Homework - SU3 Practical Reader QP - AS Complete - Q1 and 2

STUDY UNIT 3
FINANCIAL ACCOUNTING OF COMPANIES: GAAP PRINCIPLES AND

BOOKKEEPING (GENERAL LEDGER ACCOUNTS)
Work through Activity 2 + Activity 3
ACTIVITY 2
Match the different Accounting principles with the scenarios given. Name the relevant GAAP principle
for each statement.
STATEMENT PRINCIPLE
Rent has been received for 13 months. Rent for 12 months is shown in the Statement
of Comprehensive income.
The owner of the business wins R2 000 in a competition. This is not shown in the
Statement of Comprehensive income of the business.
Land and buildings are shown in the Balance Sheet at R500 000, although the market
value is estimated at R800 000.
Trading stock is shown in the Balance sheet at R10 000 but the business would only
get R7 000 if the stock were to be sold at a flea market the next day.
Cleaning materials bought for R25 are shown as part of Sundry Operating
Expenses in the Statement of Comprehensive income.
A business records sale of goods for R12 000. At the same time they record the
cost of sales and the cost of the advertisement that led to these sales.
The financial seriousness of the entry must always be considered – a kettle costing
R100 may last for more than a year, but it would not be classified as a non-current
asset.
Profits should not be overstated and loss must not be understated.
A company has bought this property for R1 million in year 2003 but now the property
has appreciated to R5 million. The company is recording the property at R1 million.
Which principle directs a company to show all expenses related to its revenue of a
specified period even if the expenses were not paid in that period?
A company borrowed R60 000 on December 1, 2015 and will make its payment for
interest only when the loan is paid off on June 1, 2016. The total interest for the six
months will be R6 000. On the December 2015 Statement of Comprehensive income
the accountant reported interest expense of R1 000.
For the December year-end close, the utilities bills have not been received for the
month of November and December. However, based on previous average month
trends, utilities expenses for November and December is estimated at R20 000 x 2 =
R40 000.
Once a particular financial period is adopted by a business, it is not changed from one
period to the next period.
ACTIVITY
ACCE 312: 3 3 / Practical Reader / Question papers & Answer sheets
Study Unit 1
Distinguish between the term’s GAAP and IFRS by explaining the six principles according to IFRS
ACCE 312: Study Unit 3 / Practical Reader / Question papers & Answer sheets 2
COMPANY LEDGER ACCOUNTS
SELLING OF SHARES TO SHAREHOLDERS
1. WHEN A PUBLIC COMPANY SELLS SHARES TO THE PUBLIC.

When a company is formed, the promoters will decide upon the capital, which will be required,
i.e. the number of shares as well as the value of each share.
For example, if a company requires capital of R900 000, this may be divided into:
400 000 shares of R1, 00 each or
200 000 shares of R2 each or
200 000 shares of R0,50 each, and so on.
The company received a certificate of incorporation, called the Memorandum of

Incorporation (MOI) that gives companies authority to issue a number of shares however no
money value is attached to the shares. In that manner the company can decide later for what
price the shares will be sold. When approved it is called the authorised share capital.
A public company issues a prospectus inviting the public to buy shares in a particular
company. The applications must include the money payable for the requested shares. If more
applications are received than there are shares available, the directors will apply a formula to
allocate shares fairly among the shareholders. Money received for shares which are not
allocated must be repaid to applicants.
That means that the money received must be paid back to the
unsuccessful applicants that wanted to buy shares in the company.
Debit: Ordinary Share capital Credit: Bank
EXAMPLE:
The company offered 400 000 shares to the public. A total of 500 000 shares were sold to the
public. If you were one of the shareholders that requested and paid for 20 000 shares, how many
shares will be received by you?
CALCULATION:
20 000
x 400 000 = 16 000 shares will be awarded to you instead of 20 000
500 000
Example 1:
KIMA Traders issued a prospectus and offered 100 000 shares at R2 to the public. All the
issued shares were issued to the successful applicants and the money received was recorded
in the CRJ on 15 March 2021.
CASH RECEIPTS JOURNAL – MARCH 2021 CRJ 1

Doc Day Details Analysis of Bank Sundry accounts
receipts Amount Details
01 15 Shareholders 200 000 200 000 Ordinary Share capital
200 000 200 000
GENERAL LEDGER OF KIMA TRADERS

BALANCE SHEET ACCOUNT SECTION:
- OE +
ORDINARY SHARE CAPITAL B
2021 15 Bank CRJ 200 000
Mar
+A-
BANK B
2021 31 Total Receipts CRJ 200 000
Mar
NOTE:
 Shareholders receive a shareholder’s certificate as evidence of his/her contribution
 The shareholder’s certificate shows the number of shares owned by him/her
 A Shareholder register of all the shareholders is kept
 Only one receipt for the total amount received is issued on the closing date for
application
 In practice there is a lapse of time between the closing date for applications and the date
on which shares are allocated

 Accounting equation:
ASSETS OWNERS EQUITY LIABILITIES

+200 000 + 200 000 0
KNOW THE DIFFERENCE BETWEEN:

AUTHORISED SHARE CAPITAL:
Number of shares the company is registered with no money value. Authorised 300 000
e.g. registered 300 000 shares (called authorised shares) shares
ISSUED SHARE CAPITAL:
 number of shares the company sold
e.g. 100 000 shares issued at R2 each = R200 000 Issued 100 000
ISSUED SHARES is also called OUTSTANDING SHARES shares of the
2. WHEN SHAREHOLDERS BUY ORDINARY SHARES AT DIFFERENT SHARE PRICES:
When a company decides to issue more shares and had performed well before the company can
decide to offer the shares at a higher price
Example 2:
KIMA Traders issued another 100 000 unissued shares at R4 to the public. All the shares were
issued to the successful applicants and the money received was recorded in the CRJ on 1 April
2021.
CASH RECEIPTS JOURNAL – APRIL 2021 CRJ 2
Doc Day Details Analysis of Bank Sundry accounts
receipts Amount Details
111 1 Shareholders 400 000 400 000 400 000 Ordinary Share capital

- OE +
2021 1 Balance(100 000 x R2) b/d 200 000
Mar
Apr 1 Bank (100 000 x R4) CRJ 400 000
+A-
BANK B
2021 30 Total Receipts CRJ 400 000
Apr
NOTE:
 The value of the issued shares will be recalculated to find the average price being:
R600 000 ÷ 200 000 shares = R3 per share (p.s)
 The existing shareholders who bought the shares at R2 p.s. will also benefit by the shares
being sold for R3 p.s.
BOOKKEEPING OF COMPANY LEDGER ACCOUNTS BUY BACK OF SHARES
WHEN SHARES ARE BOUGHT BACK THAT WERE SOLD TO SHAREHOLDERS BEFORE:
Shares that were sold before to shareholders can be bought back by the company from the
marketplace, being the Johannesburg Stock Exchange (JSE). The shares that were sold to
shareholders are also known as OUTSTANDING SHARES
RETIRED SHARES: (CAPS Grade 12 curriculum)
That the directors believe that the share market is flooded with too many shares, or that the shares
are undervalued. The Companies Act 71 of 2008, made provision for companies to repurchase
shares by using surplus funds (e.g. retained income). A company cannot buy back shares when
the repurchase of shares affect the solvency and liquidity of the company. That means that a
company cannot buy-back shares if they do not have the required funds to do so.
Different transactions and procedures to follow when shares are bought back from
shareholders:
- Bought back at average price
- Bought back at MORE than average price
- Bought back at LESS than average price (not part of the syllabus at this stage)
Transaction 1: SHARES BOUGHT BACK AT AVERAGE PRICE
When the shares are bought back at an average price of R3 per share:
- Ordinary share capital R600 000 (200 000 shares in issue)
 Calculate the AVERAGE PRICE of the shares that were issued.

e.g. R600 000 ÷ 200 000 issued shares = R3 per share
 The double entry will be:

DEBIT CREDIT
Ordinary Share Capital Bank
Example 3: KIMA TRADERS LTD

KIMA Traders Ltd bought back 7 500 shares at the average price of R3 on the JSE on 1 November 2021.
The financial year end annually on 28 February
Balances: Ordinary Share Capital - R600 000
CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED– NOVEMBER 2021

Doc Day Details Bank Sundry accounts
Amount Details
01 1 (7 500 x R3) 22 500 22 500 Ordinary Share capital
Shareholders
GENERAL LEDGER KIMA TRADERS LIMITED

- OE +
2021 1 Bank CPJ 22 500 2021 1 Balance b/d 600 000
Nov
Mar
+A-
BANK B
2021 30 Total Payments CPJ 22 500
Nov (Ordinary share capital)
HOMEWORK 3.1
BUY-BACK SHARES AT THE AVERAGE PRICE
You are provided with information relating to NANO LTD for the year ended 29 February 2021.
The company is registered with 1 000 000 authorised shares.
REQUIRED:
1. Calculate average price
2. Prepare the Cash Payments Journal on 1 April 2020.
3. Complete the following General ledger accounts
 Ordinary Share Capital (800 000 shares ) 1 March 2020 R 2 400 000
 Retained Income (1 March 2020) 80 000
 Bank (31 March 2020) 300 000
4. Complete the Shareholder’s equity note to the Financial Statements.
INFORMATION:
On 1 April 2020, more share 100 000 shares were issued at an issue price of R8 per share.
On 1 June 2020 a shareholder approached management and requested that his shares to be
bought back from him due to financial pressure. The directors decided to buy back the
shareholders’ shares and bought back 20 000 shares from the shareholder at average price. An
electronic transfer payment was made to the respective shareholder from the Companies’ current
account.
Remember to calculate the
ANSWER SHEET:
average price per share!
1. Calculations of average price
2. CASH RECEIPTS JOURNAL – APRIL 2020 CRJ 4

Doc Day Details Analysis Bank Sundry accounts
of
receipts
Amount Details
3. CASH PAYMENTS JOURNAL OF NANO LIMITED– JUNE 2020 CPJ 6
Doc Day Name of payee Bank Sundry accounts
Amount Details
4. GENERAL LEDGER OF NANO TRADERS LIMITED

ORDINARY SHARE CAPITAL B1
RETAINED INCOME B2
BANK B6
4. NOTES TO FINANCIAL STATEMENTS

ORDINARY SHARE CAPITAL
AUTHORISED
ordinary share capital .................................... shares
ISSUED:
ordinary shares in issue at the beginnig of the financial year
additional shares issued during the fin year at R each
shares bought back during the fin year at average price of R____
p.s
ordinary shares in issue at the end of the financial year
STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2021

SHAREHOLDERS’ EQUITY
Ordinary Share Capital
Retained Income
Transaction 2: SHARES BOUGHT BACK FOR MORE THAN THE AVERAGE PRICE
When the buy-back shares are repurchased for MORE than the average price, the company needs to
ensure that there is available funds to do so, e.g. retained income being R160 000.
When shares are bought back at R5 per share, the following entries will be necessary:
DEBIT CREDIT Per share (p.s)
Ordinary Share Bank R3 The Ordinary Share Capital account can only be
Capital reduced by the average price being R3 per share
Retained Income Bank R2 and the rest of the money R2 will be funded by the
Example 4 Retained Income account
Transaction: 1 June 2021
KIMA Traders decided to buy- back 15 000 shares at R5 from the marketplace. 200 000 shares
were issued of the 300 000 authorised shares. The financial year ends on
28 February 2022.
 Ordinary Share Capital : R600 000 (1 March 2021)

 Retained Income : R160 000 (1 March 2021)
STEPS TO FOLLOW:
1. Calculate the average price: R600 000 ÷ 200 000 shares = R3 per share.
2. Any amount more than the average price must be funded by the Retained Income
account.
 15 000 x R3 = R45 000 (Ordinary share Capital account can only be reduced by the
average price
 15 000 x R2= R30 000 (Retained Income will be funding the buy-back price that is
more than the average price)
CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED– JUNE 2021
Doc Da Details Bank Sundry accounts
y Amount Details
01 1 Shareholders 75 000 45 000 Ordinary Share capital
-
30 000 Retained Income
-OE+
2021 1 Bank (15 000 x R3) CPJ 45 000 2021 1 Balance b/d 600 000
June Mar
2022 28 Balance c/o 532 500

Feb
600 000 600 000

2022 1 Balance b/d 532 500
Mar
-OE+
RETAINED INCOME B2
2021 Bank CPJ 30 000 2021 1 Balance GJ 160 000
June Mar
1 (15 000 x R2)
NOTES TO FINANCIAL STATEMENTS
AUTHORISED:
ordinary share capital 300 000 shares
ISSUED:
200 000 ordinary shares in issue at the beginnig of the financial year 600 000
0 additional shares issued during the fin year at issue price of R--
each
(15 000) shares bought back during the fin year @ an average price, R3 (45 000)
p.s
185 000 ordinary shares in issue at the end of the financial year 555 000
BALANCE SHEET AS AT 28 FEBRUARY 2022

SHAREHOLDERS’ EQUITY 685 000
Ordinary Share Capital (600 000 – 45 000) 555 000
Plus Retained Income (160 000 – 30 000) 130 000
ACCOUNTING EQUATION:
-45 000 - 45 000 0
-30 000 -30 000 0
HOMEWORK 3.2
INFORMATION
Transaction: 1 October 2020
KIMA Traders bought back 10 000 shares from an unhappy shareholder at R5, 56 each and the
amount was transferred electronically. The financial year end 28 February 2021.
The following balances appeared in the books of the company on 1 March 2020:
 Ordinary Share Capital: R3 128 800 (880 000 shares)
 Retained Income : R130 000
 Bank: R 80 000
REQUIRED:
1. Calculate average price
2. Calculate the buy back shares
3. Prepare the Cash Payments Journal
4. Complete the following General ledger accounts:
4.1 Ordinary share capital
4.2 Retained income
5. Show effect on Accounting equation
6. Show notes and Balance sheet section of Equity
ANSWER SHEET:
1. Calculate the average price:
2. Calculate the buy back shares:
3. CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED– OCTOBER 2020

Do Da Details Bank Sundry accounts
c y Amount Details
3. GENERAL LEDGER KIMA TRADERS LIMITED

RETAINED INCOME B3
5. ACCOUNTING EQUATION
6. NOTES TO FINANCIAL STATEMENTS

AUTHORISED:
1 000 000 Ordinary shares
ISSUED:
STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2021

SHAREHOLDERS’ EQUITY
HOMEWORK 3.3
BUY-BACK SHARES FOR MORE THAN THE AVERAGE PRICE

You are provided with information relating to THANDA LTD for the year ended
28 February 2021 who has registered 10 000 000 authorised shares.
REQUIRED:
1. Calculate the average price
2. Complete the following General ledger accounts
2.1 Ordinary share capital
2.2 Retained income
3. Show the effect of each transaction on the Accounting equation
INFORMATION:
The following balances appeared in the books on 1 March 2020:
Ordinary Share Capital account (5 950 000 shares) 14 875 000
Retained Income 1 500 000
On 28 February 2021, the directors decided to buy back another 50 000 shares from
shareholders who agreed to sell their shares at a negotiated price of R6, 50 per share. Electronic
transfer payments were made to the respective shareholders from the Companies’ current
account.
ANSWER SHEET:
1. Calculate the average price
2. GENERAL LEDGER THANDA TRADERS LIMITED

RETAINED INCOME B2
3. ACCOUNTING EQUATION
OWNERS
ACCOUNT DEBITED ACCOUNT CREDITED ASSETS EQUITY LIABILITIES
SARS (INCOME TAX): Payment of Provisional Tax
Provisional tax payments = Prepaid expenses
IF INCOME TAX IS ASSESSED AT THE END OF FINANCIAL YEAR:

Income tax was not calculated in the books of a sole trader or a partnership because the
owners of the above needed to pay income tax in their personal capacities. In the case of a
company, the profits belong to the company, which has a legal personality of its own.
At end of each accounting period the income tax payable by the company is calculated and
brought into account by means of a journal entry. A tax return is completed and sends to the
South African Revenue Services (SARS). The tax payable is calculated and the South
African Revenue Services (SARS) sends the company an assessment form showing the
amount due for income tax. When the rate (%) at which Income tax will be calculated on the
Net profit before tax is not indicated, accept a taxable income rate of 28% on the net profit
before tax (NOTE: The rate was adjusted to 27% in 2023).
PAYMENTS OF PROVISIONAL TAX DURING A FINANCIAL YEAR:

The Company Act legislation also requires that a company makes at least TWO provisional
payments to the South African Revenue Services (SARS). Income tax will be calculated at
30% (unless mentioned otherwise) of the net profit at the end of the Financial year.
The First payment will be made after SIX (6) months, calculated on the previous financial
year’s net profit. The Second payment will be made at the end of the financial year.
AFTER the Financial statements are completed, SARS will calculate the final Income tax
amount due on the Net profit calculated for the current financial year. The difference between
the PROVISIONAL tax payment and the AMOUNT calculated for Income tax by SARS for
the current financial year will determine whether the company owe SARS money (Liability) of
SARS ows the company money (Asset).
NB: The double entry for provisional income tax is:

Debit: SARS(income tax) Credit: Bank
Example OPTION 1:
TRANSACTIONS for KIMA TRADERS:
 On 31 August 2021, an amount of R17 500 was paid by EFT to SARS in respect of the first
provision tax payment of the company.
 On 27 February 2022 the second provisional tax payment was made of R17 500. The
amount was paid by EFT to SARS for this amount.
 At the end of the financial year on 28 February 2022 the Income tax was calculated at
R30 000.
CONCLUSION:
At the end of the year when the income tax for the year is determine being R30 000 and the
provisional taxes were paid (17 500 + 17 500 = R35 000) the amount due to SARS or to the
company will be calculated.
GENERAL JOURNAL OF KIMA TRADERS– FEBRUARY 2022

Fol Debit Credit
29 Income tax N4 30 000
SARS (Income tax) B9 30 000
Income tax for the year brought into account

BANK B
2021 31 SARS (Income tax) CPJ
Aug
17 500
2022 27 SARS (Income tax) CPJ
Feb
17 500
SARS (Income tax) B9
2021 31 Bank CPJ 2022 29 Income tax GJ 30 000
Aug Feb
(First provisional 17 500 (The Income tax that
payment) the company will
owe SARS for the
current year
calculated on the
actual Net profit of
the Company)
2022 27 Bank CPJ Balance c/o 5 000
Feb
(Second provisional 17 500
payment)
35 000 35 000
2022 1 Balance b/d 5 000
Mrc
When the balance b/d is on the DEBIT SIDE of the account: Amount owed by SARS to the company. This will be an
ASSET to the company and will be entered in the Statement of Financial Position as part of Trade-and other
Receivables
Remember: When you notice a balance for SARS (income tax) account in the Trial balance
during the financial year, you should remember that this amount represents the provisional tax
that was paid.
NOMINAL ACCOUNT SECTION:

INCOME TAX N4
2022 28 SARS (Income tax) GJ 30 000 2022 28 Appropriation GJ 30 000
Feb (Expense for the Financial Feb
year according to SARS)
account
Closing transfer
ACCOUNTING EQUATION(AEOIL): Payment of provisional tax
ACC ACC. ASSETS OE LIABILITIES
DEBITED CREDITED
SARS (Income tax) Bank -17 500 0 -17 500
SARS (Income tax) Bank -17 500 0 -17 500
NOTES TO THE FINANCIAL STATEMENTS:
5 TRADE- AND OTHER RECEIVABLES
SARS (Income tax) 5 000
Example OPTION 2:
TRANSACTIONS:
 On 31 August 2021, an amount of R17 500 was paid by EFT to SARS in respect of the first
provision tax payment of the company.
 On 27 February 2022 the second provisional tax payment was made of R17 500.
The amount was paid by EFT to SARS for this amount.
 At the end of the financial year on 28 February 2022 the Income tax was calculated at R45 000.
GENERAL JOURNAL OF KIMA TRADERS– FEBRUARY 2022

Fol Debit Credit
29 Income tax N4 45 000
SARS (Income tax) B9 45 000
Income tax for the year brought into account

SARS (Income tax) B9

2021 31 Bank CPJ 2022 29 Income tax GJ 45 000
Aug Feb
(First provisional 17 500 (The Income tax that
payment) the company will
owe SARS for the
current year
calculated on the
actual Net profit of
the Company)
2022 27 Bank CPJ
Feb
(Second provisional 17 500
payment)
28 Balance c/o 10 000
45 000 45 000
5 000 2022 1 Balance b/d 10 000
Mrc
When the balance b/d is on the CREDIT SIDE of the account: Amount owed to SARS by the company. This will be a LIABILITY to the company and will be
entered in the Statement of Financial Position as part of Trade-and other Payables
INCOME TAX N4
2022 28 SARS (Income tax) GJ 45 000 2022 28 Appropriation GJ 45 000
Feb (Expense for the Financial Feb
year according to SARS)
account
Closing transfer
TRADE-AND OTHER PAYABLES

SARS (Income tax) 10 000
DIVIDENDS – DECLARED & FINAL
A. DIVIDENDS DECLARED AT THE END OF THE YEAR:
Shareholders of a company are compensated for their investments in the form of

dividends.
The income that the shareholders will receive is called dividends. At the annual general
meeting the shareholders can approve or may propose and accept a smaller dividend
than that recommended by the directors, but not a dividend bigger than that
recommended by the directors. When a dividend is approved by the shareholders, the
dividend is said to be declared and a liability is created for the company.
A dividend is only declared when there is income available to do so and we need to take
note that the net profit belongs to the company and that shareholders are not
automatically entitled to a share of the company’ profit.
B INTERIM DIVIDENDS DECLARED AND PAID OUT DURING THE YEAR
The directors will only declare an interim dividend during the year when the financial
position is sound, therefore there must be income available to do so.
The net profit is only known at the end of the year however the directors has the right to
declare interim dividends during the year if there is funds available to do so.
Example 1: Interim dividends declared and paid during the financial year.
TRANSACTIONS for ABC Traders Ltd:

KIMA Traders have an authorised share capital of 300 000 ordinary shares of which
100 000 have been issued at R2.
On the 31 August 2021, the directors declared an interim dividend of 20c per share and payment
in favour of the shareholders was paid via EFT.
End of financial year is on the 28 February
CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED – AUGUST 2014

SUNDRY ACCOUNTS
BANK
DOC DAY DETAILS FOL AMOUNT F DETAILS
EFT 31 Shareholders 20 000 20 000 Dividends on ordinary

(100 000 x 0.20) share
GENERAL LEDGER OF ABC TRADERS LTD
BANK B
2021 31 Dividends on CPJ 20 000
Aug
ordinary shares

+e-
DIVIDENDS ON ORDINARY SHARES N
2021 31 CPJ 20 000
Aug
Bank
(100 000 x 0.20)
REMEMBER: When you see that the account “Dividends on ordinary shares (e)N “
has a total in the Trial balance, you should know that interim dividends were
declared and paid during the financial year.
NEVER enter this amount in the Statement of Comprehensive Income as an expense
– this amount will be entered in the Statement of Financial Position!
Example 2: Final dividends declared at the end of the financial year.
TRANSACTIONS for ABC Traders Ltd:

ABC Traders Ltd. with an authorized share capital of 300 000 ordinary shares of which 100 000 shares
were issued at R2, declared a dividend of 40c per share at the end of the financial year.
GENERAL JOURNAL – FEBRUARY 2015

Fol Debit Credit
Ordinary share dividends N5 40 000
Shareholders for dividends B10 40 000
Final dividend declared at the end of the financial year brought into
account
GENERAL LEDGER OF ABC TRADERS LTD

-L+
SHAREHOLDERS FOR DIVIDENDS B10
2022 28 Dividends on ordinary AJ 40 000
Feb
shares
(100 000 x 0.40)
DIVIDENDS ON ORDINARY SHARES N5
2021 31 Bank 2022
KBJ 20 000 Feb 28 Appropriation G 60 000
Aug
(Interim dividends paid to
shareholders) account J
2022 28 Shareholders for
Feb
dividends GJ 40 000
(declared at the end of the
Financial year – not yet paid to
shareholders)
60 000 60 000
ACC ACC ASSETS OE LIABILITIES
DEBITED CREDITED
Dividends on ordinary Bank -20 000 -20 000 0
shares
Dividends on ordinary Shareholders for 0 -40 000 +40 000
shares dividends

9. RETAINED INCOME
Retained income at the beginning of the year xx
Net profit after tax for the year xx
Buying back of shares @ R p.s (x)
Dividends on ordinary shares: (60 000)
Paid (interim) (20 000)
Declared / Final (end of the year) (40 000)
Behoue inkomste aan die einde van die jaar xxxxx
10. TRADE-AND OTHER PAYABLES

Shareholders for dividends 40 000
APPROPRIATION ACCOUNT
There are three different ways of preparing the Appropriation account. Choose the alternative
that you have been taught.
Option 1:
The Retained Income for the year is transferred from the Appropriation account to the Retained
Income account
RETAINED INCOME B3
2020 28 Bank CPJ 2019
20 000 Mar 1 Balance b/ 160 000
Feb
(buy back of shares d
above the average
price)
Balance c/d 291 000 2020 28 Appropriation GJ 151 000
Feb
311 000 311 000

2020 1 Balance b/ 291 000
Mar
d
APPROPRIATION ACCOUNT F1
2020 28 Income tax GJ 99 000 2020 2 Profit and loss GJ 330 000
Feb Feb
8
Dividends on
ordinary Shares / GJ 80 000
Ordinary share
dividends
(16 000 + 64 000)
Retained Income GJ * 151 000
(This financial year)
330 000 330 000
Option 2:
The Retained Income at the beginning of the year is transferred to the Appropriation account. The
Retained Income (before the share buy-back adjustment) at the end of the year is transferred from the
Appropriation account to the Retained Income account
RETAINED INCOME B3
2020 28 Bank CPJ 20 000 2019 1 Balance b/d 160 000
Feb Mar
(buy back of shares above the
average price)
Appropriation account GJ 160 000 2020 28 Appropriation GJ 311 000
Feb
Balance c/d 291 000
471 000 471 000
2020 1 Balance b/d 291 000
Mrc
The balance of the Retained Income account stays R291 000

as in Option 1 and Option 2
APPROPRIATION ACCOUNT F1
2020 28 Income tax GJ 99 000 2020 28 Profit and loss GJ 330 000
Feb Feb
Dividends on ordinary GJ Retained Income GJ 160 000
(Beginning of the year)
Shares / Ordinary 80 000
share dividends
(16 000 + 64 000)
Retained Income GJ * 311 000
(end of the year)
490 000 490 000
*Balancing figure
Remember:that Retained income is the amount of

profit that the company decides to keep for future
growth or to have money to buy-back shares in
the future
DIRECTORS FEES AND AUDIT FEES
DIRECTORS’ FEES
The directors are not paid a salary as in the case of the other employees. The company
enters into contracts with the directors and a fee is negotiated.
At the end of the accounting period, an entry will be necessary for any amount due, but not yet
paid, to the directors.
The name of the account will be DIRECTORS FEES and will be closed off to the Profit and
loss account at the end of the financial year.
AUDIT FEES
Because the owners of a company do not have direct access to the books, it is necessary for
an independent auditor to be appointed.
The auditor will complete his work after the end of the accounting period.
His fee will therefore be finally settled after the end of the accounting period.
Example 5:
GENERAL JOURNAL – FEBRUARY 2020

Fol. Debit Credit
28
Directors fees N23 50 000
Audit fees N24 30 000
Accrued expenses B17 80 000
GENERAL LEDGER
-L+
ACCRUED EXPENSE ACCOUNT B17
2020 GJ
Feb 28 Directors fees 50 000
Audit fees GJ 30 000

+e-
DIRECTORS FEES ACCOUNT N23
2020 Accrued GJ 50 000
Feb 28 expenses
+e-
AUDIT FEES ACCOUNT N24
2020 Accrued GJ 30 000
Feb 2 expenses
8
TRANSACTIONS ASSETS OWNERS LIABILITIES

EQUITY
Brought the directors fees due into account 0 - 50 000 + 50000
Brought the outstanding Audit fees into account 0 - 50 000 + 50000
ASSIGNMENT 3: ASHY COMPANY LIMITED
Ashy Company Limited trades in Proudly South African bottled water. The Company is
authorised to issue 500 000 ordinary shares.
The directors are concerned that the market price per share at Johannesburg Securities
Exchange (JSE) on 1 March 2020 has declined from R8 p.s to R5 p.s. The directors informed
the internal auditor to investigate what contributed to the declined market price per share.
You have been requested by shareholders to present information relating to the following
company accounts for the period 1 March 2020 to 28 February 2021.
REQUIRED:
1.1 Calculate the average price of shares before the shares were bought back.
1.2 Calculate the price that the company bought back the shares for on
15 September 2020.
1.3 Complete the following accounts and balance/close off the accounts on
28 February 2021:
 Ordinary share capital

 Shareholders for dividends
 SARS: income tax
 Ordinary share dividends
 Income tax
 Appropriation
INFORMATION:
The following balances appeared in the books on 1 March 2020:

Ordinary Share Capital ( 70 000 shares issued) 475 250
Retained Income/ Accumulated Profits 86 000
SARS (Income Tax) (Cr) 130 000
Shareholders for dividends 120 000
TRANSACTIONS:
2020
Mar 31 The amounts due to SARS for income tax and to shareholders for dividends were paid.
Income tax details are as follows:
2020
Aug 31 The company paid their first provisional tax of R170 000.
2021 A second provisional tax payment of R195 000 was made.

Feb 28
The Income tax for the year amounted to R450 000, being 30% of net profit.
Shares and Dividends
2019
Mar 31 Issued 15 000 ordinary shares for R92 250.
Mar 31 Issued another 90 000 ordinary shares at R4 per share.
Aug 30 The directors decided to pay an interim dividend R75 000.
Sep15 The directors decided to buy 65 000 ordinary shares for R390 000.
2021
28 Feb The directors recommended and declared a dividend of R3 per share to the
shareholders at the AGM meeting.
ANSWER SHEET:
1.1 Calculate the average price of shares before the buy-back of shares.
1.2 Calculate the price that the company bought back the shares for on
15 September 2020.
1.3. GENERAL LEDGER OF ASHY COMPANY
10
RETAINED INCOME B2
10
SHAREHOLDERS FOR DIVIDENDS B3
SARS: INCOME TAX B4
9
ORDINARY SHAREHOLDER DIVIDENDS N11
INCOME TAX N12
3
FINAL ACCOUNT SECTION:
APPROPRIATION F1
1.4 REPORT BY THE INTERNAL AUDITOR

The directors requested from you, being the internal auditor, to report on the repurchase
of shares on 15 September 2020. The value of the market price per share on the
28 February 2021 was R7, 00 per share.
Was the buying back of shares a good decision for the company?
YES / NO
Give a short report in point form to explain your answer. Provide TWO points.
5

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STUDY UNIT 3

FINANCIAL ACCOUNTING OF COMPANIES: GAAP PRINCIPLES AND

Work through Activity 2 + Activity 3

1. WHEN A PUBLIC COMPANY SELLS SHARES TO THE PUBLIC.

The company received a certificate of incorporation, called the Memorandum of

Debit: Ordinary Share capital Credit: Bank

CASH RECEIPTS JOURNAL – MARCH 2021 CRJ 1

GENERAL LEDGER OF KIMA TRADERS

on which shares are allocated

ASSETS OWNERS EQUITY LIABILITIES

KNOW THE DIFFERENCE BETWEEN:

GENERAL LEDGER OF KIMA TRADERS

BOOKKEEPING OF COMPANY LEDGER ACCOUNTS BUY BACK OF SHARES

- Ordinary share capital R600 000 (200 000 shares in issue)

 Calculate the AVERAGE PRICE of the shares that were issued.

 The double entry will be:

Example 3: KIMA TRADERS LTD

CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED– NOVEMBER 2021

GENERAL LEDGER KIMA TRADERS LIMITED

BUY-BACK SHARES AT THE AVERAGE PRICE

4. Complete the Shareholder’s equity note to the Financial Statements.

2. CASH RECEIPTS JOURNAL – APRIL 2020 CRJ 4

4. GENERAL LEDGER OF NANO TRADERS LIMITED

ORDINARY SHARE CAPITAL B1

4. NOTES TO FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2021

 Ordinary Share Capital : R600 000 (1 March 2021)

2022 28 Balance c/o 532 500

600 000 600 000

BALANCE SHEET AS AT 28 FEBRUARY 2022

2. Calculate the buy back shares:

3. CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED– OCTOBER 2020

3. GENERAL LEDGER KIMA TRADERS LIMITED

ORDINARY SHARE CAPITAL B2

6. NOTES TO FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 2021

BUY-BACK SHARES FOR MORE THAN THE AVERAGE PRICE

2. GENERAL LEDGER THANDA TRADERS LIMITED

ORDINARY SHARE CAPITAL B1

Provisional tax payments = Prepaid expenses

IF INCOME TAX IS ASSESSED AT THE END OF FINANCIAL YEAR:

PAYMENTS OF PROVISIONAL TAX DURING A FINANCIAL YEAR:

NB: The double entry for provisional income tax is:

GENERAL JOURNAL OF KIMA TRADERS– FEBRUARY 2022

GENERAL LEDGER OF KIMA TRADERS

NOMINAL ACCOUNT SECTION:

NOTES TO THE FINANCIAL STATEMENTS:

5 TRADE- AND OTHER RECEIVABLES

SARS (Income tax) 5 000

GENERAL JOURNAL OF KIMA TRADERS– FEBRUARY 2022

GENERAL LEDGER OF KIMA TRADERS

SARS (Income tax) B9

TRADE-AND OTHER PAYABLES

Shareholders of a company are compensated for their investments in the form of

TRANSACTIONS for ABC Traders Ltd:

CASH PAYMENTS JOURNAL OF KIMA TRADERS LIMITED – AUGUST 2014

EFT 31 Shareholders 20 000 20 000 Dividends on ordinary

NOMINAL ACCOUNT SECTION: