Gr11 Accounting Teacher Support Document Solution

CURRICULUM GRADE 10 - 12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT SOLUTIONS GRADE 11 ACCOUNTING 2020

ACTIVITY A1 1.1 NO. 1.1.1 Going concern  1.1.2 Matching  1.1.3 Finance cost  1.1.4 Partners’ earnings  1.1.5 Reliability  1.2 Calculation of interest on capital Answer Gifford: (880 000 x 9/100 x 6/12) = 39 600 (700 000 x 9/100 x 6/12) = 31 500 71 100 operation if one part correct 4 Ndlovu: (900 000 x 9/100 x 10/12) = 67 500 (1 150 000 x 9/100 x 2/12) = 17 250 84 750 operation if one part correct 4 1.2.1 CAPITAL Gifford Ndlovu Total Balance at the beginning of the year 880 000 900 000 Contribution of capital during 250 000 the year Withdrawal of capital during (180 000) the year Balance at the end of the year 700 000 1 150 000

1.2.2 CURRENT ACCOUNTS Gifford Ndlovu Total Partners’ salaries 504 000 350 000 Partner’s bonus 0 30 000 Interest on capital (see calculation 4.2) 71 100 84 750 Primary distribution of profits 575 100 464 750 1 039 850 Final distribution of profits 147 390 98 260 245 650 Profit as per Income Statement 722 490 563 010 1 285 500 Drawings during the year (167 800) (225 600) Retained income for the year 554 690 337 410 Balance at beginning of year 140 000 (90 000) Balance at end of year 649 690 247 410

ACTIVITY A2 NAME OF BUSINESS: FLASHGORDON TRADERS 2.1 INCOME STATEMENT FOR YEAR ENDED 29 February 2016 Sales (1 280 000 – 6 500 ) 3 1 273 500 Cost of sales 1 (642 000) Gross profit 1 631 500 Other operating income 1 98 100 Bad debts recovered (700 + 7 200 ) 2 7 900 Discount Received (1 600 – 200 ) 2 1 400 Rent Income (79 650 – 6 550 ) 3 73 100 Commission income 1 15 000 ? Provision for Bad debts adjustment 2 700 Gross operating income 1 729 600 Operating expenses 1 (457 480) Water and electricity (8 900 + 1 200 ) 2 10 100 Insurance (8 800 – 770 ) 2 8 030 Bad debts (4 300 + 560 ) 2 4 860 Donations (2400 + 1 600 ) 2 4 000 Discount Allowed 1 1 800 Stationery (17 300 – 3 900 ) 2 13 400 Bank charges (8 410 + 290 ) 2 8 700 Telephone (10 900 + 1 300 ) 2 12 200 Salaries & wages (288 090 – 25 000 – 2 500 – 250 ) 4 260 340 ? Trading stock deficit (246 800 – 1 600 – 236 000) 2 9 200 ? Depreciation 1 124 850 Operating profit 1 272 120 Interest income (28 000 + 850 ) 3 28 000 Profit before interest expense 1 300 970 Interest expense (4 800 + 57 600 ) 3 (62 400) Net profit for the year 2 238 570   be guided by the signs(+/-)

2.2.1 TRADE AND OTHER RECEIVABLES Net trade debtors 32 200 Trade debtors (34 560 – 560) 34 000 Provision for bad debts (1 800) Prepaid expense See insurance amount in income statement 770 Accrued Income 15 000 SARS: PAYE 4 500 52 470 2.2.2 TRADE AND OTHER PAYABLES Trade creditors (32 000 + 2 000 + 7 280) 41 280 Accrued expenses (1 300 + 1 200) 2 500 Income received in advance See rent income in income statement 6 550 UIF (2 000 – 250 – 250) 1 500 Pension fund (15 000 – 1 875 – 2 500) 10 625 Short term loan 60 000 122 455

ACTIVITY A3 3.1 INCOME STATEMENTFOR RANATRADERSFOR THEYEAR ENDED 31DECEMBER2017 Sales(720 000–13800-4200)  702000 Costofsales(400000 -2625)  (397 375) GrossProfit check operation  304625 OtherOperatingIncome 51000 Rentincome (46400+ 4400)  50800 Decreaseinprovisionfor baddebts (2400-2200)  200 Gross Operatingincome 355625 Operating Expenses checkoperation  (245321) Packingmaterial  5350 Utilities(8900+ 1100)  10000 Baddebts (3200+400)  3600 Bank charges (846+250)  1096 Discountallowed(430- 30)  400 Tradingstock deficit(70000+2 625- 64700)  7925 Insurance (8 800–1400)  7400 Salaries andwages (164000+11 600) (9200+2400)  175600 Employers contribution(10800+350)  11150 Depreciation  15000 Telephone  7800 42 Operating Profit 110304 Interestincome(150+13750+1250) (15000)  15150 ProfitBefore InterestExpense 125454 Interestexpense  (15000) NetProfitfor theyear checkoperation  110454 Penaltyforforeignitems(max -2) 3.2.1 Calculation ofdepreciation (a) Depreciation on vehiclessold during theyear. 37500 250000x20/100x9/12 (b) Totaldepreciation fortheyear ended29February 2017  1000000x20/100=R200000+37 500see(a) 237500

3.2.2 FIXED/TANGIBLEASSETS Landand Vehicles Equipment buildings Carryingvalueatbeginning ofyear 450 000 540000 Cost 2600 000 1250 000 900000 Accumulateddepreciation (800000) (360000) Movements Additions atcost  84000 Disposals atcarrying value 250000–170000- 37500  (42 500) see2.2.1 Depreciation  (237500)  (54 000) Carryingvalue atend ofyear 2684 000  170000 486000 Cost 2684 000 1000000 900000 Accumulateddepreciation  (830000)  (414000) 14

2.2.3 BALANCESHEET OFNEMESISTRADERSON 28FEBRUARY 2017 ASSETS Non-currentassets 3610000 Fixed/Tangibleassets 3340000 Financial assets: Fixed deposit (350 000 –80000)  270000 Currentassets 830520 Inventory(570000+10700)  580700 Tradeandother receivables (105000 –7000+12000+1320)  111320 Cashandcashequivalents (50000+6000+80000+2500)  138500 Total assets 4440520 EQUITYAND LIABILITIES Capital 2333020 Non-currentliabilities Longtermloan(1800 000–96000) 1704000 Currentliabilities 403500 Tradeandother payables (190000+ 18000+6500+9000+84000)  307500 Short termloan  96000 20 Total equityand liabilities 4440520

ACTIVITY A3 COLUMNA COLUMN B 3.1.1 C 3.1.2 E 3.1.3 B 3.1.4 A  5 3.1.5 D 3.2.1Calculate thefollowing financialindicatorsfor2017. A Acid test ratio (1320000-920000): 440 000 400000:440000 0,9:1 4 B Debt –equityratio 900000:2110 000 = 0,4:1 3 C Operating expensesonsales 680000 x 100 3900 000 1 =17,4% 3 D % return earnedbyNatalie 343000 x 100 2200 000 1 (1000000+165000+1000000+35000)½ 343000 x100 1100000 1 =31.18% 6

ACTIVITY A4 1. TWALABANKS COMPUTOR STORE BALANCE SHEET ON 28 FEBRUARY 2019 ASSETS Note NON CURRENT ASSETS 1 1 614 000 Fixed assets 1 559 000 Fixe deposit: Hi Road Bank [110 000 - 55 000] 55 000 CURRENT ASSETS 958 900 Inventories[780 000 + 14 000  – 96 000] 698 000 Trade and other receivables [ 91 000 – 14 000 +23 000 + 15 000+ 123 900 8000+900] Cash and cash equivalents [ 12 000 + 70 000 + 55 000] 137 000 TOTAL ASSETS 2 572 900 EQUITY AND LIABILITIES OWNERS EQUITY 1 626 000 Capital 2 1 400 000 Current accounts 3 226 000 NON CURRENT ASSETS 622 500 Mortgage loan: Hi – Road bank [ 360 000 +4 500 – 42 000] 322 500 Loan from partner : Twala 300 000 CURRENT LIABILITIES 324 400 Trade and other payables [ 165 000 + 7 000 + 9000 + 33 000 ] 214 000 Current portion of mortgage loan  42 000 Bank overdraft [ 102 260 + 8 000 - 11 000 + 780 + 1 360 – 33 000] 68 400 TOTAL EQUITY AND LIABILITIES 2 572 900 (48) 1. NOTESFIXED / TANGIBLE ASSETS Land & Buildings Equipment Total Carrying value at beginning of year 1 147 800 330 000 1 477 800 Cost 1 147 800 540 000 1 687 800 Accumulated depreciation - (210 0000) (210 000) Movements 160 000 (78 800) 81 200 Additions 160 000 - 160 000 Disposal at carrying value - (26 600) (26 600) Depreciation - (52 200) (52 200) Carrying value at beginning of year 1 307 800 251 200 1 559 000 Cost 1 307 800 468 000 1 775 800 Accumulated depreciation - (216 800) (216 800)

CAPITAL Twala Banks Total Balance at beginning of year 700 000 800 000 1 500 000 Additional capital contributed 100 000 100 000 Withdrawal during year  (200 000) (200 000) Balance at end of year 800 000 600 000 1 400 000 (8) CURRENT ACCOUNTS Twala Banks Total Profit as per income statement 295 000 189 000 484 000 Partners salaries 240 000 192 000 432 000 Partners bonus 80 000 80 000 Interest on capital 60 000 48 000 108 000 Primary distribution 380 000 240 000 620 000 Share remaining loss  (85 000)  (51 000)  (136 000) Drawings  (110 000)  (200 000)  (310 000) Retained income for the year 185 000  (11 000) 174 000 Balance at beginning of year 76 000  (24 000) 52 000 Balance at end of year 261 000  (35 000) 226 000 (25) 3.INTERNAL CONTROLS AND ETHICS Excellent answer = 3 marks; Good = 2; Poor = 1; Incorrect = 0 3.1. Twala feels that the partners have not been controlling their cash resources well.  They have big overdraft which is costing significant interest  Fixed deposit and savings account are not earning great interest  The mortgage loan interest is 15% 3.2. Twala feels that she is bearing an unfair financial burden in this business, especially as she works much longer hours than Banks.  Twala feels that her bonus and increased salary are not enough for the extra time he puts in  She has contributed more capital while Banks has withdrawn his capital  Twala has provided interest free loan to boost cash flow problems  Banks has taken large drawings . 3.3 Twala is not happy with the write down of the ‘Vula’ range of stock. See information 2e. You are told that ‘Vula’ computers were purchases from a business owned by Bernie Banks’ wife.  Banks did not disclose his wife’s interest in this transaction which ethically unacceptable  It is an unwise decision to buy this stock as it is not selling well.  The partnership agreement should prohibit such transactions or at least provide full disclosure

3.4 Thwala tried to contact a new debtor who owes R32 000, but his phone number appears to be false. Partner Banks has sold computers on credit to the customer when Twala was busy with other customers.  Banks has not applied good control practices in opening accounts.  All new debtors must be properly screened before being allowed to open accounts.  Credit references must be carefully checked and credit limits be set.  On large orders deposit must be paid especially if they do not have the track record with the business  There is a possibility that stock was stolen and fictitious debtor was created  Twala should investigate the documentation carefully. (12) ACTIVITY A5 MEMORANDUM 1 BALANCE SHEET OF NN TRADERS AT 28 FEBRUARY 2019 EQUITY AND LIABILITIES OWNERS’ EQUITY 624 000 Capital 7 600 000  Current accounts 8 24 000 NON CURRENT LIABILITIES 140 000 Loan: ABSA Bank (210 000 – 70 000) 140 000 CURRENT LIABILITIES 289 260 Trade and other payables(95 000 + 4 000) 99 000 Short term loan 70 000  Bank overdraft (102 500 – 4 000 + 2 760 + 4 400 + 15 400 – 800) 120 260 TOTAL EQUITY AND LIABILITIES 1 053 260

2 NOTES TO THE FINANCIAL STATEMENTS AS AT 28 FEBRUARY 2019 7. CAPITAL NOZIPHO NOKUTHULA TOTAL Balance at the beginning of the year 200 000 100 000 300 000 Contribution of capital on 31st :10: 2010 100 000 200 000 300 000 Withdrawal of capital - - - Balance at the end of the year 300 000 300 000 600 000 6 8. CURRENT ACCOUNTS NOZIPHO NOKUTHULA TOTAL Profit per income statement 97 000 79 000 176 000 Partners salaries 48 000 25 000 73 000 Interest on capital 35 000 25 000 60 000 Bonus to partners - 15 000 15 000 Primary distribution of profits 83 000 65 000 148 000 Final distribution of profits 14 000 14 000 28 000 Drawings during the year * ( 82 000) (67 000) (149 000) Balance for the year * 15 000 12 000 27 000 Balance at the beginning of year (5 000) 2 000 (3 000) Balance at the end of year 10 000 14 000 24 000 Balancing figure * 30

3 Calculate Nozipho total earnings for the year ending 28 February 2019. 4 Interest on capital R35 000 Salary R48 000 Share of profit R14 000 Total earnings R97 000 8 Calculate the percentage return earned by NOZIPHO on her investment in the partnership. Should she be satisfied? . Total earnings x 100 Average partners equity . 97 000  x 100 1/2(200 000+ 300 000 -5 000 + 10 000) = 97 000 x 100 252 000 =38,42%  Very satisfied compare to interest offered by financial institutions 12

Calculations: Interest on capital: Nozipho: Nokuthula: 200 000 x15% x 8/12 = 20 000 100 000 x 15% x 8/12 = 10 000 300 000 x 15%x 4/12 = 15 000 300 000 x 15% x4/12 = 15 000 35 000 25 000 Bonus: Nokuthula 300 000 x 5% = 15 000 Loan 210 000 = 70 000 p.a repayment 3 ACTIVITY A6 6.2 SO QUICK TRADERS INCOME STATEMENT FOR THE YEAR ENDED 29 FEBRUARY 2019 Sales (4 590 000  – 765 000 )  3 825 000 Cost of sales ignore bracket  (2 700 000) Gross profit check operation, COS must be deducted  1 125 000 Other operating income  1 332 675 check operation, mark figure only ignore brackets Fee income 1 327 500 Provision for bad debts adjustment  5 175 Gross operating income 2 457 675 Operating expenses  1 872 889 Bank charges 42 000 Electricity and water 25 500 Stationery and printing 26 550 Insurance 42 900 Sundry expenses 50 007 Rent expense (135 600  - 21 300 )  114 300 Salaries and wages (947 500  + 9 300 )  956 800

UIF and medical aid contributions  119 782 (118 500  + 82  + 1 200 ) Bad debts (8 100  + 6 000 )  14 100 Telephone (28 950  + 2 600 )  31 550 Consumable expenses  172 200 (198 000  – 4 500  – 21 300 ) Loss due to theft (90 000  + 4 500  – 75 600 )  18 900 Trading stock deficit  45 000 (1 015 000 – 90 000 – 880 000 ) Depreciation (199 800  + 1 350  + 12 150 )  213 300 Operating profit check operation  584 786 Interest income  1 650 Profit before interest expenses/Finance cost  586 436 check operation interest must be added Interest expense (426 000  - 111 000  – 389 100 )  (44 100) Operation if one part correct Net profit check operation if interest deducted  542 336 6.3 Appropriation 2012 29 Salary: Sonja   144 000 2012 29 Profit & Loss a/c   542 336 Feb Feb see 3.2 Salary: Quickfall  120 000 Interest on capital   151 (84 000  + 67 500 500 ) Bonus: Quickfall   15 000 Current account:  55 918 Sonja  Current account:  55 918 Quickfall 542 336  both totals 542 336

ACTIVITY B1 1.1 Choose the concept that answers the questions 4.1.1 to 4.1.4. Write only the concept next to the question number. 1.1.1 Liquidity  1.1.2 Profitability  1.1.3 Solvency  1.1.4 Return on equity  8 1.2.1 Calculate operating expenses on turnover. 648 000  x 100 1 800 000  1 = 36% operation one part correct 3 1.2.2 Calculate the acid test ratio. 84 000  : 144 000  + 240 000  = 0,2 : 1 operation one part correct 4 1.2.3 Calculate the % return on average owners’ equity. 432 000  x 100 ½  (960 000  + 1 060 000  + 68 100  + 60 600  1 = 432 000 x 100 1 074 350 1 = 40,2% operation one part correct 8 1.2.4 Calculate stock turnover rate. 720 000  ½  (320 000  + 300 000 ) = 2,3 times operation one part correct 5

1.3 Comment on the liquidity position for 2019. Quote THREE relevant financial indicators (actual ratios or figures) to support your answer. Comment: Any valid comment  Two marks for a global overall on whether the liquidity situation is good or bad (this may be mentioned in the section on financial indicators). Expected response: The liquidity is not satisfactory. Even though the current assets exceeds the current liabilities, alot of the this is in the form of stock and there is no certainty that the stock will be sold in time to be able to settle the current liabilities. Financial indicators (actual ratios or figures): Quoting of relevant indicators  Any three valid ratios or figures  Current ratio: This declined from 3,4 : 1 → 1,1 : 1 Acid test ratio: This declined from 1,2 : 1→ 0,2 : 1 Stock turnover rate: This declined from 3,9 times → 2,3 times Debtors period: This increased from 40 days →48,7 days 8 1.4 The owners are not satisfied with the rate at which the stock is being sold. Explain why they feel this way by quoting a relevant financial indicator and actual figures, ratios or % to support your explanation. Explanation  (must make mention of the rate at which clothing should turnover to earn full two marks) Financial indicator  Figure  The stock turnover rate has declined from 3,9 times a year to only 2,3 times a year. This is inadequate for a clothing store. Clothing changes with seasons and should therefore change close to 4 times a year. 4

1.5 Discuss THREE reasons why a business should not have too much stock. Three valid reasons  Possible reasons:  There is a chance that stock could become out-dated and then it will be very difficult to sell  There is an increased chance of theft  Increased insurance costs  You will also need more storage room 6 1.6 Will the owners of this business be satisfied with the return on equity? Explain by quoting a financial indicator to support your opinion. Yes  Financial indicator  Explanation  Explanation for yes: Even though the % return on average owners’ equity decreased from 44% in 2011 to 40,2% in 2012, it is still much higher than the return they would have earned on other investments. OR: No Explanation for no: The % return on average owners’ equity decreased from 44% in 2018 to 40,2% in 2019 Only give one mark for this explanation. 4

ACTIVITY B2 2.3.1 No. Degree of profitability Current Ratio Acid Test Ratio e.g. + + + A 0 0 - B + + + C - - - 2.3.2 A Period for which enough stock is on hand [Stock-holding period] 227 750 x 365 796 550 1 = 104 days (one part correct) 04 B Debtors’ average collection period 184 440 x 365 680 000 1 = 99 days (one part correct) 0 C Debt-equity ratio 270 000: 875 000 = 0.3:1 (one part correct) 03 D Return on M.Mona’s equity

260 000 x 100 450 000 1 = 57.7% or 58% (one part correct) 03 2.3.3 Respond to the following questions: A Comment on the liquidity position of the business. Use TWO financial indicators to support your answer. Two financial indicators  figures and trends Comments Period for which enough stock is on hand Improved from 180 days to 104 days Liquidity has improved, movement of stock is better compared to the previous year. Stock turnover rate Improved from 5 times to 7 times The stock is selling faster or indication of good turnover / possible losses due to price reductions are eliminated. Debtors’ Collection period Improved from 114 days to 99 days Debtors are paying slowly, the normal credit terms is 30 days B Explain the results of the debt-equity ratio. Ratios and trend comment Reduced from 0.53:1 to 0.3 :1 [also refer to calculation 3.3.2 (C) ] The business is positively geared / financial risk is low / will be seen as creditworthy C Explain whether M.Mona should be satisfied with his returns. Yes/No Comment Yes His returns are high at 57.7% compared to the interest on fixed deposit at 8% p.a. [also refer

to calculation 3.3.2 (D) ] ACTIVITY B3 PARTNERSHIPS – ANALYSIS AND INTERPRETATION 3.1 Sunshine Stationers uses a mark up of 50% at all times. 3.1.1 Calculate the actual mark up percentage achieved for the (5) 2019 financial year. 2 181 120 – 1 536 X 100 000 1 536 000 645 120 X 100 1 536 000 42% 3.1..2 Comment on the mark up achieved in 2019. Mention TWO (6) actions the business can do take to ensure they achieve their desired mark up in the future. Comment Sunshine Stationers did not achieve their desired mark up of 50% as they only got 42% Actions  Ensure accuracy when calculating the selling price  Limit decrease in prices due to sales and in store specials  Limit the amount of trade discount given to customers  Any logical answer  3.2 Calculate the Net Profit for 2019. (6) (1 040 000 + 1160 000) 2 X 28% 1 100 000 X 28% = 308 000Check operation if one part is correct 3.3 Should the partners be satisfied with the percentage return earned (5) in 2019, compared to the 21.7% earned in 2018. Give TWO reasons for your answer. Yes Return has increased from 21.7% to 28% This is more than the 9% return that is being earned on alternative investments. 3.4 Is this business positively or negatively geared? Give a reason for (3) your answer. Positively The return on partner’s equity of 28% is higher than the interest on

loans of 13%. 3.5 Calculate the missing amounts in the Balance Sheet labeled A - (24) H. Number Calculation Amount 1 000 A 1 100 000 – 100 000 000 1 040 000 – 1 000 000Operation if one part B is correct 40 000 See A 1 040 000 X 0.15 OR C 1 359 500 – 1 040 000 – 163 500 156 000 OR 236 000 – 80 000 D 1 280 000 / 8 160 000 421 600 – 160 000 – 144 E 600Operation if one part is correct 117 000 See D F 12 150 / 9 X 100 135 000 1 586 000 – 1 111 000 G OR 475 000 1 900 000 X 2.5 190 000 X 1.2 = 228 000 Operation if one part is correct H 247 000 475 000 – 228 000 See G 3.6 Comment on this businesses liquidity position for the year ended (6) 29 February 2019. Identify and quote TWO financial indicators to support your answer.  This business is still liquid, although both the current ratio and acid test ratios have decreased since last year.  Current ratio was 2.6 : 1 and decreased to 2.5: 1  Acid Test Ratio was 1.6 : 1 and decreased to 1.2 : 1  Stock turnover rate of 8 times is sufficient for a stationery shop. ACTIVITY B4 1 What does liquidity mean? 1 The ability of the business to have sufficient cash available to pay its obligations √ It is the ability of a business to settle its current debts. √ Liquidity is assessed by the relationship between current assets and current liabilities. √ Any 1x1 2 Explain the difference between current ratio and the acid test ratio. 4

Current ratio: Assesses the relationship between current assets and current liabilities to identify whether the business is likely to experience liquidity problems.  Acid test ratio: Assesses the ability of a business to settle short term debts without having to rely on the selling of inventory.  3 Identify THREE liquidity ratios which they may look at to address their cash problems. Do not 6 mention ratios mentioned in 2. Rate of stock turnover Stock holding period  Average debtors collection period Average creditors payments Any 3x2=6 4 The partners want you to calculate the debt/ equity ratio for 2019. Comment on your findings. 4 Calculation Non-current liabilities: Owners’ equity 240 000:1 246 625 0.19:1  Comment The debt/equity ratio is very low, which is satisfactory. It is lower than in 2018. 5 Calculate the acid test ratio of the business on 28 February 2019. 6 Calculation (Current assets – inventory): current liabilities (100 000 – 60 000): 68 000 0.59: 1 Comment The business is not very liquid.

It can pick up cash flow problems if they don’t sell their stock fast.  6 Calculate the stock turnover rate. 4 Cost of sales Average stock = 380 000  . ½(50 000 + 60 000) = 6.9 times 7 The business aimed at the mark up of 70% on cost. Identify the formula that they will use to check 1 whether they have reached their goal. Gross profit x 100 Cost of sales 8 GJ Traders could not achieve a mark-up of 70%. Provide TWO possible reasons why they could 4 not achieve the mark-up percentage. Too much trade discount  Selling price incorrectly calculated Stock-take not accurate  Any acceptable answer (2x2= 4) ACTIVITY C1 1.1.1 False 1.1.2 True 1.1.3 False 1.1.4 True  4 1.2.1 GENERAL LEDGEROFBLUE STORES Dr BANK Cr Interestoncurrent 31 account   400 31 Balance 16720 Bank charges RentIncome  18000 (680+ 200)   880 Tradingstock  3000 Debtors control  1600 TradingStock  4000 Drawings  6000 Advertising  2000 Insurance  9000 Balance 10800 Tradingstock  4000 38200 38200 Balance 10800

1.2.2 BANK RECONCILIATIONSTATEMENT ON 31March2017 Debit Credit Balance asper Bank statement 48880 Outstanding deposits 52980 Outstandingcheques No0861 1400 No1141 1500 No1175 8000 No1294 4000 10800 Balance asper General ledger See1.2.1 7 63780 63780 1.3.1CREDITORSRECONCILIATION Creditors Ledger of Statementfrom LIKETraders SMILESuppliers Balances 16620 26940 A  +500 B  - 180 C +9000 D  -7000 E(6000 +6000) 1markeach +12 000 28940 28940 Final balances/total operation operation 12 -1For any amount showninbothcolumns toamaxof-3 4

1.5.2 Theowner of LIKETradersis concerned that thebookkeeper could be defrauding thebusinessthrough thecredit system. List TWOinternalcontrolmeasuresthatcan be applied inorder to maintain controlover creditors. Any TWOvalidpoints    Divisionofduties  Proper authorisation oftransactions  Differentpeoplemusttakeresponsibilityfor purchasingitems bought on credit andreceivingtheitems  Items receivedmust becheckedagainstinvoices and deliverynotes 4 ACTIVITY C2 1.1 What is the purpose of Bank reconciliation? Any 1 for 2 marks • It is an internal control process • To ensure that all entries are correctly captured by the business and the bank • To ensure that there are no fraudulent errors and omissions • To reconcile the bank account in the General Ledger with the bank statement 2 1.2 Indicate whether the statements are TRUE or FALSE. 1.2.1 TRUE  1 1.2.2 FALSE  1 1.2.3 TRUE  1 1.2.4 FALSE  1 4 5

1.3.1 Cash Receipts Journal of Sabe Traders – March 2016 Sundry accounts Doc. Day Details Bank Amount Fol Details 31 Totals 31 400 13 000 Health Welfare Org. 88 (cancelled) 3 400 3 400 Donations Neotel (correct 173 amount) 40 40 Telephone BM Garage 170 (cancelled) 840 840 Fuel BS M. Sabe 35 000 35 000 Capital BS F. Fun 8 300 8 300 Rent income For all 78 980 60 580 doc. If total is above 31 400 Cash Payments Journal of Sabe Traders – March 2016 Debtors Sundry accounts Doc. Day Name of payee Bank Control Amount Fol Details 31 Totals 54 800 240 10 960 RSA Distributors 160 (correct amount) 2 700 2 700 Stationery 181 BM Garage 840 840 Fuel BS Mawali bank 2 000 2 000 Loan: Mawali Bank  DN M. Lid (RD cheque) 420 420 BS Mawali Bank 93 93 Interest on overdraft 6

BS Mawali Bank 380 380 Bank Can combine for charges 2marks(93+380=473) For all doc 61 233 660 16 973 If total is above 54 800 1.3.2 GENERAL LEDGER OF SABE TRADERS Dr. Bank B8 Cr. Mar 31 Total CRJ 78 980 Mar 1 Balance b/d 27 130 Receipts Balance c/d 9 383 31 Total Payments CPJ 61 233 88 363 88 363 Apr 1 Balance b/d 9 383 1.3.3 Bank Reconciliation statement on 31 March 2016 Debit Credit Credit balance according to bank statement 17 367 Credit outstanding deposit  8 100 Debit outstanding cheques: No. 165  3 710 No. 178  9 800 No. 180 11 600 No. 181 840 No. 176  8 900 Credit balance according to bank account  9 383 If both totals are the same  34 850 34 850 7

ACTIVITY D1 1.3.1CREDITORSRECONCILIATION Creditors Ledger of Statementfrom LIKETraders SMILESuppliers Balances 16620 26940 A  +500 B  - 180 C +9000 D  -7000 E(6000 +6000) 1markeach +12 000 28940 28940 Final balances/total operation operation 12 -1For any amount showninbothcolumns toamaxof-3 1.5.2 Theowner of LIKETradersis concerned that thebookkeeper could be defrauding thebusinessthrough thecredit system. List TWOinternalcontrolmeasuresthatcan be applied inorder to maintain controlover creditors. Any TWOvalidpoints    Divisionofduties  Proper authorisation oftransactions  Differentpeoplemusttakeresponsibilityfor purchasingitems bought on credit andreceivingtheitems  Items receivedmust becheckedagainstinvoices and deliverynotes 4 8

ACTIVITY D2 2.1 Why must the balance of the Creditors’ Control Account in the General Ledger be the same as the total of the Creditors’ List in the Creditors’ Ledger? The two are prepared from the same set of information. The Creditors’ Control Account is a summary of the Creditors’ Accounts in the Creditors’ Ledger; If the two do not correspond it could mean that wrong entries were made in the journals; posting errors; calculation mistakes; omissions; etc. that need to be corrected.  2 2 2.2 Calculate the correct balance of the Creditors’ Control Account in the General Ledger Balance R153 800 A No entry  10 100  B C No entry  D 440  E No entry  F (11 000)  G (27 000)  Final balance R126 340  12 Check operation 9

2.3 Prepare the correct Creditors’ List of balances on 30 June 2016. Stand Traders  26 000 (two marks) (29 200 – 2 200 + (13 000 + 13 000) 53 000 Walk Wholesalers  (95 600 + 2 200 – 27 000  ) 70 800 Run Stores  (44 100 – 42 000  + 440)  2 540  (operation and one part correct) 126 340  ACTIVITY E1 1.1.1Direct materialcost: 625300 18000+650000–35 000+ 12300– 20000 1.1.2Direct labourcost: Normaltime 3 x1600 x 40 =192000 246000 Over time 3x 300x(40x1.5) = 54000 11 10

1.1.3 GENERAL LEDGEROFSPRING PARK Dr FACTORYOVERHEAD COST Cr 2017 2017 Work in Jun 30 Rent 68500 June 30 progress 346760 Maintenance 46700 Depreciation 12800 Repairs  1300 Waterand electricity (80000x70/100) 56000 Indirectmaterials (7200+ 56000– 7500)x80/100 44560 Sundryexpenses (21000x4/7) 12000 Wages 23000 Salaries (89050–7150) 81900 346760 346760 (-1) ifadvertisingor office assistantsalary appears here 2016 WORK IN PROCESS 2017 Finished Jul 1 Balance 35000 Jun 30 goodsstock 1212000 2017 625300 Jun 31 Directmaterial see4.1.1 Balance 41060 246000 Directlabour see4.1.2 Factory 346760 overheads cost seeFOHaccount 1253060 1253060 Jul Balance 41060 6 1.2 PERRYTIESMANUFACTURERS 1.2.1 Calculatetheunit costs for2017denotedby(a), (b)and (c). No marksfor workings. (a)=R 11,36acceptR11,37 (b)= R 3.86 (c)= R 4,65acceptR4,66 11

1.2.2 Comparetheunitcostsof2017withthoseof2016.Ineachof thefollowingcasesgiveapossiblereason(otherthaninflation) for the change: Alternativevalidresponses tobe accepted– onereasonfor thechange in eachcase Description of thechangeis not acceptablee.g. increasedfrom R5 ,94-R7.27 –reasonmustbeprovidedineachcase  Direct materials costperunit More efficient usage/Less wastage(better quality) / Cheaper supplier / Trade discountsforbulk purchase/ Free delivery/Material obtainedlocally  Direct labourcost per unit Inefficiencyin production(more workers perunit) / Wageratecorrection(paidthemhigher wages) / Increasein overtime(at higher rate) /Incentivesfor hard work  Factoryoverhead costsper unit Greaternumberofunits produced/ Economies ofscale(fixedcostsdonotincreasewith production) / Certainfixedcosts were notincurred/theydecreased Proper control ofcosts/ Changeindepreciation(incase ofDimBalMethod) 6 12

1.2.3 Calculatethebreak-even pointfor2017: 328 000 (45,00-22.50) =14578ifonepartcorrect Commenton thebreak-even point calculated above.Should the businessbesatisfiedwith thenumber of unitsthat arecurrently being produced? Explain. Yes- theyareexceedingtheBEP byasignificantquantity. 44000 - 14578 =29 422 Fullmarksifconsistent withcalculations above 6 45 13

AVTIVITY E2 (a) Selling and distribution cost  (b) Direct labour cost  (c) Direct material cost  2.2.1 CALCULATION OF RAW MATERIAL USED FOR PRODUCTION 69 400 + 191 000 + 5 800 - 36 800 = 229 400 04 2.2.2 Dr Work-in-Process Stock Account B8 Cr 2014 01 Balance b/d 15 600 2015 30 Finished goods 500 500 stock  Jul June Direct 229 400 Balance c/d 40 570 material  see 4.2.1  Direct labour 184 000   Factory 112 070 overheads  541 070 541 070 14

2015 01 Balance b/d 40 570 Jul 09 2.2.3 Dr Finished Goods Stock Account B8 Cr 2014 01 Balance b/d 46 600 2015 30 Cost of sales 483 000   Jul June [20 700 x100/3x70%] Work- in 500 500 Balance process 64 100   see 2.2.2 547 100 547 100 2015 01 Balance b/d 64 100 Jul 07 2.2.4 Dr Factory Overheads Cost Account C2 Cr 2015 30 Factory 2015 30 Work-in- 112 070 maintenance 13 000  June June Process stock indirect material 38 000 (11 800+34 600-8 400)  15

Wages:cleaner 15 200  Rent expense 13 920  Water and 18 750  electricity Depreciation 13 200 112 070 112 070 12 2.3.1 Calculate the break-even point and comment on your findings. Calculation 357120 (R120 - R56) = 5 580 units  (one part correct) Comment The business is making a profit. The units produced are 570 above BEP.  06 16

2.3.2 ProvideTWO measures that should be applied by Simelane, in order to reduce the cost of production per unit. 45 ACTIVITYF1 1.1.1 ProvideTWOitemsthatwillnot beincluded inacash budget. Provideareason foryour answer. Anytwo   Baddebts  Depreciation  Discountreceived  Discountallowed  Profit onsaleof anasset  Loss onsaleof anasset REASON: Itis non-cashitems 4 1.1.2 Explain thedifferencebetween aProjected Income statementandaCash budget. Projectedincomestatementcalculatestheprojected profitor loss.  Cashbudgetcalculatestheexpectedcash availabletothebusiness. 2 1.1.3Usetheinformation given for thebudgeted period. Comment on thedebtor’scollection policyin comparison tothe creditor’spaymentpolicy. Creditors arebeing paid 60days after purchases. Debtors aregiven up90 days tosettleaccounts. Creditors arebeing paid beforedebtors settletheiraccountthereforethe businessmightexperienceacashflowproblem. 4 17

RECEIPTS JULY AUGUST Cash sales 275000 325000 Receipt fromDebtors 232650 259200 Rentincome 35000 38500 Fixed deposit 35000 Asset disposal income 65000 Totalreceipts(Awardmarkonlyif both amountsfilled in)  607650 657700 PAYMENTS Paymentto Creditors 400000 360000 Salaries  57750 75500 Wages 57750  57750 5.2.3 Commentbrieflyon Maintenance(Tangible each ofthe itemson assets) 20000 thebudget. 20000 Provide ONEpointof adviceregarding eachitem Advertising 18000 16500 Item Drawings Comment Advice  10000 10000 Advertising Effectivelymanaged. Vehicle Maintain effective 90000 management. Totalpayments (Award markonlyif 3%of previous month’s both amountsfilled in)  563500 Improvefurther. 629750 sales. Cash surplus(shortfall)  44150 27950 Bank: opening balance Maintenance Notwellmanaged. (9500)  Budgetrealistically. 34650 Bank: closing balance  34650  62600 Increased byR10000in Improvecontrolmeasures Julyand byR7000in over maintenanceto avoid August majorexpenditure inthe future. Enter into maintenance contracts. Rentincome Collectedless than Improvecollectionby budgetedfor each issuingreminders etc. month. Chargeintereston Collection measures overduerent. ineffective. Any acceptableanswer 18

ACTIVITY F3 3.1 CONCEPTS 3.1.1 What is the main purpose of preparing a Cash Budget? Expected responses  To identify future bank balances Monitor or improve control over receipts and payments Anticipate future receipts and payments 1 mark if partially or poorly answered, e.g. plan for receipts 3.1.2 IdentifyTHREE items that should not be placed in the Cash Budget Bad debts  Depreciation  Trading stock on hand  19

3.2.2. Cash Budget for the period 1 April 2015 to 31 May 2015 Receipts April May Cash sales 22 000 28 800 Cash from debtors 24 180 23 604 Rent income 15 000 15 000 Fixed deposit 36 000 Interest on fixed deposit 3 200 Total Receipts One mark for both totals 106 604 61 180 Payments Cash purchases 9 920 11 760 Payments to creditors 12 360 11 840 Operating expenses  6 000  6 300 Drawings 240  240 Deposit on purchase of vehicle 45 000 Salaries  7 000  7 350 Total Payments One mark for both 80 520 37 490 totals 20

Cash surplus / deficit  (19 340)  69 114 Balance on 1 April 2015 14 720 (4 620) Balance on 31 May 2015  (4 620)  64 494 Deduct 1 mark for inclusion of Depreciation (R3 500) 28 ACTIVITY G1 1.1.1 CalculatethemissingamountsAtoC inthe table below. ExcludingVAT Including VAT VAT 1 R320 000 ? A 44800 (320000X14/100) 2 R2300 B R322 2622 (322X114/14) 3 C D R882 6300 7182 4 (882X100/114) (882X114/14) 1.1.2 Explain thedifferencebetween TaxAvoidance and TaxEvasion. TAXAVOIDANCE Legal activitydesignedto arrangeataxpayers affairs so asto reducethelevel oftaxationfor whichheisliable. TAX EVASION Illegalactivitydeliberatelyundertakentoreduceorfreeoneself from a taxliability. 4 21

1.1.3 Theownerhas13cashregisters.Thesalesfromthe13thcash registeristakenbytheownerdaily.Hedoesnotdeclarethisin hisbooks.Advisehimon hisactions. AnyTWO    Illegal as hewantsto avoidtaxation  Unethicaltoengageinsuch transactions  Guiltyoffraud  Gettingcaughtwill result infines,andbadpublicityfor the company 4 22

1.2.1 GENERAL LEDGEROFDALYOUTFITTERS Dr PURCHASESACCOUNT Cr 2017 Creditors Control 2017 Creditors allowances Feb 28  485000 Feb 28   2560 Bank  (105000+ 1500  106500 Donation   2000 Drawings   1200 Tradingaccount 585740 591500 591500 14 1.2.2Calculate thenet salesfor theyear ending 29February2017. 520000+5 100+200 670+2400-3480=724690 6 1.2.3 PreparethetradingStatementfor theyear ended 29February2017. Sales 724690 Less CostofSales 499790 Opening stock 214 000 Purchases (from purchases account) 585740 Customsduty  2890 Carriageonpurchases(5750+800)  6550 Closingstock (309390) GrossProfit 224900 9 1.2.4Advantagesof converting to the continuousinventorysystem. Any2   Continuous inventorysystemwill offer better control over stock.  Stock canbeverifiedper accountwitha physical stock count.  Gross profiteasytocalculate 4 23

ACTIVITY G2 2.1.1 VAT A 19 600  B 700  03 C 4 900  2.1.2 Rexel Wholesalers, one of Stanza’s suppliers, offered Stanza Traders goods valued at R5 400 for R2 700. He stated that Stanza Traders must pay cash and he will not issue an invoice. What advice would you give to Stanza Traders? Any one • Rexel clearly wants to avoid taxation. • It is unethical to engage in such transactions. • Getting caught will result in fines, and bad publicity. 02 2.2.1 Dr Trading Account F1 Cr 2015 30 Opening stock  46 000 2015 30 Sales 1 036 June  June 200  (1 068 000-30 000-1 800) Purchases  Closing stock  52 0 680 400 0 (672 000+ 15 200- 6 800)  0 24

 Carriage on purchases  26 300  (22 800+3 500) Profit and Loss  335 500  1 088 200 1 088 200 2.2.2 Ekasi Traders is concerned about high transport costs. Provide TWO ways to solve this problem. Two solutions  Check other cheaper service providers  Buy his own vehicle to transport goods 25