ACCOUNTING

GRADE 12 EXAMINATIONS

300 MARKS

3 HOURS

11 June 2014

INSTRUCTIONS

1. Answer all the questions.

2. A separate answer book is provided in which to answer all the questions.
3. Show all workings for part marks to be allocated.
4. Read the instructions carefully and follow them precisely.
5. You will lose marks if you:

leave out important dates

use non standardised abbreviations

over write on figures

use foreign entries

6. Non programmable calculators may be used.

7. Do not remove any pages from the answer book.
8. Use the information below as a guide when answering the questions and try not to deviate
from it.

Number Topic Marks Minutes

Question 1 DEBTORS’ RECONCILIATION AND 30 20
INTERNAL CONTROL

Question 2 BANK RECONCILIATION AND 40 20

INTERNAL CONTROL

Question 3 COMPANY CONCEPTS, FIXED 80 50

ASSETS AND FINANCIAL
STATEMENTS
Question 4 REPURCHASE OF SHARES AND 50 30
INTERPRETATION

Question 5 CASH FLOW AND INTERPRETATION 70 40

Question 6 CREDITORS' RECONCILIATION AND 30 20

INTERNAL CONTROL

Totals 300 180

1
QUESTION 1: DEBTORS’ RECONCILIATION AND INTERNAL CONTROL
(30 marks; 20 minutes)

You are provided with information relating to Dixy Traders. The inexperienced bookkeeper had made
some errors when reconciling the Debtors’ Control account to the Debtors’ List.

REQUIRED:

1.1 Explain to the bookkeeper why the balance of the Debtors’ Control account should always be
equal to the total of the Debtors’ List. (4)

1.2 Prepare the correct Debtors’ List on 31 July 2013 and show how the Debtors’ Control account
would be adjusted using the format provided. (26)

INFORMATION:

A. The Debtors’ Control account differed from the Debtors’ List by R12 940.

B. The following is a summary prepared on 31 July 2013:

Balance on the Debtors’ Control account R141 326

Total of the Debtors’ List 154 266

Cogill Suppliers 110 946
Woodman Traders 35 200
Chetty Stores 1 320
Phumlazi Traders 6 800

Difference R12 940

C. Errors and additional information

• Cogill Suppliers claim they paid R13 200 last month, but this is not reflected on their
statement. Investigations revealed that Cogill Suppliers payment had incorrectly been
posted to the account of another debtor, Woodman Traders.

• A credit note of R6 160 was incorrectly reflected in the Debtors’ Ledger account of Cogill
Suppliers as a debit entry. The General Ledger is correct.

• Cogill Suppliers issued a cheque for R5 500 in settlement of their account of R6 200.
This had been dishonoured by the bank. The cancellation of the discount was not reflected
in the Debtors’ Ledger account. The Debtors’ Control account is correct.

• Interest had been incorrectly calculated on the account of Woodman Traders. Adjust for
an additional amount of R330 for interest.

• VAT at 14% was omitted on an invoice issued to Woodman Traders, dated 30 June
2013. Total sales, excluding VAT, amounted to R33 000.

• Phumlazi Traders appears in both the Debtors’ and Creditors’ Ledger. Their credit balance
of R4 248 in the Creditors’ Ledger must be offset against their account in the Debtors’
Ledger.

• The debt of a debtor, Chetty Stores. R1 320 had been written off as irrecoverable. The
amount was posted to the Debtors’ Control account but not to the debtors’ personal
account.
(30)

2
QUESTION 2: BANK RECONCILIATION AND INTERNAL CONTROL
(40 marks; 20 minutes)

Top Dog Traders employs Joe Cryme to write up the books, do the bank deposits and
issue cheques. You are required to assist as internal auditor.

REQUIRED:

2.1. Why does a business prepare a Bank Reconciliation Statement each month? (4)

2.2. Calculate the correct totals in the Cash Receipts Journal (CRJ) and Cash
Payments Journal (CPJ) for October 2013. (12)

2.3. Prepare the Bank Reconciliation Statement on 31 October 2013. (12)

2.4. Refer to Information numbers 4 and 8 below.

2.4.1. It appears that Top Dog Traders will not be able to recover all amounts, or part of the amounts,
lost due to the fraudulent activities of Joe Cryme. If you were the owner of this business, what steps
would you take against Joe Cryme? Provide TWO steps. (4)

2.4.2. Explain why the rule of prudence will be used in accounting for the fraudulent activities in the
books and the financial statements. (4)

2.4.3. Explain what was wrong with the procedures in the accounting department which led to this
type of fraudulent activity. (4)

INFORMATION:

1. At the end of the previous month, 30 September 2013, the following items appeared in the Bank
Reconciliation Statement:
Balance per Bank Statement 17 000
Outstanding deposits for cash sales:
• Dated 28 September 2013 30 000

• Dated 30 September 2013 12 400

Outstanding cheques:
• 502 (dated 19 April 2013) 6 200

• 613 (dated 24 September 2013) 13 400

• 614 (dated 27 September 2013) 9100

Balance per bank account 30 700

2. The balance on the Bank Statement is R40 092 (favourable) on 31 October 2013.

3. The provisional totals in the journals for October 2013 before reconciling to the bank statement are:
CRJ – R510 000 and CPJ – R463 600.

4. From the bank reconciliation for September 2013 only the outstanding deposit of R12 400 and
cheque No. 614 appeared on the October Bank Statement. The R30 000 reflected on the deposit
slip, dated 28 September, was never deposited into the bank account by Joe Cryme. He cannot
account for the whereabouts of the cash.

5. The October Bank Statement reflected bank charges of R1 310 and interest of R102 on the
favourable bank balance.

3
6. A dishonoured cheque was reflected on the Bank Statement, R1 700. This was originally received
from a debtor in payment of his account.

7. A direct deposit of R5 500 from a tenant was reflected on the Bank

Statement.

8. As internal auditor you also detected that cheque No. 642 for R18 000 appeared on the Bank
Statement, but not in the CPJ. The bookkeeper, Joe Cryme, forged the signatures and used the funds
for personal benefit.

9. Cheque No. 633 was reflected in the CPJ as R2 630, but on the Bank Statement it was reflected as
R6 230. The amount on the Bank Statement is correct.

10. The following items appeared in the October CRJ and CPJ, but not on the
Bank Statement:
• No. 652 – R3 800 (dated 15 November 2013)
• No. 655 – R1 300
• A deposit of R12 700 for cash sales.

(40)

4
QUESTION 3: COMPANY CONCEPTS, FIXED ASSETS AND FINANCIAL STATEMENTS ( 80
marks; 50 minutes)

3.1 Choose a GAAP principle from COLUMN B to match the description in COLUMN A. Write only
the letter (A–D) next to the question number (3.1.1–3.1.4) in the ANSWER BOOK.

COLUMN A COLUMN B
3.1.1 A
In preparing financial statements, Matching concept
assets are recorded at the
amount that was originally paid
for them.
3.1.2 B
Expenses and income must be Materiality concept
recorded in the appropriate
financial period.
3.1.3 C
In preparing the financial Historical cost
statements the accountant will
assume that the business will
continue for the foreseeable
future.
3.1.4 D
Any amount which is significant Going concern concept
to the decisions made by the
reader of the financial statements
should be disclosed separately in
the financial statements
(8)

3.2 You are provided with information related to Global Ltd on 28 February 2013. Global Ltd has
authorised share capital of 600 000 shares of R2 each.

REQUIRED:

3.2.1 Complete the Fixed/Tangible Asset Note on 28 February 2013. (18)

3.2.2 Complete the Income Statement for the year ended 28 February 2013. (45)

3.2.3 Prepare the Retained Income Note on 28 February 2013. (9)

5
INFORMATION:

1. GLOBAL LTD PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2013

Debit Credit
Balance Sheet Accounts Section
Ordinary share capital (par value 200 cents) 950 000
Retained income (1 March 2012) 69 840
Mortgage loan: Pride Bank 326 700
Land and buildings 810 000
Vehicles 513 000
Equipment 235 600
Accumulated depreciation on vehicles 178 600

Accumulated depreciation on equipment 73 940

Debtors' control 71 820
Creditors' control 16 680
Trading stock 69 730
Bank 90 040
Cash Float 1 000
SARS (Income tax) 57 142

Provision for bad debts 3 800

Nominal Accounts Section

Sales 1 330 950

Debtors' allowances 950

Cost of sales 831 250
Stationery 1 630
Discount received 2 090
Bad debts 1 350

Bad debts recovered 550

Insurance 22 800

Interest on loan 32 300

Bank charges 5 770

Rent income 124 032

Salaries and wages 164 430

Asset disposal 3 100
Audit fees 31 470

Directors fees 110 000

Interest on current account 4 000

Ordinary share dividends (interim) 34 000

3 084 282 3 084 282

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2. ADJUSTMENTS AND ADDITIONAL INFORMATION

A. Depreciation on vehicles is calculated at 30% p.a. on the diminishing- balance method. Take into
account that a new vehicle with a cost price of R133 000 was bought on 1 November 2012 and was
correctly recorded.

B. The Trial Balance reflects a figure of R3 100 in respect of equipment sold. This relates to a
computer which was sold for R3 100 cash on 31 October 2012. No other entries in respect of this sale
have been made. The cost price of the computer was R6 000 and the book value at the date of sale
was R2 700.

Depreciation on equipment is calculated to be R35 040 after taking all of the above into account.

C. Interest is capitalised on the mortgage loan. The annual loan statement from Pride Bank reflected
the following:

PRIDE BANK
LOAN STATEMENT ON 28 FEBRUARY 2012

Balance on 1 March 2012 304 000

Interest capitalised for the year ?
Repayments, including interest (R6 500 x 12) 78 000
Balance on 28 February 2013 288 700

D. The account of R Kingful, who owes R1 520, must be written off. Adjust the provision for bad debts
to 4% of outstanding debts.

E. A debtor, L Ndlovu, whose debt had previously been written off, paid R120. The bookkeeper
incorrectly credited the amount to the Bad Debts account. Correct the error.

F. Stationery on hand on 28 February 2013 is estimated at R190.

G. A physical stocktaking on 28 February 2013 revealed the value of stock on hand as R67 240.

H. An annual insurance premium of R11 400 was paid on 1 January 2013.

I. The rent received from the tenant included the rent for March 2013. The rent was increased by
R912 per month on 1 October 2012.

J. A final dividend of 5 cents per share was declared on 28 February 2013. All shares issued to date
qualify for this dividend.

K. Income tax for the year amounts to R35 264.

(80)

7
QUESTION 4: REPURCHASE OF SHARES AND INTERPRETATION

(50 marks; 30 minutes)

You are provided with information relating to Prospectus Limited for the year ended 31 March 2013.
The CEO, R. Potgieter, together with his children, owns 150 000 shares in the company.

Where explanations or comments are required, you are required to quote figures or financial
indicators to support your explanations.

REQUIRED:

4.1 Shareholders' equity section of the Balance Sheet on 31 March 2013. (6)

4.2 Notes to:

• Ordinary share capital (13)

• Retained income (15)

4.3 Calculate the net asset value per share on 31 March 2013 after the repurchase of the shares from
the Gallop family. (4)

4.4 The Gallop family were keen to sell their shares because they were unhappy with the low pay-out
policy that the directors were following in deciding on dividends. In your opinion, are their complaints
valid, or not? Explain. (4)

4.5 Have the Gallop family been offered a fair value for their shares? Explain. (3)

4.6 In your opinion, will the repurchase of the shares from the Gallop family benefit the remaining
shareholders, or not? Explain. (5)

INFORMATION:

1. The ordinary share capital on 1 April 2012 consisted of:

• 250 000 ordinary shares issued in the 2010 financial year at R5,00 per share

• 150 000 ordinary shares issued in the 2011 financial year at R7,00 per share.

2. Retained income on 1 April 2012 amounted to R1 960 000.

3. The following changes occurred to share capital during the 2013 financial year:

• On 1 October 2012, 100 000 new ordinary shares were issued at R9,00 per share. These
shareholders are not entitled to interim dividends.

• On 31 March 2013, the directors decided to repurchase 220 000 ordinary shares from members of
the Gallop family who were no longer interested in being shareholders. These shareholders had
originally bought most of their shares on the JSE at different prices and at different times. The
repurchase price was R10,70 per share. These shareholders are entitled to all dividends for the 2013
financial year.

8
4. Additional information for the past two financial years:

FINANCIAL YEAR ENDED: FINANCIAL YEAR ENDED:

31 March 2013 31 March 2012

Net income after tax R1 600 000 R2 200 000

Ordinary shareholders' equity at ? R4 260 000

year-end

Number of shares in issue at ? 400 000 shares

year-end

Market price per share on the JSE 1 040 cents 1 040 cents

Net asset value per share ? 1 065 cents

Earnings per share 356,6 cents 488,9 cents

Interim dividends 70 cents 90 cents

Final dividends 102 cents 140 cents

(50)

9
QUESTION 5: CASH FLOW AND INTERPRETATION

(70 marks; 40 minutes)

You are provided with information relating to Bellco Limited for the year ended 31 August
2013.

5.1 A company's published annual report comprises five main parts. Choose a description
from COLUMN B that matches a component in COLUMN A. Write only the letter (A–E) next
to the question number (5.1.1–5.1.5) in the ANSWER BOOK

COLUMN A COLUMN B
(Components of the annual report) (Description)

5.1.1. Income Statement A written verbal explanation of

operations of the company
5.1.2. Balance Sheet during a financial year

5.1.3.Cash Flow Statement B reflects whether or not the

shareholders can rely on the
5.1.4.Directors' report financial statements

5.1.5. Independent auditor's report C reflects the profit/loss of the

company

D reflects the effect of the

operating, financial and
investing activities on the cash
resources

E reflects the net worth of the

company
(5 x 1) (5)

5.2 Complete the Cash Flow Statement for the year. Show workings in brackets. (22)

5.3 Calculate the following financial indicators for 2013:

5.3.1 Acid-test ratio (4)

5.3.2 % return on average shareholders' equity (4)

5.3.3 Debt-equity ratio (3)

5.3.4 % return on average capital employed (use net income before tax (4)

5.4. The directors are pleased that the operating efficiency of the business has improved.
Quote and explain TWO financial indicators to support their opinion. (4)

5.5 According to the Companies Act (Act 61 of 1973), the directors may repurchase shares
only if the liquidity of the business is acceptable. Quote and explain THREE financial
indicators that provide evidence that they have complied with the Act. (6)

10
 5.6 The directors want to establish another branch in a different area next year. They will
need finance of R1, 5 million to do this. One of the directors has suggested that they finance
the expansion by increasing loans instead of issuing new shares.

• Quote and explain TWO financial indicators to support his opinion.

• Explain TWO other factors, with advice, that the directors should consider before
embarking on this expansion. (10)

5.7 Refer to the extract of the independent auditor's report under Information 6:

• Explain in your own words why it is necessary for the independent auditors to mention
internal controls under the section on Directors' Responsibility. (2)

• Under the section on Independent Auditor's Responsibility, they mention something about
'ethical requirements'. Give a practical example of this. (2)

• Is their final opinion good, or not? Explain. (2)

• Why is it necessary for the independent auditor to have the qualification CA (SA) behind
his name? Explain. (2)

INFORMATION:

1. Extract from the Balance Sheet for the year ended 31 August:

2013 2012
Fixed assets 12 138 000 12 357 000
Investments (4% p.a.) 250 000 600 000
Current assets 3 465 000 3 200 000
Trading stock 1 720 000 2 250 000

SARS (Income tax) 65 000 0

Trade and other receivables (excluding SARS) 1 140 000 940 000
Cash and cash equivalents 540 000 10 000
TOTAL ASSETS 15 853 000 16 157 000
Shareholders' equity 11 011 400 8 595 000
Share capital 8 960 000 6 360 000
Retained income 2 051 400 2 235 000
Loan from Unity Bank (11% p.a.) 3 000 000 5 400 000
Current liabilities 1 841 600 2 162 000
Trade and other payables (excluding SARS and 920 000 1 260 000
shareholders)
SARS (income tax) 0 72 000
Shareholders for dividends 921 600 620 000
Bank overdraft 0 210 000

TOTAL EQUITY AND LIABILITIES 15 853 000 16 157 000

11
2. Extracts from the Income Statement and Notes for the year ended 31 August 2013:

Depreciation R1 010 000

Operating profit 3 062 000

Interest expense 462 000

Net profit before tax 2 600 000

Net profit after tax 1 820 000

Interim dividends paid 770 000

Final dividends declared 921 600

3. Shares issued and repurchased:

• 1 000 000 ordinary shares were in issue at the end of the previous financial year, 31 August 2012.

• 400 000 ordinary shares were issued on 1 September 2012.

• 120 000 ordinary shares were repurchased on 28 February 2013 from the estate of a shareholder
who had died. The shares were repurchased at R2,60 above the average issue price

4. Changes to fixed assets:

New vehicles and equipment were bought during the year for R880 000. Unused vehicles were sold
at book value during the year.

5. Financial indicators for the past two years:

2013 2012
Solvency ratio 3,3:1 2,1 : 1

Current ratio 1,9 : 1 1,5 : 1

Acid-test ratio ? 0,4 : 1

Turnover rate of stock 8,7 times 6,6 times

% return on average shareholders' ? 15,6%

equity

Net asset value per share 860,3 cents 859,3 cents

Earnings per share 135,8 cents 114,2 cents
Dividends per share 127 cents 30 cents
Debt-equity ratio ? 0,6:1

% return on average capital ? 12,4%

employed

% gross profit on cost of sales 62,2% 58,3%

% operating expenses on sales 37,9% 44,5%

% operating profit on sales 10,1% 7,3%

12
6. Extract from the independent auditor's report. Note that this is NOT a complete report.

REPORT OF THE INDEPENDENT AUDITOR

We have audited the annual financial statements of Bellco Limited … as set

out on pages 52 to 64.

Directors' Responsibility for the Financial Statements

The company's directors are responsible for the preparation and fair
presentation of these financial statements in accordance with International
Financial Reporting Standards and the requirements of the Companies Act of
South Africa, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.

Independent Auditor's Responsibility

Our responsibility is to express an opinion on the financial statements based

on our audit.

We conducted our audit in accordance with International Standards on

Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement.

Opinion

In our opinion, the annual financial statements present fairly, in all material
respects, the financial position of Bellco Limited as at 31 August 2013, and its
financial performance and cash flows for the 52 weeks then ended in
accordance with International Financial Reporting Standards and the
requirements of the Companies Act of South Africa.

MSANE & CHARTER

Director: MPJ Msane
Registered Auditor; Chartered Accountant (SA)
15 September 2013

(70)

13
QUESTION 6: CREDITORS' RECONCILIATION AND INTERNAL CONTROL

(30 marks; 20 minutes)

Organic Traders buys and sells organic products. A statement received on 28 July 2013 from a
creditor, Aqua Wholesalers, reflects a different amount owing by Organic Traders than the amount in
the Creditors' Ledger of Organic Traders.

REQUIRED:

6.1 Make a list of the changes to Aqua Wholesalers' account in the Creditors' Ledger, which the
bookkeeper should process to correct the errors or omissions. Give a brief description in the Details
column and show the changes to the balances in the Amount column. (12)

6.2 Prepare a Creditor's Reconciliation Statement in respect of Aqua Wholesalers for July 2013. (10)

6.3 The owner of Organic Traders is unhappy with the errors which occurred and resulted in
inaccurate records in their books. Briefly explain TWO measures that Organic Traders can implement
in order to maintain good control over their creditors and to avoid this from happening in future. (4)

6.4 Organic Traders is experiencing cash problems and is currently in a position where they are not
able to pay their creditors on time. Aqua Wholesalers has granted them a credit limit of R40 000. All
their current creditors require them to pay within 30 days and they allow their customers credit terms
of 60 days.

Suggest TWO ways in which the liquidity position can be improved. (4)

INFORMATION:

CREDITORS' LEDGER OF ORGANIC TRADERS

CL4. AQUA WHOLESALERS

Debit Credit Balance
2013 Balance brought forward Credit
July 1 17 680

July 6 Cheque 6321 16 796 884

Discount 884 Nil

July 8 Invoice 2590 17 932 17 932
July 10 Debit note 89 593 17 339
July 14 Invoice 2810 25 490 42 829
July 16 Journal Voucher 450 1 800 41 029
July 17 Debit note 102 1 482 39 457
July 19 Invoice 1067 420 39 967
July 22 Cheque 6410 18 000 11 967
July 29 Invoice 3056 32 604 44 571

14
Statement received from Aqua Wholesalers:

Aqua Wholesalers
PO Box 453; Stellenbosch 7599; Tel: 021 851 5679
Organic Traders
PO Box 219
Stellenberg, 7550
Date of statement: 25 July 2013
Credit limit: R40 000

Debit Credit Amount

2013 Balance brought forward 17 680
July 1
July 6 Receipt 1436 16 796 884
July 8 Invoice 2590 17 932 18 816
July 10 Credit note 1038 539 18 277
July 10 Credit note 1042 3900 14 377
July 16 Invoice 2810 25 904 40 281
July 17 Debit note 102 1 482 38 799
July 19 Credit note 141 420 38 379
July 22 Cheque 6410 18 000 20 379
Discount 900 19 479

ADDITIONAL INFORMATION:

1. Aqua Wholesalers rejected the discount claimed by Organic Traders on 6 July and indicated that
the payment was received too late to qualify for the discount.

2. There is a disagreement over the goods returned by Organic Traders as per debit note DN 89. The
error has been made by Organic Traders. Aqua Wholesalers' credit note CN 1038 is correct.

3. Aqua Wholesalers have reflected credit note 1042 on 10 July. This, however, relates to another
one of their customers, Orgo Stores, and not to Organic Traders.

4. Invoice 2810 was correctly recorded by Organic Traders.

5. Aqua Wholesalers purchased goods on credit from Organic Traders. The bookkeeper was
instructed to transfer their debit balance of R1 800 in the Debtors' Ledger to the Aqua Wholesalers
account in the Creditors' Ledger.

However, she did the entry wrong (refer to Journal Voucher 450. Aqua Wholesalers have also
forgotten to record this entry.

6. Credit note 141 for R420 received from Aqua Wholesalers was incorrectly recorded as Invoice 141
in the Creditors' Ledger.

7. Organic Traders have forgotten to claim their discount on 22 July. There was also a subtraction
error of R10 000 in the Creditors' Ledger account on 22 July.

8. Note that Aqua Wholesalers' statement is prepared on 25 July 2013.

(30)

Total 300

15