Themba and/or Sally for further training in these areas; or
• employing additional internal auditors who are suitably skilled in
these areas; or
• outsourcing these functions to an internal auditing firm with the
necessary expertise.
Sufficiency of internal audit resources
• There are only two internal auditors, which seems insufficient
for a business that has such a high volume of sales and is growing
so quickly.
• The internal auditors are already working long hours and over
weekends to complete the audit on time.
• However, the internal auditors are managing to examine and test a
reasonably large volume of documents and records.
Recommendations
• Suitable audit sampling techniques should be used in order to reduce
the volume of testing that is required.
• The business should employ more internal auditing staff as the
current internal auditors are already stretched and the business is
growing rapidly.
Effective deployment of internal audit resources
• Themba has a fair amount of experience and expertise to internal
control systems and procedures in a manufacturing enterprise, but is
mainly involved with auditing financial records.
• Sally, as a qualified CA, should have good technical knowledge
relating to accounting, but is mostly involved in assessing the
adequacy of the operational controls and procedures of the business.
Recommendations
• Based on Themba’s skills and experience, he would probably be
better suited to assessing the adequacy of the operational procedures
and controls of the business.
• Based on Sally’s expertise and knowledge, she would probably be
better suited to auditing the financial records of the business.

CHAPTER 10
Inventory systems
1. Rate of stock turnover

cost of sales 
 ___________   
average stock
 5361000 + 264 200  

= _____________________ – 47 720
    
__
 2  (192 840 + 155 430)
752 480 
= ______
 174 135 = 4,3 times per year
2. Methods to improve stock turnover (any two of the following):
• Effective advertising campaigns
• Sell items at discount prices
• Negotiate bigger discounts from suppliers and pass those discounts
on to customers
• Improve on guarantees – provide an effective after-sales service
• Sell quality products at good prices
3. Disadvantages (any two of the following):
• A lot of your cash may be tied up in the stock.
• Storage problems may occur, insurance costs on stored items might
be high.
• Storage space, which could have been used for offices, and so on, is
taken up by too much stock.
• Stock could become obsolete.
• Stock control must be effective because items received should be
dispatched (sold) first.
• High potential for stock loss/trading stock deficit (refer to the current
figure of R69 570).
4. Steps to minimise stock theft:
• Better control of documents. Get authorisation from the owner
before items can be purchased/ordered and returned.
• Division of duties (a different person ordering and another person
returning stock) – employ another worker.
• Exercise proper control/supervision over the employee.
• Do random follow-ups with creditors.
• Do unannounced/random stock counts.
5. She would do a physical stock taking and compare the outcome to the
Trading Stock account.
• She could do an internal audit on her books. Compare order forms
with delivery notes and invoices.
• She could employ an external auditing firm to do an audit for her.
6. Internal control measures:
• Control over the entrance and exit of employees
• Have security check points where the parcels of employees can be
inspected.
• Any trading stock that is not suitably documented should be
confiscated and the employees reported.
276 s e c t i o n 6 • c hap t e r 1 0

• Store detectives could be employed.
• Stock required from the storeroom should be recorded and signed for
by the store manager.
• The storeroom must be properly supervised during working hours
and locked outside working hours.
average creditors/credit purchases ×  ___365  
1
 __12  (87 500 + 62 500) 365
=  _______________
784 640  
   × ___
  1  
= ______
 78475 000 
640  
= 34,9 days
Comments
• On average, creditors should be repaid within 90 days.
• The business is repaying its creditors within 35 days.
• They are probably receiving discounts for early payment, but could
experience cash flow problems if goods are sold on credit and debtors
don’t pay on time.
• They must use the concession allowed to them by creditors and pay as
close to 90 days as possible.
8. • What the clerk was doing is theft.
• He cannot order items through the business and then take it home
for his own use.
• Lisa could reprimand him and make him pay back the amount taken
for own use.
• Lisa could lay a criminal charge against him.
• He could lose his job.
• He could go to jail.
1.
Question Perpetual Periodic
Which account is debited when The Trading Stock account is The Purchases account is
stock is purchased? debited. debited.
How is cost of sales Cost of sales determined at Cost of sales is only calculated
determined? every sale using the profit at the end of a particular
mark-up percentage. period after closing stock is
determined.
How is closing stock The balance in the Trading Closing stock amount is
determined? Stock account at the end of only determined by doing a
a period is the closing stock physical stock count.
amount.
How is stock validated at the Stock is validated by It is difficult to validate stock
end of a period? comparing the book value as in because the physical stock
the Trading Stock account and count is taken to be the closing
comparing it with the physical stock.
stock count at the end of a
period.
s e c t i o n 6 • c hap t e r 1 0 277

2.
Perpetual Periodic
Advantage Disadvantage Advantage Disadvantage
Used when a business Used when a business
sells expensive items sell a variety of
with a relatively inexpensive items
low stock turnover with a high stock
(jewellery or cars) turnover (groceries)
Bookkeeping process
complicated because
cost of sales is
calculated each time Bookkeeping process
an item is sold easy to administer
Easy to calculate stock Not easy to calculate
deficit stock deficit
Can determine the
value of stock on hand Cannot determine
at any given time by the value of stock on
checking the trading hand, only when a
stock closing balance stocktaking is done
3.
Trading account
Cost of sales 220 000 Sales 385 000
Profit and loss (Gross profit) 165 000 (140 000 + 248 150 – 3 150)
385 000 385 000
4.
Trading account
Opening stock 24 500 Sales 385 000
Purchases 211 200 Closing stock 17 200
(120 100 + 93 060 – 1 960)
Carriage on purchases 1 500
Profit and loss (Gross profit) 165 000
402 200 402 200
5.
Cost of sales
Opening stock 24 500
+ Purchases 211 200
+ Carriage on purchases 1 500
– Closing stock (17 200)
= Cost of sales 220 000
1.
Number of units on hand at beginning of year 20
+ Purchases during the financial year (25 + 13 + 21) 59
– Returns –
= Number of units available to be sold 79
– Number of units sold during the period (49)
= Number of units on hand at the end of the year 30
278 s e c t i o n 6 • c hap t e r 1 0

2.
Available Sold on hand
Beds on hand on 1 March 2019 20 –20
March 2019 25 –25
August 2019 13 –4 =9
december 2019 21 = 21
79 –49 = 30
If 30 beds are on hand then:

9 @ R900 = R8 100
21 @ R950 = R19 950
30 R28 050
Value of closing
no. opening stock Purchases Sales no. of unsold units
stock
100 @ r22 5 @ r22
1. 85 @ r20 180 @ r45 r3 610
140 @ r25 140 @25
20 @ r310
r10 @ r320
2. 30 @ r300 40 @ r320 80 @ r600 r8 150
15 @ r330
15 @ r330
19 @ r64
3. 7 @ r60 30 @ r250 10 @ r70 r700
14 @ r70
1 500 @ r14 300 @ r14
4. 3000 @ r12 4 200 @ r60 r33 100
1 700 @ r17 1 700 @ r17
Note to teacher: Calculations

When you calculate 1.
the number of items sold,
you eliminate from top to
bottom. 85 –85
When you calculate the 100 –95 = 5 @ r22
number of items on
hand, you eliminate from 140 = 140 @ r25
bottom to top. 325 –180 = 145
2.
30 –30
20 –20
40 –30 = 10 @ r320
15 = 15 @ r330
105 –80 = 25
700
3. ____
R70 = 10 units on hand
10 + 30 – 19 – 14 = 7 units at beginning of period (opening stock)
4. 3 000 + 1 500 + 1 700 = 6 200 – 300 – 1 700 = 4 200 units sold
section 6 • cHAPtEr 10 279

1. First in first out

2.
Number of caps Unit price per cap Total value
Opening stock on 1 March 2018 1 400 R35 R49 000
Total purchases  6 700  R265 200
April 2 300 R38  R87 400
July 2 600 R40  R104 000
November 1 800 R41  R73 800
Sales for the year  5 400 R75 R405 000
Calculations
 Number of caps purchased during the year:
2 300 + 2 600 + 1 800 = 6 700
 Number of caps sold during the year:

405 000
 ______
  = 5 400
 
R75
R49 000
_______
  
1 400  
= R35
 
 2 300 × R38 = R87 400

2 600 × R40 = R104 000
1 800 × R41 = R73 800
 R87 000 + R104 000 + R73 800 = R265 200
3. Number of unsold caps and the cost price of the caps on hand.
900 @ R40 each
1 400 + 6 700 – 5 400 = 2 700
1 800 @ R41 each
4. Total value of stock on hand (closing stock) on 28 February 2019.

900 × R40 = R36 000
1 800 × R41 = R73 800
2 700 R109 800
5. Cost price of the caps sold (cost of sales) for the period:
1 400 × R35 = R49 000
Caps sold = 5 400 2 300 × R38 = R87 400
1 700 × R40 = R68 000
R49 000 + 87 400 + 68 000 = R204 400
6. Gross profit on 28 February 2019:
Trading account
Cost of sales 204 400 Sales 405 000
Profit and loss (gross profit) 200 600
405 000 405 000
280 s e c t i o n 6 • c hap t e r 1 0

Unit price per

Number of TV sets Total value
TV set
Opening stock on 1 March 2018 30 R1 380 R41 400
Total purchases for the year 108 (a)R156 660
April 20 R1 450 R29 000
September (1) 45 R1 480 (b)R66 600
January 43 R1 420 (c)R61 060

Returns of defective stock bought
3 1 420 R4 260
during January
Sales for the year 59 R3 500 (d)R206 500
1. Sing Bravo TV sets bought during September:

108 – 20 – 43 = 45
2. Calculations:
(a) R29 000 + 66 600 + 61 060 = R156 660
(b) 45 × R1 480 = R66 600
(c) 43 × R1 420 = R61 060
(d) 59 × R3 500 = R206 500
3. Number of unsold TV sets and their cost price:
30 + (108 – 3) = 135 – 59 = 76 TV sets on hand
36 @ R1 480
76
43 – 3 = 40 @ R1 420
4. Total value of stock on hand (closing stock) on 28 February 2014:

36 × R1 480 = R53 280
40 × R1 420 = R56 800
76 110 080
5. Gross profit on 28 February 2015 if the company uses the periodic stock
system:
Trading account
Opening stock 41 400 Sales 206 500
Purchases (156 660 – 4 260) 152 400 Closing stock 110 080
Profit and loss (gross profit) 122 780
316 580 316 580
6. Cost price of the TV sets sold (cost of sales) for the financial year 28
February 2015:
+ Purchases 152 400
– Closing stock (110 080)
Cost of sales 83 720
7. Number of missing TV sets:

76 – 72 = 4 TV sets are missing
How could the TV sets have gone missing?
• TV sets could have been stolen.
• An incorrect amount could have been entered in the books. Too
much could have been entered into the stock records thus inflating
the purchases amount.
s e c t i o n 6 • c hap t e r 1 0 281

• Stock could have been returned and no entry could have been made.
• TV sets could have been sold and delivered and no entry was made.
• Too little TVs could have been delivered, for example, 15 were
delivered but 20 were entered into the books according to the invoice.
8. • Safeguard stock against theft.
• Ensure that there are proper internal control measures in place.
• Ensure that items are correctly entered into the appropriate journal
and that the purchase and sale of goods are properly recorded.
• Division of labour – ensure that there are different people involved
in the different aspects of stock control, for example: the person who
receives and counts the goods must not be the same person entering
the invoices into the books.
• Ensure that different people check the items received.
1. The weighted average cost per unit for the Comfy Night mattresses on
29 February 2020:
Total value of units available to be sold: R15 000 + 52 900 = R67 900
Number of units available to be sold: 20 + 59 = 79
67 900
______
  79    = R859,49 weighted average cost
2. Value of Comfy Night mattresses on hand (closing stock) as on
29 February 2020:
30 × R859,49 = R25 784,70
Teacher: Compare these results with the answer in Activity 10.3

FIFO (Activity 10.3) Weighted average
Number of items on hand 30 30
9 @ R950
Cost price per unit 30 @ R859,70
21 @ R950
Value of closing stock R28 050 R25 784,70
You can see that the value of closing stock is higher when FIFO is used.
The weighted average will be lower when the price variation between
opening and closing stock differs dramatically. In this activity the opening
stock was amount R750 and the closing stock amount was R950. This
variation affects the weighted average.
1. a. Value of closing stock on 28 February 2018:

Number of Total value of units
Purchases Returns
units available to be sold
Opening stock 65 R23 725
155 R56 875 R1 825 R55 050
April @ R350 58 R20 300 R700 R19 600
October @ R375 57 R21 375 R1 125 R20 250
February @ R380 40 R15 200 R15 200
Custom duty (155 × R15) R2 325
220 –5 R81 100
282 s e c t i o n 6 • c hap t e r 1 0

(R23 725 + 56 875 – 1 825 + 2 325) ÷ (65 + 155 – 5)
R81 100 = R377,21 weighted average cost per unit
_______
215
70 × R377,21 = R26 404,70 value of closing stock
b. Gross profit for the year ended 28 February 2018

trading account
opening stock 23 725,00 Sales 87 000,00
Purchases (56 875 – 1 825) 55 050,00 closing stock 26 404,70
custom duty 2 325,00
Profit and loss (gross profit) 32 304,70
113 404,70 113 404,70
Note to teacher: 2. 30 @ (R375 + R15) = R11 700

Custom duty of 40 @ (R380 + R15) = R15 800
R15 per unit increases the 70 R27 500
value of stock purchased
and must be added in to
the cost of the stock. 3. 70 – 67 = 3 pairs of running shoes are missing.
4. Value of the missing pairs of running shoes:

3 × R377,21 = R1 131.63
5. • Nick must maintain put better internal control measures in place.

• He must split the duties of his staff (division of duties).
• All goods received must be checked against the invoices received.
• Stock must be kept in a safe and secure environment.
• Stock must be physically checked on a regular basis.
• Proper record must be kept of stock bought and sold.
• Nick must put limited amounts of stock on the shop fl oor and
monitor the stock room access.
Note to teacher: 1. 25 × (R3 400 + R100) = R87 500

Carriage on 2. Cost of sales amount using FIFO method:
purchases of R100 per
unit increases the value Cost of sales 333 250
of stock purchased and Opening stock 160 000
must be added into the
calculation. Purchases 248 250
Carriage 12 500
Closing stock (87 500)
3. Gross profit using the FIFO method of stock valuation:
= Sales – Cost of sales
= 760 000 – 333 250
= 426 750
4.
Weighted average FiFo
closing stock r84 150 R87 500
cost of sales r336 600 R333 250
Gross profit r423 400 R426 750

a. If he uses the FIFO method he will show a higher closing stock in the
financial statements. His assets show a higher value and this higher value
will have a positive impact on the current ratio, Solvency ratio and the
Net Asset Value calculation.
His cost of sales amount will be lower thus increasing gross profit. This
will show a higher profit mark-up percentage calculation.
Because gross profit is higher, net profit will be higher so they will pay
higher taxes on their profits. However, declaring higher gross profit
shows that the business is profitable and this will attract investors.
b. No, won’t be able to manipulate the financial records in order to reflect
positive results. It is unethical and goes against the code of conduct
adhered to by SAICA.
Manipulating the figures is fraud and shows a lack of business ethic.
There is no sound accounting reason for changing the method of stock
valuation.
It is important that the financial records are consistent from one year to
the next so that financial information can be compared.
The differences are insignificant over a long period of time.
1.
No of Price per Total
Transaction Closing stock
units unit value
Watches on hand on 1 August 400 R150 R60 000
Purchase on 10 August 300 R170 R51 000
Purchase 18 August 200 R190 R38 000 70 @ R190 = R13 300
Purchase 27 August 150 R220 R33 000
140 @ R220 = R30 800
Returns on 29 August (10) R220 (2 200)
Sales for the month (830) R501 100
Watches on hand on 31 August 210 210
Closing stock:
R13 300 + 30 800 = R44 100
2.
Transaction No. of units Cost price per unit
Watches on hand on 1 August 400 @ R150 = R60 000
Purchase on 10 August 300 @ R170 = R51 000
On hand after purchase  R60 000 + R51 000
________________
    
  = R158,57
700
Cost of sales
Sales @ R590 (450)
450 × R158,57 = R71 356,50
On hand after sale 250 @ R158,57 = R39 642,50
Purchase 18 August 200 @ R190 = R38 000
On hand after purchase 39 642,50 + 38 000
 ________________
    
  = R172,54
450
Cost of sales
Sales @ R620 (380)
380 × R172,54 = R65 565,20
On hand after sale 70 @ R172,54 = R12 077,80
Purchase 27 August 150 @ R220 = R33 000
Returns on 29 August (10) @ 220 = R2 200
On hand after purchase 12 077,80 + 33 000 – 2 200
_______________________
           = R204,18
210
Watches on hand on 31 August 210 @ 204,18 = R42 877,80 (closing stock)
From the calculation above: 210 @ R204,18 = R42 877,80
284 s e c t i o n 6 • c hap t e r 1 0

3.
FiFo Weighted average
closing stock r44 100 r42 877,80
r60 000 + r51 000 + (130 × r190) r71 356,50 + r65 565,20 =
cost of sales
R135 700 R136 921,70
r501 100 – r136 921,70 =
Gross profit r501 100 – r135 700 = R365 400
R364 178,30
r135 700
________ 136 921,70
__________
Average stock r52 050 51 438,90
turnover rate
2,6 times per month 2,7 times per month
Rate of stock Sales for the month: R265 500 + 235 600 = R501 100
turnover:
Cost of sales
________ Recommendations for each method
Average stock
= _____ times per FiFo method
month/year • Easier to administer
Average stock: • Shows better results on the fi nancial statements
Opening stock + closing
• Closing stock and gross profi t higher.
stock ÷ 2 • Will make sure that stock does not expire or get old because the stock
bought first will be sold first.
• No real diff erence made in rate of stock turnover.
• The method chosen depends on the business industry and the type of
product sold.
Weighted average method

• Closing stock is based on a weighted average cost price.
• If prices diff er substantially then the average will be aff ected by the
price gap.
• When prices don’t diff er substantially there is no real diff erence in
cost price.
• Easy to administer except when perpetual stock system is used.
• Lower gross profi t so less tax will be paid on net profi t.
Marks: 30 time: 15 minutes
1. Number of bags sold during the year:

R150 000 ✔ = 600 bags ✔
__________ [3]
250 ✔
2.1 Number of bags that went missing:
240 + 575 – 15 = 800 (units available to be sold) ✔
800 – 600 (sales) = 200 closing stock according to the books ✔
200 – 180 (stock taking) = 20 bags were stolen ✔
Value of missing bags:
20 × R115 = R2 300 ✔✔ [5]
Entry to be made in books:
2.2 Debit: Stock loss ✔
Credit: Purchases ✔ [2]

3. 25 × R110 = R2 750 ✔✔
175 – 20 (stolen bags) ✔ 155 × R115 = R17 825 ✔✔
180 R20 575 Closing stock ✔✔[7]
4.1 Cost of sales:

240 × R95 = R22 800 ✔
210 × R100 = R21 000 ✔
190 – 12 – 25 = 150 × R110 = R16 500 ✔
600 60 300 ✔ [4]
4.2 Gross profit on 28 February 2017:

Sales R150 000 ✔
Cost of sales (R60 300) ✔
Gross profit R89 700 ✔ [3]
5. Number of days the remaining stock will be on hand:

365  ✔✔
21 688 ×  ___
 ______
60 300  1
131 days / 4,3 months ✔✔
Layla will have to buy more stock during June 2017 ✔ because she
will run out of stock during July 2017. ✔ [6]
Marks:30Time: 15 minutes
Units Price per unit Total value

Sales 5 600 R18,50 R103 600
Opening stock (includes carriage) 300 5,20 R1 560
Purchases 5 950 R34 060
March 2018 3 575 R5,60 R20 020
October 2018 1 050 R5,80 R6 090
January 2019 1 325 R6,00 R7 950
Carriage on purchases 50 cents R2 975
Damaged mugs written off 30 R6,00 R180
Closing stock 620 ? ?
1. 5 950 ✔ – 3 575 ✔ – 1 325 ✔ = 1 050 ✔ [4]
2. R1 560 + (34 060 – 180) + 2 975 = R38 415

(value of goods available for sale) ✔✔
300 + (5 950 – 30) = 6220 (number of units available for sale) ✔
38 415  
 ______
6 220
= R6,18 (weighted average cost per unit) ✔✔
620 × R6,18 = R3 831,60 (closing stock) ✔ [6]
286 s e c t i o n 6 • c hap t e r 1 0

3. Gross profit calculation:
trading account
opening stock ✔ 1 560,00 Sales ✔ 103 600,00
Purchases (34 060 – 180) ✔✔ 33 880,00 closing stock ✔ 3 831,60
carriage on purchases ✔ 2 975,00
Profit and loss (gross profit) ✔ 69 016,60
✔ 107 431,60 ✔ 107 431,60
[9]
4. Opening stock + (purchases – stock written off ) + carriage on purchases

– closing stock ✔
R1 560 + (R34 060 – R180) + R2 975 – R3 831,60 = R34 583,40 ✔✔ [3]
5. Mark-up percentage:
69 016,60
________ 100
___
34 583,40 ✔ × 1 ✔
= 199,6 % (Profit is almost double the cost price) ✔ [3]
Note to teacher:
6. Average stock turnover rate:
Profit mark-up % 34 583,40 ✔✔
___________________
Gross profit ___ 1 (1 560 + 3 831,60) ✔✔
__
_______ × 100 2
Cost of sales 1
= 12,8 / 13 times per year ✔ [5]
Marks: 20 time: 10 minutes
1. Yes , Mary does the ordering. ✔

Kavish checks the items received and compares the delivery note with
the invoice. ✔
Mary captures the invoice on computer. ✔
Sibu checks Mary and Kavish’s work. ✔
Nigel unpacks the goods and marks them with the selling price and
oversees the stocktaking process. ✔
I believe that enough was done to divide the stock process.
(any four marks) [4]
2.
office desks
units received
units ordered units entered units sold number of units as per
by Kavish as
Stock item by Mary as on by Mary into as per sales units on hand physical stock
on the delivery
the invoice the books invoices as in the books taking
note
office desks 50 49 49 32 17 18
According to Nigel there are 18 offi

ce desks on the shop fl oor but according
to the books there are only 17. Mary ordered 50 desks but according to
Kavish only 49 arrived, however, the extra desk did arrive and it was picked
up during stocktaking that it had arrived. ✔✔

Filing cabinets
Units received
Units ordered Units entered Units sold Number of Units as per
by Kavish as
on the delivery
note
Filing cabinets 250 240 250 205 35 35
According to Mary 250 cabinets were ordered but according to Kavish only
240 were delivered. Mary entered 250 in the books even though only 240
arrived. ✔✔
Boardroom tables
Units received
Units ordered Units entered Units sold Number of Units as per
by Kavish as
on the delivery
note
Boardroom
55 60 55 35 25 25
tables
According to Mary 55 tables were ordered but according to Kavish 60 were

delivered. According to the sales invoices and the physical stock records 60
tables were delivered. ✔✔ [6]
3. Kavish and Mary are not doing their jobs properly neither is Sibu who is
supposed to check their work. ✔✔
Recommendations:
Take disciplinary action against Mary, Kavish and Sibu.
Nigel is the store manager should take responsibility for the problem.
Get an external auditor to check the books and resolve the problems. [6]
(Any two ✔✔)
4. Sibu is not doing his job correctly. ✔✔ [2]
5. Account debited: Trading Stock Deficit ✔
Account credit: Trading Stock ✔ [2]
288 s e c t i o n 6 • c hap t e r 1 0

CHAPTER 11
Reconciliations
1. No. Any two of the following reasons:

• The dishonoured cheque on 21 March
• The goods returned on 20 March
• The debtor owes more at the end of the month than at the beginning
of the month.
• His opening balance is due since 1 February. He is not paying his
account regularly.
2. The debtor did not pay his account promptly.
3. Discourage
They have not yet paid up the previous month’s balance. They have
30 days in which to settle their debts and they have not.
4. • He is a bad payer.
• Advise them not to sell to him until he has settled his debt in full.
• He buys for R975 and then returns almost half of the items bought
(R450).
5. By charging interest on overdue accounts
Don’t sell anything to the debtor unless the account is settled.
6. R2 550 × ___100  = R1 500
 170
• The drawer had not signed the cheque.
• The amount in words does not match the amount in figures.
• The debtor is deceased or insolvent.
• The cheque is post-dated.
8. (R2 550 – 450) = 2 100 × ___ 3    = R63 (He will only qualify for a discount
 100
on the amount that is settled within 30 days.)
9. • To show the individual transactions with its various debtors and to
determine which debtor owes what amount (individual balances)
• A Debtors List will be drawn up from the individual balances and
this total will be compared with the balance in the Debtors Control
account.
10. • Send out regular statements.
• Make telephone calls to debtors who are outstanding for more than a
month.
• Don’t sell to the debtor unless he settles his account.
• Reduce his credit limit.
• Hand him over to a collection agency.
• Charge interest on the overdue account.
1. Any four of the following (or any other acceptable item):

• trading stock
• stationery
• repairs
s e c t i o n 6 • c hap t e r 1 1 289

• equipment
• packaging material
2. The owner could have purchased something on credit for his personal
use, or he could have had a repair done on credit for his personal use.
3. Any three of the following:
• interest paid
• transfer of account
• correction of error
4. The following two reasons:
• Discount received is included in the Creditors control column and
therefore is already posted.
• Discount received is a non-cash item.
5. R76 600 × ___ 4    = R3 064
 100
R76 600 – 3 064 = R73 536
6. A duplicate debit note
7. Any one of the following (or any other physical item bought on credit):
• trading stock
• stationery
• equipment
• packaging material
8. Any one of the following:
• I would compare the balance to the Creditors List.
• I would add all the final amounts in the Creditors Ledger.
9. Liability
10. • All invoices must be checked against the delivery notes and order forms.
• Division of labour
• Pay accounts regularly and on time.
• Reconcile the Creditors List to the Creditors Control account.
• Reconcile the creditor’s ledger account to the statement received
from the creditor.
Suggested answers
• Expenses could have been too high. That is why, although his sales
increased, his net profit decreased.
• Theft of stock could have taken place that is why his trading stock deficit
increased by 25%. Another reason for such a high deficit is that goods
could have been marked incorrectly (selling price) or there was no proper
control of his purchases documents.
• Debtors are not paying, therefore his bad debts increased.
• He is paying his creditors too soon. On average debtors are taking 50
days to pay while creditors are being paid within 35 days, although they
receive a discount. This could cause cash-flow problems.
• His stock turnover has slowed down. This could cause problems with his
perishable stock (food items should not be kept for too long). Stock could
go old and perish, which will lead to a loss in income.
Recommendations
• Have the accountant point out expenses which could be reduced.
• Implement better control measures around stock. Install surveillance
cameras to detect theft. Do more regular stock counts. Implement
stricter measures around staff access to stock. Ensure that the stock
controller is documenting the purchase and sale of stock correctly.
290 s e c t i o n 6 • c hap t e r 1 1

Regarding debtors, creditors and stock:
• Send out regular reminders. Contact debtors who owe money for more
that two months. Do thorough credit checks before allowing credit to
debtors. Do not sell to them unless they have paid you. Allow incentives
such as discounts for early payment and charge interest for late payment.
• Do not pay creditors so soon. It is good to maintain a good credit record
with creditors, buy try to negotiate a better credit payment period.
• In order to increase the rate of stock turnover, the business could have
a sale in order to attract more people to the store. Advertise more and
improve on customer service.
General Ledger of Hyper Fitment Centre

Dr Debtors Control Cr
2012 2012 Bank and discount allowed
Apr 01 Balance b/d 30 200 Apr 30 (62 548 + 2 500 – 320) CRJ 64 728
30 Sales (59 920 – 5 580) DJ 54 340 Debtors allowances (2 884 – 200) DAJ 2 684
Bank (R/D) CPJ 1 500 Journal credits GJ 556
Journal debits GJ 140 Balance c/d 18 212
86 180 86 180
2012
May 01 Balance b/d 18 212
Debtors List on 30 April 2012

Debtor Debit Credit
D Kempte (13 025 – 5 580) 7 445
O Miller (–260 + 520) 260
T Charamba (7 884 + 890) 8 774
N Naiker (4 233 – 2 500) 1 733
Total 18 212
No. Debtors Control account Debtors List

Debit Credit Debit Credit
1. 136 – Kwela 136 – Kweleta
2. 700 – Debtors list
3. 160 – Sales
4. 500 – Sales 500 – V Vuthela
5. 200 – Journal debits 200 – S Voss
6. 90 – Y Vye
7. 720 – P Prickly
8. 50 – P Leo
9. 200 – Journal debits 200 – Z Wizmann
10. 135 – Bank (R/D) 150 – A Adven
15 – Journal debits
s e c t i o n 6 • c hap t e r 1 1 291

Dr Creditors Control Cr
2013 Bank and discount received 2013
Apr 30 (99 120 – 130) CPJ 98 990 Apr 01 Balance b/d 23 590
Sundry returns (1 540 + 185) CAJ 1 725 30 Sundry purchases (101 000 – 240) CJ 100 760
Journal debits GJ 408 Bank (refunds) CRJ 280
Balance c/d 23 697 Journal credits (150 + 40) GJ 190
124 820 124 820
2013
Creditors List
Incorrect balance: R23 986
– R54
+ R40
– R90
– R185
R23 697
Transaction Creditors Control Creditors List

Example + 700
When the Creditors List was added up a casting error
occurred resulting in the total of the creditors list being
under cast by R700.
Provisional balances at the end of the month 116 910 91 805
1. When the Creditors List was added up a casting error – 1 000
occurred resulting in the total of the Creditors List
being overcast by R1 000.
2. A purchase made from Cyber Computers for R6 200 + 6 200 + 6 200
was not recorded into the books at all.
3. A return of stock to MyStock Stores, R1 650, was + 4 860
recorded in the Creditors Allowances Journal but was
posted as R6 510 to the account of MyStock Stores in
the Creditors Ledger.
4. The bookkeeper credited the total of the Creditors + 17 520
Control column in the Cash Payments Journal to the
Creditors Control account by mistake, R8 760
5. An amount in the Creditors Control column of the + 3 725
Creditors Journal was not posted to the account of Big
Music Store in the Creditors Ledger, R3 725
Amended balances after adjustments and corrections 105 590 105 590
1. It means that the debtor whose amount is current bought during the
statement month, for example, if the statement month is June then the
current amounts are sales to debtors during June.
2. It means that it has been 90 days since the month during which they
bought the goods, for example, Mpikanisi Builders bought during June
2016. During June balance would be current, during July their balance
would be 30 days old and during August their balance would have been
60 days old.
292 s e c t i o n 6 • c hap t e r 1 1

3. Javu Roofing Contractors and Masinge Plumbers. They are both within
the 60 days that the business gives them to settle their debt.
4. Mpikanisi Builders
5. R10 600 × 12% × __ 3   = R318
 12
6. R10 800 × 96% = R10 368 (100 – 4 = 96%)
7. No they don’t because 38,84% of their debt is overdue. Debtors are given
60 days in which to settle their debts and R14 380 has not been collected
within the prescribed time. Of the 38,84% that is overdue, 28,63% is
outstanding for 90 days or more which means that this amount will be
handed over to the attorneys.
8. • Send out regular reminders to debtors.
• Charge interest on overdue accounts.
• Make sure that debtors know that they will be handed over to the
attorneys if they do not pay their account on time, which could result
in them being blacklisted.
• Provide incentives by giving discounts on early payment.
• Have a preferential Debtors List and give them extra discount on
purchases because they keep their accounts up to date.
9. Yes, Mpikanisi Builders. They could face possible blacklisting if they do
not settle their debt with the attorneys.
10. No, they have an amount that is overdue for more than 60 days. They are
not conducting their account well and unless they bring it up-to-date they
will not be allowed further credit.
1. The Debtors Age Analysis is drawn up so that the business can have a
global overview of their debtors’ outstanding balances.
2. • Which debtor owes what amount and for how long
• Which debtor needs to be given a discount, charged interest or
handed over to the attorneys for collection
• To monitor debtors’ purchasing habits and how much of their credit
limit they have accessed
• To be able to determine what percentage of debtors is current or
overdue over the ageing schedules period.
3. T Abrahams and G Smith
4. • T here should be policies in place that monitors the approval of
credit to customers.
• When a customer applies for credit, a background credit check
must be done in order to check on the customer’s past credit track
record.
• The debtors clerk must send out regular statements to debtors.
Interest must be charged on overdue accounts.
5. M Naidoo and B Mtsi
1. The following can be determined:

• How long debtors’ accounts are overdue
• On which debtors’ accounts interest must be charged and for what
period
• Which debtors must be allowed discounts for early payment
• Which debtors must be handed over to the attorneys
• Which debtors are keeping their accounts up to date.
s e c t i o n 6 • c hap t e r 1 1 293

2. R18 948
3. T Charamba
4. Since December 2017
5. No, they are allowing too many debtors to be in arrears. Of the five
debtors, only one is up to date.
6. R4 065 + 3 322 + 1 620 = R9 007
9 007
 ______
18 948   × 100 = 47,53%
48% of debtors are overdue.
7. Any one of the following:
• Charge a higher percentage interest on overdue accounts.
• Send out regular reminders to debtors whose accounts are overdue.
8. Check:
• the CRJ and duplicates of receipts for January
• the debtors age analysis at the end of December
• N Naiker’s account in the Debtors Ledger for December and January
in order to verify his outstanding balance.
9. Yes, C Mobara. His account is overdue by more than 90 days.
This means he could be blacklisted.
10. R3 125 × ___ 5    = R156,25
 100
1.–2.
Creditor Ledger of Lebo’s Boutique
Milly’s Clothing Wholesalers
Date Details Fol. Debit (–) Credit (+) Balance
2019
June 30 Incorrect balance b/d 20 029
Invoice no. 345 (4 920 – 4 290) GJ 630 19 399
Correction of invoice no. 134 GJ 2 887 16 512
Interest on overdue account GJ 12 16 524
3.
Lebo’s Boutique
Creditors’ Reconciliation Statement of Milly’s Clothing Wholesalers
Description Debit (+) Credit (–) Balance
Balance as per statement on 29 June 16 102
Discount not recorded on statement 1 055 15 047
Correction of invoice no. 396 (4 090 – 3 681) 409 14 638
Invoice no. 401 not recorded on statement 1 886 16 524
4. Internal control and business ethics questions:

a. Scenario 1
• Segregation of duties (division of labour) – the bookkeeper should
not do so many tasks with regards to creditors. Different people must
perform the various tasks.
• Internal audits – the business must employ and internal auditor to
check and verify transactions.
• Do regular checks of the invoices, delivery notes and order forms
prevent theft or fraud.
• Regularly check the Creditors Ledger against the creditor’s statement.
294 s e c t i o n 6 • c hap t e r 1 1

b. Scenario 2
This is theft. Milly’s wholesalers will realise that six dresses were
delivered and charge Lebo for the additional dress. She should have
sent the sixth dress back so that Lebo does not get charged for it. She is
acting unethically and is ruining good customer relations between Milly
and Lebo. The bookkeeper must return the dress to Milly together with
a debit note acknowledging that too much stock was received.
Creditor Ledger of SMS Stores

BBM Traders
Date Details Fol. Debit (–) Credit (+) Balance
2019
July 30 Incorrect balance b/d 12 120
Correction of invoice no. 1246
(4 350 – 3 450) GJ 900 11 220
Discount cancelled GJ 1 250 12 470
Interest on overdue account GJ 156 12 626
Correction of error GJ 600 12 026
Correction of credit note no. 1032 (370 × 2) GJ 740 11 286
Trade discount allowed not recorded GJ 800 10 486
SMS Stores
Creditors Reconciliation Statement of BBM Traders
Description Debit (+) Credit (–) Balance
Balance as per statement on 26 July 13 886
Invoice no. 1248 to be recorded 2 000 15 886
Cheque no. 834 not on statement 5 000 10 886
Debit note no. 682 not on statement 400 10 486
Neutt Suppliers
Creditors Reconciliation Statement of Thaver Stores
Balance as per statement on 29 October received from Thaver Stores 3 650 debit
Invoice no. 234 not reflected on statement +2 150
Discount not reflected on statement –230
Correction of credit note no. 76 (380 × 2) –760
Debit note no. 34 in ledger account not reflected on statement –120
Payment in Ledger account not reflected on statement –1 120
Balance as per the account of Thaver Stores in the Creditors Ledger of
Neutt Suppliers on 31 October 3 570
s e c t i o n 6 • c hap t e r 1 1 295

1.
Column A Column B
1. Post-dated cheque H. A cheque dated for a date in the future
Fees charged by the bank for administering
2. Bank charges L.
the business’s banking account
Cheque that was issued but has not yet
3. Outstanding cheque F.
presented for payment by the payee
A statement which contains the amounts
4. Bank Reconciliation Statement A. which appear in the CRJ and CPJ but not on
the current bank statement
5. Stale cheque J. A cheque that is older than six months
Permission given to a third party to access
6. Debit order B.
money in the business’s account
A deposit that is not on the current bank
7. Outstanding deposit I.
statement but appears in the CRJ
A cheque that has been returned to the
8. Dishonoured cheque K.
business’s bank and which is unpaid
Permission given to the business’s bank to
9. Stop order C.
pay a third party
Money that is put directly into the business’s
10. Direct deposit E.
account by someone who owes them money
A statement received from the bank which
11. Bank statement D.
details the business’s transaction with them
A facility whereby the business can use
12. Bank overdraft G. more money than they have in their current
banking account
2.1 A favourable (positive) balance on the bank statement is shown as a

credit balance on the Bank Reconciliation Statement.
2.2 A favourable balance in the bank account is shown as a debit on the Bank
Reconciliation Statement.
2.3 An overdrawn (unfavourable) balance on the bank statement is shown as
a debit balance on the Bank Reconciliation Statement.
2.4 An overdrawn balance in the bank account is shown as a credit on the
Bank Reconciliation Statement.
2.5 On the bank statement all deposits are credited and all payments are
debited.
2.6 On the bank account all deposits are debited and all payments are
credited.
3.
No. Item Procedure
3.1 A stale cheque Cancel in the CRJ
3.2 A post-dated cheque received No entry in the CRJ. Enter in the post-dated
cheque register.
3.3 A post-dated cheque issued Enter in the CPJ and BRS
3.4 A dishonoured cheque Cancel in the CPJ
3.5 Entries appearing on the bank statement Enter in the CRJ
but not in the CRJ
3.6 Entries appearing on the bank statement Enter in the CPJ
but not in the CPJ
3.7 Entries appearing in the CRJ but not on the Enter on the BRS in the credit column
bank statement
3.8 Entries appearing in the CPJ but not on the Enter on the BRS in the debit column
bank statement
296 s e c t i o n 6 • c hap t e r 1 1

4. • T he drawer (person issuing the cheque) has no money in his/her
account.
• There is an error on the cheque.
• The cheque was not signed.
• The cheque has the incorrect date on it or it was post-dated.
• The drawer has deceased and his/her account has been closed.
Any other acceptable answer
5. The bank statement reflects our transactions with the bank and is
an important external document used to confirm the accuracy of
transactions recorded in our cash journals and the balance in our banking
account.
Reconciling the bank’s records with our records results in the business
having a more realistic reflection of its money available and as a result the
business can plan its spending better.
6. • Outstanding deposits
• Cheques not yet presented for payment
• Errors on the bank statement
• Errors in the cash journals
• Stale cheques
• Dishonoured cheques
• Items not in journals but on bank statement which needs to be
updated into the journals
1.–2.
Liberty Ltd.
Bank Reconciliation Statement on 31 May 2020
Debit Credit
Debit balance as per bank statement 5 000
Credit outstanding deposits 3 960 ✔
Debit outstanding cheques:
no. 54 580
no. 126 2 080
no. 127 2 240 ✔
no. 130 3 900
Credit balance as per bank account 9 840
13 800 13 800
Cash Receipts Journal of Liberty Ltd. for June 2020

Doc Day Details Analysis Bank Debtors Discount Sales Cost of Sundry accounts
no. of receipts control allowed sales
Amount Details
✔ 01 Sales 3 480 3 480 1 260
07 S Williams 3 520 7 000 ✔ 3 600 80
Rent
08 15 T Mbewu 1 420 1 420 income
✔ Sales 3 460 4 880 ✔ 3 460 1 120
✔ 22 Sales 6 500 6 500 3 090
09 T Ramsamy 600 7 100 ✔ 625 25
✔ 30 Sales 4 600 4 600 4 600 1 860
23 580 4 225 105 18 040 7 330 1 420
s e c t i o n 6 • c hap t e r 1 1 297

Cash Payments Journal of Liberty Ltd. for June 2020
Doc Day Details Bank Debtors Discount Sales Sundry accounts
no. control allowed
Amount Details
131 02 PNA Stationers 2 400 ✔ 2 400 Stationery
Brook Transport
132 08 Company 600 ✔ 600
133 08 Smart Suppliers 13 000 ✔ 13 000
134 14 Telkom 740 ✔ 740 Telephone
135 18 Mkefa Wholesalers 2 440 2 500 60
136 22 DJ Suppliers 2 240 ✔ 2 240
137 28 Cash 400 ✔ 400 Drawings
138 29 Reliable CC 2 650 2 780 130
24 470 13 600 7 520 190 3 540
ABBA BANK
Liberty Ltd. National Building
18 Brooke Road Johannesburg
Boksburg 5000
2120
For period: 01/06/2020 – 29/06/2020
Bank statement
Current account Account number 1 9550 2364 8
Details Debit Credit Date Balance
Balance 01/06 –5 000,00
Deposit 3 960,00 ✔ 01/06 –1 040,00
Cheque 127 2 240,00 ✔ 01/06 –3 280,00
Deposit 7 000,00 ✔ 02/06 3 720,00
Cheque 131 2 400,00 ✔ 03/06 1 320,00
Direct deposit – from A Brown, settlement of account 4 200,00 03/06 5 520,00
Cheque 132 600,00 ✔ 10/06 4 920,00
Deposit 4 880,00 ✔ 16/06 9 800,00
Cheque 134 740,00 ✔ 16/06 9 060,00
Interest 19,00 20/06 9 041,00
Deposit 7 100,00 ✔ 23/06 16 141,00
Cheque 126 2 800,00 23/06 13 341,00
Cheque 136 2 240,00 ✔ 25/06 11 101,00
Cheque 133 13 000,00 ✔ 25/06 –1 899,00
Dishonoured cheque – T Mbewu (for rent income) 1 420,00 25/06 –3 319,00
Debit order – to Sanlam for insurance premium 850,00 27/06 –4 169,00
Debit order – to Liblife for owners personal insurance 475,00 27/06 –4 644,00
Interest 24,00 28/06 –4 620,00
Cheque 1835 355,00 28/06 –4 975,00
Stop order – to ABBA Bank for loan repayment 2 500,00 29/06 –7 475,00
Cheque 137 400,00 ✔ 29/06 –7 875,00
Service fees 180,00 29/06 –8 055,00
Cash handling fee 18,00 29/06 –8 073,00
Interest 10,00 29/06 –8 083,00
Direct deposit – from T Mbewu for the rent for June 1 420,00 –6 663,00
298 s e c t i o n 6 • c hap t e r 1 1

3.
Cash Receipts Journal Cash Payments Journal
Details Amount Details Amount
Total b/d 23 580 Total b/d 24 470
Debtors control 4 200 Interest (19 + 10) 29
Creditors control – correction of cheque
Interest on current account 24 no. 126 (2 800 – 2 080) 720
Rent income 1 420 Rent income 1 420
Creditors control 580 Insurance 850
Drawings 475
Loan: ABBA Bank 2 500
Bank charges 198
29 804 30 662
4. Balance as per the bank account

–R9 840 + 29 804 – 30 662 = –R10 698
5.
Bank Reconciliation Statement of Liberty Ltd. at 30 June 2020
Debit Credit
Credit outstanding deposits 4 600
no. 130 3 900
no. 135 2440
no. 138 2 650
Credit incorrect debit on bank statement 355
15 653 15 653
Catz cc
Bank Reconciliation Statement on 31 May 2013
Debit Credit
no. 551 140
no. 661 312
no. 662 494
Credit incorrect deposit 880
Credit amount incorrectly debited 600
5 336 5 336
s e c t i o n 6 • c hap t e r 1 1 299

1.
Bank Reconciliation
Explanation of the differences found: CRJ CPJ Statement
Debit Credit
1. A deposit of R22 100 appeared on the bank statement on No entry because this deposit appears in the BRS for March
1 April but not in the CRJ. 2019 and is no longer outstanding
2. A deposit of R24 000 appeared in the CRJ on 30 April but not
✔
on the bank statement.
3. A direct deposit from a debtor for R1 760 in payment of her
✔
account appeared on the bank statement only.
4. Bank charges of R260 appeared on the bank statement only. ✔
5. The bank statement reflected a dishonoured cheque of R890. ✔
6. Cheque no. 652 n the BRS for March was issued on 16 October
✔
2018. This cheque is stale and must be cancelled.
7. Cheque no. 867 which was issued on 18 February 2019 and
No entry because these cheques appeared on the BRS for
cheque no. 924 dated 5 April appeared on the bank statement
March and have been presented for payment.
but not in CPJ.
8. Cheque no. 920 appears on the BRS for March and not on the
✔
bank statement for April.
9. The following cheques, issued to creditors, appeared in the
CPJ and not on the bank statement:
✔
no. 930 for R2 450 dated 13 April 2019
no. 931 for R860 dated 10 May 2019
2. It is important to prepare the bank statement each month so that

discrepancies can be resolved as soon as they arrive. Transactions also
take place directly between the bank and business clients / suppliers
so it is important that the business detects these deposits, stop orders
and debit orders. The bank also deducts from and adds amounts to our
account and we have to acknowledge those transactions in our books.
The bank reconciliation process will also reveal outstanding deposits and
cheques not presented for payment.
3.
Bank Reconciliation Statement of Osizweni Bakery for April 2019
Credit balance as per the bank statement 3 200
no. 920 1 375
no. 930 2 450
no. 931 860
Balance as per the bank account 22 515
27 200 27 200
4. The value of the cheque will be:

added back to the bank in the Cash and cash equivalents note
added back to creditors control in the Trade and other payables note.
1. Cheque no. 212 for R620 and dated 12 September 2018. This cheque is
stale and expired on 12 February already. It must be cancelled in the CRJ.
2. Credit – Debits
R9 820 + R215 – R6 155 – R230 – R1 390 – R765 = R7 650
The stale cheque must not be considered because it must be cancelled.
3. Overdrawn
300 s e c t i o n 6 • c hap t e r 1 1

4. The value of the cheque will be:
• added back to the bank in the Cash and cash equivalents note
• added back to creditors control in the Trade and other payables note.
5. Because cheque no. 432 is legal tender and according to the GAAP
principal of matching the payment must be matched to this financial year
because it is legal tender in this financial year.
Cheque no. 441 will only become legal tender on 31 March and therefore
the payment will only take place in the following financial year so the
payment must be matched to the next financial year.
6. It is an incorrect debit so money was deducted from our account. They
could have debited someone else’s cheque against out account. A debit
order could have been incorrectly debited against our account. They could
have deducted too much bank charges or interest from our account, etc.
7. Hold it over in the BRS for April.
8. This money was received and deposited, but only after the bank had
drawn up the bank statement. This deposit should appear on the bank
statement for March.
9. It should appear on the bank statement and no further entries should
be made.
10. This is a post-dated cheque received and it should not be entered into
the books at all. This cheque was entered into the post-dated cheques
received register and will only be entered into the CRJ when it becomes
legal tender on 15 March 2019.
General Ledger of Joe’s Wholesale Store

2014 2014
Feb 01 Balance (42 740✔ – 1 440✔) b/d 41 300 Feb 28 Bank and discount allowed CRJ ✔ 57 120
Debtors allowances
Sales DJ ✔ 65 324 (2 000 ✔ – 40 ✔) DAJ (✔) 1 960
Bank (R/D) CPJ ✔ 600 Journal credits GJ ✔ 1 060
Journal debits (1 680✔ + 1 280✔) GJ (✔) 2 960 Balance c/d ✔ 50 404
Petty cash PCJ ✔360
110 544 110 544
2014
Mar 01 Balance b/d (✔) 50 404
[15]
Debtors List on 28 February 2014

Debtors Debit Credit
S Ntshingila 14 988
H Brits (10 760 ✔ – 200✔✔) 10 560
N Klaver (11 456 ✔ + 360 ✔) 11 816
D Balfour (9 040 ✔ – 800 ✔) 8 240
G Shaban (3 870 ✔ – 270 ✔✔) 3 600
E Bosch (–1 280 ✔ + 1 280 ✔) –
M Zwane (1 600 ✔ – 400 ✔✔) 1 200
Total (✔) 50 404
[16]
s e c t i o n 6 • c hap t e r 1 1 301

The following are suggested answers only. Use them as guidelines to assess
the report.
The rubric that follows after the answers may be used to allocate the marks.
1. No, R19 626 is still owed by debtors. Of this, R12 876 is two months
overdue. Debtors should pay within 30 days, but this does not seem to
be the case. On the whole, most debtors are taking more than 30 days
to settle their accounts. Creditors are being paid on time because no
amount is overdue for more than 90 days. This would mean that the
business qualifies for discounts and is not paying interest on overdue
accounts. The business retains its creditworthy status.
2. Suggestions should include the following:
• Send out regular reminders to debtors.
• Tighten up the credit sales policy and debt collection policy.
• Do thorough background credit checks on all new customers
wanting to buy on credit.
• Do not sell to customers who are overdue until their debt is repaid.
• Charge a higher percentage interest on overdue accounts.
3. The following measures could be taken:
• Improve customer relations with debtors.
• Find out why debtors are overdue.
• Check whether the inventory being sold is of a good quality and
whether debtors are experiencing any problems in this regard.
4. No, they should also rely on cash sales and perhaps have a higher
percentage cash sales than credit sales.
5. Use the following guidelines when assessing the letter:
• The structure of the letter must be formal, that is, a formal business-
like writing style must be used (check with a colleague from the
Languages department of your school).
• The letter must be persuasive and encourage the debtor to pay his/
her account.
• The letter must not contain any threatening language.
• It must outline the details of the debt as well as measures to be taken
if the debt is not settled.
• It must be completed on a company letterhead, which the learner
should have designed. Evaluate the design for creativity, neatness,
detail (name of company, address and all relevant contact details,
and so on).
302 s e c t i o n 6 • c hap t e r 1 1

Assessment rubric for written report
Criteria Inadequate Partial Adequate Satisfactory Meritorious Outstanding Marks
Marks 1 2 3 4 5 6
Could
Could Very good Excellent
Could not Could partially interpret the
Interpreting the generally interpretation interpretation
interpret the interpret the information,
information interpret the of the of the
information information but lacked
information information information
detail
Could analyse Could analyse; Could
Analysing the Could not Could Could
information made good analyse; made
information analyse or analyse but analyse; made
and suggest; suggestions; excellent,
and making make any suggestions only a few
motivation sound well-motivated
suggestions. suggestions lacked detail suggestions
lacked detail motivation suggestions
Giving advice to Could not give Advice given, Advice Could advise; Very good Excellent
the owner advice but not valid adequate lacked detail advice advice
Tried to
Could not Found it hard Good, could Very good, Excellent,
Stating own express own
express own to express own express own opinion shows opinion shows
opinion opinion; some
opinion opinion opinion insight much insight
were good
Very poor, did Very good,
Poor, some Good, some Good, most Excellent, all
The letter not follow most
guidelines met guidelines met guidelines met guidelines met
guidelines guidelines met
Total marks /30
No. Error or omission Reconciliation

Statement:
Incorrect balance on statement on 31 May 2020
35 250
Ledger account
Incorrect balance in ledger account on 31 May 2020
3 600
1. Mfingo Traders forgot to record the discount of
R1 650 received for early payment. This amount
appeared in the ledger account but not on the
statement. ✔✔(1 650)
2. An invoice appeared on the statement but not
in the ledger account. It was discovered that this
invoice for R3 000 was for another creditor but
was charged on our statement by mistake. ✔✔✔(3 000)
3. A 10% trade discount was given on a purchase
of R25 200. The statement amount of R22 680 is
correct. The business did not consider the trade
discount and entered the full amount of R25 200
in the ledger account. ✔✔✔(2 520)
4. A return of R7 800 made to the creditor was
debited on the statement instead of being
credited. The creditor will correct the entry. ✔✔✔✔(15 600)
5. An invoice for R3 600 appears in the ledger
account but not on the statement. ✔✔3 600
6. A cheque for R17 400 appears in the ledger
account but not on the statement. ✔✔(17 400)
7. The statement shows an amount of R120 which
is interest on overdue account charged to us. This
amount does not appear in the ledger account. ✔✔120
✔1 200 ✔1 200
[20]
s e c t i o n 6 • c hap t e r 1 1 303

Note to teacher:
In the creditor’s ledger account, a credit entry will be seen as a positive
amount and a debit entry will be seen as a negative amount. The negative
amount will appear in brackets.
On the Creditors Reconciliation Statement, a debit entry is seen as a positive

amount and a credit entry will be seen as a negative amount. The negative
amount will appear in brackets.
No. Cash journals Bank Reconciliation Statement No entry

CRJ CPJ Debit Credit
Example 2 400
1. ✔✔✔ 3 640
2. ✔✔7 618
3. ✔✔ 580
4. ✔✔✔1 672
5. ✔✔✔1 440
6. ✔✔✔ 136
7. ✔✔✔ 850 ✔✔✔ 850
8. ✔✔✔3 700 ✔✔✔ 3 700 ✔✔✔ 3 700
✔✔✔ 224
9. ✔✔✔1 500
10. ✔✔✔ 239
[40]
304 s e c t i o n 6 • c hap t e r 1 1

CHAPTER 12
Value-added Tax (VAT)
1. VAT is the abbreviation for value-added tax, which is an indirect tax

that is charged whenever goods are sold or services are rendered, by a
registered VAT vendor.
2.
Column A Column B
VAT terms Description
1. Compulsory registration C. VAT registration by a business whose annual income
exceeds R1 million
2. Voluntary registration G. VAT registration by a business whose annual income is
less than R1 million, but more than R50 000
3. Standard rate A. The normal rate at which VAT is charged when goods
are sold or services are rendered, by a registered VAT
vendor
4. Zero-rated items B. Goods or services on which VAT is charged at a rate of
0%
5. Exempt items F. Goods or services on which no VAT is charge
6. Output tax E. The VAT charged by a vendor when it sells goods or

renders services
7. Input tax D. The VAT charged to or paid by a vendor in acquiring
goods or services from another VAT vendor
3. Any four zero-rated items such as:

Brown bread, maize products, rice, milk, milk powder, milk blends, fruit,
vegetables, lentils, dried beans, legumes, vegetable oil, eggs, canned
pilchards, paraffin, petrol, diesel, the export of moveable goods or the
international transport of passengers and goods.
Any two exempt items such as:
Financial services, rental of a private residence, transportation of people
by road or rail, educational services when supplied by the State or
childcare services
4. VAT payable to SARS = Output tax – Input tax
5. a. Table showing input tax and output tax for April 2018:
Transactions Input tax Output tax
Total sales 18 830
Total purchases of trading stock 9 030
Stationery purchased 210
Fees received for repair work done 5 068
Electricity paid 336
Equipment purchased 2 786
Accounting fees paid 1 120
Total 13 482 23 898
b. VAT payable to SARS = Output tax – Input tax

= R23 898 – 13 482
= R10 416
6. The vendor is entitled to claim the difference as a VAT refund from SARS.
s e c t i o n 6 • c hap t e r 1 2 305

1. a. Price (excl. VAT) = R2 300 + (2 300 × 50%) = R3 450

Price (incl. VAT) = R3 450 × ___ 114  = R3 933
 100
b. Price (excl. VAT) = R4 680 + (4 680 × 120%) = R10 296
Price (incl. VAT) = R10 296 × ___ 114  = R11 737,44
 100
c. Price (excl. VAT) = R9 360 + (9 360 × 33 _13 %) = R12 480
Price (incl. VAT) = R12 480 ×  ___ 114  = R14 227,20
100
2. a. 114  = R87,50
VAT = R712,50 ×  ___
100
b. VAT = R395,50 × ___114  = R48,57
 100
c. VAT = R1 999,95 × ___ 114  = R245,61
 100
d. No VAT is included; brown bread is an exempt item.
3. a. Price (excl. VAT) = R220 + (220 × 25%) = R275
Price (incl. VAT) = R275 × ___ 114  = R313,50
 100
b. Price (excl. VAT) = R275 + (275 × 60%) = R440
[Note: R275 must be used, not R313,50]
Price (incl. VAT) = R440 × ___  114
100  = R501,60
c. Input tax = R313,50 – 275 = R38,50
Output tax = R501,60 – 440 = R61,60
VAT payable to SARS = R61,60 – 38,50 = R23,10
Alternative method:
114  = R23,10
VAT payable to SARS = (R440 – R75) × ___
 100
Selling price (excl. Selling price (incl.

No. Cost price % mark-up on cost VAT (at 14%)
VAT) VAT)
1. R375,00 40% R525,00 R73,50 R598,50
2. R600,00 50% R900,00 R126,00 R1 026,00
3. R920,00 60% R1 472,00 R206,08 R1 678,08
4. R1 350,00 20% R1 620,00 R226,80 R1 846,80
5. R1 500,00 50% R2 250,00 R315,00 R2 565,00
1. two 9. refund
2. Category A 10. penalty
3. Category B 11. 10%
4. input tax 12. interest
5. output tax 13. invoice basis
6. VAT 201 14. invoices
7. 25th 15. payments basis
8. payments 16. payments
306 s e c t i o n 6 • c hap t e r 1 2

Account for VAT as output No VAT should be recorded for this transaction
Account for VAT as input tax
tax Transaction Reason
Sold goods on credit Paid for advertising Paid interest on loan Exempt item
Bad debts recovered Bought a new computer Paid wages in cash Not subject to VAT
Sold goods for cash Bought goods on credit Bought cakes for a staff party Vendor is the end user
Issued invoice for services Bought goods from a non-
Bought stationery No VAT charged
rendered vendor
Sold equipment Paid rent expense Sold five bottles of milk Zero-rated item
Paid for repairs out of petty
Paid salaries Not subject to VAT
cash
Paid insurance Paid for petrol Zero-rated item
Paid rates Zero-rated item
No. VAT calculation Output tax Input tax VAT payable to SARS
1.   14   = R210
R1 710 × ____ + R210 – R210
114
2.   14   = R63
R513 × ____ + R63 + R63
114
3.   14   = R56
R456 × ____ + R56 – R56
114
4.   14   == R504
R4 104 × ____ + R504 + R504
114
5. 14   = R531,30
R4 326,30 ×  ____ + R531,30 – R531,30
114
6.   14   == R3,85
R31,35 × ____ + R3,85 – R3,85
114
7. No VAT: interest income is exempt R0
8.   14   = R33,60
R273,60 × ____ + R33,60 + R33,60
114
9. No VAT: Wages is not subject to VAT R0
10.   14   = R940,80

R7 660,80 × ____ + R940,80 – R940,80
114
s e c t i o n 6 • c hap t e r 1 2 307

1. a. output tax
b. decrease
c. output tax
d. input tax
2. a. input tax
b. increase
c. input tax
d. output tax
3. a. output tax
b. decrease
c. output tax
d. input tax
4. a. input tax
b. input tax
c. increase
d. input tax
e. output tax
No. VAT calculation Output tax Input tax VAT payable to SARS
e.g. 14   = R700

R5 700 ×  ____ + R700 + R700
114
1. 14   = R336
R2 736 ×  ____ + R336 + R336
114
2. 14   = R483
R3 933 ×  ____ + R483 – R483
114
3.   14   = R16,80
* R136,80 × ____ – R16,80 OR + R16,80 – R16,80
114
4. 14   = R42
R300 ×  ____ + R42 OR – R42 + R42
114
5.   14   = R63
R513 × ____ + R63 OR – R63 + R63
114
6.   14   = R16,80 (as in 3.)

R136,80 × ____ + R16,80 OR – R16,80 + R16,80
114
7. 14   = R21
** R171 ×  ____ + R21 OR – R21 + R21
114
8.   14   = R336
R2 736 × ____ – R336 OR + R336 – R336
114
* Discount allowed = R2 736 × 5% = R136,80

** Discount received = (R3 933 – R513) × 5% = R171
308 s e c t i o n 6 • c hap t e r 1 2

Calculation of VAT payable to or receivable from SARS for the two month
period ending 28 February 2018:
Output tax R19 355
  14   )
Total sales of books (R146 604 × ____ R18 004
114
14   )
Discount received from suppliers (R3 192 ×  ____ R392
114
Books returned to suppliers R637
14   )
Books taken by Bennie for his own use (R2 622 ×  ____ R322
114
Less: Input tax R14 133
14   )
Total purchases of books (R66 400 ×  ____ R9 296
100
Total expenses R3 458
14   )
New bookshelves purchased (R9 850 ×  ____ R1 379
100
VAT payable to SARS R5 222
Alternative solution using the setting off approach:

Output tax R18 004
  14   )
Total sales of books (R146 604 × ____ R18 004
114
  14   )
Total purchases of books (R66 400 × ____ R9 296
100
Total expenses R3 458
  14   )
New bookshelves purchased (R9 850 × ____ R1 379
100
  14   )
Discount received from suppliers (R3 192 × ____ (R392)
114
Books returned to suppliers (R637)
  14   )
Books taken by Bennie for his own use (R2 622 × ____ (R322)
114
VAT payable to SARS R5 222
s e c t i o n 6 • c hap t e r 1 2 309

1. Calculation of VAT payable to or receivable from SARS for the two

month period ending 30 September 2018:
Output tax R8 337
  14   )
Goods sold for cash (R28 500 × ____ R3 990
100
  14   )
Goods sold on credit (R30 438 × ____ R3 738
114
  14   )
Discount received from creditors (R1 425 × ____ R175
114
  14   )
Goods returned to suppliers (R1 350 × ____ R189
100
  14   )
Drawings of stock (R1 750 × ____ R245
100
  14   )
Credit purchases of goods (R34 300 × ____ R4 802
100
Goods return by customers (R2 394 – 2 100) R294
Bad debts (R912 – 800) R112
  14   )
Computer purchased (R5 529 × ____ R679
114
  14   )
General expenses [(R26 700 – 8 800) × ____ R2 506
100
VAT payable to SARS (R56)
OR: VAT receivable from SARS R56
Alternative solution using the setting off approach:

Output tax R7 322
  14   )
Goods sold for cash (R28 500 × ____ R3 990
100
  14   )
Goods sold on credit (R30 438 × ____ R3 738
114
Goods return by customers (R2 394 – 2 100) (R294)
Bad debts (R912 – 800) (R112)
  14   )
Credit purchases of goods (R34 300 × ____ R4 802
100
  14   )
Computer purchased (R5 529 × ____ R679
114
  14   )
General expenses [(R26 700 – 8 800) × ____ R2 506
100
  14   )
Discount received from creditors (R1 425 × ____ (R175)
114
  14   )
Goods returned to suppliers (R1 350 × ____ (R189)
100
  14   )
Drawings of stock (R1 750 × ____ (R245)
100
VAT payable to SARS (R56)
OR: VAT receivable from SARS R56
310 s e c t i o n 6 • c hap t e r 1 2

2. VAT 201 form
3. 25 October 2018
4. The annual income of Tahir Traders must be less than R1 million, but
more than R50 000.
5. Tahir Traders purchases all of its supplies from registered VAT vendors,
which means that they are paying VAT on all of their purchases. By being
registered for VAT, they can claim the input VAT that they are charged
against the output VAT that they collect from their customers.
6. Any appropriate reason, such as:
• They could charge their customers slightly less, which may have a
positive impact on sales.
• They would make more gross profit on the prices that they are
currently charging their customers.
• They may not want the administrative burden of accounting for VAT.
• There in no benefit to their customers, since the customers are end
users and can not claim the VAT that they pay.
7. a. Any three appropriate points, such as:
• Fatima should tell her son that would be illegal / fraudulent /
unethical / dishonest.
• Fatima should tell her son that SARS has control measures to detect
such fraudulent actions.
• Fatima should tell her son that SARS may audit her business and
uncover the fraud.
• Fatima should tell her son that SARS discovers the fraud that she will
be punished and that her reputation will be ruined.
b. Any two appropriate consequences, such as:
• Fatima could be sent to jail.
• Fatima could be fined and/or charged additional tax.
• Fatima reputation and the reputation of Tahir Traders could be
ruined.
1. General Ledger of Nkosi Traders

Dr VAT Control B1 Cr
2018 2018
Apr 30 Bank CPJ 32 512 Apr 01 Balance b/d 7 349
Petty cash PCJ 67 30 Bank CRJ 47 568
Creditors control CJ 41 117 Debtors control DJ 63 331
Debtors control DAJ 7 897 Creditors control CAJ 5 002
Journal debits GJ 533 Journal credits GJ 715
Balance c/d 41 839
123 965 123 965
2018
2. R41 839 is payable to SARS (credit balance in the VAT Control account)
s e c t i o n 6 • c hap t e r 1 2 311

General Ledger of Fannie Furnishers

Balance Sheet account
2018 2018
May 01 Balance b/d 2 683 May 31 Bank CRJ 14 392
31 Bank CPJ 11 340 Debtors control DJ 8 400
Petty cash PCJ 224 Creditors control CAJ 532
Debtors control DAJ 560 Journal credits GJ 455
Creditors control CJ 12 502 Balance c/d 4 174
Journal debits GJ 644
27 953 27 953
2018
Jun 01 Balance b/d 4 174
Therefore R4 174 is receivable from SARS (debit balance in the VAT Control
account).
Workings
• Balance b/d (1 May 2018) = 29 121 – 26 438 = R2 683
14
• Bank (CPJ) = (R62 500 + 18 500) ×  ___
100   = R11 340 or
= R120 880 – (62 500 + 12 150 + 16 390 + 18 500) = R11 340
14
• Debtors control (DJ) = R60 000 ×  ___
100   = 8 400 or R68 400 – 60 000 = R8 400
14
• Creditors control (CAJ) = R4 332 ×  ___
114   = R532
General Ledger of TJ Traders

2018 2018
Feb 28 Bank CPJ 10 878 Feb 01 Balance b/d 7 070
Creditors control CJ 10 080 28 Bank CRJ 7 392
Debtors control DAJ 826 Debtors control DJ 12 768
Journal debits GJ 1 064 Creditors control CAJ 924
Balance c/d 5 698 Journal credits GJ 392
28 546 28 546
2018
Therefore VAT of R5 698 is payable to SARS (credit balance in the VAT

Control account).
Workings
• Bank (CPJ) = R4 018 + 4 816 + 2 044 = R10 878
14
• Debtors control (DAJ) = R6 726 ×  ___
114   = R826
14
• Journal debits (GJ) = R294 + (R6 270 ×  ___
114  )  = R1 064
312 s e c t i o n 6 • c hap t e r 1 2

General Ledger of Ntombi’s Nursery

2018 2018
May 31 Bank CPJ 4 942 May 01 Balance b/d 3 670
Creditors control CJ 12 278 31 Bank CRJ 15 638
Debtors control DAJ 546 Debtors control DJ 6 062
Balance c/d 8 465
27 155 27 155
2018
Jun 01 Balance b/d 8 465
Workings
14
• Bank (CRJ) = R127 338 ×  ___
114   
= R15 638
• Debtors control (DJ) = R49 362 – 43 300
= R6 062
14
• Bank (CPJ) = (R23 000 ×  ___ 14
___
100  )  + (R2 394 + 3 990 + 7 638) ×  114   
= R3 220 + 1 722 = R4 942
• Creditors control (CJ) = R99 978 – 87 700
= R12 278
• Debtors control (DAJ) = R3 900 ×  ___ 14
100   
= R546
• Creditors control (CAJ) = R6 954 ×  ___ 14
114   
= R854
• Petty cash (PCJ) = (R360 + 90) ×  ___ 14
100   
= R63 or R768 – (360 + 255 + 90)
= R63
• VAT on discount allowed to debtors = R2 223 ×  ___ 14
114   
= R273
• VAT on discount received from suppliers = R5 016 ×  ___ 14
114   
= R616
• VAT on drawings of goods = R2 250 ×  100    14
___
= R315
• VAT on bad debts = (R6 384 × 0,75) ×  ___ 14
114   
= R588
• Journal debits (GJ) = VAT on discount allowed + VAT on bad debts
= R273 + 588 = R861
• Journal credits (GJ) = VAT on discount received + VAT on drawings
of goods
= R616 + 315
= R931
s e c t i o n 6 • c hap t e r 1 2 313

1. The VAT 201 form of Grogin’s Grocery Store for the two month period
ending 28 February 2018:
Amount (incl.
VAT
VAT)
CALCULATION OF OUTPUT TAX
Standard rate (excluding capital goods) (sales) R95 760 R11 760
Standard rate (only capital goods) – –
Zero rate R30 780 –
Exempt and non-supplies – –
Adjustments: Change in use (drawings of goods) R2 850 R350
Other (goods returned to suppliers) R3 648 R448
TOTAL OUTPUT TAX R12 558

CALCULATION OF INPUT TAX
Capital goods or services supplied to you (computer) R5 700 R700
Goods supplied to you (goods purchased) R32 604 R4 004
Other goods or services supplied to you (expenses) R16 530 R2 030
Tax on adjustments: Change in use – –
Bad debts R4 389 R539
Other (goods returned by customers) R1 254 R154
TOTAL INPUT TAX R7 427

AMOUNT PAYABLE R5 131
Workings
14
• VAT on sales = R95 760 ×  ___
114   = R11 760
• VAT adjustment for drawings of goods = R2 500 ×  ___ 14
100   = R350
• VAT adjustment for goods returned to suppliers = R3 200 ×  ___ 14
100   = R448
• VAT on computer purchased = R5 700 ×  ___ 14
114   = R700
• Total standard rated goods purchased (excl. VAT)
= (R36 800 + 20 400) × 75% = R42 900
• Total standard rated goods purchased from VAT vendors (excl. VAT)
= R42 900 ×  __23  = R28 600
• VAT on standard rated goods purchased = R28 600 ×  ___ 14
100   = R4 004
14
• VAT on expenses paid = (R22 900 – 8 400) ×  ___
100   = R2 030
14
• VAT adjustment for bad debts = R4 389 ×  ___
114   = R539
• VAT adjustment for goods returned by customers = R1 254 ×  ___ 14
114   = R154
2. The bad news: According to Greg’s calculations, SARS owed the business
a refund of R735; however the correct calculation shows that the business
actually owes SARS R5 131.
The good news: If Greg had submitted the incorrect VAT 201 return
form, the business may have been charged penalties and interest for
underpaying VAT / claiming a refund that wasn’t due. This will be
avoided now.
314 s e c t i o n 6 • c hap t e r 1 2

3. General Ledger of Grogin’s Grocery Store
2018 2018
Feb 28 Bank CPJ 5 733 Feb 28 Bank CRJ 9 408
Creditors control CJ 1 001 Debtors control DJ 2 352
Debtors control DAJ 154 Creditors control CAJ 448
Balance c/d 5 131
12 558 12 558
2018
Workings
• Bank (CRJ) = R11 760 × 80% = R9 408
• Debtors control (DJ) = R11 760 × 20% = R2 352
• Bank (CPJ) = R700 + (R4 004 × 75%) + 2 030 = R5 733
• Creditors control (CJ) = R4 004 × 25% = R1 001
Marks: 50 Time: 25 minutes
1. Calculation of VAT payable to or receivable from SARS for March 2018:

Output tax ✔ R21 175
  14   )
Goods sold for cash (R106 818 × ____ ✔✔ R13 118
114
  14   )
Goods sold on credit (R25 550 × ____ ✔✔ R3 577
100
  14   ) *
Goods returned to suppliers (R10 545 × ____ ✔✔ R1 295
114
Discount received from creditors (R7 296 – 6 400) * ✔✔ R896
  14   )
Office equipment sold on credit (14 100 × ____ ✔✔ R1 974
100
  14   ) *
Drawings of stock (R2 250 × ____ ✔✔ R315
100
Less: Input tax ✔ R9 618
Credit purchases of goods (R33 972 – 29 800) ✔✔ R4 172
  14   ) #
Goods return by customers (R1 200 × ____ ✔✔ R168
100
  14   )
Expenses paid (R3 670 + R2 380 + 3 550 + 2 700) × ____ ✔✔ R1 722
100
  14   )
Petty cash payments (R250 + 50) × ____ ✔✔ R42
100
  14   )
Office equipment bought by cheque (25 308 × ____ ✔✔ R3 108
114
  14   ) #
Bad debts (R3 306 × ____ ✔✔ R406
114
VAT payable to SARS ✔ R11 557
[27]
s e c t i o n 6 • c hap t e r 1 2 315

Note: These items (*) could have alternatively been set-off against input tax,
while these items (#) could have alternatively been set-off against output tax,
as shown below:
Output tax ✔ R18 095
  14   )
Goods sold for cash (R106 818 × ____ ✔✔ R13 118
114
  14   )
Goods sold on credit (R25 550 × ____ ✔✔ R3 577
100
  14   )
Office equipment sold on credit (14 100 × ____ ✔✔ R1 974
100
14
____
Goods return by customers (R1 200 ×      ) # ✔✔ (R168)
100
14
____
Bad debts (R3 306 ×      ) # ✔✔ (R406)
114
Less: Input tax ✔ R6 538
Credit purchases of goods (R33 972 – 29 800) ✔✔ R4 172
  14   )
Expenses paid (R3 670 + 2 380 + 3 550 + 2 700) × ____ ✔✔ R1 722
100
14
____
Petty cash payments (R250 + 50) ×      ) ✔✔ R42
100
  14   )
Office equipment bought by cheque (R25 308 × ____ ✔✔ R3 108
114
  14   ) *
Goods returned to suppliers (R10 545 × ____ ✔✔ (R1 295)
114
Discount received from creditors (R7 296 – 6 400) * ✔✔ (R896)
  14   ) *
Drawings of stock (R2 250 × ____ ✔✔ (R315)
100
VAT payable to SARS ✔ R11 557
[27]
2. General Ledger of PSL Traders

2018 2018
Mar 01 Balance b/d ✔ 5 370 Mar 31 Bank CRJ ✔ 13 118
31 Bank CPJ ✔✔ 4 830 Debtors control DJ ✔✔ 5 551
Creditors control CJ ✔ 4 172 Creditors control CAJ ✔ 1 295
Debtors control DAJ ✔ 168 Journal credits GJ ✔✔ 1 211
Petty cash PCJ ✔ 42
Journal debits GJ ✔ 406
Balance c/d 6 187
21 175 21 175
2018
Apr 01 Balance b/d ✔ 6 187
[14]
Workings
• Bank (CPJ) = R1 722 + 3 108 = R4 830
• Debtors control (DJ) = R3 577 + 1 974 = R5 551
• Journal credits (GJ) = R896 + 315 = R1 211
3. R6 187 ✔ VAT is payable to ✔ SARS [2]
4. The debit balance in the VAT Control account on 1 March 2018 was most
likely due to PSL Traders purchasing a large amount of stock ✔ during
February 2018. This is indicated by the following:
316 s e c t i o n 6 • c hap t e r 1 2

• The purchases of goods amount was relatively low (R29 800 excl.
VAT) compared to the sales of goods amount (R119 250 excl. VAT)
in March 2018, which indicates that PSL Traders probably had large
volumes of merchandise in stock from the previous month. (✔✔)
• The discount received from creditors was relatively high (R6 400
excl. VAT). Since Striker likes to pay creditors within 30 days, we
can assume that the discount amount probably relates to goods that
were purchased on credit in February 2018. If we assume that PSL
Traders received a 4% early settlement discount, then the total credit
purchases in February 2018 might have been as much as R160 000
 100
(excl. VAT) [R6 400 × ___ 4  ]. (✔✔)
• The amount for goods returned to suppliers is very high (R10 545
incl. VAT) relative to the goods purchased amount (R33 972 incl.
VAT) for March 2018. This indicates that most of the goods that were
returned were probably bought in February 2018. (✔✔)
Other significant factors that may have also contributed towards the
input tax being greater that the output tax for February 2018 include the
following:
• Sales may have been relatively low during February 2018. (✔)
• A relatively expensive fixed asset, such as a delivery vehicle, may have
been purchased during February 2018. (✔)
• A large amount of consumable goods may have been purchased
during February 2018. (✔)
• Expenses may have been usually high during February 2018. (✔)
• Any other appropriate answer. (✔)
Note: The tick marks in brackets indicate that various answers may be
accepted, up to a maximum of 6 marks. [7]
s e c t i o n 6 • c hap t e r 1 2 317

CHAPTER 13
Cost Accounting and manufacturing businesses
1. Direct material costs = R18 870 + 6 000 + 530 + 600 + 1 500 = R27 500
2. Direct labour costs = R16 000
3. Prime cost = R27 500 + 16 000 = R43 500
4. Factory overhead costs = R5 000 + 2 000 + 500 + 4 500 + 11 400
= R23 400
5. Total manufacturing costs = R43 500 + 23 400 = R66 900
6. Unit price per canoe
 R6630900
= _______    
= R2 230
7. Selling price
= R2 230 × ___ 170  
 100
= R3 791
Cost Cost behaviour

1. Glass fibre for canoe Variable
2. Rent for the factory Fixed
3. Resin (glue) used in building the canoe Variable
4. Wages for workers building canoes (paid per unit completed) Variable
5. Cost of a mould per canoe Semi-fixed
6. Water and electricity Semi-variable
7. Salary of secretary Fixed
1.
No. of Sales income Fixed costs Variable costs Total manufacturing Profit (Loss) Unit cost/
units costs product
5 17 000 23 400 7 250 30 650 (13 650) 6 130
8 27 200 23 400 11 600 35 000 (7 800) 4 375
10 34 000 23 400 14 500 37 900 (3 900) 3 790
12 40 800 23 400 17 400 40 800 – 3 400
14 47 600 23 400 20 300 43 700 3 900 3 121
20 68 000 23 400 29 000 52 400 15 600 2 620
Wayne has to sell 12 canoes per month to break even.
2. As the business produce more units, the cost price per unit decreases.
318 s e c t i o n 6 • c hap t e r 1 3

Contribution per unit = Selling price per unit – Variable cost per unit
= R3 400 – 1 450
= R1 950
Breakeven point  23 400
= ______
1 950  
= 12 units
 R449 750  
1. Selling price per unit = ________
1 285  
= R350
 R257 000  
Variable cost per unit = ________
1 285  
= R200
2. Contribution per unit = Selling price per unit – Variable cost per unit
= R350 – R200
= R150
3. Breakeven point  90 000
= ______
150   
= 600 units
1. Contribution per unit = R140 – 65 = R75

Breakeven point:  1 312 000
= ________
75    
= 17 493 units
2. No, the number of units produced was less than the breakeven point –
they made a loss.
3. Productivity decreased.
Overtime was paid for wages.
1. Prime cost = direct material + direct labour

= R37 100 + 60 000
= R97 100
2. Factory overhead costs = indirect material + indirect labour + other
overheads
= R900 + 4 000 + 600 + 2 000 + 400
= R7 900
3. Fixed costs = R4 000 + 600 + 2 000 + 400
= R7 000
Variable costs = R37 100 + 900 + 60 000
= R98 000
4. a. Total manufacturing costs = prime cost + factory overhead costs
= R97 100 + 7 900
= R105 000
s e c t i o n 6 • c hap t e r 1 3 319

b. Total manufacturing costs = fixed costs + variable costs
= R7 000 + 98 000
= R105 000
 R98 000  
5. Variable costs per unit = _______
1 000  
= R98
Contribution/unit = sales – variable costs/unit

= R130 – 98
= R32
fixed  
costs
Breakeven point = _________________
     
contribution per unit
7 000
=  _____
32  
 
= 218,75
∴ 219
No. of Sales income Fixed costs Variable costs Total manufacturing Profit (Loss)
units costs
200 26 000 7 000 19 600 26 600 (600)
210 27 300 7 000 20 580 27 580 (280)
220 28 600 7 000 21 560 28 560 40
230 29 900 7 000 22 540 29 540 360
Rainbow Macs has to sell 220 raincoats to break even.
 105
6. Unit cost per raincoat = ______000 = 105
1 000  
7. Profit percentage per raincoat
130 – 105
=  ________
105   × 100
 
= 23,8%
1. a.
Prime costs
= R90 + 180 + 1 620 + 105
= R1 995
b. Total manufacturing costs
= R1 995 + 50 + 120 + 20 + 1 050
= R3 235
c. Unit cost per candle
 R3400
= ______ 235  
 
= R8,09
d. Profit percentages
= 10 – 8,09 × 100
= 23,6%
2. Darling could sell her candles at a higher profit percentage to justify her
efforts. She should also try to increase her total sales per month, which
will result in a decrease in the unit price per candle.
320 s e c t i o n 6 • c hap t e r 1 3

Column A Column B
1. Direct material cost D. Wood used to produce chairs ✔✔
2. Direct labour cost E. Wages paid to the factory workers. ✔✔
3. Factory overhead costs G. Depreciation on factory equipment.
✔✔
4. Selling and distribution cost C. Fuel for the delivery vehicle. ✔✔
5. Administration cost F. Stationery for the office. ✔✔
6. Fixed cost B. Manufacturing costs that do not
vary according to changing levels of
production ✔✔
7. Variable cost A. Manufacturing costs that vary
according to the number of units
produced ✔✔
[7 × 2 = 14]
General Ledger of Creative Gear CC

Dr Raw Material Stock B6 Cr
2017 2018
Mar 01 Balance b/d 32 500 Feb 28 Raw material issued 338 100
2018
Feb 28 Bank 189 600 Balance c/o 40 000
378 100 378 100
2018
Dr Work-in-Process B7 Cr
2017 2018
Mar 01 Balance b/d 12 600 Feb 28 Finished goods stock 744 130
2018
Feb 28 Direct material cost 338 100 Balance b/d 9 750
Direct labour cost 296 010
Factory cost 107 170
753 880 753 880
2018
Dr Finished Goods Stock B8 Cr

2017 2018
Mar 01 Balance b/d 29 600 Feb 28 Cost of sales 748 550
2018
Feb 28 Work-in-process 744 130 Balance b/d 25 180
773 730 773 730
2018
s e c t i o n 6 • c hap t e r 1 3 321

Dr Consumables on Hand B9 Cr
2017 2018
Mar 01 Balance b/d 3 120 Feb 28 Indirect material 3 120
2018
Feb 28 Indirect material 3 970
Nominal accounts
Dr Sales N1 Cr
2018 2018
Feb 28 Trade account 1 122 825 Feb 28 Balance b/d 1 122 825
Dr Cost of Sales N2 Cr
2018 2018
Feb 28 Finished goods stock 748 550 Feb 28 Trade account 748 550
Dr Raw Materials Issued N3 Cr

2018 2018
Feb 28 Raw material stock 338 100 Feb 28 Direct material 338 100
Dr Indirect Materials N4 Cr
2017 2018
Mar 01 Consumables on hand b/d 3 120 Feb 28 Factory cost 9 470
2018
Feb 28 Bank 10 320 Consumables on hand 3 970
13 440 13 440
Dr Salaries and Wages N5 Cr

2018 2018
Feb 28 Balance b/d 423 000 Feb 28 Direct labour cost 289 000
Factory cost 42 000
Administration cost 92 000
423 000 423 000
Dr Skills Development Levies N6 Cr

2018 2018
Dr Unemployment Insurance Fund Contributions N7 Cr

2018 2018
322 s e c t i o n 6 • c hap t e r 1 3

Dr Repairs and Maintenance N8 Cr
2018 2018
Feb 28 Balance b/d 13 000 Feb 28 Factory cost 11 500
Sales and distribution cost 1 500
13 000 13 000
Dr Rent expense N9 Cr
2018 2018
28 000 28 000
Dr Rates and Taxes N10 Cr

2018 2018
7 800 7 800
Dr Stationery N11 Cr
2018 2018
Feb 28 Balance b/d 960 Feb 28 Administration cost 960
Dr Insurance N12 Cr
2018 2018
12 000 12 000
Dr Telephone N13 Cr
2018 2018
Feb 28 Balance b/d 22 000 Feb 28 Administration cost 22 000
Dr Depreciation N14 Cr
2018 2018
25 000 25 000
Dr Advertising N15 Cr
2018 2018
Feb 28 Balance b/d 1 024 Feb 28 Sales and distribution cost 1 024
s e c t i o n 6 • c hap t e r 1 3 323

Dr Bad Debts N16 Cr
2018 2018
Dr Commission Paid N17 Cr

2018 2018
Dr Fuel N18 Cr
2018 2018
Dr Banking Charges N19 Cr

2018 2018
Feb 28 Balance b/d 14 230 Feb 28 Administration cost 14 230
Cost accounts
Dr Direct Material Cost C1 Cr
2018 2018
Feb 28 Raw material issued 338 100 Feb 28 Work-in-process 338 100
Dr Direct Labour Cost C2 Cr

2018 2018
Feb 28 Wages 289 000 Feb 28 Work-in-process 296 010
Skills development levy 2 890
Unemployment Insurance Fund
contribution 4 120
296 010 296 010
Dr Factory Overhead Cost C3 Cr

2018 2018
Feb 28 Salaries 42 000 Feb 28 Work-in-process 107 170
Repairs and maintenance 11 500
Rent expense 20 000
Rates and taxes 5 200
Insurance 9 000
Depreciation 10 000
Indirect material 9 470
107 170 107 170
324 s e c t i o n 6 • c hap t e r 1 3

Dr Administration Cost C4 Cr
2018 2018
Feb 28 Salaries 92 000 Feb 28 Profit and loss account 145 790
Rent expense 8 000
Stationery 960
Insurance 3 000
Telephone 22 000
Depreciation 3 000
Bank charges 14 230
145 790 145 790
Dr Sales and Distribution Cost C5 Cr

2018 2018
Feb 28 Repairs and maintenance 1 500 Feb 28 Profit and loss account 32 554
Depreciation 12 000
Advertisements 1 024
Bad debts 1 230
Commission paid 7 000
Delivery vehicle expenses 9 800
32 554 32 554
Final accounts
Dr Trade account F1 Cr
2018 2018
Feb 28 Cost of sales 748 550 Feb 28 Sales 1 122 825
Profit and loss account 374 275
1 122 825 1 122 825
Dr Profit and Loss account F2 Cr

2018 2018
Feb 28 Administration cost 145 790 Feb 28 Trade account 374 275
374 275 374 275
s e c t i o n 6 • c hap t e r 1 3 325

Creative Gear CC
Note R
Direct material cost 1 338 100
Direct labour cost 2 296 010
Prime cost 634 110
Factory overhead cost 3 107 170
Total cost of production 741 280
ADD: Work-in-process at beginning of year 12 600
753 880
LESS: Work-in-process at end of year (9 750)
Cost of production of finished goods 744 130
Creative Gear CC
Note R
Sales 1 122 825
Less: Cost of sales (748 550)
Gross profit (loss) 374 275
Selling and distribution cost 4 (32 554)
Administration cost 5 (145 790)
Net profit (loss) 195 931
Creative Gear CC
NOTES TO THE PRODUCTION COST STATEMENT AND INCOME STATEMENT
FOR THE YEAR ENDED 28 FEBRUARY 2018
1. DIRECT (RAW) MATERIALS COST

Purchases (156 000 + 189 600) 345 600
Carriage inwards –
378 100
Less: Balance and the end of the year (40 000)
338 100
2. DIRECT LABOUR COST

Factory wages 289 000
Unemployment Insurance Fund contribution 4 120
296 010
3. FACTORY OVERHEAD COST

Indirect material (3 120 + 10 320 – 3 970) 9 470
Indirect labour 42 000
Repairs and maintenance 11 500
Factory rent 20 000
Insurance 9 000
Depreciation on factory equipment 10 000
107 170
326 s e c t i o n 6 • c hap t e r 1 3

4. COST OF FINISHED GOODS SOLD
Opening stock: Finished goods 29 600
Plus: Manufacturing costs of finished goods 744 130
Less: Closing balance of finished goods (25 180)
Cost of finished goods sold 748 550
5. SELLING AND DISTRIBUTION COST

Advertising 1 024
Repairs and maintenance: delivery vehicle 1 500
Depreciation: Delivery vehicle 12 000
Bad debts 1 230
Commission on sales 7 000
Vehicle expenses 9 800
32 554
6. ADMINISTRATION COST
Rent: Office 8 000
Office salaries 92 000
Water and electricity: Office 2 600
Stationery 960
Insurance 3 000
Telephone 22 000
Depreciation on office equipment 3 000
Bank charges 14 230
145 790
ESETHU MANUFACTURERS
Note R
Prime cost 834 980
Factory overhead costs 3 302 124
Total cost of production 1 137 104
Plus Work-in-process at beginning of year 11 335
1 148 439
Less Work-in-process at end of the year (12 360)
Cost of production of finished goods 1 136 079
NOTES TO THE PRODUCTION COST STATEMENT

R
Balance at the beginning of year 67 224
Purchases (389 200 + 79 332) 468 532
535 756
Less Balance end of the year (39 556)
Raw materials issued 496 200
s e c t i o n 6 • c hap t e r 1 3 327

R
Direct wages 338 780
338 780

R
Indirect wages 105 600
Indirect material(1 590 +70 890 – 1 056) 71 424
Rent expense 48 000
Insurance 16 000
Maintenance 32 500
Depreciation 28 600
302 124
Bounce Manufacturers
Note R
Prime cost 640 690
804 560
Note R
Sales 1 060 000
Net profit (loss) (6 850)

Purchases (252 000 + 159 200) 411 200
Carriage inwards 9 060
434 360
409 400
328 s e c t i o n 6 • c hap t e r 1 3

231 290

Indirect labour (14 730 + 48 000) 62 730
Insurance 8 200
Factory maintenance 10 200
Factory rent 36 000
156 670


Salaries 86 000
Bad debts 1 200
Commission on sales 8 700
95 900
Insurance 4 800
Printing and stationery 1 700
Sundry administration cost 8 400
Rent expense: Offices 19 200
175 950
Tshiwula Manufacturers
Note R
Prime cost 985 100
1 230 360
s e c t i o n 6 • c hap t e r 1 3 329

Note R
Sales 1 800 000
Less: Cost of sales (1 200 000)
Finance cost (32 000)

Purchases (500 000 + 90 000) 590 000
Carriage inwards (25 000 + 4 500) 29 500
683 500
621 500

363 600

Indirect labour (14 500 + 90 000) 104 500
Insurance 14 800
Water and electricity (13 200 × 80%) 10 560
Factory maintenance 4 600
Factory rent (72 000 × 80%) 57 600
229 060

Plus: Manufacturing costs of finished goods 1 216 000
 100
Cost of finished goods sold (1 800 000 × ___
150
  ) 1 200 000

Salaries 172 000
Advertising 18 200
Commission expenses 13 600
Bad debts 1 800
205 600
330 s e c t i o n 6 • c hap t e r 1 3

Insurance 5 200
Stationery 1 440
Sundry administration cost 14 300
Rent expense (72 000 × 20%) 14 400
236 480
How will you comment on your

Cost per unit / Indicator How to calculate
answer?
Indicates what the cost for the material
of one unit is. If the prices from suppliers
increase, this figure will increase. If
Direct material cost per unit (DMC/unit)   Direct material
  
   
cost
_______________________  
Number of units produced the cutting of raw material is carefully
planned and there is less cut-off material
this figure will decrease.
Tells us if the manufacturing of the
Direct labour cost
_______________________ product is labour-intensive or not. It is
Direct labour cost per unit (DLC/unit)     
     
Number of units produced also an indication of the productivity of
employees.
Indicates how effective the
manufacturing process is. This should
Direct cost per unit   Prime
  cost
______________________
    not increase too much from one year to
Number of unit produced
the next. A business will first look at this
to determine prices for quotations.
Will decrease if the business can manage
Factory overhead costs per unit Factory overhead costs
_______________________
           to produce more units, as factory
(FOC/unit) Number of units produced
overhead costs are a fixed cost.
_______________________________ Will also decrease if the factory is more
Cost of finished goods per unit           
Number of units produced productive. This is the total cost per unit.
Gross profit
___________ What percentage profit the business
Percentage gross profit on cost of sales    
  
× 100
Cost of sales made per item.
Sales for the year
__________________ It is the average price that the units were
Selling price per unit     
   
Number of units sold sold for during the year.
Will increase if more sales take place, but
Selling and distribution cost per unit Selling and distribution cost
________________________
           the SDC/unit will stay the same, as this is
(SDC/unit) Number of units sold
a variable cost.
Will decrease if more sales take place,
as this is a fixed cost. This concept is
Administration cost called economies of scale, i.e. as more
Administration cost per unit (AC/unit)  ___________________
  
   
Number of units sold are produced, constant administration
costs are shared over a greater number
of units.
Total fixed cost FOC + AC Use this in calculating breakeven point.
Variable cost per unit DMC/unit + DLC/unit + SDC/unit Use this in calculating breakeven point.
The part of selling price that is left over

Selling price per unit – Variable cost per after the cost to produce and sell it is
unit deducted. This is used to pay for fixed
costs.
The amount of units that much be
Breakeven point   Total fixed
  costs
__________________
    produced to break even – not make a
loss.
s e c t i o n 6 • c hap t e r 1 3 331

1. Direct raw material cost per unit
 direct material
= ________________
   cost
   
total units produced
 763
= ______950
12 307  
= R62,07
Possible reasons for change in DMC/unit:
• The business is using another supplier which offers better prices.
• The planning is better – less cut-off material.
2. Direct labour costs per unit

  direct labour
= ________________   cost
   
 770
= ______000
12 307  
= R62,57
Possible reasons for change in DMS/unit:
• Wage increases/overtime.
• The workers are less productive – they produce less product for the
same wage.
3. Total direct (prime) costs per unit
  total direct
= ________________
   cost
   
 763 950 + 770

= _______________
12 307  
 000  
= R124,64
4. Factory overhead costs cost per unit
factory overhead costscost
= _____________________
    
    
66 750 
= ______
 12 307 
= R5,4
5. Cost of finished goods per unit
production cost of finished goods
= ___________________________
          
 1 12
599 910
= ________
307  
 
= R130
6. Sales and distribution costs per unit
 sales and distribution
= _____________________     
cost
 
total units sold
 68
= ______ 900 
12 000 
= R5,74
332 s e c t i o n 6 • c hap t e r 1 3

7. Administration costs per unit
 administration
= ________________   
  
cost
 
total units sold
 330
= ______400
12 000  
= R27,53
8. Variable costs per unit
= DMC/unit + DLC/unit + SDC/unit
= 62,07 + 62,57 + 5,74
= R130,38
9. Fixed costs
= factory overhead costs + administration costs
= 66 750 + 330 400
= 397 150
10. Contribution per unit
= selling price per unit less total variable costs per unit
= 200 – 62,07 – 62,57 – 5,74
= 69,62
11. Breakeven point
fixed  
cost
= _________________
     
 397
= ______150
69,62  
= 5 705 units
1. a.
Mokhele Manufacturers Ltd.
Note R
Prime cost 431 660
583 740
s e c t i o n 6 • c hap t e r 1 3 333

b.
Note R
Sales 900 000


Purchases (272 000 – 1 300) 270 700
Custom duties 18 100
361 900
292 160

139 500

Sundry factory expenses 8 260
Rates and taxes (7 980 ÷ 2) 3 990
Insurance (8 960 ÷ 2) 4 480
Water and electricity (10 200 ×  __34 ) 7 650
Vehicle maintenance and fuel (14 860 ÷ 2) 7 430
Depreciation on factory equipment ((210 000 – 89 000) × 20%) 24 200
Depreciation on factory vehicles ((88 000 – 20 600) × 10%) ÷ 2 3 370
134 360

 100
Cost of finished goods sold (1 800 000 × ___
150
  ) 572 736

Advertising 9 800
Vehicle maintenance and fuel (14 860 ÷ 2) 7 430
Salaries 66 000
Depreciation: vehicles ((88 000 – 20 600) × 10%) ÷ 2 3 370
86 600
334 s e c t i o n 6 • c hap t e r 1 3

Stationery 2 900
Rates and taxes (7 980 ÷ 2) 3 990
Insurance (8 960 ÷ 2) 4 480
Water and electricity (10 200 ×  __14 ) 2 550
145 320

2. a. Cost of finished goods/unit =  ___________________________
        
number of units produced
 570
= ______ 000
15 000  
= R38
 direct cost + sales   
and distribution
b. Variable costs per unit = _______________________________
     cost
 292 160 + 15
139 500 
+ 86
= ______________________
000      
600
= R34,55
c. Contribution per unit = selling price per unit – total variable costs
per unit
= R60 – 34,55
= R25,45
d. Fixed costs = factory overhead costs + administration costs
= R134 360 + 145 320
= R279 680
  total fixed cost
e. Breakeven point = _________________
     
279 680  
=  ______
25,45
= 10 989 units
1.
Jenkins Manufacturers Ltd.
Note R
Prime cost 629 704
938 930
s e c t i o n 6 • c hap t e r 1 3 335

Jenkins Manufacturers Ltd.
1. DIRECT MATERIALS COST

Purchases 333 866
389 078
334 348

Indirect labour (41 964 + 86 700) 128 664
Rent expense 76 400
Maintenance 33 870
283 466

2. a. Direct raw material cost per unit
 direct material
= ________________
   cost
   
 334
= ______348
10 000  
= 33,43
b. The owner should investigate what the increase in DMC/unit can be
attributed to.
• He could maybe look for other suppliers.
• Is the cutting of raw material effective or are there too many
off-cuts?
c. Total production cost/unit
total production cost of finished goods
= _______________________________
           
920 000  
=  ______
10 000
= 92
d. Gross profit
= sales – cost price of finished goods sold
= 1 281 818 – 915 584
= 366 234
336 s e c t i o n 6 • c hap t e r 1 3

e. Profit margin on cost price
gross profit
= __________________________
    
     × 100
cost price of finished goods sold
366 234 
= ______
 915 584 × 100
= 40%
f. The profit margin will increase, because the cost/unit will decrease.
Malan Manufacturers Ltd.

Note R
Prime cost 810 916
1 245 016
Malan Manufacturers Ltd.

NOTES TO THE PRODUCTION COST STATEMENT AND INCOME STATEMENT FOR
THE YEAR ENDED 28 FEBRUARY 2016

Purchases 590 000
Carriage inwards (9 000 + 650) 9 650
663 650
Less: Balance and the end of the year (62 785 – 135) (62 650)
601 000

Direct wages (200 000 + 5 800) 205 800
Unemployment Insurance Fund contribution (2 000 + 58) 2 058
Skills development levy (2 000 + 58) 2 058
209 916

Insurance 13 900
Maintenance 14 880
Depreciation on factory equipment
6
([900 000 – 180 000] × 10% + [50 000 × 10%] × __
 12
  ) 74 500
390 100
s e c t i o n 6 • c hap t e r 1 3 337

Plus: Manufacturing costs of finished goods 1 209 016
Cost of finished goods sold 1 200 016
2. a. Direct material cost per unit

 direct material
= ________________   cost
   
 601
= ______ 000 
210 000 
= 2,86
  direct labour
b. Direct labour costs per unit = ________________    cost
   
209 916 
=  ______
210 000 
=1
 1207
209 016  
c. Cost price of finished goods sold = ________ 615
= R5,82
 sales and distribution
d. Sales and distribution costs per unit = _____________________     
cost
 
total units sold
145 200 
=  ______
207 615 
= 0,7
3. The product is not labour-intensive. The cost price per unit is R5,82, of
which the labour costs per unit amount to R1, which is around 17%.
4. Contribution per unit = sales/unit – DMC/unit – DLC/unit – SDC/unit
= 12 – 2,86 – 1 – 0,7
= 7,44
fixed  
cost
Breakeven point = _________________
     
390 100 + 320 800  
=  _______________
  
7,44 
= 95 551 units
5. The SDC/unit for the previous year is also R0,70 per unit, the same as the
current year. The owner need not be concerned as the higher number of
sales attributed to the increase in S and DC sales and distribution cost is a
variable cost.
338 s e c t i o n 6 • c hap t e r 1 3

1.1
Happy Hiker Manufacturers
Note R
Direct material cost 1 ✔592 000
Direct labour cost 2 ✔363 870
Prime cost ✔955 870
Factory overhead cost 3 ✔358 850
Total cost of production ✔1 314 720
ADD: Work-in-process at beginning of year ✔46 500
1 361 220
LESS: Work-in-process at end of year ✔(41 220)
Cost of production of finished goods ✔1 320 000
[8]
1.2
Note R
Sales ✔1 976 400
Less: Cost of sales ✔(1 317 600)
Gross profit (loss) ✔658 800
Selling and distribution cost 4 ✔(285 000)
Administration cost 5 ✔(209 480)
Net profit (loss) ✔164 320
[6]


Balance at the beginning of the year ✔25 000
Purchases ✔588 000
Carriage inwards ✔8 900
Custom duties ✔12 500
634 400
Less: Balance and the end of the year ✔(42 400)
592 000
[5]

Direct wages ✔360 000
Unemployment Insurance Fund contribution ✔3 870
363 870
[2]
s e c t i o n 6 • c hap t e r 1 3 339

Indirect material (1 600 + 29 400 + 1 350 – 1 820) ✔✔✔✔ 30 530
Indirect labour (64 000 + 120 000) ✔✔ 184 000
Depreciation on factory equipment ✔ 46 000
 1 500 
Factory rent (96 000 × _____  ) ✔✔ 72 000
2 000
1
Insurance (24 000 ×   500
_____  
 )
2 000 ✔✔ 18 000
Water and electricity (10 400 × 80%) ✔✔ 8 320
358 850
[13]

Opening stock: Finished goods ✔ 67 200
Plus: Manufacturing costs of finished goods ✔ 1 320 000
Less: Closing balance of finished goods ✔ (69 600)
Cost of finished goods sold 1 317 600
[3]

Salaries ✔ 110 000
Depreciation: delivery vehicle ✔ 4 600
Advertising ✔ 18 400
Commission on sales ✔ 134 000
  300   
Rent expense (96 000 × _____ ) ✔✔ 14 400
2 000
  300   
Insurance (24 000 × _____ ) ✔✔ 3 600
2 000
285 000
[8]
Office salaries ✔ 180 000
Depreciation on office equipment ✔ 12 000
Stationery ✔ 3 400
  200   
Rent expense (96 000 × _____ ) ✔✔ 9 600
2 000
  200   
Insurance (24 000 × _____ ) ✔✔ 2 400
2 000
Water and electricity (10 400 × 20%) ✔✔ 2 080
209 480
[9]
2. Cost of finished goods per unit

= ___________________________
     
     ✔
 1 320 000✔  
= __________
3 300  
= R400 ✔ [3]
3. Variable costs per unit
 direct cost + sales   
and distribution
= _______________________________
     cost ✔
955 870 ✔+ 285
=  __________________ 000✔  
3 300    ✔
= R376,02 ✔ [5]
340 s e c t i o n 6 • c hap t e r 1 3

= selling price per unit – total variable costs per unit ✔
=R600 – 376,02 ✔
= R223,98 ✔ [3]
5. Fixed costs
= factory overhead costs + administration costs ✔
= R358 850 + 209 480 ✔
= R568 330 ✔ [3]
6. Breakeven point
fixed  
cost
= _________________
     ✔
 568
= ______ 330 ✔
223,98  
= 2 537 backpacks ✔ [3]
7. Profit margin on cost price

 200
= ___ 100
___
400  ×   1  ✔✔
= 50% ✔ [3]
8. • T
he direct material cost/unit increased form R160/unit in 2016
to R179/unit in 2017. This can be because the cost of the direct
materials increased or the employees are less effective in cutting the
material more off-cuts. ✔✔
• The direct labour cost/unit decreased from R120/unit in 2016 to
R110/unit in 2017. The workers are more productive and producing
more units in the same time. ✔✔
• The factory overhead cost/unit decreased from R121/unit in 2016
to R109/unit in 2017. This is because more units are produced – the
economics of scale concept. Factory overhead costs cost is fixed – as
more units is produced the factory overhead cost is shared over a
greater number of units. ✔✔
• The owner should investigate the reason for increase in DMC/unit,
but he should feel satisfied that his factory is more productive and
selling more products. ✔✔
(Any 3 × 2 marks) [6]
First let learners read through article about Proudly South African campaign
in the Learner’s Book.
Then have a class discussion on why it is important to support local products.
1. Suppliers must buy their products from South African manufacturers (or
manufacture the products in South Africa).
2. Overseas (they are being imported)
3. This is a growing industry in South Africa and is great opportunity to
create jobs for people in our country instead of spending all this money
overseas.
s e c t i o n 6 • c hap t e r 1 3 341

4. Government is offering to grant subsidies (financial support) to suppliers
who localise their products.
5. Government is trying to promote the use of sustainable energy in South
Africa, in an effort to protect the environment and cater for the growing
demand for energy.
6. The money used to fund this programme is part of government
expenditure and therefore needs to planned and budgeted for in the
government budget.
1. Price fixing
2. The four main manufacturers of tyres in South Africa were found guilty
of price-fixing, after they agreed on price increases, timing of price
increases and implementation thereof.
3. Apollo Tyres had to pay a penalty of R45 million.
4. The Commission initiated this case following a complaint lodged by a
fleet owner, alleging that the local tyre manufacturers simultaneously
adjusted their prices around the same time and within the same
parameters.
5. Passenger tyres, light truck/commercial tyres, trucks and bus tyres, off
the road tyres, agricultural tyres and earthmover tyres in South Africa
6. The main customers of these products are tyre dealers who purchase
tyres for resale to consumers, vehicle manufacturers who purchase tyres
for new vehicles models and the government which procures tyres for
state owned vehicles and fleets through a tender process managed by the
State Tender Board
342 s e c t i o n 6 • c hap t e r 1 3

CHAPTER 14
Budgeting
Gadla Traders
Projected Income Statement for the two months January and February 2019
January 2019 February 2019
Sales (390 000 ÷ 12) × 120% (39 000 + 6 000) 39 000 45 000
Cost of sales (39 000 × 66 __23 %) (45 000 × 66 __23 %) (26 000) (30 000)
Gross profit (39 000 × 33 __13 %) (45 000 × 33 __13 %) 13 000 15 000
Other operating income 1 550 1 700
Rent income (18 000 ÷ 12) (1 500 × 110%) 1 500 1 650
Discount received (600 ÷ 12) 50 50
Gross operating income 14 550 16 700
Operating expenses (5 650) (5 345)
Bad debts (720 ÷ 12) (60 + 50) 60 110
Insurance (2 400 + 1 200) ÷ 12 300 300
Advertising (45 × 2) (45 × 3) 90 135
Salaries and wages (42 000 ÷ 12) (3 500 – 400) 3 500 3 100
Other operating expenses (18 000 ÷ 12) 1 500 1 500
Depreciation (2 400 ÷ 12) 200 200
Net profit (loss) for the month 8 900 11 355
s e c t i o n 6 • c hap t e r 1 4 343

Vuvuzela Traders
Projected Income Statement for March and April 2018
March 2018 April 2018
Sales (480 000 ÷ 12) × 120% (48 000 × 110%) 48 000 52 800
Cost of sales (48 000 ÷ 160%) (52 800 × 50%) (30 000) (26 400)
Gross profit 18 000 26 400
Other operating income 2 410 2 755
Rent income (2 000 × 115%) (2 300 × 115%) 2 300 2 645
Discount received (1 200 ÷ 12) × 110% 110 110
Gross operating income 20 410 29 155
Operating expenses (12 084) (12 410)
Wages and salaries (72 000 × 105%) ÷ 12 6 300 6 300

Discount allowed
(48 000 × 40% × 2 __12 %) (52 800 × 40% × 2 __12 ) 480 528
Stationery (4 800 × 105%) ÷ 12 420 420
Bad debts 384 422
Telephone (9 600 × 125%) ÷ 12 1 000 1 000
Insurance (2 400 ÷ 12) [200 + (1 440 ÷ 6)] 200 440
Water and electricity (12 000 × 105%) ÷ 12 1 050 1 050
Depreciation [(120 000 + 15 000) × 20%] ÷ 12 2 250 2 250
Operating profit 8 326 16 745
Interest expense (80 000 × 18%) ÷ 12 (60 000 × 18%) ÷ 12 (1 200) (900)
Net profit for the month 7 126 15 845
Calculation of rent income for March 2018:

Let rent income for March 2017 = r
115  ) = 27 300
Then: r + 11 (r ×  ___
100
13,65r = 27 300
r = 2 000
Therefore rent income for March 2018 = 2 000 × 115%
= R2 300

• Telephone
• Depreciation
• Sundry operating expenses
2. Packing materials; Discount allowed; Bad debts
3. Discount allowed; Depreciation; Bad debts
4. Any two appropriate items such as:

• Capital contributions
• Proceeds received from shares issued
344 s e c t i o n 6 • c hap t e r 1 4

• Proceeds from the sale of a fixed asset
• Loan amount received
• Fixed deposit matured
• Cash purchase of assets
• Cash withdrawals by owner
• Loan amounts repaid
• Investments in a fixed deposit
R49 600 
5. Mark-up percentage on cost = ________
 R124 000 100  = 40%
×  ___
   1
R54 400 
(or  ________ 
  or   R64 000 
________  
)
 
R136 000 R160 000
6. Credit purchases in March 2018 = R124 000 × 75% = R93 000

Creditors to be paid in April 2018 = R93 000 × 80% = R74 400
R3 720 
Discount rate = _______
 R74 400 100  = 5%
×  ___
   1
OR
Credit purchases in April 2018 = R136 000 × 75% = R102 000
Creditors to be paid in May 2018 = R102 000 × 80% = R81 600
R4 080 
Discount rate = _______
 R81 600 100  = 5%
×  ___
   1
7. Rental per office in March 2018 = R12 000 ÷ 2 = R6 000

Rental for three offices (using March 2018 rental) = R6 000 × 3 = R18 000
18 000 
Percentage increase of annual rental = R19 620 – _______
 R18 000 100  = 9%
×  ___
   1
8. a. Mohammed intends to increase the amount that he pays his current

employees; or
Mohammed intends to employ more staff.
b. The increase in salaries May 2018 = R20 000 – 14 000 = R6 000
If this was intended to be an increase paid to the current staff, then
the percentage increase would be as follows:
R6 000   
 _______ 100  = 42,9%
×  ___
R14 000  1
This would be an unusually large increase and is thus fairly unlikely
to be the case.
Therefore, it is more likely that the additional R6 000 has been
budgeted to cover the cost of employing another person. Also,
one would assume that a new employee would often earn less than
the existing employees, which is the case here (R6 000 compared to
R7 000).
9. a. Instalment amount = Fixed deposit amount

= (R500 × 12) ÷ 7,5%
= R80 000
b. If the loan is reduced by R80 000, the interest will decrease by:
R2 150 – R1 350 = R800 per month
or R800 × 12 = R9 600 per annum
R9 600   
Therefore, the interest rate charged on the loan =  _______ 100  
×  ___
R80 000  1
= 12%
c. Balance of the loan on 31 May 2018 = (R1 350 × 12) ÷ 12%
= R135 000
s e c t i o n 6 • c hap t e r 1 4 345

 R8 620
1. Variance percentage (May 2018) = ____________ – 6 600
R6 600  
   100  = 30,6%
×  ___
1
 R8 880
Variance percentage ( June 2018) = ____________ – 6 600
R6 600     100  = 34,5%
×  ___
1
The actual motor vehicle expense was over budget by 30,6% and 34,5% in
May 2018 and June 2018 respectively. The fact that Denny didn’t increase
the budget amount in June 2018 shows that he probably felt that the
budget figures were fair and realistic. Therefore the significant increase in
costs indicates that this expense is not being adequately controlled.
2. Driving recklessly or speeding – this would increase the wear and tear of
the engine, the types and the exhaust; it would also result in petrol being
used inefficiently and may result in damage to the body of the vehicle.
Using the vehicle for personal trips – this would increase the petrol
consumption and add to the general wear and tear of the vehicle.
3. Monthly depreciation on vehicles = C

ost price of the old delivery van
× 10% ÷ 12 = R2 250
Cost price of the old delivery van = (R2 250 × 12) ÷ 10%
= R270 000
4. 1 January 2013 to 30 June 2018 = 5 __12  years or 66 months

Total accumulated depreciation to 30 June 2018
= R270 000 × 10% × 5 __12  
= R148 500
OR
Total accumulated depreciation to 30 June 2018
= R2 250 × 66
= R148 500
Carrying value of the old delivery van on 30 June 2018

= R270 000 – 148 500
= R121 500
5. Interest rate charged on the loan

R1 800 × 12
=  __________  100
× ___
R180 000    
1  
= 12%
6. Increase in loan
= R330 000 – 121 500
= R208 500
Increase in interest on loan per month

= R208 500 × 12% ÷ 12
= R2 085
346 s e c t i o n 6 • c hap t e r 1 4

7. Average motor vehicle expenses (May to June 2018)
= __ 21  (R8 620 + 8 880)
= R8 750
Average services and repairs (May to June 2018)

= R8 750 – 5 200
= R3 550
Monthly depreciation on the new delivery van

= R330 000 × 10% ÷ 12
= R2 750
Expected monthly petrol cost for the new delivery van

= R5 200 × 85%
= R4 420
Additional monthly insurance for the new delivery van

= R4 500 × 20%
= R900
Comparative analysis of the cost per month of the two vehicles:
COSTS Old delivery van New delivery van
Depreciation 2 250 2 750
Additional insurance – 900
Motor vehicle expenses 8 750 4 420
– Petrol cost 5 200 4 420
– Services and repairs 3 550 –
Additional interest on loan – 2 085
Total expected cost per month 11 000 10 155
The comparative analysis shows that if Denny sells the old delivery van
and buys the new one, then the costs of the business will decrease by R845
(R11 000 – 10 155) per month. Therefore, recommend that Denny replace
the old delivery van with the new one.
1. Percentage gross profit on sales

R125 000 
= ________
 R375 000 100  = 33 _1 %
 ×  ___
1 3
 R135 000
or ________ R137 500 
 or  ________
R405 000  R412 500 
2. Percentage increase in rent income
 R6 665 – 6 200
= ____________
R6 200  
    100
× ___1  
= 7,5%
s e c t i o n 6 • c hap t e r 1 4 347

3. a. The trend shows a fairly steady increase in discount received.
b. The sales are forecast to increase in each month of the budget period.
Therefore, since stock is replenished, the projected purchases will
increase in a similar fashion. Since all goods are bought on credit, the
amount owed to creditors will also be expected to increase in each
of the months. Since creditors are paid in the month following the
purchases, the amount paid to creditors and the discount received
from creditors will also be expected to follow a similar trend.
4. a. Salary of each shop assistant ( July 2018) = R60 000 ÷ 5 = R12 000
b. Wages of each casual worker ( July 2018) = R19 500 ÷ 3 = R6 500
c. Percentage increase in salaries (August 2018)

 R66 000 – 60 000
= ______________  
R60 000    100  
×  ___
1
= 10%
d. Percentage increase in wages (August 2018)

 R21 840 – 19 500
= ______________  
R19 500    100  
×  ___
1
= 12%
e. Yes, on the whole these increases are fair. The increases are pretty
generous and are above inflation. The shop assistants may feel slightly
aggrieved that the casual workers are set to receive a marginally
higher percentage increase. However, the casual workers are starting
from a lower base amount (R6 500 as opposed to R12 000), so
Josephine may be trying to assist them a little bit more. Furthermore,
the shop assistants will receive an additional R1 200 each, compared
to the extra R780 that each of the casual workers will be paid.
f. Decrease in salaries amount (September 2018)

= R66 000 – R52 800
= R13 200
Increase in wages amount (September 2018)

= R29 120 – R21 840
= R7 280

The decrease in the salaries of R13 200 is equivalent to the new salary
amount of each of the shop assistants (R12 000 + R1 200). So it is
likely that one of the shop assistants will be leaving the business at
the end of August and that there will only be four shop assistants
employed during September 2018.
The increase in the wages of R7 280 is equivalent to the new wages
amount of each of the casual workers (R6 500 + R780). So it is likely
that an additional casual worker will be employed at the beginning of
September 2018.
5. Electricity portion of water & electricity amount (August 2018)

= R7 500 – R2 100
= R5 400
348 s e c t i o n 6 • c hap t e r 1 4

Electricity portion of water & electricity amount (September 2018)
= R8 580 – R2 100
= R6 480
Percentage increase in the electricity tariff

 R6 480 – 5 400
= ____________
R5 400  
   100  
×  ___
1
= 20%
6. a. Variance percentage for Telephone

R3 720 
= ______
 R4 650 100  
 ×  ___
1
= + 80%
Actual figure for Advertising

= R8 000 – R6 800
= R1 200
or R8 000 × 15% = R1 200
b. The sales for the month were R45 000 less than expected, which
is 12% under budget. This is a significant difference and Josephine
should investigate the reasons for this urgently. The fact that the
advertising budget was badly under-utilised (only 15% of the
advertising budget was used) may have had a major impact on the
sales results.
The telephone expense exceeded the projected figure by R3 720,
which is 80% over budget. This is significantly over budget and should
be investigated urgently. Employees may be using the telephone for
lengthy/international personal calls.
Recommendations: Josephine needs to ensure that the advertising
budget is properly utilised and see whether this helps the business
to achieve the projected sales figures. Control measures need to be
implemented or improved in order to maintain proper control over
the telephone expense. If, after these steps have been taken, these
items are still vastly different from the budgeted amounts, then
Josephine will probably need to adjust her projections.
7. Yes, the advertising budget was fully utilised in both months. This seems
to have had the desired effect on sales, given that the sales amount for
August 2018 was only slightly under budget, while in September 2018
sales exceeded the budgeted amount. In addition, the telephone expense
improved dramatically in August 2018 (marginally over budget) and was
well under budget in September 2018.
8. a. Decrease in interest expense per month

= R2 250 – R2 100
= R150
Decrease in interest expense per year

= R150 × 12
= R1 800
s e c t i o n 6 • c hap t e r 1 4 349

Instalment amount
= decrease in loan amount
= R1 800 ÷ 15% = R12 000
b. Increase in interest income per month

= R1 500 – R1 200
= R300
Increase in interest income per year

= R300 × 12
= R3 600
Interest rate on the fixed deposit

R3 600 
= _______
 R40 000 100  
×  ___
   1
= 9%
c. Total loan amount on 31 July 2018

= (R2 250 × 12) ÷ 15%
= R180 000
Total fixed deposit on 31 July 2018

= (R1 200 × 12) ÷ 9%
= R160 000
9. The interest rate on the loan (15%) is higher than the interest rate on
the fixed deposit (9%), so Josephine should rather reduce the loan than
increase the fixed deposit.
At the beginning of August 2018, Josephine should rather use the
R40 000, which she was planning to invest in the fixed deposit, to reduce
the loan from R180 000 to R140 000. At the same time she should
withdraw R140 000 from the fixed deposit and use those fund to pay off
the balance of the loan. Thus the loan would be paid off and the fixed
deposit balance would be R20 000 (R160 000 – R140 000). Therefore,
for August 2018 there would be no interest expense and interest income
would be R150 (R20 000 × 9% ÷ 12).
At the end of August 2018, she can then increase the fixed deposit by
investing the R12 000 that she was planning to use to fund the annual
instalment on the loan. This would mean that in September 2018, the
interest income increase to R240 (R32 000 × 9% ÷ 12) and there would be
no interest expense.
Current projection New projection

August 2018 September 2018 August 2018 September 2018
Interest income 1 500 1 500 150 240
Interest expense (2 250) (2 100) 0 0
Net effect on profit (750) (600) 150 240
Thus net profit would increase by R900 in August 2018 and by R840 from
September 2018 onwards.
350 s e c t i o n 6 • c hap t e r 1 4

 R25m – R20m
1. a. Percentage mark-up on cost = ____________
R20m  
   = 25%
b. The directors may feel that at a higher mark-up:
• Many of the retailers would not be prepared to buy their
products.
• The increase in price charged to the retailers would be passed on
to the customers, which would have a negative impact on sales
volumes.
• The decrease in volume of sales would outweigh the benefits of
the greater profit margin.
• The interests of the local craftsmen and craftswomen who they
are trying help would be prejudiced, since:
o the decrease in sales volumes would result in less income for
the craftsmen and craftswomen, which would be unethical
and go against the values of the company
o in order to keep the price charged to the retailers the same as
it currently is, the company would have to pay the craftsmen
and craftswomen less for their products, which would be
contrary to company’s values and ethics.
2. Salaries – internal auditors are employees of the company and thus

receive a salary from the company. Audit fees reflect the charged by or
amount paid to the external auditors.
3. a. The budget amount for audit fees for the year ended 28 February
2018 of R37 400 was most probably calculated based on the previous
year’s audit fees of R34 000.
The budget amount shows an increase of R3 400 from the previous
year’s actual amount, which is an increase of 10%
b. Percentage over budget of audit fees

 R72 930 – 37 400
= ______________  
R37 400    100  
×  ___
1
= 95%
c. The Independent Regulatory Board for Auditors (IRBA)
d. The punishment imposed by the IRBA would depend on the severity

of the misconduct. If it was a once of case of excessive charging,
then the IRBA would probably either cautioned, reprimanded or fine
the external auditing firm. If it was found that the external auditing
firm had been regularly over charging its clients, then the firm may
be suspended, or even possibly struck-off, from membership of the
IRBA.
4. a. Percentage increase in directors’ fees

 R763 000 – 700 000
= _______________
R700 000  100
   × ___
  
  1  
= 9%
s e c t i o n 6 • c hap t e r 1 4 351

b. Yes, I think the shareholders will vote in favour of the proposed
increase in directors’ fees.
Reasons:
• The shareholders are pleased with the company’s performance
and the work that the directors have done.
• The actual sales for the year ended 28 February 2018 were R2,5m
(or 10%) more than expected.
• The profit after tax exceeded expectations by R291 600
(R1 584 000 – 1 292 400), which is almost 23% more than the
budgeted amount.
• An increase of 9% is very fair, especially given that the company
is planning to increase salaries for the year ending 28 February
R1,935m – R1,72m ___
2019 by _______________
  R17,2m      ×  100
1  = 12,5%
• The Projected Income Statement forecast an increase in profit of
more than 26% in the year ending 28 February 2019.
c. The Companies Act (71 of 2008)
d. King III: “Companies should remunerate directors and executives

fairly and responsibly.”
5. Forecast tax for the year ending 28 February 2019

= R2 865 000 – R2 005 500
= R859 500
Expected company tax rate for the year ending 28 February 2019
R859 500   
=  _________ 100  
×  ___
R2 865 000  1
= 30%
6. The success of a company should be determined based on its economic,

social and environmental performance. Africa Home Grown Ltd. has
performed very well in each of these areas:
• Economic performance – the company’s sales and profits for the year
ended 28 February 2018 were well above the projected amounts.
• Social performance – the company helps underprivileged craftsmen and
craftswomen in South Africa to make a better living. It also provides
interest-free short-term financing to help these people to expand their
production.
• Environmental performance – the company helps to preserve the
environment by employing a strict policy of only buying products
that are made using sustainable practices.
Thus, the shareholders Africa Home Grown Ltd. would be pleased with
all of these aspects relating to the company’s performance.
352 s e c t i o n 6 • c hap t e r 1 4

1. Any two suitable answers such as:

• To determine whether the business has performed as expected
• To control operating activities by identifying variances and taking
corrective actions
• To determine whether the projections are realistic
• To improve future projections
2. a. Percentage mark-up on cost

R165 000 
= ________
 R165 000 100  
 ×  ___
1
= 100%

R145 200 
b. Yes. ________
 R145 200 100  = 100%
 ×  ___
1
c. Percentage under budget
 R330 000 – 290 400
= _______________
R330 000    × ___
  
   100
1  
= 12%
This is significantly under budget and was the main reason for the
business’s poor performance in March 2018.
d. Strategy: Sipho reduced the percentage mark-up on cost to 80%.

The percentage mark-up on cost projected for April 2018
R176 000 
= ________
 R220 000 100  
 ×  ___
1
= 80%
By reducing the mark-up percentage, the selling price of the goods
would be less than normal (or discounted). Sipho used this strategy
to attract customers and to hopefully increase the gross profit by
increasing the volume of sales.
Strategy: Sipho increased the advertising of the business.
The advertising budget of R12 000 was under-utilised by R7 000
in March 2018. The increase in the budget amount to R18 000 for
April 2018 indicates that Sipho intended to advertise more during
April 2018. This was done to attract more customers. An advertising
campaign may have been carried out in to inform the public that the
prices would be discounted during April 2018.
e. Yes. The sales for April 2018 exceeded the forecast figure by more
than 4,5% (or R18 000 over budget). The gross profit was R8 000
more than the budgeted amount and exceeded the gross profit from
March 2018 by almost 27%. The advertising expense was over budget
by R2 000, however this was more than adequately covered by the
additional gross profit that was generated.
f. The fee income for carpentry services rendered. This was R3 200 or
16% more than the budgeted amount and was over 40% more than
the fee income amount from March 2018. This was most likely due to
the fact that there were more customers at the hardware store during
April 2018 and some of them would have required the carpentry
services that the business provides. This may also have been partly
due to the carpentry services being mentioned in the advertising.
s e c t i o n 6 • c hap t e r 1 4 353

3. a. It was the end of the financial year, which is a busy time for most
businesses. A lot of administration work needs to be done; accounts
need to finalised; stock counts need to be performed; etc.
b. Yes. The trading stock deficit amount of R9 200 for March 2018
indicates that the physical control of trading stock was very poor
during that month. This amount was much greater than the R300
that was forecast for trading stock deficit. This is also more than the
R5 500 that it costs the business to employ a security guard.
c. Sipho hired a new security guard (the actual amount for Salary -
security guard for April 2018 was R5 500)
d. The trading stock deficit amount for April 2018 was only R450.
Although this was 50% over budget, it was a vast improvement from
March 2018.
4. a. The forecast amount for discount allowed was R3 300, but the actual
discount allowed amount was only R1 230 in March 2018. This
indicates that debtors are not paying their debts promptly.
The actual bad debts for March 2018 amounted to R7 640, which was
way above the budgeted amount of R2 200. This is almost 3,5 times
the budgeted amount and indicates that too many debtors are not
paying their debts at all.
b. Any suitable internal control measures, such as:

• Screening/credit checks on customers before allowing them to by
on credit
• Setting credit limits, especially for new customers
• Improving billing procedures – e.g. ensuring that monthly
statements are sent out on time
• Improving follow-up procedures – e.g. phoning debtors to remind
them to pay their accounts on time.
• Increasing the discount offered to debtors for early payments.
• Ensuring that interest is charged on overdue accounts.
• Employing the services of a lawyer or debt collecting agency to
assist with troublesome collections.
c. Yes, there was some improvement. The actual discount allowed

amount for April 2018 was R4 180, which was more than the
budgeted amount R3 960. This indicates that more debtors were
paying their accounts promptly. The bad debts amount of R5 130
was still significantly more than the budgeted amount of R2 640;
however this is less than 2 times the budgeted amount which shows
an improvement from March 2018. Furthermore, most of the debts
written off in April 2018 probably relate to debts that originated
before the new internal control measures were implemented.
d. The business may encounter cash flow problems
5. a. Percentage over budget of telephone expense in April 2018

 R4 320 – 4 000
= ____________   
   100  
×  ___
R4 000 1
= 8%
354 s e c t i o n 6 • c hap t e r 1 4

b. The budgeted amount of R4 000 for April 2018 was increased (by
25%) from the forecast amount of R3 200 in March 2018. This
indicates that Sipho probably felt that the budgeted amount in March
was unrealistic.
The actual amount of R4 320 for April 2018 was significantly less than
the actual amount of R5 600 in March 2018. This indicates that Sipho
probably took steps to improve the internal controls relating to the
telephone usage.
6. a. The actual motor vehicle expense for March 2018 was R3 600 (or
90%) over budget. This indicates either poor planning or poor control
or a combination of the two. The fact that the budget amount was
increased by R500 in April 2018, show that Sipho probably felt that
the budget for March was unrealistic. The actual motor vehicle
expense decreased somewhat in April 2018, which indicates an
improvement in control. However, the actual amount was slightly
more than 50% over budget, which indicates that this expense is still
not being controlled adequately.
b. The actual amounts for water and electricity, for both March 2018 and
April 2018, were slightly under budget. This indicates that water and
electricity was accurately forecasted and well controlled during the
budget period.
7. The forecast for the insurance expense was most likely based on an
existing contract with an insurance provider. The future monthly
premiums would be predetermined and stipulated in this contract.
1.
Boland Traders Ltd.
Debtors Collection Schedule for the three months ending 28 February 2018
Collections Bad Outstanding
Month Credit sales
Dec 2017 Jan 2018 Feb 2018 debts debts
October 2017 R14 600 × 15% 2 190

× 5% 730
November 2017 R22 400 × 50% 11 200
× 15% 3 360
× 5% 1 120
December 2017 R68 400 × 30% × 95% 19 494
× 50% 34 200
× 15% 10 260
× 5% 3 420
January 2018 R9 600 × 30% × 95% 2 736
× 50% 4 800
× 20% 1 920
February 2018 R15 600 × 30% × 95% 4 446
× 70% 10 920
32 884 40 296 19 506 5 270 12 840
s e c t i o n 6 • c hap t e r 1 4 355

2.
Boland Traders Ltd.
Creditors Payment Schedule for the three months ending 28 February 2018
Payments
Month Credit purchases
Dec 2017 Jan 2018 Feb 2018
September 2017 R14 600 × 40% 5 840
October 2017 R18 000 × 60% 10 800
× 40% 7 200
November 2017 R45 400 × 60% 27 240
× 40% 18 160
December 2017 R6 600 × 60% 3 960
16 640 34 440 22 120
3. The company’s credit control is relatively good, but could be improved.

The company should try to get all debtors pay their debts within the
month of purchase. The 5% of debts that have been written off as
uncollectible is also a concern. The company should implement control
measures to protect against the risk of bad debts, such as thorough
screening of customers before allowing credit, setting credit limits and
strict collection procedures.
4. The benefit of a 60-to-90-day payment term is that the business is able to
sell stock before paying for it. For example, the company bought a large
amount of stock on credit in November 2017 and then had the whole of
December 2017 to sell this stock before having to start paying for it in
January 2018. This means that the company could carry relatively high
levels of stock in December, without incurring major cash flow problems.
1.
Moerat Traders
Debtors Collection Schedule for the period of 1 December 2017
to 28 February 2018
Collections Bad Outstanding
Month Credit sales
Dec 2017 Jan 2018 Feb 2018 debts debts
October 2017 R120 000 × 17% 20 400

× 3% 3 600
November 2017 R131 400 × 50% 65 700
× 17% 22 338
× 3% 3 942
December 2017 R186 000 × 30% × 95% 53 010
× 50% 93 000
× 17% 31 620
× 3% 5 580
January 2018 R168 000 × 30% × 95% 47 880
× 50% 84 000
× 20% 33 600
February 2018 R114 000 × 30% × 95% 32 490
× 70% 79 800
139 110 163 218 148 110 13 122 113 400
356 s e c t i o n 6 • c hap t e r 1 4

2. Sales for November 2017
= R131 400 + 66 600
= R198 000
Cost price of trading stock sold in November 2017

 100
= R198 000 × ___
150  
= R132 000
Withdrawal of trading stock sold in November 2017

= R3 000
Total purchases for November 2017

= R132 000 + 3 000
= R135 000
Credit purchases for November 2017

= R135 000 × 75%
= R101 250
Amount payable to creditors during January 2018 = R101 250
1.
Delta Stores
Cash budget for the two months July and August 2018
July 2018 August 2018 Total
RECEIPTS
Cash sales 152 000 100 000 252 000
Cash from debtors 142 380 175 650 318 030
May (96 000 × 15%) 14 400 –
June (126 000 × 50%) (126 000 × 15%) 63 000 18 900
July (228 000 × 30% × 95%) (228 000 × 50%) 64 980 114 000
August (150 000 × 30% × 95%) - 42 750
Cash from sale of vehicle (25 000 – 11 200 – 2 800) - 11 000 11 000
Rent income (27 600 ÷ 12) (2 300 × 110%) 2 300 2 530 4 830
TOTAL RECEIPTS 296 680 289 180 585 860
PAYMENTS
Cash purchases of stock 45 900 30 300 76 200
Payments to creditors 76 800 100 800 177 600
Repayment of loan (50 000 ÷ 10) 5 000 – 5 000
  3    
Interest on loan (50 000 – 5 000) × 18% × ___ 2 025 – 2 025
12
Packaging material (380 000 × 1%) (250 000 × 1%) 3 800 2 500 6 300
Salaries 12 800 12 800 25 600
Drawings (4 500 – 1 500) 3 000 3 000 6 000
Other operating expenses 9 900 10 230 20 130
TOTAL PAYMENTS 159 225 159 630 318 855
CASH SURPLUS/DEFICIT 137 455 129 550 267 005

BALANCE AT BEGINNING OF PERIOD (83 878) 53 577 (83 878)
CASH ON HAND AT END OF PERIOD 53 577 183 127 183 127
s e c t i o n 6 • c hap t e r 1 4 357

Calculations
May 2018 Jun 2018 Jul 2018 Aug 2018
Total sales (turnover) 160 000 210 000 380 000 250 000
Cash sales (40%) 64 000 84 000 152 000 100 000
Credit sales (60%) 96 000 126 000 228 000 150 000

Cost of sales (60% of turnover) 96 000 126 000 228 000 150 000
Add: Withdrawal of trading stock 1 500 1 500
Total purchases 96 000 126 000 229 500 151 500
Cash purchases (20%) 19 200 25 200 45 900 30 300
Credit purchases (80%) 76 800 100 800 183 600 121 200
2. If the business can achieve the budgeted sales targets, then the move and
other changes that were made would definitely have been worthwhile.
The overdraft will then be cleared during July 2018 and by the end of
August 2018, the bank account should show a favourable balance of
around R183 127. This means that the business’s cash flow problems
will be solved.
1. Percentage increase of annual rental

 R8 580 – 7 800
= ____________
R7 800  
   100  
×  ___
1
= 10%
2. December and January are school holiday months. This means the
business will be significantly busier than in February, when the holiday-
makers have left.
3. R120 000 × interest rate × __ 1   = R1 400

 12
Therefore: Interest rate
R1 400 × 12
=  __________  100
× ___
R120 000  
 
1  
= 14%
4. Stock purchases = cost of sales

Stock purchases for December
= R169 400 + 72 600
= R242 000
Mark-up percentage on cost price

 R338 800 – 242 000
= _______________
R242 000  
   100
   × ___
1  
= 40%
5. (R12 000 – R9 000) ÷ 2 = R1 500 each

Yes, it was a good idea, as the café was busy and the extra help was
probably necessary. Also the additional R3 000 that was spent each month
did not have a major impact on the cash flow of the business.
358 s e c t i o n 6 • c hap t e r 1 4

6. Cash deficit = R392 910 – 140 000 = R252 910
The cash deficit was mainly due to the construction of the restaurant
section, the purchase of the vehicle and the decrease in sales.
7. Bank balance on 28 February 2018

= (R99 000 + 205 480 – 21 100 – 252 910)
= R30 470
8. The busy months for Lindsay’s café are December and January, but she
still needs adequate cash flow for the rest of the year. For this reason, she
should take care with what she does with the surplus cash on 28 February
2018. Furthermore, the Cash Budget shows that even without the
payments for the construction of the restaurant section and the purchase
of the vehicle, the business would still be expected to experience a cash
deficit in February 2018 of R34 910. If this trend continues in March 2018,
then the bank account will be in overdraft by the end of March 2018.
1. A. Cash purchases of stock (March 2017)

= R165 600 ÷ 180% × 30%
= R27 600
B. Payments to creditors (May 2017)
= R194 400 ÷ 180% × 70% × 95%
= R71 820
C. Cash surplus/deficit (May 2017)
= R147 840 – R234 657
= – R86 817
D. Balance at beginning of period (May 2017)
= – R4 397 + R16 970
= R12 573
E. Cash on hand at end of period (May 2017)
= – R86 817 + R12 573
= – R74 244
2. Total purchases in May 2017

= R26 400 ÷ 30%
= R88 000
Total cash sales in May 2017 before discount

= R88 000 × 180%
= R158 400
Percentage discount applied in May 2017

 R158 400 – 134 640
= _______________
R158 400  
   100
   × ___
1  
= 15%
3. Rental per square metre (March 2017) = R14 400 ÷ 48 m2 = R300
4. Size of smaller office = R13 200 ÷ (R300 × 110%) = 40 m2
s e c t i o n 6 • c hap t e r 1 4 359

5. Number of shares that had been issued by 28 February 2017
= R10 500 ÷ 0,15
= 70 000
6. Inflation rate (on 28 February 2017)

= Percentage increase in Sundry operating expenditure
 R19 845 – 18 900
= ______________  
R18 900     100
× ___1  
= 5%
7. Percentage increase of wages to employees (April 2017)

 R55 212 – 51 600
= ______________  
R51 600     100
× ___1  
= 7%

Percentage increase of directors’ fees (April 2017)
 R35 100 – 26 000
= ______________  
R26 000     100
× ___1  
= 35%
Arguments for: Yes to strike

• The employees received an increase of 7%, while the directors
received an increase of 35% – this is unfair / unethical.
• The employees only received on average R4 300 per month before the
increase (R4 601 after increase), while the directors received R13 000
(R17 550 after increase)
• With the increased competition in the market, the company cannot
afford to increase the directors’ fees by 35% as this might put the
future of the company and the jobs of the employees in jeopardy.
Arguments against: No to strike

• The employees received an increase of 7%, which is above the
inflation rate of 5%.
• The directors take on a much greater risk, workload and
responsibility and that is why their remuneration is so much higher.
• With the increased competition in the market, the company cannot
afford to increase wages by more than 7%.
8. • Arrange/extend overdraft with the bank

• Take out a loan
• Issue more shares
• Withdraw funds from the fixed deposit
360 s e c t i o n 6 • c hap t e r 1 4

1. a. Number of days’ stock on hand

 1 (R152 300 + 144 780)
_
 2
= __________________
  
R768 000  
   × 365
= 70,6 days
b. Average debtors collection term

 _12 (R60 000 + 75 000)
=  ________________  
  
R1 152 000  × 0,5 × 365
= 42,8 days
c. Average creditors payment term

 _1 (R75 800 + 66 870)
 2
= ________________   
R768 000  
   × 0,8 × 365
= 42,4 days
Comments
• There is between 60 and 90 days’ stock on hand as planned.
• Debts are collected over 42,8 days instead of within 30 days.
This means that the business’s credit control is not good, and
should be addressed to improve liquidity.
• Creditors are paid much sooner than the 60 days allowed.
Vuyiseka should rather pay her creditors closer to 60 days, as it
would also improve liquidity.
2.
Vuyiseka Boutique
Cash Budget for the period 1 March 2019 to 31 May 2019
March 2019 April 2019 May 2019
RECEIPTS
Cash sales [60 480 + (3 840 × 50%)] 57 600 60 480 62 400
Cash from debtors 57 360 82 848 56 856
Outstanding debts on 28 February 2019 30 000 28 200 –
March 27 360 25 920 –
April (60 480 × 45%) – 28 728 27 216
May (62 400 × 50% × 95%) – – 29 640
TOTAL RECEIPTS 114 960 143 328 119 256

PAYMENTS
 100  × 20%)
Cash purchases of stock (62 400 × 2 × ____ 15 360 16 128 16 640
150
 100  × 80%)
Payments to creditors (60 480 × 2 × ____ 75 800 61 440 64 512
150
Drawings 10 000 10 000 10 000
Loan repayment – – 60 000
Interest on loan 1 625 1 625 875
Relocation costs 30 000 – –
Sundry operating expenses 14 500 14 500 14 500
TOTAL PAYMENTS 147 285 103 693 166 527

CASH SURPLUS/DEFICIT (32 325) 39 635 (47 271)
BALANCE AT BEGINNING OF PERIOD 11 200 (21 125) 18 510
CASH ON HAND AT END OF PERIOD (21 125) 18 510 (28 761)
s e c t i o n 6 • c hap t e r 1 4 361

3. a. The Cash Budget forecasts that Vuyiseka Boutique will encounter
liquidity problems during the budget period, most notably in March
2019 and May 2019. The cash flow of the business should improve
during April 2019. The liquidity problems can primarily be ascribed
to the cost of the relocation to the mall in March 2019 and the
repayment of the loan in May 2019. The late payment of debtors
and early payment to creditors will also contribute to the liquidity
problems of the business during the budget period.
b. The following advice is acceptable:
• Vuyiseka should make arrangements for an overdraft facility for
March and May.
• She should decrease her drawings until the cash flow has
improved.
• She should make sure that the debtors pay within 30 days.
• She should also increase cash sales and pay creditors closer to
60 days.
4. Average sales for the year ended 28 February 2019

= R1 152 000 ÷ 12
= R96 000
Total budgeted sales for March 2019

= R57 600 × 2
= R115 200
Total budgeted sales for April 2019

= R60 480 × 2
= R120 960
Based on previous year’s average sales:

Percentage increase in sales for March 2019
 R115 200 –   
R96 000
96 000
= ______________    100
× ___1  
= 20%
Based on the sales for March 2019:

Percentage increase in sales for April 2019
 R120 960 – 115 200
= _______________
R115 200    × ___
  
   100
1  
= 5%
5. Trade debtors on 28 February 2019 = R60 000

Forecast collection for March 2019 = R30 000
Percentage expected to be collected in March 2019
R30 000 
= _______
 R60 000 100  
 ×  ___
1
= 50%

Forecast collection for April 2019 = R28 200
Percentage expected to be collected in April 2019
R28 200 
= _______
 R60 000 100  
 ×  ___
1
= 47%
362 s e c t i o n 6 • c hap t e r 1 4

No collection forecast for May 2019, therefore we can assume that the
remaining R1 800 or 3% is expected to be written off as irrecoverable.
6. 1 May 2019
The expected decrease in interest on loan for May 2019
= R1 625 – 875
= R750
And: Interest on R60 000 at 15% p.a. for 1 month
= R60 000 × 15% ÷ 12
= R750
Therefore it must be expected that the loan will be repaid at the
beginning of May 2019.
7. Cash sales
The cash sales for both months were 20% more than expected. This is a
very good result for the business and indicates that it was a good decision
to move to the local shopping mall.
Cash from debtors

Vuyiseka has not taken the increase in sales during March 2019 and April
2019 into account in her analysis of the collections for debtors. Based
on the actual figures the collections from debtors that should have been
achieved are as follows:

Original budget Adjusted budget Original budget Adjusted budget
Cash from debtors 57 360 62 832 82 848 93 778
Outstanding debts on 28 Feb 2019 30 000 30 000 28 200 28 200
March (adjusted = original × 120%) 27 360 32 832 25 920 31 104
April (adjusted = original × 120%) – – 28 728 34 474
Therefore, a more accurate comparison between the actual and the budgeted
figures relating to collections is as follows:
Budgeted Actual Budgeted Actual
Cash from debtors 62 832 55 160 93 778 81 750
This shows that collections for March 2019 were actually R7 672 or 12,2%
under budget, while the collections for April 2019 were actually R12 028 or
12,8% less than expected. These amounts are significantly under budget and
therefore Vuyiseka should not be satisfied with her collections from debtors.
She needs to take action to improve the internal control procedures and
policies relating to the collection of debts from debtors.
Payments to creditors
Similarly, the budgeted amount for payments to creditors for April 2019
should have been adjusted. The increase in sales during March 2019 would
have also resulted in the purchases for March 2019 increasing by 20%. Since
creditors are paid in the month following the purchase of stock, the expected
payments to creditors for April 2019 should have been 20% more than in the
original budgeted amount, as follows:
Adjusted budgeted amount for payments to creditors (April 2019)
= R61 440 × 120%
= R73 728
s e c t i o n 6 • c hap t e r 1 4 363

Thus, the actual amount for payments to creditors in April 2019 of R73 680
is only R48 under budget. This is less than 0,1% below budget and is thus
insignificant. Vuyiseka should not be concerned about the payments to
creditors for April 2019; in fact she should be pleased since this indicates that
the payments to creditors are being well controlled.
1. The initial budgeted advertising cost is R25 000. I do not agree completely
with George’s strategy. It would probably be more effective if a relatively
large amount is spent initially (maybe between R10 000 and R15 000),
but then follow-up advertising should have been done in the months
thereafter using the remainder of the budgeted amount.
2. No, I don’t think it would be a wise option, since he will withdraw

too much money from the business. If he increases his withdrawals
by 50%, then would be taking R90 000 (R20 000 × 150% × 3) in three
months, which is 45% of his contributed capital. George should wait
until his business is well established before making more drawings. If he
withdraws too much money too soon, his business might encounter cash
flow problems later on. His budget for April 2018 looks promising and
if these projections materialise and continue in May 2018, then he can
consider increasing his drawings at that stage.
3. Credit sales percentage

 R348 000 – 261 000
= _______________
R348 000  100
   × ___
  
  1  
= 25%
4. Credit purchases in February

100% 
= (R348 000 × _____
 200%  ) – 87 000
= R87 000
Percentage discount received in March 2018

 R87 000 – 82 650
= ______________
  
R87 000     100
× ___1  
= 5%

5. Credit sales for February
= R348 000 × 25%
= R87 000
Percentage debts collected in March 2018

R43 500 
= _______
 R87 000 100  
 ×  ___
1
= 50%
The collection of 50% of debts after one month is reasonable. It would,

however, improve the business’s cash flow if this percentage could be
increased.
364 s e c t i o n 6 • c hap t e r 1 4

6. Any two of the following problems should be identified and suitable
suggestions should be offered for solving each problem:
• The sales were 15% more than the amount budgeted for, but
purchases decreased by 3%. George therefore has not replaced his
monthly stock. He may run out of stock because he did not replace
it. George should therefore make sure that all stock sold is replaced
within the same month.
• It seems that George has given his floor manager a raise (or a bonus),
because the sales were more than anticipated. This is a good policy,
but it is unethical to increase the floor manager’s salary and not the
shop assistants’ salaries as well. A possible solution is to increase the
shop assistants’ salaries by the same percentage. Because the business is
running well, George can afford it. This will win the respect and trust
of his personnel.
• The amount paid for sundry expenses was R15 525 more than the
budgeted amount or 9% over budget. This may have been largely due
to George under-estimating the initial start-up costs of the business.
However, George needs to take steps to ensure that the business’s
spending on expenses is adequately controlled, because overspending
on expenses will have a negative effect on the liquidity and the
profitability of his business.
1. Percentage increase of salaries and wages

 R59 400 – 54 000
= ______________  
R54 000    100  
✔✔ ×  ___
1
= 10% ✔ [3]
2. The rent increases on 1 April. ✔ [1]
3. No ✔, depreciation is a non-cash transaction. ✔ [2]
4. Number of shares to be issued in March 2018

 R210 000
= ________
R4   ✔✔
 
= 52 500 shares ✔ [3]
 R54 000
5. Dividend per share = _______
200 000  
✔✔ × 100 = 27 cents ✔ [3]
R1 000   
6.  _______ R1 020   
✔ =  _______
R50 000  R51 000  ✔ = 0,02 or 2% ✔
Therefore, sundry administrative expenses will increase by 2%
each month. ✔ [4]
1
7. Loan amount × 15% ×  __
12   = R750 ✔✔
Loan amount × 15% = R750 × 12 = R9 000
Loan amount = R9 000 ÷ 15% = R60 000 ✔✔ [4]
s e c t i o n 6 • c hap t e r 1 4 365

8. Accept any two valid suggestions, such as:
• The company has a sound bank balance – some of the funds could be
used. (✔✔)
• A further 47 500 authorised shares could be issued. (✔✔)
• The company could increase the loan amount. (✔✔) [4]
9. Cash sales: accept any valid comment and any appropriate piece of advice,
such as:
• The cash sales were R9 000 less than budgeted (✔) / almost 4% under
budget. (✔).
• This should be investigated in order to ascertain the cause of the
decrease in cash sales, such as more customers buying on credit, a
decrease in advertising, etc. (✔)
• This should be taken into consideration in future in order to prevent
over budgeting. (✔)
Collection of debts: accept any valid comment and any appropriate piece of
advice, such as:
• Debt collection was poorly managed and handled. (✔)
• The collections were R28 000 below budgeted (✔) / almost 23%
under budget (✔).
• This is a serious problem should definitely be addressed (✔) and
controls measures relating to granting credit and collections should
be improved (✔).
Sundry administrative expenses: accept any valid comment and any
appropriate piece of advice, such as:
• Sundry administrative expenses were overspent by R18 130 on the
budget amount. (✔)
• This is more than 36% over budget. (✔)
• The directors will have to introduce better control measures
to stop overspending (✔), or they will have to do research to
establish whether the budget is sufficient for the purposes of
the company (✔). [6]
366 s e c t i o n 6 • c hap t e r 1 4

CHAPTER 15
Revision activities
All the activities in this chapter are challenge activities.
Activity 15.1 Companies: General Ledger LB page 437
1. General Ledger of Matrix Ltd.

2019 2020
Balance c/f 17 600
69 600 69 600
2020
2.
2020
3.
Dr Income Tax Cr
2020 2020
4.
2019 2020
2020
53 000 53 000
5.
2020 2020
312 000 312 000
s e c t i o n 6 • c hap t e r 1 5 367

Activity 15.2 Company bookkeeping LB page 437
1. General Ledger of Ngwenya Ltd.

2011 2011
Oct 31 Bank 60 000 Mar 01 Balance b/d 600 000
Balance c/d 540 000
600 000 600 000
2012
2.
Dr Loan: AB Bank Cr
2012 2011
Feb 29 Bank 31 200 Mar 01 Balance b/d 120 000
2012
Balance c/d 102 000 Feb 29 Interest on loan 13 200
133 200 133 200
2012
3.
2011 2012
Mar 01 Balance b/d 2 198 Feb 29 Income tax 135 648
Aug 31 Bank 43 100
2012
Feb 27 Bank 79 200
Balance c/d 11 150
135 648 135 648
2012
4.
Dr Dividends On Ordinary Shares Cr
2011 2012
Sep 02 Bank 36 000 Feb 29 Appropriation account 141 000
2012
Feb 29 Shareholders for dividends 105 000
141 000 141 000
5.
2012 2012
Feb 29 Income tax 135 648 Feb 29 Profit and loss 423 900
Ordinary share dividends 141 000 Retained income 125 100
549 000 549 000
368 s e c t i o n 6 • c hap t e r 1 5

Activity 15.3 Companies and asset disposal LB page 438
1.
General Ledger
No. Amount
1. Asset disposal Vehicles R80 000
Accumulated depreciation on
Asset disposal R40 832
vehicles
Debtors control Asset disposal R42 000
Asset disposal Profit with asset disposal R2 832
2. SARS (income tax) Bank R9 870
3. Shareholders for dividends Bank R45 000
4. SARS (income tax) Bank R78 900
5. Ordinary share dividends Bank R28 000
6. Bank Share capital R481 000
7. Income tax SARS (income tax) R297 900
8. Ordinary share dividends Shareholders for dividends R 172 800
2. General Ledger of Sinazo Ltd.

2011 2011
Feb 28 Income tax 297 900 Feb 28 Retained income/ Accumulate profit 121 900
Ordinary share dividends
28 (172 800 + 28 000) 200 800 Profit and loss 662 000
Retained income/ Accumulate profit 285 200
783 900 783 900
Calculations Asset disposal:

R80 000 × 20% × __
12   6    = R8 000
R72 000 × 20% = R14 400
R57 600 × 20% = R11 520
R46 080 × 20% × __ 9    
 12 = R6 912
s e c t i o n 6 • c hap t e r 1 5 369

3.
SINAZO LIMITED
ORDINARY SHARE CAPITAL
AUTHORISED SHARE CAPITAL
Number of ordinary shares: 600 000 shares
ISSUED SHARE CAPITAL

350 000 ordinary shares in issue at the beginning of the year 1 081 400
130 000 shares issued during the year @ R3,70 each 481 000
480 000 shares in issue at the end of the year 1 562 400
Activity 15.4 Company ledger accounts and asset disposal LB page 438
1. R800 000 × 3,4 = R2 720 000
2. Number of shares issued

4 000 000 + 800 000 = 4 800 000 issued shares
Shareholders’ equity:
319  
= R4 800 000 × ___
 100
=R15 312 000
Ordinary share capital
15 200 000 (12 480 000 + 2 720 000)
Accumulated profit
112 000   
 _________
15 312 000
3. General Ledger of Beyers Ltd.

Dr SARS (Income tax) Cr
2019 2019
Mar 15 Bank 42 000 Mar 01 Balance 42 000
2020
Aug 31 Bank 168 000 Feb 29 Income tax 398 400
2020
Feb 26 Bank 280 800 Balance c/d 50 400
490 800 490 800
Dr Depreciation Cr
2019 2020
Jul 01 Accumulated depreciation on vehicles 5 376 Feb 29 Profit and loss 259 548
2020
Feb 29 Accumulated depreciation on vehicles 139 872
equipment 114 300
259 548 259 548
370 s e c t i o n 6 • c hap t e r 1 5

Calculations:
Sold vehicle:
(R140 000 – 59 360) × 20% × __ 4     = R5 376
 12
Old vehicles:
(R880 000 – 324 640) × 20% = R111 072
New vehicle:
R216 000 × 20% × __ 8   
 12 = R28 800
R139 872
2019 2019
Jul 01 Vehicles 140 000 Jul 01 Accumulated depreciation on vehicles 64 736
Loss with asset disposal 1 264
140 000 140 000
2020 2020
912 400 912 400
Ordinary share dividends:

Interim dividends R210 000
Final dividends (4 800 000 x 4/100) R192 000
R402 000
4.
BEYERS LTD.
FIXED/TANGIBLE ASSETS
Vehicles Equipment
Carrying value end of previous year 636 000 341 520
Cost price 1 020 000 672 000
Accumulated depreciation (384 000) (330 480)
Movements
Additions at cost price 216 000 180 000
Asset disposal at carrying value (75 264) –
Depreciation (145 248) (114 300)
Carrying value end of current year 631 488 407 220
Cost price 1 096 000 852 000
s e c t i o n 6 • c hap t e r 1 5 371

5. The loan increased.
Proceeds from shares issued
Working capital combination changed – less stock / more creditors
 4210 000   

6. Interim dividend = ________
000 000  = 5,25 cents
N Kaden received:
5,25
31 August: 30 000 ×  ____
100    = R1 575
28 February: 40 000 × ___ 4     = R1 600
 100
R3 175
Activity 15.5 Companies: Financial statements LB page 440
1.
Kota Traders Ltd.
Note R
Sales 1 363 200
Other operating income 299
Profit on disposal of assets 180

Insurance 6 744
Water and electricity (6 384 + 516) 6 900
Telephone 7 572
Salaries 284 000
Bad debts (846 + 234) 1 080
Bank charges 1 970
Directors’ fees (216 000 + 9 000) 225 000
Audit fees 3 980
Depreciation (18 000 + 4 000 + 1 220) 23 220

Interest expense (9 600 + 1 200) (10 800)
Income tax (79 119)
Net profit (loss) after tax 104 044
372 s e c t i o n 6 • c hap t e r 1 5

2.
Kota Traders Ltd.
NOTES TO THE BALANCE SHEET ON 29 FEBRUARY 2020
8. RETAINED INCOME
Net profit (loss) after tax for the year 104 044
Paid 50 000

Trade creditors (35 473 + 10 000 + 2 100) 43 373
Expenses accrued (payable) (516 + 9 000 + 1 200) 10 716
SARS – income tax 6 578
102 667
3. Any reasonable answer, e.g.

The car must have a log book that accounts for every kilometer travelled.
Employees must be instructed to leave computers at work, unless they
have work to do at home.
If they have to work at home, they should log their hours and what was
done, and the supervisor must sign these off.
You could have a special password on the computer linked to a user that
records the time spent on the computer. This can be sent to a central
monitor and checked by the supervisor / manager on a weekly /
monthly basis.
Activity 15.6 Companies: Financial statements LB page 441
1. General Ledger of Nkewu Limited

2016 2016
Jun 30 Income tax 112 600 Jun 30 Retained income 320 000
Dividends on ordinary shares (70 000
+ 98 000) 168 000 Profit and loss 406 800
726 800 726 800
Dividends declared on 30 June 2016/shareholders for dividends

14   = R98 000
R700 000 × ___
 100
s e c t i o n 6 • c hap t e r 1 5 373

2.
NKEWU LIMITED
NOTES TO THE BALANCE SHEET ON 30 JUNE 2016
a.
ORDINARY SHARE CAPITAL
AUTHORISED
ISSUED
620 000 ordinary shares in issue at the beginning of the year 2 282 000
R4,20 each 336 000
700 000 ordinary shares in issue at the end of the year 2 618 000
b.
TRADE AND OTHER PAYABLES
SARS (income tax) (112 600 – 105 000) 7 600
SARS(PAYE) 4 480
Pension Fund 1 090
Expenses accrued (798 + 442) 1 240
194 560
Calculations for rent income:

110  ) = R34 500
5x + 8(x × ___
 100
13,8x = R34 500
x = R2 500
110  = R2 750
x ×  ___
100
374 s e c t i o n 6 • c hap t e r 1 5

3.
NKEWU LIMITED
BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON 30 JUNE 2016
ASSETS
Non-current assets 3 482 830
Fixed / Tangible assets 3 462 830
Financial assets:
Fixed deposit: LK Bank (30 000 – 10 000) 20 000
Current assets 215 930
Inventories (134 780 + 1 090) 135 870
Trade and other receivables (36 000 – 1 440 + 1 300) 35 860
Cash and cash equivalents (34 200 + 10 000) 44 200
TOTAL ASSETS 3 698 760
Capital and reserves/Shareholders‘ equity 3 064 200
Ordinary share capital 2 618 000
Non-current liabilities 380 000
Loan: WS Bank (440 000 – 60 000) 380 000
Current liabilities 254 560
Trade and other payables 194 560
Short-term loan (122 600 – 62 600) 60 000
TOTAL EQUITY AND LIABILITIES 3 698 760
s e c t i o n 6 • c hap t e r 1 5 375

Activity 15.7 Cash Flow Statements and their interpretation LB page 443
1.
JABU INVESTMENTS LIMITED
Note R



JABU INVESTMENTS LIMITED

NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2019

FROM OPERATIONS
Depreciation (7 250 + 3 440) 10 690
Cash effects of changes in working capital 91 904
Change in stock (254 600 – 155 801) 98 799
Change in receivables [26 205 – (53 500 – 1 460)] (25 835)
Change in payables (45 825 + 3 825 + 4 350) – (65 705 + 4 365 + 2 870) 18 940

Bank 60 027 133 947 73 920
3. DIVIDENDS PAID
376 s e c t i o n 6 • c hap t e r 1 5

4. INCOME TAX PAID
Balance at the end of the year Dr (1 460)

Vehicles (25 000)
(125 000)
Calculations
1 Equipment Accumulated depreciation on equipment
Balance b/d 52 500 Asset 8 000 Asset 5 570 Balance b/d 18 100
disposal disposal Depreciation 3 440
Balance c/d 44 500 Balance c/d 15 970
Selling price of equipment sold

R8 000 – 5 570 = R2 430 (carrying value = selling price)
2 Vehicles Accumulated depreciation on vehicles
Balance b/d 30 000 Balance b/d 13 500
Bought 25 000 Depreciation 7 250
55 000 20 750
2. Creditors payment period for the year ended 30 June 2019

1
__
 2  (65 705 + 45 825) 365
_______________
    
704 450   × ___
  1  
55 765 
= ______
 704 450  
= 29 days
Comments
• Creditors payment period has decreased from 40 days to 29 days.
• They are not making use of the 90 days concession during which
creditors are allowed to be paid.
• They are paying creditors back sooner than debtors are paying them.
• This is not good for the liquidity and cash-flow of the business.
3. Debt equity ratio for the year ended 30 June 2019

80 000 : 431 838
= 0,19 : 1
188 750 + 18 450 ___
______________
  478 107   
   ×  100
1  
= 43,3%
5. Yes, the business has a favourable debt equity ratio, which is well 0,19 : 1.
Capital is employed wisely and is earning a good return of 43,3%.
The interest rate of 16% is much less that the return on capital, therefore
the interest on the loan can be serviced.
6. Any one of the following reasons is acceptable:
• They might want to see whether the business is making the profits
that they say they are and what percentage of the profits was paid out
as dividends; in other words, how the profits have been appropriated.
s e c t i o n 6 • c hap t e r 1 5 377

• The above information is important in order to determine whether
the increase either given or proposed to workers is fair.
• They would also be interested to know how much the business
is retaining for later expansion purposes, in other words, they are
interested in the future growth potential of the business.
7. There are 75 000 issued shares.

71 250 ___
______  ×  100
 75 000  1  
= 95 cents per share × 4 000
= R3 800 in respect of dividends
Activity 15.8 Companies LB page 445
1. a.–c.
General Ledger of Mazerata Ltd.
2011 2011
July 15 Bank 35 000 Jul 01 Balance b/d 35 000
2012
Dec 31 Bank 140 000 Jun 30 Income tax 332 000
2012
Jun 28 Bank 234 000 Balance c/d 42 000
374 000 374 000
2012
Dr Depreciation Cr
2011 Accumulated depreciation on 2011
Jul 01 vehicles* 5 376 Jun 30 Profit and loss 219 298
2012 Accumulated depreciation on
Jun 30 vehicles** 118 672
equipment*** 95 250
219 298 219 298
2011 2011
Nov 01 Vehicles 140 000 Nov 01 Accumulated depreciation on vehicles **64 736
Loss on sale of vehicle 1 264
140 000 140 000
* R140 000 – 59 360 = 80 640 × ___20   × __

 100 4   = R5 376
 12
** R59 360 + 5 376 = R64 736
*** R850 000 – 140 000 = R710 000
R320 000 + 5 376 – 64 736 = R260 640
20
R710 000 – 260 640 = 449 360 ×  ___
100   = R89 872
378 s e c t i o n 6 • c hap t e r 1 5

R216 000 × ___20   ×  __
 100 8
12   = R28 800
R89 872 + 28 800 = R118 672
2.
FIXED/TANGIBLE ASSETS
Vehicles Equipment
Carrying value at beginning of year 530 000 284 600
Cost 850 000 560 000
Movements
Additions 216 000 * 150 000
Disposals at carrying value (75 264)
Depreciation (124 048) (95 250)
Carrying value at end of year 546 688 339 350
Cost 926 000 710 000
* R560 000 – 275 400 = 284 600 – 95 250 = R189 350

R339 350 – 189 350 = R150 000
3. a.
DIVIDENDS PAID
Dividends paid 360 000
Dividends paid
Last year’s dividend 210 000
This year’s dividend 180 000
Total 390 000
b. Proceeds from issue of shares

(100 000 × R3) R300 000
Proceeds from loan
([750 000 + 35 000] – [480 000 + 20 000]) R285 000
Total R585 000
4. a. Shareholders equity = NAV per share × 400 000 issued shares

= 319 × 400 000
= R1 276 000
Retained income = R1 276 000 – 1 200 000
= R76 000
b.
2012 2012
Jun 30 Income tax 332 000 Jun 30 Retained income 52 000
738 000 738 000
s e c t i o n 6 • c hap t e r 1 5 379

c. They issued more shares and received an additional R300 000.
They borrowed more money and received an additional R285 000.
Not all expenses are cash expenses (depreciation).
Changes in working capital may have increased cash.
d. Dividends earned
3 000 shares × 50 cents per share
150 000 )
( ______
300 000  1 500 (interim dividend)
4 000 shares × 45 cents per share 1 800 (final dividend)
Total 3 300
e. • H
er 4 000 shares were purchased for R3. That is an investment of
R12 000. She earned a dividend of R3 300, which is a return of
28% on her investment. This is a good return on her investment.
• The market value of the share is higher than the NAV so there is
some potential in this share.
• The fact that the company borrowed more money and sold more
shares shows that they intend expanding and this could benefit
her further investment in the long term.
• I would advise her to purchase more shares because she is making
a good return on her investment. The company is making good
profits and has retained a substantial amount of its profits for
further capital development projects (expansions).
Activity 15.9 Companies LB page 447
1. a.
RECONCILIATION BETWEEN NET PROFIT BEFORE TAX AND CASH GENERATED
FROM OPERATIONS
Depreciation 76 000
Change in inventory (34 000)
1. b.
DIVIDENDS PAID
Dividends for year as reflected in financial statements (136 600 + 60 000) (196 600)
1. c.
INCOME TAX PAID
380 s e c t i o n 6 • c hap t e r 1 5

2. a.
Proceeds from shares issued* 400 000
Repayment of the loan (150 000)
250 000
* 100 000 × R4 = R400 000
2. b.
Cash flow from investing activities
Additions to land and buildings (586 000)
Proceeds from the sale of equipment (550 000 – 76 000 – 434 000) 40 000
(546 000)
3. a. Net asset value per share

Calculation Answer
2 125 000 ___
________ 100
  400 000  
×   1   532 cents

Comments
• The net asset value per share decreased from the previous year,
from534 cents to 532 cents per share.
• The NAV has decreased due to the new shares that were issued
during the course of the year.
b. Earnings per share

Calculation Answer
320 600 ___
 ______  ×  100
400 000  1   80 cents per share
Comments
• It is satisfactory.
• It has however decreased from last year – return was 24,5% on the
price per share and is now only 20%.
• Although the company earned more profits it sold more shares,
that is why the EPS decreased.
c. Comments
• The offer is for R5,50 while the NAV is only R5,32. The reason
could be that the investor wants to gain control over the company
and wants to purchases as many shares as possible in order to
do so.
• There could be a sudden demand for the shares which will drive
up the market price further. The investor wants to ensure that he
buys his shares soon before the price increases.

d. Debt equity ratio
Calculation Answer
350 000 : 2 125 000 0,16 : 1
s e c t i o n 6 • c hap t e r 1 5 381

Comments
• Ratio has improved from last year (from 0,32 : 1 to 0,16 : 1).
• The company has a low gearing.
• Easy to attract loans
• Below the accepted average
e. Comments
• Yes
• The return on shareholders’ equity (17,2%) is higher than the
interest rate of the loan.
• The additional loan will increase the debt equity ratio, but
the company was offered the loan and do not have to apply for
the loan.
• The acceptable NAV and EPS will make the additional loan
worthwhile.
Activity 15.10 Cash flow and interpretation LB page 449
1.
SYLCO LIMITED
Note R
Interest paid(9 000 + 50 960 – 3 000) (56 960)
Dividends paid(381 900 + 42 000 – 57 000) 3 (366 900)
Income tax paid(176 095 + 4 500 – 6 450) 4 (174 145)

Purchase of fixed assets(1 383 000 – 274 980 – 78 900 – 1 578 120) 5 (549 000)
Investments matured/placed 274 980

(1 200 000 + 120 000 – 1 425 000 – 210 000) 315 000

382 s e c t i o n 6 • c hap t e r 1 5

RECONCILIATION BETWEEN NET PROFIT BEFORE TAX AND CASH GENERATED
FROM OPERATIONS
Depreciation 78 900
Change in inventory 97 500
2. Calculation of financial indicators

Working Answer
% operating profit on sales
600 000
________
  
 2 784 000  × 100 21,5%
% return on average shareholders’ equity

410 070
__________________
 (1 828 170      
+ 1 485 000)
___________________
   
   × 100
 
2
410 070   
 ________
1 656 585  × 100 24,7%
Net asset value per share

1 828 170  
 ________
142 500 1 283 cents
Earnings per share

410 070
______
 
142 500  × 100 288 cents
Rate of stock turnover
1 740  
 ________________ 000
   
 12  (187 500 + 90 000)
__
1 740 000
________
  138 750   12,5 times
3. Yes. The increase resulted in gross profit increasing by R740 000.
4. Yes
Directors’ fees increased by 32%.
Salaries and wages increased by only 8%.
Sales increased so workers worked harder to achieve higher sales.
Operating profit went up by 50%, workers were more efficient
with expenses.
Note: Teachers should ensure that:
• Valid reasons are given and/or that opinion/conclusion was stated.
• Learners considered the increase in salaries and wages and compared
this to the increase in directors’ fees.
• Learners identified how the increase in sales affected workers.
• Learners identified how the increase in profits should have affected
workers.
s e c t i o n 6 • c hap t e r 1 5 383

No
Directors are entitled to earn more that workers. They have the skill,
qualifications, education and have invested more in the company.
The 8% increase is higher than the current inflation rate, so it is fair.
An average of R7 000 per worker is higher than the minimum wage
stipulated by the government.
5. Yes
Current ratio increased slightly – from 1,7 : 1 to 1,9 : 1.
Acid test ratio increased substantially – from 0,4 : 1 to 1,3 : 1.
This can be attributed to the increase in cash in the bank, which had a
favourable effect on this ratio.
The company is more liquid than the previous year.
6. The letter should show the Following:

• The improvement in the return on average shareholders’ equity.
• The improvement in EPS and DPS and how this is beneficial to the
company.
• The improvement in DPS and how this benefits the company and
shareholders.
• Dividend payout and the possibility of not accumulating enough
profits.
• The improvement in NAV and how this could benefit the company
and the market value of the shares.
• Concern as to why the share is undervalued on JSE and why it is so.
Note: Teachers should ensure that:

• All relevant issues were raised.
• All the appropriate financial indicators quoted.
• The financial indicators were correctly interpreted.
• The letter has a formal structure and uses formal language.
7. Audit report: to ensure directors are reporting properly

AGM: to express opinions and appoint responsible people as directors and
to be involved in the decision-making process
Activity 15.11 Audit report LB page 451
1. Directors / Financial directors

2. Shareholders. It is the money that the shareholders invested in the
business; that is, governed by the directors.
3. To protect the shareholders
To ensure that it is a fair reflection of the financial statements
To ensure that the directors are not misrepresenting the figures
4. The auditors have stated that they are satisfied with all aspects of the
financial reporting by the directors.
Complies with IFRS and Companies Act
The auditors have not stated the report is qualified or withheld
5. So that readers of the financial statements can have confidence in
his opinion
Assurance to the public that he/she is well trained on an on-going basis
384 s e c t i o n 6 • c hap t e r 1 5

6. The auditor would verify that assets exist physically.
Source documents (e.g. invoices) could be compared to entries in books.
Bank statements
Stock sheet counts
7. IFRS sets the standards for preparing the financial statements.
By applying IFRS the financial statements of different companies can be
compared to each other.
8. Yes, this will affect the audit. The independent auditor may not be
involved, in any way, with an employee of the company.
Advice
• They should declare conflict of interest.
• The audit company should not longer audit the company’s books.
• Michelle must quit her job.
Activity 15.12 Audit report LB page 451
1. The independent auditor expresses an opinion on the fair presentation of

the financial statements. He will also check if internal control is effective
and that no fraud takes place.
Watchdog role – look after the interests of the shareholders. The
shareholders of a company need to have confidence in the company’s
ability to look after their investment.
2. Qualified report: Donation expenses need to be investigated and
explained as it could not be verified.
3. They are only responsible for the pages stipulated in the auditors’ report.
4. a. The independent auditor belongs to a professional body and needs
to comply with its standards by doing his job properly. Expenses are
not being fairly presented, as Donations is overstated by R50 000.
Transparency and accountability are two important principles that
need to be adhered to.
b. Consequences:
They could be disciplined/fined/suspended.
They could be held liable (sued) by the shareholders, if they are found
negligent in performing their duties.
He could lose clients as his integrity will be questioned.
5. Examine the financial records of the business – external audit.
Assess the internal control of the business with regards to assets.
Inspect the fixed assets register and verify if the assets exist.
Assess the accounting principles used by the business.
6. Triple bottom line
7. Class discussion – any acceptable answer e.g. Pick n Pay conservation;
Woolworths organic farming; Standard Bank supports cricket; Sasol
cultural heritage
8.
Case 1 Insider trading
Case 2 Market manipulation
Case 3 Pollution of the environment
s e c t i o n 6 • c hap t e r 1 5 385

Activity 15.13 Fixed assets, depreciation and asset disposal LB page 453
1. R72 000 × 20% = 14 400
Accum Deprec. = 28 000
42 400
2. General Ledger of Ralgiant Traders

2020 2020
Feb 29 Vehicles 100 000 Feb 29 Acc. Deprec. on vehicles GJ 42 400
Loss on asset disposal 32 600
100 000 100 000
3. Extract from note for Fixed/tangible assets

Movements 180 000
Disposal @ carrying value (100 000 – 42 400) (57 600)
Depreciation (320 000 – 88 900) × 20% (46 220)
4. • Knowledge of procurement procedures

• Knowledge of internal control of fixed assets
• Knowledge of insurance and maintenance of assets
Activity 15.14 Managing resources: Inventory and fixed assetsL B page 453
1. The computers and printers were stolen.
The computers and printers were written off/ obsolete, but this was
never entered in the business’s books.
2. He can do physical stocktaking by comparing the invoices with the books
in the library.
The duty for ordering the books and the duty for receiving the books
and comparing it with the invoice should be split between two separate
personal.
3. a. (8 + 8 + 8 + 3) × R600
= R16 200
b. Number of pages printed = 27 × 800 = 21 600
Cartridges used in network printer = 21 600 ÷ 3 500 = 6,17
Amount spent on cartridges = 6,17 × R1 550 = R9 565,71
c. Advantages
• The amount spent on ink cartridges will be a lot less.
• Only one printer to maintain and repair.
Disadvantages
• It is a very expensive printer.
• If it breaks, none of the teachers can print.
386 s e c t i o n 6 • c hap t e r 1 5

Activity 15.15 Fixed assets LB page 454
Report: Equipment for the year ended 28 February 2018

Details: Beginning of the year:
On 1 March 2017 the business had equipment that originally cost R81 000.
The accumulated depreciation at this date was R38 400.
The carrying value was R42 600.
Details of equipment bought and sold:

On 31 August 2017, used equipment was traded in on new equipment that cost R30 000.
The used equipment was sold for R27 000 (81 000 + 30 000 – 84 000).
Accumulated depreciation on 31 August 2017 is R22 950 (27 000 – 4 050).
Profit on sale of equipment R4 950
The equipment was traded in on 31 August for R9 000 (R27 000 + R4 950 – R22 950).
Depreciation for the year:

Old equipment: R54 000 × 10% = R5 400
  6    = R1 500
New equipment: R30 000 × 10% × ___
12
Equipment traded in: R27 000 × 10% × ___   6    = R1 350
12
Total depreciation: R8 250
Details:End of the year

On 28 February 2018 we had equipment that originally cost R84 000.
The accumulated depreciation on equipment at this date was R23 700.
The book value is R60 300.
2. a. The business has made a loss whereas it could have made a profit.
b. A profit on the sale would have resulted in a higher profit than what is
the case with a loss having been recorded.
The bank balance would have been greater.
c. Yes or No
Yes because this has resulted in less profit and therefore less tax would
have been paid even though it is a sole trader, where the owner pays
tax in his private capacity.
OR
No as the business belongs to the owner and while he is losing profit
he is gaining equipment.
s e c t i o n 6 • c hap t e r 1 5 387

Activity 15.16 Stock valuations LB page 455
1.
Date Purchases Sales Cost of sales Price per unit Stock on hand
Sep On hand
175 × R90,00
2011 175 × R90,00
(175 × R90,00) + (300 × R92,00)
 __________________________
       
(175 + 300)
Oct 300 × R92,00 43 350

=  ______
  
  475 × R91,26
475
R91,26
=  ______
  
 
unit
420 × R91,26
Dec 420 55 × R91,26
= R38 329,20
(55 × 91,26) + (400 × R97,50)
 ________________________
     
  
(55 + 400)
Feb 44 019,30
2012
400 × R97,50 =  _________
  
  455 × R96,75
455
= R96,75
436 × R96,75
Mar 436 19 × R96,75
= R42 183,00
(19 × 96,75) + (441 × R95,00)
________________________
         
(19 + 441)
43 733,25
Apr 441 × R95,00 =  _________
    460 × R95,07
460
= R95,07
402 × R95,07
Jun 402 58 × R95,07
= R38 218,14
(58 × 95,07) + (442 × R96,75)
________________________
         
(58 + 442)
48 277,56
Aug 442 × R96,75 =  _________
    500 × R96,56
500
= R96,56
2. Cost of sales = R38 329,20 + 42 183,00 + 38 218,14 = R118 730,34

Gross profit = Sales – Cost of sales
= 442 660 – 118 730,34
= R323 929,66
Activity 15.17 Stock valuation and control LB page 456
SECTION A: STOCK VALUATION
1. First in first out

188 500
2.  ______
65    = R2 900
3. 170 × R 3 360  R571 200

 ___60 216 000 
______
230   × R3 600   787 200 
4.–5.
Sales 2 451 600
Cost of sales (1 451 700)
Purchases (2 072 000 – 21 600) 2 050 400
388 s e c t i o n 6 • c hap t e r 1 5

SECTION B: PROBLEM SOLVING AND CONTROL OVER STOCK
Branch Problem Advice

Michausdal Even though Rukshar spend the most on Order more stock so as not to run out of
advertising, R50 000 – her sales are not the stock.
most – 1 170 units. The reason could be OR
poor management of stock – she ran out of
Her advertising strategy should be
stock when there was still a demand.
reconsidered.
Seaview Even though Thabo has advertised a lot, Thabo need to advertise more effectively to
R32 000, it has not been effective. His sales increase sales.
are the least of all, 525 units. OR
Thabo is not working hard enough OR Instead of paying managers a set monthly
He has too much stock on hand, R1 575 salary, they should be paid commission on
units, while he sold only 525 units. Stock sales.
will become obsolete – outdated OR
OR Transfer excess stock to Michausdal.
He made a net loss of R 33 000.
Blue Mountains Theft occurring – 98 units missing Investigation with regards to missing stock
Loss/deficit of 98 × 1 050 = R102 900 Poor management/internal control over
stock
Do regular stock checks
Activity 15.18 Stock valuation and profits LB page 457
1. (3 × R1 380) + (15 × R1 400)

= R4 140 + 21 000
= R25 140
2.
Sales (28 × R2 200) + (17 × R2 200) 99 000
Opening stock (25 × 1 340) 33 500
Purchases (23 × 1 380) + (15 × 1 400) 52 740
86 240
GROSS PROFIT 37 900
3. a.
Date Units sold Units purchased Units on hand
01 Feb Opening stock 25 × 1 340
(25 × 1 340) + (23 × 1 380)

______________________
        
05 Feb Purchases 23 × 1 380 48
48 @ R1 359,17
10 Feb Sales 28 × R1 359,17 20 × R1 359,17
(20 × 1 359,17) + (15 × 1 400)

 _________________________
        
18 Feb Purchases 15 × 1 400 35
35 @ R1 376,67
26 Feb Sales 17 × R1 376,67 18 × R1 376,67
Balance of trading stock: 18 × 1367,67 R24 780,06
OR Average price OR
(25 × 1 340) + (23 × 1 380) + (15 × 1 400) 18 × 1 368,89
=  __________________________________
         
63
= R1 368,89 = R24 640
s e c t i o n 6 • c hap t e r 1 5 389

b.
Sales 99 000 00
Cost of sales (28 × 1 359,17) + (17 × 1 376,67) (61 460 15)
GROSS PROFIT 37 539 85
Activity 15.19 Stock valuation and ethics LB page 458
1. Periodic: Stock values are not updated and can only be calculated with
the help of a stock taking
OR cannot trace shortages.
Perpetual: Stock values are continuously updated
OR stock shortages are identified easily and quickly.
R824 600   
2. a.  ___________
(1 140 + 100)
= ______ 824 600
1 240  
=R665
R665 × 130 =R86 450
b.
Sales 1 215 450
Net purchases(747 500 – 7 000) 740 500
Carriage on purchases(1 140 × R25) 28 500
824 600
Less: Closing stock (86 450)
GROSS PROFIT 477 300
3. a. 90 × R725 = R65 250
40 × R675 = R27 000
R92 250
b.
Sales 1 215 450
Net purchases(747 500 – 7 000) 740 500
Carriage on purchases(1140 x R25) 28 500
824 600
Less: Closing stock (92 250)
GROSS PROFIT R483 100
4. No, if it’s to manipulate the profit.

Yes, if it’s a more reliable way of recording stock.
390 s e c t i o n 6 • c hap t e r 1 5

Activity 15.20 Stock valuation and control LB page 459
1. Average price of stock available

(7 280 + 22 406 + 1 322)
= ___________________
    
(52 + 152)  
  
 31 008
= ______
204   
= R152
Value of closing stock = 31 × R152 = R4 712
2.
Opening stock 7 280
Purchases 22 406
Carriage on purchases 1322
Cost of sales 26 296
OR
Number of units sold = 96 + 77 = 173
173 × R152 = R26 296
3. Sales = R21 504 + 18 480 = R39 984

Gross profit = R39 984 – 26 296 = R13 688
13 688 × 100
4.  ______
26 296 
= 52,05%
Cost of sales 
5.  ___________   
Average stock
 1 26 296  
= _____________    
__
 2  (7 280 + 4 712)
= 4,39 times
6. Any two reasons for not achieving profit mark-up:

• The prices of the suppliers increased, while the selling price of the
kettles stayed the same.
• Mistakes could have been made in the books.
• Carriage on purchase increased the cost price which decreased the
profit.
Any two ways to improve control over stock:
• Stock items received should be checked against those listed on the
invoice.
• Lost, stolen or destroyed items must be reported immediately.
• Access to stock should be limited and supervised.
• Detailed stock records should be maintained and periodically checked
by physical stock takes.
• Entries in the books should be checked by a second person other than
the bookkeeper.
7. Yes, she can continue selling this range of kettles as the rate of stock
turnover increased from 3,5 times per year to 4,39 times per year.
s e c t i o n 6 • c hap t e r 1 5 391

Activity 15.21 Creditors reconciliations and internal control LB page 460
1. General Ledger of Gary’s Super Store

Dr Creditors Control Cr
2020 Bank and discount received 2020
Jun 30 (31 104 + 20) CPJ 31 124 Jun 01 Balance (46 352 – 430) b/d 45 922
Sundry returns CAJ 940 30 Sundry purchases (34 020 + 2 720) CJ 36 740
Journal debits GJ 234 Bank (refunds) CRJ 1 010
Balance c/d 51 536 Journal credits (126 + 36) GJ 162
83 834 83 834
2020
Creditors List on 30 June 2020

Creditors Debit Credit
Osman’s Wholesalers (–36 + 36) –
BP Stores (26 852 + 2 720) 29 572
Steve West Traders (12 374 + 130) 12 504
Highland Ltd. (4 080 – 100) 3 980
MJ Motors (5 500 – 20) 5 480
51 536
2. Yes.
Any three of the following reasons are acceptable (figures and amounts must be
included in the reasons):
• The amount for purchases is almost equal to accounts paid.
• The business has received discounts of R864, therefore it is paying
accounts on time.
• Returns to creditors of R940 are quite low, compared to the purchases
ofR36 740.
• The opening balance of R45 922 almost equals the closing balance
of R51 536, which means that the business is keeping purchase levels
constant.
3. Any of the following reasons are acceptable:

• The debit balance of R430 on 1 June could have been refunded.
• Discounts that should have been received for early payment could
have been paid in cash.
• A creditor could have overpaid and therefore the overpayment was
received back in cash.
392 s e c t i o n 6 • c hap t e r 1 5

Activity 15.22 Creditors’ reconciliations LB page 461
1.
Creditors Ledger of Joseph Stores
ADAM DEALERS
Date Details / Document no. Fol. Debit Credit Balance
2015
Mar 31 Balance 18 187
Incorrect invoice 900 19 087
Incorrect invoice 490 19 577
Interest 97 16 894
2.
Creditors Reconciliation Statement of Adam Dealers on 31 March 2015
Debit Credit
Debit balance according to statement of account 21 044
Credit note incorrect 400
Discount not entered 250
Payment after 29 March 3 500
16 894
21 044 21 044
Activity 15.23 Bank reconciliations LB page 462
Cash Journals Bank Reconciliation Statement

No. No entry
CRJ CPJ Debit Credit
Example 2 000
1. 100
2. 675
3. 350
4. 6 450
5. 1 650
6. 70
7. 432
8. 4 500
9. 125
10. 750 750 750
Activity 15.24 Bank reconciliations and internal control LB page 463
1. • I mproves internal control by minimising fraud or error because

records are checked by somebody else.
• Improves internal control by identifying outstanding deposits and
cheques.
• To compare the books of the business with that of the bank in order
to detect errors and/or dishonesty at an early stage
s e c t i o n 6 • c hap t e r 1 5 393

2.
CRJ CPJ
412 300 376 900
117 24 000
4 100 967
2 100 1 094
13 000
900
418 617 416 861
3.
Malan Traders
Bank Reconciliation Statement on 31 August 2012
Debit Credit
Credit balance according to bank statement 21 136
Credit outstanding deposit 26 100
Debit cheques not yet presented:
No. 754 11 976
No. 801 4 260
No. 803 2 300
Debit balance according to Bank account 28 700
47 236 47 236
4. • S et up a disciplinary hearing for George Faults to answer to the

allegations.
• Recover what is possible from his salary that is owing to Malan
Traders.
• Institute legal action against him.
• Terminate his employment with the firm.
• Lay a charge against George Faults at the police station and get a case
number.
5. George Faults was responsible for all the vital activities relating to
receipts, deposits and payments. Duties should be divided among
employees so that one employee serves as a check on another.
394 s e c t i o n 6 • c hap t e r 1 5

Activity 15.25 D
ebtors reconciliations, debtors age analysis
and internal control LB page 464
1. General Ledger of Dreyer Traders

2018 2018
Mar 01 Balance b/d 74 200 Mar 31 Bank and discount allowed CRJ 30 890
31 Sales (43 372+ 500) DJ 43 872 Debtors allowances (2 450 – 90) DAJ 2 360
Bank CPJ 880 Journal credits GJ 9 800
Journal debits (268 + 630) GJ 898 Balance c/d 76 800
119 850 119 850
2018
Apr 01 Balance b/d 76 800
2. AGE ANALYSIS OF DEBTORS ON 31 MARCH 2018

Debtors Current > 30 days > 60 days > 90 days Total debt
A Bestbier (4 600 + 90 - 430) 4 260 1 500 5 760
I Gaidien(9 000 + 200) 9 200 11 500 3 000 7 200 30 900
34 330
M Theron (12 700 + 630) 13 330 21 000
S Muller (5 380 + 430) 5 810 5 810
TOTALS 32 600 13 000 3 000 28 200 76 800
3. Debtors Galdien and Theron are already 90 days in arrears yet goods are
still being sold to them on credit.
37% of debtors are 90 days in arrears – the business has to try to collect
debtors within 30 days.
4. No further credit sales should be made to debtors who are in arrears with
their payments.
Allow discounts to debtors who pay on time.
Raise interest on outstanding amounts.
Send regular statements of account to debtors to remind them to pay.
5. This is not acceptable.

The business should check if a debtor is credit worthy before selling on
credit.
Activity 15.26 Reconciliations, age analysis and internal control LB page 465
1. To identify individual debtors who may be problematic
To identify who is not adhering to the credit terms
To identify which debtors’ accounts should be charged with interest
To identify which debtors are eligible for discount
Allows business to review how collections are being made
s e c t i o n 6 • c hap t e r 1 5 395

2. 100 – 46,5 = 53,5%
3. 13,8%
878   × 100
4.  ______
17 560
= 5%
0,5(17 560 + 7 880)
5.  _______________
62 740  
   × 365
= 74 days
6. • Yes, mention made of information in article.

• Debt collection period has increased from 45 days to 74 days.
• Only 46,5% of debtors are collected within 30 days – this supports
information in the article where debtors have extended credit terms
to 60–90 days.
• The percentage provision for bad debts is not enough (5%) – 13,8% of
debtors are in 90+ days column, therefore it’s doubtful their money
will be collected.
• Sales to debtors who are over their credit limit – debtors Passerini’s
and L Dale
7. • Increase credit terms for customers, but charge interest.

• C ontact debtors who appear to be having difficulties in paying
accounts.
• Stricter applications – not allowing new accounts in current climate –
consumer slowdown
• Enforce credit limits – don’t let people buy on credit if they have
defaulted on payment.
8. • B
ank account has gone from a positive balance to an overdraft – petty
cash decreased as well.
• Bank reconciliation shows a deposit that’s been outstanding for a long
time – January 2012
• Rolling of cash might be occurring – new receipts used to provide
cash for previous deposits
9. • Do an investigation / audit.
• Look for cash payments that have not been properly authorized.
• Compare the receipts to the deposit slips.
• Check the bank statement and bank reconciliation to see if all
transactions are accurately recorded.
• Reconcile the petty cash.
• Check authenticity of source documents.
• If found guilty, have a disciplinary hearing, dismiss employee, charge
with fraud.
396 s e c t i o n 6 • c hap t e r 1 5

Activity 15.27 VAT and ethics LB page 467
1. Output VAT minus input VAT

2. VAT 201 form
3. It is unethical not to include VAT in quotations.
The customers will be unhappy when VAT is not included.
4.
GENERAL LEDGER
Amount
Trading stock Creditors Control R9 250
e.g.
VAT Control or VAT Input Creditors Control R1 295
Stationery Creditors control 280
4.1
VAT Control or VAT Input Creditors control 39,20
Debtors control Sales 3 800
4.2
Debtors control VAT Control or VAT Output 532
Bank Debtors control 986
4.3 Discount allowed Debtors control 100
VAT Control or VAT input Debtors control 14
Bad debts Debtors control 600
4.4
VAT Control / VAT input Debtors control 84
4.5 VAT Control /VAT Input Bank 55 099
Activity 15.28 VAT LB page 468
No. Account debited Account credited Amount
1. Trading stock Creditors control 17 800
VAT Input / VAT control Creditors control 2 492
2. Bank Sales 6 900
Bank VAT Output / VAT control 966
Cost of sales Trading stock 4 600
3. Bank Debtors control 5 130
Discount allowed Debtors control 500
VAT Input/ Output / Control Debtors control 70
s e c t i o n 6 • c hap t e r 1 5 397

Activity 15.29 VAT LB page 468
General Ledger of Mafutha Stationers

2018 2018
Sep 01 Balance b/d 1 831 Sep 30 Bank CRJ 11 232
30 Bank CPJ 4 907 Debtors control DJ 2 520
Creditors control CJ 3 556 Journal credits GJ 91
Debtors control DAJ 168
Journal debits GJ 238
Balance c/d 3 279
14 032 14 032
2018
Oct 01 Balance b/d 3 279
Therefore R3 279 is payable to SARS on 30 September 2018 (credit balance in

the VAT Control account).
Workings
• Debtors control (DJ)
= (R12 000 × 150%) × ___ 14   
 100
= R2 520
• Creditors control (CJ)
= R28 956 – (22 300 + 3 100)
= R3 556 or R28 956 × ___ 14   
 114
= R3 556
• Debtors control (DAJ)
= R1 200 × ___ 14   
 100
= R168
• Creditors control (CAJ)
= R1 539 × ___ 14   
 114
= R189
• Journal debits (GJ)
= VAT on bad debts
= R1 938 × ___ 14   
 114
= R238
• Journal credits (GJ)
= VAT on drawings of goods
= R650 × ___ 14   
 100
= R91
398 s e c t i o n 6 • c hap t e r 1 5

Activity 15.30 Manufacturing enterprises LB page 469
Bergh Manufacturers
Note R
Direct labour cost 165000
Prime cost 359 631
ADD: Work in progress at beginning of year 6 540
474 148
LESS: Work in progress at end of year (5 780)
Bergh Manufacturers
TRADE STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022
Note R
Sales 874 460
Less: Cost of sales 3 (471 469)
Bergh Manufacturers
NOTES TO THE PRODUCTION COST STATEMENT AND INCOME STATEMENT FOR
THE YEAR ENDED 28 FEBRUARY 2022

Purchases 189 720
228 043
194 631

Electricity 28 960
Insurance 8 750
Maintenance 10 887
Depreciation 39 410
107 977

Opening stock of finished goods 29 875
Cost of finished goods manufactured during the year 468 368
498 243
Closing stock of finished goods (26 774)
s e c t i o n 6 • c hap t e r 1 5 399

Activity 15.31 Cost calculations LB page 470
1. Total fixed costs

= factory overheads + administration costs
= R268 000 + 321 600
= R589 600
2. Variable cost
= direct material cost + direct labour cost + sales and distribution costs
= R200 000 + 360 000 + 184 000
= R744 000
Variable cost per unit sold

 774
= ______000
80 000  
= R9,30
3. Direct material cost 200 000

Direct labour cost 360 000
Factory overheads 268 000
Cost of finished goods 828 000
Cost of sales
 8281000
= ______   80 000
 ×  ______ 
100 000  
= R662 400
Sales 1 664 000
Gross profit (loss) 1 001 600
Sales and distribution costs (184 000)
Administration costs (321 600)
 496
Net profit per unit = ______ 000
80 000  
= R6,20

= selling price per unit – variable cost per unit
= 20,80 – 9,30
= 11,50
  fixed
  cost   
Breakeven point = ___________________
margin income per unit
589 600
______
=   11,50  
= 51 270 units
Activity 15.32 Budgets LB page 471
1. I would recommend this. She can earn additional income of R10 000, if
she sells the packets at R10 each – she will also win over the goodwill of
the community because she goes to the trouble to deliver. This is also a
method introduce her product to people. The additional expense is very
low, compared to the additional income.
400 s e c t i o n 6 • c hap t e r 1 5

2. Her options:
• Charge a high price per packet, R20, to show that her quality is good.
• Charge an average price, R15, in order to get a foot into the market.
• Charge as little as possible, R10, thus making a huge difference in the
market.
Recommendation:
Charge R15 in the shop and R10 for schools and businesses to which they
deliver.
3. The three factors that she should take into account:

• Will she have enough cash available to buy and to keep the extra
stock?
• If she weighs up the saving of R1 per packet against the cost of the
loan at 13% interest, is it still worth her while?
• Does she have enough room for storing the extra stock?
4. Suggestion: Spread the expense over the first three months.

• In the first month Palesa does not have that much cash available that
she is able to spend every last cent.
• She wants to make clients aware of her business, and she would like
to keep reminding them about it.
Her expenses will increase because of advertisements, but her income
will hopefully also increase as a result.
5. • H
er expenses will be more because of the additional salary of R4 000,
but her sales will also increase if this person wishes to do additional
marketing at businesses and schools.
• She could encourage the assistant by paying a basic salary, but also
commission on all sales.
6.
The Nutty Nut
PROJECTED INCOME STATEMENT
Sales 40 000
LESS: Cost of sales (18 000)
Gross profit 22 000
LESS: Operating expenses (9 020)

Rent expense 3 500
Depreciation 100
Insurance 440
Petrol 600
Advertisements 700
Salary of assistant 4 000
LESS: Interest expense (259)

s e c t i o n 6 • c hap t e r 1 5 401

Money required
= R21 000 + 3 500 + 1680 + 440 + 600 + 700 + 4 000 + 12 000 – 20 000
= 23 920
1
Loan: R23 920 × 13% ×  __
12   = R259
1.
DEBTORS COLLECTION SCHEDULE OF FRAMED FOR THE PERIOD ENDING APRIL 2018
DEBTORS COLLECTION
Month Credit sales February 2018 March 2018 April 2018
R R R
December 280 000 50 400
January 430 000 258 000 77 400
February 360 000 69 120 216 000 64 800
March 330 000 63 360 198 000
April 330 000 63 360
TOTALS 377 520 356 760 326 160
2. Calculations
Wages:
1 008
 ______
14 440   × 100 = 7%
Salaries:
4 800   × 100 = 15%
 ______
32 000
Comments:
• A 7% increase in wages is reasonable and in line with inflation.
• The increase in Salaries of 15% is a whole lot more, however. It may lead
to discontent among wage earners and salary earners.
Any reasonable answer
 interest
3. 150 000 × ______
100    × __
1   = R1 375
 12
Interest = 11% p.a.
4. a. Credit / cash sales

Total sales were R60 000 more than budgeted, but of this amount,
89% was on credit instead of 75%.
It could cause serious cashflow problems.
b. Debtors collection
R151 008 less than budget was collected from debtors.
It can lead to cashflow problems.
OR
The business has to change their credit policy.
402 s e c t i o n 6 • c hap t e r 1 5

c. Purchase of trading stock
R168 600 more than budgeted was spent on trading stock.
The reason for this could be because the business has more sales, but
they have to be careful not to tie up too much cash in stock.
d. Advertisements
R18 000 more than budgeted was spent on advertising.
The business could have underbudgeted.
OR
The increase in advertising led to higher turnover.
e. Repairs and maintenance

The business under-spent or over-budgeted by R14 700.
The business must make sure that they service their fixed assets
properly – a lack of care could lead to far higher costs.
OR
The expenses related to the repairs and maintenance are well-managed.
1.
Debtors collection schedule for the period July to September 2019
July August September
May: 70 000 × 18% 12 600
June: 78 000 × 30% 23 400
78 000 × 18% 14 040
July: 80 000 × 50% × 96% 38 400
80 000 × 30% 24 000
80 000 × 18% 14 400
Aug: 82 000 × 50% × 96% 39 360
82 000 × 30% 24 600
Sep: 90 000 × 50% × 96% 43 200
74 400 77 400 82 200
2. 2%
(1 900 – 1 786)
3.  ____________
1 900  
   × 100 = 6%
(15 984 – 14 800)
4.  _____________
14 800  
   × 100 = 8% increase
Yes, she is planning to give them more than the suggested 5%.
(100 × 12)
5.  _________
20 000   × 100 = 6%
 
OR
100   × 100 × 12 = 6%
 ______
20 000
s e c t i o n 6 • c hap t e r 1 5 403

6. a. Sales
The budget for cash sales is R352 800 while the actual cash sales was
R224 100.
The budget for credit sales is R252 000 while the actual credit sales is
R387 900.
According to the budget, 58% of sales should be cash and 42% on
credit, while with the actual figures 37% is on cash and 63% is on
credit.
Nicolene might experience cash-flow problem if she does not find a
way to convince customers to rather buy for cash.
b. Collection from debtors

The collection from debtors should be R232 000 and it is only
R190 000.
She should actually have received more from debtors than the budget,
as the credit sales were so much more.
Nicolene would have to improve her credit control and try to collect
debtors within 30 days, otherwise she will have cash-flow problems.
c. Purchases of trading stock

The budgeted figure for purchases of stock is R378 000, while the
actual purchases is only R200 000.
Nicolene’s total sales are more or less the same as what she budgeted
for therefore the purchases of stock should also be the same.
Problem: she is not replenishing the stock and therefore she might run
out of stock and lose customers/business.
d. Telephone
She spent R1 200 (2 700 – 1 500) more on telephone expenses than she
budgeted for.
She either under budgeted or is not controlling this expense effectively.
404 s e c t i o n 6 • c hap t e r 1 5

Section 7
moderation templates
MODERATION OF ASSESSMENT
Moderation refers to the process that ensures that the assessment tasks are
fair, valid and reliable.
Moderation should be implemented at school, district, provincial and

national levels. Comprehensive and appropriate moderation practices must
be in place for the quality assurance of all subject assessments.
Moderation at the school will be carried out by the head of department

responsible for the subject. Teachers’ portfolios and evidence of learner
performance must be moderated to ensure that a variety of assessment tasks
have been used to address the curriculum and that assessment covered a
range of cognitive levels.
All assessment tasks should be moderated before it is handed out to learners.

After an assessment task has been marked, at least three learners’ tasks
should be moderated.
The following moderation templates are provided to assist the teacher in the
moderation process:
• Template for the assessment of teacher portfolios
• Template for the moderation of learner portfolios
• Template for the moderation of examination papers / tests
• Tracking moderation tool
• Template for learner portfolio: contents / consolidation / intervention.
s e c t i o n 7 • m o d e r at i o n t emplat es 405

MODERATION REPORT: TEACHER FILE
Educator: Subject head:
Subject:
Moderator: Date:
Indicate with a 3 if the following documentation is available:
Documentation YES NO INCOMPLETE

Contents page
Educator personal timetable
Subject policy
Minutes of subject meetings
Pace setter from department
Annual planning schedule
Planning per term
Daily planning schedule
Textbook reference
Subject contents shown
Assessment activities shown
Column for date completed
Assessment programme (school)
Assessment programme (subject)
Formal assessment tasks (task as well as memo)
Recording sheets for marks
Plans for intervention
Summary of intervention completed
Remarks:
Signature:
MODERATOR EDUCATOR
406 s e c t i o n 7 • m o d e r at i o n t emplat es

MODERATION REPORT: LEARNER PORTFOLIO
Educator: Subject:
Subject head/Moderator: Date:
Use a 3 in the correct block during the moderation process.

2 above average, 2 average and 2 below average learner YES NO OCCASIONALLY
portfolios were provided.
Contents page YES NO OCCASIONALLY
Consolidation schedule YES NO OCCASIONALLY
Each learner portfolio contains a signed statement of authenticity. YES NO OCCASIONALLY
The different section from which the CASS mark was calculated is YES NO OCCASIONALLY
shown on the consolidation schedule and completed.
The portfolio contains all assessment tasks completed up to date. YES NO OCCASIONALLY
The tasks in the portfolio has clear instructions. YES NO OCCASIONALLY
A rubric/memorandum/marking instrument gives learners an YES NO OCCASIONALLY
indication on how they were assessed.
Evidence of assessment tasks show that different forms of YES NO OCCASIONALLY
assessment took place as prescribed by the subject guidelines.
Evidence of assessment task in portfolio was marked, signed and YES NO OCCASIONALLY
the date when marked included.
The educator goes through a lot of trouble to write comments for YES NO OCCASIONALLY
the learners.
There is evidence of moderation that took place. YES NO OCCASIONALLY
Accurate recording of marks YES NO OCCASIONALLY
Parents signed the test to take note of marks. YES NO OCCASIONALLY
Marking according to marking instrument is satisfactory. YES NO OCCASIONALLY
General remarks:
Signature:
MODERATOR EDUCATOR
s e c t i o n 7 • m o d e r at i o n t emplat es 407

MODERATION OF EXAM PAPERS/TESTS
Educator: Paper/Test:
Moderator: Date:
Criteria 3 Comment
Technical quality
Heading with subject, grade, total marks and time allocated
The time allocated corresponds to the time allocated on the exam
table.
Questions are numbered correctly.
Instructions to learners are clear and unambiguous.
Mark allocation per question is correct.
Mark total of paper is correct.
Mark allocation on paper and memorandum corresponds.
Paper and memorandum is typed and presented neatly.
A range of assessment standards, as determined by the subject
guidelines, was covered.
Quality of questions
Questions are phrased clearly and unambiguously.
A variety of questions were asked.
Different cognitive levels were covered.
Language
Accurate translations
Subject terminology used correctly
No form of racial/cultural or sexual discrimination
General remarks:
Signature:
MODERATOR EDUCATOR
408 s e c t i o n 7 • m o d e r at i o n t emplat es

Educator:
TRACKING MODERATION TOOL
Subject:
Comments
Assessment task Date Moderator Capacity
Names of learners
Level: Internal
s e c t i o n 7 • m o d e r at i o n t emplat es
409
6/6/13 4:53:08 PM
Comments
410
Assessment task Date Moderator Capacity
Names of learners
Level: Internal

Level: Cluster
1st round of moderation

Final moderation
Level: School visits
Level: Umalusi
6/6/13 4:53:09 PM
Learner portfolio: Contents/Consolidation/Intervention
ACCOUNTING Grade 12
Name: Your goal for Accounting for the year:
Contact detail of parents: Home: Work: Cell phone:
CASS activities Date Total mark Mark achieved % Comment of teacher/parent Signature parent Signature moderator Calculation of year mark
Term 1
Written report /10
Control test /10
Term 2
Project /20
Mid-year /20
examination
Term 3
Case study /10
Control test /10
Trial examination /10
TOTAL FOR YEAR MARK /100
End-of-year examination /300
TOTAL /400
Statement of Authenticity:
I hereby declare that ALL items in my portfolio are my own original work, and that where I have used any other source, I have given credit to it. These items were
also not previously handed in for assessment/moderation.
Signature of learner:
411
6/6/13 4:53:09 PM
Section 8
answer sheet templates
FORMAT FOR INCOME STATEMENT FOR COMPANY
Name of business Limited

INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2018
Note R
Sales
Cost of sales
Gross profit
Other operating income
Fee income (from services rendered)
Rent income
Profit on sale of assets
Bad debts recovered
etc.
Gross operating income
Operating expenses
Salaries and wages

Audit fees
Directors’ fees
Depreciation
Sundry expenses
etc.
Operating profit (loss)

Interest income 1
Profit (loss) before interest expense
Interest expense 2
Profit (loss) before tax
Income tax
Net profit (loss) after tax 8
s e c t i o n 8 • answer sheet templates 413

FORMAT FOR BALANCE SHEET FOR COMPANY

BALANCE SHEET AT 31 MARCH 2018
Note R
ASSETS
NON-CURRENT ASSETS
Fixed / tangible assets 3
Financial assets
CURRENT ASSETS
Inventories 4
Trade and other receivables 5
Cash and cash equivalents 6
TOTAL ASSETS

SHAREHOLDERS’ EQUITY
Share capital 7
Retained income 8
NON-CURRENT LIABILITIES
Loan from ...
Loan from ...
CURRENT LIABILITIES
Trade and other payables 9
Bank overdraft
Current portion of loan
(could be replaced by Note 10)
TOTAL EQUITY AND LIABILITIES
414 s e c t i o n 8 • answer sheet templates

FORMAT FOR NOTES TO THE FINANCIAL STATEMENTS FOR
COMPANIES

NOTES TO THE FINANCIAL STATEMENTS AT 31 MARCH 2018
1. Interest Income
On fixed deposit
On savings account
On current bank account
On overdue debtors
2. INTEREST EXPENSE
On loan from ...............................
On overdraft
On overdue creditors
3. FIXED / TANGIBLE ASSETS

Land and
Carrying value at beginning of year
Cost
Movements
Additions
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
4. INVENTORIES
Trading stock
Consumable stores on hand

Trade debtors
Provision for bad debts
Net trade debtors
SARS – income tax
Expenses prepaid
Income accrued (receivable)
Deposits paid for water and electricity

Fixed deposits (maturing within 12 months)
Savings account
Bank
Cash float
Petty cash

AUTHORISED
Number of ordinary authorised shares: _____________ shares
ISSUED
_____________ ordinary shares in issue at the beginning of the
year
_____________ additional shares issued during the financial
year at issue price R _______ each
_____________ ordinary shares in issue at the end of the year
8. RETAINED INCOME
Net profit (loss) after tax for the year
Dividends on ordinary shares
Paid
Recommended

Trade creditors
Expenses accrued (payable)
Income received in advance (deferred)
Shareholders for dividends
SARS – income tax
Creditors for salaries
Unemployment Insurance Fund (UIF)

Pension Fund
Medical Aid Fund

FORMAT FOR CASH FLOW STATEMENTS FOR COMPANIES

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2018
Note R
Cash effects of operating activities
Cash generated (utilised) from operations 1
Interest paid
Dividends paid 3
Income tax paid 4
Cash effects of investing activities

Purchase of fixed assets 5
Proceeds from sale of fixed assets
Investments matured / placed
Cash effects of financing activities

Long-term loans received / paid
Net change in cash and cash equivalents 2

Cash and cash equivalents at the beginning of the year 2
Cash and cash equivalents at the end of the year 2
FORMAT FOR NOTES TO THE CASH FLOW STATEMENTS FOR

COMPANIES

NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2018
1. RECONCILIATION BETWEEN NET PROFIT BEFORE TAX AND CASH

GENERATED FROM OPERATIONS
Net profit before taxation
Depreciation
Interest expense
Cash effects of changes in working capital
Change in inventory
Change in receivables
Change in payables
Cash generated from operations

Net change Year 2 Year 1
Bank
Cash float
Petty cash

3. DIVIDENDS PAID
Dividends for year as reflected in financial statements
Dividends paid
4. INCOME TAX PAID

Income tax for year as reflected in financial statements
Income tax paid

Land and buildings
Vehicles
Equipment
WORKINGS FA at net book value

Start
Add: Buy
Less: Sell
Less: Depreciation
= End
FORMAT FOR PRODUCTION COST STATEMENT FOR

MANUFACTURING
Name of manufacturer
PRODUCTION COST STATEMENT FOR THE YEAR ENDED 31 MARCH 2018
Note R
Direct material cost 1
Direct labour cost 2
Prime cost
Factory overhead cost 3
Total cost of production
ADD: Work in progress at beginning of year
LESS: Work in progress at end of year


FORMAT FOR INCOME STATEMENT FOR MANUFACTURING
INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2018
Note R
Sales
Less: Cost of sales
Gross profit
Selling and distribution cost 4
Administration cost 5
Net profit
FORMAT FOR NOTES TO THE INCOME STATEMENT FOR

MANUFACTURING
FOR THE YEAR ENDED 31 MARCH 2018

Purchases
Carriage inwards
Less: Balance and the end of the year

Direct wages
Pension, medical and UIF benefits

Factory indirect wages
Factory rent
Depreciation on factory equipment

Commission on sales
Advertising
Bad debts

Office salaries
Depreciation on office equipment
FORMAT FOR CASH BUDGET

Name of business
CASH BUDGET FOR THE PERIOD 1 JANUARY 2018 TO 31 MARCH 2018
[actual & variance columns optional]
Total
Jan 2018 Feb 2018 Mar 2018 budget Actual Variance
RECEIPTS
Cash sales
Collections from debtors
TOTAL RECEIPTS
PAYMENTS
Cash purchases of stock
Payments to creditors
TOTAL PAYMENTS
CASH SURPLUS/DEFICIT
BALANCE AT BEGINNING OF MONTH
CASH ON HAND AT END OF MONTH
DEBTORS COLLECTION SCHEDULE FOR THE PERIOD 1 JANUARY 2018 TO

31 MARCH 2018
Credit sales Collections Collections Collections
Jan 2018 Feb 2018 Mar 2018
November 2017
December 2017
January 2018
February 2018
March 2018

Grade
Study & Master
12
Accounting
Study & Master Accounting Grade 12 has been especially
developed by an experienced author team according to the
Curriculum and Assessment Policy Statement (CAPS). This new
and easy-to-use course helps learners to master essential
content and skills in Accounting.
The comprehensive Learner’s Book includes:
case studies which deal with issues related to the real world,
and move learners beyond the confines of the classroom
margin notes to assist learners with new concepts –
especially GAAP flashes, that give learners guidance on
General Accepted Accounting Practice
examples with solutions after the introduction of each
new concept.
The Teacher’s Guide includes:
a daily teaching plan, divided into the four terms, that
guides the teacher on what to teach per day and per week
moderation templates to assist teachers with assessment
solutions to all the activities in the Learner’s Book.
Elsabé Conradie, a 2012 runner up for the National Teaching Awards for
Excellence in Secondary Teaching in the Western Cape, had her successes as an
educator highlighted when five of her Grade 12 learners were amongst the
WCED top 10 Accounting learners. Mandy Moyce is an experienced Accounting
teacher and subject head for Accounting and is currently the deputy principal at
the school where she teaches. Derek Kirsch taught Accounting, Business Studies
and Computer Studies before starting his own business developing educational
software. He is responsible for the innovative PowerPoint® presentation included
with this material.
www.cup.co.za
SM_Accounting_12_TG_CAPS_ENG.indd 2 2013/06/06 3:45 PM

Study Master Accounting Grade 12 Teacher S Guide

Uploaded by

Copyright:

Available Formats

Study Master Accounting Grade 12 Teacher S Guide

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Study Master Accounting Grade 12 Teacher S Guide

Uploaded by

Copyright:

Available Formats

Study & Master

Elsabé Conradie • Derek Kirsch • Mandy Moyce

SM_Accounting_12_TG_CAPS_ENG.indd 1 2013/06/06 3:45 PM

Elsabé Conradie • Derek Kirsch • Mandy Moyce

Acc 12 TG Book (12).indb 1

Cambridge, New York, Melbourne, Madrid, Cape Town,

Cambridge University Press

© Cambridge University Press 2013

This publication is in copyright. Subject to statutory exception

First published 2013

Editor: Christine de Nobrega

The photocopy masters in this publication may be photocopied or

Acc 12 TG Book (12).indb 2 6/6/13 4:52:19 PM

Acc 12 TG Book (12).indb 3 6/6/13 4:52:19 PM

2. Books and portfolios

2.2 Learner portfolios

Acc 12 TG Book (12).indb 1 6/6/13 4:52:19 PM

2.3 Intervention with learners

2.4 Teacher portfolios

Acc 12 TG Book (12).indb 2 6/6/13 4:52:19 PM

4. The purpose of Accounting

Acc 12 TG Book (12).indb 3 6/6/13 4:52:19 PM

5. Time allocation for Accounting on the timetable

6. Requirements to offer Accounting as a subject

Acc 12 TG Book (12).indb 4 6/6/13 4:52:19 PM

Acc 12 TG Book (12).indb 5 6/6/13 4:52:19 PM

8.1 Informal assessment

8.2 Formal assessment

Grade 12 programme of assessment

8.3 Forms of assessment

Acc 12 TG Book (12).indb 6 6/6/13 4:52:20 PM

8.3.3 Case study

Acc 12 TG Book (12).indb 7 6/6/13 4:52:20 PM

Acc 12 TG Book (12).indb 8 6/6/13 4:52:20 PM

Fixed assets corporations

Assessment Project Informal Mid-year examinations

Acc 12 TG Book (12).indb 10 6/6/13 4:52:20 PM

Acc 12 TG Book (12).indb 11 6/6/13 4:52:20 PM

Acc 12 TG Book (12).indb 12 6/6/13 4:52:20 PM

Term 1: Formal assessment

Acc 12 TG Book (12).indb 13 6/6/13 4:52:20 PM

Period 3 Close Mark informal assessment 8.1. Textbook Chapter 8

Acc 12 TG Book (12).indb 14 6/6/13 4:52:21 PM

Period 2 Inventory Mark Activity 10.9. Textbook Chapter 10

Acc 12 TG Book (12).indb 15 6/6/13 4:52:21 PM

Term 2: Formal assessment

Acc 12 TG Book (12).indb 16 6/6/13 4:52:21 PM

Acc 12 TG Book (12).indb 17 6/6/13 4:52:21 PM

Period 4 Budgets Mark Activity 14.11. Textbook Chapter 14

Period 3 Budgets Mark Activity 14.14. Textbook Chapter 14

Acc 12 TG Book (12).indb 18 6/6/13 4:52:21 PM

Term 3: Formal assessment

Term 4: Formal assessment

Acc 12 TG Book (12).indb 19 6/6/13 4:52:21 PM

1. Form of assessment: Written reportS

Use the following formula:

Acc 12 TG Book (12).indb 21 6/6/13 4:52:21 PM

Ethical conduct, King Code, Professional bodies, Audit reports and

Acc 12 TG Book (12).indb 22 6/6/13 4:52:21 PM

Accounting Total: 100 marks

Accounting Total: 100 marks