Acc Gr12 June 2009 Paper

8/9/2019 Acc Gr12 June 2009 Paper

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ACCOUNTING GRADE

12

MID-YEAR EXAMINATION

2 June 2009

9H00

300 MARKS

TIME: 3 HOURS

EXAMINER: MRS J ABRAHAMS

MODERATOR: MRS A MOYCE

WESTERFORD HIGH SCHOOL

This question paper consists of 15 pages.


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INSTRUCTIONS

1. This question paper consists of SIX compulsory questions. Answer ALL thequestions.

2. A special ANSWER BOOK is provided in which to answer the questions.

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

4. Candidates will forfeit marks for:- Important dates which are omitted.- Use of non-standardised abbreviations- Over-writing of figures- Superfluous entries/foreign items

5. Non-programmable calculators may be used.

6. You must attempt to comply with the suggested time allocation guide.Question 1: 25 marks ; 15 minutes

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

Debtors, Creditors and BankReconciliation

LO1 Financial accounting- AS4 Analyse and interpret

reconciliationsLO3 Managing resources

- AS4 Apply internal auditing processes- AS5 Code of ethics

Question 2: 50 marks ; 30 minutesThe topic of the question is: The learning outcomes covered are:

Companies Ledger accountsLO1 Financial accounting

- AS5 Prepare financial statements of acompany


Cash flow ratios and commenting

LO1 Financial accounting- AS5 Prepare the Financial statements of acompany

- AS6 Analyse the Financial statements of acompany

Question 4: 30 marks ; 18 minutes

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

Inventory valuations and validationsLO3 Managing resources

- AS2 Validate and calculate inventories


Financial statements of a companyLO1 Financial accounting

- AS5 Prepare financial statements of acompany


Company concepts and recordsLO1 Financial accounting

- AS1 Define accounting concepts- AS2 Record information for companies


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QUESTION 1

Debtors, Creditors and Bank Reconciliation (25 marks ; 20 minutes)

You are provided with three examples of reconciliations done by employees in the accountingdepartment of Fruity Traders.

REQUIRED:

Study the information and then answer the questions that

follow.

INFORMATION:

RECONCILIATION OF DEBTORS CONTROL ACCOUNTTO DEBTORS LIST 30 JUNE 2008

Balance as per Debtors' Control Account in the General Ledger 33000

Balance as per Debtors Accounts in the Debtors Ledger 33000

Pineapple Traders (over 90 days) 23200Kiwi Wholesalers (30 days) 6800Mango Stores (30 days) 2500

Orange Services (current) 500

SWEET APPLE TRADERS

CREDITORS RECONCILIATION STATEMENT ON 30 JUNE 2008

Balance as per Creditors Statement on 30 June 2008

Dr.

7000

Invoices not reflected on statement:

No. 552 10300

Payment not reflected on statement

Dated 28 June 2008 6700

Returns not reflected on statement

Debit note no. 109 2400

Balance as per Creditors ledger on 30 June 2008 ?

Bank Reconciliation Statement on 30 June 2008 R

Overdraft as per Bank Statement 3215

Deposit not credited by bank 2765

Cheques not presented for payment to bank

No. 516 (dated 15 December 2007) 500

No. 891 (dated 14 July 2008) 1240

No. 945 (dated 27 June 2008) 225

No. 947 (dated 30 June 2008) 190Balance as per Bank Account ?


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QUESTIONS:

1. Which debtor is in arrears? (2)

2. Which two internal control measures will you put in place to ensure thatcollection from debtors takes place timeously? (4)

3. Calculate the amount owed to Sweet Apple Traders by Fruity Traders. (5)

4. One of the cheques not presented for payment on the Bank ReconciliationStatement has been treated incorrectly. Which cheque is it? (2)

5. Give a reason for your choice. (2)6. What will the correct entry be in the books of Fruity Traders? (2)

7. Calculate the Balance as per Bank Account in the General Ledger. (6)

8. Give one reason why the preparation of reconciliations is important for internalcontrol. (2)

[25]

QUESTION 2

COMPANIES LEDGER ACCOUNTS (50 marks; 25 minutes)

You are provided with information relating to Parboo Ltd for the yearended 29 February 2008. The company has an authorised share capital of1 000 000 ordinary shares of R4,00 par value each. The Chief Executive Officer(CEO) is Ben Bhengu.

REQUIRED:

2.1 Briefly explain what is meant by the following:

Share capital (2)Share premium (2)Retained income (2)

2.2 Refer to point 6 in the information. Calculate the correct net profit beforetax for the year. (6)

2.3 Prepare the following accounts in the Ledger (the accounts must beproperly closedoff or balanced).

SARS (income tax) (11) Appropriation account (15)

2.4 Consider point 4 in the information regarding the permission granted to thedirectors to issue shares at their discretion. You are a shareholderbut not a director. Give ONE point in favour of granting the directors thispermission and one point against it. (4)


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2.5 Refer to the extract from the newspaper article provided on the next page.

Consider the complaint by Mary Moosa regarding Bhengu's directors'fees.

Do you agree with her? Explain. (4)

Consider the complaint by Ken Kelly. Is Bhengu's responseacceptable?What else could he have said? (4)

INFORMATION:

1. The following balances appeared in the Ledger at the beginning and end ofthe financial year:

BEGINNING1 MAR. 2007

END29 FEB. 2008

Ordinary share capital (par value R4

each)

R2 400 000 R ?

Share premium R330 000 R505 000Retained income R454 000 R?SARS (income tax) R38 600 (Credit) R1 1 500 (Debit)Shareholders for dividends R270 000 R?

2. Amounts owing in respect of the previous financial year to SARSand theShareholders (for dividends) were paid on 10 June 2007.

3. Amounts paid on 31 August 2007:

The first provisional tax payment of R187 500 for the 2008 financial year. Interim dividend of 84 cents per share (The new shares

issued on 1 September 2007 do not qualify for these interim dividends,but will receive final dividends. Refer to point 4 in the informationbelow.)

4. The directors have been granted permission by the shareholders toissue newshares as and when required.

The directors decided to issue new shares at a premium of 125 cents

during the year. The transactions were handled by New Bank and therelevant amount wasreceived from Star Bank on 1 September 2007.

5. The second provisional tax payment of R220 000 was made on 29 February2008.


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6. At the year-end, the accountant calculated the net profit before tax to beR1 475 000,but thereafter he discovered that the following had not yetbeen taken into account:

A donation of stock to the Chatsworth Youth Development Programme,R70 000.

7

According to his contract, Ben Bhengu's directors' fees are R110 000per month.His fees for February had not been paid.

Although rent paid of R175 000 had been correctly recorded, it wasdiscoveredthat these payments included rent for March and April 2008.

7. At the year-end, 29 February 2008, the directors recommended a finaldividend of110 cents per share. An entry must also be made for incometax for the year.

8. The article below appeared in the newspaper after the AGM.

PARBOO LTD SHAREHOLDERS TAKE CEO TO TASK

By Harry Digger, 10 June 2008

There was certainly a lot of argument at the AGM of Parboo Ltd last week. Thecompany distributes sports equipment and has built up a fine reputation amongst thepublic in recent years and has delivered impressive returns to shareholders over thepast five years. However, this counted for nothing last night as CEO Ben Bhengu wascalled upon to answer a number of very direct questions.

One of the minority shareholders, Mary Moosa, questioned Bhengu's exorbitantdirectors' fees,saying these could not be justified. Bhengu responded by saying thesehad been approved bythe remunerations committee and were based on the past and

current performance of the

company.

Another shareholder, Ken Kelly, also questioned the 'unnecessary waste of funds'that havebeen donated to the Chatsworth Youth Development programme, saying thesefunds could have been used to boost dividends to shareholders. Bhengu's responsewas that such expenditure was in line with the company's social responsibilityobjectives which had been unanimously approved by the entire board of directors.The share price dropped 15% on the JSE yesterday.


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QUESTION 3

COMPANY CASH FLOW STATEMENTS AND INTERPRETATION (70 marks; 40 minutes)

You are provided with information relating to Ntini Limited, a public company listed on the JSE(Stock Exchange).

REQUIRED

3.1 Complete the Cash Flow Statement for the year ended 29 February 2008 and

note for cash generated by operations. (45)

3.2 Calculate percentage return on shareholders' equity. (6)

3.3 Comment briefly on the financial risk and return on own capital by referring to:

Debt-equity ratio Return on shareholders' equity. (4)

3.4 Calculate the Earnings per Share for 2008. (4)

3.5 Would the shareholders be happy with the dividends per share?Give a reason for your answer. (4)

3.6 Is the company liquid? Briefly explain by quoting figures from the financialstatements or financial indicators. (7)

70


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INFORMATION

Extract from the Income Statement for the vear ended 28/29 Februarv:

R R

2008 2007

Net profit before tax 280 000 200 000

Income Tax 106 000 75 000

Net profit after tax 174 000 125 000

Extract from the Balance Sheet on 28/29 Februarv: Notes 2008 2007

R R

ASSETS

Non-current assets 2 230 000 1 774 000

Tangible assets 2 230 000 1 774000

Current assets 250 000 190 000

Inventories 201 000 141000

Trade and other receivables 48 000 13000

Cash and cash equivalent 1 000 36000

TOTAL ASSETS 2 480 000 1 964 000

EQUITY AND LIABILITIES

Share capital and reserves 1 960 000 1 374

Ordinary share capital (R2 per share) 1 100 000 900000

Share premium 300 000 0

Retained income /Accumulated profits 560 000 474000

Non-current liabilities 240 000 420 000

Loan from Dollar Bank

240

000

420

000

Current liabilities 280 000 170 000

Trade and other payables 242 000 170000

Bank overdraft 38 000 0

TOTAL EQUITY AND LIABILITIES 2 480 000 1 964 000


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Additional information1.

2008

R

2007

R

Dividends on ordinary shares 88 000 81 000

Shareholders for Dividends 55 000 ?

SARS (Income Tax) (Cr.) 6 000 0

SARS (Income Tax) (Dr) 0 5 000

2. The additional 100 000 shares were issued on 1 March 2007.

3. The dividends for the year were as follows:

2008 2007

Interim 6 cents per share 6 cents per share

Final 10 cents per share 12 cents per share

The interim dividends are paid on 25 August each year and the finaldividendare proposed on 29 February each year and paid on 25 Marcheach year.

4. Depreciation for the year amounted to R130 000. Tangible assets were sold

for R14 000 at carrying value and fixed assets were purchased.

5. A loan repayment was made on 30 September 2007. The interest rate was remained unchanged at 20% p.a. The interest for the year was fully paid.

6. The following financial indicators are given:

2008 2007

Debt-equity ratio 0,12 :1 0,31 :1

Current ratio 0,89:1 1,11 :1

Acid test ratio 0,18:1 0,28 :1


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QUESTION 4

INVENTORY SYSTEMS (30 marks ; 20 minutes)

You have been newly appointed on 1 February 2008 as the accountant of Zola Traders, specializing in selling television sets.

As a registered member of SAICA (South African Institute of Chartered Accountants) youpromote and subscribe to its professional code of conduct and ethics.

Zola Traders have been using the weighted average method of valuating its inventoryand cost of sales since the beginning of the financial year, 1 March 2007.

However, the CEO of Zola Traders, approaches you on 28 February 2008 and requeststhat you use the FIFO method of valuating the inventory and cost of sales when workingout theTrading account (according to the periodic system) for the year ended 28 February2008.

The CEO states that he has personally taken the final stock counts and that all matters areinorder and there is no need for any adjustments.

He makes the following information available to you. Study the information and answer the questions.

INFORMATION

1. DETAILS OF PURCAHSES AND SALES

No of

Units

Cost price

Per unitTotal Rand

Value

Opening stock (1 March 2007)

10 R3 000 R30 000

Purchases

Bank 01/07/2007 80 3 500 280 000

Bank 01/11/2007 70 5 000 350 000

Bank 01/02/2008 40 6 000 240 000

870 000

Closing Stock (29 / 02 / 2008) 60 4 500 270 000

Sales for the year 129 900 000

Carriage on purchases 45 000

Other operating income 15 000

Other operating expenses 260 000


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2. CALCULATION OF GROSS PROFIT USING THE WEIGHTEDAVERAGEACCORDING TO THE PERIODIC INVENTORY SYSTEM

R Sales 900 000

Cost of Sales (675000)

Opening stock (R3 000 X 10) 30 000

Purchases (R3 500 x 80) + (R5 000 X 70) + (R6 000 x 40) 870 000

Carriage on purchase 45 000

Closing stock (R4 500 X 60) (270000)

Gross profit 225 000

REQUIRED:

4.1 Calculate the gross profit using the FIFO method according to the periodic inventory system. (9)

4.2 Give two possible reasons why the CEO of Zola Traders wants you to usethe FIFO method instead of the weighted average method. Quote figures fromthe information given and 4.1 to support your answer.

( 6 )

4.3 Would you as a professional accountant agree to comply with all therequests made by the CEO? Provide two detailed explanations to support youranswer. (5)

4.4 As an experienced accountant identify one problem that you have foundwith the stock figures given by the CEO. Show the relevant calculation tosupport your answer. (4)

4.5 What solutions would you offer to the CEO to help solve the problem identified

in 4.4? Provide three possible solutions. (6)

30


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QUESTION 5

COMPANY FINANCIAL STATEMENTS (90 marks; 54 minutes)

You are provided with an extract from the pre-adjustment trial balance of Zabs Limited on

29 February 2008. The authorised share capital consists of 1 000 000 ordinary shares with apar value of 50 cents each.

REQUIRED5.1

Use the information below and complete the Balance Sheet on29 February 2008. (30)

5.2Complete the following notes to the Balance Sheet on 29 February 2008:

5.2.1 Tangible/Fixed Assets (20)5.2.2 Trade and other receivables (9)5.2.3 Retained Income 105.2.4 Trade and other payables (15)

5.3 What aspects need to be considered when deciding whether to raise more

finance through increasing loans or the issuing of more shares? (6)

Extracts from the PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2008

DEBIT CREDIT

BALANCE SHEET ACCOUNTS SECTION R ROrdinary share capital 400 000

Share premium 24 500Retained Income 49 500Loan: Zar Bank 50 000Fixed Deposit: Zen Bank 50 000Accumulated depreciation on vehicles 42 700Trading stock 61 000Consumable stores on hand - Packing Material(1 March 2007)

2 000

Provision for bad debts 1 600Bank 2 030SARS - Income tax

42 930


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NOMINAL ACCOUNTS SECTIONSales 525 500Cost of sales 265 400Debtors allowances 6 500Discount Allowed 200

Rent Income 31 500Commission Income 25 600Directors fees 48 000Packing material 6 500Bad debts 1 200Delivery expenses 2 700Insurance 2 600Salaries and wages 79 700Audit fees 4 800Interest on fixed deposit 4 250Interest on loan 4 200

Dividends on ordinary shares 17 500

Adjustments and Additional Information

1. In terms of their contract the Directors are paid R40 000 p.a. plus a travelallowance of R20 000. Make the necessary adjustment.

2. A debtor returned damaged stock with a selling price of R1 500. Profit mark-up is50% on cost. This stock was immediately returned to the suppliers but no entries

3. Provide for interest on loan for the 12 months to Zar Bank at 17% p.a. In termsof the Loan agreement with Zar Bank an amount of R10 000 is paid of the loan on

have so far been made in the books for any of these transactions.

31 August each year.

4. The bookkeeper neglected to reverse the stock of packing materials on handat the beginning of the accounting period. A physical stocktaking on 29 February2008 revealed the following

Trading stock. R63 200Packing materials. 720


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5. The bank statement was received after the pre-adjustment trail balance had beendrawn up and showed the following:

an amount of R300, which was transferred directly into the currentbanking account of Zabs Ltd by a debtor whose account had beenwritten off during November 2007.

Bank charges, R300

Interest on unfavourable balance, R133 A cheque received from debtor, R Tate for R400 in settlement of his debt

of R420 has been dishonoured due to insufficient funds.

6. The debt of debtor J Zimo, who owes R350, must be written off as irrecoverable.

The provision for bad debts is to be maintained at 4 % of book debts.

7. The tenant, who has occupied the building since 1 May 2005, is overseas, butduring February he settled the rent for March and April 2008.

8. The delivery vehicle, bought on 30 November 2004 for R45 000, was traded in atbook value to GS Motors on 29 February 2008. A new vehicle costing R75 000 waspurchased from GS Motors on the same day and payment will be made duringMarch 2008. As yet no entries have been made for either the new vehiclepurchased or the old vehicle traded in.

Vehicles are depreciated at 20% p.a. on the fixed instalment method.

Equipment is depreciated at 10% p.a. on the diminishing balance method

9. A delivery van is hired by Zabs Ltd. at a charge of both R250 per month and 75cents per

kilometre. Both these charges are debited to delivery expenses. Thecharges for February 2008, during which 580 kilometres were driven, are still owing.

10. Insurance paid in advance amounts to R200.

11. A supplier has not paid commission due to Zabs Ltd for February 2008: 1 600. Theamount will only be received on 10 March 2008.

12. Interest on fixed deposit, R4 250 must be capitalised.

13. An account was received from the builders for the following:

Extension to buildings, R30 000

Repairs, R5 00014. The directors have declared a final dividend of 31/2 cents per share.

15. The income tax for the accounting period amounted to R43 965.

90


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QUESTION 6

COMPANY CONCEPTS AND RECORDS (35 Marks; 30 Minutes)

You are provided with information relating to Garland Limited for the financial yearended 30 June 2008:

REQUIRED:

6.1 Briefly explain why a company has to have Limited or Ltd in its name. (2)

6.2 Analyse the transactions for the current financial year in the table provided.Show the account debited, account credited, effect on A, O, L and the missingamounts. Assume the bank balance is favourable.

(27)6.3 The company plans to issue the remaining unissued shares next year.

6.3.1 How many shares will the company issue? (3)6.3.2 Gary Garland, the managing director, currently owns 230 000 shares in this

company. What is the minimum number of shares Gary will have to buy to keepcontrol of the company? (3)

BACKGROUND INFORMATION AND OPENING BALANCES: The business was started in 2004 with an authorised share capital of 500 000

ordinary shares of R2,00 par value each. By 1 July 2007, the start of the current financial year, the business had issued

300 000 of these shares at par.

TRANSACTIONS FOR THE YEAR ENDED 30 JUNE 2008

Example: Directors fees of R150 000 were paid.

1. The amount owing to the shareholders for last years dividend was paid, R32 400.

2. Provisional tax payments totalling R143 550 were made to SARS.

3. Interim dividends of R24 000 were paid to the shareholders.

4. Further 120 000 shares were issued at a premium of 60 cents each.

5. The tax assessment for income tax for the year amounted to R154 356.

6. A final dividend of 17 cents per share was declared.

[TOTAL: 300 marks]

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