november 2015 accounting: paper i examination … › ... · cash flow from financing activities...

IEB Copyright © 2015 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE EXAMINATION NOVEMBER 2015

ACCOUNTING: PAPER I

EXAMINATION NUMBER

Time: 2 hours 200 marks PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY 1. This question paper consists of 11 pages and an Information Booklet of 9 pages (i – ix) with

a Ratio Sheet on page i. Please check that your question paper is complete. 2. Read the questions carefully. 3. Answer the questions in the space provided. 4. It is in your own interest to write legibly and present your work neatly. 5. You may not use red or green ink. You may use a pencil, but please use a soft, dark

pencil. 6. All calculations should be rounded off to two decimal places. 7. It is essential that all working details be shown in order to earn part marks. 8. The allocation of marks and appropriate time to be taken for each question are as follows:

Possible marks

Actual marks

Marker signature

Moderator signature

Question 1: Manufacturing and VAT (22 minutes) 37

Question 2: Financial Statement (35 minutes) 60

Question 3: Cash Flow Statement (24 minutes) 38

Question 4: Budget (39 minutes) 65

TOTAL 200 Checker

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I of 11

IEB Copyright © 2015

QUESTION 1 MANUFACTURING AND VAT (37 marks; 22 minutes) Refer to the information relating to Glowcor. 1.1 Refer to Information A in order to calculate the amount of VAT either payable to

or by SARS on 31 October 2015. Clearly state whether this amount is payable to or by SARS.

(10) 1.2 Using Information B complete the production cost statement for the year ending

31 October 2015. Glowcor

Production cost statement for the year ending 31 October 2015

Direct costs/Prime costs

Factory overheads cost

Total manufacturing costs

Work-in-progress

Work-in-progress

Cost of production of finished goods 6 600 000

(10) 1.3 Using Information C complete the trading statement of Glowcor for the year

ending 31 October 2015. Glowcor

Trading statement for the year ending 31 October 2015

(3)



1.4 Calculate the closing balance as it would have appeared in the finished goods stock account on 31 October 2015.

Closing balance on 31 October 2015

(4) 1.5 Luca is convinced that due to the extended load shedding forecast and the high

demand for his recyclable lamps he can be more profitable next financial year. Assuming that there are no changes to the costs and selling price per lamp, calculate how many more lamps need to be produced and sold in order to improve the business's gross profit by R1 440 000.

(3) 1.6 The main manufacturing machine has broken down and can only be fixed in

10 days' time as a specially trained installation technician will only be available then. With reference to the stock holding period explain why this could be a problem for Glowcor.

Calculation:

(3) Explanation:

(2)

1.7 Give a reason why you think Glowcor emphasises the recyclable nature of their

camping lamps in their advertising strategy.

(2)

37



QUESTION 2 COMPANY FINANCIAL STATEMENT (60 marks; 35 minutes) Refer to the information relating to Akhari Limited. 2.1 Complete the following notes to the financial statements. Some figures have been

filled in for you and these are correct. All working detail must be shown so part marks can be awarded.

Akhari Limited

Notes to the financial statements for the year ended 31 October 2015

Note 7: Issue share capital

1 350 000 Ordinary shares at per share

Ordinary shares at per share



(14) Note 8: Retained income

Opening balance

Net Income after taxation

Dividends on ordinary shares

Paid

Recommended

Closing balance

(18) Note 9: Trade and other payables

Trade creditors

(4)



2.2 Complete the assets section of the Statement of financial position as at 31 October 2015.

Akhari Limited Statement of financial position (Balance sheet) as at 31 October 2015

ASSETS 2015

Non-current assets

Fixed/Tangible assets 5 500 500

Financial assets:

Fixed deposit: Nedrand Bank (202 500

Fixed deposit: ABBA Bank (90 000

Current assets

Inventory

Trade and other receivables (450 000

Cash and cash equivalents (335 000

TOTAL ASSETS

(21)

2.3 Explain why you think Akhari Limited's decision, which resulted in adjustment 9, was a good business decision.

(1)

2.4 Akhari Limited sold 20% of their debtors to IRBS Financial Services (adjustment 11). Explain 2 reasons why they might have decided to do this.

• •

(2)

60



QUESTION 3 CASH FLOW STATEMENT (38 marks; 24 minutes) Refer to the information relating to Ingwenya Limited. 3.1 Complete the Tangible asset note. Note 3: Tangible/Fixed assets

Plant and Property

Vehicles Equipment

Carrying/Book value at the beginning of the year

3 452 000 448 000 83 200

Cost 3 452 000 850 000 340 000

Accumulated depreciation – (402 000) (256 800)

Movements

Additions at cost ? ?

Disposals at carrying/book value ?

Depreciation ? (6 600)

Carrying/Book value at the end of the year

4 522 800 184 600 ?

Cost 4 522 800 ? ?

Accumulated depreciation ? (263 400)

(9)



3.2 Complete the cash flow statement of Ingwenya Limited for the year ending 31 October 2015. Some information has been entered for you.

Ingwenya Limited Cash flow statement for the year ending 31 October 2015

R

Cash flow from operating activities

Cash generated from operations 1 295 760

Cash flow from investing activities

Tangible assets purchased

Proceeds from the sale of tangible assets

Cash flow from financing activities

Repurchase of shares

Proceeds of new loans

Repayment of loans

Net change in cash and cash equivalents for the year

Cash and cash equivalents – 1 November 2014 (91 000)

Cash and cash equivalents – 31 October 2015 (25)

3.3 The following statement was taken from the minutes of the Annual General Meeting; 'We, the shareholders, would like to express our grave concern over the directors' decision to repurchase 80 000 shares during this financial year'. Provide a reason supported by information from the cash flow statement as to why the shareholders feel this way.

(2)

3.4 After an investigation it has come to light that Jason Steiner, the shareholder from whom the company repurchased the shares, is a close friend of the financial director, and they play squash together on a regular basis. Explain briefly why you as a shareholder may find this a problem.

(2)

38



QUESTION 4 CASH BUDGET AND FORECAST INCOME STATEMENT (65 marks; 39 minutes) Refer to the information relating to Frozo Yogi's. 4.1 Complete the creditor 's payment schedule for the budgeted period September and

October 2015. Some of the information has been entered for you and it is correct.

Credit purchases September 2015 October 2015

R R

July R58 350 ?

August R R25 080 ?

September R67 500 ?

(4) 4.2 Complete the Cash budget for the two months ending 31 October 2015.

Budgeted

September Budgeted October

Actual September

R R R

CASH RECEIPTS ? 391 570 353 575

Cash sales ? 87 750 81 000

Cash receipts from debtors 262 575 297 000 262 575

Rent income ? ?

Insurance payout ?

CASH PAYMENTS ? ? ?

Cash purchases of trading stock 157 500 ? ?

Payment to creditors ? ? 65 250

Wages 24 000 25 200 24 000

Bonuses 15 000 15 750 4 000

Drawing by owner 15 000 16 125 15 000

Sundry expenses including electricity 25 000 27 200 28 000

Fuel costs for running the generator – 1 200 3 600

Loan repayments plus interest ? ? 1 900

? ? ?

? ? 1 000

Cash surplus/deficit ? ?

Opening bank balance 35 000 ?

Closing bank balance ? 161 970

(22)



4.3 Complete the Forecast income statement of Frozo Yogi's for the two months ending 31 October 2015.

Forecast September

Forecast October

Actual September

R R R

Sales 405 000 351 000 324 000

Cost of sales (225 000) (195 000) (180 000)

Gross profit 180 000 156 000 144 000

Add other income ? 8 170 7 520

Rent income ? ? 6 200

Discount received ? ? 1 320

Other operating expenses ? (89 440) (90 800)

Wages 24 000 25 200 24 000

Bonuses 15 000 15 750 4 000

Sundry expenses including electricity 25 000 27 200 28 000

Fuel costs for running the generator 1 000 1 200 3 600

Bad debts – ? –

Loss due to load shedding 5 000 – ?

? ? ?

? ? ?

? ? ?

Operating profit ? 74 730 60 720

Less: Interest expense ? ? (1 900)

Net profit ? ? 58 820

(20) 4.4 Answer the following questions. 4.4.1 What are the credit terms given to debtors? (In how many days are they

expected to settle their accounts?)

(2)



4.4.2 What percentage increase is expected to be given to employees in the financial year starting 1 October 2015?

(3) 4.4.3 Do you think the increase (calculated in Question 4.4.2) is acceptable?

Explain by quoting relevant ratios or amounts.

(4) 4.4.4 The employees are unhappy with the remuneration they earned in

September 2015 and have asked for their wage and bonus agreement to be changed.

In what way were the employees affected by the power outages, and why

were they affected?

(3) 4.4.5 What two changes do you think Joan could make to the employees' wages

that they would find acceptable?

•

•

(4)



4.4.6 Briefly explain three other areas in which the business, Frozo Yogi's, has been affected by the electricity shortage in South Africa. (Only write one sentence per area.)

•

•

•

(3)

65

Total: 200 marks



ACCOUNTING : PAPER I

Time: 2 hours 200 marks

INFORMATION BOOKLET

Gross Profit 100

Sales 1×

Gross Profit 100

Cost of sales 1×

Net Profit 100

Sales 1×

Operating expenses 100

Sales 1×

Operating profit 100

Sales 1×


Cost of sales 1×

Net profit after tax 100

Average shareholders' equity 1×

Net profit before tax + interest expense 100

Average capital employed 1×

Current assets : Current liabilities (Current assets inventories) : Current liabilities−

Average debtors 365 or 12

Credit sales 1×

Average creditors 365 or 12

Credit purchases 1×

Cost of sales

Average inventories

Average inventories 365 or 12

Cost of sales 1×

Closing inventories 365 or 12

Cost of sales 1× Current assets Current liabilities−

Non-current liabilities : Shareholders' equity Total assets : Total liabilities

Profit after tax

No. shares in issue

Ordinary share dividends

No. shares in issue

Fixed cost

(selling price per unit variable cost per unit)− Total ordinary shareholders' equity

No. shares in issue

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page ii of ix


QUESTION 1 MANUFACTURING AND VAT (37 marks; 22 minutes) Information relating to Glowcor Glowcor manufactures and sells one type of camping lamp. The following information relates specifically to the business: • Glowcor, owned by Luca Booysens, began their operations 2 years ago when electricity

shortages became a problem for households in South Africa. • They also provide a repair service for lamps for which they charge a fee. • The lamps are battery operated and use energy-saving bulbs. The lamps are fully recyclable. • Glowcor is a registered VAT vendor and is liable for VAT at 14% on the invoice basis. • The business uses the FIFO method of stock valuation. Information: A VAT information:

1. The VAT control account reflected that SARS owed Glowcor R4 050 on 1 October 2015.

2. Total purchases for the month of October amounted to R725 000 VAT exclusive.

Included in this total is an amount of R1 450 being the purchase of a zero-rated item. 3. VAT on lamps donated to a local charity during October amounted to R1 120. 4. Sales and fee income for October was calculated to be R999 780 VAT inclusive. 5. Glowcor disposed of an old piece of manufacturing equipment on 1 October 2015,

and the VAT on this transaction was calculated to be R560. 6. R220 000 was paid to creditors in October in settlement of their accounts of R235 390. 7. VAT on bad debts, R2 352.

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page iii of ix


B Manufacturing information:

1. The following balances amongst others were found in the accounting records as at 31 October:

2015 2014

R R

Work-in-progress stock 420 000 270 000

Finished goods stock ? 44 600

2. The following information relates to the manufacturing of lamps:

2015

Direct materials cost per unit R115

Direct labour costs per unit ?

Factory overhead costs 13% of the total

manufacturing costs

Number of completed units manufactured 30 000

C Sales information: 1. The following information relates to the sale of lamps:

2015

Selling price per unit R360

Number of units sold 30 100

Number of completed units unsold as at 31 October 650

Gross profit as a percentage of sales 40%

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page iv of ix


QUESTION 2 COMPANY FINANCIAL STATEMENT (60 marks; 35 minutes) Informa tion relating to Akhari Limited A The following information was extracted from the accounting records before the

adjustments below were taken into account:

31 October 2015 1 November 2014

R R

Fixed deposit: Nedrand Bank 202 500

Fixed deposit: ABBA Bank 90 000

Trading stock ?

Debtors Control 450 000

Bank 335 000

Petty cash 10 000

Ordinary share capital ? 5 265 000

Retained income ?

Mortgage Bond: Securico Bonds 485 000

SARS – Income Tax 353 000 dr

Shareholders for dividends 310 500

B Adjustments and additional information to be taken into account:

1. On 1 November 2014 Akhari Limited had 1 350 000 issued ordinary shares. On the same day they decided to issue a further 150 000 new shares at R4,50 per share. This was all recorded.

2. The Net Asset Value (NAV) calculated on 31 October 2014 was 420 cents. 3. On 31 October 2015 the directors decided to repurchase 50 000 ordinary shares from

a shareholder who needed cash urgently. After much negotiation a repurchase price of R4,30 was accepted. No entries have been made to record this repurchase.

4. The dividends for the year (DPS) on 31 October 2015 was 57 cents. Due to the

repurchase of shares happening at the end of the year, all the shares, including those repurchased, qualified for both the interim and final dividend.

5. The dividends paid amount in the cash flow statement on 31 October 2015 was

R760 500.

6. Income tax for the year of R348 000 has not yet been recorded in the books. This represents 30% of the net profit after all adjustments and additional information had been taken into consideration.

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page v of ix


7. The VAT control account reflected a credit balance of R8 450 on 31 October 2015, after all adjustments were made.

8. On 31 October 2015 Akhari Limited had two fixed deposits: • The one fixed deposit of R202 500 was invested in Nedrand Bank and will mature

on 1 June 2018. • R50 000 of the other fixed deposit, invested in ABBA Bank, will mature on 30 November 2015.

9. A decision was made on 20 October 2015 to invest R7 000 from petty cash into the

fixed deposit at Nedrand Bank. No entries have been made to record this.

10. Akhari Limited has two product lines. They specialise in the distribution of exercise bicycles and treadmills. Trading stock comprises both exercise bicycles and treadmills. On 31 October 2015 a physical stock count revealed that: • The stock of exercise bicycles on hand amounted to R220 000. • 90 treadmills were on hand. Treadmills are valued using the FIFO method. The

following information relates to the stock of treadmills:

Units

Cost per treadmill Total costs

Opening stock (1 November 2014) 40 R5 450 R218 000 Purchases during the year: 232 R1 258 000 January 2015 160 R5 500 R880 000 July 2015 72 R5 250 R378 000 Closing stock 90 ? ?

11. Akhari Limited has negotiated to sell 20% of their debtors to IRBS Financial

Services at a loss of R5 000. On 25 October 2015 payment was received from them, but no entries have been made.

12. Use your knowledge of completing a balance sheet/statement of financial position in

order to calculate the creditors control figure as at 31 October 2015.

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page vi of ix


QUESTION 3 CASH FLOW STATEMENT (38 marks; 24 minutes) Information relating to Ingwenya Limited 1. Extract from the statement of comprehensive income (income statement) for the year

ending 31 October 2015:

Profit on sale of vehicle R4 800

Depreciation for the year R158 000

Interest on loan R86 760

Income tax R635 600

Dividends for the year R170 000

2. Extract from the statement of financial position (balance sheet) as at:

31 October 2015 31 October 2014

R R

Tangible assets

Fixed assets 4 900 000 3 983 200

Financial asset: Fixed deposit at First Rand Bank 100 000 100 000

Current assets

SARS – Income tax 3 000 13 600

Non-current liabilities

Mortgage loan: Coronation Financial Services 1 142 000 920 000

Current liabilities

Bank overdraft ? 91 000

Shareholders for dividends 30 000 60 000

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page vii of ix


3. Additional information

1. The company took out an additional loan during the year. Repayments including interest totalled R164 760. Interest on the loan is capitalised.

2. An extension to the office block was undertaken during the year. 3. Equipment was purchased during this year. No equipment was sold. 4. Ingwenya Limited sold a vehicle with a cost price of R280 000 for R116 800 during

the year. They did not buy or sell any other vehicles during the year. 5. Jason Steiner, a shareholder, is very concerned about the liquidity and profitability

situation of the company and has decided to sell his shares. The directors repurchased all 80 000 ordinary shares from him at a price of R4,20 per share. The weighted average price on this date was R3,05. No new shares were issued.

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page viii of ix


QUESTION 4 CASH BUDGET AND FORECAST INCOME STATEMENT (65 marks; 39 minutes) Information relating to Frozo Yogi's Frozo Yogi's is a small business owned and run by Joan Saunders. They specialise in the sale of a range of frozen yoghurts that they distribute to supermarkets around the Durban area. The following information relates specifically to the business: • The business employs 10 workers in total. They each earn the same wage, but they can earn a

bonus if they reach certain sales targets. • Joan Saunders takes responsibility for all the administration and bookkeeping duties. • The business bought a generator on 1 October 2015, in case of electricity power outages. • The financial year ends on 30 September. A The following balances appeared in the accounting records on 31 August 2015:

Income received in advance/Deferred income (Rent income for Sept.) R6 200

Loan: Investek Finance (9,5% per annum) R240 000

B Actual and budgeted information: 1. Actual and projected sales:

Actual 2015 sales:

July 2015 R350 100

August 2015 R396 000

Budgeted 2015 sales:

September 2015 R405 000

October 2015 R351 000

2. The company maintains a fixed base of stock and applies an 80% mark-up on cost at

all times. Note: R30 000 worth of frozen yoghurt melted during load shedding on

30 September 2015 and had to be written off as wastage in September 2015. This was obviously not budgeted for when the budgets for September and October were drawn up. The insurance company will pay out R10 000 in September 2015. New stock to replace this was bought in September 2015.

3. 70% of all purchases of stock are cash purchases.

4. The business's creditor is paid as follows, and these terms are strictly adhered to: • 40% in the month following the transaction month in order to qualify for a 5% discount. • 60% in the second month following the transaction month.

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER I – INFORMATION BOOKLET Page ix of ix


5. Credit sales amount to 75% of total sales. 6. Debtors are not given discounts for early payment nor are they charged interest. The

budget is drawn up on the assumption that debtors keep to their credit terms. 7. Before drawing up the budget for September and October a debtor owing R8 200

from August 2015 has informed Frozo Yogi's that she cannot pay due to unforeseen cash flow problems. It has been decided that her account will be written off as irrecoverable in October 2016. They do not anticipate any other bad debts.

8. Rent income will increase by 10% on 1 October 2015. Rent is received monthly

unless an agreement is made with the tenant. 9. The loan from Investek Finance was taken out on 1 April 2015. Interest on the loan is

calculated at 9,5% p.a. but paid monthly. R24 000 of the loan will be repaid on 1 October 2015 and the interest at the end of October 2015.

10. Depreciation on vehicles and equipment collectively amounts to R5 200 per month.

No assets were bought or sold during the year.

11. Joan Saunders has decided to increase her monthly cash drawings from 1 October 2015.

12. An annual advertising campaign consisting of 12 adverts, one per month, was

launched on 1 August 2015 at a total cost of R60 000. A once-off payment for August, September and October adverts will be made at the end of October 2015.

13. Frozo Yogi's will continue to donate R1 000 cash per month to the Highway SPCA.

In addition, R690 worth of stationery will be donated to them on 15 October 2015 to advertise their annual fundraising drive.


ACCOUNTING: PAPER II

EXAMINATION NUMBER

Time: 2 hours 100 marks PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY 1. This question paper consists of 11 pages and an Information Booklet of 8 pages (i to vii i)

with a Ratio Sheet on page i. Please check that your question paper is complete. 2. Read the questions carefully. 3. Answer the questions in the space provided. 4. It is in your own interest to write legibly and present your work neatly. 5. You may not use red or green ink. You may use a pencil, but please use a soft, dark

pencil. 6. All calculations should be rounded off to two decimals places. 7. The allocation of marks and appropriate time to be taken for each question are as follows: Possible

marks Actual marks

Marker signature

Moderator signature

Question 1: Reconciliation (25 minutes)

20

Question 2: Analysis of Published Financial Statements (60 minutes)

50

Question 3: Asset Management (35 minutes)

30

TOTAL 100

Checker


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 2 of 11 QUESTION 1 RECONCILIATI ON (20 marks, 25 minutes) Refer to the information of Thabo's Café and its creditor, Conti Bread Suppliers, in the Information Booklet. 1.1 Explain why Thabo's Café's Current ratio is unlikely to change as a result of them

buying stock on credit from CBS, while their Acid Test ratio could change. ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ (2)

1.2 Explain the advantage, both in terms of liquidity and profitability, of Thabo's Café's

decision to buy on credit from CBS. ___________________________________________________________________ ___________________________________________________________________ (2)

1.3 Thabo does not understand why reconciliations are important. Explain to him the purpose of reconciliations and name two areas, other than debtors and creditors reconciliations, where a business would find reconciliations helpful.

The purpose of doing reconciliations:

___________________________________________________________________ ___________________________________________________________________ Two other areas where a reconciliation could be done:

• ________________________________________________________________ • ________________________________________________________________ (3)

1.4 Refer to the Debtors' Age Analysis on the Statement received from CBS.

1.4.1 Why does the statement refer to the 'Debtors' Age Analysis' if this is a statement received from Thabo's Café's creditor?

_____________________________________________________________ (1)

1.4.2 CBS has not completed the Debtors' Age Analysis. Complete it for them

based on the statement received, before taking into consideration the additional information.

Debtors' Age Analysis of outstanding debt

90 + days 60 days 30 days Current

(3) IEB Copyright © 2015

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 3 of 11 1.5 Thabo is concerned that the statement received from CBS indicates that he owes

more than what he anticipated. He has asked you to assist him with this problem and reconcile the statement received with his ledger account for August 2015. (Assume that all entries prior to August were done correctly.)

1.5.1 Calculate the corrected balance on the statement received.

(5) 1.5.2 Correct the Creditors' Ledger in the books of Thabo's Café.

Balance as per ledger on 31/08/2015

R1 034,94

(3)

1.5.3 Explain why Thabo's Café should not have been given the R24 discount on 07/08/15.

_____________________________________________________________ (1)

20


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 4 of 11 QUESTION 2 ANALYSIS OF PUBLISHED FINANCIAL STATEMENTS (50 marks, 60 minutes) PART A 2.1 For each of the following statements, circle the most correct answer. You should

circle only one answer.

2.1.1 Eskom is considered to be a __________ company.

A Public B Private C Non-Profit D Closed (1)

2.1.2 The document required to form a company is the:

A Directors' report B Auditors' report C Memorandum of Incorporation D Corporate Governance report (1)

2.1.3 Another name used for the Income Statement is:

A Statement of future income B Statement of comprehensive income C Statement of summarised profits D Statement of operating costs (1)

2.1.4 As per the cash flow statement, investing activities refer to …

A sourcing cash through loans or the sale of shares B purchasing and disposing of tangible assets that generate a return C the inflow and outflow of cash linked to business operations D the movement of cash linked to tax and dividends payments (1)

2.1.5 The opinion expressed by the independent auditors in their report to Eskom is: A Unqualified B Unqualified with exception/Disclaimer C Qualified D Reserved (1)

2.1.6 Who is responsible for the preparation and fair representation of the

financial statements of a company?

A Shareholders B External Auditors C Senior Financial Management D Company Directors (1)


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 5 of 11 2.2 Public Companies need to publish three financial statements. Explain why it is

important to consider all three financial statements when analysing a company's financial reports.

___________________________________________________________________

___________________________________________________________________ ___________________________________________________________________ (3)

2.3 Refer to the Extract from the Independent Auditors Report. Explain the importance

of each of the three sections below to the readers of this report.

2.3.1 'These financial statements present fairly, in all material respects'

_____________________________________________________________ (1)

2.3.2 'In accordance with International Financial Reporting Standards'

_____________________________________________________________ (1)

2.3.3 'And the Companies Act of South Africa'

_____________________________________________________________ (1) 2.4 Considering that the cost of electricity to the consumer increased by 35%, and the

amount of electricity sold in 2015 is 0.6% more than in 2014, comment on why you think the Gross Profit margin decreased in 2015 from 2014.

___________________________________________________________________ ___________________________________________________________________ (2)

2.5 Refer to the extract entitled 'Ensuring Eskom's financial sustainability' and the

Condensed group income statement when answering this question.

2.5.1 The non-technical loss of energy has increased drastically since 2014. Eskom has discovered an illegal connection that supplies an entire township with electricity. Considering that access to electricity is a human right, what do you suggest Eskom do to solve this problem?

_____________________________________________________________

_____________________________________________________________ _____________________________________________________________ (2)


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 6 of 11

2.5.2 Explain, with reference to the debt owed by municipalities, how the illegal connections of electricity impact on Eskom's cash flow and liquidity.

_____________________________________________________________

_____________________________________________________________ _____________________________________________________________ (2)

2.5.3 Referring to the relevant financial indicators, do a calculation and comment

on whether you agree with the liquidity analysis mentioned in the extract titled 'Ensuring Eskom's financial sustainability'.

Calculation:

_____________________________________________________________ _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ (5)

2.6 Repairs and maintenance in 2015 amounted to R17 billion. Calculate what

percentage of total operating expenses this is and explain why it might be so high.

___________________________________________________________________ ___________________________________________________________________ (2)

2.7 It is calculated that executive directors' salaries for 2015 increased by 28.87% since 2014. Comment on this increase, in terms of Eskom's profitability, by calculating or extracting appropriate numbers from the published annual financial statements.

___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ (3)


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 7 of 11 2.8 Explain why 'future fuel supplies' is found under Non-current assets in the

Statement of financial position.

___________________________________________________________________ ___________________________________________________________________ (1)

2.9 It is given that Eskom's cost of borrowing is averaged at 6.7%:

2.9.1 Provide workings to show that Return on Capital employed is 4.31% for the 2015 year-end.

(6) 2.9.2 Comment on Eskom's gearing as at 31 March 2015 in the light of their

solvency, as well as their forecasted risk. (Return on Capital employed for 2014 was 2.21%.) _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ (4)


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 8 of 11 PART B – Problem Solving This section is NOT related in any way to Part A. You have been given R50 000 to purchase shares on the stock exchange and, with the assistance of a stock broker, you have narrowed down your choices to either Falcon Ltd. or Microdot Ltd. This money was given to you on the condition that it will remain in a form of investment until your 30th birthday, so you would like to consider long-term investment options. Based on the information provided you need to select which company you will invest in, and substantiate your answer by calculating or quoting, and discussing five (5) ratios in detail, in the bullet points provided below. • ______________________________________________________________________

______________________________________________________________________ ______________________________________________________________________

• ______________________________________________________________________

______________________________________________________________________ ______________________________________________________________________ • ______________________________________________________________________

______________________________________________________________________ ______________________________________________________________________ • ______________________________________________________________________

______________________________________________________________________ ______________________________________________________________________

• ______________________________________________________________________

______________________________________________________________________ ______________________________________________________________________

Your final decision: ________________________________________________________ (11)

50


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 9 of 11 QUESTION 3 ASSET MANAGEMENT (30 marks, 35 minutes) Refer to the Information Booklet for information relating to Fresh Store. 3.1 Define the perpetual inventory system and explain why Fresh Store might use it. ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ (2) 3.2 Calculate the total number of battery 6-pack units that were lost/stolen during the

first half, and the second half of the month.

Date Duracell units Energizer units Total

From 1 to 15 June

From 16 to 30 June

(5) 3.3 The store manager is unaware of whether the value of the stock lost/stolen

calculated above is acceptable or of concern. He was advised by the asset manager to apply the concept of materiality and leave this information off his report to the finance department:

3.3.1 Explain what the asset manager was referring to when he spoke of

the concept of materiality in this regard.

_____________________________________________________________ _____________________________________________________________ (1)

3.3.2 Comment on whether you agree with this concept being applied in this case.

_____________________________________________________________ _____________________________________________________________ (1)


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 10 of 11 3.4 Look at the diagram of the shop layout in the Information Booklet:

3.4.1 Explain who you think is most likely to have stolen the stock and why.

_____________________________________________________________

_____________________________________________________________ (2) 3.4.2 Referring to your answer in Question 3.4.1, explain in detail three control

measures you would put in place to stop loss of stock through theft. Keep in mind that this is a small business.

1. _______________________________________________________

_______________________________________________________ 2. _______________________________________________________

_______________________________________________________ 3. _______________________________________________________

_______________________________________________________ (3)

3.5 Fifty packs (units) of Energizer 6-pack batteries were donated to Xolweni High School on 16 July. The one store owner decided to write this off as part of his personal drawings for the month. Many of the students had no way to complete their homework or study for tests as a result of power outages and had only battery-powered lamps at their disposal.

3.5.1 Calculate the cost of the 50 packs that were donated, based on the FIFO and

weighted average methods. (It can be assumed that 2 units of Energizer 6-pack batteries were stolen between 1 and 15 June.)

FIFO WEIGHTED AVERAGE

(7)


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II Page 11 of 11

3.5.2 The store owner who donated the Energizer AA batteries has instructed the finance department to change the method of stock valuation for the donations of stock to the Weighted Average method. Comment on how ethical this decision is. _____________________________________________________________ _____________________________________________________________ (1)

3.6 Using the FIFO method:

3.6.1 Calculate the cost of sales of Duracell 6-pack battery units between 1 and 15 June 2015.

(1) 3.6.2 The stock turnover rate of Duracell 6-pack battery units is 0,63

times between 1 and 15 June. Show how this amount was calculated.

(6)

3.7 Comment on whether company policy of buying stock of Duracell AA 6-pack batteries twice a month is sufficient.

___________________________________________________________________ ___________________________________________________________________ (1)

30

Total: 100 marks



ACCOUNTING: PAPER II

Time: 2 hours 100 marks

INFORMATION BOOKLET

Gross Profit 100

Sales 1×

Gross Profit 100

Cost of sales 1×

Net Profit 100

Sales 1×

Operating expenses 100

Sales 1×


Sales 1×


Cost of sales 1×

Net profit after tax 100

Average shareholders' equity 1×

Net profit before tax + interest expense 100

Average capital employed 1×

Current assets : Current liabilities (Current assets inventories) : Current liabilities−

Average debtors 365 or 12

Credit sales 1×

Average creditors 365 or 12

Credit purchases 1×

Cost of sales

Average inventories

Average inventories 365 or 12

Cost of sales 1×

Closing inventories 365 or 12

Cost of sales 1×

Current assets Current liabilities−

Non-current liabilities : Shareholders' equity Total assets : Total liabilities

Profit after tax

No. shares in issue

Ordinary share dividends

No. shares in issue

Fixed cost

(selling price per unit variable cost per unit)− Total ordinary shareholders' equity

No. shares in issue


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page ii of viii QUESTION 1 RECONCILIATION (20 marks, 25 minutes)

Thabo's Café is situated in the south of Johannesburg. Thabo sells basic food items to customers for cash only; however, he does buy stock for cash and on credit. Recently Thabo decided to enter into a credit arrangement with CBS (Conti Bread Suppliers), his bread supplier, on 1 June 2015. Thabo does not employ any other staff. He is solely responsible for managing the business's bank account and all other accounting records. He keeps a basic record of all his financial information. Thabo received his statement of account from CBS for August 2015. On closer inspection he found discrepancies between the statement received from CBS and his internal creditors' records. Statement received from CBS:

Thabo 's Café Mr Thabo Mulefe Side road / Vivienne Street Johannesburg 2091 Date of Statement: 31 August 2015 (011) 601 5442 Account Number: XX 21

Date Details Debit Credit Balance 01/08/15 Balance b/f 865,40

04/08/15 Invoice B55 116,25 981,65

05/08/15 Credit Note 245 31,66 949,99

07/08/15 Receipt 72 – payment Thank You 300,00 649,99

07/08/15 Discount 24,00 625,99

12/08/15 Invoice B82 1 340,67 1 966,66

14/08/15 Invoice B91 256,13 2 222,79

20/08/15 Receipt 99 – payment Thank You 250 1 972,79

26/08/15 Invoice B121 184,56 2 157,35

27/08/15 Credit Note 288 84,22 2 073,13

Debtors ' Age Analysis of outstanding debt

90 + days 60 days 30 days Current

Credit Terms: • All debt to be settled within 30 days after the date of the statement (i.e. the month after purchase). • An 8% settlement discount on payments is given if payments are made within the month of purchase.


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page iii of viii Additional Information: 1. Of the balance of R865,40 owing to CBS by Thabo's Café on 01/08/15, R684 was from

June purchase and the rest from July. 2. Credit note 245 on 05/08/15 was for goods bought on 04/08/15. 3. The balance as per Thabo Café's creditors' ledger is R1 034,94 as at 31/08/15. After careful

comparison of the statement, the Creditors' Control account and CBS's creditors' ledger in the books of Thabo's Cafe, the following problems were found on the statement:

• Invoice B82 in the statement was not for credit purchases made by Thabo's Café. • The discount allowed on 07/08/15 should not have been given. • The actual value of the credit note allowed on 27/08/15 is R94,18.

The following problems were discovered in the books of Thabo's Café: • Invoice B55 was incorrectly recorded in the books as R416,25. • The debit note on 05/08/15 was entered as R43,22. This is not the correct value of the

credit note which was received from CBS. • The cash payment on 20/08/15 and invoice B121 were only entered into the Creditors' Ledger. They were not entered into the appropriate journals.


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page iv of viii QUESTION 2 ANALYSIS OF PUBLISHED FINANCIAL STATEMENTS

(50 marks, 60 minutes) PART A The following information has been adapted from the annual published financial statements for the year ending 31 March 2015 of Eskom Holdings SOC Limited (Eskom). Eskom is South Africa's primary electricity supplier. In terms of the memorandum and articles of association, the authorised share capital is 1 000 shares of R1 each. 1 share is in issue, at R1 and belongs to the Government of the Republic of South Africa, represented by the Department of Public Enterprises (DPE). All unissued share capital is also under the DPE's control. The company generates, transmits and distributes electricity through municipalities to sectors within South Africa as well as to others within the Southern African Development Community region.

Extract from the published financial statements section entitled: Ensuring Eskom 's financial sustainability Eskom has sufficient liquidity to meet its current liability requirements. Eskom remains confident that the remaining funding for the current capacity expansion programme (which includes wind turbines) can be raised, but this must be balanced against the negative outlook from the rating agencies. Accounts receivable are mostly owed by municipalities, who ensure legal access to electricity for all paying people residing within its boundaries.

Extract from the Independent Auditors Report In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Eskom Holdings SOC Limited as at 31 March 2015, in accordance with International Financial Reporting Standards and the Companies Act of South Africa.

Financial Indicators: Targets Actual Actual

2017/2018 2014/2015 2013/2014

Debt Equity 3.70 : 1 2.60 : 1 2.06 : 1

Current Ratio – 0.88 : 1 0.54 : 1

Acid Test Ratio – ? 0.26 : 1

Debtors average collection period (in days) – 132 days 128 days

Solvency Ratio 1.24 : 1 ? 1.34 : 1

Gross Profit on turnover – 49.96% 52.83%

Operating Profit on turnover 10.03% 8.50%


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page v of viii Condensed group income statement for the year ended 31 March 2015 2014 Rm Rm Revenue ? 128 775 Primary energy cost (68 688) (60 120) Energy losses (technical / non-technical)* (1 124) (628) Gross Profit 69 694 68 027 Other Income 962 1 126 Other Operating Expenses (56 658) (58 213) Operating Profit before net finance (cost)/income 13 998 10 940 Net finance (cost)/income (4 772) (3 901) Finance income 2 475 1 985 Finance costs ? (5 886) Net profit before tax 9 226 7 039 Income Tax (2 137) (1 856) Profit for the year 7 089 5 183 *These losses include losses due to illegal connections and meter tampering Condensed group statement of financial position at 31 March 2015 2014 Rm Rm Assets Non-current assets 439 869 378 775 Property, plant and equipment 430 807 370 358 Investments 318 296 Future fuel supplies 8 744 8 121 Current assets 65 124 53 249 Inventories 28 870 27 704 Trade and other receivables 16 578 14 925 Cash and cash equivalents 19 676 10 620 Total assets 504 993 432 024 Equity Capital and reserves attributable to owner 119 784 109 139 Liabilities Non-current liabilities 310 915 224 446 Loans 310 915 224 446 Current liabilities 74 294 98 439 Trade and other payables 54 036 76 259 Loans 20 258 22 180 Total liabilities 385 209 322 885 Total equity and liabilities 504 993 432 024


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page vi of viii PART B Problem Solving This section is NOT related in any way to Part A. Falcon Ltd. and Microdot Ltd. are both telecommunications companies within South Africa who are listed on the Johannesburg Stock Exchange. Both companies supply networks, telephones, mobile phones and Internet-linked computers to households and the business market. Overview of Companies:

Falcon Ltd. Established in 2001. An existing, loyal customer base has ensured that a stable Net Profit margin is achieved annually. The company is in strong financial health. No new shares have been issued in the past 2 years, but due to excess funds, shares have been repurchased in the last financial year.

Microdot Ltd. Established in 2013. Substantial expansion has been under way due to the demand from customers. Funding has been sourced through loans and issuing of shares. In the past year 300 000 shares were issued.

Ratio analysis as at the end of the last two financial periods ending in 2015 and 2014: Falcon Ltd.

Microdot Ltd.

Ratio 30 June '15 30 June '14 Ratio 31 Aug '15 31 Aug '14 EPS 5 620 c 4 882 c EPS 889 c 720 c DPS 2 097 c 1 855 c DPS 192 c 130 c NAV 9 064 c 8 240 c NAV 3 694 c 3 212 c Market Value 9 746 c 9 522 c Market Value 3 546 c 2 987 ROSHE 22.68% 22.43% ROSHE 17.65% 16.11% Solvency 1.12 : 1 1.35 : 1 Solvency 0.56 : 1 0.48 : 1 Turnover R 56.83m R52.33m Turnover R4.61m R3.8m Net Profit Margin 4.65% 4.58% Net Profit Margin 3.67% 2.31%


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page vii of viii QUESTION 3 ASSET MANAGEMENT (30 marks, 35 minutes) Fresh Store is a small retail shop based in the centre of Cape Town. All goods are sold for cash. They have recently become concerned over possible stock losses of Duracell AA 6-pack battery units on one of its shelves that is situated at the back of the store. They have another shelf at the front of the store, by the tellers, that stocks the similar Energizer AA 6-pack battery units. The price of these batteries had recently increased greatly. Images below represent the products mentioned.

Note: • They use the perpetual inventory system for recording their stock and also the FIFO method of

stock valuation. • They maintain a constant stock level of 300 battery pack units on each shelf. • In order to do this, twice during the month (at the end of the 15th and 30th day of the month), they count how many units they have left on each shelf and then they buy units to replace the balance.

Below is information relating to the shelves in question, for the period 1 to 30 June 2015: Shelf at the back of the store

Duracell 6-pack unit Shelf at the front of the store

Energizer 6-pack unit Units R Units R Opening Stock 1 June 2015

300 units at R32 each 9 600 300 units at R32 each 9 600

Purchases - 15 June 228 units at R42 each 9 576 280 units at R42 each 11 760 - 30 June 286 units at R48 each 13 728 270 units at R48 each 12 960 Donations of stock - 16 June – – 50 units at cost ? Closing Stock 30 June 2015

300 units ? 300 units ?


NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – INFORMATION BOOKLET Page viii of viii All the AA 6-pack Duracell and Energizer units are sold at R78,00 each. The following table shows the number of units actually sold as per the cash register tapes.

For the period of: Duracell Energizer

Units Units

1 – 15 June 212 278

16 – 30 June 264 215


november 2015 accounting: paper i examination … › ... · cash flow from financing activities...

Documents