ACCOUNTING
GRADE 12
NOVEMBER 2017
NATIONAL SENIOR CERTIFICATE
MEMORANDUM

MARKING PRINCIPLES:
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.

1. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate is earning marks on the figures for that item.
2. Full marks for correct answer. If answer incorrect, mark the workings provided.
3. 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.
4. 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.
5. Where indicated, part-marks may be awarded to differentiate between differing qualities of answers from candidates.
6. This memorandum is not for public distribution, as certain items might imply incorrect treatment. The adjustments made are due to nuances in certain questions.
7. Where penalties are applied, the marks for that section of the question cannot be a final negative.
8. 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.
9. Operation means 'check operation'. 'One part correct' means operation and one part correct. Note: check operation must be +, -, x, ÷, or per memo.
10. In calculations, do not award marks for workings if numerator & denominator are swapped – this also applies to ratios.
11. 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 .
12. Be aware of candidates who provide valid alternatives beyond the marking guideline.
13. Codes: f = foreign item; p = placement/presentation.
    These marking guidelines consist of 17 pages.

QUESTION 1
1.1
1.1.1 False ✓
1.1.2 False ✓
1.1.3 True ✓ (3)
1.2.1

Foreign entries -1 e.g. 8 550; 13 590; 16 200; 30 000
Be aware of other foreign entries that are incorrectly duplicated in journals and/or reconciliation.
Bank account balance:
May prepare a ledger account
–5 210 ✓ + 117 650 ✓ – 107 480 ✓         = R4 960 ✓
see CRJ +ve                  see CPJ -ve       if one mark allocated in workings (14)
1.2.2 Bank Reconciliation Statement on 30 June 2017

Foreign entries -1 e.g. 8 550; 13 590; 16 200; 30 000
-1 incorrect / no details Foreign items -1
For 2-column method with brackets used, do not accept brackets/negatives in any column. (9)
1.2.3 Explain the problem relating to deposits. Quote evidence.
Valid explanation ✓ Evidence ✓
Expected responses:
Deposits are not being done promptly / Late deposits (leads to cash flow problems)
OR
Rolling of cash / could indicate theft
Evidence: Dates or figures

• Deposit of R30 000 / 17 May / approx. 16 days was outstanding at month end
• Deposit of R16 200 / 31 May / approx. 16 days only reflected on statement on 16 June
• Deposit of Slip 451 /R40 500 / 25 June outstanding at month-end

Explain TWO strategies to prevent this in future.
TWO valid points ✓✓ accept short explanations; may be phrased differently

• Division of duties: The person receiving the money and issuing receipts should be different from the person completing the deposit slip and another person should deposit the money at the bank so that one can serve as a check on the other.
• Senior personnel should check via internet banking / deposit slips that deposits reflected daily.
• Request SMS from bank for all transactions.
• Use a security company to collect the deposits on a daily/regular basis.
• Encourage debtors to make direct transfers (EFT). (4)

TOTAL MARKS:30

QUESTION 2
2.1 GEVEN MANUFACTURERS
2.1.1 PRODUCTION COST STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017

(14)
2.1.2 ABRIDGED INCOME STATEMENT FOR YEAR ENDED 28 FEBRUARY 2017

(14)
2.2 GYMWEAR MANUFACTURERS
2.2.1 Shirts:

(4)
2.2.2 Shoes:

TOTAL MARKS : 55

QUESTION 3
3.1

1. Calculate the carrying value of Land and Buildings on 1 March 2016.
   2 550 000 – 325 000 = 2 225 000 ✓✓ no part marks (2)
2. Calculate the total depreciation on vehicles on 28 February 2017.
   Allocate the marks to correct workings even if subtotals not shown.
   New:
   422 550 x 20/100 x 6/12 = 42 255 ✓✓
   Old: one mark
   350 000 x 20/100 = 70 000 but can only write off R34 999 ✓✓✓
   (350 000 – 315 000) = 35 000–1 = 34 999
   42 255 + 34 999 = 77 254 ✓ one part correct (6)
3. Calculate the carrying value of Vehicles on 28 February 2017.
   Note: Apply Marking Principle10
   Mark one line only – choose line to benefit candidate
   see (b) above one part correct
   35 000 ✓ + 422 550 ✓ – 77 254 ✓ = 380 296 ✓
   OR
   one mark one mark one method mark one method mark
   772 550 – (315 000 + 77 254 see (b) above = 380 296
   392 254 two marks (4)
4. Calculate the carrying value of Equipment sold on 31 December 2016.
   Note: Apply Marking Principle10
   Mark one line only – choose line to benefit candidate
   30 900 four marks 18 900 three marks
   22 800 two marks
   120 000 ✓ – (12 000 ✓+ 10 800 ✓ + 8 100 ✓✓) = 89 100 ✓ one part correct
   108 000 two marks
   OR
   one mark one mark one mark two marks one method mark
   120 000 – 12 000 – 10 800 – 8 100 = 89 100 (6)
5. Calculate the total carrying value of fixed assets on 28 February 2017.
   Note: Apply Marking Principle10
   see (c) above one part correct
   2 550 000 ✓ + 380 296 ✓ + 50 994 ✓ = 2 981 290 ✓ (4)

3.2 BALANCE SHEET OF ODETTE LTD ON 28 FEBRUARY 2017
Placement presentation – 1 if marks earned in each case

(37)
*one part correct
#Trade and other payables can combine the other elements under current liabilities. Allocate the part-marks accordingly.
If SARS and S/Hs for divs are included in T&OP, award one method mark in each case for workings included.
## Inspect treatment of SARS (income tax) to check if candidate deducts interest from net profit to calculate tax
3.3 AUDIT REPORT
As a shareholder, what concerns would you have regarding this audit report? Explain THREE points.
Any three different valid points ✓✓✓✓✓✓
Part-marks for unclear/incomplete explanation
Note: Candidates should not restrict responses to the commenting on the two specific points in the audit report as there would be several concerns arising from those two points.
Expected responses:

• This is a disclaimer report (no audit opinion).
• It will have a negative effect on the company e.g. reputation / share price / demand for shares / bad publicity / potential investors lose confidence in the company.
• The corporate governance of the company is compromised /not in line with King Code.
• The correct procedure of approving directors' fees / bonuses was not followed.
• The directors have abused their position.
• The huge amount paid to directors could negatively affect the financial results/liquidity and solvency/profitability of the company.
• Insufficient audit evidence. (6)

TOTAL MARKS:65

QUESTION 4
4.1
4.1.1 Directors ✓
4.1.2 Internal auditor ✓
4.1.3 Shareholder ✓
4.1.4 External auditors ✓ (4)
4.2 SO-FINE LTD
4.2.1 ORDINARY SHARE CAPITAL
AUTHORISED SHARE CAPITAL

ISSUED SHARE CAPITAL

(7)
RETAINED INCOME

(9)
4.2.2 SO-FINE LTD: CASH FLOW STATEMENT FOR YEAR ENDED 31 AUGUST 2017
If a working is shown as a final answer, award working mark only if brackets correctly applied for that item
If item is incorrectly placed, award no marks for details or figures
# Signs may be reversed; apply consistently; mark one line only to benefit candidate
## If workings not shown but figure is correct without brackets, award marks to cover workings and penalise on answer

(19)
4.2.3 Calculate the percentage operating profit on sales.
  697 000   ✓ x 100 = 8,1% ✓ one part correct % sign not necessary
8 652 000 ✓ (3)
Calculate the debt-equity ratio.
5 542 000 two marks See 4.2.1
985 000 ✓ : (5 292 000 ✓ + 250 000 ✓) = 0,2 : 1✓ one part correct
if superfluous items added in workings, but answer is still the same, penalise on answer (4)
4.2.4 Calculate the dividends per share (DPS) of a shareholder who owned the same number of shares for the entire financial period.
900 000 + 150 000
(168 000 ✓/1 050 000 ✓ x 100) + 12 cents ✓ = 28 cents  one part correct
16 cents two marks (4)
4.3 CASTRO LTD
4.3.1 Comment on the price of R9,10 charged by Castro Ltd for the new shares issued.
Compare issue price to market price or NAV ✓✓ Part-marks for partial or incomplete explanation
Figures R12,00 or R10,73 ✓ Could quote differences e.g. R2,90 or R1,63
Expected responses:

• The shares were issued at the average share issue price. The existing shareholders are being rewarded as the price is lower than the R12,00 charged on the JSE and the NAV of R10,73.
• The shares could have been issued at the market price of R12,00 or the NAV of R10,73 (they have diluted the value of the shares). (3)

4.3.2 Explain how the issue of new shares has affected the financial gearing and risk of Castro Ltd. Quote TWO financial indicators.
Explanation ✓✓ Financial indicators ✓✓ Figures ✓✓
Superfluous indicators (i.e. more than two indicators) -1 max
Expected responses:
one mark

• Gearing has improved – less risk (as there was an issue of new shares)
  one mark one mark
  debt-equity ratio decreased from 0,8 : 1 to 0,5 : 1 (by 0,3 : 1)
  one mark one mark
• ROTCE improved (due to increased efficiency / profits on new branch)
  one mark
  from 15 % to 20 % (by 5% or 33,3%)
  Candidates may also compare ROTCE to their estimate of current interest rate (6)

4.3.3 If Henry wanted to retain his 60% shareholding in the company, how many shares would he have had to buy?
✓✓✓ one part correct
(700 000 x 60%) – (500 000 x 60%) = 120 000
420 000 300 000
OR two marks one method mark (if x 60%)
200 000 x 60% = 120 000 (3)
How much would he have had to pay? 
120 000 shares at R9,10 each = R1 092 000 ✓✓ If = no.shares (above) x R9,10 (2)
Henry decided NOT to buy these shares. Apart from the % shareholding, explain TWO reasons why he has made a mistake by not taking up this option.
Explanation ✓✓✓✓ Figures ✓✓
Part-marks for partial or incomplete explanation
Expected responses: Any two

• His dividends would have increased by R61 200 (51c x 120 000 shares). This is more than the interest he earned on the savings account R54 600
  (1 092 000 see above x 5%)
• He could buy the shares for capital growth - bought the shares for R9,10 and then could sell them on the JSE for R12,00 / total profit could have been R348 000 / would be a good buy as R12,00 exceeds NAV R10,73
• He would have earned more dividends on bigger investment (51c/910c = 5,6%)
• ROSHE would be 23% on a bigger investment.
• He would lose 120 000 votes at the AGM. (6)

RONKI LTD
4.3.4 Comment on the liquidity of Ronki Ltd. Quote TWO financial indicators.
Explanation: ✓✓ Superfluous indicators (i.e. more than two indicators) -1
The liquidity situation has improved / is able to meet current debts / liquidity ratios have decreased / liquidity ratios are more efficient
Financial indicators any two ✓✓ Figures ✓✓

• Current ratio has improved/decreased (from 3,5 : 1) to 1,9 : 1
• Acid-test ratio has improved/decreased (from 1,7 : 1) to 1,1 : 1
• Stock-holding period appears to be efficient at 54 days (less than 2 months)(6)

4.3.5 Comment on the price paid by Ronki Ltd for the repurchase (buy-back) of shares.
Expected response: ✓✓ Part-marks for partial or incomplete explanation
The company is paying a premium above the average share price in order to entice shareholders to give up their shares / they wanted to increase returns by decreasing equity / this is a fair value same as the price on the JSE.
Compare price paid (R15,00) to Any one figure ✓

• market value R15,00
• net asset value R13,30
• average issue price of shares R10,20(3)

4.3.6 Explain THREE ways in which Henry has benefited from the repurchase of the shares by Ronki Ltd.
Explanation ✓✓✓ Figures ✓✓✓
Expected responses: Three different responses

• He has now become a majority shareholder. His 300 000 shares are 51,7% of the total shares (33,3% before the share buy-back)
• Due to the reduced number of shares, his return has improved i.e. EPS has increased by 95c / from 171c to 266c / ROSHE increased from 13% to 16%. (NOTE: EPS and ROSHE reinforce the same point).
• The reduced number of shares could have contributed to an increase in the DPS by 57c / by 55,3% / from 103c to 160c (Directors may have maintained the dividend pay-out policy). (6)

TOTAL MARKS:85

QUESTION 5
5.1 CONCEPTS
5.1.1 Weighted average / WA ✓ (4)
5.1.2 Perpetual ✓
5.1.3 First-in-first-out / FIFO ✓
5.1.4 Expense ✓
5.2 HOT-WHEELS (PTY) LTD
Motorbikes:
5.2.1 Calculate the value of the closing stock on 30 September 2017 using the specific identification method.
243 000 ✓✓ + 109 600 ✓✓ + 252 800 ✓✓ = 605 400 ✓ one part correct
18 – 8                     15 – 11           18 – 10
(10 x 24 300) + (4 x 27 400) + (8 x 31 600)
OR
OS            + P             – COS              = CS
one mark  one mark   four marks     one method mark
291 600 + 1 125 600 – 811 800 = 605 400
316 000 + 301 400 + 194 400 (7)
5.2.2 Mike requires your advice on the three different models of motorbikes in which he is trading. Explain TWO points of advice.
Any TWO valid points of advice ✓✓✓✓
Part-marks for unclear/incomplete explanation
Expected responses:

• Reduce the price of AO2 to increase sales / A lower mark-up% will help in reducing stock levels.
• Discontinue / decrease the AO2 product and look at stocking alternative later model products.
• Stock more AO3 products as they seem to be more popular and in an affordable range.
• Stock more of the AO4 model because gross profit per unit is the biggest on the item. (4)

Helmets:
5.2.3 Calculate the value of the closing stock on 30 September 2017 using the weighted-average method.
Mark one line only – choose line to benefit candidate
51 675 four marks
54 300 two marks (5 x 525) two marks
15 000 ✓ + 39 300 ✓ – 2 625 ✓✓ x 12 ✓ = 6 201 ✓ one part correct; must x12
           30 ✓ + 75 ✓ – 5 ✓
105 two marks 100 three marks
(517 x 12)
OR 516,75 x 12 = 6 201 or 6 204 (weighted-average rounded off)(9)
seven marks
5.2.4 Is the weighted-average method appropriate to value the helmets? Explain ONE point.
Yes/No ✓ Explanation ✓✓ Part-marks for unclear/incomplete explanation
Explanation for yes:

• These are low cost compared to the other products Mike sells.
• The items are of similar value.

Explanation for no:

• Helmets are only demanded by a select few bike enthusiasts.
• The business does not buy very large quantities.
• The prices are always increasing so the later model will be more expensive. (3)

5.2.5 Mike suspects that helmets are being stolen from the shop despite using security cameras. Provide a calculation to verify his suspicion.
(30 + 75 – 5)
100 ✓✓ – 12 ✓ – 85 ✓ = 3 helmets missing ✓ One part correct
One part correct (5)
What can Mike do to improve the internal control of stock? State THREE points.
Three valid points ✓✓✓
Expected responses:

• Do regular physical stock counts
• Place tracking devices on the products / security price tags
• Provide secure display cabinets for the stock
• Improve security at the gates / inspect items and check to sales slip
• Division of duties (if staff is suspected)
• Buy in smaller quantities / more regularly

Do NOT accept security cameras / CCTV (3)
TOTAL MARKS:35

QUESTION 6
6.1 Explain the main purpose of a Cash Budget.
Explanation ✓
To predict the cash balances / cash flow for a period
To project / plan / forecast receipts and payments.
Explain the main purpose of a Projected Income Statement.
Explanation ✓
To predict the profit that will be earned for a period
To plan / forecast income and expenses. (2)
6.2.1 Larry expects debtors to settle accounts by the end of the month following the sales transaction month.
Use the November figures to calculate the % of debtors that are expected to comply with the credit terms.
Mark one line only – choose line to benefit candidate
181 440 two marks one part correct
✓✓✓
56 000 + 125 440 x 100 = 81%
        224 000 
two marks* one mark one method mark *allocate two marks to the first correct % calculation
OR 25% + 56% = 81%
Use the November figures to calculate the % of bad debts expected.
8 960 three marks
-181 440 one mark
✓ ( ✓ ) ✓✓ one part correct
224 000 – 56 000 –125 440 – 33 600 x 100 = 4%
                       224 000 ✓
one mark one mark one mark one mark one method mark
OR 100% – 25% – 56% – 15% = 4% (9)
6.2.2 Larry does not believe that his debtors' control clerk, Shirley, deserves a bonus on 31 October 2017.
Provide evidence to support his opinion.
Explanation (calculation / figures) from the Age Analysis ✓ Figure ✓
58% of the amounts owed are still within the credit terms
OR
42% of the amounts owed are not complying with terms
Offer Larry advice to improve debtors' collections (TWO points).
Two valid points✓✓
Expected responses:

• Contact debtors through statements / phone calls / SMS / reminders
• Offer discounts for prompt payments.
• Give her a bonus if she collects the outstanding amounts
• Charge interest
• Refuse to sell to debtors who are not compliant
• Improve screening process (so that bad debtors do not open accounts).

Note: Do not accept implement screening of debtors (i.e. already debtors) (4)
6.3.1 Calculate the fixed % of sales used by Larry to budget for delivery expenses.
4% ✓✓ % sign not needed
Calculate the amount of the loan to be repaid on 31 December 2017.
Mark one line only – choose line to benefit candidate
✓✓✓✓ One part correct
510 x 12 ÷ 0,085 = R72 000
2 975 – 2 465
OR
one mark one mark one mark one method mark
510 x 12 x               100 = R72 000
2 975 – 2 465          8,5
OR two marks one mark one method mark; one part correct
(2 975 x 12 ÷ 0,085) – (2 465 x 12 ÷ 0,085) = 72 000
420 000 348 000
OR two marks one mark one method mark; one part correct
420 000 348 000
1 200 x 2 975 – 1 200 x 2 465 = 72 000
        8,5                       8,5
(6)
6.3.2 Refer to variances in Information D. Explain why Larry would feel that all these variances are problems for his business.
Figures not required
Part-marks for unclear/incomplete explanation

(9)
TOTAL MARKS: 30
TOTAL: 300