activities - holy cross high school

Directorate: Curriculum FET

ACCOUNTING

Gr 12

Revision

ACTIVITIES

Gr 12 Accounting Revision Activities

2

INDEX

TOPIC Page No.

Inventory Core notes 4

Activities 1 - 7 5 - 17

Reconciliations Core notes: Bank-, Creditors-, Debtors reconciliation 18 - 20


Manufacturing Core notes 34


Budgets Core notes 49


VAT Core notes 66


Fixed Assets Core notes; Activity 1 74 -75

Companies (Fixed Assets are included in some of these activities)

Core notes: Company accounts; Statement of Comprehensive Income (Income statement); Statement of Financial Position (Balance Sheet); Cash Flow Statement; Analysis and Interpretation (Ratio analysis)

76 - 83

Activities 1 - 12 84 - 119

Dear Gr 12 Accounting learner

The revision activities in this booklet have been selected to ensure all content is covered so that you will be well

prepared for exams if you work through it with dedication. As you will be writing the new 2020 two-paper Exam

format, the TIME ALLOCATED for each activity in this manual (from past Gr 12 exam papers) have been adapted

to include the time advantage you will have in the two-paper format. The content remains the same, but it has

been split to accommodate the two papers. See page 3 for details.

In your preparation focus on:

- the core notes/tips for each topic that highlight what can be expected in exam questions. It also includes

formats and basic information to strengthen your basic knowledge of the particular topic.

- the time allocated to each activity. Use this allocation to practice how to manage your exam time. Try to

adopt time saving methods in order to work more effectively through an activity/exam question.

- Work EVERY DAY on one or more activity to build your exam confidence.

- Other exam tips that you could practice regularly and apply when you write the exam:

ALWAYS read the instructions carefully before answering the question. ONLY do what is required.

Answer the questions that you know best first, e.g. start with Manufacturing (some easy marks are available in this topic) to boost your confidence.

Do not struggle with a question, move on and if you have time come back to it.

If something doesn’t balance, don’t make it balance. Balancing is only about 1 or 2 marks.

Underline certain words in all your questions, so that you know exactly what the examiner expects from you, e.g. quote figures.

SHOW ALL CALCULATIONS CLEARLY. You may use subheadings to label your calculations, e.g. 'depreciation'.

Your positive attitude and the will to succeed supported by hard work will ensure your success in Accounting.

The WCED Accounting team


3

Two-paper classification for questions and/or sub-questions in this Activity book

/

Paper 1 Paper 2 Can be in both

papers

MID-YEAR, TRIAL AND FINAL EXAMS

(two papers) (on 2 different days)

Paper 1 Paper 2

150 marks; 2 hours 150 marks; 2 hours

Topics: Discipline 1

Recording, reporting, evaluating

Topics: Discipline 2

Internal management and control processes

Gr 12 Formula sheets included

Gr 12 Formula sheets included

NEW


4

INVENTORY (P1 & P2) [Paper 1: Inventory valuation for preparing / reporting in financial statements]

[Paper 2: Stock systems; valuation and internal control/management of stock] Basic concepts

Difference between perpetual and periodic stock systems

Perpetual stock system: Cost of sales is calculated at point of sale Periodic stock system: Cost of sales is calculated at end of financial year after physical stock taking

Difference between stock valuation methods

FIFO Weighted average Specific identification - Based on the assumption that stock bought first will be sold first. Suitable for business selling separate items, e.g. computers, TVs, etc. - Stock with a limited shelf life may also be valued by this method.

- Used when selling large volumes (numbers) of identical small items, e.g. T-shirts, chocolates. - The average cost price of stock is used at all times.

- Used when selling small quantities where the cost of each item can be easily identified (looked up) in a register/ catalogue. - Stock values are realistic as it is based on actual cost price of each item.

Calculation of closing stock

FIFO Weighted average Specific identification Work from bottom up; Add carriage on purchases and subtract goods returned

Opening stock (R) + Purchases (R) – Returns + Carriage Opening units + Purchases (units) – Returns (units) = Answer X closing stock (units) = R…

Actual price of each unit on hand

Other calculations

Periodic Perpetual

Cost of sales Opening stock + Purchases + Carriage - Returns - Closing stock

Based on mark-up % at point of sale

Gross Profit Sales - Cost of sales

Stolen goods Opening units + Purchases units – Returns - Sold units - Closing units

Financial indicators (Paper 1 OR Paper 2)

Mark-up % (Sales - Cost of sales) x 100 Cost of sales 1

Answer given as:

… %

Stock turnover rate Cost of sales Average stock OR ½(Opening stock + Closing stock)

... times

Period/Days of stock on hand

Average stock x 365 Cost of sales 1

… days

GAAP principles for inventories (Paper 1) - Historical cost; - Rule of prudence

Internal control of stock (Paper 2) Division of duties; Documentation; Authorisation; Physical measures


5

Activity 1: INVENTORY VALUATION, INTERNAL CONTROL AND PROBLEM-SOLVING (June 2016)

(40 marks; 30 minutes)

1.1 CONCEPTS

/ Give ONE word/term for each of the following descriptions by choosing a word/term from the list below. Write only the word/term next to the question number (3.1.1–3.1.4) in the ANSWER BOOK.

perpetual inventory system; weighted-average method; specific identification method; periodic inventory system; first in first out (FIFO)

1.1.1 This method assumes that stock is sold in order of date purchased.

1.1.2 This system ensures that cost of sales is calculated at the point of sale.

1.1.3 This method of stock valuation assigns a unique or individual value to each stock item.

1.1.4 This stock system is more suited for low-value goods that are purchased in bulk. (4 x 1) (4)

1.2 LYNN STORES

You are provided with information relating to Lynn Stores. The business sells one type of leather shoes. The financial year ends on 29 February 2016. The business uses the weighted-average method for stock valuation and the periodic stock system.

REQUIRED:

/ 1.2.1 Calculate the value of the closing stock on 29 February 2016 using the weighted-average method. (8)

1.2.2 Calculate the following for the year ended 29 February 2016:

Cost of sales

Gross profit (6)

/

1.2.3 Calculate the average stock-holding period (in days) on 29 February 2016. (5)

/

1.2.4 Calculate the value of the closing stock by using the FIFO method. (7)

INFORMATION:

A. Stock:

Date Pairs of shoes Total value

(including carriage)

1 March 2015 520 R320 770

29 February 2016 325 ?


6

B. Purchases:

Date Pairs of shoes

Cost price per pair

Total purchases

Carriage per pair

Total cost (including carriage)

31/05/2015 460 R650 R299 000 R18 R307 280

01/08/2015 700 R680 R476 000 R18 R488 600

15/10/2015 500 R710 R355 000 R30 R370 000

01/02/2016 300 R725 R217 500 R30 R226 500

TOTAL 1 960 R1 347 500 R1 392 380

C. Returns: Thirty pairs of shoes from the purchases on 1 February 2016 were not of a high

quality. These were returned to the supplier. The business account was credited with R22 650 (including carriage on purchases).

D. Sales: 2 115 pairs of leather shoes were sold during the financial year. The selling price

was kept constant at R1 400 per pair.

1.3 PROBLEM-SOLVING

You are provided with information of three jeans shops with different owners in Johannesburg. Each shop has a floor space of 100 m2.

REQUIRED:

1.3.1 Identify ONE problem in Shop 1 and ONE problem in Shop 2. Quote figures. In EACH case, give ONE point of advice. (6)

1.3.2 Explain TWO good decisions that Chad has made in respect of Shop 3. Quote figures. (4)

Information per shop for December 2015:

SHOP 1 SHOP 2 SHOP 3

Managers Andy Bob Chad

Sales R350 000 R240 000 R950 000

Returns from customers R7 000 R36 000 R19 000

Mark-up percentage 90% 50% 60%

Stock-holding period 180 days 30 days 30 days

Advertising R14 000 R4 800 R47 500

Rent expense R35 000 R24 000 R96 000

Days worked per week 6 5 7

Shop assistants 4 2 6

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Activity 2: INVENTORY VALUATION AND PROBLEM-SOLVING (Feb/Mar 2017) (40 marks; 30 minutes)

2.1 CONCEPTS

/ Complete the following sentences by filling in the missing words. Write only the words next to the question number (2.1.1–2.1.3) in the ANSWER BOOK.

2.1.1 The method that is appropriate for very expensive, individually recognisable items is the … method.

2.1.2 The method that assumes that the older stock is sold first is the … method.

2.1.3 The method that divides the total cost of goods available for sale by the number of units is the … method.

(3)

2.2 AB SPORT SHOP

André Brand is the owner of this business. This business uses the periodic inventory system.

2.2.1 Calculate the unit price of cricket bats on 1 July 2015. (2)

/ 2.2.2 Calculate the value of the stock on hand on 30 June 2016 using the weighted-average method.

(10)

2.2.3 Calculate the gross profit on 30 June 2016. (5)

/ 2.2.4 Calculate how long (in days) it is expected to sell the closing stock of 465 cricket bats. Use the closing stock in your calculation.

(4)

2.2.5 André is concerned about the control of cricket bats.

Provide a calculation to support his concern.

How can André solve this problem? Explain ONE point.

(5)

(2)

INFORMATION:

STOCK OF CRICKET BATS

UNITS UNIT

PRICE TOTAL

Opening stock (1 July 2015) 350 ? R420 000

Closing stock (30 June 2016) 465 ? ?

PURCHASES, RETURNS AND CARRIAGE

UNITS UNIT

PRICE TOTAL

Purchases 3 150 R4 302 500

September 2015 1 100 R1 250 R1 375 000

January 2016 950 R1 350 R1 282 500

March 2016 650 R1 475 R958 750

June 2016 450 R1 525 R686 250

Returns (from June purchases) 20 ? ?

Carriage on purchases: Total transport cost of stock purchased during the year is R110 400. No refund was received for carriage on the returns.


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SALES

Total sales of R5 400 000 comprised 3 000 cricket bats sold at R1 800 each.

2.3

PROBLEM-SOLVING

Best Phones sells one brand of cell phone. The owner, Bennie Roos, has three branches in different shopping malls. The table below reflects annual figures of the branches for the financial year ended 28 February 2017 as presented by the bookkeeper.

REQUIRED:

Identify ONE problem relating to each branch. Quote figures to support your answer. In EACH case, offer Bennie advice.

(9)

INFORMATION FOR 2017 PARYS

BRANCH PRETORIA BRANCH

POFADDER BRANCH

Number of cell phones available for sale 440 390 280

Number of orders received 110 300 400

Number of cell phones sold 110 300 280

Closing stock 330 90 0

Selling price per cell phone R7 200 R6 000 R6 400

Mark-up percentage 80% 50% 60%

Amount deposited during the year R792 000 R1 680 000 R1 792 000

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Activity 3: INVENTORY VALUATION (Nov 2017) (35 marks; 25 minutes)

3.1 CONCEPTS

/ Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (3.1.1–3.1.4) in the ANSWER BOOK.

3.1.1 The (specific identification/weighted-average) stock valuation method is best suited for products of similar value purchased in large quantities.

3.1.2 Cost of sales is determined at the point of sale in the (perpetual/ periodic) inventory system.

3.1.3 Stock valued according to the (first-in-first-out/weighted-average) method determines stock on hand by recording the cost prices of the most recent stock purchases.

3.1.4 In the periodic inventory system, carriage on goods purchased is recorded as an (expense/asset) to the business. (4 x 1) (4)

3.2 HOT-WHEELS (PTY) LTD

You are provided with information relating to Hot-Wheels (Pty) Ltd for the three months ending 30 September 2017. The business trades in motorbikes and helmets.

Mike, the owner, wants to assess his stock records before any price increases during the year.

REQUIRED:

Motorbikes:

/ 3.2.1 Calculate the value of the closing stock on 30 September 2017 using the specific identification method. (7)

3.2.2 Mike requires your advice on the three different models of motorbikes in which he is trading. Explain TWO points of advice. (4)

Helmets:

/ 3.2.3 Calculate the value of the closing stock on 30 September 2017 using the weighted-average method. (9)

/ 3.2.4 Is the weighted-average method appropriate to value the helmets? Explain ONE point. (3)

3.2.5 Mike suspects that helmets are being stolen from the shop despite security cameras being installed.

Provide a calculation to verify his suspicion. (5) What can Mike do to improve the internal control of stock?

State THREE points. (3)


10

INFORMATION: A. Motorbikes:

Information for three months ended 30 September 2017:

Stock on 1 July 2017:

MODEL UNITS COST PRICE P.U.(R) TOTAL (R)

AO2 12 24 300 291 600

Total purchases:

MODEL UNITS COST PRICE P.U (R) TOTAL (R)

AO2 6 24 300 145 800

AO3 15 27 400 411 000

AO4 18 31 600 568 800

39 1 125 600

Sales:

MODEL UNITS SOLD TOTAL SALES (R)

AO2 8 311 040

AO3 11 482 240

AO4 10 505 600

29 1 298 880

B. Helmets:

Information for three months ended 30 September 2017:

Stock balances according to physical count:

UNITS

COST PRICE PER UNIT (R)

TOTAL (R)

1 July 2017 30 R500 R15 000

30 September 2017

12 ?

Purchases:

DATE

UNITS PURCHASED

COST PRICE PER UNIT (R)

TOTAL (R)

20 July 2017 25 R510 R12 750

20 August 2017 30 R525 R15 750

20 September 2017

20 R540 R10 800

TOTAL 75 R39 300

Returns: Five defective helmets from the purchases in August 2017 were returned to suppliers for a full refund.

Sales: 85 helmets were sold at R600 each.

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Activity 4: INVENTORY VALUATION AND INTERNAL CONTROL (Feb/March 2018)

(35 marks; 25 minutes) 4.1 Choose the correct word(s) from those given in brackets. Write only the word(s)

next to the question number (2.1.1–2.1.3) in the ANSWER BOOK.

4.1.1 Merchandise purchased is recorded as an (asset/expense) to the business in the perpetual inventory system. (1)

/ 4.1.2 The (specific identification/weighted-average) stock valuation method is best suited for unique high-value products. (1)

/ 4.1.3 Cost of sales is usually calculated at the end of the financial year in the (periodic/perpetual) inventory system. (1)

4.2 MONGI TRADERS

You are provided with information relating to Mongi Traders. The business sells one type of plastic table. Their financial year ends on 31 December. The business uses the FIFO method to value their stock. They use the periodic inventory system.

REQUIRED:

/ 4.2.1 Calculate the value of the closing stock according to the FIFO method on 31 December 2017. (6)

4.2.2 Calculate the following for the year ended 31 December 2017:

Cost of sales

Gross profit (8)

/ 4.2.3 The owner considers changing the stock valuation method to the weighted-average method.

Calculate the value of the closing stock on 31 December 2017 by using the weighted-average method.

(6)

What will be the effect on the gross profit if the owner changes to this valuation method? Provide figures. (3)

INFORMATION:

A. Inventories:

DATE

NUMBER OF UNITS

PER UNIT TOTAL VALUE

1 January 2017 540 R350 R189 000

31 December 2017 440 ? ?


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B. Purchases and returns in 2017:

Purchases:

DATE NO. OF UNITS

PER UNIT

TOTAL PURCHASES

CARRIAGE PER UNIT

TOTAL CARRIAGE

TOTAL PURCHASE

COST

31 Mar. 550 R370 R203 500 R13 750 R217 250

30 Jun. 900 R380 R342 000 R22 850 R364 850

30 Sep. 500 R350 R175 000 R25 R12 500 R187 500

30 Nov. 300 R400 R120 000 R30 R9 000 R129 000

Totals 2 250 R840 500 R58 100 R898 600

Returns:

DATE NO. OF UNITS

PER UNIT

TOTAL RETURNS

CARRIAGE PER UNIT

TOTAL CARRIAGE

5 Jul. 50 R380 R19 000 0 0

These returns are from the purchases of June 2017. There is no refund for carriage.

C. Sales:

2 300 units at R600 each = R1 380 000 4.3 INTERNAL CONTROL

/

You are provided with information relating to Leno Furnishers. They sell tables, chairs and beds for cash only. The owner is concerned that the figures provided reflect poor internal control and decision-making. Identify ONE problem for each product. Quote figures. In EACH case, give advice on how to solve the problem.

(9) INFORMATION:

Information from the records for the financial year:

TABLES CHAIRS BEDS

Opening stock (units) 50 209 300

Units purchased 670 2 390 380

Units sold 600 2 400 480

Units as per physical count at year-end 90 199 200

Selling price per unit R1 500 R800 R3 000

Total sales (amounts actually deposited)

R900 000 R1 800 000 R1 440 000

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Activity 5: INVENTORY VALUATION (June 2018) (40 marks; 30 minutes)

5.1 SPEEDY CYCLES

You are provided with information for the year ended 31 May 2018. The owner is Fred Fakude. The business sells different models of bicycles. Fred uses the periodic inventory system and the specific identification method to value stock.

REQUIRED:

5.1.1 Calculate:

Value of the closing stock of bicycles on 31 May 2018

Cost of sales for the year ended 31 May 2018

Gross profit for the year ended 31 May 2018

(8) (4) (3)

/ 5.1.2 Fred is satisfied that he is selling approximately 18 Cruze bicycles per month. However, he is concerned that the new Ryder model, despite its lower selling price, is not selling as quickly as the Cruze model.

Calculate the selling price of a Ryder bicycle.

Calculate the average number of Ryder bicycles sold per month.

Indicate how long it will take Fred to sell the closing stock of the Ryder bicycles. Show calculations.

Give ONE possible reason for the slow sales of Ryder bicycles, and give advice (ONE point) to Fred in this regard.

(3) (3)

(3)

(4)

INFORMATION:

A. Three different models of bicycles were sold during the 2018 financial year.

MODEL MARK-

UP UNITS SOLD

SALES OTHER

INFORMATION

Tempo 60% 66 R897 600 This model is no longer produced.

Cruze 60% 220 R3 308 800

Ryder 35% 98 R979 020 This model was introduced on 1 Sep. 2017.

TOTAL SALES R5 185 420

B. Opening stock:

DATE MODEL UNITS COST PRICE PER UNIT TOTAL

1 Jun. 2017

Tempo 70 R8 500 R595 000

Cruze 0


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C. Purchases and returns:

DATE MODEL UNITS COST PRICE PER UNIT TOTAL

PURCHASES:

1 Jun. 2017 Cruze 260 R9 400 R2 444 000

1 Sep. 2017 Ryder 200 R7 400 R1 480 000

RETURNS:

Feb. 2018 Ryder 45 R7 400 (R333 000)

Net purchases R3 591 000

5.2 MANAGEMENT OF INVENTORIES: CELIA'S CLOTHING

Celia Mtolo owns a small clothing business. You are provided with information for the year ended 28 February 2018. The business sells T-shirts, jackets and pants.

Celia took certain decisions at the beginning of the 2018 financial year.

REQUIRED: Quote relevant figures for ALL the questions below.

/ 5.2.1 T-shirts:

Explain why it was NOT a good idea to change to a cheaper supplier of T-shirts. State TWO points. (4)

/ 5.2.2 Jackets:

Celia decided to change the supplier in 2018 and to change the mark-up %.

How has this decision affected the business? State TWO points.

(4)

5.2.3 Pants:

Celia reduced the selling price of pants significantly in the 2018 financial year in response to a new competitor who sells similar pants at R990.

Based on the information below, make TWO separate suggestions to Celia to improve the profit on pants in 2019. (4)

INFORMATION:

T-SHIRTS JACKETS PANTS

2018 2017 2018 2017 2018 2017

Gross units sold 1 200 1 080 150 165 280 325

Returns by customers

40 0 0 5 15 15

Selling price R75 R120 R1 650 R1 085 R910 R1 054

Cost price R50 R80 R1 000 R700 R650 R620

Mark-up % 50% 50% 65% 55% 40% 70%

Gross profit R29 000 R43 200 R97 500 R61 600 R68 900 R134 540

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Activity 6: INVENTORY VALUATION (Q5.2, Nov 2018) (20 marks; 15 minutes)

PACKER'S SUITCASE SHOP

Charles Packer sells travel suitcases. The year-end is 30 June 2018.

REQUIRED:

/

6.1 Calculate the value of the closing stock on 30 June 2018 using the first-in-first-out (FIFO) method. (5)

6.2 Charles suspects that suitcases have been stolen. Provide a calculation

to support his concern.

(5)

6.3 Charles is concerned about the volume of stock on hand.

Calculate for how long his closing stock is expected to last. (6) State ONE problem with keeping too much stock on hand and ONE

problem with keeping insufficient stock on hand. (4)

INFORMATION: Stock balances:

UNITS

UNIT PRICE

TOTAL

Opening stock 420 R2 175 R913 500

Closing stock 496 ?

Purchases, returns and carriage:

UNITS

UNIT PRICE

TOTAL

Purchases 3 155 R8 460 850

September 2017 850 R2 250 R1 912 500

December 980 R2 670 R2 616 600

March 2018 875 R2 930 R2 563 750

June* (see returns) 450 R3 040 R1 368 000

Returns* (from June purchases) 25 R3 040 R76 000

Sales: 3 050 travel suitcases were sold at R4 200 each.

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Activity 7: INVENTORY VALUATION (Q2, Jun 2019) (40 marks; 30 minutes)

7.1 CONCEPTS

Choose the correct term from those given in brackets. Write only the term next to the question numbers (7.1.1 to 7.1.3) in the ANSWER BOOK.

/ 7.1.1 The most recent purchases will be considered as closing stock in the (FIFO/weighted-average) stock valuation method.

(3)

7.1.2 Merchandise purchased is recorded in a Trading Stock Account in the (perpetual/periodic) inventory system.

7.1.3 Carriage on purchases is recorded as an (asset/expense) in the periodic inventory system. (3 x 1)

7.2 PHOTO-FIX TRADERS

The information relates to Photo-fix Traders for the financial year ended 30 April 2019. The business is owned by Tom Samuels and sells two models of cameras (Grand and De-Lux) and photo frames.

The stock of cameras is valued using the specific identification method.

Photo frames are valued using the weighted average method.

REQUIRED:

/ 7.2.1 Calculate the value of closing stock of cameras on 30 April 2019. (9)

/ 7.2.2 Calculate the value of closing stock of photo frames. (8)

/ 7.2.3 The owner suspects that photo frames are being stolen. Provide a calculation

to confirm his suspicions. (5)

/ 7.2.4 Tom is thinking of employing an assistant at a wage of R3 500 per month to control the stock of photo frames. Explain why this is NOT a good idea. Provide

TWO points with figures/calculations. (6) INFORMATION:

The following information is in respect of the year ended 30 April 2019:

A. CAMERAS: STOCK, BOUGHT AND SOLD

BOUGHT UNITS

SOLD UNITS UNIT COST TOTAL

GRAND MODEL

Opening stock 20 R5 500 R110 000 14

Purchases 240 R5 750 R1 380 000 170

DE-LUX MODEL

Net purchases: 270 R1 104 000 235

September 2018 180 R4 000 R720 000 140

Returns (30) R4 000 (R120 000)

January 2019 120 R4 200 R504 000 95


17

B. PHOTO FRAMES: STOCK, BOUGHT AND SOLD

UNITS AMOUNTS

Opening stock 60 R7 200

Purchases 720 R108 000

Returns 30 R4 500

Closing stock 80 ?

Sales 657

7.3 MANAGEMENT OF INVENTORIES

The information relates to Lyle Furnishers for the financial year ended 28 February 2019. The business sells cupboards, tables and chairs. No stock went missing during the year.

REQUIRED:

/ Provide ONE different problem (with figures) relating to EACH product and ONE solution to EACH problem. (9)

INFORMATION:

CUPBOARDS TABLES CHAIRS

Opening stock (units) 200 160 1 300

Purchases (units) 2 500 3 050 6 000

Selling price per unit R1 750 R850 R350

Credit sales (units) 800 2 400 2 100

Returns by customers (units) (500) (10) 0

Cash sales (units) 1 000 600 2 250

Closing stock (units) 400 200 2 950

Cash received from cash sales R1 750 000 R470 000 R787 500

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18

RECONCILIATIONS (Paper 2) BANK RECONCILIATIONS

Basic Concepts

Why draw up Bank reconciliation?

Bank account favourable - Debit balance; Unfavourable - Credit balance

Bank statement favourable - Credit balance Unfavourable - Debit balance

Know how to deal with (rules for):

post-dated cheque issued (= record in CPJ, show in BRS) post-dated cheque received (= no entry; keep in safe until date of cheque; then deposit it) stale cheque - 6 months old (if issued = cancel in CRJ; if received = cancel in CPJ) direct deposits stop orders cheques dishonoured cheque lost incorrect amounts in journals or on bank statement EFT (Electronic Funds transfers) received (CRJ) and made (CPJ); advantages of EFTs Format of Bank Reconciliation (BRS)

Dr Cr

Balance of bank statement unfav fav

CR outstanding deposits

DR outstanding cheques 1

2

3

Cr or Dr Correction of error

Balance of bank account favourable unfavourable

Column Total Column Total

Dr Format of BANK account Cr

Balance b/d (favourable) OR Balance b/d (unfavourable)

Total receipts CRJ Total payments CPJ

Balance c/o (Cr – Dr) (unfavourable) OR Balance c/o (Dr – Cr) (favourable)

TOTAL TOTAL

Balance b/d (Dr – Cr) (favourable) OR Balance b/d (Cr – Dr) (unfavourable)

Comments

Post-dated cheque issued at year end In financial statements: ADD to bank and ADD to creditors control. If Bank has overdraft, then deduct from bank.

GAAP principal for writing an AMOUNT OFF: Rule of Prudence - when a deposit amount cannot be traced

Internal control to avoid such issues: Division of duties

Ethics

Roll over of cash (making deposits towards end of month)

New calculated bank balance

New calculated balance taken FROM Bank account below


19

DEBTORS RECONCILIATIONS (Paper 2) Balance of Debtors Control MUST be equal to the total of the Debtors List

UNDERSTAND THE DEBTORS CYCLE

Source documents involved with debtors

Invoice Credit note Cheque (R/D) Receipt Petty cash voucher

Sold on credit Goods returned by debtors

Debtor's cheque is returned by the bank - to be cancelled

Debtors paid their debt

Small cash payment on behalf of debtor

Journals relating to debtors

DJ; DAJ; CRJ; CPJ; GJ; PCJ

Dr Debtors’ control Cr

Balance b/d Bank & discount CRJ Sale DJ Debtors allowance DAJ Bank(R/D) CPJ Journal credits GJ Petty cash PCJ Journal debits GJ Debtors Ledger

Fol DR CR Bal

Balance b/d ****

Invoice DJ *** *** +

Receipt CRJ *** *** -

Discount allowed CRJ *** *** -

Credit note DAJ *** *** -

Dishonoured cheque CPJ *** *** +

Journal debits GJ *** *** +

Journal credits GJ *** *** -

How to reconcile No entry in books: rectify mistake in control account and on list

Mistake on source documents: rectify mistake in control account and list

Posted to wrong debtors’ account: correct mistake in list

Totals in journals are incorrect: correct in control account

Internal control Check creditworthiness / Limit bad debts by doing proper background investigation

Each debtor must have an individual account

Accurate/Complete records must be kept

Send regular statements/ SMSs/ emails

Give discounts for prompt payments

Charge interest on overdue accounts / Hand over to lawyers

DEBTORS AGE ANALYSIS

TWO important items to look at when analysing debtor/credit management:

- Credit terms - Credit limits

This analysis provides details of amounts owed by debtors and for how long.

Most businesses give debtors 30 days to pay. (credit term)

30 days may be determined on invoice OR statement basis.

Statement basis - means 30 days from the date of the statement.


20

CREDITORS RECONCILIATIONS (Paper 2) Balance of Creditors Ledger account MUST correspond with Statement received from creditors AND the Balance of the Creditors Control account MUST correspond with the Creditors LIST total

UNDERSTAND THE CREDITORS CYCLE Sources documents involved with creditors and its effect on creditors control (CC) and creditors statement (CS)

- Invoice (bought on credit) [ADD: Cr CC; Dr CS] - Debit note (goods returned) [SUBTRACT: Dr CC; Cr CS] - Cheque (pay account) [SUBTRACT: Dr CC; Cr CS] Journals relating to creditors

CJ; CAJ; CPJ; GJ Internal control 1. Decisions regarding:

can supplier provide goods on a regular basis does supplier allow trade discount? payment terms does supplier give cash discounts

2. All items received - correct documents:

Control that goods received correspond with invoice at delivery Control that no goods are damaged If goods are damaged, send goods back to supplier with a debit note If frequent problems occur, find alternative supplier

Activity 1: CREDITORS' RECONCILIATION (June 2016) (18 marks, 15 minutes)

Thanda Stores buys goods on credit from Minty Suppliers.

REQUIRED:

1.1 Use the table provided to indicate the changes that must be made: In the Creditors' Ledger Account in the books of Thanda Stores

In the Creditors' Reconciliation Statement on 29 February 2016 (14)

1.2 An investigation into the transaction on 2 February 2016 for Invoice 560 revealed that Pearl Fakude (purchasing manager) ordered goods for herself. These goods were not taken into stock. State TWO internal control measures that the business can use to prevent similar incidents from happening in future. (4)


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INFORMATION:

A. Creditors' Ledger of Thanda Stores

Minty Suppliers

DATE DETAILS FOL. DEBIT CREDIT BALANCE

Feb. 01 Balance b/d 52 200

02 Invoice 560 CJ 44 200 96 400

04 Debit Note 52 CAJ 2 700 93 700

07 Cheque 443 CPJ 31 350 62 350

Discount received CPJ 3 300 59 050

20 Invoice 996 CJ 11 100 70 150

23 Cheque 575 CPJ 13 200 56 950

24 Invoice 590 CJ 24 000 80 950

28 Cheque 580 CPJ 13 800 67 150

Discount received CPJ 1 380 65 770

29 Invoice 592 CJ 44 400 110 170

B. Statement of account received from Minty Suppliers

MINTY SUPPLIERS No. 2169 205 Kingsview Road

Durban 3201

Debtor: Thanda Stores 25 February 2016

DATE DETAILS DEBIT CREDIT BALANCE

Jan. 25 Balance 67 200

28 Receipt 110 15 000 52 200

Feb. 02 Invoice 560 49 200 101 400

04 Credit Note 09 2 700 104 100

07 Receipt 122 31 350 72 750

Discount allowed 1 650 71 100

18 Invoice 571 28 800 99 900

23 Receipt 138 13 200 86 700

24 Invoice 590 21 600 108 300

25 Delivery charges 3 300 111 600

C. An investigation revealed the following errors and omissions:

(a) Invoice 996 was for goods that Thanda Stores bought from another supplier, Mondi Suppliers.

(b) Invoice 560 was recorded correctly on the statement of account.

(c) Invoice 571 was an error on the statement. This was for goods supplied to another business.

(d) The discount allowed on 7 February 2016 is correct as per the statement of account.

(e) Thanda Stores omitted to deduct the trade discount allowed on Invoice 590.

(f) Goods for R2 700 were returned by Thanda Stores to Minty Suppliers on 4 February 2016.

(g) In terms of the contract Minty Suppliers charges a delivery fee to all its customers.

(h) The statement of account only includes transactions up to 25 February 2016.

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Activity 2: BANK RECONCILIATION (Mar 2017) (16 marks; 20 minutes)

The following information relates to Sizwe Traders for July 2016.

REQUIRED:

2.1 Calculate the correct balance of the Bank Account in the General Ledger on 31 July 2016. State if this balance is favourable or unfavourable.

(8) 2.2 Prepare the Bank Reconciliation Statement on 31 July 2016. (6) 2.3 Refer to Information C.

Explain ONE internal control measure that the business should implement to ensure that this will not happen in the future.

(2)

INFORMATION:

A. Extract from the Bank Reconciliation Statement on 30 June 2016:

Favourable balance as per Bank Statement R42 555

Outstanding deposit: (dated 11 June 2016) R37 800

Outstanding cheques:

No. 186 (dated 22 January 2016) R450

No. 305 (dated 30 August 2016) R8 400

B. The balance in the Bank Account was provisionally calculated as a favourable balance of R16 785 on 31 July 2016, before taking into account the items listed below.

C. Cheque No. 186 does not appear on the Bank Statement for July 2016.

D. The following items appeared only on the July Bank Statement:

Interest earned on favourable bank balance, R285 Bank charges, R950 Unidentified debit order of R1 950. The bank promised to correct this error on the August 2016 Bank Statement.

E. Cheque No. 374 appeared correctly on the Bank Statement as R8 450. The Cash Journal shows it as R4 850.

F. The outstanding deposit of R37 800 does not appear on the Bank Statement for July 2016. An investigation revealed that this money was never deposited. The cashier has disappeared.

G. The following entries were only in the Cash Journals for July 2016:

A deposit of R27 180 made on 31 July 2016 Cheque No. 401 (dated 18 July 2016), R18 600

H. The balance on the Bank Statement on 31 July 2016 is the missing figure.

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Activity 3: DEBTORS' RECONCILIATION AND AGE ANALYSIS (June 2017) (30 marks, 25 minutes)

3.1 Indicate whether the following statements are TRUE or FALSE. Choose the answer and write only 'true' or 'false' next to the question number (3.1.1–3.1.3) in the ANSWER BOOK.

3.1.1 The balance in the Debtors' Control Account should equal the total of the debtors' list.

3.1.2 Bad debts will be recorded in the Debtors' Allowances Journal.

3.1.3 A post-dated cheque received from a debtor must be recorded in the CRJ on the date received. (3 x 1)

(3)

3.2 MIZZY BOUTIQUE

The Debtors' Control Account and debtors' list for February 2017 prepared by the bookkeeper contained errors/omissions.

REQUIRED:

Use the table provided to indicate corrections that must be made to the Debtors' Control Account and the debtors' list.

Provide figures and a plus (+) or minus (–) sign for each correction. (13)

INFORMATION:

A.

Debtors' Control Account Debtors' List

Balance/Total R37 710 R39 490

B. Errors or omissions to be corrected:

(a) No entry was made for an invoice for R7 440 issued to G Gwen. (b) A receipt for R9 400 issued to debtor B Crawley was recorded correctly in

the relevant journal. It was posted incorrectly as R4 900 to his Debtors' Ledger Account.

(c) An invoice for R1 360 issued to A Naidoo was correctly recorded in the DJ. It was posted in error to the wrong side of her account in the Debtors' Ledger.

(d) A cheque for R1 350 received from D Zulu was recorded in the CRJ and posted to the Debtors' Control Account and Debtors' Ledger accordingly. D Zulu's account was previously written off.

(e) A credit note for R720 issued to W Wallace was recorded in the DAJ as R270 and posted as such.

(f) No entry was made for a dishonoured cheque of R1 750 on the February 2017 bank statement. This had originally been received from debtor J Taylor to settle his debt of R1 950.


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3.3 GLENDALE TRADERS

The debtors' age analysis on 30 April 2017 is provided. Credit terms are 30 days.

REQUIRED:

3.3.1 Explain how a debtors' age analysis can assist with internal control over debtors. (2)

3.3.2 Calculate the percentage of total debts exceeding the credit terms. (4)

3.3.3 Explain ONE problem (with figures) relating to EACH of the following debtors:

D Pillay W Patel (4)

3.3.4 Explain TWO problems (with figures) relating to debtor D Gouws. (4) INFORMATION:

DEBTORS' AGE ANALYSIS ON 30 APRIL 2017:

CREDIT LIMIT

AMOUNT OWING

CURRENT MONTH

30 DAYS 60 DAYS 90 DAYS

R R R R R R

D Pillay 10 000 11 800 1 980 9 820

D Gouws 14 000 13 450 4 100 3 902 5 448

Z Ngosi 2 800 2 550 2 550

W Patel 14 000 11 192 9 112 2 080

P Peters 5 000 2 608 1 408 1 200

41 600 7 488 17 472 14 560 2 080

100% ? ? ? ?

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Activity 4: BANK RECONCILIATION AND INTERNAL CONTROL (Nov 2017) (30 marks; 25 minutes)

4.1 Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question number (4.1.1–4.1.3) in the ANSWER BOOK.

4.1.1 A favourable balance on the Bank Statement is indicated as a debit.

4.1.2 A post-dated cheque received must be entered on the date received.

4.1.3 An issued cheque that has been lost must be cancelled in the CRJ. (3 x 1) (3)

4.2 MENZIES TRADERS

The given information relates to Menzies Traders for June 2017.

REQUIRED:

4.2.1 Calculate the following on 30 June 2017:

Correct totals for the CRJ and CPJ Bank account balance (14)

4.2.2 Prepare the Bank Reconciliation Statement on 30 June 2017. (9)

4.2.3 Explain the problem relating to deposits. Quote evidence. Explain TWO strategies to prevent this in future.

(4)

INFORMATION:

A. The Bank Reconciliation Statement on 31 May 2017 showed the following:

Unfavourable balance on the Bank Statement R1 450

Outstanding deposits:

17 May 2017 30 000

31 May 2017 16 200

Outstanding cheques:

605 (dated 16 December 2016) 9 750

812 (dated 10 April 2017) 8 550

816 (dated 25 May 2017) 13 590

819 (dated 15 August 2017) 7 650

823 (dated 31 May 2017) 2 900

Unfavourable balance on the Bank account in the Ledger R5 210

B. Provisional Cash Journal totals on 30 June 2017:

Cash Receipts Journal: R90 500

Cash Payments Journal: R85 920


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C. Entries in the Cash Journals for June 2017 that do not agree with the June Bank Statement:

JOURNAL DOCUMENT DATE DETAILS AMOUNT

CRJ EFT 19 11 Paintco R5 500

Deposit slip 451 25 Cash sales R40 500

NOTE: EFT 19 was incorrectly entered in the CRJ instead of the CPJ.

JOURNAL DOCUMENT DATE DETAILS AMOUNT

CPJ Cheque 870 25 VN Ltd R16 800

EFT 21 30 SJ Stores R2 250

D. Items on the Bank Statement dated 30 June 2017 that do not agree with the June Cash Journals:

DATE DETAILS DEBIT CREDIT

02 Deposit (17/5) 30 000

05 Cheque 812 8 550

09 Debit order (insurance) 2 290

11 Direct transfer to Paintco (EFT 19) 5 500

12 Cheque 816 13 590

16 Deposit (31/5) 16 200

18 Direct transfer from S Smit (rent) 16 500

22 Cheque 823 (see note below) 9 200

23

Unpaid cheque (B Blast settled his debt, R795)

750

24 Service fee 1 220

NOTE:

Cheque 823: Bank Statement figure is correct. Service fees were overstated by R900. The bank will rectify the problem next month.

E. The Bank Statement on 30 June 2017 reflected a balance of R?.

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Activity 5: DEBTORS' RECONCILIATION (March 2018) (25 marks; 20 minutes)

5.1 DEBTORS' AGE ANALYSIS

The information below relates to Witbank Hardware.

REQUIRED:

5.1.1 Explain why the debtors' age analysis is considered to be an effective internal control measure. State ONE point. (2)

5.1.2 Explain TWO different problems highlighted by the debtors' age analysis. In EACH case, provide the name of a debtor and figure(s). (6)

INFORMATION:

A. Debtors are granted 30 days to settle their accounts.

B. Debtors' age analysis on 31 October 2017:

DEBTORS CREDIT LIMIT

AMOUNT OWING

CURRENT MONTH

30 DAYS

60 DAYS

90 DAYS

Z Zulu 6 000 5 000 2 100 2 900

P Botha 3 500 4 200 3 800 400

M Valley 7 000 1 450 500 950

S Walker 13 000 12 500 1 000 3 000 4 500 4 000

O Klein 3 000 3 000 1 900 1 100

26 150 9 300 6 300 5 600 4 950

100% 36% 24% 21% 19%

5.2 DEBTORS' RECONCILIATION

Information from the records of Amber Traders for November 2017 is presented. Some errors and omissions were noted. See information B.

REQUIRED:

5.2.1 Calculate the correct Debtors' Control Balance on 30 November 2017. Show figures and indicate '+', '–' or 'No change' at EACH adjustment. (7)

5.2.2 Calculate the correct total of the debtors' list on 30 November 2017. (10)


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INFORMATION:

A. Balances on 30 November 2017 before errors and omissions:

Debtors' Control, R25 700

Debtors' list:

DEBIT CREDIT

L Nkosi R5 700

S Muller R11 100

M Welthagen R1 900

B Sandleni R15 900

R32 700 R1 900

B. Errors and omissions:

(i) The total of the Debtors' Journal was undercast by R2 700.

(ii) Interest of R350 must be charged on the overdue account of S Muller.

(iii) An amount of R3 100 received from L Nkosi was incorrectly recorded as R1 300 in the Cash Receipts Journal and posted as such to the General Ledger and the Debtors' Ledger.

(iv) Trading stock returned by B Sandleni was posted to the wrong side of his Debtors' Ledger Account, R1 200.

(v) No entry was made for a credit sales invoice issued to M Welthagen, R1 500.

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Activity 6: RECONCILIATION AND AGE ANALYSIS (FS, Sep 2017) (35 marks; 30 minutes)

6.1 State whether the statements below are TRUE or FALSE. Write only TRUE or FALSE next to the question number (6.1.1–6.1.3) in the ANSWER BOOK.

6.1.1 Stale cheques are older than six months and therefore not valid. (1)

6.1.2

An error on the Bank Statement made by the Bank is reconciled by making a reverse entry in the respective Cash Journal.

(1)

6.1.3 A post-dated cheque issued must be recorded in the Cash Payments Journal on the date of issue.

(1)

6.2 ANDREWS STORES The information relates to Andrews Stores on 30 June 2017.

REQUIRED:

6.2.1 Calculate the correct Bank Account balance on 30 June 2017. (7)

6.2.2 Prepare the Bank Reconciliation Statement on 30 June 2017. (10)

INFORMATION:

A. Favourable Bank Account balance (before information B) R45 930

Credit balance as per bank statement on 30 June 2017 R?

B. A comparison of the Bank Account of the business with the Bank Statement revealed the following:

The following errors and omissions were noted by the internal auditor:

(a) The Bank Statement was debited with bank charges totalling R1 380.

(b) The Bank Statement reflected a credit entry of R123 750 being a fixed deposit that matured on 22 June 2017 plus interest.

(c) Cheque No. 11 for R2 300 issued to Karly-Khwani Welfare Society is stale. The society no longer exists.

(d) Cheque No. 72 for R36 590 issued on 5 June 2017 to Sicwetsha Dealers does not appear in the June Bank Statement.

(e) Cheque No. 65 for R15 870 issued on 31 May 2017 in favour of Jos

Vanneer Wholesalers is dated 30 August 2017.

(f) A deposit of R45 700 made on 30 June 2017 does not appear in the June bank statement.

(g) A dishonoured cheque of R1 280 received from a debtor in settlement of a debt of R1 350 was mistakenly entered in the Cash Receipts Journal and posted as such.

6.3 CREDITORS' RECONCILIATION

Information from the books of Govender Traders on 30 April 2017 is provided.

REQUIRED:

Reconcile the Creditors' Control Account balance with that of the Creditors' List. Indicate an increase with (+) and a decrease with (–) to each amount.

(9)


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INFORMATION:

A. Balances and totals on 30 April 2017 (before information B).

Creditors' Control Account in the General Ledger R184 870

Creditors' list total R170 490

B. Errors and omissions:

(a) The Creditors' Allowances Journal was incorrectly totaled as R15 400 instead of R18 500.

(b) An invoice for R20 000 for trading stock bought from a creditor, CRP Suppliers was correctly entered in the respective journal. The bookkeeper forgot to post this to the supplier's account in the Creditors’ Ledger. Take into account that a deposit of 20% was paid on this invoice.

(c) The bookkeeper posted a debit note for R2 360 to the wrong side of a creditor's account. Posting to the General Ledger was done correctly.

(d) A credit balance of R27 000 from the debtors' ledger account of SK Traders must be transferred to their account in the creditors' ledger.

6.4 DEBTORS' AGE ANALYSIS

You are provided with the Debtors Age Analysis of Plaatjies Stores on 31 May 2017.

REQUIRED:

Identify TWO different problems regarding the control over debtors. Provide relevant names and/or figures. In each case provide ONE point of advice to the owner.

(6)

INFORMATION:

A. The business grants 30 days’ credit terms to all its debtors while the credit limit differs for each debtor.

B. Debtors' Age Analysis on 31 May 2017

Debtor Credit limit

Balance Current 30 days 60 days 90 days 120+ days

M Mark 15 500 17 560 7 560 4 200 3 600 1 200 1 000

T Thabe 14 000 12 480 5 480 7 000

F Fourie 10 000 11 700 3 100 5 600 3 000

Total 41 740 16 140 9 800 6 600 8 200 1 000

100% 38,7% 23,5% 15,8% 19,6% 2,4%

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Activity 7: CREDITORS' RECONCILIATION (Q2.2, Nov 2018) (21 marks, 15 minutes)

7. CREDITORS' RECONCILIATION

Claire Traders buys goods on credit from Mariti Suppliers.

REQUIRED: 7.1 Use the table provided to indicate changes to the:

Creditors' Ledger Account in the books of Claire Traders

Creditors' Reconciliation Statement on 31 July 2018

(13)

7.2 The internal auditor insists that direct payments (EFTs) must be used to pay suppliers. Explain:

ONE reason to support his decision

ONE internal procedure to ensure control over this system (2) (2)

7.3 Refer to Invoice 301. It was discovered that the store manager, Vernon, had signed a fictitious order form and took the goods for himself when they arrived. Besides dismissing Vernon, provide:

ONE suggestion for action to be taken against him

ONE suggestion to prevent this problem in future (4)

INFORMATION:

A. Creditors' Ledger of Claire Traders

MARITI SUPPLIERS (CL5)

DEBIT CREDIT BALANCE

2018 1 Balance b/d 67 500

July 10 Invoice 209 81 000

EFT 33 750

17 Debit Note 674 8 640

Invoice 282 40 950

Invoice 301 25 000

21 Invoice 360 50 250

24 Debit Note 995 8 100

27 Journal Voucher 570 5 400

31 Cheque and discount 77 190 147 820

B. Statement of account from Mariti Suppliers

MARITI SUPPLIERS

Claire Traders 108 Kruger Road

25 July 2018

DEBIT CREDIT BALANCE

2018 1 Balance 67 500

July 10 Invoice 209 81 000

Receipt 695 33 750

17 Credit Note 741 6 840

Invoice 301 25 000

21 Invoice 360 20 250

24 Credit Note 811 8 100 145 060


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C. Differences noted:

(a) The incorrect entry for Debit Note 674 in the Creditor's Ledger Account of

Mariti Suppliers relates to the correct Credit Note 741 on the statement.

(b) Invoice 282 was incorrectly reflected in the account of Mariti Suppliers in

the Creditors' Ledger. The goods were purchased from Genesis Suppliers.

(c) Invoice 360 was incorrectly recorded on the statement from Mariti

Suppliers.

(d) Mariti Suppliers also purchased goods on credit from Claire Traders. Claire

Traders has transferred a debit balance from the Debtors' Ledger (Journal Voucher 570). Mariti Suppliers will offset this on the next statement.

(e) The transaction on 24 July 2018 is for merchandise returned to Mariti

Suppliers.

(f) The statement reflects transactions up to 25 July 2018.

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https://bit.ly/2XxsLKX (Q2)

Activity 8: RECONCILIATION (Q1.3, May/Jun 2019) (20 marks; 15 minutes)

BANK RECONCILIATION

The following information relates to Thandeka Traders for May 2019.

REQUIRED: 8.1

Calculate the correct Bank Account balance on 31 May 2019. Indicate whether this is favourable or unfavourable.

(9)

8.2 Prepare the Bank Reconciliation Statement on 31 May 2019. The bank statement balance is the missing figure.

(7)

8.3 Refer to Information B(iii).

State TWO internal control measures that the business can use to ensure that this will not happen in the future.

(4)

https://bit.ly/2XxsLKX


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INFORMATION: A. Before the bank statement was received, the Bank Account showed a favourable

balance of R19 400 on 31 May 2019.

B. Extract from the Bank Reconciliation Statement on 30 April 2019:

Outstanding deposit (dated 23 April 2019): R31 560

Outstanding payments:

Cheque 654 (dated 23 November 2018) R2 350

EFT (electronic funds transfer) R15 400

Cheque 705 (dated 30 June 2019) R9 450

NOTE: (i) Cheque 654 does not appear in the May Bank Statement.

(ii) The EFT payment of R15 400 appears in the May Bank Statement.

(iii) The outstanding deposit of R31 560 does not appear in the May Bank Statement. An investigation shows that this is cash paid by a debtor and has never been deposited. The amount must be written off.

C. The following items must also be taken into account:

(i) Items appearing in the May Bank Statement but not in the journals:

Bank charges, R1 060

A deposit of R4 500 made by another business. The bank will correct this error in June 2019.

Interest on favourable balance, R313

(ii) Items appearing in the journals but not in the May Bank Statement:

A deposit of R21 343 made on 31 May 2019

Cheque 797 (dated 15 June 2019), R14 350

(iii) An EFT payment appeared correctly in the Bank Statement as R5 678. The Cash Journal shows this EFT as R6 578.

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MANUFACTURING (Paper 2)

Basic concepts and calculations

Direct material cost (DMC) Opening stock + Purchases + Carriage on purchases - Closing stock = Raw materials used

Direct labour cost (DLC) Normal wages (no. of workers x no. of hours x rate) ADD Overtime (no. of workers x no. of hours x rate) ADD UIF/Medical/Pension contributions

Factory / Manufacturing overheads (FOHC)

Indirect material (Opening stock + Purchases - Closing stock) Indirect labour (Cleaners, security, foreman) ADD contributions UIF/Pension Depreciation - Factory equipment Water & Electricity (Factory) All other factory expenses

Unit costs Total cost divided by number of units produced

Fixed cost FOHC + Admin costs (AC)

Variable cost DMC + DLC + Selling&Distribution costs (DC)

FORMAT OF THE PRODUCTION COST STATEMENT FORMAT OF THE ABRIDGED INCOME STATEMENT (short format)

Direct material cost Sales

+Direct labour cost Less Cost of Sales (Cos) (…….)

=Prime cost Gross profit

+Factory overhead cost Selling & Distribution costs

=Total cost of production Administration costs

+Work in process beg year Net profit

-Work in process end year ( )

=Total cost of production of finished goods CoS

ANALYSING PRODUCTION COSTS STATEMENTS Calculating the cost per unit of certain cost items will reveal:

= which costs are higher/ lower as the budgeted costs, = which items are exceptionally high and need to be controlled carefully = how costs compare to previous years.

Calculate the break-even point (BEP):

= BEP determines the quantity produced where no profit or loss is shown; = Income is only enough to cover costs. = FORMULA: TOTAL FIXED costs = .... Number of products/units (selling price per unit - variable costs per unit)

POSSIBLE IDEAS TO SAVE/DECREASE/CUT PRODUCTION COSTS:

- Bulk buying (buy in large quantities) to receive bulk discount - Cash purchases to receive cash discounts - Use alternative suppliers that offer more promising buying conditions - Do a work study in the factory to determine whether the factory is using efficient production methods, e.g.

reduce wastage of materials and labour time


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Activity 1: MANUFACTURING (Nov 2016) (45 marks; 35 minutes)

1.1 CONCEPTS

Give ONE cost category for each of the following descriptions by choosing a cost category from the list below. Write only the cost category next to the question number (1.1.1–1.1.4) in the ANSWER BOOK.

direct material cost; direct labour cost; factory overhead cost;

administration cost; selling and distribution cost

1.1.1 Salaries paid to office workers

1.1.2 Cost of raw materials used in the production process

1.1.3 Commission paid to salespersons

1.1.4 Rent paid for factory buildings (4 x 1) (4) 1.2 GUGU MANUFACTURERS

You are provided with information relating to Gugu Manufacturers for the year ended 29 February 2016. The business produces one style of handbag.

REQUIRED:

1.2.1 Calculate the:

Direct labour cost (8)

Direct material cost (6)

1.2.2 Prepare the Production Cost Statement. (8)

1.2.3 The owner is concerned about the production level in 2016.

Calculate the break-even point for 2016. (5) Explain whether the owner should be concerned or not.

Provide figures. (3) 1.2.4 The owner is not satisfied with the internal control of the raw material.

Calculate the following regarding the raw material (fabric):

Metres of fabric stolen from the storeroom (5)

Metres of fabric wasted in the factory (4)

Provide a strategy to improve the internal control in EACH case above. (2)


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INFORMATION:

A. Workers involved in the manufacturing process:

NO. OF WORKERS

WAGE EARNINGS PER WORKER

5 Basic (normal wage) R40 per hour 1 920 hours

Overtime Basic rate + 75% 90 hours

NOTE: Deductions: 8,5% of basic wage Employer's contribution: 11,5% of basic wage

B. Raw material (fabric):

Raw material purchased is kept in a storeroom before being issued to the factory for production. Stock is valued according to the weighted-average method.

Storeroom stock records:

METRES

TOTAL AMOUNT

(R)

Balance on 1 March 2015 1 350 131 500

Purchases: 5 400 584 000

May 2015 2 500 265 000 September 2015 2 900 319 000

Raw material issued to factory 5 500 ? Stock balance on 29 February 2016 940 ?

C. There is no work-in-process stock.

D. Other costs for the financial year (after all the adjustments):

Factory overhead cost Fixed cost R343 340

Administration cost Fixed cost R226 660

Selling and distribution cost Variable cost R217 340

E. Additional information on 29 February 2016:

4 200 handbags were produced and sold at R450 each.

Total sales amounted to R1 890 000.

Total variable cost per unit was R300.

1,25 metres of fabric was used to make one handbag.

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Activity 2: MANUFACTURING (June 2016) (50 marks; 40 minutes)

2.1 ABE ACCESSORIES

Abe Accessories manufactures cell phone covers. The information below is in respect of the financial year ended 29 February 2016.

REQUIRED: 2.1.1 Prepare the Factory Overhead Cost Note. Show ALL calculations in brackets. (15)

2.1.2 Prepare the Production Cost Statement for the year ended 29 February 2016. (8)

INFORMATION: A.

Stock balances: 29 FEBRUARY 2016 1 MARCH 2015

Work-in-process stock R9 320 R30 640

B. Transactions for the year ended 29 February 2016:

Consumable stores used in the factory R129 300

Salaries and wages:

Production wages ?

Other factory workers R97 500

Administration R250 000

Sales department R130 000

Sundry expenses:

Factory R31 500

Offices R28 000

Water and electricity R50 000

Insurance R24 000

C. Additional information and adjustments

The factory cleaner was omitted from the salaries and wages list for February 2016. Her details are as follows:

Gross salary Deductions Net salary Employer's

Contribution

R3 800 R420 R3 380 R380

The employer's contribution is added to the salaries and wages.

An amount of R4 000 is still outstanding for water and electricity for February 2016. The factory uses 60% of the water and electricity.

Insurance has been paid from 1 March 2015 to 30 June 2016. This expense must be allocated to the factory, administration and sales departments in the ratio 3 : 2 : 1 respectively.

D. The business manufactured 10 500 cell phone covers at a cost of R82,40 per unit.


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2.2 NEW FASHION MANUFACTURERS This business is owned by Gloria Smit. She makes and sells dresses. The

financial year ends on 29 February 2016.

REQUIRED:

2.2.1 Gloria is concerned about the wastage of direct materials. Calculate the number of metres of fabric that was wasted. (5)

Gloria feels that the wastage is significant. Give a calculation to support her opinion. (3)

2.2.2 Give TWO possible reasons for this wastage and, in EACH case, give advice to prevent this from happening in future. (4)

2.2.3 Break-even point and production: Calculate the break-even point for the year ended 29 February 2016. (4) Explain why the business should be satisfied with the number of units

made during the current financial year. State TWO points. (4)

2.2.4 The direct material used to make the dresses is purchased locally at a cost of R150 per metre. Gloria is considering importing the fabric, as it will cost R120 per metre (all costs included). If she decides to import the fabric:

What effect will it have on the production cost of a dress? Provide a calculation to support your answer. (3)

State TWO other consequences of importing the direct material. (4)

INFORMATION:

A. Direct materials:

2,5 metres of fabric is used for each dress.

Number of metres of fabric

Opening stock 525

Purchases 12 450

Raw materials issued to factory ?

Closing stock 1 475

B. Production levels:

2016 2015

Total number of units produced and sold 4 500 3 800

Break-even point ? 3 200

C. Additional information:

Total Per unit

Sales R2 925 000 R650

Fixed cost R900 000 R200

Variable cost R1 575 000 R350

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Activity 3: MANUFACTURING (Nov 2017) (55 marks; 45 minutes)

3.1 GEVEN MANUFACTURERS

The business produces wooden tables.

REQUIRED:

Prepare the following for the year ended 28 February 2017:

3.1.1 Production Cost Statement (14)

3.1.2 Abridged Income Statement (14)

INFORMATION:

A. Stock on hand: 28 FEBRUARY 2017 1 MARCH 2016

Work-in-process ? R160 000

Finished goods 400 tables, valued using

FIFO method 1 200 tables at R280

= R336 000

B. Production and sales for the year:

7 200 tables were produced at a unit cost of R330 each.

8 000 tables were sold for R4 080 000.

C. Costs (before adjustments):

Administration R148 400

Factory overheads R487 200

Direct materials R1 050 000

Direct labour ?

Selling and distribution R422 000

Adjustments:

Payment to EZ Transport, R102 000, was incorrectly allocated to Selling and Distribution. This was actually meant for delivering wood to the factory.

The cleaning contract for the year, R126 000, was shared between Factory and Administration in the ratio 2 : 1. However, 80% should have been allocated to Factory.

D. Prime cost: R1 800 000 (after adjustments)

3.2 GYMWEAR MANUFACTURERS

Gymwear Manufacturers is owned by Jan Fiks. They produce shoes and shirts for gym training. Jan requires assistance in interpreting his 2017 results. Note that one pair of shoes comprises one unit.


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REQUIRED:

3.2.1 Shirts:

Calculate the break-even point for shirts. (4)

Jan is not satisfied with the variable costs per unit, even though the total variable costs per unit decreased by R6.

- Identify ONE variable cost (with figures) that has not been well controlled. Give TWO possible reasons for this problem.

- Explain why Jan might be concerned about the large decreases in the other TWO variable costs.

(4) (4)

Jan does not understand why the unit cost of production has increased when neither his fixed costs nor the variable costs have increased. Explain why this is so. State ONE point (with figures).

(4)

3.2.2 Shoes: Calculate the % increase in the selling price of shoes. (3)

Jan decided to improve the quality of the shoes and to export them. Explain how the direct material costs and the selling and distribution costs were affected by this decision. Provide figures.

(4)

Jan was concerned that the increase in price would have a negative impact on the business. Explain whether his concern was justified. State TWO points.

(4)

INFORMATION:

SHIRTS SHOES 2017 2016 2017 2016

Break-even point ? 11 522 3 842 4 317

Units produced and sold 16 100 25 000 7 750 6 500

Net profit R500 400 R620 000 R2 379 750 R1 183 000

Selling price per unit R302 R290 R1 640 R1 260

Selling price of competitors R310 R290 R1 100 R1 250

Total fixed costs (factory overhead and administration)

R530 000 R530 000 R2 340 000 R2 340 000

Total fixed cost per unit ? ? R302 R360

Total variable costs per unit R238 R244 R1 031 R718

Direct material costs per unit R92 R116 R456 R330

Direct labour costs per unit R131 R100 R381 R360

Selling and distribution costs per unit

R15 R28 R194 R28

Unit cost of production R242 R228 R1 100 R1 004

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Activity 4: MANUFACTURING (March 2018) (45 marks; 35 minutes)

4.1 GLAMOUR DRESS CREATIONS

Glamour Dress Creations manufactures one type of ladies' dress. The financial year ended on 28 February 2017.

REQUIRED:

4.1.1 Prepare the Production Cost Statement for the year ended 28 February 2017. (21)

4.1.2 Calculate the net profit for the year ended 28 February 2017. (7)

INFORMATION:

A. Stock balances, among others, were taken from the General Ledger:

28 FEBRUARY 2017 1 MARCH 2016

Work-in-process stock ? R76 000

Finished goods stock R190 000 R110 000

B. Information extracted from the financial records on 28 February 2017:

Administration cost R259 010

Raw/Direct material cost 918 550

Factory overhead cost 227 240

Selling and distribution cost 410 000

Net wages paid to factory workers (direct labour) 753 300

SARS: PAYE 48 600

UIF deductions 1%

Sales ?

Cost of sales 1 860 000

C. The following information has not been taken into account:

A problem was identified regarding the valuation of the closing stock of raw materials: 5 000 metres of material on hand, with a unit cost of R2,75 per metre, were erroneously recorded as R3,80 per metre. This must be corrected.

Rent expense was omitted from the figures above. Total rent paid for the financial year amounted to R87 100. The rent for March 2017 has been paid in advance. The rent was increased by R650 on 1 December 2016. 80% of this expense must be allocated to the factory and the balance must be regarded as an office expense.

The employer contributes 1% to UIF on behalf of the employees.

D. The business uses a mark-up percentage of 75% on cost. During the financial year special discounts of R85 000 were offered to cash customers who bought in bulk.


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4.2 LIGHTING SOLUTIONS

George Mkize is the owner of Lighting Solutions, a manufacturing business that produces one type of energy-saving light bulb. The financial year ended on 31 December 2017.

NOTE: Production is based on orders received; therefore there are no balances for work-

in-process.

The current inflation rate is 8%.

REQUIRED:

4.2.1 Calculate the factory overhead cost per unit for the year ended 31 December 2017. (2)

4.2.2 Explain why George would not be concerned about the 28,1% increase in total variable cost from R936 000 to R1 200 000. (3)

4.2.3 Give TWO reasons for the increase in the selling and distribution cost per unit. (2)

4.2.4 George wants to know if the production level for this financial year is satisfactory.

Calculate the break-even point for the year ended 31 December 2017. (4) Comment on the production level for 2017. State TWO points. Quote

figures. (4)

4.2.5 Lighting Solutions are considering importing raw materials because it is cheaper and of a higher quality. Name TWO aspects that they must consider before finalising their decision. (2)

INFORMATION:

Information from the records of Lighting Solutions on 31 December:

2017 2016

TOTAL (R)

UNIT COST (R)

TOTAL (R)

UNIT COST (R)

Fixed costs: 575 000 11,50 428 400 10,20

Factory overhead cost 395 000 (3.2.1) 310 800 7,40

Administration cost 180 000 117 600 2,80

Variable costs: 1 200 000 24,00 936 600 22,30

Direct material cost 435 000 8,70 344 400 8,20

Direct labour cost 560 000 11,20 441 000 10,50

Selling and distribution cost 205 000 4,10 151 200 3,60

Selling price per unit R45,00 R41,50

Number of units produced and sold 50 000 42 000

Break-even point (units) ? 22 313

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Activity 5: MANUFACTURING (Mar 2017) (45 marks; 35 minutes)

5.1 MOSES MANUFACTURERS

The following information relates to Moses Manufacturers, a small business that manufactures photo frames. The financial year ended on 30 April 2016.

REQUIRED:

5.1.1

Prepare the Production Cost Statement for the year ended 30 April 2016.

(16)

5.1.2 Complete the abridged (shortened) Income Statement to calculate the net profit for the year ended 30 April 2016.

(8)

INFORMATION:

A. Stock records 30 APRIL 2016 30 APRIL 2015

Raw material stock R58 560 R37 600

Work-in-process stock ? R142 000

Purchases of raw materials for the financial year amounted to R555 000.

Defective material valued at R21 000 was returned to suppliers.

B. The business produced 39 000 units at a cost of R45 each.

C. The following information was calculated on 30 April 2016.

R

Direct material cost ?

Direct labour cost 716 960

Factory overhead cost (See D below.) 468 450

Selling and distribution cost (See D below.) 609 850

Administration cost (See D below.) 443 950

Cost of production of finished goods ?

Gross profit 1 250 000

D. The following items must be taken into account:

Administration cost includes the annual insurance premium of R22 750; however, 60% must be allocated to the factory.

Factory overhead cost includes the full amount of rent paid, R36 300. However, this should have been allocated according to floor area. The areas are: factory 400 square metres, office 120 square metres, shop 80 square metres.


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5.2 UNIT COSTS AND BREAK-EVEN ANALYSIS

Bill's Manufacturers is a business that produces pencil cases. Bill is concerned about his cost of production.

REQUIRED:

5.2.1 Explain the difference between fixed cost and variable cost. (2)

5.2.2 Calculate the break-even point for 2017. (5)

5.2.3 Comment on the break-even point and the level of production for 2016 and 2017. Explain why the owner should be satisfied or not.

(6)

5.2.4

Identify the variable cost that should be of great concern to the owner. Explain and provide a calculation to support your answer.

(4)

5.2.5 Despite the fact that there was a decrease in the fixed costs per unit, the owner is still not satisfied with his control over the fixed costs. Explain and provide calculation(s) to support his opinion.

(4)

INFORMATION:

PENCIL CASES UNIT COSTS

2017 2016

Variable costs R11,60 R11,00

Direct material cost 6,03 5,80

Direct labour cost 4,05 3,50

Selling and distribution cost 1,52 1,70

Fixed cost R5,40 R5,50

Factory overhead cost 3,50 3,65

Administration cost 1,90 1,85

Selling price per unit R17,80 R16,50

Units Units

Units produced and sold 80 000 65 000

Break-even units ? 65 000

NOTE: Take the inflation rate of 8% into account.

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Activity 6: MANUFACTURING (Q1, Nov 2018) (40 marks; 30 minutes)

6.1

Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question numbers (6.1.1 to 6.1.3) in the ANSWER BOOK.

6.1.1 Bad debts are an administration cost. 6.1.2 Indirect labour is a factory overhead cost. 6.1.3 Rent expense is a fixed cost. (3)

6.2 KRIGE SHIRTS

The business manufactures shirts. The financial year-end is 31 July 2018.

REQUIRED:

6.2.1 Refer to Information C. Calculate direct labour cost. (9)

6.2.2 Production Cost Statement for the year ended 31 July 2018 (12)

INFORMATION:

A. Work-in-progress stock balance

31 JULY 2018 1 AUGUST 2017

? R35 570

B. Raw materials issued to factory: R528 300 C. Direct labour: Number of factory workers 4

Normal time expected per worker per year 1 960 hours

Normal time rate R90 per hour

Bonuses to workers: 12% of normal wages

NOTE: One worker worked only 1 680 hours and received a reduced bonus of R12 146.

D. Factory overheads were calculated at R360 880 for the year. However,

this excludes insurance of R48 750 paid for the period 1 August 2017 to 31 August 2018. Insurance must be allocated to the factory, administration and sales in the ratio 4 : 3 : 2.

E. Production for the year: 17 500 shirts at a cost of R95 per shirt


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6.3 GEMMA'S MANUFACTURERS

This business manufactures security gates. The financial year-end is 31 August 2018.

REQUIRED:

6.3.1 Calculate the break-even point for the year ended 31 August 2018. (5)

6.3.2 Compare and comment on the break-even point and the production level

achieved over the last two years. Quote figures.

(6)

6.3.3 Give TWO reasons for the increase in direct material cost. Suggest ONE way to control this cost.

(5)

INFORMATION FOR YEAR ENDED 31 AUGUST:

A.

COSTS

2018 2017

TOTAL AMOUNT

UNIT

COST

UNIT

COST

Direct materials

Variable

75 600 R180 R148

Direct labour 105 840 R252 R244

Selling and distribution 60 900 R145 R136

TOTAL VARIABLE COST 242 340 R577

Factory overheads Fixed

67 200 R160 R156

Administration 51 660 R123 R127

B. Additional information:

2018 2017

Total sales R382 200 R475 200

Selling price per unit R910 R880

Units produced and sold 420 units 540 units

Break-even point ? 435 units

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Activity 7: MANUFACTURING (Q3, Jun 2019) (40 marks; 30 minutes)

7.1 Choose the correct term from those given in brackets. Write only the term next to the question numbers (7.1.1 to 7.1.4) in the ANSWER BOOK.

7.1.1 Wages paid to the factory cleaner is considered to be (direct/indirect) labour.

7.1.2 Bad debts must be shown as a (selling and distribution/ factory overhead) cost.

7.1.3 Rent paid for the factory building is regarded as a (fixed/variable) cost.

7.1.4 Carriage on purchases of raw materials is regarded as a/an (direct material/indirect material) cost. (4)

7.2 ZINZI MANUFACTURERS

Information is provided for the financial year ended 31 December 2018. The business manufactures leather jackets according to orders received. There is no work-in-progress stock.

REQUIRED:

7.2.1 Raw material stock:

Calculate: The value of the closing stock using the first-in-first-out stock valuation method (5)

The direct material cost (4)

7.2.2 Refer to Information C.

Calculate the correct factory overhead cost for the year.

(8)

7.2.3 The owner is concerned about the increase in the following:

Total fixed cost per unit Direct labour cost per unit

Provide evidence (figures) to justify his concern. In each case, also give a possible reason for the increase in EACH unit cost, apart from normal inflation.

(6)

7.2.4 Break-even:

Calculate the break-even point on 31 December 2018. (4)

Explain whether or not there was any improvement in the trends of the level of production and the break-even point from one year to the next. Quote figures.

(4)

The owner cannot understand why he is making a better profit this year. Explain how this happened. Provide TWO points. Quote figures.

(5)

INFORMATION:

A. Raw material:

Stock balance: Metres Cost per metre Total amount

1 January 2018 920 R65 R59 800

31 December 2018 1 195 ? ?


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B. Purchases for the year:

Date Metres Cost per metre Total amount

February 2018 5 200 R75 R390 000

May 2018 2 480 R80 R198 400

September 2018 930 R90 R83 700

TOTAL 8 610 R672 100

C. Factory Overhead Costs:

The bookkeeper calculated the factory overhead cost at R84 330. He did not take

into account the following expenses:

Insurance R31 200

Rent expense R114 000

Water and electricity for the administration section R7 110

60% of the insurance relates to the factory.

The rent must be allocated between the factory, sales and administration in the ratio 5 : 2 : 1.

15% of the water and electricity expense relate to the office. 50% must be allocated to the factory.

D.

2018 2017

PER

UNIT TOTAL

AMOUNT PER UNIT

Fixed costs: R264 000 R44 R36

Factory overheads R26

Administration R10

Variable costs: R165 R150

Direct materials R94

Direct labour R330 000 R50 R38

Selling and distribution R18

E. Additional information:

2018 2017

Number of jackets produced and sold 6 000 units 7 560 units

Break-even point ? 3 888 units

Selling price per jacket R300 R220

Inflation rate 5%

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BUDGETS (Paper 2)

Basic Concepts - Reasons for preparing/ Purpose of a Cash Budget / Projected Income Statement? - Purpose of Debtors collection schedule / Creditors payment schedule? Debtors' collection schedule

- This schedule is based on credit sales only - MAY be required to calculate total sales first and work back to credit sales

e.g. If Cash sales is 80%, then total sales will be: Cash sales x 100/80

Now calculate credit sales, which is 20% of total sales: = Total sales less cash sales

NB: ALTERNATIVE calculation to save time: Credit sales = Cash sales x 20/80

- REMEMBER to TOTAL the debtors’ collection schedule Cash Budget

You will not be required to prepare a complete cash budget, but you will be expected to analyse a cash budget and complete certain calculations.

Only do calculations that are required. The Receipts from debtors’ amount will be calculated in debtors’ collection schedule Payments to creditors: amount could be calculated in Creditors payment schedule OR directly in the budget. REMEMBER: Purchases are Cost of Sales (Cash or Credit) where purchases amounts are not given directly Any deficit (payments are more than income) must be indicated in brackets ( ) and must be subtracted from

bank balance. One month’s closing balance is ALWAYS the opening balance of the next month. Calculations

Mark-up % Sales - Cost of sales X 100 Cost of sales

Answer must be in: …%

% Increase/Decrease New amount - Old amount X 100 Old amount

…%

Given: Interest on loan: % p.a. and amount

Required: Calculate total Loan

Amount of interest X 100 X 12 months % interest NB: Use the same calculation for fixed deposit

R ….

Items NOT in Cash budget (Non-cash items)

Depreciation; Bad debts; Discount allowed; Discount received

Projected Income Statement

Format for Projected Income Statement is similar to an Income Statement, but is prepared per month.

Items NOT in Projected Income Statement

Purchase of assets; Purchase of stock; Receipts from debtors; Payments made to creditors; Drawings; Capital contributions; Issued shares; Buy back of shares

Internal control

- Compare the actual with the budgeted amounts. Possible problems related to expenses or income can be identified and recommendations made based on these comparisons.

- Decide whether the expense or income has been well controlled/managed or not.


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REQUIRED:

1.1 Calculate the missing amounts denoted by (a) to (d) in the Projected Income Statement.

(12)

1.2 Taking into account the additional information, calculate the following:

1.2.1 The monthly salary due to the sales manager in June 2016 (4)

1.2.2 The total credit sales expected in July 2016 (4)

1.2.3 The cost price of the new vehicle purchased on 1 May 2016 (4)

1.3 Comment on the control of the telephone and water and electricity. What advice would you offer Susan? State ONE point. (4)

1.4 Susan wants to reduce the maintenance budget to R500 per month and then use this saving for staff training. What should she consider before making this change? State TWO points. (4)

1.5 A new competitor started operating from nearby premises in May 2016. Refer to the actual figures for May 2016 and:

Explain how Susan responded to this threat. State THREE points. Provide figures/calculations to support your answer.

(6)

Explain whether Susan's response was successful or not. Provide figures. (2)

INFORMATION:

A. Salaries and wages:

The cleaner will receive an 8% increase in June 2016.

The business employs a sales manager and an administration manager. The sales manager earns R400 more than the administration manager (per month). The managers are entitled to an increase of 7% p.a. from 1 June 2016.

B. The business uses a mark-up percentage of 60% on cost.

C. Credit sales comprise 80% of total sales. Sales are expected to increase by 10% per month and by 12% during July 2016.

D. A delivery vehicle was purchased on 1 May 2016. Vehicles are depreciated at 15% per annum on cost. The accountant did not take this into account when preparing the Projected Income Statement for May 2016.

E. Rent income increased by 9% on 1 June 2016.

Activity 1: BUDGETING (June 2016) (40 marks; 30 minutes)

You are provided with a partially completed Projected Income Statement of Senoge Stores prepared by the bookkeeper for the period 1 May 2016 to 30 June 2016. The business is owned by Susan Senoge.


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F. Information (amongst others) from the Projected Income Statement for May 2016 to June 2016:

MAY BUDGETED

MAY ACTUAL

JUNE BUDGETED

Sales 180 000 195 000 198 000

Cost of sales (112 500) (150 000) (b)

Gross profit 67 500

Other income 19 200

Rent income (d) 10 028

Commission income 12 500 8 000 13 000

Discount received 1 800 1 980

Gross operating income

Operating expenses (45 650)

Salaries (two managers) 18 000 18 000

Wages (cleaner) 1 800 1 800 (c)

Maintenance 5 000 2 000 5 000

Motor vehicle expenses 0 4 000 0

Administration expenses 8 450 8 420 8 500

Telephone, water and electricity

2 000 4 880 2 000

Insurance 1 800 1 800 1 800

Advertising 2 400 9 600 2 400

Depreciation 6 200 9 000

Trading stock deficit 0 1 680

Operating profit (a)

Interest income 350 350 350

Profit before interest expense 46 500

Interest expense (500) (500) (500)

Net profit 46 000

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Activity 2: BUDGETING (November 2017) (40 marks; 30 minutes)

You are provided with information relating to Mayhem (Pty) Ltd.

REQUIRED:

2.1 Refer to Information G.

2.1.1 Identify TWO items that the bookkeeper recorded incorrectly in the Cash Budget. (2)

2.1.2 Identify TWO items in the Cash Budget that would NOT appear in a Projected Income Statement. (2)

2.2 Complete the Debtors' Collection Schedule for October 2016. (9)

2.3 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget. (18)

2.4 The directors compared the budgeted figures to the actual figures for September 2016.

BUDGETED ACTUAL

Sales R288 000 R489 600 Salaries: Salespersons R40 000 R12 000 Commission: Salespersons R0 R66 150 Packing material R14 400 R17 280

2.4.1 The directors changed the method of payment to the salespersons. Explain how this has benefitted the salespersons and the business. Quote figures. (4)

2.4.2 The directors are not concerned about the overspending on packing material. Explain why this is so. Quote figures or calculations. (5)

INFORMATION:

A. Projected Income Statement: Information extracted for the three months ended 31 October 2016:

AUGUST SEPTEMBER OCTOBER

R R R

Sales 252 000 288 000 ?

Cost of sales ? (160 000) ?

Rent income ? ? 12 960

Discount received 3 600 4 000 ?

Depreciation 5 400 5 400 5 400

Bad debts 2 800 3 350 ?

Interest on loan 6 875 6 875 ?

B. Sales:

Sales are expected to increase by 15% in October 2016.

Credit sales comprise 60% of total sales.

The mark-up percentage is 80% on cost.


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C. Debtors' collection: 50% is collected in the month of sale.

40% is collected in the month following the month of sale.

7% is collected two months after the sale.

3% is written off as irrecoverable.

D. Purchases:

All purchases of stock are on credit.

Stock is replaced in the month of sale. A base stock is maintained.

Creditors are paid two months after purchase, subject to a 4% discount.

E. Directors' fees:

The business had three directors earning the same monthly fee.

On 30 September 2016 one of the directors resigned.

The remaining directors will receive an increase of 35% in their monthly fee from 1 October 2016.

F. Loan:

The loan was reduced by R52 800 on 30 September 2016.

Interest at 12,5% p.a. is payable every month and is not capitalised.

G. Extract from the Cash Budget prepared by the bookkeeper:

SEPTEMBER 2016 OCTOBER 2016

R R

RECEIPTS

Cash sales (a) 132 480

Cash from debtors 155 280 ?

Rent income 12 000 12 960

Discount received 3 600 5 600

Fixed deposit 56 000 0

PAYMENTS

Payments to creditors 156 000 (b)

Directors' fees 216 000 (c)

Salaries of salespersons 40 000 40 000

Repayment of loan 52 800 0

Interest on loan 6 875 (d)

Delivery expenses 27 500 27 500

Audit fees 60 000 0

Bad debts 3 200 3 600


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Activity 3: BUDGETING (March 2017) (40 marks; 30 minutes)

You are provided with the incomplete Debtors' Collection Schedule and Cash Budget of Zeppe Bazaar.

REQUIRED:

3.1 3.2

Calculate the expected monthly percentage of goods sold on credit. Complete the Debtors' Collection Schedule for March 2017.

(4) (5)

3.3 The owner wants to improve the control over debtors. Credit terms are 30 days.

3.3.1 Explain why the owner is concerned. Give TWO reasons with supporting figures.

(4)

3.3.2 Suggest ONE solution for this problem. (2)

3.4 Calculate the following:

3.4.1 (a) and (b) as provided in the budget. Use budgeted figures in your calculations.

(11)

3.4.2 The percentage increase in rent on 1 March 2017. (4)

3.4.3 The amount of the interest on the investment expected to be received in March 2017

(4)

3.5 Refer to Information H. Identify TWO payments that you consider to be poorly managed in February 2017. In EACH case, give a suggestion to improve the internal control of the items identified.

(6)

INFORMATION: A. The Debtors' Collection Schedule for February and March 2017

MONTH CREDIT SALES FEBRUARY MARCH

December 2016 74 000 16 280

January 2017 68 000 27 200 ? February 2017 70 000 24 010 ?

March 2017 64 000 ?


B. Debtors are expected to pay as follows:

35% is paid in the month of sale. They receive a 2% discount.

40% is paid in the month following the sales month.

22% is paid two months after the sales month.

3% is bad debts.

C. All goods are sold at a profit mark-up of 25% on cost.


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D. Stock sold is replaced in the month of sale (a stock base is maintained).

E. All stock is purchased on credit. Creditors are paid in the month following the month of purchase to receive a 5% early settlement discount.

F. The business employs four sales assistants on the same salary scale. They will receive an inflationary increase of 7,5%, effective from 1 March 2017. An additional sales assistant will be employed on 1 March 2017, but she will not receive the increase.

G. A fixed deposit matures on 31 March 2017. This will be received together with interest at 8% p.a. for the last quarter of its term.

H. EXTRACT FROM BUDGET FOR FEBRUARY 2017 AND MARCH 2017

FEBRUARY MARCH

BUDGETED ACTUAL BUDGETED

Receipts

Cash sales 17 500 18 640 16 000

Cash from debtors 67 490 43 870 ?

Rent income 11 200 11 200 12 544

Fixed deposit (including interest) - - 16 830

Payments

Payments to creditors (for stock) 68 000 68 000 (a)

Salaries: office staff 19 000 19 000 20 900

Salaries: sales assistants 20 800 20 800 (b)

Municipal services 10 600 10 600 11 000

Drawings 3 000 5 500 3 000

Stationery 1 200 2 600 1 200

Loan instalment 5 000 5 000 5 000

Maintenance of office equipment 3 800 1 500 3 800

Advertising 2 400 1 000 2 400

I. DEBTORS' AGE ANALYSIS ON 28 FEBRUARY 2017

Total owed 30 days 60 days 90 days 90+ days

R110 400 R53 000 R32 000 R17 800 R7 600

48% 29% 16% 7%

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4.6 Piet has to replace his old equipment in July 2017 but does not have the cash available. The cost of new equipment amounts to R180 000. The new items are expected to last 5 years. Options are:

Raise a new loan of R180 000 at an interest rate of 15% p.a. to be repaid over 24 months.

Hire (lease) the assets from Computer Solutions at R6 250 per month.

Ask a friend to become an equal partner by providing capital of R180 000.

Explain ONE advantage and ONE disadvantage of EACH option. (6)

INFORMATION:

A. Sales, purchases of stock and cost of sales: Total sales:

Actual March R120 000

April R135 000

Projected May R150 000

June R180 000

40% of sales are cash, the rest is on credit.

The mark-up is 50% on cost.

Stock is replaced on a monthly basis.

20% of purchases are cash; the rest is on credit. B. Creditors' payment:

It is expected that creditors will be paid as follows:

75% are paid in the month of purchases to receive a 5% discount.

15% are paid in the month after purchases.

10% are paid in the second month after purchases.

Activity 4: BUDGETING (June 2017) (45 marks; 35 minutes)

You are provided with information relating to XYZ Furnishers owned by Piet Morake.

REQUIRED:

4.1 On 30 April 2017 Piet identified the figures below. Comment on the control of EACH item and give ONE point of advice in each case.

APRIL 2017

BUDGETED ACTUAL

Telephone R1 000 R3 800

Staff training R2 500 R800 (4)

4.2 Refer to Information F.

Identify TWO items incorrectly entered in the Cash Budget. (2)

4.3 Complete the Creditors' Payment Schedule for June 2017. (9)

4.4 Identify/Calculate the missing figures (i) to (vii) in the Cash Budget. (21)

4.5 Piet wants to save on costs by not offering a free delivery service. Is this a good idea? Explain. (3)


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C. Delivery expenses:

Piet pays Fast Deliveries to deliver goods to customers free of charge. He budgets a fixed percentage of monthly sales for this expense.

D. Salaries and wages: Employees receive an increase of 7,5% from 1 June 2017.

E. Loan: Part of the loan will be repaid on 1 June 2017. Interest of 15% p.a. is paid monthly and is not capitalised.

F. Extract from Cash Budget for May and June 2017:

RECEIPTS MAY JUNE

Cash sales 60 000 (i)

Collections from debtors 78 300 89 550

Commission income

Rent income 7 500 7 750

PAYMENTS

Cash purchase of stock (ii)

Payments to creditors 74 200

Delivery expenses of goods to customers 9 000 (iii)

Salaries and wages (iv) 38 700

Stationery

Telephone 1 000 1 000

Office furniture bought on credit 40 000 0

Training of staff 2 500 2 500

Advertising 1 500 1 800


Loan repayment (v)

Interest on loan 2 100 1 500

Sundry expenses 3 300 3 400

Cash drawings by owner

Vehicle expenses 0 800

G. After finalising the budget, the following was identified:

MAY JUNE

Cash deficit for the month (19 450) (vii)

Cash at beginning of month 35 500

Cash at end of month (vi) (7 300)

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Activity 5: BUDGETS (November 2017) (30 marks; 25 minutes)

You are provided with information relating to Lamba Traders, a business owned by Larry Lamba. The business sells cleaning materials for cash and on credit. They deliver goods free of charge to local customers.

REQUIRED:

5.1 Explain the main purpose of a Cash Budget and a Projected Income Statement. (2)

5.2 Debtors: (Refer to Information A and Information B.)

The credit terms allow debtors to settle accounts by the end of the month following the sales transaction month. No discount is allowed. However, based on past experience, Larry expects debtors to pay according to the Debtors' Collection Schedule.

5.2.1 Use the November figures to calculate the following:

% of debtors that are expected to comply with the credit terms

% of bad debts expected (9)

5.2.2 Larry does not believe that his debtors' control clerk, Shirley, deserves a bonus on 31 October 2017. Provide evidence to support his opinion. Offer Larry advice to improve debtors' collections (TWO points). (4)

5.3 Projected Income Statement: (Refer to Information C and Information D.) 5.3.1 Calculate:

The fixed % of sales used by Larry to budget for delivery expenses

The amount of the loan to be repaid on 31 December 2017 (2) (4)

5.3.2 Refer to variances in Information D.

Explain why Larry would feel that all these variances are problems for his business. (9)

INFORMATION:

A. Debtors' Collection Schedule for the period ending 28 February 2018:

CREDIT SALES

R

COLLECTIONS

NOV. 2017

R DEC. 2017

R JAN. 2018

R FEB. 2018

R

September 112 000 16 800

October 134 400 75 264 20 160

November 224 000 56 000 125 440 33 600

December 358 400 89 600 200 704 53 760

January 179 200 44 800 100 352

February 112 000 28 000

148 064 235 200 279 104 182 112


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B. The debtors' clerk presented the following age analysis at the end of October 2017:

TOTAL

CURRENT MONTH

1 MONTH 2 MONTHS 3 MONTHS +

100% 18% 40% 23% 19%

C. Extract from the Projected Income Statement:

NOV. 2017 DEC. 2017 JAN. 2018 FEB. 2018

Interest on loan (rate 8,5% p.a.) R2 975 R2 975 R2 465 R2 465

D. Figures provided by the accountant on 31 October 2017:

PROJECTED ACTUAL VARIANCE

Total sales 320 000 290 000 –30 000

Cash sales 96 000 50 000 –46 000

Credit sales 224 000 240 000 +16 000

Advertising 5 000 1 000 –4 000

Packing material 4 800 4 800 0

Delivery expenses 12 800 12 500 –300

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Activity 6: PROJECTED INCOME STATEMENT (March 2018) (45 marks; 35 minutes)

You are provided with information relating to Mabuso's Auto Repairs for the period 1 March 2018 to 30 April 2018. The business is owned by Vusi Mabuso.

All transactions are strictly cash.

The financial year ends on 30 April each year.

The business repairs vehicles for which they charge service fees.

If the repairs require new spare parts, these are charged to each customer's account separately.

Consumable stores are used for repairing the vehicles. There is no charge for these items.

REQUIRED: 6.1 Calculate the:

6.1.1 Mark-up percentage on spare parts used in the Projected Income Statement for March 2018 (3)

6.1.2 % decrease in service fee income expected in April 2018 (3)

6.1.3 Additional space (in square metres) the business will rent from April 2018 (4)

6.1.4 Interest rate on the fixed deposit (5)

6.2 Comment on the control of stock and explain how Vusi intends to correct this. Quote figures. (4)

6.3 Vusi is considering changes to the fixed assets owned by the business.

6.3.1 Vusi is thinking of purchasing the business premises rather than renting it. State ONE advantage and ONE disadvantage of this option. (4)

6.3.2 Vusi offers a free delivery service of spare parts to customers, but plans to discontinue this service on 31 March 2018.

State TWO points to support this decision. (4)

6.3.3 Calculate the cost of the new vehicle that he plans to purchase on 1 April 2018. (4)

6.4 Refer to information E.

You are provided with the projected and actual figures for February 2018. Quote figures in your explanation in EACH case below.

6.4.1 Explain whether Water and electricity has been well controlled, or not. (3)

6.4.2 Explain whether you agree with Vusi's decision not to use the full budget for Advertising. (3)

6.4.3 Explain whether Consumable stores have been well controlled, or not. (4)

6.4.4 Explain how Vusi's decision about the mark-up percentage on spare parts has affected the business. (4)


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INFORMATION: A. Extract from the Projected Income Statement for the period 1 March 2018 to

30 April 2018:

MARCH 2018 APRIL 2018

R R

Service fee income from customers 150 000 136 500

Profit on sale of spare parts 22 875 31 500

Sales 53 375 76 500

Cost of sales (30 500) (45 000)

Other operating income

Profit on disposal of delivery vehicle 8 000 0

Gross operating income

Operating expenses

Rent expense (see B below) 6 000 9 200

Water and electricity 5 200 5 200

Motor vehicle expenses 7 500 1 500

Security expenses 5 000 9 200


Consumable stores (used for repair service) 30 000 30 000

Repairs and maintenance of equipment 15 000 0

Depreciation on vehicles (see D below) 3 000 9 000

Depreciation on equipment 1 500 1 500

Trading stock deficit 14 000 2 000

Operating profit

Interest on fixed deposit (see C below) 5 700 2 700

Net profit

B. Rent expense is calculated on a fixed amount per square metre. The business will rent 75 square metres in March 2018. On 1 April 2018 additional floor space will be rented at the same rate due to expansion.

C. A fixed deposit of R450 000 will mature on 31 March 2018.

D. Vehicles:

ITEM COST PRICE

ACCUMULATED DEPRECIATION:

31/03/2018

DEPRECIATION RATE AND METHOD

Delivery vehicle R240 000 R108 000 15% p.a. on cost

Audi Q7 ? 0

The delivery vehicle will be sold on 31 March 2018. The Audi Q7 vehicle will be purchased on 1 April 2018 and used by the owner.


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E. Figures provided for February 2018:

PROJECTED ACTUAL

Water and electricity (*see note below) R 4 500 R 5 000


Service fee income 150 000 127 500

Consumable stores 30 000 36 450

Sale of spare parts 128 700 97 200

Cost of sales 78 000 54 000

Profit on sale of spare parts 50 700 43 200

Mark-up percentage (on cost) 65% 80%

*NOTE: The water and electricity tariff unexpectedly increased by 15% from 1 February 2018.

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Activity 7: CASH BUDGETS (Q6, Nov 2018) (35 marks; 30 minutes)

Donald May owns Breezy Traders that sell air-conditioner units. The budget period ends on 31 October 2018.

REQUIRED:

7.1 Complete the Debtors' Collection Schedule for October 2018. (7)

7.2 Calculate the amounts indicated by (i) to (iii) in the extract from the Cash Budget. (9)

7.3 Calculate the % increase in salaries of sales assistants for October 2018. Explain whether they should be satisfied with this increase. (5)

7.4 Refer to Information E. A new competitor moved into the area during September 2018. Donald was not

aware of the competitor and did not take any action during September. 7.4.1 Explain the effect of the new competitor on any TWO items in the budget

for September. Provide figures. (4) 7.4.2 Identify TWO changes Donald implemented in October in response to the

new competitor. Quote figures. Give ONE reason for EACH change. (6) 7.4.3 Explain why Donald feels that his decisions were successful. Provide TWO

points (with figures). (4)

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INFORMATION:

A. Cash sales comprise 60% of total sales. Mark-up is 75% on cost.

B. Debtors pay as follows:

20% in the month of sales and receive 5% discount

55% in the month following the month of sales

22% two months after the month of sales

C. Stock sold is replaced in the month of sales. 50% of purchases are on credit. Creditors are paid in the month following the month of purchases.

D. Extract from Cash Budget

SEPTEMBER OCTOBER

RECEIPTS

Cash sales (i) 630 000


Rent income* 25 600 (ii)

PAYMENTS

Payments to creditors 276 000 (iii)

Salaries: Manager 32 400 40 500

Salaries: Sales assistants 92 400 102 102

*NOTE: Rent income will increase by 9% in October 2018.

E. BUDGETED AND ACTUAL FIGURES FOR SEPTEMBER AND OCTOBER

SEPTEMBER OCTOBER

BUDGETED ACTUAL BUDGETED ACTUAL

Units to sell/sold 240 200 250 300

Selling price per unit R4 200 R4 200 R4 200 R4 200

Cash sales ? 336 000 630 000 378 000

Credit sales 403 200 504 000 420 000 882 000

Total sales 1 008 000 840 000 1 050 000 1 260 000

Cash purchases ? ? 300 000 252 000

Advertising 10 000 10 000 10 000 10 000

Delivery expenses 80 000 67 200 80 000 138 240

Commission on sales 30 240 25 200 31 520 46 080

Cash surplus/deficit 63 000 22 500 86 500 (12 700)

Cash: Beginning 98 000 98 000 161 000 120 500

Cash: End 161 000 120 500 247 500 107 800

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Activity 8: BUDGETING (Q6, Jun 2019) (30 marks; 25 minutes)

You are provided with information relating to Cimpiwe Clothing Shop.

REQUIRED:

8.1 Refer to Information A. Identify TWO items in the Cash Budget that will not appear in a Projected Income Statement. (2)

8.2 Calculate the missing amounts indicated by (i) to (iii) in the Cash Budget for June and

July 2019. (7) 8.3 Calculate the total purchases for April 2019. (2) 8.4 Complete the Debtors' Collection Schedule for July 2019. (8) 8.5 Refer to Information F. 8.5.1 Comment on the following: Effect of the advertising on sales (3) Payment to creditors (2) 8.5.2 Sales strategy: Identify TWO strategies (except advertising) that the business used to

achieve sales targets for May 2019. Quote figures. (4) Explain whether these were good strategies, or not. Provide ONE point with

figures. (2) INFORMATION: A. Extract from the Cash Budget

JUNE 2019 JULY 2019

CASH RECEIPTS

Cash sales 186 000 285 000


Rent income (i) 9 180

Interest on fixed deposit 1 800 2 200

CASH PAYMENTS

Salaries and wages 73 400 73 400

Fixed deposit: Protea Bank 0 (ii)

Cash purchases of trading stock ? (iii)

Payment to creditors 192 000 ?

Insurance 3 250 3 250

Drawings 21 600 21 600

Sundry expenses 96 360 98 700


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B. Cash sales are 25% of total sales. Collections from debtors: 30% in the month of sales less 5% discount 65% in the following month Provision is made for 5% bad debts. C. Budgeted purchases of trading stock:

April ? May R484 000

June R496 000

July R760 000

40% of trading stock is bought on credit. Creditors are paid two months after the transaction month. D. Rent increased by 8% in July 2019. E. The business has a fixed deposit of R360 000. An additional amount is budgeted to be

invested on 1 July 2019. Interest (not capitalised) at 6% p.a. is receivable at the end of each month.

F. Cimpiwe is concerned about the following items for May 2019:

BUDGETED (R) ACTUAL (R) VARIANCE (R)

Cash sales 172 000 140 000 – 32 000

Credit sales 516 000 552 000 + 36 000

Collection from debtors 475 000 380 000 – 95 000

Advertising 36 000 64 800 + 28 800

Payments to creditors 180 000 105 000 – 75 000

Delivery expenses 0 19 000 – 19 000

Packing materials 3 000 2 500 – 500

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VAT (Paper 2) Basic Concepts

Compulsory / Voluntary registration VAT rate 14% (or 15% from 1 April 2018). Make sure which % is given in the question. Zero-rated items + examples Exempted items + examples Output VAT Input VAT

Calculations

VAT payable to SARS Output VAT – Input VAT

VAT receivable from SARS Input VAT - Output VAT

VAT exclusive Total x 14 or 15 100 100

VAT inclusive Total x 14 or 15 114 115

Ledger account – VAT Control account (not required to be completed, but it can help in calculating the amount payable/receivable to/from SARS)

Dr VAT Control Cr

Debtors Control DAJ Discount Allowed GJ (claim VAT back from discount allowed)

Bad debts GJ Bank CPJ Creditors Control CJ Petty Cash PCJ

Bank CRJ Debtors Control DJ Discount Allowed GJ (cancel the VAT claim)

Drawings GJ Donations GJ Creditors Control CAJ

= All amounts that lead to a decrease In the amount due to SARS

= All amounts that lead to an increase in the amount due to SARS

Dr balance (refund due by SARS) Cr balance (amount owed/payable to SARS)

Ethics Incorrect / Missing documentation Claim VAT from SARS, although the vendor is not registered

Activity 1: VAT (March 2016) (15 marks; 10 minutes)

1.1 VAT CONCEPTS

Change the underlined parts in the following sentences to make the statements TRUE. Write the answer next to the question number (1.1.1–1.1.3) in the ANSWER BOOK.

1.1.1 Input VAT is VAT charged to customers. (1)

1.1.2 VAT is payable to the South African Reserve Bank. (1)

1.1.3 VAT is charged at 15% on fruits and vegetables. (1)


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1.2 VAT CALCULATIONS

Wandile Traders is a VAT registered business. The standard rate of VAT is 15%.

REQUIRED:

Calculate the correct amount of VAT the business has to pay. Show ALL workings.

(12)

INFORMATION:

The bookkeeper, Felix, prepared the VAT Control Account for the tax period ended 31 May 2015 and arrived at a VAT payable amount of R43 820. However, the internal auditor has identified the following errors and omissions which must still be brought into account to calculate the correct VAT payable amount:

A. Sales invoices omitted from the Debtors' Journal, including VAT

R10 235

B. Damaged goods returned to suppliers, excluding VAT 18 800

C. VAT on sundry business expenses omitted 6 818

D. VAT on discounts received from suppliers 756

E. VAT on bad debts recovered 112

F. VAT on bad debts was recorded on the wrong side of the VAT Control Account

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Activity 2: VAT (June 2016) (17 marks, 10 minutes)

2.1 Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question number (2.1.1–2.1.3) in the ANSWER BOOK.

2.1.1 VAT paid by a business on goods purchased is called VAT input.

2.1.2 It is compulsory for all businesses to register for VAT.

2.1.3 VAT returns to SARS are submitted after every six months of trading activities. (3 x 1) (3)

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2.2 You are provided with information relating to Super Stores for the VAT period ended 29 February 2016 (two months). The standard VAT rate is 15%.

REQUIRED:

2.2.1 Taking into account the errors and omissions, calculate the VAT amount that is either payable to or receivable from SARS.

(12)

2.2.2 The internal auditor discovered that the owner, Nelson, used the VAT collected from customers to pay salaries and bonuses; therefore, he could not meet the VAT deadline.

What comment would you offer Nelson concerning this practice? State ONE point. (2)

INFORMATION:

A. Amount due to SARS on 1 February 2016, R44 800.

B. Amounts from the journals on 29 February 2016:

INCLUDING VAT

VAT AMOUNT

Sales 531 300 69 300

Credit purchases of stock 180 320 23 520

Stock returned by debtors 50 255 6 555

Bad debts written off 36 800 4 800

C. The following errors and omissions were noted:

Stock taken by the owner, cost price R6 000 (excluding VAT), has not been recorded.

VAT on sales was recorded incorrectly. Certain goods with a selling price of R50 000 (excluding VAT) should have been recorded as zero-rated items.

VAT on discounts granted to debtors was not recorded. The total discounts allowed amounted to R18 032.

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Activity 3: VAT (Nov 2016) (10 marks; 8 minutes)

The information below relates to Creamline Traders for their two-month VAT period ended on 31 August 2016. All items are subject to 15% VAT.

REQUIRED:

Calculate the amount receivable from or payable to SARS for VAT on 31 August 2016. Indicate whether the amount is receivable or payable. (You may complete a VAT Control Account.) (10)

INFORMATION:

A. Amount owed to SARS for July 2016, R14 250.

B. Details in respect of VAT for August 2016:

DETAILS EXCLUDING VAT

VAT INCLUDING

VAT

Merchandise purchased/Expenses paid R198 000 R225 720

Goods taken by owner for personal use R2 940

Returns by debtors R1 120

Debtors' accounts written off R9 500

Total sales R316 250

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Activity 4: VAT (March 2017) (14 marks;10 minutes)

4.1 CONCEPTS

REQUIRED:

Choose a description from COLUMN B that matches the term in COLUMN A. Write only the letter (A–D) next to the question number (4.1.1–4.1.3) in the ANSWER BOOK, for example 4.1.4. E.

COLUMN A COLUMN B

4.1.1 4.1.2 4.1.3

School fees Output VAT VAT vendor

A B C D

VAT received by the trader for the sale of merchandise an example of a VAT-exempt item VAT is included in the selling price a business with an annual turnover of more than R1 000 000

(3 x 1) (3)

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4.2 VALUE-ADDED TAX (VAT)

Thanda Traders is a VAT-registered business. All items are subject to VAT at 15%.

REQUIRED:

4.2.1 Calculate the amount of VAT either receivable from or payable to SARS on 31 July 2016. Indicate whether this amount is receivable or payable.

(9)

4.2.2 The owner wants to change the VAT amount on bad debts from R840 to R4 200. Give ONE reason why you would disagree with him.

(2)

INFORMATION:

The following transactions relate to Thanda Traders for the VAT period ended 31 July 2016:

A Balance owing by SARS on 1 July 2016 R16 800

B Purchase of trading stock (VAT exclusive) R770 000

C Cash and credit sales (VAT inclusive) R1 449 000

D VAT on discount received from suppliers R1 120

E VAT on bad debts written off R840

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Activity 5: VAT (March 2018) (15 marks; 10 minutes)

The information relates to Aqua Stores for the VAT period ended 31 July 2017. The business is owned by Nomvula Sithole. All goods sold are subject to 14% VAT.

REQUIRED:

5.1 Calculate the VAT amount that is either receivable from or payable to SARS on 31 July 2017. (11)

5.2 Nomvula has ordered goods with a marked price of R35 000 from Beta Suppliers.

The sales director of Beta Suppliers, Jim Frow, has offered to sell these goods to Nomvula for R15 000, provided that they do not have to issue an invoice.

Comment on the offer made by Jim. State TWO points. (4)

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INFORMATION:

A. Amount owed by SARS on 1 July 2017, R27 200.

B. Amounts from the Journals on 31 July 2017:

DETAILS

EXCLUDING VAT

VAT AMOUNT

INCLUDING VAT

Total sales R495 000 R74 250 R569 250

Purchases of stock 159 000 23 850 182 850

Stock returned by debtors 15 000 ? 17 250

Bad debts ? ? 34 500

C. The following transactions were not taken into account:

Stock taken by the owner, cost price R9 000 (excluding VAT). VAT on discount received from suppliers. Total discount received

amounted to R32 200.

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Activity 6: VAT (MCED, June 2018) (30 marks; 25 minutes)

KG Rabada own KG Supermarket. The business is a registered VAT vendor and make use of the invoice basis when recording VAT transaction.

REQUIRED

6.1 Choose the correct word/term between brackets:

6.1.1 VAT (vendor/supplier) is VAT received by the trader for the sale of merchandise. 6.1.2 VAT was increased from 14% to (15%/16%) on 1 April 2018. 6.1.3 Tax (avoidance/evasion) is illegal and punishable by law. (3)

6.2 Explain the THREE different types of VAT and give an example of each? (6)

6.3 Explain the difference between VAT Input and VAT Output? (4)

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6.4 The bookkeeper calculated an amount of R45 600 is owing to SARS on 30 April 2018. However, the following entries were not taken into account. Use these entries to calculate the correct amount owing to SARS/ or owed by SARS. Show your workings. (17)

(a) A sale of R13 210 (inclusive of VAT) was not entered. This included zero-rated goods

of R1 710. (b) A debtor returned goods with a selling price of R690 (VAT inclusive). (c) The owner took goods worth R1 200 (exclusive of VAT) and cash of R4 000 for her

own use. (d) Stationery of R200 (exclusive) / R230 (Inclusive) was bought for the business on

credit. (e) Old equipment with a book value of R10 000 was sold on credit at a profit of

R2 400 (exclusive of VAT) to a debtor. (f) VAT on bad debts recovered amounted to R69. (g) Debtors settled debts of R8 600 with a cheque for R8 025.

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Activity 7: VAT (Q2, Nov 2018) (14 marks, 10 minutes)

Samson Traders is registered for VAT. The VAT rate is 15%. REQUIRED:

7.1 Calculate the figures indicated by (a) to (d) in the table below. (10)

7.2 You are the internal auditor. The sole owner, Samson, used a business cheque to buy a new car for R460 000 including VAT. This car is kept at home for his wife's use. Samson says the vehicle must be recorded as a business asset and R60 000 must be recorded as a VAT input in the business' books.

Explain what you would say to Samson. Provide TWO points. (4)

INFORMATION:

EXCLUDING VAT

VAT AMOUNT

INCLUDING VAT

Sales returns 960 (a) 1 104

Purchase of stock 52 600 (b)

Discount received (c) 720

Cash sales (d) 112 470*

* This includes zero-rated goods that should have been sold for R5 500. The bookkeeper has incorrectly included VAT of R825 on these goods. This must be corrected.

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Activity 8: VAT (Q1.2, Jun 2019) (13 marks; 10 minutes)

8.1. CONCEPTS

REQUIRED: Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false'

next to the question numbers (8.1.1 to 8.1.4) in the ANSWER BOOK.

8.1.1 Output VAT is collected by a business when goods are sold. 8.1.2 The calculation of salaries does not take VAT into account. (2)

8.2 VALUE-ADDED TAX (VAT) The information relates to Longhill Traders for the VAT period ended 30 April 2019. The

VAT rate of 15% applies to all goods and services.

REQUIRED: Calculate the amount receivable from or payable to SARS for VAT on

30 April 2019. Indicate whether the amount is receivable or payable. (11) INFORMATION: A. Amount owed to SARS on 1 April 2019, R15 890 B. VAT transactions for April 2019:

DETAILS

EXCLUDING VAT (R)

VAT AMOUNT

(R)

INCLUDING VAT (R)

Returns by debtors 1 470

Drawings by owner 3 075

Debtors' accounts written off 8 700 10 005

Total purchases (cash and credit) 224 000

Total sales 396 750

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FIXED ASSETS (Paper 1 and/or Paper 2) ASSET DISPOSAL

GAAP Principles: - Historic cost; Rule of Prudence; Matching rule

Calculation of depreciation: /

- Straight line / Fixed / Cost - Diminishing balance /Carrying Value

Dr ASSET DISPOSAL Cr

Vehicles/Equipment (original cost price of asset item sold)

Accumulated depr on …

Bank/Debtors control/Creditors control/Donations/Drawings (depend on how the asset is sold)

PROFIT on sale of asset OR LOSS on sale of asset

IMPORTANT INFORMATION ON ASSET DISPOSAL

Profit on sale of asset will appear under Income in Income statement Loss on sale of asset will appear under Expenses in Income statement Proportional depreciation for this year must be ADDED to Depreciation in Income statement. Asset disposal may also be assessed in the Fixed Asset Note of the Balance sheet under movements Cost price of sold item must be subtracted from the COST of total Assets at beginning of the year

Activity 1: Fixed Assets (Q5.3, Nov 2018) (21 marks; 15 minutes)

1. MINDEW LIMITED

The financial year-end is 31 May 2018.

REQUIRED:

1.1 Calculate the missing figures indicated by (i) to (v) in the table below. (17)

/

1.2 Explain how the internal auditor should check that movable fixed assets were not stolen.

(2)

1.3 Land and buildings were bought five years ago for R6 m. Property prices have increased by 20% since then. The directors want to increase the value of this asset and reflect a profit of R1 200 000 in the financial statements.

As an independent auditor, what advice would you give? Provide ONE point. (2)

The accumulated depreciation on the 'LIFE' of the asset item (previous depr + proportional

depr for this year)


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INFORMATION FOR YEAR-END 31 MAY 2018:

A. FIXED ASSETS LAND AND BUILDINGS

COMPUTERS EQUIPMENT VEHICLES

Carrying value: Begin 6 000 000 13 000 1 027 500 1 300 000

Cost 6 000 000 108 000 1 250 000 2 100 000

Accumulated depreciation

- (95 000) (222 500) (800 000)

Movements

Additions (i) 0 172 500 0

Disposals 0 0 0 (iv)

Depreciation 0 (ii) (iii) (256 000)

Carrying value: End

Cost


(v)

B. Land and buildings:

Grant Construction was paid R882 000 for building new offices (R610 000) and repairing windows (R272 000).

C. Computers:

The three computers were all bought on the same day at R36 000 each.

Depreciation is 33⅓% on cost.

These computers are expected to last another two years.

D. Equipment:

Additional equipment was purchased on 1 February 2018.

Depreciation is 10% p.a. on cost.

E. Vehicles:

Depreciation is 20% p.a. on carrying value.

A vehicle was sold for cash at carrying value on 31 December 2017. The Fixed Assets Register reflected the following:

Cost R176 000

Accumulated depreciation (1 June 2017) R128 000

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COMPANY ACCOUNTS / FINANCIAL STATEMENTS

Concepts relating to companies

Authorised share capital; Issued Share capital; Shareholders' Equity (OSE) Dividends (Interim / Final) ; Shareholders for dividends Income tax; SARS (income tax); Provisional tax Retained income (Earnings less Dividends) Shareholders’ earnings (Net profit after tax divided by number of issued shares) Limited liability

Parties involved in companies Documents/statements relating to companies

Shareholders Directors/ Chief Executive officer (CEO) Internal auditor vs Independent auditors SARS

Auditor’s report Income statement Balance sheet Cash flow statement Tax assessment

Company Accounts

Dr SARS (Income tax) Cr

Bank (payment of opening bal) Balance b/d (opening)

Bank (provisional) Income tax (assessment for the year)

Bank (second payment)

Balance c/d = CR Balance b/d (Payable TO SARS)

Balance c/d = DR Balance b/d (Payable BY /Receivable from SARS)

Dr Dividends on ordinary shares Cr

Bank (interim dividend paid) Balance b/d (opening)

Shareholders for dividends (dividends declared, not paid yet)

Appropriation a/c

Interim dividend is paid during the year Final dividend is declared at end of year - will only be paid in the next fin. Year (=Shareholders for dividends) Calculate dividends: Number of ISSUED shares X cent per share declared for dividends

NOTES on other accounts and NOTES to financial statements:

Appropriation account NEVER has a BALANCE Retained income has opening balance and closing balance Retained Income NOTE is just another format of the Retained Income account The opening balance for Shareholders for dividends is the amount owed from previous year and the closing

balance should be the dividends DECLARED at end of this year. This balance is shown in Trade and other payables.

Tax calculated for the

year; also in Income

Statement


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STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) Format

Sales (- Debtors allowances) ADJUSTMENTS

ALWAYS ADD: Accrued income; Accrued expenses ALWAYS SUBTRACT: Prepaid expenses; Income received in advance Goods returned by debtors: Add selling price to Debtors allowance and

subtract from Debtors control in Balance sheet; the Cost of these goods to be subtracted from COS and add to Trading stock (in Balance sheet)

Subtract: Consumable stores on hand from total in the trial balance Trading stock deficit/surplus - look out for adjustments affecting

inventory Depreciation: Vehicles and Equipment - know the different methods to

calculate depreciation for the year. Bad debts: look out for adjustments affecting debtors Provision for bad debts adjustment: bigger than the balance given

(Expense); smaller than balance given (Income) Contributions to UIF/Medical aid/Pension funds must be ADDED to

Salaries and wages Bad debt recovered: INCOME received from a debtor who was previously

written off. Include as income.

Insurance - use amount in the adjustment (outside the accounting period) and DEDUCT from Insurance

(less) Cost of sales ( ) Gross Profit 'A' Other operating income 'B' … … … … Gross operating income 'A+B' Operating expenses ( ) 'C' … … … … Operating profit '(A+B) -C' (add) Interest income Profit before Interest expense (less) Interest expense ( ) Profit before Income tax (less) Income tax ( ) Net profit after income tax

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) Format

If notes are not required, ALWAYS show all calculations in brackets!

ASSETS

NON-CURRENT ASSETS

Fixed assets

Financial assets: Fixed deposit

CURRENT ASSETS

Inventory

Trade & other receivables

Cash & cash equivalents

TOTAL ASSETS

EQUITY & LIABILITIES

CAPITAL & RESERVES

Ordinary share capital

Retained income

NON-CURRENT LIABILITY

Long term loan

CURRENT LIABILITY

Trade & other payables

Bank overdraft (IF Bank has a credit balance)

Short-term portion of loan

TOTAL EQUITY & LIABILITY

Cash & Cash equivalents includes Bank, Cash float, Petty cash, Savings account and the portion of the fixed deposit that matures. If Bank has an overdraft balance (CR balance) it will NOT be shown here, but in current liabilities.

Short term portion of the loan If part of loan is to be repaid (paid back) during the next 12 months, this amount must be deducted and added to current liabilities as a 'short-term loan'


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Assets Non-current assets

Fixed assets always shown at book/carrying value (Know the format of the Fixed Asset Note) Fixed deposit (a portion may mature during the next financial year = subtract and add to Cash and Cash

equivalents. Current assets

MUST be in correct order: Inventory; Trade & other receivables; Cash & cash equivalents Inventory includes consumable stores on hand Trade & other receivables:

o Debtors (remember to DEDUCT provision for bad debts) o Could include the amount overpaid to SARS (DR balance) o ADD Accrued income and Prepaid expenses

Cash & cash equivalents: (see the bubble on the previous page)

Equity / Capital & Reserves Ordinary share capital

NEVER add Authorised Share capital (in the note) or in the Balance sheet Note on Ordinary share capital: (KNOW the format):

o shares in issue at beginning of year o (add) shares issued during year o (subtract) shares repurchased during the year ( ) [show amount in brackets in the note] o = shares issued at end of year

Retained income

Format of the note Balance at beginning of the year

(add) Net profit after tax

(less) Repurchase of shares (at the difference between buy back price and average price)

Ordinary share dividends

Paid (use Interim dividend amount)

Recommended (Final dividends declared OR Shareholders for dividends at end of the year)

Balance at the end of the year

Current liabilities

Trade and other payables include: o SARS amount (CR balance - we owe them)(Could be Income tax, PAYE, VAT) o Accrued expenses o Income received in advance o Shareholders for dividends (declared amount only) o Creditors for salaries + Contributions like UIF/Pension/Medical aid


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Cash Flow Statement

Concepts

Purpose of cash flow statement Cash inflow Cash outflow Know the format of the separate activities (parts) in the CFS, e.g. Operating, Investing or Financing activities

CFS Format Cash flow from operating activities 1

Cash generated from operations

Interest paid ( )

Dividends paid ( )

Income tax paid ( )

Cash flow from Investing activities 2

Purchase of fixed assets ( )

Proceeds from sale of assets

Fixed deposits (Matures / Placed)

Cash flow from Financing activities 3

Proceeds from shared issued

Buying back of shares ( )

Proceeds/Repayment of loan

Net change in cash & cash equivalent (1 + 2 + 3)

Cash & cash equivalent beginning of year

Cash & cash equivalent end of year

Note 1: Reconciliation between profit before tax and cash generated from operations

Profit before tax - make sure you use the profit before tax from the Income Statement. If profit after tax is given, remember to ADD back tax.

Adjustments i.t.o. Depreciation and Interest expense. These figures are taken directly from the Income statement and are ADDED to the profit before tax to give you the operating profit before changes in working capital.

Changes in working capital

o difference between the previous year and the current year’s figures o exclude amount owed to Shareholders, Accrued interest and amount owed to SARS.

Dividends paid calculation

o Use the information from Retained Income note and/or Trade & other Payables (Shareholders for Dividends)

o Total dividends for year (Interim + Final) plus amount owing at beginning of year minus amount owing at end of year

o OR Interim dividends paid during the year PLUS Shareholders for dividends BEGINNING of the year.

Taxation paid calculation Use information from Income statement (IS), Trade and other receivables (SARS = Debit balance) and Trade and other payables (SARS = Credit balance). ONE of the following calculations must be used, depending on the balances of SARS at beginning of the year (or previous year) and end of the year: o Income tax (from IS) ADD SARS (credit balance, previous year) LESS SARS (credit balance, end of year) o Income tax (from IS) ADD SARS (credit balance, previous year) ADD SARS (debit balance, end of year) o Income tax (from IS) LESS SARS (debit balance, previous year) LESS SARS (credit balance, end of year) o Income tax (from IS) LESS SARS (debit balance, previous year) ADD SARS (debit balance, end of year)


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Investing Activities

o Information from Fixed/Tangible asset note; Combine/ Use TOTAL fixed assets, depending on how information was given.

o Calculation for assets purchased OR sold:

Fixed assets @ carrying value (previous year/opening balances) 1

Depreciation (from IS) less 2

Assets purchased @ COST during the year* add 3

Assets sold @ carrying value during the year ** (ignore profit/loss on sale of asset)

less 4

Fixed assets @ carrying value (current year/closing balances) = 5

*IF assets purchased is not given, then calculate it: 5 + 4 + 2 - 1 = answer ('3') in brackets in CFS **IF assets sold is not given, then calculate it: 5 - 3 + 2 - 1 = answer ('4') without brackets in CFS

o Investments: Fixed deposit made/placed: (use brackets); fixed deposit matures: NO brackets!

Financing Activities

o Proceeds from shares issued during the year: NO Brackets (inflow) o Shares bought back: SHOW brackets (outflow) o Loans: Difference between current year and previous year:

Current year more than previous year = NO Brackets - inflow Current year less than previous year = SHOW brackets - outflow (loan was paid)

Net change in Cash and cash equivalents

ADD Operating activities PLUS Investing activities (IF it is negative, subtract!) PLUS Financing activities

/ ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS How to comment on financial indicators: Compare:

o Goals set by the business, e.g. mark up% applied vs the mark-up actually reached

o Indicators of the same business with the previous year (to determine the increase / decrease / trend)

o Indicators of two or more businesses in the same industries

o Interest rates of alternative investments with ROSHE

o Interest rate of loans with ROTCHE

Suggest alternative directions/actions to improve a declining situation


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FINANCIAL INDICATORS

Financial statements are analysed to find answers to certain questions.

Structure your comments with these 'questions' (below) in mind

QUESTION TERM FINANCIAL INDICATOR FORMULA

How profitable is the business; how well does it control its expenses and how effective is the business in its operation?

Profitability and operating

efficiency

% Gross profit on sales / GP/Sales x 100 = … %

% Gross profit on CoS / GP/CoS x 100 = … %

% Operating profit on sales

/ OP/Sales x 100 = … %

% Operating expenses on sales

/ OE/Sales x 100 = … %

% Net income on sales / NI/Sales x 100 = … %

Can the business repay its short-term debts; is the operating capital being handled efficiently? Cash flow problems?

Liquidity

Current ratio CA : CL

Acid test ratio (CA - Inventory) : CL (Debtors + Cash) : CL

Stock turnover rate /

Cost of Sales Average Trading Stock The higher this number, the faster assets are turned into cash

Stock holding period / Average Stock x 12 (365) Cost of Sales 1 (1)

Debtors collection period

/

Average Debtors x 365 Credit Sales Aim is 30 days

Creditors payment period

/

Average Creditors x 365 Credit Purchases Good, when it takes longer to repay

creditors

Negotiate for 90 days to avoid interest

Can the business repay its debt?

Solvency Owners’ equity or Net assets

(sustainability/continuity) Total assets : total liabilities


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QUESTION TERM FINANCIAL INDICATOR FORMULA

Do the owners earn a good return on their capital invested in the business?

Return on investment

Return on shareholders’

equity (ROSHE)

Net profit after Tax x 100 Average SHE Compare this % with alternative investments, e.g. fixed deposit interest %

Earnings per share (EPS)

Net profit after Tax x 100 = …c No. of shares issued 1 It shows the profit per share available for sharing with shareholders

Dividends per share (DPS)

Dividends x 100 = …c No. of shares issued 1 It is the proportional share of the profit paid + owed to shareholders. *EPS - DPS = retained profit per share for future expansion

Net asset value per share

(NAVPS)

Total SHE x 100 = …c No. of shares issued 1 - Compare to issued/ave. price of

shares and to market (JSE) price of shares.

- If the NAVPS increases, it shows that profits are retained; company is expanding and is wealth growing

- When company issues more shares, it should be at NAV to retain wealth.

To what extent is the business funded by borrowed capital, and to what degree does it affect the financial risk? Can the business borrow more money? Is it worth it?

Risk gearing

Debt : Equity ratio

LT Liabilities : SHE = (…. : 1) SHE = Share capital + Retained Inc

- Creditworthiness = ability to obtain loans.

- High risk/low creditworthiness = 0,5 : 1 - 1 : 1 (opt to issue shares)

- Low risk /high creditworthiness = 0,1 : 1 - 0,4 : 1 (can borrow more)

- Compare this ratio before and after a change in loans to show the change in risk levels

Return on total capital

employed (ROTCE)

Net Inc before tax and int. x 100

Ave. capital employed 1 Capital employed = SHE + LT loans Compare to % interest on loans. Higher = high gearing; loans are used to expand and make more profit. Lower = low gearing; loans not used effectively to earn profits. May not be able to repay with interest.


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AUDIT REPORTS (Paper 1)

Basic Concepts and other information Issued by INDEPENDENT / external auditors, who are not on the company’s payroll.

Included in the Published Financial Statements of companies; ALL users can read it, e.g. shareholders, employees, etc.

Auditors issue an OPINION on the published financial statements. This opinion SHOULD indicate that users/readers can trust and believe the financial information (e.g. profit in the Income Statement, etc.) in the statements.

External auditors base their opinion on their external audit after checking the accuracy of the information by sampling audit evidence (Internal auditors prepare financial statements and present it to external auditors).

THREE types of external audit opinions based on the reliability of the financial statements: o Unqualified = a ‘clean’ audit; there are no issues/challenges found; statements are credible and

shareholders may believe the financial results. o Qualified = some issues were found that can make statements less credible. Directors will have an

opportunity to explain or make changes to the statements. o Disclaimer of opinion = Auditors are not willing to issue any opinion as the statements and financial

information are too flawed and does not meet IFRS standards.

Audit evidence could be: o Data or information, physical or nonphysical, e.g. Financial statements; Accounting information; Bank

accounts; Bank statements; Fixed Assets Registers; Payrolls; Invoices and other supporting documents. o In audio and/or video format or even verbal answers from key employees

Procedures/Methods to obtain (gather) audit evidence: o Audit inquiry (asking questions) o Audit observations (e.g. look at how internal control measures are applied or stock is physically counted) o Audit inspections (e.g. compare asset register with the physical asset items in the company) o Audit procedure (analysis of data in the financial statements according to IFRS standards) o Recalculation (some depreciation expenses could be recalculated) o Re-performance (e.g. auditors prepare their own bank reconciliation and compare it with that of the

company)

Basis (Methods) for gathering audit samples: External auditors do not check all the transactions / information in a company, but only samples (portions) thereof. These samples needs to be gathered carefully in the following basis/methods: o Statistical, e.g. a percentage of the total or the average number of transactions, etc.) o Non-statistical:

- Value of items, e.g. the top ten highest value. - Items higher than a certain amount or value, e.g. items higher than R200 000. - Items that contain specific information, e.g. all purchasing transactions from ABC Ltd. - Random selection of items (no specific ‘rule’ for selecting items). - Systematic selection, e.g. every 10th payment per month, etc. - Haphazard selection (selection is made without bias; any item(s) could be selected which is

representative). - Block selection, where samples are drawn from similar items, e.g. any 20 R/D cheques. - Monetary unit, e.g. all transactions in US-dollars.

Types of Internal audit reports: o Operational audit – evaluates the performance of a particular department in the business. o Compliance audit – evaluates adherence to laws / regulations / policies, etc. o Financial audit – evaluates past financial data to ensure the financial activities of a department is fair,

complete, accurate and reliable and is reflected as such in the company’s financial statements. o Follow up audit – conducted ± six months after the external audit report was issued to evaluate if corrective

actions were taken and are working effectively (only necessary if the external audit opinion was qualified) o Investigative audit – focuses on unusual or suspicious activity of an individual or in a department;

determines the extent of loss and weaknesses in control o IT (Information Technology) audit – evaluates the company’s automated information processing systems

to ensure that security is in place and that data remains reliable. (reduces risk should the IT system malfunction)

o Management audit (Performance audit) – to review business strategies and organisational structures to ensure efficient operations.


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(June 2016)

Activity 1: CONCEPTS, STATEMENT OF FIN. POSITION (BALANCE SHEET); AUDIT REPORT (65 marks; 50 minutes)

1.1 CONCEPTS

Choose an explanation from COLUMN B that matches a concept in COLUMN A. Write only the letter (A–D) next to the question number (1.1.1–1.1.4) in the ANSWER BOOK.

COLUMN A COLUMN B

1.1.1 Shareholder A monitors control measures to prevent mismanagement and fraud

1.1.2 Director B owners of the company

1.1.3 Internal auditor C expresses an opinion on the financial statements of a company

1.1.4 External auditor D appointed by the shareholders to manage the company

(4 x 1) (4)

1.2 PARADISE LIMITED

The information below relates to Paradise Ltd. The financial year ended on 29 February 2016.

REQUIRED:

1.2.1 Prepare the following notes for the year ended 29 February 2016:

Ordinary share capital (6) Retained income (10)

1.2.2 Prepare the Statement of Financial Position (Balance Sheet) on 29 February 2016. Show ALL workings. (35)

INFORMATION:

A. List of balances extracted from the accounting records of Paradise Ltd on 29 February 2016, the end of the financial year, unless otherwise stated.

R Ordinary share capital (See Information B.) ?

Retained income (1 March 2015) 1 634 000

Loan from director: J Jonas (See Information E.) 1 155 000

Fixed assets at carrying value (1 March 2015) 12 278 400

Fixed deposit: Sandton Bank ? Trading stock (balancing figure) ?

Creditors' control 478 000

Debtors' control 356 000

Provision for bad debts (1 March 2015) 16 000

Bank (favourable) ? Accrued expenses (expenses payable) 12 000

Prepaid expenses 6 800

SARS: Income tax (provisional tax payments) 1 012 000


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B. Share capital:

Paradise Ltd is authorised to sell 5 000 000 ordinary shares.

3 000 000 shares were in issue on 1 March 2015, the beginning of the financial year, R6 000 000.

1 000 000 new shares were issued on 1 December 2015 at a market-related value of R5,00 per share.

200 000 shares were repurchased on 20 February 2016 from a shareholder who was relocating to another country. A payment of R770 000 was made on 20 February 2016.

C. Dividends:

The directors paid an interim dividend of R840 000 on 28 August 2015.

A final dividend of 44 cents per share was declared on 29 February 2016. All shares (including the shares repurchased on 20 February 2016) qualify for final dividends. These dividends will be paid on 31 March 2016.

D. Net profit before tax:

After taking into account all relevant information, the net profit before tax was accurately calculated to be R3 800 000.

Income tax at the rate of 28% must still be brought into account.

E. Loan from Director J Jonas:

The loan was originally received on 1 December 2013.

This loan is to be repaid over 5 years in equal monthly instalments with effect from 31 December 2013. All payments have been made.

Interest is not capitalised and has been paid in full.

F. Provision for bad debts:

The provision for bad debts must be maintained at 5% of the outstanding debtors.

G. Fixed assets and depreciation:

No fixed assets were purchased or sold during the financial year.

Depreciation for the financial year ended 29 February 2016 was R890 000.

H. The following financial indicators were calculated after all adjustments had been taken into account:

Current ratio 1,3 : 1

Acid-test ratio 0,8 : 1


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1.3 AUDIT REPORT

You are provided with an extract of the independent auditor's report of Topstar Ltd for the financial year ended 31 October 2015.

REQUIRED:

1.3.1 What type of audit report did Topstar Ltd receive? Choose from the following: unqualified, qualified, disclaimer. Give a reason for your choice. (3)

1.3.2 To whom is an audit report addressed? Give a reason for your answer. (3)

1.3.3 Explain why the auditor mentioned the following in the audit report: IFRS (2) Companies Act (Act 61 of 1973) (2)

INFORMATION:

Extract from the audit report:

In our opinion, the financial statements fairly present in all material respects the financial position of the company at 31 October 2015 as well as the financial results of its operations and the cash flows for the year then ended. This is in accordance with the International Financial Reporting Standards (IFRS) and the manner required by the Companies Act (Act 61 of 1973) in South Africa.

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Activity 2: AUDIT REPORT; STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) (Nov 2016) (70 marks; 55 minutes)

2.1 CONCEPTS

Choose the correct term to complete each of the following statements. Write only the term next to the question number (2.1.1–2.1.4) in the ANSWER BOOK.

cash and cash equivalents; current asset; non-current asset; income; net working capital; expense; current liability; non-current liability

2.1.1 Interest on a bank overdraft is a/an ...

2.1.2 Consumable stores on hand are a/an ...

2.1.3 The portion of a loan to be paid during the next financial year is regarded as a/an … in the Statement of Financial Position (Balance Sheet).

2.1.4 The difference between current assets and current liabilities is known as … (4 x 1) (4)

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2.2 AUDIT REPORT You are provided with an extract from the audit report of Fralezi Ltd.

REQUIRED:

2.2.1 To whom is the audit report addressed? (1)

2.2.2 Who has to ensure that the financial statements are prepared and presented at the annual general meeting? (1)

2.2.3 Choose the correct word from those in brackets. Write the answer next to the question number (2.2.3) and explain your choice.

Fralezi Ltd received a/an (qualified/unqualified/disclaimer of opinion) audit report. (2)

2.2.4 Explain why the independent auditors referred to pages 11–29 in the report. (2)

INFORMATION:

We have examined the financial statements set out on pages 11–29.

In our opinion, the annual financial statements present fairly, in all material respects:

The financial position of Fralezi Ltd on 30 June

The cash flow for the year then ended, in accordance with International Financial Reporting Standards (IFRS) and as required by the Companies Act of South Africa

Roux and Pieterse Chartered Accountants (CA) Registered Accountants and Auditors Schilbach Street, Parys

2.3 STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT)

You are provided with information relating to Fralezi Ltd for the financial year ended 30 June 2016.

REQUIRED:

Complete the Statement of Comprehensive Income (Income Statement) for the financial year. (60)


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INFORMATION:

Figures extracted from the Pre-Adjustment Trial Balance on 30 June 2016:

R

Balance Sheet Accounts Mortgage loan: Parys Bank 333 200 Bank (favourable) 482 000 Debtors' control 116 500 Trading stock 209 500 Provision for bad debts 3 732 Nominal Accounts Sales (less allowances) 4 777 300 Cost of sales ? Directors' fees 375 000 Salaries and wages 365 540

Sundry expenses ?

Depreciation 124 260 Audit fees 23 000 Repairs 100 000 Rent income 101 900 Interest income ? Bad debts recovered 10 540 Packing material 13 600 Advertising 20 596

Loss of computer due to theft 9 300 Ordinary share dividends 200 000

Adjustments and additional information:

A. A credit note for R35 700 issued to a debtor, dated 27 June 2016, was not recorded. The cost price of these goods was R21 000. The goods were placed back into stock.

B. The business prices its goods at a mark-up of 70% on cost. Trade discount of R297 200 was allowed on invoices to certain customers.

C. Adjust the provision for bad debts of debtors to 4%.

D. Stock counts on 30 June 2016 revealed the following on hand:

Trading stock, R225 500

Packing material, R3 700

E. External auditors are owed a further R7 250.

F. Interest on the loan is capitalised and has not been recorded yet. The loan statement from Parys Bank on 30 June 2016 reflected a closing balance of R372 920.


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G. Corrections must be made in respect of a computer that was stolen on 31 March 2016.

The bookkeeper completed the following page in the Fixed Assets Register, using the incorrect method of depreciation:

SUNCREST COMPUTER

COST DEPRECIATION BOOK VALUE

1 July 2014 R42 000 R42 000

30 June 2015 R8 400 R33 600

31 March 2016 R6 300 R27 300

Insurance pay-out R18 000

Loss of computer due to theft R9 300

Depreciation on this asset should have been calculated at 20% p.a. on the diminishing-balanced method.

H. The monthly rent did not change during the year. During April 2016 the tenant paid R6 000 for repairs to the premises. He deducted this from his rent for May 2016, as repairs are the responsibility of the company. The repairs were not recorded. The rent for July 2016 was received and deposited during June 2016.

I. Advertising consists of a monthly contract with the local newspaper for the entire financial year. Advertising was paid for 11 months only. From 1 April 2016, the contract rate was decreased by R152 per month.

J. Net profit after tax is R504 000. Use the following percentages to calculate certain missing figures:

Operating profit on sales: 15%

Income tax rate: 28% of net profit

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Activity 3: COMPANY FINANCIAL STATEMENTS AND INTERPRETATION (March 2017)


You are provided with information from the records of Gandhi Ltd for the financial year ended 28 February 2017.

REQUIRED:

3.1 Complete the Statement of Comprehensive Income (Income Statement) for the year ended 28 February 2017. Note that some information is included in the ANSWER BOOK.

(33)

3.2 Prepare the following notes to the Statement of Financial Position (Balance Sheet):

3.2.1

3.2.2

Ordinary share capital

Retained income

(10)

(10)

3.3 Complete the EQUITY AND LIABILITIES section of the Statement of Financial Position (Balance Sheet). Show workings in brackets.

(16)

3.4 On 1 March 2016, B Sly (a shareholder) owned 400 000 ordinary shares. On 31 March 2016, she bought an additional 80 000 shares.

On 28 February 2017, she convinced the CEO to repurchase 250 000 shares from other shareholders.

3.4.1

3.4.2

Calculate B Sly's percentage shareholding in the company before and after the share buy-back.

Explain why the other shareholders will be concerned about this transaction.

(4)

(2)

INFORMATION: A. The following balances/totals, amongst others, appeared in the books on

28 February 2017:

R

Ordinary share capital ?

Retained income ?

Loan: Anca Bank 433 500

Trading stock (before the annual stock take) 231 700


Provision for bad debts (1 March 2016) 19 600


SARS: Income tax (provisional tax payments) 360 000

Rent income 61 900

Interest income ?

Sundry expenses ?

Directors' fees 605 500

Audit fees 29 000

Ordinary share dividends (interim) 420 000


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B. The gross profit for the year ended 28 February 2017 was calculated at

R3 150 000. A mark-up of 60% on cost was achieved.

C. The following adjustments must still be brought into account:

Stocktaking on 28 February 2017 reflected trading stock of R207 500 on hand.

Provision for bad debts must be increased to R21 600.

One third (1/3) of the audit fee was still due on 28 February 2017.

One of the three directors is still owed his fee for February 2017. All three directors received the same monthly fee.

A vacant storeroom was rented out from 1 June 2016. On 1 January 2017 the rent was increased by R2 700 per month. The rent for February 2017 is outstanding.

Sundry expenses are the balancing figure.

D. Loan: Anca Bank

Interest on the loan is capitalised, but no entry has been made in the books. A monthly instalment of R5 200 (including interest) is paid. This was taken into account. The loan statement showed a closing balance of R487 000. The company plans to increase their loan repayments in order to settle 20% of the loan balance in the next financial year.

E. Operating profit on sales was 14,5%.

F. Income tax at 32% of the net profit amounted to R396 800.

G. Share capital and dividends:

The company is registered with an authorised share capital of 1 200 000 ordinary shares.

85% of the authorised shares were in issue on 1 March 2016.

On 31 March 2016, the directors issued all the unissued shares. EFT payments totalling R756 000 were received.

On 27 February 2017, the company repurchased 250 000 shares at R4,15 per share.

An interim dividend was paid on 6 September 2016.

A final dividend of 25 cents per share was declared on 28 February 2017. All shareholders (including the shares repurchased) were entitled to final dividends. This must still be brought into account.

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Activity 4: STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) AND FIXED ASSETS (June 2017) (70 marks; 55 minutes)

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) in the ANSWER BOOK, for example 4.1.5 E.

COLUMN A COLUMN B

4.1.1 Statement of Comprehensive Income (Income Statement)

A reflects the source of funds and how they were used

4.1.2 Statement of Financial Position (Balance Sheet)

B reflects the opinion on the reliability of the financial statements

4.1.3 Cash Flow Statement C reflects the financial position of a business on a particular date

4.1.4 Independent Audit Report D reflects profit or loss for a financial period

(4 x 1) (4)

4.2 MTOMBENI LTD

The information relates to Mtombeni Limited for the financial year ended 28 February 2017.

REQUIRED:

4.2.1 Refer to Information A and B and calculate:

Carrying value of the vehicle sold on 30 November 2016 (5)

Total depreciation on equipment on 28 February 2017 (7)

4.2.2 Prepare the Statement of Comprehensive Income (Income Statement) for the year ended 28 February 2017.

(54)


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INFORMATION:

Information extracted from the Pre-Adjustment Trial Balance on 28 February 2017:

Balance Sheet Accounts Section

Land and buildings 1 600 000

Vehicles ?

Equipment 250 000

Accumulated depreciation on equipment (01/03/2016) 85 000

Trading stock 386 500


Provision for bad debts 3 650

Mortgage loan: Quick Bank 1 056 000

Nominal Accounts Section

Sales 5 500 000


Debtors' allowances 32 500


Audit fees 54 000

Bad debts 13 600

Rent income 169 500

Interest on loan ?

Insurance 19 220

Salaries and wages 475 000

Bad debts recovered 4 750

Consumable stores 67 500

Bank charges 7 760

Sundry expenses 140 085

Interest income ?


A. No entries were made for a vehicle sold on 30 November 2016 for R97 700 cash. Details of the vehicle:

Cost price, R190 000

Accumulated depreciation (1 March 2016), R72 000

Depreciation rate: 20% p.a. on cost

B. Provide for depreciation as follows:

On remaining vehicles – R138 000 for the financial year

On equipment at 10% p.a. on the diminishing-balance method NOTE: New equipment costing R32 000 was purchased and recorded

on 1 September 2016.

C. Goods sold on credit to debtor, J Gander, for R15 000 were not recorded. The mark-up is 60% on cost price.

D. A physical stocktaking on 28 February 2017 reflected trading stock of R374 000.

E. Consumable stores used during the financial year amounted to R61 700.


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F. The account of debtor, L Maseko, must be written off as irrecoverable, R1 900.

G. Entries on the February 2017 Bank Statement not yet recorded in the books of the company:

Bank charges, R870

Debit order payment for the monthly insurance premium, R1 780

H. Provision for bad debts must be adjusted to R4 030.

I. Loan statement received reflected the following:

Balance: 1 March 2016 1 356 000

Interest ?

Repayment during the financial year 300 000

Balance: 28 February 2017 1 200 000

J. An employee, H Brooks, who commenced work on 1 February 2017, was omitted from the Salaries Journal. Details of his salary for February 2017 are:

GROSS SALARY

DEDUCTIONS CONTRIBUTIONS

PAYE PENSION

FUND UIF

PENSION FUND

UIF

13 500 2 190 1 080 135 1 620 135

NOTE: All contributions are recorded as part of salaries and wages.

K. The rent income was increased by R1 500 per month from 1 November 2016. The tenant has not paid the rent for February 2017 yet.

L. Interest income is the missing figure in the Statement of Comprehensive Income (Income Statement).

M. Income tax is calculated at 28% of net profit.

N. Net profit after tax amounted to R864 000.

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Activity 5: FIXED ASSETS, STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) AND AUDIT REPORT (Nov 2017)


The following information relates to Odette Ltd. The financial year ended on 28 February 2017.

REQUIRED:

5.1 Refer to Information B.

Calculate the missing amounts denoted by (a) to (e). (22)

5.2 Complete the Statement of Financial Position (Balance Sheet) on

28 February 2017. Show workings.

(37)

INFORMATION:

A. Amounts extracted from the records on 28 February 2017:

Balance Sheet accounts section R

Ordinary share capital ?

Retained income (28 February 2017) 520 000

Fixed assets (carrying value) ?

Loan from Beque Bank 284 000


Net trade debtors 67 200

Fixed deposit: Elze Bank ?

Bank (favourable) ?

SARS: Income tax (provisional payments) 209 000


Nominal accounts section (pre-adjustment amounts)

Insurance 30 200

Rent income 108 450

Electricity 42 000

B. Fixed assets:

LAND AND BUILDINGS

VEHICLES EQUIPMENT TOTAL

Cost 350 000 460 000

Accumulated depreciation (315 000)

Carrying value (01/03/2016) (a) 35 000

Movements:

Additions 325 000 422 550 0

Disposals 0 0 (d)

Depreciation (b) (13 766)

Carrying value (28/02/2017) 2 550 000 (c) 50 994 (e)

Cost 772 550 340 000



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Depreciation on vehicles is calculated at 20% p.a. on cost.

The company has two vehicles on 28 February 2017. One of these vehicles was purchased on 1 September 2016.

Extract from the Fixed Assets Register in respect of equipment sold:

Fridge (Model X3) Date purchased: 1 March 2014 Date sold: 31 December 2016 Sold for: R81 250 Depreciation rate: 10% p.a. (diminishing-balance method)

COST DEPRECIATION BOOK VALUE

28 February 2015 R120 000 R12 000 R108 000

29 February 2016 ? ?

31 December 2016 ? ?

C. The electricity account for February 2017, R5 600, was still outstanding.

D. The provision for bad debts must be increased by R270.

E. An additional insurance policy was taken out on 1 November 2016. The annual premium of R10 200 was paid and recorded.

F. The rent for February 2017 has not been received yet. The rent increased by 15% on 1 July 2016.

G. Net profit after tax, R518 000, was calculated after taking into account all the adjustments above. Income tax is 30% of the net profit.

H. 75% of the authorised share capital of 900 000 shares was in issue. The directors declared a final dividend of 24 cents per share on 28 February 2017.

I. Extract from Beque Bank loan statement:

Balance on 1 March 2016 R376 000

Instalments (including interest) R92 000

Interest capitalised R48 000

Balance on 28 February 2017 ?

NOTE:

Interest has not been entered in the books.

R50 000 of the loan balance will be settled in the next financial year.

J. The net asset value per share on 28 February 2017 is 620 cents.

K. The current ratio is 2,1 : 1 on 28 February 2017.


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5.3 AUDIT REPORT

An extract of the independent audit report of Karin Ltd for the financial year ended on 28 February 2017 is provided.

REQUIRED:

As a shareholder, what concerns would you have regarding this audit report? Explain THREE points. (6)

INFORMATION:

EXTRACT FROM THE AUDIT REPORT OF KARIN LTD

We have audited the annual financial statements of Karin Ltd for the year ended 28 February 2017. These financial statements are the responsibility of the company's directors.

Basis for Disclaimer of Opinion In the course of our audit we established that bonuses paid to directors, amounting to R9,8 million, had not been authorised by the Remunerations Committee.

Audit Opinion Because of the significance of the matters described above, we have not been able to obtain sufficient audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements of Karin Ltd for the year ended 28 February 2017.

Bongani and Botha, Chartered Accountants (SA)

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Activity 6: STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) AND AUDIT REPORT (March 2018) (65 marks; 50 minutes)

6.1 Choose a description from COLUMN B that matches the term in COLUMN A. Write only the letter (A–E) next to the question number (6.1.1–6.1.5) in the ANSWER BOOK.

COLUMN A COLUMN B

6.1.1. Statement of Comprehensive Income (Income Statement)

A an explanation of the operations of the company during a financial year

6.1.2 Statement of Financial Position (Balance Sheet)

B reflects whether or not shareholders can rely on the financial statements

6.1.3 Cash Flow Statement C reflects the profit/loss of the company for the year

6.1.4 Directors’ Report D reflects the effect of the operating, financing and investing activities on the cash resources

6.1.5 Independent audit report E reflects the net worth of the company

(5 x 1) (5)

6.2 ORBIT LTD

Refer to the information from the records of Orbit Ltd for the financial year ended 30 June 2017.

REQUIRED:

6.2.1 Prepare the following notes to the Statement of Financial Position (Balance Sheet):

(a) Ordinary share capital (8)

(b) Retained income (11)

6.2.2 Complete the Statement of Financial Position (Balance Sheet) on 30 June 2017. Where notes are not required, show ALL workings in brackets. (28)

6.2.3 The CFO (chief financial officer), Barry Wright, has convinced the company to buy back a further 400 000 shares from his close relative during the next financial year. Barry currently owns 1 904 400 shares in this company, which is 46% of the issued shares.

As a shareholder, explain your concern regarding the proposed buy-back of shares. Provide calculations to support your concern. (6)


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INFORMATION:

A. Extract from the books on 30 June 2017:

Fixed/Tangible assets (carrying value) ?

Fixed deposit: Morocco Bank 380 000

Ordinary share capital (1 July 2016) 3 150 000

Retained income (1 July 2016) 874 000

Bank (favourable) 250 700

Loan: Helping Bank 302 400




Income received in advance 6 600


Dividends on ordinary shares (interim dividends) 630 000

B. Share capital:

The business has an authorised share capital of 6 000 000 shares.

70% of the shares were in issue on 1 July 2016.

60 000 ordinary shares were repurchased from a disgruntled shareholder on 1 December 2016. The company paid R3,50 per share. This was paid and recorded on 1 December 2016.

C. A final dividend of 22 cents per share was declared on 30 June 2017. Only shares in the share register qualify for final dividends.

D. The following adjustments have not been taken into account yet:

Provision for bad debts is set at 5% of the outstanding debtors. Insurance included an annual premium of R31 800, paid for the period

1 October 2016 to 30 September 2017.

E. The loan statement from Helping Bank reflected the following:

Balance on 1 July 2016 R480 000

Repayments during financial year (including interest) R177 600

Interest capitalised R57 600

Balance on 30 June 2017 ?

R40 000 of the loan will be paid back in the next financial year.

F. Income tax for the year amounted to R408 800. This was calculated at

28% of the corrected net profit.


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6.3 AUDIT REPORT: DF ENTERPRISES LTD

REQUIRED:

6.3.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (6.3.1(a)–6.3.1(b)) in the ANSWER BOOK.

(a) The audit report is completed by the (internal/external) auditor. (1)

(b) The (directors/shareholders/auditors) are responsible for the preparation of the financial statements. (1)

6.3.2 Refer to the audit report below.

(a) The audit report below indicates a/an (qualified/unqualified) opinion. (1)

(b) Explain why the shareholders should be concerned about this audit report. State TWO points. (4)

INFORMATION:

EXTRACT FROM THE AUDIT REPORT OF DF ENTERPRISES LTD

Basis for Qualification of Opinion

Source documents for expenditure amounting to R550 000 could not be traced. Audit Opinion

In our opinion, except for the effects of the unsubstantiated expenditure described in the Basis for Qualification of Opinion paragraph, the financial

statements fairly represent the financial position of the company on 30 June 2017 and the results of their operations and cash flows for the year ended, in accordance with the International Financial Reporting Standards, and in the manner required by the Companies Act (Act 61 of 1973) of South Africa.

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Activity 7: CASH FLOW STATEMENT AND INTERPRETATION (Nov 2017)


7.1 Choose a term to complete each of the following statements. Write only the term next to the question number (7.1.1–7.1.4) in the ANSWER BOOK.

shareholder(s); external auditor(s); director(s); internal auditor(s)

7.1.1 … are appointed by the shareholders to manage the company.

7.1.2 The ... is employed by the company to set up functional internal control processes.

7.1.3 A … is a person who invests in a company by buying shares.

4.1.4 … are appointed by shareholders to give an unbiased opinion on the financial statements. (4 x 1) (4)

7.2 SO-FINE LTD

The given information relates to So-Fine Ltd for the financial year ended 31 August 2017.

REQUIRED:

7.2.1 Prepare the following notes to the Statement of Financial Position (Balance Sheet) on 31 August 2017:

Ordinary share capital (7) Retained income (9)

7.2.2 Complete the Cash Flow Statement by inserting only the details and figures indicated by a question mark (?). (19)

7.2.3 Calculate the following financial indicators on 31 August 2017:

Percentage operating profit on sales (3) Debt-equity ratio (4)

7.2.4 Calculate the dividends per share (DPS) of a shareholder who owned the same number of shares for the entire financial period. (4)

INFORMATION:

A. Information from the Statement of Comprehensive Income (Income Statement) for the financial year ended 31 August 2017:

Sales R8 652 000

Operating expenses 1 760 000

Depreciation 320 000

Interest expense 86 100

Operating profit 697 000

Income tax 187 770

Net profit after income tax 438 130


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B. Information from the Statement of Financial Position (Balance Sheet) on 31 August:

2017 (R)

2016 (R)

Fixed assets (carrying value) 6 177 000 4 975 000

Fixed deposits 220 000 300 000

Loan: Dolphin Bank 985 000 450 000

Current assets 619 600 663 300

Current liabilities 490 000 614 300

Shareholders' equity ? ?

Ordinary share capital 5 292 000 ?

Retained income ? 147 370

Cash and cash equivalents 23 400 2 500

Bank overdraft - 65 100

Shareholders for dividends 168 000 120 000

SARS: Income tax 11 800 (Cr) 2 400 (Dr)

C. Share capital and dividends The authorised share capital comprises 1 200 000 ordinary shares.

900 000 ordinary shares were in issue on 1 September 2016.

The company issued 150 000 ordinary shares at R6,30 per share on 1 May 2017.

70 000 ordinary shares were repurchased from shareholders on 30 August 2017. A cheque for R437 500 was issued for these shares. These shareholders qualify for final dividends.

An interim dividend of 12 cents per share was paid on 1 February 2017.

A final dividend was declared on 30 August 2017.

D. Fixed assets: Transactions during the current financial year.

Old equipment was sold for cash at the carrying value of R324 000.

Additional equipment and delivery vehicles were purchased.

7.3 CASTRO LTD AND RONKI LTD You are provided with information relating to two companies. BACKGROUND INFORMATION:

Henry Harries owns 300 000 shares in each company.

Castro Ltd issued 200 000 new shares only to existing shareholders at the

average issue price (R9,10). These funds were used to establish a new branch. No new loans were raised.

Ronki Ltd paid R4 800 000 to repurchase 320 000 shares.


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REQUIRED:

NOTE: Where comments or explanations are required, quote financial indicators and figures to support your answer.

CASTRO LTD 7.3.1 Comment on the price of R9,10 charged by Castro Ltd for the new shares

issued. (3)

7.3.2 Explain how the issue of new shares has affected the financial gearing and risk of Castro Ltd. Quote TWO financial indicators. (6)

7.3.3 Henry had the option to buy some of the new shares issued by Castro Ltd. He had saved sufficient funds (interest rate 5% p.a.) for this purpose.

If Henry wanted to retain his 60% shareholding in the company, how many shares would he have had to buy and how much would he have had to pay? (5)

Henry decided NOT to buy these shares. Apart from the % shareholding, explain TWO reasons why he has made a mistake by not taking up this option. (6)

RONKI LTD 7.3.4 Comment on the liquidity of Ronki Ltd. Quote TWO financial indicators. (6)

7.3.5 Comment on the price paid by Ronki Ltd for the repurchase (buy-back) of shares. (3)

7.3.6 Explain THREE ways in which Henry has benefited from the repurchase of the shares by Ronki Ltd. (6)

ADDITIONAL INFORMATION: Financial indicators and additional information from annual reports:

CASTRO LTD RONKI LTD

2017 2016 2017 2016

Debt-equity ratio 0,5 : 1 0,8 : 1

Current ratio 1,9 : 1 3,5 : 1

Acid-test ratio 1,1 : 1 1,7 : 1

Stock-holding period 54 days 54 days

Number of shares in issue 700 000 500 000 580 000 900 000

Average share issue price R9,10 R10,20

Price paid for share repurchase R15,00

Price of share on JSE R12,00 R15,00

Net asset value per share R10,73 R11,38 R13,30 R13,22

% return on shareholders' equity 23% 17% 16% 13%

% return on total capital employed 20% 15%

Earnings per share 140 cents 196 cents 266 cents 171 cents

Total dividends R357 000 R325 000 R928 000 R928 000

Dividends per share 51 cents 65 cents 160 cents 103 cents

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Activity 8: FIXED ASSETS, CASH FLOW AND INTERPRETATION (Mar 2018)


MAFOKO LTD

The given information relates to Mafoko Ltd for the financial year ended 28 February 2017.

REQUIRED:

8.1 Refer to Information A and Information B.

Calculate the missing amounts denoted by (a) to (c) on the Fixed Asset Note. (15)

8.2 Calculate the following amounts for the Cash Flow Statement:

8.2.1 Income tax paid (5)

8.2.2 Dividends paid (3)

8.2.3 Net change in cash and cash equivalents (4)

8.3 Complete the Cash Effects of Financing Activities section of the Cash Flow Statement. (10)

8.4 Calculate the following financial indicators on 28 February 2017:

8.4.1 Debt-equity ratio (3)

8.4.2 Earnings per share (in cents) (3)

8.4.3 Return on average shareholders' equity (ROSHE) (5)

8.5 Explain why the directors felt that the 630 cents offered on the shares repurchased was a fair price. Quote TWO financial indicators with figures. (4)

8.6 The directors revised the dividend pay-out policy for the current financial year.

8.6.1 Calculate the percentage of earnings distributed as dividends for each year to show this change. (4)

8.6.2 Give ONE reason why the directors took this decision. (2)

8.6.3 Explain why the shareholders may not be satisfied with the return they earned. Quote a financial indicator or figure(s). (3)

8.7 The Cash Flow Statement reflects some important decisions taken by the directors.

Apart from the dividends, identify THREE good decisions. Explain the effect of each decision on the company. Quote figures. (9)


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INFORMATION:

A. Information from the financial statements on 28 February:

2017 (R) 2016 (R)

Depreciation ? ?

Interest expense 123 000 126 500

Net profit before income tax 422 500 157 500

Net profit after income tax 295 750 113 400

Fixed assets (carrying value) 4 934 450 3 993 390

Shareholders' equity 4 375 250 3 135 000

Ordinary share capital 4 117 500 3 000 000

Retained income 257 750 135 000

Non-current liabilities 750 000 1 300 000

Inventories (only Trading Stock) 288 000 363 000

Debtors 318 000 254 000

Creditors 287 000 367 000


Bank overdraft 27 500 -

SARS: Income tax 5 200 (Cr) 3 390 (Cr)


B. Fixed Asset Note: Fixed assets comprise only Buildings and Equipment.

BUILDINGS EQUIPMENT

Carrying value (01/03/2016) 2 866 990 1 126 400

Cost (01/03/2016) 2 200 000

Accumulated depreciation (01/03/2016) (1 073 600)

Movements:

Additions (a) 300 000

Disposals (c)

Depreciation (b)

Carrying value (28/02/2017) 1 058 520

Cost (28/02/2017)

Accumulated depreciation (28/02/2017)

Additional equipment was purchased on 1 June 2016.

Extensions to the building were completed on 31 August 2016.

Old equipment was sold at carrying value on 28 February 2017.

Equipment is depreciated at 20% p.a. using the diminishing-balance method.


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C. Share capital and dividends

The company is registered with an authorised share capital of 1 000 000 ordinary shares.

On 1 March 2016 there were 500 000 shares in issue. A further 200 000 shares were issued on this date.

An interim dividend of R70 000 was paid on 31 August 2016.

On 28 February 2017, 25 000 ordinary shares were repurchased from the estate of a deceased shareholder at R6,30 per share. The average issue price was R6,10 at this point.

A final dividend was declared on 28 February 2017.

D. Financial indicators on 28 February:

2017 2016

Debt-equity ratio ? 0,4:1

Earnings per share ? 23 cents

Dividend per share 24 cents 20 cents

Return on average shareholders' equity ? 3,6%

Return on total capital employed 11,4% 6,4%

Net asset value per share 648 cents 627 cents

Market price of shares (JSE) 640 cents 630 cents

Interest rate on loans 12% 11%

Interest on fixed deposits 9% 8%

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(Q3, Nov 2018)

Activity 9: FINANCIAL STATEMENTS AND AUDIT REPORT (75 marks; 60 minutes)

9.1 Indicate where EACH of the following items would be placed in the financial statements by choosing a term from the list below. Write only the answer next to the question numbers (9.1.1 to 9.1.4) in the ANSWER BOOK.

non-current assets; current assets; equity; operating expenses; operating income

9.1.1 Trade and other receivables 9.1.2 Adjustments of provision for bad debts (decrease) 9.1.3 Fixed deposit maturing in three years' time 9.1.4 Trading stock deficit (4)

9.2 TEMBISO LTD

You are provided with information for the financial year ended 28 February 2018.

REQUIRED:

Complete the following for the year ended 28 February 2018: 9.2.1 Statement of Comprehensive Income (Income Statement) (28) 9.2.2 Notes to the Statement of Financial Position (Balance Sheet) for:

Ordinary share capital (7)

Retained income (7)

9.2.3 Equity and Liabilities section of the Statement of Financial Position (Balance Sheet)

(16)

INFORMATION:

A. Balances/Totals on 28 February:

2018 2017


Retained income 384 600 376 600

Loan: LSO Bank ? 1 725 500

Trade creditors 414 120


Sales ?


Total operating income 879 440

Salaries and wages 501 200

Audit fees 65 400

Rent expense 79 240



Interest on fixed deposit ?

Interest on loan 242 500


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B. Adjustments and additional information:

(a) Sale of goods:

The company maintains a mark-up of 40% on cost. Note that old goods costing R96 000 (included in cost of sales) were sold at 10% below cost price.

(b) Audit fees:

75% of the annual fees have been paid.

(c) Directors' fees:

The company has three directors who earn the same fee. One director was paid two months in advance.

(d) Rental:

A storeroom was rented from 1 June 2017 at R11 200 per month. Rent increased by 7,5% on 1 December 2017. Provide for outstanding rent.

(e) Loan: LSO Bank

Fixed monthly repayments, including interest, are R31 600.

Capitalised interest amounted to R242 500 for the year ended 28 February 2018.

Interest for the next financial year is expected to be R162 000.

Part of the loan will be repaid within the next financial year.

(f) Income tax for 2018:

R31 300 is still due to SARS.

The correct net profit after tax is R959 400.

(g) Share capital and dividends:

Authorised share capital: 1 600 000 ordinary shares

1 March 2017 80% of the shares were in issue.

1 May 2017 300 000 shares were repurchased at R465 000 above the average share price.

31 August 2017 Interim dividends paid: 30 cents per share.

31 October 2017 Additional shares were issued.

28 February 2018 Final dividends were declared.


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9.3 AUDIT REPORT

Extracts from the audit report of Tembiso Ltd are provided.

INFORMATION:

To Shareholders We have audited the financial statements set out on pages 8 to

52 ...

Opinion Point 1

Point 2

In our opinion the financial statements present fairly, in all material respects, the financial position of the company as at 28 February 2018 … … in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act (Act 71 of 2008)

of South Africa.

Basis for Opinion Point 3 We are independent of the company ... Point 4 We have fulfilled our ethical responsibilities, which are consistent with

international standards …

Point 5 … and the audit evidence obtained is sufficient and appropriate to

provide a basis for our opinion.

REQUIRED:

) 9.3.1 Refer to points 1 to 3.

Why did the auditors mention these points? Give ONE explanation for EACH point. (5)

9.3.2 Refer to points 4 and 5.

Explain TWO examples of:

Ethical responsibilities

Audit evidence (8)

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(Q4, Nov 2018)

Activity 10: CASH FLOW STATEMENT AND INTERPRETATION (70 marks; 55 minutes)

You are provided with information about Vooma Limited for the past two financial years ended 30 June. The company is situated in KZN and trades in racing bikes.

REQUIRED: NOTE: Provide figures or financial indicators (ratios or percentages) and comparisons with the previous year to support comments or explanations.

10.1 Calculate the following for 2018: 10.1.1 % operating expenses on sales (2)

10.1.2 Acid-test ratio (4)

10.1.3 % return on shareholders' equity (4)

10.2 Calculate the following figures that will appear in the 2018 Cash Flow Statement: 10.2.1 Change in investments (2)

10.2.2 Income tax paid (4)

10.2.3 Fixed assets sold (at carrying value) (5)

10.3 Cash flow and financing activities:

10.3.1 Explain why the directors are satisfied with the improvement in cash and cash equivalents since 1 July 2016. (3)

10.3.2 Decisions and gearing in 2018:

Identify THREE decisions that the directors made to pay for land and

buildings.

Explain how these decisions affected:

- Capital employed - Financial gearing (Quote TWO indicators.)

(6)

(6)

10.3.3 From the Cash Flow Statement identify ONE decision made by the directors in 2017 that they did NOT make in 2018, besides the points mentioned above. Give a possible reason for the decision in 2017. (3)

10.4 Dividends, returns and shareholding for the 2018 financial year: On 1 July 2017 there were 800 000 shares in issue.

On 31 December 2017 interim dividends were paid.

On 1 January 2018, 200 000 shares were issued to existing shareholders.

On 30 June 2018 final dividends of 75 cents per share were declared on all

shares, but have not yet been paid.

10.4.1 Calculate for the 2018 financial year:

Total interim dividends paid

Interim dividends per share (3) (3)


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10.4.2

Calculate total dividends earned by Dudu Mkhize for the 2018 financial year. Her shareholding is:

SHARES PURCHASED

PURCHASE PRICE

31 August 2016 380 000 shares R7,00

1 January 2018 110 000 shares R20,00

TOTAL 490 000 shares

(5) 10.4.3

On 1 January 2018 each shareholder was offered two shares for every five shares owned. Dudu did not buy enough shares to become the majority shareholder.

Calculate the minimum number of additional shares that Dudu should have bought.

(3)

10.5 The directors decided to buy land and buildings in two other provinces in 2018

to solve the problem of low sales that they had previously had in KZN. 10.5.1

Explain:

Why it was necessary to purchase properties in other provinces instead of in KZN

Whether the decision to purchase these properties had the desired effect on sales

Another strategy they used to solve the problem of low sales

(2)

(3) (3)

The CEO, Ben Palo, wants to communicate other good news to the

shareholders at the AGM. Give advice on what he should say about the following topics:

Earnings per share

% return earned

Share price on the JSE

(3) (3) (3)


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INFORMATION FOR THE YEAR ENDED 30 JUNE:

A. FIGURES IDENTIFIED FROM STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT):

2018 2017

Sales R13 182 000 R7 740 000

Number of bikes sold 1 750 bikes 900 bikes

Mark-up % 58% 72%

Cost of sales 8 330 000 4 500 000

Gross profit 4 852 000 3 240 000

Operating expenses 1 900 000 1 500 000


Income tax 819 000 444 000

Net profit after tax 1 911 000 1 036 000

B. EXTRACT FROM STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) ON 30 JUNE:

2018 2017

Fixed assets (carrying value) R12 154 000 R8 031 000

Investments 625 000 600 000

Current assets 2 427 000 2 090 000

Inventories 1 652 000 1 250 000

Trade and other receivables 365 000 820 000

SARS: Income tax 0 15 000


Shareholders' equity 12 112 000 7 191 000

Non-current liabilities (Loan) 1 850 000 2 600 000

Current liabilities 1 244 000 930 000

Trade and other payables 420 000 515 000



Bank overdraft 0 135 000


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C. CASH FLOW STATEMENT: 2018 2017

Cash flows from operating activities R1 850 000 R1 046 000

Cash generated from operations 3 322 000 1 989 000

Interest paid ? (260 000)

Dividends paid (520 000) (254 000)

Income tax paid ? (429 000)

Cash flows from investing activities (4 560 000) (167 000)

Purchases of land and buildings (4 840 000) 0

Sale of fixed assets ? 383 000

Change in investments ? (550 000)

Cash flows from financing activities 3 250 000 (400 000)

Share capital issued 4 000 000 0

Shares repurchased 0 (1 000 000)

Change in non-current liabilities (750 000) 600 000

Cash and cash equivalents: Net change 540 000 479 000

Opening balance (130 000) (609 000)

Closing balance 410 000 (130 000)

D. FINANCIAL INDICATORS: 2018 2017

Mark-up % achieved 58% 72%

Operating expenses on sales ? 19,4%

Debt-equity ratio 0,2 : 1 0,4 : 1

Acid-test ratio ? 0,9 : 1

Return on shareholders' equity ? 14,4%

Return on capital employed 20,8% 17,8%

Earnings per share 208 cents 130 cents

Dividends per share ? 70 cents

Dividend pay-out rate 50% 54%

Net asset value per share 1 211 cents 899 cents

Market price on stock exchange 2 800 cents 2 100 cents

Interest on loans 12% 12%

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(Q4, June 2019)

Activity 11 AUDIT REPORT AND COMPANY FINANCIAL STATEMENTS (80 marks; 65 minutes)

11.1 Choose a term in COLUMN B that matches an explanation in COLUMN A. Write only the letters (A–E) next to the question numbers (11.1.1 to 11.1.4) in the ANSWER BOOK.

COLUMN A COLUMN B

11.1.1 Reflects the financial position of the business on a specific date

A Audit report

11.1.2 Shows whether the business made a profit or loss

B Cash Flow Statement

11.1.3 Provides details about the movement of money with regard to operating, investing and financing activities

C Statement of Financial Position (Balance Sheet)

11.1.4 Provides an unbiased opinion on the reliability of the financial statements of a business

D Statement of Comprehensive Income (Income Statement)

E Director’ Report

(4 x 1) (4)

11.2 AUDIT REPORT

Extract from the audit opinion of Everest Ltd for the financial year ended 30 April 2018:

Audit opinion

In our opinion, the financial statements fairly present, in all material respects, the financial position of the company at 30 April 2018 and the results of their operations and cash flow for the year ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act, 2008 (Act 71 of 2008).

Kego and Murray Associates Chartered Accountants (SA)

31 July 2018

REQUIRED:

11.2.1 Choose the correct word from those given in brackets. Give ONE reason.

Everest Ltd received a/an (qualified/unqualified/disclaimer of opinion) audit report. (3)

11.2.2 Give ONE reason why the Companies Act requires public companies to be audited by an independent auditor. (2)

11.2.3 Newspaper reports have indicated that Kego and Murray Associates have been found guilty of misconduct in terms of audit work done at several large firms. Explain how this may influence shareholders of Everest Ltd. State TWO points. (4)

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11.3 MVVS LTD

The information relates to the financial year ended 31 March 2019.

REQUIRED:

11.3.1 Complete the Statement of Comprehensive Income (Income Statement) for the year ended 31 March 2019. (53)

11.3.2 Complete the following notes to the Statement of Financial Position (Balance Sheet):

Fixed/Tangible Asset Note (8)

Ordinary share capital (6)

INFORMATION:

Figures extracted from the Pre-Adjustment Trial Balances on 31 March:

2019 2018

R R


Mortgage loan: Sapphire Bank 1 430 200 1 658 000

Land and buildings 12 500 000 12 500 000

Vehicles 1 377 000 750 000

Equipment ? 398 000

Accumulated depreciation on vehicles ? 475 000

Accumulated depreciation on equipment ? 117 500

Provision for bad debts ? 30 100



Sales 10 563 280


Rent income 99 500

Directors' fees 1 262 100

Water and electricity 218 000

Telephone 75 600

Audit fees 104 000


Salaries and wages 1 280 000

Employer's contributions (medical, pension and UIF) 316 000

Bad debts 22 300

Consumable stores 53 200

Interest income ?

Insurance 79 500

Depreciation (on equipment sold) 1 750

Interest on loan ?

Bad debts recovered 6 000

Ordinary share dividends (interim) 375 000


A. A credit invoice for R36 720 (after deducting a 10% trade discount) issued on 31 March 2019, was not recorded. Goods are marked up at 70% on cost.

B. The physical stock count on 31 March 2019 revealed the following on hand:

Trading stock, R334 500

Consumable stores, R3 400


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C. Debtor S Magnum was declared insolvent. His estate paid R2 000, which was 20% of

his debt. The difference must be written off as a bad debt.

D. R1 800 was received from a debtor, J Misting, whose debt had previously been written off. The bookkeeper incorrectly credited the amount to the Debtors' Control Account. Correct the error.

E. Adjust the provision for bad debts to R28 500.

F. Insurance includes an annual premium of R51 000 paid for the period 1 January 2019 to 31 December 2019.

G. An employee was left out of the Salaries Journal for March 2019. The following details are applicable:

Net salary of the employee, R9 100

The deductions by the employer totalled 30% of the gross salary

Employer's contributions were R2 200

H. Interest on loan is capitalised. A fixed monthly repayment (including interest) of R25 400 was paid for the financial year.

I. Fixed assets and depreciation:

(i) Vehicles:

Details for the three vehicles are as follows:

Cost price Accumulated depreciation

31 March 2018 Date purchased

1 R350 000 R315 000 1 October 2013

2 R400 000 R160 000 1 April 2016

3 R627 000 30 November 2018

Vehicles are depreciated at 20% p.a. on cost.

(ii) Equipment:

Equipment was sold for R9 600 cash on 31 August 2018. Only the following entries in respect of this sale were processed:

Cost price 28 000

Accumulated depreciation at the date of disposal 21 500

Depreciation for the current financial year 1 750

Depreciation on the remaining equipment is calculated at R92 500 after taking all of the above into account.

J. Interest income is the missing figure in the Income Statement.

K. Income tax is calculated at 28% of the net profit. The net profit before tax was R691 000.

L. Shares and dividends:

The company has an authorised share capital of 8 000 000 shares.

The company had 1 200 000 shares in issue on 1 April 2018.

150 000 shares were repurchased on 30 November 2018. EFT payments totalling R825 000 were made for these shares.

850 000 additional shares were issued on 30 September 2018.

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(Q5, May/Jun 2019)

Activity 12: CASH FLOW AND INTERPRETATION (75 marks; 60 minutes) 12.1 Choose a term from the list below that answers the specific following questions. Write only

the term next to the question numbers (12.1.1 to 12.1.4) in the ANSWER BOOK.

gearing; return on equity; solvency; liquidity; profitability

12.1.1 Is the business able to pay off all its debts?

12.1.2 Can the business pay off short-term debts in the next financial year?

12.1.3 Will shareholders be satisfied with the benefit that they receive for investing in the company?

12.1.4 To what extent is the company financed by loans or borrowed capital? (4)

12.2 KULFI LTD

Information for the financial year ended 28 February 2019 is provided. Where financial indicators are required to support your answer, quote the financial indicator and actual figure/ratio/percentage and trends.

REQUIRED: 12.2.1 Prepare the Retained Income Note to the Statement of Financial Position

(Balance Sheet). (12) 12.2.2 Calculate the following amounts for the Cash Flow Statement. Show workings.

Income tax paid (4) Dividends paid (4) 12.2.3 Complete the following sections of the Cash Flow Statement:

Cash effects of investing activities (9) Net change in cash and cash equivalents (4) 12.2.4 Calculate the following financial indicators on 28 February 2019:

Acid-test ratio (4) Debt-equity ratio (4) % return on average shareholders' equity (ROSHE) (5) 12.2.5 The shareholders are satisfied with the improvement in the liquidity position.

Quote THREE financial indicators (with figures) to support this statement. (6) 12.2.6 The company increased the share capital by R840 000, and the loan by

R550 000. Explain how this affected the gearing and risk of the company. Quote TWO

financial indicators. (5)

Explain what the directors have done with this cash inflow. State TWO points. (4)


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12.2.7 The directors decided to decrease the dividend pay-out percentage.

Provide calculations to show the change in the pay-out rate. (4) Give ONE reason why many shareholders were satisfied with the change in

policy. Quote figures. (2) 12.2.8 On 1 March 2018 Martha owned 475 000 shares in the company. She did not

purchase any shares from the shares issued on 1 May 2018. Explain how the repurchase of the shares benefited Martha's shareholding.

Quote figures. (4) INFORMATION: A. Share capital:

There were 900 000 ordinary shares in issue on 1 March 2018.

An additional 100 000 ordinary shares were issued on 1 May 2018.

On 1 October 2018 the company repurchased 60 000 shares at R9,00 per share. The average share price at the time was R8,04.

B. Dividends:

Interim dividends of 25 cents per share were paid on 15 September 2018.

Final dividends were declared on 28 February 2019.

C. Extract from Income Statement for the year ended 28 February 2019:

R

Depreciation 123 600 Interest expense 143 000

Income tax (at 30% of the net profit) 293 100


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D. Extract from Statement of Financial Position (Balance Sheet)

on 28 February 2019:

2019 2018

R R

Fixed assets (carrying value)* 8 775 720 8 430 720

Fixed deposit: Flay Bank 150 000 100 000

Current assets 996 480 684 300

Inventories 448 000 281 000

Trade and other receivables (Note 1) 288 300 378 300


Shareholders' equity ? 7 341 500


Retained income ? 141 500

Loan: Home Bank 1 400 000 850 000

Current liabilities 553 600 923 520

Trade and other payables (Note 2) 553 600 781 000

Bank overdraft 0 142 520

* Old equipment was sold at carrying value, R111 800, for cash.

Note 1: Trade and other receivables: 2019 2018

Debtors' control 288 300 367 000


Note 2: Trade and other payables: 2019 2018

Creditors' control 325 000 421 000



E. The following financial indicators were calculated on 28 February:

2019 2018

Current ratio 1,8 : 1 0,7 : 1

Acid-test ratio ? 0,4 : 1

Debtors' collection period 28 days 39 days

Creditors' payment period 60 days 60 days

Debt-equity ratio ? 0,1 : 1

Return on shareholders' equity (ROSHE) ? 10.2%

Return on total capital employed (ROTCE) 12,9% 14,4%

Earnings per share (EPS) 71 cents 83 cents

Dividends per share (DPS) 47 cents 80 cents

Net asset value per share (NAV) 837 cents 816 cents

Market value per share 840 cents 807 cents

Interest rate on loans 13,5% 13,5%

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