NKUHLU DEPARTMENT OF ACCOUNTING
ACCOUNTING 1B
ACC121/ACC121E
FINAL EXAMINATIONS
NOVEMBER 2015
ASSESSORS: Mrs LH Mtshwelo
Mr SM Msakatya
Mr M Bomba
Moderator: Mrs U Heath
TIME: 3 HOURS
MARKS: 150
• THE EXAM PAPER CONSISTS OF 4 QUESTIONS AND 7 PAGES (front page
included).
• SILENT PROGRAMMABLE CALCULATORS ARE ALLOWED.
• SHOW ALL CALCULATIONS.
• START EVERY QUESTION AT THE TOP OF A PAGE.
• BREACH OF THE EXAM RULES OF THE UNIVERSITY OF FORT HARE MAY
BE SEVERELY PUNISHED.
MARKS TIME
Question 1 Companies 15 18
2 Cash flow statement and Financial
Analysis 75 90
3 Cash budgets 30 36
4 Branches 30 36
150 180
1
Question 1 15 marks (41 minutes)
Part A 7 marks
Great clothing is a leading South African company that is listed on the JSE Securities Exchange in
the textiles (clothing) industry.
You are required to:
1. Provide 2 advantages of listing a company on the JSE (2)
2. The new Companies Act, 71 of 2008, allows for the formation of four types of profit
companies, one of which is a personal liability company.
a) State the name of the three other types of profit companies that can be formed in terms
of the new Companies Act. (3)
b) Under which type of the four profit companies would you classify Great clothing? (1)
c) What is the main disadvantage of forming a personal liability company? (1)
Part B 8 marks
Great clothing is finalising financial statements for 31 December 2015. They issued debentures 5
years back that are compulsory redeemable on 30 April 2016. The financial director and financial
manager are in disagreement as to whether the debentures in the current year should be classified
as non-current or current liability. Explain to them as to whether the debentures should be
classified as current liability. (8)
Note: The liability definition and recognition criteria are not required
2
Question 2 75 marks (90 minutes)
King Waste Management (KWM) Ltd is a company that buys and recycles all kinds of waste to
reusable products. They asked for your assistance in preparing their cash flow statement. You
were provided with the information below
Statement of financial position as at 30 June 2015
2015 2014
R R
Assets
Non-current assets
Property, plant and equipment ? 3 500 000
Investments 500 000 500 000
Current assets
Inventory ? 272 000
Trade receivables 148 700 122 500
Bank 1 542 260 175 000
Prepaid expense 12 000 8 400
Total assets ? 4 577 900
Equity and liabilities
Capital and reserves
Class A: Ordinary share capital ? 2 500 000
Class B: 12% Preference share capital 300 000 300 000
Retained earnings ? 1 026 400
Revaluation reserve 250 000 450 000
Current liabilities
Trade payables 375 000 280 000
Accrued expenses 3 900 2 500
SARS (liability) 65 000 19 000
Total equity and liabilities ? 4 577 900
Statement of Comprehensive income of KWM Ltd for the year ended 30 June 2015
R
Sales ?
Less cost of sales ?
Gross profit ?
Net operating costs (688 000)
Profit before tax ?
Taxation expense (192 640)
Profit for the year ?
3
Question 2 continued
Additional information:
1. Gross sales amounted to R3 560 000 for the year. Sales returns amounted to R120 000.
30% of the sales and sales returns are cash.
2. The gross profit percentage on sales is 40%.
3. Inventory at year end had a cost of R385 000 and a net realisable value of R350 000.
4. An extract of the PPE reconciliation note to the financial statements for the year ended 30
June 2015 appears below:
Land and Vehicles Machinery
Buildings
Gross carrying amount (1/07/2014) 1 000 000 1 200 000 2 100 000
Accumulated depreciation (1/07/2014) - 360 000 440 000
Carrying amount (1/07/2014) 1 000 000 840 000 1 660 000
Additions ? 1 500 000 -
Revaluations loss (200 000) - -
Disposals - - ?
Depreciation - ? ?
Gross carrying amount (30/06/2015) 1 700 000 2 700 000 1 900 000
Accumulated depreciation (30/06/2015) - ? ?
Carrying amount (30/06/2015) 1 700 000 ? ?
5. Only 50% deposit was paid in the current year for the vehicles purchased on 1 April 2015.
Vehicles are depreciated at 20% per annum on straight line method.
6. Machinery with a cost price of R200 000 and accumulated depreciation of R42 000 on date
of disposal was sold for cash on 1 July 2014. Machinery is depreciated at 15% per annum
on the diminishing balance method.
7. The following items are included in net operating costs:
Depreciation: vehicles ?
Depreciation: machinery ?
Bad debts recovered 7 000
Profit on sale of machinery 24 000
8. On 1 January 2015, 750 000 ordinary shares were offered to the public at a price of R2.80
per share. The share issue was underwritten by FDB Bank for an agreed commission of
6%. By 1 March 2015, the closing date for applications, only 90% of the shares had been
applied for. The shares were issued on 15 March 2015. Share issue costs amounting to 20
cents per share issued and underwriter’s commission were paid on 30 March 2015. The
number of shares that were issued until 30 June 2014 were 1 250 000 shares
4
Question 2 continued
You are required to:
a) Prepare the statement of cash flows using direct method for the year ended 30 June
2015, using the direct method. Show all calculations. (45)
b) Prepare the statement of comprehensive income for the year ended 30 June 2015. (5)
c) KWM Ltd is considering for applying for long term loan from the banks of R2 million. Explain
to the Financial Manager of KWM about the 3 most important ratios which the banks be
interested when applying for funding. (3)
d) If the loan is granted and money deposited into the bank account of KWM. Calculate the
following ratios for 2015 financial year:
i) Acid test ratio (5)
ii) Debt ratio (5)
iii) Earnings per share (4)
iv) Return on total assets (2)
e) State the relevant benchmarks against which you could compare the above ratios (4)
f) Briefly explain the difference between current ratio and acid test ratio (2)
IGNORE VAT
5
Question 3 30 marks (36 minutes)
Load-shedding Ltd is a small business that sells electrical appliances. The manager of the
company has asked for your assistance in preparing their three months cash budgets ending on 31
January 2016. Load-shedding Ltd is a registered VAT vendor.
The following balances, amongst others appeared in the books of Load-shedding Ltd on 30
October 2015:
R
Bank (unfavourable) 10 000
SARS liability (Income tax) 12 000
SARS liability (VAT) 5 000
1. Actual Sales including VAT for: August 2015 399 000
September 2015 438 900
October 2015 482 790
2. Projected Sales excluding VAT for: November 2015 500 000
December 2015 600 000
January 2015 420 000
3. 70% of the sales will be on credit.
4. Receivables are collected as follows:
• 30% in the same month as the sale
• 50% in the first month following the month of the sale
• 10% in the second month following the month of the sale
• The remainder will be sold to debt collectors in the third month following the month of
the sale at 40% of the month owing.
5. All purchases are on credit and are settled in the month following the month of the
purchases (i.e. August purchases will be settled in September) in order to earn a settlement
discount of 5%. The following purchases including VAT were estimated:
October 2015 289 674
November 2015 342 000
December 2015 410 400
January 2015 287 280
6. Operating expenses are normally R30 000 excluding VAT per month and including fixed
depreciation of R5 000 per month and will increase by 10% in December 2015 except for
depreciation and then go back to normal in January 2016.
7. The income tax and VAT owed to SARS on 30 October 2015 will be paid in December
2015. The other VAT owed will only be paid in February 2016
8. A loan repayment of 10% will be paid end of January 2016.
You are required to:
Prepare a monthly cash budget of Load-shedding Ltd for the three months ending 31 January
2016. (Total column is not required) (30)
6
Question 4 30 marks (36 minutes)
Ngebs Limited is an entity that is based in Nzanin but has got various branches throughout the
country.
Nzanin transfers merchandise to all of its branches at a mark-up of 25% on cost. All the branches
further add a mark-up of 5% on the transfer price set by the head office to determine the selling
price. The branches only sell inventories supplied to them by Nzanin head office.
During the period ending 31 October 20.15, the following transactions took place:
1. Nzanin head office purchased inventories amounting to R150 000 on credit.
2. Nzanin head office transferred 25% of these purchases to Mthatha branch.
3. Nzanin head office sold 40% of purchases on credit. 25% mark-up was used for this sale.
4. Mthatha branch only sold 50% of inventories received from Nzanin head office.
.
You are required to:
(a) Using the general journal, record the transactions relating to the transfer and sale of
inventories by the Nzanin head office as it would be recorded in its general ledger. (16)
(b) Using the general journal, record the transactions that would be recognised by the Mthatha
branch in its general ledger. (8)
(c) Process the relevant pro formal journal entries required to eliminate internal transactions
between Nzanin head office and Mthatha branch. (6)
Note:
1. Ngebs Limited is NOT a registered VAT vendor.
2. Narrations are not required.
