Accounting Grade 12 Eastern Cape Mock 2020 QP (Eng)

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE GRADE 12 SEPTEMBER 2020 ACCOUNTING P1 FINANCIAL REPORTING AND EVALUATION MARKS: 150 TIME: 2 hours This question paper consists of 11 pages, a formula sheet and a 11-page answer book.

Downloaded from hlayiso.com 2 ACCOUNTING P1 (EC/SEPTEMBER 2020) INSTRUCTIONS AND INFORMATION Read the following instructions carefully and follow them precisely. 1. Answer ALL the questions. 2. A special ANSWER BOOK is provided in which to answer ALL the questions. 3. Show ALL workings to earn part-marks. 4. You may use a non-programmable calculator. 5. You may use a dark pencil or blue/black ink to answer the questions. 6. Where applicable, show ALL calculations to ONE decimal point. 7. A FORMULA SHEET for Financial Indicators is attached to this question paper. You may use it if necessary. 8. Write neatly and legibly. 9. A breakdown of the questions is provided. You must attempt to comply with the suggested time allocation for each question. TIME QUESTION TOPIC MARKS (MINUTES) 1 Corporate governance and audit report 15 10 2 Statement of comprehensive income 30 25 Statement of Financial Position and 3 30 25 share capital note Cash Flow Statement and Financial 4 40 35 Indicators 5 Interpretation of Company Information 35 25 TOTAL: 150 120 Copyright reserved Please turn over

Downloaded from hlayiso.com (EC/SEPTEMBER 2020) ACCOUNTING P1 3 QUESTION 1: CORPORATE GOVERNANCE AND AUDIT REPORT (15 marks; 10 minutes) 1.1 Choose an explanation in COLUMN B that matches a term in COLUMN A. Write only the letter (A–D) next to the question numbers (1.1.1‒1.1.4) in the ANSWER BOOK. COLUMN A COLUMN B 1.1.1 King Code A Impact of business activities on the profit, as well as the effect on the environment and social issues 1.1.2 Triple-Bottom Line B Explains the performance of the company and the major decisions that were taken 1.1.3 Directors’ Report C Review and monitor the fee policies to ensure that they are fair 1.1.4 Remunerations D This sets out the ethical and effective Committee leadership expected of companies (4 x 1) (4) 1.2 AUDIT REPORT An extract of the Audit Report of More Limited is provided. REQUIRED: 1.2.1 Where, why and when is this audit report expected to be presented? (3) 1.2.2 Provide TWO points why the independent auditors make reference to pages 12–30 of the Annual Report. (4) 1.2.3 Explain TWO points on the impact of this report on the company. (4) INFORMATION: Extracts from the Audit Report: To shareholders: We have audited the financial statements set out on pages 12–30. Opinion: We have not been able to obtain sufficient audit evidence on significant matters identified and described in the paragraph “basis for opinion”; as such we are unable to express an opinion on the reliability of the financial statements. 15 Copyright reserved Please turn over

Downloaded from hlayiso.com 4 ACCOUNTING P1 (EC/SEPTEMBER 2020) QUESTION 2: STATEMENT OF COMPREHENSIVE INCOME (30 marks; 25 minutes) The following information relates to City Traders Ltd for the financial year ended on 30 June 2020. REQUIRED: Complete the Statement of Comprehensive Income (Income Statement) for the year ended 30 June 2020. (30) INFORMATION: A Extract from the Pre-adjustment trial balance on 30 June 2020. Sales 6 720 000 Rent income 153 120 Directors fees ? Salaries and Wages 812 000 Employer’s contribution 22 080 Advertising 11 650 Audit fees 120 000 Depreciation 340 000 Sundry expenses 432 110 B The Rent income for July 2020 has already been received. Note that the monthly rent was decreased by 8% p.a. effective from 1 May 2020. C The company has three directors. Two of the directors receive an annual fee of R192 000 each. The third director receives 10% less than the other directors. All three directors received the full amount for the year and the bookkeeper recorded this amount in the salaries and wages account, in error. The third director however, decided to resign and this was approved on 30 May 2020. He promised to return the fees that he received for the period that he would not be serving the company. D One employee was omitted from the Salaries journal for June 2020 while she was on maternity leave. Her salary is as follows: Deductions Employer’s Contribution Net Salary PAYE Medical Aid Medical Aid 2 050 970 1 920 6 700 E Advertising excludes an amount of R7 500 paid for the period 1 May to 30 September 2020. A fixed rate is applied monthly. F Interest on investment was received and recorded. This is the balancing figure. G Loan Statement received, shows interest of R36 000, capitalised. H Income Tax amounted to R272 700. This is 30% of the net profit. 30 Copyright reserved Please turn over

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Downloaded from hlayiso.com 6 ACCOUNTING P1 (EC/SEPTEMBER 2020) QUESTION 3: STATEMENT OF FINANCIAL POSITION AND SHARE CAPITAL NOTE (30 marks; 25 minutes) BABI LTD The information provided is for the year ended on 31 August 2020. REQUIRED: 3.1 Complete the Ordinary Share Capital Note. (9) 3.2 Complete the Statement of Financial Position (Balance Sheet) on 31 August 2020. (21) INFORMATION: A. The following were extracted from the records on 31 August 2020. Fixed Asset (carrying value) R8 121 090 Fixed Deposit: Zako Bank 830 200 Inventory (refer Information C) ? Trade and other receivables (balancing figure) ? Bank (favourable) 864 800 Cash float 3 000 SARS Income tax (Provisional tax) 560 000 Ordinary Share Capital ? Retained Income 14 960 Loan: Tambo Bank ? Trade and other payables 463 840 B. Share capital and dividends:  Authorised shares consist of 3 000 000 shares.  On 1 September 2019, there were 1 800 000 shares in issue.  On 1 July 2020, the company repurchased 120 000 shares at R7,20 each, which was 20% above the average share price. These shares do not qualify for final dividends.  20% of unissued shares on 1 September 2019 were issued at R6,60 per share on 25 August 2020.  A final dividend of 22 cents per share was declared on 31 August 2020. C. Inventory: The business sells satellite decoders. Closing stock of 1 260 units must be valued using the first-in-first-out method. Two batches of stock were purchased during the year. There were no missing items. NUMBER COST PRICE TOTAL COSTS OF UNITS PER UNIT R Opening stock 1 500 R1 600 2 400 000 Purchases: Batch 1 (Nov. 2019) 1 800 R1 750 3 150 000 Batch 2 (June 2020) 1 200 R1 950 2 340 000 Copyright reserved Please turn over

Downloaded from hlayiso.com (EC/SEPTEMBER 2020) ACCOUNTING P1 7 D. Loan Statement from Tambo Bank Balance 1 September 2019 1 840 000 Capitalised interest for the year 130 800 Annual Repayment (including interest) 307 200 The capital portion for the repayment of the loan in the next financial year remains the same as the current financial year. E. Amount owed to SARS on 31 August 2020 is a balancing figure. 30 Copyright reserved Please turn over

Downloaded from hlayiso.com 8 ACCOUNTING P1 (EC/SEPTEMBER 2020) QUESTION 4: CASH FLOW STATEMENT, FINANCIAL INDICATORS (40 marks, 35 minutes) 4.1 CONCEPTS Indicate whether the following statements are TRUE or FALSE. Write only ‘true’ or ‘false’ next the question numbers (4.1.1‒4.1.3) in the ANSWER BOOK. 4.1.1 % operating expenses on sales is a financial indicator for control over sales. 4.1.2 Operating activities refer to all activities in a business that relates to running and administering the business in earning a profit. 4.1.3 Shareholders for dividends refers to dividends paid to shareholders of the company at the end of a financial year. (3) 4.2 WILD COST LTD The information provided is for the year ended on 29 February 2020. REQUIRED: 4.2.1 Complete the note for CASH GENERATED FROM OPERATIONS. (9) 4.2.2 Prepare the CASH EFFECTS OF FINANCING ACTIVITIES section of the Cash Flow Statement. (7) 4.2.3 Calculate the following amounts for the Cash Flow Statement:  Income tax paid (4)  Dividends paid (7)  Proceeds on fixed assets sold (4) 4.2.4 Calculate the following financial indicators on 29 February 2020:  % Return on average Shareholders’ Equity (4)  Net asset value per share (2) INFORMATION: A. Extract from the Income Statement on 29 February 2020. Cost of sales R5 468 750 Depreciation 390 000 Interest expense 452 000 Income tax 420 000 Net profit after tax 980 000 B. Extract from Balance Sheet on 29 February 2020. 2020 2019 Fixed assets 12 750 000 13 995 000 Trade and other receivables (Note 1) 305 800 401 500 Shareholders’ equity 11 161 200 13 168 000 Retained income 1 700 700 1 239 200 Ordinary share capital 9 460 500 11 925 000 Loan: J.J. Bank 3 850 000 3 080 000 Trade and other payables (Note 2) 640 800 1 173 000 Copyright reserved Please turn over

Downloaded from hlayiso.com (EC/SEPTEMBER 2020) ACCOUNTING P1 9 Note 1: Trade and other receivables 2020 2019 Debtors control 292 400 332 200 SARS (Income tax) - 69 300 Accrued income 13 400 - 305 800 401 500 Note 2: Trade and other payables 2020 2019 Creditors control 621 000 963 000 SARS (Income tax) 19 800 Shareholders for dividends ? 210 000 640 800 1 173 000 D. Fixed assets: Fixed assets were sold at carrying value. There were no additional fixed assets purchased. E. Share capital and dividends:  Authorised share capital: 2 500 000 ordinary shares.  1 March 2019: 60% of the shares were in issue.  1 June 2019: R397 500 were received for 50 000 additional shares issued.  30 August 2019: 360 000 shares were repurchased at R162 000 above the average share price of R7,95.  Interim dividends were paid during the year.  On 29 February 2020 a final dividend of R130 900 was declared on 1 190 000 shares. 40 Copyright reserved Please turn over

Downloaded from hlayiso.com 10 ACCOUNTING P1 (EC/SEPTEMBER 2020) QUESTION 5: INTERPRETATION OF COMPANY INFORMATION (35 marks; 25 minutes) You are presented with financial information of two companies operating in the same industry and of similar size, for the year ended 29 February 2020. REQUIRED: NOTE: Provide figures, financial indicators or calculations in EACH case to support your comments and explanations. 5.1 Compare the liquidity position of both companies and comment on the company that is managing the short term assets more effectively. (6) 5.2 Compare the dividend pay-out policy of each company. (4) Provide TWO possible reasons why one company decided to change their policy. (4) 5.3 Lock Ltd decided to increase their loans during the current financial year, whilst Down Ltd decided to maintain their existing loans. Comment on the decisions of both companies. Make reference to the degree of risk and gearing. (8) 5.4 A shareholder of Down Ltd is concerned about the drop in the market price of the shares. Explain why he feels this way. Provide TWO points. (4) 5.5 M. Mtolo owns 576 000 shares in Down Ltd, which represents 48% of the total issued shares. He wants to purchase another 25 000 shares. 5.5.1 Do a calculation to show how this would change his % shareholding in the company. (5) 5.5.2 Provide TWO reasons why you think he is specifically interested in increasing his shareholding in Down Ltd. (4) INFORMATION: LOCK LTD DOWN LTD 2020 2019 2020 2019 Current ratio 1,9 : 1 2,1 : 1 3,6 : 1 2,8 : 1 Asset test ratio 1,3 : 1 1,4 : 1 1,5 : 1 1,5 : 1 Dividends per share 45 cents 65 cents 60 cents 62 cents Earnings per share 86 cents 80 cents 70 cents 72 cents % return on average equity 13% 11% 11,6% 12% % return on average capital employed 15% 12% 11,7% 13% Debt/equity ratio 0,6 : 1 0,3 : 1 0,4 : 1 0,4 : 1 Net asset value per share 642 cents 630 cents 610 cents 618 cents Market price per share 645 cents 622 cents 582 cents 615 cents Interest rate on loans 13% 13% 35 TOTAL: 150 Copyright reserved Please turn over

Downloaded from hlayiso.com (EC/SEPTEMBER 2020) ACCOUNTING P1 11 GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET Gross profit x 100 Gross profit x 100 Sales 1 Cost of sales 1 Net profit before tax x 100 Net profit after tax x 100 Sales 1 Sales 1 Operating expenses x 100 Operating profit x 100 Sales 1 Sales 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 x 365 Cost of sales . Cost of sales 1 Average trading stock Average debtors x 365 Average creditors x 365 Credit sales 1 Cost of sales 1 Net income after tax x 100 Net income after tax x 100 Number of issued shares 1 Average shareholders' equity 1 (*See note below) Net income before tax + Interest on loans x 100 Average shareholders' equity + Average non-current liabilities 1 Shareholders’ equity x 100 Dividends for 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 Dividends per share x 100 Dividends for the year x 100 Earnings per share 1 Net income after tax 1 Total fixed costs . Selling price per unit – Variable costs per unit NOTE: * In this case, if there is a change in the number of issued shares during a financial year, the weighted average number of shares is used in practice. Copyright reserved Please turn over