Grade 12 Commerce: Accountancy

In this unit, 'Accounting for partnership firms: fundamentals', you learn to prepare partners' capital and current accounts. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Read the idea in 'Accounting for partnership firms: fundamentals' and tie it to a small real business, such as a school shop or a family stall.
• Write the rule or format in your own words and keep one clean example.
• Use it: prepare partners' capital and current accounts. Work from source papers or a short story of transactions.
• Check it: totals agree, each entry has a reason, and every figure can be traced.

Step by step.

1. Step 1, The facts: A and B are partners with fixed capitals of 300,000 and 200,000 and a profit sharing ratio of 3:2. Net profit is 100,000. Terms: interest on capital 10 percent, salary to B of 12,000, interest on drawings 450 for A and 300 for B.
2. Step 2, Interest on capital: A gets 10 percent of 300,000, which is 30,000. B gets 10 percent of 200,000, which is 20,000. Total 50,000 is an appropriation of profit, not an expense, and is credited to the partners' current accounts because capitals are fixed.
3. Step 3, Appropriation account: Net profit 100,000, less interest on capital 50,000, less B's salary 12,000, plus interest on drawings 750 (450 plus 300), leaves 38,750 to share. That is 100,000 minus 50,000 minus 12,000 plus 750.
4. Step 4, Share the balance: A gets 3 over 5 of 38,750, which is 23,250. B gets 2 over 5, which is 15,500. Check: 23,250 plus 15,500 equals 38,750, so the whole balance is shared.
5. Step 5, A's current account: Opening 5,000 Cr, plus interest on capital 30,000 and profit share 23,250 gives 58,250 on the credit side. Debits are drawings 15,000 and interest on drawings 450, totalling 15,450. Closing balance is 42,800 Cr.
6. Step 6, B's current account and proof: Credits are 3,000 opening plus 20,000 plus salary 12,000 plus 15,500, which is 50,500. Debits are 10,000 plus 300, which is 10,300. Closing balance is 40,200 Cr. Proof of profit shared: A 30,000 plus 23,250 minus 450 is 52,800; B 20,000 plus 12,000 plus 15,500 minus 300 is 47,200; together 100,000.
7. Your turn: C and D, fixed capitals 100,000 and 50,000, interest 8 percent, profit 30,000, ratio 2:1, no salary. Model answer: interest 8,000 and 4,000; balance 18,000 shared 12,000 and 6,000; C gets 20,000 and D 10,000, total 30,000.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Prepare partners' capital and current accounts: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Goodwill, admission, retirement and death of a partner', you learn to value goodwill and adjust partners' accounts. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Read the idea in 'Goodwill, admission, retirement and death of a partner' and tie it to a small real business, such as a school shop or a family stall.
• Write the rule or format in your own words and keep one clean example.
• Use it: value goodwill and adjust partners' accounts. Work from source papers or a short story of transactions.
• Check it: totals agree, each entry has a reason, and every figure can be traced.

Step by step.

1. Step 1, Value goodwill: A firm has average profit of 60,000 and capital employed of 400,000 with a normal return of 10 percent. Normal profit is 40,000, so super profit is 60,000 minus 40,000, which is 20,000. At 3 years' purchase, goodwill is 60,000.
2. Step 2, Admission and new ratio: A and B share 3:2. C is admitted for a 1 over 5 share. The remaining 4 over 5 is shared 3:2, so A gets 12 over 25 and B gets 8 over 25, and C gets 5 over 25. The new ratio is 12:8:5.
3. Step 3, Sacrifice ratio: A sacrifices 15 over 25 minus 12 over 25, which is 3 over 25. B sacrifices 10 over 25 minus 8 over 25, which is 2 over 25. The sacrifice ratio is 3:2, and it decides who is compensated.
4. Step 4, Goodwill brought in: C's share of goodwill is 1 over 5 of 60,000, which is 12,000. It is shared 3:2, so A gets 7,200 and B gets 4,800. Journal: Cash A/c Dr 12,000, To A's Capital A/c 7,200, To B's Capital A/c 4,800.
5. Step 5, Retirement: X, Y and Z share 5:3:2 and Z retires, leaving X and Y to share 3:2. X gains 3 over 5 minus 1 over 2, which is 1 over 10; Y gains 2 over 5 minus 3 over 10, which is 1 over 10. The gaining ratio is 1:1.
6. Step 6, Goodwill on retirement and death: Z's share of 60,000 is 2 over 10, which is 12,000, paid equally by gainers. Journal: X's Capital Dr 6,000, Y's Capital Dr 6,000, To Z's Capital 12,000. If Z died after 3 months, profit to date is 80,000 times 3 over 12, which is 20,000, and Z's share of it is 4,000.
7. Your turn: Goodwill is 90,000, A and B share 2:1, D is admitted for 1 over 4. Find the new ratio and goodwill credits. Model answer: new ratio 2:1:1; sacrifice A 1 over 6, B 1 over 12 so 2:1; D pays 22,500, A gets 15,000 and B gets 7,500.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Value goodwill and adjust partners' accounts: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Accounting for companies: share capital and debentures', you learn to record issue of shares and debentures. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Read the idea in 'Accounting for companies: share capital and debentures' and tie it to a small real business, such as a school shop or a family stall.
• Write the rule or format in your own words and keep one clean example.
• Use it: record issue of shares and debentures. Work from source papers or a short story of transactions.
• Check it: totals agree, each entry has a reason, and every figure can be traced.

Step by step.

1. Step 1, The issue: A company issues 10,000 shares of 10 each at a premium of 2. The amount per share is 3 on application, 5 on allotment, including the premium of 2, and 4 on the first and final call. Check 3 plus 5 plus 4 equals 12, which equals 10 plus 2.
2. Step 2, Application: 12,000 shares are applied for. Bank Dr 36,000, To Share Application A/c 36,000, since 12,000 times 3 is 36,000. The issue is oversubscribed by 2,000 shares, which are rejected.
3. Step 3, Adjust application: Share Application A/c Dr 36,000, To Share Capital A/c 30,000, To Bank A/c 6,000. Capital is 10,000 times 3, which is 30,000, and the refund is 2,000 times 3, which is 6,000. The application account closes at nil.
4. Step 4, Allotment: Share Allotment A/c Dr 50,000, To Share Capital A/c 30,000, To Securities Premium A/c 20,000, because 10,000 times 5 is 50,000 and 10,000 times 2 is 20,000. When received: Bank Dr 50,000, To Share Allotment A/c 50,000.
5. Step 5, Call: Share First and Final Call A/c Dr 40,000, To Share Capital A/c 40,000, then Bank Dr 40,000 To Call A/c 40,000. Share capital is 30,000 plus 30,000 plus 40,000, which is 100,000, equal to 10,000 times 10.
6. Step 6, Debentures: 1,000 debentures of 100 are issued at a 5 percent discount, redeemable at par. Bank Dr 95,000, Loss on Issue of Debentures Dr 5,000, To Debentures A/c 100,000. The 5,000 loss is written off over the life.
7. Your turn: 5,000 shares of 20 at premium 4; application 5, allotment 9 including premium, call 10. Model answer: total 24, application 25,000, allotment 45,000 (capital 25,000 and premium 20,000), call 50,000; capital is 100,000, premium 20,000, cash 120,000.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Record issue of shares and debentures: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Financial statements of a company', you learn to prepare statements in the standard format. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Read the idea in 'Financial statements of a company' and tie it to a small real business, such as a school shop or a family stall.
• Write the rule or format in your own words and keep one clean example.
• Use it: prepare statements in the standard format. Work from source papers or a short story of transactions.
• Check it: totals agree, each entry has a reason, and every figure can be traced.

Step by step.

1. Step 1, Profit and loss data: A company reports revenue from operations of 800,000 and other income of 20,000, so total revenue is 820,000. This is Part I of the statement, under the standard headings.
2. Step 2, Expenses: Cost of materials 400,000, employee benefit expense 150,000, finance costs 20,000, depreciation 50,000, other expenses 80,000. Total expenses are 700,000, since 400 plus 150 plus 20 plus 50 plus 80 is 700 (thousands).
3. Step 3, Profit: Profit before tax is 820,000 minus 700,000, which is 120,000. Tax at 30 percent is 36,000, so profit after tax is 120,000 minus 36,000, which is 84,000. This 84,000 moves to reserves and surplus in the balance sheet.
4. Step 4, Equity and liabilities: Share capital 300,000, reserves and surplus 144,000 (opening 60,000 plus 84,000), long-term borrowings 100,000, trade payables 60,000, short-term provisions for tax 36,000. Total is 640,000.
5. Step 5, Assets: Property, plant and equipment (net) 420,000, non-current investments 40,000, inventories 80,000, trade receivables 60,000, cash and cash equivalents 40,000. Total 420 plus 40 plus 80 plus 60 plus 40 is 640 (thousands).
6. Step 6, Check and note: Equity and liabilities of 640,000 equal assets of 640,000, so the balance sheet agrees. Current assets are 180,000 and current liabilities are 96,000, which will be used in ratio analysis. Notes to accounts give details of each line.
7. Your turn: Revenue 500,000, other income 10,000, expenses 430,000, tax 25 percent. Find profit after tax. Model answer: total revenue 510,000; profit before tax 80,000; tax 20,000; profit after tax 60,000.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Prepare statements in the standard format: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Analysis of financial statements', you learn to use ratios to analyse performance. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Read the idea in 'Analysis of financial statements' and tie it to a small real business, such as a school shop or a family stall.
• Write the rule or format in your own words and keep one clean example.
• Use it: use ratios to analyse performance. Work from source papers or a short story of transactions.
• Check it: totals agree, each entry has a reason, and every figure can be traced.

Step by step.

1. Step 1, The data: Current assets 180,000 including inventory 64,000; current liabilities 90,000; revenue 800,000; cost of goods sold 560,000; net profit 80,000; long-term debt 200,000; equity 400,000; opening inventory 48,000.
2. Step 2, Liquidity: Current ratio is 180,000 divided by 90,000, which is 2:1. Quick ratio is (180,000 minus 64,000) divided by 90,000, which is 116,000 over 90,000, about 1.29:1. Both show enough short-term resources to pay current liabilities.
3. Step 3, Solvency: Debt-equity ratio is 200,000 divided by 400,000, which is 0.5:1. Debt is half of equity, so the firm is not heavily borrowed. A lower ratio means lower financial risk, though industries differ.
4. Step 4, Profitability: Gross profit is 800,000 minus 560,000, which is 240,000, so the gross profit ratio is 240,000 over 800,000, which is 30 percent. The net profit ratio is 80,000 over 800,000, which is 10 percent.
5. Step 5, Activity: Average inventory is (48,000 plus 64,000) divided by 2, which is 56,000. Inventory turnover is 560,000 divided by 56,000, which is 10 times. Receivables turnover is 12 times if credit sales are 600,000 and average receivables 50,000, so collection takes about 30 days.
6. Step 6, Interpret: Compare each ratio with last year's and with similar firms. A 10 percent net margin, 2:1 current ratio and 10 times turnover suggest healthy performance, but one year is not a trend, so a comparison is needed before judging.
7. Your turn: Current assets 120,000, current liabilities 80,000, inventory 40,000. Find the current and quick ratios. Model answer: current ratio 120,000 over 80,000, which is 1.5:1; quick ratio 80,000 over 80,000, which is 1:1.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Use ratios to analyse performance: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Cash flow statement', you learn to prepare a statement of cash flows. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Read the idea in 'Cash flow statement' and tie it to a small real business, such as a school shop or a family stall.
• Write the rule or format in your own words and keep one clean example.
• Use it: prepare a statement of cash flows. Work from source papers or a short story of transactions.
• Check it: totals agree, each entry has a reason, and every figure can be traced.

Step by step.

1. Step 1, Starting figures: Net profit before tax is 100,000. Depreciation is 20,000 and interest expense is 8,000. Inventory rose by 15,000, receivables rose by 10,000 and payables rose by 12,000. Tax paid is 25,000. Opening cash is 18,000.
2. Step 2, Operating profit: Net profit 100,000 plus depreciation 20,000 plus interest 8,000 gives operating profit before working capital changes of 128,000. Non-cash and financing items are added back because they do not belong in operations.
3. Step 3, Working capital: Increase in inventory (15,000) and receivables (10,000) use cash, so subtract. Increase in payables 12,000 adds cash. Cash generated from operations is 128,000 minus 15,000 minus 10,000 plus 12,000, which is 115,000.
4. Step 4, Net operating cash: Subtract tax paid 25,000 to get 90,000. This is net cash from operating activities. Cash from operations is the most important line because it shows whether the core business produces cash.
5. Step 5, Investing and financing: Purchase of equipment (60,000) and sale of investment 10,000 give net investing of minus 50,000. Financing: shares issued 40,000, loan repaid (20,000), interest paid (8,000), dividend paid (10,000), net 2,000.
6. Step 6, Reconcile: Net increase is 90,000 minus 50,000 plus 2,000, which is 42,000. Closing cash is 18,000 plus 42,000, which is 60,000. This must agree with the balance sheet cash figure, which is the final check.
7. Your turn: Profit before tax 60,000, depreciation 10,000, receivables up 5,000, tax paid 12,000, equipment bought 30,000, shares issued 20,000, opening cash 7,000. Model answer: operating 53,000, investing minus 30,000, financing 20,000, net 43,000, closing 50,000.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Prepare a statement of cash flows: at least 70 percent on an exam-style task, with the method shown.

On the slide: L1 Basic · Money in, money out

Notes: Name one thing a business owns, one thing it owes and one sale it records. Notes: use a small tuck shop; learners list three items owned (cash, stock, a fridge) and one amount owed to a supplier, then say which is which.

On the slide: L2 Awareness · Assets, debts and the equation

Notes: Explain that assets equal liabilities plus capital and say why both sides always match. Notes: practice case is assets of 50,000 and liabilities of 20,000, so capital is 30,000; learners change one figure and rebuild the equation.

On the slide: L3 Foundation · Journal and ledger entries

Notes: Record simple transactions as debit and credit entries and balance a ledger account. Notes: post a cash sale of 8,000 and a credit purchase of 3,000 to T-accounts; check total debits equal total credits before moving on.

On the slide: L4 Practitioner · Trial balance and final accounts

Notes: Prepare a trial balance and a simple income statement from ledger balances. Notes: sales 90,000, cost of goods sold 55,000 and expenses 20,000 give gross profit 35,000 and net profit 15,000; learners find one deliberate slip.

On the slide: L5 Specialist · Adjustments and ratios

Notes: Apply depreciation and accruals, then calculate and interpret profitability ratios. Notes: a machine costing 60,000 at 10 per cent straight line loses 6,000 a year; gross margin of 35,000 on 90,000 sales is 38.9 per cent, so ask what moved it.

This course: Grade 12 Commerce Accountancy is at this level. Its units include Accounting for partnership firms: fundamentals; Goodwill, admission, retirement and death of a partner; Accounting for companies: share capital and debentures; Financial statements of a company and more.

On the slide: L6 Advanced · Group accounts and goodwill

Notes: Prepare a consolidation adjustment and explain goodwill and non-controlling interest. Notes: a parent pays 420,000 for 80 per cent of a company with net assets of 450,000; goodwill is 60,000 and the non-controlling interest is 90,000; learners show the working.

On the slide: L7 Super expert · Expected credit loss and audit risk

Notes: Evaluate an impairment estimate and design audit tests around its judgements. Notes: receivables ageing of 150,000 at 1 per cent, 40,000 at 5 per cent and 10,000 at 30 per cent gives an allowance of 6,500; challenge each rate with past write-off data.