You are on page 1of 13

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 127 76
• AS5: Final accounts and Financial
Statements
QUESTION 2
Bank • LO1: Financial Information
reconciliation • AS4: Prepares bank reconciliation 55 33
Statements
QUESTION 3
Sports Clubs • LO1: Financial Information
• LO3: Managing resources
• AS5: Identifies and analyses ethical 38 23
behaviour
QUESTION 4
Asset disposal • LO3: Managing Resources
• AS3: Calculate and record depreciation, the 44 26
acquisition and disposal of assets

QUESTION 5
Partnership
Ratio Analysis • LO1: Financial Information 36 22
• AS5: Financial Statements

TOTAL 300 180 mins


ACCOUNTING 2 MAY EXAMINATION 2009

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 the following NOTES to the Balance Sheet:


Capital Accounts (9)
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% 18 000
p.a.)
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
ACCOUNTING 3 MAY EXAMINATION 2009

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.
ACCOUNTING 4 MAY EXAMINATION 2009

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 4 000
7 000

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.
ACCOUNTING 5 MAY EXAMINATION 2009

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%pa

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 500
2006)
No 4282 (dated 16 December 1 130
2006)
No 4309 (dated 26 February 2007) 3 890
No 4318 (dated 25 April 2007) 1 780
Credit incorrect debit on bank 1 440
statement
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)
ACCOUNTING 6 MAY EXAMINATION 2009

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.

BANK RECONCILIATION
NO CASH JOURNALS STATEMENT
Cash Receipts Cash
Journal Payments Debit Credit
Journal

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)
ACCOUNTING 7 MAY EXAMINATION 2009

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)
ACCOUNTING 8 MAY EXAMINATION 2009

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.
ACCOUNTING 9 MAY EXAMINATION 2009

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 200
OCT 31 Amount capitalised 2 860 6 31 Bank 4 400
Oct

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)


ACCOUNTING 10 MAY EXAMINATION 2009

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 280 800 00
(01/07/2006)
Accumulated depreciation on equipment 52 500 00
(01/07/2006)

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
ACCOUNTING 11 MAY EXAMINATION 2009

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 2006
R 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
ACCOUNTING 12 MAY EXAMINATION 2009

Extract from the Balance Sheet on 28 February 2007, with comparative figures:
2007 2006
R 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)
ACCOUNTING 13 MAY EXAMINATION 2009

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