Accounting Grade 12 Paper 1 GAU June 2023 Question Paper

Downloaded from hlayiso.com JUNE EXAMINATION G �j.."; :-- .;:, TIME: 2 hours ACCOUNTING Pl MARKS: 150 11111111111111111 IIIII 11111 1 1111 llmnorephys ics (2 711 E ......___ 13 pages+ 1 formula sheet X05 1 11 1 1 1 1 Please turn 01•er

Downloaded from hlayiso.com Downloaded from Stanmoreph G-6i3ffi m 2 L:i (� ) ______!M�A�► �i�IL__...J lNG I_ P AP E R 1 ..:. .: ..: :.: ..:....: :... �•�rn�;,.. INSTR UCTIONS AND INFO R MATION Read the follow ·. • tructions carefully and follow them 1 1. Answer AL questions. 2. A special ANSWER BOOK is provided in which to answer ALL the questions. 3. A Financial Indicator Formula Sheet is attached at the end of this question paper. 4. Show ALL workings to achieve part-marks. 5. You may use a non-programmable calculator. 6. You may use a dark pencil or blue/black ink to answer the questions. 7. Where applicable, show ALL calculations to ONE decimal point. 8. Write neatly and legibly. 9. Use the table below as a guide when answering the question paper. Try NOT to deviate from it. QU E STION TO P IC MAR KS MINUTES 1 Statements of Comprehensive Income and Financial Position 65 52 2 Cash Flow Statement and Financial Indicators 40 32 Interpretation of Financial Statements 3 35 28 and Audit reports 4 Corporate Governance 10 8 TOTAL 150 120 �> �� J� 6AUTUtG l'ftOYINg Please tum over

Downloaded from hlayiso.com Downloaded from Stanmorephysy ing 3 (PAPER 1) QUESTION 1: FINANCIAL STATEMENTS (65 marks; 52 minutes) 1.1 Choose ONE.concept for each of the following descriptions. Write only the words next-tothe question numbers (1.1.1 to 1.1.3) in the ANSWER BOOK. Netisalary; Operating efficiency; Non-current asset; Gross salary; Current asset; Risk and gearing 1.1.1 Consumable stores on hand are a... 1.1.2 An employee was omitted from the salary journal. His ... salary must be credited to the Trade and other payables in the Statement of Financial Position. 1.1.3. The way in which a company manages loans or borrowed capital (3) 1.2 CASSIE LTD You are provided with information for the financial year ended 28 February 2023. REQUIRED: Complete the following for the year ended 28 February 2023: 1.2.1 Calculate the depreciation on vehicles. (4) 1.2.2 Calculate the profit/loss with the sale of asset. Indicate whether it is a profit or a loss. (4) 1.2.3 Statement of Comprehensive Income (Income Statement) (26) 1.2.4 Statement of Financial Position (Balance Sheet) (28)

Downloaded from hlayiso.com Downloaded from Stanmoreph =r | (PAPER 1) GR12 0623} INFORMATION: Balances _ extracted from the records on 28 February 2023 Sinan DEBIT CREDIT Balance Sheet Accounts Section R R Ordinary share capital (1 200 000 shares) 1 320 000 Retained income 2? Mortgage loan: Pride Bank 306 240 Land and buildings 1 810 000 Vehicles @ carry value (See information B) 2? Equipment 115 000 Accumulated depreciation on equipment 17 250 Debtors' control 71 829 Creditors’ control 16 680 Trading stock 79 750 Bank 90 040 Deposit on water and electricity 1 500 SARS (Income tax) 350 145 Provision for bad debts 3 100 Shareholders for dividends 44 500 Nominal Accounts Section Stationery 17 630 Discount received 2 090 Depreciation 17 250 Bad debts 1 350 Bad debts recovered 550 Insurance 22 800 Bank charges 5 770 Rent income 165 600 Salaries and wages 164 430 Audit fees 131 470 Directors’ fees 768 000 Interest on bank overdraft 1 300 Ordinary share dividends 109 500 207

Downloaded from hlayiso.com Downloaded from Stanmoreph ing 5 | (PAPER 1) B. Vehicles: e The business has two vehicles. The following details appeared in the Fixed Assets/Register on 1 March 2022: Vehicle 1 Vehicle 2 Cost Price 240 000 312 000 Accumulated depreciation (225 000) (62 400) Carrying value 15 000 249 600 e Vehicle 2 was sold on 1 July 2022 for R210 000 cash. Equipment: e Cassie Ltd. bought new equipment on 1 March 2022 for R115 000. This transaction was properly recorded. The depreciation for the year of R17 250, was accurately calculated and recorded. The business provides for depreciation on its fixed assets as follows: e On vehicles at 25% p.a. on cost price e On equipment at 15% p.a. on the diminishing value method C. A physical stocktaking on 28 February 2023 revealed the value of stock on hand as R79 900. D. The rent received from the tenant included the rent for March and April 2023. The rent was increased by 10% per month from 1 January 2023. E. Adebtor, Z. Bendor, whose debt had previously been written off, paid R150. The bookkeeper incorrectly credited the amount to the Debtors’ Control Account. F. Provision for bad debt must be adjusted to R3 500. G. An annual insurance premium of R15 600, was paid on 1 October 2022. H. The bank statement was received after the above balances and totals were recorded. The following still needs to be taken into account: e Bank charges R140 I. A debtor, V. Madrik, has a credit balance of R1 350 in the Debtdr’s ledger. It must be transferred to his account in the Creditor’s ledger. J. The company has three directors, earning the same monthly fees. One director was only appointed on 1 June 2022, and he still needs to be paid for February 2023.

Downloaded from hlayiso.com Downloaded from Stanmoreph ing | (PAPER 1) K. Interest is capitalised on the mortgage loan. The annual loan statement from Pride Bank reflected the following: PRIDE BANK LOAN STATEMENT ON 28 FEBRUARY 2023 Balance-on 1 March 2022 422 400 Interest capitalised 2? Repayments, including interest 116 160 Balance on 28 February 2023 369 600 e The accountant did not take the interest into account when submitting the balances/totals. e The total amount for the repayment of the loan will remain the same over the next financial year. L. A final dividend was declared by the directors and the amount was accurately recorded by the accountant. M. Income tax for the year is calculated at 30% of the net profit. The net profit after tax is R1 050 455 after adjustments. N. The Net Asset Value (NAV) on 28 February 2023 is 120 cents per share.

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING (PAPER 1) IGR12 0623 QUESTION 2: CASH FLOW STATEMENT AND FINANCIAL INDICATORS (40 marks; 32 minutes) 2.1 Indicate whether the following statements are TRUE or FALSE. Write only 'true'jorfalse’ next to the question number (2.1.1 to 2.1.3). 2.1.1 | Ehélinternal auditors are responsible for preparing the financial statements of a company. 2.1.2 | The external auditor prepares relevant control measures for accounting procedures and ensures that they are followed. 2.1.3 | Depreciation is added back into the Cash Flow Statement, as it is regarded as a 'non-cash' expense. (3) 2.2. BENFORCE LTD. The information below relates to Benforce Ltd. REQUIRED: 2.2.1 Prepare the Ordinary Share Capital Note on 28 February 2023. (7) (See information C) 2.2.2 Calculate the following figures that will appear on the Cash Flow Statement: e Income tax paid (4) e Net change in cash and cash equivalents. Indicate whether this is a net inflow or net outflow of cash. (5) 2.2.3 Complete the section of the Cash Flow Statement for cash effects of investing activities. (8) 2.2.4 Calculate the following for the financial year ended 28 February 2023: e Percentage operating profit on sales (3) e Current ratio (3) e Stock turnover rate (3)

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING (PAPER 1) IGR12 0623 INFORMATION: A. Extract from the Income Statement for the year ended 28 February 2023 Sales R2 790 000 Cost of sales; 1 860 000 Depreciation 420 100 Operating-profit 450 000 Interest expense 160 000 Net profit before tax 1 900 000 Net profit after tax 1 330 000 B. Figures from the Balance Sheet and notes: 28 FEBRUARY 28 FEBRUARY 2023 2022 Fixed assets (carrying value) R4 010 500 R2 690 000 Financial assets (fixed deposit) 550 000 700 000 CURRENT ASSETS 584 440 598 200 Inventory 322 000 345 000 Trade and other receivables 245 000 228 000 SARS: Income tax 8 400 9 200 Cash and cash equivalents 9 040 16 000 SHAREHOLDERS' EQUITY 2? 2? Ordinary share capital 5 292 000 2 Retained income ? 147 370 NON-CURRENT LIABILITIES 1 200 000 500 000 CURRENT LIABILITIES 620 500 555 800 Trade and other payables 323 000 555 800 Shareholders for dividends 187 500 108 000 Bank overdraft 110 000 - C. Share capital and dividends The authorised share capital comprises 1 200 000 ordinary shares. On 1 March 2022, 900 000 ordinary shares were issued. The company issued 150 000 ordinary shares at R6,30 per share,on 1 May 2022. On 30 August 2022, 70 000 ordinary shares were repurchaséd}from shareholders. EFT payments for R437 500 were authorised forjthese shares. D. Fixed assets: e Additional property was purchased for R1 400 000. No other fixed assets were purchased. e¢ One of the vehicles was sold at carrying value.

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING 9 (PAPER 1) IGR12 0623 2.3 PETERLTD. You are presented with the Cash Flow Statement of Peter Ltd. for the year ended 30 April 2023. List the TWOmost significant decisions that the directors made during the year. Quote figures from the Cash Flow Statement in each case. (4) CASH FLOW STATEMENT FOR THE YEAR ENDED 30 APRIL 2023 738 000 Cash generated from operations 1 370 000 Interest paid (210 000) Income tax paid (132 000) Dividends paid (290 000) (4 348 000) Fixed assets purchased (4 858 000) Fixed assets sold for cash 370 000 140 000 3 580 000 Proceeds of issued shares 980 000 Loans raised 2 600 000 Net change in cash and cash equivalents for the year (30 000) Cash and cash resources at the beginning of the year 50 000 Cash and cash resources at the end of the year 20 000 | 40 |

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING 10 (PAPER 1) IGR12 0623 QUESTION 3: INTERPRETATION OF COMPANY INFORMATION AND AUDIT REPORTS (35 marks; 28 minutes) Your friend, Mary Brown, owns shares in a company called Dobi Ltd. She wants to invest moré-Money in shares. She asks you for advice and presents you with the following fifancial indicators of Dobi Ltd. and another company, Lemi Ltd. The two companies-aré of similar size, and they have issued the same number of shares. INFORMATION: A. Dobi Ltd. | Lemi Ltd. Market price per share on the JSE 905 cents | 740 cents Net asset value per share 755 cents | 775 cents Earnings per share 720 cents | 179 cents Dividends per share 650 cents | 182 cents % return on shareholders' equity 9,5% 5,5% % return on total capital employed (before tax) 13,6% 9,4% Debt/Equity ratio 0,3:1 2,1:1 Current ratio 5,7:1 1,9:1 Acid-test ratio 3,5:1 0,9:1 Period for which enough stock is on hand 120 days | 60 days Debtors’ average collection period 59 days 26 days B. | Interest rate on Fixed Deposit: HD Bank 6,80 % Interest rate on loan: Vivi Bank 10,50 % REQUIRED: 3.1 Explain your answer to each of the following questions. In each case compare the two companies and quote financial indicators (figures, ratios or percentages) to support your answer. 3.1.1 LIQUIDITY: Explain why the liquidity of Lemi Ltd. is better than that of Dobi Ltd. Quote THREE financial indicators to support your answer. (9) 3.1.2 RISK AND GEARING: Which company uses more loans? In each case, quote;a financial indicator to support your answer. Explain whether this is a good idea or not. Quote a financial indicator to support your answer. (6)

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING (PAPER 1) IGR12 0623 11 3.1.3 SHARE PRICE: The market price of the shares of Dobi Ltd. is doing much better than that of.Lemi Ltd. Explain, quoting TWO financial indicators to support this-opinion. (4) 3.1.4 RETURNS, EARNINGS AND DIVIDENDS: Dobrttd. has a better percentage of returns, earnings, and dividends than Lemi Ltd. Explain by quoting THREE financial indicators to support this opinion. (9) 3.2 AUDIT REPORTS You are provided with extracts from the independent audit reports of Dobi Ltd. and Lemi Ltd. Extract from audit report of Dobi Ltd: In our opinion, the financial statements fairly present, in all material respects, the financial position of this company on 28 February 2023 and the results of their operations and cash flow for the year ended in accordance with International Financial Reporting Standards, and according to the requirements of the Companies Act of South Africa. Extract from audit report of Lemi Ltd: We found that internal control procedures were not adhered to and that documentation did not exist for a significant portion of the transactions tested. Because of the significance of the matter described in the previous paragraph we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements for the year ended 28 February 2023. REQUIRED: Comment on the audit reports of Dobi Ltd. and Lemi Ltd. In each case, explain how the report will affect Mary's decision concerning the shares that she wishes to purchase in the company. (4)

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING (PAPER 1) GR12 0623 12 3.3 NUMBER OF SHARES Shareholding-of Mary Brown in Dobi Ltd: denn DOBI LTD. Number of Shares bought in 2020 605 000 shares Total shares issued by Dobi Ltd. 1 250 000 shares Mary's % shareholding before buying additional shares 48,4% After taking all information into account, Mary decided to rather buy extra shares in Dobi Ltd. Calculate the number of shares that she must buy to become the majority shareholder of Dobi Ltd. (3) [5]

Downloaded from hlayiso.com Downloaded from Stanmorephy. TING (PAPER 1) IGR12 0623 13 QUESTION 4: CORPORATE GOVERNANCE (10 marks; 8 minutes) “Corporate governance is the system of rules, practices and processes by which a companyjs-directed and controlled.” Former WalhStreet Journal reporter, R. Foster Winans was found guilty of securities fraud for using his knowledge of what would appear in the business- oriented newspaper, to his advantage, to make money on the stock market. Loose lips indeed sink ships and in the case of R. Foster Winans, they engulfed him in an insider trading scandal. In his own words, Winans explained what happened. “In the early 1980s when | was a stock market columnist at The Wall Street Journal, | stupidly agreed to tell a stockbroker what | was writing about that was scheduled to appear in the next day’s edition. He made more than $700 000 of which | received $31 000, for trading in advance of the short-term effect that the column in the newspaper had on the prices of stocks mentioned.” Winans served nine months in prison for his role in the fraud. [Article extracted from The Washington Post] REQUIRED: Study the extract above and answer the following questions on corporate governance. 4.1. What is insider trading? Explain in your own words. (2) 4.2 How does good corporate governance benefit the company? (2) 4.3 What are the roles and responsibilities of the remunerations committee? Explain briefly. (2) 4.4 There are seven primary characteristics of good governance. Name any TWO characteristics. (2) 4.5 Corporates are managed by a board of directors and the directors are divided into executive and non-executive directors. Briefly explain why it is important for a company to include non- exetutive as well as executive directors on the board of directors. i (2) TOTAL: 150

Downloaded from hlayiso.com Downloaded from Stanmoreph ING (PAPER 1) 14 GR12 0623) GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET Gross profit x 100 Gross profit 4100 Cost of sales 1 Net profit before tax x 100 Net profit after tax x 100 Sales 1 Operating expenses x 100 Sales 1 Operating profit x Sales 100 1 Total assets : Total liabilities Current assets : Current liabilities (Current assets — Inventories) : Current liabilities Non-current liabilities : Shareholders' equity (Trade and other receivables + Cash and cash equivalents) : Current liabilities Average trading stock | 365 Cost of sales Cost of sales 1 Average trading stock Average debtors _ 365 Average creditors | 365 Credit sales 1 Cost of sales 1 Net income after tax 100 Net income after_tax x 100 x Number of issued shares 1 Average shareholde rs’ equity 1 (*See note below), Net income before tax + i interest on loans 100 Xx Average shareholde rs' equity + Average non-current liabilities 1 Shareholde rs' equity x 100 Dividends of the year x 100 Number of issued shares 1 Number of issued shares 1 Interim dividends x 100 Final dividends x 100 Number of issued shares 1 Number of issued shares 1 100 100 Dividends per share x Earnings per shares 1 Dividends forlithe year x Net incom Total fixed costs Selling price per unit - Variable costs per unit Note: * In this case, if there is a change in the number weighted average number of shares is used in of issued shares during a financial year, the practice.