ACCOUNTING TRAINING MANUAL

2018 - 2020

Teacher Development Implementation

National Institute for Curriculum and Professional Development (NICPD)
NSC SUPPORT PROGRAMME

ACCOUNTING
2018 - 2020

TEACHER DEVELOPMENT IMPLEMENTATION

(NICPD)

1
TABLE OF CONTENTS

Page

Introduction 02

1  Icons 05

Module 1 : Statement of Financial Position

2  06 – 27
(Balance Sheet)

3  Module 2 : Cash flow Statements 28 – 66

Module 3 : Analysis and interpretation of financial

4  67 – 91
statements

5  Module 4 : Reconciliations 92 – 112

2
Introduction
In pursuit of quality education as an apex priority the DBE has developed a battery of NSC support
interventions. One of these will focus on Economics and Accounting in the FET band. The two subjects
have had some disturbing trends in the last few years, ranging from declining enrolment and
performance in the NSC examinations.
According to the CAPS curriculum Economics as a subject “aims to ensure that children acquire and
apply knowledge and skills in ways that are meaningful to their own lives”, and further defined as “the
study of how individuals, business, governments and other organizations within our society choose to
use scarce resources to satisfy their numerous needs and wants in manner that is efficient, equitable
and sustainable” (CAPS, Grade 10-12, Economics, page 8).
Both empirical and anecdotal evidence has shown that the number of schools offering Economics and
learners taking Economics at the National Senior Certificate (NSC) level has been on the decline. In
addition, the ratio of male to female learners writing the NSC examinations is skewed around 32% of
the learners being male. This situation needs to be arrested in s systematic way.
On the other hand, Accounting focuses on measuring performance, processing and communicating
financial information about economic sectors. It deals with the logical, systematic and accurate selection
and recording financial information and transactions as well as the compilation, analysis, interpreting
and communicating financial statements and managerial reports for use by interested parties.

While participation has dropped sharply from 148 000 in 2013 to 117 000 in 2017, pperformance has
been inconsistent since the introduction of CAPS in 2014, in one year the performance will increase and
the next year it will drop. Moreover performance has never been above the 70% mark since the
introduction of the new curriculum.
The DBE-initiated programme intentions resonate with the 2013 UNESCO Roadmap for implementing
Education for Sustainable Development. The Roadmap lifts up five priority action areas, three of which
are restated herein to shed more light on the programme for ten districts. The priority action areas are:
(i) Transforming learning and training environments: integrating sustainability principles into
education and training settings
(ii) Building capacities of educators and trainers: increase the capacity of educators to more
effectively deliver ESD
(iii) Accelerating sustainable solutions at local levels: at community level, scale up programmes
and networks
The profound intentions of the UNESCO roadmap and the DBE interventions interweave so pleasantly
towards the same end: capacity for effectiveness. The subject specialists at ground level have worked
together to produce the Training Manuals in Economics and Accounting that will be used by subject
advisors and teachers in the system. We want to express deep-felt gratitude to these subject specialists,
who generously offered their time and expertise in the development of these Training Manuals. It is
further worth stating the names of the writers of these manuals:

2 | ACCOUNTING TRAINING MANUAL | GRADE 12

 NO ECONOMICS PROVINCE ACCOUNTING PROVINCE
1 Ms Sithembiso Tshabalala KZN Mr PJ Fouche FS
2 Ms Thabisa Seleho NW Mr DP Lackay WC
3 Mr Thando Sikiti WC Ms ZJM Mampana MP
4 Ms RJK Mongalo LP Ms Beauty Mpanza GP
5 Ms Natalie Winter GP Mr Poobie Govender EC
6 Ms Palesa Booi FS Mr Veli Mbuli KZN
7 Ms Masego Khumalo NC Mr Dorian Olifant NC
8 Mr Mzikayise Masango DBE Mr NJ Mativandlela LP

This Manual has been submitted to SACE for endorsement, and can then be used by all provinces,
districts, and schools towards building teacher capacities, competencies and confidence. It is important
to note that this is not a textbook, and therefore the format and the purpose are different from that of a
textbook. Further, the ideas to further strengthen and improve the concepts are welcomed and can be
sent to email address given hereunder.
Wishing all the trainers, teachers and other users of this training manual all the best. We earnestly hope
that the manual will remain a valuable user-friendly tool in enhancing the requisite Economics and
Accounting competencies for subject advisors and classroom-based educators.

Mr. Phillip K Dikgomo

Director: Teacher Development Implementation
Dikgomo.p@dbe.gov.za
Department of Basic Education
January 2018

“Without confidence one is defeated twice in the journey of life”

Reggae scholar and intellectual

GRADE 12 | ACCOUNTING TRAINING MANUAL | 3

 1. This manual addresses the following broad topics/sections from the Financial Accounting field
as explained in CAPS:

 Company Financial Statements and Interpretation.

 Reconciliations.

Take note that other key topics such as Income Statement, VAT, Cost Accounting, Budgeting
and Stock Valuation are vitally important sections that must be thoroughly explained and
assessed.
2. The material herein is intended to supplement the work that must be covered during normal class
time, according to the ATP, and in no way intended to replace a good textbook and other useful
resources a teacher may have.

3. The activities are structured to move from the easy (requiring basic understanding) to the more
complex (requiring analytical skills and insight).

4. Many of the questions are extracted and adapted from past year examination papers. You are
expected to work through many past year papers as possible.

5. You are encouraged to source other material to help your preparation and delivery of meaningful
instruction.

6. Reading financial magazines, watching the news, and using publications such as the King Code
and the amended Companies Act will add to your confidence and attitude in effectively preparing
candidates for the final Grade 12 examination and beyond.

7. This manual includes an answer book as well as marking guidelines.

4 | ACCOUNTING TRAINING MANUAL | GRADE 12

ICONS

1. Discussion

2. Group Activity

3. Individual Activity

4. Study Tips

5. Notes

6. Useful Information

GRADE 12 | ACCOUNTING TRAINING MANUAL | 5

 MODULE 1: STATEMENT OF FINANCIAL POSITION (THE BALANCE SHEET)

The Balance Sheet is a Financial Statement that is usually prepared at the end of an accounting period
(a financial year) to show the financial position of a business in terms of its assets, liabilities and equity.
Understanding Financial Statements require a thorough understanding of the typical Accounting Cycle
and especially the Accounting Equation. These topics are introduced in Grade 8/9/10 and extend into
Grade 11 and 12.
ACTIVITY 1:

Illustrate a basic flow of recording and reporting financial information. Commence with transactions and
end with the Preparation of Financial Statements.

UNDERSTANDING THE ACCOUNTING EQUATION

The accounting equation is: ASSETS = EQUITY + LIABILITIES

Extending the Accounting Equation, we have the following:

ASSETS EQUITY LIABILITIES

 CAPITAL
 DRAWINGS
 CAPITAL
 CURRENT ACCOUNTS
 NON-CURRENT
 NON-CURRENT ASSETS  ORDINARY SHARE LIABILITIES
 CURRENT ASSETS CAPITAL  CURRENT LIABILITIES
 RETAINED INCOME

 PROFIT AND LOSS

(Income and Expenses)

6 | ACCOUNTING TRAINING MANUAL | GRADE 12

 ACTIVITY 2:

Place the General Ledger accounts from the list provided in the appropriate column on the table provided
in the Answer Book, as follows:

NON-CURRENT CURRENT NON-CURRENT CURRENT

EQUITY
ASSETS ASSETS LIABILITIES LIABILITIES

LIST OF ACCOUNTS:
Sales Rent income Stationery Consumable stores on hand
Salaries and wages Retained income Trading stock Deferred income
Drawings Accumulated Vehicles Prepaid expenses
depreciation on vehicles
Debtors control Fixed deposit Loan: NVT Bank Provision for bad debts
Debtors allowances Accrued expenses Fee income Accrued income

Points for discussion:

1. The different forms of ownership and the changes in terminology relative to each.
2. Accounts that have the effect of increasing/decreasing specific items on the Balance Sheet.

GRADE 12 | ACCOUNTING TRAINING MANUAL | 7

 ACTIVITY 3: BASIC FORMAT OF THE BALANCE SHEET

A typical Balance Sheet is presented. Fill in the missing amounts to complete this financial statement.
MOON LTD
BALANCE SHEET FOR THE YEAR ENDED 28 FEBRUARY 2018
ASSETS Notes
NON-CURRENT ASSETS 4 980 000

Fixed/tangible assets 3
Financial assets 160 000

CURRENT ASSETS 1 820 000

Inventories 4 956 000

Trade and other receivables 5
Cash and cash equivalents 6 2 500

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS’ EQUITY

Share capital 7
Retained income 8 218 200

NON-CURRENT LIABILITIES

Mortgage Loan (740 000 –

CURRENT LIABILITIES 921 800

Trade and other payables 9

Bank overdraft 45 300
Current portion of loan 148 000

6 800 000

8 | ACCOUNTING TRAINING MANUAL | GRADE 12

 QUESTION 4 : BASIC BALANCE SHEET AND NOTES

You are provided with information relating to JOB Taylor Ltd for the year ended 28 February 2017.
REQUIRED:
4.1 Complete the Retained Income Note to the Balance Sheet (Statement of Financial
Position). (10)
4.2 Complete the Balance Sheet (Statement of Financial Position) on
28 February 2017. (Show workings in brackets). (40)
INFORMATION:
A. Extract from the Pre-adjustment Trial Balance on 28 February 2017.

Debit Credit

Ordinary share capital (900 000 shares) R 4 050 000

Retained income (1 March 2016) 345 000
Loan: Vivian Bank (1 March 2016) 750 000
Fixed assets at cost R 4 350 000
Accumulated depreciation 650 520
Trading stock 258 740
Debtors Control 195 000
Provision for bad debts 4 000
Fixed deposit: Santa Bank ?
Bank 464 000
Creditors’ Control 101 000
SARS (Income tax) 364 000
Rent Income 80 150

B. Additional information:
(i) Share Capital

600 000 Shares were in issued at the beginning of the current financial year
(Average Share Price; R4,00).
300 000 Additional shares were issued on 1 May 2016 at R5,50 per share.
75 000 On 28 February 2017, shares were bought back from a shareholder
for R450 000. This transaction was not recorded yet. They are
entitled to a final dividend.

10

GRADE 12 | ACCOUNTING TRAINING MANUAL | 9

 (ii) Loan agreement with Vivian Bank:

Opening balance: 1 March 2016. R 750 000

Repayment during the year, including interest 192 300
Closing balance: 28 February 2017 615 000

 The interest on loan is capitalised.

 R125 000 of the loan will be paid in the next financial year.
(iii) Dividends:

 An interim dividend of R240 000 was paid on 31 August 2016.

 A final dividend of 28 cents per share was declared on 28 February 2017
and must still be brought into account.

(iv) The following adjustments must be taken into consideration for the
drafting of the Balance Sheet only:

 Audit fees still outstanding on 28 February 2017, R19 000.

 A debtor owing R6 500 was declared insolvent, was not recorded.
 The provision for bad debt must increase by R1 500.
 Consumable stores on hand, R2 180.
 The rent for February 2017 was not received yet. Note that the rent was
increase by 15% on 1 November 2016.

(v) SARS (income tax):

 Income tax for the year is calculated at 28% of the net profit.
 Net profit before tax (after all adjustments) amounted toR1 250 000.

65

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10 | ACCOUNTING TRAINING MANUAL | GRADE 12

 ACTIVITY 5: BALANCE SHEET AND NOTES

You are provided with information relating to Fouche Limited for the financial year ended
28 February 2017.
REQUIRED:
5.1 Prepare the following notes to the Balance Sheet on 28 February 2017:
5.1.1 Ordinary share capital (10)
5.1.2 Retained income (11)
5.1.3 Fixed/Tangible assets (16)
5.2 Complete the Balance Sheet on 28 February 2017. (33)

INFORMATION:
A. Figures extracted from the accounting records on 28 February 2017:
R
Ordinary share capital ?
Retained income (1 March 2016) 146 000
Fixed deposit: Zamdela Bank 400 000
Mortgage loan: Cash Bank 920 000
Fixed/Tangible assets ?
Debtors' control ?
Creditors' control 95 700
SARS: Income tax (provisional tax payments) 246 000
Expenses accrued/payable 28 300
Bank (Dr) 61 340
Petty cash and cash float 3 200
Trading inventory 234 000
Consumable stores on hand 14 500

B. Share Capital:
 The company has an authorised share capital of 3 000 000 shares.
 1 800 000 shares were issued at R4,00 per share during the previous year.
 A further 200 000 shares were issued on 1 May 2016 at R6,00 per share. This
transaction was recorded.
 On 3 January 2017, the business repurchased 80 000 shares from a shareholder at
a price of R4,90 per share. This was correctly recorded.

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 11

 D. Fixed Assets:
Incomplete Fixed Asset note on 28 February 2017:

LAND AND
EQUIPMENT VEHICLES
BUILDINGS
Carrying value in beginning R 6 990 000 R 155 000 520 000
Cost (1 March 2016) 6 990 000 240 000 880 000
Accumulated depreciation (0) (85 000) (360 000)
Movements
Additions at cost * * 0
Disposal at carrying value (0) (0) *
Depreciation (0) * (161 600)
Carrying value at the end 7 490 000 * *
Cost (28 February 2017) 7 490 000 360 000 *
Accumulated depreciation (0) * *

 Land and buildings were bought during the current financial year.
 New equipment for R120 000 purchased on credit on 28 February 2017, was not
yet recorded.
 Equipment is depreciated at 10% p.a. on diminishing-balance method.
 A vehicle, sold for cash at carrying value on 31 August 2016, was correctly
recorded. Details of the vehicle sold were as follows:
- Cost price, R144 000
- Accumulated depreciation at beginning of financial year, R84 000
- Depreciation rate of 20% p.a. on the on the cost price method.
 Total depreciation on vehicles for the year amounted to R161 600.
F. Fixed Deposits:
There are two fixed deposits at CCB Bank.
 One, valued at R175 000, matures on 31 July 2017.
 The other, valued at R225 000, matures on 31 December 2019.
G. Net profit and Income tax:
 Net profit before tax as per the Income Statement, R780 000;
 Income tax for the year, R234 000.
H. Loan: Cash Bank:
 R100 000 of the loan will be paid back during the next financial year.

USING FINANCIAL INDICATORS TO COMPLETE A BALANCE SHEET

The basic Balance Sheet introduced in Grade 10 is extended each year to include relevant changes
that come with the different forms of ownerships. Essentially, differences are mainly noted in the Equity
Section of each different form of ownership.
It is common practice at Grade 12 level to complete the Balance Sheet using financial indicators to
calculate certain missing figures. This is a skill that must be developed through an understanding of the
relationship between the different sections of a Balance Sheet and the relevant financial indicators.
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12 | ACCOUNTING TRAINING MANUAL | GRADE 12

The following examples illustrate how financial indicators are used to calculate certain missing figures.
Each example focus on different indicators, moving from the simple to the more challenging.
Example 1:

Extract from the Pre-adjusted Trial Balance on 28 February 2017

Debit Credit

Balance sheet section

Trade debtors ?
Inventories 15 000
Bank 10 000
Trade creditors 200 000

Financial indicator
Current ratio 2.5 : 1

Extract of the Balance sheet

Current assets Current liabilities x 2,5* *500 000

Trade debtors balancing figure 475 000

Inventories 15 000

Bank 10 000

Current liabilities *200 000

Trade creditors 200 000

* Current assets is 2,5 times more than Current Liabilities;

Therefore 200 000 x 2,5 = 500 000 will be equal to the Current Assets.

14

GRADE 12 | ACCOUNTING TRAINING MANUAL | 13

 Example 2:

Extract of the Pre-adjusted Trial Balance on 28 February 2017

Debit Credit
Balance sheet section
Trade debtors ?
Inventories ?
Bank 25 000
Trade creditors 300 000

Financial indicator
Current ratio 2,0 : 1
Acid test ratio 1,4 : 1

Extract of the Balance sheet

Current assets Current liabilities x 2,0 600 000

Trade debtors balancing figure 395 000

Inventories 0,6 of trade creditors #180 000

Bank 25 000

Current liabilities 300 000

Trade creditors 300 000

# The difference between the Current Ratio and the Asset Test Ratio is Inventory.
Therefore the difference between 2 : 1 and 1,4 : 1 is 0,6. R300 000 x 0,6 = R180 000.

15

14 | ACCOUNTING TRAINING MANUAL | GRADE 12

 Example 3:

Extract of Pre-adjusted Trial Balance on 28 February 2017:

Debit Credit
Balance sheet section
Ordinary share capital 5 000 000
Retained income 800 000
Loan: Poobie Bank ?

Financial indicator
Debt: Equity ratio 0,1 : 1

Extract of the Balance sheet

EQUITY & LIABILITIES

Ordinary shareholders’ equity 5 800 000

Ordinary share capital 5 000 000

Retained income 800 000

Non-current liabilities

Loan: Poobie Bank 0,1:1 # 580 000

# The Loan balance will therefore be 0,1 of the Shareholders’ Equity. 5 800 000 x 0,1.

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 15

 Example 4:

Extract from the Pre-adjusted Trial Balance on 28 February 2017:

Debit Credit
Balance sheet section
Ordinary share capital 4 000 000
Retained income ?
Loan: Mashele Bank 900 000

Financial indicator
Debt: Equity ratio 0,2 : 1

Extract of the Balance sheet

EQUITY & LIABILITIES

Ordinary shareholders’ equity *4 500 000

Ordinary share capital 4 000 000

Retained income balancing figure 500 000

Non-current liabilities

Loan: Mashele Bank 0,2:1 900 000

* Shareholders equity will be equal to the Loan balance divided by 0,2.

900 000 ÷ 0,2 = R4 500 000

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16 | ACCOUNTING TRAINING MANUAL | GRADE 12

 Example 5:

Extract from the Pre-adjusted Trial Balance on 28 February 2017:

Debit Credit
Balance sheet section
Ordinary share capital 5 200 000
Retained income ?

Note: The Share Capital comprised 800 000 ordinary shares.

Financial indicator
Net asset value per share 700 cent

Extract of the Balance sheet

EQUITY & LIABILITIES

Ordinary shareholders’ equity *5 600 000

Ordinary share capital 5 200 000

Retained income balancing figure 400 000

* Net asset value per share is Shareholders Equity/Number of Shares.

Therefore 800 000 x 7 = R5 600 000 will be the Shareholders Equity.
(700 cents is 700/100)
Subtract the Ordinary Share Capital balance of R5 200 000 = Retained Income balance.

Example 6

Extract: Pre-adjustment Trial Balance on 28 February 2017:

Debit Credit

Balance sheet section

Ordinary share capital ?
Retained income 750 000

Note: 950 000 shares were in issue at the end of the financial year.

18

GRADE 12 | ACCOUNTING TRAINING MANUAL | 17

Financial indicator
Net asset value per share 800 cent

Extract of the Balance sheet

EQUITY & LIABILITIES

Ordinary shareholders’ equity *7 600 000

Ordinary share capital balancing figure 6 850 000

Retained income 750 000

* Shareholders Equity will be 950 000 x 8 = 7 600 000. Subtract the Retained Income balance of
R750 000 = Ordinary Share Capital balance.
Example 7:

Extract: Pre-adjustment Trial Balance on 28 February 2017:

Debit Credit

Balance sheet section

Ordinary share capital ?
Retained income 750 000
Loan: Beauty Bank 650 000

Note: The total capital employed amounts to R6 500 000.

Extract of the Balance sheet

EQUITY & LIABILITIES

Ordinary shareholders’ equity # 5 850 000

Ordinary share capital balancing figure 5 100 000

Retained income 750 000

Non-current liabilities 650 000

Loan 650 000

# Total Capital Employed = Shareholders Equity + Non-Current Liabilities.

Therefore R6 500 000 – 650 000 = 5 850 000. Subtract Retained Income to calculate OSC.

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18 | ACCOUNTING TRAINING MANUAL | GRADE 12

 Example 8:

Extract: Pre-adjustment Trial Balance on 28 February 2017:

Debit Credit
Balance sheet section
Ordinary share capital ?
Retained income 450 000
Loan: Baloyi Bank 580 000
Fixed assets
Trade debtors ?
Bank 50 000
Inventory ?
Trade creditors ?
Shareholders for dividends 120 000

Financial indicators:
Current ratio 2,5 : 1
Acid test ratio 1,9 : 1
Debt equity ratio 0,1 : 1

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 19

 ACTIVITY 6: BALANCE SHEET AND NOTES

EXTRACT OF THE BALANCE SHEET

Current assets 1 200 000

Trade and other receivables missing figure 288 000

Inventories acid test ratio 862 000

Cash and cash equivalents 50 000

EQUITY & LIABILITIES

Ordinary shareholders’ equity debt/equity 5 800 000

Ordinary share capital missing figure

Retained income 450 000

Non-current liabilities 580 000

Loan 580 000

Current liabilities current ratio 480 000

Trade and other payables missing figure 360 000

Shareholders for dividends 120 000

& Use the Current ratio to calculate Total Current Liabilities of 480 000.
Trade and other payables of 360 000 is the missing figure.
$ Using the Acid Test Ratio: TOR + CCE = 480 000 x 1,9 = 912 000.
Therefore Inventories = 912 000 – 50 000 = 862 000
Or: 2,5 – 1,9 = 0,6 x 480 000 = 288 000 (Inventories).
# Using Debt/Equity, Shareholders Equity is 580 000 ÷ 0,1; Subtract RI to find OSC.

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20 | ACCOUNTING TRAINING MANUAL | GRADE 12

The information relates to Boonzaaier Ltd. The financial year ended on 28 February 2017.
REQUIRED:
6.1 Prepare the following notes to the Balance Sheet on 28 February 2017:
6.1.1 Ordinary share capital (10)
6.1.2 Retained income (10)
6.2 Prepare the Balance Sheet on 28 February 2017. Show ALL workings. (35)
INFORMATION:
A. List of balances on 28 February 2017, unless otherwise stated:

R
Ordinary share capital (See Information B.) ?
Retained income (1 March 2016) 567 000
Fixed assets at carrying value (1 March 2016) ?
Fixed deposit: Parys Bank ?
Loan from director (See Information F.) 630 000
Debtors' control 554 000
Provision for bad debts (1 March 2016) 31 300
Bank (favourable) ?
Trading stock 1 040 000
Creditors' control 692 000
Accrued income 2 440
Prepaid expenses 16 800
SARS: Income tax (provisional tax payments) 952 000

B. Share capital:
 Boonzaaier Ltd is authorised to sell 6 500 000 ordinary shares.
 The Share Capital balance on 1 March 2016, of R10 000 000 comprised
4 000 000 ordinary shares.
 800 000 shares were issued on 1 December 2016 at R5,50 each.
 250 000 shares were repurchased on 20 February 2017 at R3,25 per share.
C. Dividends:
 An interim dividend of R680 000 was paid on 28 August 2016.
 A final dividend of 36 cents per share was declared on 28 February 2017. All
shares (including the shares repurchased on 20 February 2017) qualify for
final dividends.

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 21

 D. Net profit before tax:
 After taking into account all relevant information, the net profit before tax was
accurately calculated to be R3 400 000.
 Income tax at the rate of 27% must be taken into account.
E. The interest on the fixed deposit was R42 000. The fixed deposit was invested
on 1 May 2016 at Parys Bank at 8% p.a.
F. Loan from Director:
 The loan was originally received on 1 September 2014.
 This loan is to be repaid over 6 years in equal monthly instalments with effect
from 30 September 2014. All payments have been made.
 Interest is not capitalised and has been paid in full.
G. Provision for bad debts:
The provision for bad debts must be adjusted to R33 240 of the outstanding
debtors.
H. The following financial indicators were calculated after all adjustments had been
taken into account:

Current ratio 1,5 : 1

Acid-test ratio 1,1 : 1

ACTIVITY 7: BALANCE SHEET AND NOTES

You are provided with information relating to Mtombeni Ltd for the year ended 30 June 2017.
The business has an authorised share capital of 1 750 000 ordinary shares.
REQUIRED:
7.1 Prepare the following notes to the Balance Sheet:
7.1.1 Ordinary share capital (10)
7.1.2 Retained income (10)
7.1.3 Trade and other receivables (10)
7.2 Use the information below and complete the Balance Sheet on 30 June 2017.
Where notes are not required, show ALL workings in brackets. (25)

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22 | ACCOUNTING TRAINING MANUAL | GRADE 12

INFORMATION:
A. Issued share capital comprised 900 000 ordinary shares on 1 July 2016.
B. The following was extracted from the books on 30 June 2017:

Ordinary share capital (1 July 2016) 6 075 000

Retained income (1 July 2016) 345 900
Fixed/Tangible assets (carrying value) ?
Fixed deposit: Swan Bank 360 000
Debtors’ control 156 570
Provision for bad debt 10 380
Loan: Drake Bank 375 000
Creditors' control 196 700
SARS: Income tax (provisional payments) 435 900
Dividends on ordinary shares (interim dividends) 290 000

C. An additional 100 000 shares were issued on 1 December 2016 at R9,25 per share.
This was recorded properly.
On 1 May 2017, 120 000 shares were bought back at R8,10 per share. These
shareholders were not entitled to final dividends.
D. The following adjustments must be considered when preparing the Balance Sheet:
 A debtor with a credit balance of R10 500 must be transferred to the Creditors'
Ledger.

 The provision for bad debts must be increased by R5 610.

 The rent expense increased by R1 850 on 1 April 2017. Total rent of R163 400
was paid up to 31 July 2017.

 The bank reconciliation reflected a post-dated cheque for R35 000 dated 31
August 2017 issued to a creditor in settlement of the account.

 The statement received from Drake Bank in respect of the loan reflected interest
capitalised of R44 600. Monthly repayments are R12 500 including interest. These
fixed monthly repayments will end in 2019.

 On 30 June 2017, a final dividend of 28 cents per share was declared.

E. Net profit after tax, after taking into account the adjustments above, was calculated as
R1 080 000. The income tax rate is 28% of net profit before tax.
F. The following financial indicators apply to the Balance Sheet
 Current ratio is 2,3:1
 Acid-test ratio is 1,7:1

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 23

 ACTIVITY 8: BALANCE SHEET AND NOTES

Information relating to Chuta Ltd for the financial year ended 28 February 2017 is provided.
REQUIRED:
8.1 Prepare the following notes to the Balance Sheet on 28 February 2017:
8.1.1 Retained income (10)
8.1.2 Fixed/Tangible assets (28)
8.2 Complete the Balance Sheet on 28 February 2017. (32)
INFORMATION:
A. Figures extracted from the accounting records on 28 February 2017:

R
Ordinary share capital ?
Retained income (1 March 2016) 372 140
Fixed deposit: Boris Bank 1 010 140
Mortgage loan: Mongomorry Bank ?
Fixed/Tangible assets ?
Debtors' control ?
Bank (Dr) 43 500
Petty cash and cash float 5 700
Inventory 490 000
Creditors' control ?
SARS: Income tax (provisional tax payments) 408 560

B. Shares Capital:
On 1 February 2017 the business repurchased 190 000 shares at R2,50 above the average
price per share. This has been recorded properly.

C. Dividends:
 Interim dividends of R140 000 were paid on 1 October 2016.
 Final dividends of R250 000 were declared on 15 February 2017.

D. There are two fixed deposits at the Boris Bank. One, valued at R235 000, matures on 1
September 2017. The other, matures on 31 December 2019.
E. The Income tax for the year amounts to, R450 000. It is 30% of the net profit before tax.

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24 | ACCOUNTING TRAINING MANUAL | GRADE 12

F. Note to the Balance Sheet on 28 February 2017

FIXED/TANGIBLE ASSETS LAND AND EQUIPMENT VEHICLES

BUILDINGS
Carrying value in the beginning * *
R4 899 999
Cost 4 899 999 360 000 970 000
Accumulated depreciation (0) (340 000) (395 000)
Movements
Additions at cost * * 0
Disposal at carrying value (0) (0) *
Depreciation (0) * *
Carrying value at the end 5 540 399 * *
Cost 5 540 399 * *
Accumulated depreciation (0) * *

Details of fixed assets

 Land and buildings were bought during the year and are not depreciated.
 New equipment was bought for R180 000 on credit on 1 September 2016. This
transaction has been recorded.
 Provide for depreciation on equipment at 10% p.a. on the cost price method.
 A vehicle was sold for cash at carrying value on 30 November 2016. This has been
properly recorded. The details of the asset sold from the Fixed Asset Register were
as follows:
- Cost price, R240 000
- Accumulated depreciation at beginning of financial year, R192 000
- Depreciation rate of 20% p.a. on the diminishing-balance method
G. The loan statement received from Mongomorry Bank on 28 February 2017 indicated the
following:

R
Balance at beginning of financial year 1 955 000
Repayments during financial year 745 000
Interest capitalised 234 600
Balance at end of financial year ?

10% of the outstanding loan matures on 1 August 2017.

H. The following financial indicators apply to the Balance Sheet

The current ratio is 1,4:1
Net asset value per share is 750 cent. The company issued 800 000 shares.

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 25

 ACTIVITY 9: BALANCE SHEET AND NOTES

The information relate to Himalaja Limited for the financial year ended 28 February 2017.
REQUIRED:
9.1 Prepare the following notes to financial statements on 28 February 2017:
9.1.1 Share capital (9)
9.1.2 Retained Income (9)
9.2 Refer to Information G:
Calculate the following using the first-in-first-out stock valuation method:
9.2.1 Value of the closing stock (5)
9.2.2 The number of items stolen (6)
9.3 Prepare the Balance Sheet on 28 February 2017. (31)
INFORMATION:
A Share Capital
 480 000 shares of the 780 000 authorised ordinary shares, were issued on
1 May 2014 at R7,50.
 On 1 December 2016, 120 000 shares were issued at R9,50 per share.
 30 000 ordinary shares were repurchased on 1 February 2017 for R8,50 per
share. These shareholders were entitled to final dividends.
B Dividends
An interim dividend of 45 cents per share was paid. The new shares issued did not
qualify for the interim dividend.
A final dividend of 60 cents per share was declared on 26 February 2017.
C The following balances appeared in the books on 28 February 2017:

Fixed assets ?
Fixed deposit: DDM Bank 450 000
Retained income (1 March 2016) 271 000
Trade debtors 442 000
SARS – Income tax Dr 245 800
Trade and other payables ?
Bank 199 950
Mortgage Loan : Cheetah Bank 601 250

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 D Fixed Deposit
The fixed deposit was invested on the 1 September 2016 at 6% p.a. interest,
capitalised. Interest was not taken into account above. 30% of the investment will
mature on 30 June 2017.
E Mortgage Loan
R120 250 of the loan will be paid back in the next financial year.
F Inventories
Inventories comprise trading stock only. The stock records show, among others, the
following details:

Cost price
Units Total cost
per unit

Opening Stock 850 R70 R 57 250

Purchases 7 500 R599 500

April 2016 3 100 R75 R232 500

October 2016 2 900 R80 R232 000
February 2017 1 500 R90 R135 000

Returns (October 2016) 150 ? ?

Sales 4 790 R130 R622 700
Closing stock 3 350

G Income tax
Net profit after tax on 28 February 2017 amounted to R630 000. Income tax is
calculated at 30 %.
H Current ratio on 28 February 2017 was 1,9 : 1.

For extra practice, refer to the following questions from past examination papers:
Nov 2014 Question 3 Note for OSC, Retained Income and Balance Sheet

Nov 2015 Question 3 Calculate net profit Note Retained Income and Balance
Sheet
June 2016 Question 4 Note for OSC, Retained Income and Balance Sheet

Nov 2017 Question 3 Note for OSC, Retained Income and Balance Sheet

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 MODULE 2: CASH FLOW STATEMENT
Overview of CAPS
TOPIC CONTENT
Financial accounting: companies Financial statements and notes:
 Preparation of final accounts and • Income Statement
financial statements.
• Balance Sheet
 Analysis of financial information from
• Cash Flow Statement
published financial statements.
Analysing and interpreting published financial
statements which forms part of the Annual Report.

MAIN PURPOSE OF THE CASH FLOW STATEMENT:

Reflects on the effect of business activities on the cash resources in terms of:
• how cash was generated;
• how cash was utilised
Business activities are divided into three broad types of activities namely: operating, investing and
financing activities.
Operating activities:
 The main income-earning activities of the company.
 They are directly related to the main objective of a company.
 The cash generated by operating activities is perhaps the most significant indicator of a
company’s success because this relates to the main purpose of establishing the company.
Investing activities:
 These activities involve the actual establishment of the infrastructure of a business in order for it
to be in a position to earn income.
Financing activities:
 Activities involved in funding the infrastructure of the company.
 They result in the change in the size and composition of the debt and the capital funding.

The Format of the Cash Flow Statement

CASH FLOW STATEMENT FOR THE YEAR ENDING …… Special notes:

Cash effect of operating activities XXX  Should be positive at all times if
company is successful.
Cash effects of investing activities XXX  Depends on decisions made by
directors

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 Cash effects of financing activities XXX  Depends on decisions made by
directors

Net change in cash and cash equivalents XXX  Depends on the above points
Cash and cash equivalents at the beginning of year XXX

Cash and cash equivalents at the end of year XXX  Positive total will assist liquidity

The use of brackets in a CFS will indicate an OUTFLOW of cash.

WHERE DO I FIND THE INFORMATION TO PREPARE A CASH FLOW STATEMENT?
Information to prepare the CFS is usually obtained from prepared Financial Statements, and additional
information provided to explain certain figures on the Statements; summarised as follows:
Sales xxx
Less: Cost of sales (xxx)
Gross Profit xxx
Income Statement
Add: Other operating income xxx
Less: operating expenses (xxx)
Operating profit xxx
Operating Activities
Current Assets
Inventories xxx
Trade and other receivables xxx
Balance Sheet
Cash and Cash Equivalents xxx
Current liabilities
Trade and other payables xxx
Non-current Assets
Investing Activities Balance Sheet Tangible/Fixed Assets xxx
Financial Assets/Fixed deposit xxx
Shareholders’ Equity xxx
Financing Activities Balance Sheet
Non-current liabilities xxx

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ADDRESSING EACH SECTION OF THE CASH FLOW STATEMENT TO FACILITATE A BETTER
UNDERSTANDING:
 CHANGES IN CASH AND CASH EQUIVALENTS:
 This is the last part of the Cash Flow Statement (Refer Format).
 This is also the net effect of the three different business activities on the cash assets.

CASH FLOW STATEMENT FOR THE YEAR ENDING ……

Cash effect of operating activities XXX
Cash effects of investing activities XXX
Cash effects of financing activities XXX

Net change in cash and cash equivalents XXX

Cash and cash equivalents at the beginning of year XXX

Cash and cash equivalents at the end of year XXX

Example 1 - (an increase in cash balances - inflow)

2017 2016

Current assets xxx xxx

Inventory xxx xxx

Trade and other receivables xxx xxx
Cash and cash equivalents 48 200 18 600

Solution: Completing the appropriate section of the Cash Flow Statement:

Net change in cash and cash equivalents 29 600 #

Cash and cash equivalents at beginning of the year 18 600

Cash and cash equivalents at end of the year 48 200

# The cash balance increased from R18 600 to R48 200 and therefore no brackets are used.
Example 2 - (a decrease in cash balances - outflow)

2017 2016

Current assets XXX XXX

Inventory xxx xxx

Trade and other receivables xxx xxx
Cash and cash equivalents 13 700 135 800

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Solution:

Net change in cash and cash equivalents (122 100) #

Cash and cash equivalents at beginning of the year 135 800

Cash and cash equivalents at end of the year 13 700

# The cash balance decreased from R135 800 to R13 700 and therefore brackets are used.
Example 3 - (what to do in the case of an overdraft)
Year 2 Year 1

CURRENT ASSETS XXX XXX

Inventory XXX XXX
Trade and other receivables XXX XXX
Cash and cash equivalents 2 000 3 000

CURRENT LIABILITIES XXX XXX

Bank overdraft 0 60 000
Trade and other payables XXX XXX

Solution:

Net change in cash and cash equivalents 59 000 #

Cash and cash equivalents at beginning of the year *(57 000)

Cash and cash equivalents at end of the year 2 000

* the opening balance must take into account the Current Asset portion (- 60 000 + 2 000)
# The cash balance increased from an overdraft to a favourable balance therefore we do
not use a bracket.

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 31

Activity 1
REQUIRED:
Complete the appropriate section of the Cash Flow Statement for the following: by providing the
missing figures in the respective spaces.
(a)
2018 2017
CURRENT ASSETS XXX XXX
Inventory XXX XXX
Trade and other receivables XXX XXX
Cash and cash equivalents 75 000 30 000
(b)
2018 2017
CURRENT ASSETS XXX XXX

Inventory XXX XXX

Trade and other receivables XXX XXX
Cash and Cash equivalents 3 500 6 500

2018 2017

CURRENT LIABILITIES XXX XXX

Bank overdraft 22 000 XXX

Trade and other payables XXX XXX

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 COMPLETING THE “CASH EFFECTS FROM FINANCING ACTIVITIES”.
 These include all activities involving the issue and repurchase of shares as well as the
obtaining and repayment of loans.
CASH FLOW STATEMENT FOR THE YEAR ENDING ………
Cash flow from operating activities XXX
Cash flow from investing activities XXX
Cash flow from financing activities ?

Proceeds from shares issued ?

Repurchase of shares ?
Loans received / repaid ?

Net change in cash and cash equivalents XXX

Cash and cash equivalents at beginning of the year XXX

Cash and cash equivalents at end of the year XXX

Important considerations:
 Information is obtained from the Balance Sheet (shareholders’ equity and non-current
liabilities) to complete this section.
 Always refer to the additional information (notes to the financial statements) especially for the
changes to share capital.
 Proceeds from shares issued will always be an inflow of cash.
 Funds used to repurchase of shares will always be an outflow of cash.
 An increase in loan will represent an inflow of cash.
 A decrease in loans (loans paid) will represent an outflow of cash.

OUTFLOWS OF CASH ARE ALWAYS SHOWN IN BRACKETS!

Example:
Information:
Year 2 Year 1
SHAREHOLDERS’ EQUITY XXX XXX

Ordinary Share Capital 526 500 300 000

Retained income XXX XXX
NON-CURRENT LIABILITIES 110 000 70 000

Loans 110 000 70 000

 100 000 additional shares were issued at R2,85 per share.

 25 000 shares were repurchased at R4,00 per share.

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 33

Solution:

CASH EFFECTS FROM FINANCING ACTIVITIES 225 000

Proceeds from shares issued (100 000 x R2,85) inflow 285 000
Repurchase of shares (25 000 x R4) (outflow) (100 000)
Loans received (110 000 – 70 000) inflow 40 000

The net inflow of 225 000 has no brackets.

Activity 2
REQUIRED: Complete the appropriate section of the Cash Flow Statement.
INFORMATION:

2018 2017

SHAREHOLDERS EQUITY

Ordinary Share Capital 2 184 000 1 520 000

Retained Income 1 153 000 770 000

NON-CURRENT LIABILITIES

Mortgage bond: Brick-bank 850 000 670 000

1. During the financial year 80 000 shares were issued at R10,40 per share.
2. The company repurchased 52 000 shares at R11 per share from an old shareholder.

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Activity 3
REQUIRED: Complete the appropriate section of the Cash Flow Statement.
INFORMATION:

2017 2016

SHAREHOLDERS EQUITY xxx xxx

Ordinary Share Capital 525 000 700 000

Retained Income xxx xxx

NON-CURRENT LIABILITIES 290 000 530 000

Mortgage bond: Brick-bank 290 000 530 000

1. During the financial year 60 000 shares were issued at R6,50 per share
2. The company repurchased 20 000 shares at R8 per share from a shareholder.

Activity 4
REQUIRED: Complete the appropriate section of the Cash Flow Statement.
INFORMATION:

AUTHORISED
5 000 000 Ordinary shares
ISSUED
3 000 000 Ordinary shares in issue at the beginning of the year 18 000 000
1 000 000 Ordinary shares issued on 30 August 2016 7 800 000
(200 000) Ordinary shares repurchased for R6,45 during the year (1 290 000)
3 800 000 Ordinary shares at the end of the year 24 510 000
RETAINED INCOME

Balance at the beginning of the year 1 370 000

Net profit after tax 3 250 800
Ordinary shares repurchased (510 000)
Dividends (3 100 000)

Paid 1 200 000

Recommended (3 800 000 x R0,50) 1 900 000

Balance at the end of the year 1 010 800

Non-current liabilities

Mortgage loan 800 000 2 400 000

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 COMPLETING THE “CASH EFFECTS FROM INVESTING ACTIVITIES”.
 Involves the changes to the infrastructure of the business as well as changes to the financial
investments of the business.
 Include transactions involving the addition to and disposal of fixed / tangible assets as well as
the changes to the financial assets / fixed deposits of the business.
CASH FLOW STATEMENT FOR THE YEAR ENDING ………
Cash flow from operating activities XXX
Cash flow from investing activities ?
Purchase of fixed assets ?
Proceeds from sale of assets ?
Increase / Decrease in investments ?

Cash flow from financing activities XXX

Net change in cash and cash equivalents XXX

Cash and cash equivalents at beginning of the year XXX

Cash and cash equivalents at end of the year XXX

Important considerations:
 Information is obtained from the Balance Sheet (non-current assets) and more especially the
tangible (fixed) asset note. Additional information on movements are also relevant.
 Additions to or purchase of fixed assets will represent an outflow of cash (in brackets).
 Disposal of fixed assets will represent an inflow of cash (no brackets).
 Fixed deposits / investments which matures / decrease will represent an inflow of cash.
 Fixed deposits made / investments placed will represent an outflow of cash.
Use the following format to identify changes to fixed assets (summary of note):
FA = Fixed Assets; BS = Balance Sheet; IS = Income Statement
FA at the beginning of year XXX This figure comes from the BS Year 1
+ FA purchased Add: XXX  You will be able to calculate one of
these figures as a missing figure needed
– FA sold (at book value) Less: XXX for the preparation of the CFS.

– Depreciation for the year Less: XXX This figure comes from the IS

= FA at the end of the year XXX This figure comes from the BS Year 2

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Example:
You are provided with the following information from the financial statements.
Complete the appropriate extract from the Cash Flow Statement.
Year 2 Year 1
NON-CURRENT ASSETS 770 000 480 000
Fixed Assets 650 000 430 000
Investment in fixed deposit 120 000 50 000

Note:
 The Income Statement reflects depreciation of R35 000.
 Fixed assets was sold at carrying value for R22 000.
Solution:
Calculate the amount for fixed assets purchased, as follows:

Fixed assets at beginning of year 430 000

+ Fixed assets purchased missing figure

- Fixed assets sold (carrying value) (22 000)

- Depreciation (35 000)

- Fixed assets at end of year 650 000

Calculation of the missing figure:

430 000 – 22 000 – 35 000 – 650 000 = (277 000): an outflow of cash
Extract from Cash Flow Statement
Cash flow from investing activities net cash outflow (325 000)

Purchase of fixed assets (refer calculation) outflow (277 000)

Proceeds from sale of assets inflow 22 000
Increase / Decrease in investments
(70 000)
(120 000 – 50 000) outflow

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 37

Activity 5
You are provided with the following information from the financial statements.
Complete the extract from the Cash Flow Statement.
2017 2016
NON-CURRENT ASSETS 323 000 505 000
Fixed Assets 83 000 205 000
Investment in fixed deposit 240 000 300 000
Note:
 The income statement reflects depreciation of R44 000.
 Fixed assets were bought for R52 000 during the 2017 financial period.
Activity 6

You are provided with the following information taken from the financial statements:

2017 2016

NON-CURRENT ASSETS

Tangible Assets 943 000 1 476 000

Fixed deposit: Investro bank 350 000 270 000

 During the year a vehicle with a cost price of R480 000 and a total accumulated
depreciation of R207 000 was sold at carrying value.
 The total depreciation on all tangible assets amounted to R445 000 for the year.

 COMPLETING THE “CASH EFFECTS FROM OPERATING ACTIVITIES”.

 Concerns the transactions of the company which deals with day to day operations.
 Includes all cash activities which determine the net profit in the income statement.
 It also covers the part of the balance sheet dealing with working capital (inventory, debtors and
creditors).

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38 | ACCOUNTING TRAINING MANUAL | GRADE 12

CASH FLOW STATEMENT FOR THE YEAR ENDED ………
Cash flow from operating activities ?

Cash generated from operations Note 1 ?

Interest paid ( ? )
Dividends paid ( ? )
Taxation paid ( ? )

Cash flow from investing activities XXX

Cash flow from financing activities XXX

Net change in cash and cash equivalents XXX

Note 1: Cash generated from operations

Net profit for the year xxx start with this figure from IS

+ Depreciation xxx add back non-cash item

+ Interest expense xxx add back non-operating expense

Sub-total xxx

Net change in working capital xxx

(Increase) / Decrease in inventories xxx

these amounts can be with or without
brackets depending on the effect on the
(Increase) / Decrease in receivables xxx
cash of the business i.e. whether there
was an inflow or outflow of cash.
Increase / (Decrease) in payables xxx

Cash generated from operations xxx This figure will be used in the CFS

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 39

Information obtained from:
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017

Sales 600 000

Cost of sales (400 000)

Gross profit 200 000

Other operating income 20 000

Rent income 20 000

Gross operating income 220 000

Operating expenses (67 500)

Salaries 31 000
Operating activities

Directors fees 10 000

Audit fees 10 000
Depreciation (eliminated in Note 1) 15 000
Stationery 1 500

Operating profit (loss) 152 500

Interest income 1 500

Profit/loss before interest expenses 153 000

Interest expense (eliminated in Note 1) 2 (3 500)

Profit (Loss) before tax (used to start Note 1) 149 500

Income tax (use to calculate taxation paid) (40 000)

Net profit (loss) after tax 109 500

Year 2 Year 1
CURRENT ASSETS 90 000 47 000

Operating Inventory (used to calculate changes in working

70 000 30 000
capital)
Activities
Trade and other receivables
(used to calculate changes in working
15 000 13 000
capital)

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 Year 2 Year 1
CURRENT LIABILITIES 65 000 57 000
Operating Trade and other payables
Activities (used to calculate changes in working 65 000 57 000
capital)

When calculating the cash inflow or outflow from working capital, note that Interest
expense payable, shareholders for dividends and SARS (income tax) must be excluded
as they are dealt with on the face of the Cash Flow Statement.

Calculation of Income Tax paid and Dividends paid: Use the following format

DIVIDENDS PAID / TAXATION PAID

Amount in financial statements xxx

+ Amount owing at beginning of year (normally a credit balance) xxx

- Amount owing at end of year (normally a credit balance) (xxx)

= Amount paid xxx

 The amounts paid is required for the section on the “Cash flows from Operating Activities”
 The amount in respect of income tax may either be owed to SARS or owed by SARS. In which
case reverse the signs for SARS: Income tax when the amounts are shown under Trade and other
receivables on the comparative balance Sheets.
Example:

Information:

Extract from the Income Statement for the year ended 28 February 2018

Net profit before tax 300 000

Income tax 135 000

Interest on loan 92 000

Depreciation 120 000

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GRADE 12 | ACCOUNTING TRAINING MANUAL | 41

 Extract from the Balance Sheet on 28 February 2018

2018 2017

Trading stock 600 000 520 000

Trade and other receivables 230 000 286 000

Trade and other payables 300 000 272 000

SARS (income tax) 12 000 16 000

Shareholders for dividends 60 000 45 000

The total dividends for the year amounts to R100 000 as per the note to Retained Income.
Solution

Note 1: Cash generated from operations

Net Profit before tax 300 000

Add: Depreciation 120 000

Add: Interest expense 92 000

Subtotal 512 000

Net changes in working capital (4 000)

Changes in inventory (600 000 – 520 000) - outflow (80 000)

Changes in receivables (286 000 – 230 000) - inflow 56 000

Changes in payables (300 000 – 272 000) - inflow 28 000

Cash generated from operations 508 000

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We can use the following table to calculate the dividends paid and taxation paid:

Dividends paid and Taxation paid

Dividends Taxation

Amount in financial statements 100 000 135 000

+ Amount owing at beginning of year 45 000 16 000

- Amount owing at end of year (60 000) (12 000)

= Amount paid 85 000 139 000

CASH FLOW STATEMENT FOR THE YEAR ENDING ………

Cash flow from operating activities 225 000

Cash generated from operations Note 1 508 000

Interest paid (92 000)
Dividends paid (100 000 + 45 000 – 60 000) (85 000)
Taxation paid (135 000 + 16 000 – 12 000) (139 000)

In this example there was no interest due at the beginning or end of the year.
Dividends paid and taxation paid can also be shown as a working/calculation

ACTIVITY 7

REQUIRED:
Complete the given table which reflects the section for the “Cash from Operating Activities” relating to
interest paid, dividends paid and taxation paid. Show your workings.
INFORMATION:
A. Extract from the Income Statement for the year ended February 2018

Interest expense R75 000

Income tax R522 000

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B. Extract from the Balance Sheet:
ACTIVITY 8

2018 2017
Trade and other payables
Trade creditors R89 200 R61 250
Shareholders for dividends R660 000 R324 000
SARS (income tax) R51 000 R30 000
Accrued expenses (interest expense) R24 000 R33 000

C. The Retained Income note reflected total ordinary share dividends of R1 080 000.
The information relate to Dean Ltd for the year ended 28 February 2018.
REQUIRED:
 Complete the note for “Cash generated from operations”
 Complete the section on the “cash flow from operating activities”
INFORMATION:
A. Extract from the Income Statement for the year ended February 2018:
Interest expense R12 500
Depreciation R29 000
Income Tax (30% of Net Profit before tax) R87 000

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B. Extract from the Balance Sheet:
2018 2017
Inventory
Trading stock R200 000 R230 000
Consumable stores on hand R3 000 R5 000

R203 000 R235 000

Trade and other receivables

Trade debtors R41 000 R25 000
Prepaid expenses R1 500 R1 500

R42 500 R26 500

Trade and other payables

Trade creditors R35 000 R46 500
Shareholders for dividends R110 000 R54 000
SARS (income tax) R8 500 R5 000
Accrued expenses (interest expense) R4 000 R5 500
Income received in advance R3 500 R7 500

R161 000 R118 500

C. The Retained income note showed total ordinary share dividends of R180 000.

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 Adapted questions from PAST YEAR PAPERS:

QUESTION 1:

The information relates to Bellco Ltd for the year ended on 31 August 2017.
REQUIRED:
Complete the Cash Flow Statement for the year. Show ALL workings. (22)
INFORMATION:
A. Extract from the Balance Sheet for the year ended 31 August:
2017 2016
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

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B. Extract from the Income statement and Notes on 31 August 2017:
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 2016.
 400 000 ordinary shares were issued on 1 September 2016 at R8.60 each.
 120 000 ordinary shares were repurchased on 28 February 2017 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.
QUESTION 2:

You are provided with information relating to Meteor Supermarkets Ltd. The financial year-end is
28 February 2017.
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 2017. (12)
2.2 Complete the Cash Flow Statement for the year ended 28 February 2017. 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 2017:

Interest on loan (all capitalised) 88 500

Net profit before tax 1 575 000
Income tax 441 000

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 B. Extract from the Balance Sheet as at:
28 Feb. 2017 28 Feb. 2016
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

C. Shareholders' register:

DATE DETAILS

1 March 2016 1 200 000 shares in issue

31 March 2016 300 000 shares issued at R8 each
31 December 2016 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 2017 1 450 000 shares in issue

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D. Dividends for the financial year ending 28 February 2017:

Interim dividends paid on 31 August 2016 R750 000

Final dividends declared on 28 February 2017 R870 000

E. Fixed/Tangible assets:

LAND AND VEHICLES

BUILDINGS
Carrying value at the beginning of the financial year 2 689 000 1 880 000

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 -

Additional information in respect of fixed/tangible assets:

(i) A vehicle was sold for cash at its carrying value on 31 May 2016. The following
extract of the vehicle sold was taken from the Fixed Assets Register:

Cost price: R140 000 Date purchased: 1 March 2015

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

FINANCIAL YEAR END DEPRECIATION ACCUMULATED

DEPRECIATION

28 February 2016 28 000 28 000

31 May 2016 5 600 33 600

(ii) A new vehicle, costing R330 000, was purchased and paid for by cheque on
1 January 2017.
(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.

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 QUESTION 3: CASH FLOW STATEMENT

3.1 SENZO LTD

The information below relates to Senzo Ltd.
REQUIRED:
3.1.1 Calculate the following figures that will appear on the Cash Flow Statement:

 Income tax paid (5)

 Proceeds from disposal of fixed assets (carrying value) (5)

 Net change in cash and cash equivalents. Indicate whether this is a net (5)
inflow or net outflow of cash.
3.1.2 Complete the section of the Cash Flow Statement for cash effects of
financing activities.
(12)
INFORMATION:
A. Figures from the Balance Sheet and notes:

28 FEBRUARY
28 FEBRUARY 2017
2016

Fixed assets (carrying value) R4 137 700 R2 598 300

Financial assets (fixed deposit) 350 000 600 000
Current assets 662 300 575 500

Inventories 322 000 345 000

Trade and other receivables 245 000 228 000
SARS: Income tax 6 400 –
Cash and cash equivalents 88 900 2 500

Shareholders' equity 3 439 500 2 718 000

Ordinary share capital 2 967 000 2 520 000

Retained income 472 500 198 000

Non-current liabilities 1 200 000 500 000

Current liabilities 510 500 555 800

Trade and other payables 323 000 285 000

Shareholders for dividends 187 500 108 000
SARS: Income tax – 9 800
Bank overdraft – 153 000

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 B. Extract from the Income Statement for the year ended 28 February2017:

Gross profit R2 040 000

Depreciation 215 100
Operating profit 1 300 000
Interest expense 132 000
Net profit before tax 1 175 000
Net profit after tax 846 000

C. Share capital:
 Authorised share capital consists of 800 000 ordinary shares.
 150 000 new ordinary shares were issued on 1 October 2016.
 60 000 ordinary shares were repurchased on 1 January 2017 at 90 cents above
the average issue price of R4,30.
 On 28 February 2017 the share register reflected that a total of 690 000 shares
had been issued to date.
D. Fixed assets:
 Additional property was purchased for R2 100 000. No other fixed assets were
purchased.
 Equipment was sold at carrying value.
QUESTION 4:

4.1 REID LTD

You are provided with information relating to Reid Ltd for the financial year ended
30 June 2017.
Where financial indicators are required to support your answer, name
the financial indicator, the actual figure/ratio/percentage and trends.
REQUIRED:
4.1.1 Prepare the following notes to the Balance Sheet:

 Ordinary share capital (7)

 Retained income (9)

4.1.2 Calculate the following amounts for the Cash Flow Statement:

 Change in loan (2)

 Income tax paid (4)

4.1.3 Complete the extract from the Cash Flow Statement for cash and cash
equivalents. (4)

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 INFORMATION:
A. Share capital and dividends:

 900 000 shares were in issue on 1 July 2016.

 75 000 ordinary shares were repurchased from the estate of a deceased
shareholder at R10,70 per share on 1 October 2016.
 The company issued 125 000 ordinary shares at R10,80 per share on 1 April
2017.
 The 2017 Cash Flow Statement reflected dividends paid of R434 250.
B. Extract from Income Statement for the year ended 30 June 2017:

R
Sales 5 220 000
Cost of sales 3 600 000
Operating profit 1 295 000
Income tax 190 500
Net profit after tax 444 500

C. Extract from Balance Sheet on 30 June:

2017 2016

R R

Fixed assets (carrying value) 17 420 950 14 683 300

Fixed deposit: Ken Bank 250 000 380 000
Current assets 1 015 000 456 000

Inventories (only trading stock) 564 000 281 500

Trade and other receivables (debtors) 246 000 167 000
Cash and cash equivalents 205 000 7 500

Shareholders' equity 10 050 750 9 540 000

Ordinary share capital ? 9 180 000

Retained income ? 360 000

Loan: Barbie Bank 8 000 000 4 500 000

Current liabilities 635 200 1 479 300

Trade and other payables 420 000 683 400

Shareholders for dividends 209 000 162 000
SARS: Income tax 6 200 23 400
Bank overdraft - 610 500

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QUESTION 5:

SO-FINE LTD
The given information relates to So-Fine Ltd for the financial year ended 31 August 2017.
REQUIRED:
5.1.1 Prepare the following notes to the Balance Sheet on 31 August 2017:
 Ordinary share capital (7)
 Retained income (9)
5.1.2 Complete the Cash Flow Statement by inserting only the details and figures indicated
by a question mark (?). (19)
INFORMATION:
A. Information from the Income Statement for the financial year ended 31 August
2017:

Sales R8 652 000

Operating expenses 1 760 000
Depreciation 320 000
Interest expense 86 100
Operating profit 697 000
Income tax 187 770
Net profit after income tax 438 130

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 B. Information from the Balance Sheet on 31 August:
2017 2016
(R) (R)

Fixed assets (carrying value) 6 177 000 4 975 000

Fixed deposits 220 000 300 000
Loan: Dolphin Bank 985 000 450 000
Current assets 619 600 663 300
Current liabilities 490 000 614 300
Shareholders' equity ? ?

Ordinary share capital 5 292 000 ?

Retained income ? 147 370

Cash and cash equivalents 23 400 2 500

Bank overdraft - 65 100
Shareholders for dividends 168 000 120 000
SARS: Income tax 11 800 (Cr) 2 400 (Dr)

C. Share capital and dividends

 The authorised share capital comprises 1 200 000 ordinary shares.
 900 000 ordinary shares were in issue on 1 September 2016.
 The company issued 150 000 ordinary shares at R6,30 per share on
1 May 2017.
 70 000 ordinary shares were repurchased from shareholders on
30 August 2017. A cheque for R437 500 was issued for these shares.
These shareholders qualify for final dividends.
 An interim dividend of 12 cents per share was paid on
1 February 2017.
 A final dividend was declared on 30 August 2017.
D. Fixed assets: Transactions during the current financial year.
 Old equipment was sold for cash at the carrying value of R324 000.
 Additional equipment and delivery vehicles were purchased.

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QUESTION 6:

You are provided with information relating to Classico Limited. The financial year ended on
31 October 2017. New shares were issued on the first day of the financial year.
REQUIRED:
6.1 What is the main purpose of a Cash Flow Statement? (2)
6.2 Refer to the fixed asset note under Information C.
Calculate the missing amounts (indicated by a, b, c and d) in the Fixed/Tangible Asset
Note for the year ended 31 October 2017. (9)
6.3 Complete the Cash Flow Statement for the year ended 31 October 2017. Show ALL
workings in brackets. (24)
6.4 The directors issued more shares and sold fixed assets in order to improve the cash
flow. A shareholder, John Meanwell, has criticised them for these decisions.
In each case:
 Provide a reason to support John's opinion.
 Other than improving the cash flow, provide a reason to support the directors'
decision. (8)
INFORMATION:
A. The following information was extracted from the Income Statement for the
year ended 31 October 2017:

Interest on loan (all capitalised) 175 500

Income tax 375 000
Net profit after tax 975 000

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 B. Information extracted from the Balance Sheet:
31 October 31 October
2017 2016
Current assets 4 804 000 2 820 000

Inventories 1 437 500 1 656 250

Trade and other receivables (see D) 1 075 000 956 250
Cash and cash equivalents 2 291 500 207 500
Ordinary shareholders' equity 4 450 000 4 000 000

Ordinary share capital (see F) 3 450 000 3 150 000

Retained income 1 000 000 850 000
Loan: Freeport Bank (12% p.a.) 2 000 000 1 375 000
Current liabilities 1 450 000 1 262 500

Trade and other payables (see E) 1 450 000 1 262 500

C. Fixed/Tangible assets:

Land and
Vehicles Equipment
buildings

Carrying value at beginning of

3 000 000 660 000 ?
financial year

Cost 3 000 000 900 000 ?

Accumulated depreciation 0 (240 000) (52 500)
Movements

Additions at cost 0 0 48 000

Disposals at carrying value (a) (c) 0
Depreciation 0 (b) (55 500)
Carrying value at end of
2 500 000 446 000 (d)
financial year

Cost 2 500 000 750 000 258 000

Accumulated depreciation 0 (304 000) ?

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 Additional information in respect of fixed assets:
 A vehicle was sold at its carrying value on the LAST day of the financial year.
Depreciation is written off on vehicles at 20% p.a. on the diminishing-balance
method.
 Land and buildings were sold at cost during the financial year.
D. Trade and other receivables include: 31 October 31 October
2017 2016
SARS: Income tax R22 500 0

E. Trade and other payables include: 31 October 31 October

2017 2016
SARS: Income tax 0 R27 500
Shareholders for dividends R450 000 R385 000

F. Details of ordinary share capital:

 Ordinary share capital at the beginning of the 2017 financial year consisted of
700 000 ordinary shares with a total value of R3 150 000.
 On 1 November 2016, 50 000 additional shares were issued at R6,00 each.
 There were no further changes to share capital.
G. The dividends (interim and final) for the financial year ended 31 October 2017
amounted to R825 000.
QUESTION 7:

You are provided with information for the financial year ended 28 February 2016, taken from the
books of Chuta Ltd, a listed public company.
REQUIRED:
7.1 Refer to Information C.
Prepare the Asset Disposal Account for the equipment sold on 31 August 2016. (9)
7.2 Refer to Information C. Calculate the amounts indicated by (a) to (c). (12)
7.3 Calculate the following figures which will appear in the Cash Flow Statement for the year
ended 28 February 2017: (Show ALL workings.)
7.3.1 Income tax paid (5)
7.3.2 Net change in cash and cash equivalents (4)
7.4 Prepare the section for the Cash Effects On Financing Activities of the Cash Flow
Statement for the year ended 28 February 2017.
(7)

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 INFORMATION:
A. Extract from the Income Statement for the year ended 28 February 2017:

Sales R2 800 000

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

B. Extract from the Balance Sheet

2017 2016
Fixed assets (carrying value) ? ?
Fixed deposit: FS Bank 1 450 000 1 200 000

Current assets 1 944280 1 010 000

Inventory 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

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C. Fixed Assets

(i) Land and Vehicles Equipment

Buildings

Carrying value at the

2 000 000 (b)
beginning of the year

Cost 2 000 000 900 000

Accumulated depreciation 0 (470 000)

Movements:
Additions (a) 150 000
Disposals 0
Depreciation 0 (c)

Carrying value at the

3 900 000
end of the year

Cost 3 900 000 930 000

Accumulated depreciation 0

(ii) Equipment
 An old printer, bought for R120 000, was sold for cash on 31 August 2016 at
carrying value. Accumulated depreciation on this printer was R38 400 on
1 March 2016.
 A new printer was bought for R150 000 on 1 September 2016.
 Depreciation on equipment is written off at 20% p.a. according to the diminishing-
balance method.
D. Share Capital
 Authorised share capital is 3 000 000 ordinary shares.
 In 2012, 1 200 000 ordinary shares had been issued at R3,50 per share.
 On 1 November 2016, 300 000 ordinary shares were issued at R4,50 each.
 On 28 February 2017, 40 000 shares were repurchased at R0,60 more than the
average price per share.

E. Dividends
The directors declared a final dividend of 7 cents per share. The shares bought
back on 28 February 2017 also qualify for the final dividends.

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 QUESTION 8:

8.1 BRAZILIA LTD

The following information relates to Brazilia Ltd for the financial year ended 31 October
2017.
REQUIRED:
8.1.1 State ONE purpose of a Cash Flow Statement. (2)
8.1.2 Complete the Cash Flow Statement for the year ended 31 October 2017. (27)
Some of the figures have already been entered for you.
INFORMATION:
A. Extract from the Income Statement for the year ended 31 October 2017:

Depreciation 154 000

Interest on loan 336 000
Net profit before tax 1 938 600
Income tax 560 000
Net profit after tax 1 378 600

B. Figures identified from the Balance Sheet on 31 October:

Average 2017 2016

R R R

Fixed assets at carrying value 10 041 000 8 878 000

Fixed deposit: Granite Bank 760 000 1 000 000
Non-current liability: Loan from
2 625 000 2 450 000 2 800 000
Metal Bank
Current assets 1 186 600 1 191 200
Current liabilities 1 236 000 1 359 200
Ordinary shareholders' equity 7 605 800 8 301 600 6 910 000
Retained income 1 021 600 960 000
Ordinary share capital 7 280 000 5 950 000

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 C. Figures extracted from the notes to the Balance Sheet on 31 October:
2017 2016

R R

Shareholders for dividends 656 000 595 000

SARS (Income tax) Debit 28 500 Credit 41 750
Debtors' control 527 000 816 200
Creditors' control 580 000 374 000
Bank Debit 174 500 Credit 348 450
Petty cash 5 000 3 000
Trading stock 451 600 372 000

D. Share capital
 The authorised share capital of the company is 5 000 000 shares.
 700 000 shares were in issue on 31 October 2016, the last day of the previous
financial year.
 120 000 new shares were issued on 1 November 2016, the beginning of the
current financial year.
 20 000 shares were repurchased on 31 October 2017 at R15,50 each. The
average issue price of the shares on the date of repurchase was R9,10 per share.
These shares qualify for final dividends.
E. Dividends
The directors paid an interim dividend of R533 000 on 28 May 2017.
F. Fixed assets
 Extensions to the building were undertaken at a cost of R1 360 000 during the
financial year. No other fixed assets were purchased.
 Equipment was sold at carrying value during the financial year.
QUESTION 9:

You are provided with information extracted from the records of Maxie Ltd for the financial year ended
28 February 2017.
REQUIRED:
9.1 Complete the note for Cash Generated from Operations for the year ended 28 February 2017. (10)
9.2 Complete the Cash Flow Statement for the year ended 28 February 2017.
Some of the figures are entered in the ANSWER BOOK.
Where notes are not required, show ALL workings. (21)

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 INFORMATION:
A. Extract from the Income Statement for the year ended 28 February 2015

Depreciation 178 000

Interest expense 52 000
Income tax 93 520
Net profit after income tax 240 480

B. Figures obtained from the Balance Sheet and notes on 28 February

2017 2016
R R

Fixed assets (carrying value) 2 568 730 2 174 390

Financial assets (fixed deposit) 150 000 230 000
Current assets 413 600 496 810

Inventories 194 600 262 000

Trade debtors 214 000 198 000
SARS: Income tax - 2 110
Cash and cash equivalents 5 000 34 700

Shareholders' equity 2 392 480 1 848 000

Ordinary share capital 2 016 000 1 520 000

Retained income 376 480 328000

Non-current liabilities 500 000 800 000

Current liabilities 239 850 253200

Trade creditors 124 800 165 200

Shareholders for dividends 96 000 88 000
SARS: Income tax 6 300 -
Bank overdraft 12 750 -

C. Share capital
 The business has an authorised share capital of 800 000 ordinary shares.
 400 000 shares were issued before 28 February 2016.
 On 1 March 2016 an additional 200 000 shares were issued at R5,00 each.
 On 1 September 2016 the company repurchased 120 000 shares from a dissatisfied
shareholder at R4,50 each.
 After the above transactions there were 480 000 shares in issue.

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 D. Fixed assets
 Extensions to the existing buildings were undertaken during July 2016.
 There were no other movements of fixed assets during the financial year.
E. Dividends
 An interim dividend of R60 000 was paid on 30 September 2016.
 The final dividend was declared on 28 February 2017.

QUESTION 10:

10.1 MAFUSA LTD

The information presented relates to the financial year ended 30 April 2017.
REQUIRED:
10.1.1 Refer to Information C.
Calculate the missing amounts denoted by (a) to (d) for equipment in the Fixed
Asset Note. Show all workings. (16)
10.1.2 Calculate the following amounts for the Cash Flow Statement. Show ALL
workings.
 Income tax paid (5)
 Net changes in cash and cash equivalents (4)
10.1.3 Complete the section on FINANCING ACTIVITIES in the Cash Flow Statement. (7)
INFORMATION:
A. Information extracted from the Income Statement on 30 April 2017:

Operating profit 1 590 000

Interest expense 300 000
Net profit before income tax 1 279 000
Net profit after income tax 895 300

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 B. Information extracted from the Balance Sheet on 30 April 2017:

2017 2016
(R) (R)

Fixed deposit 200 000 520 000

Current assets
946 550 887 250
(including cash and cash equivalents)
Cash and cash equivalents 125 750 54 750
Shareholders' equity 7 166 850 6 142 800

Ordinary share capital 6 660 000 5 600 000

Retained income 506 850 542 800

Non-current liabilities 1 800 000 2 750 000

Current liabilities 526 750 509 500

Trade and other payables 285 600 232 800

Bank overdraft 0 92 000
Shareholders for dividends 231 250 176 000
SARS: Income tax 9 900 8 700

C. Fixed assets:
Fixed assets comprises of land and buildings and equipment.
Extract from the Fixed Asset Note:

EQUIPMENT

Cost (1 May 2016) 3 640 000

Accumulated depreciation (1 May 2016) (a)

Carrying value (1 May 2016) 2 002 000

Movements:

Additions 900 000

Disposals (b)
Depreciation (c)

Carrying value (30 April 2017)

Cost (30 April 2017) (d)

Accumulated depreciation (30 April 2017)

 Equipment is depreciated at 15% p.a. on cost.

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  On 31 August 2016 old equipment costing R750 000 was sold for cash at
its carrying value. The accumulated depreciation on this equipment was
R491 750 on 1 May 2016.
 On 1 December 2016 new equipment valued at R900 000 was purchased.
 There were no other movements.
D. Share capital and dividends:
The business is registered with an authorised share capital of 1 200 000 ordinary
shares.
1 May 2016 The issued share capital consisted of 800 000 ordinary
shares.
1 February 2017 200 000 ordinary shares were issued at R8,00 per share.
25 April 2017 75 000 ordinary shares were repurchased from a retired
shareholder at a total cost of R600 000.
30 April 2017 There were 925 000 shares in issue.

Total dividends for the financial year amounted to R871 250.

QUESTION 11:

11.1 MIKHA LTD

You are provided with information relating to Mikha Ltd for the financial year ended
31 December 2017.
REQUIRED:
11.1.1 Prepare the following notes on 31 December 2017:

 Ordinary share capital (6)

 Retained income (9)

11.1.2 Complete the CASH EFFECTS OF OPERATING ACTIVITIES section of the
Cash Flow Statement. Show workings. (9)
11.1.3 Calculate the following amounts that will appear in the Cash Flow Statement.
State whether these are inflows or outflows.

 Change in fixed deposit (3)

 Proceeds on disposal of equipment (6)

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 INFORMATION:
A. Extract from Income Statement (Statement of Comprehensive Income) for
the year ended 31 December 2017:

Sales R6 090 000

Gross profit 1 890 000
Interest expense (all paid) 100 000
Depreciation 360 400
Net profit before tax 1 150 000
Income tax 322 000

B. Extract from Balance Sheet (Statement of Financial Position) on

31 December 2017:

2017 2016
Ordinary share capital R4 752 000 R4 200 000
Retained income 637 000 276 000
Fixed assets (carrying value) 5 828 000 4 905 800
Fixed deposits 200 000 500 000
Loan: Sharks Bank 1 000 000 600 000
Cash and cash equivalents 126 400 2 000
Bank overdraft - 85 600
SARS: Income tax 3 600 (Dr) 9 200 (Cr)
Shareholders for dividends 175 000 270 000
C. Share capital:

 The company is registered with an authorised share capital of 800 000

ordinary shares.
 On 1 January 2017, there were 600 000 ordinary shares in issue.
 On 31 August 2017, a further 100 000 shares were issued.
 On 30 December 2017, the company repurchased 40 000 shares from a
disgruntled shareholder at R1,30 above the average share price of R7,20.
This shareholder qualified for final dividends.
D. Dividends:

 Interim dividends were paid on 30 June 2017.

 A final dividend of 25 cents per share was declared on
31 December 2017.
E. Fixed assets:

 R1 495 000 was paid for extensions to buildings.

 Old equipment was sold for cash at carrying value.

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MODULE 3: INTERPRETATION OF FINANCIAL INFORMATION

INTRODUCTION:
INTERPRETING business activities refers to analyzing financial results to report on success and
progress of the organization. COMMUNICATING business information would entail transfer of facts
and data to all parties interested in using the business information.
Interpreting financial statements would logically follow the lengthy process of preparing financial
statements and compiling the annual report to be presented to Shareholders and other stake-holders
at the Annual General Meeting of the Company.
This section of the syllabus falls under the field, Financial Accounting as outlined in CAPS and
together with the other topics in the field of Financial Accounting, must constitute between 50% – 60%
of an accounting paper.
Prior knowledge:
Interpreting financial information is generally classified in the higher order cognitive level. Questions in
this section would require a candidate to sift through the given information to identify, evaluate and
at times provide creative or practical solutions and advice.
Success in this area demands a thorough understanding of the basic accounting cycle of activities,
year-end accounting procedures as well as the structure and formats of financial statements.
It must be noted and appreciated that interpretation of financial information is NOT a section or topic
on its own. It is often integrated with various other aspects/topics of the syllabus; as such interpretive
questions are spread across an entire examination paper.
PREVIEW:
Previous diagnostic reports highlighted the following concerns relating to Interpretation:
 Candidates were not able to identify the relevant financial indicators to address or comment on
specific questions.
 They were unable to extract or sift the appropriate information from the financial information given,
to calculate financial indicators.
 They fail to understand the requirements of the question; such as comment, give advice, provide
the trend, justify his actions etc.
 The inability to work backwards using the given information mainly due to reliance on rote learning
or mindless memorising.
 Assessing the length of answers expected by the question (how much to write).
Content:
1. Understanding Financial Statements and the Annual Report
2. Users of Financial Information
3. Financial Indicators as basis of interpreting financial information
4. How well do you know your formulae?
5. Ratio Relationships
6. Strategy in answering interpretative questions (recommended steps)
7. Let’s practice.
8. Grade 10 and 11
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 1. Understanding Financial Statements and the Annual Report:

At the end of an Accounting period (usually a financial year), a business would prepare financial
statements to:
 Assess their financial performance for the period under review.
 Determine their financial position in terms of their assets, equity and liability.

ACTIVITY 1:

Provide the name of the financial statement or report that is described by each of the following
statements: (5)
1.1 This shows the net worth of a business on a specific date, usually the end of the
financial year by listing the assets and liabilities.
1.2 This shows whether the business made a profit or loss for the period under review by
giving a breakdown of income and expenses.
1.3 This is a detailed narrative of the achievements (financial and otherwise) of the business
during the period under review as well as plans for the future growth of the company.
1.4 This is an independent unbiased opinion on the fair presentation of the financial
information as contained in the Annual Report.
1.5 This shows the inflows and outflows of the cash resources of a business in terms of its
operating, financing and investing activities.

ACTIVITY 2:

Identify the appropriate financial statement where you will find the following
information. (13)

Amount received for the issue of new shares

Total amount of the loan either received or paid.
The amount of shares that are not yet issued.
Total income tax expense
Total depreciation for the year
Total amount owing to creditors
Total amount of dividends payable to shareholders
Total cash paid to shareholders in respect of dividends
Amount owed to/owed by SARS at year-end
The short term portion of a non-current liability
Total amount paid to SARS for Income tax
Gross profit for the year
Fixed assets bought for cash during the financial year

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 2. Users of Financial Information:

Public companies are listed on the stock exchange. The public (shareholders) invest in these
companies. Companies play a vital role in the economy.

ACTIVITY 3:

Provide a brief explanation why each of the following user would be interested in the financial
information of a company. (18)
3.1 Shareholders
3.2 Prospective shareholders
3.3 The CEO and the board of directors
3.4 Internal and external auditors
3.5 SARS
3.6 Creditors
3.7 Competitors
3.8 Trade unions and employees
3.9 Newspapers and financial publications
3. Financial Indicators as a basis for interpreting financial information:

Financial indicators are generally grouped according to specific categories and are intended to provide
users with answers to a range of questions.

ACTIVITY 4:

Match the category in Column B to the specific questions in Column A. (6)

COLUMN A COLUMN B
4.1 Can the business pay off its immediate debts in the short A Return on Investment
term?
4.2 To what extent is the business financed by borrowed B Risk and gearing
capital and is the loan beneficial to the business
4.3 Are potential shareholders interested in investing their C Liquidity
capital in this company?
4.4 Is the business controlling expenses effectively and D Solvency
making a reasonable profit?
4.5 Is the business able to meet all their financial obligations E Profitability /operating
with its existing possessions? efficiency
4.6 Are shareholders receiving a favourable benefit by F Share price/market
putting their money in this business? prospects

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 ACTIVITY 5:

Are you able to identify the relevant financial indicators used to analyse the performance of a
business? Place the relevant financial indicators from the list provided, into an appropriate
category box. (20)
LIST OF FINANCIAL INDICATORS
Current ratio
Acid test ratio
Total assets – total liabilities
Operating income on sales
Net assets
Return on average capital employed (ROTCE/ROCE)
Gross profit percentage on sales
Net current assets
Stock turnover rate
Net asset value per share (NAV)
Dividends per share (DPS)
Net profit after tax on sales
Creditors average payment period
Stock holding period
Solvency ratio
Earnings per share (EPS)
Debt/equity ratio
Return on shareholders’ equity (ROSHE)
Gross profit percentage
Debtors average collection period
Operating expenses on sales
Market price of shares (JSE)
Interest rates (on loan / investments)

PROFITABILITY

OPERATING EFFECIENCY

LIQUIDITY

SOLVENCY

RISK AND GEARING

RETURN

MARKET PROSPECTS
Share price /value

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 4. How well do you know your formulae?

Financial indicators are generally a relationship between related information on financial statements.
Essentially, the name of the indicator will lead you to the appropriate figures to be used; such as
Operating profit on sales where Operating Profit and Sales from the Income Statement has to be
used.

ACTIVITY 6:

Use the information from the books of Rama Ltd for the financial year ended 28 February 2017
to calculate the following financial indicators. Round off all calculations to ONE decimal point.
6.1 Current ratio
6.2 Acid test ratio
6.3 Stock turnover rate
6.4 Average stock holding period
6.5 Average debtors collection period
6.6 Average creditors payment period
6.7 Solvency ratio
6.8 Debt/equity ratio
6.9 Return on average capital employed (ROTCE)
6.10 Return on shareholders’ equity
6.11 Earnings per share (EPS)
6.12 Dividends per share (DPS)
6.13 Net asset value per share (NAV)
6.14 Gross profit percentage on sales
6.15 Operating expenses on sales
6.16 Operating income on sales
6.17 Net profit after tax on sales
6.18 Gross profit percentage
INFORMATION:
A. Share Capital
The business has an authorised share capital of 750 000 ordinary shares.
The total issued share capital on 28 February 2017 was 400 000 ordinary shares.
50 000 ordinary shares were issued on 2 March 2016.

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 B. Extract from the Income Statement on 28 February 2017:
Sales 5 152 000
Cost of sales 3 220 000

Gross profit 1 932 000

Operating income 257 600
Operating expenses 1 004 640

Operating profit 1 184 960

Interest expense 133 960

Net profit before income tax 1 051 000

Income tax 315 300

Net profit after income tax 735 700

C. Information from the Balance Sheet on 28 February

28/02/2017 28/2/2016
Non-current assets 6 947 700 6 377 400
Fixed assets 6 747 700 6 177 400
Financial assets 200 000 200 000
Current assets 973 200 1 058 700
Inventories 418 000 321 700
Trade debtors 550 000 475 000
Cash and cash equivalents 5 200 262 000
Shareholders’ equity 6 224 000 5 058 300
Ordinary share capital 5 827 500 4 960 000
Retained income 396 500 98 300
Non-current liabilities 1 000 000 1 600 000
Current liabilities 696 900 777 800
Trade creditors 411 200 621 600
Shareholders for dividends 220 000 120 000
Bank overdraft 52 200 0

D. An interim dividend of R180 000 was paid and a final dividend was declared.
E. Credit sales amount to 30% of the total sales.
Credit purchases amounted to R2 415 000.

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 5. Ratio Relationships:

Although the ratios (financial indicators) are in classified according to different categories, information
used to calculate them would come from basically two financial statements. It is therefore
understandable that certain categories will be integrated and must be used together in providing
answers to important decisions.

OPERATING
EFFICIENCY

PROFITABILITY LIQUIDITY

FINANCIAL
INDICATORS

RETURN

RISK AND
GEARING

MARKET
PROSPECTS SOLVENCY

PROFITABILITY, RETURN and MARKET related financial indicators focus on sales, management of
expenses and profits.
OPERATING EFFICIENCY and LIQUIDITY would focus on the management of working capital
(current assets and current liabilities)
OPERATING EFFICIENCY and PROFITABILITY also focus on managing expenses and daily
operating activities (current assets and current liabilities).
SOLVENCY and GEARING will be concerned with the long term issues of the business. The focus
would therefore be on total assets and total liabilities.
It is therefore necessary to consider, and quote related groups of financial indicators when answering
the typical examination-type questions in interpretation.

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 6. Strategy in answering interpretative questions (recommended steps)

 Identify the appropriate financial indicators necessary to answer the question.

At times, the question will not give any indications of the financial indicators to be used. Example,
Comment on the liquidity of the business… You may need to calculate the ratios (if they are not given
on the table of indicators).
 Quote the figures and show the trend. Do some comparison (increased/decreased)
Comparisons would include:
 Information of the same business (previous financial year)
 Other businesses in the same industry (competitors)
 Targets set by the business (such as mark-up percentage)
 An alternative action (such as an investment in a fixed deposit)
 Comment.
Show some insight or understanding (focus on whether this is good or bad for the business). Provide
short, concise statements. Be guided by the mark allocation as to how much information you need to
provide.
UNDERSTANDING WHAT TO DO OR HOW TO RESPOND TO QUESTIONS IN ACCOUNTING:
Commonly used statements (verbs) to questions: Refer to the activities below to point
these out.
Prepare….. Provide the missing…. What advice….
Post to….. Quote and explain…. Suggest….
Complete….. Comment on…. Choose the……
Calculate…. Will the business… Support your ….
Show how….. Should the business….. Give TWO….
Indicate how…. Is the director justified…. Why would…. /Would
you…

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Typical Examples of expected responses from past-year exam papers:
PROFITABILITY / OPERATING EFFECIENCY

The directors are of the opinion that the operating efficiency of the company
has improved. Quote and explain TWO financial indicators (with figures) to
support their opinion.
Financial indicators   Valid explanations (with figures)  
Operating expenses on sales – decreased from 32% to 25% (improvement in control
of expenses)
Operating profit on sales – increased from 15,8% to 22% (improvement in
profitability)
Net profit after tax on sales – increased (see 4.3.1) from 11,3% to 13,5%
(improvement in efficiency / profit)

LIQUIDITY

Comment on the liquidity position of the company. Quote THREE relevant

financial indicators (actual figures/ratios/percentages) and their trends.
Name of THREE financial indicator    Figure and trend   
 Current ratio: 3,6 : 1  1,6 : 1 / decreased to 1,6 : 1
 Acid test ratio: 3,1 : 1  1,2 : 1 / decreased to 1,2 : 1
 Stock turnover rate: 5,1  6,8 times p.a./ increased to 6,8 times
 Debtors' collection period: 35  40 days / increased to 40 days
General comment:   
 The current ratio improved / was possibly too high in 2013 / cash was too high /
current assets do not earn any return / they may be more efficient in 2014.
 The acid test ratio improved / is more efficient in 2014 / cash is lower
 The stock turnover rate has improved / stock increased but is being sold more
quickly / assists liquidity and is appropriate for a supermarket.
 The debtors are paying more slowly / this trend must be rectified / normal credit
terms 30 days.

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 RETURN RATIOS

Provide calculations to show the change in the dividend pay-out policy.

Comparison of DPS to EPS for 2015  Calculation / implied calculation 
Comparison of DPS to EPS for 2016  Calculation / implied calculation 
Possible calculations for two marks each:
 2015: 35/58 = 60,3% OR 0,6:1 OR Paid out most of earnings/more than 50%
 2016: 55/51 = 107,8% OR 1,1:1 OR Paid out more than earnings
Possible responses for one mark each:
 2015: Paid out 35c of 58c earnings / retained 23c of 58c earnings
 2016: Paid out 55c of 51c earnings / paid out 4c from previous earnings

Explain why the directors decided to change the policy. State ONE point with
figures.
Any ONE valid explanation  Relevant figures 
Responses for two marks:
To satisfy shareholders for:
 ROSHE decreased (from 6,2%) to 4,5%. see 4.2.4
 Market price decreased (from 1 030 cents) to 1 000 cents.
 EPS decreased (from 58 cents) to 51 cents.
Responses for one mark:
 Satisfy shareholders / Encourage new shareholders
 To get directors re-elected at AGM

RISK AND GEARING

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.
Ratio   Figures and trend   Comment beyond trend  
ROTCE This has increased from 21,2% to 24,2%
Positively geared as ROTCE is higher than interest rate (10,5%)
DEBT-EQUITY RATIO This has increased from 0,09 : 1 to 0,33 : 1 see 5.5.3
Low financial risk/not making much use of loans. Relies more on own funds

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 SHARE PRICE AND MARKET PROSPECTS

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.
Reason  Relevant figure 
Paid R4,30 per share to buy back shares. This is lower than the market value per
share (2015 – 480 cents; 2016 – 505 cents).
(not a big difference to the NAV – 362 cents and 408 cents)
Average issue price was R3,70.
Purchased at a lower price than the issue price of the additional shares. (R4,50)

7. Let’s practice.

ACTIVITY 7:
You are provided with the financial indicators calculated from the financial statements of Mzomhle Ltd
for the past two years ended 28 February. The perpetual inventory system is used to record stock.
Goods are sold at a mark-up of 75% on cost.
REQUIRED:
The directors are not satisfied by the liquidity position of the company. Are they
7.1 justified? Quote THREE relevant financial indicators (with figures). (9)
7.2 Comment on the profitability of the business. Make reference to information relating
to the Income Statement. (9)
7.3 Should the shareholders be satisfied with their earnings and dividends? Quote the
relevant financial indicators to support your answer. (6)
7.4 The directors intend expanding the existing buildings. Would you advise them to
issue additional shares or to take out an additional loan? Quote the relevant
financial indicators to support your decision. (8)

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 INFORMATION
2017 2016
Current ratio 3,6 : 1 2,8 : 1
Acid-test ratio 0.7 : 1 0.7 : 1
Rate of stock turnover 3,7 times 5 times
Average debtors collection period 28 days 35 days
Return on shareholders’ equity 16% 18%
Earnings per share 45 cents 54 cents
Dividends per share 21 cents 11 cents
Gross profit on cost of sales 70% 65%
Gross profit on sales 38% 32%
Net profit after tax on sales 12% 15%
Operating expenses on sales 36% 31%
Operating profit on sales 16% 21%
Return on total capital employed 20% 22%
Debt/equity ratio 0.6 : 1 0.3 : 1
Interest rate on long-term loans 13% 12%
Net asset value per share 322 cents 376 cents
Market price per share 331 cents 388 cents

ACTIVITY 8:
Rafiki Ltd is a company registered on the JSE with an authorised share capital of 750 000
shares. (520 000 of these shares where in issue on 01 June 2016, while a further 120 000
shares were issued on 01 December 2016). The financial year of the company ended on
31 May 2017.
REQUIRED:
8.1 Calculate the following financial indicators for the financial year ended 31 May 2017.
Round off all calculations to ONE decimal place.
8.1.1 Operating expenses on sales (3)
8.1.2 Debt/equity ratio (3)
8.1.3 Return of shareholders’ equity (5)
8.1.4 Net asset value per share. (4)
8.2 The internal auditor recommended to the directors that more attention be paid to
managing expenses in the next financial year. Explain why you think she feels this
way. Quote TWO financial indicators, with figures, to support your argument. (6)
8.3 The auditor also felt that it was not necessary to repay a large portion of the loan during
the financial year. Provide a reason why you think she felt that way. Quote TWO
relevant financial indicators (with figures) in your answer. (6)
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8.4 Some shareholders were not satisfied with their returns for the current financial year.
Are they justified? Motivate your answer by quoting any TWO relevant financial
indicators and by commenting on the dividend policy of the business. (7)
8.5 The company paid R7,50 per share to repurchase 70 000 ordinary shares on 31 March
2017. Certain directors felt that the company paid too much. Explain why you either
agree or disagree with the directors. Make reference to relevant figures (financial
indicators) to support your answer. (6)
INFORMATION:
A. Information from the Statement of Comprehensive Income (Income Statement)
on 31 May 2017.

Sales R 6 620 000

Cost of Sales 4 303 000
Depreciation 298 000
Operating expenses 2 117 000
Interest Expense 122 000
Income tax 299 400
Net profit after income tax 698 600

B. Information from the Statement of Financial Position (Balance Sheet) on 31 May:

2017 2016
Non-current assets R 4 757 500 R 4 489 820
Fixed Assets (carrying value) 4 707 500 4 409 820
Fixed Deposit : Devi Bank 50 000 80 000
Current Assets 475 000 443 680
Inventories 321 000 234 000
Trade Debtors 151 000 108 800
Cash and cash equivalents 3 000 98 600
Bank overdraft 14 860 -
Shareholders’ equity 3 831 400 3 471 800
Ordinary share capital 3 733 500 3 328 000
Retained income 97 900 143 800
Loan : Mona Bank 1 000 000 1 200 000
Current liabilities 401 100 261 700
Trade creditors 90 600 131 700
SARS: Income tax 7 640 (Cr) 2 280 (Dr)
Shareholders for dividends 288 000 130 000

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 C. The following financial indicators were calculated on 31 May:

2017 2016
Current ratio 1,2 : 1 1,7 : 1
Acid test ratio 0,4 : 1 0,8 : 1
Gross profit on sales 35% 35%
Operating expenses on sales ? 24%
Net profit after tax on sales 10,5% 12,8%
Debt/equity ratio ? 0,3 : 1
Return on average capital employed 23,6% 24,8%
Return on shareholders’ equity ? 21,6%
Earnings per share 127 cents 134 cents
Dividends per share 120 cents 97 cents
Net asset value per share ? 668 cents
Market price of share (Securities Exchange) 665 cents 650 cents
Current interest rate on loans 11,5% 11,5%

ACTIVITY 9:

Razia Traders Ltd is a listed company with an authorised share capital of 750 000 ordinary
shares. The financial year of the company ends on 30 June each year.
REQUIRED:
9.1 Identify THREE major decisions highlighted by the Cash Flow Statement and explain
TWO consequences of these decisions to the business. Quote figures. (8)
9.2 Comment on the issue price of the additional shares issued on 1 August 2015. (3)
9.3 Did the estate of the late shareholder receive a fair price for their shares? Explain. (4)
9.4 At the annual general meeting (AGM) a young shareholder was not pleased about
R200 000 spend on a local clean the environment campaign. She was of the opinion
that maximizing profits should be the main focus of the business. What would you say
to her? Provide TWO points. (3)
9.5 A senior director of the firm was disappointed that the new shares were sold without
giving the directors an option to purchase shares before they were advertised to the
public. Is he justified to feel this way? Explain. (4)
9.6 Indira Devi owns 340 000 shares. She was disappointed that additional shares were
issued in her absence. She persuaded the directors to re-purchase 80 000 shares from
one of her acquaintances.
 Do calculations to show the change in her percentage share-holding after each
change in the share capital. (6)
 Explain why she was eager for the company to re-purchase the shares. (2)

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INFORMATION:
A. Authorised Share Capital Note on 30 June 2016
750 000 ordinary shares
Issued shares

? Balance on 1 July 2015 ?

? Additional shares issued on 1 August 2015 525 000
(80 000) Shares repurchased on29 June 2016 ?

670 000 Balance on 30 June 2016 3 886 000

 On 1 July 2015, 90% of the authorised shares were in issue.

 On 1 August 2015, all the unissued shares were issue.
 The company paid R7,00 per share to repurchase the shares on
29 June 2016. These shareholders were entitled to final dividends.
B. CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2016

CASH EFFECTS OF OPERATING ACTIVITIES

Cash generated from operations

Interest paid (93 500)
Income tax paid (263 000)
Dividends paid (333 750)

CASH EFFECTS OF INVESTING ACTIVITIES (586 700)

Fixed assets purchased (818 700)
Fixed assets sold for cash 72 000
Investment 160 000

CASH EFFECTS OF FINANCING ACTIVITIES

Proceeds of shares issued 525 000

Repurchase of shares ?
Loans (320 000)
Cash surplus/deficit for the year (38 400)
Cash and cash equivalents (1 July 2015) 58 700
Cash and cash equivalents (30 June 2016)
20 300

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 C. The following financial indicators were calculated:
2016 2015

Earnings per share (EPS) 70 cents 65 cents

Dividends per share (DPS) 35 cents 58 cents
Return on average shareholders’ equity 12,6% 15%
Return on capital employed 17% 18,2%
Debt/equity ratio 0,2 : 1 0,33 : 1
Net asset value (NAV) 627 cents 581 cents
Market price of shares (Securities
655 cents 635 cents
exchange)
Current interest rate on borrowing 11% 11%

ACTIVITY 10:

You want to invest in a company. You selected the two companies below as they
both manufacture sports equipment. Both companies have the same number of
shares.

LUPIN LTD LILAC LTD

Market price per share on the JSE 550 cents 675 cents
Net asset value per share 480 cents 790 cents
Earnings per share 310 cents 145 cents
Dividends per share 190 cents 155 cents
% return on shareholders' equity 16,3% 9,2%
% return on total capital employed 21,6% 10,6%
% interest rate on loans 12,0% 12,0%
Debt/Equity ratio 0,3 : 1 2,0 : 1
Current ratio 4,0 : 1 1,3 : 1
Acid-test ratio 2,4 : 1 0,8 : 1
Stock holding period 132 days 75 days
Average debtors' collection period 48 days 26 days

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 REQUIRED:
In answering the following questions, compare and quote the relevant financial indicators of
both companies. Show actual figures, ratios and/or percentages to support answers.
10.1 Which company is handling their working capital more effectively? Explain and quote
THREE financial indicators to support his opinion. (9)
10.2 Considering the use of loans by the two companies:
 Which company is making more use of loans? Quote a financial indicator for each (3)
company.
 Explain whether or not it was a good idea for that company to make use of loans.
Quote ONE financial indicator. (3)
10.3 Lupin LTD has a better percentage return, earnings and dividends than Lilac LTD.
Explain and quote THREE financial indicators for each company. (9)
10.4  Explain why the existing shareholders of Lupin LTD are happy with the current
market value of their shares. (2)
 Explain why the existing shareholders of Lilac LTD are very disappointed with the
current market value of their shares. (2)
ADDITIONAL PRACTICE:

NSC PAPER QUESTION TOPIC

3 Balance Sheet and Interpretation

2014 NOVEMBER
4 Fixed assets, cash flow and interpretation
3 Balance sheet notes and interpretation
2015 MARCH
4 Cash flow statement and interpretation
2015 NOVEMBER 4 Cash flow statement and interpretation
5 Balance sheet notes, cash flow statement and
2016 MARCH
interpretation
2016 NOVEMBER 4 Cash flow statement and interpretation
2017 MARCH 4 Cash flow and interpretation
2017 NOVEMBER 4 Cash flow and interpretation

RECOMMENDATIONS FOR IMPROVEMENT IN THIS TOPIC:

1. Make extensive use of past year examination papers (National and Provincial)
2. Go back to basics – revise Grade 10 and 11 work, the basic concepts and the Accounting
Equation.
3. Master the formats of financial statements.
4. Introduce short, regular informal testing to assess understanding and for remediation.
5. Discuss and debate to improve interpretive skills.

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 8. Grade 10 and 11:

Analysis and interpretation logically follow the preparation of Financial Statements of a sole trader in
Grade 10 and preparation of Financial Statements of a partnership business in Grade 11.
This topic is introduced in the third term in Grade 10 and in the second term in Grade 11.
The basic logic of interpretation using financial indicators is consistent across all grades, as such the
introduction above will apply to Grades 10 and 11 (excluding all references to companies).
LIST OF FINANCIAL INDICATORS APPLICABLE TO EACH GRADE (AS PER CAPS):

GRADE 10 GRADE 11 GRADE 12

Profitability Gross profit on sales Gross profit on sales Gross profit on sales
Gross profit on cost of Gross profit on cost of Gross profit on cost of
sales sales sales
Net profit on sales Net profit on sales Net profit on sales
Operating expenses on Operating expenses on Operating expenses on
sales sales sales
Operating profit on sales Operating profit on sales Operating profit on sales

Liquidity Current ratio Current ratio Current ratio

Acid test ratio Acid test ratio Acid test ratio
Stock turnover rate Stock turnover rate
Stock holding period Stock holding period
Ave. debtors collection Ave. debtors collection
period period
Ave. creditors payment Ave. creditors payment
period period
Solvency Solvency ratio Solvency ratio Solvency ratio
Return Return on equity Partners earnings Return on shareholders’
equity
Return on partners Return on capital
equity employed
Return of equity (per Net asset value
partner)
Dividends per share
Earnings per share
Risk/Gearing Debt equity ratio Debt equity ratio

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GRADE 10 ACTIVITY 1:

SARDIE STORES
The information below, appeared in the books of Sardie Stores for the financial year ended
28 February 2017.
Amounts extracted from the Balance Sheet on 28 February 2017:

Trade debtors 33 360 Vehicles 432 000

Trade creditors 25 600 Trading stock 52 200
Accrued Income 6 420 Capital 640 000
Accrued expenses 7 800 Fixed Deposit 50 000
Mortgage Bond 145 000 Bank overdraft 10 400

Financial indicators on 29 February 2016:

 Current Ratio : 1,9 : 1

 Acid test ratio : 1,1 : 1
REQUIRED:
1.1 Refer to the table provided in the answer book. Place a tick in the appropriate box for
each of the balance sheet item listed. (10)
1.2 Calculate the following financial indicators on 28 February 2017:
 Current ratio (5)
 Acid test ratio (4)
1.3 Based on the above figures, comment on the liquidity of the business. (4)

GRADE 10 ACTIVITY 2:
BULL-DOG TRADERS
The following information relate to Bull-Dog Traders.
REQUIRED:
2.1 Calculate the following ratios/financial indicators for the year ended 29 February 2016.
Show all calculations to the nearest ONE decimal points.
2.1.1 Solvency ratio (5)
2.1.2 Current ratio (3)
2.1.3 Acid test ratio (4)
2.1.4 Return on average owner’s equity (5)
2.1.5 Mark up percentage (3)
2.2 Comment on the liquidity position of the business. Quote TWO relevant financial (6)
indicators/ratios for both years to support your response.

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 2.3 The business aims to achieve a mark-up of 75% on cost at all times. Provide TWO
reasons for the business not achieving the expected mark-up percentage.
(4)
INFORMATION:
A. Extract from the Income Statement for the year ended 29 February 2016:

Sales 1 875 000

Cost of sales 1 118 750
Operating expenses 700 000
Net profit 525 000

B. Extract from the Balance Sheet as at 29/28 February:

2016 2015

Fixed/Tangible assets at carrying value 2 250 000 1 500 000

Fixed deposit: Betty Bank 150 000 120 000
Current assets 1 287 500 880 000

Inventories 300 000 225 000

Trade and other receivable 850 000 565 000
Cash and cash equivalents 137 500 90 000

Owner’s equity 2 500 000 1 475 000

Non-current liabilities 818 750 625 000
Current liabilities 368 750 400 000

C. Financial indicators calculated for the year ending 28 February 2016:

Solvency ratio 2,44 : 1

Current ratio 2.2 : 1
Acid test ratio 1,64 : 1
Return on average owner’s equity 22%
Mark up percentage 62%

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GRADE 10 ACTIVITY 3:

SL TRADERS
INFORMATION:
A. The following balances appeared in the books of SL Traders on 31 March, the end of
the financial year:
2017 2016

Fixed assets (carrying value) 1 078 260 279 500

Trading stock 194 000 273 000
Accounts receivable (Debtors) 355 920 325 000
Cash and cash equivalents 112 000 368 000
Total assets 1 740 180 1 245 500
Owner’s equity 724 980 723 500
Loan: Bundy Bank ? 0
Accounts payable (Creditors) 315 200 522 000

Net profit as per the Income Statement 165 500 174 000

B. The following financial indicators were calculated:

2017 2016

Current ratio ? 1,9 : 1

Acid test ratio ? 1,3 : 1
Solvency ratio ? 2,4 : 1
Return on equity ? 25%
Gross profit percentage (target) 60% 60%
Gross profit percentage (achieved) 52% 48%

REQUIRED:
3.1 Calculate the financial indicators to complete the table above. (18)
3.2 The business acquired a loan on 1 April 2016. Interest is capitalised. Calculate the
amount of the loan. (4)
3.3 Comment on the solvency of the business. Quote figures. (4)
3.4 Will the business be able to pay its short term debts in the next financial year? Explain.
Quote TWO financial indicators with figures. (6)
3.5 Should Stan be satisfied with his return on equity? Explain. Quote figures. (4)

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 3.6 Provide TWO reasons why the business was not able to achieve its targeted gross profit
percentage. (4)
GRADE 11 ACTIVITIES

GRADE 11 ACTIVITY 1:

Golden Sun Traders is a partnership business owned by partners N. Yong and G. Sung. The
financial year ended on 28 February 2015.
REQUIRED:
1.1 Calculate the following:
1.1.1 The total current liabilities. (4)
1.1.2 Percentage return earned by N. Yong. (5)
1.1.3 Debt/equity ratio. (4)
1.1.4 Acid-test ratio. (4)
1.2 Comment on the liquidity of the business.
Quote TWO financial indicators (with figures) in your answer. (6)
1.3 Do you think that N. Yong is satisfied with his return on investment? Explain. Quote TWO
relevant financial indicators (with figures) to support your answer.
(6)
1.4 The partners want to expand the existing business and are considering increasing the
loan. What advice would you offer them? Support your answer by making reference to
TWO financial indicators (with figures). (6)

INFORMATION:
A. GENERAL LEDGER OF GOLDEN TRADERS
APPROPRIATION ACCOUNT

2015
28 Salary : Yong 150 000 2015 Feb 28 Profit and Loss 446 400
Feb
Salary : Sung 182 400
Interest on Capital: Yong 42 000
Interest on Capital : Sung 28 000
Bonus : Sung 12 000
Current account : Yong 19 200
Current account : Sung 12 800

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B. Balances and other
28 FEBRUARY 2015 28 FEBRUARY 2014
information:

Capital : Yong 525 000 400 000

Capital : Sung 350 000 400 000
Current account : Yong 9 100 (Dr) 15 400
Current account : Sung 10 600 12 200
Loan: Mia Bank (11%p.a.) 400 000 400 000
Trade debtors 273 200 142 000
Cash and cash equivalents 36 800 36 600
Trading stock 177 000 50 000
Current liabilities ? 127 000
Current ratio 2,5 : 1 1,8 : 1
Acid test ratio ? 1,2 : 1
Debt equity ratio ? 0,5 : 1
Return earned by Yong ? 48%
Return earned by Sung 61% 57%

GRADE 11 ACTIVITY 2:

MIDDLE POINT TRADERS

Information from the records of Middle Point Traders (partners Middle and Point) for the
financial year ended 30 April 2017 is presented.
REQUIRED:
2.1 Calculate the following:
 Percentage mark-up on cost (4)
 Operating expenses on sales (3)
 Total earnings of Middle (4)
 The percentage return earned by Point (5)
 The debt/equity ratio for 2017. (3)
2.2 Comment on the liquidity of the business. Quote and explain TWO financial
indicators (with figures) in you answer. (4)
2.3 Were the partners justified in increasing the loan? Explain. Quote TWO
financial indicators, and figures, in your explanation. (4)
2.4 Middle is not happy with his return on investment. Explain why you think he
feels this way. Quote figures. (4)

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 INFORMATION:
A. Extracts from the Income Statement on 30 April 2017:

Sales R 4 257 000

Gross profit 1 677 000
Operating expenses 1 064 250
Net profit for the year 720 000

B. Extracts from the partners’ Current Accounts on 30 April 2017:

MIDDLE POINT

Total primary distribution ? 279 570

Share in the remaining profit 118 020 59 010
Drawings 198 000 210 000

C. Extracts from the Balance Sheet on 30 April:

2017 2016

Partners Equity 1 237 300 838 300

 Capital 975 000 885 000

 Current Account 262 300 (46 700)

Loan: Simi Bank 742 380 85 000

Current Assets 598 080 441 600

 Trading stock 276 400 200 800

 Trade and other receivables 288 880 220 600

 Cash and cash equivalents 32 800 20 200

Current liabilities 427 200 368 000

 Trade and other payables 328 360 339 240

 Short term portion of loan 98 840 28 760

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D. Details of the partners’ equity on 30 April:
MIDDLE POINT
2017 2016 2017 2016

Capital 650 000 535 000 325 000 350 000

Current Account 202 720 22 300 59 580 (69 000)

852 720 557 300 384 580 281 000

E. Financial indicators on 30 April:

2017 2016

Current ratio 1,4 : 1 1,2 : 1

Acid test ratio 0,8 : 1 0,7 : 1
Debt/equity ratio ? 0,1 : 1
Return on investment : Monty 54% 46%
Return on investment : Python ? 81%
Return on capital employed 69% 43%
Interest rate on loans 13% 13%

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 MODULE 4: RECONCILIATIONS

INTRODUCTION
Reconciliation forms part of the internal control processes where different sets of information are
compared, differences are identified, investigated (if necessary) and corrected.
The purpose of reconciliation is to identify differences, errors and omissions and to verify the accuracy of
all transactions recorded.

Types of
Reconciliations

Bank Creditors Debtors

The need to do reconciliations:

BANK DEBTORS’ CREDITORS’

 The Bank Account  The balance of the  The balance of the Creditors’
balance in the General Debtors’ Control Control account in the General
Ledger of the business account in the General Ledger should be the same as the
is never the same as Ledger should be the total of the creditors’ list.
the balance on the same as the total of the  A Creditor’s Ledger account in
Bank Statement Debtors List. the books of the business should
received from the (An internal control match the statement balance from
bank. measure). the creditor.

1. BANK RECONCILIATION

It enables the business or individual to keep track of the following:

 Outstanding cheques
 Outstanding deposits
 Stale cheques
 Bank charges/ service fees
 Electronic transfers made by the business or person
 Electronic transfers /direct deposits in favour of the business
 Interest on overdrafts
 Interest earned on the credit balance

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The accounting cycle
The Bank Reconciliation process is an integral internal control function before posting to the General
Ledger.
1.
Transaction
8. Financial 2. Source
statements document

7. Post-Closing
Trial Balance 3. Journals

Bank
6. Closing accounts
Reconciliation

5. Trial
Balance 4. Ledger

Information from the bank statement is used to update the relevant journals so that the correct amounts
are posted to the ledger.
Comparison between the bank statement and the current bank account

Records of the business Records of the Bank

 Cash transactions recorded in the CRJ and  The bank sends a statement of account to the
CPJ business showing a record of all transactions
through that account..
 Cash received and deposited is reflected on  The Bank credits all deposits made by the
the debit side of the Bank Account business
Asset of the business increase Liability of the bank increase
 Payments made by the business are  Payments, withdrawals, debit orders made by
reflected on the credit side of the bank the business are recorded on the debit side of
account the bank statement.
Assets decrease Liability decrease

 A favourable balance is reflected on the  A favourable bank balance is reflected on the

debit side of the Bank account credit side of the Bank statement
 An unfavourable bank balance (bank  An unfavourable bank balance is reflected on
overdraft ) is reflected on the credit side of the debit side of the Bank statement
the Bank account

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 ACTIVITY ON BASIC CONCEPTS

Match the concepts in Column A with the statements provided in Column B

1. Current Bank account A A cheque account at the bank.

2. Cheque B Amounts deducted by the bank as payment for the services
it provides. This is reflected on the statement.
3. Cheque counterfoil C Represents a situation when a business has withdrawn
more money than was deposited in the bank account.
4. Bank charges D Represents a payment (expense) to the bank for an
overdraft bank balance.
5. Bank overdraft E A receipt (income) from the bank for reflecting a favourable
bank balance.
6. Interest on overdraft F An instruction to the bank, signed by the drawer, to pay a
specific sum of money.
7. Interest on current account G This is used to buy goods or services from suppliers, and
the amounts used is paid back to the bank at a later date.
8. Credit card H This is used to buy goods/services and the amount is
immediately deducted from your bank account balance.
9. Debit card I This form is used to record the total cash and cheques
received for the day and is proof of the amount deposited in
the current account.
10. Dishonoured cheque J This is the portion of the cheque that is kept by the drawer
as proof of the cheque payment.
“(R/D cheque)
11. Deposit slip K The cheque deposited by the business has not been paid
out by the bank.

QUESTION 1

The following information relates to Sizwe Traders for July 2016.

REQUIRED:
1.1 Calculate the correct balance of the Bank Account in the General Ledger on 31 July
2016. State if this balance is favourable or unfavourable. (8)
1.2 Prepare the Bank Reconciliation Statement on 31 July 2016. (6)
1.3 Refer to Information C.
Explain ONE internal control measure that the business should implement to ensure
that this will not happen in the future. (2)

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INFORMATION:
A. Extract from the Bank Reconciliation Statement on 30 June 2016:

Favourable balance as per Bank Statement R42 555

Outstanding deposit: (dated 11 June 2016) R37 800
Outstanding cheques:
No. 186 (dated 22 January 2016) R450
No. 305 (dated 30 August 2016) R8 400

B. The balance in the Bank Account reflected a favourable balance of R16 785 on 31 July 2016,
before taking into account the items listed below:
C. Cheque No. 186 does not appear on the bank statement for July 2016.

D. The following items appeared on the July Bank Statement only:

 Interest earned on favourable bank balance, R285
 Bank charges, R950
 Unidentified debit order of R1 950. The bank will correct this in August 2016.

E. Cheque No. 374 appeared correctly on the Bank Statement as R8 450. The Cash Journal shows
it as R4 850.
F. The outstanding deposit of R37 800 does not appear on the July Bank Statement. An
investigation revealed that this money was never deposited. The cashier has disappeared.
G. The following entries appeared in the July Cash Journals only:
 A deposit of R27 180 made on 31 July 2016
 Cheque No. 401 (dated 18 July 2016), R18 600
H. The balance on the Bank Statement on 31 July 2016 is the missing figure.

QUESTION 2

2.1 Indicate whether the following statements are TRUE or FALSE. Write only ‘true’ or
‘false’ next to the question number (i) – (iv) in the ANSWER BOOK. (4)
(i) A post-dated cheque issued on 24 July 2015 but dated 24 August 2015, will only
be entered in the Cash Payments Journal on 24 August 2015.
(ii) A debit balance on the bank statement reflects an unfavourable balance.
(iii) Service fees and interest on an overdraft will be recorded as bank charges in the
Cash Payment Journal.
(iv) An internal auditor should inspect the bank reconciliation statement at the end of
each month.
2.2 You are provided with information related to Quick Traders for July 2015.

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 REQUIRED:
2.2.1 Calculate the correct totals for the Cash Receipts Journal and Cash Payment
Journal for July 2015. (12)
2.2.2 Prepare the Bank Reconciliation Statement on 31 July 2015. (11)
2.2.3 Explain how cheque No. 908 should be treated when preparing the financial
statements on 31 July 2015, the end of the financial year. (2)
2.2.4 Refer to information G:
The bookkeeper has decided to write off the amount of R50 000.
 Which GAAP principle will the bookkeeper be applying? (1)
 The bookkeeper wants to prevent a similar problem in future. Give TWO
suggestions to improve internal control in this regard. (4)
INFORMATION:
A. Items on the Bank Reconciliation Statement on 30 June 2015:
DEBIT CREDIT

Debit balance as per Bank statement 19 310

Outstanding deposit (10 May 2015) 50 000
Outstanding cheques:
No.892 (1 January 2015) 12 340
No.897 (10 June 2015) 8 700
Debit balance as per Bank Account 9 650

50 000 50 000

B. Provisional journal totals before receiving the July 2015 bank statement:
 CRJ: R146 970
 CPJ: R 68 900
C. The Bank Statement for July reflected the following:
 Bank charges, R1 300.
 Interest on an overdraft, R920.
 Debit order for insurance, R600.
 Direct deposit of R1 800 for rent received from tenant.
D. Cheque no. 892 must be cancelled.
E. Cheque no. 897 did not appear in the July 2015 Bank Statement.
F. The outstanding deposit (10 May 2015) cannot be traced and the cashier at
that time has since disappeared. It was decided to write off this amount.
G. A cheque received from Zulu Traders dated 25 November 2015 for R15 000 was
not recorded in the July 2015 Cash Receipts Journal. It was also not deposited
in July.

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 H. The following items appear in the July 2015 Cash Journals but not on the Bank
Statement:
 A deposit of R18 000, dated 27 July 2015.
 Cheque No. 905, R1 200, dated 31 July 2015.
 Cheque No. 908, R3 100, dated 15 December 2015.
I. The Bank Statement on 31 July 2015 reflects a favourable bank balance of
R44 040.
2. CREDITORS RECONCILIATIONS

Types of Creditors Reconciliations

Creditors’ reconciliation is an internal control measure that highlights the differences between a
Creditor’s balance in the creditors’ ledger of a business and the monthly statement received from a
creditor (an external set of information).
This process ensures that the creditors’ accounts are properly maintained and controlled.
The second type of reconciliation involves comparing the Creditors Control account in the General
Ledger against the Creditors List and correcting differences.
Creditors Control Account: a General Ledger account that contains all related totals from the
relevant subsidiary journals .The account balance allows one to verify the accuracy of Creditors lists
total.
Possible reasons for differences in the control account balance and the list total are:
Errors made on source documents
Incorrect additions in the journal (casting errors )
Posting incorrect amounts to the ledgers
Posting to the incorrect side in the ledgers
Incorrect balancing of accounts in the ledgers

Effect of errors in the following entries:

Type of error General Ledger Creditors ledger Creditors list

 Source document  Mistake in two accounts  Creditors accounts will  Creditors list will be
be wrong wrong
 Journal  Mistake in two accounts  Creditors accounts will  Creditors list will be
be wrong wrong
 Posting to the General  The account)s) will be  No effect  No effect
Ledger wrong.

 Posting to the  No effect  Creditors accounts will  Creditors list will be

Creditors account be wrong wrong

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 Reconciliation of creditors’ statements with their Creditor’s Ledger account
accounts
These reasons typically reasons why the balance on the statement received from a creditor is
different from the Creditor’s ledger account balance:
The statement date differs from the closing date in the Creditors Ledger.
Transactions (purchases; returns/allowances; payments; discounts) could have been omitted or
entered incorrectly in the Creditors Ledger account and/or the statement of account.
A discount could have been deducted on the ledger account but not accepted by the creditor.
Posting and/or recording errors in either the creditor’s ledger and/or the statement.
Addition or subtraction errors in either the creditor’s ledger and/or the statement.

The Reconciliation process involves the following steps:

Step1: Compare the credit (+) column of the Creditors Ledger with the debit (+) column of the
statement.

Creditors Ledger Statement of Account

Invoices Invoices

Step 2: Compare the debit (–) column of the Creditors Ledger with the credit (–) column of the
statement.

Creditors Ledger Statement of Account

Debit notes are Credit notes

compared
Cheques with Receipts
Discount received Discount allowed

Step 3: Tick the amounts that appear in both the Creditors Ledger and the statement.
Circle the amounts that appear in only the Creditors Ledger or the statement.

Step 4: Errors and/or omissions in the Creditors Ledger must be correct by the business.

Step 5: Errors and/or omissions on the statement must be recorded in the Creditor’s Reconciliation
Statement. The Creditor must be notified of this error/omission so that it can be corrected on
the next statement.

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 Reconciliation of creditors’ statements with their Creditor’s Ledger account
accounts
These reasons typically reasons why the balance on the statement received from a creditor is
different from the Creditor’s ledger account balance:
The statement date differs from the closing date in the Creditors Ledger.
Transactions (purchases; returns/allowances; payments; discounts) could have been omitted or
entered incorrectly in the Creditors Ledger account and/or the statement of account.
A discount could have been deducted on the ledger account but not accepted by the creditor.
Posting and/or recording errors in either the creditor’s ledger and/or the statement.
Addition or subtraction errors in either the creditor’s ledger and/or the statement.

The Reconciliation process involves the following steps:

Step1: Compare the credit (+) column of the Creditors Ledger with the debit (+) column of the
statement.

Creditors Ledger Statement of Account

Invoices Invoices

Step 2: Compare the debit (–) column of the Creditors Ledger with the credit (–) column of the
statement.

Creditors Ledger Statement of Account

Debit notes are Credit notes

compared
Cheques with Receipts
Discount received Discount allowed

Step 3: Tick the amounts that appear in both the Creditors Ledger and the statement.
Circle the amounts that appear in only the Creditors Ledger or the statement.

Step 4: Errors and/or omissions in the Creditors Ledger must be correct by the business.

Step 5: Errors and/or omissions on the statement must be recorded in the Creditor’s Reconciliation
Statement. The Creditor must be notified of this error/omission so that it can be corrected on
the next statement.

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 TYPES OF ERRORS
 Error of Omission – a transaction is not recorded at all
 Error of commission – an item is entered to the correct side of the wrong account (there is a debit
and a credit entry, the records balance).
 Error of principle – an item is posted to the correct side of the wrong type of account, For
example cash paid for repairs (expense) is debited to an asset account.
 Error of original entry – an incorrect figure is entered in the records and then posted to the
correct account
 Reversal of entries – the amount is correct, the accounts used are correct, but the account that
should have been debited is credited and vice versa

Business risks and internal control of creditors

Business risks relating to creditors include:

 Overpaying creditors
 Being overcharged by creditors
 Being charged interest on overdue accounts by creditors
 Missing out on prompt settlement discounts offered by creditors

The business should implement appropriate internal control measures to protect the business
against these risks and ensure that creditors’ accounts are properly controlled.

Internal controls relating to creditors typically include:

Adequate segregation (separation) of duties with regards to creditors’ transactions. (E.g. the
same person should not order and receive goods.)

The clerk receiving the items from creditors must check the delivery note against the order form
to ensure that all items ordered were delivered.

All documents (invoices; debit notes etc.) relating to credit transactions must be correctly
processed in the proper journals.

Paying creditors on time to take advantage of settlement discounts and to avoid interest being
charged.
QUESTION 1

The information below relates to Imali Traders for August 2016.

REQUIRED:
1.1 Explain why the balance of the Creditors’ Control Account and the total of the
Creditors’ List should correspond. (2)

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1.2 Reconcile the Creditors control account with the Creditors list on 31 August 2016.
The balance in the Creditors’ Control account was R108 450 and the total of the
Creditors’ list with R104 865. (13)
INFORMATION:
The following errors and omissions were discovered during an investigation:
A. The Creditors’ Journal was overcast by R1 080.
B. A debit note of R825 was entered in the Creditor’s Journal. The correct entry was made
in the Creditors’ Ledger.
C. A debtor with a credit balance of R405 was included in the creditors’ list by mistake.
D. An invoice for R981 received from a creditor was incorrectly recorded as R918 and
posted accordingly.
E. VAT of R810 was omitted from an invoice received from a creditor.
F. Transfer the credit balance of R180 of a debtor in the Debtors’ Ledger to his account in
the Creditors’ Ledger.
G. The amount of R1 260 reflected as a refund in the Creditors’ Control Account was in fact
received from a debtor whose account was previously written off. No entry for this
amount was made in the Creditors’ Ledger.
QUESTION 2

Thanda Stores buys goods on credit from Minty Suppliers.

REQUIRED:
2.1 Use the table provided to indicate the changes that must be made:
 In the Creditors' Ledger Account in the books of Thanda Stores (14)
 In the Creditors' Reconciliation Statement on 29 February 2016

2.2 An investigation into the transaction on 2 February 2016 for Invoice 560 revealed that
Pearl Fakude (purchasing manager) ordered goods for herself. These goods were not
taken into stock.
 State TWO internal control measures that the business can use to prevent
similar incidents from happening in future. (4)

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INFORMATION:
A. Creditors' Ledger of Thanda Stores
Minty Suppliers

DATE DETAILS FOL. DEBIT CREDIT BALANCE

Feb. 01 Balance b/d 52 200
02 Invoice 560 CJ 44 200 96 400
04 Debit Note 52 CAJ 2 700 93 700
07 Cheque 443 CPJ 31 350 62 350
Discount received CPJ 3 300 59 050
20 Invoice 996 CJ 11 100 70 150
23 Cheque 575 CPJ 13 200 56 950
24 Invoice 590 CJ 24 000 80 950
28 Cheque 580 CPJ 13 800 67 150
Discount received CPJ 1 380 65 770
29 Invoice 592 CJ 44 400 110 170

B. Statement of account received from Minty Suppliers

MINTY SUPPLIERS No. 2169

205 Kingsview Road
Durban 3201
Debtor: Thanda Stores 25 February 2016
DATE DETAILS DEBIT CREDIT BALANCE
Jan. 25 Balance 67 200
28 Receipt 110 15 000 52 200
Feb. 02 Invoice 560 49 200 101 400
04 Credit Note 09 2 700 104 100
07 Receipt 122 31 350 72 750
Discount allowed 1 650 71 100
18 Invoice 571 28 800 99 900
23 Receipt 138 13 200 86 700
24 Invoice 590 21 600 108 300
25 Delivery charges 3 300 111 600

C. An investigation revealed the following errors and omissions

(a) Invoice 996 was for goods that Thanda Stores bought from another supplier,
Mondi Suppliers.
(b) Invoice 560 was recorded correctly on the statement of account.
(c) Invoice 571 was an error on the statement. This was for goods supplied to
another business.
(d) The discount allowed on 7 February 2016 is correct as per the statement of
account.
(e) Thanda Stores omitted to deduct the trade discount allowed on Invoice 590.
(f) Goods for R2 700 were returned by Thanda Stores to Minty Suppliers on
4 February 2016.
(g) In terms of the contract Minty Suppliers charges a delivery fee to all its customers.
(h) The statement of account only includes transactions up to 25 February 2016.
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 QUESTION 3

MJ Stores buys goods on credit from Braeside Dealers. You are presented with information from
the records of MJ Stores for October 2014.
REQUIRED:
Indicate the changes that must be made to the statement received from the creditor, Braeside
Dealers, and the Creditors Ledger account in the books of MJ Stores.
INFORMATION:
A. The statement received from Braeside Dealers on 30 October 2014 reflected an outstanding
balance of R12 540.
B. The Creditors’ Ledger account of Braeside Dealers in the books of MJ Stores showed that
only R5 350 was due to Braeside Dealers on 31 October 2014.
C. An investigation revealed the following:
i Returns recorded as R820 in the creditors ledger account of Braeside Dealers was
shown as R280 on the statement received. The amount on the statement was correct.
ii An invoice for R4 200 received from Braeside Dealers was incorrectly recorded as a
credit note by the clerk of MJ Stores in the creditors’ ledger.
iii An invoice received from Braeside Dealers was correctly recorded as R4 400 in the
creditors’ ledger account of Braeside Dealers in the books of MJ Stores, but the
statement showed this amount as R400.
iv A payment of R5 000 made by MJ Stores appeared on the statement. The statement
also reflected a discount of R250 for early payment. MJ Stores did not record the
discount in the creditors’ ledger.
v A payment of R2 500 to Braeside Dealers on 27 October 2014 did not appear on the
statement due to the statement being processed early.
QUESTION 4

Viva Traders received a statement of account from creditor, Egoli Suppliers. The balance on the statement
did not agree with that on the account of Egoli Suppliers in the Creditors' Ledger of Viva Traders.
REQUIRED:
Complete the table in the ANSWER BOOK to show how the differences must be treated to reconcile the
Creditors' Ledger Account balance with the statement balance.
Write the amounts in the appropriate columns and indicate the increase or decrease with a (+) or (-) with
each amount.
Total the columns to show the correct balances at the end of March 2016.
INFORMATION:

Balance of Egoli Suppliers in Creditors' Ledger of Viva Traders R10 705

Balance on the statement received from Egoli Suppliers R19 120

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A comparison between the Creditors' Ledger Account of Egoli Suppliers and the statement of account
showed the following differences:
A. An invoice for R9 870 received from Egoli Suppliers was correctly recorded in the Creditors Ledger
Account. The amount was incorrectly recorded as R8 790 on the statement.
B. Viva Traders entered a discount of R375 relating to a payment of R5 000 on 15 March 2016. Egoli
Suppliers did not approve this discount stating that the payment was received late.
C. The statement of account reflected returns valued at R890. The Creditors' Ledger Account showed
R690. It was established that Viva Traders miscalculated the value of the goods returned.
D. An invoice for R2 160 received from Egoli Suppliers was incorrectly recorded as a debit note in the
Creditors' Ledger.
E. A direct transfer of R5 000 by Egoli Traders was recorded in the Cash Payments Journal on
29 March 2016. The statement of account from Egoli Suppliers was dated 25 March 2016.

3. DEBTORS RECONCILIATION

It is normal procedure to compare the balance of the Debtor’s Control account with the total of the
Debtor’s List at the end of each month. If the balance/total is not the same, the errors and omissions
should be identified and addressed in order to reconcile the books.

The Debtors Control account ,Debtors Ledger and Debtors List

The entry in the journal will be posted on a daily basis to the Debtor’s ledger and the total
at the bottom of the journal will be posted at the end of the month to the Control Account.

Identifying Possible Errors:

Errors Procedure to correct

Source Document  Correct both the Debtor’s Control and the Debtor’s Ledger accounts (i.e. the
List).

Journal  Correct both the Debtor’s Control and the Debtor’s Ledger accounts (i.e. the
List).
Totalling Journals  Correct Debtor’s control account must be corrected
Posting errors  Correct Debtor’s control or Debtor’s Ledger, correction will ONLY be made
where the posting error was made.
Calculation error  Correct the error in the affected record, Debtor’s control or Debtor’s Ledger.

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RECORDING PROCESS INVOLVING DEBTORS

Documents handed to debtors

[Invoices, receipts, credit notes]

Transactions recorded in the

appropriate Journal

Totals POSTED Individual amounts

POSTED

to the DEBTOR’S CONTROL to the

account in the General Ledger
DEBTOR’S LEDGER accounts

Balance of Total of
Should
DEBTOR’S CONTROL be equal DEBTOR’S LIST

QUESTION 1

1.1 Indicate whether the following statements are TRUE or FALSE. Write only 'true' or
'false' next to the question number (1.1.1–1.1.3) in the ANSWER BOOK.
1.1.1 The balance in the Debtors' Control Account should equal the total of the
debtors' list.
1.1.2 Bad debts will be recorded in the Debtors' Allowances Journal.
1.1.3 A post-dated cheque received from a debtor must be recorded in the CRJ
on the date received. (3)
1.2 MIZZY BOUTIQUE
The Debtors' Control Account and debtors' list for February 2017 prepared by the
bookkeeper contained errors/omissions.

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 REQUIRED:
Use the table provided to indicate corrections that must be made to the Debtors'
Control Account and the debtors' list.
Provide figures and a plus (+) or minus (–) sign for each correction. (13)
INFORMATION:
A. Debtors' Control Account Debtors' List

Balance/Total R37 710 R39 490

B. Errors or omissions to be corrected:

(a) No entry was made for an invoice for R7 440 issued to G Gwen.
(b) A receipt for R9 400 issued to debtor B Crawley was recorded correctly
in the relevant journal. It was posted incorrectly as R4 900 to his Debtors'
Ledger Account.
(c) An invoice for R1 360 issued to A Naidoo was correctly recorded in the
DJ. It was posted in error to the wrong side of her account in the Debtors'
Ledger.
(d) A cheque for R1 350 received from D Zulu was recorded in the CRJ and
posted to the Debtors' Control Account and Debtors' Ledger accordingly.
D Zulu's account was previously written off.
(e) A credit note for R720 issued to W Wallace was recorded in the DAJ as
R270 and posted as such.
(f) No entry was made for a dishonoured cheque of R1 750 on the February
2017 bank statement. This had originally been received from debtor J
Taylor to settle his debt of R1 950.

Debtors Age Analysis

Debtors Age Analysis-is a tool used to manage the outstanding debts and identify debtors who are
not performing according to credit agreement. It displays a breakdown of debtor account balances for
each specified period for selected debtors account or a range of selected debtor’s accounts. Debtors
Age analysis is useful for credit control, helps a business to anticipate any cash flow problems.
Debtors Ledger –is used to manage and monitor the accounts of individual debtors.

The Debtors clerk /Debtors credit controller is responsible for:

Monitor debtors’ credit rating before extending any credit to the debtor.
Monitor debtors’ accounts to avoid exceeding of credit limit.
Ensuring that payments are received as per agreement.
Approve the credit sales before any order is delivered to a customer.

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 Debtors Age Analysis –when a debtors ledger is broken down into time periods to
clearly indicate how long an amount has been outstanding.

Credit note
TWO rules applicable when calculating Age Analysis
subtracted from
 Returns are subtracted from the latest sales recent invoice

 Payments are subtracted from the oldest outstanding balance

Issue a receipt for

payment and
discount

Important information for exams: Debtors Age Analysis

 Identify figures and quote names of debtors.

Problems reflected by the Debtors Age:

 Slow payers
 Debtors exceeding credit limits
 Continued sales to defaulting debtors

QUESTION 2 : DEBTORS AGE ANALYSIS (Enrichment)

This activity is aimed at providing background information on how Age Analysis is compiled.
REQUIRED:
Prepare:
 The debtor’s age analysis statement
 A summary of aging statement
 A step-by-step illustration of the month number and balance per month

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INFORMATION:
A. P. David has the following credit agreements with A. Armstrong
 Credit limit : R5 000
 Credit terms 60 days
B. Transactions:
1 May 2017 Outstanding balance of R1 800 at the beginning of the month.
5 May 2017 Receive a cheque from A Armstrong for R1 000 as payment on the
amount owing for April 2017: A. Armstrong received R50 discount.
Issued a receipt 491
15 May 2017 Issued invoice 1564 for goods sold on credit to A. Armstrong, R1 600.
25 May 2017 A. Armstrong returned merchandise for R200. Issued a credit note 184.
6 June 2017 Sold goods on credit to A. Armstrong for R2 100 and issue invoice 1589.
30 June 2017 Interest charged on A. Armstrong’s overdue account amounted to R50
(journal voucher).
10 July 2017 Received a cheque for R1 500 from A. Armstrong as payment of his
debt. Issued receipt 601
26 July 2017 Issued invoice to A. Armstrong as payment for merchandise sold to him
for R1 900
31 July 2017 Charge A. Armstrong’s overdue account with R60 interest (journal
voucher)

QUESTION 3 : DEBTORS AGE ANALYSIS

GLENDALE TRADERS
The debtors' age analysis on 30 April 2017 is provided. Credit terms are 30 days.
REQUIRED:
3.1 Explain how a debtors' age analysis can assist with internal control over debtors. (2)
3.2 Calculate the percentage of total debts exceeding the credit terms. (4)
3.3 Explain ONE problem (with figures) relating to EACH of the following debtors:
 D Pillay
 W Patel (4)
3.4 Explain TWO problems (with figures) relating to debtor D Gouws. (4)

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INFORMATION:
DEBTORS' AGE ANALYSIS ON 30 APRIL 2017:

CREDIT AMOUNT CURRENT 30 60 90

LIMIT OWING MONTH DAYS DAYS DAYS

R R R R R R
D Pillay 10 000 11 800 1 980 9 820
D Gouws 14 000 13 450 4 100 3 902 5 448
Z Ngosi 2 800 2 550 2 550
W Patel 14 000 11 192 9 112 2 080
P Peters 5 000 2 608 1 408 1 200

41 600 7 488 17 472 14 560 2 080

100% ? ? ? ?

14

QUESTION 4 : BANK RECONCILIATION AND DEBTORS AGE ANALYSIS

4.1 BANK RECONCILIATION AND INTERNAL CONTROL

The information below relates to Eureka Traders
REQUIRED:
4.1.1 Calculate the correct bank balance on 30 June 2015. (13)

4.1.2 Prepare the Bank Reconciliation Statement on 30 June 2015. (8)

4.1.3 Refer to information E

Identify TWO separate problems with evidence. Give advice for EACH problem. (6)

109

GRADE 12 | ACCOUNTING TRAINING MANUAL | 109

 INFORMATION:
A. The following Bank Reconciliation Statement was prepared on 31 May 2015:

Balance as per Bank Statement (unfavorable) (R13 000)

Outstanding deposit 30 000

Outstanding cheques:

No. 614 (dated 20 December 2014) Donation (10 500)

No. 958 (dated 25 May 2015) Merchandise (7 900)

No. 962 (dated 30 July 2015) Settlement of account (4 500)

Correction of error 3 600

Balance as per bank account (unfavorable) (2 300)

NOTE: The deposit of R30 000 appeared on the Bank Statement on 14 June 2015.
• The error of R36 000 was corrected by the bank on 10 June 2015.
• Cheque no. 958 issued in May 2015, was reflected on the Bank Statement for June as
R9700.The Bank Statement is correct .The other outstanding cheques have not been
presented at the bank.
B. Provisional totals on 30 June 2015: CRJ: R87 220; CPJ: R74 860
C. The bank statement for June 2015 revealed the following:
 Direct deposit for rent income from the tenant ,R21 000
 Stop order for insurance ,R6 500
 R/D cheque originally received from F.Mnisi for R2 250 in settlement of hid debt of R2 300
 Bank Charges ,R210
 Balance as per Bank Statement?
D. The following cheques appeared in the Cash Payments Journal and not on the Bank Statement
for June 2015:
 No. 982 for R2 200
 No. 986 for R1 400 (dated 28 July 2015)
E. The bookkeeper recorded the following entry in the June 2015 CRJ:

Doc. Date Details Analysis Bank Sales

CS371– 30 Cash 18 500 18 500 18 500
402
This was recorded by the bank on 15 July 2015.The internal auditor has noticed that
cash slips, CS371-402, actually total R25 500.

110

110 | ACCOUNTING TRAINING MANUAL | GRADE 12

4.2 DEBTORS AGE ANALYSIS
The information below relates to Max Sportswear.
REQUIRED:
4.2.1 Refer to Information B
As the internal auditor, what concerns would you have over Susan's job description? Explain. (2)
4.2.2 Identify TWO debtors who could have their credit limits increased (2)
4.2.3 Explain THREE different problems reflected by the Debtors' Age Analysis. Give evidence. (9)
INFORMATION:
A The business sells 80% of their stock on credit. Debtors are required to settle their
accounts by the end of the month following the sales transaction month.
B Susan, the bookkeeper, issues invoices and credit notes and collects cash from debtors.
C Debtors' Age Analysis on 31 August 2015:
DEBTORS CREDIT AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS
LIMIT OWING MONTH
S Muller R10 000 R12 000 R1 800 R4 200 R2 400 R3 600
L Ndlovu R5 800 R5 000 R3 100 R1 900
P Pillay R3 500 R3 200 R3 200
B Vasco R5 000 R5 000 R2 600 R1 600 R800
C Crooks R4 500 R4 100 R3 500 R600
R Aucamp R1 500 R1 400 R500 R900
R30 700 R12 100 R7 400 R5 900 R5 300
100% 39% 24% 19% 18%

QUESTION 5

The following information relates to Dreamy Delight Traders, a business trading in cookies and
pastries. The information appeared in the records for the period 1 March 2014 to 28 February 2015.
REQUIRED:
5.1 Refer to Information A:
Provide a reconciled Debtor’s List on 28 February 2015. (14)
5.2 Refer to Information B:
5.2.1 Calculate the Bank Statement balance on 31 January 2015. Indicate whether
it was a favourable or unfavourable balance. (7)
5.2.2 One of the cheques was wrongly handled on the Bank Reconciliation
Statement. Identify the cheque and give a reason for your choice. Provide the
correct entry for this cheque. (6)
Cheque no. 1297 was issued to a creditor. How would this cheque be handled
in the financial statements if the financial year ends on 28 February 2015? (2)

111

GRADE 12 | ACCOUNTING TRAINING MANUAL | 111

INFORMATION:
A. CONTROL OF DEBTORS:

On closer inspection the following errors were found:

 An invoice for R2 300 issued to Baker House was posted to the account of
Gorgeous Baker.
 A payment of R19 400 made on 1 February 2015 by Gorgeous Baker and discount
of R600 were posted to the account of Crispy Cook.
 An amount of R1 625 was added to the account of Gorgeous Baker for interest on
the overdue account. Interest was calculated at 15% p.a. The interest should be
added to Baker House, which has owed R65 000 since 31 December 2014.

B. BANK RECONCILIATION STATEMENT ON 28 FEBRUARY 2015

? Balance according to the Bank Statement

Credit outstanding deposit 15 870
Debit outstanding cheques:
No. 857 (dated 1 August 2014) 7 450
No. 1284 (dated 17 February 2015) 3 500
No. 1297 (dated 27 April 2015) 500
Credit balance according to bank account 2 000

29

THE END

112
112 | ACCOUNTING TRAINING MANUAL | GRADE 12
GRADE 12 | ACCOUNTING TRAINING MANUAL | 113
 Published by the Department of Basic Education

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Telephone: 012 357 3000 Fax: 012 323 0601

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114 | ACCOUNTING TRAINING MANUAL | GRADE 12

Accounting Answer Book

Teacher Development Implementation

National Institute for Curriculum and Professional Development (NICPD)
TABLE OF CONTENTS - ANSWER SHEETS

 Module 1 : Financial Statements –Balance Sheet 2 -14

 Module 2 : Cash flow Statement 15 -30
 Module 3 : Analysis and interpretation of financial statements 31 -46
 Module 4 : Reconciliations 47 -57

| ACCOUNTING ANSWER BOOK | 1

COMPANIES FINANCIAL STATEMENTS –BALANCE SHEET

BALANCE SHEET

ACTIVITY 1:

Illustrate a basic flow of recording and reporting financial information. Commence with
Transactions and end with the Preparation of Financial Statements.

ACTIVITY 2:

Place the General Ledger accounts from the list provided in the appropriate column on the table
provided in the Answer Book, as follows:

NON- NON-
CURRENT CURRENT
CURRENT CURRENT EQUITY
ASSETS LIABILITIES
ASSETS LIABILITIES

2 | ACCOUNTING ANSWER BOOK |

ACTIVITY 3:
A typical Balance Sheet is presented. Fill in the missing amounts to complete this statement.
MOON LTD
BALANCE SHEET FOR THE YEAR ENDED 28 FEBRUARY 2018
ASSETS Notes
NON-CURRENT ASSETS 4 980 000
Fixed/tangible assets 3
Financial assets 160 000
CURRENT ASSETS 1 820 000
Inventories 4 956 000
Trade and other receivables 5
Cash and cash equivalents 6 2 500
TOTAL ASSETS
EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital 7
Retained income 8 218 200
NON-CURRENT LIABILITIES
Mortgage Loan (740 000 – )
CURRENT LIABILITIES 921 800
Trade and other payables 9
Bank overdraft 45 300
Current portion of loan 148 000
6 800 000

| ACCOUNTING ANSWER BOOK | 3

 ACTIVITY 4

4.1 RETAINED INCOME NOTE

Balance at the beginning of the year 345 000

Interim dividend 240 000

10

4.2 BALANCE SHEET/STATEMENT OF FINANCIAL POSITION ON

28 FEBRUARY 2017
ASSETS
Non-current assets
Fixed assets
Financial assets
Current assets
Inventory
Trade and other receivables
Cash + cash equivalents
TOTAL ASSETS

EQUITY AND LIABILITIES

Shareholder’s equity
Ordinary share capital
Retained income
Non-current liabilities
Loan: Vivian Bank
Current liabilities
Trade and other payables
Shareholders for dividends 40
Current portion of loan
TOTAL EQUITY AND LIABILITIES

4 | ACCOUNTING ANSWER BOOK |

 ACTIVITY 5
FOUCHE LTD
5.1.1 ORDINARY SHARE CAPITAL
AUTHORIZED
3 000 000 shares
ISSUED

10

5.1.2 RETAINED INCOME

Balance on 1 March 2016

Ordinary share dividends

Interim
Final
Balance on 28 February 2017 11
FIXED/TANGIBLE ASSETS Land and Equipment Vehicles
5.1.3 Buildings
Carrying value in beginning 6 990 000 155 000 520 000
Cost 6 990 000 240 000 880 000
Accumulated depreciation 0 (85 000) (360 000)

Movements
Additions at cost 0
Disposal at carrying value (0) (0)
Depreciation 0 (161 600)

Carrying value at the end 7 490 000

Cost 7 490 000 360 000

Accumulated depreciation 0 16

| ACCOUNTING ANSWER BOOK | 5

 5.2 FOUCHE LTD
BALANCE SHEET ON 28 FEBUARY 2017

ASSETS
Non-current assets
Tangible assets
Fixed deposit at Zamdela Bank

Current assets
Inventories
Trade & other receivables
SARS – Income Tax
Cash & cash equivalents

TOTAL ASSETS

EQUITY & LIABILITIES

Ordinary shareholders’ equity
Ordinary share capital
Retained income

Non-current liabilities
Mortgage loan: Cash Bank

Current liabilities
Trade & other payables
Shareholders for dividends
Current portion of loan

TOTAL EQUITY & LIABILITIES

33

Ordinary share capital ?

Retained income 450 000
Loan 580 000
Fixed assets
Trade debtors ?
Bank 50 000
Inventory ?
Trade creditors ?
6 | ACCOUNTING ANSWER BOOK |
ACTIVITY 6
6.1 BOONZAAIER LIMITED

6.1.1 Ordinary share capital

AUTHORISED

6 500 000 shares

ISSUED

10

6.1.2 Retained income

Balance at beginning of year 567 000

Funds used for shares repurchased

Net profit after tax

Ordinary share dividends

Balance at end of year 10

| ACCOUNTING ANSWER BOOK | 7

 6.2 BOONZAAIER LIMITED
BALANCE SHEET ON 28 FEBRUARY 2017

ASSETS
Non-current assets

Fixed assets
Fixed deposit: Parys Bank

Current assets

Inventories
Trade and other receivables

TOTAL ASSETS

EQUITY & LIABILITIES

Ordinary shareholders’ equity
Ordinary share capital
Retained income

Non-current liabilities

Loan: BB Bank

Current liabilities 2 600 000

Trade and other payables
Current portion of loan
Shareholders for dividends

TOTAL EQUITY & LIABILITIES

35

8 | ACCOUNTING ANSWER BOOK |

ACTIVITY 7

7.1.1 ORDINARY SHARE CAPITAL

AUTHORIZED
1 750 000 shares
ISSUED

10

7.1.2 RETAINED INCOME

Balance on 1 July 2016 345 900

Ordinary share dividends

Balance on 30 June 2017 10

7.1.3 TRADE AND OTHER RECEIVABLES

10

| ACCOUNTING ANSWER BOOK | 9

7.2 MTOMBENI TRADERS LTD
BALANCE SHEET ON 30 JUNE 2017

ASSETS
NON-CURRENT ASSETS
Fixed/Tangible Assets
Fixed deposit

CURRENT ASSETS
Inventory
Trade and other receivables
Cash and cash equivalents

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS' EQUITY
Ordinary share capital
Retained income

NON-CURRENT LIABILITIES
Loan: Drake Bank

CURRENT LIABILITIES
Trade and other payables

Shareholders for dividends

Current portion of loan

TOTAL EQUITY AND LIABILITIES

10 | ACCOUNTING ANSWER BOOK |

 ACTIVITY 8
CHUTA LTD
8.1.1 RETAINED INCOME

10

8.1.2 FIXED/TANGIBLE ASSETS Land and Equipment Vehicles

Buildings
Carrying value in beginning 4 899 999
Cost price 4 899 999 360 000 970 000
Accumulated depreciation
0 (340 000) (395 000)
In the beginning

Movements
Additions at cost 0
Disposal at carrying value
(0) (0)
Depreciation
0

Carrying value at the end 5 540 399

Cost 5 540 399
28
Accumulated depreciation (0)

| ACCOUNTING ANSWER BOOK | 11

 8.2 CHUTA LTD
BALANCE SHEET ON 28 FEBUARY 2017

ASSETS
Non-current assets
Tangible assets
Fixed deposit at Boris Bank

Current assets

TOTAL ASSETS

EQUITY & LIABILITIES

Ordinary shareholders’ equity

Non-current liabilities
Mortgage loan: Mongomorry Bank

Current liabilities 980 000

Trade & other payables

TOTAL EQUITY & LIABILITIES

12 | ACCOUNTING ANSWER BOOK |

ACTIVITY 9

9.1.1 SHARE CAPITAL

Authorised
780 000 ordinary shares
Issued Share Capital
480 000 Ordinary shares in issue at the beginning
of the year at 750 cent 3 600 000

9.1.2 RETAINED INCOME

Balance at the beginning of the year 271 000

9.2.1 Value of the closing stock.

9.2.2 Calculate the number of items stolen

| ACCOUNTING ANSWER BOOK | 13

9.3 HIMALAJA LIMITED
BALANCE SHEET ON 28 FEBRUARY 2017
ASSETS
NON-CURRENT ASSETS

CURRENT ASSETS

TOTAL ASSETS

EQUITY AND LIABILITIES

SHAREHOLDERS EQUITY

NON-CURRENT LIABILITIES

CURRENT LIABILITIES
Trade- and other payables

TOTAL EQUITY AND LIABILITIES

31

14 | ACCOUNTING ANSWER BOOK |

 CASHFLOW STATEMENTS

Activity 1 Complete the appropriate section of the Cash Flow Statement by providing
the missing figures in the respective spaces.

Complete the appropriate section in the Cash Flow Statement

Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year

Activity 2 complete the appropriate section of the Cash Flow Statement by providing
the missing figures in the respective spaces.

Complete the appropriate section in the Cash Flow Statement

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

Activity 3 Complete the table that follows

CASH EFFECTS FROM FINANCING ACTIVITIES

Activity 4 Complete the extract from the Cash Flow Statement that follows

CASH EFFECTS FROM FINANCING ACTIVITIES

Proceeds from shares issued
Repurchase of shares
Loans received

| ACCOUNTING ANSWER BOOK | 15

Activity 5 Complete the extract from the Cash Flow Statement that follows

CASH EFFECTS FROM FINANCING ACTIVITIES

Proceeds from shares issued
Repurchase of shares
Loans received

Activity 6 Complete the extract from the Cash Flow Statement that follows

Extract from Cash Flow Statement

Cash flow from investing activities

Purchase of fixed assets
Proceeds from sale of assets
Increase / Decrease in investments

Calculations / Workings (Activity 6)

Activity 7 Complete the extract from the Cash Flow Statement that follows

Extract from Cash Flow Statement

Cash flow from investing activities

Purchase of fixed assets
Proceeds from sale of assets
Increase / Decrease in investments

Calculations / Workings (Activity 7)

16 | ACCOUNTING ANSWER BOOK |

Activity 8 Complete the given table which reflects the section for the “Cash from
Operating Activities” relating to interest paid, dividends paid and taxation
paid. Show your working between brackets

CASH FLOW STATEMENT FOR THE YEAR ENDING FEBRUARY 2018

Cash flow from operating activities XXX
Cash generated from operations Note 1 XXX
Interest paid
Dividends paid
Taxation paid

Calculations / Workings (Activity 8)

| ACCOUNTING ANSWER BOOK | 17

Activity 9 Complete the note for “Cash generated from operations” as well as the
section on the “cash flow from operating activities”

Note 1: Cash generated from operations

CASH FLOW STATEMENT FOR THE YEAR ENDING 28 FEBRUARY 2018

Cash flow from operating activities

CALCULATIONS

18 | ACCOUNTING ANSWER BOOK |

QUESTION 1

1.1 BELLCO LIMITED

CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2017
Cash effects of operating activities 1 293 000
Cash generated from operations 4 062 000
Interest paid (462 000)

Cash effects of investing activities

Cash effects of financing activities

Net change in cash & cash equivalents

Cash & cash equivalents at beginning of year
Cash & cash equivalents at end of year
540 000 22

| ACCOUNTING ANSWER BOOK | 19

 QUESTION 2
2.1 Calculate the missing amounts (indicated by a, b and c) in the
Fixed/Tangible Asset Note for the year ended 28 February 2017.

NO. WORKINGS AMOUNT

a

c 12

2.2 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 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.

20 | ACCOUNTING ANSWER BOOK |

 QUESTION 3

3.1 SENZO LTD

3.1.1 Calculate income tax paid.

1 175 000 – 846 000 Must be both
9 800  + 329 000  + 6 400  = 345 200 one part correct
–9 800 – 329 000 – 6 400 = –345 200
Mark one line only. Signs may be reversed but must be consistent.
Ledger T-account may be drafted. Figures could be in brackets. 5

Calculate proceeds from disposal of fixed assets (carrying value).

4 698 300 4 352 800
 one part correct
(2 598 300 + 2 100 000) – (4 137 700 + 215 100) = 345 500
2 598 300 + 2 100 000– 4 137 700 – 215 100 = 345 500
–2 598 300 –2 100 000 +4 137 700 + 215 100 = –345 500
Mark one line only. Signs may be reversed but must be consistent.
Ledger T-account may be drafted. Figures could be in brackets. 5

Calculate net change in cash and cash equivalents.

(153 000  – 2 500 ) + 88 900  = 239 400 
150 500

OR
1 mark 1 mark 1 mark 1 mark
(88 900 – 2 500) + 153 000 = 239 400
86 400

Indicate whether this is a net inflow or net outflow of cash.

Net inflowDepends on calculation above 5

3.1.2 1 093 000

CASH EFFECTS OF FINANCING ACTIVITIES Operation, one part correct
Proceeds from shares issued 705 000*
2 967 000  + 258 000  – 2 520 000  One part correct, must be inflow
4 marks if amount correct but in
brackets
Re-purchase of shares 2 marks (312 000) *
60 000  x R5,20 4,30 + 0,90 both figures together One outflow

Increase in non-current liabilities (Loans) 700 000

Must be inflow for 2 marks 12
Ledger account formats may be used to show calculations.
*If answer is combined as a net inflow, award only 1 method mark on final answer, not 2.
*If net effect has been shown with workings, mark as follows:
2 967 000 – 2520 000 – 54 000 = 393 000
1 mark 1 mark 2 marks 1 method mark

| ACCOUNTING ANSWER BOOK | 21

 QUESTION 4
4.1.1 ORDINARY SHARE CAPITAL:

AUTHORISED SHARE CAPITAL

1 500 000 ordinary shares

ISSUED SHARE CAPITAL

900 000 Ordinary shares on 1 July 2016 9 180 000
(75 000) Shares re-purchased (Average: R10,20)  (765 000)
125 000 Shares issued (R10,80 per share) 1 350 000

950 000 Ordinary shares on 30 June 2016 9 765 000 7

RETAINED INCOME:
Balance on 1 July 2016 360 000
Net profit after tax 444 500
Funds used for repurchase of shares (37 500) 
75 000  x 0,50 
Ordinary share dividends (481 250) 
272 250
Interim (434 250 – 162 000)

Final 209 000 

Balance on 30 June 2017 285 750 9

4.1.2 Calculate the change in loan for the Cash Flow Statement.

8 000 000 – 4 500 000 = 3 500 000 2

Calculate the income tax paid for the Cash Flow Statement.

23 400  + 190 500  – 6 200  = 207 700 

OR
– 23 400 – 190 500 + 6 200 T 4

4.1.3
Net change in cash and cash equivalents  808 000

Cash and cash equivalents (beginning of year)  (603 000)

Cash and cash equivalents (end of year)  205 000 4

22 | ACCOUNTING ANSWER BOOK |

QUESTION 5
5.1 SO-FINE LTD

5.1.1 ORDINARY SHARE CAPITAL

AUTHORISED SHARE CAPITAL

1 200 000 ordinary shares

ISSUED SHARE CAPITAL

900 000 Ordinary shares on 1 September 2016 4 725 000 
945 000
150 000 Issued on 1 May 2016 at R6,30 each 
Re-purchased 30 August 2017 (378 000)
(70 000) 
(ASP: R5,40)
980 000  Ordinary shares on 31 August 2017 5 292 000 7

RETAINED INCOME
Balance on 1 September 2016 147 370
Net profit after income tax 438 130
Shares repurchased (437 500  – 378 000 ) (59 500) 
(70 000 x 0,85

Ordinary share dividends (276 000) 

 Interim dividends (900 000  x 0,12) 108 000 

 Final dividends 168 000 
`

Balance on 31 August 2017

250 000  9

| ACCOUNTING ANSWER BOOK | 23

5.1.2 SO-FINE LTD
CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations
Interest paid
Dividends paid

4 Income tax paid ? (173 570) *

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets ? (1 846 000) *
(6 177 000  + 320 000  + 324 000  – 4 975 00
?  Proceeds from the sale of fixed assets ? 324 000 

7 Change in investments
CASH FLOWS FROM FINANCING ACTIVITIES
?  Proceeds from issue of share capital see 5.1.1 ? 945 000 
?  Repurchase of shares ? (437 500) 

4 Change in non-current liabilities

Net change in cash and cash equivalents ? 86 000 *

Cash and cash equivalents – opening balance ? (62 600) 
(2 500 – 65 100)

4 Cash and cash equivalents – closing balance ? 23 400  19

*one part correct and correct use of brackets
QUESTION 6
6.1 What is the main purpose of a Cash Flow Statement?
Good answer = 2; Average = 1; Incorrect = 0 
It provides users of financial statements with information on the inflow and
outflow of the cash resources of the company
To see how monies balances 2

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

Fixed/Tangible Asset Note for the year ended 31 October 2017.

Workings Amount
a 
b 
c  
d  9

24 | ACCOUNTING ANSWER BOOK |

6.3 CLASSICO LTD
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2017

CASH FLOW FROM OPERATING ACTIVITIES 625 000 

Cash generated from operations 1 985 500

Interest paid (175 500)
Taxation paid (27 500 + 375 000 + 22 500) ( 425 000) 

Dividends paid (385 000 + 825 000 – 450 000) ( 760 000) 

9
CASH FLOW FROM INVESTING ACTIVITIES 534 000 
Fixed assets purchased (48 000) 
Proceeds from sale of fixed assets
582 000 
(500 000 + 82 000 
5
CASH FLOW FROM FINANCING ACTIVITIES 925 000 
Proceeds from the sale of shares 300 000 

Change in loan (2 000 000  - 1 375 000 ) 625 000 

6
NET CHANGE IN CASH AND CASH EQUIVALENTS 2 084 000 

CASH AND CASH EQUIVALENTS AT BEGINNING 207 500 
CASH AND CASH EQUIVALENTS AT END 4 2 291 500  24

6.4
Decisions by Reason to support Reason to support
directors John's opinion directors' decision
(other than improving
cash flow)
Dilutes the returns to Cheaper option of raising
existing shareholders  funds as loans carry
Issued more / No apparent need to interest 
shares issue shares as there is
considerable cash on
hand
Prevents the company Unproductive or unused
Sold fixed from benefiting through assets will incur
assets capital gains  maintenance expenses.

8

| ACCOUNTING ANSWER BOOK | 25

 QUESTION 7

7.1 ASSET DISPOSAL

Accumulated
2016
31
Equipment 120 000 2016 31 depreciation on 46 560
Aug.  Aug.
 equipment 
(38 400 + 8 160)
Bank  73 440 
120 000 120 000
9

7.2
No. Calculation Amount
(a) 3 900 000 -2 000 000 1 900 000

(b) 900 000 – 470 000 430 000

(c) 92 840
12

7.3.1 Calculate the income tax paid.

1 240 000 – 892 800
- 347 200+ 17 400 + 35 700 = - 294 100 
or
+ 347 200- 17 400 - 35 700 = + 294 100
5

7.3.2 Calculate the net change in cash and cash equivalents.

549 580  + 92 000  = 641 580 

(110 000 – 18 000) 4

7.4 Cash effects on financing activities

Proceeds from shares issued
1 350 000
(300 000 x R4,50)
Buy back of shares (40 000 x R4,30) (172 000) 

Mortgage loan 1 550 000 

2 728 000

26 | ACCOUNTING ANSWER BOOK |

QUESTION 8
8.1 BRAZILIA LTD
8.1.1 State ONE purpose of a Cash Flow Statement.
One valid explanation 

 It provides users of financial statements with information regarding the

inflow and outflow of the cash resources of the company.
 It explains the reasons for the change in the bank breakdown of the flow
of cash in terms of operating, investing and financing activities. 2
8.1.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2017
CASH FLOW FROM OPERATING ACTIVITIES 749 950 
Cash generated from operations 2 844 200
Interest paid (336 000)
Taxation paid (41 750  + 560 000  + 28 500 ) (630 250) #
Dividends paid (595 000  + 533 000 ) (1 128 000) #

CASH FLOW FROM INVESTING ACTIVITIES (1 077 000) 

Fixed assets purchased (1 360 000)
Proceeds from the sale of fixed assets 43 000 #
(10 041 000 – 1 360 000  + 154 000 – 8 878 000 )
Change in fixed deposit 240 000
CASH FLOW FROM FINANCING ACTIVITIES 852 000 
Proceeds from the sale of shares
1 512 000 #
(7 280 000  + 182 000  – 5 950 000 )
Shares repurchased (20 000  x R15,50 ) (310 000) #
Change in loans (350 000) 
NET CHANGE IN CASH AND CASH EQUIVALENTS 524 950 

CASH AND CASH EQUIVALENTS AT BEGINNING

(345 450) 
(3 000 – 348 450)
CASH AND CASH EQUIVALENTS AT END 179 500 27

| ACCOUNTING ANSWER BOOK | 27

QUESTION 9
9.1 CASH GENERATED FROM OPERATIONS

Net profit before income tax (240 480 + 93 520) 334 000 
Depreciation 178 000
Interest expense 52 000
Operating profit before changes in working capital 564 000
Cash effects of changes in working capital 11 000 
Change in inventories (262 000 – 194 600) 67 400 
Change in receivables (214 000 – 198 000) (16 000) 
Change in payables (165 200 – 124 800) (40 400) 

Cash generated from operations 575 000  10

9.2 MAXIE LTD

CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017
CASH EFFECTS OF OPERATING ACTIVITIES 289 890 
Cash generated from operations 575 000 
Interest paid (52 000) 
Income tax paid (93 520  – 2 110  – 6 300 ) (85 110) 
Dividends paid (88 000  + 60 000 ) (148 000) 
CASH EFFECTS OF INVESTING ACTIVITIES (492 340) 
(572 340) 
Investments matured (230 000 – 150 000) 80 000 
CASH EFFECTS OF FINANCING ACTIVITIES 160 000
Proceeds of shares issued 1 000 000
Share repurchased (540 000)
Repayment of loan (300 000)

NET CHANGE IN CASH AND CASH EQUIVALENTS (42 450) 

Cash and cash equivalents (1 March 2016) 34 700 
Cash and cash equivalents (28 February 2017) (7 750)  21

28 | ACCOUNTING ANSWER BOOK |

 QUESTION 10
10.1.1
(a) 3 640 000 – 2 002 000 = 1 638 000 

750 000 x 15% x 4/12 = 37 500 

(b)
750 000  – (491 750  + 37 500) = 220 750 
529 250 (3 marks)

(Sold): 37 500  refer (b)

(New): 900 000 x 15% x 5/12 = 56 250 
(c) (Old): (3 640 000 – 750 000) x 15% = 433 500 
2 890 000 
Total: 527 250 

(d) 3 640 000 + 900 000 – 750 000 = 3 790 000 

16

10.1.2 Calculate the income tax paid.

383 700 
8 700  + (1 279 000 – 895 300) – 9 900  = 382 500 
5

Calculate the net changes in cash and cash equivalents.

125 750  – 54 750 + 92 000  = 163 000 

4

10.1.3 CASH FLOW FROM FINANCING ACTIVITIES 50 000 

Funds used to repurchase shares (600 000)

Decrease in loan (2 750 000 – 1 800 000) (950 000) 7

| ACCOUNTING ANSWER BOOK | 29

QUESTION 11
MIHKA LTD
11.1.1 ORDINARY SHARE CAPITAL

Authorised Share Capital

800 000 ordinary shares

Issued Share Capital

600 000 Ordinary shares on 1 January 2017 4 200 000
100 000 Issued on 31 August 2016 840 000 *
(40 000)  Re-purchased (ASP: R7,20) (288 000) 
660 000  Ordinary shares on 31 December 2016 4 752 000  6

RETAINED INCOME

Balance on 1 January 2017 276 000

Net profit after income tax (1 150 000 – 322 000) 828 000 
Shares repurchased (40 000  x R1,30 ) (52 000) 
Ordinary share dividends (415 000) 

 Interim dividends 240 000 

 Final dividends 175 000 

Balance on 31 December 2016 637 000  9

11.1.2 CASH EFFECTS OF OPERATING ACTIVITIES 292 600 *

Cash generated from operations 1 237 400
Interest paid (100 000) 
Income tax paid (9 200  + 322 000  + 3 600 ) (334 800) *
270 000 + see 11.1.1(415 000 - 175 000) both 1 mark
(510 000) * 9
Dividends paid (270 000  + 240 000 ) see 11.1.1

11.1.3 Amounts in the Cash Flow Statement:

Calculate: Change in fixed deposit

300 000  Inflow  3

Calculate: Proceeds on disposal of equipment

5 828 000  + 360 400  – 1 495 000  – 4 905 800  = 212 400 
400 + 1 495 000 + 4 905 –
212 40 6

30 | ACCOUNTING ANSWER BOOK |

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS

ACTIVITY 1
1.1
1.2
1.3
1.4
1.5 5
ACTIVITY 2
Identify the appropriate financial statement where you will find the following information.
Amount received for the issue of new shares
Total amount of the loan either received or paid.
The amount of shares that are not yet issued.
Total income tax expense
Total depreciation for the year
Total amount owing to creditors
Total amount of dividends payable to shareholders
Total cash paid to shareholders in respect of dividends
Amount owed to/owed by SARS at year-end
The short term portion of a non-current liability
Total amount paid to SARS for Income tax
Gross profit for the year
Fixed assets bought for cash during the financial year 13
ACTIVITY 3
3.1 Shareholders

3.2 Prospective (potential) shareholders

3.3 The CEO and the board of directors (management)

3.4 Internal and external auditors

3.5 SARS

| ACCOUNTING ANSWER BOOK | 31

 3.6 Creditors

3.7 Competitors

3.8 Trade unions and employees

3.9 Newspapers and financial publications

18

ACTIVITY 4

4.1
4.2
4.3
4.4
4.5
4.6 6

ACTIVITY 5:

PROFITABILITY

OPERATING
EFFECIENCY

LIQUIDITY

SOLVENCY

RISK AND GEARING

RETURN

MARKET PROSPECTS
Share price /value

20

32 | ACCOUNTING ANSWER BOOK |

ACTIVITY 6: Know your formulae

6.1 Current ratio

6.2 Acid test ratio

6.3 Stock turnover rate

6.4 Average stock holding period (in days)

6.5 Average debtors collection period

6.6 Average creditors payment period

6.7 Solvency ratio

6.8 Debt/equity ratio

6.9 Return on average capital employed (ROTCE)

6.10 Return on shareholders’ equity

6.11 Earnings per share (EPS)

6.12 Dividends per share (DPS)

6.13 Net asset value per share (NAV)

| ACCOUNTING ANSWER BOOK | 33

 6.14 Gross profit percentage on sales

6.15 Operating expenses on sales

6.16 Operating income on sales

6.17 Net profit after tax on sales

6.18 Gross profit percentage

ACTIVITY 7:

7.1 The directors are not satisfied by the liquidity position of the company. Are they
justified? Quote THREE relevant financial indicators (with figures) in your answer.

7.2 Comment on the profitability of the business. Make reference to information

relating to the Income Statement.

34 | ACCOUNTING ANSWER BOOK |

7.3 Should the shareholders be satisfied with their earnings and dividends? Quote the
relevant financial indicators to support your answer.

7.4 The directors intend expanding the existing buildings. Would you advise them to
issue additional shares or to take out an additional loan? Quote the relevant
financial indicators to support your decision.

ACTIVITY 8:
8.1.1 Operating expenses on sales

3
8.1.2 Debt/equity ratio

3
8.1.3 Return of shareholders’ equity

5
8.1.4 Net asset value per share.

| ACCOUNTING ANSWER BOOK | 35

8.2 The internal auditor recommended to the directors that more attention be paid to
managing expenses in the next financial year. Explain why you think she feels this
way. Quote TWO financial indicators, with figures, to support your argument.

8.3 The auditor also felt that it was not necessary to repay a large portion of the loan
during the financial year. Provide a reason why you think she felt that way. Quote
TWO relevant financial indicators (with figures) in your answer.

8.4 Some shareholders were not satisfied with their returns for the current financial
year. Are they justified? Motivate your answer by quoting any TWO relevant
financial indicators and by commenting on the dividend policy of the business.

8.5 Explain why you either agree or disagree with the directors. Make reference to
relevant figures (financial indicators) to support your answer.

36 | ACCOUNTING ANSWER BOOK |

ACTIVITY 9:

9.1 Identify THREE major decisions highlighted by the Cash Flow Statement and
explain TWO consequences of these decisions to the business. Quote figures.

Decisions (with figures):

6
Consequences:

9.2 Comment on the issue price of the additional shares issued on 1 August 2015.

9.3 Did the estate of the late shareholder receive a fair price for their shares? Explain.

9.4 At the annual general meeting (AGM) a young shareholder was not pleased about
R200 000 spend on a local clean the environment campaign. She was of the
opinion that maximizing profits should be the main focus of the business. What
would you say to her? Provide TWO points.

| ACCOUNTING ANSWER BOOK | 37

9.5 A senior director of the firm was disappointed that the new shares were sold
without giving the directors an option to purchase shares before they were
advertised to the public. Is he justified to feel this way? Explain.

9.6 Do calculations to show the change in her percentage share-holding after each
change in the share capital.

6
Explain why she was eager for the company to re-purchase the shares.

ACTIVITY 10: TWO COMPANIES

10.1 Which company is handling their working capital more effectively? Explain and
quote THREE financial indicators to support his opinion.

38 | ACCOUNTING ANSWER BOOK |

10.2 Which company is making more use of loans? Quote a financial indicator for each
company.

Explain whether or not it was a good idea for that company to make use of loans.
Quote ONE financial indicator.

10.3 Lupin LTD has a better percentage return, earnings and dividends than Lilac LTD.
Explain and quote THREE financial indicators for each company.

10.4 Explain why the existing shareholders of Lupin LTD are happy with the current
market value of their shares.

2
Explain why the existing shareholders of Lilac LTD are very disappointed with the
current market value of their shares

| ACCOUNTING ANSWER BOOK | 39

GRADE 10: ACTIVITY 1

SARDIE STORES

1.1 NON-
CURRENT
NON
CURRENT
ACCOUNTS CURRENT EQUITY CURRENT
ASSET LIABILITY
ASSET LIBILITY
Trade debtors
Trade creditors
Accrued Income
Accrued
expenses
Mortgage Bond
Vehicles
Trading stock
Capital
Fixed Deposit
Bank overdraft 10

1.2 Current ratio

Acid test ratio

1.3 Comment on the liquidity of the business.

40 | ACCOUNTING ANSWER BOOK |

GRADE 10: ACTIVITY 2:

2.1 Calculate :
2.1.1 Solvency ratio

5
2.1.2 Current ratio

3
2.1.3 Acid test ratio

4
2.1.4 Return on average owner’s equity

5
2.1.5 Mark up percentage

2.2 Comment on the liquidity position of the business. Quote TWO relevant financial
indicators/ratios for both years to support your response.

2.3 The business aims to achieve a mark-up of 75% on cost at all times. Provide TWO
reasons for the business not achieving the expected mark-up percentage.

| ACCOUNTING ANSWER BOOK | 41

 GRADE 10: ACTIVITY 3:

3.1 FINANCIAL INDICATORS

WORKINGS ANSWER
Calculate: Current Ratio

5
Calculate: Acid test ratio

4
Calculate: Solvency ratio

4
Calculate: Return on equity

3.2 Calculate the amount of the loan

3.3 Comment on the solvency of the business. Quote figures.

3.4 Will the business be able to pay its short term debts in the next financial year?
Explain. Quote TWO financial indicators with figures.

42 | ACCOUNTING ANSWER BOOK |

3.5 Should Stan be satisfied with his return on equity? Explain. Quote figures.

3.6 Provide TWO reasons why the business was not able to achieve its targeted gross
profit percentage.

GRADE 11: ACTIVITY 1:

1.1 Calculate:

1.1.1 The total value of current liabilities.

1.1.2 Percentage return earned by N. Yong

1.1.3 Debt/equity ratio

1.1.4 Acid-test ratio

| ACCOUNTING ANSWER BOOK | 43

 1.2 Comment on the liquidity of the business.
Quote TWO financial indicators (with figures) in your answer.

1.3 Do you think that N. Yong is satisfied with his return on investment? Explain. Quote
TWO relevant financial indicators (with figures) to support your answer.

1.4 The partners want to expand the existing business and are considering increasing
the loan. What advice would you offer them? Support your answer by making
reference to TWO financial indicators (with figures).

44 | ACCOUNTING ANSWER BOOK |

GRADE 11: ACTIVITY 2:

MIDDLE POINT TRADERS

2.1 Calculate the following:

WORKINGS ANSWER
 Percentage mark-up on cost

4
 Operating expenses on sales

3
 Total earnings of Middle

4
 The percentage return earned by Point

5
 The debt/equity ratio for 2017.

2.2 Comment on the liquidity of the business. Quote and explain TWO financial
indicators (with figures) in you answer.

| ACCOUNTING ANSWER BOOK | 45

 2.3 Were the partners justified in increasing the loan? Explain. Quote TWO financial
indicators, and figures, in your explanation.

2.4 Middle is not happy with his return on investment. Explain why you think he feels
this way. Quote figures.

46 | ACCOUNTING ANSWER BOOK |

RECONCILIATIONS

QUESTION 1

BANK RECONCILIATION

1.1 Calculate the correct balance of the Bank Account in the General Ledger on
31 July 2016.
Provisional Bank balance R16 785

Correct Bank balance

Favourable/Unfavourable: ________________
8

1.2 Bank Reconciliation Statement as at 31 July 2016

1.3 Explain ONE internal control measure that the business should implement
to ensure that this will not happen in the future.

16 Marks

| ACCOUNTING ANSWER BOOK | 47

QUESTION 2

1. Indicate whether the following statements are TRUE or FASLE. Write only ‘true’ or ‘false’
next to the question number (i) – (iv) in the answer book

(i)
(ii)
(iii)
4
(iv)

2. Calculate the correct totals for the Cash Receipts Journal and Cash
Payment Journal for July 2015.

Cash Receipts Cash Payment

Journal Journal

146 970 68 900

12

3. Prepare the Bank Reconciliation Statement on 31 July 2015.

Bank Reconciliation Statement on 31 July 2015

Debit Credit

12

48 | ACCOUNTING ANSWER BOOK |

 CREDITORS’ RECONCILIATION – ANSWER SHEET 1

1.1 Explain why the balance of the Creditors’ Control Account and the total of
the Creditors’ List should correspond.

1.2 Reconcile the Creditors control account with the Creditors list on 31
August 2016. The balance in the Creditors’ Control account was
R108 450 and the total of the Creditors’ list with R104 865.

CREDITORS CONTROL CREDITORS LIST

DEBIT CREDIT DEBIT CREDIT

108 450 104 865

A.

B.

C.
13
D.

E.

F.

G.

BALANCE BALANCE

| ACCOUNTING ANSWER BOOK | 49

 ANSWER SHEET 2

2.1.1 CREDITORS'
CREDITORS' LEDGER RECONCILIATION
STATEMENT
Balance 110 170 111 600
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

14

2.1.2 State TWO internal control measures that the business can use to
prevent similar incidents from happening in future.
Any TWO relevant control measures

CREDITORS RECONCILIATION:ANSWER SHEET 3

CREDITORS
NO. LEDGER STATEMENT
ACCOUNT
BALANCE 5 350 12 540
i
ii
iii
iv
v
TOTAL 9

50 | ACCOUNTING ANSWER BOOK |

CREDITORS' RECONCILIATION :ANSWER SHEET 4

ACCOUNT OF
EGOLI SUPPLIERS IN STATEMENT RECEIVED
CREDITORS' LEDGER OF FROM EGOLI SUPPLIERS
VIVA TRADERS
Balance R10 705 R19 120
A
B
C
D
E
Final balance 9

DEBTORS RECONCILIATION - ANSWER SHEET 1

1.1 TRUE OR FALSE
1.1.1
1.1.2
1.1.3
3

1.2 MIZZY BOUTIQUE

Use the table provided to indicate corrections that must be made to the
Debtors' Control Account and the debtors' list.
Provide figures and a plus (+) or minus (–) sign for each correction.

Debtors' Control Debtors' List

Account
Balance/Total on
R37 710 R39 490
28 February 2017
(a)
(b)
(c)
(d)
(e)
(f)
Balance/Total on
28 February 2017
13

| ACCOUNTING ANSWER BOOK | 51

ANSWER SHEET 2 - AGE ANALYSIS
A. ARMSTRONG

DATE RECEIPTS/ AMOUNTS CLOSING TOTAL DEBITS

BALANCE (Cr sales and other Debits)
DISCOUNTS/

RETURNS May June July

Balance and
Sales
May Payment
received
Cr Note-
Returns
July Payment
Received

52 | ACCOUNTING ANSWER BOOK |

ANSWER SHEET 3 –AGE ANALYSIS

3. GLENDALE TRADERS

3.1 Explain how a debtors' age analysis can assist with internal control over
debtors.

3.2 Calculate the percentage of total debts exceeding the credit terms.

3.3 Explain ONE problem (with figures) relating to EACH of the following
debtors:
DEBTOR PROBLEM WITH FIGURES
D Pillay

W Patel
4

3.4 Explain TWO problems (with figures) relating to debtor D Gouws.

| ACCOUNTING ANSWER BOOK | 53

ANSWER SHEET 4.1
BANK RECONCILIATION AND INTERNAL CONTROL
4.1.1 Calculate the correct bank balance on 30 June 2015.
Cash Receipts Journal Cash Payments Journal
(figures only) (figures only)
87 220 74 860

Bank balance on 30 June 2015:

13

4.1.2 Bank Reconciliation Statement on 30 June 2015

4.1.3 Refer to Information E. Identify TWO separate problems with evidence.

Give advice for EACH problem.
PROBLEM WITH EVIDENCE ADVICE

54 | ACCOUNTING ANSWER BOOK |

4.2 DEBTORS' AGE ANALYSIS

As the internal auditor, what concerns would you have over Susan's job
description? Explain. 2
4.2.1

4.2.2 Identify TWO debtors who could have their credit limits increased.

4.2.3 Explain THREE different problems reflected by the Debtors'

Age Analysis. Give evidence.

Explanation of problem with evidence

Problem 1

Problem 2

Problem 3

TOTAL MARKS

40

| ACCOUNTING ANSWER BOOK | 55

DEBTORS RECONCILIATION - ANSWER SHEET 5

5.1 Reconciled Debtors’ List on 28 February 2015

Previous Calculation Correct
balance balance

Baker House 65 000

Gorgeous Baker 37 000

Handsome Chef 28 000

Crispy Cook (Credit) 14

20 000

Correct total of List of Debtors

5.2.1 Calculate the Bank Statement balance on 31 January 2015.
Indicate whether it was a favourable or unfavourable balance. 7

61

56 | ACCOUNTING ANSWER BOOK |

5.2.2 One of the cheques was wrongly handled on the Bank
Reconciliation Statement. Identify the cheque and provide a
reason. 6

What entry should be made in the general ledger to correct the

error?

Cheque number:

Reason:

Correction:

How would cheque number 1927 be handled in the financial

statements if the financial year ends on 28 February 2015?

TOTAL
29

62

| ACCOUNTING ANSWER BOOK | 57

Accounting Solutions

Teacher Development Implementation

National Institute for Curriculum and Professional Development (NICPD)
TABLE OF CONTENTS - SOLUTIONS

Page

 Module 1 : Statement of Financial Position (Balance Sheet) 2 –14

 Module 2 : Cash flow Statement 15 –29

 Module 3 : Analysis and interpretation of financial statements 30 -48

 Module 4 : Reconciliations 49 -60

| ACCOUNTING SOLUTIONS | 1
 STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

BALANCE SHEET
ACTIVITY 1:

Illustrate a basic flow of recording and reporting financial information. Commence

with Transactions and end with the Preparation of Financial Statements.

Expected response:

Documents Daily
Journals Daily for each month
Ledgers Monthly
Pre – adjustment trial balance End of the year
Adjustments End of the year
Post adjustment trial balance End of the year
Closing transfers End of the year
Income statement End of the year
Balance sheet End of the year
Notes End of the year

ACTIVITY 2:

Place the General Ledger accounts from the list provided in the appropriate column
on the table provided in the Answer Book, as follows:

Expected response:
Discuss: Types of assets, negative assets, income, expenses, etc.

NON-CURRENT CURRENT NON-CURRENT CURRENT

EQUITY
ASSETS ASSETS LIABILITIES LIABILITIES
Accumulated Debtors control Loan: NVT Bank Accrued Sales
depreciation on expenses
vehicles
Fixed deposit Trading stock Deferred income Salaries and
wages
Vehicles Consumable Drawings
stores on hand
Provision for Accrued income Debtors
bad debts allowances
Rent income
Retained
income
Stationery
Fee income

2 | ACCOUNTING SOLUTIONS |
ACTIVITY 3:
Fill in the missing amounts to complete this statement.
MOON LTD
BALANCE SHEET FOR THE YEAR ENDED 28 FEBRUARY 2018
ASSETS Notes
NON-CURRENT ASSETS 4 980 000
Fixed/tangible assets 3 4 820 000
Financial assets 160 000
CURRENT ASSETS 1 820 000
Inventories 4 956 000
Trade and other receivables 5 861 000
Cash and cash equivalents 6 2 500
TOTAL ASSETS 6 800 000
EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY 5 286 200
Share capital 7 5 068 000
Retained income 8 218 200
NON-CURRENT LIABILITIES 592 000
Mortgage Loan (740 000 – 148 000) 592 000
CURRENT LIABILITIES 921 800
Trade and other payables 9 728 500
Bank overdraft 45 300
Current portion of loan 148 000
6 800 000

| ACCOUNTING SOLUTIONS | 3
ACTIVITY 4

4.1 RETAINED INCOME NOTE

Balance at the beginning of the year 345 000
Net profit after tax (1 250 000 x 72%) 900 000 
Re-purchase of shares (75 000 x R1,50)
(112 500) 
OR (450 000 (1 mark) – 337 500 (2 marks)
Ordinary share dividends (492 000)
Interim dividend 240 000
Final dividend (900 000x 28c) 252 000  10
Balance at the end of the year 640 500 

4.2 BALANCE SHEET/STATEMENT OF FINANCIAL POSITION ON

28 FEBRUARY 2017
ASSETS
Non-current assets balancing figure 4 860 030 
Fixed assets (4 350 000– 650 520) 3 699 480 
Financial assets 1 160 550  5
Current assets 479 970 
Inventory (258 740+ 2 180) 260 920 
Trade and other receivables 364 000- 350 000
205 050 
195 000– 6 500 – 5 500+ 8 050+ 14 000
Cash + cash equivalents
14 000 
(464 000 – 450 000) see buy back of OSC
TOTAL ASSETS same as TE+L 5 340 000  17
EQUITY AND LIABILITIES
Shareholder’s equity 4 353 000 
Ordinary share capital
450 000 – 112 500 3 712 500 
(4 050 000 – 337 500 )
Retained income see 1.2.1 640 500  6
Non-current liabilities 490 000
Loan: Vivian Bank
490 000 
750 000 + 57 300 – 192 300 – 125 000) 5
Current liabilities 497 000 
Trade and other payables
120 000 
(101 000 + 19 000 40
Shareholders for dividends see 1.1 252 000 
Current portion of loan 125 000 
TOTAL EQUITY AND LIABILITIES 5 340 000  7
*Trade and other payables can combine the elements under current liabilities.

4 | ACCOUNTING SOLUTIONS |
 ACTIVITY 5
FOUCHE LTD
5.1.1 ORDINARY SHARE CAPITAL
AUTHORIZED
3 000 000 shares
ISSUED
 1 800 000 ordinary shares in issue at beginning of
7 200 000 
year at R4
 200 000 ordinary shares in issue during the
1 200 000 
year at R6 per share
 (80 000) shares repurchased during the year at
(336 000) 
Average price of R4.20 operation, one part correct
 1 920 000 shares at the end of the year 8 064 000 
operation, one part correct 10

5.1.2 RETAINED INCOME

Balance on 1 March 2016 146 000 
Net profit after income tax (780 000 – 234 000) 546 000 
Shares repurchased (80 000 x R0,70 ) (56 000) 
operation, one part correct
Ordinary share dividends operation, one part correct (500 000) 
Interim (2 000 000 x R0,10) 200 000 
Final 300 000 
Balance on 28 February 2017 operation, one part correct 136 000  11

5.1.3 FIXED/TANGIBLE ASSETS Land and Equipment Vehicles

Buildings
Carrying value in beginning 6 990 000 155 000 520 000
Cost 6 990 000 240 000 880 000
Accumulated depreciation 0 (85 000) (360 000)

Movements
Additions at cost 500 000  120 000 0
Disposal at carrying value  ( 45 600)
(0) (0)
(144 000 - 84 000 - 14 400)
Depreciation 0 ( 15 500) (161 600)

Carrying value at the end 7 490 000  259 500  312 800
Cost 7 490 000 360 000  736 000
Accumulated depreciation 0  (100 500)  (423 200) 16

| ACCOUNTING SOLUTIONS | 5
5.2 FOUCHE LTD
BALANCE SHEET ON 28 FEBUARY 2017

ASSETS
Non-current assets  8 287 300
Tangible assets see 2.1.3  8 062 300
Fixed deposit at Zamdela Bank (400 000 – 175 000  225 000 (5)

Current assets  1 376 700

Inventories (234 000 + 14 500)  248 500
Trade & other receivables balancing figure  876 660
SARS – Income Tax (246 000 – 234 000)  12 000
Cash & cash equivalents
(61 340 + 3 200 + 175 000)  239 540

TOTAL ASSETS same as TE+L  9 664 000 (13)

EQUITY & LIABILITIES

Ordinary shareholders’ equity  8 200 000
Ordinary share capital see 2.1.1  8 064 000
Retained income see 2.1.2  136 000 (3)

Non-current liabilities 820 000

Mortgage loan: Cash Bank 920 000  - 100 000   820 000 (4)

Current liabilities  644 000

Trade & other payables (95 700 + 28 300 + 120 000)  244 000
Shareholders for dividends  300 000
Current portion of loan  100 000

TOTAL EQUITY & LIABILITIES  9 664 000 (8)

33

6 | ACCOUNTING SOLUTIONS |
ACTIVITY 6

6.1 BOONZAAIER LIMITED

6.1.1 Ordinary share capital

AUTHORISED

6 500 000 shares

ISSUED

4 000 000  shares in issue at beginning 10 000 000

shares issued during the financial year at
800 000  4 400 000
R5,50 per share
shares repurchased (average issue price:
(250 000)  (750 000)
R3,00 per share)

4 550 000  shares in issue at end one part correct 13 650 000 10

6.1.2 Retained income

Balance at beginning of year 567 000

Funds used for shares repurchased (250 000 x R0,25)  ( 62 500)

Net profit after tax (3 400 000  – 918 000) one part correct  2 482 000

Ordinary share dividends operation one part correct  (2 408 000)

Interim  680 000

Final (4 800 000 x 36/100) one part correct  1 728 000

Balance at end of year one part correct  578 500 10

| ACCOUNTING SOLUTIONS | 7
6.2 BOONZAAIER LIMITED
BALANCE SHEET ON 28 FEBRUARY 2017

ASSETS
Non-current assets 13 378 500
Fixed assets balancing figure 12 748 500
Fixed deposit: Parys Bank
630 000
42000 x 12/10 x 100/8 (7)

Current assets current liabilities x 1,5  3 900 000

Inventories current liabilities x 0,4 1 040 000
Trade and other receivables
 540 000
(554 000 – 33 240 +1 6 800+ 2 440)
Cash and cash equivalents balancing figure 2 286 000
SARS: Income tax (952 000  – 918 000 ) 34 000
TOTAL ASSETS same as TE+L 17 278 500 (15)

EQUITY & LIABILITIES

Ordinary shareholders’ equity 14 228 500
Ordinary share capital 13 650 000
Retained income  578 500 (3)

Non-current liabilities 450 000

Loan: BB Bank
450 000
(630 000 – 180 000 ) (5)

Current liabilities 2 600 000

Trade and other payables  692 000
Current portion of loan  180 000
Shareholders for dividends see 3.1.2  1 728 000

TOTAL EQUITY & LIABILITIES 17 278 500 (5)

35

8 | ACCOUNTING SOLUTIONS |
ACTIVITY 7

7.1.1 ORDINARY SHARE CAPITAL

AUTHORIZED
1 750 000 shares
ISSUED
900 000  ordinary shares in issue at beginning of
6 075 000 
year
100 000  ordinary shares in issue during the year
925 000 
at R9.25
(120 000) shares repurchased during the year at
(840 000) 
R7,00
10
880 000  ordinary shares in issue at end of year 6 160 000 

7.1.2 RETAINED INCOME

Balance on 1 July 2016 345 900
Net profit after income tax 1 080 000 
Shares repurchased (120 000 x R1,10) (132 000) 
Ordinary share dividends (536 400) 
Interim (paid) 290 000 
Final (880 000 x 28 cents) 246 400 
Balance on 30 June 2017 757 500  10

7.1.3 TRADE AND OTHER RECEIVABLES

Net trade debtors
151 080 
(156 570  – 15 990  + 10 500 )
SARS: Income tax (435 900 – 420 000) 15 900 
Prepaid expenses 13 850 
180 830  10

| ACCOUNTING SOLUTIONS | 9
7.2 MTOMBENI TRADERS LTD
BALANCE SHEET ON 30 JUNE 2017

ASSETS
NON-CURRENT ASSETS  6 459 500
Fixed/Tangible Assets  6 099 500
Fixed deposit  360 000 (3)

CURRENT ASSETS (2,3 X CL)  1 366 200

Inventory (0,60 x CL)  356 400
Trade and other receivables  180 830
Cash and cash equivalents balancing figure  828 970

TOTAL ASSETS same as TE+L  7 825 700 (7)

EQUITY AND LIABILITIES

SHAREHOLDERS' EQUITY 6 917 500

Ordinary share capital 6 160 000
Retained income  757 500 (3)

NON-CURRENT LIABILITIES 314 200

Loan: Drake Bank
(375 000+ 44 600  – 105 400)  314 200 (4)

CURRENT LIABILITIES  594 000

Trade and other payables
(196 700+10 500 + 35 000)  242 200
Shareholders for dividends  246 400
Current portion of loan  105 400

TOTAL EQUITY AND LIABILITIES  7 825 700 (8)

10 | ACCOUNTING SOLUTIONS |
 ACTIVITY 8
CHUTA LTD
8.1.1 RETAINED INCOME
Balance on 1 March 2016 372 140 
Net profit after income tax (450 000x 70/30) 1 050 000 
Shares repurchased (140 000 x R2,50 ) (350 000) 
operation, one part correct
Ordinary share dividends operation, one part correct (390 000) 
Interim 140 000 
Final 250 000 
Balance on 28 February 2017 operation, one part correct 682 140  10

8.1.2 FIXED/TANGIBLE ASSETS Land and Equipment Vehicles

Buildings
Carrying value in beginning 4 899 999  20 000  575 000
Cost price 4 899 999 360 000 970 000
Accumulated depreciation
0 (340 000) (395 000)
In the beginning

Movements
Additions at cost  640 400  180 000 0
Disposal at carrying value
(240 000 -192 000 - 7 200)
(0) (0)  (40 800)
Depreciation
Equipment (19 999 + 9 000) 0  ( 28 999)  (112 600)
Vehicles 7 200 + 105 400

Carrying value at the end 5 540 399  171 001  421 600
Cost 5 540 399  540 000  730 000
Accumulated depreciation (0)  (368 999)  (308 400) 28

| ACCOUNTING SOLUTIONS | 11
8.2 CHUTA LTD
BALANCE SHEET ON 28 FEBUARY 2017

ASSETS
Non-current assets  6 908 140
Tangible assets see 5.1.2  6 133 000
Fixed deposit at Boris Bank (1 010 140 – 235 000  775 140 (5)

Current assets CL 1.4:1  1 372 000

Inventories  490 000
Trade & other receivables balancing figure  597 800
Cash & cash equivalents
(43 500 + 5 700 + 235 000 )  284 200

TOTAL ASSETS same as TE+L  8 280 140 (12)

EQUITY & LIABILITIES

Ordinary shareholders’ equity 800 000 x 750 cent  6 000 000
Ordinary share capital balancing figure  5 317 860
Retained income see 5.1.1  682 140 (3)

Non-current liabilities 1 300 140

Mortgage loan: Mongomorry Bank
(1 955 000 + 234 600 – 745 000 – 144 460  1 300 140 (5)

Current liabilities 980 000

Trade & other payables balancing figure  544 100
Shareholders for dividends  250 000
SARS – Income Tax (450 000 – 408 560)  41 440
Current portion of loan  144 460

TOTAL EQUITY & LIABILITIES  8 280 140 (7)

32

12 | ACCOUNTING SOLUTIONS |
ACTIVITY 9

9.1.1 SHARE CAPITAL

Authorised
780 000 ordinary shares
Issued Share Capital
480 000 Ordinary shares in issue at the beginning
of the year at 750 cent 3 600 000
120 000  Ordinary shares issued at 950 cent on
1 December 2016 1 140 000
(30 000) Ordinary shares repurchased for 9
790 cent during the year (237 000) 
570 000 Ordinary shares at the end of the year 4 503 000  9

9.1.2 RETAINED INCOME

Balance at the beginning of the year 271 000

Net profit after tax 630 000
Repurchase of 30 000 ordinary shares at 60 cent 
see 6.1.1 (18 000) 
Dividends (576 000) 
Paid (480 000 x 45 cent) 216 000
Recommended (600 000 X 60 cent) 360 000
9
Balance at the end of the year 307 000
9

9.2.1 Value of the closing stock.

1 500 x 90 = 135 000 

1 850 x 80 = 148 000  5
283 000  (One part correct)
5

9.2.2 Calculate the number of items stolen

      (One part correct)

850 + 7 500 – 150 – 4 790 – 3 350 = 60 units
6

| ACCOUNTING SOLUTIONS | 13
9.3 HIMALAJA LIMITED
BALANCE SHEET ON 28 FEBRUARY 2017
ASSETS
NON-CURRENT ASSETS 4 787 000
Fixed assets 4 462 550
Fixed Deposit DDM Bank
7 324 450
(450 000 + 13 500 – 139 050)

CURRENT ASSETS 1 064 000

Inventories see 6.2.1 283 000 
Trade- and other receivables 442 000
Cash & cash equivalents (199 950 + 139 050) 339 000

7 TOTAL ASSETS check transfer from liabilities 5 851 000

EQUITY AND LIABILITIES

SHAREHOLDERS EQUITY 4 810 000
Share capital see 6.1.1 4 503 000 
3 Retained Income see 6.1.2 307 000

NON-CURRENT LIABILITIES 481 000

5 Mortgage loan (601 250  – 120 250) 481 000

CURRENT LIABILITIES (see CA) be in ratio 1.9:1 560 000

Trade- and other payables balancing figure 55 550
SARS – Income tax (270 000 – 245 800) 24 200
Short term loan 120 250
Shareholders for dividends see 6.2.1 360 000

9 TOTAL EQUITY AND LIABILITIES 5 851 000

31

31

14 | ACCOUNTING SOLUTIONS |
 CASHFLOW STATEMENTS

Activity 1 (a)

Net change in cash and cash equivalents 45 000

Cash and cash equivalents at beginning of the year 30 000
Cash and cash equivalents at end of the year 75 000

Activity 1 (b)

Net change in cash and cash equivalents (25 000)

Cash and cash equivalents at beginning of the year 6 500

Cash and cash equivalents at end of the year (3 500 – 22 000) (18 500)

Activity 2

CASH EFFECTS FROM FINANCING ACTIVITIES 440 000

Proceeds from shares issued (80 000 x 10,40) 832 000
Repurchase of shares (52 000 x 11) (572 000)
Loans received (850 000 – 670 000) 180 000

Activity 3

CASH EFFECTS FROM FINANCING ACTIVITIES (10 000)

Proceeds from shares issued (60 000 x 6,50) 390 000
Repurchase of shares (20 000 x 8) (160 000)
Loans repaid (530 000 – 290 000) (240 000)

Activity 4

CASH EFFECTS FROM FINANCING ACTIVITIES 7 600 000

Proceeds from shares issued 7 800 000
Repurchase of shares (1 290 000 + 510 000) (1 800 000)
Loans received (2 400 000 – 800 000) 1 600 000

| ACCOUNTING SOLUTIONS | 15
Activity 5

Extract from Cash Flow Statement

Cash flow from investing activities 138 000

Purchase of fixed assets (52 000)
Proceeds from sale of assets 130 000
Increase / Decrease in investments (300 000 – 240 000) 60 000

Calculations / Workings

Disposal of fixed assets

(205 000 + 52 000 – 44 000 – 83 000) = 130 000

Activity 6

Extract from Cash Flow Statement

Cash flow from investing activities 8 000

Purchase of fixed assets (119 000)
Proceeds from sale of assets 207 000
Increase / Decrease in investments (350 000 – 270 000) (80 000)

Calculations / Workings

Purchase of fixed assets

1 476 000 – 207 000 - 445 000 – 943 000 = -119 000

Activity 7

CASH FLOW STATEMENT FOR THE YEAR ENDING FEBRUARY 2018

Cash flow from operating activities XXX
Cash generated from operations Note 1 XXX
Interest paid (75 000 + 33 000 – 24 000) (84 000)
Dividends paid (1 080 000 + 324 000 – 660 000) (744 000)
Taxation paid (522 000 + 30 000 – 51 000) (501 000)

16 | ACCOUNTING SOLUTIONS |
Activity 8

Note 1: Cash generated from operations

Net Profit before tax (87 000 x 100/30) 290 000
Add: Interest Expense 12 500
Depreciation 29 000
Subtotal 331 500
Net changes in working capital 500
Decrease in Inventory (235 000 – 203 000) 32 000
Increase in receivables (42 500 – 26 500) (16 000)
Decrease in payables (54 000 – 38 500) (15 500)
Cash generated from operations 332 000

CASH FLOW STATEMENT FOR THE YEAR ENDING 28 FEBRUARY 2018

Cash flow from operating activities 110 500
Cash generated from operations 332 000
Interest paid (12 500 + 5 500 – 4 000) (14 000)
Dividends paid (180 000 + 54 000 – 110 000) (124 000)
Taxation paid (87 000 + 5 000 – 8 500) (83 500)

Adapted questions from PAST YEAR PAPERS:

| ACCOUNTING SOLUTIONS | 17
QUESTION 1

1.1 BELLCO LIMITED

CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2017
Cash effects of operating activities 1 293 000
Cash generated from operations 4 062 000
Interest paid (462 000)
Dividends paid (620 000 + 770 000)  (1 390 000)
Income tax paid (780 000 + 72 000 + 65 000)
7  (917 000)
Cash effects of investing activities
Check operation  (441 000)
Purchase of fixed assets  (880 000)
Proceeds of sale of fixed assets One
part correct # 89 000
Investments matured 6  350 000

Cash effects of financing activities

Check operation  (112 000)
Proceeds of issue of share capital * 3 440 000
Repurchase of share capital 840 000 + 312 000 OR
120 000 x 9,60 * (1 152 000)
Repayment of loans
6  (2 400 000)

Net change in cash & cash equivalents Check

operation  740 000
Cash & cash equivalents at beginning of year  (200 000)
Cash & cash equivalents at end of year
3 540 000 22

# Workings for fixed assets: 12 357 000 + 880 000 – 89 000 – 1 010 000 = 12 138 000

*Workings for financing activities (note that alternative valid entries are acceptable):
ORDINARY SHARE CAPITAL RETAINED INCOME APPROPRIATION
Bank 840 000 b/d 6 360 000 Bank 312 000 b/d 2235 000 780 000 2 600 000
c/d 8 960 000 Bank 3440 000 c/d 2 051 400 App 128 400 1 691 600
I 128 400
9 800 000 9 800 000 2 363 400 2 363 400 2 600 000 2 600 000
b/d 8 960 000 b/d 2 363 400

18 | ACCOUNTING SOLUTIONS |
QUESTION 2

2.1 Calculate the missing amounts: Fixed/Tangible Asset Note

NO. WORKINGS AMOUNT

a 6 740 000 – 2 689 000 4 051 000 

b 140 000 – 33 600 106 400 

    
5 600 + 11 000 + 20% x (3 110 000 – 1 342 000)
353 600 (3 marks)
c OR: 370 200 
2 marks 1 mark 1 mark 1 mark 1 mark 1 mark
5 600 + 20% x [(1 768 000 x 10/12) + (2 098 000 x 2/12)]
294 667 + 69 933 12

2.2 METEOR SUPERMARKETS LTD

CASH FLOW STATEMENT FOR YEAR ENDED 28 FEBRUARY 2017
11 Cash flow from operating activities (1 039 900) 

Cash generated from operations 969 600

Interest paid (88 500)
 Taxation (441 000)  + (122 000)  + (128 000)  (691 000) 
563 000 (2 marks)
OR –441 000 – 122 000 – 128 000
 Dividends 480 000  + 750 000 
480 000 + 1 620 000 – 870 000 (1 230 000) 
OR – 480 000 – 1620 000 + 870 000
1 mark 1 mark 1 mark

Cash flow from investing activities (4 274 600) 

 Purchase of fixed assets 4 051 000 + 330 000 (4 381 000) 

 Proceeds from disposal of fixed assets 106 400 

Cash flow from financing activities 2 325 000 

 Proceeds from the sale of shares 2 400 000 
 Share buy-back (475 000) 
 Change in loan 400 000 
Net change in cash and cash equivalents (2 989 500) 

Cash and cash equivalents at beginning of year 2 488 000

Cash and cash equivalents at end of year (501 500) * 31

| ACCOUNTING SOLUTIONS | 19
 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.
Any TWO valid answers: Explanation   Figures  

 Dividends of R1 230 000 (see 2.2) cause a negative figure for cash
retained from operating activities.
 Fixed assets bought are very high (R4 381 000) (see 2.2) which
leads to a bank overdraft.
 The directors allowed a large bank overdraft of R515 000 or
R501 500 to result from high payments for dividends/fixed assets.
 The buy-back of shares (R475 000) (see 2.2) reduced cash
resources / reduced capital base of the company.
 The vehicle was sold at book value (R106 400) (see 2.2) and was
only 1½ years old. 4

3.1 QUESTION 3: SENZO LTD

3.1.1 Calculate income tax paid.

1 175 000 – 846 000 Must be both
9 800  + 329 000  + 6 400  = 345 200 one part correct
–9 800 – 329 000 – 6 400 = –345 200
Mark one line only. Signs may be reversed but must be consistent.
Ledger T-account may be drafted. Figures could be in brackets. 5

Calculate proceeds from disposal of fixed assets (carrying value).

4 698 300 4 352 800
 one part correct
(2 598 300 + 2 100 000) – (4 137 700 + 215 100) = 345 500
2 598 300 + 2 100 000– 4 137 700 – 215 100 = 345 500
–2 598 300 –2 100 000 +4 137 700 + 215 100 = –345 500
Mark one line only. Signs may be reversed but must be consistent.
Ledger T-account may be drafted. Figures could be in brackets. 5

Calculate net change in cash and cash equivalents.

(153 000  – 2 500 ) + 88 900  = 239 400 
150 500

OR
1 mark 1 mark 1 mark 1 mark
(88 900 – 2 500) + 153 000 = 239 400
86 400

Indicate whether this is a net inflow or net outflow of cash.

Net inflowDepends on calculation above 5

20 | ACCOUNTING SOLUTIONS |
3.1.2 1 093 000
CASH EFFECTS OF FINANCING ACTIVITIES Operation, one part correct
Proceeds from shares issued 705 000*
2 967 000  + 258 000  – 2 520 000  One part correct, must be inflow
4 marks if amount correct but in
brackets
Re-purchase of shares 2 marks (312 000) *
60 000  x R5,20 4,30 + 0,90 both figures together One part correct must be outflow

Increase in non-current liabilities (Loans) 700 000

Must be inflow for 2 marks 12
Ledger account formats may be used to show calculations.
*If answer is combined as a net inflow, award only 1 method mark on final answer, not 2.
*If net effect has been shown with workings, mark as follows:
2 967 000 – 2520 000 – 54 000 = 393 000
1 mark 1 mark 2 marks 1 method mark

QUESTION 4

4.1.1 ORDINARY SHARE CAPITAL:

AUTHORISED SHARE CAPITAL

1 500 000 ordinary shares

ISSUED SHARE CAPITAL

900 000 Ordinary shares on 1 July 2016 9 180 000
(75 000) Shares re-purchased (Average: R10,20)  (765 000)
125 000 Shares issued (R10,80 per share) 1 350 000

950 000 Ordinary shares on 30 June 2017 9 765 000 7

RETAINED INCOME:
Balance on 1 July 2016 360 000
Net profit after tax 444 500
Funds used for repurchase of shares (37 500) 
75 000  x 0,50 
Ordinary share dividends (481 250) 

Interim (434 250 – 162 000) 272 250

Final 209 000 

Balance on 30 June 2017 285 750 9

| ACCOUNTING SOLUTIONS | 21
4.1.2 Calculate the change in loan for the Cash Flow Statement.

8 000 000 – 4 500 000 = 3 500 000 

2
Calculate the income tax paid for the Cash Flow Statement.

23 400  + 190 500  – 6 200  = 207 700 

OR
– 23 400 – 190 500 + 6 200 = –207 700

OR T-account with figures on correct sides

Debit Credit
207 700 23 400
6 200 190 500
4

4.1.3 Net change in cash and cash equivalents  808 000

Cash and cash equivalents (beginning of year)  (603 000)
Cash and cash equivalents (end of year)  205 000 4

QUESTION 5

5.1 SO-FINE LTD

5.1.1 ORDINARY SHARE CAPITAL

AUTHORISED SHARE CAPITAL

1 200 000 ordinary shares

ISSUED SHARE CAPITAL

900 000 Ordinary shares on 1 September 2016 4 725 000 
945 000
150 000 Issued on 1 May 2016 at R6,30 each 
Re-purchased 30 August 2017 (378 000)
(70 000) 
(ASP: R5,40)
980 000  Ordinary shares on 31 August 2017 5 292 000 7

22 | ACCOUNTING SOLUTIONS |
 RETAINED INCOME
Balance on 1 September 2016 147 370
Net profit after income tax 438 130
Shares repurchased (437 500  – 378 000 ) (59 500) 
(70 000 x 0,85

Ordinary share dividends (276 000) 

 Interim dividends (900 000  x 0,12) 108 000 

 Final dividends 168 000 
`

Balance on 31 August 2017

250 000  9

5.1.2 SO-FINE LTD

CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations
Interest paid
Dividends paid

4 Income tax paid (- 2 400  + 187 770  - 11 800 ) ? (173 570) *

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets
(6 177 000  + 320 000  + 324 000  – 4 975 000 ) ? (1 846 000) *

?  Proceeds from the sale of fixed assets ? 324 000 

7 Change in investments
CASH FLOWS FROM FINANCING ACTIVITIES
?  Proceeds from issue of share capital see 5.1.1 ? 945 000 
?  Repurchase of shares ? (437 500) 

4 Change in non-current liabilities

Net change in cash and cash equivalents ? 86 000 *

Cash and cash equivalents – opening balance ? (62 600) 
(2 500 – 65 100)

4 Cash and cash equivalents – closing balance ? 23 400  19

*one part correct and correct use of brackets

| ACCOUNTING SOLUTIONS | 23
QUESTION 6

6.1 What is the main purpose of a Cash Flow Statement?

Good answer = 2; Average = 1; Incorrect = 0 
It provides users of financial statements with information on the inflow and
outflow of the cash resources of the company
To see how monies were generated or spent and what the cash flow
position is.
To account for the difference in opening and closing bank balances 2

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

Fixed/Tangible Asset Note for the year ended 31 October 2017.

Workings Amount
a 3 000 000 – 2 500 000 500 000 
b 660 000 x 20% 132 000 
c 660 000 – (b) – 446 000 82 000  
OR 150 000 – 68 000
d 157 500 + 48 000 -55 000 150 000 
OR 258 000 – 108 000 9

6.3 CLASSICO LTD

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2017

CASH FLOW FROM OPERATING ACTIVITIES 625 000 

Cash generated from operations 1 985 500

Interest paid (175 500)
Taxation paid (27 500 + 375 000 + 22 500) ( 425 000) 

Dividends paid (385 000 + 825 000 – 450 000) ( 760 000) 

CASH FLOW FROM INVESTING ACTIVITIES 534 000 

Fixed assets purchased (48 000) 
Proceeds from sale of fixed assets
582 000 
(500 000 + 82 000 

CASH FLOW FROM FINANCING ACTIVITIES 925 000 

Proceeds from the sale of shares 300 000 

Change in loan (2 000 000  - 1 375 000 ) 625 000 

NET CHANGE IN CASH AND CASH EQUIVALENTS 2 084 000 


CASH AND CASH EQUIVALENTS AT BEGINNING 207 500 
CASH AND CASH EQUIVALENTS AT END 2 291 500  24

24 | ACCOUNTING SOLUTIONS |
6.4
Decisions by Reason to support Reason to support
directors John's opinion directors' decision
(other than improving
cash flow)
Dilutes the returns to Cheaper option of raising
existing shareholders  funds as loans carry
Issued more / No apparent need to interest 
shares issue shares as there is
considerable cash on
hand
Prevents the company Unproductive or unused
Sold fixed from benefiting through assets will incur
assets capital gains  maintenance expenses.

8

QUESTION 7

7.1 ASSET DISPOSAL

Accumulated
2016
31
Equipment 120 000 2016 31 depreciation on 46 560
Aug.  Aug.
 equipment 
(38 400 + 8 160)
Bank  73 440 
120 000 120 000
9

7.2
No. Calculation Amount
(a) 3 900 000 -2 000 000 1 900 000
(b) 900 000 – 470 000 430 000
(c) Sold: 8 160see 7.1 (3 marks) 92 840
New: 20% x 150 000 x 6/12 = 15 000
Old: (780 000 – 431 600) x 20% =
69 680348 400 (2 marks) 12

7.3.1 Calculate the income tax paid.

1 240 000 – 892 800
- 347 200+ 17 400 + 35 700 = - 294 100 
or
+ 347 200- 17 400 - 35 700 = + 294 100
5

7.3.2 Calculate the net change in cash and cash equivalents.

549 580  + 92 000  = 641 580 

(110 000 – 18 000) 4

| ACCOUNTING SOLUTIONS | 25
7.4 Cash effects on financing activities
Proceeds from shares issued
1 350 000
(300 000 x R4,50)
Buy back of shares (40 000 x R4,30) (172 000) 

Mortgage loan 1 550 000 

2 728 000

QUESTION 8

8.1 BRAZILIA LTD

8.1.1 State ONE purpose of a Cash Flow Statement.
One valid explanation 

 It provides users of financial statements with information regarding the

inflow and outflow of the cash resources of the company.
 It explains the reasons for the change in the bank balance.
 It shows the breakdown of the flow of cash in terms of operating, investing
and financing activities. 2
8.1.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2017
CASH FLOW FROM OPERATING ACTIVITIES 749 950 
Cash generated from operations 2 844 200
Interest paid (336 000)
Taxation paid (41 750  + 560 000  + 28 500 ) (630 250) #
8 Dividends paid (595 000  + 533 000 ) (1 128 000) #
CASH FLOW FROM INVESTING ACTIVITIES (1 077 000) 
Fixed assets purchased (1 360 000)
Proceeds from the sale of fixed assets 43 000 #
6 (10 041 000 – 1 360 000  + 154 000 – 8 878 000 )
Change in fixed deposit 240 000
CASH FLOW FROM FINANCING ACTIVITIES 852 000 
Proceeds from the sale of shares
1 512 000 #
(7 280 000  + 182 000  – 5 950 000 )
Shares repurchased (20 000  x R15,50 ) (310 000) #
10 Change in loans (350 000) 
NET CHANGE IN CASH AND CASH EQUIVALENTS 524 950 
CASH AND CASH EQUIVALENTS AT BEGINNING
(345 450) 
(3 000 – 348 450)

3 CASH AND CASH EQUIVALENTS AT END 179 500 27

26 | ACCOUNTING SOLUTIONS |
QUESTION 9

9.1 CASH GENERATED FROM OPERATIONS

Net profit before income tax (240 480 + 93 520) 334 000 
Depreciation 178 000
Interest expense 52 000
Operating profit before changes in working capital 564 000
Cash effects of changes in working capital 11 000 
Change in inventories (262 000 – 194 600) 67 400 
Change in receivables (214 000 – 198 000) (16 000) 
Change in payables (165 200 – 124 800) (40 400) 

Cash generated from operations 575 000  10

9.2 MAXIE LTD

CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017
CASH EFFECTS OF OPERATING ACTIVITIES 289 890 
Cash generated from operations 575 000 
Interest paid (52 000) 
Income tax paid (93 520  – 2 110  – 6 300 ) (85 110) 
Dividends paid (88 000  + 60 000 ) (148 000) 
CASH EFFECTS OF INVESTING ACTIVITIES (492 340) 
Purchase of fixed assets
(572 340) 
(2 568 730  + 178 000  – 2 174 390 )
Investments matured (230 000 – 150 000) 80 000 
CASH EFFECTS OF FINANCING ACTIVITIES 160 000
Proceeds of shares issued 1 000 000
Share repurchased (540 000)
Repayment of loan (300 000)

NET CHANGE IN CASH AND CASH EQUIVALENTS (42 450) 

Cash and cash equivalents (1 March 2016) 34 700 
Cash and cash equivalents (28 February 2017) (7 750)  21

| ACCOUNTING SOLUTIONS | 27
QUESTION 10

10.1.1
(a) 3 640 000 – 2 002 000 = 1 638 000 

750 000 x 15% x 4/12 = 37 500 

(b)
750 000  – (491 750  + 37 500) = 220 750 
529 250 (3 marks)

(Sold): 37 500  refer (b)

(New): 900 000 x 15% x 5/12 = 56 250 
(c) (Old): (3 640 000 – 750 000) x 15% = 433 500 
2 890 000 
Total: 527 250 

(d) 3 640 000 + 900 000 – 750 000 = 3 790 000 

16

10.1.2 Calculate the income tax paid.

383 700 
8 700  + (1 279 000 – 895 300) – 9 900  = 382 500 
5

Calculate the net changes in cash and cash equivalents.

125 750  – 54 750 + 92 000  = 163 000 

4

10.1.3 CASH FLOW FROM FINANCING ACTIVITIES 50 000 

Proceeds from shares issued
1 600 000 
(200 000 x R8,00)
Funds used to repurchase shares (600 000)
Decrease in loan (2 750 000 – 1 800 000) (950 000) 7

28 | ACCOUNTING SOLUTIONS |
QUESTION 11

MIHKA LTD
11.1.1 ORDINARY SHARE CAPITAL

Authorised Share Capital

800 000 ordinary shares

Issued Share Capital

600 000 Ordinary shares on 1 January 2017 4 200 000
100 000 Issued on 31 August 2017 840 000 *
(40 000)  Re-purchased (ASP: R7,20) (288 000) 
660 000  Ordinary shares on 31 December 2017 4 752 000  6

RETAINED INCOME

Balance on 1 January 2017 276 000

Net profit after income tax (1 150 000 – 322 000) 828 000 
Shares repurchased (40 000  x R1,30 ) (52 000) 
Ordinary share dividends (415 000) 
 Interim dividends
240 000 

 Final dividends 175 000 

Balance on 31 December 2017 637 000  9

11.1.2 CASH EFFECTS OF OPERATING ACTIVITIES 292 600 *

Cash generated from operations 1 237 400
Interest paid (100 000) 
Income tax paid (9 200  + 322 000  + 3 600 ) (334 800) *
270 000 + see 11.1.1(415 000 - 175 000) both 1 mark
(510 000) * 9
Dividends paid (270 000  + 240 000 ) see 11.1.1

11.1.3 Amounts in the Cash Flow Statement:

Calculate: Change in fixed deposit

300 000  Inflow 3

Calculate: Proceeds on disposal of equipment
5 828 000  + 360 400  – 1 495 000  – 4 905 800  = 212 400 
OR:
– 5 828 000 – 360 400 + 1 495 000 + 4 905 800 = –212 400
Inflow  6

| ACCOUNTING SOLUTIONS | 29
 INTERPRETATION OF FINANCIAL INFORMATION

1. Understanding Financial Statements and the Annual Report:

ACTIVITY 1

1.1 Balance Sheet (Statement of Financial Position) 

1.2 Income Statement (Statement of Comprehensive Income) 
1.3 Directors report 
1.4 External (independent) auditors report 
1.5 Cash Flow Statement  5

ACTIVITY 2

Identify the appropriate financial statement where you will find the following
information.

Cash Flow
Amount received for the issue of new shares 
Statement
Cash Flow
Total amount of the loan either received or paid. 
Statement
Balance Sheet
The amount of shares that are not yet issued. 
(note)
Total income tax expense Income Statement 
Income Statement /
Total depreciation for the year Balance Sheet 
(note)
Total amount owing to creditors Balance Sheet 
Total amount of dividends payable to shareholders Balance Sheet 
Total cash paid to shareholders in respect of Cash flow

dividends statement
Amount owed to/owed by SARS at year-end Balance sheet 
The short term portion of a non-current liability Balance sheet 
Cash flow
Total amount paid to SARS for Income tax 
statement
Gross profit for the year Income statement 
Fixed assets bought for cash during the financial Cash flow
 13
year statement

30 | ACCOUNTING SOLUTIONS |
2. Users of Financial Information:

ACTIVITY 3
(  for one point in each box)

3.1 Shareholders
The performance of their investment; their return on investment; the future
prospect/growth of the company (trends)

3.2 Prospective (potential) shareholders

As prospective investment opportunities; trends;

3.3 The CEO and the board of directors (management)

Effective operation of all sections; for future planning and corrective
measures; to plan to counter threats; evaluate the performance of line
managers; take strategic decisions.
3.4 Internal and external auditors
Compliance with companies act and reporting standards; good and bad
practices

3.5 SARS
Determine the compliance in terms of tax laws; registration and other duties

3.6 Creditors
Assess creditworthiness; adjusting/negotiating credit terms; determining
amount of credit to grant to reduce risk.

3.7 Competitors
Assess their own performance; adopt good practices

3.8 Trade unions and employees

The firm’s ability to sustain the salary and wage payments; pension and other
benefits; to negotiate wage increases annually.

3.9 Newspapers and financial publications

Information that is news-worthy; satisfying their clients such as other
businesses, creditors, investors, the international community
18

| ACCOUNTING SOLUTIONS | 31
3. Financial Indicators as a basis for interpreting financial information:

ACTIVITY 4

4.1 C (Liquidity) 
4.2 B (risk and gearing) 
4.3 F (Share price / market prospects) 
4.4 E (profitability/operating efficiency) 
4.5 D (Solvency) 
4.6 A (Return on investment)  6

ACTIVITY 5: (20 correct responses with at least 3 in each box)

Operating income on sales

Gross profit percentage on sales
PROFITABILITY Net profit after tax on sales
Gross profit percentage
Operating expenses on sales
Creditors average payment period
Stock turnover rate
OPERATING
Stock holding period
EFFECIENCY
Earnings per share (EPS)
Debtors average collection period
Current ratio
Acid test ratio
Net current assets
LIQUIDITY Stock turnover rate
Creditors average payment period
Stock holding period
Debtors average collection period
Total assets – total liabilities
SOLVENCY Net assets (Total Assets – total liabilities = Equity
Solvency ratio
Return on average capital employed (ROTCE)
RISK AND
Debt/equity ratio
GEARING
Interest rate on loan (external indicator)
Dividends per share (DPS)
Earnings per share (EPS)
RETURN Return on shareholders’ equity (ROSHE)
Interest rate on investments (fixed deposits)
Return on average capital employed (ROTCE)*
Net asset value per share (NAV)
MARKET
Market price of shares (JSE)
PROSPECTS
Average share price
Share price /value
Issue price / buy back price 20

32 | ACCOUNTING SOLUTIONS |
4. How well do you know your formulae?

ACTIVITY 6: Know your formulae No marks allocated in this activity

6.1 Current ratio

973 200 : 696 900 1,4 : 1

6.2 Acid test ratio
555 200 555 200
(973 200 – 418 000) : 696 900 Or (550 000 + 5 200) : 696 900

= 0,8 : 1

6.3 Stock turnover rate

= 41,9 times

6.4 Average stock holding period (in days)

x 365 = 41,9 days Or 365/8,7

6.5 Average debtors collection period

512 500

x 365 = 121 days

1 545 600
6.6 Average creditors payment period
516 400

x 365 = 78 days

6.7 Solvency ratio

7 920 900 1 696 900
(6 947 700 + 973 200) : (1 000 000 + 696 900) = 4,7 : 1

6.8 Debt/equity ratio

1 000 000 : 6 224 000 = 0,2 : 1 (0,16 : 1)

6.9 Return on average capital employed (ROTCE)

x 100 = 17,1%
6 941 150

| ACCOUNTING SOLUTIONS | 33
6.10 Return on shareholders’ equity

x 100 = 13%
5 641 150
6.11 Earnings per share (EPS)

x 100 = 163,5 cents

6.12 Dividends per share (DPS)

= 89 cents

6.13 Net asset value per share (NAV)

= 1383 cents

6.14 Gross profit percentage on sales

x 100 = 37,5%

6.15 Operating expenses on sales

x 100 = 19,5%

6.16 Operating income on sales

= 5%

6.17 Net profit after tax on sales

x 100 = 14,3%

6.18 Gross profit percentage

x 100 = 60%

34 | ACCOUNTING SOLUTIONS |
5. Ratio Relationships:

a. Discuss the mind map that show how the different categories of Financial Indicators work
together to answer common questions.
b. Recap the group of indicators that fall under each category and place emphasis on the
information from the financial statements that must be used; Example, Profitability and Return
ratios will use the Net Profit amount; Solvency and Gearing will need the Non-current
Liabilities amount.

6. Strategy in answering interpretative questions (recommended steps)

a. Explain the steps in detail.

b. In making comparisons, note that norms for ratios is no longer favoured for various reasons.
c. Use the practical examples to explain the requirements of each question – focus on the key
verbs used.
d. Analyze each of the examples provided to show how the steps are implemented to answer
the exam-type questions.

7. Activity

ACTIVITY 7: MZOMHLE LTD

7.1 The directors are not satisfied by the liquidity position of the company.
Are they justified? Quote THREE relevant financial indicators (with
figures) in your answer.
Quote THREE financial indicators   
Show the figures (including the trend)   
Comment on each, or a general comment to cover the indicators you chose   

 The stock turnover rate decreased from 5 times to 3,7 times. Stock is not
moving as fast as we would like it to.
 The current ratio appear to be too high (3,6 : 1 for 2,8 : 1), mainly due to
the high stock levels.
 The acid test ratio being constant (at 0,7 : 1 for both years) confirms the
reason for the high current ratio.
 The average debtors’ collection period improved from 35 days to 28 days,
further suggests that cash is not a concern but the movement of stock is. 9

7.2 Comment on the profitability of the business. Make reference to

information relating to the Income Statement.
Identifying the financial indicators   
Quoting figures and showing trends   
Comment / explanation 

Gross profit on cost of sales increased from 65% to 70%

Gross profit on sales increased from 32% to 38%
Operating expenses on sales increased from 31% to 36%
Net profit after tax on sales decreased from 15% to 12%
Operating profit on sales decreased from 21% to 16%
 The company needs to sort out its pricing policy (mark-up %)
 And to control expenses more effectively.
 This has led to the decrease in the operating profit
 As well as the net profit after income tax. 9

| ACCOUNTING SOLUTIONS | 35
7.3 Should the shareholders be satisfied with their earnings and dividends?
Quote the relevant financial indicators to support your answer.

Quoting relevant financial indicators (with trends)   

Explanation 
 The return on shareholders’ equity decreased from 18% to 16%.
Shareholders may not be so concerned about this drop as it is still higher
that the interest they would earn on a fixed deposit (alternative
investment)
 Although the EPS decreased from 54c to 45 cents, directors gave a higher
DPS this year; from 11c to 21c per share. This is obviously to appease
shareholders to mask the drop in earnings.
 The company retained more money of the EPS last year. They still paid
less than 50% of the EPS as dividends, opting to retain the balance for
future growth. 6

7.4 The directors intend expanding the existing buildings. Would you
advise them to issue additional shares or to take out an additional loan?
Quote the relevant financial indicators to support your decision.
Quoting relevant financial indicators (with trends)  
Explanation  explaining risk and gearing
Advice  reference to issuing shares

 The debt/equity ratio increased from 0,3 : 1 to 0,6 : 1. The company is

making greater use of loans this year, moving into a position of high
gearing.
 The ROTCE also decreased from 22% to 20% but since it exceeds the
rate of interest on loans, the business enjoys positive gearing.
 If the trend of decreasing return on capital employed continue and if
interest rates also increase (as per the trend), the company could be in
financial trouble.
 Issuing new shares is less risky – the company only need to consider the
distribution of the profits (dividends) to the additional shareholders/shares.
8

ACTIVITY 8:

8.1.1 Operating expenses on sales

(2 117 000  ÷ 6 620 000 ) x 100 = 31,9%  or 32% One part correct
3
8.1.2 Debt/equity ratio

1 000 000  : 3 831 400 

0,3 : 1 One part correct; in the form x : 1
3
8.1.3 Return of shareholders’ equity

One part correct;

3 651 600
5

36 | ACCOUNTING SOLUTIONS |
8.1.4 Net asset value per share.

3 831 400  ÷ 570 000  = 672 cents  (R6,72) One part correct
(520 000 + 120 000 – 70 000)
4

8.2 The internal auditor recommended to the directors that more attention
be paid to managing expenses in the next financial year. Explain why
you think she feels this way. Quote TWO financial indicators, with
figures, to support your argument.

Financial indicators with figures   Explanation 

Operating expenses on sales increased from 24% to 32% (above)

Net profit after tax on sales decreased from 12,8% to 10,5%.
Although the GP remained constant, operating expenses on sales has
increased by more than the inflation rate – clearly expenses are not being
managed effectively. 6

8.3 The auditor also felt that it was not necessary to repay a large portion of
the loan during the financial year. Provide a reason why you think she
felt that way. Quote TWO relevant financial indicators (with figures) in
your answer.
Financial Indicators with figures   Explanation 

Debt/Equity ratio remained at 0,3 : 1 (above)

The financial risk is low. (low gearing)
The company is making more use of own capital rather than borrowed capital.
ROTCE: decreased from 24,8% to 23,6% This is still above the interest rate
(11,5%).
The company is positively geared – making effective use of borrowed capital.
The company should take advantage of this situation to generate more
profits. 6

8.4 Some shareholders were not satisfied with their returns for the current
financial year. Are they justified? Motivate your answer by quoting any
TWO relevant financial indicators and by commenting on the dividend
policy of the business.
Yes/No 
Financial indicators with figures   Comment on the dividend policy 
Return on shareholders’ equity decreased from 21,6% to 19,1% (above)
This is still above the return they would earn on any alternative investments
(fixed deposits).
DPS increased from 97 cents to 120 cents whilst the EPS went down from
134 cents to 127 cents.
The company paid out 94% of the earnings this year and 72% last year.
Shareholders should be happy with their returns.
The directors however, need to consider that long term prospects of the
company and possibly needed to retain more of the EPS to address liquidity
and profitability issues. 7

| ACCOUNTING SOLUTIONS | 37
8.5 Explain why you either agree or disagree with the directors. Make
reference to relevant figures (financial indicators) to support your
answer.

Financial indicators (with figures)   Explanation 

The market price of the shares is 665 cents (was 650 cents in 2014)
The NAV was 668 cents last year (improved to 672 cents in 2015)
The directors did pay too much to re-purchase the shares. This has
disadvantaged the company. 6

ACTIVITY 9:

9.1 Identify THREE major decisions highlighted by the Cash Flow Statement
and explain TWO consequences of these decisions to the business.
Quote figures.

Decisions (with figures): Any THREE of:   

Proceeds from shares issued (R525 000) and shares repurchased (560 000)
Fixed assets purchased (R818 700) or sale of assets (R72 000) Net : R746
000
Loan repaid (R320 000)
Fixed deposit redeemed (R160 000)? Is this a decision?
Dividends paid (R333 750) although part of it is last year’s outstanding
balance)
6
Consequences: Any TWO of:  

Cash outflows (purchasing of assets/repaying the loan/repurchase of shares)

causes strain on cash resources.
Inflows include proceeds from shares issued / sale of assets.
Efficiency in managing working capital. (liquidity)
Effect on profitability. 2

9.2 Comment on the issue price of the additional shares issued on

1 August 2015.

Good explanation quoting figures  satisfactory explanation with figures  weak 

Relevant ratios: NAV and market price.

Shares issued at R7,00 each ( market price at the beginning of the year was
R6,35 and the NAV on 1 July 2015 was 583 cents).
The new shares were issued at a reasonable price as it is close to the market
price. The NAV also shows an upward trend so investors can show
confidence in the business.
This answer is based on reflection (could use the opening or closing ratios to
make comments).
3

38 | ACCOUNTING SOLUTIONS |
9.3 Did the estate of the late shareholder receive a fair price for their
shares? Explain.

Good explanation quoting figures  satisfactory explanation with figures 
explanation without figures  weak 

Considering the NAV of 627 cents, the market price of 655 cents and the
average share price at the time of repurchase, the estate of the late
shareholder received a very good deal.
This decision (price offered) may not have been in the best interest of the
company. Directors are appointed to act in the best interest of the business –
this could raise ethical issues (possible corruption) and require an
investigation.
4

9.4 At the annual general meeting (AGM) a young shareholder was not
pleased about R200 000 spend on a local clean the environment
campaign. She was of the opinion that maximizing profits should be the
main focus of the business. What would you say to her? Provide TWO
points.
Good explanation explaining CSR  satisfactory explanation  weak 

The main objective of profit companies is to make a profit. However, all

companies are expected to engage in some form of community upliftment
programme (CSR). This serves to create goodwill for the business and create
a positive image. Corporate governance (King code)
Other benefit to the company include tax benefits, BEE status etc.
3

9.5 A senior director of the firm was disappointed that the new shares were
sold without giving the directors an option to purchase shares before
they were advertised to the public. Is he justified to feel this way?
Explain.

TWO valid points  

This is an example of insider trading.

Directors must not use their position or any privileged or confidential
information obtained while acting as a director to gain an advantage. (Using
information that is not public knowledge. It is unfair to a market participant
who does not have the same information).
4

9.6 Do calculations to show the change in her percentage share-holding

after each change in the share capital.

750 000 x 90% = 675 000 shares at the beginning of the year.
340 000/675 000 = 50,3% 

340 000/750 000 = 45,3%  (after the issue of the additional shares)

340 000/670 000 = 50,7%  (after the repurchase of the shares)

6

| ACCOUNTING SOLUTIONS | 39
 Explain why she was eager for the company to re-purchase the shares.

Valid explanation mentioning majority shareholding 

Indira was the major shareholder at the beginning of the year but she lost that
status when the additional shares were issued.
After the repurchase of shares, she regained that status.
Being the major shareholder affords one the opportunity to appoint directors,
external auditor and to influence all strategic decisions in a company.
At times this is considered a weakness to the company.
2

ACTIVITY 10: TWO COMPANIES

10.1 Which company is handling their working capital more effectively?

Explain and quote THREE financial indicators to support his opinion.

Financial indicator with figures    Explanation   

 Current ratio of Lilac LTD is 1,3 : 1 and of Lupin LTD is 4:1

 Lilac has enough current assets to cover current liabilities whereas Lupin
LTD is holding too much current assets which may not result in a return
for the business.
 Acid test ratio of Lilac LTD is 0,8 : 1 and of Lupin LTD is 2,4 : 1. Even if
Lilac is not able to sell all of trading stock it should still be able to cover
short term debt.
 Lupin LTD is holding much current assets in the form of trading stock
(stock piling).
 Stock holding period of Lilac LTD is 75 days and for Lupin LTD is 132
days (almost 5 months). Lilac LTD has enough stock for 2,5 months which
is appropriate for a company selling running shoes as styles of shoes
normally change seasonally. Lupin LTD is holding stock for too long,
styles will change and clients will not be interested in buying outdated
styles resulting in obsolete stock.
 Debtors average collection period of Lilac LTD is 26 days - within the
acceptable credit terms and is much lower than the 48 days of Lupin LTD. 9

10.2 Which company is making more use of loans? Quote a financial

indicator for each company.

Lilac LTD 
Debt / equity ratio 2 : 1 for Lilac LTD and 0,3 : 1 for Lupin LTD
3

Explain whether or not it was a good idea for that company to make use
of loans. Quote ONE financial indicator.

No 
Return on Capital Employed for Lilac is 10,6% which means that the return
they are earning is lower than the interest he is paying on the loan (negative
gearing)  3

40 | ACCOUNTING SOLUTIONS |
10.3 Lupin LTD has a better percentage return, earnings and dividends than
Lilac LTD. Explain and quote THREE financial indicators for each
company.

Financial indicators and figures    Explanation   

 % ROSHE for Lupin LTD is much higher (16, 3%) than that of Lilac LTD
(9,2%).
 EPS for Lupin LTD is 310 cents whereas Lilac LTD is only earning 145
cents per share.
 DPS for Lupin LTD is 190 cents whereas for Lilac it is only 155 cents per
share.

Lupin LTD is retaining income (EPS 310 cents, DPS 190 cents) whereas Lilac
LTD is not retaining any income (EPS 145 cents, DPS 155 cents).

Lupin LTD’s EPS of 310 cents compares well to the NAV of the share of 480
cents; Lilac LTD’s EPS of 145 cents compares unfavourably to the NAV of
790 cents.

Lupin LTD’s DPS of 190 cents compares well to the NAV of the share of 480
cents; Lilac LTD’s DPS of 155 cents compares unfavourably to the NAV of
790 cents. 9

10.4 Explain why the existing shareholders of Lupin LTD are happy with the
current market value of their shares.

Comparing market price and NAV of Lupin LTD  Figures 

Market price of Lupin LTD is 550 cents which is higher than the NAV of 480
cents OR market price is 70 cents higher than the NAV. Lupin LTD is thus
able to fetch a price higher than the value of the shares in the books of the
company.
2
Explain why the existing shareholders of Lilac LTD are very
disappointed with the current market value of their shares

Comparing market price and NAV of Lilac LTD  Figures 

Market price of Lilac LTD is 675 cents which is lower than the NAV of 790
cents OR market price is 115 cents lower than the NAV.
2

| ACCOUNTING SOLUTIONS | 41
8. Grade 10 and 11:

Refer to the table of financial indicators for each Grade.

Discuss the movement from Grade 10 to 12. The additional indicators are in italics.
GRADE 10: ACTIVITY 1
SARDIE STORES

1.1 Non- Non-

Current Current
ACCOUNTS Current Equity Current
Asset Liability
Asset Liability
Trade debtors X
Trade creditors X
Accrued
X
Income
Accrued
X
expenses
Mortgage Bond X
Vehicles X
Trading stock X
Capital X
Fixed Deposit X
Bank overdraft X 10

1.2 Current ratio

(33 360 + 6 420 + 52 200) : (25 600 + 7 800 + 10 400)

91 980  43 800 
2,1 : 1 
5

Acid test ratio

(91 980 – 52 200) : 43 800  = 0,9 : 1 

39 780 
4

1.3 Comment on the liquidity of the business.

Quoting the figures and noting the trend 

Valid comment based on figures 

Current ratio improved from 1,9 : 1 to 2,1 : 1 but the Acid test ratio went
down from 1,1 : 1 to 0,9 : 1

Although the business may be in a sound liquidity position (they have

enough current assets to cover short term debts), they are however,
holding too much stock. This has contributed to the lower acid test ratio.
There is a need to improve sales to reduce stock. 4

42 | ACCOUNTING SOLUTIONS |
GRADE 10: ACTIVITY 2:

2.1 Calculate :
2.1.1 Solvency ratio
[2 250 000 + 150 000 + 1 287 500] : [818 750 + 368 750]
3 687 500  1 187 500 
= 3.10 : 1  5
2.1.2 Current ratio
1 287 500  : 368 750 
= 3.49 : 1 or 3.5 : 1 
3
2.1.3 Acid test ratio
[850 000 + 137 500] : 368 750 
987 500 
= 2.68 : 1  4
2.1.4 Return on average owner’s equity
525 000  ÷ ½  [2 500 000  + 1 475 000 ] x 100
1 987 500
= 26.4% 
5
2.1.5 Mark up percentage

[1 875 000 - 1 118 750] ÷ 1 118 750  x 100

756 250 
= 67.6% 
3

2.2 Comment on the liquidity position of the business. Quote TWO relevant
financial indicators/ratios for both years to support your response.

Financial indicator  figure/trend  Comment 

Current ratio:
 Increased from 2.2 : 1 to 3.49 : 1
 Business can pay off its short term debts
Acid test ratio:
 Increased from 1.64 : 1 to 2.68 : 1
 Business can pay off its short term debts even without the inventory 6

2.3 The business aims to achieve a mark-up of 75% on cost at all times.
Provide TWO reasons for the business not achieving the expected mark-
up percentage.

Any TWO valid reasons  

 Clearance sales
 Prices reduced to meet with the competition
 Trade discounts given to customers
 Incorrect mark-up calculations
4

| ACCOUNTING SOLUTIONS | 43
 GRADE 10: ACTIVITY 3:

3.1 FINANCIAL INDICATORS

WORKINGS ANSWER
Calculate: Current Ratio

(194 000  + 355 920  + 112 000 ) : 315 200  2,1 : 1 

661 920 5
Calculate: Acid test ratio

(355 920  + 112 000 ) : 315 200 

1,5 : 1 
Or 661 920 – 194 000 two marks
4
Calculate: Solvency ratio

1 740 180  : (700 000 + 315 200)

1,7 : 1 
1 015 200  one part correct
4
Calculate: Return on equity

165 500  x 100

22,9% 
½  (724 980  + 723 500 )
724 240 two marks 5

3.2 Calculate the amount of the loan

1 740 180  – 724 980  – 315 200  = 700 000  one part correct 4

3.3 Comment on the solvency of the business. Quote figures.

Comment  figures 
The solvency decreased from 2,4 : 1 to 1,7 : 1. Total assets are still greater
than total liabilities which means that the business is solvent. Acquiring the
additional loan has contributed to the decrease in the ratios.
4

3.4 Will the business be able to pay its short term debts in the next financial
year? Explain. Quote TWO financial indicators with figures.

Financial indicators (with trends)   comment 

Current ratio improved from 1,9 : 1 to 2,1 : 1

Acid test ratio improved from 1,3 : 1 to 1,5 ; 1

The business is in a sound liquidity position. It can easily pay short term debts
in the next financial year. Stock is also being managed well as shown by the
acid test ratio. 6

44 | ACCOUNTING SOLUTIONS |
3.5 Should Stan be satisfied with his return on equity? Explain. Quote
figures.
Comment  figures 

Stan’s return on equity has declined slightly from 25% to 22,9%. It is still very
favourable as it is higher than returns on alternative investments such as fixed
deposits.
4

3.6 Provide TWO reasons why the business was not able to achieve its
targeted gross profit percentage.

TWO reasons  

The business could have sold goods at a mark-down sale.

Trade discounts offered to regular clients.
Obsolete goods sold at cost at clearance sales
Possible incorrect mark-up applied to certain products.
4

GRADE 11: ACTIVITY 1:

1.1 Calculate:

1.1.1 The total value of current liabilities.

Current Assets : (273 200 + 36 800 + 177 000) = 487 000 

487 000 ÷ 2,5  = 194 800  one part mark 4

1.1.2 Percentage return earned by N. Yong

211 200 

925 000  6 300 

465 650 two marks
= 45%  one part correct 5

1.1.3 Debt/equity ratio

875 000  1 500 

400 000  : (525 000 + 350 000 + 10 600 – 9 100)

0,46 : 1 or 0,5 : 1  one part correct 4

1.1.4 Acid-test ratio

310 000  (refer 1.1.1)
(273 200 + 36 800) : 194 800 

1,6 : 1  one part correct

4

| ACCOUNTING SOLUTIONS | 45
 1.2 Comment on the liquidity of the business.
Quote TWO financial indicators (with figures) in your answer.

Quoting financial indicators with figures   comment 

Current ratio : moved from 1,8 : 1 to 2,5 : 1

Acid test ratio : moved from 1,2 : 1 to 1,6 : 1

The business appears to be in a good liquidity position. Both ratios showed an

improvement.
There is however, stock piling and poor collection from debtors. This could lead
to liquidity problems in the future.

*take into consideration the candidate’s calculation for acid test ratio. 6

1.3 Do you think that N. Yong is satisfied with his return on investment?
Explain. Quote TWO relevant financial indicators (with figures) to support
your answer.

Yes/No 
Quoting financial indicators with figures   comment 

Return earned by Yong : decreased from 48% to 45%

Return earned by Sung : improved from 57% to 61%
ROTCE : improved from 37% to 43%

Although Yong may be getting a return above the return earned by the
business, he may be disappointed with the decrease in his return compared to
the increase in Sung’s return.

Other factors: He has contributed more capital but he also has debit balance
on his current account.
*take into consideration the candidate’s calculation for percentage return
earned by Yong. 6

1.4 The partners want to expand the existing business and are considering
increasing the loan. What advice would you offer them? Support your
answer by making reference to TWO financial indicators (with figures).

Quoting financial indicators with figures   comment 

The debt/equity ratio improved from 0, 48: 1 to 0, 45: 1.

ROTCE : improved from 37% to 43 %

The business can afford to increase the loan as it is lowly geared. It is also
receiving a good return on capital employed (higher than Interest rate on
loans). There is positive gearing.

*take into consideration the candidate’s calculation for debt/equity ratio. 6

46 | ACCOUNTING SOLUTIONS |
GRADE 11: ACTIVITY 2:

MIDDLE POINT TRADERS

2.1 Calculate the following:

WORKINGS ANSWER
 Percentage mark-up on cost

65% 
One part correct
2 580 000 
4
 Operating expenses on sales

25% 
One part correct
3
 Total earnings of Middle

720 000  – 338 580  381 420 

(279 570 + 59 010) One part correct
4
 The percentage return earned by Point
(from above or from info)

102% 
One part correct

5
 The debt/equity ratio for 2017.

742 380  : 1 237 300  0,6 : 1 

One part correct 3

2.2 Comment on the liquidity of the business. Quote and explain TWO
financial indicators (with figures) in you answer.

Financial indicators (with figures)   Comment 

The current ratio improved from 1,2 : 1 to 1,4 : 1

The acid test ratio improved from 0,7 : 1 to 0,8 : 1

The business is experiencing liquidity problems – it does not have sufficient

cash to meet short term obligations. There is some evidence of stock-piling.
4

| ACCOUNTING SOLUTIONS | 47
2.3 Were the partners justified in increasing the loan? Explain. Quote TWO
financial indicators, and figures, in your explanation.

Yes/No 
Financial indicator with figures   Explanation 

The debt equity ratio moved from 0,1 : 1 to 0,6 : 1 (refer 2.1)
The business is making greater use of borrowed capital (loans).
An improvement on the return on capital employed (43% to 69%) shows that
the business is making effective use of the loan to improve profitability.
Interest on loan is 13% - positive gearing
4

2.4 Middle is not happy with his return on investment. Explain why you
think he feels this way. Quote figures.

Financial indicators with figures  Explanation 

Middle’s return has increased from 46% to 54%.

Point’s return increased from 81% to 102%.

He is probably unhappy because his return is almost ½ of Point’s (47%)

It was the same last year (43%)
He is the partner that has contributed more capital (650 000 : 325 000)
He manages his current account better (202 720 : 59 580)
4

48 | ACCOUNTING SOLUTIONS |
 RECONCILIATIONS

1. BANK RECONCILIATION

1.1 Calculate the correct balance of the Bank Account in the General Ledger
on 31 July 2016.
Provisional Bank balance R16 785
Cheque No. 186 + 450 
Interest income + 285
Bank charges – 950
Correction Cheque No. 374 – 3 600 
Theft of cash – 37 800
Correct Bank balance – 24 830 
One part correct

Favourable/Unfavourable: Unfavourable  8

1.2 Bank Reconciliation Statement as at 31 July 2016

Alternative DEBIT CREDIT

Balance as per bank statement (26 960) 26 960
Balancing figure
Outstanding deposit 27 180 27 180
Outstanding cheques:
No. 305 (8 400) 8 400
No. 401 (18 600) 18 600
Debit order erroneously debited 1 950 1 950
Balance as per bank account (24 830) 24 830
See 1.3.1

53 960 53 960 6

1.3 Explain ONE internal control measure that the business should
implement to ensure that this does not happen in the future.
Any valid internal control measure 

 Separation of duties – receipting, recording and depositing of cash must be done

by different employees.
 Rotation of duties – employees must be rotated weekly doing different cash
handling duties.
 Enforce the internal control measure over cash i.e. all cash received should be
deposited within one working day.
 Request SMS notification from bank when deposits are being done. 2

MARKS
16

| ACCOUNTING SOLUTIONS | 49
QUESTION 2

1. Indicate whether the following statements are TRUE or FASLE. Write only ‘true’
or ‘false’ next to the question number (i) – (iv) in the answer book.
(i) False
(ii) True
(iii) False
(iv) True
4
2. Calculate the correct totals for the Cash Receipts Journal and Cash
Payment Journal for July 2015.
Cash Receipts Journal Cash Payment Journal
146 970 68 900
1 800 1 300
12 340 920
600
50 000
161 110 121 720
12
3. Prepare the Bank Reconciliation Statement on 31 July 2015.
Debit Credit
Credit balance as per bank statement 44 040
Credit outstanding deposit 18 000
Debit outstanding cheques
 897 8 700
 905 1 200
 908 3 100
Debit balance as per bank account 49 040
Operation both total must be the same 62 040 62 040 11

4. Explain how cheque No. 908 should be treated when preparing the
financial statements as at 31 July 2015 the end of the financial year.

Increase bank  and increase creditors in the Balance Sheet notes.

Accept : Dr bank and Cr Creditors control 2

5. Refer to information G. The bookkeeper has decided to write off the

amount of R50 000.
 Which GAAP principle will the bookkeeper be applying?
 The bookkeeper wants to prevent a similar problem in future. Give
TWO suggestions to improve internal control in this regard.
Principle of prudence 
TWO valid suggestions  
 Division of duties
 Encourage EFT payments by customers / debtors
 All cash received must be deposited daily (deposit slip must agree to
receipts)
 Regular and timely check / monitor all large transaction 5

50 | ACCOUNTING SOLUTIONS |
 QUESTION 1: CREDITORS RECONCILIATION

1.1 Explain why the balance of the Creditors’ Control Account and the total of the
Creditors’ List should correspond.

ONE valid point 

 The Creditors’ Control Account is a summary of all the individual transactions in
the personal accounts of creditors in the Creditors Ledger
 It is prepared from the same documents, therefore the balance on the Creditors’
Control account must be equal to the total of the Creditors’ List 5

1.2
CREDITORS CONTROL CREDITORS LIST
DEBIT CREDIT DEBIT CREDIT
108 450 104 865
A. 1 080
B. (825 + 825)1 650
C. 405
D. (981 – 918) 63
 63
See creditors control
E. 810 810
F. 180 180
G. 1 260

BALANCE 105 513 BALANCE 105 513

12

QUESTION: 2
2.1.1 CREDITORS' LEDGER
CREDITORS' RECONCILIATION
STATEMENT
Balance 110 170 111 600
(a) -11 100 
(b) + 5 000 
(c) - 28 800 
(d) + 1 650 
(e) - 2 400 
(f) - 5 400  - 2 700/- 2 700 1 mark
(g) + 3 300 
(h) - 13 800 
- 1 380 
+ 44 400 
-15 180 two marks +29 220 three marks

106 620  106 620 14

| ACCOUNTING SOLUTIONS | 51
 2.1.2 State TWO internal control measures that the business can use to
prevent similar incidents from happening in future.
Any TWO relevant control measures  
 Division of duties / rotate duties. (Pearl must not be the only person
responsible for ordering and recording goods.)
 Have special order forms to be signed by two people.
 Check documents regularly against deliveries.
 Do regular/random stock counts to verify stock records 4

QUESTION 3: CREDITORS RECONCILIATION:

CREDITORS LEDGER
NO. STATEMENT
ACCOUNT
BALANCE 5 350 12 540
i 540 
ii (4 200 X 2) 8 400 
iii 4 000 
iv (250) 
v (2 500) 
TOTAL 14 040  14 040 
9

QUESTION 4:CREDITORS' RECONCILIATION

ACCOUNT OF
EGOLI SUPPLIERS IN STATEMENT RECEIVED
CREDITORS' LEDGER OF VIVA FROM EGOLI SUPPLIERS
TRADERS
Balance R10 705 R19 120
A +1 080 
B +375 
C - 200 
2 160 + 2 160
D +4 320
E - 5 000 
15 200 
Final balance 15 200 9

52 | ACCOUNTING SOLUTIONS |
DEBTORS RECONCILIATION -SOLUTION 1

1.1 TRUE OR FALSE

1.1.1 True 
1.1.2 False 
1.1.3 False 
3

1.2 MIZZY BOUTIQUE

Use the table provided to indicate corrections that must be made to the
Debtors' Control Account and the debtors' list.

Provide figures and a plus (+) or minus (–) sign for each correction.

Debtors' Control Debtors' List

Account
Balance/Total on R37 710 R39 490
28 February 2017
(a) + 7 440  + 7 440 
(b) – 4 500 
+1360 +1360
(c) one mark one mark
+ 2 720 
(d) + 1 350  + 1 350 
(e) – 450  – 450 
(f) + 1 950  + 1 950 
Balance/Total on R48 000  R48 000
28 February 2017 for both totals
13

| ACCOUNTING SOLUTIONS | 53
DEBTORS AGE ANALYSIS –SOLUTION 2
A. ARMSTRONG
DATE RECEIPTS/ AMOUNTS CLOSING TOTAL DEBITS
BALANCE (Cr sales and other Debits)
DISCOUNTS/
RETURNS May June July
Balance and 1 800 1 600 2150 1960
Sales
May Payment 1050 (1050)
received
Cr Note- 200 (200)
Returns
July Payment 1500 (750) (750)
Received
NIL 650 2150 1960
60 days 30 days current

NOTE:

The figures in the first row of the entries represent the Opening balance and Credit Sales for
May, June and July.

Payment received in May includes a discount of R50, i.e. R1000 + R50 =R1050,
alternatively, the discount can be separated from the payment.

The goods were returned in May and these goods are subtracted from credit sales for May.

1. Credits sales for June includes interest charged on overdue account, i.e. R2100 + R50
= R2150.

2. Credit sales for July includes interest charged on overdue account, i.e. R1900 + R60 =
R1960.

3. At the end a total is displayed for the balance and each ageing period.

Name of debtor Bal Current 1 month 2 months 3 More than

amount (30 days) 60 days months 3 months
90 days
A. Armstrong 4 760 1 960 2 150 620 Nil Nil
% of Total 41.1% 45.2% 13,7%

1. A Armstrong’s account is within the credit limit of R5 000 and the credit term of 60
days.

2. A . Armstrong meets his credit and there is no problem about his account.

3. P David does not envisage any danger of bad debts because A. Armstrong pays
his account regularly.

54 | ACCOUNTING SOLUTIONS |
DEBTORS AGE ANALYSIS –SOLUTION 3
3 GLENDALE TRADERS

3.1 Explain how a debtors' age analysis can assist with internal control over
debtors.
Any ONE valid point. 
 Gives an indication of debtors whose accounts are overdue.
 The analysis will give a clear idea of reliable debtor.
 Assist the business to review credit limits allowed to debtors.
 Assist the business when to refuse additional credit sales until accounts are
paid. 2

3.2 Calculate the percentage of total debts exceeding the credit terms.

16 640 two marks

14 560 + 2 080  x 100 = 40%  one part correct
41 600 4

3.3 Explain ONE problem (with figures) relating to EACH of the following
debtors:
DEBTOR PROBLEM   FIGURES 
D Pillay Exceeding the credit limit of R10 000.
(amount owing is R11 800)/ Exceed with R1 800

Exceeded credit terms. Balance of R11 192 is more than

W Patel
30 days. 4

3.4 Explain TWO problems (with figures) relating to debtor D Gouws.

TWO valid points (with figures).   part marks for incomplete answer

 Exceeding credit terms/slow payer (5 448/13 450) 40,5% of his account is

more than 30 days
 The business allowed him to buy R4 100 more goods even though he does
not pay on time.
4

14

| ACCOUNTING SOLUTIONS | 55
QUESTION 4
4.1 BANK RECONCILIATION AND INTERNAL CONTROL

4.1.1 Calculate the correct bank balance on 30 June 2015.

Accept workings placed

Cash Receipts Journal Cash Payments Journal
directly in the calculation
(figures only) (figures only)
below CRJ&CPJ
Ignore R2 300 unless it
87 220 74 860
is a foreign entry
 21 000 *OR: 7900 in CRJ * 1 800
& 9700 in CPJ
 10 500 Both essential: 2 marks  6 500
8 960: 3 marks
8750 / 6710 / 2460: 2  2 250
marks
Ignore R7 000 & R25 500  210
118 720 Foreign items -1 (max -2) 85 620

Bank balance on 30 June 2015: 13

33 100 2 method marks
See CRJ total See CPJ total
– 2 300  + 118 720  – 85 620 = 30 800  one part correct
OR: – 2 300 + 87 220 – 74 860 + 21 000 + 10 500 – 1 800 – 6 500 – 2 250 – 210 =
30 800

4.1.2 Bank Reconciliation Statement on 30 June 2015

Alternative Debit Credit
Balance per Bank Statement R20 400 Balancing figure R 20 400 
Could be Dr / Cr
Credit outstanding deposit 18 500 18 500 
Debit outstanding cheques: Could use –
signs
No. 962 (4 500) R 4 500 
No. 982 (2 200) 2 200 
No. 986 (1 400) 1 400 
Balance as per Bank Account 30 800 30 800  See 1.1.1
38 900 38 900
-1 incorrect / no details (max -2) Foreign entries -1 (max -2)
For 2-column method with no Debit/Credit indicated, assume left=Debit and right=Credit.
For 2-column method with Credit/Debit indicated, mark according to indication.
For 2-column method with brackets used, do not accept brackets/negatives in any column. 8

56 | ACCOUNTING SOLUTIONS |
4.1.3 Refer to Information E. Identify TWO separate problems with evidence from
the information. Give advice for EACH problem.

PROBLEM WITH EVIDENCE ADVICE

Theft / Fraud / Error/ Internal control Check that the total of cash slips agree to
measures are lacking. Some of the the total of the deposit slip. 
cash slips (R7 000) have not been Specific advice required based on evidence.
deposited / recorded.

Problem Evidence  Figures not

required
Rolling of cash / The deposit occurs Cash collected must be deposited
much later after receipt of cash (15 immediately / Sales person must not
days). deposit cash / Divide duties 
Specific advice required based on evidence.
Problem  Evidence 
Figures not required 6

| ACCOUNTING SOLUTIONS | 57
4.2 DEBTORS' AGE ANALYSIS
4.2.1 As the internal auditor, what concerns would you have over
Susan's job description? Explain.
Any ONE valid point  Incomplete / unclear answer: 1 mark

For 2 marks:
 Lack of division of duties negatively affects internal control.

 Susan is the only person dealing with invoicing and receipt of

cash.

 Nobody is checking Susan's work.

For 1 mark:
 Division of duties / Internal control 2

4.2.2 Identify TWO debtors who could have their credit limits
increased.
Pillay 
Crooks  -1 for superfluous name (max -2)
2

4.2.3 Explain THREE different problems reflected by the Debtors' Age

Analysis. Give evidence to support your answer.
There must be 3 separate problems i.e. Payment periods + Credit
limits + Selling to those who are not settling previous debts
Part-marks for partial answers / partially correct answers
Explanation of problem with evidence
Problem 
Slow payers / Non-payers / Lack of adherence to time
terms / Possibility of bad debts / Bad
Problem Evidence  Specific evidence required i.e. names or
1 figures
Some debtors (37% / 18% / 19%) are taking longer than
30/60/90 days to settle debts / (e.g. Muller / Vasco /
Aucamp)
Problem 
Credit limit / Not adhering to credit limit / Bad internal
Problem control of credit limits
2 Evidence  Specific evidence required i.e. names or
figures
Muller is R2 000 over the limit
Problem 
Sales continue to be made to debtors whose accounts are
overdue / Bad control of sales to debtors
Problem
Evidence  Specific evidence required i.e. names or
3
figures
Aucamp / Ndlovu were allowed to buy even though they
have debts which are 60 / 90 days old 9

MARKS : 40

58 | ACCOUNTING SOLUTIONS |
RECONCILIATIONS -SOLUTION 5
(If answers are in brackets, assume it is negative)
5.1 Reconciled Debtor’s List on 28 February 2015
Previous Calculation Correct
balance balance

Baker House 65 000 +2 300  68 925 

+ 1 625 

Gorgeous Baker 37 000 -2 300  13 075 

– 19 400 
-600 
– 1 625 

Handsome Chef 28 000 28 000 

Crispy Cook (Credit) + 19 400  0

14
20 000 + 600 

Correct total of list of debtors 110 000 

5.2.1 Calculate the Bank Statement balance on 31 January 2015.

Indicate whether it was a favourable or unfavourable balance. 7
17 870 2 marks 11 450 3 marks
15 870 + 2 000 – 7 450 – 3 500 – 500 = 6 420 
OR
-15 870 - 2 000 + 7 450 + 3 500 + 500 = - 6 420 
Unfavourable  OR
Bank reconciliation statement
? Balance according to the Bank statement 6 420
Credit outstanding deposit 15 870
Debit outstanding cheques:
857 7 450
1284 3 500
1297 500
Credit balance according to the Bank acc 2 000
17 870 17 870

| ACCOUNTING SOLUTIONS | 59
 5.2.2 One of the cheques was wrongly handled on the Bank
Reconciliation Statement. Identify the cheque and provide a 6 2
reason.
What entry should be made in the general ledger to correct the
error?
Cheque number:
857 

Reason:
Stale cheque. 

Correction:
Debit:  Bank  and credit:  (Donation / Any expense / Payment /
Creditors Control / Debtors Control / any liability).

How would cheque number 1297 be handled in the financial

statements if the financial year ends on 28 February 2015?

Add to Bank if favourable / subtract from Bank if unfavourable

OR
Add to cash and cash equivalents
(Not debit Bank)

Add to Creditor’s Control 

OR
Add to trade and other payables
(Not credit Creditor’s Control) 2

TOTAL
29

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