ACCOUNTING
NATIONAL SENIOR CERTIFICATE EXAMINATIONS
GRADE 12
MAY/JUNE2019

INSTRUCTIONS AND INFORMATION
Read the following instructions carefully and follow them precisely.

1. Answer ALL the questions.
2. A special ANSWER BOOK is provided in which to answer ALL the questions.
3. Show ALL workings to achieve part-marks.
4. You may use a non-programmable calculator.
5. You may use a dark pencil or blue/black ink to answer the questions.
6. Where applicable, show ALL calculations to ONE decimal point.
7. Write neatly and legibly.
8. Use the information in the table below as a guide when answering the question paper. Try NOT to deviate from it.

QUESTION 1: VAT AND RECONCILIATION (35 marks; 20 minutes)
1.1 CONCEPTS
REQUIRED:
Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question numbers (1.1.1 to 1.1.4) in the ANSWER BOOK.
1.1.1 Output VAT is collected by a business when goods are sold.
1.1.2 The calculation of salaries does not take VAT into account.
1.1.3 A credit balance on the Bank Statement indicates an unfavourable balance.
1.1.4 Recording bank charges separately from interest on an overdraft is an application of the materiality concept. (4 x 1) (4)
1.2 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:

• Amount owed to SARS on 1 April 2019, R15 890
• VAT transactions for April 2019:

1.3 BANK RECONCILIATION
The following information relates to Thandeka Traders for May 2019.
REQUIRED:
1.3.1 Calculate the correct Bank Account balance on 31 May 2019. Indicate whether this is favourable or unfavourable. (9)
1.3.2 Prepare the Bank Reconciliation Statement on 31 May 2019. The bank statement balance is the missing figure. (7)
1.3.3 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)
INFORMATION:

1. Before the bank statement was received, the Bank Account showed a favourable balance of R19 400 on 31 May 2019.
2. 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:
   
   1. Cheque 654 does not appear in the May Bank Statement.
   2. The EFT payment of R15 400 appears in the May Bank Statement.
   3. 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.
3. The following items must also be taken into account:
   
   1. 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
   2. 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
   3. An EFT payment appeared correctly in the Bank Statement as R5 678. The Cash Journal shows this EFT as R6 578. (35)

QUESTION 2: INVENTORY VALUATION (40 marks; 25 minutes)
2.1 CONCEPTS
Choose the correct term from those given in brackets. Write only the term next to the question numbers (2.1.1 to 2.1.3) in the ANSWER BOOK.
2.1.1 The most recent purchases will be considered as closing stock in the (FIFO/weighted-average) stock valuation method. (3)
2.1.2 Merchandise purchased is recorded in a Trading Stock Account in the (perpetual/periodic) inventory system.
2.1.3 Carriage on purchases is recorded as an (asset/expense) in the periodic inventory system. (3 x 1)
2.2 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:
2.2.1 Calculate the value of closing stock of cameras on 30 April 2019. (9)
2.2.2 Calculate the value of closing stock of photo frames. (8)
2.2.3 The owner suspects that photo frames are being stolen. Provide a calculation to confirm his suspicions. (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. (6)
INFORMATION:
The following information is in respect of the year ended 30 April 2019:

1. 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

2. 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

2.3 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:

(40)

QUESTION 3: MANUFACTURING (40 marks; 25 minutes)
3.1 Choose the correct term from those given in brackets. Write only the term next to the question numbers (3.1.1 to 3.1.4) in the ANSWER BOOK.
3.1.1 Wages paid to the factory cleaner is considered to be (direct/indirect) labour.
3.1.2 Bad debts must be shown as a (selling and distribution/ factory overhead) cost.
3.1.3 Rent paid for the factory building is regarded as a (fixed/variable) cost.
3.1.4 Carriage on purchases of raw materials is regarded as a/an (direct material/indirect material) cost. (4)
3.2 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:
3.2.1 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)

3.2.2 Refer to Information C.
Calculate the correct factory overhead cost for the year. (8)
3.2.3 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)
3.2.4 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:

1. Raw material:

   Stock balance:	Metres	Cost per metre	Total amount
   1 January 2018	920	R65	R59 800
   31 December 2018	1195	?	?

    

2. Purchases for the year:

   Date	Metres	Cost per metre	Total amount
   February 2018	5200	R75	R390 000
   May 2018	2480	R80	R198 400
   September 2018	930	R90	R83 700
   TOTAL	8610		R672 100

    

3. 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.

4. 	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

    

5. Additional information:
   

   	2018	2017
   Number of jackets produced and sold	6 000 units	7 560 units
   Break-even point	?	3 888units
   Selling price per jacket	R300	R220
   Inflation rate	5%

QUESTION 4: AUDIT REPORT AND COMPANY FINANCIAL STATEMENTS (80 marks; 45 minutes)
4.1 Choose a term in COLUMN B that matches an explanation in COLUMN A. Write only the letters (A–E) next to the question numbers (4.1.1 to 4.1.4) in the ANSWER BOOK.

(4 x 1) (4)
4.2 AUDIT REPORT
Extract from the audit opinion of Everest Ltd for the financial year ended 30 April 2018:

REQUIRED:
4.2.1 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)
4.2.2 Give ONE reason why the Companies Act requires public companies to be audited by an independent auditor. (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. (4)
4.3 MVVS LTD
The information relates to the financial year ended 31 March 2019.
REQUIRED:
4.3.1 Complete the Statement of Comprehensive Income (Income Statement) for the year ended 31 March 2019. (53)
4.3.2 Complete the following notes to the Balance Sheet:

• Fixed/Tangible Asset Note (8)
• Ordinary share capital (6)

INFORMATION:
Figures extracted from the Pre-adjustment Trial Balances on 31 March:

Related Items

Adjustments and additional information:

1. 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.
2. The physical stock count on 31 March 2019 revealed the following on hand:
   
   • Trading stock, R334 500
   • Consumable stores, R3 400
3. 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.
4. 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.
5. Adjust the provision for bad debts to R28 500.
6. Insurance includes an annual premium of R51 000 paid for the period 1 January 2019 to 31 December 2019.
7. 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
8. Interest on loan is capitalised. A fixed monthly repayment (including interest) of R25 400 was paid for the financial year.
9. Fixed assets and depreciation:
   
   1. 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.
   2. 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.
10. Interest income is the missing figure in the Income Statement.
11. Income tax is calculated at 28% of the net profit. The net profit before tax was R691 000.
12. 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. (80)

QUESTION 5: CASH FLOW AND INTERPRETATION (75 marks; 45 minutes)
5.1 Choose a term from the list below that answers the specific following questions. Write only the term next to the question numbers (5.1.1 to 5.1.4) in the ANSWER BOOK.
gearing; return on equity; solvency; liquidity; profitability
5.1.1 Is the business able to pay off all its debts?
5.1.2 Can the business pay off short-term debts in the next financial year?
5.1.3 Will shareholders be satisfied with the benefit that they receive for investing in the company?
5.1.4 To what extent is the company financed by loans or borrowed capital? (4)
5.2 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:
5.2.1 Prepare the Retained Income Note to the Balance Sheet. (12)
5.2.2 Calculate the following amounts for the Cash Flow Statement. Show workings.

• Income tax paid(4)
• Dividends paid (4)

5.2.3 Complete the following sections of the Cash Flow Statement:

• Cash effects of investing activities (9)
• Net change in cash and cash equivalents (4)

5.2.4 Calculate the following financial indicators on 28 February 2019:

• Acid-test ratio (4)
• Debt-equity ratio (4)
• % return on average shareholders' equity (ROSHE) (5)

5.2.5 The shareholders are satisfied with the improvement in the liquidity position. Quote THREE financial indicators (with figures) to support this statement. (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. (5)
• Explain what the directors have done with this cash inflow. State TWO points. (4)

5.2.7 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)

5.2.8 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:
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.
Dividends:
Interim dividends of 25 cents per share were paid on 15 September 2018.
Final dividends were declared on 28 February 2019.
Extract from Income Statement for the year ended 28 February 2019:

Extract from Balance Sheet on 28 February 2019:

* Old equipment was sold at carrying value, R111 800, for cash.

Note 2: Trade and other payables:

The following financial indicators were calculated on 28 February:

(75)

QUESTION 6: BUDGETING (30 marks; 20 minutes)
You are provided with information relating to Cimpiwe Clothing Shop.
REQUIRED:
6.1 Refer to Information A.
Identify TWO items in the Cash Budget that will not appear in a Projected Income Statement. (2)
6.2 Calculate the missing amounts indicated by (i) to (iii) in the Cash Budget for June and July 2019. (7)
6.3 Calculate the total purchases for April 2019. (2)
6.4 Complete the Debtors' Collection Schedule for July 2019. (8)
6.5 Refer to Information F.
6.5.1 Comment on the following:

• Effect of the advertising on sales (3)
• Payment to creditors (2)

6.5.2 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:

1. Extract from the Cash Budget

   	JUNE 2019	JULY 2019
   CASH RECEIPTS
   Cash sales	186 000	285 000
   Cash from debtors	533 430	?
   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

2. 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.
3. 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.

4. Rent increased by 8% in July 2019.

5. 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.

6. 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

   (30)

TOTAL:300