GRADE 12 - Times LIVE

Accounting Question Paper
Avusa Education
Accounting Question Paper
QUESTION 1
Reconciliations
(23 marks; 11 minutes)
1.1 Bank reconciliation
You are provided with three examples of reconciliations done by employees in the accounting
department of Jordan Traders.
Required:
Study the information provided and then answer the questions that follow.
Information:
Example A
Bank reconciliation statement on 28 February 2009
Debit Credit
Balance per Bank Statement 8 000
Outstanding deposit 3 000
Outstanding cheques:
No 1040 dated 13 Feb 2009 2 200
No 1052 dated 18 Aug. 2009 10 000
No 1055 dated 28 Feb. 2009 4 300
Balance per Ledger Account
Example B
Creditors’ reconciliation statement on 28 February 2009
Ace Wholesalers
R
Balance per Creditors' Statement on 28 Feb 2009 Debit 5 000
Invoice not reflected on statement: Invoice No 225 18 400
Invoice on statement but not in Creditors Ledger: Invoice No 187 3 100
Payment not reflected on statement: Dated 23 Feb 2009 9 000
Returns not reflected on statement: Debit note No 44 1 100
Balance per Creditors Ledger Account on 29 Feb 2009
Example C
Reconciliation of creditors’ control account to the creditors’ list on 28 February 2009
R
Balance per Creditors' Control Account 46 000
Balances per Creditors' Ledger 47 900
Ace Wholesalers
Busta Furnishers 20 000
Copyright reserved Please turn over 1

Accounting Question Paper
Avusa Education
Camel Security Services 12 000
Dumbo CC
Difference 1 900
1.1 Briefly explain:
• What you understand by the term internal control (2)
• Why is it important to apply internal control in a business (2)
• Why preparing reconciliations is important for internal control. (2)
1.2 According to the Bank Statement, does this business have a favourable bank balance
or a bank overdraft Give a reason for your choice. (2)
1.3 Calculate the bank balance in the Ledger of Jordan Traders on
28 February 2009. State whether this is a favourable or unfavourable balance. (3)
1.4 List FOUR steps you would follow when preparing a Bank Reconciliation
Statement. (4)
1.5 When preparing the financial statements of Jordan Traders at the end of
February 2009, what amount would you reflect under Cash and Cash
Equivalents on the Balance Sheet (2)
1.6 Calculate the correct amount owed to Ace Wholesalers by Jordan Traders. (4)
1.7 Briefly explain what action should be taken over the difference of R1 900
reflected in Example C. (2)
QUESTION 2
Inventory valuation and control
(30 marks; 18 minutes)
The following information relates to the trading activities of Micro Traders for the financial year
ended 29 February 2009.
The business is owned by BA Crooke. The business sells only one type of microwave oven and has
decided to keep the selling price constant throughout the year.
Mr Crooke is keen to secure a loan from the bank. He wants to ensure that the profit in the financial
statements creates a very favourable impression with the bank.
The business uses the periodic inventory system and the FIFO method of valuing stock.
Information:
Number Unit price Total
of units R R
Sales 1 400 252 000
Stock on hand on 1 March 2008 40 units 950 38 000
Purchases during the year 210 units 170 000
June 2008 30 units 900 27 000
October 2008 80 units 850 68 000
January 2009 100 units 750 75 000
Required:
2.1 Explain the difference between the periodic and perpetual inventory systems.
Also explain the advantage of each system. (4)
2.2 Calculate the total number of microwave ovens sold during the year. (3)
2.3 Calculate the total number of microwave ovens on hand at 28 February 2009. (3)
The business uses the FIFO valuation method.
2.4 Calculate the closing stock using the FIFO method. (3)
Copyright reserved Please turn over 2

Accounting Question Paper
Avusa Education
2.5 Calculate the gross profit for the year ended 28 February 2009 using the FIFO stock
valuation method. You may draft the Trading Account to calculate this figure. (5)
In order to secure the loan the owner, BA Crooke, wants to change the stock valuation
method to the weighted average method.
2.6 Calculate the value of the closing stock by using the weighted average stock valuation
method on 28 February 2009. (5)
2.7 Calculate the gross profit for the year ended 28 February 2009 using the weighted
average stock valuation method. You may draft the Trading Account to calculate this
figure (3)
2.8 In your opinion, will it be ethical for Mr Crooke to change the method of stock valuation
Give ONE reason for your answer. (4)
QUESTION 3
Manufacturing
(63 marks; 40 minutes)
You are provided with information relating to Yum-Yum Enterprises for July 2008. The business
makes tasty pellets for pets. The business is personally owned and managed by Peter Abrahams.
Requited:
3.1 Prepare the Production Cost Statement for July 2008. Show workings in brackets on the
Production Cost Statement. (23)
3.2 Prepare the Income Statement for July 2008. Show workings in brackets. (21)
3.3 In order to be able to print the “Proudly South African” logo on the packaging of his product,
Peter will need to purchase the card board boxes from a local supplier rather than import them
from Botswana.
3.3.1 Give TWO reasons why using a local supplier is likely to reduce the unit cost calculated
above. (2)
3.3.2 Calculate the unit cost of producing a complete box of tasty pellets in July 2008. (3)
3.3.3 By doubling production to 70 000 units during August 2008 the profit will more
than double. Briefly explain why. (2)
3.4 In order to analyse the performance of the business, the accountant knows that it is essential to
work out the break-even point of production.
3.4.1 Calculate the break-even-point in units. (10)
3.4.2 Should the accountant be happy with the business’ present production level Why (2)
Information:
1. Production and sales information of Yum-Yum Enterprises July 2008
Number of finished boxes of pet pellets produced 35 000
Number of units sold 30 000
Mark-up cost 40%
Selling price per unit
2. Stock at the beginning and end of the month 1 July 2008 31 July
2008
Raw material stock:
• Stock of ingredients to make pet pellets
• Stock of card board boxes
R70 000
Nil
R85 000
R14 400
Work-in-process stock R20 000 R24 000
Finished goods stock R1 400 R7 000
Copyright reserved Please turn over 3

Accounting Question Paper
Avusa Education
Indirect material stock (cleaning materials) Nil Nil
Stock of packing materials for deliveries R4 200 R1 300
3. Raw materials (brought from local supplier) comprise all ingredients for the production of pet
pellets as well as cardboard box containers (imported from a supplier in Botswana):
• Ingredients were bought during the month on credit for R330 000 (these were delivered free
of charge).
• Bought 60 000 cardboard boxes from Botswana for a total cost of 24 000 Botswana pula.
One Botswana pula is equivalent to R1.30.
• Import duty is 10%.
• Transport cost paid on these boxes, R8 100.
4. Remuneration is as follows:
• The 12 direct workers are each required to work 180 hours per month, in other words, 20
days at 9 hours per day. Their normal rate of pay is R30 per hour. However, during July 60
hours were lost as a result of Eskom power cuts. The workers were required to work 60
hours overtime weekends but only 10 workers were available for this. The overtime rate is
double the normal rate.
• The factory foreman is paid a fixed salary of R12 000 per month irrespective of overtime.
He had to be paid a bonus of R8 000 for working over the weekends.
• The bookkeeper is paid a monthly salary of R5 600.
• The cleaner is paid a fixed salary of R4 000 per month. This is split between the factory,
the office and the sales department in the ratio 5:2:3.
• The sales people were paid commission of R42 380 in total.
5. Electricity and water paid during the month was R27 800. This has been allocated as follows:
• Office: R450
• Sales department: R1 200
• The factory plant and machinery accounts for the rest.
6. Cleaning materials bought for cash, R14 200. Transport costs on these were paid out of the
petty cash, R800. All these materials were used. The factory uses 80% of these indirect
materials, while the rest is used equally by the administration, selling and distribution
departments.
7. Rent paid was R16 000. This is to split according to floor area:
• Factory 400 square metres
• Office 30 square metres
• Sales department 70 square metres
8. Depreciation for the month:
• Depreciation on delivery vehicle, R5 800.
• Depreciation on factory plant, R45 000.
• Depreciation on office equipment, R800.
9. Other transactions for July:
• Packing materials (for deliveries to customers) bought, R7 200 (R1 300 of this was unused).
• Petrol bought for the delivery vehicle and salesmen’s sales vehicles, R16 500.
• Repairs to factory machines, R58 400.
QUESTION 4
Financial statements and audit
(107 marks; 65 minutes)
There are three parts to this question. Each part must be seen independent from the other.
Part A
4.1 The following information was extracted from the accounting records of Spencer Company Ltd.
Copyright reserved Please turn over 4

Accounting Question Paper
Avusa Education
Required
4.1.1 Complete the Income statement for the year ended 30 June 2009.
Note: Certain information has already been filled in for you. (22)
4.1.2 Prepare the following notes to the financial statements for the year ended
30 June 2009:
Accumulated profit (7)
Trade and other payables (12)
4.1.3 Prepare the Equity and liabilities section of the Balance sheet on 30 June 2009. (12)
Information to prepare the Income statement
1. Spencer Company Ltd operates on a profit mark-up of 80% on cost price.
2. Gross profit achieved on 30 June amounted to R320 000.
3. Rent income amounted to R3 500 per month from 1 July 2008. The rental agreement
stipulated an increase of 10% as from 1 April 2009. The amount for rent income appeared
as R50 500 in the Pre-adjustment trial balance on 30 June 2009.
4. Insurance for the year amounted to R21 750. Included in this amount is an amount of
R3 750 paid on an annual insurance contract on 1 March 2009.
5. On 1 July 2008, the loan from Absa Bank had a balance of R450 000. In terms of the loan
agreement interest is calculated at 18% per annum and is paid half-yearly. The capital sum of
the loan is to be repaid in installments of R50 000 on 31 October of each year. The repayment
to Absa Bank was made on 30 October 2008. The interest on loan account had a debit balance
of R68 000.
6. The bookkeeper has already calculated depreciation on assets as R32 000. It has now
been discovered that this has been overstated by R3 000.
7. Operating expenses as a percentage on sales for the year ended 30 June 2009, 20%.
8. Income tax for the year ended 30 June 2009 amounted to R45 080. Income tax is
calculated at 28%.
9. Provisional income tax paid to SARS for the financial year ended amounted to R39 080.
10. Total dividends declared and paid during the financial year amounted to R29 500. Of this
R18 000 is still owed to shareholders for their final dividends declared but not yet paid on
30 June 2009.
11. The accumulated profit account had a balance of R72 000 on 1 July 2008.
Information to prepare the Equity and Liabilities section of the Balance sheet and notes to the
Balance sheet
12. Trade and other receivables amounted to R322 000 on 30 June 2009 and the current ratio on
this date was 2.3:1.
13. Ordinary shareholders equity amounted to R1 200 000 on 30 June 2009.
14. Spencer Company Ltd has 36 000 shares in issue with a par value of R25 each.
Part B
4.2 The following information was extracted from the accounting records of Labels Are Me Ltd.
Required:
4.2.1 Prepare the note to the Cash flow statement for the year ended 30 June 2009:
Reconciliation of profit before tax and cash generated from operations (21)
Fixed assets purchased (6)
4.2.2 Prepare the cash flow from operations section of the Cash flow statement for the year
ended 30 June 2009. Show calculation in brackets to earn part marks. (14)
Copyright reserved Please turn over 5

Accounting Question Paper
Avusa Education
Information:
1. The following information was extracted from the accounting records of Labels Are Me Ltd for
the year ended 30 June 2009 with comparative figures for 2008.
30 June 2009 30 June 2008
Mortgage bond 750 000 900 000
Loan from Absa 250 000 250 000
Land and buildings 2 400 000 1 700 000
Vehicles 480 000 380 000
Equipment 310 000 275 000
Accumulated depreciation on vehicles 240 000 140 000
Accumulated depreciation on equipment 110 000 88 000
Trading stock 572 000 610 000
Trade debtors 325 000 280 000
Accrued income 8 000 5 000
SARS (Income tax) 22 200(DR) 15 800(CR)
Bank 79 300 16 000(CR)
Trade creditors 477 300 430 000
Accrued expense (Interest on Loan) 3 500 5 200
Income received in advance 7 700 10 000
Shareholders for dividends 140 000 125 000
2. Additional information
2.1 The net profit before tax amounted to R1 280 000 and income tax is calculated at 30% of
pre-tax profits.
2.2 A vehicle costing R80 000 was sold at carrying value, R35 000. No equipment was sold
during the financial year.
2.3 The following interest was incurred during the financial year:
• Interest on mortgage bond, R98 250
• Interest on loan, R26 750
• Interest on overdraft, R2 000
2.4 An interim dividend of R286 000 was declared and paid on 1 December 2008.
Part C
4.3 Read the following carefully then answer the questions below.
Sven Johannson is an investor in Labels Are Me Ltd. He owns 21 000 shares in the business.
14 500 were purchased on 1 July 2007 for R5.50 each and the remainder were purchased on
1 July 2008 when the company made a further allocation of shares at R6.15 each.
30 June 2009 30 June 2008
Earnings per share (EPS) 134 cents 120 cents
Dividends per share (DPS) 115 cents 95 cents
Return on shareholders equity 22.07% 20.2%
Net assets value per share (NAV) R6.29 R6.25
Average trading price on the JSE for the year ending R7.00 R7.11
Interest on Fixed Deposit 6.5% 6%
Questions:
Sven bought the share in Labels Are Me Ltd because a friend told him that this was a good investment.
Copyright reserved Please turn over 6

Accounting Question Paper
Avusa Education
Sven has asked for your help with the following:
4.3.1 Calculate how much Sven received in dividends from Labels For Me Ltd for the year
ending 30 June 2009. (3)
4.3.2 As a shareholder in Labels For Me Ltd should he be happy with the dividends declared and paid
by the company for the year ended 30 June 2009 Quote the relevant figures from the above table
to substantiate your answer. (5)
4.3.3 Sven is not quite sure if he should keep his investment in Labels For Me Ltd or sell his
shares on the JSE. Advise Sven on what he should do by quoting figures from the above
table to help him make an informed decision on keeping or selling the shares. (5)
QUESTION 5
Interpretation of financial information
(40marks; 24 minutes)
Use the detachable Data Sheet (appendix A; page) as well as the information below to answer the
questions that follow.
Information:
John Smith, a food and beverage manager at Hilton Hotel, has inherited R1 000 000. He wishes to
invest the money to gain maximum capital growth for a medium-term investment.
Two options are available to Mr Smith — he can either buy shares in CAWOOD Ltd or he can buy
into an existing close corporation trading as SINGH CC.
CAWOOD Ltd is a construction company. The directors are investigating a possible BEE deal.
This deal will ensure additional share capital as well as being able to position themselves favourably
for government contracts in the future.
SINGH CC is an upmarket delicatessen that specialises in the selling of elite imported food items as
well as a selection of expensive luxury “proudly South African” products. SINGH CC is a secondgeneration
organisation located in La Lucia Mall. The owners pride themselves on the personal
services they offer to their regular elite customers.
Questions:
5.1 Name two parties who would be interested in the audited financial statements of CAWOOD
Ltd. (2)
5.2 What is the difference between Authorised and Issued Share Capital
Why is it necessary for both these figures to be reflected in the published financial
statements (3)
5.3 It is possible that for SINGH CC to make its business look attractive to potential investors they
may have overstated (inflated) their turnover figure.
How is this problem prevented in CAWOOD Ltd (2)
5.4 Identify three ratios that Mr Smith should utilise in analysing the audited financial
statements of CAWOOD Ltd before deciding whether he should invest in the
company or not. (3)
5.5 To secure the possible BEE deal, CAWOOD Ltd needs to raise a further R5 000 000.
How could the company raise the necessary finance Discuss the positive effects that the
securing of the BEE deal will have on the overall performance of the company. (8)
5.6 Due to the continued unexpected slump in the South African economy,
SINGH CC is currently experiencing liquidity problems. A possible solution would be
to attract an additional member to the CC. Identify two advantages, relevant to SINGH CC,
of signing on an additional member. (2)
5.7.1 Mr Smith has done extensive research into SINGH CC and has raised a few concerns,
one of which is the liquidity problem that the CC is currently experiencing.
Write a paragraph, on behalf of SINGH CC, to Mr Smith that highlights the positive
Copyright reserved Please turn over 7

Accounting Question Paper
Avusa Education
financial aspects of the business. Ensure you cover the following aspects in
your motivation: goodwill; profitability; and return on investment. (9)
5.8 The “buy in” price for SINGH CC is R700 000 and it is projected that a loan
of R300 000 will be needed in the second half of the financial year. Discuss
TWO reasons why it would be beneficial for Mr Smith to offer a loan to the
CC rather than to have the CC borrow the funds from a commercial bank. (4)
5.9 Based on the information that has been provided, you are required to advise
Mr Smith as to which investment would fulfil his investment criteria. Quote
figures, where necessary, to substantiate your answer. (7)
Appendix A
DATA SHEET
BEE: Black Economic Empowerment
The development and economic empowerment of historically
disadvantaged people, including all non-white people, for example,
Africans, Indians, coloureds and Chinese.
CAWOOD Ltd
SINGH CC
2008 2007 2008 2007
Authorised Share Capital (R2.00) 10 000 000 10 000 000
Issued Share Capital (R2.00) 4 500 000 3 500 000
Capital Employed 1 200 000 1 000 000
Return on Shareholders Equity 34% 43%
Dividends per Share 56 c 40 c
Earnings per share 90 c 120 c
Return on Capital Employed 38% 40 %
Long term loans (16%) 3 000 000 2 000 000 50 000 10 000
Debt:Equity ratio 0.46 : 1 0.35:1 0.04:1 0.01:1
Acid test ratio 1.75 :1 1.9 :1 0.3 : 1 0.8 :1
Current Ratio 2.1:1 1.9 : 1 0.9 : 1 1.1 : 1
Net profit/Turnover 45 % 56 % 32 % 41 %
Operating Expenses on Turnover 51 % 31 % 43 % 39 %
Achieved mark up % 112 % 120% 90 % 100%
Actual Mark up % 125% 125 % 100% 100%
Goodwill – the name of the game! - Clifton Times 21 August 2008
Peter Mallet, owner of Peter Pans, a catering company situated in Durban North
showed us once again what it means to care for your customers. Mr Mallet has
secured an elite niche market amongst the who’s who of Durban North. He caters for
private cocktail functions at residential homes.
On 9 August he came to the rescue of Mrs Robinson. Mrs Robinson had invited 20
distinguished guests to a cocktail party at her residence. Much to her dismay, at
17h00, 2 hours before the guests were due to arrive, her long-time domestic worker
and assistant walked out of the house stating that because it was Women’s Day they
deserved the night off.
Mrs Robinson was horrified. She immediately phoned Mr Mallet for his assistance.
Copyright reserved Please turn over 8

Accounting Question Paper
Avusa Education
Mr Mallet agreed to leave his son’s school function to come and assist her in her
plight. The evening was a huge success.
Needless to say, the guests left with Mr Mallet’s business card carefully tucked into
their top pockets!
This poses the question: Does the business make the business or is it the man who
makes the business
QUESTION 6
Debtors’ collection and cash budget
(37 marks; 22 minutes)
You have recently been appointed bookkeeper of Mutzim Dealers (Pty) Ltd. This business sells
household electrical appliances, from kettles to washing machines. You are required to use the
information given to complete the questions that follow.
Information:
Mutzim Dealers (Pty) Ltd
Cash budget for the period 1 October — 31 December 2008
Cash receipts October November December
Cash sales 45 000 66 000 *
Cash Received from debtors 27 000 * *
Sale of old computers - 6 000 -
Rent income 4 000 2 000 2 000
Total receipts 76 900 * *
Cash payments
Payments to creditors 32 000 30 000 *
Salaries 15 000 15 000 15 000
Advertising 1 050 1 250 1 300
Interest on loan 1 500 1 500 1 050
Other operating expenses 15 000 15 500 16 010
New computers bought - - 24 000
Loan repayment - - 30 000
Total payments 64 550 63 250 *
Cash surplus/shortfall 12 350 * *
Bank – opening balance 8 000 20 350 *
Bank – closing balance 20 350 * *
Additional information:
1. Sales figures.
Actual (40% on credit)
Budgeted (projected)
August 2008 September October 2008 November 2007 December 2008
2008
R90 000 R80 000 R75 000 R110 000 R150 000
2. During October and November of the budget period 40% of sales are expected to be on credit
and the rest will be for cash. From 1 December 2008, credit sales are expected to increase by
15%.
3. Debtors are allowed 60 days credit and the amounts owing by debtors are expected to be
collected as follows:
Copyright reserved Please turn over 9

Accounting Question Paper
Avusa Education
• 50% in the month of sale, to take advantage of the 10% settlement discount allowed for
prompt settlement.
• 45% in the month following the sale.
• The rest is written off as irrecoverable after three months.
4. Trading stock on hand is maintained through monthly purchases.
5. Cost of sales is equivalent to 40% of turnover.
6. All stock purchases are on credit. Creditors are paid in the month following the purchases (after
30 days).
Required:
6.1 Is the drawing up of a cash budget an aspect of Financial Accounting or
Management Accounting (1)
6.2 Why is a Debtors Collection Schedule drawn up when preparing a cash budget (1)
6.3 Complete the cash budget by filling in the amounts marked with an asterisk (*). (19)
6.4 The rental income is fixed at R2 000. Explain why the amount of R4 000 is
reflected in October. Supply one possible reason. (1)
6.5 Explain, quoting figures and/or policies, whether you think that they are
effectively managing their working capital. (2)
6.6 Mutzim Dealers (Pty) Ltd like other retailers in South Africa today are facing many
challenges which are impacting on their future profits and cash flows. The
following are some of these challenges. Read through them and comment on
what effect you think each of them could have on the cash flow of Mutzim Dealers
(Pty) Ltd.
6.6.1 In June 2007 the South African government introduced the National Credit Act.
According to this act, retailers are not allowed to give their customers credit
facilities unless they have first checked on their income to ensure that they can
afford to buy on credit, and if they can, how much credit they should be allowed. (2)
6.6.2 South Africa cannot supply enough power to cope with demand and electricity
tariffs are expected to increase by at least 30% and the worldwide shortage
of fuel is pushing up the fuel price at an alarming rate. (2)
6.6.3 The inflation rate is in double figures and, because of this increase in the cost
of living, employees are demanding at least a 12% increase in salaries. (2)
6.7 As a result of the challenges mentioned in 2.6 above, the directors of
Mutzim Dealers (Pty) Ltd are concerned about its future prospects and are
wondering if they should close down the business. Advise them as to what you
think they should do, giving reasons for your suggestions. (2)
6.8 An employee of the company has informed the directors that some staff in the
“goods returned department” are stealing faulty electrical products that have
been returned by customers instead of returning these products to the suppliers
in order for Mutzim Dealers (Pty) Ltd to get a credit on their account.
The directors cannot understand how this can happen as they employ an internal
auditor who should have detected this in his audit.
6.8.1 What are your views on “whistle-blowing” (reporting on irregular or unethical
actions by other members of staff) Your answer must include both the positive
and negative aspects of “whistle-blowers” and should “whistle-blowers” be rewarded
in some way by the company. (3)
6.8.2 What two internal control measures can be put in place to prevent staff from
taking faulty products returned by customers (2)
Total: 300
Copyright reserved Please turn over 10