EZ Revision. Accounting Grade edition. Name: Compiled by Barbara Williamson

Transcription

1 EZ Revision Accounting Grade edition Name: Compiled by Barbara Williamson

2 EZ Learn Books cc Tel/Fax (011) , Cell Website Postnet Suite #100, Private Bag X1, Jukskei Park, 2153 CK 1987/008514/23, Member Barbara Williamson 2012 edition Barbara Williamson 2010, ISBN All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without permission in writing from EZ Learn Books CC.

3 Contents 1. How to make the most of this guide Analysing ethical behaviour VAT calculations Reconciliations Disposal of tangible assets Periodic inventory system Manufacturing accounts Cash budgets Partnerships Non-profit organisations Internal auditing

4 With special thanks to the Independent Examinations Board (IEB) and the Department: Basic Education (DBE) for permission to publish their question papers. All memoranda are the responsibility of the author.

5 1. How to make the most of this guide 1. How to make the most of this guide This revision guide has been specially designed to help you prepare for your year end examination. If you work through it carefully, using the suggestions given here, you should find that you are able to walk into the exam at the end of the year with confidence! Exam papers from past years have been divided up into the different sections taught. Each of chapter starts out with crash course notes to help you get started. This means that when you discover that your understanding of a particular area is weak, you can focus on that section as it is taught during the year, as well as during revision just before exams when you want to brush up on everything you have been taught. Your revision plan Completing the exercises A revision plan has been specially devised for you, taking into account when you would have studied the different sections, your holidays and exam times etc., and working within these parameters to ensure that you cover a variety of questions on a regular basis so as not to forget any particular section. It is very important that you stick to this revision plan as closely as possible. If you fall behind for any reason, catch up in the order given, NOT by trying to work ahead and then going back to fill in the gaps. The first time you complete a question from a particular chapter, you should work through the crash course notes, making sure that you understand everything along the way (if you don t, I would suggest you go back to your text book for more detailed explanations EZ Accounting would be good if you like the EZ approach, or any other text book that you may be using). When you feel ready, attempt your question set by the revision plan. Note the time allowed, and try to keep to this. When the time is up, complete the question in a different colour, and note the actual time taken once you have completed the question in full. This will help you to be aware of the time constraints you are expected to work within, while allowing you to finish the question so that you can see how much you are able to complete without time constraints. Try not to refer to the memo at all until you have completed the question in full. If you get really stuck, you may peek at the solutions at the back of the book, but I would suggest that when you do this you change the colour of the pen or pencil with which you are working. The reason for this is that if you don t, it is very easy to peek lots and think you ve hardly peeked at all. You will then think you know what you are doing, as it is very easy to understand when the answer is literally staring you in the face! The bad news is that in an exam there is no chapter of solutions, and you will definitely come unstuck. If, on the other hand, you change the colour of your pen or pencil each time you have to peek, it is very easy to see how well (or terribly badly) you know your work if it is very pretty and colourful, that s great, but you know you still have lots of work to do! Be sure also to mark your work very carefully after completing each question, so that you can figure out your mistakes quickly, while the information is still fresh in your mind. When you find an error and understand what you did wrong, make a note of it on your My Mistakes page given in each chapter, so that you can refer to this before attempting another question from that section in future and learn from your mistakes. If used properly these mistakes pages will also make a very valuable revision tool in preparation for tests and exams. 1

6 EZ Revision Accounting Grade 11 Following your plan The revision planner on the next few pages is based on the assumption that you are covering the sections in the same order as in EZ Accounting. If you cover work in a different order, you will of course have to switch some of the exercises as you can t practice something you have not yet learnt. The key word is switch, not ignore! Replace what you cannot do with an exercise on the work you have covered, making sure that you continue to work through two exercises per week. Tick off the exercises as you do them you will enjoy seeing the progress you make! During the weeks you are at school and should be working, it is very important to set aside specific times to complete the exercises planned below. Plan two time allocations of approximately half an hour that suit you and are realistic. If you know you finish school late on a Monday, and have sport in the afternoon as well as some other evening activity, this is not a good day to choose! A quiet Sunday afternoon might be a better idea. Try to ensure that the two days you choose are spread across the week, so that you are completing a revision exercise every three or four days. If this is really not possible, then yes, you can set aside a double slot over the weekend, but this is not ideal. There will of course be some times when you have the best intentions, but circumstances get the better of you and you are not able to complete the necessary revision. Just make sure that you catch up as quickly as possible, and don t let this happen too often! Completing all these exercises throughout the year as suggested will be much more beneficial than being lazy during the first term, working like mad in the second term, and then doing nothing in the third term, for example. Although you may have finished all the exercises either way, the end result will definitely not be the same. If you find that you would like to complete more than the required two exercises per week, go ahead. Just ensure that you continue in the same order as given in the plan below. When you run out of exercises and would like more work to practice, ask your teacher, or me (barbara@ezlearn.co.za). Don t delay working earlier in the year so that you have more to practice before exams! Two plans are given here, based on whether you follow the government or private school terms. No exercises have been set during holidays and from the time your final exams begin, but this does NOT mean that you don t have to do any work! It simply means that you should structure your own study plan for this time, to allow for times when you may go away on a family holiday for a week, for example. You can use this time to redo exercises you struggled with earlier, or additional exercises from class or the website ( Use the blank space given to plan what you will do during this time. On the other hand, questions have been set throughout the times you will be writing mid year exams. This is because you can t stop working on your accounting at any time keep going, even if you have just written the accounting exam! Of course, you may want to restructure your plan slightly at these times, but don t slack off! Remember that the better you hope to do in your year end exam, the more work you need to put in during the year. Although you may not now like the idea of working throughout the year, if you discipline yourself to do stick to your revision plan you will relieve a lot of the pressure you would otherwise experience later in the year. The choice is yours... 2 Learn the EZ way!

7 1. How to make the most of this guide Revision planner How to use this planner Set aside specific time(s) each week to complete the given exercises, and stick to this e.g. Saturday afternoon. Identify your plan i.e. 3 term or 4 term, and follow that one. Exercises have not been allocated for your holidays, but it would obviously benefit you to set yourself work to do at these times if you are struggling with certain sections. Space has been provided for you to record what you do. Time yourself carefully, and note the time you took to complete the exercise (if you go over time, remember to change colour to help you see how much you could actually do in the time given). Note: time allocations given are based on the time you will get based on the new FET curriculum requirements. Tick off exercises as you complete them. This will help you to see how much you have achieved over time, and will hopefully motivate you! Private school calendar Government school calendar Week Time Time Exercise Time Exercise Time taken taken 22 Jan 4 Feb 30 Jan 5 Feb 3.1. VAT 8 min 3.1. VAT 8 min 6 12 Feb Feb 4.1. Recon 23 min 4.1. Recon 23 min Feb 27 Feb 4 Mar 4.2. Recon 22 min 4.2. Recon 22 min 5 11 Mar Mar 5.1. TA 30 min 5.1. TA 30 min Mar 4.3. Recon 20 min 4.3. Recon 20 min 26 Mar 1 April 5.2. TA 35 min 2 8 April 4.4. Recon 15 min 9 15 April 5.2. TA 35 min April 4.4. Recon 15 min April 3.2. VAT 12 min 30 April 6 May 3.2. VAT 12 min 6.1. Per 30 min 7 13 May 6.1. Per 30 min 4.5. Recon 10 min 7.1. Man 30 min May 7.1. Man 30 min 4.5. Recon 10 min 7.2. Man 7 min May 4.5. Recon 10 min 5.3. TA 18 min 7.2. Man 7 min 7.3. Man 18 min 28 May 3 June 5.3. TA 18 min 6.2. Per 12 min 7.3. Man 18 min 7.4. Man 20 min 4 10 June 6.2. Per 12 min 7.5. Man 10 min 7.4. Man 20 min 8.1. Bud 35 min June 7.5. Man 10 min 7.6. Man 24 min 8.1. Bud 35 min 8.2. Bud 36 min June 7.6. Man 24 min 4.6. Recon 15 min 8.2. Bud 36 min 8.3. Bud 25 min 25 June 1 July 4.6. Recon 15 min 8.3. Bud 25 min 2 8 July 5.4. TA 24 min 9 15 July 7.7. Man 30 min 8.4. Bud 20 min 3

8 EZ Revision Accounting Grade July July 30 July - 5 Aug 6 12 Aug Aug Aug 27 Aug 2 Sep 3 9 Sep Sep Sep Sep 1-7 Oct 8 14 Oct Oct Oct 29 Oct 4 Nov 6.3. Per 22 min 5.4. TA 24 min 9.1. Part 30 min 9.2. part 25 min 7.7. Man 30 min 8.5. Man 24 min 6.3. Per 22 min 9.3. Part 30 min 9.4. Part 40 min 8.4. Bud 20 min 7.8. Man 11 min 9.1. Part 30 min 9.5. Part 30 min 9.6. Part 11 min 9.2. part 25 min 7.9. Man 40 min 8.5. Man 24 min 8.6. Bud 16 min 9.3. Part 30 min 9.7. Part 16 min 7.8. Man 11 min 9.4. Part 40 min 9.5. Part 30 min 9.6. Part 11 min 7.9. Man 40 min 8.6. Bud 16 min 9.7. Part 16 min 3.3. VAT 10 min Man 50 min 9.8. Part 32 min 3.3. VAT 10 min 6.5. Per 30 min Man 50 min 4.7. Recon 25 min 9.8. Part 32 min 9.9. Part 60 min 6.5. Per 30 min 5.5. TA 35 min 4.7. Recon 25 min NPO 18 min 9.9. Part 60 min NPO 35 min 5.5. TA 35 min 6.4. Per 9 min NPO 18 min Part 47 min NPO 35 min NPO 17 min 6.4. Per 9 min Part 47 min NPO 17 min Man 18 min Man 18 min NPO 27 min NPO 27 min Aud 7 min Aud 7 min Part 32 min Part 32 min NPO 20 min NPO 20 min Aud 20 min Aud 20 min 8.7. Bud 16 min 8.7. Bud 16 min Part 58 min Part 58 min NPO 20 min NPO 20 min Aud 24 min Aud 24 min 8.8. Bud 60 min 8.8. Bud 60 min Part 30 min part 30 min NPO 27 min NPO 27 min NPO 30 min NPO 30 min Good luck for your year end exam! 4 Learn the EZ way!

9 4. Reconciliations The point of a reconciliation is to check that your records agree with those of a third party the bank or a creditor (i.e. to reconcile them) to ensure that no errors have been made and to update your records. In an exam This may be asked as an adjustment to be taken into account in preparing financial statements. The adjustment will usually involve bank charges etc., which have still to be taken into account. You will have to add the amount to the relevant account (e.g. Bank Charges) and adjust the Bank account balance. The adjustment may specify a post-dated cheque either received or issued, which has already been recorded by the business. You will have to reverse the entry in the Bank account and the Debtors or Creditors Control account, as the money has not yet actually been received / paid. You may be required to complete the Bank or Creditors Reconciliation Statement. Follow the steps laid out below. What to do 1. Use each piece of information in the order in which it is given, to save you having to go back and reread information later. You will have an answer sheet laid out for you, enabling you to enter items as you deal with each bit of information. Each piece is dealt with as described below. 2. Record relevant information in business records (cash journals / bank account or creditors ledger) 3. Record relevant information in the reconciliation statement this acts as an extension of the bank or creditor s statement and shows all entries they have not yet taken into account. 4. Check that totals in our records and reconciliation statement agree. Balances and totals The bank or creditor account balance at the beginning of the month must be entered into the Bank or Creditor s account in the General or Creditors Ledger if this is required, or used as your starting balance in your calculation. The bank amount may be given, but if it is not, it can be calculated from the previous month s Bank Reconciliation Statement as the balancing figure. The statement balance at the end of the month must be entered into the Reconciliation Statement. A bank balance will appear from the banks point of view i.e. credit a favourable balance. The cash journals sub totals must be used to start calculating the final journal totals when doing a bank reconciliation. Discrepancies (see diagram on next page) Any items in the statement but not already recorded, must be recorded in the business records. Any items in the business books but not in the statement must be entered into the Reconciliation Statement. Items in the previous Reconciliation Statement which do not yet appear in the current statement must be shown in the new Reconciliation Statement (unless cheques are stale or cancelled see below) Business errors are corrected in the business records. Bank or creditor errors are reflected in the Reconciliation Statement 5

10 BANK OR CREDITOR S STATEMENT Entries in the statement but not in your books Bank: stop orders, direct deposits by customers, bank charges, dishonoured cheques etc. Creditor: recent invoices or credit notes, interest charged etc. To make them agree, the obvious thing to do is add into each side those entries that are not yet there BANK OR CREDITOR S ACCOUNT (CRJ and CPJ / Creditors ledger) Entries in your books, but not the statement Bank: outstanding deposits and cheques not yet cashed Creditor: Returns not yet acknowledged etc. Entries in last month s reconciliation statement, but not yet in the current statement (representing previous entries in your books but not in the bank statement) RECONCILIATION STATEMENT Representing what the bank or creditor must still do. Remember that the bank statement will treat amounts oppositely to the business a favourable balance will show as a debit in the business books, but as a credit on the bank statement! Additional notes Dishonoured cheques BANK ACCOUNT (CRJ and CPJ) CREDITOR S ACCOUNT (Creditor s ledger) The totals of the bank statement and the bank account after these additional transactions are taken into account should agree but be opposite, so by adding in the bank account balance, the bank reconciliation totals should balance. The cheque is returned by the bank (bounces), as it cannot be paid. This might be because there is no money in the person s account, or for some other reason e.g. it was not filled out correctly. When a cheque is dishonoured, you will simply have to REVERSE the original transaction, because although you originally thought you had received the payment, you did not actually get the money. Original transaction CRJ Debit bank Credit debtors Reversal when cheque is dishonoured CPJ Debit debtors Credit bank Post dated cheques Post dated cheques issued will have been recorded when written, and appear in the Bank Reconciliation Statement with the other outstanding cheques. Post dated cheques received should not have been recorded or deposited at all. If they have been entered and deposited in error, they will have been dishonoured by the bank (see treatment above). Stale / cancelled cheques issued Cheques which had been issued but are now stale (more than 6 months old) or have been lost and must be cancelled, are cancelled in the CRJ. They will then no longer appear in the Bank Reconciliation Statement. If a new cheque is issued it must be recorded in the CPJ and shown in the Bank Reconciliation Statement. 6 Learn the EZ way!

11 My mistakes 7

12 8 Learn the EZ way!

13 4.1. DoE 2007 SG Question 2 (38 marks; 23 minutes) The following information appears in the books of Fralize Stores for May Required: 1. Use the information below to complete the Cash Receipts Journal and the Cash Payments Journal for May Total the bank columns only. (26) 2. Prepare the Bank Reconciliation Statement on 31 May (12) NOTE: it is the policy of the business to correct errors in the cash journals, wherever possible. Information: 1. The bank account in the ledger reflects an unfavourable balance of R1 535 on 1 May The provisional totals of the cash journals for May 2007 are: Cash receipts journal Bank R Sundry accounts R Cash payments journal Bank R Sundry accounts R Cheque no. 235 for R416 was issued to BB Stores and entered in April for stationery purchased. This cheque was lost and payment was stopped. It was replaced with cheque no No entry has been made for this cheque which is still in the post. 4. A comparison with the bank statement from Lion Bank for May 2007 with the cash journals reflects the following differences: 4.1. A debtor, C Magape, deposited R860 directly into the business bank account as part payment of his account An unpaid cheque of R566, received from a debtor, L van Zyl, was returned by the bank, marked refer to drawer A stop-order in favour of Rasbanski Insurers for R800 comprises the following: insurance of the business buildings and contents, R Insurance of the owner s private vehicle, R120. The business pays this on behalf of the owner Lion Bank debited the current bank account of Fralize Stores with bank charges of R310 and interest of R A deposit on 31 May 2007, R4 234, did not appear on the bank statement The following cheques have not been presented for payment yet: No. 432 for R No. 439 for R

14 4.7. The bank statement reflects an unfavourable balance of R3 470 on 31 May Cash receipts journal of Fralize Stores May 2007 CRJ6 (7) Sundry accounts Doc D Details Bank Amount Details Fol 30 Total Cash payments journal of Fralize Stores May 2007 CPJ6 (19) Sundry accounts Doc D Details Bank Amount Details Fol 30 Total Bank reconciliation statement of Fralize Stores 31 May 2007 Debit Credit 38 marks 10 Learn the EZ way!

15 4.2. IEB 2007 SG Question 3 (37 marks; 22 minutes) The bookkeeper of Grey Medical Supplies has gone on leave and you have been asked to prepare the bank reconciliation statement at the end of the month of March Required 1. Show the amounts that would appear in the Cash Receipts Journal and Cash Payments Journal in the table provided in the answer booklet. The provisional totals for the CRJ (R11 560) and the CPJ (R12 520) have been put in for you in your answer booklet. (11) 2. Calculate the Bank account balance in the General Ledger as at 31 March 2007 using the table provided in your answer book. (4) 3. Prepare the Bank Reconciliation Statement as at 31 March (10) 4. Answer the questions that follow. (12) Information 1. Bank reconciliation statement as at 28 February 2007 Debit Credit Cr balance as per bank statement Cr outstanding deposits Dr cheques not yet presented for payment No. 897 (28 December 2006) 875 No. 991 (23 February 2007) No. 994 (25 February 2007) No. 996 (26 February 2007) Cr balance as per bank account The bank statement reflected a favourable balance of R on 31 March On comparing the bank statement with the cash journals the following differences were noted: 3.1. The following entries appeared in the bank statement only: A deposit for R Cheque no. 991 for stationery purchased from Sharp Stationers The bank charges for March amounted to R Interest on favourable balance amounted to R A stop order to Eagle Insurers for insurance premium amounted to R Included in this insurance premium is R250 for the owner's personal vehicle A direct deposit for R3 000 received from the tenant being rent for his office The following information appeared in the cash journals only: A deposit for R4 560 on the 31 March The following cheques had not yet been presented for payment: Cheque no for R2 310 issued to George Suppliers. Cheque no being A. Smith's salary cheque for R Other information: Cheque no. 897 is stale and must be cancelled. The cheque was issued to Hillcrest Aged as a donation A cash cheque no. 994 was lost in the post. The cheque was issued for stock purchased. A new cheque no was issued to Needles and Pins. No entries have yet been made. 11

16 1. Amounts that would appear in the cash journals (11) Cash receipts journal Cash payments journal Calculation of Bank Balance in the ledger of Grey Medical Suppliers (4) 3. Bank reconciliation statement as at 31 March 2007 (10) Debit Credit Questions During February 2007 Grey Medical Supplies sent a cash cheque to Needles and Pins for stock purchased. Needles and Pins claim that they never received the cheque and have asked for a new cheque to be sent to them. You have investigated this and have noticed that the cheque had been cashed and it appeared in the March Bank Statement Explain what you think could have happened to the cheque that was sent to Needles and Pins. (2) 4.2. How will this problem affect Grey Medical Supplies profits? (2) 4.3. What are the dangers of sending a cash cheque in the post? (4) 4.4. Give two ways that a business can go about reducing the possibility of being exposed to cheque fraud. (4) 37 marks 12 Learn the EZ way!

17 4.3. DoE November 2007 Question 1 (35 marks; 20 minutes) Bravo Traders sells goods for cash and accepts credit cards. On 31 May 2007 Bravo Traders compared the Bank Statement for May 2007 from Safe Bank with the Bank Reconciliation Statement on 30 April 2007 as well as with the Cash Receipts Journal and Cash Payments Journal for May Required: Study the information provided and answer the questions which follow. Information: The following information appeared in the Bank Reconciliation Statement of Bravo Traders on 30 April 2007: Credit balance as per Bank Statement R Outstanding deposit dated 29 April 2007 R1 500 Outstanding cheques: No. 597 dated 22 November 2006 R600 No. 686 dated 18 April 2007 R7 250 No. 721 dated 15 June 2007 R2 800 Debit balance as per bank account in the ledger R1 761 The comparison of the Bank Statement for May 2007 with the Bank Reconciliation Statement and the Cash Receipts and Cash Payments Journals for May 2007, revealed the following differences: Item 1 The Bank Statement reflected an unfavourable balance of R1 550 on 31 May Item 2 The outstanding deposit of R1 500 appeared on the Bank Statement for May Item 3 Cheque No. 597 for R600 is stale. It had been issued to the Red Cross Hospital as a donation. Cheque No. 753 was issued on 31 May 2007 to replace the donation, but the donation was increased by R400. This cheque has not been entered in the books yet and is in the post. Item 4 Cheque No. 686 for R7 250 appeared on the Bank Statement, but not in the journals of May Item 5 Cheque No. 760 for R3 245 appeared in the Cash Payments Journal, but not on the Bank Statement. Item 6 The Bank Statement reflected a dishonoured cheque for R720. This had originally been received from R Rod in settlement of his debt of R750. Item 7 The Bank Statement reflected a monthly stop order representing the monthly repayment of R2 500 on a loan from Alfa Bank. Item 8 The Bank Statement received from Safe Bank reflected an amount of R3 120 in respect of bank charges. Item 9 The Bank Statement reflected interest on a fixed deposit of R1 340 which had been directly deposited into the current account of the business. Item 10 A deposit of R5 700 appeared in the CRJ on 31 May 2007, but not in the Bank Statement. 13

18 Questions to be answered 1. Consider the items listed above. Indicate by means of a cross (X) in the table provided in the answer book, whether these items will be entered in the: Cash Receipts Journal (CRJ) Cash Payments Journal (CPJ) or indicate whether no entry will be made in the journals when reconciling the Cash Journals with the Bank Statement. Also provide the TWO missing amounts. Item 1 has been done as an example for you. (12) Item CRJ CPJ No entry Amount Item 1 X R1 550 Item 2 R1 500 Item 3.1. R600 Item 3.2. Item 4 R7 250 Item 5 R3 245 Item 6 Item 7 R2 500 Item 8 R3 120 Item 9 R1 340 Item 10 R Prepare the Bank Reconciliation Statement on 31 May (14) Bravo Traders Bank reconciliation statement on 31 May 2007 Balance as per bank Balance per ledger (Please turn over question continued on next page) 14 Learn the EZ way!

19 3. Bravo Traders paid bank charges of R3 120 to Safe Bank in May The owner, Wayne Bravo, noticed the following cartoon in a newspaper that drew his attention to the problem of high bank charges in South Africa. Wayne Bravo also noticed the following newspaper article. Three paragraphs have been extracted for you. Consumers will benefit from an inquiry into bank charges Business report: 21 April 2006, based on an article by Ethel Hazelhurst Johannesburg - Banking is a facility many people do not like paying for and banks are often criticised by their clients, so news that the competition commission will hold a public inquiry into bank charges will be welcomed. Like any other business, banks are entitled to maximise profits and it may be that local banks perform better because they are more efficient than their international competitors. The main victims are those who can't afford to bank. People who earn small, irregular amounts can't pay the fees levied on banking transactions. This excludes millions of people from participating in business activities. 15

20 3.1. Are bank clients in this country justified in complaining about bank charges? Briefly explain in your own words. (3) 3.2. If you were the manager of Safe Bank, how would you justify charging Bravo Traders fees of R3 120 in May? State THREE points. (6) 35 marks 16 Learn the EZ way!

21 4.4. Barbara Williamson 2007 (30 marks; 15 minutes) The bank statement of Shaista s Shoe Shop for May 2004 has been received by the business and compared to the business records. A number of discrepancies have been noted, and Shaista has asked you to explain why this is so. Differences between the bank statement and business records 1. The bank statement shows a credit balance on 31 May 2004 of R3 200, whereas the bank account in the general ledger shows a debit balance of R1 500 on this day. 2. The bank statement includes the following items that do not appear in the May journals: Sundry bank charges and interest totalling R120 A cheque for R2 500 post-dated for 1 June is reflected as unpaid. (A replacement cheque has already been received from the customer, and will be deposited on 1 June. Shaista says it should not be cancelled in the business journals, as this would be a waste of time). A cheque for R3 000 has been dishonoured as the debtor had forgotten to sign it. The debtor must still be contacted. A deposit of R250 that was actually made by Shaista into her personal bank account, but had been credited to the business account in error. 3. The cash journals include the following items that do not appear on the bank statement: A deposit of R9 430 made by the business on 31 May 2004 Cheque 429 for R700 (15 November 2003) Cheque 630 for R800 (20 June 2004) Cheque 635 for R1 200 (28 May 2004) Cheque 636 for R600 (this cheque has been lost, and the creditor has asked that it be cancelled. A new cheque will be issued during June). The bookkeeper forgot to enter the amount for cheque 637 when it was issued on 28 May This cheque does not appear on the bank statement. 4. The salaries journal includes the following cheques that do not appear on the bank statement: Cheque 640 for R5 600 Cheque 643 for R Cheque 625 is reflected as R775 on the bank statement and R725 in the cash payments journal. The cheque was issued for an amount of R Cheque 629 is reflected as R370 on the bank statement and R320 in the cash payments journal. The cheque was issued for an amount of R

22 Required 1. Explain why you would expect to find differences between the bank statement and business journals. (4) 2. Draw up the bank reconciliation statement on 31 May 2004 to illustrate your point. Show all your calculations in brackets. (26) Shaista s Shoe Shop Bank reconciliation statement on 31 May 2004 Debit Credit 30 marks 18 Learn the EZ way!

23 4.5. IEB November 2007 Paper 1 Question 6 (13 marks; 10 minutes) The bank reconciliation statements below was prepared by a Grade 11 learner. Information: Bank statement of Tyson Traders as at 30 September 2007 Debit Credit Cr balance as per bank statement Dr outstanding deposit Cr outstanding cheques No. 609 (12 April 2007) 876 No. 712 (24 September 2007) No. 803 (26 September 2007) No. 810 (6 October 2007) 960 No. 813 (7 October 2007) Cr balance as per bank account Additional information from the question paper 1. The bank statement reflected an unfavourable balance at the end of September. 2. Cheque no. 609 was for a donation to a sports club that had closed down. The cheque needs to be cancelled. 3. The bookkeeper was unsure how to treat the following items (adjust the bank account amount where necessary): 3.1. A stop order to pay for the cellular phone contract of R149 per month 3.2. Cheque no. 803 appeared correctly on September's bank statement as R Correct the error A cheque for R1 500 dated 15 October 2007 was received from a debtor The bank returned J. Clarke s cheque for R The cheque was dishonoured due to insufficient funds. The cheque was in settlement of his account of R Cheque 712 was lost in the post. No entry has been made for cancelling the cheque and reissuing a new cheque no Required: 1. Calculate the correct bank account balance for the general ledger. (5) Incorrect balance (1 988) 2. Correct the bank reconciliation statement using the information. (8) Debit Credit balance as per bank statement outstanding deposit outstanding cheques balance as per bank account 13 marks 19

24 4.6. Barbara Williamson Paper (20 marks; 15 minutes) Andile Mlotshwa, owner of Mlotshwa Motors, received the business bank statement dated 28 February The bank account in the general ledger shows a credit balance of R Unfortunately the final bank statement balance has not printed clearly. Information: 1. The receipts for 27 and 28 February, R35 000, were deposited on 28 February, but do not yet appear on the bank statement. 2. Cheque 320 for R5 000 was issued to the SPCA on 1 August Cheque 394 issued to Mark s Motor Manufacturers for spare parts on 20 February, R19 000, has not yet been cashed. 4. Cheque 395 for R4 500 appeared correctly on the bank statement, but has been entered in the journals as R Cheque 398 issued to O Hagan Rentals for the March rent, R25 000, was dated 5 March A cheque for R was received from Bhika Buyers, dated 31 March No entry has been made for this. 7. The bank statement shows a deposit made by Masedi Paile, a customer, for R on 10 February. This was a deposit on a vehicle she had just purchased. 8. The bank statement shows an unpaid cheque. It was originally received from J Bradlow for R20 000, but was dishonoured as the written and numerical amounts disagreed. 9. The bank statement shows the following charges: a stop order for insurance, R3 000, bank charges totalling R300 and interest on overdraft, R200. Required: 1. Calculate the correct bank account balance (10) 2. Draw up the bank reconciliation statement on 28 February (10) Debit Credit 20 marks 20 Learn the EZ way!

25 4.7. Barbara Williamson 2009 (30 marks; 25 minutes) Jessica Molefe owns Diva Jewellery. The bank statement dated 28 February 2008 has been received and compared to the business s accounting records. Information 1. On 28 February the bank statement reflected a credit balance of R8 000, while the bank account in the general ledger had a debit balance of R The following information appeared on the bank statement but not in the February journals: 2.1. The outstanding deposit of R3 000 reflected on the January bank reconciliation statement appeared on the bank statement on 1 February Bank charges of R150 appear on the bank statement Simone Nduna deposited R6 500 directly into the business s bank account A cheque originally received from Lusanda Oliphant for R in settlement of her account has been dishonoured by the bank as she forgot to sign it. 3. Sam Taule, the owner of BabyPhat Diamonds, called to ask that cheque 518 for R5 000 be stopped, as it had been lost. A new cheque (no. 535) must be issued. 4. The following transactions were recorded in the February journals but are not yet reflected on the bank statement: 4.1. Zanele Zungu deposited R2 500 into the business s bank account by EFT on 27 February and faxed proof of payment to Jessica. This is not yet reflected on the February bank statement Cheque 529 for R3 990 has not yet been cashed, as it is dated 31 March Cheque 531 for R2 000 appeared on the bank statement as R The bank has been notified of the error. Required 1. Calculate the correct bank account balance in the general ledger. (4) Draw up the bank reconciliation statement on 28 February (8) Debit Credit Balance as per bank statement Outstanding deposits Outstanding cheques Correction of bank error Balance as per bank account 21

26 3. Cheque 529 was for an invoice for jewellery bought from BabyPhat Diamonds Calculate the input VAT that would have been shown on this invoice. (3) 3.2. If the business uses a mark-up of 150%, calculate the exclusive selling price when the jewellery was sold on 27 February. (4) 3.3. Calculate the VAT due to SARS as a result of this purchase and sale of jewellery. (4) 4. Jessica, the owner, sold this jewellery (see no. 3 above) for cash and did not issue an invoice to the customer, Nombuso Mathibela. When the stock clerk queried the missing stock, Jessica told him the stock had been damaged and thrown away How is Jessica benefiting from this fraudulent transaction? (2) 4.2. To whom is Jessica accountable for her actions in this case? (2) 4.3. Discuss the transparency of her actions. (3) 30 marks 22 Learn the EZ way!

27 5. Disposal of tangible assets Depreciation At the end of the year, depreciation must be calculated for assets such as vehicles and equipment. It may be calculated: On cost: cost price x % depreciation = depreciation for the year On carrying value / book value / diminishing balance: (cost price accumulated depreciation) x % depreciation = depreciation for the year. Debit Depreciation (Statement of Income) Asset disposal Credit Accumulated depreciation on vehicles / equipment (Statement of Financial Position) When an asset such as vehicles or equipment is sold, you have to take into account both the cost price as well as the accumulated depreciation. It is therefore not a straightforward transaction. To make things easier, an Asset Disposal account is created, and all the amounts involved are transferred to this account. The profit or loss can then be calculated in this account. In an exam This can appear as an adjustment in preparing financial statements, or you may be asked to draw up the ledger accounts. The transaction may have been left out completely (record the entire transaction from scratch, following the steps below) The transaction may have been partially recorded (take this into account and only record that which was NOT recorded) Part of the transaction may have been recorded incorrectly (reverse the incorrect entry and then record the transaction properly) ALWAYS use T-accounts to record asset disposal if you are not asked to draw up the ledger accounts, as this adjustment can get very complicated. T-accounts will help to ensure you remember to record everything correctly, and will help you draw up your Tangible Assets note to the financial statements much more easily! Step 1 Open the cost (Vehicles / Equipment) and Accumulated Depreciation accounts with the given balances in T-accounts, or the General Ledger if required. (If using T- accounts, leave some space above the balance in case you want to recreate what happened during the year by taking into account transactions which were recorded and are therefore included in the balance.) 23

28 Step 2 Calculate and record the depreciation on the asset sold for the current year, remembering to calculate it for the correct number of months until it was sold. The required information could be given to you in two ways: The accumulated depreciation on the item up to the beginning of the year may be given to you. In this case, calculate depreciation as normal for this item only. The purchase date of the item may be given to you. In this instance, you will have to work out the accumulated depreciation up to the beginning of the year as well as for the current year. Draw up a simple table and then calculate the depreciation for each year of the asset s life as follows: Year end date Depreciation (Year 1) (Amount of depreciation for correct number of months) (Year 2) (Depreciation for year) (Depreciation for year) (Date sold in current year) (Amount of depreciation for correct number of months) record this amount TOTAL: (Total depreciation to be written off to asset disposal see point 3) Step 3 Transfer all relevant amounts to Asset Disposal: Cost price of sold item Accumulated depreciation on sold item (accumulated depreciation to beginning of current year PLUS current depreciation just calculated and recorded!) Selling price of sold item (contra account is bank if sold for cash, debtors if sold on credit, creditors if traded in) Remember to record these in ALL the contra accounts at the same time!! Step 4 Calculate the balancing figure in Asset Disposal and record it as the Profit or Loss on Sale of Asset. (HINT: to easily see if it is a profit or loss, look at which side of the Profit or Loss on Sale of Asset account it appears a credit is a profit, a debit a loss). Don t forget! If the asset was traded in, record the purchase of the new asset in the asset account. At the year end calculate the depreciation on the remaining assets, both old and new. OLD: use the balance in the cost account, excluding any new purchases. If depreciation is to be calculated on the diminished balance / carrying value, calculate the balance in the Accumulated Depreciation Account and subtract this from the balance in the cost to find the book value of the old assets. Calculate depreciation at the required rate (%) for the full year. NEW: Use only the cost price, regardless of the method of calculating depreciation. Calculate depreciation at the required rate (%) for the correct number of months that the asset has been owned. Add these two (OLD and NEW) figures together to find depreciation for the year and record this. (Depreciation on the sold asset has already been recorded). If completing General Ledger accounts, balance all the Statement of Financial Position accounts, and close off the Nominal Accounts to Profit and Loss. 24 Learn the EZ way!

29 Financial Statements Statement of Income Other operating income Profit on sale of asset Operating expenses Loss on sale of asset Depreciation Statement of Financial Position NON CURRENT ASSETS Tangible assets (note 1) CURRENT ASSETS Trade and other receivables (includes adjusted debtors figure) Cash and cash equivalents (includes adjusted bank figure) CURRENT LIABILITIES Trade and other payables (includes adjusted creditors figure) Notes to the financial statements 1. Tangible assets When drawing up this note, ALWAYS take the figures directly from your T-accounts (or General Ledger accounts if these were required) for the cost price and the accumulated depreciation. Make sure that you use ALL the figures ONCE. For each column of the Tangible Assets note, use the following two accounts. Tick off each amount as you use it to ensure you don t forget anything! 1. Balance b/d 3. Bank / Creditors 7. Balance b/d Cost (Vehicles / Equipment account) 4. Asset disposal Accumulated depreciation 5. Asset disposal 2. Balance b/d 6. Depreciation (on SOLD item during year) 6. Depreciation (year end on OLD & NEW) 8. Balance b/d Cost 1 Accumulated depreciation (2) Carrying value at beginning of year 1 2 Movements Additions at cost 3 Disposals at carrying value (4-5) Depreciation for the year (6+6) Carrying value at end of year (4-5)-(6+6) EQUALS 7-8 Cost 7 Accumulated depreciation (8) 25

30 My mistakes 26 Learn the EZ way!

31 5.1. DoE 2006 HG Question 7 (50 marks; 30 minutes) 1. Cosmos Taxi Service Ron Lucas is the sole owner of Cosmos Taxi Service. He started business on 1 March On that day he introduced land and buildings into the business at a value of R and he bought three similar taxis for R (i.e. R each). Cosmos Taxi Service did not buy or sell any vehicles during the first three financial years. Required: The following for the year ended 28 February 2006, the last day of the fourth financial year: 1.1. Asset disposal account (8) 1.2. Accumulated depreciation on vehicles (13) 1.3. Note to the Statement of Financial Position: Fixed assets (The total column is not required) (17) Information: 2005 May 31 Cosmos Traders sold one taxi for R cash. This vehicle was purchased on 1 March 2002 for R The vehicle is depreciated annually at the rate of 20% p.a. on cost price. Aug 31 A new taxi was purchased on credit from Mamelodi Motors for R Oct Feb 28 A new garage was built at a cost of R and repairs were done to the roof of the office for R The policy for depreciation has not changed since Cosmos Taxi Service started business operations. Depreciation on vehicles is calculated at 20% p.a. on cost price. 27

32 Dr General ledger of Cosmos Taxi Service Cr Asset disposal 1.2. Accumulated depreciation on vehicles Balance b/d Mar 1.3. Note to the Statement of Financial Position Fixed assets / tangible assets Land and buildings Vehicles Cost at beginning of the year Accumulated depreciation (0) ( ) Movements Additions Disposals Depreciation Cost at end of the year Accumulated depreciation (Please turn over for 2. Jupiter Taxi Service) 28 Learn the EZ way!

33 2. Jupiter Taxi Service Syd Allan runs a competing taxi business called Jupiter Taxi Service. He is concerned that his revenue from taxi fares has not met his budget of R and that the fuel and repair costs have exceeded his budget of R He has extracted the following information from his ledger, the fixed assets register and other records on 28 February 2006, the last day of the financial year. Required: Consider the information provided below. Explain whether or not Syd should be concerned about any problem or aspect relating to each vehicle. Quote amounts to support your opinion. (12) Information: Taxi 1 Taxi 2 Taxi 3 Name of driver Freddy Robbie Shirley Date purchased 1 March March March 2005 Cost price of vehicle Accumulated depreciation Amount of revenue brought in Kilometres covered for the past year Fuel and repair costs for the year Fuel and repair costs per kilometre R R R R R R R R R km km km R R R R6,40 R4,38 R4,

34 2. Explain whether or not Syd should be concerned about any problem or aspect relating to each vehicle. Quote amounts to support your opinion. Taxi 1: Taxi 2: Taxi 3: 50 marks 30 Learn the EZ way!

35 5.2. Barbara Williamson 2007 (60 marks; 35 minutes) Sharika Bhoodhia is very proud of herself as she has drawn up her financial statements for the year ended 28 February 2008 all on her own, and her business shows a pleasing profit of R However, when she shows them to you, you notice that the profit on sale of asset shown in the Statement of Income is very high at R20 000, and no depreciation is shown under operating expenses. When you discuss this with her, she explains that the profit is the amount she received for the vehicle that was traded in for the new vehicle, and she has not calculated depreciation because it is not an amount that was actually paid. Information: 1. The following (correct) balances appeared in the books of Bhoodhia Traders on 1 March 2007: Vehicles R Accumulated depreciation on vehicles R On 30 June 2007 an old delivery vehicle was traded in for R when a new vehicle was purchased at a price of R The old vehicle had originally cost R and had accumulated depreciation of R on 1 March Depreciation should be calculated at 20% p.a. on the carrying value. Required: 1. Explain to Sharika 1.1. Why her profit on sale of asset is incorrect (4) 1.2. The importance of calculating and recording depreciation. (3) 2. Show the following general ledger accounts as they should appear for the period 1 March 2007 to 28 February 2008: 1.1. Vehicles (6) 31

36 1.2. Accumulated depreciation on vehicles (15) 1.3. Depreciation (6) 1.4. Asset disposal (8) 2. Draw up the correct the Vehicles column of the Tangible Assets note to the Statement of Financial Position on 28 February (13) Vehicles Cost Accumulated depreciation Carrying value (1 March 2007) Movements Carrying value (28 February 2008) Cost Accumulated depreciation 3. Calculate the correct net profit for the year. (5) 60 marks 32 Learn the EZ way!

37 5.3. DoE Exemplar 2007 Question 4.1. (29 marks; 18 minutes) You are provided with information relating to Maduna & Son Traders. Required: 1. Calculate depreciation on vehicles for the year ended 28 February (7) 2. Prepare the Asset Disposal account on 31 December (9) 3. Complete the note to the Statement of Financial Position for fixed assets on 28 February A total column is not required. Some of the figures have already been entered for you. (13) Information: 1. Depreciation on vehicles is calculated at 20% p.a. on the straight line method. Depreciation on equipment for the year amounts to R The following balances appeared in the ledger on 1 March 2006: Vehicles at cost R Accumulated depreciation on vehicles R Equipment at cost R Accumulated depreciation on equipment R Bought new equipment on credit for R on 1 November Paid Urban Technics the following on 28 February 2007: R8 000 for installing a sound system in a vehicle. R3 000 for repairing the air-conditioning system in the vehicle. 5. Traded in a vehicle at Pretoria Motors on 31 December The trade-in value offered by Pretoria Motors was R32 000, while the cost of the new vehicle was R The balance of R due to Pretoria Motors ill be paid over the next six months. Details of the old vehicle traded in were obtained from the fixed assets register: FIXED ASSETS REGISTER Vehicle: Toyota Corolla Model: 2003 Date bought: 1 May 2003 Date sold: 31 December 2006 Cost price: R Depreciation written off: 28 Feb 2004 R Feb 2005 R Feb 2006 R R Dec 2006? 33

38 1. Calculate depreciation on vehicles for the year ended 28 February Ledger of Maduna & Son Traders Asset disposal 3. Notes to the Statement of Financial Position on 28 February 2007 Tangible assets Land and buildings Vehicles Equipment Carrying value at the beginning of the year Cost Accumulated depreciation - ( ) Movements Additions - Disposals - Depreciation - Carrying value at the end of the year Cost Accumulated depreciation - ( ) 29 marks 34 Learn the EZ way!

39 5.4. IEB Exemplar 2007 Paper 1 Q4 (40 marks; 24 minutes) Required: This question consists of two parts. Part A involves the Tangible Assets note and Part B is a theory question. Part A From the information that follows, draft the notes to the Statement of Financial Position of Natal Carpets for the year ended / as at 28 February (35) Natal Carpets Pre-adjustment trial balance as at 28 February 2007 Statement of Financial Position accounts section Equipment Accumulated depreciation: equipment (1/3/2006) Vehicles Accumulated depreciation: vehicles (1/3/2006) Adjustments and additional information: 1. NB! This adjustment needs to be read in conjunction with adjustments 2 and 3. Both vehicles and equipment are depreciated as a percentage of the cost price. Use information provided in adjustment 2 to calculate the rate at which vehicles are depreciated. (If you are unable to calculate the rate with which to calculate the depreciation on vehicles, then use the rate of 25% on cost. This is not the correct rate.) 2. Natal Carpets has two identical vehicles originally bought on the same day. One of the vehicles was sold on 31 January 2007 for R on credit, and at a loss of R450. This entry has still to be processed. 3. New equipment costing R was purchased and correctly entered on 1 December (Equipment is depreciated at a rate of 10% on cost). Tangible / fixed assets Carrying value Vehicles Equipment Total Carrying value 35