Grade 12 Accounting Test on Fixed Assets, Cash Flow Statement and Interpretation

Grade 12 Accounting Test on Fixed Assets, Cash Flow Statement and Interpretation with Answer Books, Worksheets, and Memos.

This is for Accounting Grade 12 subject. The Grade 12 Accounting Test on Fixed Assets, Cash Flow Statement and Interpretation study content will help you with your Accounting Subject Revisions, Tests, Exams, and Assignments.

Grade 12 Accounting: Fixed Assets, Cash Flow Statement, and Interpretation

Fixed Assets

Alright, let’s talk about fixed assets. These are the long-term tangible items a business owns and uses in its operations, like buildings, machinery, vehicles, and equipment. They’re different from current assets because they’re not expected to be converted into cash within a year.

When we account for fixed assets, we start with acquisition. This means recording the asset at its cost, which includes not just the purchase price but also any other costs directly related to getting the asset up and running. Think of delivery fees, installation costs, and any setup expenses.

Next up is depreciation. Since fixed assets provide benefits over several years, we need to spread out their cost over their useful lives. There are a couple of methods to do this:

• Straight-line method: Subtract any residual value (what you expect to get when you sell the asset at the end of its useful life) from the cost and then divide by the number of years you expect to use it.
• Reducing balance method: Apply a constant depreciation rate to the net book value of the asset each year.

Sometimes, you might need to revalue an asset if its market value increases significantly. This adjustment ensures that the carrying amount on the balance sheet reflects its fair value.

When it comes to disposal, you need to compare the sale price with the net book value of the asset to determine any gain or loss. This gain or loss is then recorded in the financial statements.

It’s crucial to have strong internal controls over fixed assets. Maintain a detailed fixed asset register, conduct regular physical verifications, and ensure proper authorization for the purchase and disposal of assets. Using asset tags or barcodes for easy tracking is also a good practice.

Cash Flow Statement

The cash flow statement is essential because it shows how cash moves in and out of the business over a period. This helps you understand the company’s liquidity, solvency, and financial flexibility.

The cash flow statement has three main components:

• Operating Activities: These are the cash flows from the primary revenue-generating activities of the business. They include cash receipts from sales and cash payments for expenses. When preparing this section using the indirect method, start with net profit and adjust for non-cash items like depreciation and changes in working capital.
• Investing Activities: These involve cash flows from the acquisition and disposal of long-term assets and investments. This includes purchasing machinery or selling a piece of equipment.
• Financing Activities: These are related to borrowing, repaying loans, and transactions with owners. This includes issuing shares, paying dividends, and repaying debt.

When interpreting the cash flow statement, you make key adjustments like adding back non-cash expenses (e.g., depreciation), adjusting for changes in working capital (e.g., inventory, receivables, payables), and considering gains or losses on the sale of assets.

Interpretation

Now, let’s dive into interpretation. This involves analyzing the financial statements to make informed decisions. Here are a few key ratios and what they tell you:

• Liquidity Ratios: These measure the ability to meet short-term obligations.
  • Current ratio: Current assets / Current liabilities
  • Quick ratio: (Current assets – Inventory) / Current liabilities
• Profitability Ratios: These assess the ability to generate profit.
  • Gross profit margin: Gross profit / Sales
  • Net profit margin: Net profit / Sales
  • Return on assets (ROA): Net profit / Total assets
• Efficiency Ratios: These evaluate how effectively resources are being used.
  • Inventory turnover: Cost of goods sold / Average inventory
  • Receivables turnover: Net credit sales / Average accounts receivable

Understanding these ratios and their implications can help you make better financial decisions and improve the overall performance of the business. Remember, each ratio provides a different perspective, and together they offer a comprehensive view of the company’s financial health.

Questions

The given information relates to Tyali Ltd. The company has an authorised share capital of 900 000 ordinary shares. The financial year ended on 29 February 2020.

• Prepare the Cash Flow Statement for the year ended 29 February 2020. (Where applicable show calculations / figures in brackets to earn part marks).
• Calculate the Debt-Equity ratio for 2020.
• The directors decided to increase the loan during the current financial year. Explain TWO financial indicators to indicate why this was a good decision.  Quote figures.
• The board of directors is of the opinion that the shareholders should be happy with their percentage return and the market price of their shares. Quote and explain TWO financial indicators with figures to support their opinion.

Downloadable Grade 12 Accounting Test on Fixed Assets, Cash Flow Statement and Interpretation

Answer Books, Worksheets, and Memos