Grade 12

Exam Preparation 2022

(Supported by Investec)

SUBJECT: ACCOUNTING
PAPER 1

Presented by JuniorTukkie@UP

SUPPORTED BY:
FORMAT OF YEAR-END EXAMINATION
DISCIPLINE 1 DISCIPLINE 2

• FINANCIAL REPORTING & • MANAGERIAL

EVALUATION ACCOUNTING, INTERNAL
AUDITING & CONTROL

❖ 150 MARKS, 120 MINUTES

❖ QUESTION VARY FROM 3-5 QUESTIONS.

❖ ALL QUESTIONS COMPULSORY

 CONTENT PAPER 1
Concepts relating to companies
Concepts relating to GAAP & IFRS COMPANIES: THEORY COMPANIES:
LEDGER
Unique ledger accounts of companies & interpretation thereof
INVENTORIES ACCOUNTS
Accounting equation of companies

Adjustments & final accounts of companies; Trial balances

Income Statement (Statement of Comprehensive Income) of companies

FIXED ASSETS TOPICS COMPANIES:
Balance Sheet (Statement of Financial Position) & Notes of companies
FINANCIAL STATEMENTS
Cash Flow Statement of companies

Analysis and interpretation of financial statements of companies

Analysis and interpretation of published financial statements & audit report of companies COMPANIES: AUDIT
COMPANIES:
REPORTS AND CORPORATE
Valuation of fixed assets for reporting purposes including additions, depreciation & disposal ANALYSIS AND
GOVERNANCE
INTERPRETATION
Ethical behavior and corporate governance in financial environments

Inventory valuation for reporting purposes (FIFO, WA & Specific Identification)

Professional bodies & Code of conduct

FINANCIAL STATEMENTS

INCOME STATEMENT/ STATEMENT OF

COMPREHENSIVE INCOME

BALANCE SHEET/ STATEMENT OF

FINACIAL POSITION

CASH FLOW STATEMENT

 FINANCIAL STATEMENT: IMPORTANT POINTERS
 Always show WORKINGS in brackets to earn part marks
 TRANSFER YOUR ANSWER CALCULATED from the notes to the Statement of Comprehensive
Income or Statement of Financial Position:
❖ Note 1 and Note 2 to the Statement of Comprehensive Income.
❖ Note 3 to 9 to Statement of Financial Position.
 When dealing with transactions that affect the Income Statement and Balance
Sheet or Notes, RECORD THEM SIMULTANEOUSLY.
 Know how to calculate from the BOTTOM-UP calculations.

 Know how to calculate figures using the FINANCIAL INDICATORS.

 INVENTORY SYTEMS can be incorporated with the Financial Statements.

1. STATEMENT OF COMPREHENSIVE INCOME
 Know the FORMAT of the Income Statement.
 The main parts of the Statement of Comprehensive Income:
Sales 2 000 000
Cost of Sales (1 000 000) Must be in
brackets
Gross Profit 1 000 000
Income from serviced rendered 50 000
Other operating income 350 000
Gross operating income 1 400 000
Operating expenses (950 000) Must be in
brackets
Operating profit 450 000
Interest income 1 36 000
Profit before interest expense 486 000
Interest expense 2 (74 000) Must be in
brackets
Net profit before income tax (100%) 412 000
Income tax (30%) (123 600) Must be in
Net profit for the year (70%) 288 400 brackets
 Always start with the PRE-ADJUSTMENT FIGURES FROM THE TRIAL BALANCE or information
extracted when preparing the Income Statement.
❖ The NOMINAL ACCOUNT SECTION will appear in the Statement of Comprehensive Income.
❖ The NOMINAL ACCOUNT SECTION consist out of all INCOME and EXPENSES.
❖ DIVIDENDS ON ORDINARY SHARES is an expense which forms part of the distribution of
profits. This is always your INTERIM DIVIDENDS paid which must be taken to Note 8,
Retained income in the Statement of Financial Position.
 Steps in completing the Statement of Comprehensive Income:
❖ RECORD THE FIGURES FROM THE PRE-ADJUSTMENT TRIAL BALANCE IN INCOME
STATEMENT to earn part/free marks.
❖ Do the adjustments.
❖ Calculate final amounts.
 Two very important rules:
❖ Anything outside the Accounting period must be SUBTRACTED.
❖ Anything outstanding for this Accounting period must be ADDED.
2. STATEMENT OF FINANCIAL POSITION
 Know the FORMAT of the Statement of Financial Position.
 Basic format:
FACE OF THE BALANCE SHEET
EQUITY AND LIABILITIES
ASSETS Shareholders equity 1 642 500
NON-CURRENT ASSETS 1 669 000 Ordinary share capital 7 1 260 000
Fixed assets/ Tangible assets 3 1 569 000 Retained income 8 382 500
Financial assets: NON-CURRENT LIABILITIES 210 000
Fixed deposit 100 000 Mortgage loan 210 000
CURRENT ASSETS 361 880 CURRENT LIABILITES 178 380
Inventories 4 281 200 Trade and other payables 9 150 000
Trade and other receivables 5 57 720 Bank overdraft 0
Cash and cash equivalents 6 22 960 Shareholders for dividends 28 380
TOTAL ASSETS 2 030 880 TOTAL EQUITY AND LIABILITIES 2 030 880
 NOTES TO THE FINANCIAL STATEMENTS:
INCOME STATEMENT BALANCE SHEET

• Note 1: Interest income • Note 3: Tangible assets/ Fixed assets

• Note 2: Interest expense • Note 4: Inventories
• Note 5: Trade and other receivables
• Note 6: Cash and Cash equivalents
• Note 7: Ordinary share capital
• Note 8: Retained income
• Note 9: Trade and other payables

 Always start with the PRE-ADJUSTMENT FIGURES FROM THE TRIAL BALANCE or
information extracted when preparing the Statement of Financial Position.
❖ The BALANCE SHEET ACCOUNT SECTION will appear in the Statement of Financial
position.
❖ The BALANCE SHEET ACCOUNT SECTION consist out of owners’ equity, assets and
liabilities.
❖ SARS: INCOME TAX is your provisional tax payments. You will need to calculate if
the company still owes SARS or does SARS owes the company.
 Steps in completing the Statement of Financial position:
❖ RECORD THE FIGURES FROM THE PRE-ADJUSTMENT TRIAL BALANCE IN BALANCE SHEET to
earn part/free marks.
❖ Do the adjustments.
❖ Calculate final amounts.
 IMPORTANT NOTES TO THE STATEMENT OF FINANCIAL POSITION
❖ CURRENT PORTION OF LOAN can form part of NOTE 9 OR on the FACE OF THE BALANCE
SHEET under CURRENT LIABILITIES.
❖ When a Fixed deposit MATURES it will always be deducted from the FINANCIAL ASSET and it
will form part of CASH AND CASH EQUIVALENTS
❖ SHAREHOLDERS FOR DIVIDENDS can form part of NOTE 9 OR on the FACE OF THE BALANCE
SHEET under CURRENT LIABILITIES
3. CASH FLOW STATEMENT
 Basic format:
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2022

R
Cash flows from operating activities Could be inflow/outflow (344 715)
Cash generated from operations 2 656 185
Interest paid COMPULSORY (208 800)
Taxation paid COMPULSORY (657 600)
Dividends paid DECISION (2 134 500)
Cash flows from investing activities Could be inflow/outflow (187 500) OUTFLOW
Purchase of non-current assets Normally have greater effect on cash DECISION (1 300 000) MUST BE
Proceeds from sale of non-current assets DECISION 1 112 500 SHOWN IN
Investments matured/repaid BRACKETS!!!!
Cash flows from financing activities Could be inflow/outflow 1 944 000
Proceeds from issue of shares Normally have greater effect on cash DECISION 1 800 000
Repurchase of shares (576 000)
Proceeds from long-term borrowings Normally have greater effect on cash DECISION 720 000
Repayment of long-term loans Normally have greater effect on cash DECISION (-)
Net change in cash and cash equivalents (balancing amount) RESULTS OF
Could be inflow/outflow 1 411 785
DECISION
Cash and cash equivalents at beginning of year Could be positive/negative 1 429 465
Cash and cash equivalents at end of year Could be positive/negative 2 841 250
 NOTES TO THE CASH FLOW STATEMENT
COMPULSORY
Reconciliation between profit before taxation and Cash generated from operations
Profit before taxation xx
Adjustment for:
Depreciation xx
Interest expense xx
Operating profit before changes in working capital xx
Cash effects of changes in working capital xx
(Increase)/Decrease in inventory xx
(Increase)/Decrease in receivables xx
Increase/(Decrease) in payables xx
Cash generated from operations xx
Cash and cash equivalents Net Change Year 2 Year 1
Bank/ (Bank overdraft) xx xx xx
Cash float xx xx xx
Petty cash xx xx xx
xxx xxx xxx
CHOOSE LOGICAL APPOACH OR T-ACCOUNT

DIVIDENDS PAID INTEREST PAID SARS: INOME TAX PAID

 Know what the OPERATING, INVESTING and FINANCING activity consist of.
 Know your FINANCIAL STATEMENTS
 Always show OUTFLOW of cash in brackets
 Calculating the NET CHANGE in CASH AND CASH EQUIVALENTS if there is a BANK OVERDRAFT.
 Trade and other receivables – everything is added EXCEPT SARS: INCOME TAX

 Trade and other payables – everything is added EXCEPT SARS: INCOME TAX, SHAREHOLDERS FOR
DIVIDENDS and ACCRUED EXPENCE IF INTEREST IS NOT CAPITALIZED.
 Interest paid forms part of the OPERATING ACTIVITY

 If interest IS capitalized then interest expense is equal to interest paid.

 Loan repayment is ALWAYS the CAPITAL REPAYMENT OF LOAN.
 The sale of an asset will always be at BOOK VALUE.
 USING TANGIBLE ASSET T-ACCOUNT AT BOOK VALUE

NOVEMBER 2019
Calculating additions at cost:

Calculating depreciation:
 REPAYMENT AND PROCEEDS FROM LOAN

GDE PROJECT 2021

DIFFERENT WAYS IN ASKING FINANCIAL
STATEMENTS

Financial Statements

Statement of Comprehensive Income

Statement of Financial Position

Cash Flow Statement

 FINANCIAL STATEMENTS
EXAMPLE 1: EXAMPLE 2:
NOVEMBER 2018 NOVEMBER 2019

Income Statement, Balance Sheet and notes to the Tangible asset, correct net profit, Note 7 and the Balance
Balance Sheet using the same information Sheet
 FINANCIAL STATEMENTS
EXAMPLE 3: EXAMPLE 4:
NOVEMBER 2017 NOVEMBER 2016

Tangible asset note and the Balance Sheet Income Statement

STATEMENT OF COMPREHENSIVE INCOME
EXAMPLE 1: EXAMPLE 2:
NOVEMBER 2020 NOVEMBER 2019
Income and expenses = 12 months Only the adjustment amount must be entered

OWNERS’ EQUITY

Expense increase Incorrect net profit

Income decrease Income increase
Expense decrease
 CASH FLOW STATEMENT
EXAMPLE 1:

NOVEMBER 2016 EXAMPLE 2:

Notes from Balance Sheet included into Cash Flow Statement NOVEMBER 2017

Only parts of the Cash Flow Statement Note 7 and 8 from the Balance sheet incorporated
into the Cash Flow Statement
Completing the Cash Flow Statement – finding
missing figures
DECISIONS MADE BY COMPANIES
CASH FLOW STATEMENT

Decisions are made by management will AFFECT THE CASHFLOW OR BANK

Decisions can be made on the following items of the Cash flow statement:
EXAMPLE 3:
EXAMPLE 4:
NOVEMBER 2016
GAUTENG PRELIM 2019
ANALYSIS AND
INTERPRETATION
F I N A NCI AL I N DI CATORS
A N D COM M E N TING
FINANCIAL INDICATORS
Knowledge of formulae

• Formula sheets are provided but one must be able to identify the indicator

Classification of financial indicators

Commenting – identify indicators, analyse (indicate trends and quote figures)

Compare financial indicators that are related

Compare and analyse performance of two different companies

KNOW YOUR FINANCIAL STATEMENTS – KEY TO MASTERING THIS SECTION

CATEGORIES
PROFITABILITY LIQUIDITY RETURN SOLVENCY FINANCIAL RISK

• Percentage gross • Current ratio • Earning per 𝑇𝑂𝑇𝐴𝐿 𝐴𝑆𝑆𝐸𝑇𝑆 • Debt-equity ratio
•
profit on sales share 𝑇𝑂𝑇𝐴𝐿 𝐿𝐼𝐴𝐵𝐼𝐿𝐼𝑇𝐼𝐸𝑆
• Acid test ratio • Return on total
• Percentage gross • Stock turnover • Dividends per capital employed
profit on cost of rate share
sales • Stock holding • Return on
• Percentage period shareholders
operating • Average debtors equity
expenses on collection period • Dividend pay-out
sales policy
• Average
• Percentage creditors • Net asset value
operating profit payment period • Market price
on sales
• Dividends yield
• Percentage net
• Earnings yield
profit on sales
EXAMPLES OF FINANCIAL INDICATORS USED FINANCIAL
STATEMENTS AND IN THE CASH FLOW STATEMENT TO
FIND FIGURES
• Net profit after tax – INCOME STATEMENT
EARNINGS PER SHARE • Number of shares in issue – BALANCE SHEET

• Net profit after tax – INCOME STATEMENT

Return on shareholders’ equity • Shareholder’s equity – BALANCE SHEET AND CASH FLOW STATEMENT

Gross profit on sales • To calculate the gross profit or the sales figure – INCOME STATEMENT

• To calculate the gross profit or the cost of sales figure – INCOME

Gross profit on cost of sales STATEMENT

Operating expenses on sales • to calculate the operating expenses or sales– INCOME STATEMENT

Operating profit on sales • to calculate the operating profit or sales – INCOME STATEMENT

Net profit on sales • To calculate the net profit or sales. – INCOME STATEMENT
 • to calculate the BANK FIGURE, DEBTORS CONTROL, TRADE AND OTHER PAYABLES.
CURRENT RATIO – BALANCE SHEET AND CASH FLOW STATEMENT

• to calculate the STOCK figure or TRADE AND OTHER PAYABLES – BALANCE SHEET
ACID TEST RATIO AND CASH FLOW STATEMENT

• To calculate the STOCK figure – BALANCE SHEET AND CASH FLOW STATEMENT
STOCK TURNOVER RATE • To calculate the COST OF SALES – INCOME STATEMENT

• To calculate the STOCK figure

STOCK HOLDING PERIOD • To calculate the COST OF SALES – INCOME STATEMENT

• to calculate either the SHAREHOLDER’S EQUITY or the LOAN FIGURE. – BALANCE

DEBT EQUITY RATIO SHEET AND CASH FLOW STATEMENT

• to calculate the TOTAL DIVIDENDS ON ORDINARY SHARES or the NUMBER OF

DIVIDENDS PER SHARE SHARES – BALANCE SHEET AND CASH FLOW STATEMENT

• To calculate the number of shares in issue or the shareholders’ equity – BALANCE

NET ASSET VALUE SHEET AND CASH FLOW STATEMENT

SOLVENCY RATIO • To calculate the total assets or the total liabilities -BALANCE SHEET
 FINANCIAL INDICATORS THAT ARE COMPARED
Financial indicators that are compared Explanation
NAV Market value of shares HIGHER MARKET PRICE indicate that shareholders have confidence in
companies shares
ROSHE Rate of investment ROSHE – determines if the business should invest the funds elsewhere.

ROTCE Rate of interest on loan ROTCE – ABOVE interest rate is POSITIVELY geared. BELOW interest rate is
NEGATIVELY geared.
Debt Equity Rate of interest on loan Debt-Equity measure degree of FINANCIAL RISK. LOWER RATIO indicate
creditworthiness. Borrowed funds is favourable when interest rate is low.

EPS DPS DIVIDEND PAYOUT POLICY. Earning are distributed in the form of
dividends, and some may be retained for future expansion.

Debtors Collection period Creditors Payment period Longer period for creditor’s is preferable – money can be collected from
debtors. The payment period is within 90 days.

Current ratio Acid test ratio Can the business meet its short term obligations without selling inventory.

Stock turnover rate Stock holding period How long do we keep our stock and how many times do we turnover our
stock.
 CORPORATE GOVERNANCE
GAUTENG PRELIM 2020
S •Sustainable

T •Transparency

A •Accountable

R •Responsible management

D •Discipline

I •Independence

F •Fairness
 AUDIT REPORTS
A FAIR UNBIASED OPINION ON THE FINANCIAL STATEMENTS

UNQUALIFIED QUALIFIED DISCLAIMER ADVERSE

• Has not identified • Has identified a • The auditor is of the • Financial statements
any concerns concern relating to opinion that the of a company is
relating to the fair the fair presentation financial statements misstated, do not
presentation of the of the financial are not reliable. They conform with GAAP,
financial statements. statements. This will refuse to express an stating that the
This is desired by be disclosed to the opinion. This will information is
shareholders. shareholders have consequences incorrect, unreliable
for the company. and inaccurate
Example: GDE Project 2021
FINANCIAL INDICATORS
INCORPORATED INTO AUDIT REPORTS

November 2019
TOPICS IN PAPER 1 & 2
FIXED ASSETS AND INVENTORIES
 FIXED ASSETS
 Fixed assets is integrated into:
❖ Income Statement
❖ Balance Sheet
❖ Cash Flow Statement
❖ Budgets
❖ Cost Accounting
❖ VAT
 Fixed assets forms part of Paper 1 and Paper 2.
 Asset disposal opened and closed on the same day.
 Asset disposal can influence both the Balance sheet account and the Nominal account.
 If asset disposal appears in the Pre-adjustment Trial balance in the Nominal account section – need
to calculate the profit/loss on the sale of asset.
 Be aware if the transactions have been recorded or not when taking the information from the pre-
adjustment trial balance.
 INVENTORIES
 Inventories integrated into:
❖ Income Statement
❖ Balance Sheet
❖ Cost Accounting
 The business can valuate their stock using FIFO, weighted average or specific identification method.

EXAMPLE 1:
Paper 1: Gauteng Prelim 2021
• Calculating the loss of stock due to a fire which
will appear in the Income Statement.