GRADE 12 - Analysis, Interpretation & Partnerships

GRADE 12 — Analysis, Interpretation & Partnerships Chapter 15: Partnerships A partnership is a business owned by two or more people (partners) who share the profits and losses. It sits between a sole trader and a company in terms of size and complexity. The Partnership Agreement Partners write a partnership agreement (also called a deed of partnership) that specifies: How profits and losses are shared (the profit-sharing ratio). What salary each partner earns from the business (partner's salary). Whether partners earn interest on their capital invested. Whether partners are charged interest on their drawings. What happens if a partner wants to leave. The Partnership Income Statement — Appropriation Section After calculating net profit, a partnership Income Statement has an extra section: the Appropriation Account. This shows how the profit is shared between the partners. APPROPRIATION OF PROFIT Partner A Partner B Net profit for the year Less: Salaries to partners (R84 000) (R72 000) Less: Interest on capital (10% p.a.) (R20 000) (R15 000) Add: Interest on drawings R3 000 R2 500 Remaining profit shared 3:2 R36 000 R24 000 Total share of profit R143 000 R113 500 Current Accounts and Capital Accounts Each partner has two ledger accounts in the books: Capital Account: Records permanent investment. It only changes if the partner invests more money or withdraws capital permanently. Current Account: Records the partner's share of profits, salary, interest on capital (credits) and drawings and interest on drawings (debits). Chapter 16: Financial Analysis — Ratios Numbers on their own don't tell you much. Is R50 000 profit good or bad? It depends on the size of the business! Ratios help us compare figures meaningfully — and track whether the business is improving over time. Profitability Ratios Ratio Formula What it tells you Gross Profit % Gross Profit ÷ Sales × 100 How much profit from buying & selling before expenses Net Profit % Net Profit ÷ Sales × 100 True profitability after ALL expenses Return on Equity (ROE) Net Profit ÷ Average Equity × 100 How well the owner's money is being used Return on Assets (ROA) Net Profit ÷ Average Total Assets How efficiently all assets generate profit × 100 Operating Expenses % Operating Expenses ÷ Sales × 100 What % of sales goes on running costs Liquidity Ratios — Can the Business Pay Its Bills? Ratio Formula What it tells you Current Ratio Current Assets ÷ Current Liabilities Ideal: 2:1. Can the business cover short-term debts? Acid Test Ratio Ideal: 1:1. Stricter test — excludes stock (hard to sell fast) (Current Assets ? Stock) ÷ Current Liabilities Solvency and Efficiency Ratios Ratio Formula What it tells you Debt:Equity Ratio Total Liabilities ÷ Total Equity How much debt vs. owner money funds the business Stock Turnover Cost of Sales ÷ Average Stock How many times stock is sold and replaced per year. Higher = better. Debtors Collection Period (Average Debtors ÷ Credit Sales) How many days on average to collect money × 365 from debtors Creditors Payment Period (Average Creditors ÷ Credit Purchases) × 365 How many days on average to pay creditors Chapter 17: Interpretation — What Do the Numbers Mean? Grade 12 is not just about calculating ratios — you need to interpret them, comment on them, and make recommendations. Examiners want you to think, not just calculate. How to Write a Good Comment Follow this 3-step structure for any ratio comment: State the ratio value and whether it improved or worsened compared to the previous year or the benchmark. Explain what this MEANS for the business in plain language. Make a RECOMMENDATION — what should the business do about it? Internal vs External Auditors Internal auditors work inside the company and check that systems and controls are working correctly — they report to management. External auditors are independent firms (not employed by the company) that audit the financial statements and give an opinion on whether they are true and fair. They report to shareholders. Chapter 18: Budgets and Projected Statements A budget is a financial plan for the future. It shows expected income and expenses for a coming period. Businesses compare actual results to the budget to see if they are on track. The Cash Budget The cash budget predicts the business's cash balance month by month. It helps spot when the business might run short of cash so it can plan ahead — for example, arrange a short-term loan before a cash shortage hits. January Opening cash balance February March R5 000 R3 200 (R1 800) Cash sales R18 000 R20 000 R22 000 Collections from debtors R5 000 R6 000 R7 000 Total Cash Available R28 000 R29 200 R27 200 Purchases (R12 000) (R14 000) (R15 000) Salaries (R8 000) (R8 000) (R8 000) Rent (R4 800) (R4 800) (R4 800) Closing cash balance R3 200 (R1 800) (R600) Cash Receipts Cash Payments Chapter 19: Internal Controls & Reconciliations To protect the business from fraud and errors, businesses put internal controls in place. These are rules and procedures that make it hard for money to go missing. Key Internal Controls Segregation of duties: No single person handles cash AND records transactions. Reconciliations: Regularly compare internal records to external statements (e.g. bank statement). Authorisation: Large payments must be approved by a manager. Safeguarding assets: Petty cash is locked up; assets are insured. Stock counts: Physical count of stock is compared to records regularly. The Bank Reconciliation The bank reconciliation is one of the most important internal controls. It compares the business's cashbook balance (its own records) with the bank statement balance (the bank's records). They are usually different due to timing differences and errors. Bank Reconciliation Statement R Balance per bank statement (closing) R12 450 Add: Outstanding deposits (in cashbook, not yet on statement) R3 200 Less: Outstanding cheques (issued but not yet presented to bank) (R1 750) = Balance per cashbook (adjusted) R13 900 Chapter 20: Ethics and Corporate Governance Grade 12 also expects you to understand the ethical side of accounting. Financial statements must be honest, accurate, and transparent. Manipulating figures or hiding information is illegal and unethical. The King Report (King IV) — South Africa's Governance Framework The King IV Report is South Africa's code of good corporate governance. It guides how companies should be run ethically and responsibly. Key principles include: Ethical leadership — directors must lead with integrity. Accountability — the board is responsible for the company's performance. Transparency — disclose all material information to shareholders. Inclusivity — consider all stakeholders: employees, community, environment.