ACCOUNTING

LEARNERS MANUAL

GRADE 12

TERM FOUR

Topics:

1. Balance sheet with notes

2. Cash flow statement
3. Analysis and interpretation of financial
statements
4. Budgets
5. Inventory

Page 1 of 54
ACTIVITY 1: NOTE AND STATEMENT OF FINANCIAL POSITION. (50 marks; 40 minutes)

XINWA LTD

REQUIRED:

Refer to information A – F

1.1 Prepare the Retained Income Note on 28 February 2023. (11)

1.2 Complete the Statement of Financial Position (Balance Sheet) for the year ended
28 February 2023. (27)

NOTE:
Show workings, Certain figures are provided in your answer book.

1.3 The CEO, John Gxaba, owns 42% of the issued shares on 28 February 2023.
The board of Directors wants to issue the unissued shares in the next financial year.

1.3.1 Calculate the number of shares that John must buy to gain control of the
company. (4)

1.3.2 John wants to buy shares at the current Net asset value without advertising
them to the public. As an existing shareholder, why would you not be
satisfied with this arrangement? Explain. Provide TWO points. (4)

1.4 XINWA Ltd is planning to spend R500 000 on staff development and training over
the next two years. Explain where this amount should be shown in the published
annual report, and provide a reason for your answer. (4)

INFORMATION:

A. The following balances were extracted from the records of XINWA LTD on
28 February 2023:

R
Ordinary share capital ?
Retained income (1 March 2022) 57 480
Fixed assets at carrying value 3 940 900
Fixed Deposit: Dube Bank 415 000
Loan from director: J France 1 155 000
Inventory (all trading stock) 222 600
Trade and other payables 231 920
SARS: Income tax (provisional tax payment) 280 000
Cash in bank 212 400

Page 2 of 54
B. Share Capital and Dividends:

● Authorised shares: 800 000

● On 1 March 2022, 80% of the authorised share capital was in issue.

● Interim dividends of 28 cents per share was paid on 30 August 2022.

● On 28 February 2023, the company repurchased 40 000 shares at R1,25 above

the average share price of R6,00. The full amount for this transaction was paid
by EFT, but the EFT has not yet been entered in the CPJ.

● A final dividend of R210 000 was declared on 28 February 2023.

C. Profit and tax:

Income tax at 31% of the net profit for the year amounted to R306 280.
D. Fixed deposit:
R165 000 of the fixed deposit matures on 30 June 2023. The rest matures in 2025.
E. Loan from Director J France:
● The loan was originally received on 1 December 2020.
● This loan is to be repaid over 5 years in equal monthly instalments with effect
from 31 December 2020. All payments have been made.
● Interest is not capitalised and has been paid in full.

F. Financial indicators on 28 February 2023:

Current ratio 1,5: 1

Net asset value (NAV) 650 cents
Market price (Security Exchange) 710 cents

[50]

Page 3 of 54
ACTIVITY 1 ANSWER BOOK

1.1 Prepare the Retained Income Note on 28 February 2023.

Balance on 1 March 2022

Ordinary share dividends

Balance on 28 February 2023

1.2 Complete the Statement of Financial Position (Balance Sheet) for

the year ended 28 February 2023.
ASSETS
Non-current assets
Fixed assets 3 940 900

Current assets

TOTAL ASSETS
EQUITY AND LIABILITIES
Shareholders’ equity

Non-current liabilities
Loan (1 155 000
Current liabilities 888 200
Trade and other payables 231 920

27

TOTAL EQUITY AND LIABILITIES

Page 4 of 54
1.3.1 Calculate the number of shares that John must buy to gain
control of the company.

4
1.3.2 John wants to buy shares at the current Net asset value without
advertising them to the public. As an existing shareholder, why
would you not be satisfied with this arrangement? Explain.
Provide TWO points.

4
1.4 Xinwa Ltd is planning to spend R500 000 on staff development
and training over the next two years. Explain where this amount
should be shown in the published annual report and provide a
reason for your answer.

EXPLANATION REASON

Page 5 of 54
ACTIVITY 2

BALANCE SHEET, GAAP AND AUDIT REPORT

Choose a GAAP principle in COLUMN B that matches the description

in COLUMN A. Write only the letters (A–F) next to the question
numbers (4.1.1 to 4.1.5) in the ANSWER BOOK.

COLUMN A COLUMN B
2.1.1 The original cost of the assets of a A prudence
business needs to be recorded.
B matching
2.1.2 All significant information needs to be
clearly shown in the financial statements C business entity
of a business.
D materiality
2.1.3 Income and expenses must be recorded
in the correct financial period. E historical cost

2.1.4 Financial Statements are prepared with F going concern

the assumption that the business does not
expect to close down in the near future.

2.1.5 The owner and business are seen as two

separate entities for accounting purposes.

(5 x 1) (5)

2.2 VELAPHI LIMITED The information provided relates to VELAPHI Ltd for the
year ended 30 June 2023. VELAPHI Ltd has an authorised share capital of
1 000 000 ordinary shares.

REQUIRED:
2.2.1 Prepare the following notes to the Balance Sheet:
a) Ordinary share capital (10)
b) Retained income (13)

2.2.2 Complete the Balance Sheet (Statement of financial position) on 30 June

2023. Show calculations. (46)

Page 6 of 54
INFORMATION:

A. Ordinary share capital:

• 700 000 ordinary shares were issued on 1 July 2022 to the

total value of R2 100 000.
• The company decided to buy back 30 000 shares from an
unsatisfied shareholder on 1 October 2022 at R9 per share.
An electronic transfer to the shareholder was done on the
same day. These shares do not qualify for any dividends
thereafter.
• A further 100 000 new ordinary shares were issued on
1 March 2023 at R7 per share.

B. Dividends:
An interim dividend of 20 cent per share was paid on 31
December 2022.
A final dividend of 35 cent per share was declared on 30 June
2023 and will be paid in August 2023.
C.
Net profit and income tax:

The correct net profit before income tax for the year ended on 30 June
2023 was calculated at R1 250 000. This is after all the adjustments
reflected below were brought into account.
• Income tax is calculated at 28% of net profit.

D. Balances in the books on 30 June 2023:

R
Retained income 799 660
Creditors’ Control 720 000
Debtors’ Control 530 000
Creditors for salaries 35 500
Accrued income 24 000
Cash in the bank 66 000
Fixed deposit ?
SARS: Income tax (provisional) 400 000

Page 7 of 54
E. Fixed deposit:

• A fixed deposit of R175 000 matures on 31 January 2024.

F. Loan: Quality Bank: R
Balance at beginning of financial year 300 000
Interest capitalised during the year 8 000
Repayments, including interest, during the year 56 000
• Capital portion of loan to be paid in the following financial year remains the same as
the current year.

G. Fixed assets:

• Land and buildings cost price on 1 July 2022 is R1 275 000.

The following invoice was not recorded:
• Improvement to land and buildings: R300 000
• Repairs to land and buildings: R120 000
• The carrying value of vehicles on 30 June 2023 was R720 000.
• All equipment were purchased on 1 January 2020 at R600 000. Depreciation is
calculated at 15% per annum on the cost-price method.

H. Rent income:
• Rent income received in advance for July and August 2023 amounted to R17 000.

I. Financial indicators on 30 June 2023:

• The current ratio is 1,5: 1

Page 8 of 54
ACTIVITY 2 ANSWER BOOK

2.1 Choose a GAAP principle in COLUMN B that matches the description in

COLUMN A.
2.1.1

2.1.2

2.1.3

2.1.4

2.1.5
5

2.2.1 (a) ORDINARY SHARE CAPITAL

Authorised shares:
1 000 000 ordinary shares
Issued share capital:

Ordinary shares on 1 July 2022

Ordinary shares on 30 June 2023

10

(b) RETAINED INCOME

Balance on 1 July 2022
Net profit after income tax

Ordinary share dividends

Balance on 30 June 2023

13

Page 9 of 54
2.2.2 VELAPHI LTD
BALANCE STATEMENT ON 30 JUNE 2023
ASSETS
NON-CURRENT ASSETS
Fixed Assets

CURRENT ASSETS

Inventory

Trade and other receivables

Cash and cash equivalents

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS EQUITY

NON-CURRENT LIABILITIES
Loan: Quality Bank

CURRENT LIABILITIES
Trade and other payables

Shareholders for dividends

TOTAL EQUITY AND LIABILITIES

46

Page 10 of 54
ACTIVITY 3

You are provided with information related to Lisakhanya LTD on 30 June 2023.

REQUIRED:

Prepare the Statement of Financial position on 30 June 2023.

INFORMATION:
List of balances
3 000 000
Ordinary share capital
Trade and other payables 1 620 000
Cash and cash equivalent 375 000
Fixed deposit 750 000

The following financial indicators were calculated in 30 June 2023.

Current ratio 1,25: 1
Acid test ratio 0,6: 1
Net asset value per share 500 cents
Debt/equity ratio 0,25: 1
The number of shares on 30 June 2023 amounted to 648 000.

Page 11 of 54
ACTIVITY 3 ANSWER BOOK
BALANCE SHEET AS AT 30 JUNE 2023

ASSETS

NON-CURRENT ASSETS

CURRENT ASSETS

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS’ EQUITY

NON-CURRENT LIABILITIES

CURRENT LIABILITIES

Page 12 of 54
CASH FLOW STATEMENT

ACTIVITY 1: (30 marks)

The information relates to Bellco Ltd for the year ended on 31 August 2023.

REQUIRED:

1.1 Calculate the Cash effects of changes in working capital. Show all
calculations. (4)

1.2 Calculate the following amounts that would appear on the Cash Flow
Statement. Show all calculations.

1.2.1 Income tax paid (4)

1.2.2 Dividends paid (3)

1.2.3 Proceeds from sale of fixed assets (5)

1.2.4 Repurchase of shares (2)

1.2.5 Net change in cash and cash equivalents (3)

1.3 Calculate the following financial indicators on 28 August 2023.

1.3.1 Net asset value per share (4)

1.3.2 % Return on average shareholders’ equity (4)

Page 13 of 54
INFORMATION:

A. Extract from the Balance Sheet for the year ended 31 August:

2023 2022

Fixed assets 12 138 000 12 357 000

Investments (4% p.a.) 250 000 600 000

Current assets 3 465 000 3 200 000

Trading stock 1 720 000 2 250 000

SARS (Income tax) 65 000 0

Trade & other receivables (excluding SARS) 1 140 000 940 000

Cash & cash equivalents 540 000 10 000

TOTAL ASSETS 15 853 000 16 157 000

Shareholders' equity 11 011 400 8 595 000

Share capital 8 960 000 6 360 000

Retained income 2 051 400 2 235 000

Loan from Unity Bank (11% p.a.) 3 000 000 5 400 000

Current liabilities 1 841 600 2 162 000

Trade & other payables 920 000 1 260 000

SARS (Income tax) 0 72 000

Shareholders for dividends 921 600 620 000

Bank overdraft 0 210 000

TOTAL EQUITY & LIABILITIES 15 853 000 16 157 000

Page 14 of 54
B Extract from the Income statement and Notes on 31 August 2023:
.
Depreciation R 1 010 000
Interest expense 462 000
Net profit before tax 2 600 000
Net profit after tax 1 820 000
Interim dividends paid 770 000
Final dividends declared 921 600
C Share Capital:

• 1 000 000 ordinary shares were in issue on 31 August 2022.

• 400 000 ordinary shares were issued on 1 September 2022 at R8.60 each.
• 120 000 ordinary shares were repurchased on 28 February 2023 from the estate
of a shareholder, at R2,60 above the average issue price.
D Changes to fixed assets:

• New vehicles and equipment were bought during the year for R880 000.
• Unused vehicles were sold at book value during the year.

Page 15 of 54
ACTIVITY 1: ANSWER BOOK

1.1.1 Calculate the Cash effects of changes in working capital. Show all calculations.
(4)

CASH EFFECTS OF CHANGES IN WORKING CAPITAL

1.2.1 Income tax paid (4)

1.2.2 Dividends paid (3)

1.2.3 Proceeds from sale of fixed assets (5)

1.2.4 Repurchase of shares (2)

Page 16 of 54
1.2.5 Net change in cash and cash equivalents (3)

Cash & cash equivalents at end of year 540 000

1.3.1 Net asset value per share (4)

1.3.2 % Return on average shareholders’ equity (4)

Page 17 of 54
ACTIVITY 2:

You are provided with information relating to Meteor Supermarkets Ltd. The financial
year-end is 28 February 2023.

REQUIRED:

2.1 Refer to Information E:

Calculate the missing amounts (indicated by a, b and c) in the Fixed/Tangible Asset

Note for the year ended 28 February 2023. (12)

2.2 Complete the Cash Flow Statement for the year ended 28 February 2023. Some
of the details and figures have been entered in the ANSWER BOOK. Show ALL
workings. (31)

2.3 At the AGM, a shareholder stated that the Cash Flow Statement reflects poor
decisions by the directors.

Explain TWO points, with relevant figures, to support his opinion. (4)

INFORMATION

A. Extract from the Income Statement for the year ended 28 February 2023:

Interest on loan (all capitalised) 88 500

Net profit before tax 1 575 000

Income tax 441 000

Page 18 of 54
B. Extract from the Balance Sheet as at:

28 Feb. 2023 28 Feb. 2022

Current assets 3 337 300 4 641 000

Inventories 818 200 641 000

Trade debtors 2 377 600 1 512 000

SARS: Income tax 128 000 -

Cash and cash equivalents 13 500 2 488 000

Shareholders' equity 8 839 000 7 400 000

Ordinary share capital 8 700 000 6 600 000

Retained income 139 000 800 000

Mortgage loan: Excel Bank

908 000 508 000
(Interest rate: 12,5% p.a.)

Current liabilities 2 063 700 1 302 000

Trade creditors 678 700 700 000

Shareholders for dividends 870 000 480 000

Bank overdraft 515 000 -

SARS: Income tax - 122 000

Page 19 of 54
C. Shareholders' register:

DATE DETAILS

1 March 2022 1 200 000 shares in issue

31 March 2022 300 000 shares issued at R8 each

31 December 2022 The company bought back 50 000 shares from a

dissatisfied shareholder, S Smit, at R9,50 each. The
average price of all shares issued to date was R6 per
share.

28 February 2023 1 450 000 shares in issue

D. Dividends for the financial year ending 28 February 2023:

Interim dividends paid on 31 August 2022 R750 000

Final dividends declared on 28 February 2023 R870 000

E Fixed/Tangible assets:

LAND AND VEHICLES

BUILDINGS

Carrying value at the beginning of the 2 689 000 1 880 000

financial year

Cost 2 689 000 3 250 000

Accumulated depreciation - (1 370 000)

Movements

Additions at cost a 330 000

Disposals at carrying value - b

Depreciation - c

Carrying value at the end of the financial year 6 740 000

Cost 6 740 000 3 440 000

Accumulated depreciation -

Page 20 of 54
 Additional information in respect of fixed/tangible assets:

(i) A vehicle was sold for cash at its carrying value on 31 May 2022. The following
extract of the vehicle sold was taken from the Fixed Assets Register:

Cost price: R140 000 Date purchased: 1 March 2021

Rate of depreciation: 20% p.a. on the diminishing-balance method

FINANCIAL YEAR END DEPRECIATION ACCUMULATED

DEPRECIATION

28 February 2022 28 000 28 000

31 May 2023 5 600 33 600

(ii) A new vehicle, costing R330 000, was purchased and paid for by
EFT on 1 January 2023.

(iii) Vehicles are depreciated at 20% p.a. on the diminishing balance

method.

(iv) New premises (land and buildings) were acquired during the financial
year.

Page 21 of 54
ACTIVITY 2: ANSWER BOOK

2.1 Calculate the missing amounts (indicated by a, b and c) in the

Fixed/Tangible Asset Note for the year ended 28 February 2023.

No Workings Amount

Page 22 of 54
2.2 Complete the Cash Flow Statement for the year ended 28 February 2023.
Some of the details and figures have been entered in the ANSWER
BOOK. Show ALL workings.

METEOR SUPERMARKETS LTD

CASH FLOW STATEMENT FOR YEAR ENDED 28 FEBRUARY 2017

Cash flow from operating activities

Cash generated from operations 969 600

Interest paid (88 500)

Cash flow from investing activities

Cash flow from financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of year 2 488 000

Cash and cash equivalents at end of year

Page 23 of 54
2.3

At the AGM, a shareholder stated that the Cash Flow Statement reflects poor
decisions by the directors. Explain TWO points, with relevant figures, to support
his opinion.

Page 24 of 54
INTERPRETATION OF FINANCIAL INFORMATION

ACTIVITY 1

FLORIDA LIMITED AND TEXAS LIMITED

Gilbert Lewis owns shares in both companies. He wants to analyse both companies’
financial results in order to improve his portfolio.

REQUIRED

1.1 Comment on the liquidity of the two companies and explain which company
manages the working capital more efficiently. (6)

1.2 Comment on the degree of risk and gearing of both companies. Explain how
this will influence your choice of company. (6)

1.3 Consider the Return, Earnings and Dividends of the two companies.

a. Explain whether or not Gilbert should be satisfied with the return on his
investment in both companies. Provide financial indicators/ figures to support
your answer. (4)
b. Calculate the dividend pay-out policy of both companies. Indicate which
company has adopted the better policy and the possible reason for that choice.
Provide figures and calculations to support your answer. (6)

1.4

a. Refer to Information B and C. Indicate how many shares Gilbert must purchase
in each company to maintain the percentage shareholding he had at the start
of the year. (8)
b. Calculate the amount Gilbert will spend in order to maintain his percentage
shareholder in each company. Provide a reason why Gilbert would pay this
amount. (6)
c. Comment on the price per share that Gilbert paid for these shares in each
company and provide figures to support your answer. (4)

Page 25 of 54
INFORMATION

A. Financial indicators and additional information on 29 February 2020:

Florida Texas

Current ratio 1,5 : 1 2,1 : 1

Acid test ratio 0,6 : 1 1,1 : 1
Debt-Equity ratio 0,3 : 1 0,8 : 1
Return on total capital employed 15,5% 11,8%
Interest on loan 14% 14%
Return on shareholder’s equity 16% 28%
(14% in 2019) (24% in 2019)
Earnings per share 124 cents 143 cents
Dividends per share 100 cents 75 cents
Market value of shares R8,00 R16,00
Net Asset Value per share (NAV) R7,20 R17,50

B. Share capital of the two companies:

Florida Texas
Beginning of the year: 1 420 000 R2 856 000 140 000 R1 960 000
March 2019 Shares shares
New shares issued during 117 000 R936 000 70 000 R1 120 000
the year Shares Shares
Shares repurchased during ‒ ‒ 35 000 R560 000
the year Shares

C. Number of shares Gilbert owns in each company:

• At the start of the year, Gilbert owned the following shares in each company

Florida Limited 214 200 shares

Texas Limited 84 000 shares
{40}.

Page 26 of 54
ACTIVITY 1

ANSWER BOOK

1.1 Comment on the liquidity of the two companies and explain which
company manages the working capital more efficiently.

1.2 Comment on the degree of risk and gearing of both companies. Explain
how this will influence your choice of a company.

1.3 Consider the Return, Earnings and Dividends of both companies.

a) Explain whether or not Gilbert should be satisfied with the return on his
investment in both companies. Provide financial indicators / figures to
support your answer.

Page 27 of 54
 b) Calculate the dividend pay-out policy of both companies. Indicate
which company has adopted a better policy and the possible reason for
that choice. Provide figures and calculations to support your answer.

1.4 A) Refer to information B and C indicate how many shares Gilbert must
purchase in each company to maintain his percentage shareholding he had
at the start of the year.

B) Calculate the amount Gilbert will spend in order to maintain his

percentage shareholder in each company. Provide a reason why Gilbert
would spend this amount

Page 28 of 54
C) Comment on the price per share that Gilbert paid for these shares in
each company and provide figures to support your answer.

Page 29 of 54
ACTIVITY 2
CONCEPTS, RATIOS AND INTERPRETATION
2.1 CONCEPTS
Provide an accounting concept that best addresses the following analysis questions.
Write the answer only next to each number (2.1.1 – 2.1.4) in the ANSWER BOOK.

2.1.1 Can the business pay off all it debts?

2.1.2 To what extent does the business rely on borrowed funds?

2.1.3 Will the business be able to pay of its immediate debts?

2.1.4 How well is the business managing or controlling its expenses? (4)

2.2 FINANCIAL INDICATORS

Calculate the following financial indicators for the financial year ended 28 February
2023: (Round off your calculation to ONE decimal point or the nearest cent, where
applicable.)

2.2.1 % Operating profit on sales. (4)

2.2.2 Net asset value per share (3)

2.2.3 Return on average shareholders' equity (5)

2.2.4 Debt-equity ratio (3)

Page 30 of 54
2.3 INTERPRETATION

Refer to Information E.

2.3.1 The directors are not satisfied with the liquidity position. Quote and explain
THREE relevant financial indicators (with figures) to support this statement. (6)

2.3.2 The directors decided to increase the loan during the current financial year.
Explain why this was a good decision. Quote and explain TWO financial
indicators (with figures) in your answer. (8)

2.3.3 The directors were pleased with the price that the company paid to buy back
the 40 000 shares. Give a suitable reason why the directors felt that way. Quote
relevant financial indicators (with figures) to support your answer. (3)

INFORMATION:

A. Extract from the Income Statement for the year ended 28 February 2023:

Sales R2 800 000

Operating profit 910 000
Net profit before tax 1 240 000
Income tax ?
Net profit after tax 892 800

Page 31 of 54
 B. Extract from the Balance Sheet on 28 February 2023:
2023 2022
Fixed assets (carrying value) 4 387 160 2 430 000

Fixed deposit : FS Bank 1 450 000 1 200 000

Current assets 1 944 280 1 010 000

Inventories 975 700 345 000
Debtors and other receivables 419 000 629 600
SARS (Income tax) 0 17 400
Cash and cash equivalents 549 580 18 000

Shareholders' equity 5 950 800 4 345 000

Share capital 5 402 000 4 200 000
Retained income 548 800 145 000

Mortgage loan: TKO Bank 1 950 000 400 000

Current liabilities 587 200 555 000

Creditors and other payables 437 800 165 000
Accrued expenses 8 700 5 000
SARS (Income tax) 35 700 0
Shareholders for dividends 105 000 275 000
Bank overdraft 0 110 000

Page 32 of 54
C. Share Capital
• Authorised share capital is 3 000 000 ordinary shares.
• On 1 March 2022, 1 200 000 ordinary shares had been issued at R3, 50 per
share.
• On 1 November 2022, 300 000 ordinary shares were issued at R4, 50 each.
• On 28 February 2023, 40 000 shares were repurchased at R0, 60 more than
the average price per share.

D. Dividends
The directors declared a final dividend of 7 cents per share. The shares bought
back on 28 February 2023 also qualify for the final dividends.

E. Financial Indicators on 28 February:

2023 2022
Net profit after tax on sales 31,9% 24,5%
Current ratio 3,3 : 1 1,8 : 1
Debtors' collection period 36 days 28 days
Creditors' payment period 45 days 80 days
Acid-test ratio 1,7 : 1 1,2 : 1
Rate of stock turnover 3 times 5 times
Return on shareholders' equity ? 17,5%
Return on total capital employed 24.2% 21,2%
Debt-equity ratio ? 0,09 : 1
Interest rate on loans 10,5% 10,5%
Net asset value per share ? 362 cents
Market value per share 505 cents 480 cents

TOTAL MARK: 40

Page 33 of 54
ACTIVITY 2

2.1 CONCEPTS

2.1.1
2.1.2
2.1.3
2.1.4

2.2 FINANCIAL INDICATORS

2.2.1% Operating profit on sales

2.2.2 Net asset value per share

2.2.3 Return on average shareholders' equity

2.2.4 Debt-Equity ratio

Page 34 of 54
2.3 INTERPRETATION

2.3.1 The directors are not satisfied with the liquidity position. Quote and
explain THREE relevant financial indicators (with figures) to support this
statement.

2.3.2 The directors decided to increase the loan during the current financial
year. Explain why this was a good decision. Quote and explain TWO financial
indicators (with figures) in your answer.

2.3.3 The directors were pleased with the price that the company paid to buy
back the 40 000 shares. Give a suitable reason why the directors felt that way.
Quote relevant financial indicators (with figures) to support your answer.

Page 35 of 54
CASH BUDGETING

ACTIVITY 1

You are provided with information relating to VIVO Computers owned by Thando Shai.

REQUIRED:

1.1 Thando compared the budgeted figures to the actual figures for August 2022.
Thando is not concerned about the overspending in advertisement.
Explain why this is so. Quote figures. (3)

BUDGETED ACTUAL
Sales 122 500 147 000
Advertising 12 000 16 500
Payment to creditors 64 900 0

1.2 Complete the Creditors Payment Schedule for November 2022. (8)

1.3 Calculate the missing figures (i) TO (vii) in the Cash Budget. (21)

1.4 State ONE consequence that the business might face should they not pay the
amount due to creditors in September 2022. (2)

1.5 Thando wants to replace an old equipment in December 2022 but does not
have the cash available. The cost of new equipment amounts to R195 000. The new
items are expected to last 5 years. Options are:

• Request a friend to become an equal partner through contributing a capital of

R195 000.
• Lease the equipment from Rifo Computers at R7 250 per month.
• Acquire a new loan of R195 000 at an interest rate of 15% p.a to be repaired
over 24 months.

Briefly explain ONE advantage and ONE disadvantage of EACH option. (6)

Page 36 of 54
INFORMATION:

A. Sales, purchases of stock and cost of sales:

Total sales:
Actual August R120 000
September R135 000
Projected October R150 000
November R180 000

• 40% of sales are cash, the rest is on credit.

• The mark-up is 50% on cost.
• Stock is replaced on a monthly basis.
• 25% of purchases are cash; the rest is on credit.

B. Creditors payment:
It is expected that creditors will be paid as follows:

• 75% are paid in the month of purchases to receive a 5% discount.

• 15% are paid in the month after purchases.
• 10% are paid in the second month after purchases.

C. Delivery expenses:13
Thando pays Speedo Deliveries to deliver goods to customers free of charge.
He budgets a fixed percentage of monthly sales for this expense.

D. Salaries and wages:

Employees receive an increase of 7,5% from 1 November 2022.

E. Loan:
Part of the loan will be repaid on 1 November 2022. Interest of 15% p.a is paid
monthly and is not capitalised.

Page 37 of 54
F. Extract from Cash Budget for October and November 2022.
RECIEPTS OCTOBER NOVEMBER
Cash sales (i) 72 000
Collection from debtors 78 300 89 550
Rent income 7 500 7 750
Additional capital to be contributed
Commission income

PAYMENTS
Cash purchase of stock (ii)
Payment to creditors 74 200
Delivery expenses of goods to customers 9 000 (iii)
Salaries and wages (iv) 38 700
Stationery
Telephone 1 000 1 000
Training of staff 2 500 2 500
Advertising 1 500 1 800
Repayment of loan (v)
Interest on expense 2 100 1 500
Sundry expense 3 300 3 400
Drawings

G. After finalising the budget, the following was identified:

OCTOBER NOVEMBER
Cash surplus or deficit for the month (24 350) (vii)
Cash at beginning of month 53 250
Cash at end of month (vi) (10 950)

Page 38 of 54
ACTIVITY 1 ANSWER BOOK

1.1

Thando is not concerned about the overspending in advertisement.

Explain why this is so. Quote figures.

3
1.2. CREDITORS PAYMENT SCHEDULE

MONTH CREDIT OCTOBER NOVEMBER

PURCHASES
August R60 000 6 000
September R67 500 10 125
October 53 438
November R90 000
69 653

1.3 8

CALCULATION AMOUNT
(i) Cash sales

(ii) Cash purchases of stock

(iii) Delivery expenses

(iv) Salaries and wages

(v) Repayment of loan

(vi) Cash at end of month

(vii) Cash surplus or deficit for the month

Page 39 of 54
 21

1.4

State ONE consequences that the business might face should they not pay the
amount due to creditors in September 2022.

1.5 Briefly explain ONE advantage and ONE disadvantage of each option.

OPTION ADVANTAGE DISADVANTAGE

Request a friend to
become a partner.

Lease the equipment from

Rifo

Acquire a new loan.

Page 40 of 54
ACTIVITY 2

2.1 Explain why:

2.1.1 Bad debts will not appear in a cash budget. (1)

2.1.2 A cash budget is an effective internal control mechanism. (2)

2.2 MARIE (PTY) LTD

The company is registered with an authorised share capital of 800 000 ordinary
shares.

REQUIRED:

2.2.1 Refer to Information A and B

Calculate the collection from debtors during September 2022. (7)

2.2.2 Calculate the missing amounts denoted by (i) to (iv) on the extract
CashBudget provided in Information E. (13)

2.2.3 Calculate the % increase in salaries and wages. (3)

2.2.4 Provide TWO reasons why the company decides to invest in staff training. (2)

2.2.5 Refer to Information J.

Marie has decided to change the sales strategy due to low turnover during the
Covid-19 pandemic.

• Comment on the new approach regarding cash and credit sales. (2)
• Explain TWO disadvantages of the approach adopted. (4)
• Comment on the actual and budgeted figures for advertising and packing
material. Quote figures (6)

Page 41 of 54
INFORMATION:

JULY AUGUST SEPTEMBER

R R R

Credit sales 364 000 382 200 354 900

Cost of sales 320 000 336 000 312 000
figures:

B. Debtors pay according to the following trend:

50% of debtors pay in the month of sales and receive a 4% discount.

30% pay in the month following the sales month.

18% pay in the second month after the sales month.

Bad debts accounts for 2%

C. Cash sales is 35% of total sales.

D. Purchases and payment to creditors:

• Stock sold is replaced in the month of sale.

• Cash purchases amounts to 25% of total purchases.
• Creditors for stock purchases are paid in the second month following the
purchase (60 days).

Page 42 of 54
E. Extract of the Cash Budget for the two months:

AUGUST SEPTEMBER
Receipts
Cash Sales 205 800 191 100
Cash from Debtors
Rent Income (i) 13 878
Additional shares 465 000
Payments
Cash purchases of stock 84 000 78 000
Payment to creditors 225 000 (ii)
Salaries and wages 134 300 142 358
Repayment of loan (iii)
Interest on loan 3 300 2 750
Advertising 17 640 16 380
Packing material 35 280 32 760
Delivery expenses 41 160 38 220
Ordinary share dividends (iv)
Staff training 70 000

F. The rent will increase by 8% p.a. from 1 September 2022.

G. Part of the loan will be re-paid on 1 September 2022. Interest on loan at 11% p.a.
is payable on the last day of each month and is not capitalised.

H. On 1 July 2022, there were 480 000 ordinary shares in issue.

• Additional shares will be issued on 1 August 2022 at R6, 20 per share.

• Interim dividends of 15 cents per share is payable on 30 September 2022, to
all shares on the share register.
I. Advertising is a fixed percentage of budgeted cash sales.

Delivery to customers is outsourced to Victor Reliable

J. Budgeted and Actual figures for July 2022:

BUDGET ITEMS BUDGETED R ACTUAL R

Cash sales 196 000 50 400
Credit sales 364 000 285 600
Total sales 560 000 336 000
Advertising 16 800 13 440
Packing material 33 600 18 500

40

Page 43 of 54
ACTIVITY 2 ANSWER BOOK

2.1 Explain why:

2.1.1

Bad debts will not appear in a cash budget.

(1)

2.1.2

A cash budget is an effective internal control mechanism.

(2)

2.2.1 DEBTORS COLLECTION SCHEDULE

Month Credit sales AUGUST SEPTEMBER

JUNE 360 000 64 800

JULY 364 000 109 200

AUGUST 382 200 183 456

SEPTEMBER 354 900

RECEIPTS FROM 357 456

DEBTORS
(7)

2.2.2 Calculate:

WORKINGS ANSWER
(i) Rent income: August

(ii) Payment to creditors: September

Page 44 of 54
 (iii) Repayment of loan: September

(iv) Ordinary share dividends: September

(13)

2.2.3 Calculate: % increase in salaries and wages.

WORKINGS ANSWER

(3)

2.2.4

Provide TWO reasons why the company decides to invest in staff training.

(2)

2.2.5

Comment on the new approach regarding cash and credit sales.

(2)

Explain TWO disadvantages of the approach adopted.

(4)

Page 45 of 54
Comment on actual and budgeted figures for the following items:

ADVERTISING

PACKING MATERIAL

(6)

40

Page 46 of 54
1.1 INVENTORY VALUATION (30 Marks; 20 Minutes)

Bizana Traders sell three different types of laptops: Leno, Toliba and Della. They use
the periodic inventory system and the specific identification method to value stock.

REQUIRED:

1.1.1 Explain the following valuation methods:

• FIFO (2)
• Specific identification (2)

1.1.2 Calculate the cost price per laptop on hand on 1 October 2019. (2)

1.1.3 Calculate the value of the closing stock on 30 September 2020. (9)

INFORMATION:

The following information is in respect of the year ended 30 September 2020:

A. Opening stock:
DATE MODEL UNITS COST PRICE TOTAL
PER UNIT
1 Oct. 2019 Leno 118 ? R413 000

B. Purchases and returns:

DATE MODEL UNITS COST PRICE TOTAL
PER UNIT
PURCHASES:
Dec. 2019 Toliba 410 R3 750 R1 537 500
Mar. 2020 Della 630 R4 650 R2 929 500
RETURNS:
Mar. 2020 Della 20 R4 650 (R93 000)
Net purchases R4 374 000

C. Sales for the year

MODEL UNITS AMOUNT
Leno 118 R598 850
Toliba 356 R2 229 375
Della 502 R4 247 775
R7 076 000

Page 47 of 54
1.2 MANAGEMENT OF INVENTORIES

You are provided with information from the books of Kyle's Office Equipment for the
year ended 29 February 2020. The business sells office desks, chairs and printers.

Kyle took certain decisions at the beginning of the 2020 financial year.

REQUIRED:

Provide relevant figures for ALL the questions below.

1.2.1 Desks:

• What decision did Kyle take regarding the selling price of the desks? (2)
• How has this decision affected the business? State TWO points (4)

1.2.2 Chairs:

Was it a good idea for Kyle to change to a cheaper supplier of chairs? Explain TWO
points. (5)

1.2.3 Printers:

Kyle significantly reduced the selling price of printers in the 2020 financial year in
response to a new competitor who sells the same model at R1 200.

Based on the information below, provide TWO separate suggestions to Kyle to

improve the profit on printers in 2021. (4)

INFORMATION:

DESKS CHAIRS PRINTERS

2020 2019 2020 2019 2020 2019
Orders received 300 370 770 730 925 615
from customers
Gross units sold 300 365 770 730 725 615
Returns by 0 5 90 0 15 15
customers
Selling price R2 520 R1 920 R490 R714 R975 R1 326
Cost price R1 400 R1 200 R350 R510 R780 R780
Mark-up % 80% 60% 40% 40% 25% 70%
Gross profit R336 R259 R95 R148 R138 R327
000 200 200 920 450 600
Stock turnover rate 6,0 7,2 4,0 4,0 11,8 10,0
[30]

Page 48 of 54
ANSWER SHEET

1.1 INVENTORY VALUATION

1.1.1

Explain the FIFO valuation method.

Explain the specific identification valuation method.

[4]

1.1.2

Calculate the cost price per laptop on hand on 1 October 2019.

[2]

1.1.3

Calculate the value of the closing stock on 30 September 2020.

Page 49 of 54
MANAGEMENT OF INVENTORIES

1.2.1 Desks

What decision did Kyle take regarding the selling price of the desks? Provide
figures. [2]

How has this decision affected the business? State TWO points. Provide
figures.[4]

1.2.2 Chairs

Was it a good idea for Kyle to change to a cheaper supplier of chairs?

YES/NO: _______

Explain TWO points. Provide figures.

[5]

Based on the information given, provide TWO separate suggestions to Kyle to

improve the profit on printers in 2021.
Suggestion 1 (with figures):

Suggestion 2 (with figures):

[30]

Page 50 of 54
ACTIVITY 2 INVENTORY VALUATION AND PROBLEM SOLVING

[35 Marks; 28 Minutes]

2.1 You are provided with information relating to Khombindlela Traders. The business,
owned by Nompumelelo Mthiyane, sells one type of shoes. The financial year ended
on 31 August 2021. The weighted average method is used to value their stock and the
periodic stock system is in operation.

REQUIRED:

2.1.1 Calculate the value of closing stock on 31 August 2021. (10)

2.1.2 Nompumelelo is concerned about the control of the stock of shoes. She
suspects that pair of shoes has been stolen by her workers. Provide a calculation to
confirm her suspicion. (5)

2.1.3 Calculate the average stock holding period (in days) for the financial year
ended 31 August 2021. (7)

2.1.4 Nompumelelo is considering a change in the method of valuing stock.

NB: the value of closing stock using the FIFO method amounted to R81 600. Give
ONE reason in favour of and ONE reason against changing to the FIFO method. (4)

INFORMATION:

A. OPENING STOCK AND CLOSING STOCK:

DATE NUMBER OF UNIT PRICE TOTAL

SHOES
01 September 400 R350 R140 000
2020
31 August 2021 200 ? ?

B. PURCHASES:

DATE NUMBER OF UNIT PRICE PURCHASES

SHOES
September 2020 300 R370 R111 000
November 2020 350 R380 R133 000
April 2021 300 R390 R117 000
July 2021 250 R400 R100 000
TOTAL 1 200 R461 000

Page 51 of 54
B. CARRIAGE ON PURCHASES:

Carriage on purchases from the manufacturer to Khombindlela Traders was R10.50

per pair of shoes.

C. RETURNS:

Hundred (100) defective pair of shoes, bought during July 2021, were returned to the
supplier. The supplier allowed a refund. There will be no refund for carriage on
purchases.

D. SALES:

A selling price of R900 per pair of shoes was maintained throughout the financial
year. The total sales for the financial year amounted to R1 116 000

2.2 PROBLEM SOLVING

You are provided with the information related to Kia Suppliers for three branches.
The business is owned by Mduduzi Msweli.

REQUIRED:

Mduduzi is concerned with the results. Identify a different problem in relation to each
branch. Quote figures/amounts to support your findings or opinion. In each case,
offer Mduduzi advice on how to solve the problem identified. (9)

LOCATION OF BRANCH PINETOWN DUNDEE JOZINI

NAME OF MANAGER/ESS PEARL ARTHUR GEORGE
Number of bicycles available for 490 400 290
sale
Number of bicycles sold during the 490 72 250
year
Physical count on 31 August 2021 0 328 40
Cash sales (amounts actually R1 225 000 R237 600 R710 000
banked)
Cost price per bicycle R2 000 R2 000 R2 000
Mark-up% 25% 65% 50%
Selling price per bicycle R2 500 R3 300 R3 000
Advertising costs per year R10 000 R2 000 R10 000

[35]

Page 52 of 54
ACTIVITY 2: ANSWER SHEET

2.1.1

Calculate the value of closing stock on 31 August 2021 using the weighted
average method.

(10)

2.1.2

Nompumelelo is concerned about the control of the stock of shoes. She

suspects that shoes have been stolen by her workers. Provide a calculation
to confirm her suspicions.

(5)

2.1.3

Calculate the average stock holding period (in days) for the financial year
ended 31 August 2021.

(7)

2.1.4

Nompumelelo is considering a change in the method of valuing stock. NB:

the value of closing stock using the FIFO method amounted to R81 600
Give one reason in favour of changing to the FIFO method.

Give one reason against changing to the FIFO method.

(4)
Page 53 of 54
2.2

Mduduzi is concerned with the results. Identify ONE problem in relation to

each branch, quoting figures/amounts to support the problem. In each case,
offer Mduduzi advice on how to solve the problem identified.

Problem identified with Advice

figures.
PINETOWN
PEARL

DUNDEE
ARTHUR

JOZINI
GEORGE

(9)

[35]

Page 54 of 54