ACCOUNTING
GRADE 12
NOVEMBER 2020
MEMORANDUM
NATIONAL SENIOR CERTIFICATE

MARKING PRINCIPLES:

1. Unless otherwise stated in the marking guideline, penalties for foreign items are applied only if the candidate is not losing marks elsewhere in the question for that item (no penalty for misplaced item). No double penalty applied.
2. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate is earning marks on the figures for that item.
3. Full marks for correct answer. If answer incorrect, mark the workings provided.
4. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that figure (not the method mark for the answer). Note: if figures are stipulated in memo for components of workings, these do not carry the method mark for final answer as well.
5. Unless otherwise indicated, the positive or negative effect of any figure must be considered to award the mark. If no + or – sign or bracket is provided, assume that the figure is positive.
6. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates.
7. This memorandum is not for public distribution; as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions.
8. Where penalties are applied, the marks for that section of the question cannot be a final negative.
9. Where method marks are awarded for operation, the marker must inspect the reasonableness of the answer and at least one part must be correct before awarding the mark.
10. Operation means 'check operation'. 'One part correct' means operation and one part correct. Note: check operation must be +, -, x, ÷, or per memo.
11. In calculations, do not award marks for workings if numerator & denominator are swapped – this also applies to ratios.
12. In awarding method marks, ensure that candidates do not get full marks for any item that is incorrect at least in part. Indicate with a .
13. Be aware of candidates who provide valid alternatives beyond the marking guideline.
14. Codes: f = foreign item; p = placement/presentation.
    These marking guidelines consist of 15 pages.

QUESTION 1
1.1
1.1.1 B (bad debts)
1.1.2 D (production wages)
1.1.3 E (bank charges)
1.1.4 C (depreciation of factory machinery)
1.1.5 A (raw material to production)
1.2 BERGVIEW MANUFACTURERS
1.2.1 FACTORY OVERHEAD COST NOTE

(16)
1.2.2 PRODUCTION COST STATEMENT FOR YEAR ENDED 29 FEBRUARY 2020
*one part correct

(10)
-1 P Poor presentation (max -1) (no details); accept recognisable abbreviations such as DLC, FOHC
1.3 EASY FOODS
1.3.1 Explain why the change in units produced affected the fixed costs per unit.
Any ONE valid reason✓✓part marks for incomplete / unclear answer

• Fixed cost are not influenced by production levels; decrease in units produced and sold will increase the fixed costs per unit.
• Fixed costs remained constant while the number of units decreased.
• Economies of scale is only achieved if there is an increase in production (2)

1.3.2 Give TWO possible reasons for the increase in direct material cost per unit. Any TWO valid reasons✓✓part marks for incomplete / unclear answers
Reason 1

• Increase in price of raw material / including inflation
• No bulk discounts due to decreased production
• Importing raw material (exchange rate / import duties)

Reason 2

• Increase in transport and/or storage cost of raw material
• Scarcity – price hikes due to higher demand
• Wastage of raw material / poor management and control in production process / poorly trained workers
• Possible theft of raw material

1.3.3 Explain why the business should not be satisfied with the level of production and the break-even point. Compare and quote figures for both years.
Comparison ✓ ✓figures for each year ✓✓✓✓
Any TWO of: Compare BEP of 2019 to production of 2019;
Compare production of 2019 to production of 2018
Compare BEP of 2019 to BEP of 2018

• Produced 54 000 units and the break-even point is 50 976; 3 024 above BEP.
• Production decreased from 65 000 to 54 000 units (by 11 000 units / 16,9%)
• BEP increased from 50 000 to 50 976 units (976 units / 2%)
• Profit on 3 024 units in 2019 in comparison to profit on 15 000 units in 2018 /
  Drop in profits by 11 976 units
  (6)

1.3.4 Explain ONE reason against this option.
ONE reason ✓ part marks for incomplete / unclear answers

• This may be considered as unethical / illegal if not disclosed on packaging / can be sued / reported to consumer council
• Will incur additional costs in producing new packaging / advertising
• The customers will not be happy and sales would drop even more / lose customers to competitors
• Negative impact on image of the business, when discovered.
  (2)

TOTAL MARKS:45

QUESTION 2
2.1 VAT
No part marks for workings
Calculate the VAT amounts and indicate the effect of EACH.

2.2 BANK RECONCILIATION AND INTERNAL CONTROL
2.2.1 Show the entries that must be recorded in the Cash Journals.

(10)
-1 foreign items (max -1) for any amount that earns a mark in 2.2.3.
2.2.2 Calculate the Bank Account balance on 30 April 2020.
See CRJ total See CPJ total
– 3 450 + 97 070 – 91 715 Accept ledger account format 
CRJ and CPJ totals must include the provisional totals given
Answer:
1 905 one part correct

2.2.3 Bank Reconciliation Statement on 30 April 2020

 -1 foreign items (max -1) for any amount that earns a mark in 2.2.1.
(9)

2.2.4 As internal auditor you are not happy with the control of cash in this business. Explain TWO problems to confirm your suspicion. Quote figures. Give advice on how EACH problem can be avoided in future.

Accept the same advice if appropriate / relevant to both problems identified, such as ‘Division of duties’.
(6)

2.3 DEBTORS' AGE ANALYSIS
2.3.1 Explain how the debtors' age analysis will assist the business in managing debtors' more effectively.
Valid explanation ✓✓✓✓part marks for incomplete / unclear answers

• Helps the business to identify slow or defaulting debtors, or possible bad debts
• Highlights debtors in good standing so that their credit rating can be reviewed
• It can expose the problem of allowing debtors to exceed their credit limit
• Exposes weaknesses in internal control processes so that corrective measures can be taken.
  (2)

2.3.2 Explain TWO separate problems highlighted by the age analysis. Provide evidence for EACH.
Evidence must be shown. May be in explanation column; Accept name or explanation or amount.
Any TWO of:

2.3.3 State TWO strategies that Tonga Hardware can use to ensure that only reliable applicants are granted credit.
Any TWO valid strategies ✓✓TWO different options form the list:
Perform credit checks (references / listing / credit bureau)
Check employment history / salary advice / bank statement
Contact details (residential or postal address / contact numbers or emails)
(2)
TOTAL MARKS: 45

QUESTION 3
3.1
3.1.1 First in first out FIFO
3.1.2 Weighted average method WA
3.1.3 Specific identification method  SI / SIM Accept abbreviations
3.2 JJ FASHION HOUSE
3.2.1 Calculate: Value of the closing stock using the weighted-average method 
1 858 200 two marks
(124 500 + 1 813 000) (130 x 610)
1 937 500 – 79 300 x 380 
3 390 –130 
(240 + 3 150)
3 260 two marks
WA: 570 four marks
Answer:
216 600 one part correct

Calculate: Gross profit
see above see above
2 764 800 – (1 858 200– 216 600)
1 937 500 – 79 300
1 641 600 two marks
IF UNITS ARE USED: (960 – 570) x 2 880
one mark one mmark one mark
Answer:
1 123 200 one part correct

3.2.2 Calculate how long (in days) it will take to sell the closing stock of the jeans.
see 3.2.1
216 600 x 365
1 641 600 see 3.2.1 (COS)
OR: IF UNITS ARE USED
one mark one mark one mark
380 x 365 OR 380
2 880 2 880 / 365
one mark one mark one mark
Answer:
48,2 days one part correct

3.2.3 Calculate: Value of closing stock using the FIFO method
400 – 130 270 x 610 = 164 700 one part correct 110 x 580 = 63 800 one part correct 380 – 270 see above
228 500 one part correct

State ONE advantage of using the FIFO method.
Any ONE point ✓ part marks for incomplete / unclear / partial responses

• Higher gross profit because of higher closing stock value / lower cost of sales
• Purchase price of jeans is always increasing due to demand / inflation
• Stock valued at the most recent prices; less chance of being obsolete / outdated
• Gross profit will be based on current market related values
• Easier to use this method.
  (2)

3.2.4 Calculate the number of jackets stolen.
(1 760 + 6 500)
8 260  – 2 980 – 5 020 
OR – 8 260 + 2 980 + 5 020
Answer:
260 one part correct
Give TWO solutions to solve the problem. Any TWO valid points✓✓ part marks for incomplete / unclear / partial responses
Expected responses for 2 marks:
Solution 1

• Count stock regularly and compare against stock records
• Improve / employ security to control at exit points
• Install security cameras at strategic points (CCTV)

Solution 2

Related Items

• Order smaller quantities, but more frequently as required
• Staff screening / lockers for staff (if they are suspected)
• Tracking devices / security tags on products
• Insure goods so that you can claim on insurance policy

3.2.5 The internal auditor is concerned about the stock levels and selling price of jackets. Explain reasons for his concern, with figures, and give different advice in EACH case. Be alert to advice that may apply to both, such as ‘reduce mark-up%”

TOTAL MARKS: 40

QUESTION 4
4.1

1. Cost of land and buildings at beginning of year
   9 650 000 + 850 000 Award one mark if this working is shown without the final answer given
   Answer:
   R10 500 000 ✓✓
2. Depreciation of vehicles for the year
   New: 625 000 x 20% x 3/12 = 31 250✓✓ one part correct
   Old: 1 281 000 x 20% = 256 200 ✓✓one part correct
   Answer:
   R287 450 ✓ one part correct
3. Disposal of equipment
   (6 000 x 15% x 6/12) 21 000 ✓ – (15 000 ✓ + 450✓✓) one part correct
   15 450 three marks
   Answer:
   R5 550 ✓ one part correct
4. Accumulated depreciation of equipment
   200 000+ 42 450 – 15 450 ✓ see (iii) above
   Answer:
   R227 000 ✓ one part correct
   (iii) and (iv) accept as workings: Ledger format; signs reversed; brackets

4.2 ORDINARY SHARE CAPITAL:
ISSUED SHARE CAPITAL

-1 P if no details (max -1) *one part correct

RETAINED INCOME:

*one part correct
4.3 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON 31 MARCH 2020

(34)
-1 foreign items (max -2); misplaced items: mark workings only. -1 Presentation (no details) max -1 # SARS: Income tax could be a DR (CA) if Income tax incorrectly calculated
TOTAL MARKS:65

QUESTION 5
5.1
5.1.1 External 
5.1.2 Directors 
5.1.3 Balance Sheet 
5.1.4 Cash Flow Statement 
5.2 BOMBAY LTD
CASH FLOW STATEMENT FOR YEAR ENDED 29 FEBRUARY 2020

one part correct and must be in brackets / if no brackets, full marks for workings If inappropriate use of brackets, or not, full marks cannot be earned on that line.
5.2.2 Calculate: % operating profit on sales
1 122 500  x 100
4 824 000 
Answer:
23,3% one part correct; accept 23% express as %; sign not necessary

Calculate: Acid-test ratio
(NOTE: The current ratio is 1,6 : 1.)
774 000 x 1,6 two marks
(1 238 400 – 619 000) : 774 000 
619 400 three marks
Answer:
0,8 : 1  one part correct as x : 1

Calculate: Net asset value (NAV) per share
6 422 800 two marks
(5 880 000 + 542 800) x 100
          980 000          one part correct
(900 000 + 200 000 – 120 000)
Answer:
655,4 cents one part correct or 655 cents accept R6,55
Note: The 100 is not regarded as ‘one part correct’ for the method mark

5.3 TWO COMPANIES: LULU LTD AND COCO LTD
5.3.1 Explain which company has the better liquidity. Quote TWO financial indicators to support your opinion.
Part marks for incomplete / unclear / partial explanation
Explanation and Financial Indicators for Lulu:
Liquidity ratios of Lulu Ltd are more efficient than that of Coco Ltd.
Current ratio 1,7 : 1 
Acid test ratio 0,9 : 1 
OR
Explanation and Financial Indicators for Coco:
Liquidity ratios of Coco Ltd one mark are higher / they have more CA one mark
Coco has more liquid assets than stock (0,6 : 1 compared to 0,8 : 1 in Lulu)
Current ratio 4,2 : 1 one mark
Acid test ratio 3,6 : 1 one mark
5.3.2 Comment on the earnings per share and the % return on equity of Lulu Ltd. Give TWO reasons why the shareholders will be satisfied with these indicators. Quote figures.
Financial indicators with figures and trend ✓✓ Explanation 
EPS increased (from 233 cents) to 273 cents (by 40 cents / 17,2%)
ROSHE increased (from 14%) to 25% (by 11% / 78,6%)
This exceeds the returns on alternative investments (such as interest on fixed deposits which is 6%).
5.3.3 Comment on the market value of the shares in Coco Ltd. Explain TWO points. Quote figures.
TWO valid points. ✓✓Figures ✓✓

• Compare to NAV: Market value of R18,80 is higher than the NAV of R17,86 (by 0,94). Indicates good demand for the shares / positive image of the company / company is doing well.
• Compare to purchase price: He originally bought the shares for R28,00 but the market price is now R18,80 (indicates poor financial return)

5.3.4 Compare the dividend pay-out rates of both companies and explain why the directors of EACH company decided on these pay-out rates. Quote figures or calculations.
Lulu Ltd: 110c (DPS)/273 cents(EPS) or 40,3% 
They retained 59,7% of the EPS for future growth / expansion 
OR This is to benefit shareholders through the NAV and share price
Coco Ltd: 200c (DPS)/171 cents (EPS) or 117% 
They decided to keep shareholders happy / reward shareholders for low dividends in previous years / have no plans for growth 
Be alert to different presentation of information.

5.3.5 Noah says that the dividend of 110 cents per share he earned from Lulu Ltd is better than the dividend of 200 cents per share from Coco Ltd. Give ONE point to prove that he is incorrect. Quote figures or calculations.
ONE explanation / comparison (with figures)
No marks for individual / random amounts stated.
200 cents – 110 cents = 90 cents more per share was earned in Coco Ltd.
OR: He earned 90 cents more per share in Coco Ltd. four marks
Also be alert to learners who commented in the following way to prove Noah is correct:
In Lulu Ltd, he earned 110c on a share which cost him 700c (16%) two marks
In Coco Ltd, he earned 200 cents on a share which cost him 2 800c (7%) two marks
OR:
In total he earned dividends of R440 000 from Lulu Ltd, and R200 000 from Coco Ltd four marks

5.3.6 Comment on the risk and gearing of EACH company. Quote TWO financial indicators.
THREE marks per company: Financial Indicator with figure and Comment
Accept the correct figures (if financial indicators are not mentioned)
Lulu Ltd:
Debt/equity ratio is 0,8 : 1 
ROTCE is 20% 
Comment 
The business makes extensive use of loans (high risk) /
ROTCE is higher than the interest rate of 13%, indicating positive gearing
Coco Ltd:
Debt/equity ratio is 0,2 : 1 
ROTCE is 10% 
Comment 
The business does not rely on loans (low risk) /
ROTCE is lower than interest rate of 13%, indicating negative gearing
Arrangement of information may vary; financial indicators and/or comment may be compared in the same statement

5.3.7 Noah wants to buy shares in Lulu Ltd on the JSE at current market value to become the majority shareholder and CEO. Calculate how much Noah will have to pay for the shares that he needs.
Workings:
1 100 000 / 2 + 1 (550 001 – 400 000 ) x R9,50 = R1 425 009,50 one part correct
150 001 two marks
OR 50% + 100
(550 100 – 400 000) x R9,50 = R1 425 950
150 100
OR 51%
(561 000 – 400 000) x R9,50 = R1 529 500
161 000
OR 14% x 1 100 000 or 15% or 13,7%
154 000 x R9,50 = R1 463 000
TOTAL MARKS: 70

QUESTION 6
6.1
6.1.1 False 
6.1.2 True 
6.1.3 True  Accept T or F
6.2 KURUMAN (PTY) LTD
6.2.1 Calculate the missing amounts indicated by (i) and (ii) in the Debtors' Collection Schedule.

41 250 x 38/100
Answer:
15 675 ✓✓ one part correct

16 530 x 100/38
OR 25 056 x 100/60 x 100/96
OR 130 500 x 25/75
Answer:
43 500 ✓✓ one part correct

Calculate the percentage discount allowed to debtors who settle in the month of the sales transactions.
990 three marks
41 250 x 60%
24 750  – 23 760  x 100
       24 750 
OR: July:                       June:
1 152                           1 044
(28 800 – 27 648) (26 100 – 25 056)
       28 800                   26 100
4% one part correct as a %, sign not necessary
6.2.2 Calculate budgeted amounts:
Total sales
for July 2020
48 000  + 144 000 
OR 48 000 x 100/25
OR 144 000 x 100/75
Answer:
192 000 one part correct

Payment to creditors during June 2020
123 750 + 41 250 / 41 250 x 100/25 / 123 750 x 100/75
165 000 ✓x 100/150✓ x 80%✓
OR 22 000 x 80/20
one mark two marks
Answer:
88 000 one part correct

Additional loan to be acquired on 1 June 2020
(7 500 – 6 000)
1 500 x 100/20 ✓ x 12✓
OR 1 500 x 12 / 20%
one mark one mark one mark
OR 450 000 – 360 000
two marks one mark
Be aware of alternative ways to calculate this figure
Answer:
90 000✓ one part correct

6.2.3 The directors did not adhere to the Cash Budget during May 2020. Identify TWO overpayments. Provide figures. Give a valid reason for EACH overpayment.

6.2.4 Why are the auditors concerned that the agreement with Tradecor is unethical or possibly a crime? Explain THREE points.
Any THREE valid concerns ✓✓✓ part marks for incomplete / unclear / partial responses
Point 1

• The property was sold at carrying value (which is its original cost / historical cost concept)
• Property appreciates in value and should be have been sold at a market-related price.

Point 2

• The company could have benefitted from a large profit on sale of asset and an improved profitability.
• Total assets are depleted / valuable asset disposed

Point 3

• Corruption / under-handed / unethical deal to enrich CEO and his wife (nepotism); no transparency or involvement of the Board of Directors in this decision

Other valid answers

• Consciously placing the business at financial risk / cash flow problems due to rent of R26 000 per month that must be paid and not budgeted for.
  # the same point (concern) can be stated differently / repeated.
  Award marks for appropriate responses not included in the list above.

TOTAL MARKS:35
TOTAL:300