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ACCOUNTING PAPER 1 GRADE 12 MEMORANDUM - NSC EXAMS PAST PAPERS AND MEMOS SEPTEMBER 2020 PREPARATORY EXAMINATIONS

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ACCOUNTING PAPER 1
GRADE 12
NATIONAL SENIOR CERTIFICATE EXAMINATIONS
SEPTEMBER 2020

MARKING PRINCIPLES:

  1. Unless otherwise stated in the marking guidelines, penalties for foreign items are applied only if the candidate is not losing marks elsewhere in the question for that item (no penalty for misplaced item). No double penalty applied.
  2. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate is earning marks on the figures for that item.
  3. Full marks for correct answer. If answer incorrect, mark the workings provided.
  4. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that figure (not the method mark for the answer). Note: if figures are stipulated in memo for components of workings, these do not carry the method mark for final answer as well.
  5. Unless otherwise indicated, the positive or negative effect of any figure must be considered to award the mark. If no + or – sign or bracket is provided, assume that the figure is positive.
  6. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates.
  7. Where penalties are applied, the marks for that section of the question cannot be a final negative.
  8. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer.
  9. Operation means 'check operation'. 'One part correct' means operation and one part correct. Note: check operation must be +, -, x, ÷, or per memo.
  10. In calculations, do not award marks for workings if numerator & denominator are swapped – this also applies to ratios.
  11. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect at least in part. Indicate with a x.
  12. Be aware of candidates who provide valid alternatives beyond the marking guideline. Note that one comment could contain different aspects.
  13. Codes: f = foreign item; p = placement/presentation.

QUESTION 1: CORPORATE GOVERNANCE AND AUDIT REPORT

1.1

 1.1.1   D✓ 
 1.1.2  A✓
 1.1.3  B✓
 1.1.4  C✓

 

1.2  AUDIT REPORT

1.2.1

 Where, why and when is this audit report expected to be presented? 
 Where  Any one valid answer ✓
At the Annual General Meeting (AGM)
On the Annual Report to shareholders
On financial publications and newspapers
On the internet
 Why Any one valid answer ✓
Inform shareholders / potential investors about the
performance / progress of the company.
If there is any compliance with the IFRS.
Transparency
Public company financial statement needs to be published.
Auditors, appointed by shareholders, are answerable to them.
 When Any one valid answer ✓
At the end of the financial period
Upon completion of the independent audit process
On the date of the AGM and thereafter


1.2.2

 Provide TWO points why the independent auditors make reference to pages 12–30 of the Annual Report.  
 Any two valid points ✓✓  ✓✓
  • The financial statements are contained in those pages of the Annual
    Report; other reports are also included in the Annual Report, which were not prepared or inspected by them.
  • The auditors are responsible for a certain part of the report.
  • Directors are responsible for parts of the report as prepared by them.


1.2.3

 Explain TWO points on the impact of this report on the company.  
 Any two valid points ✓✓  ✓✓
  • Prospective investors might no longer be interested to this company.
  • Existing shareholders may want to sell their shares.
  • It will ruin the reputation/image of the company.
  • Will reduce the value of shares from the JSE. 


TOTAL MARKS   15

QUESTION 2: STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020.

Sales                                                                            6 720 000 
Cost of sales                                                                    sales - GP (4 200 000)✓
Gross profit                                                                      GOI - RI or OOI  2 520 000✓ 
Other operating income                                                   142 080 
Rent income                                                                    (153 120 ✓ – 11 040✓✓)                         142 080✓
Gross operating income                                                             2 662 080 
Operating expenses                                                              (1 738 080)
Directors' fees             384 000✓ + 158 400 ✓✓
                                               172 800 − 14 400   2 marks
                                      384 000 + 172 800 − 14 400		 542 400 ✓
Salaries and Wages     384 000 + 172 800
                                      812 000✓ − 556 800 ✓✓  + 9 720 ✓✓		 264 920✓
Employers contribution       22 080 ✓ + 1920✓ 24 000✓
Advertising    11 650  ✓ + 3 000  ✓ ✓  14 650  ✓
Audit fees 120 000
Depreciation 340 000
Sundry expenses 432 110
Operating profit                                                                                                          GOI − OE 924 000✓
Interest income                                                                          Balancing figure;  OPBIE − OP 21 000
Operating profit before interest expense                                                                 NPBT + IE 945 000✓
Interest expense (36 000)✓
Net profit before tax                                                                                *(272 700 × 100/30) 909 000✓
Income tax                                                                                         (272 700)
Net profit after tax                                                                                   *NPBT - income tax 636 300✓

*OR Net profit before tax: (NPAT − 272 700) 1 mark
Net profit after tax: 272 700 x 70/30 = 636 300 2 marks
TOTAL MARKS = 30

QUESTION 3: STATEMENT OF FINANCIAL POSITION, SHARE CAPITAL NOTE

3.1 Share Capital

 Authorised Share Capital: 3 000 000 ordinary shares   
 Issued Share capital:  
 1 800 000  Shares in issue at beginning of year 
x R6,00 ** (as to be ASP )  		  10 800 000✓ 
 (120 000)  Shares repurchased at ASP of
 R6 ✓✓ per share 7,20 / 1,2		  (720 000) ✓
 240 000 ✓✓  Additional shares issued during the year at R6,60 per share   1 584 000 ✓
 1 920 000 ✓  Shares in issue at the end of the year  11 664 000✓
 9 


3.2 STATEMENT OF FINANCIAL POSITION ON 31 AUGUST 2020.

 NON-CURRENT ASSETS   8 951 200✓
 Fixed assets  8 121 000
 Financial assests  830 200
 CURRENT ASSETS       TA-NCA  5 312 800 ✓
                                              60 × 1750
Inventories   ( 2 340 000✓ + 105 000 ✓✓) 		  2 445 000*✓
Trade and other receivables  Balancing figure   2 000 000 ✓
Cash and cash equivalents     864 800+3 000    867 800✓
TOTAL ASSESTS      See TE + L   14 264 000✓
EQUITY AND LIABILITIES  
SHAREHOLDER EQUITY     Operation  11 678 960✓
Ordinary share capital      see 3.1  11 664 000✓
Retained income  14 960
NON-CURRENT LIABILITIES  1 487 200
                                   (1 840 000+130 800−307 200) two marks 
Loan: Tambo Bank                    1 663 600✓ − 176 400✓		  1 487 200*✓
CURRENT LIABILITIES  1 097 840
Trade and other payables  463 840
Current Portion of Loan         See loan above  176 400✓
SARS ( Income tax)         Balancing figure    35 200✓
Shareholders for Divivdends           see 3.1
                                                         1 920 000 x 22c		  422 400✓
TOTAL EQUITY AND LIABILITIES           Operation  14 264 000✓
 21 


TOTAL MARKS 30

QUESTION 4: CASH FLOW STATEMENT, FINANCIAL INDICATORS

4.1 

 4.1.1   False✓ 
 4.1.2   True✓
 4.1.3  False✓ 
 3 

 

4.2.1

 CASH GENERATED FROM OPERATIONS  
 Profit before tax 980 000 + 420 000  1 400 000✓*
 Depreciation   390 000
 Interest expense   452 000
 Net profit before changes in working capital Operation   2 242 000✓
 Net change in working capital  (1 230 700)✓
 Change in inventory    (915 100)
 Change in receivables   332 200 – 305 800     26 400✓*
 Change in payables       963 000 – 621 000  (342 000)✓* 
 Cash generated from operations             Operation  1 011 300✓

NOTE: The figure and the bracket (or no bracket) must be correct to earn the mark  in the money column.
*One part correct 

 9 

 

Related Items

4.2.2

 CASH EFFECT FROM FINANCING ACTIVITIES   
 Proceeds from shares issued  397 500 
                                     360 000 x 7,95
 Repurchase of shares 2 862 000 ✓✓ + 162 000 ✓ 		  (3 024 000) *✓
 Long-term loans received 3 850 000 – 3 080 000      770 000  ✓
                                     Operation   (1 856 500)  ✓

NOTE: The figure and the bracket (or no bracket) must be correct to earn the
mark in the money column
*One part correct

 7 


4.2.3 Calculate the following amounts for the Cash Flow Statement.

 Income tax paid   
   Workings    Answer 
  – 69 300 ✓ + 420 000 ✓ – 19 800 ✓
Accept alternative arrangements for calculations such as signs reversed, brackets and/or
ledger accounts		   330 900✓
 One part correct 
 4 

 

 Dividends paid   
   Workings  Answer 
Total dividend for the year:
1 700 700  ✓+162 000 ✓ − 980 000  ✓ –1 239 200  ✓ = 356 500
 ✓four mark ✓
210 000 + 356 500 – 130 900
            OR
one mark    five marks
210 000 +  225 600
                   356 500 - 130 900 Interim dividend
Accept alternative arrangements for calculations such as signs reversed, brackets and/or
ledger accounts



 435 600 ✓ 
 One part correct 
 7 

 

 Proceeds oon fixed assehts sold    
   Workings  Answer 
  12 750 000 ✓ + 390 000 ✓ – 13 995 000 ✓
Accept alternative arrangements for calculations such as signs reversed, brackets and/or
ledger accounts 		   855 000✓
 4 


4.2.4 Calculate the following financial indicators on 29 February 2020.

Return on average Shareholder's Equity  
   Workings  Answer 
                    980 000 ✓                   X    100 
✓½ (11 161 200 +13 168 000) ✓             1
             12 164 600 2 marks

 8.1%✓
One part correct 

 

 Net asset value per share  
   Workings  Answer 
 11 161 200  X   100   
  1 190 000          1		  937,9c *✓✓
One part correct
Accept 938 cents

TOTAL MARKS   40

QUESTION 5: INTERPRETATION OF COMPANY INFORMATION

5.1

Compare the liquidity position of both companies and comment on the company that is managing the short term assets more effectively.  
Financial indicators (with figures and trend) ✓✓ ✓✓ Comment on one company ✓✓  
 LOCK LTD  Although current ratio decreased from 2,1 : 1 to 1,9 : 1, the acid test ratio remains fairly consistent at 1,3 : 1 compared to 1,4 : 1 the previous year.
 DOWN LTD  The acid test ratio is consistent at 1,5 : 1 whilst the current ratio
increased from 2,8 : 1 to 3,6 : 1.
 COMMENT Lock Ltd appears to control working capital more efficiently by
ensuring that stock is moving. They also have enough current
assets (cash) to meet short term liabilities.
OR
Down Ltd is not managing stock effectively. Whilst they would not
experience cash flow problems, they are holding too much stock
which may contribute to low profitability. 
 6 


5.2

 Compare the dividend pay-out policy of each company.  
 LOCK LTD Dividend pay-out rate is 52% (45/86) compared to 81% (65/80) in 2019. ✓✓
DOWN LTD Dividend pay-out rate is 86% (60/70) in 2020 and 86% (62/72) in 2019. Down Ltd has maintained the dividend pay-out rate at 86% ✓✓
 Provide TWO possible reasons why one company decided to change their policy. 
Any TWO reasons ✓✓ ✓✓
They are retaining earnings to concentrate on growth.
They want to ease cash-flow problems and continue managing expenses to improve profitability.
They want to sustain the trend of increasing profitability and return on equity so shareholders can see the long-term prospects of the company. 


5.3

Lock Ltd decided to increase their loans during the current financial year, whilst Down Ltd decided to maintain their existing loans. Comment on the decisions of both companies. Make reference to the degree of risk and gearing.  
 LOCK LTD  Debt/ equity ratio increased from 0,3 : 1 to 0,6 : 1 ✓
ROTCE increased from 12% to 15% ✓
Although the business is now highly geared ✓ the loan is being effectively used to improve profitability. Business is positively geared so the decision was appropriate.✓
 DOWN LTD Debt/ equity ratio remained constant at 0,4 : 1 ✓
ROTCE decreased from 13% to 11,7%✓
Although the business is low geared ✓ the loan is not being effectively used as the business is negatively geared so it would be wise to start paying back the loan, or improve strategies to improve profitability. ✓
 8 


5.4

A shareholder of Down Ltd is concerned about the drop in the market price of the shares. Explain why they feel this way. Provide TWO points.
 Any 2 valid points ✓✓ ✓✓
This reflects the public demand for shares is low / public confidence in company has decreased.
Shareholders want capital growth on their investment.
Directors will be judged on the performance of the shares.
The market price dropped below the net asset value.
 4 


5.5 M. Mtolo owns 576 000 shares in Down Ltd, which represents 48% of the total issued shares. He wants to purchase another 25 000 shares.

5.5.1

 Do a calculation to show how this would change his % shareholding in the company.
 576 000 + 25 000        576 000 ÷ 48%
          601 000 ✓✓  ÷  1 200 000 ✓✓ x 100 = 50,1% ✓
 5 

 

5.5.2

 Provide TWO reasons why you think he is specifically interested in increasing his shareholding in Down Ltd. 
TWO points ✓✓ ✓✓
He wants to be the majority shareholder.
He wants to influence strategic decisions.
He is aware of the poor performance of the business and thinks that he can make
a difference.
He sees potential in the company and wants to be part of the future growth.
He wants to implement corrective measures to address the downward trends in
many of the financial indicators.
 4 


TOTAL MARKS   35
TOTAL: 150

Last modified on Friday, 18 February 2022 07:22
Published in Grade 12 September 2020 Preparatory Examinations

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