Accounting Grade 12 Supplementary 2012 Memo (English)

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE GRADE 12 ACCOUNTING FEBRUARY/MARCH 2012 MEMORANDUM MARKS: 300 MARKING PRINCIPLES: 1. Penalties for foreign items are applied only if the candidate is not losing marks elsewhere in the question for that item (no penalty for misplaced item). No double penalty applied. 2. Full marks for correct answer. If answer incorrect, mark the workings provided. 3. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that figure (not the method mark for the answer). 4. Unless otherwise indicated, the positive or negative effect of any figure must be considered to award the mark. If no + or – sign or bracket is provided, assume that the figure is positive. 5. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates. 6. This memorandum is not for public distribution, as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions. 7. Where penalties are applied, the marks for that section of the question cannot be a final negative. 8. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer before awarding the mark. This memorandum consists of 16 pages. Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 2 DBE/Feb.–Mar. 2012 NSC – Memorandum QUESTION 1 1.1 Complete the statements by writing down the missing words or figures. (For QUESTIONS 1.1.3 and 1.1.4 choose from the words given in brackets.) 1.1.1 Value-added Tax 33 1.1.2 14 33 1.1.3 VAT Output 33 1.1.4 Credit 33 VAT Control 33 1.1.5 R3 668 33 1.1.6 R4 900 33 14 1.2.1 Calculate the value of the closing inventory according to the FIFO method on 31 December 2011. R130 000 + (80 x R530) + (80 x R30) 3 33 33 = R130 000 + R42 400 + R2 400 = R174 800 5 operation if one part correct OR 200 x 650 = 130 000 33 + 80 3 x 560 3 = 44 800 3 = 174 800 5 operation if one part correct 6 1.2.2 Calculate cost of sales. 1 199 000 two marks see 6.2.1 238 500 3 + 1 259 000 3 – 60 000 3 + 66 000 3 – 174 800 5 = 1 328 700 5 operation if one part correct Calculate gross profit. 2 043 000 3 – 1 328 700 5 see COS = 714 300 5 operation if one part correct 9 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 3 DBE/Feb.–Mar. 2012 NSC – Memorandum 1.2.3 Use the figures calculated above to calculate the mark-up % achieved. see 6.2.2 see COS 55 35 5 operation if one part correct 714 300/1 328 700 x 100 = 53,8% 5 1.2.4 Refer to the mark-up % calculated above. Comment on whether this mark-up % has been beneficial to Mzansi Traders in 2011. Note that in the previous financial year the gross profit was R400 000 and the mark-up % was 75%. Compare R400 000 to GP in 6.2.2 33 Compare 75% to MU % in 6.2.3 33 Comment: Good 2 marks; Satisfactory 1 mark Expected response: The decline in the MU % was beneficial 3 because it led to an increase in sales which led to an increase in gross profit 3. 6 TOTAL MARKS 40 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 4 DBE/Feb.–Mar. 2012 NSC – Answer Book QUESTION 2 2.1 Choose the correct answer and write only the letter (A–D) next to the question number (2.1.1–2.1.4). 2.1.1 C 33 2.1.2 B 33 2.1.3 A 33 2.1.4 D 33 8 2.2 Calculate the value of direct labour cost that would appear in the Production Cost Statement for the year ended 28 February 2011 Normal time = 65 000 x 5 = R325 000 99 Overtime = 180 x 70 x 5 = R63 000 99 R 388 000 ; operation if one part correct 5 2.3.1 Calculate the total production cost of finished goods. R403 000 3+ 388 0003 + (4 2003 x 53,503) = R1 015 700 5 operation if one part correct 5 2.3.2 Calculate the unit cost of production (per tracksuit). R1 015 700 5 / 4 200 3 = R241,83 5 operation if one part correct 3 2.4.1 Calculate the number of metres of raw material fabric that appear to be wasted during the production process. 16 120 99 – (3,6 9 x 4 200 9) = 1 000 metres 3; operation if one part correct 6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 5 DBE/Feb.–Mar. 2012 NSC – Answer Book 2.4.2 There has been no theft in this business. Give TWO examples of how the wastage could have occurred and in each case, advise Miriam on how to solve the problem. EXAMPLES 33 33 ADVICE 33 33 1. Unskilled employees ƒ Training of employees ƒ Better supervision during production 2. Poor quality of raw ƒ Change supplier materials Lack of efficiency ƒ Better supervision during production ƒ Improve control over allocation of raw materials 8 2.5.1 Refer to Information D. Calculate the break-even point for the 2011 financial year. 317 100 99 350 9 – 212,50 9 317 100 137,50 2 307 OR 2 306 OR 2 306,18 units 3; operation if one part correct 6 2.5.2 The break-even point for 2010 was 2 250 units. Should Miriam be satisfied or dissatisfied with the break-even point for 2011 calculated above? Briefly explain. Opinion 9 Explanation 339 Explanation for satisfied: The business has produced 4 200 units, while break-even is 2 307 units. Explanation for dissatisfied: The break-even of 2 307 units is higher than 2 250 in 2010. 4 TOTAL MARKS 45 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 6 DBE/Feb.–Mar. 2012 NSC – Answer Book QUESTION 3 3.1 Indicate whether the statements are TRUE or FALSE: 3.1.1 False 33 3.1.2 True 33 3.1.3 True 33 3.1.4 False 33 8 3.2.1 See next page. 3.2.2 NOTES TO FINANCIAL STATEMENTS Foreign items -1 (max. -2) FIXED ASSETS Vehicles Equipment Carrying value – beginning of year 5 312 000 5 245 000 Check operation, acc dep must be deducted Cost price 3 780 000 3 350 000 Accumulated depreciation (468 000) (105 000) Movements Additions 3 32 000 Disposals (31 December 2011) 5 (78 000) (180 000 3 – 102 000 3) operation if one part correct Depreciation 5 (150 000) 5 (39 150) (30 000 + 120 000) (36 750 + 2 400 ) operation if one part correct Carrying value – end of year 5 84 000 5 237 850 Check operation Cost price 3 600 000 3 382 000 Accumulated depreciation 3 (516 000) 3 (144 150) 16 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 7 DBE/Feb.–Mar. 2012 NSC – Answer Book 3.2.1 PRIME LTD INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2012 Foreign items -1 (max. -2) Presentation/Misplacement -1 each time Sales (2 900 000 – 18 500) operation if one part correct 35 2 881 500 Cost of sales 3 (1 650 000) Gross profit Check operation, COS must be deducted 5 1 231 500 Other operating income Check operation 5 239 500 Rent income (200 700 3 + 18 900 33) 5 219 600 operation if one part correct Bad debt recovered 3 1 900 Provision for bad debts adjustment 5 500 (3 200 3 – 3 700 3) operation if one part correct Profit on sale of asset (180 000 – 30 000 35 17 500 – 72 000 – 95 500 ) operation if one part correct Gross operating income 1 471 000 Operating expenses Check operation 5 1 026 950 Directors' fees 3 315 000 Audit fees 3 30 000 Salaries and wages (372 000 3 + 10 500 3 5 383 000 + 420 3 + 80 3) operation if one part correct Consumable stores 33 60 000 Bank charges (7 200 + 3 600) 33 10 800 Sundry expenses 3 30 000 Bad debts (1 500 + 1 000) 33 2 500 Trading stock deficit (325 000 – 318 500) 33 6 500 Depreciation (30 000 33 + 120 000 3 5 189 150 + 36 750 3+ 2 400 3) operation if one part correct Operating profit before interest 444 050 Interest expenses/Finance cost (126 000 3 + 4 400 33) 5 (130 400) operation if one part correct Profit before tax Check operation, interest must be deducted 5 313 650 Income tax Check operation, must be 30% of profit before tax 55 (94 095) Net profit after tax Check operation, tax must be deducted 5 219 555 3.2.2 See previous page. 46 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 8 DBE/Feb.–Mar. 2012 NSC – Answer Book 3.3.1 Explain what the role of the independent auditor is. The independent auditor expresses an opinion on the financial statements presented by the directors. 33 2 3.3.2 Name TWO persons other than the shareholders who would be interested in the audit report and provide a reason for their interest. Any TWO of the other stakeholders 9 3 Reason 99 33 Shareholders NOT acceptable in this answer ƒ Prospective shareholders – To see whether it would be viable to buy shares in this company ƒ Prospective investors (financial institutions) – To make investments ƒ Lenders – To see whether the company is solvent and as security for their loans ƒ Suppliers – To see if amounts owed can be paid ƒ SARS – To calculate the tax accurately ƒ Competitors – To compare results ƒ Trade unions – For wage negotiations/job security ƒ Board of directors/CFO – To assess performance ƒ Government – For statistical information ƒ Registrar of Companies – To comply with legislation 6 3.3.3 Explain why it is important for an independent auditor to belong to a professional body like SAICA. Any valid explanation 99 one mark for partially correct answer Expected response: ƒ Assurance of his knowledge of accounting and auditing principles and procedures (all technical aspects and legislation) ƒ Disciplinary procedures, should he be negligent in his duties (code of conduct/code of professional practice) ƒ Continuous professional training development ƒ Ensures standardisation of treatment of financial statements (IFRS, etc.) 2 TOTAL MARKS 80 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 9 DBE/Feb.–Mar. 2012 NSC – Answer Book QUESTION 4 4.1 APPROPRIATION ACCOUNT 2011 31 Income tax 3 3 916 550 2011 31 Profit & Loss 3 5 3 014 550 Dec. Dec. balancing figure Ordinary share 51 431 000 Retained income 3 3 528 000 dividends 3 (891 000 operation if one part correct 3 + 540 000 3) Retained income 3 3 1 195 000 3 542 550 5 Both totals 3 542 550 Foreign items -1 (max. -2) 13 4.2 Calculate only the missing figures indicated by (a) to (e) in the Cash Flow Statement of Ambrosio Ltd on 31 December 2011. (a) 1 431 000 5 + 486 000 3 – 540 000 3 = 1 377 000 5 operation if one part correct (b) 412 500 3 + 495 000 3 + 99 000 3– 429 000 3 = 577 500 5 operation if one part correct (c) 350 000 – 247 500 = 102 500 33 (d) 542 250 – 631 750 + 385 500 = 296 000 33 (e) 296 000 – 198 000 = 98 000 53 if R189 000 less than (d) 15 4.3.1 Calculate the % operating expenses on sales on 31 December 2011. 2 475 000 3 x 100 9 900 000 3 1 = 25% 5 operation if one part correct 3 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 10 DBE/Feb.–Mar. 2012 NSC – Answer Book 4.3.2 Calculate the solvency ratio on 31 December 2011. 8 031 000 3 : 1 358 000 33 = 5,9 : 1 5 operation if one part correct 4 4.3.3 Calculate the debt-equity ratio on 31 December 2011. 600 000 3 : 6 673 000 3 = 0,1 : 1 5 operation if one part correct 3 4.4 Comment on the operating efficiency of the company for the year ended 31 December 2011. Quote TWO financial indicators (actual ratios or percentages) relating to the Income Statement to support your comments. Name TWO relevant financial indicators 9 9 Quoting of figures 9 9 Naming the trends 9 9 Possible answers: ƒ Operating expenses on turnover increased from 18% to 25% indicating there was less control over expenses or more wastage. ƒ Operating profit on turnover decreased from 14% to 11,3% indicating a decline in the profitability of the business. ƒ Net profit after tax on sales decreased from 26,8% to 21,3% indicating lower overall profitability. 6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 11 DBE/Feb.–Mar. 2012 NSC – Answer Book 4.5 Would the shareholders be happy with the returns, earnings and dividends for the year ended 31 December 2011? Explain. Quote THREE financial indicators (actual ratios or percentages) or figures to support your comments. No/Yes (with relevant explanation) 3 Explanation 33 Explanation for No: These indicators represent a decline and shareholders would not be happy. They would be concerned that the dividends and earnings were decreased this year. Explanation for Yes: Although these indicators represent a decline, the ROSHE still exceeds the return on alternative investments and the EPS and DPS are both reasonable. Name THREE relevant financial indicators 9 9 9 Quoting of figures 9 9 9 Naming the trends 9 9 9 EPS decreased from 85 to 78 cents per share. DPS decreased from 60 to 53 cents per share. ROSHE decreased from 37% to 35,5%. 12 4.6 The CEO feels that it would be a good idea to increase the loans next year. Quote TWO financial indicators (actual ratios or percentages) to support his opinion. Valid explanation 9 9 Financial indicators 9 9 ƒ The interest rate is 14% p.a. and the return on capital employed was 44,2% in 2010, thus the returns are geared upwards (47%). ƒ Debt-equity ratio improved from 0,2 to 0,1 : 1. This is very favourable for banks to approve additional loans. 4 TOTAL MARKS 60 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 12 DBE/Feb.–Mar. 2012 NSC – Answer Book QUESTION 5 5.1.1 Calculate the figures indicated by A–E in the Cash Budget. A R95 000 9 B R50 000 5 if R45 000 less than A C (R162 000) 9 mark figure only, ignore brackets D R50 000 5 see B E (R112 000) 5 if C + D; mark figure only, ignore brackets 5 5.1.2 Calculate the entertainment expenses for January 2012. R10 000 x 15% = R1 500 R10 000 3+ R1 500 3 = R11 500 5 operation if one part correct 3 5.1.3 Calculate the % increase in the rent income for January 2012. 810 3 / 9 0009 x 100 = 9% ; operation if one part correct 3 5.1.4 Calculate the expected receipts from debtors for January 2012. R432 000/80% = R540 000 R540 000 33 x 20% = R108 000 33 x 95% = R102 600 3; operation if one part correct 6 5.1.5 Calculate the expected payments for the purchase of stock for February 2012. 360 0009/80%9 = 450 000 450 0009 x 100/1509 = 300 000; operation if one part correct 5 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 13 DBE/Feb.–Mar. 2012 NSC – Answer Book 5.1.6 State TWO points that should be included in the internal auditors' report to John Smith. Any TWO valid points 33 33 Possible responses: ƒ The holiday expenses for his family should be part of drawings and not shown as a business expense (business entity rule). ƒ It is unethical to use business funds for personal expenses. ƒ His drawings for December 2011 are already more than that of January 2012. ƒ He is not adhering to the budget (R25 000 over); this needs to be controlled. ƒ The family holiday should not be shown as a business expense as this has tax implications – tax evasion is illegal. 4 5.1.7 According to an article in the local newspaper, allegations are made that Feetfit Shoe Wholesalers are polluting the area by dumping their waste in a nearby field. Explain how the owner would react to this article. Any valid response 33 ƒ He would be concerned about the manner in which this report affects the reputation of the business (loss of goodwill). ƒ He should have the allegations investigated to know the true status of the report. If the allegations are true, how should the owner address the problem? Any valid response 33 ƒ If the waste does pollute the river, a proper waste-removal programme should be put in place or the current waste-removal programme should be updated to prevent future pollution. ƒ He should inform the community of the plans to address the pollution. ƒ If an employee is guilty of dumping the waste, disciplinary actions should be taken. This could affect the Cash Budget in several ways in future. Explain why the owner, John Smith, should be concerned about this. Any valid response 333 Good explanation = 3 marks; satisfactory = 2 marks; poor = 1 mark, invalid = 0 marks ƒ Any action taken could cost money and will have a negative impact on the Cash Budget. At the moment, expenses are more than income, but the waste problem cannot be ignored. ƒ If the cost is passed onto customers through higher prices, this will affect demand for their products. 7 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 14 DBE/Feb.–Mar. 2012 NSC – Answer Book 5.2 Apart from the differences in sales, identify ONE problem in relation to each branch. Quote figures to support the problem identified. In each case, offer Philip advice on how to solve the problem. COMMENTS AND BRANCH ADVICE FIGURES ƒ Alfred has 7 assistants, but ƒ He needs to increase his his sales (R270 000) are sales to justify the number lower than Temba of assistants he has/he (R360 000), who has 6 should retrench at least assistants (average per one of his employees. Alfred assistant for Alfred is Figures3 R38 571 compared to Comment 33 Temba R60 000 and Katy Advice 3 R42 500). ƒ Rent expense is double ƒ He should try to negotiate (R40 000) that of the other with the landlord for branches (R20 000) but his cheaper rent/consider sales of R270 000 are a lot moving to a smaller shop less than Temba R360 000. in order to reduce the rent. ƒ Temba has invested in an ƒ He needs to ensure that excessive amount of stock he purchases stock in on hand to last 120 days. smaller quantities in order This is significantly more to meet the needs of than that kept by Alfred (60 customers, yet economise days) and Katy (20 days). on stock levels. Temba ƒ Temba's shop is open ƒ Increase the business Figures3 fewer hours per day (8 hours per day and remain Comment 33 hours compared to 10) and open for 7 days a week. Advice 3 fewer days (5 days This might involve compared to 7). Sales allocating certain would be higher if open 7 employees to certain days. days per week. Do not accept high returns as a problem for Temba (only 10% returned). ƒ Returns are high (20% of ƒ Be more careful in selling sales) in relation to other correct items to branches (approximately customers. 10% of sales). ƒ Advertising (R5 000) low in ƒ Increase advertising to Katy comparison with other increase sales. Figures3 branches (R10 000). Comment 33 ƒ Stock is low (20 days), ƒ Increase stock levels. Advice 3 customers may go to other branches. ƒ Number of employees is ƒ Increase number of too low (4) which could employees, but ensure affect sales. that sales increase proportionately. 12 TOTAL MARKS 45 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 15 DBE/Feb.–Mar. 2012 NSC – Answer Book QUESTION 6 6.1 Explain why the Debtors' Control Account should correspond with the Debtors' List. The Debtors' Control Account is a summary of the individual debtors' accounts. 33 2 6.2 Explain TWO processes the bookkeeper should follow if he/she discovers a difference between the Debtors' Control Account and the Debtors' List from the Debtors' Ledger. TWO processes 33 33 Possible responses: ƒ Check the entries in the journals ƒ Check casting (totalling) of journals ƒ Control with actual source documents ƒ Check posting from journals 4 6.3.1 Calculate the correct closing balance of the Debtors' Control Account on 31 March 2011. 200 000 3 – 2 600 3+ 1 800 3 + 15 000 3 = 214 200 5 operation if one part correct 5 6.3.2 Calculate the correct amounts owing by the following debtors of Crystal Traders: WORKINGS ANSWER R Jansen R41 200 + 15 000 33 – 8 300 3 = R47 900 5 operation if one part correct S Wonder R23 000 + R1 800 3 – 2 700 33 = R22 100 5 operation if one part correct P Collins R7 900 + 12 000 33 + 8 300 3 = R28 200 5 operation if one part correct 12 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 16 DBE/Feb.–Mar. 2012 NSC – Memorandum 6.4.1 Is Crystal Traders controlling their debtors effectively? Explain, quoting figures to support your answer. No 3 Explanation 33 Their credit terms are 60 days and they are expecting 80% of debtors to adhere to these terms. However, they have outstanding debts of R143 100 which amounts to 71% of outstanding debts (i.e. only 29% are complying with the credit terms). 3 6.4.2 Explain TWO measures a business can introduce to improve the collection of funds from debtors. TWO measures 33 33 ƒ Proper screening of debtors, i.e. check credit references ƒ Offer discounts to debtors for paying within the 60-day period ƒ Charge interest on overdue accounts ƒ Follow up on outstanding debts with constant reminders or phone calls 4 TOTAL MARKS 30 TOTAL: 300 Copyright reserved