ACCOUNTING
NATIONAL SENIOR CERTIFICATE EXAMINATIONS
GRADE 12
MEMORANDUM
MAY/JUNE2019
MARKING PRINCIPLES:
QUESTION 1
1.1
1.1.1 True ✓
1.1.2 True ✓
1.1.3 False ✓
1.1.4 True ✓
(4)
1.2 Calculate the amount receivable from or payable to SARS for VAT on 30 April 2019.
Mark one line only. Cannot mix signs. Inspect candidates' responses. Award highest mark.
✓✓✓✓✓✓✓✓✓ One part correct
15 890 – 1 470 + 3 075 – 1 305 – 33 600 + 51 750 = 34 340
224 000 x 15%
OR
– 15 890 + 1 470 – 3 075 + 1 305 + 33 600 – 51 750 = – 34 340
Mark one “account”/workings only. Inspect candidates' responses. Award highest mark.
Items marked * may be shown on the opposite side in brackets.
| VAT CONTROL | |
| 33 600 *1 305 *1 470 34 340 70 715 | 15 890 51 750 *3 075 70 715 |
| VAT CONTROL | |
| 15 890 51 750 *3 075 70 715 | 33 600 *1 305 *1 470 34 340 70 715 |
(11)
Receivable/Payable: PayableDo not accept Receivable (irrespective of workings)
1.3 BANK RECONCILIATION
1.3.1 Calculate the correct Bank Account balance on 31 May 2019.
| Provisional Bank balance | R19 400 |
| Cheque 654 | + 2 350 ✓ |
| Theft of cash | – 31 560✓✓ |
| Bank charges | – 1 060✓ |
| Interest income | +313✓ |
| Correction EFT two marks or 0 | + 900 ✓✓ 6 578-5 678 |
| Correct Bank balance | – 9 657 ✓ One part correct |
Accept alternative presentations such as Bank account or Receipts and Payment columns
-1 Foreign items, max -2 if mark is earned in BRS
CRJ:
2 350 + 313 + 900 = 3 563
CPJ:
31 560 + 1 060 = 32 620
Bank Balance
19 400 + 3 563 – 32 620
= (9 657)
Favourable/Unfavourable: Unfavourable See calculation above (9)
1.3.2 Bank Reconciliation Statement on 31 May 2019
If candidates use 1-column method and start with Bank ledger account, +ve and -ve signs will be reversed.
| Alternative | DEBIT | CREDIT | |
| Balance as per Bank Statement | (2 700) | 2 700✓ Balancing figure | |
| Outstanding deposit | 21 343 | 21 343✓ | |
| Outstanding cheques: | |||
| 705 | (9 450) | 9 450✓ | |
| 797 | (14 350) | 14 350✓ | |
| Debit deposit erroneously credit | (4 500) | 4 500✓✓ | |
| Balance as per bank account | (9 657) | 9 657✓ See 1.3.1 | |
| -1 Foreign items, max -2 if mark is earned in bank calculation above | 31 000 | 31 000 |
(7)
1.3.3 State TWO internal control measures that the business can use to ensure that this will not happen in the future.
Possible responses for two marks:✓✓✓✓ Part marks for partially correct answer
(4)
TOTAL MARKS: 35
QUESTION 2
2.1
2.1.1 FIFO ✓
2.1.2 Perpetual ✓
2.1.3 Expense ✓
(3)
2.2 PHOTO-FIX TRADERS
2.2.1 Calculate:
Value of closing stock of cameras
435 500 145 000
(6 x 5 500) (70 x 5 750) (10 x R4 000) (25 x 4 200)
33 000 + 402 500 + 40 000 + 105 000
✓✓✓✓✓✓
= 580 500 ✓ one part correct
OR: Using COS to calculate stock
one mark one mark one mark
110 000 + 1 104 000 + 1 380 000 – 2 013 500
(77 000 + 977 500 + 560 000 + 399 000)
two marks one mark one mark one mark
= 580 500
method mark (9)
2.2.2 Value of closing stock of photo frames
115 200 two marks
110 700 three marks
7 200 ✓ + 108 000 ✓– 4 500 ✓ x 80✓ = 11 808 one part correct if multiplied by 80
60 ✓ + 720 ✓ – 30
750 three marks
R147,60 six marks (8)
2.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions.
93 three marks
✓✓✓✓ one part correct
750 – 657 – 80 = 13
(60 + 720 – 30)
one mark if incorrect but 60, 720 or -30 is shown (5)
2.2.4 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.
Note: Explanation could differ depending on figures calculated above in 2.2.2 and 2.2.3
| Explanation ✓✓ | Figures ✓✓✓✓ | |
| Point 1 | It is not worthwhile to employ the assistant OR Wages greatly exceed the cost of the missing units | Wages one mark R42 000 p a / R 3 500 pm Cost of units missing: one mark 13 x R147,60 = R1 918,80 see 2.2.2 / 2.2.3 above (could use unit cost price) |
| Point 2 | Missing items are relatively insignificant OR Units missing are a very small % of units available | Units missing = 13 one mark see 2.2.3 above Units available = 750 one mark see 2.2.2 above % missing = Less than 2% two marks OR: Units sold p.a. = 657 one mark Units sold per day = 1,8 or 2 one mark |
(6)
2.3 MANAGEMENT OF INVENTORIES
| Product | Problem Problem ✓✓✓ Figures ✓✓✓ | Solution ✓✓✓ |
| Cupboards | High returns, 500 or 500 / 1 800 (27,7%) Or 1 000 cupboards missing | Possible change to new supplier Ensure high quality ordered Order as per customer specifications Check quality before accepting stock delivered Improve security |
| Tables | Missing money, R40 000 (510 000 – 470 000) Or 20 tables missing Credit sales much higher than cash sales (liquidity issues) 2 400 / 600 or 1 800 units more 2 400 / 3 000 (80%); 600 / 3 000 (20%) | Division of duties/ banking of money Improve physical security Promote cash sales by providing incentives such as cash discount |
| Chairs | Slow selling item / too much stock on hand (1 300 and 2 950) Purchases much higher than sales (6 000/4 350) | Change to a different type of chair. Advertise more to increase sales Buy stock according to sales. Reduce mark-up% |
(9)
TOTAL MARKS:40
QUESTION 3
3.1
3.1.1 Indirect ✓
3.1.2 Selling and distribution ✓
3.1.3 Fixed ✓
3.1.4 Direct material ✓
(4)
3.2.1 Calculate: The value of the closing stock using the first-in-first-out stock valuation method
930 x 90 = 83 700 ✓
265 ✓ x 80 ✓ = 21 200 ✓* 104 900 ✓* one part correct
1 195 – 930 three marks(5)
Calculate: Direct material cost
(390 000 + 198 400 + 83 700) one mark
59 800 + 672 100 – 104 900 = 627 000
✓✓✓see above one part correct(4)
3.2.2 Factory overhead cost
| TOTAL b/f | 84 330 |
| Insurance (31 200 x 60%) | 18 720 ✓✓ |
| Rent expense (114 000 x 5/8) | 71 250 ✓✓ |
| Water and electricity (7 110 ✓ x 50/15 ✓) One mark for 474 / 3 555 as final answer | 23 700✓ |
| *one part correct | 198 000✓ |
(8)
3.2.3 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.
| EVIDENCE figure ✓✓ | REASON ✓✓✓✓ |
| Total fixed cost per unit Increased by R8 per unit (22%) (from R36 to R44) | Changes in economies of scale Fewer units produced (Do NOT accept inflation.) |
| Direct labour cost per unit Increased by R12 per unit (32%) (from R38 to R50) | More overtime worked due to strikes Inefficiency / Poor supervision of workers / Surplus workers not gainfully employed / Hours lost due to load shedding (Do NOT accept inflation.) |
(6)
3.2.4 Calculate the break-even point on 31 December 2018.
R 264 000 ✓
300✓ – 165✓
135 two marks
= 1 956 or 1 955 or 1 955,6 units ✓ one part correct (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.
Comment on each ✓✓ figures ✓✓
Production decreased from 7 560 – 6 000 (1 560 units / 20,6%)two marks
The BEP decreased from 3 888 units to 1 956 units (1 932 / 49,7%) two marks
see above calculation
OR: for four marks 6 000 – 1 956
In 2018 production exceeds BEP by 4 044 units while in 2017 production exceeds BEP by 3 672 units
7 560 – 3 888 (4)
The owner cannot understand why he is making a better profit this year. Explain how this happened. Provide TWO points. Quote figures.
Comparing BEP to production ✓✓ figures ✓
Comparing selling price ✓ figure ✓
For three marks:
For two marks:
OR:
For two marks only if first bullet not provided:
TOTAL MARKS:40
QUESTION 4
4.1
4.1.1 C ✓
Balance Sheet
4.1.2 D ✓
Income Statement
4.1.3 B ✓
Cash Flow Statement
4.1.4 A ✓
Audit Report
(4)
4.2 AUDIT REPORT
4.2.1 Choose the correct word from those given in brackets.
Unqualified ✓
Give ONE reason.
Any ONE valid reason ✓✓ Mark independent of answer above
It is a good/clean audit report
The words 'fairly present' indicates that there were no problems encountered by the auditors. (3)
4.2.2
Give ONE reason why the Companies Act requires public companies to be audited by an independent auditor.
Any ONE valid reason ✓✓ part-mark for unclear or incomplete answer
For one mark: Prevent / reduce fraud (2)
4.2.3 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.
Any TWO relevant points ✓✓✓✓ Future shareholders not relevant to this answer
Question asks for influence on shareholders, not consequences for share prices etc.
The shareholders will not be able to rely on the audit report
The shareholders will not reappoint the auditors at the next AGM (will be fired)
The shareholders may demand a re-audit by another reputable firm
The shareholders may insist on legal action if audit was fraudulently done
Existing shareholders might want to offload / sell their shares
Existing shareholders will concerned over the value of their investment in the company. (4)
4.3 MVVS LTD Foreign entries –1 max -1
Placement -1 (if marks scored elsewhere) max –1
4.3.1 Statement of Comprehensive Income (Income Statement) for the year ended 31 March 2019 # Give method mark if R6 236 000
| Sales (10 563 280✓ + 36 720✓) | 10 600 000✓* |
| Cost of sales (6 236 000 + 24 000 ✓✓) | (6 260 000) ✓*# |
| Gross profit Sales - COS 7 | 4 340 000✓ |
| Operating income operation | 112 000✓ |
| Rent income | 99 500 |
| Bad debts recovered | 7 800✓✓ |
| Provision for bad debts adjustment | 1 600 ✓✓ |
| Profit on sale of asset | 3 100 ✓✓ |
| Gross operating income GP + OI 8 | 4 452 000✓ |
| Operating expenses operation | (3 710 000)✓ |
| Directors' fees | 1 262 100 |
| Water and electricity | 218 000 |
| Telephone | 75 600 |
| Audit fees | 104 000 |
| Sundry expenses | 61 001 |
| 13 000 three marks Salaries and wages (1 280 000 ✓+ 9 100✓ + 3 900✓✓) | 1 293 000✓ |
| Employer's contributions | 318 200✓✓ |
| Bad debts (22 300 ✓ + 8 000 ✓✓) | 30 300✓ |
| Consumable stores | 49 800✓✓ |
| Insurance (79 500 ✓ – 38 250 ✓✓) | 41 250✓ |
| 156 799 three marks 94 250 two marks Depreciation (34 999 + 80 000 + 41 800) + (92 500 + 1 750) | 251 049✓ |
| Trading stock deficit (364 200 ✓– 24 000✓ - 334 500✓) See COS above 28 | 5 700✓ 29 700 three marks |
| Operating Profit GOI – OE | 742 000✓ |
| Interest income balancing figure; cannot be 0; accept -ve based on workings | 26 000✓ |
| Profit before interest expense NPBT + IE | 768 000✓ |
| Interest expense (1 430 200 ✓ + 304 800 ✓ – 1 658 000✓) | (77 000)✓ |
| Net profit before tax | 691 000✓ |
| Income tax Ignore brackets | (193 480)✓✓ |
| Net profit after tax must subtract income tax 10 | 497 520✓ |
(53) *one part correct
4.3.2 NOTES TO THE BALANCE SHEET
Fixed/Tangible Assets (Brackets must be included, where applicable, to score marks)
| Land and buildings | Vehicles | Equipment | |
| Carrying value at beginning of financial year | 12 500 000 | 275 000 | 280 500 |
| Cost | 12 500 000 | 750 000 | 398 000 |
| Accumulated depreciation | - | (475 000) | (117 500) |
| Movements | 627 000✓ | ||
| Additions at cost | - | - | |
| Disposals at carrying value | - | - | (6 500)✓✓ |
| Depreciation | - | See Inc Stmt (156 799)✓ | (94 250) |
| Carrying value at end of financial year | 12 500 000 | ||
| Cost | 12 500 000 | 1 377 000 | 370 000✓ |
| Accumulated depreciation | - | (631 799) ✓ 475 000 + depr | (190 250)✓✓ |
(8)
Ordinary share capital
| Authorised: | ||
| 8 000 000 shares | ||
| Issued: | ||
| 1 200 000 | shares in issue at beginning | 4 800 000✓ |
| (150 000) | shares re-purchased (ASP: R4.00 ✓) | (600 000)✓ |
| 850 000 | shares issued during year balancing figure if one item correct | 5 100 000 ✓ |
| 1 900 000 | shares in issue at end | 9 300 000 ✓ |
(6)
OR:
| Issued: Note: Candidates might not round off the ASP to nearest cent; this could lead to differences of approximately R710 to R790 | ||
| 1 200 000 | shares in issue at beginning | 4 800 000 ✓ |
| 850 000 | shares issued during year balancing figure if one item correct | 5 233 500✓ OR 5 235 000 |
| (150 000) | shares re-purchased ASP: R4,89 ✓ ASP: R4,90 | (733 500)✓ OR (735 000) |
| 1 900 000 | shares in issue at end (R4,89 or R4,90) | 9 300 000 ✓ |
TOTAL MARKS:80
QUESTION 5
5.1
5.1.1 Solvency ✓
5.1.2 Liquidity ✓
5.1.3 Return on equity ✓
5.1.4 Gearing ✓
(4)
5.2 KULFI LTD
5.2.1 RETAINED INCOME:
| Balance on 1 March 2018 | 141 500✓ |
| Net profit after tax 293 100 x 70/30 / 977 000 – 293 100 | 683 900✓✓ One part correct |
| Funds used for repurchase of shares 60 000 ✓ x 0,96 ✓✓ Ignore brackets One part correct | (57 600) ✓ Do not accept 0 |
| Ordinary share dividends Ignore brackets One part correct; if Int Div + Final Div | (456 800) ✓ |
| Interim 1 000 000 x 25c | 250 000✓✓ |
| Final | 206 800✓ |
| Balance on 28 February 2019 one part correct Check that figures used for repurchased shares, OSD are deducted | 311 000✓ |
(12)
5.2.2 Calculate: Income tax paid
293 100 ✓ – 11 300 ✓ – 21 800 ✓ = 260 000 ✓ one part correct
Accept alternative arrangements for calculations such as signs reversed, brackets and/or ledger account. (4)
Calculate: Dividends paid
(456 800 – 206 800)
360 000 ✓ + 250 000 ✓✓ = 610 000 ✓ one part correct
See 5.2.1
Accept alternative arrangements for calculations such as signs reversed, brackets and/or ledger account. (4)
5.2.3
| Cash effects of investing activities No details -1P (Max) | (518 600)✓ operation |
| Fixed assets purchased 345 000 two marks 8 775 720 ✓ + 123 600 ✓+ 111 800 ✓– 8 430 720 ✓ Accept alternative arrangements for calculations such as signs reversed, brackets and/or ledger account. | (580 400) ✓ One part correct Must be in brackets |
| Proceeds from sale of fixed assets | 111 800 ✓ |
| Increase in fixed deposit | Must be in brackets (50 000)✓✓ |
| (9) | |
| Net change in cash and cash equivalents | ✓ 377 700 |
| Cash and cash equivalents (beginning of year) | ✓✓ (117 520) Must be in brackets |
| Cash and cash equivalents (end of year) | ✓ 260 180 |
| (4) | |
5.2.4 Calculate: Acid test ratio
996 480 one mark – 448 000 one mark
548 480 two marks One part correct; must be y:1
(288 300 ✓ + 260 180 ✓) : 553 600 ✓ = 0,99: 1 or 1 : 1 ✓(4)
Calculate: Debt-equity ratio
see 5.2.1
1 400 000 ✓ : (311 000 ✓ + 7 557 600✓)
7 868 600
= 0,2 : 1 ✓One part correct; must be y:1 (0,17 : 1)(4)
Calculate: % return on average shareholders' equity (ROSHE)
see 5.2.1
683 900 ✓ x 100
½ ✓ (7 341 500✓ + 7 868 600 ✓) 1
7 605 050 see above SE
three marks
= 9% ✓One part correct; % sign not essential; cannot be Rands, cents, units etc (5)
5.2.5 The shareholders are satisfied with the improvement in the liquidity position. Quote THREE financial indicators (with figures) to support this statement.
THREE valid indicators ✓✓✓ Trend figures ✓✓✓
Current ratio increased from 0,7 : 1 to 1,8 : 1
Acid test ratio increased from 0,4 : 1 to 1 : 1 see 5.2.4
Debtors collection period improved from 39 days to 28 days
Creditors payment period must not be accepted (6)
5.2.6 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.
TWO valid indicators ✓✓ with figures✓✓ Comment ✓
Debt/equity ratio moved from 0,1 : 1 to 0,2 : 1 see 5.2.4
ROTCE decreased from 14,4% to 12,9%
The company is lowly geared (not making extensive use of loans)
Increasing the loan has caused the company to be negatively geared as the interest rate is 13,5%. The business is not making effective use of the money borrowed to increase profitability. (5)
Explain what the directors have done with this cash inflow. State TWO points.
TWO points ✓✓ with figures ✓✓
Fixed assets purchased; R580 400 see 5.2.3
Addressed the overdraft; - R142 520 to + R260 180
Increased investment by R50 000
Dividends paid; R610 000 see 5.2.2
Decreased creditors balances, R227 400; more stock purchased, R167 000
Shares repurchased, R540 000 (4)
5.2.7 Provide calculations to show the change in the pay-out rate.
one mark
In 2018: 80/83 x 100 = 96,4% ✓✓ of EPS was distributed as dividends
OR: retained 3,6%
one mark
In 2019: 47/71 x 100 = 66,2% ✓✓ of EPS was distributed as dividends
OR: retained 33,8% (4)
Give ONE reason why many shareholders were satisfied with the change in policy. Quote figures.
Any ONE valid explanation ✓ Relevant figures ✓
Cash earnings from dividends decreased by 33 cents per share because the company is retaining money for capital growth.
Market price of shares increased (807c to 840c) probably due to higher retained income (R141 500 to R311 000) see 5.2.1
Market price of shares increased (807c to 840c) probably due or NAV (816c to 837c) (2)
5.2.8 Explain how the repurchase of the shares benefited Martha's shareholding. Quote figures.
Explanation ✓✓ figure (calculation) ✓✓
Majority shareholding must be mentioned to get two marks
Part-mark for explanation for unclear or incomplete answers
After the repurchase, she once again became the majority shareholder.
475 000 / 940 000 = 50,5% (4)
TOTAL MARKS: 75
QUESTION 6
6.1 Identify TWO items on the Cash Budget that will not appear in a Projected Income Statement.
Any TWO of: ✓✓ Items must come from Info A
Cash from debtors
Fixed deposit: Protea Bank
Cash purchases of trading stock
Payment to creditors
Drawings (2)
6.2
6.3 Calculate the total purchases for April 2019.
192 000 = 480 000 ✓✓ (2)
40%
6.4 DEBTORS' COLLECTION SCHEDULE
| CREDIT SALES | JUNE | JULY | |
| MAY | 576 000 | 374 400 | |
| JUNE | 558 000✓✓ | 159 030 | 362 700✓✓ If 65% of credit sales |
| JULY | 855 000 | x 30% x 95% | 243 675✓✓✓ 256 500 one mark |
| TOTAL | 533 430 | 606 375✓* |
(8)
*one part correct
6.5.1 Comment on the following (provide figures):
Effect of the advertising on sales
Comment on advertising (with figures) ✓
Comment on sales (with figures) ✓
Effect on sales ✓ Max one mark if no figures provided
Advertising was over budget by R28 800 (80%)
Total sales increased by R4 000 (0,6%), due to an increase in credit sales.
Effect on sales: The large increase in advertising was not effective / did not achieve the desired effect on sales. (3)
Payment to creditors
Comment on creditors ✓ Figures ✓
Creditors were underpaid by R75 000 (while purchases increased; if this trend continues, creditors will decrease credit limits, stop supplying on credit, may incur interest charges). (2)
6.5.2 Identify TWO strategies (except advertising) that the business used to achieve sales targets for May 2019. Quote figures.
TWO strategies ✓✓ Figures ✓✓
Increased the credit sales, R36 000; (R412 000 more than cash sales)
Introduced delivery service, R19 000 (4)
Explain whether these were good strategies, or not. Provide ONE point with figures.
Comment on collection ✓ Figures ✓
Not effective:
TOTAL:300