Accounting

Grade 12

Paper 1

Presented by
Mrs. J de Meillon
Exam Guidelines
ACCOUNTING GRADE 12 2021
• https://www.education.gov.za/2021Grade12ExamGuidelines.aspx
• Paper 1 : Financial Reporting and Evaluation
o Income Statement (Statement of Comprehensive Income) of Companies
– with adjustments
o Balance Sheet (Statement of Financial Position) of Companies
o Cash Flow Statement of Companies
o Analysis and interpretation of financial statements of companies
§ Profitability
§ Liquidity
§ Solvency
§ Debt-equity
§ ROSHE
§ ROCE
§ NAV
§ EPS
§ DPS
§ Dividend payout rate
o Corporate governance, Ethical behavior, professional bodies and code
of conduct of companies.
Income Statement /
Statement of Comprehensive Income
o NET Sales – Cost of Sales = Gross Profit + Operating
Income – Operating Expenses = Operating Profit for the
year + Interest Income – Interest Expense – Tax = Net
Profit for the year.
o ONLY nominal accounts section – EXCEPT dividends on
ordinary shares.
o Remember to add
• Trading stock deficit / surplus
• Depreciation Always calculate
• Provision for bad debts adjustment. AFTER all other
adjustments taken
• Profit / Loss on sale of asset into account
Income Statement
ADJUSTMENTS
o Directors fees and Audit Fees
• The directors will enter into contracts with the company in terms which they will
be paid fees for their services. Directors’ Fees (e) + will be debited and Bank /
Accrued expenses credited with payments / outstanding amounts.
• The fees paid to the independent auditor will be debited to the Audit Fees (e) +
will be debited and Bank / Accrued expenses credited with payments /
outstanding amounts.
o Salaries and Wages
• An employee on leave was omitted from the Salaries / Wages Journal
– Debit Salaries and Wages (e) + with total GROSS Salary / wages
– Debit Contribution accounts (e) + / Salaries and Wages with Contribution as well.
– Credit Creditors for Salaries with NET salary / wages
– Credit SARS (PAYE) – deduction
Balance Sheet
– Credit Pension Fund CL – deduction + contribution
Note: Trade and
– Credit Medical Aid CL – deduction + contribution other payables
– Credit UIF CL – deduction + contribution
o Rent Income Adjustment
• Rent was paid one month in advance. Note: rent has increased with 10% per
month on 1 November 2019. Total on Pre-Adjustment Trial Balance R114 750.

Mar Apr May Jun Jul Aug Sept Oct ‘ Nov Dec’ Jan Feb’ Mar
’19 ’19 ’19 ‘19 ‘19 ’19 ‘19 19 ‘ 19 19 ’20 20 ‘ 20
+
10% 5 Months rent + 10%
8 Months normal rent

13 Months = R114 750

!"
8(100%) + 5(110%) = 114 750 8𝑦 + 5 𝑦 + !""
𝑦 = 114 750
800% + 550% = 114 750 8y + 5y + 0,5y = 114 750
OR
1 350% = 114 750 13,5y = 114 750
Y = 8 500
𝟏𝟏𝟎
𝒙 𝟏𝟏𝟒 𝟕𝟓𝟎 = 9 350 Y + 10% = 9 350
𝟏 𝟑𝟓𝟎
 NOTES to the BALANCE SHEET
3. FIXED/TANGIBLE ASSETS Land &
buildings Equipment Total
adjustment
Pre- Carrying value at beginning 2 417 500 144 000 2 561 500
of year
Cost 2 417 500 314 000 2 731 500
Accumulated depreciation - (170 000) (170 000)
Movements
- - -
adjustment

Additions at cost
- (10 200) (10 200)
Disposals at carrying value
(24 000 – 13 800)
- (30 800) (30 800)
Depreciation
Carrying value at end of year 2 417 500 103 000 2 520 500
adjustment
Post-

Cost 2 417 500 290 000[1] 2 707 500

Accumulated - (187 000)[2] (187 000)
depreciation[3]
[1] 314 000 – 24 000 = 290 000
[2] 170 000 – 13 800 + 30 800 = 187 000
NOTES to the BALANCE SHEET
7. ORDINARY SHARE CAPITAL
Authorised Share Capital
1 200 000 Ordinary Shares
Issued Shares:
900 000 Shares in issue at the beginning of the year 7 785 000
120 000 Shares issued during the year at R9,50 each 1 140 000
(170 000) Shares repurchased at AIP of R8,75 (1 487 500)
850 000 Shares in issue at the end of the year 7 437 500
Amount on
Balance sheet

Average Issue Price (AIP)

'()*+ ,*-. /*+01 (2 34*513 6- 63301

=
708915 (2 34*513 6- 63301

(" "#$ %%%&' '(% %%%)

=
(*%% %%% &'+% %%%)

= R8,75
NOTES to the BALANCE SHEET

8. RETAINED INCOME
Balance at the beginning of the year 3 200 000
Net Profit AFTER tax (final amount on the Income Statement) 1 080 000
Repurchase of Shares 50 000 x R2,60 (130 000)
Ordinary share dividends (1 487 000)
Interim / Paid (dividends on ordinary shares from nominal section in Trial Balance) 675 000
Final / Recommended 1 450 000 x 56 cents 812 000
Repurchase Price – AIP OR calculate from Income Tax amount.
R9,60 – R7,00 = R2,60
Income Tax = 420 000 28%

:;
Before Tax = 100%
;<
𝑥 420 000 = 1 080 000
-Tax = 28%
After Tax =72%
Balance Sheet
BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON …..
ASSETS Note
Non-current assets 1 707 300
Fixed/Tangible assets 3 1 359 900
Financial assets: Fixed deposit
Fixed deposit (420 000 + 46 200 – 118 800) 347 400
Current assets 1 320 965
Inventory (879 000 – 14 700 + 2 520) 4 866 820
Trade and other receivables
119 910
(113 100 – 3 390 + 3 900 + 6 300) 5
Cash and cash equivalents(207 935 + 6 000 + 1 500 + 118 800) 6 334 235
Total assets 3 028 265
EQUITY AND LIABILITIES
Shareholders’ equity 2 212 922
Ordinary share capital 7 1 621 800
Retained income 8 591 122
Non-current liabilities 112 745
Loan from Wheels Finance Ltd
112 745
(180 000 + 11 945 – 79 200)
Current liabilities 702 598
Trade and other payables (246 000 + 60 000 + 9 390 + 17 400 + 20 608) 9 623 398
Shareholders for dividends* 270 000
Current portion of loan* 79 200
Total equity and liabilities 3 028 265

* Could be shown under Note for Trade & other payables

Difficult Loan Adjustment
• The Loan was received on 1 September 2017.
• This loan is to be repaid over 6 years in equal monthly installments with the effect
from 1 October 2017. All repayments have been made.
• Interest is NOT capitalized and has been paid in full.
• Current balance on year-end - 28 February 2020, R1 376 000
Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb
’17 ’17 ’17 ’17 ’17 ’17 ’17 ’17 ’17 ‘17 ‘18 ‘18

5 months

Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb
’18 ’18 ’18 ’18 ’18 ’18 ’18 ’18 ’18 ’18 ’19 ’19

12 months

Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb
’19 ’19 ’19 ’19 ’19 ’19 ’19 ’19 ’19 ’19 ’20 ’20

12 months

6 years = 72 Months – (5 + 12 + 12) = 43 left over

12 months of the 43 will be current portion of loan
'+
(,
x 1 376 000 = 384 000
CASH FLOW STATEMENT
• In inflationary times – expect that rising selling prices will generate sufficient
cash to compensate cost of running the business. Not always true.
• A recession (fewer sales are made) will add to liquidity, solvency and cash
flow problems.
• Income Statement and Balance Sheet are prepared according to the
accrual and matching principle and as a result the financial statements are
“contaminated” by the adjustments making it difficult to see exactly how the
money is flowing.
• Cash flow provides users of financial statements with information of all
financial resources. Particularly cash generated from operations,
investments and financing activities.
Basic layout of Cash flow statement
CASH FLOW STATEMENT FOR THE YEAR ENDING…..
Cash generated from operations
Cash effects of investment activities
Cash effects of financing activities
Net change in cash

Operations: Investing: Financing:

Main income-earning Establishment of infrastructure Change in debt and capital
of a company funding

Buying and selling stock Investing in Land and New issue of shares
Buildings
Paying creditors Purchase / Sale of assets Repurchase / Buy back of
shares
Receiving payments from Fixed deposits Increase loan
debtors
Paying all expenses Repayment of loan
SARS Income Tax New issue of shares
Shareholders for dividends
Cash flow statement - Operating Activities
CASH FLOW STATEMENT FOR THE YEAR ENDING…
CASH EFFECTS OF OPERATING ACTIVITIES 19 810
Cash generated from operations 1 72 050
Interest Paid (400 + 9 200 – 760) (8 840)
Dividends Paid (7 000 + 10 000 – 5 600) (12 000)
Income Tax Paid (2 300 + 23 500 – 5 600) (31 400)

From Income Statement From Nominal Accounts Section or additional

information = interim paid
TRADE AND OTHER PAYABLES 2019 2020

Trade Creditors 31 350 29 900

SARS (Income Tax) 2 300 2 700
Shareholders for dividends 7 000 5 600
Accrued Expenses 400 760
41 050 38 960
1. CASH GENERATED FROM OPERATIONS
Profit BEFORE tax 40 000
Adjustments for:
Depreciation 23 000
Interest Expense 9 200
Operating Profit before changes in working Capital 72 200
Change in working capital (150)
(increase) / decrease in inventory (70 000 – 63 000) 7 000
(increase) / decrease in debtors (34 000 – 39 700) (5 700)
increase / (decrease) in creditors (31 350 – 29 900) (1 450)
72 050

EXTRACT OF BALANCE SHEET 2019 2020

Inventories 70 000 63 000
Trade and other receivables *Excluding SARS 34 000 39 700
Income Tax

Trade and other payables *Excluding SARS 31 350 29 900

Income Tax; Shareholders for dividends and interest
NOT capitalized (Accrued Expense)
Cash flow statement - Investing Activities

CASH FLOW FROM INVESTING ACTIVITIES 58 300

Fixed assets purchased 23 500
(62 700 + 4 800 + 12 000 – 56 000)
Proceeds of sale of fixed assets 4 800
* Asset disposal ALWAYS at carrying value

(Increase) / decrease in Fixed deposit 30 000

FIXED ASSETS PURCHASED (Note 3)

Carrying value at the beginning of the year 56 000
*balance sheet previous year

Purchases BALANCING FIGURE ** 23 500

Disposals at carrying value (4 800)
Depreciation *from the Income Statement (12 000)
Carrying Value at the end of the year 62 700
** Balance sheet current year
Cash flow statement - Financing Activities
CASH EFFECTS OF FINANCING ACTIVITIES 168 000
Proceeds from issuing of NEW shares @ issue price 816 000
*additional shares issued during year.
Repurchase of shares @ purchase price (448 000)
(80 000 x (4,80 + 0,80)
Increase / (repayment) of loan (200 000)
*change on balance sheet
Share Capital
• The business has an authorised share capital of 900 000 ordinary shares
• 500 000 shares were issued on 1 March 2020. (R2 352 000 balance of Ordinary
share capital on 1 March 2020.)
• On 1st May 2020 an additional 160 000 shares were issued. R816 000 was
received and deposited.
• On 1st September 2020, 80 000 shares were repurchased from a dissatisfied
shareholder at R0,80 above average share price. (AIP)

Average Issue Price (AIP)

'()*+ ,*-. /*+01 (2 34*513 6- 63301 (+,$+ %%%&#'- %%%)

= = ($%% %%% &'-% %%%)
= R4,80
708915 (2 34*513 6- 63301
Cash flow statement - COMPLETED
CASH FLOW STATEMENT FOR THE YEAR ENDING…
CASH EFFECTS OF OPERATING ACTIVITIES 19 810
Cash generated from operations 1 72 050
Interest Paid (400 + 9 200 – 760) (8 840)
Dividends Paid (7 000 + 10 000 – 5 600) (12 000)
Income Tax Paid (2 300 + 23 500 – 5 600) (31 400)
CASH FLOW FROM INVESTING ACTIVITIES 58 300
Fixed assets purchased 23 500
+
(62 700 + 4 800 + 12 000 – 56 000)
Proceeds of sale of fixed assets 4 800
* Asset disposal ALWAYS at carrying value
(Increase) / decrease in Fixed deposit 30 000
CASH EFFECTS OF FINANCING ACTIVITIES 168 000
Proceeds from issuing of NEW shares @ issue price 816 000 +
*additional shares issued during year.
Repurchase of shares @ purchase price (80 000 x (4,80 + 0,80) (448 000)
Increase / (repayment) of loan *change on balance sheet (200 000)
NET CHANGE IN CASH AND CASH EQUIVALENTS *** Balancing Figure ***246 110 =
Cash and Cash Equivalents beginning of year * take into account bank 134 000
overdraft (- 46 000 + 180 000) +
Cash and Cash Equivalents end of the year. 112 110
Interpretation of Financial Statements

STEP 1 STEP 2
STEP 3

• KNOW the • QUOTE figures • Comment on

formulae and compare
REGARDLESS possible reason
with previous and possible
of the formulae year
sheet!! solution
• Calculate and
determine
answer
Interpretation of Financial Statements

Profitability and Operating Efficiency

goods are sold for less than
mark-up policy (stock clearance
sales)
Compare to the mark-up policy
Gross Profit on Sales Are expenses being well managed?
Gross Profit on cost of sales avoid too much discount
Compare with ⅓ of the percentage
Operating Profit on Sales
gross profit on sales. If the
Operating expenses on Sales percentage
Net Income on Sales differs greatly from this, the expenses
are too high
cost control
•It indicates whether the
expenses have maintained
constant in relation to sales.
Interpretation of Financial Statements
"#$$%&' ())%') "#$$%&' *+,-+.+'+%)
LIQUIDITY ( ∶ )
"#$$%&' *+,-+.+'+%) "#$$%&' *+,-+.+'+%)

If ratio is too low

Current Ratio If ratio is too high business cannot pay its
Acid - Test Ratio • there is too much stock short-term debts using
Rate of stock • wrong stock current assets. It can be
turnover / due to:
• prices too high
Stockholding • obsolete stock
period • stock valued higher than
realistic value
Debtors’ collection
• Debtors could take too
period long to pay – offer
Creditors’ discounts for early
payments payments
• Creditors are paid too
soon
Interpretation of Financial Statements
())%') *+,-+.+'+%)
SOLVENCY( ∶ )
*+,-+.+'+%) *+,-+.+'+%)

Is the business??
Solvent – can meet long term
debts This ratio refers to the
business’s degree of
OR solvency – in other words
Insolvent – will not be able to pay whether the business will be
back debt in the future able to pay its long-term
debts
This means that the assets
TOTAL ASSETS / TOTAL LIABILITIES should be more than the
liabilities.
Example DBE/SEPTEMBER 2021

Current Ratio is
also part of
liquidity.
Interpretation of Financial Statements
DEBT / EQUITY
It shows the ratio between
borrowed capital and own capital. When is it favourable for a
It gives an indication of how the business to use borrowed capital
business is financed through (loans)?
borrowed capital (loans) and own
capital (shares) If the ratio is less than 1:1
Example If the ratio is 0,7:1
It shows the creditworthiness and • This means the business is a low
ability to raise more finance. (will risk / favourably geared / high
the bank give more loans to the geared / has a good credit rating
business?) (creditworthy)

It shows the degree of risk the If the ratio is more than 1:1
business has placed itself in. Example: If the ratio is 1,2:1
(paying back loans with interest
puts the business at great • This means the business is a high
risk / unfavourably geared / low
financial risk). If the profit drops,
the loan and interest has still to be geared has a bad credit rating (not
paid creditworthy)
Interpretation of Financial Statements
RETURN ON TOTAL CAPITAL EMLOYED
(ROTCE)
This ratio is used to comment on When are conditions favourable to
loans. borrow funds?
It will depend on the degree of risk
This return should be higher than involved in raising loans (interest rate)
the interest rate paid on long-term favourable / unfavourable gearing.
loans. Should the company sell more shares
This return should be considered or borrow from the bank for
with the debt/equity ratio. expansion?
* If the interest rate is higher than the
ROTCE, the company should sell more
This ratio indicates whether the shares.
business has a return on capital (Example Interest on loan = 26% and
employed that is higher or lower ROTCE = 17%)
than the interest paid on loans. * Borrow more funds if the interest rate
The company should earn a higher is lower than the ROTCE
return on this capital than the (Example: Interest on loan = 13% and
interest rate they pay on the loan. ROTCE = 20%)
Example DBE/SEPTEMBER 2021

General Knowledge
Negative gearing
that current interest
because the ROTCE
rate is 10.5% MUST be
is LESS than the
aware of this!
interest rate AND
decreased
Interpretation of Financial Statements

RETURN ON SHAREHOLDERS EQUITY

(ROSHE)

When will shareholders

be satisfied with the
This indicates what return?
percentage profit was If the percentage is
made on the money higher than interest on
invested by the alternative investments,
shareholders e.g. fixed deposits
Interpretation of Financial Statements
EARNINGS PER SHARE (EPS) &
DIVIDENDS PER SHARE
A portion of all the earnings may
be retained by the company for
future expansion and the Compare EPS with DPS difference
shareholders will not benefit is what has been retained by the
immediately with a dividend business.
payout. Calculate the DPS as a % of EPS to
indicate the % of earnings being
distributed to the shareholders in the
The amount paid to them in
dividends represent their form of dividends
immediate benefit. 𝐷𝑃𝑆 100
𝑥
𝐸𝑃𝑆 1
Can be used to comment on
dividend pay-out policy Compare to the previous year / to
other companies this will indicate a
Directors want to keep good / bad investment.
shareholders happy / retain
loyalty of existing shareholders
 Example of when to quote EPS and DPS

𝐷𝑃𝑆 100
𝑥
𝐸𝑃𝑆 1
Interpretation of Financial Statements
NET ASSET VALUE
(NAV)
Changes in the NAV per share
could be caused by additional
shares issued:
It indicates the actual value of the
shares according to the financial • the new shares should be issued
statements of the company at a higher value.
• If the new shares are not sold at
The true value of the shares a higher price, it will depress the
increases as the company net asset value of the shares.
accumulates wealth. • If shares are repurchased at a
The NAV per share has an effect price in excess of the average
on the market price of the share. price, it will also have an effect on
the net asset value.
When will it profitable for a
shareholder to sell shares?
If the market value is higher than the
NAV of a share, it will be profitable for
a shareholder to sell his shares.
Example of when to quote NAV and refer to Market Price (JSE)

Can also
ask if this is
a good
investment
/buy more
shares
ETHICS, GOVERNANCE and ROLE OF
PROFFESSIONAL BODIES

• This can be integrated into all relevant topics.

• This question will be based on short scenarios or case studies.
• Practical problem-solving recommendations
• Internal control issues should be practically related to the accounting and
recording procedures
Corporate Governance
• Effective, responsible and ethical management of a company.
• The board of directors and CEO – How did they manage business or what
did they do wrong?
• Need for two types of directors with the emphasis on ‘executive’ as used in
CEO.
• Work of specific committees to ensure accountability and transparency.
o Audit committee
o Remunerations committee
o Ethics committee
• Pollution / environmental awareness
• Skills development / wealth and job creation or support of community
projects Corporate social investment

Responses should be based on common sense and LOGICAL courses

of action – case study based – NOT specific policies studied as fact.
Professional bodies

• Need for a code of conduct.

• Professional development and disciplinary roles.
• What may lead to a POSSIBILITY of dismissal from a professional body in
the event of misconduct.
• SAICA – South African Institute of Charted Accountants
Ø SAICA provides support, advice and services to its members throughout
their professional lives. SAICA members are business advisors, business
leaders and entrepreneurs.
• SAIPA – South African Institute of Professional Accountants
Ø Professional Accountants (SA) have an important role to play as trusted
business advisors. They will benefit from the support of its professional
accountancy organization, SAIPA, which play an active role in enforcing
professional codes of conduct and providing continuous education.
g
Parrot study all the formulae
for the analysis regardless of
the formulae sheet.
Be able to identify when to
Remember do use which ratio
what you know
best first.
Parrot study all
formats / layouts of
Statements and
Notes
Visit our platform for more content:

juniortukkie.online