Accounting Grade 12 P1 GP Prelim 2023 Question Paper (Eng)

Downloaded from hlayiso.com PREPARATORY EXAMINATION 2023 10711 ACCOUNTING (PAPER 1) TIME: 2 hours MARKS: 150 14 pages + 1 formula sheet and an 11-page answer book P.T.O.

Downloaded from hlayiso.com ACCOUNTING 2 (PAPER 1) 10711/23 INSTRUCTIONS AND INFORMATION 1. Answer ALL the questions. 2. A special ANSWER BOOK is provided in which to answer ALL the questions. 3. Show ALL workings in order to earn part-marks. 4. You may use a non-programmable calculator. 5. You may use a dark pencil or blue/black ink to answer questions. 6. Where applicable, show ALL calculations to ONE decimal point. 7. If you choose to do so, you may use the Financial Indicator Formula Sheet attached at the end of this question paper. The use of this formula sheet is NOT compulsory. 8. Write neatly and legibly. 9. Use the information in the table below as a guide when answering the question paper. Try NOT to deviate from it. QUESTION TOPIC MARKS MINUTES Retained Income Note and Statement of 1 55 45 Financial Position Cash Flow Statement and 2 45 35 Financial Indicators 3 Interpretation of Financial Statements 35 30 4 Corporate Governance 15 10 TOTAL 150 120 P.T.O.

Downloaded from hlayiso.com ACCOUNTING 3 (PAPER 1) 10711/23 QUESTION 1: RETAINED INCOME NOTE AND STATEMENT OF FINANCIAL POSITION (55 marks; 45 minutes) TSATSI LTD Tsatsi Ltd supplies and installs different types of solar panels at a fixed price. You are provided with information for the financial year ending 30 June 2023. REQUIRED: 1.1 Refer to Information B (i). Calculate the value of the closing stock of solar panels. (5) 1.2 Use Information B (ii) and (iii), to calculate the missing figures denoted by (i – iii) in the Fixed/Tangible Asset Note. (12) 1.3 Complete the Retained Income Note. (10) 1.4 Complete the Statement of Financial Position (Balance Sheet) on 30 June 2023. Where notes are not required, workings must be shown. (28) INFORMATION: A. Balances/Totals on 30 June 2023: 2023 Ordinary share capital 1 755 000 Retained income 1 045 000 Loan: Shiloh Bank 609 840 Fixed assets at carrying value ? Fixed deposit: BNP Bank 582 000 Inventory ? Net trade debtors 209 100 Bank (favourable) ? Deposit: Water and electricity 11 000 SARS: Income tax (Provisional payments) 359 000 Trade creditors 763 860 Shareholders for dividends 260 000 Rent expense 91 280 Directors’ fees 1 824 000 P.T.O.

Downloaded from hlayiso.com ACCOUNTING 4 (PAPER 1) 10711/23 B. ADDITIONAL INFORMATION (i) • Tsatsi Ltd sells the solar panels at a standard rate of R10 500 per unit. • A mark-up of 25% on cost is applied. • The specific identification method is used to value the solar panels. • The information relating to the solar panels is as follows: UNIT TOTAL UNITS PRICE R Opening stock: 1 July 2022 78 Purchases during the year 631 Closing stock: 30 June 2023 ? ? Units sold 602 10 500 6 321 000 (ii) Note to the Balance Sheet on 30 June 2023: FIXED/TANGIBLE ASSETS EQUIPMENT VEHICLES Carrying value – 1 July 2022 50 000 519 200 Cost price 561 000 814 000 Accumulated depreciation (511 000) (i) Movements Additions at cost price 55 000 0 Disposal at carrying value 0 (iii) Depreciation (ii) (98 890) Carrying value – 30 June 2023 Cost price 616 000 649 000 Accumulated depreciation (iii) Details of fixed assets: Land and Buildings: • The company also owns property. Equipment: • New equipment was purchased on 31 December 2022. This transaction has been correctly recorded. • Depreciation is calculated at 10% p.a. on cost. P.T.O.

Downloaded from hlayiso.com ACCOUNTING 5 (PAPER 1) 10711/23 Vehicles: A vehicle was sold for cash on 31 March 2023. It was recorded correctly in the records of the business. The details of the disposal of the vehicle according to the Fixed Asset Register, is as follows: Cost price ? Accumulated depreciation on 1 July 2022 R66 000 Depreciation on diminishing balance method 20% p.a. Profit on sale of vehicles R3 350 NOTE: Depreciation on all vehicles was accurately calculated at R98 890 for the financial year. (iv) A creditor’s credit balance of R1 500 in the Creditors’ Ledger must still be transferred to his account in the Debtors’ Ledger. (v) A storeroom was rented from 1 October 2022 at R11 200 per month. Rent increased by 7,5% per month on 1 April 2023. Provide for the outstanding rent. (vi) Loan: Shiloh Bank The loan statement from Shiloh Bank revealed the following: • Total repayments (including interest) R225 400 • Interest capitalised R 83 160 • Balance at the end (30 June 2023) ? NOTE: 20% of the loan will be settled during the next financial year. (vii) The company has three directors who earn the same fee. One director was paid two months in advance. (viii) Share capital and dividends: Authorised share capital: 3 000 000 ordinary shares DATE DETAILS 1 July 2022 1 500 000 shares were in issue. 31 December 2022 An interim dividend of 12 cents per share was declared and paid. 1 March 2023 Shares were repurchased at R1,50. The average share price, accurately calculated on that day, was R1,35. 30 June 2023 A final dividend was declared. NOTE: No additional shares were issued during the year. P.T.O.

Downloaded from hlayiso.com ACCOUNTING 6 (PAPER 1) 10711/23 (ix) Income tax for 2023: Income tax for the financial year was accurately calculated at R309 000. Income tax is calculated at 30% of the net profit. (x) Financial indicator: After taking into account all adjustments, the current ratio was correctly calculated as 1,2 : 1. 55 P.T.O.

Downloaded from hlayiso.com ACCOUNTING 7 (PAPER 1) 10711/23 QUESTION 2: CASH FLOW AND FINANCIAL INDICATORS (45 marks; 35 minutes) 2.1 Choose the correct term to complete each of the following statements. Write only the term next to the question numbers (2.1.1 to 2.1.3) in the ANSWER BOOK. current asset; outflow of cash; non-current asset; non-current liability; inflow of cash 2.1.1 A mortgage bond to finance the purchase of new property is a/an … 2.1.2 An increase in debtors will indicate a/an … 2.1.3 Packing material not used at the end of the financial year is a/an … (3 x 1) (3) 2.2 RANGA LTD The information below was taken from the accounting records of Ranga Ltd. The financial year ends on 28 February 2023. REQUIRED: 2.2.1 Calculate the following amounts for the Cash Flow Statement and Notes: • Inventory amount on 28 February 2023 (2) • Income tax paid (4) • Dividends paid (3) • Purchase of fixed assets (5) 2.2.2 Prepare the Cash Effects of the Financing Activities section of the Cash Flow Statement for the year ended 28 February 2023. (8) 2.2.3 Complete the section of Cash and Cash Equivalents in the Cash Flow Statement. (6) 2.2.4 Calculate the following financial indicators on 28 February 2023: • % net profit before tax on sales (3) • Current ratio (3) • Dividends per share (4) • % returns on shareholders’ equity (4) P.T.O.

Downloaded from hlayiso.com ACCOUNTING 8 (PAPER 1) 10711/23 INFORMATION: A. Information from the Statement of Comprehensive Income on 28 February 2023: Sales 8 240 000 Depreciation 113 125 Profit before interest expense 1 066 340 Interest expense 128 460 Income tax 358 440 Net profit after tax 836 360 B. Extract from the Statement of Financial Position on 28 February 2023: 28 February 2023 28 February 2022 (R) (R) Current assets 1 430 000 2 521 000 Inventories ? 1 450 000 Trade and other receivables ? 689 000 Cash and cash equivalents 0 382 000 Shareholders’ equity 13 941 500 10 312 350 Ordinary share capital 13 440 000 9 700 000 Retained income 501 500 612 350 Long term loan: CZ Bank 2 850 400 4 500 500 Current Liabilities 650 000 900 000 Trade and other payables Shareholders for dividends 315 000 65 000 SARS (income tax) 72 000 102 000 Bank overdraft ? 0 C. Items identified from the Cash Flow Statement and Notes on 28 February 2023: Amount Change Inventory 390 000 outflow Cash flow from operating activities 862 700 inflow Cash flow from investing activities 3 132 600 outflow D. FIXED ASSETS: • A new delivery vehicle was purchased halfway during the year. The depreciation on the vehicle purchased was R44 175. • Depreciation on vehicles is calculated at 15% on cost. • Equipment purchased during the year amounts to R62 000. • Ranga Ltd sold part of its building to one of the directors. P.T.O.

Downloaded from hlayiso.com ACCOUNTING 9 (PAPER 1) 10711/23 E. ORDINARY SHARE CAPITAL: • On 1 March 2022, the beginning of the financial year, the company had 2 500 000 ordinary shares in issue. • On 15 May 2022 a further 1 000 000 ordinary shares were issued by the directors. • Ordinary shares were repurchased on 31 January 2023 by the directors at R1 500 000. • On 28 February 2023, the end of the financial year, there were 3 200 000 ordinary shares in issue. F. DIVIDENDS: • The directors paid interim dividends of 5 cents per share on 30 September 2022. • A final dividend was declared to all shareholders on 28 February 2023 (including the repurchased shares). • Total dividends paid and declared amounted to R490 000. 45 P.T.O.

Downloaded from hlayiso.com ACCOUNTING 10 (PAPER 1) 10711/23 QUESTION 3: INTERPRETATION OF FINANCIAL STATEMENTS (35 marks; 30 minutes) 3.1 QUALITY ELECTRONICS LTD The company trades in electrical equipment. The information relates to the past two financial years, ended 28 February 2023. C. Cruz is the CEO and there are three other directors in the company. REQUIRED: NOTE: Provide figures, financial indicators or calculations in EACH case to support your answer 3.1.1 LIQUIDITY: Cruz has been concerned about the company’s working capital over the years. He proposed a new approach to the directors of converting assets into cash quickly. Quote TWO financial indicators and explain why his concern is justified. (4) 3.1.2 RISK AND GEARING: A shareholder has proposed that Cruz acquires a loan from his wife, who is a bank consultant. Cruz did not agree with this proposal. Explain why you agree with Cruz. Quote TWO financial indicators. (6) 3.1.3 DIVIDENDS: The directors decided to decrease the dividend pay-out rate due to low profitability and a slow growth rate. Provide a calculation which validates their decision. Give ONE reason why they took this decision. (6) 3.1.4 EARNINGS, RETURNS AND SHARE PRICE ON THE JSE: (a) Comment on the % returns and earnings per share of the company. Quote TWO financial indicators with figures. (4) (b) Comment on the share price on the JSE and how the % returns and earnings per share have affected the share price. Quote figures. (2) 3.1.5 SHAREHOLDING: Refer to Information A and C. (a) At the AGM, many shareholders complained that the Remunerations Committee had been negligent in their duties and that Cruz did not deserve the fees that he was paid as CEO. State TWO different points to justify their concern. Quote figures and financial indicators. (4) P.T.O.

Downloaded from hlayiso.com ACCOUNTING 11 (PAPER 1) 10711/23 Refer to Information A, B and C. (b) Explain why the other directors were unhappy with the price paid for the shares repurchased from Cruz. State TWO points. Quote financial indicators and figures to support EACH point. (4) (c) Provide a calculation and comment on whether the repurchase of these shares affected Cruz's status as majority shareholder or not. (3) (d) Explain why the public was not interested in buying the new shares issued at R7,90 per share. Quote ONE financial indicator with a trend (excluding EPS and ROSHE). (2) INFORMATION: A. 2023 2022 Debt/Equity ratio 0,5 : 1 0,4 : 1 Acid-test ratio 0,7 : 1 0,9 : 1 Stock turnover rate 5,2 times 8 times Trading stock deficit as % of cost of sales 6% 2% % returns on total capital employed 13% 20% % returns on shareholders' equity (ROSHE) 5% 9,2% Earnings per share 81 cents 93 cents Dividends per share 57 cents 90 cents Net asset value per share 785 820 Market price of shares on JSE 760 840 Interest rate on investments 7% 6% Interest rate on loan 14% 14% B. Share capital and shareholding of CEO: Total number of shares: 2023 2022 Number of authorised shares 6 000 000 shares Number of shares in issue on 28 February 3 240 000 3 200 000 Number of shares owned by C. Cruz 1 795 000 1 830 000 • At the directors' meeting on 1 March 2022, it was decided to repurchase 35 000 shares from the CEO, C. Cruz, at R13,00 per share. None of the other directors supported this decision. • A further 75 000 shares were issued on 30 April 2022. The listed issue price of the purchase was originally R7,90 per share. Due to a poor response from the public at this price, the directors agreed to sell these shares at R6,70 per share. P.T.O.

Downloaded from hlayiso.com ACCOUNTING 12 (PAPER 1) 10711/23 C. Directors’ fees: 2023 2022 Director's fees paid to CEO R2 500 000 R2 000 000 Total fees paid to the 3 other directors R3 000 000 R3 000 000 35 P.T.O.

Downloaded from hlayiso.com ACCOUNTING 13 (PAPER 1) 10711/23 QUESTION 4: CORPORATE GOVERNANCE (15 marks; 10 minutes) An article below was extracted from a local newspaper. Read the extract carefully and answer the questions that follow. Use your general knowledge of companies and corporate governance to support your answers, if necessary. REQUIRED: 4.1 The Human Resources Division Refer to paragraph 1. • Provide TWO key functions for which the Human Resources Division may be responsible. (2) • List TWO qualities that they may consider in a prospective candidate for a management position. (2) • Explain the role of a CEO in a company. (2) • What impact would the image of the company have on the market price of shares? Explain ONE point. (2) 4.2 Good corporate governance and concerns of stakeholders Refer to paragraph 2. • Provide TWO possible questions that a concerned stakeholder may have raised with the Human Resources Division at the meeting. (2) • Explain ONE strategy that Mangray Ltd can use to involve its employees in collective decision-making. Provide a reason for your answer. (3) • “Good corporate governance helps companies to thrive and compete.” Provide TWO points to show why you agree with this statement. (2) P.T.O.

Downloaded from hlayiso.com ACCOUNTING 14 (PAPER 1) 10711/23 INFORMATION: FUMBLE RECOVERY! HOW GOOD LEADERS CAN FIX BAD DECISIONS THAT AFFECT OTHER STAKEHOLDERS. Paragraph 1 The decline of Mangray Ltd's market price, after the media shared the secret conversation of the CEO not engaging staff correctly, was a front-page story. The Human Resource Committee did its investigations and discovered that the CEO used inappropriate language when dealing with staff. It was found that some junior staff members knew of certain decisions before they were discussed by the board, and this hampered objective inputs of other directors. Paragraph 2 Upon engaging with all parties, it was evident that there was a lack of communication between the CEO and stakeholders. The Human Resource Committee held a meeting with staff and emphasised the KING report which speaks of a dialogue, which can enhance or restore stakeholder confidence, remove tensions, relieve pressure on the company’s reputation and offer opportunities to align expectations, ideas and opinions on issues. Paragraph 3 The CEO of Mangray Ltd has reflected on how he has been taking decisions in order to build relationships with stakeholders and to accelerate the company’s results. He has learnt not to operate in the shadow of the past, making decisions that disappoint stakeholders, overlooking other stakeholders’ inputs and allowing processes to bring about change. 15 TOTAL: 150 END

Downloaded from hlayiso.com ACCOUNTING 15 (PAPER 1) 10711/23 GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET Gross profit 100 Gross profit 100 x x Sales 1 Cost of sales 1 Net profit before tax 100 Net profit after tax 100 x x Sales 1 Sales 1 Operating expenses 100 Operating profit 100 x x Sales 1 Sales 1 Total assets : Total liabilities Current assets : Current liabilities (Current assets – Inventories) : Current liabilities Non-current liabilities : Shareholders' equity (Trade and other receivables + Cash and cash equivalents) : Current liabilities Average trading stock 365 Cost of sales x Cost of sales 1 Average trading stock Average debtors 365 Average creditors 365 x x Credit sales 1 Cost of sales 1 Net income after tax x 100 Net income after tax x 100 Average shareholders' equity 1 Number of issued shares 1 (*See note below) Net income before tax + interest on loans x 100 Average shareholders' equity + Average non-current liabilities 1 Shareholders' equity x 100 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 for 𝑡𝑡ℎ𝑒𝑒 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦 100 𝑥𝑥 Number of issued shares 1 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑜𝑜𝑜𝑜 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 1 Interim dividends 100 Final dividends 100 x x Number of issued shares 1 Number of issued shares 1 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑝𝑝𝑝𝑝𝑝𝑝 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎 100 Dividends for the year 100 𝑥𝑥 x 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑝𝑝𝑝𝑝𝑝𝑝 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎 1 Net income after tax 1 Total fixed costs Selling price per unit − Variable costs per unit Note: * In this case, if there is a change in the number of issued shares during a financial year, the weighted average number of shares is used in practice.