Accounting

Grade 12

Paper 2

Presented by
Karlien Brimecombe
 FORMAT OF YEAR-END EXAMINATION

DISCIPLINE 1 DISCIPLINE 2

• FINANCIAL REPORTING & • MANAGERIAL

EVALUATION ACCOUNTING, INTERNAL
AUDITING & CONTROL

v 150 MARKS, 120 MINUTES

v QUESTIONS VARY FROM 3-5 QUESTIONS.

v ALL QUESTIONS COMPULSORY

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 NOTES

• Integrated into different topics and

ETHICS applies to BOTH disciplines

• Integrated into different topics

INTERNAL
CONTROL • Will be examined in PAPER 2

• Applies to BOTH disciplines

• Formula sheet provided, still need to IDENTIFY the relevant
FINANCIAL financial indicator to be calculated and used in supporting
INDICATORS comment to interpret and evaluate financial information

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 FINANCIAL INDICATORS APPLICABLE:
DISCIPLINE 1 (PAPER 1) DISCIPLINE 2 (PAPER 2)

• Gross profit on sales • Gross profit on cost of sales

• Gross profit on cost of sales • Operating expenses on sales
• Operating expenses on sales • Operating profit on sales
• Operating profit on sales • Net profit on sales
• Net profit on sales • Stock turnover rate
• Stock turnover rate • Stock holding period
• Stock holding period • Average debtors’ collection period
• Average debtors’ collection period • Average creditors’ payment period
• Average creditors; payment period • Break-even point
• Current ratio
• Acid-test ratio
• Solvency ratio
• Return on shareholders’ equity
• Return on total capital employed
• Net asset value per share
• Earning per share
• Dividends per share
• Dividend pay-out rate
• Debt equity ratio (gearing)

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 CONTENT PAPER 2

RECONCILIATION

VAT
FIXED ASSETS

TOPICS

MANUFACTURING
(COST
INVENTORIES ACCOUNTING)

BUDGETS

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 TOPIC: RECONCILIATION
1. Analysis & interpretation of reconciliations: bank, debtors, creditors, age-analysis

BANK
• Know all the differences between Bank
Statement and Cash Journals. (WILL NOT
BE EXAMINABLE IN 2021!!!!!!)

• Reconciliation between Control account and Statement

CREDITORS • Reconciliation between Control account and Ledger/
Creditors list

• Reconciliation between Control

DEBTORS account and Ledger/ Debtors list
• Analysis of Debtors

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 THE CONTROL ACCOUNT MUST BE EQUAL TO THE LIST:

AS N
ED IO
K T
AS UES SOURCE DOCUMENTS
T EN Y Q
OF OR
E
TH
JOURNALS

POST totals POST Individual amounts

To the To the
CONTROL accounts LEDGER accounts

CONTROL LIST
Balance total
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REASONS FOR DIFFERENCES
ERROR ON TOTALS INCORRECT
SOURCE UNDERCAST/ POSTING TO AN
DOCUMENTS/ NOT OVERCAST INDIVIDUAL’S
RECORDED ACCOUNT

INCORRECT
POSTING FROM RECORDING
JOURNALS TO ERRORS IN
CONTROL JOURNALS
ACCOUNT

INCORRECT
INCORRECT
POSTING FROM
POSTING TO THE JOURNALS TO
WRONG SIDE OF
INDIVIDUAL’S
THE ACCOUNT ACCOUNT

STUDY EXAMPLES OF EACH OF THESE, KNOW WHAT THE

PROCEDURES ARE!!!

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 STATEMENT RECEIVED FROM THE SUPPLIER
CREDITOR’S LEDGER
Our perspective: LIABILITY
THEMBEKA SUPPLIERS (CL6)
DEBIT CREDIT BALANCE
1. Compare MONTH-END
2021 1 Balance b/d Xxx balances
April 12 Invoice 220 xx Xxx
EFT xx Xxx 2. Compare the DEBIT side
18 Debit Note 702
Invoice 289
xx
xx
Xxx
Xxx
with the CREDIT side.
Invoice 333 xx Xxx
24 Debit Note 877 xx Xxx
25 Journal voucher 585 xx Xxx 3. Compare the CREDIT side
31 EFT and discount xx Xxx with the DEBIT side.
4. If a mistake in the
STATEMENT RECEIVED CREDITOR’S
Their perspective: ASSET
LEDGER, correct in the
Ekasi Traders
225 Crocodile Road 25 April 2021 LEDGER.
DEBIT CREDIT BALANCE 5. If a mistake on the
2021 1 Balance Xxx
April 12 Invoice 220 xx Xxx STATEMENT, correct in
18
Receipt 742
Credit Note 791
xx
xx
Xxx
Xxx
the CREDITOR’S
Invoice 333 xx Xxx RECONCILIATION
22 Invoice 395 xx Xxx
24 Credit Note 888 xx Xxx STATEMENT.

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REASONS FOR DIFFERENCES

Transaction
Amounts
occurred AFTER
UNDERSTATED/
the statement
OVERSTATED
was received.

Posted to the
incorrect Posted to the
INDIVIDUAL’S WRONG SIDE of
ACCOUNT the account.

STUDY EXAMPLES OF EACH OF THESE, KNOW WHAT THE

PROCEDURES ARE!!!

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 SOME DIFFICULT TRANSACTIONS

Thembeka owes R6 500 less, Ekasi bought from

Thembeka on credit.

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 DEBTOR'S AGE ANALYSIS

They How long… • Manage OUTSTANDING DEBT.

owe us!! • Identify debtors who do not

COMPLY with the credit terms.
Credit terms
• BREAKDOWN of debtor’s
account balances for specified

30 days 90 days period.

60 days • Help identify CASH FLOW

TWO IMPORTANT RULES!!! problems.

OLDEST DEBT RETURNS MOST

PAID FIRST RECENT
PURCHASES

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Debtors’ age analysis can be incorporated into different topics like creditors’
reconciliation and budgets.
CREDITORS’ RECONCILIATION BUDGETS

61% Does not adhere to

credit terms.

Note:
Always look for:
1. Debtors exceeding credit limit
2. % who does not adhere to credit
terms.
Know internal control over debtors
 COMMON MISTAKES
v Do not show calculations in brackets
v Calculating the amount correctly but does not know if the entry will have a
positive or a negative effect on the balance.
v Internal control over debtors and creditors.
§ Existing debtors – do not say you need to screen debtors before allowing
them to buy on credit. We need to know how we can improve collection for
existing debtors.
v If there is no change to the control account or the individual’s account – indicate
a zero/no change.
v When a debtor/creditor’s account is wrongly debited/credited, always x 2
v A debtor with a credit balance needs to be transferred to the creditors’ list. It will
have a positive effect on the balance. The same applies with a creditor with a
debit balance needs to be transferred to the debtors’ list.
v If returns are overstated, it will always have a positive effect on the balance.

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 TOPIC: VAT
2. Value Added Tax - Input, Output & Calculations

CALCULATING VAT IF:

VAT EXCLUSIVE GIVEN VAT INCLUSIVE

GIVEN
15
VAT = AMOUNT(E) x 15
100 VAT = AMOUNT(I) x
115

CALCULATING EXCLUDING VAT IF:

𝑈𝑁𝐾𝑁𝑂𝑊𝑁
VAT GIVEN 𝐾𝑁𝑂𝑊𝑁
VAT INCLUSIVE GIVEN
100 100
AMOUNT(E) = VAT x
15 AMOUNT(E) = AMOUNT(I) x
115

CALCULATING INCLUDING VAT IF:

VAT GIVEN VAT INCLUSIVE GIVEN

115 115
AMOUNT(I) = VAT x AMOUNT(I) = AMOUNT(E) x
15 100

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 VAT CONTROL ACCOUNT
Debtors’ control DAJ Bank CRJ
Creditors’ control CJ Debtors’ control DJ
Bank CPJ Creditors’ control CAJ

Petty cash PCJ Bad debts recovered CRJ

Bad debts GJ Discount allowed GJ
(cancelled)
Discount allowed CRJ CPJ
Discount received
Discount received GJ
(cancelled) Drawings GJ
ASSET LIABILITITY
VAT INPUT VAT OUTPUT

DEBIT BALANCE = AMOUNT CREDIT BALANCE = AMOUNT

RECEIVABLE FROM SARS, ASSET PAYABLE TO SARS, LIABILITIES
EXAMPLE OF DIFFICULT TRANSACTION
ETHICS IN VAT

COMMENT ADVICE
v Unethical to use money not earned v Keep proper record
by the business to pay running v Ensure funds available to make
cost / operational cost of the payments.
business. v Only use business funds to cover
v The business is an agent of SARS business commitments
and must make payments
timeously
v The business could be fined
(penalties) for non-compliance.
v This is rolling of cash – could
escalate to a serious problem.

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 MANUFACTURING
3. Manufacturing concepts

4. Manufacturing: Production Cost Statement & Notes; Abridged (short-form) Income Statement & Notes

5. Analysis & interpretation of cost information, unit costs & break-even point

• Know the fundamentals of cost accounting

• Know the purpose of each stock account.
FUNDAMENTALS • Know all FIVE cost accounts and where they belong in manufacturing
• Know the format of the Production Cost Statement

• Know how to calculate AND prove the Break-even point

BREAK-EVEN • Know how to calculate ADDITIONAL UNITS that must be
POINT produced to make and ADDITIONAL PROFIT.
• Commenting

INTERNAL • Internal control procedures to prevent losses.

• Ethics – companies should prioritize safety, fair remuneration, disposing of
CONTROL & waist materials, natural resources should not be depleted, avoid price fixing,
encourage to buy raw material locally to improve local trade, deliberate
ETHICS product shrinkage to gain higher profits, the use of inferior material.

• Cost effect of importing raw materials

COST •
•
Increase / decrease in direct material cost
Increase /decrease in direct labour cost

EFFECTS •
•
Economies of scale
Increase / decrease in administration cost, selling and distribution cost.

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 COST ACCOUNTS

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 PRODUCTION COST STATEMENT AND ABRIDGED INCOME STATEMENT
PRODUCTION COST STATEMENT
Note 1 : Direct material cost
Direct / Prime cost 741 900 Direct material costs
Direct material costs 1 651 000 Opening stock 90 000
Direct labour costs 2 90 900 Net purchases 518 000
Factory overhead cost 357 980 (300 000 + 230 000 – 12 000)
Total manufacturing cost 1 099 880 Carriage on purchases 75 000
Work in process at the 120 000 683 000
beginning of the year
Closing stock (32 000)
1 219 880
Direct material cost 651 000
Work in process at the end (14 880) (= raw materials issued)
of the year
Cost of finished goods 1 205 000 • Direct material cost note is the same concept
as calculating your cost of sales in a periodic
• Prime cost = Direct labour + Direct material cost inventory system.
• Closing stock or direct material cost could be
• Total manufacturing cost = Prime cost + Factory
the balancing figure
overhead cost • All cost should be included in calculating your
direct material cost and listed in your
• Cost of finished goods = Total manufacturing
calculation:
cost + work in process in the beginning of the § Carriage on purchase
§ Import duties
year – work in process at the end of the year
§ Etc.

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 Note 2 : Direct labour cost
Direct labour costs
Factory wages or salaries 90 900
Medical aid contributions -
UIF contributions -
Pension Fund contribution -
‘any contributions’ - ONLY EXPENSES ADDED
90 900
TO THE COST ACCOUNT

Note 3 : Factory overhead cost

Note 4 : Cost of finished goods sold
Factory overhead cost Cost of finished goods sold

Consumables stores 26 000 Opening stock 35 000

Cost of finished goods 1 205 000
Salaries and wages 50 500 produced during the year
Depreciation 36 480 1 240 000
Rent expense 150 000 Closing stock of finished goods (40 000)

Electricity 80 000 Cost of finished goods sold/ 1 200 000

cost of sales
Sundry expenses 15 000
SOMETIMES YOU WILL BE REQUIRED TO
COMPLETE THIS NOTE FIRST BEFORE YOU CAN
Factory overhead cost 357 980
COMPLETE THE PRODUCTION COST
STATEMENT

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 Note 5 : ADMINISTRATION COST Note 6 : SELLING AND DISTRIBUTION COST
Administration cost Selling and distribution cost
Salaries 40 400 Rent expense 50 000
Depreciation 9 120 Electricity 53 333
Rent expense 50 000 Sundry expenses 10 000
Electricity 26 667 Commission 90 000
Sundry expenses 5 000 Bad debts 2 000

Administration cost 131 187 Selling and distribution cost 205 333

Income Statement
Sales 2 400 000
Cost of sales (1 200 000)
ABRIGDED INCOME (finished goods account)
STATEMENT
Gross profit 1 200 000
Administration cost 131 187
Selling and distribution cost 205 333
Net profit 863 480

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 BREAK-EVEN POINT AND COMMENTING
1. Compare the BEP from last year to this year
2. Compare the number of units produced from last year to this year
3. Compare the BEP with the number of units produced to determine if the
business is breaking even or making a profit/loss
4. Quote figures to support your answer

2021 2020

BREAK-EVEN POINT BREAK-EVEN POINT

NUMBER OF UNITS NUMBER OF UNITS

PRODUCED PRODUCED

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DIFFERENT WAYS OF ASKING BREAK-EVEN POINT
ADDITIONAL PROFITS

PROVE BREAK EVEN POINT

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 NOTES
v Know how to calculate the correct factory overhead cost. Only ADD or
SUBTRACT the adjusted amount.
v Valuation of stock can be incorporated with Cost Accounting.

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DIFFERENT METHODS CALCULATING GROSS PROFIT

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 NOTES
v Be aware: If sales are given and the mark-up%, possibly need to calculate the
cost of sales, then the cost of finished goods, then the work in progress balance
at the end. Hint – complete the finished goods stock account.
v If the number of units produced the year is given and the unit cost, need to
calculate cost of finished goods produced, work in progress at the end is your
balancing figure.

Balancing figure
7600 x R420

v Work in progress in the beginning could be a balancing figure in the

Production Cost Statement.
v Always show calculations in brackets to earn part marks.

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 v Always complete the ADJUSTMENT and then close off the account to the
relevant cost account.

v Be aware if the selling and distribution

cost or administration cost is given, need
to calculate the factory overhead cost
v Some examples of calculations given:
§ Ratio’s
§ Percentages
§ Floor space
§ Correction

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v Labour cost = Gross + contributions
§ Read instructions when overtime should be included and excluded in
the calculation of contributions.

EXCLUDE OVERTIME INCLUDE OVERTIME

 ECONOMIES OF SCALES
FACTORY OVERHEAD COST = FIXED COST

THE HIGHER NUMBER OF UNITS PRODUCED, THE MORE

ECONOMICAL .
THE MORE UNITS IS PRODUCED THE LESS THE COST PER UNIT

FIXED COST PER UNIT: EXAMPLE 1 FIXED COST PER UNIT: EXAMPLE 2

FIXED COSTS FIXED COSTS

NUMBER OF UNITS NUMBER OF UNITS
R10 000 INCREASE R15 000
100 200
=R100 per unit =R75 per unit

COST PER UNIT DECREASED

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TYPES OF PROBLEMS IN A MANUFACTURING BUSINESS
INCREASE Train the workers/ Skills development
IN DIRECT • Increase supervision When responding to
LABOUR • Control overtime/supervise normal time problem solving
COST • Set targets questions, always quote
and compare figures,
Look for cheaper materials or suppliers percentages etc.
Increase in • Buy in bulk
direct
material cost • Use local suppliers (closer)
• Control wastage of raw material
EXAMPLE:

BE CAREFUL!! LOOK FOR COST WHICH

INCREASED WITH MORE THAN 6%
 BUDGETS
6. Analysis & interpretation of Cash Budget for sole traders and companies
7. Analysis & interpretation of Projected Income Statement for sole traders and companies

• Actual and budget months.

FUNDAMENTALS • All non-cash items will ONLY appear in the Projected Income Statement
• All cash items will ONLY appear in the Cash Budget

• Cash Budget AND Projected Income Statement per month

FORMAT • Know where to get the information to complete the format.
• Projected Income Statement – previous Income Statement ÷ 12.

• Always use the CREDIT SALES.

• Discount allowed and Bad debts appears in the Projected Income Statement.
DEBTORS • Know how to calculate the credit sales from expected payment received from
COLLECTION debtors.
• Know how to calculate the % expected to be collected.
PERIOD • Know how to calculate the total outstanding debtors balance

CREDITORS • Always use the CREDIT PURCHASES.

PAYMENT • Purchases = Cost of sales. Cost of sales is calculated on the TOTAL SALES.
PERIOD • Discount received will appear in the Projected Income Statement.

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COMPARING ACTUAL FIGURES WITH BUDGET FIGURES
v Identify if the business overspent/underspent.
v Read the information carefully to see connections between different accounts.
v Be aware when asked to justify an overspent amount.

• NOVEMBER 2020

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 SOLUTION – NOVEMBER 2020

v Advertising increased from R12 000 to R30 000

(150%).
v Spent R12 000 more on advertising then budgeted.
(R42 000 – R30 000).
v Customers: Actual was more than expected by 25
customers (22,7% more). Budget 22,2% increase
in customers (20 more from April to May), but
actual was 50% (135–90÷90).
v Sales: Actual was less than expected by R80 000
(10,4%). Average sale per customer budgeted at
R7 000 but actual was R5 111. The advertising
attracted more customers, but they do not spend
as much.
v More customers repairing dresses than buying new
ones. Actual fee income exceeds budgeted with
R6 000 (40% more).

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 v Actual R1 320 more (31,4%) to budgeted.
v Fee income exceeded the budgeted by 31,4%
(R1 320)
v Consumables stores budgeted 28% of fee income
(R4 200 ÷ R15 000), the actual were 26,3%
(R5 520 ÷ R21 000).
v Consumables stores used were well controlled

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 CALCULATIONS IN BUDGETS
q LOAN: EXAMPLE INCREASE q LOAN: INTEREST ON LOAN
(November 2020) (GDE Prelim 2020)

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 FIXED ASSETS
8. Application of internal control & audit processes: cash, fixed assets, inventories, debtors, creditors,
income & expenses (including salaries/wages) & including financial indicators #

9. Recording & control of fixed assets including depreciation & asset disposal

HOW TO
CONCEPTS ASSET REGISTER CALULATE
DEPRECIATION ON
OLD/NEW/SOLD

FORMAT OF
ACQUISITION OF FIVE STEPS IN
TANGIBLE ASSET
ASSETS ASSET DISPOSAL NOTE

INTERNAL
PROBLEM
CONTROL &
ETHICS SOLVING

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 COMMON MISTAKES

v Calculating depreciation on the old, especially using diminishing balance method.

§ Always subtract the asset sold. To get the old/remaining, use the book value
in the beginning minus book value on asset sold in the beginning.
v Dates – draw a timeline if not sure.
v Always check that the total accumulated depreciation does not exceed the cost.
§ HINT: If the book value is very low in the beginning, it should be an
indication that it reached its lifespan.
§ If the total accumulated depreciation exceeds the cost, then the book value
at the end should be R1.
§ Depreciation is then calculated by subtracting R1 from the book value in
the beginning. Note, always times R1 by the number of assets!!!

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 INVENTORIES
10. Perpetual and periodic stock systems; valuation and control of inventories

CALCULATE
NUMBER OF CALCULATE
CHANGING UNITS ON THE VALUE
FROM ONE HAND OF
METHOD TO CLOSING
ANOTHER/ STOCK
ETHICS

STOCK
HOLDING CALCULATE
PERIOD/ THE GROSS
STOCK PROFIT
TURNOVER QUESTIONS
RATE

CALCULATE
COST OF
PROBLEM SALES
SOLVING

CALCULATE PREPARE
MISSING THE
STOCK TRADING
ACCOUNT

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 PERIODIC INVENTORY SYSTEM PERPETUAL INVENORY SYSTEMS

• No movement recorded in trading • All movement of trading stock recorded

stock account – expense account in the trading stock account.
created. • Do know the cost of sales at point of
• Cost of sales calculated at the end. sale

SPECIFIC WEIGHTED
INDENTIFICATION FIFO AVERAGE
• Each item is • First in first out • Using the average
assigned a specific • Oldest stock sold price
cost. first

v Note: Could be integrated into different topics like Manufacturing

(Paper 2), Financial Statements (Paper 1).
v Study the characteristics of each – will need to provide an opinion
which method is suited for a business.

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HOW THE GROSS PROFIT IS AFFECTED
FIFO WEIGHTED AVERAGE

SALES GROSS COST OF GROSS

PROFIT SALES COST OF
SALES PROFIT SALES

R420 R255 R165 R420 R220,40 R199,60

v GROSS PROFIT HIGHER v GROSS PROFIT LOWER

v VALUE OF CLOSING STOCK HIGHER – v VALUE OF CLOSING STOCK LOWER –
MOST RECENT PRICES USING AVERAGE PRICE
v COST OF SALES IS LESS v COST OF SALES IS MORE

A business cannot just change from one method to another. Some reasons:
• Needs permission from SARS.
• You will not be able to compare one year to another
• Figures can be manipulated to show a higher profit for potential investors or to show a
lower profit to pay less taxes.

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 CALCULATING MISSING STOCK

CALCULATING STOCKHOLDING PERIOD USING CLOSING STOCK

USING UNITS

Could use the TOTALS instead of units

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PROBLEM SOLVING
How to approach:
1. There is a reason why they provided the
information. Let the information guide you
2. Look for missing stock
3. Look for missing money
4. Stock holding period/ % sales and %
leftover.
5. Circle where you identify potential
problems.
6. Know your internal control over stock, cash

Gym towels Golf caps T-shirts

Missing stock
(Available – sales =
closing balance.
Compare stock
balance)

Missing
money
(Compare sales
with money
deposit)

Stock holding
period/ %
sales
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