ACCOUNTING PAPER 1
GRADE 12
NOVEMBER 2020
MEMORANDUM
NATIONAL SENIOR CERTIFICATE

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. This memorandum is not for public distribution, as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions.
8. Where penalties are applied, the marks for that section of the question cannot be a final negative.
9. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer.
10. Operation means 'check operation'. 'One part correct' means operation and one part correct. Note: check operation must be +, -, x, ÷, or per memo.
11. In calculations, do not award marks for workings if numerator & denominator are swapped – this also applies to ratios.
12. 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 
13. Be aware of candidates who provide valid alternatives beyond the marking guideline. Note that one comment could contain different aspects.
14. Codes: f = foreign item; p = placement/presentation.
    These marking guidelines consist of 9 pages.

QUESTION 1
1.1.1

1. Calculate: Carrying value of the vehicle on hand on 1 March 2020
   460 000 – 396 750
   Answer:
   63 250
   (2)
2. Calculate: Depreciation on vehicles for the year
   25 500 two marks (510 000 x 15% x 4/12)  one part correct
   460 000 x 15% = 69 000; CV is 63 250.
   Depreciation is therefore 63 250 – R1,00 = 63 249 
   Answer:
   25 500 + 63 249
   two marks two marks
   88 749  one part correct
   (5)
3. Calculate: Carrying value of equipment sold
   Choose one line
   360 000 – 285 000 -41 080(2 marks)
   75 000  – 36 600  – 4 480 
   OR: 75 000  – (36 600  + 4 480)
   OR: 360 000 – 285 000 – 41 080 [ one mark] ] two marks -360 000 + 285 000 + 41 080
   Answer:
   33 920  one part correct
   (4)

1.1.2 Calculate: Profit/Loss on the sale of equipment
See (iii) above
40 000 – 33 920
OR
– 40 000 + 75 000 – 41 080
Answer:
If 40 000 - (iii) No part marks
6 080 
(2)

1.2 Calculate: Trading stock deficit
18 two marks
(280 – 262) x 4 050
280 one mark 262 one mark 4 050 one mark
(280 x 4 050) – (262 x 4 050)
1 134 000 1 061 100
Answer:
R72 900#
# if x 4 050
NOTE: The relevant figures calculated above must be transferred to the Income Statement.

1.3 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2021
ignore brackets – check if operation is correct
# also award from bottom up if COS calc is done *one part correct

(43)
-1 foreign items i.e. B/S items (max -2); for misplaced items, award marks for workings only (not the final answer)
TOTAL MARKS:60

QUESTION 2
2.1
2.1.1 Directors' report 
2.1.2 Internal 
2.1.3 Limited 
(3)

2.2 USANDA LIMITED
2.2.1 Calculate: Income tax paid
(1 777 000 – 1 243 900) one mark
69 300 + 533 100 – 19 800 
Alternative presentations: Mark ONE alternative only
– 69 300 – 533 100 + 19 800
(69 300) + (533 100) + 19 800

Answer: R582 600  one part correct

Calculate: Dividends paid
495 000 two marks
247 500 + (835 000 – 340 000)
Alternative presentations: Mark ONE alternative only
– 247 500 – 835 000 + 340 000
(247 500) + (835 000) + 340 000

Answer: R742 500 one part correct

2.2.2

(11)

2.2.3 Calculate financial indicators for the year ended 28 February 2021: # Note: 100 does not count as ‘one part correct’ for the method mark
% operating profit on sales
2 262 100 x 100
17 800 000 1
Expressed as a % (sign not necessary) one part correct
Answer:
12,7%
accept 12,7 two marks
accept 13 two marks
(2)

Acid-test ratio
(659 500 – 276 500) two marks
or (262 300 + 120 700) two marks
383 000 : 611 900
Answer:
one part correct
0,6 :1
Do not accept 1 : 1
as x : 1; not 0,6 on its own
Accept 0,63 : 1
(4)

% return on average shareholders' equity (ROSHE)
              1 243 900                  x 100
½  (11 985 000 + 9 891 400) 
21 876 400 one mark
10 938 200 two marks
Expressed as a % (sign not necessary) Not 0,114
Answer:
one part correct
11,4%
Accept 11,37% or 11%
(4)

Dividend payout rate (%)
30 cents or R0,3 + 20 cents or R0,2; one mark each (assume R or c if no signs)
Must be consistent with calculation
50 cents  x 100
74 cents      1
one mark
OR  R835 000   x 100 (2021 Total dividend)
      R1 243 900      1 (2021 NPaTax)
two marks
Expressed as a % (sign not necessary) Not 0,676
Answer:
67,6% one part correct
or
67,1%
Accept 67% / 68%
(4)
TOTAL MARKS: 40

QUESTION 3
3.1
3.1.1 C 
3.1.2 E 
3.1.3 B 
3.1.4 A 
(4)

3.2 SCI-FI GEEKS LTD If candidates give more required number of indicators, -1 for any inappropriate one (max -1) in Q3.2
3.2.1 The directors are satisfied with the improvement in the current ratio and the acid-test ratio. Explain why you would disagree with them. Quote TWO financial indicators in your response.

Financial indicators ✓✓ Figures ✓✓ Explanation ✓✓ part marks for incomplete, partial or unclear answer

• The stock holding period increased (from 32 days) to 102 days (or 70 days)
• Average debtors' collection period increased (from 31 days) to 46 days (15 days)
• Current ratio increased (from 1,1 :1) to 2,4 : 1 / by 1,3 : 1
• Acid-test ratio increased (from 0,4 : 1) to 1 : 1 / by 0,6 : 1

Any ONE valid explanation; part marks for incomplete / unclear explanation

• Too much liquid assets (cash) tied up in stock reflects that there is an over-investment in stock / the difference in current & acid-test rations reflects stock piling.
• High stock volumes create security problems
• Stock can easily become obsolete due to advancements in technology (can’t be sold)
• The business has relaxed / neglected its collection policies / lockdown during Covid-19 and this impacts on the debtors / stock / cash flow of the business.
  (6)

3.2.2 Comment on the dividend per share over the two years. Quote figures.
ONE valid comment ✓ Figures ✓
The DPS dropped from 90 cents to 72 cents / by 18 cents / by 20%

Explain the change in the dividend payout rate. Quote figures.
Explanation ✓ Figures ✓
The dividend pay-out rate increased from 69% (90/130) to 136,5% or 72/58 (accept 124,1%) / or a 97,8% increase from the previous year
Give a reason for this change.
ONE valid point ✓✓ part marks for incomplete, partial or unclear answer

• Directors attempted to please the shareholders for the low profitability
• Compensation for using funds retained in previous financial years.
• No plans for growth / expansions (no need to retain additional funds)
  (4)

A shareholder felt that they should be satisfied with the dividends they received as it is better than last year. Explain why you agree with him. Quote figures.
Explanation with a comparison to another factor apart from the payout rate✓✓
Any valid figure ✓

Responses for 3 marks:
The drop in the market price from 540 cents to 410 cents (reflects a dividend yield DPS/MP of 17,7% this year compared to 16,7% last year) / If the policy was maintained at 69% of EPS, they would have received 40 cents.

Example of responses for two marks:

• EPS dropped from 130c to 58c (by 72 cents / 55%) but DPS dropped from 90c to 72c (by 18 cents / 20%)
• The dividend pay-out rate increased from 69% (90/130) to 136,5% or 72/58 (accept 124,1%) / or a 97,8% increase from the previous year.

Example of responses for one mark:
The dividend pay-out rate increased.
(3)

3.2.3 Comment on the risk and gearing for both years. Quote TWO financial indicators (with figures).
Debt/equity ratio increased (from 0,3 : 1) to 0,4: 1 (or by 0,1 : 1)
ROTCE decreased (from 39%) to 23,2% (or 15,8%)
Any valid comment on the above ✓✓ part marks for incomplete, partial or unclear answers

• Increased borrowing not effectively used to increase / improve profitability.
• Although still positively geared (ROTCE exceeds interest rate), the drop in profitability / downward trend is a concern.
• Although there is low financial risk, the company is more reliant on own capital.
  (6)

3.2.4 Existing shareholders are dissatisfied that the new shares issued on 1 April 2020 were sold to the CEO, Ida Shark. Give TWO reasons why you consider their feelings to be justified. Quote figures.
Candidates must provide two reasons, which may be embedded in one explanation.
Any two different reasons: ✓✓  ✓✓ part marks for incomplete, partial or unclear answers

• Ethical reasons e.g. This is a very low price and the CEO is exercising undue influence over the issue price / receiving preferential treatment / against the Companies Act or King Code / lack of transparency
• Market-related reasons e.g. the company is losing out on additional funding as shares could have been sold at a price in that range, or on the stock exchange

Relevant figures (any two): ✓✓
The selling price of these shares (250 000) is 150 cents each (R375 000 in total) / market price of 410c exceeds NAV of 332c.

3.2.5 The Cash Flow Statement reflected a positive change in R980 000. Provide TWO points why this should still be a concern to directors. Quote figures.
TWO points ✓✓ Figures ✓✓
Expected responses for one mark each, figures one mark each:

• Cash flow from operating activities is negative R148 080
• Additional shares issued, R375 000
• Financing activities increased by R1 026 500
• Large increase in loan, R651 500 / high interest payment R232 000
• Very high payment for dividends, R925 000
• Cash from investing activities, R101 580
  (4)

TOTAL MARKS:35

QUESTION 4
4.1 Explain why a qualified audit report is not a good reflection of a company. Provide TWO points.
TWO points ✓✓  ✓✓ part marks for incomplete, partial or unclear answers

• Certain information on financial statements are not clear / missing.
• There is insufficient audit evidence for significant items; Auditors cannot verify certain information.
• Lack of internal controls; possible negligence or colluding.
• Negative impact in the future; consequences on the image / share price due to decreased demand for shares (from potential shareholders)
• Existing shareholders might decide to sell their shares
  (4)

4.2 Explain why it is important for a company to include non-executive as well as executive directors on the Board of Directors.
TWO points ✓✓ ✓✓ part marks for incomplete, partial or unclear answers

• Executive directors are involved with internal functioning (operations) of the company / hands-on / decisions may be based on a narrow view.
• Non-executive directors have a wider perspective of the business environment; and act in the best interest of the company.
• The non-executive directors would exercise a watch-dog role; keep executive directors in check.
• More regular inputs than an internal auditor or other directors.
• Their inputs would be unbiased and independent.
• They share accountability with the other directors / more people have the interests of the company in mind.
• Executive directors would be more vigilant and professional in their duties / not tempted to engage in unethical activities.
• The more directors there are, the more opinions will be generated, which could benefit the company.
• The non-executive directors can be paid less than the other directors (because they do not work permanently in the company).
  (4)

4.3 According to the Companies Act, 2008 (Act 11 of 2008), a company must have a Remunerations Committee.
Explain the role/responsibility of this committee and give a reason why this committee is necessary.

EXPLANATION: Note: Mark for explanation could be embedded in the reason
Review all salaries, bonuses and other earnings
To prevent directors from paying themselves too much
They must approve, and give advice on the proposals re fees, bonuses etc.

REASON: part marks for incomplete, partial or unclear answers

• To ensure fairness / transparency in the payment of fees/salaries
• To prevent fraud / corruption / wastage
• Detect mismanagement or fraudulent activities
• They can compare the remuneration / earnings against financial information of other companies in the industry / fairness to workers
  (3)

4.4 Directors engage with clients on a regular basis in an effort to negotiate contracts and to increase sales and services.
Explain why there should be a company policy for all gifts, donations or favours received by the directors from clients to be declared to the board by the directors concerned. Provide TWO points.
TWO points ✓✓   ✓✓ part marks for incomplete, partial or unclear answers

• Transparency in awarding contracts, tenders or appointing service providers;
• Could result in not appointing the best suited client for the job / not adhering to or flouting company policy.
• Policy would prevent colluding with service providers.
• Directors / service providers would know the consequences of not abiding by policy and therefore not be tempted to engage in fraudulent activities / corruption.
• This could be viewed as bribery for contracts.
• This could be viewed as nepotism (if family and friends involved).
• To protect the image of the business.
• Conflict of interest (which could be corrupt / fraudulent).
  (4)
  

TOTAL MARKS: 15
TOTAL: 150