QUESTION 1 32 MARKS

Louis Rossouw conducts a brick manufacturing business named Big Bricks (Pty) Ltd (‘Big
Bricks’). The company buys sand and rock from Sand and Rock Ltd and cement from PPC
Ltd. The cement is stored in silo’s ensuring that it is kept dry. Big Bricks applies IFRS for
SME’s as their financial reporting framework and they have a 30 June year end. Big Bricks is
not registered for VAT.

The process of manufacturing is as follows: The sand is spread evenly over a big steel plate
(50 square meters) about 50 to 100 mm thick. Then the cement and rock is evenly spread
over the sand. The cement, rock and sand are mixed until the colour of the mixture is
uniform. The mixture is then spread out again and water is sprinkled over the surface after
which it is mixed again. The process is repeated until the right amount of water has been
mixed into the mixture. The business uses hand mixing, which means that the rock, sand
and cement is mixed using shovels. The mixture has to be moist enough to bind together
when it is compacted, but not so wet that the blocks sag or come apart when the mould is
removed.

When the material is mixed and it contains the right amount of water, a mould is placed over
the mixture which moulds the mixture into bricks. One mixture normally makes a 1 000
bricks. The business can also make a partial mixture on specific orders and thus does not
always need to make full batches. The raw material mixture ratios however always remain
consistent. When cement is dispatched to production, all other raw material included in the
mixture, is also dispatched.

When the mould is removed, it has to be done very cautiously, to prevent the blocks from
cracking. After the blocks stayed on the production plate for three hours, it can be removed
and placed in the brick for curing. Curing is the process where the moist content and the
temperature of the bricks are regulated, to ensure hydration so that the cement reaches its
optimum level of strength. This process takes four hours. It takes place in a special brick
building, which contains the necessary equipment. There is one supervisor (Sam) who is
always in the building during production and who ensures that the correct temperature and
moist content is maintained. Due to the high risk that the bricks can crack if the temperature
or the moisture is not correct, Louis employed Sam as a permanent invigilator who earns R5
000 per month. In this way Louis can ensure that a knowledgeable person is always on duty.

The water bill amounted to R2 000 for the period 1 January 2018 to 28 February 2018. If no
bricks are produced then no water is needed. Direct labourers were paid R6 000 during the
two month period 1 January 2018 to 28 February 2018.

Louis budgeted to produce 2 000 bricks for the period 1 January 2018 to 28 February 2018.

One standard mixture uses 100kg of sand, 30kg of rock and 200kg of cement. He has one
silo which can store only 250kg of cement. The sand and rock is stored in a warehouse with
the capacity to house a total of 400kg of sand and 200kg of rock. Louis’s business is of such
a nature that he sometimes receives very little orders for bricks and then his cement goes
bad, resulting in him having to throw it away. Other times he receives so many orders that he
needs to refill the silo 5 to 6 times a month. This results in him not having enough cement on

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hand to fill his orders and then he sometimes only delivers the bricks about two weeks after
the time originally arranged with his client.

The business made the following purchases of cement during the year:
Date Number of kg Cost per kg
15 January 2018 200kg R50 per kg
27 January 2018 200kg R53 per kg
17 February 2018 250kg R60 per kg

Big Bricks experienced some cash flow issues in February and made a special arrangement
with the supplier to only make payment on 17 February 2019 for purchases made on
17 February 2018. An appropriate discount rate of 8% before tax, is applicable.

He issued the following quantities of cement to production:

Date Kg issued
20 January 2018 200kg
28 January 2018 150kg
15 February 2018 100kg

Bog Bricks makes use of the first-in-first-out method of valuation and carries his inventory at
the lowest of cost or net realisable value.

On 1 January 2018, both the sand and rock stores were full of inventory purchased at a cost
of R20/kg sand and R25/kg rock. Only 50kg of cement at a cost of R52/kg was on hand on
1 January 2018.

There were 500 completed bricks in inventory on 1 January 2018 of which the cost
amounted to R14 per brick and there were 600 completed bricks on hand on
28 February 2018.

No work in progress was on hand on 1 January 2018 or on 28 February 2018.

Big Bricks sells bricks for R15 each. Louis has also received a lot of queries from clients who
want to buy concrete blocks. After conducting some research, it appears that there is a
demand for around 1 000 concrete blocks per month which Louis will be able to sell for R125
each.

Louis has decided from next year to rather produce the concrete blocks instead of the bricks.
The bricks on hand at year ended 28 February 2018 will just be in his way and he is
prepared to sell them at a discount of 20% on the normal selling price to free up some
space. The production of concrete blocks makes use of the same type of raw material as the
production of bricks.

MARKS
REQUIRED:
Subtotal Total
(a) Prepare the following general ledger accounts for Big Bricks for the
two months ended 28 February 2018:
Round prices per unit to two decimal places. 32

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 i. Sand; 4
ii. Rock; 3.5
iii. Cement; 7
iv. Work in progress;
7
v. Fixed manufacturing overheads; and
vi. Finished goods. 3
7.5
TOTAL MARKS 32

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