ACCOUNTING
GRADE 12
NOVEMBER 2019
NATIONAL SENIOR CERTIFICATE

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

1. Answer ALL questions.
2. A special ANSWER BOOK is provided in which to answer ALL questions.
3. Show ALL workings to earn part-marks.
4. You may use a non-programmable calculator.
5. You may use a dark pencil or blue/black ink to answer 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: MANUFACTURING (40 marks; 20 minutes)
Sihle Sangweni owns two separate factories that manufacture products according to orders received. There is no work-in-progress stock. The year-end is 28 February.
1.1 Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question numbers (1.1.1 to 1.1.3) in the ANSWER BOOK.
1.1.1 Wages of factory cleaners is a direct labour cost.
1.1.2 Delivery costs of finished goods to retailers are a selling and distribution cost.
1.1.3 Depreciation on office equipment is an administration cost. (3 x 1) (3)
1.2 DESKS FACTORY
REQUIRED:
1.2.1 Complete the Factory Overhead Cost Note. (8)
1.2.2 Calculate the total cost of production of finished goods. (5)
1.2.3 Sihle wants to produce an additional 1 500 desks, while maintaining the selling price and costs.
Calculate the additional profit he can expect. (4)
1.3 CHAIRS FACTORY
REQUIRED:
1.3.1 Provide a calculation to confirm the break-even point for 2019.(4)
1.3.2 Comment on the break-even point and the production level achieved. Quote figures. (4)
1.3.3 Raw material consists of wood only. In 2019 the cost is R120 per square metre (m2) and 1,2 m2 of wood is needed to make one chair.
During the year, 22 000 m2 wood was dispatched to the factory. Sihle feels that the wood raw material was not well controlled.

• Provide a calculation to support his opinion. (4)
• Identify TWO possible causes of this problem. Provide a solution for EACH. (4)

1.3.4 Give TWO reasons for the increase in direct labour cost. Provide a solution for EACH. Note that wages and salaries increased by 5% in the current financial year. (4)
INFORMATION:
A. DESKS FACTORY
Extract of pre-adjustment amounts on 28 February 2019

Adjustments to factory overheads for desks:

• Water and electricity for February 2019, R18 000, must be taken into account. 80% is allocated to the factory. The balance is an administration cost.
• Rent must be allocated according to floor area:
  Factory: 810 m2 Office: 180 m² Sales department: 90 m²
• 75% of insurance must be allocated to the factory. The balance applies to the sales department.

B. INFORMATION FOR BOTH FACTORIES

QUESTION 2: RECONCILIATION (30 marks, 20 minutes)
The information relates to Klonex Traders.
REQUIRED:
2.1 The owner, Ben Joseph, realises that many people are now using electronic funds transfers (EFTs) instead of cheques.
2.1.1 State THREE advantages of EFTs. (3)
2.1.2  Janet, the bookkeeper, has been assigned the duty of processing and controlling all EFTs.
Explain TWO reasons why the internal auditor is concerned about this. (4)
2.2 Show changes in the Cash Journals for June 2019. (11)
2.3 Calculate the correct Bank Account balance on 30 June 2019. (4)
2.4 Prepare the Bank Reconciliation Statement on 30 June 2019. (8)

INFORMATION:
A. Extract: Bank Reconciliation Statement on 31 May 2019

NOTE:

• The outstanding deposit appeared on the June Bank Statement.
• Cheque 321 was issued for the owner's club fees. It was never deposited.
• Cheque 427 did not appear on the June Bank Statement. It was lost and a new cheque will be issued in July.
• Cheque 444 did not appear on the June Bank Statement.
• Cheque 516 appeared on the June Bank Statement with the correct amount of R5 250.

B. Provisional totals in the Cash Journals on 30 June 2019 before receiving the Bank Statement:
Cash Receipts Journal: R27 470
Cash Payments Journal: R32 400

C. Entries in the Cash Journals NOT on the June Bank Statement:

• Deposit, R9 675
• EFT 14 (30 June 2019), R3 800
• Cheque 522 (12 August 2019), R4 580

D. Entries on the June 2019 Bank Statement NOT in the Cash Journals:

*Insurance appeared twice in error. This will be rectified next month.
E. Bank Statement balance on 30 June 2019: …?

QUESTION 3: INVENTORY VALUATION (45 marks; 25 minutes)
George Grande is the majority shareholder and CEO of Grande Ltd. The company supplies hotels with cabinets and lamps.
The periodic system is used. The year-end is 30 September 2019.
REQUIRED:

CABINETS
3.1 Calculate the value of closing stock for cabinets on 30 September 2019 using the first-in first-out method. (6)
3.2 In 2019, the company decided to extend the target market and to grant trade discounts to increase sales. 3.2.1
Calculate the % mark-up achieved in 2019. (4)
3.2.2 Provide TWO points (with figures) to prove that this decision achieved its aims. (4)
3.2.3 The CEO feels that this decision also negatively affected the company.

• Provide TWO points (with figures) to support his opinion. (4)
• Give the directors advice to solve this problem. Explain TWO points. (2)

LAMPS
3.3 Calculate the stockholding period for lamps (use closing stock). (3)
3.4 George is concerned about the control of lamps. An investigation revealed that the store manager was supplying local boarding houses with lamps without documentation.

• Calculate the number of missing lamps. (5)
• Give TWO suggestions to solve this problem. (4)

TELEVISION SETS
3.5 During April 2019, while George was in hospital, Bruce Swann (the chief financial officer) decided to include television sets in their product range. He was able to secure bulk discounts from Roseway on two TV set models, namely LYN and KYA.
Calculate the value of the closing stock of TV sets on 30 September 2019 using the specific identification method. (7)
3.6 An employee of Roseway told George that Bruce received a 10% 'commission' from Roseway for buying excess stock. George wants to discuss this at the next board meeting.
Explain THREE different concerns that George would have about this problem. (6)

INFORMATION:
A. Stock records of cabinets and lamps:

B.Information relating to cabinets:

C. Stock records of television sets:

QUESTION 4: BALANCE SHEET AND AUDIT REPORT (70 marks; 45 minutes)
4.1 Choose an explanation in COLUMN B that matches the term in COLUMN A. Write only the letters (A–E) next to the question numbers (4.1.1 to 4.1.5) in the ANSWER BOOK.

(5 x 1) (5)
4.2 VISIV LTD
The financial year ended on 28 February 2019.
REQUIRED:
4.2.1 Calculate:

• Amounts for (i) and (ii) in the Fixed Assets Register (5)
• Profit/Loss on sale of asset (2)
• Fixed assets carrying value on 28 February 2019 (4)

4.2.2 Calculate the correct net profit after tax for the year ended 28 February 2019. Indicate (+) for increase and (–) for decrease. (9)
4.2.3 Refer to Information A–H. Prepare the following on 28 February 2019:

• Retained Income Note (9)
• Statement of Financial Position (Balance Sheet).

NOTE: Show workings. Certain figures are provided in the ANSWER BOOK. (27)

INFORMATION:
A.Fixed assets:
A delivery vehicle was sold on 31 October 2018 but no entries were made to record this transaction.
Details of vehicle sold:

B. List of balances/totals on 28 February 2019 (before taking into account all adjustments below):

C.Net profit before tax, R822 700, was calculated before correcting the following:

• Provision for bad debts must be increased by R65 000.
• R9 800 of an advertising contract applies to the next financial year.
• A tenant paid rent of R334 000 for the period 1 March 2018 to 31 March 2019. Rent was increased by R3 000 per month from 1 January 2019.
• Depreciation and profit/loss on the vehicle sold must be recorded.
• A further R43 000 is owed for income tax.

D. Ordinary shares:

E.Dividends:

• Interim dividends were paid in September 2018, R295 200.
• Final dividends of 20c per share were declared on 28 February 2019.

F. A creditor with a debit balance of R7 600 must be transferred to the Debtors' Ledger.
G. A cheque for R75 000, dated 30 April 2019, was issued to a supplier in February.
H. After processing all adjustments:

• The current ratio is 0,8 : 1.
• The current liabilities totalled R2 900 000.
• The current portion of the loan is the balancing figure.

4.3 AUDIT REPORT FOR YEAR-END 28 FEBRUARY 2019
The financial statements of Visiv Ltd (see QUESTION 4.2.3) were audited. You are provided with extracts from the audit report.
Extracts from the audit report:
Basis for audit report
Point 1: We were unable to obtain sufficient audit evidence to support the amounts provided for certain income and expense items ...
Point 2: Furthermore, the repurchase of shares on 31 May 2018 is not in accordance with provisions of the Companies Act, 1973 (Act 61 of 1973), as the liquidity of the company has been compromised …
Opinion
Point 3:Because of the significance of the matters described above, we do not express an opinion …

REQUIRED:
4.3.1 Refer to Point 3.
What type of audit report did the company receive? (1)
4.3.2 Refer to Point 1.
Give TWO examples of audit evidence that the auditors would have required regarding this problem. (2)
4.3.3 Refer to Point 2.

• Apart from the current ratio, identify and calculate ONE other financial indicator that the auditors would have used in deciding on this opinion. (4)
• Explain what the directors could have done to prevent this comment by the auditors. Provide TWO points. (2)

QUESTION 5: CASH FLOW STATEMENT AND INTERPRETATION
(75 marks; 45 minutes)
5.1 Three financial statements are provided as options in which each of the following items would appear. Choose the financial statement and write only the letter (A–C) next to the question numbers (5.1.1 to 5.1.4) in the ANSWER BOOK, e.g. 5.1.5 D.

5.1.1 Profit on sale of a fixed asset
5.1.2 Amount due to shareholders for final dividends payable
5.1.3 Total amount spent on the repurchase of shares
5.1.4 Total income tax amount for the current financial year (4 x 1) (4)
5.2 SUNSET LTD
The financial year ended on 28 February 2019.
REQUIRED:
5.2.1 Calculate the following figures for the 2019 Cash Flow Statement:

• Income tax paid (4)
• Dividends paid (4)
• Proceeds of shares issued (6)
• Fixed assets purchased (5)

5.2.2 Calculate financial indicators for the year ended 28 February 2019:

• % operating profit on sales (4)
• Net asset value per share (4)
• Debt-equity ratio (4)

INFORMATION FOR SUNSET LTD:
A. Information from Income Statement on 28 February 2019:

B. Information from Balance Sheet on 28 February:

C. Share capital and dividends:

5.3 HORIZON LTD and OPTIMA LTD
Refer to Information D to F.
Mike Mbele owns shares and is a director in both these companies.
He recently invested another R420 000 in each company by buying shares on the JSE at market value as follows:

REQUIRED:
NOTE: Provide figures, financial indicators or calculations in EACH case to support your comments and explanations.
5.3.1 Purchase of shares:

• Explain why directors should be interested in the price of their companies' shares on the JSE.(2)
• Calculate the number of additional shares in Horizon Ltd that Mike was able to buy on the JSE in 2019.(3)
• Comment on the price that Mike paid for these shares and give TWO reasons why he might have been satisfied to pay this price.(6)

5.3.2 Dividends and earnings:

• Explain your opinion on which company has the better dividend pay-out policy.(6)
• Compare and comment on the % return on equity earned by EACH company.(4)
• Mike feels that the earnings per share (EPS) of Optima Ltd is much better than that of Horizon Ltd. Explain why he feels this way.(5)

5.3.3 Refer to the Cash Flow Statements.
The poor economy has negatively affected Horizon Ltd more than Optima Ltd.

• Explain TWO decisions taken by the directors of Horizon Ltd in response to the state of the economy, and how these decisions will affect the company in future. (6)
• Explain TWO decisions taken by the directors of Optima Ltd that affect risk and gearing. Quote and comment on TWO financial indicators. (8)

D. Shareholding of Mike Mbele in two companies:

E. Financial indicators and additional information on 28 February 2019:

F. Extracts from Cash Flow Statements for year ended 28 February 2019:

QUESTION 6: BUDGETING (40 marks; 25 minutes)
The financial year-end of Carpets Galore (Pty) Ltd is 31 October 2019. Thembi Tsomi is the sole shareholder and director.
6.1 Indicate amounts in the appropriate blocks for the Cash Budget and Projected Income Statement for three months ending 31 January 2020.

• A printer costing R40 800 will be bought for cash on 30 November 2019. Depreciation will be R680 per month.
• On 1 January 2020, R48 000 will be paid for a 12-month insurance contract.
• A loan of R100 000 will be received from Viva Bank on 31 December 2019. This will be repaid in equal instalments over 20 months, commencing on 31 January 2020. Interest at 12% p.a. is paid monthly and is not capitalised. (11)

6.2 Refer to Information A: Debtors' Collection Schedule.
Thembi is preparing projections for the period commencing 1 November 2019. Thembi does not grant discount for early payment.
Calculate the % of debtors:

• Who settle their accounts in the 2nd month following the credit sales transaction month(3)
• Written off as bad debts at the end of the 3rd month following the credit sales transaction month(4)

6.3 Refer to Information B: Projected Income Statement for September and October.
6.3.1 Office workers are unhappy with the increase that Thembi gave them on 1 October 2019. Explain what she should say to them. Provide TWO points. Quote figures or a calculation. (6)
6.3.2 Thembi pays her son, Jacob, to deliver and install carpets for customers. She budgets R2,80 per metre for this. Comment on the control of this expense. Quote figures or a calculation. (4)
6.3.3 A new competitor commenced trading in the area on 1 September 2019.

• Provide figures to illustrate the impact on sales in September.(2)
• Explain THREE decisions that Thembi took in October in response to the new competitor. Quote figures or a calculation.(6)

6.3.4 Stock sold is replaced in the same month. 50% of the stock is bought on credit. Creditors are paid in the month following the purchases month to receive a 5% discount.
Calculate the actual amount payable to creditors in November 2019. (4)

INFORMATION:
A. Debtors' Collection Schedule for the period ending 31 January 2020:

B. Information identified from the Projected Income Statement:

TOTAL: 300