Accounting INVENTORY VALUATION

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TABLE OF CONTENTS 1. INTRODUCTION 2 2. HOW SHOULD WE USE THIS STUDY GUIDE? 3 3. INVENTORY VALUATION 4 KEY CONCEPTS 4 4. PRIOR KNOWLEDGE 5 5. STOCK VALUATION METHODS 9 5.1 FIFO - WORKED EXAMPLE 1 11 PRACTICE ACTIVITY 1 NSC Nov 2018 adapted 12 ANSWER SHEET 13 SOLUTION - PRACTICE ACTIVITY 1 14 5.2 The WEIGHTED AVERAGE method used the following formula: 15 PRACTICE ACTIVITY 2: 16 SOLUTION PRCTICE ACTIVITY 2 18 5.3 SPECIFIC IDENTIFICATION - WORKED EXAMPLE 3: 19 PRACTICE ACTIVITY 3 21 SOLUTION PRACTICE ACTIVITY 3 24 6. INTERNAL CONTROL PROCESSES 26 7. CONSOLIDATION ACTIVITIES 27 ACTIVITY 1: INVENTORY VALUATION AND INTERNAL CONTROL 27 ACTIVITY 2 29 ACTIVITY 3 31 ACTIVITY 4: INVENTORY VALUATION 33 ACTIVITY 5: INVENTORY VALUATION 36 ACTIVITY 6 38 8. GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET 40 ANSWER SHEETS 41 SUGGESTED ANSWERS 50 9. EXAMINATION GUIDANCE (INVENTORY VALUATIONS) 62 10. ACKNOWLEDGEMENTS 64 1|Page

1. INTRODUCTION The declaration of COVID-19 as a global pandemic by the World Health Organisation led to the disruption of effective teaching and learning in many schools in South Africa. The majority of learners in various grades spent less time in class due to the phased-in approach and rotational/ alternate attendance system that was implemented by various provinces. Consequently, the majority of schools were not able to complete all the relevant content designed for specific grades in accordance with the Curriculum and Assessment Policy Statements in most subjects. As part of mitigating against the impact of COVID-19 on the current Grade 12, the Department of Basic Education (DBE) worked in collaboration with subject specialists from various Provincial Education Departments (PEDs) developed this Self-Study Guide. The Study Guide covers those topics, skills and concepts that are located in Grade 12, that are critical to lay the foundation for Grade 12. The main aim is to close the pre-existing content gaps in order to strengthen the mastery of subject knowledge in Grade 12. More importantly, the Study Guide will engender the attitudes in the learners to learning independently while mastering the core cross-cutting concepts. 2|Page

2. HOW SHOULD WE USE THIS STUDY GUIDE? 1. This study guide addresses content and offer strategies to understand the difference between stock systems and stock valuation methods, to perform calculations and to comment on internal control processes relating to inventory valuation. The approach is to address each component in a piecemeal approach, with consolidation activities to conclude. 2. The explanations and activities are intended to supplement the work you may have covered in class or have gained from textbooks. 3. They proceed from the short, simple focused examples to more complex calculations and interpretation of information. 4. It is important to allocate sufficient time to: • Carefully read the explanations provided; underline/highlight key concepts, difficult vocabulary, important dates and relevant amounts. • Interrogate the worked example to gain an understanding of the message being conveyed or the sequence of events being illustrated. 5. Attempt the activities on your own; make constant reference to the explanatory notes, but avoid referring to the suggested answers before completing an activity. 6. Compare your answers to the suggested answers and do your corrections in a different colour ink. Note that you will learn more by discovering your weaknesses (when you get things wrong), and making an effort to understand why your thinking was out of sync. 7. The activities provided may not be sufficient to perfect your skills. Always refer to similar questions from past examination papers for this purpose. 8. Become familiar with the use of Answer Books and prepared writing material as this is the trend with all Accounting examinations. PRE-AMBLE: • Inventories is covered in Term 2, under Valuation of stock methods. • It will feature in the Accounting P2 (Managerial Accounting and Internal Auditing). • Recent trends on this topic focus mainly on valuation of inventories FIFO, Weighted average & Specific identification. • Internal control is integrated in the topic. • It can be integrated into Paper 1. 3|Page

3. INVENTORY VALUATION A BRIEF EXPLANATION Inventories refers to trading stock purchased by the business for the purposes of resale, with the intention of making a profit. Inventories represents the least liquid of the three Current Assets and is reflected on the Statement of Financial Position. Stock is purchased at different intervals and at different prices throughout the financial year. It is therefore necessary to value the stock as accurately as possible so that a true reflection of the financial position as well as profit or loss is reported. Depending on the system in use, a physical stock count may be necessary to determine the value of the closing stock, or to establish whether a deficit of surplus exists. Regular stock count is an essential internal control process and it helps to: • Minimise fraudulent practices • Ensure accurate recording and reporting (documents) • Facilitate reconciliation of records with actual stock This study guide will offer explanations and examples on the different stock systems introduced in grade 10 and 11, and on the THREE stock valuation methods that must be covered in Grade 12. KEY CONCEPTS Stock balance at the beginning of a financial year. This is Opening Stock equal to the stock unsold at the end of the previous financial year. Stock bought during the year for the purpose of resale. The Purchases of stock net purchases would be adjusted for donations and drawings. This represents the cost of transporting the stock to the Carriage on purchases business, which is recorded separately under the periodic inventory system It will include taxes and duties if goods are purchased from Customs / Import foreign countries, and will form part of the cost of the stock duties when determining selling price and profit mark-up. Stock sent back to the suppliers for reasons such as Returns of stock damaged, an incorrect order or inferior quality goods. This is also adjusted against the purchases account. This is the value of the unsold stock (stock on hand) at the end of the financial year. This figure is recorded in the Closing stock Balance Sheet, and is the opening stock of the following year. 4|Page

4. PRIOR KNOWLEDGE (Content you would have covered in previous Grades) In Grade 10 transactions involving stock were recorded using the perpetual inventory system. This was reflected in the General Ledger as: • Trading Stock (Balance Sheet Account) • Cost of Sales (Nominal Account) In Grade 11 the periodic system was introduced. In this case, stock purchased for resale was recorded in the Purchases account, Carriage on Purchases was recorded separately. Both these accounts are nominal accounts. The cost of sales had to be calculated at the end of a financial period. Perpetual Inventory System • A perpetual inventory system is a system that accounts for movement of inventory continuously and on real time basis (on the point of transaction). • Purchases and sales of inventory are recorded as and when they occur. • This system involves the use of point-of-sale recording systems, such as scanning. • The cost of goods sold can therefore be easily determined at any point that results in a movement of stock (purchase, sale, return). Periodic Inventory System • The periodic inventory system does not focus on real-time updating of stock balances; the cost of stock sold is not captured at the point of sale. • Physical stock counting of inventory is therefore necessary to determine inventory position at the end of a specified accounting period as required by the business. • This physical stock count is also necessary to determine the stock unsold or closing balance. • The cost of sales is determined by application of a mathematical formula: Cost of sales = Stock balance at the beginning of the year + Net Purchases + Carriage on purchases + Customs/Import duties – Stock balance at the end of the year. Advantages (perpetual system) Advantages ( periodic system) • Accurate and realistic • Cheaper and easy to use – no need to • Stock on hand is available in the records use scanners. • Stock surplus/deficit is determined by • No need to calculate cost of sales every comparing records to physical count. day. 5|Page

DIFFERENCES PERPETUAL(Continuous) PERIODIC • Trading of individual, easily • Trading in large volume, low value recognisable items goods • Transactions are recorded in the • Transactions recorded in Purchases Trading Stock account (B) account (N) • Cost of sales calculated when goods are • Cost of sales calculated periodically sold or returned usually at the end of the accounting • A stock count is performed to validate period. stock records and determine losses. • A physical stock-count at the end of the • Additional costs e.g. carriage on accounting period is necessary to purchases, are debited to the trading determine the value of closing stock. stock • Cost of sales is then calculated using the closing stock amount. • Additional expenses e.g. carriage on purchases are recoded separately in a nominal account (expense account). BASELINE ACTIVITY 1 = 504 900 XZY Traders end 31 December 2019 Required Calculate the cost of sales for the financial year ended 31 December 2019 INFORMATION: A. Stock balance on 1 January 2019, R98 400. B. Transactions during the current financial year: R i) Cash and credit purchases of trading goods 530 000 ii) Transport cost on trading goods paid by EFT 32 500 iii) Damaged goods returned to creditors. 12 600 iv) Goods donated to a local school (fund raising) 8 500 v) Goods taken by the owner for personal use. 4 000 C. Stock take on 31 December 2019 revealed that R76 550 was on hand. 6|Page

Balance at the end of the previous financial year is the opening SUGGESTED ANSWER balance of the current financial year COST OF SALES R Opening stock 98 400 + Purchases (530 000 – 12 600 – 8500 – 4 000) 504 900 + Carriage on purchases 32 500 Drawings and Donations always @ cost price. Do not - Closing stock 76 550 confuse the concepts of “cost Cost of sales 559 250 price” and “cost of sales”. Balance at the end of the current financial year, or the closing balance. (Left over stock, to be used next year). BASELINE ACTIVITY 2 Mandla Traders 31 October 2020 REQUIRED: Use the information below to prepare the Trading Account for the year ended on 31 October 2020. The business uses periodic inventory system INFORMATION: A. Balances on 31 October 2020 R Trading inventory (1 November 2019) 112 500 Cash and credit purchases of trading goods 478 900 Carriage on purchases 46 300 Sales 951 000 Debtors Allowances 27 900 Customs duties 14 500 B. Adjustments and additional information: 1 Damaged goods returned to creditors. R 21 500 2 Goods taken by the owner for personal use. R 5 200 3 Delivery of merchandise R 1 850 Stock taking on 31 October 2020 revealed: Stock on hand of R 77 900. 7|Page

SUGGESTED ANSWER Subtract debtors’ allowances from sales Trading Account Opening stock 112 500 Sales (951 000 - 27 900) 923 100 Take the additional information into Purchases account to adjust 452 200 Closing stock 77 900 (478 900 - 21 500 - 5 200) purchases Additional Carriage on purchases information is taken into account to (46 300 +1 850) 48 150 adjust carriage on purchases Customs duties 14 500 Profit & Loss 373 650 (Gross Profit) 1 001 000 1 001 000 8|Page

5. STOCK VALUATION METHODS Businesses would value their stock using different stock valuation methods, depending on the type of goods they buy and sell. The stock valuation method is recognized as business policy: • To achieve a level of consistency in determining the value of the closing stock and the gross profit and subsequently taxable income (if applicable) A SUMMARY OF THE DIFFERENT STOCK METHODS FIFO (First-In First-Out) Weighted Average Specific Identification • This method is based on • This is based on an • Large, easily the order in which stock is average unit cost, that identifiable, unique bought and sold. (E.g. is calculated stock items; items which have a • Mainly suited for similar • Each item has its own limited shelf life due to valued stock items cost price (as per the fashion / seasons / purchased regularly and invoice) such as cars. technology / expiring in large quantities. E.g. • Closing stock is the dates such as clothing / canned food/sports gear (cricket value of what is unsold cellphone /milk / bats)/school uniforms medicine • It assumes that stock bought first is sold first • Closing stock value would be the most recent purchases. CALCULATIONS RELEVANT TO ALL THREE METHODS* Refer to the Worked Examples Specific FIFO Weighted Average identification Total value of stock Closing stock units x the No. of units Closing Stock Cost of unsold items unit cost of the last batches available for sale value purchased x no. of units unsold. x units on hand Opening stock + Purchases + Carriage on purchases + Customs/Import duties – Cost of sales returns – Closing stock depending on the method used (above). Gross Profit Sales – Cost of sales % mark-up Gross Profit x 100 achieved. Cost of sales* * based on the closing stock calculated above (Average) stock Average stock × 365 holding period Cost of sales 1 Rate of stock Cost of sales = no. of times per year. turnover Average Stock Missing Items Sales – (Opening stock + Purchases – Returns) – Closing stock 9|Page

* Carriage on purchases (when goods are returned) When goods are returned to a supplier, the supplier would generally provide a full refund of the purchase price. • If the supplier provides the transport (carriage on purchases), they may decide to also refund the carriage cost. • If the supplier has outsourced the transport, then this cost may not be recovered – remain the cost of the business. • In either case, this condition will always be stated by the question, so that you will know whether to include the carriage on purchases (or exclude this) when calculating the value of returns. 10 | P a g e

5.1 FIFO - WORKED EXAMPLE 1 You are provided with the information related to Nosi Traders. The business used the first - in - first - out method to value stock. REQUIRED: Calculate the following for February 2020 • Value of closing stock • Cost of sales • Gross profit • Average stock holding period INFORMATION: A. Stock balances: UNITS UNIT PRICE TOTAL 1 March 2019 20 R 6 030 28 February 2020 38 ? B. Purchases during the year: UNITS UNIT PRICE TOTAL May 2019 40 R345 R 13 800 September 2019 45 R360 16 200 January 2020 30 R375 11 250 TOTAL 115 41 250 C. RETURNS: Three units (3) from September 2019 purchases. D. Total sales revenue amounted to R41 400 (92 units) SUGGESTED ANSWER Calculate the following on 28 February 2020: Value of the closing stock using First-In-First-Out. The closing stock takes into account the most recent (30 x 375) (8 x 360) batches purchased. 11 250 + 2 880 = 14 130 The 38 units on hand is reflected at 30 units from the January purchases and 8 must be taken from the September batch. The cost of sales The closing stock amount calculated above must be used 6 030 + 41 250 – 1 080 – 14 130 in the formula. = 32 070 The gross profit The sales amount is given. If not, it must be calculated 41 400 – 32 070 = 9 330 using relevant information that will be provided. The cost of sales calculated above is then used. The average stock holding period. Note that both amounts calculated above are used. The ½ (6 030+ 14 130) x 365 closing stock is part of the average stock (14 130) and the cost of sales 32 070 = 114,7 / 115 days 11 | P a g e

Points to Note: • The closing stock value is more realistic as it uses the cost of the last batches purchased. • The cost of sales is low because the earlier cost prices are used. • If a fixed selling price was applied, then a higher profit was made on the earlier sales than on the most recent sales (it would be problematic to set a fixed % mark-up, due to the change in the cost prices over time). • Be alert to returns from the most recent batch purchased. This must be subtracted, before calculating the value of the closing stock. • Always add any carriage on purchases to the cost (and add this to the individual cost of the products). At times, the supplier may decide to refund the carriage on purchases. Read carefully, before doing the calculation. PRACTICE ACTIVITY 1 NSC NOV 2018 ADAPTED VUYISILE'S SUITCASE SHOP Tabile Vuyisile sells travel suitcases. The year-end is 30 June 2020. REQUIRED: 1.1.1 Calculate the value of the closing stock on 30 June 2020 using the first-in- first-out (FIFO) method. (5) 1.1.2 Tabile suspects that suitcases have been stolen. Provide a calculation to support his concern. (5) 1.1.3 Tabile is concerned about the volume of stock on hand. • Calculate for how long his closing stock is expected to last. (6) • State ONE problem with keeping too much stock on hand and ONE problem with keeping insufficient stock on hand. (4) INFORMATION: • Stock balances: UNITS UNIT PRICE TOTAL Opening stock 420 R2 175 R913 500 Closing stock 496 ? • Purchases, returns and carriage: UNITS UNIT PRICE TOTAL Purchases 3 155 R8 460 850 September 2019 850 R2 250 R1 912 500 December 980 R2 670 R2 616 600 March 2020 875 R2 930 R2 563 750 June* (see returns) 450 R3 040 R1 368 000 Returns* 25 R3 040 R76 000 (from June purchases) • Sales: 3 050 travel suitcases were sold at R4 200 each. 12 | P a g e

ANSWER SHEET 1.1 VUYISILE'S SUITCASE SHOP 1.1.1 Calculate the value of the closing stock on 30 June 2020 using the first-in-first- out method. Workings Answer 5 1.1.2 Tabile suspects that suitcases have been stolen. Provide a calculation to support his concern. Workings Answer 5 1.1.3 Tabile is concerned about the volume of stock on hand. Calculate for how long his closing stock is expected to last. Workings Answer 6 ONE problem with keeping too much stock on hand: ONE problem with keeping insufficient stock on hand: 4 13 | P a g e

SOLUTION - PRACTICE ACTIVITY 1 1.1 VUYISLE'S SUITCASE SHOP 1.1.1 Calculate the value of the closing stock on 30 June 2020 using the first-in-first-out method. two marks two marks 425 x 3 040 P 1 368 000 – 76 000 1 292 000 P 450 – 25 71 R x 2 930 P 208 030 496 – 425 or units above 1 500 030 R 5 1.1.2 Tabile suspects that suitcases have been stolen. Provide a calculation to support his concern. (3 155 – 25) 420 + 3 130 – 3 050 – 496 = 4 units P P P P R –420 – 3 130 + 3 050 + 496 = –4 units 5 1.1.3 Tabile is concerned about the volume of stock on hand. Calculate for how long his closing stock is expected to last. 1 500 030 R x 365 (or 12) P 913 500 P + 8 384 850 P – 1 500 030 R 8 460 850 – 76 000 9 298 350 two marks / 7 798 320 three marks = 70,2 days R OR COS: 913 500 + 1 912 500 + 2 616 600 + 2 355 720 OR: 2,3 months one mark one mark one mark one mark OR: IF UNITS ARE USED: two marks one mark one method mark two marks one mark one method mark 496 x 12 = 1,95 months OR 496 x 365 = 59,4 days 3 050 two marks 3 050 two marks 6 ONE problem with keeping too much stock on hand: ONE point üü Can become obsolete and therefore useless to customers. Staff may see less movement in stock and decide to steal. Cost of storage / lack of storage space. ONE problem with keeping insufficient stock on hand: ONE point üü Will not meet the needs of consumers – they may go elsewhere to buy. Loss of income from sales. 4 14 | P a g e

5.2 THE WEIGHTED AVERAGE METHOD USED THE FOLLOWING FORMULA: !"!#$ &#$'( ") !*( '+,!- #&#,$#.$( !" .( -"$/ x units of stock on hand +'0.(1 ") '+,!- #&#,$#.$( WORKED EXAMPLE 2 (Weighted Average Method) TBT uses the weighted average method for stock valuation Calculate the following on 29 February 2020, the financial year-end: • Value of closing stock using the weighted average method. • Cost of sales • Gross profit • Average stock holding period INFORMATION: A. Stock balances: UNITS UNIT PRICE TOTAL 1 March 2019 25 R330 R 8 250 29 February 2020 38 ? B. Purchases during the year: UNITS UNIT PRICE TOTAL May 2019 45 R350 R 15 750 September 2019 45 R365 16 425 January 2020 25 R380 9 500 TOTAL 115 41 675 Returns 3 R380 ? *Carriage on purchases: R1 905. C. RETURNS: Three units (3) from the January 2020 purchases. D. Sales amounted to R50 050 ( 91 units) 15 | P a g e

SUGGESTED ANSWER Calculate the following on 29 February 2020: Value of the closing stock using the weighted average. 50 690 (3 x 380) The total value of the goods, 50 690 ÷ by the 8 250 + 41 675 + 1 905 – 1 140 x 38 units available, 137 = 370 is referred to as the 25 + 115 – 3 weighted average price per item. Multiplying 137 this by the units on hand (38) is the value of the closing stock that will be recorded in the Balance Sheet. = R14 060 The cost of sales The closing stock is used in the calculation 8 250 + 41 675 + 1 905 - 1 140 - 14 060 of the cost of sales. The average price is generally less than the most recent prices (used in FIFO) resulting in a larger cost of = 36 630 sales. Gross profit Subtracting the larger cost of sales will result in a smaller gross profit. 50 050 - 36 630 = 13 420 The number of units missing or stolen. Available for sale units sold and closing stock units Compare the units sold (sales) and closing 137 129 stock units to the total number of units that (25 + 115 – 3) – (38 + 91) = 8 units was available for sale. If this is not the same, then the difference will be missing. Points to note: • The weighted average is only the average cost per unit; multiplying the closing number of units by this figure will equal to the closing stock value thus completing the answer. • It is easier to determine the loss due to theft by using the average price. This is difficult to establish under FIFO method where we will need to know the affected batch. Feb/March 2017 adapted PRACTICE ACTIVITY 2: 2.1 Complete the following sentences by filling in the missing words. Write only the words next to the question number (2.1.1–2.1.3) in the ANSWER BOOK. 2.1.1 The method that is appropriate for very expensive, individually recognisable items is the … method. (1) 2.1.2 The method that assumes that the older stock is sold first is the … method. (1) 2.1.3 The method that divides the total cost of goods available for sale by the number of units is the … method. (1) 2.2 XY SPORT SHOP Popo Shabalala is the owner of this business. This business uses the periodic inventory system. 2.2.1 Calculate the unit price of cricket bats on 1 July 2019. (2) 2.2.2 Calculate the value of the stock on hand on 30 June 2020 using the weighted-average method. (10) 16 | P a g e

2.2.3 Calculate the gross profit on 30 June 2020. (5) 2.2.4 Calculate how long (in days) it is expected to sell the closing stock of 465 cricket bats. Use the closing stock in your calculation. (4) 2.2.5 Popo is concerned about the control of cricket bats. • Provide a calculation to support his concern. (5) • How can Popo solve this problem? Explain ONE point. (2) INFORMATION: A. STOCK OF CRICKET BATS UNITS UNIT PRICE TOTAL Opening stock (1 July 2019) 350 ? R420 000 Closing stock (30 June 2020) 465 ? ? B. PURCHASES, RETURNS AND CARRIAGE UNITS UNIT PRICE TOTAL Purchases 3 150 R4 302 500 September 2019 1 100 R1 250 R1 375 000 January 2020 950 R1 350 R1 282 500 March 2020 650 R1 475 R958 750 June 2020 450 R1 525 R686 250 Returns (from June purchases) 20 ? ? Carriage on purchases: • Total transport cost of stock purchased during the year is R110 400. • No refund was received for carriage on the returns. C. SALES: Total sales of R5 400 000 comprised 3 000 cricket bats sold at R1 800 each. ANSWER SHEET 2.1 2.1.1 2.1.2 2.1.3 3 2.2.1 Calculate the unit price of cricket bats on 1 July 2019. 2 2.2.2 Calculate the value of the stock on hand on 30 June 2020 using the weighted-average method. 10 17 | P a g e

2.2.3 Calculate the gross profit on 30 June 2016. 5 2.2.4 Calculate how long (in days) it is expected to sell the closing stock of 465 cricket bats. Use the closing stock in your calculation. 4 2.2.5 Provide a calculation to support Popo concern about the control of cricket bats. How can Popo solve this problem? Explain ONE point. 7 SOLUTION PRCTICE ACTIVITY 2 2.1 2.1.1 Specific identification P 2.1.3 First In First Out/FIFO P 2.1.3 Weighted Average P 3 2.2.1 Calculate the unit price of cricket bats on 1 July 2019. 420 000 / 350 = R1 200 üü 2 18 | P a g e

2.2.2 Calculate the value of the stock on hand on 30 June 2020 using the weighted-average method. Net purchases = R 4 272 000 three marks Purchases with carriage = R4 412 900 two marks Net purchases with carriage = R4 382 400 four marks 4 802 400 five marks R420 000P+ R4 302 500P+ R110 400P – R30 500üü x 365P = R641 700 R 350 P+ 3 150 P– 20 P 1 3 480 three marks eight marks one mark one method mark 1 380 x 365 = R641 700 10 2.2.3 Calculate the gross profit on 30 June 2020 4 802 400 R – 641 700 R = 4 160 700 R 400 000P – 4 160 700 = R1 239 300R OR 5 400 000 – 4 802 400 – 641 700 = R1 239 300 5 2.2.4 Calculate how long (in days) it is expected to sell the closing stock of 465 cricket bats. Use the closing stock in your calculation. 641 700 R x 365P = 56,3 days R 4 160 700R 1 OR: IF UNITS ARE USED one mark one mark one mark one method mark 465 / 3 000 x 365 = 56,6 days 3 480 - 480 4 2.2.5 Provide a calculation to support Popo's concern about the control of cricket bats. 3 480 PR (350 + 3 150 – 20) – 3 000 P – 465 P = 15 missing R How can André solve this problem? Explain ONE point. Expected responses for 2 marks: PP • Count stock regularly/randomly and check against stock records • Order smaller quantities, but more frequently • Improve physical security e.g. controls at entrance/security cameras • Restrict access to the storeroom Expected responses for 1 mark: Stock count / Security cameras 7 5.3 SPECIFIC IDENTIFICATION - WORKED EXAMPLE 3: The business sells TWO models of bicycles. Refer to the different calculations in the table below. INFORMATION: 19 | P a g e

A. Opening UNITS Model Units Unit cost Total Stock SOLD 1 March 2017 YYY 6 R9 000 R54 000 5 ZZZ 8 R7 000 R56 000 6 110 000 B. UNITS Purchases: Model Units Unit cost Total SOLD June 2017 YYY 10 R9 000 R90 000 YYY: 18 ZZZ 5 R7 500 R37 500 September YYY 15 R9 000 R135 000 ZZZ: 9 2017 ZZZ 8 R7 500 R60 000 322 500 C. Sales: YYY is sold at a profit mark-up of 75% on cost. ZZZ is sold at a fixed selling price of R15 500 each. SPECIFIC CALCULATIONS RELEVANT TO SPECIFIC IDENTIFICATION: Value of closing stock. 6 - 5 = 1 x 9 000 9 000 8 - 6 = 2 x 7 000 14 000 Determine the number of units unsold, for each model. 8 of YYY and 6 of ZZZ. 25 -18 = 7 x 9 000 63 000 Multiply this by the cost price of each model. 13 9 = 4 x 7 500 30 000 116 000 The cost of sales The same formula as used in FIFO and 110 000 + 322 500 – 116 000 316 500 WAM. The closing stock is subtracted from the available stock for sale. Sales It is important to determine the selling price YYY (5 + 18 = 23 x 15 750) 362 250 per model. Then calculate the number of units sold, per model. ZZZ (6 + 9 = 15 x 15 500 ) 232 500 594 750 The gross profit Use the figures calculated above, in this 594 750 – 316 500 278 250 calculation. 20 | P a g e

PRACTICE ACTIVITY 3 NSC Nov 2017 adapted 3.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (3.1.1–3.1.4) in the ANSWER BOOK. 3.1.1 The (specific identification/weighted-average) stock valuation method is best suited for products of similar value purchased in large quantities. 3.1.2 Cost of sales is determined at the point of sale in the (perpetual/ periodic) inventory system. 3.1.3 Stock valued according to the (first-in-first-out/weighted-average) method determines stock on hand by recording the cost prices of the most recent stock purchases. 3.1.4 In the periodic inventory system, carriage on goods purchased is recorded as an (expense/asset) to the business. (4) 3.2 SHINY-WHEELS (PTY) LTD You are provided with information relating to Shiny-Wheels (Pty) Ltd for the three months ending 30 September 2020. The business trades in motorbikes and helmets. Beauty, the owner, wants to assess his stock records before any price increases. REQUIRED: Motorbikes: 3.2.1 Calculate the value of the closing stock on 30 September 2020 using the specific identification method. (7) 3.2.2 Beauty requires your advice on the three different models of motorbikes in which he is trading. Explain TWO points of advice. (4) Helmets: 3.2.3 Beauty suspects that helmets are being stolen from the shop despite security cameras being installed. • Provide a calculation to verify his suspicion. (5) • What can Beauty do to improve the internal control of stock? State THREE points. (3) INFORMATION: A. Motorbikes: Information for three months ended 30 September 2020: Stock on 1 July 2020: MODEL UNITS COST PRICE PER UNIT TOTAL (R) AO2 12 R 24 300 291 600 Total purchases: MODEL UNITS COST PRICE PER UNIT TOTAL (R) AO2 6 R 24 300 145 800 AO3 15 R 27 400 411 000 AO4 18 R 31 600 568 800 39 1 125 600 21 | P a g e

Sales: TOTAL SALES AMOUNT MODEL UNITS SOLD (R) AO2 8 311 040 AO3 11 482 240 AO4 10 505 600 29 1 298 880 B. Helmets: Information for three months ended 30 September 2020: Stock balances according to physical count: COST PRICE UNITS TOTAL (R) PER UNIT (R) 1 July 2020 30 R500 R15 000 30 September 2020 12 ? Purchases: UNITS COST PRICE DATE PURCHASE TOTAL (R) PER UNIT (R) D 20 July 2020 25 R510 R12 750 20 August 2020 30 R525 R15 750 20 September 2020 20 R540 R10 800 TOTAL 75 R39 300 Returns: Five defective helmets from the purchases in August 2020 were returned to suppliers for a full refund. Sales: 85 helmets were sold at R600 each. 22 | P a g e

ANSWER SHEET 3.1 CONCEPTS 3.1.1 3.1.2 3.1.3 3.1.4 4 3.2 SHINY-WHEELS (PTY) LTD Motorbikes: 3.2.1 Calculate the value of the closing stock on 30 September 2020 using the specific identification method. 7 3.2.2 BEAUTY requires your advice on the three different models of motorbikes in which he is trading. Explain TWO points of advice. Point 1: Point 2: 4 Helmets: 3.2.3 Calculate the value of the closing stock on 30 September 2020 using the weighted-average method. 9 3.2.4 BEAUTY suspects that helmets are being stolen from the shop despite security cameras being installed. Provide a calculation to verify his suspicion. 5 23 | P a g e

What can BEAUTY do to improve the internal control of stock? State THREE points. Point 1: Point 2: Point 3: 3 SOLUTION PRACTICE ACTIVITY 3 3.1 3.1.1 Weighted average / WA P 3.1.2 Perpetual P 3.1.3 First-in-first-out / FIFO P 3.1.4 Expense P 4 3.2 SHINY-WHEELS (PTY) LTD Motorbikes: 3.2.1 Calculate the value of the closing stock on 30 September 2020 using the specific identification method. 243 000 PP + 109 600 PP + 252 800 PP = 605 400 R 18 – 8 15 – 11 18 – 10 (10 x 24 300) + (4 x 27 400) + (8 x 31 600) OR OS +P – COS = CS one mark one mark four marks one method mark 291 600 + 1 125 600 – 811 800 = 605 400 316 000 + 301 400 + 194 400 7 3.2.2 BEAUTY requires your advice on the three different models of motorbikes in which he is trading. Explain TWO points of advice. Any TWO valid point of advice PP PP 24 | P a g e

Expected responses: • Reduce the price of AO2 to increase sales / A lower mark-up% will help in reducing stock levels. • Discontinue / decrease the AO2 product and look at stocking alternative later model products. • Stock more AO3 products as they seem to be more popular and in an affordable range. • Stock more of the AO4 model because gross profit per unit is the biggest on the item. 4 Helmets: 3.2.3 Calculate the value of the closing stock on 30 September 2020 using the weighted-average method. 51 675 four marks 54 300 two marks (5 x 525) two marks 15 000 P + 39 300 P – 2 625 PP x 12 P = 6 201 R 30 P + 75 P – 5 P 105 two marks 100 three marks (517 x 12) OR 516,75 x 12 = 6 201 or 6 204 (weighted-average rounded off) seven marks 9 3.2.4 BEAUTY suspects that helmets are being stolen from the shop despite using security cameras. Provide a calculation to verify his suspicion. (30 + 75 – 5) 100 PR – 12 P – 85 P = 3 helmets missing R 5 What can BEAUTY do to improve the internal control of stock? State THREE points. Three valid points P P P Expected responses: • Do regular physical stock counts • Place tracking devices on the products / security price tags • Provide secure display cabinets for the stock • Improve security at the gates / inspect items and check to sales slip • Division of duties (if staff is suspected) • Buy in smaller quantities / more regularly Do NOT accept security cameras / CCTV 3 25 | P a g e

6. INTERNAL CONTROL PROCESSES • Internal control is learned from grade 10. • The topic can be integrated with stock. • Comment about internal control measures from within the business. • Identify problems and provide solutions. Count stock regularly/randomly and check against stock records/ record of lost material. Order smaller quantities, but more frequently. Improve physical security e.g. controls at entrance/security cameras. Insure the stock against theft, fire and damages resulting from natural disaster. Division of duties-receiving of stock, payments and stock keeping should be done by separate individuals to minimise the risk of fraudulent activities. Responsible person should be able to provided explanations. Standardise record keeping -check if records of stock received match payments for stock. Accountability – responsible person should be able to provided explanations. Locate the right suppliers in terms of quality, negotiate discounts. WORKED EXAMPLE 4 SCENARIO Nomsa, the owner of TT Traders selling cell phones, suspects that although cameras are installed in the building and the security personnel is available, her employees are stealing from the business. Provide other TWO internal control measures she can put in place to address the problem of theft. SUGGESTED ANSWER Provide other TWO internal control measures she can put in place to address the problem of theft. Any two valid points Improve the physical security at doors/bar coded strips/tracking devices etc. Use security detectors on products Rotate duties (if staff is suspected) Do regular/random stock control/checks/stock-take. Put dummy phones on display and keep real phone locked in cabinet. 26 | P a g e

7. CONSOLIDATION ACTIVITIES ACTIVITY 1: INVENTORY VALUATION AND INTERNAL CONTROL Feb/March 2018 adapted SASA TRADERS You are provided with information relating to SASA Traders. The business sells one type of plastic table. Their financial year ends on 31 December. The business uses the FIFO method to value their stock. They use the periodic inventory system. REQUIRED: 1.1.1 Calculate the value of the closing stock according to the FIFO method on 31 December 2020. (6) 1.1.2 Calculate the following for the year ended 31 December 2020: • Cost of sales • Gross profit (8) 1.1.3 The owner considers changing the stock valuation method to the weighted- average method. Calculate the value of the closing stock on 31 December 2020 by using the weighted-average method. (6) INFORMATION: A. Inventories: NUMBER OF TOTAL DATE PER UNIT UNITS VALUE 1 January 2020 540 R350 R189 000 31 December 2020 440 ? ? B. Purchases and returns in 2020: Purchases: NO. TOTAL PER TOTAL CARRIAGE TOTAL DATE OF PURCHASE UNIT PURCHASES PER UNIT CARRIAGE UNITS COST 31 550 R203 500 R370 R13 750 R217 250 Mar. 30 900 R342 000 R380 R22 850 R364 850 Jun. 30 500 R175 000 R350 R12 500 R187 500 Sep. R25 30 300 R120 000 R400 R9 000 R129 000 Nov. R30 Totals 2 250 R840 500 R58 100 R898 600 27 | P a g e

Returns: NO. OF PER TOTAL CARRIAGE TOTAL DATE UNITS UNIT RETURNS PER UNIT CARRIAGE 5 Jul. 50 R380 R19 000 0 0 These returns are from the purchases of June 2020. There is no refund for carriage. C. Sales: 2 300 units at R600 each = R1 380 000 28 | P a g e

ACTIVITY 2 NSC Nov 2019 adapted George Sicwetsha is the majority shareholder and CEO of Sicwetsha Ltd. The company supplies hotels with cabinets and lamps. The periodic system is used. The year-end is 30 September 2020. REQUIRED: CABINETS 2.1 Calculate the value of closing stock for cabinets on 30 September 2020 using the FIFO method. (6) 2.2 In 2020, the company decided to extend the target market and to grant trade discounts to increase sales. 2.2.1 Calculate the % mark-up achieved in 2020. (4) 2.2.2 Provide TWO points (with figures) to prove that this decision achieved its aims. (4) 2.2.3 The CEO feels that this decision also negatively affected the company. • Provide TWO points (with figures) to support his opinion. (4) • Give the directors advice to solve this problem. Explain TWO points. (2) LAMPS 2.3 Calculate the stockholding period for lamps (use closing stock). (3) 2.4 George is concerned about the control of lamps. An investigation revealed that the store manager was supplying local boarding houses with lamps without documentation. • Calculate the number of missing lamps. (5) • Give TWO suggestions to solve this problem. (4) TELEVISION SETS 2.5 During April 2020, while George was in hospital, Mzwandile Sefatsa (the chief financial officer) decided to include television sets in their product range. He was able to secure bulk discounts from Thisway on two TV set models, namely LYN and KYA. Calculate the value of the closing stock of TV sets on 30 September 2020 using the specific identification method. (7) 2.6 An employee of Thisway told George that Mzwandile received a 10% 'commission' from Thisway for buying excess stock. George wants to discuss this at the next board meeting. Explain THREE different concerns that George would have about this problem. (6) 29 | P a g e

INFORMATION: A. Stock records of cabinets and lamps: CABINETS LAMPS UNIT UNITS TOTAL UNITS TOTAL PRICE Stock balances 1 Oct. 2019 370 R800 R 296 000 600 R108 000 30 Sep. 2020 280 ? 265 R59 625 Purchases: 2020 January 800 R920 R 736 000 1 200 R240 000 April 1 200 R990 R 1 188 000 1 800 R432 000 July 250 R1 100 R 275 000 800 R210 000 Total 2 250 R2 199 000 3 800 R882 000 Returns 20 R1 100 Sales 3 675 Cost of sales R930 375 B. Information relating to cabinets: 2020 2019 Sales R3 480 000 R3 375 000 Cost of sales R2 170 500 R1 950 000 Units sold 2 320 2 500 Selling price per unit R1 500 R1 400 % mark-up achieved ? 73% Customers on record 37 26 C. Stock records of television sets: UNIT MODELS UNITS TOTAL PRICE Purchases May 2020 LYN 800 R6 000 R4 800 000 KYA 950 R7 200 R6 840 000 July 2020 LYN 500 R6 000 R3 000 000 KYA 500 R7 200 R3 600 000 TOTAL 2 750 R18 240 000 Sales LYN 430 R8 400 R3 612 000 KYA 540 R10 080 R5 443 200 30 | P a g e

ACTIVITY 3 NSC Nov 2020 adapted VANDERBIJLPARK ACCESSORIES The owner is Xolo VANDERBIJLPARK. The business uses the first-in first-out method to value gas lamps. They decided to sell gas stoves as well, expecting a demand due to increased load shedding. The specific identification method is used to value these stoves. The financial year-end is 30 April each year. REQUIRED: 3.1.1 Calculate the following for the gas lamps on 30 April 2021: • Value of closing stock (using FIFO) (6) • Stockholding period in days (using closing stock) (6) 3.1.2 Xolo suspects that the stock of gas lamps are not well controlled. Calculate the number of gas lamps missing. (4) 3.1.3 An investigation revealed that Xolo's brother (employed at the store) orders gas lamps using the business ordering system, and sells them privately to his friends. What should Xolo say to his brother when dealing with this matter? Provide TWO points. (4) 3.1.4 Calculate the closing stock value for gas stoves on 30 April 2021 (using the specific identification method). (5) 3.1.5 Xolo thinks he should stop selling gas stoves as they are causing a liquidity problem and the profit is low. (2) • Provide figures to support his opinion. • Explain TWO points to convince him NOT to discontinue trading in gas (4) stoves. 31 | P a g e

INFORMATION: A. STOCK RECORDS FOR GAS LAMPS: UNIT PRICE AMOUNT UNITS (R) (R) Stock balance on 1 May 2020 230 R12 650 Purchases during the year: 2 770 R193 500 July 2020 650 R60 39 000 September 2020 800 R68 54 400 January 2021 1 100 R75 82 500 March 2021 220 R80 17 600 Returns (from March 2021) 40 ? ? Available for sale 2 960 Stock balance: 30 April 2021 270 ? ? Total sales 2 180 R140 R305 200 B. STOCK RECORDS FOR GAS STOVES: PURCHASES: MONTH MODEL UNITS UNIT PRICE AMOUNT August 2020 B-LITE 80 R495 R39 600 B-LITE 80 R495 R39 600 October 2020 SMART 100 R700 R70 000 B-LITE 120 R495 R59 400 February 2021 SMART 60 R700 R42 000 SALES: MODEL UNITS SOLD SELLING PRICE AMOUNT B-LITE 132 R790 R104 280 SMART 54 R980 R52 920 GROSS PROFIT AND MARK-UP: MODEL COST OF SALES GROSS PROFIT MARK-UP B-LITE R65 340 R38 940 60% SMART R37 800 R15 120 40% 32 | P a g e

ACTIVITY 4: INVENTORY VALUATION SC June 2018 adapted 4.1 BAFANA CYCLES You are provided with information for the year ended 31 May 2019. The owner is Fred Mzangwa. The business sells different models of bicycles. Fred uses the periodic inventory system and the specific identification method to value stock. REQUIRED: 4.1.1 Calculate: • Value of the closing stock of bicycles on 31 May 2019 (8) • Cost of sales for the year ended 31 May 2019 (4) • Gross profit for the year ended 31 May 2019 (3) 4.1.2 Fred is satisfied that he is selling approximately 18 Cruze bicycles per month. However, he is concerned that the new Ryder model, despite its lower selling price, is not selling as quickly as the Cruze model. • Calculate the selling price of a Ryder bicycle. (3) • Calculate the average number of Ryder bicycles sold per month. (3) • Indicate how long it will take Fred to sell the closing stock of the Ryder bicycles. Show calculations. (3) • Give ONE possible reason for the slow sales of Ryder bicycles, and give advice (ONE point) to Fred in this regard. (4) INFORMATION: A. Three different models of bicycles were sold during the 2019 financial year. MARK UNITS OTHER MODEL SALES -UP SOLD INFORMATION Tempo 60% 66 R897 600 This model is no longer produced. R3 308 Cruze 60% 220 800 This model was introduced on 1 Sep. Ryder 35% 98 R979 020 2018. TOTAL SALES R5 185 420 B. Opening stock: COST PRICE PER DATE MODEL UNITS TOTAL UNIT Tempo 70 R8 500 R595 000 1 Jun. 2018 Cruze 0 33 | P a g e

C. Purchases and returns: COST PRICE PER DATE MODEL UNITS TOTAL UNIT PURCHASES: 1 Jun. 2018 Cruze 260 R9 400 R2 444 000 1 Sep. 2018 Ryder 200 R7 400 R1 480 000 RETURNS: Feb. 2019 Ryder 45 R7 400 (R333 000) Net purchases R3 591 000 34 | P a g e

4.2 MANAGEMENT OF INVENTORIES: CELIA'S CLOTHING Celia Mtolo owns a small clothing business. You are provided with information for the year ended 28 February 2019. The business sells T-shirts, jackets and pants. Celia took certain decisions at the beginning of the 2019 financial year. REQUIRED: Quote relevant figures for ALL the questions below. 4.2.1 T-shirts: Explain why it was NOT a good idea to change to a cheaper supplier of T- shirts. State TWO points. (4) 4.2.2 Jackets: Celia decided to change the supplier in 2019 and to change the mark-up %. How has this decision affected the business? State TWO points. (4) 4.2.3 Pants: Celia reduced the selling price of pants significantly in the 2019 financial year in response to a new competitor who sells similar pants at R990. Based on the information below, make TWO separate suggestions to Celia to improve the profit on pants in 2019. (4) INFORMATION: T-SHIRTS JACKETS PANTS 2019 2018 2019 2018 2019 2018 Gross units sold 1 200 1 080 150 165 280 325 Returns by 40 0 0 5 15 15 customers Selling price R75 R120 R1 650 R1 085 R910 R1 054 Cost price R50 R80 R1 000 R700 R650 R620 Mark-up % 50% 50% 65% 55% 40% 70% Gross profit R29 000 R43 200 R97 500 R61 600 R68 900 R134 540 35 | P a g e

ACTIVITY 5: INVENTORY VALUATION (40 marks; 25 minutes) 5.1 Choose the correct term from those given in brackets. Write only the term next to the question numbers (5.1.1 to 5.1.3) in the ANSWER BOOK. 51.1 The most recent purchases will be considered as closing stock in the (FIFO/weighted-average) stock valuation method. 5.1.2 Merchandise purchased is recorded in a Trading Stock Account in the (perpetual/periodic) inventory system. 5.1.3 Carriage on purchases is recorded as an (asset/expense) in the periodic inventory system. (3) 5.2 PHOTO-FIX TRADERS The information relates to Photo-fix Traders for the financial year ended 30 April 2020. The business is owned by PETER Samuels and sells two models of cameras (Grand and De-Lux) and photo frames. • The stock of cameras is valued using the specific identification method. • Photo frames are valued using the weighted average method. REQUIRED: 5.2.1 Calculate the value of closing stock of cameras on 30 April 2020. (9) 5.2.2 Calculate the value of closing stock of photo frames. (8) 5.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. (5) 5.2.4 PETER 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. (6) INFORMATION: The following information is in respect of the year ended 30 April 2020: 36 | P a g e

A. CAMERAS: STOCK, BOUGHT AND SOLD BOUGHT UNITS UNITS UNIT COST TOTAL SOLD GRAND MODEL Opening stock 20 R5 500 R110 000 14 R1 380 Purchases 240 R5 750 170 000 DE-LUX MODEL R1 104 Net purchases: 270 235 000 September 2018 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 5.3 MANAGEMENT OF INVENTORIES The information relates to Lyle Furnishers for the financial year ended 28 February 2020. The business sells cupboards, tables and chairs. No stock went missing during the year. REQUIRED: Provide ONE different problem (with figures) relating to EACH product and ONE solution to EACH problem. (9) 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 by customers (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 37 | P a g e

ACTIVITY 6 EC 2020 Trial adapted Nigari Stores sells ladies’ and men's watches: • Ladies’ watches are imported from Germany. • Men’s watches are locally manufactured. The financial year ended on 31 August 2020. REQUIRED: 6.1.1 Calculate the following in respect of ladies watches on 31 August 2020: (a) Value of Closing stock (5) (b) Cost of sales (5) (c) Stock-holding period (in days), using average stock. (4) 6.1.2 Calculate the following in respect of men’s watches on 31 August 2020: (a) Value of Closing stock (7) (b) Sales (3) 6.1.3 Explain why the business uses different methods to value each type of watch. State ONE valid point. (2) INFORMATION: A. • The business uses the following methods to value the stock of watches: o Ladies watches – specific identification o Men’s watches – weighted average • No watches were stolen or lost during the financial year. B. Information relating to ladies’ watches: UNIT TOTAL UNITS SOLD TOTAL UNITS PRICE AMOUNT SALES Opening stock 12 R6 500 R78 000 11 R125 125 Purchases: 35 R252 000 September 2019 15 R6 800 R102 000 10 R119 000 January 2020 12 R7 300 R87 600 10 R127 750 April 2020 8 R7 800 R62 400 5 R68 250 47 R330 000 36 R440 125 • The cost price of ladies watches includes transport costs and customs duties. • These watches are sold at a mark-up of 75% on cost. 38 | P a g e

C. Information relating to men’s watches: TOTAL UNITS UNIT PRICE AMOUNT Opening stock 95 R340 R32 300 Purchases: 675 R259 900 September 2019 320 R375 R120 000 January 2020 210 R390 R81 900 April 2020 145 R400 R58 000 • Men’s watches are sold at a fixed selling price of R520 each. • Cost to transport of the men’s watches from local suppliers amounted to R11 950 for the financial year and is not included in the figures above. • There were 92 men’s watches in stock on 31 August 2020. 39 | P a g e

8. GRADE 12 ACCOUNTING FINANCIAL INDICATOR FORMULA SHEET Gross profit x 100 Gross profit x 100 Sales 1 Cost of sales 1 Net profit before tax x 100 Net profit after tax x 100 Sales 1 Sales 1 Operating expenses x 100 Operating profit x 100 Sales 1 Sales 1 Total assets : Total liabilities Current assets : Current liabilities (Current assets – Inventories) : Current Non-current liabilities : Shareholders' equity liabilities (Trade & other receivables + Cash & cash equivalents) : Current liabilities Average trading stock x 365 Cost of sales . Cost of sales 1 Average trading stock Average debtors x 365 Average creditors x 365 Credit sales 1 Cost of sales 1 Net income after tax x 100 Net income after tax x 100 Number of issued shares 1 Average shareholders' equity 1 (*See note below) Net income before tax + Interest on loans x 100 Average shareholders' equity + Average non-current liabilities 1 Shareholders' equity x 100 Dividends for the year x 100 Number of issued shares 1 Number of issued shares 1 Interim dividends x 100 Final dividends x 100 Number of issued shares 1 Number of issued shares 1 Dividends per share x 100 Dividends for the year x 100 Earnings per share 1 Net income after tax 1 Total fixed costs . Selling price per unit – Variable costs per unit NOTE: In this case, if there is a change in the number of issued shares during a financial year, the weighted-average number of shares is used in practice. 40 | P a g e

ANSWER SHEETS ACTIVITY 1 1.1.1 Calculate the value of the closing stock according to the FIFO method on 31 December 2020. 6 1.1.2 Calculate the cost of sales. Calculate the gross profit. 8 1.1.3 Calculate the value of the closing stock on 31 December 2020 by using the weighted-average method. 6 What will be the effect on the gross profit if the owner changes to this valuation method? Provide figures. 3 41 | P a g e

ACTIVITY 2 CABINETS 2.1 Calculate the value of closing stock using FIFO. Workings Answer 6 2.2.1 Calculate the % mark-up achieved in 2019. Workings Answer 4 2.2.2 Provide TWO points (with figures) to prove that this decision achieved its aims. Point 1 Point 2 4 2.2.3 The CEO feels that this decision also negatively affected the company. Provide TWO points (with figures) to support his opinion. Point 1 Point 2 4 Give the directors advice to solve this problem. Explain TWO points. Point 1 Point 2 2 42 | P a g e

LAMPS 2.3 Calculate the stockholding period for lamps (use closing stock). Workings Answer 3 2.4 Calculate the number of missing lamps. Workings Answer 5 Give TWO suggestions to solve this problem. Suggestion 1 Suggestion 2 4 TELEVISION SETS 2.5 Calculate the value of the closing stock of TV sets on 30 September 2019 using the specific identification method. Workings Answer 7 2.6 Explain THREE different concerns that George would have about this problem. Concern 1 Concern 2 Concern 3 6 43 | P a g e

ACTIVITY 3 3.1 VANDERBIJLPARK ACCESSORIES 3.1.1 Calculate: Value of closing stock for gas lamps (using FIFO) Workings Answer 6 Calculate: Stockholding period in days for gas lamps (using closing stock) Workings Answer 6 3.1.2 Xolo suspects that the stock of gas lamps are not well controlled. Calculate the number of gas lamps missing. Workings Answer 4 3.1.3 What should Xolo say to his brother when dealing with this matter? Provide TWO points. 4 3.1.4 Calculate the closing stock value for gas stoves on 30 April 2021 (using the specific identification method). Workings Answer 5 44 | P a g e

3.1.5 Xolo thinks he should stop selling gas stoves as they are causing a liquidity problem and the profit is low. Provide figures to support his opinion. 2 Explain TWO points to convince him NOT to discontinue trading in gas stoves. 4 ACTIVITY 4 4.1.1 Calculate the value of the closing stock of bicycles on 31 May 2018. Workings Answer Tempo Cruze Ryder 8 Calculate the cost of sales for the year ended 31 May 2018. Workings Answer 4 Calculate the gross profit for the year ended 31 May 2018. Workings Answer 3 4.1.2 Calculate the selling price of a Ryder bicycle. Workings Answer 3 45 | P a g e

Calculate the average number of Ryder bicycles sold per month. Workings Answer 3 Indicate how long it will take Fred to sell the closing stock of the Ryder bicycles. Show calculations. Workings Answer 3 Give ONE possible reason for the slow sales of Ryder bicycles. Give advice (ONE point) to Fred in this regard. 4 4.2.1 Explain why it was NOT a good idea to change to a cheaper supplier of T-shirts. State TWO points. Point 1: Point 2: 4 4.2.2 Celia decided to change the supplier in 2018 and to change the mark-up %. How has this decision affected the business? State TWO points. Point 1: Point 2: 4 46 | P a g e

4.2.3 Make TWO separate suggestions to Celia to improve the profit on pants in Mzangwa. Point 1: Point 2: 4 ACTIVITY 5 5.1 5.1.1 5.1.2 5.1.3 3 5.2 PHOTO-FIX TRADERS 5.2.1 Calculate: Value of closing stock of cameras Workings Answer 9 5.2.2 Value of closing stock of photo frames Workings Answer 8 5.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. Workings Answer 5 47 | P a g e

5.2.4 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. Explanation Figures Point 1 Point 2 6 5.3 MANAGEMENT OF INVENTORIES Product Problem Solution Cupboards Tables Chairs 9 48 | P a g e

ACTIVITY 6 6.1.1 Calculate the following in respect of ladies watches on 31 August 2020: (a) Value of closing stock (b) Cost of sales (c) Average stock-holding period (in days) using average stock. 6.1.2 Calculate the following in respect of the men’s watches on 31 August 2020: (a) Value of closing stock (b) Sales 6.1.3 Explain why the business uses different methods to value each type of watch. State ONE valid point. 49 | P a g e

SUGGESTED ANSWERS CONSOLIDATION ACTIVITY 1 1.1.1 Calculate the value of the closing stock according to the FIFO method on 31 December 2020. 300 x R430 = R129 000 PP 140þx R375 ü = R52 500 R (440–300)(350+25) = R181 500 R 6 1.1.2 Calculate the cost of sales. (840 500 + 58 100) 189 000P + 898 600 ü– 19 000P= 1 068 600 – 181 500 R = 887 100 þ OR: Using units sold: 540 189 000 one mark 550 217 250 900 – 50 = 345 850 one mark 850 500 – 140 = 135 000 two marks 360 887 100 one method mark Calculate the gross profit. 1 380 000 ü – 887 100 R = 492 900 R 8 1.1.3 Calculate the value of the closing stock on 31 December 2020 by using the weighted-average method. 1 068 600üþ one part correct 189 000 + 898 600 – 19 000 x 440 P = 171 600 þone part correct (must be x 440) 540 + 2 250 – 50 2 740 üþ one part correct 390 (WA) four marks 6 What will be the effect on the gross profit if the owner changes to this valuation method? Provide figures. Gross profit will decrease / be less P* by 9 900 þþ (181 500 – 171 600) OR 492 900 – 483 000 FIFO WA 3 50 | P a g e

ACTIVITY 2 CABINETS 2.1 Calculate the value of closing stock using FIFO. Workings Answer If 280 – units in first part (230 P x 1 100 P) + (50 RR x 990 P) 302 500 R 253 000 49 500 Op. Stock Purchases Returns Cost of sales OR 296 000 + 2 199 000 – 22 000 – 2 170 500 one mark one mark two marks one mark 6 2.2.1 Calculate the % mark-up achieved in 2019. Workings Answer 3 480 000 – 2 170 500 60,3% R 1 309 500 PP x 100 2 170 500 P 4 2.2.2 Provide TWO points (with figures) to prove that this decision achieved its aims. P P Sales increased to R3 480 000 (from R3 375 000) / by R105 000 TWO different & / by 3,1% valid points P P Figures Number of customers increased to 37 (from 26) / by 11 / by 42% 4 2.2.3 The CEO feels that this decision also negatively affected the company. Provide TWO points (with figures) to support his opinion Gross profit decreased to R1 309 500 (from R1 425 000) / by P P R115 500 / by 8,1% / Cost of sales increased to R2 170 500 TWO different & (from 1 950 000) / by R220 500 / by 11,30% valid points P P Average units per customer dropped to 63 (from 96) (2 500/26) Figures (2 320/37) / by 33 / by 34% Units sold dropped by from 2 500 to 2 320 / by 180 / by 7,2% 4 Give the directors advice to solve this problem. Explain TWO points. Restrict (be selective with) trade discounts to good customers only Find a cheaper supplier (to compensate for keeping selling P P prices low) TWO different & valid points Increase marketing / advertising in areas outside the current areas targeted Provide other incentives such as after-sales services, maintenance or free deliveries 2 51 | P a g e

LAMPS 2.3 Calculate the stockholding period for lamps (use closing stock). Workings Answer OR 23,4 days R OR 0,8 months 59 625 P x 365 265 one mark x 365 930 375 PP 1 3 675 one mark 1 OR 26,3 days OR 0,9 months Accept 23 or 26 days 3 2.4 Calculate the number of missing lamps. Workings Answer Op.stock Purchases Clos.stock Sales 600 + 3 800 – 265 – 3 675 460 R P P P P 5 Give TWO suggestions to solve this problem. Divide duties / delegate to different employees Threaten strong disciplinary action (in future) / recover cost from culprit PP PP Increase supervision at regular intervals / random physical inspection of stock Change to the perpetual inventory system to record stock CCTV as an internal control measure Insist on proper documents for all stock supplied 4 52 | P a g e

TELEVISION SETS 2.5 Calculate the value of the closing stock of TV sets on 30 September 2019 using the specific identification method. Workings Answer 7 800 000 – 2 580 000 = R5 220 000 (4 800 000 + 3 000 000) (430 x 6 000) LYN: [(800 + 500) x 6 000] OR 870 x R6 000 R11 772 10 440 000 – 3 888 000 = R6 552 000 000 R (6 840 000 + 3 600 000) (540 x 7 200) KYA: (1 450 x R7 200) OR 910 x R7 200 7 430 x R6 000 540 x R7 200 OR: LYN 18 240 000 – 2 580 000 – 3 888 000 + KYA 2.6 Explain THREE different concerns George would have about this problem. Directors engaging in fraud and corruption / bribes / conflict of interests THREE Unethical behaviour of CFO places the company placing at risk different & Image of the company negatively affected / will affect the share valid price and further investments from potential investors concerns High stock value is tied up in stock / Obsolete / Affects liquidity PP PP PP Shareholders may want to sell their shares It will negatively affect the audit report Business will lose goodwill as it is unethical 6 53 | P a g e

ACTIVITY 3 3.1 VANDERBIJLPARK ACCESSORIES 3.1.1 Calculate: Value of closing stock for gas lamps (using FIFO) Workings Answer (220 – 40) 180PP x R80 = R14 400 R* R21 150 R* (270 – 180) 90 R x R75 = R 6 750 R* 6 Calculate: Stockholding period in days of gas lamps (using closing stock) Workings Answer Using totals: 42,5 days R 21 150 R see above x 365 12 650 P + 193 500 P – 3 200 P – 21 150 R see above OR 181 800 (40 x 80) 45,2 days OR: Using units: 270 x 365 2 180 6 3.1.2 XOLO suspects that the stock of gas lamps are not well controlled. Calculate the number of gas lamps missing. Workings Answer P P P 2 960 – 2 180 – 270 510 P OR (230 +2 770 – 40) - 2180 - 270 4 3.1.3 What should XOLO say to his brother when dealing with this matter? Provide TWO points. ONE comment PP PP part marks for incomplete answers • His actions are unethical; it compromises the profitability of the business; he is taking advantage of being a family member; • Enriching himself at the expense of the business; • He should not be expected to be treated differently and he will be subject to the rules and procedures of the business. • It is a conflict of interest and he must stop this practice. 4 54 | P a g e

3.1.4 Calculate the closing stock value for gas stoves on 30 April 2021 (using the specific identification method). Workings Answer (80 + 80 + 120) R147 460 R* 280 – 132 148 x R495 = R73 260 PR* (100 + 60) 160 – 54 106 x R700 = R74 200 PR* 5 3.1.5 XOLO thinks he should stop selling gas stoves as they are causing a liquidity problem and the profit is low. Provide figures to support his opinion. Too much cash tied up in stock, R147 460 PP Total profit on gas stoves is R54 060 Only 186 units of 440 (42,3%) Too much stock on hand, 254 units. 2 Explain TWO points to convince him NOT to discontinue trading in gas stoves. TWO points PP PP • He is achieving a 60% profit on B-Lite and a 40% profit on Smart. • He could reduce the mark-up to increase sales (recognising the state of the economy and his customers). • These stock items are durable and can be sold in the future. • The trend is to move towards gas because of load shedding – demand will increase in the future. • Customers may not be aware that he is selling these products. • He must advertise more extensively. 4 55 | P a g e

ACTIVITY 4 4.1.1 Calculate the value of the closing stock of bicycles on 31 May 2019. Workings Answer Tempo 8 500 x 4P R 34 000 Cruze 9 400 x 40P R 376 000 Ryder 7 400 x 57PP R 421 800 R 831 800 OR: Op.Stock Purchases COS Tempo COS Cruze COS Ryder [……………………– 3 354 200………………………….] 595 000 + 3 591 000 [ – 561 000 – 2 068 000 – 725 200 ] = 831 800 One mark for both together One accuracy mark & one method mark for each model One method mark 8 Calculate the cost of sales for the year ended 31 May 2019. Opening stock P 595 000 Net purchases P 3 591 000 Closing stock R (831 800) Cost of sales R 3 354 200 OR One mark One mark One mark One method mark (8 500 x 66) + (9 400 x 220) + (7 400 x 98) = 3 354 200 561 000 2 068 000 725 200 4 Calculate the gross profit for the year ended 31 May 2019. P þ þ 5 185 420 – 3 354 200 = 1 831 220 OR (66 x 8 500 x 60%) + (220 x 9 400 x 60%) + (98 x 7 400 x 35%) 336 600 + 1 240 800 + 253 820 = 1 831 220 3 56 | P a g e

4.1.2 Calculate the selling price of a Ryder bicycle. P þ R979 020 = R9 990 98P One mark One mark One method mark OR R7 400 x 135/100 = R9 990 OR R7 400 + R2 590 = R9 990 3 Calculate the average number of Ryder bicycles sold per month. P P þ 98 ÷ 9 = 10,9 per month 3 Indicate how long it will take Fred to sell the closing stock of the Ryder bicycles. Show calculations. For three marks: 57 units R ÷ 10,9 per month R = 5,2 months R OR 57 units X 9 = 5,2 months or approx. 157 days 98 units 1 OR 421 800 X 270 = 5,2 months or approx. 157 days 725 200 1 For two marks: 421 800 X 365 = 212,3 days 725 200 1 OR 57 units X 12 = 7 months 98 units 1 3 Give ONE possible reason for the slow sales of Ryder bicycles. ONE valid reason: üü Part-marks for unclear / incomplete answer • The customers do not like the new Ryder model • High returns indicate the quality is not good • This is a new model / Customers not familiar with this model / poor marketing strategy. Give advice (ONE point) to Fred in this regard. ONE valid point of advice üü Part-marks for unclear / incomplete answer • Look for another model to replace the Ryder model • Discontinue selling this model as mark-up % is low • Advertise/promote the positive characteristics of the new model. 4 57 | P a g e

4.2.1 Explain why it was NOT a good idea to change to a cheaper supplier of T-shirts. State TWO points. Any two valid points Explanations P P Figures P P Possible answers: • The returns by customers are up from 0 to 40 (do not accept poor quality only) • Although more units were sold the total gross profit decreased from R43 200 to R29 000 or by R14 200 (32,9%) • Maintaining the profit mark-up at 50% on cost resulted in a lower selling price (R45 cheaper) made customers doubt the quality. 4 4.2.2 Celia decided to change the supplier in 2019 and to change the mark-up %. How has this decision affected the business? State TWO points. Any two valid points Explanations P P Figures P P Possible answers: • Total units sold decreased from 165 to 150 / by 15 units / by 9% • No returns (zero) in 2019 / returns by customers went down from 5 to 0 • The gross profit increased from R61 600 to R97 500 /by R35 900 / 58,3%) 4 4.2.3 Make TWO separate suggestions to Celia to improve the profit on pants in 2019. Any two valid points Explanations P P Figures P P Possible answers: • Advertise more to increase the sales as it went down from 325 to 280 • Increase the selling price (increase mark-up) to be > 910 and < 990 • Find a cheaper supplier as cost price went up from R620 to R650 4 58 | P a g e

ACTIVITY 5 5.1 5.1.1 FIFO P 5.1.2 Perpetual P 5.1.3 Expense P 3 5.2 PHOTO-FIX TRADERS 5.2.1 Calculate: Value of closing stock of cameras OR (OS + P – COS) (6 x 5 500) (70 x 5 750) (10 x R4 110 000 + 1 104 000 + 1 380 000 – 000) (25 x 4 200) 2 013 500 33 000 + 402 500 + 40 000 + 105 000 (77 000 + 977 500 PP PP PP PP + 560 000+ 399 000) = 580 500 R = 580 500 9 5.2.2 Value of closing stock of photo frames 110 700 three marks 7 200 P + 108 000 P– 4 500 P x 80P = 11 808 R x 80 60 P + 720 P – 30P 750 three marks R147,60 six marks 8 5.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. PR P P R (60 + 720 – 30) – 80 – 657 = 13 750 5 59 | P a g e

5.2.4 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. Explanation P P FiguresPP PP Wages one mark R42 000 p a / R 3 500 p m Wages greatly exceed the cost of Cost of units missing: one mark Point 1 the missing units 13 x R147,60 = R1 918,80 (could use unit cost price) Units missing = 13 one mark Units missing are a very small % Units available = 750 one mark Point 2 of units available % missing = Less than 2% two marks 6 5.3 MANAGEMENT OF INVENTORIES Product Problem Solution Problem P P P P P P Figures P P P Possible change to new supplier High returns Ensure high quality ordered Cupboards 500/2 500 (20%) Order as per customer 500/1 800 sold (27, 7%) specifications Credit sales much higher than Promote cash sales by providing cash sales incentives such as cash 2 400/3 210 (75%); Tables 600/3 210 (25%) discount Division of duties/ banking of Missing money, 40 000 money (510 000/470 000) Slow selling item/ high stock Change to a different type of figures chair. Advertise more to (1 300 and 2 950) Chairs Purchases much higher than increase sales Buy stock according to sales. sales (6 000/4 350) Reduce mark-up% 9 60 | P a g e

ACTIVITY 6 6.1.1 Calculate the following in respect of ladies watches on 31 August 2020: (d) Closing Stock 1 x 6 500 5 x 6 800 2 x 7 300 3 x 7 800 6 500 P + 34 000 P + 14 600 P + 23 400 P 5 = 78 500 R One part correct (1 + 5 + 2 + 3 = 11 units) / 47 – 36 = 11 (b) Cost of sales 330 000 two marks OR 78 000 P + 252 000 P – 78 500 R (see above) 71 500 (11 x 6 500) 68 000 (10 x 6 800) = 251 500 PR One part correct 73 000 (10 x 7 300) OR 39 000 (05 x 7 800) 251 500 440 125 x 100/175 = 251 500 5 (1 mark) (2 marks) (1 mark) (w/w) (c) Stock-holding period (in days), using average stock. 78 250 2 marks see 6.3.1 (a) ½ (78 000P + 78 500R) x 365 = 113,6 days R One part correct 251 500 R see 6.3.1 (b) Accept 114 days 4 6.1.2 Calculate the following in respect of men’s watches on 31 August 2020: (a) Value of closing stock 304 150 (3 marks) 32 300 P+ 259 900 P + 11 950 P 95 P+ 675 P 770 (2 marks) = 395 395 x 92 P = 36 340 R One part correct 7 (b) Sales (770 – 92) = 678 (units sold)PP (2 or 0) 678 x R520 = 352 560R One part correct 3 6.1.3 Explain why the business uses different methods to value each type of watch. State ONE valid point. One valid point PP • Ladies watches are sold at a high value. Small quantities are purchased. • Each item can be monitored individually. • The value is continuously changing. Men’s watches are sold at a low value. Large quantities are purchased. The value of the watches are almost the same. 2 61 | P a g e

9. EXAMINATION GUIDANCE (INVENTORY VALUATION) 1. The study guide provides explanation of concepts, steps to do calculations, worked activities, formula sheet, and suggested marking guidelines and practice activities adapted from pat NSC papers. 2. Stock systems covered in Grade 11 must be clearly understood and revised as prior knowledge in understanding stock valuation methods. 3. Although Inventory valuation is tested independently in P2, it can feature in P1 and in P2. In P1 it can feature as an adjustment to the preparation of the financial statements. It can also be integrated with P2 topics such as stock account in manufacturing or purchases and sale in budgets. This topic is integrated in deep problem solving scenarios and you are expected to critically analyse the information. 4. The questions is structured in the same layout. The required first, followed by information needed to and answer the question. You are expected to sift and extract relevant information to answer the question. 5. A clear distinction of the three methods First in First out (FIFO), weighted average and specific identification methods can be understood by making reference to types of products offered by different businesses. 6. You need to understand the calculation for closing stock, cost of sales, gross profit and missing items and financial indicators relevant to stock valuation. 7. Understanding the format for the calculation of the closing stock under each level of stock valuation method is required. Calculating the value of closing stock using FIFO requires to focus on the latest purchases and to also take the returns into account. 8. You are expected to have the arithmetical skill and understanding of logic of the calculations to formulate simple calculations. 9. Show all workings, to ensure that maximum part marks can be achieved. 10. Understanding of business ethics is required to answer problem solving question in a form of internal control. 11. A special ANSWER BOOK is provided, to assist with time management. Take note of the information included in the ANSWER BOOK. 12. GENERAL STUDY AND EXAMINATION TIPS 1. Note that Accounting is now assessed in TWO papers; • P1 Financial Reporting and Evaluation 150 marks 2 hours • P2 Managerial accounting and internal controls 150 marks 2 hours 2. It is important to be familiar with the specific content for each paper so that you can plan effectively for examinations. Note that certain topics are relevant to both paper and some topics may be integrated within one question. 3. Obtain many past examination papers, the examination guidelines and exemplar papers to form the basis of your study programme. 4. Prepare a functional study time table and focus on specific topics at different intervals. Align this to time management; exploring short-cuts for calculations, frequently asked predictable questions and recommended responses for interpretive questions. 62 | P a g e

5. Pay close attention to the language used in past papers such as key vocabulary and action verbs. 6. For calculations, always show all workings – they carry many part marks. 7. Familiarize yourself with the structure and layout of Questions. They follow the same pattern which is: Appetizer, Required, Information. 8. Note that the ANSWER BOOK is a vital part of the Question Paper, as many amounts and details will be included for most Questions. This is a time-saving device. Ensure that you include these amounts in your final answers, where relevant. 9. Always arrive at least 30 minutes before the commencement of the paper. You will then be able to easily take care of all the administration requirements and to make effective use of your 10 minutes reading time. 10. Use the reading time to get a global picture of the paper, and identify where you wish to start (according to your strengths). You already have the ANSWER BOOK to assist in this regard. Simply go to the relevant pages for that Question. 11. You can also answer the sub-questions in any order; always inserting what is given, working from the simple to the more challenging. 12. Write legibly and neatly; markers must be clear about your answers. 13. Keep your comments short and to-the-point. The mark allocation is your guide about the expected length of your response. 14. Have your own stationery and a good calculator (even a spare – just in case). 63 | P a g e

ACKNOWLEDGEMENTS The Department of Basic Education (DBE) gratefully acknowledges the following officials for giving up their valuable time and families, and for contributing their knowledge and expertise to develop this this study guide for the children of our country, under very stringent conditions of COVID-19. Writers: Poobie Govender, Mbangwa Shabalala, Beauty Mpanza, Tabile Nobhala, Nosipho Sicwetsha, Vuyisile Deluhlazo and Nomsa Bikitsha. DBE Subject Specialist: Percy Masango The development of the Study Guide was managed and coordinated by Ms Cheryl Weston and Dr Sandy Malapile. 91

vg a basic education Department: « )) Basic Education REPUBLIC OF SOUTH AFRICA ee e ee e©eeeeeeeeee: eeooeeoeeeeee ISBN : 978-1-4315-3491-3 High Enrolment Self Study Guide Series This publication is not for sale. © Copyright Department of Basic Education www.education.gov.za | Call Centre 0800 202 993