INSTRUCTIONS AND INFORMATION
Read the following instructions carefully and follow them precisely.

1. Answer ALL the questions.
2. A special ANSWER BOOK is provided in which to answer ALL the questions.
3. Show ALL workings to earn part-marks.
4. You may use a non-programmable calculator.
5. You may use a dark pencil or blue/black ink to answer the questions.
6. Where applicable, show ALL calculations to ONE decimal point.
7. If you choose to do so, you may use the Financial Indicator Formula Sheet attached at the end of this question paper. The use of this formula sheet is NOT compulsory.
8. Write neatly and legibly.
9. Use the information in the table below as a guide when answering the question paper. Try NOT to deviate from it.

QUESTIONS

QUESTION 1: AUDIT REPORT AND CORPORATE GOVERNANCE (15 marks; 10 minutes)
1.1 Choose an option from the list provided for each description below, write only your answer next to the question numbers (1.1.1 to 1.1.3) in the ANSWER BOOK.

1.1.1 Responsible for reviewing fees payable to directors
1.1.2 They serve on the Board of Directors but do not work at the company
1.1.3 Appointed by shareholders to perform key management functions in the business (3 x 1) (3)

1.2 AUDIT REPORT
An extract of the Independent Auditors Report is provided.
REQUIRED:
1.2.1 Identify the type of report and explain why this type of report was issued by the auditor. (2)
1.2.2 Explain TWO points why shareholders will be concerned about the company receiving such a report. (4)
1.2.3 The CEO requested that the auditor classifies this donation as a ‘sundry expense’ and adjust the audit opinion accordingly. Provide TWO reasons why the auditor would not agree with this suggestion. (4)
1.2.4 Apart from the issues mentioned above, explain why the company would be accused of poor corporate governance. (2)
INFORMATION:

INXUBA LTD
EXTRACT FROM THE INDEPENDENT AUDITORS REPORT

QUESTION 2: COMPANY FINANCIAL STATEMENTS (60 marks; 50 minutes)
The information relates to ZOZIE (PTY) LTD, a stationery retailer, for the year ended on 28 February 2021.
REQUIRED:
Prepare the following for the financial year ended 28 February 2021:
2.1 Statement of Comprehensive Income (36)
2.2 Retained income note (7)
2.3 The EQUITY and LIABILITIES section of the Statement of Financial Position (17)
INFORMATION:
A. Extract: Pre-Adjustment Trial Balance on 28 February 2021:

B. ADJUSTMENTS AND ADDITIONAL INFORMATION

1. Goods returned by a debtor, R28 800, was not yet recorded. The goods were placed back in stock, but no entries were made to record this transaction. A profit mark-up 60% on cost is applied to all sales.
2. Insurance includes an annual premium of R14 400 paid for the period 1 April 2020 to 31 March 2021.
3. The tenant paid the rent up to 30 April 2021. Note that rent was increased by 15% p.a. with effect 1 July 2020. The premises were occupied since 2018.
4. The bookkeeper omitted the stock of calculators in compiling the trading stock figure reflected on the pre-adjustment trial balance. A summary from the stock records of calculators, is as follows:
   

   opening stock	600 units
   purchases during the year	2 200 units
   returns	180 units
   units sold	2 160 units
   closing stock	430 units

   • The relevant sales figure was recorded.
   • Calculators are purchased at a fixed cost price of R175 each. The specific identification method is used to value the calculators.
     It was noted that calculators were stolen. This must still be recorded.
5. The company employs three directors on the same fee structure. One of these directors did not receive his fee for February 2021. A fourth director, appointed on 1 December 2020, earns R3 200 per month more than the other directors. He received his fees for the current year.
6. The salary of the clerk on leave was omitted from the Salaries Journal. Details of his salary is as follows:
   

   Net salary	Total employee deductions	Total employer contributions
   R9 424	24% of gross salary	R1 240

   * Employer contributions are debited to salaries and wages.
7. An adjusted assessment was received from the external auditors stating that audit fees for the year amounts to R80 500.
8. The loan statement from Luther Bank revealed the following:
   

   Total repayments for the year (including interest)	R258 000
   Interest capitalised	?
   Balance on 28 February 2021	R1 082 400

   10% of the loan balance will be settled during the next financial year.
9. After taking into account the adjustments, the net profit after tax amounted to R689 310. The current income tax rate is 31%.

C. Share capital and dividends:
The share register reflected 745 000 shares in issue on 28 February 2021. The changes to share capital and retained income were recorded:

• 1 October 2020: 120 000 shares were issued at R8,00 each.
• 1 December 2020: 75 000 shares were repurchased at R1,40 above the average share price. These shares do not qualify for final dividends.
• Interim dividends were paid on 31 August 2021.
• A final dividend of 23 cents per share was declared on 28 February 2021.

D. Financial indicators calculated on 28 February 2021:

• Net asset value per share (NAV) 860 cents
• Current ratio 1,8 : 1

60

QUESTION 3: CASH FLOW STATEMENT AND FINANCIAL INDICATORS (40 marks; 30 minutes)
The information relates to KAMP LTD for the financial year end 31 August 2021.
REQUIRED:
3.1 Calculate the following for the Cash Flow Statement on 31 August 2021:
3.1.1 Change in payables (indicate if it is an inflow or outflow of cash) (4)
3.1.2 Income tax paid (4)
3.1.3 Dividends paid (4)
3.1.4 Proceeds from shares issued (5)
3.1.5 Funds used to repurchase shares (3)
3.1.6 Increase in loan (4)
3.2 Complete the NET CHANGE IN CASH AND CASH EQUIVALENTS section of the Cash Flow Statement (4)
3.3 Calculate the following financial indicators for the year ended 31 August 2021.
3.3.1 Acid test ratio. (3)
3.3.2 % Return on shareholders’ equity. (5)
3.3.3 Dividend pay-out rate (%) (4)
INFORMATION:
A. Extract from the Statement of Comprehensive Income (Income Statement) for the year ended 31 August 2021.

B. Extract from the Balance Sheet on 31 August 2021.

C. Note 1: Trade and other receivables

D. Note 2: Trade and other payables

E. Share Capital

F. Dividends and earnings:

• Interim dividends were paid on 28 February 2021 to all shares on the share register.
• A final dividend of 12 cents per share was declared on 31 August 2021. Total dividends for the year amounted to R528 000.
• The earnings per share (EPS) was calculated at 53 cents per share.

G. Loan: De Beers Lenders
The loan was increased on 1 September 2020 (beginning of the financial year). Interest at 12% p.a. was paid up to date, and is not capitalised.

QUESTION 4: INTERPRETATION OF FINANCIAL INFORMATION (35 marks; 30 minutes)
4.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question numbers (4.1.1 to 4.1.3) in the ANSWER BOOK.
4.1.1 In the event of a business becoming bankrupt, shareholders would only lose their investment in shares. This is because of the (limited / unlimited) liability concept.
4.1.2 The (historical cost / materiality / business entity) GAAP principle stipulates that significant items such as interest expense be disclosed separately on financial statements.
4.1.3 The (net asset value per share / market price) is influenced by the demand for shares on the stock exchange. (3)
4.2 GREEN LTD, BCM LTD and PLAZA LTD
The information relates to three different companies, operating in the same industry. The financial year of each company ends on the last day of February.
REQUIRED:
NOTE: Provide figures, financial indicators or calculations in EACH case to support your comments and explanations.
4.2.1 Liquidity
Identify the company that has the most efficient liquidity position. Quote and explain THREE financial indicators to support your choice. (6)
4.2.2 Risk and gearing:
A director of Green Ltd feels that the company should pay back the loan as soon as possible. Explain what you would say to him. Quote
TWO financial indicators (with figures) to motivate your opinion. (6)
4.2.3 Dividend pay-out policy:
Comment on the dividend pay-out rates of Green Ltd and Plaza Ltd, and provide a reason for the directors of each company deciding on
those pay-out rates. Quote figures. (6)
4.2.4 Shareholding of Sandi Charley:
Sandi Charley is a shareholder in two of these companies. She has R800 000 and intends to invest in new shares.
All three companies have decided to issue additional shares on 1 March 2021, at the existing market price on 28 February 2021.

• Calculate Sandi’s % shareholding in Green Ltd and comment on your findings. (4)

Sandi wants to buy additional shares in Green Ltd and also intends investing in Plaza Ltd.

• Calculate the minimum number of shares she should buy in Green Ltd and the amount she would have to spend. (6)
• What advice would you offer Sandi regarding her intentions to purchase shares in Plaza Ltd? Provide TWO points. Quote figures (financial indicators) to support your advice. (4)

INFORMATION
A. Financial indicators on 28 February 2021:

Credit terms: Debtors are granted 30 days to settle their accounts; Creditors allow 60 days’ credit terms.
B. Shares and shareholding of Sandi Charley:

TOTAL: 150