ACCOUNTING
GRADE 12
NATIONAL SENIOR CERTIFICATE
NOVEMBER 2016

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: MANUFACTURING (45 marks; 25 minutes)
1.1 CONCEPTS
Give ONE cost category for each of the following descriptions by choosing a cost category from the list below. Write only the cost category next to the question number (1.1.1–1.1.4) in the ANSWER BOOK.

1.1.1 Salaries paid to office workers
1.1.2 Cost of raw materials used in the production process
1.1.3 Commission paid to salespersons
1.1.4 Rent paid for factory buildings (4 x 1) (4)
1.2 GUGU MANUFACTURERS
You are provided with information relating to Gugu Manufacturers for the year ended 29 February 2016. The business produces one style of handbag.
REQUIRED:
1.2.1 Calculate the:

• Direct labour cost (8)
• Direct material cost (6)

1.2.2 Prepare the Production Cost Statement. (8)
1.2.3 The owner is concerned about the production level in 2016.

• Calculate the break-even point for 2016. (5)
• Explain whether the owner should be concerned or not. Provide figures. (3)

1.2.4 The owner is not satisfied with the internal control of the raw material.
Calculate the following regarding the raw material (fabric):

• Metres of fabric stolen from the storeroom (5)
• Metres of fabric wasted in the factory (4)

Provide a strategy to improve the internal control in EACH case above. (2)

INFORMATION:
A. Workers involved in the manufacturing process:

B. Raw material (fabric):
Raw material purchased is kept in a storeroom before being issued to the factory for production. Stock is valued according to the weighted-average method.
Storeroom stock records:

C. There is no work-in-process stock.
D. Other costs for the financial year (after all the adjustments):

E. Additional information on 29 February 2016:

• 4 200 handbags were produced and sold at R450 each.
• Total sales amounted to R1 890 000.
• Total variable cost per unit was R300.
• 1,25 metres of fabric was used to make one handbag.

[45]

QUESTION 2: RECONCILIATION, AGE ANALYSIS AND VAT (40 marks; 25 minutes)
2.1 Simply Traders sell goods for cash and on credit.
REQUIRED:
2.1.1 Simply Traders have the telephone numbers of all their debtors. What other information should they obtain before allowing customers to open accounts? State TWO points with a reason in EACH case. (4)
2.1.2 Refer to Information A, B and C.
Calculate:

• The correct closing balance of the Debtors' Control Account on 31 October 2016 (6)
• The correct amounts owing by debtors:
  
  • JRamsay (D2)
  • W Smith (D3)
  • C Prince (D5) (12)

2.1.3 Refer to Information D.

• Calculate the percentage of debtors complying with the credit terms. (4)
• Explain TWO measures to improve collection from debtors. (4)

INFORMATION:
A. Balance of the Debtors' Control Account on 31 October 2016, R179 500 (before adjustments).
B. Debtors' list on 31 October 2016:

C. The following errors and omissions must be taken into account:

1. An invoice for R2 500 issued to W Smith was not recorded in the books of Simply Traders.
2. The total of the Debtors' Allowances Journal was posted to the Debtors' Control Account as R20 100 instead of R21 000.
3. An invoice for R4 300 issued to C Prince was posted incorrectly to the account of J Ramsay.
4. Stock for R5 100 sold to C Prince was treated as a return of goods when posting it to the Debtors' Ledger Account of C Prince.
5. A cheque for R8 350, originally received from J Ramsay in settlement of debt of R8 500, was returned by the bank, marked R/D. No entries were made in the Debtors' Ledger.
6. An invoice for R3 600 issued to W Smith was recorded correctly in the Debtors' Journal, but posted as R6 300 to his account in the Debtors' Ledger.
7. The total for discount allowed in the CRJ was overstated by R500.

D. Debtors' age analysis on 30 September 2016:

The credit period is 60 days.
2.2 VALUE-ADDED TAX (VAT)
The information below relates to Creamline Traders for their two-month VAT period ended on 31 August 2016. All items are subject to 14% VAT.
REQUIRED:
Calculate the amount receivable from or payable to SARS for VAT on 31 August 2016. Indicate whether the amount is receivable or payable. (You may complete a VAT Control Account.) (10)
INFORMATION:
A. Amount owed to SARS for July 2016, R14 250.
B. Details in respect of VAT for August 2016:

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QUESTION 3: AUDIT REPORT AND INCOME STATEMENT (70 marks; 40 minutes)
3.1 CONCEPTS
Choose the correct term to complete each of the following statements. Write only the term next to the question number (3.1.1–3.1.4) in the ANSWER BOOK.

3.1.1 Interest on a bank overdraft is a/an ...
3.1.2 Consumable stores on hand are a/an ...
3.1.3 The portion of a loan to be paid during the next financial year is regarded as a/an … in the Balance Sheet.
3.1.4 The difference between current assets and current liabilities is known as … (4 x 1) (4)
3.2 AUDIT REPORT
You are provided with an extract from the audit report of Fralezi Ltd.
REQUIRED:
3.2.1 To whom is the audit report addressed? (1)
3.2.2 Who has to ensure that the financial statements are prepared and presented at the annual general meeting? (1)
3.2.3 Choose the correct word from those in brackets. Write the answer next to the question number (3.2.3) and explain your choice.
Fralezi Ltd received a/an (qualified/unqualified/disclaimer of opinion) audit report. (2)
3.2.4 Explain why the independent auditors referred to pages 11–29 in the report. (2)
INFORMATION:

3.3 INCOME STATEMENT
You are provided with information relating to Fralezi Ltd for the financial year ended 30 June 2016.
REQUIRED:
Complete the Income Statement for the financial year. (60)
INFORMATION:
Figures extracted from the Pre-adjustment Trial Balance on 30 June 2016:

Adjustments and additional information:

1. A credit note for R35 700 issued to a debtor, dated 27 June 2016, was not recorded. The cost price of these goods was R21 000. The goods were placed back into stock.
2. The business prices its goods at a mark-up of 70% on cost. Trade discount of R297 200 was allowed on invoices to certain customers.
3. Adjust the provision for bad debts of debtors to 4%.
4. Stock counts on 30 June 2016 revealed the following on hand:
   
   • Trading stock, R225 500
   • Packing material, R3 700
5. External auditors are owed a further R7 250.
6. Interest on the loan is capitalised and has not been recorded yet. The loan statement from Parys Bank on 30 June 2016 reflected a closing balance of R372 920.
7. Corrections must be made in respect of a computer that was stolen on 31 March 2016.
   The bookkeeper completed the following page in the Fixed Assets Register, using the incorrect method of depreciation

   SUNCREST COMPUTER	COST	DEPRECIATION	BOOK VALUE
   1 July 2014	R42 000		R42 000
   30 June 2015		R8 400	R33 600
   31 March 2016		R6 300	R27 300
   Insurance pay-out	R18 000
   Loss of computer due to theft	R9 300

   Depreciation on this asset should have been calculated at 20% p.a. on the diminishing-balanced method.

8. The monthly rent did not change during the year. During April 2016 the tenant paid R6 000 for repairs to the premises. He deducted this from his rent for May 2016, as repairs are the responsibility of the company. The repairs were not recorded. The rent for July 2016 was received and deposited during June 2016.

9. Advertising consists of a monthly contract with the local newspaper for the entire financial year. Advertising was paid for 11 months only. From 1 April 2016, the contract rate was decreased by R152 per month.

10. Net profit after tax is R504 000. Use the following percentages to calculate certain missing figures:

• Operating profit on sales: 15%
• Income tax rate: 28% of net profit

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QUESTION 4: CASH FLOW STATEMENT AND INTERPRETATION (75 marks; 45 minutes)
4.1 Choose a term from COLUMN B that matches the description in COLUMN A. Write only the letter (A–D) next to the question number (4.1.1–4.1.4) in the ANSWER BOOK, for example 4.1.5 E.

(4 x 1) (4)
4.2 REID LTD
You are provided with information relating to Reid Ltd for the financial year ended 30 June 2016.
Where financial indicators are required to support your answer, name the financial indicator, the actual figure/ratio/percentage and trends.
REQUIRED:
4.2.1 Prepare the following notes to the Balance Sheet:

• Ordinary share capital (7)
• Retained income (9)

4.2.2 Calculate the following amounts for the Cash Flow Statement:

• Change in loan (2)
• Income tax paid (4)

4.2.3 Complete the extract from the Cash Flow Statement for cash and cash equivalents. (4)
4.2.4 Calculate the following financial indicators on 30 June 2016:

• Acid-test ratio (4)
• Debt-equity ratio (3)
• % return on average shareholder's equity (ROSHE) (5)
• Net asset value per share (NAV) (3)

4.2.5 The liquidity of the company has improved. Quote THREE financial indicators to support this statement. (6)
4.2.6 Dividend policy:

• Provide calculations to show the change in the dividend pay-out policy. (4)
• Explain why the directors decided to change the policy. State ONE point with figures. (2)

4.2.7 Mary is the CEO of the company. Her shareholding is as follows:

1. Calculate Mary's % shareholding on 1 October 2015 after the repurchase of shares (4)
2. Explain how Mary has benefitted from the decision to repurchase the shares. (2)
3. The independent auditor discovered that Mary had made the decision to repurchase the shares without informing the board of directors.
   Why should the independent auditor be concerned about this? (2)

4.2.8 The Cash Flow Statement reflected fixed assets purchased to the amount of R4,5 million.

• Name TWO major sources of funding for these fixed assets with figures (over R1 000 000 each). (4)
• State for EACH source whether it was a good or bad decision. Explain your choice. Quote relevant financial indicators/figures to support your opinion. (6)

INFORMATION:
A.Share capital and dividends:

• 900 000 shares were in issue on 1 July 2015.
• 75 000 ordinary shares were repurchased from the estate of a deceased shareholder at R10,70 per share on 1 October 2015.
• The company issued 125 000 ordinary shares at R10,80 per share on 1 April 2016.
• The 2016 Cash Flow Statement reflected dividends paid of R434 250.

B. Extract from Income Statement for the year ended 30 June 2016:

C. Extract from Balance Sheet on 30 June:

D. The following financial indicators were calculated on 30 June:

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QUESTION 5: INVENTORIES (30 marks; 20 minutes)
5.1 INVENTORY VALUATION
Matrix Traders sell three different types of laptops: Lexus, Granite and Vision. They use the periodic inventory system and the specific identification method to value stock.
REQUIRED:
5.1.1 Explain the following valuation methods:

• FIFO (2)
• Specific identification (2)

5.1.2 Calculate the cost price per laptop on hand on 1 October 2015. (2)
5.1.3 Calculate the value of the closing stock on 30 September 2016. (9)
INFORMATION:
The following information is in respect of the year ended 30 September 2016:
A. Opening stock:

B. Purchases and returns:

C. Sales for the year:

5.2 MANAGEMENT OF INVENTORIES
You are provided with information from the books of Kyle's Office Equipment for the year ended 29 February 2016. The business sells office desks, chairs and printers.
Kyle took certain decisions at the beginning of the 2016 financial year.
REQUIRED:
Provide relevant figures for ALL the questions below.
5.2.1 Desks:

• What decision did Kyle take regarding the selling price of the desks?(2)
• How has this decision affected the business? State TWO points. (4)

5.2.2 Chairs:
Was it a good idea for Kyle to change to a cheaper supplier of chairs? Explain TWO points. (5)
5.2.3 Printers:
Kyle significantly reduced the selling price of printers in the 2016 financial year in response to a new competitor who sells the same model at R1 200.
Based on the information below, provide TWO separate suggestions to Kyle to improve the profit on printers in 2017. (4)
INFORMATION:

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QUESTION 6: BUDGETING (40 marks; 25 minutes)
You are provided with information relating to Mayhem (Pty) Ltd.
REQUIRED:
6.1 Refer to Information G.
6.1.1 Identify TWO items that the bookkeeper recorded incorrectly in the Cash Budget. (2)
6.1.2 Identify TWO items in the Cash Budget that would NOT appear in a Projected Income Statement. (2)
6.2 Complete the Debtors' Collection Schedule for October 2016. (9)
6.3 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget. (18)
6.4 The directors compared the budgeted figures to the actual figures for September 2016.

6.4.1 The directors changed the method of payment to the salespersons. Explain how this has benefitted the salespersons and the business. Quote figures. (4)
6.4.2 The directors are not concerned about the overspending on packing material. Explain why this is so. Quote figures or calculations. (5)
INFORMATION:
A. Projected Income Statement:
Information extracted for the three months ended 31 October 2016:

B. Sales:

• Sales are expected to increase by 15% in October 2016.
• Credit sales comprise 60% of total sales.
• The mark-up percentage is 80% on cost.

C. Debtors' collection:

• 50% is collected in the month of sale.
• 40% is collected in the month following the month of sale.
• 7% is collected two months after the sale.
• 3% is written off as irrecoverable.

D. Purchases:

• All purchases of stock are on credit.
• Stock is replaced in the month of sale. A base stock is maintained.
• Creditors are paid two months after purchase, subject to a 4% discount.

E. Directors' fees:

• The business had three directors earning the same monthly fee.
• On 30 September 2016 one of the directors resigned.
• The remaining directors will receive an increase of 35% in their monthly fee from 1 October 2016.

F. Loan:

• The loan was reduced by R52 800 on 30 September 2016.
• Interest at 12,5% p.a. is payable every month and is not capitalised.

G. Extract from the Cash Budget prepared by the bookkeeper:

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TOTAL:300