Acc Gr11 May 2009 Paper

WESTERFORD HIGH SCHOOL ACCOUNTING – GRADE 11 MAY EXAMINATION 2009 MARKS: 300 TIME: 3 HOURS

This question paper consist of 13 pages and an answer book. INSTRUCTIONS • You are provided with a question paper and an answer book. The paper comprises 5 questions. Answer all questions. • Use the formats provided in order to reflect your answers. • Workings must be shown in order to achieve part-marks. • You must attempt to comply with suggested time allocated to each question. • Non-programmable calculators may be used. • Use only blue or black ink. Marks Time QUESTION 1 Partnership • LO1: Financial Information

• AS1: Accounting concepts • AS2: Recording information • AS5: Final accounts and Financial Statements

127

76

QUESTION 2 Bank reconciliation

• LO1: Financial Information • AS4: Prepares bank reconciliation Statements

55

33

QUESTION 3 Sports Clubs • LO1: Financial Information

• LO3: Managing resources • AS5: Identifies and analyses ethical behaviour

38

23

QUESTION 4 Asset disposal • LO3: Managing Resources

• AS3: Calculate and record depreciation, the acquisition and disposal of assets

44

26

QUESTION 5 Partnership Ratio Analysis

• LO1: Financial Information • AS5: Financial Statements

36

22

TOTAL 300 180 mins

ACCOUNTING MAY EXAMINATION 2009 2

QUESTION 1 PARTNERSHIPS (127 marks; 76 minutes) The information below was taken from the books of Magnum Traders (with partners T Thirsk and M Martin) on 29 February 2008. INSTRUCTIONS 1.1. Draw up a statement to calculate the net profit for the year ended 29 February

2008. (64) 1.2. Prepare only Capital Accounts (9)

the following NOTES to the Balance Sheet:

Current Accounts (37) Trade and other Payables (17)

PRE-ADJUSTMENT TRIAL BALANCE OF MAGNUM TRADERS ON 29 FEBRUARY 2008

DEBIT CREDIT BALANCE SHEET SECTION Capital: T Thirsk 245 000 Capital: M Martin 240 000 Current Account: T Thirsk 2 837 Current Account: M Martin 8 370 Drawings: T Thirsk 15 310 Drawings: M Martin 33 115 Land and Buildings 624 894 Vehicles 121 000 Equipment 9 300 Accumulated depreciation on vehicles 72 500 Accumulated depreciation of equipment 3 250 Mortgage bond: T C building Society (16% p.a.)

18 000

Fixed Deposit: Bantam Bank 7 000 Debtors control 66 300 Provision for bad debts 3 670 Creditors control 30 222 Trading inventory 33 430 Bank 1 860 Cash float 220 Petty Cash 80 South African Revenue Services (PAYE) 640 Medical Aid Fund 45 Pension Fund 160


NOMINAL ACCOUNTS SECTION

Sales 695 035 Cost of sales 353 796 Debtors allowances 1 296 Salaries 75 000 Medical Aid Fund Contribution 730 Pension Fund Contribution 2 800 Stationery 3 280 Packing material 1 134 Rent Income 62 400 Interest on mortgage bond 2 640 Interest on fixed deposit 270 Vehicle expenses 1 355 Bad debts 483 Bad debts recovered 1 260 Interest on overdraft 107 Bank charges 2 320 Insurance 2 820 Discount received 1 499 Discount allowed 396 Advertising 1 480 Rates 9 992 1 378 648 1 378 648 ADJUSTMENTS AND ADDITIONAL INFORMATION 1. According to a physical stocktaking on 29 February 2008, the following stock

was found to be on hand: 1.1. Trading inventory at cost price, R33 250 1.2. Packing material, R284 1.3. Stationery, R95 2. The name of one employee was erroneously omitted from the Salaries Journal

for February. He was on vacation and his salary was paid only on 10 March 2008.

Details of his salary are: Monthly salary: R6 000 PAYE deduction: 20% of gross salary Pension Fund deduction: 5% of gross salary Medical Aid Fund deduction: R250 per month

Magnum Traders contribute towards the Pension Fund and Medical Aid Fund on a rand-to-rand basis.


3. Depreciation for the year must be written off as follows: 3.1. On vehicles at 20% of the diminished balance 3.2. On equipment at 10% of the cost price. A new computer for R4 500 was purchased on credit from N Bales on 1 July 2007. This has been correctly recorded. 4. Three month’s interest on fixed deposit is still receivable. The Fixed Deposit Account appears as follows: DR FIXED DEPOSIT: BANTAM BANK CR 2007 March 1 Balance b/d 3 000 Dec 1 Bank CPJ

7 000 4 000

The interest rate on the fixed deposit is 12% p.a. 5. The interest on the mortgage bond for last month has not yet been paid. A

repayment of R2 000 will be made on 31 August 2008. 6. A debtor, M Shield has disappeared and his debt must be written off as

irrecoverable, R600. 7 The provision for bad debts must be adjusted to 6% of the debtors, on 29

February 2008. 8. Income from rent has been received for 13 months. 9. An insurance premium of R1 260 was paid and recorded on 1 November 2007.

This policy expires on 31 October 2008. 10. R600 was paid to Durban Advertisers on 1 January 2008 in respect of an

advertising contract for the period 1 January 2008 to 30 April 2008. 11. An account for repairs to partner M Martin’s personal vehicle was paid by the

firm on 25 February 2008, R280. The Vehicle Expenses Account was erroneously debited.


12. The partnership agreement specifies (inter alia) the following:

12.1. Salary to T Thirsk: R7 000 per month 12.2. Salary to M Martin: R5 850 per month 12.3. Interest on Capital: 9 % p a 12.4. Profits and losses must be divided in the ratio 3:2 between Thirsk and

Martin. Correct figures to the nearest Rand. M Martin increased his capital contribution by R50 000 on 1 November

2007. QUESTION 2 BANK RECONCILIATION (55 marks; 33 minutes) INSTRUCTIONS 2.1 Use the Bank Reconciliation Statement of Frosty Traders on 28 February 2007, (their financial year end) to answer the questions below. BANK RECONCILIATION STATEMENT ON 28 FEBRUARY 2007

DEBIT CREDIT

Debit balance as per bank statement 6 180 Credit outstanding deposit 15 400 Debit outstanding cheques No 4110 (dated 20 September 2006)

500

No 4282 (dated 16 December 2006)

1 130

No 4309 (dated 26 February 2007) 3 890 No 4318 (dated 25 April 2007) 1 780 Credit incorrect debit on bank statement

1 440

Debit balance as per bank account 3 360 16 840 16 840

2.1.1 What kind of balance does Frosty Traders have according to the bank statement? (2) 2.1.2 Why might the bank not have reflected the deposit of R15 400 on the bank statement for February? (2)


2.1.3 If cheque 4110 does not appear on the bank statement in March, what action will have to be taken and why? (4) 2.1.4 Explain the entry for R1 440 on the Bank Reconciliation Statement. (2) 2.1.5 Frosty Traders received a cheque for of R2 600 on 26 February 2007. The cheque was dated 26 March 2007. Why does the cheque not appear on the Bank Reconciliation Statement? (4) 2.1.6 What will have to be done with cheque 4318 in the financial statements, as it is the financial year-end? (6) 2.1.7 Explain why it is important for a business to reconcile its bank account every

month. (4)

2.2 Analyse the given instructions of Harrington Stores for July 2007 as illustrated in the example. If no entry is required, write “no entry” in the columns.

Example

The bank statement for July showed an unpaid cheque. This cheque drawn by a debtor, S Rock for R300 was dishonoured by the bank due to insufficient funds.

NO

CASH JOURNALS BANK RECONCILIATION

STATEMENT Cash Receipts

Journal Cash

Payments Journal

Debit

Credit

e.g.

-

300

-

-

TRANSACTIONS The accountant of Harrington Stores compared the bank statement for July 2007, received from FNB Bank, with the Cash Journals for July 2007 and the Bank Reconciliation Statement at 30 June 2007. He found the following differences. 1 Cheque no. 450, issued on 10 June 2007, was honoured by bank on 20 July 2007. 2 A cheque for R395, issued during June 2007 to the City Treasurer for Rates, was

lost in the post. On 31 July 2007 it was decided to stop payment of the cheque, cancel it and replace it with a new cheque, no. 531 to pay the Rates for both June 2007 and July 2007. ( Rates remain constant throughout the year)


3 The following items appeared in the Bank Statement for July 2007, but not in the Cash Journals:

Levy on credit card sales …………….R37 Service fees ………………………… 80 Interest on credit balance …………… 134 Government levy on cheques ………. 30

4. Cheque no. 452 for R733 was listed as outstanding in the June 2007 Bank Reconciliation Statement. An investigation revealed that this cheque was issued in favour of Telkom to pay the personal telephone account of the owner, S Harry. The bank statement for July 2007, however, shows the amount correctly as R337. 5. The monthly stoporder for R650 for vehicles insurance, payable to Gebon Insurers, was reflected on the July 2007 bank statement. No entry has been made in the Cash Journals. 6. An amount of R1 500 which appears on the bank statement on 26 July 2007 was deposited directly into the current bank account of the business by the tenant, D.Snoop. 7. Entries in the Cash Payment Journal which did not appear in the bank statement for July 2007: Cheque no. 563, R1 800 (dated 29 July 2007) Cheque no. 567, R 2 150 (dated 2 September 2007) 8. Cheque no. 128 for R350 (dated 3 January 2007) has not been presented for payment at the bank. The cheque was a donation to the KZ Soccer Club, which has since ceased to exist.

9. The bank statement for July 2007 shows a dishonoured cheque for R180. This cheque had been received from a debtor. The cheque was dishonoured because it was postdated for 2 August 2007.

(21)


2.3 ETHICS AND INTERNAL CONTROL

Reese and Brown are partners in a business, Breeze Services. Brown is in charge of the cash received. He fills in the receipts, completes the deposit slips, draws up the Cash Receipts Journal and deposits the money in the bank on a daily basis. However, he knows that the bank sends out their monthly statement on the 28th of the month, so he does not make a deposit on the 29th or 30th and takes the money for himself. Reese looks at the monthly bank statement and compares it with the deposit book, but does not pick up any irregularities since all the entries on the bank statement agree with the deposit book.

Describe THREE control measures, which the business could use to ensure transparency and proper control of cash in the business.

(10) QUESTION 3 SPORTS CLUBS (38 marks; 23 minutes) 3.1 MEMBERSHIP FEES (19 Marks; 11 minutes) The following information was taken from the books of Slytherin Sports Club. INSTRUCTIONS Complete the Membership fees account in the general ledger for the year ended 31 December 2006.

1. Membership fees amounts to R120 per member per annum. 2. On 31 December 2005 the following balances appeared in the balance sheet:

Accrued income (Membership fees) R480 Income received in advance (Membership fees) R360

3. Cash received from members during 2006 2005 R240 2006 R3 000 2007 R600

4. Outstanding membership fees for 2005 must be written off 5. Membership fees owing for 2006 amount to R720

6. One member moved to another club. His membership fees were refunded.


2.2 CLUBS (19 Marks; 12 minutes) Instructions Study the following ledger accounts and answer the questions that follow. INFORMATION The following accounts appear in the general ledger of Gryffindor Quidditch club for the period 1 November 2005 to 31 October 2006.

GENERAL LEDGER OF GRYFFINDOR QUIDDITCH CLUB ENTRANCE FEES

2006 OCT

31

Amount capitalised

2 860

2006 Oct

31

Bank

4 400

Amount used as current income

1 540

4400

4 400

Note: Entrance fees are R80 for new members, payable on joining the club.

CLUB BADGES 2005 2005 NOV 1 Stock Badges 500 Oct 31 Bank (sales) 2 400 2006 Donation ? Oct 31 Bank (purchases) 1 600 Stock of badges ? Creditors for Badges 400 Profit on sale of

badges ?

Note:

1. Club badges are bought at R50 each. This price remained unchanged during the year.

2. Club badges are sold at cost price plus 20%. 3. Four Badges were donated to visitors during the year.

QUESTIONS 3.2.1 How many new members joined the club during the year? (3) 3.2.2 What percentage of the entrance fees was capitalized? (3)


3.2.3 Name the correct contra-accounts for the following amounts: 3.2.3.1 R2 860 (2) 3.2.3.2 R1 540 (2)

3.2.4 What is the value of the club badges donated to visitors? (3) 3.2.5 Calculate the profit made on the sale of Club badges. (3) 3.2.6 Calculate the value of the stock of club badges on 31 October 2006 (3)

QUESTION 4 ASSET DISPOSAL 44 marks 26 minutes The information below was extracted from the records of Dan’s Deliveries on 30 June 2007, the end of their financial period. REQUIRED 4.1 Prepare the Tangible/Fixed asset note to the Balance Sheet on 30 June 2007. 4.2 Answer the questions that follow. INFORMATION You are provided with the following balances taken from the General Ledger on 30 June 2007. Vehicles at cost 780 000 00 Equipment at cost 140 000 00 Accumulated depreciation on vehicles (01/07/2006)

280 800 00

Accumulated depreciation on equipment (01/07/2006)

52 500 00

ADJUSTMENTS AND ADDITIONAL INFORMATION Provide for depreciation as follows: • On vehicles at 20% p.a. on the diminishing balance method. • On equipment at 15% p.a. on cost


NOTES • A new vehicle costing R280 000 was bought on 1 January 2007. This has been

recorded. • Equipment with a cost of R8 000 was sold for R5 500 cash. The carrying value of

this equipment on the 1st day of the financial year was R2 400. No entries were made for this transaction which took place on 31 October 2006.

• Additional equipment costing R15 600 was purchased by cheque on 1 April 2007. This has not been recorded.

(42) 4.2.1 Depreciation is an unusual expense in that it does not involve the outflow of cash from a business. Give another example of a similar type of expense. (2)

QUESTION 5 PARTNERSHIPS: ANALYSIS AND INTERPRETATION

(36 marks; 22 minutes) You are provided with information obtained from the financial statements of NZ Traders The business is owned by two partners, Nkosi and Zuma. REQUIRED: Study the information and answer the questions that follow: INFORMATION Extract from the Income Statement for the year ended 28 February 2007 with comparative figures: 2007

R 2006 R

Sales

745 000

630 800

Cost of Sales

426 000

380 000

Extract from the Appropriation Statement for the year ended 28 February 2007:

• Net profit for the year, R152 000 • Total amount earned by Nkosi, R103 000 • Total amount earned by Zuma, R49 000


Extract from the Balance Sheet on 28 February 2007, with comparative figures: 2007

R 2006 R

Fixed Assets (carrying value) 381 790 337 520 Investments (9% p.a.) 140 000 30 000 Current Assets 113 560 121 050 TOTAL ASSETS 635 350 488 570 Owners’ Equity 473 710 326 150 Capital: Nkosi 275 000 200 000 Capital: Zuma 200 000 125 000 Current Account: Nkosi 24 690 (Dr) 2 350 (Cr) Current Account: Zuma 23 400 (Cr) 1 200 (Dr) Non-current liabilities (13% p.a.) 94 840 114 000 Current liabilities 66 800 48 420 TOTAL EQUITY AND LIABILITIES 635 350 488 570 Financial indicators calculated on 28 February 2007, with comparative figures:

2007 2006 Gross profit on cost of sales 75,0% 65,0% Operating expenses on sales 21,0% 21,2% Operating profit on sales 21,8% 19,5% Net profit on sales ? 17,2% Current ratio ? 2,5:1 Acid-test ratio 0,6:1 0,8:1 Stock-turnover rate 6 times 4,5 times Debtors’ collection period 30 days 45 days Creditors’ payment period 60 days 60 days Debt/Equity ratio ? 0,35:1 Total assets to total liabilities 3,9:1 3,0:1 Return on total capital employed 32,8% 30,5% % return on average equity 38,0% 33,2% % return earned by Nkosi ? 34,4% % return earned by Zuma 28,2% 33,0%

5.1 Calculate the following financial indicators for 2007: (Correct to 1 decimal place). 5.1.1 Percentage net profit on sales (3) 5.1.2 Current ratio (3) 5.1.3 Debt/Equity ratio (3) 5.1.4 Percentage return earned by Nkosi on his average equity (4)


5.2 Use the acid-test ratio to calculate the amount of trading stock on hand on 28 February 2007. (4) 5.3 Should the partners be satisfied with the control of the operating expenses? Briefly explain your answer. Quote ratios, percentages or figures to support your answer. (3) 5.4 Comment on the liquidity position of the business on 28 February 2007. Quote ratios, percentages or figures to support your comment. State THREE points in your answer. (9) 5.5 Zuma feels that Nkosi’s drawings are unreasonable. Quote figures to support his opinion. How does this affect the business? (4) 5.6 The business urgently needs a delivery vehicle, which is expected to cost R300 000. In your opinion, how should the business finance the cost of the vehicle? Give a reason for your answer. (3)

TOTAL: 300 MARKS

Acc Gr11 May 2009 Paper

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