Vous êtes sur la page 1sur 38

# Accounting Winter School 2011 4 July 15 July Learners Guide

Brought to you by

Brought to you by

Page 1

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za Programme Outline The Mindset Winter School is designed to focus on two subjects each day. For each subject you will find the following sessions: Examination Overview This is a 15 minute session that gives details of what you can expect in each examination paper. Practical guidelines are also given on how to prepare for the day of the exam. Topics Tips In this session you will be given a 15 minutes summary of the key ideas you need to know, common errors and study hints to help you prepare for your exams. Topic Session An expert teacher will work through specially selected questions from previous exam papers. Interactive Q & A After every topic you will get the chance to test yourself. Live Phone-in This is your chance to ask your own questions. So submit your question to the Help Desk and we might call you back to help you live on TV. All questions you submit will be answered within 48 hours as normal.

Brought to you by

Page 2

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za TOPIC 1: CASH FLOW STATEMENTS AND INTERPRETATION OF RATIOS QUESTION 1 75 marks 45 minutes (Adapted from Nov 2009)

CASH FLOW AND INTERPRETATION OF INFORMATION You are provided with information relating to Koola Limited for the financial year ended 31 August 2009. REQUIRED: 1.1 Refer to the Note for Fixed/Tangible assets below. 1.1.1 Calculate the fixed/tangible assets purchased. 1.1.2 Calculate the depreciation on vehicles. 1.1.3 Calculate proceeds of fixed/tangible assets sold. 1.2 Prepare the Cash Flow Statement for the year ended 31 August 2009. Notes are not required. Show workings in brackets. The Cash Flow Statement reflects some important decisions that have been taken by the directors. Name TWO of these decisions, quote figures to support your answer and explain how each decision benefits the company. 1.4 Calculate the following financial indicators on 31 August 2009: 1.4.1 1.4.2 1.4.3 1.4.4 1.5 Debt : Equity ratio Net asset value per share Acid-test ratio Earnings per share (5) (4) (6) (4) (6) (2) (3) (4)

(23)

1.3

The directors feel that the liquidity position of the company has generally improved. Quote THREE financial indicators to support their opinion. Briefly explain. One of the directors feels that the company should make more use of loans. Quote TWO financial indicators to support his opinion. Briefly explain. The market price of the shares on the Johannesburg Securities Exchange (JSE) was 1 750 cents on 31 August 2009. As a major shareholder, you are very satisfied with the performance of the company. Explain, by quoting financial indicators to support your opinion. Comment on share price, returns, earnings and dividends.

(6)

1.6

(4)

1.7

(8)

Brought to you by

Page 3

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za INFORMATION: 1. NOTES FROM THE FINANCIAL STATEMENTS Land and Buildings 818 200 818 200 0 ? ? 0 0 2 273 300 2 273 300 0 Equipment 52 800 120 000 (67 200) (7 920) 0 0 (7 920) 44 880 120 000 (75 120) Vehicles ? 382 800 (146 800) ? 0 ? ? ? 172 800 (83 000)

FIXED/TANGIBLE ASSETS Carrying value at the end of the previous year Cost Accumulated depreciation MOVEMENTS Additions at cost Disposals at carrying value Depreciation Carrying value at the end of the current year Cost Accumulated depreciation

NOTE: A vehicle was sold at carrying value on the last day of the financial period. Depreciation on vehicles is provided at 20% on the diminishing balance method. No equipment was purchased or sold during the year. Extensions to land and buildings were made during the year. 2. Extracted from the Post Closing Trial Balance: Ordinary share capital (R10 par value) Share premium (on new shares issued on 1 Sept. 2008) Retained income Non-current liability: Loan from Uno Bank (15% p.a.) Fixed/Tangible assets Inventories (all Trading Stock) Debtors' Control Creditors' Control Shareholders for dividends SARS Income tax Cash and cash equivalents 2009 R 1 200 000 54 000 781 380 580 000 ? 276 800 70 200 69 000 78 000 66 600 74 000 Cr Dr 2008 R 432 000 205 200 820 000 ? 261 800 84 000 53 400 58 320 29 200 Dr 86 920 Dr

Brought to you by

Page 4

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 3. Extracted from notes to the financial statements: Depreciation on vehicles Depreciation on equipment Interest on loan (all capitalised and paid) Net profit before tax Income tax for the year Net profit after tax Dividends for the year 4 . 2009 R ? 7 920 120 450 1 037 400 311 220 726 180 150 000

The following financial indicators were calculated for the past two years: Return on average shareholders' equity Return on total capital employed (after tax) Net asset value per share Debt/equity ratio Current ratio Acid-test ratio Rate of stock turnover Debtors' collection period Creditors' payment period Earnings per share Dividends per share 2009 54,3% 41,6% ? ? 2:1 ? 3,5 times p.a. 28 days 60 days ? 125 cents 2008 37,3% 35% 1 400 cents 1,3 : 1 4,1 : 1 1,8 : 1 3 times p.a. 30 days 40 days 590 cents 135 cents

## TOTAL MARKS: 75 QUESTION 2 70 marks 43 minutes (Adapted from Nov 2009)

CASH-FLOW STATEMENT AND RATIO ANALYSIS The information given below was extracted from the financial statements of Manchester Ltd, distributors of exquisite perfumes. REQUIRED: 2.1 Prepare the following: 2.1.1 Complete the note for reconciliation between profit before taxation and cash generated from operations. (8)

2.1.2

Prepare the Cash-Flow Statement for the year ended 28 February 2009. All workings must be shown in brackets to earn part-marks.

(28)

Brought to you by

Page 5

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.2 Calculate the following for 2009: 2.2.1 2.2.2 2.2.3 2.2.4 2.3 Current ratio Acid-test ratio Net asset value per share Debt/Equity ratio (Gearing ratio) (3) (4) (4) (3)

Explain why the directors decided to reduce the long-term loan significantly during the current financial year. In your opinion, was this a wise decision? Explain, quoting evidence (figures/financial indicators) from the question. Comment on the return on shareholders' equity, earnings and dividends earned by the shareholders. Quote evidence (figures/financial indicators) from the question. Calculate the premium at which the new shares were issued. The existing shareholders are unhappy with the price at which the additional shares were sold. Discuss, quoting ONE figure or financial indicator to support your answer.

(6)

2.4

(6) (5)

2.5 2.6

(3)

INFORMATION: 1. Extract from the Income Statement Depreciation Interest expense Net profit before tax Income tax (rate 30% of net profit) BALANCE SHEET ASSETS Non-current assets Fixed/Tangible assets at carrying value Fixed deposit at PDV Bank Current assets Inventories Trade debtors Cash and cash equivalents SARS Income tax TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves Ordinary share capital (par value R5) Share premium Retained income 28 February 2009 3 490 885 3 440 885 50 000 320 000 251 250 60 000 1 250 7 500 3 810 885 R 33 500 164 450 844 300 ? 28 February 2008 3 017 500 2 967 500 50 000 231 250 110 250 76 000 45 000 0 3 248 750

2.

## 1 443 000 1 050 500 0 392 500

Brought to you by

Page 6

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za Non-current liabilities Loan: Enid Bank at 15% p.a. Current liabilities Trade creditors Bank overdraft Shareholders for dividends SARS Income tax TOTAL EQUITY AND LIABILITIES 300 000 300 000 390 885 209 945 47 500 133 440 0 3 810 885 1 525 000 1 525 000 280 750 220 475 0 52 525 7 750 3 248 750

3. A.

B. C.

ADDITIONAL INFORMATION: Additional new shares were issued at a premium halfway through the year on 31 August 2008. These shares did not qualify for interim dividends. Fixed assets were sold for R100 000 cash at carrying value. Earnings and dividends per share were as follows: 2009 189 cents per share 72 cents per share 40 cents per share 32 cents per share 2008 135 cents per share 105 cents per share 80 cents per share 25 cents per share

## Earnings per share Total dividends Interim dividends Final dividends D.

You are also provided with the following financial indicators: 2009 26% 24% ? 2008 21% 10% 687 cents

% return on shareholders' equity % return on capital employed (after tax) Net asset value per share E.

The price of the shares on the Johannesburg Securities Exchange (JSE) has fluctuated between 680 cents and 780 cents over the past year.

[70]

Brought to you by

Page 7

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za TOPIC 2: FINANCIAL STATEMENTS QUESTION 1 70 marks 5th July & 12th July 42 minutes (Adapted from Nov 2009)

FINANCIAL STATEMENTS AND AUDIT 1.1 SIMPHIWE LIMITED You are provided with the Pre-Adjustment Trial Balance of Simphiwe Limited. The company buys and sells uniforms and they also repair uniforms for their customers, for which they charge a fee. These fees are credited to the Fee Income Account in the General Ledger. REQUIRED: 1.1.1 Refer to Information 2J below. Calculate the profit or loss on disposal of the computer. Show workings. You may prepare an Asset Disposal Account to identify the figure. Complete the Income Statement for the year ended 30 September 2009. The notes to the financial statements are NOT required. INFORMATION: 1. SIMPHIWE LTD PRE-ADJUSTMENT TRIAL BALANCE AS AT 30 SEPTEMBER 2009 DEBIT R CREDIT R 1 300 000 170 730 170 000 90 000

(8)

1.1.2

(47)

Balance Sheet Accounts Section Ordinary share capital Share premium Retained income (1 October 2008) Loan from Stay Bank Land and buildings at cost Vehicles at cost Equipment at cost Accumulated depreciation on vehicles (1 October 2008) Accumulated depreciation on equipment (1 October 2008) Debtors' control Creditors' control Trading stock Bank Petty cash SARS Income tax Provision for bad debts

1 628 520 220 000 190 000 41 000 37 000 36 600 17 960 479 000 13 500 2 200 83 500 1 440

Brought to you by

Page 8

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za Nominal Accounts Section Sales Cost of sales Debtors' allowances Salaries and wages Discount allowed Fee income Rent income Insurance Sundry expenses Directors' fees Audit fees Consumable stores Interest income Ordinary share dividends 2. ADJUSTMENTS A. Prepaid expenses in respect of sundry expenses at the year- end, R3 200, have not been taken into account. B. On 30 September 2009, R580 was received from A Ethic, whose account had previously been written off as irrecoverable. The amount was entered in the Debtors' Control column in the Cash Journal. C. The provision for bad debts must be adjusted to R1 830. D. There were two directors at the start of the accounting period. Directors' fees have been paid for the first half of the accounting period. On 1 April 2009, a third director was appointed. All three directors earn the same monthly fee. Provide for the outstanding fees owed to the directors. E. Rent has been received for 14 months. F. The following credit note was left out of the Debtors' Allowances Journal for September in error. The mark-up on goods sold was 50% on cost. R 1 310 000 6 200 162 000 905 104 750 56 000 11 000 39 250 390 000 53 705 24 000 2 500 88 000 R 2 720 000

SIMPHIWE LTD
Credit: Supaclean Ltd PO Box 340, Westmead, 3610

28 Sept. 2009

## 24 Uniforms returned Reduction on fee charged for repair of uniforms

Brought to you by

Page 9

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za G. A physical stock count on 30 September 2009 reflected the stock of uniforms on hand as R490 000. H. The loan statement from Stay Bank reflected the following: Balance at beginning of financial year R 150 000 Repayments during the year R 78 000 Interest capitalised R ? Balance at end of financial year R 90 000 I. Depreciation on vehicles is calculated at 20% p.a. on the diminishing-balance method. J. Depreciation on equipment is calculated at 10% p.a. on the cost price. Note that an item of equipment was taken over by one of the directors, Ivor Steele, on 30 June 2009 for personal use for R800 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. FIXED ASSET REGISTER Item: VYE Computer Date Purchased: 1 April 2006 Page 12 Ledger Account: Equipment Cost Price: R22 000

Depreciation Policy: 10% p.a. on cost price Date Depreciation Current calculations Depreciation 2006 R22 000 x 10% x R1 100 30 September 6/12 2007 R22 000 x 10% x R2 200 30 September 12/12 2008 R22 000 x 10% x R2 200 30 September 12/12 2009 ? R? 30 June K. Income tax for the year amounts to R63 280.

## Accumulated Depreciation R1 100 R3 300 R5 500 R?

Brought to you by

Page 10

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za QUESTION 2 70 marks 40 minutes (Adapted from Nov 2009)

BALANCE SHEET AND AUDIT REPORT You are provided with information relating to Qwando Limited for the financial year ended 30 June 2009. REQUIRED: 2.1 Prepare the Notes to the Balance Sheet for: Ordinary share capital Retained income (14) Prepare the Balance Sheet on 30 June 2009. Where notes are not required, show workings in brackets to earn part-marks. (38) Answer the questions that follow.

2.2

2.3

INFORMATION: 1. The following figures were identified from the accounting records at the end of the financial year on 30 June 2009. R 2 400 000 248 000 490 000 ? 60 000 ? 4 021 000 45 000 85 200 12 300 ? 400 000 6 650 7 200 7 950 28 450 129 600 5 600

Ordinary share capital (see Information 2 below) Share premium Retained income (on 1 July 2008) Shareholders for dividends (see Information 4 below) Fixed deposit at Supa Bank (see Information 5 below) Mortgage loan from Supa Bank (see Information 7 below) Fixed/Tangible assets Debtors' control Creditors' control Creditors for salaries Provision for bad debts (see Information 6 below) SARS (Income tax provisional tax payments) SARS (PAYE) Expenses payable (accrued) Income receivable (accrued) Bank (favourable balance) Trading stock Consumable stores on hand 2.

The authorised share capital comprises 1 000 000 ordinary shares of R3 par value. On 1 January 2009, 100 000 ordinary shares were issued to the public at a premium of 80 cents each. This has been properly recorded and is included in the figures above.

Brought to you by

Page 11

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 3. The net profit before tax for the year ended 30 June 2009 was calculated to be R1 250 000. No entry has been made for income tax at the rate of 30% of the net profit. Dividends were as follows: Interim dividends of 20 cents per share were paid on 31 December 2008. Final dividends of 35 cents per share were declared on 30 June 2009. One third of the fixed deposit matures on 31 August 2009. Provision for bad debts is maintained at 5% of debtors. The loan statement from Supa Bank on 30 June 2009 reflects the following: SUPA BANK LOAN STATEMENT ON 30 JUNE 2009 Balance on 1 July 2008 Interest charged Monthly payments in terms of the loan agreement (12 x R8 800) (These monthly payments include interest and capital repayments of the loan) Balance on 30 June 2009 R384 000 57 600 105 600 R336 000

4.

5. 6. 7.

The monthly capital repayments of the loan will remain constant until the loan is fully repaid on 30 June 2017. 8. You are provided with an extract from the report of the independent auditors: Audit opinion To the shareholders: We have examined the financial statements set out on pages 8 to 20. In our opinion, the financial statements fairly present, in all material respects, the financial position of the company at 30 June 2009 and the results of their operations and cash flows for the year ended, in accordance with International Financial Reporting Standards (IFRS), and in the manner required by the Companies Act in South Africa. Barlow & Bokwe Chartered Accountants (SA) Registered Accountants and Auditors Cape Town 6 September 2009 2.3.1 State whether the shareholders would be satisfied or unsatisfied with this audit report. Give a reason for your answer. Explain why the auditors found it necessary to stipulate the page numbers (that is 8 to 20) in this report. Explain why the Companies Act makes it a requirement for public companies to be audited by an independent auditor.

## (3) (2) (2)

2.3.2 2.3.3

Brought to you by

Page 12

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.3.4 2.3.5 Explain TWO major consequences for Barlow and Bokwe should they be negligent in performing their duties. (4) What actions would Barlow and Bokwe have to perform to verify the Fixed/Tangible Assets figure in the Balance Sheet? Provide THREE points. (3) Quinton Qwando, the major shareholder and managing director, has informed the auditors that he intends to buy the unissued shares himself next year without advertising the new issue to the other shareholders or the public. What advice should the auditors give to Quinton? Briefly explain. (4) TOTAL MARKS: 70 ACCOUNTS 12th July

2.3.6

TOPIC 3: MANUFACTURING

Brought to you by

Page 13

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za QUESTION 1 MANUFACTURING 1.1 PD Pencils Manufacturers The business produces one type of mechanical pencil. INFORMATION: The following information was extracted from the financial records of PD Pencils Manufacturers on 31 October 2009, the end of the financial year. R Administration cost Direct/Raw material cost Factory overhead cost Selling and distribution cost Direct labour cost Prime cost Total cost of production of finished goods Work-in-process (1 November 2008) Work-in-process (31 October 2009) Sales Cost of sales REQUIRED: 1.1.1 1.1.2 1.1.3 1.2 Prepare the Production Cost Statement. (10) 750 000 pencils were produced during the financial period. Calculate the cost of production per unit. (3) Calculate the net profit. (5) 810 000 1 770 000 827 000 603 000 ? 2 745 000 3 525 000 37 600 ? 6 390 000 3 337 000 30 marks 15 minutes (Adapted from Nov 2009)

Garden Manufacturers The business produced 4 100 garden spades for the year ended 31 October 2009. The following information was extracted from their books: INFORMATION: Total Sales Variable costs Fixed costs R615 000 R287 000 R348 500 Per unit R150 R70 R85

Brought to you by

Page 14

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.2.1 1.2.2 1.2.3 Calculate the break-even point for the year ended 31 October 2009. (5) Should the business be satisfied with the number of units that are currently produced? Explain. (3) Despite the fact that there was an increase in the price of raw materials, the direct/raw materials cost per unit decreased from R32 to R27. Give a valid reason for the decrease. (2) Despite the fact that there was no increase in wages during the year, the direct labour cost per unit increased from R20 to R28. Give a valid reason for the increase. (2) TOTAL MARKS: 30 55 marks 33 minutes (Adapted from Nov 2009)

1.2.4

## QUESTION 2 MANUFACTURING 2.1

BAKONA BIN MANUFACTURERS You are provided with information relating to Bakona Bin Manufacturers for the year ended 28 February 2009. The business makes and sells only one type of product, namely plastic rubbish bins. REQUIRED: 2.1.1 Prepare the following notes to the Production Cost Statement: 2.1.2 Prepare the Production Cost Statement. 2.1.3 (3) Direct/Raw material cost Direct labour cost Factory overhead cost

## (7) (7) (16) (10)

Calculate the unit cost of production per plastic bin completed. INFORMATION: 1. 2. Units produced: 58 000 bins were completed during the financial year. Stock balances: Direct/Raw material stock Work-in-process stock Factory indirect material stock 1 March 2008 R57 900 169 500 8 100 28 February 2009 R34 200 120 600 7 400

Brought to you by

Page 15

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 3. Transactions for the year: Raw material purchased for cash and on credit Defective raw material returned to suppliers Carriage on raw materials purchased Salaries: Factory foreman Office workers Wages: Office workers Factory workers in the production process (see Information 4
below)

R 1 622 700 23 100 28 800 241 000 270 000 48 000 ? 11 520 2 410 2 700 125 900 7 800 000 ? 145 000 85 000 8 400 133 000 960 36 000 52 000 150 800 25 000

UIF contributions (to be allocated to each specific cost account): Factory workers in the production process Factory foreman Office workers Factory indirect material purchased Sales of finished goods (R120 per unit) Commission to salespersons (10% of sales) Advertising Factory maintenance Bad debts Rent to be allocated in proportion to floor space (see Information 5
below)

Bins stolen (rand value) Water and electricity (see Information 6 below) Depreciation on factory equipment Sundry administration expenses Sundry factory expenses 4. Factory workers in the production process: Number of factory employees working directly on the bins (unchanged throughout the year) Number of normal hours worked by each factory worker during the year Number of overtime hours worked by each factory worker during the year Wage rate (normal) Wage rate (overtime) Floor space: Factory Office Square metres 1 200 sq. metres 600 sq. metres

12 employees 1 600 hours 240 hours R 60 per hour R100 per hour Sales dept. 600 sq. metres

5.

6.

Water and electricity: 15% of the amount is allocated to the office and 25% to the sales department. The rest applies to the factory.

Brought to you by

Page 16

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.2 KOOL MANUFACTURERS This business makes plastic vuvuzelas. The information below relates to the year ended 30 June 2009. Number of vuvuzelas produced Sales for the year (all manufactured units were sold) Total fixed costs Total variable costs 2.2.1 2.2.2 2.2.3 2.2.4 12 000 R480 000 R210 000 R300 000

Give ONE example of a fixed cost and ONE example of a variable cost. Explain why it is important to calculate the expected break-even point for a business before the start of a financial year. Use the figures above to calculate the break-even point. Comment on your calculation in QUESTION 3.2.3. What advice would you offer Kool Manufacturers? Briefly explain.

## (2) (2) (5) (3) [55]

Brought to you by

Page 17

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za SOLUTIONS TO TOPIC 1: CASH FLOW STATEMENTS AND INTERPRETATION OF RATIOS QUESTION 1 *Inspection 1.1.1 Calculate fixed / tangible assets purchased. R2 273 300 818 200 = R1 455 100 [2] 1.1.2 Calculate the depreciation on vehicles. R382 800 R146 800 = R236 000 X 20 % = R47 200 * [3] 1.1.3 Calculate proceeds of fixed/tangible assets sold. 382 800 146 800 = 236 000 172 800 83 000 = 89 800 236 000 89 800 47 200 = 99 000 * [4] 1.2 KOOLA LIMITED *Inspection CASH FLOW STATEMENT FOR THE YEAR ENDED 31 AUGUST 2009 R Cash effects of operating activities * 761 180 Cash generated from operations 1 227 370 Interest paid (120 450) Dividends paid (58 320 + 150 000 - 78 000 ) (130 320) Income tax paid (311 220 29 200 -66 600 ) (215 420) Cash effects of investing activities Purchase of tangible assets (2 273 300 818 200) Proceeds from the sale of tangible assets* Cash effects of financing activities Proceeds from shares issued (1 200 000 - 432 000 = 768 000 + 54 000 ) Repayment of long-term loans (820 000 - 580 000) Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year * See 4.1.1 See 4.1.3 * * (1 356 100) (1 455 100) 99 000 582 000 822 000 (240 000) (12 920) 86 920 74 000

TOTAL MARKS: 23

Brought to you by

Page 18

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.3 Two valid decisions listed Figures quoted Explanation

Repayment of loan to reduce interest. Loan decreased by R240 000. Shares were issued in order to fund the purchase of Land & Buildings. R822 000 were generated through the issue of shares. This was a better option than borrowing funds. Tangible assets (Land & Buildings) were acquired to the value of R1 455 100. This will save the company rent expenditure, the company has acquired assets that increase in value. A vehicle was sold for R99 000. This could have been an obsolete / unused vehicle which resulted in unnecessary maintenance expenses. [6]

1.4.1

Debt : Equity ratio Non-current liabilities: Shareholders Equity R580 000 : R1 200 000+54 000+781 380 = R580 000 : R2 035 380 If any one part correct = 0,28: 1 or 0.3:1 [5]

1.4.2

Net asset value per share Shareholders equity No. of shares issued = R2 035 380 120 000 = 1 696,2 cents 100 1 See 4.4.1 x 100 1 OR 1 696,15 OR R16,96 [4] x

1.4.3

Acid-test ratio Trade and other receivables + cash and cash equivalents : Current liabilities (70 200 + 74 000) : 69 000 + 78 000 + 66 600 = 144 200 : 213 600 if any one part correct = 0,7 : 1 OR 0,68 : 1 [6]

Brought to you by

Page 19

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.4.4 Earnings per share Net profit after tax No. of shares issued x 100 cents

= 726 180 x 100 cents 120 000 See 4.4.2 = 605,2 cents OR 605,15 OR R6,05 [4] 1.5 Three financial indicators Possible answers: Current ratio: Dropped from 4,14 : 1 to 2,02 : 1. (although it dropped it is still satisfactory as your current assets are double the current liabilities) Acid-test ratio: Dropped from 1,8 : 1 to 0,7 : 1 (below but the company is operating efficiently) Debtors' collection period: Collection period improved from 30 to 28 days. Creditors' payment period: increased from 40 to 60 days Stock turnover rate: Stock is turning over at a faster rate from 3 to 3,5 times p.a.

[6]

1.6

Valid explanation Financial indicators The debt : equity ratio decreased from 1,3:1 to 0,3:1 Return on capital employed increased from 35% to 41,6% Shareholders equity (R2 035 380) far exceeds the debt of this company (R580 000). The interest rate is 15% p.a. and the return on capital employed is 41,6% in 2009 thus the returns are geared upwards.

[4]

1.7

Valid explanation Financial indicator The market price is 1 750 cents per share. This is higher than the net asset value as calculated at 1 696,5 cents per share Return on shareholders equity increased from 37,3% to 54,3% Earnings per share increased from 712,3 cents to 830 cents Dividends per share decreased from 135 cents to 125 cents Dividend payout rate has dropped. Retaining more income [8] TOTAL MARKS: 75

Brought to you by

Page 20

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za QUESTION 2 2.1.1 Reconciliation between profit before taxation and cash generated from operations Net profit before tax Adjustments i.r.o. Depreciation Interest on borrowed funds Operating profit before changes in working capital Changes in working capital Inventory Check operation Figure Operation Figure Operation Figure Operation 33 500 164 450 1 042 250 (135 530) (141 000) 844 300

Debtors

16 000

Creditors

## Cash generated from operations Check operation

2.1.2 MANCHESTER LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2009 CASH FLOW FROM OPERATING ACTIVITIES Cash generated from operations Interest paid
Check operation See 5.1.1 Figure must be correct & outflow

337 165

## Dividends paid OR OR Taxation paid OR

Mark entire line or T-account 52 525 + 217 480 133 440 52 525 217 480 + 133 440 52 525 1 mark + 84 040 2 marks Mark entire line or T-account 7 750 + 253 290 + 7 500 7 750 253 290 7 500

(136 565)

## If one part correct, figure must be outflow

(268 540)

Brought to you by

Page 21

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za CASH FLOW FROM INVESTING ACTIVITIES
Check operation figure must show correct flow

(506 885)

Purchase of fixed assets Mark entire line or T-account (see below) 3 440 885 [2 967 500 100 000 33 500 ] OR 3 440 885 2 967 500 + 100 000 + 33 500 OR 3 440 885 + 2 967 500 100 000 33 500 Proceeds from the sale of fixed assets CASH FLOW FROM FINANCING ACTIVITIES Proceeds of shares issued 970 1 034 500 + 268
Check operation If one part correct, figure must be -ve

(606 885)

## 100 000 78 470 1 303 470

OR 2 085 000 (1 mark) 1 050 500 (1 mark) + 268 970 (1 mark) OR 2 353 970 (2 marks) 1 050 000 (1 mark) Repayment of long term loans
Figure Outflow

(1 225 000)

## Check operation, do not accept 46250 or 47500 or 1250 Must be +ve

(91 250)

Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

## Figure must be -ve

Fixed Assets Taccount 2 967 100 000 500 33 500 606 3 440 885 885

[28]

Brought to you by

Page 22

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.2 Calculate the following for 2009: 2.2.1 Current ratio proper method & one part correct 320 000 : 390 885 = 0,8 : 1 (accept 0,82: 1) Must be in correct order and must be in the format x:1 Acid-test ratio proper method & one part correct 68 750 : 390 885 = 0,2 : 1 (Accept 0,18 : 1) Must be in correct order and must be in the format x:1 Net asset value per share proper method & one part correct R3 120 000 / 417 000 shares = 748,2 cents or R7,48 Must be in correct order and must be in cents or rands Debt/Equity ratio (Gearing ratio) proper method & one part correct 300 000 : 3 120 000 = 0,1 : 1 or 0,096 : 1 Must be in correct order and must be in the format x:1

[3]

2.2.2

[4]

2.2.3

[4]

2.2.4

[3]

2.3

Be aware of differing structures to the answer by learners. The following components should be covered: Explanation of directors decision: May award part marks for unclear or incomplete answers Any one reason: The sale of extra shares has brought about an inflow of cash In the previous year the ROTCE (10%) was lower than the interest rates (15%). In the previous year the company was highly geared with a very high debt/equity ratio (> 1 : 1) Opinion: Yes or No Explanation: Evidence: May award part marks for unclear or incomplete answers Any one explanation for Yes: The debt/equity ratio is now very low (0,1 : 1) which indicates a low-risk situation The saving on interest has increased the profits as indicated by EPS from 135c to 189c or ROSHE from 21% to 26% The company is now in a positive gearing situation with ROTCE of 24% which is much higher than the interest rates. Any one explanation for No: The directors have over-reacted because the evidence shows that they should now consider taking out more loans (ROTCE of 24% exceeds interest rates) and debt/equity ratio of 0,1:1 is low, indicating low risk The short-term liquidity is now a problem as the acid-test ratio is now 0,2:1 and the current ratio is 0,8:1

[6]

Brought to you by

Page 23

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za The net change in cash was a negative of R91 250 which has caused short-term liquidity concerns.

2.4

Returns on shareholders equity Any valid specific comment related to the indicator, e.g. ROSHE has increased from 21% to This exceeds the returns on 26% alternative investments OR: ROSHE is now 26% OR: ROSHE increased by 5% points OR: ROSHE increased by 23,8% Earnings Quote financial indicator

EPS has improved from 135c to 189c OR: EPS is now 189c OR: EPS increased by 54c or 40% Dividends Quote financial indicator DPS has declined from 105c to 72c OR: DPS is now 72c OR: DPS decreased by 33c or 31,4%

## This compares well to the value of the share

Any valid specific comment related to the indicator, e.g. The company is retaining more of its profits OR: This increases the NAV OR: The dividend payout rate dropped to less than 50% of profits OR: Increases the infrastructure of the company

[6]

2.5

Calculate the premium at which the new shares were issued. Number of shares issued = (2 085 000 1 050 500)/R5 = 206 900 shares 268 970 / 206 900 Note: the 3 marks on the R268 970 is to compensate for possible ambiguity in question = R1,30 Any one part correct, must be in cents or rands [5]

Brought to you by

Page 24

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.6 Quoting of figures / financial indicator Comment Part-marks may be awarded for unclear, partial or incomplete comments Expected responses: The shares were issued at a price of R6,30 which is lower than the NAV (R6,87 or R7,48) which means that the existing shareholders are being disadvantaged The shares were issued at a price of R6,30 which is lower than the market price (R6,80 to R7,80) which means that the existing shareholders are being disadvantaged [3] TOTAL MARKS: 70

Brought to you by

Page 25

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za SOLUTION TO TOPIC 2: QUESTION 1 1.1.1 Calculate the profit or loss on disposal of the computer: No part marks 22 000 5 500 1650 800 = R14 050 OR 22 000 OR Cost price Accu depr (5 500 + 1 650 ) Carrying value Disposal/Bank Loss on sale of asset 22 000 7 150 14 850 800 14 050 (5 500 + 1650) 800 = R14 050 FINANCIAL STATEMENTS

Equipment

Asset disposal 22 000 Accu depr (5 500 + 1 650 ) Bank Loss on sale of asset 22 000

## Ignore details here

Brought to you by

Page 26

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.1.2 SIMPHIWE LTD INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2009 Sales (2 720 000 6 200 9 600 ) R15 800: 2 marks Cost of Sales (1 310 000 6 400 ) Mark figures only 8 Gross Profit Check operation, COS must be deducted Other operating income Check operation Fee income (104 750 750 ) Rent income (56 000 8 000 ) Bad debts recovered Trading stock surplus (490 000 [479 000 + 6 400]) Ignore workings,1 method mark for any figure Gross operating income Operating Expense Check operation, mark figure only Salaries and wages Discount allowed Insurance Sundry expenses (39 250 3 200 ) 585 000 Directors fees (390 000 + 390 000 + 195 000 ) Audit fees Consumable stores Provision for bad debts adjustment No part marks Depreciation (1 650 + 16 800 + 35 800 ) See 4.1.1 @Any figure Loss on sale of asset See 4.1.1 Operating profit Interest Income Profit before interest expense/finance cost Interest expense / Finance cost If no brackets accept the figure Profit before tax Income Tax 5 Net Profit after tax If no brackets accept the figure Check operation, tax and interest expense must be deducted 2 704 200 (1 303 600) 1 400 600 157 180 104 000 48 000 580 4 600 1 557 780 (1 331 350) 162 000 905 11 000 36 050 975 000 53 705 24 000 390 54 250 14 050
226 430

12

22

2 500
228 930

(18 000)
210 930

## (63 280) 147 650

TOTAL: 47 Foreign items 1 each (max 2); Ignore Trading Stock & Prov for Bad Debts as foreign items. If interest income / interest expense in two places, treat as foreign item If interest income / interest expense misplaced, -1 each time (-2 max) Brought to you by Page 27

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.2.1 Any one valid reason, e.g. Can award part-marks for partial, unclear or incomplete answers So that readers of financial statements can have confidence in his opinion Assurance to the public that he/she is well trained on an ongoing basis Disciplinary actions if negligent in performing duties Aware of latest trends e.g. IFRS, Companies Act, King Code Act in ethical manner (integrity, observe code of conduct) To benchmark quality of work Any one valid reason, e.g. Can award part-marks for partial, unclear or incomplete answers The auditor expresses an opinion, he/she does not prepare the financial statements If the auditor has anything to do with preparing the financial statements, he will not be able to express his opinion (conflict of interests, he would be biased) The auditor only checks on a test basis the directors are responsible for the figures The directors work in the company on a daily basis they must be held liable for errors or fraud The directors cannot delegate their responsibilities for the preparation of the financial statements. (a) Any valid proof of entries in the books or values in the books or financial statements concerning cash, fixed assets, loans, stock e.g. bank statements, stock sheets counts, invoices (source documents and supporting vouchers), fixed asset register

[2]

1.2.2

[2]

1.2.3

(b) One principle provided Explanation of reason: e.g. e.g. Stock valuation method Could lead to differences in profit Valuation of fixed assets Could lead to differences in (historical cost & profit or net asset value depreciation) Matching principle Income & expenses must be matched in correct accounting period Prudence principle Results must be conservatively reported Going-concern principle Affects valuation of assets Any other valid principles and reasons acceptable accept transparency, even though its a King Code principle

[5]

Brought to you by

Page 28

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.2.4 Any valid response Part-marks can be awarded for unclear or incomplete answers Possible responses, e.g. The auditors have stated that they are satisfied with all aspects of the financial reporting by the directors/company This is a standard report cannot expect better (fairly presented) No negative comments reported if the auditor had been dissatisfied about anything he would have stated it here Complies with IFRS and Companies Act The auditors have not stated the report is qualified or withheld. Give one opinion to support Sam Any one valid opinion Part-marks can be awarded for unclear or incomplete answers Ivor is benefiting from a very low charge on an asset that is worth a lot more to the company and hence the shareholders are losing as a result of this transaction (a large loss was made on this disposal). This sets a bad precedent for the company / misuse of his position as director; other employees might feel entitled to similar benefits. The directors do not own the company; the shareholders are the owners of the company. There is also tax implications the director should be paying tax on this perk. The transaction was not transparent no discussion / disclosure on the disposal in advance. The asset was still of use to the company; the director has no right to take it. (b) (a)

[2]

1.2.5

Give one opinion to support Ivor. Any one valid opinion Part-marks can be awarded for unclear or incomplete answers The computer is already more than three years old, and computers have a relatively short life span. The computer is out-dated; it will probably not be upgradeable. The depreciation at 10% on cost price for computers is unrealistic and should therefore have had a lower carrying value. NB: Do not accept that directors are owners. TOTAL MARKS: 70

[4]

Brought to you by

Page 29

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za QUESTION 2 2.1 QWANDO LIMITED NOTES TO THE BALANCE SHEET ORDINARY SHARE CAPITAL Authorised 1 000 000 ordinary shares of R3 each 3 000 000 R *Inspection

Issued * 700 000 ordinary shares of R3 each on the last day of previous year 100 000 ordinary shares of R3 each issued during the year 800 000 ordinary shares of R3 each on the last day of current year 2 100 000 * 300 000 2 400 000

RETAINED INCOME Balance on the last day of previous year Net profit after tax for the period (1 250 000 - 30%) Ordinary share dividends Paid If 0,20 x opening number of shares Recommended If 0,35 x closing number of shares

R 490 000 875 000 (420 000) 140 000 280 000 945 000 TOTAL: 14

## Balance on the last day of current year

Brought to you by

Page 30

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.2 QWANDO LIMITED BALANCE SHEET ON 30 JUNE 2009 ASSETS NON CURRENT ASSETS Fixed / Tangible assets Financial Assets Fixed deposit: Supra Bank (60 000 - 20 000 ) CURRENT ASSETS Inventories (129 600 + 5 600 ) Trade and other receivables (45 000 2 250 + 25 000 + 7 950 ) Cash and Cash equivalents (20 000 see FD + 28 450 ) TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Ordinary share capital Share premium Retained income NON-CURRENT LIABILITIES Mortgage loan: Supa Bank (336 000 - 48 000 ) CURRENT LIABILITIES Trade and other Payables (85 200 + 7 200 + 12 300 + 6 650 ) Shareholders for dividends See 3.1 Current portion of loan (12 X 4 000) See loan TOTAL EQUITY AND LIABILITIES *Inspection

* * * *

4 061 000 4 021 000 40 000 259 350 135 200 75 700 48 450 4 320 350

## See 3.1 See 3.1

* *

3 593 000 2 400 000 248 000 945 000 288 000 288 000

* *

439 350 111 350 280 000 48 000 4 320 350 TOTAL: 38

Brought to you by

Page 31

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.3.1 Satisfied Any valid reason Possible responses The financial statements are fairly presented - this is a positive report This is an unqualified report Auditors did not mention any irregularities They are only responsible for the pages that have been stipulated in the auditors' report The shareholders of a company need to have confidence in the companys ability to look after the investment [2] 2.3.4 Any two valid consequences Possible responses 2.3.5 Can be sued Not be re-appointed as auditors Face disciplinary procedures by the professional body

[3]

2.3.2

[2] 2.3.3

[4]

## Three actions Possible responses

2.3.6

Examine the financial records of the business - external audit Assess the internal control of the business Assess the accounting principles used by the business Inspect the fixed asset register Advice: This is unethical and the issue of new shares should be advertised to all according to the Memorandum and Articles of Association, as this is a public company. Explanation: The other shareholders will be disadvantaged, as Quinton will be increasing his shareholding percentage, which will effectively reduce the returns and dividends that the others are earning. By offering the shares on the open market the company could raise more money than if they sold at an agreed price to one buyer. Any valid explanation.

[3]

## [4] TOTAL MARKS: 70

Brought to you by

Page 32

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za SOLUTION TO TOPIC 3: QUESTION 1 1.1.1 *Inspection PRODUCTION COST STATEMENT OF PD PENCILS MANUFACTURERS ON 31 OCTOBER 2009 TOTAL Direct/Raw materials cost Direct labour cost Prime cost Factory overhead cost Total cost of production Work-in-process stock on 1 November 2008 1 770 000 975 000 2 745 000 827 000 3 572 000 37 600 * MANUFACTURING

3 609 600 Work-in-process on 31 October 2009 Cost of production of finished goods 1.1.2 Cost of production No. of units manufactured = R3 525 000 750 000 = 1.1.3 R4,70 * [3] [5] (84 600) 3 525 000 [3] *

* R6 390 000 3 337 000 810 000 603 000 = R1 640 000 Total fixed costs Selling price per unit Variable cost per unit = R348 500 . R150 R70 = R348 500 R80

1.2.1

1.2.2

= 4 356 or 4 357 units * Answer depends on units calculated in 2.2.1. No - they are producing 256 units less than what is required to break even (4 356 units). They will make a net loss.

[5]

[3]

Brought to you by

Page 33

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 1.2.3 Any valid reason 1.2.4 TOTAL: 30 QUESTION 2 PRODUCTION COST STATEMENT 2.1.1 BAKONA BIN MANUFACTURERS NOTES TO THE FINANCIAL STATEMENTS DIRECT/RAW MATERIAL COST Opening stock Purchases (1 622 700 23 100 ) Carriage on purchases * R 57 900 1 599 600 28 800
1 686 300

Greater care or efficiency in the use of raw materials Tighter control over the use of raw materials Better quality of raw materials less wastage Better training of workers Raw materials obtained at a cheaper price

[2]

Any valid reason More overtime Decrease in productivity working slower, demotivated or lazy workers Unproductive workers due to power cuts, etc.

[2]

Closing stock If no brackets accept the R34 200 *Check operation, closing stock must be deducted If the candidate does a ledger account instead of a note, mark the figures and subtract 2 for format DIRECT LABOUR COST Factory wages 1 152 000
No part marks

## (34 200) 1 652 100 [7] R

288 000

1 440 000

No part marks

(12 x R60 x 1600) + (12 x R240 x 100) Basic wage and overtime may by split over two lines UIF contribution Could be include in wages line 11 520 1 451 520 [7] *Check operation, at least one aspect correct * If the candidate does a ledger account instead of a note, mark the figures and subtract 2 for format

Brought to you by

Page 34

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za FACTORY OVERHEAD COST Indirect materials (8 100 + 125 900 7 400 ) Indirect labour (241 000 + 2 410 ) split Factory maintenance Rent expense (133 000 x ) Depreciation Sundry expenses No part-marks No part-marks Water and electricity (36 000 x 60%) May be R 126 600 243 410 85 000 66 500 21 600 52 000 25 000 620 110 [16]

*Check operation, at least one aspect correct * If the candidate does a ledger account instead of a note, mark the figures and subtract 4 for format Foreign items (e.g. Advertising): 1 in any note (max 3 in total)

2.1.2 PRODUCTION COST STATEMENT OF BAKONA BIN MANUFACTURERS FOR THE YEAR ENDED 28 FEBRUARY 2009 TOTAL Direct/Raw materials cost Direct labour cost Direct/Prime cost Factory overhead cost Details #See 3.1.1 #See 3.1.1 # # # 1 652 100 1 451 520 3 103 620 620 110 3 723 730 169 500 3 893 230

Check operation

## Work-in-process on 1 March 2008 R169 500 must be +ve

Brought to you by

Page 35

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za

2.1.3

3 772 630 See 3.1.2 Must be the numerator 58 000 Must be the denominator = R65,05 Check method & operation, one part correct

(120 3 600)

Work-in-process on 28 February 2009 R120 600 must be -ve check the operation if no bracket Cost of production of finished goods Check operation 2.2 2.2.1 Kool Manufacturers One example of a fixed cost: Any one valid example, e.g. Rent expense, Salaries, Indirect wages, Interest etc (Accept Administration costs and Factory overhead costs or any parts thereof due to assumptions included in previous papers) One example of a variable cost: Any one valid example, e.g. Direct/Raw materials, Direct labour / Direct wages, Advertising, Selling and distribution, Commission on sales Accept Water & electricity if it has not been indicated by the candidate as a fixed cost 2.2.2 Good explanation = 2 marks; Satisfactory = 1 mark; Incorrect = 0 marks Two marks: So that any potential problems of low production can be foreseen To start corrective action promptly before losses occur No profits are made until break-even is reached Determine the minimum number of units to produce to prevent losses To produce enough products to set the production level to cover all costs To identify whether efficiency needs to be improved to produce the required number of units to make a profit To provide information to compile the budget to ensure that profits are achievable One mark: To produce enough products Prevent low profits / prevent a loss Improve efficiency To compile a budget 3 772 630

[10]

[2]

[2]

Brought to you by

Page 36

Accounting Exam Revision Learners Guide Winter School July 2011 www.learnxtra.co.za 2.2.3 Calculate the break-even point. No part marks No part marks Any one part correct R210 000 / R15 = 14 000 units Must be numerator Must be denominator OR OR 2.2.4 R210 000 / [R40 (R300 000 / 12 000)] = 14 000 units Let BEP = x; then 15 x 210 000 = 0; and x = 14 000 units

Give credit if responses are based on an incorrect calculation above (see 3.2.3) Comment: Compare BEP to the 12 000 units produced e.g., The business is not producing enough units they are below the BEP which means that the business will be making a loss. Advice: Explanation = 2 marks; Point provided without explanation = 1 mark; Incorrect = 0 marks Two marks: Look at ways of economising on fixed / variable costs to reduce costs so that the BEP decreases Find a cheaper supplier of raw materials to reduce unit costs Avoid overtime to reduce labour costs Train direct workers to work more efficiently to increase productivity Avoid wastage of raw materials to reduce unit costs Increase selling price provided it does not lead to a reduction in sales volumes Spend more on advertising to increase sales volumes One mark: Increase selling price Advertise Change supplier of raw materials Increase production TOTAL MARKS: 55

Brought to you by

Page 37