Acca 201 And Acca 202 Own Notes

1|Page ACCA201 Accounting

Contents Contents......................................................................................................................................................................................... 1 OWN QUESTIONS & ANSWERS........................................................................................................................................................ 6 GENERAL PROVISIONS.......................................................................................................................................................... 13 CURRENT PLACE OF LAST QUESTION........................................................................................................................................ 17 TERMS:......................................................................................................................................................................................... 18 TRICKS:......................................................................................................................................................................................... 19 EXAM TIPS:................................................................................................................................................................................... 20 general................................................................................................................................................................................. 20 partnerships......................................................................................................................................................................... 20 Statement of changes in equity and share transactions:...................................................................................................... 20 Heading : Prescribed Books for second year:................................................................................................................................ 21 CHAPTER 3 : PARTNERSHIP ACCOUNTS....................................................................................................................................... 22 Temporary & Permanent Partnerships:..................................................................................................................................... 22 Certain accounting aspects special for partnership:............................................................................................................. 22 characteristics of a partnership as a form of enterprise............................................................................................................ 22 Legal Aspects of a Partnership:................................................................................................................................................ 22 Partnership Agreement: Important matters to be included in it:............................................................................................... 23 RECORDING OWNERS EQUITY.................................................................................................................................................. 23 Capital & Current Account.................................................................................................................................................... 23 Valuation of contributions made by partners........................................................................................................................ 24 Loans & Advances................................................................................................................................................................ 24 Determination & Distribution of Partnership Profits.................................................................................................................. 25 Distrtibution of Profit for period:........................................................................................................................................... 25 Partners Salaries:................................................................................................................................................................. 25 Bonus to Managing Partner:................................................................................................................................................. 25 Interest on Capital: pg 527................................................................................................................................................... 25 Drawings: ............................................................................................................................................................................ 26 Adjustments & Corrections in respect of Previous Fin Periods.............................................................................................. 26 Financial Statements of Partnerships:...................................................................................................................................... 27 Changes in Composition of the partnership:............................................................................................................................. 27 NEW PARTNER ADDED : REVALUATION Account. GOODWILL Account. Etc........................................................................... 28 RETIREMENT OR DEATH OF A PARTNER................................................................................................................................ 31 Liquidation /Dissolution of a partnership:................................................................................................................................. 33 Realisation Accounts:........................................................................................................................................................... 33 Loans to /from partners........................................................................................................................................................ 34 OTHER ASpects of liquidation:.............................................................................................................................................. 35 IF ANY PARTNER HAS A DEBIT BALANCE / deficit ON HIS ACCOUNT:..................................................................................... 35 Merger of more than 1 Existing Partnerships:........................................................................................................................... 38 Take over by an existing Company........................................................................................................................................... 38 Conversion to a company......................................................................................................................................................... 38 Conversion to a closed-corporation.......................................................................................................................................... 38 CLASS EXERCISES :.................................................................................................................................................................. 39 Exercise group 1 from fakir. –partnerships add new member/ retire old members. /goodwill etc .....................................39 ............................................................................................................................................................................................ 39

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2|Page ACCA201 Accounting YOU CAN INSERT A TOTALS ROW HERE between OLD/ new PARTNERS SECTIONS -IT IS BETTER BUT NOT REALLY MARKS FOR IT.............................................................................................................................................................................................. 41 Totals not needed here but one can if you want....................................................................................................................... 42 CHAPTER 3 : COMPANIES & companies fin statements................................................................................................................ 47 The Company as a form of Enterprise....................................................................................................................................... 47 Introduction:......................................................................................................................................................................... 47 Share CAPITAL :.................................................................................................................................................................... 47 Rights and Resposibilities of shareholders............................................................................................................................ 47 Incorporation of a Company:................................................................................................................................................ 47 Managemnt of a Company................................................................................................................................................... 48 Share Capital............................................................................................................................................................................ 48 Authorised Share Capital...................................................................................................................................................... 48 Issued Share CAPITAL........................................................................................................................................................... 48 Share Values : Par value / No Par Value............................................................................................................................... 48 ORDINARY & PREFERENCE & OTHER TYPES OF SHARES....................................................................................................... 50 Recording Share Transactions:............................................................................................................................................. 54 The PURCHASE BACK of a companies own shares:.............................................................................................................. 55 Differences between company & partnership.:......................................................................................................................... 55 Reserves & Dividends.............................................................................................................................................................. 55 Dividends............................................................................................................................................................................. 55 Reserves.............................................................................................................................................................................. 56 Non-Distributable Reserves ................................................................................................................................................. 56 Distributable Reserves......................................................................................................................................................... 56 Tax of Companies..................................................................................................................................................................... 56 Provisional Tax; ................................................................................................................................................................... 56 Recording the provision for tax............................................................................................................................................ 56 The Tax Return:.................................................................................................................................................................... 57 APPROPRIATION ACCOUNT....................................................................................................................................................... 57 Reserves : general , special , distributable and non-distributable......................................................................................... 57 ............................................................................................................................................................................................ 57 GROUP COMPANIES.................................................................................................................................................................. 58 The Annual Financial Statements of a Company....................................................................................................................... 58 Intro. and Objective:............................................................................................................................................................ 58 The Disclosure requirement:................................................................................................................................................ 58 users:................................................................................................................................................................................... 58 contents............................................................................................................................................................................... 58 IDENTIFICATION OF FINANCIAL STATEMENTS (as per IFRS book 2009)................................................................................. 59 GAAP-APB-SAICA-IASB=acc.practices board -appRoves SAICA submissions new accounting methods- Overall Considerations: as per AC101.............................................................................................................................................. 59 Reporting period.................................................................................................................................................................. 59 Notes to the fin stats............................................................................................................................................................ 59 Measurement of elements of Fin Stats................................................................................................................................. 60 STATEMENT OF FINANCIAL POSITION (THE BALANCE SHEET)................................................................................................... 60 FRamework of SoFP and notes............................................................................................................................................. 60 Information to be presented on the face of the SOFP (BAlance sheet).................................................................................. 60 Info to be on face of SOFP (Bal. Sheet) OR in the Notes....................................................................................................... 60 METHOD for each heading in SoFP:..................................................................................................................................... 61 example: full balance sheet: .............................................................................................................................................. 65 NOTES TO THE BALANCE SHEET............................................................................................................................................... 68 2

3|Page ACCA201 Accounting ............................................................................................................................................................................................. 69 Generally accepted accounting practice............................................................................................................................... 70 Accounting Policy................................................................................................................................................................. 71 (Assets:) Property Plant & Equipment................................................................................................................................... 71 (Assets:) Intangible assets.................................................................................................................................................... 72 Other Financial Assets.......................................................................................................................................................... 72 Preliminary Costs and Share issue costs............................................................................................................................... 72 Inventories:.......................................................................................................................................................................... 72 Share Capital........................................................................................................................................................................ 72 Reserves.............................................................................................................................................................................. 73 Interest bearing borrowings:................................................................................................................................................ 73 STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT)............................................................................................ 73 The Companies Act states following regarding disclosures required in SoCI : to 2008/9.....................................................76 Notes to the statement of comprehensive income(2009 ifrs)................................................................................................... 80 INCOME.............................................................................................................................................................................. 80 Income from subsidiaries..................................................................................................................................................... 81 Income from other Financial Assets...................................................................................................................................... 81 EXPENSES:........................................................................................................................................................................... 81 Remuneration(other than for bona fide employees) for:....................................................................................................... 81 DIRECTORS REMUNERATION:............................................................................................................................................... 81 AUDITORS REMUNERATION.................................................................................................................................................. 82 TAX EXPENSE....................................................................................................................................................................... 82 STATEMENT OF CHANGES IN EQUITY........................................................................................................................................ 83 THE COMPANIES ACT 61 OF 73 :( from all in chapter 19 in Introduction to IFRS book).............................................................. 88 TYPES OF COMPANIES:......................................................................................................................................................... 88 Pre-incorporation contracts and profits................................................................................................................................ 89 loans / security provided by a subsidiary.............................................................................................................................. 91 section 38 -no financial assistence to purchase shares of company or holding company. ...................................................91 section 39 -company not to be member of its holding company.......................................................................................... 91 section 74- share capital-par value shares or no par value shares.(stated capital)............................................................... 91 section 75- company may alter share capital and shares..................................................................................................... 92 section 76: ‘Share premium’ / premiums received on issue of shares to be share capital, and limitation on application thereof................................................................................................................................................................................. 94 section 77 –Proceeds of Issue of no-par value to be stated capital....................................................................................... 95 Section 77 -effect of conversion of par value shares into no par value shares and visa-versa.............................................96 section 79 - payment of interest out of capital in certain cases............................................................................................ 96 Section 81 - issue of par value shares at a discount............................................................................................................. 96 Section 82 — issue price of shares of no par value at below book value requiring specIal resolution...................................96 2.16 SectIon 85 - Company may under certain circumstances acquire shares Issued by It.................................................. 97 Liability of directors and shareholders under certain circumstances................................................................................... 97 enforcability of contracts for company to buy back shares................................................................................................... 97 Section 89 —Subsidiaries may acquire certain shares in holding company.......................................................................... 98 Section 90 - Payments to shareholders................................................................................................................................ 98 Sections 98 and 99 — Redemption of redeemable preference shares and conversion of ordinary shares into preference shares.................................................................................................................................................................................. 98 v y SectIon 193 - Voting rights of shareholders.................................................................................................................... 98 Section 194 - Voting rtghts of preference sharehoiders....................................................................................................... 98 v y SectIon 195 — Determination of voting rights................................................................................................................ 98 Restriction of the power of directors to issue share capital.................................................................................................. 98 3

4|Page ACCA201 Accounting Section 222 — Restriction on the issue of shares and debentures to directors..................................................................... 98 Section 226 -Prohibition of Loans to, or security in connection with transaction by, directors and managers......................99 section 295-to be disclosed in income statement notes: loans and security for Directors+Managers...................................99 section 295-to be disclosed in income statement notes: loans and security for Directors+Managers existing before their appointment......................................................................................................................................................................... 99 SectIon 228 - Disposal of undertaking or greater part of assets of company........................................................................ 99 section 283-remuneration of auditors:................................................................................................................................. 99 section 284-: Duty of the company to keep accounting records.........................................................................................100 section 285 - Determination of the financial year of a company ........................................................................................ 100 section 285A — General requirements for the financial statements...................................................................................100 section 286 — Duty to make out annual fInancial statements and to lay them before an annual general meeting............100 section 287 - Offence to Issue incomplete financial statements and circulars .................................................................. 101 SectIon 298 — Approval and signing of financial statements............................................................................................ 101 Section 299 - Director’s Report.......................................................................................................................................... 101 Section 302 — Duty of company to send annual financial statements to members and the Registrar................................101 Section303 — Half yearly interim reports........................................................................................................................... 101 Section 304 — Provisional annual financial statements...................................................................................................... 101 Section 305 — The form and contents of Interim reports and provisional annual financial statements .............................102 SChedule 4 of the companies statement :.......................................................................................................................... 102 exercises and solutions for companies:.................................................................................................................................. 108 CHAPTER 1 ACN202 :

GROUP STATEMENTS

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study unit 1 : Provisions of the companies act 1973 with respect to companies in group context..........................................110 Introduction:........................................................................................................................................................................... 110 COMPANIES ACT AND ACCOUNTING FOR GROUPS.................................................................................................................. 110 special tricks for this section.............................................................................................................................................. 110 Special Notes :applies For All sections:............................................................................................................................... 110 Definitions:......................................................................................................................................................................... 111 general Details:.................................................................................................................................................................. 111 GENERAL PROVISIONS........................................................................................................................................................ 112 study unit 2: Consolidation of wholly owned subsidiary at acquisition....................................................................................112 mETHOD:................................................................................................................................................................................ 112 basic consolidation techniques:.......................................................................................................................................... 112 Adjustments....................................................................................................................................................................... 112 Consolidation of Stat. of fin. Pos......................................................................................................................................... 113 Calculations steps to do for any consolidation................................................................................................................... 113 Study Unit 3 :consolidation of a partly owned subsidiary at date of acquisition..................................................................116 Study unit 4 : Consolidation of wholly owned subsidiary after date of acquisition..............................................................117 study unit 5 : acquisition of an interest in a subsidiary during the year.............................................................................. 119 STUDY UNIT 7 elimination of inTERcompany transactions..................................................................................................119 DIVIDENDS : THEIR TREATMENT DURING CONSOLIDATION................................................................................................123 Treatment of preference shares during consolidation:....................................................................................................... 124 COULD NOT FINISH- STOPPED HERE- NO TIME................................................................................................................... 125 Chapter 2 Semester 2 :Cash flow Statements............................................................................................................................. 126 Intro:...................................................................................................................................................................................... 126 WHY USE A CASH STATEMENT?.............................................................................................................................................. 126 GAAP & Law implications........................................................................................................................................................ 127 elements and framework of cash flow Stat............................................................................................................................. 127 Operating Activities............................................................................................................................................................ 127 4

5|Page ACCA201 Accounting Investment Activities: DEFINITIONS: (copy down ac118.6 here later)................................................................................. 127 Financing Activities: DEFINITIONS: (copy down AC118.6 here later)...................................................................................127 METHOD OF PREPARATION OF CASH FLOW STATEMENT........................................................................................................ 128 different Frameworks of the direct and indirect method..................................................................................................... 128 Doing accounts to calculate TOTALS for the c/d statement:............................................................................................... 130 CASH FLOWS FROM OPERATING ACTIVITIES....................................................................................................................... 132 Operating Activities : how to calculate each separate amount:..........................................................................................132 1-DIRECT METHOD:............................................................................................................................................................ 132 INDIRECT METHOD:............................................................................................................................................................ 135 Last part of operating activities: exactly the same for direct&indirect methods:................................................................ 135 final total for operating activities:....................................................................................................................................... 136 CASH FLOWS FROM INVESTMENT ACTIVITIES..................................................................................................................... 136 CASH FLOW FROM FINANCING ACTIVITIES:......................................................................................................................... 137 Net change in cash & cash equivalents.............................................................................................................................. 137 NOTES TO THE FINANCIAL STATEMENTS :Reconcilliation Between The Net Profit Before Tax With The Cash Generated By Operations:........................................................................................................................................................................ 137 The following is an excellent example WITH EXPLANATION used by UNISA to explain how it all works.Copied vertabim from unisa ‘acn202r’....................................................................................................................................................................... 138 Chapter 3 EARNINGS PER SHARE................................................................................................................................................ 140 Special things to remember:.................................................................................................................................................. 140 Introduction:........................................................................................................................................................................... 140 Definitions and Measurement................................................................................................................................................. 140 MORE DEFINITIONS:................................................................................................................................................................ 141 PrEsentation:.......................................................................................................................................................................... 142 disclosure:.............................................................................................................................................................................. 142 Different classes of shares:.................................................................................................................................................... 142 Participating Preference Shares :....................................................................................................................................... 142 CHANGES IN CAPITAL STRUCTURE:......................................................................................................................................... 144 (A) TYPE 1 : Shares ISSUED FOR CONSIDERATION:............................................................................................................. 144 (B) Type 2 : Shares issued for no consideration:................................................................................................................. 147 Headline Earnings. ................................................................................................................................................................ 152 Dividends Per Share............................................................................................................................................................... 152

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OWN QUESTIONS & ANSWERS 1. ANSWERS YOU NEED TO EXAMPLES: a. Set 1 of questions – partnership- new entry member – i. mr x + mr y + mr z b. Set 2 of questions – partnership- liquidations – not gradual – i. Radebe + skosana +moosa ii. Lindsay +miles + nelson iii. iv. Alex brown collins v. Alpha bravo Charlie vi. Set 3 –gradual liquidations 1. Graham donald kevin 2. Samson stanley tsepo 3. 2. OWN QUESTIONS: how do you do a reversal of an unpaid item in your bank statement. Eg: bank charges or a debit order were debited to your account, but due to lack of funds , the next day they were reversed by the bank.Your first transaction goes to the cash payments journal, and where does the second one go?cash receipts journal OR purchase returns journal or ANY of the 2.Which is best? a. Where do you R100 put free credits which you may use any time in the future,which you get for just opening a service/ or advertising account with some agency. b. By the way if somebody eg Telkom for telephone charges ,who you paid, refunds you R100 because they later find out they overcharged you, can that also go to cash receipts journal,or only to purchase returns journal? Is'nt the purchase returns journal there so you can subtract it from your purchases(of products for sale) when you do the Income statement – to show the correct figure so you can work out cost of sales properly? So if you put things in the purchase returns journal like telephone charges, thenyou get an incorrect figure for your cost of sales if you sell eg: only groceries ,like checkers or so. c. If an entity has separate bank accounts under the same name , or even at different banks, - do you put a note in journals as to which taccount each transfer is to/from or do you have separate bank ledger accounts –more than 1- and separate columns in the journals? d. What is a 3 column cash journal(at cna) e. What is a cash book – cpj or crj. What other odd jurnals do you get and their format/setup? f. If you do a year end adjustment for bank charges, where you have received the statement but the bank only charges you in january for all your december banking charges,so it only appears on your january statement as well(that is their method) – if you do a year end adjustment so you credit accrued bank charges and debit bank charges , when the bank does charge you in january, you debit accrued bank charges and credit bank, or can you somehow reverse (by debit accrued bank charges and debit bank)before they actually charge you , so on first day of new fin year? If you reverse before they charge you then when they charge it will happen that you will have to write in the date as january and dr the bank charges expense account for january because the expense account from last year is already closed off? So it will appear wrongly on your next yrs fin statement AGAIN? So may one not reverse an income/or expense adjustment untill that expense/ income is actualy received or paid? g. For a year end adjustment is it so that all transactions must show up in correct year but not in correct month, so if you reverse income rec. in advance at beginning of year then when you put it back into the correct income account eg: services rendered ,then it can show up in january( for dec year end) in the books but the work can only be done in july- so wrong month? h. BAD debts : if a bad debt occours in 2007 but the sale took place in 2006 –dos'nt it show up wrongly on the 2007 income statement? 3. PARTNERSHIPS: 1-if you want to revalue property,which ledger account do you put this revaluation in: like accumulated depression or ‘accumulated (upward) revaluations’ etc or what 2-Partnerships : Revaluation account:do you cr /dr all the asset accounts contra reval.acc. a. Is the REVAL. Acc a profit&loss acc(like in closing off procedure) or is it an "asset contra account" like acc. depreciation is ?what are all the other entries for a reval. –i mean in the asset accounts, acc.depr. accounts ,and profit&loss accounts etc? b. Can any kind of expenses or income ever go to the reval.account. c. If a new partner is admitted, does one first have to close off all expense and income acc.'s to the profit &loss acc and distribute the profit etc , and calculate depreciation etc- so old partners do not loose their share of profit befor new entrant? d. How would one do a normal (not for partnerships-but rather for companies etc.) upwards revaluation to an asset – use an acc. depr.acc to do this? ,or can you open a new type of account –revaluation acc.- to do this. 4. If you dr the reval account instead of the bad debts account – to create a Prov. for Bad Debts –then how does the 'bad debts' go to the Income statment at the end of the year? Wont one leave out this singular +/- now because its not visible? 5. If there are expenses and income for the period before the new partner comes in- say he enters in march and the fin year ends in dec.Those expenses+income –must they not be closed off to the profit&loss account and full year end closing procedures done before new partners come in –to make sure any profit/loss is distributed in the old ratios befor the new partners get there? How much of closing off procedure can/ must one do –trading account? Can you do profit & 6

7|Page ACCA201 Accounting loss account or not at all? Must it all go to the revaluation account? Or can it go in reval. Acc. if you want or NOT possible?and must it first go through profit/loss account(year end type) or not? a. THEN – must you write it all back in the new ratios or NOT at all- i mean write it all back to the relevant expense/income accounts so your year end calculations all work out right? b. What else should one know here? 6. What is GARNER vs MURRAY (loss goes in profit ratio to others?) BUT what do you do if this rule is NOT applied? Eg miles,lindsay,nelson question? a. Is garner/murray to use capital ratios just before liquidation or after all realisations? b. Do you use capital ratios OR profit/loss ratios in middle of distribution schedule,while there is assets to be sold still ,or only at end. c. What is fixed/ variable Balances type of partnership : in conjunction with Garner Murphy rule:ALSO what is the method hereunder: please read and say it it is correct for us(check this method some things you dont understand (solvents must add cash according to loss) According to Garner vs Murray Rule: from http://basiccollegeaccounting.com

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The loss on account of insolvency of a partner is a CAPITAL loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.

Notes: • “Capital” in this case relates to the real capital of the partners and not capital as may be standing in the books of partnership firm in the names of different partners. This distinction is especially critical when the partners are maintaining their capital accounts on fluctuation capital system. The true capitals according to this rule will be ascertained after making all adjustments regarding reserves, drawings, unrecorded assets on the date of the balance sheet on the date of dissolution of the partnership firm. When the capitals are FIXED, no such adjustment is required. • Where a partner is solvent but has a debit balance in his/her capital account, just before the dissolution of the partnership firm, such a partner will not be required to bear the loss on account of insolvency of a partner.

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The rules dictates that:The solvent partners should bring in cash equivalent to their respective share of loss on realization and The loss due to the insolvency of a partner should be then be divided among the solvent partners in the ratio of capitals standing after the partners have brought in cash equal to their share of loss on realization.

7. What is a “fluctuating” and a “fixed” ‘capital account’ system , so the difference between the 2, in partnerships accounts. As per the internet stuff on garner-murray rule above. 8. Do you re-open reval acc. To write back all reval if not wanted in books ie: asset back to reval.acc back to out of capital acc . ANSWER = YES 9. For transfer of general reserve- must it first go to current acc;s of partners or straight to capital acc;s. 10. What happens to the 11. Do we have to write date in ledger all way down ,or only at top of column till it changes. 12. For revaluation acc.s – and also for general transferring-eg if one partner must increase/decrease his capital to bring it in line with new ratios etc, must all/some of these amounts first go to current acc.s of partners or straight to capital? Should' nt everything first go through current acc,s instead of straight to capital? Where would one use a current acc? – in a gradual liquidation. 13. Must all current acc.s first be closed off to capital acc;s before the new ratio’s and all revaluations etc when new partner is admitted or how?When does one not do this? In gradual liquidation or change to company /cc etc? 7

8|Page ACCA201 Accounting 14. How can capital ratios (the actual amounts in the Capital accounts of partners) of partners change in fin.year/end fin.year.? Only on retire/new etc or when? 15. For the following –(less used methods)- how do they work ? a. INSURING a PARTNERS INTEREST: for the adjustment method of : capitalised value vs surrender value adjustment ,how does itr work? b. `for the second method – where you debit the premiums to the life insurance policy accounts –which are definitely treated as "assets?" – then credited with policy amount when paid out- how can you debit an asset account with policy premiums – or even credit the account with a payout( should'nt it be debited?) i mean if you credit the acc. with payout – then that is an income/expense acc. ,they get credited with income-not an asset acc.? c. With the more common method- premiums debited to inc/.expense of firm – and 'surrender value' only taken into account when new partner is admitted, or if profit ratios change( as an asset value to be evenly balanced between ratios to –capital. – how is this surrender value taken into account- at end of each year revalued + debited with extra- or only RAISE this surrender value when new partner joins etc, then write it back out again? Shouldnt surrender value be in balance sheet + income statement each year end or fin position is understated? i. Where premiums borne more by firm- is payout credited to firm or individuals. d. Isnt premiums paid from operating expense(dissapear in profit ratio) and ____surrender value re-calc end fin year-as asset – and payout disclosed as note or visa versa._____ best method for treating this? How can you get payout and surrender value shown as assets at same time? (a) ((((ACCOUNTING POINT OF VIEW: 4 WAYS OF TREATING ACCOUNTING : (i) Less used in Practice Methods. 1. Premiums paid from partnership funds, debited to life policy accounts which are treated as assets.Policy Payouts are credited to same policy account.Surplass yielded by policy "above amount of capitalised premiums????" is credited to capital acc.s in profit share ratio. 2. Alternative method- annual adjustment of capitalised total on policy to surrender value of policy at fin.end.year.Normally amounts to a write offon balance of policy acc.Corresponding debit can go direct to profit&loss or current acc's of partners. (ii) More encountered in Practice Methods. 1. Premiums debited to income ,but not capitalised at all ?whats this?????,Payout cerited to capital acc.s in profit share ratio.This method is SUPPOSED TO BE More conservative than asset method since partners all bear share of ???????premiums since it is treated as operating expense –so dissapears in profit ratio payout.-thus limits amount available for with drawal by partners.?????? (other too!!!!?)Disadvantage is fin position understated to extent of surrender value-can overcome by showing in 'notes'. 2. Where premiums borne by firm(???no 1 not or what??)not by partners,and debited against income, the surrender value of different policies must be taken into account an retirement/ new admission / profit ratio change/etc.AS is the case withy any other asset this requires approriate valuation and adjustment –for each circumstance mentioned.(??/what about year end???) i. ))))) 16. For partnerships –what goes to realisation acc- only n-c assets or also c-assets ,what about expenses-are there any special types that go here?Or once one has closed off all expense accounts-do the expenses go to reval. Account or where? What about other income from services etc?? ANSWER: so far: Prov.doubt.debts YES ,Goodwill YES , 17. What is GARNER vs MURRAY rule? 18. Could Accumulated Depreciation And profit /loss on change in asset value also go to asset accounts only.- then just profit/loss to realisation acc.? or not allowed at all(note this method ffor normal mach. Realisations)?what about if all is first transfered to 'realisation of machinery acc'- and then just profit to realisation acc? 19. Does profit/loss on sale of asset go to revaluation acc(not realisation acc) ,also if an asset is transferred to a partnerthrough reval.acc?And its profit/loss –through reval.acc ? 20. When do all the expense accounts and income accounts get closed off to profit/loss accounts and final year end procedures happen in a liquidation? Do expenses and income start going straight to the realisation account after all other accounts are closed off or not.Can one put expenses in the realisation account or not eg:liquidation expenses? 21. How does one round off decimal fractions to get correct answer? a. How do you balance accounts if you get eg 2.15372- do you move up or down.say a gets 2.33333 ,b gets 2.43333333 and c gets 2.233333- where does the extra 0.1 go to balance out? 22. If a partnership is legally terminated , just to let one partner leave/ or enter(as per law of partnerships) how do the books legally effect this : I mean you go to GOV, deregister , then reregister with new/ erased partner : Then what? Can your "new company '" books start half way in the middle of all accounts etc? Or should all expense/income be closed off to profit/loss acc. +trading acc then all profit apportioned, then all current accounts closed off etc? a. Do you show Fin.Statements at next year end for only eg; last 7 months from partnership new enrant/old leave or for full Fin.Year incl eg first 5 mnths before new partner entered? b. Does one have to Do Full Fin. Statements like a proper year end closing procedure for the exact time the second before new partner was admitted? So for a new/retiring partner 2 sets of fin. Stat. should be prepared: 1-just before start of procedure (to get figures of deprec.+asset carrying values + actual capital/(+profit/loss) before revaluations etc., 2-just before new guy enters, after all closing off and revaluations., to show as a Financial year end+Termination of partnership Official Records? Or is there a shorter way? c.

23.

COMPANIES

1) If assets are taken in as capital for a new shareholder, at less than their valued amount, for non-par shares,but still must be recorded at valued amount, so you must - dr asset real value , but cr new shareholder at lesser amount – then where does 8

9|Page ACCA201 Accounting balance go? – to other shareholders as extra shares for them or what?ANSWER: I think bring in at lower amount, then revalue/have them revalued to a higher amount thereafter. 2) Is it possible to have a "INCOME TAX ACCOUNT" Or is ther never any Tax account in Ledger? If so, how does it work? If tax is transferred from the appropriation account at year end, then how does it go to DR "Taxs expense acc." and CR : SARS if all the expense accounts for the year are closed off, and any new entries go through to the following years Fin. Stats. And end up showing there.Must it be closed off again before new year entries or what/how? 3) The share premium account may be used for : a) Paying up the unissued share capital of the company as fully paid up capitalisation shares which may be issued to members of the company, ???or may be used as a write off???, or b) The provisional expenses of the company.(that is , expenses incurred with the founding of the company) c) The expenses relating to either the commission paid or discount allowed on the creation or issue of shares or ??? obligations.??? d) Provision of the premium payable on the redemption of redeemable preference shares or debentures of the company. 4) REDEEMABLE PREF SHARES: a) If a company redeems pref shares without re-issuing new shares, must it then have double the capital at the ready , once to pay person back, and 2nd to create a CRRF.Or must it first transfer the money to be paid to the CRRF, and from there use it to pay the person who it is being redeemed from?Which way around? i) If shares are sold to fund redemption – must the sale price first be transferred to a CRRF before redeeming , or just to Bank ? b) Can the capital in the CRRF be used for any business purposes or not? c) Can the amount you pay the person who you are redeeming the shares from be more or less than the current book value of the shares? Ie – at their original value paid ? (less= from dilution of last (his)high price paid), if not, then the person could get more or less than he paid for them! d) If the above is true – then only the book value of the shares may go to the CRRF fund- so it could be more or less than the capital actually paid out? e) HOW DO ALL THE COMPANIES ONE ALLWAYS HEAR ABOUT – BUYING THEIR OWN SHARES BACK – DO THIS? Is it allways Red.Pref Shares that get redeemed or any type they want?As per law against buying back own shares – how do they do this? f) Pg 462 IFRS book : the highlighted in yellow on page 462 IFRS: is this actually : preincorporation profits go to appropriation account, then go to goodwill account? Or straight from pre-inc,profits to goodwill? Why cant you just transfer straight from nominal acc. Eg: SALES, to goodwill, why must it first go through the Pre-Inc.Profits account? How does this whole ‘offset against goodwill’ process work exactly –see other highlight on page.! By the way,as a separate question, can one transfer profit to appropriation account and then to reserves etc. in middle of year as well,or only at end of year? (1) See yellow here : what is it? Alternatively, if purchase price in purchase contract includes UNVALUED GOODWILL and PURCHASE PRICE is NOT payable in SHARES ((1-I think if shares are not involved here-not sure), AND 2- : ,if part payment in shares-not sure then if use ratio or just 1 of either method???), the preincorporation profits can be offset against goodwill (means you reduce UNVALUED GOODWILL total by value of pre-incorporation profits).Once UNVALUED GOODWILL=0, treat the excess pre-inc. profits as a RESERVE. Whether this reserve is distributable depends on what the Articles say about the distribution of ‘Capital Profits’.So if not distributable - will form part of non-distributable reserves, and if Articles allow distribution , then part of non-distributable reserves/profits. (2) I do not understand the yellow- why and how is this so? “ pg 53 own notes, pg 463 Intro to IFRS book : for profits/losses from effective date of purchase to actual date of purchase-accounting treatment thereof :“Purchase price is determined by bringing into account profits as NON-DISTRIBUTABLE RESERVES, since these profits represent in effect a DIVIDEND PAYMENT out of CAPITAL.The profits referred to here means profits from EFFECTIVE date of purchase per contract to ACTUAL date of purchase.(I think I know,not 100% sure) (3) To transfer to “Pre-Incorporation profits :Distributable Reserves” , must you (4) For pre-acquisition profits etc :”note in last example at end-these profits go to retained earnings, so it seems there is an end-of year type transfer to appropriation account then to retained earnings,not just to profit in appropriation account but a full retained earnings thing just before certificate to commence business.” So where exactly is must a set of fin. Stats. Be prepared here, and where a year end closing procedure etc etc, and where transfers to appropriation account , then to retained earnings etc?? g) If you buy shares in a company for 5000 rand, how can you get your 5000 rand back and return the shares, with all the laws against reduction of capital etc. i) And if a company wants to sell some of its assets and distribute the profits, how can it do that? ii) So if one ever uses profits to buy eg : some asset, then it is gone forever into capital? How is one to distinguish which assets are capital and which just converted profits.Where do you make a mark or something to show this? iii) How can one convert profit into capital? iv) What is a member of a company – where do they pass a special resolution? v) What is a special resolution? vi) Where else other than AGM may shareholders vote / and where may they exercise their authority otherwise. h) See yellow : can all the rest be converted so long , or how does this work? Does these stay as unissued yet or how/what does this mean :a Conversion of ordinary or preference shares having a par value to stated capital.:a Par value of 1 class(ordinary or preference) made be converted to Non-Par value of the same class.All Share Premium is simply also converted at same time,as if it were part of the share value.If there is any ‘share premium’ then naturally the value of the ‘non-par ‘ will be higher than the ‘par ‘ were,if not then the values should stay the same. Provided that any share capital not fully paid up cannot be converted.(see section 78.1)how does this work? Can only all ,or also just some, be converted ,any other rules and regulations? 9

10 | P a g e A C C A 2 0 1 A c c o u n t i n g

Next question : i)

See yellow for question :My notes:The share premium account may only be used for the following purposes : i) A capitalization issue : you just take the share premium and issue shares to its’s value (or part) (how it is done /shared between other shareholders I do not know exactly) does each one get in proportion, and any fractions of full share value left /unissueable due being less than full share value just remain in premium acc? Like that? Or how.And for no-par –say you are issuing from retained earnings instead of paying dividends-can you just transfer it to stated capital and finished –to increase value of shares –or must you issue individual shares one by one, at old book value? And can you issue them at a premium?esp. for unissueable fractions of book value left over-just include it as a premium? ii) Writing off preliminary expenses : done directly against the share premium account ,see example below , and not via the income statement (I think means not via first share premium to appropriation acc. Or something??) iii) Writing off commissions paid and discount allowed on issue of shares.(if you give a discount or pay bank etc commission?????) iv) Payment of the premium over the par value of shares acquired in accordance with section 85(company may under certain circumstances aquire shares in itself) (1) New amendment to act “It is further provided that if ordinary shares are converted to redeemable preference shares, only that portion of the share premium account which arose on the issue of these ordinary shares may be applied to the provision of the redemption premium on the redemption of redeemable preference shares.” See question below: (a) How does one convert ordinary shares to redeemable pref.shares? can just afew be converted or must all at once? Must the premium paid on those exact few each time they changed hands, or just the last time they changed hands, also be converted to redeemable pref shares, or not?If you convert all ordinary to redeemable pref.,do you have to convert the share premium account too or can you choose to if you want? NOTE : see previous question for inleiding to this question before you ask it–new law they passed etc

NEXT QUESTION: see yellow below for question:

CONVERSION OF ORDINARY OR PREFERENCE SHARES HAVING A PAR VALUE TO NON PAR VALUE SHARES (NPV) STATED CAPITAL. j)

Par value of 1 class(ordinary or preference) made be converted to Non-Par value of the same class.All Share Premium is simply also converted at same time,as if it were part of the share value.If there is any ‘share premium’ then naturally the value of the ‘non-par ‘ will be higher than the ‘par ‘ were,if not then the values should stay the same. Provided that any share capital not fully paid up cannot be converted.(see section 78.1)

i)

Section 77 -effect of conversion of par value shares into no par value shares and visa-versa. (1) If a company converts its ordinary or preference shares with a par value into no par value shares, then the following must be transferred to the Stated Capital Acc. (a) The total ordinary or preference share capital amount (b) The portion of the share premium account attributable to the shares so converted where it has not been used for the write off of those items per section 76(3)

Question for all of above : how do you know what part of the share premium account has been used for what? If for preliminary expenses , does one work it out proportionally just use whats left? If whats left in share premium account is less than the amount attributable to those shares converted then what? What if shares that were recently just issued at a premium are converted but those shares ‘share issue expenses’ were written off ‘share premium account’ ?, if there is enough in share premium account do you put the full premium amount of those converted to stated capital account or only portion less the issue expenses written off? But to be fair –how will you know for very old shares and issue expenses etc and other old costs written off what to take off and what not?? 10

11 | P a g e A C C A 2 0 1 A c c o u n t i n g END OF QUESTION NEXT QUESTION: j) SECTION 78 – effect of conversion of no par to par i) All Stated capital transfers to share capital acc., none to any share premium acc. ii) Fractions arising on conversion must be rounded off and if material in value, must be transferred to a nondistributable reserve.(what is material : 0.1c ?or 0.001c,? what happens to the non-distributable reserve later,stays forever?) AND how do you do the transfer ie: name of new account,(just ‘NDR rounding off’ ?) AND if a rounding off account is able to get R1 shares out, what do you do with it? Share it out as shares?What can this account be used for to write-off eg: preliminary expenses etc?) NEXT QUESTION : k) HIPPO ltd- does share premium get used for debenture expenses? new law page 472/473 l) If the shares book value of stated capital includes fractions of cents, what do you do? i mean how do you value the shares for a transaction? Or if it is R65, 80c then can you issue more at R66,00 or not , as per the law.What about other transactions? Where would the rounding off go then? m) Sections 85—90 discuss circumstances in which a company can repurchase shares issued by it .see yellow below for the question: it. The procedures that must be followed, plus the directors’ and shareholders’ liability are discussed. A company may acquire shares issued by itself provided that n) a special resolution is passed (general approval or specific approval); and o) the acquisition is authorised by its articles. 5) A company may not pay for these shares in any way if there are reasonable grounds for believing that j) once the company has paid for these shares, it will not be able to settle its debts in the normal course of business (liquidity requirements), or k) the consolidated assets fairly valued following the payment would be less than the consolidated liabilities of the company (solvency requirements). 6) Shares acquired by a company in itself may not be acquired under this section, if after such acquisition, there would be no shares in issue other than convertible or redeemable shares. In other words, the company must have ordinary share capital. 7) If par-value shares are acquired at a premium over the par value,premium may be paid out of reserves,incl.statutory non-distributable reserves(refer section 76 –Share premium and section 98capital redemption reserve fund. 8) ( it does not say anything about reduction of capital here ie:CRRF , but it should it seems ?? ask or check up about this!!! Page 476 IFRS book)See section 98 for CRRF – ie a CRRF must be created and the same share capital that was bought back /redeemed, must go to this fund, to prevent reduction of a companies share capital( not allowed). 9) The company does not hold the voting rights and shares afterwards- it simply writes them out/cancels them so there are less shares afterwards,but the authorized share capital remains the same. 10)See example below for entries in journal. j) If a company issues 1 share for every 5 held to all shareholders out of profits – ie distributable reserves, then what happens to people who only have 1 or 2 shares(too few) , or if you have 7 or 8(odd number) k) See page 470 in IFRS book. Can you have par ordinary shares 500 of R1 and 500 of R2 issued? Can you have 500 authorised but not issued at R1 but 500 issued at R1.80? then you can issue at R1 and and you have 2 shares of different value for same class ie ordinary.?From conversion from par to no par, then transfer general reserve to stated capital, then convert back to par, scheme. ANSWER: no, you cannot have par and no par at the same time.so all authorised must also be changed back and forth at the same time. i) For the above scheme, could one also only convert half the issued shares to no par?ANSWER: no, you cannot have par and no par at the same time. ii) The “Proceeds” of new issue of shares made for the purposes of the redemption up to the nominal value of the Par-Value shares which are redeemed, or in the case of No-Par value shares, equal to the BOOK VALUE, here the “Proceeds” =premium+nominal amount as defined before : so you can use part of premium from the new issue of shares, which have been issued to pay for the redemption of redeemable pref. shares, to pay for the nominal part/the shares themselves of Redeemable Preference Shares but you cannot use part of the Nominal value of the newly issued shares to pay for the premium part of the Redeemable Pref Shares.(or can you –question????) l) NEXT QUESTION: see yellow

CONSOLIDATE SHARE CAPITAL AND REDUCE THE NUMBER OF ISSUED SHARES IN THE PROCESS. A company can decide to decrease the No. and thereby increase the value of its shares.All that happens is that the TOTAL CAPITAL remains exactly the same but for: PAR VALUE SHARES: the value of each share increases in proportion, and the number of shares issued and authorized of course decreases in proportion. NON PAR VALUE SHARES: the TOTAL VALUE remains the same but NUMBER of shares is reduced proportionally.

11

12 | P a g e A C C A 2 0 1 A c c o u n t i n g The share capital remains the same, just disclosure of share capital is different.So in notes and on balance sheet the new figures are disclosed.(sodoes one journalise this? Is there some share register where this just goes to, or also to journalise / or somewhere else as a record) m) If you change from par to no par (or visa versa but the book example says yes for no par to par), can you change the number of shares at the same time in one go or must that be a different journalisation transaction. n) For redeemable pref shares, to issue new shares to pay for the remmption, do you have to re-authorise new shares, or can you just issue shares that were authorized years before for other reasons? o) ,for RPF redeemed from distributable reserves ,(must all profit first go through books +appropriation account to become retained earnings before it can be used to write off/pay any redemption of redeemable pref shares? Can this be done in mid fin year or only from last financial stats/ fin year end profit/transfers) p) Per unisa ACN 201 Q manual pg 22 :for a capitalisation issue, where shares are issued to shareholders in proportion to their shareholding from retained earnings, The total value of share portfolio will remain the same, but the value per share will drop because more shares have been issued.The investor then , in his books(the actual shareholders books) in his “Investment Account” will increase the number of shares held and reduce their value.(why does this happen – why does the value drop? If you transferred retained earnings , and issued shares for its value , then the value should stay the same????) q) Arrear and current cumulative dividends get paid first, then preference shares then ordinary.: what is current at yellow highlight- is it in arrears or not in arrears??? r) For appropriation account- do you get a retained earnings Ledger account? Do you ever transfer from retained earnings for expenses during the year? s) If you use a ‘general reserve’ do you write it out against the expense account used immediately? This will decrease your tax deductions- ie it will mean you pay more tax, so you “pay” tax twice anything that gets written out of the general reserve ( you also loose if you write out against share premium or stated capital account s – or not?) t) To pay for 1- premium 2- nominal on redemption , if paud from profits, must it come from the after tax profits (ie Distributable reserves) or from before tax profits – ie from bank ? Must the premium be written off against disributable reserves or against retained earnings? Where is the retained earnings account- is there a ledger account for it?When do things go to that account or out of it (ie at year end appropriation –how does it work?) u) Can ordinary shares be issued after the redemption of /payment for preference shares has taken place in order to pay for them so you don’t have to transfer to CRRF, or not?,and how long after is it still allowed( past fin year end or notwhat if not all were taken up by year end etc?) v) DIRECTORS EMOLUMENTS IN NOTES: i) What can be a 3rd party which pays a pension to past directors: ie it is definitely not an independent pension fund of the same company eg independant ‘Anglo American pension fund’per example in IFRS book pg 493 – so who could a 3rd party be??? Maybe The holding company of a subsidiary for whom we are now drawing up the Fin Stats, or who else too???? w) SoCL :INCOME STATEMENT: i) What is the difference between presenting the SoCL Expenses+Income according to 1-Function or 2- Nature. ii) In unisa 201q book pg 41 : (1) In “INCOME” e=why put Profit on financial instruments (: if you have put listed and unlisted investments again a bit later anyway –why put it twice? (2) Why put {fair value adjustment –financial asset at fair value through profit or loss.} there as well, see just above (1) stuff on pg 41 unisa –now you have 3 places for financial instruments. (3) what is meaning of: yellow-fair value adjustment –financial asset at fair value through profit or loss. (4) NOTES TO INCOME statement; which type of directors remuneration notes do we do- the one in unisa or IFRS book????? Both are different??? (5) How do you amortise share issue expenses over a number of years? How do you show it as an asset?Is it N-C or current?how do you write this asset off against share premium acc.? (6) How do you divide up – in the notes- any change in the market value of 1-non-current - available for sale financial assets (ie shares !! from Non-current assets) and 2-current financial assets – shares where the market value went up or down. Also where does it go in the income statement? (7) Also – for the 2nd bottom section of income statement – what is ‘available for sale financial asssets? Is it only non-current shares as per balance sheet or is it also current shares : ie ie financial assets like those for speculation/trading (8) In the note: unisa book pg 41- why does it say; in notes to income stat: for : Income from financial assets- 1listed investments:financial asset at fair value through profit & loss 2- unlisted investment s: available for sale financial assets.? See yellow – this doe s not make sense- either of these yellow could be listed or unlisted – any of the 2. So what is the sense in this??quite some confusion!!! x) STATEMENT OF CHANGES IN EQUITY: i) For changes in accounting policy- do you do a new line for each change.?or all in one line only.Must it be on first line of the statement or on any line? Must one do a ‘restate balances’ line below it or not? ii) You seem to have to do a “Revaluation Reserve” column in statement of change in equities, for any asset revaluations done. (Must you or is it optional?) y) BALANCE SHEET z) Does share premium get added to “ share capital “ or to “ other components of equity”? in the balance sheet? aa) IN NOTES TO BALANCE SHEET: Current Financial Assets 1. Financial Asset at Fair Value through Profit & Loss UNLISTED INVESTMENTS 12

13 | P a g e A C C A 2 0 1 A c c o u n t i n g LISTED INVESTMENTS 10000 Ordinary Shares in BCD(ltd) at R2 (cost 20000) 40000 (you seem to only put name i) ii) iii) iv) v) vi) vii)

.

for listed companies , not unlisted as done in UNISA manual pg 67?)

Do you put the cost value per share next to number of shares , [eg 200 of R0.50 each (cost 100) 4000 ]and the market value as the main value?as in example above ? then also cost in brackets as well? Why this confusion – in unisa acn 201q pg 75 why not actual for ‘R20 each (cost 100) Where does share premium go in the balance sheet? – this year just own line for share permiunm Where does share premium go in the notes? Intellectual property & investment property- do you do separate breakdowns or all in 1 Dividends payable- to own line or to trage & other payables? –fakiri says own line for this year At what price are shares shown in : subsidiary 2- balance sheet -3-listed / unlisted: and what do you write for ‘ 474 ordinary shares of R100 (cost 2937) 27890 : so what is the R100 – at cost less/incl. share premium or at market value , and what is the 2397 – incl or excl share premium?? FOR CURRENT LOANS TO SUBSIDIARIES, do you put it as other financial assets or as subsidiary loans or as what in the current section

GROUP COMPANIES:

1. Find out about which part of voting rights/ shares / etc etc gets to control a company see below. Definition :Parent : must possess the majority of voting rights OR of the “voting equity shares-ie:Ordinary Shares (Note-NOT PREF.SHARES ,see below)-”. So if any share (incl. ordinary shares) does not have all its voting rights, then only the voting rights counts toward if it is a parent or not, the voting potion of shares is what counts , not just the percentage held of all ordinary shares- Has the right to control composition of the board of directors, holds o 2. 1-must a subsidiary present GAFS to the AGM?or only the parent(repair your notes at ‘bookmark 1’) 2-how does the below work: see ii,results misleading( a-what does misleading and prejudicial mean, is it your competitors find out your stuff or whatand … b-do you just never prepare any? Or later or only for registrar etc? what ?) + iii operations different( ask same questions as for ii) –and for i-must they be prepared later anyway if no time left etc. When are group statements not required/drafted? a. Group statements need not deal with a subsidiary if the directors are of the opinion that: i. Impractical or no real use to members( eg insignificant sums) or if the cost or delay would be out of proportion to the usefulness to members. ii. Results would be misleading or prejudicial to the affairs of the parent or other subsidiary. Permission of the Registrar is required in cases 2+3 iii. Operations of the parent and subsidiaries are so different that they could not be treated as a single enterprise. Permission of the Registrar is required in cases 2+3 b. Group AFS are not required when the Parent is itself a wholly owned subsidiary of another company. 3. Do not understand any of the below provisions properly.

GENERAL PROVISIONS 1. 2.

GAFS should be a fair reflection of the state of affairs of the parent and its subsidiaries at the accounting date. Profits losses that have arisen as a result of transactions within the group, where such profits/losses have not been realized in respect of persons outside the group,should be eliminated. 3. The provisions of the Companies Act 1973 must be complied with. 4. All intercompany balances must be eliminated by determining the total assets and liabilities of the group. 5. Dividends declared by a subsidiary out of pre-aquisition profits do not form part of the parents profits that are available for distribution. 6. Elimination of the carrying amount of the parents investment in the subsidiary. 4. In which companies books does the goodwill get written off –or is it added?- subsidiary or parents? Does one reverse these journal entries in the new year ? or how can you do the same entry every year- it will add up.ALSO : no 2 : ask about retained earnings below see yellow. 5. When does the goodwill in the parents books get originally entered in N_C assets?On purchase of the original shares or when? Does it get written into the books and out of again every year-because you do the same journal entry each year!? Is it not when the purchase takes place ? how does this work? STEP (2) JOURNAL ENTRY DR CR Share capital of B.Ltd (Ordinary shares of R1 ea) 50,000 Retained Earnings (B.Ltd) 40,000 Goodwill ?????????????????????? 10,000 Investment in B Ltd 100,000 Elimination of shareholders equity of B.Ltd at acquisition NOTE: 1-Retained Earnings: you only eliminate the retained earnings from before acquisition, not from after acquisition.(I think –make sure?????) the before part is in the assets + goodwill you paid for (asset swap for cash)so it is written out, but the after part ???????- re –do update these notes after you ask about this : pg 124!!!!!) 2- GOODWILL: this is written ??into or out of ?? (subsidiary or parent ) in order to what??? Update this in own notes after asked: pg124 6. For journal entries- are they done in both enitites books, so as if 1 journal entry is made in both books to join the two companies into 1- so it is like 1 journal entry. 13

14 | P a g e A C C A 2 0 1 A c c o u n t i n g 7. Ask about yellow below- to work out % shareholding- you leave out pref.shares, and include ordinary shares, but only the voting part of each one or what? STEP (1) Determine the percentage interest in each subsidiary: Investment in Subsidiary(Ltd) Total Ordinary Shares of Subsidiary

=

eg 100 000 shares div. by :eg 100 000 shares

X 100 1 =100% : therefore wholly owned

NOTE: 1) interest in subsidiary is determined by the amount of shares held NOT in Rands Value- You must use 100000 shares and NOT EVER R145000 to determine this percentage. 2) the shares you use to work this out are ONLY ordinary shares(with a vote or per part of a vote-is it 0.5 % of a vote = 1 share or o.5 share even if same value??ask-, or something like that – not sure), never preference shares. 8. Journal Entry (for non controlling interest in a group statement) is: all Subsidiaries Share Capital & Retained Earnings get written out- and then just the non- controlling interest gets written in as a CR to balance this all out in a separate line.(is this non-controlling interest a ledger heading? How does it go in the ledger.? Pg 125 own notes update 9. Can you put 3 dr journal entries above 3 cr journal entries , so 6, + only 1 narration, for eliminate inter-company balances ie: a loan,debenture+dividend??? 10. By when must a company declare its dividend-year end, and then in retained earnings c/d from the appropriation account –we usually have to write 1 Jan or 1 Mar for the date, but if dividends are only declared 1 week later what do we write then?- still 1 jan for 31 dec? and what about if we only finish 3 weeks into the new year with the end of year calc. in this ledger account- what date do we put for this thing then.? What about interim dividends: how many times and by when must the decision be taken and how do you do the ledger entry?(cd / b/d etc) 11. SEE PAGE 78 OF UNISA GUIDE FOR GREEN HIGHLIGHTER ETC.Where do all the other journal entries go? What account does each one pertain to and in whose books –of parent or subsidiary-is each one- so also what type of account is each one? An expense or income/asset /liability etc?How EXACTLY does each one work?AS FIOLLOWS PER ITEM IN JOURNALS: i. Eliminate shareholders equity at acquisition: 1. Retained Earnings: you only eliminate the retained earnings from before acquisition, not from after acquisition.(I think –make sure?????) the before part is in the assets + goodwill you paid for (asset swap for cash)so it is written out, but the after part must come from somewhere and so balance out with equity+liabilities section in group statement by being shown as +retained earnings???????- re –do update these notes after you ask about this!!!!!) 2. Goodwill: update from questions after ask- this is written ??into or out of ?? (subsidiary or parent ) in order to what??? Update this in own notes after asked: pg124 When does the goodwill in the parents books get originally entered in N_C assets?On purchase of the original shares or when? Does it get written into the books and out of again every yearbecause you do the same journal entry each year!? Is it not when the purchase takes place ? how does this work? 3. Non-Controlling interest: is written out of where? Into where? 4. Out where /into where do all the rest go? ii. Recording non-contr. Interest in profit after tax: does the dr (SCI) write it out of the profit for the year(parents–group) and the cr(SFP) write it out of ret.earnings? iii. Eliminate intercompany dividend and record non-control interest in dividend. 1. Are you moving the total dividend out from subsidiary across to parent(-cause now it must look like all dividends come from the parent, not subsidiary who is now a part of the parent,) and writing out div. rec. by parent( so it becomes just a part of the total bank balance-as if it was just transferred to the bank of parent, not ‘paid’) and writing ..??to where does the Non-Cntr. Get this dividend as a dr??? 12. LOANS/DEBENTURES: where do you eliminate any interest paid out already on loans or debentures intercompany. 13. What STCHEQ reserves or CRRF or revaluation reserves or share premium columns from subsidiary ever appear in the parents side at ‘at’ date in stcheq.And does share premium, or crrf, of reval.reserves from ‘since’ ever go on parents side in their own columns?which ones would never ? 14. If parent owns any pref shares in subsidiary: does this ever go in own column in stcheq on parents side for ‘at’ OR for ‘since’ 15. Revaluations: see pg 91 unisa202r for first type-where assets revalued merely for determining purchase price-without a journal entry being made in subsidiaries books- then how do you do ConsSFP the PPE- add reval or not?and analysis of equity?- first add entry at ‘at’ date, then subtract/revalue it at ‘since’ date? Or just mention nothing at all-?? How 1) Ask about yellow below: a) Journal entry 6:Eliminate profit/loss in closing inventory.: you take out the profit left over in closing inventory of buyer(inventory is a dr so you cr it) and take out profit from the sales of the seller by (Take Note!:) ADDING it to ‘Cost of Sales of seller’ (cost of sales is a dr so you dr it) instead of subtracting it from sales of seller because otherwise you could not do a ‘contra type journal entry’ to balance because you are trying to do 1 journal entry for the books of 2 companies and this is the only way it will work properly(I think-check up on this) b) Journal entry7:Eliminate profit/loss in opening inventory.: you take out the profit in OPENING INVENTORY so that when one basicly goes into this current year from previous year, you get rid of any profit left over in stock from last year which is a loose end , since sales&cost of sales from last year never show up anywhere in this years statements, only retained earnings from last year still includes this profit left in inventory because you use the books of subsidiary-where it is still in- to compile this years cons.fin.stats,not the cons.fin.stats. of last year-where it[inventory profit] was taken out-)So you take it out of last years retained earnings of SELLER (this years opening ret.earnings) by dr it ,to take it out 14

15 | P a g e A C C A 2 0 1 A c c o u n t i n g there (because retained earnings is a cr so you dr it to take it out) and you take it out of the inventory of ‘BUYER’ by (Take note!) writing it out of the ‘SELLERS’ Cost of Sales (for some weird reason-don’t know-must ask!) 2) Ask yellow below: i) StChEq: (re-do-not done properly no time!) (1) Parents Beginning of year ret. Earnings: (2) Parents Tot. Comp.Income for Year: (3) Non-Controlling interest begin year balance: (a) Parent to Subsidiary Sales: you do it normal, as if there was no issue with stock/sales etc. (b) Subsidiary to Parent sales: for some weird reason, you MUST subtract the profit left in the parents [closing-opening] inventory from the minority’s retained earnings at As well as doing the same for the parent of course. (4) Non-Controlling interest Tot.Comp. Income for Year. (a) In the same way as for retained earnings above, for some weird reason, you also MUST subtract the profit left in the parents [closing-opening] inventory from the minority’s share of the profit for the year, as well as doing the same for the parent of course. 3) Ask yellow below : a) ANALYSIS OF EQUITY: i) For parent to subsidiary sales: NO profit/loss/stock.etc. deductions/calculations are done on the Analysis of Shareholders Equity, all are ONLY EVER all done separately in other calculations/workings. NO changes ever show here, everything is done as if no intergroup profit/loss/stock changes need to be made at all. This is so the minority’s share of profit loss is properly calc. without any deductions etc. ii) For Subsidiary to Parent sales: because the subsidiary sold the items, the adjustments need to be shown on the analysis of equity.so: (1) Retained earnings: you subtract answer of profit left (eg *25/125) in :(closing-opening) inventory of PARENT(not subsidiary) from everybody’s TOTAL RETAINED EARNINGS,not just the parents, so also minority share as well as parents share get reduced(why I cannot understand!- surely the dividends of minority NEVER get affected by whats left in parents inventory! Surely they must get their full profit!And then, if the inventory is left in subsidiaries stock for a visa versa transaction, why is the same not done then?because it was an asset swap by subsidiary or what?why does minority suffer for parents not having sold stock(they could take up the production of the subsidiary and hoard it, or sell it at a loss, then minority sits without dividends for a few years! Or what) (2) Profit for current year: you reduce the TOTAL by subtracting answer of profit (eg *25/125) left in :(closingopening) inventory of PARENT (not subsidiary) from everybody’s TOTAL, not just parents BUT also subsidiaries, so also minority share as well as parents share get reduced(why I cannot understand!-see question in (i) above.) 4) What does “ consider the carrying amounts of the assets of A and B to be equal to their fair value at acquisition” – esp. when the same question says the land was considered undervalued by 50000 ?see exam questions! 5) See yellow below Journal entry 9: Elimination of depreciation associated with sale of asset. A sells to B: ‘Accumulated Depreciation’ (of Buyer B) 1000 ‘Depreciation’ (of ?sellerA? ) Isn’t it of buyer? 500 Booksays seller (only if sold in previous fin.years.) Retained Earnings’ (of ?sellerA?) Isn’t it of buyer 500 Book says seller Elimination of depreciation associated with the sale of the Pg 111 unisa book Pg 111 unisa book. asset. 1. Why does the revaluation reserve of subsidiary for any part from after acquisition till current, not show in the parents SFI under its own heading , or at all, but for the minority interest it does show? See page 123 in unisa book.ANSWER: Wrong- it does show!!!!you must show it!!! 2. For a PPE profit transaction : what happens if one company still owes the other company for this intergroup sale- do you have to reduce ‘Trade& Other receivables” in order to eliminate this ‘debt’ ?? whay was it not done in Lucia & Marius exercise?(put answer in notes: as a special remember) 3. 1-if you want to revalue property,which ledger account do you put this revaluation in: like accumulated depression or ‘accumulated (upward) revaluations’ etc or what

Chapter 3 BASIC EARNINGS PER SHARE: 1. WHAT IS THE YELLOW BELOW?? a. Basic earnings per share are calculated as follows:

i. PROFIT 1. AFTER a. Tax b. Preference share dividends –the fixed portion incl. any from cumulative pref. shares. c. ????Attributable profit after tax of associates and non-consolidated subsidiaries which has been accounted for by the equity method.????

2. What is yellow : i. BASIC EARNINGS: Definition: Basic Earnings are the profit or loss for the period attributable

to ordinary shareholders after deducting preference dividends. All items of income and expense that are recognised in a period, including tax expense and {???non-controlling

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3.

4.

5. 6.

7.

interests???} are included in the determination of the profit or loss for the period. The amount of preference dividends that is deducted from the profit for the period is as follows: FOR THE CALCULATION OF EPS AND DIVIDENDS FROM SHARES WHICH WERE ISSUED FOR FREE : HOW DOES THE FOLLOWING BELOW WORK?SEE YELLOW BELOW: a. 1-Basic Earnings: b. The only thing that could have any effect on the calc. of Basic Earnings in these cases is if Pref.Shares were issued as a Bonus Issue or Capitalisation issue and the dividends paid to them must be subtracted from Basic Earnings somehow. IT DOES NOT SAY IN THE BOOK BUT I THINK JUST TREAT THEM AND THEIR DIVIDENDS AS IF PAID FROM BEGINNING OF ANY YEAR DEALT WITH-exactly the same as in (2-) below. c. 2-Weighted Average number of Shares. d. You Treat the Extra shares which were issued for free by the Capitalisation issue as if they were issued at the beginning of the year of the Financial stats. or if there is a Comparative Year shown in the fin.stats. then as if they were issued at beginning of that year. The logic behind this is that the equity of the shares issued was part of reserves anyway at the time so it must then get shown e. , if the 2 years are to be comparable.(but what happens if the reserves only appeared halfway through this period?- so they were NOT there at the beginning of the years??) SEE YELLOW FOR QUESTION :If a company raises capital by means of a rights issue and the issue price is less than the fair value of the company's shares when issued, a bonus element arises. a. 1-BASIC EARNINGS : b. Done as per usual-nothing special (remember to deduct Pref.Dividends) ????Pref. Dividends is probabley calculated in the same way as done below for ordinary shares if the Pref.Dividends were also “Issued at less than fair value”??? Do you have to disclose every type of shares EPS and dividends separately: incl cumulative pref shares &non-cumulative pref shares & participating pref shares of each of those 2 types & any other ones? Which can you lump together and which must go separate. As to the fair value of shares when working out the theoretical ex-rights value of shares for a ‘rights issue at below fair value’-see yellow below for question: a. Note: Fair Value means what the management judge to be what the shares are worth at the time, not the Current Book Value of the shares or also not the current plain market value- just the Fair Value in managements estimation at the time.-(not quite sure- must ask) See yellow below- this is if you issued shares in payment for other shares at a later/before date than you gat theirs – so matching concept does not work out lekker BASIC EARNINGS : To calc. the Preference Dividend which must be subtracted from the Net Profit to get “Basic Earnings” you can do any of the following : To accomplish the matching of cost with profit, the preference dividend should be provided for by one of following methods : 1. Use The Date To Calculate Pref. Dividends. as if it were from the time the shares in the other company become yours (actually the time you can include profits from their shares in your SCI), so even if you issued your own Pref. shares in return 2 months later/before and in reality only pay dividends from then, you ignore this and ‘use false figures’ and make as if you pay dividends from date you ‘acquired’ the interest.(??? where do you disclose this fact that you used fanciful figures)???

8. For shares issued at less than fair value – for the calc. of basic earniongs: can pref.shares be issued like this and how does that work? a. BASIC EARNINGS : b. Done as per usual-nothing special (remember to deduct Pref.Dividends) ????Pref. Dividends is probabley calculated in the same way as done below for ordinary shares if the Pref.Dividends were also “Issued at less than fair value”??? 9. what does ” Fair Value “ mean ? what the management judge to be what the shares are worth at the time, not the Current Book Value of the shares or also not the current plain market value- just the Fair Value in managements estimation at the time.-(not quite sure- must ask) 10. -(2)If there are any multiple issues in the Current financial year before the “rights at less than fair value issue” then each period in between each issue is simply treated alone using the same formula and above and then just weighted and added together with the others to get the final answer.i think??? NOT SURE??? 11. For a rights issue at less than fair value : for WEIGHTED AVERAGE NUMBER OF SHARES: a. (a)Here you must backdate any rights issues as if it happened at the beginning of the year.So you must treat it as if it happened at beginning of year. If the rights issue was in the middle of the year and there were other issues before that that had to be weighted by month, then you just work down the list in order of dates (???–I don’t think you weight a normal issue before the rights issue as out of say 3/6 months if the rights issue after it was half way through the year and it happened in the 3rd month- I think you just weight it as normal- add it up to the previous ones and work from there!???_) 12. For dividends : do you disclose the adjusted or unadjusted for current year and for Comparative years. In unisa book pg 268 they disclose both, or adjusted on page 3-4 pages before in previous section or 16

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unadjusted in exercises – what is supposed to be done? So for the current year I believe you only EVER disclose the actual dividends( see unisa book 268 the write up on dividedns says this) and for the last year only ever disclose the weighted - in the case of – no consideration for a share equity change- thing .What are the hard and fast rules all over here? 13.

CURRENT PLACE OF LAST QUESTION.

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TERMS: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14)

15) 16) 17)

REDEEM : -1-to redeem or pay creditors / or -2- redeem a bond which is collect the payment. DISTRIBUTE : TO DISTRIBUTE profit /loss between the partners in a business etc. PECUNIARY (INTEREST) : asset/monetary/patrimonial/ type of interest in a matter: owes him money , or it is his car ,etc. REMUNERATION ?: salary / wages for work(?salary or payment to contractor or if you buy something? CONSIDERATION ?: like a payment ???? RE-IMBURSEMENT: pay you back, eg: for returned goods. AMORTISE :??? SoFP – Statement of Financial position SoCI- Statement of Comprehensive Income ‘Allocated’ : you allocate to an account, not put, eg ‘allocate’ excess of the par value of shares to the share premium account. “Nominal amount” : if shares are issued at a premium, then the premium is called the share premium and the other part is called the nominal part –ie the actual share face value. “That will be in order” , Regards xyz , instead of ‘cool bra, cheers’ The 3 “Business Areas” of an enterprise: (this is the common term for the 3 cash flow statement headings ) a) Operating activities b) Investment activities c) Finance Activities. Subsidiary Ledger: the creditors&debtors ledgers etc. or other ledgers which are ‘subsidiary’ to the Main General Ledger. SHARES ARE CONSIDERED OUTSTANDING’ : WHAT DOES this phrase mean. RANK :The date from which shares “RANK” : means the date from which they are included in the calculations for dividends or pref.dividedns etc ie ‘effective date’ from which shares ‘count’.

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TRICKS: PARTNERSHIPS: 1.

2. 3. 4. 5. 6.

If new members contribution toward goodwill is indicated , allways work out the total goodwill befor new member from this amount , even if goodwill is stated in the balance sheet( it could be a trick quetion where ther should be a revaluation before new admittal , but you only see it from this new member indication. METHOD: Then total goodwill must be 15/15 of 3/15 (if 3/15 is new members ratio) etc etc and this 15/15 MUST be in the books and already distributed before the new member is admitted. Bal sheet changes : only on date of new members or fin year end . Write out Goodwill + General reserve Current accounts of partners before new/old members ALLWAYS. Profit sharing allways changes partners capital account ratios. If liquidation expenses are dated april ,do not take of this month already when you do the liquidation schedule , only do next month as dated!!!! For Gradual liquidation: you apportion final Deficit in Liquidation account, NOT in Distribution Account!

COMPANIES. 1) IF shares are issued at a discount ,A separate “DISCOUNT ON ISSUE OF SHARES” expense ACCOUNT is used for all discount,but shares are issued at old/ par value into Share Account, so normally, as if no discount.(plus court allow,+1 year since first issue,+special resolution specify discount rate etc)

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EXAM TIPS: GENERAL NOTE:IF INVENTORIES CURRENT on stock take do not match the amount in the "inventory account"(calculated amount) it is called a "deficit on inventory account" and is put as expense in the income statement –ie goods stolen/lost etc.!

PARTNERSHIPS 1. 2. 3. 4.

Check for boxing/splitting of Property, Plant ,Equip into Property separate+ Plant separate+ Equip Check which category loans to/or from PARTNERS are in balance sheet to deduce if to or from, AND ask lecturer which it is in case he did mean differently even if it is in the correct category of Bal Sheet for what you thought it was(to or from) Check for accumulated depreciation before you do revaluations on the n-c assets.!

STATEMENT OF CHANGES IN EQUITY AND SHARE TRANSACTIONS: Note:Rem: in exam watch out for the pref. shares given at date of current balance sheet, but the other shares at date of last balance sheet.So all this years share transactions on Pref. shares are to be subtracted from value given on balance sheet to get opening balance for this year on your Statement of changes in Equity.

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Heading : Prescribed Books for second year:

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CHAPTER 3 : PARTNERSHIP ACCOUNTS Temporary & Permanent Partnerships: 1234-

Temporary partnership known as a "Consortium" or Joint Ventures" - eg for one big construction job 2 companies cooperate or Doctors/Lawyers etc. Separate set of books opened for a temporary or permanent partnership ,but often all transactions are recorded separately in each companies own books as well. Permanent partnership terminates on 1- death of a partner 2- legal process eg: insolvency of a partner or /partnership / 3one partner decides to terminate partnership(could be liable for breach) 4-admission of new member 5- one partner retires MUST RESEARCH PARTNERSHIP AGREEMENTS ETC,ALSO basic charateristics of partnerships etc.

CERTAIN ACCOUNTING ASPECTS SPECIAL FOR PARTNERSHIP: 123456-

Formation of partnership Distr. Of profits/losses Preparation fin. Stats. Dissolution of partnership Conversion into a private company Takeover of , by an existing company.

characteristics of a partnership as a form of enterprise. 1) 2) 3) 4) 5) 6) 7)

Ease of formation/dissolution. Relative flexability (in capital structure, material policy etc. Personal nature.(public thinks close link between partnership&management) Personal liability,not a legal or tax entity. Lack of continuity.(dissolves on new/resign etc) Limitation on transfer of ownership.( permission of others needed to transfer rights in a partnership) Limited abitity to raise capital.(about the same difficulty as private companies esp. because banks normally require directors&shareholders to guarantee all loans. ,{not public companies})

Legal Aspects of a Partnership: 1) ??what do you tell crditors when you merge 2 partnership with liabilities?Nothing or what- now 4 people each owe less ,before it was 2 people now you must fight 4,also it may weaken firm etc??? 2) Definition of Partnership: Legal relationship created by : (1) Must be a Valid Agreement between 2 or more persons (2) where each contributes to the legal enterprise(can be labour or assets,expertise,goods,cash) (3) for purpose of making a profit, (4) to the mutual benefit of all partners. 3) RSA law : Min = 2 ; Max = 20 with a few exceptional types where more than 20 are allowed. 4) If not stipulated otherwise in contract, partners have equal rights in the management of enterprise , as per common law. 5) If Not stipulated in agreement, profit ratio is = capital ratio , as per common law. 6) If Not stipulated in agreement, partners ownership of entity is in profit sharing ratio, per common law. 7) No partner has right to salary or interest on capital unless in contract. 8) Secured loans from partner to entity , take precedence over repayment of capital on dissolution, but if not secured it does not-then it carries same weight as any other creditor. 9) Agreement can be in writing / tacit (by conduct) / oral. 10) Partners are jointly and severally responsible for obligations and rights of partnership. 11) Since RSA has no legistation specificly aimed at controlling partnerships, The principles of common law are applied to settle disputes.(In SA company law no of members and other matters are subscribed) 12) A partnership is not a legal entity ,claims must be instituted against partners themselves(certain special instances may be directly against partnership), BUT partners must sue others in their joint capacity as partners.It is also not a tax entity. 13) If partner commits crime, others are guilty unless they can prove their innocence or inability to prevent crime. 14) Duty of utmost good faith toward each other, and manage intersts as if it were his own.Not allowed to allow interests to conflict with interests of partnership, or enrich himself at expense of partnership. 15) Any partner is allowed to bind other partners in matters pertaining to business of partnership,(unless outside scope & of partnership ), but even if authority of partner is limited by agreement, if 3rd party does not know about limits on authority, he binds partnership by signing any contract ,unless he acted ultra-vires. 16) Dissolution Of Partnerships. a) Following reasons allowed: i) Voluntary actions by partners : incl. new admission, retire, or mutual agreement. ii) Unilateral action of one partner: eg unprofitable,/irreconcilable differences, may him render liable for breach of contract though. 22

23 | P a g e A C C A 2 0 1 A c c o u n t i n g iii) Legal Process : death of partner,insolvency of 1 partner or whole partnership,if > 20 members , etc. b) Dissolved by: oral or written notice to other partners.

Partnership Agreement: Important matters to be included in it: 1) Agreement preferably in writing ,but can be oral , or tacit. 2) Where agreement is silent on any specific aspects ,common law principles apply. 3) Agreement Must Contain: i) Names of PARTIES. ii) Purpose nature and scope of partnership. iii) Name of partnership. iv) Location of entity. v) Date of formation & expected duration of partnership. vi) Contribution of each partner. vii) Rights powers & duties of each partner and any restrictions thereon. viii) Decisions regarding the financial year , books and records. ix) Profit / Loss ratio & Provisions for recognition of differences in capital.(eg: interest on capital) & remuneration for services(salary ,bonus etc) x) Provisions regarding withdrawals by partners. xi) Provisions on retirement, death ,admission of new , dissolution of partnership. xii) Procedures for settling any disputes between partners. xiii) Provisions regarding life insurance for partners, treatment of insurance premiums, and proceeds of policies. 4) -Note: Two methods are used to make provision for in case a partner dies/retires and the partnership can ill afford to pay out his share.(usually!) (sell all property etc.!) 1) The retiring partners interest is transferred to a loan account – (in the articles/ partnership agreement :it must be stated how /time period &interest rate( preferably low / 0)–safe!- this loan to be repaid ie: so executors of will cannot force it's immediate payment in court /argument etc.) 5) The Lives of the partners are insured at the time of the formation of the partnership 6) Also whether assets& goodwill should be revaluated on death/retirement(common practice= yes) 7) The profit sharing ratio between the partners. 8) Participation in management 9) Salaries,interest on capital & drawings 10) If a case of Negative balance on 'current account' arises : rules+interest rates. 11) Specify whether assets&goodwill should be revaluated each time a partner joins/leaves or on dissolution or merger of partnership. 12) A Guarantee of minimum profit amount may be extended to any partner. 13) Losses may be shared in a different ratio to profits. 14) Private utilisation / use of partnership assets.

RECORDING OWNERS EQUITY. CAPITAL & CURRENT ACCOUNT 72. 3. 4. 5.

Distiction is made between capital contributions and retained earnings of partners: CAPITAL ACCOUNT = 1 each for relatively permanent investment of each partner CURRENT ACCOUNT = 1 FOR EACH PARTNER for all current transactions of each ,incl. share of profit/loss,withdrawals,interest on capital,interest on withdrawals,goods taken for personal use. DRAWINGS/WITHDRAWALS ACCOUNT = A SEPARATE ACCOUNT = is sometimes additionally kept for each partner ,and transferred to each partners .current accounts at year end. Current accounts are not allways trasferred to capital account at year end – it can be that capital accounts are only changed when partnership (is legally terminated) at new member entry/retirement/death /insovency /dissolution etc.

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VALUATION OF CONTRIBUTIONS MADE BY PARTNERS. 1234567-

89-

NON-CURRENT ASSETS : at the values they were taken over –all partners must agree value is fair & reasonable as agreed upon- regardless of depreciation etc.Future depreciation starts again at 0-afresh- old books depreciation not continued. ALL LAND OR VEHICLES : transferred must then be registered in the names of both partners –since a partnership is not a legal entity. DEBTORS : may be transferrred ,show at carrying value,at same time a "provision for doubtful debts" is also included & deducted from capitalisation amount of same partner. CREDITORS: may be transferred – but reduces capital amount of the partner it came from. "GOODWILL"- may be added /changed. CERTAIN RIGHTS& CONTRACTS & EVEN' EXPERTISE ' : may be transferred to a partnership & be valuated. If assets are brought in by a new member , but less than the actual value is credited to new partner as his capital, then balance must be credited to other partners in their profit ratio.But if new debtors brought in as capital by new entrant are to be credited at less than their value to the new entrant – then most likely it means the balance must be transferred to a "provision for doubtful debts" account to balance the value of the new debtors in the debtors ledger. If a new entrants skills or expertise cause him to be given a share of capital, or if a business entity he brings into the partnership as capital is given a value higher than its book value , then the extra portion /value above properly valued asset values contributed, should be capitalised as an asset called "GOODWILL" in the books, to balance . Journalisiation of Partner A&B ' s contribution to a partnership at agreed valuations:

LOANS & ADVANCES 1-

Any loan by any partner to partnership –normally with interest -is regarded as a normal creditor/loan -no special current or capital or other accounts used here-.secured loads have precedence over repayment of the capital at dissolution, but unsecured loans have same weight as any other creditor.

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Determination & Distribution of Partnership Profits. DISTRTIBUTION OF PROFIT FOR PERIOD: 12-

Partnership agreement should stipulate how profits divided/ratio COMMON LAW principles apply:In ABSENCE of fixed agreement: a. All Partners Equal share of Profit & contribute equally to Loss. b. Partners entitled to Interest on capital or salaries,before profit for period determined. c. Somewhere Somehow if no profit/loss sharing ratio is given in agreement,then they are shared according to the ratio of partners capital accounts.(other text book says this)

1234-

Normal profit calc. in income stat. then,divided at end of. Compensation for Capital = takes form of interest Compensation for Services= normally form of salary. Methods used to Distribute profits.

SPECIFIED(FIXED )RATIOS : EG. 60/40 % DUE TO EXPERIENCE OF ONE PARTNER RELATIVE CAPITAL INVESTMENTS OF PARTNERS :.ONE MUST STIPULATE IF CAPITAL RATIO AT BEGINNING, OR END, OR AVERAGE FOR YEAR :DUE TO FLUCTUATIONS IN CAPITAL DURING THE YEAR.

Eg:

SERVICE CONTRIBUTIONS BY PARTNERS: SPECIFIED RATIOS

PARTNERS SALARIES: 1) Problem with Salaries : First :salary must be legally viewed as part of profits,since owner cannot pay salary to himself.Secondly :If partners salary is treated normally in income statement with other salaries,it presents a more accurate view of profit/loss & expenses.So More correct METHOD ends up being treating salaries of partners as normal salaries- this is also method commonly used in practice. 2) Can be yearly allocation or mnthly- but note :withdrawals NOT =salaries. 3) Salaries MUST pay to partner even if Profit insufficient: the resulting loss divided equally between.

Eg:

BONUS TO MANAGING PARTNER: 1-

Some agreements provide for a bonus of xx% of profit before distribution/division of rest of profits to go to managing partner.

INTEREST ON CAPITAL: PG 527 1)If one partner has larger capital contribution than other , the interest on capital could first get brought into account ,remaining profit/loss only apportioned thereafter. 2)BUT it must be decided:To either use opening or closing or average balance of capital account to calculate.

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26 | P a g e A C C A 2 0 1 A c c o u n t i n g 3)If Loss that year :still work out interest before loss apportionment ,and add it to general loss/ and each partners capital – it should decrease the 'lower capitals' share of loss and increase the others( the higher capital should have a 'ratio increase' from this ,against other, by the way!) 4)Not operating expense- a distribution of available profit 5)(BUT interest on a loan from a partner is an expense like normal creditor) Example 1 :for a profit example:

Example 2:for a loss example(NOTE!:)

DRAWINGS: All drawings can either come out of drawings account- then closed off to current accounts at end year,or can go directly to current account. Note : eg special type of drawings- If drawings are stock/-they goods are allways charged at the purchase price and are NOT credited to 'sales' or 'expenses' BUT are credited to "purchases" account to reduce it directly.( the same principle basicly would apply for a perpertual OR periodic inventory system)

1-

Drawings that are closed off to current account at end year BUT DO NOT go to Apportionment Account at year end at all – only current account!NOTE.

ADJUSTMENTS & CORRECTIONS IN RESPECT OF PREVIOUS FIN PERIODS. 11-

Common to find mistakes made in previous Fin Period must be repaired in Current Period.eg: b. Types eg:erronoeous calc:Depreciation, inventory valuation,omissions of income/expenses,or some non-compliance with stipulations of partnership agreement. Important:One must determine whether correction is; (Mostly it is -'Materiality Consideration'- of the matter which is determining factor here) a. Treated as determination of current years profit 26

27 | P a g e A C C A 2 0 1 A c c o u n t i n g b. Treated as adjustment of partners equity at:beginning of current fin. Year.

Financial Statements of Partnerships: 1-

12-

Income Statement: One must break down all partners earnings ,then divide profit : a. At end of income statement after "OPERATING EXPENSES" is shown,in a long list FIRST the "before profit deductions: ie salaries of partners, bonuses of, interest on capital etc,THEN total of "Profit available for apportionment ".THEN division between partners. Balance Sheet: Stays the same : Just write "Equity" and one total of all partners equity(add capital +current acc's), or you can put 'Current acc's'. and Capital acc's. separate under equity and just put total of equity below or next to heading'equity' St. of Ch. In Equity. :see example below

Method as per one textbook:

Alternative Method of doing Balance Sheet.:

For: ULIM lecturer type Inc.Stat. :do as follows Below Net Profit for year:carry on as follows: Less:Annual Salaries : For 'A' R5873.12 Annual Salaries : For 'B' R5235.12 Interest on Capital: For 'A' R127.12 Interest on Capital: For 'B' R186.12 Interest on Current Account For 'A' R5235.12 Interest on Current Account For 'B' R53865.12 Add: Interest on Drawings : "A" R7366.34 Interest on Drawings : "B" R3867.34 Profit Avaiable for Distribution: Rxxxxxxx Capital "A" R0.5 of above Capital "B" R0.5 of above R -nil-

Changes in Composition of the partnership: NOTE: if a new member joins /or leaves etc. it does mean that LEGALLY partnership is dissolved but for accounting practice we do not restart books each time, the entries just continue. :The concept dissolution 27

28 | P a g e A C C A 2 0 1 A c c o u n t i n g i) Partnerships are dissolved from a legal point of view as a result of the following: i. Voluntary action of partners • mutual agreement by partners • changes in the membership of the partnership by agreement • end of the period for which the partnership was originally formed • completion of the purpose for which the partnership was formed. ii. Unilateral action of one partner • A partner can dissolve a partnership by unilateral notice. Under certain circumstances he may possibly be held liable by the other former partners for breach of contract. iii. Operation of law • death or insanity of a partner • insolvency of the partnership • insolvency of a partner when a partnership’s membership exceeds 20 (excluding the exceptions already mentioned) • on court order at the request of one of the partners. For example where the mutual trust and good . relationship between partners have been irrevocably damaged as a result of misconduct or gross negligence. ii) The partnership in most cases simply continues, albeit with a change in the composition of the partners. iii) Interested third parties will simply be notified of the change. iv) Current accounting practice entails treating a partner’s interest as a share in a continuing business which is transferable with the consent of the other partners. This approach is followed in most larger partnerships. v) It is :Note: definitely current customary practice to Revalue all assets&goodwill of a partnership when interests in partnership change hands.

NEW PARTNER ADDED : REVALUATION ACCOUNT. GOODWILL ACCOUNT. ETC. 12-

Admission & Retirement of partners can all take place simultanoeously. Methods of New Partner Joining a partnrship:

REVALUATION ACCOUNTS: 1) REM: Open a revaluation account – rem: any new provision for bad debts goes to revaluation acc+capital acc's ,NOT to 'Bad Debts' as CONTRA acc. 2) A revaluation acc. Works same as an equity acc-same sides – it is used so not 100’s entries to capital acc’s. 3) WHAT GOES IN REVALUATION ACC ?:anything that is revaluated only.NOT new members asset or prov bad debts or debtors or creditors. 4) REM: If debtors are adjusted on admission- the adjustment is done in the "Provision for bad debts account" NOT as 'Debtors' , in the General Journal entry.The Prov. Bad debts (debtors revaluation) is ALSO recorded in REVALUATION acc. CONTRA Prov.bad Debts.acc.(and the Reval. Acc. closed off to Capital acc. of old partners in old ratio before proceeding) 5) REM:Prov.bad debts= 'asset contra account' not an expense or income acc. so it is a CR side to 'asset contra' the (dr) asset account.Thus in reval. You put it on Dr side because your opposite entry to the reval.acc. entry is the prov.bad Debts. Entry. 6) REM: ONLY the DIFFERENCE is recorded in the ASSET account Contra REVALUATION acc – so NOT the full amount of the revaluation –and NOT write back /out the old asset amount –JUST the difference between old/new amounts is recorded+entered in both accounts. 7) The REVALUATION ACCOUNT is then CLOSED OFF to the CAPITAL Accounts of the former partners NOT the new partner, in OLD RATIO, -BEFORE new partners ratio is used . 8) IF: partners prefer the revaluations to NOT reflect in the books of new partnership after new admittal-ie to leave values of assets unchanged-, the same amounts (differences) added to each Asset & Prov.Bad.Debts accounts are then written back AFTER new admittal, First from Capital Acc. of all parnters(incl. new partner) BACK to revaluation acc again(re-open it from scratch) then close off new 28

29 | P a g e A C C A 2 0 1 A c c o u n t i n g revaluation acc. to relevant Asset acc's & Prov bad debts acc(if required), to write the amounts back OUT of the Asset& Prov.Bad.debts acc's.- Now Gone! (rem:so if they say reverse all reval. IT ALSO MEANS THE PROV.BAD.DEBTS. entries.) 1) REM: if an asset is transferred to one of the partners and his equity is just dr for the value –remembaer any profit/loss must first be divided up between the 2 before the new members come in to get their correct capital account values –also .....

GENERAL RESERVE – WHAT TO DO WITH IT 1) THE GENERAL RESERVE ( it does not show in capital acc.s –it is undistributed profit.) gets transferred to the OLD partners capital acc’s first –old ratio- then it is re-created after new partner admitted and transferred back -from /out of capital equity acc’s- of all NEW partners in NEW RATIO.

IF NOT STATED HOW MUCH OF EACH OLD PARTNERS SHARE GOES TO NEW PARTNER. 1) Take the new partners share from old partners in SAME OLD CAPITAL RATIO of old partners.eg 2/3 from 1 and 1/3 from other .NOT just 50/50!

HOW TO CALCULATE NEW PROFIT SHARING RATIOS.

REMMBER TO ADD HOW YO WORK OUT GOODWILL IF you only get the amount the new partners added –nothing else

DIRECT PURCHASE OF AN INTEREST: NOT THROUGH FIRM BUT PRIVATE TRANSACTION. (a) No entry need to be made in the asset and liability section – no cash/credit passes through books- only the capital accounts need to be adjusted. (b) Note total capital remains the same-none is contributed or subtracted from firm.,only from partners.

(c)

29

30 | P a g e A C C A 2 0 1 A c c o u n t i n g

CONTIBUTION TO ASSETS OF PARTNERSHIP: WITHOUT GOODWILL:

(d)

CONTIBUTION TO ASSETS OF PARTNERSHIP: WITH GOODWILL: (e) Either new partner must pay for goodwill in his purchase price ,or another possibility is that the new partner also brings goodwill into the partnership. In such a case the partners will have to agree to a value for it and it will be recorded and credited, together with any other assets which the new partner contributes, to his capital account.

(f) 30

31 | P a g e A C C A 2 0 1 A c c o u n t i n g

ADMISSION WITH GOODWILL ,BUT WITHOUT IT BEING SHOWN IN THE BOOKS: (g) The goodwill here is merely written into books in the old partnership ratio of old partners and then written out of books again in the new (with extra partner) ratio,effectively increasing former partners capital ratio and decreasing new partners capital ratio.

(h) (i) Revaluation Accounts Usage: One can use this method:see example here.Remember provision for bad debts can use this as a contra account instead of 'bad debts' account if a brand new provision for.. is made on entry of new partner.This is to merely ,in the middle of financial year,move the amount directly into old partners accounts,to be seen as if it had happened in last end fin year and now merely reflects in the capital balances already sort of style'.(try redo example etc. properly at later stage)

(j)

RETIREMENT OR DEATH OF A PARTNER 1234-

-Note: Two methods are used to make provision for in case a partner dies/retires and the partnership can ill afford to pay out his share.(usually!) (sell all property etc.!) The remaining partners each get amount owed to retiring partner credited to their accounts-they now owe him this part of former equity./ or to entity asset account and leftovers credited to capital acc,s. The following must be adjusted: a. Corrrection of any possible errors in accounts b. Revaluate assets & prov.bad debts & goodwill. There may be certain stipulations in part. Agreement as to clauses relating to deceased/retired partner.

SETTLE INTEREST OF RETIRING/DEAD PARTNER FROM AVAILABLE FUNDS OF PARTNERSHIP. SETTLE INTEREST OF RETIRING/DEAD PARTNER BY PARTNERS INVESTING ADDITIONAL FUNDS IN FIRM- FOR THIS. THE RETIRING PARTNERS INTEREST IS TRANSFERRED TO A LOAN ACCOUNT (a) – (in the articles/ partnership agreement :it must be stated how /time period &interest rate( preferably low / 0)–safe!- this loan to be repaid ie: so executors of will cannot force it's immediate payment in court /argument etc.)

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32 | P a g e A C C A 2 0 1 A c c o u n t i n g

(b)

THE LIVES OF THE PARTNERS ARE INSURED AT THE TIME OF THE FORMATION OF THE PARTNERSHIP . (a) THIS CAN BE TREATED IN 3 WAYS: (iii) TAKE OUT A JOINT POLICY ON LIVES OF ALL PARTNERS.proceeds to firm. (iv) Separate policies on each life –in favour of firm. (v) Each partner takes out policy on life of others-(he has an insurable interest?.) (b) ACCOUNTING POINT OF VIEW: 4 WAYS OF TREATING ACCOUNTING : (i) Less used in Practice Methods. 1. Premiums paid from partnership funds, debited to life policy accounts which are treated as assets.Policy Payouts are credited to same policy account.Surplass yielded by policy "above amount of capitalised premiums????" is credited to capital acc.s in profit share ratio. 2. Alternative method- annual adjustment of capitalised total on policy to surrender value of policy at fin.end.year.Normally amounts to a write offon balance of policy acc.Corresponding debit can go direct to profit&loss or current acc's of partners. (ii) More encountered in Practice Methods. 3. Premiums debited to income ,but not capitalised at all ?whats this?????,Payout cerited to capital acc.s in profit share ratio.This method is SUPPOSED TO BE More conservative than asset method since partners all bear share of ???????premiums since it is treated as operating expense –so 32

33 | P a g e A C C A 2 0 1 A c c o u n t i n g dissapears in profit ratio payout.-thus limits amount available for with drawal by partners.?????? (other too!!!!?)Disadvantage is fin position understated to extent of surrender value-can overcome by showing in 'notes'. 4. Where premiums borne by firm(???no 1 not or what??)not by partners,and debited against income, the surrender value of different policies must be taken into account an retirement/ new admission / profit ratio change/etc.AS is the case withy any other asset this requires approriate valuation and adjustment –for each circumstance mentioned.(??/what about year end???) (ii) Lecturers Methods: 5. Premiums go to asset account as asset.(possibly show current surrender value of policy) Payouts go to Bank Contra ??? which is Income or asset or what account? and then transfer to ????capital acc.s contr??/ ???? when does it go to beneficiaries of deceased partner? How?and profit? 6. Another method= premiums to Expenses Contra Bank | Payout to Bank C capital(when to pay beneficiaries??? How??) of each or Insurance payout account (Income acc.) –????then pay beneficiaries and profit to partners??? 7. WHY CANT YOU JUST TAKE PAYOUT STRAIGHT TO REVALUATION ACC. Contra bank, then when everything is paid the leftovers go as profits to remaining partners(BUT WHAT HAPPENS TO THE PREMIUM ACCOUNT YOU HAVE BEEN ACCRUING AS A KIND OF 'ASSET' AT IT'S 'REDEMPTION' VALUE. (how can you redeem a life policy anyway?)

Liquidation /Dissolution of a partnership: REALISATION ACCOUNTS: 1) Open a Realisation Account for the profit/loss from each sale of assets etc etc – and from here apportion these profits/losses to capital accounts of partners.: Open a "realisation/ or "dissolution" account in the ledger for the determination of the profit or loss on the realisation of the assets. The profit or loss from this realisation acc. is then transferred to the capital accounts of the partners according to the profit-sharing ratio., NOT the capital equity ratio. 2) WHAT GOES IN THE REALISATION ACCOUNT?: a) ALL non-current assets b) ALL amounts earned from disposal of these assets. c) Maybe debtors+inventory??? 33

34 | P a g e A C C A 2 0 1 A c c o u n t i n g d) Liquidation expenses Can and DO go here.!(as per lecturer) 3) EXAM : rem a) Rem: allways ask lecturer in exam –is a loan by creditor FROM him or TO him –it is abit unclear sometimes and sometimes the lecturer means a loan FROM partner to business , but it sounds / reads off the paper as if it were visa – versa. 4) GARNER VS MURRAY Rule : According to Garner vs Murray Rule: from http://basiccollegeaccounting.com

•

The loss on account of insolvency of a partner is a CAPITAL loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.

Notes: • “Capital” in this case relates to the real capital of the partners and not capital as may be standing in the books of partnership firm in the names of different partners. This distinction is especially critical when the partners are maintaining their capital accounts on fluctuation capital system. The true capitals according to this rule will be ascertained after making all adjustments regarding reserves, drawings, unrecorded assets on the date of the balance sheet on the date of dissolution of the partnership firm. When the capitals are FIXED, no such adjustment is required. • Where a partner is solvent but has a debit balance in his/her capital account, just before the dissolution of the partnership firm, such a partner will not be required to bear the loss on account of insolvency of a partner.

• •

The rules dictates that:The solvent partners should bring in cash equivalent to their respective share of loss on realization and The loss due to the insolvency of a partner should be then be divided among the solvent partners in the ratio of capitals standing after the partners have brought in cash equal to their share of loss on realization.

a) IF THIS RULE DOES NOT APPLY : one must then???????ASK?? presumably then the loss is borne by the other partners in their profit sharing ratio. 5) 3 Different methods to do realisation acc.: a. Accumul. Deprec. gets transferred to each relevant Asset account first.Then balance ONLY-whats left- goes to the 'realisation account –easy shortcut way.! b. All the asset accounts as well as all Accumul.Deprec. Acc's are closed off to the "dissolutionrealisation" account ,and any income from sales of these assets (only income from assets actually transferred to realisation acc.- no other income!) also go to this 'dissolution account' ,from where any eventual profit/loss gets apportioned to 'Capital /equity " accounts. c. Acc.Depr. and price asset was sold for is all transferred to relevant asset account.THEN only profit/loss from each asset is transferred to the REALISATION account after.

LOANS TO /FROM PARTNERS 3)

Loans to partners. Transfer the balance of the loan accounts to the capital account of the partner involved.NEVER to realisation acc. etc. 4) Loans by partners to the partnership are treated as external liabilities, as payables. 5) Rem:IF THEY SAY in exam Loan:thabo it means loan from Capital Partner Thabo.,not to thabo (that would =debtor)

34

35 | P a g e A C C A 2 0 1 A c c o u n t i n g

OTHER ASPECTS OF LIQUIDATION: 6) Current accounts of partners are transferred to the relevant capital accounts. 7) After completing the above-mentioned steps, the capital accounts and bank account will be the only remaining accounts with balances. Settlement takes place as already indicated.

IF ANY PARTNER HAS A DEBIT BALANCE / DEFICIT ON HIS ACCOUNT: a) He must pay in the money to the partnership by increasing his capital contribution to cancel deficit.

IF A PARTNER IS INSOLVENT AND CANNOT PAY IN: i)

This could also be the case when the partner with a debit balance on his capital account is insolvent and unable to pay in the deficit on his account.(can come from just making a 'loss on a transaction' -even if the firm has zero creditors.just who bears what portion of the loss made in profit share ratio, and it could send 1 partner into debit(he owes to firm now)on his account.) ii) The other partners must bear the insolvent's shortfall.The Debit on the insolvent's account is transferred to the other partners in the profit sharing ratio.(not capital/equity ratio) iii) This situation is illustrated in example 15.13.

IF PROFIT ON REALISATION:

IF LOSS ON REALISATION

35

36 | P a g e A C C A 2 0 1 A c c o u n t i n g

GRADUAL /PIECEMEAL LIQUIDATIONS. 1) Problem here is partner with less capital cannot do any withdrawals before others or he may end up owing them later – so a schedule of who gets how much of possible asset realisations(AFTER ALL DEBTORS ARE PAID) first ,second etc must be worked out.There are 4 possible methods for this: a) Lecturers(fakir) Method to calculate:Liquidation&Distribution Schedule/Account/Statmnt. i) List balances on all accounts , including capital account. (?Bal sheet or Ledger?) ii) Apportion profit or loss on sale of assets. iii) Establish cash on hand which is equal to opening balance and proceeds on sale. iv) Redeem(pay) creditors and other loans v) ....????????.....then...And bring down the balances of the partners. vi) Establish maximum potential loss assume all remaining assets will realise. vii) (deducting??) max potential loss if any partners capital account goes into deficit,then apportion deficit in the required ratio. viii) At this point , the cash available will equal balance on capital accounts,pay the partners accordingly. ix) Continue in similar manner and at each point of sale of assets distribute cash available to the parties. b) METHOD 2 (from textbook) i) 2) Note: The two accounts used to calc. the amounts in a gradual /piecemeal liquidation are called the: a) LIQUIDATION Statement /Account /Schedule :used to show actual amounts paid out/ sold /distibuted. b) DISTRIBUTION Account/ Schedule/ Statement :used to show what each partner may get paid at any one moment in the extended liquidation process without ending up in a situation where he owes the other partners any money.Any Income from assets yet to be sold are regarded as going being 0 Zero, and all debts are taken into account first. (according to prudence & conservative principles in Acc.)

36

37 | P a g e A C C A 2 0 1 A c c o u n t i n g

(a)

(b)

37

38 | P a g e A C C A 2 0 1 A c c o u n t i n g

(c)

(d)

Merger of more than 1 Existing Partnerships: NOTE:special procedures needed- not done this year

Take over by an existing Company NOTE:special procedures needed- not done this year

Conversion to a company NOTE:special procedures needed- not done this year

Conversion to a closed-corporation NOTE:special procedures needed- not done this year.

38

39 | P a g e A C C A 2 0 1 A c c o u n t i n g

CLASS EXERCISES : EXERCISE GROUP 1 FROM FAKIR. –PARTNERSHIPS ADD NEW MEMBER/ RETIRE OLD MEMBERS. /GOODWILL ETC QUESTION 1 OF SET 1 PARTNERSHIPS.

30-Jun Prov.Doubt.Dbts Acc (26000-26000x5%)

1300

30-Jun PropertyPlant Equip 120000-80000 30-Jun Inventories 60000-44000

Capital:x(2:1)58700/3*2 36466.66 Capital :y(1 :2)58700/3*1 18233.33 56000(not 0)

40000 16000

56000(not 0) 27350 13675 prop,plant equip 40000 13675 inventories 16000 1300 56000 56000 CALCULATIONS: 40000+16000-1300=54700/ 3=18233.33(X) X2=36466.66(Y)TOPHALF calculations54700/4=13675| *2=27350Bottom- write backout 30-Jun capital x(close-off) capital y(close off)

capital :x(write out)2/4 capital:y 1/4 capital :z1/4 prov.doubt.debts

General Reserve 30-Jun b/d (Distribution Acc.) 20000 10000 capital x(re-transfer ) capital y capital z

Capital :x2 30-Jun general reserve( back to) 15000 30-Jun b/d revaluation acc.(back) 27350 30-Jun revaluation acc c/d

94116.66 30-Jun general reserve 136466.7 30-Jun balance b/d

CALCULATION:136466.66-15000-27350=94117 capital :y 1 30-Jun general reserve( back to) 7500 30-Jun b/d revaluation acc.(back) 13675 30-Jun revaluation acc c/d

30-Jun general reserve( back to) revaluation acc.(back) c/d

39

57058 78233

general reserve balance b/d

capital :z1 7500 30-Jun bank 13675 18250 39425 b/d

30000 15000 7500 7500 30000

80000 36466.66 116466.7 20000 136466.7 94116.66 40000 18233 58233 20000 78233 57058???? 40000 40000 18250

40 | P a g e A C C A 2 0 1 A c c o u n t i n g

Q2 SET1 question 2 : capital accs and balance sheet after admission of viv. capital BOB50

Capital ROB30

trade PAYABLES bal c/d

EQUITYandLIABILITIES EQUITY capital bob capital rob capital viv Trade and other payables SARSvat total equity& liabilites

ROB=50/50 bob 50/50 5/3/2 = 2 viv=500000 so for: 1/10 5 bob=250000*5 3 rob=250000*3

bal b/d Revaluation acc Bank/current acc

500000 49375 200625 750000 100000 100000 320000 520000 500000

600000 50000 100000 350000 308750 1E+06 100000 3E+06 1E+06 750000 500000 255000 5000 3E+06

100000 -30000 45000 -16250 98750 49375 49375 250000 1250000 750000

BANK =30000+700625+200625+320000

40

500000 49375 700625 1250000

CAPITAL VIV20 20000 01-Sep Inventory 500000 Motor vehicle bank 520000 bal b/d

BALANCESHEETOF RIB;BOB& VIV ASSETS NON-CURRENTASSETS land & buildings office furniture motor vehicles CURRENTASSETS inventory trade and other rec.325000-16250 bank goodwill total assets

CALCULATIONS: GOODWILL 100000 INVENTORY LANDBUILDINGS PROV. DEBTS5%

bal b/d REVALUATION ACC Bank(/current acc)

1250000- 549375= 750000-549375= 1E+06

700625 200625

41 | P a g e A C C A 2 0 1 A c c o u n t i n g

Q3 SET 1 question 3 smith and gigs &nagametc Capital Smith before 3/5 after=33/100 01-Oct REVALUATION ACC. 01-Oct bal b/d motor vehicles bal c/d Profit on realise vehicle

01-Oct revaluation acc bal c/d

0 bal b/d Capital gibbs before 2/5 after=22/100 01-Oct bal b/d Profit on realise vehicle b/d Capital Nagam=1/5 =20/100 01-Oct bank Profit on realise vehicle capital kallis =1/4 =25/100 01-Oct motor vehicle Profit on realise vehicle

BALANCESHEETOF Smith Gibs and Nagam ASSETS NON-CURRENTYASSETS land & buildings office furniture motor vehicles120 -20%=96-108=0 CURRENTASSETS inventory trade and other rec.45600-2280 bank 9400+5000+10000+40000 goodwill total assets EQUITY&LIABILITIES EQUITY capital smith capital gibs capital kallis capital nagam LIABILITIES Trade and other payables SARSvat total equity&liabilities

268800 160000 28800 80000 135720 28000 43320 64400 404520 44152 205448 80000 40000 34920 404520

LECTURERS ANSWER TOP

SMITH GIBBS AND KALLIS AND NAGAM IN COLUMNAR FORMAT DESCR

TOT ALS

b/d 364080 Revaluation -33480 Furniture & equip-7200 Movable n-c -24000 assets120000*20 % =24000 | 96000 Prov.Doubt.Debts -2280 =5%*45600 GOODWILL Write-up/raise 40000 Motor vehcle108000 take over Profit on m12000 vehicle take over=10800096000=

CAPITAL: SMITH

CAPITAL: GIBBS

156040 -20088 -4320 -14400

208040 -13392 -2880 -9600

-1368

-912

24000 -108000

16000

7200

4800

CAPITAL:K ALLIS

CAPITAL:N AGAM

YOU CAN INSERT A TOTALS ROW HERE between OLD/ new PARTNERS SECTIONS -IT IS BETTER BUT NOT REALLY MARKS FOR IT Contributions 41

135000

90000

45000

42 | P a g e A C C A 2 0 1 A c c o u n t i n g New Partners Kallis-motor vehicle Kallis 10000 cash(goodwil Ngam40000 cash Ngam 5000 cash goodwill

80000

80000

10000

10000

40000 5000

40000 5000

Totals not needed here but one can if you want Write out goodwill

-40000 TOTALS158432

-15000

-10000

-10000

-5000

44152

205448

80000

40000

Calculations: Old partners give up: total new partners=1/8+1/4=3/8 .So old partners give up:smith =3/5 =3/5*3/8=9/40 Gibbs=2/5*3/8=6/40 | So New Ratios= smith 3/5=24/40-9/40=15/40 |Gibs=2/5=16/40-6/40=10/40 | AND kallis= ¼=10/40 | AND nagam= 1/8=5/40 Tot=15+10+10+5=40/40 CALC: prov.doubt.debts= 45600*5% or *95%=43320 and 2280 Calc: movable n-c assets=motor vehicle 120000*20%=24000 depreciation AND 96000 NEW total Furnitur&equip= 36000 *20%=7200 AND 28800 Calc: goodwill: kallis= 10000goodwill =1/4 share SO 4/4 goodwill= 10000*4/1=40000 Nagam=5000 goodwill= 1/8 share SO 8/8 goodwill=8/1*5000=40000 SO first raise 40000 goodwill in books and distribute before new partners come in

Q4 SET 1

DESCR. balance b/d REVALUATIONS land buildings machinery provbad debts

QUESTION4 CARLOSJOMOTROTT COLUMNARFORMATCARLOSLOMOTROTTCAPITAL ACC. TOTAL CARLOS=8 JOMO=4 TROTT=3 105000 60000 45000 10000 6000 4000 15000 - 3/2 9000 6000 (3200) __03/02 -1920 -1280 blockthese!! (1800) - 3/2 -1080 -720 (do onebyone~! Perlecturer)

GOODWILL 10000*15/3=*5/1=50000 50000 30000 20000 (* 15partsof3(trots)=total SOTROTTS10000*15/3=50000=WHATmust be createdbeforetrott entersandsplit betweencarlosandjomo.NOTE:not 50000-10000forjomo/carlosbut full 50000 CANPUTATOTALROWHEREBETWEENTHEOLD/ NEWPARTNERS TROTCONTIBUTIONS trott contribute cash(goodwill0 10000 10000 trott :contrib. cash 20000 20000 trott: contrib. furniture 12000 12000 GOODWILL Reduce to 20000 from50.. -30000 -16000 -8000 -6000 177000 80000 61000 36000 trott=3/15=36000 carlos=36000*8/3(or*12/3* 8/15) Jomo= CAPITAL CONTRIBUTIONS carlos&jomo 3000 16000 13000 180000 96000 48000 36000

RATIOS: CARLOS=3/5AFTER=8/15 JOMO=2/5AFTER=4/15 TROTT=3/15 REVALUATIONS landbuildings+60%=15000 machinery- 90%=-(3200) provbaddebts

CALCULATIONS

15000 3200 1800

GOODWILL seeabove belowtheactual numbersincolumnar acc. trott goodwill contribute10000: soinratio8:4:3(trott is3)10000=3/15, so15/ 3*10000=total goodwill=50000

42

43 | P a g e A C C A 2 0 1 A c c o u n t i n g

Q5 SET 1 FROM LECTURER QUESTION 5 RED WHITEBLUE- RETIREMENT COLUMNARFORMAT:CAPITALACC'S DESCRIPTION. TOTAL RED5#none WHITE3#2 BLUE2#1 BALANCEB/D 56000 42000 35000 REVALUATION land buidings furniture equip vehicles inventories trad receivable GOODWILL write-down

50000 5000 12000 3000 1000

25000 2500 -6000 -1500 -500

15000 1500 -3600 -200 -300

10000 1000 -2400 -600 -200

2800

-1400

-840

-560

totals

165200

74100

52860

42240

Red transfer to loan account

-74100

-74100

Goodwill write off

-13200

-8800

-4400

Contributions totals

68100 150000

55940 100000

12150 50000

CALCULATIONS goodwill 16000start -3yrsprofit =6000+7200+6600=19800/3=6600 twice this=13200 so TOTALREVALUATEDGOODWILL16000-13200=-2800to come offall 3to bringdownto 13200

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44 | P a g e A C C A 2 0 1 A c c o u n t i n g

Q1 SET 2 )(LIQUIDATIONS) PARTNERSHIPS LECTURER (NO PHOTOCOPIES AVAILABLE) ( LIQUIDATION OF PARTNERSHIP)

Q2 SET2 (LIQUIDATIONS)

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45 | P a g e A C C A 2 0 1 A c c o u n t i n g

45

46 | P a g e A C C A 2 0 1 A c c o u n t i n g

Q3 SET2 (LIQUIDATIONS)M

46

47 | P a g e A C C A 2 0 1 A c c o u n t i n g

CHAPTER 3 : COMPANIES & companies fin statements. Special Notes:

1) These type ARE NOT TO BE PART OF "EQUITY" :These form part of non-current liabilities.-redeemable preference shares.unless they are of a certain type ie: see IFRS 2) Preliminary & share issue costs each get their own account in ledger,and what is not deducted therefrom as expenses in income statement that year,is then put as a non-current asset. 3) Share premium is part of issued share capital=equity 4) When redeeming redeemable preference shares, CHECK FOR ANY DIVIDENTS TO BE PAID TO DATE of redemption. 5) You can use the proceeds of a new issue of shares to pay for the redemption of redeemable preference shares (premium+nominal amount=”Proceeds” as defined before) : NOTE :so you can use part of premium from the new issue of shares, which have been issued to pay for the redemption of redeemable pref. shares, to pay for the nominal part/the shares themselves of Redeemable Preference Shares but you cannot use part of the Nominal value of the newly issued shares to pay the premium part of the Redeemable Pref Shares. 6) Note: ANY PREMIUM paid out on redemption of redeemable pref shares from the Share Premium account ,MUST NOT be transferred to CRRF, only NOMINAL VALUE of redeemed pref shares! 7) NOTE rem: If SARS disagrees with last Yrs Tax eg disallows certain expenses, then it is shown on SoCI for current year as : ”Tax Adjustment for Previous year. This amount must be ADDED/SUBTRACTED to this years tax, BOTH in SoCL for Net Income after tax and also in notes. 8) Note:(PTY)ltd = always Unlisted and LTD = always listed –for purposes of exams. 9) Note: rem: Sales Returns goes off Revenue, not off cost of sales.This is because the returned article has already been counted back into inventory at the final stocktake.

The Company as a form of Enterprise. INTRODUCTION: 1234-

5-

Definition:Company people working together with the objective of making a profit. Companies are an unseen entity controlled by ,and participates in legal communications through, bodies . Conduct of companies is restricted for reasons :eg monopolies. Companies as a form of enterprise established in order to provide : (1) Aquisition of more capital (2) To make continued existence of entity independant of owners (3) To be able to change owners (4) To limit fin.liability of owners. Th above is also the difference between partnerships and companies.

An association of mangmnt

SHARE CAPITAL : 123-

Company divides capital into shares and sells, if shareholder is allotted shares by directors, they get a "share certificate" to prove ownership. Company only keeps a shareholders register (by law) ,no extra shareholders current accounts etc. Principle quality is shares are easy transferable. Public company supplies 'PROSPECTUS' with an attached application form, (which applicants must return with FULL Rands Value amount included) to prospective shareholders through , Investment Institution which specialises in the marketing of shares (bank/ stockbrokers) to introduce and provide info to decide if financially viable to invest.BUT private company may not give out prospectus or invite general public to invest in shares.

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RIGHTS AND RESPOSIBILITIES OF SHAREHOLDERS 5678-

Change ownership : negotiable document = shareholders certificate is proof of ownership, Right to vote : At Annual general meeting (agm) vote for directors+ broad objectives of company. Dividend rights : Profit belongs to company – only dividends actually declared belong to shareholders Liquidation Rights : Assets belong to company ,NOT belong shareholder ,Surplass of assets after liabilities goes to shareholder only if liquidation. As a separate legal entity shareholders are not liable for debts, to a certain degree.

INCORPORATION OF A COMPANY: 9-

With the help of an attorney, the Memorandum and Articles are set up. 47

48 | P a g e A C C A 2 0 1 A c c o u n t i n g 10- Once registrar issues CERTIFICATE OF INCORPORATION = evidence 'COMPANY ACT' etc was complied with,company comes into existence,THEREAFTER COMPANY MUST APPLY FOR A 'CERTIFICATE TO COMMENCE BUSINESS' only once this is issued may business be commenced. 11- Setting up a company requires costs such as registration & legal fees , called ‘Preliminary Expenses’.It is customary to amortise these expenses over a period of a few years, or write it off against share premium or stated capital in one amount.

MEMORANDUM OF ASSOCIATION: (a) Regulates mainly the EXTERNAL characteristics of company.Main aspects to be included: (i) Name of Company (ii) Purpose Company was incorporated for and main Business in which company will operate. (iii) Amount of Share Capital And division thereof into shares ,with which company registered. (iv) Ratification of pre-incorporation contracts must be entered into memorandum.

THE ARTICLES (b) Regulate INTERNAL characteristics and management of company: (i) eg:shares + share certificates,transfer of shares, (ii) loan powers, (iii) meetings, (iv) rights+responsibilities of directors, (v) voting rights and procedures.power of attorney etc.

PRELIMINARY EXPENSES. (c) Debited to 'preliminary cost accnt',put as asset in N-C assets(unless on last year-then C-assets)customarily written off against profits over next few yrs, Or against share premium in one go. Eg: legal costs,registration fees.

MOST IMPORTANT CONSEQUENCE OF SEPARATE LEGAL ENTITY (d) Liabilities separate owners (e) Profit + Assets belongs ONLY company,not to shareholders.

MEETING IN 60 DAYS (a) Shareholders must hold meeting in 60 days of 'certificate to commence business'-primary objective appoint board of directors.

YEARLY SHAREHOLDERS MEETING (b) Appoint board of directors.,subject to provisions of the articles of ass. (c) Annual Fin Stat. , incl. auditor report ,presented and approved.

STEPS IN FORMING A COMPANY: (a) With the help of an attorney the Memorandum of Association and Articles are set up. (b) These, together with prescribed forms and fees, are submitted to Registrar of Companies. (c) The company comes into existence once registrar certifies memorandum of Association & Articles , and issues certificate of incorporation.(IT HAS NOW BEEN INCORPORATED) (d) Company can then apply for Certificate to commence business.

MANAGEMNT OF A COMPANY. 123-

Shareholders := owners NEXT Board of directors= not involved day to day running of comp.,only policy &co-ordinating. NEXT Management : running of company.

Share Capital. AUTHORISED SHARE CAPITAL 1) Maximum Share capital company is incorporated with according to memorandum and articles of association,can only be changed in manner prescribed by law. Must be disclosed in Notes to Fin. Stat by law.

ISSUED SHARE CAPITAL 1) Amount of shares actually issued, remainder is called Reserve or Unissued Share cap.

SHARE VALUES : PAR VALUE / NO PAR VALUE PAR VALUE (PV): (a)Shares with Face value/Nominal value/Par Value :Value by which authorised share capital is divided into shares at time of registration, although Market Value could be higher. Only Original issue (sale) of shares is recorded in accounts, reselling is NOT,then only changed in 'Shareholders Register' 48

49 | P a g e A C C A 2 0 1 A c c o u n t i n g (b)All ordinary shares together must be the same ,either par value or no par value,not mixed,all preference shares can be another type,but not mixed either,one or other, by law.

NO PAR VALUE SHARES (c)System where the Authorised Capital of eg: 1000 shares have no face value ,eg:R10, -presumably to eliminate the confusion between market/face value of par value shares.The initial issue price of the shares are determined by the directors. (d)Any issue of no-par value shares may not be less than the book-value of the NPV shares of same class already issued, this would amount to a discount ,this discount being only allowed under certain conditions as per Companies Act, eg special resolution etc. (e)Book Value = STATED SHARE CAPITAL / NUMBER OF SHARES : Rem: if extra shares are sold at a higher value than the previous shares(at a premium), then the 'BOOK VALUE" will go up ! ie: book value is not fixed, it goes up if TOTAL Stated Share Capital increases in proportion to Total No. of Shares. (f)Must write as heading for No par value shares account: Ordinary Shares:Declared Capital. (or "...Stated capital")(also for pref.shares –same style) (g)CANNOT have a 'share premium' account , all extra premiums just go th stated capital and increase book value. (h)The market value of NPV shares can be different to book value ,determined by economics.

SHARE PREMIUM (a)Is if Par Value(not no par value shares) shares are sold to the public at a higher value than the par value. (b)The Share premium account is shown as part of "Ordinary shareholders equity" in the books ,whether it comes from ordinary or preference shares. (c)The share premium account may be used for : 1. A Capitalization issue : you just take the share premium and issue shares to its’s value (or part) (how it is done /shared between other shareholders I do not know exactly) 2. Writing off preliminary expenses : done directly against the share premium account ,see example below , and not via the income statement (I think means not via first share premium to appropriation acc. Or something??) 3. Writing off share issue expenses. 4. Writing off commissions paid and discount allowed on issue of shares.(if you give a discount or pay bank etc commission?????) 5. Writing off a redemption premium payable on the redemption of redeemable preference shares.-ONLY allowed if said redemption at premium was embodied (noted/written) in (contract)Issue Terms +Company Articles + AT THE TIME OF THE ISSUE. a. Certain Limitations on use of share premium account:from amendment of act of 1992. Writing off a redemption premium payable on the redemption of redeemable preference shares.-ONLY allowed if said redemption at premium was embodied (noted/written) in (contract)Issue Terms +Company Articles + AT THE TIME OF THE ISSUE. 6. Payment of the premium over the par value of shares acquired in itself in accordance with section 85(company may under certain circumstances aquire shares in itself) 7. In the past it was possible to write off certain debenture issue expenses out of the share premium account.- this was stopped by amendment to act of 1992.(but for exam fakiri still thinks you can write these off –so do it )

Note: last one above is wrong I think- 100000should be DR,notCR

SHARE ISSUE EXPENSES All expenses from issuing of shares go to a special account, part of which – for certain types of share issue expenses-see above- may be deducted from share premium account.This expense account can be treated as an asset in NC assets in Balance sheet, and amortised over a number of years, or written off against share premium account in 1 go.

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ORDINARY & PREFERENCE & OTHER TYPES OF SHARES Note:Rem: in exam watch out for the pref. shares given at date of current balance sheet, but the other shares at date of last balance sheet.So all this years share transactions on Pref. shares are to be subtracted from value given on balance sheet to get opening balance for this year on your Statement of changes in Equity.

RIGHTS ISSUES AND OPTIONS: (d)One of the ways in which a company can raise cash funds is to have a rights issue. In terms of this rights issue, rights/options to new shares are offered to existing shareholders based on their existing shareholdings. It can be at a price below the current market price,to ensure they buy it. New shares obtained at the lower price can normally be sold at a higher price just after,or alternatively, these “rights” can be sold to other investors.The issuing company could then also expand its shareholder base. (e)The procedure in respect of a rights issue is as follows: (i)• the company announces that it intends to have a rights issue. (ii)• the rights issue then takes place which means that the rights certificates are issued to existing shareholders. (iii)• following the issue of the rights certificates, a right with a value separated from the shares which produced that right usually exists and it is traded separately on the securities exchange. (iv)• Before the rights certificates are issued, shares are traded cum rights (that means that the share and the right are inseparable). This cum rights value of the shares that the shareholder held on the date of the announcement is divided into a rights (option) value and an ex-rights share value on the date on which the “Rights certificates” are issued. The “right’ obtained can be traded on its own and the share will then trade without the right, i.e. ex rights. The value of an ex-rights share is therefore lower than the value (cum rights value) of the share on the date on which the rights are announced. The right to buy new shares at the rights issue price applies only for a certain period of time as was determined by the company, following which the rights expire and cannot be exercised.

ORDINARY SHARES (f)Dividends Only get paid AFTER preference shares, dividend not fixed-BoD (board of directors) decides dividend total value and then value divided up into no. of shares.Must have own account,not mixed up with preference shares ,but dividends can go to same account as for pref.shares.

PREFERENCE SHARES (a)Preferential right to Dividends and Repayment of Capital- Get paid Before ordinary shares, dividend % is fixed on Issue. (b)Pref. Shares must have own account, heading = "eg: 10% Preference Shares" ,not mixed up with ordinary shares.But dividends can all go to same account as ordinary shares. (c)Dividend only get paid if a Dividend was actually declared by BoD , not guaranteed. (d) Some Pref. Shares have cumulative dividends(next year) if unpaid some years. = becomes an accrued liability for company for next year (e)No dividends are payable on share premium for Pref. shares. (f)Preference shares are a different class of shares to redeemable Pref. Shares.,with separate accounts for each.

CUMULATIVE PREFERENCE SHARES (a)A special type of preference share where the fixed preferential dividend accumulates if not paid out annually. Company is obliged to pay out as soon as funds become available. –(Unless-stated as 'not cuml.' When bought) Cumulative dividend not paid should be disclosed in Fin Stats.

PARTICIPATING PREFERENCE SHARES (a)Share in profits of company as well as pref.dividend ,after payment of preference dividend.

CONVERTIBLE PREFERENCE SHARES (a)Are convertible to ordinary shares at a specific date in the future.

REDEEMABLE PREFERENCE SHARES ) (a)Special type of pref.Share which may be purchased back by company in manner & price predetermined on issue. (b)There are 2 types : (i)THOSE THAT ARE NOT TO BE PART OF "EQUITY" ,These form part of non-current liabilities, This is if the redemption thereof is at the option of the holder not issuer- even if at a future given date. (ii)THAT DO FORM PART OF EQUITY: This is for those where the redemption thereof is at the option of the entity- so they never have to redeem them at all actually, unless they want to.This makes them like plain preference shares basicaly, exept buyer must sell if entity wants to redeem –THEN THESE SHARES are to form part of CAPITAL/Equity actually like all other shares,else not. (c)THE REDEMPTION OF (RPS) REDEEMABLE PREFERANCE SHARES. (i)No such shares may be redeemed exept from :Profits or Share Premium Account, as follows: 1. Profits :of company where already paid tax on and passed through appropriation account. But then the following must be done: An amount equal to the nominal value of the Par-Value shares 50

51 | P a g e A C C A 2 0 1 A c c o u n t i n g which are redeemed, or in the case of No-Par value shares, equal to the BOOK VALUE ( Rem: this book value could be less or more than the value actually paid for the shares) should be transferred to a reserve fund , known as the (CRRF) Capital Redemption Reserve Fund .(to maintain capital of company-thereby protect creditors interests after the redemption.) ANY PREMIUM paid on redemption MUST NOT be transferred to CRRF, only NOMINAL VALUE of redeemed pref shares! a. Note: If Distributable reserves are used to pay for the premium on redemption,the premium paid must be written off against ‘Distributable Reserves’ which are already there, one may not let it be part of the current years expenses,it must be removed/written out/gone.So first an expense account must be created : “Premium On Redemption Of Redeemable Preference Shares Account” and the premium that is paid out charged to this account, then write-off this account against distributable reserves. b. Note: ANY PREMIUM paid out on redemption MUST NOT be transferred to CRRF, only NOMINAL VALUE of redeemed pref shares! 2. The “Proceeds” of new issue of shares made for the purposes of the redemption up to the nominal value of the Par-Value shares which are redeemed, or in the case of No-Par value shares, equal to the BOOK VALUE, here the “Proceeds” =premium+nominal amount as defined before : so you can use part of premium from the new issue of shares, which have been issued to pay for the redemption of redeemable pref. shares, to pay for the nominal part/the shares themselves of Redeemable Preference Shares but you cannot use part of the Nominal value of the newly issued shares to pay for the premium part of the Redeemable Pref Shares.(or can you –question????) a. NOTE: since {premium + nominal} may be used to redeem , one should not have to issue more shares with premium than the Rands amount needed to pay for the full nominal +premium of the redemption.So if R100 nominal+ R10 premium is needed to pay out, then only R110 of shares need be issued, inclusive of any premium that might be got from the new issue, no more. (as per unisa book vertabim) b. Note: if share premium from a premium earned on new share issue to pay for redemption: IF USED TO PAY FOR NOMINAL SHARE CAPITAL - do not write out anything out of premium account after you Cr it from new issue receipts it just stays there same as if it were cash from freshly issued ordinary shares capital you had just issued and used to pay for redemption, after CR ordinary shares capital from new share issue receipts.(but remember you cannot use old share premium to pay for nominal share capital , you are only allowed to use newly issued share premium– issued for this purpose especially-for this) BUT IF USED TO PAY FOR SHARE PREMIUM then you MUST write it out of share premium account . it must first be charged to an expense account(“Premium Paid on Redemption) ,then written off against the old premium account OR one can do it the easy way too and just Dr direct to share premium acc., contra bank acc and miss “Premium Paid on Redemption” account completely. 3. OR from a combination of the two methods. 4. Note: MAINTENANCE OF CAPITAL:The redemption of these is not allowed to cause a reduction of companies authorised share capital or issued share capital. Thus, if purchasing their own shares would result in a reduction of capital ,companies are not allowed to do it. a. With a view to protecting creditors(who can only claim against assets- not against shareholders themselves) , one of the ways company act protects creditors is by means of Provisions of Act dealing with the Reduction of capital of a Company. b. Thus when redeeming from profits, an equal amount must be transferred to CRRF account/fund. c. One of the material Aspects of these provisions is that a company may reduce it's share capital only by means of a special resolution , provided that : 1 : It is authorised to do so by its Memorandum and further provided it has no creditors or all creditors have agreed to such a reduction in the capital,and with a special resolution 2 : Or if the court confirms such a reduction , under certain circumstances. The transfer to CRRF is done as follows:

(i)The CRRF is now seen as Capital by the Act and all provisions of act with regard to capital now also apply to CRRF as if it were capital (ii)The capital redemption reserve fund (CRRF) may also be used to pay up unissued shares of the company for issue to members of company as fully paid up capitalisation shares. (b)PREMIUM ON REDEMPTION of Redeemable Pref.Shares. (i)If a Premium is payable on the redemption ,Provision must be made for premium either from : 1. Profits or from an 2. Existing share premium account, or combination of both 1.& 2. 3. Or from the premium earned from a new issue of shares made especially to pay for a redemption.The nominal part of new issue may not be used to pay for premium, but the premium received may be used to pay for nominal OR premium of redemption. (I think???) 51

52 | P a g e A C C A 2 0 1 A c c o u n t i n g (ii)The parties can decide if there will be a premium paid on redemption or not (eg if a premium was paid on purchase of the shares- then maybe).This is not a must , but if the parties decide to pay a premium on redemption, then following must be observed: 1. Two new requirements of Act –for shares issued post 1992: a. (1)premium must be determined before allotment to buyer of Redeem.Pref.Shares b. (2)conditions of redemption must be noted in articles of association Before share premium acc. may be used to write off premium on redemption. (iii)Very complicated- must be researched. (c)Different journal entries for redeem.pref.shares methods: (i)New shares issued to pay:

(ii) From retained earnings:

(iii) From issue new shares at a premium+balance from retained earnings+as little retained earnings as possible to be used(already 7000 in old share premium acc)

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(iv) By means of issue of no par value shares:

UNDERWRITING OF SHARE ISSUES (a)The company would normally avail themselves of the services of a financial institution to handle the issue of any shares offered. Financial institutions frequently underwrite such issues. This means that the underwriter guarantees that if the whole issue of shares is not taken up by the public the financial institution will itself take up the remainder. (b)The underwriter’s commission is the commission the underwriter receives in return for furnishing a guarantee that the whole issue will be taken up. This commission is stipulated in the underwriting agreement and is payable in the form of either cash or paid-up shares in the company concerned. The commission is calculated on the portion being underwritten, irrespective of whether the entire issue is taken up or not. (c)The commission may not exceed 10% of the price at which the shares are issued, or a lower rate provided in the articles of association (d)Under schedule 4 to the Companies Act 61 of 1973 commission and discount, in respect of shares which have not yet been written off, must be shown under a separate heading in the balance sheet. (e)Underwriter’s commission is calculated as follows:if full issue is underwritten, (i)Broker Ltd underwrites an issue of 50 000 ordinary shares of R2 each in Shortage Ltd. The underwriting commission is 7%. The public takes up 45 000 shares. (ii)The commission is calculated as follows: 53

54 | P a g e A C C A 2 0 1 A c c o u n t i n g (iii)50 000 * R2 X 7% = R7 000 (f)If the issue is partly underwritten, the underwriter has a pro rata liability. Suppose that in the example above Broker Ltd underwrites only 50% of the issue, his or her liability is as follows: (i)50% of the shortfall = 50% x 50 000 x R2 X 7%= R3500.

RECORDING SHARE TRANSACTIONS: SHARES OF PAR VALUE ISSUED AT PAR: (d)Done normally ,same method for Ordinary and Preference Shares just each type must have their own accounts –see example that follows: (e)NOTE: SAICA have changed name of :Ordinary appication and allotment account" & "Preference application and allotment account to : ONLY " APPLICATION ACCOUNT" SAME ONE FOR BOTH. (f)Note: IF A QUESTION SHOWS THAT SOME SHARES WERE SOLD AT A LOWER VALUE PREVIOUSLY (WHETHER IT SAYS " FRESHLY ISSUED" OR NOT) it means any shares of same type sold at a later date at a higher price are treated as SHARE PREMIUM CASES.

SHARES OF PAR VALUE ISSUED AT A PREMIUM: (g)If issue price exeeds the par value:exess must be credited to "SHARE PREMIUM ACCOUNT"(Same account is used for Preference Shares.) (h)"SHARE PREMIUM ACCOUNT" forms part of Share Capital EQUITY. (i)May be used according to 'companies act ' ONLY to write off certain costs. (j)Note: IF A QUESTION SHOWS THAT SOME SHARES WERE SOLD AT A LOWER VALUE PREVIOUSLY (WHETHER IT SAYS " FRESHLY ISSUED" OR NOT) it means any shares of same type sold at a later date at a higher price are treated as SHARE PREMIUM CASES.(exam)

ISSUE OF SHARES OF NO PAR VALUE: (k)The entire issue of no par value shares is paid-up capital and should be transferred to a separate account called "Ordinary Shares :Declared Capital Account" No Share premium acc. is EVER used, not possible with no-par shares.

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THE PURCHASE BACK OF A COMPANIES OWN SHARES: 1) Companies Act allows buy back of companies own shares if :Artices + a special resolution of BoD allows it and also if :Companies debts will still be payable as arise + assets will still be more than Liabilities thereafter.See section 85 of companies act. 2) For PAR VALUE SHARES : issued capital must be decreased (cancelled) by par value of shares aquired.(but will remain as authorised shares 'allowed' still)(expense or loss???? ANSWER=none, just a reduction in capital actually,remember it is all on the same side of balance sheet.) 3) For NO PAR VALUE SHARES : Stated capital of shares must be decreased by book value of share capital aquired.Amount of decrease = divide stated capital /by / total of issued shares bought back *multiplied by* amount of shares bought back.(ie: issue value/total no. issued at the time* no. of shares bought back =amount to decrease /cancel equity by) 4) If 1000 shares of value R2 are redeemed at R5 –Note: 'Ordinary/Pref Share account ' must be debited ONLY with the R2 per share bought back ,and reduce no. of shares issued by amount bought back,the other R3 /share must be debited to "distributable reserves" and will be disclosed in "statement of changes in equity" 5) The amount of shares bought back get SUBTRACTED from "issued no of shares".Ie: if 1000 bought back,then only eg:100001000 = 9000 issued shares left-ie:company cannot own its own shares.

Differences between company & partnership.: See page 380 for more.

Reserves & Dividends DIVIDENDS Dividends may be paid out if: 1-profits legally available for distribution.(eg Not allowed to be paid from proceeds of distribution of shares) 2-Proposed dividend must be financially viable. 3-Proposed dividend must be officially approved at AGM.(annual general meeting) 1) There are 2 types of dividends: a) Interim Dividends: i) from retained earnings or current profits, ii) must be ratified at AGM. iii) May not be paid until all other outstanding dividends paid. b) Annual / Final Dividends: 2) Dividends need not be paid in cash, they may take the form of capitalisation shares(bonus shares) 3) Each class of shares could have different dividends declared. 4) Shareholders may vote a different % to directors recommendation-higher or lower, but higher is more doubtful since it could have a bad impact on the company. 5) dividends become a liability once declared -Shareholders may demand payment. 6) May not include any portion of capital or capital profits 7) Preference Dividends are always pro-rata for the months of the year they were held,BUT ordinary share dividends are never pro-rata, if held for even 1 or 2 days they get paid in full. 8) Arrear and current cumulative dividends get paid first, then preference shares then ordinary shares.

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RESERVES

NON-DISTRIBUTABLE RESERVES 1) May not be distributed as dividends

NON-STATUTORY (VOLUNTARY): (a) Company can decide it is prudent to withhold eg:Revaluation surplus -if assets are simply revaluated at a higher amount.

STATUTORY (INVOLUNTARY) (b) Prescribed by Companies act :Only example is "Capital redemption reserve fund"(eg:to buy back redeemable preference shares) (c) NOTE: if redeemable preference shares are redeemed with own resources,and not from issue of some other shares,amount must be transferred from profits to "Capital Redemption reserve fund"(CRRF) ledger account?This serves as protection against the unauthorised reduction of capital and may not be distributed as dividends.It never forms part of the shareholders equity.

DISTRIBUTABLE RESERVES 1) Dividends declared by directors at AGM, ARTICLES may authorise an interim dividend at half-year as well.All declared in number of cents/share 2) Different Types of Distributable Reserves: (a) General Reserves (b) Retained Income (c) There are a few other types as well, research needed. 3) Accounts as follows:

Tax of Companies 1) Companies must pay "normal tax" declared by fin. minister in budget at end of year,as well as Secondary tax on dividends.

PROVISIONAL TAX; 1) Company must pay Provisional Tax 2 times per year.First one 6 mnths into year, 2nd one just before end, both based on estimate from last years fin.Stat.Then also pay tax difference within 7 months after fin. year end, after audited Fin statements are ready.( if estimate was lower than true tax) . 2) 1st provisional tax payment is 6 mnths after beginning of financial year= half of estimated tax for year (based on last Fin.Year End Statements, unless interim Fin.Stats are prepared and submitted) ,second prov.tax payment is last day of fin. Year. = other half of estimated tax liability. 3) Each provisional tax payment is DEBITED to 'SARS/or tax payable account'

RECORDING THE PROVISION FOR TAX. 1) BOTH Provisional tax payments are simply Cr to Bank and DR to SARS ,( they are NOT Debited to any "Income Tax Expense Acc." at all) 2) Then, at year end, once fin stats are prepared, the actual tax is calculated and this is then finally Dr to 56

57 | P a g e A C C A 2 0 1 A c c o u n t i n g "Appropriation Acc." and Cr to SARS. So any provisional payments made to SARS and DR to SARS will cancel this CR out and the balance will then be paid to SARS , or it will come off the next (probably provisional will be first) payment to SARS the next year. 3) On the accounting date provision is made for normal tax liability, this is normally done by DR Appropriation acc and CR SARS acc., and no "Tax Expense " acc is used at all,at any time .But it is possible to use another method, where only final calc. year end total tax amount – not any provisional payments- is sent to a DR" Income Tax Expense" and CR SARS account, befor it gets to appropriation acc, after "net profit before tax" is calculated -? But do not know how method works- Must do some research+ see example below. (actual calc. year end tax, NOT provisional tax , the word used below is misleading- meant in different sense).:see below:

4) If 'Sars/Provisional tax ' account has a debit balance it is included as asset in the balance sheet, if it has a Credit balance it is included as a liability in the balance sheet.

THE TAX RETURN: 1) After end of Fin Year Copy of Fin Statements and Tax Return Doc. Are sent to sars.Sars determines tax liability and issues an assessment to company and final payment is then made for past year.That is why the above entry occours- to be ready to pay SARS, according to our estimate, unless their estimate is different ,then enquiry, etc etc etc.

APPROPRIATION ACCOUNT i.

The Appropriation account comes after the profit and loss account at end of year,in place of the transfer to "Owners Capital" account.All profit and loss, as well as last years "retained earnings"(any unappropriated earnings) get closed off to this account. ii. Note: Any "General Reserves" are not transferred to the Appropriation Acc. , only "Retained earnings" from previous year. iii. Tax is transferred from here too, after being calculated from the profit & loss account. iv. All the possible different transactions that can be done in an Appropriation account.

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NOTE: Jan 1 b/d Retained Profit(from above)XX Note: rem: the newly 'Retained earnings' from current year is the only amount that is not transferred to another account out of appropriation acc.It is b/d to the CR side of appropriation acc. on/for the first day of the new financial year.That is where it stays until end of next Fin Year (even if used up before end of next fin year, it still will stay there carried down to new year to balance the amounts at year end- ie: where the money paid out in new year comes/came from so there will be no imbalance. Income tax for year is simply transferred to SARS account from Appropriation acc., same as all provisional payments. So no "Income tax" account ever exists in the Ledger. If a company suffers losses , appropriation will have a debit balance, which is known as an "accumulated loss" and results in a decrease in shareholders equity.

RESERVES : GENERAL , SPECIAL , DISTRIBUTABLE AND NONDISTRIBUTABLE. 1. 2.

To DECREASE any type of reserve one MUST use appropriation acc. Journal: dr-reserve cr-appropriation cc. , then one can transfer to any other reserve etc , or lump with profits/loss and 'retained earnings' etc. To INCREASE any reserve – do the opposite of above.

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GROUP COMPANIES 1) Parent –Subsidiary relationship-if have majority voting rights and right appoint /dismiss majority BoDirectors. 2) Companies act says group statement s muust be prpared for parent company. 3) Parent company has 2 accounts for the investment in its subsidiary a) Investment account= represents cost of the shares b) Current account = for moneys lent to subsidiary.

The Annual Financial Statements of a Company. INTRO. AND OBJECTIVE: 1234-

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Per companies act the directors must , for each financial year of the company, have audited fin stats prepared in one of the official languages. And must present them at the AGM. Fin stats must be approved by the board and signed on behalf of (certain rules see act) the board. A copy must be sent to: (1) Every member of company(shareholder) (2) Debenture holder (3) All other parties entitled to receive NOTICE OF GENERAL MEETINGS (4) Registrar of Companies. Objective :To provide info on the fin position,fin performance,and changes in the fin position of the enterprise that is usefull to a wide range of users in making economic decisions. 2 sets of fin stat . are prepared.One set is for internal use ,one set is for external users eg investors,creditors.External set has least amount of info. possible on it- spy's etc.

THE DISCLOSURE REQUIREMENT: 1) See textbook- very involved .(become public property etc.)

USERS: 1. To help draw sensible conclusions from Fin Stats, Companies act lays down certain regulations as to the disclosure of info. in fin stats.Failure to abide by these rules is a contravention of the companies act.Act states fin stats must conform to GAAP and schedule 4 of Act. 2. The fin stats must 1- reflect state of affairs of the company and its business and present profit&loss. 3. Fin Stats are mainly drafted to be submitted to members(shareholders) at the AGM 4. Users of fin stats are: a. Owners b. Potential investors c. Management d. Borrowers e. Suppliers f. Creditors g. Tax authorities h. Bankers i. Employers

CONTENTS 34-

Latest developments in the field: improving comprehensability of.,single page for bal sheet and SoCI etc,notes separate,also narratibve form,not t form. As per companies act the fin stats of a company should consist of the following parts: (1) SoFP (2) SoCI (3) A statement showing either: (a) All changes in equity, or (b) Changes in equity other than those arising from capital transactions with owners and distributions to owners. (4) A Statement of Cash Flows. (5) Accounting Policies and Explanatory Notes. (6) A Directors Report 58

59 | P a g e A C C A 2 0 1 A c c o u n t i n g (7) An Auditors Report. 1- All accounting bases must be disclosed in the notes : eg method of Inventory Valuation. 2- Composition-as normal 3- Fair representation accordance GAAP: See company act for very ! detailed 'required' 4- REASONABLY REPRESENT THE STATE OF AFFAIRS OF COMP. AND PROFIT&LOSS

IDENTIFICATION OF FINANCIAL STATEMENTS (AS PER IFRS BOOK 2009) 1) 2) 3) 4) 5) 6)

Clearly distinguished and identified separately from other info. that forms part of annual report. Name of Reporting Entity,or any other identification,and any change since previous reporting date to name of entity. Whether individual or group statement Reporting date/ period as applicable. Type ; eg Cash Flow Statement Currency used and level of precision eg: rounded off to nearest 1000 or million.

GAAP-APB-SAICA-IASB=ACC.PRACTICES BOARD -APPROVES SAICA SUBMISSIONS NEW ACCOUNTING METHODS- OVERALL CONSIDERATIONS: AS PER AC101 FAIR PRESENTATION AND COMPLIANCE WITH STATEMENTS OF GAAP (a) Fin Stat should fairly present the fin perf. Fin pos. & cash flows of enterprise (b) Appropriate application of statements of GAAP with additional disclosure when necessary,results in virtually all circumstances in fin stats. That achieve a fair presentation. (c) Must 'disclose' that fin stats . comply with GAAP, In notes.Departure from GAAP must be disclosed in special way. (d) Basicly fin stats. Must comply with GAAP and present relevant,comparable ,Understandable info.,it must fairly present the fin perf. Fin pos. & cash flows of..

ACCOUNTING POLICIES (e) Policies used to be selected as per GAAP,

GOING CONCERN (f) Assesment of enterprises ability to continue as a going concern,must disclose in notes details if not.Prepared on a going concern basis

ACCRUAL BASIS OF ACCOUNTING (g) Transactions ony recognised when they occour,and reported in fin.stats. in period to which they relate(matching principle)

MATERIALITY AND AGGREGATION (h) Each material item presented separately,immaterial items should be aggregated

OFFSETTING (i) Assets & Liabilities should NOT be offset unless specific required/permitted by Gaap.

COMPARATIVE INFORMATION (j) Comparative info for all numerical figures shown for For previous period (fin year)+in same method /policy for both + in 'notes' if necessary. .

REPORTING PERIOD 1 year usually but public companies must also deliver an interim report to shareholders 6 mnths after fin year end.

NOTES TO THE FIN STATS. 11) The notes to the financial statements provide additional information on items that appear in the financial statements in order to ensure fair presentation. The notes are presented systematically with cross-references to the financial statements. The following is the usual sequence in which the notes are presented: 1. A Statement that the financial statements comply with International Financial Reporting Standards; 2. A Statement in which the bases of measurement and accounting policies are set out; 3. Supporting information on items that appear in the statements of financial position, comprehensive income, changes in equity or cash flows, and 4. Other disclosures on items that do not appear in the statements of financial position, comprehensive income, changes in equity or cash flows, such as contingencies and disclosures of a financial and a non-financial nature, for example, financial risk management target. 12) The sequence may vary according to circumstances. In some cases, for instance, the notes on accounting policies are presented as a separate component of financial statements. The notes include descriptions of items shown on the face of the statements of financial position, comprehensive income, changes in equity and cash flows. The notes also provide additional information about items not recognised in the statements, such as contingent liabilities and commitments. 59

60 | P a g e A C C A 2 0 1 A c c o u n t i n g

MEASUREMENT OF ELEMENTS OF FIN STATS. HISTORICAL COST At Amount paid originally

CURRENT COST At amount needed to aquire assets, or to pay liabilities current prices.

REALISABLE(SETTLEMENT )VALUE If you dispose of asset now at a disposal, amount.or liabilities at settlement today values(undiscounted)

PRESENT VALUE At present discounted value of future net cash ouflow/inflow that item/liability is expected to generate/be required to settle in the normal course of business.

STATEMENT OF FINANCIAL POSITION (THE BALANCE SHEET) FRAMEWORK OF SOFP AND NOTES 1) Per IFRS ,a step toward improving the understandability of the Fin Stats. is that only the most important information from both SoFP and SoCI is presented on a single page , the rest is disclosed in notes. 2) The narrative form is the accepted method of presentation,not the T form , but note :it is possible to present in a T format ,like ledger accounts- assets on left and equities & liabilities on right. 3) Comparative figures for immediately preceding period must be shown as well- per companies act( exept first FinStats for starting year of company). 4) All accounting bases used must be disclosed: eg: Inventory Valuation method.

INFORMATION TO BE PRESENTED ON THE FACE OF THE SOFP (BALANCE SHEET) The Standard does not prescribe the order or the format of items to be presented. At a minimum, the face of the balance sheet should: 1) 2) 3) 4)

Property, plant and equipment, Investment property Intangible assets, financial assets (excluding trade &other receivables, cash & cash equivalents, investments accounted for using the equity method) 5) Investments accounted for using the equity method, 6) Biological Assets 7) Inventories, 8) Trade and other receivables, 9) cash and cash equivalents, 10) trade and other payables, 11) current tax liabilities and assets ,(incl. deferred tax assets&liabilities) 12) provisions, 13) financial liabilities, 14) issued capital and reserves attributable to owners of the parent 15) non-controlling interest ,presented with equity As well as this , additional headings,subtotals, & line items should be presented on the face of the statement of fin pos when relevant to an understanding of an entity`s fin position. Line items are included if Size,function,nature or composition of similar items is such that separate presentation will be relevant to the understanding of the fin pos. of the entity. Note: 1) Deferred tax is always to be Non-current , if there is a separation of n-c and current. 2) Assets held for sale, or assets and liabilities forming part of discontinued operations, are included as separate line items in SoFP.(it seems they are not in N-C nor current , but below both)

INFO TO BE ON FACE OF SOFP (BAL. SHEET) OR IN THE NOTES 1) various items as per companies act and IFRS / GAAP should be disclosed in notes or on SOFP, with further sub-classification presented of items , classified in a manner appropriate to enterprises operations 2) also amounts relating to parent & subsidiaries 3) In particular , for share capital: 60

61 | P a g e A i) (1) (2) (3) (4) (5) (6)

CCA201 Accounting

No. authorized No. issued and fully paid for No issued & not fully paid Par value per share, or that the share has no par value Recon . of no. of shares outstanding at beginning and end of period. Rights, preferences & restrictions applicable to each category, incl. restrictions on the distribution of dividends and repayment of capital (7) The shares in the entity held by the entity, its subsidiaries,joint ventures, or associates (8) Shares reserved for issuance under options and sales contracts,incl. the terms and amounts thereof. ii) A description of nature & purpose of each reserve that forms part of equity. iii) Entitys without share capital ,eg cc`s or partnerships , should disclose the same info. as above , but only to the extent applicable for them. Movements in the accounting period, in each category of equity interest and the rights,preferences,restrictions to each category should be fully disclosed.

METHOD FOR EACH HEADING IN SOFP: CURRENT & NON-CURRENT ASSETS AND LIABILITIES: 1) As per IAS 1 , an entity should separate nc an current assets, exept where a presentation based on liquidity provides a more reliable and relevant portrayal.In latter case it is presented in increasing/decreasing order of liquidity(allows asses liquidity/solvency) eg Banks , because they don’t supply goods/services according to a clearly definable cycle. a) A mixture of above methods may be used, with separate headings, –ie both methods in same fin stat .eg if entity has diverse operations. 2) N-C and current assets are all treated as per usual.( see GAAP etc) a) Note: see definition of current asset/liability: incl. if to be realized in operating cycle – this could be 3 months for clothing or 1 mnth for groceries- so Current = only 3 mnths for certain industries,but if not clearly identifiable then = 12 mnths.See the GAAP for details. b) Note: also ‘trade & other receivables’ may include items over 12 months and still be ‘current’ not N-C : because it is “working capital “ –but check GAAP for exact details!!! c) For classification as N-C or Current, the conditions at year end date are the determining factor not after year end if before authorization of fin stats.-changes here could just be disclosed in Notes: eg if after year end , the long term debt was refinanced and the short term part of it went long term again. d) If there is a clear choice before year end –as per a contract- to be C or N-C, so eg: if the debt could be rolled over past 12 mnths as an option at the discretion of the entity, even though it is at the time a current debt, then it is regarded as N-C. e) Even if a loan becomes immediately payable due to a breach before Date of FinStat,it is now ‘current’.But Even if after FinStat Date but before authorization of FinStats the lender agrees to refinance as long term, it still gets classified as per year End Date state of affairs ie: current.-but in notes disclose as changed now again to N-C. f) 12 mnths rule is: from date of 12 mnths onward = N-C. Up to before 12 mnths = Current. g) If for loans classified as Current, the following occours between Date FinStats and Date Authorised FinStats for issue ,it qualifies for disclosure as non-adjusting events in accordance with IAS10.(stays as is at FinStats Date, but disclose new development in Notes: i) Refinancing on a long term basis ii) Rectification of a breach of long term loan agreement iii) Period of grace up to more than 12 mnths after FinStats year end ,to rectify a breach of long term loan agreement.

PROPERTY PLANT & EQUIPMENT: 1) See relevant chapter in own notes on this. 2) METHODS: use either of: a) Use straight line ( scrap value+ years of use + same amount off each year to scrap value) or b) Reducing Balance Method : (20% off each year) c) Production units method( per no units produced/lifetime units produceable) 3) Selling an asset: Transfer & write out 1-asset 2-acc deprec. both to a ‘Realization Of Assets’ account.Then put price received in same account –Contra-bank. Then only calc. profit or loss and transfer it ( write-out-in) to a “Profit/Loss On Sale Of Asset” account. 4) Remember to do the following schedule of PPE in the Notes to the Balance Sheet: 5) Unisa guide 2009 ch 9 6) Example: DESCRIPTION Land Machinery Furniture&Fittings. TOTAL

Carrying Amount: 01/03 2008 Cost Accumulated Deprec. 61

62 | P a g e A C C A 2 0 1 A c c o u n t i n g

Additions in Yr. Disposals in Yr. Depreciation in Yr. Revaluation in Yr. Carrying Amount 28/02/2009 Cost Accum.Deprec. 7)

INVESTMENT PROPERTY: 1) NOT investment property: Owner occupied, or used for production admin etc,or expressly held for sale,or under construction, is 2) IS investment property: Property for leasing out (not financial leases though),property held for long term capital appreciation, etc 3) Unisa guide 2009 ch 10

FINANCE LEASE RECEIVABLES: 1) A??? do not know?

OTHER INTANGIBLE ASSETS: 1) Any intangible assets , otherwise ???do not know???

AVAILABLE FOR SALE FINANCIAL ASSETS (INVESTMENTS) 1) Is:An investment in eg a share, held for long term purposes. 2) NOT: a loan, or a receivable, nor held for trading (short term gains on price differences purposes) ,nor to be held to maturity.eg shares 3) Unisa guide 2009 ch 8

OTHER FINANCIAL ASSETS: 1) 3 types :1-Loans&receivables, 2-held to maturity 3-at fair value through profit & loss, 2) Unisa guide 2009 ch 8

DEFERRED TAX ASSETS /LIABILITIES: 1) If for instance SARS allows deductions of 25% for depreciation, but you do 20 % per year, then you do SARS method /rate and your own at same time, but show the difference as a Deferred tax which then in the last year where you were supposed to do a last deduction balances out this deduction which you cannot take – (BASICLY)!Matching concept applies here. 2) Liability: if you have been deducting less than allowed each year in books, but in SARS you did deduct it, so you will have to NOT deduct this amount in the last year of depreciation because you already did in years before-(just a book entry to balance yearly profit-avoid dips and hills and = with SARS)) 3) Asset: if you have been deducting more in books each year ,but less than that at SARS in reality, it goes as an asset because in year after after last year of depreciation in your books, you can still deduct from sars, then this asset gets used up that year.-again just to balance you and sars out lekker.

INVENTORIES 1) See separate chapter in own notes 2) Unisa guide 2009 ch 12

TRADE AND OTHER RECEIVABLES 3) See chapter on Financial Instruments 4) Unisa guide 2009 ch 8

OTHER CURRENT ASSETS: 1) Unisa guide 2009 ch 8 & 5.2.1 of ch2 IFRS textbook

OTHER FINANCIAL ASSETS 1) All financial assets which are not N-Current: eg, 1-Loans, 2-held to maturity 3-at fair value through profit & loss (buying costs not capitalized),4- shares for short term trading 2) Ch 8 of unisa guide 2009

CURRENT TAX ASSETS: 1) Eg SARS owes you still. Ch 17 of IFRS book /pg 57 unisa manual

62

63 | P a g e A C C A 2 0 1 A c c o u n t i n g

CASH AND CASH EQUIVALENTS 1) Bank, petty cash etc.- see chapter on Financial Instruments/study unit 8 of unisa guide

TOTAL EQUITY 1) 2) 3) 4) 5)

See unisa manual page 58 / + paragraph 5.2.2 & 5.2.3 of chapter 2 Definition= residual interest after “assets-liabilities”. See example for separation of parts in the balance sheet. All the textbook says is the following: In particular , for share capital: i) (1) No. authorized (2) No. issued and fully paid for (3) No issued & not fully paid (4) Par value per share, or that the share has no par value (5) Recon . of no. of shares outstanding at beginning and end of period. (6) Rights, preferences & restrictions applicable to each category, incl. restrictions on the distribution of dividends and repayment of capital (7) The shares in the entity held by the entity, its subsidiaries,joint ventures, or associates (8) Shares reserved for issuance under options and sales contracts,incl. the terms and amounts thereof. ii) A description of nature & purpose of each reserve that forms part of equity. iii) Entitys without share capital ,eg cc`s or partnerships , should disclose the same info. as above , but only to the extent applicable for them. Movements in the accounting period, in each category of equity interest and the rights,preferences,restrictions to each category should be fully disclosed.

SHARE CAPITAL: 1) See ch 19 of IFRS textbook + ch 8 of unisa manual 2) Disclosure ( incl reserves & retained earnings)

RESERVES 1) 2) 3) 4) 5)

63

SEE EXAMPLE UNISA MANUAL PG 61 2009 semester 1 Reserves should be classified under two main headings, namely: • non-distributable reserves • distributable reserves The movement on each reserve during the current year must be disclosed in the statement of changes in equity. The nature and purpose of reserves need to be disclosed.

64 | P a g e A C C A 2 0 1 A c c o u n t i n g

RETAINED EARNINGS: 1) Remember to add last years retained earnings to this years profit after tax to get the Retained Earnings for the balance sheet. 2) Unisa guide 2009 ch 6 + 5.3 of ch2 ifrs textbook

NON CURRENT AND CURRENT LIABILITIES: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11)

The following information must be disclosed in respect of convertible instruments and debentures: • the amount and classes issued • the conditions of conversion and the dates of redemption • particulars of convertible instruments and debentures which may be issued by the company again • that portion which is payable within 12 months of balance sheet date (to be classified as a current liability) The following must be disclosed in respect of loans: • the amount of the obligation • the interest rate applicable • the repayment conditions • that portion which is payable within 12 months of balance sheet date (to be classified as a current liability) Whether it is a secured or unsecured loan and by what it is secured exactly , incl. address/erf no. etc.

DEFERRED TAXATION: 1) See deferred tax above in asset section.

64

65 | P a g e A C C A 2 0 1 A c c o u n t i n g

OTHER FINANCIAL LIABILITIES: 1) Unit 8 unisa guide

LONG TERM PROVISIONS: 1) Unit 13 unisa guide

CURRENT LIABILITIES: 1) 5.2 ch 2 IFRS textbook

TRADE &OTHER PAYABLES: Unit 8 unisa guide

SHORT TERM BORROWINGS: 1) Unit 8 unisa guide

CURRENT PORTION OF LONG TERM BORROWINGS: 1)

Unit 7.5 unisa guide

CURRENT TAX PAYABLE: 1)

Ch 17 of IFRS book

SHORT TERM PROVISIONS: Unit 13 unisa guide

DEPRECIATION: Note: method of working out cost from carrying amount: For straight line method: EG 20% over 5 years – then after 2 years : 1- acc depr= 20+20% ,2-carrying amount = 100-(20+20)= 60%. 3- cost = 100/60 X carrying amount. For Reducing balance Method : same as above exept : for 20% on reducing balance method = 1-year 1= 20% 2- year 2 = 20% + (20% X 80%)= 36% 3-year 3 = 36% + (20%x 64 %) =36+12.8=48.8% 4-year 4 = 48% + (20% x 52%) = 48+10.4=58.4% and so on etc. etc.

EXAMPLE: FULL BALANCE SHEET: NEW STYLE FROM 2009:

Statement of Financial Position of xyz Company Ltd at 28 Feb 2009. ASSETS

PAGE 44tsee-own notebook1-end ch3-format-dissertation.

Non-Current Assets ?????+ Provisions+????bad debts /guarantee + warrantee's. 1-Property Plant and Equipment (separate from investment property, but not for fakiri this year) 2-Investment Property ( separate from other property –but not for fakiri this year : INCL renting … out OR to sell , NOT owner resident etc.) 3-Finance Lease Receivables 4-Other Intangible assets (all intangible assets as normal + Preliminary Expenses and Share Issue . … costs ) 5-Available for Sale Investments (financial assets) :(exept: 1-held to maturity ,2loans or other .. …. receivables ,3- subsidiary`s , 4- at fair value … ….. …….. through profit and loss on speculation, for trading .. eg shares) 6-Other Financial Assets ( put them separate for our level both here AND in notes, not under this … …. heading but each in own one,: INCL: ,1-held to maturity eg n-c …. … debentures, 2- loans to others ,3- shares in subsidiaries+loans to … … ….. … subsidiaries both go in 1 line together as 1 total as investment in …. …… ……. subsidiary on SoFP & Notes-in both, NOT 1- at fair value through profit ……. and loss on speculation, for trading eg shares) 65

NOTE S

2005

2006

R TOTAL

R TOTAL

xxxxxxx x xxxxxxx x

xxxxxxxx

xxxgh

xxx

xxxxxxx x

xxxxxxxx

xxxxxxxx

66 | P a g e A C C A 2 0 1 A c c o u n t i n g

Statement of Financial Position of xyz Company Ltd at 28 Feb 2009. 7-Deferred Tax Assets (see description below ie: eg from different SARS vs YOU depreciation % )

Current Assets 1-Inventories

(all and any incl. WIP etc)

2-Trade and other Receivables (incl. ANY dividends receivable , prepaid expenses etc.) 3-Finance Lease Receivables 4-Other Current Assets 5-Other Financial Assets ( INCL: 1-held to maturity eg current portion debentures ,2- current … …. portion loans or other receivables , 3- at fair value through profit and loss …. on speculation, or for trading ,but NOT subsidiary shares they are n-c- eg …. Shares) Note: NOT separate as for N-C but all in 1 total in this heading. 6-Current Tax Assets (if SARS owes you from last year) 7-Cash and Cash Equivalents (bank and petty cash) Prepaid Expenses ( should go in Trade & other Receivables???) ??????? Total Assets EQUITY AND LIABILITIES Capital and Reserves Share Capital ( all issued shares incl. pref & ordinary, +but not premium ,do separate below … line for share premium per fakiri) Other Components of Equity ( all reserves, show separate indented below if you want) Retained Earnings ( remember to ADD : last years Retained earnings to This years Profit : … to get end of year figure then minus transfers to general reserve etc .. … etc) Non-Current Liabilities-rem put in increasing order liquidity:check chapter 15-payable last first , .. those payable first go last!!! 1-Long term borrowings : (INCL Debentures (per unisa)+ loans- remember to subtract anything to … be paid in the next 12 months!! And put in ”current liabilities”) 2-Retirement Benefit Obligation 3-Deferred Tax Liabilities 4-Other Financial Liabilities 5-Long Term Provisions ( NOT prov. For bad debts! Note) Current Liabilites(in incresing order of liquidity remember:payable last first) see page 291 t :chapter 14 : "current liabilities" 1-Trade and other Payables (eg dividends payable etc , but put dividends in separate own line as per … unisa ? so not sure) 2-Short Term Borrowings (eg bank overdraft) 3-Current portion of Long Term borrowings ( eg current portion of debentures , loans etc) 4-Current Tax Payable ( owed to SARS ) 5-Short Term Provisions. Total Equity and Liabilities

EXAMPLE AS per UNISA manual 2009 66

xxx

xxx

xxx

xxx

TOTAL xxxxxxx x xxxxxxx x

TOTAL xxxxxxxx

xxxxxxx x xxxxxxx x TOTAL

xxxxxxxx

TOTAL xxxxxxx xx

TOTAL xxxxxxxxx

xxxx

xxxx

TOTAL

TOTAL

total

total

TOTAL

TOTAL

xxxxx

xxxxx

xxxxxx

xxxxxx

xxxxx

xxxxx

TOTAL

TOTAL

xxxxxxxx

xxxxxxxx TOTAL

67 | P a g e A C C A 2 0 1 A c c o u n t i n g

OLD STYLE from 2008 Statement of Financial Position of xyz Company Ltd at 28 Feb 2009. ASSETS PAGE 44tsee-own notebook1-end ch3-formatNOT dissertation. ES Non-Current Assets ?????+ Provisions+????bad debts /guarantee + warrantee's. Property Plant and Equipment

3

Current Assets Trade and other Receivables Cash and Cash Equivalents 7

Prepaid Expenses ( should go in Trade & other Receivables???) Total Assets EQUITY AND LIABILITIES Capital and Reserves Issued Share Capital / or Capital (optional) 67

2006

R R TOTAL TOTAL

Other Financial Assets : Investments (at cost)( shares-unlisted + 5 listed + fixed deposits+ loans-put as sub-headings below) Intangible assets 4 Preliminary Expenses and Share Issue costs 6

Inventories

2005

8

xxxxx xxx xxxxx xxx xxx xxx

xxxxxxxx

TOTAL xxxxx xxx xxxxx xxx xxxxx xxx xxxxx xxx TOTAL

TOTAL xxxxxxxx

xxxxxxxx xxx xxx

xxxxxxxx xxxxxxxx xxxxxxxx TOTAL

TOTAL TOTAL xxxxx xxxxxxxxx xxxx

68 | P a g e A C C A 2 0 1 A c c o u n t i n g Statement of Financial Position of xyz Company Ltd at 28 Feb 2009. Reserves(or –Other Reserves –optional)) 9 Retained Earnings(optional) Non-Current Liabilities-rem put in increasing order liquidity:check chapter 15-payable last first ,those payable first go last!!! Interest bearing Borrowings: Long Term Loans.(over 20 years at 12% pa ) 10 Mortgage Bonds (over 20 years at 10% pa ) Debentures: Non-Interest bearing Borrowings. Redeemable preference shares Current Liabilites(in incresing order of liquidity remember:payable last first) see page 291 t :chapter 14 : "current liabilities" Trade and other Payables Current portion of Interest bearing borrowings Tax Payable Dividends payable Bank Overdraft Cumulative preference dividends????????????????(goes to 'Dividends payable' think so . Total Equity and Liabilities

10

xxxx

xxxx

TOTAL TOTAL total xxxxx xx xxxxx xx

total xxxxxxx xxxxxxx

10 10 ? TOTAL TOTAL

8

xxxxx xxxxx x xxxxx

xxxxx xxxxxx xxxxx

TOTAL TOTAL

EXAMPLE OF A DIFFERENT METHOD OF ARRANGING BALANCE SHEET: NOT SURE IF ALLOWED OR NOT.

NOTES TO THE BALANCE SHEET As per fakiri:

1. Note: method of working out cost from carrying amount: For straight line method: EG 20% over 5 years – then after 2 years : 1- acc depr= 20+20% , and carrying amount = 100-(20+20)= 60%. And “COST” = 100/60 X carrying amount. 68

..

69 | P a g e A C C A 2 0 1 A c c o u n t i n g

For Reducing balance Method : same as above exept : for 20% on reducing balance method = 1-year 1= 20% 2- year 2 = 20% + (20% X 80%)= 36% 3-year 3 = 36% + (20%x 64 %) =36+12.8=48.8% 4-year 4 = 48% + (20% x 52%) = 48+10.4=58.4% and so on etc. etc. 2. Note: all depreciation or Acc. Depreciation must be in Brackets 3. Note: Don’t for get to subtract depreciation for the current year as well as all previous yrs depreciation from the “disposals at carrying amount “ 4. NOTE: For the movement during year : a. Disposals of Assets: Put it at carrying amount – less [pro-rata depreciation to that month+other years depreciation] b. Depreciation: include all : incl -rata depreciation to that month for any disposals/sold assets + other unsold assets. 5. Note: for end of year balances: a. LEAVE out any depreciation from disposals -out of Acc. Depr. , and also leave out costs of disposals out of ‘Cost’.

Put : 1) address of land 2) If it is security for any loans etc 3) name of any valuers and the amount of any revaluations they did. 2-

Investment in subsidiary ( remember to separate all shares and loans from other n-c and c headings to put here and not there – ie not double!)

3-

a. b.

Ordinary Shares at cost : Loan to subsidiary :

5000000 100000 TOTAL

a.

Non-Current Financial assets 1. Available- for- Sale Financial Asset /Investment UNLISTED INVESTMENTS 1000 ordinary shares (cost price 2500) 5000{market value} (you can put ‘at R20

Financial Assets :

each – but this must be the cost , not the market value ?? confused so leave out)

a.

69

LISTED INVESTMENTS xxxxxxx Current Financial Assets 1. Financial Asset at Fair Value through Profit & Loss UNLISTED INVESTMENTS xxxxx

70 | P a g e A C C A 2 0 1 A c c o u n t i n g LISTED INVESTMENTS 10000 Ordinary Shares in BCD(ltd) cost 20000 40000 (you seem to only put name

.

for listed companies?)

2. 3.

4-

5-

Trade & other receivables( 43000+2000) 45000 Loans and Receivables: Loan to a director(loan interest free and repayable Following year) 50 Staff Loans ( loans interest free repayable following year) 100

Inventories: a. b.

Finished goods WIP

10000 100

a.

Authorised 700 000 ordinary shares no par value shares 20000 par value preference shares of R1 each Issued 630000 ordinary NPV shares :STATED CAPITAL 100000 8% Par Value Preference Shares

Share Capital :

b.

700000 20500 630000 100000

1. During Accounting period 2000 ordinary shares were issued at 10000 2. The directors are authorized up to the next AGM to issue the remaining unissued ordinary shares. 6-Other Reserves: Non-Distributable reserves CRRF Distributable Reserves Reserve on revaluation of property 6-

10000 15000

Non Current Liabilities: a.

Long Term borrowings: 1000 8% Debentures of R100 each Long term loan Total: Current portion of long term loan

100000 30000 130000 (10000) 120000

1 - The debentures are secured by a first mortgage bond over land and buildings with a carrying amount of 47383897 and are redeemable at par before 1 march 1999. 2 - The long term loan is unsecured, carries interest at 10% p/a and is repayable in annual installments of 10000 on 1 march each year. 3-

Loans to Parent : a. Secured Loan 48900 The loan was granted to PQR on 1 june 1999. The highest outstanding balance during 1999 was 50000 No fixed repayment agreement was entered into and interest is calc. at 10% p/a. c.

Unsecured Loan. Etc etc

The following are the headings etc needed for the NOTES(in yellow)and descriptions. NOTE: For bal. sheet notes,all must be for 2 yrs running figures,just "shares issued etc" not.(and obvious ones eg:prop,plant+equip)

GENERALLY ACCEPTED ACCOUNTING PRACTICE 1.1 Generally accepted accounting practice The annual financial statements are prepared according to the statements of generally accepted accounting . .. . .... practice.

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ACCOUNTING POLICY The accounting policy of the company is consistent with that of the previous years, and is as follows: 2.1 Measurement basis The annual financial statements are based on historic cost unless stated otherwise. 2.2 Property, plant and equipment Depreciation is not written off on land. Depreciation on a plant, buildings, machinery and vehicles . is written off .. at rates deemed appropriate to reduce the carrying amount of the assets over their . expected useful lives to their .. estimated residual values. The rates and methods are as follows: Buildings 2% per year on the straight-line method Plant 10% per year on the straight-line method Machinery 15% per year on the straight-line method Vehicles 20% per year on the straight-line method. 2.3 Other financial assets Other financial assets are valued at fair value. Listed shares ae .‘aiued at market value. Unlisted .. investments .. .. are revalued every year at net realisable value to establish the directors’ valuation. 2.4 Inventories Inventories are valued at the lower of cost, on a first-in-first-out basis, and net realisable value. . .. An appropriate ....part of the fixed and variable fac:ory overheads are included in determining the . .. cost of work in progress and ....finished goods. 2.5 Revenue recognition Sales are recognised upon delivery of products or performance of services. (must show measurement bases used and each specific policy used in fin stats.needed tounderstand)

(ASSETS:) PROPERTY PLANT & EQUIPMENT 6. Note: method of working out cost from carrying amount: For straight line method: EG 20% over 5 years – then after 2 years : 1- acc depr= 20+20% , .. 2-carrying amount = 100-(20+20)= 60%. 3- cost = 100/60 X carrying amount. For Reducing balance Method : same as above exept : for 20% on reducing balance method = 1-year 1= 20% 2- year 2 = 20% + (20% X 80%)= 36% 3-year 3 = 36% + (20%x 64 %) =36+12.8=48.8% 4-year 4 = 48% + (20% x 52%) = 48+10.4=58.4% and so on etc. etc. 7. Note: all depreciation or Acc. Depreciation must be in Brackets 8. Note: Don’t for get to subtract depreciation for the current year as well as all previous yrs depreciation from the “disposals at carrying amount “ 9. NOTE: For the movement during year : a. Disposals of Assets: Put it at carrying amount – less [pro-rata depreciation to that month+other years depreciation] b. Depreciation: include all : incl -rata depreciation to that month for any disposals/sold assets + other unsold assets. 10. Note: for end of year balances: a. LEAVE out any depreciation from disposals -out of Acc. Depr. , and also leave out costs of disposals out of ‘Cost’. 2) Property Plant & Equipment: Carrying amount: Beginning of the year: acc.depreciation) Cost Accumulated depreciation

( cost –

Additions (include all costs of : installation etc as COST price!) Disposals (Cost price – Accumulated depreciation ONLY ) Re-Evaluations. Depreciation (One Year's including Pro rata for Disposals +Additions)

Land&Buildin Vehicles gs xxx xxxx

Machinary

TOTAL

xxx

xx

-------------------

(Brackets)

(Brackets)

(Brackets)

--------------(Brackets) ---------------

(Brackets) (Brackets) (Brackets)

-----------(Brackets) (Brackets)

----------(Brackets) (Brackets)

(Brackets)

(Brackets)

(Brackets)

Cost --------------Accumulated Depreciation(remember to add all up extra mnths to ------------------date sold Carrying Amount: End of year: ( cost – acc.depreciation)

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72 | P a g e A C C A 2 0 1 A c c o u n t i n g In Addition ,the land & buildings which the company owns is :erf 3432 in star industrial park ,which was purchased for R23453,00. On the DATE: 24/12/2005.Additions were made to value of R3999.(leave out additions and put date of revaluation, not bought date, if revaluated- )This land is subject to a mortgage bond of 300000 at 10%p/a

(ASSETS:) INTANGIBLE ASSETS Intangible assets Carrying amount: Beginning of the year: acc.depreciation) Cost Accumulated amortisation

( cost –

Additions (include all costs of : installation etc as COST price!) Disposals (Cost price – Accumulated depreciation ONLY ) Amortisation (One Year's including Pro rata for Disposals +Additions)

Brand names Licences xxx xxxx

TOTAL xx

-------------------

(Brackets)

(Brackets)

-----------------------------

(Brackets) (Brackets)

----------(Brackets)

(Brackets)

(Brackets)

Cost --------------Accumulated Amortisation(remember to add all up extra mnths to ------------------date sold Carrying Amount: End of year: ( cost – acc.depreciation)

OTHER FINANCIAL ASSETS. 1 Listed shares at market value 2 Unlisted shares at market value

PRELIMINARY COSTS AND SHARE ISSUE COSTS

Also: comission costs in resect of issueing debentures

Discount allowed in respect of issueing debentures

24542 32434

23455 24523

INVENTORIES:

SHARE CAPITAL All Authorised must be first,then all Issued 2nd. Any options granted or other movements must get a sentence at the bottom. Not 2 yrs figures, just 1 figure needed. 72

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Share Premium account is only allowed to be used for certain purposes.Any usage thereof must be disclosed in the statement of changes in equity.

RESERVES

INTEREST BEARING BORROWINGS:

:

STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) NOTE :The format of income statements has changed from 1st year easy style format, now the format is as examples below.There are no "Distribution ,Administration &Other Expenses main headings.Now its only 'Revenue' Cost of Sales, and different types of expenses separate : eg : separately: 1-distribution + 2-administrative expenses ,and “finance Costs-which must be separate” All the rest go in 'other expenses' or 'other income'. If there are no ‘minority interests' or extraordinary items' then one must leave out "profit after tax" and 'profit from ordinary activities' and go straight to 'net profit for year' At a minimum, the face of the income statement should include line items that present: 1) As per IAS 1 AC101: the bare minimum is: 1) Revenue 2) Financing Costs 3) Tax expense 4) Profit and Loss for the year. 2) Furthermore , when including certain other general items, at a minimum it should then generally contain: 73

74 | P a g e A C C A 2 0 1 A c c o u n t i n g 1. revenue; 2. finance cost; 3. share of after-tax profits and losses of associates and joint ventures accounted for using the equity method; 4. income tax expense; 5. amount of the total of after-tax profit or loss from discontinued operations and the after- tax gain or loss recognised on the disposal of assets (Or disposal groups) of the discontinued operation; 6. profit or loss; 7. every component of other comprehensive income classified by nature; 8. the portion of other comprehensive income of associates and joint ventures accounted for using the equity method, and 9. total comprehensive income. 3) The following items should be disclosed on the face of the statement of comprehensive income as allocations of profit or loss for the year: 1. profit or loss attributable to owners of the parent, and 2. profit or loss attributable to minority interest. 4) The following items should be disclosed on the face of the statement of comprehensive income as allocations of total comprehensive income for the year: 1. total comprehensive income attributable to owners of the parent, and 2. total comprehensive income attributable to non-controlling interest. 5) Additional line items, headings and sub-totals should be presented on the face of the income statement when required by a statement of generally accepted accounting practice or when such presentation is necessary to present fairly the enterprise’s financial performance (AC 101 par .76). 6) It is important to note that the notion of extraordinary items has been abandoned and no disclosure whatsoever of such an item is allowed. 7) The statement of comprehensive income consists of the following two parts , the first part only goes up to the profit for that section, not just gross profit but up to old net profit after tax, just excluding all the items shown in second part , no 2 below : 1. PROFIT OR LOSS FOR THE YEAR i) All income and expense items are recorded in the profit or loss section, including the effect of changes in accounting estimates, unless a Standard requires or permits otherwise.(eg:correction of errors and CERTAIN , not all,effects of changes in accounting policies in terms of lAS 8 (AC 103).) 2. AND OTHER COMPREHENSIVE INCOME FOR THE YEAR. i) includes the following items : (1) Revaluation Surpluses And Deficits (2) Actuarial Gains And Losses Recognised Directly In Equity; (3) Gains And Losses Arising From The Translation Of The Financial Statements Of A Foreign Entity; (4) Gains Or Losses On Remeasuring Available-For-Sale Financial Assets; (5) Gains And Losses On Cash Flow Hedges, Or (6) Share Of Comprehensive Income Of Associates. 8) An entity should also disclose the amount of income tax relating to each component of other comprehensive income (in the statement of comprehensive income or in the notes).Each component of other comprehensible income is shown either before tax with total tax for all other comprehensive income shown after and then deducted to give total profit, or just each one net of tax if you want, then total profit below. 9) The statement of comprehensive income may be presented in two ways: either by classifying income and expenditure in terms of the FUNCTIONS that give rise to them or by classifying income and expenditure in terms of their NATURE (lAS 1 (AC 101)99). Note that expenses are sub-classified in terms of frequency, potential for gain or loss and predictability.(see examples below) 10) Method depends on historical and industry factors and should be consistently applied 11) When classified in terms of FUNCTIONS , additional information of the nature of the expenditure should be provided in notes (reason is that the nature of expenses is useful in predicting future cash flows) 1. depreciation; 2. amortisation, 3. employee benefit expense. 12) ITEMS DISCLOSED ON THE STATEMENT OF COMPREHENSIVE INCOME OR IN THE NOTES : Items of such a size, nature or incidence that the users of financial statements should be specifically referred to them to ensure that they are able to assess the performance of the entity should be disclosed separately. The following are examples of items that will probably require specific disclosure in particular circumstances lAS 1 (AC 101) 98 : 1. The write-down of inventory to net realisable alue (or of property, plant and equipment to the recoverable amount) as well as the reversal of such write-downs; 2. The restructuring of the activities of an entity, and the reversal of any provisions for the Cost of restructuring; 3. The disposal of property, plant and equipment; 4. The disposal of investments; 5. Discontinued operations; 6. The settlement of litigation, and 7. Other reversals of provisions.

EXAMPLE OF :as per unisa manual 2009 74

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EXAMPLE OF :as per IFRS book 2009

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EXAMPLE OF :OLD STYLE VERSION OF Income Statement(1997+/-)

THE COMPANIES ACT STATES FOLLOWING REGARDING DISCLOSURES REQUIRED IN SOCI : TO 2008/9 SECTION 283-REMUNERATION OF AUDITORS: ii) iii)

All payments to the company’s auditors, either made or to be made, must be separately disclosed in the income statement. For the purposes of this publication we present the remuneration of auditors as part of other expenses, but disclose it in the note “Profit before tax”. (1) The disclosure of auditors’ remuneration must be separated as follows: (2) Remuneration for audit. (3) Remuneration for other specified services. (4) Auditors’ expenses. (5) Payments in respect of the audit or any other matter.

FIXED ASSETS (IAS 16 PROPERTY PLANT & EQUIPMENT) a. b.

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Income statement (Statement of comprehensive income) (pars 42(n) and 45) The aggregate amount of profits and losses on the realisation, scrapping, disposal or sale of fixed assets must be separately disclosed. Should depreciation not be provided for, or if another means of reducing the assets amount is used, this fact must be disclosed.

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LEASES (IAS 17) Income statement (Statement of comprehensive income) (par 42(r)) Operating lease payments per category of leased asset must be disclosed.

REVENUE (IAS 18) c. d.

Income statement (Statement of comprehensive income) A distinction must be made between income from listed and unlisted investment investments(interest, dividends, and other specified income) (par 42(a). The aggregate amount of turnover for the period must be separately disclosed, aic with the policy according to which turnover is recognised (par 44).

EARNINGS PER SHARE (IAS 33) e.

Income Statement (Statement of comprehensive income) (pars 43(l) and 44) Listed companies must disclose earnings and dividends per share per class of share.

PROVISIONS AND CONTINGENT LIABILITIES (LAS 37) f.

The i. ii. iii.

following must be disclosed for any contingent liabilities not already recognised in financial statements: The nature; The uncertainty, and An estimate of the amount before and after tax (par 36).

EMPLOYEE BENEFITS (IAS 19) g.

Balance sheet (Statement of financial position) (pars 40 and 41) Enough information must be supplied to allow a broad understanding of the significant retirement costs, the actual costs and any contingent liabilities for the period. Par 41 contains details of specific information that must be disclosed.

3.14 INCOME STATEMENT (PARS 42—49) (IAS 1) The following income statement amounts, inter alia, must be separately disclosed in the financial statement: h. Listed and unlisted interest, dividends and other investment income; i. Aggregate dividends, interest, fees and other income from subsidiaries; j. Aggregate dividends declared; k. Taxation expenses per class of tax as well as current and deferred tax and any adjustments relating to prior periods or changes in tax rates; l. Interest paid m. Remuneration paid to persons other than bona fide employees for managerial, technical, administrative or secretarial services; n. Auditors’ remuneration; o. Profits or losses on share transactions; p. Profits or losses on asset disposal; q. Foreign exchange gains or losses; r. Operating leases expenses per major category of leased asset; s. Turnover t. Depreciation.

SECTION 297 DIRECTORS’ REMUNERATION u.

Section 297 contains disclosure requirements in respect of directors’ remuneration. A methodology is provided to assist in compliance with these requirements, and is followed by brief outline of the disclosure requirements of section 297.

Methodology The following methodology is proposed for the determination of directors’ remuneration: v. Identify the directors of the company for which disclosure of directors’ emoluments is required. w. Establish which of these directors are also directors and officers of subsidiaries of the company. x. Prepare a table for the company, its subsidiaries and third party payments to directors of the company. y. Disclose the information in respect of all qualifying emoluments of directors of the company in total in the note in respect of directors’ emoluments. z. Deduct that portion of the directors’ emoluments paid to directors of the company by subsidiaries or third parties (ie not paid to them by the company). aa. Reference the amount determined above to the expenses in respect of directors’ emoluments disclosed in the note “Profit before tax”. bb. Only if a director is also an officer will the emoluments be disclosed as “other services”. cc. A Secretary is not a type of director. dd. All amounts received by the chairman are for services “as director”. ee. Pensions/loss of office paid by third parties to a director of the reporting entity will only be included in the disclosure of the reporting entity if they were paid by the third party in respect of directorship of the reporting entity or its subsidiaries. DefinItIons In order to successfully apply the abovementioned methodology, knowledge of the following definitions is required: gg. Manager — principal executive officer of the company (whether or not he is a director). hh. Officer i. managing director; ff.

77

78 | P a g e A C C A 2 0 1 A c c o u n t i n g ii. manager; or iii. secretary ii. Director — any person occupying the position of a director or alternate director of company, by whatever name he may be designated. Therefore the following amongst others may be included: i. - directors; ii. - chairman; and iii. - alternative directors. jj. Directors’ remuneration— Emoluments; i. — pensions for directors and past directors; and ii. — compensation for loss of office for directors and past directors The disclosure requirements for these three different components of directors’ remuneration are briefly outlined below. 4.1.2 Directors’ emoluments kk. Emoluments include: i. Amounts paid for services rendered as director; ii. payments for acceptance of office; iii. basic salary; iv. bonus and performance-related payments; v. expense allowances: eg travel and entertainment allowances*; vi. cash value of fringe benefits; vii. contributions to pension funds on behalf of the director; and viii. profits made on the exercise of the option to acquire shares. ix. * An allowance will not be considered to be directors’ emoluments if the allowance substance represents an advance and the directors are required to account for the expenses paid out of the allowance. However, should the director be able to spend the a - lowance at his discretion, the allowance will be considered directors’ remuneration. ll. For disclosure purposes, emoluments paid to i. non-executive directors (who have no involvement in the day-to-day management of the company); and ii. executive directors (who are involved in the day-to-day management of the company) must be indicated separately. mm. Furthermore, the emoluments paid for i. services as director; and ii. other services must be identified separately. nn. It must also be stated whether the emoluments were paid by i. the company; ii. a subsidiary of the company; or iii. a third party in respect of iv. — services as director of company/its subsidiary; or v. — carrying on of affairs of company/its subsidiary. Commentary oo. When calculating and disclosing directors’ emoluments, take note of the following: i. All remuneration paid to the chairman is directors’ emoluments. ii. If (for example) a director is given the use of a motor vehicle as a fringe benefit, only that portion utilised for private purposes will be included in directors’ emoluments. Thus, if the private usage is given as 4O% only that 40% will be included in directors’ remuneration. pp. Take careful note of whether or not the chairman and managing directors’ fees already include the normal directors’ fee. qq. Should a director also be an officer, the remuneration for this office is included in “other services”. Directors’ pensions For disclosure purposes, pensions paid to i. non-executive directors; and ii. executive directors must be identified separately. ss. Furthermore, pensions paid for i. services as director; and ii. other services must be listed separately. tt. It must also be stated whether the pensions were paid by i. the company; ii. a subsidiary of the company; or iii. a third party in respect of directorship in the reporting entity/its subsidiary to — a director; — a past director; or — another person by nomination of a director or by virtue of that person’s dependence on or connection to the director in respect of iv. — services as director of company/its subsidiary; or v. — carrying on of affairs of company/its subsidiary. uu. Pensions received from an independent/bona fide pension fund are not disclosed. rr.

Compensation In respect of loss of office vv. Compensation paid to i. Non-executive directors; and ii. Executive directors must be identified separately. 78

79 | P a g e A C C A 2 0 1 A c c o u n t i n g ww. Furthermore, compensation paid for i. Services as director ii. Other services must be indicated separately. xx. It must also be stated whether the compensation was paid by i. the company; ii. a subsidiary of the company; or iii. a third party, to — a director; or — past director in respect of official capacity as — director; or — as manager of operations (carrying on of the company’s affairs). Details of directors’ service contracts The service contracts of iv. — non-executive directors; and v. — executive directors must also be identified separately.

2)

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80 | P a g e A C C A 2 0 1 A c c o u n t i n g

NAME OF BUSINESS : XYZ Traders INCOME STATEMENT for The YEAR ended 28 Feb 2007 (over a specific period) SEE PAGE 140 S NOTES R REVENUE 15 TOTAL Cost of Sales (xxxxxx) Gross Profit TOTAL Other operating income xxxxx Xxxxx 8 Xxxxx 8 Xxxxx 8 Xxxxx 8 Xxxxx 8 Xxxxx Bad Debts Recovered Xxxxx Discount received Xxxxx Rent or(next line)Comisssion/etc. income Xxxxx TOT. ALL Income Distribution Administration and other Expenses. (BRACKETS) Discount Allowed Xxxxxx Depreciation 1.2+3 Carriage on "Sales" (not purchases ! ) Xxxxxx Packaging (also not in purchases ! ) Advertisements Wages and salaries Water and lights Finance Costs Interest on Long term Loan: MUST apart Interest on Bank Overdraft: Must apart Interest on Debentures Profit (for the year)

8 8 8

Xxxxxx Xxxxxx Xxxxxxx Xxxxxxx (BRACKETS) Xxxxxxx Xxxxxxx Xxxxxxx TOTAL

Notes to the statement of comprehensive income(2009 ifrs) 1) Write all the following headings exactly as shown below here: incl. (A) below and (B) to the end- all headings are to be shown as written below in the actual notes: A) PROFIT BEFORE TAX IS DISCLOSED AFTER TAKING THE FOLLOWING DISCLOSABLE ITEMS INTO

ACCOUNT :

INCOME 1) There are various complicated rules for revenue,following is simplified version. 2) Note: rem: Sales Returns goes off Revenue, not off cost of sales.This is because the returned article has already been counted back into inventory at the final stocktake.

I think financial instruments are n-c “shares available for sale” value appreciation (market value)– not sure!

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INCOME FROM SUBSIDIARIES

INCOME FROM OTHER FINANCIAL ASSETS Note:(PTY)ltd = always Unlisted and LTD = always listed –for purposes of exams.

I think loans to others (exept subsidiaries) go here

EXPENSES:

Note:significant items are: 1- Income or Expenses. 2- Events distinct not expected to re-occour frequently Eg:loss on expropriation of assets /earthquake

REMUNERATION(OTHER THAN FOR BONA FIDE EMPLOYEES) FOR:

DIRECTORS REMUNERATION: 1) A secretary OR marketing manager OR an accountant are NOT a director. 2) The IFRS book has another style , they include more of the prescribed disclosures for directors , but Unisa uses a simpler method.UniLim does the unisa style one. 3) Only if a director is also a director of the company who’s fin stats you are doing, then he is included in the “directors remuneration” breakdown for the company, and his fees for services to any subsidiaries is included in the calculations(and then deducted again ).BUT if he is NOT a director of the company, but only of a subsidiary –he is left out completely.We just want to be able to show , for any of our directors, what they get from any subsidiaries. 4) A company that owns us is left out completely- even if our directors work there as directors as well, it is not shown at all in our books.Only for our subsidiaries is anything actually shown. 5) ONLY directors are included in the breakdown- NOT general managers, marketing managers, secretaries,accountants etc ,but if a director is also an officer eg a secretary, then what he gets for that is also included in the emoluments etc.and he is seen as an Executive director. 6) A chairman is a 1-chairman and automatically also a 2-director , so he gets fees for both , not just for being chairman. 81

82 | P a g e A C C A 2 0 1 A c c o u n t i n g 7) Pension fund contributions by company (not by person himself) go to directors emoluments , not pensions, but direct pension payouts – like a salary type payout-, go to the “Pension Section” of the directors remuneration part of Notes. 8) If a travel allowance is paid to each director of a company , and one guy is director of the subsidiary and also the parent, then he gets 2X the travel allowance!, one from each company. 9) A Chairman is a non-executive director. Unless indicated otherwise. 10) If he is a only a director of this company , and also a secretary or a managing director of another company, he is just a non-executive director.But if he is secretary AND a named director of this company, then he is a executive director. 11) IF A non executive director receives compensation for loss of office: it MUST ALSO be shown on breakdown in notes under that heading. 12) If half of a former directors pension is paid by a subsidiary because he used to be a director/work there too ,that half is also subtracted as “less paid by subsidiary”)

Non-executive compensation loss of office must also be shown same as for executive above.

AUDITORS REMUNERATION

TAX EXPENSE 12345-

Must specify the different types and classes of tax individually in detail., incl:deferred,Adjust. last yr ,etc etc. COMPANY MUST MAKE 3 PROVISIONAL TAX PAYMENTS, 6mnths, 12mnths into Yr & 7 Mnths after Fin.Yr. End. NOTE rem: If SARS disagrees with last Yrs Tax eg disallows certain expenses, then it is shown in notes on SoCI for current year as : ”Tax Adjustment for Previous year. This amount must be ADDED/SUBTRACTED to this years tax, BOTH in SoCL as already worked into tax amount , for Net Income after tax, and also in notes. Any transfers to/from deferred tax must be disclosed in the SoCI as well If all details ar’nt not shown in SoCI, then they must be shown in notes:

Example: full notes for SoCL by Unisa 2009 manual.

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STATEMENT OF CHANGES IN EQUITY. Note:Rem: in exam watch out for the pref. shares given at date of current balance sheet, but the other shares at date of last balance sheet.So all this years share transactions on Pref. shares are to be subtracted from value given on balance sheet to get opening balance for this year on your Statement of changes in Equity. 1) A statement of changes in equity forms part of the financial statements. Essentially, what is required is a reconciliation of equity at the beginning of the reporting period with equity at the end of the reporting period. 2) The statement should include the following: a) Total comprehensive income for the period, showing the total amounts attributable to owners of the parent and to noncontrolling interests separately; b) The effect of changes in accounting policy and the correction of errors for each component of equity; 83

84 | P a g e A C C A 2 0 1 A c c o u n t i n g c) The amounts of transactions with owners in their capacity as owners, showing contributions by and distributions to owners separately, and including issue of shares, buy back of shares, dividends paid and transfers between reserves d) For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, and e) Dividends paid for the period and related dividend per share can be disclosed either in the statement of changes in equity or in the notes. 3) Notes: a) It seems dividends paid and related dividend per share can either appear in the notes ,or in the actual statement , depends which you want.???check – what else??? b) It does not seem that you ever put numbers next to the lines to indicate where in notes to find each item like in Income stat or Bal sheet in this stat. chnge. equities 4) General Method: a) Only where balances are transferred internally between other columns eg: transfer retained earnings to CRRF, does it not affect the Total column on far right, the rest does. b) If you give comparative figures, then do year 1 first , then year 2 after it below(see example) c) Start with : ‘Correction of Errors’ from previous year .(see example) then restate the balances in next line. d) Changes in accounting policy all go in one line,if changed at end last/beginning of this year then do a extra line below to restate ALL the balances.( if done in mid year etc??? don’t know whether to restate below or not???) e) All “Total Comprehensive Income” (or profit) goes in 1 line next to each other, incl. Revaluation Reserve increases + Normal profit+ other.(IN EXAMS : do all on 1 line – he specially indicated this,not separate) f) All redeeming pref shares +CRRF transfers go in 1 line(see example)(but put on separate lines for the exam) i) Note: For this retained earnings only ever goes to CRRF, it NEVER gets less otherwise from redemption! – so if shares are issued to pay for redemption, the payment only relects in 1 column: Pref.Shares Column , not in retained earnings column at all!! ii) Note : all share premiums paid out of profits/ retained earnings, MUST get subtracted from Retained Earnings, it does NOT just go with other expenses for the years( ledger account gets written off/transferred too) g) ALL Dividends paid in one own line. (but for exams do each class of share on own line) h) You can mix up order of the lines, but not too much. i) . To Realize a Revaluation Reserve over a period :If some part of the Revalution Reserve/Surplass (a non-statutory reserve –ie: if company does not want to decare a revaluation of assets as profit) is to be “Realised over the remaining useful life of the asset” ,it means each year you move a proportion(eg over 15 years = 1/15 per year) of the Revaluation Reserve to Retained Earnings/Accumulated Profit- but what about tax?. j) Writing off preliminary or other expenses gets its own line-all in 1 go- : total CONTRA share premium.You just subtract off share premium and also off total, nothing else – leave retained earnings etc. alone. k) REM: check all to/from Loans % `s in expenses for left out bits, and any other similar calculations, examiner loves to make a mistake here disguised as ‘ already worked out for you’. l) “Other Income” could also contain some “Trade and other Receivables” of an abnormal type. m) You seem to have to do a “Revaluation Reserve” column in statement of change in equities, for any asset revaluations done. (Must you or is it optional?) n) For REDEMPTION OF REDEEMABLE EQUITIES: the redemption or issue of any shares is NEVER shown in RETAINED EARNINGS in ANY WAY EXCEPT for the transfer to the CRRF from one of the DISTRIBUTABLE RESERVES, if needed.It seems odd, because if you must pay out of retained earnings for a redemption, then it seems one should show it comes out of retained earnings in the statement, but you don’t because it is a capital transaction and comes from bank, not retained earnings.So the capital and asset balance out , so you only show the capital side in this statement. o) ISSUE OF SHARES: you never put anything in Retained Earnings for an issue of shares, it gets left out completely. Just share column and total column are affected! ( bank is contra to shares acc., not retained earn..) p) There are more items/things to be dealt with, but only this much done so far NDR(non DR(distrib DR DR DESCRIPTION

ORDINARY

PREFERENCE

SHARES

SHARES

SHARE PREMIUM

distributabl e reserve)

utable reserves)

CRRF (CAPITAL

REVALUATION SURPLUS RESERVE

MARK TO MARKET RESERVE

GENERAL RESERVE

RETAINED EARINGS /ACCUMULATE D PROFIT

TOTAL

b/d

b/d

b/d

b/d

b/d

REDEMPTION RESERVE FUND)

Balance on 1 January 2005 Total Comprehensiv e Income

b/d

b/d

b/d

b/d

Includes this in same line as per standards

Profit after tax , but before anything else

EXAMPLE 1 from textbook : Note: share capital is split between ordinary and preference, not both in one like example below this one.

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EXAMPLE 2 from UNISA study guide 2009: Note: share capital is not split between ordinary + preference ,both are in one here(see opening balance):

EXAMPLE 3 from IFRS textbook : Note: share capital is not split between ordinary + preference ,both are in one here:

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P.S. from old notes last year unisa(1) notes PETER PUMPKIN Traders NOTES FOR THE YEAR ENDED 28 FEBRUARY 20.1 (1):Accounting Policy (1.1):Financial Statements have been prepared on the Historical cost basis in accordance with Generally Accepted Accounting Practice. (1.2) Property plant & Equipment: Property plant & Equipment are shown at valuation on receipt of goods where cost price is not available. Depreciation(OR/AND amortisation) has been calc. at 10 % of cost price of Assets using the straight line method.(or . .. .... written off over 20 years for intangible assets –straight line method-) Land and buildings have been classified as investment properties and have not been depreciated (1.3)provision for bad debts has been provided for at 5% of debtors. (1.4)Inventories are valued at historical cost. + research & development costs + provisions + employee benefit cost + definition of cash & cash equivalents (1.5) Changes in accounting policy disclosure. (2): Revenue is Recognised as Net Sales to customers/OR Fees charged for services rendered.

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(3) (3.1) Land & buildings consist of erf 1,miemville,with buildings ,purchased at R 150 000. :subject to a MORTGAGE BOND in favour of xxx Bank . (4) Trade and other Receivables consist of : 1:Debtors:starting balance less provision for bad debt less debtors with cedit balance total:XXXXXXXX 2:Bills receivable 3:Vat control account (5) Trade and other Payables consist of : 1:Creditors:starting balance less creditors with debit balance total:XXXXXXXX 3:Vat control account (6) Inventories/y consists of: (1)stationary (2)unfinished goods (3)merchandise for sale TOTAL:XXXXXXX (7)Investments consist of: (7.1)Unlisted Shares at cost: (7.1.1) 150 shares in XYZ Company bought for R3,00 per share(market value R3000)( put current value here, if different to cost price it only goes here ,the cost price is what shows on the balance sheeteg:MARKET VALUE: R5000) (7,1,2) 100 shares in abc Enterprise at cost price R5,00 per share(market value 1000) (7.2)Listed Shares at cost: (7.2.1) 1500 shares in TS Stores bought for R4,00 per share(DIRECTORS VALUATION R7000) (3)Loans granted: (3.1) loan granted to xyz Company (pty)ltd at 10% pa repayable in 4 years on 31 Jan 2005 secured by fixed property:erf 15 tekkiesville,valued at R100000. (7.4)Fixed deposits: (7.4.1) fixed deposit of R5000 over 5 years at xyz bank @ 5% interest p/a payable at end of term. (8)Interest Bearing borrowings: (8.1)Mortgage bonds consist of: The long term loan secured by first mortgage :(Refer to note 3 .for details:) The mortgage bond is for 500 000 repayable over a period of 4 years in installments of R128 000 per annum., Interest at 4 % per annum is levied on Outstanding capital and is also payable annually in addition to installment. Outstanding liability = 500 000. Less: Transferred to Current Liabilities: =128 000 384 000 (8.2) Debentures: 1500 Debentures at R100 are redeemable on 2 JAN 2008 to creditors. Interest @ 10% p/a is payable each year . The debentures are secured by a mortgage bond over land & buildings(refer to note xxx) in favour of the trustees.

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88 | P a g e A C C A 2 0 1 A c c o u n t i n g Property Plant & Equipment:

Land&Buildin Vehicles gs

Carrying amount: Beginning of the year: ( cost – acc.depreciation) Cost Accumulated depreciation ------------------Depreciation (One Year's including Pro rata for Disposals --------------+Additions) Additions (include all costs of : installation etc as COST price!) Re-Evaluations. --------------Disposals (Cost price – Accumulated depreciation ONLY ) (Brackets) Cost --------------Accumulated Depreciation(remember to add all up extra mnths ------------------to date sold Carrying Amount: End of year: ( cost – acc.depreciation) Cost Accumulated Depreciation ( top : Accumulated. Depreciation ------------------at beginning of Year + PLUS +-middle : Depreciation –MINUSDisposals : their Accumulated Depreciation =EQUALS= THIS AMOUNT.)

Machinary

TOTAL

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(Brackets) (Brackets) (Brackets)

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THE COMPANIES ACT 61 OF 73 :( from all in chapter 19 in Introduction to IFRS book) 1234-

56-

Came into being after commission of inquiry into the companies act tabled the Sepplementary report & draft Bill in parliament 1 june 1972.(commission appointed 1963) Act Protects shareholders& 3rd parties eg:creditors Needed due to Mngmnt/owner separation & separate legal entity status A company must present its audited annual fin.stat at AGM ,approved by board +signed on behalf of board in one of official languages . Also copy must be set , at least 21 days before AGM,every member of company,every debenture holder , +every other other parties entitled to,+ Registrar of Companies., + interim statements for public companies at half year to members. On incorporation constitutional documents of firm become private property.

TYPES OF COMPANIES: WITH SHARE CAPITAL: 1.

2.

Private Company : 1.1.Max 50 (with some exceptions) 1.2.May not make offer of DEBENTURES or SHARES to the public. 1.3.May not feely transfer shares between / to shareholders. Public Company : 2.1.Minimum 7 members 2.2.May make offer of DEBENTURES or SHARES to the public. 2.3.May feely transfer shares between / to shareholders. 2.4.By law “companies act” when offering shares to general public must issue a prospectus containing information specified by companies act to public ,available at banks etc. or in press sometimes.

WITHOUT SHARE CAPITAL: 1.

Those companies without share capital referred to as companies "Limited by Guarantee" ,which are deemed by the Companies Act to be "public companies"

WIDELY HELD / LIMITED COMPANY 1. Widely Held Company : 1.1.It is generally a Public company, (for private company see 1.5 below) 1.2.If its articles provide for an unrestricted transfer of shares. 1.3.If permitted by its articles to offer shares to the public. 1.4.It either 1.4.1. Decides by special resolution to be a widely held company. 1.4.2. OR if it is a subsidiary of a widely held company. 1.5.NOTE: rem: A private company may elect by special resolution to be a widely held company. 2. Limited Interest Company: 2.1.It is generally a Private company , 2.2.A company is a limited interest company SIMPLY : if it is not a widely held company. 88

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PRE-INCORPORATION CONTRACTS AND PROFITS PRE-INCORPORATION CONTRACTS i) ii) ii)

Known as pre-incorporation contracts,they are contracts entered into by an agent/trustee of a company which has not yet been incorporated.This is not allowed by common law.Thus the following rules were developed in Act. May/must be ratified by BoD – 1-Must lodge 2 copy's of contract at Registrar,one certified by a notary , with memorandum&articles,2-Must record in memorandum on registration,3-be in writing 4-signed by agent of company - see exact important 4 conditions in Companies Act.

PRE-INCORPORATION PROFITS AND LOSSES i)

If one buys a business it can happen that there are profits or losses before incorporation (ie: before Registrar grants certificate) pre-incorporation profits are usually seen as capital, and called Capital Profits, which is a type of profit which has a special way of being treated. ii) Rem; remember: all pre-incorporation profits are seen as “PART OF THE PURCHASE PRICE IN SOME WAY” . If written off against “UNVALUED” goodwill it means we reduce goodwill by this amount, So we paid less for goodwill then than we thought. If it becomes a Share premium then it is so much so a part of the purchase price.If it becomes a reserve then this all works a bit 0different and we just in effect paid less for the business somehow. iii) Term:“UN-VALUED GOODWILL :”If a company is purchased,the difference between the purchase price and asset value is seen as goodwill, but if not actually valued as such then it is not seen as having a value stipulated in contract-so it is called “UN-VALUED GOODWILL” iv) Term:VALUED GOODWILL : if a specific price is stipulated in figures in the purchase contract. v) There are 3 methods of Accounting Treatment of these Capital Profits:see Companies act for details (1) If purchase price of firm is payable by issue of shares, it is suggested(??? Must you now or must you not???) ,in accordance with the provisions of section76(2), that pre-inc. profits are treated as Share Premium(reserve) in the Financial Statements or Alternatively: (2) Alternatively, if purchase price in purchase contract includes UNVALUED GOODWILL and PURCHASE PRICE is NOT payable in SHARES (If price NOT payable in shares ,if part payment in shares-not sure then if use ratio or just 1 of either method???), the pre-incorporation profits can be offset against goodwill (means you reduce UNVALUED GOODWILL total by value of pre-incorporation profits).Once UNVALUED GOODWILL=0, treat the excess pre-inc. profits as a RESERVE(the name of the reserve account to transfer these profits to is :”PreIncorporation Profits :Non-Distr.Profits”). Whether this reserve is distributable or not depends on what the Articles say about the distribution of ‘Capital Profits’.So if not distributable - will form part of non-distributable reserves, and if Articles allow distribution , then part of non-distributable reserves/profits. Note: one must first transfer from : Nominal acc. Eg: sales, into the “Pre-ACQUISITION Profits Reserve ” account, then from there to goodwill , not just directly.This seems to be the prescribed format of the entries. (3) Alternatively, if purchase price in purchase contract includes VALUED GOODWILL and PURCHASE PRICE is NOT payable in SHARES (If price NOT payable in shares ,if part payment in shares-not sure then if use ratio or just 1 of either method???) , the pre-incorporation profits CAN NOT be offset against goodwill ,it would be more correct to treat the pre-inc. profits as a reserve,not as goodwill. The name of the reserve account to transfer these profits to is :”Pre-Incorporation Profits :Non-Distr.Profits / or Distr.Profits”. Whether this reserve is distributable depends on what the Articles say about the distribution of ‘Capital Profits’.So if not distributablewill form part of non-distributable reserves, and if Articles allow distribution , then part of non-distributable profits. vi) IF PRE-INCORPORATION LOSSES suffered they are written off immediately,note, due to the fact that the CONSERVATISM concept is applied here. vii) EXAMPLE: (from Intro. to IFRS textbook pg 464)

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PROFITS/LOSSES BETWEEN INCORPORATION DATE AND DATE ON WHICH “ CERTIFICATE TO COMMENCE BUSINESS ” IS RECEIVED. b) No special treatment really, see b and c below. c) PROFITS : treated normally, ie as distributable, since earned after company incorporated, even if certificate to commence business not issued yet. d) LOSSES : recognized in Income Statement when they occour,basicly treated normally ie:reduce distributable reserves(retained earnings accordingly)

PRE-AQUISITION PROFITS e) Arise if contract provides that purchaser acquired going concern effectively prior to contract date. f) There are 2 Methods of Accounting Treatment : i) Purchase price is determined by bringing into account profits as NON-DISTRIBUTABLE RESERVES (the name of the reserve account to transfer these profits to is :”Pre-ACQUISITION Profits :Non-Distr.Profits”(note : preaquisition…. ,not pre-incorporation…. as in previous heading), since these profits would represent in effect a DIVIDENT PAYMENT out of CAPITAL, which of course is not allowed,eg: you cannot sell a Building and distribute the profits to shareholders, only any actual profit from the sale(see laws on reduction of capital). Note: since Purchase price is determined after taking into account these profits, these profits are seen as PART OF the CAPITAL/EQUITY PAID FOR BY THE PURCHASER of BUSINESS, so therefore PART OF CAPITAL/EQUITY , the same as eg:Property,Plant &Equipment purchased with the firm.The profits referred to here means profits from EFFECTIVE date of purchase per contract to ACTUAL date of purchase.(see example below) ii) Alternatively, pre-acquisition profits can be written off against goodwill, provided a value was not attributed to goodwill in the contract (goodwill must be UNVALUED), this is because this profit is seen as part of Equity/Capital of firm paid for by purchaser, so you can just reduce the value of the as yet UNVALUED GOODWILL by this amount, unless you wish to keep the goodwill as an asset in your books for some reason.Note: one must first transfer from : nominal acc. Eg: sales, into the “Pre-ACQUISITION Profits Reserve ” account, then from there to goodwill , not just directly.This seems to be the prescribed format of the entries. EXAMPLES of : note in last example at end-these profits go to retained earnings, so it seems there is an end-of year type transfer to appropriation account then to retained earnings,not just to profit in appropriation account but a full retained earnings thing just before certificate to commence business.

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LOANS / SECURITY PROVIDED BY A SUBSIDIARY. i) ii)

iii) iv)

v) vi)

Loans or Securities (incl. plain credit (eg: raw materials on sold on credit) not repayable per normal business policy) by/to holding companies or fellow subsidiaries MUST BE DISCLOSED IN FINANCIAL STATEMENTS., exept for a few specific circumstances- see companies act for details. Note in Fin Stats to Incl: Name to whom loaned,group relationship,date,intermediatry loan,amount outstanding at year end,highest outstanding balance in fin. Year,interest rate paid/accrued,interest paid+other any other consideration paid in year,amount of security or if NOT,terms of repayment+whether complied with or not. FOR SECURITY WAS PROVIDED, (instead of a loan/credit), basicly the same info needed incl. Some extras eg: payments made because borrower defaulted&amounts recovered back. Etc etc –see Act or ‘Intro to IFRS’ book. A company may make loans or provide security to its holding company or fellow subsidiaries with the authorization of the directors and the disclosure of it in the Financial Statements,BUT directors are personally liable if the loan was not fair, unless all members approved the loan.If it is the main business of the company to lend money, then the directors liability falls away completely though. This law is was specificly to limit, not stop,holding companies from forcing subsidiaries to provide loans/security if they are not 100% able. I am not clear it all provisions of act here fall away if main business is lending money, or if all directors approve, or only some.very detailed section- You must refer to companies act to check up on it .Many more mays&may nots involved.

SECTION 38 -NO FINANCIAL ASSISTENCE TO PURCHASE SHARES OF COMPANY OR HOLDING COMPANY. 1) It is not permitted by a company to give assistance of any form to someone to buy shares in it’s holding company or in itself, exept under certain provisions (see Act + also Corporate Law Amendment Act) .Tests to determine what is ‘assistance’ have been developed by the courts.

SECTION 39 -COMPANY NOT TO BE MEMBER OF ITS HOLDING COMPANY 1) Max 10% of holding companies shares may be owned by a subsidiary.But all voting rights cancelled.Also any allotment,transfer,issue by holding company to subsidiary is void except under certain conditions.Very involved + exeptions ,see Companies Act. 2) This provision is to prevent holding company from using these shares to force through ‘Voting Decisions’ at AGM etc, to the detriment of it’s other shareholders.

SECTION 74- SHARE CAPITAL-PAR VALUE SHARES OR NO PAR VALUE SHARES.(STATED CAPITAL) 1) One may not have both par and also no-par value shares per class of shares , but may have different types in separate classes. Ie: ordinary can be par and pref can be non par but either of ‘pref. or ordinary..’ cannot have ‘Par + No Par’ at same time. 91

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SECTION 75- COMPANY MAY ALTER SHARE CAPITAL AND SHARES INCREASE SHARE CAPITAL AND SHARE PREMIUM FOR PAR AND NO PAR. i) j)

PAR VALUE : more shares may be issued if authorized , at a Share Premium if wanted, follows usual course. NO PAR VALUE: more shares may be issued if authorized ,BUT may NOT have a Share Premium ,otherwise follows usual course.All that happens with this one , one may not offer/sell par value shares at a lower book value than the current book value unless passed by special resolution.The average issue price/book value is calculated by dividing the relevant stated capital by the number of issued no par value shares in this class. If a company wishes to issue shares at a price lower than the average so calculated, the issue price (lower) must be approved by a special resolution beforehand. The notice convening the meeting for the purpose of passing the special resolution shall accompanied by a report from the directors, setting out the reasons for the proposed Iower issue price. So if you issue more shares at a higher price than before,all that happens is that the price of all the other shares go up a bit, once premium is divided amoungst group,and the buyer at a premium simply ends up with shares with a book value/worth a bit less than what he paid.so nothing goes to share premium account, it just gets absorbed by the rest of the ‘group of shares already issued’.

INCREASE STATED CAPITAL (NO PAR VALUE SHARES).BY TRANSFER OF RESERVES OR PROFITS TO STATED CAPITAL ACCOUNT WITH OR WITHOUT A DISTRIBUTION OF SHARES. k) You can transfer a part of a reserve to “stated capital” to increase the no-par value shares ‘stated capital’ , and at the same time either increase the no. of NPV (No Par Value) shares accordingly or without an increase in the no. of NPV shares, one can decide.If you increase the number of shares then each share may not have a minimum value less than the current book value before the increase.

ISSUE OF CAPITALISATION SHARES /BONUS ISSUE l) m) n) o) p)

Large reserves from profits are sometimes distributed as a capitalisation issue if company does not want to distribute these funds as dividends ,eg if it might affect company adversely/or to build up th company. Capitalization issue is can also be called a BONUS ISSUE. The shares are issued in the same proportion as the existing shareholding and are merely a book entry which converts the reserves into capital. The share premium account, or CRRF or any distributable reserves eg retained earnings. may be used for this Per unisa ACN 201 Q manual pg 22 :for a capitalisation issue, where shares are issued to shareholders in proportion to their shareholding from retained earnings, The total value of share portfolio will remain the same, but the value per share will drop because more shares have been issued.The investor then , in his books(the actual shareholders books) in his “Investment Account” will increase the number of shares held and reduce their value.(why does this happen – why does the value drop? If you transferred retained earnings , and issued shares for its value , then the value should stay the same????)

CONSOLIDATE SHARE CAPITAL AND REDUCE THE NUMBER OF ISSUED SHARES IN THE PROCESS. q) A company can decide to decrease the No. and thereby increase the value of its shares.All that happens is that the TOTAL CAPITAL remains exactly the same but for: i) PAR VALUE SHARES: the value of each share increases in proportion, and the number of shares issued and authorized of course decreases in proportion. ii) NON PAR VALUE SHARES: the TOTAL VALUE remains the same but NUMBER of shares is reduced proportionally. r) The share capital remains the same, just disclosure of share capital is different.So in notes and on balance sheet the new figures are disclosed.(sodoes one journalise this? Is there some share register where this just goes to, or also to journalise / or somewhere else as a record) 92

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INCREASE THE NUMBER OF ISSUED NO PAR VALUE SHARES WITHOUT AN INCREASE IN STATED CAPITAL. s)

This relates to the sub-division of the existing number of shares, the net result on total share capital for disclosure is NIL.Only the disclosure of the number of shares would be affected.

DIVISION OF PAR VALUE SHARES INTO SHARES WITH A LOWER VALUE THAN IS PROVIDED FOR IN THE ARTICLES. t)

The share capital in balance sheet will remain the same, but DISCLOSURE in NOTES in respect of authorized and issued share capital would change.

CONVERSION OF ORDINARY OR PREFERENCE SHARES HAVING A PAR VALUE TO NON PAR VALUE SHARES (NPV) STATED CAPITAL. u) Par value of 1 class(ordinary or preference) made be converted to Non-Par value of the same class.All Share Premium is simply also converted at same time,as if it were part of the share value.If there is any ‘share premium’ then naturally the value of the ‘non-par ‘ will be higher than the ‘par ‘ were,if not then the values should stay the same. Provided that any share capital not fully paid up cannot be converted.(see section 78.1)

i)

Section 77 -effect of conversion of par value shares into no par value shares and visa-versa. (2) If a company converts its ordinary or preference shares with a par value into no par value shares, then the following must be transferred to the Stated Capital Acc. (a) The total ordinary or preference share capital amount (b) The portion of the share premium account attributable to the shares so converted where it has not been used for the write off of those items per section 76(3)

CONVERSION OF ORDINARY OR PREFERENCE SHARES HAVING NO PAR VALUE(CALLED ‘STATED CAPITAL’) TO PAR VALUE SHARES. v) NON Par value of 1 class(ordinary or preference) made be converted to Par value of the same class.There will simply be NO Share Premium from this conversion ,at first, and the values of the shares should stay the same as the current book value of the no-par shares.

b) SECTION 78 – effect of conversion of no par to par i) All Stated capital transfers to share capital acc., none to any share premium acc. ii) Fractions arising on conversion must be rounded off and if material in value, must be transferred to a nondistributable reserve.(what is material : 0.1c ?or 0.001c,? what happens to the non-distributable reserve later,stays forever?and what happens to non-material part (ie “if material”?)

CANCELLATION OF UNSUBSCRIBED SHARES: w) A company may ,at time of passing such a resolution, cancel shares which have not been taken up or agreed to be taken up,and reduce the amount of the authorized share capital by the shares so cancelled.

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A COMPANY MAY CONVERT ANY OF ITS SHARES, WHETHER ISSUED OR NOT, INTO SHARES OF ANOTHER CLASS. x) Eg: convert Deferred shares to Ordinary shares, or Preference shares to Ordinary, etc.One must change the ‘authorized shares ’ section in NOTES and move the ‘issued shares’ in ledger from one class account to the other class account eg: deferred to ordinary account ,by dr/cr in and out.(is this mean preference shares to ordinary, or redeemable preference shares to ordinary or visa versa, which yes and which no?what is “ deferred shares”?)

MULTIPLE CONVERSIONS OF SHARES TO AND FROM PAR OR NO PAR VALUE SHARES. y) The registrar ,with the implementation of sect.75.4(a) , as well as other parts of sect. 75,intends/views certain matters pertaining to the conversion of all shares to par value, then converting it all back again , that certain matters are not simply allowed- eg reduction of authorized share capital , by means of writing off certain expenses against eg: stated capital as allowed in other parts of the act.Certain fees are charged and other things, for mass to-and-fro conversions.See section 75 of companies act for details.( pg 469 Intro to IFRS book)

SECTION 76: ‘SHARE PREMIUM’ / PREMIUMS RECEIVED ON ISSUE OF SHARES TO BE SHARE CAPITAL, AND LIMITATION ON APPLICATION THEREOF a) Par Value shares :issued at a premium, the premium must go to a Share Premium Account, which is seen as part of capital/equity and appears in balance sheet under EQUITY section. z) Non-Par Value shares: if issued at above current book value (stated capital pool / total no. of shares), DOES NOT go to a share premium account, just goes to ‘stated capital’ pool,and will thus increase the book value a little.

SHARES ISSUED IN RETURN FOR ASSETS aa) If asset is exchanged for in return for shares issued,the asset must be valued at the time and any excess of the par value of the amount must be allocated to the share premium account,or for no-par to stated capital pool.Unless the reason for the lower price received is That the asset is debtors,and a provision for bad debts must be created to bring down the newly entered book value of the transferred debtors to the value of shares issued in return for it. 94

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SHARE PREMIUM ACCOUNT IS ALLOWED TO BE USED FOR : APPLICATION OF bb) The share premium account may only be used for the following purposes : i) A Capitalization issue : you just take the share premium and issue shares to its’s value (or part) (how it is done /shared between other shareholders I do not know exactly) ii) Writing off preliminary expenses : done directly against the share premium account ,see example below , and not via the income statement (I think means not via first share premium to appropriation acc. Or something??) iii) Writing off share issue expenses. iv) Writing off commissions paid and discount allowed on issue of shares.(if you give a discount or pay bank etc commission?????) v) Writing off a redemption premium payable on the redemption of redeemable preference shares.-ONLY allowed if said redemption at premium was embodied (noted/written) in (contract)Issue Terms +Company Articles + AT THE TIME OF THE ISSUE. vi) Payment of the premium over the par value of shares acquired in accordance with section 85(company may under certain circumstances aquire shares in itself) vii) In the past it was possible to write off certain debenture issue expenses out of the share premium account.- this was stopped by amendment to act of 1992.(but for exam fakiri still thinks you can write these off –so) cc) Certain Limitations on use of share premium account:from amendment of act of 1992. i) Writing off a redemption premium payable on the redemption of redeemable preference shares.-ONLY allowed if said redemption at premium was embodied (noted/written) in (contract)Issue Terms +Company Articles + AT THE TIME OF THE ISSUE.

SECTION 77 –PROCEEDS OF ISSUE OF NO-PAR VALUE TO BE STATED CAPITAL. ii)

The total proceeds of issue of NPV shares to be ‘stated capital’, if assets exchanged for shares, then assets must be valued and Total valuation amount to be ‘stated capital’.

STATED CAPITAL MAY BE USED TO WRITE OFF THE FOLLOWING: iii) Preliminary Expenses : on original establishment of company.(registration costs etc-see Act) iv) Commissions Paid : on the issue of NPV (No Par Value) shares. (1) These are all both (i+ii) written off directly against each account –plain and simple, see below.

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SECTION 77 -EFFECT OF CONVERSION OF PAR VALUE SHARES INTO NO PAR VALUE SHARES AND VISA-VERSA. See number 6 above – all moved there.

SECTION 79 - PAYMENT OF INTEREST OUT OF CAPITAL IN CERTAIN CASES. i)

ii)

The payment of interest on share capital is an exception to the general rule that no dividends (interest) may be paid out of share capital. The payment of interest on capital is desirable where share capital is used to finance an asset which is under construction over a long period of time. Various requirements in respect of the payment of this interest exist and are contained in section 79(2)(a)—(e) and should be studied in the Act. Although the payment of this interest is allowed in terms of section 79, it is important to note that this interest cannot be applied to the reduction of share capital; the amount must be capitalised to the cost of the applicable asset. The confusion arising from section 79 can be ascribed to the last part of section 79(1 which states”... and may charge the same to capital as part of the cost of construction the works or buildings or provision of plant”.The interpretation is that the use of the word “capital account” instead of “asset accoun in this phrase is an unfortunate choice of words. The confusion arising from section 79 can be ascribed to the last part of section 79(1 which states”... and may charge the same to capital as part of the cost of construction the works or buildings or provision of plant”.

SECTION 81 - ISSUE OF PAR VALUE SHARES AT A DISCOUNT IF shares issued at a discount ,A separate “DISCOUNT ON ISSUE OF SHARES” expense ACCOUNT is used for all discount,but shares are issued at old/ par value into Share Account, so normally, as if no discount. In terms of this section, a company may, under certain conditions, issue par value shares a discount. These conditions are as follows: 1) The class of shares now issued at a discount must have been previously issued, and least one year must have expired since that issue. 2) Authorisation by a special resolution indicating the maximum discount rate must I obtained. 3) The issue must be approved by the Court. 4) The issue of these shares must be made within one month of the date of Court sanction (or longer period of time following approval by the Court). But for no par value shares, it basicly only needs a special resolution.

SECTION 82 — ISSUE PRICE OF SHARES OF NO PAR VALUE AT BELOW BOOK VALUE REQUIRING SPECIAL RESOLUTION In terms of this section, a company may not issue shares of a class of shares already issued at a price lower than the average issue price of these shares. The average issue price calculated by dividing the relevant stated capital by the number of issued no par value shares in this class. If a company wishes to issue shares at a price lower than the average so calculated, the issue price (lower) must be approved by a special resolution beforehand. The notice convening the meeting for the purpose of passing the special resolution shall be accompanied by a report from the directors, setting out the reasons for the proposed lower issue price.

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2.16 SECTION 85 - COMPANY MAY UNDER CERTAIN CIRCUMSTANCES ACQUIRE SHARES ISSUED BY IT 1. Sections 85—90 discuss circumstances in which a company can repurchase shares issued by it. The procedures that must be followed, plus the directors’ and shareholders’ liability are discussed. A company may acquire shares issued by itself provided that 1.1.a special resolution is passed (general approval or specific approval); and 1.2. the aquisition is authorised by its articles. 2. A company may not pay for these shares in any way if there are reasonable grounds for believing that 2.1. once the company has paid for these shares, it will not be able to settle its debts in the normal course of business (liquidity requirements), or 2.2. the consolidated assets fairly valued following the payment would be less than the consolidated liabilities of the company (solvency requirements). 3. Shares acquired by a company in itself may not be acquired under this section, if after such acquisition, there would be no shares in issue other than convertible or redeemable shares. In other words, the company must have ordinary share capital. 4. If par-value shares are acquired at a premium over the par value,premium may be paid out of reserves,incl.statutory nondistributable reserves(refer section 76 –Share premium and section 98-capital redemption reserve fund. 5. ( it does not say anything about reduction of capital here ie:CRRF , but it should it seems ?? ask or check up about this!!! Page 476 IFRS book)As per section 98 for CRRF – ie a CRRF must be created and the same share capital that was bought back /redeemed, must go to this fund, to prevent reduction of a companies share capital, ANSWER: but it seems this law does not apply here because a Special Resolution must be taken in order to approve this type of reduction in shares, so somehow because of this, no transfer to CRRF is needed. 6. The company does not hold the voting rights and shares afterwards- it simply writes them out/cancels them so there are less shares afterwards,but the authorized share capital remains the same. 7. See example below for entries in journal.

LIABILITY OF DIRECTORS AND SHAREHOLDERS UNDER CERTAIN CIRCUMSTANCES Directors jointly and severally liable to restore amount, if once the company has paid for these shares, it will not be able to settle its debts in the normal course of business (liquidity requirements), or the consolidated assets fairly valued following the payment would be less than the consolidated liabilities of the company (solvency requirements).Directors may apply to court for seller to repay or repurchase the shares etc see act.

ENFORCABILITY OF CONTRACTS FOR COMPANY TO BUY BACK SHARES i)

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SECTION 89 —SUBSIDIARIES MAY ACQUIRE CERTAIN SHARES IN HOLDING COMPANY i)

provides that a subsidiary may acquire shares in its holding company to a maximum of lO% of the number of shares issued by the holding company.

SECTION 90 - PAYMENTS TO SHAREHOLDERS i)

A company may make payments to its shareholders (dividends) if the payment is in accordance with this section and is authorised by the company’s Articles.A company may not make any payments, in any form, to its shareholders if there are reasonable grounds to believe that the company will not be in a position before or after the payment to settle its obligations in the ordinary course of business (liquidity requirement); or the fair value of the consolidated assets after the payment will be less than the consolidated liabilities of the company (solvency requirement).

SECTIONS 98 AND 99 — REDEMPTION OF REDEEMABLE PREFERENCE SHARES AND CONVERSION OF ORDINARY SHARES INTO PREFERENCE SHARES These sections contradict lAS 32 (AC 125) and lAS 39 (AC 133) — Financial instruments. Consequently, these sections will be ignored until further notice regarding amendments to the Companies Act. In the interim, a company should rather apply the accounting standards. The Companies Act is currently under revision and it is hoped that these contradictions will be resolved.

V Y SECTION 193 - VOTING RIGHTS OF SHAREHOLDERS Subject to the provisions of sections 194—196, each shareholder of a company having share capital is entitled to one vote for every share held. In a company limited by guarantee, unless the articles provide otherwise, each member has one vote.

SECTION 194 - VOTING RTGHTS OF PREFERENCE SHAREHOIDERS Notwithstanding the provisons of section 193, the Articles of a company may exclude the voting rights of preference shareholders subject to the following: - If preference dividends are in arrears (6 months or more), the preference shareholders are entitled to vote. - If any part of the redemption payments is outstanding, the preference shareholders are entitled to vote. - If a resolution is proposed and it directly or indirectly affects the rights of preference shareholders, including the winding up of the company or a capital reduction, the preference shareholders are entitled to vote.

V Y SECTION 195 — DETERMINATION OF VOTING RIGHTS A member of a public company with par value shares is entitled to the same percentage of votes as the proportion that his shares bear to the total number of shares issued (total nominal value of shares held/total nominal value of shares issued). Each no par value share carries one vote. The voting rights of a private company can be determined by its Articles, but there may not be a provision whereby certain shares do not have voting rights. The Articles of a company may provide that - a chairman of a meeting has a casting vote; and - the number of votes to which a member is entitled above a certain number,’does not increase in direct relationship to the total number of shares held, but in a lower proportion. The Articles may provide further that the number of votes is limited to a certain number.

RESTRICTION OF THE POWER OF DIRECTORS TO ISSUE SHARE CAPITAL ii)

Notwithstanding any provision contained in the Memorandum or Articles of a company , directors must obtain permission from general meeting of shareholders to issue or allot shares See Act for details.( permission can be for 1 year or just for specific transaction etc) iii) The following disclosure requirements in respect of such an authorisation are contained I par 32 of Schedule 4: - The amount of the share capital or number of shares under the authority of the directo to issue or allot; and - the conditions of the authority; and - the period for which the authority is valid.

SECTION 222 — RESTRICTION ON THE ISSUE OF SHARES AND DEBENTURES TO DIRECTORS Directors may not, irrespective of any provisions contained in the Memorandum or Articlicles or any other authority given to them, issue shares or debentures to themselves, unless: - the allotment or issue has been approved by the company in a general meeting pjj such allotment or issue; or - the allotment or issue of shares or debentures is done in terms of an underwritir contract; or - the shares or debentures are issued or allotted on the same conditions and terms they were offered to other shareholders/debenture holders or shareholders/debentu holders of the same class of shares/debentures where the issue or allotment is made proportion to existing holdings; or 98

99 | P a g e A C C A 2 0 1 A c c o u n t i n g - the issue or allotment of shares/debentures is made on the same terms and conditions as were offered to the public.

SECTION 226 -PROHIBITION OF LOANS TO, OR SECURITY IN CONNECTION WITH TRANSACTION BY, DIRECTORS AND MANAGERS i) ii)

The above is not permitted, but there are certain other certain (See Act for details of these) special circumstances in addition to the 3 mentioned below ,which provide some exemption from this. However the following 3 are complete exemptions to the above: (1) A loan or security provided bona fide in the ordinary course of the business of the company actually and regularly carrying on the business of money lender or provider of security (2) A loan provided by a company, directly or indirectly, for the purposes of section 38(2)(b) and (c (3) A loan or security provided by a company to its subsidiary’s directors or managers provided that these directors or managers are not also directors or managers of the lending company.

SECTION 295-TO BE DISCLOSED IN INCOME STATEMENT NOTES: LOANS AND SECURITY FOR DIRECTORS+MANAGERS i) ii)

See act for precise details: la. The amount and details* of each loan made under the provisions contained in section 226(2)(a), (b) and (e) during the current year, even if repaid already. For loans from previous years just the closing balance need be disclosed if still outstanding. iii) . The particulars of any security (and the transaction to which it relates) per section 226(2)(a), (b) and (e) provided at any time before the financial year under consideration and still in existence at the end of the year concerned.If provided in current fin year, whether discharged or not same as above must be disclosed. iv) If the lending company or provider of security is a subsidiary of a holding company which must prepare group financial statements, the information required per section 295(1) must be included in the group statements. v) Section 226(a) = loans and security to own directors and managers; (b) = loans for expenditure; (e) = loans and security for housing) vi) The details* (see above) required per this section are the following: (1) name of the director. (2) reason for the loan. (3) interest rate. (4) terms of repayment. (5) secured or unsecured. (6) amount of loans provided in the current year. (7) amount of loans provided in the current year which have already been repaid. (8) For previous years loans ONLY balance outstanding at end of year,no details, must be disclosed.

SECTION 295-TO BE DISCLOSED IN INCOME STATEMENT NOTES: LOANS AND SECURITY FOR DIRECTORS+MANAGERS EXISTING BEFORE THEIR APPOINTMENT Loans &security, to directors&managers before their appointment must be disclosed in the same way as above for section 295, if: (9) Existing at date of appointment , (10) Appointment was made in current accounting period.

SECTION 228 - DISPOSAL OF UNDERTAKING OR GREATER PART OF ASSETS OF COMPANY Notwithstanding/Despite anything contained in the Articles or Memorandum of a company, the directors of the company have no power to do the following, unless they have been authorised by a special resolution ,which must also authorize the SPECIFIC transaction, at a general meeting of the company: (11) Dispose of the whole or substantially the whole of the undertaking of the company (12) dispose of the whole or substantially the whole of the assets of the company

SECTION 283-REMUNERATION OF AUDITORS: vii) All payments to the company’s auditors, either made or to be made, must be separately disclosed in the income statement. viii) For the purposes of this publication we present the remuneration of auditors as part of other expenses, but disclose it in the note “Profit before tax”. (1) The disclosure of auditors’ remuneration must be separated as follows: (2) Remuneration for audit. (3) Remuneration for other specified services. (4) Auditors’ expenses. (5) Payments in respect of the audit or any other matter.

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SECTION 284-: DUTY OF THE COMPANY TO KEEP ACCOUNTING RECORDS i)

The requirements are easily understood, but the following are provided for illustration: (1) ‘Records of assets and liabilities of the company’ refer to the general ledger accounts and relevant documentation. (2) Reference is made to a fixed assets register. (3) Records of daily receipts and payments of cash’ refer to a cashbook. (4) These records refer to invoices, sales journals, purchase journals and a debtors and creditors system. (5) Statements of annual stock-taking must be retained in order to facilitate necessary tests (audit) and as a record of stock movements and stock valuation.

SECTION 285 - DETERMINATION OF THE FINANCIAL YEAR OF A COMPANY The financial year of a company is its annual accounting period, the commencement and ending dates of which shall be determined upon the company’s incorporation. The first book year of the company shall be: the period of more than 3 months between the date of incorporation and the date immediately preceding the commencement date, in the event that the determined commencement date or year-end date is more than 3 months after the date of incorporation.

SECTION 285A — GENERAL REQUIREMENTS FOR THE FINANCIAL STATEMENTS 1) A WIDELY-HELD COMPANY a) must comply with financial reporting standards (GAAP adopted by the APB — IFRS/IAS in SA); b) must comply with the provisions of this Act and Schedule 4 that are applicable to [widely-held] companies; and c) must prepare financial statements that fairly present the financial position and the results of the operations of the company (and its subsidiaries), ie comply with financial reporting standards. 2) A LIMITED-INTEREST COMPANY a) must comply with financial reporting standards (IFRS for SME5); b) must comply with the provisions of this Act and Schedule 4 that are applicable to limited interest companies; and c) must prepare financial statements that fairly present the financial position and the results of the operations of the company (and its subsidiaries), ie comply with IFRS for SMEs. 3) For both types of company, the financial statements must clearly state that they have been prepared in accordance with a) this Act (prior to amendment by the Corporate Laws Amendment Act, 2006); or b) the financial reporting standards; (ie GAAP adopted by APB –IFRS/IAS) or c) in terms of the requirements for a limited-interest company.

SECTION 286 — DUTY TO MAKE OUT ANNUAL FINANCIAL STATEMENTS AND TO LAY THEM BEFORE AN ANNUAL GENERAL MEETING The directors of the company must prepare annual financial statements in one of the official languages in respect of each book year of the company and lay them before the company’s annual general meeting. These financial statements comprise i) A balance sheet, income statement and additional components required in terms of financial reporting standards; ii) Summary of significant accounting policies and other explanatory notes on the components referred to above; 100

101 | P a g e A C C A 2 0 1 A c c o u n t i n g iii) Directors’ Report, and iv) Auditors’ Report (required per section 301).

SECTION 287 - OFFENCE TO ISSUE INCOMPLETE FINANCIAL STATEMENTS AND CIRCULARS Briefly, this section prohibits the issue of any financial statements (or circulars) of a company which are incomplete or noncompliant in any material respect or which do not comply with the requirements of this Act. Each party to this issue is guilty of an offence.

SECTION 298 — APPROVAL AND SIGNING OF FINANCIAL STATEMENTS 1) The annual financial statements of a company, with the exception of the auditors’ report,must be approved by the company’s directors and signed on their behalf by a) Two directors if there are more than two directors on the board; or b) One director if the company has only one director. 2) Group financial statements must be signed by the directors of the holding company.

SECTION 299 - DIRECTOR’S REPORT 1) All companies, other than wholly-owned subsidiaries of a company incorporated in South Africa, must include a directors’ report in the annual financial statements presented to the annual general meeting of shareholders. The directors’ report must deal with: a) the state of affairs of the company; b) the business and profit and loss of the company; c) the business and profit and loss of the subsidiary(ies) if any. The directors’ report must deal with every matter which is material for the appreciation by the members, ie: a) the state of affairs of the company; b) the business and profit and loss of the company; c) the business and profit and loss of the subsidiary(ies) if any. . For these purposes, the directors’ report must comply with 1) the provisions of Schedule 4, paragraphs 67— 3, in this regard; and 2) other requirements of the Act in this regard. Failure to comply with the requirements of this section is on offence.

SECTION 302 — DUTY OF COMPANY TO SEND ANNUAL FINANCIAL STATEMENTS TO MEMBERS AND THE REGISTRAR Refer to the Act as this section is self-explanatory.

SECTION303 — HALF YEARLY INTERIM REPORTS 1) Every widely-held company with share capital, other than a wholly-owned subsidiary, must send an interim report to each debenture holder and shareholder not later than 3 months following the expiration of the first six months of the financial year, covering i) the business and operations of the past 6 months of the company or in the case holding company, the company and its subsidiaries. If the following situations are applicable, the provisions for the issue of the first interim report will differ from those above: i) If the first book year is longer than 9 months, the first interim report must be issued after the first 6 months from the date of incorporation. ii) If the first book year is longer than 12 months, ie the commencement date of the calendar year is less than 3 months from the date of incorporation, the first interim port must be issued 6 months before the end of its first book year. If a company changes its financial year end, an additional interim report must be issued for the period from the beginning of the new book year to the date on which the original book year would have ended.

SECTION 304 — PROVISIONAL ANNUAL FINANCIAL STATEMENTS 1) Each widely held company (other than a wholly-owned subsidiary) must, if its final annual financial statements have not been prepared within 3 months of its year-end, distribute to each of its shareholders and debenture holders prior to the expiry of the 3 month period a copy of the provisional annual financial statements. 2) If a limited-interest company has not issued annual financial statements within 6 months of its financial year-end, the Registrar can, on written application from a member, require that the company issue either the final statements or provisional statements within 6 weeks following the date of the notice to the company.

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SECTION 305 — THE FORM AND CONTENTS OF INTERIM REPORTS AND PROVISIONAL ANNUAL FINANCIAL STATEMENTS Provisional annual financial statements need not be audited. Each provisional and interim report must be approved by the directors and signed on behalf by two directors. If the company has only one director, then these reports must be approved and signed by that one director.

SCHEDULE 4 OF THE COMPANIES STATEMENT : INTRO: 1.

2. 3.

The purpose of schedule 4 is to prescribe the Companies Act requirements for financial statements. In addition, the schedule makes suggestions about where information should be disclosed in the financial statement (eg balance sheet). A company may, however depart from these suggestions should it prefer to disclose the information elsewhere example in a note. All the paragraphs in the schedule are applicable to limited-interest companies. How only certain paragraphs are applicable to widely-held companies (refer to par 4A(b)). (7 are indicated/n the discussion below in italics) Comparative figures are required for all amounts in the balance sheet, income statement and cash flow statement (par 7).

FIXED ASSETS :IAS 16 PROPERTY, PLANT AND EQUIPMENT

General requirements (par 22) a. b.

Fixed assets, capitalised leased assets, current assets and any other assets not classified as current or fixed must be separately recognised. The method or methods used to determine the amount of fixed assets or other assets that are neither fixed nor operating must be disclosed (par 23).

Balance sheet (Statement of financial position) (par 24) c.

In order to calculate the amount of the asset, the cost or revalued amount must be decreased by the total depreciation calculated from the date of acquisition or revaluation. The total cost and depreciation must be disclosed. d. The following information in respect of land and buildings must be disclosed: i. description and the location thereof; ii. date of acquisition; iii. purchase price; and iv. costs incurred for addition and improvements. The abovementioned information can be supplied in a separate register should there be more than 5 items of land and buildings. In this situation, a note must be included in the financial statements referring to the register and stating that it is open for inspection in terms of section 113. e.

Should the land and buildings be revalued, the following information must be disclosed: i. The most recent year of revaluation; ii. The names and qualifications of the person who performs the revaluation should the revaluation have been made in the current year; iii. The basis of the revaluation (eg market value), and V the policies in respect of the regularity of the revaluations.

Income statement (Statement of comprehensive income) (pars 42(n) and 45) f. g.

The aggregate amount of profits and losses on the realisation, scrapping, disposal or sale of fixed assets must be separately disclosed. Should depreciation not be provided for, or if another means of reducing the assets amount is used, this fact must be disclosed.

INTANGIBLE ASSETS (LAS 38)

Balance sheet (Statement of financial position) (par 24) h.

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In order to calculate the amount of the asset, the cost or revalued amount must be decreased by the total depreciation calculated from the date of acquisition or revaluation. The total cost and depreciation must be disclosed.

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INVESTMENTS (PAR 28 - 30) (IFRS 7) i.

These requirements are incompatible with the requirements of IFRS 7; consequently they are not discussed.

INVENTORY (IAS 2)

Balance sheet (Statement of financial position) (par 31) Amounts must be disclosed for the following categories of inventory: j. Raw materials. k. Work in progress. l. Finished products. m. Merchandise. n. Consumables.

LEASES (IAS 17)

Balance sheet (Statement of financial position) (par 17(b)) o. p.

Every long-term loan as result of capitalised leased assets must be separately disclosed. interest rate and information about the payments must also be presented. See also the discussion of borrowings below. Capitalised leased assets must be separately disclosed (par 22).

Income statement (Statement of comprehensive income) (par 42(r)) Operating lease payments per category of leased asset must be disclosed.

PROVISIONS AND CONTINGENT LIABILITIES (LAS 37) q.

The following must be disclosed for any contingent liabilities not already recognised in financial statements: i. The nature; ii. The uncertainty, and iii. An estimate of the amount before and after tax (par 36).

REVENUE (IAS 18)

Income statement (Statement of comprehensive income) r. s.

A distinction must be made between income from listed and unlisted investment investments(interest, dividends, and other specified income) (par 42(a). The aggregate amount of turnover for the period must be separately disclosed, aic with the policy according to which turnover is recognised (par 44).

EMPLOYEE BENEFITS (IAS 19)

Balance sheet (Statement of financial position) (pars 40 and 41) t.

Enough information must be supplied to allow a broad understanding of the significant retirement costs, the actual costs and any contingent liabilities for the period. Par 41 contains details of specific information that must be disclosed.

EARNINGS PER SHARE (IAS 33)

Income Statement (Statement of comprehensive income) (pars 43(l) and 44) u.

Listed companies must disclose earnings and dividends per share per class of share.

ACCOUNTING POLICIES (PAR 6) (IAS 1; IAS 8) v.

The company’s policies for determining the carrying amounts of the assets, liabilities resultant net income recognised in the financial statements must be disclosed.

SHARE CAPITAL (PARS 8—12) (IAS 1) The following information must be disclosed in respect of share capital: w. The authorised and issued share capital; 103

104 | P a g e A C C A 2 0 1 A c c o u n t i n g x. The classes, number of shares and, where applicable the par value of the authorised shares; y. The amount of share premium; and z. The preliminary expenses, commission and other share issue expenses written off against the premium or stated capital during the reporting period. The following must be disclosed In respect of shares issued during the accounting period. a. The class, number and aggregate nominal or stated value received; and b. The details of shares issued to directors or their immediate family. The following must be disclosed in respect of redeemable preference shares in issue: a. The earliest and latest dates of redemption; b. the certainty of redemption or any contingencies that need to occur prior to redemption; c. the premium on redemption; and d. the dividend riqhts of the shareholders. The following must be disclosed in respect of convertible equity instruments (see also par 16 of the Schedule): a. The conditions and rights of conversion. The following must be disclosed in respect of any contingent rights to the allotment of shares: a. The number and description of shares; b. the price payable for the allotment; and c. and period during which the right is exercisable

RESERVES (PAR 13) (LAS 1) A company must disclose the amount of reserves at the beginning and end of the accounting period, the source and amount of any transfers to the reserves, and the application and amount of any transfers from the reserves.

LIABILITIES (PARS 15—20) (LAS 1) The aggregate amount of long-term and current interest-bearing borrowings, provisions,dividend liabilities and income tax payable and deferred should be disclosed. The schedule requires that the following short-term borrowings be shown under separate headings. d. Current borrowings; e. bank overdrafts; and f. current obligations related to capitalised leased assets (refer to leases discussed above(par 17). Details of any security or encumbrance over any assets should be disclosed (par 19) The following ‘other liabilities’ are shown under separate headings (par 18): a. Shareholders for dividends; b. Income tax payable; c. Deferred tax payable; and d. Provisions (see par 36 discussed above) The disclosure in par 16 is again not in accordance with IFRS 7 and is therefore not discussed.

3.14 INCOME STATEMENT (PARS 42—49) (IAS 1) The following income statement amounts, inter alia, must be separately disclosed in the financial statement: e. Listed and unlisted interest, dividends and other investment income; f. Aggregate dividends, interest, fees and other income from subsidiaries; g. Aggregate dividends declared; h. Taxation expenses per class of tax as well as current and deferred tax and any adjustments relating to prior periods or changes in tax rates; i. Interest paid j. Remuneration paid to persons other than bona fide employees for managerial, technical, administrative or secretarial services; k. Auditors’ remuneration; l. Profits or losses on share transactions; m. Profits or losses on asset disposal; n. Foreign exchange gains or losses; o. Operating leases expenses per major category of leased asset; p. Turnover q. Depreciation.

CASH FLOW STATEMENT (PARS 50—52) (IAS 7) r.

These requirements are very similar to those of lAS 7 and are not discussed.

SECTION 297 DIRECTORS’ REMUNERATION s.

Section 297 contains disclosure requirements in respect of directors’ remuneration. A methodology is provided to assist in compliance with these requirements, and is followed by brief outline of the disclosure requirements of section 297.

Methodology The following methodology is proposed for the determination of directors’ remuneration: t. Identify the directors of the company for which disclosure of directors’ emoluments is required. u. Establish which of these directors are also directors and officers of subsidiaries of the company. 104

105 | P a g e A C C A 2 0 1 A c c o u n t i n g v. Prepare a table for the company, its subsidiaries and third party payments to directors of the company. w. Disclose the information in respect of all qualifying emoluments of directors of the company in total in the note in respect of directors’ emoluments. x. Deduct that portion of the directors’ emoluments paid to directors of the company by subsidiaries or third parties (ie not paid to them by the company). y. Reference the amount determined above to the expenses in respect of directors’ emoluments disclosed in the note “Profit before tax”. z. Only if a director is also an officer will the emoluments be disclosed as “other services”. aa. A Secretary is not a type of director. bb. All amounts received by the chairman are for services “as director”. cc. Pensions/loss of office paid by third parties to a director of the reporting entity will only be included in the disclosure of the reporting entity if they were paid by the third party in respect of directorship of the reporting entity or its subsidiaries.

DefinItIons dd. In order to successfully apply the abovementioned methodology, knowledge of the following definitions is required: ee. Manager — principal executive officer of the company (whether or not he is a director). ff. Officer i. managing director; ii. manager; or iii. secretary gg. Director — any person occupying the position of a director or alternate director of company, by whatever name he may be designated. Therefore the following amongst others may be included: i. - directors; ii. - chairman; and iii. - alternative directors. hh. Directors’ remuneration— Emoluments; i. — pensions for directors and past directors; and ii. — compensation for loss of office for directors and past directors The disclosure requirements for these three different components of directors’ remuneration are briefly outlined below.

4.1.2 Directors’ emoluments ii.

Emoluments include: i. Amounts paid for services rendered as director; ii. payments for acceptance of office; iii. basic salary; iv. bonus and performance-related payments; v. expense allowances: eg travel and entertainment allowances*; vi. cash value of fringe benefits; vii. contributions to pension funds on behalf of the director; and viii. profits made on the exercise of the option to acquire shares. ix. * An allowance will not be considered to be directors’ emoluments if the allowance substance represents an advance and the directors are required to account for the expenses paid out of the allowance. However, should the director be able to spend the a - lowance at his discretion, the allowance will be considered directors’ remuneration. jj. For disclosure purposes, emoluments paid to i. non-executive directors (who have no involvement in the day-to-day management of the company); and ii. executive directors (who are involved in the day-to-day management of the company) must be indicated separately. kk. Furthermore, the emoluments paid for i. services as director; and ii. other services must be identified separately. ll. It must also be stated whether the emoluments were paid by i. the company; ii. a subsidiary of the company; or iii. a third party in respect of iv. — services as director of company/its subsidiary; or v. — carrying on of affairs of company/its subsidiary. Commentary mm. When calculating and disclosing directors’ emoluments, take note of the following: i. All remuneration paid to the chairman is directors’ emoluments. ii. If (for example) a director is given the use of a motor vehicle as a fringe benefit, only that portion utilised for private purposes will be included in directors’ emoluments. Thus, if the private usage is given as 4O% only that 40% will be included in directors’ remuneration. 105

106 | P a g e A C C A 2 0 1 A c c o u n t i n g nn. Take careful note of whether or not the chairman and managing directors’ fees already include the normal directors’ fee. oo. Should a director also be an officer, the remuneration for this office is included in “other services”.

Directors’ pensions pp. For disclosure purposes, pensions paid to i. non-executive directors; and ii. executive directors must be identified separately. qq. Furthermore, pensions paid for i. services as director; and ii. other services must be listed separately. rr. It must also be stated whether the pensions were paid by i. the company; ii. a subsidiary of the company; or iii. a third party in respect of directorship in the reporting entity/its subsidiary to — a director; — a past director; or — another person by nomination of a director or by virtue of that person’s dependence on or connection to the director in respect of i. — services as director of company/its subsidiary; or ii. — carrying on of affairs of company/its subsidiary. ss. Pensions received from an independent/bona fide pension fund are not disclosed.

Compensation In respect of loss of office tt. Compensation paid to i. Non-executive directors; and ii. Executive directors must be identified separately. uu. Furthermore, compensation paid for i. Services as director ii. Other services must be indicated separately. vv. It must also be stated whether the compensation was paid by i. the company; ii. a subsidiary of the company; or iii. a third party, to — a director; or — past director in respect of official capacity as — director; or — as manager of operations (carrying on of the company’s affairs).

Details of directors’ service contracts The service contracts of iv. — non-executive directors; and v. — executive directors must also be identified separately. EXAMPLE: AS PER IFRS BOOK 2009

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exercises and solutions for companies: COMPANIES SET 1 Q 1

COMPANIES SET 1 Q 2

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CHAPTER 1 ACN202 : STATEMENTS

GROUP

study unit 1 : Provisions of the companies act 1973 with respect to companies in group context. Introduction: 1. Over the years tendency form larger entity’s– one man business – to partnerships – to bigger. 2. Companies were formed later to limit the liability of in-active partners.

COMPANIES ACT AND ACCOUNTING FOR GROUPS. SPECIAL TRICKS FOR THIS SECTION 1. Revaluation reserve DOES NOT form part of the retained earnings of a company, so in ‘Analysis of Equity’ in the “From AT till Begin Currrent Year” below ‘retained earnings’ line put any revaluations done after the AT date, up to begin current year, and in the “Current Year” section, put any revaluations, in its own line, below the ‘profit for year’. 2. Watch out for debentures or bank loans: calculate the interest for year – then check if the interest given as paid for year in the exam question is not LESS .If less then add difference ,only, in.(‘adjustments’ :outstanding) (was in 1 question) 3. Dividends 1-paid and 2- declared ‘can’ go in separate lines on the StChEq.(not sure if it must or just may) 4. Watch out for : ANY REVALUATION AFTER ‘AT’ DATE : if it was put in a revaluation reserve instead of being added to the profit for the year directly, then it is part of ‘Total Other Comprehensive Income for Year’, not ‘net profit’, and as such WAS/IS/may not be/ is not NEVER INCLUDED in the RETAINED EARNINGS - this must be recorded separately in the Analysis of Equity if it was not added to retained earnings so for “Current year’ below ‘profit for year’ line OR for ‘From Aquis. to begin current year’ section , a separate line for the “revaluation’ must go in ANALYSIS OF EQUITY, not just he profit/retained earnings alone! WATCH for :if in exam “Revaluation of Land & Buildings” amount is greater than total for ‘at’ date, this probably means another revaluation was done after the acquisition date –do calcs and check where it all fits in .! 5. Note: when you are minusing the profit from an intergroup sale of assets eg land , and if somehow due to this minus of profit or retained earnings the amounts of go “negative”, instead of positive, then just use them as they come –ie. If negative then leave the sign there and calc. it further like that! 6. If par sells to sub.-you must take opening inventory profit out separately,as well as PPE profit separately.BUY if sub sells to par. Then it is all done in the Analysis of Equity, so you don’t have to do it separately!. Remember to do it if par sells to sub- cause one forgets this easily! 7. Any revaluation which is not recorded in the books of the company at acquisition, ie, where it is valued at more for purposes of acquisition but it is not ever entered in books(usually exam question will state this) then DON’T FORGET TO add the revalued amount to PPE total in the Cons.FinStat – because it is in equity as revaluation(ie it was not written in as GOODWILL!) , but is not in the figures of PPE from company statements.SO ADD IT IN AS A SEPATRATE EXTRA AMOUNT! 8.

SPECIAL NOTES :APPLIES FOR ALL SECTIONS: Scan:pg 39&40 to pg 126 part 4,12&13 to pg123,15&16717718 TO PG123,DO JOURNAL ENTRY ON OWN TABLE,pg29&30 to pg125 1. If par sells to sub.-you must take opening inventory profit out separately,as well as PPE profit separately.BUt if sub sells to par. Then it is all done in the Analysis of Equity, so you don’t have to do it separately!. Remember to do it if par sells to sub- cause one forgets this easily! 2. The investment in shares of another company is always shown in the books at the cost price,never at the actual cost of the shares: So it is shown at original cost price but a note must be made to show what the actual valuation of the shares is.?????check this out- not sure????? 3. The goodwill or premium paid is calculated by ADDING {retained earnings share of +owned share capital value share of} and subtract from price paid for investment: ie : not just share value but also retained earnings value. 4. Debentures fall in the same category as loans and are thus eliminated from both companies books by a Dr/ Cr journal entry. 5. As per companies act Dr and CR balances may not be set off against each other upon consolidation. So parents favourable bank balance & subsidiaries bank overdraft must be separately shown.However they may be offset against each other if the company with favourable balance has guaranteed the loan of the other one, provided both accounts are at the same bank. 6. Watch out for debentures of 20000 and 10000 where only 10000 is intercompany- so the other 10000 stays on the Group Statement. 7. Watch for retained earnings date at beginning of year in a “End of Year” Dated balance sheet(SOFP) to work from in exam. 110

111 | P a g e A C C A 2 0 1 A c c o u n t i n g 8. Depreciation: Note: method of working out cost from carrying amount: For straight line method: EG 20% over 5 years – so to get if for after 2 years : 1- acc depr= 20+20% ,2-carrying amount = 100-(20+20)= 60%. 3- cost = 100/60 X carrying amount. For Reducing balance Method : same as above exept : for 20% on reducing balance method = 1-year 1= 20% 2year 2 = 20% + (20% X 80%)= 36% 3-year 3 = 36% + (20%x 64 %) =36+12.8=48.8% 4-year 4 = 48% + (20% x 52%) = 48+10.4=58.4% and so on etc. etc. so cost = 100/final% X carrying amount 9. Retained earnings at beginning of current year of parent in StChEq does not ever include the ret. Earn of subsidiary at date of aquisition- this is allways left out because parent paid for it as part of purchase price. And if given as a lump amount in a balance sheet for subsidiary, you start by working out the % of parents share of ret. Earn , THEN YOU MINUS THE “AT” part of parents share from this, to double check/get the ret.earn.of parent at begin current year. 10. NDR = stands for ‘non distributable reserve’ 11. DEPRECIATION: Depreciation is ALLWAYS WRITTEN OFF at aquisition. So the accumulated depreciation ‘AT’ acquisition is written off against cost price and the result is your new cost price from now on.So Accumulated depreciation just starts off again at ZERO from date of Aquisit. 12. Do put ALL dividends paid in the ‘Analysis of equity’ –don’t leave any out here. 13. In StChEq – no dividends paid by subsidiary goes in parents side, only on minority interests side. – meaning for the dividends paid line. 14. In StCHEq- ONLY the ‘since’ retained earnings gets added to ret.earn. of the parent in STCHEQ, not ANY ‘at’ ret.earn. 15. In STCHEQ: SHARE PREMIUM + any other reserves from ‘at’ never show in parents side –nor for beginning of yearbecause you paid for this and it shows ONLY in the SFP as property, plant,bank,on the ASSETS side, never on the EQUITIES side .SO in SFP , same as in STCHEQ,reserves and share premium from ‘at’ never show on the equities side. (exept for minority where it does show!) 16. For aquisition on different date to fin.year end, only parents original details appear in ‘beginning of period line , in second line the ‘equity at acquisition line’ – only minority interest is shown- because any ‘equity’ of subsidiary is considered included in purchase price, so here parents section is ALLWAYS empty.

DEFINITIONS: 1. Definition: BUSINESS COMBINATION: the transactionn or event where the bringing together of separate entities into one reporting entity ,also known as a “group”.. 2. Definition : SIMPLE GROUPS: only have 1 subsibiary. 3. Definition : COMPLEX GROUPS: a. Horizontal: one parent with 2 or more separate unlinked subsidiaries all form this type of.. b. Vertical: parent owns subsidiary who in turn owns another subsidiary and so on , form this type of .. 4. Definition :PARENT : must possess the majority of voting rights OR of the “voting equity shares-ie:Ordinary Shares (Note-NOT PREF.SHARES ,see below)-”. So if any share (incl. ordinary shares) does not have all its voting rights, then only the voting rights counts toward if it is a parent or not, the voting portion of shares is what counts , not just the percentage held of all ordinary shares- Has the right to control composition of the board of directors, holds over 50% of shares. (NOT SURE- Check up toMAKE SURE) 5. Member: Note: parent is always a ‘member’ (a shareholder) of the subsidiary. 6. Definition :SUBSIDIARY: … 7. Definition : SUB - SUBSIDIARY: owned by another subsidiary(vertical) 8. Definition :WHOLLY OWNED SUBSIDIARY: 100% of the shares owned by parent. 9. Definition :EQUITY SHARES / EQUITY SHARE CAPITAL: Means “ORDINARY SHARES” because definition as per unisa (vertabim) is : issued shares excluding any part thereof which, as regards dividends or capital, carries any right to participate beyond a specified amount in a distribution. Preference shares are therefore EXCLUDED by this definition. 10. Definition :draft.. draw up/prepare the group AFS 11. Definition : CONSOLIDATIONS: a group of companies, parent and subsidiaries. 12. Definition :ECONOMIC UNIT: the parent can control the policies and management of subsidiary, so any group should be seen as an economic unit. 13. Definition :Group AFS, Consolidated Statements, Group Statements. : all mean group statements.

GENERAL DETAILS: 1. IFRS 3 Business Combinations : regulates Bus. Combinations, march 2004. 2. Reasons for drafting a group statement: a. Because the original value of the investment on the books of parent has likely changed a lot in value since purchase, so group statements give shareholders an idea of EPS and assets/liabilities. 3. As per Companies Act 1973 and IAS 27(AC132) determines that a company MUST present to the AGM at end of Fin.Year a set of group financial statements, unless it is a wholly owned subsidiary of the parent 4. Group AFS may consist of a. Consolidated Fin.Stats. b. Or Alternative forms of GAFS: i. Eg:more than 1 set of Consolidated AFS. ii. Separate AFS dealing with each of the subsidiaries. iii. Statements attached to parents own AFS which enlarge on info. on subsidiaries iv. Combination of above 5. WHEN SHOULD GROUP STATEMENTS BE PRESENTED IN THE FORM OF CONSOLIDATED ANNUAL STATEMENTS : as per companies act, these should be prepared unless directors opinion is they will be more effectively and meaningfully shown if displayed in the alternative forms. 111

112 | P a g e A C C A 2 0 1 A c c o u n t i n g 6. WHEN ARE GROUP STATEMENTS NOT REQUIRED? a. Group statements need not deal with a subsidiary if the directors are of the opinion that: i. Impractical or no real use to members( eg insignificant sums) or if the cost or delay would be out of proportion to the usefulness to members. ii. Results would be misleading or prejudicial to the affairs of the parent or other subsidiary. Permission of the Registrar is required in cases 2+3 iii. Operations of the parent and subsidiaries are so different that they could not be treated as a single enterprise. Permission of the Registrar is required in cases 2+3 b. Group AFS are not required when the Parent is itself a wholly owned subsidiary of another company.

GENERAL PROVISIONS 1. 2. 3. 4. 5. 6.

GAFS should be a fair reflection of the state of affairs of the parent and its subsidiaries at the accounting date. Profits losses that have arisen as a result of transactions within the group, where such profits/losses have not been realized in respect of persons outside the group,should be eliminated. The provisions of the Companies Act 1973 must be complied with. All intercompany balances must be eliminated by determining the total assets and liabilities of the group. Dividends declared by a subsidiary out of pre-aquisition profits do not form part of the parents profits that are available for distribution. Elimination of the carrying amount of the parents investment in the subsidiary.

study unit 2: Consolidation of wholly owned subsidiary at acquisition. Definition: NET ASSET VALUE: the total value of all assets owned by a company(incl cash , less depreciation etc.) Definition: PREMIUM: the difference between net asset value and extra price paid Definition: DISCOUNT: the difference between net asset value and lower price paid Definition: INTERCOMPANY ITEMS: goods sold/or loans made between companies in same “Group”. Definition: COMMON ITEMS: items which are common between subsidiary&parent, and must be eliminated-notably “investment in B” & “shares of B held by A” Definition: GOODWILL: the premium paid on purchase of a company. Definition: NEGATIVE GOODWILL: the Discount on a purchase of a majority shareholding of a company. Definition: Partly Owned subsidiary Definition:outside shareholders Definition:Non-controlling shareholders: ordinary and pref.shareholders who own less than a controlling interest. Definition:Non-controlling interest: ordinary and pref.shareholders who own less than a controlling interest.

mETHOD: BASIC CONSOLIDATION TECHNIQUES: 1. You first prepare the individual Fin.Stats of the companies in the normal way, then you combine these after making special adjustments to them to form the Consolidated Statement.The originals are never amended, they stay the same.

ADJUSTMENTS ELIMINATION OF COMMON ITEMS:

Elimination of Investment in the parents books and shareholders equity section in the subsidiaries books. 1) All journal entries are done in a special ‘ consolidation journal’ and never appear or go through the books of any of the 2 companies themselves AT ALL. It is a cosmetic thing. 2) The journal entry for the elimination of the investment and the shareholders equity at the date of acquisition will remain unchanged from year to year. 3) The Share capital on the consolidated statement of fin. Pos. is ALWAYS ONLY that of the parent-not subsidiary.(the whole buy transaction only takes place on the assets side – it is just an asset swop- so cash out and new assets(subsidiarys) takes it’s place as an extra asset.) 4) Profits made by the subsidiary after the date of acquisition become part of the retained earnings of the group and are shown as such in the consolidated statements. 5) Profits made by the subsidiary before the date of acquisition cannot form part of the retained earnings of the group. The parent pays for such profits-so it is part of the purchase price. It is eliminated in a journal entry.

ELIMINATION OF INTERCOMPANY ITEMS: 1) The actual profit of the group is only from goods they sold to the public, so any Inter-group transactions involving the following must be eliminated during consolidations. a) Lending or (debentures or loans) b) Selling

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CONSOLIDATION OF REMAINING ITEMS: 1) Once Common and Intercompany items have been eliminated, a 1-Consolidated Statement of Fin.Pos, 2-Cons.Stat.of Comprehensive Income 3-…of changes in equity and 4-…of cash flow can be drawn up.

CONSOLIDATION OF STAT. OF FIN. POS. 1) The following 3 situations could arise if parent obtains interest in subsidiary: a) Acquisition at Net Asset Value: Price paid is equivalent to value of net assets acquired. b) Acquisition at a Premium : price paid is higher than net asset value. The Premium(difference) is known as GOODWILL.Could be due to specific items with market value higher/(lower) than depreciated value or value of undertaking as a whole.goodwill represents payment made in anticipation of future economic benefits. c) Acquisition at a Discount : known as “Negative Goodwill” : price paid is lower than net asset value. This negative goodwill could arise from,inter alia, errors in measuring fair values of identifiable items : i) Note: Ac131/IFRS3 requires the following : If the fair value of identifiable assets and liabilities exceeds cost of the business combination , the company has to : (1) Must: reassess the identity and measurement of such items. (2) And Recognize in profit or loss any excess after reassessment. ii) IFRS3 revised in 2008 has 2 implications here: the 2 options to calculate goodwill (1) The “partial method”: method used here in examples scanned in (2) The “full goodwill method”: here the non-controlling interest at fair value is used to derive goodwill.(done in year 3) 2) Retained Earnings of subsidiary a) From Before consolidation :are not shown on this Stat., (it is part of purchase price and will all be somewhere in the cash+assets+goodwill of subsidiary) b) From After: are shown on this Stat. (these new assets now added to Cons. , because the asset side must come from somewhere) 3) REVALUATION OF ASSETS: if any assets are valued at above or below their carrying amount in the books at aquisition, this difference MUST go to the ANALYSIS of EQUITY as part of the ‘at acquisition date’ set figures added together to get the ‘totals&goodwill’ at acquisition.

CALCULATIONS STEPS TO DO FOR ANY CONSOLIDATION. STEP (1) Determine the percentage interest in each subsidiary: Investment in Subsidiary(Ltd) Total Ordinary Shares of Subsidiary

=

eg 80 000 shares div. by :eg 100 000 shares

X 100 1 =80% : of shares owned by parent

NOTE: 1) interest in subsidiary is determined by the amount of shares held NOT in Rands Value- You must use 100000 shares and NOT EVER R145000 to determine this percentage. 2) the shares you use to work this out are ONLY ordinary shares(with a vote or per part of a vote-is it 0.5 % of a vote = 1 share or o.5 share even if same value??ask-, or something like that – not sure), never preference shares. STEP (2) Draft the ANALYSIS OF SHAREHOLDERS EQUITY of each subsidiary separately, 1 by 1. NOTE: your amounts you did below might be a bit stuffed up by many changes to this table while making notes ,so (1) AT ACQUISITION: Share Capital (of Subsidiary B) Share premium not shown here Retained Earnings (of Subsidiary B) At acquisition ?????? Less: Pre-acquisition dividend ????? Revaluation of Land&Buildings (done if anything is said to be valued at more or less on acquisition – not a reserve, just a calculation to show. CRRF/General Reserve/or Any other equity Reserve. –supposedly Never shown! 113

TOTAL

AT Acquisition

SINCE Acquisition

Non-Controlling Interest

70 % 80,000 5000 =60,000see calc} 70,000{calc} (10,000){calc}

50,000 3000 =55,000seecalc} 65,000{calc} (xxxetcetc){calc}

-

10000 (just the part that it was increased by not the whole sumjust the difference Xxxxxx

Xxxxx = the share of parent goes here

Xxxxx = the share of revaluation that goes to the subsidiary.

Xxxxx

Xxxxx

150,000

112,000

-

-

30,000 2000 =5,000seecalc} xxxetcetc{calc} (xxxetcetc){calc}

Total top here

114 | P a g e A C C A 2 0 1 A c c o u n t i n g Investment in B Limited At acquisition Less: Pre-acquisition dividend ???????? Goodwill

140,000seecalc} 150,000{calc} (10,000) calc} 28,000(note-just leave out the minus sign-so you actually take bottom - top,if that were negative you might put a negative sign)

(2) SINCE ACQUISITION TO BEGINNING CURRENT YEAR 2/1/95 to 31/12/97 Retained Earnings(13000 31/12/97 -80000 2/1/1995 Revaluation (3)CURRENT YEAR 1/1/98 to 31/12/98 Profit for year

50000

41000

9000

148000(take out

20000(incl.subsid.Dividend)

xxx 168000

susid. Dividend)

Revaluation DIVIDENDS PAID

Xxxx (30000)

(25000)(excl.

(5000)(incl. subsidiary)

subsidiary)

TOTALS:(note: this main total xxxxxxx xxxxxxx Xxxxxxx usually equals nothing and means nothing-it seems to be stand-alone rubbish.) Notes: 1-All the equity stuff from subsidiary must be written out, incl. General reserves & Revaluations reserves etc.?????????????what is this- true or not? 2-Dividends paid in current year get subtracted in new line from profit current year., except for parent the profit must not incl. any dividends received from subsidiary and for non-conrl interst it must include it,and for non-control interest you do put dividends paid to parent as ‘dividends’ but for parent you do NOT put dividends paid to parent as ‘dividends’ 3-‘At Acquisition’ Retained Earnings TOTAL is also same as “AT”+”non-cntrl intrst” amount – not more or less,if any preacquisition dividends declared later it also comes off this in a separate line-ie showing workings.-so the total ret. earn. is “less pre-acquis. Dividends” (both figures) 4-as above – do same for “investment in B amount to get goodwill-ie show workings to bring it to ‘not incl. pre-acquis. Dividend(see above) STEP (3) Eliminate all common items with a JOURNAL ENTRY Journal Entry 1 : Eliminate SHAREHOLDERS EQUITY at time of acquisition DR CR Share capital of B.Ltd (Ordinary shares of R1 ea) 50,000 Retained Earnings (B.Ltd) 40,000 Revaluation reserve (I think) Xxxxxx General reserve (I think) Xxxxxx Any Other reserves on separate lines (i think) Xxxxxx Goodwill ?????????????????????? 10,000 Investment in B Ltd 100,000 Non-controlling Interest 27,835 Elimination of shareholders equity of B.Ltd at ACQUISITION ONLY Journal Entry 2: Record Non-controlling interest in Subsidiary for Period post acquisition

Non-Controlling Interest

R27,835.00

to Begin of Current

year. Retained Earnings Non-controlling interest

2600 2600

2600

Record Non-controlling interest in Subsidiary for Period post acquisition to Begin of Current year Journal Entry 2: Recording Non-controlling Non-Controlling interest (for SCI) Non-controlling interest (for SFP)

interest in Profit After Tax 5000 5000

Record Non-controlling interest in Profit after tax Journal Entry 2 : Eliminate intercompany LOANS Loan: H Ltd 80000 Loan: S Ltd 80000 Elimination of inter-company loans(or just say inter-c.. ‘Balances’) Journal entry 3: Eliminate intercompany DEBENTURE Transactions. 114

5000

115 | P a g e A C C A 2 0 1 A c c o u n t i n g Debenture : S 10000 Investment in Debenture : H 10000 Elimination of inter-company Debentures(or just say inter-c.. ‘Balances’) R27,825.00 Journal entry 4: Eliminate inter-company DIVIDEND transactions. Dividends Received : by Parent 10000 Dividends Paid : by Subsidiary. 10000 Elimination of inter-company DIVIDEND transactions.(or just say inter-c.. Balances) Journal entry 5:Eliminate inter-company sales A sells to B: Sales (A) 100 Cost of Sales (B) 100 Elimination of Intercompany Sales. Journal entry 6:Eliminate profit/loss in closing inventory. A sells to B: Cost of Sales (A) (eg 25/125 x 500000) 125000 Note: not sales but ‘cost of sales!) Inventory (B) (eg 25/125 x 500000) 125000 See explanation Eliminate Unrealised Intercompany Profit included in closing inventory Journal entry7:Eliminate profit/loss in opening inventory. A sells to B: Retained Earnings (A) (eg 25/125 x 7000) 1400 See explanation Cost of Sales (A) (eg 25/125 x 7000) 1400 See explanation Eliminate Unrealised Intercompany Profit included in opening inventory Journal entry8: Eliminate unrealized intercompany profit “included in propery of buyer” of intercompany PPE treansaction (ie intergroup ASSET sale/Property eg: land) A sells to B: Profit on Sale of Property (A) 1400 See explanation Property (B) 1400 See explanation Eliminate Unrealised Intercompany Profit “included in property of buyer” of intercompany PPE transaction. (books weird way of saying profit/loss on Intergroup PPE/Asset sale) Journal entry 9: SAME as (8) above but for any transactions in previous years (which of course have not been sold on by buyer).So ONLY that inclused in Reatined Earnings. A sells to B: ‘Retained Earnings’ (of Seller A) Property (of Buyer B) Eliminate Unrealised Intercompany Profit “included in property of buyer” of intercompany PPE transaction for transactions in previous financial years.(books weird way of saying profit/loss on Intergroup PPE/Asset sale) Journal entry 9: Elimination of depreciation associated with sale of asset. A sells to B: ‘Accumulated Depreciation’ (of Buyer B) 1000 ‘Depreciation’ (of ?sellerA? ) 500 (only if sold in previous fin.years.) Retained Earnings’ (of ?sellerA?) 500 Elimination of depreciation associated with the sale of the asset. ADD: see page 124 unisa book:1- if you create a revaluation reserve at acquisition then you must do a journal entry for it. 2-any revaluation reserve(only if it is a reserve?ask) created after acquisition/or added to must be recorded.-in TOTAL 3 reval. Then sepatrately record the minority interest in reval reserve created after acquisition(note :for that done at aquis. you happen to record this monoriyty interest separately all in 1 go in the first journal entry!!!!!) 3-bills receivable: only journalise the part of bills receivable that was not discounted, and add any discounted bills receivable to trade and other payables(it is not eliminated by at all- now it is owed to someone else!)and is considered ‘taken out of the elimination circle’ 4-You can do the ‘eliminate closing/opening inventory” differently: see page 124 unisa- you just say total closing inventory out of gross profit of b and same out of inventory of A (do not understand!- you must ask here about this!!!!) 6- Cash in transit must be recorded(see page 124 unisa!) into giver and out of receivers debtors account eg loan account.. 7- Interst received and paid intercompany must also be eliminated in a journal entry.

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NOTE: 6) Eliminate shareholders equity at acquisition: a) Retained Earnings: you only eliminate the retained earnings from before acquisition, not from after acquisition.(I think –make sure?????) the before part is in the assets + goodwill you paid for (asset swap for cash)so it is written out, but the after part must come from somewhere and so balance out with equity+liabilities section in group statement by being shown as +retained earnings???????- re –do update these notes after you ask about this!!!!!) b) Goodwill: update from questions after ask- this is written ??into or out of ?? (subsidiary or parent ) in order to what??? Update this in own notes after asked: pg124 When does the goodwill in the parents books get originally entered in N_C assets?On purchase of the original shares or when? Does it get written into the books and out of again every year-because you do the same journal entry each year!? Is it not when the purchase takes place ? how does this work? c) Non-Controlling interest: is written out of where? Into where? d) Out where /into where do all the rest go? 7) Recording non-contr. Interest in profit after tax: does the dr (SCI) write it out of the profit for the year(parents–group) and the cr(SFP) write it out of ret.earnings? 8) Eliminate intercompany dividend and record non-control interest in dividend. a) Are you moving the total dividend out from subsidiary across to parent(-cause now it must look like all dividends come from the parent, not subsidiary who is now a part of the parent,) and writing out div. rec. by parent( so it becomes just a part of the total bank balance-as if it was just transferred to the bank of parent, not ‘paid’) and writing ..??to where does the Non-Cntr. Get this dividend as a dr??? 9) Journal entry 5:Eliminate inter-company sales: you take out all sales from seller (sales is a cr so you dr it out)and take out all purchases from buyer(purchases is a dr so you cr it out) : (all of,incl. profit everything.) 10) Journal entry 6:Eliminate profit/loss in closing inventory.: you take out the profit left over in closing inventory of buyer(inventory is a dr so you cr it) and take out profit from the sales of the seller by (Take Note!:) ADDING it to ‘Cost of Sales of seller’ (cost of sales is a dr so you dr it) instead of subtracting it from sales of seller because otherwise you could not do a ‘contra type journal entry’ to balance because you are trying to do 1 journal entry for the books of 2 companies and this is the only way it will work properly(I think-check up on this) 11) Journal entry7:Eliminate profit/loss in opening inventory.: you take out the profit in OPENING INVENTORY so that when one basicly goes into this current year from previous year, you get rid of any profit left over in stock from last year which is a loose end , since sales&cost of sales from last year never show up anywhere in this years statements, only retained earnings from last year still includes this profit left in inventory because you use the books of subsidiary-where it is still in- to compile this years cons.fin.stats,not the cons.fin.stats. of last year-where it[inventory profit] was taken out-)So you take it out of last years retained earnings of SELLER (this years opening ret.earnings) by dr it ,to take it out there (because retained earnings is a cr so you dr it to take it out) and you take it out of the inventory of ‘BUYER’ by (Take note!) writing it out of the ‘SELLERS’ Cost of Sales (for some weird reason-don’t know-must ask!) 12) Journal entry8: Eliminate unrealized intercompany profit “included in propery of buyer” of intercompany PPE treansaction (ie intergroup ASSET sale/Property eg: land) : you just write out the profit from sale of property out of the sellers books (Dr to get rid of CR) and write out the extra profit included in cost price of asset in Buyers books(Cr to get rid of Dr) 13) Journal entry9: SAME as (8) but where it is for a transaction that took place in previous years(‘AT’ till ‘SINCE’ time) so for Retained Earnings from last year: you just write out the profit from sale of property in previous years out of the “Retained Earnings” account in sellers books (Dr to get rid of CR) and write out the extra profit included in cost price of asset in Buyers books from previous years still(Cr to get rid of Dr) 14) STEP (4) Draft the SCI, then StCHEq then Consolidated statement of financial position:

STUDY UNIT 3 :CONSOLIDATION OF A PARTLY OWNED SUBSIDIARY AT DATE OF ACQUISITION. 1. You must calculate the % share you hold in the subsidiary and then ONLY the % share of retained earnings + % share of ordinary shares goes in the ‘parents equity’ “at date of acquisition” column in the ‘analysis of equity worksheet’, not all the retained earnings form part of parents equity, only the %, the rest goes in Non-controlling interest column.BUT: see next line 2. The EQUITY section of Balance sheet must show: All the owners retained earnings,reserves,and share capital(not added to subsidiaries at all-alone) under:”equity attributable to owners of parent” and under non controlling interest: The 116

117 | P a g e A C C A 2 0 1 A c c o u n t i n g {share value+retained earnings } in one figure that you worked out in “Analysis of Equity” that belongs to the noncontrolling interest.So TOTAL EQUITY is both these two added together: {parents controlling interest+non-controlling interest.} 3. Journal Entry is: all Subsidiaries Share Capital gets written out separately(1st entry usually) & then Retained Earnings + Profit get written out in 2 separate entrys. The non- controlling interest gets written in as a CR to balance this all out for each entry.(is this non-controlling interest a ledger heading? How does it go in the ledger.? Pg 125 own notes update) 4. OVERDRAFT Bank balance set-off: As per companies act Dr and CR balances may not be set off against each other upon consolidation. So parents favourable bank balance & subsidiaries bank overdraft must be separately shown.However they may be offset against each other if: a. the company with favourable balance has guaranteed the loan of the other one, provided both accounts are at the same bank. b. Or the bank itself would set off the 2 amounts against each other in terms of an agreement between 2 companies and the bank

STUDY UNIT 4 : CONSOLIDATION OF WHOLLY OWNED SUBSIDIARY AFTER DATE OF ACQUISITION. 1) All reserves (eg CRRF, General reserve,etc) formed after acquisition become profits of the group, so are not eliminated by a journal entry, only those from before acquisition are eliminated .So all post acquisition profits form part of the ‘reserves’ of the ‘group’. a) Any DIVIDENDS PAID TO PARENT BY SUBSIDIARY FROM PRE-ACQUISITION PROFITS must be deducted (CR Investment account & Dr bank to deduct) from the “investment asset account” in the ledger ‘share investment’ account of Parent, as shown in example below, AND OF COURSE in the Analysis of Shareholders Equity ,in the “at” section you show the retained earnings of subsidiary : less the any part of a dividend paid from pre-acquisition profits. This part of any dividends received is also NEVER ELIMINATED in the normal way dividends are eliminated in the Cons.Stats. because it is TAKEN OUT OF THE ORIGINAL INVESTMENT IN THE PARENTS BOOKS AS SOON AS RECEIVED. So IT WILL reduce/come OUT of the Retained Earnings of B Total AT “AT date of Acquisition” Ret.Earn. total, UNLESS IT HAS ALREADY BEEN TAKEN OUT of the figure for this amount that you receive (read exam question carefully!) and of course REDUCES THE “INVESTMENT IN B” in the same Analysis of Equity WORKSHEET (show workings-see example below).BUT SEE NEXT NUMBER BELOW: (you show the whole cal. in blocked form below the figure in analysis –see example below. b) The entry in the books of PARENT company when they receive the pre-acquisition dividend payment does NOT go to Dividends received account as usual, but to the “Investment in Subsidiary” account, which it reduces in value so your books show you only invested this reduced amount , not the original amount .This journal entry is completely separate to the “elimination of common/loans/etc “ group statement journal entries,and seems to be the way this journal entry is done for a Parent-Subsidiary relationship.

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2) DIVIDENDS PAID BY SUBSIDIARY TO PARENT: a) Must get eliminated from both entities by a journal entry(see example) b) BUT in “Analysis of Equity”worksheet : any dividends paid by subsidiary from profits MUST BE DEDUCTED from the yearly profit IN A SEPARATE LINE as you work toward the totals at bottom – this because you???(see example) 3) To double check your ‘ Retained Earnings Figure ‘ after you finished all Cons.Stats., go through the calc. to get it in a different way to your first way, ie: so depending on what was given, eg: take the latest double figures and minus the “AT” amount, etc etc. eg: start by working out the % of parents share of ret. Earn , THEN YOU MINUS THE “AT” part of parents share from this, to double check 4) (Note –in the cons SCI the profit before tax is LESS (it is written out by journal entry)dividends paid to parent by subsidiary or VisaVersa.)So only the dividends paid by subsidiary to minority interest ,AND dividends paid by parent to others(excl. subsidiary) are included in 5) PROFIT ATTRIBUTABLE TO PARENT /MINORITY FOR THE SOCI must be worked out completely separately( –note how this means as separately: means minority profit is worked out in the analysis of equity-NOT in the SoCI-you will get a wrong answer : because it is NOT a plain % of TOTAL profit, all the parents profit is in the total and does not get divided up, only the subsidiaries part.And then only put at bottom of the soci- not worked out from the total profit on SoCI.- To get part attributable to parent you must ONLY MINUS minority from TOTAL –any other working out method(eg % share of TOTAL=WRONG!!!) will get wrong answer. 6) Retained earnings at beginning of current year of parent in StChEq does not ever include the ret. Earn of subsidiary at date of aquisition- this is allways left out because parent paid for it as part of purchase price. And if given as a lump amount in a balance sheet for subsidiary, you start by working out the % of parents share of ret. Earn , THEN YOU MINUS THE “AT” part of parents share from this, to double check/get the ret.earn.of parent at begin current year. 7) NDR = stands for ‘non distributable reserve’ 8) DEPRECIATION: Depreciation is ALLWAYS WRITTEN OFF at aquisition. So the accumulated depreciation ‘AT’ acquisition is written off against cost price and the result is your new cost price from now on.So Accumulated depreciation just starts off again at ZERO from date of Aquisit.

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STUDY UNIT 5 : ACQUISITION OF AN INTEREST IN A SUBSIDIARY DURING THE YEAR. 1. Interim Aquisition of a subsidiary: means at a date other than fin. year end. 2. !st step: PROFITS : (for : SoCI) a. If possible to apportion with reference to FACTS , then do that , or b. If (a) is not possible, then apportion profit/loss/retained earnings on a day by day basis, eg total/365 X days pre AND post. ie: To each part of year to get the true purchase price and goodwill. c. Note:For Line : “Current year ‘Profits’” in the Analysis of Equity for the subsidiary : DO NOT put the total profit for the year under the TOTAL column- only the amount for “post-acquisition” , not ‘pre-acquisition’ –then divide this up into parent(AT) and minority. Rem : the part from pre-aquis. that goes to minority interest is : nothing to do with us, we are only interested in the minorities share of Parents controlling interest TIME – nothing from before then- just forget it. 3. 2nd : DIVIDENDS ( for : StChEq) a. Ordinary Dividends : are by nature a year end item and thus automatically fall in the post-acquisition period. b. Preference Dividends : It should be accounted for even if it has not been declared.It is divided Pro-Rata on a time basis between pre & post periods.as per last study unit for this Group Statements.So it is seen as bing part of the investment and thus is deducted from the investement of the parent before it goes in the ‘Analysis’ – etcsee last study unit 4. INCOME TAX: a. This is also divided up the same as profit , by facts or if not possible then by time, and comes into the SoCI as only the part from ‘post-aquis.’ – ‘pre-aquis’ is left out completely. 5. ANY EXPENSES: all expenses (incl. depreciation etc.) must also be divided up by facts or if not possible then by time. 6. ANY INCOME: all income must also be divided up by facts or if not possible then by time. 7. 3rd : The StChEq and SoCI can then be drawn up according to 1 OF 2 METHODS: a. METHOD 1 (prescribed method for unisa) :only post –acquisition profits are included in the operating profit. b. METHOD 2 :here both the pre and post acquisition profits after tax of the subsidiary are included in the profit after tax for the year. Thereafter the profit earned by the subsidiary before acquisition of the controlling interest is then deducted in order to determine the profit of the group for the year. 8. StCHEQ (see example below) a. This Fin stat only shows parents stuff at begin year before aquis. of subsid. Then then: i. “AT Aquis.” only the minorities interest is shown for at date( no reserves/ret.earn/share premium from subsid. is shown in parent columns at all). ii. For Year : only the amount earned: ie. From SoCI, is shown for parent, no reserves or ret.earn. or Share premiums are shown at all. iii. End Year: No reserves/ret.earn/share premium from subsid. is shown in parent columns at all.! (See example below)

9. If parents interest only acquired after begin date of Statement of Ch in Equity, then only parents retained earnings&reserves etc. are shown as “Totals at Beginning of Year” , 10. Where consolidation takes place after date of acquisition both the Consolidated Stat. of Fin.Pos. AND Cons.Stat.of Comp.Income. must be considered, not just the former. 11. EFFECTIVE DATE OF AQUISITION: is actually the date on which control over the net assets and operations of the subsidiary is EFFECTIVELY transferred to the parent, but a number of possible dates can be considered to mean that date: a. Date on which substantial agreement is reached b. Date on which control over the net assets and activities of the subsidiary is transferred to the parent. c. Date of signing of agreement d. Date specified in agreement e. Date of payment of purchase consideration. QUESTIONS PG 19

STUDY UNIT 7 ELIMINATION OF INTERCOMPANY TRANSACTIONS. 1.

INTERCOMPANY BILLS OF EXCHANGE: 119

120 | P a g e A C C A 2 0 1 A c c o u n t i n g a. All bills receivable/payable between parent & subsidiary are eliminated (set off against each other) as intercompany balances , b. If they have already been discounted to a bank by one of the parties. i. ONLY the part left over after discounting (eg 10000 bill total ,you discount 2000 so the 8000 is left)is written out as an(equal) journal entry between both companies, ii. The part which was discounted IS ADDED to ‘Trade&other Receivables” , but the part which was not discounted is NOT added to “Trade&other Receivables” iii. Trade& other Payables : no part of the bill goes here from the consolidation, same as if it was not discounted at all, but if it was discounted then of course the discounted part would still go in here because it is owed to another person entirely and as such is seen as a debt to be recorded. iv. (the discounting charge is left out completely- then just seen as a type of ‘bank money transfer charge’ like if you transfer between your own accounts, I think!) 2. BANK OVERDRAFTS: balance set-off: a. As per companies act Dr and CR balances may not be set off against each other upon consolidation. So parents favourable bank balance & subsidiaries bank overdraft must be separately shown.However they may be offset against each other if: b. the company with favourable balance has guaranteed the loan of the other one, provided both accounts are at the same bank. c. Or the bank itself would set off the 2 amounts against each other in terms of an agreement between 2 companies and the bank 3. REVALUATION OF PROPERTY PLANT & EQUIPMENT : a. ANY REVALUATION FROM ‘AT ACQUISITION’ DATE : no ‘revaluation reserve’ from date of acquisition is ever shown in Cons. Fin Stats exept in the SFP as added to PPE, , -even if it does show in the ‘revaluation reserve’ in the books of the subsidiary-, because it was paid for at purchase in purchase price and therefore just shows in the PPE asset amount(like an asset swap) . BUT any revaluation must be shown in the ‘ANALYSIS of EQUITY worksheet’ for ‘at’ date. b. Any REVALUATION AFTER ‘AT’ DATE : if it was put in a revaluation reserve instead of being added to the profit for the year directly, then it is part of ‘Total Other Comprehensive Income for Year’, not ‘net profit’, and as such WAS/IS/may not be/ is not NEVER INCLUDED in the RETAINED EARNINGS - this must be recorded separately in the Analysis of Equity if it was not added to retained earnings so for “Current year’ below ‘profit for year’ line OR for ‘From Aquis. to begin current year’ section , a separate line for the “revaluation’ must go in ANALYSIS OF EQUITY, not just he profit/retained earnings alone! WATCH for :if in exam “Revaluation of Land & Buildings” amount is greater than total for ‘at’ date, this probably means another revaluation was done after the acquisition date –do calcs and check where it all fits in .! c. Any revaluation which is not recorded in the books of the company at acquisition, ie, where it is valued at more for purposes of acquisition but it is not ever entered in books(usually exam question will state this) then DON’T FORGET TO add the revalued amount to PPE total in the Cons.FinStat – because it is in equity as revaluation(ie it was not written in as GOODWILL!) , but is not in the figures of PPE from company statements.SO ADD IT IN AS A SEPATRATE EXTRA AMOUNT! 4. UNREALISED PROFIT IN TRADING INVENTORIES a. Note: ALL profits in inventory at year end get removed, not just this years but also begin of year inventory, -so the place where you ADD back begin inventory profit and MINUS out end inventory profit is in the SCI in ‘PROFIT’ only!!!!!!!, not in SFP in Inventory! b. ONLY PROFITS or LOSSES from transactions from INTERGROUP transactions should be eliminated. Ie: which did not take place with a company from outside the group. The ‘cost price’ transactions, or the cost price part of transactions, are eliminated in a separate step, but inventories left over left in stock at year end has a loose end attached to be removed–namely the profit charged by first intergroup member- since transfer price was eliminated, and the cost of stock left over would still be accounted for after eliminating profit/loss in left over stock, and all stock sold by receiving member would account for any profit/loss realized in the Cons.SCI, thus just that 1 looses end is left! c. Where Intergroup Transactions Arise , The Following Situations Can Arise: i. All inventories have been sold by receiving intergroup member by year end = 1. No Change to Cons. Fin.Stats. AT ALL. 2. Only intercompany sales must be eliminated : so –sales by selling member+purchases by buying member = ZERO anyway every time! ..but do it anyway to show workings and make complex transactions/totals simple to sort out. 3. ii. Only Part of inventories have been sold by ‘receiving intergroup member’ = 1. Profit left in Left over inventories in receiving members books must be eliminated. 2. Unrealised profit in ‘selling intergroup member’ must be eliminated. 3. Only intercompany sales must be eliminated : so – sales by selling member+purchases by buying member = ZERO anyway every time for this calc. ..but do it anyway to show workings and make complex transactions/totals simple to sort out. ???wrong or right??? d. Minority Interest Share Of Written Out Sales/Inventory :The Profit that the minority interest gets out of any sale by subsidiary to parent must be recorded separately so even if you subtract the profit/loss for intergroup transactions , you CANNOT subtract this for minority interest, theirs must be worked out separately and recorded in SCL and SFP as follows:

i. Parent sells to subsidiary: Subsidiary sells to parent: In the ‘analysis of shareholders equity of B’, you put the Actual profit (not

ii.

less left over stock markup or other intergroup profit/loss) as total for ‘current year’, and divide it between

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121 | P a g e A C C A 2 0 1 A c c o u n t i n g minority&parent without touching the intergroup profit/loss or ‘stock left over’ calculations.- specially to get the minority’s proper share of profit for SCI & SFP. The same for ‘from At till begin current year’ retained earnings line. The profit/loss/stock.etc. deductions/calculations are all done separately, never on the Analysis of Equity.????re-do –seems a bit wrong??? 5. CLOSING STOCK: eg 25/125 (re-do-not done properly no time!) a. You must subtract the profit/loss in closing stock(after minusing opening stock from closing stock ) at year end for any intergroup transaction included in this end of year figure.But the original price charged by selling member to buying member : ie cost to receiving member in this closing stock, is subtracted separately anyway(see journal entries below)- so only stuff left in stock at year end that was not sold has a loose end attached to be removed– namely the profit charged by first intergroup member.{remember opening stock must first be subtracted from closing stock before you do the calculation) but minorities interest in this profit/loss written out must still be recorded as explained in (c) above-) b. Important principle : note that for any intergroup stock which was sold by receiving intergroup member we do not have to write out any profit /loss because it might have well have been sold by the original member – it is now just regarded as having been transferred to another warehouse/branch before being sold(even a loss –or a profitwill show up on cons .fin.stat. ,now that it was sold to outsiders, anyway you see)because all all sales for intergroup are written out entirely and only stuff left in stock at year end has a loose end attached to be removed–namely the profit charged by first intergroup memberc. Calculating the Profit/Loss left in closing stock: if it is given as 25% markup on cost = selling price between group members, then the profit to be ‘Written out’ of intergroup transactions will be= 25/125 –so 25 parts of [100(cost) + 25(markup added already) ] –this is where you got the cost plus markup added already as your ‘given’ in exam. 6. OPENING STOCK : eg 25/125 7. ALL opening stock at beginning of year must first be subtracted from closing stock before the intergroup profit/loss to written out is calculated, because we are only concerned with current years profit/ loss and last years stock just confuses the issue One can also do the full calc. of profit in opening inventory (eg x 25/125) and use this figure and just minus it from profit left in closing inventory i9f there is any(???redo seems a bit wrong??? –(so in final full calc. you could add it to the negative closing profit and positive given total net profit of subsidiary,and negative this years sales of parent and positive this years purchases of subsidiary to get ConsSCL final profit !) .(_+ something with the journal entries not understood- r(redo-not done properly no time!) 8. ANALYSIS OF EQUITY: a. For parent to subsidiary sales: NO profit/loss/stock.etc. deductions/calculations are done on the Analysis of Shareholders Equity, all are ONLY EVER all done separately in other calculations/workings. NO changes ever show here, everything is done as if no intergroup profit/loss/stock changes need to be made at all. This is so the minority’s share of profit loss is properly calc. without any deductions etc. b. For Subsidiary to Parent sales: because the subsidiary sold the items, the adjustments need to be shown on the analysis of equity.so: i. Retained earnings: you subtract answer of profit left (eg *25/125) in :(closing-opening) inventory of PARENT(not subsidiary) from everybody’s TOTAL RETAINED EARNINGS,not just the parents, so also minority share as well as parents share get reduced(why I cannot understand!- surely the dividends of minority NEVER get affected by whats left in parents inventory! Surely they must get their full profit!And then, if the inventory is left in subsidiaries stock for a visa versa transaction, why is the same not done then?because it was an asset swap by subsidiary or what?why does minority suffer for parents not having sold stock(they could take up the production of the subsidiary and hoard it, or sell it at a loss, then minority sits without dividends for a few years! Or what) ii. Profit for current year: you reduce the TOTAL by subtracting answer of profit (eg *25/125) left in : (closing-opening) inventory of PARENT (not subsidiary) from everybody’s TOTAL, not just parents BUT also subsidiaries, so also minority share as well as parents share get reduced(why I cannot understand!-see question in (i) above.) 9. SCI(re-do-not done properly no time!) a. Sales: all sales of ‘selling intergroup member/s’ must be subtracted/eliminated b. Cost of Sales: all cost of sales of ‘buying intergroup member/s’ must be added back/and as such eliminated. c. Profit before Tax: = i. TOTAL profit of subsid. + TOTAL profit of Parent less ( profit in closing stock eg 25/125*10000 – profit in opening stock eg: 25/125*8500) ii. OR another way=TOTAL profit of subsid. + TOTAL profit of Parent less profit in closing stock plus profit in opening stock (without brackets) iii. OR another way =TOTAL profit of subsid. + TOTAL profit of Parent less profit in : {eg: 25/125 * }( closing stock –opening stock) d. Income Tax Expanse: leave this alone, the 2 amounts don’t balance each other out or anything ( note: to save paying tax twice you must sell to members at cost!) BUT this is an expense you cannot get away from- it was paid so it must be recorded. (Only intergroup dividends might be subtracted here etc, but nothing from intergroup sales/stock etc.) 10. SFP: (re-do-not done properly no time!) a. Inventories: b. Equity of parent: c. Non-controlling Interest: 11. StChEq: (re-do-not done properly no time!) a. Parents Beginning of year ret. Earnings: b. Parents Tot. Comp.Income for Year: 121

122 | P a g e A C C A 2 0 1 A c c o u n t i n g c. Non-Controlling interest begin year balance: i. Parent to Subsidiary Sales: you do it normal, as if there was no issue with stock/sales etc. ii. Subsidiary to Parent sales: for some weird reason, you MUST subtract the profit left in the parents [closing-opening] inventory from the minority’s retained earnings at As well as doing the same for the parent of course. d. Non-Controlling interest Tot.Comp. Income for Year. i. In the same way as for retained earnings above, for some weird reason, you also MUST subtract the profit left in the parents [closing-opening] inventory from the minority’s share of the profit for the year, as well as doing the same for the parent of course. 12. Journal entries: (re-do-special way here not understand) a. Intercompany SALES: (re-do-special way here not understand) i. Sales of selling intercompany member to be written out(full amount) ii. Cost of Sales of buying intercompany member to be written out(full amount) b. Unrealised intercompany profit in CLOSING STOCK: only profit/loss to be written out (re-do-special way here not understand) c. Unrealised intercompany profit/loss in OPENING STOCK: to be written out.(re-do-special way here not understand)

PROPERTY PLANT & EQUIPMENT SOLD BY ONE INTERGROUP MEMBER COMPANY TO ANOTHER INTERGROUP MEMBER/COMPANY 1. Note: you must really go through examples with this because the difference between parent to subsidiary and subsidiary to parent is really difficult- for both depreciation as well as the sale of asset. 2. Any profit/loss realized when an asset is sold intergroup should be eliminated – evn if it was 5 years ago and only shows up in the retained earnings . 3. Four situations may arise when assets are sold within a group: a. Parent sells non-depreciable assets to Subsidiary. take off profit or add back loss. b. Subsidiary sells non-depreciable assets to Parent. take off profit or add back loss. c. Parent sells depreciable assets to Subsidiary: take off profit + any depreciation

charged out on the profit part over the years, or visa-versa for a loss. d. Subsidiary sells depreciable assets to Parent. : take off profit + any depreciation charged out on the profit part over the years, or visa-versa for a loss. 4. CASH IN TRANSIT: note that for cash in transit only one balance in the Cons.Statments will be effected even though 2 accounts are contra-debited as a journal entry for each cash in transit.So only “Bank” in the receiving company will EVER ONLY be affectedthe other account is always WRITTEN OUT Completely anyway by other processes eg: loans/interest/sales etc – so the double journal entry is always exactly half cosmetic and half real. 5. CALCULATING DEPRECIATION TO BE REVERSED FOR THESE SALES : a. you ONLY take off the depreciation of the PROFIT ( or add depreciation from Loss) Not the TOTAL depreciation .So if the profit on sale was 500, out of total selling price of 2500, you just write out the depreciation from every single year since purchase on the 500 profit. So if depr. Is 10% straight line basis – then you say 500*10%= 50 ,so you take off 50 from current years depreciation charge, and 50 for each year of previous fin.years since sale-off retained earnings.! b. Remember that if the asset is finished depreciated already(‘scrapped’/’written-off’ already), then you must still take off the depreciation from retained earnings(for all previous years){BUT you don’t have to go and work out depreciation on that deducted now from retained earnings -for the current year and re-subtract it or anything!-if you maybe get confused as to that!} c. You must calculate depreciation on retained earnings, and on current years profit separately- because they get used separately in all the to do about this.

6. STATEMENTOF ANALYSIS OF SUBSIDIARIES EQUITY: a. WITHOUT DEPRECIATION: i. For parent to subsidiary sales: do it completely normal as if no sales etc happened. ii. For Subsidiary to Parent sales do it normal then LESS any profit /loss on intergroup PPE) SALES in whichever period it took place ie: either in “Current year” or in “From ‘At’ date to Begin Current year”, so either in Profit or in Ret. Earnings section. Note:if somehow due to this minus of profit the amounts go “negative”, instead of positive, then just use them as they come –ie. If negative then leave the sign there and calc. it further like that! b. WITH DEPRECIATION: same as above exept for “(ii) For Subsidiary to Parent sales” Add Back (NOT subtract!) any depreciation(only depreciation taken off on “profit” of course) for each of either of 2 periods separately Prorata- so for in “Current year” or in “From ‘At’ date to Begin Current year” periods.(For a loss situation as 122

123 | P a g e A C C A 2 0 1 A c c o u n t i n g apposed to a profit on sale of asset the depreciation would have to be subtracted to bring itto levels as if there were no loss on the sale) 7. SCI(re-do-not done properly no time!) a. Sales: b. Cost of Sales: c. Profit before Tax: = i. FOR both scenarios : PARENT TO SUBSIDIARY :Simple: ALL ! Profit of (A)+ALL ! of (B)-(any profit/loss from sale of…PPE) SO the profit does not come out in Anaysis of Equ. But here in SCI in Profit. ii. FOR SUBSIDIARY TO PARENT :ALL Profit of (A)+ ALL of (B) DO NOT MINUS ANYTHING :SO the profit does not come out in in SCI in Profit.: HERE it is visa – versa to the parent-subsidiary sale :it comes out in ANALYSIS OF EQUITY only, not SCI at all. d. Income Tax Expanse: (Same method as for sales/stock type) Also leave this alone, the 2 amounts don’t balance each other out or anything ( note: to save paying tax twice you must sell to members at cost!) BUT this is an expense you cannot get away from- it was paid so it must be recorded. (Only intergroup dividends might be subtracted here etc, but nothing from intergroup sales/stock etc.) e. Depreciation Expense: Remember there will ALLWAYS be a depreciation for the current year, even if asset was sold in the previous fin years! So there could be some depreciation in last years acc.depr. and although this part does not show in SCI the current years depreciation will always show.(unless asset is written off already AFTER all depreciations on profit have been written back already- see point above on how to work out ‘depreciation’) 8. SFP: a. Property Plant&Equipment: simple : add CompanyA + CompanyB – any profit/loss from sale for both sub. to parent or visa-versa. b. Equity of parent: i. Retained Earnings: Get from the StChEq total at bottom for parents Ret.Earn. c. Equity of Non-controlling Interest: Get from the StChEq total at bottom for Subsidiary. 9. StChEq: (re-do-not done properly no time!) a. Parents Beginning of year ret. Earnings: i. Parent to Subsidiary :Add all of parents begin tot. + Parent share of subsidiary “From ‘At date’ up to begin Current year” in Analysis of Equity. ,then you must separately (because it is not done in analysis of equity) subtract from the Parents begin total – (any profit on sale of PPE intergroup in period) ii. Subsidiary to Parent : Add all of parents begin tot. + Parent share of subsidiary “From ‘At date’ up to begin Current year” , then if Subsidiary sells to Parent , -1- first subtract the profits on sales of PPE intergroup in period (done in ‘analysis of equity’) -2- ADD BACK :the depreciation left in any RETAINED EARNINGS from previous years must also be ADDED BACK’,(it is only subtracted if there was a LOSS, instead of a profit). This is done in the analysis of equity so you just take the answer from there b. Parents Tot. Comp.Income for Year: Normal, less (any profit /loss on intergroup PPE) c. Non-Controlling interest begin year balance: i. Parent to Subsidiary Sales: you do it normal – no minuses ii. Subsidiary to Parent sales: you must subtract any profit /loss on sales from all amounts that go into this figure : d. Non-Controlling interest Tot.Comp. Income ie: Profit for Year. i. Parent to Subsidiary Sales: you do it normal no minuses ii. Subsidiary to Parent sales: you do it normal then LESS any profit /loss on intergroup PPE) SALES . 10. Journal entries: (re-do-special way here not understand) a.

DIVIDENDS : THEIR TREATMENT DURING CONSOLIDATION. 1)

2)

3)

4) 5)

Due to principle of ‘elimination of all intercompany transactions’ , in the Cons.Statment of Equity on the “PARENTS” side the only Dividends Paid / or Declared will be the “Dividends Paid by Parents to shareholders of Parent” , ON THE NONCONTROLLING INTERESTS side of StCHEq THE DIVIDENDS paid by subsidiary to them only IS shown separately AND subtracted though. a) This causes a reduction in the balance of minority interests in SFP, as well as at bottom of StChEq. Before you add up the profits of both companies in the Cons Stats. always first make sure no dividends paid by the subsidiary are included in the parents profit for the year. It should just show up in the {“bank” of the parent} as if it were added to the {bank of subsidiary} as if it were still in the subsidiaries bank, because remember the dividend PAID by subsidiary is deducted AFTER the subsidiaries own Net Profit Calculation, but the dividend received by PARENT is ADDED to parents Net Profit BEFORE parents NET PROFIT CALCULATION. The 5 situations which most frequently occour regarding Dividends in StChEq. Are: a) Subsidiary made no provision and does not wish to create a provision for dividends b) Subsidiary did pay a dividend to shareholders. c) Subsidiary made provision for declared and payable & Parent made provision for receivable. d) Subsidiary made provision for declared & payable but Parent made no provision for receivable. e) Provision must be made by subsidiary for a dividend declared. FIFO or LIFO : the allocation method used by a subsidiary to declare dividends has no influence on the Cons.Stats. at all. ( but see next point) PRE-ACQUISITION PROFITS : If a subsidiary does not have sufficient post acquisition profits to pay out a declared dividend, then it must use the pre-acquisition profits and this causes a huge stuff-up , as follows :

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124 | P a g e A C C A 2 0 1 A c c o u n t i n g a) All reserves (eg crrf, general reserve,etc) formed after acquisition become profits of the group, so are not eliminated by a journal entry, only those from before acquisition are eliminated .so all post acquisition profits form part of the ‘reserves’ of the ‘group’. i) If there are not enough post acquisition profits to pay out a declared dividend, then it must use the preacquisition profits and if it uses any of these to pay a dividend then it is NOT ever eliminated by a journal entry for writing up the Cons.Stats. , it must be removed from the ‘investment in B’ and added to “bank’ of parent as follows: ii) If pre-acquisition profits are used to pay a dividend, this cannot be eliminated like other dividends paid by subsidiary to parent, it MUST BE subtracted out of the initial “investment’ of ‘B’ “at aquisition’ in the Analysis of Equity subsidiary and also in the books the Parent. THIS IS THE ONE OF THE ONLY PLACES YOU FIND THAT AN INTERGROUP TRANSACTION ACTUALLY AFFECTS THE BOOKS OF THE PARENT (OR SUBSIDIARY) IN ANY ABNORMAL WAY. USUALLY IT IS ONLY the “Special Journal” of the consolidation itself and not the actual books of any of the parents that is affected. iii) Any DIVIDENDS PAID TO PARENT BY SUBSIDIARY FROM PRE-ACQUISITION PROFITS must be deducted (CR Investment account & Dr bank to deduct) from the “investment asset account” in the ledger ‘share investment’ account of Parent, as shown in example below, AND OF COURSE in the Analysis of Shareholders Equity ,in the “at” section you show the retained earnings of subsidiary : less the any part of a dividend paid from preacquisition profits. This part of any dividends received is also NEVER ELIMINATED in the normal way dividends are eliminated in the Cons.Stats. because it is TAKEN OUT OF THE ORIGINAL INVESTMENT IN THE PARENTS BOOKS AS SOON AS RECEIVED. So IT WILL reduce/come OUT of the Retained Earnings of B Total AT “AT date of Acquisition” Ret.Earn. total, UNLESS IT HAS ALREADY BEEN TAKEN OUT of the figure for this amount that you receive (read exam question carefully!) and of course REDUCES THE “INVESTMENT IN B” in the same Analysis of Equity WORKSHEET (show workings-see example below).BUT SEE NEXT NUMBER BELOW: (you show the whole calculation in blocked form below the figure in analysis –see example below. iv) The entry in the books of PARENT company when they receive the pre-acquisition dividend payment does NOT go to Dividends received account as usual, but to the “Investment in Subsidiary” account, which it reduces in value so your books show you only invested this reduced amount , not the original amount .This journal entry is completely separate to the “elimination of common/loans/etc “ group statement journal entries,and seems to be the way this journal entry is done for a Parent-Subsidiary relationship.

TREATMENT OF PREFERENCE SHARES DURING CONSOLIDATION: In study unit 8 we discussed the treatment of dividends where the subsidiary's share capital consists only of ordinary share capital. In this study unit we deal with the treatment of preference share capital and preference dividends. Preference shares bear a fixed dividend percentage. If sufficient profits are available, these shares enjoy a preferential right in respect of dividends. 124

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Cumulative preference shares differ slightly from ordinary preference shares in that the fixed preferential dividend accumulates if it is not paid out annually. A company is therefore obliged to pay all cumulative preference shares that are in arrears as soon as sufficient funds become available. Participating preference shares share in the profits of a company after the payment of the preference dividend. Convertible preference shares are convertible to ordinary shares at a specific date in future. Although a company may not buy its own shares, it may buy back (redeem) redeemable preference shares after a specific period at a predetermined price. Preference shares of a subsidiary form part of the subsidiary's shareholders' equity. Preference shareholders can, however, only participate in the profit or capital up to a fixed amount. The holder of 12% preference shares to the value of R2 000 will receive a dividend of only R240 (R2 000 x 12%) per annum. Further, if the subsidiary is liquidated the preference shareholder will receive a maximum amount of R2 000. Where preference shares in a subsidiary are held this affects the calculation of the noncontrolling interest in the consolidated statement of comprehensive income and statement of financial position. By the time you have completed this study unit this statement should be clear to you.

(1)CONSOLIDATION PROCEDURES IF THE SUBSIDIARIES CAPITAL INCLUDES PREFERENCE SHARES.: 1) 2 Separate analyses of shareholder capital must be done: 1 for ORDINARY shares and 1 for PREFERENCE shares. 2) You basicly do an analysis of equity for the preference shares same as for the ordinary shares and: a) Only use pref share capital – and divide it up between subsidiary & parent b) Check for goodwill if a premium was paid for the pref. shares c) Pref.Divdends /Profit: this is the tricky part: you remove all the pref dividends from the “ordinary shares analysis ‘ and move it to the “pref. shares analysis” i) Preference dividends received from subsidiary must be removed from profit of parent in order to consolidate both companies profits for the SCI. ii) Profit of minority = share of profit- pref paid + pref received.(since all dividends come out AFTER profit is calc. NOT before.)

COULD NOT FINISH- STOPPED HERE- NO TIME –note see page 171 whole page go through examplevery tricky! (2)TREATMENT OF PREFERENCE DIVIDENDS OF SUBSIDIARY: The following are the three situations which most commonly arise: • . Preference dividends outstanding at the accounting date In this case the subsidiary has declared the dividend, but it is to be paid out at a later date. Therefore, the only effect this will have on the consolidated statements is that the noncontrolling interest has to be raised by the portion of the dividend or profit which they have not yet received. • . Accumulated preference dividends at acquisition of subsidiary iii) You treat this in the same way as if dividends were declared after purchase which had to be paid with by profits from before acquisition. So you reduce your “investment” in the company by this amount that was outstanding(NO MORE –SO ONLY BY THE AMOUNT THE SUBSIDIARY OWED YOU WHEN YOU BOUGHT THE CONTROLLING INTEREST) when the dividends are declared later in the year. iv) In this case an amount in respect of accumulated preference dividends is included in the calculation of the purchase price of the preference share investment. This implies that payment is made for the preference share dividend that will be declared later in the year. If this dividend is declared, the investment will be reduced accordingly. • . Arrear preference dividends Since we are dealing with cumulative preference shares here it is always necessary to make provision for any arrear preference dividends. All arrear preference dividends have to be paid before it is permissible to pay an ordinary dividend.

COULD NOT FINISH- STOPPED HERE- NO TIME

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Chapter 2 Semester 2 :Cash flow Statements Intro:

(1) The following is a Logical Presentation of it: NET CASH FLOW FROM OPERATING ACTIVITIES CASH RECEIPTS FROM CUSTOMERS CASH PAID TO SUPPLIERS AND EMPLOYEES INVESTMENT INCOME INTEREST PAID TAX PAID DIVIDENDS PAID NET CASH FLOW FROM INVESTING ACTIVITIES NET CASH FLOW FROM FINANCING ACTIVITIES NET CHANGE IN CASH AND CASH EQUIVALENTS 2) The aim : of the statement is to furnish info.to the various users of fin.stats. 3) Each enterprise : presents its cash flow from operations,investment & financing in the way most suitable for its business. 4) CASH inflow & outflow ONLY is recorded in Cash Flow Statement ,NO Debt/Depreciation etc. Cash flow stat. just reconciles Cash beginning year with CASH end year – in many cases it is just a summary of the cash received & cash payments journal.

ONLY CASH in/out flow is recorded : 5) Definition: Cash Flow Equivalents: ?????

WHY USE A CASH STATEMENT? (a) To answer questions like: (i) How much cash was generated. (ii) Forecast future cash flows from historical info. (iii) How are employees paid,dividends paid,loans repaid,sufficient cash to carry on... (iv) Why did company ,though very profitable that year,pay such a small dividend. (v) How much spent on equipment&sources of finance for it. (vi) AC118.02 : states :The objective of cash flow stat. is to provide info. to the users of fin. Stst. Regarding the historical changes in cash & cash equivalents,classified according to operating,investment,financing activities.

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127 | P a g e A C C A 2 0 1 A c c o u n t i n g (b) Income statement does not show ONLY CASH in/out ,due to accrual concept-expense&income recognition-,so credit is shown as well as .eg depreciation is shown - but deprec. is just 'academic' and creditors are not yet realised +might never be realised. (c) It is possible for a firm to be highly profitable while experiencing a critical cash shortage.(eg the start of universal general requirement for cash flows comes from large USA firm bankrupt 1950s seemed impossible –started the trend. (d) Provides info. on 'investment &other activities' this is all not very clear in other statements. (e) It provides an extra fin.stat. which can be used to analyse the cash flow in a company , which when looked at in conjunction with the other fin.stats. provides avery clear picture of the companies liquidity and any cash flow problems it might be experiencing as well as business risk and financial risk of the company. (f) Operating Activities: Extent to which able repay loans,maintain operating capability of entity,pay dividends,make new investments without financing, (g) Investing Activities: (from statements of gaap) extent to which payments made for resources intended to generate future economic benefits. (h) Financing activities: (from statements of gaap) predicting claims on future cash flows by providers of capital.

GAAP & Law implications. 12345-

Statement IAS7(ac118) concerns Schedule 4 of companies act- A Cash flow stat. MUST be prepared. C.C's do not need to prepare one,but it is prudent as per GAAP to . AC118.02 : states :The objective of cash flow stat. is to provide info. to the users of fin. Stst. Regarding the historical changes in cash & cash equivalents,classified according to operating,investment,financing activities. AC118 states: CASH = cash on hand & call deposits ; CASH EQUIVALENTS = highly liquid short term investments which can easily be converted into cash and whose risks of changes in value are insignificant.

elements and framework of cash flow Stat. The elements of a statement of cash flows is as follows : Operating Activities. Investing Activites. Financial Activities.

OPERATING ACTIVITIES 1234-

This is the most important of the 3 cash generating activities, and is a key indicator of the extent to which able repay loans, maintain operating capability of entity, pay dividends,make new investments out of the cash arising from operating activities, without getting financing. Ac118.16 (copy down AC118.6 here later)–All activities NOT under Investment or Financing activities. All cash from calculating Net Profit of Entity, notably the principle revenue producing activities of the company. Cash to/from : Dividends paid& Interest Paid & Interest Received contracts for trading activities,income tax payments & refunds exept where these relate to financing and investment activities,insurance,insurance claims paid out,cash payments to and on behalf of employees,cash payments to suppliers of goods & services;receipts from royalties,cash commissions,and other income;receipts from sale of goods &rendering services;royalties,comissions,fees & other revenue.

INVESTMENT ACTIVITIES: DEFINITIONS: (COPY DOWN AC118.6 HERE LATER) 567-

This heading is the indicator of the extent to which payments have been made for resources intended to generate future economic benefits. Ac118.18- Non-Current Assets mainly :Any +/- of Long term assets / Investments ???NOT included in Cash Equivalents.???? Cash Payments and Cash Receipts from Prop./plant&Equip ;Intangible assets ; Marketable Securities ; Cash Advances & Loans to other parties ; Recovery of Loans (payments Received ) (BUT NOT :Interest received from these loans that is part of Operating Activities!!!!)

FINANCING ACTIVITIES: DEFINITIONS: (COPY DOWN AC118.6 HERE LATER) 89-

This heading is the indicator used in predicting claims on future cash flows by providers of capital. AC 118.19 -NON-CURRENT liabilities & Owners Equity. Cash in/out from.- ONLY Debt& Capital Funding, never anything else, so not from issueing a loan to another party(that is investing activities I think), or interest payments, or anything else. 10- Includes 'buy back' and redemption and issue of Share EQUITY ; Cash Received or Cash Paid back for amounts borrowed for mortgage Bonds; debentures, & other short or long term current or non-current BORROWINGS. NOT the following types of debt stuff: Repayment of interest & paying out dividends: ( those are under 'Operating Activities ') 11- Finance lease payments by lessee to reduce outstanding liability.

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METHOD OF PREPARATION OF CASH FLOW STATEMENT. 1) The heading of Cash Flow Stat. is :....FOR THE YEAR ENDED ...so SCI & StChEq & Cash Flow all same , just the SFP is ‘as at’. 2) As per AC118 – Format must follow a logical hierarchy-starting with sources of cash flows and thereafter the priority claims against the cash flows, thereafter how cash surplus has been dealt with. Also Ac118 prescribes operating-then-investment– then-financing-activities as the Order. 3) The Following Information sources are the ones needed to Prepare a Cash Flow Statement. : i) SCI ii) SFP iii) Additional Information 4) Note: brackets must allways be used in the cash Flow Stat. Amounts in brackets=ouflows of cash / no brackets = inflow of cash 5) DIRECT METHOD:/ INDIRECT METHOD: (1) Difference between: The only difference between the 2 is in the 'Operating Activities' section. The sections dealing with investing and financing activities are represented in the same format, irrespective of the method used. (2) SAICA ENCOURAGES: The direct method is encouraged by Saica because it provides Info useful to predict future cash flows ,which is not available in Indirect method. (3) DIRECT METHOD : is – We refer to the actual accounts to get the totals for certain items, not to the income statement. In this method “the principle categories of gross cash proceeds and gross cash payments are disclosed”. (4) INDIRECT METHOD : is - the figures are taken from the Income Statement, not from individual accounts. In this method “profit or loss is adjusted for the effect of non-cash transactions, and any deferrals or accruals of previous or future operating cash receipts or payments and income or expenditure items which are related to investment or financing cash flow”. 6) NOTE: One must often move to another account and complete it while in the middle of doing one type,ie:jump between accounts, in order to get certain totals needed.This is a characteristic of the type of calculations for cash flow.

DIFFERENT FRAMEWORKS OF THE DIRECT AND INDIRECT METHOD For indirect method :ADD IN TO - inthe ‘Operating Profit before changes in Working Capital’ section: “Decrease/incr.in prepaid expenses”also in the (I think) ‘adjustments’ section revaluations goes in here, same as depreciations. ALSO ADD : “increase in provision for bad debts”=in adjustments in recon/indirect method=add it back 2-Decr. in In provision for bad debts=subtract it out of profit again 3- actual bad debts for the year=add it back to profits again. Adjustments section : Bad debts Provisions ( eg : for bad debts) Revaluations + Interest income Interest expense Loss/profit on sale of n-c assets Dividend income Depreciation – (add back) In: ‘changes in working capital section’ Decr/incr in Pre-paid expenses ( incr= subtract it back out- it was not accounted for and moved to next year, decr=add back it was made as if were this years not last’s in the income statement.)- this is a

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l ADD IN TO ‘Operating profit before changes in working capital’ section:“Decrease/incr.in prepaid expenses” ALSO ADD 1-“increase in provision for bad debts”=in adjustments in recon/indirect method=add it back 2-Decr. in Ikn provision for bad debts=subtract it out of profit again 3- actual bad debts for the year=add it back to profits again.Try to do both methods as a table format yourself to add in extra things. Also preference shares is a finance, not investing activity- put this in in all headings below&above….AND banj overdraft gets left out completely- it only shows in the begin/end of year change in c+ce at bottom,that’s it only place it shows-NOT in financing. C OMPARISON BETWEEN THE 2:

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DOING ACCOUNTS TO CALCULATE TOTALS FOR THE C/D STATEMENT: 1) FOR : ASSET&LIABILITY&EQUITY Accounts: (incl.Receivables/Sales/paidtosuppliers etc/costsales) 2) Transfer end previous Year to Debit Side at top. 3) Begin Current Year to Credit side at Bottom-(as Closing balance!) rework out-wrong 4) Other INFLOW (or additions to / large’ring of last years balance :eg: purchases of assets for the 'equipment account') to Dr Side 5) Other Outflow to Cr Side(eg sales of assets for equipment account) 6) Your Answer is Balancing figure which: Note:funny method :goes to the top of the balancing side ,not as a c/d or b/d figure and not below ruled totals!-note-, with {details as= 'bank' etc.or whatever-use your brains here-} Then if the total is on Dr side =income(inflow) -Vs- on Cr side it would be = to a loss(outflow). EXAMPLE:

(2) FOR :INCOME /EXPENSE Accounts: (incl: 2) As income/expense comes from income statement,not 2 yearly balance sheet ,totals for a t-account method, it goes to different sides than in asset/liability accounts-as per normal Dr/Cr practice, nothing special here- .So Just use t-account to work out amounts actually paid this year from the 'unpaid' at beginning & end amounts): by putting Unpaid Amounts at Beginning of year to credit side{details = just : balance b/d or c/d}(as per normal ie;as a credit,not funny style as for assets).Then Unpaid amounts at End of year to to Dr side as the {DETAILS =balance C/d amount!} as well amounts owed (dividends declared in current year ,or interest actually due for year,or actual tax expense for year) to Cr side as a normal liability-{details = tax/interest expense or dividends declared} etc.( as per normal ie-Cr=liability).Then You can calculate any amounts actually paid this year –this is the one funny entry and goes to DR side –{with details='bank'} ,(above the c/d year end balance)and this is your answer for cash flow statement NOTE: it does not matter if you paid last years debts,no matching principle is applied in Cash Flow Statement!,just actual cash flow itself is needed.

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1-

Example of a CashFlow Statement:

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CASH FLOWS FROM OPERATING ACTIVITIES. INDIRECT METHOD:

OPERATING ACTIVITIES : HOW TO CALCULATE EACH SEPARATE AMOUNT: 1-DIRECT METHOD: ABNORMAL PARTS : 1) CASH FLOW FROM OPERATING ACTIVITIES a) Cash receipts from customers i) Then add ALL Sales for the year to the DR side below the b/d balance, and this is the tricky part, AS IF ALL SALES WERE CREDIT SALES as DR, EVEN IF THEY WERE ALL CASH SALES WHICH SHOULD BE CR, just for the purposes of the calculation. ii) INCOME RECEIVED IN ADVANCE :must be added to the 'cash received from customers' Total and for last year it must be added to “sales” side: for T-account method you put previous year balance on CR side &Current Year balance on Dr side.(opposite way around to receivables) b) Cash payments to employees and suppliers.

CASH RECEIPTS FROM CUSTOMERS :(ACCOUNTS RECEIVABLE) 1) This amount is determined by: “reconstructing the ‘trade and other receivables’ account”. (vertabim per unisa),there are 2 methods to do this: 1-by using a T account style and 2- by using a 1 column ‘SUM’ style: see the example copied from book below for both. a) you open a special “Trade&Other Receivables” account and bring down the “BEGINNING OF CURRENT, YEAR” balance. (to normal side=dr for debtors). b) Then add ALL Sales for the year to the DR side below the b/d balance, and this is the tricky part,: AS IF ALL SALES WERE CREDIT SALES as DR, EVEN IF THEY WERE ALL CASH SALES WHICH would normally BE CR, you still put them all in as DR, like a debtor sale, just for the purposes of the calculation. c) Then the end of year ‘debtors’ figure goes as the c/d figure on the bottom of CR side, to be carried down to the begin of next year. d) The answer you are looking for will be the ‘bank’ figure on the CR side,above the c/d figure for debtors on the same side, which you work out by balancing the 2 sides out- it is the balancing figure. e) Even if there were no credit sales this year or ever before, you still use the same method and same “trade & other receivables” account to do the calculation, the ‘bank’ figure for final answer will still come out exactly the same. (ie: then you would just use 0 as the b/d or c/d figure) 132

133 | P a g e A C C A 2 0 1 A c c o u n t i n g f) “Bills” : Bills receivable which relate to “sales” from operations is included in “Trade&other Receivables”, but NOT any amounts which relate to sales of Property Plant & Equipment or other N-C Assets or anything which is not part of Sales for operations, or items which appear elsewhere on the cash flow statement. 2) Very Basicly it will all work out to :Sales for the year less any increase (or visa-versa) in 'receivables' = cash received this year, and that is your full answer. 3) Note: If you receive cash this year for last years ‘debtors’ it will show up as cash received for this year, so it will be a positive cash flow for this year- this does not matter, even if the cash is from last years sales and last years debtors, you still include it as cash received for this year. That is all you are interested in here- cash flow this year. 4) INCOME RECEIVED IN ADVANCE :must be added to the 'cash received from customers' Total and for last year it must be added to “sales” side: for T-account method you put previous year balance on CR side &Current Year balance on Dr side. (opposite way around to receivables) because the part you already got last year will show in the ‘SALES’ figure for this year,but wont be subtracted from ‘sales’ by the begin/end debtors balance calculation because it does not show in debtors, so you must add it to the left (CR) side in another way. And any rec. in advance. From this year must go direct to the DR: ‘‘Bank” side, because it will not show in the “Sales” figure for this year, nor debtors, but it was a cash flow so it must be added to the figure for this year. EXAMPLE: THE 2 METHODS

ARE SHOWN HERE (

1

COLUMN SUM METHOD ON TOP AND

T

ACCOUNT METHOD BELOW .)

CASH PAYMENTS TO SUPPLIERS & EMPLOYEES:(COST OF SALES) This amount is calculated by comparing the figures for inventory and trade and other payables as given in the SFP & StChEq. If inventory increased from one year to the next, the effect on cash flow would be negative because your net profit would record this as an increase in profits but it IS NOT CASH because it is all locked up in inventory. If the number of trade and other payables increased from one year to the next, this means that less cash flowed out and the figure would then be positive in respect of cash flow (sort of like -any stuff you got from the ‘creditor’ increases your profit as an asset without you paying for it , so these increase in assets must be subtracted, where you got services its something else. All purchases of inventory and expenses which were paid for in cash are also included in the calculation. 1)

2) 3) 4)

BILLS PAYABLE: The ‘payables’ include “bills payable”. VAT : is included as a “payables”. OTHER AMOUNTS OWING: “payables” also include all and any other amounts owing in the correct categories. -1- METHOD no.1: Do the whole calc. in T account format 1) Cash paid to suppliers and employees is determined by “basicly” redrafting the income statement and determining the amount of the total expenses which do not include: • items appearing on the face of the cash flow statement • items which do not represent cash flows. • This amount is then adjusted for the change in inventories and payables. 2) [Payables include bills payable as well as other amounts owing.VAT owing is also included in payables. Where payables have increased from the last year to the next, there were less cash outflows and the amount is positive in terms of cash flow. 3) New T account called “Cash paid to Suppliers & Employees” :First you open this account as workings on ‘scrap’ paper, and transfer all the totals you need to work it out to here from the relevant accounts, each dealt with separately below.This is basicly the same as the special part of the “Indirect Method” which differs from the “Direct Method”, just you don’t use ‘net profit’ anywhere so it is a bit different-but remember you must get the same “Cash Generated from Operations” total in both methods so there must be a similarity somewhere! a) Inventories : {ASSET=DR b/d & CR c/d} : The change is derived by comparing the items on the given balance sheets year 1 & 2 with each other. When inventories increase from one year to the next the effect on cash flows is negative-so it reduces the amount actually paid out in cash to “Suppliers&Employees”.This is done by bringing end of last years/begin this year “inventories total” down as a b/d total to its normal side of the new T account.Then end of years total goes to bottom of CR side as a c/d total which would form the begin of next years balance on the normal “inventories’’ account – these 2 amounts will cancel each other out to either reduce/increase the cash paid to ‘Suppliers&Employees’ figure you get as an answer eventually. (see example below how multiple c/d accounts, NOT ONLY inventory, are added on bottom) b) Pre-Paid Expenses: {ASSET=DR b/d & CR c/d} : Next years expenses pre-paid this year will not show in any ‘Suppliers&Employees “ Payables accounts from this year that you use to get the total you are looking for here so it must be ADDED to the DR side (cash paid for expenses on the “Bank Account” side) because even if it is for next year it WAS A CASH FLOW FROM THIS YEAR so it must be added to the ‘money paid out’ side. And expenses paid last year must 133

134 | P a g e A C C A 2 0 1 A c c o u n t i n g be removed from this years expenses totals because they WILL be in all these totals you use to get your answer but ARE NOT part of this years CASH FLOW but last years-so they must be removed. i) Note: any pre-paid expenses from previous years that are already pre-paid for next years expenses will auto. be removed when cancelling begin VS end year pre-paid totals anyway- figure out the logic- so there is nothing extra to be done here! ii) LAST YEARS PRE-PAID EXPENSES :So you b/d last years ‘pre-paid expenses’ to the DR side where it was end of last year anyway, to decrease the eventual balanceing figure for “Bank” on the dr side, same as b/d inventory.(see example below for method of b/d multiple account totals) iii) THIS YEARS PRE-PAID EXPENSES: You transfer them to the CR side as a c/d expense which would be c/d for begin of next year, this will cancel out with the b/d lasy year total to give you the amount which is to reduce or increase the “bank” total you are looking for. iv) ACCRUED EXPENSES: this and last years accrued expenses are left out completely because it should show up in the “trade & other payables” heading.If any accrued expenses do not show up in this heading then they must be added as a separate heading in EXACTLY THE SAME WAY AS “TRADE & OTHER PAYABLES” IS TREATED.This is for wages,salaries,telephone,electricity and any other expenses one might get that are accrued(meaning end of year adjustments type of ‘accrued’ stuff.) c) Trade&Other Payables : {LIABILITY=CR b/d & DR “end of year”c/d} i) “Bills” : Payables amount would include “Bills Payable” and any other payable items which do not relate to creditors from “Investments” or “Property,Plant&Equipment” or items ii) “Investments” or “Property,Plant&Equipment” etc. Any amounts still owing on these items must be removed from the “Trade & other payables” amount – ONLY amounts which relate to suppliers from “operating activities” and which do not appear elsewhere on the face of the ‘cash flow statement’ d) Cost of Sales: {EXPENSE=NONE: b/d & DR “end of year” -disappearing- Total} e) Administrative Expenses: {EXPENSE=NONE: b/d & DR “end of year” -disappearing- Total} f) Selling Expenses: {EXPENSE=NONE: b/d & DR “end of year”dissappearing Total} g) Salaries&Wages: {{EXPENSE=NONE: b/d & DR “end of year”dissappearing Total} h) Depreciation: Not part of any actual cash flow so it is just left out completely in the direct method. i) Items appearing elsewhere on Cash flow Statement: i) In “Operating Cash flow” section (1) Dividends Paid/ Received: this appears separately so it is left out here (2) Interest Paid /Received : this appears separately so it is left out here (3) Tax Paid /Received : this appears separately so it is left out here ii) In “Investments” section : (1) Profit/ loss on sales of Property Plant & Equipment: this appears separately so it is left out here iii) Other obvious items which appear elsewhere on cash flow stat. are of course not to be included anywhere in this section. j)

-2-METHOD no.2: REDRAFT the INCOME STATEMENT / Cost of Sales calculation to get the answer for “Cash paid to Suppliers&Employees in single column format, and just do a few T accounts in the middle of this calculation to get some of the amounts to be used. 1) This method is not Done in T-Account Format, only some of the calcs. for it are, it is done in Column Format (like an income stat.) This is the ONLY Item in Cash Flow Stat. that is treated so in calculations/workings (exept in the notes). 2) Cash paid to suppliers and employees is determined by redrafting the income statement and determining the amount of the total expenses which do not do not include: 134

135 | P a g e A C C A 2 0 1 A c c o u n t i n g • items appearing on the face of the cash flow statement; • items which do not represent cash flows. This amount is then adjusted for the change in inventories and payables. The change is derived by comparing the items on the given balance sheets year 1 & 2 with each other. When inventories increase from one year to the next the effect on cash flows is negative. Payables include bills payable as well as other amounts owing.VAT owing is also included in payables. Where payables have increased from the last year to the next, there were less cash outflows and the amount is positive in terms of cash flow. Example of 'Redraft' :

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(a) Do additional t-accounts ;Inventory & Payables –to get totals for the Redraft. One must however do a few other accounts in t-format/or column in order to get certain totals for the 'Redraft'.This means we must move to another account while in the middle of doing one type,jump between accounts, in order to get certain totals needed.This is a characteristic of these calculations. Inventory:Assets accounts:year 1 to Dr side ,year 2 to Cr side,(other amounts which must be included here perhaps use your brain :other funny amounts which would decrease this year’s go to Cr side,amounts which would increase this year’s go to Dr side total Asset Disposal: to get a 'profit/loss on disposal of assets' amount for the redraft & also for reconcilliation in 'Notes' ,do an 'asset disposal account' in the "income/expense type format-normal dr/cr)" after doing an 'asset eg:equipment' account to get the necessary totals. DO NOT TRY do both at once.First comes asset account, it can also be used for all other places it is needed. ANY POSSIBLE asset buy/sell :do an equipment account first to get / check totals here,then an Acc depr. Account to get depreciation, then asset disposal account for profit/loss:MUST., Any other accounts needed- same as above.

CASH GENERATED FROM OPERATIONS TOTAL RIGHT AT THE END OF THE SECTION ON OPERATING ACTIVITIES. Subtract 2 from 1 to get this.

RECONCILLIATION IN THE NOTES TO THE FINANCIAL STATEMENTS: 1) This recon goes in the notes to the fin.stats. 2) The recon is exactly the same as the first part of the indirect method up to ‘cash generated from operations’ part., but not the last part with interest÷nds&tax.

INDIRECT METHOD: Here you leave out the customers/suppliers&employees part and just do the ‘reconcilliation for direct method’ part instead of it.But the interest paid/received÷nds&tax part is included after the recon part in exactly the same way as the indirect method.

LAST PART OF OPERATING ACTIVITIES: EXACTLY THE SAME FOR DIRECT&INDIRECT METHODS: GENERALLY : DIVIDENDS PAID/RECEIVED & INTEREST PAID /RECEIVED & TAX PAID/RECEIVED 1) AC118 –Cash flow from interest& dividends to be disclosed separately ,each classified as either ????operating,investment or financing activities????????

2) All payments to the SA Revenue Service and to suppliers of funds are normally made from cash generated by operating activities. Interest paid, tax and dividends paid during a year should therefore be disclosed separately from cash generated by operating activities.

DIVIDENDS RECEIVED: 1) This calculation can be done in 1 column format or in T format like the rest: 2) ADD: “Dividends Received” Unpaid/Unreceived amount at beginning of year (statement of financial position 19.5)

ADD : Amount credited against income for the current year* (total dividends declared for 19.6) 135

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LESS: Unpaid amount at end of year (statement of financial position 19.6)

DIVIDENDS PAID 3) This calculation can be done in 1 column format or in T format like the rest: 4) ADD: “Dividends paid” Unpaid amount at beginning of year (statement of financial position 19.5)

ADD : Amount debited against income for the current year* (total dividends declared for 19.6) LESS: Unpaid amount at end of year (statement of financial position 19.6) = Answer.

INTEREST RECEIVED 1) This calculation can be done in 1 column format or in T format like the rest: 2) ADD: “Interest Received” Unpaid/Unreceived amount at beginning of year (statement of financial position 19.5)

ADD : Amount credited against income for the current year* (total dividends declared for 19.6) LESS: Unpaid amount at end of year (statement of financial position 19.6) = Answer.

INTEREST PAID 1) This calculation can be done in 1 column format or in T format like the rest: 2) ADD: Interest paid Unpaid amount at beginning of year (statement of financial position 19.5)

ADD : Amount debited against income* (total dividends declared for 19.6) LESS: Unpaid amount at end of year (statement of financial position 19.6)

TAX PAID 1) This calculation can be done in 1 column format or in T format like the rest: 2) ADD: Tax paid Unpaid amount at beginning of year (statement of financial position 19.5)

ADD : Amount debited against income* (total dividends declared for 19.6) LESS: Unpaid amount at end of year (statement of financial position 19.6) = Answer.

TAX RECEIVED 1) This calculation can be done in 1 column format or in T format like the rest: 2) ADD: “Tax Received” Unpaid/Unreceived amount at beginning of year (statement of financial position 19.5)

ADD : Amount credited against income for the current year* (total dividends declared for 19.6) LESS: Unpaid amount at end of year (statement of financial position 19.6)

FINAL TOTAL FOR OPERATING ACTIVITIES: Add up all the above and write in the total at bottom as “Net cash inflow/outflow. For Operating Activities”

CASH FLOWS FROM INVESTMENT ACTIVITIES. 234567-

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Report separately all major classes of gross cash receipts& payments from investing activities INFLOWS: "disposal of n-c assets " OUTFLOWS:"aquisition of n-c assets" :REPLACEMENTS(maintaining of operations-ac118) must be separate from ADDITIONS(or ac118 extension of operations). UNDER THIS HEADING. Revaluations :all revaluations are ignored completely here because no cash actually flows. Shares : investing/disposal of other company shares is seen as ASSETS aquisition/disposal. Assets: Buy/Sell :Must do an 'Equipment 'etc. T-account for each class bought/sold(seen as prudent by gaap to "reconstruct the assets account' do this!)to get all the facts straight for cash flow stat.Just do normal balance b/d year 1(seen as beginning of year 2) and c/d year 2(seen as end of year 2) a. Put gross carrying amount(less acc. depr!!!) at beginning of year at dr side as b/d top corner b. Put gross carrying amount(less acc. depr!!!) at end of year at cr side c/d bottom corner & as b/d balance ,below totals ruled off. c. All purchases on dr side, all sales on cr side d. Finished –just use figures as you need them from all this! e. Just divide up additions /replacements with :your own small calc.-no special method. Accumulated Depreciation: Do an Acc. depr. Account for each asset sold if time , Else only for a calculation if needed to get "depreciation ' amount

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CASH FLOW FROM FINANCING ACTIVITIES: 123-

Just do an asset type account for year1 /vs/year2 for each item and put the net increase/decrease as the answer. Share Premiums are counted as part of normal share values for the share calculation: just add in line below the concerned share as 'share premium' to count as part of same amount- in your asset t-account. Loans are treated the same as asset account.!

NET CHANGE IN CASH & CASH EQUIVALENTS Just cash& cash equivalents :net increase/decrease –plus- cash&cash equiv at beginning=cash& cash equiv at end. Cash&Cash Equivalents = Bank Overdraft+Cash on hand+ Bank

NOTES TO THE FINANCIAL STATEMENTS :RECONCILLIATION BETWEEN THE NET PROFIT BEFORE TAX WITH THE CASH GENERATED BY OPERATIONS: 1) All you do here is the method for the “Indirect Method” form “Net profit before tax” up to “Cash generated by Operations” heading.-that’s it! 2) For the Changes in working capital section: a) You do the same as for the ‘direct method’ for each of the headings.So it works with LOGIC ONLY-no easy way: inventory increase is subtracted, debtors increase is subtracted, creditors increase is added. And visa – versa. 3) DO NOT INCLUDE TAX IN THE :ADJUSTED FOR SECTION- IT IS ALREADY NOT IN THE PROFIT BEFORE TAX TOTAL!!!!!!!!!!

TO STILL ADD: ADD IN TO ‘Operating profit IN “changes in working capital’ section:“Decrease/incr.in prepaid expenses” ALSO ADD in ‘adjustments’ 1-“increase in provision for bad debts”=in adjustments in recon/indirect method=add it back 2-Decr. in In provision for bad debts=subtract it out of profit again 3- actual bad debts for the year=add it back to profits again.Try to do both methods as a table format yourself to add in extra things. Also preference shares is a finance, not investing activity- put this in in all headings below&above….AND banj overdraft gets left out completely- it only shows in the begin/end of year change in c+ce at bottom,that’s it only place it shows- NOT in financing. ( rem – a bank overdraft moving to a positive balance does not get subtracted from the positive balance- it is added to it because it had to move to zero then upwards to the positive number) - Also the interest expense in ‘indirect method’ or ‘reconcilliation’ at the top in adjustments is the whole figure out , not made less because of accrued interest left over or anything.BUT the interest at the bottom is ONLY the amount paid – so it is adjusted for accrued interest etc!!!!NOTE this!!!!! - Capitalisation shares issued out of ‘sharepremium ‘ acc do not go to ‘financing actib=vities “ because it was for free.Also share issue expenses are minused from any cash ‘income’ from share issues, and any premium on the price is added to the figure. - -if “investments’ increases- where does it go? Is it ‘expansion of production’ or what?what about if you lend out money to someone? Is that an investment or what is it? Wahat about long term fixed deposits etc? also investment? - QUESTION: what happened to revaluations in bokke- in the recon.- it should go with depreciations? - Note: if you have a bank overdraft at begin year ( end 2007) and a positive balance at end year( end 2008) then it is not on e minus the other but add both together to get your cash movement for the year(also visa versa) at the end of the Cash flow stat. – where this stuff is done. - Remember in the indirect method recon thing you do not put tax because profit at the start is taken before tax , and you do not put dividends paid because ‘net profit before tax’ does not ever include dividends, that comes way after. ( but dividends received does go here in adjustments) - Check where ‘revaluations’ of land etc disappears into – what happens to it. 137

138 | P a g e A C C A 2 0 1 A c c o u n t i n g - Remember that purchases is different to cost of sales, because cost of sales could include last years stock, but purchases is only the stuff purchased this year, (and also might never go to cost of sales either if it is not sold, it will just go to closing inventory instead) - For ‘investing’ if you are only given carrying amounts for PPE, then put revaluation/DEPRECIATION/sales at carrying amount(forget any loss or profit for now )/purchases in a T account to get the “unknown purchases” for the year.But then later remember to subtract the loss/add profit/ to the sale of n-c assets at carrying amount to get the amount it was sold/traded in for. - If any ‘investments’ are sold it is treated separately in investment section and not added to any’repalcements’ or ‘additions’.

The following is an excellent example WITH EXPLANATION used by UNISA to explain how it all works.Copied vertabim from unisa ‘acn202r’

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Chapter 3 EARNINGS PER SHARE Special things to remember: 1) :To Calc. Basic Earnings : (remember if given a ‘retained earnings’ amount, transfers to reserves and dividends paid would have BEEN subtracted -ie treated as ‘After’ not ‘Before’- so must be added back to get the basic earnings to work from)

2) Rem: For Free issue of Bonus shares :DO NOT go and add again to the final year - remember that somewhere in the final year that Bonus Issue had to have been recorded anyway! So it is already in the total number of shares for the end of the year – it does not have to be added again! . But you must add it to the total shares for the Comparative Year’s figures though- it will definitely not be in there yet! 3) Remember to always SUBTRACT THE PREFERENCE DIVIDENDS FROM NET PROFIT FOR YEAR BEFORE YOU GO AND WORK OUT ANY Earnings Per Share – you always for get to do this! 4) REMEMBER to always check the pref & cumulative & other types of shares to see if the dividend was carried over to the next year or not, or if it was maybe not paid for that year in an exam.They give you figures where the dividends seem to have been paid this year but they are from last years cumulatve that was not paid then, and then you also have to take it out last years profit to get the actual profit to calc. Basic Earnings etc. 5) Remember to do the “ Total” column on the very left in the weighted number of shsres calculation- you always forget

Introduction: 1) Earnings per Share & Dividends Per Share are 2 of the most widely used ratios by investors and analysts of shares. Therefore guidelines must be laid out (IAS33/AC104) for the calculation of these shares so that ratios from different companies can be compared with the certainty that they are actually comparable and worked out in the same way by each company. 2) IAS33/ AC104 is applicable to : a) Companies listed on a recognized stock exchange such as the JHB stock exchange. b) Other companies whose shares are openly traded, that is unlisted public companies. c) Companies other than 1 and 2 such as any private company that prefers to disclose earnings & dividends per share.

Definitions and Measurement. 6) The following definitions contained in IAS 33 /AC 104 are extremely important, and should be checked up in IAS and studied thoeroughly. a) ORDINARY SHARES: i) Definition: An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments. (1) Equity Instrument Definition: as per companies act – “ the companies issued share capital and shares , excluding any part thereof which , neither in respect of dividends nor in respect of capital, carries any right to participate beyond a specific amount in a distribution.” (2) Note: Pref.shares which do not share in the asset surplus or dividends over and above their fixed preference right , also do not form part of a companies equity share capital. (3) Ordinary shares only participate in profit after other types of shares have been allocated their portion. b) POTENTIAL ORDINARY SHARES: i) Definition: A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares. (1) Examples : (a) Debt or Equity instruments , incl. pref shares , that are convertible into ordinary shares. (b) Share Warrants and options : (these are financial instruments that give the holder the right to purchase ordinary shares) (c) Contractual arrangements: shares which would be issued on satisfaction of certain conditions resulting from contractual arrangements , such as the purchase of a business or other assets.

c) CUMULATIVE PREFERENCE DIVIDENDS : i) Definition : The preference dividends for the current period are taken into account irrespective of whether or not they are paid or declared. This amount excludes any dividend paid or declared to cumulative preference shares in respect of previous periods. d) NON-CUMULATIVE PREFERENCE DIVIDENDS: i) Definition : This preference dividend is only taken into account if the dividend was declared during the period under review.

e) BASIC EARNINGS: i) Definition: Basic Earnings are the profit or loss for the period attributable to ordinary shareholders after

deducting preference dividends. All items of income and expense that are recognised in a period, including tax expense and {???non-controlling interests?- I think actual dividends paid to non-controlling interests by the subsidiary-rem that subsidiaries dividends paid to non-cnrtl. Interests } are included in 140

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the determination of the profit or loss for the period. No ordinary dividends or transfers to reserves are deducted. ii) Where a loss is incurred for a period, the same calculation is done as for earnings per share. iii) The amount of preference dividends that is deducted from the profit for the period is as follows : (1) PARTICIPATING PREFERENCE DIVIDENDS.: you regard all the dividends from these type of shares as Preference Dividends, so the part that is from “Participating” in the ordinary shares over and above the “fixed pref. dividends” is not seen as part of “Ordinary Dividends” , it is seen as part of the “Preference dividends” and thus is deducted from Net Profit to get the basic earnings, unlike “ordinary dividends” which are not deducted. (2) CUMULATIVE PREFERENCE DIVIDENDS: only the current years pref.dividends are deducted from net profit to get basic earnings, not last years ones-as per matching concept. iv) BASIC EARNINGS IS CALCULATED AS FOLLOWS: (1) It includes all PROFIT / LOSS that is calculated: (a) AFTER (i) Tax plus including deferred tax.( it is treated as plain tax) (ii) Preference share dividends paid out–the fixed portion incl. from cumulative pref. shares. (iii) Attributable profit after tax of associates and non-consolidated subsidiaries which has been accounted for by the equity method.???? (b) BEFORE (i) Before transfers to and from reserves : (remember if given a ‘retained earnings’ amount, transfers to reserves and dividends paid would have BEEN subtracted -ie treated as ‘After’ not ‘Before’- so must be added back to get the basic earnings to work from) (2) An alternative way of working it out is : (a) Retained Earnings end of year (b) Less :Retained earnings beginning of year (c) Add Back : Transfer to reserve (d) Add Back : Ordinary dividends.

f)

WEIGHTED AVERAGE NUMBER OF SHARES : i)

Definition: “the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor.’ ii) the time weighting factor is the number of days that that the specific shares are outstanding as a proportion of the total number of days in the period. A reasonable approximation of the weighted average is adequate in many circumstances. iii) In most cases shares are included in the weighted average number of shares from the date consideration is receivable ( which is generally the date of issue) for example: ordinary shares issued for in exchange for cash are included when cash is receivable. The date on which the shares were ISSUED is of no importance in the calculation if that is a different day from the day when CONSIDERATION IS RECEIVABLE.You ONLY use the date from which consideration is receivable. iv) METHOD TO CALCULATE “WEIGHTED AVERAGE NUNBER OF SHARES” : (1) ADD The FOLLOWING: (a) Number of “ISSUED” ORDINARY shares at beginning of year (b) Plus : any ordinary shares issued during the year X days shares were owned by new shareholder/ div.by/ days in a year(360 or 365) : ie Shares X days/365 or 360 (c) If any shares were bought back : then number of X days in year they were owned by old shareholder / div by /365 or 360 v) Share Premium: any premium gained on the issue of any shares is completely ignored in any calculations for Weighted average number of shares or for Basic earnings or even dividends. –just forget it. g) BASIC EARNINGS PER SHARE: i) Basic earnings per share should be calculated by dividing the profit or loss(I think you should rather say “BASIC EARNINGS” ) for the period attributable to ordinary shareholders (less any fixed Pref. Share Dividends paid) by the weighted average number of ordinary shares outstanding during the period. ii) So : BASIC EARNINGS / Weighted Average Number of Shares = Basic Earnings per Share.

MORE DEFINITIONS: 1) Rights Issue at Fair Value: A rights issue is an issue to existing shareholders of the company for

consideration.

2-Rights Issue at Less than Fair Value (or called a Bonus Element In A Rights Issue: If a company raises capital by means of a rights issue and the issue price is less than the fair value of the company's shares when issued, a bonus element arises. The number of ordinary shares to be used in calculating basic earnings per share for all periods prior to the rights issue is the number of ordinary shares outstanding prior to the issue,multiplied by the following factor: 141

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COMMENT . Where the rights themselves are to be publicly traded separately from the shares prior to the exercise date, fair value is stablished at the close of the last day on which the shares with the rights are traded. In above formula outstanding shares represent issued shares.

3-Bonus Element In A Rights Issue 4-Share Split 5-Reverse Share Split 2)

PrEsentation: As per IAS/AC and Act :

An enterprise should present: • . on the face of the statement of comprehensive income, • . for each class of ordinary shares, • . with equal prominence, • . for all periods presented, basic earnings per share (including a loss per share).

disclosure: An enterprise should disclose the following for basic earnings per share: 1. Earnings: • . The earnings amount used in the calculation. • . Reconciliation of the earnings amounts used in the calculation to the profit or loss for the period in the statement of comprehensive income. 2. Per share: • . The weighted average number of ordinary shares used. • . Reconciliation between the number of shares used for basic earnings per share. Note: If an enterprise discloses, in addition to basic earnings per share, per share amounts using a reported component of profit other than profit or loss for the period attributable to ordinary shareholders, such amount should be calculated using the weighted average number of ordinary shares. Note: If a component of profit is used which is not reported as a line item in the statement of comprehensive income, a reconciliation should be provided between the component used and a line item which is reported in the statement of comprehensive income.

Different classes of shares: PARTICIPATING PREFERENCE SHARES : Note :Allways specially subtract the fixed pref. dividend from the net profit because it is never done before Net Profit is calculated in the SCI, it is always done last, even if it is seen as ‘debt’ and not ‘equity’ type of thing. 142

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Participating preference shares are shares whose holders are entitled, in addition to receiving their fixed preference dividend, to share along with the ordinary shareholders in the remainder of the distributable profit, either pro rata or after ordinary shareholders have received a certain minimum dividend. Note that these shares dividends which they receive over and above the ‘fixed’ part of their dividends ie the ‘participating part’, must also be deducted from Net Profit in order to calculate ‘Basic Earnings’. So the participating part of the dividends are not seen as “ordinary dividends” but as ‘ Pref.Dividends’ basicly. The Earnings per Share and Dividends that go to Participating Pref. Shares must be shown separately next to the EPS&Divdends for ordinary shares and each other type of share.- NOT LEFT OUT. Apart from this It is important to take careful note of the conditions of issue and of the capital structure, for example: Note the following Complex Calculations: Note :Allways specially subtract the fixed pref. dividend from the net profit because it is never done before Net Profit is calculated in the SCI, it is always done last, even if it is seen as ‘debt’ and not ‘equity’ type of thing. 1) TYPE 1 : ``One cent per share for every four cents per share paid to ordinary shareholders'' a) does not necessarily mean that preference shareholders share one-fifth of the profits. Ie: if there are equal number of both types it will be 1 : 5, but if there are less /more Partic.Pref.Shares than Ordinary Shares the ratio will be different. So you must actually work it out with the “FULL METHOD” below, not just use ratios. 2) TYPE 2: If participating pref.shares are to share in dividends in the ratio 1 : 8 or 1/8 of total dividend earned by ordinary shareholders: a) VERY TRICKY: it is NOT 1/8 & 7/8= 8/8 total , NOR 9/8 TOTAL: you must do instead algebra so you say x + 1/8x = 100000profit therefore x(1+1/8)= 100000 therefore x=100000/(11/8 ) {note:you cannot say 100000/9/8, you must put brackets around (8/9) or it will come out wrong! and take it from there.NOTHING else will work.( the book says there are 8/8 + 1/8 parts , so there are 9 parts, so 1/9 is for pref and 8/9 is for ordinary –this method can also be used if you can remember it) 3) TYPE 3: Each participating preference share is entitled to one-half of the ordinary dividend per share after the payment of dividends of 10 cents per share to the ordinary shareholders. Profit after tax for the year ended 31 December 19.1 amounted to R1 130 000. An ordinary dividend of 15 cents per share was paid during 19.1. 4,000,000 Ordinary shares of 25 c each :1,000,000 500,000 10% Cumulative Participating Preference Shares :500,000 a) Participating Rights: you first have to get the % of the total profit that goes to each type of share after 1-The minimum dividends are paid to ordinary shares & 2- After pref.share fixed % is paid out. This is 2 double percentages that work on each other : ratio of number of pref:to:ordinary and ratio of dividends payable to each. To work out this double percentage see 1 below in example.(you can also say 2:1 instead of 1 : 1/2) )

METHOD TO WORK OUT DIVIDENDS DIVIDED BETWEEN ORDINARY & PREFERENCE SHARES. 1) See example below : i) PARTICIPATING RIGHTS: (1) As in example below: each ones total is divided by the total of both together at the bottom to get the Percentages%. ii) EARNINGS PER SHARE : (1) This is calculated in separate columns for Ordinary & Preference & each other type 1 per column eg: Participating pref.One needs this calc. because you use this to work out EPS for the Notes & SCI. (a) NOTE: Pref shares have THEIR OWN EPS and Ordinary shares have their own EPS, and each other class of shares has its own EPS –eg cumulative/participating etc. Each one is separate from the other and is shown separately as a separate figure in the SCI and Notes! iii) DIVIDENDS: (1) These amounts must be calculated separatelyfor each class of shares in order to get the totals per class so you can work out the Dividends per share for the SCI and Notes. iv) NUMBER OF SHARES : this is needed so you can calculate the Dividends (dividends is only ever calc. using actual number of shares on hand when the dividend was paid out ,not the EPS, that is done with weighted!) v) WEIGHTED AVERAGE NUMBER OF SHARES: THIS IS NEEDED so you can calc. the EPS-{Earnings per Share} (not the Dividends- dividends are only ever calculated using the number of shares on hand when the dividend was paid out, not averages of dividends on hand) vi) FIGURES TO DISCLOSE: here you just work out all the 1-EPS and 2-Dividends per share to disclose in SCI below Net Profit and in Notes Remember the EPS and dividends per share for pref. and cumulative and participating shares all get worked out separately and shown as separate figures from the exact 143

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amount those type of shares earned that year- eg for pref. it is only the fixed % that they get that is taken as “basic earnings” for that type of share to use in the calc. of EPS for pref. shares, and so forth. b)

CHANGES IN CAPITAL STRUCTURE: (A) TYPE 1 : SHARES ISSUED FOR CONSIDERATION: 1) Shares are included in the weighted average number of shares from the: date consideration is receivable ( which is generally the date of issue) for example: ordinary shares issued for in exchange for cash are included when cash is receivable. The date on which the shares were ISSUED is of no importance in the calculation if that is a different day from the day when CONSIDERATION IS RECEIVABLE. You ONLY use the date from which consideration is receivable. 2) ‘SHARES ARE CONSIDERED OUTSTANDING’ : WHAT DOES this phrase mean. 3) DATES ON WHICH SHARES ARE INCLUDED IN THE CALCULATION FOR EARNINGS PER SHARE.

DATES ON WHICH SHARES ARE INCLUDED IN THE CALCULATION FOR EARNINGS PER SHARE FOR : SHARES ISSUED FOR A CONSIDERATION (FOR MONEY)

Consideration received for share issue

Date of inclusion in calculation of earnings per share

1-For any situation where the

See the 2 sections below on issueing shares in return for getting shares in

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date of payment is After/Before date of Issueing of Ordinary Shares/Pref Shares/ Debentures. 2-Cash 3-Voluntary reinvestment of dividends on ordinary or preference shares

another company.The sections in there on Before/After situations are approximately what you do.

4-Conversion of a debt instrument to ordinary shares.

Date interest ceases to accrue

5-Interest on other financial instrument 6-Settlement of a liability 7-Acquisition of an asset other than cash 8-Issueing shares is return for getting shares in another company.

Date interest ceases to accrue

When cash is receivable Dividend payment date

Settlement date Date on which the acquisition is recognized Date on which the earnings from the shares in other company are included in your SCI. For Ordinary or Pref. Shares Issued BEFORE or AFTER date of acquisition as payment: It says in unisa book it is a “problem’ due to matching concept that if Pref.Shares or Debentures are issued in return for shares in another company but the date from which one may include earnings from these shares in your SCI is After/Before date which you gave Pref.Shares/Debentures and thus have to pay interest/fixed dividends on them. (a) BASIC EARNINGS : To calc. the Preference Dividend which must be subtracted from the Net Profit to get “Basic Earnings” you can do any of the following : To accomplish the matching of cost with profit, the preference dividend should be provided for by one of following methods : (1) Use The Date To Calculate Pref. Dividends. as if it were from the time the shares in the other company become yours (actually the time you can include profits from their shares in your SCI), so even if you issued your own Pref. shares in return 2 months later/before and in reality only pay dividends from then, you ignore this and ‘use false figures’ and make as if you pay dividends from date you ‘acquired’ the interest.(??? where do you disclose this fact that you used fanciful figures)??? (2) OR : the better way is to include the dividends from the actual date you start paying them, and just disclose the fact in the Fin.Stats. ie: that the fact that profit is included for eg :9 months and dividends are provided for only eg :6 months (or more/less) must be disclosed in the Notes, in a similar way to example below , and added as a sentence just below it in same paragraph(I Think- check how this works!). (b) WEIGHTED AVERAGE NUMBER OF SHARES: (a) You use the Date from when you ‘Aquired;’ the interest in

would

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the other company, not the true date you Issued the Ordinary shares – so even if they were issued before /after – instead of using the correct date you use a false date. But this must be disclosed in the ‘Notes” as shown in example above. So you actually ‘rank’ the shares from the date you can include earnings in your SCI from the subsidiary ie: the date you obtain control over subsidiary, EVEN if the shares are only issued later or were issued before that date.”rank’ means include for payments etc so it mean include in the “Weighted Average Number of Shares Calculation.

Date or period for which the services are rendered.

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10-Ordinary shares issued as part of the purchase consideration of a business combination that is an acquisition: So if a business becomes your subsidiary and you pay for it in shares.

1-From the date of acquisition because the acquirer incorporates the results of the operations of the acquiree into its statement of comprehensive income as from the date of acquisition. 1- Note that when doing the Basic Earnings Calculation you must only include the profit of the subsidiary in your own profit for that period of the year – pro rata- that you owned the subsidiary- as per “Consolidations”/ Groups rules the profit from “Before Aquisition” was paid for by you in the purchase price.

Example: :Oorke is the newly acquired subsidiary and profits for the year were 100000, not 75000.

3-For Ordinary or Pref. Shares Issued BEFORE or AFTER date of acquisition as payment: It says in unisa book it is a “problem’ due to matching concept that if Pref.Shares or Debentures are issued in return for shares in another company but the date from which one may include earnings from these shares in your SCI is After/Before date which you gave Pref.Shares/Debentures and thus have to pay interest/fixed dividends on them. (a) BASIC EARNINGS : To calc. the Preference Dividend which must be subtracted from the Net Profit to get “Basic Earnings” you can do any of the following : To accomplish the matching of cost with profit, the preference dividend should be provided for by one of following methods : (3) Use The Date To Calculate Pref. Dividends. as if it were from the time the shares in the other company become yours and you can include profits from their shares in your SCI, so even if you issued your own Pref. shares in return 2 months later/before and in reality only pay dividends from then, you ignore this and ‘use false figures’ and make as if you pay dividends from date you ‘acquired’ the interest. (4) OR : the better way is that the fact that profit is included for eg :9 months and dividends are provided for only eg :6 months (or more/less) must be disclosed in the Notes, in a similar way to example below , and added as a sentence just below it in same paragraph(I Think- check how this works!). (b) WEIGHTED AVERAGE NUMBER OF SHARES: (a) You use the Date from when you ‘Aquired;’ the interest in the other company, not the true date you Issued the Ordinary shares – so even if they were issued before /after – instead of using the correct date you use a false date. But this must be disclosed in the ‘Notes” as shown in example above.

11-Ordinary shares which are issuable upon the satisfaction of certain conditions (contingently issuable shares) 146

Are considered outstanding, and included in the computation of basic earnings per share from the date when all necessary conditions have been satisfied.

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12-Rights Issue at Fair Value:

“At Fair Value” means that it was sold at the price that it was valued at – not for less or more.It is treated as if the shares were bought for cash on the Day of the rights issue. -A rights issue is an issue to existing shareholders of the company for consideration.-

NOTE-The shares are therefore taken into account in the calculation of the weighted number of shares from the date that the company has additional earnings capacity because of the new shares issued, for example if the shares are issued for cash, then the earnings capacity of the company will only increase from the date that the additional cash is available to that company. NOTE-Please note that none of the above examples will influence the calculation of the number of shares of the previous year.

METHOD TO CALCULATE AND DISCLOSE EARNINGS PER SHARE : a) SEE EXAMPLE BELOW- NOTE: it is done “per year” IN COLUMNS you can work all the way down with right up to EPS and dividends. b) The recon is simple- start with the EPS you calculated and work down to “Net Profit for the Year” by adding back pref.dividends etc.

2)

EXAMPLES:

(B) TYPE 2 : SHARES ISSUED FOR NO CONSIDERATION: Where reserves, such as non-distributable reserves, are capitalised by issuing equity shares, the earnings and dividend per share must be based on the increased weighted average number of issued shares after the capitalisation issue. When there is a capitalisation issue, no additional capital is acquired and the company merely 147

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makes a book entry. The reserves that were capitalised and for this reason the number of shares issued as a capitalisation issue are not weighted for the period of issue. The comparative figures (earnings and dividends per share) should also be adjusted by the increase in the number of shares, if they are to be comparable. Where shares are split, say from R1 shares to 50c shares, or where shares are consolidated and no repayment of capital takes place, the same principle applies as in the case of capitalisation issues. Ordinary shares may be issued or the number of shares outstanding may be reduced without a corresponding change in resources. This means that even though the number of shares changed during the year, no consideration was received, therefore the earnings capacity of the company did not change. Examples include the following : • a capitalisation or bonus issue • a bonus element in a rights issue • a share split • a reverse share split (consolidation of shares) Note that in the above cases the number of shares are not weighted when calculating basic earnings per share. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest reported period i.e. the beginning of the prior year. The number of shares are only weighted if the capitalisation issue (or other examples mentioned above) follows a rights issue in the same year. The capitalisation issue is then only weighted with regard to this rights issue –meaning that…..?????????????????/ DATES ON WHICH SHARES ARE INCLUDED IN THE CALCULATION FOR EARNINGS PER SHARE FOR : SHARES ISSUED FOR NO CONSIDERATION (FOR FREE BASICLY)

KIND OF SHARE ISSUE Increase in equity share capital: 1 & 2 below: 1-Capitalisation Issue/Bonus Issue.

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Date of inclusion in calculation of earnings per share

1-BASIC EARNINGS: The only thing that could have any effect on the calc. of Basic Earnings in these cases is if Pref.Shares were issued as a Bonus Issue or Capitalisation issue and the dividends paid to them must be subtracted from Basic Earnings somehow. IT DOES NOT SAY IN THE BOOK BUT I THINK JUST TREAT THEM AND THEIR DIVIDENDS AS IF PAID FROM BEGINNING OF ANY YEAR DEALT WITH, INCL. ANY COMPARATIVE YEARS.-exactly the same as in (2-) below. Also always remember to deduct Pref.Dividends from Net Proft for the Earnings-you often forget them! 2-WEIGHTED AVERAGE NUMBER OF SHARES. 1-You DO NOT EVER WEIGHT THIS TYPE OF SHARE. It is treated as a full year if it is included at all. 2-If there are any other weird capitalization issues or “Rights issues at less than Fair Value” etc. before the capitalization issue,you use the figure you have worked out up to the date of the current capitalization issue as your “beginning of year “ figure to work with, as the total amount of shares for any calc. SO you do NOT use the REAL ACTUAL number of shares at that time , you use the ‘false one’ you got so far. This is a weird way to do it , but it is some mathematical thing. ALSO: For the previous years “Comparative Figures”: you adjust it starting with the first Capitalisation (or other weird type) of issue from the current year, then use that figure to do the next adjustment in line and so on till you get your answer. This is for Multiple Capitalisation or other weird Issues in the same year. Remember a capitalisation issue is never weighted by months though, but other types might be! 3-You Treat the Extra shares which were issued for free by the Capitalisation issue as if they were issued at the beginning of the year of the Financial stats BUT for the Comparative Year –if shown in the Fin.Stats. – you only add the capitalization figure to this total in the ratio as to how many shares there were in issue/outstanding at the end of that year. So if there was a Capitalisation issue of 1 for every 1 shares held, and at the end of Current Fin.Year there were 500 shares you add 500 to this=1000 end this year(do not weight it at all) Then if end last year there were 200 in issue- you ONLY ADD THE SAME NUMBER OF SHARES that was in issue/outstanding at that time to last years figure therefore 200+200=400.So current year gets 500 and last year get

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200. The logic behind this is that the equity of the shares issued was part of reserves anyway at the time so it must then get shown, if the 2 years are to be comparable.(but what happens if the reserves only appeared halfway through this period?- so if they were NOT there at the beginning of the years concerned??) But if the question does not say the ratio the capitalization took place in then just add them to the totals as they come. Rem: For Free issue of Bonus shares :DO NOT go and add again to the final year - remember that somewhere in the final year that Bonus Issue had to have been recorded anyway! So it is already in the total number of shares for the end of the year – it does not have to be added again! . But you must add it to the total shares for the Comparative Year’s figures though- it will definitely not be in there yet! ALLWAYS USE THE FOLLOWING METHOD TO WORK THEM OUT –NEVER ANYTHING ELSE IT JUST CAUSES MISTAKES.

This is the way you write up the Note for where year 1 and year 2 each get different amounts added :(a bit minimalistic though!!!??)

2-Rights Issue at Less than Fair Value (or called a ‘Bonus Element In A Rights Issue”)

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If a company raises capital by means of a rights issue and the issue price is less than the fair value of the company's shares when issued, a bonus element arises. 1-BASIC EARNINGS : Done as per usual-nothing special (remember to deduct Pref.Dividends) ???? Pref. Dividends is probabley calculated in the same way as done below for ordinary shares if the Pref.Dividends were also “Issued at less than fair value”??? 2-WEIGHTED AVERAGE NUMBER OF SHARES: (a)Here you must backdate any rights issues as if it happened at the beginning of the year.So you must treat it as if it happened at beginning of year. If the rights issue was in the middle of the year and there were other issues before that that had to be weighted by month, then you just work down the list in order of dates (???–I don’t think you weight a normal issue before the rights issue as out of say 3/6 months if the rights issue after it was half way through the year and it happened in the 3rd month- I think you just weight it as normal- add it up to the previous ones and work from there!???_) (b)For periods prior to rights issue: You only use the following calculation for the purposes of any “Months before the rights issue” and for Comparitive Figures on the Fin.Stats. – nowhere else at all! So here you do not The number of ordinary shares to be used in calculating basic earnings per share for all periods prior to the rights issue is the number of ordinary shares outstanding prior to the issue,multiplied by the following factor: Note: Fair Value means what the management judge to be what the shares are worth at the time, not the Current Book Value of the shares or also not the current plain market value- just the Fair Value in managements estimation at the time.-(not quite sure- must ask)

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(i) FOR No-PAR VALUE SHARES :(I think)

(ii) FOR PAR VALUE SHARES: (I think)

EXAMPLE:

COMMENT -(1)Where the rights themselves are to be publicly traded separately from the shares prior to the exercise date, fair value is stablished at the close of the last day on which the shares with the rights are traded. In above formula outstanding shares represent issued shares. -(2)If there are any multiple issues in the Current financial year before the “rights at less than fair value issue” then each period in between each issue is simply treated alone using the same formula and above and then just weighted and added together with the others to get the final answer.i think??? NOT SURE??? (b) For periods after rights issue: as per usual – use the exact number of shares , just weight it by time =months/12 , Do not use the formula above. So if the “Shares at less than Fair Value “ were issued half way through the year- then the first 6 months are done by taking the TOTAL shares IN ISSUE then ,using the special formula above, and then multiplied by 6/12 for half the year(per logic of it would be part of your ‘reserves’ because it is free) , BUT the 2nd 6 mnths are done using the exact number of TOTAL shares now IN ISSUE (not using the funny formula) and also multiplied by 6/12.This is added together to get the total “Weighted Average” for the year. Note: you do not ever use the formula on only the amount of new shares issued- ONLY on the TOTAL shares THE COMPANY HAS EVER ISSUED and which are still there at that time. The Previous years Comparitive Figures must also be adjusted by using the special formula above, for the purposes of Comparative figures for the Fin Stat.(for the whole of that year) Example: Notes for the year of a rights issue at below fair value( it was very complex but they just wrote this simple thing here? A bit minimalistic! You should at least add “the previous years figures were adjusted in accordance”

Example of a “right issue at below fair value”

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Reduction in Equity Share Capital: 3&4&5below 3-Share Split

The share split or reverse share split is the change in the nominal value of the shares leading to a change in the number of shares as shown below. - the number of shares remain unchanged and only the nominal value per share is affected.In this case no adjustment is necessary for basic earnings per share. 1-BASIC EARNINGS: Same as normal –but not sure if you split pref.shares which date you take them from –the date of split or for the whole year? 2- WEIGHTED AVERAGE NUMBER OF SHARES You simply take the new number of shares you get after the split and use that as the number of shares- BUT you must convert the Comparative figures for the previous year to the same format –ie split them too, AND also if the split takes place in the middle of the year you must treat it as if it happened at the beginning of the year- No weighting by months is used at all here – just very plain splitting the shares and changing all years to that format so it is comparable. To do the write-up in the NOTES – it is done as follows:

3-DIVIDENDS per SHARE Dividends per share is calculated for both years using the new figures for number of shares worked out above- so for Comparative year the number “after the split” is also used

In the NOTES one must disclose under a separate heading how dividends per share was adjusted after the split , as shown in example below:

You must check how exactly one discloses this – it is done in 3 or 4 different ways in the book!

4-Reverse Share Split (or Share Consolidation)

- the number of shares are reduced, in which case the basic earnings per share are based on the reduced number of equity shares after the consolidation of shares. The basic earnings per share for the preceding year are adjusted proportionately.

-EARNINGS PER SHARE Works exactly the same as for a share split but just the other way around.see above. -WEIGHTED AVERAGE NUMBER OF SHARES Works exactly the same as for a share split but just the other way around.see above. 5-Number of shares remain unchanged and only the nominal value per share is affected

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In this case no adjustment is necessary for basic earnings per share.

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Headline Earnings. 1) The headline earnings are just the Net Profit LESS ANY :profit/loss on sale of Property Plant & Equipment or Profit/loss from Revaluation of Assets. So it is just basicly meant to be profit from ‘operations’. 2) NOTES to the Fin Stats : One must do a reconciliation in the Notes to recon. headline earnings to net profit . See example below.

Headline earnings is defined as all trading profits or losses of the company, including those items that are of such a nature and size that their disclosure is relevant to explain the performance of the enterprise, after tax, non-controlling interest and preference dividends but excluding separately identifiable remeasurements. A measurement is an amount recognised in the statement of comprehensive income relating to any change (realised or unrealised) in the carrying amount of an asset or liability that arose after the initial recognition of such asset or liability.

Disclosure Companies should disclose the following in the annual financial statements: - earnings per share calculated in accordance with IAS 33/AC 104; - headline earnings per share - an itemised reconciliation between headline earnings and earnings in accordance with IAS 33/AC 104. The reconciliation should detail the nature and amount of each reconciling item.

Dividends Per Share. 1) AC 104 does not require the disclosure of dividends per share. However par 95 of IAS 33/AC 101 Presentation of Financial Statements requires the disclosure of dividends per share.However,there are no specific guidelines in any of the current accounting statements on the calculation of dividends per share. 2) Calculation For the purpose of this course, the following guidelines should be followed on the calculation of dividends per share: Dividends declared for the period divided by the number of issued shares on the date when the dividends were declared. The calculation of dividends per share is therefore based on the number of issued shares and not on the weighted average number of issued shares. Comparative figures for dividends per share are only adjusted in the following instances: • . Capitalisation issues, bonus issues, a share split or a share consolidation • . Reduction in equity share capital 3) In the case where dividends are declared more than once during the period under review, a separate dividends per share must be calculated for each dividend payment. The sum of the separate dividends per share calculated can be disclosed in the statement of comprehensive income or the dividends per share for each declaration can be disclosed. 4) An adjusted dividend per share must be calculated if the company issued capitalisation shares,bonus issues or a share split or share consolidation occurred in the current year. The result of these share transactions is that the number of shares increase or decrease but the R-value of issued share capital remains unchanged. The number of issued shares of the previous year is therefore adjusted and this requires an adjusted dividend per share calculation.

5) Disclosure requirement The revised IAS1 requires disclosure of dividends per share in cents for each class of equity shares for the period under review and the corresponding prior period in the statement of changes in equity or alternatively in the notes. 152

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HOW TO DISCLOSE IN THE FIN.STATS (RATHER DO A SEPARATE FIGURE FOR INTERIM AND A SEPARATE FIGURE FOR FINAL AND THEN A TOTAL BELOW THESE FOR BOTHALL 3 SEPARATE FOR EACH YEAR SHOWN): AS FOLLOWS

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