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Contents
1) Heading : ANSWERS TO QUESTIONS:...........................................................................5
2) Heading : Special/Odd Things to watch out FOR:.........................................................5
3) Heading: TERMS :.........................................................................................................5
4) Heading: Revision Common Problems..........................................................................5
2. DEPRECIATION.........................................................................................................5
Straight Line Method: (or Fixed Installment Method)....................................................5
Diminishing balance method (or Accellerated Method)................................................6
Production Method:.......................................................................................................6
2. Next heading:provision bad debts,realisation of assets,inventory in closing
entries(trading acc.)Closing entries,etc...........................................................................6
3. Provision bad debts + Bad Debts:...........................................................................6
5) FINANCIAL RATIOS / INTERPRETING FINANCIAL STATEMENTS......................................7
1. Financial Strength...................................................................................................7
i) Financing Structure / Solvability..............................................................................7
ii) Liquidity................................................................................................................7
iii) Income sensitivity /Cover Ratios..........................................................................7
2. Rate of Return/Profitability......................................................................................7
1. Growth.....................................................................................................................7
6) CHAPTER 2 CLUBS/NON-PROFIT ORGANISATIONS......................................................13
Introduction:..................................................................................................................13
Organisational & Control Characteristics.:.....................................................................14
Sources of finance for :..................................................................................................14
Accounting records:.......................................................................................................14
Entrance fees:.............................................................................................................15
Membership fees:.......................................................................................................15
Income from Bar,Tuck Shop,Restaurant:....................................................................15
Donations and Bequests:............................................................................................16
Receipts & Payments Statement:..................................................................................16
Income and Expenditure Statement:............................................................................16
Trading Statement:........................................................................................................17
Accumulated Fund Account...........................................................................................18
Special Funds.................................................................................................................18
EXAMPLE OF: A NON-EXPENDABLE SPECIAL FUND ACCOUNT:...................................19
EXAMPLE OF: An EXPENDABLE SPECIAL FUND ACCOUNT:..........................................20
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1)Heading: TERMS :
1- SEMI-ANNUALLY: every 6 months eg: interest at 10% p/a but calculated semi-annually
means :accrued(added to total of loan)&calc. 6 mnthly but at 10% p/a rate.
1)Heading: Revision Common Problems.
1. DEPRECIATION
Straight Line Method: (or Fixed Installment Method)
1. (Cost MINUS - SCRAP/RESIDUAL VALUE) Over/ fixed time or years usage estimated.
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2. This method says asset looses more value in first years than in later years :(ie:amount subtracted auto.
decreases over time as asset value decreases)
3. This method DOES NOT SUBTRACT THE SCRAP VALUE from the COST PRICE to CALCULATE the RESIDUAL
VALUE.-at all ever
4. The carrying value at end of one of the years is simply deemed the Scrap value-then no more.
5. Use same Entries as above:just 'calculation' in calc. column different.
Production Method:
1. (Cost MINUS - SCRAP/RESIDUAL VALUE ) Multiplied by: ( Units produced this year /OVER/ Estimated no. of
units production from the asset in its.lifetime. )
2. variations include :hours worked , distance traveled .
3. The depreciation rate can also be worked out at: Rands per Production unit (or kilometre) and given 2 extra
columns: depreciation per unit & annual units : in the Schedule of depreciation ,and the standard depreciation
quoted as 'per unit' at top of asset register.
4. Use same Entries as above:just 'calculation' in calc. column different.
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Introduction:
1. A Non-profit organisation :economic entity which has the legitimate goal of furthering certain interests in the
community.-objective not distribute profits but use profits achieve stated goal.
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2. Membership acquired through paying membership fees-not same rights as shares in a company.-not entitled to
distribution of profits.(normally clause in constitution that if entity is dissolved all assets go to a entity with
similar objectives.)
3. Funds from:donations,membership fees,fund raising projects,bequests,government subsidies.
4. Under section 21 of companies act-61 of 1973- may register as a company not for gain.
5. Must register for Vat if 'Taxable supplies' or Income/Revenue exeeds R300 000 ,or may register if below that
and want to.
Accounting records:
1. Return on Capital not goal of – non-profit organisation- so EQUITY REPLACED by FUNDS.
2. Profit is called a Surplus and Loss is called a Deficit- Added/ subtracted to Accumulated funds account.
B.A.E of Non-Profit Organisations
ASSETS = FUNDS + LIABILITIES.
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3.
Entrance fees:
a. Capitalised normally–Ie:First go straight to "Entrance fees" account- then at Fin .Year End with:Closing-
Entries/Procedure closed-off to "Accumulated Fund account" (like :Capital account).
b. DO NOT GET ADDED TO REVENUE in 'Income and Expenditure Statement'
Membership fees:
c. Annual Fee = Estimated Budget for Following Year / divided by / Number of members
d. Some fees could be in arrears,some could be irrecoverable.
e. "Membership fees :Income" account can act as a "debtors" account at same time as being income
account.-if there are no "debtors' for members but is actually ONLY an INCOME account by GAAP.So—
1-you can write off bad debts against it if no (2)... following is true: -2-have already (from past fin . year
end procedures)put fees in arrears on debit side –to act as a debtors.- BUT if a fin. year end has not
passed& the very bad debts have been written up as accrued income - then you cannot write the bad
debts off in this manner –nor in the books at all.
f. Sometimes no debtors accounts kept for arrears members fees-so one ONLY uses adjustment accounts
for arrears membership fees + fees paid in advance's at YEAR END ONLY.
g. SOME Bad Debts( if already an accrued income in books) CAN get written off against the "Membership
fees " account if there are no "debtors accounts" for members.
h. Only bad debts that have been moved to dr side from last year ,ie , as
accrued incvome reversed in new year, can be written off as bad debts to
cancel the dr (which would have been used to cancel any payment for last
years stuff in the current year).
i. "Membership Fees account" is empty at beginning of year:EXEPT FOR first entries are the adjustments
transferred back :Arrears=Debtor as DR ----- AND Income in advance='Income' as CR for new yrs.
income now showing .
ALL Arrears Fees :
i. get included in Fin. Stat. as income for the year(still owing – like a debtor)under "Trade& Other
Payables" :BUT ONLY AT YEAR END.
ii. "Adj:Accrued Income" can also be called:"Membership fees in Arrears" !!!!
iii.No other arrears payments go to same adjustment acc. they must go to another
iv.Fees in arrears go to :"Adj:Accrued Income (Membership fees)" –CONTRA- "Membership Fees
Income" account same as an adjustment " at year end –BUT MUST:
v.MUST get REVERSED back into 'membership fees' account in new year (to accurately show
income for new year)- on the DEBTORS SIDE if there are no Debtors accounts.-account acts as
a debtors account at same time as an income account here.:do exact opposite to above
procedure.
Fees paid in advance :
vi.go to separate account –same as for Adjustments- the 'Income Received in
Advance(membership fees)" account :Under "Trade & other Payables" on balance sheet.-
vii."Adj: income received in advance(membership fees)" can also be called "Membership Fees
Received in Advance" account.
viii.No other advance payments go to same adjustment acc. they must go to another
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ix.'Must first go to "Membership fees: Income" Acc. from'Bank' Acc. , ONLY then to "in advance"
acc. AFTER by reversing -out of 'Membership Fees:Inc.' Acc
x. MUST be reversed back out of 'in advance' acc. in new year and re-reversed back into
"Membership account" to accurately show income for that year.
Income from Bar,Tuck Shop,Restaurant:
j. Gross profit –Not a Surplus- is Shown for "trading" only- in trading statement.
k. All trading closed off to Trading account at year end procedures as normal
l. The Gross profit for : Each trading activity must be calculated separately.as:
i. goes in income statement as calculation if any expenses which 'must' appear in inc& exp
statement are involved eg:wages: these must be subtracted in the inc & exp stat . and while all
other expenses come off in the Trading statemnt.- see example!!!!!! see calc . : Net
Income /'Gross Profit'/(Expenses Incurred here in brackets. eg: 'wages') in inc&exp. statement.
m. Otherwise all other expenses are subtracted as normal from all the Gross profits to show the Net
Surplus for the year at bottom on the "Income & Expenditure Statement". (Net profit)
Donations and Bequests:
1. Treated as REVENUE. :
2. Dr bank –CONTRA- Cr donations received( income account)
3. UNLESS: As an EXEPTION a 'special fund' is created from it –which must NOT be added to "accumulated
funds"(old 'Capital account'), but goes to "Special Fund "account which is regarded as a 'type' of
capitalisation:ALLWAYS utterly apart from other capitalisations though eg: if very large bequeathement from a
testament or donation or conditional donation.
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Trading Statement:
1. IF the scale warrants it :a separate ' TRADING STATEMENT ' can be prepared for each operational activity'.eg
:for Tuck shop one ,for restaurant one ,for fun run one etc.
2. Layout similar to Trading section (revenue+ cost of sales....+gross profit of a normal Income Statement.
3. Closes off with gross profit NOT surplus/deficit because trading calc. done here .
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4. WAGES MUST NOT BE SUBTRACTED IN THE TRADING STATEMENT :The main reason being that wages
DO NOT FORM PART OF GROSS PROFIT and must be shown as a 'separate deduction IN the Income PART'
of THE: "Income and Expenditure Statement"(see section on "Inc.&Exp. Statement")- not on the trading
statement.
5.
1. The Capital Account is CALLED the 'Accumulated funds' account ,AND EQUITY is called "Funds" because: no
owners=no equity
2. The following go to the "Accumulated Fund account" (-old "capital" account)
a. Any INITIAL DONATIONS made to begin organisation.
b. Entrance Fees
c. Surplus / Deficit for each period.
d. "Special Funds" donated for "General Expenses" –separate investment account must be opened.
3. Separate investment accounts must be opened for "Special Funds" donated for a special purpose :to be able to
issue meaningful reports on the acquisition & utilization of funds.
Special Funds
1. Used like an "Income" and "Expense" account same entries style for Dr & Cr .- NOT like an 'ASSET' ACCOUNT!-
so for all assets bought(asset exchanges) FIRST move(REVERSE) cash from Specisl Fund to Accumulated funds
account-and leave it alone there.
2. Money can be set aside so not all the cash is spent on expenses of general nature :in a Special Fund..
3. A Special fund can also be established for a 'Legacy' or a 'Conditional donation' with special conditions
attatched.
4. When purpose of fund is Finished / finalised –it must be closed off to the "Accumulated Funds" account.
5. FOR A RECEIPT :ALWAYS FIRST to normal bank,then only to "Investment account" Bank account,
:ALSO for a PAYMENT :first from "Investment bank acc" to normal 'bank' acc–then ONLY PAYMENT MADE from
here. (:unless stipulated otherwise in exercise instructions).
a. RECEIPT:
i. Dr bank(normal ) –CONTRA Cr "Special non-expendable : Star Fund."
account.????????????????????/
ii.Cr bank (normal)-CONTRA- Dr Investment Bank account (eg : fixed deposit )...move to
investment account.
b. PAYMENT:
i. Cr Investment Bank account-CONTRA- Dr Bank account (normal ).FIRST move to normal
bank account
ii.Cr "Accumulated Funds" account –CONTRA-Cr "Special non-expendable: Star Fund." account.
FIRST Move to "Accumulated Funds" account(old 'Capital acc'.) as a new 'contribution' to
'Funds'-ONLY FOR ASSETS BOUGHT-asset exchange (not called capital here)
so for all assets bought(asset exchanges) FIRST move(REVERSE) to Accumulated funds
account-and leave it alone there.
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TO REMEMBER:IN GENERAL:
1) There are 2 instances where one must reverse ADJUSTMENTS on the first day of the
new year in these books:
a) For MEMBERSHIP ACCOUNT:
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Preliminary &share issue costs each get their own account in ledger,and what is not
deducted therefrom as expenses in income statment that year,is then put as a non-
current asset.
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(c) Amount of Share Capital And division thereof into shares ,with which
company registered.
(2) THE ARTICLES
(a) Regulate internal and management of company: eg:shares + share
cetificates,transfer of shares,loan powers,covening
meetings,rights+resposibilities of directors,voting rights,power of attorney
etc.
(3) PRELIMINARY COSTS.
(a) Debited to 'preliminary cost accnt',customarily written off against profits
over next few yrs. Eg: legal costs,registration fees.
(4) Most important consequence of separate legal entity
(a) Liabilities separate owners
(b)Profit + Assets belongs ONLY company,not to shareholders.
(5) Meeting in 60 days
(a) Shareholders must hold meeting in 60 days of 'certificate to commence
business'-primary objective appoint board of directors.
(6) Yearly shareholders meeting
(a) Appoint board of directors.,subject to provisions of the articles of ass.
(b)Annual Fin Stat. , incl. auditor report ,presented and approved.
v) Managemnt of a Company.
1- Shareholders := owners
2- NEXT Board of directors= not involved day to day running of comp.,only policy &co-
ordinating.
3- NEXT Management : running of company.
1. Share Capital.
i) Authorised Share Capital
1) Maximum Share capital it may obtain according to memorandum of association,can
be changed.
ii) Issued Share CAPITAL
1) Amount of shares actually issued, remainder is called Reserve or Unissued Share cap.
iii) Share Values : Par value / No Par Value
(1) Par Value (PV):
(a) Shares with Face value/Nominal value/Par Value :Value by which
authorised share capital is divided into shares,CAN be different to Market
Value.Only Original issue(sale) of shares is recorded in accounts, reselling
is NOT,then only changed in 'Shareholders Register'
(b)Share Premium is if Par Value shares are sold to the public at a higher
value than the par value
(c) 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.
(2) No Par Value Shares
(a) System where the Authorised Capital of eg: 1000 shares have no face
value ,eg:R10
(b)Must write as heading for No par value shares account: Ordinary
Shares:Declared Capital. (or "...Stated capital")(also for pref.shares –
same style)
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(i)
(ii) The capital redemption fund may also be used to pay up unissued
shares of the company for issue to members as fully paid up shares.
(f)
(g) PREMIUM ON REDEMPTION of Redeemable Pref.Shares.
(i) 'Provision must be made ' for premium either from :
1. Profits or from an
2. Existing share premium account.
(ii) Two new requirements of Act: (1)premium must be determined before
alotment of redeem. Pref. shares and(2)conditions of redemption must
be noted in articles. Before share premium acc. May be used to write
off premium on redemption.
(iii)Very complicated- must be researched.
(h)Different journal entries for redeem.pref.shares methods:
(i) P.s. :UNCLEAR ABOUT WHEN/ HOW CAPITAL REDEMPTION
RESERVE FUND must be created.
(i) New shares issued to pay:
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1) Non-Distributable Reserves
1) May not be disributed as dividends
(1) Voluntary:
(a) Comp. can decide it is prudent to withhold eg:Revaluation surplus(assets
revaluated)ledger account?
(2) Involuntary
(a) Prescribed by Companies act :eg "Capital redemption reserve fund"(eg:to
buy back redeemable preference shares)
(b)NOTE: if redeemable preference shares are redeemed with own
resources,and not from issue of some other shares,amount must e
transferred from profits to "Capital Redemption reserve fund"ledger
account?
2. 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) Accounts as follows:
6) Tax of Companies
1) Companies must pay "normal tax" de3clared by fin minister in budget speech,as well
as Secondary tax on dividends.
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i) Provisional Tax;
1) Company must pay Provisional Tax 2 times per year ,and then also pay tax
difference within 6 months after fin. year end( 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,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'
7) Appropriation Account
1- The Appropriation account comes after the profit and loss account at end of year,in
place of the "Owners Capital" account.All profit and loss, as well as last years
"retained earnings"(any unappropriated earnings)get closed off to this account.
2- Tax is trandsfered frfom here too.
3-
4- All the possible different transactions that can be done in an Appropriation account.
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8) 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 compaay has 2 accounts for the investment in its subsidiary
1- Investment account= represents cost of the shares
2- Current account = for moneys lent to subsidiary.
8) The Companies Act 61 of 73
1- Protects shareholders& 3rd parties eg:creditors
2- Needed due to Mngmnt/owner separation & separate legal entity status
3- 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.
4- On incorporation constitutional documents of firm become private property.
9) The Annual Financial Statements of a Company.
i) Objective:
1- 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- 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.
ii) Format & contents
1- Developments in field: improving comprehensability of.,single page for bal sheet
etc,notes separate,also narratibve form,not t form
2- Composition-as normal
3- Fair representation accordance GAAP: See company act for very ! detailed 'required'
4- GAAP-APB=acc.practices board part of SAICA,APB negotiates + accept new
accounting methods- REASONABLY REPRESENT THE STATE OF AFFAIRS OF COMP.
AND PROFIT&LOSS
10)Disclosure Requirements
i) Overall Considerations: as per AC101
(1) 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..
(2) Accounting Policies
(a) Policies used to be selected as per GAAP,
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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)
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)
3) (Assets:) Property Plant & Equipment
4)
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Cost ---------------
Accumulated Depreciation(remember to add all up extra mnths to ------------------- (Brackets) (Brackets) (Brackets)
date sold
Carrying Amount: End of year: ( cost – acc.depreciation)
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
Cost ---------------
Accumulated Amortisation(remember to add all up extra mnths to ------------------- (Brackets) (Brackets)
date sold
Carrying Amount: End of year: ( cost – acc.depreciation)
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7) Inventories:
8) 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.
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.
9) Reserves
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12.INCOME STATEMENT
1- In the company balance sheet, there are no "Dist ,admin &Other expenses" MAIN
headings,only 'revenue' and different 'profits' MAIN headings.
2- In income stat. first put operating : all expenses and profits - then other profits and
expenses .
In operations section :must only put separately the 1-distribution + 2-administrative
expenses ,
All the rest go in 'other operating expenses' or 'other operating income'.
3- After profit from operations,then put first all other income ,then all other expenses.
4- If there are no minority interests' or extraordinary items' then one must leave out
"profit after tax" and 'profit from ordinary activities' and go staight to 'net profit for
year'
At a minimum, the face of the income statement should include line items that
present:
revenue,
the results of operating activities,
finance costs,
share of profits and losses of associates, and joint ventures accounted for using the
equity method,
tax expense,
profit or loss from ordinary activities,
extraordinary items,
minority interest,
and net profit or loss for the period.
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).
The financial statements should disclose either:(on the face)
(a) the cost of inventories recognised as an expense during the period, or
(b) the operating costs, applicable to revenue, recognised as an expense during the
period classified by their nature (AC 108 par .34).
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13)Extraordinary Items
1- Income or Expenses.
2- Events distinct not expected to reoccour frequently
3- Eg:loss on expropriation of assets /earthquake
4- Must allways show tax thereon separately in notes, but tax not included in income
statement as part of extraordinary item.
Show only total rand Value of dividend declared and breakdown to cents/share ,in a
sentence format.
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(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 .
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2- Distr. Of profits/losses
3- Preparation fin. Stats.
4- Dissolution of partnership
5- Conversion into a private company
6- Takeover of , by an existing company.
1. 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) The principles of common law are applied to settle disputes.
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Eg:
(3) Service Contributions by Partners: specified ratios
ii) Partners Salaries:
2) 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.
3) Can be yearly allocation or mnthly- but note :withdrawals NOT =salaries.
4) Salaries MUST pay to partner even if Profit insufficient: the resulting loss divided
equally between.
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Eg:
iii) 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.
iv) 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.
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 a loan from a partner is an expense)
6-
Example 1 :for a profit example:
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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- goods all at purchase price
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.
iv) Adjustments & Corrections in respect of Previous Fin Periods.
1- 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.
1- 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
b. Treated as adjustment of partners equity at:beginning of current
fin. Year.
4. Financial Statements of Partnerships:
1- 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.
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1- 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'
2- St. of Ch. In Equity. :see example below
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(1) 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!
(3) HOW TO CALCULATE NEW PROFIT SHARING RATIOS.
(3) 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.
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(c)
(a)
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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.
(b)
(6) Admission with goodwill ,but without it being shown in the books:
(a) 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.
(b)
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(c) 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)
(d)
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(b)
(2) The Lives of the partners are insured at the time of the formation of the
partnership .
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(b)
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(c)
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(d)
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(e)
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i) Operating Activities
1- Ac118.16 (copy down AC118.6 here later)–All activities NOT under Investment or
Financing activities.,
2- This is the most important of generating activities.
3- All cash from calculating Net Profit of Entity.
4- Dividends paid& Interest Paid & Interest Received.
5- Cash from 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.
ii) Investment Activities: DEFINITIONS: (copy down ac118.6 here later)
1- Ac118.18- Non-Current Assets mainly :Any +/- of Long term assets / Investments NOT
included in Cash Equivalents.
2- 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 is :Operating Activities!!!!
iii) Financing Activities: DEFINITIONS: (copy down AC118.6 here later)
1- AC 118.19 -NON-CURRENT liabilities & Owners Equity. Cash in/out from.- ie:Debt&
Capital Funding 'buy back' and issue ;mortgage Bonds; & other short or non-current
liabilities TYPE OF DEBT;Repayments of borrowings liabilities,NOT: Repayment of
interest & dividends: NOT( those are under 'Operating Activities ')Cash inflow from
DEBENTURE issue;bonds etc.
2- Finance lease payments by lessee to reduce outstanding liability.
4. The Preparation of a Cash Flow Statement.
1- The heading of Cash Flow Stat. is :....FOR THE YEAR ENDED ...
2- As per AC118 – Format must follow a logical hierarchy-starting with sources of cash
flows and thereafter the priority claims aginst the cash flows,thereafter how cash
surplass has been dealt with.Also Ac118 prescribes operating-then-investment–then-
financing-activities as the Order.
3- The Following is Required to Prepare a Cash Flow Statement. :
a. Income Statement & Statement of Changes in Equity for current
year
b. Balance Sheet of Current & Previous Year
c. Additional Information
1- Amounts in brackets=ouflows of cash / no brackets = inflow of cash
2- Direct Method:/ Indirect Method:Direct method is encouraged by Saaica because it
provides Info useful to predict future cash flows ,which is not available in Indirect
method.Difference between: ONLY in 'Operating Income' section ,the rest is same for
both - Direct is –We refer to the actual accounts to get the totals for certain items,not
to the income statement., whereas for Indirect -the figures are taken from the Income
Statement ,not from individual accounts.
3- we must move to another account while in the middle of doing one type, between
accounts, in order to get certain totals needed.This is a characteristic of these
calculations.
4- 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 these type of calculations for cash flow.
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1-
2- Example of a CashFlow Statement:
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Example of 'Redraft' :
(a) Do additional t-accounts ;Inventory & Payables –to get totals for
the Redraft.
1- 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.
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