ACCOUNTING PAPER 1
GRADE 12
NOVEMBER 2021
NSC EXAMINATIONS

QUESTION 1: STATEMENT OF FINANCIAL POSITION (55 marks; 45 minutes)
JIMO LIMITED
The information relates to the financial year ended 30 June 2021. The business sells formal clothing for men and women.
REQUIRED:
1.1 Refer to Information B.
Calculate the value of the closing stock of formal suits that was omitted from the stock sheets on 30 June 2021. (5)
1.2 Refer to Information C.
Use the table provided to calculate the correct net profit after tax for the year ended 30 June 2021. Indicate '+' for increase and '-' for decrease. (12)
1.3 Refer to Information A–H.
Complete the following on 30 June 2021:

• Retained Income Note (5)
• Statement of Financial Position (Balance Sheet)(33)

NOTE:

• Adjustments from Information C also affect the Statement of Financial Position (Balance Sheet).
• Show workings. Certain figures are provided in the ANSWER BOOK.
• Figures are NOT required in the shaded areas.

INFORMATION:

1. List of balances, before taking into account all adjustments below:
   

   	30 June 2021 (R)	30 June 2020 (R)
   Ordinary share capital	?	?
   Retained income	3 240 000
   Mortgage loan: Best Bank	3 755 000	4 175 000
   Trading stock	4 198 500
   SARS: Income tax (provisional tax)	1 200 000
   Net trade debtors	3 668 810
   Bank overdraft	?
   Petty cash and cash float	?
   Creditors' control	1 253 000
   Accrued income/Income receivable	8 000
   Shareholders for dividends	1 170 000	821 700

2. The accountant omitted the closing stock figure of formal suits in the trading stock balance provided in Information A.
   NOTE:
   
   • The first-in-first-out (FIFO) method is used to value the stock of the formal suits.
   • All other relevant entries have been recorded correctly.
     The information relating to the stock of formal suits is as follows:
     

     Balances:	QUANTITY	UNIT PRICE	TOTAL VALUE
     1 July 2020	110	R1 900	R209 000
     30 June 2021	?	?
     Purchases:	760		R1 943 500
     14 Nov. 2020	360	R2 350	R846 000
     10 Feb. 2021	170	R2 600	R442 000
     18 May 2021	230	R2 850	R655 500
     Returns:
     25 May 2021	24	R2 850	R68 400

3. The net profit before tax, R4 918 950, was calculated before taking into account/ correcting the following:
   
   1. Audit fees include R123 600 which was paid in advance for the next financial year.
   2. The repayments on the loan are fixed at R35 000 per month (including capitalised interest).
      The balances as per loan statement were:
      
      • 1 July 2020, R4 175 000
      • 30 June 2021, R4 028 000
        Provide for interest on loan.
   3. Rent income:
      Rent of R74 000 was received from a tenant for the period 1 July 2020 to 31 August 2021. This has been recorded. This amount takes into account a reduction of R750 per month from 1 May 2021. The year-end adjustment has not yet been made.
   4. After taking into account the corrections above, it was determined that an additional R85 250 is still owed to SARS in respect of income tax for the year.
4. Shares and dividends:
   
   • 26 000 shares were repurchased on 1 July 2020 at R3,00 above the average share price.
   • The business did not pay interim dividends during the 2021 financial year.
   • A final dividend of 65 cents per share was declared on 30 June 2021.
   • 1 800 000 shares were in issue on 30 June 2021.
5. Debtors with credit balances totaling R11 000 must be transferred to the Creditors' Ledger.
6. On 30 June 2021, Jimo Ltd returned 10 ladies' coats to the supplier, Bargain Wholesalers. The selling price was R1 750 each. The mark-up was 25% on cost. No entry has been made.
7. A fixed monthly instalment of R35 000 (to cover loan repayments and interest) has to be paid over the full period of the loan. Interest will decline over the life of the loan. The interest on the loan budgeted for the next financial year is R234 000.
8. The following financial indicators were calculated on 30 June 2021:
   

   Acid-test ratio	1,2 : 1
   Net asset value per share (NAV)	540 cents

QUESTION 2: SHARE CAPITAL, FINANCIAL INDICATORS AND CASH FLOW STATEMENT (35 marks; 25 minutes)
The information relates to Brewer Ltd for the financial year ended 28 February 2021.
REQUIRED:
2.1 Prepare the Ordinary Share Capital Note on 28 February 2021. (6)
2.2 Calculate the following financial indicators on 28 February 2021:

• % operating expenses on sales (2)
• Dividend per share (4)
• % return on average shareholders' equity (5)

2.3 Complete the Cash Flow Statement for the year ended 28 February 2021. Certain figures are provided in the ANSWER BOOK. (18)
INFORMATION:

1. Shares and dividends:
   

   DATE	DETAILS OF SHARES
   1 March 2020	800 000 in issue
   30 June 2020	100 000 new shares issued
   1 January 2021	30 000 shares repurchased at R1,20 more than the average share price
   28 February 2021	? shares in issue

   • Interim dividend of R162 000 was paid on 30 September 2020.
   • A final dividend of 22 cents per share was declared on 28 February 2021.
2. Extract from the Statement of Comprehensive Income (Income Statement) for the year ended 28 February 2021:
   

   Sales	R7 293 000
   Cost of sales	4 862 000
   Operating expenses	1 458 600
   Net profit before tax	1 350 000
   Net profit after tax	985 500

3. Extract from the Statement of Financial Position (Balance Sheet) on:
   

   	28 Feb. 2021(R)	29 Feb. 2020(R)
   Petty cash and cash float	?	20 000
   Ordinary shareholders' equity	8 038 100	6 450 000
   Ordinary share capital	7 395 000	6 400 000
   Retained income	643 100	50 000
   Loan: Sharks Bank	1 650 000	2 200 000
   SARS: Income tax	29 100 Dr	35 900 Cr
   Shareholders for dividends	191 400	115 300
   Bank overdraft		95 200

QUESTION 3: INTERPRETATION OF FINANCIAL INFORMATION (40 marks; 30 minutes)
3.1 Choose a category of indicators from COLUMN B that matches the description in COLUMN A. Write only the letter (A–D) next to the question numbers (3.1.1 to 3.1.4) in the ANSWER BOOK.

(4 x 1) (4)
3.2 FLEXI LTD AND BROOM LTD
The information relates to two companies.
BACKGROUND INFORMATION:

• Both companies operate in the fashion clothing industry. The financial year ends on the last day of February each year.
• Bob Yates owns shares in both companies. On 1 November 2020, he convinced the board of directors of Flexi Ltd to repurchase 150 000 of his shares. He used the money received to purchase additional shares in Broom Ltd.
  NOTE: Where comments or explanations are required, quote financial indicators, figures and trends to support your answer.

REQUIRED:
3.2.1 Profitability:
Quote and explain TWO financial indicators to show which company is managing its expenses more efficiently, and is thereby more profitable. (4)
3.2.2 Dividends, earnings and returns:

• Comment on the dividend pay-out policy of Flexi Ltd. Explain why this is an irresponsible change in policy. Provide TWO points. (4)
• Comment on the % return on shareholders' equity of EACH company. (4)
• A shareholder feels that earnings per share (EPS) in Broom Ltd are better than that in Flexi Ltd. Explain why you agree with him. (4)

3.2.3 Shareholding of Bob Yates in both companies:

• Comment on the price paid for the shares repurchased by Flexi Ltd. Provide TWO points. (4)
• Calculate the number of shares that Bob purchased in Broom Ltd with the money he received from the share buyback at Flexi Ltd. (2)
• Explain the effect of the share repurchase on the % shareholding of Bob Yates in EACH company. (4)

3.2.4 Financing strategies and gearing:
The directors of each company have taken deliberate decisions that are reflected in their Cash Flow Statements.

• Explain the decisions taken by the directors of Broom Ltd and how these will benefit the company. (4)
• Explain how the decisions taken by Flexi Ltd affected the risk and gearing of the business. Quote TWO financial indicators. (6)

INFORMATION:

1. Extracts from the accounting records at the end of each year:
   

   	FLEXI LTD		BROOM LTD
   	Feb. 2021	Feb. 2020	Feb. 2021	Feb. 2020
   Number of shares in issue	700 000	850 000	1 500 000	1 100 000
   Funds used to repurchase shares	R1 980 000
   Repurchase price	R13,20
   Increase in share capital	0		R2 640 000
   Issue price of additional shares			R6,60
   Fixed assets purchased	R1 000 000		R2 200 000
   Increase (decrease) in loan	R4 500 000		(R400 000)

2. Financial indicators, interest rate and market price of shares:
   

   	FLEXI LTD		BROOM LTD
   	Feb. 2021	Feb. 2020	Feb. 2021	Feb. 2020
   % operating expenses on sales	17,5%	14,6%	13,6%	17,0%
   % operating profit on sales	18,2%	21,9%	24,2%	20,5%
   % net profit on sales	13,8%	18,0%	19,6%	16,0%
   Debt-equity ratio	1,1 : 1	0,4 : 1	0,2 : 1	0,4 : 1
   % return on capital employed	10,2%	16,1%	17,2%	14,7%
   % return on shareholders' equity	7,6%	12,2%	14,1%	10,7%
   Net asset value per share	1 081 cents	1 128 cents	632 cents	609 cents
   Market price of shares	990 cents	1 130 cents	660 cents	615 cents
   Interest rate on loans	13%	13%	13%	13%
   Earnings per share	80 cents	138 cents	72 cents	65 cents
   Dividends per share	92 cents	82 cents	48 cents	70 cents
   Dividend pay-out rate	115%	59%	67%	108%

3. Shareholding of Bob Yates in both companies
   

   	FLEXI LTD		BROOM LTD
   	2021	2020	2021	2020
   Shares in each company	283 500	433 500	?	460 000
   % shareholding in each company	?	51,0%	?	41,8%

QUESTION 4: CORPORATE GOVERNANCE (20 marks; 20 minutes)
4.1 Explain why a disclaimer audit report would be bad for a company's reputation. Provide TWO points. (4)
4.2 One of the most important decisions that shareholders have to make at the annual general meeting (AGM) is to appoint directors to serve on the board.

• Explain why the shareholders have been given this responsibility.(2)
• If you were a shareholder, what factors or characteristics would you want to find out about the directors who would get your vote? Explain TWO points and give a reason for EACH. (6)

4.3 A recent news report stated that a major company, Baxco Ltd, had been awarded a tender to supply equipment worth R20 m to a chain of private hospitals. The report accuses the CFO (chief financial officer) of that company of paying R2 m in cash to the CEO of the hospital group.
As a shareholder, explain what you would say at the AGM. Provide TWO points.(4)
4.4 A major South African company has stated the following on its website and in its Directors' Report.
We have set up ways for employees and external stakeholders to report unethical conduct and incidents of individuals not complying with the company's ethical policies.
We have set up a tip-off phone line (call centre) controlled by an independent service provider.
All information will be treated confidentially. Whistle-blowers (informants) who submit genuine information will be protected and will remain anonymous.
In your opinion, explain why this major company found it necessary to implement this policy. Provide TWO points. (4)
TOTAL: 150

GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET