Financial Accoun ng N5

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Financial Accoun ng N5

This document includes important informa on about the revised curriculum for Financial Accoun ng N5, scheduled for implementa on in 2021. Contact jayshil.bhula@macmillaneduca on.co.za to request a sample copy of the TVET First approved textbook or visit our website at www.macmillaneduca on.co.za. For best results, use TVET First Financial Accoun ng N5!

Major changes from the previous curriculum:

• New content in the following: – Module 1: Value Added Tax (VAT) (all new content) – Module 2: Partnerships (new content for LO2.1, 2.2, 2.4, 2.5, 2.7.5, 2.8) – Module 3: Branches (new content for 3.3.5. 3.3.8, 3.4.6, 3.4.9) – Module 5: Incomplete records and other accoun ng issues (new content for 5.2) – Module 6: Financial analysis (new content for 6.5) • Content that is no longer included: – Branch accounts (decentralised system) – Profi t mark-up – Methods of stock-valua on: LIFO • Terminology changes: Many terms have changed since the implementa on of the previous curriculum in line with the IFRS. Some examples: – non-current assets (not fi xed assets) – inventory (not stock) – trading inventory (not trading stock) – rent income (not rent received) – rent expense (not rent paid) – commission income – commission expense – interest income – interest expense – trade receivable (not debtor) – trade payable (not creditor) – Trade Receivables Control (not Debtors Control) – Trade Payables Control (not Creditors Control) – Sales Journal (not Debtors Journal) – Sales Returns Journal (not Debtors Allowances Journal) – Purchases Journal (not Creditors Journal) – Purchases Returns Journal (not Creditors Allowances Journal)

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– Se lement discount granted and Se lement discount received (not discount allowed and discount received) – Credit losses (not bad debts) – Carriage on purchases (not carriage in) – Carriage on sales (not carriage out) – Income receivable (not accrued income) – Expenses payable (not accrued expenses) – Financial posi on sec on in the General Ledger or Trial Balance (not Balance sheet) – Statement of fi nancial posi on (not Balance sheet in the fi nancial statements)

Curriculum comparison table – 1995 vs 2021

1995 curriculum 2021 curriculum

Module 1: Partnerships – 4 weeks

1.1 Legal aspects 1.2 Ownership accounts of the partnership

1.3 Loan by partners 1.4 Appropria on of profi ts 1.4.1 Partner’s salary 1.4.2 Bonus of the managing partner 1.4.3 Interest on capital, current and drawings account

Module 2: Partnership – 4 weeks

2.1 Introduc on 2.2 Reasons for the forma on of partnerships 2.3 Legal aspects 2.4 Dissolu on of partnership 2.5 Recording of equity 2.6 Loan accounts 2.7 Appropria on of profi ts 2.7.1 Partner’s salary 2.7.2 Bonus of the managing partner 2.7.3 Interest on capital, current and drawings account

Module 1: Value Added Tax (VAT) – 1 week (NEW)

1.1.1 Explain the concept VAT 1.1.2 Diff eren ate the types of VAT 1.1.3 Prepare ledger accounts • VAT input • VAT output • VAT control 1.2 Summary – summarise the module

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1995 curriculum 2021 curriculum

1.4.4 Reserves and funds 1.4.5 Profi t and loss appropria on • According to a fi xed ra o • According to a capital ra o

1.5 Financial statements: 1.5.1 Income statement 1.5.2 Balance sheet

Module 2: Branch accounts – 3 weeks

2.1 Purpose of branches 2.2 System of internal control: • sales • purchases • bank account 2.3 Accoun ng records of a branch kept by head offi ce (centralised system): • goods issued to branches at cost • goods issued to branches at sales price

2.4 The branch keeps its own accoun ng records (decentralised system) 2.5 Items in transit 2.6 Transac ons between branches 2.7.4 General Reserves and funds 2.7.5 Profi t or loss appropria on • According to a fi xed ra o • According to a capital ra o • Equally 2.8 Annual fi nancial statements: 2.8.1 Statement of profi t or loss and other Comprehensive income 2.8.2 Statement of fi nancial posi on 2.8.3 Statement of changes in equity 2.9 Summary

Module 3: Branches – 3 weeks

3.1 Introduc on

3.2 Accoun ng records for dependant branches (centralised system)

3.3 Recording of transac ons where inventory sent to the branch is invoiced at cost price 3.3.1 Inventory sent to the branch by the head offi ce and purchases by the branch 3.3.2 Inventory returned to the head offi ce 3.3.3 Sale of inventory by the branch (cash and credit sales) 3.3.4 Expenditure paid by head offi ce on behalf of branch 3.3.5 Branch pe y cash account for small expenditure by the branch 3.3.6 Inventory mark-down 3.3.7 Inventory transac ons between branches 3.3.8 Branch expense 3.3.9 Inventory in transit

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1995 curriculum 2021 curriculum

Module 3: Insurance claims, stock es mates and profi t mark-up – 3 weeks

3.1 Stock valua on 3.1.1 Introduc on • Defi ning stock • The physical stock-taking • Aim • Physical coun ng • Stock lists 3.1.2 The valua on of stock within the framework of the system of historical cost • the importance of the valua on of stock • valua on against the cost or market price 3.3.10 Inventory on hand 3.3.11 Balancing of branch accounts 3.4 Recording of transac ons where inventory sent to the branch is invoiced at selling price 3.4.1 Calcula on of the profi t mark-up 3.4.2 Inventory sent to the branch by the head offi ce and purchases by the branch 3.4.3 Inventory returned to the head offi ce 3.4.4 Sale of inventory by the branch (cash and credit sales) 3.4.5 Expenditure paid by head offi ce on behalf of branch 3.4.6 Branch pe y cash account for small expenditure by the branch 3.4.7 Inventory mark-down 3.4.8 Inventory transac ons between branches 3.4.9 Branch expense 3.4.10 Inventory in transit 3.4.11 Inventory on hand 3.4.12 Inventory shortage or surplus at the branch 3.4.13 Balancing of branch accounts 3.5 Summary

Module 4: Inventory and insurance claims – 2 weeks

4.1 Inventory 4.1.1 Introduc on • Defi ning inventory • The physical inventory-taking • Aim • Physical coun ng • Inventory lists 4.1.2 The valua on of inventory within the framework of the system of historical cost • The importance of the valua on of inventory

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1995 curriculum 2021 curriculum

3.1.3 Methods of stock valua on • F.I.F.O. • L.I.F.O. • Average cost • Specifi c iden fi ca on 3.2 Insurance claims 3.2.1 Diff erent types of insurance: • Employers accountability • Public accountability insurance • Produc on accountability insurance • Motor car insurance • Fidelity guarantee insurance • Insurance of goods in transit • Insurance of cash and nego able documents • Fire insurance • Loss of stock insurance 3.2.2 Calcula on of the value of stock

3.2.3 Calcula on of stock a er sales prices variance 3.2.4 Claims as a result of fi re damage to stock

3.2.5 The average clause in a short-term insurance policy

3.3 Profi t mark-up 3.3.1 The concept profi t mark-up 3.3.2 Profi t mark-up on cost 3.3.3 Profi t calcula on on the sales price as basis 3.3.4 Calcula on of the discount on the market price of stock • Valua on against cost or market price 4.1.3 Methods of inventory card • F.I.F.O. • Weighted average cost price 4.1.4 Methods of inventory valua on • F.I.F.O. • Weighted average cost price • Specifi c iden fi ca on 4.1.5 Summary 4.2 Insurance claims 4.2.1 Diff erent types of insurance: • Employers accountability • Public accountability insurance • Produc on accountability insurance • Motor car insurance • Fidelity guarantee insurance • Insurance of inventory in transit • Insurance of cash and nego able documents • Fire insurance • Loss of inventory insurance 4.2.2 Calcula on of the value of inventory using Trading Account 4.2.3 Calcula on of inventory a er sales prices variance 4.2.4 Claims as a result of fi re damage to inventory 4.2.5 The average clause in a short-term insurance policy 4.2.6 Summary

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1995 curriculum 2021 curriculum

Module 4: Incomplete records, single entry and correc on of errors – 3 weeks

4.1 Incomplete records

4.2 Single-entry system 4.2.1 Procedure for the conversion of the singleentry system 4.2.2 Calcula on of the net profi t by means of the owner’s equity

4.2.3 Conversion of incomplete records to a system of double entry • determine the income and expenditure fi gures • the reconstruc on of the sales fi gure • the reconstruc on of the purchase fi gure • the cash receipts and payments 4.2.4 Incomplete keeping of records in respect of the periodic stock system

Module 5: Incomplete records and other accoun ng – 3 weeks

5.1 Incomplete records 5.1.1 Introduc on 5.1.2 Diff eren ate between single-entry system and double-entry system 5.1.3 Procedure for the conversion of the singleentry system 5.1.3.1 Calcula on of the net profi t by means of the statement of changes in equity and statement of fi nancial posi on together with the notes to statement of fi nancial posi on 5.1.4 Conversion of incomplete records to a double entry system: • the reconstruc on of the sales fi gure • the reconstruc on of the purchases • and other general ledger accounts

5.1.4.1 Incomplete keeping of records in respect of the periodic inventory system

5.2 OTHER ACCOUNTING ISSUES 5.2.1 Internal controls 5.2.2 Correc on of errors 5.5 Summary

Module 5: An analysis and interpreta on of fi nancial informa on – 2 weeks

5.1 Aim of fi nancial statements

5.2 Users of informa on contained in fi nancial statements

Module 6: Financial analysis – 2 weeks

6.1 Introduc on 6.2 The nature and scope of fi nancial statement analysis 6.3 The objec ves of fi nancial statement analysis 6.4 Users of fi nancial statements

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1995 curriculum 2021 curriculum

5.3 The use of ra os and percentages with analysis and interpreta on 5.3.1 Solvability ra o (degree of solvency) 5.3.2 Return ra o on own capital 5.3.3 Gross profi t percentage (net profi t on turnover) 5.3.4 Net profi t percentage (net profi t on turnover) 5.3.5 Stock turnover rate 5.3.6 Net profi t percentage (net profi t on turnover) 5.3.7 Turnover rate of debtors 5.3.8 Current ra o 5.3.9 Acid test ra o 5.3.10 Average se lement period to creditors 6.5 The use of fi nancial statement analysis: 6.5.1 Solvency analysis 6.5.1.1 Solvency ra o 6.5.1.2 Debt-equity ra o 6.5.2 Profi tability ra os 6.5.2.1 Rate of return on owner’s equity 6.5.2.2 Gross profi t percentage (on turnover) 6.5.2.3 Net profi t percentage (on turnover) 6.5.3 Liquidity ra os 6.5.3.1 Current ra o 6.5.3.2 Acid test ra o 6.5.3.3 Trade receivables collec on period 6.5.3.4 Trade payables se lement period 6.5.3.5 Inventory turnover rate 6.5.3.6 Trade receivables turnover rate 6.6 Summary

TVET First authors:

Carine Esterhuyse and Moira Richards