2022 - TERM 2

GRADE 12 PROJECT

ACCOUNTING MARKING GUIDELINE

ALLOCATION OF MARKS MARK

Mark
QUESTION QUESTION 1 Learner
s
Reconciliation between profit before tax and cash
1.1.1 - 1.1.3 10
generated from operations

1.2.1 Cash flow from investing activities 10

1.2.2 Cash flow from financing activities 5
1.2.3.1 - 1.3.5 Net change in cash and cash equivalents 8
1.3 Calculations for financial indicators 17
Sources of income used by directors to fund fixed
1.4 4
assets

1.5 Declaration of dividends 2

TOTAL 56
QUESTION 2.1
Parties that are interested in Financial statements
2.1.1 8
of a company

2.1.2 to 2.1.6 Analysis and interpretation of financial statements 24

TOTAL 32
QUESTION 2.2

2.2.1 to 2.2.5 Audit report 12

TOTAL 12

QUESTION 1+2.1 + 2.2 = 100

TOTAL MARKS 100 / 2 = 50

This marking guideline consists of 7 pages.

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QUESTION 1

1.1 Complete the calculations that reconcile Profit Before Taxation and
Cash Generated from Operations for the year ended 28 February 2022:

1.1.1 Profit before tax

WORKINGS ANSWER


100
300 000 x  1 000 000 
30 one part correct

3
1.1.2 Operating profit before changes in working capital
WORKINGS ANSWER

See NPBT
1000 000  + 102 500 + 48 600  1 151 100 
4
1.1.3 Change in trade and other payables (creditors) amounted to R137 600.
Provide a calculation to confirm the change and indicate if the amount is
an inflow or outflow.
WORKINGS Inflow/Outflow

(411 200 + 4 000) (544 100 + 8 700)

415 200  – 552 800  Inflow 

3
1.2
1.2.1
CASH FLOW FROM INVESTING ACTIVITIES (792 300) #

Fixed assets purchased

(1 192 300)
2 620 000  + 102 500 + 220 000 – 1 750 200  One part correct *
Accept alternative arrangements for calculations such as signs reversed, brackets Must be in brackets
and/or ledger account.

Proceeds from sale of fixed assets 220 000 

Decrease in fixed deposit One mark One mark
or 120 000 x 3/2 or
300 000 – 120 000  180 000 
One part correct
10
120 000 x 0.60/0.40
# Check operation

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1.2.2 815 000 
CASH FLOW FROM FINANCING ACTIVITIES One part correct

Proceeds from shares issued

3 135 000 – 2 160 000 or 150 000 x 6,50 975 000 
One part correct

Re-purchase of shares 0

Decrease in non-current liabilities (Loans)

(160 000) 
540 000 – 700 000 5

1.2.3 396 000 
NET CHANGE IN CASH AND CASH EQUIVALENTS
One part correct

Cash and cash equivalents (opening balance)

(15 000 – 112 500) (97 500) 
Cash and cash equivalents (closing balance)
(568 000 x 2.4)
1 363 200  – 420 800  – 643 900  298 500 
One part correct
8

1.3 Calculate the following financial indicators for the year ended
28 February 2022.

1.3.1 Gross profit on cost of sales

WORKINGS ANSWER
3
1875 000 60% 
x 100
3125 000 One part correct

1.3.2 Acid-test ratio

WORKINGS ANSWER

See C&CE
1 363 200 one mark – 420 800 one mark
1,7: 1 
942 400 two marks Accept 1,66 :1
(643 900  + 298 500 ): 568 000  or 1,65: 1
See C&CE One part correct; must be y:1 4

1.3.3 Net asset value per share

WORKINGS ANSWER
974 cents 
4 380 900  x 100 or 973,5 cents or
450 000  1 R9,74
One part correct
Must be rands or cents
3

2022 Grade 12 Project Accounting Marking Guideline

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1.3.4 Percentage return on average shareholders’ equity

WORKINGS ANSWER
See 1.1.1
(1 000 000 – 300 000)
700 000  x 100
½  (4 380 900  + 3 980 000 ) 1 16,7% 
one part correct – must be %
4 180 450 three marks
8 360 900 two marks

1.3.5 Debt-equity ratio

WORKINGS ANSWER
2
540 000 : 4 380 900 0,1: 1 
One part correct

1.4 Identify TWO sources of income that were used by directors to fund
the fixed assets purchased. Quote figures.

Any two of the three sources Source  figure 

See 1.2.2
Source 1
Issued shares R975 000 (150 000 shares)
(with figures)
Source 2
(with figures) Fixed assets sold R220 000

Source 3
(with figures) Fixed deposit matured R180 000 See 1.2.1
4

1.5 Directors decided not to declare final dividends. Justify their decision
by making reference to cash and cash equivalents. Provide ONE point
and quote relevant figures.
One valid point  Figures 

 During the financial year cash and cash equivalents increased from
R15 000 to R 298 500 Check 1.2.3
 Overdraft of R112 500 improved to a positive balance of R298 500
Check 1.2.3
 Cash and cash equivalents improved by R396 000. Check 1.2.3 2

TOTAL 56

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QUESTION 2
2.1.1 Explain to Jankies WHAT AND WHY the existing Shareholders and Financial
Institutions are interested in the Financial Statements and the opinion
expressed by Auditors.
Parties that are What are they interested Why are they interested?
interested in?
Existing The profitability and To decide whether to keep
shareholders financial stability of the their shares, buy more or sell
company and its ability to them.
pay dividends.
Financial The liquidity and To ensure that the company
Institutions and solvency of the will be able to repay the loan
Banks. company. provided. 8

Allocate one mark for partially correct answer.

2.1.2
Jankies is of the opinion that Tommy Limited is handling the working capital effectively
and is in a better liquidity position compared to Taylor Limited. Quote TWO financial
indicators to explain to him why these are satisfactory/unsatisfactory.
Indicators   figure(s) and explanation  
 Tommy LTD’s current ratio of 5,2:1 it is too high and unsatisfactory. The assets of
a business must be sufficient to pay the current liabilities, the business doesn’t
have to sell its stock in order to meet its short term obligations.
OR
Taylor’s current ratio is 1,5:1 which is acceptable provided the company has easy
access to their short term funds.
 Tommy’s acid test ratio of 2, 9:1 is too high and unsatisfactory, most assets are
idling, and they are not put into good use to generate profit.
OR
Taylor’s ratio is 0, 9:1 which is acceptable provided that the company has access
to short term funds that are liquid.
 Tommy LTD has 160 days stock on hand which is too high, the business is
keeping stock for too long in the business.
OR
Taylor’s stock holding period is 89 days which is better than that of Tommy
LTD,risk of stock shrinkage resulting from theft is minimal.

2.1.3 What advice would you give Jankies on % return on equity earned by Taylor Ltd
Advice Indicators 

ROSHE of 11, 5% is less than the interest on investments of 13%, Taylor should
direct more funds to alternative investment.

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2.1.4 Indicate which company is managing its expenses more efficiently and is more
profitable. Quote TWO indicators to support your answer.
Any two financial indicators explaining trends from Tommy LTD with figures.
Indicators   (1x2 ) trend and figures   (1x2)

If any figures are shown from Taylor LTD, award marks for Names of indicators only (2 Marks)

 % Operating expenses on sales improved/decreased from 19,5% to

15,4%,improved by 4.1% points or improved by 21%
 %Operating profit on sales increased from 18,7% to 22,3%
 % Net profit on sales increased from 13,6% to 17,9%
4
2.1.5
Jankies thinks that Taylor has borrowed more money compared to Tommy and
that is possibly a good idea.
Q: Is borrowing more money a good idea?

Indicator (figure) and trend  Comment 

 No, it was not a good idea .Taylor’s debt-equity ratio of 4.5:1 is high, the company
is considered a high risk to investors and by lenders or institutions that provide
loans.
 Taylor Ltd will find it difficult, or even impossible to raise more loans in future.

Q: Which company made better use of loans?

Indicator (figure) and trend  Comment 

 Tommy Ltd, the debt-equity ratio of 0.3:1 is low and the financial risk is low, the
company doesn’t depend on borrowed funds to survive.
 Tommy makes better use of loans, their growth doesn’t depend on borrowed
funds, ROTCE is 32.5% and above the interest rate of 13%.
6
2.1.6
Shareholders for two companies differ in opinion in terms of the shares they
have invested. Identify shareholders who should be happy AND those who
should not be happy with their investment. Quote financial indicator(s)/figure(s)
to support your answer.
Comparison of NAV and market price  Comment 
 The shareholders of Tommy LTD are happy with the market value of 750 cents per
share because it is higher than the Net asset value of 609 cents. This indicates
that the public has confidence in the future of the company and will pay more than
the shares are actually worth.
 The shareholders of Taylor LTD are disappointed with the market price of 885
cents per share, it is lower than its net asset value of 938 cents. This indicates that
the public does not have confidence in the future of the company.
6

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2.2 AUDIT REPORT

2.2. Is this a qualified or an unqualified report? Extract the statement that will
1 support your choice from the audit report.
Qualified report
Except for the advertising expense in the Statement of Comprehensive Income
which could not be verified, as no documents existed for this expenditure.  2
2.2. Would the shareholders be happy with this report? Explain
2
Answer  allocate one mark for partially correct answer
 No, it may affect the market price of the shares and the shareholders might
decide to sell their shares or disinvest from the company. 2

2.2. Why is important for auditors to be “Independent”? Give ONE reason.

3
Any one valid reason  allocate one mark for partially correct reason
 It is important as they need to be able to express an unbiased opinion which
cannot be influenced by the directors.
 All parties interested in the company rely on the independent report when 2
making important decisions about their investment in the company.

2.2. Why is it important for external auditors of a public company to be members

4 of the professional body, such as SAICA? Give TWO reasons
Any two valid reasons   allocate one mark for partially correct reason
 Professional bodies will ensure that auditors have adequate knowledge of
Accounting and auditing procedures which enables them to do their job
properly.
 They ensure that financial statements are comparable because all auditors are
using the same standards of reporting e.g., IFRS.
 They will comply with good code of practice and ethics if they are members. 4
 If there are complaints against auditors the professional body will investigate
their conduct.
 Professional bodies have power to discipline those who bring the profession
into disrepute.
2.2. The auditors report includes the sentence “These financial statements are
5 the responsibility of the company’s Directors”. Explain why do the auditors
include this sentence in their report?
Any one valid explanation allocate one mark for partially correct explanation
 This reminds the shareholders that the auditors do not actually prepare the
financial statements
 The responsibility of independent auditors is to check if the company complies
with the requirements of the law and IFRS. 2
 The directors cannot delegate their responsibility of preparing the financial
statements and will always be held accountable for any errors or fraud.

TOTAL 44
2022 Grade 12 Project Accounting Marking Guideline
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2022 Grade 12 Project Accounting Marking Guideline