MTG Accounting Eng

Grade Acco u n t i n g Study G u i d e 12

© Department of Basic Education 2014 Grade Accounting 12 e Study Guid

© Department of Basic Education 2014 This content may not be sold or used for commercial purposes. Curriculum and Assessment Policy Statement (CAPS) Mind the Gap Grade 12 Study Guide Accounting ISBN 978-1-4315-1950--7 This publication has a Creative Commons Attribution NonCommercial Sharealike license. You can use, modify, upload, download, and share content, but you must acknowledge the Department of Basic Education, the authors and contributors. If you make any changes to the content you must send the changes to the Department of Basic Education. This content may not be sold or used for commercial purposes. For more information about the terms of the license please see: http://creativecommons.org/licenses/by-nc-sa/3.0/. Copyright © Department of Basic Education 2014 222 Struben Street, Pretoria, South Africa Contact person: Dr Patricia Watson Email: watson.p@dbe.gov.za Tel: (012) 357 4502 http://www.education.gov.za Call Centre: 0800202933 The first edition published in 2012 Revised National Curriculum Statement (RNCS) Mind the Gap Grade 12 Study Guide Accounting: ISBN 978 0 621 40908 6 Second edition published in 2014 Curriculum and Assessment Policy Statement (CAPS) Mind the Gap Grade 12 Study Guide Accounting : ISBN 978-1-4315-1950--7 Mind the Gap team Series managing editor: Dr Patricia Watson Production co-ordinator for CAPS edition: Lisa Treffry-Goatley and Radha Pillay Authors: Anthony Ash, Kirsti Chapman, Lesiba Sydney Leso, Tracey Megom, Florence Nxumalo, Glynis Schreuder, Estelle van Schie, Barbara Wies Expert readers: Johnson Adekoya, Sali Ameen, Trevor Hall, Eugenia Maila, Melanie Marchbank, Jacqualine Ndlovu, Joe Ramsamy, Thandi Sindane Study skills: Margarita Karnasopoulos Editors: Julia Grey, Herbert Opland Proofreader: Jenny de Wet Designers: Alicia Arntzen, Philisiwe Nkosi, Michele Dean, Nomalizo Ngwenya Illustrators: Michele Dean, Kenneth Kunene, Vusi Malindi, Bié Venter Cover illustration: Alastair Findlay Onsite writers’workshop support: Wayne Cussons Quick

© Department of Basic Education 2014 Ministerial foreword The Department of Basic Education has pleasure in releasing the second edition of Mind the Gap study guides for Grade 12 learners. These study guides continue the innovative and committed attempt by the Department of Basic Education to improve the academic performance of Grade 12 candidates in the National Senior Certificate (NSC) examination. The study guides have been written by subject expert teams comprised of teachers, examiners, moderators, subject advisors and subject co- ordinators. Research started in 2012 shows that the Mind the Gap series has, without doubt, had a positive impact in improving grades. It is my fervent wish that the Mind the Gap study guides take us all closer towards ensuring that no learner is left behind, especially as we move forward in our celebration of 20 years of democracy. Matsie Angelina Motshekga, MP The second edition of Mind the Gap is aligned to the 2014 Curriculum and Minister of Basic Education Assessment Policy Statement (CAPS). This means that the writers have considered the National Policy pertaining to the programme, promotion requirements and protocol for assessment of the National Curriculum Statement for Grade 12 in 2014. The Mind the Gap CAPS study guides take their brief in part from the 2013 National Diagnostic report on learner performance and draws on the 2014 Grade 12 Examination Guidelines. Each of the Mind the Gap study guides provides explanations of key terminology, simple explanations and examples of the types of questions that learners can expect to be asked in an exam. M a r k i n g m e m o r a n d a are included to assist learners in building their understanding. Learners are also referred to specific questions in past national exam papers and examination memos that are available on the Department’s website – www.education.gov.za. The CAPS edition include Accounting, Economics, Geography, Life Sciences, Mathematics, Mathematical Literacy and Physical Sciences. The series is produced in both English and Afrikaans. There are also nine English First Additional Language study guides. They include EFAL Paper 1 (Language); EFAL Paper 3 (Writing); and a study guide for each of the Grade 12 prescribed literature set works. The study guides have been designed to assist those learners who have been underperforming due to a lack of exposure to the content requirements of the curriculum and aims to mind-the-gap between failing and passing, by bridging the gap in learners’ understanding of commonly tested concepts so candidates can pass. All that is now required is for our Grade 12 learners to put in the hours preparing for the examinations. Learners make us proud – study hard. We wish each and every one of you good luck for your Grade 12 examinations. _________________________________ Matsie Angelina Motshekga, MP Minister of Basic Education May 2014

Table of contents Dear Grade 12 learner ....................................................................................................... vi How to use this study guide............................................................................................... vii Top 10 study tips................................................................................................................ viii Study skills to boost your learning. ................................................................................... ix On the day of the exam ….................................................................................................. xii Question words to help you answer questions.............................................................. xiii Learner’s checklist..............................................................................................................xiv Chapter 1: Basic Accounting concepts........................................................... 1 1.1 Basic concepts........................................................................................................1 1.2 Rules of Accounting................................................................................................2 1.3 Classification of accounts. .....................................................................................3 1.4 Steps to recording transactions.............................................................................5 Chapter 2: Companies. ..................................................................................... 6 2.1 Concepts relating to companies. ...........................................................................6 2.2 Company General Ledger accounts.......................................................................8 2.3 Preparation of Financial Statements for companies......................................... 15 2.4 Cash Flow Statements......................................................................................... 40 2.5 Analysis and interpretation of Financial Statements. ....................................... 46 2.6 Comments on an audit report............................................................................. 54 Chapter 3: Manufacturing............................................................................... 60 3.1 Important concepts of manufacturing................................................................ 61 3.2 Production Cost Statement................................................................................. 64 Chapter 4: Budgets. ........................................................................................ 71 4.1 Key concepts........................................................................................................ 71 4.2 Debtors’ collection schedule............................................................................... 72 4.3 Creditors’ payment schedule (creditors’ budget). ..............................................74 4.4 Analysis of cash budget....................................................................................... 78 Chapter 5: Reconciliations. ............................................................................ 82 5.1 Bank reconciliation ............................................................................................. 83 5.2 Debtors’ reconciliation. ....................................................................................... 86 5.3 Debtors’ age analysis . ........................................................................................ 91 5.4 Creditors’ reconciliation with the creditor’s statemennt................................... 94 Chapter 6: Inventories..................................................................................... 99 6.1 Inventory systems................................................................................................ 99 6.2 Inventory valuation methods............................................................................. 100 Chapter 7: Value Added Tax (VAT)................................................................ 119 7.1 VAT calculations. ................................................................................................120 7.2 VAT Control Account...........................................................................................123 Chapter 8: Fixed assets................................................................................. 127 8.1 Introduction to Fixed assets.............................................................................. 127 8.2 Asset register......................................................................................................128 8.3 Residual value/called scrap value of R1. ........................................................129 8.4 Note to the Balance Sheet and Asset disposal................................................ 131 Appendix: Past Grade 12 exam papers........................................................ 138 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting contents v 

© Department of Basic Education 2014 Dear Grade 12 learner This Mind the Gap study guide has been CAPS aligned and helps you to Another prepare for the end-of-year Accounting Grade 12 examination. name for a Balance Sheet is a Statement of This study guide does not cover the entire curriculum, but it does focus on Financial Position. An core content of each knowledge area and points out where you can earn Income Statement is easy marks. also known as a Statement of Financial You must work your way through this study guide to improve your Performance. understanding, identify your areas of weaknesses and correct your own mistakes. We are confident that this Mind the Gap can help you to prepare well so that you pass the end-of-year exams. To ensure a high quality pass, you should also cover the remaining aspects of the curriculum using other textbooks and your class notes. Also pay special attention to the way the workings have been shown in the worked examples. This is the best way for you to earn maximum marks. In order for you to be successful in Accounting you must: • Ensure that you know the formats or layouts of the: –– Income Statement –– Balance Sheet –– Cash Flow Statement –– Production Cost Statement –– General Ledger accounts • Understand the concepts explained in this guide and know how to do calculations. • Work through as many past examination papers as you can (use the explanations and steps in this guide to assist you). There are some suggested questions from past papers at the end of each section for extra practice. Be careful when working through questions relating to Companies of past papers as there are some aspects that are treated differently under CAPS. Remember, your success in the final exam will depend on how much extra time you put into preparing. Overview of the CAPS Accounting Grade 12 exam • There is one exam of 3 hours for 300 marks. • All questions are compulsory (no choice questions). • There are no different sections. • All past papers have had 6 questions. • Each question covers different levels so all learners should be able to gain some marks in every question. • All questions should be attempted. • Questions will include conceptual understanding, application, interpretation and reflective type questions. • Learners will be provided with a specially prepared answer book for their answers. This is specially designed for the Accounting exam. The answer booklet provides space for every question. All calculations, workings and final answers will be done in this answer booklet. © Department of Basic Education 2014 vi introduction  Mind the Gap CAPS Grade 12 Accounting

© Department of Basic Education 2014 Look out for How to use this study guide these icons in the study guide. This study guide covers selected parts of the different topics of the Grade 12 Accounting curriculum. The selected parts of each topic are presented PAY SPECIAL ATTENTION in the following way: PAY SPECIAL ATTENTION NB NB • An explanation of terms and concepts NB NB • Worked examples to explain and demonstrate • Activities with questions for you to answer PAY SPECIAL ATTENTION NB NB HINT! • Answers for you to use to check your own work HINT! hint hint Hints to help you remember a concept NB PAY SPECIAL ATTENTION Pay special attention NBhint HINT! orEG - guide you in e.g. EG - worked examples Worked examples e.g. worked examples solving problems exams HINT! e.g. exams EG - worked examples Activities with Step-by-step Refers you to exam hint instructions questions questions for you to answer exams e.g. from the exam guidelines for Accounting has been • A checklist EG - worked examples activity provided on page xiv for you to keep trackactivity of your progress. Once ACTIVITIES boy and girl-left and youexams have mastered the core concepts and have confidence in your ACTIVITIES boy and girl-left and right of page activity right of page answers to the questions provided, tick the last column of the activity activity checklist. ACTIVITIES boy and girl-left and right of page • The activities are based on exam-type questions. Cover the answers do each activity on your ownactivity Step by step comment comment provided and activity using the suggested Step by step comment comment steps in this guide. ThenACTIVITIES check boy your answers. Reward yourself for and girl-left and the things you get right. If you right of page get any incorrect answers, make sure you understand activitywhere you went wrong before Step by moving step onto the nextcomment comment section. Pay special attention to the way the workings have been shown in the worked examples. This is the best way for you to earn maximum marks. Where you see this tick you will be awarded a Step by step comment comment mark even if your answer is incorrect, provided you have followed the correct procedure (e.g. adding, subtracting or transferring figures). • Exemplar Exam papers are also included in the study guide for you Use to do. Check your answers by looking back at your notes and the this study guide as exam memoranda. Past exam papers go a long way in preparing you a workbook. Make notes, draw pictures and for what to expect and help reduce exam anxiety. highlight important Go to www.education.gov.za to download more past exam papers. concepts. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting introduction vii 

© Department of Basic Education 2014 Top 10 study tips Try these 1. Have all your materials ready before you begin studying – pencils, pens, highlighters, paper, etc. study tips to make learning easier. 2. Be positive. Make sure your brain holds onto the information you are learning by reminding yourself how important it is to remember the work and get the marks. 3. Take a walk outside. A change of scenery will stimulate your learning. You’ll be surprised at how much more you take in after being outside in the fresh air. 4. Break up your learning sections into manageable parts. Trying to learn too much at one time will only result in a tired, unfocused and anxious brain. 5. Keep your study sessions short but effective and reward yourself with short, constructive breaks. 6. Teach your concepts to anyone who will listen. It might feel strange at first, but it is definitely worth reading your revision notes aloud. 7. Your brain learns well with colours and pictures. Try to use them whenever you can. 8. Be confident with the learning areas you know well and focus your brain energy on the sections that you find more difficult to take in. 9. Repetition is the key to retaining information you have to learn. Keep going – don’t give up! 10. Sleeping at least 8 hours every night, eating properly and drinking plenty of water are all important things you need to do for your brain. Studying for exams is like strenuous exercise, so you must be physically prepared. © Department of Basic Education 2014 viii introduction  Mind the Gap CAPS Grade 12 Accounting

© Department of Basic Education 2014 Study skills to boost your learning This guide makes use of 3 study techniques you can use to help you learn the material: 1. Mobile notes 2. Mnemonics 3. Mind maps Mobile notes These techniques will Mobile notes are excellent help you to study tools for learning all the key smarter! concepts in the study guide. Mobile notes are easy to make and you can take them with you wherever you go: 1. Fold a blank piece of paper in half. Fold it in half again. Fold it again. 2. Open the paper. It will now be divided into 8 parts. 3. Cut or tear neatly along the folded lines. 4. On one side of each of 1. Fold an A4 paper into these 8 bits of paper, 8 squares. Cut or tear write the basic concept. neatly along the folded 5. On the other side, write lines. the meaning or the explanation of the basic liabilit y concept. 6. Use different colours and add pictures to help you remember. 7. Take these mobile notes with you wherever you 2. Write the basic concept go and look at them on one side of a bit of whenever you can. paper. 8. As you learn, place the cards in 3 different piles: An amount • I know this a person oorwed by information well. to another business • I’m getting there. business. person or • I need more practice. 9. The more you learn them, the better you 3. Write the definition of the basic concept on will remember them. the back of the piece of paper. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting introduction ix 

© Department of Basic Education 2014 Success Mnemonics in Accounting A mnemonic code is a useful technique for learning information that is is a balancing difficult to remember. This is an example of a word mnemonic using the act! word BALANCE where each letter of the word stands for something else: B – Best – doing your best is more important than being the best. A – Attitude – always have a positive attitude. L – Load – spread the load so you don’t leave everything to the last minute. Use a study timetable to plan. A – Attention – pay attention to detail. Only answer what is required. N – Never give up! Try, try and try again! C – Calm – stay calm even when the questions seem difficult. E – Early – sleep early the night before your exam. If you prepare well you will not need to cram the night before. Mnemonics are code information and make it easier to remember. The more creative you are and the more you link your ‘codes’ to familiar things, the more helpful your mnemonics will be. This guide provides several ideas for using mnemonics. Be sure to make up your own. Neither you nor the world knows what you can do until you have tried. Ralph Waldo Emerson © Department of Basic Education 2014 x introduction  Mind the Gap CAPS Grade 12 Accounting

© Department of Basic Education 2014 Mind maps There are several mind maps included in this guide, summarising some of the sections. Have a look at the following pictures of a brain cell (neuron) and, below it, a mind map: Figure 1: Brain cell or neuron Figure 2: Mind map rules Mind maps work because they show information that we have to learn in the same way that our brains ‘see’ information. As you study the mind maps in the guide, add pictures to each of the branches to help you remember the content. You can make your own mind maps as you finish each section. How to make your own mind maps: Mind mapping 1. Turn your paper sideways so your brain has space to spread out in all your notes makes directions. them more interesting 2. Decide on a name for your mind map that summarises the and easier to remember. information you are going to put on it. 3. Write the name in the middle and draw a circle, bubble or picture around it. 4. Write only key words on your branches, not whole sentences. Keep it short and simple. 5. Each branch should show a different idea. Use a different colour for each idea. Connect the information that belongs together. This will help build your understanding of the learning areas. 6. Have fun adding pictures wherever you can. It does not matter if you can’t draw well. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting introduction xi 

© Department of Basic Education 2014 On the day of the exam … 1. Make sure you have all the necessary stationery for your exam, i.e. pens, pencils, eraser and calculator (with new batteries). Make sure you bring your ID document and examination admission letter. 2. Arrive on time, at least one hour before the start of the exam. 3. Go to the toilet before entering the exam room. You don’t want to waste valuable time going to the toilet during the exam. 4. Use the 10 minutes reading time to read the instructions carefully. This helps to ‘open’ the information in your brain. All questions in Accounting are compulsory, but you do not have to answer them in order. Start with the question you think is the easiest to get the flow going. 5. Break the questions down to make sure you understand what is being asked. If you don’t answer the question properly you won’t get any marks for it. Look for the key words in the question to know how to answer it. A list of question words is on page ix of this study guide. 6. Try all the questions. Each question has some easy marks in it so make sure that you do all the questions in the exam. GOOD LUCK! 7. Never panic, even if the question seems difficult at first. It will be linked to something you have covered. Find the connection. 8. Manage your time properly. Don’t waste time on questions you are unsure of. Move on and come back if time allows. 9. Check weighting – how many marks have been allocated for your answer? Take note of the ticks in this study guide as examples of marks allocated. Do not give more or less information than is required. 10. Write big and bold and clearly. You will get more marks if the marker can read your answer clearly. Show workings in brackets for Accounting as suggested in this study guide. © Department of Basic Education 2014 xii introduction  Mind the Gap CAPS Grade 12 Accounting

© Department of Basic Education 2014 Question words to help you answer questions It is important to look for the question words (the words that tell you what to do) to correctly understand what the examiner is asking. Use the words in the following table as a guide when answering questions. Question word What is required of you Analyse Separate, examine and interpret Divide into groups or types so that things that are similar Classify are in the same group Comment Write generally about Compare Point out or show both similarities or differences Define Give a clear meaning Describe List the main characteristics of something Discuss Consider all information and reach a conclusion Evaluate Express an opinion based on your findings Explain Make clear, interpret and spell out Forecast Say what you think will happen in the future Give/provide Write PAY down SPECIAL only facts ATTENTION NB Identify Name the essential characteristics NB Interpret Give the intended meaning of List Write a list of items Mention Refer to relevant points Name State HINT! something – give, identify or mention hint State Write down information without discussion Suggest Offer an explanation or solution e.g. Examples of question words EG - worked examples Choose a definition from COLUMN B that matches the type of account in COLUMN exams A. Draw a line from COLUMN A to COLUMN B to match the definitions. Column A Column B 1. Fixed/tangible A This increases profit and therefore increases In every exam assets owner’s equity. question, put a CIRCLE 2. Current assets B This decreases profit and therefore decreases around the question word and owner’s equity. underline any other important activity 3. Non-current C Amounts owing that will take longer than 12 months key words. These words tell you exactly what is liabilities to pay off. ACTIVITIES boy being asked. and girl-left and 4. Current D Assets which are expected to be kept for a long right of page liabilities period of time, usually longer than a year. Without activity them the business will not exist or earn a profit. 5. Income E The value (net worth) of the business at any point in time (total assets – total liabilities). 6. Expenses F Amounts owing that will be paid back within 12 months. 7. Owner’s G Assets which are Step by step expected comment to be converted into cash comment equity in a short period of time (i.e. less than a year). © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting introduction xiii 

© Department of Basic Education 2014 Learner’s Checklist Use this checklist to monitor your progress when preparing for your examination. Covered in I do not I Topic the Study Guide understand understand 1. Basic Accounting Concepts 3 2. Companies Accounting equation 3 Company concepts 3 GAAP principles 3 Company ledger accounts 3 Final accounts of companies: Trading account 3 Profit and loss account 3 Appropriation account 3 Financial statements with adjustments: Income Statement 3 Balance Sheet 3 Cash Flow Statement 3 Notes to the financial statements 3 Analysis and Interpretation of financial statements 3 Comment on an audit report 3 3. Manufacturing Manufacturing concepts 3 Production Cost Statement with notes 3 Cost calculations 3 Break-even point 3 Trading and Profit and Loss Statements * 4. Budgets Budgeting concepts 3 Debtors’ collection schedule 3 Creditors’ payment schedule 3 Cash budget (analyse and interpret) 3 Projected Income Statement (analyse and interpret) 3 5. Reconciliations Bank reconciliation 3 Debtors reconciliation 3 Age analysis 3 Creditors reconciliation 3 6. Inventories Inventory concepts 3 Inventory valuation – specific identification, FIFO and weight average methods 3 7. VAT Concepts and calculations 3 VAT control account 3 8. Fixed Assets Asset disposal 3 © Department of Basic Education 2014 xiv introduction  Mind the Gap CAPS Grade 12 Accounting

Chapter 1 Basic accounting concepts 1.1 Basic concepts Term Definition Accrued expenses/ Expenses that are still owing at the end of the expenses payable financial year. Accrued income/income Income that is still owing to the business at the receivable end of the financial year. Asset Item of value owned by a person or business which enables a profit to be made. Bad debts Debts written off as the debtors are unlikely to settle their accounts. Cost of sales Cost of sales is the cost price of all goods that These definitions help have been sold. you understand the Creditors People/suppliers the business owes money to. meaning of basic Debtors People who owe the business money for goods accounting concepts bought on credit. that are used in this study guide. Depreciation The amount by which fixed assets reduce in value over time due to use. Income received in Income that has already been received by a advance/deferred income business but which is for the next financial year. Liability An amount owed by a person or business to another person or business. Spend time learning the Loss When the expenses are more than the income. meanings of these terms. Mark-up The percentage added to the cost price to Use mobile notes to help you learn them. See calculate the selling price, i.e. the profit %. page ix for more Owners’ equity The net worth (value) of the business at any given infomation. time. Or, assets less liabilities. Prepaid expenses Expenses that have already been paid but which are for the next financial year. Profit When the income is more than the expenses. Trading stock deficit This amount is calculated when the physical stock-take figure is less than the figure for trading stock in the general ledger. Trading stock surplus This amount is calculated when the physical stock-take figure is more than the figure for trading stock in the general ledger. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 1 B asic accounting concepts 1

1 Chapter 1.2 Rules of Accounting PAY SPECIAL ATTENTION NB NB These rules of accounting do not change. LEARN THEM WELL!!! HINT! hint Assets Owner’s equity Liabilities e.g.Dr A EGCr - worked examples Dr Drawing Cr Dr Capital Cr Dr L Cr + − + − − + − + exams Dr Expenses Cr Dr Income Cr + − − + (if expenses (if expenses (if income (if income increase decrease decreases increases then profit then profit then profit then profit decreases) increases) decreases) increases) activity ACTIVITIES boy and girl-left and right of page activity Step by step comment comment © Department of Basic Education 2014 2 chapter 1 basic accounting concepts  Mind the Gap CAPS Grade 12 Accounting

Chapter 1 1.3 Classification of accounts NON-CURRENT ASSETS OWNER’S EQUITY NON-CURRENT Tangible/fixed assets Expenses Income LIABILITIES • Land and buildings (to be paid over more • Cost of sales • Sales than 12 months) • Equipment • Interest expense • Current income • Mortgage bond • Vehicles • Rent expense • Interest income • Salaries and wages • Loans Financial assets • Rent income • Fixed deposit (longer than • Stationery • Discount 12 months) • Fuel CURRENT LIABILITIES received CURRENT ASSETS • Packing material (to be paid in less than • Bad debts • Repairs 12 months) Inventories recovered • Insurance • Trade creditors • Trading stock • Profit on sale of • Advertising asset • Bank overdraft (CR) • Consumable stores on hand • Discount allowed • Short term portion Trade and other receivables • Trading stock • Telephone surplus of loan • Debtors’ control • Water and • Provision for • Accrued expenses/ • Accrued income/income receivable electricity expenses payable bad debts • Prepaid expenses • Loss on sale of adjustment (–) • Income received in Cash and cash equivalents asset advance/deferred • Bank (DR) • Bad debts income • Depreciation • Petty cash • Trading stock deficit • Cash float • Provision for bad • Fixed deposit (less than 12 months) debts adjustment (+) Activity 1: Matching items Choose a definition from COLUMN B that matches the type of account in COLUMN A. Draw a line from COLUMN A to COLUMN B to match the definitions. Column A Column B 1. Fixed/tangible A This increases profit and therefore increases owner’s equity. assets 2. Current assets B This decreases profit and therefore decreases owner’s equity. 3. Non-current C Amounts owing that will take longer than 12 months to pay off. liabilities 4. Current D Assets which are expected to be kept for a long period of time, usually longer than a liabilities year. Without them the business will not exist or earn a profit. 5. Income E The value (net worth) of the business at any point in time (total assets – total liabilities). 6. Expenses F Amounts owing that will be paid back within 12 months. 7. Owner’s equity G Assets which are expected to be converted into cash in a short period of time (i.e. less than a year). [7] © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 1 B asic accounting concepts 3

1 Chapter Answers to activity 1 Column A Column B 1 D 2 G 3 C 4 F 5 A 6 B 7 E [7] Activity 2: Multiple-choice questions Three options are provided as possible answers to the following questions. Circle the correct answer. 1. Bank overdraft is classified as a... 2. Consumable stores on hand is classified as... A Non-current liability A Owner’s equity B Current asset B Current asset C Current liability C An expense [2] Answers to activity 2 1 C This is a current liability because it will be paid back within 1 year (short-term). 2 B This is a current asset because the business will use them within the next 12 months.  [2] © Department of Basic Education 2014 4 chapter 1 basic accounting concepts  Mind the Gap CAPS Grade 12 Accounting

Chapter 1 1.4 Steps to recording transactions Refer to Rules of Accounting and Classification of accounts on page 2. 1. Read the transaction/adjustment. Bought stationery and paid by cheque, R150. Three questions that will assist 2. Identify the two accounts affected – (double entry principle). you: 1. Stationery 2. Bank 1. If an Asset: is it increasing or decreasing my 3. Decide what type of accounts these are (classify). possessions? Stationery = expense and therefore affects owner’s equity 2. If a liability: is it increasing Bank = current asset or decreasing my debt? 4. Decide which account is debited and which account is credited. 3. If an Owners’ equity: it is The expense is increasing therefore DR stationery increasing or decreasing the interest of the owner? The asset is decreasing therefore CR bank 5. Record your answer showing the effect on Assets (A), Owners’ equity (O) and Liabilities (L): Account debit Account Credit A= O+ L A zero indicates no effect. DO Stationery Bank −150 −150 0 NOT leave blank! Activity 3: Accounting equation Refer to Steps to recording transactions 1–4 above. When a bank is favourable it means it is an asset of the Record the transactions in the Table below assuming bank is favourable business and remains in a (Dr) at all times. debit balance. 1. Wrote off a debtor’s account of R500 as a bad debt. 2. Sent a cheque to a creditor to settle our account of R2 000. 3. Received rent of R5 000 from a tenant. 4. Bought trading stock on credit for R1 800. 5. Bought equipment for R600 and paid by cheque. Account debit Account credit A= O+ L 1 2 3 4 5  [5] Answers to activity 3 Account debit Account Credit A= O+ L 1 Bad debts (expense Debtors control −500 −500 0 increasing) (asset decreasing) 2 Creditors control Bank (asset −2 000 0 −2 000 (liability decreasing) decreasing) 3 Bank (asset Rent income +5000 +5000 0 increasing) (income increasing) 4 Trading stock (asset Creditors control +1800 0 +1 800 increasing) (liability increasing) 5 Equipment (asset Bank (asset ±600 0 0 increasing) decreasing)  [5] Keep going! © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 1 B asic accounting concepts 5

2 Chapter Companies 2.1 Concepts relating to companies Persons in a company: AL ATTENTION Concept Explanation NB People who are appointed by the shareholders to Directors run the company. BIGGEST Companies is thePAY SPECIAL ATTENTION NB section in your exam. NB An auditor who expresses an opinion on the Independent auditor financial statements in an auditor’s report but Spend time on it! (external) does not work for the company. An auditor, who supervises the preparation of the Use mobile HINT! notes Internal auditor financial statements, is responsible for internal d examples hint to learn these concepts. See control and is employed by the company. Shareholders People who own the company. page ix for instructions on how to make them. The government department to whom the South African Revenue e.g. EG - worked examples Services (SARS) company must pay income tax on the profits and VAT when due. Documents relating to companies exams Concept Explanation Auditor’s report This is an opinion given by a qualified person on whether the financial ACTIVITIES boy statements are reliable or not. and girl-left and • Qualified auditor’s report right of page When the auditors find the financial statements acceptable EXCEPT for some activity aspects that need to be changed, fixed or investigated. • Unqualified auditor’s report ACTIVITIES Whenboy the auditors find the financial statements acceptable in ALL respects. and girl-left and • Disclaimer When right of page the auditors are not prepared to express an opinion on the financial statements (because they are too unreliable). activity comment p comment This statement reflects the assets, liabilities and net worth (owners’ equity of Balance Sheet the company). Another term for this is ‘Statement of Financial Position’. This shows the flow of cash in a company (money coming in and money going Cash Flow Statement out). Step by step comment comment This statement shows the profit or loss made from business operations (income Income Statement and expenses). Another term for this is ‘Statement of Comprehensive Income’. This is issued by SARS to confirm the amount of income tax which the company Tax assessment has to pay based on profits. © Department of Basic Education 2014 6 chapter 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Further concepts relating to companies Concept Explanation Authorised share capital The maximum number of shares a company can sell. Dividends That portion of the profits (after tax) which has been approved to be shared amongst the shareholders (total dividends = interim + final). • Interim dividends Dividends that are paid to the shareholders during the year. • Final dividends Dividends that are declared (recommended) to the shareholders at the end of the financial year. Income tax Tax the company pays to SARS on its profits. The number of shares that have actually been sold to shareholders. Issued share capital Use number of issued shares to calculate dividends. The liability of the shareholders is limited to their investment in the company Limited liability (they cannot lose their personal assets). No par value There is no value attached to shares until they are issued. Payments made to SARS during the year based on estimated profits (every Provisional tax 6 months). A portion of the profits after tax that are not paid out to the shareholders in Retained income dividends but kept (retained) for future growth of the company. Issue price The price at which shares are issued to the public. Shareholders earnings Net profit after tax. Shareholders for dividends The amount still owing to shareholders for dividends declared but not yet paid. Issued shares that have been repurchased by the company and are retired or Buy back shares cancelled. Some acronyms (abbreviations) used in companies AGM Annual General Meeting CA Chartered Accountant CIPRO Company and Intellectual Property Commission GAAP Generally Accepted Accounting Practice IFRS International Financial Reporting Standards JSE Johannesburg Securities Exchange MOI Memorandum of Incorporation SAICA South African Institute for Chartered Accountants SAIPA South African Institute for Professional Accountants Gaap concepts Concept Explanation Business entity rule The finances of the company are kept separate from that of the shareholders Financial statements are prepared with the understanding that the company Going concern will continue operating in the future All assets are recorded at their original cost price e.g. Land and Buildings are Historical cost recorded at the price that you paid for them Income and expenses must be recorded in the correct financial year e.g. sales Matching and cost of sales All important items must be shown separately in the financial statements Materiality (e.g. directors’ fees) or when decisions must be made (e.g. is it worth having separate accounts for wages and salaries if you have only two employees?) Figures used in financial statements should be realistic (conservative – always record the worst scenario). The aim of this principle is to show the reality “as Prudence it is” and not make things prettier than what they are. E.g. you will show ‘net debtors’ in the balance sheet (trade debtors minus provision for bad debts) © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 compani es 7

2 Chapter PAY SPECIAL ATTENTION NB 2.2 Company General Ledger accounts PAY SPECIAL ATTENTION NB NB a) Ordinary share capital These are HINT!the SARS (income tax) implies a b) sars (income tax) hint asked company most commonly liability owing to SARS. HINT! c) Shareholders for dividends ledger accounts. hint d) Income tax e) Dividends on ordinary shares (ordinary share dividends) EG - worked examples f) Appropriation account e.g. e.g. For any EG - worked examples words you do not understand, refer to PAY SPECIAL ATTENTION exams NB the company concepts NB at the beginning of exams this section. HINT! Activity 1: Typical examination hint questions activity ACTIVITIES boy activity and girl-left and right of page e.g. EG - worked examples Worked example and girl-left and1 ACTIVITIES boy right of page activity activity Use the following information to complete the ledger accounts To calculate the average share given on exams the answer sheet for kwik fix ltd for the financial year price, use this figure and divide it ended 30 June 2011. by the no. of shares issued. 1 000 000 ÷ 500 000 Step shares = R2 by step comment Information Step by step comment comment 1 1 July 2010 At the beginning of the year, the company had the following opening balances: Ordinary share capital (500 000 shares) activity Retained income R1 000 000 180 000 SARS ACTIVITIES (Incomeboy tax) and girl-left and (ct) 9 000 Shareholders for dividends right of page 130 000 2 activity 1 July 2010 Issued 50 000 shares to the public at R7,50 per share 3 23 July 2010 Paid the amounts owing to SARS and the shareholders. 4 31 December 2010 A first provisional tax payment of R112 500 was made to SARS half-way through the financial year. 5 31 December 2010 An interim dividend comment of 15 cents per share was paid to shareholders. Step by step comment 6 31 March 2011 Bought back 20 000 shares from a disgruntled shareholder. The directors decided to buy back these shares at R8,50 per share. 7 30 June 2011 A second provisional tax payment of R120 000 was made to SARS at the end of the financial year. 8 30 June 2011 Final dividends of 30 cents per share were declared at the AGM but have not yet been paid to the shareholders. 9 30 June 2011 After the completion of the audit, the income tax figure for the year was determined as R240 000. This was calculated on a net profit figure of R800 000. 10 30 June 2011 Show the closing transfers to the final accounts. © Department of Basic Education 2014 8 chapter 2 compani es  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Notes below refer to the information above and to the ledger accounts below ( 1 – 10): 1 The balances for SARS (Income tax) and Shareholders for dividends are the amounts that were not paid last year and need to be paid this year. 2 Shares issued to the public at issue price of R7,50 per share 3 The amounts owing to SARS and the shareholders from last year are now being paid. 4 The first provisional tax payment is always made half-way (6 months) into the financial year and the second provisional tax payment is made at the end of the financial year. 7 5 The interim dividend is paid during the year 8 The final dividend is declared (not paid) at the end of the financial year. 6 Shares bought back at R8,50 per share from a shareholder. New average price to be calculated. To calculate average price, find the value of Ordinary Share Capital, R1 375 000 ÷ 55 000 = R2,50). It means that you’re only going to claim R2,50 per share and the rest will be claimed from Retained Income. 9 The income tax figure for the year is the amount of tax the company owes calculated on the net profit for the year. This needs to be compared to the provisional tax payments made to see whether the company owes SARS more tax (liability) or whether SARS owes the company (asset). The net profit of R800 000 is calculated in the Profit and Loss Account and transferred to the Appropriation Account. 10 The final accounts include the Trading Account, Profit and Loss Account (covered in this example) and the Appropriation Account. EXAMPLE OF A TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT (exactly the same as a sole trader or partnership) TRADING ACCOUNT (F1) N 2011 2011 June 28 Cost of Sales GJ 300 000 June 28 Sales GJ 1 470 000 Profit and loss GJ 1 170 000 1 470 000 1 470 000 PROFIT AND LOSS ACCOUNT (F2) N 2011 2011 June 28 Salaries GJ 130 000 June 28 Trading account GJ 1 170 000 (gross profit) Directors fees (new) GJ 160 000 Rent Income GJ 24 000 Audit fees (new) GJ 40 000 Profit on sale of asset GJ 16 000 Provision on bad GJ 1 000 debts adjustment Water and electricity GJ 29 000 Telephone / cell GJ 50 000 phones Appropriation 800 000 1 210 000 1 210 000 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 compani es 9

2 Chapter General Ledger of Kwik Fix Ltd Average price of shares: These numbers refer to the Shares issued: 500 000 + 50 000 = R1 000 000 + R375 000 = R1 375 000 explanations above. 550 000 shares issued. R1 375 000 ÷ 550 000 shares = R2,50 Balance Sheet Section Dr Ordinary Share Capital Cr 2011 2010 31 Bank 6 (20 000 × R2,50) CPJ 50 000 1 Balance 1 b/d 1 000 000 Mar July 31 Bank 2 (50 000 × R7,50) GJ 375 000 Balance c/d 1 325 000 1 375 000 1 375 000 2011 1 Balance b/d 1 325 000 July Balance Sheet Section Dr SARS (Income tax) Cr 2010 2010 23 Bank 3 CPJ 9 000 1 Balance 1 b/d 9 000 July July 2010 2011 31 Bank 4 CPJ 112 500 30 Income tax 9 GJ 240 000 Dec June 2011 30 Bank 7 CPJ 120 000 June Balance c/d 7 500 249 000 249 000 2011 1 Balance b/d 7 500 July The Income Tax assessment was more than the provisional payments. Therefore the balance is on the credit side making it a liability (Trade and Other Payables). Nominal Accounts Section Dr INCOME TAX Cr 2011 2011 30 SARS (Income tax) 9 GJ 240 000 30 Appropriation 10 GJ 240 000 June June Balance Sheet Section Dr SHAREHOLDERS FOR DIVIDENDS Cr 2010 2010 23 Bank 3 CPJ 130 000 1 Balance 1 b/d 130 000 July July 2011 2011 Dividends on 30 Balance c/d 159 000 30 GJ 159 000 June June ordinary shares 8 The R159 000 is the 289 000 289 000 final dividend and 2011 is still owing to the 1 Balance b/d 159 000 July shareholders. This is a liability (Trade and Other Payables). © Department of Basic Education 2014 10 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Nominal accounts section Dr DIVIDENDS ON ORDINARY SHARES Cr 2010 Bank 5 2011 31 CPJ 82 500 30 Appropriation 10 GJ 241 500 Dec (550 000 × 0.15) June 2011 Shareholders for dividends 30 GJ 159 000 June 8 (530 000 × 0.30) 241 500 241 500 There are three different ways of preparing the Appropriation account. Choose the alternative that you have been taught. Option 1: The Retained Income for the year is transferred from the Appropriation account to the Retained Income account. (R8,50 – 2,50 = R6) Balance Sheet Section Dr RETAINED ACCOUNT Cr 2011 2011 31 Bank (20 000 × R6) 6 GJ 120 000 30 Balance b/d 180 000 Mar June June 30 Balance c/d 378 500 Appropriation GJ 318 500 498 500 498 500 July 1 Balance 378 500 Final accounts section Dr APPROPRIATION ACCOUNT Cr 2011 2011 30 Income tax 10 GJ 240 000 30 Profit & loss 9 GJ 800 000 June June Dividends on ordinary GJ 241 500 shares 10 Retained income GJ 318 500 800 000 800 000 Option 2: The Retained Income at the beginning of the year less the buy-back of shares adjustment is transferred to the Appropriation account. The Retained Income (after the share buy-back adjustment) at the end of the year is transferred from the Appropriation account to the Retained Income account Balance sheet section Dr RETAINED ACCOUNT Cr 2011 2010 31 Bank (20 000 × R6) 6 GJ 120 000 1 Balance b/d 180 000 Mar July June 30 Appropriation GJ 60 000 180 000 180 000 2011 1 Appropriation GJ 378 500 June Final accounts section Dr APPROPRIATION ACCOUNT Cr 2011 2011 30 Income tax 10 GJ 240 000 30 Profit & loss 9 GJ 800 000 June June Dividends on ordinary Retained Income GJ 241 500 60 000 shares 10 (180 000 – 120 000) Retained income GJ 378 500 860 000 860 000 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 11

2 Chapter Option 3: The Retained Income at the beginning of the year is transferred to the Appropriation account. The Retained Income (before the share buy-back adjustment) at the end of the year is transferred from the Appropriation account to the Retained Income account Balance sheet section Dr RETAINED ACCOUNT Cr 2011 2011 31 Bank (20 000 × R6) 6 GJ 120 000 1 Balance b/d 180 000 Mar July 2011 June 30 Appropriation GJ 180 000 30 Appropriation GJ 498 500 June Balance c/d 378 500 678 500 678 500 2011 1 Balance b/d 378 500 July The balance of the Retained Income account stays R378 500 as in Options 1 and 2 Final accounts section Dr APPROPRIATION ACCOUNT Cr 2011 2011 30 Income tax 10 GJ 240 000 30 Profit & loss 9 GJ 800 000 June June Dividends on ordinary GJ 241 500 Retained Income 180 000 shares 10 Retained income GJ 498 500 980 000 980 000 Practice task 1 General ledger of kwik fix ltd Balance sheet section Dr Ordinary Share Capital Cr © Department of Basic Education 2014 12 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Dr Retained income Cr Dr sars (Income tax) Cr Dr Shareholders for Dividends Cr Nominal section Dr Income Tax Cr © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 13

2 Chapter Dr Dividends on Ordinary Shares Cr Final accounts section Dr Appropriation Account Cr © Department of Basic Education 2014 14 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 2.3 Preparation of Financial Statements for companies Income statement Use the following steps to prepare an income statement from a pre-adjustment trial balance: 1. Enter the pre-adjustment trial balance figures from the nominal Remember a pre-adjustment section onto the answer sheet next to the detail. trial balance refers to a trial 2. Read each adjustment: balance that is NOT final a) If necessary calculate the adjustment amount and requires adjustments b) Decide on which account is to be debited and which account is (entries) to be made to finalise to be credited. the figures to be used in the preparation of the annual c) On your answer sheet reflect a (+) or a (–) in respect of each Financial Statements. adjustment next to the already entered pre-adjustment figure. i) Outstanding/accrued amounts will be added (+) and prepaid/received in advance amounts will be subtracted (–) 3. When all the adjustments have been done, calculate your final figures and write them in the column. Look at the format you have been given. Do you notice any missing details? Fill them in. THESE ARE EASY MARKS! © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 15

2 Chapter Summary of the year end adjustments Ensure that you know all possible yearend adjustments before attempting the given activities. Make use of the Pre-adjustment Trial balance of Carl Stores to complete the Income Statement for the year ended 30 June 2014 and the Balance Sheet on 30 June 2014. PRE-ADJUSTMENT TRIAL BALANCE ON 30 JUNE 2014 BALANCE SHEET ACCOUNTS SECTION DEBIT CREDIT Ordinary Share capital 351 000 Retained Income 9 100 Loan from Lowveld Bank 50 000 Land and buildings 270 000 Equipment (at cost) 75 000 Vehicle 100 000 Accumulated depreciation on vehicles 30 000 Accumulated depreciation on equipment 30 500 Fixed Deposit 10 000 Trading stock 74 000 Debtors control 16 100 Provision for bad debts 600 Deposit on water and electricity 1 000 Bank 15 900 Cash float 800 Petty cash 300 Creditors control 9 500 South African Revenue Services: (PAYE) Creditors for salaries Pension fund Medical aid fund NOMINAL ACCOUNTS SECTION Sales 550 000 Debtors allowances 10 000 Cost of sales 320 000 Salaries 95 000 Wages 30 000 Water and electricity 7 000 Pension Fund contribution 4 000 Medical Fund contribution 2 700 Bad debts 1 000 Rent income 13 000 Commission income 8 700 Packing materials 1 200 Insurance 600 Bank charges 5 300 Discount allowed 1 000 Telephone 12 500 Interest on fixed deposit 800 Interest on debtors 200 1 053 400 1 053 400 © Department of Basic Education 2014 16 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Make use of the following adjustments to revise on the adjustments The degree of difficulty of learnt previously these adjustments lays in the calculation of the figure but 1 Prepaid expenses: Insurance prepaid, R200 the entry stays the same! So ensure that you memorise the 2 Accrued expenses: Water and electricity still due, R2 000. format. 3 Income received in advance: Rent income received in advance, R1 000 4 Accrued income: Interest on fixed deposit still due, R400 (not capitalized) 5 Bank charges, R700, interest on overdraft, R200 on late bank statement to be brought into account. 6 Bank Statement also showed a RD cheque, R1 000 (receive from debtor B. Bam in settlement of his account of R1 100) 7 Interest capitalized. Loan b/d R55 000 (1 July 2011). Total payments R15 000. Closing balance of loan R50 000. 8 Depreciation: Depreciate vehicles at 10% p.a. at cost price and Equipment at 10 % p.a. at carrying value 9 Bad debts: J Jon’s debt written off as bad debt, R200 10 INCREASE: 2014 Provision for bad debts at 5 % of debtors. (17 000 × 5% = ) 11 Insurance claim of e.g. stock stolen: e.g. Stock stolen valued @ R5 000. The Insurance Company is prepared to pay out R4 000 on the claim put forward 12 Trading stock deficit: Trading stock according to stock taking, R67 000. 13 Consumable stores on hand: Closing stock: Packing material, R300 14 Salary of an employee omitted in error: e.g. Gross salary of Joe Soap omitted of R10 000. SARS (PAYE), R1 600 Pension fund R500 and Medical fund R900. The owner contributed to the medical fund and pension fund Rand for Rand basis. Ensure that you know how to interpret the adjustments, how to complete the general journal entry and how it affects the ledger accounts and the financial statements © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 17

2 Chapter Adjustments at the end of the Financial year ILLUSTRATION OF THE PROGRESSION OF 14 POSSIBLE YEAR-END ADJUSTMENTS FROM ADJUSTMENT TO INCOME STATEMENT AND TO BALANCE SHEET 1. Prepaid expenses Insurance prepaid, R200 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Prepaid expenses(CA) B NOTE 5: TRADE AND OTHER Insurance (600 – 200) 400 RECEIVABLES Insurance 2600 Prepaid Expense 200 Insurance (e) N Total b/d 600 Prepaid expenses 200 Profit and loss 400  600  600 2. Accrued expenses: Electricity still due, R2 000. Accrued expenses (CL) B NOTE 9: TRADE AND OTHER Water and electricity 9 000 PAYABLES Water and electricity (7 000 + 2 000)  2 000 Accrued Expenses 2 000 Water and Electricity(e) N Total b/d 7 000 Profit and loss 9 000 Accrued expenses 2 000  9 000  9 000 3. Income received in advance Rent income received in advance, R1 000 Income received advance (CL) B NOTE 9: TRADE AND OTHER Rent Income 12 000 PAYABLES Rent income 1 000 (13 000 – 1 000) Income received in advance 1 000 Rent income(I) N Income received in Total 13 000 advance 1 000 Profit and loss 12 000  _____  13 000  13 000 4. Accrued income: Interest on fixed deposit still due, R400 (not capitalized) GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Accrued income(CA) B NOTE 5:TRADE AND OTHER Plus Interest income 1 200 RECEIVABLES Interest on fixed deposit (800 + 400)  400 Accrued Income 400 Interest on fixed deposit (I) N Profit and loss 1200 Total 800  _____ Accrued income 400  1 200  1200 © Department of Basic Education 2014 18 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 5. Bank charges The bank statement was received after the pre- adjustment trial balance was drawn up. The following must be included: Bank charges R700 Interest on overdraft, R200 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Bank(CA) B NOTE 6: CASH AND OTHER CASH Bank charges 7 000 EQUIVALENTS Balance b/d 15 900 Bank charges 700 (6 300 +700) Interest on over draft 200 Interest on overdraft 200 Bank (15 900 – 700 – 200) 15 000  ______ Balance c/d 15 000 (200)  15 900  15 900 Balance b/d 15 000 Bank charges(e)N Total b/d 6 300 Profit on Loss 7 000 Bank 700  _____  7 000  7 000 Interest on overdraft (e)N Bank 200 Profit on Loss 200 6. RD cheques and discount allowed The bank statement was received after the pre- adjustment trial balance was drawn up. The following must be taken into account; RD cheque of R1000 received from a debtor, B Bam, in settlement of his account of R1100 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Bank (CA) B NOTE 5: TRADE AND OTHER RECEIVABLES Balance b/d 15 900 Bank charges 700 Discount allowed 1 000 Interest on over draft200 (1 100 – 100) Trade Debtors 17 000 B Bam (RD) 1 000 (16 100 + 1 000 + 100)  ______ Balance c/d 14 000  15 900  15 900 NOTE 6: CASH AND OTHER CASH Balance b/d 14 000 EQUIVALENTS Debtors Control account (CA)B Bank (15 900 – 700 – 200 – 1 000) 14 000 2011 Balance b/d 16 100 Bank (RD) 1 000 Journal debits 100  17 100 Discount allowed account Total b/d 1 100 Debtors control 100  _____ Profit and Loss 1 000  1 100  1 100 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 19

2 Chapter 7. Interest capitalized. Loan b/d 55 000 (1 Jan 2009) Total payments R15 000 Closing balance of loan R50 000 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Loan: Crazy Bank (CA) B Interest on loan 10 000 NON-CURRENT Bank (10 000+5 000) Balance b/d 55 000 (55 000 – 15000 – LIABILITIES  15 000 Interest on loan 10 000 50 000) Loan: Crazy Bank 45 000 Balance c/d 50 000  65 000 (50 000 – 5 000)  65 000 Balance b/d 50 000 CURRENT LIABILITIES Interest on loan (I) N Short term loan 5 000 Loan: Crazy Bank 10 000 Profit and loss 10 000 The total payments for the year includes the interest charged (R10 000) for the year 8. Depreciation Equipment: R75 000 Vehicles: R100 000 Accumulated. Depreciation: R30 500 Depreciation at carrying value Accumulated depreciation:R30 000 75 000 – 30 500 = 44 500 × 10/100 = 4 450 Depreciation at cost price: 100 000 × 10/100 = 10 000 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Depreciation (e) N Depreciation 14 450 NOTE 3: FIXED ASSETS (10 000 + 4 450) Cost price 75 000 100 000 Accumulated Profit on Loss 14 450 Accumulated depre. (30 500) (30 000) depreciation on Vehicle  10 000 Carrying value 44 500 70 000 Accumulated Depreciation on Movements: equipment 4 450  _______ Depreciation (4 450) (10 000)  14 450  14 450 Carrying value 39 050 60 000 Accumulated Depreciation on Cost price 75 000 100 000 Vehicles (–A) B Accumulated depre (35 950 (40 000) Balance b/d 30 000 Depreciation 10 000  40 000 Accumulated Depreciation on Equipment (–A) B Balance b/d 30 500 Depreciation 4 450  34 950 © Department of Basic Education 2014 20 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 9. Bad debts J Jon’s debt written off as bad debt, R200 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Debtors Control (CA) B NOTE 5: TRADE AND OTHER Bad Debts (1 000 + 200) 1 200 RECEIVABLES Balance b/d 16 100 Bad debts GJ 200 Bank (RD) 1 000 (journal credits) Trade Debtors 17 000 Journal debits 100 Balance c/d  17 000 (15 100 +1 000+100 – 200)  17 200  17 200 Balance b/d 17 000 Bad debts (e) N Total b/d 1 000 Profit and loss 1 200 Debtors control 200  _____  1200  1 200 10. INCREASE: INCREASE: Provision for bad debts at 5 % of debtors. (17 000 × 5% = 850) GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Provision for bad debts (–A) B NOTE 5: TRADE AND OTHER Less operating RECEIVABLES 2014 expenses Balance b/d 600 Provision for bad 250 Trade debtors 17 000 debts adjustment Provision for bad debts Less Provision for bad debts (850) (850 – 600) adjustment 250 Net Debtors 16 150  850 Debtors control(CA) B 2014 Balance b/d 17 000 Provision for bad debts adjustment (e) N Provision for bad Profit and loss 250 debts 250 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 21

2 Chapter See the calculations when Provision for bad debts are created or increases or decreases at the end of a financial year. 10.1 Provision for bad debts CREATE: 2012: provision for bad debts at 5% of debtors GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Debtors control (CA) B NOTE 5: TRADE AND OTHER Less operating expenses RECEIVABLES 2012 Provision for bad debts 50 Balance b/d 1000 adjustment Trade debtors 1 000 Less Provision for bad debts (50) Provision for bad debts (–A) B Net Debtors 950 2012 Provision for bad debts adjustment 50 Provision for bad debts adjustment (e) N Provision for bad debts 50 Profit and loss 50 10.2 INCREASE: 2013 Provision for bad debts from R50 to R70. (1400 × 5%=70) GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Provision for bad debts(-A) B NOTE 5: TRADE AND OTHER Less operating RECEIVABLES 2013 expenses Balance b/d 50 Provision for bad debts 20 Trade debtors 1 400 adjustment (70 – 50 ) Provision for bad debts Less Provision for bad debts (70) adjustment 20 Net Debtors 1 330  70 Debtors control (CA) B 2013 Balance b/d 1400 Provision for bad debts adjustment (e) N Provision for bad debts20 Profit and loss 20 © Department of Basic Education 2014 22 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 10.3 DECREASE: 2014 Provision for bad debts from R70 to R60. GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Provision for bad debts (–A) B NOTE 5: TRADE AND OTHER Plus other operating RECEIVABLES Provision for bad debts 2014 income Trade debtors 1 200 adjustment 10 Balance b/d 70 Provision for bad debts 10 Less Provision for bad debts Balance c/d 60  __ adjustment (70 – 60)  ( 60)  70  70 Balance b/d 60 Net Debtors 1 140 Debtors control(CA) B 2014 Balance b/d 1200 Provision for bad debts adjustment (i) N Profit and loss 10 Provision for bad debts 10 11. Insurance claim of e.g. stock stolen. E.g. Stock stolen valued @ R5 000. Insurance is prepared to pay out R4000. GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Trading Stock (CA) B NOTE 4: INVENTORY Loss on stolen stock 1 000 Balance b/d 74 000 Loss to stolen stock 5 000 (5 000 – 4 000) Trading stock  ______ Balance c/d 69 000 (74 000 – 5000) 69 000  74 000  74 000 Balance b/d 69 000 NOTE 6: TRADE AND OTHER Insurance claim (CA) B RECEIVABLES Loss to stolen Insurance Claim stock  4 000 (5 000 – 4 000) 1 000 Loss to stolen stock (e) N Trading Stock 5 000 Insurance claim 4 000  _____ Profit and Loss 1 000  5 000  5 000 12. Trading stock deficit Balance of the Trading stock account is R69 000. Trading stock according to stock taking, R67 000. GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Trading stock(CA) B Trading stock deficit 2 000 NOTE 4: INVENTORY Balance b/d 74 000 Loss to stolen stock 5 000 (69 000 – 67 000)  ______ Trading stock deficit2 000  74 000 Balance c/d 67 000 Trading stock Balance b/d 67 000  74 000 (69 000 –2000) 67 000 Trading stock deficit (e) N Trading stock 2 000 Profit and loss 2 000 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 23

2 Chapter 13. Consumable stores on hand; Closing stock: Packing material, R300 GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Consumable stores on hand (CA) B Packing material 300 Packing material 900 NOTE 4: INVENTORY (1 200 – 300) Packing material (e N) Consumable stores on hand 300 Total 1 200 Consumable Stores on hand 300  _____ Profit and Loss 900  1 200  1 200 Be careful. Does the wording of the adjustment read? After stock taking the packing material USED Is R900 or after stock taking the STOCK on hand, R300. 14. Salary of an employee omitted in error: e.g. Gross salary of Joe Soap omitted of R10 000. SARS (PAYE), R1600 Pension fund R500 and Medical fund R900. The owner contributed to the medical fund and pension fund on a Rand for Rand basis. (10 000 – 1 600 – 500 – 900 = 7 000) GENERAL LEDGER INCOME STATEMENT BALANCE SHEET Creditors for salaries (CL) B Salaries GJ 7 000 Salaries (95 000 +10 000) 105 000 NOTE 9: TRADE AND OTHER Pension fund contribution 4 500 PAYABLES SARS (PAYE) (CL) B (4 000 + 500) Salaries GJ 1 600 Medical fund contribution 3 600 SARS (PAYE) 1 600 Pension Fund (CL)B (2 700 + 900) Pension fund (500 + 500) 1 000 Salaries GJ 500 Medical fund (900 + 900) 1 800 Pension Fund contribution Creditors for salaries 7 000  500 (10 000 – 1 600 – 500 –900)  1 000 Medical Fund (CL) B Salaries GJ 900 Medical Fund contribution 900  1 800 Salaries (e) N Total b/d 95 000 Profit and Loss 105 000 Gross salaries GJ  10 000  _______  105 000  105 000 Pension Fund contribution (e) N Total b/d 4 000 Profit and loss 4 500 Pension Fund 500  _____  4 500  4 500 Medical Fund contribution (e) PAY SPECIAL ATTENTION Total b/d 2 700 NB 3 600 Profit and loss NB Medical Fund contribution  _____  900  3 600  3 600 Do the HINT! following calculation to find the figure for CREDITORS FOR SALARIES hint while completing Note 9 in the following order: use the gross salary of R10 000 and subtract the – 1 600 SARS (PAY E) – 500 Pension fund e.g. – 900 MedicalEG -fund worked examples = 7 000 Creditors for salaries exams © Department of Basic Education 2014 24 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Calculations: Ensure that you are able to do the following CALCULATIONS when attempting the year-end ADJUSTMENTS. Let’s use Rent Income to illustrate the different calculations for calculating the Rent for the year and to find the amount received in advance or that is still accrued. The end of the financial year is on 28 February. 1 Adjustment E.g. the total rent income received is R26 000. Take into account that one month’s rent (low level) was received in advance Calculation 26 000 ÷ 13 = R2 000 per month 2 000 × 12 = 24 000 Therefore R2 000 was received in advance. Effect on Income statement Balance sheet the financial statements Rent Income R24 000 Note 9: (26 000 ÷ 13 × 12) Income received in advance R2 000 2 Adjustment E.g. the tenant paid his rent one month in advance. Take into account that the rent of (medium level) R2 000 increased by 10 % from 1 October 2013. Total Rent received, R27 200. Calculation Draw a TIME LINE to find the rent for the year and the rent that was received in advance Financial year prepaid 1 Mar Apr May June July Aug Sept 1 Oct Nov Dec Jan Feb Mar 2000 2000 2000 2000 2000 2000 2000 2200 2200 2200 2200 2200 2200 R2000 × 7 = 14 000 2 000 + 10%) + R2 200 × 5 = 11 000 + R2 200 = R27 200 Effect on Income statement Balance sheet the financial statements Rent Income R25 000 Note 9: (14 000 + 11 000) Income received in advance R2 200 Number 2 and 3 are almost the same however in no. 3 the Rent per month was not given as in no.2. By using the following method the amounts can still be calculated. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 25

2 Chapter 3 Adjustment E.g. The total amount received during the year, R27 200. Take into account that rent (high level) increased by 10% on 1 October 2013 and the tenant paid the rent for March during February 2014. Calculation Draw a TIME LINE to find the rent for the year and the rent that was received in advance Financial year prepaid 1 Mar Apr May June July Aug Sept 1 Oct Nov Dec Jan Feb 100% 100% 100% 100% 100% 100% 100% 110% 110% 110% 110% 110% CALCULATION: (100% × 7) + (110% × 5) + (110% × 1) = 27 200 700% + 550% + 110% = 27 200 1360% (known) = 27 200 (known) MAKE USE OF THE FORMULA: UNKNOWN is the amount prepaid and KNOWN is the total rent received Unknown % Known % 110% × 27 200 = R2 200 received in advance 1360% 1 Or 27 200 – 2 200 = R25 000 rent income for the year. Effect on Income statement Balance sheet the financial statements Rent Income R25 000 Note 9: (27 200 – 2 200) Income received in advance R2 200 4 Adjustment E.g. The total mount received during the year, R22 800. Take into account that the (high level) rent increased by 10% on 1 October 2013 and the tenant hasn’t yet paid the rent for February 2014 Calculation Draw a TIME LINE to find the rent for the year and the accrued rent. Financial year accrued 1 Mar Apr May June July Aug Sept 1 Oct Nov Dec Jan Feb Mar 100% 100% 100% 100% 100% 100% 100% 110% 110% 110% 110% 110% 110% CALCULATION: (100% × 7) + (110% × 4) = 22 800 700% + 440% = 22 800 1140% = 22 800 MAKE USE OF THE FORMULA: UNKNOWN is the amount accrued and KNOWN is the total rent received Unknown % 110% × 22 800 = R2 200 accrued income Known % 1140% 1 Or 22 800 + 2 200 = R25 000 rent income for the year. Effect on Income statement Balance sheet the financial statements Rent Income R25 000 Note 5: (22 800+ 2 200) Accrued income R2 200 © Department of Basic Education 2014 26 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 5 Adjustment E.g. The total mount received during the year, R22 800. Take into account that the (High level) rent DECREASED BY 10% on 1 October 2013 and the tenant hasn’t yet paid the rent for February 2014 Calculation Draw a TIME LINE to find the rent for the year and the rent that was received in advance Financial year accrued 1 Mar Apr May June July Aug Sept 1 Oct Nov Dec Jan Feb 100% 100% 100% 100% 100% 100% 100% 90% 90% 90% 90% 90% CALCULATION: (100% × 7) + (90% × 4) = 22 800 700% + 360% = 27 200 1060% = 27 200 MAKE USE OF THE FORMULA: Unknown % UNKNOWN is the (%) amount accrued and KNOWN is the total rent received (%) Known % 90% × 22 800 = R2 200 accrued income 1360% 1 Or 22 800 – 2 200 = R25 000 rent income for the year. Effect on Income statement Balance sheet the financial statements Rent Income R25 000 Note 5: (22 800 + 2 200) Accrued Income R2 200 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 27

2 Chapter HINT! hint Example adapted from November 2011 ncs Exam paper e.g. Worked example 2 EG - worked examples Prepare the Income statement for the year ended 30 June 2011. exams Information 1. ANEESA LTD PRE-ADJUSTMENT TRIAL BALANCE AS AT 30 JUNE 2011 DEBIT CREDIT Balance Sheet Accounts Section R R activity Ordinary share capital 2 820 000 Retained income ACTIVITIES boy 684 460 and girl-left and Mortgage loan: Joy Bank right of page 804 500 Land and buildings 2 097 000 Vehicles activity 814 000 Equipment 616 000 Accumulated depreciation on vehicles 294 800 Accumulated depreciation on equipment 341 000 Trading stock Step by step comment comment 955 000 Consumable stores on hand 15 000 Bank 313 100 Petty cash 3 300 Debtors' control 396 000 This amount is the Creditors' control 487 300 provisional tax payment. SARS (Income tax) 261 800 Provision for bad debts 18 000 Fixed deposit: Broad Bank (8% p.a.) 495 000 Nominal Accounts Section Remember to subtract Sales 10 500 000 debtors’ allowances from Debtors’ allowances 145 200 sales. Cost of sales 7 487 000 Rent income 176 880 Interest income (on fixed deposit) 26 630 Bad debts recovered 2 300 Directors' fees 840 000 Audit fees 73 800 Salaries and wages 660 000 Packing material 23 100 Marketing expenses 480 000 Sundry expenses 63 770 This is the interim dividend. Bad debts 12 000 DO NOT include on the Ordinary share dividends 404 800 Income Statement! 16 155 870 16 155 870 © Department of Basic Education 2014 28 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 2. ADJUSTMENTS A. A physical stock-taking on 30 June 2011 revealed the following inventories on hand: Trading stock R902 150 Packing material R4 260 B. Directors' fees of R22 500 are outstanding at the end of the financial period. C. Make provision for outstanding interest on a fixed deposit. This investment has been in existence for the entire year. Interest is not capitalised. D. A debtor who owes us R32 000 has been declared insolvent. His estate paid 40 cents in every rand and this has been correctly recorded. The remaining balance must be written off as irrecoverable. E. Provision for bad debts must be adjusted to 5% of debtors. F. The rent included R14 520 for July 2011. Adjust accordingly. G. Make provision for depreciation as follows: • Vehicles at 15% p.a. on cost price • Equipment at 10% p.a. on the diminishing balance method. • New equipment to the value of R48 000 was purchased on 1 September 2010. This has been correctly recorded. H. The loan statement received from Joy Bank on 30 June 2011 reflected the following: The total interest forms part of the repayment during the R year. Balance at the beginning of the financial year 1 125 000 Capitalised means the Repayments during the year 458 000 interest is added onto the Interest capitalised ? loan. You need to calculate this figure. Balance at the end of the financial year 804 500 I. Income tax for the year, R150 285. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 29

2 Chapter Answer to worked example 2 PAY SPECIAL ATTENTION NByear ended 1. aneesa ltd: income statement for the NB 30 june 2011 10 354 800 FORMAT Sales (10 500 0003 – 145 2003 ) 3 It is VERY important to know Cost of sales (7 487 000) 3 (7 487 000) HINT! the format of the Income Gross profit hint 2 867 800 Statement! Other operating income 164 660 F Rent income (176 8803 – 14 52033) e.g. 162 360 EG - worked examples Bad debt recovered (2 300) 3 2 300 This is the total of the Gross operating income 3 032 460 operating expenses. REMEMBER to subtract this Operating expenses exams (2 392 600) from gross operating income. B Directors fees (840 0003 + 22 5003) 3 862 500 Audit fees (73 800) 3 73 800 Salaries and wages (660 000) 3 660 000 A Packing material (23 1003 – 4 2603) 3 18 840 Always show your calculation Marketing expenses (480 000) activity 3 480 000 work in brackets for ACTIVITIES boy part marks. Sundry expenses (63 770) 3 63 770 and girl-left and right of page D Bad debts (12 0003 +19 20033) 31 200 E Provision for bad debts adjustment activity 840 (18 840 3– 18 000) G Depreciation V: 122 100 3 148 800 E: 4 0003 + 22 700 33 Step by step comment comment A Trading stock deficit 33 52 850 Operating profit 639 860 C Interest income3 (26 6303 + 12 9703) 39 600 Profit before interest expenses/finance 679 460 cost3 H Interest expenses/finance cost 3 (458 000 + 804 500 – 1 125 000) or (137 500) PAY SPECIAL ATTENTION (1 125 0003 – 458 0003 – 804 5003) NB Profit before tax 541 960 FORMAT I Income tax 3 3 (150 285) Note where these 3 HINT! Net profit after tax 391 675 items appear on the hint Income Statement. [52] The letters in this column refer to the explanations on the next page. e.g. EG - worked examples exams © Department of Basic Education 2014 30 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting activity

Chapter 2 2. Explanations of each adjustment A. Trading stock: PAY SPECIAL ATTENTION NBthe amount in the pre- The physical stocktaking of R902 150 is less than NB adjustment trial balance of R955 000. This means that there is a trading stock deficit of R52 850 (R955 000 – R902 150). Trading stock deficit = expense item on Income Statement All pre-adjust-ment trial Packing material: balance figures have been HINT! entered in bold on the hint The amount on hand is subtracted from the pre-adjustment trial balance amount. Income Statement before entering the adjustments. B. Directors’ fees are outstanding and therefore get added to pre-adjustment figure. e.g. EG - worked examples C. Interest on fixed deposit = R495 000 × 8% = R39 600 for the year. The difference must be added to pre-adjustment trial balance figure. D. Calculation of bad debts: exams The estate paid 40 cents therefore 60 cents in every rand must be written off. R32 000 × 0,6 = R19 200. This must be added to the pre-adjustment figure. E. Provision for bad debts adjustments calculation. Calculate final debtors amount taking adjustment D into account: R396 000 – R19 200 = R376 800 5% of R376 800 = R18 840 activity Provision for bad debts must be adjusted to R18 840. It is currently ACTIVITIES boy R18 000. The amount of R840 by which it must be adjusted must be shownand girl-left and right of page in the income statement as an expense. F. Rent was received in advance and therefore must beactivity subtracted from the pre-adjustment figure. PLEASE NOTE: G. Depreciation on vehicles: 814 000 × 15% = R122 100 Depreciation is normally an involved calculation Depreciation on equipment: affecting both vehicles and New equipment Step by step comment equipment. comment For this reason many Bought on 1 September. The cost of the new equipment must be subtracted marks are awarded for the from the equipment balance depreciation figure. Show all your workings so that even if one or R616 000 – R48 000 = R568 000 two of your figures are wrong, 10% of R48 000 × 10 ÷ 12 = R4 000 you can still get some marks for calculating Old equipment correctly. Using the diminishing balance method, subtract the accumulated depreciation from the cost price (excluding the new equipment) to determine carrying value R568 000 – R341 000 = R227 000 10% of R227 000 = R22 700 Depreciation is recorded as an expense in the income statement: R122 100 + R22 700 + R4 000 = R148 800 H. To calculate the interest Loan: Joy bank on loan on the Loan Bank CPJ 458 000 Balance b/d1 125 000 Statement: R1 125 000 – R458 000 Balance c/d 804 500 Int. on loan GJ 137 500 – R804 500 1 262 500 1 262 000 = R137 500 Balance b/d 804 500 Interest on loan = 137 500 I. Income tax for the year is subtracted from the net profit before tax © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 31

2 Chapter Use this Practice task 2 blank income statement to practice doing the task Aneesa ltd: Income Statement for the year ended 30 June 2011 again on your own. Once you have completed the task, compare your answer to the Sales worked example on the previous pages. Cost of sales Gross profit Other operating income Gross operating income Operating expenses Operating profit Profit before tax Net profit after tax [52] © Department of Basic Education 2014 32 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

HINT! hint Chapter 2 e.g. Worked example 3EG - worked examples Look at the format you have been given. Do you notice any missing Balance Sheet and notes details? Fill them in. exams Use the following steps to prepare a balance sheet from the THESE ARE EASY given information: MARKS! 1. Enter the figures from the information given onto the answer sheet next to the details. 2. Read the additional information: a) If necessary calculate the adjustment amount. activity b) Decide on which account is to be debited and which account is to be credited. ACTIVITIES boy c) On your answer sheet reflect a (+) and or a (–)andin respect of each item next to the girl-left already entered pre-adjustment right figure. of page 3. When all the additional information has been considered, calculate the final figures activity and write them in the column. Example adapted from November 2009 NCS exam paper comment Practice task 3 Step by step comment You are provided with information relating to Qwando Limited for the financial year ended 30 June 2011. Prepare the Retained income note. (18) Prepare the Balance Sheet on 30 June 2011. (36) Information 1. The following figures were taken from the financial records of the financial year ended 30 June 2011. R Ordinary share capital (see information 2 below) 2 400 000 Retained income (on 1 July 2010) 738 000 Shareholders for dividends (see information 4 below) ? Fixed deposit at Supa Bank (see information 5 below) 60 000 Mortgage Bond from Supa Bank (see information 7 below) ? Fixed/tangible assets 3 881 000 Debtors’ control 45 000 Creditors’ control 85 200 Creditors for salaries 12 300 Provision for bad debts (see Information 6 below) ? SARS (Income tax – provisional tax payments) 400 000 SARS (PAYE) 6 650 Expenses payable (accrued) 7 200 Income receivable (accrued) 7 950 Bank (favourable balance) 168 450 Trading stock 129 600 Consumable stores on hand 5 600 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 33

2 Chapter 2. Shares: • There were 700 000 ordinary shares in issue at the beginning of the financial year. • On 1 January 2011, 100 000 ordinary shares were issued to the public at R3,80 cents per share. This has been correctly recorded and is included in the figures above. • On 1 June 2011, 40 000 were repurchased from a shareholder at R4,50 per share. A direct transfer was put through from the Bank account but no entry has been made in the books. PAY SPECIAL ATTENTION NB 3. The net profitNB before tax for the year ended 30 June 2011 was calculated as R1 250 000. No entry for income tax calculated at a rate of 30% of the net profit has been made. Use the issued shares to 4. Dividends were as follows: calculate the dividends. HINT! • Interim dividends of 20 cents per share were paid on hint 31 December 2010. • Final dividends of 35 cents per share were declared on 30 June 2011. All shareholders at this date qualify for dividends. 5. One third of the total fixed deposits mature on 31 August 2011. e.g. EG - worked examples 6. Provision for bad debts must be adjusted to 5% of debtors. 7. The loan statement from Supa Bank on 30 June 2011 reflects the following: exams SUPA BANK LOAN STATEMENT ON 30 JUNE 2011 Balance on 1 July 2010 R384 000 Interest charged 57 600 The monthly capital Monthly instalments in terms of the loan agreement activity repayments on the loan will (12 × R8 800) 105 600 remain constant until the (These ACTIVITIES boymonthly instalments include interest on the and girl-left and loan has been paid in full on capital right of page repayments of the loan) 30 June 2019. Balance on 30 June 2011 R336 000 activity Answers to practice task 3 RETAINED INCOME R Step by step comment comment Balance on the last day of the previous year 3738 000 3 Net profit after tax for the period3 (1 250 000 – 30%) 33 875 000 2 Retained income on 40 000 shares repurchased 3 3 (60 000) (40 000 × R1,50) Total dividends (interim and Ordinary share dividends3 (406 000) final) are shown here. 4 Paid3 (interim) 140 000 (700 00033 shares × 20c3) 2& Recommended3 (final) 266 000 4 (760 0003 shares × 35c3) Balance on the last day of the current year 1 147 000 [16] © Department of Basic Education 2014 34 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Qwando Limited PAY SPECIAL ATTENTION Balance Sheet on 30 June 2011 NB NB ASSETS FORMAT NON CURRENT ASSETS 3 921 000 It is VERY important to know Fixed / tangible assets (4 021 000) HINT!881 000 33 the format of the Balance Financial assets hint Sheet and notes! 5 Fixed deposit: Supra Bank 340 000 (60 0003 – 20 0003) Fixed assets are always e.g. EG - worked examples shown at book value on the Balance Sheet. CURRENT ASSETS 219 350 Inventories exams 3 135 200 (129 6003 + 5 600) 6 Trade and other receivables Amount owed by SARS to 3 75 700 the business. This implies (45 0003 + 7 9503 – 2 2503 + 25 000)3 the business overpaid its 5 Cash and cash equivalents taxes to SARS. 8 450 (168 450 + 20 000 – 120 000- 60 000) activity ACTIVITIES boy and girl-left and TOTAL ASSETS 4 140 350 right of page If the notes activity are not required, EQUITY AND LIABILITIES show all your calculation work in brackets on CAPITAL AND RESERVES 3 427 000 the Balance Sheet 2 Ordinary share capital (2 400 000 – 120 000) 3 2 280 000 Step by step comment comment 2 Retained income (see note on previous page) 3 1 147 000 NON-CURRENT LIABILITIES 288 000 7 Mortgage loan: Supa Bank 288 000 (336 0003 – 48 0003) CURRENT LIABILITIES 425 350 Trade and other payables 3111 350 (85 2003 + 12 300 + 6 6503 + 7 2003) This is the final dividend 4 Shareholders for dividends 3 266 000 declared at the end of the 7 Current portion of loan 3 48 000 year. TOTAL EQUITY AND LIABILITIES 4 140 350 [38] The numbers in this column refer to the explanations on the next page. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 35

2 Chapter Explanations of each adjustment 2. PAY SPECIAL ATTENTION Shares: NB NB of shares have been properly recorded. The repurchase The new issue of 40 000 shares at R4,50. The ordinary share capital account must be reduced by the average share price (2 400 000 ÷ 800 000 All given figures in shares = R3) information 1 have been entered in bold before HINT! The retained income account will be reduced by the difference between hint entering the information the buyback price and average price ( R4,50 – R3 = R1,50 × 40 000 shares) 2 to 7. 3. Net profit after tax must be calculated by subtracting income tax from e.g. EG - worked examples net profit before tax. This must be entered in the retained income note. Tax calculation = (R1 250 000 × 30% = R375 000). Net profit after tax = R1 250 000 – R375 000 = R875 000). exams 4. Dividends: Calculation of interim/paid dividends = 700 000 × 20 cents = R140 000 Calculation of final/declared dividends = 700 000 + 100 000 (issued) – 40 000 (repurchased) = 760 000 shares 760 000 × 35 cents = R266 000 activity Total dividends = R140 000 + R266 000 = R406 000 ACTIVITIES boy and girl-left and Calculation of short term portion of fixed deposit: right of page 5. The portion of the fixed deposit that will be received within the next activity 12 months must be subtracted from financial assets and shown under cash and cash equivalents under current assets on the balance sheet. (1/3 of R60 000 = R20 000) 6. Provision for bad debts is calculated at 5% of debtors control: Step by step comment comment 5% of R45 000 = R2 250. Provision for bad debts must be subtracted from trade and other receivables. 7. Repayments of the capital amount of the loan that will be made in the next 12 months must be subtracted from the non-current liabilities and shown under current liabilities as a ‘current portion of loan’. R105 600 (total repayments) – R57 600 (interest) = R48 000 (capital portion of repayments for the year. © Department of Basic Education 2014 36 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Practice task 3 (continued) Photocopy RETAINED INCOME R this blank Balance Sheet and use it to Balance on the last day of the previous year practise doing the worked example 3 again on your own. Once you have completed the task, compare your answer to the worked example on the previous page. Balance on the last day of the current year QWANDO LIMITED BALANCE SHEET ON 30 JUNE 2011 ASSETS NON CURRENT ASSETS Fixed/tangible assets Financial assets Fixed deposit: Supra Bank CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES NON-CURRENT LIABILITIES Mortgage loan: Supa Bank CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES [38] © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 37

2 Chapter Some important PAY SPECIAL ATTENTION NB notes to the financial FORMAT statements It is VERY important to know the format of the notes to the Financial Statements. HINT! Some of them are explained below. hint TANGIBLE/FIXED ASSETS Land & Vehicles Total Buildings Carrying value at beginning of year e.g. C C EG - worked examples C A–B=C Cost A A A Accumulated depreciation exams (B) = 0 (B) (B) Movements Additions D D D LAND AND BUILDINGS ARE Disposals at carrying value (E) activity (E) (E) NOT DEPRECIATED. A zero ACTIVITIES boy Depreciation (F) = 0 (F) (F) and girl-left and will always be shown in right of page these blocks. activity Carrying value at end of year J J J Cost H H H Accumulated depreciation (I) = 0 (I) (I) Step by step comment C+D–E–F=J The total OR carrying value gets H–I=J transferred to the Balance Sheet. TRADE & OTHER RECEIVABLES Net trade debtors M K–L=M Trade debtors K Provision for bad debts (L) SARS (income tax) N Amount overpaid to SARS. Expenses prepaid O Income accrued (receivable) P M+N+O+P=Q Transfer Q to the current Q assets section in the Balance Sheet. © Department of Basic Education 2014 38 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 TRADE & OTHER PAYABLES Trade creditors R Expenses accrued (payable) S Income received in advance T Dividend declared but not yet paid Shareholders for dividends U (final dividend). SARS (income tax) V Amount still owing to SARS. Creditors for salaries W Gross salaries less deductions. Unemployment insurance fund X Deductions + contributions. Pension fund Y Medical aid fund Z AA: Total transferred to current AA liabilities section of the Balance Sheet. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 39

2 Chapter 2.4 Cash Flow Statements Purpose of a Cash Flow Statement PAY SPECIAL ATTENTION NB NBshows the result of business’ operations (net profit). The Income Statement The Balance Sheet shows the financial position of the business on a specific day (ie how FORMAT much the business is worth). It is VERY important to know Neither of them shows where the business gets its funds from or how the funds are HINT! the format of the Cash Flow used. The emphasis is on the cash aspects/components. hint Statement and notes! The Cash Flow Statement is prepared for this purpose and shows where the PAY SPECIAL ATTENTION funds come from and how they are used. NB NB e.g. Basic concepts and terminology EG - worked examples PAY SPECIAL ATTENTION Concept Definition NBCash Flow HINT! NB Money coming into the business. This amount does NOT hintexams Statements focus on all aspects Cash inflow have brackets. (e.g. sale of shares) of CASH surrounding a Money going out of the business. This amount HAS Cash outflow business. Remember CASH brackets. (e.g. bought a fixed asset for cash) HINT! IS KING for CashEG - e.g. hint Statements. Flowworked examples All the information needed for a cash flow statement and notes can be found on the income statement, balance sheet and notes. activity NB PAY SPECIAL ATTENTION NB ACTIVITIES boy exams e.g. Worked example 4 EG - worked examples and girl-left and right of page activity Preparation of the cash flow statement CertainHINT! figures have been given on the answer sheet exams hint (in bold). In order to calculate the missing figures A to L, refer to additional information provided below. activity Step by step comment Practice task 4 comment ACTIVITIES boy and girl-left and e.g. EG - worked examples Prepare the cash flow statementright of page Remember we are looking for the flow of cash. This (all relevant notes have been done for you).activity  activity means you will need to calculate the difference (15) between exams this year’s and last year’s figures, to ACTIVITIES boy and girl-left and determine the figures to place on the Cash Flow Additional information right of page Statement. Extract from balance sheet activity Step by step comment comment 2012 2011 Flow of cash Ordinary share capital R471 600 R410 000 **see note below Retained income R10 400 R9 000 This has no effect on a cash flow statement. Fixed deposit R28 000 R23 000 activity (R5 000) (Outflow) Loan from Beta Step Bank (interest by step R74 000 comment comment R80 000 (R6 000) ACTIVITIES (Outflow) boy and girl-left and is not capitalised) right of page Bank R35 300 R10 040 R25 260 Inflow Cash float R2 000 activity R2 000 R0 No change ** During the year the following transactions took place regarding share capital: • 8 000 Shares were issued and the company received R79 600 from shareholders. • Repurchased 3 000 shares at 820 cents per share Step by step comment comment © Department of Basic Education 2014 40 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Notes to the cash flow statement Make sure you use the profit Note 1: Reconciliation between profit before tax and cash generated before tax from the Income from operations: Statement. If profit after tax is given, remember to add back R the tax. Profit before tax 30 000 These figures are taken Adjustments i.r.o. (in respect of): 21 200 DIRECTLY from the Income Statement and are ADDED to Depreciation 12 000 the profit before tax to give Interest expense 9 200 you the operating profit before changes in working capital. Operating profit before changes in 51 200 Also, depreciation is NOT a working capital cash expense. Changes in working capital 5 000 Difference between last (Increase)/Decrease in inventory (3 000) year’s and this year’s figures. Remember to exclude amounts (Increase)/Decrease in debtors 5 600 owed to shareholders, accrued Increase/(Decrease) in creditors 2 400 interest and amounts owed to or by SARS for income tax. Cash generated from operations 56 200 Transfer this figure to the Cash Flow Statement (cash flow from operating activities). Note 2: Cash and cash equivalents PAY SPECIAL ATTENTION NB NB Net change is calculated as the difference between ATTENTION: Watch your dates! last year’s and this year’s Make sure you are using the figures. figures from the correctHINT! year. hint Net 2012 2011 change e.g. EG - worked examples These amounts come Bank 25 260 35 300 10 040 DIRECTLY from cash and cash Cash float 0 2 000 exams 2 000 equivalents on the Balance Sheet. 25 260 37 300 12 040 Transfer these figures to the Cash activity Flow Statement (net change in cash and cash equivalents). ACTIVITIES boy and girl-left and right of page activity © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 41 Step by step comment comment

2 Chapter The notes for dividends paid and PAY SPECIAL ATTENTION tax paid can beNB done using NB either the format given below or the ledger account (not required in this SARS can have a debit question). or credit balance at the HINT! beginning of the year and at hint the end of the year. e.g. EG - worked examples This figure is always shown Note 3: Dividends paid in brackets. Total dividends for the year (interim + final) exams (R10 000) Last year’s shareholders’ for dividends amount. This Amount due at the beginning of the year [dr (cr)] (R4 500) figure is shown in brackets Amount due at the end of the year (final) [(dr) cr] R6 000 because it was paid during the year. Dividends paid (R8 500) This year’s shareholders for activity dividends amount. This figure This is the total amount paid out for ACTIVITIESisboyNOT shown in brackets and girl-left and dividends this year. This figure is shown in because it is still not paid. right of page brackets on the Cash Flow Statement (cash activity flow from operating activities) PAY SPECIAL ATTENTION Step by step comment comment NB NB question, ensure that Before you attempt a Cash Flow Statement you can identify the information that is given to you to determine if The income tax figure from you have to complete notes or simply show all your working calculations. the Income Statement. This figure is shown in brackets. HINT! hint Note 4: Taxation paid Last year’s SARS income tax balance. If the figure is under Total tax for the year (R13 500) trade and other payables it will have brackets. If the e.g. Balance due at the EG - beginning worked of the year [dr (cr)] examples (R1 600) figure is under trade and Balance due at the end of the year [(dr) cr] R1 200 other receivables it will not have brackets. [dr (cr)] Tax paid (R13 900) exams This year’s SARS income tax balance. If the figure is under trade and other payables This is the total amount paid out for tax this year. it will not have brackets. This figure is shown in brackets on the Cash Flow If the figure is under trade Statement (cash flow from operating activities) as and other receivables it will activity this was the actual cash that was paid. have brackets. [(dr) cr] ACTIVITIES boy and girl-left and right of page activity © Department of Basic Education 2014 42 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting Step by step comment comment

Chapter 2 Cash Flow Statement for the year ended … NOTES R Cash flow from operating activities 24 960 A Operating activities: The most common source Cash generated from operations 1 3 56 200 B of cash for a company. It not only involves the buying Interest paid (8 840) and selling of stock, but also Dividends paid 3 3 (8 500) C includes paying creditors, receiving money from debtors Income tax paid 4 3 (13 900) D and paying expenses. Cash flow from investing activities (48 700) E Investing activities: The activities that focus on Purchase of fixed assets (48 500) the buying and selling of fixed Proceeds from sale of fixed assets 4 800 assets and the increasing and decreasing of investments Increase of investment 33 (5 000) F (e.g. fixed deposits). Decrease of investment – Cash flow from financing activities 49 000 G Financing activities: How a company is funded Proceeds from shares issued 3 79 600 H through loans and capital: Repurchase of shares (24 600) I • The issuing of shares • The repurchase of shares Proceeds from long-term loans – • The obtaining of a loan • The repayment of a loan Payment of long-term loans 3 (6 000) J Net change in cash and cash equivalents 2 25 260 K To check your answer, see Cash and cash equivalents at the beginning of 2 3 12 040 L K, L + M: the year • If both balances are favourable you subtract, Cash and cash equivalents at the end of the year 2 3 37 300 M eg. 37 300 – 12 040 = 25 260. • If one of the balances is an overdraft, then you The letters add, eg. M + (L). in this column refer to the explanations in the Table on • An overdraft is shown in page 28. brackets ( ). Memorise the following to determine if K is in brackets or not: (K) K L or (L) (M) M [15] © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 43

2 Chapter Explanations of A to L A. Cash generated from operations – interest paid – dividends paid – income tax paid = A R56 200 – R8 840 – R8 500 – R12 900 = R24 960 Inflow (Outflow) (Outflow) (Outflow) Inflow B. Cash generated from operations transferred from Note 1 (under Notes to the Cash Flow Statement). C. Dividends paid transferred from Note 3 (under Notes to the Cash Flow Statement). D. Income tax paid transferred from Note 4 (under Notes to the Cash Flow Statement). E. Purchase of fixed assets – proceeds from sale of fixed assets – increase in investment = E – R48 500 + R4 800 – R5 000 = – R48 700 (Outflow) Inflow (Outflow) (Outflow) F. This figure comes from the Extract from the Balance Sheet and is calculated by finding the difference between this year’s and last year’s figures: R25 000 – R20 000 = R5 000 (Outflow) Increasing the fixed deposit is an outflow as money is moving out of the bank account and into the fixed deposit account. G. Proceeds from shares issued – repurchase of shares - payment of long-term loans = G R79 600 – R24 600 – R6 000 = R49 000 Inflow (Outflow) – (Outflow) H. Issue of new shares: The amount of R79 000 was given (inflow) I. Repurchase of shares: 3 000 × R8,20 = R24 600 (outflow) J. This figure comes from the Extract from the Balance Sheet and is calculated by finding the difference between this year’s and last year’s figures: R74 000 – R80000 = –R6 000 (Outflow) K. A – E + G = K (R24 960 – R48 700 + R49 000 = R25 260) To verify this figure check the Net Change Total in Note 2 (Cash and Cash Equivalents) under Notes to the Cash Flow Statement L. This figure comes from the extract from the Balance Sheet, calculated by adding the Bank figure and Cash Float figure from last year i.e. 2011. To verify this figure check the total of the Bank and Cash Float figure for 2011 in Note 2 (Cash and Cash Equivalents) under Notes to the Cash Flow Statement. M. This figure comes from the extract from the Balance Sheet, calculated by adding the Bank figure and Cash Float figure from this year i.e. 2012. To verify this figure check the total of the Bank and Cash Float figures for 2012 in Note 2 (Cash and Cash Equivalents) under Notes to the Cash Flow Statement. © Department of Basic Education 2014 44 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Cash flow statement for the year ended …….. Photocopy this Notes R blank Cash Flow Statement and use it to Cash flow from operating activities practise doing the worked example 4 again on your own. Once you have completed the Cash generated from operations 1 task, compare your answer to the worked example on Interest paid (8 840) pages 27 and 28. Dividends paid 3 Income tax paid 4 Cash flow from investing activities Purchase of fixed assets (48 500) Proceeds from sale of fixed assets 4 800 Increase of investment Decrease of investment – Cash flow from financing activities Proceeds from shares issued Repurchase of shares Proceeds from long-term loans Payment of long-term loans – Net change in cash and cash equivalents 2 Cash and cash equivalents at beginning of the 2 year Cash and cash equivalents at the end of the 2 year [15] © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 45

2 Chapter 2.5 Analysis and interpretation of Financial Statements Area of analysis Description Related financial indicators AL ATTENTION % Gross profit on sales NB % Net profit on sales How efficient the company % Operating expenses on Make sure you can calculate Profitability is in its normal operating sales these indicators. See page activities % Operating profit on sales 35 for formulae. % Gross profit on cost of sales (mark-up) Current ratio Acid test ratio ed examples Net current assets (net The ability of a company working capital) Liquidity to pay off its immediate Turnover rate of stock (short-term) debts Debtors’ collection period Creditors’ payment period Average period of stock on hand The ability of a company to Solvency ratio Solvency pay off all its debts Net assets % Return on average ACTIVITIES boy Are the shareholders shareholders’ equity and girl-left and right of page Return earning a fair amount on Earnings per share their investment? Dividends per share Net asset value To what extent is the Debt / equity ratio Financial risk company financed by Gearing loans (borrowed money) % Return on total capital p comment comment compared to its own capital employed Follow these steps when commenting on the financial indicators: 1. Consider what the question is asking you to analyse (e.g. Liquidity). Decide on the relevant financial indicator(s). 2. Name the financial indicator(s) giving figures or ratios or percentages. 3. Compare the current year’s indicator(s) with that of the previous year. Say whether it has increased or decreased. 4. If possible provide a general comment. © Department of Basic Education 2014 46 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 47

PAY SPECIAL ATTENTION NB NB HINT! 2 Chapter hint Use point HINT!form Worked example 5: Comment on the hint instead of long e.g. EG - worked examples sentences to liquidity position of the company comment. Financial indicator PAY SPECIAL ATTENTION 2010 2011 e.g. EG - worked examples NB ratio exams Current NB1,3 : 1 2,1 : 1 Acid test ratio 0,6 : 1 1,4 : 1 It means that the company has current assets of R2,10 for every • Current ratio 3 has improved from 1,3 : 1 to 2,1 : 1 3 R1 debt. • Acid test ratio 3 has also improved from 0,6 : 1 to 1,4 : 1 3 exams HINT! • This company is in a good liquidity position and should be able to pay its short-term hint debt easily. 3 Earnings per share is the ‘if’; if all the profit after tax was  activity [5] declared as dividends, the ACTIVITIES boy Worked example of page 6: Comment on the and girl-left and earnings would have been 35c per share. However e.g. earnings perrightshare EG - worked examples (EPS) and activity what “really happened” is activity that dividends were declared ACTIVITIES boy dividends per share (DPS) of the of only 25c per share. The exams company and girl-left and right of page difference is the profit that the company kept called ‘retained income’.activity Financial indicator Step by step comment 2010 comment 2011 Earnings per share (EPS) 35c per share 15c per share Dividends per share (DPS)ATTENTION PAY SPECIAL 25c per share 20c per share NB NB It’s the ‘if’! If all the profit after • EPS has declined from 35c to 15c per share. 3 tax was declaredStep a dividend, by step • DPS commenthasactivity comment declined from 25c to 20c per share. 3 they would have earned • In 2010 their EPS was 35c while the DPS was only 25c per share. This means that the 15c per share. However, ACTIVITIES boy company retained 10c per share for future growth. and girl-left and 33 the shareholders received HINT! • In 2011 they only earned 15c per share but gave the shareholders 20c per share meaning right of page more, being 20c per share. hint that none of this year’s profits were retained. 33 That means that some of the retained income of the activity [6] previous year was used to finance the difference. Worked example 7: Comment on the e.g. NB NB EG - worked examples PAY SPECIAL ATTENTION debt/equity ratio of comment the company Step by step comment Financial indicator 2010 2011 exams Debt/equity ratio PAY SPECIAL ATTENTION 0.6:1 0,4:1 NB NB HINT! • Debt/equity ratio decreased3 by 0,2 from 0,6 : 1 to 0,4 : 1. 3 hint • By repaying the loan the company has a lower financial risk. 3 ATTENTION: Watch your  [3] dates! Make sure you use the figures from the correct HINT! year. hint Worked example 8: Comment on the e.g. activity EG - worked examples percentage return on shareholders’ ACTIVITIES boy equity (ROSHE) and girl-leftof and the company e.g. EG - worked examples right of page exams activity Financial indicator 2010 2011 % return on shareholders’ equity (ROSHE) 18 % 24 % exams • ROSHE improved3 by 6 % from 18 % to 24 %.3 • The shareholders should be pleased as a return of 24 % is higher than an alternative investment (e.g. fixed deposit). 3 comment Step by step comment  [3] activity ACTIVITIES boy and girl-left and © Department of Basic Education 2014 activity 48 chapte r 2 companie s  right of page Mind the Gap CAPS Grade 12 Accounting activity ACTIVITIES boy

PAY SPECIAL ATTENTION NB Chapter 2 Formulae: Financial indicators The formula HINT! for hint many of these indicators is given in the name of the indicator. Financial indicator 1 Gross profit on cost of sales How it is calculated - formula Gross profit 100 e.g. Answer shown as/in EG - worked examples (mark-up) × % Cost of sales 1 2 Gross profit on sales Gross profit 100 × % Sales 1 exams 3 Operating expenses on sales Operating expenses 100 × % Sales 1 4 Operating profit on sales Operating profit 100 × % Sales 1 5 Net profit after tax on sales Net profit after tax 100 × % Sales 1 6 Solvency ratio Total assets : Total liabilities activity Ratio ( : 1) 7 Net assets (shareholders’ Total assets − Total liabilities Rands ACTIVITIES boy equity) and girl-left and 8 Current ratio Current assets : Current liabilities Ratio ( : 1) right of page 9 Acid-test ratio (Receivables + cash) : Current liabilities OR activity Ratio ( : 1) (Current assets – inventories) : Current liabilities 10 Turnover rate of stock Cost of sales Times per year Average stock 11 Period for which enough stock Average stock 365 is on hand/period of stock on × Number of days Step by step comment hand (stock holding period) Cost of sales 1 12 Debtors average collection Average debtors 365 period × Number of days Credit sales 1 13 Creditors average payment Average creditors 365 period × Number of days Credit sales 1 14 Debt/equity ratio Non-current liabilities : Shareholders’ equity Ratio ( : 1) 15 Return on equity Net profit after tax 100 (shareholders’ equity) × % Average shareholders’ equity 1 16 Return on total capital Net profit before tax + interest on loans 100 employed × % Average shareholders’ equity + average loans 1 17 Earnings per share (‘if’) Net profit after tax 100 × Cents Number of issued shares 1 18 Dividends per share (what Interim & final dividends 100 really happened) × Cents Number of issued shares 1 19 Net asset value per share (this Shareholders’ equity 100 is the real value of the share) Number of issued shares × Cents 1 PAY SPECIAL ATTENTION NB NB OTHER IMPORTANT FORMULAE: To calculate the selling price (SP): Shareholders’ equity = SP = CP × 100 + mark-up Ordinary share capital 100 + Retained income HINT! hint To calculate the cost price (CP): CP = SP × 100 100 + mark-up e.g. EG - worked examples © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 49 exams

HINT! hint 2 Chapter e.g. Worked example 9 EG - worked examples (This question shows some of the basic financial indicators that will help you earn easy marks) exams You are provided with information relating to Glebo Limited for the year ended 30 June 2011. Practice task 5 activity Use the given information to calculate the following financial indicators for 2011. ACTIVITIES boy (31) and girl-left and 1. % Gross profit on cost of sales (mark-up) right of page These calculations use activity 2. % Net profit on sales figures taken from the Income Statement ONLY. 3. % Operating profit on sales 4. Current ratio Step by step comment comment 5. Acid test ratio These calculations use figures 6. Debt/equity ratio taken from the Balance Sheet ONLY. 7. Solvency ratio 8. Net asset value per share This calculation uses figures taken from BOTH the Income 9. Earnings per share Statement and the Balance Information Sheet. Glebo Limited Extract from income statement for the year ended 30 june 2011 2011 Sales 9 000 000 Cost of sales 5 625 000 Operating profit 1 423 200 Income tax 426 000 Net profit after tax 904 000 © Department of Basic Education 2014 50 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Glebo limited Balance sheet as at 30 june 2011 2011 ASSETS Non-current assets 4 626 000 Fixed assets 4 326 000 Financial assets 300 000 Current assets 2 557 000 Inventories (all trading stock) 1 640 000 Trade and other receivables (all trade debtors) 810 000 SARS (Income tax) 0 Cash and cash equivalents 107 000 TOTAL ASSETS 7 183 000 EQUITY AND LIABILITIES Ordinary shareholders’ equity 4 123 000 Ordinary share capital (1 100 000 shares ) 2 910 000 Retained income 1 213 000 Non-current liabilities 1 980 000 Mortgage loan: Jozi Bank (13% p.a.) 1 980 000 Current liabilities 1 080 000 Trade and other payables (all trade creditors) 705 000 SARS (Income tax) 32 000 Shareholders for dividends 275 000 Bank overdraft 0 Current portion of loan 68 000 TOTAL EQUITY AND LIABILITIES 7 183 000 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 51

2 Chapter Answer to practice task 5 Gross profit = sales – cost 1. Calculate % gross profit on cost of sales (mark-up)  [4] of sales (Sales – cost of sales) 9 000 0003 – 5 625 0003 × 100 = × 100 Cost of sales 5 625 0003 In order to get the answer = 3 375 000 as a percentage, multiply × 100 by 100. 5 625 000 = 60%3 2. Calculate % net profit on sales [3] Net profit after tax 904 0003 × 100 = × 100 Sales 9 000 0003 This means that 10c of = 10%3 every R1 sales becomes net profit. 3. Calculate % operating profit on sales [3] Operating profit 1 423 0003 × 100 = × 100 Sales 9 000 0003 = 15,8%3 4. Calculate current ratio [3] Current assets ÷ current liabilities = 2 557 0003 ÷ 1 080 0003 This means that the = 2,4 : 1 3 company has R2,40 to pay off R1 debt. 5. Calculate acid-test ratio [4] When asked to calculate (Current assets – stock) ÷ current liabilities a ratio, always show your = (2 557 0003 – 1 640 0003) ÷ 1 080 0003 answer as x : 1 = 917 000 ÷ 1 080 000 = 0,85 : 13 6. Calculate debt/equity ratio [3] Non-current liabilities ÷ ordinary shareholders’ equity = 1 980 0003 ÷ 4 123 0003 = 0,48 : 13 © Department of Basic Education 2014 52 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Answers to practice task 5 (continued) 7. Calculate solvency ratio [4] Total assets ÷ total liabilities = 7 183 0003 ÷ (1 980 0003 + 1 080 0003 ) = 7 183 000 ÷ 3 060 000 = 2,3: 13 Ordinary share capital ÷ par 8. Calculate net asset value per share [4] value of shares Ordinary shareholders’ equity 100 4 123 0003 100 × = × Number of shares issued 1 1 100 0003 1 = 374,8 cents per share3 Multiply by 100 in order to get the answer in cents per 9. Calculate earnings per share [3] share. Net profit after tax 100 904 0003 100 × = × Number of shares issued 1 1 100 000 3 1 = 82,2 cents per share3 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 53

2 Chapter 2.6 Comments on an audit report The need for financial statements: there are several groups of people who will be interested in the financial statements of a business. Several groups of people who will be interested Reasons why they are interested in the financial results • The owners of the business (shareholders). • owners are interested in the overall health of the business. • A potential owner. • may be interested in investing money in the business. • The management of the business (board of • use the report for planning purposes, to maintain certain directors). good practices and to improve on areas of weakness. • Banks who have lent money to the business. • Banks are interested in whether there are enough assets in the business to cover their loans. These assets can be sold to repay the loans. • The employees of the business and trade unions. • They are interested in whether the business is profitable and in negotiating wage increases. • SARS, because the company is a legal person • SARS is interested in the profit or loss made and the tax and has to pay tax. that is paid on this. • The auditor who has to report to the shareholders by giving his opinion on whether he thinks the financial statements are a fair reflection of the business during the financial year. Function of the independent auditor • The auditor must sign an Auditors Report which serves as an The role of the auditor is assurance to the shareholders that the financial statements are very important for the reliable. shareholders because • The auditor is not required to check every transaction or to shareholders are not check for fraud. Her function is to give the shareholders her involved in the running of the business opinion on whether or not the financial records are a true and fair representation of the company’s operations for that year at a specific date at the end of that financial year. • The shareholders use the true and fair financial statements to make their decisions. • If the auditor becomes aware of fraud, then he has a duty to report this to the shareholders. • Auditors are bound by very high ethical standards and can face disciplinary proceedings if they are found to have been negligent in their work. Quality of auditors External Auditors should be registered professionals with professional bodies such as South African Institute of Chartered Accountants (SAICA) and the Independent Regulatory Board for Auditors (IRBA). Advantages of companies engaging registered Auditors: • Auditors are guided by a professional code of ethics. • Companies are assured of high quality work from qualified Auditors. • High professional standards are maintained since auditors are answerable to their affiliate bodies. • Disciplinary measures can be taken against Auditors who are negligent in performing their duties. • Auditors may be deregistered from professional bodies if they commit any act of misconduct. © Department of Basic Education 2014 54 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 • Auditors can be sued for producing a misleading report. • Auditors may lose future contracts due to the production of substandard work. The independent auditor and the audit report An auditor is a person who expresses an opinion on financial information and accounting controls. The independent auditor cannot be an employee of the company. She is appointed at the AGM (annual general meeting) by the shareholders, and not by the directors. She charges fees according to the number of hours she expects to spend on the audit. The opinion of the independent auditor must be based on an assessment of whether the financial statements: • Have been prepared in such a way as to give a fair representation of the company’s activity • Are understandable and not confusing to the reader • Are prepared in accordance with GAAP • Are prepared in accordance with the requirements of the Companies Act. The role of internal auditors The internal auditors ensure that the internal controls are tested and play an important role in looking for fraud or mistakes in the business. They need to check, for example, debtors, wages or computer entries in every aspect of the business. The internal auditor will be an employee of the business organisation and will earn a salary from the company. The independent auditor (external) will consider the checks carried out by an internal auditor. Audit reports Auditors will issue a report after they have completed their work to express an opinion on their findings. Such a report is addressed to the shareholders (owners of the company).The report could be: • Qualified – a bad report with some irregularities, in which auditors have to state the kind of irregularity noted to the shareholders (qualify their statements). • Unqualified – good report with minor irregularities if any. • Withheld/Disclaimer – very bad report in which auditors may The word, “STARDIF” will help recommend further investigations on certain outstanding you to remember what the irregularities before issuing a report. Code of good governance stands for! KING CODE: CODE OF GOOD GOVERNANCE: “STARDIF” S T A R D I F Social Transparencies Accountability Responsible Discipline Independence Fairness responsibilities management • Contributing • Does things • Able to • Showing • Business • Business • Being to community in an open explain your critical must stick to must operate considerate in which the manner actions consideration its principles without to your business (no hidden when called for certain and ethics. influence stakeholders operate agenda). to as a aspects for from outside and giving business example taking them what care of the they deserve. environment © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 55

HINT! 2 Chapter hint e.g. Worked example 6 EG - worked examples EXAMPLE OF AN UNQUALIFIED REPORT exams (GOOD REPORT): The auditor’s function is to You are provided with an extract from the report of the independent auditors: give the shareholders who Audit opinion – To the shareholders: appointed him at the AGM his opinion. We have examined the financial statements set out on pages 8 to 20. The auditor is not required to activity In our opinion, the financial statements fairly present, in all material respects, check every transaction or to the financial position of the company at 30 June 2009 and the results of their ACTIVITIES boy check for fraud. operations and cash flows for the yearandended, girl-leftin accordance with International and right of page Financial Reporting Standards (IFRS), and in the manner required by the Companies An auditor only expresses an Act in South Africa. opinion whether or not the activity financial records are a true Barlow & Bokwe and fair representation of the Chartered Accountants (SA) company’s operations for that year at a specific date at the Registered Accountants and Auditors Cape Town 6 September Step 2009 by step comment comment end of that financial year. PAY SPECIAL ATTENTION NB NB The following questions are normally asked in an examination. Make sure that you study the above information before answering the questions. HINT! 1 State whether the shareholders would be satisfied or dissatisfied hint with this audit report. Give a reason for your answer. [3] 2 Explain why the auditors found it necessary to stipulate the page numbers (that is 8 to 20) in this report. [2] e.g. EG - worked examples 3 Explain why the Companies Act makes it a requirement for public companies to be audited by an independent auditor. [2] 4 Explain TWO major consequences for Barlow and Bokwe should they be negligent in performing their duties. [4] exams 5 What actions would Barlow and Bokwe have to perform to verify the Fixed/Tangible Assets figure in the Balance Sheet? Provide THREE points. [3] 6 Quinton Qwando, the major shareholder and managing director, has informed the auditors that he intends to buy the unissued shares himself next year without advertising the new issue to the activity other shareholders or the public. What advice should the auditors ACTIVITIES boygive to Quinton? Briefly explain. [4] and girl-left and right of page activity Step by step comment comment © Department of Basic Education 2014 56 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

Chapter 2 Memorandum 1. State whether the shareholders would be satisfied or dissatisfied with this audit report. Give a reason for your answer. Satisfied 3 Any valid reason 33 Possible responses • The financial statements are fairly presented - this is a positive report • This is an unqualified report • The auditors did not mention any irregularities 2 Explain why the auditors found it necessary to stipulate the page numbers (i.e. 8 to 20) in this report. They are only responsible for the pages that have been stipulated in the auditors' report 33 3 Explain why the Companies Act makes it a requirement for public External Auditors should be companies to be audited by an independent auditor. registered professionals with The shareholders of a company need to have confidence in the professional bodies such company’s ability to look after the investment 33 as South African Institute 4 Name TWO major consequences for Barlow and Bokwe should of Chartered Accountants they be negligent in performing their duties. (SAICA). This is to protect the Any two valid consequences 33 shareholders and to ensure Possible responses that continuous training takes • Can be sued place. • Not be re-appointed as auditors Remember that all fixed assets • Face disciplinary procedures by the professional body are recorded in an Asset 5 What actions would Barlow and Bokwe have to perform to verify register. Every fixed asset the Fixed/Tangible Assets figure in the Balance Sheet? Provide has its own entry in the asset THREE points. register from the time bought, Three actions333 the yearly depreciation till the Possible responses date of disposal. • Examine the financial records of the business – external audit • Assess the internal control of the business • Assess the accounting principles used by the business • Inspect the fixed asset register 6 Quinton Qwando, the major shareholder and managing director, It’s a good idea to learn and has informed the auditors that he intends to buy the unissued understand “STARDIF” for this shares himself next year without advertising the new issue to type of question: the other shareholders or the public. What advice should the • Transparency auditors give to Quinton? Briefly explain. • Accountability • Responsible management Advice: This is unethical and the issue of new shares should be • Discipline advertised to all according to the Memorandum and Articles of • Fairness Association, as this is a public company. 33 Explanation: The other shareholders will be disadvantaged, as Quinton will be increasing his shareholding percentage, which will effectively reduce the returns and dividends that the others are earning. By offering the shares on the open market the company could raise more money than if they sold at an agreed price to one buyer.33 Any valid explanation. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 57

HINT! 2 Chapter hint e.g. EXAMPLES OF AN UNQUALIFIED AND A EG - worked examples QUALIFIED AUDIT REPORT You are provided with extracts from the independent audit reports of Kwela Ltd and Pomi Ltd. exams Unqualified – good report Extract from audit report of Kwela Ltd: in which there are minor In our opinion, the financial statements fairly present, in all material respects, the irregularities if any. financial position of this company at 28 February 2012 and the results of their operations and cash flows for the year ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of activity South Africa. Qualified – a bad report with ACTIVITIES boy Extract from audit report of Pomi andLtd: girl-left and some irregularities in which right of page auditors have to state the In our opinion, except for the effects of the company’s overvaluation of its fixed kind of irregularity noted to assets, theactivity financial statements fairly present the financial position of the company the shareholders (qualify their on 29 February 2012 and the results of their operations and cash flows for the year statements). ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. Step by step comment comment REQUIRED: Consider the audit reports of Kwela Ltd and Pomi Ltd. How would these audit reports influence James in deciding in which company to buy shares? Explain in respect of each company. Memorandum 1. How would these audit reports influence James in deciding in which company to buy shares? Explanation on the audit report of Kwela Ltd 33 • James will know that he can rely on the figures in the financial statements as the company has received an unqualified audit report • James will know that he can rely on the figures in the financial statements as there is fair presentation in all material respects • The report is unqualified – it is a good (i.e. reliable) report. Explanation on the audit report of Pomi Ltd 333 • James will know that he cannot rely on the figures in the financial statements as the company has received an qualified audit report • James will know that he cannot rely on the figures in the financial statements as they drew attention to shortcomings in the financial statements • James will be unhappy because the fixed assets had been overvalued in the opinion of the auditors (which means that the true value of his possible investment is not certain as indicated by the net asset value). © Department of Basic Education 2014 58 chapte r 2 companie s  Mind the Gap CAPS Grade 12 Accounting

HINT! hint Chapter 2 e.g. EXAMPLE OF A WITHHELD /DISCLAIMER EG - worked examples AUDIT REPORT MAR 2009 Withheld – very bad report in exams Refer to the newspaper article provided. which auditors may recommend further investigations on certain JSE suspends Woodview Ltd over no annual report outstanding irregularities before By Ima Snoop, 12 Feb 2009 issuing a report. The trading of shares of furniture company Woodview Ltd were suspended by the JSE Securities Exchange yesterday after the company failed to publish its annual If the auditor becomes aware report threeactivity months after the end of their financial year-end. of fraud, then he has a duty to The CEO of Woodview Ltd put out a statement explaining that the auditors had report this to the shareholders. ACTIVITIES boy withheld their report and that this wasand causing girl-left a andelay. right of page The company postponed its AGM. The shareholders have not been informed of the Auditors are bound by very reason for activity the postponement. high ethical standards and can face disciplinary proceedings Prior to the JSE’s action, the share price of Woodview Ltd dropped 30% to 140 cents if they are found to have been per share. negligent in their work. The directors of Bhaga Toys Ltd are worried that a similar problem could occur in their company. Briefly explain why Step by stepthis would be comment comment a serious problem for the company. Provide two points Memorandum Refer to the newspaper article provided. The directors of Bhaga Toys Ltd are worried that a similar problem could occur in their company. Briefly explain why this would be a serious problem for the company. Provide two points. Any two valid explanations 333 333 • A delay would cause shareholders to become suspicious • Shareholders would not vote for these directors next year • New shareholders will avoid the company and share prices could drop • The directors would be guilty of a criminal offence. In terms of the Companies Act they have to produce financial statements within three months • It will affect the ability to raise capital/loans in future as investors will be suspicious Keep going! © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 2 companies 59

3 Chapter Manufacturing The manufacturing process is divided into 3 departments: Administration department Factory Selling and distribution department Office duties are performed in this Raw materials are taken through This department is responsible for department and include financing the manufacturing process in order the advertising, selling and delivery and investing activities. to produce finished goods. of the finished goods to customers. Related costs Administration department Factory Selling and distribution department Accountant’s salary Direct costs Sales manager’s salary Bookkeeper’s salary Raw/direct materials Sales representative’s commission Receptionist’s salary Factory workers’ wages/salaries Salary of deliverymen Cleaning staff wages (direct labour) Bad debts Office stationery Advertising Office rent Indirect costs/factory overheads Stationery costs Insurance on office equipment Factory foreman’s salary (indirect Rent labour) Depreciation on office equipment Depreciation on delivery vehicle Cleaning staff wages/salary Office telephone Cellphone costs of sales staff (indirect labour) Indirect materials/consumable stores Factory rent Factory maintenance Factory insurance Depreciation on factory equipment © Department of Basic Education 2014 60 chapte r 3 manufacturing  Mind the Gap CAPS Grade 12 Accounting

Chapter 3 3.1 Important concepts of Use mobile manufacturing notes to help you learn these manufacturing concepts. See Costs in the manufacturing process page ix for more informaiton. Concept Explanation Direct labour cost Wages and salaries of those employees physically making the product or operating the machines making the product. Direct/raw Raw materials that have been issued to the factory and materials cost have been used to manufacture the finished goods. E.g. leather and rubber soles in the making of shoes. Factory overhead All other costs involved in the manufacturing process costs which increase the cost of producing the product. Stocks in a manufacturing business Concept Explanation Finished goods stock Products that are completely finished and are ready PAY SPECIAL ATTENTION for sale. NB Factory indirect The indirect materials that have not yet been used materials/consumable and are still available to be used, e.g. cleaning It is important to understand stores stock materials left over. that costs can be further Raw materials stock The raw materials left over that have not yet been divided into: fixed costs HINT! and issued to the factory but are stored safely in the hint variable costs. warehouse for future use. Work-in-process stock Products that have not been completely turned into finished goods and are still in the manufacturing process. e.g. For exam purposes it will EG - worked examples Fixed costs These are costs that do not change according to be assumed that all factory number of products made. For example, the rent of overhead costs and admin the factory plant will be the same no matter whether costs will be fixed costs, 1 000 units are made or 100 000 units are made. exams unless otherwise stated. Variable Costs These costs will increase when production increases. For example, the cost of raw materials used will be far less if 1 000 units are made compared to if For exam purposes it will be 100 000 units are made. assumed that raw materials, direct labour and selling Flow from the raw material in the store room through the factory to the and distribution costs will finished goods in the show room. activity be variable costs, unless a) Study the following illustration and see the horizontal flow of funds otherwise stated. ACTIVITI and girl- from the storeroom to the factory and then to the show room. right of p b) Now study the illustration vertically. activity i. See how the STORE ROOM is presented in the general ledger as the Raw Material stock account and in Note 1 of the Production Cost Statement. II. See how the FACTORY is presented in the general ledger account Step by step com as Work in Process stock account and as the PRODUCTION COST STATEMENT. III. See how the SHOW ROOM is presented in the general ledger account as the Finished Goods stock account and in Note 4 of the Production Cost Statement. ­ © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 3 m anufacturing 61

3 Chapter Storeroom Factory Show room In the storeroom the raw material and the 1. You have uncompleted stock on hand. 1. You have finished goods on hand consumable stores on hand are kept 2. In the factory the raw materials that 2. Received finished goods from the 1. You have stock on hand you received from the storeroom are factory, 2. You purchase new raw materials- cash taken through the manufacturing 3. You sell goods and the finished goods or credit process. decreased at cost price. (Cost of 3. You transfer raw materials to 3. You have a manager, cleaners and Sales) the factory (called COST OF RAW security- indirect labour MATERIAL ISSUED TO FACTORY) 4. You have employees who are directly involved in the product- direct labour 5. You have overhead cost; rent expense, water and electricity, depreciation, etc. 6. Then you have the completed goods that are transferred out of the factory to the selling and distribution department. This figure is the COST OF PRODUCTION OF FINISHED GOODS ILLUSTRATION OF ABOVE IN THE GENERAL LEDGER ACCOUNTS Raw Material stock account Work in Process stock account Finished goods stock account Balance 1 b/d 10 Creditors CAJ 5 Balance 1  b/d 150 Finished 205 Balance 1 b/d 100 Cost of sales 250 Goods 6 GJ Bank 2  CPJ 20 Work in process 3 40 Raw material GJ 40 Balance  c/d 45 Work in process 205 Balance c/d 55 2  2 Creditors 2 CJ 30 Balance c/d 15 Direct Labour GJ 85 305 305 4  60 60 Factory GJ 35 Balance b/d 55 overheads Balance b/d 15 250 250 Balance b/d 45 Consumable stores on hand account Factory overheads account Cost of Sales account Consumable 3 Creditors  CAJ 3 Consumable 5 Work in 35 Finished Goods 250 stores on stores (used) Process hand GJ Bank CPJ 4 Factory overheads 5 Indirect Labour 3 15 (used) Creditors CJ 5 Consumable stores 4 Water and Elec 5 on hand 12 12 Rent expense 5 Depreciation 5 35 ILLUSTRATION OF ABOVE IN THE FINANCIAL STATEMENTS Note 1 Factory Note 4 Production Cost Statement NOTE :1 Direct materials cost 40 NOTE 4 Opening stock 10 + Direct labour cost 85 Opening stock 100 Plus Purchases (net)(20 + 30 – 5) 45 = Prime/Direct cost 125 Plus Cost of Production of finished 205 Plus carriage on purchases 0 + Factory overhead cost 35 goods Less Closing stock (15) = Total cost of production 160 Minus Closing stock (55) = Raw material issued to factory 40 + Work-in process at the 150 = Cost of sales 250 beginning of the year If you know the ledger accounts, you know the Production Cost Statement – Work-in process at the end of (45) as well! the year = Total cost of production of 205 finished goods The Work in Process Account is the Production Cost Statement © Department of Basic Education 2014 62 chapte r 3 manufacturing  Mind the Gap CAPS Grade 12 Accounting

Chapter 3 Study the following template and see the similarities between the General ledger accounts and the Production Statement. If you understand the flow of the ledger accounts from the raw materials to the finished goods, you will be able to learn the format and understand the Production Statement well. GENERAL LEDGER ACCOUNTS PRODUCTION COST STATEMENT Dr Raw material stock Cr Note 1: Raw material/ Direct material cost Balance b/d 10 20 Creditors contr. CAJ 5 Opening stock 10 Bank CPJ 30 Work in process GJ 40 + Purchases(net) (20 + 30 – 5) 45 Creditors contr CJ Balance c/d 15 + Carriage on purchases – 60 60 + Custom duties – Balance b/d 15 – Closing stock (15) = Stock issued (Direct material cost) 40 Dr Work in process Cr Balance b/d 150 Finished goods GJ 205 PRODUCTION COST STATEMENT Raw material GJ 40 Balance c/d 45 Direct materials cost 40 Direct labour GJ 85 + Direct labour cost 85 Factory GJ 35 = Prime/Direct cost 125 overheads + Factory overhead cost 35 250 250 = Total cost of production 160 Balance b/d 45 + Work-in process at the beginning of the year 150 – Work-in process at the end of the year (45) = Cost of production of finished goods 205 Dr Finished Goods Cr Balance b/d 100 Cost of Sales GJ 250 Note 4: Cost of finished goods(Cost of sales) Work in GJ 205 Balance c/d 55 Opening stock 100 process + Cost of Production of finished goods 205 305 305 Closing stock (55) Balance b/d 55 = Cost of sales 250 Dr Factory overheads Cr Consumable stores 5 Work in process 35 Note 3 Factory overhead costs Indirect labour 15 Consumable stores (3 + 4 + 5 – 3 – 4) 5 Water and elec. 5 Indirect labour 15 Rent expense 5 Water and electricity 5 Depreciation 5 Rent expense 5 35 35 Depreciation 5 Total factory overheads used 35 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 3 m anufacturing 63

PAY SPECIAL ATTENTION NB NB 3 Chapter 3.2 Production Cost HINT! Statement hint e.g. Worked example 1 EG - worked examples Example adapted from November 2010 NSC Exam Paper exams You are provided with information (balances, transactions and adjustments) relating to Fatima Manufacturers owned by Fatima Fala. The business manufactures shoes. This is direct materials cost Required (see definition on page 39). 1. Calculate the value of the raw materials that were issued to the factory for the year ended 28 February 2010. [6] activity 2. Prepare the following notes to the Production Cost Statement for the year ACTIVITIES boy ended 28 February 2010: and girl-left and right of page 2a) Direct labour cost [5] activity 2b) Factory overhead cost [16] 3. Prepare the Production Cost Statement for the year ended 28 February 2010. [12] 4. Using the figures in the Production Cost Statement you have just prepared, calculate the following (show your workings): 4a) Raw materials cost per unit [3] Step by step comment comment 4b) Total cost per unit [3] 5. You are provided with the number of units produced and the break-even point calculated for the past two years: 2010 2009 Break-even point 19 548 units 11 300 units Number of units produced 20 000 units 24 000 units 5a) Briefly explain what the term break-even point means. [2] 5b) Explain whether Fatima should be concerned about the break-even point for 2010. Quote figures to support your answer. [4] Information Fatima Manufacturers 1. OPENING BALANCES ON 1 MARCH 2009: Raw materials stock R160 000 Work-in-process stock 158 000 Finished goods stock 120 000 Consumable stores stock: Factory 6 000 Factory plant and equipment at cost 2 225 000 Accumulated depreciation on factory plant and equipment 450 000 © Department of Basic Education 2014 64 chapte r 3 manufacturing  Mind the Gap CAPS Grade 12 Accounting

Chapter 3 2. SUMMARY OF TRANSACTIONS FOR THE YEAR ENDED 28 FEBRUARY 2010: Purchases of raw materials on credit R1 023 475 Carriage on purchases of raw materials 22 500 Consumable stores purchased for the factory 43 000 Cleaning materials purchased for the office 12 000 Factory plant and equipment purchased on 250 000 1 September 2009 Production wages 723 800 UIF – contribution for factory employees Salaries: Factory foreman 150 000 Administration 400 000 Sales staff 250 000 Water and electricity 163 000 Sundry expenses: Factory 194 680 Administration 530 000 Sales department 340 000 3. CLOSING BALANCES ON 28 FEBRUARY 2010: Raw materials stock R259 125 Work-in-process stock 122 900 Finished goods stock 142 500 Consumable stores stock: factory 7 000 4. ADDITIONAL INFORMATION AND ADJUSTMENTS: a) No entry was made for the transport of raw materials by Pops Carriers to the factory, R3 750. b) No entry was made for the following in respect of the production Direct labour cost wages for the last week of February 2010. The entry was omitted (left out) from the wages journal: Gross wages R6 200 Deductions: Unemployment Insurance Fund 62 PAYE 1 240 The employer contributes 1% to the UIF. c) An amount of R4 200 was still outstanding on the water and electricity account for February 2010. Sixty per cent (60%) of all the water and electricity was used in the factory. d) Depreciation on factory plant and equipment must be brought into account at 10% per annum, according to the diminishing balance method. e) During the year 20 000 pairs of shoes were manufactured. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 3 m anufacturing 65

3 Chapter Answers to worked example 1 (see pages 40–41) 1. Value of raw materials issued: If there are any returns of purchases (creditors Direct Materials Cost allowances), they would be subtracted from purchases. Opening balance of raw material stock R160 000 3 Add: Purchase of raw materials + R1 023 475 3 AL ATTENTION Add: Carriage on purchases of raw materials + R22 500 3 NB Add: Transport of raw materials (adjustment A) + R3 750 3 Only use FACTORY COSTS Less: Closing balance of raw material stock – (R259 125) 3 on the Production Cost Statement. No administration Equals: Raw materials issued to the factory = R950 600 and selling, and distribution costs appear on this [6] statement. 2. NOTES TO THE PRODUCTION COST STATEMENT ed examples 2a Production wages for the DIRECT LABOUR COST R year + gross wage figure in adjustment B. Production wages (723 8003 + 6 2003) 730 000 3 UIF contribution 7 300 As per adjustment B, the UIF contribution is 1% of the 737 300 R730 000 above. [5] Opening balance of ACTIVITIESconsumable boy stores stock and girl-left and 2b + consumable stores right of page purchases – closing balance of FACTORY OVERHEAD COST R consumable stores stock. Salary of foreman 150 000 3 Consumable stores: factory R2 225 000 – R450 000 (6 0003 + 43 0003 − 7 0003) 42 000 = R1 775 000 × 10 % p comment comment = R177 500 Depreciation (177 50033 + 12 50033) 190 000 R250 000 × 10 % × 6/12 = R12 500 Water and Electricity (163 0003 + [4 2003 × 60%]3) 100 320 Sundry expenses: factory 194 680 3 (Total water and electricity PAY SPECIAL ATTENTION 677 000 already paid during the year NB NB + the amount that still has [16] to be paid as per adjustment C) × only the portion used in the factory (60% as per There are a number of costs that may need to be split between factory, HINT! adjustment C). hint administration and selling, and distribution. For example: water and electricity could be split in the ratio 3 : 2 : 1. e.g. EG - worked examples © Department of Basic Education 2014 66 chapte r 3 manufacturing  Mind the Gap CAPS Grade 12 Accounting exams

Chapter 3 3. PRODUCTION COST STATEMENT OF FATIMA MANUFACTURERS PAY SPECIAL ATTENTION FOR THE YEAR ENDED 28 FEBRUARY 2010 NB It is VERY important to know the format of the Production Cost Statement! HINT! TOTAL hint This figure comes from the answer you calculated in part Direct materials cost3 950 600 1 of this question. e.g. EG - worked examples This figure comes from the answer in the direct labour Direct labour cost3 737 300 note in part 2 of this question. exams Direct materials cost + Direct Prime/direct cost 1 687 900 labour cost = Prime costs Factory overhead cost3 This figure comesactivity from the 677 000 answer in the factory overhead ACTIVITI cost note in part 2 of this and girl- right of question. Total cost of production 2 364 900 activity This figure comes from opening balances at the beginning of the financial year. Work-in process at the beginning of the year3 158 0003 Step by step com This figure comes from closing balances at the end of the 2 522 900 financial year. This final figure provides the accountant with the total cost Work-in process at the end of the year3 (122 900)3 of making the 20 000 pairs of shoes during the year (see additional information E). Total cost of production of finished goods 2 400 000 Direct materials costs (see Production Cost Statement) [12] ÷ number of shoes manufactured as per additional information E. 4. a) Raw materials cost per unit R950 600 ÷ 20 0003 units = R47,53  [3] Total cost of production of finished goods (see Production Cost Statement) ÷ number of b) Total cost per unit shoes manufactured as per R2 400 000 ÷ 20 0003 units = R1203  [3] additional information E. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 3 m anufacturing 67

3 Chapter 5. a) It tells you how many items you must make and sell PAY SPECIAL ATTENTION NB before NByou can start making a profit.33  [2] b) Explanation: Yes,3 she should be concerned as units produced are close3 Do not be afraid to give your to BEP; or Yes, as the BEP has increased significantly from the own opinion when answering this type of question. HINT! previous year; or No, she is still exceeding the BEP. hint Note that there are various Quoting of figures: possible answers that could Compare 20 0003 units produced to BEP3 of 19 548 or be accepted. BEP is 97,7% of total units; or Compare BEP 19 548 to e.g. EG - worked examples 11 300 of the previous year; or Compare units of 20 000 to 24 000 of the previous year – affects BEP  [4] exams PAY SPECIAL ATTENTION NB NB Learn this! Formula to calculate break-even point (BEP): Total fixed costs Selling price per unit – Variable cost per unit activity HINT! hint ACTIVITIES boy and girl-left and right of page activity e.g. EG - worked examples exams Step by step comment comment activity ACTIVITIES boy and girl-left and right of page activity Step by step comment comment © Department of Basic Education 2014 68 chapte r 3 manufacturing  Mind the Gap CAPS Grade 12 Accounting

Chapter 3 Practice task 1 Photocopy this blank Production 1. Production Cost Statement calculations: Cost Statement and use it to practise doing the worked Opening balance of raw material stock example 1 again on your own. Once you have completed the task, compare your answer Add: Purchase of raw materials + to the worked example on the previous pages. Add: Carriage on purchases of raw materials + Add: Transport of raw materials + Less: Closing balance of raw material stock – Equals: Raw materials issued to the factory = [6] 2. NOTES TO THE PRODUCTION COST STATEMENT DIRECT LABOUR COST R [5] FACTORY OVERHEAD COST R [16] © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 3 m anufacturing 69

3 Chapter 3. PRODUCTION COST STATEMENT OF FATIMA MANUFACTURERS Re-do FOR THE YEAR ENDED 28 FEBRUARY 2010 questions 4 and 5 on paper, for added TOTAL practice. Primed/direct cost Total cost of production Total cost of production of finished goods [12] Below is a list of suggested past examination questions for extra practice: Topic Paper Question Costing calculations and November 2008 3 Production Cost Statement Production Cost Statement November 2009 3 Costing calculations February/March 2010 4 Multiple choice November 2010 3.1 Costing calculations and February/March 2012 2 concepts Production Cost Statement November 2013 2.1 Break even point November 2013 2.3 Keep going! © Department of Basic Education 2014 70 chapte r 3 manufacturing  Mind the Gap CAPS Grade 12 Accounting

Chapter 4 Budgets Budgeting is an important tool for internal control in any business. Budgets are prepared to forecast what will happen in the future. 4.1 Key concepts Concept Explanation Purpose Cash budget A forecast of cash receipts and cash To forecast future receipts and payments. payments. Projected Income Statement A forecast of income and expenses. To forecast future profits or losses. Debtors’ collection schedule A schedule (plan) of how the business will To forecast receipts from debtors. collect money from its debtors. Creditors’ payment schedule A schedule (plan) of how the business will To forecast payments to creditors. pay its creditors. Sales a) A business’ main source of income is sales. These can be for cash or on credit. b) Cash sales are received immediately and will be entered as a receipt on the cash budget in the month of sale. c) The money from credit sales will be collected from debtors in the future. d) The cash and credit sales may need to be calculated from the given information. Use mobile notes to help you learn these key budget concepts. See page ix for more informaiton. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 4 budgets 71

4 Chapter ACTUAL SALES: 4.2 Debtors’ collection These are sales that have taken place in the months before the budget period. schedule A portion of the credit sales may Use the following steps when preparing a debtors’ collection schedule: PAY SPECIAL ATTENTION be collected in the budget period. NB 1. Calculate and enter the credit sales. NB BUDGETED SALES: 2. Take each month and insert the percentage that will be received in These are the estimated that month. sales for the budget period. 3. Do the calculations using credit sales to work out the amount to be received from HINT! debtors. hint 4. Total the columns for each month. e.g. Worked example 1 EG - worked examples Prepare the debtors’ collection schedule for July, August and September 2011 from the information exams below: 1. 60% of total sales are for cash. 2. Debtors are expected to pay as follows: • 50% in the same month as the credit sale transactions subject to a 10% discount • 30% in the month following the credit sales transaction month activity • 17% in the second month following the credit sale transaction month This 3% is written off as a • 3% is expected to be written offACTIVITIES boy and girl-left and bad debt and will not form 3. Total sales: right of page part of the debtors’ collection • Actual schedule as no cash will be activity –– June 2011 R160 000 received from bad debts. • Budgeted –– July 2011 R150 000 –– August 2011 R180 000 Step by step comment comment –– September 2011 R200 000 © Department of Basic Education 2014 72 chapte r 4 budgets  Mind the Gap CAPS Grade 12 Accounting

Chapter 4 Answer to worked example 1 (see page 64) Although June is not in the budget period, some of June’s credit sales will be collected in July and August. Credit sales July August September June 2011 R64 000 30% 19 200 17% 10 880 July 2011 R60 000 50% − 10% 27 000 30% 18 000 17% 10 200 Aug 2011 R72 000 50% − 10% 32 400 30% 21 600 Sep 2011 R80 000 50% − 10% 36 000 R46 200 R61 280 R67 800 First calculate 50% of the credit sales and then subtract the 10% discount from this figure [50% − 10% is not 40%]. Explanations Step 1 Step 2 Step 3 Calculate and enter credit sales. Insert % to be collected in Do the calculations to work out the amount Cash sales = 60% each month. of credit sales collected in each month. Credit sales = 40% June: R160 000 × 40% = See answer above. June credit sales: No calculation as they R64 000 are not part of this collection period July: R150 000 × 40% = R60 000 July: R64 000 × 30% = R19 200 August: R180 000 × 40% = August: R64 000 × 17% = R10 880 R72 000 July credit sales: Sept: R200 000 × 40% = July: R60 000 × 50% = R30 000 R80 000 R30 000 − 10% = R27 000 August: R60 000 × 30% = R18 000 Sept: R60 000 × 17% = R10 200 August credit sales: August: R72 000 × 50% = R36 000 R36 000 − 10% = R32 400 Sept: R72 000 × 30% = R21 600 September credit sales: Sept: R80 000 × 50% = R40 000 R40 000 − 10% = R36 000 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 4 budgets 73

4 Chapter 4.3 Creditors’ payment schedule (creditors’ budget) The following must be considered when the Creditors’ budget is calculated: • when and how much stock is purchased on credit and • When is the payment due? This forms part of the second step in the preparation of the main budget. This info has a twofold ILLUSTRATIVE ACTIVITY: understanding: REQUIRED: • That the stock balance at the beginning of the month Calculate the expected payments to creditors for credit purchases for the will be the same, every budged period January to March 2014. month, and • That total purchases are equal to Cost PAYof SalesATTENTION SPECIAL when NBpurchases are not given. NB The Opening stock balance will be maintained as the stock basis. That means that the purchasing INFORMATION: HINT! on credit during December will • Creditors are paid in full in the month following purchases hint be paid at the end of January. ACTUAL CASH purchases of trading stock November 2013 R10 000 e.g. EG - worked examples December 2014 R12 000 BUDGETED CASH purchases of trading January 2014 R10 000 stock exams February 2014 R13 000 March 2014 R14 500 ACTUAL CREDIT purchases of trading November 2013 R14 000 activity stock ACTIVITIES boy December 2013 R12 000 and girl-left and right of page BUDGETED CREDIT purchases of trading January 2014 R10 000 activity stock February 2014 R12 000 March 2014 R13 000 Step by step comment comment © Department of Basic Education 2014 74 chapte r 4 budgets  Mind the Gap CAPS Grade 12 Accounting

Chapter 4 The following template is the interpretation of the instruction that the Creditors will be paid in full the following month: 1 NOV 14 000 This amount will be paid at the end of December, however this amount is not part of the budget month 2 DEC 12 000 R12 000 will be paid at the end January and forms part of the budget months 3 JAN 10 000 R10 000 will be paid at the end of January and February forms part of the budget months 4 FEB 12 000 R12 000 will be paid at the end of February and March forms part of the budget months 5 MAR 13 000 This amount will be paid at the end of April and does not form part of the budget months SOLUTION: CREDITORS PAYMENTS SCHEDULE: Budgeted period: Jan – Mar 2014 CREDIT BUDGETED PERIOD MONTH PURCHASES NOV DEC JAN FEB MAR 1 NOV 14 000 2 DEC 12 000 12 000 3 JAN 10 000 10 000 4 FEB 12 000 12 000 5 MAR 13 000 Payments to creditors * 12 000 * 10 000 * 12 000 PAY SPECIAL ATTENTION * Creditors are paid in full in the month following purchases NB EXTRACT OF THE CASH BUDGET: Whenever the credit CASH PAYMENTS: purchases are not given, calculate the cost of sales HINT! CASH PAYMENTS JANUARY FEBRUARY MARCH hint from the given total sales (R6000) Cash Purchases 10 000 13 000 14 500 E.g. Cost of Sales = 50 % Payments to Creditors 12 000 10 000 12 000 on cost e.g. Calculation: EG - worked examples Sales × 100/150 = Cost of sales (Purchases) Example of creditor’s payment schedule: exams 6000 × 100/150 = REQUIRED: Prepare a Purchases Payment Schedule of KIMA TRADERS for January 2014 to March 2014. INFORMATION: SALES FORECAST: BALANCES AT 31 DECEMBER 2013 activity January R126 000 Trading Stock R75 000 ACTIVITI and girl- February R130 000 Creditors R60 000 right of p March R144 000 activity © Department of Basic Education 2014 Step by step com Mind the Gap CAPS Grade 12 Accounting chapter 4 budgets 75

4 Chapter ADDITIONAL INFORMATION: 1. Mark-up is equal to 100% on Cost price 2. Cash purchases of trading stock amount to only 20% of all purchases 3. All credit purchases are payable in the month following the month of Purchase. 4. Stock replenishment will take place on a monthly basis and the opening balance will be maintained as a base stock. PROCEDURE TO FOLLOW: 1. Determine the budget months: Answer: January to March 2014. 2. Does the question give you the purchases of stock? Answer: No, therefore Cost of sales is equal to purchases of stock. EXPLANATIONS: You need to make use of the 1 Mark-up is equal to The purchases of stock is not given therefore Sales figures to 100% on Cost price. you have to calculate the cost of sales amount calculate the cost Formula: to determine the purchases of stock: of sales per January: Creditors’ balance will be paid in Cost price: 100% month January: R60 000. (the balance was the credit + Profit: 100% purchases during December) =Sales: 200% February: Make use of the sales figure of January to calculate the cost of sales that is equal to purchases: 126 000 × 100/200 = R63 000 (Cost of sales) March: Make use of the sales figure of February to calculate the cost of sales: 130 000 × 100/200 = R 65 000 (Cost of sales) Cash purchases for March: Make use of the March sales figure to calculate the cost of sales. Need this figure to determine the cash purchases for March: 144 000 × 100/200 = R72 000(cost of sales) 2 Cash purchases of January: 63 000 × 20%= R12 600 cash trading stock amount purchases in January to only 20 % of all (63 000 × 80%= R50 400 payment purchases. Therefore of account in February) credit purchase is 80% February: 65 000 × 20%= R13 000 cash of all purchases purchases for February 65 000 × 80% = R52 000 payment of account in March March: 72 000 × 20% = R14 000 cash purchases for March 3 All credit purchases are This means that the creditors will be paid the payable in the month next month. Anything bought during January will following the month of be paid at the end of February. Purchase. 4 Stock replenishment This means that the opening stock will stay the will take place on a same every month. monthly basis and the See the illustration below opening balance will be maintained as a base stock. © Department of Basic Education 2014 76 chapte r 4 budgets  Mind the Gap CAPS Grade 12 Accounting

Chapter 4 ILLUSTRATION: CALCULATION OF THE PURCHASES AMOUNT OF STOCK. “STOCK REPLENISHMENT WILL TAKE PLACE ON A MONTHLY BASIS AND THE OPENING BALANCE WILL BE MAINTAINED AS A BASE STOCK.” Here is an illustration what it means: • If the opening balance is the same at every given month, then the Cost of sales will automatically be equal to the total purchases. • So, when the stock purchased is not given, calculate cost of sales. • Cost of Sales is equal to total purchases. • Find the ratio between credit (eg. 80%) and cash purchases (eg. 20%) and calculate • Complete the Creditors Payment schedule GENERAL LEDGER OF KIMA TRADERS DR TRADING STOCK ACCOUNT N CR Jan 1 Balance B/d 75 000 Jan 31 (126 000 × 100/200) 63 000 Cost of sales Bank (63 000 × 20%) 12 600 Balance C/d 75 000 63 000 × 80% 50 400 Creditors control 138 000 138 000 Feb 1 Balance B/d 75 000 Feb 28 (130 000 × 100/200) 65 000 Cost of sales Bank (65 000 × 20%) 13 000 Balance C/d 75 000 Creditors control (80%) 52 000 Mar 1 Balance B/d 75 000 Mar 31 (144 000 × 100/200) Cost of sales 72 000 Bank (72 000 × 20%) 14 400 Balance C/d 75 000 Creditors control (80%) 57 600 Apr 1 Balance B/d 75 000 SOLUTION: CREDITORS PAYMENTS SCHEDULE: Budgeted period: January to March 2014 MONTH PURCHASES CREDIT BUDGETED PERIOD PURCHASES NOV DEC JAN FEB MARCH Balance of creditors 60 000 JAN 63 000 50 400 50 400 FEB 65 000 52 000 52 000 MAR 72 000 57 600 Payments to creditors 60 000 50 400 52 000 EXTRACT OF THE CASH BUDGET: CASH PAYMENTS: CASH PAYMENTS JANUARY FEBRUARY MARCH Cash Purchases 12 600 13 000 14 400 Payments to Creditors 60 000 50 400 52 000 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 4 budgets 77

4 Chapter HINT! Depreciation and bad debts will be 4.4 hintAnalysis of cash budget included in the projected income statement but NOT on the cash budget because they are non-cash items (i.e. they e.g. Worked example 2 EG - worked examples do not affect the cash flow of the business). Example adapted from March 2010 NSC question paper – see FEB/MARCH 2010 Paper 1 at: exams http://www.education.gov.za/Examinations/PastExamPapers/AccountingPapers2010/ tabid/507/Default.aspx You are provided with the Projected Income Statement and additional information relating to Helen’s Hair Stylists for the period April to June 2010. The business is owned by Helen Davids. Helen has also prepared a cash budget for the same time period. The financial year-end is 31 March. activity Required ACTIVITIES boy and girl-left and Answer the questions that follow. right of page Information activity Helen’s hair stylists Projected Income Statement for April to June 2010 APRIL MAY JUNE R R R Step by step comment comment Sales of hair products 87 500 105 000 122 500 Cost of sales 50 000 60 000 70 000 Gross profit 37 500 45 000 52 500 Other operating income 122 000 122 000 162 000 Fee income from customers 120 000 120 000 160 000 Sundry income 2 000 2 000 2 000 OPERATING EXPENSES 95 350 120 072 127 372 Salary of hairdressing assistants 25 500 25 500 34 000 Wages of cleaner 3 400 3 672 3 672 Rent of premises 24 600 30 750 30 750 Consumable stores 14 400 14 400 19 200 Water & electricity 6 000 6 000 7 000 Telephone 2 200 2 200 2 200 Advertising 8 000 15 000 8 000 Motor vehicle expenses 1 400 5 600 5 600 Repairs & maintenance of equipment 3 500 3 500 3 500 Sundry expenses 2 300 2 300 2 300 Depreciation on vehicle 2 000 9 100 9 100 Depreciation on equipment 2 050 2 050 2 050 OPERATING PROFIT 64 150 46 928 87 128 Interest income 3 315 0 0 67 465 46 928 87 128 Interest on loan 750 625 500 NET PROFIT 66 715 46 303 86 628 © Department of Basic Education 2014 78 chapte r 4 budgets  Mind the Gap CAPS Grade 12 Accounting

Chapter 4 Additional information 1. Line of business: Helen gave up her job to start this business in 2004. She invested her life savings of R800 000 in this business. The business styles hair for its customers. They also sell hair products to the public. 2. Employees: Helen employs three hair stylists. She has planned to expand the business by employing a fourth stylist from 1 June 2010. She also employs a cleaner. 3. Business premises rented: The rent is calculated on a fixed amount per square metre. She currently rents 60 square metres, but will increase this floor space as from 1 May 2010 due to expansion. 4. Fixed deposit: The fixed deposit of R468 000 is for 12 months and will mature on the 30 April 2010. Questions Refer to the Projected Income Statement to identify/calculate the following: 1. The monthly salary paid to each hair stylist. (2) 2. The % increase in wages that the cleaner will receive during the projected period. (2) 3. The % interest rate on the fixed deposit. (4) 4. The rental per square metre, and the number of additional square metres she will rent from 1 May 2010. (4) 5. As the internal auditor you compare the following projected figures to the actual figures at the end of April. Provide four comments that you would include in your internal auditor’s report in respect of scenarios A, B and C below. Projected April Actual April 2010 2010 A Telephone 2 200 4 150 B Water & electricity 6 000 4 900 C Fee income 120 000 136 800 Consumable stores 14 400 15 120 Answers to worked example 2 (see page 78) 1. Calculation of monthly salary paid to each hair stylist: [2] R25 500 ÷ 3 = R8 50033 or R34 000 ÷ 4 = R8 500 Explanation to help you understand how to get to the answer above: • There are 3 hairstylists in April and May and 4 hairstylists in June. • Therefore divide salary (April or May) by 3 hairstylists (R25 500 ÷ 3 = R8 500) • OR Divide salary (June) by 4 hairstylists (R34 000 ÷ 4 = R8 500) © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 4 budgets 79

4 Chapter 2. Calculation of the % increase in wages that the cleaner will receive during the projected period: [2] 272 ÷ 3 400 × 100 = 8%33 Explanation to help you understand how to get to the answer above: • Calculate the increase in wages by deducting the wage of May from wage of April (R3 672 – R3 400 = R272) • Calculate the % increase (R272 ÷ R3 400 × 100 = 8%) 3. Calculation of % interest rate on the fixed deposit: [4] 3 3153 ÷ 468 0003 × 12 months3 × 100 = 8,5%3 OR 3 315 × 12 months = R39 780 39 780 × 100 = 8,5% 468 000 Explanation to help you understand how to get to the answer above: Interest on fixed deposit = R3 315 (interest income in Projected Income Statement) Fixed deposit = R468 000 (see information no. 4) 3 315 × 100 × 12 (months) 468 000 1 For internal control purposes it = 8,5% is important to compare actual with budgeted 4. Calculation of rental per square metre: [2] figures. In this way 24 600 ÷ 60 = R410 33 possible problems relating to expenses or income can be corrected. Explanation to help you understand how to get to the answer above: Rent expense for April = R24 600 (see Projected Income Statement) R24 600 is the amount paid for 60 square metres. To calculate rental per square metre you have to divide the total rent by 60 R24 600 ÷ 60 = R410 Calculation of the number of additional square metres she will rent from 1 May 2010: [2] 30 750 ÷ 410 = 75 sq metres or 60 × 30 750 ÷ 24 600 = 75 sq metres Increase = 75 – 60 = 15 sq metres 33 Explanation to help you understand how to get to the answer above: Rent expense for May = R30 750 (see Projected Income Statement) R30 750 ÷ R410 = 75 square metres 75 – 60 (original square metres) = 15 additional square metres © Department of Basic Education 2014 80 chapte r 4 budgets  Mind the Gap CAPS Grade 12 Accounting

Chapter 4 Re-do 5. Provide four comments that you would include in your internal questions 1–5 auditor’s report in respect of scenarios A, B and C above. [8] on paper, for extra practice. A Comment on telephone: The telephone costs are higher than the expected amount by R1 950. 33 B Comment on water & electricity: The water & electricity costs are R1 100 less than the expected amount. 33 C Comment on fee income & consumable stores: There was a good increase3 in fee income of R16 800 3 (R136 800 – R120 000) which shows that the business is popular with its customers. The consumable stores (e.g. shampoos, conditioners) increased slightly by R720 (R15 120 – R14 400) because the business had more customers.33 PAY SPECIAL ATTENTION NB When commenting on actual figures use the following steps: 1. Compare actual with budgeted figures and state whether the actual You will get HINT!a mark for figure is more or less than the budgeted figure. hint steps 1 and 2. These are easy marks. 2. Decide and state whether the expense or income item has been well controlled or not (within budget or not). e.g. EG - worked examples Below is a list of suggested past examination questions for extra practice: exams Topic Paper Question Projected Income Statement February/March 2009 3 Projected Income Statement February/March 2010 6 Cash Budget February/March 2011 1 Cash Budget February/March 2012 5 activity ACTIVITIES boy Cash Budget November 2013 5.2 and girl-left and right of page activity Step by step comment Keep going! © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 4 budgets 81

5 Chapter Reconciliations Reconciliation is a form of internal control where two sets of information are compared and, when there are differences, these are corrected or explained. Bank reconciliation Debtors’ reconciliation Creditors’ reconciliation The balance in the bank The balance of the The balance of the account in the business’ debtors’ control account creditors’ control general ledger should be should be the same as account should be the the same as the balance the total of the debtors same as the total of on the bank statement list. When these are not the creditors’ list. The received from the bank. the same, they need to statements received When these are not the be reconciled. from the creditors must same, they need to be match each creditors reconciled. balance in the business’ books. When these are not the same, they need to be reconciled. Use mobile notes to help you learn these reconciliation concepts. See page ix for more information. © Department of Basic Education 2014 82 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 5 5.1 Bank reconciliation A summary of all possible DIFFERENCES between the CRJ/CPJ and the Bank Statement. Make sure that you know how to record all the different transactions before attempting to answer the Grade 12 CAPS Reconciliation questions. 1. Bank Charges and interest CPJ – May 2014 charged on the Bank BS ABSA Bank 60 60 Bank charges Statement– (10 + 20 + 30) BS ABSA Bank 40 40 Interest on overdraft The ABSA Bank charged the following: Tax levy R10 Service fees R20 Cash deposit fee R30 Interest R40 2. Interest earned/received on the CRJ – May 2014 Bank Statement BS ABSA Bank 50 50 Interest on current account The bank statement showed interest received on current account, R50 3. Direct deposit on the Bank CRJ – May 2014 Statement BS E Baloyi 800 800 Rent Income E.g. A tenant, E Baloyi, paid his rent directly into the bank account, R800. 4. Stop orders/Debit orders on the CPJ – May 2014 Bank Statement BS Santam 367 367 Insurance The bank statement showed a stop order, R367, in favour of Santam for a payment on an insurance premium. 5. Cheques issued in CPJ but not Bank Reconciliation statement – May 2014 presented for payment Debit Credit Debit outstanding cheques: The following cheques do not appear on the bank statement no. 67, R200 67 200 and no. 69, R300. 69 300 6. Deposits in CRJ but do not Bank Reconciliation statement – May 2014 appear on Bank Statement Debit Credit Credit late deposit 9 000 The deposit made on the last day of month does not appear on the bank statement, R9000 7. CHEQUES DISHONOURED – CPJ – May 2014 insufficient funds DS P Pillay (RD cheque) 170 170 Debtors control Unpaid cheque, R170 – this cheque was received from P Pillay in settlement of his account of R183 and deposited on 24 May 2002. It was dishonoured because of insufficient funds © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 83

5 Chapter 8. POST-DATED CHEQUES: received CPJ – May 2014 – May 2014 and deposited BS B Bud (RD cheque) 157 157 Rent Income Unpaid cheque, R157 – this cheque was received from a tenant, B Bud and deposited inadvertently on 21 May 2014 It was dishonoured because it was dated 21 July 2014 9. POST-DATED CHEQUES: Issued Bank Reconciliation statement – May 2014 Debit Credit Entry in the CPJ which did not appear on the Bank Statement: Debit outstanding cheques: 303 (25 July 2014) 6 000 The business issued a post-dated cheque no. 303 to a Factory to secure the popular stock to be delivered, R6 000, dated 25 July. 10. STALE CHEQUE: Cheque issued, CRJ – May 2014 (cheque is older than 6 months) Entry on Bank Reconciliation statement on 30 April 2014 120 Shezi Stat (Cancel stale cheque) 100 100 Stationery which did not appear on the Bank Statement: May 2014 Cheque no 120 was issued to Shezi Stat on 20 November 2013 for Stationery, R100. 11. STALE CHEQUE: Received and CPJ – May 2014 dishonoured Entry on Bank Statement which did not appear in CRJ or CPJ: DS J Nel (RD cheque) 160 160 Debtors control Unpaid cheque, R160 – this cheque was received from a debtor, J. Nel and deposited inadvertently on 25 May 2014. It was dishonoured because it was dated 25 May 2013 12. LOST CHEQUE: issued CRJ – May 2014 (a) cancel lost cheque (Only issue new cheque if 255 PNA (Cancel lost cheque) 500 500 Printing instructed to do so →) a. cancel lost cheque in CRJ CPJ – May 2014 (b) Issue a new cheque b. issue new cheque in CPJ 365 PNA 500 500 Printing c. record new cheque as “debit outstanding cheque” in the Bank Reconciliation Statement Bank Reconciliation Statement – May 2014 (c) Record the new cheque as outstanding Cheque no. 255, R500 was lost by PNA and they asked for a new Debit Credit cheque. Cheque no 255 to be Debit outstanding cheques 500 cancelled and replaced by cheque 365. The cheque was a payment for Printing made © Department of Basic Education 2014 84 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 5 ERRORS MADE BY BUSINESS IN THE CPJ – May 2014 CRJ AND CPJ 453 Makro (understated, 654-545) 18 18 Trading stock 13. ERRORS IN CRJ/ or CPJ : Amount less than it should be → Cheque no 253 on Bank Statement showed and amount of R664, while the amount in the CPJ was R646. It was a payment to Makro for goods. 14. ERRORS IN CRJ/ or CPJ : CRJ – May 2014 Amount more than it should be 244 Investec (overstated,258 - 250) 8 8 Rent Expense → Cheque no 244 on Bank Statement showed and amount of R250, while the amount in the CPJ was R258. It was a payment to Investec for rent. ERRORS MADE BY BANK ON BANK Bank reconciliation statement – May 2014 STATEMENT Dr. Cr. 15. Cheque drawn by other client Credit cheque no. 2230 wrongly debited 1500 and erroneously debited to our bank account. Cheque no.2 230, R1500, on the Bank Statement was a cheque drawn by another client, ZITHA Stores, debited to our account. 16. Deposit wrongly credited to our Bank reconciliation statement – May 2014 bank account Dr. Cr. The deposit on the 15 May 2014, R2000, showed on the Bank Debit deposit wrongly credited 2 000 Statement was a deposit made by the owner into his own bank account and the Bank has erroneously recorded the deposit in his business’ Bank account Format of the Bank Reconciliation statement C BANK RECONCILIATION STATEMENT ON 31 March 2012 DEBIT CREDIT Always start with the balance of the Bank Statement and end Credit balance as per Bank Statement 8 000 with the calculated balance of Credit deposit not credited by bank 3 000 the Bank account Debit outstanding cheques: 124 4 000 170 1 000 Debit deposit wrongly credited 1 500 (errors made by Bank) Credit cheque wrongly debited 500 Debit balance as per Bank account 5 000 The debit and credit totals of the Bank Reconciliation 11 500 11 500 statement must be equal e.g. R11 500 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 85

5 Chapter 5.2 Debtors’ reconciliation These are the steps the bookkeeper will need to follow to correct differences between the debtors’ control account and debtors’ list: a) Check entries in the journals against the source documents. b) Check casting (totalling) of journals. c) Check posting from journals to general and debtors ledgers. A. Procedure to follow when the balance of the debtors control account and the debtor’s account do not correlate. 1. The ENTRY in the journal will be posted on a daily basis to the debtors ledger and the TOTAL at the bottom of the journal will be posted at the end of the month to the control account 2. When the balance in the Debtors control account does not correlate with the total of the Debtors list, you need to establish where the error is. Is the error in the control account or in the list of debtors? 3. Is the error in the original ENTRY or is it in the TOTAL of the Journal? If the ENTRY is incorrect the TOTAL will also be wrong, so the control account and the list must be corrected. 4. Study the following examples. The following rules will assist you when you compare the Debtors Control account with the list of Debtors. The list of debtors is made up by the balances of the debtors from the Debtors Ledger. 4.1 Example: The ENTRY is posted daily to the Debtors ledger (Debtor’s list) and the TOTAL is posted to the control account at the end of the month. Debtors ledger Journal Name of debtor Dr Cr B/d Name entry total Dr. Debtors Control Cr. The ENTRY goes to the debtors 4.2 Example: Sold goods to Monki for R10 and issued an invoice. ledger or/to the List of Debtors Debtors ledger Debtors Journal Name of debtor Dr Cr B/d Monki 10 Invoice 10 10 Dr. Debtors Control Cr. The TOTAL of the Debtors Sales Dj 10 Journal is posted to the Control account at the end of the 5. The following are some of the types of errors and omissions that month. could arise: –– Errors on source documents –– Recording errors in Subsidiary Journals –– Incorrect posting from the Journals to the General ledger and Debtors- or Creditors ledger. –– Incorrect additions in the lists of debtors and creditors. –– Incorrect addition of Journal totals – too much (overcast) – too little (undercast) © Department of Basic Education 2014 86 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 5 Basic rule: Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry Entry 50 Invoice 50 60 Total GENERAL LEDGER: 110 Dr. Debtors Control (A) Cr. total Sales 110 BASIC RULES: 1. The individual entry goes to the debtor’s account in the Debtors Ledger. 2. The Total of the journal will be posted to the Debtors Control account. • The entry goes to the Debtors Ledger on a daily basis. • The Total is posted to the Debtors Control account at the end of the month. 3. When reading the transaction, you need to establish where the error occurred. –– If the error is the entry, then the total will automatically be incorrect as well. Then the Debtors list and the Debtors Control must be corrected. E.g. The entry in the DJ was incorrectly recorded as R56 instead of R50. Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry Entry 56 X Invoice 56 X –6 60 Total GENERAL LEDGER: 116 X Dr. Debtors Control (A) Cr. total Sales 116 X (116 – 6) –– If the Total was incorrectly added, then there is no error in the entry and the error will be only corrected in the Debtors control account. E.g. The total of the DJ was incorrectly totaled as R100 instead of R110. Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry Entry 50 Invoice 50 60 Total GENERAL LEDGER: 100 X Dr. Debtors Control (A) Cr. total Sales 100 X (100 + 10) © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 87

5 Chapter –– If the entry is correct then the Total will also be correct. So you need to establish where the error is. The error will be in the posting to the ledgers. –– If the entry was not posted to the Debtor ledger, then the entry will be recorded. E.g. The amount of R50 in the DJ was not posted to the debtor’s account. Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry Entry 50 –X 60 50 Total Dr. Debtors Control (A) Cr. 110 Sales total 110 –– If the entry was recorded but the amount was wrongly recorded. UNDER CAST: E.g. The amount of R50 in the DJ was posted to the debtor’s account as R30. (therefore the account was undercasted by R50 + R30 = R20) Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry Entry 50 30 X 60 + 20 Total Dr. Debtors Control (A) Cr. 110 Sales total 110 –– If the entry was recorded but the amount was wrongly recorded. OVER CAST: E.g. The amount was R50 in the DJ was posted to the debtor’s account as R59. (therefore the account was over casted by R59 – R50 = R9) Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry Entry 50 59 X –9 60 Total Dr. Debtors Control (A) Cr. 110 Sales total 110 –– If the entry was posted but to the wrong side of the account. The entry was recorded on the credit side instead of the debit side therefore the entry will be recorded on the debit side twice – cancel the wrong entry on the credit side and once more to have the entry on the correct side. © Department of Basic Education 2014 88 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 5 E.g.: The amount of R50 in the DJ was posted to the debtor’s account in the Debtors Ledger however the entry was recorded on the credit side of the account (or the wording can read; the R50 was recorded on the credit side.) Debtors Ledger (Debtors List) Debtors Journal Dr Cr Balance Entry PAY SPECIAL ATTENTION Entry NB NB 50 50 + 50 X 60 50 Total Dr. Debtors Control (A) Cr. 110 HINT! Sales total hint 110 e.g. Worked example 1EG - worked examples Example adapted from March 2012 NSC question paper. exams Crystal Traders sells glassware for cash and on credit. Required Study the information provided and answer the questions that follow. 1. Calculate the correct closing balance of the debtors’ control account on 31 March 2011. [5] 2. Calculate the correct amounts owing by the following debtors of Crystal Traders: activity a) R Jansen b) S Wonder ACTIVITIES boy and girl-left and c) P Collins right of page [12] activity Information Can you see that the Debtors’ 1. Balance of debtors’ control account on 31 March 2011 is R200 000 control account and the 2. Balances per Debtors’ Ledger on 31 March 2011: Debtors’ Ledger are not the M Carey R64 500 same? R Jansen Step by step comment comment R41 200 S Wonder R23 000 C Dion R51 500 P Collins R7 900 TOTAL R188 100 3. The following errors and omissions were discovered and must be corrected: A. The debtors’ journal has been overcast by R2 600. Overcast means that the journal has been added up B. An invoice issued to S Wonder for R1 800 had not yet been recorded in the incorrectly and the amount is books of Crystal Traders. too big. C. Stock sold on credit to P Collins was incorrectly charged to the account of R Jansen, R8 300. Undercast means that the journal has been added up D. An invoice issued to P Collins for R6 000 had been posted to the wrong side of incorrectly and the amount is his account. too small. E. A cheque of R13 500, originally received from R Jansen in settlement of an invoice of R15 000, was returned by the bank due to insufficient funds. No entries have yet been made. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 89

5 Chapter F. Goods sold on credit to S Wonder for R5 800 were correctly recorded in the debtors’ journal but incorrectly posted as R8 500 to S Wonder’s account in the Debtors’ Ledger. Answers to worked example 1 (see page 89) 1. Calculate the correct closing balance of the debtors’ control account on 31 March 2011. 200 0003 – 2 6003 (A) + 1 8003 (B) + 15 0003 (E) = 214 200  [5] 2. Calculate the correct amounts owing by the following debtors of Crystal Traders: Workings Answer R Jansen R41 200 + 15 00033 (E) – 8 3003 (C) = R47 900 3 S Wonder R23 000 + R1 8003 (B) – 2 70033 (F) = R22 1003 P Collins R7 900 + 12 00033 (D) + 8 3003 (C) = R28 200 3  [12] 3. ERROR Explanation A The debtors’ journal has been The debtors’ control balance is R2 600 too much. overcast by R2 600. This must be deducted from the debtors’ control balance. B An invoice issued to S Wonder This was not recorded so it needs to be entered in the debtors’ control for R1 800 had not yet been account and in the account of S Wonder on the debtors’ list. recorded in the books of Crystal Debtors’ control (+R1 800) Traders. S Wonder (+R1 800) C Stock sold on credit to P Collins This must be removed from R Jansen and added to P Collins on the debtors’ was incorrectly charged to the list. account of R Jansen, R8 300. R Jansen (−R8 300) P Collins (+R8 300) D An invoice issued to P Collins for Correct it on P Collins’ account in the debtors’ list. R6 000 had been posted to the It should have been entered on the debit side but was entered on the credit wrong side of his account. side. Cancel the credit of R6 000 by debiting (+R6 000) Record the correct entry on debit side (+R6 000) E A cheque of R13 500, originally No entries were made. received from R Jansen in This needs to be recorded in the debtors’ control account and in the settlement of an invoice of account of R Jansen in the debtors’ list. R15 000, was returned by the Debtors’ control (+R13 500) → bank amount bank due to insufficient funds. No entries have yet been made. Debtors’ control (+R1 500) → discount cancelled R Jansen (+R15 000) F Goods sold on credit to S Wonder Debtors’ control account is correct. for R5 800 were correctly S Wonder’s account is incorrect and must be corrected. recorded in the debtors’ journal It was entered in the Debtors’ Ledger as R8 500 instead of R5 800. Too but incorrectly posted as R8 500 much was posted to the debit side of S Wonder’s account in the Debtors’ to S Wonder’s account in the Ledger. The difference of R2 700 must be credited (subtracted) from Debtors’ Ledger. S Wonder’s account. © Department of Basic Education 2014 90 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 5 5.3 Debtors’ age analysis Introduction Any business must keep a careful control of all the accounts in the Debtors Ledger. The debtor’s credit controller has the responsibility to monitor a debtor’s credit rating before extending any credit to the debtor. The debtor’s clerk’s responsibility includes that no debtors exceed their credit limit and that payments are regularly received according to their agreement with them. Before any order can be despatched to a debtor, the debtor’s clerk must first approve of the credit sale. The debtor’s clerk must verify the balance of the debtor’s account and the agreed credit limit allowed for that debtor. A credit note is subtracted Debtor’s Age analysis is used where the debtor’s ledger account is broken from the most recent invoice down into time periods so that it is clear how long an amount has been issued because goods usually outstanding. can be returned within a certain number of days, e.g. When calculating age analysis there are TWO RULES to apply: 7 days. • Returns are subtracted from the latest sale. • Payments are subtracted from the oldest outstanding balance. A receipt will be issued for Reasons for debtors age analysis the payment and for discount • To ensure that Debtors honour the agreement of e.g. 30 days. allowed. This amount will be • To charge interest on overdue balances according to the agreement. subtracted from the oldest • To take legal action if the account is not settled within a certain amount owed by the debtor. period, e.g. more than 90 days. • To minimise debts to be written off. • To ensure liquidity in the business and a proper cash flow. • To be aware of debtors who honour their credit agreement and those who do not. • To follow up on those debtors who signed a payment plan due to previous late payments. • To follow up on possible errors that could be on a debtor’s statement where the debtor paid the correct amount without letting the business know of the statement error. Example of a debtor’s statement and age analysis Study the following statement to understand the calculation of age analysis. A possible format was used for the breaking down of Moja and Sons account into time periods, February to May. Take into account the TWO RULES. • Returns are subtracted from the most recent invoice • Payments are subtracted from the oldest outstanding balance © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 91

5 Chapter (TAX NO: 456123) KIMA WHOLESALERS NO. 77 45 Dove street, Pretoria 1000 STATEMENT OF ACCOUNT TO: Moja and Sons Mahlangu Street Timbato DATE: 31 May 2014 TERMS: CREDIT PERIOD: 30 days CREDIT LIMIT: R5 000 • 10% discount on settlement of account within 14 days of purchase • Interest at 5% per month will be charged on amounts owing for 60 days or more Date Description Debit Credit Balance IAL ATTENTION 01-03-2014 Balance brought 800 NB forward 07-03-2014 Invoice 102 2 500 3 300 Remember the rule: Subtract payments from the 28-03-2014 Receipt no 533 500 2 800 longest outstanding balance. 03-04-2014 Invoice 125 2 400 5 200 08-04-2014 Credit note C66 600 4 600 29-04-2014 Receipt 575 400 4 200 01-05-2014 Invoice 130 1 200 5 400 ed examples 09-05-2014 Invoice 131 700 6 100 Current month means the 30-05-2014 Receipt 621 1500 4 600 month of the statement Receipt 621 (discount) 150 4 450 Age Current 30 Days 60 Days 90 Days 120 Days The Table below was used to Analysis: 1 900 1 800 800 0 0 calculate the age analysis Steps to follow to see how the Age analysis was calculated: Draw a template with months Transactions: May April March February Record the invoices according Balance 800 to the month that you have ACTIVITIES boy Invoices 1 200 2 400 2 500 and girl-left and received the stock right of page + 700 Returns (600) The payment of R500 (March) must pay off the balance of Total purchases per month 1 900 1 800 2 500 800 R800. (800 – 500 = 300 still Receipts and discounts outstanding) So R300 will come Mar: payment by debtor – – – (R500) off from the next payment. comment R500 ep comment Apr: payment by debtor - (100) (300) The R400 (April) receipt must R400 1st pay off the R300 in Feb (400-300 = R100) The R100 May: R1 500 + 150 - - (1 650) - paid some of the debt of Balance 1 900 1 800 750 0 March Check your answer: 1 900 + 1 800 + 750 = R4 450 The R1500 and discount R150 Take note: The total of the analysis must be equal to the total balance on (May), paid off some of the the statement and debtor’s ledger account. debt of March © Department of Basic Education 2014 92 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

HINT! hint Chapter 5 e.g. Worked example 2: EG - worked examples Debtors’ age analysis Study the debtors’ age analysis below and answer the questions that follow: exams Total Current 30-60 61–90 More than days days 90 days B Barney R5 900 R1 800 R2 400 R1 200 R500 D Donald R4 600 R1 400 R3 200 activity Z Ndlovu R3 000 R3 000 ACTIVITIES boy and girl-left and right of page Total R13 500 R6 200 R5 600 R1 200 R500 activity This is the balance of the debtors’ control account in the general ledger. Credit terms • Debtors are givenStep 60bydays step from statement date (endcomment comment of the month) in which to settle their debts. • Debtors settling within 60 days will be granted a discount of 10%. • Debtors older than 60 days are charged interest of 12.5% p.a. Required 1. Which debtor(s) are not adhering to (meeting) the credit terms? Why? (2) 2. If Z Ndlovu settled her account after receiving her statement, and within the credit terms, how much would she be required to pay?  (4) 3. If these were the only 3 debtors, what would the balance on the debtors’ control account be? (2) 4. Is this business controlling their debtors effectively? Explain, quoting figures.  (4) [12] © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 93

5 Chapter Re-do questions 1 – 4 on Answers to worked example 2 paper, for extra practice. (see page 93) 1. Which debtor(s) is/are not adhering to (meeting) the credit terms? Why? B. Barney3 He owes amounts for longer than the credit terms of 60 days. 3  [2] 2. If Z Ndlovu settled her account after receiving her statement, and within the credit terms, how much would she be required to pay? R3 0003 – 10% (R300) 33 = R2 700  [4] 3. If these were the only 3 debtors, what would the balance on the debtors’ control account be? It is Total of debtors’ accounts = balance on debtors’ control important for you to account. answer “yes” or “no” BUT it is your explanation R13 50033 [2] that will get you the marks. 4. Is this business controlling their debtors effectively? Explain, quoting figures. The answer to this question could be yes or no. Yes3, because only one of the 3 debtors is outstanding. 333 or No3, because the amount outstanding for more than 60 days is R1 700 out of the total of R13 500 owed by the debtors. 333 [4] 5.4 Creditors reconciliation with the creditor’s statement a) At the end of each month a creditor’s reconciliation is drawn up when the statement is received from a creditor and compared against the creditor’s ledger account in the Creditors Ledger. b) The comparison must be done to ensure that all the details of the transactions with the creditor are correct prior to any payments being done. c) Ensure that you are aware that in the books of the creditor you are a debtor. So when you interpret the statement received from the Creditor, you read it as if you read a Debtors control account. In that way this section becomes very easy. Look and see that for every debit entry in your books, the creditor will credit the transaction. So, know the FORMAT of both the CONTROL ACCOUNTS and know the SOURCE DOCUMENTS. © Department of Basic Education 2014 94 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

HINT! hint Chapter 5 e.g. Example EG - worked examples • Creditor gives you an invoice and you receive the invoice (renumber the invoice) exams • You sent goods back to Creditor and issue a debit note and the creditor acknowledges the return and issues a credit note • You pay your account by cheque and the Creditor acknowledges it by issuing a receipt Study the following schematic illustration activity CREDITOR’S LEDGER ACTIVITIES boy and girl-left and In the books of the business Folio right of page Debit – Credit + Balance Bongi & Co activity Account Rendered 1 000 Invoice received CJ 2 000 3 000 Step by step comment comment Debit note issued CAJ 250 2 750 Cheque counter foil CPJ 880 1 870 CREDITORS STATEMENT OF BONGI AND CO In the books of the Creditor: Folio Debit + Credit – Balance Kima Wholesalers Balance brought forward 1 000 Invoice issued DJ 2 000 3 000 Credit note issued DAJ 250 2 750 Receipt issued CRJ 880 1 870 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 95

5 Chapter SCHEMATIC ILLUSTRATION OF THE CORRELATION BETWEEN THE CREDITOR AND DEBTOR CREDITORS LEDGER OR CREDITORS LIST Dr. Creditors Control account Cr Received the Issued a cheque Bank and discount CPJ 880 Balance b/d 1 000 original invoice Issued a debit Sundry allowances CAJ 250 Sundry Purchases CJ 2 000 note to the supplier Journal debits- Journal credits – interest Journal and cancel discount 20 voucher The creditor Bank (RD) 200 views you as a Debit slip debtor therefore your statement Versus is in the form of a Debtors control account The creditor CREDITORS STATEMENT FROM THE CREDITOR issued a + Debtors Control account – receipt to acknowledge The creditor Balance b/d 1 000 Bank and discount CRJ 880 your payment issued an invoice Sales DJ 2 000 Debtors allowances DAJ 250 The creditor acknowledges Debit slip Bank (RD) CPJ Journal credit – bad debts PAY SPECIAL ATTENTION the return NB NB by sending a Cancel discount Journal debits 20 credit note allowed on a (interest and cancel discount ) RD cheque or charged interest HINT! by creditor hint the source documents will not be the same used by the debtor Remember and the creditor. The one receives and the other one issues. e.g. Example EG - worked examples Example adapted from November 2011 NSC question paper exams RECONCILIATION CREDITORS’ A statement received from a creditor, Kairo Suppliers, on 28 February 2011, reflects that Ace Traders owes them R11 390. According to Ace Traders, the amount outstanding is only R7 910. REQUIRED: Use the Table in the ANSWER BOOK to indicate the differences that were discovered activity when comparing the account in the Creditors’ Ledger with the statement received from Kairo Suppliers. ACTIVITIES boy Write only the amounts in the appropriate columnand and girl-left and a plus (+) or minus (–) sign to right of page indicate an increase or decrease in the balance. Calculate the correct balance/total at the end. activity Step by step comment comment © Department of Basic Education 2014 96 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 5 INFORMATION: On investigation, it was found that: 1. A cheque for R3 000 issued by Ace Traders has not yet been recorded in the statement received from Kairo Suppliers. 2. The cheque in settlement of the January account was not received by Kairo Suppliers within 7 days; therefore the discount of R500 recorded by Ace Traders in the Creditors’ Ledger must be cancelled. 3. Returns recorded as R810 in the Creditors’ Ledger of Ace Traders were recorded as R900 in the statement received from Kairo Suppliers. Ace Traders had miscalculated the cost of goods returned. 4. An invoice received from Kairo Suppliers was correctly recorded as R7 700 by Ace Traders. However, in the statement received from Kairo Suppliers it was incorrectly recorded as R770. 5. An invoice for R3 500 received from Kairo Suppliers was incorrectly recorded as a credit note by Ace Traders. Explanation of the transactions: Error Explanation 1. A cheque for R3 000 issued by Ace This cheque was paid to the creditor however the amount has Traders has not yet been recorded in not been subtracted yet from the balance on the statement. the statement received from Kairo The balance owing to the Creditor, Kairo Suppliers, must Suppliers. decrease by R3 000. (The statement is like the Debtors Control account. Increase on the dr side and decrease on the cr side) This payment must be deducted in the Reconciliation/Creditors Statement (–R3 000) 2. The cheque in settlement of the Ace Traders claimed R500 discount when he settled his account. January account was not received (Bank and discount is on the debit side of the creditors control by Kairo Suppliers within 7 days; account). therefore the discount of R500 Kairo Suppliers refused the discount because the payment was recorded by Ace Traders in the received after 7 days. To cancel the discount the amount must Creditors' Ledger must be cancelled. be credited. (Creditors control increases on the credit side) The entry must be done in the debtors ledger and added 3. Returns recorded as R810 in the Ace Traders has recorded R810 in the Creditors ledger instead of Creditors' Ledger of Ace Traders were R900.Undercasted by 900 – 810 = R90. recorded as R900 in the statement Returns are recorded on the debit side of Creditors control received from Kairo Suppliers. Ace account. (Creditors control account decreases on the debit side.) Traders had miscalculated the cost of R90 must be subtracted in the Creditors ledger goods returned. 4. An invoice received from Kairo The creditors ledger was correct but the statement is wrong/ Suppliers was correctly recorded as undercast by R7700 – R770 = R6 930. Any mistakes on the R7 700 by Ace Traders. However, in statement are corrected in the Reconciliation statement however the statement received from Kairo the question reads that the Statement must be corrected. Suppliers it was incorrectly recorded The statement must increase; (+R6 930) as R770. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 5 r econciliations 97

5 Chapter E. An invoice for R3 500 received from The Creditors statement is correct. Kairo Suppliers was incorrectly The Creditors ledger is incorrect; the invoice of R3 500 received recorded as a credit note by Ace is recorded as returns. This means the correct amount was Traders. recorded on the wrong side of the account, To cancel the R3 500 on the debit side, R3 500 must be credited to cancel the wrong entry and another R3 500 must be recorded to record the invoice received. No entries were made. This double entry (R3 500 +R3 500 = R7 000) needs to be recorded on the credit side of the Creditors ledger Use the Table to indicate the differences that were discovered when comparing the account in the Creditors’ Ledger with the statement received from Kairo Suppliers. Write only the amounts in the appropriate column and a plus (+) or minus (–) sign to indicate an increase or decrease in the balance. Calculate the correct balance/total at the end. Creditors’ Ledger of Ace Statement from Kairo Traders Suppliers Balance R7 910 R11 390 1 – 3 000 2 +500 3 – 90 4 + 6 930 5 +3 500 3 +3 500 3 OR +7 000 Balance/Total 15 320 15 320 Below is a list of suggested past examination questions for extra practice: Topic Paper Question Bank reconciliation February/March 2009 1.1 Bank reconciliation November 2010 2 Creditors reconciliation February/March 2009 1.2 Debtors control account and February/March 2010 Age analysis 1 Debtors reconciliation, age February/March 2012 analysis and internal control 6 Debtors reconciliation November 2013 1.3 Keep going! © Department of Basic Education 2014 98 chapte r 5 reconcili ations  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 Inventories 6.1 Inventory systems PAY SPECIAL ATTENTION NB A business can decide which of the following two inventory systems to use to record and control their inventory: Inventories HINT! (trading SYSTEM IMPORTANT POINTS hint stock) are goods that are bought in a) Entries are made in a Balance Sheet account called trading order to be resold at a profit. stock (an asset account) every time goods are bought and sold. Stock is always recorded in b) Cost of sales needs to be calculated and recorded every time goods are sold. e.g. the books at costEGprice. - worked examples c) When stock is purchased the trading stock account is Perpetual debited with the cost price (the asset is increasing). d) When stock is sold the trading stock account is credited exams with the cost price (the asset is decreasing). e) Any additional costs when purchasing stock are debited to the trading stock account (e.g. carriage on purchases). f) This system is better for the internal control of inventory. a) Businesses would decide to use this system when it is not always feasible to calculate cost of sales every time goods are sold. activity b) Stock purchases are recorded in a nominal account called ACTIVITIES boy purchases (an expense account). and girl-left and right of page c) Additional expenses when purchasing stock (e.g. carriage on purchases) are recorded separately in a nominal Periodic account called carriage on purchases (an expenses activity account). d) Cost of sales is therefore only calculated periodically by using the formula: Opening stock + purchases + carriage on purchases + import duties + customs duties – closing stock = Step by step comment cost of sales. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventories 99

6 Chapter 6.2 Inventory valuation methods The business may not change A business can decide which of the following two stock valuation methods its stock valuation method to use in order to value its inventory: unless the business has a very good reason to do so (e.g. the method IMPORTANT POINTS change will ensure that the inventory is better valued). a) This is the simplest form of stock validation, where every item is assigned a specific cost price. b) This system is relevant when large commodities are sold and every unit has its own cost price, e.g. vehicles, machinery, etc. c) That means that this system requires that the cost price must be identified of every commodity sold or when stocktaking is done. d) Specific identification is a more manually intensive method in managing the stock. Specific e) So every item in stock will be recorded at the specific Identification price originally bought. method f) The disadvantage of this method is that the price of a vehicle can be manipulated. For example a red Ford 1.6 was bought at the beginning of the year for R100 000 and during the year the dealer bought a white Ford 1.6 at an increased cost price of R130 000. When the red car got sold the dealers can manipulate the price by recording the cost price as R130 000. So the profit was manipulated by showing a smaller profit than the true profit. The dealers can do the opposite as well when they want to show a higher profit. a) FIFO stands for First In First Out. b) Businesses that sell goods which have a limited shelf life (e.g. milk or cellphones) often prefer to use this system. FIFO c) This means that the oldest stock is sold first and that the stock left at the end will always be the most recently bought stock. d) Under this method the stock on hand will be valued at the most recent prices. a) Under this system the value of the stock on hand is not calculated on the most recent prices because all prices on stock purchased are averaged. Weighted b) Weighted average is calculated by dividing the total average cost of stock purchased by the total number of units purchased. c) Under this method the stock on hand will not be valued at the most recent prices. © Department of Basic Education 2014 100 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

HINT! hint Chapter 6 e.g. Worked example 1EG - worked examples You are provided with the information relating to Kima Appliances. The following stock appeared on their stock cards. exams Study the template of the number of stock bought at purchase price and the selling price of all the stock sold. INFORMATION The items below were in stock and some sold: January to December 2014 LG Samsung Bosch Total value Date No Cost Total No Cost Total No Cost price Total of stock activity price price Jan Opening stock 2 @R1 000 R2 000 ACTIVITIES boy 3 @R2 000 R6 000 4 @R3 000 R12 000 = R 20 000 and girl-left and April Purchases 3 @R1 200 R3 right of 600 2 page @R2 100 R4 200 2 @R3 300 R6 600 = R 14 400 Value of total stock R 34 400 activityNo Cost Selling No Cost Selling No Cost Selling price price price price price price Jan to Sales 1 @R1 000 R2 000 3 @R2 000 R12 000 3 @R3 000 R18 000 = R 32 000 Dec. Sales 2 @R1 200 R4 800 1 @R3 300 R6 600 = R 11 400 Step by step comment comment Value of total sales R 43 400 *REQUIRED: Make use of the Specific Identification stock method to calculate: You need to tick off the stock sold to 1. Number of unsold units. calculate the stock on hand. (Closing stock) 2. Value of unsold units 3. Cost of Sales 4. Gross profit Answers to worked example 1 1. Number of unsold units: LG: 1 @ R1 000 (1 sold) LG: 1 @ R1 200 (2 sold) Samsung: 2 @ R2 100 Bosch: 1 @ R3 000 (3 sold) 1 @ R3 300 (1 sold) 6 unsold units 2. Value of unsold units: LG: 1 @ R1 000(1 sold) R 1 000 LG: 1 @R1 200 (2 sold) R 1 200 Samsung: 2 @R2 100 R 4 200 Bosch: 1 @R3 000 (3 sold) R 3 000 1 @R3 300 (1 sold) R 3 300 6 unsold units R12 700 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 101

6 Chapter Answers to worked example 1 continued (see page 101) 3. Cost of Sales (Goods sold at cost price) LG: sold 1 @ R1 000 R 1 000 LG: sold 2 @R1 200 R 2 400 Samsung: sold 3 @R2 000 R 6 000 Bosch: sold 3 @R3 000 R 9 000 PAY SPECIAL ATTENTION NB 1 @R3 300 NB R 3 300 Cost of sales of 10 sold units R21 700 4. Gross profit: Sales – Cost HINT! of Sales = Gross profit hint R43 400 – 21 700 = R21 700 e.g. Worked example 2 EG - worked examples Example adapted from March 2011 NSC question paper. exams You are provided with information relating to Energy World for the year ended 28 February 2010. They sell energy drinks to retailers. Required Refer to the information relating to the energy drinks and calculate the following: 1. Value of the closing stock using the FIFO and weighted-average methods. [14] 2. Cost of sales using the FIFO and weighted-average methods. [11] activity 3. Gross profit using the FIFO and weighted-average methods. [6] Information ACTIVITIES boy and girl-left and right of page Manager: Dirk Product: Energy drinks activity Units Rand Amount Sales 2 720 R21,20 R57 664 Opening stock 320 R9,00 R2 880 Purchases Step by step 4 800comment comment R58 560 April 2008 1 100 R10,50 R11 550 October 2009 2 500 R12,42 R31 050 January 2010 1 200 R13,30 R15 960 Closing stock 2 400 ? ? © Department of Basic Education 2014 102 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 Answers to worked example 2 (see page 102) 1. Calculate the value of the closing stock using the FIFO and weighted-average method. FIFO WEIGHTED AVERAGE (Jan 2010) 1 200 units × R13,30 = R15 96033 Step 1 Opening stock = R2 8803 (Oct 2009) 1 200 units × R12,42 = R14 90433 Purchases = R58 5603 2 400 units (closing stock) Total cost = R61 4403 = R30 864 Weighted average = R61 440 ÷ (320 + 4 800 units) The most recent stock bought is what is left = R61 4403 ÷ 5 1203 units (closing stock). = R123 per unit Step 2  2 4003 units (closing stock) × R12 = R28 800 Explanation of the calculations above • The closing stock is 2 400 units. • Step 1 is to calculate the weighted average by • Using the FIFO method means that 1 200 units dividing the total cost of stock purchased by the bought in January 2010 and 1 200 units of the total number of units purchased. 2 500 units bought in October 2009 are left in • Step 2 uses the weighted average to calculate the stock, representing the closing stock of 2 400 value of the closing stock by multiplying the cost units. per unit by 2 400. [14] 2. Cost of sales using the FIFO and weighted-average method. FIFO WEIGHTED AVERAGE 320 units × R9 = R 2 8803 Step 1 3203 units + 4 8003 units – 2 4003 units 1 100 units × R10,50 = R11 5503 = 2 7203 units sold 1 300 units × R12.42 = R16 1463 Cost of sales R30 5763 Step 2  2 720 units sold × R12 (weighted OR average) Opening stock R2 880 = R32 640 Cost of sales + Purchases R58 560 – Closing stock (R30 864) = Cost of sales R30 576 Explanation of the calculations above • Using the FIFO method means that the oldest • Step 1 is the calculation of the number of units stock has been sold first, that is 320 units sold. of opening stock + 1 100 units purchased in • Step 2 uses the weighted average to calculate April 2008 + 1 300 units of the 2 500 units the value of the stock that has been sold, namely purchased in October 2009 making up the 2 720 units. total of 2 720 units sold. [11] PAY SPECIAL ATTENTION NB NB The cost of sales is the cost price of all the goods that have been sold. HINT! hint © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 103 e.g. EG - worked examples

6 Chapter 3. Gross profit using the FIFO and weighted-average method. FIFO WEIGHTED AVERAGE Gross profit = sales – cost of sales R57 6643− R30 576 = R27 088 R57 6643 − R32 640 = R25 024 Explanation of the calculations above The sales figure was given in the question and is the same in both methods. The cost of sales figures were calculated by you in question 2 on page 67. You will notice that the gross profit figure is different in the 2 methods because the cost of sales was calculated differently. [6] Method to approach examination questions on stock validation Learners do not know how to extract and record the relevant information from the stock validation question. Learners usually know how to calculate gross profit and cost of sales, etc. however they cannot apply that knowledge to the information that is given. The following is found to assist and to make this question in the examination a breeze: • It is important that you memorise the format of the TRADING ACCOUNT using the periodic stock method • It doesn’t matter how they present the question in the exam, after drawing up the Trading account with two columns on the debit and on the credit side, just find the opening stock and closing stock and all the other figures and record the figures on your template. Calculations DR TRADING ACCOUNT CR Amount Units Amount Units + Opening stock Closing stock = Cost of sales (units) + Purchases (net) Sales(net) = gross profit + Carriage on purchases + Custom Duties Total amount and snits of all the stock that could be sold • To be able to answer all the questions, you need to draw the Trading account with TWO COLUMNS; ONE FOR THE RAND AMOUNT AND ONE FOR THE UNITS. © Department of Basic Education 2014 104 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 • Need to memorise that opening stock –– plus net purchases (purchases minus Creditors allowances) –– plus carriage on purchases –– plus custom duties –– minus closing stock is equal to COST OF SALES • Need to memorise that Opening stock –– plus net purchases –– plus carriage on purchases –– plus custom duties –– minus closing stock –– minus net sales (sales minus debtors allowances) –– is equal to GROSS PROFIT. OR Sales (net) – Cost of sales = Gross profit. Record all the figures from the question in the Trading account and then start to answer the questions. Draw the following before attempting the question on stock validation ‘(Net)’ reminds you to Stock validation is all subtract returns from about the calculation of the purchases the closing stock! Sales minus returns Number of items in stock Dr. Trading account Cr R units R units + Opening stock R10 100 10 – Closing stock ? 25 = Cost of sales 10 + 90 – 25 = 75 + Purchases (net) 1 330 90 – Sales (net) 3 000 75 = gross profit @R12 480 40 @40 × 75 @R15 450 30 @R20 400 20 + Carriage on purchases @ R2 p unit × 90 180 + Custom duties @ 0,50c per unit × 90 45 1 655 100 75 units should be sold. Compare it Total value of all the Total units that can be with the Sales units sold to detect if items that can be sold sold are 10 + 90 = 100 any units were stolen © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 105

6 Chapter Possible questions: Learn formats and understand Value of the closing stock: 25 units: Start with the stock purchased FIFO recently. 20 × R20 = 400 5 × R15 = 75 25 × R2 = 50 Carriage on purchases per unit 25 × R0,50 = 13 (12,50) custom duties per unit Closing stock = R538 Value of closing stock: Total the debit side’s amount and unit column Weighted Average R1655 ÷ 100 units = R16,55 average price per unit Closing stock is 25 × R16,55 = R413,75 (R414) Cost of sales: Need to Opening stock + Purchases(net) + Carriage on memorise the format! FIFO purchases + Custom duties – closing stock = Cost of sales 100 + 1330 + 180+45 – 538 = R1117 (FIFO) Gross profit: FIFO Sales (net) – cost of sales = Gross profit 3 000 – R1117 = R1 883 5. Mark –up: know the 1883 × 100 = 168,58 % formula 1117 1 Gross profit × 100 = % Most of the times you need to explain why the Cost of sales 1 profit markup was not achieved of e.g. 200 %. Reason is because of seasonal sales and cash discounts. Rate of stock turnover 1117 = Cost of sales = times (100 + 538)/2 Average stock 1117 = 3,5 times 319 The stock is replaced 3,5 times per year Period of stock on hand 319 × 365 = 104,24 days Average stock × 365 = days 1117 1 Cost of sales 1 Stock is on the shelf for 104 days before it is sold. This ratio assists a business to determine when to order stock. (NSC FEB/MARCH 2009 Exam paper) Activity 1 Inventory regulation (35 marks; 20 minutes) You are provided with information in respect of Magic Soccer Balls Shop for the year ended 28 February 2009. The business is owned by Peter Pule. The business uses the perpetual inventory system and the FIFO method of valuing stock. © Department of Basic Education 2014 106 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 REQUIRED: 2.1 Explain the meaning of the term ‘FIFO’. (2) 2.2 The selling price of soccer balls was kept constant throughout the year. Calculate the selling price per soccer ball. (3) 2.3 The owner, Peter Pule, is aware that some soccer balls were stolen from the storeroom in April 2008. No entry has been made. • Calculate the number of balls that are missing. (stock stolen from the opening stock @ R110) (5) • What entry would you make in the books to record this? (2) 2.4 Value the stock on hand at the year-end according to the FIFO method. (7) 2.5 Calculate following: • Cost of sales (5) • Gross profit for the year. (3) 2.6 Peter is not sure when to place his next order of soccer balls. • How long can he expect the closing stock to last? Provide figures or a calculation to support your answer. (4) • What advice will you offer Peter about his purchases of stock? Provide two points. (4) INFORMATION: Accounting records relating to the soccer balls: Details Date No. of balls Unit price Total Opening stock 1 March 2008 750 R110 R 82 500 2 480 R 340 800 20 May 2008 800 R150 R 120 000 Purchases 25 October 2008 1 200 R120 R 144 000 16 December 480 R160 R 76 800 2008 Closing stock 28 February 2009 1 100 ? ? 1 March 2008 to Sales 2 100 ? R 430 500 28 February 2009 [35] ANSWER 2.1 Explain the meaning of the term ‘FIFO’. 2 2.2 The selling price of soccer balls was kept constant throughout Get all the info from the the year. Calculate the selling price per soccer ball. Trading account 3 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 107

6 Chapter Calculate the total number 2.3 Calculate the number of balls that are missing. units that can be sold minus closing stock and compare that with the sales units. What entry would you make in the books to record this? 7 The Closing stock will be the 2.4 Value the stock on hand at the end of the year according to stock that you recently bought. the FIFO method. 7 Opening stock + Purchases 2.5 Calculate cost of sales. (net) + Carriage on purchases + custom duties – closing stock = cost of sales (make sure you memorised the formula) Stock stolen must be taken Calculate gross profit for the year. into account when you calculate the Cost of sales amount. 8 2.6 How long can he expect the closing stock to last? Provide figures or a calculation to support your answer. Stock holding period or called Period of stock on hand What advice would you offer Peter about his purchases of stock? Provide two points. 8 TOTAL MARKS 35 © Department of Basic Education 2014 108 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 (NSC FEB/MARCH 2009 Exam paper) Calculations for Activity 1 1. Draw the Trading account 2. Record the figures from the question in the trading account Possible format for all the 3. Do you need to calculate on FIFO or weighted average method? calculations. 4. If Weighted average: add the totals at the bottom for the Rand and units and divide to find the average price to calculate the value of the closing stock 5. If FIFO: find number of units of stock and see which stock is last purchased 6. If FIFO: need to calculate the carriage on purchases per unit to be added on to the closing stock per unit. Trading account for calculation purposes R units R units + Opening stock @ 82 500 750 – Closing stock 151 200 1 100 = Cost of sales R110 @160 750 + 2 480 – 1 100 = 76 800 480 @120 2 130 units supposed 74 400 620 to be sold FIFO Purchases (net) 340 800 2 480 – Sales(net) 430 500 2 100 = gross profit + @R150 120 000 800 R430 500 ÷ 2 100 = @R120 144 000 1 200 R205 @R160 76 800 480 + Carriage on purchases @R + Custom duties@ Total units at cost 423 300 3 130 price that can be sold Any stock stolen? Yes, according to the stock 2 130 must be sold but the Sales shows only 2100 were sold © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 109

6 Chapter The following is part of your rough work and possible calculations 2.1 First in first out 2.2 Sales per unit; R430 500 ÷ 2 100 unit = R205 2.3 A. Opening stock units: 750 Purchases units + 2 480 Closing stock units – (1 100) Equals to the 2 130 units that must be sold however the actual sales were 2 100 units. So 2 130 – 2 100 = 30 soccer balls stolen. B. Debit stolen stock and credit purchases 2.4 1 100 stock on hand: 480 units × R160 = R76 800 1 100 – 480 = 620 units × R120 = R74 400 Value of closing stock = 151 200 2.5 Cost of sales: 82 500 + 340 800 – 151 200 – (30 × 110 = 3 300) = 268 800 Gross profit: 430 500 – 268 800 = 161 700 2.6 Period of stock on hand ratio: (Most of the time these questions are asked in the examination questions. Therefore: know your formula! See Solutions of this activity.) ANSWER QUESTION 2 2.1 Explain the meaning of the term ‘FIFO’. First-in first-out33 OR The oldest soccer balls are the ones that are sold first 2 2.2 The selling price of soccer balls was kept constant throughout the year. Calculate the selling price per soccer ball. 3 3 3 R430 500/2 100 balls = R205 each 3 2.3 Calculate the number of balls that are missing. Total balls available = 750 3 + 2 480 3 – 1 100 3 = 2 130 balls Number sold = 2 100 balls 3 Number stolen = 30 balls 3 What entry would you make in the books to record this? 3 Debit Trading stock deficit/Loss due to theft R3 300 3 Credit Trading stock R3 300 7 2.4 Value the stock on hand at the end of the year according to the FIFO method. 3 480 balls at R160 3 = R 76 800 3 3 620 balls at R120 3 = R 74 400 3 TOTAL = R151 200 3 7 © Department of Basic Education 2014 110 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 2.5 Calculate cost of sales Opening stock R 82 500 3 Purchases 340 800 3 Stolen – 3 300 3 Closing stock – 151 200 3 Cost of sales R268 800 3 Calculate gross profit for the year. Sales R430 500 3 Cost of sales –268 800 3 Gross profit 161 700 3 8 2.6 How long can he expect the closing stock to last? Provide figures or a calculation to support your answer. Closing stock × 365 = days Any valid evidence Cost of sales 1 provided e.g. 33 Figures 33 151 200 × 365 = 205 days/6,7 months 268 800 1 On average, 175 balls are sold per month – stock will last 6,3 months OR Cost of sales for the year is R268 800 (R22 400) – final stock is R151 200 – stock could last 6,8 months What advice will you offer Peter about his purchases of stock? Provide two points. Any two valid points, e.g. 33 33 • Purchase in smaller quantities more often • Only order when they reach their minimum stock level (re-order level) • They are holding too much stock. 8 (NSC NOVEMBER 2009 exam paper) Activity 2 Inventory valuation and control (40 marks; 24 minutes) You are provided with information relating to Banyana Traders, owned by David Hambeck, for the financial year ended 28 February 2009. The business is situated in Johannesburg. David buys and sells soccer balls and jerseys. The business uses the periodic inventory system. The soccer balls are bought from South African suppliers, and the soccer jerseys of different clubs and countries are imported from overseas. David employs salespersons to control each item of stock: • James controls and sells the soccer balls • Cyril controls and sells the soccer jerseys © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 111

6 Chapter David has decided on the following accounting policies for valuing inventory: • Soccer balls – Weighted-average method • Soccer jerseys – First-in-first-out method (FIFO) REQUIRED: 2. .1 Although this business has done well; David is considering closing it down and investing his capital in fixed property. State TWO points that he should consider before making a final decision. (4) 2.2 David suspects that a number of soccer balls have been shoplifted. Calculate the number of soccer balls stolen. (5) 2.3 Use the relevant information to calculate the closing stock value of: • Soccer balls (using the weighted-average method) (6) • Soccer jerseys (using the FIFO method) Show your workings to earn part-marks. (5) 2.4 Calculate the following for soccer jerseys (you may prepare a Trading Account to calculate these figures): • Cost of sales • Mark-up % on cost • Stock turnover rate 2.5 If David decides to continue with this business, what advice would you offer him? State TWO points and quote financial indicators or specific information from the question to support your answer. (6) INFORMATION: 1. Inventories: The stocks were Soccer balls Soccer jerseys valued as follows at the beginning and No. of Per Total No. of Per Total end of the financial units unit value units unit value year: Date 01/03/08 1 200 R120 R144 000 520 R320 R166 400 28/02/09 900 ? ? 250 ? ? 2. Purchases: During the financial year ended 28 February 2009, the following stock items were purchased: Soccer balls Soccer jerseys Date of purchases No. of Per Total No. of Per unit Total units unit value units value 31/03/08 1 300 R120 R156 000 400 R200 R 80 000 30/06/08 900 R150 R135 000 600 R225 R135 000 30/09/08 1 000 R175 R175 000 1 400 R255 R357 000 02/01/09 200 R180 R 36 000 100 R300 R 30 000 Totals 3 400 R502 000 2 500 R602 000 © Department of Basic Education 2014 112 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 3. Carriage on purchases: During the year, the business paid a total of R30 200 to transport soccer balls to the shop. The price of the soccer jerseys includes carriage. 4. Sales: Items Details Total Soccer balls 3 500 units at R320 each R1 120 000 Soccer jerseys 2 770 units at R400 each R1 108 000 5. Financial indicators: Items Mark-up % on cost Stock turnover rate Soccer balls 48,5% 3,9 times p.a. Soccer jerseys ? ? times p.a. [40] Calculations for Activity 2 • Draw the Trading account • Record the figures from the question in the trading account • Do you need to calculate on FIFO or weighted average method? • If Weighted average: add the totals at the bottom for the Rand and units and divide to find the average price to calculate the value of the closing stock • If FIFO: find number of units of stock and see which stock is last purchased • If FIFO: need to calculate the carriage on purchases per unit to be added on to the closing stock per unit. ANSWER SHEET 2.1 Although this business has done well, David is considering closing it down and investing his capital in fixed property. State TWO points that he should consider before making a final decision. 4 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 113

6 Chapter 2.2 Calculate the number of soccer balls stolen. 5 2.3 Calculate the closing stock value of soccer balls using the weighted average method: 11 © Department of Basic Education 2014 114 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 2.4 Calculate the following for Soccer jerseys (you may prepare a Trading Account to calculate these figures): Calculate cost of sales: Calculate mark-up% on cost: Calculate stock turnover rate: 14 2.5 If David decides to continue with this business, what advice would you offer him? State TWO points and quote financial indicators or specific information from the question to support your answer. 6 TOTAL MARKS 40 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 115

6 Chapter Calculations for Activity 2 SOCCER BALLS Trading account WEIGHTED AVERAGE R units R units + Opening stock @R 144 000 1 200 – Closing stock 132 300 900 = Cost of sales 900 × R147 Units 1 200 + 3 400 – 900 = 3 700 (SUPPOSED TO BE SOLD) Purchases(net) 502 000 3 400 – Sales (net) @ 1 120 000 3 500 = gross profit + R320 @R120 156 000 1 300 @R150 135 000 900 @R175 175 000 1 000 @R180 36 000 200 + Carriage on purchases 30 200 @R + Custom duties @ R Total units at cost price 676 200 ÷ 4 600 = R147 weighted average per unit that can be sold 3 700 – 3 500 = 200 stolen Calculations for Activity 2 SOCCER JERSEYS Trading account FIFO R units R units + Opening stock @R 166 400 520 – Closing stock: 68 250 250 = Cost of sales units @R300 × 100 30 000 100 @R255 × 150 38 250 150 Purchases(net) 602 000 2 500 – Sales (net) 1 108 000 2 772 = gross profit + @R200 80 000 400 @R400 × 2 772 @R225 135 000 600 @R255 357 000 1 400 @R300 30 000 100 + Carriage on purchases – – @R + Custom duties @ – – Total units at cost price 768 400 3 020 that can be sold © Department of Basic Education 2014 116 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 6 Answers for Activity 2 QUESTION 2 2.1 Although this business has done well, David is considering closing it down and investing his capital in fixed property. State TWO points that he should consider before making a final decision. Good answer = 2 marks; Poor answer = 1 mark; Incorrect = 0 marks 33 33 Any two valid points, e.g. Soccer World Cup will be in SA soon – keep the business operational until then. Property prices are not doing well at the moment – move into this later. Financial implication to the business, future prospects Implications for staff – retrenchment 4 2.2 Calculate the number of soccer balls stolen. 1 200 3 + 3 400 3 – 3 500 3 – 900 3 = 200 3 5 2.3 Calculate the closing stock value of soccer balls using the average method: Stock at beginning of year R144 000 1 200 Purchases during the year R502 000 3 400 Carriage on purchases R 30 200 – R676 200 3 ÷ 4 600 3= R147 = 900 3 × 147 3 = R132 300 3 Calculate the closing stock value of soccer jerseys using the FIFO method: 100 × R300 = R30 000 33 150 × R255 = R38 250 33 250 R68 250 3 11 2.4 Calculate the following for Soccer jerseys (you may prepare a Trading Account to calculate these figures): Calculate cost of sales: Opening stock3 166 400 Purchases 3 602 000 Less closing stock 3 (68 250) Cost of sales 3 700 150 Calculate mark-up% on cost: = (1 108 000 3 – 700 150 3) × 100 700 150 3 1 © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 6 inventorie s 117

6 Chapter OR 407 850 × 100 700 150 1 = 58,3 % 33 Calculate stock turnover rate: Cost of sales Average stock = 7 00 150 3 (68 250 3+ 166 400 3) / 2 = 700 150 = 5,97 times 33 117 325 14 Re-do questions 1 – 3 on 2.5 If David decides to continue with this business, what advice paper, for extra would you offer him? State TWO points and quote financial practice. indicators or specific information from the question to support your answer. Good answer = 2 marks; Satisfactory answer = 1 mark; Incorrect = 0 marks Appropriate financial indicator/figures = 1 each Any two valid points 333 333 • Implement tighter control measures over soccer balls – 200 balls were stolen • The business is carrying a lot of stock, particularly soccer balls – 900 on hand at end of year • Selling price must change if cost increases • The stock for soccer balls must be turned over quicker – 3,9 times per annum. 6 Below is a list of suggested past examination questions for extra practice: Topic Paper Question FIFO and weighted average February/March 2010 2 Weighted average calculations November 2010 1.2 FIFO calculations February/March 2012 1.2 Stock validation November 2013 6.2 Keep going! © Department of Basic Education 2014 118 chapte r 6 inventori es  Mind the Gap CAPS Grade 12 Accounting

Chapter 7 Value Added Tax Value Added Tax (VAT) is the tax charged on goods and services supplied and is charged at the current rate (standard rate) of 14%. VAT is an important part of the income generated by the government to cover government expenditure. Use Who has to register as a VAT Vendor? mobile notes to help you learn A person or business that supplies goods or services can register as a these key VAT vendor (trader). concepts. All businesses with a turnover of more than R1-million must register as a vendor (trader). This is COMPULSORY REGISTRATION. Businesses with a turnover of less than R1-million can register if they want to. This is VOLUNTARY REGISTRATION. The benefits of registering as a VAT Vendor The business is able to claim back the amount of VAT paid on goods and services bought (VAT input). Items on which VAT is not charged Zero-rated items: Items charged at 0% VAT, but this can be changed by the government at any time. Examples are fresh fruit and vegetables, brown bread, milk, maize, rice, lentils and cooking oil. VAT-exempt items: Items on which no VAT is charged. Examples are interest, rates, export services, educational services and childcare services. VAT input VAT input is the VAT paid by a business on the purchases of goods and services (which can be claimed back from SARS). VAT output VAT output is the VAT collected by the business on the sale of all goods and services (which needs to be paid over to SARS). © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 7 value added tax 119

7 Chapter 7.1 VAT calculations VAT output – VAT input = amount payable to SARS (see example 2, page 72) PAY SPECIAL ATTENTION NB NB VAT inclusive calculations: When VAT is included in an amount (see example 1 below) (VAT inclusive) the calculation for VAT will The following calculations be the amount × 14 PAY SPECIAL ATTENTION are very important. LEARN NB NB 114 HINT! THEM WELL! hint VAT exclusive calculations: When VAT is excluded (VAT exclusive) (see example 1 below) the calculation for VAT will be the amount × 14 e.g. HINT! EG - worked examples hint 100 exams e.g. Worked example 1: Trendy EG - worked examples Suppliers exams Trendy Suppliers uses a fixed mark up of 40% on cost. The business is registered as a VAT vendor. The current VAT rate is 14%. activity Calculate the following: ACTIVITIES boy 1. VAT charged by Trendy Suppliers on one dress. [3] and girl-left and right of page 2. Selling price of one dress exclusive of VAT.  [6] 3. VAT charged to the customer on one dress. activity [3] activity 4. VAT charged by Trendy Suppliers on one pair of jeans.  [3] ACTIVITIES boy 5. Selling price of one pair of takkies inclusive of VAT.  and girl-left and [9] right of page Information Step by step comment comment The followingactivity items were purchased during the month from Trendy Suppliers. 100 dresses @ R285 each (VAT inclusive) 80 pairs of jeans @ R180 each (VAT exclusive) 60 pairs of takkies @ R110 per pair (VAT exclusive) Step by step comment comment Answers to worked example 1 1. VAT charged by Trendy Suppliers on one dress. [3] Remember: R285 3 × 14 3 = R35 3 114 Inclusive is 14 ÷ 114 2. Selling price of one dress exclusive of VAT. Cost price = R285 3 – R35 (VAT) = R250 Remember: Selling price = R250 × 140 3 = R350 Mark up = 40% on 100 [6] cost price © Department of Basic Education 2014 120 chapte r 7 value added tax  Mind the Gap CAPS Grade 12 Accounting

Chapter 7 Answers to worked example 1 (continued from page 120) 3. VAT charged to the customer on one dress: Selling price = R350 (as calculated in No 2 above) Remember: Exclusive is 14 ÷ 100 VAT charged = R350 × 14 3 = R49 100 [3] 4. VAT charged by Trendy Suppliers on one pair of jeans: Remember: R1803 × 14 3 = R25,203 100 [3] Exclusive is 14 ÷ 100 5. Selling price of one pair of takkies inclusive of VAT: Cost price = R110 Selling price = R1103 × 1403 = R1543 (exclusive of VAT) 100 VAT = R154 3 × 14 3 = R21,56 100 Re-do VAT inclusive amount = R154 + R21,56 = R175,56  [9] questions 1 – 5 on paper, for extra practice. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 7 value added tax 121

HINT! 7 Chapter hint e.g. Worked example 2: Mizi Stores EG - worked examples Mizi Stores, owned by Mia Mizi, is registered for VAT. examsthe amount of VAT to be paid over to SARS for the period ending Calculate 28 February 2011. [17] Information for this period ending 28 February 2011 a) Total sales (cash and credit) (VAT inclusive) R60 000 b) New computer bought (for office use) (VAT inclusive) R12 000 c) Trading stock bought (VAT exclusive) R20 000 activity d) Credit notes issued to customers (VAT inclusive) R 1 500 ACTIVITIES boy and girl-left and right of page Answers to worked example 2 activity VAT output VAT input Re-do this question on a) Total sales: 60 0003 × 14 3 R7 368,423 paper, for extra 114 practice. Step by step comment comment b) New computer bought: 12 000 3 × 14 3 R1 473,683 114 c) Trading stock bought: 20 0003 × 14 3 R2 8003 100 d) Credit notes issued: 1 5003 × 14 3 R184,213 114 R7 368,423 R4 457,893 VAT payable to SARS: R7 368,423 − R4 457,893 = R2 910,53 Total VAT output – Total VAT input = VAT payable to SARS [17] © Department of Basic Education 2014 122 chapte r 7 value added tax  Mind the Gap CAPS Grade 12 Accounting

Chapter 7 7.2 VAT Control Account There are different formats of completing the Input and Output VAT accounts however the correct information does end up in the VAT Control account. It is not likely you will be asked to do the Input or Output VAT account in the examination. The VAT Control Account is more likely to be asked. Learners need to be able to complete the VAT Control account with all the relevant transactions without completing the Input VAT Control and Output VAT Control accounts. Format of possible entries in the VAT control account GENERAL LEDGER Dr. VAT CONTROL ACCOUNT (CL) B Cr. 2014 3 Debtors Control DAJ 56 2014 1 Bank CRJ 4 200 May May 8 Discount allowed (claim GJ 8 2 Debtors Control DJ 1 400 VAT back from discount allowed amount) 12 Bad debts GJ 28 9 Discount allowed GJ 8 (cancel the VAT claim ) 4 Bank CPJ 700 10 Drawings GJ 126 6 Creditors control CJ 280 11 Donations GJ 42 5 Petty cash PCJ 21 7 Creditors control CAJ 98 31 Balance c/d 4 781 5 874 5 874 2014 1 Balance b/d 4 781 June • VAT Control account can have a debit balance or a credit balance. Amount owing to SARS • A debit balance means that SARS owes the business money and that your Input VAT was more than your Output VAT. • A credit balance means that the business owes SARS money. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 7 value added tax 123

Schematic illustration of how all the entries from Output VAT Account and Input VAT account are recorded in the VAT Control Account DR OUTPUT VAT ACCOUNT ( ) B CR DR. INPUT VAT CONTROL B DR 7 Chapter 2014 31 Debtors DAJ 56 2014 31 Bank CRJ 4 200 2014 31 Bank CPJ 700 2014 31 Creditors CAJ 98 May Control May May May control Discount GJ 8 Debtors DJ 1 400 Creditors CJ 280 allowed (claim Control control VAT back from Petty cash PCJ 21 discount allowed amount) Bad debts GJ 28 Discount GJ 8 allowed (cancel the VAT claim) • The Input VAT account is a current asset. 124 chapte r 7 value added tax  VAT control Drawings GJ 126 • It is the amount that SARS owes the business. • The Input VAT account increases on the debit side. Donations GJ 42 • The output VAT account is a current liability. • It is the amount owing to SARS • The account increases on the credit side DR VAT CONTROL ACCOUNT ( ) B CR 2014 31 Debtors Control DAJ 56 2014 31 Bank CRJ 4 200 May May Discount allowed (claim GJ 8 Debtors Control DJ 1 400 VAT back from discount allowed amount) Bad debts GJ 28 Discount allowed GJ 8 (cancel the VAT claim) Bank CPJ 700 Drawings GJ 126 Creditors control CJ 280 Donations GJ 42 Petty cash PCJ 21 Creditors control CAJ 98 Balance c/d 4 781 5 874 5 874 2014 1 Balance b/d 4 781 Mind the Gap CAPS Grade 12 Accounting Jun © Department of Basic Education 2014 Ensure that you know all the possible transactions and how the transactions are recorded in the VAT Control account.

Chapter 7 chapter 7 value added tax 125 Conclusion of the vat control account with all possible entries Take into account that the VAT CONTROL ACCOUNT is done to establish if the amount collected on behalf of SARS is more than the amount claimed from SARS. • VAT COLLECTED IS OUTPUT VAT • VAT AMOUNT CLAIMED IS INPUT VAT Cancel the output VAT Cash sales: collect output claimed when goods are VAT on behalf of SARS returned by debtors Credit Sales: Collect SARS allows a business to DR VAT CONTROL ACCOUNT ( ) B CR output VAT on behalf of claim back the VAT part of SARS Debtors Control DAJ 56 Bank CRJ 4 200 discount allowed when a debtor pays his account on Discount allowed (claim VAT back GJ 8 Debtors Control DJ 1 400 Cancel of the discount time: Cancel output VAT from discount allowed amount) claimed on the RD cheque: output VAT When a business Bad debts GJ 28 Discount allowed GJ 8 (cancel the VAT claim) experienced bad debts, SARS allows you to claim Bank CPJ 700 Drawings GJ 126 Must charge VAT when back the VAT part of bad owner takes stock for debts: Cancel output VAT Creditors control CJ 280 Donations GJ 42 own use: Collect output Petty cash PCJ 21 Creditors control CAJ 98 VAT on behalf of SARS Claim the VAT when goods are bought and paid for: Balance c/d 4 781 Claim back Input VAT VAT charged on donated 5 874 5 874 stock: Collect output VAT Mind the Gap CAPS Grade 12 Accounting Claim the VAT when goods Balance b/d 4 781 are bought on credit: Claim back Input VAT © Department of Basic Education 2014 Claim the VAT when goods Cancel the VAT when are bought: with petty cash goods are returned back to money: Claim back Input supplier: Cancel input VAT VAT

7 Chapter Below is a list of suggested past examination questions for extra practice: Topic Paper Question Calculations using November 2010 1.3 General Ledger accounts Concepts and calculations February/March 2012 1.1 Keep going! © Department of Basic Education 2014 126 chapte r 7 value added tax  Mind the Gap CAPS Grade 12 Accounting

Chapter 8 Fixed assets 8.1 Introduction to Fixed assets • All fixed assets purchased by a business are not intended for resale but to be used in the operation of the business to assist in generating a profit. • Fixed assets are recorded at the price the asset was purchased called COST PRICE (GAAP principle, called Historical cost.) • Separate records are kept for every fixed asset purchased in an asset register. Full details of very asset is recorded on the asset register and the depreciation for the financial year is calculated and recorded in the asset register and kept up to date at all times. • Fixed assets are depreciated at cost price/ straight line method or at carrying value/ diminishing balance/ or called book value method. • For internal control purposes, the assets and the registers are regularly monitored. • When the asset is sold the asset register is updated; additional depreciation calculated, to whom it was sold and closed off as the asset does not belong to the business anymore. • At the end of each financial year all the relevant fixed assets are depreciated. Any depreciation on assets sold during the year, form part of the depreciation amount disclosed in the Income Statement. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 8 fixed assets 127

8 Chapter PAY SPECIAL ATTENTION NB NB 8.2 Asset register Required: PAY SPECIAL ATTENTION NB Complete theNB following HINT! asset registers. hint Information: Cost price HINT!– hint accumulated e.g. Example EG - worked examples depreciation = book value/CARRYING VALUE Vehicle purchased: Cost price R80 000 exams e.g. EG - worked examples Equipment: Transaction: Cost price: R20 000 Fixed assets A. Depreciation on vehicles must be brought into account at 20% per annum on cost can only be depreciated till the fixed asset reach the price. exams scrap value of R1, therefore B. Depreciation on equipment must be calculated at 10% per annum on carrying the CARRYING VALUE of the value. fixed asset cannot be less than R1. activity A. DEPRECIATION AT COST PRICE: ACTIVITIES boy and girl-left and right of page Schie Traders No.1 activity activity Asset register ACTIVITIES boy and girl-left and General right of page ledger account: Vehicle account (B 6) Item: TOYOTA delivery van 3 litre Date purchased: 1 March 2009 activity From whom purchased: Step by stepToyota Whiteriver comment comment Cost price: R80 000 Percentage Depreciation: 20 % p.a. at cost price/straight line method Details of depreciation Step by step comment Details comment Annual Accumulated Book value depreciation depreciation or known as calculations “Carrying value” End of first year End of second year End of third year End of fourth year End of fifth year © Department of Basic Education 2014 128 chapte r 8 fixed asse ts  Mind the Gap CAPS Grade 12 Accounting

Chapter 8 DEPRECIATION AT CARRYING VALUE: Schie Traders No.2 Asset register General ledger account: Equipment account (B 7) Item: Office computer Date purchased: From whom purchased: DARRYN FURNITURES Cost price: R20 000 Percentage Depreciation: 10% p.a. at carrying value/book value or called diminishing value Details of depreciation Details Annual Accumulated Book value depreciation depreciation or known as calculations “Carrying value” End of first year End of second year End of third year End of fourth year End of fifth year 8.3 Residual value/or called scrap value of R1 Introduction At the end of each financial year the asset register will be updated by calculating depreciation on all fixed assets. The total depreciation will then be recorded in the General Journal as the depreciation for the year. Depreciation is a legal way of decreasing the net profit so that less tax can be paid. However when the fixed asset reaches the end of its lifespan no more depreciation can be calculated. Depreciation can only be calculated till the asset reaches a carrying value of R1. (Cost price minus Accumulated depreciation = carrying value) © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 8 fix ed assets 129

8 Chapter PAY SPECIAL ATTENTION NB 1. The R1 scrapNBvalue applies when an asset is depreciated. A Vehicle with a carrying value of RI cannot be depreciated the following year. Take note of the following (cost price minus accumulated depreciation = carrying value scenarios. R100 000 – R 99 999 = R1 HINT! hint DR VEHICLE ACCOUNT CR DR ACCUMULATED DEPRECIATION CR Balance b/d 100 000 Balance b/d 99 999 2. When an asset is sold that has a carrying value of R1, the cost price e.g. EG - worked examples and the total accumulated depreciation of the vehicle sold will be closed off to the Asset disposal account. exams ASSET DISPOSAL Vehicle 100 000 Accum. depreciation 99 999 Profit on sale of asset 39 999 Bank 40 000 139 999 139 999 PAY SPECIAL ATTENTION NB NB activity Because of the scrap value ACTIVITIES boy of R1, the profit is R39 999 and girl-left and right of page In practice the scrap value 3. However whenHINT! an asset is sold that has not reached its carrying activity principle is NOT applied when hint value of R1 yet but will soon, the scrap value principle (carrying value a fixed asset is sold that has of R1) is not applied in practice. not reached its R1 carrying value yet. Step by step e.g. Example comment comment EG - worked examples Vehicle is sold for R40 000 cash. exams Cost price of vehicle: R100 000 Accumulated depreciation: R 90 000 Carrying value = R 10 000 Depreciation is calculated at 20% on Cost price • Additional depreciation: 100 000 × 20% = R20 000 • The carrying value is already R10 000 and that means that depreciation can only be R10 000.activity • A fixed asset cannot be depreciatedACTIVITIES less thanboythe cost price of the vehicle. (And not and girl-left and R9 999!) right of page activity ASSET DISPOSAL Vehicle 100 000 Accum. depreciation 100 000 Profit on sale of asset 40 000 Bank 40 000 140 000 comment 140 000 Step by step comment Because the principle of R1 is not applied, the profit is R40 000 © Department of Basic Education 2014 130 chapte r 8 fixed asse ts  Mind the Gap CAPS Grade 12 Accounting

Chapter 8 8.4 Note to the Balance Sheet and Asset disposal 1. Know the format and the steps to follow when an asset is sold. 2. Know all the ledger accounts involved in calculating the • Additional depreciation when an asset is sold; • Depreciation of all the existing fixed assets at the end of the financial year (except Land and buildings). • Completion of Note 3 in the Balance sheet Note 3 to the Balance sheet: There are 3. Property , plant and equipment Land and Vehicles Equipment Total different formats of buildings Note 3; however they have Cost Price 60 000 the same entries. Make sure – Accumulated Depreciation (20 000) that you use the format of one of the approved = Carrying value on the last day of 40 000 text books. the previous year Movements: + Additions at cost price 30 000 – Disposals at carrying value (5 000) (book value) – Depreciation for the year (15 000) = Carrying value on the last day of 50 000 current year Cost Price 85 000 – Accumulated Depreciation at (35 000) end of year = Carrying value on the last day of 50 000 current year Steps to follow when disposing a fixed asset: 1. Find the cost price of fixed asset sold and move/transfer it to the Asset Disposal account. 2. Calculate any additional depreciation on fixed asset sold 3. Move/Transfer the total depreciation on fixed asset sold to Asset Disposal account. 4. Record the selling price of fixed asset sold in the Asset Disposal account. 5. Calculate the profit or the loss on sale of fixed asset sold. 6. At end of year, record the depreciation of the remaining fixed assets and new assets at the end of financial year. General Ledger accounts • Study the following General Ledger accounts. • Ensure that you understand all the ledger accounts well. • The entries are examples of all possible transactions in the applic- able general ledger accounts when fixed assets are bought or sold. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 8 fix ed assets 131

8 Chapter • The procedure at the end of the financial year is also illustrated. General Ledger of Star Traders DR VEHICLES (FA ) B1 CR 1 2013 2013 Mar 1 Balance B/d 180 000 Dec 31 Asset disposal GJ 100 000 2014 May 10 Creditors control CJ 150 000 Feb 28 Balance c/d 280 000 Oct 10 Bank CPJ 50 000 380 000 380 000 2014 Mar 1 Balance B/d 280 000 DR ACCUMULATED DEPRECIATION ON VEHICLES (-A) B2 CR 3 2013 2013 Dec 31 Asset Disposal (20000 + 5000) GJ 25 000 Mar 1 Balance B/d 60 000 2 Balance C/d 40 000 Dec 31 Depreciation (additional) GJ 5 000 65 000 65 000 2014 Balance (Accu. Depreciation. of Feb 28 Balance C/d 50 000 the remaining vehicles) B/d 40 000 6 2014 Feb 28 Depreciation (end of year) GJ 10 000 50 000 50 000 Mar 1 Balance b/d 50 000 DR ASSET DISPOSAL (calculation) B3 CR 1 3 2013 2013 Accumulated depreciation on Dec 31 Vehicles GJ 100 000 Dec 31 vehicles GJ 25 000 5 4 Profit on sale of asset GJ 5 000 Debtors control GJ 80 000 105 000 105 000 NOTE: Debtors control – when a vehicle was sold on credit Bank – when a vehicle was sold forPAY cash SPECIAL ATTENTION NB Creditors control – when a vehicle was traded in to a second- NB Asset Disposal hand dealer account must be Drawings – When owner took asset for own purposes closed off. (The Asset Disposal account Donation – When a vehicle was donated. will never have a balance because the HINT! difference will either be a profit on sale hint of asset or a loss on sale of asset) DR DEPRECIATION (e) N CR 2013 Accumulated depreciation on 2 2014 Profit and loss (depreciation for Dec 2014 31 vehicles (additional) Accumulated depreciation on e.g. GJ 5 000EG - worked 6 Feb examples 28 the whole year) GJ 35 000 Feb 28 vehicles (end of year) GJ 10 000 Accumulated depreciation on equipment GJ 20 000 exams 35 000 35 000 DR PROFIT ON SALE OF ASSET (i) N CR 5 2013 2014 Dec 31 Profit and loss account GJ 5 000 Feb 28 Asset disposal GJ 5 000 OR DR LOSSactivity ON SALE OF ASSET (e) N CR 2013 2014 ACTIVITIES boy and girl-left and Dec 31 Asset disposal GJ 0 Dec 31 Profit and loss account right of page GJ 0 activity © Department of Basic Education 2014 132 chapte r 8 fixed asse ts  Mind the Gap CAPS Grade 12 Accounting

Chapter 8 Example 2 on note 3 in the Financial Statements REQUIRED: Complete Note 3 of the Balance sheet INFORMATION: Make use of the format and complete Note 3 from the financial Statements. Name of Company _________________________________ BALANCE SHEET AT ________________________________ Notes ASSETS Non-current assets Property, plant and equipment 3 NOTES TO THE BALANCE SHEET 3. Property, plant and equipment Vehicles Cost Price Accumulated Depreciation Carrying value on the last day of the previous year Movements: Additions at cost Disposals at carrying value (book value) Depreciation for the year Carrying value on the last day of current year Cost Price Accumulated Depreciation Carrying value on the last day of current year © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 8 fix ed assets 133

8 Chapter Memorandum of example 1 Calculation of Depreciation and cost price and carrying value SCHIE TRADERS NO.1 Asset register Percentage Depreciation: 20 % p.a. at cost price/straight line method Details of depreciation Details Annual depreciation Accumulated Book value Calculations depreciation or known as “Carrying value” End of first year 80 000 × 20%= 16 000 16 000 64 000 (80 000 – 16 000) End of second (80 000 – 32 000) year 80 000 × 20%= 16 000 32 000 48 000 End of third year 80 000 × 20%= 16 000 48 000 32 000 End of fourth year 80 000 × 20%= 16 000 64 000 16 000 Cannot depreciate R16 000, because of the scrap value End of fifth 80 000 × 20%= 16 000 (64 000 + 15 999) (80 000 – 79 999) of R1. Therefore can only year 15 999 79 999 R1 depreciate R15 999 SCHIE TRADERS NO.2 Asset register Percentage Depreciation: 10 % p.a. at carrying value/ book value or called diminishing value Details of depreciation Details Annual depreciation Accumulated Book value Calculations depreciation or known as “Carrying value” Cost price R20 000 End of first 20 000 × 10% × 6/12 year = 1 000 1 000 19 000 End of (2 000 + 1 900) (20 000 – 2 900) second year 19 000 × 10% = 1 900 2 900 17 100 End of third year 17 100 × 10% = 1 710 4 610 15 390 End of fourth year 15 390 × 10% = 1 539 6 149 13 851 End of fifth 13 851 × 10% – year 1 385, 10 7 534,10 12 465,90 © Department of Basic Education 2014 134 chapte r 8 fixed asse ts  Mind the Gap CAPS Grade 12 Accounting

Chapter 8 Memorandum of example 2 REQUIRED: Complete the note to the financial statements by using the given ledger accounts Name of Company _________________________________ BALANCE SHEET AT ________________________________ Notes ASSETS Non-current assets 230 000 Property, plant and equipment (at carrying value) 3 230 000 NOTES TO THE BALANCE SHEET 3. Property, plant and equipment Vehicles Cost Price 180 000 Accumulated Depreciation (60 000) Carrying value on the last day of the previous year 120 000 Movements: Additions at cost (150 000 + 50 000) 200 000 Disposals at carrying value (100 000 – 25000) (75 000) Depreciation for the year (5 000 + 10 000) (15 000) Carrying value on the last day of current year 230 000 Cost Price 280 000 Accumulated Depreciation (50 000) Carrying value on the last day of current year 230 000 Check your answer! These must be the same. © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 8 fix ed assets 135

SCHEMATIC ILLUSTRATION OF FIXED ASSETS IN A BUSINESS ASSET REGISTERS GENERAL LEDGER ACCOUNTS BALANCE SHEET DEPRECIATION AT COST PRICE VEHICLES ASSETS 8 Chapter Balance b/d 100 000 Asset disposal GJ 1 30 000 Non-Current Assets ASSET REGISTER OF VEHICLE SOLD Creditors con CJ 50 000 Balance c/d 120 000 Fixed assets at CV 76 120 Cost price: R30 000 Depreciation: 20% at Cost price 150 000 150 000 Date Depreciation Accu Depr CV Balance b/d 120 000 NOTES TO THE BALANCE SHEET 30 000 × 20% × 8/12 = Equip- 28 Feb’10 4000 4 000 26 000 Note 3: FIXED ASSETS Vehicles ment Total 30 000 × 20% × 12/12 28 Feb’11 = 6000 10 000 20 000 ACCUMULATED DEPRECIATION ON VEHICLE (-A) Cost price 100 000 10 000 110 000 30 000 × 20% × 6/12 = 1 Sept’11 3000 2 13 000 17 000 Asset disposal 3 13 000 Balance b/d 40 000 –Accumulated depreciation (40 000) (3 600) 43 600 136 chapte r 8 fixed asse ts  (10 000 + 3 000) Depreciation 2 3 000 = Carrying value at begin 60 000 6 400 66 400 ASSET REGISTER OF REMAINING VEHICLE Balance c/d 49 000 Depreciation 19 000 Movements Cost price: R70 000 Accumulated depreciation:R30 000 (14000+5000) + Additions at Cost price 50 000 - 50 000 Date Depreciation Accu Depr CV 62 000 62 000 – Disposals at carrying value (17 000) - (17 000) 70 000 × 20% × 12/12 = 28 Feb’12 14000 6 44 000 26 000 Balance b/d 49 000 – Depreciation 2 + 6 (22 000) (1 280) (23 280) = Carrying value at end 71 000 5 120 76 120 ASSET REGISTER OF REMAINING NEW VEHICLE ASSET DISPOSAL Cost price at end 120 000 10 000 130 000 Cost price: R50 000 bought 6 months ago Vehicle GJ 1 30 000 Accum. depre 3 13 000 – Accumulated depreciation (49 000) (4 880) (53 880) Date Depreciation Accu Depr CV Profit sale of asset 5 1 000 Bank 4 18 000 = Carrying value at end 71 000 5 120 76 120 50 000 × 20% × 6/12 = 28 Feb’12 5 000 6 5 000 45 000 31 000 31 000 Know the steps to dispose of a fixed asset well: DEPRECIATION AT CARRYING VALUE DEPRECIATION Step 1 Transfer the cost price to Asset disposal Accum depre: V 2 3 000 Profit and loss 23 280 Step 2 Calculate additional depreciation ASSET REGISTER OF COMPUTER/EQUIPMENT Accum depre: V 6 19 000 Step 3 Transfer total depreciation to Asset disposal Cost price: R10 000 depreciation: 20% on CV Accum depre: Eq 6 1 280 Step 4 Record the selling price in Asset disposal Date Depreciation Accu Depr CV 23 280 23 280 a Cash Bank 10 000 × 20% × 12/12 28 Feb’10 = 2000 2 000 8 000 On Credit Debtors control 8 000 × 20% × 12/12 = 28 Feb’11 1600 3 600 6 400 PROFIT ON SALE OF ASSET Trade in Creditors Control 6 400 × 20% × 12/12 = 28 Feb’12 1280 6 4 880 5 120 Profit and loss 1 000 Asset disposal 5 1 000 By owner Drawings Donated Donation PROFIT AND LOSS ACCOUNT (F2) N Step 5 Calculate the profit or loss on sale of asset Depreciation 26 280 Trading account xxxx AT THE END OF THE YEAR: Profit on sale 1 000 Step 6 Calculate the depreciation of all old remaining and the new fixed assets Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Chapter 8 You are there, well done! © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting chapter 8 fix ed assets 137

Appendix Appendix: Past Grade 12 exam papers The 2014 Life Sciences exams have a new format in line with CAPS. The Department of Basic Education has offered an example of the Accounting Paper, Answer Book and marking memoranda. Use the exam paper, answer book and marking memoranda to help you prepare for your exams: 1. Before attempting the exam, photocopy the Answer Books so that you can use it more than once. Remember: if you want to succeed at Accounting, you must practise, practise, practise! 2. Answer the questions in the Accounting exam paper. Write your answers in the Answer Book. 3. Treat them as “real” exams by preparing yourself as if these were real exams, so have pens, pencils, an eraser and a calculator with you. Time yourself so you complete each paper within the 3 hours that is allocated to it. 4. This exercise is meant to test your own knowledge – so don’t cheat yourself by looking up the answers in the memo before you’ve finished each exam. 5. Use the memoranda to check whether or not your answers are correct. Note where you have got answers wrong – these are the sections of the curriculum on which you need to do more work. Go back to your textbooks and to the relevant sections of this study guide, and spend time learning the sections for which you got the lowest marks. 6. When you feel you have improved your knowledge in the areas you were weakest in in your first attempt, go through each exam again, using your photocopied Answer Books to record your answers. Check the memo again to see if you’ve improved. 7. And remember: Accounting success depends on practise, practise, practise. Repeat this exercise as often as you can so that you fly in your year-end exams! © Department of Basic Education 2014 138 appendix  Mind the Gap CAPS Grade 12 Accounting

Accounting 2 DBE/2014 NSC – Grade 12 Exemplar INSTRUCTIONS AND INFORMATION Read the following instructions carefully and follow them precisely. 1. Answer ALL the questions. 2. A special ANSWER BOOK is provided in which to answer ALL the questions. 3. Show workings in order to achieve part-marks. 4. You may use a non-programmable calculator. 5. You may use a dark pencil or blue/black ink to answer the questions. NOTE TO TEACHERS This Exemplar is intended to give teachers and learners an understanding of the standard and format of questions that are regarded as valid for the Grade 12 NSC Accounting examinations (CAPS) from 2014. Teachers are also referred to: • The Examination Guidelines for further information on structure and standards required • The analysis grids for evidence of compliance with weighting of content, cognitive levels and degrees of challenge NEW CAPS CONTENT The following questions contain new content according to the CAPS: • QUESTION 2 covers Creditors' Reconciliation, the preparation of which is a Grade 11 topic which may be examined in Grade 12 • QUESTION 3 covers a Company Cash Budget and includes repurchase (buy-back) of shares • QUESTION 4 focuses on repurchase (buy-back) of shares and its effect on the Balance Sheet, Notes and relevant financial indicators • QUESTION 5 is a standard cash flow and interpretation question which includes aspects relating to repurchase (buy-back) of shares DOUBLE TESTING It is not desirable practice for question papers to contain 'double testing' of topics across questions. However, as the topic of repurchase (buy-back) of shares might give rise to concerns or queries from teachers regarding acceptable treatment, this topic has been repeated in several contexts in this Exemplar. Refer to the Examination Guidelines for further explanation. Copyright reserved Please turn over Appendix

Accounting 3 DBE/2014 Accounting 4 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar Appendix 6. Use the information in the table below as a guide when answering the QUESTION 1: MANUFACTURING (40 marks; 25 minutes) question paper. Try NOT to deviate from it. 1.1 ACE CALCULATORS QUESTION 1: 40 marks; 25 minutes The business produces one type of basic school calculator. The business 140 appendix  Main topic of the question: This question integrates: uses the periodic inventory system. Managerial accounting Production Cost Statement REQUIRED: Analysis and interpretation of unit costs and break-even Manufacturing point 1.1.1 Indicate the cost accounts that would be affected by the following Managing resources in a manufacturing business: Internal control and internal audit Ethics (a) Rent paid for factory buildings (b) Overtime paid to factory workers QUESTION 2: 30 marks; 20 minutes (c) Commission paid to salespersons Main topic of the question: This question integrates: (d) Cost of raw materials used in the production Financial accounting (e) Salary of internal auditor (5) Reconciling a Creditors' Ledger Account to a Creditors' Creditors' Reconciliation Statement 1.1.2 Prepare the Production Cost Statement for the year ended Managing resources 28 February 2013. (10) Internal control and internal audit 1.1.3 30 000 calculators were produced during the financial year. QUESTION 3: 50 marks; 30 minutes Calculate the cost of production per unit. (3) Main topic of the question: This question integrates: Managerial accounting INFORMATION: Analyse and interpret a cash budget Cash Budget Information extracted from the financial records on 28 February 2013: Managing resources Internal control and internal audit R QUESTION 4: 50 marks; 30 minutes Administration cost 485 000 Main topic of the question: This question integrates: Direct/Raw material cost 1 161 000 Financial accounting Factory overhead cost 810 000 Repurchase (buy-back) of Shareholders' equity section of Balance Sheet and Notes Selling and distribution cost 245 000 shares Analysis and interpretation: Net asset value Direct labour cost ? Prime cost 1 797 000 QUESTION 5: 70 marks; 40 minutes Total cost of production of finished goods 2 460 000 Main topic of the question: This question integrates: Work-in-process (1 March 2012) 102 000 Financial accounting Work-in-process (28 February 2013) ? Cash Flow Statement Finished goods stock (1 March 2012) 202 800 Cash flow and interpretation of Analysis and interpretation of financial information Finished goods stock (28 February 2013) 500 200 information Independent auditor's report Sales (26 500 calculators at R130 each) 3 445 000 Internal control Cost of sales ? Ethics and professional body QUESTION 6: 60 marks; 35 minutes Main topic of the question: This question integrates: Financial accounting Preparation of Income Statement Income Statement, fixed Managing resources assets and stock Asset disposal account Inventory valuation: FIFO and weighted average Copyright reserved Please turn over Internal control problem-solving Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 5 DBE/2014 Accounting 6 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar 1.2 MALOMA DAIRY QUESTION 2: CREDITORS' RECONCILIATION AND INTERNAL CONTROL (30 marks; 20 minutes) You are provided with information for the year ended 28 February 2013. This dairy is owned by Mark Maloma. The business produces flavoured milk which Organic Traders buys and sells organic products. A statement received on is sold in bottles. 28 July 2013 from a creditor, Aqua Wholesalers, reflects a different amount owing by Organic Traders than the amount in the Creditors' Ledger of Organic Traders. INFORMATION: REQUIRED: The number of units produced and sold increased from 420 000 bottles in © Department of Basic Education 2014 2.1 Make a list of the changes to Aqua Wholesalers' account in the Creditors' 2012 to 540 000 bottles in 2013. Ledger, which the bookkeeper should process to correct the errors or omissions. Give a brief description in the Details column and show the The following figures apply to the 2013 financial year: changes to the balances in the Amount column. (12) Mind the Gap CAPS Grade 12 Accounting TOTAL PER UNIT 2.2 Prepare a Creditor's Reconciliation Statement in respect of Aqua Wholesalers Sales (540 000 x R6,60) R3 564 000 R6,60 for July 2013. (10) Variable costs R1 458 000 R2,70 Fixed costs R972 000 R1,80 2.3 The owner of Organic Traders is unhappy with the errors which occurred and resulted in inaccurate records in their books. Briefly explain TWO measures 1.2.1 Calculate the break-even point and comment on the level of that Organic Traders can implement in order to maintain good control over production for the year. (7) their creditors and to avoid this from happening in future. (4) 2.4 Organic Traders is experiencing cash problems and is currently in a position 1.2.2 Despite the fact that the factory workers were given a 10% wage where they are not able to pay their creditors on time. Aqua Wholesalers has increase, the direct material cost per unit has dropped by 50 cents granted them a credit limit of R40 000. All their current creditors require them per unit. What could have caused the difference? What comment to pay within 30 days and they allow their customers credit terms of 60 days. would you make to Mark about the control of this item? (3) Suggest TWO ways in which the liquidity position can be improved. (4) 1.2.3 The fixed costs per unit dropped from R1,90 in 2012 to R1,80 in INFORMATION: 2013. Should Mark be satisfied with this? What comment would you make to Mark about the control of this item? Provide figures to CREDITORS' LEDGER OF ORGANIC TRADERS support your answer. (4) CL4. AQUA WHOLESALERS 1.2.4 You are the internal auditor and you have noticed that the business Debit Credit Balance is using bottles bought from Apex Products as containers for the 2013 Credit flavoured milk. The contract with Apex Products was signed by the July 1 Balance brought forward 17 680 office manager, Alex Fynn. While working late one night, you July 6 Cheque 6321 16 796 884 noticed that Apex Products delivered a laptop to Mr Fynn. Discount 884 NIL July 8 Invoice 2590 17 932 17 932 • Will this be a concern to you? Give a reason for your answer. July 10 Debit note 89 593 17 339 • Explain what action you would take as internal auditor. State July 14 Invoice 2810 25 490 42 829 THREE points. (8) July 16 Journal Voucher 450 1 800 41 029 July 17 Debit note 102 1 482 39 457 July 19 Invoice 1067 420 39 967 40 July 22 Cheque 6410 18 000 11 967 July 29 Invoice 3056 32 604 44 571 Copyright reserved Please turn over Copyright reserved Please turn over appendix 141 Appendix

Accounting 7 DBE/2014 Accounting 8 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar Appendix Statement received from Aqua Wholesalers: QUESTION 3: CASH BUDGET (50 marks; 30 minutes) Aqua Wholesalers As the accountant of Blossom Traders Ltd you are reviewing the Cash Budget for the 142 appendix  PO Box 453; Stellenbosch 7599; Tel: 021 851 5679 three months ending 30 September 2013, which will be presented to the directors. Organic Traders Date of statement: 25 July 2013 PO Box 219 Credit limit: R40 000 REQUIRED: Stellenberg, 7550 3.1 Explain to the shareholders what the main difference is between a projected Debit Credit Amount income statement and a Cash Budget. (2) 2013 July 1 Balance brought forward 17 680 3.2 Name TWO items that could be included in 'other operating expenses'. (2) July 6 Receipt 1436 16 796 884 July 8 Invoice 2590 17 932 18 816 3.3 Complete the Debtors' Collection Schedule for July and August 2013. (8) July 10 Credit note 1038 539 18 277 3.4 Calculate the following: July 10 Credit note 1042 3 900 14 377 July 16 Invoice 2810 25 904 40 281 3.4.1 The % increase in sales in September 2013 (3) July 17 Debit note 102 1 482 38 799 July 19 Credit note 141 420 38 379 3.4.2 The rent income amount for September 2013. Note that the July 22 Cheque 6410 18 000 20 379 company is budgeting for a 12% increase in rent starting Discount 900 19 479 1 September 2013. (2) 3.4.3 The total sales for August 2013 (4) ADDITIONAL INFORMATION: 3.4.4 The amount that will be paid to creditors during September (4) 1. Aqua Wholesalers rejected the discount claimed by Organic Traders on 6 July and indicated that the payment was received too late to qualify for the discount. 3.4.5 The amount that will be paid for interim dividends in September 2013 (4) 2. There is a disagreement over the goods returned by Organic Traders as per debit note DN 89. The error has been made by Organic Traders. Aqua 3.4.6 What the buy-back of shares will cost the company in Wholesalers' credit note CN 1038 is correct. September 2013 (3) 3. Aqua Wholesalers have reflected credit note 1042 on 10 July. This, however, relates to another one of their customers, Orgo Stores, and not to Organic 3.4.7 The interest that will be received for September 2013 (4) Traders. 3.5 In August, there is an amount that will be paid for income tax. 4. Invoice 2810 was correctly recorded by Organic Traders. 3.5.1 What does this amount represent, since the financial year-end of 5. Aqua Wholesalers purchased goods on credit from Organic Traders. The this company is annually at the end of February? (2) bookkeeper was instructed to transfer their debit balance of R1 800 in the Debtors' Ledger to the Aqua Wholesalers account in the Creditors' Ledger. 3.5.2 How will this amount be calculated? (2) However, she did the entry wrong (refer to Journal Voucher 450. Aqua Wholesalers have also forgotten to record this entry. 3.6 The shareholders are unhappy with the way the collection of debtors has been handled. 6. Credit note 141 for R420 received from Aqua Wholesalers was incorrectly recorded as Invoice 141 in the Creditors' Ledger. 3.6.1 Explain why you believe the shareholders feel this way regarding the collection from debtors. (2) 7. Organic Traders have forgotten to claim their discount on 22 July. There was also a subtraction error of R10 000 in the Creditors' Ledger account on 22 July. 3.6.2 Suggest TWO measures that can be introduced to improve the situation. (2) 8. Note that Aqua Wholesalers' statement is prepared on 25 July 2013. 30 Copyright reserved Please turn over Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 9 DBE/2014 Accounting 10 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar 3.7 At the end of June, the following figures were identified. The directors have BLOSSOM TRADERS LTD asked that you explain to them why the budgeted and actual amounts of CASH BUDGET FOR THREE MONTHS ENDING 30 SEPTEMBER 2013 certain items differ significantly. Explain what you would say to them about each of the following items. Explain ONE point of advice in each case. 2013 2013 2013 JULY AUGUST SEPTEMBER JUNE 2013 RECEIPTS Budgeted Actual Cash sales 1 200 000 1 200 000 1 440 000 Advertising R5 200 R8 000 Collections from debtors ? ? 804 800 © Department of Basic Education 2014 Training of employees R12 000 NIL Rent income R8 500 R2 000 (6) Ordinary share capital (new shares) 400 000 Rent income 8 500 8 500 ? INFORMATION: Fixed deposit maturing 375 000 Mind the Gap CAPS Grade 12 Accounting 1. Credit sales: 40% of all sales are on credit. Interest on fixed deposit 4 500 4 500 ? Debtors are given 30 days in which to settle their debts. However, trends over Sundry income ? the past year reveal that debtors pay as follows: 1 893 300 2 339 000 2 635 700 • 40% within the same month of sale, subject to a 5% discount • 35% in the month following the sale, that is 30 days • 20% in the second month following the sale, that is 60 days • 5% of debts are written off after 60 days PAYMENTS 2. Stock purchases: Purchase of stock ? ? 300 000 • The business works on a fixed stock base where the stock sold in a month Payments to creditors ? ? is replaced at the end of that month. • The business uses a mark-up of 60% on cost. Directors' fees 6 000 6 000 6 000 • 80% of stock is purchased on credit and creditors are paid in 30 days. Salaries and wages 520 000 520 000 520 000 Audit fees 7 500 7 500 7 500 3. Fixed deposit: Income tax 46 000 The business has three fixed deposits with Reliable Bank to the value of R675 000 at an interest rate of 8,0%. One of these fixed deposits, worth Advertising 5 200 5 200 5 200 R375 000, matures in September. Dividends on ordinary shares ? Buy-back of shares ? 4. Shares: • The company has 250 000 shares in issue and the authorised share Other operating expenses ? ? ? capital has a balance of R1 500 000. • The company is planning on issuing a further 40 000 shares during 1 758 700 1 804 700 2 835 200 August 2013 at a price of R10,00 per share. • One of the shareholders passed away earlier in the year. This shareholder owns 55 000 shares. It was decided to buy back the shares from the Surplus (deficit) 134 600 534 300 (199 500) deceased estate during September 2013 at a price of R15,50 each. Opening bank balance (28 000) 106 600 640 900 5. Dividends: Closing bank balance 106 600 640 900 441 400 At the end of September, an interim dividend of 40 cents per share will be paid on shares held at the end of September. 50 Copyright reserved Please turn over Copyright reserved Please turn over appendix 143 Appendix

Accounting 11 DBE/2014 Accounting 12 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar Appendix QUESTION 4: REPURCHASE OF SHARES AND INTERPRETATION (50 marks; 30 minutes) You are provided with information relating to Prospect Limited for the year ended 31 March 2013. The CEO, Ronnie Phosa, together with his children, owns 150 000 144 appendix  shares in the company. Where explanations or comments are required, you are required to quote figures or financial indicators to support your explanations. REQUIRED: KEEP THIS PAGE BLANK. 4.1 Shareholders' equity section of the Balance Sheet on 31 March 2013. (6) 4.2 Notes to: • Ordinary share capital (13) • Retained income (15) 4.3 Calculate the net asset value per share on 31 March 2013 after the repurchase of the shares from the Gaptu family. (4) 4.4 The Gaptu family were keen to sell their shares because they were unhappy with the low pay-out policy that the directors were following in deciding on dividends. In your opinion, are their complaints valid, or not? Explain. (4) 4.5 Have the Gaptu family been offered a fair value for their shares? Explain. (3) 4.6 In your opinion, will the repurchase of the shares from the Gaptu family benefit the remaining shareholders, or not? Explain. (5) INFORMATION: 1. The ordinary share capital on 1 April 2012 consisted of: • 250 000 ordinary shares issued in the 2010 financial year at R5,00 per share • 150 000 ordinary shares issued in the 2011 financial year at R7,00 per share. 2. Retained income on 1 April 2012 amounted to R1 960 000. 3. The following changes occurred to share capital during the 2013 financial year: • On 1 October 2012, 100 000 new ordinary shares were issued at R9,00 per share. These shareholders are not entitled to interim dividends. • On 31 March 2013, the directors decided to repurchase 220 000 ordinary shares from members of the Gaptu family who were no longer interested in being shareholders. These shareholders had originally bought most of their shares on the JSE at different prices and at different times. The repurchase price was R10,70 per share. These shareholders are entitled to all dividends for the 2013 financial year. Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting Copyright reserved Please turn over © Department of Basic Education 2014

Accounting 13 DBE/2014 Accounting 14 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar 4. Additional information for the past two financial years: QUESTION 5: CASH FLOW AND INTERPRETATION (70 marks; 40 minutes) You are provided with information relating to Bellco Limited for the year ended FINANCIAL YEAR ENDED: 31 August 2013. 31 March 31 March 2013 2012 5.1 A company's published annual report comprises five main parts. Net income after tax R1 600 000 R2 200 000 Ordinary shareholders' equity at Choose a description from COLUMN B that matches a component in ? R4 260 000 year-end COLUMN A. Write only the letter (A–E) next to the question number (5.1.1–5.1.5) in the ANSWER BOOK. © Department of Basic Education 2014 Number of shares in issue at 400 000 ? year-end shares Market price per share on the JSE 1 040 cents 1 040 cents COLUMN A COLUMN B Net asset value per share ? 1 065 cents (Components of the annual report) (Description) Earnings per share 356,6 cents 488,9 cents 5.1.1 Income Statement A a written verbal explanation of Mind the Gap CAPS Grade 12 Accounting operations of the company Interim dividends 70 cents 90 cents 5.1.2 Balance Sheet during a financial year Final dividends 102 cents 140 cents 5.1.3 Cash Flow Statement B reflects whether or not the shareholders can rely on the 5.1.4 Directors' report financial statements 50 5.1.5 Independent auditor's report C reflects the profit/loss of the company D reflects the effect of the operating, financial and investing activities on the cash resources E reflects the net worth of the company (5 x 1) (5) 5.2 Complete the Cash Flow Statement for the year. Show workings in brackets. (22) 5.3 Calculate the following financial indicators for 2013: 5.3.1 Acid-test ratio (4) 5.3.2 % return on average shareholders' equity (4) 5.3.3 Debt-equity ratio (3) 5.3.4 % return on average capital employed (use net income before tax) (4) 5.4 The directors are pleased that the operating efficiency of the business has improved. Quote and explain TWO financial indicators to support their opinion. (4) Copyright reserved Please turn over appendix 145 Copyright reserved Please turn over Appendix

Accounting 15 DBE/2014 Accounting 16 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar Appendix 5.5 According to the Companies Act (Act 61 of 1973), the directors may 2. Extracts from the Income Statement and Notes for the year ended repurchase shares only if the liquidity of the business is acceptable. Quote and 31 August 2013: explain THREE financial indicators that provide evidence that they have 146 appendix  complied with the Act. (6) Depreciation R1 010 000 5.6 The directors want to establish another branch in a different area next year. Operating profit 3 062 000 They will need finance of R1,5 million to do this. One of the directors has Interest expense 462 000 suggested that they finance the expansion by increasing loans instead of Net profit before tax 2 600 000 issuing new shares. Net profit after tax 1 820 000 • Quote and explain TWO financial indicators to support his opinion. Interim dividends paid 770 000 • Explain TWO other factors, with advice, that the directors should consider Final dividends declared 921 600 before embarking on this expansion. (10) 3. Shares issued and repurchased: 5.7 Refer to the extract of the independent auditor's report under Information 6: • 1 000 000 ordinary shares were in issue at the end of the previous financial • Explain in your own words why it is necessary for the independent auditors year, 31 August 2012. to mention internal controls under the section on Directors' Responsibility. (2) • 400 000 ordinary shares were issued on 1 September 2012. • Under the section on Independent Auditor's Responsibility, they mention • 120 000 ordinary shares were repurchased on 28 February 2013 from the something about 'ethical requirements'. Give a practical example of this. (2) estate of a shareholder who had died. The shares were repurchased at • Is their final opinion good, or not? Explain. (2) R2,60 above the average issue price. • Why is it necessary for the independent auditor to have the qualification CA (SA) behind his name? Explain. (2) 4. Changes to fixed assets: New vehicles and equipment were bought during the year for R880 000. INFORMATION: Unused vehicles were sold at book value during the year. 1. Extract from the Balance Sheet for the year ended 31 August: 5. Financial indicators for the past two years: 2013 2012 Fixed assets 12 138 000 12 357 000 2013 2012 Investments (4% p.a.) 250 000 600 000 Solvency ratio 3,3 : 1 2,1 : 1 Current assets 3 465 000 3 200 000 Current ratio 1,9 : 1 1,5 : 1 Trading stock 1 720 000 2 250 000 Acid-test ratio ? 0,4 : 1 SARS (Income tax) 65 000 0 Trade and other receivables (excluding SARS) 1 140 000 940 000 Turnover rate of stock 8,7 times 6,6 times Cash and cash equivalents 540 000 10 000 % return on average shareholders' ? 15,6% equity Net asset value per share 860,3 cents 859,5 cents TOTAL ASSETS 15 853 000 16 157 000 Earnings per share 135,8 cents 114,2 cents Dividends per share 127 cents 30 cents Shareholders' equity 11 011 400 8 595 000 Debt-equity ratio ? 0,6 : 1 Share capital 8 960 000 6 360 000 % return on average capital Retained income 2 051 400 2 235 000 ? 12,4% employed Loan from Unity Bank (11% p.a.) 3 000 000 5 400 000 % gross profit on cost of sales 62,2% 58,3% Current liabilities 1 841 600 2 162 000 % operating expenses on sales 37,9% 44,5% Trade and other payables (excluding SARS and % operating profit on sales 10,1% 7,3% shareholders) 920 000 1 260 000 SARS (income tax) 0 72 000 Shareholders for dividends 921 600 620 000 Bank overdraft 0 210 000 TOTAL EQUITY AND LIABILITIES 15 853 000 16 157 000 Copyright reserved Please turn over Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 17 DBE/2014 Accounting 18 DBE/2014 NSC – Grade 12 Exemplar NSC – Grade 12 Exemplar 6. Extract from the independent auditor's report. Note that this is NOT a QUESTION 6: INCOME STATEMENT, FIXED ASSETS AND STOCK (60 marks; 35 minutes) complete report. 6.1 KLOOF COMPUTERS (PTY) LTD REPORT OF THE INDEPENDENT AUDITOR You are provided with information relating to Kloof Computers (Pty) Ltd for the We have audited the annual financial statements of Bellco Limited … as set year ended 30 June 2013. out on pages 52 to 64. REQUIRED: © Department of Basic Education 2014 Directors' Responsibility for the Financial Statements 6.1.1 Refer to Adjustments and Additional Information 5. Calculate the The company's directors are responsible for the preparation and fair profit/loss on the disposal of the office computers sold on presentation of these financial statements in accordance with International 31 March 2013. (6) Financial Reporting Standards and the requirements of the Companies Act of Mind the Gap CAPS Grade 12 Accounting South Africa, and for such internal control as the directors determine is 6.1.2 Refer to Adjustments and Additional Information 6. Calculate the necessary to enable the preparation of financial statements that are free from value of stock on hand of the: material misstatement, whether due to fraud or error. • Hypa laptops, according to the specific identification method (3) • ABX printers, according to the FIFO method (5) • Silvo printing paper, according to the weighted-average method (5) Independent Auditor's Responsibility 6.1.3 Prepare the Income Statement for the year ended 30 June 2013. (32) Our responsibility is to express an opinion on the financial statements based on our audit. INFORMATION: We conducted our audit in accordance with International Standards on (a) Items extracted from the Pre-adjustment Trial Balance on 30 June 2013: Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether Balance Sheet accounts section Debit Credit the financial statements are free from material misstatement. Land and buildings 930 000 Equipment 510 100 Opinion Accumulated depreciation on equipment 231 000 Trading stock 281 000 In our opinion, the annual financial statements present fairly, in all material Loan from Highway Lenders (13% p.a.) 300 000 respects, the financial position of Bellco Limited as at 31 August 2013, and its SARS (provisional tax) 194 000 financial performance and cash flows for the 52 weeks then ended in Debtors' control 32 000 accordance with International Financial Reporting Standards and the Provision for bad debts 2 000 requirements of the Companies Act of South Africa. Nominal accounts section MSANE & CHARTER Sales 3 700 000 Director: MPJ Msane Cost of sales 2 100 000 Registered Auditor; Chartered Accountant (SA) Staff costs (salaries, wages and commission) 180 000 15 September 2013 Directors' fees 120 000 Commission income 36 000 Interest on loan 29 000 70 Sundry expenses (including packing materials) 45 000 Asset disposal 7 000 Copyright reserved Please turn over appendix 147 Copyright reserved Please turn over Appendix

Accounting 19 DBE/2014 NSC – Grade 12 Exemplar Appendix (b) Adjustments and additional information: 148 appendix  1. Commission income of R2 350 is owed to the business. 2. Packing materials of R1 700 are on hand at the end of the year. Packing materials are included in Sundry expenses. 3. One of the two directors has been paid his fees for 6 months. The fees were increased by 10% half-way through the financial year. Provide for fees owing. Both directors earn the same annual fees. 4. Interest at 13% p.a. is owed on the loan. This interest is not capitalised. The loan was taken out several years ago. A payment of R100 000 was made on 31 December 2012. This has been properly recorded. 5. Equipment comprises: Cost on Accumulated Depreciation 30 June 2013 depreciation rate on 1 July 2012 General 20% on equipment 418 000 183 000 diminishing- balance method Office computers 92 100 48 000 33⅓% on cost R510 100 R231 000 NOTE: One of the office computers was sold on 31 March 2013. The selling price was credited to the Asset Disposal account but no other entry has been made. The cost price of this computer was R18 600 and the accumulated depreciation at the beginning of the year was R9 400. Depreciation is to be written off at the rates reflected above. 6. The business uses the perpetual inventory system. Stock records show: Item Valuation Stock on hand on Value on method 30 June 2013 30 June 2013 Specific Hypa identification: 20 computers ? laptops R10 500 each ABX FIFO 46 printers ? printers Silvo Weighted printing 600 reams ? average paper Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 21 DBE/2014 NSC – Grade 12 Exemplar REQUIRED: • Explain ONE problem relating to each salesperson. Provide figures to support your explanations. (6) • What advice would you offer the directors in respect of the plan to employ these salespersons? (3) INFORMATION: © Department of Basic Education 2014 Name of salesperson: GUGU MANNY JIM Number of laptops drawn from 20 20 20 stock at the beginning of the month Mind the Gap CAPS Grade 12 Accounting Number of laptops sold for cash 9 16 11 Number of laptops returned to 11 4 8 stock at the end of the month Discounts allowed to customers R0 R8 000 R5 000 Cash from sales deposited by each R148 500 R207 000 R193 000 salesperson into the bank account Gross profit earned before R54 000 R90 000 R72 000 discounts and other expenses Basic salary R7 000 R7 000 R7 000 Commission paid to each R14 850 R25 200 R17 850 salesperson Travel allowance claimed (R2,00 R3 000 R1 000 R1 000 per km) 60 GRAND TOTAL: 300 Copyright reserved appendix 149 Appendix

Accounting 2 DBE/2014 NSC – Grade 12 Exemplar – Answer Book Appendix QUESTION 1 1.1.1 Indicate the cost accounts that would be affected by the following in a 150 appendix  manufacturing business: Details: Cost account affected: (a) Rent paid for factory buildings (b) Overtime paid to factory workers (c) Commission paid to salespersons (d) Cost of raw materials used in the production (e) Salary of internal auditor 5 1.1.2 ACE CALCULATORS Production Cost Statement for the year ended 28 February 2013 10 1.1.3 Calculate the cost of production per unit. 3 Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 3 DBE/2014 Accounting 4 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book 1.2.1 Calculate the break-even point for the year. 1.2.4 Regarding the incident concerning the office manager, Alex Fynn: Will this be a concern to you? Give a reason for your answer: Comment on the level of production for the year. Explain what action you would take as internal auditor. State THREE points. © Department of Basic Education 2014 7 Mind the Gap CAPS Grade 12 Accounting 1.2.2 Despite the fact that the factory workers were given a 10% wage increase, the direct material cost per unit has dropped by 50 cents per unit. 8 What could have caused the difference? 40 What comment would you make to Mark about the control of this item? 3 1.2.3 The fixed costs per unit dropped from R1,90 in 2012 to R1,80 in 2013. Should Mark be satisfied with this? YES/NO What comment would you make to Mark about the control of this item? Provide figures to support your answer. 4 Copyright reserved Please turn over appendix 151 Copyright reserved Please turn over Appendix

Accounting 5 DBE/2014 Accounting 6 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book Appendix QUESTION 2 2.3 The owner of Organic Traders is unhappy with the errors which occurred and resulted in inaccurate records in their books. Briefly 2.1 Make a list of the changes to Aqua Wholesalers' account in the explain TWO measures that Organic Traders can implement in order to 152 appendix  Creditors' Ledger, which the bookkeeper should process to correct the maintain good control over their creditors and to avoid this from errors or omissions. Give a brief description in the Details column and happening in future. show the changes to the balances in the Amount column. Details Amount Pre-adjustment balance in Creditors' Ledger 4 2.4 Organic Traders is experiencing cash problems and is currently in a position where they are not able to pay their creditors on time. Aqua Wholesalers has granted them a credit limit of R40 000. All their current creditors require them to pay within 30 days and they allow their Correct balance customers credit terms of 60 days. Suggest TWO ways in which the liquidity position can be improved. 12 2.2 Creditor's Reconciliation Statement of Aqua Wholesalers on 31 July 2013 Details Amount Balance per statement received from Aqua Wholesalers 4 30 Correct balance 10 Copyright reserved Please turn over Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 7 DBE/2014 Accounting 8 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book QUESTION 3 3.4.1 Calculate the % increase in sales in September 2013. 3.1 Explain to the shareholders what the main difference is between a projected income statement and a Cash Budget. 3 3.4.2 Calculate the rent income amount for September 2013. Note that the company is budgeting for a 12% increase in rent starting 1 September 2013. © Department of Basic Education 2014 2 Mind the Gap CAPS Grade 12 Accounting 2 3.4.3 Calculate the total sales for August 2013. 3.2 Name TWO items that could be included in 'other operating expenses'. 4 3.4.4 Calculate the amount that will be paid to creditors during September. 2 3.3 Debtors' Collection Schedule for July and August 2013 July August Credit sales 4 collections collections May R660 000 3.4.5 Calculate the amount that will be paid for interim dividends in September 2013. June R680 000 July R800 000 August R800 000 4 3.4.6 Calculate what the buy-back of shares will cost the company in September 2013. TOTAL 8 3 3.4.7 Calculate the interest that will be received for September 2013. 4 Copyright reserved Please turn over appendix 153 Copyright reserved Please turn over Appendix

Accounting 9 DBE/2014 Accounting 10 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book Appendix QUESTION 4 3.5.1 What does this amount represent, since the financial year-end of this company is annually at the end of February? 4.1 PROSPECT LIMITED EXTRACT FROM THE BALANCE SHEET ON 31 MARCH 2013 Note 154 appendix  2 3.5.2 How will this amount be calculated? 6 2 4.2 NOTES TO THE FINANCIAL STATEMENTS 3.6.1 Explain why you believe the shareholders feel this way regarding the collection from debtors. Note 7. ORDINARY SHARE CAPITAL (ISSUED) 2 3.6.2 Suggest TWO measures that can be introduced to improve the situation. 13 Note 8. RETAINED INCOME 2 Balance at beginning of year 3.7 Explain what you would say to the directors about each of the following items. Explain ONE point of advice in each case. COMMENT TO ADVICE DIRECTORS Advertising Balance at end of year 15 Training of 4.3 Net asset value on 31 March 2013 after the repurchase of shares employees Rent income 4 6 50 Copyright reserved Please turn over Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 11 DBE/2014 Accounting 12 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book QUESTION 5 4.4 In your opinion, are the complaints by the Gaptu family about the dividends valid, or not? Explain. 5.1 5.1.1 5.1.2 5.1.3 © Department of Basic Education 2014 5.1.4 5.1.5 4 5 Mind the Gap CAPS Grade 12 Accounting 5.2 BELLCO LIMITED 4.5 Have the Gaptu family been offered a fair value for their shares? CASH FLOW STATEMENT FOR THE YEAR ENDED 31 AUGUST 2013 Explain. Cash effects of operating activities 1 293 000 Cash generated from operations 4 062 000 Interest paid (462 000) Cash effects of investing activities 3 4.6 In your opinion, will the repurchase of the shares from the Gaptu family benefit the remaining shareholders, or not? Explain. Cash effects of financing activities Net change in cash & cash equivalents Cash & cash equivalents at beginning of year Cash & cash equivalents at end of year 540 000 22 5 50 Copyright reserved Please turn over appendix 155 Copyright reserved Please turn over Appendix

Accounting 13 DBE/2014 Accounting 14 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book Appendix 5.3.1 Calculation of acid-test ratio 5.5 According to the Companies Act (Act 61 of 1973), the directors may repurchase shares only if the liquidity of the business is acceptable. Quote and explain THREE financial indicators that provide evidence that 156 appendix  they have complied with the Act. 4 5.3.2 Calculation of % return on average shareholders' equity 6 5.6 One of the directors has suggested that they finance the expansion by increasing loans instead of issuing new shares. Quote and explain TWO financial indicators to support his opinion. 4 5.3.3 Calculation of debt-equity ratio Explain TWO other factors, with advice, that the directors should 3 consider before embarking on this expansion. 5.3.4 Calculation of % return on average capital employed (use net income Factor Advice before tax) 10 4 5.4 The directors are pleased that the operating efficiency of the business has improved. Quote and explain TWO financial indicators to support their opinion. 4 Copyright reserved Please turn over Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Accounting 15 DBE/2014 Accounting 16 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book QUESTION 6 5.7 Explain in your own words why it is necessary for the independent auditors to mention internal controls under the section on Directors' Responsibility. 6.1.1 Calculate the profit/loss on the disposal of the office computers sold on 31 March 2013. © Department of Basic Education 2014 Under the section on Independent Auditor's Responsibility, they mention something about 'ethical requirements'. Give a practical example of this. Mind the Gap CAPS Grade 12 Accounting 6 6.1.2 Calculate the value of stock on hand of the: Hypa laptops, according to the specific identification method: Is their final opinion a good one or not? Explain. ABX Printers, according to the FIFO method: Why is it necessary for the Independent Auditor to have the qualification CA (SA) behind him name? Explain. Silvo printing paper, according to the weighted-average method: 8 70 13 Copyright reserved Please turn over appendix 157 Copyright reserved Please turn over Appendix

Accounting 17 DBE/2014 Accounting 18 DBE/2014 NSC – Grade 12 Exemplar – Answer Book NSC – Grade 12 Exemplar – Answer Book Appendix 6.1.3 KLOOF COMPUTERS (PTY) LTD 6.2 Explain ONE problem relating to each salesperson. Provide figures to Income Statement for the year ended 30 June 2013 support your explanations. Explanation of problem (with figure(s)) Sales 3 700 000 158 appendix  Cost of sales (2 100 000) GUGU Gross profit 1 600 000 Other income MANNY Operating expenses Staff costs 180 000 JIM 6 What advice would you offer the directors in respect of the plan to employ these salespersons? 3 32 60 GRAND TOTAL: 300 Copyright reserved Copyright reserved Please turn over Mind the Gap CAPS Grade 12 Accounting © Department of Basic Education 2014

Appendix © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting appendix 159

Appendix © Department of Basic Education 2014 160 appendix  Mind the Gap CAPS Grade 12 Accounting

Accounting 5 DBE/2014 Accounting 6 DBE/2014 NSC – Grade 12 Exemplar – Memorandum NSC – Grade 12 Exemplar – Memorandum QUESTION 2 2.3 The owner of Organic Traders is unhappy with the errors which occurred and resulted in inaccurate records in their books. Briefly 2.1 Make a list of the changes to Aqua Wholesalers' account in the explain TWO measures that Organic Traders can implement in order to Creditors' Ledger, which the bookkeeper should process to correct the maintain good control over their creditors and to avoid this from errors or omissions. Give a brief description in the Details column and happening in future. show the changes to the balances in the Amount column. Any TWO valid measures    Details Amount • Division of duties: The duty performed by one employee serves as a check © Department of Basic Education 2014 Pre-adjustment balance in Creditors' Ledger  # 44 571 on another employee, e.g. the person doing the payments is not the same Discount cancelled  884 person recording the entries or ordering the stock • Accurate documentation: Ensure that all documents are correctly recorded Correction of Debit note 89  54 and check recording against source document  • Continue doing regular reconciliations to creditors' statements. This Mind the Gap CAPS Grade 12 Accounting Correction of Invoice 141 (840) process is intended as a control measure to pick up errors such as this. Discount on 22 July  (900) 4 Correction of subtraction error  # 10 000 2.4 Organic Traders is experiencing cash problems and is currently in a position where they are not able to pay their creditors on time. Aqua Correct balance  53 769 Wholesalers has granted them a credit limit of R40 000. All their current creditors require them to pay within 30 days and they allow their # R10 000 could be added to the opening balance (i.e. R54 571 for 3 marks). customers credit terms of 60 days. Suggest TWO ways in which the 12 liquidity position can be improved. 2.2 Creditor's Reconciliation Statement of Aqua Wholesalers on TWO valid points   31 July 2013 • He needs to negotiate longer terms with his creditors. • Find other suppliers who allow longer credit terms. Details Amount • Negotiate a higher credit limit with his suppliers. Balance per statement received from Aqua  • Encourage customers to pay sooner, e.g. discounts on prompt payments. 19 479 Wholesalers 4 Correction of CN1042  3 900 Correction of Invoice 2810  (414) Transfer of balance (JV450)  (1 800) 30 Invoice 3056  32 604 Correct balance  53 769 10 Copyright reserved Please turn over appendix 161 Copyright reserved Please turn over Appendix

Appendix © Department of Basic Education 2014 162 appendix  Mind the Gap CAPS Grade 12 Accounting

Appendix © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting appendix 163

Appendix © Department of Basic Education 2014 164 appendix  Mind the Gap CAPS Grade 12 Accounting

Appendix © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting appendix 165

Appendix © Department of Basic Education 2014 166 appendix  Mind the Gap CAPS Grade 12 Accounting

Appendix © Department of Basic Education 2014 Mind the Gap CAPS Grade 12 Accounting appendix 167

The Mind the Gap study guide series assists you to make the leap by studying hard to achieve success in the Grade 12 exam. This publication is not for sale. © Copyright Department of Basic Education www.education.gov.za Call Centre 0800 202 933