Grade 12 Accounting Test 1 and Memo:

This is for Accounting Grade 12 subject. The Grade 12 Accounting Test 1 and Memo study content will help you with your Accounting Subject Revisions, Tests, Exams, and Assignments.




(75 marks; 45 minutes)

GAAP Principles

Identifying Relevant GAAP Principles for Specific Scenarios

Given the list of GAAP principles below, match each principle to the scenarios described:

  • Business entity
  • Historical cost
  • Going concern
  • Matching
  • Prudence
  • Materiality

Scenario: Delayed Payment Recording
A client sends a proof of payment, but the payment is not recorded in the journals until it appears on the bank statement.

  • Relevant GAAP Principle: Prudence
  • Explanation: The principle of prudence states that accountants should not overestimate the amount of revenues and assets recognized, and they should only recognize revenues when they are certain. In this case, the payment is recorded only when it is confirmed by the bank statement to avoid any overstatement.

Scenario: Separate Recording of Interest and Bank Charges
Interest on overdraft and bank charges are recorded as two different accounts.

  • Relevant GAAP Principle: Materiality
  • Explanation: The principle of materiality indicates that significant items should be separately disclosed in the financial statements. Separating interest on overdraft and bank charges ensures that each significant financial item is clearly reported.

Scenario: Owner’s Personal Funds
The owner of the business inherits R80,000 and must decide whether to invest it in the business or use it for a holiday.

  • Relevant GAAP Principle: Business entity
  • Explanation: The business entity principle states that the personal transactions of the owner should be kept separate from those of the business. The inherited money is personal to the owner and should not be included in the business’s financial records unless it is actually invested.

Scenario: Valuation of Land and Buildings
Surveyors value the current building at amounts varying between R1,400,000 and R2,300,000, but the Balance Sheet reflects Land and Buildings at R730,000.

  • Relevant GAAP Principle: Historical cost
  • Explanation: The principle of historical cost states that assets should be recorded at their original purchase cost. The Balance Sheet reflects the original cost of the building (R730,000) rather than its current market value.


Understanding the Role and Importance of Independent Auditors

Role of the Independent Auditor
The role of the independent auditor is to examine the financial statements of an organization to ensure that they are accurate, complete, and in accordance with relevant accounting standards and regulations. This helps provide assurance to stakeholders that the financial statements present a true and fair view of the company’s financial position.

Interested Parties in the Audit Report
Creditors are interested in the audit report to assess the financial health of the company and determine its ability to repay debts. Regulatory authorities use the audit report to ensure that the company is complying with relevant laws and regulations and to maintain fair and transparent financial reporting in the market.

Importance of Professional Body Membership for Independent Auditors
Membership in a professional body like SAICA is important for independent auditors because it ensures that they adhere to high ethical and professional standards. This membership provides continuous professional development, resources, and support that help auditors maintain their competence and integrity in the profession.


Corona Wholesalers Ltd is a general dealer.  You are presented with their records on 29 February 2020, the end of their financial year.


1.3.1Prepare the Income Statement for the year ended                       29 February 2020.    (42)  
1.3.2Complete the following notes to the Balance Sheet on                 29 February 2020:   
 (Ordinary share capital  (10) 
 ()Retained income   (11) 


Balance sheet accounts 
Ordinary share capital (780 000 shares)4 212 000
Retained income872 000
Loan: Quarantine Bank1 450 000
Fixed deposit: Covid-19 Bank (interest rate: 14% p.a.)86 000
Debtors control87 930
Trading stock1 050 300
Bank42 550
SARS (Income tax) (Dr)176 000
Provision for bad debts3 600
Consumables on hand (Packing material – 1 March 2019)820
Nominal accounts 
Sales6 200 500
Cost of sales3 468 400
Debtors allowance17 200
Advertisements24 600
Audit fees188 410
Salaries and wages1 081 600
Rent income126 800
Directors fees950 900
Interest on fixed deposit9 030
Telephone36 700
Stationery14 700
Bad debts6 730
Packing material4 400
Ordinary share dividends340 000


A.Depreciation for the financial year is R74 200.  
B.V. Nodada, a debtor, returned stock worth R2 400.  The mark up percentage is 50% on cost.  This has not been recorded.  These items were placed back into stock.  
C.The bookkeeper did not do the reversal of packing material on hand on     1 March 2019.   
D.The physical stock taking also indicated the following on                      29 February 2020:
       Trading stock Packing material Stationery  R1 036 000 R          650 R       1 200  
E.N. Nkampinis’ debt of R680 was written off as bad debts in July 2019.  Nkampini paid his debt during February 2020, but this was incorrectly recorded as a credit on the bad debts account.  
F.Provision for bad debts should be adjusted to R4 250.  
G.The telephone account for February 2020 is still outstanding, R1 400.  
H.The interest on fixed deposit for the last quarter is still outstanding.  Interest is not capitalised.  
I.One of the three directors requested his fees for March 2020 be paid in February 2020 due to financial problems.   All three directors receive the same monthly salary.  
J.The loan statement received from Quarantine Bank reflects the following:   Balance 1 March 2019 R1 601 600 Repayments during the year (including interest) R   214 600 Interest capitalised   R         ? Balance 29 February 2020 R1 450 000    
K.Income tax is calculated at 30% of net profit  
L.During June 2019 the company issued 15 000 new shares at R9,50.  This transaction was correctly recorded.   On 26 January 2020 the company bought back 20 000 shares at R7,20.  This transaction was not recorded.  
M.On 29 February 2020 a final dividend of 60c per share was declared. Only shares in issue on 29 February 2020 qualifies for the final dividend.  


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