MARKING PRINCIPLES:

1. Unless otherwise indicated 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 the answer is 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 marking guidelines 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.
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 ÷ or as per marking guidelines.
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.
    This marking guideline consists of 9 pages.

MEMORANDUM

QUESTION 1
1.1 

1.2 AUDIT REPORT
1.2.1 Identify the type of report and explain why this this type of report was issued by the auditor.

• ONE valid comment 🗸🗸
• part marks for incomplete / unclear answers complete answer must mention Qualified Report

The company received a Qualified report because

• The financial statements were fairly presented except for one issue regarding the donation of R1,2 m OR
• A specific item (donation) could not be verified OR
• There was no evidence / documents to verify the donations of R1,2 m OR
• Proper procedures were not followed with regards to the donation

1.2.2 Explain TWO points why shareholders will be concerned about the company receiving such a report.

• TWO valid points 🗸🗸 🗸🗸 part marks for partial / incomplete / unclear responses
• There is a weakness in internal controls – possible mismanagement / fraud
• This will impact on the image of the business, and on share price (demand) / on share price / returns earned / dividends earned by shareholders
• Potential investors would not be interested to buy shares / existing shareholders may want to sell their shares
• Directors appointed by them are not reliable – lose confidence in them
• Significant information is not being openly discussed (transparency)
• No proof that the donations reached the intended schools / fraud

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.

• TWO reasons 🗸🗸 🗸🗸 part marks for partial / incomplete / unclear responses
• He belongs to a professional body and is bound by a code of conduct
• This request is unethical / fraudulent behaviour / misleading shareholders
• He does not have an interest in the company, should be unbiased
• He is concerned about his own reputation and prospects for future assignments;
• The auditor has to be independent to issue a reliable opinion / not be influenced by directors (who are responsible to drawing up statements)
• There should be an investigation into possible criminal activity / should not be any cover-up / culprits must face legal consequences.

1.2.4 Apart from the issues mentioned above, explain why the company would be accused of poor corporate governance.
ONE valid point 🗸🗸 part marks for partial / incomplete / unclear responses

• The CEO should place the interest of the company and the shareholders’ first
•  He must exercise ethical behaviour in dealing with company matters;
• He should take responsibility for duties assigned to him and account for his actions; not be devious and try to cover up (transparency)
• He should encourage the participation of all role players in decision-making 

TOTAL 15

QUESTION 2
2.1 Statement of Comprehensive Income on 28 February 2021

– 1 foreign items (max -2) * one part correct
2.2 RETAINED INCOME

* one part correct
2.3 EQUITIES AND LIABILITIES SECTION

* one part correct

TOTAL 60

QUESTION 3
3.1 Calculate the following for the Cash Flow Statement on 31 August 2021:

Related Items

3.2 

3.3
3.3.1

3.3.2

3.3.3

TOTAL 40

QUESTION 4
4.1
4.1.1 Limited 🗸
4.1.2 Materiality 🗸
4.1.3 Market price 🗸          3
4.2.1 Identify the company that has the most efficient liquidity position. Quote and explain THREE financial indicators to support your choice.

COMPANY: BCM Ltd 🗸
Financial indicators (with figures) 🗸 🗸 🗸 Explanation 🗸🗸

• Current ratio is 1,8 : 1
• Acid test ratio is 1,1 : 1
• Average debtors’ collection period is 27 days
• The business has enough liquid assets to meet current debt obligations
• Collection from debtor is also efficient (within the credit terms)
• Do not appear to carry a lot of stock; no idle stock; stock is being sold regularly                         6

4.2.2 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.
Financial indicators (with figures) 🗸 🗸
Explanation 🗸🗸 comparison with interest rate 🗸🗸

• Debt/equity ratio is 0,6: 1 – business tends towards high gearing / making extensive use of loans (borrowed capital)
• ROTCE is 14,7% - indication that CE is use productively to generate a good profit/ business is positively geared – interest on loan is 13%
• There is no urgency to repay the loan.           6

4.2.3 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.
Financial indicators (with figures) 🗸 🗸
Explanation for Green Ltd 🗸🗸 Explanation for Plaza Ltd 🗸🗸

• Green Ltd paid out 51,6% of the EPS to shareholders and retained 48,4% This business is focusing on growth and long term sustainability.
• Plaza Ltd.’s dividend pay-out rate is 103% which means they used part of retained income to pay dividends (above the EPS). This may be considered to be a poor decision as the company is not doing well (looking at the returns) and they do not have plans for growth; they appear to be appeasing the shareholders by giving them high dividends.       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.

• 900 000 / 1 700 000 = 52,9% 🗸🗸

COMMENT: 🗸🗸

• Sandi owns more than 50% of the shares; has a controlling interest; is the majority shareholder / decision maker     4

Calculate the minimum number of shares she should buy in Green Ltd and the amount she would have to spend.

• (1 700 000 + 250 000)
  1 950 000 / 2
  975 000 🗸🗸 – 900 000 🗸 = 75 000 + 1 (or + 100) ☑ one part correct
  
  75 001 x 5,20 🗸 = R390 005,20 ☑ or 75 100 x 5,20 = R390 520
                                                 ^{one part correct}

TOTAL 35