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Grade 10 Accounting
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GRADE 10 ACCOUNTING - EXEMPLAR PAPER QUESTION 1 (FORMAL VS INFORMAL BOOKKEEPING) [9] Think about the following statements and decide which ones would apply to the Formal bookkeeping system or Informal bookkeeping system. 1.1 Sophie is a flower seller; she is the only person involved in her business. 1.2 John’s business is a registered private company; it is also a registered VAT vendor. 1.3 Margaret bakes muffins and sells them to the local school children. 1.4 David keeps journals and ledgers and prepares a Trial Balance at the end of each month. 1.5 Randfontein Boutique employs an accountant to prepare its financial statements. 1.6 Discuss the terms formal and informal businesses.
QUESTION 2 (ETHICS)
[28]
Irry tells his kitchen assistant to throw waste food in the river nearby. Irry makes lengthy private calls from the business’ phone. Irry pays his gardener at home wages of R800, but he records this as a business expense. A customer is ill after eating fish at the restaurant. Irry says to him that his fish supplier delivered defective fish. Irry serves alcohol to customers under the age of 18. Irry fires a waiter because his wife had an argument with him. The wife was at fault. Irry deliberately under-pays VAT to SARS by R7 000. Irry employs a new waiter at half the salary paid to other waiters, because he knows he is desperate for the job. Irry tells his father that he cannot make the loan repayments this month because business was slow. However, he took extra drawings to pay for an overseas holiday. Irry spends R2 000 per week from petty cash on sundry expenses (the budget is R500 per week). Irry deliberately gives a customer change of R80 instead of R60. The customer does not notice. Irry refuses to spend R3 000 on a security gate at the front door of the business. One afternoon, the cashier is seriously injured by a burglar in a robbery. Irry tells his employees that he cannot give them more than a 4% salary increase this year because the business is not doing well. Meanwhile, he decides to employ his wife as a manager. Despite the fact that many employees from a local business regularly buy lunch at his restaurant, Irry refuses to contribute R500 for an advertisement in their AIDS-
Social responsibility
Fairness
Responsible management
Accountability
Independence
Transparency
Discipline
Irry Sponsible owns a restaurant in Bloemhof. His father has lent him R200 000 to get the business started. Consider the following examples of poor corporate governance. Indicate which characteristic/s of good governance these examples violate, by placing a ‘X’ in the appropriate block/s.
awareness brochure.
QUESTION 3 (GAAP PRINCIPLES)
[6]
WORD BANK Match the statements with the correct GAAP principle below. Historical cost principle
Prudence principle
Materiality principle
Business entity principle
Going concern principle
Matching principle
3.1
3.2
3.3 3.4
3.5 3.6
If a business knows that it has incurred an expense, such as a telephone account for R2 400 due that has not been paid by the end of the financial year, it must still be included in the expenses for that year. A person reading the financial statements of a business assumes the business intends to continue to operate in the near future and that the owner of a business does not intend to sell (or close down) the business at any time in the near future. The business’ financial statements must be prepared without taking into account the owner’s personal assets and liabilities. Because it is important for the business owner to assess the cost of borrowed money from different sources, they will need to know how much money the business spends on interest on its overdraft. As a result, the interest on overdraft must be shown separately from bank charges. An accountant will not record any possible income that the business might have earned, unless it can be proved that it has been earned beyond all doubt. If trading stock, that normally costs R86 000, was purchased at a bargain price of R80 000, the accountant will record it at the purchase price of R80 000.
QUESTION 4
Debtors’ reconciliation [37]
INSTRUCTION From the following preliminary totals and additional information, extracted from the records of Nkina Sports Shop for October 2011, you are required to: 4.1
Use the relevant information and prepare the Debtors’ Control Account for October 2011. (20)
4.2
Prepare the correct Debtors’ list on 31 October 2011. The Debtors’ list on 30 September 2011 was correct and corresponds with the control account for September 2011. (Show all the calculations in brackets)
INFORMATION Debtors’ list on 30 September 2011 G. Botha J. Abrahams P. Adams L. Fouche M. Ntuli
R 1 020 3 150 825 30 (Cr) 4 920 ?
(17)
Debtors’ list on 31 October 2011 N. Bantjies G. Botha P. Adams N. Ntuli
R 2 310 1 020 450 5 700 9 480
TOTALS FROM SUBSIDIARY JOURNALS FOR OCTOBER 2011 1
Cash Receipts Journal Debtors control Receipts R7 350
2
Cash Payments Journal Debtors’ Control, R300
3
Debtors’ Journal Sales R8 100
Discount allowed R630
Total R7 980
Cost of sales R7 200
4
Debtors’ Allowances Journal Debtors’ Allowances Cost of sales R525 R300
5
General Journal Debtors Control Debit Credit R750 R420
Creditors Control Debit Credit R660 R300
ADDITIONAL INFORMATION 1
Merchandise returned by N. Bantjies, R30, was entered in the subsidiary book (journal) but was not posted to the Debtors’ Ledger.
2
Credit sales R180, to G. Botha, was correctly entered in the subsidiary book (journal) but it was erroneously posted to the account of N. Ntuli in the Debtors’ Ledger.
3
The transfer of a debit balance, R225, in P. Adams’ account from the Debtors’ Ledger to his corresponding account in the Creditors’ Ledger, was entered as follows in the General Ledger, and posted as such to the ledgers.
P. Adams P. Adams 4
Debit 225
Credit 225
Debtors Control Debit Credit 225
Creditors Control Debit Credit 225
A credit note issued to N. Bantjies for R50 was correctly entered in the subsidiary journal. However, the amount was posted to the account of N. Ntuli.
QUESTION 5 [48] Transaction Analysis Analyse the following transactions under the headings provided. You must indicate which accounts in the General Ledger must be debited and credited. In the accounting equation, indicate an increase with a “+”, a decrease with a “-“ and no change with a “0” before the amount. Assume that the bank has a favourable balance. Transactions: 1 The owner increased his capital contribution from R235 000 to R250 000 by depositing the money directly into the current bank account. 2 Buy goods from Naledi Traders on credit for R8 600 minus 20% trade discount. 3 Sell goods on credit to R. Bredenkamp for R2 100. The business uses a profit margin of 75% on cost price. 4 Return broken stock to Naledi Traders for R400 minus 20% trade discount. 5 The owner took R800 trading stock at cost price. 6 Receive R1 800 from M. Fouche (a debtor) in settlement of his account of R1 850 7 The fixed deposit at Perm Bank matured today. Receive a cheque for R22 000. Included in the amount is 10% interest for a year. 8 Pay R180 carriage on purchase to SA Transporters out of the petty cash for transporting goods sold to R. Zulu (debtor). This amount must be debited against his account. 9 The bank returned M. Abrahams’ (debtor) cheque for R880; it was marked “R/D – insufficient funds”. M. Abrahams previously paid his debts in settlement of his account for R900.
QUESTION 6
VAT
[8]
6.1
What is the difference between VAT-input and VAT-output?
6.2
Indicate if the following are Taxable supplies or Exempt supplies or Zero-rated supplies. Make a cross in the correct column. (6) Taxable supplies
Exempt supplies
(2)
Zero-rated supplies
Passengers transport by taxi Dried beans A box of apples Maize meal Brown bread White bread QUESTION 7
INCOME STATEMENT OF A SOLE TRADER
[75]
Use the information of Pompey Traders (owner, Ben Radue) to prepare the following: 7.1 7.2 7.3 7.3.1
The trading stock account in the General Ledger. Income statement for Pompey Traders for the year ended 30 June 2010.
(10) (52)
One of Ben's customers, Mr. B. Abrahams, informed Ben that something strange happened when he settled his account of R500 in cash. Miss R. Jansen, the cashier,
gave him a receipt that did not look like the normal receipts issued by Pompey Traders. On closer inspection of the Debtors' Statement, he saw that a general journal entry had been made to reduce the account. Ben then checked the receipts and found that there was no record of the R500 having been receipted or deposited by the cashier. ► Briefly explain the problem that exists in this business. (3) ► Give TWO steps that should be taken to resolve the problem. (6) 7.3.2
Ben Radue wants to record the motor vehicle instalment of R3 200 for his wife's car as a business expense. Explain the following questions: ► Why this is not acceptable practice? (2) ► Why you, as the accountant, would not support this request? (2)
Notes: Accounting period: 1 July 2009 to 30 June 2010 Selling price = cost price + 50% Pre-adjustment trial balance on 30 June 2010 Capital 200 000 Drawings 29 600 Land and Buildings 100 000 Vehicles 70 000 Accumulated depreciation: Vehicles 11 760 Equipment 38 000 Accumulated depreciation: Equipment 16 750 Trading stock 38 200 Debtors control 16 540 Fixed deposit 4 800 Bank (Dr.) 1 342 Creditors control 19 000 Advertising 3 976 Bank charges 1 080 Debtors allowances 2 750 Rates 2 100 Rent income 12 375 Cost of sales 205 228 Bad debts 400 Interest on fixed deposit 384 Salaries 44 695 Interest on overdraft 200 Stationery 5 140 Telephone 1 430 Sales 310 592 Insurance 3 460 Water and electricity 1 920 ADDITIONAL INFORMATION 1
The owner (B Wilken) took merchandise (selling price, R600, cost price, R400) for his own use on 4 June 2010. The bookkeeper treated the transaction in the Debtors Journal as a credit sale to B Wilken and it was posted as such.
2
The stocktaking of trading stock was completed on 28 June 2010 and showed that the stock on hand was R38 140.
3
On 25 June 2010 the firm negotiated an agreement with the advertising agency. According to the agreement an intensive advertising company would be launched in the local newspaper from 4 July 2010. A deposit of R800 to cover the initial cost of the agency was paid on 25 June 2010 and debited to “Advertising”.
4
A debtor (K Weyer) who has a debit balance of R140, was declared insolvent on 10 June 2010. His attorney informed Pompey Traders that no dividend will be paid, but no entry to this effect has been made.
5
On 7 June 2010 R200 was received from Mr Smith, whose debt had previously been written off as irrecoverable. The amount was credited to bad debts account.
6
The insurance account shows the following details: Dr. 2009 1 Jul Oct 1 2010 1 Feb
Prepaid expenses Bank (1/10/2009 – 30/9/2010) Bank (1/2/2010 – 31/1/2011)
Insurance 500
Cr.
2 000 960 3 460
7
The fixed deposit was invested on 1 November 2009 at 16% interest per annum for 12 months. Interest is not capitalised.
8
The telephone account for June 2010 must still be paid, R980.
9
Part of the building has been let since 1 March 2009. The tenancy stipulated, among other things, that the initial rent would be R900 per month for the first twelve months and thereafter an increase of 15% will come into effect on 1 March each year.
10
Stationery on hand according to a physical stocktaking, R575.
11
Write depreciation off as follows: On vehicles, 20% on cost price On equipment, 10% on the diminishing balance method. New equipment was bought on 1 April 2010 for R18 000 and was recorded in the books.
QUESTION 8 RATIOS Barbara’s Boutique is a clothing shop. Use the information provided and answer the following questions: INFORMATION: Extracts from the Income statement for the year ended 28 February 2009: Turnover R160 000 Cost of sales 68 000 Net profit 14 400 Extracts from the Balance sheet at 28 February 2009: 2009 2008 Owners’ equity 180 000 160 000 Non-current liabilities 120 000 130 000
[39]
Current liabilities (all creditors) Fixed assets Investments Trading stock Debtors Cash
30 000 240 000 40 000 25 000 17 000 8 000
25 000 227 000 40 000 23 000 13 000 12 000
Financial indicators on 28 February 2008: Current ratio 1,92 : 1 Acid test ratio 1:1 Return on average equity 10,2% Debt/equity ratio 0,8 : 1 8.1.1 Calculate the profit mark-up for 2009. (5) 8.1.2 If the expected profit mark-up was 150%, state TWO possible reasons to account for this difference. (4) 8.2
Explain the difference between solvency and liquidity.
(4)
8.3
Calculate the Acid test ratio on 28 February 2009 and comment on the ratio.
(8)
8.4
The owner wants to expand the business. She does not know if she must take out a loan of R30 000 or make a further capital contribution? Help her to make a decision. (8) Calculate the average return on owners’ equity on 28 February 2009 and comment on the ratio. (8) Name TWO stakeholders who will be interested in the financial statements of the business. (2)
8.5 8.6
QUESTION 9 [Cost concepts] [30] Lindiwe manufactures designer bags and sells them at a flea-market. The following are costs that she incurs in the manufacturing of her bags. Material – 0,75 m Cotton – 50 m Webbing (for the handle) – 0,75 m Beads (for decoration) - 48 Labour – 2,5 hours Rent (rents a garage to manufacture her bags) Cleaning material Electricity 9.1 9.2 9.3 9.4 9.5 9.6
R24 per metre R10 per 1 000m R20 per metre R7 per dozen R15 per hour R1 500 per month R50 per month R200 per month
What is Lindiwe’s total direct material cost per item? (10) What is Lindiwe’s total direct labour cost per item? (3) What is Lindiwe’s prime cost per item? (3) What is the total overhead cost involved in making the bags? (4) Explain the difference between fixed costs and variable costs? (4) If 100 bags are made and sold, what will the total profit be if the selling price is R150 per bag? (6)
QUESTION 10 [Budget concepts] [20] Boipelo Cleaning Services hires out cleaning services to their clients at R70 per hour. Boipelo Mokoena, the owner, ensures that all cleaners work the same number of hours in a year and they are paid weekly for the number of hours that they work. Boipelo has a manager, Joseph Mtembu, who takes care of the day to day running of the business. Together they have drawn up the following budget for 2011.
RECEIPTS Fee income from cleaning services Rent income Interest on fixed deposit Loan from Blue Bulls Bank TOTAL RECEIPTS PAYMENTS Salary of office worker Salary of Manager Wages of 8 cleaners Employer’s contribution (e.g. medical aid, etc) Office telephone & electricity Motor vehicle running expenses Interest on loan Bank charges Uniforms for cleaners Office maintenance costs Drawings by Boipelo Mokoena Purchase of new vehicle for Boipelo Mokoena TOTAL PAYMENTS Cash surplus (deficit) for the year Cash in the bank at the beginning of the year Cash in the bank at the end of the year 10.1
BUDGET
2010 ACTUAL
2011 BUDGET
721 000 12 000 5 000 50 000 788 000
721 000 12 000 4 000 50 000 787 000
860 240 14 400 4 500 20 000 899 140
54 000 150 000 206 000 50 156
54 000 170 000 206 000 50 156
60 000 225 000 210 000 62 000
20 000 36 000 7 500 15 000 6 400 17 000 154 000
16 500 34 000 7 500 19 000 7 200 13 000 204 000
20 000 38 000 10 500 20 000 3 200 13 000 250 000 420 000
716 056
781 356
1 331 700
72 044 160 075
5 644 232 119
(531 600) 237 763
232 119
237 763
(293 837)
Why is it important to prepare a cash budget for each financial year?
(2)
10.2.1 Why are “Bad debts” not shown in the cash budget? 10.2.2 Will “Bad debts recovered” be shown in the cash budget? Motivate
(2) (2)
10.3
What percentage interest did the business pay on the loan in 2010?
(3)
10.4
Name two items which will not appear in a cash budget.
(4)
10.5
Name two items that were well controlled in 2010.
(2)
10.6
Name two items that were not well controlled in 2010.
(2)
10.7.1 What is your opinion about the drawings of Boipelo Mokoena? 10.7.2 Why is the bank balance in 2011 in brackets?
(2) (1)
