AccountingRevision questions

Directorate: Curriculum FET

ACCOUNTING
Grade 12 Revision
Companies: Preparation of financial statements

1

AccountingRevision questions

Activity 1: (Taken from March 2015)

FINANCIAL STATEMENTS: BALANCE SHEET AND NOTES, AUDIT
(75 marks; 45 minutes)
1.1 / Choose a description from COLUMN B that matches a term/concept in COLUMN A. Write only the letter (A–E) next to the question number (1.1.1–1.1.5) in the ANSWER BOOK.
COLUMN A / COLUMN B
1.1.1
1.1.2
1.1.3
1.1.4
1.1.5 / Companies and Intellectual Property Commission
Director
IFRS
Limited liability
Independent auditor / A
B
C
D
E / guidelines for the preparation of financial statements to ensure consistency
responsible for maintaining records and control of new and existing companies
the business is responsible for its own debts and the liability of owners is limited to the amounts they invested
responsible for expressing an opinion on the financial statements of a company
an elected member of the board responsible for running the business and implementing policy
(5)
1.2 / Bargain Traders Ltd is a public company listed on the JSE. The business has an authorised share capital of 1 000000 ordinary shares.
REQUIRED:
1.2.1 / Prepare the following notes to the Balance Sheet:
(a)Ordinary share capital / (7)
(b)Retained income / (10)
(c)Trade and other receivables / (10)
1.2.2 / Complete the Balance Sheet on 30 June 2014. Where notes are not required, show ALL workings in brackets to earn part marks. / (28)
1.2.3 / Calculate the net asset value (NAV) per share on 30 June 2014. / (3)
1.2.4 / Comment on the price offered for the shares that were repurchased. Quote relevant financial indicators (actual figures/ratios/percentages) to support your comment. / (3)
1.2.5 / The CEO (chief executive officer), Kyle Mason, has convinced the company to repurchase a further 90000 shares from other shareholders during the next financial year on 31 August 2014. Kyle Mason currently owns 315000 shares which represents 45% of the issued shares.
  • Calculate Kyle Mason's percentage shareholding after the proposed share buy-back on 31 August 2014.
/ (3)
  • As a shareholder, explain your concern regarding the proposed repurchase of shares. Provide TWO questions you would ask the directors at the annual general meeting.
/ (6)
INFORMATION:
A. / Issued share capital comprised 850000 ordinary shares on 1 July 2013.
B. / The following was extracted from the books on 30June2014:
Fixed/Tangible assets (carrying value) / ?
Fixed deposit: Swan Bank / 120 000
Ordinary share capital (850 000 shares) / 5 737 500
Retained income (1 July 2013) / 181 900
Bank / 351 200
Loan: Drake Bank / 295 000
Trading stock / 355 700
Net trade debtors (after deducting provision for bad debts dated 1 July 2013) / 118 370
Creditors' control / 197 000
SARS: Income tax (provisional payments) / 320 900
Dividends on ordinary shares (interim dividends) / 315 000
C. / No entries have been made for the repurchase of shares. On 1 October 2013 the business bought back 150000 ordinary shares from certain shareholders. Although the market price of the shares was R9,25, they accepted R7,40 for each share. These shareholders were not entitled to interim dividends.
D. / The following adjustments have not yet been taken into account:
  • Insurance included an annual policy of R29832 paid for on 1December2013.

  • The provision for bad debts must be increased by R6 100.

  • Unused packing material was counted to be R9500.

  • A debtor with a credit balance of R11 700 is to be transferred to the creditors' ledger.

  • The bank reconciliation reflected a post-dated cheque for R33000 dated 31August 2014.

  • The statement received from Drake Bank in respect of the loan reflected interest capitalised of R31200. Monthly repayments are R10800 including interest. These repayments will end in 2017.

  • On 30 June 2014, a final dividend of 40 cents per share was declared.

E. / Net profit after tax, after taking into account the adjustments above, was calculated as R813 600. The income tax rate is 28% of net profit before tax.
75
Activity 2: (Taken from June 2015)
CONCEPTS, INCOME STATEMENT, NOTES TO BALANCE SHEET (65 marks; 40 minutes)
2.1 / CONCEPTS – GAAP PRINCIPLES
REQUIRED:
Choose an explanation from COLUMN B that matches a concept in COLUMNA. Write only the letter (A–E) next to the question number (2.1.1–2.1.4) in the ANSWER BOOK.
COLUMN A
(CONCEPT) / COLUMN B
(EXPLANATION)
2.1.1 Historical cost
2.1.2 Matching
2.1.3 Going concern
2.1.4 Materiality / A
B
C
D
E / Figures used in financial statements should be realistic (conservative).
All important items should be shown separately in financial statements.
Income and expenses must be recorded in the correct financial year.
Financial statements are prepared with the understanding that the company will continue operating in the future.
All assets are recorded at their original cost price.
(4 x 1) / (4)
2.2 / PRINCE LIMITED
You are provided with information for the financial year ended 28February2015.
REQUIRED:
2.2.1 / Complete the Income Statement for the year ended 28February2015. / (42)
2.2.2 / Prepare the Ordinary Share Capital Note. / (8)
2.2.3 / Prepare the Retained Income Note. / (11)
INFORMATION:EXTRACT FROM THE PRE-ADJUSTMENT TRIAL BALANCE ON 28FEBRUARY2015
Balance Sheet Accounts Section / Dr / Cr
Ordinary share capital / 6 800 000
Retained income (1 March 2014) / 1 368 000
Loan: Y-Lend Bank / 1 609 000
Trading stock / 1 910 000
Bank / 626 200
Petty cash / 6 605
Debtors' control / 792 000
Creditors' control / 974 600
SARS (Income tax) / 523 600
Provision for bad debts / 43 600
Fixed deposit: Money Bank (8%) / 990 000
Nominal Accounts Section
Sales / ?
Cost of sales / 14 974 000
Rent income / 374 950
Interest on fixed deposit / 53 260
Bad debts recovered / 4 150
Audit fees / 147 600
Advertising / 960 000
Salaries and wages / 1 300 000
Directors' fees / 1 130 000
Packing material / 76 200
Sundry expenses / ?
Bad debts / 24 000
Ordinary share dividends / ?
ADJUSTMENTS AND ADDITIONAL INFORMATION:
A. / Selling prices are determined by using a mark-up of 40% on cost. However, trade discounts of R53600 were allowed to special customers during the financial year.
B. / The physical stocktaking on 28February2015 reflected the following stock on hand:
  • Trading stock R1 890 000
  • Packing material R8 500

C. / An amount of R20 500 is still outstanding to a director for his fees.
D. / Total depreciation for the year is R299 200.
E. / A debtor, B Khozo, with an outstanding balance of R42000, has left the country. His account must be written off as irrecoverable.
F. / The provision for bad debts must be adjusted to 5% of the outstanding debtors.
G. / One of the employees was on sick leave and was omitted from the Salary Journal for February 2015. His salary details are as follows:
Gross salary / Deductions / Net salary / Employers' contribution
? / R5 000 / R12 000 / R3 000
All employers' contributions are debited to the Salaries and Wages Account.
H. / Make provision for the outstanding interest on fixed deposit. The fixed deposit has not changed during the financial year. Interest is not capitalised.
I. / The rent income includes rent received for March 2015. The rent income increased by R1425 on 1 September 2014.
J. / The loan statement received from Y-Lend Bank on 28February2015 indicated the following:
R
Balance at beginning of financial year / 2 509 000
Repayments during financial year / 900 000
Interest capitalised / ?
Balance at end of financial year / 1 984 000
K. / Income tax for the financial year was calculated as R540000. This is 30% of the net profit before tax.
L. / The figure for sundry expenses is the balancing figure in the Income Statement.
M. / Shares and dividends:
  • The authorised ordinary share capital consists of 1000000 ordinary shares of which 70% was issued before 1 March 2014.
  • Interim dividends of 80cents per share was declared and paid on 1September2014.
  • During October2014 a further 100000 shares were issued at R12 each. This was properly recorded.
  • On 28February2015 a final dividend of 65cents per share was declared.
  • On 28February2015 it was decided to buy back 160000 shares from a dissatisfied shareholder at R9,10 per share. This transaction has not been recorded yet.

65

Activity 3: (Taken from November 2012)

COMPANY FINANCIAL STATEMENTS AND FIXED ASSETS(70 marks; 40 minutes)

3.1 / MATCHING ITEMS
REQUIRED:
Choose a description from COLUMN B that matches the term in COLUMN A. Write only the letter (A–D) next to the question number (4.1.1–4.1.4) in the ANSWER BOOK.
COLUMN A / COLUMN B
3.1.1
3.1.2
3.1.3
3.1.4 / Income Statement
Balance Sheet
Cash Flow Statement
Independent Auditor's Report / A
B
C
D / this shows the owners' equity (net worth) of a company, its assets and liabilities, at the end of the financial year
this shows an opinion expressed on the fair presentation of the figures in the financial statements
this shows the net profit or loss of a company for a financial year
this shows the effect of the operating, financing and investing activities on the money possessed by the business / (4)
3.2 / MASTER LIMITED
You are provided with information relating to Master Ltd for the financial year ended 30 June 2012.
REQUIRED:
3.2.1
3.2.2
3.2.3 / Use Information 2 to complete the Note for Fixed/Tangible Assets by filling in the missing figures indicated by an *.
Calculate the Retained Income on 30 June 2012. (You may prepare an Appropriation Account if you wish.)
Prepare the Balance Sheet of Master Ltd as on 30 June 2012. Show your workings in brackets as notes are NOT required. / (17)
(11)
(38)
INFORMATION:
1. / Note to the Balance Sheet on 30 June 2012
FIXED/TANGIBLE ASSETS / LAND AND BUILDINGS / EQUIPMENT / VEHICLES
Carrying value – 1 July 2011 / R 930 000 / R 220 000 / R 519 200
Cost / 930 000 / 561 000 / 814 000
Accumulated depreciation / 0 / (341000) / (294800)
Movements
Additions at cost / * / * / 0
Disposal at carrying value / 0 / 0 / *
Depreciation / 0 / * / (98 890)
Carrying value – 30 June 2012 / 1580000 / * / *
Cost / 1580000 / 616 000 / *
Accumulated depreciation / 0 / * / *
2. / Details of fixed assets
  • Land and buildings were bought during the year and are not depreciated.
  • New equipment was bought for R55000 halfway through the financial year. This transaction has been correctly recorded.
  • Provide for depreciation on equipment at 10% p.a. on cost price.
  • A vehicle was sold for cash at carrying value on 31 March 2012. This has been properly recorded. The details of the asset sold from the Fixed Asset Register were as follows:
-Cost price, R165000
-Accumulated depreciation at beginning of financial year, R66000
-Depreciation rate of 20% p.a. on the diminishing-balance method
  • Depreciation on all the vehicles is R98890 for the year.

3. / The following figures were extracted from the accounting records at the end of the financial year on 30 June 2012:
Ordinary share capital (730000 shares) / R 1825 000
Retained income (1 July 2011) / 39 000
Fixed deposit (see Information 4) / 203 000
Mortgage loan from Khaya Bank / 306 240
Fixed/Tangible assets / ?
Debtors' control / 68 000
Creditors' control / 77 500
Provision for bad debts / 1 450
SARS (Income tax – provisional tax payments) / 175 000
Expenses accrued/payable / 18 300
Bank (Dr) / 61 340
Petty cash and cash float / 3 200
Trading inventory / 118 000
Consumable stores on hand / 4 000
Shareholders for dividends / 219 000
4. / There are two fixed deposits at Sahara Bank. A fixed deposit of R98000 matures on 30 December 2012. The rest matures on 31May 2014.
5. / The following relates to the mortgage loan from Khaya Bank:
  • Interest is capitalised.
  • Interest for the year has not been entered, R63360.
  • The loan will be reduced by R52800 over the next financial year.

6. / Shares:
  • 100000 new shares were issued on 1January2012. This has been recorded.
  • 5000 shares were repurchased on 30 June 2012 at R4 per share. The transaction was concluded but no entries were made on this date.

7. / Dividends:
  • Interim dividends of 20 cents per share were paid on 31December 2011.
  • Final dividends of R219000 were declared on 30June2012.

8. / The Income Statement reflects:
  • Net profit before tax, R560000
  • Income tax for the year, R168000.

70

Activity 4: (Taken from November 2013)

COMPANY FINANCIAL STATEMENTS AND AUDIT REPORT
(75 marks; 45 minutes)
4.1 / Give ONE word/term for each of the following descriptions by choosing a word/term from the list below. Write only the word/term next to the question number (4.1.1–4.1.4) in the ANSWER BOOK.
current asset; non-current asset; income; expense;
current liability; non-current liability
4.1.1 / Profit on the sale of an asset is a/an...
4.1.2 / The portion of a loan that will have to be repaid within a year is a/an...
4.1.3 / Consumable stores on hand are a/an...
4.1.4 / Interest on a bank overdraft is a/an ... / (4)
4.2 / SELATI LIMITED
You are provided with information for the financial year ended 30 June 2013.
REQUIRED:
4.2.1 / Complete the Income Statement. / (54)
4.2.2 / Prepare the note for Retained Income. / (11)
INFORMATION:
EXTRACT FROM THE TRIAL BALANCE ON 30 JUNE 2013:
Balance Sheet Accounts Section / R
Ordinary share capital / 5 605 000
Retained income (1 July 2012) / 735 000
Trading stock / 1 534 000
Debtors' control / 521 300
Provision for bad debts / 22 000
Creditors' control / 471 800
Loan: Puma Bank / 630 000
Bank (Dr) / 129 400
SARS: Income tax (Dr) / 260 000
Pension fund / 15 800
Unemployment Insurance Fund (UIF) / 2 300
Fixed deposit: Sharp Bank / 450 000
Nominal Accounts Section / R
Sales / ?
Cost of sales / 8 200 000
Salaries and wages / 788 000
Directors' fees / 1 840 000
Audit fees / 88 000
Employer's contribution (Pension and UIF) / 81 000
Bank charges / 31 000
Sundry expenses / 89 730
Bad debts / 12 100
Rent income / 69 160
Interest on fixed deposit / 27 000
Repairs and maintenance / 125 600
Packing material / 43 900
Ordinary share dividends (interim) / ?
ADJUSTMENTS AND ADDITIONAL INFORMATION:
1. / The auditors are owed a further R7 500.
2. / Goods are sold at a mark-up of 60% on cost price. The company held discounted cash sales during the year to clear excess stock. The total of trade discount given to customers was R702000.
3. / Packing material to the value of R41 000 was used during the year ended 30June 2013.
4. / Interest on the bank overdraft, R2 800, is included in the bank charges.
5. / No entries have been made for stock stolen at the beginning of June 2013. The insurance company has informed Selati Ltd that they have transferred R32000 into the business' bank account in respect of the insurance claim. Selati Ltd bears 20% of any stock loss.
6. / A physical stocktaking on 30 June 2013 reflected that stock to the value of R1475 500 was on hand.
7. / An amount of R1700 received from M Mpoani had been credited to the Debtors' Control Account in June 2013. The account of M Mpoani was written off as a bad debt during May 2013.
The provision for bad debts must be adjusted to 4% of outstanding debtors.
8. / One employee was omitted from the Salaries Journal for June 2013. His salary details are:
Deductions / Employer's Contribution / Net salary
2 020 / 1 610 / 4 980
9. / EZ Builders was paid R105 000 for the construction of a storeroom (R80000) and repairs to paving (R25000). The entire amount was debited to Land and Buildings in error.
10. / The loan statement from Puma Bank on 30 June 2013 reflected:
Balance at beginning of financial year / R1 470 000
Repayments during the year / 840 000
Interest capitalised / ?
Balance at end of financial year / 750 000
11. / Rent income for July 2013 has already been received. The monthly rent was increased by 10% on 1 May 2013.
12. / Depreciation is the missing figure in the Income Statement.
13. / Net profit and tax:
  • After taking all adjustments into account, the correct net profit after tax is R588000.
  • The income tax rate is 30% of net income before tax.

14. / Shares:
  • The ordinary share capital on 1 July 2012 consisted of 1 500 000 ordinary shares which were issued at R2,60 per share.
  • 500 000 shares were issued on 1 January 2013 at R4,00 per share. This was properly recorded.
  • On 28 February 2013 the directors repurchased 100 000 shares from the estate of a deceased shareholder at a price of R4,50 per share. This has not yet been recorded.

15. / Dividends:
  • Interim dividends of 14 cents per share were declared and paid on 31December 2012.
  • Final dividends of 10 cents per share were declared on 30 June 2013.

4.3 / AUDIT REPORT
EXTRACT FROM THE REPORT OF THE INDEPENDENT AUDITORS
We have audited the annual financial statements of Selati Ltd for the year ended 30 June 2013. These financial statements are the responsibility of the company's directors.
Basis for Disclaimer of Opinion
During the course of our audit we established that bonuses paid to directors amounting to R1,5m had not been authorised by the Remuneration Committee. Furthermore, no documentation is available for sundry expenses of R75 000.
Audit Opinion
Because of the significance of the matter described above, we have not been able to obtain sufficient audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements of Selati Ltd for the year ended 30 June 2013.
Morley and Associates, Chartered Accountants (SA)
REQUIRED:
As a shareholder, why would you be concerned about this audit report? Explain. State THREE points. / (6)
75

Activity 5: (Taken from November 2014)

BALANCE SHEET, INTERPRETATION AND ETHICS (65 marks; 40 minutes)
You are presented with information from the records of Vijay Limited. The financial year-end is 28February2014.
REQUIRED:
5.1 / Prepare the following notes to the Balance Sheet:
5.1.1 / Share capital / (9)
5.1.2 / Retained income / (11)
5.2 / Prepare the Balance Sheet (Statement of Financial Position) on 28February2014. Where notes are not required, show ALL workings in brackets. / (26)
5.3 / Calculate the return on average shareholders' equity for 2014. / (5)
5.4 / From 2013 to 2014 the directors made a deliberate decision to change the policy on the distribution of profits in the form of dividends. Comment on this change. Quote financial indicators or figures to support your answer. / (4)
5.5 / Comment on whether the shareholders should be satisfied with the percentage return and the market price of their shares. Quote TWO relevant financial indicators (actual figures/ratios/percentages) and their trends. Give an additional comment in each case. / (6)
5.6 / The external auditors, Hassan and Jacob, have employed Janet to work on the audit of Vijay Ltd. Janet owns 10000 shares in Vijay Ltd.
Explain why this is a problem and give a valid solution. / (4)
INFORMATION:
A. / The authorised share capital consists of 750000 ordinary shares.
On 1March2013, only 60% of the shares were in issue.
B. / The following amounts were extracted from the records:
28 Feb. 2014 / 28 Feb. 2013
Ordinary share capital / ? / 3215 000
Retained income / ? / 322 500
Total ordinary shareholders' equity / ? / 3 537 500
Fixed assets (carrying value) / ?
Fixed deposit: Sam Bank / 650 000
Loan: William Bank / 482 600
Inventories / 275 400
Debtors' Control / 243 500
Creditors' Control / 62 460
Cash in the bank and petty cash / 336 600
Income received in advance (Rent) / 12 120
Prepaid expenses (Insurance) / 7 600
Provisional income tax payments / 299 980
Interim dividends / 270 000
C. / On 1November2013, the company issued a further 80000 shares at R9,50 per share.
D. / On 28February2014, the directors decided to repurchase 75000 ordinary shares from the estate of a shareholder who had died. This shareholder had originally purchased his shares on the JSE at various times and at different prices. A repurchase price of R10,40 was accepted as being a fair price.
E. / On 27February2014, a final dividend of 40 cents per share was declared.
All shares, including the new shares issued and repurchased, qualify for final dividends.
F. / The loan statement from William Bank received on 28February2014 reflected interest capitalised at R81400. This was not recorded in the books.
The business expects to settle 20% of the outstanding balance in the next financial year.
G. / After all the above adjustments were taken into account the net profit before tax was calculated to be R1161000. The income tax is calculated at 30% of net income before tax.
H. / Financial indicators on 28February: / 2014 / 2013
Earnings per share (EPS) / 170 cents / 82 cents
Dividends per share (DPS) / 100 cents / 82 cents
Net asset value (NAV) / 846 cents / 786 cents
Return on shareholders' equity (ROSHE) / ? / 18,3%
I. / Additional information: / 2014 / 2013
Market price of Vijay Ltd shares on JSE / 1032 cents / 1060 cents
Interest rate on alternative investments / 9% / 9%
65

Activity 6: (Taken from November 2015)