Accounting Notes GRD 12
Accounting Notes GRD 12
Accounting Notes GRD 12
LEARNERS
WORK-BOOK
TERM: 1
“Only accountants can save the world – through peace, goodwill and reconciliations.”
Compiled by : Mr P.Mogorosi
Edited by : Mr T Lekagane
: Mr. L Sefume
Accounting 2 NW/TERM 1/2021
Grade: 12 NSC
NO CONCEPTS EXPLANATION
1. Public company Owned by the shareholders who are members of the general
public and trade shares publicly.
2. Shareholders Are the owners of the Entity or Business
3. Prospectus Document offering shares to the shareholders
4. Authorised share capital The total number of shares that the company is allowed to
issue to the public as stipulated in Articles of Association.
5. Issued share capital The number or amount of shares issued to the public.
6. Unissued share capital The total number of shares not yet issued to the public.
7. Buy-back of shares A Company or Entity buy-back of shares, also known as a
Or share Buy-back “Shares Repurchase”, is a company’s buying back its shares
from the marketplace. You can think of a buy-back as a
company investing in itself, or using its cash to buy its own
shares.
8. Interim dividends Dividends Declared and paid during the financial year.
9. Final dividends Dividends declared at the end of the financial year but not yet
been paid, and will be paid at the beginning of the next of the
financial year.
10. Total dividends for the year Interim dividends plus the Final dividends.
11. Provisional income tax Income tax paid during the financial year to SARS (it’s an
advance).
12. Income tax Amount of net profit that must be paid over to SARS.
13. Internal auditor Employed by the company and is responsible for all internal
controls and checks. Report to the directors.
14. External auditor Independent and has to verify that the financial statements are
fair reflection of the affairs of the company. Report to the
shareholders.
15. Unqualified report A good report.
16. Qualified Not a good report-where there material problems exists.
17. Disclaimer Expressed where there is an inability to verify transactions-
unable to express an opinion.
18. Cash-flow statement It is a statement that reflects the flow of money within and
outside the business over a specific period of time.
19. Directors fee Salaries and wages of the directors.
20. Audit fee Salaries and wages of the Auditors.
21. Directors They are directly appointed by the shareholders.
GAAP PRINCIPLES
Materiality principle
All information that is important or material must be shown separately in the
financial statements.
Information that is not important (not material) can be added together.
Errors will only be corrected if it has a material (substantial) effect on the results
of the financial year.
Historical cost principle
Assets must be recorded in the financial records of the business at the price paid
(cost price) and not at the amount the owner would receive (market value) if the
assets would to be sold.
Business entity principle
The accounting records of the business must be kept separate from the accounting
records of the owner of the business.
Matching and Accrual principle
Accrual
Income earned during a particular financial period and the expenses incurred, must
be brought into account during the specific financial period when they occur (take
place) and not when the cash for the transaction is received or paid.
Matching
If an expense has been incurred to produce income, these two items must be
matched against each other in the same financial statements.
Prudence principle
Transactions must be recorded in the way that has a more conservative result.
The accountant must rather understate than overstate profits if there is uncertainty.
The accountant will not record any possible income that the business might earn
unless it can be proved that it has been earned beyond all doubt.
Going concern principle
Assets are recorded in the balance sheet with the assumption that the entity will
continue to operate in the foreseeable future.
Consistency principle
The entity must deal with similar transactions in the same way from one financial
year to another.
No COLUMN A COLUMN B
2.1. Matching A. The financial affairs of a business must be
kept separately from the personal financial
affairs of the owner.
2.2. Historical B. This concept is based on the concept that
the business will continue to operate in the
future.
2.3. Going concern C. Income earned and expenses incurred
must be reported in the same financial
period so that the correct net profit is
calculated.
2.4. Prudence D. Financial statements must disclose items
that are important to the users/readers so
that correct evaluations and decisions can
be made from the information provided.
2.5. Business Entity E. Land and buildings are reflected at a cost
price of R900 000 in the financial
statements although the market price is
R2000 000.
2.6. Materiality F. All possible losses are recorded in the
Income statement but anticipated profits
are not reported until they are realised.
A company has bought this property for R1 million in year 2003 but now
the property has appreciated to R5 million. The company is recording the
property at R1 million.
Which principle directs a company to show all expenses related to its
revenue of a specified period even if the expenses were not paid in that
period?
A company borrowed R60 000 on December 1, 2015 and will make its
payment for interest only when the loan is paid off on June 1, 2016. The
total interest for the six months will be R6 000. On the December 2015
income statement the accountant reported interest expense of R1 000.
For the December year-end close, the utilities bills have not been
received for the month of November and December. However, based on
previous average month trends, utilities expenses for November and
December is estimated at R20 000 x 2 = R40 000.
Once a particular financial period is adopted by a business, it is not
changed from one period to the next period.
INFORMATION:
Kima Traders Ltd. Had an authorised share capital of 1 000 000 shares. 800 000
shares were issued to the public.
Transactions during the financial year:
2016 Paid the amount owing to the Shareholders, R40 000
March 20
No amount was owing to SARS for income tax due to the overpayment of
provisional tax payments during the previous financial year.
28 June 2016
Issued additional 300 000 shares at R3 per share
2016 August Paid the provisional tax of R45 000 to SARS
31
Directors declared an interim dividend of 8 cents per share (800 000 x .08c) and
electronic transfer’s payments were done to all shareholders on the same day.
30 November Directors bought back 40 000 shares from existing shareholders at @ R5 per
2016 share.
2017 Paid the second provisional tax of R45 000 to SARS
January 31
Feb 28 The Net profit for the year was R1 100 000 and the income tax is calculated at
30% on the net.
The directors recommended and declared a dividend of 32c per share
Required
5.1. Use the following information to prepare the following accounts in the ledger of
REATLEGILE Ltd for the accounting period ended 28 February 2021.
5.1.1. Ordinary share capital [8]
5.1.2. Retained income [9]
5.1.3. Shareholders for dividends [5]
5.1.4. SARS (Income tax) [12]
5.1.5. Income tax [2]
5.1.6. Dividends on ordinary shares [4]
5.1.7. Appropriation account [6]
5.2. Complete the statement of financial position for the year ended 28 February
2021
[8]
INFORMATION
The authorised share capital of REATLEGILE Ltd comprised 4 000 000 ordinary
shares.
At the beginning of the current accounting period, 1 March 2020, the following
balances appeared in the Ledger:
Note: the amounts owed to SARS and the shareholders were paid on 01-April 2020
On the 01-May the Directors issued further 300 000 ordinary shares at an issue price
of 201 cents each.
On 02 August 2020, Directors declared and paid the interim dividends of 16 cents
per share.
On the 01-September 2020, the company made the first provisional tax payment of
R237 000 was made.
On 30-December 2020, the second provisional tax payment R237 000 was made.
On the 02-January 2021 the Directors bought back 80 000 shares at R3.80 per
share
2. Give two reasons why will a company buy back its shares. (2)
Question: 2
Accounting equation (18 marks)
Example: Issued cheque to pay rent R5 000.
General ledger Effects on accounting equation
No Acc to be Acc to be Amount A O L
debited credited
e.g Rent expense Bank 5000 - - 0
Transactions:
1. The company issued shares 50 000 for R2 at the beginning of the
financial year and R100 000 was received.
2. The amount due to SARS for previous year was paid R5 400.
3. The company decided to buy back 5 000 share at a price of R3, 50
from a shareholder.
Required
6.1. Use the following information to prepare the following accounts in the ledger of
PHELETSO Ltd for the accounting period ended 28 February 2021.
6.2. Complete the following notes of the statement of financial position for the year
ended 28 February 2021
Ordinary share capital [8]
Retained income [9]
6.3. Complete the statement of financial position for the year ended 28 February 202
[8]
INFORMATION
The authorised share capital of PHELETSO Ltd comprised 5 000 000 ordinary
shares.
At the beginning of the current accounting period, 1 March 2020, the following
balances appeared in the Ledger:
On the 01-May the Directors issued further 500 000 ordinary shares at an issue price
of R3 each.
On 02 July 2020, Directors declared and paid the interim dividends of 15 cents per
share.
On the 01-August 2020, the company made the first provisional tax payment of
R250 000 was made.
On 30-December 2020, the second provisional tax payment R250 000 was made.
Required
7.1. Use the following information to prepare the following accounts in the ledger of
KAMOGELO Ltd for the accounting period ended 28 February 2021.
7.1.1. Ordinary share capital [9]
7.1.2. Retained income [9]
7.1.3. Shareholders for dividends [5]
7.1.4. SARS (Income tax) [12]
7.1.5. Income tax [2]
7.1.6. Dividends on ordinary shares [4]
7.1.7. Appropriation account [6]
7.2. Complete the following notes of the statement of financial position for the year
ended 28 February 2021
Ordinary share capital [9]
Retained income [9]
7.3. Complete the statement of financial position for the year ended 28-February
2021 [8]
INFORMATION
The authorised share capital of KAMOGELO Ltd comprised 5 000 000 ordinary
shares.
At the beginning of the current accounting period, 1 March 2020, the following
balances appeared in the Ledger:
On the 20-April the Directors issued further 900 000 ordinary shares at an issue
price of R3 each.
On 02 July 2020, Directors declared and paid the interim dividends of 15 cents per
share.
On the 01-September 2020, the company made the first provisional tax payment of
R230 000 was made.
On 25-December 2020, the second provisional tax payment R180 000 was made.
You are provided with the information relating to Mini Limited for the financial year
ended 30-June-2017.
REQUIRED:
8.1.1. Briefly explain why a company has to have ‘Limited’ or ‘Ltd’ in its name. [4]
8.1.2. Why is it important for the business to keep the retained? [2]
8.1.3. Analyse the transactions for the current financial year in the table provided.
Show the account debited, the account credited and the effect on the
Accounting equation (put a ‘+’ before the amount if it increased, a ‘-‘before the
Amount if it decreased and a ‘0’ if there is no effect). [20]
The business started in 2015 with an authorised share capital of 1 000 000
ordinary shares.
By 01-July-2016, the start of the current financial year, the business had
issued 500 000 of these shares at an issue price of R 3.60c per share.
Transactions for the year ended 30-June-2017
1. Further 250 000 ordinary shares were issued at R 4.80c per share.
5. Interim dividends of 30c per share were declared and paid to the
Shareholders.
6. 150 000 shares were bought back at R4, 85c per share.
7. The company made the first and second Provisional tax payments totalling to
R 250 000 and were paid to SARS.
10. The net profit after tax is R910 000 at end (NOTE: the rate of tax is 30% of
the net profit) (Journalise only the Income Tax)
12. Final dividend of 25%, were declared at the end of the financial year.
Transactions:
1. On the 1 March 2009 the company issued further 900 000 ordinary shares at
R3 this was not recorded.
2. At the beginning of the financial year a cheque was issued to SARS to pay
amount due.
3. The company paid provisional tax of R400 000 on the 31 March 2009.
4. An interim dividends of 40 cents per share was declared and a cheque was
issued. Only shares that were issued in the previous financial year qualifies for
the interim dividends.
7. The director decided to buy back 400 000 ordinary shares at R5 per share.
8. The net profit for the year before tax amounted to R3 000 000.
A. SHARE CAPITAL:
D. Dividends
An interim dividend of 20 cents per share was paid on
30 November 2016.
A final dividend of 10 cents per share was recommended on
30 June 2017. Shares repurchased on 30 June 2017 also
qualify for final dividends.
Jones Wholesalers Ltd is a general dealer. You are presented with their
records on 28 February 2017, the end of their financial year.
REQUIRED:
10.1. Complete the following notes to the Balance Sheet on 28
February 2017:
Ordinary
( share capital (10)
Retained
( income (11)
)
10.2. Calculate the Total Income Tax Amount (2)
10.3. Complete the statement of financial position for the year ended 28-
February-2017 [8]
INFORMATION
Will Traders sells herbal products in a large shopping centre. The information
relates to the financial year ended 28 February 2017.
REQUIRED:
11.1. Complete the following notes to the Balance Sheet on 28 February 2017:
Ordinary share capital (10)
Retained income (10)
11.2. Provide a reason why the company has to keep the retained (2)
11.3. Complete the statement of financial position for the year ended 28-February-
2017 [8]
Shareholder’s equity ? ?
Share capital 5 418 500 ?
Retained income ? 1 933 000
INFORMATION
C. Share capital
The authorised share capital is 2 500 000 shares.
48% of the authorised shares were in issue on 28 February 2016, the
last day of the previous year.
100 000 new shares were issued for R510 000, on 1 March 2016, the
beginning of the new financial year
On 28 February 2017, 50 000 shares were repurchased at R6, 20
each. The average issue price of the shares on the repurchase date
was
R4, 33 per share.
Total number of shares in issue on 28 February 2017 were 1 250 000.
D. Dividends
The company paid an interim dividend of 30c per share on 1 December
2016.
12.2. Complete the statement of financial position for the year ended 28-February-
2012 [8]
INFORMATION:
A. The following figures were extracted from the accounting records at the end of
the financial year on 28 February 20.12:
R
Ordinary share capital ?
Retained income (1 March 20.11) 200 000
B. Shares issued
The company has an authorised share capital of 3 000 000 shares.
The business issued 60% shares at ? Per share during the previous year.
Another 200 000 shares were issued on 1 May 20.11 at R6 per share. It was
recorded properly.
On 3 January 20.12 the business repurchase 80 000 shares from a
shareholder at the Price above Average Issue price of R0, 70. This has
been recorded properly.
C. Dividends.
Interim dividends were paid on 30 September 20.11.
Final dividends of R300 000 were declared on 31 January 20.12.
Thereafter the statements are analysed and interpreted so that the directors
and shareholders can make business decisions.
The Act requires that the following items must be mentioned in the financial
statements regarding directors:
• Directors’ remuneration
• Directors’ pensions
• Loans to directors
• Loans from directors
Roles of shareholders
Shareholders own the company. They make the most important decisions.
At the Annual General Meeting (AGM), the shareholders will be able to discuss and
vote on such matters as:
the adoption of the financial statements,
the approval of the dividends recommended by the directors,
the appointment of the directors themselves, and
the appointment of the auditor.
It is important that they study the published financial statements
Roles of directors
The directors are appointed by the shareholders.
The board of directors should contain directors who are actually working in the day-
to-day management of the company (i.e. executive directors).
The majority should be others who are independent of the company and are not full-
time employees (i.e. non-executive directors).
The directors are required to:
Appoint an independent auditor and report to the shareholders on the
company's annual financial statements.
-File annual returns with the registrar of companies.
-Ensure that the financial statements are compiled and published timeously
and that they comply with the requirements of the Companies Act, no 71 of
2008. It is their duty to ensure that fraud had not occurred.
-Hold an annual general meeting of shareholders.
-Hold extraordinary general meetings of shareholders to pass special
resolutions; e.g. to change the authorised share capital.
No delay
Important Not
to readers confusing
Timely
Under-
standable
Relevant
Unbiased
Characte-
ristics of
financial
statements
Verifiable Fair
Supported by
evidence
Compara-ble
Reliable
Free from errors
What you should know about the Companies Act regarding Financial
Statements and reporting
Shares
Par value shares only allowed for existing companies until the Minister, by regulation, provides
for conversion to no par value shares and nominal value shares.
No “par value shares” - will no longer apply to new companies.
Share buybacks
Resolution by directors
Solvency and liquidity test
Resolution to approve share buyback must specifically acknowledge application and
compliance with the solvency and liquidity test.
Subsidiaries may not own more than 10% in aggregate of the shares of the (holding)
company.
Subsidiaries may not exercise any voting rights attached to shares in the holding company.
Financial statements
Compliance with financial reporting standards prescribed in Regulations (IFRS or IFRS for
SME’s).
All companies must prepare annual financial statements within six months of its financial year
end (likely to change to 12 months in the amendment Bill), which must be approved by the
board and presented to the first shareholders meeting after such approval.
The following information was extracted from the financial records of Woodhill
Traders Limited. The company is authorised to sell 1 500 000 ordinary shares.
REQUIRED
10.1. Prepare the Statement of Comprehensive Income (Income Statement) for the
year ended 30 June 2014.
INFORMATION
PRE-ADJUSTMENT TRIAL BALANCE OF WOODHILL TRADERS LIMITED ON
30 JUNE 2014
Balance sheet accounts section Debit Credit
Ordinary share capital 1 828 500
Retained income (31/03/2014) 1 536 500
Mortgage bond: ABC Bank 320 000
Land and buildings 2 793 000
Vehicles 520 000
Equipment 308 000
Accumulated depreciation on vehicles 156 000
Accumulated depreciation on equipment 170 500
Trading stock 481 230
Consumable stores on hand (packing material 1 7 500
July 2013)
Debtors control 180 500
Provision for bad debts (1 July 2013) 9 000
Bank 250 920
Petty cash 1 200
Fixed deposit: XYZ Bank (8%) 310 000
SARS (income tax) 70 000
Creditors control 325 000
Nominal accounts section
Sales 5 250 000
Cost of sales 3 510 000
Debtors allowances 65 200
Bad debts 4 320
Interest on fixed deposit 12 430
Bad debts recovered 450
Packing material 11 550
Advertising 180 900
Rent income 88 440
Sundry expenses 25 600
Salaries and Wages 350 000
Directors’ fees 384 000
Audit fees 40 500
Dividends on ordinary shares 202 400
9 696 820 9 696 820
3 A debtor, who owed R12 000, has been declared insolvent. His estate
paid 40 cents in the rand. This has been received and properly recorded.
Write off the outstanding amount as irrecoverable.
4 Adjust the provision for bad debts to 5% of the outstanding trade debtors.
5 The tenant has paid rent until 31 July 2014. The rent was increased by
R660 from 1 April 2014.
7 The loan statement received from ABC Bank reflected the following:
Balance on 1 July 2013 560 000
Repayments of R20 000 p.m. ?
Interest ?
Balance on 3 376 000
Interest on loan is capitalized.
R150 00 of the loan will be repaid during the next financial year.
8 The Salary Journal for June 2014 was completed. The accountant had
however forgotten to complete the postings to the General ledger
accounts.
The Salary Journal revealed the following details:
Gross salaries 15 000
Deductions:
Pension Fund 1 500
Medical Aid Fund 800
PAYE 2 800
Net salaries 9 900
10 Income tax was calculated at 30 of the net income for the year.
CLASS-ACTIVITY: 14 DATE:…………….
14.1 Choose the correct word/s from those given below to complete the
sentences:
14.1.2 The audit report states: “With the exception of a few aspects,
shareholders can rely on the figures in the financial statements.”
This will be regarded as a/an ... report.
14.1.4 A fixed deposit which will mature in the next financial year will be
regarded as part of … in the Balance sheet. (4)
14.2 Prepare the Asset Disposal Account to record the sale of vehicles.
See information 7 and 8 under adjustments below. (10)
The directors decided to buy back 10 000 shares from Z. Zondi at R3,10 per
share. An electronic transfer was made for the full amount. Zondi is still
entitled to final dividends.
10. Final dividends were declared at 10 cents per share.
11. After taking into account all adjustments the Net profit for the financial year
amounted to: Before tax R500 000
After tax R350 000.
85
REQUIRED:
B. Tangible asset
Land and Vehicles Equipment
buildings
Carrying value at the beginning a) 636 000 b)
Cost price at the beginning 1 279 000 1 000 000 600 000
Accumulated depreciation at the
beginning (-) c.( ) (280 000)
Movement
Additions d) e) f)
Disposal at carrying value (-) g. ( ) -
Depreciation - h. ( ) i. ( )
Carrying value at the end j. k. L.
Cost price at the end 1 800 000 m. n.
Accumulated depreciation at the end (-) ( 400 000) o. ( )
25
REQUIRED
INFORMATION
A. Fixed/Tangible Assets:
Vehicles Equipment
Cost price (i) 786 000
Accumulated depreciation (1 290 000) (350 000)
Carry value on 1 Ma ch 2016 436 000
Movements:
Additions at cost 240 000 54 000
Disposal at carry value (–) (iii)
Depreciation (ii) (46 275)
Carry value on 28 February 2017
Cost price 1 710 000 755 000
Accumulated depreciation (iv)
B. Vehicles:
Depreciation: 15% p.a. on the cost price.
A new vehicle for R240 000 was purchased on 1 January 2017.
No vehicles were sold during the year.
C. Equipment:
Depreciation: 10% p.a. on the diminishing value method.
New equipment costing R54 000 was purchased 1 July 2016.
Equipment with a cost price of R85 000 was sold at its carrying
value on 1 December 2016. On 1 March 2016 the accumulated
depreciation on this equipment was R48 000.
30
REQUIRED:
17.2.1 Calculate the missing amount denoted (a) to (d) in the (16)
Tangible/Fixed asset note: (use information C)
An extension to the office block was undertaken during the financial year.
Equipment of R120 000 was purchased on 1 December 2018.
The business had three vehicles at the beginning of the year. The following details
appeared in the fixed asset register on 1 July 2018:
NOTE:
Vehicle 1 is old and is reaching the end of its useful life.
Vehicle 2 was sold at its carrying value on 1 April 2019
Depreciation: vehicles at 20% on cost
: equipment at 15% on diminished method
The following appeared in the books of Tom and Sons on 29 February 2020,
the end of the financial year.
Calculate the missing amounts indicated by (i) ‒ (iv) in the Fixed/Tangible (16)
Asset Note for the year ended 29 February 2020.
INFORMATION
A. Fixed/Tangible Assets:
Vehicles Equipment
Cost price (i) 786 000
Accumulated depreciation (1 290 000) (350 000)
Carry value on 1 March 2016 436 000
Movements:
Additions at cost 240 000 54 000
Disposal at carry value (–) (iii)
Depreciation (ii) (46 275)
Carry value on 28 February 2020
Cost price 1 710 000 755 000
Accumulated depreciation (iv)
B. Vehicles:
Depreciation: 15% p.a. on the cost price.
A new vehicle for R240 000 was purchased on 1 January 2020.
No vehicles were sold during the year.
C. Equipment:
Depreciation: 10% p.a. on the diminishing value method.
New equipment costing R54 000 was purchased 1 July 2019.
Equipment with a cost price of R85 000 was sold at its carrying value
on 1 December 2019. On 1 March 2019 the accumulated depreciation
on this equipment was R48 000.
16
ACTIVITY NO: 19
19.1 TALLIES LTD
You are provided with information relating to Tallies Ltd for the financial year
ended 29 February 2020.
REQUIRED:
Refer to Information A.
Calculate the missing amounts denoted by (A) to (C) on the Fixed Assets Note. (12)
INFORMATION:
VEHICLES EQUIPMENT
Carrying value (01/03/ 2019)
Cost 500 000 1 200 000
Accumulated depreciation (480 000) (350 000)
Movements:
Additions 460 000 0
Disposals ? (C)
Depreciation (A) (B)
Carrying value (29/02/2020) 600 000
Cost 460 000
Accumulated depreciation
On 1 October 2019, the old vehicle, cost price R500 000, was
donated to a local children’s home. The accumulated depreciation on
this vehicle was R480 000 on 1 March 2019.
You are provided with information relating to Barnardo Limited for the year ended 30 June
20.14. The business has an authorised share capital of 1 750 000 ordinary shares.
REQUIRED:
INFORMATION:
A. Issued share capital comprised 900 000 ordinary shares on 1 July 20.13.
C. Another 100 000 shares were issued on 1 December 20.13 at R9,25 per
share. It was recorded properly.
No entries have been made for the repurchase of shares.
On 1 May 20.14 the business bought back 120 000 ordinary shares from
shareholders at R8,10. These shareholders were not entitled to final
dividends.
55
INFORMATION:
A. Shares issued
The company has an authorised share capital of 2 000 000 shares.
The business issued 1 200 000 shares at R5 per share during the
previous year.
Another 300 000 shares were issued on 1 October 20.07 at R8 per share.
It was recorded properly.
On 31 March 20.08 the business repurchase 50 000 shares from a
shareholder at a price of R7,50 per share. This has not yet been recorded
B. Retained income Opening balance on 1 July 20.07 amount to R125 000
C. Dividends
Interim dividend paid during the year, R180 000.
A final dividend of 12 cents was declared. The buyback of shares do not
qualify for a final dividend.
D. Net profit before tax on 30 June 20.08 amounts to R1 250 000. Income tax is
calculated at 30 %.
E. Mortgage loan
The mortgage loan statement from Kwagga Bank reflected the following:
Balance on 1 July 20.07, R750 000
Interest capitalised for the year, R96 500
Repayments of R13 500 per month (this is to cover interest and loan
repayments)
The capital sum of the loan is expected to reduce by R90 000 over the next
financial year.
The Cash Flow Statement is required by the Companies Act as part of published
financial statements of a company.
The Cash Flow Statement is a tool to analyse the liquidity position of a company. It
shows why there has been a change in the balance in the bank account from one
year to another.
Users of financial statements would like answers to the following questions
How were the funds from issue of new shares used?
Why was it necessary to borrow money?
How was the company able to repay their loans although they made a loss?
Why is there a bank overdraft although there is an increase in sales?
A cash flow statement identifies the inflow and outflow of cash in a business during a
specific period – it reports on past (historical) movement of cash in the business and gives
answers to how cash was generated and used in the business.
The cash flow statement reflects the movement of cash of a business from the beginning of
the year to the end of the year. The statement is prepared on the cash basis.
The statement will indicate the movement of cash – whether the bank balance
has increased or deceased during the accounting period.
Think cash
What is cash?
- Was sufficient cash generated from operations to pay the interest, dividends and income
tax?
- Where was the money from the additional loan used?
- How was the expansion of the business used?
- Why was cash available in the bank account during the previous year and now the
business is in overdraft?
FORMAT
Components of the
Cash Flow Statement
These are the main Cash flows as a result Cash flows involved in
income activities of the of: the funding of the
company activities
Buying and selling of
Cash flow as a result of: Tangible Assets The sale and
Changes in repurchase of shares
Buying and selling of investments: Receiving and
inventory Fixed Deposits paying of loans
Receipts from debtors
Payments to creditors
Paying expenses
QUESTION: 22
CLASS-ACTIVITY: 22 DATE:…………….
Required:
22. 1. Indicate whether each of the following would reflect an inflow or outflow of
Funds (12)
1. increase in inventories
2. decrease in inventories
22.2. What is the difference between a cash budget and a cash flow statement?
Reason (2)
22. 5. Determine the inflow (+) and outflow (–) of cash for 2015 (See example).(24)
CLASS-ACTIVITY: 23 DATE:…………….
Information is from the books of PLAATJIE Ltd, a public company listed on the
Johannesburg Securities Exchange (JSE). The financial year ends on
31 August.
REQUIRED:
INFORMATION:
CLASS-ACTIVITY: 24 DATE:…………….
Information is from the books of TLAPE Ltd, a public company listed on the
Johannesburg Securities Exchange (JSE). The financial year ends on
31 August.
REQUIRED:
INFORMATION:
A. Extract from the Income Statement on 31 August 2017:
Sales R18 600 000
Depreciation ?
Interest expense 175 000
Net profit before tax ?
Income tax (30%) 651 000
c. NOTE: Old vehicle was sold at its carrying value R92 000.New vehicle was
Purchased during the year at R800 000.
D. 2017 2016
2. TRADE AND OTHER RECEIVABLES R R
Trade debtors 444 000 422 000
Income receivable/Accrued income 26 500 23 790
SARS (Income tax) 0 42 500
3. TRADE AND OTHER PAYABLES
Trade creditors 448 030 1 017 400
Deferred income/Income received in advance 23 000 16 000
Shareholders for dividends ? 432 000
SARS (Income tax) 50 100 0
25.1 Indicate whether the following statements are TRUE or FALSE. Write only ‘true’
or ‘false’ next to the question numbers (25.1.1 to 25.1.3) in the ANSWER BOOK. (3)
25.1.1 If the loan amount increases from the previous year it is an outflow of
cash
25.1.3 Increase in debtors does not form part of changes in working capital.
The information relates to UHLAZO Ltd for financial year ended on 30 April 2020.
REQUIRED:
25.2.2 Calculate the following figures for the Cash Flow Statement on
30 April 2020:
Taxation paid (4)
Dividends paid (3)
Loan repayment amount (2)
Net change in cash and cash equivalents (5)
A final dividend of 62 cents per share was declared on 30 April 2020. Only
the shareholders registered on 30 April 2020 qualified for the final dividend.
E. Net asset value per share after the above has been taken into account is 498
cents.
50
REQUIRED:
26.2 Prepare the Cash Flow Statement for the year ended
31 August 2017. Show calculations/workings in brackets. (32)
26.3 Mention TWO major decisions (above R900 000) that are reflected in
the statement and support the decision by quoting relevant figures.
Indicate ONE possible point of impact that each decision would have
on the company's future operations. (6)
26.4 Calculate the following financial indicators for the year ended
31 August 2017:
26.6 You are told that both the director’s fees and the audit fees are 50%
over budget and that this has not been authorised. The shareholders
feel that the company is not well managed.
As a shareholder explains THREE points you would raise at the
AGM. (6)
INFORMATION:
C. SHARE CAPITAL
The authorised share capital consists of 5 000 000 ordinary shares:
2 880 000 ordinary shares were issued before 1 September 2016.
On 30 June 2017 the directors decided to repurchase 144 000 ordinary
shares for 110 cents per share.
On 1 August 2017 the company issued 934 400 new ordinary shares
for 125 cents each. These shareholders qualify for the final dividend.
E. Dividends:
Interim dividends: 9,5 cent on 31 May 2017
Final dividends: 20 cents on 31 August 2017
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CLASS-ACTIVITY: 27 DATE:…………….
REQUIRED:
27.2.1 Complete the CASH GENERATED FROM OPERATIONS note for the
Cash Flow Statement. (9)
27.2.2 Calculate the following amounts for the Cash Flow Statement:
Income tax paid (4)
Dividends paid (4)
Fixed assets purchased (5)
27.2.3 Calculate the NET CHANGE IN CASH AND CASH EQUIVALENTS. (4)
Current assets
Inventories 123 800 163 300
Trade and other receivables: 168 300 149 100
Trade debtors 155 600 134 700
SARS: Income tax 12 700 0
Expenses prepaid 0 14 400
Cash and cash equivalent 76 750 15 500
Current liabilities
Trade creditors 122 900 162 600
SARS: Income tax 0 27 200
Shareholders for dividends 142 400 111 000
Income received in advance 11 100 0
Bank overdraft 0 124 300
B. Additional Information:
(i) Net profit before income tax, R988 700;
Net profit after income tax, R692 100.
(ii) Old equipment were sold at carrying value of R283 500. Equipment were
purchased during the financial year to upgrade the facilities.
(iii) Depreciation for the year, R221 400.
(iv) Total dividends (paid and recommended) as per the Retained Income note,
R317 400.
C. Share Capital:
On 1 March 2017, the company had 760 000 shares in issue.
On 1 June 2017, 30 000 shares were repurchased at R5,20 per share.
On 31 October 2017, a further 150 000 shares were issued.
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“Never take your eyes off the cash flow because it’s the lifeblood of business.” –
Richard Branson