Accounting Grade 12 Supplementary 2014 Memo (English)

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE GRADE 12 ACCOUNTING FEBRUARY/MARCH 2014 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 foreign item 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. 9. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect at least in part. 10. Codes: f=foreign item; p=placement/presentation. This memorandum consists of 18 pages. Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 2 DBE/Feb.–Mar. 2014 NSC – Memorandum QUESTION 1 1.1 CONCEPTS 1.1.1 Perpetual inventory system  1.1.2 VAT exempt  1.1.3 Zero rated VAT  6 1.2 INVENTORY VALUATION 1.2.1 Calculate the following on 31 May 2013: Weighted-average value per box   R875 900 / 23 050 = R38  Value of the closing stock   3 350 x R38 = R127 300  Number of washing powder boxes missing     23 050 – 3 350 – 18 800 = 900 12 1.2.2 Division of duties plays an important part in preventing this problem. Explain how Jakob should implement this in the business with regard to stock. Any valid answer  Expected responses: The person ordering should not be the person receiving the goods. The person paying the supplier should also agree to the quantities taken in stock. The person doing the physical count should not be the person ordering or controlling the stock (the count could be supervised by the internal auditor). Name ONE other strategy he could use and explain how he should implement this strategy. Any valid answer  Expected responses: Rotation of duties Control the processing of documents – order note must tally with invoices Physical security of stock 4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 3 DBE/Feb.–Mar. 2014 NSC – Memorandum 1.3 VAT 1.3.1 If VAT input is greater than VAT output, SARS for VAT will be shown in the financial statements as a Trade and Other (Payable/Receivable). Receivables  2 1.3.2 The credit sales for October 2013 amounted to R120 000 (excluding VAT). Calculate the amount of VAT on the credit sales. R120 000 x 14/100 = R16 800  2 1.3.3 The total of the debit notes issued to suppliers for merchandise returned to creditors indicates VAT of R1 120. Determine the VAT-exclusive amount that must be posted to the Trading Stock Account. R1 120 x 100/14 = R8 000  2 1.3.4 Calculate the VAT paid if the total cash purchases for October 2013 was R159 600 (including VAT). R159 600 x 14/114 = R19 600  2 TOTAL MARKS 30 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 4 DBE/Feb.–Mar. 2014 NSC – Memorandum QUESTION 2 2.1 BANK RECONCILIATION STATEMENT AND INTERNAL CONTROL 2.1.1 Identify the items and the amounts that must be entered in the Cash Receipts Journal (CRJ) and the Cash Payments Journal (CPJ) for August 2013. List only the item number and the amount. Do NOT give totals for each journal. Cash Receipts Journal Cash Payments Journal (CRJ) (CPJ) Item number Amount Item number Amount 3 R2 000 2 R21 500 6 R540 4 R620 7 R14 000 5 R8 000 10 8 R3 600 2.1.2 BANK RECONCILIATION STATEMENT ON 31 AUGUST 2013 Debit Credit Cr balance as per bank statement  42 000 Cr outstanding deposit  15 600 18 000 Cr amount wrongly debited 300 Dr outstanding cheques 2395 15 000 2418 8 450 2420 12 000 Dr balance as per bank account 40 450 13 75 900 75 900 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 5 DBE/Feb.–Mar. 2014 NSC – Memorandum 2.1.3 It is clear that the business is not controlling its cash properly. What specific problems will the internal auditor include in his report? Explain TWO of these problems, providing figures to support your explanation, and give a possible solution for each. Dismissal of employees is not an option at this stage. Explanation (with figures)  Possible solution   The physical security of Use cash in transit depositing cash, R21 500 was service/two people to do Problem 1 stolen. the depositing/ ask customers to use EFTs/change depositing routines Rolling of cash, deposits of Internal auditor must check R34 800 (July) and R33 600 that the cashier is Problem 2 (August) are several days old depositing cash and are still not deposited at the daily/appoint a different end of each month. person to do the depositing 6 2.2 DEBTORS' AGE ANALYSIS 2.2.1 The business is not controlling its debtors effectively. Give ONE reason why you would agree with this statement. Refer to figures in your answer. • Only 25% (R23 500) of the outstanding balance is within the 30 days credit terms.  2 2.2.2 Anna is of the opinion that her debtors' clerk is not screening (checking) the debtors properly before they start buying on credit from her business. Give TWO strategies that the debtors' clerk should follow before allowing customers to open accounts. Any two valid responses to explain screening   Expected responses: • New debtors must provide ID documents and proof of residence • New debtors must provide three credit references which the debtors clerk must check for good payment records • Debtors must provide proof of income e.g. salary slip 4 TOTAL MARKS 35 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 6 DBE/Feb.–Mar. 2014 NSC – Memorandum QUESTION 3 3.1 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2013 Sales (4 220 700 - 850) 4 219 850 Cost of sales (1 100 720 – 680) (1 100 040) Gross profit 7  3 119 810 12 860 Other income Profit on sale of asset 12 500 360 Provision for bad debts adjustment (3 450 – 3 090) Gross operating profit 3 3 132 670 (2 293 750) Operating expenses 31 000 Sundry expenses 6 000 Bank charges Audit fees 45 000 Directors fees (432 000 + 540 000) 972 000 Salaries and wages (940 000 + 9 000) 949 000 Employer’s contribution (103 400+ 90 + 900) 104 390 Rent expense (63 360 – 5 280) 58 080 Bad debts (2 790+ 540)  3 330 Depreciation (13 750 + 81 400 + 3 000 + 18 500) 116 650 Trading stock deficit (138 000– (82 000+ 47 700) 8 300 838 920 Operating profit 32 680 Interest income 839 600 Profit before interest expense Interest expense (39 600) 800 000 Net profit before tax Income tax for the year (240 000) 560 000 46 Net profit after tax 4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 7 DBE/Feb.–Mar. 2014 NSC – Memorandum 3.2 FIXED ASSETS NOTE ON 31 DECEMBER 2013 FIXED/TANGIBLE ASSETS VEHICLES Carrying value – 1 January 2013 309 100 Cost 489 500 Accumulated depreciation (180 400) Movements Additions at cost 0 Disposal at carrying value (35 750) Depreciation (95 150) Carrying value – 31 December 2013 178 200 Cost 407 000 Accumulated depreciation (228 800) 5 3.3 TRADE AND OTHER PAYABLES Creditors (43 400 - 680)  42 720 Shareholders for dividends 84 000 SARS: PAYE (14 100 + 1 600) 15 700 Creditors for salaries 6 680 UIF (1 300 + 90 + 90) 1 480 Pension fund (14 500 + 630 + 900) 16 030 Accrued expenses  540 000 SARS: Income tax (240 000 – 224 000) 16 000 722 610 24 TOTAL MARKS 75 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 8 DBE/Feb.–Mar. 2014 NSC – Memorandum QUESTION 4 4.1 4.1.1 True  4.1.2 True  4.1.3 True  4.1.4 False  8 4.2 4.2.1 CASH GENERATED FROM OPERATIONS 980 000 Net profit before tax Adjustment for: 36 000 Interest expense 200 000 Depreciation Operating profit before changes in working 1 216 000 capital  (111 300) Changes in working capital  (77 800) Change in inventories  48 500 Change in trade and other receivables  (82 000) Change in trade and other payables Cash generated from operations  1 104 700 8 4.2.2 Calculate: Taxation paid R294 000  – R8 900  – R12 400  = R272 700  4 Dividends paid R70 000  + (200 000 x 40/ 100 ) = R150 000  R80 000  4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 9 DBE/Feb.–Mar. 2014 NSC – Memorandum Fixed assets purchased R3 350 000  + R200 000  + R165 000  – R2 000 000  = R1 715 000  5 4.2.3 Calculate the following financial indicators on 30 June 2013: Solvency ratio (R3 350 000 + R458 400) : (R400 000 + R504 400) R3808400  : R904 400  = 4,2 : 1  5 Acid test ratio (R458 400 – R316 900) : R504 400  R141 500  = 0,3 : 1  4 Return on average capital employed (ROTCE; use net profit before tax in your calculation.) R980 000 + R36 000  x 100 = 37 %  ½ (R2 190 000 + R3 304 000) 1 5 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 10 DBE/Feb.–Mar. 2014 NSC – Memorandum 4.2.4 Calculate the minimum number of shares Gus must buy in July 2013 to gain control of the company. To control Gus must own at least : 50% x 450 000 = 225 000 + 1 = 225 001 shares OR 225 000 + 100 = 225 100 shares OR 51% x 450 000 = 229 500 shares Number of shares required 225 001  – 108 000  = 117 001 shares  225 100 – 108 000 = 117 100 shares 229 500 – 108 000 = 121 500 shares 4 Gus wants to purchase the additional shares at R8,00 without advertising the shares to the public. Give TWO reasons why you would not approve of this arrangement. Any TWO   • All shares must be advertised to the public as this is a public company and it is a requirement of the Companies Act. • He is only offering R8.00 while the market value is 1450 cents. • This is an example of insider trading and it is a criminal offence./Gus will be taking advantage of his position to enrich himself. • The value of R8.00 is below the net asset value of R12.10. 4 4.2.5 One of the directors feels that the company should also make use of loans in the new financial year. Quote TWO financial indicators (with figures) and explain each indicator to support her opinion. Financial indicator (with figures)   Explanation   ROTCE: • It has increased from 22% to 36,9% • Company is positively geared as the ROTCE (37%) is greater than the rate of borrowing (9%) Debt/equity ratio: • It has decreased from 0,3 : 1 to 0,1 : 1. • Company has a low financial risk – this favours additional borrowing (lowly geared) 4 4.2.6 The directors feel that the liquidity has deteriorated. Quote THREE financial indicators (with figures) to support this opinion. Financial indicator (with figures)    Explanation    The current ratio has decreased from 1,5 : 1 to 0,9 : 1. The acid-test ratio has decreased from 0,9 : 1 to 0,3 : 1. The stock turnover rate decreased from 15 times to 8 times. 6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 11 DBE/Feb.–Mar. 2014 NSC – Memorandum 4.3 AUDIT REPORT 4.3.1 Is the audit report presented by Tshabalala & Associates regarded as a qualified report, a disclaimer of opinion report or an unqualified report? Unqualified report  Give ONE reason.  any valid response e.g. The words “fairly present in all material respects” are used The auditor has not identified any problem in his report. 2 4.3.2 Explain why the Companies Act makes it a requirement for public companies to be audited by an independent auditor. Give ONE reason. Any ONE reason  o Unbiased view presented. o Separation between management and ownership – interest of shareholders are safeguarded. 2 4.3.3 To whom is this audit report addressed? Shareholders  Give ONE reason. They have appointed the external independent auditor at the annual general meeting. 2 4.3.4 Senzo Tshabalala, a senior partner in Tshabalala & Associates, wants to purchase shares in Bongi Limited, as he sees it as an excellent investment opportunity. What advice would you offer Senzo? Explain. Excellent answer  good answer  satisfactory answer  o Conflict of interest. o Senzo will not be regarded as an independent auditor as he will become a shareholder in the company. o The audit will have to be done by another auditing firm. 3 TOTAL MARKS 70 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 12 DBE/Feb.–Mar. 2014 NSC – Memorandum QUESTION 5 5.1 COST CONCEPTS 5.1.1 D  5.1.2 A  5.1.3 B 6 5.2 PRODUCTION COST STATEMENT 5.2.1 FACTORY OVERHEAD COSTS Factory maintenance 19 404 Depreciation 32 390 Factory foreman’s salary (9 500 x 13) 123 500  Factory indirect material 35 730  Water and electricity (137 000 x ¾) 102 750  Rent Expense (296 000 x 18/ 30 ) or 60% 177 600  Insurance (30 000 x 70%) 21 000  Factory cleaning staff (52 x 950 x 1.1) 54 340  566 714  12 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 13 DBE/Feb.–Mar. 2014 NSC – Memorandum 5.2.2 PRODUCTION COST STATEMENTFOR YEAR ENDED 30 JUNE 2013 Direct material cost (42 400 + 1 182 500 + 24 100 - 32 800 - 1 159 500  56 700) Direct labour cost [(6 400 x 12)  x 7 + 589 470  (130 x 57)  x 7] PRIME COST 1 748 970  Factory overhead cost 566 714  TOTAL MANUFACTURING COST 2 315 684  Work in process (1 July 2012) 43 300  2 358 984 Work in process (30 June 2013) (33 000)  COST OF PRODUCTION OF FINISHED  2 325 984 17 GOODS  5.3 UNIT COSTS AND BREAK-EVEN POINT 5.3.1 Calculate the following: Direct material cost per unit 756 000 ÷ 42 000 = R18,00  2 Factory overhead cost 42 000 x R9,00 = R378 000  2 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 14 DBE/Feb.–Mar. 2014 NSC – Memorandum 5.3.2 Give a possible reason for the change in unit costs in each of the following cases: Direct material cost per unit Less wastage / more efficient production methods / better trained employees / cheaper suppliers / bulk discounts. One valid point  Factory overhead cost per unit Economy of scale (more units produced)/ more efficient use of consumables or electricity One valid point  4 5.3.3 Calculate the break-even point for the year ended 31 August 2013. The break-even point for the previous year was 23 064 units. R567 000  . R60 – (R15,50 + R7,50 + R18,00)  R41  = 29 842,1 OR 29 842 OR 29 843 units  4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 15 DBE/Feb.–Mar. 2014 NSC – Memorandum 5.3.4 Explain whether the business should be satisfied with the level of production achieved. Mention the break-even point in your explanation. The business would be satisfied  because it produced 12 157 units more than the break-even point. (40.7%)  3 TOTAL MARKS 50 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 16 DBE/Feb.–Mar. 2014 NSC – Memorandum QUESTION 6 6.1 Complete the table by filling in only the amounts in the appropriate columns. EXAMPLE: The tenant will pay monthly rent of R6 000. Amount in the Amount in the Projected No. Cash Budget for May 2014 Income Statement for May 2014 RECEIPT PAYMENT INCOME EXPENSE e.g. R6 000 R6 000 6.1.1 1 800  1 800  6.1.2 7 800  52 000  52 000  30 000  6.1.3 or (22 000)  6.1.4 34 000  1 700  8 6.2 CASH BUDGET 6.2.1 Debtors' Collection Schedule FEE INCOME MONTHS APRIL 2014 MAY 2014 ON CREDIT March (actual) R140 000 84 000 April (budgeted) R200 000 68 600  120 000 May (budgeted) R280 000  96 040 CASH FROM DEBTORS 152 600  216 040 5 6.2.2 Calculate A–D: A 6 540 x 110/ 100 = 7 194  B 90 000 x 100/ 120 = 75 000  C 310 000 – 418 200 = (108 200)  D C + 280 000 = 171 800  6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 17 DBE/Feb.–Mar. 2014 NSC – Memorandum Calculate the amount of the loan on 1 April 2014. 4 400 x 100/ 11  x 12  = 480 000  3 Calculate the percentage increase in salaries on 1 May 2014. (50 220 – 46 500) / 46 500 x 100 = 8% 3 6.2.3 Explain what you would mention to Molly about each of the items listed below and give ONE point of advice in each case. FUEL (PETROL): COMMENT Over-budget / poor control of vehicles / possible  unforeseen increase in prices/wastage. ADVICE Such increases in fuel prices must be  anticipated and considered in budgeting / look at trends / wastage / monitor drivers by using logbooks and tracking devices for distances. COLLECTION FROM DEBTORS: COMMENT Under-budget / not well controlled / not  according to expectations of the collection policy. ADVICE Ensure debtors adhere to policy by notifying  them of outstanding balances / SMS / interest on overdue amounts / discount incentives / do not allow further credit to debtors who do not adhere to the required credit policy/increase the discount given from 2% to 5% ADVERTISING: COMMENT Well controlled / amount spent as per budgeted  amount. ADVICE Maintain the good budgeting ethics / but  consider the impact of advertising by increasing this expense as fee income does not meet the budget 6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 18 DBE/Feb.–Mar. 2014 NSC – Memorandum 6.3 INTERNAL CONTROL Identify a problem that Candice is faced with concerning each of her products. State a different problem for each product. You must quote figures to support your answer. Give a suitable solution to each problem identified. Product Problem (with figures) Solution Cash collected shows that Improve control measures cash has been stolen for cash collection.  Fruit juice [R29 610 – R28 800 = Cash register - only one R810]  person to handle cash Too many items of chips Order only flavours in (758) on hand/unsold. demand. Reduce selling price of Chips High comparative price items.  [R11] due to high mark-up used [75%].  A number of chocolates Stricter control over sales of have not been accounted. chocolates. Possibly stolen [35 units] or Consider the area where Chocolates they are being displayed. Too much of stock losses Suitable storage facilities [20 units] should be used for chocolates.  9 TOTAL MARKS 40 TOTAL: 300 Copyright reserved