The Chief Executive Officer

Briefly explain what is meant by: ? Share capital ? Share premium ? Retained income 1. 2 Refer to information 6. Calculate the correct net profit before tax for the year. (2) (2) (2) (6) 1. 3 Prepare the following accounts in the ledger (the accounts must be properly closed off or balanced). ? SARS (Income tax) (11) ? Appropriation account (15) 1. 4 Consider information 4 regarding the permission granted to the directors to issue shares at their discretion.You are a shareholder but not a director. Provide one point in favour of granting the directors this permission and one point against. 1. 5 Refer to the extract from the newspaper article provided. ? Consider the complaint by Mary Moosa regarding Bhengu’s director’s fees. Do you agree with her? Explain. ? Consider the complaint by Ken Kelly. Is Bhengu’s response acceptable? What else could he have said? (4) (4) (4) Page 1 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES)INFORMATION: 1 The following balances appeared in the ledger at the beginning and end of the financial year: Beginning 1 Mar 2007 R2 400 000 R 330 000 R 454 000 R 38 600 (Credit) R 270 000 End 29 Feb 2008 R ? R 505 000 R ? R 11 500 (Debit) R ? Ordinary share capital (par value R4 each) Share premium Retained income SARS (Income tax) Shareholders for dividends 2. 3. Amounts owing in respect of the previous financial year to SARS and the shareholders (for dividends) were paid on 10 June 2007. Amounts paid on 31 August 2007: ?The first provisional tax payment of R187 500 for the 2008 financial year. ? Interim dividend of 84 cents per share (the new shares issued on 1 Sept 2007 do not qualify for these interim dividends, but will receive final dividends. Refer to information note no 4 below). The directors have been granted permission by the shareholders to issue new shares as and when required. The directors decided to issue new shares at a premium of 125 cents during the year. The transactions were handled by New Bank and the relevant amount was received from Star Bank on 1 September 2007. 4. 5. 6.The second provisional tax payment of R220 000 was made on 29 Feb 2008. At the year-end, the accountant calculated the net profit before tax to be R1 475 000 but thereafter he discovered that the following had not yet been taken into account: ? A donation of stock to the Chatsworth Youth Development programme, R70 000. ? According to his contract, Ben Bhengu’s directors fees are R110 000 per month. His fees for February had not been paid. ? Although rent paid of R175 000 had been correctly recorded, it was discovered that these payments included rent for March and April 2008.At the year-end, 29 February 2008, the directors recommended a final dividend of 110 cents per share. An entry must also be made for income tax for the year. The following article appeared in the newspaper after the AGM: 7. 8. Page 2 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES) Parboo Ltd shareholders take CEO to task By Harry Digger, 10 June 2008 There was certainly a lot of argument at the AGM of Parboo Ltd last week.The company distributes sports equipment and has built up a fine reputation amongst the public in recent years, and has delivered impressive returns to shareholders over the past five years. However, this counted for nothing last night as CEO Ben Bhengu was called upon to answer a number of very direct questions. One of the minority shareholders, Mary Moosa, questioned Bhengu’s exorbitant directors’ fees, saying these could not be justified. Bhengu responded by saying these had been approved by the remunerations committee and were based on the past and current performance of the company.Another shareholder, Ken Kelly, also questioned the ‘unnecessary waste of funds’ that have been donated to the Chatsworth Youth Development programme, saying these funds could have been used to boost dividends to shareholders. Bhengu’s response was that such expenditure was in line with the company’s social responsibility objectives which had been unanimously approved by the entire board of directors. The share price dropped 15% on the JSE yesterday. TOTAL MARKS: 50 SECTION B: ADDITIONAL CONTENT NOTES Ordinary share capital xxxx Balance Bank xxxx Balance Balance C/d b/d CRJ B/d xxx xxxx xxxx xxxx Additional shares issued at par Opening balance ? Use the par value of shares when recording information in this account. Page 3 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES) Balance C/d Ordinary share premium xxxx Balance Bank xxxx Balance b/d CRJ B/d xxxx xxxx xxxx xxxx Additional shares issued at a premium Opening balance ? Use only the premium portion of the share price to record into this account. Bank Bank Balance CPJ CPJ C/d SARS: Income tax xxxx Balance xxxx Income tax xxxx xxxx Balance /d GJ xxxx xxxx xxxx xxxx B/d Provisional tax payments Payment of amount due to SARS Opening balance (This could be a CR or a DR balance) Tax assessment for the year (Calculated as a % of the net income) SARS: Income tax GJ xxxx xxxx Income tax Appropriation GJ xxxx Xxxx Tax for the year Closing transfer Page 4 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES) Bank Balance Shareholders for dividends xxxx Balance Ordinary share dividends C/d xxxx xxxx Balance CPJ b/d GJ xxxx xxxx B/d xxxx xxxxPayment of amount due to shareholders Final dividend declared at the year- end ? Opening balance If an interim dividend is declared, but paid later, then it will be entered in the same way as the final dividend. The entry for the payment thereafter will be reflected on the debit side of the shareholders for dividend account. Ordinary share dividends CPJ xxxx Appropriation GJ xxxx xxxx Bank Shareholders for dividends GJ xxxx xxxx Interim dividend declared and paid on the same day Closing transfer of total dividends Final dividend Income tax Ordinary share dividends Retained income GJ GJ GJAppropriation account xxxx Profit and loss xxxx Retained income xxxx xxxx GJ GJ xxxx xxxx xxxx Income tax for the year Net income for the year Retained income at the beginning of the year Total dividends for the year Retained income at the year- end (This is the balancing figure) ? If the retained income at the beginning and the end of the year is given, then this account may be used to find a missing amount such as the net income for the year as the balancing figure. Page 5 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES)Learner Note: As you attempt the homework, you need to ensure that you are able to answer the questions in the allocated time frames. If you get stuck, you should refer either to the additional notes or your class teacher. SECTION C: HOMEWORK QUESTION 1 REQUIRED 1. Post the relevant information to the ledger. Balance/close off the accounts. Phoenix Ltd. began trading on 1 July 2010 with issued share capital of 300 000 ordinary shares of R2 each, at par value. The authorised share capital is 400 000 ordinary shares. In the first year of trading the after-tax income was R40 000.However, no dividends were declared in the first year. On 31 December 2012 after six months of trading in the second financial year, the accountant calculated that the company had to pay R15 000 provisional income tax to the South African Revenue Services. On 31 December 2012, cheque no. 92 was issued to the South African Revenue Services (SARS). On the same date, the directors declared and paid an interim dividend of 10 cents per share. The dividends were paid by cheque to the 30 shareholders listed in the share register.On 30 June 2013, the last day of the accounting period, a second provisional tax payment of R35 000 was made to the SARS (cheque no. 210). After the completion of the audit, the following was determined: (a) The net income for the year amounted to R150 000. (b) The total income tax liability for the entire accounting period was R60 000. (c) The final dividend declared by the directors amounted to 15 cents per share. [36] 36 Marks 25 Minutes (Taken from own question bank) Page 6 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES)SECTION D: SOLUTIONS AND HINTS TO SECTION A QUESTION 1 1. 1 ? Share capital The capital provided by the shareholders at par value ?? ? Share premium The amount above the par value paid by shareholders for their shares ?? ? Retained income The amount of profit not distributed by the company to shareholders ?? 1. 2 Calculate the correct net profit for the year ? ? ? ?? ? 1 475 000 – 70 000 – 110 000 + 25 000 = 1 320 000 [6] 1. 3 2007 Jun 10 2007 Aug 31 2008 Feb 29 Bank ? Bank ? Bank ? B4. SARS (INCOME TAX) 2007 Balance ? 38 600 Mar 1 2008 Income tax ? 187 500 Feb 29 ? 220 000 446 100 Balance b/d ? 38 600 ? 396 000 c/d ? 11 500 446 100 [6] 2008 Mar 1 Balance b/d ? 11 500 [11] Page 7 of 8 GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 1 (LEARNER NOTES) 2008 Feb 29 Income tax ? Dividends ? 504 000 ?? + 814 000?? Retained income ? F3. APPROPRIATION ACCOUNT 2008 Profit & loss ? ?? 396 000 Feb 29 ? 1 318 000 ? 60 000 1 774 000 Retained inc ? ?1 320 000 ? 454 000 1 774 000 1. 4 Point in favour: Any valid explanation, e. g. ?? .If the company needs funds urgently then this should not be delayed.It takes a while to convene a meeting of shareholders. Notice period required. Point against: Any valid explanation, e. g. ?? If the directors cannot be trusted to make the right decision, the issue of shares will affect the dividends to the existing shareholders and hence this could affect the share price. [4] 1. 5 Any valid explanation, e. g. Yes / No with explanation ? Bhengu’s fees are R1,32 m per year. This is equal to the net profit and seems unreasonable; OR Bhengu’s fees have been transparently determined by the committee, goodwill and past performance has been taken into account.Dividends are good. ??? Consider the complaint by Ken Kelly. Is Bhengu’s response acceptable? What else could he have said? Yes / No with explanation ? Corporate social investment is the responsible thing to do. They are in the business of selling sports equipment. The goodwill generated will lead to better chances of a sustainable business. ??? [8] [50] TOTAL MARKS Learner Note: It is important to show all calculations to earn part marks. The SSIP is supported by Page 8 of 8

Leave a Reply

Your email address will not be published. Required fields are marked *

x

Hi!
I'm Heidi!

Would you like to get a custom essay? How about receiving a customized one?

Check it out