ACCOUNTING
GRADE 12
NATIONAL SENIOR CERTIFICATE
MEMORANDUM
JUNE 2018

MARKING PRINCIPLES

1. Penalties for foreign items are applied only if the candidate has not lost marks elsewhere in the question for that item (no foreign item penalty for misplaced item). No double penalty applied.
2. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate has earned marks on the figures for that item.
3. Full marks for correct answer. If the answer is incorrect, mark the workings provided.
4. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that figure (not the method mark for the answer).
5. Unless otherwise indicated, the positive or negative effect of any figure must be considered to award the mark. If no + or – sign or bracket is provided, assume that the figure is positive.
6. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates.
7. This memorandum is not for public distribution, as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions
8. Where penalties are applied, the marks for that section of the question cannot be a final negative.
9. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer before awarding the mark.
10. ‘Operation’ means ‘Check operation’. ‘One part correct’ means ‘Operation and one part correct’.
    Note: Check operation means must be +, –, x or ÷ as per memo, but some items can be + or – such as provision for bad debts adjustment / sale of asset.
    Note: Where appropriate, use of numerator and denominator must be correctly applied to earn marks.
11. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect at least in part. In such cases, do not award the method mark. Indicate by way of 
12. Be aware that some candidates provide valid alternatives beyond the memorandum.
13. Codes: f = foreign item; p = placement/presentation.

QUESTION 1: INVENTORY VALUATION
1.1 CONCEPTS
1.1.1 First in first out (FIFO) ✓
1.1.2 Periodic inventory system ✓
1.1.3 Specific identification ✓
1.1.4 Perpetual inventory system ✓(4)
1.2.1 Calculate the following for schoolbags on 30 April 2018:

• The value of the closing stock
  120 – 12
  108 ✓✓* x 150 = 16 200 ✓*
  125 – 108
  17 ✓✓* x 145 ✓= 2 465 ✓* Total: 18 665 ✓* *one part correct(8)
• Cost of sales:
  (12 x 150)
  15 340 + 52 310 – 1 800 – 18 665 = 47 185
  ✓✓✓✓✓ above✓ one part correct(6)

1.2.2 Calculate the following for stationery cases on 30 April 2018:

• The number of units missing
  Units sold: 15 550/50 = 311
  92 ✓ + 395 ✓ – 48 ✓ – 111✓ – 311 ✓✓ = 17 units ✓ One part correct(7)
• The value of the closing stock
  48 x 35 two marks or nothing
  2 760 ✓ + 14 135 ✓ + 1 467 ✓ – 1 680 ✓✓ x 111 ✓ = 4 218 ✓ One part correct
                     439 ✓✓ One part correct
  92 + 395 – 48(9)

1.2.3 Suggest TWO internal control measures that the business can use to reduce the incidence of missing stock.
TWO valid suggestions✓✓✓✓

• Tighten physical security
• Have regular/random stock control
• Install security tags on products / scanning devices

For one mark:
Cameras/CCTV/Division of duties(4)
1.2.4 Refer to information C:
The business decided to sell computer bags from 1 February 2018.

1. Calculate the value of the closing stock using the specific identification method.
       30 – 16         20 – 12      10 – 2
   (14 x R450) + (8 x 540) + (8 x 600)
   R6 300 R4 320 R4 800 = R15 420
   ✓✓✓✓✓✓✓  one part correct(7)
2. Was the idea of introducing the computer bags successful or not? Explain. Quote figures.
   Yes / No ✓
   Explanation ✓✓ figures ✓✓
   
   • Sales volume is low, may need more advertising; R25 500 (30 x 850).
   • Only 30 units sold of a possible 60 (50%)
   • Closing stock units is high; 30 of 60 (50%)
   • R15 420 tied up in stock see (i) above.(5)

[50]

QUESTION 2: RECONCILIATIONS
2.1 TRUE or FALSE
2.1.1 False ✓
2.1.2 False ✓
2.1.3 True ✓
2.1.4 True ✓(4)
2.2 CREDITORS’ RECONCILIATION

*For both totals; inspect; need not be the same.
One mark for the amount and one mark for the increase or decrease
-1 for foreign entry on each line, provided a mark has been earned. (12)
2.3 AGE ANALYSIS

Accept either names or amounts as evidence
(9)
[25]

QUESTION 3: FIXED ASSETS AND INCOME STATEMENT
3.1 CONCEPTS
3.1.1 Income statement (Statement of Comprehensive Income) ✓
3.1.2 Cash Flow Statement ✓
3.1.3 Independent / External Auditors’ Report ✓
3.1.4 Balance Sheet (Statement of Financial Position) ✓ (4)
3.2 FOUCHE LTD
3.2.1

(12)
3.2.1 GENERAL LEDGER OF FOUCHE LTD ASSET DISPOSAL ACCOUNT

(9)
3.2.2 INCOME STATEMENT FOR THE YEAR ENDED 30 APRIL 2018

(45)
[70]

QUESTION 4: BALANCE SHEET AND AUDIT REPORT
4.1.1 ORDINARY SHARE CAPITAL

(11)
*one part correct
4.1.2 RETAINED INCOME

(14)
4.1.3 TRADE AND OTHER PAYABLES

(9)
4.2 BALANCE SHEET AS AT 28 FEBRUARY 2018

(25)
4.3  AUDIT REPORT
4.3.1 Briefly explain the role of an independent auditor.
ONE valid explanation ✓✓

• Express an unbiased opinion on the financial statements of a company.
• Examine the books of a company in terms of auditing standards and express an opinion on the fair presentation of information.
• Protect the interest of shareholders by objectively examining the accounting records and presenting their findings in an audit report.(2)

4.3.2 What type of audit did the company receive? Explain.
Qualified ✓
Reason ✓✓ must mention the exception.

• The marketing expenses could not be verified.
• Did not mention “fairly represent” in all respects.
• They were satisfied, except for the marketing expense which had no documentation as evidence.(3)

4.3.3 Briefly explain why the independent auditor was not willing to follow the request of the CEO. Give ONE point.
Explanation ✓✓

• He would be going against the standards and ethics of his profession.
• It is unethical, amounts to fraudulent behaviour – aimed to deceive.
• He has a code of conduct to uphold.(2)

Provide TWO possible consequences for the auditor if he agrees to this request.
Any TWO consequences ✓✓✓✓

• He could lose his licence to operate as an auditor.
• He will face disciplinary action, which could result in him being dismissed.
• He will tarnish the reputation of his company (bad public image).
• The audit firm would lose business.(4)

QUESTION 5: CASH FLOW STATEMENT AND INTERPRETATION
5.1 MATCHING
5.1.1 B ✓
5.1.2 D ✓
5.1.3 A ✓
5.1.4 C ✓ (4)
5.2.1 Calculate only the missing figures indicated by (a) to (e) in the Cash Flow Statement on 31 December 2017.

(19)
5.2.2 Calculate the % operating expenses on sales on 31 December 2017.
2 015 720 ✓ x 100
8 764 000 ✓      1
= 23% ✓ one part correct(3)
Calculate the solvency ratio on 31 December 2017.
6 673 000 + 600 000 + 758 000 758 000 + 600 000
8 031 000 ✓✓* : 1 358 000 ✓✓*
= 5,9 : 1 ✓* *one part correct (5)
Calculate the debt/equity ratio on 31 December 2017.
600 000 ✓ : 6 673 000 ✓
= 0,1 : 1 ✓ one part correct(3)
5.2.3 Comment on the operating efficiency of the company for the year ended 31 December 2017. Quote TWO financial indicators (with figures) to support your comments.
TWO relevant financial indicators ✓✓ figures ✓✓
Comment ✓✓
See 5.2.2

• Operating expenses on sales increased from 18% to 23% indicating less control over expenses or wastage.
• Operating profit on sales decreased from 14% to 11,3% indicating a decline in the profitability of the business.
• Net profit after tax on sales decreased from 26,8% to 21,3% indicating lower overall profitability.(6)

5.2.4 Should the shareholders be happy with their returns and dividends for the year ended 31 December 2017? Explain. Quote THREE financial indicators (with figures) to support your comments.
Yes / No ✓
Name THREE relevant financial indicators ✓✓✓ figures with trend ✓✓✓
Explanation ✓✓

• EPS decreased from 85 to 78 cents per share.
• DPS decreased from 60 to 53 cents per share.
• ROSHE decreased from 37% to 35,5%.

Explanation for No:
These indicators represent a decline and shareholders would not be happy. They would be concerned that the dividends and earnings decreased this year.
Explanation for Yes:
Although these indicators represent a decline, the ROSHE still exceeds the return on alternative investments and the EPS and DPS are both reasonable.(9)
5.2.5 The CEO feels that it would be a good idea to increase the loans next year. Quote TWO financial indicators (actual ratios or percentages) to support his opinion.
Financial indicators ✓✓ figures ✓✓ Valid explanation ✓✓

• The interest rate is 13% p.a. and the return on capital employed was 44,2% in 2016, thus the returns are geared upwards (47%).
• Debt-equity ratio improved from 0,2 to 0,1 : 1. This is very favourable for banks to approve additional loans. Low gearing / low risk.(6)

[55}

QUESTION 6: VAT AND PROBLEM-SOLVING
6.1
6.1.1 Input VAT ✓
6.1.2 More than R1 000 000 ✓
6.1.3 Every two months ✓
6.1.4 SARS✓(4)
6.2 PLEASURE PATIOS
6.2.1 Calculate the amount payable to/receivable from the tax office for VAT on 30 April 2018. Indicate receivable/payable.
8 300 + 48 030 – 44 175 + 21 360 – 24 360 – 945 – 390 + 270
✓✓✓✓✓✓✓✓✓✓✓
= 8 090 ✓ payable ✓
one part correct
Or:
Output: 48 030 + 21 360 + 270 = 69 660
Input: 44 175 + 24 360 + 945 + 390 = 69 870
8 300 + 69 660 – 69 870 = 8 090
Accept all the alternative presentations, including ledger account, signs reversed etc.
Mark to give the maximum benefit to candidates.(13)
6.2.2 Provide TWO benefits of doing taxes through e-filing.
Any TWO points ✓✓

• Time saving – done at your convenience.
• Done in the comfort of one’s own business or home / safe and secure.
• No opening and closing times to stress about.
• No queues – time and money wasted.
• On-line help available / call centres.(2)

Give ONE point of advice to Phillip.
Any ONE advice ✓

• Protect password / PIN.
• Double check information before sending or making payments.
• Update computer software regularly to be up to date or current.
• Only deal with reputable clients.(1)

6.3 PROBLEM-SOLVING
6.3.1 Identify ONE problem in Shop 1 and ONE problem in Shop 2. Quote figures. In EACH case, give ONE point of advice.

(6)
6.3.2 Explain TWO good decisions that Veli has made in respect of Shop 3. Quote figures.
Decision ✓✓ figures ✓✓

• Open 7 days a week – resulted in more sales (760 000).
• Advertising amounts to 7% of sales (R53 200) – and therefore better sales.
• High rent of R95 000 – suggests that this shop is at an up-market place which would attract a different class of clients.(4)

TOTAL: 300