Accounting P1 MG 2016 hlayiso.com

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE EXAMINATION NOVEMBER 2016 ACCOUNTING: PAPER I MARKING GUIDELINES Time: 2 hours 200 marks These marking guidelines are prepared for use by examiners and sub-examiners, all of whom are required to attend a standardisation meeting to ensure that the guidelines are consistently interpreted and applied in the marking of candidates' scripts. The IEB will not enter into any discussions or correspondence about any marking guidelines. It is acknowledged that there may be different views about some matters of emphasis or detail in the guidelines. It is also recognised that, without the benefit of attendance at a standardisation meeting, there may be different interpretations of the application of the marking guidelines. IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 2 of 12 QUESTION 1 INVENTORY SYSTEMS Refer to the information relating to Weighcomm Scales. 1.1 Calculate the value of the closing stock using the FIFO method on 31 July 2016. 510 units: 478 × R2 200 = R1 051 600 32 × R2 160 = R69 120 Closing stock = R1 120 720 OR 490 × R2 200 = R1 078 000 20 × R2 160 = R43 200 Closing stock = R1 121 200 1.2 Calculate the cost of sales for the year ended 31 July. Opening Stock R420 000 Purchases R2 942 000 Mark on the purchases figure not including Returns (R26 400) the return. Closing Stock (R1 120 720) Cost of Sales R2 214 880 OR Opening stock R 420 000 Purchases R2 942 000 C/stock (R1 121 200) based on 1.1 COS R2 240 800 lose the method mark if foreign entries have been included. 1.3 Calculate the gross profit made by Weighcomm Scales for the year ended 31 July 2016. Sales: R3 838 000 (4 375 320 × 100/114) – R19 000 = R3 819 000 only if debtors allowances has been subtracted. Gross profit R3 819 000 – R2 214 880() = R1 604 120() OR R3 838 000 – (19 000 + 45 600 [12 × R3 800]) = R3 773 400 R3 773 400 - R2 240 800 = R1 532 600 IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 3 of 12 1.4 When doing an internal audit the auditor suspected that stock had been stolen, as all scales sold by Weighcomm Scales during the year ending 31 July 2016 had been sold at R3 800 (excluding VAT) each. Calculate whether or not stock has been stolen. Looking at Sales R3 819 000/R3 800 = 1 005 scales were sold leaving 533 left (200 + 1 350 – 12) – 1 005) But 510 were left so 23 were lost/stolen OR 2 773 400/3 800 = 993 (200 + 1 350) – 993 = 557 – 510 = 47 stolen OR (200 + 1 350 – 12) = 1 538 – 510 = 1 028 x R3 800 = R3 906 400 – R3 819 000 = 87 400 OR 1 550 – 510 = 1 040 x R3 800 = R3 952 000 – R3 773 400 = R178 600 1.5 Mark Epstein, the owner, is very concerned that sales have slowed down tremendously this year and that stock appears to be sitting in the warehouse for longer periods of time. The 2015 rate of stock turnover was 5,6 times. 1.5.1 Calculate the rate of stock turnover for the year for 2016. 2 214 880  420 000 + 1 120 720 /2 = 2 241 880 770 360 = 2,88 times OR 2 240 800  420 000 + 1 121 200 /2 = 2.9 times 1.5.2 Comment on the rate of stock turnover calculated in Question 1.5.1 above explaining why it may pose a problem for the business. The stock turnover rate has halved from last year to this year. It has decreased from 5,6 times to 2,88/2.9 times. Stock is not moving and it is sitting in the warehouse for longer periods. This may not be a problem as stock does not have a perishable nature. The problem is that electronic goods may become outdated as upgrades happen continually. IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 4 of 12 1.6 Calculate the Output VAT that the business would have been required to account for during the year. Sales – Debtors allowances = R3 819 000 × 14% = R534 660  R3 773 400 × 14% = R528 276 OR R4 375 320 – R21 660 = R4 353 660 × 14/114 = R534 660 R4 375 320 – [64 600 × 14% = R73 664] = R4 301 656 × 14/114 = R528 276 OR R537 320 – R2 660 = R534 660 R537 320 – R9 044 = R528 276 1.7 Analyse the transaction reflected in the credit note on 31 July 2016 in the table below. Under the accounting equation use +/– and amount. Owners' Account debit Account credit Assets Equity Liabilities Purchases/ Purchases returns/ Creditors allowances/Trading Creditors stock –26 400 +26 400 –26 400 Input VAT/Vat Creditors control –3 696 –3 696 Debtors Allowances Debtors Control –45 600 –45 600 Output VAT/VAT control Debtors Control –6 384 –6 384 One account and corresponding sign correct one mark (ignore amounts) IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 5 of 12 QUESTION 2 COMPANY FINANCIAL STATEMENTS Refer to the information relating to Impumelelo Limited. 2.1 Complete the Statement of Comprehensive Income (Income Statement) for the year ending 31 October 2016. Impumelelo Limited Statement of Comprehensive Income (Income Statement) for the year ending 31 October 2016 Do not mark brackets Sales (2 435 000 – 3 725 – 2 256 ) 2 429 019 Cost of Sales (1 521 875 – 1 410 must be less than R2 256) (1 520 465) Gross Profit Do not fill in this amount Add: Other income 137 212 Rent income (144 313 – 11 101 )144 313/13 133 212 Profit on sale of asset 10 000 – 6 000 or 24 000 – 20 000 4 000 Gross income for the year Do not fill in this amount Less: Operating expenses Do not fill in this amount 62 500 only if Audit fees (25 000 + 37 500 [25 000 × 6/4]) added 178 100 only if Directors fees (159 600 + 18 500 ) added Sundry expenses 116 649 Salaries (240 000 – 28 000 – 148 ) check if R148 is subtracted 211 852 Bad debts 11 594 Loss on sale of asset (6 000 – 6 000) – Provision for bad debts adjustment 270 Trading stock deficit 2 630 Depreciation 1 850 000 – 1 729 000 = 121 000 – 15 000 106 000 Operating profit for the year Do not fill in this amount Interest income (9 050 + 3 375 ) not accepting 12 425 if R25 000 added Operating profit before interest expense Do not fill in this amount Interest expense (46 200) Net income before taxation Do not fill in this amount Taxation for the year (289 000 + 11 450 ) (300 450) Net income after taxation Do not fill in this amount IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 6 of 12 2.2 Complete the notes to the financial statements as at 31 October 2016. NB: Impumelelo Limited show all their current liabilities under Trade and other payables and not separately in the Balance Sheet 2.2.1 Trade and other receivables 151 513 must Net trade debtors be subtracted Debtors Control (161 969 – 2 256 ) 159 713 Less: Provision for bad debts (7 930 +270) (8 200) Accrued Income – refer back to IS 3 375 Do not fill in this amount 2.2.2 Ordinary share capital 375 000 Ordinary shares at R6,90 per share 2 587 500 125 000 Ordinary shares at R7,30 per share 912 500 (37 500) Ordinary shares at R7 per share (262 500) 2 500 Ordinary shares at R7,40 per share 18 500 465 000 3 256 000 Must have the brackets correct 2.2.3 Trade and other payables Creditors control (229 120 – 1 410 see COS) 227 710 5 100 based on subtracting a Creditors for salaries (25 100 – 20 000 ) salary related figure SARS: PAYE (12 050 – 7 852 ) can add R11 450 4 198 /R15 648 Unemployment insurance fund (979 – 148 – 148 ) 683 Bank Overdraft (32 740 – 10 000 ) can add R318 750 repurchase 22 740 Deferred Income 11 101 Accrued expenses 37 500 Current portion of loan 120 000 SARS (Income tax) 11 450 Shareholders for dividends (462 500 × 0,80) 370 000 Do not fill in this amount IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 7 of 12 QUESTION 3 CASH FLOW STATEMENTS Refer to the information relating to Claxton LTD. 3.1 Calculate the dividends paid as they would have appeared in the cash flow statement on 31 July 2016. (162 000) Amount owing at the beginning of year 162 000 338 000 Total dividends for the year (338 000) (113 000) Amount owing at the end of year 113 000 387 000 Dividends paid (387 000) 3.2 Calculate the opening balance of the SARS income tax account on 1 August 2015. State whether this amount would reflect a tax asset or tax liability. 557 050 – 518 000 – 22 700 = 16 350 Liability can be a ledger account indicating a liability by a credit balance. R61 750 if no indication of liability 3.3 Calculate the book value of the obsolete equipment. 180 000 – [87 500 + 9 250 = 96 750] = 83 250 [92 500 × 15% = 13 875] × 8/12 3.4 How much did Claxton LTD pay for the new equipment? 950 000 – 164 400 – 83 250 from 3.3 + X = 1 232 850 X = 530 500 Could do a ledger account showing the BV for equipment which would be correct IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 8 of 12 3.5 Complete the cash flow from financing activities as it would have appeared in the cash flow statement on 31 July 2016. Cash flow from FINANCING ACTIVITIES 145 250 Repurchase of shares 50 000 × R5,50 (275 000) 333 000 balance Proceeds of new shares by inspection Proceeds of new loans 218 000 Repayment of existing loans 900 000 + 218 000 – 987 250 (use of anyone of these figures in brackets ) 87 250 (130 750) Use of brackets important. 240 750 – 110 000 = (130 750) 240 750 on its own in the CFS 3.6 Complete the cash and cash equivalent note as it would have appeared in the cash flow statement on 31 July 2016. Net change 31 July 2016 31 July 2015 Bank 118 500 12 500 (106 000) Petty Cash 500 2 000 1 500 119 000 14 500 (104 500) Must have brackets. 3.7 Calculate the balance on the retained income account on 31 July 2016. R1 035 000 + [1 223 000 – 518 000] – [50 000 × 50c] 705 000 25 000 – R338 000 = R1 377 000 Could do the Appropriation [R367 000] and Retained Income [R25 000] accounts OR R4 655 000 + R333 000 – R250 000 - R5 865 750 = R1 127 750 IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 9 of 12 3.8 Claxton LTD is very interested in buying a small but profitable business in Australia for R3 000 000. The directors are concerned about the economic situation in South Africa, in particular the increasing cost of finance and instability of the exchange rate. The bank has approved the finance for the purchase at an interest rate of 13,25% p.a. 3.8.1 Calculate the Return on Total Capital Employed (ROTCE) on 31 July 2016. Use average capital employed in your calculation. 1 223 000 + 110 000 × 100 {[5 690 000 + 900 000] + [5 865 750 + 987 250] }/2 1 = 19.83% Average equity R5777 875 Average loans R943625 3.8.2 If Claxton LTD decided to go ahead and take the R3 million finance, its debt to equity ratio will increase from 0,21 : 1 (present value) to 0,9 : 1. With reference to risk and gearing and any other concerns you think are important, advise whether or not Claxton LTD should proceed with the purchase of the business. RISK – By taking out the loan, Claxton LTD's debt to equity, and therefore risk, increases significantly as their debt to equity goes from 0,2:1 to 0,9:1. However, this is still manageable, and debt is still less than equity GEARING – The gearing is favourable considering that Claxton will borrow the funds at 13,25% and will is earning a ROTCE of 19. 83%  Based on the above it would be good to borrow, but uncertainty of overseas markets and weak rand also need to be considered IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 10 of 12 QUESTION 4 MANUFACTURING This question consists of 2 parts. PART A Refer to the information relating to Thorndon Manufacturers. 4.1 Calculate the direct materials issued into the production process. 55 000 + 1 135 000 + 2 500 + 3 500 – 6 000 – 70 000 = R1 120 000 Mark combinations if the signs are swapped around. Best combination. 4.2 Calculate the cost of production of finished goods. – 101 450 + 80 500 + 2 512 950 = 2 492 000 no method if foreign entries have been included. 4.3 Complete the factory overheads note below in the production cost statement for the year ending 30 September 2016. Thorndon Manufacturers Notes to the production cost statement for the year ending 30 September 2016 Note 3: Factory overheads cost Rent 490 000 × 60% 294 000 Insurance (121 520 – 17 360) 104 160 – 66 960 37 200 50 604 only Indirect Material (4 500 + 260 000 – 2 730) × 1/5 – if the R1 750 is 1 750 OR (52 354 – 1 750 ) subtracted Indirect labour 312 850 + 7 002 + 2 428 322 280 Loss due to theft 1 750 – 1 130 620 704 704 Also various combinations: R260 000 × 1/5 = R52 000 R4 500 + R260 000 × 1/5 = R52 900 R260 000 – R2 730 × 1/5 = R51 454 R260 000 – R1 750 = R258 250 R52 000 – R1 750 = R50 250 R52 900 – R1 750 = R51 150 R51 454 – R1 750 = R49 704 IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 11 of 12 Note 5: Selling and distribution costs Rent 171 000 Insurance 59 520 Telephone 12 500 Indirect labour – by inspection 570 018 Indirect material R156 000 /R158 700 /R154 362 157 062 Delivery/Transport costs 35 080 1 005 180 4.4 With the downturn in the South African economy Thorndon Manufacturers are concerned that they will struggle to make profits in 2017 and so are considering stopping their selling of alarms online as this is not their core/main business. Briefly explain one advantage and one disadvantage that this decision will have on their profitability in 2017 and explain what decision you think they should make. Advantage: It will cut costs associated with this call centre. 90% of selling and distribution costs are R904 662, so it would increase profits. These costs are R199 958 more than factory overhead. Disadvantage: Their sales will drop They would lose R1 884 712,50 in sales. Decision: Stop call centre as it only brought in 30% of sales but cost double factory costs. PART B Refer to the information relating to Bags of Fun. 4.5 Calculate the break-even point for Bags of Fun on 31 October 2016. 548 410  247 500 18,85  [5,50  4, 60  1, 65] 795 910 = 7,10 = 112 100 units IEB Copyright © 2016 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – MARKING GUIDELINES Page 12 of 12 4.6 Explain whether you think Maria would or would not be concerned about the profitability and sustainability of her business. Provide two reasons and justify your answer by providing supporting figures. Maria should be concerned with the profitability of her business as she is not breaking even. Her BEP has been calculated at 112 100 units and she is only producing and selling 110 500 units therefore she is 1 600 units short. Last year her BEP was 78 000 units and she managed to produce and sell 98 000 units thereby registering a profit on 20 000 units. Her business is not sustainable. Only one mark per reason if not supported by figures. Total: 200 marks IEB Copyright © 2016