Question



ACCN

ISEBE LEMFUNDO LEMPUMA KOLONI

EASTERN CAPE EDUCATION DEPARTMENT

OOS-KAAP ONDERWYSDEPARTEMENT

IIMVIWO ZEBANGA LESHUMI ELINANYE

GRADE 11 EXAMINATIONS

GRAAD 11-EKSAMEN

NOVEMBER 2008

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|ACCOUNTING |

IXESHA: 3 iiyure TIME: 3 hours TYD: 3 uur

AMANQAKU: 300 MARKS: 300 PUNTE: 300

Write on the cover of your answer book, after the word “Subject” –

ACCOUNTING

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|This examination paper consists of 15 pages. |

INSTRUCTIONS AND INFORMATION

|1. |You are provided with a question paper and an answer book. |

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|2. |This question paper comprises SEVEN compulsory questions. Answer all the questions. |

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|3. |Use the formats provided in the answer book in order to reflect your answers. |

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|4. |Where applicable workings must be shown in order to achieve part-marks. |

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|5. |You must attempt to comply with the suggested time allocation guide. |

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|6. |Non-programmable calculators may be used. |

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|7. |You may use dark pencil or blue/black ink to answer questions. |

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|QUESTION 1: 67 marks; 40 minutes | |

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|The topic of the question is: | |

|The learning outcomes covered are: | |

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|Partnership: Financial statements | |

|LO1 Financial information | |

|AS5 Prepare, analyse and interpret | |

|financial statements | |

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|QUESTION 2: 32 marks; 19 minutes | |

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|The topic of the question is: | |

|The learning outcomes covered are: | |

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|Bank reconciliation | |

|LO1 Financial information | |

|AS4 Bank reconciliation | |

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|QUESTION 3: 24 marks; 15 minutes | |

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|The topic of the question is: | |

|The learning outcomes covered are: | |

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|Manufacturing accounts | |

|LO2 Managerial accounting | |

|AS2 Apply costing in manufacturing environment | |

|and record in ledger | |

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|QUESTION 4: 68 marks; 40 minutes | |

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|The topic of the question is: | |

|The learning outcomes covered are: | |

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|VAT principles | |

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|Asset management principles | |

|LO1 Financial information | |

|AS7 Apply principles of VAT in different situations | |

|LO3 Managing resources | |

|AS3 Asset disposal | |

|AS4 Periodic inventory system | |

|AS6 Internal audit and control process | |

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|QUESTION 5: 40 marks; 24 minutes | |

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|The topic of the question is: | |

|The learning outcomes covered are: | |

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|Sportsclubs | |

|LO1 Financial information | |

|AS2 Selected ledger accounts | |

|LO3 Managing resources | |

|AS6 internal audit and control process | |

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|QUESTION 6: 45 marks; 27 minutes | |

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|The topic of the question is: | |

|The learning outcomes covered are: | |

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|Cash budget | |

|LO2 Managerial accounting | |

|AS3 Prepare cash budget for a sole trader | |

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|QUESTION 7: 24 marks; 15 minutes |

|The topic of the question is: |The learning outcomes covered are: |

|Ratio analysis and interpretation |LO1 Financial information |

| |AS5 Prepare, analyse and interpret |

| |financial statements of a partnership |

QUESTION 1: PARTNERSHIPS (67 marks; 40 minutes)

You are provided with information relating to Westlake stores, a business owned by

W. West and L. Lake.

REQUIRED

1.1 Income statement for the year ended 31 December 2008. (49)

1.2 Current account note to the financial statement. (18)

Adjustments:

1. Stock on hand on 31 December 2008 is as follows:

Trading stock R 39 210

Stationery R623

2. It was decided to write off P. Sono’s debt of R240 as a bad debt.

3. Adjust the provision for bad debts to 4% of the balance of debtor’s control.

4. Insurance paid in advance, R540.

5. Calculate depreciation as follows:

5.1 On vehicles at 10% per year on the diminishing balance.

5.2 On equipment at 15% per year on the cost price. New equipment to the value

of R18 000 was purchased on 30 September 2008 and was not recorded.

6. Rental for 13 months was received.

7. The telephone account of R620 of December 2008 must still be paid.

8. Provide for outstanding interest on fixed deposit at 10% p.a. Note the fixed deposit account in the general ledger is as follows:

INFORMATION:

Pre-adjustment Trial balance of Westlake stores on 31 December 2008

| | |Debit |Credit |

| | | | |

| | | | |

| | | | |

|Balance sheet accounts | | | |

| | | | |

|Capital: W West | | |330 000 |

|Capital: L Lake | | |320 000 |

|Drawings: W West | |76 500 | |

|Drawings: L Lake | |68 600 | |

|Current accounts: W West | | |3 670 |

|Current accounts: L Lake | | |1 048 |

|Land and buildings | |645 000 | |

|Vehicles | |100 000 | |

|Equipment | |74 680 | |

|Accumulated depreciation on vehicles | | |34 000 |

|Accumulated depreciation on equipment | | |17 690 |

|Fixed deposit: FOB Bank (10% p.a.) | |47 000 | |

|Loan: Strong Bank (12% p.a.) | | |40 000 |

|Bank | |16 320 | |

|Cash float | |1 000 | |

|Trading stock | |40 240 | |

|Debtors control | |25 240 | |

|Provision for bad debts | | |950 |

|Creditors control | | |23 448 |

|SARS (PAYE) | | |1 890 |

|Pension fund | | |3 450 |

| | | | |

|Nominal accounts | | | |

| | | | |

|Sales | | |966 000 |

|Cost of sales | |500 000 | |

|Debtors allowances | |4 000 | |

|Bad debts | |740 | |

|Telephone | |7 840 | |

|Wages | |59 290 | |

|Salaries | |87 000 | |

|Stationery | |3 140 | |

|Insurance | |6 540 | |

|Bank charges | |2 048 | |

|Rent income | | |26 000 |

|Interest on fixed deposit | | |2 500 |

|Pension fund contribution | |898 | |

|Discount allowed | |1 196 | |

|Discount received | | |946 |

|Interest on loan | |3 600 | |

| | | | |

| | |1 771 592 |1 771 592 |

Fixed deposit: FOB Bank

|Date | |

|Sundry accounts |2 500 |

Cash Payments Journal

|Bank |25 500 |

|Debtors control |600 |

|Sundry accounts |24 900 |

2.2 Draw up the bank account and balance the account on 31 October 2008. (5)

2.3 Prepare the Bank Reconciliation Statement on 31 October 2008. (11)

INFORMATION

1. From the Bank Reconciliation Statement on 30 September 2008.

|Debit balance according to bank statement |5 530 |

|Deposits not yet credited by the bank |9 560 |

|Cheques not yet presented for payment: No. 1115 |574 |

| No. 1127 |1 017 |

| No. 1168 |1 144 |

| No. 1186 |1 446 |

|Debit balance according to bank account |642 |

Please note: Cheque no. 1168 was issued in favour of Total Sports on 27 September 2008 for a donation. The cheque appears to be lost in the post and the manager instructed that cheque no. 1168 must be stopped.

2. The bank statement for October was received on 31 October 2008 and showed an overdraft of R9 314.

3. Entries on the bank statement for October 2008 which did not appear in the cash journals for October:

Deposit, R9 560

Cheque no. 1115, R574

. Cheque no. 1186, R1 464 (this cheque was issued in favour of DP Suppliers

on 28 September 2008 for advertising. The amount on the bank statement is correct).

. Unpaid cheque, R1 154 (this cheque, received from Bob Traders in settlement of his account, R1 220, and deposited on 15 October 2008 was dishonoured on account of insufficient funds).

. Stop order, R1 050 (this stop order, in favour of Meyers Motors, is for the instalment on the delivery scooter purchased during January 2008).

. Debit order, R517 (this debit order gives the City Council the right to withdraw the amount due for water and electricity on a monthly basis from our account).

. Unpaid cheque, R909 (by mistake this cheque was not signed by drawer, George).

. Cash handling fee, R37.

. Cheque book fee, R26.

. Service charges, R111.

. Interest on overdraft, R598.

4. Entries in the Cash Journals for October which did not appear on the bank statement

for October:

Cheque no. 1487, R1 395 (dated 24 October 2008).

Cheque no. 1490, R1 540 (dated 29 October 2008).

Deposit, R7 532.

[32]

QUESTION 3: MANUFACTURING ACCOUNTS (24 marks; 15 minutes)

3.1 Hawaii Manufacturers produces a range of blankets for swimming-pools and sells it at

50% mark-up on cost. The information given below was extracted from the accounting records on 30 June 2008, the end of the financial year.

REQUIRED:

Answer the questions that follow. Balance/Close off all accounts on 30 June 2008.

3.1.1 Calculate the amount for raw materials issued for production in 2008. (4)

3.1.2 Prepare the Work-in-Process Stock ledger account. (6)

3.1.3 Prepare the Finished Goods Stock ledger account. (3)

3.1.4 Prepare the Factory Overhead Cost ledger account. (11)

INFORMATION:

|Balance |1 July 2007 |30 June 2008 |

|Raw materials stock |54 000 |66 780 |

|Indirect material stock |25 000 |11 000 |

|Work-in-process stock |42 300 |? |

|Finished goods stock |38 000 |14 000 |

Summary of transactions for the year ended 30 June 2008

|Raw materials: | |

| Bought on credit |520 000 |

| Issued for production |? |

|Indirect material: | |

| Bought for cash |10 700 |

| Issued to manufacturing process |24 700 |

|Wages: | |

| Direct labour |186 000 |

| Indirect labour |40 800 |

|Other information: | |

| Salary of factory manager |126 000 |

| Salary of office staff |78 600 |

| Bad debts |5 200 |

| Water and electricity |28 400 |

| Rent expense |88 500 |

| Sundry factory expenses |24 680 |

| Sales: Finished goods (cost of sales was R960 000) |1 500 000 |

Additional information:

1. Wages of R2 800 are owed to the factory cleaner at the end of June.

2. Raw materials are bought only on credit.

3. Expenses incurred in respect of water and electricity must be divided between the factory and administration sections in the ratio 3:1 respectively.

4. Rent expense must be divided between the factory and administration sections according to floor space.

Factory floor space 150 m2

Office floor space 60 m2

Sales department floor space 90 m2

300 m2

[24]

QUESTION 4.1: ASSET MANAGEMENT AND VAT CONTROL (68 marks; 40 minutes)

The information given below was extracted from the records of TV Transport on 30 June 2008, the end of their financial year.

REQUIRED:

Prepare the following:

4.1.1 Asset disposal account (9)

4.1.2 Tangible asset/Fixed asset note to the Balance Sheet on 30 June 2008. (23)

INFORMATION:

You are provided with the following balances taken from the General Ledger at 30 June 2008:

|Vehicles at cost |720 000 |00 |

|Equipment at cost |200 000 |00 |

|Accumulated depreciation on vehicles (01/07/2007) |320 000 |00 |

|Accumulated depreciation on equipment (01/07/2007) |60 000 |00 |

Adjustments and additional information

Provide for depreciation as follows:

• On vehicles at 10% p.a. on the diminishing balance method.

• On equipment at 20% p.a. on cost.

Notes

• A new vehicle costing R200 000 was bought on 1 January 2008. This has been recorded.

• Equipment with a cost price of R10 000 was sold for R5 000 cash. The carrying/book value of this equipment on the 1st day of the financial year was R3 000. No entries were made for this sale transaction which took place on 31 December 2007.

• Additional equipment costing R22 000 was purchased (by cheque) on 1st April 2008. This has not yet been recorded.

QUESTION 4.2: VAT

4.2.1 The cost price of a product is R60. The business uses a mark-up of 50%.

Calculate the selling price inclusive of 14% VAT. (3)

4.2.2 Modern Services are registered VAT vendors who have to pay over the

VAT owing to SARS on the 25th of each month. During October 2008 they had

made the following payments, which all include 14% VAT, if applicable:

|Rental |4 200 |00 |

|Salaries and wages |28 000 |00 |

|Telephone |620 |00 |

|Advertising |1 450 |00 |

|Insurance |600 |00 |

|Cleaning material |4 850 |00 |

|Stationery |760 |00 |

|Fuel |1 340 |00 |

• In October 2008, Modern Services issued customers with invoices totalling

R64 000. They also received R5 600 in fee income from cash customers.

• Modern Services pays VAT on the invoice basis.

• By 25 November 2008, Modern Services had still not paid their October VAT

and will need to pay a 10% penalty for late payment.

REQUIRED:

4.2.2 (a) Calculate the Input VAT that Modern Services paid during October 2008. (4)

(b) Calculate the Output VAT that Modern Services received during October 2008. (3)

(c) Calculate the amount of VAT, including a 10% penalty costs that Modern

Services will need to pay, if they pay SARS after the 25th November. (4)

4.2.3 In your opinion, is VAT an effective method of taxation? Motivate your

answer by supplying THREE advantages or disadvantages of this form of taxation. (3)

QUESTION 4.3: STOCK SYSTEMS

4.3 The managing director of a departmental store is unhappy about the following:

(a) Customers are complaining about having to return goods.

(b) Although mark-up is high, his profit was only R86 000.

The following information is made available to you for the year.

Sales total R 780 000

Returns by customers (debtors allowances) 46 000

Stock at beginning of year 85 800

Purchases (net) 520 000

Carriage on purchases 18 000

Stock at end of year 92 400

NB: Mark-up is 50% on cost price.

Required:

Answer the following question.

4.3.1 Briefly explain ONE major difference between the perpetual and periodic

inventory systems. (2)

4.3.2 State ONE difference between an internal and external auditor. (2)

4.3.3 Calculate the following at end of the financial year:

(a) Cost of sales (5)

(b) Gross profit (4)

(c) Percentage mark-up achieved (3)

(d) As a newly appointed internal auditor what aspects will you concentrate

on to ensure the business succeeds in attaining a mark-up of 50%.

Discuss THREE points to support your opinion. (3)

[68]

QUESTION 5: SPORT CLUBS (40 marks; 24 minutes)

5.1 MEMBERSHIP FEES

You are provided with information relating to Bhisho Soccer Club.

REQUIRED:

Study the information and answer the questions which follow.

INFORMATION:

The membership fees details of the club are as follows:

1. The annual membership fees is R3 600.

2. Number of members in the club on 1 January 2008: 345.

3. Number of new members joining on 1 January 2008: 9.

4. Number of members who resigned on 30 June 2008: 15. (These members had paid in full and were refunded half their fees).

5. Four members whose fees were outstanding for 2007 settled their outstanding debts during 2008. The remaining outstanding members were dismissed and are to be written off with effect from 1 January 2008.

Membership Fees

|2008 | | | |2008 | | | |

|Jan |1 |(A) |86 400 |Jan |1 |Income received in advance |? |

|Dec |31 |(B) |25 200 |Dec |31 |(C) |516 600 |

| | |Bank |27 000 | | |Accrued income |126 000 |

| | |Income and expenditure |(E) | | |Membership fees written off |(D) |

| | | | | | |Honorarium |7 200 |

| | | |? | | | |? |

| | | | | | | | |

QUESTIONS:

5.1.1 Provide the missing details in the account represented by (A), (B) and (C). (6)

5.1.2. Provide an explanation for the entry of R7 200 on the credit side of the

account. (2)

5.1.3 Calculate the following:

(a) The number of members who had not settled their 2007 fees in 2007. (2)

(b) The number of members who were removed from the club register in

2008 for not paying their outstanding fees. (1)

5.1.4 Provide the missing figures in the account represented by (D) and (E). (6)

5.1.5 The club chairperson feels that there is a problem in collecting and recording fees.

(a) State TWO points to support his opinion, quoting appropriate figures.

(b) Make TWO suggestions to solve the problem. (8)

5.2 CLUB TRACKSUITS

(a) On January 2008 the club had 20 tracksuits on hand.

(b) 90 tracksuits were purchased on credit during the current year.

(c) The club sold 100 track suits at R300 each. 40 of these were sold for cash to members and the rest on credit.

(d) One tracksuit was taken by the treasurer at selling price as part of honorarium .

(e) The tracksuit is sold according to the FIFO method.

(f) The club has 20 tracksuits on hand on 31 December 2008.

NB: Profit mark-up on cost is 50%.

REQUIRED:

Tracksuit account in the General ledger for the year ended 31 December 2008. (15)

[40]

QUESTION 6: CASH BUDGETS (45 marks; 27 minutes)

Use the information provided below on Gundree Traders to do the following:

6.1 Prepare the debtors’ collection schedule for the period 1 July 2008 to 31 August 2008. (11)

6.2 Complete the cash budget for the period 1 July 2008 to 31 August 2008. (34)

Information for Gundree Traders

BALANCES ON 1 July 2008

|Bank (dr.) |90 000 |

|Accrued expenses (Salaries) |5 000 |

|Loan: Neo Bank (12% p.a.) |100 000 |

TOTAL SALES (TURNOVER)

|ACTUAL |BUDGETED (PROJECTED) |

|May |June |July |August |

|R 90 000 |R 80 000 |R 75 000 |R 110 000 |

Other information

1. 40% of sales are on credit.

2. The amounts owing by debtors are collected as follows:

• 40% in the month of sale.

• 35% in the month following the sale (after 30 days).

• 20% in the second month following the sale (after 60 days).

• The rest is written off as irrecoverable in the third month after the sale

(after 90 days).

3. Cost of sales is equal to 75% of the turnover.

4. 40% of the purchases are paid in cash.

5. Creditors are paid in the month following the purchases (after 30 days).

6. Trading stock on hand is maintained through monthly purchases.

7. Advertising costs are based on 3% of projected monthly sales and are paid in the same month by cheque.

8. The business has four employees who are paid R5 000 each per month.

Salaries are paid by cheque. The salary of 1 employee which was due for

June 2008 will be paid together with his July salary in July 2008.

9. Other operating expenses will amount to R2 500 per month.

10. The loan amount of R100 000 will remain constant for the budget period.

Interest is paid at the end of each month.

[45]

QUESTION 7: RATIO ANALYSIS AND INTERPRETATION (24 marks; 15 minutes)

You are provided with information relating Gale Traders. The business is owned by

A. Gale.

REQUIRED:

Study the information and answer the questions which follow. In support of your answers

you must quote figures and/or the actual indicators (ratio/percentages) where appropriate.

INFORMATION:

The following figures were extracted from the Balance sheet on 30 June 2008:

| |2008 |2007 |

|Fixed assets |1 526 000 |1 135 000 |

|Investments |150 000 |180 000 |

|Current assets |425 000 |360 000 |

|TOTAL ASSETS |2 026 000 |1 585 000 |

| | | |

|Capital |1 366 000 |1 165 000 |

|Non-current liabilities (14% p.a.) |500 000 |300 000 |

|Current liabilities |160 000 |120 000 |

|TOTAL EQUITY AND LIABILITIES |2 026 000 |1 585 000 |

| |2008 |2007 |

|Trading inventory |90 000 |220 000 |

|Trade debtors |205 000 |115 000 |

|Trade creditors |122 500 |92 000 |

|Ratio/Indicators |2008 |2007 |

|Current ratio |? |3,2:1 |

|Acid-test ratio |? |1,5:1 |

|Solvency ratio |? |3,8:1 |

|Debt-equity |? |0.3:1 |

|Return on total capital employed |8,3% |10,5% |

7.1 Solvency:

7.1.1 Calculate the solvency ratio for 2008. (3)

7.1.2 Comment on this ratio. Is this business likely to experience

a solvency problem? Briefly explain. (3)

7.2 Gearing and profitability:

7.2.1 Calculate the debt/equity ratio for 2008. (3)

7.2.2 Comment on the debt/equity ratio. (3)

7.3 Liquidity:

7.3.1 Calculate current ratio for 2008.

7.3.2 Acid-test ratio for 2008.

7.3.3 Comment on the above ratios. (12)

[24]

GRAND TOTAL: 300

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