GRADE 12

ACCOUNTING

PRELIMINARY EXAMINATION PAPER 2

Examiner Mrs T Clifton Date: 15 September 2021
Mr G Pretoriusl (internal)
Moderators Time: 2 hours
Mrs T Heeralall (external)

Marks 100 MARKING GUIDELINE

THIS MARKING GUIDELINE CONSIST OF 10 PAGES

Total Time
QUESTION
marks Minutes
Question 1 – Company analysis 50 60
Question 2 – Budgets 32 38

Question 3 – Reconciliations 16 22
TOTAL 100 120

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QUESTION 1 COMPANY ANALYSIS [50 marks; 60 minutes]

Study the information relating to RCL FOODS Ltd provided in the information booklet to answer the
following questions:

1.1 For each of the following statements, circle the most correct answer. You should circle only one
answer.
i. RCL FOODS Ltd is considered to be a ______________ company. (1)
a. Public 
b. Private
c. Non-profit
d. Closed

ii. The document required to form a company is the: (1)

a. Directors’ report
b. Auditors’ report
c. Memorandum of incorporation 
d. Corporate governance report

iii. Another name for the Income Statement is: (1)

a. Statement of future income
b. Statement of comprehensive income 
c. Statement of summarized profits
d. Statement of operating costs

iv. As per the Cash Flow Statement, investing activities refer to … (1)
a. Sourcing cash through loans or sale of shares
b. Purchasing and disposing of tangible assets that generate a return 
c. The inflow and outflow of cash linked to business operations
d. The movement of cash linked to tax and dividends payments

v. Who is responsible for the preparation and fair representation of the financial
statements of a company? (1)
a. Shareholders
b. External auditors
c. Senior financial management
d. Company directors 

1.2 Public companies need to publish three financial statements. Name the three financial
statements and provide a simple explanation of each highlighting their different purposes. (3)

Statement of comprehensive income shows profit/loss for the reporting period. 

Statement of financial position shows current value in terms of assets, equity and
liabilities. 
Cash flow statement shows how cash was sourced and used over the reporting period. 

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1.3.1 Calculate the current ratio for the year ended 30 June 2020.
Discuss the change in current ratio from 2019 and what may have caused it. (5)

10 837 654 : 7 565 692

= 1,43 : 1 

Current ratio has decreased from 1,61:1 to 1,43:1 , indicating a worsening in the company’s
liquidity. 
This drop may have been caused by an increase in current liabilities. 
(greater increase in current liabilities than current assets)
1.3.2 Calculate the acid test ratio for the year ended 30 June 2020. (4)

10 837 645 – 3 785 753 : 7 565 692

= 7 051 892 : 7 565 692 

= 0.93 : 1 

1.3.3 From the above calculations, does RCL FOODS Ltd appear to be holding too much stock? (2)

No
The asset test ratio has increased from 0,90:1 in 2019 to 0,93:1 in 2020 indicating that the
company is in a better position than previously  to cover short-term liabilities without
having to sell stock.
RCL FOODS Ltd sells fast-moving stock and higher stock levels should not be a concern.

Or Yes
Current ratio has decreased, but acid test ratio has increased indicating that the stock
portion of current assets is more than before max

1.4.1 Explain the term ‘Biological assets’ as seen in the Statement of Financial Position. (1)

An asset that is living – an animal or plant. 

Biological assets are divided into two categories and are treated differently in the accounting
records:
Category 1 Category 2
Sugarcane roots Standing sugarcane
Litchi trees Fruit growing on plants
Banana plants

1.4.2 Discuss how the accounting treatment of the two different categories in the Statement of
Financial Position and provide a reason for their treatment. (4)
Category 1: Recorded under fixed assets (non-current assets)  – roots, trees
and plants that can be reused and sustained for longer than 12
months. 

Category 2: Recorded under inventories (current assets)  – produce that will be

harvested and sold within 12 months. 

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1.5.1 Calculate the Earnings per Share for the 2020-year. (2)

115 472 012

x 100 = 13 cents 
888 248 000

1.5.2 Calculate the Earnings per Share for the 2019-year. (2)

13 cents  = 34,3% (decreased by 65,7% from 2019)

𝟏𝟎𝟎
13 x 𝟑𝟒,𝟑  = 37,90 cents (accept 38)

1.5.3 Suggest the most probable cause during 2020 for the drastic drop in EPS. (1)
Drop in profit due to COVID-19 / lockdown 

1.6 RCL FOODS Ltd paid out a total Dividend of 25c per share for the year ended 30 June 2020.
Quote figures and comment on the dividend payout in 2020. Include insight into a why the opinion
of a long-term investor and a short-term investor would be different regarding the dividend
payout and DPS in 2020. (6)

DPS = 25 cents; EPS only 13 cents. 

More money has been paid out in dividends than what is being earned by the company.
Money would have been taken out of retained income to fund this. 
Long-term investor would be dissatisfied as decreasing retained income / equity could limit
the businesses growth or expansion.  A long-term investor would be more interested in the
long-term sustainability of the company, not high dividend payouts. 
A short-term investor would be happy with the high payout.  They would be more
interested in earning money from dividends now, rather than seeing the business grow
slowly. 
 DPS vs EPS  [average = ; good = ]
 Long-term investor opinion  + reason 
 Short term investor opinion  + reason 

1.7.1 Show how the Return on average Shareholder’s equity is calculated to be 1,12% for the ended
30 June 2020. (3)

115 472 012 

× 100 = 1,12%
(10 834 026 000 + 9 821 976 000)  ÷ 2 

115 472 012

× 100 = 1,12%
10 328 001 000

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1.7.2 Although the Return on Average shareholders’ equity is very low, the share price of
RCL FOODS Ltd has remained fairly stable indicating that investors have remained confident.
Provide two possible reasons as to why investor may still be confident in RCL Foods Ltd and
have chosen not to sell their shares. (2)
 2020 was a global pandemic – extraordinary circumstances leading to poor
performance.
 One of SA’s largest food manufacturers – over 50 years old. Established enough to
recover.
 Selling essential food items – consumers will continue buying.

 +  for 2 valid points

1.8.1 Calculate the Debt/Equity ratio as at 30 June 2020. (2)

5 098 908 : 9 821 976

= 0,52 : 1 

1.8.2 Comment on the change in the Debt/Equity from 2019 and discuss a decision made by
RCL Foods Ltd in this regard and how it may be of benefit to the company. (5)

Debt-Equity increased from 0,37:1 in 2019 to 0,52:1 in 2020 indicating that RCL FOODS Ltd
is more reliant on debt for funding.
The risk has increased slightly, but is still completely acceptable.
RCL FOODS Ltd increased their non-current liabilities / long-term debt over the past year.
This could have been to ease cashflow in the event of lower turnover and sales (due to
COVID-19) and has managed to eliminate the bank overdraft seen in 2019.
Using long-term debt is a wise decision instead of making use of short-term debt and bank
overdraft as the interest will be lower.
RCL FOODS Ltd has also increased fixed assets and investments over the past year –
additional loans may have been used to fund this which will lead to further increased
productivity and returns.
 Change in debt-equity 
 Increased non-current liabilities / loans 
 Risk 
 Benefit =average =good

1.9 In line with triple-bottom-line reporting, why has RCL FOODS Ltd included the information on
‘Our sustainable impact in 2020’ in their annual integrated report. (3)

Providing information on more than just profits/financial aspects. 

Information on people/communities highlights the company’s impact on people/social

aspects. 

Information on sustaining resources highlights the company’s impact on

planet/environmental aspects. 
Question 1 total: 50

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QUESTION 2 BUDGETS [32 marks; 38 minutes]
The following questions are based on the information provided relating to Lola-Jay Creations.
2.1 Complete the Debtors Collection Schedule for July and August 2021. (7)

Credit sales July August

July * (1) 6 000  * (2) 3 900  * (3) 1 800 

August * (4) 6 800  --- 4 522

* 3 900 * 6 322  totals

<<

Calculations:

20
1: 24 000 x = 6 000
80

2: 6 000 x 70% (1 mark) x 95% (1 mark) = 3 990

3: 6 000 x 30% = 1 800

100 100
4: 4 522 x x = 6 800
95 70

2.2 Provide the missing figures represented by the letters A – H: (14)

Calculation (if necessary) Amount

A 4 x 1 625 6 500 

B 6 500 

C 6 500 + 6 500 = 13 000 x 3 = 39 000 - 24 000  15 000 

D 3 990

6 322
E
 D and E

100
13 000 x 
F 125 10 400

5 820 ÷ 4 ÷ 3 = 485 per day

485 x 4 x 5 = 9 700 for July ( also August)

G 16 490 
9700 x 70% = 6 790 (advancement)

July payment = 9700 + 6 790

H 9 700 – 6 790 2 910 

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2.3.1 Calculate the full price of the construction of the studio. (2)

100
41 400 x 18
 = 230 000 

2.3.2 Do you agree with Lola’s decision to open both ‘Lola-Jay on Club’ and ‘Lola-Jay online’?
Justify your choice. (1)

Yes – agree
She is open more opportunity for sales 
Or No – disagree
It may be too much for one/two people to handle. Should focus on just one.
2.4 Lola’s father is an experienced business man and has expressed his concern over Lola’s lack of
internal control/security over two areas of her business.
Discuss important security and controls that Lola needs in the following two areas: (2)
i. Online sales and receiving payments
 Secure payment/banking software to protect her money as well as that of
customers.
 Ensuring money is received before shipping the stock to customer
 for valid control / security specific to online/internet
ii. Stock control over stock kept in newly-built studio
 Stock must be insured
 Alarm system and security gate/bars must be in place
 Security guard / CCTV – studio on a busy road
 for valid control over physical sock security

2.5 Lola’s father also believes that she has not planned her advertising effectively.
What can Lola do better in terms of advertising over the budget period? (1)

 Lola should start advertising her new studio and online earlier especially at the
craft-market (no advertising budgeted for in June)
 She could continue to spend more on advertising (R4 500 in July drops to R1 500 in
August) as advertising could lead to continued increase in sales/customers.

 for one valid idea

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2.6 Lola has agreed to allow Samuel the advancement on his August wages. Samuel has discussed
with Lola that he wants to use the extra money, together with his July wages to purchase an Apple
Macbook that he will use for designing.
2.6.1 Provide two reasons why Lola was happy to allow Samuel this advancement. (2)
 She will rather he borrows the money from her than from an unsavory character.
 He is using the money for a good investment – for his betterment.
 Better design software on the new laptop may improve his designing which will
benefit Lola-Jay creations as well.

 +  for 2 valid reasons

2.6.2 Show how the payment to Samuel in July would affect the accounting equation as at 31 July
2021. (You need to show +/- signs, together with the different amounts) (3)

Assets Owners’ Equity Liabilities

- 16 490  - 9 700 
(payment) (wage expense)

+ 6 790 
(‘prepaid expense /
debtors for wages)

*amounts may be incorrect if errors in 2.2 (G) – but must be in the correct column with
correct sign.

Question 2 total: 32

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QUESTION 3 RECONCILIATIONS [18 marks; 22 minutes]
Use the information provided relating to Gugu’s Goodies to answer the following questions:
3.1 Pam, the bookkeeper, is under the impression that she no longer needs to prepare a bank
reconciliation Statement because cheques are no longer used in the national payment system.
Explain to Pam why her thinking is incorrect. (1)
The bank statement and cash journals must still be reconciled. Errors and omissions may
still have happened. Payments directly to or from the bank account will still appear on the
Bank Statement and will need to be entered into CRJ or CPJ. 

3.2 Calculate the correct Bank balance in the General Ledger of Gugu’s Goodies on 31 May 2021
after taking the information the bank statement into account. State whether the balance is
favorable or unfavorable. (3)

3 125 + 1 750  – 10 460  = 5 585 unfavorable 

3.3 Gugu is considering hiring an internal auditor for a month to ensure the accuracy of the recording
of cash transactions.
3.3.1 Explain what an internal auditor does. (1)
Assesses and improves internal controls in order to reduce or eliminate any risks within
the business in order to protect the business’s assets and efficiency. 
3.3.2 List two types of audit evidence that could be looked at by an internal auditor and explain what
the evidence would be compared to, in order to check the accuracy of cash transactions. (4)
o Duplicate receipts – compare with CRJ recordings or money deposited
o CRR – With CRJ entries
o CRJ bank column with deposit slips
o Proof of payment (POP) / EFT – compare with CPJ and bank statements
o CPJ / EFT POP with invoices and/or order forms
Evidence  + compare with 
Evidence  + compare with 

3.4 Use the statement from Charlie’s Chocolate to draw up the debtor’s age analysis as it should
have appeared on the statement. Do not take the additional information into account. (5)

90 days 60 days 30 days Current

5 625  6 225  4 200 
- 5 475 - 1 575 - 1 050 
- 150 - 3 600  + 8 433
=0 = 1 050 = 11 583

10 marks ÷ 2 = 5 marks

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3.5 Use the additional information to draw up the Creditors Reconciliation Statement. (4)

Incorrect balance as per statement 12 633 

Invoice CC1008 (1 800) 

Invoice CC1120 (8 433) 

EFT 31 May (2 000) 

Correct balance 400

Question 3 total: 18

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