Accounting Grade 11 Step Ahead Solutions

Downloaded from hlayiso.com CURRICULUM GRADE 10 -12 DIRECTORATE STEP AHEAD SUPPORT DOCUMENT SOLUTIONS GRADE 11 ACCOUNTING 2021

Downloaded from hlayiso.com ACTIVITY A1 FINANCIAL LEDGER ACCOUNTS GENERAL LEDGER OF THEMBI STORES Final Accounts Section Dr TRADING ACCOUNT (F1) Cr 2020 2020 Feb 28 Cost of Sales * 407 250 Feb 28 Sales** 651 600 Profit & Loss a/c 244 350 651 600 651 600 *Cost of Sales **Sales: 411 250 + 247 750 - 6 400 = 651 600 = 246 750 x 100/60 = R411 250 (before adjustment (a)) Adjustment: 6 400 x 100/160 = R4 000 Corrected Cost of Sales = 411 250 - 4 000 = R407 250 Dr Profit and Loss account (F2) Cr 2020 2020 Feb 28 Salaries & wages 107 390 Feb 28 Trading account 244 350 Telephone 1 11 410 Rent income 6 74 800 Insurance 2 7 800 Discount Received 2 360

Downloaded from hlayiso.com Sundry expenses 37 910 Commission Income 12 890 Interest on fixed Bad debts 700 7 4 000 deposit Discount allowed 3 1 060 Depreciation 4 50 700 Interest on loan 5 32 200 Capital (Net profit) 96 830 346 000 346 000 (You may show calculations in brackets in the account, but space is limited; rather show it below the account. Label it clearly) ACTIVITY A2 (Partnership ledger) 2.1 Correct net profit: Net profit before adjustments 735 425 Provision for bad debts 2 600 Insurance ((8 100 ÷ 12) x 9) 6 075 Commission income (4 100) 740 000

Downloaded from hlayiso.com GENERAL LEDGER OF PRINCE TRADERS Dr Capital: William (B2) Cr 2020 2019 Feb 28 Balance c/d 740 000 Mar 1 Balance b/d 520 000 2020 Jan 31 220 000 Vehicles 740 000 740 000 2019 Mar 1 Balance b/d 740 000 Current account: William (B4) 2019 2020 Mar 1 Balance b/d 8 800 Feb 28 Interest on Capital  48 450 2020 (214 500/13 x 12) Feb 28 Drawings: William 214 500 Salary: William 198 000 (4 820 000 - Balance c/d 150 225 20 000)x1% Bonus: William 48 000 Appropriation 79 075 373 525 373 525 2020 Mar 1 Balance b/d 150 225  59 400 / 660 000 x 100 = 9%; (520 000 x 9% x 11/12) + (740 000 x 9% x 1/12) = 48 450

Downloaded from hlayiso.com Appropriation account (F3) 2020 (59 400 + 48 450) 2020 Feb 28 Interest on Capital 107 850 Feb 28 Profit and loss 740 000 198 000 + (2500 x12) 228 000 Salary: Harry Salary: William 198 000 Bonus William 48 000 Current a/c: Harry 79 075 ½ Current a/c: William 79 075 ½ 740 000 740 000 ACTIVITY B1 (FINANCIAL STATEMENTS) ROCKSTAR TRADERS STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2020 Sales [2 140 210 – (10 210 + 1 000)] 2 129 000 Cost of Sales [961 000 - 500] (960 500) Gross Profit 1 168 500 Other Operating Income 13 500 Rent Income [86 800 – 18 480] 68 320 Provision for bad debts adjustment 220 Bad debts recovered 460 Gross Operating Income 1 237 500

Downloaded from hlayiso.com Total Operating Expenses (226 100) Bank charges 8 200 Telephone [ 5 200 + 700] 5 900 Bad debts [3 300 + 300] 3 600 Pension fund contributions [4 100 + 3 100] 7 200 Salaries and wages [121 000 + 25 000] 146 000 Insurance [18 000– 2 800] 15 200 Packing material 20 000 Trading stock deficit [109 500+50–105 000] 5 000 Depreciation 15 000 Operating Profit 1 011 400 Interest Income 6 400 Profit before interest expense 1 017 800 Interest expense [15 400 + 1400 + 1 000] (17 800) Net profit for the year 1 000 000 ACTIVITY B 2 (Statement of Comprehensive Income, Notes) 2.1 JJ STORES STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2020 Sales 998 400 Cost of Sales (665 600) Gross Profit 332 800 Other Operating Income 155 850 Commission Income 47 725 Rent Income (117 250 - 9 625) 107 625 Provision for bad debts adjustment (3 936 - [68 750 x 5%]) 500 Gross Operating Income 488 650

Downloaded from hlayiso.com Total Operating Expenses (149 517) Salaries and wages 45 500 Depreciation 18 300 Sundry expenses 14 447 Packing material (23 100 + 3 600) 19 500 Water & Electricity (25 320 + 2 150) 27 470 Insurance (21 455 – 1 455 [5820 x 3/12]) 20 000 Trading stock deficit (134 840 – 130 540] 4 300 Operating Profit 339 133 Interest Income (8 100 + 2 700 [120 000 x 9% x 3/12]) 10 800 Profit before interest expense 349 943 Interest expense (374 600 - 86 400 - 327 000] (38 800) Net profit for the year 311 133 1 Dec '91 - 31 Mar '20: 4 months; Increase = 4 x 875 = R3 500 Old rent: 117 250 - 3 500 = 113 750; Old rent per month = 113 750 ÷ 13 = R8 750 New rent per month: 8 750+ 875 = R9 625 2.2 CAPITAL

Downloaded from hlayiso.com JOZI JAY TOTAL Balance -beginning of year 240 000 360 000 600 000 Additional capital 40 000 40 000 Decrease of capital (10 000) (10 000) Balance - end of year 280 000 350 000 630 000 8 CURRENT ACCOUNTS JOZI JAY TOTAL Profit per Statement of 176 323 134 810 311 133 Comprehensive Income Salaries 116 235 95 940 212 175 Interest on capital 21 600 28 200 49 800 Bonus (3% x sales) 29 952 29 952 Primary distribution 167 787 124 140 291 927 Share in remaining profit 8 536 10 670 19 206** Drawings (31 889) (62 503) (94 392) Retained income for the year 144 434 72 307 216 741 Balance- beginning of year 22 360 (10 100) 12 260 Balance - end of year 280 000 350 000 630 000 Salaries: Jozi = 113 400 + (3 x 945) Salaries: Jay= (7 800 x 12) + (3 x 780)

Downloaded from hlayiso.com Interest on Capital: Jozi = (240 000 x 8% x 3/12) + (280 000 x 8% x 9/12) Interest on Capital: Jay = (360 000 x 8% x 3/12) + (350 000 x 8% 9/12) **Remaining profit = 311 133 - 291927 = 19 206 Shared: 19 206 ÷ 9 (4:5) = 2 134 Jozi: 2134 x 4 = 8 536; Jay: 2134 x 5 = 10 670 Drawings: Jozi = 26 409 + (9590 x 100/175); Jay: 57 403 + 5 100 2.3 Provide TWO reasons to justify why she feels this way. In each case provide relevant figures to support your comments. • Drawings is too high (R62 503 compared to R31 889) • Poor management of current account as it shows a negative balance of R10 100 • Withdrew R10 000 capital Propose TWO practical suggestions that the partnership can use to address the concern expressed by Jozi • Create a business policy to limit drawings - set fixed amounts per month/year • Revise the partnership agreement to stipulate what/how much can be drawn from the business.

Downloaded from hlayiso.com ACTIVITY B3 Sales (1 737 750 – 3 500) 1 734 250 Cost of sales (993 000 – 2 000) or (1 734 250 x 100/175) (991 000) Gross profit 743 250 Other operating income 116 500 Rent Income (81 792 + 7 632) 89 424 Commission income 20 076 Discount received (6 850 + 150) 7 000 Gross operating income 859 750 Operating expense Adjusted sales x 24% (416 220) Depreciation 71 680 Salaries and wages 138 500 Consumable stores (11 900 – 2 900 ) 9 000 Bad debts (4 120 + 2 880 ) 7 000 Insurance (19 300 – 6 200) 13 100 Provision for bad debts adjustment (3 125 – 2 010) 1 115 Trading stock deficit 3 600 Sundry expenses 172 225 Operating profit 443 530 Interest income (9 000 + 2 250 )or (5 250 + 6 000) 11 250 Profit before interest expense 454 780 Interest expense (161 250 + 257 250 – 375 000) (43 500) Net profit for the YEAR 411 280

Downloaded from hlayiso.com Trade debtors (68 880 – 2 880– 3 500 ) 62 500 Provision for bad debts (5% of Trade debtors) (3 125) Net trade Debtors 59 375 Accrued Income (7 632 + 2 750) 10 382 Prepared Expense 6 200 75 957 ACTIVITY B4 (Statement of Financial Position & Notes) 4.1.1 CURRENT ACCOUNTS GOLD BROWN Profit per Statement of 237 200 162 800 Comprehensive Income Salaries (G: 11000 X 12) 132 000 108 000 Interest on capital 50 000 26 000 Bonus 12 000 Primary distribution 194 000 134 000 Final distribution of remaining profit 43 200* 28 800* Drawings (B: 10 000 + 4 600 [6900 x100/150]) (12 000) (14 600) Retained income for the year 225 200 148 200 Balance- beginning of year 33 000 (15 400) Balance - end of year 258 200 132 800

Downloaded from hlayiso.com Interest on Capital: Gold = 500 000 x 10% Brown = (220 000 x 10% x 6/12) + (300 000 x 10% x 6/12) Final distribution: (400 000 - (194 000 + 134 000) = 72 000; G: 72 000 x 3/5 = 43 200; B: 72 000 x 2/5 = 28 800 4.1.2 TRADE AND OTHER PAYABLES Trade Creditors 65 000 Accrued expenses 3 100 Income received in advance 8 250 Creditors for salaries 45 000 SARS: PAYE 22 500 143 850 4.2 GOLDEN BAKERY STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2019 ASSETS Non-current assets 1 530 000 Fixed/Tangible assets 1 380 000 Financial assets: Fixed deposit: Lama Bank (225 000- 75 000) 150 000 Current assets 312 560 Inventory (146 900 – 4 600 + 3 870) 146 170 86 390 Trade and other receivables (75 000 - 1 200 + 10 490+ 2 100) Cash and cash equivalents (3 500+ 1 500+ 75 000) 80 000 Total assets 1 842 560 EQUITY AND LIABILITIES Capital & Reserves / Owner’s equity 1 191 000 Capital (500 000 + 300 000) 800 000 Current accounts (258 200 + 132 800) 391 000

Downloaded from hlayiso.com Non-current liabilities 420 000 Loan: Mama Bank (480 000 – 60 000) 420 000 Current liabilities 135 000 Trade and other payables 143 850 Current portion of loan 60 000 Total equity and liabilities 1 842 560 ACTIVITY B5 (Financial Statements & Notes) 5.1.1 CAPITAL POLLARD JANTJIES Balance -beginning of year 350 000 450 000 Additional capital 250 000 Withdrawal of capital (50 000) (150 000) Balance - end of year 550 000 300 000 5.1.2 CURRENT ACCOUNTS POLLARD JANTJIES Net profit for the year 196 600 199 900 Salaries 120 000 144 000 Interest on capital 52 000 49 500 Bonus 15 000 Primary distribution 187 000 193 500 Share in remaining profit 9 600 6 400 Drawings (72 000) (96 000) Retained income for the year 124 600 103 900 Balance- beginning of year 22 500 (57 600) Balance - end of year 147 100 46 300

Downloaded from hlayiso.com 4.1.3 TRADE AND OTHER PAYABLES Trade Creditors 62 750 Accrued expenses 12 700 Income received in advance 4 600 Creditors for salaries 8 200 SARS: PAYE (13 500 + 2 720) 16 220 UIF (120 + 120) 240 Pension Fund (1440 + 960 [1440 x 100/150]) 2 400 107 110 5.2 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 EQUITY AND LIABILITIES Owner’s equity 1 043 400 Capital (550 000 + 300 000) 850 000 Current accounts (147 100 + 46 300) 193 400 Non-current liabilities 342 000 Loan: SB Bank (402 500 + 47 500 – 108 000) 342 000 Current liabilities 281 710 Trade and other payables 107 110 Bank overdraft (16 600 +50 000) 66 600 Current portion of loan 108 000 TOTAL EQUITY AND LIABILITIES 1 667 110

Downloaded from hlayiso.com Activity B6: PARTNERSHIPS 6.1 CONCEPTS 6.1.1 Income statement 6.1.2 Income received in advance 6.1.3 Balance sheet 6.1.4 Cash and cash equivalents 6.2.1 CURRENT ACCOUNT NOTE OF PARTNERS NTUBENI KOLISI Partners’ salaries 300 000 240 000 240 000 + 60 000 or 25 000 x 12 Interest on capital 27 000 + 24 000 42 000 51 000 Partners’ bonuses 24 000 Primary distribution 342 000 315 000 Final distribution 46 500 46 500 Net profit for the year 388 500 361 500 Drawings (345 000) (375 000) Retained income 43 500 (13 500) Balance at the beginning (30 000) 10 500 Balance at the end 13 500 (3 000) (342 000+315 000) Final distribution: 750 000 – 657 000 = 93 000 ÷ 2 = 46 500

Downloaded from hlayiso.com 6.2.2 BALANCE SHEET ON 30 SEPTEMBER 2020 EQUITY AND LIABILITIES Owners’ equity 810 500 Capital (350 000 + 450 000 ) 800 000 Current Account (13 500 – 3 000) 10 500 5 Non-current liabilities 198 000 Loan balancing figure: (TE&L – E- CL) 198 000 Current liabilities 161 500 Trade and other payables (60 500 +8 000 +7 500) 76 000 Current portion of loan 50 000 12 Bank overdraft 35 500 TOTAL EQUITY AND LIABILITIES 1 170 000 *one part correct 17 ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS ACTIVITY C1 1.1 Solvency ratio 1.2 % Mark-up OR % Gross profit on cost of sales 1.3 Return on equity (% Net profit of average Equity) 1.4 % Operating expenses on net profit 1.5 Acid test ratio (alternative method to calculate this ratio)

Downloaded from hlayiso.com Activity C2 1.Gross Profit on Sales: :Gross profit/Sales x 100/1 = 270 000/990 000 x 100/1 = 27.27% The actual gross profit on sales is 27.27% which is lower than the expected gross profit on sales (33.33%). Reasons for not achieving should be investigated. The difference can be ascribed to: • Too liberal a policy of granting trade discounts. • Poorly controlled seasonal / clearance sales where goods are sold at reduced prices. • Incorrect pricing • Petty thieving and shoplifting • Damaged/ shop soiled goods sold at reduced prices. 2. Gross Profit on Cost of Sales: Gross profit on cost of sales = 270 000/720 000 x 100/1 = 37.50% Expected gross profit on cost is 50% while the firm has achieved a 37.5% mark-up on cost. Difference is too large and should be investigated. 3 Net Profit on Sales: . Net profit on sales: Net profit/Sales x 100/1 = 75 000/990 000 x 100/1 = 7.76% This calculation does not truly indicate operating efficiency but for all intents and purposes it can deduced that of all revenue generated through sales, only 7.76% is available for distribution to the partners. Decreased from 2019 (7.76% as opposed to 8.9%). A decrease in expenses or increase in the mark-up will yield better results. 4. Operating expenses on sales: Operating expenses/Sales x 100/1 = 49 000/990 000 x 100/1

Downloaded from hlayiso.com = 4.95% Indicates that 95.05% of all income is absorbed in expenses. Phenomenally large, especially when considering that it has deteriorated in 2020 (4.95% as opposed to 13%). Investigate the increased cost of acquiring goods and services. 5. Operating Profit on Sales: Operating profits on sales: Operating profit/Sales x 100/1 = 221 000/990 000 x 100/1 = 22.32% Operating expenses accounts for 22.32% of all revenue derived from sales. Increased in 2020 (22.32% as opposed to 18%). Management should set up proper internal control procedures to monitor expenses 5. Operating Expenses on Sales: . Operating expenses on sales: Operating expenses/Sales x 100/1 = 49 000/990 000 x 100/1 = 4.95% Indicates that 95.05% of all income is absorbed in expenses. Phenomenally large, especially when considering that it has deteriorated in 2020 (4.95% as opposed to 13%). Investigate the increased cost of acquiring goods and services. 5. Solvency Ratio: Solvency Ratio = Total assets : Total liabilities = 629 000 : (200 000 + 120 040) = 629 000 : 340 040 =1.85: 1 Decreased in 2020 (1.85: 1 as opposed to 2.13: 1). For every R1 of outside funding, the firm has R1.85 of its own funds. The firm is technically solvent and will be able to sustain itself in the long term.

Downloaded from hlayiso.com 5. Current Ratio: Current Ratio = Current assets : Current liabilities = 175 000 : 120 040 = 1.46: 1 Deteriorated in 2020 (1.46 : 1 as opposed to 2.06 : 1). For every R1 owing, the firm has R1.46 available. The liquidity position is unsatisfactory because the firm will not have enough liquid funds to meet its commitments in the short term if debtors do not pay timeously or if stock does not sell fast enough. Activity C3 3.1.1 Current Ratio: Current assets: Current liabilities 440 000: 160 000 2.75: 1 3.1.2 Acid Test Ratio [Current assets – Inventories]: Current liabilities [440 000 – 171 800]: 160 000 268 200: 160 000 1.68: 1 3.1.3 Comment on the current Ratio. The current Ratio for 2019 was 2:1 • The current ratio has increased from2 : 1 [2019] to 2.75 : 1 [2020] • The current ratio [2.75: 1] indicates that the business can easily pay off its current debts Comment on the Acid Test Ratio. The Acid Test Ratio for 2019 was 0.3:1 • The acid test has increased from 0.3 : 1 [2019] to 1.68: 1 [2020] • The acid test ratio [1.68: 1] indicates that the business can easily pay off its current debts

Downloaded from hlayiso.com ACTIVITY C4 4.1.1 Stock turnover rate 1 440 000 ½ (27 700 + 35 670) 45,44 times 4.1.2 Stock holding period 31 685 X 365 1 440 000 1 8 days 4.1.3 Debtors collection period 55 200 X 365 604 800 1 33 days ACTIVITY C5 5.1.1 • Percentage net profit on sales 420 000 X 100 2400 000 1 17,5% • Current Ratio 380 000 : 200 000 1,9 :1 • Debt Equity Ratio 300 000 : 1 440 000

Downloaded from hlayiso.com 0,2 : 1 • Return on Partners’ Equity 420 000 X 100 ½( 990 000 + 1 440 000) 1 34, 6% 5.1.2 200 000 X 0,7= 140 000 (1,9 - 1,2) =0,7 5.1.3 • Acid test ratio improved by 0,4: 1 • Stock turnover rate improved 1,5 times • Stock holding period decreased by 42 days • Debtors collection period decreased by 15 days ACTIVITY C6 6.1.1 Acid test ratio (65 000 – 28 000) : 47 000 0,8 : 1 6.1.2 Debt equity ratio 260 000 : 335 000 0,8 : 1 6.1.3 Return on partners’ equity 83 450 X 100 ½ ( 179 000 + 156 000) 1 50%

Downloaded from hlayiso.com 6.2 Current ratio decreased by 0,29 Acid test ratio decreased by 0,38 6.3 Yes, Return on partners’ equity increased from 25% to 50% by 25% 6.4 No, It is not a wise decision Debt equity ratio is 0,8 : 1, the firm is highly geared or in high financial risk. No further loans should be taken . ACTIVITY C7 7.1.1 Acid test ratio 378 200 - 176 000: 180 000 202 200: 180 000 1.1: 1 7.1.2 Gross profit on cost of sales 1 236 000 X 100 2 060 000 1 = 60% 7.1.3 Debt/equity ratio 220 000: 988 200 0, 2: 1 7.2 Should the partners be satisfied with the control over operating expenses No

Downloaded from hlayiso.com The Operating expenses on sales increased from 18% (2019) to 21% (2020) The net profit on sales decreases from 19,2% (2019) to 16,1% (2020) 7.3 Explaining of the Liquidity position of the business General comment: Liquidity position of the business is satisfactory – the business will be able to pay its current liabilities in the next financial year. Current ratio: improved from 1,9: 1 (2019) to 21: 1(2020) Acid test ratio improved 0,9 : 1 to 1,1 : 1 Stock turnover rate improved from 10 times to 12 times, stock is selling faster 7.4 Explanation to justify why the partners took an additional loan. Debt equity ratio improved from 0, 3: 1 (2019) to 0, 2: 1 (2020) - indicate low financial risk – easy to obtains loans. ACTIVITY C8 Calculate the acid test ratio for 2020 8.1 Workings Answer 240 000 + 30 000) : 380 000 0,7:1 8.2 Comment on the liquidity of the partnership. Recommend THREE ways in which the liquidity of the partnership can be improved.

Downloaded from hlayiso.com • Current ratio decreased from 5:1 to 4:1 and acid test ratio increased from 0,5:1 to 0,7:1 • Business is too liquid at present, as it has too much trading stock on hand which is not earning any return • Recommendations: mark prices down; lower the % mark-up; offer incentives to increase sales. • Although the debtors’ collection period decreased from 100 to 90 days, it is still too long. Creditors are paid promptly within 30 days - this may cause cash flow problems. • Recommendations: sent regular statements to debtors; offer settlement discounts to encourage debtors to pay within 30 days; set credit limits; charge interest on overdue accounts • Negotiate extended (longer) credit terms with creditors to increase the credit payment period to 60 days or longer. 8.3 If you were partner Tim, would you be satisfied with your return earned over the past two years? Motivate your answer. NO Although his return has increased by 2% (from 6% to 8%), this return is less than the return Tim could have earned on alternative investments, e.g. risk free fixed deposits or money-market accounts. 8.4 On which areas of the Statement of Comprehensive Income should the owners concentrate in order to improve the profitability of the business? List TWO points and motivate your answer. • Mark-up % - the business achieved (40%) 10% less than their targeted mark-up (50%) • Operating expenses - it has increased by 14% (18% - 32%) which is more than the average inflation rate (about 5%) Operating profit on sales and net profit on sales - decreased by 4% and 3% respectively. Partnership needs to increase sales to improve profitability. 8.5 The partners are considering the expansion of the operations of the business. In order to do this, they are considering taking out a large loan at an interest rate of 13% or admitting a new partner into the business. Which of these two methods of financing do you advise for this business. Explain in detail. • ROTCE (28%) is higher than the interest rate on loan (13%) Positive gearing of 15% • Debt/Equity ratio shows moderate financial risk at 0,5:1 • Partners should take out a loan to take advantage of the positive gearing effect and in this way gear up the returns with a moderate increase in risk. ROTCE = Return on total capital employed ACTIVITY C9

Downloaded from hlayiso.com 9.1.1 Calculate the solvency ratio for 2018 4 052 000 : 1 320 000 3,1:1 9.1.2 Comment on this ratio. Is this business likely to experience a solvency problem? Briefly explain Opinion: No Explanation: Any ONE relevant aspect • They have R3,10 assets to cover every R1 liabilities • Assets are significantly more than liabilities 9.2 Calculate the Debt equity ratio for 2018 1 000 000 : 2 732 000 0,37: 1/ 0,4:1 9.2.1 Thando is not happy with the debt/equity ratio and feels that it is negatively affecting the performance of the business. State TWO points (financial indicators) to support his opinion • Interest on the loan (14%) exceeds return on total capital employed (10,1%) – returns are negatively affected by the loan. • The debt/equity ratio has increased from 0,26:1 to 0,37:1. The degree of risk is increasing. • High interest charges – the loan has increased to R1m and the interest rate of 14% is higher than the ROTCE of 10,1% The only reason that the Debt/Equity ratio is still reasonable at 0,37 : 1 is that Thando has invested extra capital of R800 000 into the business. 9.3.1 Calculate Thando’s % return on average equity 127 000 x 100 1 365 000 1 9,3%

Downloaded from hlayiso.com 9.3.2 Thando is of the opinion that his return is unsatisfactory and that Tammy is taking advantage of her senior position in the partnership. State TWO points to support Thando’s opinion. • Thando's return decreased from 17,3% to 9.3% - it is less than the return of 10,1% for the partnership • Tammy’s return decreased from 16,6% to 14,7%, but is still higher than the partnership’s return • Tammy has withdrawn R400 000 capital, while Thando has contributed an extra R800 000 – this is affecting their returns Tammy has a large unfavourable balance on her current account, while Thando has not drawn all the profits he is entitled to as reflected by his favourable current account balance of R90 000 9.4. Average debtors collection period for 2018 320 000 x 365 1 240 000 1 94 days 9.4.1 Customers are complaining that the business seldom stocks the products they would like to buy. Explain, stating TWO points. Quote figures and financial indicators to support the customers' complaints • Sales have declined from R4,2m to R3,1m • Trading stock on hand has declined from R440 000 to R180 000 • Stock turnover rate shows stock is being replaced 5,9 times p.a. (lower than 7 times) 9.5. State TWO points to support Tammy’s opinion and TWO points to support Thando's opinion. Tammy • Current ratio has decreased from 3,0:1 to 2,6:1 but current assets (CA) is significantly more than current liabilities (CL) (more than double as much). • Acid-test ratio has increased from 1,2:1 to 2,1:1. This indicates that Debtors and Cash are more than double the CL

Downloaded from hlayiso.com Thando • Debtors are taking too long to pay (54 days increased to 94 days) • Creditors are being paid too early (25 days decreased to 23 days) • Sales has decreased from R4,2m to R3,1m • Loans are now R1m which will mean more interest to pay and larger loan repayments - it will impact negatively on cash flow in the business. BUDGETING ACTIVITY D1 DEBTORS’ COLLECTION SCHEDULE – PHINDILE TRADERS Debtors collection Month Credit sales Term July August September May 24 000 × 40% July 9 600 June 29 000 × 60% July 17 400 × 40% Aug 11 600 July 28 000 × 60% Aug 16 800 × 40% Sept 11 200 Aug 30 000 × 60% Sept 18 000 Expected receipts 27 000 24 800 29 200 CASH BUDGET OF PHINDILE TRADERS – 01JULY 2019 – 30 SEPTEMBER 2019 RECEIPTS July August September Cash sales 34 000 37 000 40 000 Receipts from debtors 27 000 24 800 29 200 Rent income 5 000 5 500 5 500 66 000 67 300 74 700 PAYMENTS

Downloaded from hlayiso.com Cash purchases 11 000 10 000 14 000 Creditors 26 000 25 000 28 000 Wages 10 000 11 000 11 000 Expenses 17 000 19 000 19 000 Equipment 6 000 64 000 71 000 72 000 Cash surplus /Deficit 2 000 (3 700) 2 700 Bank opening balance 28 000 30 000 26 300 Bank closing balance 30 000 26 300 29 000 Receipts less Payments = Surplus /Deficit 66 000 – 64 000 = 2 000 ACTIVITY D2 DEBTORS’ COLLECTION SCHEDULE – MADUNA TRADERS Credit sales Debtors collection January February November 45 000 x 15% 6 750 December [48 000 x 50%] [48 000 x 15%] 24 000 7 200 January [60 000 x 30%] [60 000 x 50%] 18 000 30 000 February [54 000 x 30%] 16 200 Expected receipts 48 750 53 400 CASH BUDGET OF MADUNA TRADERS – 01January - 28 February 2019 RECEIPTS January February

Downloaded from hlayiso.com Cash sales 40 000 36 000 Receipts from debtors 48 750 53 400 Rent income 2 500 X (115 ÷ 100) 2 500 2 875 Fixed Deposit 24 000 Interest on fixed deposit (24 000 x 8% ) ÷ 12 160 Equipment 3 000 TOTAL RECEIPTS 118 410 92 275 PAYMENTS Cash purchases of stock 20 000 17 000 Payments to creditors 21 850 28 500 Salaries [J,4 000 x 3] [F,5 000 x 2] 12 000 10 000 Loan : Future Bank [36 000 x 50%] 18 000 Equipment 4 000 Other expenses 18 400 19 000 Interest on loan 420 210 TOTAL PAYMENTS 90 670 78 710 Cash Surplus (Shortfall) 27 740 13 565 Bank –Opening balance (6 200) 21 540 Bank –Closing balance 21 540 35 105 Workings Payment to creditors January: 23 000 x (100% -5%) 23 000 x 95% = 21 850 February: 30 000 x 95% = 28 500 Interest on loan January :( 36 000 x 14%) ÷12 = 420 February :( 18 000 x 14%) ÷12 = 210 ACTIVITY D3 3.1

Downloaded from hlayiso.com Amount in the Cash Budget Amount in the Projected Income No. for June 2019 Statement for June 2019 RECEIPT PAYMENT INCOME EXPENSE Example R2 130 R2 130 3.1.1 35 200 35 200 22 000 3.1.2 1 420 3.1.3 62 200 2 150 3.1.4 8 460 460 3.2.1 DEBTORS COLLECTION SCHEDULE MONTHS CREDIT SALES OCTOBER NOVEMBER September 142 500 78 375 October 176 400 68 796 97 020 November 174 800 68 172 147 171 165 192 3.2.2 COMMENT ADVICE One valid point each for One relevant advice Underspent or over budgeted Important to maintain vehicle regularly to Maintenance of Not well controlled. Not improve performance and productivity. Do not vehicles making compromise on this. adequate use of money allocated. Collection from Poor collection policy Revise collection policy or be more vigilant in debtors / over-budgeted implementing the policy. Offer incentives for Estimates may be unrealistic. early payments or penalties for late payments. Send reminders to debtors.

Downloaded from hlayiso.com Telephone Overspent or under-budgeted. Investigate usage – may be wastage or Poor control over telephone use. valid use. Monitor calls – set rules for private use. Anticipate extra usage or price increases of tariffs. October 2019 November 2019 CASH RECEIPTS Collection from debtors 147 171 165 192 Fee income for services rendered 62 000 65 400 Rent income 8 200 8 938 Commission income 4 650 4 905 Fixed deposit - 10 000 Interest on fixed deposit 375 300 TOTAL RECEIPTS CASH PAYMENTS 222 396 254 735 Fuel and oil 32 600 37 490 Maintenance of vehicles 24 500 24 500 Salaries 25 500 27 030 Drawings 500 500 Telephone 2 300 2 300 Sundry expenses 3 120 3 198 Interest on loan 2 750 2 750 Purchase of additional vehicle - 29 440 (25 600 + 3 840) 131 126 SUPLUS/SHORTFALL 127 527 Opening Balance 22 104 153 230 Balance at the end of the month 20 153 230 280 757 ACTIVITY D4 BUDGETING 4.1.1 Why is it necessary to prepare a cash budget?

Downloaded from hlayiso.com It is a financial plan indicating projected receipts and payments to ensure that there is sufficient cash to meet payments 4.1.2 Why does depreciation and profit on sale of asset not appear in the Cash Budget? They are non-cash items. 4.1.3 Name TWO items other than depreciation and profit or loss on sale of asset which will appear in the Projected Income Statement but will not be included in the Cash Budget. Cost of sales, Discount received, Discount allowed, Trading Stock deficit, Bad debts. 4.1.4 Debtors’ Collection Schedule for February 2019. CREDIT SALES PER MONTH JANUARY FEBRUARY November 57 000 8 550 December (57 500 X 15%) 57 500 17 250 8 625 January (56 000 X 30%) 56 000 26 600 16 800 February (54 600 X 50%) – 5% 54 600 - 25 935 TOTAL RECEIVED 52 400 51 360 4.1.5 CASH BUDGET OF VARIA TRADERS FOR JANUARY AND FEBRUARY 2019

Downloaded from hlayiso.com CASH RECEIPTS JANUARY FEBRUARY Cash sales (54 600 x75/25) 168 000 163 800 Cash received from Debtors 52 400 51 360 Rent income (Jan: # 27500 – 12 000) 15 500 # 27 500 Fixed deposit 123 600 Interest on bank account (42 000 x 6% / 12) (see Opening balance) 210 TOTAL RECEIPTS 235 900 366 470 CASH PAYMENTS Payments to creditors 70 000 81 000 Sundry expenses 17 700 18 400 New assets purchased 25 315 Salaries and wages 61 600 + ½ (30 800) 61 600 77 000 Interest on bank account (19 000 x 18% / 12) 285 TOTAL PAYMENTS 174 900 176 400 CASH SURPLUS (SHORTFALL) 61 000 190 070 Bank (opening balance) (19 000) 42 000 Bank (closing balance) 42 000 232 070 ACTIVITY D5

Downloaded from hlayiso.com BUDGETS 5.1 DEBTORS COLLECTION SCHEDULE CREDIT SALES NOV August R280 000 0 September R324 000 162 000 October R360 000 x 26% 93 600 A November R456 000 x 15% x 98% 67 032 B Total 322 632 5.2 MADE IN LB DESIGNERS PROJECTED INCOME STATEMENT FOR NOV 2016 NOV Sales (304 000 + 456 000) 760 000 C Cost of Sales (475 000) D GROSS PROFIT 285 000 E OTHER OPERATING INCOME 8 960 Rent Income 8 960 GROSS OPERATING INCOME 293 960 OPERATING EXPENSES (164 000) Salaries and wages 96 000 Advertising 25 000 Sundry expenses 10 000 Bad debts 9% X R324 000 29 160 F Discount allowed 2% x R68 400 1 368 G Depreciation 2 100 Trading stock deficit 372 OPERATING PROFIT 129 960 Interest expense (7 200) NET PROFIT 122 760

Downloaded from hlayiso.com 5.3 MADE IN PZM DESIGNERS CASH BUDGET FOR THE 3 MONTHS ENDING 31 NOVEMBER 2018 CASH RECEIPTS SEPT OCT NOV Cash sales 216 000 240 000 304 000 H Cash from debtors 111 628 139 320 332 632 I Rent Income 8 000 X 1.12 8 000 8 000 8 960 J Loan from Fundbank 0 180 000 0 Total receipts 335 628 567 320 645 592 K CASH PAYMENTS Cash purchases 108 000 120 000 114 000 Cash paid to creditors 210 000 252 000 280 000 Interest on the loan 4 500 4 500 7 200 L Salaries and wages 120 000 144 000 96 000 M 120 000 x 1.2 Advertising 15 000 45 000 25 000 Sundry expenses 10 000 10 000 10 000 N Total payments 467 500 575 500 532 200 Surplus / Deficit (131 872) (8 180) 113 392 O Opening bank balance 24 000 (107 872) (116 052) P Closing bank balance (107 872) (116 052) (2 660) Q

Downloaded from hlayiso.com 5.4 Discuss 2 ways, (other than increasing the loan), which indicates that the owners have taken the recession into account in the drawing up of the Cash Budget. Support your answers by quoting relevant figures. The business increased the advertising in October from R15 000 to R45 000 in order to encourage customers to buy – this could include incentives. Increases in Cash Sales. More monies received from debtors – better internal control measures were put in place.. The business is obviously looking to cut back on wages and salaries – either through retrenchments or by working short time. ACTIVITY D6 6.1 Explain the difference between a Projected Income Statement and a Cash Budget. • Cash Budget is used to look at predicted inflows and outflows of cash in order to predict the bank balances during each month of the budget period. • A Projected Income Statement looks at the expected incomes and expenses during the budgeted period in order to show the predicted monthly net profit. 6.2.1 Debtors Collection Schedule Credit Sales Sept October November July 2020 R 83 300 4 165 August 2020 R 88 900 62 230 4 445 September 2020 R 92 400 17 556 64 680 4 620 October 2020 R 95 200 18 088 66 640 November 2020 R 98 000 18 620 83 951 87 213 89 880

Downloaded from hlayiso.com 6.2.2 Projected Income Statement Sept October November Sales 132 000 136 000 140 000 Cost of Sales (82 500) (85 000) (87 500) Gross Profit 49 500 51 000 52 500 Other Operating Income 6 200 7 200 7 200 Commission Income 1 400 1 400 1 400 Rent Income 4 800 5 800 5 800 Gross Operating Income 55 700 58 200 59 700 Operating Expenses (42 315) (42 595) (50 174) Advertising 2 500 2 500 2 500 Salaries and Wages 21 600 21 600 28 800 Bad Debts 4 165 4 445 4 620 Depreciation 4 050 3 850 3 850 Sundry Expenses 10 000 10 200 10 404 Operating Profit 13 385 15 605 9 526 Interest Expense (on Loan) (1 600) (1 600) (2 000) Net Profit for the month 11 785 14 005 7 526 INVENTORY VALUATION

Downloaded from hlayiso.com ACTIVITY E 1 TRADING ACCOUNT Cost of Sales(175 000- June 30 174 500 June 30 Sales(350 000-1000) 349 000 500) Profit and loss 174 500 349 000 349 000 ACTIVITY E2 2.1 CONCEPTS Match the concept in Column A with the correct description in column B NO. ANSWER 2.1 C 2.2 D 2.3 E 2.4 B 2.5 A 2.2 CONCEPTS State whether the following statement are true or false. NO. ANSWER 2.1. True 2.2. False ….purchases 2.3. True 2.4. True ACTIVITY E3

Downloaded from hlayiso.com Use the table provided to record the following transactions. NOTE: The bank balance is favourable at all times. Example: purchase merchandise on credit form a supplier. Perpetual system Periodic system No Journal Account debited Account credited Account Account credited debited e.g. CJ Trading stock Creditors control Purchases Creditors control 3.1 CPJ Trading stock Bank Purchases Bank 3.2 CAJ Creditor control Trading stock Creditors control Creditors allowances 3.3 GJ Drawings Trading stock Drawings Purchases 3.4 GJ Donations Stationery Donations stationery 3.5 CRJ Bank Sales Bank Sales Cost of sales Trading stock _______ _______ 3.6 CPJ Trading stock Bank Carriage on Bank purchases 3.7 DJ Debtors control Sales Debtors control Sales Cost of sale Trading stock _________ _________ 3.8 DAJ Debtors allowances Debtors control Debtors Debtors control journal Cost of sale allowances ____________ Trading stock _____ ACTIVITY E4 INVENTORY SYSTEMS 4.1 Calculate the value of items purchased for the year ended 30 June 2020. 773 225 – 3 000– 800 – 1 400 = 768 025 4.2 Trading Account

Downloaded from hlayiso.com ACTIVITY E5 2019 2019 Sales 1 Opening Stock 28 575 30 1 232 960 July June (1 237 160 – 4 200) 2020 768 025 30 Purchases Closing Stock 31 650 June Carriage on Purchases 12 400 Profit and Loss 455 610 1 264 610 1 264 610 5.1 Calculate the number of face shield missing 890 + 1500 – 13 -2175 -190 = 30 face shields 5.2.1 Perpetual inventory system 5.2.2 Expense 5.2.4 Periodic Inventory System 5.2.5 Asset 5.3. Explain 3 differences between perpetual and periodic stock system Perpetual Inventory System Periodic Inventory systems • Stock purchases recorded in trading stock • Stock purchases recorded in purchases account account (asset) • Expenses incurred in purchasing of goods (eg • Expenses incurred in purchasing of goods (eg carriage on purchases) are charged to the carriage on purchases) are recorded in carriage on trading stock account purchases account(expense) • Returns and allowances on stock purchased • Returns and allowances on stock purchased recorded in Trading stock account recorded in purchases account • Donations and stock taken by the owner are • Donations and stock taken by the owner are credited to the Trading stock account credited to the Purchases account • Balance of trading stock shows value of stock on • Physical stock take (periodically) determines stock hand on hand • Cost of sales is calculated on a continuous basis, • There is no cost of sales account a calculation therefor cost of sales account will show the total required to determine cost of sales. cost price of goods sold 5.4 5.4.1 Calculate cost of sales on 30 June 2020.

Downloaded from hlayiso.com 19 200 + 756 000 + 74 600 – 336 000 = 514 800 5.4.2 Calculate the average stock turnover rate 514 800 / (19 200+336 000) ½ = 3 times (2,9 times) 5.4.3 • Provide a calculation to verify her suspicion. 160 + 6300 – 32 00 – 2800 = 460 units stolen • Count stock regularly/randomly and chech against stock records • Buy in smaller quantities but more regularly • Restrict access to the storeroom • Improve physical security e.g. controls at entrance DO NOT accept security cameras - it was given. ACTIVITY E6 Identify ONE problem in each tuck shop, and provide ONE solution or advice in each case. In each case relevant figures must be quoted. PROBLEM IDENTIFIED WITH FIGURES ADVICE OR SOLUTION SHOP A High stock(300 opening and 200 closing) Monitor sales and stock accordingly They still received 400 units although they had Stock control should be done daily. stock on hand Control where stock is displayed. Could be within reach of children SHOP B Juice cash deposited is Short by R500 Do daily conciliations with managers. (till control) Monitor sales to order appropriately Chips too much unsold stock compared to opening balance (150 opening and 330 closing) ACTIVITY F7 INVENTORY SYSTEMS, ETHICS, INTERNAL CONTROL AND INTEPRETATION 7.1 Gross profit =60 000-30 000=30 000 Mark –up %= 30 000/30 000×100/1=100% 7.2 Cost of sale =45 000 Credit sale =45 000×200/100=R 90 000 7.3 - This is a serious matter need to be investigated immediately. -Need to find a person who is responsible or authorizing these donation and to whom these donations are being made. 7.4 a) Debit trading stock deficit, credit trading stock b) 64 300-58 300=R 6000 record this amount as an operating expenses. R58 300 that will show in that balance sheet for trading stock. c) The trading stock account may have to be re checked. It could happened that stock was marked incorrectly or the stock count is incorrect.

Downloaded from hlayiso.com Could be a leakages- shoplifting by employees. d) Yes –stock may be purchased but not recorded in the trading stock account Error in the stock taking procedure could also result in surplus 7.5 The business not only loses the cost price of the goods withdrawn but also the profit that would have been made had the goods been sold. 7.6 • Sale could have been lower in this month that previous month. • Turnover in the previous month may have been high resulting in a low opening balance ACTIVITY E8 NQUBUKA LTD Calculations, interpretation 8.1 a. average stock =106 200+69 000/2 =87 600 Stock turnover rate=700 800/87 600 =8 times b. stock period =87 600/700 800×365/1 =46 days 8.2 Meaning • Stock turnover rate indicate how many times the stock is being sold. • Number of days for which enough stock is on hand show how long it takes a business, on average, to sell its stock. . Recommendation • Stock turnover decrease by 2 in 2020 ,reason increasing competition from other stores etc. • Promote sales by advertising and offering incentives such discount. • Number of days decrease by 14days. This may be the existing clothing store where change of fashion can result in existing stock becoming obsolete or outdate. ACTIVITY E9 9.1 EXPLAIN ONE DIFFERENCE BETWEEN THE PERPETUAL STOCK SYSTEM AND THE PERIODIC STOCK SYSTEM PERPETUAL STOCK SYSTEM PERIODIC STOCK SYSTEM Cost of sales calculated at point of sale Cost of sales calculated at end of financial period Stock value can be determined/ identified at any time Stock value determined/identified by stock count (from records) Purchases account used Cost of sales account used Stock bought regarded as an expense Stock bought regarded as an asset 1. Provide ONE advantage and ONE disadvantage of each stock system. ADVANTAGE DISADVANTAGE

Downloaded from hlayiso.com Better control of stock – physical Computer system is the most efficient means PERPETUAL count will detect any losses. Theft to operate this system – expensive. INVENTORY SYSTEM can be detected and internal Manual would take much time and will result controls can be improved in many errors. PERIODIC INVENTORY Cheaper system to maintain. Theft will not be detected easily – less SYSTEM Suitable for a business with a control. Will require more security measures. variety of goods and services Final stock figure is only determined by where it is difficult to determine counting the goods. the cost price 2. Analysis of transactions: NO ACCOUNT DEBITED ACCOUNT CREDITED ASSET EQUITY LIABILITY (ii) Carriage on purchases Bank - 92 200 - 92 200 (iii) Creditors control Creditors allowances + 45 300 - 45 300 3. COST OF SALES 134 600 + 622 400 + 92 200 – 45 300 – 5 500 – 3 750 – 98 350 = 696 300 PROBLEM SOLVING PROBLEM (WITH FIGURES) SUGGESTIONS QUEENS Missing units of stock (50 – 35) = 15 units Need more effective stock control Check BRANCH stock against records Set up security Low advertising – 0,7% of sales Budget more for advertising and assess if it is increasing sales COFIMVABA Low sales volume 40/160 units Pay the salesperson a commission to BRANCH improve sales Holding too much stock 120 units Transfer stock to Tsolo branch. High advertising R6 720, not yielding results (15% of sales) Monitor advertising to ensure that there is no abuse – extend the market High salary for sales person R7 500 TSOLO No stock to meet demand (would run out) – nil Monitor deposits, request notification from BRANCH (85 – 85) bank, division of duties, change managers, transfer more stock to this branch Deposit of sales money is short by R13 440

Downloaded from hlayiso.com ACTIVITY E10: PERIODIC STOCK AND PROBLEM-SOLVING LEDGER OF APLHA STATIONERY SHOP TRADING ACCOUNT 2021 2021 1 532 900 28 Opening stock 245 000 28 Sales Feb Feb Purchases (960 000– 26 000 978 500 Closing stock 302 000 – 6 300 +54 000 +Carriage 4 800 ) on purchases 39 800 (35 000 + 4 800 ) Customs duty 21 600 Profit and Loss 550 000 (Gross profit) 1 834 900 Details –1; 1 834 900 COST ACCOUNTING ACTIVITY F1 ACTIVITY F1 - CONCEPTS 1.1.1 Fixed Cost 1.1.2 Indirect material cost 1.1.3 Selling and distribution cost 1.1.4 Variable cost 1.1.5 Administration cost ACTIVITY F2 - CONCEPTS 2.1.1 False 2.1.2 True 2.1.3 True ACTIVITY F3 - CONCEPTS

Downloaded from hlayiso.com 3.1.1 C 3.1.2 A 3.1.3 D ACTIVITY F4 - CONCEPTS 4.1.1 C 4.1.2 D 4.1.3 E 4.1.4 A 4.1.5 B ACTIVITY F5 – LEDGER ACCOUNTS 5.1.1 RAW MATERIALS STOCK ACCOUNT 2020 1 Balance b/d 80 000 2021 28 Raw materials issued 155 500 Mar Feb 2021 28 Bank (120 000+10 500) 130 500 Balance c/d 55 000 Feb 210 500 210 500 2021 1 Balance b/d 55 000 Mar 5.1.2 WORK-IN-PROGRESS STOCK ACCOUNT 2020 1 Balance 25 000 2021 28 Finished goods stock 1 032 150 Mar Feb 2021 28 Direct labour cost 550 000 Balance 40 000 Feb Direct materials cost 155 500 Factory overhead cost 341 650 1 072 150 1 072 150 2021 1 Balance 40 000 Mar 5.1.3

Downloaded from hlayiso.com FACTORY OVERHEAD COST ACCOUNT 2021 28 Water and electricity 18 000 2021 28 Work-in-progress stock 341 650 Feb (27 000 x 2/3) Feb Rent (39 600 x 2/3) 46 400 Indirect materials 18 900 (7 500 +22 300 + 700 – 5 300)x ¾ Factory foreman’s 120 000 salary Cleaner’s wages 28 350 (37 800 x 75%) Sundry expenses 110 000 341 650 341 650 ACTIVITY F6 – LEDGER ACCOUNTS 6.1.1 WORK-IN-PROGRESS STOCK ACCOUNT 2020 1 Balance b/d 33 150 2021 28 Finished goods stock 1 206 350 Mar. Feb 2021 28 Direct material cost 512 000 Balance c/d 38 300 Feb (516 000 + 16 000 – 20 000) Direct labour cost 519 650 Factory overhead cost 179 850 1 244 650 1 244 650 2021 1 Balance b/d 38 300 Mar 6.1.2 FINISHED GOODS STOCK ACCOUNT 2020 1 Balance b/d 15 250 2021 28 Cost of sales 1 187 500 Mar Feb (1 800 000 +100 000) + 1,6 2021 28 Work-in-progress 1 206 350 Balance c/d 34 100 Feb 1 221 600 1 221 600 2021 1 Balance b/d 34 100 Mar 6.1.3

Downloaded from hlayiso.com FACTORY OVERHEAD COST ACCOUNT 2021 28 Indirect labour 89 410 2021 28 Work-in-progress 179 850 Feb (24 350 +65 060) Feb Indirect material cost 22 410 (3 480 + 21 560 – 2 630) Rent expense 25 480 (39 200 x 65/100) Insurance (8 700 x2/3) 5 800 Water and electricity 11 000 (16 500 x 4/6) Sundry expenses 25 750 179 850 179 850 ACTIVITY F7 – LEDGER ACCOUNTS 7.1.1 Calculate the following for the financial year: Direct material cost 23 400 + 342 600 – 15 700 + 155 000 + 19 400 – 38 700 = 486 000 Direct labour cost 4 x 1 440 x R35 201 600 Contributions (201 600 x 10%) 20 160 Overtime 33 600 TOTAL 255 360 7.1.2

Downloaded from hlayiso.com WORK-IN-PROGRESS STOCK ACCOUNT 2020 1 Balance b/d 45 300 2021 28 Finished goods stock 1 000 000 Mar. Feb 2021 28 Direct material cost 486 000 Balance c/d 60 000 Feb Direct labour cost 255 360 Factory overhead cost 273 340 1 060 000 1 060 000 2021 1 Balance b/d 60 000 Mar. 7.1.3 FINISHED GOODS STOCK ACCOUNT 2020 1 Balance b/d 27 000 2021 28 Cost of sales 1 005 000 Mar Feb 2021 28 Work-in-progress 1 000 000 Balance c/d 22 000 Feb 1 027 000 1 027 000 2021 1 Balance 22 000 Mar 7.1.3 The owner is concerned about the control of workers in production. Provide TWO points that justify his concern. Quote relevant figures. Point 1: Figures Normal hours worked is below the contracted They should be working 1 800 hours. hours (40 x 45) but only 1 440 hours are worked (80%). Point 2: Figures Overtime hours are relatively high. 640/1 440 (44,4%) 640/1 800 (35,5%) ACTIVITY F8 – LEDGER ACCOUNTS

Downloaded from hlayiso.com 8.1 Calculate the following for the financial year: 8.1.1 Direct material cost 120 300 + 578 880 +868 320 + 25 000 – 185 660 = 1 406 840 8.1.2 Direct labour cost 12 000 x 42 = 504 000 2 000 x 84 = 168 000 504 000 + 168 000 = 672 000 x 9/10 = 604 800 8.1.3 Factory Overhead cost 67 200 + 140 000 + 61 280 + 210 000 + 25 400 + 132 500 = 636 380 8.2 WORK-IN-PROGRESS STOCK ACCOUNT 2020 1 Balance b/d 82 416 2021 30 Finished goods stock 2 626 846 July June balancing figure 2021 30 Direct material cost 1 406 840 Balance c/d 103 590 June Direct labour cost 604 800 Factory overhead cost 636 380 2 730 436 2 730 436 2021 1 Balance b/d 103 590 July

Downloaded from hlayiso.com 8.3 The manager is thinking of reducing the quality of material used in manufacturing blankets. This change will not be revealed to customers (labels will not be changed). Comment. • It is unethical to show contents which are not in the product. • The business can be viewed negatively and not to be trusted/reputation. • Loss of customers which can end up in decrease in sales/decrease in profits. • Any logical answer ACTIVITY F9 – LEDGER ACCOUNTS AND UNIT COSTS 9.1 A 800 000 B Raw material issued C 350 000 D 1 560 000 E 3 000 000 F Finished goods stock 9.2 Identify TWO items that could be included under “Factory Overhead Costs”. • Indirect materials • Indirect labour • Factory depreciation • Factory water and electricity ANY LOGICAL ANSWER 9.3.1 The cost price per unit. 5 200 000/4 000 000 = R1.30 9.3.2 The break-even point for the year ended 30 June 2021. 3 000 000 + 1 20 000 2.50 – 1.30 = 4 200 000 1.20 = 3 500 000 units

Downloaded from hlayiso.com 9.3.3 Should the owner, Mrs HB Led be satisfied with the number of pencils made and sold during the year? Support your answer by quoting figures. Yes 4 000 000 pencils were produce and sold and only 3 500 000 were needed to break- even. 9.4.1 Explain the effect this will have in the Direct Materials Costs. Give ONE reason for your answer. Direct material costs will decrease due to the decrease in carriage on purchases. 9.4.2 Mrs HB Led is concerned that the quality of the pencils may deteriorate if she uses local raw materials. What can she do to ensure that this does not happen? • Ensure that the local raw materials are up to standard before purchasing them. • Have strict quality control procedures in place. • ANY LOGICAL ANSWER ACTIVITY F10 – LEDGER ACCOUNTS AND UNIT COSTS 10.1.1 In which section of the General Ledger will this account be found? Balance Sheet Section

Downloaded from hlayiso.com 10.1.2 Identify TWO items that can be included in each of the following amounts in the Work-in-Progress Stock account: a) R112 300 • Water and electricity • Factory rent • Factory insurance • Indirect labour • Indirect materials • Any logical overhead expense for a manufacturer b) R210 600 • Wood • Glue • Nails • Varnish • Any logical raw material cost 10.1.3 Themba currently employs one supervisor and 3 carpenters to make the tables. Identify which of his employees are considered to be direct and indirect labour. Explain your reasoning by giving an example of the type of work each employee will be completing. Direct Labour Carpenters – they physically make the tables. Indirect Labour Supervisor – they ensure that the work is being done but do not physically make the tables. 10.2.1 Calculate the break-even point for the year ended 31 August 2020. 713 500 1 200 - 870 = 1 347 units 10.2.2 Should Billy Bob’s Beds be satisfied with the number of single beds that were made during the year ended 31 August 2020? Explain. Yes 3 950 beds were produced and only 1 347 beds were needed to break even and start making a profit.

Downloaded from hlayiso.com ACTIVITY F11 – BREAK-EVEN POINT ANALYSIS 11.1.1 Calculate the break-even point for the period ended 31 August 2020. 76 800 + 60 000___ 860 – (180 +255 +155) = 507 units 11.1.2 Compare and comment on the break-even point and the level of production achieved over the last two years. Quote figures. The business was not able to break even during the current year (BEP: 507 units / produced 480 units). Ended up making a loss / a lower turnover than last year. The business produced less units this year compared to last year (540 in 2015 / 480 in 2016) The business was able to break-even last year by 32 (540 – 508) units. 11.1.3 Provide TWO reasons for the increase in direct material cost and suggest ONE way in which Kunal can control this cost. TWO REASONS: • Increased cost due to inflation / transport costs / scarcity. • Wastage due to poor workmanship. • Theft of material due to poor internal controls. ONE SUGGESTION: • Look for cheaper suppliers without compromising quality. • Negotiate transport and delivery discounts. • Take advantage of bulk discounts. • Train and supervise workers to minimise wastage. • Control stock regularly to identify shortages.

Downloaded from hlayiso.com ACTIVITY F12 – BREAK EVEN POINT ANALYSIS AND PROBLEM SOLVING 12.2 GRACIAS LTD. 12.2.1 A 18 B 2 400 000 C 1 500 000 D 30 12.2.2 Calculate the break-even point for 2021. Assume that factory overheads and administration cost is regarded as fixed cost. 1 100 000 + 400 000 120 – (48 + 7) 55 = 1 500 000 65 = 23 076,92 = 23 077 units 12.2.3 Comment on the break-even point. The break-even point for 2020 was 25 560 with a production of 36 000. For 2021 the break-even point is 23 077 units with a production of 50 000. Although the break-even point increased they will still make a profit. 12.2.4 Identify TWO unrealistic escalations of expenses. Give a possible cause for each as well as a possible solution to the problem. Identification of expense Possible cause for Possible solution to the with explanatory figures escalation problem. Increase in direct labour Increase in salaries. Limit the working hours to normal cost from time. Worked overtime to produce the additional 14 Training of workers to work more 000 units. efficiently.

Downloaded from hlayiso.com R 22 per unit to R30 per unit. This is an escalation of 36%. Increase in selling and Increase in petrol price. Limit the deliveries by doing distribution cost from R4 per proper logistical planning. Increase in collection and unit to R7 per unit, a 75% distribution of additional Regular services so that vehicles’ increase. maintenance cost are as low as 14 000 units. possible. ACTIVITY F13 13.3.1 Calculate the missing figures indicated by A and B. A R23 B R108 000 13.3.2 Calculate the break-even point and comment on the level of production for the year. Calculation: 108 000 55– 23 3 375 Comment: • Although the break-even point is higher than the previous year it is still lower than production. • The business is making a higher profit than the previous year. • The total production for 2014 was 7 000 units and the break-even point 3 250 and for 2015 it was 9 000 units and the break-even point 3 375. • The business is doing very well. • The business is making a higher profit than the previous year. • The total production for 2014 was 7 000 units and the break-even point 3 250 and for 2015 it was 9 000 units and the break-even point 3 375. • The total production for 2015 is 9 000 units and the break-even point 3 375 • The business is making a profit

Downloaded from hlayiso.com ACTIVITY F14 14.1 Calculate the following: 14.1.1 SELLING PRICE PER UNIT: R3 564 000 ÷ 396 000 = R9 14.1.2 COST OF SALES: R3 564 000 X 100 = R1 782 000 200 Also accept: Finished goods: 542 000 + 1 872 000 – 759 000 = 1 655 000 14.1.3 VARIABLE COSTS PER UNIT R2 059 200 ÷ 374 400 = R5,50 14.1.4 BREAK-EVEN POINT R682 500 = R682 500 (R9 (See 2.3.1) - R5,50(See 2.3.3) R3,50 = 195 000 Units 14.2 Waste Traders anticipates that demand will increase in the next financial year to 600 000 units. They aim to increase the number of units produced to meet this demand. They expect fixed costs to remain unchanged. 14.2.1 Explain what you understand by the term 'break-even point'. The number of units that must be sold in order to cover the Fixed Costs. Thereafter, the manufacturer will make a profit. 14.2.2 Explain the effect the above decision will have on the fixed costs per unit and the break-even point.

Downloaded from hlayiso.com FIXED COST: As more units are produced the Fixed Costs per unit will decline. BREAK-EVEN POINT: If Variable Cost increases/decreases – BEP will also increase or decrease. In this case Break-even point should stay unchanged. ACTIVITY F15 15.1 GENERAL LEDGER OF THE CLOTHING FACTORY SHOP Balance Sheet Section Dr Raw materials stock (B5) Cr 2019 2020 Raw materials Mar 1 Balance b/d 164 800 Feb 29 issued bal. figure 1 137 100 Creditors control 2020 [950 800 + (300 000 x 1 175 800 Feb 29 75%)] Balance c/o 251 000 Bank (carriage) 47 500 1 388 100 1 388 100 2020 Mar 1 Balance b/d 251 000 Work-in-progress (B6) 2019 2020 Finished goods Mar 1 Balance b/d 223 700 Feb 29 stock 2 525 256 Direct Material 2020 1 137 100 Feb 29 cost Balance c/o 445 450 Direct labour cost (844 600+ 228 400 + 1 170 856 97 856) Factory 439 050 overheads 2 970 706 2 970 706 2020 Mar 1 Balance b/d 445 450 Finished goods stock (B7) 2019 2020 Cost of sales Mar 1 Balance b/d 569 500 Feb 29 (4 071 208 x100/160) 2 544 505

Downloaded from hlayiso.com 2020 Feb 29 Work-in-progress 2 525 256 Balance c/d 550 251 2 970 706 2 970 706 2020 Mar 1 Balance b/d 445 450 Factory overheads (C3) 2020 Indirect material 2020 Feb 29 (9 800+ 39 800 - 7 300) x 2/3 28 200 Feb 29 Work in progress 439 050 Rent expenses [(130 000 x12/13) x 600/1000] 72 000 Indirect labour 66 600 (6 x 50 x 192) +(3x40x75) Salary: Factory 216 000 foreman Depreciation 56 250 439 050 439 050 15.2.1 Break-even point 612 000 6 120 (270 - 170) 15.2.2 Patrick is satisfied with the break-even point. Explain. Quote figures. They produced and sold 12 000 units and needed 6 120 to break-even. They are able to make profit. VALUE ADDED TAX ACTIVITY G1

Downloaded from hlayiso.com 1.1. VAT STATEMENTS INDICATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE. ANSWER 1.1.1 Any business with sales of more than R200 000 must register as a VAT vendor. False 1.1.2 Certain basic foods and essential items are zero-rated to assist the poor. True 1.1.3 Maize meal is one of the example for VAT Exempted item. False 1.1.4 Most businesses mark their stock with the selling price including VAT. True 1.1.5 The standard rate for VAT in RSA is at 19% False 1.1.6 VAT is payable to SARS. True (6) 1.2 VAT ANALYSIS ANALYSE THE FOLLOWING ITEMS BY MAKING A CROSS (X) IN THE APPROPRIATE COLUMN. GOODS / SERVICES 15% VAT 0% VAT VAT EXEMPTS 1.2.1 Residential rent expense ✓ 1.2.2 Vehicle purchases ✓ 1.2.3 Fuel ✓ 1.2.4 Purchase of a personal computer ✓ 1.2.5 Hotel accommodation fee ✓ 1.2.6 Public transport fee ✓ 1.2.7 Beans ✓ ACTIVITY G2

Downloaded from hlayiso.com 2.1.1 Value Added Tax 2.1.2 15% 2.1.3 0% or Zero 2.1.4 (A) – PAYE (B) – Salaries or Wages (C) – All Individuals or Businesses (D) – Indirect 2.1.5. A Shady, owner of Shady Stores, is not registered for VAT. However, he charges VAT to all his customers and he does not pay the VAT over to SARS. Comment on his practice and state what consequences he could be faced with if he is reported to SARS. COMMENT: one valid explanation This practice is unethical since his business is not a registered vat vendor. COMMENTS FOR one MARKS unethical / illegal CONSEQUENCES: ONE VALID EXPLANATION shady and his business may face charges for fraud by SARS. CONSEQUENCES FOR one MARKS arrested/ charged/ jailed ACTIVITY G3: VAT Calculations

Downloaded from hlayiso.com The table below indicates amounts for various sale transactions, which are subject to Vat at 15%. Complete the table. No. Cost price % Mark-Up VAT Exclusive VAT Amount VAT Inclusive Price Price e.g. R200 50% R300 R45 R345 1 A = 800 25% B = 1 000 R150 C = 1 150 2 R400 D = 60% R640 E = 96 F = 736 3 R900 G = 33.3% R1200 H = 180 I = 1 380 4 J = 2 000 20% K = 2 400 L = 360 R2760 5 M = 560 25% N = 700 R105 O = 805 6 R1000 P = 40% Q = 1 400 R = 210 R1610 ACTIVITY G4

Downloaded from hlayiso.com 4.1 Differentiate between zero rated supplies and exempts supplies. Zero rated-goods the government doesn’t charge tax its sale but allows credits for the Vat paid on inputs. Exempt-the government doesn’t tax the sale of the good, but producers cannot claim a credit for the Vat they pay on inputs to produce it. 4.2. Distinguish between the tax evasion and tax avoidance Tax evasion- Is taking illegal steps to avoid paying tax.eg not declaring income to the taxman. Tax avoidance- Is defined as legal measures to use the tax regime to find ways to paying the lowest rate of tax. 4.2 Give TWO types of Zero rated supplies. • Brown bread • Maize products 4.3 Provide the missing figures indicated by A to E. Amount exclusive VAT amount Amount inclusive 700 105 A = 805 B = 2 500 C = 375 2875 D = 5 200 780 E = 5 980 4.4 Calculate the VAT payable at the end of the month if: Total purchases for the month was R120 000 (exclusive of VAT) Total sales for the month were R161 000 (inclusive of VAT) Input Vat = 120 000 x 15/100 = 18 000 Output Vat = 161 000 x 15/115 = 21 000 21 000 – 18 000 = R 3 000 (payables) ACTIVITY G5

Downloaded from hlayiso.com General Ledger of Nene Supermarket for July 2020 OUTPUT VAT ACCOUNT 2020 25 Returns DAJ 720 2020 25 BANK CRJ 6 390 July July Discount all CRJ 75 Bad debt GJ 60 VAT control GJ 5 535 INPUT VAT ACCOUNT 2020 25 BANK CPJ 3 750 2020 25 Drawings GJ 63 July July Returns CAJ 150 VAT control GJ 3 537 3 750 3 750 VAT CONTROL ACCOUNT 2020 25 VAT input GJ 3 527 2020 25 VAT output GJ 5 535 July July Balance c/d 2 008 5 535 5 535 Balance b/d 2 008

Downloaded from hlayiso.com ACTIVITY G6 – ANSWER SHEET 6.1 VAT CONCEPT 6.1.1 Output 6.1.2 South African revenue services (SARS) 6.1.3 0% 6.2 VAT CALCULATIONS Calculate the amount receivable from or payable to SARS for VAT on 31 March 2019. 43 820 + 1 335 + 2 820 + 112 + 756 + 756 – 184 - 6 818 = 41 841 OR -43 820 – 1 335 – 2 820 – 112 – 756 + 184 + 6 818 = - 41 841 Receivable/Payable: PAYABLE ACTIVITY D7

Downloaded from hlayiso.com Calculate the amount receivable from or payable to SARS for VAT on 31 March 2019. 21 375 – 44 550 + 4 725 – 2 130 + 72 000 – 1 800 = 49 620 OR – 21 375 + 44 550 – 4 725 + 2 130 – 72 000 + 1 800 = 49 620 OR Balance at beginning = 21 375 Output 72 000 – 1 800 – 2 130 = 68 070 Input 44 550 – 4 725 = (39 825) 49 620 OR VAT CONTROL VAT CONTROL 21 375 44 550 44 550 21 375 4 725 2 130 2 130 4 725 72 000 1 800 1 800 72 000 49 620 49 620 98 100 98 100 98 100 98 100 Receivable/Payable: Payable