ACCOUNTING
GRADE 12
NATIONAL SENIOR CERTIFICATE
SEPTEMBER 2018

INSTRUCTIONS AND INFORMATION
Read the 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 black/blue ink to answer the questions.
6. Where applicable, show all calculations to ONE decimal place.
7. A breakdown of the questions is provided. Attempt to comply with the suggested time allocation for each question.

QUESTION 1: COST ACCOUNTING (45 marks; 30 minutes)
1.1 Choose the correct answer from the words provided within brackets. Write only the answer next to the numbers (1.1.1–1.1.3) in the ANSWER BOOK.
1.1.1 (Office stationery/packing material) will NOT be regarded as an administration cost.
1.1.2 Cleaning detergents used in the factory is an example of (direct material/indirect material).
1.1.3 An increase in the number of units produced will lead to a/an (decrease/increase) in the fixed cost per unit. (3 x 1) (3)
1.2 LOLO MANUFACTURERS
Lolo Manufacturers makes plastic buckets. Information for the financial year ended 28 February 2018 is provided.
REQUIRED:
1.2.1 Calculate the cost of the raw materials issued to the factory during the financial year. (8)
1.2.2 Calculate the following for the Production Cost Statement:

• Direct Labour Cost (7)
• Factory Overhead Cost (complete the table provided). (5)

1.2.3 Prepare the Production Cost Statement on 28 February 2018. (11)
INFORMATION:
A. Stock balances:

B. Summary of transactions for the year ended 28 February 2018:

C. Additional information:

1. An invoice for transport of raw materials, R4 200, has not yet been recorded.
2. During the physical stock take of raw materials on 28 February 2018, 3 000 bucket handles were recorded at R5,00 each instead of R1,50 each. This must be corrected.
3. The wage of a factory worker was omitted from the February 2018 wages journal. Her details are:

   Net wage	R9 614
   PAYE tax	R2 860
   UIF (1% of gross)	R126
   The employer contributes 1% to the UIF

    

4. The water and electricity account for February 2018, R3 240, was not paid. 75% of the water and electricity is allocated to the factory.

5. Buckets are sold at R96 each (60% mark-up on cost). Total sales for the financial year amounted to R2 457 600.

1.3 GRENS BAKERY
Information relating to the production of cakes is presented. The business is owned by Sydney.
REQUIRED:
1.3.1 Calculate the break-even point for 2018. (4)
1.3.2 Explain whether Sydney should be concerned about the break-even point and the level of production. Quote figures. (3)
1.3.3 Give a possible reason for the change in unit costs of direct material and of direct labour. (4)
INFORMATION:

(45)

QUESTION 2: BUDGETING (40 marks; 25 minutes)
2.1 Indicate whether the following statements are TRUE or FALSE. Write only True or False next to the numbers (2.1.1–2.1.3) in the ANSWER BOOK.
2.1.1 A Cash Budget is prepared to show the actual receipts and payments for a specific period.
2.1.2 A Projected Income Statement would reflect the expected profit or loss for the budget period.
2.1.3 Only nominal accounts are recorded in a Cash Budget. (3)
2.2 BANYAMA LTD
The information relates to Banyama Ltd for the budget period ended 30 September 2018.
REQUIRED:
2.2.1 Complete the Debtors Collection Schedule. (7)
2.2.2 Calculate the amounts denoted by (i) to (vi) on the extract of the Cash Budget provided. (19)
2.2.3 Refer to Information J:

• Calculate the percentage increase in the manager’s salary.(4)
• Comment on whether the salary and wage decision was justified.(3)
  Quote figures.
• Provide TWO possible consequences of this decision.(4)

INFORMATION:

1. The business sells kitchen appliances at a profit mark-up of 80% on cost.
   Stock is replaced in the month of sale. A base stock is maintained.
2. Actual and budgeted figures for 2018:

   	JULY	AUGUST	SEPTEMBER
   Sales	225 000	207 000	216 900
   Purchases	125 000	?	120 500

    

3. 70% of total sales are on credit. Debtors pay as follow:

4. 60% in the month following the sales month;

   • 36% in the second month following the month of sales;

   • 4% is written off.

   • All goods are purchased on credit. Creditors are paid after 30 days subject to a 5% discount.

5. Extract from the Cash Budget for August and September 2018:

   	AUGUST R	SEPTEMBER R
   Cash sales	62 100	(i)
   Loan received	316 800	0
   Payment to creditors	118 750	(ii)
   Salary of manager	15 300	16 830
   Wages of sales staff	38 400	38 400
   Operating expenses	?	(iii)
   Drawings	13 250	(iv)
   Water and electricity	15 400	16 632
   Deposit on new equipment	12 600	0
   Instalment on new equipment	0	(v)
   Instalment on loan	0	(vi)
   Interest on loan	0	2 310

    

6. Operating expenses amounts to R163 440 annually and is spread evenly throughout the budget period.

7. The owners plan to draw 50% more than their usual monthly drawings to attend a live concert during September 2018.

8. New equipment will be purchased during August 2018. A 15% deposit will be paid. The balance will be settled in equal instalments over 24 months, commencing on 30 September 2018.

9. The loan was received from a partner. A fixed instalment will be paid on the 1st of each month. Interest at 9% p.a. will be paid at the end of each month, commencing in September 2018.

10. Salaries and wages are revised in August each year. The manager’s salary will increase on 1 September 2018. Due to the poor economic situation, the owner decided that a wage increase cannot be afforded.
    (40)

QUESTION 3: FIXED ASSETS, INCOME STATEMENT AND AUDIT REPORT (75 marks; 45 minutes)
3.1 CONCEPTS
Choose a category from the list provided for each example below. Write only the category next to the numbers (3.1.1–3.1.4) in the ANSWER BOOK.
non-current asset; current liability; expense; equity; current asset; income
3.1.1 Retained income
3.1.2 Amount due by SARS in respect of income tax for the year
3.1.3 Extensions to land and buildings
3.1.4 An increase in the Provision for Bad Debts (4 x 1) (4)
3.2 YASHPAL LTD
The information relates to the financial year ended 28 February 2018.
REQUIRED:
3.2.1 Refer to Information A:
Calculate the figures denoted by (i) to (iii) on the Fixed Asset note. (11)
3.2.2 Prepare the Asset Disposal account on 1 January 2018. (5)
3.2.3 Prepare the Income Statement for the year ended 28 February 2018. (46)
INFORMATION:

1. Fixed Assets:

   	VEHICLES	EQUIPMENT
   Cost (1 March 2017)	838 000	622 000
   Accumulated depreciation (1 March 2017)	(420 000)	(264 000)
   Carrying value (1 March 2017)	(i)	358 000
   Movements:
   Additions	216 000	0
   Disposals	0	(iii)
   Depreciation	(ii)	(35 400)
   Carrying value (28 February 2018)
   Cost (28 February 2018)		517 000
   Accumulated depreciation (28 February 2018)

   • A new vehicle was purchased on 1 October 2017.

   • Vehicles are depreciated at 15% on cost.

   • Old equipment was sold on 1 January 2018 for R26 250, cash. A profit of R4 250 was made on this sale.

2. Balances/totals extracted from the Pre-adjustment Trial Balance on 28 February 2018:

   Loan: GT Bank	R 542 000
   Fixed deposit (8% p.a. interest)	195 000
   Debtors control	112 245
   Provision for bad debts	7 480
   Trading stock	728 400
   Sales	?
   Cost of sales	4 250 000
   Directors fees	336 500
   Salaries and wages	222 700
   Fee income	79 350
   Audit fees	19 450
   Rent expense	146 080
   Packing material	43 730
   Discount received	14 280
   Bad debts	23 555
   Sundry expenses	?

3. ADDITIONAL INFORMATION AND ADJUSTMENTS:

a )A credit sales invoice for R32 200 was not taken into account. Goods are sold at a profit mark-up of 75% on cost.

b) Stock-taking on 28 February 2018 revealed the following stock on hand

• Trading stock, R706 350
• Packing material, R3 880

c) A debtor who owed R17 300 was declared insolvent. His estate paid 35 cents to the Rand and this was correctly recorded. The remaining balance must be written off as irrecoverable.

d) The provision for bad debts must be adjusted to 5% of debtors.

e) Directors’ fees of R23 500 were still outstanding on 28 February 2018.

f) 50% of the audit fees were paid to the external auditor. The balance will be settled in March 2018.

g) Rent paid includes the rent for March 2018. Note that the rent increased by 7% on 1 December 2017.

h) The loan statement received on 28 February 2018 reflected an outstanding balance of R565 800. Interest, capitalised, was not taken into account.

i) Take into account interest on fixed deposit at 8% p.a. This investment was made on 1 September 2017.

 j) After taking into account all the adjustments, the income tax for the year at 29% of the net profit amounted to R560 860.\

Related Items

3.3 AUDIT REPORT: PICOLI LTD

REQUIRED:
3.3.1 Briefly explain the role of the external auditor. (2)
3.3.2 What type of audit report did Picoli Ltd receive? Explain. (3)
3.3.3 Why would an existing shareholder be concerned about this report?
Provide TWO points. (4)
INFORMATION:

(75)

QUESTION 4: FINANCIAL STATEMENTS, CASH FLOW AND INTERPRETATION (65 marks; 40 minutes)
4.1 CONCEPTS: MATCHING
Choose a description from COLUMN B that matches the concept in COLUMN A. Write only the letter (A–F) next to the numbers (4.1.1–4.1.5) in the ANSWER BOOK.

(5 x 1) (5)
4.2 KHLOE LTD
The information relates to the financial year ended 31 May 2018.
REQUIRED:
4.2.1 Complete the cash generated from operations note for the Cash Flow Statement. (9)
4.2.2 Calculate the following amounts for the Cash Flow Statement:

• Income tax paid (4)
• Dividends paid (4)
• Fixed assets purchased (5)

4.2.3 Calculate the Net change in cash and cash equivalents. (4)
INFORMATION:
A. Extract from the Balance Sheet and notes on 31 May 2018:

B. Additional Information:

1. Net profit before income tax, R988 700;
   Net profit after income tax, R692 100.
2. Old equipment were sold at carrying value of R283 500. Equipment were purchased during the financial year to upgrade the facilities.
3. Depreciation for the year, R221 400.
4. Total dividends (paid and recommended) as per the Retained Income note, R317 400.

4.3 KWEZI LTD: ANALYSIS AND INTERPRETATION
The information relates to the financial year ended 28 February 2018.
REQUIRED:
4.3.1 Prepare the Ordinary Share Capital note. (7)
4.3.2 Calculate the following financial indicators on 28 February 2018:

• Net asset value per share (3)
• Return on shareholders’ equity (5)

4.3.3 Quote TWO financial indicators (with figures and trends) that indicate an improvement in the liquidity position of the business. (4)
4.3.4 The company paid back a large portion of the loan. Explain why this was a good decision. Quote TWO financial indicators (with figures). (6)
4.3.5 Comment on the dividend pay-out policy over the past two years. Provide a possible reason for the policy adopted. Quote figures. (5)
4.3.6 Explain whether the price paid for the share buy-back was fair. Quote TWO financial indicators (with figures) in your explanation. (4)

INFORMATION:
A. Extract from the Income Statement on 28 February:

B. Extract from the Balance Sheet on 28 February:

C. Share Capital:

• On 1 March 2017, the company had 760 000 shares in issue.
• On 1 June 2017, 30 000 shares were repurchased at R5,20 per share.
• On 31 October 2017, a further 150 000 shares were issued.

D. Financial indicators on 28 February:

(65)

QUESTION 5: INVENTORY VALUATION (45 marks; 25 minutes)
5.1 Provide a stock valuation method that is best described by each statement below.
Write only the valuation method next to each number (5.1.1–5.1.3) in the ANSWER BOOK.
5.1.1 Unique stock items of high value such as motor cars are valued individually.
5.1.2 Stock of appliances such as microwave ovens are always reflected at their most recent cost price.
5.1.3 Low-cost items such as golf balls are purchased in large quantities and reflect a similar value over time. (3 x 1) (3)
5.2 CASUAL OUTFITTERS
The information relates to Casual Outfitters, owned by Funiwe, for June 2018. The business sells men’s jeans. Stock is valued using the weighted-average method and the periodic inventory system.
REQUIRED:
5.2.1 Calculate:

• Amount paid for carriage on 11 June 2018 (4)
• Value of the closing stock on 30 June 2018 (9)

5.2.2 Funiwe wants to change the method of valuing stock. The value of closing stock using the FIFO method will be R4 853 higher than the value using the weighted-average method.

• Explain the effect that this decision will have on the gross profit. (2)
• Give ONE valid reason for and ONE valid reason against changing the stock valuation method. (4)

5.2.3 Funiwe is concerned about the control of her stock of jeans. She has sold 1 788 pairs of jeans during the year. Provide a calculation to support her concern. (5)
5.2.4 Comment on the stock balance on 30 June 2018. Is this appropriate?
Explain. Provide ONE point. (3)
INFORMATION:
A. Stock balances:

B. Purchases and returns:

5.3 PROBLEM-SOLVING
Jay’s Furnishers sells desks and chairs. The financial year ended on 28 February 2018.
REQUIRED:
Where applicable, provide relevant figures for ALL questions below.
5.3.1 Desks:

• What decision did Jay take regarding the selling price of the desks? (3)
• Explain TWO points on how this decision has affected the business. (6)

5.3.2 Chairs:
Jay decided to buy his chairs from a cheaper supplier. Provide TWO points on why you feel that this was NOT a good decision. (6)
INFORMATION:

(45)

QUESTION 6: RECONCILIATION AND VAT (30 marks; 15 minutes)
6.1 CREDITORS RECONCILIATION
Ladoo Traders buys goods on credit from Anami Suppliers. The information relates to August 2018.
REQUIRED:
6.1.1 Use the table in the ANSWER BOOK to indicate how the balances will change when preparing the creditors' reconciliation. Indicate the figure as well as a + for increase and a – for decrease. (11)
6.1.2 Refer to Information (vi):
An investigation revealed that only R21 500 of these goods were entered in the stock records. The remaining goods were ordered by M. Rice, the credit manager.

• Provide TWO possible actions that can be taken against M. Rice. (4)
• Explain TWO internal control measures that the business can use to prevent such incidents in future. (4)

INFORMATION:
A. Balances:

B. Errors and omissions discovered during an investigation:

1. An invoice for R26 000 received from Anami Suppliers was recorded correctly by Ladoo Traders. The statement reflects it as R20 600.
2. Ladoo Traders had correctly recorded a discount of R820 for an early payment. This did not appear on the statement from Anami Suppliers.
3. The statement reflected interest of R1 240 on an overdue balance. Anami Suppliers acknowledged that an error had been made.
4. A debit note for R1 520 issued to Amanda Ltd was incorrectly recorded in the account of Anami Suppliers by Ladoo Traders.
5. A credit note for R2 440 received from Anami Suppliers for goods returned was incorrectly recorded as an invoice by Ladoo Traders.
6. An invoice for R47 500 was reflected on the statement from Anami Suppliers but was not recorded by Ladoo Traders.
7. A payment of R7 500 by Ladoo Traders on 27 August 2018 was recorded in the Creditors Ledger account of Anami Suppliers.

6.2 VAT: XEGO STORES
Xego Stores accounts for VAT every alternative month. All goods and services are subjected to VAT at the standard rate of 15%.
REQUIRED:
Calculate the final amount payable to SARS on 31 July 2018. (11)
INFORMATION:

TOTAL: 300