Accounting Grade 11 Gauteng November 2017 Memo

Downloaded from hlayiso.com GAUTENG DEPARTMENT OF EDUCATION PROVINCIAL EXAMINATION GRADE 11 ACCOUNTING MEMORANDUM 21 pages 1

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 GAUTENG DEPARTMENT OF EDUCATION PROVINCIAL EXAMINATION ACCOUNTING MEMORANDUM 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 penalty for misplaced item). No double penalty applied. 2. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate is earning marks on the figures for that item. 3. Full marks for correct answer. If answer is incorrect, mark the workings provided. 4. 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). 5. 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. 6. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates. 7. This memorandum is not for public distribution, as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions. 8. Where penalties are applied, the marks for that section of the question cannot be a final negative. 9. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer and at least one part must be correct before awarding the mark. 10. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect at least in part. 11. Be aware of candidates who provide valid alternatives beyond the marking guideline. 12. Codes: f = foreign item; p = placement / presentation. 2

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 QUESTION 1.1 1.1.1 False  1.1.2 True  1.1.3 False  1.1.4 True  4 1.2.1 GENERAL LEDGER OF BLUE STORES Dr BANK Cr Interest on current 31 account   400 31 Balance 16 720 Bank charges Rent Income   18 000 (680 + 200)   880 Trading stock   3 000 Debtors control   1 600 Trading Stock   4 000 Drawings   6 000 Advertising   2 000 Insurance   9 000 Balance 10 800 Trading stock   4 000 38 200 38 200 23 Balance  10 800 3

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 1.2.2 BANK RECONCILIATION STATEMENT ON 31 March 2017 Debit Credit Balance as per Bank statement 48 880 Outstanding deposits 52 980 Outstanding cheques No 0861 1 400 No 1141 1 500 No 1175 8 000 No 1294 4 000 10 800 Balance as per General ledger See 1.2.1 7 63 780 63 780 1.3.1 CREDITORS RECONCILIATION Creditors Ledger of Statement from LIKE Traders SMILE Suppliers Balances 16 620 26 940 A  + 500 B  - 180 C  + 9 000 D  - 7 000 E (6 000 + 6000) 1 mark each + 12 000 Final balances / total  28 940  28 940 operation operation 12 -1 For any amount shown in both columns to a max of -3 4

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 1.5.2 The owner of LIKE Traders is concerned that the bookkeeper could be defrauding the business through the credit system. List TWO internal control measures that can be applied in order to maintain control over creditors. Any TWO valid points    Division of duties  Proper authorisation of transactions  Different people must take responsibility for purchasing items bought on credit and receiving the items  Items received must be checked against invoices and delivery notes 4 50 5

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 QUESTION 2 2.1 INCOME STATEMENT FOR RANA TRADERS FOR THE YEAR ENDED 31 DECEMBER 2017 Sales (720 000 – 13 800 - 4200)  702 000 Cost of sales ( 400 000 - 2625)  (397 375) Gross Profit check operation  304 625 Other Operating Income 51 000 Rent income (46 400 + 4400 )  50 800 Decrease in provision for bad debts (2 400 -2 200)  200 Gross Operating income 355 625 Operating Expenses check operation  (245 321) Packing material  5 350 Utilities (8 900 + 1 100)  10 000 Bad debts (3 200 + 400)  3 600 Bank charges (846 +250)  1 096 Discount allowed (430 - 30)  400 Trading stock deficit (70 000 + 2 625 - 64 700)  7 925 Insurance (8 800 –1400)  7 400 Salaries and wages (164 000 +11 600) (9200+2400)  175 600 Employers contribution ( 10 800 + 350)  11 150 Depreciation  15 000 Telephone  7 800 42 Operating Profit 110 304 Interest income (150+13 750+1 250) (15 000)  15 150 Profit Before Interest Expense 125 454 Interest expense  (15000) Net Profit for the year check operation  110 454 Penalty for foreign items (max - 2) 2.2.1 Calculation of depreciation (a) Depreciation on vehicles sold during the year.  37 250 000 x 20/100 x 9/12 500 (b) Total depreciation for the year ended 29 February 2017  1 000 000 x 20/100 = R200 000 + 37 500 see (a) 237 500 4 6

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 2.2.2 FIXED/TANGIBLE ASSETS Land and Vehicles Equipment buildings Carrying value at beginning of year  450 000 540 000 Cost 2 600 000 1 250 000 900 000 Accumulated depreciation (800 000) (360 000) Movements Additions at cost  84 000 Disposals at carrying value 250 000 – 170 000 - 37 500  (42 500) see 2.2.1 Depreciation  (237 500)  (54 000) Carrying value at end of year 2 684 000  170 000  486 000 Cost 2 684 000  1 000 000 900 000 Accumulated depreciation  (830 000)  (414 000) 14 7

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 2.2.3 BALANCE SHEET OF NEMESIS TRADERS ON 28 FEBRUARY 2017 ASSETS Non-current assets  3 610 000 Fixed/Tangible assets 3 340 000 Financial assets: Fixed deposit (350 000 – 80 000)  270 000 Current assets 830 520 Inventory (570 000 + 10 700)  580 700 Trade and other receivables (105 000 – 7 000 + 12 000 +1 320)  111 320 Cash and cash equivalents (50 000 + 6 000 + 80 000 +2 500)  138 500 Total assets 4 440 520 EQUITY AND LIABILITIES Capital 2 333 020 Non-current liabilities Long term loan (1 800 000 – 96 000)  1 704 000 Current liabilities 403 500 Trade and other payables (190 000+ 18 000 + 6 500 + 9 000 + 84 000)  307 500 Short term loan  96 000 20 Total equity and liabilities 4 440 520 80 8

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 QUESTION 3.1 COLUMN A COLUMN B 3.1.1 C 3.1.2 E 3.1.3 B 3.1.4 A 5 3.1.5 D 3.2.1 Calculate the following financial indicators for 2017. A Acid test ratio (1 320 000-920 000) : 440 000 400 000:440 000 0,9:1  4 B Debt – equity ratio 900 000: 2 110 000 = 0,4:1 3 C Operating expenses on sales  680 000 x 100 3 900 000 1 = 17,4% 3 D % return earned by Natalie  343 000 x 100  2 200 000 1 (1 000 000+165 000+1 000 000+35 000) ½ 343 000 x 100 1 100 000 1 =31.18% 6 9

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 3.2.2 The partners are satisfied with the manner in which they controlled the operating expenses in 2017. Quote TWO financial indicators (actual figures and percentages) to support their opinion Any two    Although the operating expenses increased by R20 000 from (R 660 000 to R680 000),  The % operating expenses on sales decreased from 20,6% to 17,4% indicating that the operating expenses were well controlled considering the increase in customers 4  The % operating profit on sales improved from 16,9% to 18,5% indicating that the good control of expenses resulted into an improved net profit. The business is now earning 18.5c in each R1,00 of sales compared to 16,9c in the previous year 3.2.3 Comment on the liquidity position of the business for 2017. Quote 2 financial indicators (actual figures or percentages) to support your answer. State two points? Ratio  Comment   The current ratio increased from 1.6:1 to 2:9:1. It is now too high as it is wasteful to keep so many current assets which do not earn a return.  The acid test ratio has been maintained at 0, 9:1 for both years indicating that the business, being a clothing store, can operate successfully 4 at this level. However the big difference between the current ratio and acid test ratio indicates that high levels of stock are a problem. The business must aim to maintain stock at a more efficient level. 3.2.4 The partners thought it was a good idea to use more loans in 2017. Quote two financial indicators (actual figures or percentages) to support their opinion. Ratio  Comment   The debt equity ratio has increased from 0,1:1 to 0,4:1. Although this is a significant increase the business is not in a risky situation as the equity is still more than a double the loans.  The interest rate on loans has not increased and is still at 13 % which is lower than the % return the business is earning. 4 10

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 3.2.5 Comment on the % returns earned by the partners. Natalie is very satisfied with her return, but Raymond is disappointed. Quote financial indicators (actual figures or percentages) to support your answer.  Natalie’s return has increased significantly from 24% to 31, 18% which greatly exceeds the returns on alternative investments.  Raymond’s return has dropped from 28,9 % to 23,1%. 2 35 11

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 QUESTION 4.1 4.1.1 Direct material cost: 625 300 18 000 + 650 000 – 35 000 + 12 300 – 20 000 4.1.2 Direct labour cost: Normal time 3 x 1 600 x 40 = 192 000 246 000 Over time 3 x 300  x (40 x 1.5) = 54 000 11 4.1.3 GENERAL LEDGER OF SPRING PARK Dr FACTORY OVERHEAD COST Cr 2017 2017 Work in Jun 30 Rent 68 500 June 30 progress 346 760 Maintenance 46 700 Depreciation 12 800 Repairs  1 300 Water and electricity (80 000 x 70/100) 56 000 Indirect materials (7 200 + 56 000 – 7 500) x 80/100  44 560 Sundry expenses (21 000 x 4/7) 12 000 Wages 23 000 Salaries (89 050 – 7150) 81 900 346 760 346 760 (-1) if advertising or office assistant salary 13 appears here 12

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 WORK IN PROCESS 2016 2017 Finished Jul 1 Balance  35 000 Jun 30 goods stock 1 212 000 2017 625 300 Jun 31 Direct material see 4.1.1 Balance 41 060 246 000 Direct labour see 4.1.2 Factory 346 760 overheads cost see FOH account 1 253 060 1 253 060 Jul Balance 41 060 6 4.2 PERRY TIES MANUFACTURERS 4.2.1 Calculate the unit costs for 2017 denoted by (a), (b) and (c). No marks for workings. (a) = R 11,36accept R11,37 (b) = R 3.86 (c) = R 4,65 accept R4 ,66 3 13

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 4.2.2 Compare the unit costs of 2017 with those of 2016. In each of the following cases give a possible reason (other than inflation) for the change: Alternative valid responses to be accepted – one reason for the change in each case Description of the change is not acceptable e.g. increased from R5 ,94 - R7.27 – reason must be provided in each case  Direct materials cost per unit  More efficient usage / Less wastage (better quality) / Cheaper supplier / Trade discounts for bulk purchase / Free delivery / Material obtained locally  Direct labour cost per unit  Inefficiency in production (more workers per unit) / Wage rate correction (paid them higher wages) / Increase in overtime (at higher rate) / Incentives for hard work  Factory overhead costs per unit  Greater number of units produced / Economies of scale (fixed costs do not increase with production) / Certain fixed costs were not incurred / they decreased Proper control of costs / Change in depreciation (in case of Dim Bal Method) 6 14

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 4.2.3 Calculate the break-even point for 2017: 328 000 (45,00-22.50) = 14 578  if one part correct Comment on the break-even point calculated above. Should the business be satisfied with the number of units that are currently being produced? Explain. Yes  - they are exceeding the BEP by a significant quantity. 44 000 - 14 578 = 29 422 Full marks if consistent with calculations above 6 45 15

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 QUESTION 5 5.1.1 Provide TWO items that will not be included in a cash budget. Provide a reason for your answer. Any two    Bad debts  Depreciation  Discount received  Discount allowed  Profit on sale of an asset  Loss on sale of an asset REASON: It is non-cash items  4 5.1.2 Explain the difference between a Projected Income statement and a Cash budget. Projected income statement calculates the projected profit or loss.  Cash budget calculates the expected cash available to the business.  2 5.1.3 Use the information given for the budgeted period. Comment on the debtor’s collection policy in comparison to the creditor’s payment policy. Creditors are being paid 60 days after purchases. Debtors are given up 90 days to settle accounts. Creditors are being paid before debtors settle their account therefore the business might experience a cash flow problem.  4 16

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 5.2.1 DEBTORS COLLECTION SCHEDULE FOR JULY AND AUGUST 2017 Month Credit sales July August May 225 000  56 250  22 500 June 300 000 176 400  75 000 July 275 000  161 700 7 August 325 000  232 650  259 200 17

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 5.2.2 CASH BUDGET FOR JULY AND AUGUST 2017 RECEIPTS JULY AUGUST Cash sales  275 000 325 000 Receipt from Debtors  232 650 259 200 Rent income 35 000 38 500 Fixed deposit 35 000 Asset disposal income 65 000 Total receipts (Award mark only if both amounts filled in)  607 650 657 700 PAYMENTS Payment to Creditors  400 000  360 000 Salaries  57 750 75 500 Wages  57 750  57 750 Maintenance (Tangible assets) 20 000 20 000 Advertising 18 000 16 500 Drawings 10 000 10 000 Vehicle  90 000 Total payments (Award mark only if both amounts filled in)  563 500 629 750 Cash surplus (shortfall)  44 150  27 950 Bank: opening balance (9 500)  34 650 22 Bank: closing balance  34 650  62 600 18

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 5.2.3 Comment briefly on each of the items on the budget. Provide ONE point of advice regarding each item Item Comment  Advice  Advertising Effectively managed. Maintain effective management. 3% of previous month’s sales. Improve further. Maintenance Not well managed. Budget realistically. Increased by R10 000 in Improve control measures July and by R7 000 in over maintenance to avoid August major expenditure in the future. Enter into maintenance contracts. Rent income Collected less than Improve collection by budgeted for each issuing reminders etc. month. Charge interest on Collection measures overdue rent. ineffective. Any acceptable answer 6 45 19

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 QUESTION 6 6.1.1 Calculate the missing amounts A to C in the table below. Excluding VAT Including VAT VAT 1 R320 000 ? A 44800 (320000X14/100) 2 R2 300 B R322 2622 (322X114/14) 3 C D R882 6 300 7182 4 (882X100/114) (882X114/14) 6.1.2 Explain the difference between Tax Avoidance and Tax Evasion. TAX AVOIDANCE Legal activity designed to arrange a tax payers affairs so as to reduce the level of taxation for which he is liable. TAX EVASION Illegal activity deliberately undertaken to reduce or free oneself from a tax liability. 4 6.1.3 The owner has 13 cash registers. The sales from the 13th cash register is taken by the owner daily. He does not declare this in his books. Advise him on his actions. Any TWO    Illegal as he wants to avoid taxation  Unethical to engage in such transactions  Guilty of fraud  Getting caught will result in fines, and bad publicity for the company 4 20

Downloaded from hlayiso.com MEMORANDUM ACCOUNTING GRADE 11 6.2.1 GENERAL LEDGER OF DALY OUTFITTERS Dr PURCHASES ACCOUNT Cr 2017 Creditors Control 2017 Creditors allowances Feb 28  485 000 Feb 28   2 560 Bank  (105 000  + 1 500 ) 106 500 Donation   2 000 Drawings   1 200 Trading account  585 740 591 500 591 500 14 6.2.2 Calculate the net sales for the year ending 29 February 2017. 520 000 + 5 100 +200 670 +2 400 -3 480 = 724 690 6 6.2.3 Prepare the trading Statement for the year ended 29 February 2017. Sales  724 690 Less Cost of Sales  499 790 Opening stock  214 000 Purchases (from purchases account)  585 740 Customs duty  2 890 Carriage on purchases (5 750 + 800)  6 550 Closing stock (309 390) Gross Profit  224 900 9 6.2.4 Advantages of converting to the continuous inventory system. Any 2    Continuous inventory system will offer better control over stock.  Stock can be verified per account with a physical stock count.  Gross profit easy to calculate 4 45 21