2019 ACCOUNTING FACILITATORS GUIDE final

ACCOUNTING FACILITATORS GUIDE 2019 – 2021 Teacher Development Implementation National Institute for Curriculum and Professional Development(NICPD)

FACILITATOR’S GUIDE MODULE 1 FIXED ASSETS (Tangible Assets) ASSESSING PRIOR KNOWLEDGE Introduction:  With reference to the PRE-AMBLE, place this topic in context.  Recap the ACCOUNTING CYCLE and the extended ACCOUNTING EQUATION  PRESENTATION BASELINE ACTIVITY 1: Analysing Transactions No Account Debited Account credited Assets Equity Liabilities 1. Equipment Bank + 4 500 + 4 500 2. Vehicle Creditors Control +210 000 +210 000 3. Land and Buildings Bank +220 000 +220 000 Repairs bank - 40 000 + 40 000 BASELINE ACTIVITY 2: Calculating Depreciation Vehicles are depreciated at 20% on cost (straight line method) CURRENT ACCUMULATED CARRYING VEHICLES COST PRICE DEPRECIATION DEPRECIATION VALUE Purchased on 1 July 2016 R360 000 On 30 June 2017 360 000 72 000 72 000 288 000 On 30 June 2018 360 000 72 000 144 000 216 000 On 30 June 2019 360 000 72 000 216 000 144 000 Equipment is depreciated at 25% on carrying value (diminishing balance method) CURRENT ACCUMULATED CARRYING EQUIPMENT COST PRICE DEPRECIATION DEPRECIATION VALUE Purchased on 1 July 2016 R200 000 On 30 June 2017 200 000 50 000 50 000 150 000 On 30 June 2018 200 000 37 500 87 500 112 500 On 30 June 2019 200 000 28 125 115 625 84 375 GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 1

BASELINE ACTIVITY 3: Basic Ledger Accounts 1.1 Calculate: Depreciation on Equipment Old: 174 000 x 20% = 34 800 New: 18 000 x 20% x 11/12 = 3 300 32 000 x 20% x 9/12 = 4 800 Total: 42 900 1.2 ACCUMULATED DEPRECIATION ON EQUIPMENT B7 2018 Mar 1 Balance 62 000 2019 Feb 28 Depreciation 42 900 104 900 DEPRECIATION (N10) 2019 Accumulated 2019 28 42 900 28 Profit and loss 42 900 Feb Depreciation on Equip Feb 42 900 42 900 BASELINE ACTIVITY 4: Calculation, Fully Depreciated Asset 480 000 x 20% = 96 000 Carrying value of vehicle: 480 000 – 408 000 = 72 000 Therefore, to retain R1 carrying value for recording purposes, The maximum amount to be written off is 72 000 – 1 = R71 999 2 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

ACTIVITY 1 1.1 WORKINGS ANSWER (i) Current Depreciation 1 980 (40 000 – 26 800) x 20% x 9/12 (ii) Asset Disposal amount: Accumulated Depreciation 28 780 26 800 + 1 980 (iii) Remaining Depreciation at financial year end. (345 000 – 40 000) – (176 000 – 26 800) x 20% 31 160 305 000 149 200 1.2 ASSET DISPOSAL (N12) 2018 2018 Accumulated Depr on 1 Equipment 40 000 1 28 780 Dec Dec equipment Debtors control 10 000 Loss on sale of asset 1 220 40 000 40 000 1.3 Provide a suitable reason for the equipment being disposed (sold). The asset is no longer in use Upgrade due to technology Face-lift; improving the image of the company/business. BASELINE ACTIVITY 5: Understanding the Fixed Asset Note Fixed Asset note LAND AND EQUIPMENT TOTAL BUILDINGS Carrying value on 1 March 2018 4 200 000 780 000 4 980 000 Cost 4 200 000 1 260 000 5 460 000 Accumulated depreciation 0 480 000 480 000 Movements 811 000 Additions 800 000 230 000 1 030 000 Disposals 0 (38 000) (38 000) Depreciation (181 000) (181 000) Carrying value on 28 February 2019 5 000 000 791 000 5 791 000 Cost 5 000 000 1 370 000 6 370 000 Accumulated depreciation 0 (579 000) (579 000) GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 3

ACTIVITY 2 2.1 ASSET DISPOSAL (N12) 2018 2018 Accumulated Depr on 1 Equipment 95 000 1 48 450 Jun Jun equip (95 000 – 46 550) Profit on sale of asset 3 450 Creditors control 50 000 98 450 98 450 2.2 WORKINGS ANSWER (i) 1 650 000 – 1 270 000 380 000 (ii) 390 000 + 470 000 860 000 (iii) 1 110 000 – 860 000 250 000 (iv) 250 000 x 15% x 4/12 = 12 500 141 500 860 000 x 15% = 129 000 2.3 Show the amount/s (and details) that will be reflected on: DETAILS AND WORKINGS AMOUNT The Income Statement: Depreciation: Vehicles: 141 500 Equipment: 207 100 380 000 + 120 000 – 46 550 – 387 850 65 600 Carrying value: 46 550 Trade-in value: 50 000 3 450 Profit on disposal The Balance Sheet Non-current assets Fixed assets at carrying value 2 236 350 1 270 000 + 387 850 + 578 500 (470 000 + 250 000 – 141 500) 4 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

ACTIVITY 3 3.1 WORKINGS ANSWER (i) 4 180 000 – 3 680 000 500 000 (ii) Depreciation: 360 000 x 20% x 9/12 = 54 000 167 600 568 000 x 20% = 113 600 (iii) 420 000 + 167 600 587 600 Or: 1 348 000 – (568 000 + 360 000 – 167 600) 3.2 ASSET DISPOSAL (N12) 2019 2019 Accumulated Depr on 31 Equipment 21 000 31 12 250 Jan Jan Equip (7 875 + 4 375*) Bank 1 000 Loss on disposal 7 750 21 000 21 000 *21 000 x 25% x 10/12 3.3 As internal auditor, state TWO concerns you would raise with the board of directors. Provide reasons in each case. CONCERN REASON Property value is always appreciating Selling of fixed property at cost The company could have made a profit The loss is large. The CEO has used his Disposal of asset to CEO influence to take over an asset. GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 5

SPECIFIC CASES OF FIXED ASSETS INTEGRATED: Example 1: Amounts for the Income Statement: Profit/Loss on sale of asset: 1 125 85 000 – (76 500 + 2 125) = 6 375 (Carrying value) Profit Received R 7 500 – 6 375 Operating Income Depreciation: 66 625 85 000 x 15% x 2/12 = 2 125 470 000 – 85 000 x 15% = 57 750 180 000 x 15% x 3/12 = 6 750 Example 2: Amounts for the Income Statement: Loss on equipment stolen 630 (6 300 – 3 780) x 25% Depreciation 43 500 *theft was at the end of the financial year. Example 3: Amounts for the Balance Sheet: Vehicles: 340 000 + 152 000 – 67 600 = 424 400 Equipment: 620 800 230 000 – 17 000 – 16 600 = 196 400 (230 000 – 147 000) x 20% = 16 600 Example 4: Cost of additional delivery vehicles: 8 710 000 + 212 800 + 418 500 – 918 500 – 7 630 000 792 800 CASH EFFECTS OF INVESTING ACTIVITIES (1 798 500) Fixed assets purchased (918 500 + 792 800) (1 711 300) Proceeds from sale of fixed assets 212 800 Change in fixed deposit (200 000 – 500 000) (300 000) 6 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

MODULE 2 INVENTORY VALUATION (Stock Valuation) Activity 1 1. Calculate the value of closing stock on 30 June 2019 using the FIFO method of stock valuation. (360 + 600+ 840 – 40) – 1740 = 20 x R135 = R2 700 2. Calculate the value of closing stock on 30 June 2019 using the weighted average method of stock valuation. 43 200 + 78 000 + 113 400 – 5 400 360 + 600 + 840 – 40 229 200 1 760 = R130,23 x 20 = R2 605 (OR 2 604,55) ACTIVITY 2 4 x R13 000 R52 000 15 x R19 000 R285 000 1 x R15 000 R15 000 Closing stock R352 000 GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 7

ACTIVITY 3 3.1 Total purchases Feb. 500 x R480 = R240 000 Total: 280 000 + 350 000 + 240 000 = R870 000 Total carriage Nov. 700 x R20 = R14 000 Total: 16 000 + 14 000 +10 000 = 40 000 Value of closing stock = 30 000 + (870 000 – 35 000) + 40 000 100 + (2 000 – 100) = 905 000 2 000 R452.50 x 600 = R271 500 3.2 Calculation of Cost and Sales and Gross Profit Sales 2 800 000 Cost of sales (905 000 – 271 500) (633 500) Opening stock 30 000 Purchases 835 000 Carriage on purchases 40 000 Closing stock (271 500) Gross profit 2 166 500 3.3 Comments: Description FIFO Weighted average Closing Higher closing stock value of Lower losing stock value of stock value R302 000 because actual stock R271 500 because the average values of stock of hand is used cost of closing stock is used. Significant price changes affect the average price and could give an unrealistic closing stock value. Cost of sales Lower cost of sales R603 000 Higher cost of sales R633 500 because of higher closing stock because of lower closing stock value value Gross profit Higher gross profit of R2 197 000 Lower gross profit of R2 166 500 because of lower cost of sales because of higher cost of sales value value 8 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

3.4 Do you think that the owner should change from using the weighted average method to using the FIFO method? Provide TWO reasons (with figures). Table calculating the number of units that should be on hand Opening stock (units) 600 Units purchased 2 800 Units returned (150) Units sold (2 750) Number of units that should be on hand 500 According to a stock take, the business only has 450 units left over but there should be 500. This means that 50 units have gone missing. He should put stricter measures in place to avoid theft, such as:  Do regular stock counts.  Place theft-detecting devices at the shop and staff entrances and exists.  Keep proper accounting records of transactions.  Tighten up on security in the shop.  Goods received must be checked against invoices received.  Stock must be kept in a safe and secure environment.  Place theft-detecting tags on all items.  Exercise better internal control of stock.  Divide duties among different staff members.  Do regular internal audits on stock.  Only authorised staff members should enter stockroom. ACTIVITY 4: 4.1 Calculate the stock values that will appear in the Balance Sheet. Show all workings using the number of units and the appropriate unit value. Leather boots (use the weighted average method) 265 600 + 1 064 600 + 26 000– 24 300 . 160 + 660 - 15 = 1 331 900 805 = R1 654,53 Balance Sheet: R1 654,53 x 300  = R496 359 (any one part correct) 9 GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 9

Belts (use the FIFO method). 130 X (55 X 11,90) = 85 085 110 X (60 X 14,00) = 92 400 240 X 30 (carriage) = 7 200 240 X R50 (Import duty) = 12 000 TOTAL = 196 685 (if any one part correct) 5 4.2 Calculate the following for the belts: Cost of sales Opening stock 75 900  Purchases 255 695  Carriage on purchases (30 X 360) 10 800  Customs Duty 18 000  Less: Closing stock (See 4.1) (196 685)  COST OF SALES 163 710  (check operation) 6 Gross profit (See 4.2) 198 000 – 163 710  = R34 290 (any one part correct) 3 Mark-up % achieved 34 290  x 100 163 710  1 = 21 % (20.94%)  (any one part correct) 3 Stock turnover rate 163 710  ½ (75 900  + 196 685 ) = 11,9/ 12 times (any one part correct) 4 10 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

Stock holding period in days    ½ (75 900 + 196 685) X 365 OR ½ (75 900 + 196 685) x 12 163 710  163 710 = 303,9 days  = 9,9 /10 months 5 4.3 Hildah suspects that a number of belts have been shop-lifted. Calculate the number of belts stolen.     120 + 360 – 240 - 180 = 60  (one part correct) 5 5 INVENTORY VALUATION 5.1 (a) Calculate the closing stock of Johx watches on 31 August 2015. 1 x 6 500 5 x 6 800 2 x 7 300 3 x 7 800 6 500  + 34 000  + 14 600  + 23 400  = 78 500  (b) Calculate the cost of sales of Johx watches for the year ended 31 August 2015. OR 330 000 two marks 78 000  + 252 000  – 78 500  (see above) 71 500 (11 x 6 500) 68 000 (10 x 6 800) = 251 500  One part correct 73 000 (10 x 7 300) 39 000 (05 x 7 800) OR 251 500 440 125 x 100/175 = 251 500 (1 mark) (2 marks) (1 mark) GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 11

5.2 (a) Calculate the closing stock of Kwatz watches for the year ended 31 August 2015. 304 150 (3 marks) 32 300 + 259 900  + 11 950  95 + 675  770 (2 marks) = 395 395 x 92  = 36 340  One part correct (b) Calculate the sales of Kwatz watches on 31 August 2015. (770 – 92) = 678 (units sold) 678 x R520 = 352 560 One part correct QUESTION 6 INVENTORY VALUATION 6.1 Explain the difference between the perpetual stock system and the periodic stock system. Any valid difference with comparison  Expected responses: Perpetual stock system Periodic stock system Cost of sales calculated at point of sale Cost of sales calculated at end of financial period Stock value can be determined/ identified Stock value determined/identified by stock at any time (from records) count Cost of sales account used Purchases account used Stock bought regarded as an asset Stock bought regarded as an expense . 6.2 Calculate the value of the stock on hand on 28 February 2015 using the weighted-average method. 1 mark only 346 800 + 3686 400 [150 1 mark X 1 200 1 mark] 1 mark R4 033 200  – R180 000 x 650  = 3 853 200 4 marks x 650 300 + 3 230 – 150  if subtracted 3 380 3 marks 7 marks 1 mark = 1 140 x 650 = R741 000  one part correct 6.3 Calculate the value of the closing stock using the FIFO method.    one part correct R632 400 + (140 x R1 200) = R800 400 168 000 3 marks 12 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

6.4 Give ONE reason in favour of changing to the FIFO method.  Incomplete / unclear reason: 1 mark  Gross profit will be higher because closing stock would be higher  Jackets are discrete products / Easy to count or identify jackets individually  Value of jackets is continuously changing and valued at more recent/realistic prices Give ONE reason against changing to the FIFO method.  Incomplete / unclear reason: 1 mark  No need to change as profit will be the same in the long-term  Unethical to manipulate the profit by changing the method of stock valuation  Tax would increase in first year as a result of increased profit  The change would affect comparisons across financial years GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 13

MODULE 3 INTERPRETING FINANCIAL STATEMENTS ACTIVITY 1: Identifying Financial Statements Identify the relevant financial statement where you will find the following information. Total amount owing to creditors BALANCE SHEET Total amount of the loan either received or paid. CASH FLOW STATEMENT Unissued number of shares. NOTES: BALANCE SHEET Income tax expense for the financial year INCOME STATEMENT BALANCE SHEET NOTE Amount received for the issue of new shares CASH FLOW STATEMENT Total cash paid to shareholders in respect of dividends CASH FLOW STATEMENT The portion of the loan that must be paid in the next financial year. BALANCE SHEET Total amount paid to SARS for Income tax CASH FLOW STATEMENT Gross profit for the year INCOME STATEMENT BALANCE SHEET NOTE Fixed assets purchased during the financial year CASH FLOW STATEMENT ACTIVITY 2: Adjustments NO ACCOUNT DEBITED ACCOUNT CREDITED WORKINGS / AMOUNT (i) Debtors control Sales 2 430 Cost of sales Trading stock 1 620 (2 430 x 100/150) (ii) Bad debts Debtors control 980 Provision for bad debts Provision for bad debts adj 34 550 + 2 430 – 980 = 36 000 36 000 x 5% = 1 800 = 2 000 200 (decrease) 88 200 – 1 620 – 84 830 (iii) Trading stock deficit Trading stock 1 750 Consumable stores on hand Packing material 920 (iv) Prepaid expenses Insurance 6 660 x 4/12 = 2 220 (v) Audit fees Accrued Expenses 21 920 x 20/80 = 5 480 (vi) Directors fees Accrued expenses 249 750/25 = 9 990 (vii) Rent income Deferred income 59 310 x 106/1 318 = 4 770 14 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

4.2 Amounts that will appear in the Income Statement AMOUNT Sales (555 000 + 2 430 557 430 Cost of sales (370 000 + 1 620 371 620 Bad debts (7 120 + 980) 8 100 Provision for bad debts adjustment 200 Income Treading stock deficit 1 750 Expense Consumable stores (22 670 – 920) 21 750 Insurance (20 160 – 2 220) 17 940 Audit fees (21 920 + 5 480) 27 400 Directors fees (249 750 + 9 990) 259 740 Rent income (59 310 – 4 770) 54 540 ACTIVITY 3: Using Financial Indicators to complete the Income Statement Incomplete Income Statement: Sales 7 612 500 Cost of sales 7 612 500 x 100/175 (4 350 000) Gross profit subtract 3 262 500 Operating income 7 612 500 x 16% 1 218 000 Gross operating income add 4 480 500 Operating expenses GOI – OP (2 805 750 Operating profit 22% x 7612 500 1 674 750 Interest income 22 250 Profit before interest expense add 1 697 000 Interest expense Balancing figure (97 000) Net profit before income tax 448 000 x 100/28 1 600 000 Income tax (448 000) Net profit after income tax subtract 1 152 000 GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 15

BALANCE SHEET FORMAT SUN LTD BALANCE SHEET on 28 FEBRUARY 2018 ASSETS Notes NON-CURRENT ASSETS Fixed/tangible assets 3 Financial assets 160 000 CURRENT ASSETS 1 820 000 Inventories 4 956 000 5 Cash and cash equivalents 6 2 500 TOTAL ASSETS EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY 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 16 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

ACTIVITY 4: Using financial indicators to complete a Balance Sheet Current assets 2 016 000 Inventories 924 000 Trade and other receivables 1 006 000 Cash and cash equivalents 86 000 EQUITY & LIABILITIES Ordinary shareholders’ equity 9 500 000 Ordinary share capital 8 825 000 Retained income 675 000 Non-current liabilities Loan 950 000 Current liabilities 840 000 Trade and other payables 704 000 Shareholders for dividends 136 000 ACTIVITY 5: Cash Flow Calculations NANDI LTD 5.1 CASH GENERATED FROM OPERATIONS Net profit before income tax 286 000  Add: Depreciation 127 300  Interest paid 21 000  Operating profit before changes in working capital 434 300  Changes in working capital 18 200  Inventories 35 400  Trade and other receivables (5 300)  Trade and other payables (11 900)  452 500  (12) GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 17

5.2 Calculate the following: 5.2.1 Income tax paid 23 000  + (286 000  – 214 500 ) + 2 200  = 96 700  (5) 5.2.2 Dividends paid 24 000  + 86 000  – 36 000  = 74 000  (4) 5.2.3 Fixed assets purchased 987 500 + 32 800  + 127 300  – 837 600  = 310 000  (5) 5.2.4 Proceeds from new shares issued 50 000 x R5,00 = 250 000  (2) 5.2.5 Payment for the re-purchase (buy back) of shares. 982 000  + 250 000  – 1 100 000  = 132 000 + 123 400  = 255 400  (5) 5.2.6 Net change in cash and cash equivalents. (12 400 – 2000)  + 7 800  = 18 200  (3) ACTIVITY 6: Interpreting Financial indicators REQUIRED: 6.1 Comment on the profitability (operating efficiency) of the business. Quote and explain TWO relevant financial indicators (with figures). (6) An increase in the mark-up % (gross profit on cost of sales) has caused a decrease in the % GP on sales (32% to 28%); NP after tax also decreased by 3%; operating expenses was not well controlled. Increased from 31% to 36%; operating profit dropped from 21% to 16%. 6.2 Directors feel that the business will experience difficulty in meeting its short term debts in the next financial year. Explain why you either agree or disagree with them. Quote THREE financial indicators with figures to support your opinion. (9) Current ratio increased (2,8:1 to 3,6:1); Acid test ratio dropped (0,7 : 1 to 0,5 : 1); a clear indication on stock not moving (stock piling) ; also reflected by the decrease in the STR from 5 times to 3,7 times. 18 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

6.3 Although shareholders are satisfied with their % returns, they are concerned about the change in dividend pay-out policy.  Explain why they are satisfied with their returns.  Provide TWO possible reason for the change in the dividend pay-out rate. (6) ROSHE: Although it decreased (from 18% to 16%) it is still better than any alternative investments such as a fixed deposit which fluctuates around 8%. Last year the company distributed 81,5% of the EPS as DPS. This year it was only 49%. An indication that the company has decided to retain a greater portion of the earnings. They wanted to use the resources for future expansions of the business They plan to address cash flow issues. Equalization of dividends, over the long term 6.4 The directors took the decision to increase the loan during the year. Explain why this was a poor decision. Quote relevant financial indicators in your explanation. (8) An increase in the financial risk. Debt/Equity increased from 0,3 : 1 to 0,6 : 1 The ROTCE dropped from 14% to 12%. It is now less than the interest on loan (13%) Meaning that the company is negatively geared. 6.5 The company paid R3,50 per share to repurchase 50 000 shares during April 2018. This was R0,75 above the average share price. Explain whether the shareholder received a fair price for his shares. Quote TWO financial indicators with figures. (6) He received more than the NAV which is now 335 cents. It is also higher than the NAV at the beginning of the year (346 cents). It is also close to the market price at the end of the year (347 cents; 350 cents last year) Looking at trends, although the NAV is declining, the MP is increasing; an indicator of investor confidence. GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 19

ACTIVITY 7: Dividend pay-out rate and Majority Shareholding 7.1 Calculate H. Haw’s percentage shareholding before and after the issue of additional shares on 30 June 2018. Before: 350 000/650 000 = 53,8%  After: 333 000/850 000 = 41,2%  7.2 Explain why Haw would be disappointed that he was not able to purchase any additional shares when these shares were issued. He lost his status as a majority shareholder.  As the majority shareholder, he was able to influence many decisions, including appointments of key directors.  7.3.1 Explain the effect of this re-purchase on Haw’s % shareholding. The total number of shares would decrease from 850 000 to 690 000 shares  Haw’s % shareholding: 350 000/690 000 = 50,7%  7.3.2 Explain why the other shareholders would be concerned about this transaction, once they received inside information about the share buyback. Ethical issue He has used his position (senior director) to influence the re-purchase of shares He wants to regain his majority status. 7.4 Show the change on the dividend pay-out rate by doing a calculation. 2018: 58/112 = 51,8%  2019: 84/98 = 85,7%  7.5 Provide TWO possible reasons why the directors decided to change the trend of previous year. To satisfy shareholders, who may be concerned about the decrease in profitability. They have no strategic plans for growth They in the process of balancing the dividends distributed over the last 5 years. 20 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

7.6 Will the shareholders be satisfied with this change on policy? Provide TWO points. The short-term investor who is looking for improved dividends as his returns on investment would be dissatisfied. The long term investor would consider the growth of the company and the possibility of better dividends over a longer period. Cash Flow Statement: Example: 3.1 Calculate the amount spent to purchase fixed assets in 2019 2 042 700 + 160 000 + 64 300 – 2 167 000 = 100 000 3.2 Calculate the change in the fixed deposit. Indicate if this is an inflow or outflow of cash. 80 000 + 100 000 – 160 000 = 20 000 ; inflow. 3.3 Calculate the net change in cash and cash equivalents in 2019. Net change in cash and cash equivalents 956 000 Cash and cash equivalents at beginning (69 000)* Cash and cash equivalents at end 887 000 * closing balance of last year is opening balance of this year. 3.4 Identify ONE decision that directors took last year that they did not take this year and ONE decision they took this year, and not last year. 2018: Shares bought back, 240 000 2019: Fixed assets sold at carrying value, 160 000 GRADE 12 ACCOUNTING | FACILITATORS GUIDE | 21

3.5 Identify TWO decisions revealed by the Cash Flow Statement taken last year, and explain the consequences of these decisions. DECISION CONSEQUENCE Fixed Assets purchased, R520 000 Intention to improve productivity. May have contributed to profitability in the next year Shares bought back, R240 000 Impact negatively on cash resources Company was to do solvency and liquidity tests before repurchasing Increase in the loan, R500 000 Increase in risk, debt/equity ratio Attempt to address cash flow situation Money used to purchase fixed assets Large dividend payment 3.6 Comment on the impact of the decisions regarding financing activities over the two year. Mention the overall effect on the total capital employed. DECISION IMPACT Shares were issued in 2019, R400 000 The loan received last year showed no impact on the Loan was repaid, R150 000 whereas, operating activities (low profitability), it was possibly R500 000 was taken out last year. negative gearing, causing directors to start repaying. New shares issued did not impact on interest charges, possible used to pay back the loan. The overall impact on capital was not significant (260 000 last year compared to 250 000 this year) The major influence last year was the increase in loan, contributing to greater risk. SE increase in the current year would contribute to reducing the risk factor in terms of debt/equity ratio. 3.7 Comment on the change on CCE from 1 July 2016. The company had a favourable cash balance of R99 000. Poor decisions (explained above) led to a net decrease in CCE, of R168 000 Corrective actions implemented in the current year led to a positive change of R956 000. 22 | GRADE 12 ACCOUNTING | FACILITATORS GUIDE

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