Accounting Grade 12 NSC November 2012 Memo (English)

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE GRADE 12 ACCOUNTING NOVEMBER 2012 MEMORANDUM MARKS: 300 MARKING PRINCIPLES: 1. Penalties for foreign items are applied only if the candidate is not losing marks elsewhere in the question for that item (no foreign item penalty for misplaced item). No double penalty applied. 2. Full marks for correct answer. If answer incorrect, mark the workings provided. 3. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that figure (not the method mark for the answer). 4. Unless otherwise indicated, the positive or negative effect of any figure must be considered to award the mark. If no + or – sign or bracket is provided, assume that the figure is positive. 5. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates. 6. This memorandum is not for public distribution, as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions. 7. Where penalties are applied, the marks for that section of the question cannot be a final negative. 8. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer before awarding the mark. 9. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect at least in part. 10. Codes: f=foreign item; p=placement/presentation. This memorandum consists of 20 pages. Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 2 DBE/November 2012 NSC – Memorandum QUESTION 1 1.1 Indicate whether the statements are TRUE or FALSE. 1.1.1 False  1.1.2 True  1.1.3 False  1.1.4 False  1.1.5 True  10 1.2.1 Calculate the total value of the opening stock (A). 600  x R85  = R51 000  operation one part correct; 3 1.2.2 Calculate the value of the tiles received on 25 April 2012 (B). 960  x R120  + R5 760  = R120 960  operation one part correct R115 200 (2 marks) 4 1.2.3 Calculate the value of closing stock using the weighted average method. 214 200 see 1.2.1 if 1.2.2 + 94 500 + 119 700 Inspect reasonable 51 000  + 335 160  – 12 000 (or 12 600) x 1 150  3 660  = 374 160 (or 373 560) x 1 150 3 660 = R117 563,93  operation one part correct or R117 563,92 or R117 564 OR R102,23 x 1 150 = R117 564,50 or R117 565 R102,07 x 1 150 = R117 380,50 or R117 380 or R117 381 (4 marks) (1 mark) (1 method mark) 6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 3 DBE/November 2012 NSC – Memorandum 1.3.1 Calculate the amount owed to SARS for VAT. operation one part correct        70 000 – 114 800 + 8 400 – 5 600 – 1 750 + 2 100 = R41 650 OR: mark one line only –70 000 + 114 800 – 8 400 + 5 600 + 1 750 – 2 100 = R41 650 OR: Input/Output calculation VAT OUTPUT = 114 800 – 8 400 + 1 750 – 2 100 = R106 050 VAT INPUT = 70 000 – 5 600 = R 64 400 R 41 650 OR: Input/Output calculation VAT OUTPUT = 114 800 + 1 750 + 5 600 = R122 150 VAT INPUT = 70 000 + 8 400 + 2 100 = R 80 500 R 41 650 OR: VAT CONTROL 8 400 114 800 2 100 1 750 70 000 5 600 41 650 9 1.3.2 What should John Smith do about this? Explain. Any valid explanation  Excellent = 3 marks; good = 2 marks; satisfactory = 1 mark; incorrect = 0 marks Response for three marks must mention the action (inform Amy and instruct her to cancel the entry) and must explain the reason (tax evasion / unethical / illegal). Award part-marks for partial answers. Examples of responses:  He should inform Amy that tax evasion is illegal, she should not have authorised this transaction. He must insist that the entry for R200 000 must be cancelled and the correct amount owed to SARS must be paid. (3 marks)  He should warn Amy about what she is authorising because this is unethical/illegal and the entry must be cancelled. (3 marks)  He must inform Amy or the bookkeeper that the VAT form must be correctly filled in, and this fraudulent entry must not be reflected. (3 marks)  He must insist that the entry is cancelled because tax evasion is illegal. (3 marks)  He must insist that this is corrected because he has a CA qualification and has to comply with a code of conduct. (2 marks)  He must insist that this is corrected. (1 mark)  This is fraudulent because the amount paid to SARS will be incorrect/understated (1 mark)  The internal controls in the business are being circumvented by someone working in the business or by the owner (1 mark)  Tax evasion is illegal / Manipulation of input tax (1 mark)  Internal controls are defective (1 mark)  This is unethical (1 mark) 3 TOTAL MARKS 35 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 4 DBE/November 2012 NSC – Memorandum QUESTION 2 2.1 Complete the following sentences in your own words: Any valid explanation in each case   One mark for mentioning internal control without any further explanation. Two marks for explaining internal control measures (need not mention the words ‘internal control’). It is important to prepare a Bank Reconciliation Statement each month because it is an important part of internal control which enables a business to check its bank balance to a document (the bank statement) received from the bank / to correct errors & omissions / identify outstanding cheques & deposits / detect fraud. It is important to prepare a Debtors' Age Analysis each month because it is an important part of internal control which enables a business to identify debtors who are not complying with the credit terms / to ensure credit policies are followed / decide on action to be taken against certain debtors. 4 2.2.1 Which GAAP principle will the bookkeeper apply when writing off the amount of R40 000? Briefly explain this principle. Principle of prudence  part-marks for partial answer Explanation (must show understanding of prudence):  Possible responses for 2 marks:  To treat transactions conservatively  There is no guarantee that the money will be recovered and therefore it is treated as if it will not be recovered  To make provision for possible losses in future. 3 The bookkeeper wants to prevent a problem such as this in future? Give TWO solutions to improve internal control in this regard. Two separate points   part-marks for partial answers Possible responses for 2 marks:  Division of duties  Rotation of duties / employees to take leave  Divide duties amongst employees so that the one can act as a check on the other  Responsible staff members to check / make the deposits  The person issuing receipts should not be the same person doing the deposits  Regular and timely checks / monitor all large transactions  Outstanding deposits must be investigated promptly  Encourage EFT payments by customers / debtors  Ask bank to send confirmation of deposits (e.g. sms)  All cash received must be deposited daily (deposit slip must agree to receipts)  Take strong disciplinary action over culprits (e.g. dismissal). Do not accept preparation of bank reconciliation as a solution in this case. Do not accept security cameras. 4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 5 DBE/November 2012 NSC – Memorandum 2.2.2 BANK RECONCILIATION STATEMENT ON 31 MAY 2012 If 2-column method is used, assign appropriate headings to assist marking Debit Credit  Balance as per bank statement  19 310  Outstanding cheques:  967  4 790  1122  4 650  1129  8 540  Outstanding deposit  11 550  Correction of error / wrongly entered  960  Balance as per bank account operation – balancing figure;  24 780 debit or credit 37 290 37 290 -1 for foreign items (max -2) e.g. R40 000, R2 340, R1 850, R920. Inspect operation to award marks Balance as per Bank Statement (19 310) Outstanding cheques:  967 (4 790)  1122 (4 650)  1129 (8 540) Outstanding deposit 11 550 Correction of error 960 Balance as per bank account (24 780) 13 2.3 Identification of TWO different Internal control problems, with evidence from the measure to correct question each problem Problem 1 Identify problem (credit limits)  Any valid advice  Mention evidence  Figures not necessary in this case Do not sell on credit to Problem: Certain debtors are debtors who are likely to exceeding their credit limits exceed their limits / Evidence: Fakude (exceeds by R700) ensure that they settle or Martin (exceeds by R504). previous month’s debt before buying on credit Problem 2 Identify problem (credit periods)  Any valid advice  Mention evidence  Figures not necessary in this case Charge interest on Problem: Most of the debtors are overdue accounts/offer paying over periods longer than 30 discounts for early days payment/consider legal Evidence: 61% or R6 400 are taking action against problem longer / 39% within 30 days / Fakude debtors & Howard exceed 60 days 6 TOTAL MARKS 30 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 6 DBE/November 2012 NSC – Memorandum QUESTION 3 3.1.1 CAPE CHOCOLATES – NOTE TO THE PRODUCTION COST STATEMENT FOR THE YEAR ENDED 30 JUNE 2012 FACTORY OVERHEAD COST Factory indirect material mark one row only 80%  x (7 200  + 56 000  – 7 500 ) 80% (1 mark) x 55 700 (3 marks)  44 560 5 760 (1 mark) + 44 800 (2 marks) – 6 000 (1 mark) operation one part correct Factory rent  68 500 Factory maintenance (46 700  + 1 300 )  48 000 operation one part correct Water and electricity two marks or nil  56 000 Depreciation / machinery one mark or nil  12 800 Sundry expenses two marks or nil  12 000 Wages of cleaner one mark or nil  *23 000 7 150 Indirect salary (89 050– 6 500– 650)  *81 900 operation one part correct *Could be combined as R104 900 Total factory overhead cost operation one part correct  346 760 - 1 foreign entries to a maximum of -2 in the case of additional entries added into the note e.g. R23 500, R9 500, R130 000 20 3.1.2 CAPE CHOCOLATES – PRODUCTION COST STATEMENT FOR THE YEAR ENDED 30 JUNE 2012 Mark for details applied if placement correct  Direct/Raw materials cost be aware of permutations  625 300 (18 000  + 650 000  + 12 300  – 35 000  – 20 000 ) one part correct 615 000 (2 marks) 662 300 (2 marks) 627 300 (3 marks)  Direct labour cost (192 000  + 54 000 )  246 000 (3x 1600 x 40) + (900 x 60) one part correct Prime cost operation adding  871 300  Factory overhead cost see 3.1.1  346 760 Total cost of production accept 1212 000 / operation  1 218 060 Work-in-process on 1 July 2011 35 000 1 253 060 Work-in-process on 30 June 2012  (41 060) check operation – work back from COP of FG This figure must work out to be a negative figure - check Cost of production of finished goods 1 212 000 - 1 foreign entries to a maximum of -2 in the case of additional entries added in to the PCS 16 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 7 DBE/November 2012 NSC – Memorandum 3.2.1 Mark sections independently Blankets Towels Which production Direct labour cost  Direct material cost  cost caused the biggest problem? Explanation and Increased by R10 (from Increased by R7 (from figures to support R65 to R75; or 15%)  R20 to R27; or 35%)  your opinion Possible solution Train workers to work Secure a cheaper for Benny more efficiently / Work supplier / Ensure that less overtime / Control workers do not waste working hours / Limit raw materials / Improve increases to inflation rate security over DM  / Increase mechanisation / Pay according to productivity  6 3.2.2 Benny does not know how to calculate the break-even point. Give the workings to prove that the 2012 break-even point of 12 298 units for blankets is in fact correct. R3 800 000 = R3 800 000 = 12 298 units (R430 – R121) R309  OR (one mark) (one mark) (one mark) (one mark) 5 288 140 – 1 488 058 – R3 800 000 = 82/0 (rounding off) (12 298 x R430) – (12 298 x R121) – R3 800 000 = 82/0 (rounding off) 4 3.2.3 Refer to the number of blankets produced and sold in 2012, and the break-even point for blankets. Explain why these figures should be of concern to Benny. Quote figures to support your answer. Explanation on decline of number of units produced and sold  Quoting of figures  Explanation on increase in BEP  Quoting of figures  Expected responses for 4 marks (award part-marks for partial answers):  They produced 3 702 units above the BEP. He is concerned because it is only 30% above the BEP.  The number of blankets produced and sold has decreased by 9 000 units (from 25 000 to 16 000). The BEP has increased by 2 579 units (from 9 719 to 12 298).  In 2011 15 281 units contributed to the profit (61%) in comparison to 2012 when only 3 702 units contributed to the profit (23%).  This is of concern because he earns less profit on fewer units (probably because he is charging more than his competitors). The BEP is now 26% higher than it was; which means that he has to produce 26% more units before he starts making a profit. 4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 8 DBE/November 2012 NSC – Memorandum 3.2.4 Which product should Benny increase in price by R15,00? Towels  Explain and quote figures to support your answer. Explanation  Quoting of figures  Expected responses for 2 marks:  If he increases the price of towels to R125 it is still lower than the price of R130 charged by his major competitor (still R5 lower than competitor).  He cannot increase the price of blankets because his price of R430 is already higher than the R410 charged by his major competitor (already R20 more). In this case, estimate how much extra net profit he could earn next year assuming that his level of production and sales will remain unchanged. Give a calculation to support your answer. 80 000 x R15 = R1,2 m  (1 mark if no calculation & answer is between R1m & R1,4m) Could carry error through from above (e.g. focus on blankets approx R240 000) 5 TOTAL MARKS 55 Copyright reserved Please turn over

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Downloaded from hlayiso.com Accounting 10 DBE/November 2012 NSC – Memorandum QUESTION 4 4.1 Choose a description from COLUMN B that matches the term in COLUMN A. Write only the letter (A–D) next to the question number (4.1.1–4.1.4). 4.1.1 C  4.1.2 A  4.1.3 D  4.1.4 B  8 4.2 MASTER LIMITED 4.2.1 NOTE TO THE BALANCE SHEET ON 30 JUNE 2012 FIXED/TANGIBLE ASSETS Land and Equipment Vehicles Buildings Carrying value – 1 July 2011 930 000 220 000 519 200 Cost 930 000 561 000 814 000 Accumulated depreciation 0 (341 000) (294 800) Movements Additions at cost 650 000  55 000 0 Disposal at carrying value 0 0  ( 84 150) (165 000 - 66 000 - 14 850) operation one part 80 850 correct Depreciation 0 ( 58 850) (98 890) (E: 2 750  + 56 100 ) operation one part correct Inspect reasonable Inspect reasonable Carrying value – 30 June 2012 1 580 000  216 150  336 160 Cost 1 580 000 616 000  649 000 Accumulated depreciation 0  (399 850)  (312 840) Inspect reasonable Inspect reasonable 17 4.2.2 Calculate the Retained Income on 30 June 2012. (You may prepare an Appropriation Account if you wish.) 392 000 (2 marks) 345 000 (3 marks) 39 000 + 560 000 (or 496 640) - 168 000 - 126 000 - 219 000 = R86 000 or R22 640  operation one part correct Mark one line only OR - 39 000 - 560 000 (or 496 640) + 168 000 + 126 000 + 219 000 = R86 000 or R22 640  operation one part correct OR Appropriation Account 168 000 560 000 126 000 (or 496 640) 345 000 219 000 39 000 86 000 or 22 640 7 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 11 DBE/November 2012 NSC – Memorandum 4.2.3 MASTER LIMITED – BALANCE SHEET ON 30 JUNE 2012 ASSETS Non-current assets operation if one part correct  2 237 310 Fixed/Tangible assets see 4.2.1  2 132 310  Fixed deposits: Sahara Bank (203 000 – 98 000) 5  105 000 no part marks Current Assets operation if one part correct  358 090 Inventories (118 000  + 4 000 ) operation one part correct  122 000  Trade and other receivables / debtors 7 000 (2 marks)  73 550 (68 000  – 1 450  + 175 000  – 168 000 ) operation one part correct  Cash and cash equivalents  162 540 (98 000  + 61 340  + 3 200 ) operation one part correct TOTAL ASSETS operation 16  2 595 400 EQUITY AND LIABILITIES Ordinary shareholders' equity operation if one part correct  1 911 000 Ordinary share capital  1 825 000 Retained income see 4.2.2 3  86 000 OR 22 640 Non-current liabilities 316 800  Mortgage loan from Khaya Bank 5  316 800 (306 240  + 63 360  – 52 800 ) operation one part correct Current liabilities operation if one part correct  367 600  Trade and other payables / creditors (77 500  + 18 300  + 219 000 )  *314 800 operation one part correct  Short term portion of loan see NCL above  *52 800 *Could be combined for 2 method marks as part of as R367 600 TOTAL EQUITY AND LIABILITIES operation 9  2 595 400 38 TOTAL MARKS 70 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 12 DBE/November 2012 NSC – Memorandum QUESTION 5 5.1 Write down the missing word in each case 5.1.1 Solvent  5.1.2 Risk/gearing  5.1.3 Profitable  5.1.4 Return  5.1.5 Liquid  10 5.2.1 Calculate the acid-test ratio. 80 000 (2 marks) (190 000 – 110 000) : 120 000  = 0,7 : 1  operation if one part correct 4 5.2.2 Calculate the earnings per share (in cents). 330 000  x 100 180 000  1 = 183,3 cents  operation if one part correct 4 5.2.3 Calculate the net asset value per share (in cents). 1 445 000  x 100 180 000  see 5.2.2 1 = 802,8 cents  operation if one part correct 3 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 13 DBE/November 2012 NSC – Memorandum 5.2.4 Calculate the percentage return on average shareholders' equity. 330 000  x 100 ½ (1 445 000  + 1 133 000 ) 1 2 578 000 (2 marks) = 330 000 x 100 1 289 000 1 = 25,6%  operation if one part correct 5 5.2.5 Calculate the figures that will appear in the Cash Flow Statement for: Repayment of loans 630 000 – 500 000 = 130 000  no part marks – 630 000 + 500 000 = –130 000 2 Proceeds of issue of ordinary shares 160 000  + 56 000  = 216 000  operation if one part correct OR 1 088 000 – 872 000 = 216 000 OR 1 445 000 – 1 133 000 – 357 000 + 261 000 = 216 000 312 000 (1 mark) - 96 000 (1 mark) 4 Fixed assets purchased (note that fixed assets with a book value of R105 000 were sold at carrying value). 1 667 000  + 40 000  + 105 000 – 1 620 000  = 192 000  operation if one part correct OR use one line only 1 620 000 – 40 000 – 105 000 – 1 667 000 = –192 000 OR Start 1 620 000 Buy 192 000 Sell (105 000) Depr (40 000) End 1 667 000 OR 1 620 000 105 000 192 000 40 000 1 667 000 5 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 14 DBE/November 2012 NSC – Memorandum 5.3.1 James is of the opinion that Pomi Ltd is handling its working capital more effectively and is in a better liquidity situation than Kwela Ltd. Explain and quote THREE financial indicators to support his opinion. Financial indicator    Quoting of figures    Explanation    A combined explanation may be provided; figures must be provided but not necessarily for both companies; candidates cannot get full marks if superfluous indicators are used; If candidates provide additional irrelevant indicators, search for the correct ones in the answer provided by the candidate and award marks accordingly. For those who provide more than three options, penalty of -1 for an irrelevant indicator (max -2).  Current ratio of Pomi Ltd is 1,5 : 1 and of Kwela Ltd is 6:1 (Kwela Ltd’s ratio is 4 times bigger). Pomi has enough current assets to cover his current liabilities whereas Kwela Ltd is holding too much of his funds in the form of current assets which do not result in a return for the business.  Acid test ratio of Pomi Ltd is 0,9 : 1 and of Kwela Ltd is 2,8 : 1. (Kwela Ltd’s ratio is 3 times bigger). Even if Pomi is not able to sell all of his trading stock he should still be able to cover his short term debt. Kwela Ltd is holding much of his current assets in the form of trading stock (stock piling).  Period for which enough stock is on hand for Pomi Ltd is 88 days and for Kwela Ltd is 150 days (almost 6 months). Pomi Ltd has enough stock for 3 months which is appropriate for a company selling running shoes as styles of shoes normally change seasonally. Kwela Ltd is holding stock for too long, styles will change and clients will not be interested in buying outdated styles resulting in obsolete stock.  Debtors average collection period of Pomi Ltd is 25 days which is within the normal/acceptable credit terms and is much lower than the 53 days of Kwela Ltd. 9 5.3.2 Which company is making more use of loans? Quote a financial indicator for each company. Pomi Ltd  Debt / equity ratio 2 : 1 for Pomi Ltd and 0,3 : 1 for Kwela Ltd Explain whether or not it was a good idea for that company to make use of loans. Quote ONE financial indicator. No  Return on Capital Employed for Pomi is 13,6% which means that the return they are earning is lower than the interest he is paying on the loan (negative gearing)  6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 15 DBE/November 2012 NSC – Memorandum 5.3.3 Kwela Ltd has a better percentage return, earnings and dividends than Pomi Ltd. Explain and quote THREE financial indicators for each company. Figures for Pomi Ltd    Figures for Kwela Ltd    Explanation    Candidates cannot get full marks if superfluous indicators are used. If candidates provide additional irrelevant indicators, search for the correct ones in the answer provided by the candidate and award marks accordingly. For those who provide more than three options, penalty of -1 for an irrelevant indicator (max -2) Expected responses for 3 marks:  % ROSHE for Kwela Ltd is much higher (21,3%) than that of Pomi Ltd (11,2%). The shareholders of Kwela Ltd are earning a higher return than they would have on other similar investments whereas the shareholders of Pomi Ltd could possibly earn a higher interest rate on other similar investments.  EPS for Kwela Ltd is 410 cents whereas Pomi Ltd is only earning 176 cents per share.  DPS for Kwela Ltd is 240 cents whereas for Pomi it is only 185 cents per share. Candidates could also combine their comment on EPS and DPS as follows for 6 marks: Kwela Ltd is retaining income (EPS 410 cents, DPS 240 cents) whereas Pomi Ltd is not retaining any income (EPS 176 cents, DPS 185 cents). Candidates could also comment on EPS as follows for 3 marks: Kwela Ltd’s EPS of 410 cents compares well to the NAV of the share of 609 cents; Pomi Ltd’s EPS of 176 cents compares unfavourably to the NAV of 939 cents. Candidates could also comment on DPS as follows for 3 marks: Kwela Ltd’s DPS of 240 cents compares well to the NAV of the share of 609 cents; Pomi Ltd’s DPS of 185 cents compares unfavourably to the NAV of 939 cents. 9 5.3.4 Explain why the existing shareholders of Kwela Ltd are happy with the current market value of their shares. Quote afinancial indicator/figures to support your answer. Comparing market price and NAV of Kwela Ltd  Figures  Market price of Kwela Ltd is 750 cents which is higher than the NAV of 609 cents OR market price is 141 cents higher than the NAV. Kwela Ltd is thus able to fetch a price higher than the value of the shares in the books of the company. Explain why the existing shareholders of Pomi Ltd are very disappointed with the current market value of their shares. Quote a financial indicator/figures to support your answer. Comparing market price and NAV of Pomi Ltd  Figures  Market price of Pomi Ltd is 885 cents which is lower than the NAV of 939 cents OR market price is 54 cents lower than the NAV. 4 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 16 DBE/November 2012 NSC – Memorandum 5.4 How would these audit reports influence James in deciding in which company to buy shares? Explanation on the audit report of Kwela Ltd  Good = 2 marks; average = 1 mark; incorrect = 0 marks Expected responses for 2 marks:  James will know that he can rely on the figures in the financial statements as the company has received an unqualified audit report  James will know that he can rely on the figures in the financial statements as there is fair presentation in all material respects  The report is unqualified – it is a good (i.e. reliable) report. Expected responses for 1 mark:  The financial statements fairly present the financial position  The report is unqualified  He will be able to rely on the figures  This will probably have a positive influence on his decision  He will be comfortable with his decision. Explanation on the audit report of Pomi Ltd  Good = 3 marks; average = 2 marks; poor = 1 mark; incorrect = 0 marks Expected responses for 3 marks:  James will know that he cannot rely on the figures in the financial statements as the company has received an qualified audit report  James will know that he cannot rely on the figures in the financial statements as they drew attention to shortcomings in the financial statements  James will be unhappy because the fixed assets had been overvalued in the opinion of the auditors (which means that the true value of his possible investment is not certain as indicated by the net asset value). Expected responses for 2 mark:  The report is qualified – it is an unfavourable (i.e. unreliable) report Expected responses for 1 mark:  The financial statements do not fairly present the financial position in all respects  The report is qualified  He will not be able to rely on the figures  This will probably have a negative influence on his decision  He will be uncomfortable with his decision. 5 TOTAL MARKS 70 Copyright reserved Please turn over

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Downloaded from hlayiso.com Accounting 18 DBE/November 2012 NSC – Memorandum QUESTION 6 6.1 Explain why it is important for Jim to prepare a projected Income Statement. Valid explanation  Good = 2 marks; satisfactory = 1 mark; incorrect = 0 marks Expected response for 2 marks:  To reflect the profit or loss the business can expect to make  It enables him to plan properly and to anticipate any problems which could arise  So that he can compare budgeted to actual figures in order to take corrective action. Expected response for 1 mark:  To see if the business is making a profit or loss  To reflect projected income and expenditure. 2 6.2 Calculate percentage increase in sales he expects in December. 118 000 / 590 000 = 20%  no part marks Explain why he has budgeted for this increase. Explanation  Expected response for 2 marks:  December should be a much busier period because of festive season (Christmas) or summer holidays  There are more advertisements placed in December than in the other months.  This is a shop focusing on holiday activities (so they should be busy during these periods) 4 6.3 Calculate the mark-up percentage he actually achieved in October. 220 500  x 100 = 45%  operation if one part correct 490 000  1 Explain whether or not it was a good idea to change the mark-up percentage from his original target. Yes / No  Explanation  part-marks for partial answers Explanation for no: Even though the actual sales were much more than budgeted, it did not result in a higher gross profit. Explanation for yes:  Sales increased significantly. (Although the gross profit was apparently the same), the business now has more customers (goodwill) which will benefit them in future.  If they did not decrease their gross profit margin (from 60%) to 45%, they would not stay competitive and sales could drop and consequently net profit would drop. 6 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 19 DBE/November 2012 NSC – Memorandum 6.4 Calculate the following figures in the Projected Income Statement: Workings Answer Rent income for 5 200  x 105  R5 460  November 2012 100 operation one part correct (one mark) R260 (one mark) 5 200 + (5% x 5 200) Advertising for 880  x 8  R7 040  December 2012 4 400 (one mark) (one mark) operation one part 4 000 + 400 + 2 640 correct Interest expense R11 875  for November 2012 15%  x 950 000  / 12  operation one part correct 10 6.5 Refer to the actual and budgeted figures for October 2012. Identify the THREE overhead expenses that have been poorly controlled by Jim. Quote figures to support your answer. Identification of THREE items:    Identification of figures:    Any three items:  Maintenance of property is R3 000 over budget (R7 000/R4 000)  Water and electricity is R4 400 over budget (R5 600/R1 200)  Trading stock deficit is R4 300 over budget (R12 300/R8 000) 6 What advice would you offer Jim to improve his internal control over these overhead expenses? Explain. Advice  part-marks for partial answers Expected responses for 2 marks:  Jim must inspect the reasons for being over budget (e.g. lack of care over property, water leaks, poor control of stock)  He must take corrective action for the items that are over budget.  He must budget more realistically in future. 2 Copyright reserved Please turn over

Downloaded from hlayiso.com Accounting 20 DBE/November 2012 NSC – Memorandum 6.6 Jim is of the opinion that he could benefit financially if he accepts Samuel's offer. State THREE points that would have a positive effect on his Projected Income Statement for January 2013 if he accepts the offer. Give figures or information from the question to support your answer. Three separate points    Figures    Expected responses for 2 marks each:  He will be saving interest on the loan – R10 625 or R11 250 or R11 875 / He will be paying no interest on loan (i.e. 0)  He will be earning interest on a fixed deposit – 6% of R650 000 (R3 250)  He will save on maintenance costs – R4 000 or R7 000 / He will incur no maintenance costs (i.e. 0)  He will save on rates – R1 000 / He will not pay rates (i.e. 0)  The rent expense is R125 less than the interest on the loan (R10 625 – R10 500)  He will reflect a profit on sale of the property of R300 000 in the Income Statement. 6 6.7 Jim is also conscious of the fact that there are negative points if he accepts the offer. State TWO points that Jim should consider before finalising his decision to sell the property. Explain. Two valid points   figures not necessary in this case Expected responses for 2 marks:  He will be losing an asset which appreciates in value over time  The value of the land and buildings may increase by more than the rent he is paying (R126 000 per year)  He will be losing rent income (R5 460 per month)  He will be paying rent (R10 500 per month)  The rental will increase annually  It could hamper future development of the business (if he does not own the fixed assets)  He will not have collateral in the form of property. 4 TOTAL MARKS 40 TOTAL: 300 Copyright reserved