Chapter 12: Companies - A New Type of Business

GRADE 11 — Companies, VAT & Cash Flow Chapter 12: Companies — A New Type of Business In Grade 10 we studied sole traders — one person owns the whole business. In Grade 11 we meet companies. A company is owned by shareholders who each own a piece (a share) of the company. Companies are registered with CIPC and are separate legal entities from their owners. Key Company Concepts Term Explanation Shares Units of ownership in a company. Each share = a small slice of the business. Shareholders People who own shares (they own the company). Dividends A portion of the company's profit paid out to shareholders. Like a reward for investing. Retained Income Profits that are kept inside the company instead of being paid as dividends. Directors People elected to manage the company on behalf of shareholders. Authorised Shares The maximum number of shares the company is allowed to issue. Issued Shares The number of shares that have actually been sold to shareholders. Share capital Total money raised by selling shares (Issued shares × issue price). The Equity Section for a Company Unlike a sole trader who just has 'Capital', a company's equity section looks like this: SHAREHOLDERS' EQUITY R Share Capital (1 000 000 shares × R1) R1 000 000 Retained Income (opening) R320 000 Add: Net profit after tax R180 000 Less: Dividends paid (R80 000) Retained Income (closing) R420 000 TOTAL EQUITY R1 420 000 Chapter 13: Value Added Tax (VAT) VAT is a tax added to the price of most goods and services in South Africa. The rate is 15%. Businesses collect VAT from customers and pay it over to SARS. They are essentially tax collectors for the government. Two Sides of VAT Output VAT = VAT you CHARGE your customers when you sell (money collected for SARS). Input VAT = VAT you PAY to your suppliers when you buy (you can claim this back from SARS). VAT Payable to SARS = Output VAT ? Input VAT Inclusive vs Exclusive VAT VAT Exclusive: Price does not include VAT. VAT = Price × 15%. VAT Inclusive: VAT is already inside the price. VAT = Price × 15/115 (or Price ÷ 1.15 × 0.15). Chapter 14: The Cash Flow Statement A business can be profitable on paper but still go bankrupt — if it runs out of cash. The Cash Flow Statement shows all actual cash moving in and out of the business during the year. It is divided into three sections: Section What It Shows Operating Activities Cash from the day-to-day running of the business (selling goods, paying suppliers, salaries). This is the most important section. Investing Activities Cash spent buying or received from selling long-term assets like machinery, vehicles, or buildings. Financing Activities Cash from borrowing money (loans), repaying loans, issuing shares, or paying dividends. Indirect Method — Reconciling Profit to Cash The most common way to present operating activities is the indirect method: start with net profit and adjust for non-cash items. CASH FLOW FROM OPERATING ACTIVITIES R Net Profit before tax R180 000 Add back: Depreciation (non-cash expense) R30 000 Changes in Working Capital: Decrease in Debtors (cash collected) R12 000 Increase in Stock (cash used to buy more stock) (R8 000) Increase in Creditors (suppliers waiting, saved cash) R5 000 Cash generated from operations R219 000 Less: Tax paid (R45 000) Net cash from operating activities R174 000