ACCOUNTING PAPER 1 OF 1 GRADE 12 JUNE EXAMINATION 2014

Transcription

1 ACCOUNTING PAPER 1 OF 1 GRADE 12 JUNE EXAMINATION 2014 TOTAL: 300 TIME: 3 HOURS THIS PAPER CONSISTS OF 32 PAGES Page 1 of 32

2 INSTRUCTIONS: 1. Answer ALL questions. 2. An ANSWER BOOK is provided, in which ALL questions must be answered. 3. Calculations must be shown to achieve part-marks. 4. Non-programmable calculators may be used. 5. Use the information in the table below as a guide when answering the question paper. Try NOT to deviate from it. QUESTION TOPIC OF QUESTION Reconciliation: 1 Bank reconciliation Creditors reconciliation 2 Company financial statements: Income statement and Balance sheet notes 3 Company financial statements: Cash flow statement, analysis and interpretation MARKS ACHIEVED MAXIMUM MARKS TIME SCHEDULE 30 Min Min Min 4 Auditing, Fixed Assets and VAT Min 5 Cash budgets Min TOTAL HOURS Page 2 of 32

3 SECTION A QUESTION 1.1: (BANK RECONCILIATION) You are provided with information relating to Senna Stores. The financial year ends on 30 April. INSTRUCTIONS Answer the questions which follow: Identify two items to be entered into the Cash Receipt Journal for (4) April Identify two items to be entered into the Cash Payment Journal for (4) April Prepare the Bank Reconciliation Statement on 30 April (12) INFORMATION The following information appears in the bank reconciliation of Senna Stores on 30 March Balance of bank statement (unfavourable) Balance of bank account (favourable) Outstanding deposit Outstanding cheques: No dated 28 Oct No dated 5 May No dated 30 March On comparing the April bank statement with the Cash Receipt Journal and the Cash Payment Journal for April, the following differences were noted: Item 1 Item 2 Item 3 Item 4 A deposit of R appeared in the bank statement on 1 April 2014 but not in the Cash Receipt Journals for April. A deposit of R appeared in the Cash Receipt Journal on 30 April 2014, but not in the bank statement. Rent income of R3 600 from C. Kallis appeared on the bank statement, but not in the journals. Bank charges of R450 appeared on the bank statement, but not in the journals. Page 3 of 32

4 Item 5 Item 6 Item 7 Item 8 Item 9 The bank statement reflected a dishonoured cheque for R520 due to insufficient funds. This cheque was originally recorded in the Cash Receipt Journal on 25 March. The drawer was K. Smith. Cheque no is stale and must be cancelled. The cheque was originally issued as a donation to Donald Bowling Club. Cheque no dated 30 March 2014 appeared in the bank statement, but not in the April journals. Two cheques appeared in the Cash Payment Journal but not on the bank statement: Cheque no for R6 200 dated 29 April Cheque no for R8 400 dated 31 July 2014 issued to pay a creditor. The bank statement reflected a favourable balance of R6 400 on 30 April (20) QUESTION 1.2: (CREDITORS RECONCILIATION) Jibe Stores buys stock from Verona Wholesalers and are given 60 days in which to settle their account, subject to a 5% discount. They have a credit limit of R On 30 October 2013 the creditors ledger account of Verona Wholesalers in the books of Jibe Stores showed a credit balance of R The statement received from Verona Wholesalers, however, showed a debit balance of R REQUIRED: Using the given information, you are required to complete the table in (20) your answer book to calculate the correct creditors ledger balance and the creditors reconciliation statement Answer the following question: Together with the statement came a letter from Verona Wholesalers demanding that Jibe Stores pay their account, as they are in breach of their contract. Jibe Stores is furious and wants to take their business elsewhere (buy from another supplier). Discuss two reasons why Verona Wholesalers states that Jibe Stores (4) are in breach of their contract. Substantiate your answer with facts Discuss two reasons why you think Jibe Stores believes they have (4) wrongly accused. Substantiate your answer What advice would you give Jibe Stores? Explain briefly. (2) [30] Page 4 of 32

5 INFORMATION 1. Jibe Stores sent a cheque for R4 940 (less the 5% discount) on 2 October in settlement of stock bought on 4 August. As the cheque only reached Verona Wholesalers on 6 October, they did not allow the discount. 2. The statement of Verona Wholesalers showed an invoice for R6 600 on 8 October. Jibe Stores however, showed the invoice for R5 940, as they had deducted their normal trade discount. Verona Wholesalers admitted their error and have promised to rectify the situation. 3. Jibe Stores returned goods per debit note on 15 October for R Verona Wholesalers had made the entry for the credit note but had put the entry on the wrong side of the account. 4. Jibe Stores showed a debit note for R2 900, but the goods were actually returned to another supplier. 5. Jibe Stores showed the following correct entries, but they did not appear on the statement: A cheque for R3 820 on 29 October. A debit note for R560 on 30 October. 6. Verona Wholesalers charged Jibe Stores delivery charges of R620 for the month of October. TOTAL SECTION A: 50 Page 5 of 32

6 SECTION B QUESTION 2: (FINANCIAL STATEMENTS) You are provided with extracted information taken from the books of John ORR Ltd for the year ended 30 October Match the correct definition from column B to the term in column A given in the table below. In your answer book you are only required to write down the correct letter, e.g. 1 A, 2 B etc. Column A 1 Income statement A Possession that lasts for less than a year. 2 Balance sheet B The worth of the business. 3 Equity C Debt that will be paid back over a period of more than a year. 4 Non-current liability D Shows the financial position at a point in time. 5 Non-current asset E Possession that are expected to last for more than a year. F Shows the profit over a period in time. G Debt that is repaid over a period. (10) 2.2 Complete the income statement for the year ended 30 October (42) 2.3 Complete the trade and other receivables and trade and other (23) payables notes to the balance sheet on 30 October Page 6 of 32

7 INFORMATION John ORR Ltd extract from the pre-adjustments trial balance on 30 October BALANCE SHEET ACCOUNTS DEBIT CREDIT Ordinary share capital Retained income Land and building Equipment Vehicles Accumulated depreciation on vehicles Accumulated depreciation on equipment Bank Debtors control Trading stock Provision for bad debts Creditors control SARS (PAYE) SARS (Income tax) NOMINAL ACCOUNTS Sales Cost of sales? Rental income Interest income Commission income Water and electricity Bad debts Sundry expenses? Insurance Consumables Depreciation Interest expenses Salaries and Wages ADDITIONAL INFORMATION AND ADJUSTMENTS: 1. The business works at a mark-up of 80% at all times. 2. Water and electricity of R3 000 were still owed on 30 October Insurance includes an annual premium of R7 200 p.a. paid on 1 August The rent has been received until the end of December A part of the buildings has been let out to a tenant since Note that rent increased by 15% on 1 June Page 7 of 32

8 5. The accountant found two problems in connection with wages and salaries: One employee s PAYE deduction was incorrectly calculated at R2 800 but should have been R Another employee has worked overtime during the month of October but no entries have been processed. During the month he worked 16 hours overtime at a rate of 1, 5 times his normal wage of R56 per hour. The PAYE rate on his salary amounts to 25%. Overtime is not subject to any other deductions. 6. During October 2013, R worth of trading stock was damaged in a flood. The insurance company will pay out 70% of the claim in November. No entries have been processed. 7. The accountant has determined that consumable worth R7 800 has been used during the year. 8. The following entries concerning debtors must be processed: B Jabu s account of R1 200 must be written off. A debtor, whose account of R2 200 had been written off in August 2013, paid the amount on 25 October The bookkeeper entered the amount in the cash receipts journal under debtors control and posted it as such. The provision for bad debts must be adjusted to R Provide for interest owing for October on the fixed deposit of R at 6% p.a. Interest is capitalised. 10. The net profit amounted to 28% of turnover. 11. The income tax for the year is R [75] QUESTION 3: (CASH FLOW STATEMENT AND INTERPRETATION) The information provided was extracted from the accounting records of Geco Ltd. The company has an authorised share capital of ordinary shares. REQUIRED: 3.1 Complete the cash flow statement for the year ended 28 February (19) Show the following notes: Reconciliation between net profit and cash generated from (11) operations Tax paid. (6) Dividends paid. (4) 3.2 Calculate the net asset value (NAV) per share for the year ended 28 February Can the shareholders be satisfied with the NAV per share? (5) Motivate your answer by taking into consideration that the Page 8 of 32

9 NAV per share in 2012 was 75 cents per share and that the share is trading on the Johannesburg Stock Exchange for R1, 25 per share. 3.3 Calculate the acid test ratio on 28 February 2013 and comment on the liquidity of the company. The acid test ratio in 2012 was 0, 9:1. (8) 3.4 Calculate the average shareholders equity for (7) 3.5 Calculate the debt: equity ratio for (4) [64] INFORMATION EXTRACT FROM THE BALANCE SHEET Ordinary share capital Retained income Loan: Standard Bank Tangible assets at carrying value Inventory Trade debtors Bank (favourable) Bank (overdraft) Cash float Trade creditors SARS (income tax) (debit) (credit) Shareholders for dividends Accrued expenses Expenses paid in advance Extract from the income statement for the year ended 28 February Interest on loan Interest on overdraft 380 Depreciation Income tax Profit before tax The company s total dividend for the year ending 28 February 2013 was R in the financial year. Page 9 of 32

10 FIXED ASSETS Carrying value at beginning of year Land and buildings Vehicles Equipment Cost Accumulated (38 000) (42 000) depreciation Carrying value at the end of the year Cost Accumulated depreciation (49 000) (72 000) A vehicle was sold during the financial year, while no new vehicles were bought. New equipment was purchased during the financial year, while no equipment was sold. On 28 February 2012 the company had shares in issue. On 28 February 2013 the company had shares in issue. TOTAL SECTION B: 139 Page 10 of 32

11 SECTION C QUESTION 4: (AUDITING, FIXED ASSETS, VAT) 4.1 BUYBACK OF SHARES AND AUDITING The directors of Sheri Limited decide to buy back shares (3) from shareholders. Give three reasons why a company will buy back shares from shareholders Who appoints the independent auditor? (2) An auditor s report refers to the International Reporting Standards (2) (IFRS). Explain why auditors have to take IFRS into account when expressing their opinion Study the following extract from the Corporate Governance Report of Prima Clothing Limited and answer the following questions: Who is responsible for corporate governance in Prima (2) Clothing Ltd? What important characteristics of the corporate governance principles do Prima Clothing Ltd adhere to, as laid out by the King III report? (4) The Board of Prima Clothing Ltd governs according to the principles of discipline, responsibility, fairness, social responsibility, transparency and accountability. These principles are reflected in the group s business principles, internal controls and policies. With regard to the financial year the directors of Prima Clothing believe that they complied with all the significant requirements of King III. 4.2 ASSET DISPOSAL You are provided with an incomplete fixed asset note taken from the balance sheet of Woody Stores as at 30 October 2013 (their financial year-end). REQUIRED: Complete the fixed asset note. (22) Draw up the asset disposal account to record the sale of the vehicle. (12) After the completion of the financial statements, the accountant noticed that the fixed asset register showed that equipment consisted, among others, of 10 laptops. An investigation by die accountant, however, revealed that only seven laptops were on the premises. Two staff members then admitted to having a computer at home, as they work at night. The other computer was unaccounted (4) for. Suggest two procedures the accountant needs to introduce in order to ensure that this situation does not arise again. Page 11 of 32

12 INFORMATION 1. Additions to the land and buildings took place during the year ended 30 October Two identical vehicles were bought on the same day, several years ago. As one of the vehicles is costing a lot in repairs, the business traded it in for a new vehicle, which cost R on 30 June Vehicles are depreciated at 20% p.a. on cost. After the trade-in the business still owed the creditor an amount of R No entries have been processed. 3. Equipment is depreciated by 20% p.a. on the diminishing balance method. 4. New equipment was bought on 1 May No equipment was sold. Fixed asset note taken from the balance sheet of Woody Stores on 30 October Land and buildings Vehicles Equipment Carrying value at the beginning of the year Cost Accumulated depreciation ( ) * MOVEMENT Additions at cost * * Disposal at carrying value Depreciation * * Carrying value at end of year * * Cost * Accumulated depreciation * * * Page 12 of 32

13 4.3 VALUE ADDED TAX Pitso Traders is registered for VAT on the invoice basis. All the transactions are subject to VAT at 14%, where applicable. The following information was taken from the books on 30 April INFORMATION Amount (including VAT) Amount (excluding VAT) 1 Total sales of goods R Total purchases of goods R Rental income Goods taken by owner for personal use R Telephone and electricity R Interest on loan R Discount received from creditors R Discount allowed to debtors R Consumables purchased R REQUIRED: Calculate the amount of VAT that Pitso Traders will need to pay to (or can claim from) SARS for the two-month period ending 30 April (10) [61] QUESTION 5: (CASH BUDGETS) You are provided with information relating to Delta Hardware Store. The business is owned by Peter Temba. His inexperienced bookkeeper, Thabo, has prepared a cash budget. REQUIRED: 5.1 Refer to the cash budgets below at information no. 4. Identify two items that Thabo incorrectly entered into the cash budget. 5.2 Apart from the items in QUESTION 5.1 above, name two other items in the payment section of the cash budget (see information no.4 below) that will not appear in a projected income statement. (4) (4) Page 13 of 32

14 5.3 After correcting all the errors, Peter identified the following: Jan Feb Cash surplus Cash at the beginning A of the month. Cash at the end of the month B Identify/calculate A and B. Indicate negative figures in brackets. 5.4 Identify/calculate the missing figures C and D from the extract of the cash budget. (3) (7) 5.5 Complete the debtors collection schedule for February (10) 5.6 Calculate the percentage increase in salary and wages with effect from 1 February Calculate the amount of the fixed deposit. The interest rate is 7% p.a. (2) (2) 5.8 Peter pays Speedy Deliveries to deliver goods to his customers, free of charge. He budgets for this at a rate of 8% of total monthly sales Calculate the delivery expense figure budgeted for Jan (2) Peter is of the opinion that this service is costing him too much. Which two points should Peter consider before deciding on whether or not to discontinue this service? 5.9 On 31 January 2013 you identified the following figures. Explain the figures to Peter with regards to budgeted figures and what was actually spent. Give one piece of advice in each case. (4) (6) JANUARY 2014 BUDGETED ACTUAL Advertising Telephone Staff training Peter has a problem with the rent, which is due to increase by 12% per month in March He feels it is too much to pay each month. His options are: (6) Page 14 of 32

15 INFORMATION Raise a new loan of R with an interest rate of 14% p.a. to be paid over 36 months. Invite his friend to provide capital of R and become an equal partner in the business. Hire new premises a few kilometres away from the existing business. Consider each of these options and explain one advantage and one disadvantage of each option. Provide figures to support your answer. 1. Sales, purchase of stock and cost of sales. Total sales for November 2013 to February 2014 were as follows: November: R December: R January: R February: R % of all sales are cash, the rest is on credit. The mark-up is 60% on cost of sales at all times. Stock is replaced on a monthly basis. 80% of all purchases are on credit, the rest are cash. 2. Debtors collection. Debtors are expected to pay as follow: 30% of debtors pay their accounts in the month of sales (current) to obtain a discount of 5%. 50% pay in the month following the sales transaction month (30 days). 15% pay in the second month (60 days). 5% is written off. 3. Creditors payment. Creditors are paid two months after purchases are made. Page 15 of 32

16 4. DELTA STORES EXTRACT FROM THE CASH BUDGET FOR JANUARY AND FEBRUARY JAN 2014 FEB 2014 RECEIPTS Cash sales Collections from debtors ? Interest on fixed deposit (7% p.a.) Commission income?? PAYMENTS Salary and wages Stationery Telephone Payment to creditor D Cash purchase of stock C Repayment of existing loan Bad debts Rent paid Delivery expenses of goods to?? customers Training of staff Advertising Depreciation Sundry expenses Drawings by owner?? Vehicle expenses [50] TOTAL SECTION C: 111 GRAND TOTAL: 300 Page 16 of 32

17 ACCOUNTING GRADE 12 JUNE EXAMINATION 2014 ANSWER SHEET NAME OF CANDIDATE: QUESTION TOPIC OF QUESTION Reconciliation: 1.1 Bank reconciliation Creditors reconciliation 2 Company financial statements: Income statement and balance sheet notes 3 Company financial statements: Cash flow statement, analysis and interpretation MARKS ACHIEVED MAXIMUM MARKS TIME SCHEDULE 30 Min Min Min 4 Auditing, fixed assets and VAT Min 5 Cash budgets Min TOTAL HOURS Page 17 of 32

18 SECTION A QUESTION 1.1: (BANK RECONCILIATION) Identify two items to be entered into the Cash Receipt Journal for April Identify two items to be entered into the Cash Payment Journal for April Prepare the Bank Reconciliation Statement on 30 April Debit Credit 12 Page 18 of 32

19 QUESTION 1.2: (CREDITORS RECONCILIATION) CREDITORS LEDGER CREDITORS RECONCILIATION STATEMENT Balance TOTAL Discuss two reasons why Verona Wholesalers states that Jibe Stores is in breach of their contract. Substantiate your answer with facts Discuss two reasons why you think Jibe Stores believes they have been wrongly accused. Substantiate your answer. 4 4 Page 19 of 32

20 1.2.4 What advice would you give Jibe Stores? Explain briefly. 2 TOTAL SECTION A: 50 SECTION B QUESTION 2: (FINANCIAL STATEMENTS) Page 20 of 32

21 2.2 JOHN ORR LTD INCOME STATEMENT FOR THE YEAR ENDED 30 OCTOBER 2013 Note Sales Cost of sales Gross profit Other operating income Rent income Commission income Gross operating income Operating expenses ( ) Water and electricity Insurance Salaries and wages Consumable stock Bad debts Sundry expenses * Depreciation Operating profit Interest income Profit before interest expense Interest expense Net profit before tax Income tax Net profit after tax 42 Page 21 of 32

22 TRADE AND OTHER RECEIVABLES TRADE AND OTHER PAYABLES 11 Page 22 of 32

23 QUESTION 3: (CASH FLOW STATEMENT AND INTERPRETATION) 3.1 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 AUGUSTUS 2013 CASH EFFECTS OF OPERATING ACTIVITIES Cash generated from operations Interest paid Dividends paid Income tax paid CASH EFFECTS OF INVESTING ACTIVITIES ( ) CASH EFFECT OF FINANCING ACTIVITIES Net change in cash and cash equivalents Cash and cash equivalent at the beginning of the year Cash and cash equivalent at the end of the year 19 Page 23 of 32

24 3.1.1 NOTES TO THE CASH FLOW STATEMENT 1. RECONCILIATION BETWEEN NET PROFIT AND CASH GENERATED FROM OPERATIONS Profit before tax Adjustment with respect to: Depreciation Interest paid Operating profits before changes in working capital Cash effect of changes in working capital Decrease/increase in stock Decrease/increase in debtors Decrease/increase in creditors TAX PAID DIVIDENDS PAID 6 4 Page 24 of 32

25 3.2 Calculate the net asset value (NAV) per share for the year ended 28 February Can the shareholders be satisfied with the net asset value per share? 3.3 Calculate the acid test ratio on 28 February 2013 and comment on the liquidity of the company. The acid test ratio in 2012 was 0, 9:1. 5 Comment on the liquidity of the company. 3.4 Calculate the average shareholders equity for Page 25 of 32

26 3.5 Calculate the debt: equity ratio for TOTAL SECTION B: SECTION C QUESTION 4: (AUDITING, FIXED ASSETS, VAT) 4.1 BUYBACK OF SHARES 4.1 Give three reasons why a company will buy back shares from shareholders Who appoints the independent auditor? Explain why auditors have to take IFRS into account when expressing their opinion. 2 2 Page 26 of 32

27 4.1.4 Who is responsible for corporate governance in Prima Clothing Ltd? What important characteristics of the corporate governance principles do Prima Clothing Ltd adhere to, as laid out by the King III report? FIXED ASSETS ASSET DISPOSAL Land and buildings Vehicles Equipment Carrying value at beginning of year Cost Accumulated depreciation ( ) MOVEMENT Additions at cost Disposal at carrying value Depreciation Carrying value at end of year Cost Accumulated depreciation GENERAL LEDGER OF WOODY STORES ASSET DISPOSAL 22 Page 27 of 32 12

28 4.2.3 Suggest two procedures the accountant needs to introduce to ensure that this situation does not arise again VALUE ADDED TAX VAT OUTPUT TOTAL VAT INPUT 10 QUESTION 5: (CASH BUDGETS) 5.1 Identify two items that Thabo incorrectly entered into the cash budget. 4 Page 28 of 32

29 5.2 Name two other items in the payment section of the cash budget that will not appear in a projected income statement. 5.3 Identify/calculate A and B. Indicate negative figures in brackets. A B Identify/calculate the missing figures C and D from the extract of the cash budget. C D 5.5 Complete the debtors collection schedule for February December January February TOTAL Credit sales February 10 Page 29 of 32

30 5.6 Calculate the percentage increase in salary and wages with effect from 1 February Calculate the amount of the fixed deposit. The interest rate is 7% p.a Calculate the delivery expense figure budgeted for January Peter is of the opinion that his service is costing him too much. Which two points should Peter consider before deciding on whether or not to discontinue this service? 6 Page 30 of 32

31 5.9 On 31 January 2013 you identified the following figures. Explain the figures to Peter with regards to budgeted figures and what was actually spent. Give one point of advice in each case. COMMENT ADVICE Advertising Telephone Staff training 6 Page 31 of 32

32 5.10 Consider each of the following options and explain one advantage and one disadvantage of each option. Provide figures to support your answer. Other advantage Disadvantage Option 1: Raise a new loan of R with an interest of 14% p.a. to be paid over 36 months. Option 2: Invite his friend to provide capital of R and become an equal partner in the business. Option 3: Hire new premises a few kilometres away from the existing business. 6 TOTAL SECTION C: 111 GRAND TOTAL: 300 Page 32 of 32