ACCOUNTING TRAINING MANUAL

Teacher Development Implementation National Institute for Curriculum and Professional Development(NICPD)

NSC SUPPORT PROGRAMME GRADE 12 ACCOUNTING 2019 – 2021 PARTICIPANTS’ MANUAL TEACHER DEVELOPMENT IMPLEMENTATION (NICPD) GRADE 12 | ACCOUNTING | 1

CONTENTS Page Introduction 03 – 04 Module 1  Fixed Assets 05 – 15 Module 2  Inventory valuation 16 – 25 Module 3  Interpretation of Financial Statements 26 – 40 2 | ACCOUNTING | GRADE 12

Introduction Over the years several theories have been developed to inform both the nature of teaching and learning, as well as the management and leadership processes that accompany the education terrain. Systems theory is one such theory that elaborates on the increasingly complex systems across a continuum that encompasses the person-in-environment, the teacher-in-school, and the school-in-district. Systems theory enables us to understand the components and dynamics of client systems so that one can interpret problems for appropriate and balanced interventions, resulting in the “goodness of fit” between individuals and their environments. They recognize the various parts of the organization, and, in particular, the interrelations of the parts, coordination of program components to yield the desired outcome. According to the CAPS curriculum Economics as a subject “aims to ensure that children acquire and apply knowledge and skills in ways that are meaningful to their own lives”, and further defined as “the study of how individuals, business, governments and other organizations within our society choose to use scarce resources to satisfy their numerous needs and wants in manner that is efficient, equitable and sustainable” (CAPS, Grade 10-12, Economics, page 8). Bothe empirical and anecdotal evidence has shown that the number of schools offering Economics and learners taking Economics at the National Senior Certificate (NSC) level has been on the decline. In addition, the ratio of male to female learners writing the NSC examinations is skewed around 32% of the learners being male. This situation needs to be arrested in s systematic way. On the other hand, Accounting focuses on measuring performance, processing and communicating financial information about economic sectors. It deals with the logical, systematic and accurate selection and recording financial information and transactions as well as the compilation, analysis, interpreting and communicating financial statements and managerial reports for use by interested parties. The DBE-initiated programme intentions resonate with the 2013 UNESCO Roadmap for implementing Education for Sustainable Development. The Roadmap lifts up five priority action areas, three of which are restated herein to shed more light on the programme for ten districts. The priority action areas are: (i) Transforming learning and training environments: integrating sustainability principles into education and training settings (ii) Building capacities of educators and trainers: increase the capacity of educators to more effectively deliver ESD (iii) Accelerating sustainable solutions at local levels: at community level, scale up programmes and networks The profound intentions of the UNESCO roadmap and the DBE interventions interweave so pleasantly towards the same end: capacity for effectiveness, giving further credence to the systems theory. BCM learners in school interacting with teachers at classroom level, while teachers through professional learning communities interact with subject advisors. The subject specialists at ground level have worked together to produce the Training Manuals in Economics and Accounting that will be used by subject advisors and teachers in the system. We want to express deep-felt gratitude to these subject specialists, who generously offered their time GRADE 12 | ACCOUNTING | 3

and expertise in the development of these Training Manuals. It is further worth stating the names of the writers of these manuals: NO ECONOMICS PROV ACCOUNTING PROV 1 Ms Sithembiso Tshabalala KZN Mr Piet J Fouche FS 2 Ms Thabisa Seleho NW Ms Janice Conradie WC 3 Mr Andrew Green WC Ms Hilda Lubisi MP 4 Ms Realeboga JK Mongalo LP Ms Beauty Mpanza GP 5 Ms Natalie Winter GP Mr Poobie Govender EC 6 Ms Palesa Booi FS Mr Veli Mbuli KZN 7 Ms Irene Mabhena MP Mr Dorian Olifant NC 8 Ms Lorinda Lourens NC Mr NJ Mativandlela LP 9 Mr Michael S Hlungwani LP Mr Lazarus Machaba LP 10 Mr Mzikayise Masango DBE Mr Mzikayise Masango DBE This manual addresses, among others, (i) Tangible (fixed) Assets, (ii) Inventory valuation, and (iii) Interpretation of Financial Statements. The activities are structured to move from easy (requiring basic understanding) to the more complex (requiring analytical skills and insight), and makes many suggestions on methodology. Questions are extracted and adapted from past year examination papers. You are expected to work through as many past year papers as possible. Reading financial magazines, watching the news, and using financial publications policy such as the King Code and the amended Companies Act will add to your confidence and attitude in effectively preparing candidates for the final Grade 12 examination and beyond. The Manual has been submitted to SACE for endorsement, and can then be used by all provinces, districts, and schools towards building teacher capacities, competencies and confidence. It is important to note that this is not a textbook, and therefore the format and the purpose are different from from that thatofofa atextbook. textbook.Further, the the Further, ideasideas to to further strengthen further and improve strengthen and the concepts improve the are concepts are welcomed welcomedand andcancan be be sent to sentemail address to email given given address hereunder. hereunder. Wishing all the trainers, teachers and other users of this training manual all the best. We earnestly Wishing hope that all thethe trainers, manual willteachers remain and other users a valuable of this training user-friendly tool in manual enhancingwell. theWe earnestly hope requisite that the manual will remain a valuable user-friendly tool in enhancing the requisite Economics and mathematical and scientific competencies for subject advisors and classroom-based educators. Accounting competencies for subject advisors and classroom-based educators. Mr. Phillip Mr. PhillipKKDikgomo Dikgomo Director: Teacher Development Implementation Director: Teacher Development Implementation Dikgomo.p@dbe.gov.za Dikgomo.p@dbe.gov.za National Institute for Curriculum and Professional Development (NICPD) Department DepartmentofofBasic Education Basic Education January July 20192019 4 | ACCOUNTING | GRADE 12

MODULE 1 FIXED ASSETS (Tangible Assets) PRE-AMBLE:  This topic is allocated two (2) weeks in Term 2 of the Annual Teaching Plan.  In 2020, the revised CAPS, it can feature in both Paper 1 (Reporting Financial Information) and/or in Paper 2 (Information relevant for internal control purposes). Weighting of Exam. Topics curriculum papers 1. Accounting concepts, GAAP & IFRS Discipline 1: 2. Bookkeeping (including salaries & wages) and trial balances y weighting 50% PAPER 1 3. Accounting equation 4. Adjustments, final accounts and trial balances Recording, Reporting 5. Financial statements (including notes e.g. fixed assets and and Evaluation of inventory notes; and Independent Auditors’ Report) Financial Information & Corporate 6. Financial indicators for reporting purposes & interpretation Governance 7. Corporate governance, ethics & professional bodies Discipline 2: 1. Reconciliations (including debtors’ age analysis) weighting 50% 2. Value-added tax 3. Inventory valuation Manufacturing, 4. Manufacturing & Cost accounting PAPER 2 Forecasting and 5. Budgeting and Projected Income Statements Internal Auditing & Control 6. Financial indicators for internal control purposes 7. Internal control & internal auditing (cash, fixed assets, inventories, debtors, creditors, income and expenses including salaries & wages) 8. Ethics  Composition of the Topic:  Concepts and terminology  Calculations: Depreciation methods  Acquisition (buying) and Disposal (selling) of Fixed Assets  Ledger Accounts  Disclosure: Note to the Balance Sheet  Internal controls and ethical consideration What do we want to achieve? Provide participants relevant content information, methodology to address problematic sections and techniques to answer examination-type questions. GRADE 12 | ACCOUNTING | 5

PRIOR KNOWLEDGE: In Grade 10…. o Definitions, basic concepts, Accounting cycle, Accounting equation o Depreciation: Methods and Calculations o Fixed assets on Financial Statements In Grade 11…. o Revision of Grade 10 o Recording assets fully depreciated o Recording disposal of fixed assets o Fixed assets on Financial Statements In Grade 12…. o Calculations, Financial Statements and Interpretation ASSESSING PRIOR KNOWLEDGE BASELINE ACTIVITY 1: Analysing Transactions Analyse the following transactions according to the headings on the table provided. Assume that the Bank balance is on overdraft. TRANSACTIONS: 1. Purchased equipment and paid by cheque, R4 500 2. Purchased a new vehicle on credit, R210 000. 3. Paid Veli Contractors R260 000 by cheque. R220 000 was for the construction of additional storage facilities. The balance was for repairs to the office block. BASELINE ACTIVITY 2: Calculating Depreciation Calculate the missing amounts on the table provided. Note that the financial year ends on 30 June each year. Vehicles are depreciated at 20% on cost (straight line method) CURRENT ACCUMULATED CARRYING VEHICLES COST PRICE DEPRECIATION DEPRECIATION VALUE Purchased on 1 July 2016 R360 000 On 30 June 2017 On 30 June 2018 On 30 June 2019 Equipment is depreciated at 25% on carrying value (diminishing balance method) CURRENT ACCUMULATED CARRYING EQUIPMENT COST PRICE DEPRECIATION DEPRECIATION VALUE Purchased on 1 July 2016 R200 000 On 30 June 2017 On 30 June 2018 On 30 June 2019 6 | ACCOUNTING | GRADE 12

Reflection: Note the trend of each column on the tables above 1. Recap on balance sheet and nominal accounts; 2. Depreciation, depreciation policy, accumulated depreciation, “negative” asset. 3. Recording procedures: Journal, Ledger 4. Contra accounts DEPRECIATION: Brief explanation….  Fixed assets lose value due to usage, sometimes referred to as wear and tear.  Depreciation is an imputed expense (and a non-cash item).  The business must devise policy on rate and method, depending on the estimated useful life of the asset.  Only Vehicles and Equipment is subject to depreciation because land and buildings are assumed to increase in value over the year (appreciation).  The Historical cost principle dictates that we record assets at their original cost price. UNDERSTANDING THE LEDGER ACCOUNTS BASELINE ACTIVITY 3: Basic Ledger Accounts The following information was extracted from the records of Hilda Traders. The financial year ends on 28 February each year. REQUIRED: 1.1 Calculate the depreciation on equipment 1.2 Post to the Accumulated Depreciation on Equipment account and the Depreciation account in the General Ledger on 28 February 2019. INFORMATION: A. The following accounts appeared in the General Ledger: GENERAL LEDGER OF HILDA TRADERS BALANCE SHEET ACCOUNTS SECTION EQUIPMENT B5 2018 Mar 1 Balance b/d 174 000 31 Bank CPJ 18 000 June 1 Creditors control CJ 32 000 ACCUMULATED DEPRECIATION ON EQUIPMENT B7 2018 Mar 1 Balance b/d 62 000 GRADE 12 | ACCOUNTING | 7

B. Depreciation on equipment at 20% on cost. FULLY DEPRECIATED ASSET  Fixed assets are depreciated based on an estimation of their useful life (they will reach a carrying value of R0, which must be considered when the asset is sold).  If the asset is still in use, the business will generally retain a carrying value of R1,00.  The last depreciation amount written would therefore be the difference between the cost of the asset and its total accumulated depreciation. BASELINE ACTIVITY 4: Calculation, Fully Depreciated Asset REQUIRED: Calculate the depreciation on vehicles for the financial year ended 30 June 2019. INFORMATION: A. Balances on 1 July 2018: Vehicles R480 000 Accumulated depreciation on vehicles R408 000 B. Vehicles are depreciated at 20% p.a using the fixed instalment method. DISPOSAL OF FIXED ASSETS Note that the company is not in the business of selling fixed assets. There are many reasons why a company may dispose of existing fixed assets. Let us discuss some reasons. Selling (or disposing) of Fixed Assets must consider a number of factors. The date of sale  At the beginning of financial year  During the financial year  At the end of the financial year Depreciation for the current financial year must be taken into account. The cost of the asset sold The asset register and the Ledger account must be (disposed) adjusted. The accumulated depreciation The asset register and the Ledger account must be of the asset sold (disposed) adjusted. The proceeds from the sale of Is it for cash (Bank) this asset Is it on credit (Debtors Control) Used as a trade-in for new assets (Creditors Control) Donated (Donation) Any other reason. At carrying value Profit/loss on sale of asset The difference between the amount received (proceeds) and the carrying value of the asset (cost – accumulated depreciation) 8 | ACCOUNTING | GRADE 12

PRACTICE THE CALCULATIONS ONLY Example: On 1 May 2018, an old desk, cost R8000, was sold for R4 000 cash. The accumulated depreciation on this desk on 1 March 2018 (the beginning of the financial year), was R4 400. Depreciation on equipment is provided for at 25% on diminishing balance method. THE ASSET DISPOSAL ACCOUNT The ASSET DISPOSAL account is introduced to make the necessary entries as outlined on the table above. TOTAL ACCUMULATED DATE OF SALE COST OF ASSET SOLD DEPRECIATION ASSET DISPOSAL (N8) 2018 2018 Accumulated Depr on 01 Equipment 8 000 01 4 550 Sept Sept Equip (4 400 + 150) Profit on sale of asset 550 Bank 4 000 Current Depreciation 8 550 8 550 PROCEEDS (CASH) BALANCING FIGURE ACTIVITY 1 The information presented was taken from the records of Janice Stores. The financial year of the business ended on 28 February 2019. REQUIRED: 1.1 Calculate the missing amounts denoted by (i) to (iii) on the Accumulated Depreciation on Equipment account given. (11) 1.2 Prepare the Asset Disposal account. (7) 1.3 Provide a suitable reason for the equipment being disposed (sold). (2) GRADE 12 | ACCOUNTING | 9

INFORMATION: A. Extracted from the general ledger of JANICE STORES. GENERAL LEDGER OF JANICE STORES EQUIPMENT (B8) 2018 2018 Mar 1 Balance b/d 345 000 Dec 1 Asset Disposal 40 000 June 30 Creditors Control 75 000 ACCUMULATED DEPRECIATION ON EQUIPMENT (B9) 2018 2018 Dec 01 Asset disposal (ii) Mar 1 Balance b/d 176 000 Dec 1 Depreciation (i) 2019 Feb 28 Depreciation (iii) LOSS ON SALE OF ASSET (N12) 2018 Dec 01 Asset Disposal 1 220 B. The accumulated depreciation on the equipment sold on credit was R26 800 on 1 March 2018. C. Depreciation on equipment is provided for at 20% p.a. on carrying value. 10 | ACCOUNTING | GRADE 12

FIXED ASSETS AND FINANCIAL STATEMENTS: The Note to the Balance Sheet (Statement of Financial Position) provides a detailed breakdown of the business’s fixed assets. This must correlate with the information in the Asset Register. The total CARRYING VALUE is reflected on the Balance Sheet, under NON-CURRENT ASSETS. BASELINE ACTIVITY 5: Understanding the Fixed Asset Note Calculate the missing amounts on the note. Fixed Asset note LAND AND BUILDINGS EQUIPMENT TOTAL Carrying value on 1 March 2018 4 200 000 780 000 Cost 4 200 000 5 460 000 Accumulated depreciation 0 Movements 811 000 Additions 1 030 000 Disposals 0 (38 000) Depreciation Carrying value on 28 February 2019 5 000 000 Cost 1 370 000 Accumulated depreciation 0 ACTIVITY 2 The information relates to Nyama Traders for the financial year ended 28 February 2019. REQUIRED: 2.1 Prepare the Asset Disposal account for the trade-in on 1 June 2018. (9) 2.2 Calculate the amounts denoted by (i) to (iv) on the Fixed Asset note. (12) 2.3 Show the amount/s (and details) that will be reflected on:  The Income Statement  The Balance Sheet GRADE 12 | ACCOUNTING | 11

INFORMATION: A. Fixed Asset note LAND AND VEHICLES EQUIPMENT BUILDINGS Carrying value on 1 March 2018 1 650 000 470 000 380 000 Cost (ii) 722 000 Accumulated depreciation 0 (390 000) (342 000) Movements Additions 0 (iii) 120 000 Disposals (i) 0 (46 550) Depreciation 0 (iv) ? Carrying value on 28 February 2019 1 270 000 387 850 Cost 1 110 000 Accumulated depreciation B. Un-used premises were disposed at carrying value. C. A new vehicle was purchased on 1 November 2018. D. On 1 June 2018, equipment with a cost of R95 000 was traded-in for new equipment. The trade-in value received was R50 000. E. Depreciation policy: Vehicles: 15% on cost. 12 | ACCOUNTING | GRADE 12

ACTIVITY 3 The information relates to Burgers Ltd. The financial year ended on 31 March 2019. REQUIRED: 3.1 Calculate the missing figures indicated by (i), (ii) and (iii) in the Fixed Assets Note. (9) 3.2 Prepare the Asset Disposal Account for the computer sold. (11) 3.3 As internal auditor, state TWO concerns you would raise with the board of directors. Provide reasons in each case. (4) INFORMATION: A. Fixed Assets Note: Land and Equipment Vehicles buildings Carrying value (1 April 2018) 266 000 568 000 Cost 4 180 000 532 000 988 000 Accumulated depreciation 266 000 (420 000) Movements: Additions (cost) 0 360 000 Disposals (carrying value) (i) 0 Depreciation (ii) Carrying value (31 March 2019) Cost 3 680 000 511 000 1 348 000 Accumulated depreciation (iii) B. Unused land was sold at carrying value to Estelle Tom, wife of the CEO, and the majority shareholder of the company that purchased the land. C. A computer was sold for R1 000 cash to the CEO, Madson Tom, on 31 January 2019. Extract from the Asset Register for the computer sold: FIXED ASSET REGISTER AZ221 Item: BBM Laptop Cost: R21 000 Date purchased: 1 October 2016 Rate of depreciation: 25% p.a. on cost ACCUMULATED CARRYING DEPRECIATION DEPRECIATION VALUE 31 March 2017 R2 625 R2 625 R18 375 31 March 2018 R5 250 R7 875 R13 125 31 January 2019 ? ? ? D. A new vehicle, cost R360 000, was purchased on 30 June 2018. E. Depreciation on Vehicles is at 20% p.a. on the diminishing-balance method. GRADE 12 | ACCOUNTING | 13

SPECIFIC CASES OF FIXED ASSETS INTEGRATED It is important to note that Fixed Assets is relevant across all topics, and can be tested in different ways. In setting assessment tasks, one must be mindful of the double-testing principle by ensuring that candidates are not unfairly penalized. INCOME STATEMENT Calculate ALL amounts that will appear on the Income Statement. Example 1 (i) Information from the Pre-Adjustment Trial Balance: 28 February 2019 1 March 2018 Vehicles (Cost) R565 000 R470 000 Accumulated depreciation on vehicles ? R282 000  An old vehicle, cost R85 000 and accumulated depreciation of R76 500 on 1 March 2018, was sold on 1 May 2018 for R7 500  A new vehicle was purchased on 1 December 2018.  Depreciation on vehicles are provided for at 15% p.a. on cost. Example 2 Adjustment: (i) The accountant calculated the total depreciation for the year as R43 500. She however, did not take into account that a printer, cost R6 300, accumulated depreciation R3 780, was stolen on 28 February 2019 (financial year-end).  The insurance company will cover only 75% of the loss  Depreciation on equipment is 10% on cost. BALANCE SHEET Example 3 A. Fixed Assets Note: Vehicles Equipment TOTAL Carrying value (1 March 2018) 340 000 Cost 600 000 830 000 Accumulated depreciation (260 000) (147 000) Movements: Additions (cost) 152 000 0 Disposals (carrying value) 0 Depreciation (67 600) Carrying value (28 February 2019) Cost 752 000 190 000 Accumulated depreciation  On 28 February 2019, old equipment with a carrying value of R17 000 were sold at a loss of R2 000.  Depreciation on equipment is 20% on diminishing balance method. REQUIRED: Calculate the amount that will appear on the Balance Sheet under Non-current assets. 14 | ACCOUNTING | GRADE 12

CASH FLOW STATEMENT t Example 4 g Information: A. Extracts from the Financial Statements on 28 February: 2019 2018 Fixed assets (carrying value) 8 710 000 7 630 000 Fixed deposits 500 000 200 000 Depreciation 418 500 Interest expense 122 600 s B. Changes to Fixed Assets during the financial year:  Fixed assets were sold at carrying value, R212 800.  R918 500 was spent to extend to existing buildings.  Additional delivery vehicles were purchased. REQUIRED: 1. Calculate the cost of the additional delivery vehicles purchased. 2. Complete the CASH EFFECTS OF INVESTING ACTIVITIES for the Cash Flow Statement. OTHER AREAS WHERE YOU CAN EXPECT TO SEE FIXED ASSETS BEING MENTIONED: Cost Accounting: Factory plant and Equipment; Office equipment Equipment in the Sales department. Budgeting: Leasing or buying decisions Proposed purchase of an asset (deposit and instalments) Depreciation (related to Projected Income Statement) Neglect of asset maintenance Internal controls and ethics Problem solving scenarios GRADE 12 | ACCOUNTING | 15

MODULE 2 INVENTORY VALUATION (Stock Valuation) PRE-AMBLE:  This topic is allocated two (2) weeks in Term 2 of the Annual Teaching Plan.  In 2020, the revised CAPS, it can feature in both Paper 1 (Reporting Financial Information) and/or in Paper 2 (Information relevant for internal control purposes). Weighting of Exam. Topics curriculum papers 1. Accounting concepts, GAAP & IFRS Discipline 1: 8. Bookkeeping (including salaries & wages) and trial balances weighting 50% PAPER 1 9. Accounting equation 10. Adjustments, final accounts and trial balances Recording, Reporting 11. Financial statements (including notes e.g. fixed assets and and Evaluation of inventory notes; and Independent Auditors’ Report) Financial Information & Corporate 12. Financial indicators for reporting purposes & interpretation Governance 13. Corporate governance, ethics & professional bodies Discipline 2: 9. Reconciliations (including debtors’ age analysis) weighting 50% 10. Value-added tax 11. Inventory valuation Manufacturing, 12. Manufacturing & Cost accounting PAPER 2 Forecasting and 13. Budgeting and Projected Income Statements Internal Auditing & Control 14. Financial indicators for internal control purposes 15. Internal control & internal auditing (cash, fixed assets, inventories, debtors, creditors, income and expenses including salaries & wages) 16. Ethics  Composition of the Topic: o Concepts and terminology o Difference between perpetual and periodic stock systems; o Difference between the three stock valuation methods (FIFO, Weighted Average and Specific Identification Method) o Calculations; such as closing stock, Cost of sales, mark-up %, Stock turnover rate. What do we want to achieve? Provide participants relevant content information, methodology to address problematic sections and techniques to answer examination-type questions. 16 | ACCOUNTING | GRADE 12

PRIOR KNOWLEDGE: In Grade 10…. o Purchases of stock. o Perpetual system o Sale of trading stock In Grade 11…. o Define and explain perpetual and periodic inventory system o Recording of transactions in journals and ledgers In Grade 12…. o Stock valuation calculations and Interpretation Concepts Concepts Explanation Perpetual Inventory  Continuous (on-going) recording of transactions System involving stock; Eg. Stock purchased and sold.  A Trading Stock account is maintained and the cost of sales is calculated and recorded at the point of sale. Periodic Inventory  A Purchases account is kept to record stock System purchases;  Cost of Sales is only calculated at the end of an accounting period. FIFO method  Stock is assumed to be sold in the order they are (First-in-first out) purchased;  The closing stock will therefore be valued at the most recent prices paid. Weighted Average  Stock is valued at an average cost per unit due to Method the similar value (amounts paid) of the stock.  This average is calculated by dividing to total cost of available stock by the number of units.  Stock on hand will therefore be based on this average cost price. Specific identification  Individual, unique items of high value are method assigned the original price paid for that item.  As such, the closing stock is the total cost of the individual items that remain unsold. GRADE 12 | ACCOUNTING | 17

Illustration: Periodic vs Perpetual – An example REQUIRED: (a) Calculate the cost of sales. (b) Record the entries in the journal using:  Periodic inventory system.  Perpetual inventory system. INFORMATION: The company had the opening inventory 500 units @ R4.00. The company purchase 1 000 units @ R4.00 each. Closing inventory is 580 unit @ R4.00 SOLUTION: (a) Cost of sales Opening inventory R4 000 + Purchases (net) (1 000 x R4.00) R4 000 Cost of goods available for sale R6 000 -Closing inventory (580 x R4.00) R2 320 Cost of sales R3 680 (b) Periodic Recording Date Description Fol Debit Credit July 31 Purchases 4 000 Creditors Control 4 000 Goods purchased Cost of sales 3 680 Closing stock (inventory) 2 320 Opening stock (inventory) 2 000 Purchases 4 000 Perpetual Recording Date Description Fol Debit Credit July 31 Trading inventory 4 000 Creditors Control 4 000 Goods purchased Debtors control (900 x R10) 9 000 Sales 9 000 Cost of sales 3 600 Trading Inventory 3 600 18 | ACCOUNTING | GRADE 12

ACTIVITY 1: (FIFO and Weighted Average) Dean Traders buys tracksuits from Leslie Manufacturers, which they then sell to local schools in their area. They use the periodic stock system to administer and control their stock. REQUIRED: 1. Calculate the value of closing stock on 30 June 2019 using the FIFO method of stock valuation. 2. Calculate the value of closing stock on 30 June 2019 using the weighted average method of stock valuation. Round off to nearest Rand. INFORMATION: The following is a summary of their purchases and sales for the month of June 2019. No of Price per Details Total value units unit Opening sock on 1 June 2019 360 R120 R 43 200 Purchases 6 June 2019 600 R130 78 000 24 June 2019 840 R135 113 400 Sales 1 740 R250 435 000 Forty (40) tracksuits purchased on 24 June were returned to the supplier. ACTIVITY 2: (Specific Identification Method) Kambroo Stores sells different models of laptops. REQUIRED: Use the given information and calculate the value of the closing stock using the Specific Identification Method. No Laptops were lost or stolen during this period INFORMATION: Model Units Price Total Units Total Sales Amount sold Opening stock DHO1 15 R13 000 R195 000 13 R295 750 Purchases 45 DHO1 10 R13 000 R130 000 8 R182 000 DHO2 20 R19 000 R380 000 5 R166 250 DHO3 15 R15 000 R225 000 14 R367 500 60 R930 000 40 GRADE 12 | ACCOUNTING | 19

ACTIVITY 3 You are presented the following information from the stock records of Janice Traders for the year ended 28 February 2020. The business uses the periodic stock system. REQUIRED: 3.1 Calculate the closing stock value on 28 February 2020, using the weighted average method of stock valuation. 3.2 Calculate the cost of sales and gross profit for the financial year ended 28 February 2020. 3.3 Comment on the value of Closing Stock, Cost of Sales and the Gross Profit for each method. Complete the table provided. INFORMATION: Carriage on Total Number Unit Total purchases carriage on of units price cost price per unit purchases Balance: 1 March 2019 (including carriage on 100 R300 R30 000 purchases) 2 000 ? July 2019 800 R350 R280 000 R20 R16 000 Nov. 2019 700 R500 R350 000 R20 ? Feb. 2020 500 R480 ? R20 R10 000 Returns: From July’s 100 R350 R35 000 purchases (refund on carriage is not granted) Units sold during the 1 400 R2 000 ? financial year  Carriage on purchases amounts to R20 per unit bought.  According to a stock take, there are 600 units on hand on 28 February 2020.  The calculation of the Cost of Sales and Gross Profit using the FIFO method revealed the following figures: FIFO Sales 2 800 000 Cost of sales (603 000) Opening stock 30 000 Purchases (870 000 – 35 000) 835 000 Carriage on purchases 40 000 Closing stock (500 x 480) + (100 x 500) + (600 x R20) (302 000) Gross profit (2 664 000 – 603 000) 2 197 000 3.4 Refer to your answers in 3.3. Do you think that the owner should change from using the weighted average method to using the FIFO method? Provide TWO reasons (with figures). 20 | ACCOUNTING | GRADE 12

4. Problem solving questions The stock records of Janice Traders for the year ended 28 February 2021 show the following number of units on hand. It appears that some units have gone missing. Calculate the number of units that are missing. Number of units Opening stock on 1 March 2020 600 Total purchases 2 800 April 2020 700 Oct. 2020 1 200 Dec. 2020 900 Units returned on September’s purchases 150 Units sold during the financial year 2 750 Units on hand on 28 February 2021 450 5. Give the owner advice as to how he could reduce the stock deficit experienced during the financial year. ACTIVITY 4: STOCK VALUATION You are provided with information relating to Hildah Fashions. The business is owned and managed by the owner Hildah Lubisi. Hildah buys and sells leather boots and belts. REQUIRED: 4.1 Calculate the value of the closing stock as follows:  Leather boots (use the weighted average method)  Leather belts (use the FIFO method) 4.2 Calculate the following for the belts:  Cost of sales  Gross profit  Mark-up % achieved  Stock turnover rate  Stock holding period in days 4.3 Hilda suspects that a number of belts have been shop-lifted. Calculate the number of belts stolen. INFORMATION: A. The leather boots are bought from a South African supplier, and the belts are imported from the USA. B. The leather boots are valued using the Weighted Average method and the belts are valued using the First-in First-out method (FIFO). C. The stocks were valued as follows at the beginning and at the end of the financial year. GRADE 12 | ACCOUNTING | 21

LEATHER BOOTS LEATHER BELTS TOTAL No. TOTAL No. of Per Exchange (Including of Per unit (Including units unit rate purchase units carriage) expenses) 1 May 160 R1 660 R265 600 120 $55 R11,50=$1 R75 900 2018 30 April 300 ? ? 240 ? ? 2019 D. Purchases during the financial year LEATHER BOOTS LEATHER BELTS No. Total of Total No. Per Exchange (including units Per unit (including of unit rate purchase (per carriage) units expenses) pair) 18 May 250 R1 560 R390 000 60 $55 R11,80=$1 R 38 940 2018 12 July 280 R1 620 R453 600 190 $55 R11,90=$1 R124 355 2018 08 April 130 R1 700 R221 000 110 $60 R14,00=$1 R 92 400 2019 R1 064 TOTAL 660 360 R255 695 600 E. Additional information:  Carriage on purchases for the leather boots was R26 000 and belts were imported at a carriage of R30 per handbag.  Customs and import duties on belts paid during the accounting period, R18 000.  From the July purchases, 15 pairs of boots were returned during the year. No refund is given on the carriage on purchases. F. During the financial year, the following sales were made: Leather boots: 620 units at R2 400 each = R1 488 000 Belts: 180 units at R1 100 each = R198 000 G. Hilda has started to prepare the following information: LEATHER BOOTS BELTS Sales R1 488 000 R198 000 Cost of sales R 835 541 ? Gross profit ? Mark-up % on cost ? 22 | ACCOUNTING | GRADE 12

Activity 5 (Extracted from March 2016 NSC) INVENTORY VALUATION Bamjee Stores sells two types of men's watches:  Johx, imported from Germany  Kwatz, locally manufactured The financial year ended on 31 August 2015. REQUIRED: 5.1 Calculate the following in respect of Johx watches on 31 August 2015: (a) Closing stock (b) Cost of sales 5.2 Calculate the following values (in rands) in respect of Kwatz watches on 31 August 2015: (a) Closing stock (b) Sales INFORMATION: A.  The business uses the following methods to value the stock of watches: o Johx – specific identification o Kwatz – weighted average  No watches were stolen or lost during the financial year. B. Information relating to Johx watches: UNIT TOTAL UNITS TOTAL UNITS PRICE AMOUNT SOLD SALES Opening stock 12 R6 500 R78 000 11 R125 125 Purchases: 35 R252 000 September 2014 15 R6 800 R102 000 10 R119 000 January 2015 12 R7 300 R87 600 10 R127 750 April 2015 8 R7 800 R62 400 5 R68 250 47 R330 000 36 R440 125  The cost price of Johx watches includes transport costs and customs duties.  These watches are sold at a mark-up of 75% on cost. C. Information relating to Kwatz watches: TOTAL UNITS UNIT PRICE AMOUNT Opening stock 95 R340 R32 300 Purchases: 675 R259 900 September 2014 320 R375 R120 000 January 2015 210 R390 R81 900 April 2015 145 R400 R58 000 GRADE 12 | ACCOUNTING | 23

 Kwatz watches are sold at a fixed selling price of R520 each.  Cost to transport Kwatz watches from local suppliers amounted to R11 950 for the financial year and is not included in the figures above.  There were 92 Kwatz watches in stock on 31 August 2015. QUESTION 6: INVENTORY SYSTEMS AND VALUATION (Extracted from November 2015 NSC) Josy Fashions uses the periodic stock system and the weighted-average method to value stock of jackets. Josy Arrakal owns the business. REQUIRED: 6.1 Explain the difference between the perpetual stock system and the periodic stock system. 6.2 Calculate the value of the stock on hand on 28 February 2015 using the weighted-average method. 6.3 Josy is considering a change in the method of valuing stock 6.4  Calculate the value of closing stock using the FIFO method. 6.5  Give ONE reason in favour of and ONE reason against changing to the FIFO method. INFORMATION: Records of jackets for the year ended 30 June 2015: UNIT UNITS TOTAL PRICE Opening stock (1 March 2014) 300 R1 156 R346 800 Purchases 3 230 R3 686 400 April 2014 1 400 R1 050 R1 470 000 July 2014 1 320 R1 200 R1 584 000 November 2014 510 R1 240 R632 400 Subtotal ? R4 033 200 Goods returned (from July purchases) 150 ? ? Sales 2 730 R1 425 R3 890 250 Closing stock (28 February 2015) 650 ? ? 24 | ACCOUNTING | GRADE 12

QUESTION 7: INVENTORIES (Extracted from November 2016 NSC) (30 marks; 20 minutes) Matrix Traders sell three different types of laptops: Lexus, Granite and Vision. They use the periodic inventory system and the specific identification method to value stock. REQUIRED: 7.1 Explain the following valuation methods:  FIFO (2)  Specific identification (2) 7.2 Calculate the cost price per laptop on hand on 1 October 2015. (2) 7.3 Calculate the value of the closing stock on 30 September 2016. (9) INFORMATION: The following information is in respect of the year ended 30 September 2016: A. Opening stock: COST PRICE DATE MODEL UNITS TOTAL PER UNIT 1 Oct. Lexus 118 ? R413 000 2015 B. Purchases and returns: COST PRICE DATE MODEL UNITS TOTAL PER UNIT PURCHASES: Dec. 2015 Granite 410 R3 750 R1 537 500 Mar. 2016 Vision 630 R4 650 R2 929 500 RETURNS: Mar. 2016 Vision 20 R4 650 (R93 000) Net purchases R4 374 000 C. Sales for the year: MODEL UNITS AMOUNT Lexus 118 R598 850 Granite 356 R2 229 375 Vision 502 R4 247 775 R7 076 000 GRADE 12 | ACCOUNTING | 25

MODULE 3 INTERPRETING FINANCIAL STATEMENTS PRE-AMBLE:  Financial Statements and Interpretation of financial information is introduced in Term 1 and is completed in Term 2.  In 2020, the revised CAPS, it will form a major part of Paper 1 (Recording and reporting Financial Information). Exam. Weighting of curriculum Topics papers 14. Accounting concepts, GAAP & IFRS 15. Bookkeeping (including salaries & wages) and trial balances Discipline 1: weighting 50% 16. Accounting equation PAPER 1 17. Adjustments, final accounts and trial balances Recording, Reporting and 18. Financial statements (including notes e.g. fixed assets and Evaluation of Financial inventory notes; and Independent Auditors’ Report) Information & Corporate 19. Financial indicators for reporting purposes & interpretation Governance 20. Corporate governance, ethics & professional bodies Discipline 2: 17. Reconciliations (including debtors’ age analysis) weighting 50% 18. Value-added tax 19. Inventory valuation Manufacturing, 20. Manufacturing & Cost accounting PAPER 2 Forecasting and Internal 21. Budgeting and Projected Income Statements Auditing & Control 22. Financial indicators for internal control purposes 23. Internal control & internal auditing (cash, fixed assets, inventories, debtors, creditors, income and expenses including salaries & wages) 24. Ethics  This topic will cover:  Concepts and terminology  Preparing Financial Statements and Notes  Interpreting the information provided in the Statements  Analysis and Interpretation using Financial Indicators  The Audit report  Corporate governance and ethical consideration 26 | ACCOUNTING | GRADE 12

What do we want to achieve? Participants must be able  Understand the specific information presented by the different Statements;  Use the necessary information to perform calculations and to comment meaningfully on the information presented;  Derive methodology and techniques to address problematic sections to answer examination-type questions. PRIOR KNOWLEDGE:  The Accounting cycle  Adjustments and Final Accounts  Preparing Financial Statements and Notes  Financial Indicators  Interpretation ASSESSING PRIOR KNOWLEDGE: Forms of ownership Sole Trader (Gr 10) Partnerships (Gr 11) Companies (Gr 12) Financial Changes in performance cash resources Income Statement FINANCIAL Cash Flow STATEMENTS Statement Balance Sheet Financial position GRADE 12 | ACCOUNTING | 27

COMPANY CONCEPTS Quick-fire: Pick a word and briefly explain it. SHARERHOLDERS SECURITIES GAAP SARS EXCHANGE RETAINED INCOME COMPANIES DIRECTORS Worth ORDINARY SHARE ACT CAPITAL EQUITY MOI IPO LIMITED DIVIDENDS LIABILITY SAICA INCOME TAX AUDITORS AUTHORISED SEPARATE CIPC SHARE CAPITAL ENTITY IFRS s THE ANNUAL REPORT: (The Annual General Meeting)  COMPREHENSIVE REPORT  INTENDED TO GIVE SHAREHOLDERS AND OTHER INTEREST PARTIES  FEEDBACK ON THE FINANCIAL PREFORMANCE/POSITION  AND ANY OTHER ACTIVITIES OF  THE FINANCIAL YEAR UNDER REVIEW COMPOSITION: 1. DIRECTORS REPORT 2. AUDIT REPORT 3. STATEMENT OF COMPREHENSIVE INCOME 4. STATEMENT OF FINANCIAL POSITION 5. CASH FLOW STATEMENT 28 | ACCOUNTING | GRADE 12

ACTIVITY 1: Identifying Financial Statements Identify the relevant financial statement where you will find the following information. Total amount owing to creditors Total amount of the loan either received or paid. Unissued number of shares. Income tax expense for the financial year Amount received for the issue of new shares Total cash paid to shareholders in respect of dividends The portion of the loan that must be paid in the next financial year. Total amount paid to SARS for Income tax Gross profit for the year Fixed assets purchased during the financial year RECAP: The Income Statement ACTIVITY 2: Adjustments The following information was extracted from the records of Postman Ltd for the financial year ended 28 February 2017: REQUIRED: 2.1 Complete the table to show the Account that must be Debited, the Account that must be credited and the adjustment amount. 2.2 Reflect the amounts that will appear on the Income Statement. Show the workings in brackets. INFORMATION: A. Balances and totals extracted from the Pre-Adjustment Trial Balance. Sales 555 000 Cost of sales 370 000 Bad debts 7 120 Trading stock 88 200 Debtors control 34 550 Provision for bad debts 2 000 Cost of sales 112 880 Insurance 20 160 Audit fees 21 920 Directors fees 249 750 Rent income 59 310 Consumable stores 22 670 GRADE 12 | ACCOUNTING | 29

B. Adjustments and additional information: (i) Goods sold to B. Makalima on credit for R2 430 was not recorded. A profit mark- up of 50% on cost was applied. (ii) The account of S. Roy, R 980 must be written off as bad. The provision for bad debts must then be adjusted to 5% of the debtors’ balance. (iii) A physical stock-take on 28 February 2017 revealed the following on hand.  Trading stock, R84 830  Packing material unused, R920 (iv) Insurance includes an annual premium of R6 660 paid in full on 1 July 2016. (v) 20% of the audit fees was not yet paid. (vi) The company has two directors who earn the same fee. A third director was appointed on 1 January 2017 on the same fee structure. She was not paid for February 2017. (vii) The rent for March 2017 was received and deposited. Note that rent increased by 6% per month from the 1 January 2017. ACTIVITY 3: Using Financial Indicators to complete the Income Statement Calculate the missing amounts to complete the abridge Income Statement below. A. Relevant financial indicators: Profit mark-up on cost (gross profit) 75% % operating income on sales 16% % operating profit on sales 22% Income tax rate 28% B. Incomplete Income Statement: Sales 7 612 500 Cost of sales Gross profit Operating income Gross operating income Operating expenses Operating profit Interest income 22 250 Profit before interest expense Interest expense Net profit before income tax Income tax (448 000) Net profit after income tax 30 | ACCOUNTING | GRADE 12

RECAP: The Balance Sheet FORMAT AND SECTIONS SUN LTD BALANCE SHEET on 28 FEBRUARY 2018 ASSETS Notes NON-CURRENT ASSETS Fixed/tangible assets 3 Financial assets 160 000 CURRENT ASSETS 1 820 000 Inventories 4 956 000 5 Cash and cash equivalents 6 2 500 TOTAL ASSETS EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY 7 Retained income 8 218 200 NON-CURRENT LIABILITIES Mortgage Loan (740 000 – CURRENT LIABILITIES 921 800 Trade and other payables 9 Bank overdraft 45 300 Current portion of loan 148 000 6 800 000 ACTIVITY 4: Using financial indicators to complete a Balance Sheet Extract from the Pre-Adjustment Trial Balance on 28 February 2017 Debit Credit Balance sheet section Retained income 675 000 Loan: Michael Bank 950 000 Bank 80 000 Petty cash 6 000 Trade creditors 704 000 Shareholders for dividends 136 000 Financial indicator on 28 February 2017 Current ratio 2,4 : 1 Acid test ratio 1,3 : 1 Debt equity ratio 0,1 : 1 GRADE 12 | ACCOUNTING | 31

RECAP: The Cash Flow Statement The main sections of a Cash Flow Statement OPERATING Relevant to the main reason for establishing the ACTIVITIES business. PROFIT MOTIVE Cash generated from operations Inflow (Outflow) Interest paid Outflow Income tax Outflow Dividends paid Outflow INVESTING Acquiring assets necessary to achieve the objectives ACTIVITIES of the business. PROFIT MOTIVE Fixed assets purchased Outflow Proceeds from sale of fixed assets Inflow Change in financial assets Decrease: inflow Increase: Outflow FINANCING Funding the business. Own capital (shares) and ACTIVITIES borrowed capital (loans) CAPITAL EMPLOYED Proceeds from shares issued Inflow Payment for shares repurchased outflow Change in loans Decrease: Outflow Increase: Inflow Net change in CASH AND CASH A net inflow or net outflow of cash EQUIVALENTS 32 | ACCOUNTING | GRADE 12

ACTIVITY 5: Cash Flow Calculations The information relates to Nandi Ltd for the financial year ended 28 February 2018. REQUIRED: 5.1 Calculate the CASH GENERATED FROM OPERATIONS by completing the Note. (12) 5.2 Calculate the following: 5.2.1 Income tax paid (5) 5.2.2 Dividends paid (4) 5.2.3 Fixed assets purchased (5) 5.2.4 Proceeds from new shares issued (2) 5.2.5 Payment for the re-purchase (buy back) of shares. (4) 5.2.6 Net change in cash and cash equivalents. (3) INFORMATION: A. Extract from the Income Statement on 28 February 2018. Depreciation 127 300 Interest expense 21000 Net profit before income tax 286 000 Net profit after income tax 214 500 B. 50 000 additional shares were issued at R5,00 each. Shares were re-purchased from the estate of a shareholder that passed on. An additional amount of R123 400 was used from the retained income for this repurchase. C. Equipment, carrying value of R32 800, was sold during the financial year. New equipment was purchased to upgrade the present facilities. D. Total dividends for the year amounted to R86 000. E. Extract from the BALANCE SHEET OF NANDI LTD ON 28 FEBRUARY 2018 2017 Fixed assets (carrying value) 987,500 837,600 Fixed Deposit 210,000 350,000 Inventories 98,600 134,000 Trade and other receivables 72,800 67,500 SARS: income tax 2,200 (Dr) 23,000 (Cr) Cash and cash equivalents 7,800 2,000 Ordinary share capital 1,100,000 982,000 Retained income 28,600 23,500 Loan: BB Bank 150,000 250,000 Trade and other payables 64,300 76,200 Shareholders for dividends 36,000 24,000 Bank overdraft 12,400 GRADE 12 | ACCOUNTING | 33

INTERPRETATION OF FINANCIAL INFORMATION It is important to note that interpretation is NOT a topic in isolation; it filters into almost all topics of the syllabus. This will also be relevant to Paper 1 and Paper 2 in 2020 (Gr 12). Basically, interpretation will include:  Using Financial Indicators to analyse and make meaningful comments;  Factors beyond financial indicators, such as comparisons, decisions and problem-solving Users of Financial Statement want Answers???? Is the business controlling expenses effectively? Are investors interested in buying shares in this company? STRATEGY TO ANSWERING INTERPRETATIVE QUESTIONS  Identify the appropriate financial indicators necessary to answer the question. At times, the question will not give any indications of the financial indicators to be used. Example, Comment on the liquidity of the business… You may need to calculate the ratios (if they are not given on the table of indicators).  Quote the figures and show the trend. Do some comparison (increase/decrease): Comparisons would include:  Information of the same business (previous financial year/s)  Other businesses in the same industry (competitors)  Targets set by the business (such as a mark-up percentage)  An alternative action (such as an investment in a fixed deposit)  External factors such as the inflation rate, interest rate and market price of shares.  Comment. Showing insight or understanding (focus on whether this is good or bad for the business). Provide short, concise statements. Be guided by the mark allocation as to how much information you need to provide. 34 | ACCOUNTING | GRADE 12

Financial Indicators are calculated using information extracted from the Income Statement and the Balance Sheet. Income Statement Profitability % on sales / cost of sales Operating efficiency Net profit after tax Return indicators Net profit (before/after tax) Interest expense Balance Sheet Liquidity Current assets and Current liabilities Solvency Total assets and total liabilities Net assets (Shareholders Equity) Risk and Gearing Non-current liabilities Shareholders’ equity Return Shareholders’ equity Non-current liabilities Total capital employed Share dividends (Retained income) Share price Share capital, Number of shares Shareholders’ equity ACTIVITY 6: Interpreting financial indicators REQUIRED: 6.1 Comment on the profitability (operating efficiency) of the business. Quote and explain TWO relevant financial indicators (with figures). (6) 6.2 Directors feel that the business will experience difficulty in meeting its short term debts in the next financial year. Explain why you either agree or disagree with them. Quote THREE financial indicators with figures to support your opinion. (9) 6.3 Although shareholders are satisfied with their % returns, they are concerned about the change in dividend pay-out policy.  Explain why they are satisfied with their returns.  Provide TWO possible reason for the change in the dividend pay-out rate. (6) 6.4 The directors took the decision to increase the loan during the year. Explain why this was a poor decision. Quote relevant financial indicators in your explanation. (8) 6.5 The company paid R4,00 per share to repurchase 50 000 shares during April 2018. This was R1,25 above the average share price. Explain whether the shareholder received a fair price for his shares. Quote TWO financial indicators with figures. (6) t, e. GRADE 12 | ACCOUNTING | 35

INFORMATION 2017 2016 Current ratio 3,6 : 1 2,8 : 1 Acid-test ratio 0,5 : 1 0,7 : 1 Rate of stock turnover 3,7 times 5 times Average debtors collection period 28 days 35 days Return on shareholders’ equity 16% 18% Earnings per share 45 cents 54 cents Dividends per share 22 cents 44 cents Gross profit on cost of sales 70% 65% Gross profit on sales 28% 32% Net profit after tax on sales 12% 15% Operating expenses on sales 36% 31% Operating profit on sales 16% 21% Return on total capital employed 12% 14% Debt/equity ratio 0,6 : 1 0,3 : 1 Interest rate on long-term loans 13% 12% Net asset value per share 335 cents 346 cents Market price per share 347 cents 340 cents INTERPRETATION BEYOND FINANCIAL INDICATORS In addition to using financial indicators as a basis for interpretation, candidates’ understanding and insight is extended into critically analyzing the actual amounts and trends of specific sections of the different financial statements. 1. The Dividend pay-out policy:  A comparison of the percentage of Earnings (per share) distributed as Dividends (per share) is required (DPS/EPS x 100).  This would reflect the percentage of earnings that the directors want to retain (as part of equity).  At times, they may also decide to declare dividends that exceeds the earnings of the current financial year (> 100% of EPS)  Possible questions would generally require: o A calculation and comparison of this pay-out rate (as a %); o Possible reasons for directors making this adjustment. o Possible consequences of these decisions on the shareholders or the business. 2. Majority shareholding  Essentially, this refers to a shareholder owning more than 50% of the issued shares is a company.  The number of shares is used in the calculation (shares are issued at different prices over time). 36 | ACCOUNTING | GRADE 12

 A change in the number of shares (increase/decrease) will affect this percentage.  It must be noted that a single shareholder may not necessarily own more than 50% of the shares, which means that a group of shareholders can decide to influence decisions by voting together.  Possible questions will include: o Calculate this shareholder’s % shareholding before / after any changes in the share capital (number of shares) o The effect of the change in issued shares on his/her % shareholding o If he/she is not the majority shareholder, how many shares must he/she buy from any new issue of shares, to become the majority shareholder. More than 50% is: 50% + 1 share Or 50% + 100 shares (if assumed share issued in batches of 100 shares) Or 51% of issued shares. o The motivation to become the majority shareholder (Reasons) o Ethical issues (manipulating changes to the share capital). ACTIVITY 7: Dividend pay-out rate and Majority Shareholding The following information appeared in the accounting records of Tigger Ltd for the financial year ended 28 February. REQUIRED: 7.1 Calculate H. Haw’s percentage shareholding before and after the issue of additional shares on 30 June 2018. 7.2 Explain why Haw would be disappointed that he was not able to purchase any additional shares when these shares were issued. 7.3 Haw 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 2019. 7.3.1 Explain the effect of this re-purchase on Haw’s % shareholding. 7.3.2 Explain why the other shareholders would be concerned about this transaction, once they received inside information about the share buyback. 7.4 Show the change on the dividend pay-out rate by doing a calculation. 7.5 Provide TWO possible reasons why the directors decided to change the trend of previous year. 7.6 Will the shareholders be satisfied with this change on policy? Provide TWO points. GRADE 12 | ACCOUNTING | 37

INFORMATION: A. Details of share capital 2019 2018 Number of shares 850 000 650 000 R6 070 000 R4 550 000 B. H. Haw a senior director on the Board, owns 350 000 shares on 1 March 2018. Additional shares were issued on 30 June 2018. Haw was on holiday and missed the opportunity to purchase any shares. C. Financial Indicators calculated. 2019 2018 Earnings per share (EPS) 98 cents 112 cents Dividends per share (DPS) 84 cents 58 cents Interest rate on fixed deposits 6,5% 6% 3. The Cash Flow Statement CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2018 Cash flow from operating activities 626 000 Cash generated from operations 950 000 * Net Profit adjusted (Cash part) *Changes in working capital Interest paid (75 000) *Cost of borrowing (loans) Taxation paid (123 000) *Compulsory payment to SARS Dividends paid (126 000) *Necessary payment to Shareholders Amount to distribute: DECISION Cash flow from investing activities (455 000) Purchase of fixed assets (520 000) DECISION. Proceeds from the sale of fixed assets 45 000 DECISION Decrease in fixed deposit 20 000 To invest: DECISION Maturity: Fixed date (period) Cash flow from financing activities 170 000 Proceeds from the issue of shares 400 000 DECISION Share buy-backs (80 000) DECISION Decrease in loan (150 000) DECISION Net change in cash and cash equivalents 341 000 CONSEQUENCE OF DECISIONS Cash and cash equivalents at beginning (69 000) OVERDRAFT Cash and cash equivalents at end 272 000 CURRENT ASSET The Cash Flow Statement will reveal decisions by directors that will have consequences on ALL aspects of the company, affecting all three sections, and the overall cash flow situation. 38 | ACCOUNTING | GRADE 12

COMPARATIVE CASH FLOW STATEMENTS (FOR TWO YEARS): A. Extract from the Financial Statements: 2018 2017 Depreciation 64 300 34 600 Fixed assets (carrying value) 2 042 700 2 167 000 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2018 2018 2017 Cash flow from operating activities 626 000 92 000 Cash generated from operations 950 000 520 000 Interest paid (75 000) (130 000) Taxation paid (123 000) (88 000) Dividends paid (126 000) (210 000) Cash flow from investing activities 80 000 (520 000) Purchase of fixed assets ? (520 000) Proceeds from the sale of fixed assets 160 000 - Change in fixed deposit ? - Cash flow from financing activities 250 000 260 000 Proceeds from the issue of shares 400 000 Share buy-backs - (240 000) Decrease in loan (150 000) 500 000 Net change in cash and cash equivalents ? (168 000) Cash and cash equivalents at beginning ? 99 000 Cash and cash equivalents at end 887 000 (69 000) Possible Questions: USING AMOUNTS ON THE CASH FLOW STATEMENT TO CALCULATE: 3.1 Calculate the amount spent to purchase fixed assets in 2019 3.2 Calculate the change in the fixed deposit. Indicate if this is an inflow or outflow of cash. 3.3 Calculate the net change in cash and cash equivalents in 2019. GRADE 12 | ACCOUNTING | 39

DECISIONS IN RESPONSE TO LAST YEAR (QUOTE FIGURES) 3.4 Identify ONE decision that directors took last year that they did not take this year and ONE decision they took this year, and not last year. CONSEQUENCES 3.5 Identify TWO decisions revealed by the Cash Flow Statement taken last year, and explain the consequences of these decisions. 3.6 Comment on the impact of the decisions regarding financing activities over the two year. Mention the overall effect on the total capital employed. **** RESPONSIBLE / IRRESPONSIBLE DECISIONS must be discussed at this point. OVERALL IMPACT ON CASH 3.7 Comment on the change on CCE from 1 July 2016. ** REFER NOVEMBER 2018 (NSC) QUESTION 4 FOR FURTHER PRACTICE. END 40 | ACCOUNTING | GRADE 12

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Published by the Department of Basic Education 222 Struben Street Private Bag X895, Pretoria, 0001 Telephone: 012 357 3000 Fax: 012 323 0601 © Department of Basic Education website facebook twitter www.education.gov.za www.facebook.com/BasicEd www.twitter.com/dbe_sa 42 | ACCOUNTING | GRADE 12