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PAST PAPER
 NATIONAL
SENIOR CERTIFICATE

GRADE 12

SEPTEMBER 2020

ACCOUNTING P1
FINANCIAL REPORTING AND EVALUATION
MARKING GUIDELINE
MARKS: 150

MARKING PRINCIPLES:
1. Unless otherwise indicated in the marking guideline, penalties for foreign items are applied only if the
candidate is not losing marks elsewhere in the question for that item (no penalty for misplaced item).
No double penalty applied.
2. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate is earning
marks on the figures for that item.
3. Full marks for correct answer. If the answer is incorrect, mark the workings provided.
4. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that
figure (not the method mark for the answer). Note: If figures are stipulated in marking guideline for
components of workings, these do not carry the method mark for final answer as well.
5. Unless otherwise indicated, the positive or negative effect of any figure must be considered to award
the mark. If no + or – sign or bracket is provided, assume that the figure is positive.
6. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers.

7. Where penalties are applied, the marks for that section of the question cannot be a final negative.
8. Where method marks are awarded for operation, the marker must inspect the reasonableness of the
answer.
9. 'Operation' means 'check operation'. 'One part correct' means 'operation and one part correct'.
Note: Check operation must be +, -, x, ÷, or as per marking guideline.
10. In calculations, do not award marks for workings if numerator and denominator are swapped – this
also applies to ratios.
11. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect
at least in part. Indicate with a .
12. Be aware of candidates who provide valid alternatives beyond the marking guideline. Note that one
comment could contain different aspects.
13. Codes: f = foreign item; p = placement/presentation.

This marking guideline consists of 10 pages.

2 ACCOUNTING P1 (EC/SEPTEMBER 2020)

QUESTION 1: CORPORATE GOVERNANCE AND AUDIT REPORT

1.1
1.1.1 D

1.1.2 A

1.1.3 B

1.1.4 C
4

1.2 AUDIT REPORT

1.2.1 Where, why and when is this audit report expected to be presented?
Any one valid answer 

At the Annual General Meeting (AGM) 

Where On the Annual Report to shareholders
On financial publications and newspapers
On the internet
Any one valid answer 

Inform shareholders / potential investors about the

performance / progress of the company.
Why If there is any compliance with the IFRS.
Transparency
Public company financial statement needs to be published.
Auditors, appointed by shareholders, are answerable to them.

Any one valid answer 

When At the end of the financial period 

Upon completion of the independent audit process
On the date of the AGM and thereafter
3

1.2.2 Provide TWO points why the independent auditors make reference
to pages 12–30 of the Annual Report.
Any two valid points  

 The financial statements are contained in those pages of the Annual
Report; other reports are also included in the Annual Report, which
were not prepared or inspected by them.
 The auditors are responsible for a certain part of the report.
 Directors are responsible for parts of the report as prepared by them. 4

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(EC/SEPTEMBER 2020) ACCOUNTING P1 3

1.2.3 Explain TWO points on the impact of this report on the company.
Any two valid points  

 Prospective investors might no longer be interested to this company.

 Existing shareholders may want to sell their shares.
 It will ruin the reputation/image of the company.
 Will reduce the value of shares from the JSE. 4

TOTAL MARKS
15

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4 ACCOUNTING P1 (EC/SEPTEMBER 2020)

QUESTION 2: STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020.

Sales 6 720 000

Cost of sales Sales – GP (4 200 000) 
Gross profit GOI – RI or OOI 2 520 000 
Other operating Income 142 080
Rent income 153 120 - 11 040  142 080 *
Gross operating Income 2 662 080
Operating expenses (1 738 080) 6

384 000 + 158 400 

Directors fees 172 800 –14 400 2 marks 542 400 *
384 000 + 172 800 – 14 400 
384 000 + 172 800
Salaries and Wages 812 000– 556 800  + 9 720  264 920 *
Employers contribution 22 080  + 1 920  24 000 
Advertising 11 650  + 3 000  14 650 *
Audit fees 120 000
Depreciation 340 000
Sundry expenses 432 110 17

Operating profit GOI – OE 924 000 

Interest income Balancing Figure OPBIE – OP 21 000 
Operating profit before interest expense NPBT + IE 945 000 

Interest expense (36 000) 

100
Net profit before tax *(272 700 x ) 909 000 
30

Income tax (272 700)

Net profit after tax *NPBT – income tax 636 300  7

*OR Net profit before tax: (NPAT – 272 700) 1 mark

70
Net profit after tax: 272 700 x = 636 300 2 marks
30

TOTAL MARKS
30

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(EC/SEPTEMBER 2020) ACCOUNTING P1 5

QUESTION 3: STATEMENT OF FINANCIAL POSITION, SHARE CAPITAL NOTE

3.1 Share Capital

Authorised Share Capital: 3 000 000 ordinary shares

Issued Share capital:

Shares in issue at beginning of year

1 800 000 x R6,00 ** (as to be ASP ) 10 800 000 
Shares repurchased at ASP of
(120 000) R6  per share 7,20 / 1,2 (720 000) *
 Additional shares issued during the *
240 000  year at R6,60 per share 1 584 000
Shares in issue at the end of the
1 920 000  year Operation 11 664 000  9
**Must not accept if R7,20 or more *One part correct

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6 ACCOUNTING P1 (EC/SEPTEMBER 2020)

3.2 STATEMENT OF FINANCIAL POSITION ON 31 AUGUST 2020.

NON-CURRENT ASSETS 8 951 200 
Fixed assets 8 121 000 
Financial assets 830 200 

CURRENT ASSETS TA – NCA 5 312 800 

60 x 1 750
Inventories (2 340 000 + 105 000 ) 2 445 000 *

Trade and other receivables Balancing figure 2 000 000 

*
Cash and cash equivalents 864 800 + 3 000 867 800 

TOTAL ASSETS See TE+L 14 264 000  10

EQUITY AND LIABILITIES 

SHAREHOLDER EQUITY Operation 11 678 960 

Ordinary share capital See 3.1 11 664 000 

Retained income 14 960 

NON-CURRENT LIABILITIES 1 487 200 

(1 840 000+130 800-307 200) two marks
1 663 600  – 176 400  1 487 200 *
Loan: Tambo Bank 6

CURRENT LIABILITIES 1 097 840 

Trade and other payables 463 840 

Current Portion of Loan See loan above 176 400 

SARS (Income tax) Balancing figure 35 200 

See 3.1 *
Shareholders for Dividends 1 920 000 x 22c 422 400  21
TOTAL EQUITY AND LIABILITIES Operation 14 264 000 
*One part correct 5

TOTAL MARKS

30

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(EC/SEPTEMBER 2020) ACCOUNTING P1 7

QUESTION 4: CASH FLOW STATEMENT, FINANCIAL INDICATORS

4.1 4.1.1 False 

4.1.2 True 

4.1.3 False 
3

4.2.1 CASH GENERATED FROM OPERATIONS

Profit before tax 980 000 + 420 000 1 400 000 *

Depreciation 390 000

Interest expense 452 000

Net profit before changes in working capital Operation 2 242 000 

Net change in working capital Operation (1 230 700) 

Change in inventory (915 100)

Change in receivables 332 200 – 305 800 26 400 *

Change in payables 963 000 – 621 000 (342 000) *

Cash generated from operations Operation 1 011 300  9

NOTE: The figure and the bracket (or no bracket) must be correct to earn the mark *One part correct
in the money column.

4.2.2 CASH EFFECT FROM FINANCING ACTIVITIES

Proceeds from shares issued 397 500 

360 000 x 7,95

Repurchase of shares 2 862 000  + 162 000  (3 024 000) *

Long-term loans received 3 850 000 – 3 080 000 770 000 

Operation (1 856 500) 

7
NOTE: The figure and the bracket (or no bracket) must be correct to earn the *One part correct
mark in the money column

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8 ACCOUNTING P1 (EC/SEPTEMBER 2020)

4.2.3 Calculate the following amounts for the Cash Flow Statement.

Income tax paid

Workings Answer
- 69 300  + 420 000  – 19 800  330 900

Accept alternative arrangements for calculations such as signs reversed, brackets and/or One part correct
ledger accounts 4

Dividends paid
Workings Answer
Total dividend for the year:
1 700 700 +162 000 –980 000 –1 239 200  = 356 500

 four marks 
210 000 + 356 500 – 130 900 435 600
One part correct

OR
one mark five marks
210 000 + 225 600 
356 500 - 130 900 Interim dividend

Accept alternative arrangements for calculations such as signs reversed, brackets and/or
ledger accounts 7

Proceeds on fixed assets sold

Workings Answer
12 750 000  + 390 000  – 13 995 000  855 000
Accept alternative arrangements for calculations such as signs reversed, brackets and/or One part correct
ledger accounts
4

4.2.4 Calculate the following financial indicators on 29 February 2020.

Return on average Shareholders’ Equity

Workings Answer

980 000  100 8,1% 

½ (11 161 200 +13 168 000)  X 1 One part correct
12 164 600 2 marks 4

Net asset value per share

Workings Answer

937,9c *
11 161 200 X 100 One part correct
2
1 190 000 1 Accept 938 cents

TOTAL MARKS
40

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(EC/SEPTEMBER 2020) ACCOUNTING P1 9

QUESTION 5: INTERPRETATION OF COMPANY INFORMATION

5.1 Compare the liquidity position of both companies and comment on

the company that is managing the short term assets more effectively.

Financial indicators (with figures and trend)  Comment on one company

LOCK LTD Although current ratio decreased from 2,1 : 1 to 1,9 : 1, the
acid test ratio remains fairly consistent at 1,3 : 1 compared to
1,4 : 1 the previous year.

DOWN LTD The acid test ratio is consistent at 1,5 : 1 whilst the current ratio
increased from 2,8 : 1 to 3,6 : 1.

COMMENT Lock Ltd appears to control working capital more efficiently by

ensuring that stock is moving. They also have enough current
assets (cash) to meet short term liabilities.
OR
Down Ltd is not managing stock effectively. Whilst they would not
experience cash flow problems, they are holding too much stock
which may contribute to low profitability. 6

5.2 Compare the dividend pay-out policy of each company.

LOCK LTD Dividend pay-out rate is 52% (45/86) compared to 81% (65/80)
in 2019. 

DOWN LTD Dividend pay-out rate is 86% (60/70) in 2020 and 86% (62/72)
in 2019. Down Ltd has maintained the dividend pay-out rate at
86%  4
Provide TWO possible reasons why one company decided to change
their policy.
Any TWO reasons  

They are retaining earnings to concentrate on growth.

They want to ease cash-flow problems and continue managing expenses
to improve profitability.
They want to sustain the trend of increasing profitability and return on
equity so shareholders can see the long-term prospects of the company. 4

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10 ACCOUNTING P1 (EC/SEPTEMBER 2020)

5.3 Lock Ltd decided to increase their loans during the current financial
year, whilst Down Ltd decided to maintain their existing loans.
Comment on the decisions of both companies. Make reference to the
degree of risk and gearing.
LOCK LTD Debt/ equity ratio increased from 0,3 : 1 to 0,6 : 1 
ROTCE increased from 12% to 15% 
Although the business is now highly geared  the loan is being
effectively used to improve profitability. Business is positively
geared so the decision was appropriate. 
DOWN LTD Debt/ equity ratio remained constant at 0,4 : 1 
ROTCE decreased from 13% to 11,7% 
Although the business is low geared  the loan is not being
effectively used as the business is negatively geared so it would
be wise to start paying back the loan, or improve strategies to
improve profitability.  8

5.4 A shareholder of Down Ltd is concerned about the drop in the market
price of the shares. Explain why they feel this way. Provide TWO points.
Any 2 valid points  
This reflects the public demand for shares is low / public confidence in company
has decreased.
Shareholders want capital growth on their investment.
Directors will be judged on the performance of the shares.
The market price dropped below the net asset value. 4

5.5 M. Mtolo owns 576 000 shares in Down Ltd, which represents 48% of the
total issued shares. He wants to purchase another 25 000 shares.
5.5.1 Do a calculation to show how this would change his % shareholding
in the company.
576 000 + 25 000 576 000 ÷ 48%
601 000  ÷ 1 200 000  x 100 = 50,1%  5
Provide TWO reasons why you think he is specifically interested in
increasing his shareholding in Down Ltd.
5.5.2
TWO points  

He wants to be the majority shareholder.

He wants to influence strategic decisions.
He is aware of the poor performance of the business and thinks that he can make
a difference.
He sees potential in the company and wants to be part of the future growth.
He wants to implement corrective measures to address the downward trends in
many of the financial indicators. 4

TOTAL MARKS
35
TOTAL: 150

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