Metro East Education District

Accounting 13 MEED June 2015

Metro East Education District

MARKS: 300

TIME: 3 hours

This question paper consists of 19 pages and an answer book of 20 pages.

Accounting 13 MEED June 2015

INSTRUCTIONS AND INFORMATION

Read the following instructions carefully and follow them precisely.

1. / Answer ALL the questions
2. / A special ANSWER BOOK is provided in which to answer ALL the questions.
3. / Workings must be shown in the answer book in order to achieve part-marks.
4. / Non-programmable calculators may be used.
5. / You may use dark pencil or blue/black ink to answer the questions.
6. / Use the information in the table below as a guide when answering the question paper. Try NOT to deviate from it:
QUESTION 1: 20 marks; 10 minutes
Topic of this question / This question integrates:
Company concepts and transactions Analysis of transactions / Financial Accounting:
Company concepts and accounts
Accounting Equation
QUESTION 2: 45 marks; 30 minutes
Topic of this question / This question integrates:
Companies - Financial statements / Financial Accounting:
Income Statement
QUESTION 3: 50 marks; 30 minutes
Topic of this question / This question integrates:
Companies - Financial statements:
Balance sheet / Financial Accounting:
Concepts; Balance Sheet
QUESTION 4: 60 marks; 40 minutes
Topic of this question / This question integrates:
Cash Flow Statement and Ratio analysis / Financial accounting:
Financial statements;
Analysis and interpretation of financial information
QUESTION 5: 55 marks; 30 minutes
Topic of this question / This question integrates:
Fixed Assets and
Current Assets (Inventory)
Internal control and management / Managing resources:
Interpret and report on movements of assets;
Problem solving
Inventory valuation;
Ethical behaviour in a financial environment
QUESTION 6: 50 marks; 30 minutes
Topic of this question / This question integrates:
Debtors, Creditors and Bank reconciliation / Financial Accounting:
Reconciliations
Managing resources:
Apply internal control and audit processes
Problem solving
QUESTION 7: 20 marks; 10 minutes
Topic of this question / This question integrates:
VAT and ethics / Financial Accounting:
VAT concepts and calculations
Managing resources:
Ethical behaviour in a financial environment
QUESTION 1 / COMPANIES: TRANSACTIONS (20 marks; 10 minutes)
1.1 / CONCEPTS
REQUIRED:
Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (1.1.1–1.1.4) in the ANSWER BOOK.
1.1.1 / (Directors/Auditors) are responsible for implementing company policy and running the company on behalf of the shareholders. / (1)
1.1.2 / Burko Ltd published a (prospectus/memorandum of incorporation) to invite the public to buy Burko shares. / (1)
1.1.3 / When shares are repurchased or bought back, the Ordinary Share Capital account will be debited with the (average/repurchase) value of the shares. / (1)
1.1.4 / When interim dividends are paid half way through the accounting period, the Dividends on ordinary shares account will be (debited/credited). / (1)
1.2 / COMPANY TRANSACTIONS
The SARS (income tax) account of Somerset Ltd was drawn up for the financial year ended 28 February 2015.
REQUIRED:
1.2.1 / Supply a reason for the debit entry on 25 March 2014. / (2)
1.2.2 / Give a possible transaction for the debit entry on 31 August 2014. / (2)
1.2.3 / What was the total income tax expense of Somerset Ltd for the current financial year? / (2)
1.2.4 / Calculate the balance of SARS (income tax) on 28 February 2015. Show your workings. / (5)
1.2.5 / Refer to the balance calculated in Question 1.2.4 above. Indicate whether this balance is a Current Asset or a Current Liability. / (1)
1.2.6 / Show the effect on the accounting equation of the transaction on 28February2015 for R75 500. Complete the table in the answer book. / (4)
INFORMATION:
GENERAL LEDGER OF SOMERSET LTD
BALANCE SHEET SECTION
Dr SARS (Income Tax) B8 Cr
2014
March / 25 / Bank / 12 000 / 2014
March / 1 / Balance / 12 000
2014Aug / 31 / Bank / 30 000 / 2015
Feb / 28 / Income Tax / 75 500
2015
Feb / 27 / Bank / 55 000
20
QUESTION 2 / FINANCIAL STATEMENTS - COMPANIES (45 marks, 30 minutes)
INCOME STATEMENT/Statement of Comprehensive Income
The bookkeeper of Khaya Traders Ltd request your help in completing their Income Statement for the year ended 31 December 2014. She supplied you with the necessary information.
REQUIRED:
2.1 / Calculate the following amounts as it would appear in the Income Statement for the year ended 31 December 2014:
· Rent Income
· Trading Stock deficit
· Depreciation
· Salaries
· Insurance
· Audit fees
· Directors fees / (33)
2.2 / Complete the Income Statement to determine the Net profit after tax for the year ended 31 December 2014. / (12)
INFORMATION:
KHAYA TRADERS LTD
A. / Extract from the Pre-Adjustment Trial Balance on 31 December 2014
Debit / Credit
Vehicles / 407 000
Equipment / 616 000
Accumulated depreciation: Vehicles / 147 400
Accumulated depreciation: Equipment / 341 000
Trading Stock / 36 700
Loan: IOU Bank (12% per year) / 160 000
Salaries and wages / 940 000
Employer's contributions (UIF and Pension fund) / 103 400
Depreciation (on vehicle sold) / 13 750
Profit on sale of asset / 12 500
Insurance / 12 000
Audit fees / 30 000
Directors fees / 68 000
Rent Income / 70 560
Interest on current account / 2 140
Interest received (from overdue debtors) / 900
Income tax / 32 250
B. / Rent of R4 800 per month was received from the tenant up to 31July2014. From 1 August 2014 rent increased by 10%. The tenant pays his rent two months in advance.
C. / Stock (marked at R640) was donated to the Gift of the Givers. A mark-up of 60% was used for these items.
Credit purchases of stock, R250, were delivered on 30 December 2014 to the warehouse. Although it was included in the stock count, it was not recorded in the stock records.
A physical stock take on 31 December 2014 showed the value of stock on hand, R35900.
D. / On 31 October 2014 an old vehicle was sold for cash. All details relating to the asset sold have been properly entered in the books.
Provide for depreciation as follows:
· On the remaining vehicles, R81400 on 31December2014
· On equipment at 10% p.a. on the diminishing-balance method. Take
into account that new equipment was bought for R90000 on
1September2014. This transaction was recorded properly.
E. / An employee was left out of the Salaries Journal for November 2014.
The details on his payslip were as follows:
Gross
Salary / Deductions / Contributions / Net Salary
PAYE / UIF / Pension fund / UIF / Pension
fund
? / 1 600 / 90 / 630 / 90 / ? / R6 680
Employees contribute 7% of their gross salary to the pension fund and
the employer 10%. The UIF deduction is 1% of their gross salary.
F. / An annual insurance premium of R6 000 was paid on 1 October 2014.
G. / Audit fees of R40 000 was still payable on 31 December 2014.
H. / According to their contracts, the directors are entitled to the following fees:
· B. Bell, R23 000 per year. Her fee was paid in full.
· C. Cele, R30 000 per year. He received all his fees for the year as well as 50% of his 2016 fees.
I. / A loan statement received from HU Bank on 31 December 2014 revealed the following:
Balance of loan on 1 January 2014 / 178 000
Payments made during the year / (37 800)
Interest capitalised / ?
Balance on 31 December 2014 / 160 000
J. / The operating profit calculated on 31 December 2014 amounted to R232750, after taking all the above adjustments into account.
45
QUESTION 3 / BALANCE SHEET (Statement of Financial position)
(50 marks, 30 minutes)
The information below relates to Amla Ltd for the financial year ended 30June2014. Their Memorandum of Incorporation (MOI) stipulates that the company has been registered to issue 700 000 shares. They already had 620 000 shares in issue on 1 July 2013.
REQUIRED:
3.1 / Calculate the average share issue price on 1 July 2013. / (3)
3.2 / Complete the Notes to Financial Statements on 30 June 2014 for:
· Ordinary Share Capital, and
· Retained Income / (17)
3.3 / Prepare the Balance Sheet of Amla Ltd. as on 30 June 2014.
Show your workings in brackets, as not all notes are required. / (30)
INFORMATION:
AMLA LTD
A. / Extract from the Post Adjustment Trial balance as at 30 June 2014
Ordinary Share Capital / 1 550 000
Retained Income (balance on 1 July 2013) / 252 414
Fixed Deposits: LBW Bank / 150 000
Mortgage Loan from AB Bank / 455 230
Fixed Assets at carrying value on 30 June 2014 / 1 939 400
Debtors Control / 64 900
Creditors Control / 71 230
Provision for bad debts / 2 596
SARS (income tax) - provisional tax payments / 197 000
Accrued expenses / 15 300
Bank (dr balance) / 175 540
Cash Float / 3 800
Trading Stock / 121 000
Consumable stores on hand / 3 790
Shareholders for dividends / 220 000
B. / Fixed deposits:
There are two fixed deposits at LBW Bank. A fixed deposit ofR90000 matures on 30 November 2014, and the other one on 30 April 2020.
C. / Mortgage loan from AB Bank:
· Interest is capitalised. Interest for the year, R54 660, has not been recorded.
· A total of R87 000 will be repaid during the next financial year.
D. / Shares and dividends:
· On 1 December 2013 Amla Ltd bought back and retired100000 shares at R2,70 per share. Only the payment was recorded.
· Interim dividends of 30c per share were paid on 1 January 2014.
· Final dividends of R220 000 were declared on 30 June 2014.
E. / The Income Statement reflects:
· The net profit before tax, R680 000
· Income tax for the year, R190 400
50
QUESTION 4 / CASH FLOW STATEMENT AND RATIO ANALYSIS
(60 marks; 40 minutes)
(This question consists of 3 INDEPENDENT questions.)
4.1 / The following statements relate to the cash flow statement. Choose the correct answer from the options given to complete the statements. Write down only the answer next to the question number (4.1.1 – 4.1.4) in the answer book.
interest Income / excluded / inflow / decrease
outflow / depreciation / increase / included
4.1.1 / ... is added back to the net profit as it is a non-cash item. / (1)
4.1.2 / An increase in inventory indicates an ... of cash. / (1)
4.1.3 / Shareholders for dividends will be ... when calculating changes in working capital. / (1)
4.1.4 / A(n) ... in the Petty Cash will negatively influence the net change in cash and cash equivalents. / (1)
4.2 / CASH FLOW STATEMENT and RATIO ANALYSIS
Mbatha Ltd provided you with extracts from their financial statements for the year ended 28 February 2015, together with comparative figures for 2014.
REQUIRED:
4.2.1 / Prepare the Cash Flow Statement for the year ended 28 February 2015.
Some of the details and figures have already been entered in the answer book.
(NB: Calculations must be shown in brackets to earn part-marks) / (27)
4.2.2 / Calculate the following financial indicators for 2015. Show workings clearly to earn part marks. (Round off to 1 decimal where applicable)
4.2.2.1 / % Return on average shareholders' equity (after tax) / (5)
4.2.2.2 / Debt-equity ratio / (4)
INFORMATION:
MBATHA LTD
A. / Extract from the financial statements as at
28 Feb 2015 / 28 Feb 2014
Interest Expense / 19 500 / 28 000
Depreciation / 56 000 / 41 000
Net profit after tax / 522 900 / 310 000
Fixed/Tangible Assets / 3 028 600 / 2 937 600
Financial Assets (Fixed Deposits) / 715 900 / 753 000
Cash and Cash equivalents / 1 033 000 / 0
Ordinary Share Capital / 2 400 000 / 1 600 000
Retained Income / 200 000 / 192 100
Long term Loans / 130 000 / 940 000
SARS (income tax) / 47 000 (dr) / 18 000 (cr)
Bank overdraft / 0 / 87 500
B. / ADDITIONAL INFORMATION
· Cash generated from operations was calculated at R1 919 000
· Fixed assets were sold at carrying value for R100 000 during the year
· Fixed assets were purchased during the financial year
· Income tax is calculated at 30% of the profit before tax
· Total dividends declared during the year amounted to R445 000
· 320 000 shares were in issue at the beginning of the financial year
· On 1 April 2014 the company’s board of directors authorised the buy-back of 20 000 shares from an unhappy shareholder. A repurchase price was set at R8,50 per share. An electronic transfer of funds was made to the shareholder
· 100 000 new shares were issued on 1 September 2014 at R9 each
4.3 / FINANCIAL INDICATORS: JEANS LTD
Your friend, Sally, wants to buy shares in JEANS Ltd, which sells fashion clothing and accessories. She asked you for advice and presented you with some of the financial indicators as at 28 February 2015, the end of their book year.
REQUIRED:
4.3.1 / Sally is of the opinion that the liquidity position of JEANS Ltd was better in 2015 than in 2014 as their current ratio changed to 4:1. Explain and quote THREE OTHER financial indicators to show that you support her opinion. / (9)
4.3.2 / The debt/equity ratio increased sharply because of a large increase in borrowed capital. Sally is worried that this may have a negative influence on profits as more interest will be paid.
Do you agree? Explain your opinion by quoting TWO financial indicators and comment on each. / (5)
4.3.3 / Sally wants to buy 2 000 shares in Jeans Ltd. Calculate how much she will be paying for it on 28 February 2015. / (3)