ICON DESCRIPTION

MIND MAP EXAMINATION ACTIVITIES

CONTENTS
GUIDELINE

WORKED
BIBLIOGRAPHY TERMINOLOGY STEPS
EXAMPLES

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CONTENTS PAGE

SECTION 1: Companies Financial Statement and analysis and

interpretation.

 Examination guideline and outcomes 4

 Important terms and definitions 5-8
 Worked examples. 9-11
 Activities 12-37
 Bibliography 38

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 GRADE 12: PAPER 1

Financial Reporting & Evaluation

Concepts relating to companies

Concepts relating to GAAP & IFRS Includes: issuing of shares
Unique Ledger Accounts of companies & interpretation at issue price (no par
thereof value, no share premium);
buying back of shares
Accounting equation of companies See APPENDICES 5.1,
5.2, 6.1, 6.2 and 6.3.
Adjustments, final accounts & trial balances of
companies Includes: fixed asset
Income Statement (Statement of Comprehensive valuation
Income) of companies (see 12.1.11) and inventory
valuation
Balance Sheet (Statement of Financial Position) & (see 12.1.12)
Notes of companies Includes all financial
statements
Cash Flow Statement of companies
(See 12.1.6, 12.1.7, 12.1.8,
Analysis & interpretation of financial statements of
12.1.10.)
companies*
Analysis & interpretation of published financial Refer to financial indicators
statements & audit report of companies* below.
Valuation of fixed assets for reporting in financial Includes: additions,
statements depreciation & disposal
Inventory valuation for reporting in financial statements
Integrates valuation
methods: FIFO; weighted
average & specific
identification
Professional bodies & Code of conduct Role of independent
auditors See
APPENDIX 5.7.
Ethical behaviour & corporate governance in financial See APPENDIX 5.7.
environments
Legislation governing companies (overview only) Companies Act (general
overview only) See
APPENDIX 5.7.
Close corporations (not examinable) Concepts; Differences in
financial stmts of
companies and cc's (not
examinable)

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 Definition and explanation of accounting concepts unique to
companies:

• Companies –
Public - a company owned by many shareholders that issues shares to the
public.
Private – business owned by small number of shareholders and does not issue
shares to the public

• Companies Act (Act 71 of 2008) – regulates the formation, governance and operation
of companies

• Registrar of Companies - Registration certificate – The Companies and Intellectual

Property Commission

• Memorandum of Incorporation –a company’s founding document that outlines its

structure and governance.

• Income tax- payments made by individuals and companies to a government entity ie

SARS in South Africa based on taxable income.

• Provisional income tax – payments made by a taxpayer in advance during the

year of assessment which are based on estimated taxable income.

• Dividends: That portion of profits (after tax) which has been approved to be shared
amongst shareholders (total dividends = interim + final)
Interim Dividends: Dividends that are paid to shareholders during the year.
Final Dividends: Dividends that are declared (recommended) to the
shareholders at the end of the financial year.

• Shares: The capital of the company that is divided into smaller units.

• Issue price: The price at which shares are issued to the public.

• Earnings

• Shareholders: People who buy shares therefore are the “owners” of the company.

• Directors: People who are appointed by the shareholders to run the company.

• Auditors

• Limited liability: The liability of the shareholders is limited to their investment in the
company (they cannot lose their personal assets).

• Separation of ownership from control

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• Retained income: A portion of the profits (after tax) not distributed to shareholders
in dividends but kept (retained) for future growth of the company.

• Authorised share capital: The maximum number of shares a company can sell.

• Issued share capital: Number of shares that have actually been sold to
shareholders. (Use number of issued shares to calculate dividends).

• Johannesburg Securities Exchange (JSE)

TOPIC: GAAP PRINCIPLES

Definition and explanation of International Financial Reporting Standards (IFRS)

and Generally Accepted Accounting Practice (GAAP):

Business Entity: The finances of the company are kept separate from that of the
shareholders.
Going concern: Financial statements are prepared with the understanding that
the company will continue to operate in the future

Historical cost: All assets are recorded at their original cost price e.g., Land
and Buildings are recorded at the price that you paid for them.

Matching: Income and expenses must be recorded in the correct financial

year e.g., sales and cost of sales.

Materiality: All-important items must be shown separately in the financial

statements (e.g., directors’ fees) or when decisions must be
made (e.g., is it worth having separate accounts for wages and
salaries if you have only two employees?).

Prudence: Figures used in financial statements should be realistic

(conservative – always record the worst scenario). The aim of
this principle is to show the reality “as it is” and not make things
prettier than what they are. E.g., you will show ‘net debtors’ in
the balance sheet (trade debtors minus provision for bad debts)

FINANCIAL STATEMENTS
Financial Statements are the responsibility of the directors. They (Financial
Statements) have to be audited by a qualified accountant. The audited financial
statements will then be submitted to the SHAREHOLDERS at the ANNUAL
GENERAL MEETING. These financial statements usually show comparative figures
for the preceding year.

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 TYPES / KINDS OF FINANCIAL STATEMENTS
1. Income Statement / Statement of Comprehensive Income: It reflects the
company’s operating activities during a particular financial year. It also helps
the business to calculate the net profit after tax.
2. Balance Sheet: It sets out the company’s financial position at the end of a
particular financial year.
3. Cash Flow Statement: It shows what happened to the cash balance during a
particular financial year. It also contains details of cash inflows and outflows
through business operating activities, investing activities and financing
activities.

THE USERS OF FINANCIAL STATEMENTS

1. Shareholders: They need to see how the company is doing, as they “own” the
company.
2. Board of Directors: They use the statements as basis of their decisions and
for compiling a budget.
3. Auditors: They need to see the statements in order for them to provide an audit
opinion and financial advice.
4. Registrar of Companies: Exercises control over companies.
5. Financial Institutions: They use company financial statements to determine
its credit rating when it applies for an overdraft or loan.
6. Creditors: They use company financial statements to see whether it is able to
meet its short-term commitments.
7. SARS: It bases its tax assessment on a company’s financial statements.

YEAR – END ADJUSTMENTS

Trading Stock Deficit / Surplus: Refers to the differences between the value of the
physical count of inventory and the value of inventory as per business records.
A surplus occurs when goods returned are not recorded. When the value on the pre-
adjustment trial balance is less than the physical stock count in the adjustments, the
business has a trading stock surplus and is regarded as an income.
A deficit occurs when goods have been stolen. When the value on the pre-adjustment
trial balance is more than the physical stock count in the adjustments, the business
has a trading stock deficit and is regarded as an expense.
NB: Consider any adjustment to inventory before determining a deficit / surplus.
Calculation: Trial balance amount (± Adjustment) – physical stock count amount
Consumable Stores on hand: When cash is paid to acquire consumables such as
office supplies or stationery, the items are treated as an expense
when purchased. At the end of the period, an adjustment or
Page 7 of 40
internal entry is needed to recognize the part of the expense not used during the
period, as an asset.
Depreciation: An accounting method of allocating the cost of a tangible or
physical asset over its useful life or life expectancy. Depreciation represents how
much of an asset's value has been used up.
Straight Line Depreciation: The value of an asset is reduced uniformly over each
period until it reaches its salvage value. Straight line depreciation is the most
commonly used and straightforward depreciation method for allocating the cost of
a capital asset.
The following adjustments also need to be mastered as they are usually examined.
Bad Debts

Bad Debts Recovered

Correction of Errors / Omissions

Accrued Income (Receivable)

Income Received In Advance (Deferred)

Expenses Prepaid

Accrued Expenses (Payable)

Provision for Bad Debts

Adjustments related to Income Tax

Payments and Declaration of Dividends

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Worked Example 1: FINANCIAL STATEMENTS (55 marks; 45 minutes)

SMILEY TRADERS LTD

Refer to the information from the records of Smiley Traders Ltd for the financial year
ended 29 February 2024.

REQUIRED:

1.1 Prepare the following for the financial year ended 29 February 2024.

1.1.1 Statement of Comprehensive Income/Income Statement. Note that

some information is provided on the answer book. (32)

1.1.2 Statement of Financial Position/Balance sheet. Show ALL workings

in brackets. Note that some information is provided on the answer
book. (23)

INFORMATION:

The following Balances/Totals appeared in the books on 29 February 2024:

R
Ordinary shares capital ?
Retained income (29 February 2024) 558 000
Mortgage Loan: Best Bank ?
Trading Stock 372 845
Debtors’ control 444 700
Creditors’ control 345 900
Provision for bad debts (1 March 2023) 14 090
SARS Income Tax (provisional payments) 323 555

Sales ?
Cost of sales ?
Rent income 162 750
Salaries 612 900
Depreciation 293 500
Sundry expenses ?
Interest Income ?
Audit fees 74 750
Directors’ fees 725 000
Insurance 186 500
Dividends on ordinary shares 224 000

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Adjustments and additional information:

A The business maintains a 60% mark-up on cost of sales. Last year sales
amounted to R7 200 000. The business announced a 20% increase in
sales for the year ended February 2024.

B According to a physical stocktaking, trading stock on hand amounted to

R363 900.

C A debtor’s account with a debit balance of R5 600 must be transferred to

his account in the creditors’ ledger account.

D Decrease the provision for bad debts by R515.

E A storeroom was rented to a tenant from 1 March 2023. On 1 December

2023 the rent was decreased by 7, 5%. Provide for the outstanding rent for
February 2024.
F The business paid 65% on their audit fees for the year. The balance will be
settled on 5 March 2024.
G The business has 3 directors. They receive the same monthly fee. One
director was only appointed on 1 September 2023. One director has not
yet received his fee for February 2024

H Insurance included a new policy which was taken out on 1 May 2023 at
an annual premium of R90 000.
The loan statement from Billy Bank reflected the following:

LOAN STATEMENT ON 29 FEBRUARY 2024:

Balance at the beginning of the financial year R1 250 000
Fixed monthly repayments including interest 45 200
Interest expense (capitalised) 220 500

• Interest for the next financial year is expected to be R150 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 amounted to R356 555 and was calculated at the rate of
29% of the net profit.

K Shares and Dividends:

• The authorised ordinary share capital consists of 1 200 000 shares of
which 70% was in issue at the end of the financial year.
• The final dividend for the year amounted to R338 000.

L The following financial indicators were calculated on 29 February 2024.

• Operating profit on sales at 15%.
• Net asset value per share at 665 cents.
55

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1.1.1 SMILEY TRADERS LTD
STATEMENT OF COMPREHENSIVE INCOME /INCOME STATEMENT/ FOR THE
YEAR ENDED 29 FEBRUARY 2024

Sales (7 200 000 x 120/100) OR (7 200 000 + 1 440 000) 8 640 000 
Cost of sales (Sales x 100/160) (5 400 000) 

Gross profit operation 4 3 240 000 

Other operating income operation 177 140 

Rent Income (162 750 + 13 875 ) 176 625 *

Provision for bad debts adjustment 515 

Gross Operating Income operation 7 3 417 140 

Operating Expenses GOI – OP (2 121 140) 

Salaries 612 900

Depreciation 293 500
Sundry Expenses balancing figure 169 295 
Audit fees (74 750 + 40 250) OR (74 750 x 100/65) 115 000 *
Directors’ fees (725 000+ 25 000) OR (725 000 /29x30) 750 000 *
Insurance (186 500 – 15 000 ) 171 500 *
Trading stock deficit (372 845 – 363 900) 15 8 945 

Operating Profit Check = sales x 15% 1 296 000 

Interest Income NPBIE – OP balancing 154 000 

Net Profit before interest expense NPBT + IE 1 450 000 

Interest expense (220 500) 

Net Profit before tax NPAT + IT 1 229 500 

Income tax (356 555)

Net Profit after tax 356 555 X 71/29 6 872 945 

Foreign items -1 max * operation one part correct

Page 11 of 40
 Activity 1: STATEMENT OF COMPREHENSIVE INCOME
(49 marks; 39 minutes)

1.1 Choose a description from COLUMN B that matches the term in COLUMN A.
Write only the letter (A–E) next to the question numbers (1.1.1 to 1.1.4) in the
ANSWER BOOK.

COLUMN A COLUMN B
1.1.1 Independent auditor A investment such as a fixed deposit over
a three-year period
1.1.2 Capital employed
B debt to be settled within 12 months
1.1.3 Current liability
C a staff member of a company who sets
1.1.4 Financial asset up effective internal control procedures

D total of Ordinary Shareholders' Equity

and Non-current Liabilities

E expresses an unbiased opinion on the

reliability of financial statements
(4 x 1) (4)

1.2 STARLIGHT LTD

The information relates to the financial year ended 28 February 2023.

The company trades in electrical items.

REQUIRED:

1.2.1 Refer to Information B (ii).

Calculate:
• Profit or loss on disposal of vehicle (5)
• Total depreciation for the year (7)
1.2.2 Complete the following:
• Statement of Comprehensive Income for the year ended
28 February 2023 (29)

NOTE: Some figures have been entered in the ANSWER BOOK.

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INFORMATION:

A. Extract from the Pre-adjustment Trial Balance on 28 February:

Balance Sheet accounts section 2023 2022

Loan: Pearl Bank 524 400 690 000
Vehicles ? 1 250 000
Accumulated depreciation on vehicles ? 420 000
Equipment 822 000 774 000
Accumulated depreciation on equipment ? 360 000
Fixed deposit: Pearl Bank 320 000
Trading stock 2 969 800 121 210
Debtors' control 645 250
Provision for bad debts ? 21 020
Bank (Dr) ?
SARS: Income tax (provisional tax payments) 875 000
Nominal accounts section
Sales 20 150 000
Cost of sales 13 200 000
Salaries and wages ?
Commission income 85 900
Rent income 89 700
Audit fees 155 200
Directors' fees 2 015 000
Sundry expenses 219 760
Bad debts 16 200
Interest on fixed deposit ?
Asset disposal (cash received on vehicle sold) 91 500

B. Adjustments and additional information:

(i) A physical stock count on 28 February 2023 revealed R2 774 800

stock on hand. However, this figure excludes the closing stock figure
for light bulbs. Note that the weighted-average method is used to
value the light bulbs.

Details of the light bulbs are as follows:

UNIT PRICE TOTAL

UNITS
(R) (R)
Stock on 1 Mar. 2022 8 000 52 416 000
Purchases 47 000 74 3 478 000
Available for sale 55 000 3 894 000
Carriage on purchases 27 500
Stock on 28 Feb. 2023 1 700 ? ?

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Page 14 of 40
(ii) Fixed assets and depreciation:

Vehicles:
• An old vehicle was sold for R91 500 on 30 November 2022.
The amount received was recorded but no further entries were
made.

Details of the vehicle sold:

Carrying value on 1 March 2022 R104 000
Depreciation: 20% p.a. on the diminishing-balance method

• Depreciation on the remaining vehicles: R145 200

Equipment:
• Equipment is depreciated at 15% p.a. on cost.
• New equipment was bought on 31 July 2022.

(iii) The auditors are owed a further R38 800 for the current financial year.

(iv) Received R9 000 from the insolvent estate of debtor Billy Croon.
His estate paid 80 cents to the rand of his outstanding balance. The
money received was recorded. The balance of his account must still
be written off.

(v) The provision for bad debts must be increased to R25 720.

(vi) Directors' fees:

• The company has two directors who were appointed in 2019.

A third director was appointed on 1 October 2022.
• The directors all earn the same monthly fee.
• Directors' fees paid during the financial year have been recorded,
but one director has already been paid for March and April 2023.

(vii) Rent income includes the rent for March 2023 received from
the tenant. The monthly rent was increased by R1 170 on
1 January 2023.

(viii) Loan: Pearl Bank

• Interest on the loan capitalised has not been recorded.

• Fixed monthly repayments (including interest) have been paid and
correctly recorded for the financial year.
• Interest on the loan amounts to 60% of the monthly repayments.

(ix) Income tax for the year was calculated to be R858 140.

49

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Activity 1
1.1 1.1.1
1.1.2
1.1.3
1.1.4 4

1.2 STARLIGHT LTD

1.2.1 Calculate: Profit or loss on disposal of vehicle

WORKINGS ANSWER

Calculate: Total depreciation for the year

WORKINGS ANSWER
Vehicles

Equipment

Page 16 of 40
1.3 Statement of Comprehensive Income for the year ended 28 February 2023
Nov

Sales 20 150 000

Cost of sales (13 200 000)

Gross profit 6 950 000
Other income
Commission income 85 900
Rent income

Gross operating income

Operating expenses (4 894 900)
Salaries and wages
Audit fees
Directors' fees
Sundry expenses 219 760
Bad debts
Depreciation

Operating profit
Interest income
Profit before interest expense
Interest expense
Net profit before tax
Income tax (858 140)
Net profit after tax 2 002 500
29

Page 17 of 40
The information relates to Ivory Park Ltd for the financial year ended 29 February 2024.
REQUIRED:
2.1 Refer to Information B (i) for fixed assets:
Calculate the following:
2.1.1 Depreciation on equipment on 29 February 2024 (2)
2.1.2 Cost price of vehicles on 29 February 2024 (4)
2.1.3 Depreciation on vehicles on 29 February 2024 (5)
2.1.4 Profit/Loss on vehicle traded in on 1 September 2023 (5)
2.2 Complete the Statement of Comprehensive Income for the year ended
29 February 2024. (39)
NOTE: Some amounts are provided in the ANSWER BOOK.
INFORMATION:
A. Balances/totals, among others, that appeared in the books on:
29 Feb. 2024 28 Feb. 2023
R R
Mortgage loan: Phambili Bank 744 100 987 700
Equipment at cost 852 000 852 000
Accumulated depreciation on equipment 472 500 344 700
Vehicles at cost ? 1 250 000
Accumulated depreciation on vehicles ? 420 000
Trading stock 654 500
Debtors' control 516 600
Provision for bad debt ? 29 520
SARS: Income tax (provisional tax payments) 340 000
Sales ?
Cost of sales 4 780 900
Audit fees 79 000
Service fee income 1 757 700
Sundry operating expenses 119 900
Bad debts 24 780
Packing material 66 550
Salaries and wages (including contributions) 1 425 600
Insurance 100 800
Rent income 158 100
Interest income ?
Directors' fees ?
Interest on loan 149 400
Dividends on ordinary shares 250 000

Page 18 of 40
Activity 2: COMPANY FINANCIAL STATEMENTS (55 marks; 45 minutes)

Page 19 of 40
B. Adjustments and additional information:
(i) Fixed assets:
Equipment:
• No equipment was bought or sold during the year.
Vehicles:
• An old vehicle was traded in on 1 September 2023 for a new vehicle, costing
R320 000. The trade-in value received was R153 660. The following extract of the
vehicle sold was taken from the Fixed Asset Register:
Cost price: R240 000 Date purchased: 1 July 2021
Rate of depreciation: 20% p.a. on the diminishing-balance method
ACCUMULATED
FINANCIAL YEAR END DEPRECIATION
DEPRECIATION
28 February 2022 R32 000 R32 000
28 February 2023 R41 600 R73 600
1 September 2023 ? ?

• Vehicles are depreciated at 20% p.a. on the diminishing-balance method.

• Depreciation on the old remaining vehicles was R132 720.
(ii) The company maintains a mark-up of 60% on cost. Note that goods costing R115 000
(included in cost of sales) were sold at a mark-up of 40% on cost to internal
employees.
(iii) Physical stocktaking on 29 February 2024 revealed the following:
• Trading stock, R647 100
• Packing material used during the financial year, R58 700
(iv) Provision for bad debts must be adjusted to 5% of the outstanding debtors.
(v) Monthly insurance premiums were fixed for the past three years and were paid up to
31 May 2024.
(vi) A tenant is renting an office from Ivory Park Ltd. Rent for this office
has been received up until 30 April 2024. Rent was decreased by 8% on
1 December 2023 on the office rented.
(vii) One employee was omitted from the Salaries Journal of February 2024. His net
monthly salary was R19 340 after 35% deductions were made for his pension and
personal tax and R2 500 deducted for medical aid. The employer contributes 10% of
his gross salary on behalf of employees towards pension.
(viii) The company had two directors who received a combined annual fee of R1 065 200
after their monthly fees were increased by R5 800 each on 1 August 2023. A third
director joined the company on 1 November 2023 and received the same monthly fee
as the other directors, excluding the increase of R5 800 per month.
(ix) Net profit after tax, R992 160, was calculated after taking into account all the
adjustments above. Income tax is calculated at 28% of the net profit.
55

Page 20 of 40
Activity 2

2.1 Calculate:

2.1.1 Depreciation on equipment on 29 February 2024

WORKINGS ANSWER

2.1.2 Cost price of vehicles on 29 February 2024

WORKINGS ANSWER

2.1.3 Depreciation on vehicles on 29 February 2024

WORKINGS ANSWER
Depreciation on new vehicle

Depreciation on vehicle traded in

Depreciation on remaining vehicles 132 720

5

2.1.4 Profit/Loss on vehicle traded in on 1 September 2023

WORKINGS ANSWER

NOTE: The relevant amounts, calculated above, must be transferred to

QUESTION 2.2, the Statement of Comprehensive Income.

TOTAL MARKS

55

Page 21 of 40
2.2 Statement of Comprehensive Income for the year ended 29 February 2024
Nov

Sales

Cost of sales (4 780 900)

Gross profit
Other income
Service fee income 1 757 700

Gross operating income

Operating expenses
Audit fees 79 000
Sundry operating expenses 119 900
Bad debts 24 780

Operating profit
Interest income
Profit before interest expense
Interest expense (149 400)
Net profit before tax
Income tax
Net profit after tax 992 160
39

Page 22 of 40
Activity 3 COMPANY FINANCIAL STATEMENTS AND NOTES (65 marks; 55 minutes)
The information relates to KAMZA LTD for the financial year ended 29 February 2024
REQUIRED: Complete the following for the year ended 29 February 2024:
3.1.1 Statement of Comprehensive Income (Income Statement). (31)
3.1.2 Notes to the Statement of Financial Position (Balance Sheet) for:
• Ordinary share capital (8)
• Retained income (8)
3.1.3 Equity and Liabilities section of the Statement of Financial Position. (18)
INFORMATION:
A. Balances/Totals on 28 February:
2024 2023
Ordinary share capital 10 800 000 7 200 000
Retained income 675 900 ?
Loan BNF Bank ? 1 975 800
Trade creditors 779 200
SARS: Income tax (provisional payments) 450 000
Shareholders for dividends 264 000
Sales ?
Cost of sales 6 696 000
Rent income 304 640
Salaries and wages 2 183 860
Audit fees 135 360
Directors' fees 999 600
Advertising 39 980
Sundry expenses 919 512
Interest on fixed deposit ?
Interest on loan 577 200

B. Adjustments and additional information:

(i) Sale of goods:
The company maintains a mark-up of 75% on cost. Note that old goods costing
R216 000 (excluded in the cost of sales) were sold at 20% below cost price.
(ii) Rent:
A storeroom was rented out from 1 March 2023. Rent was decreased by 10% on
1 January 2024. The rent was received for 14 months.
(iii) Audit fees:
20% of the annual fees have been paid in advance.
(iv) Directors' fees:

Page 23 of 40
 The company has three directors who earn the same fee. One director was paid for
only 10 months.

(v) Advertising:
Advertising consists of a contract with a newspaper for the entire financial year.
Payments are monthly; however, instalments were paid for 11 months. NOTE: The
monthly amount decreased by R240 from 1 November 2023.
(vi) Loan BNF Bank:
• Fixed monthly repayments including interest, for the full duration of the loan term,
amounts to R58 500.
• Capitalised interest amounted to R577 200 for the year ended 29 February 2024.
• Interest for the next financial year is expected to be R546 000.
(vii) Income tax for 2023:
• R91 100 is still due to SARS.
• The net profit after tax is R1 171 170.
(viii) Share capital and dividends: Authorised share capital: 1 000 000 ordinary shares

1 March 2022 60% of the shares were in issue.

1 July 2022 100 000 shares were repurchased at R15.
31 August 2022 Interim dividends of 24 cents per share were paid.
1 December 2022 300 000 shares were issued.
28 February 2023 Final dividends were declared.

65

Page 24 of 40
Activity 3

3.1.1 KAMZA LTD

STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) FOR
THE YEAR ENDED 29 FEBRUARY 2024
Sales
Cost of sales (5 580 000)
Gross profit
Other operating income

Gross operating income

Operating expenses
Salaries and wages 986 550

Operating profit
Interest income
Profit before interest expense
Interest expense
Net profit before tax
Income tax
Net profit after tax 900 900 31

3.1.2 ORDINARY SHARE CAPITAL

AUTHORISED SHARE CAPITAL

1 000 000 ordinary shares

ISSUED SHARE CAPITAL

Page 25 of 40
 Ordinary shares on 28 February 2023 10 800 000

RETAINED INCOME

Balance on 1 March 2022

Ordinary share dividends

Balance on 28 February 2023 675 900 8

3.1.3 EQUITY AND LIABILITIES SECTION OF THE STATEMENT OF FINANCIAL

POSITION (BALANCE SHEET) ON 28 FEBBRUARY 2023

SHAREHOLDERS' EQUITY 11 475 900

Ordinary share capital 10 800 000
Retained income 675 900

NON-CURRENT LIABILITIES
Loan BNF Bank
1 975 800

CURRENT LIABILITIES
Trade and other payables

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 18

Page 26 of 40
Activity 4 COMPANY FINANCIAL STATEMENTS AND NOTES (70 marks; 55
minutes)
You are provided with information relating to Bravo Limited for the financial year ended
29 February 2024.

REQUIRED:

4.1 Prepare the following notes to the Balance Sheet on 29 February 2024:

4.1.1 Ordinary share capital (10)

4.1.2 Retained income (11)

4.1.3 Fixed/Tangible assets (16)

4.2 Complete the Balance Sheet on 29 February 2024. (33)

INFORMATION:

A. Figures extracted from the accounting records on 29 February 2024:

R
Ordinary share capital ?
Retained income (1 March 2023) 146 000
Fixed deposit: Shine Bank 400 000
Mortgage loan: Cash Bank 920 000
Fixed/Tangible assets ?
Debtors' control ?
Creditors' control 95 700
SARS: Income tax (provisional tax payments) 246 000
Expenses accrued/payable 28 300
Bank (Dr) 61 340
Petty cash and cash float 3 200
Trading inventory 234 000
Consumable stores on hand 14 500

B. Share Capital:
• The company has an authorised share capital of 3 000 000 shares.
• 1 800 000 shares were issued at R4,00 per share during the previous year.
• A further 200 000 shares were issued on 1 May 2023 at R6,00 per share. This
transaction was recorded.
• On 3 January 2024, the business repurchased 80 000 shares from a
shareholder at a price of R4,90 per share. This was correctly recorded.

Page 27 of 40
C. Dividends.
▪ Interim dividends of 10 cents per share were paid on 30 September 2023.
▪ Final dividends of R300 000 were declared on 29 February 2024.

D. Fixed Assets:
Incomplete Fixed Asset note on 29 February 2024:

LAND AND
EQUIPMENT VEHICLES
BUILDINGS
Carrying value in beginning R 6 990 000 R 155 000 520 000
Cost (1 March 2023) 6 990 000 240 000 880 000
Accumulated depreciation (0) (85 000) (360 000)
Movements
Additions at cost * * 0
Disposal at carrying value (0) (0) *
Depreciation (0) * (161 600)
Carrying value at the end 7 490 000 * *
Cost (29 February 2024) 7 490 000 360 000 *
Accumulated depreciation (0) * *

▪ Land and buildings were bought during the current financial year.
▪ New equipment for R120 000 purchased on credit on 29 February 2024,
was not yet recorded.
▪ Equipment is depreciated at 10% p.a. on diminishing-balance method.
▪ A vehicle, sold for cash at carrying value on 31 August 2023, was correctly
recorded. Details of the vehicle sold were as follows:
- Cost price, R144 000
- Accumulated depreciation at beginning of financial year, R84 000
- Depreciation rate of 20% p.a. on the on the cost price method.
▪ Total depreciation on vehicles for the year amounted to R161 600.
F. Fixed Deposits:
There are two fixed deposits at DIY Bank.
• One, valued at R175 000, matures on 31 July 2024.
• The other, valued at R225 000, matures on 31 December 2026.
G. Net profit and Income tax:
▪ Net profit before tax as per the Income Statement, R780 000;
▪ Income tax for the year, R234 000.
H. Loan: Cash Bank:
• R100 000 of the loan will be paid back during the next financial year.

Page 28 of 40
 Activity 4
BRAVO LTD
4.1.1 ORDINARY SHARE CAPITAL
AUTHORIZED
3 000 000 shares
ISSUED

10

4.1.2 RETAINED INCOME

Balance on 1 March 2023

Ordinary share dividends

Interim
Final

Balance on 29 February 2024 11

FIXED/TANGIBLE ASSETS Land and Equipment Vehicles

4.1.3 Buildings
Carrying value in beginning 6 990 000 155 000 520 000
Cost 6 990 000 240 000 880 000
Accumulated depreciation 0 (85 000) (360 000)

Movements
Additions at cost 0
Disposal at carrying value (0) (0)
Depreciation 0 (161 600)

Carrying value at the end 7 490 000

Cost 7 490 000 360 000

Accumulated depreciation 0 16

Page 29 of 40
4.2 BRAVO LTD
BALANCE SHEET ON 29 FEBUARY 2024
ASSETS
Non-current assets

Current assets

TOTAL ASSETS

EQUITY & LIABILITIES

Ordinary shareholders’ equity

Non-current liabilities

Current liabilities

TOTAL EQUITY & LIABILITIES

33

Page 30 of 40
Activity 5 COMPANY FINANCIAL STATEMENTS (55 marks; 45 minutes)
The information relates to DBN Ltd. The company sells household products. The financial
year ended on 29 February 2024.
REQUIRED:
5.1 Refer to information A.
The bookkeeper has recorded all the entries regarding fixed assets in the books.
Complete the amounts denoted by (i) to (iii) on the Fixed Asset Note. (12)
5.2 Refer to information C and D.
Calculate the correct net profit after tax for the year ended 29 February 2024. Indicate
(+) for increase and (-) for decrease, next to each amount. (13)
5.3 Complete the Statement of Financial Position on 29 February 2024. (30)

NOTE: Some amounts are provided in the ANSWER BOOK.

INFORMATION:

A. Fixed assets:
Buildings Vehicles Equipment
R R R
Carrying value: (01/03/2023) 249 850
Cost (i) 436 000
Accumulated depreciation
Movements:
Additions (at cost) 0 260 000 0
Disposals (at carrying value) (420 000) 0 (iii)
Depreciation (ii) (32 000)
Carrying value: (29/02/2024) 9 421 300
Cost 786 000 356 000
Accumulated depreciation

• Depreciation is calculated as follows:

- Vehicles: 15% p.a. on cost
- Equipment: 20% on the diminishing-balance method
• A new vehicle was bought on 1 October 2023.
• Extract from the Fixed Assets Register in respect of equipment sold:
KINOPA MWALIMU 234
Cost price: R80 000
Date purchased: 1 September 2021
Date sold: 31 May 2023 Sold for: R53 000
CARRYING VALUE
28 February 2022 R72 000
28 February 2023 R57 600

Page 31 of 40
 Balances on 29 February 2024:
B.
31 May 2023 ?

Fixed assets at carrying value R9 952 480

Ordinary share capital ?
Retained income ?
Loan: PTA Bank ?
Fixed deposit 425 000
Trading stock 1 064 200
Net trade debtors 744 900
Creditors' control 518 950
SARS: Income tax (provisional tax payments) 322 800

C. The bookkeeper has calculated the net profit before tax as R1 150 000.
The pre-adjustment balances to be adjusted are:

Audit fees R144 000

Trading stock 1 064 200
Rent income 287 300
Directors' fees 852 800

Only the adjustments listed below must still be taken into account.
(i) Audit fees of R45 600 were still owing on 29 February 2024.
(ii) A donation of 100 blankets costing R402 each was made to children’s hospital,
but the donation has not been recorded.
(iii) Rent was increased by R1 300 per month from 1 January 2024. Only the rent
for the period 1 March 2023 to 31 January 2024 was received and recorded.
(iv) The company had one director, Jenny, at the beginning of the financial year.
Jenny had been paid in advance for two months. A second director, Frank, was
appointed on 1 December 2023. His monthly fee is 20% lower than that of
Jenny. Frank received the fees due to him.
D. Income tax:
The assessment from SARS indicated total income tax for the financial year as R351
000, after all adjustments had been made. 2024

E. Share capital and dividends:

DATE DETAILS
1 March 2023 2 120 000 shares in issue

Page 32 of 40
F. Transfer of debtor's balance to Creditors' Ledger:

A debtor with a debit balance of R8 400 in the Debtors' Ledger must still be
transferred to his account in the Creditors' Ledger.
G. Loan: PTA Bank

Extract from the Loan Statement from PTA Bank:

Balance on 1 March 2023 R1 400 000
Repayments for the financial year (including interest) ?
Interest capitalised 168 000
Balance on 29 February 2024 1 004 000

NOTE:
• All entries for the repayments and interest have been made.
• Directors expect to maintain the capital repayments made this year, during the
next financial year.
30 June 2023 230 000 shares repurchased: The average share price was
R5,90 at the date of the repurchase
29 February 2024 1 890 000 shares in issue

• Interim dividends were not declared during the financial year.

• Final dividends of 25c per share were declared on 29 February 2024 to all
shares in the share register.
55

TOTAL MARKS

55

Page 33 of 40
Activity 5

5.1 FIXED ASSETS

(i) Calculate: Cost price of buildings at the beginning of the year

WORKINGS ANSWER

(ii) Calculate: Depreciation on vehicles

WORKINGS ANSWER

(iii) Calculate: Carrying value on equipment sold

WORKINGS ANSWER
4

Page 34 of 40
5.2 CORRECT NET PROFIT AFTER TAX FOR THE YEAR

Incorrect net profit before tax 1 150 000

Net profit before tax

Net profit after tax

13

5.3 DBN LTD

Statement of Financial Position on 29 February 2024

ASSETS

NON-CURRENT ASSETS 10 377 480

Fixed assets 9 952 480

Investment: Fixed deposit 425 000
CURRENT ASSETS

Cash and cash equivalents 1 956 220

TOTAL ASSETS

EQUITY AND LIABILITIES

ORDINARY SHAREHOLDERS' EQUITY

Retained income

Page 35 of 40
 NON-CURRENT LIABILITIES

CURRENT LIABILITIES

TOTAL EQUITY AND LIABILITIES

Activity 6

STATEMENT OF COMPREHENSIVE INCOME (55 marks; 40 minutes)

NGIDI LTD

You are provided with the Pre-adjustment Trial Balance at the end of the financial year
28 February 2022. The business sells handbags to the public.

REQUIRED:

6.1 Prepare the Statement of Comprehensive Income (Income Statement) for the
year ended 28 February 2022. (Some of the pre-adjustment figures have been
entered for you.) (49)

6.2 Prepare the Retained Income note for the year ended 28 February 2022. (6)
INFORMATION:
Extract from the Pre-adjustment Trial Balance on 28 February 2022
R
Ordinary share capital 6 075 000
Retained income 725 900
Fixed deposit: NBB Bank 635 000
SARS – Income tax (Dr) 62 000
Trading stock 414 200
Debtor’s control 96 200
Provision for bad debts 18 900
Mortgage loan: Short Bank ?

Page 36 of 40
 Creditors Control 275 000
Sales 3 900 000
Debtors’ allowances 44 200
Cost of sales 2 600 000
Bad debts 39 600
Audit fees 66 000
Directors’ fees 562 400
Salaries and wages 132 500
Employers’ contribution 33 600
Bank charges 14 900
Advertising 24 460
Sundry expenses 141 075
Rent income 156 368
Interest on fixed deposit: NBB Bank (balancing figure) ?
Interim dividends paid during the year 123 300
Adjustments and additional information.

A A credit note issued to a debtor J. Jamanzi for goods returned has not
been entered in the books, R18 600. The mark up is 50% on cost.

B A debtor, W. Wolhuter, has been declared insolvent. Received and

recorded R13 200 as 60 cents in the rand on 28 February 2022. Write
the rest of as irrecoverable.

C Provision for bad debts should be adjusted to R18 500.

D The business owes the auditors a further R22 000 after completion
of the audit.

E The company has three directors who earn the same fee. One
director was paid two months in advance.

F Bank charges of R1 100 in the February 2022 bank statement have

not been entered in the books.

G Advertising consists of a monthly contract with the local newspaper

for the entire financial year. Advertising was paid for 11 months only.
From 1 December 2021, the contract rate was decreased
by R420 per month.

H One of the employees has been omitted from the Salaries Journal
for February 2022. The details were as follows:
Gross salary R ?
Total deductions R ?
PAYE deduction (2 231)

Page 37 of 40
 Pension fund deduction (R ?)
UIF (97)
Net salary R ?

The contributions by the employer are:

Pension fund 8% of gross salary
UIF 1% of gross salary

I A physical stocktaking done on 28 February 2022 reflected that 205

handbags at R2 000 per bag on hand.

J On 1 December 2021 the rent increased with 12%. The rent for
March 2022 has been received.

K Depreciation on equipment amounts to R96 000 for the year.

L Interest on loan is capitalised. The loan statement received from

Short Bank reflected the following on 28 February 2022:

Balance on 1 March 2021 R480 000

Interest charged ?
Monthly payment amounted to R12 000 ?
Balance on 28 February 2022 370 000

M Income tax amounts to 29% of the net profit before tax.

L The business bought 75 000 shares back on 15 February 2022 at

R1,50 more than the average price.
N A final dividend was declared on 28 February 2022.

55

Page 38 of 40
Activity 6

6.1 NGIDI LTD.

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2022.
Sales
Cost of sales
Gross profit
Other operating income
Rent income

Gross operating income

Operating expenses
Sundry expenses 141 075
Bad debts
Audit fees
Director’s fees
Salaries and wages
Employers’ contribution
Bank charges
Advertising

Operating profit
Interest income
Profit before interest expense
Interest expense
Profit before tax
Income tax 49
Net profit for the year 177 500

6.2 RETAINED INCOME NOTE

Balance in the beginning of the year 943 200

Dividends for the year

Balance at the end of the year 725 900 6

Page 39 of 40
 BIBLIOGRAPHY
1 DBE May/June 2023
2 DBE May/June 2024
3 DBE November 2024
4 Gauteng Department of Education Trial 2023
5 Mpumalanga Department of Education 2020
6 Free State Department of Education June 2024
7 Free State Department of Education March 2024
8 Examination Guideline
9 CAPS Document

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