Accounting Grade 12 Step Ahead learner support 2021

education MA) Department: Education PROVINCE OF KWAZULU-NATAL CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) LEARNER SUPPORT DOCUMENT GRADE 12 ACCOUNTING STEP AHEAD PROGRAMME 2021 Page 1 of 108

KZN ACCOUNTING GRADE 12 LEARBERS PREFACE 2021 STEP AHEAD This support document serves to assist Accounting learners on how to deal with curriculum gaps and learning losses as a result of the impact of COVID-19 in 2020. It also captures the challenging topics in the Grade 12 work. Activities should serve as a guide on how various topics are assessed at different cognitive levels and also preparing learners for informal and formal tasks in Accounting. It will cover the following topics: A. Final Accounts and Income Statement 3-18 B. Balance Sheet 19 -33 E Cc. Cash Flow Statement 34 - 43 D. Analysis yee 44-55 E. Inventory Systems 56-71 F. Cost accounting 72-85 G. Value Added Tax 86 - 92 H Budgeting 93 - 108 Page 2 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD A: LEDGER ACCOUNTS AND INCOME STATEMENT (STATEMENT OF COMPREHENSIVE INCOME) BASELINE ACTIVITY A 1 Ledger Accounts unique to Companies. Place a ¥ in the appropriate box/boxes. BALANCE | NOMINAL | ASSET | EQUITY | LIABILITY NAME OF LEDGER ACCOUNT | SHEET ACCOUNT SECTION | SECTION 1, | ORDINARY SHARE CAPITAL 2. | RETAINED INCOME 3, | SARS (INCOME TAX) 4. | SHAREHOLDERS FOR DIVIDENDS. \ 5. | ORDINARY SHARE DIVIDENDS 6. | INCOME TAX 7. | APPROPRIATION ACCOUNT j |. ACTIVITY A2 GENERAL LEDGER ACCOUNTS KwaZulu Ltd is a public company with an authorised share capital of 1 500 000 ordinary shares. The financial year ends on 31 December each year. REQUIRED: Prepare the following accounts in the General Ledger on 31 December 2020: 2.1 Ordinary Share Capital, 2.2 Retained Income, 2.3 SARS (Income Tax) 2.4 Shareholders for Dividends 2.5 Income Tax 2.6 Dividends on Ordinary Shares 2.7 Appropriation Account. Page 3 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD INFORMATION: A. Balances on 1 January 2020: © Ordinary Share Capital R1 050 000 (500 000 shares) e Retained Income R420 000 B. Transactions for 2020: January 2020: 05 The company invited the public to purchase 400 000 ordinary shares. 31 The money for the shares at R3,00 per share was received and deposited. June 2020: 30 Provisional income tax of R30 000 was paid by cheque. An interim dividend of 13 cents per share was paid to shareholders on the register. September 2020: 30 The company repurchased 50 000 from disgruntled shareholders at R3,60 per share. December 2020: 01 A second provisional tax of R70 000 was paid. 31 A final dividend of 17 cents per share was declared. Only shares on the share — register qualify for final dividends. The net profit before tax amounted to R508 000. Income tax is calculated at 28% of the net profit. ACTIVITY A2: GENERAL LEDGER ACCOUNTS GENERAL LEDGER OF KWAZULU LTD ORDINARY SHARE CAPITAL RETAINED INCOME Page 4 of 108

KZN ACCOUNTING GRADE 12 LEARBER: S SARS (INCOME TAX) 2021 STEP AHEAD SHAREHOLDERS FOR DIVIDENDS INCOME TAX ORDINARY SH ARE DIVIDENDS APPROPRIATION Page 5 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY A3 Analyse the following transactions according to the example provided. Show the effect on the Accounting equation only for the four transactions on 11 June 2019, 30 Aug 2019, 1 Sept 2019 and 27 Feb 2020. EXAMPLE: Audit fees of R20 000 are owed at the year-end. GENERAL LEDGER EFFECT ON ACCOUNTING EQUATION Account debited Account credited Amount Assets Owners’ Liabilities equity E.g. | Audit fees Expenses accrued R20 000 0 - + INFORMATION ie The following balances appeared in the ledger at the beginning and end of the financial period: 1 March 2019 28 Feb 2020 Ordinary share capital ( R5 each) R1 500 000 ? Retained income R148 000 R58 400 SARS (income tax) R49 500 (Cr) R8 200 (Dr) Shareholders for dividends R126 000 2 7 i RANSACTIONS 10 June 2019 Paid the amount owing to SARS in respect of the previous financial year. 11 June 2019 The amount owing in respect of the financial year to Shareholders (for dividends) was paid. 30 Aug 2019 A provision tax payment of R120 000 was paid for the 2020 financial year. 31 Aug 2019 An interim dividend of 84 cents per share (the new shares issued on 1 September 2015 do not qualify for these interim dividends). 4 Sept. 2019 The directors have been granted permission by the shareholders to issue additional shares as and when required. The directors decided to issue 50 000 new shares R8 each during the year. The transactions were handled by Quality Bank and the relevant amount was received from Quality Bank on 1 September 2019. 27 Feb 2020 The directors recommended a final dividend of 140 cents per share. 28 Feb 2020 The income tax for the year was recorded. Page 6 of 108

KZN ACCOUNTING ACTIVITY A3 GRADE 12 LEARBERS 2021 STEP AHEAD GENERAL LEDGER EFFECT ON ACCOUNTING EQUATION Account debited Account credited Owners’ equity Amount Assets Liabilities Eg. Audit fees | Expenses payable R20 000 0 + 10 June 2019 41 June 2019 30 Aug 2019 31 Aug 2019 1 Sept 2019 27 Feb 2020 28 Feb 2020 ACTIVITY A4 MATCHING ITEMS -CONCEPTS Concepts are listed in COLUMN A and explanations are listed in COLUMN B. Choose an explanation from COLUMN B 41 that matches a concept in COLUMN A. Write only the letter (A - J) next to the question number COLUMN A COLUMN B Answer 4.4.4 Buying-back of Unit of ownership in a company shares 4.14.2 Income Tax The business is liable for its own debts and in case of insolvency the owners are limited to the amount they invested. 41.3 Provisional income Done to reduce the number of shares on the share market so as tax to increase the value of shares still available 4414 Limited liability The before net profit tax that a company produces during a specific period payable to SARS 445 Separation of A distribution of a portion of a company’s earnings declared by the ownership board of directors, to its shareholders 416 Memorandum of Payment made to SARS in order to meet their tax liability in two Incorporation payments before the final assessment is received 417 Issue Share Price a document that sets out the rights and responsibilities of shareholders, directors and others within a company 4.18 Dividends The price at which a company’s shares are offered to the market for the first time. 2 419 Shares ls a separate legal entity the owners of the business do not have to manage the business and running of the business Page 7 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY A5 DUBE COMPUTERS PTY LTD You are provided with information relating to Dube Computers (Pty) Ltd for the year ended 30 June 2020. REQUIRED: 5.1 Refer to adjustments and additional information 5. Calculate the Profit/Loss on disposal of the office computers sold on 31 March 2020. 5.2 Prepare the Income Statement for the year ended 30 June 2020. INFORMATION: (a) Items extracted from the Pre-Adjustment Trial Balance on 30 June 2020. Balance Sheet accounts section | Debit Credit Land and buildings 930 000 Equipment . ~~ 540 100 Accumulated depreciation on equipment 231 000 Trading stock 281 000 Loan from Light Bank (13% p.a.) 300 000 SARS (provisional tax) 194 000 Debtors control 32 000 Provision for bad debts 2000 Nominal accounts section Sales : 3700 000 Cost of sales 2 100 000 Staff costs( salaries, wages and commission } 180 000 Directors fees 120 000 Commission income 36 000 Interest on loan 29 000 Sundry expenses(including packing materials) 45 000 Asset disposal - 7 000 Page 8 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD (b) Adjustments and additional information: 1. Za Commission income R2 350 is owed to the business. Packing materials of R1 700 are on hand at the end of the year. Packing materials are included in sundry expenses. One of the two directors has been paid his fees for 6 months. The fees were increased by 10% half- way through the financial year. Provide for fees owing. Both directors earn the same annual fees. Interest at 13% is owed on a loan, This interest is not capitalised. The loan was taken out several years ago. A payment of R100 000 was made on 31 December 2019. This has been properly recorded. Equipment comprises: Cost on 30 June 2020 | Accumulated ~~ Depreciation rate depreciation on 1 July 2019 General equipment 418 000 183 000 20% on diminishing balance method Office computers 92 100 48 000 33 1/3 on cost R510 100 R231 000 Note: One of the office computers was sold on 31 March 2020. The selling price was credited to the Asset Disposal account but no other entry has been made. The cost price of this computer was R18 600 and the accumulated depreciation at the beginning of the year R9 400. Depreciation is to be written off at rates reflected above. The physical stock count revealed stock to an amount R247 940. Note: This amount was calculated before taking into account the donation of two computers Zakhe High School which cost R10 500 each. No entry has been made for these donations. The income tax assessment for the year reflected that the business owed SARS an amount of R37 000 on 30 June 2020. ACTIVITY A5: ANSWER SHEET 5.1 Calculate the profit/loss on the disposal of the office computers sold on March 2020. Page 9 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 5.2 Dube computers (Pty) Ltd income statement for the year ended 30 June 2020 Sales 3700 000 Cost of sales (2 100 000) Gross profit 1600 000 Other income Operating expenses Staff costs 180 000 Page 10 of 108

KZN ACCOUNTING GRADE 12 LEARBERS ACTIVITY A6 MQOMBOYI LTD The information relates to the financial year ended 31 March 2019. REQUIRED: 2021 STEP AHEAD 6.1 Complete the statement of comprehensive income (income statement for the year ended 31 March 2019. 6.2 Complete the following notes to the Balance Sheet e Fixed/Tangibie Asset Note e Ordinary Share capital INFORMATION: Figures extracted from the Pre-Adjustment Trial Balances on 31 March: 2020 2019 R R BALANCE SHEET SECTION Ordinary share capital 9 300 000 4 800 000 Mortgage loan: C-Light Bank 1 430 200 1 658 000 Land and buildings 12 500 000 12 500 000 Vehicles 1377 000 750 000 Accumulated depreciation on vehicles ? 475 000 Equipment if 398 000 Accumulated depreciation on equipment 2 117 500 Provision for bad debts ? 30 100 Trading stock 364 200 Debtors control 578 000 NOMINAL ACCOUNTS SECTION Sales 10 563 280 Cost of sales 6 236 000 Rent income 99 500 Directors fees 4 262 100 Water and electricity 218 000 Telephone 75 600 Audit fees 104 000 Sundry expenses 61001 Salaries and wages 1 280 000 Employers contribution( medical, pension and UIF ) 316 000 Bad debts 22 300 Consumable stores 53 200 Interest income 2 Insurance 79 500 Depreciation (on equipment sold) 1750 Interest on loan 2 Bad debts recovered 6 000 Ordinary share dividends (interim) 375 000 Page 11 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD, Adjustments and additional information: A credit invoice for R36 720 (after deducting a 10% trade discount) issued on 31 March 2020, was A. not recorded. Goods are marked up at 70% on cost. B. The physical stock count 31 March 2020 revealed the following on hand: © Trading stock, R334 500 e Consumable stores, R3 400 C. Debtor Y Kubheka was declared insolvent. His estate paid R2 000, which was 20% of his debt. The difference must be written off as bad debts. D. R1 800 was received from a debtor Mavela whose debt had been previously written off. The bookkeeper incorrectly credited the amount to the Debtors Control Account. Correct the error. E, Adjust the provision for bad debts to R28 500. F, Insurance includes an annual premium of R51 000 paid for the period of 1 January 2020 to 31 December 2020 G. An employee was left out of the Salaries Journal for March 2020. The following details appeared: e Net salary of the employee, R9 100 e The deductions by the employer totalled 30% of the gross salary. © Employers contribution were R2 200. H. Interest on loan is capitalised. A fixed monthly repayment (including interest of R25 400 was paid for the financial year. |. Fixed assets and depreciation: (i) Vehicles: e Details for the three vehicles are as follows: Cost price Accumulated depreciation 31 March 2019 Date purchased 1 R350 000 R315 000 1 October 2014 2 R400 000 R160 000 1 April 2017 3 R627 000 30 November 2019 e Vehicles are depreciated at 20% p.a. on cost. (ii) Equipment: ¢ Equipment was sold for R9 600 cash on 31 August 2019. Only the following entries in respect of this sale were processed: Cost price d 28 000 Accumulated depreciation at the date of disposal i 21500 Depreciation for the current financial year i 1750 Depreciation on the remaining equipment is calculated at R92 500 after taking all of the above into account. J. Interest income is the missing figure in the income statement. K. Income tax is calculated at 28% of the net profit. The net profit before tax was R691 000. L. Shares and dividends: e The company has an authorised share capital of 8 000 000 shares. e The company had 1 200 000 shares in issue on 1 April 2019. * 150 000 shares were repurchased on 30 November 2019. EFT payments totalling R825 were made for these shares. © — 850 000 additional shares were issued on 30 September 2019. Page 12 of 108

KZN ACCOUNTING ACTIVITY A6 ANSWERBOOK 6.1 MQOMBOYI LTD 6.14 GRADE 12 LEARBERS 2021 STEP AHEAD Statement of Comprehensive income (income statement) for the year ended 31 March 2020. Sales Cost of sales Gross profit Operating income Rent income 99 500 Gross operating income Operating expenses Directors fees 1 262 100 Water and electricity 218 000 Telephone 75 600 Audit fees 104 000 Sundry expenses 61 001 Operating profit Interest income Profit before interest expense Interest expense Net profit before 691 000 Income tax Net profit after tax Page 13 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP-AMEAD 6.2 NOTES TO THE BALANCE SHEET Fixed/Tangible Assets Land and Vehicles Equipment buildings Carrying value at beginning of the financial 12 500 000 275 000 280 500 year Cost 12 500 000 750 000 398 000 Accumulated depreciation (475 000) (117 500) Movements Additions at cost : . Disposals at carrying value . : Depreciation - (94 250) Carrying value at the end of the financial year 12 500 000 Cost 12 500 000 1.377 000 Accumulated depreciation : 6.3 Ordinary share capital Authorised: 8 000 000 shares Issued: 1 200 000 shares in issue at beginning ACTIVITY A7 QUESTION You are provided with information relating to Knanya Limited for the financial year ended 31 December 2020. Khanya Limited buys and sells tables and chairs. REQUIRED a. Complete the income statement forthe year ended 31 December 2020. b. Complete the Fixed asset note (Vehicles only) to the Balance Sheet on 31 December 2020. c. Prepare the note for Trade and Other Payables on 31 December 2020. Page 14 of 108

KZN ACCOUNTING GRADE 12 LEARBERS INFORMATION 2021 STEP AHEAD EXTRACT FROM THE PRE-ADJUSTMENTS TRIAL BALANCE ON 31 DECEMBER 2020. Balance sheet accounts section R Ordinary share capital 3 000 000 Retained income (1 January 2020) 314 000 Loan: Lwandle Bank 270 400 Vehicle 407 000 Accumulated depreciation on vehicle 147 400 Equipment 616 000 Accumulated depreciation on equipment 341 000 Debtors control 63 190 Creditors control 43 400 Provision for bad debts 3 450 Trading stock 138 000 SARS: income tax (Dr) 224 000 SARS: PAYE 14 100 Unemployment insurance fund (UIF) 1300 Pension fund 14 500 Nominal accounts section Sales 4 220 700 Cost of sales 1100 720 Profit on sale of asset 12 500 Sundry expenses 2 Bank charges 6 000 Audit fees 45 000 Directors fees 432 000 Salaries and wages 940 000 Employers contribution (UIF and pension fund) 103 400 Rent expense 63 360 Interest on current account 680 Bad debts 2790 Depreciation (vehicles sold) 13 750 Ordinary share dividends (interim) 96 000 Page 15 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ADJUSTMENTS AND ADDITIONAL INFORMATION 1, On 30 December 2020 L.Msomi a debtor, returned damaged tables. The selling price was R850 and the mark-up was 25% on cost price. The goods were immediately sent to the supplier, who issued a credit note. No entries have entered in the books. The insolvent estate of S.Sosibo paid 40 cents in the rand and transferred R360 directly into the bank account of Khanya Ltd on 15 December 2020. This has been recorded. The rest of her outstanding balance must be written off and the provision for bad debts must be adjusted to R3 090. Physical stock at year end revealed stock of tables on hand valued at R82 000 and chairs to R47 700 The company has paid their TWO directors up to 30 June 2020. Both earn the same fees. A THIRD director was appointed on 1 October 2020 on the same monthly rate as the other two directors. His director's fees have not been paid yet. Provide for the total outstanding directors fees. An employee was left of the Salaries Journal for December 2020. The details on his payslip were as follows: Gross Deductions Contribution Net salary salary PAYE UIF PENSION UIF Pension FUND fund a 1 600 90 630 90 ? R6 680 The employees contribute 7% of their gross salary to the pension fund and the employer 10%. The UIF deduction is 1% of their gross salary. Interest on loan was capitalised but not yet been recorded. The loan statement received from Lwandle Bank on 31 December 2020 reflects the following: LWANDLE BANK: loan statement on 31 December 2020 Balance on 1 January 2020 R320 800 Interest capitalised ? Repayments to Lwandle Bank during the year R50 400 Balance on 31 December 2020 R310 000 7. 10, 11. Rent expense was increased by 10% on 1 December 2020. The rent for January 2021 has already been paid. On 31 October 2020 an old vehicle was sold for R48 250 in cash. All details relating to the asset sold have been correctly recorded in the books. The details from Fixed Asset Register are as follows: e Cost price, R82 500 e Accumulated depreciation at date of sale, R46 750 Provide for depreciation as follows: © —Onequipment, at 10% p.a. on diminishing-balance method. Taking into account that new equipment was bought for R90 000 on 1 September 2020. This transaction was properly entered in the books. The depreciation on the remaining vehicles amounts to R81 400 on 31 December 2020. 300 000 new shares were issued and recorded on 1 December 2020. These shares do not qualify for dividends in 2020. Final dividends of 7c per share were declared by the directors at year end. Income tax for the year amounts to R240 000. This is 30% of the net profit before tax. Note: that the sundry expenses amount is the missing figure in the income statement. Page 16 of 108

KZN ACCOUNTING ACTIVITY A7 GRADE 12 LEARBERS 2021 STEP AHEAD 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR YEAR ENDED 31 DECEMBER 2020 Sales Cost of sales Gross profit Other income | Profit on sale of asset 12 500 Gross operating profit Operating expenses (2 293 750) Sundry Bank charges 6 000 Audit fees 45 000 Operating profit Interest income __ Profit before interest expense Net profit before tax Income tax for the year (240 000) Net profit after tax Page 17 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 7.2 Fixed Asset Note on 31 December 2020 FIXED/TANGIBLE ASSETS VEHICLES Carrying value-1 January 2020 309 100 Cost [ 489 500 Accumulated depreciation (180 400) Movements [ Additions at cost / 0 Depreciation (95 150) Carrying value-31 December 2020 Cost Accumulated depreciation (228 800) 7.3 Trade and other payables Creditors Shareholders for dividends _ SARS:PAYE Page 18 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD B: BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) THINGS TO REMEMBER e Balance sheet definition and purpose © Format of the Balance Sheet with emphasis on by highlighting the Shareholders Equity, SARS (income tax) and final Dividends e Calculation of the following: © cufrent portion of the loan with non-current liabilities o SARS (income tax) — preferable by drawing a T-account o Shareholders for Dividend (final dividend) — the key is whether the buyback are entitled for dividend or not. If entitled, use the number of shares before buyback. If not entitled use the number of shares at the end. o Current portion of the loan: e Interest capitalised: Interest capitalised = loan @end - loan @beg + repayments —_ or loan @beg — repayments — loan @end Short-term loan = total repayments — interest capitalised If this amount is given on the information ignore this calculation. Loan = (loan @end — short-term loan) e Loan repaid monthly and was taken before the current accounting period: Short-term loan = Loan balance + months remaining x 12 months Loan = (loan balance — short-term loan) v Reversal financial indicators Given Indicator Used to calculate Reversal calculation Current ratio Current assets Current liabilities X current ratio Current ratio Current liabilities Current assets + current ratio Acid test ratio Inventories (Current ratio - acid-test ratio) x current liabilities Debt/equity ratio Shareholders’ equity Loan + debt/equity ratio Debt/equity ratio Loan Shareholders’ equity X debt/equity ratio Net asset value Shareholders’ equity NAV ratio X issued shares + 100 Page 19 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD”: «= ACTIVITIES ACTIVITY B1 MODISE LTD The information below relates to Modise Ltd. The financial year ended on 28 February 2020. REQUIRED: 1.1 Prepare the Retained Income Note to the Balance Sheet on 28 February 2020. 1.2 Complete the Balance Sheet on 28 February 2020. Show ALL workings. (12) (38) 1.3 The directors want to give R500 000 to a local school. Give TWO reasons why companies take such decisions. A. INFORMATION: Extract of balances on 28 February 2020: (4) R Ordinary share capital 13 650 000 Retained income (1 March 2019) 567 000 Fixed assets at carrying value 2 Fixed deposit: Peoples Bank 2 Loan from director 630 000 Debtors’ control 554 000 Provision for bad debts (1 March 2019) 31 300 Bank (favourable) 2 Trading stock 1015 000 Consumable stores on hand 25 000 Creditors’ control ie Expenses prepaid 19 240 SARS: Income tax (provisional tax payments) 900 000 B. Share capital: * The authorised share capital of Modise Ltd is 6 500 000 ordinary shares. * On 20 February 2020, 250 000 shares were repurchased at 25 cents above the average share price. This has been recorded. * On 28 February 2020, the ordinary share capital comprised 4 550 000 ordinary shares. Page 20 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD C. Dividends: + Interim dividends of R672 000 were paid on 28 August 2019. * A final dividend of 36 cents per share was declared on 28 February 2020. All shares (including the shares repurchased on 20 February 2020) qualify for final dividends. D. Net profit before tax: + After taking all relevant information into account, the net profit before tax was accurately calculated to be R3 400 000. * — Income tax at 27% of the net profit must be taken into account. E. Fixed deposit: The interest on the fixed deposit was R48 000. The fixed deposit was invested on 1 May 2019 at 8% p.a. F. Loan from director: = The interest-free loan was received cn 1 September 2017. * This loan is to be repaid over six years in equal monthly instalments. The first repayment was made on 30 September 2017. All payments have been made to date. G. Provision for bad debts: The provision for bad debts must be adjusted to 6% of the outstanding debtors. The current ratio calculated after all adjustments was 1,5 : 1. ACTIVITY B1 ANSWER BOOK MODISE LTD 11 RETAINED INCOME NOTE Balance at beginning of year R567 000 Ordinary share dividends Balance at end of year 12 Page 21 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 1.2 MODISE LTD BALANCE SHEET ON 28 FEBRUARY 2020 2021 STEP AHEAD ASSETS Non-current assets Fixed assets Current assets Inventories TOTAL ASSETS EQUITY AND LIABILITIES Ordinary shareholders’ equity Ordinary share capital 13 650 00 Non-current liabilities Current liabilities | : 2 600 000 Trade and other payables Shareholders fordividends SARS: Income tax TOTAL EQUITY AND LIABILITIES Page 22 of 108

KZN ACCOUNTING ACTIVITY B2 GRADE 12 LEARBERS COOPER LTD You are provided with information for the financial year ended 30 June 2020. REQUIRED: Refer to Information B. 2021 STEP AHEAD Calculate the missing amounts denoted by (a) to (c) in The Fixed Asset Note for vehicles. 2.2 Complete the Balance Sheet (Statement of Financial Position) on 30 June 2020. Show ALL workings. INFORMATION: A. Extract from the books on 30 June 2020: Balance sheet accounts section R Ordinary share capital 3746 500 Retained income 7 Mortgage loan: Gaga Bank 752 000 Fixed assets at carrying value (balancing figure) ? Trading stock 450 000 Debtors control 2 Provision for bad debts 17 200 Bank (favourable) 510 640 Petty cash 2 400 Fixed deposit: Shallow Bank (5,5% p.a.) 650 000 SARS (Income tax) 446500 | Creditors control 661 600 Nominal accounts section Rent income 176 880 Directors’ fees 518 000 Dividends on ordinary shares (interim) 404 800 B. Extract from the Note for Fixed assets VEHICLES Carrying value - Beginning (a) Cost 285 000 Accumulated depreciation (91 200) Movements Additions at cost 180 000 Disposals at carrying value (b) Depreciation (c) Carrying value - End Cost Accumulated depreciation Page 23 of 108 (13) (36)

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEPHEAD ACTIVITY B2 Additional information in respect of fixed assets: e Fixed assets consist of Land and buildings, Vehicles and Equipment. © On 1 July 2019 Cooper Ltd had the following vehicles: Two delivery vehicles purchased on 1 October 2017 at R142 500 each. Depreciation on vehicles is calculated at 20% per annum on the diminishing balance method. © One of the vehicles was written off in an accident on 31 March 2020. The insurance company, BST Insure, agreed to pay out R79 800 on 31 July 2020. © Cooper Ltd replaced the delivery vehicle written off with a new vehicle purchased on 1 June 2020 for R180 000. This was correctly recorded. Share capital and dividends e 80% of the 1 000 000 authorised shares were in issue on 30 June 2020. e The directors declared a final dividend of 75 cents per share on 30. June 2020. Trading stock and consumable stores on hand e Aninvoice issued to a debtor has not been recorded in full. Obsolete goods were sold for R4 000 which is 20% below cost. The selling price was recorded correctly but not the cost price. « Consumable stores on hand amounts to 15 300 on 30 June 2020. Provision for bad debts has already been adjusted fo 4% of the debtors of 2020. Loan from Gaga Bank R300 000 of the loan will be repaid during the next financial year. The following adjustments have not been taken into account: e The tenant has paid rent until 31 July 2020. The rent was increased by R1 320 from 1 April 2020. © The two directors earn the same monthly fees. Two month’s fees are still outstanding to both the directors. After the actual tax was calculated on the corrected net profit for the year, it was found that the provisional tax paid was R23 500 less than the actual tax. The NAV per share on 30 June 2020 amounts to 636 cents per share after all adjustments and information were taken into account. ANSWER BOOK 2.1 FIXED ASSETS (a) (b) (c) 13 Page 24 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2.2 BALANCE SHEET ON 30 JUNE 2020 2021 STEP AHEAD ASSETS NON-CURRENT ASSETS Fixed assets CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES ORDINARY SHAREHOLDERS' EQUITY Ordinary share capital 3 746 500 NON-CURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables TOTAL EQUITY AND LIABILITIES 36 Page 25 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD: ACTIVITY B3 WESTVILLE LTD The following information relates to Westville Ltd. The financial year ended 28 February 2020. REQUIRED: 3.1. Calculate the correct Net Profit after tax for the financial year ended 28 February 2020. (15) 3.2. Prepare the following notes to the Balance Sheet on 28 February 2019: * Trade and other receivables (9) * Retained income (12) 3.3, Prepare the Balance Sheet (Statement of Financial Position) on 28 February 2020. Show all workings (26) INFORMATION: A. The following items appeared in the Pre-Adjustment Trial Balance on 28 February 2020: Ordinary share capital (180 000 shares) 28 February 2020 R 909 000 Retained income (4 December 2019) 130.000 | Loan: M.G.M Bank 1140 000 Fixed asset at carrying value 2 Fixed deposit 700 000 SARS: Income Tax (Provisional tax payment) (Dr) 267 000 Creditors control 43 000 Debtors control 44 800 Provision for bad debts : 1700 Trading stock 92 400 Consumable stores on hand (Packing material) 12 000 Bank overdraft 5 000 Petty cash 4 500 B. On 4 December 2019, the directors approved the repurchase of 20 000 shares at R9.00 each. This transaction was properly recorded. Cc. The net profit before tax was incorrectly calculated as R1 449 200. D. The following information was not taken into account: (i) The director's fees of R625 000 was paid to two directors, One of the two directors requested his fees for March 2020 be paid in February 2020, due to financial problems. All two directors receive the same monthly salary. (ii) 80% of the packing materials were used during the financial year. Page 26 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD (iii) A debtor B. Modiba, who owes R1 200, has been declared insolvent his estate paid R480. This amount was received and not recorded. Write off the balance. (iv) Rent income of R177 600 was received for 14 months. The rent was increased on 1 September 2019 by 10%. (v) Aninterim dividend of R55 820 was paid on 1 September 2019, but was debited incorrectly to the salaries azcount. (vi) A debtor with a credit balance of R1 000 on 28 February 2020 must be transferred to the Creditors ledger. (vii) The loan statement from Paledi Bank reflected the following: Balance at beginning of financial year R 1 500 000 Repayment during the year (was recorded) fi Interest capitalized 157 500 Balance at the end of financial year 1 140 000 The capital portion of the repayment of the loan for the next financial year remains the same as the current financial year. (viii) Outstanding cheque on the Bank Reconciliation Statement on 28 February 2020 included: Cheque No. Date of | Name of Reason for Amount Cheque payee cheque 401 21 Feb 2020 BB Stores On account R3 000 (ix) Income tax amount to R255 000 and is equal to 30% of the net profit before tax. (x) _ A final dividend of 75 cents per share was declared on 28 February 2020 ACTIVITY B3 ANSWER BOOK 3.1 Page 27 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 3.2 Trade and other receivables Trade debtors (44 800 Provision for bad debts Net trade debtors Prepaid expense SARS Income tax (267 000 Retained income Balance at the beginning (130 000 Buy-back of shares Net profit after tax Dividends Paid /interim Final /recommended Balance at the end of the year Page 28 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY 3.3 Balance Sheet (Statement of Financial Position) on 28 February 2020. Asset Non-current assets Current assets Total assets Equity and liabilities Shareholders’ equity Ordinary share capital 909 000 Non-current liabilities Loan (1 140 000 Current liabilities Trade and other payables (43 000 Current portion of loan Shareholders for dividends Bank overdraft Total equity and liabilities Page 29 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY B4 44 42 CONCEPTS Choose ONE concept from the list provided for each example below. Write only the concept next to the question number (3.1.1-3.1.4) in the ANSWER BOOK. Non-current liability, current liability, current asset, financial asset 444 A fixed deposit that matures at the end of 3 years period. (1) 4.1.2 Consumable stores not used at the end of the financial year. (1) 4.1.3. Amount due to SARS in respect of income tax. (1) 4.1.4 Mortgage bond to finance the purchase of new property. (1) ALWAYS LIMITED The information below relates to Always Ltd. for the financial year ended 28 February 2020. REQUIRED: 42.1 Prepare the Retained Income note on 28 February 2020. (10) 4.2.2 Prepare the Balance Sheet (Statement of Financial Position) on 28 February 2020. Show ALL workings. (35) INFORMATION: A. Balances extracted from the accounting records on 28 February 2020, unless otherwise stated. R Ordinary share capital 2? Retained income (20 February 2020) 7 1 207 000 Loan: Direct Lenders (See Information E.) ? Fixed assets at carrying value (1 March 2019) 5 495 500 Fixed deposit GonowBank i (tttitititits~S ? Trading stock a 1361 000 Creditors’ control : 428 950 | Debtors’ control _ 556 000 Provision for bad debts (1 March 2019) 16 000 Bank (favourable) te Accrued expenses (expenses payable) 13 550 Prepaid expenses 8 800 SARS: Income tax (provisional tax payments) 506 000 Page 30 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD B. Share capital: e Always Ltd is authorised to sell 3 000 000 ordinary shares. © 1500 000 shares were in issue on 1 March 2019, the beginning of the financial year. © 500 000 new shares were issued on 1 December 2019 at R3,00 per share. * 100 000 shares were repurchased on 20 February 2020 from a shareholder who was relocating to another country at R110 000 above the average price. This transaction was properly recorded. C. Net profit before tax: e After taking into account all relevant information, the net profit before tax was accurately calculated to be R1 900 000. ¢ Income tax at the rate of 28% must still be brought into account. D. Dividends: e Aninterim dividend of R420 000 was paid on 28 August 2019. ¢ A final dividend of 44 cents per share was declared on 28 February 2020. All shares (including the shares repurchased on 20 February 2018) qualify for final dividends, which will be paid on 31 March 2020. E. Loan: Direct Lenders Balance on 1 March 2020 R 2813 500 Repayment during the year (including interest) 259 500 Interest capitalised 223 500 Balance on 28 February 2020 2777 500 © 20% of the loan balance will be paid in the next financial year. F. Provision for bad debts: The provision for bad debts is maintained at 5% of the outstanding debtors. Packing material to the value of R15 900 was on hand on 28 February 2020. H. Fixed assets and depreciation: No fixed assets were purchased or sold during the financial year. Depreciation for the financial year ended 28 February 2020 was R275 000. I. After all adjustments were taken into account on 28 February 2020 the following ratio existed: Debt-equity ratio 04:4 Current ratio 21:1 Page 31 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY B4 ANSWER BOOK 44 CONCEPTS 4411 4.1.2 413 41.4 4.2.1 Balance at beginning of year Ordinary share dividends Interim 420 000 Final Balance at end of year Page 32 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 4.2.2. Balance Sheet (Statement of Financial Position) on 28 February 2020. Asset Non-current assets Current assets Total assets Equity and liabilities Shareholders’ equity Ordinary share capital 909 000 Non-current liabilities Loan (1 140 000 Current liabilities Trade and other payables (43 000 Current portion of loan Shareholders for dividends Bank overdraft Total equity and liabilities Page 33 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD C: CASH FLOW STATEMENT THINGS TO REMEMBER The purpose of the cash flow statement and each section. The cash flow statement should report cash flows during the period under review by indicating the change in cash balances brought about by operating, investing and financing activities. (Note: It is essential that learners understand the FORMAT and each component of the cash flow statement) Operating Activities Cash flow from operations is usually the most important source of cash for the business. Any firm which does not generate cash from trading operations is likely to experience difficulty meeting its obligations at some stage. (A firm cannot continually raise cash from loans and issuing shares and remain sustainable.) Cash generated from operating activities consists of funds obtained from “running” the business which also includes collecting cash from debtors and paying creditors. Components are: Cash generated from Operations - may be inflow/(outflow) Interest paid - (always outflow) Taxation paid - (always outflow) Dividends paid - (always outflow) Investing activities A firm must invest adequately in maintaining and/or expanding its operating capacity (i.e. buying new assets or replacing old ones) to ensure the ability to generate income. (Simply new assets need to be acquired and old assets need to be replaced for the business to remain competitive.) Firms may acquire (buy) and dispose(sell) e Land buildings, e Equipment, e Vehicles, e Fixed deposits Components of investing Activities: Purchase of tangible assets - (always outflow) Disposal of tangible of assets — always inflow Increasing of fixed deposit - (always outflow) Decreasing of fixed deposit — always inflow Page 34 of 108

KZN ACCOUNTING GRADE 12 LEARBERS. 2021 STEP AHEAD Financing Activities Cash obtained from financing activities shows whether “capital”, long term funds to run the business, is being obtained from interest bearing debt (loans) or from the equity. i.e. ls money coming from shareholders or banks? (Note: the buyback of shares must be thoroughly taught) Components: Proceeds from shares issued — always inflow Repurchase of shares — (always outflow) involves the total amount paid from bank i.e. average price + excess paid above average price x number of shares Loan raised - always inflow Loan repaid - (always outflow) Net Change in Cash and Cash Equivalents The cash net change in cash and cash and cash equivalents can be calculated as the result of the following: e cash from operating activities e cash from investing activities © cash from financing activities OR The difference in the balance of cash and cash equivalents at the beginning and the end of the financial year. Note 1: Reconciliation between net profit before taxation and cash generated from operations: Components: Net profit before taxation Adjustments in respect of: Depreciation (add back) Interest expense (add back) Operating profit before change in working capital Changes in working capital (Increases)/decreases in: Inventories (Increase)/decrease debtors Increase/(decrease) in creditors Cash generated from operations Note to teacher: Ensure that learners are exposed to different methods of obtaining e the net profit before taxation e Interest expense and interest paid always capitalised e Debtors - including accrued income/prepaid expenses and excluding SARS income tax ¢ Creditors — include expenses accrued/deferred income exclude interest due; SARS income tax and shareholders’ dividends. Page 35 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD™ ACTIVITY C1 1.1. Complete the CASH GENERATED FROM OPERATIONS NOTE on 28 February 2020. 1.2 Calculate the following amounts that will appear in the Cash Flow Statement on 28 February 2020: e Dividends paid e Tax paid 1.3. Prepare the CASH EFFECTS OF FINANCING ACTIVITIES section to the Cash Flow Statement for the year ended 28 February 2020. A. INCOMPLETE FIXED ASSETS NOTE Land & Vehicles Equipment Buildings Carrying value at the beginning of the year 18 686 700 1080 000 481 600 Cost 18 686 700 1 800 000 600 000 Accumulated depreciation (720 000) (118 400) Movements Additions (at cost) * * : Asset disposal (0) (0} | * Depreciation (0) it Carrying value at the end of the year 24 120 300 | * * Cost 24 120 300 | * 700 000 Accumulated depreciation (0) (1110 000) | * (a) Land and buildings e Extensions to the buildings were done during the current financial year. (b) Vehicles e Anew vehicle was bought on 1 December 2019. e No vehicles were sold during the year. e Depreciation is written off on vehicles at 20% p.a. on the cost price method. (c) Equipment ¢ A photo-copier bought on 1 March 2018 for R200 000 was traded-in for an upgraded model on 28 February 2020. The accumulated depreciation on this photo-copier on the date of trade-in was R38 000. e Depreciation on equipment is written off at 10% p.a. on the diminishing balance method. Page 36 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD B. SHARES AND DIVIDENDS e Additional shares were issued on 30 August 2019. e Shares were repurchased from certain shareholders at R9,00 per share during October 2019. ¢ — Aninterim dividend was paid on 31 July 2019. e A final dividend of 50 cents per share was declared on 28 February 2020. Only shareholders on the current share register are entitled to final dividends. ACTIVITY C1 ANSWER SHEET 1.1. | CASH GENERATED FROM OPERATIONS Gross operating profit before changes in working capital 6 127 160 CHANGES IN WORKING CAPITAL Change in inventory (170 100) Cash generated from operations 1.2 Calculate the following amounts that will appear in the Cash Flow Statement on 28 February 2020: 1.3 | Dividends paid 1.4 | Tax paid LT 15 CASH FLOWS FROM FINANCING ACTIVITIES Page 37 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD” * ACTIVITY C2 You are provided with information relating to Jon-Jon Limited for the financial year ended 30 June 2020. REQUIRED: 24 Calculate the following amounts for the Cash Flow Statement: e Income tax paid e Proceeds from sale of fixed assets 2.2 Complete the following sections of the Cash Flow Statement: e Cash flow from financing activities e Cash and cash equivalents INFORMATION: A Extract from Income Statement for the year ended 30 June 2020 Sales R 5 678 800 Cost of sales 3 294 000 Gross profit 2 384 800 Depreciation 440 000 Interest on loan 309 600 Net profit before tax 529 200 Income tax 158 700 Net profit after tax 370 500 B Extract from Balance Sheet on 30 June 2020 2019 R R Ordinary share capital 2 809 500 2 328 000 Retained income 508 500 396 000 Fixed assets 6 278 200 4 699 200 Trading stock 180 080 390 000 Trade and other debtors 75 600 242 700 SARS Income tax 15 400 (Cr) 12 000 (Dr) Cash and cash equivalents 52 800 39 600 Bank overdraft - 79 500 Loan: ABSA 2 940 000 2 220 000 Trade and other creditors 175 280 258 000 Shareholders for dividends 138 000 102 000 Total current assets 308 480 684 300 Total current liabilities 328 680 439 500 Page 38 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ADDITIONAL INFORMATION: (i) Share capital: e The authorised share capital is 700 000 ordinary shares. e 50000 shares were repurchased from a dissatisfied shareholder at R1,00 above the average share price of R4,50 on 30 April 2020. e Additional shares were issued during the year. e There were 600 000 shares in issue at the end of the year. (i) Fixed assets: e Fixed assets to the value of R2 599 000 were purchased. © Old equipment were sold at carrying value (book value) during the financial year. ACTIVITY C 2 7a Calculate the missing amounts in the Cash Flow Statement. Missing item Calculations Amount 2.2 CASH FLOW FROM FINANCING ACTIVITIES 23 CASH AND CASH EQUIVALENTS Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year ACTIVITY C 3 3.1 Complete the Cash Flow Statement for the year ended 30 June 2020. 3.2. The Cash Flow Statement reflects some important decisions taken by the directors. Apart from the dividends, identify TWO good decisions. Explain the effect of each decision on the company. Quote figures. Page 39 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD INFORMATION: A. Extract from the Income Statement on 30 June 2020: (R) Depreciation 61 000 Interest on loan 82 000 Net profit before tax 257 400 Income tax 75 600 B. Extract from the Balance Sheet on 30 June: 2020 2019 (R) (R) Fixed assets (at carrying value ) 1 505 400 1 201 500 Financial assets 495 000 185 000 Shareholders’ equity 7 683 200 4 495 400 Ordinary share capital 7 644 000 4 200 000 Retained income 39 200 295 400 Loan 400 000 560 000 SARS : income tax Cr 12500 Dr 8 000 Shareholders for dividends 174 000 210 000 Cash and cash equivalent 2 922 000 2.000 Bank overdraft - 17 100 Cc. Shares: e Authorised share capital is 2 000 000 ordinary shares. © On 30 June 2019, 1 200 000 ordinary shares had been issued. e On 1 January 2020, 40 000 shares were repurchased at R4.10 © On 30 June 2020, all shares that were un-issued as at 30 June 2019 were issued. D. Dividends: e Interim dividends of 20 cents per share was declared and paid on 31 December 2019. e Final dividends was declared on 30 June 2020. E Fixed assets: * Anold vehicle was sold at its book (carrying) value of R23 500 during the financial year. e Additional fixed assets were purchased during the financial year. Page 40 of 108

3.1 3.2 KZN ACCOUNTING GRADE 12 LEARBERS ACTIVITY C3 2021 STEP AHEAD Cash Flow Statement for the year ended 30 June 2020 Cash flow from operating activities Cash generated from operations 639 100 Interest paid (82 000) Cash flow from investing activities Cash flow from financing activities Net change in cash and cash equivalent Cash and cash equivalent at the beginning (2 000 - 17 100) (15 100) Cash and cash equivalent at the end 2 922 000 company. Quote figures. Apart from the dividends, identify TWO good decisions. Explain the effect of each decision on the Decision Consequence Page 41 of 108

KZN ACCOUNTING ACTIVITY C 4 44 GRADE 12 LEARBERS Complete the Cash Flow Statement for the year ended 28 February 2020. Some of the figures have already been entered for you. 2021 STEP AHEAD 4.2 The Cash Flow Statement reflects some important decisions that have been taken by the directors during the financial year. 4.3 List TWO of these decisions and explain why each of these decisions will have an important effect on the future results of the company. In each case, quote figures from the Cash Flow Statement to support your answer. INFORMATION: A _ Extract from the Income Statement for the year ended 28 February 2020: Cost of sales R1 330 000 Depreciation 56 000 Interest expense 78 750 Net profit before tax 747 000 Income tax 224 000 B Extract from the Balance Sheet on 28 February: 2020 2019 Ordinary shareholders’ equity 1 953 500 768 000 Ordinary share capital "1 700 000 Retained Income te 68 000 Long-term liabilities (15% p.a.) 125 000 940 000 Investment in fixed deposit 80 000 330 000 Inventories (only trading stock) 210 000 175 000 Debtors control 140 000 112 000 Creditors control 142 100 82 250 Bank (favourable balance) te 2 000 Bank overdraft - 922 000 Fixed/Tangible assets 1 928 600 2 937 600 SARS (Income tax) Dr 45 000 Cr 17500 Shareholders for dividends 320 000 175 000 C Share capital The business has been registered with an authorised share capital of 800 000 ordinary shares. 1 March 2019 The issued share capital consisted of 175 000 ordinary shares. 30 November 2020 2 500 ordinary shares were repurchased from a retired shareholder at a total cost of R12 500. 31 January 2020 200 000 ordinary shares were issued at R5,50 per share. D Dividends The 2020 Cash Flow Statement reflected dividends paid of R280 000. Page 42 of 108

KZN ACCOUNTING GRADE 12 LEARBERS ACTIVITY C4 ZOLILE LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2020 2021 STEP AHEAD CASH FLOW FROM OPERATING ACTIVITIES Cash generated from operations 878 600 Interest paid (78 750) Dividends paid (280 000) CASH FLOW FROM INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES Net change in cash and cash equivalents Cash and cash equivalents beginning of year Cash and cash equivalents at the end of year Page 43 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD D. ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS (COMPANIES) Ratios must be grouped into seven categories, namely: profitability, operating efficiency, liquidity, solvability, returns, risk and gearing and markets prospects The following financial indicators are of importance in grade 12. Profitability indicators e Gross profit on turnover e Gross profit on cost of sales Operating efficiency indicators. e Operating profit on sales e Net profit on sales e Operating expenses on sales Liquidity ratios Current ratio Acid- Test ratio Debtors collection period Creditors payments period Stock turnover rate Stockholding period Solvency ratios e Solvency ratio Returns/market indicators e Return on shareholders’ equity e Net asset value per share e Dividends per share e Earnings per share Risk/ gearing indicators e Return on total capital employed Interest on loan rate Debt to equity ratio The meaning of each category must be taught thoroughly to learners using examples. Formulae must be taught to learners using the categories mentioned above. When commenting, learners are encouraged to quote figures (current year vs previous year or business X vs Business Y figures or compare figures to those of other similar businesses). ¢ Compare ratios to the previous year’s figures to see whether there is an increased or decreased. The ratios can help us to: e Check whether there is a growth or stagnation in the business Check results with competitors’ performance. Compare current results to previous years. Compare results to general economic indicators in the country or globally. Compare results to alternative investments. Determine the degree of financial risk by investors or creditors Take decisions with regards to dividend policy of the company Some people interested in majoring the business results: Management Investors Shareholders Banks SARS Trade unions Competitors C6 6.6 6 © 6 Page 44 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITIES ACTIVITY D1 (MP TRIAL EXAM 2020 QUESTION 4) 1.1. | Concepts REQUIRED Concepts relating to companies are given in COLUMN A and descriptions in COLUMN B. Choose a description from COLUMN B that matches a concept in COLUMN A. Write only the letter (A — D) next to the question number (1.1.1 - 1.1.4) in the ANSWER BOOK. COLUMN (CONCEPT) COLUMN B (EXPLANATION) 1.1. | Liquidity A indicates the benefit that the owners receive from their investment in the business 1.2. | Solvency B indicates the extent to which a business is financed by borrowed capital 1.3. | Gearing Cc indicates whether the business can pay off immediate debts 1.4. | Return on D indicates whether the business will be able to pay off all its (4X1) equity debts 1.2.1 | Comment on the overall liquidity position of the company. Quote THREE relevant financial indicators (with figures). (8) 1.2.2 | The directors decided to change the dividend pay-out policy in 2020. e Provide calculations that indicate the policy change. (4) ¢ Explain the effect of this change of policy on the company. State TWO points. (4) 1.2.3 | One of the directors feels that the company should pay back the loan as soon as possible. What are your views about this? Quote and explain TWO relevant financial indicators with figures. (6) 1.2.4 | Explain why the shareholders are satisfied with: © The market price of the shares on the JSE (2) e The price at which the 75 000 shares were repurchased on 25 April 2020. (2) NB. In EACH case, quote figures/financial indicators. INFORMATION: The following financial indicators were calculated on 30 April: 2020 2019 Current ratio 18:1 ee Acid-test ratio 09:1 aie Stock-holding period 52 days 68 days Debtors’ collection period 47 days 30 days Debt-Equity ratio 031 04:1 Return on average capital employed 11% 13% Return on average shareholders’ equity 13,5% 145% Earnings per share 107 cents 112 cents Dividends per share 105 cents 40 cents Net asset value per share 775 cents 768 cents 30 Market price per share (JSE) 960 cents 777 cents Repurchase price per share 800 cents : Interest rate on loan 14% 13% Page 45 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD D1: ANSWERSHEET 14 CONCEPTS 1.1.1 1.1.2 1.1.3 1.1.4 (4X1) 1.2 MIRIAM LTD 41.2.1 Comment on the overall liquidity position of the company. Quote THREE relevant financial indicators (with figures). (8) 1.2.2 | The directors decided to change the dividend pay-out policy in 2020. Provide calculations that indicate the policy change. (4) Explain the effect of this change of policy on the company. State TWO points. () 1.2.3 | One of the directors feels that the company should pay back the loan as soon as possible. What are your views about this? Quote and explain TWO relevant financial indicators with figures. (6) 1.2.4 | Explain why the shareholders are satisfied with the market price of the shares on the JSE. Quote figures/financial indicators. (2) Explain why the shareholders are satisfied with the price at which the shares were repurchased. Quote figures/financial indicators. (2) Page 46 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY D2 (KZN TRIAL 2020 QUESTION) 2.1 | CONCEPTS Choose a description in COLUMN B that matches the user of financial statements in COLUMN A. Write only the letters (A to D) next to the question numbers (2.1.1 to 2.1.3) in the ANSWER BOOK. COLUMN A COLUMN B 2.1.1_| Trade unions A | want to be assured that their investment in the company is used wisely 2.1.2 | SARS B use the financial statements to make decisions to manage the company 2.1.3 | Shareholders C | monitor whether their members are paid fairly D need to be assured that income tax is levied on the net profit correctly 2.2 | MAHLABATHINI The information relates to the financial year ended 30 June 2020. REQUIRED: 2.2.1 | Retained income (11) 2.2.2 | The company intends issuing the balance of the authorised share capital in the next financial year, The directors proposed that a fair issue price would be R10.20 per share. e Asanexisting shareholder what factors/ financial indicators would you assess in (4) determining whether R8.50 per share is a fair issue price? Provide reasons for your choices. e Khethiwe owned 43% of the shares in issue on 30 June 2019. Calculate the minimum (3) number of shares she must purchase in order to retain her position as the major shareholder. e The major shareholder has suggested that she should be given the first option to purchase the additional shares before they are advertised to the public. What advice (2) would you offer to the directors concerning this proposal? 2.3 Companies buy back shares from time to time. Explain the benefits from such transactions. (4) Explain TWO benefits. 24 Quote TWO financial indicators (with figures and trends) that indicate an improvement in the (4) liquidity position of the business. 2.5 The company paid back a large portion of the loan. Explain why this was a good decision. (4) Quote TWO financial indicators (with figures) 2.6 Comment on the dividend pay-out policy over the past two years. Provide a possible reason (5) for the policy adopted. Quote figures. INFORMATION: A. Extract from the Income Statement on 30 June: 2020 2019 Interest on loan 17 000 12 000 Income tax (30% of the net profit before tax 90 000 81 000 B. Extract from the Balance Sheet on 30 June: 2020 2019 Ordinary share capital 4 890 000 2 100 000 Retained income ( 9 January 2020) 560 000 Page 47 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD Cc. Shares: ¢ The company is authorised 400 000 shares. ¢ 300 000 shares were in issue on 30 June 2019 ¢ On 10 January 2020, 30 000 shares were repurchased at R9. ¢ 270000 shares were in issue on 30 June 2020. D. Financial indicators on 30 June: 2020 2019 Current ratio 19:1 14:1 Acid test ratio 07:1 0.8:1 Average debtors collection period 38 days 57 days Average creditors payment period 30 days 63 days Debt/equity ratio 0.2:1 05:1 Earnings per share (EPS) 84 cents 63 cents Dividends per share (DPS) 34 cents 52 cents Return on shareholders’ equity (ROSHE) 11% 9% Return on capital employed (ROTCE) 20.8% 22.3% Net asset value per share (NAV) 1033 cents 490 cents Market price on JSE 850 cents 485 cents Interest on investment 7% 5% Interest rate on loans 11% 10% ACTIVITY D2: ANSWER SHEET 2.1 | Choose a description in COLUMN B that matches the user of financial statements in COLUMN A. Write only the letters (A to D) next to the question numbers (2.1.1 to 2.1.3) in the ANSWER BOOK. 2.1.1 2.1.2 243 (3X1) 2.2 2.2.1 | Retained income Paid 27 500 (11) Page 48 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 2.2.2. As an existing shareholder what factors/ financial indicators would you assess in determining whether R10.20 per share is a fair issue price? Provide reasons for your choices. Khethiwe owns 43% of the shares in issue on 30 June 2019. Calculate the minimum number of shares she must purchase in order to be a major shareholder. The majority shareholder suggested that she should be given the first option to purchase the additional shares before they are advertised to the public. What advice would you offer to the directors concerning this proposal? 2.3. Companies buy back shares from time to time. Explain the benefits from such transactions. Explain TWO benefits. (4) 2.4, Quote TWO financial indicators (with figures and trends) that indicate an improvement in the liquidity position of the business. (4) 2.5. The company paid back a large portion of the loan. Explain why this was a good decision. Quote TWO financial indicators (with figures) (4) 2.6. Comment on the dividend pay-out policy over the past two years. Provide a possible reason for the policy adopted. Quote figures. Page 49 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY D3 FS TRIAL EXAM 2020 Q3 & 4 <ale PROGRESS LTD You are provided with information from the financial statements of Progress Ltd. The financial year ended on 29 February 2020. REQUIRED 3.1.1 | Calculate the net asset value per share on 29 February 2020. 3.1.2 | Calculate the return on total capital employed for the 2020 financial year. 3.1.3 | The directors of Progress Ltd want to take out a loan for R500 000. Would you advise them to take out the loan? Quote ONE financial indicators (actual figure/ratio/percentage) that are relevant to their decision. 2020 2019 Shareholders’ equity 1 630 000 1 280 000 Shares issued 400 000 300 000 Loan: Direct Loans 380 000 520 000 Current assets 488 000 412 000 Current liabilities 621 000 578 000 Total assets 2 631 000 2 378 000 Net profit before income tax 620 000 388 000 Net profit after income tax 452 600 429 240 Interest expense 76 200 68 400 FINANCIAL INDICATORS AT THE END OF THE FINANCIAL YEARS 2020 2019 Debt/Equity ratio 0,23:1 0,41:1 Current ratio 0,79:1 0,71:1 Asset test ratio O00 541 0,45: 1 Return on total capital employed 2 25,4 % Return on shareholders’ equity 24,3 % 36,1 % Solvency ratio 2,6:1 22:4 3.2. | CONCEPTS REQUIRED: Choose a term in COLUMN B that matches the description in COLUMN A. Write the letter (A-E) next to the question numbers (2.1.1-2.1.5) in the ANSWER BOOK. COLUMN A (Term) COLUMN B (Description) 3.2.1} The extent to which a company is financed by loan A Solvency 3.2.2 | An increase in creditors indicates an ... of cash B Liquidity 3.2.3 | A decrease in creditors indicates an ... of cash c Inflow 3.2.4 | Ability of the business to pay of all its debts D Gearing 3.2.5 | Ability of the business to pay off its short-term debts E Outflow (5) Page 50 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 3.3 BENCO LTD You are provided with information relating to Benco Ltd for the financial year ended 30 September 2020. REQUIRED 3.3.1 | From 2019 to 2020 the directors made a deliberate decision to change the policy on the distribution of profit in the form of dividends. Explain this change. Quote figures/calculations to support your answer. (4) 3.3.2 | Ifthe balance on the loan at the end of 2020 is R680 000, calculate the shareholders’ equity at the end of 2020. (2) 3.3.3 | Comment on whether the shareholders should be satisfied with the market price of their shares. Quote TWO relevant financial indicators (actual figures/ratios/percentages) and their trend. Give an additional comment to support your answer. (5) INFORMATION C. | Financial indicators 2020 2019 Earnings per share (EPS) 60 cent 56 cent Dividends per share (DPS) 33 cent 56 cent Net asset value per share (NAV) 364,7 cent | 315,6 cent Debt/Equity ratio Oo: | On Current ratio 10741 1524 Acid test ratio 0,631 04:1 Market price per share 385 cent} 310 cent ACTIVITY D 3 ANSWERSHEET Page 51 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY D4 (KZN MARCH COMMON TEST 2020 Q 2 & 3) 4.1 | Choose an accounting concept from Column B that best matches the analysis questions in Column A. Write only the letter (A - D) next to the number (4.1.1 - 4.1.3) in the ANSWER BOOK. COLUMN A COLUMN B 4.1.1__| To what extent does the business rely on borrowed funds? A. Liquidity 4.1.2 | Can the business pay off all its debts? B. Solvency 4.1.3 | Is the business able to pay its short-term debts in the next C. Profitability financial year? D. Risk and gearing (3) 4.2. | Refer to information C. The CEO, Glencoe Hilton currently owns 46.4% of the issued shares on 1 March 2019. The board of directors has decided to repurchased some shares and issue all the unissued shares. 4.2.1. | Calculate the percentage (%) of shares that Glencoe owns after the repurchased of shares. (3) NOTE: None of Glencoe’s shares were repurchased 4.2.2. | Calculate the minimum number of shares Glencoe must buy when the unissued shares have been | (3) issued to gain control of the company. 4.2.3 | Glencoe wants to purchase the additional shares at R3,00 without advertising the shares to the | (3) public. Give THREE reasons (with figures) why you would not approve of this. 4.3. | The directors are of the opinion that the liquidity has decreased. Quote THREE financial indicators (with (3) figures) to support this opinion INFORMATION: C. | Shares: e Authorised share capital is 2 000 000 ordinary shares. e On 28 February 2019, 1 200 000 ordinary shares had been issued. ¢ On 1 October 2019, 40 000 shares were repurchased at R4.10. (These shares do not qualify for final dividends.) ¢ On 29 February 2020, all shares that were un-issued as at 28 February 2019 were issued. D. | Dividends: ¢ Interim dividends of 40 cents per share was declared and paid on 30 August 2019. Final dividends of 55 cents per share was declared. E. | Fixed assets: Fixed assets were sold for cash at a carrying value of R200 000 during the financial year. Fixed assets were also purchased during the financial year. F. | The following financial indicators were calculated for the past two financial years: 2020 2019 Current ratio OO Za Acid test ratio 0.5:1 0.9:1 Debtors collection period 21 days 38 days Stock turnover rate 11 times 15 times Debt-equity ratio Oni 0.3:1 Return on total capital employed (ROTCE) a 29% Return on shareholders’ equity (ROSHE) 17% 20% Earnings per share (EPS) 54 cents 33 cents Dividend per share (DPS) 95 cents 60 cents Net asset value per share (NAV) tf 390 cents Interest rate on investment 9% 9% Market value (JSE) 400 cents 300 cents Page 52 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 4.3. UVONGO LTD AND UMLAZI LTD You have R200 000 to invest in a listed company. You choose to focus on two companies in the same industry. Note: When answering the questions below, compare the information given and quote the relevant financial indicators of both companies (percentages, ratios and/or amounts). 4.3.1 | Compare and comment on the dividend pay-out policies of the two companies. (3) 4.3.2 | Comment on the value of the shares of the two companies on the Johannesburg Securities. (3) Explain how this will influence your choice of company. 4.3.3 | Comment on the degree of risk and gearing. Explain how this will influence your choice of (3) company. INFORMATION UVONGO LTD UMLAZI LTD Debt-equity ratio 0.4:1 1.44 Return on total capital employed (ROTCE) 16% 10% Return on shareholders’ equity (ROSHE) 19% 9% Earnings per share (EPS) 650 cents 1 000 cents Dividend per share (DPS) 585 cents 500 cents Net asset value per share (NAV) 350 cents 800 cents Market price of shares on JSE 470 cents 700 cents Interest rate on loans 11% 11% ACTIVITY D5 KZN JUNE COMMON TEST Q 4 5.1. | WEMBEZI LTD Veli is a shareholder in Wembezi Ltd. e He purchased 23 000 shares two years ago at R3,80 each. e On 1 March 2019 he purchased a further 2 000 ¢ On 1 February 2020 the company repurchased 3 000 of his shares. REQUIRED: 5.1.1 Calculate the amount of dividends Veli earned for the financial year ended 29 February 2020. | (3) Shares repurchased do not qualify for final dividends. 5.1.2 | Veli is not satisfied with the dividend policy of Wembezi Ltd. Explain why. Quote and compare | (4) relevant financial indicators to support his feelings. 5.1.3 | Veli wants to sell his shares in Wembezi Ltd and invest his funds in an alternative investment. | (4) Quote and explain TWO relevant indicators, other than dividends and earnings, to support his intention. 5.1.4 | Why would the company spend money on skills development? Explain ONE point. (2) 5.1.5 | Refer to Information A. (2) How did the company benefit from this (4.1.4)? Name ONE example and quote figures. Page 53 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD INFORMATION: Extract from the Income Statement for the year ended: 29 Feb 2020 28 Feb 2019 Sales 18 500 000 13 700 000 Cost of Sales 13 200 000 9 500 000 Directors fees 2530 000 1800 000 Audit fees 620 000 570 000 Skills development 140 000 80 000 Salaries and wages 480 000 375 000 Workplace accident cost 8 000 23 000 Electricity 121 000 118 000 Loss of production 2000 7 000 Interest expense 175 500 270 000 Net profit before tax 1 875 000 Dividends ¢ The company paid an interim dividend of 30c per share on 1 December 2019. repurchased do not qualify for final dividends. e A final dividend of 50c per share was declared at the end of the financial year. The shares The following ratios were calculated on: 29 Feb 2020 28 Feb 2019 Return on shareholders’ equity 20% 23% Closing price on JSE 640 cents 750 cents Dividends per share 85 cents 120 cents Earnings per share 170 cents 160 cents Return on total capital employed 27% 28% Net asset value 655 cents 760 cents Debt/Equity ratio 0.11:1 0.14:1 Page 54 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY D6 KZN JUNE COMMON TEST Q4 6.1 | ZINKWAZI LTD You are provided with information relating to Zinkwazi Ltd for the financial year ended 30 June 2020. REQUIRED: 6.1.1 | Comment on the liquidity position of the company. Quote THREE financial indicators (with figures) in your answer. (6) 6.1.2 | One of the directors feel that the loan should be paid as soon as possible. Do you agree? Explain. (5) Quote TWO financial indicators with figures to support your answer. 6.1.3 | The shareholders should be satisfied with the return on their investment and the companies’ | (4) earnings. Explain TWO financial indicators with figures to support this opinion. INFORMATION: The following financial indicators were calculated: INDICATORS 30 June 2020 | 30 June 2019 Return on shareholders’ equity 18% 10.6% Return on capital employed 24% 14% Debt/equity ratio 0.06 : 1 0.28: 1 Earnings per share 49 cents 45 cents Dividends per share 30 cents 45 cents Net Asset Value per share 695 cents 572 cents Current ratio 0.9:1 eal Acid-test ratio 04:1 0.6:1 Rate of stock turnover 3 times 5 times Interest rate on loan 16% 12% Interest rate on investment 6% 5% Market value per share on JSE 810 cents 720 cents Page 55 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD E: INVENTORY VALUATION THINGS TO REMEMBER Stock validation is how to validate and calculate inventories at the end of the financial year using the Weighted average, FIFO or Specific identification method In simple language, this topic is all about at what value are you going to record the closing stock. You have bought stock during the year at different prices and now at the end of the financial year you have to take stock and put a value to the closing stock. To ensure that you understand the aim of this topic, you need to revise on the perpetual and periodic stock methods METHODS OF DETERMINING THE STOCK VALUE. During the financial year, an enterprise paid different prices for various purchases. Only a portion of the stock purchased during the year will be left at the end of the financial period. A decision has to be taken as to which of the various prices for the stock purchased during the year must be regarded as the purchase price for those items still on hand. When adopting a method to determine the cost price of the stock still on hand, the wisest choice would be that method which can facilitate the most realistic determination of profits for any specific business. The THREE methods most generally used to determine cost of stock on hand at the end of the financial period are: . Specific identification method Weighted average method ° First-in-first-out method (FIFO) BASELINE KNOWLEDGE ON THE PERIODIC AND PERPETUAL STOCK SYSTEMS PERPETUAL STOCK SYSTEM PERIODIC STOCK SYSTEM © Cost of sales is calculated when goods are sold. ¢ Cost of sales is NOT calculated during the year e Cost of sales is calculated every time cash or credit | Cost of sales is only calculated at the end of a month sales are recorded. or at the end of the year. e Undertakings where it is a challenge to calculate the cost price of single articles, e.g. grocery stores, fresh produce, bakeries, etc. e — Itis not so easy to determine the cost price of this type of stock. e They will know how much stock they have only when they do a physical stock count at the end of the financial year. Undertakings that are selling one type of commodity, like cars, or Persian carpets, or DvD’s, will make use of the perpetual stock method. This system requires a computer system which can scan the barcode on the stock. This means that the Trading stock is updated on a daily basis so that they always know how much stock is available. Page 56 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD PERPETUAL STOCK SYSTEM PERIODIC STOCK SYSTEM Advantages Advantages v Better control over stock v The system is cost effective. v Allmovements in stock is recorded on a daily/ v tis not necessary to calculate cost of sales regular basis records are always up to date v v Theft are quickly detected ¥ Internal controls can be improved Y Cost price of the goods sold and gross profit can be determine when goods are sold. ¥ Trading stock can be easily controlled through regular stock counts. v Trading stock deficit can be calculated immediately. Disadvantages ¥ Accomputer system is required and can be expensive. ¥ Itis difficult to monitor costs related to the acquisition of stock e.g. carriage on purchases, custom duty, because this cost are added to the trading stock account Di v v v Suitable for a business with a variety of goods and services where it is difficult to determine the cost price. This system is used when the commodity’s cost price is not easily determined. Quick and easy to use with minimum administration required sadvantages Theft will not be easily detected. Final stock figure is only determined by counting the goods. Gross profit can only be determined at the end of the month/week when a stock take is done as there is no cost of sales entries and regular updates of the Trading stock account CALCULATION OF COST OF SALES The following calculations must be encouraged to be done and understood by all learners. PERPETUAL INVENTORY Sales is R200 000 Cost of sales is 60 % on cost PERIODIC INVENTORY | e.g. Opening stock 10 000 Plus Purchases (net) 100 000 (Purchases minus creditors allowances) ( 108 000 - 8 000) Plus Carriage on Purchases 18 000 Plus Custom / Import duties 12 000 140 000 Less Closing Stock ( 15 000) = COST OF SALES 125 000 200 000 x 100 = R125 000 160 Cost of Sales = R125 000 G. CALCULATION OF GROSS PROFIT Memorise the format and do activities to revise the TRADING ACCOUNT and PURCHASES ACCOUNT before calculating the value of the closing stock using the three stock validation methods Page 57 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD PERIODIC INVENTORY PERPETUAL INVENTORY DR TRADING ACCOUNT (F1) CR +Opening stock | 10000 } Closing stock | 15000 *Purchases [100 000 | -Sales (net) | 200000 | | SAA a 18 000 Cost ofsales _|125000 | Sales 200 000 +Custom duties | 12000 Pate 75.000 Profit and loss (gross profit) | 75 000 200 000 200 000 215 000 215 000 (closing stock +sales)- (opening stock+ purchases + carriage on purchases + custom duties) = gross profit (15 000 + 200 0000) - (10 000 + 100 000 + 18.000 +12 000) = 75 000 STOCK VALUATION METHODS Sales(net) minus cost of sales = Gross profit 200000 - 125000 =75 000 The price of stock always changes. Shops do not always wait until they are completely sold out before ordering more stock, so, on the shelves at any time will be, for example, the same cans of condensed milk with different pu chasing prices. When we do stock taking, at what price are we going to value the condensed milk cans? The 3 options at school level are Specific Identification, FIFO and Weighted Average Method that will be used to demonstrate the valuation of stock. is calculated. the closing stock the exact cost price that the stock was bought therefore the stock will be valued at the original cost at a slightly higher price assuming that the latest price for the goods is the highest price of the year TOPIC SPECIFIC FIFO WEIGHTED AVERAGE IDENTIFICATION When the value of | a The stock will be at a The stock will work out | a The stock will not actually be the cost of any goods bought and may be low if goods have not been bought recently profit of weighted average method in the current financial period price. Gross profit a The gross profit will | a The Gross profit willbe | a Can be lower be as is. higher than the gross a The gross profit can show a smaller profit than FIFO Page 58 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD a This is the simplest form of stock validation, where every item is assigned a specific cost price. a This system is relevant when large commodities are sold and every unit has its own cost price, e.g. vehicles, machinery, etc. a That means that this system requires that the cost price must be identified of every commodity sold or when stocktaking is done. a Specific identification is a more manually intensive method in managing the stock. a So every item in stock will be recorded at the specific price originally bought. a The disadvantage of this method is that the price of e.g. a vehicle can be manipulated. A red Ford 1.6 was bought at the beginning of the year for R100 000 and during the year the dealer bought a white Ford 1.6 at an increased cost price of R130 000. When the red car got sold the dealers can manipulate the price by recording the cost price as R130 000. So the profit was manipulated by showing a smaller profit than the true profit. The dealers can do the opposite as well when they want to show a higher profit. Q This is the simple and easy way of doing it. a The stock that was bought first is sold first, and the stock on hand at stock taking, will be the stock that you recently bought. Q So you sell the goods in the order that you bought the stock. Q The system can be used for any type of business a The trader that stocks products that do not have a long life (short/ limited shelf life) will preferably use this method. a Proper packing and display is essential - “old” stock should be in the front and “new’ stock at the back. a The Prudence concept is in used. The value of the stock at the year- end is realistic because the stock is valued at the most recent prices. a Weighted average method is used when lots of stock is bought in small quantities. a The average price gives a good composite picture of the cost of the goods. a The influence on the average price will be minimal when only a few items are bought. (You had 500 in stock at an average price of R10 (R5000) and you bought 2 at R50 (R100) a However when you had 2 in stock at an average price of R10 (R20) and you purchase 500 at R50 (25 000), the average price will be considerable. But the price of R50 per item is now showing as R49, 84. (therefore the stock purchasing value decreased) a Atthe end of the year when the closing stock value is determined, the average price will be used to calculate the value of the closing stock; a The average cost of a product is calculated by dividing the cost of the units by the total number of the units. Weighted means that the more stock you buy the greater the influence on the answer. Page 59 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD PHYSICAL CONTROL 1 ae. The single most important inventory control is to secure it. This could include constructing a fence, security gate, etc. Only allow authorized personnel into the warehouse. a ORGANISATION OF STOCK. It may not seem like a control to simply organize the inventory in the warehouse, but if you cannot find it, you cannot control it. Thus, a fundamental basis for inventory internal control is to number all locations, identify each inventory item, and track these items by location. a PHYSICAL CONTROL AND DOCUMENTATION: Count all incoming inventory. When stock is delivered at a business it must be done in an orderly manner. Stock to be delivered and counted and checked against the order form and the delivery form. This keeps errors from occurring in the inventory records. a PHYSICAL INSPECTION OF INCOMING INVENTORY. Verify that all incoming inventory is of the correct type and is not damaged. All items that fail inspection should be returned at once, and the accounts payable staff notified that the returned items should not be paid for. a DOCUMENTATION STANDARDIZES RECORD KEEPING. When an item is removed from the shelf in the warehouse, for use either in the production area or for sale to customers, have a standard procedure for recording these items as soon as they leave the warehouse. a AUTHORISATION: Proper authorisation for removal of inventory from the warehouse/store room. No items must be removed from the warehouse or store rooms without the necessary authorisation. a PHYSICAL CONDUCT OF A PERIODIC OBSOLETE INVENTORY REVIEW. A warehouse can eventually become choked with obsolete inventory that cannot be used, which requires high storage costs and also interferes with the components that are needed in production. Form a materials review board that periodically checks through the inventory records to determine which items should be sold off or otherwise eliminated. (prudence principle) a PHYSICAL CONDUCT OF CYCLE COUNTS. Have the warehouse staff conduct small, frequent counts of a small portion of the inventory, and investigate and correct any errors they find. This gradually improves the inventory record accuracy. (internal control) a DOCUMENTATION RECORD SCRAPS TRANSACTIONS. Do not just throw waste/ damaged items in a scrap bin when it occurs. If you do, the accounting system still thinks the scrapped item is in stock, and so will overstate the amount of inventory. Instead, create a procedure to track scrap on a regular basis. Page 60 of 108

KZN ACCOUNTING GRADE 12 LEARBERS. 2021 STEP AHEAD ACTIVITY :E1 BASELINE The items below were in stock and some sold: January to December 2020 You are provided with the information relating to Mnyandu Appliances. The following stock appeared on their stock cards. Study the template of the number of stock bought at purchase price and the selling price of all the stock sold. INFORMATION Make use of the Specific Identification stock method to calculate; GLG Gamsung Hosch Total value of stock Date INo| Cost price| Total JNo | Cost price} Total INo | Cost price Total Jan |Opening stock 2} @R1000 | R2000} 3} @R2000 |] R6000} 4 | @R3000 | R12 000 =R 20000 April [Purchases | 3| @R1200/R3600] 2| @R2100} R4 200] 2 | @R3300 | RE600| =R14400 Value of total stock R 32 400 No| Cost [Selling | No Cost Selling | No Cost Selling : price : price : price price price price Jan to |Sales 1} @R1000 | R2000 J 3 | @R2000 | R12000} 3 | @R3000 | R18000} =R32000 Dec. |Sales 2) @R1 200 | R4 800 | : 1 | @R3300 | R6600 | =R10400 Value of total sales R 43 200 *REQUIRED: 14 Number of unsold units. 1.2, Value of unsold units 13 Cost of Sales 1.4 Gross profit 15 Show the Trading Account in the Perpetual and Periodic Stock systems ACTIVITY :E1 BASELINE ae Number of unsold units: 1.2 Value of unsold units 1.3 Cost of Sales 14 Gross profit: ee ae _. Page 61 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 1.5 Perpetual inventory system Dr TRADING ACCOUNT (F1) N Cr Cost of Sales Sales (net) Profit and Loss (gross profit) Periodic inventory system Dr TRADING ACCOUNT (F 1) N Cr Opening Stock Sales Purchases(net) Closing stock Carriage on Purchases Profit and Loss (gross) ACTIVITY :E2 REVISION ON PRIOR KNOWLEDGE:/BASELINE ASSESSMENT | Activity to be done by teacher and learners] The following information was taken from the books of Mthembu Traders on 30 June 2020, the last day of the financial year. Mthembu Traders uses a mark-up of 25% on cost. Trading stock (1 July 2019) R_ 480 000 Purchases of stock during the year 370 000 Sales 910 000 Debtors Allowances 90.000 Carriage on purchases 6 000 Custom Duties 5 000 Trading stock ( 30 June 2020) 205 000 REQUIRED: Prepare the Trading account of Mthembu Traders on 30 June 2020 according to: 2.1 The perpetual inventory system 2.2 The periodic inventory system Page 62 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 2.1Perpetual inventory system Dr TRADING ACCOUNT (F 1) N Cr Calculation of cost of sales: 2.2 Periodic inventory system Dr TRADING ACCOUNT (F 1) N Cr Calculation of cost of sales: ACTIVITY :E3 REQUIRED: Use the information provided below to complete the following for Thabani’s Plumbing Suppliers for the year ending 31 July 2020. 3.1. The Purchases account in the General Ledger, correctly closed off on 31 July 2020. (13) 3.2 Calculate the Cost of Sales, for the year ending 31 July 2020, using the periodic inventory system. (7) (Show calculations in brackets so part marks can be awarded.) 3.3 Calculation of the Gross Profit for the year ending 31 July 2020. (5) Page 63 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD INFORMATION: Extract from the Trial balance on 1 July 2020: Trading Stock (1 August 2019) 10 600 Purchases 450 000 Carriage on Purchases 6 500 Sales 710 000 ADDITIONAL INFORMATION FOR JULY 2020: e R117 000 stock was purchased during July 2020. One third of this was for cash, the remainder was bought on credit. e — Thabani Plumbing Suppliers was charged R600 for the transportation of stock from the suppliers to their shop. e Defective stock valued at R 5 100 was retumed to Tool City, our creditor. © — The owner took stock worth R1 300 for personal use. e Total sales for the month amounted to R53 600. © — According to a physical count, stock worth R12 400 was on hand on 31 July 2020. ACTIVITY :E3 3.1 DR Purchases (25 Marks, 15 Minutes) CR 13 3.2 Calculation of Cost of Sales. 7 Page 64 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 3.3. Calculation of the Gross Profit for the year ending 31 July 2020. 5 ACTIVITY E 4 44 CONCEPTS Pick the correct stock concept from those within brackets. Write the correct answer only next to each number (4.1.1-4.1.4) in the ANSWER BOOK. (4) 4.1.1 The (first-in-first-out / weighted average) stock valuation method will record closing stock at the most current stock prices. 41.2 The (first-in-first-out / weighted average) method is more relevant for low cost stock items that is purchased on a more regular basis. 41.3 The (first-in-first-out / specific identification) valuation method is suitable for very expensive, individually identifiable stock items. 41.4 The (periodic / perpetual) stock system records the cost of goods sold at the point of sales. 42 40 Love Ivan Lendl owns 40 Love, a sports shop. The financial year ends on 30 April each year. The business uses the periodic inventory system to record stock. REQUIRED: 4.2.1 Refer to Information A: Tennis balls are valued using the weighted average method. Calculate: 0 Value of the closing stock (8) 1 The cost of sales (3) 0 The stock holding period (in days; use average stock) (4) 4.2.2 Comment on whether the stock holding period is appropriate or not. (2) 4.2.3 Refer to Information B: The specific identification method is used to maintain the stock records of tennis rackets. Calculate the following: 0 Value of the closing stock of Nexus rackets (10) 0 The gross profit on Olympus rackets. (4) Page 65 of 108

KZN ACCOUNTING INFORMATION: GRADE 12 LEARBERS A. — Tennis balls are sold in packs of three. Stock records of tennis balls: 2021 STEP AHEAD Total packs available for sale 120 PACKS COSTPER | toTaL (R) (units) PACK (R) Stock balance (1 May 2020) 132 7955 Purchases during the year: 610 48 120 July 2020 220 R75 16 500 October 2020 180 R80 14 400 January 2021 210 R82 17 220 Returns: 12 defective packs from the October 2020 purchases were returned to the suppliers and a full refund was received. Stock balance (30 April 2021) = B. — The business stocks and sells two brands of tennis rackets, Nexus and Olympus. Stock records of rackets (at cost) NEXUS OLYMPU units | UNIT 7 rota, | units | UNIT | total PRICE PRICE Opening Stock 1 May 2020 13 34 320 9 48 600 Purchases 60 169 750 36 200 500 July 2020 20 2800 56 000 2 5 525 66 300 October 2020 15 2750 41 250 10 5 580 55 800 January 2021 25 2900 72 500 14 5 600 78 400 Sales records NEXUS OLYMPUS BATCH UNITS UNITS SOLD. Lal SOLD. Lal. he 1 May 2020 1 39.050 4 32 400 | July 2020 16 56 800 it 49 725 October 2020 12 42600 6 58 590 January 2021 14 49 700 8 67 200 TOTAL 53 188 150 25 207 915 Nexus brand is sold at a fixed selling price per unit. Olympus brand is sold at a mark-up of 50% on cost. Page 66 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY E 5 : STOCKVALUATION AND PROBLEM SOLVING The information presented appeared in the books of Phelix Traders. The business is owned by Max Phelix. It sells a single brand laptop. The financial year ended on 28 February 2021. REQUIRED: 5.1 Refer to Information A and B: Calculate the value of the closing stock using the first-in-first-out (FIFO) method of stock valuation. (10) 5.2 Calculate the cost of sales of the laptops sold. (6) 5.3. Max wants to change his stock valuation method to either the weighted average method or the specific identification method. U ~How would a change in policy impact on the financial reporting of the business? Give ONE point. (2) 5.4 Taking into account the technology market, what advice can you offer Max regarding his marketing strategy and his pricing policy? Provide TWO points. (4) 5.5 The owner has submitted the claim form for the loss of stock as a result of the fire to the insurance company. However, the number of units destroyed in the fire was reflected as 15 while itis evidenced that there were no laptops lost due to fire. Explain what you would say to the owner regarding this insurance claim. (2) INFORMATION: A. UNIT Transport runs | PRE | cost | TR Stock balance on 1 March 2013 15 3400 fe 51000 Total purchases for the year: 62 329 360 Mav 2020 12 | 4250 | 230 53760] August 2020 20 4740 250 99 800 November 2020 14 5520 260 80 920 January 2021 16 5 650 280 94 880 Units returned to suppliers * zu 12 ? Stock balance on 28 February 2021 17 2 B. *Units returned to suppliers: e 3 units from the August purchased were returned because they were not according to the order placed. e 4 units from the January batch were returned due to minor damages in transit. In both cases the transport cost was borne by the business. Cc Laptops are sold at a fixed selling price of R7 500 each. Page 67 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 5.6 PROBLEM SOLVING Siddie Traders LTD has THREE branches at popular shopping malls selling a single brand of cookware. Although the business is making a profit, Siddie is concerned about the profitability of each branch. She decided to investigate and presented the information below, for June 2020 (one month). REQUIRED: 5.6.1 Identify a different problem (with relevant figures) in each of the branches. 5.6.2 Identify ONE branch that Siddie should consider closing down. Provide a valid reason for your choice. 5.6.3. Give Siddie ONE suggestion to address the problem identified in QUESTION 5.5.1 for each of the other branches. INFORMATION: The shops are open 7 days a week. Normal time is from 8:30 am to 4:30 pm, Mondays to Fridays (160 hours per month) Overtime is from 4:30 pm to 6:30 pm Mondays to Fridays and from 9:30 am to 12:30 pm on weekends (56 hours per month) Overtime salary rate is 1,5 times the normal rate. MENLYN MOORTON VINCENT RRANCU RDARNICL RRANCL Salesperson (age) Sally (42 years) Tim (27 years) John (62 years) Stock on hand (1 June 2020) 50 units 50 units 50 units Selling price per set R4 200 R4 200 R4 200 Sets sold 42 36 22 Sets returned 5 12 dl Credit sales R54 600 R88 200 R21 000 Deposits from cash sales R79 800 R12 600 R67 200 Hours worked (normal time) 154 hours 117 hours 102 hours Overtime hours 20 hours 52 hours 2 hours Rent expense (per month) R6 000 R8 000 R5 500 Page 68 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY 6: INVENTORY VALUATION (40 marks; 25 minutes) 6.1 Choose the correct term from those given in brackets. Write only the term next to the question numbers (6.1.1 to 6.1.3) in the ANSWER BOOK. 6.1.1 The most recent purchases will be considered as closing stock in the (FiFO/weighted-average) stock valuation method 6.1.2 Merchandise purchased is recorded in a Trading Stock Account in the (perpetual/periodic) inventory system. 6.1.3 Carriage on purchases is recorded as an (asset/expense) in the periodic inventory system (3x1) (3) 6.2 PHOTO-FIX TRADERS The information relates to Photo-fix Traders for the financial year ended 30 April 2019. The business is owned by Tom Samuels and sells two models of cameras (Grand and De-Lux) and photo frames. * The stock of cameras is valued using the specific identification method. + Photo frames are valued using the weighted average method. REQUIRED: 6.2.1 Calculate the value of closing stock of cameras on 30 April 2019. 6.2.2 Calculate the value of closing stock of photo frames. 6.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. 6.2.4 Tom is thinking of employing an assistant at a wage of R3 500 per month to control the stock of photo frames. Explain why this is NOT a good idea. Provide TWO points with figures/calculations. INFORMATION: The following information is in respect of the year ended 30 April 2019 A. CAMERAS: STOCK, BOUGHT AND SOLD BOUGHT UNITS UNITS UNIT COST TOTAL SOLD GRAND MODEL Opening stock 20 R5 500 R110 000 14 Purchases 240 R5 750 R1 380 000 170 I = Net purchases: 270 R1 104 000 235 September 2018 180 R4 000 R720 000} 140 Returns (30) R4 000 (R120 000) January 2019 120 R4 200 R504 000 95 Page 69 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD B. PHOTO FRAMES: STOCK, BOUGHT AND SOLD UNITS AMOUNTS Opening stock 60 R7 200 Purchases 720 R108 000 Returns 30 R4 500 Closing stock 80 2? Sales 657 6.3. MANAGEMENT OF INVENTORIES The information relates to Lyle Furnishers for the financial year ended 28 February 2019. The business sells cupboards, tables and chairs. No stock went missing during the year REQUIRED: Provide ONE different problem (with figures) relating to EACH product and ONE solution to EACH problem. (9) INFORMATION: CUPBOARDS TABLES CHAIRS Opening stock (units) 200 160 1300 Purchases (units) 2.500 3 050 6 000 Selling price per unit R1 750 R850 R350 Credit sales (units) 800 2 400 a 2100 Returns by customers (units) (500) (10) 0 Cash sales (units) 1000 600 2 250 Closing stock (units) 400 200 2950 Cash received from cash sales R1 750 000 R470 000 R787 500 Page 70 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY E7 INVENTORY VALUATION You are provided with information in respect of Magic Soccer Balls Shop for the year ended 28 February 2021. The business is owned by Thabani Pule. The business uses the perpetual inventory system and the FIFO method of valuing stock. REQUIRED: 7.1 Explain the meaning of the term ‘FIFO’. 7.2 The selling price of soccer balls was kept constant throughout the year. Calculate the selling price per soccer ball. 7.3 The owner, Thabani Pule, is aware that some soccer balls were stolen from the storeroom in April 2020. No entry has been made. ¢ Calculate the number of balls that are missing. (stock stolen from the opening stock @ R110) e What entry would you make in the books to record this? 7.4 Value the stock on hand at the year-end according to the FIFO method. 7.5 Calculate following: © Cost of sales © Gross profit for the year. 7.6 Thabani is not sure when to place his next order of soccer balls. * How long can he expect the closing stock to last? Provide figures or a calculation to support your answer. ¢ What advice will you offer Thabani about his purchases of stock? Provide two points. INFORMATION Accounting records relating to the soccer balls: Details Date No. of balls Unit price Total Opening stock 1 March 2020 750 R110 R 82 500 2 480 R 340 800 20 May 2020 800 R150 | ___R 120 000 | 25 October 2020 +200 R120 | R144 000 16 December 2020 480 R160 R76 800 Closing stock 28 February 2021 1100 2 at 1 March 2020 to Sales 28 February 2021 2100 2 R 430 500 Page 71 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD F. COST ACCOUNTING RELATED CONCEPTS/ TERMS/VOCABULARY Manufacturing business A trading enterprise is an enterprise that buys and sells manufactured products at a profit. In a trading enterprise we talk about purchased and sold trading stock. A service enterprise is an enterprise where persons use their skills to provide a service to the community. A manufacturing enterprise is an enterprise that manufactures products (completed products) from raw materials. (It transforms raw materials into finished or completed products. It important to remember that after the product is manufactured it then has to be sold.) Costing It is the calculation of the costs involved in producing a product Unit The word used to describe a single product made in the factory Direct material costs The raw material actually needed to make the product - also called Direct raw material cost Direct labour costs This is the amount paid to workers who actually manufacture the product Prime/ direct cost Direct material cost plus direct labour cost Indirect material costs These are materials that are not directly involved with the manufacturing of the product (e.g. cleaning material costs, packing materials) Indirect labour costs This is the amount paid to workers in the factory who are not directly involved with the making of the product e.g. the cleaning staff) Factory overheads These are the expenses to run the factory, but none of them are directly involved with the making of the product. (e.g. factory rent) Indirect labour and indirect materials are treated as part of factory overheads Total production cost or It is the total cost to produce the products. Prime cost plus factory overhead cost manufacturing (Direct material cost + Direct labour cost + Factory overhead cost) costs Cost per unit (unit | This is the cost of producing one product/unit cost) (Total production cost + total units produced) Fixed costs These costs do not change even if the quantities produced by the factory increase or decrease (e.g. rent) Variable costs These costs increase when the factory produce more products and decrease when the factory produce less products (e.g. electricity) Unit costs This is the cost to produce one unit Contribution per unit The difference between the selling price per unit and the variable cost per unit. (SP/unit - VC/unit) It is used to work out the break-even point. Mark-up The profit made on the goods produced Selling price The price that products are sold for Page 72 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD Break-even point It is the number of units that need to be sold to cover all costs, but no profit is made. It is where total receipts are equal to total costs. It is the point where there is no profit and no loss. The break-even point can be calculated in units as well as rand value Work-in-process Work-in-process is the same as incomplete products. It is the cost of the work not stock yet finished at the end of the year and not ready to be sold. It will be finished in the next financial period. Finished goods Completed goods are units that are 100% complete. These units are ready to be (Completed sold. products) Selling and These are costs which are incurred in the selling of the finished goods (e.g. distribution cost advertising, sales commission). These are variable costs. Administration cost | This is the cost of running the office where the administration and accounting is done. THINGS TO REMEMBER Basic Concepts All types of organisations incur costs, the type of costs incurred depends on the type of the business, e.g. a business that manufactures goods will engage in an activity that involves the transformation of raw material into a form which is more suitable for human consumption. MANUFACTURING LEDGER ACCOUNTS. e Discuss all the terminology regarding manufacturing ledger accounts e Emphasise the fact that the accounts are divided into stock accounts (Balance sheet accounts); costs accounts (nominal accounts) and Nominal accounts that will be closed off to the costs accounts. RAW MATERIAL: DIRECT (refer to the notes attached and grade 11 textbook) e Explain the flow chart of the route that material takes in the production process. e Emphasis should be on the analysis of ledger accounts, i.e. Account to be debited and Account to be credited. e Learners should participate in the discussion, Avoid questions such as “debit or credit’ learners normally guess. The learner should always give an explanation for his/her answer. INDIRECT MATERIAL: (Nominal) e Indirect Material - Nominal Account e Manufacturing Overheads — Cost Account LABOUR Explain the following through the aid of the flow chart above e Salaries and wages are paid to different employees for different reasons, not all wages and salaries have anything to do with the production process. Page 73 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD Division of ledger accounts Take sufficient time to explain the following: (see the attached notes) The flow of the manufacturing ledger accounts e Balance sheet section accounts e Nominal account section ¢ Cost account section e Final accounts Calculations of Manufacturing costs. Refer to the notes attached to understand the following: « Prime costs (Direct costs) ¢ Manufacturing overheads (Indirect Costs) ¢ Total manufacturing costs © Unit cost ¢ Caiculation of manufacturing costs by means of fixed and variable costs e Break — even point Internal Control and Ethics Refer to the notes attached to do the following: e Take sufficient time to learn the internal control specific to raw material e Internal control specific to labour e Ethical issues involved Aspects of internal control and business ethics concepts « Adequate record keeping e Separation of duties e Regular and Independent stocktaking e Procurement policy Formats of Production Cost Statement. Know the Format and the Notes to the Production Cost Statement Refer to the notes attached to understand the following: ¢ Format of the Production Cost Statement. e Format of the notes attached to the Production Cost Statement e What is the Production Cost Statement? e Practice formats continuously (use a single column format) © Do your work without fail Completion of the Production Cost, Income Statements and the Notes Income Statement (short form) Cost Calculations: Formula ¢ Gross Profit on finished goods sold ¢ Variable and Fixed costs © Cost per unit Page 74 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD e Contribution per unit e Break-even point e Total cost of production Cost interpretation Analysis, interpretation and reporting of Financial Statements Results e Inthe same way as we do analysis of Income Statement and Balance Sheet, we need to do analysis of the Production Cost Statement. e This analysis is largely taking each item and calculating its unit cost ¢ Cost calculations provide a hands-on practical way of determining enterprise unit cost and total costs ¢ Comparison should be made with similar industries and with previous years’ calculations. e Many industries collapse because management and staff cannot cost correctly and therefore under-quote. ACTIVITIES ACTIVITY: F1 COST CONCEPTS Match the different costs in column A with the definition in column B. You are only required to write down the letters 1.G, 2. J COLUMN A COLUMN B COSTS CONCEPTS DEFINITION 1.1 Direct material A | Labour used in the factory but not involved in the manufacture of the goods 1.2 Indirect material B | Other expenses incurred by the factory other than direct costs. 1.3 Direct labour C_ | Cost of one item produced 1.4 Indirect labour D_ | Costs that vary in proportion to the amount of goods produced. 1.5 Prime cost E | The price that the items are sold for. 1.6 Factory overheads F | Materials that are used in the manufacturing process but do not form part of the product. 1.7 Fixed costs G | The profit made on the goods produced 1.8 Variable costs H_ | Total direct costs 1.9 Total cost of | | Includes all costs involved in the production production 1.10 Unit cost J | Material that forms part of the item produced 1.11 Mark-up K | Costs that remain constant irrespective of the amount produced 1.12 Selling price L__ | Labour directly involved in the manufacture of goods Page 75 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY F2 (PRODUCTION COSTS) Production Costs Cost item Direct costs Indirect Not part of costs production costs 2.1 | Rent of factory 2.2 | Wages of cleaners 2.3 Wages of employees using tools working on the product. 2.4 Insurance of the equipment in the factory plant. 25 Maintenance of the factory buildings. 2.6 Cost of raw materials included in the finished products. 27 Administrative costs. 2.8 Marketing costs ACTIVITY F3 REQUIRED Use the information below to calculate the following: 3.1 Direct material costs 3.2 Direct labour costs 3.3 Prime costs 3.4 Manufacturing overheads 3.5 Total manufacturing costs 3.6 Unit cost per canoe 3.7 The selling price of a canoe if a profit margin of 70% is applied to the cost price. INFORMATION In June 2014 Zonke Racing enterprise manufactured 30 canoes. Costs which the business incurred during the month are listed below: Glass fibre 18 870 Resin 6 000 Cabling 530 Pedals 600 Stickers 1500 Wages for workers building the canoes 16 000 Costs of moulds for canoes 5 000 Rent for the factory 2000 Electricity consumption of the factory 500 Salary of the supervisor 4500 Other general manufacturing overheads, such as maintenance, insurance 11 400 Page 76 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY F4 4.1 JJ SOAP MANUFACTURERS The business produces and sells one type of hygiene soap. REQUIRED: a Prepare the Production Cost Statement on 28 February 2019. 41.2 Calculate the Net Profit on 28 February 2019. INFORMATION: A. Stock on hand: 28 February 2019 4 March 2018 R R Work-in-progress 84 600 37 600 Finished goods stock 315 000 127 000 B. The following was extracted from the financial records of JJ Soap Manufacturers on 28 February 2019, the end of the financial year. R Administration cost 810 000 Direct material cost 1770 000 Factory overhead cost 327 000 Selling and distribution cost 603 000 Direct labour cost 2 Sales 6 390 000 Cost of sales 3 337 000 Cc, ADDITIONAL INFORMATION e Factory cleaning materials costing R10 000 was erroneously included in the direct material costs. Correct the error. Page 77 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ANSWERSHEET 4.1.1 | Production Cost Statement on 28 February 2019 41.2 Direct Materials Cost Direct Labour Cost Prime Cost Work-in Progress at the beginning of the year Work-in Progress at the end of the year Cost of Production of Finished Good Calculate the Net profit ACTIVITY F5 MSELENI MANUFACTURERS You are provided with information relating to Mseleni Manufacturers for the year ended 29 February 2020. The business produces one type of air conditioner. REQUIRED: Calculate the Direct Material Cost Calculate the Factory Overhead Cost Prepare the Production Cost Statement for the year ended 29 February2020. 5.1 A. 5.1.1 Drl2 5.1.3 INFORMATION: The following balances appeared among others in the books of the business: | 29 February 2020 1 March 2019 Raw material stock R86 000 R180 000 Work-in-process stock ? R150 000 Finished good stock R170 000 R500 000 Indirect material: factory R18 000 R25 000 Administration cost R13 000 - | Page 78 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD B. | Summary of transactions: Raw material purchased R400 000 Raw materials returned to suppliers R7 000 Carriage on raw materials paid R5 000 Total salaries and wages paid R350 000 Water and electricity paid R98 000 Factory indirect materials purchased R35 000 Factory sundry expenses paid R49 800 Rent expenses paid R56 500 C. The salaries and wages amount is distributed as following: © 50% to employees who work directly on the production process © 20% to indirect labour © 15% to administrative staff « 15% to sales and distribution staff The employer contributes 8% to the pension fund and 1% to the UIF on behalf of each employee. D. Water and electricity © The water and electricity bill is shared among the factory, administration and sales section in the ratio 4:3:1. E. Indirect materials: e Indirect materials costing R9 000 were transferred from the factory to the administration office. F. Rent expenses e Rent amount for February 2020, R 5 500 will only be paid in March 2020. e Rentis allocated according to floor area as follows: Factory 1 200m?, administration 100m? and selling and distribution 300m? G Factory depreciation amounted to R32 000 H. Cost of sales was correctly calculated at R1 200 000. ANSWERSHEET 5.1.1 Calculate the Direct Material Cost Page 79 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 5.1.2 | Calculate the Factory Overhead Cost Depreciation 32 000 Sundry expenses (85 600 — 2 600) x 60/100 49 800 16 5.1.3 | Production cost statement for the year ended 29 February 2020. 13 ACTIVITY F6 61 KETTLE MANUFACTURERS The business produced and sold 4 100 kettles for the year ended 28 February 2019. The following information was extracted from their books: REQUIRED: 6.1.1 Calculate the break-even point for the year ended 28 February 2019. 6.1.2 Should the business be satisfied with the number of units that are currently produced? Explain. 6.1.3 Despite the fact that there was an increase in the price of direct material, the direct material cost per unit decreased from R32 to R27. Give a valid reason for the decrease. 6.1.4 Despite the fact that there was no increase in wages during the year, the direct labour cost per unit increased from R20 to R28. Give a valid reason for the increase. | INFORMATION: R Sales 615 000 Direct material cost 110 700 Factory over heads cost 246 000 Selling and distribution cost 61 500 Direct labour cost 114 800 Administration cost 102 500 Additional information e Selling price per unit amounts to R150. | Page 80 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY F7 7.1. MAMMA’S BAKERY The following information was extracted from the books of Mamma’s Bakery for the year ended on 29 February 2020. The bakery is owned by Alwande Mbatha. REQUIRED: A Calculate the Break-even point for 2020. Te\2 Explain why the owner should be concerned about the break-even point. Provide TWO points. Tilo) Provide ONE reason for the decrease in the Direct Material Cost. INFORMATION: Fixed and variable cost 2020 2019 Total Per unit Per unit Variable costs: Direct Materials R91 500 R7.50 R8.00 Direct Labour R73 200 R6.00 R5.70 Selling & Distribution R42 700 R3.50 R3.40 R207 400 R17.00 R17.10 Fixed costs : Factory overheads R63 440 R5.20 R4.70 : Administration R34 160 R2.80 R2.50 R97 600 R8.00 R7.20 Break-even point 2 7795 Units produced 12 200 11 800 Selling price (per unit) R25 R25 ACTIVITY F8 (INFORMAL CLASS TEST) 8.1 GEVEN MANUFACTURERS The business produces wooden tables. REQUIRED: Prepare the following for the year ended 28 February 2017: 8.1.1 Production Cost Statement (14) 8.1.2 Abridged Income Statement (14) Page 81 of 108

KZN ACCOUNTING GRADE 12 LEARBERS INFORMATION: A. — Stock on hand: 28 FEBRUARY 2017 41 MARCH 2016 Work-in-process ? R160 000 _ 400 tables, 1 200 tables at R280 Finished goods valued using = R336 000 FIFO method D. Production and sales for the year: e 7 200 tables were produced at a unit cost of R330 each. e 8000 tables were sold for R4 080 000. Costs (before adjustments): Administration R148 400 Factory overheads R487 200 Direct materials R1 050 000 Direct labour q Selling and distribution R422 000 Adjustments: 2021 STEP AHEAD e Payment to EZ Transport, R102 000, was incorrectly allocated to Selling and Distribution. This was actually meant for delivering wood to the factory. e The cleaning contract for the year, R126 000, was shared between Factory and Administration in the ratio 2 : 1. However, 80% should have been allocated to Factory. Prime cost: R1 800 000 (after adjustments) 8.2 ZAMAZAMA MANUFACTURERS Zamazama Manufacturers is owned by Zama Zondo. They produce shoes and shirts for gym training. Zama requires assistance in interpreting his 2017 results. Note that one pair of shoes comprises one unit. REQUIRED: 8.2.1 Shirts: Calculate the break-even point for shirts. (4) e Zamais not satisfied with the variable costs per unit, even though the total variable costs per unit decreased by R6. - Identify ONE variable cost (with figures) that has not been well controlled. Give TWO possible reasons for this problem. (4) - Explain why Jan might be concerned about the large decreases in the other TWO variable costs. e Zama does not understand why the unit cost of production has increased when neither his fixed costs nor the variable costs have increased. Explain why this is so. State ONE point (with figures). (4) (4) Page 82 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 8.2.2 Shoes: 2021 STEP AHEAD ¢ Calculate the % increase in the selling price of shoes. (3) ¢ Jan decided to improve the quality of the shoes and to export them. Explain how the direct material costs and the selling and distribution costs were affected by this decision. Provide figures. (4) e Jan was concerned that the increase in price would have a negative impact on the business. Explain whether his concern was justified. State TWO points. (4) INFORMATION: SHIRTS SHOES 2017 2016 2017 2016 Break-even point it 11522 3 842 4317 Units produced and sold 16 100 25 000 7 750 6 500 Net profit R500 400 R620000} R2379750 |} R1 183000 Selling price per unit R302 R290 R1 640 R1 260 Selling price of competitors R310 R290 R1 100 R1 250 Total fixed costs (factory overhead and | Pes9 999 | 530000) 2340000 | R2340 000 administration) Total fixed cost per unit 7 ? R302 R360 Total variable costs per unit R238 R244 R1 031 R718 Direct material costs per unit R92 R116 R456 R330 Direct labour costs per unit R134 R100 R381 R360 Selling and distribution costs per unit R15 R28 R194 R28 Unit cost of production R242 R228 R1 100 R1 004 8.1 GEVEN MANUFACTURERS 8.1.1 PRODUCTION COST STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017 Direct material cost Direct labour cost Prime cost Factory overhead cost Total cost of production 14 Page 83 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 8.1.2 8.2 8.2.4 8.2.2 2021 STEP AHEAD ABRIDGED INCOME STATEMENT FOR YEAR ENDED 28 FEBRUARY 2017 Sales Cost of sales Gross profit Administration cost Selling and distribution cost Net profit 14 I ZAMAZAMA MANUFACTURERS Shirts: Calculate the break-even point for shirts. 4 Identify ONE variable cost (with figures) that has not been well controlled. Give TWO possible reasons for this problem. ONE VARIABLE COST WITH FIGURES ee Reason 1: Reason 2: 4 Ld Explain why Zama might be concerned about the large decreases in the other TWO variable costs. 4 Zama does not understand why the unit cost of production has increased when neither his fixed costs nor the variable costs have increased. Explain why this is so. State ONE point (with figures). 4 Shoes: Calculate the % increase in the selling price of shoes. Page 84 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD Zama decided to improve the quality of the shoes and to export them. Explain how the direct material costs and the selling and distribution costs were affected by this decision. Provide figures. Zama was concemed that the increase in price would have a negative impact on the business. Explain whether his concem was justified. State TWO points. Point 1: Point 2: Page 85 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD G. VALUE ADDED TAX WHAT IS VALUE ADDED TAX (VAT) Value added tax (VAT) is a tax charged on the supply of goods and services by a vendor. Vendors registered for VAT collect VAT from customers on behalf of the South African Revenue Services (SARS). NEED AND PURPOSE FOR VAT The government is responsible for paying the following services: - Protection of citizens - Social welfare - Infrastructure Taxes must be paid to the government so that they have an income to pay for these services. Taxes include: - Income tax, VAT, customs & excise duties WHO CAN REGISTER AS A VAT VENDOR Two types of registration Compulsory registration - Must have a turnover of more than R1 000 000 p.a. Voluntary registration - Must have a tumover of more than R50 000 and less than R1 000 000 p.a. = Ifthe turnover is less than R50 000 p.a., a business may not register for VAT VAT RATE: STANDARD RATE OF 15% Standard rate of 15% VAT is now calculated at a standard rate of 15% The Minister of Finance can change this rate at any time. VAT INPUT AND VAT OUTPUT VAT INPUT: It is calculated on all purchases and payments made by the business/VAT Vendor. The business can claim it from SARS. VAT OUTPUT- It is calculated on all sales of the business. It is payable to SARS. Page 86 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ZERO RATED ITEMS (0%) e Some goods are charged at a zero rate (0%) - no VAT is charged on them. This rate can also be changed by the Minister of Finance if the need arises. Nature of the zero -rated goods. These goods are zero-rated so that poor people can afford these necessary items e Brown bread e Maize products ° Rice e Lentils e Dried beans e Legumes e Fresh and frozen fruit e¢ Cooking oil e Eggs e Canned pilchards e Paraffin e Milk, Milk powders and blends e Fresh and frozen vegetables e Petrol and diesel fuel (Subject to fuel levies included in the pump price.) VAT EXEMPTED ITEMS VAT exempt items By law the following are NOT subjected to VAT Financial services, e.g. interest, life assurance, medical schemes, provident funds and pension funds Export services Childcare services Educational services, e.g. schools, universities, etc. Donated goods and services sold by non-profit bodies (e.g. church bazaars) + Passenger transport in South Africa by bus, taxi or train Salaries & wages Page 87 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ETHICS aul should be transparency - VAT records to be made available to interested parties |Unethical behaviour The business understates its sales (shows a lower amount) on the VAT form so that it will not pay so much to SARS [illegal behaviour Tax evasion is illegal Claiming an amount for VAT when you are not entitled to it. Failure to pay over VAT is an offence Charging VAT on exempt items is fraudulent INTERNAL CONTROL The amount on the VAT return should be checked against the General Ledger accounts to check if it was correctly transferred All amounts on the VAT return should be re-calculated to ensure it is correct. All payments to SARS must be done through electronic bank transfers or by cheque. an independent person must compare the VAT return with the request payment before a cheque is issued. Two persons should sign the cheque. Set up VAT input tax and VAT output units. These units must be accountable to the business's accountant Ensure that the auditing firm that handles the business's books is well accredited and free from corruption Ensure that VAT due to SARS is paid on due dates and check tax returns Internal auditor / owner should conduct spot checks on the calculation of VAT input and VAT output to prevent fraud Page 88 of 108

KZN ACCOUNTING ACTIVITY G1 GRADE 12 LEARBERS 14 Basic concepts including internal controls Answer the following questions: 1.1.1. What is the current VAT rate in South Africa? 1.1.2 |s VAT paid on all items? Explain and provide examples. 1.1.3 What is the difference between VAT input and VAT output? 1.1.4 The average turnover of Thabo Traders is R240 000 per annum. The business is not registered for VAT. (a) Explain if itis compulsory for the business to register as a VAT vendor (b) Explain if the business would benefit if it registered as a VAT vendor (c) Provide one disadvantage of being a VAT vendor 1.1.5 Explain tax evasion and the consequences thereof. 41.2 VAT Calculations 2021 STEP AHEAD The table below indicates amounts for various sale transactions, which are subject to Vat at 15%. Complete the table. No. Cost price % Mark-Up VAT Exclusive VAT Amount VAT Inclusive Price Price eg. | R200 50% R300 R45 R345 1 A 25% B R150 c 2 R400 D R640 E F 3 R900 G R1200 H I 4 J 20% K L R2760 5 M 25% N R105 ie} 6 R1000 P Q R R1610 Page 89 of 108

KZN ACCOUNTING GRADE 12 LEARBERS ACTIVITY G2 2021 STEP AHEAD Mr Nene is the sole owner of Nene Supermarkets. The following information was extracted from the accounting records for the month of June-July 2020. Summary of transactions: Total Sales (Exclusive VAT) for 2 months 56 100 Sales @ standard rate 42 600 Sales @ 0% VAT 13 500 Total Purchases for 2 months (Inclusive VAT) 33 850 Purchases @ standard rate 28 750 Payments that were VAT exempted 5 100 Goods taken for personal use VAT Inclusive 483 Returns by customers VAT Exclusive 4 800 Returns to suppliers VAT Exclusive 1000 Discount allowed to customers Including VAT 575 Bad debts written off Including VAT 460 ANSWERSHEET ACTIVITY G2 GENERAL LEDGER OF NENE SUPERMARKET OUTPUT VAT ACCOUNT INPUT VAT ACCOUNT Page 90 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD VAT CONTROL ACCOUNT ACTIVITY G3 3.1 VAT CONCEPTS Change the underlined parts in the following sentences to make the statements TRUE. Write the answer next to the question number (3.1.1-3.1.3) in the ANSWER BOOK. 3.1.1 Input VAT is VAT charged to customers. (1) 3.1.2 VAT is payable to the South African Reserve Bank. (1) 3.1.3 VAT is charged at 15% on fruits and vegetables. (1) 3.2 VAT CALCULATIONS Wandile Traders is a VAT registered business. The standard rate of VAT is 15%. REQUIRED: Calculate the correct amount of VAT the business has to pay. Show ALL workings. (12) INFORMATION: The bookkeeper, Felix, prepared the VAT Control Account for the tax period ended 31 May 2020 and arrived at a VAT payable amount of R43 820. However, the internal auditor has identified the following errors and omissions which must still be brought into account to calculate the correct VAT payable amount: A. Sales invoices omitted from the Debtors’ Journal, including VAT R10 235 B. Damaged goods retumed to suppliers, excluding VAT 18 800 c. VAT on sundry business expenses omitted 6 818 D. VAT on discounts received from suppliers 756 E. VAT on bad debts recovered 112 FE VAT on bad debts was recorded on the wrong side of the VAT Control 92 Account Page 91 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY G4 4. VALUE ADDED TAX (VAT) The information below relates to Zum Stores for their two-month VAT period ended 31 May 2020. All items are subject to 15% VAT. The owner of the business is Ray Zondi. REQUIRED: 4.1.1 Calculate the amount of VAT payable to/receivable from SARS on 31 May 2020. Indicate whether the amount is payable or receivable. (9) 4.1.2 As the internal auditor, you noticed that Ray Zondi has not been submitting the VAT due to SARS on the regular due date. On enquiry, Ray Zondi stated that the business was experiencing a cash flow problem and he used the money to pay for business expenses. What comment would you offer Ray Zondi concerning this practice? State TWO points. (4) INFORMATION: Transactions in respect of the VAT-period ended 31 May 2020: A | Amount owed to SARS on 1 May 2020 R 74 800 B | Purchases and payments (VAT exclusive) R880 000 C | Cash and credit sales (VAT inclusive) R1 069 776 D__| VAT on discount allowed to debtors R 4560 ACTIVITY G5 5.1 VALUE-ADDED TAX (VAT) The information below relates to Sun Traders for their two-month VAT period ended on 31 March 2019. All items are subject to 15% VAT. REQUIRED Calculate the amount receivable from or payable to SARS for VAT on 31 March 2019. Indicate whether the amount is receivable or payable. (You may complete a VAT Control Account.) (10) INFORMATION: A. B. Amount owed to SARS for February 2019, R21 375 Details in respect of VAT for March 2019 DETAILS EXCLUDING VAT INCLUDING VAT VAT Merchandise purchased/Expenses paid R341 550 Goods taken by owner for personal use R31 500 Debtors’ accounts written off R2 130 Total sales R480 000 R552 000 Returns by debtors R1 800 Page 92 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD H. BUDGETING THINGS TO REMEMBER Projected Income Statement © The main aim of the business is to make a Profit. Regular and thorough planning is essential. Budgeting is an integral part of this process. Budgeting is forecasting for the future. The current budget is used to plan for the future. e Likewise, the enterprise has to prepare a Projected Income Statement for the future from the current income statement e The key here is for learners to remember that we are trying to determine the future profits, and thus the Projected income Statement will include e Allincome that is expected to be earned during the budget period, whether received or not e All expenses that are expected to be incurred during the budget period, whether paid or not. What is the main aim of the Projected Income Statement? Projected income Statement is an essential tool used to monitor and plan the profitability of the business enterprise. By analysing it; management can ascertain whether: e The business will be profitable over the budget period e The projected figures are satisfactory e Expenses need to be cut. © The business can afford to hire additional staff, run an advertising campaign and so on. If it predicts a loss in a specific month, the management can make suitable arrangements to try to prevent this from materialising. Format of the Projected Income Statement The Projected income Statement has the same format as the “normal Income Statement, except, that here the figures are based on future projections and not past results, also often several columns are required since the budget period may span over several months or even years. How to Prepare the monthly Projected Income Statement 1. Take as a starting point the actual Income Statement of the past year. 2. Divide the figures by 12 to calculate the monthly figures 3. The following factors, amongst others, should be taken into account: ¢ Increase in expenses due to inflation, e.g. wages, fuel increases e Increase demand in particular months (season) due to events such as religious holidays, sports events, and international events etc. e Expected decline in sales due to increased competition. e Expected gross profit, i.e. mark-up on cost What is the Cash Budget e — Itis a financial plan indicating projected receipts and payments to ensure that there is sufficient cash to meet future payments. Page 93 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD « Acash budget deals only with cash transactions, namely the receipt and payment of cash. Transactions that are not cash related will not be considered in the preparation of cash budget. These transactions include: Depreciation, Stock taken by the owner for personal use, Discount allowed and received, Bad debts, Profit/ loss on sale of fixed assets. Introduce the structure of the Cash Budgeting e Differentiate between the Receipts and Payments e Know how to calculate sales using ratios as well as percentage. Cash Sales are recorded under Receipts in the cash budget and Credit sales are always recorded in the Debtors collection schedule. « Know how to calculate cash Surplus and Cash Deficit e Learn that the closing balance of the current month will be the opening balance of the following month. « Practice the Arithmetic calculations. e Analyse of Cash Budget Preparation of the Debtors Collection Schedule e Credit sales (Actual and Budgeted) will be analysed in the collection procedure and all information in this respect is processed into a Debtors Collection Schedule. e Debtors collection schedule consist of credit sales and budget period. e Calculation of cash sales and credit sales from total sales using the given % or ratio. e Application of the Debtors Collection Policy on credit sales and to take note of Discounts. e The totals of the Debtors collection Schedule must be transferred to the Cash Budget under Receipts as Collection from Debtors. Preparation of the Creditors payments Schedule e Know that in order to improve cash flow, the business may purchase stock on credit. On fulfilling all business credit application requirements, the business can negotiate relevant payment terms with its creditors. Such terms will be followed in making payments to creditors during budget period. This information may be presented in the form of Creditors Payment Schedule. e Calculation of credit and cash purchases from total purchases using % or ratio e Cash purchases are recorded in the cash budget and credit purchases in the creditor's payment schedule. e If total purchases are not given they must we cost of sales and if cost of sales is not given, they must calculate cost of sales using the mark-up %. IMPORTATNT CALCULATIONS e Mark up % = gross profit / cost of sales x100 e Surplus / deficit = Receipts - Payments e Closing balance = Opening balance +/- Surplus/ deficit e %change= difference / original amount x 100 e Increased amount by % = Original amount x 100+ % increase 100 Page 94 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD e Decreased amount by %= = Original amount x 100- % decrease 100 ¢ Amount before increase= Increased amount x100 100 + % increase e Loan or Fixed deposit = Interest on loan / fixed deposit x 100 x 12 % e Interest rate on loan / fixed deposit= interest amount x 12 x 100 Loan / Fixed deposit Compare actual figures to budgeted figures to ensure that the budget figures are realistic and also comment on the control of income and expenses. Ways to improve debtors collections » Remind them by sending statements/ phone calls/sms/email > Offer discounts on early payments > Charge interest on late payments » Refuse to sell on credit to debtors who are not compliant Advantages of buying the business premises rather than renting > Will not have to pay rent in future » Business will acquire a fixed asset, which increases the value of a business » Extra space will be rented out to receive additional income - Disadvantages of buying than renting > Rates on building must be paid » Additional maintenance cost will be incurred > Not easy to relocate » Costs and time involved in selling the property - Ways to Improve cash balances in future > Encourage debtors to pay faster Negotiate with creditors for longer payment terms Raise more capital / issue more shares Move to cheaper premises Charge clients for deliveries Take out a loan ( to reduce overdraft and interest) Decrease mark up to improve sales Look for alternative income e.g. commission VVVVVV WV Page 95 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY H1 REQUIRED: 1.1 Explain the difference between a Projected Income Statement and a Cash Budget. 1.2 Complete the following for September to November 2020. (Some amounts have been entered for you.): 1.2.1 Debtors Collection Schedule. 22 Projected Income Statement INFORMATION Green Tree Stores Income Statement for the year ended 31 August 2020 Sales 1 600 000 Cost of Sales (1 000 000) Gross Profit 600 000 Other Operating Income 73 600 Rent Income 56 800 Commission Income 16 800 Gross Operating Income 673 600 Operating Expenses (456 500) Salaries 240 000 Advertising 30 000 Bad Debts 20 000 Depreciation 48 600 Sundry Expenses 117 900 Operating Profit 217 100 Interest Expense (on Loan) (19 200) Net Profit for the year 197 900 Page 96 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ADDITIONAL INFORMATION 1, Sales (including forecasted sales) for the period 1 July 2019 to 30 November 2020 are shown below: Total Sales Cash Sales Credit Sales July 2020 119 000 35 700 83 300 August 2020 127 000 38 100 88 900 September 2020 132 000 39 600 92 400 October 2020 136 000 40 800 95 200 November 2020 140 000 42 000 98 000 2. — Credit Sales are expected to be collected as follows: © 20% in transaction month to receive a 5% discount. ¢ 70% in the month after the transaction. © 5% two months after the transaction. * 5% irrecoverable and is written off two months after the transaction. 3. The current percentage mark up on cost will be maintained throughout the budget period. 4. «An increase in salaries becomes effective on 1 September each year. An increase of 8% has been budget for on 1 September 2020. ¢ The business currently has 3 employees earning the same monthly salary. From 1 November 2020, a fourth employee, who will earn the same salary, will be employed. 5. The monthly rental was increased by R800 on 1 October 2020. The business intends to increase the tenants rent by R1 000 from 1 October 2020. 6. Green Tree Stores currently pays interest in their loan at a rate of 8% per annum. The capital portion of the loan remained unchanged during the previous financial year. The business plans to increase this loan by R60 000 on 1 November 2020. 7. The business plans for dispose of unused equipment at a book value by the end of September 2020. This will decrease the depreciation on equipment by R200 per month from 1 October 2020. (Note that no assets were bought or sold during the financial year ended 31 August 2020. Assets are depreciated on cost) 8. Sundry expenses are estimated at R10 000 in September and thereafter to increase by 2% per month. Page 97 of 108

KZN ACCOUNTING ANSWER SHEET ACTIVITY H1 fl GRADE 12 LEARBERS 2021 STEP AHEAD Explain the difference between a Projected Income Statement and a Cash Budget. 1.2.1 Debtors Collection Schedule Credit Sales Sept October November July 2020 R 83 300 4165 August 2020 R88 900 62 230 4445 September 2020 R92 400 October 2020 R 95 200 November 2020 R98 000 Page 98 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 1.2.2 Projected Income Statement Sept October November Sales 132 000 136 000 140 000 Cost of Sales Gross Profit Other Operating Income Commission Income 1 400 1 400 1400 Advertising 2500 2500 2500 Net Profit for the month ACTIVITY H2 You are provided an Incomplete Projected Income Statement and Cash Budget for three months ending November 2020 of Made in P Z M Designers which sells smart casual clothing to teenagers REQUIRED: Use the given information to complete A - 2.1 22 23 24 Complete the Debtors Collection Schedule (A and B) for the month of November 2020, in your answer book. The credit sales amounts are provided on the answer sheet. Complete the Projected Income Statement (C - G) in the answer sheet provided. Show all calculations to earn part marks. Complete the Budget (H - Q) in the answer sheet provided. Show all calculations to earn part marks. Over the past few months the economic recession has had a serious impact on the clothing industry in South Africa. Discuss 2 ways, (other than increasing the loan), which indicates that the owner has taken the recession into account in the drawing up of this Cash Budget. Support your answers by quoting relevant figures. Page 99 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ADDITIONAL INFORMATION ib 5.1 SALES: All goods sold are marked up by 60% on cost. The credit sales figures have been inserted on the Debtors Collection Schedule provided in the answer book. PURCHASES: PZM Designers work on a fixed stock base i.e. stock sold each month is replenished in the same month. 40% of all purchases are for cash. No discounts are expected to be granted by creditors over the next 3 months. DEBTORS COLLECTION PERIOD: A survey reveals that debtors are expected to pay their accounts as follows: 15% Within the same month as the sale subject to the 2% discount 26% In the month following the sale. 50% In the second month following the sale. 9% Are written off as bad debts at the end of the second month following the sale. RENT INCOME: Rent is expected to increase by 12% in November 2020. LOAN FROM FUNBANK: The loan from Funbank is expected to increase on the 1 October 2020. Interest is charged at 18% p.a. and the interest on the new loan will be paid monthly starting from the 1 November 2020. SALARIES AND WAGES The salaries and wages will increase by 20% in October 2020 and then decrease by 33’4% in November 2020. SUNDRY EXPENSES Sundry expenses remain the same throughout the year. DEBTORS COLLECTION SCHEDULE CREDIT SALES NOV August R280 000 0 September R324 000 162 000 October R360 000 A November R456 000 B Total 322 632 Page 100 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP Al HEAD 5.2 | MADE IN PZM DESIGNERS PROJECTED INCOME STATEMENT FOR NOV 2018 NOV Sales c Cost of Sales D GROSS PROFIT E OTHER OPERATING INCOME 8 960 Rent Income 8 960 GROSS OPERATING INCOME 293 960 OPERATING EXPENSES (164 000) Salaries and wages 96 000 Advertising 25 000 Sundry expenses 10 000 Bad debts F Discount allowed G Depreciation 2 100 Trading stock deficit 372 OPERATING PROFIT 129 960 Interest expense (7 200) NET PROFIT 122 760 2.3 | MADE IN PZM DESIGNERS CASH BUDGET FOR THE 3 MONTHS ENDING 31 NOVEMBER 2018 CASH RECEIPTS SEPT OCT NOV Cash sales 216 000 240 000 H Cash from debtors 111 628 139 320 I Rent Income 8 000 8 000 J Loan from Nedbank 0 180 000 0 Total receipts 335 628 567 320 K CASH PAYMENTS Cash purchases 108 000 120 000 114 000 Cash paid to creditors 210 000 252 000 280 000 Interest on the loan 4500 4500 L Salaries and wages 120 000 M 96 000 Advertising 15 000 45 000 25 000 Sundry expenses 10 000 10 000 N Total payments 467 500 575 500 532 200 Surplus / Deficit (131 872) (8 180) 0 Opening bank balance 24 000 (107 872) P Closing bank balance (107 872) (116 052) Q Page 101 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY H3 The following information was drawn from the books of Sabie Traders. REQUIRED 3.1.1 Provide TWO items that will not be included in a cash budget. Provide a reason for each item. 3.1.2 Explain the difference between a Projected Income statement and a Cash budget. 3.1.3 Use the information given for the budgeted period. Comment on the debtor's collection policy in comparison to the creditor's payment policy. 3.2 Use the information given to prepare the following: 3.2.1 The debtors’ collection schedule for July 2020 and August 2020. 3.2.2 The cash budget for July 2020 and August 2020. 3.2.3 Comment briefly on advertising, maintenance of tangible assets and rent income appearing on the budget. Provide ONE point of advice regarding each item. Refer to Information K. INFORMATION: 1. ACTUAL BUDGETED MAY JUNE WULY AUGUST Sales 450 000} 600 000} 550 000} 650 000 Cost of sales 300 000) 400 000} 360 000 430000 ages 55 000, 55 000 t q Drawings (cash) 10 000) 10 000 10 000) 10 000 Rent Income 23 000, 20 000 35000) ? Advertising 18 000, 16 500 Maintenance(Tangible assets) R18 50 15 200} 20 000} 20 000 ADDITIONAL INFORMATION: A B c Unfavourable bank balance on 30 June 2020 was R9 500. Credit sales are expected to be 50% of total sales. Expected receipts from debtors are as follows: = 60% pay one month after the sale (30 days) and receive a 2% discount. = 25% pay two months after the sale (60 days). = 10% pay three months after the sale (90 days). 5% will be regarded as irrecoverable in the fourth month after sale. Trading stock sold each month is replenished in the same month. All goods are purchased on credit and creditors are paid in full one month after the date of purchase. Rent income increases annually on 1 August 2020 by 10%. The annual wages increase of 5% is effective from 1 July 2020. An employee earning R17 750 pm will be traveling abroad during July 2017. He will receive his salary during August 2020. A fixed deposit of R35 000 is due to mature on 15 August 2020. A vehicle was sold on 25 June 2020. However, the cheque received for R65 000 was post-dated for 25 July 2020. Page 102 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD J Anew vehicle costing R450 000 will be bought on 1 August 2020. A cash deposit of 20% of the purchase price will be paid on the date of purchase and thereafter 24 equal instalments will be made commencing on 1 September 2020. : K With reference to Question 3.2.3 the following information is provided. ITEMS ACTUAL FIGURES JULY AUGUST Advertising 18 300 17 200 Maintenance (Tangible assets) 30 000 27 000 Rent Income 23 300 18 500 ANSWER SHEET 3.1.1 Provide TWO items that will not be included in a cash budget. Provide a reason for your answer. 3.1.2 Explain the difference between Projected Income statement and a Cash budget. | 3.1.3 Use the information given for the budgeted period. Comment on the debtor's collection policy in comparison to the creditors’ payment policy. Page 103 of 108

KZN ACCOUNTING 3.2.2 GRADE 12 LEARBERS 2021 STEP AHEAD 3.2.1 DEBTORS COLLECTION SCHEDULE FOR JULY AND AUGUST 2020 Months c tedit sales July August May 225 000 June 300 000 July 275 000 August 325 000 CASH BUDGET FOR JULY AND AUGUST 2020 RECEIPTS JULY AUGUST Cash sales Receipt from Debtors Rent income 35 000 Fixed deposit Asset disposal income Total receipts PAYMENTS Payment to Creditors Salaries 75 500 Wages Maintenance (Tangible assets) 20000 20 000 Advertising 18 000 16 500 Drawings 10 000 10 000 Vehicle Total payments Cash surplus (shortfall) Bank: opening balance (9 500) Bank: closing balance Page 104 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD 3.2.3 Comment briefly on each of the items on the budget. Provide ONE point of advice regarding each ite Item Comment Advice Advertising Maintenance Rent income ACTIVITY H5 CASH BUDGETS AND INTERNAL CONTROL You are provided with information regarding Manyana Wired Ltd. The business sells electrical equipment at cost price plus 80%. Stock is replaced on a monthly basis. REQUIRED: 5.1 5.2 The following two statements are incorrect. Rewrite the statements correctly. 5.1.1. A cash budget is a financial statement that shows actual incomes and expenses for a specific period. 5.1.2. Acash budget is prepared in order to calculate profit or loss. Calculate the following: 5.2.1 Collections from Debtors for September 2020. (Debtors’ collection schedule) 5.2.2 Payments to Creditors for September 2020. Complete the Cash Budget for the period 1 August 2020 to 30 September 2020. Study the cash budget and identify TWO major problems. Briefly explain the consequences of each problem you identified and provide solutions to the problems. Page 105 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD INFORMATION: i Pan Pw Amounts taken from the books Actual Budgeted June July August September Sales 121 500 102.600 | 110 700 97 200 Purchases 67 500 57 000 Advertising 3 700 3 600 Salary - manager 14000 14 000 Wages — 3 shop assistants 15 000 15 000 75% of all sales is on credit and 25% is for cash. It is expected that debtors will settle their debts as follows: ¢ 60% in the month following the month of sales. e 36% in the second month following the month of sales. 4% will be written off as irrecoverable. All purchases are on credit and will be paid after 30 days so that a discount of 5% can be claimed. Operating expenses amounts to R99 000 annually and are paid in equal monthly instalments. New equipment of R82 000 will be purchased during September 2014. 40% thereof will be paid in cash. Water and electricity amounts to R3 000 per month and it is expected to increase by R300 per month in September. Salaries and wages are revised in August each year. The salary of the manager will increase by 8% on 1 September 2020. Due to the poor economic situation in the country, the owner feels that an increase for the shop assistants cannot be afforded. The owner plans to undertake a tour of Africa during September and will then withdraw R45 000. This amounts to R15 000 more than his usual monthly drawings. The bank account had a favourable balance of R35 200 on 31 July 2020. Page 106 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD ACTIVITY H6 Hayley Westra owns Boxes Etc., a business selling packing material. Her business is experiencing cash flow problems and she asked you to assist in correcting this. Budgeted and actual figures were provided in the cash budget. REQUIRED 6.1 Explain the importance of comparing the actual figures to the budgeted figures in the cash budget. 6.2 Calculate the values marked (A) — (F). 6.3 Refer to the figures for “Cash received from debtors”. Are the debtors adhering to the credit terms of the business? Provide figures to support your answer. 6.4 No new workers were employed during July and August 2020. What could possibly be a reason for the change in each of the actual figures for those two months? 6.5 The owner feels that the business pays less money by renting equipment than purchasing the equipment. Do you agree with her opinion? Provide TWO points to support your answer. 6.6 The business still faces a cash flow problem in August, even though a loan was obtained in July and the receipts from debtors improved. Excluding these two items and the renting of equipment (as in 6.5), identify TWO other items, with figures, that needs attention. Also provide advice how these items can be managed. 6.7 The owner, Hayley, bought the vehicle from the business for her son. The usual driver and the finance officer were unhappy with this. Prove each person's point by explaining ONE reason for each. INFORMATION Boxes Etc — Cash budget for July and August 2020 July August Cash receipts Budget Actual Budget Actual Cash sales (40% of total sales) 720 000 840 000 360 000 378 000 Receipts from debtors 864 000 624 000 (A) 920 000 Rent income (F) (F) 49 680 49 680 Fixed deposit 360 000 360 000 - - Sundry income ? fi 2 2 Loan: FNB 300 000 300 000 - = Sale of vehicle 189 000 120 000 _ = TOTAL RECEIPTS 2 ? 2 2 Cash payments Payments to creditors 960 000 960 000 (B) 4.200 000 Wages and salaries 144 000 180 000 144 000 108 000 Fixed deposit (ABSA) = 7 (C) (C) Drawings 150 000 210 000 150 000 168 000 Repayment of loan = = 30.000 30.000 Rent of equipment 507 000 459 000 511 080 ? Interest on loan ? 2 TOTAL PAYMENTS 4761 000 1 809 000 2 2 Surplus (Deficit) 720 200 483 200 (675 400) (757 070) Bank opening balance (432 000) (432 000) (D) 51 200 Bank closing balance 288 200 51 200 (E) (705 870) Page 107 of 108

KZN ACCOUNTING GRADE 12 LEARBERS 2021 STEP AHEAD Additional information: Debtors must pay their outstanding debts after 30 days and will receive a 5% discount for prompt payment. All stock is bought on credit and a fixed basis of stock is maintained. Creditors’ accounts are settled after 30 days. A gross profit margin of 60% is used. Half of the fixed deposit received'in July, was reinvested in August 2020. Interest is receivable every 6 months (at the end of June and December) The loan was obtained to help solve the cash flow problem. It is repayable in monthly instalments. The monthly rent increased on 1 August 2020 with 15%. In the past, when the business wanted to sell a business vehicle, the driver of that vehicle usually had first option to purchase it at carrying value. No deposit was required and the balance would have been deducted in monthly instalments from his salary. Page 108 of 108