Accounting grade 12 Support 2021 JIT Paper 2

CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT GRADE 12 ACCOUNTING MANUFACTURING, FORECASTING AND INTERNAL AUDITING & CONTROL PAPER 2 SUPPORT DOCUMENT 2021

PREFACE This support document is designed to assist Accounting teachers and learners on how to deal with assessment in the subject by taking into account the curriculum gaps as well as learning losses as a result of the impact of COVID-19 in 2020. It captures the types of questions which appeared in the recent NSC Examination Papers. Please use other documents for explanatory notes on topics covered in this one. It will cover the following: TABLE OF CONTENTS A. Value Added Tax (VAT) 3 B. Reconciliations 9 C. Budgeting 34 D. Inventory Valuation 71 E. Cost Accounting 79 F. Tangible Assets 97

A. VALUE ADDED TAX ACTIVITY A1 1.1 VAT 1.1.1 What does VAT stand for? 1.1.2 What is the current VAT rate in South Africa? 1.1.3. What is the VAT charged on the price of brown bread? 1.1.4 Complete the following table in respect of VAT: Taxes paid Type of taxation Direct or indirect Taxes paid on by taxation Employees A Direct B C VAT D Goods/expenses/services 1.1.5 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 practise and state what consequences he could be faced with if he is reported to SARS. ACTIVITY A1 1.1. 1.1.1 1.1.2 1.1.3 1.1.4 (A) (B) (C) (D) 1.1.5. 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: Consequences:

ACTIVITY A2 2.1 Choose the correct word from those within brackets. Write only the word next to the question number in your ANSWER BOOK. (i) VAT is a / an (direct / indirect) tax. (ii) VAT on purchase of R35 400 will (increase / decrease) the amount payable to SARS. (iii) VAT refundable by SARS is a / an (asset / liability) to the business. 2.2 The bookkeeper of Cooper Ltd. calculated the amount payable to SARS to be R112 539. The internal auditor found discrepancies in the calculation. REQUIRED: Calculate the correct amount payable to SARS. VAT is charged at 15%. INFORMATION: (i) VAT on shop equipment purchased was not taken into account. The equipment amount of R15 525 was inclusive of VAT. (ii) VAT of R22 500 on a vehicle purchased by the company was recorded as output VAT. (iii) VAT of R7 500 was incorrectly added to a sale of R50 000. The sale of R50 000 was subject to a trade discount of 8%. ACTIVITY A2 2.1 (i) (ii) (iii) 2.2 Details Amount Incorrect amount payable 112 539 (i) (ii) (iii) Correct amount payable

ACTIVITY A3 3.1 VALUE ADDED TAX Indicate whether the following statements are TRUE or FALSE. Write only “true” or “false” next to the question number (3.1.1-3.1.5) in the ANSWER BOOK. 3.1.1 VAT returns to SARS must be submitted every two months. 3.1.2 Petrol is an example of a zero-rated VAT item. 45.1. 3.1.3 The VAT collected by a business from sales, is called output VAT. 3.1.4 The illegal non-payment or deliberate underpayment of tax is called tax avoidance. 3.1.5 VAT may not be claimed on refreshments for office use. 3.2 HP STORES You are provided with information relating to HP Stores for the VAT period ended 28 February 2021. The standard VAT rate of 15% is applicable. REQUIRED: 3.2.1 After taking into account the errors and omissions, calculate the VAT amount that is either payable to or receivable from SARS. Indicate whether this amount is receivable or payable. 3.2.2 The internal auditor discovered that the owner used the VAT collected from customers to pay expenses of the business. Therefore, he was unable to pay the VAT owed to SARS on the due date. State ONE point of concern that you would offer the owner concerning this practice. INFORMATION: A. Amount due to SARS on 1 February 2021, R2 850. B. Amount from the journals on 28 February 2021: Including VAT Amount Excluding VAT VAT Sales R27 830 ? Credit purchases of stock ? 12 000 Stock returned by debtors R308 Bad debts written off R4 554 ? R3 960 C. The following errors and omissions were noted: • VAT on discounts granted to debtors was not recorded. The VAT on discount allowed amounted to R74. • Stock taken by the owner at cost value, R3 200 (excluding VAT), was not yet recorded in the books. • VAT on sales was recorded incorrectly. Certain goods with a selling price of R5 000 (excluding VAT) should have been recorded as zero-rated items.

ACTIVITY A3 3.1 VALUE ADDED TAX 3.1.1 3.1.2 3.1.3 3.1.4 3.1.5 3.2.1 After taking into account the errors and omissions, calculate the VAT amount that is either payable to or receivable from SARS. Indicate whether this amount is receivable or payable. VAT 3.2.2 The internal auditor discovered that the owner used the VAT collected from customers to pay expenses of the business. Therefore, he was unable to pay the VAT owed to SARS on the due date. State ONE point of concern that you would offer the owner concerning this practice.

ACTIVITY A4 4. VALUE-ADDED TAX (VAT) Hilda Groceries is registered for VAT. The standard VAT rate is 15% and isapplied on most products. REQUIRED: 4.1.1 Implementation of VAT: 4.1.2 Explain why the government implemented VAT in South Africa. State ONE point. Explain why some products are zero-rated products. State ONE point 4.1.3 Calculate the amount payable to SARS in respect of VAT for the two months ended 30 April 2021. INFORMATION: A. Balance due to SARS on 1 April 2021, R9 450 B. Transactions for April 2021: AMOUNT VAT AMOUNT EXCLUDING AMOUNT INCLUDING VAT VAT R R R Total sales 412 000 ? 473 800 Purchases of trading stock 230 000 ? Discount allowed to debtors 1 890 Goods returned by customers ? 19 320 Bad debts recovered 1 140 Drawings of trading stock bythe owner 1 380 ACTIVITY A4 4.1 VALUE-ADDED TAX (VAT) 4.1.1 Explain why the government implemented VAT in South Africa. State ONE point. 4.1.2 Explain why some products are zero-rated products. State ONE point. 4.1.3 Calculate

ACTIVITY A5 5.1 VAT Samson Traders is registered for VAT. The VAT rate is 15%. REQUIRED: 5.1.1 Calculate the figures indicated by (a) to (d) in the table below. 5.1.2 You are the internal auditor. The sole owner, Samson, used a business EFT to buy a new car for R460 000 including VAT. This car is kept at home for his wife's use. Samson says the vehicle must be recorded as a business asset and R60 000 must be recorded as a VAT input in the business' books. Explain what you would say to Samson. Provide TWO points. INFORMATION: EXCLUDING VAT INCLUDING VAT AMOUNT VAT Sales returns 960 (a) 1 104 Purchase of stock 52 600 (b) Discount received (c) 720 Cash sales (d) 112 470* * This includes zero-rated goods that should have been sold for R5 500. The bookkeeper has incorrectly included VAT of R825 on these goods. This must be corrected. ACTIVITY A5 5.1 VAT 5.1.1 WORKINGS ANSWER (a) (b) (c) (d) 5.1.2 You are the internal auditor. The sole owner, Samson, used a business EFT to buy a new car for R460 000 including VAT. This car is kept at home for his wife's use. Samson says the vehicle must be recorded as a business asset and R60 000 must be recorded as a VAT input in the business' books. Explain what you would say to Samson. Provide TWO points. Point 1 Point 2

B. RECONCILIATIONS ACTIVITY B1 1.1 DEBTORS AGE-ANALYSIS The owner of Jumbo Traders, Sumi, approached you for assistance in connection with managing the debtors. REQUIRED: 1.1.1 Explain how the Debtors’ Age Analysis can assist with the control over debtors. Provide ONE point. 1.1.2 Calculate the average debtors’ collection period (in days) for the financial year ended 31 August 2021. • Comment on whether the business should be satisfied with this. 1.1.3 Refer to Information C: Identify TWO different problems revealed by the Debtors’ Age Analysis. Quote evidence and/or figures. In each case, provide advice to improve the internal control relating to the problem identified. INFORMATION: A. The balance of the debtors’ control was R19 800 on 1 September 2021. B. Total sales for the year amounted to R750 000. 40% of sales are for cash and the rest on credit. C. DEBTORS’ AGE ANALYSIS ON 31 AUGUST 2021 Credit Policy: Debtors are granted 30 days in which to settle their debts. NAME CREDIT TOTAL CURRENT 30 DAYS 60 DAYS 60 DAYS+ LIMIT MONTH B. Botha R 8 000 R 6 000 R 6 000 C. Coma 30 000 32 000 11 574 R 3 000 R 3 710 R13 716 P. Pule 20 000 18 600 - 8 000 10 600 R. Rome 18 600 19 600 3 000 4 240 12 360 76 200 20 574 15 240 26 670 13 716 27% 20% 35% 18%

ACTIVITY B1 1.1 DEBTORS AGE-ANALYSIS 1.1.1 Explain how the Debtors’ Age Analysis can assist with the control over debtors. Provide ONE point. 1.1.2 Calculate the average debtors’ collection period (in days) for the financial year ended 31 August 2019. Workings Answer Comment whether the business should be satisfied with this. 1.1.3 Identify TWO different problems revealed by the Debtors’ Age Analysis. Quote evidence and/or figures. In each case, provide advice to improve the internal control relating to the problem identified. Problem Evidence/figures Advice on internal control Problem 1 Problem 2

ACTIVITY B2 DEBTORS RECONCILIATION AND AGE ANALYSIS Gumede Traders, owned By Sizwe Mngomezulu, sells building material for cash and on credit. Their credit terms are 30 days, but they are budgeting that 80% of their debtors will adhere to the credit terms. REQUIRED: 2.1 Briefly explain why the balance of the debtors control account should correspond with the total of the list of debtors. 2.2 Calculate the correct closing balance of the debtors control account as at 30 June 2021. 2.3 Prepare a correct list of debtors of Gumede Traders on 30 June 2021. Show all calculations. 2.4 Study information A and C below then answer the following questions: • Does Gumede Traders have effective control over their debtors? Explain by quoting figures to motivate your answer. • State TWO actions that Gumede Traders could take in order to encourage debtors to settle their accounts according to the credit terms. INFORMATION: A. Debtors age analysis schedule for June 2021: TOTAL CURRENT 30 DAYS 60 DAYS 90 DAYS R187 500 R33 700 R26 300 R72 600 R54 900 B. Balance according to the debtor’s ledger on 30 June 2021. Debtors Amount due Credit limits S.M Qwabe 46 500 30 000 T,G Myeni 31 800 35 000 T.M Ngubo 27 000 30 000 J.P Ngcobo 63 200 40 000 P.S Zwane 8 600 10 000 177 100 C. The following errors and omissions were discovered and must be corrected: (i) The debtors Journal was overcast by R4 100. (ii) Goods sold on credit to P.S Zwane were incorrectly posted to the account of T.G Myeni, R7 600. (iii) An allowance on damaged goods delivered to S.M Qwabe, R1 400, was posted to the wrong side of his account. (iv) An invoice issued to T.M Ngubo for, R2 300 was not entered in the books of Gumede Traders. (v) An EFT payment for R8 700, received from P.S Zwane in settlement of an invoice for R9 000, was returned by the bank due to insufficient fund. No entry was made of this. (vi) Goods sold on credit to J.P Ngcobo for R4 700, was correctly entered in the debtors Journal, but was posted to her account in the debtors’ ledger as R7 400.

ACTIVITY B2 2.1 Briefly explain why the balance of the debtors control account should correspond with the total of the list of debtors. 2.2 Calculate the correct closing balance of the debtors control account as at 30 June 2021. 175 700 2.3 List of debtors of Gumede Traders on 30 June 2021. S. M Qwabe (46 500 T.G Myeni (31 800 T.M Ngubo (27 000 J.P Ngcobo (63 200 P.S Zwane (8 600 2.4 Does Gumede Traders have effective control over their debtors? Explain by quoting figures to motivate your answer. State TWO actions that Gumede could take in order to encourage debtors to settle their accounts according to the terms. ACTIVITY B3

DEBTORS RECONCILIATION AND INTERNAL CONTROL 3.1 DUNDEE TRADERS Dundee traders sells lamp shades for cash and on credit. Their credit terms are 30 days, but they are budgeting that 80% of their debtors will adhere to the credit terms. REQUIRED: 3.1.1 Briefly explain why the balance of the debtors control account should correspond with the total of the list of debtors 3.1.2 Calculate the correct closing balance of the debtors control account as at 30 September 2021 3.1.3 Prepare a correct list of debtors of Dundee traders on 30 September 2021 ( Show all calculations) 3.1.4 Study information 1 and 2 below the answer the following question 3.1.4.1 Does Dundee traders have effective control over their debtors?Explain by quoting figures to motivate your answer 3.1.4.2 State TWO actions a company could take in order to encourage Debtors to settle their account according to the terms INFORMATION 1. Debtors age analysis schedule for August 2021 Total Current 30 Days 60 Days 90 Days R 93 750 R16 850 R13 150 R 36 300 R 27 450 2 Balances according to the debtors ledger 30 September 2021 Debtors Amount Due Credit Limits Z. Vilakazi R 23 250 R 15 000 W. Xaba R 15 900 R 17 500 H. Mtungwa R 13 500 R 15 000 G. Smith R 31 600 R 20 000 R. Sithole R 4 300 R 5 000 TOTAL R 88 550 3. Balance of debtors control account on 30 September 2021 R83 750 4. The following errors and omissions were discovered and must be corrected (a) Goods sold on credit to G.Smith for R2 350, was correctly entered in the debtors journal, but was posted to the account of G.Smith in the debtors ledger as R3 700. (b) A EFT payment for R4 350 received from R. Sithole in settlement of an invoice for R 4 500 , was returned by the bank due to insufficient funds . No entry was made of this. (c) The debtors Journal was under totalled by R 2 050 (d) An invoice issued to W.Xaba for R 1 150 was not entered in the books of Gumede traders (e) Goods sold on credit to Z.Vilakazi were incorrectly posted to the account of R.Sithole R3 800. (f) An allowance on damage goods delivered to H.Mtungwa R700 was posted to the wrong side of his account

ACTIVITY B3 DEBTORS RECONCILIATION AND INTERNAL CONTROL 3.1.1 Briefly explain why the balance of the debtors control account should correspond with the total of the list of debtors 3.1.2 Calculate the correct closing balance of the debtors control account as at 30 September 2021 R83 750 3.1.3List of debtors of Dundee Traders on 30 September 2021.( Show all Calculations. Z. Vilakazi ( R 23 250 W. Xaba ( R 15 900 H. Mtungwa ( R 13 500 G. Smith ( R 31 600 R. Sithole ( R 4 300 ACTIVITY B4 DEBTORS AGE ANALYSIS Nquthu Traders sell goods for cash and on credit. REQUIRED: 4.1.1 Why is the preparation of a debtors' collection schedule and debtors' age analysis important internal control measures? 4.1.2 Calculate the percentage of debtors' accounts that comply with the credit terms. 4.1.3 Explain TWO measures to prevent losses due to bad debts in the future. INFORMATION: Debtors' age analysis on 28 February 2021: TOTAL CURRENT 30–60 DAYS 61–90 DAYS MORE THAN 90 DAYS R R R R R 600 400 72 048 48 032 312 208 168 112 The credit period is 60 days.

ACTIVITY B4 DEBTOR'S COLLECTION SCHEDULE AND AGE ANALYSIS: 4.1 .1 Why is the preparation of a debtor's collection schedule and debtor's age analysis important internal control measures? Debtor's collection schedule: Debtor's age analysis: 4.1.2 Calculate the percentage of debtors' accounts that comply with the credit terms. 4.1.3 Explain TWO measures to prevent losses due to bad debts in the future.

ACTIVITY B5 Greytown Traders sell goods for cash and on credit. REQUIRED: 5.1 Greytown Traders have the telephone numbers of all their debtors. What other information should they obtain before allowing customers to open accounts? State TWO points with a reason in EACH case. 5.2 Refer to Information A, B and C. 5.2.1 Calculate The correct closing balance of the Debtors' Control Account on 31 October 2021. 5.2.2 The correct amounts owing by debtors: 5.2.2.1 J Botha (D2) 5.2.2.2 W Bhengu (D3) 5.2.2.3 C P Koek (D5) 5.2.3 Refer to Information D. 5.2.3.1 Calculate the percentage of debtors complying with the credit terms. 5.2.3.2 Explain TWO measures to improve collection from debtors. INFORMATION: A. Balance of the Debtors' Control Account on 31 October 2021, R179 500(before adjustments). B. Debtors' list on 31 October 2016: DEBTORS FOLIO AMOUNT M Shezi D1 60 200 J Botha D2 37 500 W Bhengu D3 19 500 D Xaba D4 42 000 C Koek D5 3 900 163 100 C. The following errors and omissions must be taken into account: (a) An invoice for R2 500 issued to W Bhengu was not recorded in thebooks of Greytown Traders. (b) The total of the Debtors' Allowances Journal was posted to theDebtors' Control Account as R20 100 instead of R2 100

(c) An invoice for R4 300 issued to C Koek was posted incorrectly to the account of J Botha. (d) Stock for R5 100 sold to C Koek was treated as a return of goods when posting it to the Debtors' Ledger Account of C Koek. (e) An EFT payment for R8 350, originally received from J Botha insettlement of debt of R8 500, was returned by the bank, No entries were made in the Debtors' Ledger. (f) An invoice for R3 600 issued to W Bhengu was recorded correctly in the Debtors' Journal, but posted as R6 300 to his account in the Debtors' Ledger. (g) The total for discount allowed in the CRJ was overstated by R500. D. Debtors' age analysis on 30 September 2021: TOTAL CURRENT 30 – 60 DAYS 61 – 90 DAYS MORE THAN 90 DAYS 201 200 35 300 23 300 76 700 65 900 The credit period is 60 days. 5.1 5.2.1 5.2.2 5.2.3

ACTIVITY B6 DEBTORS RECONCILIATION Information from the records of Majola Traders for September 2021 is presented .Some errors and omissions were noted .See information B REQUIRED: 6.1.1 Calculate the correct debtors Control balance on 30 September 2021 .Show figures and indicate + “ – or no change at EACH adjustment. 6.1.2 Calculate the correct total of the debtors list on 30 September 2021 INFORMATION: A Balances on 30 September 2021 before errors and omissions: (i) Debtors Control , R 40 200 (ii) Debtors list total from debtors ledger R 39 800 Debtors List on 30 September 2021 DEBIT CREDIT D.Costa R 7 600 E.Enderson R 14 800 E. Hazard R 3 800 B.Zwane R 21 200 R 43 600 R 3 800 B Errors and omissions: (i) No entry was made for an invoice issued to E.Hazard R 2 800. (ii) The total of the debtors journal was overcast by R 3 600. (iii) Trading stock returned by B.Zwane was posted to the wrong side of his Debtors Ledger Account, R1 600. (iii) Interest of R400 must be charged on the overdue account of E. Enderson. (iv) An amount of R 6 400 received from D.Costa was incorrectly recorded as R4 600 in the cash receipts journal and was posted as such to the General ledger and the Debtors Ledger. 6.1.1 DEBTORS RECONCILIATION CORRECTIONS TO THE DEBTORS CONTROL ACCOUNT Current Debtors Control Account Balance R 40 200 A B. C. D. E. Correct Debtors Control Account Balance 6.1.2 Debtors List on 30 September 2021

D.Costa ( R 7 600 E.Enderson ( R 14 800 E.Hazard ( R – 3 800 B.Zwane R 21 200 Correct total of debtors list ACTIVITY B5 5.1 THE DEBTORS CONTROL ACCOUNT AND DEBTORS LIST The bookkeeper of Mdolomba Mange made some mistakes and omitted certain transactions in preparing the Debtors Control Account and the Debtors List on 28 February 2021.You are the internal auditor . REQUIRED: 5.1.1 List the corrections that the bookkeeper must make to the Debtors Control Account in the General Ledger and Debtors List .If no entry is applicable ,Write NO ENTRY INFORMATION Pre –Adjustment figures on 28 February 2021 Debtors Control Account balance R 320 600 Debtors List total From the Debtors Ledger R 340 800 Thando R 59 200 Sizwe R 193 000 Nathi R 88 600 ERRORS AND OMISSIONS A. The total of the debtors allowances journal was undercast by R26 000. B. The total of debtors journal was inaccurately added as R 104 500 instead of R124 700. C. An EFT payment of R86 000 from Nathi was correctly recorded in the cash receipts journal but the bookkeeper neglected to post this payment to the debtors account. D. An EFT payment for R 4 200 From Thando in settlement of their debt of R 4 600 was correctly recorded in the cash receipts journal but inadvertently posted to Sizwe”s Account .Rectify the error . E. A debit balance of R940 from Nathi “s account in the creditors ledger must be transferred to their account in the debtors ledger. F. Credit sales of trading stock to the value of R77 200 from Sizwe were wrongly entered as R 167 200 in the debtors journal and posted as such. G. Thando’s account was mistakenly credited with credit sales of trading stock to the value of R 30 000.

ACTIVITY B6 List the corrections that the bookkeeper must make to the Debtors Control Account in the general ledger and debtors list Debtors Control Debtors List Pre –Adjustment Balance / totals A. B. C. D. E. F G.

ACTIVITY B. 7 7.1 CREDITORS RECONCILIATION Information below relates to Busby Stores for September 2018. REQUIRED: 7.1.1 Provide TWO reasons why it is important for the business to prepare the Creditors' Reconciliation Statement each month. 7.1.2 Calculate the correct Creditors' Control Account balance after taking into account the relevant errors and omissions. 7.1.3 Calculate the correct balances for creditors Zebo Suppliers and Leo Wholesalers, by taking into account the errors and omissions. INFORMATION A Balance and totals on 30 September 2018 (before errors and omissions). Creditors control account in the General Ledger R32 640 Creditor's list: (before errors and omissions) Zebo Suppliers R16 500 Leo Wholesalers R29 520 B ERRORS AND OMISSIONS (a) The Creditors control was under-cast by R5 020. (b) A credit invoice for trading stock purchased from Zebo Suppliers for R12 800 on 28 September 2018 was not recorded at all. (c) A payment of R3 150 to Leo Wholesalers was posted as an invoice in the Creditors' ledger. The CPJ was correct. (d) A debit note of R1 280 for goods returned to Zebo Suppliers was recorded in the Creditors' Journal in error and posted to the General Ledger accordingly. Posting to the Creditors' ledger was correctly done from the document. (e) VAT of R1 720 was omitted from an invoice from Zebo Suppliers. (f) Equipment purchased on credit from Blackwood Manufacturers, R4 900, was incorrectly posted to the account of Leo Wholesalers. (g) An invoice for R3 575 from Zebo Suppliers was incorrectly posted as R3 375 to their account in the Creditors' Ledger only.

ACTIVITY B7 ANSWER SHEET 7.1 CREDITORS RECONCILIATION 7.1.1 Provide TWO reasons why it is important for the business to prepare the Creditors' Reconciliation Statement. 7.1.2 Calculate the correct Creditors' Control Account balance after taking into account the relevant errors and omissions. CREDITORS CONTROL ACCOUNT 32 640 7.1.3 Calculate the correct balances for creditors Zebo Suppliers and Leo Wholesalers, list by taking into account the errors and omissions. Creditor Workings Balance 16 580 Zebo Suppliers 29 520 Leo Wholesalers

ACTIVITY B 8 8. CREDITORS’ RECONCILIATION AND INTERNAL CONTROL A newly appointed bookkeeper of Molimo Traders has been having problems in preparing the monthly Creditors’ Reconciliation, since the balance of the Creditor’s Account in the Creditors’ Ledger does not coincide with the statement of account received from the supplier. REQUIRED: 8.1 Prepare a Creditors’ Reconciliation Statement on 30 June 2019 and calculate the correct balance of Bailey Ltd in the Creditors’ Ledger. 8.2 Refer to Information D. Calculate the average creditors’ payment period in days. 8.3 Provide TWO internal control measures which can be implemented by a business for good internal control over creditors. INFORMATION: A. Creditors’ Ledger of Molimo Traders BAILEY LTD Date Details Debit Credit Balance June 01 Account rendered 18 510 07 Electronic payment 9 000 9 510 Discount received 450 9 060 15 Invoice 5671 6 555 15 615 16 Debit Note 121 900 14 715 23 Invoice 5801 7 835 22 550 26 Invoice 6011 5 800 28 350 29 Electronic payment 10 000 18 350 Discount received 500 17 850 B. Statement received from Bailey Ltd

BAILEY LTD STATEMENT OF ACCOUNT Date: 25 June 2019 Masukhane Street 498 Tel. 033 345 6901 Pietermaritzburg 3201 Fax. 033 333 1455 ACCOUNT OF: MOLIMO Account number: 09/7412 TRADERS Date Details Credit Balance Jun 01 Account rendered 18 510 07 Receipt 9 000 9 510 Discount 900 8 610 15 Invoice 5671 6 900 1 710 16 Debit Note 121 900 810 20 Invoice 5780 3 320 4 130 23 Invoice 5801 5 985 10 115 C. Additional information: (a) The discount reflected on 7 June on the statement of account is correct. (b) Trade discount of 5% was deducted on Invoice 5671. Bailey Ltd did not take this discount into account. They also made an error in recording Invoice 5671. (b) After an investigation, it was established that the invoice on 20 June is in respect of a purchase made by another business. (c) Invoice 5801 reflected on 23 June on the statement of account, is incorrect. (d) There are some entries in the Creditors’ Ledger which do not appear on the monthly statement of account as these transactions took place after the statement date.

ACTIVITY B 8 ANSWERSHEET (CREDITORS RECONCILIATIONS) 8.1 CREDITORS’ RECONCILIATION STATEMENT ON 30 JUNE 2019 R Calculate the correct balance of Bailey Ltd. in the Creditors’ Ledger. 8.2 Refer to Information D. Calculate the average creditors’ payment period in days. 8.3 Provide TWO internal control measures which can be implemented by a business for good internal control over creditors.

ACTIVITY B 9 (CREDIORS RECONCILIAION) 9.1. CREDITORS' RECONCILIATION Generation Suppliers received a statement of account from a creditor, Future Traders. The balance on the statement did not agree with that on the account of Future Traders in the Creditors Ledger of Generation Suppliers. REQUIRED: 9.1.1 Although Future Traders offers credit terms of 60 days, Generations Suppliers prefers to settle their account within 30 days during certain months. Provide TWO points to indicate that it is not a good decision. 9.1.2 Complete the table in the ANSWER BOOK to show how the differences must be treated to reconcile the Creditors Ledger Account balance with the statement balance. Write the amounts in the appropriate columns and indicate the increase or decrease with a (+) or (-) with each amount. Total the columns to show the correct balance at the end of February 2020. INFORMATION: Balance of Future Traders in the Creditors Ledger of Generations Suppliers R21 130 Balance on the statement received from Future Traders R32 600 The following differences were identified: A. An invoice for R13 300 received from Future Traders was correctly recorded in the Creditors Ledger Account. The amount was incorrectly recorded as R11 200 on the statement. B. Generation Suppliers entered a 10% discount relating to a payment of R3 000 on 19 February 2020. Future Traders did not approve this discount stating that the payment was received late. C. Goods returned, R500, appeared on the statement received. The bookkeeper of Generation Suppliers forgot to record this transaction. D. Purchases of R3 035 from Future Traders were recorded as a debit note in the Creditors Ledger account. E. A direct transfer of R7 000 by Generation Suppliers was recorded in the Cash Payment Journal on 27 February 2020. A discount of R700 for early payment was also recorded. The statement of account from Future Traders was dated 25 February 2020. ACTIVITY B 9: ANSWERSHEET (CREDIORS RECONCILIAIONS)

CREDITORS' RECONCILIATION: 9.1.1 Although Future Traders offers credit terms of 60 days, Generations Suppliers prefers to settle their account within 30 days during certain months. Provide TWO points to indicate that it is not a good decision. 9.1.2. CREDITORS LEDGER OF STATEMENT FROM FUTURE GENERATION SUPPLIERS TRADERS 21 130 32 600 A B C D E

ACTIVITY B 10 (CREDITORS RECONCILIATIONS) CREDITORS RECONCILIATION AND VAT 10.1 CREDITORS' RECONCILIATION Phindi Stores buys goods on credit from Pearly Suppliers. REQUIRED: 10.1.1 Show the changes that must be made: • In the Creditors' Ledger Account in the books of Phindi Stores • In the Creditors' Reconciliation Statement on 29 February 2020 10.1.2 The owner Phindi, suspects that the purchasing manager may be buying goods for himself through the business ordering system. Suggest TWO internal control measures that he can use to ensure that such practices do not occur. INFORMATION: A. Creditors' Ledger of Phindi Stores Pearly Suppliers DATE DETAILS FOL. DEBIT CREDIT BALANCE Feb. 01 Balance b/d 37 750 02 Invoice A12 CJ 11 400 49 150 04 Debit Note 004 CAJ 1 650 47 500 07 EFT CPJ 15 000 32 500 Discount received CPJ 1 500 31 000 20 Invoice A27 CJ 9 800 40 800 23 EFT CPJ 5 000 35 800 24 Invoice A42 CJ 7 750 43 550 28 EFT CPJ 7 500 36 050 Discount received CPJ 750 35 300 29 Invoice 722 CJ 8 600 43 900

B. Statement of account received from Pearly Suppliers PEARLY SUPPLIERS No. 2122 205 Kings Road Bisho 5232 Debtor: Phindi Stores 25 February 2020 DATE DETAILS DEBIT CREDIT BALANCE Jan. 25 Balance 47 250 28 Receipt 110 9 500 37 750 Feb. 02 Invoice A12 1 400 39 150 04 Credit Note 09 1 650 40 800 07 Receipt 122 15 000 25 800 Discount allowed 750 25 050 18 Invoice A27 9 800 34 850 23 Receipt 138 5 000 29 850 24 Invoice A42 8 525 38 375 25 Delivery charges 2 100 40 475 C. An investigation revealed the following errors and omissions: (a) Invoice A12 was correct in the creditors ledger of Phindi Stores. (b) Goods for R1 650 were returned by Phindi Stores to Pearly Suppliers on 4 February 2020. (c) The discount allowed on 7 February 2020 is correct as per the statement of account from Pearly Suppliers. (d) Pearly Suppliers omitted to deduct the trade discount on Invoice A42. (e) Invoice 722 was for goods that Phindi Stores bought from another supplier, Diamond Suppliers. (f) Pearly Suppliers charges a delivery fee to all its customers. (g) The statement of account includes transactions up to 25 February 2020.

ACTIVITY B10: ANSWEERSHEET (CREDITORS RECONCILIATIONS) 10.1 CREDITORS' RECONCILIATION 10.1.1 CREDITORS' RECONCILIATION CREDITORS' LEDGER STATEMENT Balance 43 900 40 475 (a) (b) (c) (d) (e) (f) (g) 10.1.2 Suggest TWO internal control measures that he can use to ensure that such practices do not occur.

ACTIVITY B11 CREDITORS RECONCILIATION) CREDITORS' RECONCILIATION VENUS TRADERS The Creditors' Control Account and creditors' list for July 2018 was prepared byan inexperienced bookkeeper. REQUIRED: Use the table provided to indicate corrections and entries that must be made tothe Creditors' Control Account and the creditors' list. Provide figures and a plus (+) or minus (–) sign for each correction. (10) INFORMATION: A. CREDITORS' CONTROL ACCOUNT CREDITORS' LIST Balance / Total R40 130 R39 490 B. Transactions: (i) An invoice for R792 received from Universal Suppliers, wasrecorded incorrectly as R972 and posted accordingly. (ii) An EFT transfer of R8 400 to a creditor Mars Inc. was recorded correctly in the relevant journal. It was posted incorrectly as R8 800 to the Creditors' Ledger Account of Mars Inc. (iii) A credit note for R120 received from Saturn Ltd. was recorded in the Creditors' Journal. The transaction was recorded correctly in the ledger account of Saturn Ltd. (iv) Transfer a credit balance of R2 100 from the Debtors’ Ledger account of J. Jupiter in the books of Venus Traders to their account in the Creditors’ Ledger.

ACTIVITY B 11 (CREDITORS RECONCILIAION) Use the table provided to indicate corrections and entries that must bemade to the Creditors' Control Account and the creditors' list. Provide figures and a plus (+) or minus (–) sign for each correction. Creditors' ControlAccount Creditors' List Balance/Total on30 October 2018 R40 130 R39 490 (i) (ii) (iii) (iv) Balance / Total on31 July 2018 ACTIVITY B12 (CREDITORS RECONCILIAION) 12.1. CREDITORS’ RECONCILIATION The information relates to Kirsten Traders for August 2019. Kirsten Tradersbuys goods on credit from Amla Suppliers. REQUIRED: Use the table provided to indicate the changes that must be made: • In the Creditors' Ledger Account in the books of Kirsten Traders • In the Creditors' Reconciliation Statement on 31 August 2019 INFORMATION: The following differences were discovered when comparing the account in theCreditors' Ledger with the statement received from Amla Suppliers: A An invoice for R14 800 was recorded incorrectly as R1 480 on thestatement received from the creditor. B The bookkeeper of Kirsten Traders recorded an invoice for R1 350 as acredit note. C The discount of R850 was in error, overstated by R350 in the Creditors’Ledger. D A direct transfer of R7 200 by Kirsten Traders did not appear on thestatement due to the statement been processed early. E Goods for R2 700, returned by Kirsten Traders, was not recorded. ACTIVITY B 12 : ANSWERSHEET (CREDITORS CONTROL)

CREDITORS' RECONCILIATION Creditors' ReconciliationStatement Creditors' Ledger Balance 28 370 25 300

C.BUDGETING ACTIVITY C1: PROJECTED INCOME STATEMENT You are provided with information relating to SAM’S Auto Repairs for the period 1 March 2021 to 30 April 2021. The business is owned by Samson Gumede. • All transactions are strictly cash. • The financial year ends on 30 April each year. • The business repairs vehicles for which they charge service fees. • If the repairs require new spare parts, these are charged to each customer's account separately. • Consumable stores are used for repairing the vehicles. There is no charge for these items. REQUIRED: 1.1 Calculate the: 1.1.1 Mark-up percentage on spare parts used in the Projected Income Statement for March 2021 1.1.2 % decrease in service fee income expected in April 2021 1.1.3 Additional space (in square metres) the business will rent from April 2021 1.1.4 Interest rate on the fixed deposit 1.2 Comment on the control of stock and explain how Amore intends to correct this. Quote figures. 1.3 Amore is considering changes to the fixed assets owned by the business. 1.3.1 Amore is thinking of purchasing the business premises rather than renting it. State ONE advantage and ONE disadvantage of this option. 1.3.2 Amore offers a free delivery service of spare parts to customers but plans to discontinue this service on 31 March 2021. State TWO points to support this decision. 1.3.3 Calculate the cost of the new vehicle that she plans to purchase on 1 April 2021 1.4 Refer to information E. You are provided with the projected and actual figures for February 2021. Quote figures in your explanation in EACH case below. 1.4.1 Explain whether Water and electricity has been well controlled, or not. 1.4.2 Explain whether you agree with Amore's decision not to use the full budget for Advertising. (2) 1.4.3 Explain whether Consumable stores have been well controlled, or not. (2) 1.4.4 Explain how Amore's decision about the mark-up percentage on spare parts has affected the business. (2)

INFORMATION: A. Extract from the Projected Income Statement for the period 1 March 2021 to 30 April 2021: MARCH 2021 APRIL 2021 R R Service fee income from customers 225 000 204 750 Profit on sale of spare parts 34 312 45 750 Sales 80 062 114 750 Cost of sales (45 750) (67 500) Other operating income Profit on disposal of delivery vehicle 12 000 0 Gross operating income Operating expenses Rent expense (see B below) 9 000 13 800 Water and electricity 7 800 7 800 Motor vehicle expenses 11 250 2 250 Security expenses 7 500 13 800 Advertising 7 050 7 050 Consumable stores (used for repair service) 45 000 45 000 Repairs and maintenance of equipment 22 500 0 Depreciation on vehicles (see D below) 4 500 13 500 Depreciation on equipment 2 250 2 250 Trading stock deficit 21 000 3 000 Operating profit Interest on fixed deposit (see C below) 8 550 4 050 Net profit B. Rent expense is calculated on a fixed amount per square metre. The business will rent 75 square metres in March 2021. On 1 April 2021 additional floor space will be rented at the same rate due to expansion. C. A fixed deposit of R675 000 will mature on 31 March 2021.

D. Vehicles: ACCUMULATED DEPRECIATION RATE ITEM COST PRICE DEPRECIATION: AND METHOD 31/03/2021 Delivery vehicle R540 000 R162 000 15% p.a. on cost Toyota Hilux ? 0 The delivery vehicle will be sold on 31 March 2021. The Toyota Hilux vehicle will be purchased on 1 April 2021 and used by the owner. E. Figures provided for February 2021: PROJECTED ACTUAL Water and electricity (*see note below) R 6 750 R 7 500 Advertising 7 050 2 700 Service fee income 225 000 191 250 Consumable stores 45 000 54 675 Sale of spare parts 193 050 145 800 Cost of sales 117 000 81 000 Profit on sale of spare parts 76 050 64 800 Mark-up percentage (on cost) 65% 80% *NOTE: The water and electricity tariff unexpectedly increased by 15% from 1 February 2021.

ANSWER SHEET ACTIVITY C1 1.1.1 Calculate the mark-up percentage on spare parts used in the Projected Income Statement for March 2021. 1.1.2 Calculate the % decrease in service fee income expected in April 2021. 1.1.3 Calculate the additional space (in square metres) the business will rent from April 2021. 1.1.4 Calculate the interest rate on the fixed deposit. 1.2 Comment on the control of stock and explain how Sam intends to correct this. Quote figures. 1.3.1 Sam is thinking of purchasing the business premises rather than renting it. State ONE advantage and ONE disadvantage of this option. Advantage: Disadvantage:

1.3.2 Amore offers a free delivery service of spare parts to customers but plans to discontinue this service on 31 March 2021. State TWO points to support this decision. 1.3.3 Calculate the cost of the new vehicle that she plans to purchase on 1 April 2021. 1.4.1 Explain whether Water and electricity has been well controlled, or not. 1.4.2 Explain whether you agree with Sam's decision not to use the full budget for Advertising. 1.4.3 Explain whether Consumable stores have been well controlled, or not. 1.4.4 Explain how Sam's decision about the mark-up percentage on spare parts has affected the business.

ACTIVITY C2: BUDGETS You are provided with information relating to Sthembiso Hardware. The business is owned by Sthembiso Vezi REQUIRED: 2.1 Complete the following statement: The main reason why bad debts would not appear in the Cash Budget is because it is a/an ……. 2.2 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget for October and November 2020. 2.3 Complete the Debtors' Collection Schedule. 2.4 Calculate the percentage increase in sundry expenses. 2.5 The Cash Budget for October and November 2020 indicates that this business will face serious financial difficulties. Identify TWO items to support this statement. Quote relevant figures. 2.6 Refer to Information K. Explain why each of the items reflects a problem for the business. State TWO points in EACH case. INFORMATION A. Extract from the Cash Budget OCTOBER 2020 NOVEMBER2020 CASH RECEIPTS Cash sales (a) 237 600 Cash from debtors 178 600 ? Rent income 3 300 (c) Loan: Glad Bank - 201 600 Commission income 19 000 30 000 CASH PAYMENTS Cash purchases of trading stock (b) 257 500 Payments to creditors for stock 32 350 28 250 Salaries and wages 61 240 61 240 Loan instalment 5 600 Interest on loan - (d) Insurance 2 480 2 480 Drawings 19 800 19 800 Delivery expenses 31 000 31 000 Sundry expenses 87 600 89 790 Cash surplus/(deficit) Bank: Opening balance Bank: Closing balance (82 800) (49 300)

B. The business has only one supplier. Commission of 5% of sales is receivable in the month following the sales. C. Cash sales amount to 60% of total sales. D. Total sales for September 2020 were R380 000. E. 20% of the trading stock is bought on credit. The creditor is paid in full in the month following the month of purchase. F. Collection from debtors: • 45% settle accounts in the month of sales and receive 5% discount. • 50% settle accounts in the following month. • Provision is made for 5% bad debts. G. A storage room in our building has been let since 15 October 2020. The tenant was required to pay only half the rent amount for October. He was informed that rent increases by 10% on 1 November each year. H. Sundry expenses are expected to increase by a fixed percentage each month. I. The loan, at 11.5% p.a. interest, will be taken out on 1 November 2020. • The loan will be repaid in 36 equal monthly instalments commencing on 30 November 2020. • Interest on the loan is also payable at the end of each month commencing on 30 November 2020. Interest is not capitalized. J. The bank has granted Sthembiso an overdraft facility of R44 000. K. Sthembiso is concerned about the following items, which were under/over budget for September 2020 Item Budgeted Actual Under/over budget Collection from debtors 174 200 61 800 Under Drawings 19 800 57 200 Over Insurance 2 480 0 Under ACYTIVITY C2 2.1 The main reason why bad debts would not appear in the Cash Budget is because it is a/an ……. 2.2 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget for October and November 2020. Calculation Amount (a) (b) (c) (d)

2.3 Complete the Debtors' Collection Schedule. CREDIT SALES OCTOBER NOVEMBER September 76 000 October 102 600 November 158 400 178 600 2.4 Calculate the percentage increase in sundry expenses. 2.5 The Cash Budget for October and November 2020 indicates that this business will face serious financial difficulties. Identify TWO items to support this statement. Quote relevant figures. 2.6 Explain why each of the items reflects a problem for the business. State TWO points in EACH case. Item Explanation Collection from debtors Drawings Insurance

ACTIVITY C3: CASH BUDGET You are provided with information relating to HKH Traders for the three months ending 31 December 2020. The business is owned by Lizzy Ndou. REQUIRED: 3.1 Complete the following sentences by filling in the missing word(s). Write only the word(s) next to the question number (4.1.1 – 4.1.2) in the ANSWER BOOK. 3.1.1 The main purpose of preparing the Cash Budget is… 3.1.2 ONE item in the Cash Budget that will not be reflected in a Projected Income Statement is… 3.2 Prepare the Debtors’ Collection Schedule for December 2020. 3.3 Calculate the missing figures in the Cash Budget indicated by (i) to (v). 3.4 In order to increase sales and the number of customers, Lizzy intends to advertise that credit limits for all credit customers will be increased to R35 000 and that new customers are welcome to open accounts during January. Give TWO points of advice to Lizzy regarding this decision. INFORMATION: A. Sales, purchases and cost of sales: • Total sales expected 2020 October November December R500 000 R350 000 R300 000 • 60% of sales are on credit, the rest are for cash. • The business uses a mark-up of 100% on cost at all items. • Stock is replaced monthly • 20% of all purchases are for cash, the rest are on credit. • Creditors are paid TWO months after the purchase of stock. B. Debtors’ collection: The credit limit for each debtor is R25 000. In the past, debtors have settled their accounts as follows. HKH Traders prepares its budget on this basis: • 20% of debtors settle accounts in the month of the sale to receive a 5% discount. • 30% settle in the 1st month following the sales month (30 days) • 40% settle in the 2nd month (60 days) • 10% are written off in the 3rd month.

C. Debtors’ Collection Schedule: 2020 Months Credit sales October November December R R R R August 345 000 138 000 Actual September 480 000 144 000 192 000 October 300 000 57 000 90 000 ? Expected November 210 000 39 900 63 000 December 180 000 ? 339 000 321 900 ? D. Extract from the Cash Budget: 2020 October November December R R R RECEIPTS: Cash sales 200 000 (i) 120 000 Receipts from debtors 339 000 321 900 Rent income Loan from Sharp Bank (interest rate:12%) 400 000 PAYMENTS: Cash payments 50 000 35 000 30 000 Payments to creditors 230 000 320 000 (ii) Repayment of loan 40 000 40 000 Interest on loan 4 000 (iii) Wages 32 500 22 048 (iv) Advertising (v) 6 758 6 758 Sundry expenses Cash balance at the end of the month 350 000 200 000 (50 000) E. Loan and interest on loan: The interest on the loan and the monthly loan instalments are payable at the end of each month. Interest is not capitalized. F. Wages: • In October the business will have 5 employees, each earning R1 300 per week. • All the employees are paid their wages on Fridays. There are five Fridays in October and four Fridays in November and December 2020. • One employee has served notice of his resignation on 31 October 2020 and the other employees will be given a 6% increase on that date. • The business plans to employ two more staff members at the same weekly wage as the others on 1 December 2020. G. Advertising: The advertising budget will be increased by 9% with effect from 1 November 2020.

ACTIVITY C3 3.1 Complete the following sentences by filling in the missing word(s). Write only the word(s) next to the question number (4.1.1 – 4.1.2) 3.1.1 The main purpose of preparing the Cash Budget is… 3.1.2 ONE item in the Cash Budget that will not be reflected in a Projected Income Statement is… 3.2 Prepare the Debtors’ Collection Schedule for December 2020 2020 Months Credit sales October November December August 345 000 138 000 Actual September 480 000 144 000 192 000 October 300 000 57 000 90 000 Budgeted November 210 000 39 900 63 000 December 180 000 339 000 321 900 3.3 Calculate the missing figures in the Cash Budget indicated by (i) to (v). CALCULATION ANSWER (i) (ii) (iii) (iv) (v) 3.4 In order to increase sales and the number of customers, Lizzy intends to advertise that credit limits for all credit customers will be increased to R35 000 and that new customers are welcome to open accounts during January. Give TWO points of advice to Lizzy regarding this decision.

ACTIVITY C4 Nikke Stores is a retail business that sells sporting goods. The business was originally owned by Bennie Becker. The financial year ends on 31 December each year. As his wife studied Accounting at school, he has asked her to prepare a Cash Budget for the business, and to enter the actual figures each month. In February 2020, you are provided with this Cash Budget which also reflects the actual figures. The business had a bank overdraft of R325 400 on 1 December 2019. In order to solve the overdraft problem, Bennie Becker decided to admit Mark Mtini as a new business partner on 28 December 2019. This was not anticipated when Mary drew up the Cash Budget at the beginning of December. The partnership agreement stated that Mtini’s capital contribution comprised a transfer of cash, R250 000, and a new delivery vehicle valued at R180 000. REQUIRED: 1. Bennie Bekker feels that his wife has made two mistakes in compiling the budget. He says that she has incorrectly left out the following: • the monthly depreciation of R4 800 per month • the new delivery vehicle valued at R240 000 which was provided as capital by Mtini. What would you say to Bennie? 2. Complete the Debtors Collection Schedule for December 2019 and January 2020. 3. Calculate the following for January 2020: • % increase in the budgeted salaries and wages • % decrease in the amount budgeted for commission income. 4. The R9 000 per month is the monthly repayment on the purchase of the existing vehicle which was bought several months ago for R196 000. At the time of purchase, a deposit of R46 000 was paid. The instalment is to be paid over 24 months. Calculate the total finance charges incurred in the purchase of this vehicle. 5. Bennie Bekker’s son, Bart, used the business vehicle to attend his Matric farewell party. He was involved in an accident. The insurance company refused to repair the damaged vehicle as he was not listed as a designated driver of the vehicle and the vehicle was not being used for business purposes. Bennie authorized the payment for the repairs to the damaged vehicle and charged this cost to Vehicle Expenses. Bear in mind that the business has over-budgeted on the normal vehicle expenses and is only spending 75% of the budgeted amount on this item. • What effect did the damage caused by Bart have on the budget? • Mtini has become aware of this. What is he likely to say to Bennie? Provide TWO points.

6. Refer to the Rent in the Cash Budget. A rent increase of 10% takes effect on 1 January 2020. The actual rent received in December was as per the budget. • Calculate the rent income for December 2019 • Provide a suitable explanation for the actual amount of rent collected in January 2020 being different from the budgeted amount. 7. Payments to creditors: • Calculate the budgeted amount to be paid to creditors in January 2020. • Mtini feels that the business need not buy any goods for cash, and that all goods should be bought on credit. In your opinion, will this improve the business Cash Budget? Explain. 8. Bennie Bekker decided to repay the existing loan from Alpha Lenders in full on 30 November 2019 as the interest rate was very high. The interest of 15% p.a. on this loan was not capitalized. He then decided to take out a new loan with Minty Bank on 1 December 2020. Interest is capitalized on this loan and according to the agreement a monthly amount of R4 000 is to be paid to the Minty Bank on the 25th day of each month. • Explain the difference between interest that is capitalized and interest that is not capitalized. • Calculate the amount of the loan to be repaid on 30 November 2019. 9. Use the Cash Budget to identify the missing figures, totals and balances designated A-D. You are not required to identify the figures designated with a question mark (?) 10. Mtini is worried that the business is not controlling the debtors properly. He asks you for a short report. Include the following in your report: • A calculation of the average debtors’ collection period (in days) for the year, and a comment on this calculation. • The % of debtors who are complying with the credit terms (as indicated in the Debtors Age Analysis) • A brief comment on this above two calculations. • Details of the main mistakes that the business is making with regard to the debtors and the names of specific debtors to illustrate these main problems. 11. Consider the actual and budgeted figures for Advertising, Telephone and Insurance. (Note that Mtini has not drawn any funds as yet). Comment on each item, and offer ONE point of advice in each case. 12. Bennie has made two significant decisions by taking out a new loan and admitting a partner to the business. What would you say to Bennie about these decisions and the effect on the cash flow of the business?

INFORMATION: 1. Cash Budget for two months ending 31 January 2020 (with actual figures in the shaded columns): December 2019 January 2020 Receipts BUDGETED ACTUAL BUDGETED ACTUAL Cash sales 480 000 452 000 330 000 208 000 Receipts from debtors ? 189 980 ? 222 685 Commission income 24 000 ? 20 400 12 000 Loan from Minty Bank 0 0 0 120 000 Rent income ? ? 15 950 31 900 Capital from M Mtini 0 250 000 0 0 Total Receipts 778 798 926 480 ? 594 585 Payments Cash purchases 222 500 245 750 155 000 110 380 Payments to creditors 181 800 162 000 ? 184 000 Telephone 2 800 4 500 2 800 4 200 Repayment on existing vehicle 9 000 9 000 9 000 9 000 Vehicle expenses 8 000 6 400 8 000 37 500 Salaries and wages 68 000 82 800 72 080 72 080 Advertising 5 000 5 000 5 000 5 000 Sundry operating expenses 23 380 19 400 17 300 17 320 Insurance 22 000 16 000 22 000 16 000 Drawings by Bennie Bekker 25 000 25 000 25 000 35 000 Interest on overdraft 4 020 ? ? 0 Interest on loan 500 500 500 0 Repayment of loans 0 ? 0 4 000 Total Payments 572 000 620 370 516 930 494 480 Cash surplus / shortfall 206 498 306 110 ? 100 105 Bank (Opening balance) (325 400) (325 400) A C Bank (Closing balance) ? (19 290) B D

2. Purchases and Sales of trading stock: Stock is replaced on a monthly basis. 50% of stock is usually purchased on credit. Creditors are paid in the month after the purchases, to take advantage of a 10% discount. Goods are sold at a constant mark-up of 80% on cost. The budget is worked out on the following total sales figures: October 2019 November 2019 December 2019 January 2020 R603 00 R727 200 R801 000 R558 000 Credit sales constitute 40% of the total sales. 3. Expected collections from debtors: Debtors’ are told that they are expected to pay in the current month or in the month following the sales transaction month. However, the budget is compiled as follows: 10% is collected in the transaction month. A discount of 5% is allowed for any payment received in the transaction month. 50% is collected in the month after the transaction month. 35% is collected in the second month after the month of sale. 4. Debtors Age Analysis on 31 December 2019 CREDIT SEPTEMBE DEBTORS OCTOBER NOVEMBER DECEMBER TOTAL LIMIT R M. Minaj 45 000 49 100 49 100 U. Usher 85 000 7 800 40 680 48 480 B. Beiber 30 000 24 000 24 000 B. Britney 100 000 49 125 45 240 9 050 25 865 129 280 J. Jemson 12 000 6 500 6 500 W. West 50 000 22 000 22 000 D. Drake 120 000 29 800 39 000 24 000 26 680 119 480 H. Hannah 25 000 31 100 9 300 40 400 W. Wayne 45 000 4 350 23 270 8 740 36 360 Other debtors ? ? ? ? ? R 156 725 R 234 250 R 172 500 R 201 300 R 764 775 90 day 60 days 30 days Current Percentage % % % % 100%

5. Actual figures extracted from the financial statements for the year ended 31 December 2019: For the year Total sales R4 600 000 Cash sales R2 200 000 Credit sales R2 400 000 1 January 2019 31 December 2020 Trade debtors R 295 225 R764 775 1. What would you say to Bennie about the mistakes that he says his wife has made in compiling the budget with regard to the depreciation and the contribution of a new delivery vehicle? 2. Debtors Collection schedule for December 2019 & January 2020 MONTH CREDIT SALES DECEMBER 2019 JANUARY 2020 October November December January Cash from debtors 3. Calculate the % increase in the budgeted salaries and wages in January 2020 Calculate the % decrease in the amount budgeted for commission income in January 2020 4. Calculate the total finance charges incurred in the purchase of the vehicle. 5. Effect on the budget: TWO points that Mtini would mention to Bekker:

6. Calculation of rent income budgeted for December 2019: Suitable explanation: 3 7. Calculate the budgeted payments to creditors in January 2020. Mtini feels that the business need not buy any goods for cash, and that all goods should be bought on credit. In your opinion, will this improve the business Cash Budget? Explain. 4 8. Explain the difference between interest that is capitalized and interest that is not capitalized. Calculate the amount of the loan repaid on 31 December 2019. 3 9. Use the Cash Budget to identify the missing figures, totals and balances designated A-D. You are not required to identify the figures designated with a question mark (?). A B C D 4

10. Calculation of the average debtors’ collection period (in days) for the financial year: The % of debtors who are complying with the credit terms (as indicated in the Debtors Age Analysis): A comment on the above two calculations: Details of the main mistakes that the business is making with regard to the debtors. Also provide the names of specific debtors to illustrate these main problems, and suggest a solution for each mistake: DEFAULTING MISTAKES SOLUTION DEBTOR/S 11. Consider the actual and budgeted figures for Advertising, Telephone and Advertising. (Note that Mtini has not drawn any funds as yet). Comment on each item, and offer ONE point of advice in each case. COMMENT ADVICE Advertising Telephone Insurance 12. Bennie has made two significant decisions by taking out a new loan and admitting a partner to the business. What would you say to Bennie about these decisions and the effect on the cash flow of the business?

ACTIVITY C5: (CASH BUDGET AND PROJECTED INCOME STATEMENT) Khumbulani TRADERS Khumbulani Myende owns KHUMBULANI Traders. You are provided with information for two months. REQUIRED: 5.1 Complete the Cash Budget for November and December 2020. Certain figures have been entered for you. INFORMATION: A. Extract from the Projected Income Statement: NOVEMBER 2020 DECEMBER 2020 Sales R1 050 000 R997 500 Cost of sales 600 000 570 000 Commission income 7 000 8 000 Sundry expenses 22 500 ? Depreciation 2 200 2 200 Wages and salaries ? 256 000 Bad debts 19 500 34 125 Advertisements 0 11 000 Discount allowed 20 475 18 900 Interest expense (9% p.a.) 3 780 3 510 B. ADDITIONAL INFORMATION: (i) Cash sales amount to 40% of all sales. (ii) A mark-up of 75% on cost is maintained. Stock is replaced in the same month as sales. (iii) 20% of all purchases of stock are bought for cash. (iv) All creditors are paid in full in 30 days (in the month following the purchase). (v) Commission is received one month after it is earned. Commission is budgeted to increase by R1 000 per month. (vi) Sundry expenses consist of cash items only. It is expected to decrease by 8% each month. (vii) Wages and salaries for December 2020 include a bonus of R40 000 for the manager. A wage and salary increase of 8% for all employees will be applied from 1 December 2020. (viii) Advertisements will appear in a newspaper on the first day of each month, commencing on 1 December. Payment to cover three advertisements will be made in full on 15 November. (ix) The interest rate is 9% p.a. Interest is not capitalised and is paid monthly. A portion of the loan will be repaid on 30 November 2020.

5.2 KHUMBULANI BEDS (PTY) LTD You are provided with information for two months ending 31 October 2020. The business sells one type of bed. REQUIRED: 5.2.1 Calculate the percentage increase in the amount budgeted for salaries and wages for October 2020. Should the employees be satisfied with this? Explain. 5.2.2 The financial director is pleased with the work being done by the bookkeeper and internal auditor. Identify an expense that indicates that he is correct. Explain your answer. 5.2.3 A competitor, BB Beds, which sells only for cash, opened a store nearby on 1 October 2020. • Comment on how the new competitor has affected the sales of Khumbulani Beds. Provide figures. • Explain how Khumbulanii Beds has responded to this problem. Provide THREE points. Provide figures. 5.2.4 Cash balances: • Comment on the cash balances. Provide figures. • Explain how the directors can improve the cash balances in future. Explain TWO points. INFORMATION: A. Expected sales, cost of sales and deliveries: • The business budgets on selling 300 beds per month. • The cost price of each bed is R3 000 and the selling price is R5 000. No discounts are allowed. • The stock of beds is replaced in the month of sale. • Suppliers are paid in the month of purchase. • The business uses Cape Deliveries to deliver the beds to each customer.

B. Extract from the Cash Budget: SEPTEMBER 2020 OCTOBER 2020 PROJECTED ACTUAL PROJECTED ACTUAL Cash surplus (deficit) for month 110 000 125 000 120 000 (440 000) Cash at beginning of month 105 000 105 000 215 000 230 000 Cash at end of month 215 000 230 000 335 000 (210 000) C. Extract from the Projected Income Statement: SEPTEMBER 2020 OCTOBER 2020 PROJECTED ACTUAL PROJECTED ACTUAL Number of beds sold 300 beds 320 beds 300 beds 240 beds Cash sales 1 200 000 1 280 000 1 200 000 300 000 Credit sales 300 000 320 000 300 000 900 000 Total sales 1 500 000 1 600 000 1 500 000 1 200 000 Cost of sales (900 000) (960 000) (900 000) (720 000) Gross profit 600 000 640 000 600 000 480 000 Operating expenses (313 000) (323 000) (407 600) (374 960) Directors' fees 80 000 80 000 80 000 36 000 Salaries and wages 30 000 30 000 31 800 31 800 Advertising 10 000 10 000 10 000 40 000 Delivery costs (Cape Deliveries) 150 000 160 000 150 000 168 000 Audit fees 0 0 90 000 50 000 Rent expense 28 000 28 000 30 800 34 160 Sundry expenses 15 000 15 000 15 000 15 000 Operating profit 287 000 317 000 192 400 105 040

ACTIVITY C5 – (CASH BUDGET AND PROJECTED INCOME STATEMENT) 5.1 Khumbulani TRADERS CASH BUDGET FOR NOVEMBER AND DECEMBER 2020 CASH BUDGET NOVEMBER 2020 DECEMBER 2020 R R CASH RECEIPTS: Cash sales 399 000 Cash from debtors 536 025 597 975 Commission income Total receipts CASH PAYMENTS: Cash purchases of stock 114 000 Payments to creditors 520 000 Sundry expenses 22 500 Total payments 935 280 874 210 Surplus (deficit) 26 745 Opening bank balance (56 000) Closing bank balance (29 255) 5.2 Khumbulani BEDS (PTY) LTD 5.2.1 Calculate the percentage increase in the amount budgeted for salaries and wages for October 2020 Should the employees be satisfied with this? Explain.

5.2.2 The financial director is pleased with the work being done by the bookkeeper and internal auditor. Identify an expense that indicates that he is correct. Explain your answer. 5.2.3 Comment on how the new competitor has affected the sales of Khumbulani Beds. Provide figures. Explain how Khumbulani Beds has responded to this problem. Provide THREE points. Provide figures. Point 1 Point 2 Point 3

5.2.4 Comment on the cash balances. Provide figures. Explain how the directors can improve the cash balances in future. Explain TWO points. ACTIVITY C6: BUDGETING 6.1 Explain why: 6.1.1 Bad debts will not appear in a cash budget. 6.1.2 A cash budget is an effective internal control mechanism. 6.2 INGWEMABALA LTD Ingwemabala Ltd is registered with an authorised share capital of 750 000 ordinary shares. On 1 September 2020, 515 000 ordinary shares were in issue. REQUIRED: 6.2.1 Refer to Information A. Calculate the cash expected to be collected from debtors during November 2020. Please note: Debtors are not allowed any discounts Bad debts are applicable 6.2.2 Calculate the missing amounts denoted by (a) to (e) on the cash budget provided in information F. 6.2.3 Calculate: (i) The amount of the loan that will be paid back on 1 November 2020 (ii) The total cost of the new vehicle purchased on 31 July 2020

6.2.4 A young shareholder is of the opinion that the company should not spend money on staff training – they should employ trained personnel. Explain why the company spends money on staff training. Give ONE point. What can the business do to ensure that trained personnel remain in the employ of the business? Give ONE point. INFORMATION: A. Incomplete Debtors Collection Schedule for the three months in 2020. SEPTEMBE MONTHS CREDIT SALES R OCTOBER NOVEMBER July 108 000 12 960 August 104 400 46 980 12 528 September 93 000 37 200 41 850 ? October 102 000 40 800 ? November 111 600 ? Total collection from debtors ? B. Cash sales is 40% of total sales. C. Cost of sales figures: SEPTEMBER OCTOBER NOVEMBER 96 875 106 250 116 250 D. Cash purchases amounts to 20% of total purchases. Stock sold in a month is replaced in the same month (the business maintains a base stock). E. Creditors for stock purchases are paid in the month following the purchase (30 days) to take advantage of a 5% discount.

F. Cash Budget for the two months ending November 2020 OCTOBER NOVEMBER Receipts Cash Sales 68 000 74 400 Cash from Debtors 95 178 6.2.1 Rent Income (a) 16 985 Interest on investment Additional shares issued 513 000 Total receipts Payments Cash purchases of stock 21 250 (b) Payment to creditors 73 625 (c) Salaries and wages 126 400 133 984 Interest on loan 2 000 1 750 Staff training programme - 18 000 Advertising 8 160 (d) Ordinary share dividends - (e) Vehicle instalment 4 750 4 750 Sundry expenses Total payments G. The rent will increase by 7,5% on 1 November 2020. H. Advertising is a fixed percentage of cash sales. I. A new vehicle was purchased on 31 July 2020. A deposit of R40 000 was paid and the balance is to be settled by a fixed monthly instalment over four years. J. Additional shares were issued on 1 October 2020 at R5,40 per share. An interim dividend of 15 cents per share will be paid on 30 November 2020. The new shareholders qualify for interim dividends. K. Part of the loan will be re-paid on 1 November 2020. Interest on loan at 10% p.a. is payable on the last day of each month. Interest on loan is not capitalised.

ACTIVITY C 6: BUDGETING 6.1.1 Explain why bad debts expense does not appear in a cash budget. 6.1.2 Explain why a cash budget is an effective internal control mechanism. Provide ONE reason. 6.2 INGWEMABALA LTD 6.2.1 MONTHS CREDIT SALES SEPTEMBER OCTOBER NOVEMBER July 108 000 12 960 August 104 400 46 980 12 528 September 93 000 37 200 41 850 October 102 000 40 800 November 111 600 Total collection from debtors 95 178 6.2.2 Calculations

(a) (b) (c) (d) (e) 6.2.3 Calculate the amount of the loan that will be paid back on 1 November 2020. Calculate the total cost of the new vehicle purchased on 31 July 2020. 6.2.4 A young shareholder is of the opinion that the company should not spend money on staff training – they should employ trained personnel. Explain why the company spends money on staff training? Give ONE point. What can the business do to ensure that trained personnel remain in the employ of the business? Give ONE point.

ACTIVITY C7: CASH BUDGET, ANALYSIS AND INTERPRETATION AND PROBLEM SOLVING 7.1 The incomplete cash budget and information were taken from the financial records of Ndinisa Stores. REQUIRED: 7.1.1 Calculate the credit purchases for May 2020 and complete the Creditors' Payment Schedule for the period 1 May to 30 June 2020. 7.1.2 Calculate the missing figures indicated by A–C on the Cash Budget provided. 7.1.3 Sundry expenses, among other expenses, are expected to increase sharply due to the forecast rise in the inflation rate on 1 June 2020. Refer to information E. • Calculate the expected percentage increase in sundry expenses. • Suggest and explain TWO measures that can be taken to lessen the possible adverse impact of the rise in prices. 7.1.4 Refer to Information H. Briefly comment with figures on each item and provide ONE point of advice to the owner. INFORMATION: A. Total sales for 2020: Actual Budgeted March 600 000 April 750 000 May 800 000 June 890 000 B. • Credit sales constitute 60% of total sales. • The business sells goods at cost plus 25% mark-up. • 30% of all stock is bought for cash. • Fixed base method of stock is in use. Stock sold is replaced in the same month. C. Creditors will be paid as follows: • 60% in the month following the transaction month (after 30 days) less 5% discount. • 40% in the second month following the transaction month (after 60 days).

D. Creditors Payments Schedule for the period 1 May to 30 June 2020 Month Credit Purchases May June March 336 000 134 400 April 420 000 239 400 ? May ? ? 373 800 ? E. CASH BUDGET FOR THE PERIOD 1 MAY TO 30 JUNE 2020 May June 2020 2020 RECEIPTS Cash sales A 356 000 Collections from debtors Fixed deposit (9% p.a.) B Interest on fixed deposit 2 700 1 800 Rent income 15000 15 000 Other cash income 52 400 55 000 PAYMENTS Cash purchases of stock C Payments to creditors Water and electricity 5 000 5 200 Sundry expenses 24 000 30 000 Advertising 4 000 5 000 Surplus (Shortfall/Deficit) for the month Bank balance at the beginning of the month 11 850 Bank balance at the end of the month F. Interest on fixed deposit is calculated at 9% per year and is earned at the end of each month. It is expected to remain unchanged over the budget period. G. The fixed deposit will be increased on 1 June 2020. H. May 2020 Budget Actual Water and electricity R5 000 R6 500 Rent income R15 000 R8 000

7.2 PROBLEM SOLVING Brand Cell Phones sells one brand of cell phones. The owner, Glenys Masala, has three branches in different shopping centres/malls (refer to the table below). The annual figures from the three branches for the financial year ended 29 February 2020 were presented to the owner. REQUIRED: Identify ONE problem in relation to each branch. Quote relevant figures. In each case, offer Glenys Masala advice to solve the problem. Umlazi Kwanyandu Ezimbuzini Megacity Mall Mall Mall Number of cell phones available for 170 450 400 sale Number of cell phones sold during 170 225 80 the year Closing stock 0 210 320 Selling price per cell phone R6 000 R6 000 R8 000 Mark-up percentage 50% 50% 100% Amount banked (deposited) during R980 000 R1 350 000 R640 000 the year ACTIVITY C7 7.1.1 Creditors Payments Schedule for the period 1 May – 30 June 2020 Month Credit purchases May June March 336 000 134 400 April 420 000 239 400 May 373 800

7.1.2 Calculate the missing figures indicated by A–C on the Cash Budget provided. A B C 7.1.3 Calculate the expected percentage increase in sundry expenses. Suggest and explain TWO measures that can be taken to lessen the possible adverse impact of the increase in prices. 7.1.4 Refer to information H. Briefly comment with figures on each item and provide ONE point of advice to the owner. Item Comment and figures Advice Water & electricity Rent income

7.2 Identify ONE problem in relation to each branch. Quote relevant figures. In each case, offer Glenys Masala advice to solve the problem. Problem Solution Umlazi Megacity Mall Umlazi Megacity Mall Kwanyandu Mall Kwanyandu Mall . Ezimbuzini Mall Ezimbuzini Mall

ACTIVITY C8: CASH BUDGET You are provided with a partially completed Cash Budget of Ugu Souvenirs Ltd. REQUIRED: 8.1 Identify the following: • Price paid per share for the re-purchase of the shares in October. • Bank balance at the end of September. 8.2 Calculate and comment on the percentage increase that the employees will get in October. 8.3 Calculate the figures represented by A – C. 8.4 The owner is not happy with the rent. He plans to terminate the rent agreement on 1 October 2020 and purchase the property. • According to the Cash Budget, how would he pay for the property? • Apart from saving on rent expense, provide TWO advantages of buying the property. • Provide TWO disadvantages of buying the property. INFORMATION: A. UGU SOUVENIRS LTD. CASH BUDGET FOR THE TWO MONTHS ENDING 31 OCTOBER 2020. CASH RECEIPTS SEPTEMBER OCTOBER Cash sales A 1 681 120 Collections from debtors 787 500 B Mortgage loan (1 October 2020) 500 000 Interest on fixed deposit 3 000 Fixed deposit and interest 366 000 TOTAL RECEIPTS 2 670 700 3 331 680 CASH PAYMENTS Cash purchases of inventory 948 000 900 600 Payments to creditors 623 438 C Wages and salaries 322 500 341 850 Director’s fees 400 000 600 000 Interest on loan 7 000 Interest on overdraft 5 400 Operating expenses 487 500 487 500 Rent expense 27 000 Land and building (cost price) 910 000 Rates on property 1 520 Advertising 110 600 168 112 Repurchase of shares - see Info B (i) 52 000 TOTAL PAYMENTS 2 919 038 4 074 382 Surplus (deficit) ? (742 702) Bank balance at beginning of month 86 525 (161 813) Bank balance at end of month ? ?

B. Additional information: (i) A shareholder owning 10 000 shares has financial difficulty. The directors agreed to buy back his shares in October. The average issue price is R5,00. (ii) The mark-up is 70%. (iii) Sales figures: Month Cash sales Credit sales July R1 968 750 R843 750 August 1 837 500 787 500 September ? 805 800 October 1 681 120 ? (iv) 30% of sales are on credit. (v) Debtors are collected as follows: 70% in the month after the sales transaction. 28% in the second month after the sales transaction. 2% will be written off as bad. (vi) Stock is replaced in the same month that it is sold. (vii) 60% of inventory purchases are for cash. (viii) Creditors are paid within 30 days (in the month after the purchase transaction in order to receive 5% discount. 35

D. IMVENTORY VALUATION ACTIVITY D1 INVENTORY VALUATION FIFO AND WEIGHTED AVERAGE 1.1 You are provided with information relating to Hi-Tech World Traders for the year ended 28 February 2021. The business sells only high-definition decoders. The periodic inventory system and the weighted average stock valuation method are in operation. They buy all their stock from one supplier. REQUIRED 1.1.1 Explain ONE main difference between the periodic and continuous (perpetual) inventory systems. 1.1.2 Using the weighted average stock valuation method calculate the following: • Value of closing stock on 28 February 2021 • Gross profit for the year ended 28 February 2021 1.1.3 Calculate the value of closing stock using the FIFO method. 1.1.4 B Thabani, the owner, asked you to switch to the FIFO-method of inventory valuation when you are going to prepare the financial statements for 2021. What will your response be to this request? INFORMATION: A. Stock on 1 March 2020 (100 decoders) valued at R83 150 (this included carriage on purchases) B. Purchases during the year totalled 1 150 units for R1 121 250, and are summarized as follows: May 2020 250 units at R 945 each R 236 250 October 2020 800 units at R 975 each R 780 000 January 2021 100 units at R 1 050 each R 105 000 C. Carriage on purchases during the year was charged at R35 per decoder by the supplier. D. Returned 10 defective decoders purchased during January 2021, to the supplier. The supplier granted a full refund including carriage. E. A selling price of R1 095 was maintained throughout the year. Sales amounted to R1 215 450. F. On 28 February 2021, a physical stocktaking revealed stock of 130 decoders on hand.

1.2 You are provided with information relating to AA Car Dealers. The business uses the specific identification method of valuing stock. The following items are in stock at the beginning of the May 2021. Description Cost price Published Selling Price Item 1 Audi A1 (1.2 litre engine) R170 000 R215 000 Item 2 Audi A3 (2.0 litre engine) R270 000 R324 000 Item 3 Audi A6 (1.8 litre engine) R330 000 R380 000 Item 4 Audi A8 (3.0 litre engine) R580 000 R650 000 Items 1 and 3 are sold for cash during May 2021 at their published selling price. REQUIRED: 1.2.1 Calculate the following: • Value of trading stock on 31 May 2021. (3) • Gross profit earned during May 2021. (3) 1.2.2 Explain why it would be unreasonable for this business to value its stock items on the basis of FIFO or weighted average. (2) ACTIVITY D1 INVENTORY VALUATION 1.1 1.1.1 Explain ONE main difference between the periodic and continuous (perpetual) inventory systems. 1.1.2 Using the weighted average stock valuation method calculate the following: Value of closing stock on 28 February 2021 ➢ Gross profit for the year ended 28 February 2021 (5)

1.1.3 Calculate the value of closing stock using the FIFO method. (6) 1.1.4 B Thabani, the owner, ask you to switch to the FIFO-method of inventory valuation when you are going to prepare the financial statements for 2021. What will your response be to this request? (3) 1.2 1.2.1 Calculate the following: • Value of trading stock on 31 May 202. (3) • Gross profit earned during May 2021. (3) 1.2.2. Explain why it would be unreasonable for this business to value its stock items based on FIFO or weighted average.(2)

ACTIVITY D2 INVENTORY, INTERNAL CONTROL, VAT AND ETHICS CONCEPTS 2.1 Match the features below to either FIFO or Weighted average method. Write only the stock method next to the relevant number in your ANSWER BOOK. 2.1.1 Suitable for stock with limited shelf life 2.1.2 Stock values are realistic as they are based on the most recent cost prices. 2.1.3 Might not reflect current costs if prices increase significantly over the accounting period. 2.1.4 Is calculated by dividing the total cost of goods purchased by the total number of units bought. 2.2 The information supplied below was taken from the books of MP Traders, trading in oranges. The business values stock periodically and uses the FIFO method. REQUIRED: 2.2.1 Refer to the abridged stock register below and calculate the following: (A) The value of closing stock (B) The cost of sales 2.2.2 The owner, M Phezulu, suspects that some bags could be missing or stolen. He approaches you for help. Do a calculation to confirm his suspicion. 2.2.3 Suggest THREE (separate) internal control measures that he can introduce to prevent or lessen stock losses.

INFORMATION: Inventories comprise trading stock only. The stock records for June and July 2021 show the following details: Quantity(bags) Price per bag Total cost Stock of oranges on 1 June 2021 1 500 R17.10 R22 500 Purchases 5 500 119 700 June 2021 2 500 R20.52 51 300 July 2021 3 000 R22.80 68 400 Returns to suppliers (July 2021) 300 Sales ? R33.06 195 054 Returns by debtors 50 R33.06 ? Closing stock (31 July 2021) 640 ACTIVITY D2 INVENTORY, INTERNAL CONTROL, VAT AND ETHICS 2.1 CONCEPTS 2.1.1 2.1.2 2.1.3 2.1.4 2.2 2.2.1 The value of closing stock (3) (A)

(B) The cost of sales (7) 2.2.2 The owner, M Phezulu, suspects that some bags could be missing or stolen. He approaches you for help. Do a calculation to either confirm or dismiss his suspicion. 2.2.3 Suggest THREE internal control measures that he can introduce to prevent or decrease stock losses. ACTIVITY D3 (INVENTORY VALUATION) 3.1. Choose the correct term from those given in brackets. Write only the term next to the question numbers (3.1.1 to 3.1.3) in the ANSWER BOOK. 3.1.1 The most recent purchases will be considered as closing stock in the (FIFO/weighted average) stock valuation method. 3.1.2 Merchandise purchased is recorded in a Trading Stock Account in the (perpetual/periodic) inventory system. 3.1.3 Carriage on purchases is recorded as an (asset/expense) in the periodic inventory system. 3.2 PHOTO-FIX TRADERS The information relates to Photo-fix Traders for the financial year ended 30 April 2021. The business is owned by N Maduna and sells two models of cameras (Grand and De-Lux) and photo frames. (a) The stock of cameras is valued using the specific identification method. (b) Photo frames are valued using the weighted average method.

REQUIRED: 3.2.1 Calculate the value of closing stock of cameras on 30 April 2021. 3.2.2 Calculate the value of closing stock of photo frames. 3.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. 3.2.4 Tom is thinking of employing an assistant at a wage of R3 500 per month to control the stock of photo frames. Explain why this is NOT a good idea. Provide TWO points with figures/calculations INFORMATION: The following information is in respect of the year ended 30 April 2021: A. CAMERAS: STOCK, BOUGHT AND SOLD BOUGHT UNITS SOLD UNITS UNIT COST TOTAL GRAND MODEL Opening stock 20 R5 500 R110 000 14 Purchases 240 R5 750 R1 380 000 170 DE-LUX MODEL Net purchases: 270 R1 104 000 235 September 2019 180 R4 000 R720 000 140 Returns (30) R4 000 (R120 000) January 2020 120 R4 200 R504 000 95 B PHOTO FRAMES: STOCK, BOUGHT AND SOLD UNITS AMOUNTS Opening stock 60 R7 200 Purchases 720 R108 000 Returns 30 R4 500 Closing stock 80 ? Sales 657

3.3 MANAGEMENT OF INVENTORIES The information relates to Lyle Furnishers for the financial year ended 28 February 2021. The business sells cupboards, tables and chairs. No stock went missing during the year. 3.3 REQUIRED Provide ONE different problem (with figures) relating to EACH product and ONE solution to EACH problem INFORMATION CUPBOARDS TABLES CHAIRS Opening stock (units) 200 160 1 300 Purchases (units) 2 500 3 050 6 000 Selling price per unit R1 750 R850 R350 Credit sales (units) 800 2 400 2 100 Returns to suppliers (units) 500 10 0 Cash sales (units) 1 000 600 2 250 Closing stock (units) 400 200 2 950 Cash received from cash sales R1 750 000 R470 000 R787 500 ACTIVITY D3 INVENTORY VALUATION AND PROBLEM SOLVING 3.1 3.1.1 3.1.2 3.1.3

3.2 Photo-fix Traders 3.2.1 Camera (Specific identification) 3.2.2 Photo frames (weighted average) 3.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. 3.2.4 Tom is thinking of employing an assistant at a wage of R3 500 per month to control the stock of photo frames. Explain why this is NOT a good idea. Provide TWO points with figures/calculations. 3.3 Provide ONE different problem (with figures) relating to EACH product and ONE solution to EACH problem Products Problems Solutions Cupboard Tables Chairs

E. COST ACCOUNTING ACTIVITY E1 1.1 ZENZELE MANUFACTURERS The following information relates to ZENZELE Manufacturers, a small business that manufactures photo frames. The financial year ended on 30 April 2021. REQUIRED: 1.1.1 Prepare the Production Cost Statement for the year ended 30 April 2021. 1.1.2 Complete the abridged (shortened) Income Statement to calculate the net profit for the year ended 30 April 2021. INFORMATION: A. Stock records 30 APRIL 2021 30 APRIL 2020 Raw material stock R58 560 R37 600 Work-in-process stock ? R142 000 • Purchases of raw materials for the financial year amounted to R555 000. • Defective material valued at R21 000 was returned to suppliers. B. The business produced 39 000 units at a cost of R45 each. C. The following information was calculated on 30 April 2021. R Direct material cost ? Direct labour cost 716 960 Factory overhead cost (See D below.) 468 450 Selling and distribution cost (See D below.) 609 850 Administration cost (See D below.) 443 950 Cost of production of finished goods ? Gross profit 1 250 000 D. The following items must be taken into account: • Administration cost includes the annual insurance premium of R22 750; however, 60% must be allocated to the factory. • Factory overhead cost includes the full amount of rent paid, R36 300. However, this should have been allocated according to floor area. The areas are: factory 400 square metres, office 120 square metres, shop 80 square metres.

1.2 UNIT COSTS AND BREAK-EVEN ANALYSIS Bill's Manufacturers is a business that produces pencil cases. Bill is concerned about his cost of production. REQUIRED: 1.2.1 Explain the difference between fixed cost and variable cost. 1.2.2 Calculate the break-even point for 2021. 1.2.3 Comment on the break-even point and the level of production for 2020 and 2021. Explain why the owner should be satisfied or not. 1.2.4 Identify the variable cost that should be of great concern to the owner. Explain and provide a calculation to support your answer. 1.2.5 Despite the fact that there was a decrease in the fixed costs per unit, the owner is still not satisfied with his control over the fixed costs. Explain and provide calculation(s) to support his opinion. INFORMATION: PENCIL CASES UNIT COSTS 2021 2020 Variable costs R11,60 R11,00 Direct material cost 6,03 5,80 Direct labour cost 4,05 3,50 Selling and distribution cost 1,52 1,70 Fixed cost R5,40 R5,50 Factory overhead cost 3,50 3,65 Administration cost 1,90 1,85 Selling price per unit R17,80 R16,50 Units Units Units produced and sold 80 000 65 000 Break-even units ? 65 000 NOTE: Take the inflation rate of 8% into account.

ACTIVITY E1 ANSWER SHEET 1.1 ZENZELE MANUFACTURERS 1.1.1 PRODUCTION COST STATEMENT ON 30 APRIL 2021 Direct labour cost 716 960 Prime cost Total manufacturing cost Work in process at beginning of year 142 000 Cost of production of finished goods 1.1.2 Complete the abridged (shortened) Income Statement to calculate the net profit for the year ended 30 April 2021. Gross profit 1 250 000 Net profit 1.2 UNIT COSTS AND BREAK-EVEN ANALYSIS 1.2.1 Explain the difference between fixed cost and variable cost.

1.2.2 Calculate the break-even point for 2021. 1.2.3 Comment on the break-even point and the level of production for 2020 and 2021. Explain why the owner should be satisfied or not. 1.2.4 Identify the variable cost that should be of great concern to the owner. Explain and provide a calculation to support your answer. 1.2.5 Despite the fact that there was a decrease in the fixed costs per unit, the owner is still not satisfied with his control over the fixed costs. Explain and provide calculation(s) to support his opinion.

ACTIVITY E2: MANUFACTURING 2.1 CONCEPTS Give ONE cost category for each of the following descriptions by choosing a cost category from the list below. Write only the cost category next to the question number (1.1.1–1.1.4) in the ANSWER BOOK. direct material cost; direct labour cost; factory overhead cost; administration cost; selling and distribution cost 2.1.1 Salaries paid to office workers 2.1.2 Cost of raw materials used in the production process 2.1.3 Commission paid to salespersons 2.1.4 Rent paid for factory buildings 2.2 CHELSEA MANUFACTURERS You are provided with information relating to CHELSEA Manufacturers for the year ended 29 February 2021. The business produces one style of handbag. REQUIRED: 2.2.1 Calculate the: • Direct labour cost • Direct material cost 2.2.2 Prepare the Production Cost Statement. 2.2.3 The owner is concerned about the production level in 2021. • Calculate the break-even point for 2021. • Explain whether the owner should be concerned or not. Provide figures. 2.2.4 The owner is not satisfied with the internal control of the raw material. Calculate the following regarding the raw material (fabric): • Metres of fabric stolen from the storeroom • Metres of fabric wasted in the factory Provide a strategy to improve the internal control in EACH case above. INFORMATION:

A. Workers involved in the manufacturing process: NO. OF WAGE EARNINGS WORKERS PER WORKER Basic (normal wage) R40 per hour 1 920 hours 5 Overtime Basic rate + 75% 90 hours NOTE: Deductions: 8,5% of basic wage Employer's contribution: 11,5% of basic wage B. Raw material (fabric): Raw material purchased is kept in a storeroom before being issued to the factory for production. Stock is valued according to the weighted-average method. Storeroom stock records: TOTAL METRES AMOUNT (R) Balance on 1 March 2020 1 350 131 500 Purchases: 5 400 584 000 May 2020 2 500 265 000 September 2020 2 900 319 000 Raw material issued to factory 5 500 ? Stock balance on 29 February 2021 940 ? C. There is no work-in-process stock. D. Other costs for the financial year (after all the adjustments): Factory overhead cost Fixed cost R343 340 Administration cost Fixed cost R226 660 Selling and distribution cost Variable cost R217 340 E. Additional information on 29 February 2021: • 4 200 handbags were produced and sold at R450 each. • Total sales amounted to R1 890 000. • Total variable cost per unit was R300. • 1,25 metres of fabric was used to make one handbag.

ACTIVITY E2 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.2.1 Calculate direct labour cost. Calculate direct material cost. 2.2.2 Production Cost Statement for the year ended 29 February 2021: Prime cost Cost of production of finished goods

2.2.3 Calculate the break-even point for 2021. Explain whether the owner should be concerned or not. Provide figures. 2.2.4 The owner is not satisfied with the internal control of the raw material (fabric). STOREROOM: FACTORY: Raw material stolen Raw material wasted CALCULATION: metres of fabric STRATEGY

ACTIVITY E3 3.1 CONCEPTS Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question number (3.1.1–3.1.3) in the ANSWER BOOK. 3.1.1 Commission on sales will be classified as an administration cost. 3.1.2 Advertising is part of factory overhead costs. 3.1.3 Carriage on raw materials purchased increases the cost of raw materials issued for production. 3.2 TREK BIKES MANUFACTURERS You are provided with information relating to TREK BIKES Manufacturers for the year ended 31 December 2020. The business manufactures one type of bicycle. REQUIRED: 3.2.1 Prepare the following notes to the Production Cost Statement: • Direct labour cost • Factory overhead cost 3.2.2 Prepare the Production Cost Statement. INFORMATION: A. Stock balances: 31 December 2020 1 January 2020 Raw materials stock Work-in-process stock ? R160 000 Finished goods stock R95 000 R110 000 Indirect factory materials R15 100 R13 200 B. Employees in the production process: Number of employees 14 employees Basic monthly salary of each employee R7 000 Total overtime hours per employee for the year 144 hours Overtime rate per hour R65 Employment benefits: • All employees in the production process work the same number of overtime hours. • UIF deductions from the basic salary are 1%. The employer contributes an additional 1% of the basic salary to UIF. C. The factory foreman is entitled to an annual salary of R156 000 (including UIF and pension benefits). D. Accounts appearing in the General Ledger on 31 December 2020: Water and electricity R104 000 Rent expense R115 200 Insurance R71 400 • 10% of the water and electricity was used by the administration office. The factory used the rest. • Rent is divided between the different sections according to floor space: Total Factory Administration Sales Floor space 1 500 m2 600 m2 400 m2 500 m2

• Insurance of R2 800 is still outstanding for December 2020. Insurance is divided in a ratio of 3 : 2 : 2 between the factory, administration and sales departments. E. Indirect materials of R38 400 were bought for the factory during the financial year. F. The following figures were calculated for the financial year: • Depreciation on factory equipment, R277 220 • Direct (raw) materials issued for manufacturing, R2 100 000 G. Details from the Income Statement for the year: Sales of finished goods R6 200 000 Cost of sales of finished goods R4 015 000

3.3 PEELS HONEY This business produces and sells one type of syrup. The sole owner is Craig Manning. The financial year-end is 31 October. REQUIRED: 3.3.1 Calculate the break-even point for the year ended 31 October 2020. (4) 3.3.2 Should the business be satisfied with the number of units that they produced and sold during the current financial year? Explain. Quote figures. (3) 3.3.3 Give TWO possible reasons for the increase in the direct material cost per unit in the current financial year. (4) 3.3.4 Craig suggests that, in order to improve financial results in the new financial year, the (4) quantity of syrup per bottle must be reduced by 10% and the selling price must remain the same. Give TWO valid reasons why he should not do this. INFORMATION: The following information was taken from the accounting records: 31 October 2020 31 October 2019 Total Per unit Total Per unit Sales R1 792 000 R28,00 R1 794 000 R23,00 Variable costs R1 024 000 R16,00 R975 000 R12,50 Fixed costs R736 000 R11,50 R630 000 R8,08 Direct material cost R656 000 R10,25 R592 800 R7,60 Break-even point ? 60 000 units Number of units 64 000 units 78 000 units produced and sold ACTIVITY E3 3.1 CONCEPTS 3.1.1 3.1.2 3.1.3

3.2 TREK BIKES MANUFACTURERS 3.2.1 DIRECT LABOUR COST 9 FACTORY OVERHEAD COST 13 3.2.2 PRODUCTION COST STATEMENT FOR THE YEAR ENDED31 DECEMBER 2020 Direct (raw) material cost 2 100 000 Prime cost Total manufacturing cost Work-in-process (beginning of year) 160 000 Cost of production of finished goods 10

3.3 PEELS HONEY 3.3.1 3.3.2 3.3.3 3.3.4

ACTIVITY E4 4.1 HANGING LOOPS CURTAINS HANGING LOOPS Curtains produce curtains to any client’s specifications. The financial information is provided for the financial year which ends on 31 March 2021. REQUIRED Use the information below to answer the following questions: 4.1.1 Complete the following for the financial year: • Production Cost Statement • Factory Overhead Note (All other calculations must be shown in brackets. 4.1.2 Provide a calculation to prove how the Direct Material Cost were calculated as R2 270 000. INFORMATION A Balances: 31 March 2021 1 April 2017 Direct Material R292 600 R224 000 Work in Process ? R69 500 Indirect Material R4 300 R3 800 B Transactions during the year: Direct Material • Direct material bought during the year, R2 500 200 • Defective material returned to suppliers, R140 000 • On 31 March 2021, a consignment of material worth R36 000, was partly damaged in a truck accident. The supplier informed the owner that 60% of the material could still be used and the purchase was accordingly recorded. This transaction took place after the final stock figure was calculated. Salaries and wages • Salaries and wages paid during the year, R780 000. R260 000 of this was paid to the factory manager and R175 000 to the administrative staff. • The business also contributes to the following staff members’ pension funds: o Factory manager: R26 000 o Production staff: R34 500

Other costs: • The VAT (15%) on Indirect Material purchased during the year was R4 695. Indirect Material is used in the factory only. • Factory insurance for the year, R62 400. Included is an annual policy taken out on 1 December 2017 worth R21 600. • The Trial Balance reflects Factory rent as R77 000. The rent for March is still outstanding. The rent increased on 1 March 2021 with R700 per month. • Depreciation on factory equipment, R160 000. • Depreciation on delivery vehicle, R42 700 . C Additional information: • Cost of sales for the year was R2 605 200. • 80% of all curtains produced, was sold during the year. 4.2 GLASS AND CO. Glass and Co. produces glass bottles used for food storage. Their financial year ends on 31 July 2021. REQUIRED 4.2.1 Explain why it is important to calculate the Breakeven Point. 4.2.2 Why is the production staff’s wages seen as a variable cost, but the factory cleaner’s wages is a fixed cost? 4.2.3 Calculate the following: (a) Factory overhead per unit (b) Total Fixed Cost (c) Variable cost per unit 4.2.4 Calculate the Breakeven Point. Should Glass and Co. be satisfied with their current production of 15 000 units? Explain. (6)

INFORMATION A The business produced and sold 15 000 units during the year. B The bottles are sold at R70 per unit. C The following costs was identified for 2021: Total Unit cost Cost R R Category Prime cost R510 000 R34,00 Direct material R300 000 R20,00 Variable Direct labour R210 000 R14,00 Variable Factory overhead R114 000 ? Fixed Selling and Distribution cost ? R11,20 Variable R70 400 is fixed, Administrative cost R142 400 ? the rest is variable ACTIVITY E4 4.1 HANGING LOOPS CURTAINS 4.1.1 Production cost statement for the year ended 31 March 2021

Factory overhead cost 4.1.2 Provide a calculation to prove how the Direct Material Cost were calculated as R2 270 000. 4.2 GLASS AND CO. 4.2.1 Explain why it is important to calculate the Breakeven Point. 4.2.2 Why is the production staff’s wages seen as a variable cost, but the factory cleaner’s wages is a fixed cost? 4.2.3 Calculate the following: (a) Factory overhead per unit (b) Total Fixed Cost

(c) Variable cost per unit 4.2.4 Calculate the Breakeven Point. Should Glass and Co. be satisfied with their current production of 15 000 units? Explain.

F. TANGIBLE ASSETS / FIXED ASSETS ACTIVITY F1 1. TANGIBLE ASSET, ETHICS, GAAP AND INTERNAL CONTROL The information given below was extracted from the accounting records of Sizwe LTD. on 31 August 2021 REQUIRED: 1.1.1 Refer to the Tangible asset note to the balance sheet as at 31 August 2021 and additional information 3 and prepare the Asset Disposal Account. 1.1.2 Refer to the Tangible asset note to the Balance sheet and fill in the missing figures denoted by (*) 1.1.3 At the Annual General Meeting, a shareholder, P. Querry felt that the directors were manipulating the financial statements of the company by understating the value of the tangible assets. He felt that the Land and buildings should be reflected at its current market value of R5, 5 million instead of the cost price. If you are the accountant of the business, how will you respond to P. Querry. You must use the relevant GAAP principle in your explanation. 1.1.4 Christo, the owner of CC printer used a business EFT for R10 000 to purchase a laptop for his son as a birthday gift. He informs you, the accountant to record this R10 000 as a purchase of equipment for business use. In your opinion, is this an acceptable business practice? Give reasons for your answer. INFORMATION: 2. Note to the Balance sheet as at 31 August 2021 Note1: Fixed Asset/Tangible Asset Land and Equipment Vehicles Building Cost price * 490 000 * Accumulated Depreciation 0 (203 000) (520 000) Carrying value- at the beginning of the year * * 460 000 MOVEMENTS Additional at cost * 150 000 240 000 Disposal at CV 0 0 (81 920) Depreciation for the year 0 * (104 000) Carrying value –at the end of the year 2 400 000 * * Cost price 2 400 000 * 1 020 000 Accumulated Depreciation 0 (286 500) (505 920)

3. Additional information A. The following invoice was received from Tash Construction and recorded. - Extension to the director’s board room 280 00. - Repairs to the roof, R 20 000. B. Equipment was purchased on 1 June 2021. No equipment was sold during the year. C. Vehicles - A new vehicle was purchased on1 June 2021 - An old delivery van was sold on credit at a profit of R 5 000 on 21 August 2021 D. Depreciation should be provided as follows: - Equipment: 10% p.a. on cost price. - Vehicles: 20% p.a. on the diminishing balance method. - ACTIVITY F1 - ANSWER SHEET - 1.1.1 - - GENERAL LEDGER OF SIZWE LTD - NOMINAL ACCOUNT SECTION - ASSET DIPOSAL ACCOUNT - 1.1.2 - Note to the Balance sheet as at 31 August 2021 Note1: Fixed Asset/Tangible Asset Land and Equipment Vehicles Building Cost price 490 000 Accumulated Depreciation 0 (203 000) (520 000) Carrying value- at the beginning of the year 460 000 MOVEMENTS Additional at cost 150 000 240 000 Disposal at CV 0 0 (81 920) Depreciation for the year 0 (104 000) Carrying value –at the end of the year 2 400 000 Cost price 2 400 000 1 020 000 Accumulated Depreciation 0 (286 500) (505 920) - -

1.1.3 If you are the accountant of the business, how will you respond to P. Querry. You must use the relevant GAAP principle in your explanation 1.1.4. In your opinion, is this an acceptable business practice? Give reasons - - ACTIVITY F2 Problem solving, analysis and interpretation of Assets • Barry and Brenda Ndlovu run a taxi business Called BBN Taxi Service. They are concerned that his revenue from tax fares has not met their budget of R2 000 000 and that the fuel and repairs costs have exceeded his budget for R950 000. The following information from the ledger, the Fixed Asset Register and other records on 28 February 2021, the last day of the financial year. REQUIRED: 2.1. Consider the information provided below. Identify two problems per taxi. Quote amounts to support your opinion. INFORMATION: Details Taxi 1 Taxi 2 Taxi 3 Name of the driver JAMES BONGI MBUSO Date of purchased 1 March 2021 1 March 2020 1 March 2021 Cost price of Vehicle 52 000 205 000 360 000 Accumulated depreciation 51 999 123 000 72 000 Amount of revenue brought in 1 080 000 288 000 306 000 Kilometres covered for the past year 120 000km 70 000km 34 000km Fuel and repairs cost for the year 732 000 336 000 160 000 Fuel and repair costs per kilometre 6.10 4.80 4.70

ACTIVITY F2 ANSWER SHEET Problem solving, analysis and interpretation TAXI 1 TAXI 2 TAXI 3 ACTIVITY F3. ETHICS AND CONTROL, PROBLEM SOLVING Required: Refer to each below and explain: ✓ Whether you think a problem exist or not. ✓ How you would handle each case INFORMATION: 3.1.1 The owner’s son who is a university student use the business vehicle on Saturday to go out clubbing with his friends. The business policy states that no business vehicle should be used for private purpose. 3.1.2 The business owns a plasma TV which is used mainly for presentations for client. The personnel Manager takes it home during weekends to watch sport. 3.1.3 The owner gave some lap-top computer belongings to his wife. He instructed the bookkeeper not to record this. 3.1.4The Secretary frequently receives expensive gifts from a computer software company. She buys computer software and equipment from this company.

ANSWER SHEET ACTIVITY F3 NO PROBLEM SOLUTION 3.1.1 3.1.2 3.1.3 3.1.4

CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT GRADE 12 ACCOUNTING PAPER 2 TEACHERS GUIDE 2021

ACTIVITY A1 1.1.1 Value Added Tax 1.1.2 15 % 1.1.3 Zero Rated 1.1.4 A PAYE B salary C Customers D Indirect 1.1.5 Comment: • It is unethical, you must be a registered VAT vendor to charge tax • All money collected from customers for VAT must be paid to SARS Consequences: • The owner may face the legal implications which may results to jail sentence • SARS can pose a penalty to the business ACTIVITY A2 2.1 (i) Indirect (ii) Decrease (iii) Asset 2.2 Details Amou nt Incorrect amount payable 112 539 (i) Shop rent paid (2 025) (ii) Vehicle purchased (-22 500 – 22 500) (45 000) (iii) Correction on invoice (-7 500+ 6 900) or 50 000 x 8% x (600) 15% Correct amount payable 64 914 ACTIVITY A3 3.1 VALUE ADDED TAX 3.1.1 True 3.1.2 False 3.1.3 True 3.1.4 False 3.1.5 True 3.2.1 After taking into account the errors and omissions, calculate the VAT amount that is either payable to or receivable from SARS. Indicate whether this amount is receivable or payable.

VAT 1 800 2 850 308 3 630 594 480 74 750 Balance b/d 3 434 OR -2 850 – 3 630 + 1 800 + 308 + 594 + 74 – 480 + 750 = 3 434 OR 2 850 + 3 630 - 1 800 - 308 - 594 - 74 + 480 - 750 = 3 434 Payable to SARS 3.2.2 The internal auditor discovered that the owner used the VAT collected from customers to pay expenses of the business. Therefore, he was unable to pay the VAT owed to SARS on the due date. State ONE point of concern that you would offer the owner concerning this practice. ONE valid point • It is unethical. • The business is an agent of SARS – money collected on behalf of SARS should not be used to defray other operational expenses. ACTIVITY A4 Explain why the government implemented VAT in South Africa. StateONE point. • Additional source of revenue for the government. • To fund infrastructure/ plans of the government. • To provide for basic services for the communities Explain why some products are zero-rated products. State ONE point. • To make basic necessities affordable to indigent/ poor communities Calculate the amount payable to SARS in respect of VAT for the two months ended 30 April 2021. WORKINGS 9 450 + 61 800 – 34 500 – 1 890 – 2 520 + 1 140 + 1 380 = 34 860

ACTIVITY A5 5.1 5.1.1 WORKINGS ANSWER (a) 1 104 – 960 144 (b) 52 600 x 15% 7 890 (c) 720 x 100/15 4 800 (112 470 – 6 325) x 15/115 5 500 + 825 (d) 112 470 x 15/115 13 845 OR 14 670 – 825 OR (97 800 – 5 500) x 15% 5.1.2 You are the internal auditor. The sole owner, Samson, used a business cheque to buy a new car for R460 000 including VAT. This car is kept at home for his wife's use. Samson says the vehicle must be recorded as a business asset and R60 000 must be recorded as a VAT input in the business' books. Explain what you would say to Samson. Provide TWO points. Expected responses for two marks: • This is tax evasion / he is attempting to reduce the amount due to SARS for VAT (this is illegal and unethical) • He will be increasing the input VAT, effectively reducing the amount due to SARS. • He could be fined or imprisoned because it is a criminal offence. • Personal transactions and business transactions should be kept separate (Business entity concept) / Samson should pay for this out of his private bank account. • As the car is not used for business purposes, the full amount of R460 000 should either be treated as drawings or a reduction of his capital contribution.

B 7: CREDITORS RECONCILIAIONS MEMORANDUM 7.1 CREDITORS RECONCILIATION 7.1.1 Provide TWO reasons why it is important for the business to prepare the Creditors' Reconciliation Statement. • It helps to detect fraud, errors and omissions. • It helps to identify differences between the balance in the statement and the balance in the business' records. • It is an internal control measure. 4 7.1.2 Calculate the correct Creditors' Control Account balance after taking into account the relevant errors and omissions. CREDITORS CONTROL ACCOUNT 32 640 + 5 020 + 12 800 – 1 280 – 1 280 + 1 720 = 49 620 6 7.1.3 Calculate the correct balances for creditors Zebo Suppliers and Leo Wholesalers, list by taking into account the errors and omissions. Creditor Workings Balance Zebo Suppliers 16 580 + 12 800 +1 720 31 300 + 200 Leo Wholesalers 29 520 – 6 300 18 320 – 4 900 49 620 10

ACTIVITY B 8 8.1 CREDITORS’ RECONCILIATION AND INTERNAL CONTROL 8.1.1 CREDITORS’ RECONCILIATION STATEMENT ON 30 JUNE 2019 R Balance as per statement of account 10 115 Invoice 5671 6 555 13 455 6 900 + (6 900 - 345) OR one mark one mark 13 800 - 345 Invoice 5780 (3 320) Invoice 5801 1 850 Invoice 6011 5 800 Electronic payment (10 000) Discount received (500) 17 400 Calculate the correct balance of Bailey Ltd in the Creditors’ Ledger. 17 850 – 450 = 17 400 13 8.2.1 Refer to Information D. Calculate the average creditors’ payment period in days. 114 000 ½ (50 000 + 64 000) x 365 416 100 = 57 000 two marks x 365 one mark 416 100 one mark = 50 days * 5

2.2.2 Provide TWO internal control measures which can be implemented by a business for good internal control over creditors. • The statement of account of individual creditors must be reconciled with their accounts in the Creditors’ Ledger. • Conduct internal audits to minimise the possibility of fraud and error. • Check documents to ensure accuracy of calculations and entries. • Ensure that items ordered from creditors are correctly received. • Ensure that all purchases have valid authorisasion. • Ensure that creditors are paid on time to make use of discounts / avoid interest charged discounts. • Make full use of credit terms to assist cash flow. 4 ACTIVITY B9 CREDITORS' RECONCILIATION: 9.1.1 Although Future Traders offers credit terms of 60 days, Generations Suppliers prefers to settle their account within 30 days during certain months. Provide TWO points to indicate that it is not a good decision. • Keep money as long as possible in own bank account to earn interest. • First collect money from debtors to pay creditors. • If no early payment discount is offered. • Pay as late as possible, but avoid unnecessary interest charged. 2 9.1.2 CREDITORS LEDGER OF STATEMENT FROM GENERATION FUTURE TRADERS SUPPLIERS 21 130 32 600 A + 2 100 B + 300 C - 500 D + 6 070 E - 7 700 27 000 27 000 10

ACTIVITY B 10 10.1 CREDITORS' RECONCILIATION 10.1.1 CREDITORS' CREDITORS' LEDGER RECONCILIATION STATEMENT Balance 43 900 40 475 (a) + 10 000 (b) – 3 300 (c) + 750 8 525 – 7 750 (d) – 775 (e) – 8 600 (f) + 2 100 (g) (7 500 + 750) – 8 250 38 150 38 150 10 10.1.2 Suggest TWO internal control measures that he can use to ensure that such practices do not occur. • Division of duties /rotate duties. (the manager must not be the only person responsible for ordering and recording goods.) • Have special order forms to be signed by two people. • Check documents regularly against deliveries. • Do regular/random stock counts to verify stock records. 4 ACTIVITY B 11 11.1. Use the table provided to indicate corrections and entries that must be made to the Creditors' Control Account and the creditors' list. Provide figures and a plus (+) or minus (–) sign for each correction. Creditors' Control Creditors' List Account Balance/Total on R40 130 R39 490 30 October 2018 (i) - 180 - 180 (ii) + 400 (iii) - 240 (iv) +2 100 + 2 100 Balance / Total on 41 810 31 July 2018 41 810

ACTIVITY B 12 12.1 CREDITORS' RECONCILIATION Creditors' Reconciliation Creditors' Ledger Statement Balance 28 370 25 300 A +13320 B +2700 C +350 D -7200 E -2700 -2700 28720 28720 ACTIVITY C1 1.1.1 Calculate the mark-up percentage on spare parts used in the Projected Income Statement for March 2021. 34 312P / 45 750 x 100 = 75% one part correct 3 1.1.2 Calculate % decrease in service fee income expected in April 2021. 20 250 / 225 000 x 100 = 9% one part correct (225 000 – 204 750) one mark 3 1.1.3 Calculate the additional space (in square metres) the business will rent from April 2021. 9 000 / 75 = R120  13 800 / R120 = 115 sqm  Additional space = 115 – 75 = 40 square metres one part correct OR 4 800one mark 3 (13 800 – 9 000) = 40 sqm one method mark 120 two marks 1.1.4 Calculate the interest rate on the fixed deposit. 8 550 – 4 050 4 500 ✓ x 12 ✓ x 100 = 8% one part correct 675 000 ✓ 4

1.2 Comment on the control of stock and explain how Amore intends to correct this. Quote figures. Each itemFiguresComparison figures not essential Trading stock deficit reduced to R3 000(was high at R21 000) Increase in security expenses by R6 300/from R7 500 to R13 800/by 84%. 3 1.3.1 Sam is thinking of purchasing the business premises rather than renting it. State ONE advantage and ONE disadvantage of this option. Advantage part-mark for unclear / incomplete answer • Will not have to pay rent in future. • Business will acquire a fixed asset. This increases the value of the business. • Extra space can be rented out to receive additional income. Disadvantage part-mark for unclear / incomplete answer • Rates on property must be paid. • Additional maintenance costs will be incurred. • Large initial cash outlay or an additional monthly instalment, including interest. • Not easy to relocate quickly • Costs and time involved in selling a building. 4 1.3.2 Sam offers a free delivery service of spare parts to customers, but plans to discontinue this service on 31 March 2021. State TWO points to support this decision. Any TWO relevant points:✓ ✓part-marks for unclear / incomplete answer • Customers will be forced to have the spare parts fitted as part of the service offered by the business. • The business will be saving on the running cost of the delivery vehicle • The main line of business is the repairing of vehicles – the sale of spare parts supports this • The profit on sale of spare parts is considerably lower than the fee income for the repair service. 4 1.3.3 Calculate the cost of the new vehicle that she plans to purchase on 1 April 2021. 9 000 ✓ x 12 ✓ = R720 000 one part correct 0,15✓or 15% 4

1.4.1 Explain whether Water and electricity has been well controlled, or not. Comment on control  Figures  This expense has been well-controlled. If the projected amount of R6 750 considered the increase, it would have been R7 762,50. Only R7 500 was spent (R262,50 less than the adjusted projected amount.) OR The projected amount (R6 750) has not taken in account the tariff increases of 15% affected on 1 February 2021, which would have led to an adjusted projected amount of R7 762,50. 2 1.4.2 Explain whether you agree with Sam's decision not to use the full budget for Advertising. Comment on decision  Figures  The actual amount spent is R4 350 less than the budgeted/projected. / The amount spent (R2 700) is lower than the projected amount (R7 050). This was a poor decision and the full amount should have been used (considering that that mark-up on cost was also adjusted from the projected 65% to 80%). This had a negative effect on fee income (R33 750 less than projected) and sales of spares (R47 250 less than projected) 2 1.4.3 Explain whether Consumable stores have been well controlled, or not. Comparison of fee income and consumable stores Figures  Part-mark for unclear / incomplete answer Comparison figures not necessary but may enhance explanation Fee income was less than budgeted by R33 750 (15%) whilst servicing expenses was over the budget by R9 675 (21,5%). An actual decrease in fee income should see a proportional decrease in consumable stores used. This indicates a lack of control. 2 1.4.4 Explain how Sam's decision about the mark-up percentage on spare parts has affected the business. Comparison of mark-up% and sales ✓ Figures ✓ Part-mark for unclear / incomplete answer Comparison figures not necessary but may enhance explanation • The increase in the mark-up percentage (65% to 80%) negatively impacted in spare-part sales. • Sales was less than projected by R47 250 (R193 050 to R145 800). • Profit on sales was less than projected by R11 250 (R76 050 to R64 800). 2

ACTIVITY C2 2.1 The main reason why bad debts would not appear in the Cash Budget is because it is a/an ……. 2 It is a non-cash item  2.2 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget for October and November 2020. Calculation Amount 30 000 ÷ 5% or x 100/5 x 60%  (a) One part 360 000  correct R28 250 x 80/20 One part (b) 113 000 correct 6 600  (c) (3 300 x 2) x 110%  One part 7 260  correct 201 600 x 11,5% x 1/12 One part (d) R1 932 15 correct 2.3 Complete the Debtors' Collection Schedule. CREDIT SALES OCTOBER NOVEMBER September 152 000  76 000 240 000 120 000  October 6.1(a) ÷ 60 102 600 50% of Oct credit x 40 sales 158 400 x 45% x November 158 400 67 716 95% 187 716 178 600 operation 9 2.4 Calculate the percentage increase in sundry expenses. 2 190  (89 790 – 87 600) = 2,5%  One part correct 87 600  4 2.5 The Cash Budget for October and November 2020 indicates that this business will face serious financial difficulties. Identify TWO items to support this statement. Quote relevant figures. Item   Figures   • The estimated overdraft for October is R82 800 and for November it is R49 300. (This exceeds the overdraft limit of R44 000 as approved by bank.) • The business is going to acquire a loan of R201 600 in November 2020. 4

2.6 Explain why each of the items reflects a problem for the business. State TWO points in EACH case. Item Explanation Any two valid reasons   Collection • Collections are much lower than expected. from debtors • This will cause a cash flow problem. • Internal control of debtors is poor. Any two valid reasons   • This puts strain on meeting more important business expenses. Drawings • This creates a further cash flow problem. • It is not a good business practice (unethical) for the owner to draw more money while the business is struggling. (Increased loans, overdraft) Any two valid reasons   • The policy will lapse (risk of being uninsured). Insurance • It will be difficult to replace assets. • There could be an increase in premiums in future. 6 ACTIVITY C3 3.1 Complete the following sentences by filling in the missing word(s). Write only the word(s) next to the question number (4.1.1 – 4.1.2) 3.1.1 The main purpose of preparing the Cash Budget is… Any valid point.  To plan To predict cash flows/ determine receipts and payments for the future 2 To control cash 3.1.2 ONE item in the Cash Budget that will not be reflected in a Projected Income Statement is… Any valid point.  Loan/Assets/Payments to creditors/Drawings/Receipts from debtors/Fixed deposits/Capital/Dividends 2 3.2 Prepare the Debtors’ Collection Schedule for December 2020 2020 Months Credit October November December sales Actual August 345 000 138 000 September 480 000 144 000 192 000 Budgeted October 300 000 57 000 90 000 120 000 November 210 000 39 900 63 000 December 180 000 34 200 5 339 000 321 900 217 200

3.3 Calculate the missing figures in the Cash Budget indicated by (i) to (v). CALCULATION ANSWER (i) 350 000 x 40% 140 000  (ii) (500 000 x 100/200) = 250 000 x 80% 200 000  360 000 x 1% (iii) 3 600  OR 43 200 (1 mark) ÷12 (1 mark) (iv) 6 x R1 378 x 4 weeks 33 072  17 (v) 6 758 x 100÷109 R6 200  3.4 In order to increase sales and the number of customers, Lizzy intends to advertise that credit limits for all credit customers will be increased to R35 000 and that new customers are welcome to open accounts during January. Give TWO points of advice to Lizzy regarding this decision. Any TWO valid points.   • Do not sell more on credit as this will worsen the overdraft • He must screen debtors properly (e.g. pay slip/ credit reference), not simply allowing them to open accounts without checking the ability to pay. • Only increase credit limits of customers who settle their debts promptly • He must improve the rate of collection from debtors by charging interest 4 TOTAL MARKS 30 ACTIVITY C4 4.1. What would you say to Bennie about the mistakes that he says his wife has made in compiling the budget with regard to the depreciation and the contribution of a new delivery vehicle? These are not mistakes. Both are non-cash items which do not affect the bank balances so they must not be in a Cash Budget. ✓✓ 2 4.2. Debtors Collection schedule for December 2019 & January 2020 ✓✓✓✓ All figures correct =4 marks; Mostly correct =3; Some correct =2; Few correct=1; None correct =0 DECEMBER MONTH CREDIT SALES JANUARY 2020 2019 October 241 200 84 420 November 290 880 145 440 101 808 December 320 400 30 438 160 200 January 223 200 21 204 Cash from debtors 260 298 283 212 4

4.3. Calculate the % increase in the budgeted salaries and wages in January 2020 4 080 X 100 = 6% ✓ 68 000 1 Calculate the % decrease in the amount budgeted for commission income in January 2016 3 600 X 100 = 15%✓  24 000 1 4 4.4. Calculate the total finance charges incurred in the purchase of the vehicle. (9 000 x 12) 46 000 + 216 000 – 196 000 = R66 000 2 4.5. Effect on the budget: Cost of repairs = 37 500 – (75% x 8 000) = 31 500 TWO points that Mtini would mention to Bekker: Any two valid points e.g. • This was irresponsible as insurance terms have been violated. • The repairs should be debited to drawings as this is a personal expense. 4 4.6. Calculation of rent income budgeted for December 2015: 15 950 x 100/110 = R14 500  any one part correct Suitable explanation: Any one valid explanation e.g. • The tenant paid the February rent in advance. • Additional unused property was rented out at the same rate. 3 7. Calculate the budgeted payments to creditors in January 2016. December total sales = 801 000 Cost of sales: 801 000 x 100/180 = 445 000 Credit purchases: 222 500 Paid in January = 222 500 – 22 250 = R200 250 Mtini feels that the business need not buy any goods for cash, and that all goods should be bought on credit. In your opinion, will this improve the business Cash Budget? Explain. Yes. This will mean that the R222 500 to be paid for cash sales in December will then be paid in January, which will improve the cash balance at the end of December by this amount. When the amount is paid in January they will also earn a R22 250 discount as well. There is also a similar effect in the following month. 4

4.8. Explain the difference between interest that is capitalized and interest that is not capitalized. Interest that is capitalized is added to the loan. Monthly repayments include the repayment of the loan and interest. Interest that is not capitalized is paid separately. Calculate the amount of the loan repaid on 31 December 2015. 500 ÷ 0,15 x 12 = R40 000 3 4.9. Use the Cash Budget to identify the missing figures, totals and balances designated A-D. You are not required to identify the figures designated with a question mark (?). All figures correct =4 marks; Mostly correct =3; Some correct =2; Few correct=1; None correct =0 A B C D (118 902) (80 872) 19 290 119 395 4 4.10. Calculation of the average debtors’ collection period (in days) for the financial year: 530 000 ½ (535 225 + 764 775) x 365 = 80 days 2 400 000 2 The % of debtors who are complying with the credit terms (as indicated in the Debtors Age Analysis): (R156 725 + R234 250) ÷ R764 775 x 100 = 51,1% 2 A comment on the above two calculations: It is unacceptable that the debtors are taking so long to pay and that only half of them are complying with the credit terms. 1 Details of the main mistakes that the business is making with regard to the debtors. Also provide the names of specific debtors to illustrate these main problems, and suggest a solution for each mistake: DEFAULTING PROBLEMS SOLUTION/ADVICE DEBTOR/S Exceeding the Minaj, Britney, Do not continue supplying these credit limit Hannah debtors; reduce their credit limits; give incentives for cash purchases. Taking longer Britney, Charge interest on overdue accounts; than the credit Jemson, Drake, settlement discounts to encourage term Wayne early settlement of accounts. 6

4.11. Consider the actual and budgeted figures for Advertising, Telephone and Advertising. Comment on each item, and offer ONE point of advice in each case. Comment ✓✓✓ Advice ✓✓✓ Advertising The expense is the same They should consider increasing as budgeted. This the advertising budget. Can be appears to be well strategically linked to sales. The planned. However, when business must look at one looks at the monthly trends/codes played at different sales, it shows that seasons and budget accordingly. advertising is not effective. Telephone Always overspending / Need extra control, investigate under budgeted whether there is a need to increase (calling debtors etc) or if it is being abused. Insurance This is R6 000 under- They should consider whether budget each month. they are still adequately covered or whether they have genuinely negotiated a better rate. This might be false advertising if the insurance company fails to pay out for legitimate claims. 6 4.12. Bennie has made two significant decisions by taking out a new loan and admitting a partner to the business. What would you say to Bennie about these decisions and the effect on the cash flow of the business? Any valid response Excellent answer = 3 marks; Good = 2; Satisfactory/Poor = 1; Incorrect =0 Expected response: Although he has used these strategies to convert his large overdraft into a positive balance, he should rather have looked at the real reasons for the shortcomings e.g. credit sales now account for 52 % (2.4m/4.6m) of total sales and debtors are not being well controlled. He now has extra interest to pay, even though the interest rate is better, as the loan raised is larger than the one cancelled. Also he has to share profits with another partner now – when he starts to take drawings, the cash situation will get worse. 3 TOTAL MARKS 50

ACTIVITY C5 5.1 Khumbulani TRADERS CASH BUDGET FOR NOVEMBER AND DECEMBER 2020 CASH BUDGET NOVEMBER 2020 DECEMBER 2020 R R CASH RECEIPTS: Cash sales 420 000 399 000 Cash from debtors 536 025 597 975 Commission income ✓ 6 000  7 000 Total receipts 5  962 025 1 003 975 CASH PAYMENTS: Cash purchases of stock 120 000 114 000  480 000 Payments to creditors 520 000 Sundry expenses 22 500  20 700 Wages and salaries  200 000  256 000 Advertisements  33 000 0 Repayment of loan  36 000 Interest on loan  3 780  3 510 Total payments 17 935 280 874 210 Surplus (deficit) 26 745  129 765 Opening bank balance (56 000) ✓ (29 255) Closing bank balance (29 255)  100 510 25 5.2 Khumbulani (PTY) LTD 5.2.1 Calculate the percentage increase in the amount budgeted for salaries and wages for October 2015. 1 800 x 100 = 6%  30 000 1 Should the employees be satisfied with this? Explain. Yes / No – compare to inflation rate / compare to directors fees  3 5.2.2 The financial director is pleased with the work being done by the bookkeeper and internal auditor. Identify an expense that indicates that he is correct.  Audit fees Explain your answer. The audit fees are much lower than expected, which means that they spent less time on the audit / records were in order Expected response for 1 mark: Audit fees lower than expected 3

5.2.3 Comment on how the new competitor has affected the sales of Khumbulani Beds. Provide figures. Comment  Figures  Cash sales are ¼ of the amount budgeted Cash sales projected R1,2m while actual was R300 000 Actual cash sales for Sept were R1,28m and dropped to R300 000 in Oct Budgeted cash sales was 80% but actually achieved 20% Sales decreased by 60 beds Gross profit decreased by R120 000 (R2 000 gross profit per bed) Sales decreased by R400 000 Explain how Khumbulani Beds has responded to this problem. Provide THREE points. Provide figures. They deliberately increased credit sales (R300 000 was Point 1 budgeted but R900 000 was sold on credit). They increased delivery expenses to expand their target Point 2 market / improve after-sales service. (Budgeted R150 000 but spent R168 000; 12% increase). They spent R40 000 on advertising (Budgeted R10 000; 300% Point 3 overspent). / Decreased directors fees by R44 000 to fund more advertising R30 000. 13 5.2.4 Comment on the cash balances. Provide figures. Any valid comment  Figure/s  Expected responses: Disappointing / they expected a closing balance of R335 000 The actual balance is an overdraft of R210 000 (difference R545 000) Actual balance for Sept is R230 000 while Oct reflects an overdraft of R210 000. (Difference R440 000). Explain how the directors can improve the cash balances in future. Explain TWO points. Encourage debtors to pay faster Charge clients for deliveries Negotiate with creditors for Take out a loan (to reduce the longer payment terms overdraft and interest) Raise more capital / issue more Decrease mark-up to increase sales shares Move to cheaper premises Look for alternative income e.g. commission Expected responses for 1 mark: Decrease expenses / increase income / decrease rent / increase sales 6 QUESTION 6: BUDGETING 6.1.1 Explain why bad debts expense does not appear in a cash budget. Any valid explanation Bad debts is a non-cash expense. It does not involve a flow of cash.

2 6.1.2 Explain why a cash budget is an effective internal control mechanism. Provide ONE reason Any valid reason It helps to plan receipts and payments. It highlights payments (expenses) that are not well controlled. It helps to ensure that cash is available for essential payments. 2 6.2 INGWEMABALA LTD CREDIT OCTOBE 6.2.1 MONTHS SALES SEPTEMBER R NOVEMBER July 108 000 12 960 August 104 400 46 980 12 528 September 93 000 37 200 41 850 11 160 October 102 000 40 800 45 900 November 111 600 44 640 Total collection from debtors 95 178 101 700 6.2.2 Calculations Answer (a) 16 985 x 100/107,5 15 800 (b) 116 250 x 20% 23 250 80 750 106 250 x 80% = 85 000 x 95% (c) 21 250 x 80/20 = 85 000 8 928 (d) x 100 = 12% 74 400 x 12% 91 500 (e) + 515 000 = 610 000 x 0,15

6.2.3 Calculate: (a) The amount of the loan that will be paid back on 1 November 2020. 2 000 x 12/0,1 = 240 000 30 000 was repaid one part correct 1 750 x 12/0,1 = 210 000 (b) The total cost of the new vehicle purchased on 31 July 2020. 4 750 x 48 = 228 000 + 40 000 = 268 000 One part correct

6.2.4 A young shareholder is of the opinion that the company should not spend money on staff training – they should employ trained personnel. Explain why the company spends money on staff training? Give ONE point. A valid explanation The company must be able to show that they are committed to the growth and development of the society that supports its venture (the triple bottom line). Giving back to society. Involvement in economic growth. CSR and the King code requires companies to invest in their communities. What can the business do to ensure that trained personnel remain in the employ of the business? Give ONE point. A valid explanation Ensure that market related salaries are paid. Make workers feel valued and appreciated. Sign contracts to remain with business for a specified period. Get employees to participate in profit sharing options. ACTIVITY C7 7.1.1 Creditors Payments Schedule for the period 1 May to 30 June 2020 Month Credit May June purchases March 336 000 134 400 April 420 000 239 400 168 000 May 448 000 If 60% x 95%of May 255 360 373 800 423 360 7 7.1.2 Calculate the missing figures indicated by A–C on the Cash Budget provided. A 800 000 X 0,40  = 320 000 operation one part correct 3 B 900 X 100/9 x 12/1= 120 000 operation one part correct 4 C 890 000 X 100/125 X 0.30 = 213 600 operation one part correct 4

7.1.3 Calculate the expected percentage increase in sundry expenses. 6 000 /24 000 X 100/1 = 25% operation one part correct 3 Suggest and explain TWO measures that can be undertaken to lessen the possible adverse impact of the rise in prices. Any TWO points  Explanation  • Stock pile to take advantage of the current prices so that for the next few months after the rise in prices you maintain the current selling prices (ensure competitive urge over competitors); • Compare suppliers' prices and pick suppliers with better prices and conditions; • Buy in bulk to take advantage of discounts; and save on transport cost • Negotiate discounts with suppliers; 4 7.1.4 Refer to information H. Briefly comment with figures on each item and provide ONE point of advice to the owner. Item Comment and Advice figures   The actual Ensure that there are no water expenditure is R1 500 leaks; Educate the employees more than the on using water and electricity budgeted amount; sparingly Electrical appliances Water and Overspent by R1 500; that are not used are switched electricity Not well managed as off; That lights during the day are the actual exceeds the switched off Budget realistically. budgeted amount by R1 500 (R6 500 – R5 000) Not well controlled as Issue tenants with reminders R8 000 instead of the monthly; Charge interest on Rent budgeted R15 000 outstanding rent; Warn defaulting income was collected; R7 000 tenants of possible eviction; etc. less 6

7.2 Identify ONE problem in relation to each branch. Quote relevant figures. In each case, offer Glenys Masala advice to solve the problem. Problem (with evidence) Solution(one per branch)       Umlazi MegaCity Mall Umlazi MegaCity Mall Missing cash of R40 000 Check the money before banking. Division of duties. Business ran out of stock and Order more stock. lost on potential sales. Kwamnyandu Mall Kwamnyandu Mall 15 cellphones stolen Regular stock taking/Internal control. Ezimbuzini Mall Mark-up percentage of 100% Ezimbuzini Mall too high. Sale only 20% of the Decrease the mark-up to 50% as stock. the other malls. Sales promotion: Kwamnyandu sale Keeping too much stock only 50% and Umlazi MegaCity 100%. sold 70 of the 360 units Transfer some stock to Umlazi MegaCity Mall. 9 40 40

Activity C8. 8.1 Identify the following: Price paid per share for the re-purchase of the shares in October. 52 000 / 10 000 = R5,20  Bank balance at the end of September. 3 = (161 813) or 161 813 unfavourable  8.2 Calculate and comment on the percentage increase that the employees will get in October? 341 850 – 322 500 = 19 350/322 500 = 6%  6 Comment:  Directors fees of R400 000 increased to R600 000 per month so this reflects a 50% increase. Employees might feel aggrieved that they are getting 6% while directors are getting 50% increases. or Employees can be satisfied with a 6% increase in salary since it is in line with the inflation rate of average 6%. 8.3 8.3.1 Calculate the expected cash sales for September 2020. Calculation Answer 805 800 x 70 / 30 or 4 Total purchases: 1 880 200  Sept: 948 000 x 100/60 = 1 580 000 Total sales: 1 580 000 x 170 / 100 = 2 686 000 Cash sales: 2 686 000 x 70/100  or 30/100x = 805 800 x = 2 686 000 x 70%  8.3.2 Debtors Collection schedule Credit sales Oct August credit sales: 787 500 x 28% 220 500  September credit sales: 564 060  805 800 x 70% 

784 560  7

8.3.3 Calculate the payments to creditors in October 2020. Calculation Answer Sept cash purchases 948 000 x 40/60 = 600 400  5 x 95/100  OR 1880 200 x 100/70x 100/170x 40/100x 95/100 8.4 The owner is not happy with the rent. He plans to terminate the rent agreement and purchase the property on 1 October 2020. According to the Cash Budget, how would he pay for the property? 6 Acquire a loan R500 000  Fixed deposit expires R366 000  Overdraft R 44 000  OR (904 515) OR Cash payment of R910 000 Apart from saving on rent expense, provide TWO advantages of buying the property.   2 • The building would increase his assets and creditworthiness. • Buildings appreciate in value and can be sold with a profit. • Interest on loan is then R7 000 per month instead of R27 000 rent expense. • Interest on overdraft would be R5 400 per month instead of R27 000 rent expense. • Rates on property R1 520 per month, not near R27 000 rent expense. • Forfeit the R3 000 interest on fixed deposit, but have an asset of R910 000. • Can earn rent income out of lease. Provide TWO disadvantages of buying the property.   • Interest on loan is then R7 000 per month. 2 • Interest on overdraft would be R5 400 per month. • Rates on property would be R1 520 per month. • Forfeit the R3 000 interest on fixed deposit. • Owner responsible for the repairs and/ maintenance. • Owner responsible for the insurance of the building. TOTAL MARKS 35

ACTIVITY E1 1.1 ZENZELE MANUFACTURERS 1.1.1 PRODUCTION COST STATEMENT ON 30 APRIL 2021 Direct labour cost 716 960 Direct material cost 37 600 + 555 000 – 21 000 – 58 560 513 040 Prime cost DMC + DLC 1 230 000 Factory overhead cost (468 450 + 13 650 - 12 100*) 470 000 Total manufacturing cost Operation 1 700 000 Work-in-process (1 May 2020) 142 000 1 842 000 Work-in-process (30 April 2021) (87 000) Cost of production of finished goods 1 755 000 16 (39 000 x R45) 1.1.2 Complete the abridged (shortened) Income Statement to calculate the net profit for the year ended 30 April 2021. Gross profit 1 250 000 Selling and distribution cost  (614 690) (609 850  + 4 840  * if adds to figure above) (36 300 x 8/60) Administration cost  (437 560) (443 950  – 13 650  See 1.1.1 + 7 260  * if adds to figure above) (36 300 x 12/60) Net profit Operation, S&DB and Admin costs  197 750 must be subtracted 08 1.2 UNIT COSTS AND BREAK-EVEN ANALYSIS 1.2.1 Explain the difference between fixed cost and variable cost. Any valid explanation  Two or zero marks. No part marks Fixed costs remain the same irrespective of the number of items manufactured. Variable costs vary in direct proportion to the number of items manufactured. 2 1.2.2 Calculate the break-even point for 2021. 80 000 one mark x 5,40 one mark 432 000  R17,80  – 11,60  R6,20 two marks 5

= 69 678 units  (accept 69 677) One part correct NB: The word units not necessary but do not accept if R 1.2.3 Comment on the break-even point and the level of production for 2020 and 2021. Explain why the owner should be satisfied or not. • In 2020 the break-even point was 65 000 units and they produced 65 000 units. The business broke even.  • In 2021 the break-even point was 69 678/ 69 677  units and they produced 80 000  units. The business made a profit on 10 322/10 323 units.  See 1.2.2. 6 1.2.4 Identify the variable cost that should be of great concern to the owner. Explain and provide a calculation to support your answer. Direct labour cost ✓ Figures ✓ Explanation ✓✓ No part marks Direct labour cost increased from R3,50 to R4,05 / by 55 cents / by 15,7% Explanation: DLC increased by more than the inflation or by more than DMC 4 1.2.5 Despite the fact that there was a decrease in the fixed costs per unit, the owner is still not satisfied with his control over the fixed costs. Explain and provide calculation(s) to support his opinion. Fixed costs in 2021 = R432 000  See 1.2.2 Fixed costs in 2020 = R65 000  x R5,50 = R357 500  OR Fixed costs increased by R74 500, i.e. 21% or 20,8% 4 ACTIVITY E2 2.1  2.1.1 Administration cost Accept recognisable abbreviations 2.1.2 Direct material cost  2.1.3 Selling and distribution cost  2.1.4 Factory overhead cost  .2.1 Calculate direct labour cost. (1 920 x 5 x R40) + (90 x 5 x 70) + (384 000 x 11,5%) = R459 660 OR 76 800 6 300 8 832 5 x [(1 920 x R40) + (90 x 70)] + (76 800 x 11,5%)] = R459 660 Calculate direct material cost.   x 5 500 = 583 000 ☑One part correct   6 750 two marks OR Total VC – DLC – S&DC 1 260 000 two marks see 1.2.1; one method mark two marks one method mark; one part correct [4 200 x 300] – 459 660 – 217 340 = 583 000

2.2.2 Production Cost Statement for the year ended 29 February 2016: No abbreviations accepted *Direct material cost (need not be first) See 1.2.1 583 000 ☑ *Direct labour cost See 1.2.1 459 660 ☑ Prime cost If = DMC + DLC 1 042 660 ☑ *Factory overhead cost 343 340  Cost of production of finished goods 1 386 000 ☑ Operation one part correct 2.2.3 Calculate the break-even point for 2016. 570 000 two marks     150 two marks = 3 800 units☑ One part correct; cannot be negative; cannot be R or c 5 Explain whether the owner should be concerned or not. Provide figures. Yes / No is part of the explanation (No marks)  Comparative figures (Refer to answer above; must compare BEP to production) Possible answers: • The owner should not be concerned as the business produced(4 200 – 3 800) 400 units more than the break-even point. • The owner should be concerned as the business produced (4 200 – 3 800) only 400 units more than the break-even point. 3 • Owner should be concerned because they make a profit on 400 units only. 2.2.4 The owner is not satisfied with the internal control of the raw material (fabric). STOREROOM: FACTORY: Raw material stolen Raw material wasted 6 750 two marks two marks for both 4 200 x 1,25 1 350  + 5 400  5 500  – 5 250  – 5 500  – 940  = 250 metres ☑ One part correct CALCULATION: = 310 metres ☑ One part correct OR 200 units two marks one mark one m/mark metres of fabric Answer must be less than 6 750 [(5 500 / 1,25) – 4 200] X 1,25 = 250 m 4 400 metres one mark Total: 5 marks Answer must be less than 5 500 Total: 4 marks Improve physical security / Train workers to improve Regular stock counts / efficiency / STRATEGY Foreman to supervise / sign Use new updated equipment One point each / account for all raw (new technology) /   materials taken from the Be alert to storeroom / division of Use templates in cutting alternative valid fabric to reduce offcuts / responses. duties. recycle the offcuts. Improve supervision. Do not accept theft.

ACTIVITY E3 3.1 CONCEPTS 3.1.1 False ✓ 3.1.2 False ✓ 3.1.3 True ✓ 3 3.2 TREK BIKES MANUFACTURERS 3.2.1 DIRECT LABOUR COST Basic salary (14 x 7 000) ✓ x 12 ✓ 1 176 000  Overtime (14 x 144) ✓ x 65 ✓ 131 040  UIF contributions (1 176 000 x 1%) 11 760 ✓ 1 318 800  9 FACTORY OVERHEAD COST Indirect materials one part correct 36 500  (13 200 ✓+ 38 400 ✓ – 15 100 ✓) Salaries: foreman 156 000 ✓ Electricity and water (104 000 x 90%) 93 600 ✓✓ Rent expense (115 200 x 600/1 500) 46 080 ✓✓ Insurance (74 200 x 3/7) 31 800 ✓✓ Depreciation: factory plant and machinery 277 220 ✓ 641 200  13 3.2.2 PRODUCTION COST STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015. Direct (raw) materials cost 2 100 000 Direct labour cost see 2.2.1 1 318 800  Prime cost 3 418 800  Factory overhead costs see 2.2.1 641 200  Total manufacturing cost 4 060 000  Work-in-process (beginning of year) 160 000 4 220 000  Work-in-process at end (220 000)  Cost of production of finished goods 4 000 000  (4 015 000 ✓ + 95 000 ✓ – 110 000 ✓) 10

ACTIVITY E4 4.1 HANGING LOOPS CURTAINS 4.1.1 Production cost statement for the year ended 31 March 2021 Direct material 2 270 000 Direct labour 345 000 (2 marks)  379 500 (780 000 ‒ 260 000 ‒ 175 000) ✓✓ + 34 500 ✓ Prime cost  2 649 500 Factory overhead cost Transfer from note  609 500 Total cost of production 3 259 000 Work in process (beginning of the year) ✓ 69 500 3 328 500 Work in process (end of the year)  (72 000) Balancing figure, must be deducted Total cost of production of complete products ✓✓ 3 256 500 2 605 200 x 100/80 10 Factory overhead cost Indirect labour (260 000 ✓ + 26 000 ✓ ) * 286 000 Indirect material (3 800 ✓ + 31 300 ✓✓ ‒ 4 300 ✓ ) * 30 800 Insurance (62 400✓ ‒ 14 400 ✓✓) * 48 000 Rent (77 000 + 7 700) ✓✓ 84 700 Depreciation ✓ 160 000 one part correct * 609 500 16 4.1.2 Provide a calculation to prove how the Direct Material Cost were calculated as R2 270 000. 14 400 + 7 200 36 000 x 60% 224 000 ✓ + 2 500 200 ✓ ‒ 140 000 ✓ ‒ (292 600✓ + 21 600 ✓) = 2 270 000 ✓ 6

4.2 GLASS AND CO. 4.2.1 Explain why it is important to calculate the Breakeven Point. Any acceptable, relevant answer. ✓ So that the owner/manager knows how much products must be produced in order to cover all costs. 1 4.2.2 Why is the production staff’s wages seen as a variable cost, but the factory cleaner’s wages is a fixed cost? Production staff is paid per unit/hour, so their labour cost would change as production levels change. ✓ The factory cleaner is paid a salary regardless of the amount of units produced. ✓ (Any acceptable answer) 2 4.2.3 Calculate the following: (a) Factory overhead per unit 114 000 = R7,60 ✓✓ 15 000 2 (b) Total Fixed Cost 114 000 + 70 400 = 184 400 ✓✓ 2 (c) Variable cost per unit 142 400 ‒ 70 400 = 72 000 / 15 000 = R4,80 34 ✓ (20,00 + 14,00) + 11,20 ✓ + 4,80 ✓✓ = 50  one part correct 5

4.2.4 Calculate the Breakeven Point. 184 400  (See b) 70 ✓ ‒ 50  (See c) = 9 220  Should Glass and Co. be satisfied with their current production of 15 000 units? Explain. Compare BEF with level of production✓ Figure  They produce 5 780 more units than what is required to break even. TOTAL MARKS 50 6

ACTIVITY F1: GENERAL LEDGER OF SIZWE LTD NOMINAL ACCOUNT SECTION 1.1.1 ASSET DIPOSAL ACCOUNT 2016 31 Vehicles GJ 200 000√ 2016 28 Accumulated GJ 118 080√√ Aug Aug depreciation on vehicles Profit and Loss GJ 5 000√ Debtors GJ 8 920√ of Asset control 205 000 205 000 1.1.2 Note to the Balance sheet as at 31 August 2016 Note1: Fixed Asset/Tangible Asset Land and Equipment Vehicles Building Cost price 2 120 000 490 000√ 980 000 Accumulated Depreciation 0 (203 000)√ (520 000)√ Carrying value- at the beginning of the year 260 000 460 000√ MOVEMENTS Additional at cost 280 000 150 000√ 240 000√ Disposal at CV 0 0 (81 920)√ Depreciation for the year 0 ( 56 500) (104 000)√ Carrying value –at the end of the year 2 400 000 353 500 514 080 Cost price 2 400 000 640 000 1 020 000√ Accumulated Depreciation 0 (286 500) 505 920) 1.1.3 If you are the accountant of the business, how will you respond to P. Querry. You must use the relevant GAAP principle in your explanation. • Financial statements are not misstated as land and buildings must be disclosed at the original cost as per GAAP concept of Historical Cost. • Revaluing land and building at the market price can lead to tangible asset being overvalued. • Its value can be manipulated. 1.1.4In your opinion, is this an acceptable business practice? Give reasons for your answer No • Lap-top was purchased for the personal use of the owner’s son not for the business purpose. • Owners request is violating the business entity concept principle (GAAP) • Therefore, the amount of R10 000 must be debited to his drawings account not to the equipment account. • This is a violation of the income tax payable to SARS

ACTIVITY F2 Problem solving, analysis and interpretation TAXI 1 • Higher running cost (6,10/km) • Age (fully depreciated) • Safety concern. • Earning R9.00/km (1 080 000/120 000) (profit R2.90) TAXI 2 • Lack of revenue in comparison to the other taxis (R 288 000 i.e. R4 11/km) • Theft/fraud by the driver. • Revenue per km is less than running cost per km TAXI 3 • Under-utilisation (34 000km-others doing almost 70 000km or 120 000km) • Running cost are low (R4 70/km)-should be used more • Lack of work ethics of the driver. • Any relevant answer ACTIVITY F3. NO PROBLEM √√ SOLUTION √√ 3.1 • He is not employee of the • Owner must have a word with his son business. on the matter. • Employees of the business may • Must ensure his son about business feel that they are being unfairly policy and rules treated. 3.2 • TV was purchased for business • Defaulters should be reprimanded. not for personal used. • Failure to comply could result in • Additional usage of the TV dismissal. decrease its lifespan resulting in • Frequent checks need to be added cost for the business undertaken by the auditor etc. • This is not good for staff morale o Any relevant ans 3.3 • The fixed asset register will not • According procedure for the disposal of reconcile with actual physical asset will have to be explained to the stock on hand. owner. • Asset will not be shown • Business entity concept. correctly in the balance sheet 3.4 • There may not be a problem if • Owner will have to check if he is getting she follows correct procedure the best deal with this company. when buying items from this • He will have to be convinced that the company. secretary is not compromising the • Gift should actual be given to interest of the business with that of her the business as the secretary own. represents the business when she orders from the company

CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT GRADE 12 ACCOUNTING PAPER 2 TEACHERS GUIDE 2021

ACTIVITY A1 1.1.1 Value Added Tax 1.1.2 15 % 1.1.3 Zero Rated 1.1.4 A PAYE B salary C Customers D Indirect 1.1.5 Comment: • It is unethical, you must be a registered VAT vendor to charge tax • All money collected from customers for VAT must be paid to SARS Consequences: • The owner may face the legal implications which may results to jail sentence • SARS can pose a penalty to the business ACTIVITY A2 2.1 (i) Indirect (ii) Decrease (iii) Asset 2.2 Details Amount Incorrect amount payable 112 539 (i) Shop rent paid (2 025) (ii) Vehicle purchased (45 000) (-22 500 – 22 500) (iii) Correction on invoice (-7 500+ 6 900) or (600) 50 000 x 8% x 15% Correct amount payable 64 914 Activity A3 3.1 VALUE ADDED TAX 3.1.1 True 3.1.2 False 3.1.3 True 3.1.4 False 3.1.5 True 5

3.2.1 After taking into account the errors and omissions, calculate the VAT amount that is either payable to or receivable from SARS. Indicate whether this amount is receivable or payable. VAT 1 800 2 850 308 3 630 594 480 74 750 Balance b/d 3 434 OR -2 850 – 3 630 + 1 800 + 308 + 594 + 74 – 480 + 750 = 3 434 OR 2 850 + 3 630 - 1 800 - 308 - 594 - 74 + 480 - 750 = 3 434 Payable to SARS 12 3.2.2 The internal auditor discovered that the owner used the VAT collected from customers to pay expenses of the business. Therefore, he was unable to pay the VAT owed to SARS on the due date. State ONE point of concern that you would offer the owner concerning this practice. • It is unethical. • The business is an agent of SARS – money collected on behalf of SARS should not be used to defray other operational expenses. ACTIVITY A4 Explain why the government implemented VAT in South Africa. State ONE point. • Additional source of revenue for the government. • To fund infrastructure/ plans of the government. • To provide for basic services for the communities Explain why some products are zero-rated products. State ONE point. • To make basic necessities affordable to indigent/ poor communities Calculate the amount payable to SARS in respect of VAT for the two months ended 30 April 2021. WORKINGS 9 450 + 61 800 – 34 500 – 1 890 – 2 520 + 1 140 + 1 380 = 34 860

ACTIVITY A5 5.1 5.1.1 WORKINGS ANSWER (a) 1 104 – 960 144 (b) 52 600 x 15% 7 890 (c) 720 x 100/15 4 800 (112 470 – 6 325) x 15/115 5 500 + 825 (d) 112 470 x 15/115 13 845 OR 14 670 – 825 OR (97 800 – 5 500) x 15% You are the internal auditor. The sole owner, Samson, used a business cheque to buy 5.1.2 a new car for R460 000 including VAT. This car is kept at home for his wife's use. Samson says the vehicle must be recorded as a business asset and R60 000 must be recorded as a VAT input in the business' books. Explain what you would say to Samson. Provide TWO points. Expected responses for two marks: • This is tax evasion / he is attempting to reduce the amount due toSARS for VAT (this is illegal and unethical) • He will be increasing the input VAT, effectively reducing the amount due to SARS. • He could be fined or imprisoned because it is a criminal offence. • Personal transactions and business transactions should be kept separate (Business entity concept) / Samson should pay for this out of his private bank account. • As the car is not used for business purposes, the full amount of R460 000 should either be treated as drawings or a reduction of his capital contribution.

ACTIVITY B1 1.1 DEBTORS AGE-ANALYSIS 1.1.1 Explain how the Debtors’ Age Analysis can assist with the control over debtors. Provide ONE point. Any ONE valid point. ✓✓ Part marks for partial/incomplete answers. Effective method of credit control Helps identify debtors who have not paid within the creditor terms granted. Interest can be charged to debtors not adhering to the business’ policy Legal action can be taken against debtors who do not comply. 1.1.2 Calculate the average debtors’ collection period (in days) for the financial year ended 31 August 2019. Workings Answer one mark one mark ½ (19 800 + 76 200) 38,9 days/39 days  48 000✓✓ X 365 one part 450 000✓✓ correct Comment whether the business should be satisfied with this. Any ONE valid point. ✓✓ Part marks for partial/incomplete answers. Mark according to candidate’s answer above The business cannot be satisfied as debtors are not complying with the 30 days’ credit terms. Comparison with previous year to note improvement or otherwise can be mentioned. 1.1.3 Identify TWO different problems revealed by the Debtors’ Age Analysis. Quote evidence and/or figures. In each case, provide advice to improve the internal control relating to the problem identified. Problem Advice on internal control Evidence/figures Certain debtors have exceeded Do not sell on credit to debtors their credit limit. who have exceeded their credit Problem 1 limits C. Coma by R2 000 or Track cases and monitor R Rome by R1 000 Improve internal controls such as Quote name or amount computer system Debtors do not abide by the credit Charge interest on overdue terms of 30 days accounts; Offer discounts for Problem 2 early payment Pule, Coma and Rome Send reminders/sms (53% are taking longer) Install computer system to track Internal control problem: debtors accounts; Or The business is allowing debtors Monitor / supervise defaulting to exceed credit terms and limits debtors

ACTIVITY B2 SOLUTION List the corrections that the bookkeeper must make to the Debtors Control Account in the general ledger and debtors list Debtors Control Debtors List Pre –Adjustment Balance / totals R320 600 R 340 800 A. -R 26 000 B. + R20 200 C. -R86 000 D. +R4 600 -R 4 600 Do not accept 0 as answer E. +R940 + R940 F -R90 000 -R90 000 G. +R60 000 +R30 000 +R30 000 R 225 740 R 225 740 ACTIVITY B3 DEBTORS RECONCILIATION AND INTERNAL CONTROL 3.1.1 Briefly explain why the balance of the debtors control account should correspond with the total of the list of debtors The Debtors control account is a summary of all the debtors account in the debtors ledger 3.1.2 Calculate the correct closing balance of the debtors control account as at 30 September 2021 ( R 4 500 ) R83 750 + R 2 050 + R 1 150 + R 4 350 + R 150 = R 91 450 3.1.3 3.1.4 Study information 1 and 2 below the answer the following question : 3.1.4.1 Does Gumede traders have effective control over their debtors?Explain by quoting figures to motivate your answer No. R 63 750 / R 93 750 X 100/1 = 68% of the debtors exceed the payment period ( terms ) of 60 days. Or Only 32% of the debtors keep to the credit terms of 60 days 3.1.4.2 State TWO actions a company could take in order to encourage Debtors to settle their account according to the terms (4)

➢ Send reminders through text messages ➢ Charge interest on overdue account ➢ Allow discount to debtors who pay on time ➢ Issue monthly statement

ACTIVITY B4 4.1.1 DEBTORS COLLECTION SCHEDULE AND AGE ANALYSIS: Why is the preparation of a debtor’s collection schedule and debtors age analysis important internal control measures? Debtors collection schedule: • Project anticipated receipts from debtors. • Ensure debtors keep to credit terms. • Act immediately if debtors do not comply. Debtors age analysis: • Effective method of controlling length of overdue periods so that appropriate action can be taken, such as interest/legal action. • Identify possible bad debts and send timeous notices. 4.1.2 Calculate the percentage of debtor's accounts that comply with the credit terms. 048 + 48 032 080 OR 480 320 400 600 400 = 80% = 20% 100% - 80% =20% Explain TWO measures to prevent losses due to bad debts in the future. Any TWO measures Screening of debtor must be very strict. Credit limits must fit the profile. Verify all information submitted./Run credit check. Ask for 3 months’ bank statements to check the available income after all other commitments. 4.ACTIVITY B6 SOLUTION 6.1.1 DEBTORS RECONCILIATION CORRECTIONS TO THE DEBTORS CONTROL ACCOUNT Current Debtors Control Account Balance R 40 200 A - R 3 600 B. + R 400 C. -R 1 800 D. No change E. + R 2 800 Correct Debtors Control Account Balance R 38 000

6.1.2 Debtors List on 30 September 2021 D.Costa ( R 7 600 – R 1 800) R 5 800 E.Enderson ( R 14 800 + R 400) R 15 200 E.Hazard ( R – 3 800 + R 2 800 ) ( R 1000) B.Zwane R 21 200 –R 1 600- R 1 600 ) R 18 000 Correct total of debtors list R 38 000 B 7: CREDITORS RECONCILIAIONS MEMORANDUM 7.1 CREDITORS RECONCILIATION 7.1.1 Provide TWO reasons why it is important for the business to prepare the Creditors' Reconciliation Statement. • It helps to detect fraud, errors and omissions. • It helps to identify differences between the balance in the statement and the balance in the business' records. • It is an internal control measure. 4 7.1.2 Calculate the correct Creditors' Control Account balance after taking into account the relevant errors and omissions. CREDITORS CONTROL ACCOUNT 32 640 + 5 020 + 12 800 – 1 280 – 1 280 + 1 720 = 49 620 6 7.1.3 Calculate the correct balances for creditors Zebo Suppliers and Leo Wholesalers, list by taking into account the errors and omissions. Creditor Workings Balance Zebo Suppliers 16 580 + 12 800 +1 720 31 300 + 200 Leo Wholesalers 29 520 – 6 300 18 320 – 4 900 49 620 10 ACTIVITY B8

8.1 CREDITORS’ RECONCILIATION AND INTERNAL CONTROL 8.1.1 CREDITORS’ RECONCILIATION STATEMENT ON 30 JUNE 2019 R Balance as per statement of account 10 115 Invoice 5671 6 555 13 455 6 900 + (6 900 - 345) OR one mark one mark 13 800 - 345 Invoice 5780 (3 320) Invoice 5801 1 850 Invoice 6011 5 800 Electronic payment (10 000) Discount received (500) 17 400 Calculate the correct balance of Bailey Ltd in the Creditors’ Ledger. 17 850 – 450 = 17 400 13 8.2.1 Refer to Information D. Calculate the average creditors’ payment period in days. 114 000 ½ (50 000 + 64 000) x 365 416 100 = 57 000 two marks x 365 one mark 416 100 one mark = 50 days * 5

2.2.2 Provide TWO internal control measures which can be implemented by a business for good internal control over creditors. • The statement of account of individual creditors must be reconciled with their accounts in the Creditors’ Ledger. • Conduct internal audits to minimise the possibility of fraud and error. • Check documents to ensure accuracy of calculations and entries. • Ensure that items ordered from creditors are correctly received. • Ensure that all purchases have valid authorisasion. • Ensure that creditors are paid on time to make use of discounts / avoid interest charged discounts. • Make full use of credit terms to assist cash flow. 4 B9 CREDITORS' RECONCILIATION: 9.1.1 Although Future Traders offers credit terms of 60 days, Generations Suppliers prefers to settle their account within 30 days during certain months. Provide TWO points to indicate that it is not a good decision. • Keep money as long as possible in own bank account to earn interest. • First collect money from debtors to pay creditors. • If no early payment discount is offered. • Pay as late as possible, but avoid unnecessary interest charged. 2 9.1.2 CREDITORS LEDGER OF STATEMENT FROM FUTURE GENERATION SUPPLIERS TRADERS 21 130 32 600 A + 2 100 B + 300 C - 500 D + 6 070 E - 7 700 27 000 27 000 ACTIVITY B 10 10.1 CREDITORS' RECONCILIATION

10.1.1 CREDITORS' RECONCILIATION CREDITORS' LEDGER STATEMENT Balance 43 900 40 475 (a) + 10 000 (b) – 3 300 (c) + 750 8 525 – 7 750 (d) – 775 (e) – 8 600 (f) + 2 100 (g) (7 500 + 750) – 8 250 38 150 38 150 10 10.1.2 Suggest TWO internal control measures that he can use to ensure that such practices do not occur. • Division of duties /rotate duties. (the manager must not be the only person responsible for ordering and recording goods.) • Have special order forms to be signed by two people. • Check documents regularly against deliveries. • Do regular/random stock counts to verify stock records. 4 ACTIVITY B 11 11.1. Use the table provided to indicate corrections and entries that must bemade to the Creditors' Control Account and the creditors' list. Provide figures and a plus (+) or minus (–) sign for each correction. Creditors' Control Creditors' List Account Balance/Total on R40 130 R39 490 30 October 2018 (i) - 180 - 180 (ii) + 400 (iii) - 240 (iv) +2 100 + 2 100 Balance / Total on31 41 810 July 2018 41 810 ACTIVITY B 12 12.1 CREDITORS' RECONCILIATION Creditors' Reconciliation Creditors' Ledger Statement

Balance 28 370 25 300 A +13320 B +2700 C +350 D -7200 E -2700 -2700 28720 28720 ACTIVITY C1 1.1.1 Calculate the mark-up percentage on spare parts used in the Projected Income Statement for March 2021. 34 312P / 45 750 x 100 = 75% one part correct 3 1.1.2 Calculate % decrease in service fee income expected in April 2021. 20 250 / 225 000 x 100 = 9% one part correct (225 000 – 204 750) one mark 3 1.1.3 Calculate the additional space (in square metres) the business will rent from April 2021. 9 000 / 75 = R120  13 800 / R120 = 115 sqm  Additional space = 115 – 75 = 40 square metres one part correct OR 3 4 800one mark (13 800 – 9 000) = 40 sqm one method mark 120 two marks 1.1.4 Calculate the interest rate on the fixed deposit. 8 550 – 4 050 4 500 ✓ x 12 ✓ x 100 = 8% one part correct 675 000 ✓ 4

1.2 Comment on the control of stock and explain how Amore intends to correct this. Quote figures. Each itemFiguresComparison figures not essential Trading stock deficit reduced to R3 000(was high at R21 000) Increase in security expenses by R6 300/from R7 500 to R13 800/by 84%. 3 1.3.1 Sam is thinking of purchasing the business premises rather than renting it. State ONE advantage and ONE disadvantage of this option. Advantage part-mark for unclear / incomplete answer • Will not have to pay rent in future. • Business will acquire a fixed asset. This increases the value of the business. • Extra space can be rented out to receive additional income. Disadvantage part-mark for unclear / incomplete answer • Rates on property must be paid. • Additional maintenance costs will be incurred. • Large initial cash outlay or an additional monthly instalment, including interest. • Not easy to relocate quickly • Costs and time involved in selling a building. 4 1.3.2 Sam offers a free delivery service of spare parts to customers, but plans to discontinue this service on 31 March 2021. State TWO points to support this decision. Any TWO relevant points:✓ ✓part-marks for unclear / incomplete answer • Customers will be forced to have the spare parts fitted as part of the service offered by the business.

• The business will be saving on the running cost of the delivery vehicle • The main line of business is the repairing of vehicles – the sale of spare parts supports this • The profit on sale of spare parts is considerably lower than the fee income for the repair 4 service. 1.3.3 Calculate the cost of the new vehicle that she plans to purchase on 1 April 2021. 9 000 ✓ x 12 ✓ = R720 000 one part correct 0,15✓or 15% 4

Refer to information E do it in answer book 1.4.1 Explain whether Water and electricity has been well controlled, or not. Comment on control  Figures  Part-mark for unclear / incomplete answer Comparison figures not necessary but may enhance explanation This expense has been well-controlled. If the projected amount of R6 750 considered the increase, it would have been R7 762,50. Only R7 500 was spent (R262,50 less than the adjusted projected amount.) OR The projected amount (R6 750) has not taken in account the tariff increases of 15% affected on 1 February 2021, which would have led to an adjusted projected amount of R7 762,50. 2 1.4.2 Explain whether you agree with Sam's decision not to use the full budget for Advertising. Comment on decision  Figures  Part-mark for unclear / incomplete answer Comparison figures not necessary but may enhance explanation The actual amount spent is R4 350 less than the budgeted/projected. / The amount spent (R2 700) is lower than the projected amount (R7 050). This was a poor decision and the full amount should have been used (considering that that mark-up on cost was also adjusted from the projected 65% to 80%). This had a negative effect on fee income (R33 750 less than projected) and sales of spares (R47 250 less than projected) 2 1.4.3 Explain whether Consumable stores have been well controlled, or not. Comparison of fee income and consumable stores Figures  Part-mark for unclear / incomplete answer Comparison figures not necessary but may enhance explanation Fee income was less than budgeted by R33 750 (15%) whilst servicing expenses was over the budget by R9 675 (21,5%). An actual decrease in fee income should see a proportional decrease in consumable stores used. This indicates a lack of control. 2 1.4.4 Explain how Sam's decision about the mark-up percentage on spare parts has affected the business. Comparison of mark-up% and sales ✓ Figures ✓ Part-mark for unclear / incomplete answer Comparison figures not necessary but may enhance explanation 2

• The increase in the mark-up percentage (65% to 80%) negatively impacted in spare-part sales. • Sales was less than projected by R47 250 (R193 050 to R145 800). • Profit on sales was less than projected by R11 250 (R76 050 to R64 800). ACTIVITY C2 2.1 The main reason why bad debts would not appear in the Cash Budget is because it is a/an ……. It is a non-cash item  2 2.2 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget for October and November 2020. Calculation Amount 30 000 ÷ 5% or x 100/5 x 60%  (a) 360 000  One part correct (b) R28 250 x 80/20 One part correct 113 000 6 600  (c) 7 260  (3 300 x 2) x 110%  One part correct (d) 201 600 x 11,5% x 1/12 One part correct R1 932 15 2.3 Complete the Debtors' Collection Schedule. CREDIT SALES OCTOBER NOVEMBER September 152 000  76 000 240 000 120 000  October 6.1(a) ÷ 60 x 102 600 50% of Oct credit 40 sales November 158 400 158 400 x 45% x 95% 67 716 187 716 178 600 operation 9 2.4 Calculate the percentage increase in sundry expenses. 2 190  (89 790 – 87 600) = 2,5%  One part correct 87 600  4

2.5 The Cash Budget for October and November 2020 indicates that this business will face serious financial difficulties. Identify TWO items to support this statement. Quote relevant figures. Item   Figures   • The estimated overdraft for October is R82 800 and for November it is R49 300. (This exceeds the overdraft limit of R44 000 as approved by bank.) • The business is going to acquire a loan of R201 600 in November 2020. 4 2.6 Explain why each of the items reflects a problem for the business. State TWO points in EACH case. Item Explanation Any two valid reasons   Collection from • Collections are much lower than expected. debtors • This will cause a cash flow problem. • Internal control of debtors is poor. Any two valid reasons   • This puts strain on meeting more important business expenses. • This creates a further cash flow problem. Drawings • It is not a good business practice (unethical) for the owner to draw more money while the business is struggling. (Increased loans, overdraft) Any two valid reasons   • The policy will lapse (risk of being uninsured). Insurance • It will be difficult to replace assets. • There could be an increase in premiums in future. 6 TOTAL MARKS 40 ACTIVITY C3 3.1 Complete the following sentences by filling in the missing word(s). Write only the word(s) next to the question number (4.1.1 – 4.1.2) 3.1.1 The main purpose of preparing the Cash Budget is… Any valid point.  To plan To predict cash flows/ determine receipts and payments for the future 2

To control cash 3.1.2 ONE item in the Cash Budget that will not be reflected in a Projected Income Statement is… Any valid point.  Loan/Assets/Payments to creditors/Drawings/Receipts from debtors/Fixed 2 deposits/Capital/Dividends 3.2 Prepare the Debtors’ Collection Schedule for December 2020 2020 Months Credit October November December sales Actual August 345 000 138 000 September 480 000 144 000 192 000 Budgeted October 300 000 57 000 90 000 120 000 November 210 000 39 900 63 000 December 180 000 34 200 5 339 000 321 900 217 200 3.3 Calculate the missing figures in the Cash Budget indicated by (i) to (v). CALCULATION ANSWER 140 000 (i) 350 000 x 40%  one part correct 200 000 (ii) (500 000 x 100/200) = 250 000 x 80%  one part correct 360 000 x 1% 3 600 (iii)  OR 43 200 (1 mark) ÷12 (1 mark) one part correct 17 33 072 (iv) 6 x R1 378 x 4 weeks  one part correct R6 200 (v) 6 758 x 100÷109  one part correct 3.4 In order to increase sales and the number of customers, Lizzy intends to advertise that credit limits for all credit customers will be increased to R35 000 and that new customers are welcome to open accounts during January. Give TWO points of advice to Lizzy regarding this decision. Any TWO valid points.  

• Do not sell more on credit as this will worsen the overdraft • He must screen debtors properly (e.g. pay slip/ credit reference), not simply allowing them to open accounts without checking the ability to pay. • Only increase credit limits of customers who settle their debts promptly 4 • He must improve the rate of collection from debtors by charging interest ACTIVITY C4 1. What would you say to Bennie about the mistakes that he says his wife has made in compiling the budget with regard to the depreciation and the contribution of a new delivery vehicle? These are not mistakes. Both are non-cash items which do not affect the bank balances so they must not be in a Cash Budget. ✓✓ 2 2. Debtors Collection schedule for December 2019 & January 2020 ✓✓✓✓ All figures correct =4 marks; Mostly correct =3; Some correct =2; Few correct=1; None correct =0 MONTH CREDIT SALES DECEMBER 2019 JANUARY 2020 October 241 200 84 420 November 290 880 145 440 101 808 December 320 400 30 438 160 200 January 223 200 21 204 Cash from debtors 260 298 283 212 4 3. Calculate the % increase in the budgeted salaries and wages in January 2020 4 080 X 100 = 6%  any one part correct i.e. 4080 or 68 000 68 000 1 Calculate the % decrease in the amount budgeted for commission income in January 2016 3 600 X 100 = 15%  any one part correct i.e. either 3 600 or 24 000 24 000 1 4 4. Calculate the total finance charges incurred in the purchase of the vehicle. (9 000 x 12) 46 000 + 216 000 – 196 000 = R66 000  any one part correct 2 5. Effect on the budget: Cost of repairs = 37 500 – (75% x 8 000) = 31 500  any one part correct TWO points that Mtini would mention to Bekker: 4

Any two valid points e.g. • This was irresponsible as insurance terms have been violated. • The repairs should be debited to drawings as this is a personal expense. 6. Calculation of rent income budgeted for December 2015: 15 950 x 100/110 = R14 500  any one part correct Suitable explanation: Any one valid explanation e.g. • The tenant paid the February rent in advance. • Additional unused property was rented out at the same rate. 3 7. Calculate the budgeted payments to creditors in January 2016. December total sales = 801 000 Cost of sales: 801 000 x 100/180 = 445 000 Credit purchases: 222 500 Paid in January = 222 500 – 22 250 = R200 250 Mtini feels that the business need not buy any goods for cash, and that all goods should be bought on credit. In your opinion, will this improve the business Cash Budget? Explain. Yes. This will mean that the R222 500 to be paid for cash sales in December will then be paid in January, which will improve the cash balance at the end of December by this amount. When the amount is paid in January they will also earn a R22 250 discount as well. There is also a similar effect in the following month. 4 8. Explain the difference between interest that is capitalized and interest that is not capitalized. Interest that is capitalized is added to the loan. Monthly repayments include the repayment of the loan and interest. Interest that is not capitalized is paid separately. Calculate the amount of the loan repaid on 31 December 2015. 500 ÷ 0,15 x 12 = R40 000 3 9. Use the Cash Budget to identify the missing figures, totals and balances designated A-D. You are not required to identify the figures designated with a question mark (?). All figures correct =4 marks; Mostly correct =3; Some correct =2; Few correct=1; None correct =0 4

A B C D (118 902) (80 872) 19 290 119 395 10. Calculation of the average debtors’ collection period (in days) for the financial year: 530 000 ½ (535 225 + 764 775) x 365 = 80 days 2 400 000 2 The % of debtors who are complying with the credit terms (as indicated in the Debtors Age Analysis): (R156 725 + R234 250) ÷ R764 775 x 100 = 51,1% 2 A comment on the above two calculations: It is unacceptable that the debtors are taking so long to pay and that only half of them are complying with the credit terms. 1 Details of the main mistakes that the business is making with regard to the debtors. Also provide the names of specific debtors to illustrate these main problems, and suggest a solution for each mistake: DEFAULTING PROBLEMS SOLUTION/ADVICE DEBTOR/S Exceeding the credit Minaj, Britney, Do not continue supplying these debtors; limit Hannah reduce their credit limits; give incentives for cash purchases. Taking longer than Britney, Jemson, Charge interest on overdue accounts; the credit term Drake, Wayne settlement discounts to encourage early settlement of accounts. 6 11. Consider the actual and budgeted figures for Advertising, Telephone and Advertising. Comment on each item, and offer ONE point of advice in each case. Comment Advice Advertising The expense is the same as They should consider increasing the budgeted. This appears to be advertising budget. Can be strategically well planned. However, when linked to sales. The business must look at one looks at the monthly sales, it trends/codes played at different seasons and shows that advertising is not budget accordingly. effective. Telephone Always overspending / under Need extra control, investigate whether there budgeted is a need to increase (calling debtors etc) or if it is being abused. 6

Insurance This is R6 000 under-budget They should consider whether they are still each month. adequately covered or whether they have genuinely negotiated a better rate. This might be false advertising if the insurance company fails to pay out for legitimate claims. 12. Bennie has made two significant decisions by taking out a new loan and admitting a partner to the business. What would you say to Bennie about these decisions and the effect on the cash flow of the business? Any valid response Excellent answer = 3 marks; Good = 2; Satisfactory/Poor = 1; Incorrect =0 Expected response: Although he has used these strategies to convert his large overdraft into a positive balance, he should rather have looked at the real reasons for the shortcomings e.g. credit sales now account for 52 % (2.4m/4.6m) of total sales and debtors are not being well controlled. He now has extra interest to pay, even though the interest rate is better, as the loan raised is larger than the one cancelled. Also he has to share profits with another partner now – when he starts to take drawings, the cash situation will get worse. 3 ACTIVITYC 5 5.1 KHUMBULANI TRADERS CASH BUDGET FOR NOVEMBER AND DECEMBER 2020 CASH BUDGET NOVEMBER 2020 DECEMBER 2020 R R CASH RECEIPTS: Cash sales 420 000 399 000 Cash from debtors 536 025 597 975 Commission income ✓ 6 000  7 000 Total receipts 5  962 025 1 003 975 CASH PAYMENTS: Cash purchases of stock 120 000 114 000  480 000 Payments to creditors 520 000 Sundry expenses 22 500  20 700 Wages and salaries  200 000  256 000 Advertisements  33 000 0 25

Repayment of loan  36 000 Interest on loan  3 780  3 510 Total payments 17 935 280 874 210 Surplus (deficit) 26 745  129 765 Opening bank balance (56 000) ✓ (29 255) Closing bank balance (29 255)  100 510 5.2 Sithembiso Beds (PTY) LTD 5.2.1 Calculate the percentage increase in the amount budgeted for salaries and wages for October 2015. 1 800 x 100 = 6%  30 000 1 Should the employees be satisfied with this? Explain. Yes / No – compare to inflation rate / compare to directors fees  3 5.2.2 The financial director is pleased with the work being done by the bookkeeper and internal auditor. Identify an expense that indicates that he is correct.  Audit fees Explain your answer. The audit fees are much lower than expected, which means that they spent less time on the audit / records were in order Expected response for 1 mark: Audit fees lower than expected 3 5.2.3 Comment on how the new competitor has affected the sales of Sithembiso Beds. Provide figures. Comment  Figures  Cash sales are ¼ of the amount budgeted Cash sales projected R1,2m while actual was R300 000 Actual cash sales for Sept were R1,28m and dropped to R300 000 in Oct Budgeted cash sales was 80% but actually achieved 20% Sales decreased by 60 beds Gross profit decreased by R120 000 (R2 000 gross profit per bed) Sales decreased by R400 000 Explain how Sithembiso Beds has responded to this problem. Provide THREE points. Provide figures. They deliberately increased credit sales (R300 000 was budgeted but R900 Point 1 000 was sold on credit). 13

They increased delivery expenses to expand their target market / improve Point 2 after-sales service. (Budgeted R150 000 but spent R168 000; 12% increase). They spent R40 000 on advertising (Budgeted R10 000; 300% overspent). Point 3 / Decreased directors fees by R44 000 to fund more advertising R30 000. 1.2.4 Comment on the cash balances. Provide figures. Any valid comment  Figure/s  Expected responses: Disappointing / they expected a closing balance of R335 000 The actual balance is an overdraft of R210 000 (difference R545 000) Actual balance for Sept is R230 000 while Oct reflects an overdraft of R210 000. (Difference R440 000). Explain how the directors can improve the cash balances in future. Explain TWO points. Encourage debtors to pay faster Charge clients for deliveries Negotiate with creditors for longer Take out a loan (to reduce the overdraft and payment terms interest) Raise more capital / issue more shares Decrease mark-up to increase sales Move to cheaper premises Look for alternative income e.g. commission Expected responses for 1 mark: Decrease expenses / increase income / decrease rent / increase sales 6 Activity C7 7.1.1 Creditors Payments Schedule for the period 1 May to 30 June 2020 Month Credit purchases May June March 336 000 134 400 April 420 000 239 400 168 000 If 60% x 95%of May 448 000 May 255 360 373 800 423 360 7 7.1.2 Calculate the missing figures indicated by A–C on the Cash Budget provided. A

800 000 X 0,40  = 320 000 operation one part correct 3 B 900 X 100/9 x 12/1= 120 000 operation one part correct 4 C 890 000 X 100/125 X 0.30 = 213 600 operation one part correct 4

7.1.3 Calculate the expected percentage increase in sundry expenses. 6 000 /24 000 X 100/1 = 25% operation one part correct 3 Suggest and explain TWO measures that can be undertaken to lessen the possible adverse impact of the rise in prices. Any TWO points  Explanation  • Stock pile to take advantage of the current prices so that for the next few months after the rise in prices you maintain the current selling prices (ensure competitive urge over competitors); • Compare suppliers' prices and pick suppliers with better prices and conditions; • Buy in bulk to take advantage of discounts; and save on transport cost • Negotiate discounts with suppliers; 4 7.1.4 Refer to information H. Briefly comment with figures on each item and provide ONE point of advice to the owner. Item Comment and figures Advice   The actual expenditure is Ensure that there are no water leaks; R1 500 more than the Educate the employees on using water Water and budgeted amount; and electricity sparingly Electrical electricity Overspent by R1 500; appliances that are not used are Not well managed as the switched off; That lights during the day actual exceeds the are switched off Budget realistically. budgeted amount by R1 500 (R6 500 – R5 000) Not well controlled as R8 Issue tenants with reminders monthly; 000 instead of the Charge interest on outstanding rent; Rent income budgeted R15 000 Warn defaulting tenants of possible was collected; R7 000 less eviction; etc. 6

7.2 Identify ONE problem in relation to each branch. Quote relevant figures. In each case, offer Glenys Masala advice to solve the problem. Problem (with evidence) Solution(one per branch)       Umlazi MegaCity Mall Umlazi MegaCity Mall Missing cash of R40 000 Check the money before banking. Division of duties. Business ran out of stock and lost on potential Order more stock. sales. Kwamnyandu Mall Kwamnyandu Mall 15 cellphones stolen Regular stock taking/Internal control. Ezimbuzini Mall Ezimbuzini Mall Mark-up percentage of 100% too high. Sale Decrease the mark-up to 50% as the other malls. only 20% of the stock. Sales promotion: Kwamnyandu sale 50% and Umlazi MegaCity 100%. Keeping too much stock only sold 70 of the 360 units Transfer some stock to Umlazi MegaCity Mall. 9 40 40

Activity C8. 8.1 Identify the following: Price paid per share for the re-purchase of the shares in October. 52 000 / 10 000 = R5,20  Bank balance at the end of September. 3 = (161 813) or 161 813 unfavourable  8.2 Calculate and comment on the percentage increase that the employees will get in October? 341 850 – 322 500 = 19 350/322 500 = 6%  6 Comment:  Directors fees of R400 000 increased to R600 000 per month so this reflects a 50% increase. Employees might feel aggrieved that they are getting 6% while directors are getting 50% increases. or Employees can be satisfied with a 6% increase in salary since it is in line with the inflation rate of average 6%. 8.3 8.3.1 Calculate the expected cash sales for September 2020. Calculation Answer 805 800 x 70 / 30 or 4 Total purchases: 1 880 200  Sept: 948 000 x 100/60 = 1 580 000 Total sales: 1 580 000 x 170 / 100 = 2 686 000 Cash sales: 2 686 000 x 70/100  or 30/100x = 805 800 x = 2 686 000 x 70%  8.3.2 Debtors Collection schedule Credit sales Oct August credit sales: 787 500 x 28% 220 500  September credit sales: 564 060  805 800 x 70%  7 784 560 

8.3.3 Calculate the payments to creditors in October 2020. Calculation Answer Sept cash purchases 948 000 x 40/60 x 95/100 = 600 400  5  OR 1880 200 x 100/70x 100/170x 40/100x 95/100 8.4 The owner is not happy with the rent. He plans to terminate the rent agreement and purchase the property on 1 October 2020. According to the Cash Budget, how would he pay for the property? 6 Acquire a loan R500 000  Fixed deposit expires R366 000  Overdraft R 44 000  OR (904 515) OR Cash payment of R910 000 Apart from saving on rent expense, provide TWO advantages of buying the property.   2 • The building would increase his assets and creditworthiness. • Buildings appreciate in value and can be sold with a profit. • Interest on loan is then R7 000 per month instead of R27 000 rent expense. • Interest on overdraft would be R5 400 per month instead of R27 000 rent expense. • Rates on property R1 520 per month, not near R27 000 rent expense. • Forfeit the R3 000 interest on fixed deposit, but have an asset of R910 000. • Can earn rent income out of lease. Provide TWO disadvantages of buying the property.   • Interest on loan is then R7 000 per month. 2 • Interest on overdraft would be R5 400 per month. • Rates on property would be R1 520 per month. • Forfeit the R3 000 interest on fixed deposit. • Owner responsible for the repairs and/ maintenance. • Owner responsible for the insurance of the building. TOTAL MARKS 35

ACTIVITY E1 1.1 ZENZELE MANUFACTURERS 1.1.1 PRODUCTION COST STATEMENT ON 30 APRIL 2021 Direct labour cost 716 960 513 040  Direct material cost 37 600 + 555 000 – 21 000 – 58 560 Operation Prime cost DMC + DLC 1 230 000  Factory overhead cost (468 450 + 13 650  - 12 100*  ) 470 000  Total manufacturing cost Operation 1 700 000  Work-in-process (1 May 2020) 142 000 1 842 000 Work-in-process (30 April 2021) Operation (87 000)  Cost of production of finished goods 1 755 000  16 (39 000 x R45) 1.1.2 Complete the abridged (shortened) Income Statement to calculate the net profit for the year ended 30 April 2021. Gross profit 1 250 000 Selling and distribution cost  (614 690) (609 850  + 4 840  * if adds to figure above) (36 300 x 8/60) One part correct Administration cost  (437 560) (443 950  – 13 650  See 1.1.1 + 7 260  * if adds to figure One part correct above) (36 300 x 12/60) Net profit Operation, S&DB and Admin costs must be  197 750 subtracted 08 1.2 UNIT COSTS AND BREAK-EVEN ANALYSIS 1.2.1 Explain the difference between fixed cost and variable cost. Any valid explanation  Two or zero marks. No part marks Fixed costs remain the same irrespective of the number of items manufactured. Variable costs vary in direct proportion to the number of items manufactured. 2 1.2.2 Calculate the break-even point for 2021. 80 000 one mark x 5,40 one mark 432 000  R17,80  – 11,60  5

R6,20 two marks = 69 678 units  (accept 69 677) One part correct NB: The word units not necessary but do not accept if R 1.2.3 Comment on the break-even point and the level of production for 2020 and 2021. Explain why the owner should be satisfied or not. • In 2020 the break-even point was 65 000 units and they produced 65 000 units. The business broke even.  • In 2021 the break-even point was 69 678/ 69 677  units and they produced 80 000  units. The business made a profit on 10 322/10 323 units.  See 1.2.2. 6 1.2.4 Identify the variable cost that should be of great concern to the owner. Explain and provide a calculation to support your answer. Direct labour cost ✓ Figures ✓ Explanation ✓✓ No part marks Direct labour cost increased from R3,50 to R4,05 / by 55 cents / by 15,7% Explanation: DLC increased by more than the inflation or by more than DMC 4 1.2.5 Despite the fact that there was a decrease in the fixed costs per unit, the owner is still not satisfied with his control over the fixed costs. Explain and provide calculation(s) to support his opinion. Fixed costs in 2021 = R432 000  See 1.2.2 Fixed costs in 2020 = R65 000  x R5,50 = R357 500  OR Fixed costs increased by R74 500, i.e. 21% or 20,8% 4 TOTAL MARKS 45 ACTIVITY E2 2.1  2.1.1 Administration cost Accept recognisable abbreviations 2.1.2 Direct material cost  2.1.3 Selling and distribution cost  2.1.4 Factory overhead cost 

.2.1 Calculate direct labour cost. one part correct one part correct one part correct    (1 920 x 5 x R40) + (90 x 5 x 70) + (384 000 x 11,5%) = R459 660 OR 76 800 6 300 8 832 5 x [(1 920 x R40) + (90 x 70)] + (76 800 x 11,5%)] = R459 660 one one mark one mark one mark one m/mark mark Calculate direct material cost. one one m/mark one one part correct; must be x 5 m/mark one R106,00 four marks one part m/mark one part correct 715 500 two marks correct part correct   x 5 500 = 583 000 ☑One part correct   6 750 two marks OR Total VC – DLC – S&DC 1 260 000 two marks see 1.2.1; one method mark two marks one method mark; one part correct [4 200 x 300] – 459 660 – 217 340 = 583 000 OR OS + P – (CS x R106) – (Theft x R106) one mark one mark two marks one mark one method mark; one part correct 131 500 + 584 000 – 99 640 – 32 860 = 583 000 2.2.2 Production Cost Statement for the year ended 29 February 2016: No abbreviations accepted *Direct materialcost (need not be first) See 1.2.1 583 000 ☑ *Direct labour cost See 1.2.1 459 660 ☑ Prime cost If = DMC + DLC 1 042 660 ☑ *Factory overhead cost 343 340  Cost of production of finished goods 1 386 000 ☑ Operation one part correct 8 *Must be correctly placed to get the mark for details; method mark for figure marked independently

2.2.3 Calculate the break-even point for 2016. 570 000 two marks     150 two marks = 3 800 units☑ One part correct; cannot be negative; cannot be R or c 5 Explain whether the owner should be concerned or not. Provide figures. Yes / No is part of the explanation (No marks)  Comparative figures (Refer to answer above; must compare BEP to production) Possible answers: • The owner should not be concerned as the business produced(4 200 – 3 800) 400 units more than the break-even point. • The owner should be concerned as the business produced (4 200 – 3 800) only 400 units more than the break-even point. • Owner should be concerned because they make a profit on 400 units only. 3 2.2.4 The owner is not satisfied with the internal control of the raw material (fabric). STOREROOM: FACTORY: Raw material stolen Raw material wasted 6 750 two marks two marks for both 4 200 x 1,25 1 350  + 5 400  5 500  – 5 250  – 5 500  – 940  = 250 metres ☑ One part correct CALCULATION: = 310 metres ☑ One part correct OR 200 units two marks one mark one m/mark metres of fabric Answer must be less than 6 750 [(5 500 / 1,25) – 4 200] X 1,25 = 250 m 4 400 metres one mark Total: 5 marks Answer must be less than 5 500 Total: 4 marks Improve physical security / Train workers to improve Regular stock counts / efficiency / STRATEGY Foreman to supervise / sign Use new updated equipment One point each / account for all raw (new technology) /   materials taken from the Be alert to storeroom / division of Use templates in cutting alternative valid fabric to reduce offcuts / responses. duties. recycle the offcuts. 11 Improve supervision. Do not accept theft.

ACTIVITY E3 3.1 CONCEPTS 3.1.1 False ✓ 3.1.2 False ✓ 3.1.3 True ✓ 3 3.2 TREK BIKES MANUFACTURERS 3.2.1 DIRECT LABOUR COST Basic salary (14 x 7 000) ✓ x 12 ✓ 1 176 000  98 000 one part correct Overtime (14 x 144) ✓ x 65 ✓ 131 040  UIF contributions (1 176 000 x 1%) (1% of basic) 11 760 ✓ one part correct 1 318 800  9 FACTORY OVERHEAD COST Indirect materials one part correct 36 500  (13 200 ✓+ 38 400 ✓ – 15 100 ✓) Salaries: foreman 156 000 ✓ Electricity and water (104 000 x 90%) 93 600 ✓✓ Rent expense (115 200 x 600/1 500) 46 080 ✓✓ Insurance (74 200 x 3/7) 31 800 ✓✓ Depreciation: factory plant and machinery 277 220 ✓ operation 641 200  13 3.2.2 PRODUCTION COST STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015. Direct (raw) materials cost 2 100 000 Direct labour cost see 2.2.1 1 318 800  Prime cost operation 3 418 800  Factory overhead costs see 2.2.1 641 200  Total manufacturing cost operation 4 060 000  Work-in-process (beginning of year) 160 000 operation 4 220 000  Work-in-process at end operation (220 000)  Cost of production of finished goods 4 000 000  (4 015 000 ✓ + 95 000 ✓ – 110 000 ✓) one part correct 10

ACTIVITY E4 4.1 HANGING LOOPS CURTAINS 4.1.1 Production cost statement for the year ended 31 March 2021 Direct material 2 270 000 Direct labour 345 000 (2 marks)  379 500 (780 000 ‒ 260 000 ‒ 175 000) ✓✓ + 34 500 ✓ Prime cost  2 649 500 Factory overhead cost Transfer from note  609 500 Total cost of production 3 259 000 Work in process (beginning of the year) ✓ 69 500 3 328 500 Work in process (end of the year)  (72 000) Balancing figure, must be deducted Total cost of production of complete products ✓✓ 3 256 500 2 605 200 x 100/80 10 Factory overhead cost Indirect labour (260 000 ✓ + 26 000 ✓ ) * 286 000 Indirect material (3 800 ✓ + 31 300 ✓✓ ‒ 4 300 ✓ ) * 30 800 Insurance (62 400✓ ‒ 14 400 ✓✓) * 48 000 Rent (77 000 + 7 700) ✓✓ 84 700 Depreciation ✓ 160 000 one part correct * 609 500 16

4.1.2 Provide a calculation to prove how the Direct Material Cost were calculated as R2 270 000. 14 400 + 7 200 36 000 x 60% 224 000 ✓ + 2 500 200 ✓ ‒ 140 000 ✓ ‒ (292 600✓ + 21 600 ✓) = 2 270 000 ✓ 6 4.2 GLASS AND CO. 4.2.1 Explain why it is important to calculate the Breakeven Point. Any acceptable, relevant answer. ✓ So that the owner/manager knows how much products must be produced in order to cover all costs. 1 4.2.2 Why is the production staff’s wages seen as a variable cost, but the factory cleaner’s wages is a fixed cost? Production staff is paid per unit/hour, so their labour cost would change as production levels change. ✓ The factory cleaner is paid a salary regardless of the amount of units produced. ✓ (Any acceptable answer) 4.2.3 Calculate the following: 2 (a) Factory overhead per unit 114 000 = R7,60 ✓✓ 15 000 2 (b) Total Fixed Cost 114 000 + 70 400 = 184 400 ✓✓ 2

(c) Variable cost per unit 142 400 ‒ 70 400 = 72 000 / 15 000 = R4,80 34 ✓ (20,00 + 14,00) + 11,20 ✓ + 4,80 ✓✓ = 50  one part correct 5 4.2.4 Calculate the Breakeven Point. 184 400  (See b) 70 ✓ ‒ 50  (See c) = 9 220  Should Glass and Co. be satisfied with their current production of 15 000 units? Explain. Compare BEF with level of production✓ Figure  They produce 5 780 more units than what is required to break even. TOTAL MARKS 50 6

ACTIVITY F1: (P2) SOLUTIONS: GENERAL LEDGER OF SIZWE LTD NOMINAL ACCOUNT SECTION 1.1.1 ASSET DIPOSAL ACCOUNT 2016 31 Vehicles GJ 200 000√ 2016 28 Accumulated GJ 118 080√√ Aug Aug depreciation on vehicles Profit and Loss GJ 5 000√ Debtors control GJ 8 920√ of Asset 205 000 205 000 1.1.2 Note to the Balance sheet as at 31 August 2016 Note1: Fixed Asset/Tangible Asset Land and Equipment Vehicles Building Cost price 2 120 000 490 000√ 980 000 Accumulated Depreciation 0 (203 000)√ (520 000)√ Carrying value- at the beginning of the year 260 000 460 000√ MOVEMENTS Additional at cost 280 000 150 000√ 240 000√ Disposal at CV 0 0 (81 920)√ Depreciation for the year 0 ( 56 500) (104 000)√ Carrying value –at the end of the year 2 400 000 353 500 514 080 Cost price 2 400 000 640 000 1 020 000√ Accumulated Depreciation 0 (286 500) (505 920) 1.1.3 If you are the accountant of the business, how will you respond to P. Querry. You must use the relevant GAAP principle in your explanation. • Financial statements are not misstated as land and buildings must be disclosed at the original cost as per GAAP concept of Historical Cost. • Revaluing land and building at the market price can lead to tangible asset being overvalued. • Its value can be manipulated.

1.1.4In your opinion, is this an acceptable business practice? Give reasons for your ans No • Lap-top was purchased for the personal use of the owner’s son not for the business purpose. • Owners request is violating the business entity concept principle (GAAP) • Therefore, the amount of R10 000 must be debited to his drawings account not to the equipment account. • This is a violation of the income tax payable to SARS ACTIVITY F1: (P2) SOLUTIONS: GENERAL LEDGER OF SIZWE LTD NOMINAL ACCOUNT SECTION 1.1.1 ASSET DIPOSAL ACCOUNT 2020 31 Vehicles GJ 200 000√ 2021 31 Accumulated GJ 118 080√√ Aug Aug depreciation on vehicles Profit and Loss GJ 5000√ Debtors control GJ 8 920√ of Asset 205 000 205 000 1.1.2 Note to the Balance sheet as at 31 August 2021 Note1: Fixed Asset/Tangible Asset Land and Equipment Vehicles Building Cost price 2 120 000 490 000√ 980 000 Accumulated Depreciation (203 000)√ (520 000)√ 0 Carrying value- at the beginning of the 260 000 460 000√ year MOVEMENTS Additional at cost 280 000 150 000√ 240 000√

Disposal at CV 0 0 (81 920)√ Depreciation for the year 0 ( 56 500) (104 000)√ Carrying value –at the end of the year 2 400 000 353 500 514 080 Cost price 2 400 000 640 000 1 020 000√ Accumulated Depreciation 0 (286 500) (506 920) 1.1.3 If you are the accountant of the business, how will you respond to P. Querry. You must use the relevant GAAP principle in your explanation. • Financial statements are not misstated as land and buildings must be disclosed at the original cost as per GAAP concept of Historical Cost. • Revaluing land and building at the market price can lead to tangible asset being overvalued. • Its value can be manipulated. 1.1.4 In your opinion, is this an acceptable business practice? Give reasons for your answer. No • Lap-top was purchased for the personal use of the owner’s son not for the business purpose. • Owners request is violating the business entity concept principle (GAAP) • Therefore, the amount of R10 000 must be debited to his drawings account not to the equipment account. • This is a violation of the income tax payable to SARS ACTIVITY F2 (P2) SOLUTIONS: 2. Problem solving, analysis and interpretation TAXI 1 • Higher running cost (6,10/km) • Age (fully depreciated) • Safety concern. • Earning R9.00/km (1 080 000/120 000) (profit R2.90) TAXI 2 • Lack of revenue in comparison to the other taxis (R 288 000 i.e. R4 11/km) • Theft/fraud by the driver.

• Revenue per km is less than running cost per km TAXI 3 • Under-utilisation (34 000km-others doing almost 70 000km or 120 000km) • Running cost are low (R4 70/km)-should be used more • Lack of work ethics of the driver. • Any relevant answer ACTIVITY F3 (P2) SOLUTIONS NO PROBLEM √√ SOLUTION √√ 3.1 • He is not employee of the business. • Owner must have a word with his son on the • Employees of the business may feel that matter. they are being unfairly treated. • Must ensure his son about business policy and rules 3.2 • TV was purchased for business not for • Defaulters should be reprimanded. personal used. • Failure to comply could result in dismissal. • Additional usage of the TV decrease its • Frequent checks need to be undertaken by lifespan resulting in added cost for the the auditor etc. business o Any relevant answer • This is not good for staff morale 3.3 • The fixed asset register will not reconcile • According procedure for the disposal of with actual physical stock on hand. asset will have to be explained to the owner. • Asset will not be shown correctly in the • Business entity concept. balance sheet 3.4 • There may not be a problem if she follows • Owner will have to check if he is getting the correct procedure when buying items best deal with this company. from this company. • He will have to be convinced that the • Gift should actual be given to the secretary is not compromising the interest of business as the secretary represents the the business with that of her own. business when she orders from the company