ACCOUNTING
GRADE 12
MEMORANDUM
NATIONAL SENIOR CERTIFICATE
JUNE 2017

GENERAL RULES:

1. Award full marks for the correct final answers. If the answer is incorrect, mark the workings provided.
   If a workings figure/amount is shown as a final answer, allocate the working mark.
2. “Method” marks are denoted by 
   
   • In calculations and final totals, at least one part of the workings must be correct to earn the mark.
   • In cases where answers of previous questions must be used, check the transfer.
   • Ignore brackets on statements, but check the operation before awarding marks.
3. Where penalties are applied, the marks for that section cannot be a negative. (foreign items)
4. For questions requiring explanations and comments, award part-marks. A good explanation will normally mention and explain a point. Beware of alternative wording reflecting the same points. This marking guideline provides some explanations – they are not conclusive. Read the candidates’ responses and give credit for their interpretations.
5. Where appropriate/acceptable, accept recognisable abbreviations.
6. Educators are expected to work through the entire paper and make reasonable adjustments within the framework of the mark allocation.

QUESTION 1
RECONCILIATIONS
1.1 TRUE OR FALSE
1.1.1 True ✓
1.1.2 False✓
1.1.3 False ✓
1.1.4 True ✓ (4)
1.2 BANK RECONCILIATION
1.2.1

(14)
1.2.2 BANK RECONCILIATION STATEMENT ON 31 MARCH 2017

*Both totals
(9)
1.2.3 As the internal auditor, why would you be concerned about the manner in which Siba performs her duties? Provide TWO points.
Any TWO valid points ✓✓✓✓

• Siba is responsible for many related tasks with little or no supervision. She may be negligent in performing her duties.
• Siba is not depositing money on a regular basis – she is probably rolling over cash.
• Siba may be tempted to engage in fraudulent behaviour due to no supervision.
  (4)

1.2.4 Provide a solution for the concerns you identified.
Any ONE solution ✓✓
Implement division of duties / provide supervision (line managers) to check work done / follow up on transactions with the bank (sms) / use a system of authorising certain important transactions. (2)
1.3 CREDITORS RECONCILIATION

(12)

QUESTION 2
INVENTORY VALUATION
2.1 Calculate the value of the closing stock of Samsun cameras for the six months ended 31 March 2017.
(15 – 8) : 7 ✓ x 3 200 ✓ = 22 400 ✓*
(23 – 14) : 9 ✓ x 3 680 ✓ = 33 120 ✓*
TOTAL : 55 520 ✓* one part correct(7)
2.2 Calculate the percentage gross profit earned on Nokin cameras.
39 480 four marks
65 800 three marks 105 280 ✓ – (44 000 ✓ + 67 200 ✓ – 45 400 ✓) x 100 = 60% ✓ one part correct 65 800 ✓ see above (6)
2.3 Calculate the value of the closing stock of leather bags for the six months ended 31 March 2017.
(30 + 65 – 68) = 27 ✓✓ one part correct
25 x 720 = 18 000 ✓ 2 ✓ x 675 ✓ = 1 350  Total: 19 350 ✓ one part correct(7)
2.4 Comment on the stock holding period of leather bags. Quote figures.
Comment ✓✓ figures ✓✓
The stock holding period increased from 148 days to 157 days.
This shows that the leather bags is not selling fast enough.
Stock stays in stock for almost ½ the year.
Fortunately, leather bags are durable and has a long shelf life. (4)
2.5 Tim wants to increase the sales of bags. What advice would you offer him? Provide ONE point. (2)
ONE valid point ✓✓
Advertise together with the cameras and other accessories.
Lower the profit mark-up percentage or selling price.
Buys stock in smaller quantities and more often (as needed)
Base the sales on orders received.
2.6 MANAGEMENT OF INVENTORIES
2.6.1 What decision did Erna take regarding the selling price of the printers?
Any ONE decision ✓ Figures ✓

• He increased the mark-up from 50% to 75%.
• He increased the selling price from R1 875 to R2 625 / by R750 (by 40%). (2)

How has this decision affected the business? State TWO points.
Any TWO valid points ✓✓ Figure ✓✓

• Gross profit increased from R288 750 to R337 500 / by R48 750 (by 16,8%).
• Stock turnover rate decreased from 7,1 to 6,0 times.
• Sales of printers decreased from 462 to 300 units (by 36,1%).(4)

2.6.2 Was it a good idea for Erna to change to a cheaper supplier of fax machines?
YES/NO: No ✓
Explain ONE point.
Any valid point ✓ Figures ✓

• The gross profit decreased from R162 800 to R106 760 /by R56 040 (by 34,4%).
• The returns increased from 0 to 66 units (indicating that the customers were not satisfied with the quality of the product).
• The cheaper price of R476 did not affect the amount of units sold (785) or the stock turnover rate which remained constant at 5,0 (fax machines did not appear to be popular with customers).(3)

QUESTION 3
CONCEPTS AND INCOME STATEMENT
3.1 CONCEPTS
3.1.1 C ✓
3.1.2 A ✓
3.1.3 D ✓
3.1.4 B ✓ (4)
3.2 INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017

(51)*operation, one part correct

QUESTION 4
BALANCE SHEET AND NOTES
4.1 CONCEPTS
4.1.1 Return on equity ✓
4.1.2 Gearing 
4.1.3 Liquidity 
4.1.4 Solvency (4)
4.2.1 ORDINARY SHARE CAPITAL

*one part correct (11)

RETAINED INCOME

(16)

4.2.2 BALANCE SHEET AS AT 28 FEBRUARY 2017

(24)

QUESTION 5
CASH FLOW STATEMENT AND INTERPRETATION & AUDIT REPORTS
5.1.1 CASH GENERATED FROM OPERATIONS

*1 mark for the amount and 1 mark for the correct use of the brackets #check operation, one part correct
(11)
5.1.2 Income tax paid
✓✓✓✓one part correct
- 9 400 + 298 700 – 17 300 = 272 000 (4)
Dividends paid
✓✓✓✓ one part correct
86 400 + 239 100 – 138 600 = 186 900(4)
5.1.3 EXTRACT OF THE CASH FLOW STATEMENT

(22)
*operation, one part correct, amount only correct with the correct use of the brackets
5.2 FOXX LTD AND WOLFE LTD
5.2.1 Identify the company that is managing its working capital more effectively. Refer to TWO financial indicators of both companies to support your choice of company.
Company : Foxx Ltd ✓
Comparison of TWO financial indicators ✓✓✓✓

1. Acid test ratio (Wolfe 0,7 : 1; Foxx 1,1 : 1) shows that Wolfe’s current assets is high because of excess stock (stock piling)
2. Wolfe’s stock holding period is also high 98 days (Foxx 35 days) which means that their sales is also not effective. Low turnover of stock.
   Note: Do not accept current ratio (5)

5.2.2 Comment on the dividend pay-out policy of each company. Explain the policy used and quote figures for each.
Foxx  and Wolfe ✓✓
Fox pays 95% (494/520) of the EPS to shareholders - DPS. Only 5% is retained by the business.
Wolfe pays 50% (325/650) of EPS to shareholders – DPS. 50% of profits is retained by the business for growth.(4)
5.2.3 Comment on the decisions regarding the use of loans for each company. Make reference to TWO financial indicators for each company.
Foxx: financial indicators ✓✓ figures ✓
Wolfe: financial indicators ✓✓ figures ✓
Wolfe is lowly geared. Debt/equity is 0,1 : 1. Return on capital employed shows negative gearing. (6% compared to interest on loan which is 12%)
Therefore it is good that they chose to use more own capital as borrowed capital would be costly for them.
Foxx is highly geared. Debt equity is 0,8 : 1. ROTCE (17%) shows that the business experiences positive gearing as the return is higher than the interest rate (12%). (6)
5.2.4 Explain how prospective investors would react to the share price of each company. Quote figures to support your answer.
Comparing NAV and Market price of each company ✓✓
Comment on prospective investors ✓✓
Foxx has a higher NAV than Wolfe (945 cents / 530 cents).
Wolfe market price (710 cents) is better than their NAV.
Foxx market price (776 cents) is lower than their NAV.
Prospective investors will be more interested in Wolfe as the market price is an indicator of investor confidence in a company.(4)
5.2.5 AUDIT REPORT
State the type of report received by each company.
FOXX: Unqualified ✓
WOLFE: Disclaimer of opinion ✓ (2)
Explain how the reports above will affect his decision concerning which company to invest his money.
Good explanation ✓✓✓ satisfactory explanation ✓✓ weak ✓
Eastward would be concerned about Wolfe as the audit report creates a negative image of the company.
The external auditor is not satisfied with the internal controls. This suggests that there are many problems with management and control. Basic process are not being maintained. This will cause the share price to drop.(3)

QUESTION 6
FIXED ASSETS AND VAT
6.1 FIXED ASSETS
6.1.1 Explain how the asset register will assist the internal auditor in the course of him performing his duties.
ONE valid explanation ✓✓

• It helps to verify the value of individual assets.
• It shows the control of assets in terms of replacements, writing off and depreciation policies.
• It gives a breakdown of the total assets as reflected in the general ledger.
• It highlights the internal control process in terms of usage, maintenance and upkeep. (2)

6.1.2 GENERAL LEDGER OF ELIJAH TRADERS ASSET DISPOSAL ACCOUNT

(11)
6.1.3

(18)
6.2 VAT 

6.2.1

RECEIVABLE OR PAYABLE TO SARS:
27 060 – 14 560 = 12 500 ✓ PAYABLE ✓  (11)
6.2.2 M. Booi suggested to Marties that she will supply certain trading goods for cash only and that she will not provide any documentation.
Should Marties accept this offer? Explain.
No ✓
Explanation ✓✓
This is an attempt to defraud SARS. It is illegal and if caught will result is severe fines or disciplinary action.
It is unethical and dishonest business practice.
It will also tarnish the reputation of the business and people will lose confidence in the owner and will not support the business.  (3)

TOTAL: 300