Exam Support 12 - Holy Cross School

AccountingCRITICAL CONCEPTS MADE EASYExamSupport12

Welcome toGrade 12 Accounting catch-upexam supportwith Oxford University Press1. Start with this free Accounting exam support booklet, which is an extractfrom the full Zoom in Practice Book.2. Click here to download a free interactive digital topic. Watch videos, animations and slide shows to explore critical concepts. Play interactive activities with instant feedback. Practise revision questions, graded activities and exam-type questionswith answers.3. Buy the full interactive digital product for all concepts and the full practicebook here.

Contents pageTopic 1Companies: Theory and ledger accounts 2Topic 2Financial statements 5Topic 3Analysis and interpretation of financial statements 9Topic 4Reconciliations 13Topic 5Cost accounting 16Topic 6Inventory valuation systems 21Topic 7Budgets 23

TCompanies: Theory andledger accountsICOP1SummaryForms of ownershipCompanies(Grade 12)Partnerships(Grade 11)Sole traders(Grade 10)More about companies: The public provide capital by buying shares. All profits belong to the shareholders. There is limited liability for shareholders. The continuity of the business is ensured.CompaniesPrivate companies The name of a private companyends with (Pty) Ltd. The public cannot buy shares inthe company. Shares are sold to the founders. Only between 1 and 50shareholders are allowed. Financial statements are notpublished. A private company requires atleast one director. Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.Public companies A public company is owned byshareholders who are members ofthe public. The name of a public companyends with Ltd. Public companies sell shares tothe public. Shares may be traded freely. An unlimited number ofshareholders are allowed. Audited financial statements haveto be published annually. A public company requires at leastthree directors. Share certificates are issued toshareholders.Companies: Theory and ledger accounts2

CapitalShare capital This is also called own capital. The company issues shares to raise capital.Loan capital This is also called borrowed capital. The company negotiates long-term loans from financialinstitutions.Share capitalAuthorised share capital This is the total amount of capital the company is authorised to raise according to itsMemorandum of Incorporation.Issued share capital This is the amount of authorised capital that was sold to shareholders.Types of sharesOrdinary shares These shares have voting rights. Dividends are paid out after dividends for preference shares have been paid. Dividends vary depending on the amount available for distribution. These shares are not redeemable (cannot be repaid in future). These shares may be converted into preference shares.Preference shares These shares do not have voting rights. These shares have first right on dividends. Dividends are a fixed percentage of the nominal value. These shares are redeemable (can be repaid in future). Preference shares can be converted into ordinary shares.Value of sharesMarket value This is the latest price on the Johannesburg Stock Exchange Limited (JSE Limited) thatthe share can be bought or sold for.Net asset value The net asset value is calculated by dividing the total equity figure in the Balance Sheetby the number of shares sold.Income taxProvisional income tax This is an estimated amount based on the taxable income for the current year payable tothe South African Revenue Service (SARS) in advance. Provisional tax for the first period is payable six months after the financial year-end. Provisional tax for the second period is payable at the end of the accounting period.3Zoom in Accounting Grade 12 Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.

Final income tax calculation The accountant calculates the final income tax for thefinancial period once the net income of the company hasbeen determined.Income tax assessment SARS issues an income tax assessment after the netincome has been calculated. If the provisional tax payments made for the year are morethan the tax payable for the year, SARS is a debtor for(must refund) the difference. If the provisional tax payments made for the year are lessthan the tax payable for the year, SARS is a creditor for thedifference (the company must pay the difference to SARS).DividendsInterim dividend This dividend is declared and paid during the year, usually six months before the AnnualGeneral Meeting (AGM).Final dividend This is the dividend recommended and declared at the end of the financial year.Cum dividend When new shares are issued during the financial year, the new shares also qualify fordividends at the end of the year.Distribution of profitDistributable income This is the income available for distribution among shareholders.Retained income This is the portion of the profit that is not distributed to the shareholders in the formof dividends, which is kept for future expansion. It forms part of the equity in theBalance Sheet.Appropriation account This is the final account used to appropriate the company’s profit. Income tax and dividends on ordinary shares are treated as appropriation of profit, andnot as expenses of the company.Repurchase of sharesOutstanding shares These are the shares that were sold to shareholders. These shares can be repurchased (bought back) by die company from the JSE Limited.Net asset value The company may buy back shares that are undervalued, but may not re-issuethem again. Retired shares form part of the authorised shares. A company cannot repurchase shares if they do not have the required funds to do so. Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.Companies: Theory and ledger accounts4

TICOP2Financial statementsSummaryIncome StatementThe Income Statement shows the profit that the company has made over a period of onefinancial year. .INCOME STATEMENT FOR THE YEAR ENDED .SalesCost of salesGross profitOther operating income . .Gross operating incomeOperating expenses . . .Operating profitInterest income1Net profit before interest expenseInterest expense2Net profit before income taxIncome taxNET PROFIT (LOSS) FOR THE )xxx(xxx) .e Income nies:New in thm pant for coStatemes–expense N ewd’ fees anDirectorssAudit feeradded foisenliA x.income tapayamp nies All conme ta x o28% incofits.their proBalance SheetThe Balance Sheet provides information about the financial position of the business in terms ofassets, liabilities and equity on a specific date. .BALANCE SHEET AS AT .ASSETSNon-current assetsFixed/Tangible assetsFinancial assetsCurrent assetsInventoriesTrade and other receivablesCash and cash equivalentsTOTAL ASSETSEQUITY AND LIABILITIESOwners’ EquityShare capitalRetained incomeNon-current liabilitiesLoanCurrent liabilitiesTrade and other payablesBank overdraftCurrent portion of loanTOTAL EQUITY AND LIABILITIES5Zoom in Accounting Grade xxxxxxxxetce ShenlaaBth eNew inpanies:for com s’ Equity now alitne r O wa re c a phsfosconsist ed income.eainand ret llow for incomaolsarad e Werued ( Tccas)xtapayable idrehtoa ndp re p am e ta xocinroerand oth( Tradebles).receiva Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.

Notes to the financial statements1. Interest incomeOn fixed depositOn savings accountOn current bank accountOn overdue debtors2. Interest expenseOn loanOn overdraftOn overdue creditors3. Fixed/Tangible assetsLandand buildingsVehiclesEquipmentTotalCostAccumulated depreciation()()()()Disposals at carrying value()()()()Depreciation for the year()()()()()()()()Carrying value at end of previous yearMovementsAdditions at costCarrying value at end of current yearCostAccumulated depreciation4. InventoryTrading stockConsumable stores on hand5. Trade and other receivablesTrade debtorsProvision for bad debts()Net debtorsPrepaid expensesAccrued incomeSARS (income tax)6. Cash and cash equivalentsFixed deposit (maturing within 12 months)Savings accountBankCash floatPetty cash Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.Financial statements6

7. Share capitalAuthorised share capital . ordinary sharesIssued share capital . shares in issue at the beginning of the year . shares issued at . during the year . shares repurchased at . during the year)( . shares in issue at the end of the year8. Retained incomeBalance at the beginning of the yearNet profit for the yearRepurchase of shares()Dividends()PaidRecommendedBalance at the end of the year9. Trade and other payablesTrade creditorsAccrued expensesIncome received in advanceCreditors for salaries/wagesPension fundMedical aidSARS (PAYE)SARS (income tax)Cash Flow Statement (new in Grade 12)The Cash Flow Statement: reflects the cash receipts and payments for a financial year. provides information on the company’s ability to generate cash (the inflow) and how and wherethe cash has been used (the outflow). shows whether the profit shown in the Income Statement has in fact been received in cash.7Zoom in Accounting Grade 12 Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.

CASH FLOW STATEMENT FOR THE YEAR ENDED .NotesRxxxCash flow from operating activitiesCash generated from operationsxxx1(xx)Interest paidDividends paid3(xx)Income tax paid4(xx)xxxCash flow from investing activities(xx)Purchase of non-current assetsxxProceeds from the sale of non-current assetsxxxCash flow from financing activitiesxxProceeds from issue of share capitalProceeds from long-term loanxxRepayment of long-term loan(xx)xxxNet change in cash and cash equivalentsCash and cash equivalents: beginning of year2CASH AND CASH EQUIVALENTS: END OF YEAR21. Reconciliation between profit before tax and cash generated from operationsProfit before taxation (Income Statement)Adjustments in respect of:DepreciationInterest expenseOperating profit before changes in working capitalChanges in working capital in inventory (Balance Sheet) in debtors (Balance Sheet) in creditors (Balance Sheet)Cash generated by operations2. Cash and cash equivalentsNet changeBank(Balance Sheet)Petty cash(Balance Sheet)Cash float(Balance Sheet)YearYear3. Dividends paidAmount due at beginning of year(Balance Sheet)()Total dividends for the year (paid and declared)(Balance Sheet)()Amount due at the end of the year(Balance Sheet)()()()4. Taxation paidBalance on last day of previous year(Balance Sheet)Amount in Income StatementBalance on last day of current year Oxford University Press Southern Africa (Pty) Ltd.This material may not be reproduced.(Balance Sheet)Financial statements8