ACCOUNTING PAPER 1
GRADE 12
NOVEMBER 2021
MEMORANDUM
NSC EXAMINATIONS

QUESTION 1
1.1 Calculate the value of the closing stock of formal suits that was omitted from the stock sheets on 30 June 2021.
230 – 24               240 – 206 / if both unit totals add up to 240
(206 x R2 850) + (34 x R2 600)
= R675 500

1.2 Calculate: Correct net profit after tax for the year ended 30 June 2021. Indicate '+' for increase and '–' for decrease.

# operation and – sign or accept use of brackets
total must include the NP figure

1.3 Retained Income Note on 30 June 2021
-1 P (if no details) -*brackets to earn full marks
Balance at beginning
Net profit after tax  - 3 474 800
Shares repurchased ignore workings - (78 000)
Dividends for the year ignore workings - (1 170 000)
Balance at end - 3 240 000

JIMO LTD
STATEMENT OF FINANCIAL POSITION ON 30 JUNE 2021
Figures are NOT required in shaded areas.

inspect if included with T&OP *one part correct
-1 foreign items max -2 presentation -1 max -2
TOTAL MARKS: 55

QUESTION 2
2.1 Ordinary Share Capital Note on 28 February 2021

# if answer of 255 000 is correct, award two marks if R8,50 is not shown
2.2 Calculate the following financial indicators on 28 February 2021:
% operating expenses on sales
1 458 600 x 100*
7 293 000
Check numerator / denominator
20% one part correct;
calculated as a %
% sign not necessary

Dividend per share
(no part marks)
18 cents  + 22 cents  OR 0,18 + 0,22
162 000  + 191 400 
900 000     870 000
No marks for denominator if the same figure is used for interim & final dividends.
If weighted average used:
162 000 + 191 400 = 353 400
     861 666,7             861 667
(one mark ) do not accept no method mark&
(162 000 + 191 400) / 870 000 = 40,6 cents X
(162 000 + 191 400) / 900 000 = 39,3 cents X
(162 000 + 191 400) / 885 000 = 39,9 cents X
Assume cents if not specified.
40 cents & Workings must be inspected in this case to earn the mark. Only award method mark if correct method is used i.e. different denominators for interim DPS & final DPS (e.g. 900 000 & 870 000).

% return on average shareholders' equity
               985 500               x 100
½(6 450 000 + 8 038 100)
14 488 100 two marks
7 244 050 three marks
Check numerator / denominator
13,6% one part correct calculated as a %
Do not accept 0,136 or 0,14
x 100 does not constitute ‘one part correct’

2.3 CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2021
Figures are NOT required in shaded areas.
For use of reversed signs, ensure that only one option is consistently used

*one part correct and must indicate correct operation & correct use of brackets; If no brackets, assume answer is an inflow of cash – award marks for workings only;
TOTAL MARKS: 35

QUESTION 3
3.1
3.1.1 D  Return on equity Accept abbreviations if understandable
3.1.2 A  Liquidity
3.1.3 B  Gearing
3.1.4 C  Solvency
3.2 FLEXI LTD AND BROOM LTD
3.2.1 Profitability:
Quote and explain TWO financial indicators to show which company is managing its expenses more efficiently, and is thereby more profitable. Quote figures and trends.
part marks for incomplete / partial / unclear responses
Any TWO financial indicators (explaining trend) from Broom Ltd with figures
If figures are shown for Flexi Ltd, award marks to names of indicators (max 2 marks)
Quote figures and trends for any two indicators below
% OExp on sales improved / decreased (from 17%) to 13,6% / by 20% / by 3,4% points (accept 3,4%)
% OP on sales increased (from 20,5%) to 24,2% / by 18% / by 3,7% points (accept 3,7%)
% NP on sales increased (from 16%) to 19,6% / by 22,5% / by 3,6% points (accept 3,6%)
All indicators show an improvement in profits / expenses well managed.
3.2.2 Dividends, earnings & returns:
Comment on the dividend pay-out policy of Flexi Ltd. Explain why this is an irresponsible change in policy. Provide TWO points. Quote figures and trends.
Trend (with figures) part marks for incomplete / partial / unclear responses (e.g. mentioning only DPS or only EPS)
Responses for 2 marks for figures & trends:

• The pay-out rate increased (from 59%) to 115% / by 94,9% / 56% points (accept 56%)
• In 2021 they paid DPS of 92c compared EPS of 80c (i.e. 12c from retained income).
• Although the EPS dropped from 138 cents to 80 cents (by 58 cents) / DPS was 10 cents more than last year (82c to 92c) and DPS now exceeds EPS (by 12c / 92c to 80c).

Explanation / comment on decision part marks for incomplete / partial / unclear responses; figures may be included in the explanation
Expected comments – any one valid comment for two marks e.g.

• Company is depleting Retained Income reserve (which can be more effectively used to rebuild profitability)
• The company is trying to keep shareholders happy / trying to influence market price of shares by increasing dividends / equalizing dividends over several years.

Comment on the % return on shareholders' equity of EACH company. Quote figures and trends.
Financial indicator with figures & trend
Flexi Ltd:
ROSHE dropped from 12,2% to 7,6% / by 37,7% / 4,6 % points (accept 4,6%)
Broom Ltd:
ROSHE improved from 10,7% to 14,1% / by 31,8% / 3,4% points (accept 3,4%)
Additional comment in each case Figures may be included in the explanation; candidates are NOT required to mention a specific figure for the alternative rate; do not penalise for incorrect rates on investments (as these could vary from 4% to 14%)

• Flexi Ltd: Refer to / compare alternative investments e.g. fixed deposit
• Broom Ltd: Refer to / compare alternative investments e.g. fixed deposit

Comment for 1 mark only (to cover both companies):

• If candidates only mention increased / decreased / good / bad without alternative investments.

Related Items

A shareholder feels that the earnings per share (EPS) in Broom Ltd are better than that in Flexi Ltd. Explain why you agree with him. Quote figures or calculations.
To get full marks, must compare EPS to Value of share (MP / NAV) for Flexi Ltd with figures part marks for incomplete / partial / unclear responses
To get full marks, must compare EPS to Value of share (MP / NAV) for Broom Ltd with figures part marks for incomplete / partial / unclear responses
Expected responses for four marks (two marks per company):

• EPS to NAV is 7,4% in Flexi Ltd and 11,4% in Broom Ltd
• EPS to MP for 2021 is 8,1% in Flexi Ltd (80/990) and 10,9% (72/660) in Broom Ltd
• EPS on MP for 2020 is 7,1% in Flexi Ltd (80/1130) and 11,7% (72/615) in Broom Ltd
• Flexi Ltd earned 80c on a share valued at 990c/1 081c while Broom Ltd earned 72c on a share valued at 660c/632c.
  OR: Other comparisons for each company for only one mark in each company:
• Flexi Ltd EPS decreased from 138c to 80c whilst Broom increased from 65c to 72c
• Flexi EPS is calculated on a smaller number of share (700 000) so it looks good; Broom’s EPS is calculated on a larger number of shares (1 500 000)

3.2.3 Shareholding of Bob Yates in both companies:
Comment on the price paid for the shares repurchased by Flexi Ltd. Provide TWO points. Quote figures.
Figures may be included in the explanation Any TWO valid points (2 marks each), at least one of which must be related to a financial indicator with figures:

• Compare with figures R13,20 to MP of R9,90 or R11,30
• Compare with figures R13,20 to NAV of R 10,81 or R11,28
• Compare with figures R13,20 to any other value (e.g. average issue price)
• Any other general comment without figures e.g. compromised the funds (liquidity) / Bob abused his status to enrich himself / MP also shows a decreasing trend / no demand for shares / could drop the price further (apply part marks for simple or incomplete or partial answers).

Calculate the number of shares that Bob purchased in Broom Ltd with the money he received from the share buyback at Flexi Ltd.
150 000 x 13,20
1 980 000
   R6,60
300 000 shares one part correct

Explain the effect of the share repurchase on the % shareholding of Bob Yates in EACH company. Quote figures and trends.
Explanation on % shareholding Comparison in Flexi Ltd with figures
Explanation on % shareholding Comparison in Broom Ltd with figures
Be aware of combined explanation with figures

Flexi Ltd:
Bob was the majority shareholder (51%)
He now has only 40,5% of the shares (283 500 / 700 000) so he has lost majority status.

Broom Ltd:
Bob had 41,8% of the shares 460 000 + 300 000
He now has 50,7% of the shares (760 000 / 1 500 000) see 3.2.3
He is now the majority shareholder (or based on calculation in 3.2.3)
OR: There was no share repurchase in Broom Ltd, so that would not affect his % shareholding which was 41,8% (two marks)
OR: As he bought 300 000 shares in Broom Ltd, he is now the majority shareholder (50,7%).
3.2.4 Financing strategies and gearing:
Explanation of decisions taken by the directors of Broom Ltd (two marks):
Any ONE decision Figure
Increased the share capital by R2 640 000 or (400 000 shares) OR
Decreased the loan by R400 000 OR
Net increase of R2 240 000 to total capital employed
Explain ONE benefit (two marks): Explanation of benefit Award part marks for partial / unclear / incomplete responses

• All the money generated is spent on lasting items (fixed assets) which could generate further profits in future
• Improved debt/equity ratio / reduced debt/equity (low risk) / improved creditworthiness in future
• Improved % return on average capital employed.

Explain how the decisions taken by Flexi Ltd on its capital employed has affected the risk and gearing of the business. Quote TWO financial indicators (with figures and trends).
TWO financial indicators (with figures)

• Debt/equity is now / increased (from 0,4 : 1) to 1,1 : 1 / by 0,7 : 1
• ROTCE is now / decreased (from 16,1%) to 10,2% / by 36,6% / by 5.9% points (accept 5,9%)

Explanation could be combined with figures or separate; both risk & gearing must be mentioned. Ignore reference to % ROSHE (i.e. do not penalise)
Award part marks for partial / unclear / incomplete responses

• High risk due to increase in loan
• The business in experiencing negative gearing (ROTCE is lower than interest rate of 13%)

TOTAL MARKS: 40

QUESTION 4
4.1 Explain why a disclaimer audit report would be bad for a company's reputation. Provide TWO points. part marks for incomplete / partial / unclear answers
POINT 1
Be aware of alternative valid responses e.g. Any TWO

• This indicates that there is something seriously wrong with the financial statements.
• The company and its results cannot be trusted / creates a bad impression or bad publicity

POINT 2

• This can negatively affect the share price on the JSE.
• Decreased demand for shares / losing potential investors / existing shareholders would want to sell their shares.
• Poor management and control of internal processes / incompetent management / question the integrity of directors.
• Suppliers and customers will look elsewhere / creditors might not give credit
• Banks / financial institutions might not approve loans

4.2 One of the most important decisions that shareholders have to make at the annual general meeting (AGM) is to appoint directors to serve on the board.
Explain why the shareholders have been given this responsibility.
Expected responses:part marks for incomplete / partial / unclear answers
Be aware of alternative valid responses
Any ONE valid response e.g.

• Separation of ownership (shareholders) from control (directors)
• The shareholders are the major investors but they cannot all work at the company.
• They will have to appoint directors to run the company for them.
• They have entrusted their investment to the directors.

If you were a shareholder, what factors or characteristics would you want to find out about the directors who would get your vote? Explain TWO points and give a reason for EACH.
Reason could be included with Explanation / Some Explanations could be Reasons

4.3 A recent news report stated that a major company, Baxco Ltd, had been awarded a tender to supply equipment worth R20 m to a chain of private hospitals. The report accuses the CFO (chief financial officer) of that company of paying R2 m in cash to the CEO of the hospital group.
As a shareholder, explain what you would say at the AGM. Provide TWO points.
TWO valid and different points part marks for incomplete / partial answers
Be aware of alternative valid responses

• This appears to be a clear case of corruption / under-handed agreement that did not follow the normal tender processes / kick-backs or bribes involved / unethical & illegal.
• The CFO's actions must be investigated and appropriate disciplinary measures should follow (abusing his influence / authority) / institute criminal proceedings / legal process / sued (dismissed / fired /replaced: only 1 mark).
• Investigate further to ensure that criminal activity has not filtered through to other parts of the company.
• If the directors' integrity is compromised, this will affect the reaction of the public and the customers.
• This would affect the share price and the profits (image of the business)
• Concern over access to large cash amount / lack of internal controls.

4.4 Refer to the question paper for an extract from the website and Directors' Report of a major South African company.
In your opinion, explain why this major company found it necessary to implement this policy. Provide TWO points.
TWO valid and different points part marks for incomplete / partial answers
Be aware of alternative valid responses

• Crime is a major problem in this country and people are scared to come forward to report crimes as they fear that their lives might be at risk; protection policy may encourage them to report cases.
• The company states this in their policies to make people realise that they are serious about combatting crime.
• The company would want to find out about wrong-doing before it is exposed in the press / impact negatively on the business.
• This could also prevent or minimize wrong-doing as people are aware of this policy / being watched / reported / culprits must be reported.
• This is part of good governance or according to King Code / improve reputation of company / compliance with policies / total quality management.

TOTAL MARKS: 20
TOTAL: 150