MARKS: 300

TIME: 3 hours

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 earn 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: CREDITORS' RECONCILIATION AND INTERNAL CONTROL
(30 marks; 15 minutes)

Machu Traders buys goods on credit from Pikor Suppliers. The business received a statement for April 2015 from the creditor.

REQUIRED:

1.1 Explain how the Creditors' Reconciliation Statement can assist the business in terms of their internal control measures. State TWO points. (4)

1.2 Calculate the correct balance of Pikor Suppliers in the Creditors' Ledger Account of Machu Traders. Show the changes to the figure R116 400. (12)

1.3 Prepare a Creditors' Reconciliation Statement for Pikor Suppliers on 30 April 2015. (10)

1.4 The owner of Machu Traders is not completely satisfied with the service and quality of goods received from Pikor Suppliers. Suggest TWO factors he should consider before changing suppliers. (4)

INFORMATION:

A. Creditors' Ledger of Machu Traders

B. Statement received on 30 April 2015:

C. Additional Information:

1. The discount of R480 received from Pikor Suppliers on 10 April 2015 was omitted erroneously in the books of Machu Traders.
2. Invoice 111 was reflected erroneously in the account of Pikor Suppliers in the Creditors' Ledger of Machu Traders. It refers to merchandise purchased from another supplier, Lethu Suppliers.
3. Pikor Suppliers made an error in the recording of invoice 273 on the statement.
4. Goods returned on 12 April 2015 were recorded correctly in the statement from Pikor Suppliers. The entry in the books of Machu Traders is incorrect.
5. Receipt 654 was shown erroneously in the statement from Pikor Suppliers. This transaction does not relate to Machu Traders and will be rectified on the next statement.
6. Pikor Suppliers also purchases goods on credit from Machu Traders. Refer to Journal Voucher 490. Machu Traders has transferred a debit balance from the Debtors' Ledger. This entry has not been recorded by Pikor Suppliers.
7. The transaction on 24 April 2015 is in respect of merchandise returned to Pikor Suppliers.
8. The statement shows transactions up to 25 April 2015.

QUESTION 2: MANUFACTURING (50 marks; 25 minutes)

2.1 CONCEPTS

Indicate whether the following statements are TRUE or FALSE. Write only 'true' or 'false' next to the question number (2.1.1–2.1.3) in the ANSWER BOOK.

2.1.1 Commission on sales will be classified as an administration cost. (1)

2.1.2 Advertising is part of factory overhead costs. (1)

2.1.3 Carriage on raw materials purchased increases the cost of raw materials issued for production. (1)

2.2 STAR WHEELS MANUFACTURERS

You are provided with information relating to Star Wheels Manufacturers for the year ended 31 December 2015. The business manufactures one type of bicycle.

REQUIRED:

2.2.1 Prepare the following notes to the Production Cost Statement:

• Direct labour cost (9)
• Factory overhead cost (13)

2.2.2 Prepare the Production Cost Statement. (10)

INFORMATION:

A. Stock balances:

B. Employees in the production process:

Employment benefits:

• All employees in the production process work the same number of overtime hours.
• UIF deductions from the basic salary are 1%. The employer contributes an additional 1% of the basic salary to UIF.

C. The factory foreman is entitled to an annual salary of R156 000 (including UIF and pension benefits).

D. Accounts appearing in the General Ledger on 31 December 2015:

• 10% of the water and electricity was used by the administration office. The factory used the rest.
• Rent is divided between the different sections according to floor space:
  

  	Total	Factory	Administration	Sales
  Floor Space	1500m2	600m2	400m2	500m2

• Insurance of R2 800 is still outstanding for December 2015. Insurance is divided in a ratio of 3 : 2 : 2 between the factory, administration and sales departments.

E. Indirect materials of R38 400 were bought for the factory during the financial year.

F. The following figures were calculated for the financial year:

• Depreciation on factory equipment, R277 220
• Direct (raw) materials issued for manufacturing, R2 100 000

G. Details from the Income Statement for the year:

NUTRITIOUS EATS

This business produces and sells one type of breakfast cereal. The sole owner is Craig Manning. The financial year-end is 31 October.

REQUIRED:

2.3.1 Calculate the break-even point for the year ended 31 October 2015. (4)

2.3.2 Should the business be satisfied with the number of units that they produced and sold during the current financial year? Explain. Quote figures. (3)

2.3.3 Give TWO possible reasons for the increase in the direct material cost per unit in the current financial year. (4)

2.3.4 Craig suggests that, in order to improve financial results in the new financial year, the quantity of cereal per box must be reduced by 10% and the selling price must remain the same. Give TWO valid reasons why he should not do this. (4)

INFORMATION:

The following information was taken from the accounting records:

QUESTION 3: VAT AND INVENTORY VALUATION (40 marks; 25 minutes)

3.1 VAT CONCEPTS

Change the underlined parts in the following sentences to make the statements TRUE. Write the answer next to the question number (3.1.1–3.1.3) in the ANSWER BOOK.

3.1.1 Input VAT is VAT charged to customers. (1)

3.1.2 VAT is payable to the South African Reserve Bank. (1)

3.1.3 VAT is charged at 14% on fruits and vegetables. (1)

3.2 VAT CALCULATIONS

Wandile Traders is a VAT registered business. The standard rate of VAT is 14%.

REQUIRED:

Calculate the correct amount of VAT the business has to pay. Show ALL workings. (12)

INFORMATION:

The bookkeeper, Felix, prepared the VAT Control Account for the tax period ended 31 May 2015 and arrived at a VAT payable amount of R43 820.

However, the internal auditor has identified the following errors and omissions which must still be brought into account to calculate the correct VAT payable amount:

3.3 INVENTORY VALUATION

Bamjee Stores sells two types of men's watches:

• Johx, imported from Germany
• Kwatz, locally manufactured

The financial year ended on 31 August 2015.

REQUIRED:

3.3.1 Calculate the following in respect of Johx watches on 31 August 2015:

1. Closing stock (5)
2. Cost of sales (4)
3. Average stock-holding period (in days) (4)

3.3.2 Calculate the following values (in rands) in respect of Kwatz watches on 31 August 2015:

1. Closing stock (7)
2. Sales (3)

3.3.3 Explain why the business uses different methods to value each type of watch. State ONE valid point.
(2)

INFORMATION:

A.

• The business uses the following methods to value the stock of watches:
  • Johx – specific identification
  • Kwatz – weighted average
• No watches were stolen or lost during the financial year.

B.

• Information relating to Johx watches:
  
  

  	Units	UNIT PRICE	TOTAL AMOUNT	UNITS SOLD	TOTAL SALES
  Opening stock	12	R6 500	R78 000	11	R125 125
  Purchases:	35		R252 000
  September 2014	15	R6 800	R102 000	10	R119 000
  January 2015	12	R7 300	R87 600	10	R127 750
  April 2015	8	R7 800	R62 400	5	R68 250
  	47		R330 000	36	R440 125

  
  • The cost price of Johx watches includes transport costs and customs duties.
  • These watches are sold at a mark-up of 75% on cost.

C. Information relating to Kwatz watches:

• Kwatz watches are sold at a fixed selling price of R520 each.
• Cost to transport Kwatz watches from local suppliers amounted to R11 950 for the financial year and is not included in the figures above.
• There were 92 Kwatz watches in stock on 31 August 2015.

QUESTION 4: INCOME STATEMENT, NOTE TO THE BALANCE SHEET AND AUDIT REPORT (65 marks; 40 minutes)

You are provided with information relating to Musica Limited for the year ended 31 December 2015.

REQUIRED:

4.1 Prepare the Income Statement. (50)

4.2 Prepare the Note to the Balance Sheet for Trade and Other Receivables. (10)

INFORMATION:

Extract from Pre-adjustment Trial Balance on 31 December 2015:

Adjustments and additional information:

A. Provide for R278 200 depreciation for the financial year.

B. On 27 December 2015 P Maine, a debtor, returned merchandise. A credit note for R1 600 was issued to her. (The cost price was R900.) No entries were made for the return of the merchandise. These items were returned to stock.

C. The insolvent estate of a debtor, J Jabaroo, paid out 45 cents in the rand and made a direct deposit of R2 025 on 31 December 2015. The outstanding balance must be written off. No entries were made to record the direct deposit and the amount written off.

D. The provision for bad debts must be increased to R8 000.

E. The stock count on 31 December 2015 revealed:

• Trading stock R369 100
• Packing material R2 400

F. The company has two directors. Each director receives the same monthly remuneration. One of the directors did not receive his directors' fee for December 2015.

G. Interest on the loan from Paris Bank has not been entered yet. Interest is capitalised. The loan statement received from Paris Bank reflected the following:

H. There was no change in the monthly rent during the financial year. The tenant paid R6 000 for repairs to the premises. As Musica Limited is responsible for all repairs, the tenant deducted this amount from the rent, which he paid for November 2015. The repairs have not been recorded, and the rent for December 2015 has not been received yet.

I. An employee was left out of the Salaries Journal.
His details are:

J. Income tax for the year was correctly calculated at R300 300.

4.3 AUDIT REPORT

You are provided with an extract from the independent audit report of Sumba Ltd.

REQUIRED:

4.3.1 The audit report is an example of a/an (qualified/unqualified/disclaimer of opinion) audit report. (1)

4.3.2 Who is the audit report addressed to? Give a reason for your answer. (2)

4.3.3 Explain why it is likely that this audit report will have a negative effect on the value of the shares of this company on the JSE. (2)

QUESTION 5: CASH FLOW STATEMENT, ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS (65 marks; 40 minutes)

You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company.

5.1 Refer to Information C.
Prepare the Asset Disposal Account in respect of equipment sold on 31 August 2015. (9)

5.2 Refer to Information C.
Calculate the amounts indicated by (a) to (c). (12)

5.3 Calculate the following figures which will appear in the Cash Flow Statement for the year ended 28 February 2016: (Show ALL workings.)

5.3.1 Income tax paid (5)

5.3.2 Net change in cash and cash equivalents (4)

5.4 Prepare the section of the cash effects on financing activities of the Cash Flow Statement for the year ended 28 February 2016. (7)

5.5 Calculate the following financial indicators for the financial year ended 28 February 2016: (Round off your calculation to ONE decimal point or the nearest cent, where applicable.)

5.5.1 Net asset value per share (3)

5.5.2 Return on average shareholders' equity (5)

5.5.3 Debt-equity ratio (3)

5.6 Refer to Information F.

5.6.1 The directors are not satisfied with the liquidity position. Quote and explain THREE relevant financial indicators (with figures) to support this statement. (6)

5.6.2 The directors decided to increase the loan during the current financial year. Explain why this was a good decision. Quote and explain TWO financial indicators (with figures) in your answer. (8)

5.6.3 The directors were pleased with the price that the company paid to buy back the 40 000 shares. Give a suitable reason why the directors felt that way. Quote relevant financial indicators (with figures) to support your answer. (3)

INFORMATION:

A. Extract from the Income Statement for the year ended 28 February 2016:

B. Extract from the Balance Sheet on 28 February 2016:

C. Fixed Assets

(ii) Equipment

• An old printer, bought for R120 000, was sold for cash on 31 August 2015 at carrying value. Accumulated depreciation on this printer was R38 400 on 1 March 2015.
• A new printer was bought for R150 000 on 1 September 2015.
• Depreciation on equipment is written off at 20% p.a. according to the diminishing-balance method.

D. Share Capital

• Authorised share capital is 3 000 000 ordinary shares.
• In 2012, 1 200 000 ordinary shares had been issued at R3,50 per share.
• On 1 November 2015, 300 000 ordinary shares were issued at R4,50 each.
• On 28 February 2016, 40 000 shares were repurchased at R0,60 more than the average price per share.

E. Dividends

The directors declared a final dividend of 7 cents per share. The shares bought back on 28 February 2016 also qualify for the final dividends.

F. Financial Indicators on 28 February:

QUESTION 6: BUDGETS (50 marks; 35 minutes)

6.1 KOBUS HARDWARE

You are provided with information relating to Kobus Hardware, owned by Kobus Groenewald.

REQUIRED:

6.1.1 Calculate the missing amounts indicated by (a) to (e) in the Cash Budget for March and April 2016. (17)

6.1.2 Complete the Debtors' Collection Schedule for April 2016. (8)

6.1.3 Calculate the percentage increase in sundry expenses. (4)

6.1.4 The Cash Budget for March and April 2016 indicates that this business will face serious financial difficulties. Identify TWO items to support this statement. Quote relevant figures. (4)

6.1.5 Refer to Information K.
Explain why each of the items reflects a problem for the business. State TWO points in EACH case. (4 x 2) (8)

INFORMATION

A

B. The business has only one supplier. Commission of 7% of total sales is receivable in the month following the sales.

C. Cash sales amount to 60% of total sales.

D. Total sales for February 2016 were R380 000.

E. 10% of the trading stock is bought on credit. Creditors are paid in full in the month following the month of purchase.

F. Collection from debtors:

• 45% settle accounts in the month of sales and receive 5% discount.
• 50% settle accounts in the following month.
• Provision is made for 5% bad debts.

G. A tenant rented a storage room in our building. He moved in on 15 March 2016 and was required to pay only half the rent amount. He was informed that rent increases by 5,5% on 1 April each year.

H. Sundry expenses are expected to increase by a fixed percentage each month.

I. The loan, at 10,5% p.a. interest, will be taken out on 1 April 2016.

• The loan will be repaid in 24 equal monthly instalments commencing on 30 April 2016.
• Interest on the loan is also payable at the end of each month commencing on 30 April 2016. Interest is not capitalised.

J. The bank has granted Kobus an overdraft facility of R40 000.

K. Kobus is concerned about the following items, which were under/over budget for February 2016:

6.2 MANAGEMENT OF FIXED ASSETS

You are the internal auditor for Kobus Hardware. Kobus is concerned that he is spending too much on delivering goods to customers. He has provided you with figures for a typical month, February 2016.

REQUIRED:

Identify ONE problem regarding each vehicle/driver. Quote figures to support your answers. Give Kobus ONE point of advice for EACH problem identified. (9)

INFORMATION:

A. Kobus has three delivery vehicles and employs three drivers to transport goods to his customers free of charge. The drivers are expected to work five days per week. There are four weeks in February.

B. Some customers live close by while others live further away. None of the customers live more than 20 km from the shop (i.e. maximum 40 km round trip).

C. Information from the accounting records for February 2016: