Accounting grade 12 Support 2021 JIT Paper 1

CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT GRADE 12 ACCOUNTING RECORDING, REPORTING AND EVALUATION OF FINANCIAL INFORMATION & CORPORATE GOVERNANCE PAPER 1 SUPPORT DOCUMENT 2021

PREFACE This support document is designed to assist Accounting teachers and learners on how to deal with assessment in the subject by taking into account the curriculum gaps as well as learning losses as a result of the impact of COVID-19 in 2020. It captures the types of questions which appeared in the recent NSC Examination Papers. Please use other documents for explanatory notes on topics covered in this one. It will cover the following: TABLE OF CONTENTS A. Tangible Assets 3 B. Statement of Comprehensive Income 8 C. Statement of Financial Position 35 D. Cash Flow Statement 50 E. Audit Report and Corporate Governance 70 F. Analysis and Interpretation of Financial 78 Information

A. TANGIBLE ASSETS ACTIVITY A 1 ASSET MANAGEMENT CONTROL You are provided with information from the accounting records of Mavuso Traders. INFORMATION: A) Extract information from the balance sheet 30 June 2021 30 June 2020 Land and buildings 3 000 000 5 500 250 Vehicles at cost 1 500 000 1 200 000 Accumulated depreciation on Vehicles ? 540 000 B) All the Vehicle, which has been bought on 30 June 2017, was traded in on 30 December 2021, for R600 000. Vehicle is depreciated at 15% p.a. on cost. C) No new Land and buildings were bought during this year. REQUIRED: 1.1.1 Prepare the Asset Disposal Account in the General Ledger. 1.1.2 Complete the Fixed Assets Note to the Financial Statements on 30 June 2021. ANSWER SHEET 1.1.1 ASSET DISPOSAL

1.1.2 TANGIBLE ASSET NOTE Land and buildings Vehicles Cost at the beginning of the year 5 500 250 1 200 000 Accumulated depreciation (540 000) Carrying amount at the beginning Movements Additions at cost Disposals at carrying amount Depreciation for the year Cost at the end of the year 3 000 000 Accumulated depreciation Carrying amount at the end of the year ACTIVITY A2 FIXED ASSETS EXTRACT OF THE FIXED ASSETS NOTE: VEHICLES EQUIPMENT Cost (1March 2020) 450 000 450 000 Accumulated depreciation (1Mar2020) (396 750) (187 595) CARRYING VALUE (1 March 2020) (i) 172 405 Additional at cost 510 000 0 Disposals at carrying amount 0 (iii) Depreciation (ii) (31 281) CARRYING AMOUNT (28 February 2021) Cost ( 28 Feb.2021) 960 000 285 000 Accumulated depreciation (28 Feb.2021) B) Adjustments are as follows: Fixed assets: Vehicles: • The business owns two vehicles on 28 February 2021. The second vehicles were purchased on 1 November 2020. • Vehicles are depreciated at 15%pa on cost. Equipment: • Depreciation in 20% pa on the diminishing balance method. • Unused equipment was sold for R50 000 on 1 October 2020’ • Accumulated depreciation on the equipment sold was R360 000 on 1 march 2020.

REQUIRED: Calculate the following: 2.1.1 The missing amounts denoted by (i) to (iii) on the fixed assets Note (11) 2.1.2 Profit/loss on the sale of equipment on 1 October 2020 (2) ANSWER SHEET WORKINGS ANSWER A) B) C) ACTIVITY A3 Required: CALCULATE THE MISSING AMOUNT INDICATED (A, B, C) IN THE FIXED ASSET NOTE FOR FEBUARY 2021. A. Fixed/Tangible assets: LAND AND VEHICLES BUILDINGS Carrying value at the beginning of the financial year 2 689 000 1 880 000 Cost 2 689 000 3 250 000 Accumulated depreciation - (1 370 000) Movements Additions at cost A 330 000 Disposals at carrying value - B Depreciation - C Carrying value at the end of the financial year 6 740 000 Cost 6 740 000 3 440 000 Accumulated depreciation -

Additional information in respect of fixed/tangible assets: (i) A vehicle was sold for cash at its carrying value on 31 May 2020. The following extract of the vehicle sold was taken from the Fixed Assets Register: Cost price: R140 000 Date purchased: 1 March 2019 Rate of depreciation: 20% p.a. on the diminishing-balance method FINANCIAL YEAR END DEPRECIATION ACCUMULATED DEPRECIATION 28 February 2020 28 000 28 000 31 May 2020 5 600 33 600 (ii) A new vehicle, costing R330 000, was purchased and paid for by EFT on 1 January 2021. (iii) Vehicles are depreciated at 20% p.a. on the diminishing balance method. (iv) New premises (land and buildings) were acquired during the financial year. ANSWER SHEET WORKINGS ANSWER A) B) C)

ACTIVITY A4 A. Fixed assets: LAND AND VEHICLES EQUIPMENT TOTAL BUILDINGS Cost 350 000 460 000 Accumulated depreciation (315 000) Carrying value (01/03/2020) (a) 35 000 Movements: Additions 325 000 422 550 0 Disposals 0 0 (d) Depreciation (b) (13 766) Carrying value (28/02/2021) 2 550 000 (c) 50 994 (e) Cost 772 550 340 000 Accumulated depreciation • Depreciation on vehicles is calculated at 20% p.a. on cost. The company has two vehicles on 28 February 2021. One of these vehicles was purchased on 1 September 2020. • Extract from the Fixed Assets Register in respect of equipment sold: Refrigerator (250 Model) Date purchased: 1 March 2018 Date sold: 31 December 2020 Sold for: R81 250 Depreciation rate: 10% p.a. (diminishing-balance method) COST DEPRECIATION BOOK VALUE 28 February 2019 R120 000 R12 000 R108 000 29 February 2020 ? ? 31 December 2020 ? ?

B.STATEMENT OF COMPREHENSIVE INCOME ACTIVITY B1: STATEMENT OF COMPREHENSIVE INCOME AND NOTE You are provided with information relating to Bonga Limited for the year ended 31 December 2020 REQUIRED: 1.1 Prepare the Statement of comprehensive income 1.2 Prepare the Note to the Balance Sheet for Trade and Other Receivables. INFORMATION: Extract from Pre-adjustment Trial Balance on 31 December 2020: Balance Sheet Accounts Section Debit Credit Ordinary share capital 3 000 000 Retained income (1 January 2019) 628 000 Loan from Paris Bank 540 800 Debtors' control 125 000 Creditors' control 96 200 Provision for bad debts 7 150 Trading stock 376 000 SARS: Income tax 315 000 Nominal Accounts Section Sales 8 412 000 Cost of sales 4 595 000 Debtors' allowances 112 000 Sundry expenses 257 400 Bank charges 41 905 Audit fees 75 600 Packing materials 15 400 Repairs and maintenance 107 500 Commission income 64 140 Directors' fees 736 000 Salaries and wages 1 020 000 Employer's contributions 156 000 Interest on current bank account 3 000 Bad debts 17 600 Rent income 87 720 Dividends on ordinary shares 360 000

Adjustments and additional information: A. Provide for R278 200 depreciation for the financial year. B. On 27 December 2020 Zesu Mkhize, a debtor, returned merchandise. A credit note for R1 600 was issued to her. (The cost price was R900.) No entries were made for the return of the merchandise. These items were returned to stock. C. The insolvent estate of a debtor, J Jobe, paid out 45 cents in the rand and made a direct deposit of R2 025 on 31 December 2020. The outstanding balance must be written off. No entries were made to record the direct deposit and the amount written off. D. The provision for bad debts must be increased to R8 000. E. The stock count on 31 December 2020 revealed: • Trading stock R369 100 • Packing material R2 400 F. The company has two directors. Each director receives the same monthly remuneration. One of the directors did not receive his directors' fee for December 2020. G. Interest on the loan from Khwezi Bank has not been entered yet. Interest is capitalised. The loan statement received from Khwezi Bank reflected the following: Balance on 1 January 2019 R601 600 Repayments made during the year R100 800 Balance on 31 December 2020 R540 800 H. There was no change in the monthly rent during the financial year. The tenant paid R6 000 for repairs to the premises. As Bonga Limited is responsible for all repairs, the tenant deducted this amount from the rent, which he paid for November 2020. The repairs have not been recorded, and the rent for December 2020 has not been received yet. I. An employee was left out of the Salaries Journal. His details are: Net salary R12 150 Deductions R6 350 Employer's contributions R5 050 J. Income tax for the year was correctly calculated at R300 300.

ACTIVITY B 1 1.1 BONGA LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 Sales ( Cost of sales ( Gross profit Other income Commission income Gross income Operating expenses Sundry expenses Bank charges Audit fees Operating profit Interest income 3 000 Profit before interest expense Interest expense Net profit before tax Income tax (300 300) Net profit after tax

1.2 TRADE AND OTHER RECEIVABLES ACTIVITY B2 STATEMENT OF COMPREHENSIVE INCOME, NOTES TO BALANCE SHEET You are provided with information relating to MOMBAD Limited. The company sells Microwaves and repairs Microwaves for their customers. REQUIRED: 2.1 Choose the correct word/s from those given below to complete the sentences: working capital Financial asset Operating expense Cash and cash equivalents Operating profit Borrowed capital Qualified Finance cost unqualified 2.1.1 The difference between current assets and current liabilities is referred to as … 2.1.2 The audit report states: “With the exception of a few aspects, shareholders can rely on the figures in the financial statements.” This will be regarded as a/an ... report. 2.1.3 Interest on the bank overdraft is classified as a/an …. 2.1.4 A fixed deposit which will mature in the next financial year will be regarded as part of in the Balance sheet. (4) 2.2 Prepare the Asset Disposal Account to record the sale of vehicles. See information 7 and 8 under adjustments below. (10) 2.3 Prepare the Income Statement (Statement of Comprehensive Income) for the year ended 30 June 2021. (51) 2.4 Prepare the following notes to the Balance Sheet: 2.4.1 Ordinary share capital (8) 2.4.2 Retained income (12)

INFORMATION: Figures extracted from the Pre-adjustment Trial Balance on 30 June 2021: Ordinary share capital (1 July 2020) R5 225 000 Retained income (1 July 2020) 770 000 Trading stock 197 000 Debtors control 85 000 Creditors control 78 800 Land and buildings 8 100 000 Vehicles 1 900 000 Equipment 600 000 Accumulated depreciation on vehicles 815 000 Accumulated depreciation on equipment 180 000 Mortgage loan from: Pinetown Bank 80 000 Medical aid fund 41 000 Pension fund 32 000 Provision for bad debts 4 200 SARS: PAYE 67 000 SARS: Income tax (provisional tax payment) DR 140 000 Sales 3 600 000 Debtors allowances 12 800 Cost of sales 2 400 000 Rent income 93 800 Interest income 12 000 Interest expense 7 000 Salaries and wages 270 000 Bad debts recovered 600 Employers contribution to Pension Fund and Medical aid 72 000 Audit fees 21 000 Directors fees 420 000 Consumable stores 12 000 Insurance 48 000 Sundry expenses ? Dividends on ordinary shares (interim) R100 000 Adjustments and additional information: A. A credit note issued to a debtor, Zodidi dated 27 June 2021 was not recorded in the books. The credit note was for: • Goods returned by Zodidi, R 7 200. The mark-up on goods sold was 50% on cost. B. No entries have been made for stock stolen on 7 June 2021. The insurance company has informed MOMBAD Limited that they have transferred R42 000 into the business bank account in respect of the insurance claim. MOMBAD Limited bears 20% of any stock loss. C. The physical stock count on 30 June 2021 revealed the following on hand: • Trading stock, R144 000 • Consumable stores R3 000 D. An employee was left out of the Salaries Journal for June 2021. The details from his pay-slip were:

Gross salary R10 000 PAYE deduction (18%) R1 800 Pension deduction (7,5%) R 750 Medical aid R1 200 Net salary R6 250 The business contributions were: • Pension fund 10,5% of gross salary • Medical aid : Rand-For-Rand basis E. The provision for bad debts must be decreased by R340. F. The tenant has paid his rent for July 2021 in advance. NOTE: The rent was increased by R700 on 1 April 2021 and that the premises were rented for the whole year. G. An old vehicle was sold for R70 000 cash on 31 December 2020. The fixed asset register revealed the following regarding this vehicle: Cost price R 800 000 Accumulated depreciation on 1 July 2020 R 750 000 This transaction has not yet been recorded by the bookkeeper. H. Make provision for depreciation as follows: • Vehicles at 15% p.a. on cost price • Equipment at R39 500 I. The authorised share capital comprises 3 000 000 ordinary shares. • There were 2 000 000 ordinary shares issued at the beginning of the financial year. • A further 250 000 new ordinary shares were issued on 1 May 2021 at R2,50 each. These shares qualify for final dividends. • The directors decided to buy back 10 000 shares from Z. Mathews at R3,10 per share. An electronic transfer was made for the full amount. Mathews is still entitled to final dividends. J. Final dividends were declared at 10 cents per share. K. After taking into account all adjustments the Net profit for the financial year amounted to: Before tax R500 000 After tax R350 000. ACTIVITY B 2

2.1 Choose the correct word/s from those given below to complete the sentences: 2.1.1 2.1.2 2.1.3 2.1.4 2.2 Asset Disposal Account

2.3 MOMBAD LIMITED STATEMENT OF COMPREHENSIVE INCOME€ FOR THE YEAR ENDED 30 JUNE 2021 Operating Expense Audit fees Insurance Directors fees

2.4.1 ORDINARY SHARE CAPITAL AUTHORISED: Number of authorized ordinary shares: 3 000 000 shares ISSUED: 2 000 000 ordinary shares in issue at the beginning of financial year 5 225 000 2.4.2 RETAINED INCOME Balance at the beginning of the financial year 770 000

3.1 Choose an explanation from COLUMN B that matches the GAAP principle in COLUMN A. Write only the letter (A–E) next to the number (3.1.1–3.1.4) in the ANSWER BOOK. COLUMN A COLUMN B 3.1.1 Historical cost A Amounts reflected on financial statements are expected to be realistic (conservative). 3.1.2 Matching B Items of significance should be shown separately in financial statements. 3.1.3 Going concern C Income and expenses must be recorded in the correct financial year. 3.1.4 Materiality D Financial statements are prepared with the assumption that the company will continue operating in the future. E Fixed assets are recorded at their original cost price, although their market value may be different. 3.2 KHWEZI LTD The information presented is for the financial year ended 29 February 2020. REQUIRED: 3.2.1 Complete the statement of comprehensive income for the year ended 29 February 2020. 3.2.2 Prepare the following notes to the Balance Sheet: • Ordinary Share Capital • Retained Income

INFORMATION: EXTRACT: PRE-ADJUSTMENT TRIAL BALANCE ON 29 FEBRUARY 2021 Balance Sheet Accounts Section Dr Cr Ordinary share capital 8 925 000 Retained income (1 March 2020) 555 500 Loan: Bas Bank 1 466 000 Trading stock 1 142 000 Debtors' control 465 000 SARS (Income tax) 523 600 Provision for bad debts (1 March 2020) 21 340 Fixed deposit: Money Bank (8%) 620 000 Nominal Accounts Section Sales ? Cost of sales 10 600 000 Debtors allowances 35 000 Rent income 264 420 Interest on fixed deposit 37 200 Bad debts recovered 8 140 Audit fees 150 000 Advertising 345 500 Salaries and wages 1 054 260 Directors' fees 932 200 Depreciation 189 500 Packing material 55 400 Sundry expenses ? Bad debts 14 000 ADJUSTMENTS AND ADDITIONAL INFORMATION: A. Goods are sold at a profit mark-up of 45% on cost. B. Stock-take on 29 February 2021 reflected the following stock on hand: • Trading stock R1 130 000 • Packing material R7 900 C. One of the old directors is still owed his February 2021 fees. He has received R173 800 to date. There were no changes to the fee structure. D. The bookkeeper calculated depreciation on fixed assets as R189 500. He did not take into account that a new vehicle, cost R140 000 was purchased on 1 January 2021. Vehicles are depreciated at 15% on carrying value. E. A debtor, Emihle, with an outstanding balance of R19 000, must be written off as bad debts. F. The provision for bad debts at 4% of the outstanding debtors must be taken into account

G. An employee on leave was omitted from the Salary Journal for February 2021. His salary details are as follows: • Net salary: R17 550 • Total deductions (including Pension, UIF and Tax): 25% • Employer’s contribution: R2 340 All employers' contributions are debited to the Salaries and Wages Account. H. Outstanding interest on fixed deposit must still be taken into account. The fixed deposit was unchanged during the year and interest is not capitalised. I. The rent income includes rent received for March 2021. The rent income increased by R1 560 per month from 1 September 2020. J. Loan statement from Bas Bank on 29 February 2021 reflected: R Balance at beginning of financial year 1 850 000 Repayments during financial year 384 000 Interest capitalised ? Balance at end of financial year 1 671 000 K. Income tax at 30% of the net profit for the financial year was R525 000. L. Sundry expenses is the balancing figure on the Income Statement. M. Shares and dividends: • The authorised ordinary share capital consists of 1 200 000 ordinary shares of which 75% were in issue before 1 March 2020. • Interim dividends of 60 cents per share was paid on 1 September 2020. • During October 2020 a further 120 000 shares were issued at R9,50 each. This was taken into account. • On 29 February 2021, final dividend of 55 cents per share was declared. • On 29 February 2021, 170 000 shares were repurchased at R9,70 per share. This transaction has not been recorded yet. These shareholders qualify for final dividends. ACTIVITY B3 3.1 Write only the letter (A–E) next to the question number. 3.1.1 3.1.2 3.1.3 3.1.4

3.2.1 See Income Statement on the next page. 3.2.2 Ordinary Share Capital Note Authorised Share Capital 1 200 000 ordinary shares Issued Shares: Shares in issue on 1 March 2020 Shares issued at R9,50 each Shares repurchased: ASP: Shares in issue on 29 February 2021 3.2.3 Retained Income Balance at beginning of financial year Ordinary share dividends Balance at end of financial year

3.2.1 KHWEZI LTD STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 2021 Sales Cost of sales Gross profit Other income Gross operating income Operating expenses Advertising 345 500 Sundry expenses Operating profit Profit before interest expense Net profit before tax Income tax Net profit after tax 50

ACTIVITY B4: INCOME STATEMENT, NOTES TO FINANCIAL STATEMENTS AND ANALYSIS AND INTERPRETATION 4.1 CONCEPTS REQUIRED: 4.1.1 What purpose does the Income Statement serve in the books of the business enterprise? 4.1.2 The Companies Act makes it compulsory for Public Companies to publish their financial statements. Give ONE reason. 4.1.3 Briefly describe the matching principle of GAAP. 4.1.4 Explain the difference between a receipt and an income. 4.2 MVC LTD. The following information was taken from the books of MVC Ltd. on 28 February 2021, the end of the financial year. REQUIRED: 4.2.1 Prepare the Income Statement for the year ended 28 February 2021. 4.2.2 Complete the trade and other receivables notes to the financial statements on 28 February 2021. 4.2.3 Calculate the following on 28 February 2021: • The rate at which depreciation on equipment is written off. • The value of trading stock as per physical stock count. (You may draw a Trading stock account.) 4.2.4 Refer to Information C and comment on the operating efficiency of MVC Ltd. Quote and explain TWO relevant financial indicators with figures to support your opinion.

INFORMATION: The following balances and totals were extracted from the Pre-adjustment Trial Balance of MVC Ltd. on 28 February 2021. Balance Sheet Accounts Section Ordinary share capital 8 000 000 Mortgage Loan: ELTO Bank (interest rate: 18% p.a.) 1 200 000 Vehicles ? Equipment 950 000 Accumulated depreciation on vehicles (1 March 2020) 1 350 000 Accumulated depreciation on equipment (1 March 2020) 450 000 Fixed Deposit: ELTO Bank (interest rate: 12% p.a.) 900 000 Creditors Control 660 000 Debtors Control 458 500 Trading stock 740 900 Provision for bad debts (1 March 2020) 21 985 Bank 45 200 Pension fund 45 400 SARS (PAYE) 64 100 SARS (Income tax) 100 000 Nominal Accounts Section Sales 3 640 000 Cost of sales 2 730 000 Debtors allowances 20 000 Insurance 53 800 Rent income 168 000 Salaries and wages 260 000 Interest on loan 90 000 Interest on fixed deposit 108 000 Packing material 52 000 Bad debts 14 000 Pension fund contributions 36 200 Bad debts recovered 3 400 Additional information and adjustments: A. The internal auditor discovered, among others, that entries in relation to the following were never made: • An invoice issued to a debtor for credit sales of R40 000 upon which a trade discount of 20% was granted. These goods were sold at cost plus 33⅓ % mark- up. • A credit note issued to a debtor for merchandise returned, R65 000. The cost price of these goods was R48 750. The goods were put back into stock. B. VC Mbuli, a debtor who owed R12 000, was declared insolvent. From his insolvent estate, the company received 60 cents in a rand and the balance was written off as irrecoverable. No entries were made of these transactions.

C. Y. Nortje whose account of R1 800 was written off as irrecoverable subsequently settled the debt in full. The accountant has made the following entry in this respect: Dr Bad Debts and Cr Debtors Control. Rectify the error. D. Adjust the provision for bad debts to R20 765. E. Packing material bought for R3 000 was erroneously posted to the trading stock account. This must be corrected. F. R40 000 worth of packing material was used during the financial year. G. Trading stock deficit of R48 500 was uncovered after the physical stock count. H. The insurance premiums on company vehicles were paid for 11 months. Note that after the annual review of the policy, the premium was reduced by 8% on1 November 2020. I. Included in the rent income amount is R48 000 annual rent for the period 1 June 2020 to 31 May 2021. J. The secretary to the general manager went on leave on 15 February 2021 and was paid her March 2021 salary on that date. Her salary slip details are as follows: Gross salary: R18 000 PAYE: Deductions 2 160 Pension fund: Deductions 1 440 The employer contributes R2 for every rand deducted from the employee towards pension fund. K. Provide for outstanding interest on loan. A payment of R300 000 was made towards the loan on 30 June 2020 and this was properly recorded. L. Depreciation on fixed assets for the current financial year must be provided as follows: • On vehicles R100 000 • On equipment R50 000 (on the diminishing balance method) M. Income tax for the financial year ended 28 February 2021 amounted to R96 885. This must still be brought into account. Financial Indicators on 28 February: 2021 2020 Gross profit percentage on turnover/sales 24.4% 26.5% Net profit before tax on turnover/sales 9% 11% Operating expenses percentage on turnover/sales 16.4% 14.8% Acid test ratio 0,9 : 1 0,7 : 1 Current ratio 1,9 : 1 1,6 : 1 Earnings per share (EPS) 100 cents 120 cents % return on average shareholders’ equity 19% 17% Debt-equity ratio 0,49 : 1 0,31 : 1

ACTIVITY B4 4.1 CONCEPTS 4.1.1 4.1.2 4.1.3 4.1.4 4.2 MVC LTD. 4.2.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2021 Sales (3 640 000 Cost of sales (2 730 000 Gross profit Other income Rent income (168 000 Bad debts recovered (3 400 Gross operating income Operating expenses Insurance (53 800 Salaries and wages (260 000 Packing material (52 000 Bad debts (14 000 Pension fund contributions (36 200 Depreciation Trading stock deficit Operating income Interest income 108 000 Profit before interest expense Interest expense Profit before income tax Income tax Net profit for the year

NOTES TO FINANCIAL STATEMENTS 4.2.2 TRADE AND OTHER RECEIVABLES Net trade debtors Debtors control (458 500 4.2.3 CALCULATE THE FOLLOWING ON 28 FEBRUARY 2021. The rate at which depreciation on equipment is written off The value of trading stock on hand as per physical stock count (You may draw up a Trading stock account) 4.2.4 Refer to Information C and comment on the profitability and/or operating efficiency of PJF Ltd. Quote and explain TWO relevant financial indicators with figures to support your opinion.

ACTIVITY B5: STATEMENT OF COMPREHENSIVE INCOME, NOTES, RATIO ANALYSIS AND AUDIT REPORT 5.1 MANENZE LTD You are provided with information from the books of Manenze Ltd. The financial year ended on 30 June 2021. REQUIRED: 5.1.1 Prepare the statement of comprehensive income for the year ended 30 June 2021. 5.1.2 Prepare the Trade and Other Receivables note. 5.1.3 Calculate the following financial indicators on 30 June 2021: • Percentage net profit on turnover • Debt-equity ratio 5.1.4 The board of directors wants to acquire an additional loan to fund expansions within the company. Comment on why you think this is a good idea or not. Quote TWO financial indicators (with figures) to support your opinion. INFORMATION: Extract from the Pre-adjustment Trial Balance on 30 June 2021: R Ordinary share capital 7 960 000 Retained income 540 300 Mortgage Loan: AM Bank (10,5%) 2 651 460 Fixed assets ? Fixed deposit: AM Bank 1 600 000 Debtors Control 174 250 Creditors Control 203 200 Provision for bad debts 11 940 Trading stock 246 500 SARS (income tax) 255 700 Sales 5 590 000 Cost of sales 4 300 000 Rates and taxes 69 800 Bad debts 13 700 Insurance 21 000 Interest on loan 251 460 Rent income 414 000 Salaries and wages 256 760 Depreciation 104 700 Interest on fixed deposit 26 000 Sundry expenses ? Additional information and adjustments:

The business used a mark-up percentage of 30% on cost. This was maintained for the current financial period. A. Goods with a cost price of R30 000 sold on credit was not recorded. A 15% trade discount was allowed on this sale. B. A debtor returned goods valued at R2 600. These goods were sent back to the supplier. C. A debtor who owed R15 000 was declared bankrupt. His estate paid 60 cents for every Rand owed. This was recorded. The balance of his account must still be written off as irrecoverable. D. Provision for bad debts must be adjusted to 5% of outstanding debtors. E. An EFT of R4 350, received from a debtor whose account was previously written off as irrecoverable was not recorded. F. Rates and taxes for June 2021 is outstanding, R11 800. G. Trading stock on hand as per a physical stock count on 30 June 2021 amounted to R251 500. Note that an invoice for R45 000 received from Nene Traders for goods purchased on credit must still be recorded H. Insurance premiums were paid until 31 May 2021. Take into account that the premium was decreased by R250 per month from 1 February 2021. I. Rent income included rent for July 2021. Note that rent was increased by 10% from 1 December 2020. J. The fixed deposit was increased by R800 000 on 1 January 2021, at the same rate of 6.5% p.a. Provide for outstanding interest. Interest is not capitalized. K. Income tax for the year amounted to R270 000. L. FINANCIAL INDICATORS CALCULATED ON 30 JUNE: 2021 2020 Net profit percentage on turnover ? 10,9% Debt-equity ratio ? 0,4:1 % return on total capital employed 23,1% 18,9% 5.2 AUDIT REPORT The following audit report appeared in a local newspaper. REQUIRED: Explain each audit opinion underlined in the extract below. Gauteng Provincial Government Audit Report 20/21 The Gauteng Department of Health received another qualified opinion from the Auditor-General. All other departments received unqualified opinions. The province's agencies also received unqualified opinions, except G Fleet, which received a disclaimer. ACTIVITY B5

MANENZE LTD. 5.1.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 Sales (5 590 000 Cost of sales (4 300 000 Gross profit Other income Rent income Operating expenses Operating profit Interest income Profit before interest expense Interest expense (251 460) Profit before income tax Income tax Net profit for the year 630 000

5.1.2 Trade and other receivables Debtors (174 250 5.1.3 Calculate the following financial indicators on 30 June 2021: Net profit percentage on turnover Debt-equity ratio 5.1.4 The board of directors wants to acquire an additional loan to fund expansions within the company. Comment on why you think this is a good idea or not. Quote TWO financial indicators (with figures) to support your opinion.

5.2 Explain each audit opinion underlined in the extract below. Audit report Description (audit opinion) Qualified Unqualified Disclaimer

ACTIVITY B6: COMPANY FINANCIAL STATEMENTS 6.1 THEMBALENTSHA LIMITED The following information relates to Thembalentsha Limited. The financial year ended on 30 June 2020. The business uses the perpetual (continuous) inventory system. REQUIRED: 6.1.1 Refer to Information B. Calculate the correct net profit after tax for the year ended 30 June 2020. Indicate a + for increase and a – for decrease. 6.1.2 Prepare the Retained Income Note on 30 June 2020. 6.1.3 Prepare the Balance Sheet on 30 June 2020. Where notes are NOT required, workings must be shown. INFORMATION: A. List of balances/totals on 30 June 2020: BALANCE SHEET ACCOUNTS SECTION Ordinary share capital R5 600 000 Retained income (1 July 2019) 2 700 000 Mortgage loan:Zungu Bank 262 200 Fixed assets 8 950 000 Trading stock 203 200 Debtors' control 316 000 Provision for bad debts (1 July 2019) 11 400 Cash and cash equivalents (balancing figure) ? SARS: Income tax (provisional tax payments) 725 000 Income receivable (accrued) 5 200 Creditors' control 261 000 B. Net profit before tax of R2 493 600 was determined BEFORE taking into account the following information: (i) Trading stock on 30 June 2020 was valued at R191 900. (ii) Provision for bad debts must be adjusted to R9 000. (iii) Rent for July 2020, R2 800, had been received in advance. (iv) An annual insurance premium of R6 000 was paid for the period 1 April 2020 to 31 March 2021. (v) The auditor discovered that the profit on disposal of a vehicle, R6 800, was incorrectly shown as a loss. (vi) Income tax amounts to R750 000 for the year. C. Dividends and shares: (i) Interim dividends of R600 000 were paid on 31 December 2019. (ii) The directors declared a final dividend of 22 cents per share on 30 June 2020 on all shares issued to date. Shares repurchased on 31 May 2020 do not qualify for final dividends. (iii) Share capital: 1 July 2019 3 000 000 shares were in issue (R3 900 000) 15 August 2019 1 000 000 new shares were issued at R1,70 each (R1 700 000). This has been recorded. 31 May 2020 20 000 shares were repurchased at R2,50 each from an existing shareholder (R50 000). This has not been recorded.

D. A debtor's debit balance of R1 000 in the Debtors' Ledger must still be transferred to his account in the Creditors' Ledger. E. The mortgage loan from Zungu Bank was obtained on 1 April 2019. This will be repaid over 6 years. A fixed loan repayment (excluding interest) is made at the end of each month. The first monthly loan repayment was made on 30 April 2019. All other loan repayments have been made. Interest is not capitalised and has been correctly recorded. ACTIVITY B6 6.1 THEMBALENTSHA LIMITED 6.1.1 Calculation of the correct net profit after tax Incorrect net profit 2 493 600 Correct net profit before tax Income tax Net profit after tax 6.1.2 RETAINED INCOME NOTE ON 30 JUNE 2020 Balance at beginning of year 2 700 000 Dividends Balance at end of year

6.1.3 THEMBALENTSHA LIMITED STATEMENT OF FINANCIAL POSATION AS AT 30 JUNE 2020 ASSETS NON-CURRENT ASSETS 8 950 000 Fixed assets at carrying value 8 950 000 CURRENT ASSETS Inventories Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY AND LIABILITIES ORDINARY SHAREHOLDERS' EQUITY Ordinary share capital 5 572 000 Retained income NON-CURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables TOTAL EQUITY AND LIABILITIES

C. STATEMENT OF FINANCIAL POSITION ACTIVITY C1: FIXED ASSETS AND FINANCIAL STATEMENTS AVENGERS LTD The information relates to the financial year ended 31 March 2020. REQUIRED: 1.1 Refer to Information B. Calculate the missing amounts denoted by (i) to (iv). (16) 1.2 Prepare the following notes to the Balance Sheet on 31 March 2020: • Ordinary share capital (7) • Retained income (8) 1.3 Complete the Balance Sheet (Statement of Financial Position) on 31 March 2020. Show workings. (34) INFORMATION: A. Amounts extracted from the books on 31 March: 2020 R 2019 R BALANCE SHEET ACCOUNTS Ordinary share capital ? 4 800 000 Retained income ? 1 181 250 Mortgage loan: Grandeur Bank 2 508 000 3 150 000 Fixed assets at carrying value 11 458 500 Trading stock (balancing figure) ? Net trade debtors 881 000 Bank (favourable) 454 000 Creditors' control 1 318 000 SARS: Income tax (provisional) 972 000 Income received in advance 32 000 Shareholders for dividends 889 200 752 000 Nominal accounts (pre-adjustment amounts) Commission income 29 920 Rent expense 364 000 Directors' fees 2 275 000

B. Incomplete Fixed Asset Note: LAND AND VEHICLES EQUIPMENT BUILDINGS Carrying value (1 April 2019) 631 000 Cost (i) 1 281 000 Accumulated depreciation (650 000) (200 000) Movements Additions 625 000 Disposals (850 000) 0 (iii) Depreciation (ii) (42 450) Carrying value (31 March 2020) Cost 9 650 000 Accumulated depreciation (iv) Land and buildings: • A building, on a separate property, was sold at cost. Vehicles: • A new vehicle was bought on 1 January 2020. • Vehicles are depreciated at 20% p.a. on cost. Equipment: • Old equipment, cost R21 000, was sold on 30 September 2019. The accumulated depreciation was R15 000 on 1 April 2019. Equipment is depreciated at 15% p.a. on the diminishing-balance method. C. Share capital: DATE INFORMATION 1 April 2019 800 000 ordinary shares in issue 31 May 2019 400 000 ordinary shares issued 1 October 2019 60 000 ordinary shares repurchased • Average share price, R7,00 • Repurchase price per share, R10,80 D. Dividends: • An interim dividend of 124 cents was paid on 30 September 2019. • Final dividends were declared, R889 200. E. Mortgage loan: Grandeur Bank • Fixed monthly repayments (including interest) have been made and correctly recorded. • Interest of R258 000 has not been recorded by the business yet. • The capital repayment will remain the same over the next financial year. F. The decrease in the provision for bad debts, R2 500, was not recorded.

G. Commission income for March 2020, R41 900, was still outstanding. H. The company has three directors who earn the same monthly directors' fee. One director has not received his directors' fee for March 2020 yet. I. Rent for April 2020 has been paid. The rent was increased by 25% on 1 January 2020. J. Net profit after tax and income tax: • The correct net profit after tax after all adjustments is R2 534 400. • Income tax is calculated at 28% of the net profit. ACTIVITY C1 ANSWER SHEET 1.1 Workings Answer (i) Cost of land and buildings at beginning of year (ii) Depreciation of vehicles for the year (iii) Disposal of equipment (iv) Accumulated depreciation of equipment 1.2 ORDINARY SHARE CAPITAL: ISSUED SHARE CAPITAL 800 000 Shares in issue at beginning 4 800 000 RETAINED INCOME:

Balance at beginning 1 181 250 Net profit after tax 2 534 400 Dividends Interim Final 889 200 Balance at the end

1.3 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON 31 MARCH 2020 ASSETS Non-current assets 11 458 500 Fixed assets at carrying value 11 458 500 Current assets Inventories Cash and cash equivalents 454 000 TOTAL ASSETS EQUITY AND LIABILITIES Ordinary shareholders' equity Non-current liabilities Current liabilities Trade and other payables TOTAL EQUITY AND LIABILITIES

ACTIVITY C 2 2.1 CONCEPTS Choose the correct term to complete each of the following statements. Write only the term next to the question number (2.1.1 – 2.1.3). Competitors, Internal Auditor, Shareholders, External Auditor, Directors 2.1.1 The audit report is addressed to the … 2.1.2 The management duties are given to the … by owners. 2.1.3 The audit report is issued by the … HARRY LTD The following information relates to Harry Ltd. The financial year ended 28 February 2021. REQUIRED: 2.2 Calculate the correct Net Profit after tax for the financial year ended 28 February 2021. 2.3 Prepare the following notes to the Balance Sheet on 28 February 2021: 2.3.1 Trade and other receivables 2.3.2 Retained income 2.4 Prepare the Balance Sheet (Statement of Financial Position) on 28 February 2021. Show all workings

INFORMATION: A. The following items appeared in the Pre-Adjustment Trial Balance on 28 February 2021: Ordinary share capital (180 000 shares) 28 February 2021 R 909 000 Retained income (4 December 2020) 130 000 Loan: M.G.M Bank 1 140 000 Fixed asset at carrying value ? 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 1 700 Trading stock 92 400 Consumable stores on hand (Packing material) 12 000 Bank overdraft 5 000 Petty cash 1 500 B. On 4 December 2020, the directors approved the repurchase of 20 000 shares at R9.00 each. This transaction was properly recorded. C. 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 2021 be paid in February 2021, due to financial problems. All two directors receive the same monthly salary. (ii) 80% of the packing material were used during the financial year.

(iii) A debtor B. Zulu, 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 2020 by 10%. (v) An interim dividend of R55 820 was paid on 1 September 2020, but was debited incorrectly to the salaries account. (vi) A debtor with a credit balance of R1 000 on 28 February 2021 must be transferred to the Creditors ledger. (vii) The loan statement from KZN Bank reflected the following: Balance at beginning of financial year R 1 500 000 Repayment during the year (was recorded) ? Interest capitalised 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 EFT on the Bank Reconciliation Statement on 28 February 2021 included: EFT No. Date of Name of Reason for Amount EFT payee EFT 401 21 Feb 2021 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 2021.

ACTIVITY C 2 2.1 2.1.1 2.1.2 2.1.3 2.2 Net profit before tax 1 449 200 Operating profit before interest expense Interest expense Net profit before tax Income tax Net profit after tax 2.3.1 Trade and other receivables

2.3.2 Retained income Balance at the beginning Balance at the end of the year

2.4 Balance Sheet (Statement of Financial Position) on 28 February 2019. Asset Non-current assets Tangible assets Fixed deposit Current assets Total assets Equity and liabilities Shareholders’ equity Non-current liabilities Loan (1 140 000 Current liabilities Trade and other payables Total equity and liabilities

ACTIVITY C3: BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) AND NOTES MAKIZOLE LIMITED You are provided with information for the financial year ended 29 February 2020. REQUIRED: 3.1 Complete the following notes for the financial year ended 29 February 2020. (a) Ordinary share capital (b) Retained income ) 3.2 Complete the Balance Sheet (Statement of Financial Position) on 29 February 2020. Where notes are not required, show ALL workings. INFORMATION: A. Extract from the books on 29 February 2020: Balance sheet accounts section R Ordinary share capital 4 500 000 Retained income 745 000 Fixed assets at carrying value (balancing figure) ? Trading stock ( see information D) ? Debtors’ control 473 000 Provision for bad debts 18 500 Bank (favourable) 429 500 Water and electricity deposit 2 640 Fixed deposit: Shallow Bank (6% p.a.) 715 000 Creditors’ control 727 760 SARS (Income tax) 405 500 Nominal accounts section Consumable stores 119 750 Interest on fixed deposit 35 750 Directors’ fees 552 000 Dividends on ordinary shares 390 000 B. Share capital: • The company is authorised to sell 1 400 000 ordinary shares. • 650 000 shares were in issue on 1 March 2019. • 250 000 new shares were issued on 1 September 2019. The amount of R1 300 000 was received and has been properly recorded. • 100 000 shares were repurchased on 5 February 2020 from an unsatisfied shareholder for 30 cents above the average share price. This transaction was not recorded. This shareholder does not qualify for final dividends.

C. Dividends: • An interim dividend was paid on 20 August 2019. • The directors declared a final dividend of 40 cents per share on 29 February 2020. D Stock records: The first -in-first-out method of valuing stock is used. Number of units Price per unit Total (R) Stock balances: 1 March 2019 1 000 250 250 000 29 February 2020 1 250 ? Purchases: 10 500 3 380 000 April 2019 5 000 R300 1 500 000 July 2019 4 000 R350 1 400 000 January 2020 1 200 R400 480 000 Returns: 50 units from the order received in January 2020. E. The following adjustments have not been taken into account: • Consumable stores used during the year amounts to R109 950. • Interest on fixed deposit still outstanding, R7 150. • The three directors earn the same monthly fees. The third director was appointed on 1 January 2020 and has not been paid yet. F. 75% of the fixed deposit matures on 31 March 2020. G. After the actual tax was calculated on the corrected net profit for the year, it was found that the provisional tax paid was R35 500 less than the actual tax. H. Income tax is calculated at 30% of net profit. I. After processing all adjustments the debt-equity ratio is 0,1 : 1.

ACTIVITY C 3 ANSWER SHEET MAKIZOLE LIMITED ORDINARY SHARE CAPITAL 3.1 AUTHORISED: 1 400 000 shares (a) ISSUED: 650 000 Shares in issue on 1 March 2019 250 000 Shares issued during the year 1 300 000 Shares in issue at 29 February 2020 (b) RETAINED INCOME Balance at the beginning of the year 745 000 Dividends on ordinary shares Balance at the end of the year

3.2 MAKIZOLE LIMITED BALANCE SHEET ON 29 FEBRUARY 2020 ASSETS NON-CURRENT ASSETS Fixed assets CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES ORDINARY SHAREHOLDERS’ EQUITY Ordinary share capital Retained income NON-CURRENT LIABILITIES Loan: Capital Bank CURRENT LIABILITIES Trade and other payables Current portion of loan 100 680 TOTAL EQUITY AND LIABILITIES

D. CASH FLOW STATEMENT ACTIVITY D1 1.1 FUZE LTD You are provided with information relating to FUZE Ltd for the financial year ended 30 June 2019. Where financial indicators are required to support your answer, name the financial indicator, the actual figure/ratio/percentage and trends. REQUIRED: 1.1.1 Prepare the following notes to the Statement of financial position: • Ordinary share capital • Retained income 1.1.2 Calculate the following amounts for the Cash Flow Statement: • Change in loan • Income tax paid 1.1.3 Complete the extract from the Cash Flow Statement for cash and cash equivalents. INFORMATION: A. Share capital and dividends: • 900 000 shares were in issue on 1 July 2018. • 75 000 ordinary shares were repurchased from the estate of a deceased shareholder at R10,70 per share on 1 October 2018. • The company issued 125 000 ordinary shares at R10,80 per share on 1 April 2019. • The 2019 Cash Flow Statement reflected dividends paid of R434 250. B. Extract from Statement of comprehensive income for the year ended 30 June 2019: R Sales 5 220 000 Cost of sales 3 600 000 Operating profit 1 295 000 Income tax 190 500 Net profit after tax 444 500

C. Extract from Statement of financial position on 30 June: 2019 2018 R R Fixed assets (carrying value) 17 420 950 14 683 300 Fixed deposit: Ken Bank 250 000 380 000 Current assets 1 015 000 456 000 Inventories (only trading stock) 564 000 281 500 Trade and other receivables (debtors) 246 000 167 000 Cash and cash equivalents 205 000 7 500 Shareholders' equity 10 050 750 9 540 000 Ordinary share capital ? 9 180 000 Retained income ? 360 000 Loan: Barbie Bank 8 000 000 4 500 000 Current liabilities 635 200 1 479 300 Trade and other payables 420 000 683 400 Shareholders for dividends 209 000 162 000 SARS: Income tax 6 200 23 400 Bank overdraft - 610 500 ACTIVITY D1 1.1.1 ORDINARY SHARE CAPITAL: AUTHORISED SHARE CAPITAL 1 500 000 ordinary shares ISSUED SHARE CAPITAL 900 000 Ordinary shares on 1 July 2018 9 180 000 Shares re-purchased (Average: R10,20) (75 000)  (765 000) 125 000 Shares issued (R10,80 per share) 1 350 000 Ordinary shares on 30 June 2016 950 000 9 765 000

RETAINED INCOME: Balance on 1 July 2018 360 000 Net profit after tax 444 500 Funds used for repurchase of shares (37 500)  75 000  x 0,50  Ordinary share dividends (481 250)  272 250 Interim (434 250 – 162 000 ) Final 209 000  Balance on 30 June 2019 285 750 1.1.2 Calculate the change in loan for the Cash Flow Statement. 8 000 000 – 4 500 000 = 3 500 000 Calculate the income tax paid for the Cash Flow Statement. 23 400  + 190 500  – 6 200  = 207 700  OR – 23 400 – T 1.1.3 Net change in cash and cash equivalents  808 000 Cash and cash equivalents (beginning of year)  (603 000) Cash and cash equivalents (end of year)  205 000

ACTIVITY D2 NANDISA LTD The given information relates to NANDISA Ltd for the financial year ended 31 August 2020. REQUIRED: 2.1.1 Prepare the following notes to the Statement of financial position on 31 August 2020: • Ordinary share capital • Retained income 2.1.2 Complete the Cash Flow Statement by inserting only the details and figures indicated by a question mark (?). INFORMATION: A. Information from the Statement of comprehensive income for the financial year ended 31 August 2020: Sales R8 652 000 Operating expenses 1 760 000 Depreciation 320 000 Interest expense 86 100 Operating profit 697 000 Income tax 187 770 Net profit after income tax 438 130

B. Information from the Statement of financial position on 31 August: 2020 2019 (R) (R) Fixed assets (carrying value) 6 177 000 4 975 000 Fixed deposits 220 000 300 000 Loan: Dolphin Bank 985 000 450 000 Current assets 619 600 663 300 Current liabilities 490 000 614 300 Shareholders' equity ? ? Ordinary share capital 5 292 000 ? Retained income ? 147 370 Cash and cash equivalents 23 400 2 500 Bank overdraft - 65 100 Shareholders for dividends 168 000 120 000 SARS: Income tax 11 800 (Cr) 2 400 (Dr) C. Share capital and dividends • The authorised share capital comprises 1 200 000 ordinary shares. • 900 000 ordinary shares were in issue on 1 September 2019. • The company issued 150 000 ordinary shares at R6,30 per share on 1 May 2020. • 70 000 ordinary shares were repurchased from shareholders on 30 August 2020. A cheque for R437 500 was issued for these shares. These shareholders qualify for final dividends. • An interim dividend of 12 cents per share was paid on 1 February 2020. • A final dividend was declared on 30 August 2020. D. Fixed assets: Transactions during the current financial year. • Old equipment was sold for cash at the carrying value of R324 000. • Additional equipment and delivery vehicles were purchased.

ACTIVITY D2 2.1 NANDISA LTD 2.1.1 ORDINARY SHARE CAPITAL AUTHORISED SHARE CAPITAL 1 200 000 ordinary shares ISSUED SHARE CAPITAL Ordinary shares on 1 September 2019 900 000 4 725 000  945 000 150 000 Issued on 1 May 2016 at R6,30 each  Re-purchased 30 August 2017 (378 000) (70 000)  (ASP: R5,40) 980 000  Ordinary shares on 31 August 2020 5 292 000 RETAINED INCOME Balance on 1 September 2019 147 370 Net profit after income tax 438 130 Shares repurchased (437 500  – 378 000 ) (59 500)  (70 000 x 0,85 Ordinary share dividends (276 000)  • Interim dividends (900 000  x 0,12) 108 000  • Final dividends 168 000  ` Balance on 31 August 2020 250 000 

2.1.2 NANDISA LTD CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2020 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Interest paid Dividends paid Income tax paid ? (173 570) * CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets ? (1 846 000) * (6 177 000  + 320 000  + 324 000  – 4 975 00 ?  Proceeds from the sale of fixed assets ? 324 000  Change in investments CASH FLOWS FROM FINANCING ACTIVITIES ?  Proceeds from issue of share capital see 5.1.1 ? 945 000  ?  Repurchase of shares ? (437 500)  Change in non-current liabilities Net change in cash and cash equivalents ? 86 000 * Cash and cash equivalents – opening balance ? (62 600)  (2 500 – 65 100) Cash and cash equivalents – closing balance ? 23 400  *one part correct and correct use of brackets

ACTIVITY D3 3.1 DUBE LTD The information presented relates to the financial year ended 30 April 2021. REQUIRED: 3.1.1 Refer to Information C. Calculate the missing amounts denoted by (a) to (d) for equipment in the Fixed Asset Note. Show all workings. 3.1.2 Calculate the following amounts for the Cash Flow Statement. Show ALL workings. • Income tax paid • Net changes in cash and cash equivalents 3.1.3 Complete the section on FINANCING ACTIVITIES in the Cash Flow Statement. INFORMATION: A. Information extracted from the Statement of comprehensive income on 30 April 2021: R Operating profit 1 590 000 Interest expense 300 000 Net profit before income tax 1 279 000 Net profit after income tax 895 300

B. Information extracted from the Statement of financial position on 30 April 2021: 2021 2020 (R) (R) Fixed deposit 200 000 520 000 Current assets 946 550 887 250 (including cash and cash equivalents) Cash and cash equivalents 125 750 54 750 Shareholders' equity 7 166 850 6 142 800 Ordinary share capital 6 660 000 5 600 000 Retained income 506 850 542 800 Non-current liabilities 1 800 000 2 750 000 Current liabilities 526 750 509 500 Trade and other payables 285 600 232 800 Bank overdraft 0 92 000 Shareholders for dividends 231 250 176 000 SARS: Income tax 9 900 8 700 C. Fixed assets: Fixed assets comprises of land and buildings and equipment. Extract from the Fixed Asset Note: EQUIPMENT Cost (1 May 2020) 3 640 000 Accumulated depreciation (1 May 2020) (a) Carrying value (1 May 2020) 2 002 000 Movements: Additions 900 000 Disposals (b) Depreciation (c) Carrying value (30 April 2021) Cost (30 April 2021) (d) Accumulated depreciation (30 April 2021)

• Equipment is depreciated at 15% p.a. on cost. • On 31 August 2020 old equipment costing R750 000 was sold for cash at its carrying value. The accumulated depreciation on this equipment was R491 750 on 1 May 2020. • On 1 December 2020 new equipment valued at R900 000 was purchased. • There were no other movements. D. Share capital and dividends: The business is registered with an authorised share capital of 1 200 000 ordinary shares. 1 May 2020 The issued share capital consisted of 800 000 ordinary shares. 1 February 2021 200 000 ordinary shares were issued at R8,00 per share. 25 April 2021 75 000 ordinary shares were repurchased from a retired shareholder at a total cost of R600 000. 30 April 2021 There were 925 000 shares in issue. Total dividends for the financial year amounted to R871 250. ACTIVITY D3 3.1.1 (a) 3 640 000 – 2 002 000 = 1 638 000  (b) 750 000 x 15% x 4/12 = 37 500  3 ma (Sold): 37 500  refer (b) (New): 900 000 x 15% x 5/12 = 56 250  (c) (Old): (3 640 000 – 750 000) x 15% = 433 500  2 890 000  Total: 527 250  (d) 3 640 000 + 900 000 – 750 000 = 3 790 000 

3.1.2 Calculate the income tax paid. 383 700  8 700  + (1 279 000 – 895 300) – 9 900  = 382 500  Calculate the net changes in cash and cash equivalents. 125 750  – 54 750 + 92 000  = 163 000  3.1.3 CASH FLOW FROM FINANCING ACTIVITIES 50 000  Funds used to repurchase shares (600 000) Decrease in loan (2 750 000 – 1 800 000) (950 000) 1ACTIVITY D4 4.1 KHANYILE LTD You are provided with information relating to KHANYILE Ltd for the financial year ended 31 December 2019. REQUIRED: 4.1.1 Prepare the following notes on 31 December 2019: • Ordinary share capital (6) • Retained income (9) 4.1.2 Complete the CASH EFFECTS OF OPERATING ACTIVITIES section of the Cash Flow Statement. Show workings. (9) 4.1.3 Calculate the following amounts that will appear in the Cash Flow Statement. State whether these are inflows or outflows.

• Change in fixed deposit (3) • Proceeds on disposal of equipment (6) INFORMATION: A. Extract from Statement of comprehensive income (Statement of Comprehensive Income) for the year ended 31 December 2019: Sales R6 090 000 Gross profit 1 890 000 Interest expense (all paid) 100 000 Depreciation 360 400 Net profit before tax 1 150 000 Income tax 322 000 B. Extract from Statement of financial position (Statement of Financial Position) on 31 December 2019: 2019 2018 Ordinary share capital R4 752 000 R4 200 000 Retained income 637 000 276 000 Fixed assets (carrying value) 5 828 000 4 905 800 Fixed deposits 200 000 500 000 Loan: Sharks Bank 1 000 000 600 000 Cash and cash equivalents 126 400 2 000 Bank overdraft - 85 600 SARS: Income tax 3 600 (Dr) 9 200 (Cr) Shareholders for dividends 175 000 270 000

C. Share capital: • The company is registered with an authorised share capital of 800 000 ordinary shares. • On 1 January 2019, there were 600 000 ordinary shares in issue. • On 31 August 2019, a further 100 000 shares were issued. • On 30 December 2019, the company repurchased 40 000 shares from a disgruntled shareholder at R1,30 above the average share price of R7,20. This shareholder qualified for final dividends. D. Dividends: • Interim dividends were paid on 30 June 2019. • A final dividend of 25 cents per share was declared on 31 December 2019. E. Fixed assets: • R1 495 000 was paid for extensions to buildings. • Old equipment was sold for cash at carrying value. ACTIVITY D4 4.1.1 ORDINARY SHARE CAPITAL Authorised Share Capital 800 000 ordinary shares Issued Share Capital 600 000 Ordinary shares on 1 January 2019 4 200 000 100 000 Issued on 31 August 2016 840 000 (40 000)  Re-purchased (ASP: R7,20) (288 000) 660 000  Ordinary shares on 31 December 2016 4 752 000

RETAINED INCOME Balance on 1 January 2019 276 000 Net profit after income tax (1 150 000 – 322 000) 828 000 Shares repurchased (40 000  x R1,30 ) (52 000) Ordinary share dividends (415 000) • Interim dividends 240 000 • Final dividends 175 000 Balance on 31 December 2016 637 000 4.1.2 CASH EFFECTS OF OPERATING ACTIVITIES 292 600 Cash generated from operations 1 237 400 Interest paid (100 000) Income tax paid (9 200  + 322 000  + 3 600 ) (334 800) (510 000) 4.1.3 Amounts in the Cash Flow Statement: Calculate: Change in fixed deposit 300 00 0  Inflow  Calculate: Proceeds on disposal of equipment 5 828 000  + 360 400  – 1 495 000  – 4 905 800  = 212 400  400 + 1 495 000 + 4 905 –212 40

ACTIVITY D5: CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS You are provided with information for the financial year ended 28 February 2021, taken from the books of Mhlathuze Ltd, a listed public company. 5.1 Refer to Information C. Prepare the Asset Disposal Account in respect of equipment sold on 31 August 2020. 5.2 Refer to Information C. Calculate the amounts indicated by (a) to (c). 5.3 Calculate the following figures which will appear in the Cash Flow Statement for the year ended 28 February 2021: (Show ALL workings.) 5.3.1 Income tax paid 5.3.2 Net change in cash and cash equivalents 5.4 Prepare the section of the cash effects on financing activities of the Cash Flow Statement for the year ended 28 February 2021. 5.5 Calculate the following financial indicators for the financial year ended 28 February 2021: (Round off your calculation to ONE decimal point or the nearest cent, where applicable.) 5.5.1 Net asset value per share 5.5.2 Return on average shareholders' equity 5.5.3 Debt-equity ratio 5.6 Refer to Information F. 5.6.1 The directors are not satisfied with the liquidity position. Quote and explain THREE relevant financial indicators (with figures) to support this statement. 5.6.2 The directors decided to increase the loan during the current financial year. Explain why this was a good decision. Quote and explain TWO financial indicators (with figures) in your answer. 5.6.3 The directors were pleased with the price that the company paid to buy back the 40 000 shares. Give a suitable reason why the directors felt that way. Quote relevant financial indicators (with figures) to support your answer. INFORMATION: A. Extract from the Statement of Comprehensive Income for the year ended 28 February 2021: Sales R2 800 000 Net profit before tax 1 240 000 Income tax ? Net profit after tax 892 800

B. Extract from the Statement of financial position on 28 February 2021: 2021 2020 Fixed assets (carrying value) ? ? Fixed deposit: FS Bank 1 450 000 1 200 000 Current assets 1 944 280 1 010 000 Inventory 975 700 345 000 Debtors and other receivables 419 000 629 600 SARS (Income tax) 0 17 400 Cash and cash equivalents 549 580 18 000 Shareholders' equity 5 950 800 4 345 000 Share capital 5 402 000 4 200 000 Retained income 548 800 145 000 Mortgage loan: TKO Bank 1 950 000 400 000 Current liabilities 587 200 555 000 Creditors and other payables 437 800 165 000 Accrued expenses 8 700 5 000 SARS (Income tax) 35 700 0 Shareholders for dividends 105 000 275 000 Bank overdraft 0 110 000 C. Fixed Assets (i) Land and Vehicles Equipment Buildings Carrying value at the beginning of 2 000 000 (b) the year Cost 2 000 000 900 000 Accumulated depreciation 0 (470 000) Movements: Additions (a) 150 000 Disposals 0 Depreciation 0 (c) Carrying value at the 3 900 000 end of the year Cost 3 900 000 930 000 Accumulated depreciation 0

(ii) Equipment • An old printer, bought for R120 000, was sold for cash on 31 August 2020 at carrying value. Accumulated depreciation on this printer was R38 400 on 1 March 2020. • A new printer was bought for R150 000 on 1 September 2020. • Depreciation on equipment is written off at 20% p.a. according to the diminishing-balance method. D. Share Capital • Authorised share capital is 3 000 000 ordinary shares. • On 1 March 2020, 1 200 000 ordinary shares had been issued at R3,50 per share. • On 1 November 2020, 300 000 ordinary shares were issued at R4,50 each. • On 28 February 2021, 40 000 shares were repurchased at R0,60 more than the average price per share. • E. Dividends The directors declared a final dividend of 7 cents per share. The shares bought back on 28 February 2021 also qualify for the final dividends. F. Financial Indicators on 28 February: 2021 2020 Net profit after tax on sales 31,9% 24,5% Current ratio 3,3 : 1 1,8 : 1 Debtors' collection period 36 days 28 days Creditors' payment period 45 days 80 days Acid-test ratio 1,7 : 1 1,2 : 1 Rate of stock turnover 3 times 5 times Return on shareholders' equity ? 17,5% Return on total capital employed 24,2% 21,2% Debt-equity ratio ? 0,09 : 1 Interest rate on loans 10,5% 10,5% Net asset value per share ? 362 cents Market value per share 505 cents 480 cents

ACTIVITY D5 5.1 ASSET DISPOSAL 2020 2020 31 31 Aug. Aug. 5.2 No. Calculation Amount (a) (b) (c) 5.3.1 Calculate the income tax paid.

5.3.2 Calculate the net change in cash and cash equivalents. 5.4 Cash effects on financing activities 5.5.1 Calculate the net asset value per share. 5.5.2 Calculate the return on average shareholders' equity.

5.5.3 Calculate the debt-equity ratio. 5.6.1 The directors are not satisfied with the liquidity position. Quote and explain THREE relevant financial indicators (with figures) to support this statement. 5.6.2 The directors decided to increase the loan during the current financial year. Explain why this was a good decision. Quote and explain TWO financial indicators (with figures) in your answer. 5.6.3 The directors were pleased with the price that the company paid to buy back the 40 000 shares. Give a suitable reason why the directors felt that way. Quote relevant financial indicators (with figures) to support your answer.

E. GOVERNANCE AND AUDIT REPORT ACTIVITY E1 1.1 You are provided with an extract from the audit report of the independent auditors of PINETOWN LTD. 1.1.1 What type of audit report did Pinetown LTD receive? Explain your answer. 1.1.2 To whom is the audit report addressed to and why? 1.1.3 State TWO consequences that this report could have on the company. 1.1.4 What impact would this report have on the company share prices in the JSE market? 1.2 Governance 1.2.1 The directors engage with clients on a regular basis in an effort to negotiate contracts and increase sales and services. • Provide TWO points to explain why there should be company policy that directors must declare to the Board all gifts, donations or favours received from clients. 1.2.2 The directors cite the donation to the School as a Corporate Social Investment (CSI) initiative. ) • Explain the need for Corporate Social Investment • What is the meaning of triple bottom line 1.2.3 Provide TWO suggestions on how good corporate governance can be achieved. INFORMATION EXTRACT FROM THE REPORT OF PINETOWN LTD Independent Auditor’s Responsibility We have examined the annual financial statements set out on pages 10 to 24. Basic for qualification of opinion The donation of computers for R270 000 made to the local school for online learning due to covid-19 constraints, could not be authenticated as no documentation existed for this expense. Subsequently, the fixed asset note is overstated and operating expenses stated in the Statement of Comprehensive Income has been understated as well. Audit Opinion Due to the significant of the matters described above, we have not been able to obtain sufficient evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statement of Pinetown LTD for the financial year ended 28 February 2021. Kubheka & Ngcobo, Chartered Accountants (SA) ACTIVITY E1 ANSWER BOOK

1.1.1 What type of audit report did Pinetown LTD receive? Explain your answer. 1.1.2 To whom is the audit report addressed to and why? 1.1.3 State TWO consequences that this report could have on the company. 1.1.4 What impact would this report have on the company share prices in the JSE market? 1.2 1.2.1 Provide TWO points to explain why there should be company policy that directors must declare to the Board all gifts, donations or favours received from clients. 1.2.2 • Explain the need for Corporate Social Investment • What is the meaning of triple bottom line 1.2.3 Provide TWO suggestions on how good corporate governance can be achieved.

ACTIVITY E2 Governance and Audit Report AUDIT REPORT You are provided with an extract from the audit report of the independent auditors of Cooper Ltd. Read the report and answer the questions that follow. To Shareholders Point 1 We have audited the annual financial statements of Cooper Limited for the year ended 30 June 2019, set out on pages 25 to 51….. Basis for Opinion Point 2 An amount that was shown as additions to Land and buildings was for revaluations of the Buildings. No audit evidence was provided. Opinion Point 3 In our opinion, the financial statements fairly present the financial position of the company at 30 June 2020, except for the increase in the value of the fixed assets in the Balance Sheet. REQUIRED: 2.1.1 Explain why the auditors specifically address the report to shareholders? 2.1.2 Refer to point 1. Explain why the independent auditors referred to pages 25-51 in the report. 2.1.3 Refer to point 2. The directors claimed that the value of the buildings increased over the years and that the value must be increased and shown as additions in the fixed asset note. As the independent auditor, what advice would you give? Provide ONE point. 2.1.4 Refer to point 3. • The company received a/an (unqualified/qualified/disclaimer) audit report. • Give a reason for your answer. ACTIVITY E2 ANSWER BOOK

2.1.1 Explain why the auditors specifically address the report to shareholders? 2.1.2 Explain why the independent auditors referred to pages 25-51 in the report. 2.1.3 The directors claimed that the value of the buildings increased over the years and that the value must be increased and shown as additions in the fixed asset note. As the independent auditor, what advice would you give? Provide ONE point. 2.1.4 • The company received a/an (unqualified/qualified/disclaimer) audit report. • Give a reason for your answer.

ACTIVITY E3 Governance and Audit Report AUDIT REPORT You are provided with the extracts of the independent audit reports of Giovanni Ltd. REQUIRED: 3.1.1 Provide ONE reason why public companies must be externally audited. 3.1.2 What type of report did Giovanni Ltd receive from the independent auditors? Explain your answer. 3.1.3 Refer to Information B. One of the directors says that “the company must not waste money on things like this.” Provide THREE reasons against his opinion. INFORMATION: A. Extract from the Independent Auditors’ Report: In our opinion, these financial statements present fairly, in all material respects, the financial position of Giovanni Ltd as at 31 March 2021, in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act (Act 71 of 2008) of South Africa. B. The following extract appeared in the Directors’ report of Giovanni Ltd: In terms of the outreach programme, Giovanni Ltd has established a sports academy for the local community. The company is providing sporting facilities to schools and is maintaining the sports ground. ACTIVITY E3 ANSWER BOOK 3.1.1 Provide ONE reason why public companies must be externally audited. 3.1.2 What type of report did Giovanni Ltd receive from the independent auditors? Explain your answer. 3.1.3 One of the directors says that “the company must not waste money on things like this.” Provide THREE reasons against his opinion.

ACTIVITY E4 Governance and Audit Report AUDIT REPORT PART A You are provided with an extract from the audit report of Graafwater Ltd. REQUIRED: 4.1.1 Choose the correct word from those in brackets and explain your choice. Graafwater Ltd received a/an (qualified/unqualified/disclaimer of opinion) audit report. 4.1.2 Briefly indicate how this audit report would possibly affect the shares of Graafwater Ltd on the Johannesburg Securities Exchange (JSE). Mention TWO points. 4.1.3 You have been appointed as the external auditor of Graafwater Ltd. The managing director, Laetitia Witbooi, has asked you to reflect her directors’ fees of R5 million under ‘Salaries and wages’ in the Income Statement. Would you agree to her request? Give a reason for your answer. INFORMATION: Audit Opinion Because of the significance of the matter described above, we have not been able to obtain sufficient audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion the financial statements of Graafwater Limited for the year ended 28 February 2021. Justin Williams, Chartered Accountants (CA) PART B 4.2 AUDIT REPORT You are provided with an extract from the audit report of the independent auditors of Moody Ltd. REQUIRED: 4.2.1 Briefly explain the role of an independent auditor. 4.2.2 Explain why the independent auditors mentioned IFRS and the Companies Act in the audit report.

4.2.3 Provide TWO possible consequences of this audit report on the market price of the shares. INFORMATION: EXTRACT FROM THE AUDIT REPORT OF MOODY LTD Independent Auditor's Responsibility We have audited the annual financial statements of Moody Ltd for the year ended 30 June 2021. These financial statements are the responsibility of the company's directors. Basis for ... Opinion The fixed assets of R1 564 000 in the Balance Sheet has been overvalued, with no reliable documentation or evidence to justify the revaluation. Audit Opinion In our opinion, except for the overvaluation of fixed assets, the financial statements fairly represent the financial position of the company on the 30 June 2021. Titus & Tlou Chartered Accountants (SA) 25 August 2021 ACTIVITY E4 ANSWER BOOK PART A 4.1.1 Graafwater Ltd received a/an (qualified/unqualified/disclaimer of opinion) audit report. 4.1.2 Briefly indicate how this audit report would possibly affect the shares of Graafwater Ltd on the Johannesburg Securities Exchange (JSE). Mention TWO points.

4.1.3 You have been appointed as the external auditor of Graafwater Ltd. The managing director, Laetitia Witbooi, has asked you to reflect her directors’ fees of R5 million under ‘Salaries and wages’ in the Income Statement. Would you agree to her request? Give a reason for your answer. PART B 4.2.1 Briefly explain the role of an independent auditor. 4.2.2 Explain why the independent auditors mentioned IFRS and the Companies Act in the audit report. 4.2.3 Provide TWO possible consequences of this audit report on the market price of the shares.

F.ANALYSIS AND INTERPRETATION ACTIVITY F1 You are provided with the information relating to Ndaba LTD, The financial year end on 28 February each year. REQUIRED 1.1 The directors wanted to expand business operations and therefore chose to increase loans during the current financial year, instead of issuing more shares. Explain and quote TWO financial indicators (actual figures/ratios/percentages) that are relevant to their choice. Explain whether this was a good choice or not. 1.2 The directors are of the opinion that the liquidity has deteriorated Explain and quote THREE financial indicators (with figures) to support their opinion. 1.3 The Dlams family owns 740 000 shares in this company. Explain the effect that the repurchase of shares on 31 December 2020 had on their control of the company. Give calculation(s) to support your answer. INFORMATION: A. Shares DATE DETAILS 1 March 2020 1 200 000 shares in issue 31 March 2020 300 000 new shares issued at R8 each 31 December 50 000 shares were repurchased at R9.50 each. The average 2020 issue price of all shares issued to date was R6 per share 28 February 2021 1 450 000 shares were in issue B. Some Financial indicators: Financial indicators 2021 2020 Debt/equity ratio 0.06:1 0,1:1 Net Asset Value Per Share (NAV) 610 cents 617 cents Current ratio 1,6:1 2,2:1 Acid test ratio 0,9:1 1.6:1 Stock turnover 6,8 times p.a 5,1 times p.a Debtors collection period 41 days 35 days Return on total capital employed 18,8% 16,4% Interest on loan 12,5% 12,5%

ACTIVITY F1 : NDABA LTD The directors wanted to expand business operations and therefore chose to increase loans during the current financial year, instead of issuing more shares. Explain whether this was a good choice or not. Quote TWO financial indicators (actual figures/ratios/percentages) that are relevant to their choice. 1.1 1.2. The directors are of the opinion that the liquidity has deteriorated. Explain and quote THREE financial indicators (with figures) to support their opinion. The Dlams family owns 740 000 shares in this company. Explain the effect that the repurchase of shares on 31 December 2020 had on their control of the company. Give calculation(s) to support your answer.

ACTIVITY F2 The information below relates to Nkomonde LTD, the financial year end on 30 April 2021 2.1 Comment on the overall liquidity position of the company. Quote THREE relevant financial indicators (with figures). 2.2 The directors decided to change the dividend pay-out policy in 2020. • Provide calculations that indicate the policy change. • Explain the effect of this change of policy on the company. State TWO points 2.3 One of the directors feels that the company should pay back the loan as soon as possible. . Explain your views about this. Quote and explain TWO relevant financial indicators with figures. 2.4 Explain why the shareholders are satisfied with: • The market price of the shares on the JSE • The price at which the 75 000 shares were repurchased on 25 April 2021. In EACH case, quote figures/financial indicators. 2.5 Directors feels that shareholders should be satisfied with their returns; do you agree? Quote financial indicator(s)/ figures to support your answer ACTIVITY F2 - NKOMONDE LTD 2.1 Comment on the overall liquidity position of the company. Quote THREE relevant financial indicators (with figures). The directors decided to change the dividend pay-out policy in 2020. 2.2 Provide calculations that indicate the policy change. Explain the effect of this change of policy on the company. State TWO points

2.3. One of the directors feels that the company should pay back the loan as soon as possible. Explain your views about this. Quote and explain TWO relevant financial indicators with figures. 2.4 Explain why the shareholders are satisfied with: ⚫ The market price of the shares on the JSE ⚫ The price at which the 75 000 shares were repurchased on 25 April 2021. In EACH case, quote figures/financial indicators. 2.5 Directors feels that shareholders should be satisfied with their returns; do you agree? Quote financial indicator(s)/ figures to support your answer

ACTIVITY F3 The following information appeared in the accounting records of NTOKOZO Ltd for the financial year ended 28 February. 3.1 Calculate N. Mlambo’s percentage shareholding before and after the issue of additional shares on 30 June 2020 3.2 Explain why Mlambo would be disappointed that he was not able to purchase any additional shares when these shares were issued. 3.3 Mlambo convinced the CEO to repurchase 160 000 shares from a close friend who was not interested in being a shareholder of the company on 1 March 2020. 3.3.1 Explain the effect of this re-purchase on Mlambo’s % shareholding. 3.3.2 Explain why the other shareholders would be concerned about this transaction, once they received inside information about the share buyback. 3.4 Show the change on the dividend pay-out rate by doing a calculation. 3.5 Provide TWO possible reasons why the directors decided to change the trend (policy) of previous year. INFORMATION A. Details of shares 2021 2020 Number of shares 850 000 650 000 Ordinary share capital R6 070 000 R4 550 000 B. N. Mlambo, a senior director on Board owns 350 000 shares on 1 March 2020. Additional shares were issued on 30 June 2020. Haw was on holiday and missed the opportunity to purchase any shares C. Financial indicators calculated Financial Indicators 2021 2020 Earnings per share (EPS) 98 cents 112 cents Dividends per share (DPS) 84 cents 58 cents Interest on fixed deposit 6,5% 6%

ACTIVITY F3 - NTOKOZO LTD 3.1 Directors feels that shareholders should be satisfied with their returns; do you agree? Quote financial indicator(s)/ figures to support your answer 3.2 Explain why Mlambo would be disappointed that he was not able to purchase any additional shares when these shares were issued. 3.3 Mlambo convinced the CEO to repurchase 160 000 shares from a close friend who was not interested in being a shareholder of the company on 1 March 2020. 3.3.1 Explain the effect of this re-purchase on Mlambo’s % shareholding. 3.3.2 Explain why the other shareholders would be concerned about this transaction, once they received inside information about the share buyback. Effect of repurchase: Concern:

1.4. Show the change on the dividend pay-out rate by doing a calculation. 1.5 Provide TWO possible reasons why the directors decided to change the trend (policy) of previous year. Activity F4 CHONCO LTD AND ZWANE LTD You have R100 000 to invest in listed company. You choose to focus on two companies in the same industry NB: When answering the questions always compare the information, quote relevant financial indicators of both companies (percentages, ratios and or amounts) REQUIRED: 4.1 Comment on the value of the shares for two companies on the JSE. Explain how this will influence your choice of company 4.2 Compare and comment on the dividend pay-out policies of the two companies 4.3 Comment on the degree financial risk and gearing. Explain how this will influence your choice of company. Quote TWO financial indicators to support your answer 4.4 Which company is handling working capital effectively? Quote THREE financial indicators to support your answer INFORMATION CHONCO LTD ZWANE LTD Current ratio 2:1 4,3:1 Acid test ratio 1,5:1 2,9:1 Creditors payment period 60 days 60 days Stock turnover rate 6 times 4 times Debtors collection period 30 days 42 days

Debt/equity ratio 0,3:1 1,2:1 Return on shareholder’s equity 21% 16% Return on total capital employed 18% 10% Earnings per share 900 cents 450 cents Dividends per share 450 cents 450 cents Net asset value per share 310 cents 300 cents Market price 400 cents 250 cents Interest on loan 11,5% 11,5% Activity F4 - CHONCO LTD AND ZWANE LTD Comment on the value of the shares for two companies on the JSE. Explain how this will influence your choice of company Compare and comment on the dividend pay-out policies of the two companies Comment on the degree financial risk and gearing. Explain how this will influence your choice of company. Quote TWO financial indicators to support your answer.

Which company is handling working capital effectively? Quote THREE financial indicators to support your answer ACTIVITY F5 THABO LTD AND ANDILE LTD Your friend Ntokozo want to buy shares in a company which sells clothing. He asks for your advice and presents you with the information relating to both companies. Both companies have same number of shares in issue, Required 5.1.1 Ntokozo is of the opinion that Andile LTD is handling its working capital more effectively and is in a better liquidity position than Thabo LTD. Explain and quote THREE financial indicators to support his opinion 5.1.2 The existing shareholders of the two companies hold different opinions of the current market value of their shares ⚫ Explain why the existing shareholders of Thabo LTD are happy with this. Quote TWO financial indicators/figures to support your answer ⚫ Explain why the existing shareholders of Andile LTD are very disappointed with the current market value. Quote TWO financial indicators/ figures to support your answer

INFORMATION THABO LTD ANDILE LTD Market price at JSE 800 cent 900 cents Net asset Value (NAV) 720 cents 1 010 cents Earnings per share (EPS) 410 cents 178 cents Dividends per share (DPS) 240 cents 185 cents % return on shareholder’s equity 21.3% 11.2 % Current ratio 6,0 :1 1,5:1 Acid test ratio 3:1 1:1 Stock-holding period 180 days 32 days Average debtors collection period 60 days 28 days ACTIVITY F5 - THABO LTD AND ANDILE LTD 5.1.1 Ntokozo is of the opinion that Andile LTD is handling its working capital more effectively and is in a better liquidity position than Thabo LTD. Explain and quote THREE financial indicators to support his opinion 5.1.2 The existing shareholders of the two companies hold different opinions of the current market value of their shares ⚫ Explain why the existing shareholders of Thabo LTD are happy with this. Quote TWO financial indicators/figures to support your answer ⚫ Explain why the existing shareholders of Andile LTD are very disappointed with the current market value. Quote TWO financial indicators/ figures to support your answer

5.2 LINDELO LTD AND SYANDA LTD Sbonga (your friend), want to buy shares in one of the companies which sells TV Games. He asked you for advice and presented you with the financial indicators for both companies. Both companies have the same number of shares in issue REQUIRED 5.2.1 Compare and comment on the dividends pay-out policy of the two companies 5.2.2 Comment on the degree of risk and gearing. Explain how this will influence your choice of company. INFORMATION LINDELO LTD SYANDA LTD Current ratio 5:1 1.7:1 Debt/equity ratio 0,3:1 2:1 % return on capital employed (ROTCE) 14% 10% % return on shareholders’ equity (ROSHE) 19% 9% Earnings per share (EPS) 600 cents 1000 cents Dividends per share(DPS) 450 cents 500 cents Net asset value per share (NAV) 350 cents 800 cents Interest on loan 12% 12% Interest on fixed deposit 8,5% 8,5% 5.2.1 Compare and comment on the dividends pay-out policy of the two companies 5.2.2 Comment on the degree of risk and gearing. Explain how this will influence your choice of company.

ACTIVITY F6 6.1 VUTHA LTD You are provided with information relating to Vutha Ltd for the financial year ended 30 September 2020. REQUIRED 6.1.1 The shareholders of Vutha Ltd are concerned about the liquidity position of the company. Explain and quote THREE financial indicators to support their opinion. 6.1.2 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. 6.1.3 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. 6.1.4 Comment on the degree of risk. Qoute ONE financial indicator. INFORMATION FINANCIAL INDICATORS 28 Feb. 2021 29 Feb. 2020 Current ratio 1,4: 1 1,5 : 1 Acid test ratio 0,4 :1 0,6 : 1 Stock turnover rate 4 times 6 times Debtors Collection Period 56 days 30 days Earnings per share (EPS) 60 cents 56 cents Dividends per share (DPS) 33 cents 56 cents Market price per share 385 cents 310 cents Net asset value per share 364,7 cent 315,6 cents (NAV) Debt/Equity ratio 0,8 : 1 0,3 : 1 ACTIVITY F6 - VUTHA LTD 6.1.1 The shareholders of Vutha Ltd are concerned about the liquidity position of the company. Explain and quote THREE financial indicators to support their opinion.

6.1.2 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. 6.1.3 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. 6.1.4 Comment on the degree of risk. Quote ONE financial indicator.

6.2 MCEBENI LTD You are provided with the information of Mcebeni Limited. The company is registered with an authorized share capital of 2 000 000 shares. The financial year ended on 29 February 2020. REQUIRED 6.2.1 The CEO, Nqobile Ndaba, currently owns 40% of the issued shares. The board of directors decided to issue 50% of the unissued shares in July 2020. Calculate the minimum number of shares that Nqobile must buy in July 2020 to gain control of the company. 6.2.2 Nqobile wants to purchase the additional shares, at R12 per share without advertising the shares to the public. Give TWO reasons why you would not approve of this arrangement. 6.2.3 New shares were issued at the beginning of the financial year at R10,00 each. Explain why the existing shareholders would or would not be happy with this issue price. Quote TWO financial indicators (with figures) to explain their opinion. ACTIVITY F6 - MCEBENI LTD 6.2.1 The CEO, Nqobile Ndaba, currently owns 40% of the issued shares. The board of directors decided to issue 50% of the unissued shares in July 2020. Calculate the minimum number of shares that Nqobile must buy in July 2020 to gain control of the company. 6.2.2 Nqobile wants to purchase the additional shares, at R12 per share without advertising the shares to the public. Give TWO reasons why you would not approve of this arrangement. New shares were issued at the beginning of the financial year at R10,00 each. Explain why the existing shareholders would or would not be happy with this issue price. Quote TWO financial indicators (with figures) to explain their opinion.

CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT GRADE 12 ACCOUNTING PAPER 1 TEACHERS GUIDE 2021

TANGIBLE / FIXED ASSETS: SOLUTIONS FIXED ASSET VALUATION FOR REPORTING ACTIVITY A 1 (P1) 1.1.1 ASSET DISPOSAL 2020 30 Vehicles 1 200 000 2020 30 Accumulated 630 000 June June depreciation (540 000+90 000) Profit on sale 30 000 Creditors 600 0000 1 230 000 1 230 000 1.1.2 TANGIBLE ASSETS NOTE Land and Vehicles buildings Cost at the beginning of the year 5 500 250 1 200 000 Accumulated depreciation (540 000) Carrying amount at the beginning 5 500 250 660 000 Movements Additions at cost 1 500 000 Disposals at carrying amount 2 500 250 (570 000) Depreciation for the year (202 500) Cost at the end of the year 3 000 000 1 500 000 Accumulated depreciation (630 000) Carrying amount at the end of the year 3 000 000 870 000

ACTIVITY A 2 (P1) SOLUTIONS: WORKINGS ANSWER I. 450 000 - 396 750 53 250 II. 510 000 X 15% X 4/12 = 25 500 25 500+53 249 = 78 749 450 000 X 15% X12/12= 67 500 Therefore: dep. is above CV 53 250 53 250 -1= 53 249 III. CALCULATE: Carrying value equipment sold 33 920 75 000 - 36 600 - 4 480 OR 75 000 - (36 600 + 4 480) ACTIVITY A3 (P1) 3.1Calculate the missing amounts (indicated by a, b and c) in the Fixed/Tangible Asset Note for the year ended 28 February 2021. NO. WORKINGS AMOUNT A 6 740 000 – 2 689 000 4 051 000 B 140 000 – 33 600 106 400 5 600 + 11 000 + 20% x (3 110 000 – 1 342 000) C OR 370 200 5 600 + 20% x [(1 768 000 x 10/12) + (2 098 000 x 4/12)] 294 667 + 69 933

ACTIVITY A4: (P1) A. Calculate the carrying value of Land and Buildings on 1 March 2020. 2 550 000 – 325 000 = 2 225 000 B. Calculate the total depreciation on vehicles on 28 February 2021. New: 422 550 x 20/100 x 6/12 = 42 255 Old: 350 000 x 20/100 = 70 000 but can only write off R34 999 (350 000 – 315 000 – 1 = 34 999) 42 255 + 34 999 = 77 254 C. Calculate the carrying value of Vehicles on 28 February 2021. 35 000 + 422 550 – 77 254 = 380 296 OR 772 550 – (315 000 + 77 254) = 380 296 D. Calculate the carrying value of Equipment sold on 31 December 2020. 120 000 – (12 000 + 10 800 + 8 100) = 89 100 OR 120 000 – 12 000 – 10 800 – 8 100 = 89 100 E. Calculate the total carrying value of fixed assets on 28 February 2021. 2 550 000 + 380 296 + 50 994 = 2 981 290

ACTIVITY B1 1.1 BONGA LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 Sales (8 412 000 – 112 000 ✓– 1 600✓) One part correct 8 298 400  Cost of sales (4 595 000 – 900✓) (4 594 100)  Gross profit 6 3 704 300  Other income Check operation 166 380  Commission income 64 140 Rent income (87 720✓+ 6 000 ✓+ 8 520 ✓✓) 102 240  Gross income 7 3 870 680  Operating expenses Check operation (2 775 880)  Sundry expenses 257 400 Bank charges 41 905 Audit fees 75 600 Packing material (15 400 ✓– 2 400 ✓) 13 000 ✓ Repairs and maintenance (107 500 ✓+ 6 000 ✓) 113 500 ✓ Director's fees (736 000✓+ 32 000✓✓) Check operation 768 000  Salaries and wages (1 020 000 ✓+ 18 500 ✓✓) Check operation 1 038 500  Employer's contributions (156 000✓ + 5 050 ✓) 161 050  Bad debts(17 600✓ + 2 475✓) Check operation 20 075  Provision for bad debts adjustments 850 ✓✓ Trading stock deficit (376 000 ✓ + 900✓ – 369 100✓) 7 800  Depreciation 30 278 200 ✓✓ Operating profit Check operation 1 094 800  Interest income 3 000 Profit before interest expense Check operation 1 097 800  Interest expense (540 800 + 100 800 – 601 600) One part correct (40 000) ✓✓ Net profit before tax 1 057 800  Income tax (300 300) Net profit after tax Check operation 7 757 500  50

1.2 TRADE AND OTHER RECEIVABLES Debtors' control (125 000 ✓ – 1 600 ✓– 2 025 ✓– 2 475✓) (4 500 2 marks) 118 900  One part correct Provision for bad debts (8 000) ✓ 110 900 Accrued income/Receivable see Rent income 8 520  SARS – Income tax 14 700 ✓✓ 134 120  10 ACTIVITY B2 2.1 Choose the correct word/s from those given below to complete the sentences: 2.1.1 working capital 2.1.2 qualified 2.1.3 finance cost 2.1.4 cash and cash equivalents 4 4 2.2 Asset Disposal Account Accumulated Depreciation: 2020 2020 31 Vehicles✓ GJ 800 000✓ 31 Vehicles✓ GJ 800 000✓ DEC DEC (750 000✓ + 50 000✓) Profit on sale GJ 70 000 Bank✓ GJ 70 000✓ of asset✓ operation 870 000 870 000 10 10

2.3 MOMBAD LIMITED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2021 Sales(3 600 000✓ – 12 800✓ –7 200✓ )  3 580 000 Cost of sales ( 2 400 000✓ – 4 800✓✓ ) ✓ ( 2 395 200) 9 Gross profit  1 184 800 Other operating income  445 840 Bad debts recovered  600 Rent income ( 93 800✓ – 7 700✓✓)  86 100 Provision for bad debts adjustment ✓✓ 340 9 Profit on sale of asset check 2.2  70 000 Gross operating income 1 630 640 Operating Expense  ( 1 135 640) Audit fees 21 000 Insurance 48 000 Directors fees 420 000 Salaries and wages(270 000✓ + 10 000✓ ) ✓ 280 000 Employer contribution (72 000✓ + 1 050✓+ 1 200✓) ✓ 74 250 Consumable stores ( 12 000✓ – 3 000✓ ) ✓ 9 000 Sundry expenses  13 090 Loss due to theft (42000 ✓x 20/80✓)  10 500 Trading stock deficit (197 000✓ + 4 800✓ – 52 500✓ – 144 000✓ )  5 300 26 Depreciation ( 50 000 + 165 000✓✓ + 39 500✓ )  254 500 Operating profit  495 000 Interest Income ✓ 12 000 Operating profit before interest expense  507 000 Interest expense ✓ (7 000) Net profit before tax ✓ 500 000 Income tax  (150 000) 7 Net profit after tax ✓ 350 000 51 2.4.1 51 ORDINARY SHARE CAPITAL AUTHORISED: Number of authorized ordinary shares: 3 000 000 shares ISSUED: 2 000 000 ordinary shares in issue at the beginning of financial year 5 225 000 250 000 additional shares issued during the financial year at an issue price of R2,50 per share 625 000 (10 000)shares bought back during the financial year at R2,60 (26 000) 2 240 0000rdinary shares in issue at the end of the financial year 5 824 000

2.4.2 RETAINED INCOME Balance at the beginning of the financial year 770 000 Funds used for shares buy-back (10 000 x 0,50) (5 000) Net profit after tax for the year 350 000 Dividends (325 000) Interim/paid (100 000) Final/recommended (2250 000 x 0,1) (225 000)  Balance at the end of the financial year 790 000 TOTALMARKS 85 85 ACTIVITY B3 3.1 Write only the letter (A–E) next to the question number. 3.1.1 E  3.1.2 C  3.1.3 D  3.1.4 B  4

3.2.1 KHWEZI LTD INCOME STATEMENT FOR THE YEAR ENDED 29 FEBRUARY 2021 15 370 000 Sales (10 600 000x145% – 35 000) 15 335 000 * Cost of sales (10 600 000) 6 Gross profit subtracted 4 735 000  Other income operation 255 000 * Rent income (264 420  – 21 060 ) 243 360 * Bad debts recovered 8 140 Provision for bad debt adjustment (21 340 – 17 840) 3 500 9 Gross operating income GP + OI 4 990 000  Operating expenses GOI – OP (3 084 600)  Audit fees 150 000 Trading stock deficit (1 142 000 – 1 130 000) 12 000 Salaries and wages (1 054 260 +23 400 + 2 340) 1 080 000 * Directors' fees (932 200 + 15 800 ) 948 000 * Packing material (55 400 – 7 900) 47 500 Depreciation (189 500 + 3 500 ) 193 000 * Bad debts (14 000 + 19 000) 33 000 Advertising 345 500 Sundry expenses Balancing figure 275 600  25 Operating profit PBIE – int inc 1 905 400  Interest income 620 000 x 8% 49 600 Profit before interest expense NPBT + int exp 1 955 000  Interest expense 1 671 000 + 384 000 – 1 850 000 (205 000)  Net profit before tax (525 000 x 100 ÷ 30) or NPAT + tax 1 750 000 ^ Income tax (525 000) 10 Net profit after tax (525 000 x 70 ÷ 30) or NPBT - tax 1 225 000 ^ 50

3.2.2 Ordinary Share Capital Note Authorised Share Capital 1 200 000 ordinary shares Issued Shares: 1 200 000 x 75% 8 925 000 (on trial balance) – 1 140 000 (shares issued) 900 000 Shares in issue on 1 March 2020 7 785 000  Shares issued during the year at 120 000 1 140 000 R9,50 each 8 925 000 / 1 020 000 or (900 000 + 120 000) (170 000) Shares repurchased: ASP: R8,75  (1 487 500) * 850 000 * Shares in issue on 29 February 2021 7 437 500 * 10 3.2.3 Retained Income Balance at beginning of financial year 555 500 Net profit after tax see 3.2.1 below 1 225 000  R9,70 – ASP end of year Buy back of shares (170 000  x 0,95c ) ignore brackets (161 500) * Ordinary share dividends ignore brackets (1 101 000) * • Interim (900 000 x 60c) or 0,6 or 60% 540 000 * • Final (1 020 000  x 55c) or 0,55 or 55% 561 000 * Balance at end of financial year 518 000 * 11 TOTAL MARKS 75 ACTIVITY B4 4.1 CONCEPTS 4.1.1 Gives the business financial performance/results for the year/calculates the net profit of the business 4.1.2 To protect the investing public Any acceptable answer  4.1.3 Relates income and expenditure to the relevant financial year 4.1.4 Receipts, relate to all amounts received during the year while income relates to amount relevant to the year or year under review 5

4.2 MVC LTD 4.2.1 INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2021 Sales (3 640 000 – 20 000 + 32 000 – 65 000) if one part correct 3 587 000 Cost of sales (2 730 000 + 30 000 – 48 750) if one part correct (2 711 250) Gross profit check operation 875 750 Other income if one part correct 162 420 Rent income (168 000 – 12 000) 156 000 Bad debts recovered (3 400 + 1 800) 5 200 Provision for bad debts adjustment (21 985 – 20 765) 1 220 Gross operating income check operation 1 038 170 Operating expenses check operation (589 220)  Insurance (53 800 + 4 600) check operation 58 400 Salaries and wages (260 000 - 18 000) 242 000 Packing material (52 000 + 3 000 – 15 000) 40 000 Bad debts (14 000 + 4 800 – 1 800) if one part correct 17 000 Pension fund contributions (36 200–2 880) check operation 33 320 Depreciation (100 000 + 50 000) 150 000 Trading stock deficit 48 500 Operating income 448950 Interest income 108 000 Profit before interest expense check operation 556 950 Interest expense (90 000 + 144 000) if one part correct (234 000)  Profit before income tax check operation 322 950 Income tax if 30% of net profit before tax (96 885)  Net profit for the year check operation 226 065 42 4.2.2 TRADE AND OTHER RECEIVABLES Net trade debtors check operation 394 535 Debtors control (458 500 + 32 000– 65 000– 12 000+ 1 800) operation if one part correct 415 300 Provision for bad debts (21 985 – 1 220) see 4.2.1 operation if one part correct (20 765)  SARS (Income tax) (100 000 – 96 885) see 4.2.1 operation if one part correct 3 115 Prepaid expenses (18 000 + 2 880) check operation 397 650 11 4.2.3 CALCULATE THE FOLLOWING ON 28 FEBRUARY 2021 The rate at which depreciation on equipment is written off 950 000 – 450 000= 500 000 (2 marks) 500 000 x x_ = 50 000  / 100 = 10%operation if one part correct 100 5 The value of trading stock on hand as per physical stock count 740 900 – 30 000 + 48 750 – 3 000 – 48 500 = 708 150 Operation if one part correct Trading Stock 740 900 30 000 48 750 3 000 48 500 708 150 6

4.2.4 Refer to Information C and comment on the profitability and/or operating efficiency of MVC Ltd. Quote TWO relevant financial indicators with figures to support your opinion. Financial indicator Trend  Figure  It is on the decline and is not looking good because: • The gross profit percentage on turnover, declined from 26,5% in 2020 to 24.4% in 2021. • The percentage net profit on turnover also decreased from 11% in 2020 to 9% in 2021. • The percentage operating expenses increased from 14,8% in 2020 to 16,4% in 2021, signifying an increase in operating expenses. 6 TOTAL MARKS 75

ACTIVITY B5 MANENZE LTD. 5.1.1 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2021 39 000 – 1 mark – 5 850 – 2 marks 5 620 550 Sales(5 590 000 + 33 150 – 2 600)one part correct Cost of sales(4 300 000 + 30 000– 2 000) (4 328 000)  one part correct Gross profit (9) operation 1 292 550 Other income operation 387 350 Rent income (414 000 – 33 000) one part correct 381 000 Bad debts recovered 4 350 Provision for bad debts adjustment (11 940 – 9 940✓) or check 1.1.2 one part correct 2 000 (12) operation 1 679 900 Operating expenses operation (606 440) Rates and taxes (69 800✓ + 11 800✓) 81 600 Bad debts (13 700 + 6 000✓) one part correct 19 700 Insurance (21 000 + 1 750✓) one part correct 22 750 Salaries and wages 256 760 Depreciation 104 700✓ Trading stock deficit one part correct (246 500 – 30 000 + 45 000– 251 500) 10 000 Sundry expenses balancing figure 110 930 Operating profit 1 073 460 Interest income (26 000 + 52 000✓) one part correct 78 000 Profit before interest expense (25) 1 151 460 Interest on loan (251 460) Profit before income tax 900 000 Income tax (2) (270 000)✓ Net profit for the year 630 000 48 Foreign items –1 (max –2) Trading stock surplus – Award (246 500 + 45 000 – 271 500 = 20 000 four marks

5.1.2 Trade and other receivables Net trade debtors 188 860 operation Debtors see 5.1 (174 250 + 33 150 – 2 600– 6 000) 198 800 one part correct Provision for bad debts (11 940 – 2 000) see 5.1 (9 940)  Or 5% of the debtors control balance above for two method marks Accrued income (Interest) 52 000 10 240 860 5.1.3 Calculate the following financial indicators on 30 June 2021: Net profit percentage on turnover 630 000 x 100 = 11.2% one part correct 5 620 550 See 5.1 3 Debt-equity ratio 8 500 300 2 651 460 ✓ : (7 960 000 + 540 300) 2 651 460 : 8 500 300 0,3:1 one part correct 4 5.1.4 The board of directors wants to acquire an additional loan to fund expansions within the company. Comment on why you think this is a good idea or not. Quote TWO financial indicators (with figures) to support your opinion. see 5.2.2 Debt-equity ratio improved from 0,4:1 in 2020 to 0,3:1 in 2021 signifying low risk.  Percentage return on total capital employed increased from 18.9% in 2020 to 23.1% in 2021 and much more than the interest on the loan of 10.5%. This is positive gearing.  4

5.2 Explain each audit opinion underlined in the extract below. Audit report Description (audit opinion)    Any reasonable explanation Qualified Financial statements fairly present except for something that cannot be properly accounted for (can be relied upon except for a few items that need attention) Unqualified Financial statements fairly present in all material respects (positive – can be relied upon) Disclaimer Unable to express an opinion (negative – cannot be relied upon) 6 TOTAL MARKS 75

ACTIVITY B6 6.1 THEMBALENTSHA LIMITED 6.1.1 Calculation of the correct net profit after tax Accept brackets instead of – If no sign, assume + Positive/negative effect & figure must be correct Foreign entries -1 (max -2) Incorrect net profit 2 493 600 Trading stock deficit –11 300 ✓✓ Provision for bad debts adjustment +2 400 ✓✓ Rent income –2 800 ✓✓ Insurance +4 500 ✓✓ Correction of error: Asset disposal 6 800 1 mark +13 600 ✓✓ Correct net profit before tax Operation, one part correct, 2 500 000  reasonable, must be approx. R2m Income tax Accept if no sign –750 000 ✓ Net profit after tax Check operation, NP – tax 1 750 000  13 6.1.2 RETAINED-INCOME NOTE ON 30 JUNE 2020 Balance at beginning of year 2 700 000 Net profit after tax see 6.1.1 1 750 000  Repurchase of shares 1 mark 2 marks (20 000 x R1,10 ) OR (50 000 – 28 000) (22 000)  One part correct, must be negative / brackets If 22 000 without brackets or –ve sign, give 3 marks Dividends One part correct, must be negative / brackets (1 475 600)  Interim 600 000 ✓ 11 Final (3 980 000 x 0,22 ) One part correct 875 600  Balance at end of year Operation, one part correct 2 952 400 

6.1.3 THEMBALENTSHA LIMITED BALANCE SHEET AS AT 30 JUNE 2020 ASSETS NON-CURRENT ASSETS 8 950 000 Fixed assets at carrying value 8 950 000 CURRENT ASSETS TA-NCA 1 000 000 Inventories Must be in final column as 191 900 to get 2 marks ✓✓191 900 Trade and other receivables 316 000✓ – 1 000 + 5 200✓ – 9 000✓ + 4 500 See 6.1.1 315 700 Operation, 315 000 / 321 200 2 marks [-11 400 +2 400] 1 mark only one part correct 320 200 3 marks Cash and cash equivalents Balancing figure 492 400 TOTAL ASSETS Transfer OE + L 9 950 000 11 EQUITY AND LIABILITIES ORDINARY SHAREHOLDERS' EQUITY Operation 8 524 400 Ordinary share capital 5 572 000 Retained income see 6.1.2 2 952 400 2 NON-CURRENT LIABILITIES 207 000 Mortgage loan: Custom Bank 207 000 262 200 ✓– 55 200✓✓ Any figure if subtracted one part correct 4 600 x 12 2 marks 5 CURRENT LIABILITIES Operation 1 218 600 Trade and other payable see 6.1.1 Operation, one part correct (261 000 ✓– 1 000 ✓+ 2 800 ) 262 800 260 000 2 marks Current portion of loan See NCL *55 200 SARS: Income tax (750 000✓ – 725 000 ) *25 000 Operation, one part correct Shareholders for dividends see 6.1.2 *875 600 TOTAL EQUITY AND LIABILITIES Operation 9 950 000 30 *Items under CL may be combined 12

ACTIVITY C1 WORKINGS ANSWER (i) Cost of land and buildings at beginning of year R10 500 000 9 650 000 + 850 000 ✓✓ (ii) Depreciation of vehicles for the year New: 625 000 x 20% x 3/12 = 31 250 ✓ R287 450  Old: 1 281 000 x 20% = 256 200 ✓ (iii) Disposal of equipment (6 000 x 15% x 6/12) R5 550 21 000✓ - (15 000✓ + 450 ✓) 15 450 16 (iv) Accumulated depreciation of equipment R227 000 16 200 000 ✓ + 42 450 ✓ - 15 450  see (iii above) 1.2 ORDINARY SHARE CAPITAL ISSUED SHARE CAPITAL 800 000 Shares in issue at beginning 4 800 000 400 000✓ Shares issued during year 3 600 000 (60 000) Shares re-purchased (ASP: R7.00) (420 000)✓✓ 7 1 140 000 Shares in issue at end 7 980 000✓ Closing number of shares x R7.00 7 RETAINED INCOME Balance at beginning 1 181 250 Net profit after tax 2 534 400 Shares re-purchased (60 000 ✓ x R3, 80) (228 00) 8 Dividends (2 377 200) 8 Interim (1 200 000✓ x 124 cents✓) 1 488 000 Final 889 200 Balance at end 1 110 450

1.3 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON 31 MARCH 2020 ASSETS Non-current assets 11 458 500 Fixed assets at carrying value 11 458 500 Current assets TA – 11 458 500 2 715 750 Inventories balancing figure 1 303 850 Trade and other receivables (881 000✓ + 2 500✓✓ +41 900✓ + 32 500✓✓) 957 900 Cash and cash equivalents 454 000 TOTAL ASSETS 14 174 250 EQUITY AND LIABILITIES Ordinary shareholders' equity 9 090 450 Ordinary share capital 7 980 000 1 110 450 Non-current liabilities 2 382 000 Mortgage loan (2 508 000✓ + 258 000✓ – 384 000✓✓✓) 2 382 0000 Current liabilities Trade and other payables (1 318 000✓ + 32 000✓ + 65 000✓✓) 1 415 000 Shareholders for dividends 889 200✓✓ SARS: Income tax (985 600✓✓ – 975 000✓) 13 600 Current portion of loan 384 000 TOTAL EQUITY AND LIABILITIES 14 174 250 34 34

ACTIVITY C2 2.1 2.1.1 Shareholders  2.1.2 Directors  2.1.3 External Auditor  do not accept auditor 3 2.2 Net profit before tax 1 449 200 Directors fees (625 000 – 25 000) (600 000)  Packing material (12 000 x 80/20 ) (48 000)  Bad debts (1 200 - 480) (720)  Rent income (177 600 – 26 400) 151 200  Salaries 55 820  Operating profit before interest expense 1 007 500  Interest expense (157 500)  Net profit before tax Operation one part correct 850 000  Income tax (255 000)  Net profit after tax Operation 595 000  19 2.3.1 Trade and other receivables Trade debtors ( 44 800 – 1 200 + 1 000) 44 600  Provision for bad debts (1 700)  Net trade debtors Operation one part correct 42 900  Prepaid expense (Directors fees) See 2.2 25 000  SARS Income tax ( 267 000 – 255 000) See 2.2 12 000  Operation one part correct 79 900  11 2.3.2 Retained income Balance at the beginning (130 000 + 79 000) 209 000  Buy-back of shares (20 000 X 3.95) (79 000)  Net profit after tax See 2.2 595 000  Dividends Operation one part correct (190 820)  Paid / interim 55 820  Final/ recommended (180 000 X 0.75) 135 000  Balance at the end of the year Operation 534 180  13

2.4 Balance Sheet (Statement of Financial Position) on 28 February 2021. Asset Non-current assets TA – CA 2 607 300 3 Tangible assets Balancing figure 1 907 300 Fixed deposit 700 000 Current assets Operation 185 800 7 Inventory (92 400 + 12 000) 104 400 Trade and other receivables See 2.3.1 79 900 Cash and cash equivalent 1 500 Total assets (Total equity + liabilities = Total asset 2 793 100 Equity and liabilities Shareholders’ equity operation 1 443 180 3 Ordinary share capital 909 000 Retained income see 2.3.2 534 180 Non-current liabilities 780 000 3 Loan (1 140 000 – 360 000) 780 000 Current liabilities operation 569 920 13 Trade and other payables (43 000✓ + 26 400✓ + 1 000✓+ 3 000✓) 73 400 Current portion of loan see NCL 360 000 Shareholders for dividends see 2.3.2 135 000 Bank overdraft (5 000 – 480– 3 000) 1 520 or (- 5000 + 480 + 3 000) Total equity and liabilities operation 2 793 100 29 TOTAL MARKS 75 75

ACTIVITY C3 3.1 (a) ORDINARY SHARE CAPITAL AUTHORISED: 1 400 000 shares ISSUED 650 000 Shares in issue on 1 March 2019 3 200 000✓✓ 250 000 Shares issued during year 1 300 000 (100 000) ✓ Shares re-purchased at R5✓✓ (500 000) 8 800 000 Shares in issue at 29 February 2020 4 000 000 8 (b) RETAINED INCOME Balance at beginning 745 000 Net profit after tax (405 500✓ + 35 500✓) x 70/30✓ 1 029 000 Shares re-purchased (100 000 x 30c) (30 00) ✓✓ 8 Dividends on ordinary shares (710 000) 8 Interim (1 200 000✓ x 124 cents✓) 390 000✓ Final (800 000 x 40c✓) 320 000 Balance at end of the year 1 034 000

3.2 Balance Sheet (Statement of Financial Position) on 29 February 2020. ASSETS NON-CURRENT ASSETS TA – CA 5 362 500 3 Tangible assets Balancing figure 5 183 750 Financial assets: Fixed deposit (715 000 – 536 250) 178 750 CURRENT ASSETS Operation 1 505 340 7 Inventory (460 000 + 35 000 + 9 800) 504 800 Trade and other receivables (473 000 – 18 500 + 7 150) 461 650 Cash and cash equivalents (536 250 + 2 640) 538 890 Total assets (Total equity + liabilities = Total asset 6 867 840 Equity and liabilities Shareholders’ equity operation 5 034 000 3 Ordinary share capital 4 000 000 Retained income 1 034 000 Non-current liabilities 503 400 3 Loan OSE x 0.1 503 400 Current liabilities operation 569 920 13 Trade and other payables (727 760✓ + 46 000✓✓) 773 760 Current portion of loan 100 680 Shareholders for dividends 320 000 SARS: Income Tax 35 500 Bank overdraft (530 000 – 429 500) 100 500 35 Total equity and liabilities operation 2 793 100 35 TOTAL MARKS 55 55

ACTIVITY D1 1.1.1 ORDINARY SHARE CAPITAL: AUTHORISED SHARE CAPITAL 1 500 000 ordinary shares ISSUED SHARE CAPITAL 900 000 Ordinary shares on 1 July 2018 9 180 000 Shares re-purchased (Average: R10,20) (75 000)  (765 000) 125 000 Shares issued (R10,80 per share) 1 350 000 Ordinary shares on 30 June 2019 950 000 9 765 000 7 RETAINED INCOME: Balance on 1 July 2018 360 000 Net profit after tax 444 500 Funds used for repurchase of shares (37 500)  75 000  x 0,50  Ordinary share dividends (481 250)  Interim (434 250 – 162 000) 272 250 Final 209 000  Balance on 30 June 2019 285 750 9

1.1.2 Calculate the change in loan for the Cash Flow Statement. 8 000 000 – 4 500 000 = 3 500 000  2 Calculate the income tax paid for the Cash Flow Statement. 23 400  + 190 500  – 6 200  = 207 700  OR – 23 400 – 190 500 + 6 200 = –207 700 OR T-account with figures on correct sides Debit Credit 207 700 23 400 6 200 190 500 4 1.1.3 Net change in cash and cash equivalents  808 000 Cash and cash equivalents (beginning of year)  (603 000) Cash and cash equivalents (end of year)  205 000 4

ACTIVITY D2 2.1 NANDISA LTD 2.1.1 ORDINARY SHARE CAPITAL AUTHORISED SHARE CAPITAL 1 200 000 ordinary shares ISSUED SHARE CAPITAL Ordinary shares on 1 September 2019 900 000 4 725 000  150 000 Issued on 1 May 2019 at R6,30 each 945 000  Re-purchased 30 August 2020 (70 000) (378 000)  (ASP: R5,40) 980 000  Ordinary shares on 31 August 2020 5 292 000 7 RETAINED INCOME Balance on 1 September 2019 147 370 Net profit after income tax 438 130 Shares repurchased (437 500  – 378 000 ) (59 500)  (70 000 x 0,85 Ordinary share dividends (276 000)  • Interim dividends (900 000  x 0,12) 108 000  • Final dividends 168 000  ` Balance on 31 August 2020 250 000  9

2.1.2 NANDISA LTD CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2020 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Interest paid Dividends paid 4 Income tax paid (- 2 400  + 187 770  - 11 800 ) ? (173 570) * CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets ? (1 846 000) * (6 177 000  + 320 000  + 324 000  – 4 975 000 ) ?  Proceeds from the sale of fixed assets ? 324 000  7 Change in investments CASH FLOWS FROM FINANCING ACTIVITIES ?  Proceeds from issue of share capital see 5.1.1 ? 945 000  ?  Repurchase of shares ? (437 500)  4 Change in non-current liabilities Net change in cash and cash equivalents ? 86 000 * Cash and cash equivalents – opening balance ? (62 600)  (2 500 – 65 100) 4 Cash and cash equivalents – closing balance ? 23 400  19

ACTIVITY D3 3.1.1 (a) 3 640 000 – 2 002 000 = 1 638 000  750 000 x 15% x 4/12 (b) 750 000  – (491 750  + 37 500 ) = 220 750  529 250 (three marks) (Sold): 37 500  refer (b) (New): 900 000 x 15% x 5/12 = 56 250  (c) (3 640 000 – 750 000) (Old): 2 890 000  x 15% = 433 500  Total: 527 250  (d) 3 640 000 + 900 000 – 750 000 = 3 790 000  16 3.1.2 Calculate the income tax paid. 383 700  8 700  + (1 279 000 – 895 300) – 9 900  = 382 500  5 Calculate the net changes in cash and cash equivalents. 125 750  – 54 750 + 92 000  = 163 000  4 3.1.3 CASH FLOW FROM FINANCING ACTIVITIES 50 000  Proceeds from shares issued 1 600 000  (200 000 x R8,00) Funds used to repurchase shares (600 000) Decrease in loan (2 750 000 – 1 800 000) (950 000) 7

ACTIVITY D4 KHANYILE LTD 4.1.1 ORDINARY SHARE CAPITAL Authorised Share Capital 800 000 ordinary shares Issued Share Capital 600 000 Ordinary shares on 1 January 2019 4 200 000 100 000 Issued on 31 August 2019 840 000 * (40 000)  Re-purchased (ASP: R7,20) (288 000)  660 000  Ordinary shares on 31 December 2019 4 752 000  6 RETAINED INCOME Balance on 1 January 2019 276 000 Net profit after income tax (1 150 000 – 322 000) 828 000  Shares repurchased (40 000  x R1,30 ) (52 000)  Ordinary share dividends (415 000)  • Interim dividends 240 000  • Final dividends 175 000  Balance on 31 December 2019 637 000  9 4.1.2 CASH EFFECTS OF OPERATING ACTIVITIES 292 600 * Cash generated from operations 1 237 400 Interest paid (100 000)  Income tax paid (9 200  + 322 000  + 3 600 ) (334 800) * 270 000 + (415 000 - 175 000) both one mark (510 000) * Dividends paid (270 000  + 240 000 ) 9

4.1.3 Amounts in the Cash Flow Statement: Calculate: Change in fixed deposit 300 000  Inflow  3 Calculate: Proceeds on disposal of equipment 5 828 000  + 360 400  – 1 495 000  – 4 905 800  = 212 400  Inflow  OR: – 5 828 000 – 360 400 + 1 495 000 + 4 905 800 = –212 400 signs reversed 6 ACTIVITY D5 5.1 ASSET DISPOSAL Accumulated depreciation on 2020 120 000 2020 46 560 31 Equipment  31 equipment  Aug.  Aug. (38 400 + 8 160) Bank  73 440  120 000 120 000 9 5.2 No. Calculation Amount (a) 3 900 000 - 2 000 000 1 900 000✓ (b) 900 000 – 470 000 430 000✓✓ (c) Sold: 8 160 ✓ see 5.1 92 840 New: 20% x 150 000 x 6/12 = 15 000 Old: (780 000 – 431 600) x 20% = 69 680 348 400 (2 marks) 12

5.3.1 Calculate the income tax paid. 1 240 000 – 892 800 - 347 200+ 17 400 + 35 700 = - 294 100  or + 347 200 - 17 400 - 35 700 = + 294 100 5 5.3.2 Calculate the net change in cash and cash equivalents. 549 580  + 92 000  = 641 580  (110 000 – 18 000) 4 5.4 Cash effects on financing activities Proceeds from shares issued 1 350 000 (300 000 x R4,50) Buy back of shares (40 000 x R4,30) (172 000)  Mortgage loan 1 550 000  2 728 000 Dividends paid - 275 000  - 360 000 = - 635 000 (One part Correct) + 275 000 +360 000 = + 635 000  use one line only 7 5.5.1 Calculate the net asset value per share. 5 950 800 x 100 = 396,7 cents  1 500 000 1 OR 5 950 800 x 100 = 407,6 cents 1 460 000 1 3

5.5.2 Calculate the return on average shareholders' equity. 892 800  x 100 = 17,3% ½ (5 950 800 + 4 345 000) 1 (5 147 900 – 3 marks) 5 5.5.3 Calculate the debt-equity ratio. 1 950 000 : 5 950 800  0,3: 1  3 5.6.1 The directors are not satisfied with the liquidity position. Quote and explain THREE relevant financial indicators (with figures) to support this statement. Ratio    Trend and figures    • Current ratio increased from 1,8 : 1 in 2020 to 3,3 : 1 in 2021 • Acid test ratio increased from 1,2 : 1 in 2020 to 1,6 : 1 in 2021 • The stock turnover rate declined from 5 times in 2020 to 3 times in 2021 Do not accept Debtors' Collection and Creditors' Payment Period 6 5.6.2 The directors decided to increase the loan during the current financial year. Explain why this was a good decision. Quote and explain TWO financial indicators (with figures) in your answer. Financial indicator   Figures and trend   Comment beyond trend   ROTCE • This has increased from 21,2% to 24,2% • Positively geared as ROTCE is higher than interest rate (10,5%) DEBT-EQUITY RATIO • This has increased from 0,09 : 1 to 0,33 : 1 see 5.5.3 • Low financial risk/not making much use of loans. Relies more on own funds 8

5.6.3 The directors were pleased with the price that the company paid to buy back the 40 000 shares. Give a suitable reason why the directors felt that way. Quote relevant financial indicators (with figures) to support your answer. Reason Relevant figure  Paid R4,30 per share to buy back shares. This is lower than the market value per share (2020 – 480 cents; 2021 – 505 cents). (not a big difference to the NAV – 362 cents and 408 cents) Average issue price was R3,70. Purchased at a lower price than the issue price of the additional shares. (R4,50) 3 TOTAL MARKS 65

ACTIVITY E1 SOLUTIONS 1.1.1 What type of audit report did Pinetown LTD receive? Explain your answer. 3 DISCLAIMER OF OPINION Explanation There’s insufficient evidence to express an opinion as the donation of R270 000 computers could not be verified Fixed asset register is overstated/ operating expenses understated. 1.1.2 To whom is the audit report addressed to and why? 2 Shareholders, because they are the owners or investors of the company. 1.1.3 State TWO consequences that this report could have on the company. 4 • It can create a bad publicity, which can lead to a poor image. • Investors/potential investors will lose confident in further investing in the company • Directors will not be voted again in the next financial year. 1.1.4 What impact would this report have on the company share prices in the JSE market? 2 • Potential investors will not want to buy shares in the company at its current prices • Existing shareholders would want to sell back their shares to the company which can also lead to decrease in share prices. 1.2 1.2.1 Provide TWO points to explain why there should be company policy that directors must declare to the Board all gifts, donations or favours received from clients. 4 • This will promote accountability and responsibility for actions of directors and minimise fraudulent activities. • Promotes a good ethical practice of transparency from stakeholders that the directors associated with. • Reduce bribery allegations labelled against directors which in turn tarnishes the image of the company. 1.2.2 • Explain the need for Corporate Social Investment 2 ➢ It’s a recommendation of King Code of good corporate governance that ensures goodwill, loyalty and support ➢ Its shows a good corporate social responsibility the business has towards the people and planet • What is the meaning of triple bottom line 2 ➢ It’s a recommendation from the King Code which encourages companies to focus on profit, people and planet so that aims and objectives are realised in a desired manner.

1.2.3 Provide TWO suggestions on how good corporate governance can be achieved. 4 • The business should be accountable for all its actions with all stakeholders there interact with, be able to respond effectively to issues of the company. • Employees should be fairly remunerated and avoid the exploitation of labour, follow all relevant Acts that governs our country. • Take part in social development projects and do not exploit the environment, invest in developing local societies. • Ensure that investors are satisfied with the company image and protect investors. ACTIVITY E2 SOLUTIONS 2.1.1 Explain why the auditors specifically address the report to shareholders? 2 They are the owners of the company/ shareholders who invested capital to the company 2.1.2 Explain why the independent auditors referred to pages 25-51 in the report. 2 The report is based on these pages, and auditors can only be held accountable for these pages 2.1.3 The directors claimed that the value of the buildings increased over the years and that the value must be increased and shown as additions in the fixed asset note. 2 As an independent auditor, what advice would you give? Provide ONE point. The directors cannot record the increase as additions as it’s against the GAAP principle of historical cost concept. Assets should be recorded at original cost. 2.1.4 • The company received a/an (unqualified/qualified/disclaimer) audit report. 1 Qualified report • Give a reason for your answer. 2 ➢ An amount that was shown as additions to Land and buildings was for revaluations of the Buildings. No audit evidence was provided. ➢ This is a bad report to the company create a bad image of the company to the public.

ACTIVITY E3 SOLUTIONS 3.1.1 Provide ONE reason why public companies must be externally audited. 2 • To ensure that the company receives an unbiased opinion from an autonomous auditor. • The report can be trustworthy as it is from an independent auditor who cannot be easily influenced by directors and management. 3.1.2 What type of report did Giovanni Ltd receive from the independent auditors? Explain your answer. 3 Unqualified report, financial statements present fairly, in all material respects, this is a good report, its boost investor/potential investor confidence in the company. 3.1.3 One of the directors says that “the company must not waste money on things like this.” Provide 6 THREE reasons against his opinion. • Giovanni should continue so that the company receives a good publicity and boost investors’ confidence. • This is part of good corporate social responsibility programme as stated by King Code • The company will benefit in a long term from customer loyalty and build good relations with society. ACTIVITY E4 SOLUTIONS PART A 4.1.1 Graafwater Ltd received a/an (qualified/unqualified/disclaimer of opinion) audit report. 3 Disclaimer report • Auditors are not expressing an opinion on the reliability of the financial statement of a company. • A bad report for a company, creating a bad publicity. 4.1.2 Briefly indicate how this audit report would possibly affect the shares of Graafwater Ltd on the 4 Johannesburg Securities Exchange (JSE). Mention TWO points. • The demand of shares in JSE will decrease as the company will have bad publicity. • Share value will drop as many shareholders will be selling their shares back to the company through JSE. 4.1.3 You have been appointed as the external auditor of Graafwater Ltd. The managing director, Laetitia Witbooi, has asked you to reflect her directors’ fees of R5 million under ‘Salaries and wages’ in the Income Statement. Would you agree to her request? Give a reason for your answer. 3 No. The GAAP of materiality requires that director’s fees and Salaries and Wages should be disclosed separately.

PART B 4.2.1 Briefly explain the role of an independent auditor. 2 • To express an opinion on the reliability of the financial statements of the company. • Ensure the directors are controlling the company in the best interests of stakeholders of the company. • To identify and expose any fraudulent or irregularities that might occur in the business. 4.2.2 Explain why the independent auditors mentioned IFRS and the Companies Act in the audit report. 2 • The financial statements must be comparable to those prepared by companies internationally. • To comply with the Companies Act which controls companies. 4.2.3 Provide TWO possible consequences of this audit report on the market price of the shares. 4 • The demand of shares in JSE will decrease as the company will have bad publicity. • Share value will drop as many shareholders will be selling their shares back to the company through JSE. Solutions ANALYSIS AND INTERPRETATION Activity F1 - NDABA LTD 1.1 The directors wanted to expand business operations and therefore chose to increase loans during the current financial year, instead of issuing more shares. Explain whether this was a good choice or not. Quote TWO financial indicators (actual figures/ratios/percentages) that are relevant to their choice. • Debt/equity ratio is 0,06 : 1 , low risk  • ROTCE increased from 16,4% to 18,8 % and is above interest rate on loan of 12,5% , positive gearing  • Good idea 

1.2 The directors are of the opinion that the liquidity has deteriorated. Explain and quote THREE financial indicators (with figures) to support their opinion. • Current ratio has decreased from 2,2:1 to 1,6:1 • Acid test ratio has decreased from 1,6:1 to 0,9:1 • Debtors collection period increased from 35 days to 41 days NB: Do not accept Stock turnover rate 1 mark for financial indicator, 1 mark for figures for both years. If only one year figure is shown, give no mark 1.3 The Dlams family owns 740 000 shares in this company. Explain the effect that the repurchase of shares on 31 December 2020 had on their control of the company. Give calculation(s) to support your answer. • 740 000 / 1500 000 shares = 49% , Dlams family was a minor shareholder before the repurchase of shares  • 740 000 / 1450 000 shares = 51,03%,  Repurchase of shares has made Dlams family to become a majority shareholder  ACTIVITY F2 - NKOMONDE LTD 2.1 Comment on the overall liquidity position of the company. Quote THREE relevant financial indicators (with figures). Current ratio has improved from 1,7:1 to 1,8:1, business has enough current asset to meet their short term obligation  Acid test ratio has increased from 0,9:1 to 1:1, even if the stock is not sold, the business is able to meet their short term liabilities  Stock-holding period has improved from 68 days to 50 days, the stock is not staying for a shorter period  2.2 The directors decided to change the dividend pay-out policy in 2020. Provide calculations that indicate the policy change. Explain the effect of this change of policy on the company. State TWO points 2020 2021 40/112 104/107 =35,7%  =97% Explanation: In 2020 the business was only distributing 35,7% of their and keep the rest for future use which was good  In 2021 the business is paying out 97% of their earnings to keep their shareholders happy

2.3 One of the directors feels that the company should pay back the loan as soon as possible. Explain your views about this. Quote and explain TWO relevant financial indicators with figures. • Debt/equity ratio is 0,3: 1, low risk  • ROTCE decreased from 13% to 11% and is below interest on loan of 14%, negative gearing  • Director is correct  2.4 Explain why the shareholders are satisfied with: ⚫ The market price of the shares on the JSE ⚫ The price at which the 75 000 shares were repurchased on 25 April 2021. In EACH case, quote figures/financial indicators. • The market price of the shares on the JSE ➢ Market price of 960 cents is above NAV of 775 cents, shares are overvalued • The price at which the 75 000 shares were repurchased on 25 April 2021. In EACH case, quote figures/financial indicators. ➢ Shares were repurchased at 800 cents which is above NAV of 775 cents ➢ Shares were repurchased at 800 cents which is below Market price 2.5 Directors feels that shareholders should be satisfied with their returns; do you agree? Quote financial indicator(s)/ figures to support your answer Directors feels that shareholders should be satisfied with their returns; do you agree? Quote financial indicator(s)/ figures to support your answer • ROSHE decreased form 14,4% to 13%  but is still above interest on fixed deposit of 9,5% Do not accept EPS and DPS ACTIVITY F3 -CHONCO LTD AND ZWANE LTD 3.1 Comment on the value of the shares for two companies on the JSE. Explain how this will influence your choice of company • CHONCO LTD Market price 400 cents is above NAV of 310 cents, shares are overvalued • ZWANE LTD Market price of 250 cents is below NAV of 300 cents, shares are undervalued Choice of company: Chonco LTD, the shares are doing fine at the market 

3.2 Compare and comment on the dividend pay-out policies of the two companies • CHONCO LTD 450/900 x 100 =50%  Chonco LTD is paying out 50% of their earning and retain another 50% for future use • ZWANE LTD 450/450 x 100 = 100% Zwane LTD is paying out 100% of their earnings, nothing is retained 3.3 Comment on the degree financial risk and gearing. Explain how this will influence your choice of company. Quote TWO financial indicators to support your answer. • Chonco LTD, debt/equity ratio is 0,3: 1, low risk whereas Zwane debt/equity ratio is 1,2:1, high risk • Chonco LTD: ROTCE of 18% is above interest on loan of 11,5%, positive gearing, whereas Zwane LTD ROTCE of 10% is below interest on loan of 11,5%, negative gearing Choice of company will be Chonco LTD 3.4 Which company is handling working capital effectively? Quote THREE financial indicators to support your answer Current ratio of Chonco LTD is 2:1 which is better that that of Zwane LTD 4,3:1, Zwane is having too much current asset (compare both companies) Acid test ratio of Chonco LTD is 1,5:1 which is better than that of Zwane of 2,9:1 (learner must compare figures for both companies) Debtors collection period of Chonco is 30 days which is better than that of Zwane LTD of 42 days Accept stock turnover rate (figures for both companies must be compared)  ACTIVITY F4 - THABO LTD AND ANDILE LTD 4.1.1 Ntokozo is of the opinion that Andile LTD is handling its working capital more effectively and is in a better liquidity position than Thabo LTD. Explain and quote THREE financial indicators to support his opinion • Current ratio of ANDILE LTD is 1,5:1 better than Thabo LTD of 6,0:1  • Acid test ratio of ANDILE LTD is 1:1 better than that Thabo LTD of 3:1  • Stock-holding period of Andile LTD is 32 days, better than that of Thabo LTD of 180 days

4.1.2 The existing shareholders of the two companies hold different opinions of the current market value of their shares ⚫ Explain why the existing shareholders of Thabo LTD are happy with this. Quote TWO financial indicators/figures to support your answer Market price of 800 cents is above NAV of 720 cents, overvalued shares ⚫ Explain why the existing shareholders of Andile LTD are very disappointed with the current market value. Quote TWO financial indicators/ figures to support your answer Market price of 900 cents is below NAV of 1 010 cents, undervalued shares 4.2 LINDELO LTD AND SYANDA LTD 4.2.1 Compare and comment on the dividends pay-out policy of the two companies LINDELO LTD SYANDA LTD 450/600 x 100 =75%  500/1000 x 100 = 50% Lindelo LTD is paying out 75% of their earnings to keep shareholders happy Syanda LTD is paying out 50% and keep another half for future use 4.2.2 Comment on the degree of risk and gearing. Explain how this will influence your choice of company. Lindelo LTD Debt/equity ratio is 0,3: 1, low risk ROTCE of 14% is above interest on loan of 12%, positive gearing SYANDA LTD Debt/equity ratio is 2:1, high risk ROTCE of 10% is below interest on loan of 12%, negative gearing Choice of company: Lindelo LTD

ACTIVITY F5 5.1 VUTHA LTD 5.1.1 The shareholders of Vutha Ltd are concerned about the liquidity position of the company. Explain and quote THREE financial indicators to support their opinion. • Current ratio decreased from 1,5:1 to 1,4:1 • Acid test ratio decreased from 0,6:1 to 0,4:1  • Stock turnover rate decreased from 6 times to 4 times • Accept Debtors collection period from 30 days to 56 days 5.1.2 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. 2020 2021 56/56 x 100 =100%  33/60 x 100 = 55% They have plans to expand as they are retaining more of the profit 5.1.3 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. The NAV  increased from 315,6 c/share to 364,7 c/share.  The MP  increased from 310 c/share to 385 c/share.  The MP exceeds the NAV. Investors are prepared to pay extra for the shares 5.1.4 Comment on the degree of risk. Quote ONE financial indicator. Debt/equity ratio increased from 0,3:1 to 0,8: 1 high risk

5.2 MCEBENI LTD 5.2.1 The CEO, Nqobile Ndaba, currently owns 40% of the issued shares. The board of directors decided to issue 50% of the unissued shares in July 2020. Calculate the minimum number of shares that Nqobile must buy in July 2020 to gain control of the company. 40% x 1 200 000 = 480 000 1 200 000 + 400 000 = 1 600 000 x 50% = 800 000 800 000 – 480 000 = 320 000 + 1 / 100 = 320 001 or 320 100  one part correct OR 1 600 000 x 51% = 816 000 – 480 000 = 336 000 one mark one mark one mark one part mark 5.2.2 Nqobile wants to purchase the additional shares, at R12 per share without advertising the shares to the public. Give TWO reasons why you would not approve of this arrangement. Any TWO reasons   • As this is a public company the shares should be offered to the public. The shares should be issued at the current market value of R17 which will bring in R6 800 000 to the company. / NAV is R16 and the market price R17 and want to buy at R12. Company will lose money. • She would therefore be benefiting while the other shareholders will be disadvantaged through dilution of the share price. Inside trading and it unethical to withhold information to the public. Quoting of indicator   Figures   5.2.3 Nqobile wants to purchase the additional shares, at R12 per share without advertising the shares to the public. Give TWO reasons why you would not approve of this arrangement. Shares were issued at a price below the NAV of 2019. NAV was R14 and shares were issued at R10.  Shares were issued at a price lower than a market price of 2019. Market price was R16 and shares were issued for R10. Do not accept NAV and market price for 2020 since new shares were issued at the beginning of the year