2023 Accounting Learners Notes Session 1-8

SECONDARY SCHOOL IMPROVEMENT PROGRAMME
(SSIP) 2023
GRADE 12
SUBJECT: ACCOUNTING
LEARNER NOTES
SESSION 1- 8
(Page 1 of 215 pages)

2
TABLE OF CONTENTS
SESSION TOPIC PAGE
3 - 35
1 Companies Ledger Accounts
Companies Financial Statements

2
• Statement of Comprehensive Income 36 - 76
(Income Statement)

3 • Statement of Comprehensive Income 77 - 101
(Income Statement)

4 • Statement of Comprehensive Income 102 -114
(Correction of net profit after tax)

5  Statement of Financial Position 115 - 143
(Balance Sheet)

6 • Statement of Financial Position 144 - 163
(Balance Sheet)

7 164 - 192
 Cash Flow Statement

8 193 - 215
 Cash Flow Statement
© Gauteng Department of Education

3
GRADE 12 CONCEPTS AND DEFINITION ON COMPANIES LEDGER ACCOUNTS
Grade Grade 10 Grade 11 Grade 12

1 Forms of SOLE TRADER PARTNERSHIP COMPANY
ownership  SINGLE Owner of a Business  TWO or more owners  ONE or MULTIPLE ‘owners’
taught in  All profits/losses belong to owner.  Profit/Losses belong to the  ‘Owners’ buy shares from the
Accounting  The business does not pay income partners. business and are called –
tax.  The business does not pay income SHAREHOLDERS.
 Owner must complete a tax return tax.  Profit/Losses belong to the
and pay tax on personal income.  They must complete their tax company; and shareholders will
return and pay tax on their only lose the money invested.
individual income.  Company seen as a “legal person”;
and it will PAY income
tax on its profits.
SOLE TRADER PARTNERSHIP SHAREHOLDERS – PUBLIC LIMITED

COMPANY
2 Capital CAPITAL CAPITAL SHAREHOLDERS EQUITY
contributions  Owner’s Personal Account  Same as ‘Sole Trader’; but Partners  To become a shareholder in a
 Money or Fixed assets can be have their own Capital accounts. company; a person needs to ‘buy’
contributed capital.  Money, Fixed Assets or Legal Fees shares (A Piece-of-the-Pie).
DRAWINGS (if one is a lawyer) are regarded as  The issued shares are known as
 Owner can withdraw money from capital contribution. ORDINARY SHARE CAPITAL.
the business DRAWINGS  This account will record the
 Same as ‘Sole Trader’; but each shareholders’ contribution and can
partner has their own drawings ONLY be reduced when the company
account. buy back shares.
CURRENT ACCOUNTS
 Profit sharing and drawings are
closed off to their personal current
accounts.

4

Illustration COMPANY
of capital Dr Capital account [OE] Cr Dr Capital: KIT [OE] Cr
contribution Bank 60 Bank 60 Dr Ordinary share Capital Cr
into the Vehicle 50 Equipment 50 Bank (100 shares in issue) 200
different 110 110
forms of
businesses
Dr Capital: KAT [OE] Cr
Sole Trader contributed 100 Shares have been
Bank 60
R60 and a delivery Legal fees 50 issued/sold at R2 per share.
vehicle of R50; as his 110 The company has received
capital Contribution. R200.
Partner KAT; has contributed

Legal Service of R50 to the
partnership
To calculate the profit of the company,

income - expenses = profit that belongs
to the company and must be allocated to
SARS and shareholders as dividends. Any
To calculate the profit of the sole trader’s To calculate the profit of the partnership, profit not shared belongs to the company.
3 Profits business, income - expenses = profit income - expenses = profit that will be
that belongs to the owner. shared between the partners.

5

COMPANY
Dr Trading account [F1] Cr Dr Trading account [F1] Cr
-Cost of sales 40 Sales ) 100 -Cost of sales 40 Sales ) 100 Dr Trading account [F1] Cr
=Profit and loss 60 =Profit and loss 60 -Cost of sales 40 Sales ) 100
(gross profit (gross profit) =Profit and loss 60
100 100 100 100 (gross profit)
100 100
Dr Profit and loss [F2] Cr Dr Profit and loss[2] Cr
-e.g., Wages 70 Trading account 60 -e.g., Wages 70 Trading acc 60 Dr Profit and loss[2] Cr
(Gross profit) (Gross profit)
-e.g., Wages 70 Trading acc 60
=Capital(net profit) 20 e.g., Rent income 30 =Appropriation 20 e.g. Rent income 30 (Gross profit)
(net profit)
Calculation 90 90 =Appropriation 20 e.g., Rent income 30
90 90
of profit, (net profit)
income 90 90
Dr Appropriation [F3] Cr
minus
-Salaries: KIT 5 Profit and loss 20 Dr Appropriation [F3] Cr
expenses -Salaries :KAT 5 (net profit) -Income tax 6 Profit and loss 20
-Interest on capital 3 (net profit)
-Bonus 1 -Dividends of 5
=Current acc: KIT 3 ordinary shares
Current acc:KAT 3 = Retained income 9
20 20 20 20
Net Profit allocation:

 Income Tax
 Dividends to Shareholders
 And, remaining profit as
‘Retained Income’
PROFIT = HEALTHY BUSINESS

6

SOLE TRADER PARTNERSHIP SHAREHOLDERS – PUBLIC LIMITED COMPANY
Illustration BALANCE SHEET BALANCE SHEET BALANCE SHEET
of Note 7 in Note 7: Capital Note 7: Partnership’s Capital Note 7: Ordinary Share Capital
the Balance Opening balance 60 Kit Kat Authorised:
Sheet Additional capital contribution 50 Opening balance 60 60 1 000 ordinary shares
Plus net profit 20 Additional capital contribution 50 50 Issued
Minus Drawings (0) Closing balance at yearend 110 110 100 Shares in issue at beginning of year 200
Closing balance at year-end 130 50 Shares issued during the year @ R4 200
(10) Buyback of share at average price @R2 (20)
140 Shares in issue at year-end 380
PARTNERSHIP
BALANCE SHEET
SHAREHOLDERS – PUBLIC LIMITED
SOLE TRADER
COMPANY
BALANCE SHEET Note 8:Partners’ Currents accounts
BALANCE SHEET
ALL CALCULATIONS ARE DONE IN Kit Kat Total
NOTE 7 Profit per income statement = 10 10 20
Illustration Note 8: Retained income
Salaries 5 5 10
of Note 8 in
3 the Balance Bonus 0,5 0,5 1
Retained income at the beginning of year 18
Sheet Interest on capital 1,5 1,5 3 Net profit after tax [20 – 6] *see above 14
=Primary distribution = 7 7 14 10 Buyback shares @R1 above average price (10)
Final distribution of profits 3 3 6 Dividends paid and declared (5)
(0) (0) (0) Retained income at the end of year 17
Drawings for the year
Balance at the begin of year
Balance at yearend

7
Grade 12: Public Limited Companies = Ordinary share capital

4 Make sure you understand the GENERAL LEDGER BALANCE SHEET
meaning of the following words used ILLUSTRATION ILLUSTRATION
in Companies: Shares bought back in the ledger
How the Ordinary share capital look like
Public  Shares in issue: Shares that have been sold Then Ordinary Share Capital will in the Balance sheet in Note 7:
Company’s  Average price: R200 ÷ 100 shares in issue = be reduced by 10 x R2 = R20
unique R2 Dr Ordinary share Capital [OE] Cr Note 7: Ordinary Share Capital
accounts and  Buy back shares: Shares can be bought back Bank (10 xR2) 20 Bank (100 shares in issue) 200 Issued
Terminology that were sold previously.
Balance c/d 380 Bank (50 shares) 200
 Market price: The price that potential 100 Shares in issue at beginning of year 200
400 400 50 Shares issued during the year @ R4 200
shareholders are prepared to pay for shares
Balance b/d 380 (10) Buyback of share at average price @R2 (20)
 Net asset value: The real value of the shares
 Ordinary Share capital can only be reduced 140 Shares in issue at year-end 380
by average price: Need to calculate the Additional 50 shares issued at R4 after
average price to determine the amount that the buyback of shares]
will be subtracted from Ordinary Share The average price of shares will change
Capital The other R1 per share will come from when additional shares have been issued
 If shares are bought back for more than the Retained Income account [10 x R1 =R10] R380 ÷ 140 shares = R2, 72 per share
average price:
For example:
average price = R2 Dr Retained Income [OE] Cr Note 8: Retained income
and Bank (10 xR1) 10 Balance b/d 18
10 shares are bought back at R3. Balance c/d 17 Appropriation 9 Retained income at the beginning of year 18
27 27 Net profit after tax [20 – 6] *see above 14
Balance b/d 17 10 Buyback shares @R1 above average price (10)
Dividends paid and declared (5)
*** Retained income at the end of year 17
Compare the above ledger accounts
with Note 7 and 8 to the Balance sheet Above average price
Means that shares were bought back at
R1 plus R2 (average price) = R3

8
Grade 12: Public Limited Companies –SARS- income tax [5A] –credit balances
EXAMPLE ONE: Opening and closing balances are credit balances
5A Timeline 1Mar 2020 30 March 30 August 27 Feb 2021 28 Feb 2021
dealing with
INCOME TAX. 2nd a. Calculate the net profit
Opening 1st provisional Net profit: E.g:R220 000
Payment of amount owing provisional b. Calculate the income tax for the
balance tax payment
tax payment year (28% of net profit)
e.g. (R10 000) (R30 000) (R30 000) R220 000 X 28%=R61 600
c. Calculate the amount owing to or
R10 000 (cr) by SARS!
The provisional income tax is normally an estimate from last year’s R61 600 – [30 000 + 30000]
income tax, therefore the income tax, of previous year was R60 000 = Owe SARS R1 600
What you need to know about SARS income tax GENERAL LEDGER BALANCE SHEET
Public  Two provisional payments are done during ILLUSTRATION ILLUSTRATION
Company’s the year, (being paying income tax in
unique advance). 61 600 – 60 000 = 1 600 still owing to How the SARS (income tax) looks like in
 The provisional payments are calculated on SARS the Balance sheet in Note 9:
accounts
estimates (last year’s income tax figure) Dr SARS [INCOME TAX] B Cr
and
 These payments in advance will show as a Bank 10 000 Balance b/d 10 000 Note 9: Trade and other payables
Terminology debit balance in the Trial Balance during the Bank 30 000 Income tax 61 600 SARS income tax 1 600
year. Therefore, an asset during the year. Bank 30 000
INCOME TAX.
 SARS income tax account can have a debit or Balance c/d 1 600
credit balance. Depends on if the provisional INCOME STATEMENT
71 600 71 600
tax payments were more than the income tax
Balance b/d 1 600 ILLUSTRATION
for the year.
Debit Extract from the Income statement
 A tax return is completed at end of financial
balance = year.
Dr Income tax (expense) N Cr
asset  The income tax is calculated at 28% of the net
SARS (income tax) 61 600 Appropriation 61 600 Net profit before tax 220 000
Credit profit. Minus Income tax (61 600)
balance = Compare the above ledger accounts with Net profit after tax 158 400
Note 9 and INCOME STATEMENT
liability

9
Grade 12: Public Limited Companies-SARS - income tax [5B] – debit and credit balance
EXAMPLE TWO: Opening balance (credit) and closing balance (debit)
5B Timeline 1 Mar 2021 30 March 30 August 27 Feb 2022 28 Feb 2022
dealing with st
Opening Payment of amount 1 provisional 2nd a. Calculate the net profit
INCOME E.g.: R180 000
balance owing tax payment provisional
TAX. b. Calculate the income tax for the year
tax payment (28% of net profit)
e.g. R180 000 X 28%=R50 400
R1 600 (cr) (R1 600) (R30 800) (R30 800) c. Calculate the amount owing to or by
SARS
R50 400 – [30 800 + 30800]
= Paid SARS R11 200 (dr) too much
GENERAL LEDGER BALANCE SHEET

Public ILLUSTRATION ILLUSTRATION
Company’s
Dr SARS [INCOME TAX] B Cr
unique Balance sheet in Note 5:
Bank 1 600 Balance b/d 1 600
accounts and Note 9: Trade and other receivables
Bank 1st 30 800 Income tax 50 400
Terminology nd SARS income tax 11 200
Bank 2 30 800 Balance c/d 11 200
INCOME
63 200 63 200
TAX.
Balance b/d 11 200
Dr Income tax (expense) N Cr INCOME STATEMENT

SARS (income tax) 50 400 Appropriation 50 400 ILLUSTRATION
Extract from the Income statement
Compare the above ledger accounts Net profit before tax 180 000
with Note 5 and INCOME STATEMENT Minus Income tax (50 400)
Net profit after tax 129 600

10
Grade 12: Public Limited Companies- SARS - income tax [5C] – debit balances
EXAMPLE THREE: Opening balance (debit) and closing balance (debit)
5C Timeline 1 Mar 2022 30 March 30 August 27 Feb 2023 28 Feb 2023
dealing with
Opening Payment of amount 1st provisional 2nd d. Calculate the net profit
balance owing tax payment provisional E.g.: R170 000
INCOME TAX.
e. Calculate the income tax for the year
tax payment (28% of net profit)
e.g. R170 000 X 28%=R47 600
R11 200 (R 0 ) (R19 600) (R19 600) f. Calculate the amount owing to or by
(dr.) SARS
Only for enrichment R47 600 – 11 200+19 600 + 19 600
Estimate provisional tax: 50 400 – 11 200 = 39 200 ÷ 2 =19 600. Remember: you paid = Paid SARS R2 800 (dr.) too much
R11 200 in advance. These figures will be given to you and don’t need to be calculated!

ILLUSTRATION ILLUSTRATION
Public Dr SARS [INCOME TAX] B Cr
Company’s Balance b/d 11 200 Income tax 47 600 Balance sheet in Note 5:
unique Bank 1st 19 600 Balance c/d 2 800
accounts and Bank 2nd 19 600 Note 9: Trade and other receivables
SARS income tax 2 800
Terminology 50 400 50 400
Balance b/d 2 800
INCOME TAX
Dr Income tax (expense) N Cr INCOME STATEMENT
SARS (income tax) 50 400 Appropriation 50 400 ILLUSTRATION
27 27 Extract from the Income statement
Net profit before tax 170 000

Compare the above ledger accounts with Note 5 and Minus Income tax (47 600)
INCOME STATEMENT

11
Grade 12: Public Limited Companies –Dividends paid and final dividends declared
EXAMPLE: ‘Shareholders for dividends’ always have credit opening and closing balances:
6 Time line 1 Mar 2022 30 March 30 August 28 Feb 2023 28 Feb 2023
dealing
Payment of amount Interim After the net profit has been
with Opening Final dividend calculated and the income tax
owing to dividends
INTERIM balance declared has been calculated, the final
shareholders paid
DIVIDENDS dividend will be determined.
e.g. E.g.,100 000 shares in issue: 100 000 x 22c
AND FINAL R10 000 (cr.) (R10 000) 10 000 x 8c =100 000 x ,08 = (R8000) 100 000 x ,22 = 22 000
DIVIDENDS
DECLARED To calculate a dividend, you need to know how many shares were issued.

What you need to know about Dividends paid or
Public declared
ILLUSTRATION ILLUSTRATION
Company’s
 Dividends are the return on the shareholders’ How the dividends will appear in the
unique
investment.
accounts and Dr Shareholders for dividends B Cr Balance sheet in Note 8 and 9:
 Dividends are only declared when there is
Terminology Bank 10 000 Balance b/d 10 000 Note 8: Retained income
income available to pay shareholders
INTERIM  Directors have the right to declare an interim
Dividends on 22 000 Balance at the beginning of the year
DIVIDENDS ordinary shares Plus Net profit after tax
dividend during the year if there are available
AND FINAL Balance c/d 22 000 Minus buy back of shares
funds.
DIVIDENDS 32 000 32 000 Minus ordinary shares issued (30 000)
 A Final dividend is declared at year-end and
DECLARED will only be paid the following financial year. Balance b/d 22 000 Interim Paid [100 000 x .8c] 8 000
 The number of shares in issue must be known Final dividend declared 22 000
Dr Dividends on ordinary shares (exp) N Cr
to calculate the total dividends paid or Balance at the end of financial year
declared. Bank 8 000 Appropriation 30 000
Shareholders for 22 000
 The opening balance is always the dividends Note 9: Trade and other payables
dividends
declared at the end of the previous financial Shareholders for dividends 22 000
year and will be paid ASAP. 30 000 30 000
Compare the above ledger accounts with
Note 8 and 9

12
SESSION 1: COMPANIES LEDGER ACCOUNTS AND NOTES TO FINANCIAL

STATEMENTS
BUY BACK OF SHARES
WORKED EXAMPLE 1
COMPANY ACCOUNTS AND BUY BACK OF SHARES
Kalel Company Limited has been authorised to issue an unlimited number of ordinary shares
to prospective shareholders. On 1 March 2021 the company issued 2 000 000 ordinary shares
at an issue price of 300 cents per share (R3). During the same financial year March 2021 to
February 2022, another 2 000 000 ordinary shares were issued at an issue price of 600 cents
per share.
The current financial year is from 1 March 2022 to 28 February 2023
REQUIRED
A. Complete Note 7 of the Financial Statements: Ordinary Share Capital on 28 Feb 2023
B. Complete Note 8 of the Financial Statements: Retained Income
C. Complete SARS-Income Tax Account and balance the account at the end of the
financial year.
D. Complete Dividends on Ordinary Shares Account and close off the account at the end
of the financial year.
E. Show the calculation of the average price of the total issued shares on 1 October
2022.
F. What was the total amount paid to the estate of the deceased shareholder? Show
calculations.
G. Show the calculation of the final dividend per share on 28 February 2023.
H. Give TWO possible reasons for the company’s decision to buy back the shares from
the deceased estate on 1 October 2022.

13
INFORMATION
At the beginning of the new financial year, 1 March 2022, the following balances appeared in the
General Ledger of Kalel Company Limited:
Ordinary share Capital R18 000 000
Retained Income R1 800 000
SARS(income tax) (credit) R 500 000
Shareholders for dividends R640 000
TRANSACTIONS DURING THE FINANCIAL YEAR:
1 March 2022 Kalel Company Limited offered more shares to prospective shareholders at
an issue price of 700 cents per share. All the shares were sold and
R7 000 000 was recorded in the Cash Receipts Journal.
31 March 2022 The amount owing on 1 March 2022 to SARS and to the Shareholders were
settled and recorded.
31 August 2022 The directors paid provisional tax of R420 000 and interim dividends of
8 cents per share. This was NOT APPLICABLE to the shares issued
on 1 March 2022 to shareholders.
1 October 2022 The directors decided to buy back 200 000 ordinary shares from an estate
of a deceased shareholder at a price of R2 more than the average price
and an electronic transfer was made to the estate of the deceased.
25 February 2023 Close to the end of the financial year the company paid the second
provisional tax payment of R460 000.
28 February 2023 Additional information
 The net profit for the year was R 2 800 000
 Income tax was calculated at 30 % of net profit
 A final dividend was declared at 22 cents per share. This is applicable
to all existing shareholders

14
SUGGESTED SOLUTION
200 000 x R3
COMPANY ACCOUNTS AND BUY BACK OF SHARES 200 000 x R6
A NOTES TO THE BALANCE SHEET

Note 7: Ordinary Share Capital
Issued:
4 000 000 ordinary shares on 1 March 2022 18 000 000
1 000 000 ordinary shares issued @ R7 each 7 000 000
(200 000) ordinary shares bought back @R5 each (1 000 000)
4 800 000 -ordinary shares on 28 Feb 2023 24 000 000
18 000 000+7 000 000

4 000 000+1 000 000
=R5.00
B NOTES TO THE BALANCE SHEET
Note 8: Retained income
Retained income on 1 March 2022 1 800 000
Net profit after tax ( 2 800 000 – 840 000) 1 960 000
200 000 Buy back shares@ R2 above the average price (400 000)
Dividends on ordinary shares (1 376 000)
Paid (interim) (4 000 000 x 8 cents) 320 000
Declared (final) 5 000 000 – 200 000 = 4 800 000 x 22c 1 056 000
Retained income on 28 February 2023 1 984 000
C GENERAL LEDGER OF KALEL COMPANY LIMITED

Dr. SARS(INCOME TAX) Cr.
2022 Bank CPJ 500 000 2022 1 Balance 500 000
Mar 1 Mar
2022 31 Bank CPJ 420 000 2023 28 Income tax 840 000
Aug Feb
2022 25 Bank CPJ 460 000 Balance c/d 40 000
Feb
1 380 000 1 380 000

2023 Balance b/d 40 000
Mar

15
D GENERAL LEDGER OF KALEL COMPANY LIMITED

Dr. DIVIDENDS ON ORDINARY SHARES Cr.
2022 CPJ 2023 28 GJ
Aug 31
Bank/Shareholders 320 000 Feb
Appropriation 1 376 000
for dividends
2023 28 GJ
Feb
Shareholders for 1 056 000
dividends
1 376 000 1 376 000
E Show the calculation of the average price of the total issued shares on 1
October 2022
18 000 000 + 7 000 000 = 25 000 000 ÷ 5 000 000 = R5 per share
(500 cents per share)
F What was the total amount paid to the estate of the deceased shareholder?
Show calculations

[R5 x 200 000] + [R2 x 200 000 ] = R1 400 000
OR
1 000 000 + 400 000 =R 1 400 000
G Show the calculation of the final dividend per share on 28 February 2023.
[4 000 000 + 1 000 000]

5 000 000 – 200 000 = 4 800 000 shares x .22c = R1 056 000
H Give TWO possible reasons for the company’s decision to buy back the
shares from the deceased estate on 1 October 2022.
 Company can decide to buy back shares using surplus funds provided that
the company stays solvent and liquid.
 The deceased’s family does not want the shares
 The deceased’s family need the capital to cover the costs of the estate
 Company can decide to buy back shares to ensure that the market is not
flooded with the same type of shares.
 Directors can decide to buy back because they are concerned that the shares
could be undervalued in the market place.

16
ACTIVITY 1:COMPANY LEDGER ACCOUNTS AND BUY BACK OF SHARES
KIMA LIMITED
Kima Limited has been registered to issue 10 000 000 ordinary shares. During the past
years 4 000 000 shares have been issued to shareholders at different issue prices.
The financial year ends every year on 28 February.
REQUIRED
1.1 Complete Note 7 of the Financial Statements. (11)
1.2 Complete Note 8 of the Financial Statements. (15)
1.3 Complete SARS (INCOME TAX) LEDGER ACCOUNT and balance the account at (10)
the end of the financial year.
1.4 Show the calculations of interim dividends and the dividends declared at the end of (8)
the financial year.
INFORMATION
At the beginning of the new financial year, 1 March 2022, the following balances appeared in the
General Ledger of KIMA Company Limited:
Ordinary share Capital R15 000 000
Retained Income R1 200 000
SARS(income tax) (credit) R 400 000
Shareholders for dividends R340 000
Extracts of transactions during the financial year:

1 March 2022
KIMA Limited offered an additional 1 000 000 ordinary at an issue price of 600 cents per share. All
the shares were sold and recorded in the Cash Receipts Journal.
31 March 2022
The amount owing on 1 March 2020 to SARS and to the Shareholders were settled and recorded.
31 August 2022
The directors paid provisional tax of R400 000 and interim dividends of 7 cents per share.

17
1 October 2022
The market price dropped at JSE and the directors made the decision to buy back 150 000
shares at R5, 00 per share. The monies were paid.
25 February 2023
Kima Limited paid the second provisional tax payment of R400 000.
28 February 2023
Additional Information
 The net profit for the year was R 2 950 000
 Income tax for the year R585 000
 A final dividend was declared at 18 cents per share. This is applicable to all existing
shareholders.

18
ACTIVITY 1 ANSWER SHEET

COMPANY’S LEDGER ACCOUNTS AND BUY BACK OF SHARES
1.1 NOTES TO THE BALANCE SHEET

Authorised:
Issued:
11

NOTE 8: RETAINED INCOME
15

19
1.3 GENERAL LEDGER OF KIMA COMPANY LIMITED
10
1.4 Calculate the interim and declared dividends and show all calculations
1.4.1 Interim dividends on 31 August 2022
1.4.2 Declared Dividends at the end of the financial year on 28 February 2023
44

20
ACTIVITY 2 : COMPANY’S LEDGER ACCOUNTS AND BUY BACK OF SHARES (46 marks)
ASHY COMPANY LIMITED
Ashy Company Limited trades in Proudly South African bottled water. The Company is
authorized to issue an unlimited number of no-par value ordinary shares.
The directors are concerned that the market price per share at Johannesburg Securities
Exchange (JSE) on 1 March 2022 has declined from R8, 00 to R5, 00 per share. The directors
informed the internal auditor to investigate what contributed to the declined market price per
share.
You have been requested by shareholders to present information relating to the following
company accounts for the period 1 March 2022 to 28 February 2023.
REQUIRED
2.1 Calculate the average price of shares before the shares were bought back.
2.2 Calculate the price that the company bought back the shares for on 15 September 2022.
2.3 Complete the following accounts and balance/close off the accounts on 28 February 2023.
 Ordinary share capital

 Retained income.
 Shareholders for dividends
 SARS: income tax
 Ordinary share dividends
 Income tax
2.4 The directors requested from you, being the internal auditor, to report on the repurchase of
shares on 15 September 2022. The value of the market price per share on the 28 February
2023 was R7,00 per share. Was the buying back of shares a good decision for the
company? Give a short report in point form and make use of financial indicators as part of
your answer. Provide TWO points.
(Financial indicator means show relevant figures.)

21
INFORMATION:
The following balances appeared in the books on 1 March 2022
Ordinary Share Capital ( 70 000 shares issued) 475 250

Retained Income/ Accumulated Profits 136 000
SARS (Income Tax) (Cr) 130 000 (cr)
Shareholders for dividends 120 000
ADDITIONAL INFORMATION
A 2022 The amounts due to SARS for income tax and to shareholders for dividends
Mar 31 were paid.
B Income tax details are as follows:

2022
Aug 31 The company paid their first provisional tax of R170 000.
2023
Feb 28 A second provisional tax payment of R195 000 was made.
The Income tax for the year amounted to R450 000, being 30% of net profit.
C Shares and Dividends
2022
Mar 31 Issued 15 000 ordinary shares for R92 250.
Mar 31 Issued another 90 000 ordinary shares for a total of R360 000.
Aug 30 The directors decided to pay an interim dividend R75 000.
Sep 15 After investigation the directors realised that the shares were undervalued in
the marketplace and therefore decided to buy 65 000 ordinary shares for
R390 000.
2023
28 Feb The directors recommended and declared a dividend of R3 per share to the
shareholders at the AGM meeting.

22

2.1 Calculate the average price of shares before the buy-back of shares. (3)
2.2 Calculate the price that the company bought back the shares for on (2)
15 September 2022.
2.3 GENERAL LEDGER OF ASHY C
Dr. Ordinary Share Capital B1 Cr.
10

23
Dr. Retained income B2 Cr.
Dr. Shareholders for dividends B3 Cr.
Dr. SARS: Income tax B4 Cr.

24
Dr. Ordinary share dividends N11 Cr.
Dr. Income tax N12 Cr.

25
ACTIVITY 3: REPORT ON BUY BACK OF SHARES (50 marks )
REPORT: KALEL COMPANY LIMITED

According to the books of Kalel Company Limited, the company bought back ordinary shares
during the previous financial year
During a meeting with shareholders, questions were raised which the directors could not
answer with clarity. A written report was then requested by the shareholders. As the
accountant of Kalel Company Limited you had to respond to the directors’ requests to compile
a report.
The directors requested a report on the points mentioned below:
Use the numbering system (A to I) to complete a report to directors.
A What was the reason for the buyback of shares? (Possible 2 reasons) (4)
IDENTIFY the possible reasons[ applying]
B How did the accountant arrive at the Average price of R5 when 200 000 ordinary (3)
shares were bought back? Show all the calculations necessary in the report
ANALYSE how the accountant arrived at the average price of R5[analysing]
C Could the company afford to buy back the shares and what was the total AMOUNT (5)
PAID PER SHARE for the buyback of shares? Explain and show the calculations.
Explain and support your answer with relevant calculations[ evaluating]
D From which funds were the money retrieved to pay for the buyback shares? Explain (4)
and show figures.
Explain and show calculations [ understanding]
E How much was paid for the buyback of shares? Show calculations (4)
Support your answer by showing relevant calculations [ evaluating]
F According to the financial statements what possible advantage could the buyback of (2)
shares hold for the existing shareholders? Comment on the dividends.
Discuss what possible advantages could the buyback of shares held for the existing
shareholders according to the financial statements? [ creating]
G The shareholders did not understand how the accountant arrived at the amount of (3)
R1 056 000 for the final dividend at the end of the financial year. Show the relevant
calculations so that the directors will be able to demonstrate to the shareholders in
question.
Show the relevant calculations so that the directors will be able to demonstrate to the
shareholders in question. [understanding]
H The directors also requested a copy of the Ordinary Share Capital account, (17)
(7 marks) and the Retained Income account (8 marks) in the general ledger.
Reconstruct the two accounts and record the accounts as part of the report.

26
I The shareholders want to know why are there three Bank entries in the SARS (income (8)
tax) account and why can’t the company just make one electronic transfer of
R840 000 during the year to save bank charges. Explain all three electronic transfers
and the amount of R840 000 in your report.
Explain all three EFT‘s the amounting to R840 000 in your report. [understanding]
INFORMATION RELATING TO H
As the accountant make use of the following information to complete the report:
(I) NOTES TO THE BALANCE SHEET

Issued:
4 000 000 ordinary shares on 1 March 2022 18 000 000
1 000 000 ordinary shares issued @R7 each (1 April 2022) 7 000 000
(200 000) ordinary shares bought back @R5 each ( 1 October 2022) (1 000 000)
4 800 000-ordinary shares on 28 Feb 2023 24 000 000
(II) NOTES TO THE BALANCE SHEET

Note 8: Retained income
Retained income on 1 March 2022 1 800 000
Net profit after tax ( 2 800 000 – 840 000) 1 960 000
200 000 Buy back shares@ R2 above the average price (400 000)
Dividends on ordinary shares (1 376 000)
Paid ( interim) (4 000 000 x .08 c each) (1 April 2022) 320 000
Declared ( final) (22c per share) 1 056 000
Retained income on 28 February 2023 1 984 000
(III) GENERAL LEDGER OF KALEL COMPANY LIMITED

2022 Bank CPJ 500 000 2022 1 Balance b/d 500 000
Mar 1 Mar
2022 31 Bank CPJ 420 000 2023 28 Income tax GJ 840 000
Aug Feb
2023 25 Bank CPJ 460 000 Balance c/d 40 000
Feb
1 380 000 1 380 000
2023 Balance b/d 40 000
Mar

27
ACTIVITY 3: ANSWER SHEET (50 marks)
The directors requested a report on the points mentioned below:

Use the numbering system (A to I) to complete a report to directors.
A What was the reason for the buyback of shares? (Possible 2 reasons) (4)
B How did the accountant arrive at the Average price of R5 when 200 000 (3)
ordinary shares were bought back? Show all the calculations necessary
in the report
C Could the company afford to buy back the shares and what was the total (5)
AMOUNT PAID PER SHARE for the buyback of shares? Explain and show
the calculations.
Explanation:
Calculations:
From which funds were the money retrieved to pay for the buyback
D (4)
shares?
Explain and show figures.

28
E How much was transferred by the company towards the buyback of (4)
shares? Show calculations.
F According to the financial statements what possible advantage could the

buyback of shares hold for the existing shareholders? Comment on the
(2)
dividends.
G The shareholders did not understand how the accountant arrived at the amount
of R1 056 000 for the final dividend at the end of the financial year. Show the
(3)
calculations so that directors can show the figures to the shareholders in
question.
H The directors also requested a copy of the Ordinary Share Capital

account; (17)
(7 marks) and the Retained Income account (8 marks) in the general
ledger. Reconstruct the two accounts and placed it in the report.

29
I The shareholders want to know why there are three Bank entries in the SARS (8)
(income tax) account and why can’t the company just write out one EFT of
R840 000 during the year to save bank charges. Explain all three EFT’s and
the amount of R840 000 in your report.
TOTAL: 50

30
GENERAL LEDGER OF KALEL COMPANY LIMITED
Dr. ORDINARY SHARE CAPITAL Cr.
GENERAL LEDGER OF KALEL COMPANY LIMITED

Dr. RETAINED INCOME Cr.

31
WORKED EXAMPLE ONE - ADAPTED (NSC NOV 2017)

SO-FINE LTD
The given information relates to So-Fine Ltd for the financial year ended 31 August 2023.
REQUIRED:
Prepare the following notes to the Balance Sheet on 31 August 2023:
 Ordinary share capital

 Retained income
INFORMATION:
A. Information from the Income Statement for the financial year ended
31 August 2023:
Operating profit 697 000

Income tax 187 770
Net profit after income tax 438 130
B. Information from the Balance Sheet on 31 August:
2023 2022
(R) (R)
Shareholders' equity ? ?
Ordinary share capital 5 292 000 ?
Retained income ? 147 370
Shareholders for dividends 168 000 120 000
SARS: Income tax 11 800 (Cr) 2 400 (Dr)
C. Share capital and dividends
 The authorised share capital comprises 1 200 000 ordinary shares.

 900 000 ordinary shares were in issue on 1 September 2022.
 The company issued 150 000 ordinary shares at R6,30 per share on 1 May 2023.
 70 000 ordinary shares were repurchased from shareholders on 30 August 2023.
An amount of R437 500 was transferred electronically to shareholders. These
shareholders qualify for final dividends.
 An interim dividend of 12 cents per share was paid on 1 February 2023.
 A final dividend was declared on 30 August 2023.

32
SUGGESTED SOLUTION
SO-FINE LTD
ORDINARY SHARE CAPITAL
AUTHORISED SHARE CAPITAL

1 200 000 ordinary shares
ISSUED SHARE CAPITAL

Given
figure Ordinary shares on 1 September 2022 4 725 000 Balancing figure
900 000
150 000 Issued on 1 May 2023 at R6,30 each 945 000
(70 000) Re-purchased 30 August 2023 for R5,40 (378 000) ASP :
5 292 000/980 000
= R5.40
980 000 Ordinary shares on 31 August 2023 5 292 000 Given figure
Note: the value of shares at the beginning of the year was not
provided, we relied on the closing balances to determine our ASP.
Bottom –up Approach is recommended for determining the balancing figures:
4 725 000 Answer

945 000 Subtract
(378 000) Add
5 292 000 Start here
Always change signs

when you use Bottom-up
Approach
Note: The positive sign for 5 292 000 does not change.
Calculation : 5 292 000 +378 000 -945 000 = 4 725 000

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RETAINED INCOME
Balance on 1 September 2022 147 370 Given figure
Net profit after income tax 438 130 Given figure
Shares repurchased (437 500 – 378 000 ) *** (59 500) 378 000 (check OSC)
Ordinary share dividends (276 000)
Dividends were paid
 Interim dividends (900 000 x 0,12) 108 000 before issuing
additional shares
Extracted from Balance
 Final dividends 168 000 Sheet – declared ,not
paid
Balance on 31 August 2023 250 000
Alternative method for calculating repurchased shares :
Transaction Total amount (A) Number of Unit

shares (B) price
(i) Shares repurchased R437 500 70 000 R6,25 (A/B)
(ii) Average share price R378 000 check OSC 70 000 R5,40 (A/B)
(iii) Above average R59 500 ( i – ii) 70 000 R0,85 (A/B)
amount
Shares repurchased ***

70 000 x R0,85 = R59 500
70 000 – (R6,25 –R5,40) = R59 500

34
ORDINARY SHARE CAPITAL (NOTE 7) AND RETAINED INCOME (NOTE 8)
EXTRACTED FROM NSC NOV 2022 – QUESTION 2
A. Extract: Statement of Comprehensive Income on 28 February 2022:
Net profit before tax 1 297 700

Income tax 389 300
B. Extract: Statement of Financial Position on 28 February 2022:

2022 2021
Shareholders’ equity 12 350 000 10 750 000
Ordinary share capital 11 968 000 ?

Retained income 382 800 ?
C. Ordinary shares:
NO. OF SHARES
Number of shares on 1 March 2021 1 180 000
Number of shares issued on 1 July 2021 at R9.30 each 300 000
Number of shares repurchased on 1 January 2022 at 120 000
R1,40 above the average price
Number of shares on 28 February 2022 1 360 000
D. Dividends:
 Interim dividends of R710 400 were paid on 31 August 2021.

 A final dividend of 12 cents per share was declared to all shareholders on the
share register on 28 February 2022.

35
ORDINARY SHARE CAPITAL (NOTE 7)

1 180 000 Ordinary shares 10 234 000 Do the bottom up calculation to get this
figure
300 000 Ordinary shares issued @R9.30 2 790 000 300 000 shares x R9.30
(price at which the shares were issued at)
When preparing the Cash flow statement,
this full amount will appear under Cash
flow from Financing Activities 2 790 000
cash inflow
(120 000) Shares repurchased @R8.80 (1 056 000) You can only get the 1 056 000 after
getting the average price of R8.80 as
shown below.
1 360 000 11 968 000 We are given the OSC amount at the end
and the number of shares at the end,
therefore
𝑹𝟏𝟏 𝟗𝟔𝟖 𝟎𝟎𝟎
Bottom up calculations = R8.80
𝟏 𝟑𝟔𝟎 𝟎𝟎𝟎
11 968 000 + 1 056 000 – 2 790 This approach can only be used when
000 there is no further issue of shares after
the repurchase of shares
RETAINED INCOME (NOTE 8)

Balance on 1 March 2021 516 000 This was the missing amount in this question, therefore
the bottom-up approach was necessary to complete
this question.
382 000 + 873 600 + 168 000 – 908 400 =516 000
Net profit after tax 908 400 This amount is given in the question
Repurchase of shares (168 000) The repurchase of shares is recorded at the amount
(120 000 x 1.40) above the average price, in this it is R1.40
Ordinary share dividends (873 600) A total of interim and final (163 200 + 710 400)
Remember to put brackets on this figure.
Interim 710 400 This amount was given in the question paper
Final (1 360 000 x 12c) 163 200 Refer to Note 7 above, the number of shares in the
share register is very important. On this date there is
1 360 000 shares.
Balance at the end 382 000 This amount was given in the answer book

36
SESSION 2: STATEMENT OF COMPREHENSIVE INCOME
STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT)
 Income Statement reflects the trading results in the form of profit or loss for a specific
accounting period, usually a year.
 At year end, all the income and expense accounts will be checked to ensure that all the
figures represent the amounts for the current year.
 Adjustments will then be done to rectify any accrued or prepaid. The net income or net loss is
obtained by subtracting expenses from the income.
 In Grade 10 the financial statements of the sole trader were introduced, in Grade 11 the
partnership and Grade 12 the companies are introduced.
 NOTE: The structure of the trading section and operating activities (income and expenses)
are similar for all the three forms of ownership.
FORMAT OF STATEMENT OF COMPREHENSIVE INCOME
Statement of Comprehensive Income/Income Statement for the year ended

Notes
The FORMAT Sales (Sales – debtors allowances) 100 000
of a
Trading
Section
Cost of Sales (40 000)

Company’s
INCOME Gross profit 60 000
STATEMENT
Plus Other Operating Income 8 000
is similar to
the Sole Discount received 1 000
trader and Rent income 6 000
Partnership Profit on sale of asset 600
Operating
Section
Bad debts recovered 300

Provision for bad debts adjustment 100
Etc.
Operating Profit 68 000

37
These are
the new Minus Operating Expenses (10 000)
expense Advertising 100
accounts
Operating Section
Salaries and wages 3 000
unique to Insurance 200
companies Provision for bad debts adjustment (if increased) 50
Bad debts 50
Sundry expenses 2 000
Audit fees 400
Directors fees 4 000
Trading stock deficit 20
Depreciation 160
Loss on sale of assets 20
Etc.
Operating Profit (Loss) 58 000
Company Ltd
Sole Partnership
trader
Shareholders
Sole Trader /Partnership Company

Operating Profit (Loss) 58 000 Operating Profit (Loss) 58 000
Plus Interest Income 1 1 200 Plus Interest Income 1 1 200
Profit (loss) before interest Profit (loss) before interest
expense 59 200 expense 59 200
Minus Interest expense / Minus Interest expense /
Finance cost 2 (200) Finance cost 2 (200)
Net Profit (Loss) for the Profit (Loss) before tax 59 000
year 59 000 Taxation (28%) (16 520)
Net Profit (Loss) after
Income tax not applicable for a sole tax 8 42 480
trader or in a partnership. Partners
and owners pay income tax in their Income tax for the year is subtracted
own personal capacity in the Income Statement
REMEMBER: Only nominal accounts are recorded in the Income Statement.

38
TRIAL BALANCE AND YEAR –END ADJUSTMENTS
 The nominal accounts section of the Pre-adjustment Trial Balance will indicate the total
amounts received or paid during the financial year. Therefore it’s very important to take into
account the accruals in order to determine the correct profit.
 Accrual - it means a company to record revenue before receiving payment for goods or
services sold or expenses are recorded as incurred before the company has paid for them.
 A Pre-adjustment Trial Balance or list of balances extracted from the trial balance are used to
adjust the year-end adjustments or transactions.
 The diagram provided below indicates a chain of financial records involved in the calculation
of retained income.
Nominal Accounts
Trading Account Profit nd Loss Appropriation
Determine Net Determine

Determine Gross Retained
Profit Profit
Earnings
ILLUSTRATIVE EXAMPLES FOR YEAR-END ADJUSTMENTS
 Rent expense - a % increase/decrease during the year.

 Provision for bad debts
 Interest on loan extract from the loan statement
 Calculate the ‘short term loan’

39
Rent income/expense
Adjustment Income statement
Example: 1
Pre-adjustment Trial Balance Feb 2023 Income statement for the year ended
Nominal sections Dr Cr Less operating expenses
Rent expense 11 000 Rent expense 12 000
(11 000 + 1 000)
Adjustment: Balance Sheet for Feb 2023

Brought into account that one month’s rent is Note 9: trade and other payables
still outstanding at R1 000 per month. Accrued expense 1 000
Calculations
(1 000 x12 ) – 11 000 = 1000 accrued

12 000
OR
Adjustment Financial statements
Example: 2
Income statement for the year ended
Pre-adjustment Trial Balance Feb 2023
Less operating expenses
Nominal section Dr Cr
Rent Income 27 200 Rent Income 25 000
(27 200 - 2 200)
Adjustment:
The tenant paid his rent one month in advance.
Take into account that the rent of R2 000 Balance Sheet for Feb 2023
increased by 10 % from 1 October 2022.
Note 9: trade and other payables
Income received in advance 2 200
Calculations
1 Mar 2022 till 30 Sep 2022 = 7 months x 2 000
1 Oct 2022 till 28 Feb 2023 = 5 months x 2 200
March 2023= 1 month x 2 200
Deferred income/ Income received in advance must be subtracted.

40
OR
Example: 3
Plus other operating income
Pre-adjustment Trial Balance 28 Feb 2023
Nominal section Dr Cr Rent Income 25 000
Rent Income 27 200 (27 200-2200)
Adjustment:
Take into account that rent increased by R200 Balance Sheet as at 28 February 2023
on 1 October 2022 and the tenant paid the rent Note 9: trade and other payables
for March during February 2023.
Income received in 2 200
advance
CALCULATIONS
1 March to 30 Sep = 7 months x 100%
1 Oct - 28 Feb = 5 months x 100% +(200 x 5)
March = 1 month x 100%+(200 x 1)
Total amount received = 27 200

Tot increase received: R200 x 6 m = (1 200)
R26 000 ÷ 13m = R2 000 p.m.
Prepaid amount is R2 000 + R200 = R2 200

Deferred income/ Income received in advance must be subtracted
TIME LINE will reflects calculations for 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
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
+200 +200 +200 +200 +200 +200

41
OR
Example: 4
Pre-adjustment Trial Balance -28 Feb 2023
Nominal section Dr Cr
Rent Income 22 800 Rent Income 25 000
(22 800+2200)
Adjustment:
Take into account that the rent increased by 10%
on 1 October 2020 and the tenant hasn’t yet paid Balance Sheet as at 28 Feb 2023
the rent for February 2023 Note 5: Trade and other receivables
Accrued Income 2 200
Mar 30 Sep = 7 months x 100%

1 Oct -Jan = 4 months x 100% +10%
Mar = 1 month x 100%+10% accrued
(100% x 7) + (110% x 4) = 22 800

700% + 440% = 22 800
1140% = 22 800 (known)
𝑢𝑛𝑘𝑛𝑜𝑤𝑛 𝑼
Make use of cremora / or =
𝑘𝑛𝑜𝑤𝑛 𝑲
𝑢𝑛𝑘𝑛𝑜𝑤𝑛 110
x 22 800 = R 2 200
𝑘𝑛𝑜𝑤𝑛 1140
Accrued income must be added
Draw a TIME LINE to determine the rent for the year and the rent that was ACCRUED
Financial year
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%
7 x 100% =700% + 110% x 4 =440% + Feb/accrued = 22 800

42

Example: 5
Pre-adjustment Trial Balance - 28 Feb 2023 Rent Income
Nominal section Dr Cr 23 000
(24 800- 1 800)
Rent Income 24 800
Adjustment: Balance Sheet as at 28 Feb 2023

Take into account that the rent decreased by 10% Note 9: Trade and other payables
on 1 October 2022 due to the lockdown and the
tenant paid the rent for March during February Income received in advance 1 800
2023
Calculations
Mar 30 Sep = 7 months x 100%

1 Oct -Feb = 5 months x 100% -10%
Mar = 1 month x 100%-10% Deferred income
(100% x 7) + (90% x 5) + 90% = 24 800

700% + 450% + 90% = 24 800
1240% = 24 800 (known)
𝑢𝑛𝑘𝑛𝑜𝑤𝑛
Make use of cremora / or
𝑘𝑛𝑜𝑤𝑛
𝑢𝑛𝑘𝑛𝑜𝑤𝑛 90
x 24 800 = R 1 800
𝑘𝑛𝑜𝑤𝑛 1240
Time line illustrates rent received for the year and the Rent received in advance
Financial year Prepaid
1 Mar Apr May June July Aug Sept 1 Oct Nov Dec Jan Feb Mar
100% 100% 100% 100% 100% 100% 100% 90% 90% 90% 90% 90% 90%
March 90% x1
7 x 100% =700% + [100%-10%] 90% x 5 = 450% + = 24 800

43
Provision for bad debts: [create/increase/ or decrease]
The provision for bad debts account must be adjusted according to the balance of the Debtors
Control account.
The new adjusted balance of the Debtors control account will be used to calculate the provision
for bad debts after all additional adjustments took place in the Debtors control account
When the company creates provision for bad debts for the first time, the Provision for bad
debts adjustment will be regarded as an expense.
Three examples are used to illustrate when provision for bad debts adjustment.
[Create or increase or decrease]
Example: 1:
Income statement for the year
financial year-end: 31 August Minus operating expense
Pre-adjustment Trial Balance Provision for bad debts 850

Balance sheet section Dr Cr adjustment
Debtors control 17 000
Provision for bad debts 0 Balance Sheet as at August 2022
Note 5 Trade and other receivables
Trade debtors 17 000
Adjustment: 2022
Create a provision for bad debts at 5% of debtors. Less provision for bad (850)
debts
Net Debtors 16 150
Calculations
17 000 x 5% = R 850 NOTE: when creating provision for

bad debts the amount recorded in
Create: expense the Income Statement will be
Create:
recorded in our note for trade and
expense other receivables.

44
Example: 2
Pre-adjustment Trial Balance Income statement –August 2022
Balance sheet section Dr Cr Minus operating expense
Debtors control 22 000 Provision for bad debts 150
Provision for bad debts adjustment (1 000 - 850)
850 Bad debts 2 000
Adjustment: 2022 Balance Sheet as at August 2022

Adjust the provision for bad debts at 5% of
debtors. Take into account that additional bad Note 5 Trade and other receivables
debts of R2 000 must still be written off. Trade debtors 20 000
(22 000-2 000)
Less provision for bad (1 000)
debts (850 +150 =1000)
Net Debtors 16 150
Calculations
Debtors control: NOTE
22 000 – 2 000 = 20 000  When the provision for bad
debts increase the difference is
20 000 x 5% = R1 000 regarded as an expense.
 R1 000 will be recorded in note for
Adjust from R850 to R1 000 (increase)
Increase: expense trade and other receivables and
(1000 – 850 = R150 ) R150 will be recorded in the
Income Statement.
increase: expense (difference between R1 000 and R850)

45
When the provision for bad debts decrease the difference is regarded as an income.
ADJUSTMENT Financial Statements
Example: 2.3
Income statement - February 2023
Pre-adjustment Trial Balance Plus other operating income :
Balance sheet section Dr Cr Provision for bad debts 270
Debtors control 19 000 adjustment (1 000 -730)
Provision for bad debts 1 000
Adjustments: 2020
Balance Sheet as at February 2023
 Take into account that additional bad debts of R1
600 must be written off. Note 5 : Trade and other receivables
 Transfer R2 800 a debit balance of a debtor to Trade debtors 14 600
the creditors’ ledger. (19000-1600-2800)
 Adjust the provision for bad debts at 5% of Less provision for bad (730)
debtors debts (1000-270 =730)
Net Trade Debtors 13 870
Calculations
Debtors control:
19 000 – 3 200 + [1400 + 200] - 2 800 = 14 600
Remember:
Only the difference, R270 between
+ Debtors control -
the opening balance and current
b/d 19 000 Bad debts 1 600
provision will be recorded in the
J credits 2 800
Income statement
c/d 14 600
19 000 19 000
b/d 14 600
14 600 x 5% = R730
NOTE:
Adjust from R1 000 to R730 (decrease) When the provision for bad debts
(1000 – 730 = R270 ) decrease the difference is
regarded as an income.
Income

46
Interest on loan extract from the loan statement (capitalised)
The amounts used to calculate the interest on loan are obtainable from the loan
statement issued by the bank.
Example: 3.1
Income statement– February 2023
Pre-adjustment Trial Balance
Profit before interest expense
Balance sheet section Dr Cr
Minus interest expense (75 000)
Loan 525 000
Net profit before tax
Balance Sheet – February 2023

Calculations before consideration of
statement Non-current liabilities
948 000 – 423 000
Interest not added Loan 600 000 - 348 000 252 000
Adjustment: 2023 Current liabilities

Short term loan 348 000
948000 -600 000
Loan statement from Rand Bank
OR 423 000 -75 000
Balance 1 Mar 2022 948 000
Repayments 423 000
interest capitalised ?
Balance at 28 Feb 2023 600 000
Calculations
Interest on loan : The repayment of the loan will be :
948 000 – 423 000 – 600 000 = 75 000 the interest on loan 75 000
Adjust the loan account as well: + the loan instalment *348 000 (short term)
- Loan + = repayment of loan 423 000
Bank 423 000 Bal b/d 948 000 OR
Bal c/d 600 000 ** 75 000
1 023 000 1 023 000 Opening balance 948 000
Closing balance - 600 000
= Short term loan 348 000
348 000 will be classified as short-term loan if the

capital repayment is not changed in the following
year.

47

Example: 3.2
Income statement –February 2023
Balance sheet section Dr Cr Profit before interest expense
Loan ?
Minus interest expense 223 500
= Net profit before tax
Adjustment: 2023 Balance Sheet –February 2023
Loan statement from Rand Bank Non-current liabilities
Balance 1 Mar 2022 R 2 813 500 Loan 2777 500 -555 500 2 222 000
Repayments 259 500 Current liabilities
interest capitalised 223 500 Short term loan 555 500
Balance at 28 Feb 2023 2 777 500
 20% of the loan balance will be paid in the next

financial year
Calculations
Interest on loan : 223 500
Adjust the loan account as well:

- Loan +
Bank 259 500 Bal b/d 2 813 500
Bal c/d 777 500 interest 223 500
3 037 000 3 037 000
Short term loan:

2 777 500 x 20% = R555 500

48
iv. Calculation of the short term loan – Balance Sheet
When completing the Balance Sheet, it is imperative to indicate the loan that will be paid within
the next financial year (short term loan) as well as the loan that is payable in the long term.
Refer to the examples provided below:
Example: 1
Balance Sheet as at FEBRUARY 2023
Balance sheet section Dr Cr Non-current liabilities
Loan ?
Loan 900 000 – 300 000 600 000
Current liabilities
Adjustment: 28 February 2023
 A Loan of R1 500 000 from Ekasi Bank was
originally received on 1 March 2021. It will be
repaid in equal monthly instalment over 5
years.
Calculations
Adjust the loan account as well:
- Loan + Original loan: R1 500 000
2019 Bank 300 000 2018 b/d 1 500 000
2020 Bank 300 000 Check the timeline provided for annual
c/d 900 000 repayments
Loan
1 500 000 – 300 000 – 300 000
= 900 000
TIME LINE - Term Loan (Current Liability )

Financial year one Financial year two Next financial year
1 Mar 28 1 Mar 28 Feb 1 Mar
2021 Feb 2022 2023 2023
2022
Payment per year Payment per year
R 1 500 000 - 300 000 = R 1 200 000 – 300 000 = Short term loan to current liabilities
=1 200 000 900 000 =300 0000
𝑹𝟏 𝟓𝟎𝟎 𝟎𝟎𝟎𝟎
= R300 000 repayment per year
𝟓 𝒚𝒆𝒂𝒓𝒔

49
Second example: Short term loan
Example:.2
Balance Sheet as at FEBRUARY 2023
Balance sheet Dr Cr Non-current liabilities
sections
Loan 235 200 – 67 200 168 000
Loan 235 200
Current liabilities
Adjustment: 2023 (R5 600 x 12 = 67 200)
 The loan from Oka Lenders was originally
received on 1 September 2021. The loan is to
be repaid in equal monthly instalments over 5
years. The 1st instalment was paid on 30
September 2021.
Calculations
Original loan: R? and must pay it back over 5 years

( 5 x 12 months = 60 payments per month)
Loan on yearend Feb 2020: R235 200

60 – 18 months paid = 42 months still to pay.
𝟐𝟑𝟓𝟐𝟎𝟎
Therefore the short term loan is 𝟒𝟐 𝒎𝒐𝒏𝒕𝒉 =R5 600
per month
TIME LINE - Term Loan (Current Liability )

Financial year one Financial year two Next financial year
1 Mar 1 Sept 28 1 Mar 28 Feb 1 Mar
2021 Feb 2022 2023 2023
2022
6 months + 12 months = 18 months 60 – 18 = 42 months outstanding
paid
Loan: _____? __ 12 months –payable in the short-term
18 m’s later: Loan= R235
30 months is payable in the long- term
200
Instalments of 5 years: 5 x 12 = 60 months to pay-back loan

50
ILLUSTRATIVE ACTIVITY 1 25 Minutes
FINANCIAL STATEMENT AND NOTES

You are provided with the Pre-adjustment Trial Balance of BEN Limited for the year
ended 28 February 2019. Business had 281 000 shares in issue at the end of the
financial year.
REQUIRED:
1. Prepare the Income Statement for the year ended 28 February 2019.
INFORMATION:
BEN LTD
PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2019
DEBIT CREDIT
Balance Sheet Accounts Section
Trading stock 477 500
Creditors control 267 640
Nominal Account Section
Sales 5 250 000
Debtors allowances 72 600
Cost of sales 3 743 500
Packing material 11 550
Bad debts recovered 1 150
Bad debts 6 000
Adjustments
1. The company has two directors. They all received the same monthly remuneration.
One director took his March 2019 fee on 15 February 2019. This has been recorded
2. The account of debtor, G. Zondi, R1 000 must be written off as irrecoverable.
3. N. Ngcobo’s credit balance of R2 000 in the debtors ledger must be transferred to
his account in the creditors ledger.
4. The provision for bad debts must be adjusted to 5% of the good book debtors.
5. A physical stock-taking on 28 February 2019 revealed the following inventories on
hand:
• Trading stock, R470 000
• Packing material, R450

51
ANSWER SHEET
REQUIRED:
Complete the answer sheet individually after the discussion of the adjustments.
BEN LIMITED
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2019
Note R
Sales 5 250 000 – 72 600 5 177 400
Cost of sales 3 743 500 (3 743 500)
Gross profit 1 433 900
Other operating income
Bad debts recovered 1 150 1 150
Provision for bad debts adjustment 10 050 100
Gross operating income
Operating expenses
Packing material 11 550
Bad debts 6 000
Trading stock deficit 47 750
Net profit (loss) after tax
Suggested solutions
no. Adjustment Calculations Income statement
1 The company has two NOTE- add all the months that have Operating Expenses
directors. They all received been paid
the same monthly R420 000 ÷ 25 (12 + 13) Directors fees
remuneration. One director = R16 800 420 000 – 16 800 = 403 200
took his March 2019 fee on 15 OR
February 2019. This has been Dr Prepaid expenses 16 800 42 000 X 24/25=403 200
recorded Cr Directors fees 16 800
Operating Expenses
2 The account of debtor, G. NOTE- if an account is irrecoverable it
Bad debts
Zondi, R1 000 must be written becomes a bad debt
6 000 + 1 000 = 7 000
off as irrecoverable. R1 000
Debtors control [198 000 – 1 000]
Dr Bad debts 1 000
Cr Debtors Control 1 000

52
3 N. Ngcobo’s credit balance of Credit balance R2 000

R2 000 in the debtors ledger
Debtors control [198 000 –1 000 +2 000]
must be transferred to his
account in the creditors Creditor control [267 640 + 2 000]
ledger.
Dr N Ngcobo – Debtors Control 2 000
Debtor :N Ngcobo Cr N Ngcobo – Creditors Control 2 000
NO ENTRIES in Income
2 000 b/d 2 000 statement
Creditor: N Ngcobo
2 000
Adjustment Calculations Income statement

4 The provision for bad Trade Debtors Other operating income
debts must be adjusted to (198 000 – 1 000 + 2 000 )X 5% Provision for bad debts
5% of the good book = 199 000 X 5% = 9 950 adjustment
debtors. Provision for bad debts R10 050
Decreased 10 050 – 9 950 =100
Hint: If the provision for bad
debts: 10 050 – 9 950 = 100
Increase -classify as an Dr Provision for bad debts 100 Recorded under operating
expense Cr Provision for bad debts adjustment Income
Decrease -classify as income
100
5 A physical stock-taking on HINT – use note 4 to calculate trading Operating expenses
28 February 2019 revealed stock surplus or deficit Trading stock deficit
the following inventories 477 500 – 470 000 = 7 500
on hand: 477 500 – 470 000 = 7 500
 Trading stock, Dr Trading stock deficit 7 500 Packing material
R470 000 Cr Trading stock 7 500 11 550 – 450 = 11 100
 Packing material, R450 Packing material on hand, 450
Dr Consumable stores on hand 450
Cr Packing material 450
v. Credit notes omitted at yearend –Income Statement
When a credit note was not recorded, an adjustment must be made to adjust 4 ledger
accounts. The following example will illustrate how the 4 accounts will be adjusted

53
ILLUSTRATIVE ACTIVITY 2– CREDIT NOTES

25 Minutes
Take note: Credit

INFORMATION note:
Extract from the Pre-adjustment Trial Balance on 30 Debtors at
R
June 2020:
Balance Sheet Accounts control Selling
Debtors' control 116 500 Debtors price
Trading stock 209 500 Allowances
Nominal Accounts
Cost of at
Sales (less allowances) 4 777 300
sales Cost
Cost of sales ?
Trading price
stock
Adjustments and additional information:

Adjustments Explanation
1 A credit note for R35 700 issued to a 1. Debtors control = decrease by R35 700
debtor, dated 27 June 2020, was not 2. Debtors Allowances = increase by R35 700
recorded. The cost price of these 3. Trading Stock = increase the stock by R21 000
goods was R21 000. The goods 4. Cost of Sales= decrease the sales by R21 000
were placed back into stock.
To find the original selling price, the trade discount

2 The business prices its goods at a
must be added back in order to calculate Cost of sales
mark-up of 70% on cost. Trade 100
discount of R297 200 was allowed Sales + trade discount =total sales x 170= C of Sales
100
on invoices to certain customers. 4 777 300 + 297 200=5 074 500 x 170 = COST OF SALES
Remember: trade discount and cash discount are not recorded in journals,
only the reduced amount APPEARS ON THE SOURCE DOCUMENT and
recorded. Before you calculate the cost of sales, you need to find the sales
amount before the cash/trade discount was given.
100
[4 777 300 + 297 200] x 170 = 2985 000 (Cost of Sales)

54
REQUIRED:
Complete the income statement in order to calculate the gross profit
Income Statement For The Year Ended 30 June 2020
Sales (4 777 300 – 35 700) 4 741 600
Cost of sales ( 4 741 600 +297 200) x 100/170 (2 964 000)
HINT for Adjustment B – to calculate the cost of sales ADD the trade discount of R297 200
𝑵𝒆𝒆𝒅 𝑼𝒏𝒌𝒏𝒐𝒘𝒏
to sales then apply the CREMORA method / or 𝑯𝒂𝒗𝒆 / or 𝑲𝒏𝒐𝒘𝒏
How to earn easy marks when completing the Income Statement
You must know the FORMAT of the Income Statement.

Always start with the PRE-ADJUSTMENT FIGURES FROM THE TRIAL BALANCE or
information extracted when preparing the income statement.
Start with NOMINAL ACCOUNTS ITEMS
RECORD THE FIGURES IN INCOME STATEMENT to earn part/method marks
START WITH ADJUSTMENTS –you will also have to consider the amounts in the
Balance Sheet Section [More marks are allocated to adjustments]
Income received in advance and prepaid expenses are DEDUCTED
Accrued income and accrued expenses are ADDED
More marks are
Remember to DEDUCT debtors’ allowances from sales earned through
adjusted figures
If goods are returned, cost of sales must also be REDUCED
ALWAYS SHOW your WORKINGS IN BRACKETS to earn part marks

55
COMPANIES FINANCIAL STATEMENTS
ACTIVITY 1
FIXED ASSETS AND INCOME STATEMENT (60 marks)
ADAPTED [NSC/ NOVEMBER 2020]
The information relates to Robbie Ltd for the financial year ended 28 February 2021
1.1 Refer ton INFORMATION B(a) for fixed assets

Calculate the following
1.1.1 The missing amounts denoted by (i) to (ii) on the Fixed asset Note (11)
1.1.2 Profit/Loss on the sale of equipment on 1 October 2020 (2)
1.2 Refer to INFORMATION B (e) for trading stock
Calculate the trading stock deficit
1.3 Prepare the Statement of Comprehensive Income for the financial year ended
28 February 2021
INFORMATION:
A Extract from the Pre-adjustment Trial Balance on 28 February 2021:
R
Mortgage loan: Sufi Bank 1 005 500
Debtors' control 123 000
Trading stock ?
Sales ?
Salaries and wages 1 468 120
Directors' fees 3 330 000
Audit fees 91 000
Repairs 476 000
Rent Income 173 000
Interest Income 25 000
Interest on loan ?
Bad debts 19 200
Advertising 25 680
Ordinary share dividends 86 400

56
B Adjustments and additional information:
Fixed Assets:
Vehicles:
 The business owns two vehicles on 28 February 2021. The second vehicle
was purchased on 1 November 2020
 Vehicles are depreciated at 15% p.a. on cost
Equipment
 Depreciation is 20% p.a. on the diminishing balance method
 Unused equipment was sold for R40 000 on 1 October 2020. Accumulated
depreciation on the equipment sold was R36 600 on 1 March 2020.
Extract of the Fixed Asset Note:

Vehicles Equipment
Cost (1 March 2020) 460 000 360 000

Accumulated depreciation (1 March 2020) (396 750) (187 595)
CARRYING VALUE ( 1 March 2020) (i) 172 405
Additions (at cost) 510 000 0
Disposals (at carrying value) 0 (iii)
Depreciation (ii) (31 281)
CARRYING VALUE (28 February 2021)
Cost (28 February 2021) 970 000 285 000
Accumulated depreciation (28 February 2021)
(b) The business maintains a mark-up of 120% on cost. Note that trade discounts of
R648 000 were granted to special customers.
(c) The account of debtor B Melta, R800, must be written off.
(d) Provision for bad debts must be adjusted to 5% of outstanding debtors
(e) Trading stock is valued on the weighted-average method. The Ledger Account and
records reflect that 280 units should be on hand. However, the physical stock count
reflects only 262 units on hand. The stock records are as follows:

57
UNITS UNIT PRICE TOTAL

Stock at beginning of year 200 R 3 600 R720 000
Purchased during the year 1 840 R4 100 R7 544 000
Returns: damaged units 40 R4 100 R164 000
Available for sale 2 000 R8 100 000
Stock units per records 280 ? ?
(f) 30% of the audit fees is still outstanding.
(g) The monthly rent income did not change during the year, During February 2021 the
tenant paid R9 000 for repairs to the premises, and deduced this from his rent for
February 2021. The rent for March 2021 was received in advance.
(h) The company has four directors earning the same fee. One director resigned on
31 may 2020 and received his fees up to this date. Another director is still owed
fees for January and February 2021.
(i) Advertising consists of a contract with a newspaper for the entire financial year.
Payments are monthly, however instalments were paid for 11 months only. NOTE:
The monthly rate decrease by R240 from 1 November 2020
(j) The net profit after tax was accurately calculated at R1 054 000. The income tax
rate is 32%.
60

58

NSC NOV 2020
1.1.1 (i) Calculate: Carrying value of the vehicle on hand on 1 March 2020
Workings Answer
(ii) Calculate: Depreciation on vehicles for the year

Workings Answer
5
(iii) Calculate: Carrying value of equipment sold
Workings Answer
1.1.2 Calculate: Profit/Loss on sale of equipment

Workings Answer
1.2 (iii) Calculate: Trading stock deficit

Workings Answer
4
NOTE: The relevant figures calculated above must be transferred to the
Statement of Comprehensive Income

59
1.3 STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) FOR

THE YEAR ENDED 28 FEBRUARY 2021
Sales
Cost of sales (6 966 000)
Operating Income
Gross Operating Income

Operating Expenses
Depreciation

Operating Profit
Profit before interest expenses

Interest expenses
Net profit before taxation
43
Net profit after taxation 1 054 000
TOTAL MARKS
60

60
INCOME STATEMENT AND NOTES TO BALANCE SHEET

ACTIVITY 2
MVVS LTD [ADAPTED NSC MAY/JUNE 2019]
The information relates to the financial year ended 31 March 2019.
REQUIRED:
2.1 Complete the Statement of Comprehensive Income (Income Statement) for the year ended
31 March 2021. (53)
2.2 Complete the following notes to the Balance Sheet:
 Fixed/Tangible Asset Note (8)

 Ordinary share capital (6)
INFORMATION:
Figures extracted from the Pre-adjustment Trial Balances on 31 March:
2021 2020
R R
Ordinary share capital 9 300 000 4 800 000
Mortgage loan: Sapphire Bank 1 430 200 1 658 000
Land and buildings 12 500 000 12 500 000
Vehicles 1 377 000 750 000
Equipment ? 398 000
Accumulated depreciation on vehicles ? 475 000
Accumulated depreciation on equipment ? 117 500
Provision for bad debts ? 30 100
Sales 10 563 280
Rent income 99 500
Water and electricity 218 000
Telephone 75 600
Audit fees 104 000
Employer's contributions (medical, pension and UIF) 316 000
Bad debts 22 300
Consumable stores 53 200
Interest income ?
Insurance 79 500
Depreciation (on equipment sold) 1 750
Interest on loan ?
Bad debts recovered 6 000
Ordinary share dividends (interim) 375 000

61
ADJUSTMENTS AND ADDITIONAL INFORMATION:
A. A credit invoice for R36 720 (after deducting a 10% trade discount) issued on 31
March 2021, was not recorded. Goods are marked up at 70% on cost.
B. The physical stock count on 31 March 2021 revealed the following on hand:
 Trading stock, R334 500
 Consumable stores, R3 400
C. Debtor S Magnum was declared insolvent. His estate paid R2 000, which was 20% of
his debt. The difference must be written off as a bad debt.
D. R1 800 was received from a debtor, J Misting, whose debt had previously been written
off. The bookkeeper incorrectly credited the amount to the Debtors' Control Account.
Correct the error.
E. Adjust the provision for bad debts to R28 500.
F. Insurance includes an annual premium of R51 000 paid for the period 1 January 2019
to 31 December 2021.
G. An employee was left out of the Salaries Journal for March 2021. The following details
are applicable:
 Net salary of the employee, R9 100
 The deductions by the employer totalled 30% of the gross salary
 Employer's contributions were R2 200

62
H. Interest on loan is capitalised. A fixed monthly repayment (including interest) of R25 400
was paid for the financial year.
I. Fixed assets and depreciation:
(i) Vehicles:
 Details for the three vehicles are as follows:
Accumulated depreciation
Cost price Date purchased
31 March 2020
1 R350 000 R315 000 1 October 2015
2 R400 000 R160 000 1 April 2018
3 R627 000 30 November 2020
 Vehicles are depreciated at 20% p.a. on cost.
(ii) Equipment:
 Equipment was sold for R9 600 cash on 31 August 2020. Only the following
entries in respect of this sale were processed:
Cost price 28 000

Accumulated depreciation at the date of disposal 21 500
Depreciation for the current financial year 1 750
 Depreciation on the remaining equipment is calculated at R92 500 after taking

all of the above into account.
J. Interest income is the missing figure in the Income Statement.
K. Income tax is calculated at 28% of the net profit. The net profit before tax was R691 000.
L. Shares and dividends:
 The company has an authorised share capital of 8 000 000 shares.

 The company had 1 200 000 shares in issue on 1 April 2020.
 150 000 shares were repurchased on 30 November 2020 EFT payments totalling
R825 000 were made for these shares.
 850 000 additional shares were issued on 30 December 2020.

63

2.1 MVVS LTD [NSC/ MAY/JUNE 2019]
Statement of Comprehensive Income (Income Statement) for the year ended 31 March 2021
Sales
Cost of sales
Gross Profit
Operating Income
Rent Income 99 500

Operating Expenses
Directors fees 1 262 100
Water and electricity 208 000
Telephone 75 600
Audit fees 104 000
Operating profit
Interest income
Profit before interest expenses
Minus Interest expenses
Net profit before taxation 691 000
Income tax
Net profit after taxation

64

(Brackets must be included, where applicable, to score marks)
Land and
Fixed/Tangible Assets Vehicles Equipment
buildings
Carrying value at beginning of year 12 500 000 275 000 280 500
Cost 12 500 000 750 000 398 000
Accumulated depreciation - (475 000) (117 500)
Movements
Additions at cost - -
Disposals at carrying value -
Depreciation - (94 250)
Carrying value at end of financial year 12 500 000
Cost 12 500 000 1 377 000
Accumulated depreciation -
8
Ordinary share capital

Authorised:
8 000 000 shares
Issued:
1 200 000 shares in issue at beginning
TOTAL MARKS
67

65

ACTIVITY 3:
INCOME STATEMENT AND AUDIT REPORT (75 marks)

[ADAPTED FREE STATE 2019]
You are provided with information from the records of Moonlight Ltd for the financial year ended 28
February 2022.
REQUIRED:
3.1 Refer to Information D
3.1.1 Calculate the profit or loss on disposal of the computer on 31 August 2019. (6)
3.1.2 Calculate the total depreciation for the year. (9)
3.1.3 Suggest ONE internal control measure that the internal auditor can perform to verify the
tangible assets figure in the Balance Sheet. (2)
3.2 Complete the Income Statement (Statement of Comprehensive Income) for the year ended 28
February 2022. (40)
3.3 Prepare the Retained income note on 28 February 2022. (10)
INFORMATION:
A. The following balances/totals, amongst others, appeared in the books on 28 February 2022:
R
Retained income 765 000
Loan: Derby Bank 2 110 000
Vehicles 1 520 000
Equipment 660 000
Accumulated depreciation on vehicles (1 March 2021) 484 500
Accumulated depreciation on equipment (1 March 2021) 178 000
Trading stock 1 287 000
Provision for bad debts (1 March 2021) 10 200
Sales ?
Rent income 158 200
Audit fees 64 000
Insurance 56 250
Commission income 31 580
Bad debts 2 779
Interest expenses ?
Interest income ?

66
B. ADJUSTMENTS AND ADDITIONAL INFORMATION
(i) Goods are sold at a mark-up of 60% on cost price.
(ii) A credit note for the return of merchandise sold for R12 480 was omitted from the Debtors
Allowances Journal on the 15 February 2022. The goods were taken into stock, but no
entries were made.
(iii) Stock, costing R37 500 was stolen. The insurance company has agreed to pay out an
amount of R26 250 which is still receivable.
(iv) Stocktaking on 28 February 2022 reflected trading stock of 234 800 on hand.
(v) An electronic transfer of R10 150 was received from the insolvent estate of a debtor. This
represented a dividend of 40 cents in the Rand. The balance must be written off as bad debt.
(vi) Provision for bad debts must be decreased to R9 700.
(vii) The rent for February 2022 was still outstanding. The rent was increased by 10% on 1
November 2021.
(viii) Income tax is calculated at 25% of the net profit.
C. The loan statement received from Derby Bank on 28 February 2022 reflected the following:
R
Balance at the beginning of the financial year 2 620 000
Repayments during the year (including interest) 510 000
Interest capitalised ?
Balance at the end of the financial year 2 398 200

67
D. Fixed Assets
 Included in the vehicle account is R950 000 for a delivery van which was purchased on the
1 December 2021.
Vehicles are depreciated at 20% p.a. on cost.
 On 31 August 2021, a computer was taken over by Paul Cluver one of the directors, for
personal use for R8 000 cash. The relevant page from the Fixed Asset Register is provided
below. No entries have been made in respect of the disposal of this asset.
Equipment is depreciated at 20% p.a. on the diminishing balance method.
FIXED ASSET REGISTER

Page 22
Item: Aider computer
Date purchased: 1 June 2018 Cost price: R30 000
Depreciation policy: 20% on diminishing method
CURRENT ACCUMULATED
DATE
DEPRECIATION DEPRECIATION
28 February 2016 R4 500 R4 500
28 February 2017 R5 100 R9 600
28 February 2018 R4 080 R13 680
31 August 2018 ? ?
E. SHARE CAPITAL
On 28 February 2022 the company repurchased 125 000 shares at R0, 50 above the average share
price. Shareholders qualify for final dividends.
The share capital after the share buy-back consisted of 1 375 000 ordinary shares.
An interim dividend of R982 500 was paid on 1 September 2021.
A final dividend of 80 cents per share was declared on 28 February 2022.

68
ACTIVITY 3 ANSWER SHEET [FS PRELIM 2019]
3.1.1 Calculate the profit or loss on disposal of the computer on

31 August 2022.
3.1.2 Calculate the total depreciation for the year.
3.1.3 Suggest ONE internal control measure that the internal auditor can
perform to verify the tangible assets figure in the Balance Sheet.

69
3.2 Income Statement for the year ended 28 February 2022
Sale
Cost of sales
Gross profit
Commission income 31 580
Rent income 158 200
Gross operating profit

Operating expenses
Director's fees 932 400
Audit fees 64 000
Operating profit
Net profit for the year 2 040 000
40

70
3.3 Retained income
Balance at beginning of year 765 000
Ordinary Share dividends
Balance at the end of year 10
3.4.1 Briefly explain the role of an independent auditor.
3.4.2 Explain why the independent auditor mentioned IFRS and the
Companies Act in the audit report.
3.4.3 Provide TWO possible consequences of this audit report on the market
price of the shares.
TOTAL MARKS
75

71

ACTIVITY 4: 30 JUNE 2020 EC
STATEMENT OF COMPREHENSIVE INCOME (30 marks)
The following information relates to City Traders Ltd for the financial year ended on 30 June 2020.
REQUIRED:
Complete the Statement of Comprehensive Income (Income Statement) for the year ended 30 June
2020. (30)
INFORMATION:
A Extract from the Pre-adjustment trial balance on 30 June 2020.
Sales 6 720 000

Rent Income 153 120
Directors Fees ?
Salaries and Wages 812 000
Employers contribution 22 080
Advertising 11 650
Audit fees 120 000
Depreciation 340 000
B The Rent Income for July 2020 has already been received. Note that the monthly rent was
decreased by 8% p.a. effective from 1 May 2020.
C The company has three directors. Two of the directors receive an annual fee of R192 000 each.
The third director receives 10% less than the other directors. All three directors received the full
amount for the year and the bookkeeper recorded this amount in the salaries and wages
account, in error.
The third director however, decided to resign and this was approved on 30 May 2020. He
promised to return the fees that he received for the period that he would not be serving the
company.
D One employee was omitted from the Salaries journal for June 2020 while she was on maternity
leave. Her salary is as follows:
Deductions Employer’s Contribution

Net Salary
PAYE Medical Aid Medical Aid
2 050 970 1 920 6 700
E Advertising excludes an amount of R7 500 paid for the period

1 May to 30 September 2020. A fixed rate is applied monthly.
F Interest on investment was received and recorded. This is the balancing figure.
G Loan Statement received, shows interest of R36 000, capitalised.
H Income Tax amounted to R272 700. This is 30% of the net profit.
30

72
ACTIVITY 4: STATEMENT OF COMPREHENSIVE INCOME

[EC PRELIM 2020]
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020
Sales 6 720 000
Cost of sales
Gross profit
Gross operating income 2 662 080
Operating expenses
Audit fees 120 000
Operating profit
Interest income
Operating profit before interest expense
Interest expense
Income tax (272 700)
Net profit after tax
30

73

ACTIVITY 5
(47 marks)
STATEMENT OF COMPREHENSIVE INCOME
[ADAPTED NW Q3 2018]
5.1 CONCEPTS
REQUIRED:
5.1.1 Give ONE purpose of the IFRS.
5.2 AQUA LIMITED
The information provided relates to Aqua Ltd. for the year ended 28 February 2018.
REQUIRED:
5.2.1 Prepare the Income Statement for the year ended 28 February 2018.
INFORMATION:
A The following balances/totals appeared in the records of Aqua Ltd. on 28 February
2018:
R
Ordinary share capital 5 824 000
Retained income 1 525 000
Vehicles (cost price) 880 000
Accumulated depreciation on vehicles 164 000
Equipment 760 000
Accumulated depreciation on equipment 650 000
Trading Stock 1 534 000
Debtors’ control 521 300
Fixed deposit: Joy Bank 450 000
Creditors’ control 786 800
Loan: Life Bank 450 000
Bank 129 400 (Dr
SARS: Income tax 150 000 (Dr
SARS: PAYE 44 800
Pension fund 15 800
Audit fees 66 000
Pension fund contribution 81 000
Bad debts 12 100
Rent income 234 950
Interest on fixed deposit 27 000
Consumable stores 39 500
Dividends on ordinary shares 55 000
B. The gross profit for the year ended 28 February 2018 was calculated at
R2 720 000. They mark up their stock by 85% on cost.

74
C. A debtor, J. Violet, has been declared insolvent. His estate paid 40c in the Rand,
amounting to R450. This was already received and recorded in the books. The
difference must be written off as irrecoverable.
D. On 28 February 2018, R2 400 was received from A. Petunia, whose account had
previously been written off. This transaction has not been recorded.
E. Provision for bad debt must be decreased to R20 900.
F. One quarter (¼) of the audit fees on 28 February 2018 is still payable.
G. An employee was omitted from the Salaries Journal. His salary details are as
follows:
Deductions Employer contribution Net salary
PAYE Pension Pension
R2 880 R1 950 R3 900 R10 538
H. Stock to the value of R15 000, purchased on credit, was returned to the suppliers.
No entry was made of this transaction in the books.
I. A physical stock count on 28 February 2018 showed the following:
 Trading stock on hand, R1 531 000
 Consumable stores used, R39 000
J. Rent is received in advance for three months. Rent was increased by R1 250 on
1 November 2017.
K. Depreciation is to be written off as follows:
 On vehicles at 20% p.a. on the diminishing-balance method. A new vehicle
has been purchased on 31 December 2017 for R300 000. This transaction
has been recorded.
 On equipment at 15% p.a. on the cost-price method.
L. The loan statement from Life Bank reflected the following:

Balance at beginning of financial year R948 000
Repayments during the year R423 000
Balance at the end of financial year R600 000
 Interest is capitalised.
 R250 000 is to be paid off on the loan in the next financial year.
M. R7 740 is still due to SARS for income tax.

75
N. Share capital and dividends:

 The business was registered with an authorised share capital of 3 000 000
ordinary shares.
 2 000 000 ordinary shares were in issue at the beginning of the financial year.
 A further 250 000 new ordinary shares were issued on 10 March 2017 at 250
cent per share.
 The company decided to buy back 10 000 shares from a deceased
shareholder on 27 February 2018. An electronic transfer of R31 000 was
made for these shares. These shareholders qualify for final dividends.
 A final dividend of 25 cent per share was declared on 28 February 2018.
QUESTION 5 ANSWER SHEET

[NW Q3 2018]
5.1 5.1.1 Give ONE purpose of the IFRS?

76
5.2.1 AQUA LTD.

INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2018


Operating expenses
Directors’ fees 840 000
Operational profit
Interest income
Interest expense
Profit before tax
Net profit (loss) for the year 368 060
45

77
SESSION 3: STATEMENT OF COMPREHENSIVE INCOME
ILLUSTRATION: INCOME STATEMENT AND BALANCE SHEET ENTRIES

ADAPTED FROM NSC NOVEMBER 2020 P1
ACTIVITY
REQUIRED:
The
1.1 information
Referrelates to Robbie Ltd
to INFORMATION for fixed
B for the financial
assets. year ended 28 February 2021.
1.1.1 Calculate the missing amounts denoted by (i) to (iii) on the Fixed Asset (11)
Note
1.1.2 Calculate the Profit/Loss on the sale of equipment on 1 October 2020 (2)
1.2 Refer to INFORMATION B(e) for trading stock. (4)
1.3 Prepare the Statement of Comprehensive Income for the financial year (43)
ended 28 February 2021
INFORMATION:
A. Extract from the Pre-adjustment Trial Balance on 28 February 2021:

R
Mortgage loan: Sufi Bank 1 005 500
Trading stock ?
Sales ?
Audit fees 91 000
Repairs 476 000
Rent income 173 000
Interest income 25 000
Interest on loan ?
Bad debts 19 200
Advertising 25 680
Ordinary share dividends 86 400
The purpose of this activity is to demonstrate how the given adjustments will affect Financial
Statements (Income Statement and Balance Sheet)

78
B Adjustments and additional information:

Fixed Assets:
Vehicles:
 The business owns two vehicles on 28 February 2021. The second vehicle
was purchased on 1 November 2020
 Vehicles are depreciated at 15% p.a. on cost
Equipment
 Depreciation is 20% p.a. on the diminishing balance method
 Unused equipment was sold for R40 000 on 1 October 2020. Accumulated
depreciation on the equipment sold was R36 600 on 1 March 2020.
Extract of the Fixed Asset Note:
Vehicles Equipment
Cost (1 March 2020) 460 000 360 000
Accumulated depreciation (1 March 2020) (396 750) (187 595)
Carrying Value ( 1 March 2020) (i) 172 405
Additions (at cost) 510 000 0
Disposals (at carrying value) 0 (iii)
Depreciation (ii) (31 281)
Carrying Value (28 February 2021)
Cost (28 February 2021) 970 000 285 000
Accumulated depreciation (28 February 2021)
(a) Adjustment: Calculation Financial statements

(i) Income statement
Calculate the Cost – Accumulated Depreciation =
carrying value Carrying Value No entry
Vehicles
460 000 - 396 750 = 63 250
Calculation Financial statements
(ii) When calculating depreciation use this
Calculate method : SON Income statement
Depreciation on S O N Operating expense
Vehicles Sold Old New
Depreciation ( 63 249 +25 500)
Classify your calculations
A B
OLD = 460 000 x 15% = 69 000
Carrying value is R63 250, therefore,
depreciation will exceed the carrying
value and the residual value of R1
must be taken into account.
Depreciation can only be R63 250 – R1

= 63 249 A
4
NEW = 510 000 x 15% x 12 = R25 500
B

79
Calculation Financial statements

(iii) Depreciation: 20% at carrying value
Calculate Income statement
Disposal at STEP 1 - Determine the cost price of Operating expense
carrying value equipment sold Depreciation
(Equipment) 360 000 – 285 000 = 75 000 120
(63 249 + 25 500 + 31 281)
STEP 2- Calculate current depreciation at 030
20% on carrying value
75 000 – 36 600 = 38 400 X 20% x 7/12 =
4 480
Income statement
Depreciation for the year is given in note 3 is Other operating income
R31 281 (this already include R4 480)
Profit on sale of asset #6
Cost price – accumulated depreciation = 080
carrying value
75 000 - 41 080 = 33 920
OR
75 000 – [38 400 + 4480] = 33 920
OR
75 000 –38 400 – 4480 = 33 920
ASSET DISPOSAL
Equip (360 000 – 285 0000) 75 000 Acc depr (36 600 + 4 480) 41 080
Profit on sale of asset # 6 080 Bank 40 000
81 080 81 080
(b) Adjustment : Calculation Financial statements
The business maintains a Calculate Sales and Gross profit Income statement
mark-up of 120% on cost. Sales 14 677 200
Note that trade discounts STEP 1 – use the UK method to Cost of sales (6 966 000)
of calculate the sales figure. Gross profit 7 711 200
R648 000 were granted to
special customers 𝒌𝒏𝒐𝒘𝒏
x Known Figure =
𝒖𝒏𝒌𝒏𝒐𝒘𝒏
Unknown
Remember!!! Sales – cost of sales

Cost = 100% = Gross profit
Mark Up = 120% 14 677 200 - 6 966 000
Selling Price = 220% =7 711 200
𝟐𝟐𝟎 𝟔 𝟗𝟔𝟔 𝟎𝟎𝟎
𝟏𝟎𝟎
x= = 15 325 200
Sales amount before allowing

trade discount
STEP 2 : subtract trade discount
R15 325 200 - R648 000 =
14 677 200

80
(c) Adjustment Calculation Financial statements
The account of Income Statement

debtor B Melta, Operating Expenses
R800, must be A bad debt written off of R800 is added in Bad debts (19 200 + 800) 20 000
written off the Income Statement and deducted in the
Balance sheet.
Balance Sheet note

Trade and Other Receivable (Note
5)
(123 000 - 800 )
(d )Adjustment Calculation Financial statements
When you provide for bade debts always

Provision for bad
start from NOTE 5
debts must be
adjusted to 5% of
outstanding Trade and Other
debtors. Receivable (Note 5) Balance Sheet note
Debtors control (123 000 – 122 200 Trade and Other Receivable (Note 5)
800)
(123 000 – 800)
5 Provision for bad debts (6 110)
R122 200 x 100 = R6 110 Net Trade Debtors 116 090
In the Income statement record either an Income Statement

increase or decrease Operating Income
 Increase is an expense Provision for bad debts 920
 Decrease is income adjustments (7 030 – 6 110)
To determine increase or decrease
compare :
current year VS previous year
Current year = R6 110

Previous year = R7 030 ( from Trial
Bal)
Decrease R 920
R920 is classified as operating income

81
( e) Adjustment: Information:
Trading stock is valued on the weighted-average method. The Ledger Account and records
reflect that 280 units should be on hand. However, the physical stock count reflects only 262
units on hand.
The stock records are as follows:

Weighted Average
UNITS UNIT PRICE TOTAL
will be covered in
Stock at beginning of year 200 R3 600 R720 000 term two
Purchased during the year 1 840 R4 100 R7 544 000
Returns: damaged units 40 R4 100 R164 000
Available for sale 2 000 R8 100 000
Stock units per records 280 ? ?
Weighted
average similar
Extract from Pre-adjustment Trial Balance on 28 February 2021: to average
price of shares
Cost of sales R6 966 000
(e) Calculation Financial statements

STEP 1:
Calculate the average price:
Opening stock + purchases – returns = Total 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑡 𝑏𝑒𝑔 + 𝑖𝑠𝑠𝑢𝑒𝑑 𝑠ℎ𝑎𝑟𝑒𝑠 − 𝑏𝑢𝑦𝑏𝑎𝑐𝑘 (𝑅 )
purchases 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 (𝑈𝑁𝐼𝑇𝑆 )
720 000 + 7544 000 – 164 000 = 8 100 000

𝑅8 100 000 Income Statement
2 000 𝑢𝑛𝑖𝑡𝑠
= R4 050 per unit
Operating
Expenses
200+1 840 - 40 = 2 000 units available for sale Trading stock 72 900
deficit
STEP 2:
Calculate the number of units’ missing:
Stock according to records – stock physically
counted
280 – 262 =18 missing units
18 x R4 050 = 72 900
Average price
262 x R4 050 = R1 061 100 Balance Sheet note 4

Trading Inventory

82
(f) Adjustment : Calculation Financial statements
30% of the audit fees is still Use the UK method: Income Statement
outstanding. Operating
𝒖𝒏𝒌𝒏𝒐𝒘𝒏
𝒌𝒏𝒐𝒘𝒏
x Known Figure =Unknown Expenses
TRIAL BALANCE Audit fees 130
Audit fees R91 000 (91 000 + 39 000) 000
30% =?
70% = R91 000
100% =?
Balance Sheet note
𝟑𝟎 𝟗𝟏 𝟎𝟎𝟎 Trade and other Payables
𝟕𝟎
x= = R39 000
(Note 9)
(Outstanding amount) Creditors control xxxxx
Accrued expense 39
OR
000
𝟏𝟎𝟎 𝟗𝟏 𝟎𝟎𝟎
x= = R130 000 (full amount)
𝟕𝟎
(g) Adjustment : Calculation Financial statements

The monthly rent income did R173 000 + R9 000 = 182 000
not change during the year. Income Statement
During February ADD the amount for repairs done by Other operating income
2021 the tenant paid the tenant. Rent income 130 000
R9 000 for repairs to the  Rent is paid in advance including (173 000 + 9 000 –
premises and deducted this March rent 14 000)
from his rent for February  Total rent = 13 months
2021. Repairs are the
Operating Expenses
responsibility of the 𝟏𝟖𝟐 𝟎𝟎𝟎
= 14 000 rent per month Repairs 485 000
company, and this was not 𝟏𝟑
recorded. The rent for March (476 000+
NOTE: The amount for repairs (R9 000) 9 000)
2021 was received in
advance paid by the tenant is added to the rent
income. R9 000 will also be added under Balance Sheet note 9
Trial Balance operating expenses to balance the Trade and Other
Rent income R173 000 transaction. Payables
+ Creditors control xxxxx
Income received 14 000
The actual amount (cash )received by in advance
the business is:
 (14000 x 12 ) + (14 000 – 9 000)
= 173 000
 9 000 is added because repairs are
the responsibility of the business.

83
(h) Adjustment : Calculation Financial statements

The company has four 2x12 = 24 ( two directors have been in full)
directors earning the same 1 x 3 = 3 (One director has resigned) Income Statement
fee. One director resigned on 1x 10=10 (One director is owed for 2 Operating expenses
31 May 2020 and received months) Directors’ fees 3 510 000
his fees up to date. Another 37 total number of months
director is still owed fees for (3 330 000 + 180 000)
January and February 2021. NOTE
 Number of fees is 37 000
Trial Balance  Total paid 3 330 000
Directors’ fees 3 330 000
 The company owes one
director for two months
Balance Sheet note
Monthly directors fee is: Trade and other payables
3 330 000
= R90 000 per month (NOTE 9)
37
Creditors control xxxxx
90 000 x 2 = 180 000 Accrued expense 180
directors’ fees outstanding 000
( accrued expense)
OR
Use the UK method

𝟐
𝟑𝟕
x 3 330 000 = 180 000
OR
𝟑𝟗
𝟑𝟕
x 3 330 000 = 3 510 000

84
(i) Adjustment Calculation Financial statements

Advertising consists of a 240 x 3 months ( Nov, Dec, and Jan)
contract with a newspaper for = R720 Income Statement
the entire financial year Other operating income
Payments are monthly; 25 680 + 720 = 26 400 Advertising 27
however, instalments were (25 680 + 2 160) 840
paid for 11 months only. 26 400
11
= 2 400
NOTE: The monthly rate
decreased by R240 from 1
2400 - 240 = 2 160 Balance Sheet note 9
November 2020.
Trade and other payables
reduced amount Creditors control xxxxx
Trial Balance
Advertising R25 680 Accrued expense 2 160
R2 160 is accrued expense
(j) Adjustment : Calculation Financial statements

The net profit after tax was
correctly calculated as Income Statement
R1 054 000. The income tax Net profit before tax =100% Net profit before 1 550 000
rate is at 32% Income tax = 32% tax
Net profit after tax = 68% Income tax (496 000)
is R1 054 000 Net profit after tax 1 054 000
Use the UK method

100
68
x R1 054 000 = 1 550 000
Income tax
𝟑𝟐
x R1 054 000 = 496 000
𝟔𝟖
OR
Net profit before tax (1054 000)

Net profit after tax 1 550 000
Income tax 496 000

85
SOLUTION OF ILLUSTRATIVE ACTIVITY Adapted NOV NSC 2020
1.1.1 (i) Calculate: Carrying value of the vehicle on hand on 1 March 2020
Workings Answer
460 000 – 396 750 63 250 2

(ii) Calculate: Depreciation on vehicles for the year
Workings Answer
510 000 x 15% x 4/12  = 25 500  one part correct 25 500 + 63 249
460 000 x 15% = 69 000; CV is 63 250. two marks two marks
Depreciation is therefore 63 250 – 1 = 63 249  88 749 
one part correct 5
(iii) Calculate: Carrying value of equipment sold
Workings Answer
38 400 x 20% x 7/12
(36 600 + 4 480)
33 920 
75 000  – 41 080  one part correct one part correct
360 000 – 285 000 4
1.1.2 Calculate: Profit/Loss on the sale of equipment

Workings Answer
See (iii) above
40 000 – 33 920 If 40 000
6 080 
2
1.2 Calculate: Trading stock deficit

Workings Answer
 
18 x 4 050 R72 900
(280 – 262) (8 100 000 / 2 000) one part correct
one mark two marks
NOTE: The relevant figures calculated above must be transferred to

the Income Statement.

86
1.3 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED

28 FEBRUARY 2021
Sales 15 325 200  – 648 000 

14 677 200 *
6 966 000 x 2,2
Gross profit 6 966 000 x 1,2 – 648 000 5 7 711 200 
Other income 175 000 
Profit on sale of asset* (loss in operating expenses) 6 080 *
Provision for bad debts adj. 7 030 – 6 110 920 *
Rent income 173 000+ 9 000  – 14 000  168 000 *
182 000 two marks - 5 000 three marks
Gross operating profit 10 7 886 200 
Operating expenses (6 286 200) 
Depreciation 31 281 + 88 749  see 1.1 120 030 *
Trading stock deficit see 1.2 72 900 
Bad debts 19 200 + 800 one mark each 20 000 *
Audit fees 91 000  + 39 000  or ÷ 0,7 or x 100/70 130 000 *
Directors' fees 3 330 000 + 180 000  or 39/37 3 510 000 *
Repairs 476 000  + 9 000  485 000 
(2 400 – 240) two marks
Advertising 25 680  + 2 160  27 840 *
Operating profit 22 1 600 000 
Interest income 25 000 
Profit before interest expense 1 625 000 
Interest expense Profit before interest expense – NPBT (75 000) 
Net profit before tax 1 054 000 + Income tax 1 550 000 
Income tax for the year (496 000) 
Net profit after tax 6 1 054 000

87
ACTIVITY 2 : COMPANY FINANCIAL STATEMENTS (43 minutes)

Adapted - Eastern Cape 2021 Prelim
ZOZIE (PTY) LTD
The information relates to ZOZIE (PTY) LTD, a stationery retailer, for the year ended on 28 February
2021.
REQUIRED:
Prepare the following for the financial year ended 28 February 2021:
2.1 Statement of Comprehensive Income (36)
2.2 Retained income note (7)
INFORMATION:
A. Extract: Pre-Adjustment Trial Balance on 28 February 2021:
R
Ordinary share capital ?
Loan: Luther Bank 955 000
Net trade debtors 463 000
Bank (favourable balance) 132 600
SARS: Income tax 295 500
Sales 5 808 000
Cost of sales ?
Depreciation 86 010
Insurance 37 200
Discount received 14 000
Rent income 139 500
Audit fees 85 700
Sundry expenses ?
Ordinary share dividends (interim dividends) 126 000
B. ADJUSTMENTS AND ADDITIONAL INFORMATION

(i) Goods returned by a debtor, R28 800, was not yet recorded. The goods were
placed back in stock, but no entries were made to record this transaction. A profit
mark-up 60% on cost is applied to all sales.
(ii) Insurance includes an annual premium of R14 400 paid for the period 1 April 2020
to 31 March 2021.
(iii) The tenant paid the rent up to 30 April 2021. Note that rent was increased by 15%
p.a. with effect 1 July 2020. The premises were occupied since 2018.

88
(iv) The bookkeeper omitted the stock of calculators in compiling the trading stock figure
reflected on the pre-adjustment trial balance. A summary from the stock records of
calculators, is as follows:
Opening stock 600 units
Purchases during the year 2 200 units
Returns 180 units
Units sold 2 160 units
Closing stock 430 units
 The relevant sales figure was recorded.
 Calculators are purchased at a fixed cost price of R175 each. The specific
identification method is used to value the calculators.
It was noted that calculators were stolen. This must still be recorded.
(v) The company employs three directors on the same fee structure. One of these
directors did not receive his fee for February 2021. A fourth director, appointed on 1
December 2020, earns R3 200 per month more than the other directors. He received
his fees for the current year.
(vi) The salary of the clerk on leave was omitted from the Salaries Journal. Details of his
salary is as follows:
Net salary Total employee Total employer

deductions contributions
R9 424 24% of gross salary R1 240
* Employer contributions are debited to salaries and wages.

(vii) An adjusted assessment was received from the external auditors stating that audit
fees for the year amounts to R80 500.
(viii) The loan statement from Luther Bank revealed the following:
 Total repayments for the year (including interest) R258 000
 Interest capitalised ?
 Balance on 28 February 2021 R1 082 400
10% of the loan balance will be settled during the next financial year.
(ix) After taking into account the adjustments, the net profit after tax amounted to
R689 310. The current income tax rate is 31%.
C. Share capital and dividends:
The share register reflected 745 000 shares in issue on 28 February 2021.
The changes to share capital and retained income were recorded:
 1 October 2020: 120 000 shares were issued at R8,00 each.
 1 December 2020: 75 000 shares were repurchased at R1,40 above the
average share price. These shares do not qualify for
final dividends.
 Interim dividends were paid on 31 August 2021.
 A final dividend of 23 cents per share was declared on 28 February 2021.

89
ACTIVITY 2
ZOZIE (PTY)LTD
2.1 Statement of Comprehensive Income on 28 February 2021
Sales
Cost of sales
Gross profit
Other income
Discount received 14 000
Gross income
Operating expenses
Depreciation 86 010
Sundry expenses
Operating profit
Net profit before income tax

Income tax
Net profit after tax 689 310 36

90
2.2 RETAINED INCOME
Balance on 1 March 2020

Ordinary share dividends
Interim dividends 126 000
Balance on 28 February 2021 7
43

91
ACTIVITY 3 : INCOME STATEMENT AND NOTES

Free State P1 Prelim 2020
3.1 GLOBAL TRADING LTD
You are provided with information from the books of Global Trading Ltd. The financial
year ended on 31 December 2019.
REQUIRED:
3.1.1 Refer to information C (H) and calculate the missing amounts denoted by (a)
to (c) on the incomplete Fixed Asset note provided. (11)
3.1.2 Prepare the Income Statement for the year ended 31 December 2019. (50)
3.1.3 Refer to the disposal of the computer for R4 000 in Information C (H) of
QUESTION 3.1.2. Another director, Joe Mathibi, has complained that Tim
Louw has acted unethically in taking over the computer for R4 000. Tim
disagrees.
(a) Give ONE opinion to support Joe.

(b) Give ONE opinion to support Tim. (4)
INFORMATION:
A. Incomplete Fixed Asset Note
VEHICLES EQUIPMENT
Carrying value at the beginning of the
430 000
year
Cost 600 000 280 000
Accumulated depreciation (170 000) (70 000)
Movements
Addition at cost (a)
Disposal at carrying value (0) (b)
Depreciation (138 000) (c)
Carrying value at the end of the year 472 000
Cost 780 000 262 000
Accumulated depreciation (308 000)

92
B. Extract from the Pre-Adjustment Trial Balance on 31 December 2019:
R
Mortgage Loan: Best Bank 450 000
Equipment 280 000
Accumulated depreciation on equipment (01/01/2019) 70 000
Fixed deposit: Best Bank 55 000
Debtors Control 280 280
Creditors Control 184 000
Stock on hand (Plastic bags) (01/01/2019) 5 900
SARS (Income tax) 280 000
Sales 3 345 000
Rates and taxes 72 500
Bad debts 9 450
Insurance 26 500
Interest on loan ?
Rent income 126 224
Consumable goods 62 540
Interest on fixed deposit 2 200
C. Additional information and adjustments:
A. A credit note was issued on 31 December for R9 920. Goods were sold with
a mark-up of 60%. No entry has been made of this transaction.
B. Rent was received up to January 2020. Take note: Rent was increased by
12% on 1 August 2019.
C.  Consumable goods used during the year amounts to R54 368.

 There was no trading stock surplus/deficit at the end of the year.
D. Bad debts of R8 360 must be written off. The provision for bad debts must be
adjusted to R10 480.
E. Interest on fixed deposit was earned at 8% per year. Take into account that
the fixed deposit was increased by R30 000 on
1 September 2019. This transaction was recorded.

93
F. Insurance included a policy with a yearly premium of R9 900. It was paid on

1 August 2019 and the policy expires on 31 July 2020.
G. The business sells plastic bags to its customers at 50 cents each. The
Profit/loss on sale of plastic bags reflects the following:
 Cost of plastic bags purchased: R51 200
 Cash received from sale of plastic bags: R56 600
The business uses the periodic stock system for plastic bags. No entries have
been made for:
 Reversal of the stock on hand at the beginning of the year, R5 700
 Bags bought on credit in December 2019, R12 800
 Stock on hand at the end of the year, R3 600
You are required to calculate the correct profit or loss on the sale of the bags.
H. Depreciation must be written off on equipment at 15% per year using the
diminishing balance method. Take note that equipment with a cost price of
R18 000 and a carrying value of R12 000 on the first day of the financial year,
was sold to a director, Tim Louw, on 30 September 2019 for R4 000. No entry
has been made of any of the transactions.
I. One employee was omitted from the Salaries Journal for December 2019. His
salary details are:
Employer's
Net salary Deductions
contribution
R46 000 R9 800 R14 500
Employer's contribution is posted to Salaries and wages.
J. Income tax for the year amounted to R180 000. The income tax was
calculated as 30% of the net profit before income tax.
K. Interest on loan is the balancing figure.
65

94
ACTIVITY 3
3.1.1 Free State Prelim 2020

ANSWER
(a)
(b)
(c)
11

95
3.1.2 GLOBAL TRADING LIMITED

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
Sales (3 345 000

Cost of sales (2 090 625
Gross profit
Rent-income

Operating expenses
Rates and taxes 72 500
Bad debts
Insurance
Salaries and wages
Consumable goods
Operating profit
Profit before interest expenses/Finance cost
Profit before tax

50

96
3.1.3 Refer to the disposal of the computer for R4 000 in Information C (H) of
QUESTION 3.1.2. Another director, Joe Mathibi, has complained that Tim
Louw has acted unethically in taking over the computer for R4 000. Tim
disagrees.
(a) Give ONE opinion to support Joe.
(b) Give ONE opinion to support Tim.

97
ACTIVITY 4 : FINANCIAL STATEMENTS (60 marks; 48 minutes)

Gauteng Prelim 2022
4.1 CONCEPTS
Choose the correct term to complete each of the following statements. Write
only the term next to the question numbers (4.1.1 to 4.1.5) in the ANSWER
BOOK.
income statement; current asset; non-current asset;
balance sheet; expense; net working capital
4.1.1 The statement reflecting the financial position of the company is called
a/an ...
4.1.2 Consumable stores on hand is a/an ...
4.1.3 A fixed deposit that will mature in two years is a/an ...
4.1.4 The difference between current assets and current liabilities is …
4.1.5 The statement reflecting the financial results of the company is called a/an
… (5)
4.2 STATEMENT OF COMPREHENSIVE INCOME AND STATEMENT OF

FINANCIAL POSITION
FEINT PPE LTD
Refer to the information from the records of FEINT PPE Limited for the financial
year ended 28 February 2022.
REQUIRED:
Complete the following for the year ended 28 February 2022.
4.2.1 Statement of Comprehensive Income (Income Statement). Note that

some information is included in the ANSWER BOOK. (32)
4.2.2 Equity and Liabilities section of the Statement of Financial Position

(Balance Sheet). Show ALL workings in brackets. (23)

98
INFORMATION:
The following balances/totals appeared in the books on 28 February 2022:
R
Ordinary shares capital ?
Retained income (28 February 2022) 468 000
Mortgage Loan: Best Bank ?
Trading Stock 370 870
Creditors’ control 203 100
SARS Income Tax (provisional payments) 323 888
Deposit from tenant 12 000
Sales ?
Cost of sales ?
Rent income 130 200
Audit fees 25 000
Insurance 103 500
Sundry expenses ?
Adjustments and additional information:
A Feint PPE Ltd operates on a 60% mark-up policy on all sales. Last year’s sales
amounted to R6 500 000. Feint PPE Ltd is pleased to announce a 20% increase
in sales for the year ending February 2022. There were no sales returns for the
year.
B According to a physical stocktaking, trading stock on hand amounted to
R358 240.
C A debtor’s account with a credit balance of R3 400 must be transferred to his
account in the creditors’ ledger.
D Decrease the provision for bad debts by R230.
E A vacant storeroom was rented to a tenant on 1 March 2021. On 1 December
2021 the rent was decreased by 7.5%. Provide for the outstanding rent for
February 2022.
F Feint PPE Ltd paid a 40% deposit on their audit fees for the year. The balance
will be settled on 5 March 2022.
G An insurance policy was taken out on 1 August 2021 at R11 500 per month.

99
H The loan statement from Best Bank reflects the following:
BEST BANK LOAN STATEMENT ON 28 FEBRUARY 2022

Balance at the beginning of the financial year R1 250 000
Fixed monthly repayments including interest 45 200
220 0
Interest expense (capitalised)
 Interest for the next financial year is expected to be R 150 000.

 Part of the loan will be repaid in the next financial year.
I Sundry expenses is the missing figure in the income statement.

J The income tax which amounted to R340 088 was calculated at a rate of 28% of
the net profit.
K Shares and Dividends
 The authorised ordinary share capital consists of 800 000 shares, of
which 60% was in issue.
 Total dividends for the year amounted to R445 600.
L The following financial indicators were calculated on 28 February 2022.
 Operating profit on sales is 15%.
 Net asset value per share is 720 cents.

100
ACTIVITY 4: FINANCIAL STATEMENTS Gauteng Prelim 2022
4.1 CONCEPTS
4.1.1 4.1.4
4.1.2 4.1.5
5
4.1.3
4.2.1 FEINT PPE LIMITED INCOME STATEMENT FOR THE YEAR

ENDED 28 FEBRUARY 2022
Sales
Cost of sales
Gross Profit
Other Operating Income

Operating Expenses
Salaries 601 450
Sundry expenses
Operating Profit
Net profit before interest expense

32

101
INCOME STATEMENT - EASY MARKS

Method
marks
STATEMENT OF COMPREHENSIVE INCOME - 28 FEBRUARY 2023
* one part correct
Sales 14 677 200 *
Gross profit 7 711 200 
Other income 175 000 
Income 1-3 plus method marks income *
Gross operating profit 7 886 200 
Operating expenses (6 286 200) 
Expenses 4-5 plus method marks expens *
Operating profit es
1 600 000 
Profit before interest expense 1 625 000 
Interest expense (75 000)
Net profit before tax 1 550 000 
Income tax for the year (496 000)
Net profit after tax (NPAT) 1 054 000
1 + 4 +10 =15
Earn a mark for correctly transferring any figure recorded as NPAT
RETAINED INCOME NOTE:

Balance at beginning 353 800
Net profit after tax 1 054 000
Shares repurchased 360 000x R0,30 (108 000) 
4,10 – 3,80
Ordinary share dividends (783 200) *
Interim 295 200 
Final 2 440 000 x R0,20 488 000 *
Balance at end 485 600 

*one part correct
3- 4 method marks

102
SESSION 4: CALCULATE THE CORRECT NET PROFIT AFTER TAX
NOTES TO CONTENT:
When calculating the correct net profit due to errors that occurred, the information must be
carefully read. You need to check if the transaction is included in the calculation of the net profit
or not.
If the transaction was included, you need to establish how the error affected the expense or
income account.
 If the expense was overstated, the net profit must increase
 If the expense was understated, the net profit must decrease
 If the income was overstated, the net profit must decrease
 If the income was understated ,the net profit must increase
 If the entry was omitted, it must be brought into account

103
CORRECTION OF NET PROFIT AFTER TAX

EXAMPLE : Adapted from 2020 Gauteng Prelim paper one
1.2 TWO-WAY LIMITED
REQUIRED:
1.2.1 Refer to INFORMATION E and Calculate the net profit after tax (12)
INFORMATION
The following figures were extracted from the accounting records at the end of the
financial year on 29 February 2020.
A The following figures were extracted from the accounting records at the end of the
financial year on 29 February 2020.

Fixed assets (at carrying value on 29 February 2020) 5 180 652
Loan: Canara Bank (29 February 2020) 622 800
Fixed deposit: Fargo Bank (1 March 2019) 504 000
Bank (Dr) ?
Creditors’ control ?
Debtors’ control 64 800
Inventory 757 800
SARS: Income tax (Provisional tax payments) 524 520
D. The loan statement received from Canara bank showed the following:
Opening balance (01/03/19) R 846 000

Repayment during the year (interest included) 223 200
Closing balance (29/02/20) 709 200
 Provide for interest on loan.

 The capital repayment of the loan will remain the same as the previous financial year.
E. The net profit was R1 810 404 before the following adjustments were taken into
consideration.
(i)Interest on fixed deposit is earned at 10% per annum and is not capitalised. No interest
has been received. 40% of the fixed deposit will mature on 30 June 2020.
(ii)Interest on the loan was also not taken into consideration. Interest on the loan is
capitalised.

104
(iii)Provision for bad debts must be adjusted to 5% of the outstanding debtors.

(iv)Rent income received amounted to R94 608. It included the rent for March and
April 2020. The rent was increased by 15% on 1 January 2020.
(v)Trading stock, R25 200 was damaged by a storm during the year. The insurance
company accepted the claim and will cover 70% of the claim. The insurance
claim will be processed during May 2020.
(vi)Insurance included an annual policy of R15 120 paid on 1 August 2019.
(vii)Directors fees of R9 000 were still outstanding on 29 February 2020.
(viii)Income tax for the year amounted to R483 120

105
CALCULATE THE CORRECT NET PROFIT AFTER TAX

Net profit as per profit and loss 1 810 404
Interest on fixed deposit 504 000 X 10% = 50 400.
50 400
This is interest income which has not yet been received - ADD
Provision for bad debts adjustments 64 800 x 5% = 3 240 (2020)
180
3 420 – 3 240 =180 provision reduced ADD difference ( income )
100 X 10 = 1000 𝟐𝟑𝟎
94 608 x 𝟏𝟒𝟔𝟎 = 14 904
Rent income (14 904) 115 X 4 = 460
1 460
70% will be covered by the Insurance company
Loss of stock (7 560) 30% loss to the company
25 200 x 30% = 7 560
𝟓
15 120 x 𝟏𝟐 = 6 300
Insurance 6 300 Prepaid expense included which had decreased the net profit therefore
we ADD it back
Directors’ fees (9 000) SUBTRACT Directors fees ,this expense was not deducted
Interest expense
(86 400) Check calculations below :
(709 200 + 223 200 – 846 000)
Taxation (483 120) SUBTRACT Taxation ,it is an expense
Correct net profit after tax 1 266 300
Opening – closing balance = loan repayment

846 000 – 709 200 = 136 800 Capital (loan ) repayment
223 200 -136 800 = 86 400 (Capital and interest repayment LESS capital repayment = Interest expense )

106
ACTIVITY 1: CALCULATION OF CORRECT NET PROFIT AFTER TAX

(KZN 2019 PRELIM)
WESTVILLE LTD
The following information relates to Westville Ltd. The financial year ended
28 February 2019.
REQUIRED:
1.1 Calculate the correct Net Profit after tax for the financial year ended 28
February 2019. (19)
INFORMATION:
A. The following items appeared in the Pre-Adjustment Trial Balance on
28 February 2019:
Ordinary share capital (180 000 shares) 28 February 2019 R 909 000
Retained income (4 December 2018) 130 000
Loan: M.G.M Bank 1 140 000
Fixed asset at carrying value ?
Fixed deposit 700 000
SARS: Income Tax (Provisional tax payment) (Dr) 267 000
Consumable stores on hand (Packing material) 12 000
Bank overdraft 5 000
Petty cash 1 500
B. On 4 December 2018, the directors approved the repurchase of 20 000

shares at R9.00 each. This transaction was properly recorded.
C. The net profit before tax was incorrectly calculated as R1 449 200.
D. The following information was not taken into account:
(i) The director’s fees of R625 000 was paid to two directors.
One of the two directors requested his fees for March 2019 be paid
in February 2019, due to financial problems. All two directors
receive the same monthly salary.
(ii) 80% of the packing material were used during the financial year.
(iii) A debtor B. Zulu, who owes R1 200, has been declared insolvent
his estate paid R480. This amount was received and not recorded.
Write off the balance.
(iv) Rent income of R177 600 was received for 14 months. The rent
was increased on 1 September 2018 by 10%.

107
(v) An interim dividend of R55 820 was paid on 1 September 2018, but
was debited incorrectly to the salaries account.
(vi) A debtor with a credit balance of R1 000 on 28 February 2019 must

be transferred to the Creditors ledger.
(vii) The loan statement from KZN Bank reflected the following:
Balance at beginning of financial year R 1 500 000
Repayment during the year (was recorded) ?
Interest capitalised 157 500
Balance at the end of financial year 1 140 000
The capital portion of the repayment of the loan for the next financial
year remains the same as the current financial year.
(viii) Outstanding EFT on the Bank Reconciliation Statement on

28 February 2019 included:
EFT No. Name of Reason for Amount

payee payment
401 BB Stores on account R3 000
(ix) Income tax amount to R255 000 and is equal to 30% of the net profit
before tax.
(x) A final dividend of 75 cents per share was declared on 28 February

2019.
19

108
ACTIVITY 1 Adapted - KZN PRELIM 2019
1.1 Net profit before tax 1 449 200
19
TOTAL MARKS
19

109
ACTIVITY 2 : CALCULATION OF CORRECT NET PROFIT AFTER TAX

GP PRELIM 2017 – Adapted
2.1 AMARA LIMITED
The following information relates to Amara Limited. The financial year ended on 28
February 2023.
REQUIRED:
2.1.2 Refer to Information B.

Calculate the Net Profit after Tax. (10)
INFORMATION:
A. Extract of a list of Balances/Totals on 28 February 2023
Balance Sheet Accounts Section R

Retained income (1 March 2022) 540 000
Land and Buildings 5 002 000
Equipment (1 March 2022) 700 000
Accumulated depreciation on equipment (1 March 2022) 263 750
Fixed Deposit: GP Bank 260 000
Trade and other receivables 696 000
Cash float 12 000
Loan: GP Bank 1 140 000
Creditors’ Control 294 600
Bank Overdraft 52 000
SARS: Income Tax 300 000
Nominal Accounts Section
Rent income 177 600
B. Net Profit for the year

The Internal Auditor found that the following adjustments were NOT taken into
account when the Net Profit before Tax, R1 024 400 was calculated.
 The telephone account, R3 000 for February 2023 was not yet paid.
 Insurance amount of R4 500 was prepaid.
 Rent Income for March and April 2023 was already received. The rent
was increased on 1 September 2022 by 10%. The Rent Income
account showed an amount of R177 600 in the General Ledger.
 Stationery of R500 was on hand on 28 February 2023.
 The Income Tax for the year is calculated at 28% of net profit before
tax.

110
C. Shares and Dividends
(i) Authorised share capital comprises 400 000 ordinary shares.
(ii) On 1 March 2022: 160 000 shares for R4 000 000 were in issue.
(iii) On 31 August 2022: The directors decided to buy back 50 000 shares
from the family of a deceased shareholder, at R30 per share. These
shares are NOT entitled to final dividends.
(iv) On 1 January 2023: 100 000 shares were issued at R17, 50 each.
(v) The directors declared a final dividend of 80 cents per share on

28 February 2023.
D. Fixed Assets
(i) Equipment, R250 000 was purchased on 1 December 2020. No

equipment was sold during the year.
(ii) The depreciation account was debited with a total amount of R76 250 for
the year.
E. Non-current Liabilities
The loan statement from GP Bank reflected the following:
Balance at beginning of financial year R1 500 000

Repayments during the year R?
Interest capitalised R157 500
Balance at end of financial year R1 140 000
The capital portion of the repayment of the loan for the next financial year
remains the same as the current financial year.
10

111
ACTIVITY 2 Prelim GP 2017
2.1 AMARA LIMITED
2.1.1 Calculate the Net Profit after Tax.
R
Incorrect Net Profit before Tax 1 024 400
10
TOTAL MARKS
10

112
ACTIVITY 3 : CALCULATION OF CORRECT NET PROFIT AFTER TAX

NC PRELIM 2017-Adapted
The information relates to ENG Limited for the financial year ended 30 June 2022.
REQUIRED:
3.1 Calculate the correct NET PROFIT AFTER TAX for the financial year
ended 30 June 2022. (12)
INFORMATION:
A The following items appeared in the Pre-adjustment Trial Balance on

30 June 2022:
R
Retained income (4 January 2022) 126 100
Loan: TG Bank 72 400
Fixed Assets at carrying value ?
SARS (Income tax) Dr 108 000
SARS (PAYE) Cr 5 800
Creditors for salaries 13 000
Debtors’ Control 34 000
Consumable Stores on hand (packing material) 12 000
Creditors' control 23 700
Petty cash 300

113
B The net profit before tax was incorrectly calculated as R324 000.
C The following information were not taken into account by the bookkeeper:
(i) The directors fees of R21 000 and audit fees of R5 000 for June 2022
were not paid yet.
(ii) Stock to the value of R5 600 was destroyed in a fire. The insurance
company agreed to pay R4 800.
(iii) 80% of the packing material were used during the financial year.
(iv) According to the loan agreement an instalment of R20 000 and interest,
will be paid annually to TG Bank. The bookkeeper correctly recorded the
amount paid to TG Bank on 30 June 2022 as follows:
Debit: Loan: TG Bank R37 600

Credit: Bank R37 600
(v) Outstanding EFT’s on the Bank Reconciliation Statement on

30 June 2022 include:
Name of Reason for
EFT no. Date of EFT Amount
payee EFT
362 24 June 2022 Eskom Electricity R2 400
375 25 July 2022 Waytons On account R1 500
(vi) An interim dividend of R30 000 was paid on 1 December 2021, but was
debited incorrectly to the salaries account.
(vii) Debtors with credit balances totalling R700 on 30 June 2022 must be
transferred to the Creditors’ Ledger.
(viii) Provide for income tax at 28% of the net profit.
(ix) SHARE CAPITAL : (all entries were recorded)

 The company is registered with an authorized share capital of
600 000 ordinary shares.
 On 1 July 2021, 125 000 shares were in issue. The average share
price at this time was R4,00.
 On 25 September 2021, the company issued an additional 75 000
shares at R6,80 each.
 On 4 January 2022, the directors approved the repurchase of 20 000
(x) FINAL DIVIDENDS:
 A final dividend of 75 cent per share was declared on 30 June 2022.
 Only shares in issue on 30 June 2022 qualified for these dividends.
12

114
ACTIVITY 3 PRELIM NC 2017- Adapted
Calculate the correct NET PROFIT AFTER TAX for the year ended 30 June 2022.
Incorrect profit before tax R324 000
12

115
SESSION 5: BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
INTRODUCTION
The Balance Sheet is a Financial Statement that is usually prepared at the end of an
accounting period (a financial year) to show the financial position of a business in terms of its
assets, liabilities and equity.
BALANCE SHEET KEY CONCEPTS
CONCEPT EXPLANATION
Assets These are business possessions used to generate profit and are
classified into two categories, namely Non-current Assets and
Current Assets.
Non-current Assets These are not intended for resale and they last for a long period,
more than a year. Examples are Land and buildings, equipment etc.
Current Assets These are liquid and include assets that can be easily converted into
cash within a short period of time (within a year), e.g. cash and cash
equivalents, inventories and trade and other receivables.
Liabilities These are amounts owed by a person or business to another. They

are classified into two categories namely, Non-current Liabilities and
Current Liabilities.
Non-current Liabilities Are long-term debts repayable beyond the period of one year,
example is a mortgage loan.
Current Liabilities Are short-term debts repayable within a period of 12 months e.g.
trade and other payables and current portion of loan.
Shareholders’ Equity Total amount attributable to shareholders, it consist of ordinary share

capital and retained income.
Ordinary shares A type of shares that entitle the owners to dividends that vary in
amount according to the profits made by the business.
Authorised share capital The maximum number of shares a company may sell according to
the company’s Memorandum of Incorporation.

116
CONCEPT EXPLANATION
Issued share capital The number of shares that have been sold to the public.
Retained Income A portion of the profit after tax that has not been paid out to the
shareholders in dividends but kept (retained) for future growth of the
company.
Income tax Tax levied by the government (SARS) on income earned by
individuals or companies.
SARS The government department to whom the company must pay
income tax on the profits and VAT when due.
Profits shared amongst the shareholders in proportion to the number
Dividends of shares held, it is normally expressed as cents per share
Interim Dividends paid to the shareholders during the financial year.

Dividends declared (recommended) to the shareholders at the end
 Final of the financial year.
Shareholders for dividends The amount owing to shareholders for dividends declared but not yet
paid.
Short term loan The portion of long term debt that is payable within a period of one
year, in the next financial year.
Balance sheet has been introduced in previous grades, the diagram below indicates progression
in different grades. The Equity section of the Balance Sheet is the only difference in different
grades.
Sole trader Partnership Company Ltd
Shareholders
Grade 10 Grade 11 Grade 12
Owner’ 100 000 Partners’ Equity 200 000 Shareholders’ Equity 1 100 000
Equity
Capital 7 100 000 Ordinary Share 7 1 000 000
Capital 7 100 000 Current 8 100 000 Capital
Account Retained Income 8 1 00 000

117
FORMAT OF A BALANCE SHEET
COMPANIES STATEMENT OF FINANCIAL POSITION (BALANCE SHEET

Notes R
ASSETS
NON-CURRENT ASSETS xxxxx
Tangible/ Fixed assets 3 xxxx
Financial assets
Fixed deposits xxxxx
CURRENT ASSETS xxxxx

Inventories 4 xxx
Trade and other debtors 5 xxx
Cash and cash equivalents (Include fixed deposit maturing in 12 months ) 6 xxx
TOTAL ASSETS XXXXX
The new
EQUITY AND LIABILITIES accounts
CAPITAL AND RESERVES / SHAREHOLDERS’ EQUITY xxxxx are:
Ordinary share capital 7 xxxx  Ordinary
Retained income 8 xxx Share
capital
NON-CURRENT LIABILITIES xxxx  Retained
Income
Mortgage bond (maturation period longer than 12 months) xxxx
CURRENT LIABILITIES xxxxx

Trade and other creditors 9 xxx
Bank overdraft xxx
Short-term loans (portion of long term loan payable within 12 months) xxxx
TOTAL EQUITY AND LIABILITIES XXXXX
Trade and other

payables include the
following new accounts:
 SARS-income tax payable
 Shareholders for dividends

118
FORMAT OF THE BALANCE SHEET

SHARES HOLDERS EQUITY LIBILITIES
ASSETS
How did you invest the business funds? How did you raise money (capital)?
 Many exam papers do not require the notes but a break-down of calculations should always be
indicated when preparing the Balance Sheet.
Fixed deposits/ KIMA LTD

investments that will BALANCE SHEET FOR THE YEAR ENDED
mature after the next
financial year
28 FEBRUARY 2022
Note 3: Fixed asset:
ASSETS Notes
Important to know the
NON-CURRENT 4 980 000 format of this note
ASSETS
4. Trading stock
Fixed/tangible assets 3
+ Consumable stores on
hand Financial assets 160 000
CURRENT ASSETS 1 820 000
Inventories 4 956 000
7. Share Capital
Trade and other 5 + Ord shares at issue price
5. Trade debtors
receivables + Additional shares
Less Provision for bad debts Cash and cash 6 2 500 - Buy back @ average price
=Net Debtors equivalents = Ord shares @ end
+ accrued Income TOTAL ASSETS
+Prepaid expense
+Insurance claim EQUITY AND
+Deposit on water & LIABILITIES
electricity
8. Retained income @begin
+ SARS (income tax)[Dr]
SHAREHOLDERS’ +Net profit after tax
EQUITY -Buy back shares, the above
average amount
6. Bank Share capital 7 - Ordinary share dividend
+Savings
Retained income 8 218 200 • Paid /interim
+Petty cash
• Declared/ final
+Cash float
=Retained income @ end
+ Fixed deposit NON-CURRENT
[mature within the LIABILITIES
next financial year]
Mortgage Loan
(740 000 –
Loan: 9. Trade creditors
The future instalments CURRENT LIABILITIES 921 800
+Accrued expense
for the next financial Trade and other 9 +Deferred income
year must be regarded +Shareholders for
as a current liability
payables
Short term loan dividends
[only in the Balance + SARS -Income tax CR
Sheet] Bank overdraft 45 300
+SARS -PAYE
They are subtracted TOTAL EQUITY & +Pension Fund
from the non -current LIABILITIES +Medical Fund
liability +Creditors for salaries.
*Some figures are supplied on the answer sheet
Bottom up or Top down calculation will be applicable

119
HOW TO EARN EASY MARKS WHEN COMPLETING THE BALANCE SHEET
Learners should know the FORMAT of the Balance Sheet

Always start with the PRE ADJUSTMENT FIGURES FROM TRIAL BALANCE or
information extracted when preparing the Balance Sheet
Start with BALANCE SHEET ACCOUNTS ITEMS
RECORD THE FIGURES in the BALANCE SHEET to earn part/free marks
START WITH ADJUSTMENTS –you will also have to consider amounts in the Nominal
Accounts Section. [More marks are allocated to adjustments
ALWAYS SHOW your WORKINGS IN BRACKETS to earn part marks
EASY MARKS EARNED WHEN PREPARING THE BALANCE SHEET

ADDITION OF: Current Assets, Non - Current Assets , Total Assets ,Shareholders equity,
Current Liabilities , Total equity and liabilities [Approximately 6 marks]
TRANSFERRING of the following CORRECT OR INCORRECT amounts from notes :
o Balance of Retained Income [From note 8]
o Balance of Share Capital [from note 7]
o Dividends Recommended [from note 8]
Method mark on final answer for Non-Current Liabilities

120
BALANCE SHEET - EXAMPLE 1
SASA LTD
You are presented with the Balance sheet of SASA LTD, fill in the missing amounts to
complete this financial statement.
BALANCE SHEET FOR THE YEAR ENDED 28 FEBRUARY 2021

ASSETS Notes
NON-CURRENT ASSETS 4 980 000
Fixed/tangible assets 3
Financial assets 160 000
Trade and other receivables 5
Cash and cash equivalents 6 2 500
TOTAL ASSETS
EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital 7
NON-CURRENT LIABILITIES
Mortgage Loan (740 000 –
CURRENT LIABILITIES 921 800

Trade and other payables 9
Current portion of loan 148 000
6 800 000
NOTE: Adjustments are not given in this activity the approach will
be BOTTOM UP calculations and calculation of balancing figures.

121
WORKED EXAMPLE
BALANCE SHEET FOR THE YEAR ENDED 28 FEBRUARY 2021

ASSETS Notes
NON-CURRENT ASSETS 4 980 000
Fixed/tangible assets (4 980 000 - 160 000) 3 4 820 000
Financial assets 160 000
Trade and other receivables (1 820 000 - 956 000 - 2 500) 5 861 500
Cash and cash equivalents 6 2 500
TOTAL ASSETS 6 800 000
SHAREHOLDERS’ EQUITY 5 286 200

Share capital (5 286 200 – 218 200) 7 5 068 000
NON-CURRENT LIABILITIES 592 000

Mortgage Loan (740 000 – 148 000) 592 000

Trade and other payables (921 800 - 45 300 -148 000) 9 728 500
Current portion of loan 148 000
6 800 000
STRATEGY AND CALCULATIONS
 The total assets is equal to equity and liabilities, the given amount for equity and
liabilities will be recorded as total assets.
 Alternative calculation for total assets in this activity is current assets plus non-current
assets (4 980 000 + 1 820 000) = 6 800 000
 To determine the amount for long term loan, subtract 148 000 of short term loan from
the total mortgage loan of 740 000.

122
 If the short term loan was not provided the following calculation could have been used :
740 000 – 592 000 = 148 000
 If you were given the short term loan (148 000) and 592 000 payable over a long period
the calculation for the total mortgage loan would be :
592 000 + 148 000 =740 000
 To calculate your share capital, you need to first determine the shareholders equity as
indicated:
o SUBTRACT non-current liabilities and current liabilities from the total equity and
liabilities. (6800 000- 921 800 - 592 000) = 5 286 200
 To determine the share capital, deduct Retained income from Shareholders’ equity
(check the equity section of the Balance sheet)
BALANCE SHEET AND FINANCIAL INDICATORS
Financial indicators that are relevant to calculation of missing figures from the financial
information presented or the Balance Sheet:
Financial Formulae Answer Source of

Indicators expressed as information
:
Solvency ratio Total assets : Total liabilities Ratio Balance Sheet
𝑥:1
Current ratio Current assets : Current liabilities Ratio Balance Sheet
𝑥:1
Acid test ratio Current assets - inventories : Ratio Balance Sheet
Current liabilities 𝑥:1
Debt -equity Non-current liabilities : Ratio Balance Sheet
ratio (gearing) Shareholders’ equity 𝑥:1
Net Asset value Shareholders’ Equity x Cents B/S, Note 7 and
per share 100 8
Number of issued shares issued
1
NOTE :
 The first three indicators are covered in grade 10 and 11.
 Debt equity ratio is covered in grade 11, the only difference is that grade 11 content
focus at partners’ equity and in grade 12 the focus is shareholders’ equity (retained
income plus share capital) is used to determine the ratio.
 Net asset value per share will be covered towards the end of term one . The information
or figures used to calculate the indicator is ‘obtainable from the Share capital and
retained income note.

123
ACTIVITY 1 : BALANCE SHEET
( NSC NOV 2019 ) 70 MARKS
1.1 Choose an explanation in COLUMN B that matches the term in COLUMN A. Write
only the letters (A–E) next to the question numbers (1.1.1 to 1.1.5) in the ANSWER
BOOK.
COLUMN A COLUMN B
1.1.1 Internal auditor A appointed by shareholders to manage
a company
1.1.2 Memorandum of
incorporation (MOI) B the body responsible for registration
of all companies
1.1.3 Limited liability
C employed by a company to ensure
1.1.4 Director good internal control procedures
1.1.5 Companies and D indicates that a company has a legal

Intellectual Property personality of its own
Commission (CIPC)
E the document that establishes the
rules and procedures of a company
(5 x 1) (5)
1.2 VISIV LTD
The financial year ended on 28 February 2019.
REQUIRED:
1.2.1 Calculate:
 Amounts for (i) and (ii) in the Fixed Assets Register (5)
 Profit/Loss on sale of asset (2)
 Fixed assets carrying value on 28 February 2019 (4)
1.2.2 Calculate the correct net profit after tax for the year ended
28 February 2019. Indicate (+) for increase and (–) for decrease. (9)
1.2.3 Refer to Information A–H. Prepare the following on 28 February 2019:
 Retained Income Note (9)

 Statement of Financial Position (Balance Sheet).
 NOTE: Show workings. Certain figures are provided in the (27)
ANSWER BOOK.

124
A. Fixed assets:
A delivery vehicle was sold on 31 October 2018 but no entries were made to
record this transaction.
Details of vehicle sold:
Delivery Vehicle X43
Date purchased: 1 March 2016
Date sold: 31 October 2018 Sold for: R195 000 (cash)
Depreciation rate: 25% p.a. (diminishing-balance method)
CARRYING
COST DEPRECIATION
VALUE
28 February 2017 R400 000 R100 000 R300 000
28 February 2018 75 000 225 000
31 October 2018 (i) (ii)
B. List of balances/totals on 28 February 2019 (before taking into account

all adjustments below):
Ordinary share capital R8 152 000
Mortgage loan: Prati Bank 1 758 000
Fixed assets (carrying value) 10 190 000
Fixed deposit: Prati Bank (balancing figure) ?
Net trade debtors 1 090 000
Bank (favourable) ?
SARS: Income tax (provisional tax payments) 155 000
Creditors' control 1 981 800
C. Net profit before tax, R822 700, was calculated before correcting the
following:
 Provision for bad debts must be increased by R65 000.
 R9 800 of an advertising contract applies to the next financial year.
 A tenant paid rent of R334 000 for the period 1 March 2018 to
31 March 2019. Rent was increased by R3 000 per month from
1 January 2019.
 Depreciation and profit/loss on the vehicle sold must be recorded.
 A further R43 000 is owed for income tax.

125
D. Ordinary shares:
DATE DETAILS
1 March 2018 2 000 000 shares in issue; total book value R7 600 000
31 May 2018 360 000 shares repurchased at R4,10 each
1 October 2018 800 000 new shares issued
28 February 2019 2 440 000 shares in issue
E. Dividends:
 Interim dividends were paid in September 2018, R295 200.
 Final dividends of 20c per share were declared on 28 February 2019.
F. A creditor with a debit balance of R7 600 must be transferred to the Debtors'

Ledger.
G. After processing all adjustments:

 The current ratio is 0,8: 1.
 The current liabilities totalled R2 900 000.
 The current portion of the loan is the balancing figure.
NOTE : Determine the current assets by referring to examples provided below/next page :

126
FINANCIAL INDICATORS PAIRED WITH THE STATEMENT OF FINANCIAL POSITION
Calculate the value of current assets using the following information:
Current Ratio 2:1

Current liabilities 200 000
Current Assets ?
METHOD ONE
𝐮𝐧𝐤𝐧𝐨𝐰𝐧
𝐱 𝐚𝐦𝐨𝐮𝐧𝐭 𝐠𝐢𝐯𝐞𝐧
𝐤𝐧𝐨𝐰𝐧
𝟐
𝐱 𝟐𝟎𝟎 𝟎𝟎𝟎 = 𝟒𝟎𝟎 𝟎𝟎𝟎
𝟏
METHOD TWO
Easy calculation for Current Assets is: R200 000 x 2 = R400 000
METHOD THREE
2 = x (Current assets - unknown)
1= 200 000 (Current liabilities)
Cross multiply :1 x X = X and 200 000 x 2 = 400 000
X = 400 000
Calculate the current liabilities
Current Ratio 2:1

Current liabilities ?
Current Assets 400 000
METHOD ONE
𝐮𝐧𝐤𝐧𝐨𝐰𝐧
𝐱 𝐚𝐦𝐨𝐮𝐧𝐭 𝐠𝐢𝐯𝐞𝐧
𝐤𝐧𝐨𝐰𝐧
𝟏
𝐱 𝟒𝟎𝟎 𝟎𝟎𝟎 = 𝟐𝟎𝟎 𝟎𝟎𝟎
𝟐
METHOD TWO
400 000 ÷ 2 = 200 000

127
METHOD THREE
2 = 400 000 (Current assets)

1= x (Current liabilities - unknown)
Cross multiply :2 x X = 2X and 400 000 x 1 =
400 000
2X = 400 000
2 2
X = 200 000
ACTIVITY 1 NSC NOV 2019
1.1 1.1.1
1.1.2
1.1.3
1.1.4
1.1.5 5
1.2 VISIV LTD
1.2.1 (i) Calculate: Depreciation for the current year

Workings Answer
(ii) Calculate: Carrying value of vehicle sold

Workings Answer
5
Calculate: Profit/Loss on sale of asset
Workings Answer

128
Calculate: Fixed assets carrying value on 28 February 2019

Workings Answer
1.2.2 Calculate the correct net profit after tax for the year ended
28 February 2019. Indicate (+) for increase and (–) for decrease.
Workings Answer
Incorrect net profit before tax 822 700
Correct net profit after tax 9
1.2.3 RETAINED INCOME NOTE:

Balance at beginning 865 300
Balance at end 9

129
VISIV LTD
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
ON 28 FEBRUARY 2019
ASSETS
Non-current assets
Fixed assets
Fixed deposit
Current assets
Cash and cash equivalents
TOTAL ASSETS
Ordinary shareholders' equity
Non-current liabilities
Current liabilities 2 900 000
Current portion of loan
TOTAL EQUITY AND LIABILITIES 27
TOTAL MARKS
70

130
ACTIVITY 2 Adapted -NSC 2017
FIXED ASSETS, BALANCE SHEET 65 marks
The following information relates to Odette Ltd. The financial year ended on
28 February 2017.
REQUIRED:
2.1 Refer to Information B.

Calculate the missing amounts denoted by (a) to (e). (22)
2.2 Complete the Balance Sheet (Statement of Financial Position) on
28 February 2017. Show workings. (37)
INFORMATION:
A. Amounts extracted from the records on 28 February 2017:
Balance Sheet accounts section R

Fixed assets (carrying value) ?
Loan from Beque Bank 284 000
Net trade debtors 67 200
Fixed deposit: Elze Bank ?
Bank (favourable) ?
SARS: Income tax (provisional payments) 209 000
Nominal accounts section (pre-adjustment amounts)
Insurance 30 200
Rent income 108 450
Electricity 42 000
B. Fixed assets:
LAND AND
VEHICLES EQUIPMENT TOTAL
BUILDINGS
Cost 350 000 460 000
Accumulated depreciation (315 000)
Carrying value (01/03/2016) (a) 35 000
Movements:
Additions 325 000 422 550 0
Disposals 0 0 (d)
Depreciation (b) (13 766)
Carrying value (28/02/2017) 2 550 000 (c) 50 994 (e)
Cost 772 550 340 000

131
 Depreciation on vehicles is calculated at 20% p.a. on cost.

 The company has two vehicles on 28 February 2017. One of these vehicles was
purchased on 1 September 2016.
 Extract from the Fixed Assets Register in respect of equipment sold:
Fridge (Model X3)

Date purchased: 1 March 2014
Date sold: 31 December 2016 Sold for: R81 250
Depreciation rate: 10% p.a. (diminishing-balance method)

COST DEPRECIATION BOOK VALUE
28 February 2015 R120 000 R12 000 R108 000
29 February 2016 ? ?
31 December 2016 ? ?
C. The electricity account for February 2017, R5 600, was still outstanding.
D. The provision for bad debts must be increased by R270.
E. An additional insurance policy was taken out on 1 November 2016. The annual
premium of R10 200 was paid and recorded.
F. The rent for February 2017 has not been received yet. The rent increased by 15%
on 1 July 2016.
G. Net profit after tax, R518 000, was calculated after taking into account all the
adjustments above. Income tax is 30% of the net profit.
H. 75% of the authorised share capital of 900 000 shares was in issue. The directors
declared a final dividend of 24 cents per share on 28 February 2017.
I. Extract from Beque Bank loan statement:
Balance on 1 March 2016 R376 000

Instalments (including interest) R92 000
Balance on 28 February 2017 ?
NOTE:
 Interest has not been entered in the books.
 R50 000 of the loan balance will be settled in the next financial year.
J. The net asset value per share on 28 February 2017 is 620 cents.
K. The current ratio is 2,1 : 1 on 28 February 2017.
TOTAL MARKS: 65

132
EXAMPLE :DETERMINE THE SHAREHOLDER’S EQUITY
Extract from the Pre-adjusted Trial Balance on 28 February 2021:

Debit Credit
Balance sheet section
Retained income ?
Note: The Share Capital comprised of 800 000 ordinary shares.
Financial indicator
Net asset value per share 700 cents
WORKED EXAMPLE
Net asset value per share is : Shareholders Equity/Number of Shares = x cents
(unknown) = 700 cents ( equals to R7.00 )

800 000
x = R7.00
800 000
x x 800 000 = R7.00 x 800 000 OR R7.00 x 800 000
800 000
x = 5 600 000 (Shareholders’ Equity)
Extract of the Balance sheet

Equity and Liabilities
Ordinary shareholders’ equity 5 600 000
Retained income (5 600 000 – 5 200 000) balancing figure 400 000
NOTE : To calculate the number of shares :

Shareholders’ equity ÷ NAV
5 600 000 ÷ R7.00
= 800 000

133
ACTIVITY 2 NSC 2017
2.1
Calculate the carrying value of Land and Buildings on 1 March 2016.
(a)
2
(b) Calculate the total depreciation on Vehicles on 28 February 2017.
6
(c) Calculate the carrying value of Vehicles on 28 February 2017.
4
(d) Calculate the carrying value of Equipment sold on 31 December 2016.
6
(e) Calculate the total carrying value of Fixed Assets on 28 February 2017.

134
2.2 BALANCE SHEET OF ODETTE LTD ON 28 FEBRUARY 2017
ASSETS 
NON-CURRENT ASSETS
CURRENT ASSETS
Inventory 408 880
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES

135
ACTIVITY 3: BALANCE SHEET 2018 NSC NOV Adapted
3.1 Choose a description from COLUMN B that matches the term in COLUMN A.
Write only the letter (A–E) next to the question number (3.1.1– 3.1.5) in the
ANSWER BOOK.
COLUMN A COLUMN B
3.1.1 Income Statement A an explanation of the operations of the
company during a financial year
3.1.2 Balance Sheet
B reflects whether or not the shareholders
3.1.3 Cash Flow Statement can rely on the financial statements
3.1.4 Directors' report reflects the profit/loss of the company for

C the year
3.1.5 Independent audit report
reflects the effect of the operating,
D financing and investing activities on the
cash resources
E reflects the net worth of the company
(5 x 1) (5)
3.2 ORBIT LTD
Refer to the information from the records of Orbit Ltd for the financial year
ended 30 June 2021.
REQUIRED:
3.2.1 Prepare the following notes to the Balance Sheet:

(a) Ordinary share capital (8)
(b) Retained income (11)
3.2.2 Complete the Balance Sheet on 30 June 2021. Where notes are not
required, show ALL workings in brackets. (28)
3.2.3 The CFO (chief financial officer), Barry Wright, has convinced the
company to buy back a further 400 000 shares from his close relative
during the next financial year. Barry currently owns 1 904 400 shares
in this company, which is 46% of the issued shares.
As a shareholder, explain your concern regarding the proposed

buy-back of shares. Provide calculations to support your concern. (6)

136
INFORMATION:
A. Extract from the books on 30 June 2021:
Fixed/Tangible assets (carrying value) ?

Fixed deposit: Morocco Bank 380 000
Ordinary share capital (1 July 2020) 3 150 000
Retained income (1 July 2020) 874 000
Bank (favourable) 250 700
Loan: Helping Bank 302 400
Dividends on ordinary shares (interim dividends) 630 000
B. Share capital:
 The business has an authorised share capital of 6 000 000 shares.

 70% of the shares were in issue on 1 July 2020.
 60 000 ordinary shares were repurchased from a disgruntled
shareholder on 1 December 2020. The company paid R3,50 per
share. This was paid and recorded on 1 December 2020.
C. A final dividend of 22 cents per share was declared on 30 June 2021. Only
shares in the share register qualify for final dividends.
D. The following adjustments have not been taken into account yet:
 Provision for bad debts is set at 5% of the outstanding debtors.
 Insurance included an annual premium of R31 800, paid for the period
1 October 2020 to 30 September 2021.
E. The loan statement from Helping Bank reflected the following:
Balance on 1 July 2020 R480 000

Repayments during financial year (including interest) R177 600
Balance on 30 June 2021 ?
R40 000 of the loan will be paid back in the next financial year.
F. Income tax for the year amounted to R408 800. This was calculated at
28% of the corrected net profit.

137
QUESTION 3
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.2 ORBIT LTD
3.2.1
(a) ORDINARY SHARE CAPITAL
Authorised
6 000 000 shares
Issued
(b) RETAINED INCOME

Balance on 1 July 2020 874 000
Balance on 30 June 2021 11

138
3.2.2 ORBIT LTD

BALANCE SHEET ON 30 JUNE 2021
ASSETS
NON-CURRENT ASSETS
Fixed/Tangible Assets
Fixed deposit 380 000
CURRENT ASSETS
Inventory 478 000
TOTAL ASSETS
SHAREHOLDERS' EQUITY
Retained income
Loan: Helping Bank
CURRENT LIABILITIES

139
ACTIVITY 4 : BALANCE SHEET

ASC 2018 70 marks
4.1 CONCEPTS
Indicate whether the following statements are TRUE or FALSE. Write only 'true'
or 'false' next to the question numbers (4.1.1 to 4.1.5) in the ANSWER BOOK
4.1.1 A fixed deposit maturing within the next 12 months will be shown as
cash and cash equivalent in the Balance Sheet.
4.1.2 Earnings per share are calculated using the net profit before tax.
4.1.3 Net current assets are also referred to as net working capital.
4.1.4 Provision for bad debts is a liability.
4.1.5 Total capital employed consists only of ordinary shareholders' capital
and retained income. (5 x 1) (5)
4.2 MODISE LTD

The information below relates to Modise Ltd. The financial year ended on
28 February 2018.
REQUIRED:
4.2.1 Prepare the Retained Income Note to the Balance Sheet on
28 February 2018. (12)
4.2.2 Complete the Balance Sheet on 28 February 2018. Show ALL workings. (38)
4.2.3 The directors want to give R500 000 to a local school. Give TWO
reasons why companies take such decisions. (4)
INFORMATION:
A. Extract of balances on 28 February 2018:
R
Fixed assets at carrying value ?
Fixed deposit: Peoples Bank ?
Loan from director 630 000
Bank (favourable) ?
Consumable stores on hand 25 000
Creditors' control ?
Expenses prepaid 19 240
SARS: Income tax (provisional tax payments) 900 000

140
B. Share capital:
 The authorised share capital of Modise Ltd is 6 500 000 ordinary

shares.
 On 20 February 2018, 250 000 shares were repurchased at

25 cents above the average share price. This has been recorded.
 On 28 February 2018, the ordinary share capital comprised

4 550 000 ordinary shares.
C. Dividends:
 Interim dividends of R672 000 were paid on 28 August 2017.
 A final dividend of 36 cents per share was declared on

28 February 2018. All shares (including the shares repurchased
on 20 February 2018) qualify for final dividends.
D. Net profit before tax:

 After taking all relevant information into account, the net profit before
tax was accurately calculated to be R3 400 000.
 Income tax at 27% of the net profit must be taken into account.
E. Fixed deposit:
The interest on the fixed deposit was R48 000. The fixed deposit was
invested on 1 May 2017 at 8% p.a.
F. Loan from director:
 The interest-free loan was received on 1 September 2015.
 This loan is to be repaid over six years in equal monthly instalments.

The first repayment was made on 30 September 2015. All payments
have been made to date.
G. Provision for bad debts:
The provision for bad debts must be adjusted to 6% of the outstanding
debtors.
H. The current ratio calculated after all adjustments was 1,5 : 1.
TOTAL MARKS
70

141
ACTIVITY 4 ASC 2018
4.1
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
5
4.2 MODISE LTD
4.2.1 RETAINED INCOME NOTE

Balance at beginning of year R567 000
Balance at end of year 12

142
4.2.2 MODISE LTD
BALANCE SHEET ON 28 FEBRUARY 2018
ASSETS
Non-current assets
Fixed assets
Current assets
Inventories
TOTAL ASSETS

Ordinary shareholders' equity

Shareholders for dividends
SARS: Income tax
TOTAL EQUITY AND LIABILITIES

38

143
4.2.3 The directors want to give R500 000 to a local school. Give TWO reasons
why companies take such decisions.
TOTAL MARKS
70

144
SESSION 6: STATEMENT OF FINANCIAL POSITION
CONSOLIDATION OF ACTIVITIES
ACTIVITY 1: STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) AND NOTES

(45 marks; 35 minutes) ASC JUNE 2022
1.1 Complete each of the following statements by choosing a word(s) from the list
below. Write only the word(s) next to the question numbers (1.1.1 to 1.1.3) in the
ANSWER BOOK.
external auditors; directors; shareholders; internal auditors
1.1.1 The ... are employed by the company to set up and monitor control
processes.
1.1.2 … are appointed to give an unbiased opinion on the financial statements.
1.1.3 … are appointed by the owners of the company to perform key

management functions. (3 x 1) (3)
1.2 PRUDENCE LTD

The information relates to the financial year ended 28 February 2022.
REQUIRED:
1.2.1 Complete the following Notes to the Statement of Financial Position
(Balance Sheet):
 Ordinary share capital (7)

 Retained Income (7)
1.2.2 Prepare the Statement of Financial Position (Balance Sheet) on 28 February
2022. (28)
INFORMATION:
A. Extract from the accounting records on 28 February:
2022 2021
Balance Sheet Accounts R R
Loan: XY Loans ? ?
SARS: Income tax (provisional tax) 450 000
Provision for bad debts ? 23 640
Trading stock (balancing figure) ?
Petty cash 5 000 5 000
Bank overdraft (balancing figure) ?
Nominal accounts
Audit fees 48 000
Rent income 102 400

145
B. Share capital and dividends:

DATE DETAILS
1 March 2021 75% of the authorised share capital of 1 200 000 ordinary
shares were in issue.
30 August 2021 80 000 shares were repurchased from a retired
shareholder. He was paid 20% (R136 000) above the
average share price and would no longer qualify for
dividends.
31 August 2021 An interim dividend of 28 cents per share was paid.
1 December 2021 An additional 150 000 shares were issued.
28 February 2022 A final dividend was declared.
C. Income tax for the year, after taking into account all adjustments, amounted to
R438 000. This is 30% of the net profit.
D. The following adjustments are relevant to complete the Statement of Financial

Position:
 The provision for bad debts must be increased by R2 610.

 Only half the audit fees were paid. The balance will be paid in
March 2022.
 The tenant occupies part of the premises from 1 May 2021. He has not paid the
rent for January and February 2022.
E. R240 000 of the fixed deposit will mature on 1 April 2022.
F. A debit balance of R17 950 from the Debtors' Ledger must be transferred to the
Creditors' Ledger.
G. The following financial indicators were calculated on 28 February 2022, after all
adjustments were processed:
Debt-equity ratio 0,4 : 1
H. The loan from XY Loans will be reduced by a capital portion of R228 000 in the 2023
financial year.
45

146
ACTIVITY 1
1.1 1.1.1
1.1.2
1.1.3 3
1.2 PRUDENCE LTD

1.2.1 ORDINARY SHARE CAPITAL
7 954 000 7
RETAINED INCOME
Shares repurchased
Final dividends 213 400
Balance on 28 February 2022 1 196 000 7

147
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

1.2.2
ON 28 FEBRUARY 2022
ASSETS
NON-CURRENT ASSETS
Fixed assets
Inventory
Trade and other receivables
TOTAL ASSETS

SHAREHOLDERS' EQUITY 9 150 000
CURRENT LIABILITIES
Bank overdraft
TOTAL MARKS

148
ACTIVITY 2: STATEMENT OF COMPREHENSIVE INCOME, STATEMENT OF FINANCIAL POSITION
FREE STATE -2022 PRELIM (Adapted) (60 marks; 48 minutes)
2.1 Choose the description from COLUMN B that matches the concept in COLUMN A. Write only the letter
(A–D) next to the question numbers
(2.1.1 to 2.1.4) in the ANSWER BOOK.
COLUMN A COLUMN B
2.1.1 Statement of A The owner's equity (net worth) of a
Comprehensive company, its assets and liabilities, at
Income the end of the financial year
(Income statement)
2.1.2 Statement of B An opinion expressed on the fair
Financial Position presentation of the figures in the
(Balance Sheet) financial year
2.1.3 Cash Flow C The net profit or loss of a company for
Statements a financial year
2.1.4 Independent D The effect of the operating, financing
Auditor's Report and investing activities on the money
possessed by the business
(4)
The information relates to Global Trading Limited, and the financial year ended on 30 June 2022. The
business uses the perpetual (continuous) inventory system.
REQUIRED:
2.2.1 Calculate the correct net profit after tax (22)
2.2.2 Prepare the Ordinary Share Capital Note on 30 June 2022. (7)
2.2.3 Prepare the Retained Income Note on 30 June 2022. (8)
2.2.4 Complete the Equities and Liabilities section of the Statement of Financial
Position (Balance Sheet) on 30 June 2022. (19)

149
INFORMATION:
A. List of balances/totals on 30 June 2022:
BALANCE SHEET ACCOUNTS SECTION

Ordinary Share Capital 6 775 000
Retained income (1 July 2021) 1 190 264
Mortgage loan: Custom Bank 354 000
Fixed assets 6 169 000
Fixed deposit: Custom Bank 390 000
Provision for bad debts (1 July 2021) 10 600
Creditor's control 166 800
Prepaid expenses 3 350
B. The net profit before tax of R1 089 238 was determined BEFORE taking into account
the following information:
i. Provision for bad debts must be adjusted to R7 800.

ii. An invoice was issued on 30 June 2022 for R8 712; a 10% trading discount
was allowed. Goods were sold with a mark-up of 60%. No entry has been
made to this transaction.
iii. The auditor discovered that the trading stock deficit of R5 600 was a trading
stock surplus.
iv. Consumable goods on hand at the end of the financial year amounted to
R5 400.
v. Directors' fees paid for the year amounted to R648 000. The company has
FIVE directors who receive the same fee. One of the directors asked the
company to only pay out his fees for the last six months in July 2022, when
he plans to go on an overseas vacation.
vi. BE Builders was paid R120 000 for the construction of a storeroom
(R90 000) and repairs to the building (R30 000). The entire amount was
debited to land and buildings in error.
vii. Rent for July 2022, R3 300, received in advance.
viii. Advertising includes a six-month contract for R7 200 with the local
newspaper. This amount was paid for the period
1 May 2022 to 31 October 2022.
ix. Income tax amounts to R333 564 for the year.

150
C. Dividends and shares:
i. Interim dividends of R110 000 were paid on 31 December 2021.
ii. Share capital
1 July 2021 3 000 000 shares were issued (R3 900 000).
250 000 shares were repurchased at R2,50 each from an
30 September 2021
existing shareholder (R625 000). It has been recorded.
1 000 000 new shares were issued at R3,20 each. It has
30 June 2022
been recorded.
iii. The directors declared a final dividend of 10 cents per share on

30 June 2022. Shares issued on 30 June 2022 do not qualify for final dividends.
D. A creditors' debit balance of R2 600 in the Creditors' Ledger must still be transferred to his
account in the Debtors' Ledger.
E. The company wants to pay off R9 250 per month on their loan in the next financial year.
60

151
ACTIVITY 2
2.1
2.1.1
2.1.2
2.1.3
1.1.4
4
2.2.1 Calculation of the correct net profit after tax

Incorrect net profit 1 089 238
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
Correct net profit before tax
Income tax
Net profit after tax 22
2.2.2 SHARE CAPITAL
3 000 000 Shares issued at the beginning of the year 3 900 000
Shares at the end of the year 6 775 000 7

152
2.2.3 RETAINED INCOME
Balance at the beginning of the year 1 190 264
Dividends
Interim 110 000
Balance at the end of the year 8
2.2.4 GLOBAL TRADING LIMITED

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022
ORDINARY SHAREHOLDERS' EQUITY
Retained income
Loan: Custom Bank
CURRENT LIABILITIES
Trade and other payables (166 800
60

153
ACTIVITY 3: NOTE AND STATEMENT OF FINANCIAL POSITION.
MPUMALANGA 2022 TRIAL (50 marks; 40 minutes)
KELLY LTD
REQUIRED:
Refer to information A – F
3.1 Prepare the Retained Income Note on 28 February 2022. (11)
3.2 Complete the Statement of Financial Position (Balance Sheet) for the year ended 28
February 2022. (27)
NOTE:
Show workings, Certain figures are provided in your answer book.
3.3 The CEO, Paul Joe, owns 42% of the issued shares on 28 February 2022. The
board of Directors wants to issue the unissued shares in the next financial year.
3.3.1 Calculate the number of shares that Paul must buy to gain control of the
company. (4)
3.3.2 Paul wants to buy shares at the current Net asset value without advertising
them to the public. As an existing shareholder, why would you not be
satisfied with this arrangement? Explain. Provide TWO points. (4)
3.4 Kelly Ltd is planning to spend R500 000 on staff development and training over the
next two years. Explain where this amount should be shown in the published annual
report, and provide a reason for your answer. (4)
INFORMATION:
A. The following balances were extracted from the records of KELLY LTD on
28 February 2022:
R
Fixed assets at carrying value 3 940 900
Fixed Deposit: Dube Bank 415 000
Loan from director: J France 1 155 000
Inventory (all trading stock) 222 600
Trade and other payables 231 920
SARS: Income tax (provisional tax payment) 280 000
Cash in bank 212 400

154
B. Share Capital and Dividends:
● Authorised shares: 800 000

● On 1 March 2021, 80% of the authorised share capital was in issue.
● Interim dividends of 28 cents per share was paid on 30 August 2021.
● On 28 February 2022, the company repurchased 40 000 shares at R1,25 above
the average share price of R6,00. The full amount for this transaction was paid by
EFT, but the EFT has not yet been entered in the CPJ.
● A final dividend of R210 000 was declared on 28 February 2022.
C. Profit and tax:
Income tax at 31% of the net profit for the year amounted to R306 280.
D. Fixed deposit:
R165 000 of the fixed deposit matures on 30 June 2022. The rest matures in 2025.
E. Loan from Director J France:
● The loan was originally received on 1 December 2019.

● This loan is to be repaid over 5 years in equal monthly instalments with effect
from 31 December 2019. All payments have been made.
● Interest is not capitalised and has been paid in full.
F. Financial indicators on 28 February 2022:
Current ratio 1,5 : 1

Net asset value (NAV) 650 cents
Market price (Security Exchange) 710 cents
50

155
ACTIVITY 3
KELLY LTD
3.1 Retained income note on 28 February 2022.
Balance on 28 February 2022 11
3.2 STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2022.

ASSETS
NON-CURRENT ASSETS
Fixed assets 3 940 900
CURRENT ASSETS
TOTAL ASSETS L

Shareholders’ equity
Loan (1 155 000
27

156
TOTAL EQUITY AND LIABILITIES
3.3.1 Calculate the number of shares that Paul must buy to gain control of the
company.
3.3.2 Paul wants to buy shares at the current Net asset value without advertising
them to the public. As an existing shareholder, why would you not be
satisfied with this arrangement? Explain. Provide TWO points.
3.4 Kelly Ltd is planning to spend R500 000 on staff development and training
over the next two years. Explain where this amount should be shown in the
published annual report, and provide a reason for your answer.
EXPLANATION REASON
TOTAL MARKS
50

157
5 FINANCIAL INDICATORS INTEGRATED WITH BALANCE SHEET

Financial Indicators Formulae Answer Source of
expressed as : information
Solvency ratio Total assets : Total liabilities Ratio Balance Sheet
𝑥:1
Current ratio Current assets : Current Ratio Balance Sheet
liabilities 𝑥:1
Acid test ratio Current assets - inventories : Ratio Balance Sheet

Current liabilities 𝑥:1
Debt -equity ratio Non-current liabilities : Ratio Balance Sheet
(gearing) Shareholders’ equity 𝑥:1
Net Asset value per Shareholders equity Cents B/S, Note 7 and 8
share 𝑥 100
Number of Shares issued
EXAMPLE 1
Calculate the value of current assets using the following information:
Current Ratio 2:1 Formula

Current liabilities 200 000 Current assets : Current
Current Assets ? liabilities
Current assets (2) are unknown

Current liabilities (1) are known
UK Method
𝑢𝑛𝑘𝑛𝑜𝑤𝑛
𝑥 𝑎𝑚𝑜𝑢𝑛𝑡
𝑘𝑛𝑜𝑤𝑛
2
𝑥 200 000 = 400 000
1
Calculate the value of current liabilities

Current Ratio 2:1 Formula
Current liabilities ? Current assets : Current liabilities
Current Assets 400 000
Current liabilities (1) are unknown

Current assets (2) are known
1
𝑥 400 000 = 200 000
2

158
EXAMPLE 2
Extract from the Pre-adjusted Trial Balance on 28 February 2021

Debit Credit
Trade debtors ?
Inventories 90 000
Bank 120 000
Trade creditors 400 000
Financial indicator
Current ratio 2 : 1
WORKED EXAMPLE
NOTE: current assets are twice the amount of current liabilities
Current liabilities = 400 000 (1)

Because the
Current assets = Unknown (2) value of
debtors is
2 unknown
𝑥 400 000 = 800 000
1

Current assets Current liabilities x 2 800 000
Trade debtors balancing figure 590 000
Inventories 90 000
Bank 120 000
Current liabilities 400 000

Trade creditors 400 000
Use 800 000 (current assets) to calculate the current liabilities
1
𝑥 800 000 = 400 000 𝐨𝐫 800 000 ÷ 2 = 400 000
2

159
EXAMPLE 3
Extract of Pre-adjusted Trial Balance on 28 February 2021:

Debit Credit
Loan: Poobie Bank ?
Financial indicator
Debt: Equity ratio 0,1 : 1
WORKED EXAMPLE
NOTE: Shareholders equity = (Retained income + Ordinary share capital)

4 000 000 + 800 000 = 4 800 000
Loan = 0.1 (unknown figure)

Equity = 1 (known)
0.1
𝑥 4800 000 = 480 000 Loan
1
NOTE:
𝑈𝑛𝑘𝑛𝑜𝑤𝑛 𝐴𝑙𝑤𝑎𝑦𝑠 𝑎 𝑁𝑢𝑚𝑒𝑟𝑎𝑟𝑜𝑟
Equity𝐴𝑙𝑤𝑎𝑦𝑠
𝐾𝑛𝑜𝑤𝑛 = 1 (known)
𝑎 𝐷𝑒𝑛𝑜𝑚𝑖𝑛𝑎𝑡𝑜𝑟

Equity & Liabilities
Loan: Poobie Bank 480 000
NOTE - The following calculation would be applied in the calculation of Shareholders’
equity :
1
𝑥 480 000 = 4 800 000 Shareholders’ equity
0.1

160
EXAMPLE 4
Extract from the Pre-adjusted Trial Balance on 28 February 2021:

Debit Credit
Retained income ?
Note: The Share Capital comprised of 800 000 ordinary shares.
Financial indicator
Net asset value per share 700 cents
WORKED EXAMPLE
Net asset value per share is : Shareholders Equity/Number of Shares = x cents
(unknown) = 700 cents ( equals to R7.00 )

800 000
x = R7.00
800 000
x x 800 000 = R7.00 x 800 000 OR R7.00 x 800 000
800 000
x = 5 600 000

Equity and Liabilities
Retained income (5 600 000 – 5 200 000) balancing figure 400 000
NOTE : To calculate the number of shares :

Shareholders’ equity ÷ NAV
5 600 000 ÷ R7.00
= 800 000

161
EASY MARKS ON NOTES AND STATEMENT OF FINANCIAL POSITION
Ordinary Share Capital Note on 28 February 2021
800 000 Ordinary shares at the beginning 6 400 000


100 000 New shares issued balancing figure subtract 1 250 000 
repurchased
(30 000) Repurchased 30 000 shares at R8,50   (255 000)
870 000 Shares at the end of the year 7 395 000
Earn a mark for transferring

the figure you calculated to
+ - 3 method marks the Balance Sheet
(Equity section)
RETAINED INCOME NOTE:

One mark for recording the
Balance at beginning 865 300 figure you calculated in the
Net profit after tax 511 500  Income Statement
Shares repurchased 360 000x R0,30 (108 000) 

4,10 – 3,80
(783 200)
Ordinary share dividends One mark for transferring the
* figure you calculated to trade
Interim 295 200  and other payables or current
liabilities
Final 2 440 000 x R0,20 488 000*
Balance at end 485 600 

Earn a mark for transferring
*one part correct the figure you calculated to
3- 4 method marks the Balance Sheet (Equity
section)

162
STATEMENT OF FINANCIAL POSITION ON 28 February 2022

EQUITIES AND LIABILITIES
SHAREHOLDERS EQUITY 9 044 000  A mark for adding
Ordinary share capital 950 000 x 8,50 8 075 000 

Non-current liabilities 603 800

Loan: Allan Bank 703 800 – 100 000 603 800 *
Current liabilities 1 069 500 
Trade and other payables 637 000 *
Creditors Control Accrued expenses ,Income received in advance SARS
Shareholders for dividends 332 500 

A mark for an amount you
Current portion of loan check long term loan 100 000  transferred from long term
loan
TOTAL EQUITY AND LIABILITIES SE + NCL + CL 10 717 300 
7 marks plus ( method marks ) * one part correct
NOTE : it’s important to master all the sections of the Balance Sheet ,the examiner can assess
you on the ASSETS SECTION

163
A COMPLETE BALANCE SHEET
STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2019

ASSETS
Non-current assets (TA – CA) 10 624 000
Fixed assets From note 3 9 965 000
Fixed deposit Balancing figure 3 659 000
Current assets CL x 0,8 2 320 000
Trade and other receivables 1 042 400*
Cash and cash equivalents Balancing figure 175 600
TOTAL ASSETS see total equity and liabilities 12 944 000

Ordinary shareholders' equity 8 637 600
Retained income see note 8 485 600
Non-current liabilities 1 406 400
Mortgage loan (1 758 000  – 351 600 ) 1 406 400*

Trade and other payables 2 017 400*
SARS: Income tax may be part of T&OP 43 000
Shareholders for dividends may be part of T&OP 488 000
Current portion of loan Balancing figure or check Non-Current 351 600
Liabilities
TOTAL EQUITY AND LIABILITIES 12 944 000*
+ - 13 marks

164
SESSION 7: CASH FLOW STATEMENT
Main purpose of the Cash Flow Statement:
Reflects on the effect of business activities on the cash resources in terms of:
 how cash was generated
 how cash was utilised
Business activities are divided into three broad types of activities namely: operating,
investing and financing activities.
Operating activities:
o The main income-earning activities of the company.
o They are directly related to the main objective of a company.
o The cash generated by operating activities is perhaps the most significant indicator of a
company’s success because this relates to the main purpose of establishing the company.
Investing activities:
o These activities involve the actual establishment of the infrastructure of a business in order
for it to be in a position to earn income.
Financing activities:
o Activities involved in funding the infrastructure of the company.
o They result in the change in the size and composition of the debt and the capital funding.
FORMAT OF A CASH FLOW STATEMENT
CASH FLOW STATEMENT FOR THE YEAR ENDING Special notes:

……
Cash effect of operating activities XXX  Should be positive at all times if
company is successful.
Cash effects of investing activities XXX  Depends on decisions made by
directors
Cash effects of financing activities XXX  Depends on decisions made by
directors
Net change in cash and cash equivalents XXX  Depends on the above points
Cash and cash equivalents at the beginning of XXX
year
Cash and cash equivalents at the end of year XXX  Positive total will assist liquidity
The use of brackets in a CFS (Cash flow Statement) will indicate an OUTFLOW of cash.

165
WHERE DO I FIND THE INFORMATION TO PREPARE A CASH FLOW STATEMENT?
Information to prepare the CFS is usually obtained from prepared Financial Statements,
and additional information provided to explain certain figures on the Statements;
summarised as follows:
Sales xxx
Less: Cost of sales (xxx)
Operating Gross Profit xxx
Income Statement
Activities Add: Other operating income xxx
Less: operating expenses (xxx)
Operating profit xxx
Current Assets
Inventories xxx
Trade and other receivables xxx
Balance Sheet Cash and Cash Equivalents xxx
Current liabilities
Trade and other payables xxx
Investing
Activities Non-current Assets
Balance Sheet Tangible/Fixed Assets xxx
Financial Assets/Fixed deposit xxx
Financing
Activities
Shareholders’ Equity xxx
Balance Sheet
Non-current liabilities xxx

166
NOTES - CASH FLOW STATEMENT
NOTE1 - Reconciliation between profit before taxation and cash generated from operations
Profit before taxation 50 000
Adjustments in respect of:
Interest paid ADD amount 6 000 Disclosed separately in CFS
Depreciation ADD amount 4 000 No effect on cash
Operating profit before changes in working capital 60 000
Changes in working capital (8 000)
(Increase) / decrease in inventories (7 000)
(Increase) / decrease in trade and other receivables 2 000 Exclude SARS-Income tax
Increase / (decrease) in trade and other payables # #(3 000) Check information below
Cash generated from operations 58 000
## Exclude SARS-Income tax and Shareholders for dividends

Reason – separately disclosed in the Cash flow statement
ILLUSTRATIVE ACTIVITY 1:
NOTE 1 - Reconciliation between profit before taxation and Cash generated from
operations
Prepare Note 1 of the Cash flow statement and show how it will appear on the face of the
Cash Flow Statement.
Extract from the Income Statement – 31 January 2023

Sales 840 000
Cost of sales 600 000
Wages 120 000
Depreciation 32 000
Interest on loans 12 000
Net income before tax 60 000
Extract from the Balance sheet 2023 2022

Inventories 320 000 400 000
Trade and other receivables (debtors) 120 000 140 000
Trade and other payables (creditors) 40 000 28 000

167
ANSWER SHEET
Note 1
Reconciliation between profit before taxation and cash generated from
operations
Profit before taxation
Adjustments in respect of:
Interest paid ADD amount
Depreciation ADD amount
Operating profit before changes in working capital
Changes in working capital
(Increase) / decrease in inventories 320 000 – 400 000
(Increase) / decrease in trade and other receivables
120 000 -140 000
Increase / (decrease) in trade and other payables
40 000 – 28 000
Cash generated from operations
Changes in working capital:
You can use the ledger accounts to determine an increase or decrease in working
capital
Dr Inventory (A) Dr Debtor (A) Dr Creditors (L)

Cr Cr Cr
Increase Decrease Increase Decrease Decrease Increase
Dr Bank Cr Dr Bank Cr Dr Bank Cr
Inflow (Outflow) Inflow (Outflow) Inflow (Outflow)
Or you can use the following template to ensure insight and understanding
Outflow of funds should be recorded in brackets
Inventories Debtors Creditors
Increase – ( outflow)of funds Increase – (outflow) of Increase – inflow of funds
Decrease – inflow of funds funds Decrease – inflow of Decrease – (outflow of) funds
funds

168
ILLUSTRATIVE ACTIVITY 2
REQUIRED
Calculate the dividends paid
INFORMATION
Extract from the Income Statement - 28 FEBRUARY 2023

Taxation (122 000)
Net profit after tax for the year 138 000
Notes to the financial statements -28 FEBRUARY 2023

9 Retained income
Balance last day of previous year 48 000
Dividends on ordinary shares (120 000)
Paid (48 000)
Recommended (72 000)
Balance last day of current year 66 000
ADDITIONAL INFORMATION

SARS (Income tax) 10 800 12 400
ANSWER SHEET : 2
Complete Note 3 and the ledger account ensure that understanding took place.
Time line: ‘Shareholders for dividends’ always have credit opening and closing
balances:
1 Mar 2022 30 March 30 August 28 Feb 2023 28 Feb 2023
Payment of Dividends are deducted

Opening Interim Final dividend
amount owing to after the calculation of
balance dividends paid declared
shareholders the net profit after tax and
e.g. the expense for dividends
(cr.40 000) (R40 000) = (R48 000) 72 000 is recorded in Note 8.
NOTE 3 - Dividends Paid To calculate a dividend expense you need to know how
many
Amounts in financial statements(interim + final)40 000 shares were issued.(
+ 72 000 ……. )
Balance on last day of previous year (40 000) ( ….. )
Balance on last day of current year (72 000)
Dividends paid = ( )

169
OR
Shareholders for Dividends
Bank ???? Balance b/d
Balance c/d Dividends (interim + final)
Balance b/d
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2023

Notes R
Cash flows from operating activities
Dividends paid
Check below
NOTE : DIVIDENDS PAID

Amounts in financial statements (xxx) Outflow - always bracketed Already
Credit balance on last day of previous (xxx) Outflow - always bracketed paid
year
Credit balance on last day of current year xxx NOT bracketed - NOT paid
Dividends paid (xxxx) Always bracketed – amount paid
(b/d beginning of year + interim)
ILLUSTRATIVE ACTIVITY 3: TAXATION PAID
A.Extract from the Income Statement for the year ended 30 June 2022:
Income tax after tax R403 200
B.Notes to the financial statements

2021 2020
R R
Trade and other Receivables
SARS (Income tax) 0 6 700
Trade and other Payables
SARS (Income tax) 2 100 0
C .Income tax is calculated at 28% of net profit.
𝑵𝒆𝒆𝒅 𝑼𝒏𝒌𝒏𝒐𝒘𝒏
or / or
𝑯𝒂𝒗𝒆 𝑲𝒏𝒐𝒘𝒏
Net profit before tax = 100%
Income tax = 28%
Net profit after tax = 72% (403200) known
𝟐𝟖
403 200 x = 156 800 (income tax)
𝟕𝟐

170
SOLUTION:
Note 4 - Taxation Paid

Amounts in financial statements (156 800)
Balance (R6 700) paid the previous
Debit/(credit) balance on last day of previous year
6 700
year Current Balance (R2 100) not yet paid
(Debit)/Credit balance on last day of current
2 100
year
Taxation paid (148 000)
SARS (INCOME TAX)

Balance b/d 6 700 Income tax 156 800
Bank (6700 +2 100 – 156800) ?
Balance c/d 2 100
403 200 403 200
Balance b/d 2 100
Check below
NOTE: TAXATION PAID

Amounts in financial statements (income tax ) (xxx) Outflow - always bracketed
Debit/ (Credit) balance at beginning of year ? Depends if balance is dr. or (cr.)
(Debit) /Credit balance at end of year ? Depends if balance is (dr.) or cr.
Taxation paid (xxxx) Outflow - always bracketed
ILLUSTRATIVE ACTIVITY 4: FIXED ASSETS BOUGHT, DISPOSAL OR DEPRECIATION
Extract from the financial statements of Kima Limited on 30 June 2022

Income Statement for the year ended 30 June 2022 2022 2021
Depreciation 24 000
Balance Sheet at 30 June 2022 Notes 2022 2021
ASSETS
Non-current assets 365 400 302 000
Tangible assets (Fixed assets) 3 365 400 302 000
ADDITIONAL INFORMATION:
Details of Tangible Asset: 2022 2021
Land and buildings 240 000 190 000
Equipment ( carrying value) 125 400 112 000
365 400 302 00
1Take note: Sold equipment at carrying value during the year, R9 600

171
SOLUTION:
Calculations to find the depreciation amount, selling price or purchased amount.

The following formats can be used:
1. FIXED ASSETS PURCHASED:
Land and buildings [240 00 – 190 000] (50 000)
Equipment [125 400 + 9 600 + 24 000 – 112 000 ] ( XXXX)
90 000
2. OR Fixed assets ( at book value)

Balance (book value) b/d 302 000 Asset disposal(book value) 9 600
Bank (Buildings) 50 000 Depreciation 24 000
Bank (Equipment) *47 000 Balance (book value) b/d 365 400
399 000 399 000
Balance (book value) b/d 365 400
*Balancing figure
3. Note 3:
Land and
PROPERTY PLANT AND building Equipment Total
EQUIPMENT
Carrying value at beginning of year 190 000 112 000 302 000
MOVEMENTS:
Additions at cost price balancing figure* *50 000 *47 000 *97 000
Disposals at carrying value/selling price ( 0 ) ( 9 600 ) ( 9 600 )
Depreciation for the year - ( 24 000 ) ( 24 000 )
Carrying value at end of year 240 000 125 400 365 400
Take note:
Profit on sale of asset and loss on sale of assets are non- cash expenses [imputed
expenses] but not part of the Gr 12 curriculum, therefore the sale of assets will
always be at carrying value.
*********The carrying value = the selling price*********

172
FORMAT OF A CASH FLOW STATEMENT

Notes R
Cash flows from operating activities XXXX
Cash generated from operations 1 XXX
Interest paid (XXX)
Dividends paid 3 (XXX)
Taxation paid 4 (XXX)
Cash flows from investing activities (XXXX)

Purchase of non-current assets 5 (XXX)
Proceeds from sale of non-current assets XXX
Investments matured/repaid XXX
Cash flows from financing activities XXXX

Proceeds from issue of shares XXX
Proceeds from long-term borrowings XXX
Payment of long-term loans (XXX)
Net change in cash and cash equivalents 2 ( XXXX)
Cash and cash equivalents at beginning of year 2 XXX
Cash and cash equivalents at end of year 2 XXX
CHECK EXAM TIPS AT THE END OF THIS SECTION

173
EXAMPLE : Adapted from the Eastern Cape prelim 2020 Paper 1 - Q.4
Required: Complete the note for CASH GENERATED FROM OPERATIONS.
INFORMATION:
A. Extract from the Income Statement on 29 February 2023.

Cost of Sales R 5 468 750
Interest Expense 452 000
Income tax 420 000
B. Extract from Balance Sheet on 29 February 2023

2023 2022
Fixed assets 12 750 000 13 995 000
Trade and other receivables (Note 1) 305 800 401 500
Shareholders’ Equity 11 161 200 13 168 000
Retained income 1 700 700 1 239 200
Loan: J.J. Bank 3 850 000 3 080 000
Trade and other payables (Note 2) 640 800 1 173 000
Note 1:
Trade and other Receivables 2023 2022
Debtors control 292 400 332 200
SARS (Income Tax) - 69 300
Accrued Income 13 400 -
305 800 401 500
Note 2:
Creditors control 621 000 963 000
SARS (Income Tax) 19 800
Shareholders for dividends ? 210 000
640 800 1 173 000

174
WORKED EXAMPLE
Note 1
Reconciliation between profit before taxation and cash
Net profit before tax is:
generated from operations
Profit after tax + income tax
Profit before taxation 1 400 000 R980 000 + (420 000) = 1 400 000

Interest paid 452 000 ADD depreciation
It does not affect Cash flow
Operating profit before changes in working
2 242 000
capital ADD Interest expense it is separately
disclosed in the cash flow statement.
Changes in working capital
(1 230 700)
(26 400 – 915 100 – 342 000 )
If debtors reduce there’s
(Increase) / decrease in inventories (915 100)
inflow of cash
(Increase) / decrease in Debtors 292 400 +13 400 = 305 800
(332 200 – 305 800) 26 400
Increase / (decrease) creditors Outflow of cash if creditors
(342 000)
(621 000 - 963 000) decrease
Cash generated from operations 1 011 300

175
CASH FLOW STATEMENT (ADAPTED FROM GAUTENG PRELIM 2018)

ZUKA LIMITED
Zuka Ltd. provided you with extracts from their financial records for the financial year
ended 28 February 2023.
REQUIRED:
Complete the Cash Flow Statement for the year ended 28 February 2023. (18)
INFORMATION:
A.Extract from the Income Statement on 28 February 2023.

Depreciation R 701 760
Interest expense 272 000
Net profit before tax 2 500 000
Income tax 7500
B. Information extracted from the Balance Sheet:

28 Feb 2023 28 Feb 2022
Fixed/Tangible Assets 8 798 080 6 580 000
Financial Assets 800 000 1 100 000
Inventories 340 920 1 140 000
Trade and other receivables 452 000 680 000

Trade debtors 406 000 680 000
SARS: Income tax 46 000 -
Cash and cash equivalent 9 000 8 520

Ordinary Share Capital 5 240 000 4 200 000
Retained Income 1 779 320 1 016 320
Non-current Liabilities 2 000 000 3 000 000

Current Liabilities 1 380 680 1 292 200
Trade creditors 841 680 340 000
SARS: Income tax - 120 000

176
C SHARE CAPITAL
 700 000 shares were in issue on 1 March 2022.
 On 31 March 2022, 60 000 shares were repurchased from
the estate of a deceased shareholder at R9, 00 each.
 On 1 August 2022, 200 000 shares were issued at R7, 00 each.
D FIXED ASSETS
 Unused vehicle was sold at book (carrying) value at the
end of the year for R110 160
 During the year, the business purchased a new property.
WORKED EXAMPLE
CASH FLOW FROM OPERATING ACTIVITIES 3 324 520
Interest paid (272 000)
Dividends paid (536 000)

Taxation paid (916 000)
(120 000+ 750 000 + 46 000) or – 120 000 – 750 000 – 46 000
CASH FLOW FROM (2 619 840)

INVESTING ACTIVITIES
FIXED ASSET ACCOUNT @CV
Purchase of fixed assets (3 030 000) b/d 6 580 000 Disposal 110 160
Bank 3 030 000 Depreciation 701 760
Proceeds from sale of assets 110 160 c/d 8 798 080
Investment matured 300 000 9 610 000 9 610 000
1 100 000 – 800 000 b/d 8 798 080

177
CASH FLOW FROM FINANCING ACTIVITIES (140 000)

The shares repurchased
Proceeds from sale of shares 1 400 000 were bought back at R9
per share
Share buy-back (540 000) 60 000 x R9 = R540 000
Repayment on loan 3 000 000 – 2 000 000 (1 000 000)
Net change in cash and cash equivalents 564 680
Cash and cash equivalents – beginning of year

(555 680)
(564 200 – 8 520)
Cash and cash equivalents – end of the year 9 000
Bank overdraft - 564 200 + 8 520 cash and cash

equivalents = - 555 680
Cash flow from operating activities 3 324 520

Cash flow from investing activities (2 619 840)
Cash flow from financing activities (140 000)
564 680

178
ACTIVITY 1: CASH FLOW STATEMENT, NOTES AND INTERPRETATION

(45 marks; 40 minutes) FREESTATE 2020
1.1 CONCEPTS
REQUIRED:
Choose a term in COLUMN B that matches the description in COLUMN A. Write the letter (A–E)
next to the question numbers (1.1.1–1.1.5) in the ANSWER BOOK.
COLUMN A (Term) COLUMN B (Description)

1.1.1 The extent to which a company is A Solvency
financed by loan
1.1.2 An increase in creditors indicates an … B Liquidity
of cash
1.1.3 A decrease in creditors indicates an … of C Inflow
cash
1.1.4 Ability of the business to pay of all its D Gearing
debts
1.1.5 Ability of the business to pay off its short- E Outflow
term debts (5)
1.2 BOOTS & ALL LTD
You are provided with information relating to Boots & All Ltd for the financial year ended 30
September 2020.
REQUIRED:
1.2.1 Calculate the amount for taxation paid for the Cash Flow Statement. (4)
1.2.2 Complete the following from the Cash Flow Statement:

 Cash flow from investing activities. (9)
1.2.3 Calculate the change in cash and cash equivalents according to the Cash Flow
Statement. (4)

179
INFORMATION
A. SHARE CAPITAL
 R1 120 000 was received for the issue of shares on 1 July 2019.
 150 000 ordinary shares were repurchased on 31 December 2019 from a shareholder.
The shares were repurchased at a price of R2, 60.
B. Extract from Income Statement for the year ended 30 June 2020:
R
Income tax 290 400
C. Extract from Balance Sheet on 30 June 2020:
2020 2019
R R
Fixed assets (Carrying value) 5 720 000 4 600 000
Fixed deposit 700 000 350 000
Current assets 571 000 846 000
Trade and other receivables 198 000 * 210 000
Cash and cash equivalents 28 000 316 000
Non-current liabilities 350 000 150 000
Current liabilities 1 076 000 752 000
Trade and other payables ** 468 000 447 000
Bank overdraft 188 000 -
* Trade and other receivables on 30 June 2019 include a balance of

R25 000 owed by SARS.
** Trade and other payables on 30 June 2020 include a balance of
R54 000 owed to SARS.
D. Dividends
A total amount of R685 000 was paid for dividends for the financial year.
E. Fixed assets
 Land and buildings to the value of R1 800 000 was purchased during the year.
 Some fixed assets were sold at carrying value during the financial year.

180
ACTIVITY 1
1.1
1.1.1 1.1.4
1.1.2 1.1.5
1.1.3
5
1.2.1
Calculate the amount for taxation paid in the Cash Flow Statement.
1.2.2 Cash flow from investing activities.
1.2.3 Calculate the change in cash and cash equivalents

according to the Cash Flow Statement.

181
ACTIVITY 2 CASH FLOW STATEMENT (50 marks; 40 minutes)

2020 GP
2.1 Indicate whether the following statements are TRUE or FALSE. Write only ‘true’ or ‘false’
next to the question numbers (2.1.1 to 2.1.3) in the ANSWER BOOK. (3)
2.1.1 If the loan amount increases from the previous year it is an outflow of cash
2.1.2 Repurchase of shares amount decreases Cash Flow from financing activities.
2.1.3 Increase in debtors does not form part of changes in working capital.
2.2 UHLAZO LTD

The information relates to UHLAZO Ltd for financial year ended on 30 April 2020.
REQUIRED:
2.2.1 Prepare the following notes to the Balance Sheet:

 Ordinary Share Capital (11)
 Retained Income (13)
2.2.2 Calculate the following figures for the Cash Flow Statement on 30 April 2020:
 Taxation paid (4)
 Dividends paid (3)
 Loan repayment amount (2)
 Net change in cash and cash equivalents (5)
2.2.3 Prepare the CASH FLOW OF INVESTING ACTIVITIES section of the Cash Flow
Statement on 30 April 2020.
(9)

182
INFORMATION:
A. Information extracted from the Income Statement on 30 April 2020:
Interest expenses 45 900

Depreciation 26 900
Income tax (30% of Net Profit) 360 000
B. Information extracted from the Balance Sheet on 30 April:
30 April 2020 30 April 2019

Fixed assets (carrying value) 5 890 000 5 328 000
Fixed Deposit 210 000 ?
Shareholders’ equity 2 739 000 2 106 000
Retained income 924 000 606 000
Loan: Ivory Bank 135 000 246 000
Bank overdraft 0 35 600
SARS: Income tax 12 800 (Cr) 22 600 (Cr)
C. Share capital information:
Authorized share capital of 1 200 000 ordinary shares
Issued share capital
 On 1 May 2019, there were 480 000 shares in issue.

 On 30 July 2019, additional shares were issued.
 On 31 January 2020, 50 000 shares were repurchased and an amount of R220 000
was paid.
D. An interim dividend of 21 cents per share was paid on 31 December 2019. The new
shareholders were entitled to the interim dividends.
A final dividend of 62 cents per share was declared on 30 April 2020. Only the
shareholders registered on 30 April 2020 qualified for the final dividend.
E. Net asset value per share after the above has been taken into account is 498 cents.
F. Additional fixed assets were purchased during the financial year.

An old vehicle was sold at book value during the financial year.
G. One third of the fixed deposit matured on the 31 December 2019.
50

183
ACTIVITY 2: CASH FLOW STATEMENT (50 marks; 40 minutes)
2.1
2.1.1
2.1.2
3
2.1.3
2.2.1 Ordinary Share Capital Note
Authorised
1 200 000 ordinary shares
Issued
Shares in issue on 1 May 2019
Shares in issue on 30 April 2020
11
Retained Income Note
Balance at beginning of financial year
Dividends
Balance at end of financial year
13

184
2.2.2 Calculate the income tax paid.
Calculate the dividends paid.
Calculate the loan repayment amount.
Calculate the net change in cash and cash equivalents.
Net change in cash and cash equivalents
Opening bank balance
Closing bank balance 5

185
2.2.3 Cash effects on investing activities
Proceeds from asset sold 22 000
Marks
50

186
Classification Financial Indicators Formulae Answer Integration

Gross profit on sales Gross profit x 100 %
Sales 1
Income Statement
Profitability Gross profit on cost of sales Gross profit x 100 %
Did the Cost of sales 1
business Operating profit on sales Operating profit x 100 %
operate well Sales 1
and make a Operating expenses on sales Operating expenses x 100 %
profit? Sales 1
Net profit on sales Net profit x 100 %
Sales 1
Solvency Solvency ratio Total assets : Total liabilities Ratio B.Sheet

𝑥:1
Current ratio Current assets : Current liabilities Ratio B.Sheet

𝑥:1
Acid test ratio Current assets - inventories : Current liabilities Ratio B.Sheet
Liquidity 𝑥:1
Can the Stock turnover rate Cost of sales Times IS/BS
business pay Average Stock
its short term Stock holding period Average Stock x 365 Days / IS/BS
debts? Cost of sales 1 months
Average debtors collection Average Debtors x 365 Days / IS/BS
period Credit Sales 1 months
Average creditors payment Average Creditors x 365 Days / IS/BS
period Credit Purchases 1 months
Return on Shareholders’ Net profit after tax x 100 % IS/BS

Return Equity (ROSHE) Shareholders’ Equity 1
What was Return on Capital Employed Net profit before tax + interest on loan x100 % IS/BS
the return on (ROTCE) Average Capital Employed 1
my Do I cover the financial cost of
investment? the loan? (interest % of loan) Capital Employed is:
Aver Shareholders Equity + Average Loans
Earnings Per Share
What is my possible return on Net profit after tax x 100 Cents IS
my investment? Number of issued shares issued 1
Return Dividends Per Share Interim +Final dividends x 100 Cents Note 8,RI
What was Number of issued shares issued 1
the return on Net Asset value per share Shareholders’ Equity x 100 Cents B/S, Note 7
my What is the real value of my Number of issued shares issued 1 and 8
investment? shares
Dividend pay-out rate Dividends for the year x100 % I/S, Note 7
Dividends per share
Net profit after tax 1 and 8
Earnings per share
Financial Debt -equity ratio (gearing) Non-current liabilities : Shareholders’ equity Ratio BS
risk/Gearing Is the business financed by own 𝑥:1
money or borrowed money?
B.Sheet/BS =Balance sheet I/S =Income statement RI=Retained Income

187
ACTIVITY 3: FIXED ASSETS, CASH FLOW STATEMENT AND FINANCIAL INDICATORS

(45 marks; 35 minutes)
ASC JUNE 2022 (Adapted)
3.1 Choose the correct word(s) from those given in brackets. Write only the word(s)
next to the question numbers (3.1.1 to 3.1.3) in the ANSWER BOOK.
3.1.1 Unused consumable stores at the end of the financial year are classified
as a (current asset/financial asset).
3.1.2 Interest on loans is regarded as a/an (operating activity/financing activity).
3.1.3 The (directors' report/audit report) reflects a verbal explanation of the

company's activities and future plans. (3 x 1) (3)
3.2 JANTJES LIMITED
The information relates to the financial year ended 28 February 2022.
REQUIRED:
3.2.1 Refer to Information A.

Calculate the missing figures indicated by (i) to (iii) on the Fixed Asset
Note. (11)
3.2.2 Calculate the following amounts for the 2022 Cash Flow Statement:
 Fixed assets purchased (6)
 Decrease in loan (3)
3.2.3 Complete the NET CHANGE IN CASH AND CASH EQUIVALENTS

section of the Cash Flow Statement. (4)
3.2.4 Calculate the following financial indicators on 28 February 2022:
 % mark-up achieved (3)
 Acid-test ratio (4)
 Net asset value per share (NAV) (3)
 % return on average shareholders' equity (ROSHE) (4)

188
INFORMATION:
A. Fixed Asset Note to the Statement of Financial Position (Balance Sheet):

BUILDINGS VEHICLES EQUIPMENT
FIXED ASSETS
R R R
Carrying value (1 Mar. 2021) (i) 28 000
Cost 6 450 000 2 350 000 640 000
Accumulated depreciation 0 (840 000) (612 000)
Movements
Additions ? 0 195 000
Disposals 0 (iii) 0
Depreciation 0 (298 000) (ii)
Carrying value (28 Feb. 2022)
Cost
 Extensions to the buildings were completed during the financial year.

 Additional equipment was purchased on 1 October 2021.
 Equipment is depreciated at 10% on cost.
 An old vehicle was sold at carrying value on 30 November 2021.
The cost price of this vehicle was R252 000 and its accumulated
depreciation on 1 March 2021 was R172 000.
 Vehicles are depreciated at 20% p.a. on carrying value.
B. Extract from the Statement of Comprehensive Income for the year ended
28 February 2022:
Sales R12 600 000
Income tax 295 800
C. Extract from the Statement of Financial Position (Balance Sheet):

28 Feb. 2022 28 Feb. 2021
R R
Shareholders' equity 8 840 700 7 600 000

189
D. Share capital:
 There were 1 000 000 shares in issue on 1 March 2021.
 200 000 shares were issued on 1 May 2021.
 50 000 shares were repurchased on 1 December 2021.
E. Dividends:
 An interim dividend was paid on 31 August 2021.
 A final dividend was declared on 28 February 2022.
 Total dividends for the financial year amounted to R552 500.
F. Loan: CBC Bank

The loan statement received on 28 February 2022 reflected:
 Repayments: R38 000 per month (including interest)
 Total interest capitalised: R216 000
45

190
ACTIVITY 3
3.1 3.1.1
3.1.2
3.1.3 3
3.2 JANTJES LIMITED
3.2.1 WORKINGS ANSWER

(i) Carrying value of vehicles on 1 March 2021
(ii) Total depreciation on equipment
(iii) Carrying value of the vehicle sold
11
3.2.2 Calculate the following amounts for the 2022 Cash Flow Statement:
WORKINGS ANSWER
Fixed assets purchased
6
Dividends paid
4
Decrease in loan

191
3.2.3 NET CHANGE IN CASH AND CASH EQUIVALENTS

WORKINGS ANSWER
% mark-up achieved
3
Acid-test ratio
4
Net asset value per share (NAV)
3
% return on average shareholders' equity (ROSHE)
TOTAL MARKS
45

192
Tips on how to calculate the payments disclosed in the Cash flow

Statement
Dividends paid Dividends OWING the previous year plus INTERIM dividends
Repurchase of Shares Record the ACTUAL AMOUNT PAID for shares that are equivalent to
the average value of shares plus the above average value recorded in
the Retained Income note.
Tangible Assets bought

 Use the Ledger ( Asset ) account to determine the asset bought
 Note 3 on Tangible Assets –BOTTOM-UP CALCULATIONS are
reliable for accurate figures and signs.
Cash and Cash If the business has the Bank overdraft and the favourable balance
Equivalents under assets (Petty cash, Cash float etc.) at the beginning of the year,
determine the difference of the two opening balances BEFORE the
calculation of the Net change in cash and cash equivalents.
Repurchase of Shares
 Value of shares is recorded in the Ordinary Share Capital Note at average price
 Above Average Value is recorded in the Retained Income Note
 Average price and above average price are recorded in the Cash flow Statement under
Financing Activities

193
SESSION 8: CASH FLOW STATEMENT
CASH FLOW STATEMENT AND INTERPRETATION (45 marks)

2022 Free State Prelim
1.1 Give ONE word/term for each of the following descriptions by choosing a word/term from
the list below. Write only the word/term next to the question numbers (1.1.1 to 1.1.4) in the
ANSWER BOOK.
directors' report; Statement of Financial Position; shareholder; director.

internal auditor; Cash Flow Statement; independent auditor
1.1.1 A person employed by a company – to check and advise management on the

financial control systems.
1.1.2 This person appointed by the shareholders; expresses an unbiased opinion
on the financial statements of a company.
1.1.3 A person appointed to manage a company and make decisions to ensure its
smooth running.
1.1.4 This financial statement provides users of financial statements with
information of all the financial resources during the accounting period. (4)
1.2 BOOTS & ALL LTD
You are provided with information relating to Boots & All Ltd for the financial year
ended 30 June 2022.
REQUIRED:
1.2.1 Calculate the following for the financial year ended
30 June 2022:
(i) The mark-up % achieved for the year. (4)
(ii) % Return on shareholders' equity. (5)
(iii) The net asset value per share. (3)
1.2.2 Calculate the missing amounts in the Cash Flow Statement represented by
(17)
letters (a) to (d). Indicate whether the amount is an inflow or outflow.
1.2.3 Using Information B and E, calculate the following:

(i) The total dividends for the financial year. Note that the interim and final (4)
dividends were determined on different numbers of shares.
(ii) The balance of the loan on 30 June 2022. (2)
1.2.4 The Cash Flow Statement highlights some crucial decisions taken by the
directors over the past year:
 Explain TWO of these crucial decisions. Quote figures to support your

answer.
 Explain how these decisions would benefit the company. (6)

194
INFORMATION:
A. Extract from Income Statement for the financial year ended

30 June 2022:
R
Sales 9 000 000
Interest on loan 185 000
Net profit before income tax 1 330 000
Net profit after income tax 931 000
B. Extract from Balance Sheet on 30 June 2022:

2022 2021
R R
Ordinary shareholders' equity 7 500 000 6 450 000
Mortgage loan (Puma Bank 13% p.a.) ? 950 000
SARS (income tax) Cr 32 000 Dr 18 000
Inventory 670 000 580 000
C. Additional information:
(i) Ordinary share capital:

 1 500 000 shares have been authorised.
 650 000 shares were issued at the end of the previous financial year, 30
June 2021.
 100 000 ordinary shares were issued on 1 May 2022.
 50 000 ordinary shares were repurchased from dissatisfied
shareholders. They were repurchased at R11,75 per share; the average
price was R8,50 per share.
(ii) Fixed assets:

 Equipment was bought during the year, R3 357 000.
 Some fixed assets were sold at carrying value during the financial year.

195
D. Financial indicators for the past two years

2022 2021
R R
Current ratio 1,5 : 1 1,0 : 1
Stock turnover rate 9 times 7 times
Debt-equity ratio 0,24 : 1 0,15 : 1
% Return on average shareholders' equity ? 12%
% Return on total capital employed 17,8% 15%
Dividends per share 34 cents 20 cents
Earnings per share 133 cents 120 cents
Net asset value per share ? 992 cents
Market price on JSE 1 050 cents 980 cents
E. Cash Flow Statement for the year ended 30 June 2022

Cash flow from operating activities
Cash generated by operations 1 800 000
Income tax paid (a)
Cash flow from investing activities

Purchases of fixed assets 3 357 000
Proceeds on sale of fixed assets (b)
Increase in fixed deposit (60 000)
Cash flow from financing activities

Proceeds on shares issued (c)
Buy back of shares (d)
Increase in mortgage loan 850 000

Cash and cash equivalents at the beginning 190 000
Cash and cash equivalents at the end (547 200)

196
ACTIVITY 1: CASHFLOW BOOTS & ALL LTD

2022 FREE STATE PRELIM
1.1
1.1.1 2.1.3
1.1.2 2.1.4
4
1.2.1
(i) Calculate the mark-up % for the year
(ii) Calculate the % return on shareholders' equity
(iii) Calculate the net asset value per share

197
1.2.2 Calculate the missing amounts in the Cash Flow Statement

represented by letters (a) to (d). Indicate whether the amount is an
inflow or outflow.
No Workings Answer
(a)
5
(b)
5
(c)
4
(d)
1.2.3 (i) The total dividends for the financial year.
(ii) The balance of the loan on 30 June 2022.

198
1.2.4 The Cash Flow Statement highlights some crucial decisions taken by
the directors. Explain TWO of these crucial decisions. Quote figures
to support your answer.
Explain how these decisions would benefit the company.
Decisions (with figures) Explanation of benefits
45

199
ACTIVITY 2: CASH FLOW STATEMENT (45 marks)

2022 GAUTENG PRELIM
SEVERANCE LIMITED
The information below was extracted from the records of Severance Limited. The financial
year ends on 28 February 2022.
REQUIRED:
2.1 Draw up the following notes to the Balance Sheet:

2.1.1 Ordinary Shareholders’ Equity (7)
2.1.2 Retained Income (9)
2.2 Fill in the missing amounts on the Cash Flow Statement provided. Show workings and
indicate outflows in brackets. (18)
2.3 Calculate the following financial indicators on 28 February 2022:
2.3.1 % Operating expenses on sales (3)

2.3.2 Current ratio (4)
2.3.3 Return on shareholders’ equity (4)
INFORMATION:
A Extract from the Statement of Comprehensive Income (Income

Statement) on 28 February 2022:
Sales R10 650 000

Operating expenses 1 250 000
Operating profit 3 460 000
Interest expenses 219 700
Income tax (28%) 2 072 000
B Trade and other receivables and payables
28 February 28 February
2022 2021
(R) (R)
Trade Debtors 1 279 400 342 000
Trade Creditors 770 000 338 000
Accrued Income 48 000 81 000
Accrued Expense 9 000 8 700
(Advertising)
Income received in 5 400 6 200
advance
SARS (Income Tax) (DR) (CR)
30 000 160 000
Bank overdraft 0 147 500

200
C Extract from the Statement of Financial Position (Balance Sheet)
28 February 2022 28 February 2021

(R) (R)
Financial assets 0 1 000 000
Current assets 2 021 280 721 850
Shareholders' equity ?
Retained income ? 7 000 000
Loan: EYE Bank 1 960 000 2 080 000
Current liabilities ?
D FIXED ASSETS
 Fixed assets were purchased during the financial year.
 Old equipment was sold at carrying value, R67 590 on the 1 July
2021.
E SHARE CAPITAL AND DIVIDENDS

 On 1 May 2021, the directors issued a further 2 000 000 ordinary
 An interim dividend of 22 cents was paid on 15 October 2021.
 On 30 November 2021, 500 000 ordinary shares were repurchased
from a disgruntled shareholder at 25 cents above the average price.
 A final dividend of 12 cents per share was declared by the directors
at the end of the financial year. Only registered shareholders are
entitled to the final dividend.
45

201
ACTIVITY 2 : FINANCIAL INDICATORS AND CASH FLOW STATEMENT

2022 GAUTENG PRELIM
SEVERANCE LTD.-
7 500 000 Ordinary shares in issue at the end of the year 26 250 000
Balance at the beginning of the year 7 000 000

202
2.2 CASH FLOW STATEMENT
SEVERANCE LTD
CASH FLOW STATEMENT FOR YEAR ENDED 28 FEBRUARY 2022
CASH EFFECTS OF OPERATING ACTIVITIES

CASH EFFECTS OF INVESTING ACTIVITIES

Fixed assets purchased (6 956 560)
CASH EFFECTS OF FINANCING ACTIVITIES
Proceeds of shares issued

Repurchase of shares
NET CHANGE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents (opening balance)
Cash and cash equivalents (closing balance) 18

203
2.3 CALCULATE THE FOLLOWING FINANCIAL INDICATORS
2.3.1 % Operating expenses on sales

Workings Answer
2.3.2 Current ratio

Workings Answer
2.3.3 Return on shareholders’ equity

Workings Answer
45

204
FINANCIAL STATEMENTS, CASH FLOW STATEMENT AND FINANCIAL INDICATORS

(40 marks)
2022 KZN Prelim
You are provided with information relating to Ladysmith Limited, for the financial year ended 28
February 2022.
LADYSMITH LIMITED
REQUIRED:
3.1 Prepare the following notes to the Financial Statements on 28 February 2022:
3.1.1 Ordinary share capital (5)
3.1.2 Retained Income (9)
3.2 Complete the Cash Flow Statement for the year ended 28 February 2022. Certain figures
are provided in the ANSWER BOOK. (18)
3.3 Calculate the following financial indicators on 28 February 2022:
3.3.1 % Operating expenses on sales (2)
3.3.2 Net asset value per share (NAV) (3)
3.3.3 Debt-equity ratio (3)
INFORMATION:
A Extract from the Statement of Comprehensive Income (Income Statement) for the year
ended 28 February 2022
Sales R2 660 000

Cost of Sales R1 330 000
Operating profit 691 600
Income tax 224 100

205
B Extract from the Statement of Financial Position (Balance Sheet) on 28 February:
2022 2021
(R) (R)
Ordinary shareholders’ equity 2 870 900 ?
Retained Income 160 900 ?
Non-current liabilities (15% p.a.) 892 000 1 180 000
Investment in fixed deposit ? 330 000
Cash and cash equivalent 321 500 5 000
Bank overdraft - 92 000
Fixed/Tangible assets carrying
3 372 300 2 937 600
value
SARS (Income Tax) 45 000 Dr 17 500 Cr
C Share capital
The business is registered with an authorised share capital of 800 000 ordinary shares.
The issued share capital consisted of 480 000 ordinary

1 March 2021
shares.
1 March 2021 200 000 ordinary shares were issued.
2 500 ordinary shares were repurchased from a retired
1 January 2022 shareholder at a total cost of R12 500. This transaction was
recorded
D Dividends
The 2022 financial records reflected R348 500 paid for dividends.
E Fixed assets
 Part of the building was sold at carrying value during the financial year, R583 000.
 Equipment was purchased during the financial year.
40.

206
ACTIVITY 3 2022 KZN PRELIM

Authorised Shares:
800 000 shares
Issued Shares:
480 000 Shares issued on 1 March 2021 1 770 000
Ordinary shares in issue at the end 2 710 000 5
Balance at the beginning of the year
Balance at the end 160 900 9

207
3.2 CASH FLOW STATEMENT FOR YEAR ENDED 28 FEBRUARY 2022
CASH EFFECTS OF OPERATING ACTIVITIES

CASH EFFECTS OF INVESTING ACTIVITIES (417 000)
Fixed assets purchased
Proceeds from sale of fixed assets 583 000
CASH EFFECTS OF FINANCING ACTIVITIES
Proceeds of shares issued
Repurchase of shares (12 500)
Cash and cash equivalents (opening balance)
Cash and cash equivalents (closing balance) 321 500 18

208
3.3 CALCULATE THE FOLLOWING FINANCIAL INDICATORS
3.3.1 % Operating expenses on sales

Workings Answer
3.3.2 Net asset value per share (NAV)

Workings Answer
3.3.3 Debt-equity ratio

Workings Answer
40

209
QUESTION 4: CASH FLOW STATEMENT, FINANCIAL INDICATORS

(40 marks, 35 minutes)
2020 EC TRIAL EXAM
4.1 Indicate whether the following statements are TRUE or FALSE.

Write only ‘true’ or ‘false’ next the question numbers (4.1.1 to 4.1.3) in the ANSWER
BOOK.
4.1.1 % operating expenses on sales is a financial indicator for control over sales.
4.1.2 Operating activities refer to all activities in a business that relates to

running and administering the business in earning a profit.
4.1.3 Shareholders for dividends refers to dividends paid to shareholders of the

company at the end of a financial year. (3)
4.2 WILD COST LTD

The information provided is for the year ended on 29 February 2020.
REQUIRED:
4.2.1 Complete the note for CASH GENERATED FROM OPERATIONS. (9)
4.2.2 Prepare the CASH EFFECTS OF FINANCING ACTIVITIES section of the

Cash Flow Statement. (7)
4.2.3 Calculate the following amounts for the Cash Flow Statement:
 Income tax paid (4)
 Proceeds on fixed assets sold. (4)

 % Return on average Shareholders’ Equity (4)
 Net asset value per share (2)
INFORMATION:
A. Extract from the Income Statement on 29 February 2020.

Cost of Sales R 5 468 750
Interest Expense 452 000
Income tax 420 000
B. Extract from Balance Sheet on 29 February 2020

2020 2019
Fixed assets 12 750 000 13 995 000
Trade and other receivables (Note 1) 305 800 401 500
Loan: J.J. Bank 3 850 000 3 080 000
Trade and other payables (Note 2) 640 800 1 173 000

210
Note 1:
Trade and other Receivables 2020 2019
Debtors control 292 400 332 200
SARS (Income Tax) - 69 300
Accrued Income 13 400 -
305 800 401 500
Note 2:
Creditors control 621 000 963 000
SARS (Income Tax) 19 800
640 800 1 173 000
D. Fixed assets:
Fixed assets were sold at carrying value.
There were no additional fixed assets purchased.
E. Share capital and dividends:

 Authorised share capital: 2 500 000 ordinary shares.
 1 March 2019: 60% of the shares were in issue.
 1 June 2019: R397 500 were received for 50 000 additional
shares issued.
 30 August 2019: 360 000 shares were repurchased at R162 000 above
the average share price of R7, 95.
 Interim dividends were paid during the year.
 On 29 February 2020 a final dividend of R130 900 was declared on 1
190 000 shares.
40

211
QUESTION 4: CASH FLOW STATEMENT, FINANCIAL INDICATORS
4.1 4.1.1
4.1.2
4.1.3
3
4.2.1 CASH GENERATED FROM OPERATIONS
Change in inventory (915 100)
Change in receivables
Change in payables
Cash generated from operations 9
4.2.2 CASH EFFECT FROM FINANCING ACTIVITIES

212
4.2.3 Calculate the following amounts for the Cash Flow Statement.
 Income tax paid

Workings Answer
 Dividends paid
Workings Answer
 Proceeds on fixed assets sold

Workings Answer

213
 Return on average Shareholders’ Equity

Workings Answer
 Net asset value per share

Workings Answer
TOTAL MARKS
40

214
EASY MARKS ON CASH FLOW STATEMENT
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2021
CASH FLOW FROM OPERATING ACTIVITIES 1 180 000

Interest paid
Taxation paid (429 500) *
Dividends paid (277 300) *
CASH FLOW FROM INVESTING ACTIVITIES (1 320 000)
CASH FLOW FROM FINANCING ACTIVITIES 409 000*

Shares issued see 2.1 1 250 000*
Shares repurchased 36 000 one mark two marks
255 000 
+ (30 000
x 1,20) OR 30 000 x R9,70 (291 000)*
see 2.1 (if R1,20 above ASP)
Loan repaid 8 (550 000) *
NET CHANGE IN CASH AND CASH EQUIVALENTS 269 000*

from top (OA + IA + FA)
(75 200)*
CASH AND CASH EQUIVALENTS AT BEGINNING
CASH AND CASH EQUIVALENTS AT END 4 193 800*
+- 10 method marks
Always show a
breakdown of your
calculations to earn
part marks and
method marks

215
Most recent questions

test calculations and
PLUS financial
NOTES TO CASH FLOW STATEMENT indicators
Calculate: Income tax paid
Workings Answer
477 900 – 63 000 – 18 000
    one part correct
R396 900
– 477 900 + 63 000 + 18 000 mark one line / accept brackets
one mark one mark one mark 4
Calculate: Dividends paid
Workings Answer
195 000 + 420 000 1200 000 x 0,35
   one part correct
OR: 195 000 + 792 000 – 372 000 mark one line / accept brackets R615 000
one mark one mark one mark 4
Calculate: Proceeds of shares issued
Workings Answer
one mark two marks
300 000 x R6,20
9 300 000 – 1 860 000 – 7 724 000  one part correct
   R284 000
1 860 000 9 300 000
7 724 000 284 000
6
CALCULATIONS FOR FINANCIAL INDICATORS

Debt-equity ratio
Workings Answer
900 000 : 8 980 300 0,1 : 1  3
  one part correct;
Earnings per share (EPS)

Workings Answer
968 800  x 100* one part correct
1 000 000  96,9 cents 
(800 000 + 200 000) 4
Dividend pay-out rate
Workings Answer
(28 + 12) (280 000 + 120 000)
40 cents  x 100* OR 400 000 x 100 41,3% 
one part correct
96,9 cents see EPS above 968 800
Or 97 cents 3
% return on average equity (ROSHE)
Workings Answer
968 800  x 100*
½ (8 980 300  + 7 411 500 ) 11,8% 
4
4 – 5 method marks depending on indicators assessed.

2023 Accounting Learners Notes Session 1-8

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SECONDARY SCHOOL IMPROVEMENT PROGRAMME

(Page 1 of 215 pages)

SESSION TOPIC PAGE

Companies Financial Statements

Companies Financial Statements

Companies Financial Statements

Companies Financial Statements

Companies Financial Statements

Companies Financial Statements

Companies Financial Statements

© Gauteng Department of Education

GRADE 12 CONCEPTS AND DEFINITION ON COMPANIES LEDGER ACCOUNTS

Grade Grade 10 Grade 11 Grade 12

SOLE TRADER PARTNERSHIP SHAREHOLDERS – PUBLIC LIMITED

© Gauteng Department of Education

Grade Grade 10 Grade 11 Grade 12

Partner KAT; has contributed

To calculate the profit of the company,

© Gauteng Department of Education

Grade Grade 10 Grade 11 Grade 12

Net Profit allocation:

© Gauteng Department of Education

Grade Grade 10 Grade 11 Grade 12

© Gauteng Department of Education

Grade 12: Public Limited Companies = Ordinary share capital

© Gauteng Department of Education

© Gauteng Department of Education

GENERAL LEDGER BALANCE SHEET

Dr Income tax (expense) N Cr INCOME STATEMENT

© Gauteng Department of Education

GENERAL LEDGER BALANCE SHEET

Net profit before tax 170 000

© Gauteng Department of Education

GENERAL LEDGER BALANCE SHEET

© Gauteng Department of Education

SESSION 1: COMPANIES LEDGER ACCOUNTS AND NOTES TO FINANCIAL

BUY BACK OF SHARES

COMPANY ACCOUNTS AND BUY BACK OF SHARES

The current financial year is from 1 March 2022 to 28 February 2023

B. Complete Note 8 of the Financial Statements: Retained Income

© Gauteng Department of Education

Ordinary share Capital R18 000 000

Retained Income R1 800 000

SARS(income tax) (credit) R 500 000

Shareholders for dividends R640 000

TRANSACTIONS DURING THE FINANCIAL YEAR:

© Gauteng Department of Education

A NOTES TO THE BALANCE SHEET

18 000 000+7 000 000

C GENERAL LEDGER OF KALEL COMPANY LIMITED

1 380 000 1 380 000

© Gauteng Department of Education

D GENERAL LEDGER OF KALEL COMPANY LIMITED

[4 000 000 + 1 000 000]

© Gauteng Department of Education

ACTIVITY 1:COMPANY LEDGER ACCOUNTS AND BUY BACK OF SHARES

Ordinary share Capital R15 000 000

Retained Income R1 200 000

SARS(income tax) (credit) R 400 000

Shareholders for dividends R340 000

Extracts of transactions during the financial year:

© Gauteng Department of Education

 Income tax for the year R585 000

© Gauteng Department of Education