INTBUS NOVEMBER 2013 EXAMINATION DATE: 6 NOVEMBER 2013 TIME: 09H00 11H00 TOTAL: 100 MARKS DURATION: 2 HOURS PASS MARK: 40% (IFA-01) INTRODUCTION TO FINANCIAL ACCOUNTING THIS EXAMINATION PAPER CONSISTS OF 3 SECTIONS: SECTION A: CONSISTS OF: (i) 10 MULTIPLE-CHOICE QUESTIONS (10 MARKS) (ii) 5 TRUE OR FALSE QUESTIONS (10 MARKS) (iii) 10 MATCHING-STATEMENT QUESTIONS (10 MARKS) ANSWER ALL THE QUESTIONS SECTION B: SECTION C: CONSISTS OF 5 SHORT QUESTIONS ANSWER ALL THE QUESTIONS CONSISTS OF 2 LONG ANSWER QUESTIONS ANSWER ONE OF THE QUESTIONS (50 MARKS) (20 MARKS) INSTRUCTIONS: 1. Read the following instructions carefully before answering the paper, as failure to act upon them will result in a loss of marks. 2. Write your answers in your answer book, which is provided in the exam. 3. Ensure that your name and student number are clearly indicated on your answer book. 4. Write your answers in either blue or black ink in your answer book. 5. Read each question very carefully before you answer it and number your answers exactly as the questions are numbered. 6. Begin with the question for which you think you will get the best marks. 7. Note the mark allocations for each question give enough facts to earn the marks allocated. Don't waste time by giving more information than required. 8. You are welcome to use diagrams to illustrate your answers. 9. Please write neatly we cannot mark illegible handwriting. 10. Any student caught cheating will have his or her examination paper and notes confiscated. The College will take disciplinary measures to protect the integrity of these examinations. 11. If there is something wrong with or missing from your exam paper or your answer book, please inform your invigilator immediately. If you do not inform your invigilator about a problem, the College will not be able to rectify it afterwards, and your marks cannot be adjusted to allow for the problem. 12. This paper may be removed from the examination hall after the examination has taken place. NOTE: YOU MAY USE A NON-PROGRAMMABLE CALCULATOR. DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 1 OF 13
SECTION A (30 MARKS) ANSWER ALL THE QUESTIONS (i) MULTIPLE-CHOICE QUESTIONS Choose the correct option for each of the following. Write only the question number and your chosen answer. For instance, if you think that the correct answer for number 1 is, then write it as 1.. 1. Which of the following explains the imprest system of operating petty cash? (d) Weekly expenditure cannot exceed a set amount The exact amount of expenditure is reimbursed at intervals to maintain a fixed float All expenditure out of the petty cash must be properly authorised Regular equal amounts of cash are transferred into petty cash at intervals 2. A company's income statement for the year ended 31 December 2012 showed a net profit of R83,600. It was later found that R100,000 paid for the purchase of a motor van had been debited to the motor expenses account. It is the company's policy to depreciate motor vans at 25% per year on the straight line basis, with a full year's charge in the year of acquisition. What would the net profit be after adjusting for this error? R57 600. R158 600. R115 600. (d) R172 000. 3. John Black has the following working capital ratios: 2012 2011 Current ratio 1.2:1 1.5:1 Receivables days 75 days 50 days Payables days 30 days 45 days Inventory turnover 42 days 35 days Which of the following statements is correct? John's liquidity and working capital has improved in 2012. John is receiving cash from customers more quickly in 2012 than in 2011. John is suffering from a worsening liquidity position in 2012. (d) John is taking longer to pay suppliers in 2012 than in 2011. DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 2 OF 13
4. Which of the following statements is true? (d) The interpretation of an entity's financial statements using ratios is only useful for potential investors Ratios based on historical data can predict the future performance of an entity. The analysis of financial statements using ratios provides useful information when compared with previous performance or industry averages. An entity's management will not assess an entity's performance using financial ratios. 5. Bumbly Co extracted the trial balance for the year ended 31 December 2012. The total of the debits exceeded the credits by R300. Which of the following could explain the imbalance? (d) Sales of R300 were omitted from the sales day book Returns inward of R150 were extracted to the debit column of the trial balance Discounts received of R150 were extracted to the debit column of the trial balance The bank ledger account did not agree with the bank statement by a debit of R300 6. Petty cash is: (d) a liabilty account. an asset account. monies for a rainy day. for the use of the owner only. 7. The following is an example of a long-term liability account: (d) depreciation expense accumulated depreciation mortgage owners equity 8. Interest on fixed deposits is referred to as: (d) income. bank charges. an expense. return on investment. 9. VAT is charged at: 10%. 14%. 12%. (d) different rates, depending on the industry. DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 3 OF 13
10. Which of the following is not a method of calculating the value of inventory? First in First out (FIFO) Weighted Average Cost (WAC) Last in First out (LIFO) (d) Perpetual Inventory [10] (ii) TRUE OR FALSE QUESTIONS Indicate whether the following statements are True or False. Motivate all your answers. 1. When recording the purchase of Non-Current Assets e.g. Plant and Equipment of Land and Buildings one should record the Market Value of the Asset. 2. Segregation of duties, is a recommended form of Internal control. 3. Goodwill is an example of a Liability. 4. Businesses that are VAT-Registered are required by law to issue Credit Invoices when a sale is made. 5. With regard to the Accounting equation the following is true: Assets = Liabilities Equity [5 2 = 10] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 4 OF 13
(iii) MATCHING-STATEMENT QUESTIONS Match the statements in Column B to the statements in Column A. Write down the answers only, for example 1.. Column A Column B 1. refer to the standard framework of guidelines for financial generally used by large supermarkets accounting 2. historic cost concept states that sole proprietor 3. under the accrual or matching concept generally accepted accounting principles (GAAP) 4. perpetual inventory system (d) drawings account 5. salary deduction (e) time frames are important 6. example of a nominal account (f) UIF 7. monies withdrawn by the owners of a business (g) the assets of a company are its own 8. the simplest form of business organisation 9. implication of a separate legal entity 10. vehicles account (j) rent account (h) (i) example of a real account assets should be recorded and reported at cost [10] [30] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 5 OF 13
SECTION B: SHORT QUESTIONS (50 MARKS) ANSWER ALL THE QUESTIONS QUESTION 1 Give reasons why it is important to do a Bank Reconciliation. (6) The Accounts Receivable account shows a balance of R15,000 and past experience shows that 5% of debtors do not pay. Show the Journal needed to create a provision for bad debts. [Note: Show your calculations and do not use the 'Direct Write-off method'] (4) [10] QUESTION 2 Define what is meant by: the 'Going Concern' Concept (2) Explain what is meant by the 'Historical Cost' concept (2) Adjusting Journal are an important part of the Accounting Cycle, list four types of adjusting entries (4) [8] QUESTION 3 If the selling price of a product is R350 (including VAT), calculate the VAT amount. (2) If the selling price of a product is R500 (excluding VAT), calculate the VAT amount. (2) If the cost price of a product is R235 and the selling price is R280, calculate both the gross margin percentage and the mark-up. (6) [10] QUESTION 4 Una earns R144 000 per annum at Company A. Given the following monthly deductions from her monthly salary: PAYE: R1 800 Pension: R500 Medical Aid: R750 Calculate her net monthly salary (Una is registered for UIF). (8) Of the deductions mentioned above, which two are compulsory? (2) [10] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 6 OF 13
QUESTION 5 Shown below is the adjusted trial balance of Calm (Pty) Ltd for the month ended December 31, 2012: Calm [Pty] Ltd Adjusted Trial Balance December 31, 2012 R R Cash 127 500 Accounts receivable 60 500 Office equipment 600 000 Accumulated depreciation: Office equipment 15 000 Accounts payable 126 000 Samantha Smith, Capital 800 000 Samantha Smith, Drawing 100 000 Commissions earned 371 000 Advertising expenses 50 000 Rent expense 87 000 Telephone expense 12 000 Salaries expense 270 000 Depreciation expense: Office equipment 5 000 1 312 000 1 312 000 You are required to: Prepare journal entries to close the accounts at December 31, 2012. (Do not include the narration to the closing journal entries as no marks will be awarded for narrations) [12] [50] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 7 OF 13
SECTION C: LONG ANSWER QUESTIONS (20 MARKS) ANSWER ONE OF THE QUESTIONS QUESTION 1 The following balances and information relate to Placid (Pty) Ltd. Balance (favourable) as per Cash Book as at 31 July 2013 R23 621 Balance (favourable) as per Bank Statement (Bank AAA]) as at 31 July 2013 R4 598 Additional information: 1. Cheque #00123, (payment to creditor) amount R1 025 dated 15 June 2013 has not yet being presented to the bank. 2. An amount of R15 000.00 which was deposited on 31 July is not reflecting on the bank statement (deposit slip No.777). 3. Bank charges for the month of July 2013 totalling R513 have not been recorded in the cashbook. 4. Cheque #00118, (payment for electricity) amount R500, dated 05 July 2013 has not yet being presented to the bank. 5. A cheque received from a debtor (XYZ), for payment on their account was dishonoured by the bank, the cheque amount was R4 472. Further investigation revealed that the debtor had been declared insolvent, it was decided to write off the debt. 6. Cheque #00075 (payment to creditor), dated 07 December 2012, totalling R300, has not being presented to the bank. 7. Cheque #00125 (payment for telephone expenses) was incorrectly debited twice by the bank, amount R890. 8. Cheque # 00126 was written out correctly as R725, but captured in the books of Placid (Pty) Ltd. incorrectly as R752. You are required to: 1. Make the necessary adjustments to the General Ledger Account Bank Account in the books of Placid (Pty) Ltd and balance off the account. (12) 2. Compile the Bank Reconciliation Statement for the month ending 31 July 2013. (8) [20] [20] OR DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 8 OF 13
QUESTION 2 You are the Bookkeeper for Brian's Photo Shop [ a Vat registered company], using the source documents provided, capture the necessary subsidiary journals and close them off at month-end. Use the templates provided at the end of this exam paper. Remember to hand it in with your answer book. QUICK PLUMBING SERVICES ORIGINAL TAX INVOICE 128 Main Road VAT Reg No: 444444 Retreat Invoice No: I222 7945 Phone: (021) 712 5555 Fax: (021) 712 5556 20 August 2005 Client: Brian's Photo Shop Note: 14% VAT included in all items Code Qty Description Unit price Net 01 02 03 04 2 1 1 1 Repairs to taps in kitchen Repairs to geyser Repairs to nonreturn valve Leak repaired VAT (14%) 42,55 129,20 51,60 610,00 85,10 129,20 51,60 610,00 123,63 999,53 GENERAL RETAILERS ORIGINAL TAX INVOICE 33 Main Road VAT Reg No: 234567 Plumstead Invoice No: 12315 7800 Account No: C1501 Phone: (021) 797 0826 Fax: (021) 797 0827 / 8 01 August 2013 Client: Brian's Photo Shop Note: 14% VAT included in all items Code Qty Description Unit price Net 01 1 Service fee for August 2013 Add VAT (14%) 12 875,00 1 802,50 14 677,50 DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 9 OF 13
ABC ACCOUNTANTS ORIGINAL TAX INVOICE 12 Downing Road Belverdere Invoice No: 909 7100 Phone: (021) 633 0821 Fax: (021) 633 0857 11 August 2013 Client: Brian's Photo Shop Code Qty Description Unit price Net 01 1 Service fee for August 2013 Add VAT (14%) 5 000 0 5 000 Brian's Photo Shop DUPLICATE TAX INVOICE 108 Pluto Road VAT Reg No: 5555551 Wynberg Invoice No: I0001 7200 Phone: (021) 703 5511 Fax: (086) 626 5889 01 August 2013 Client: Mary's Corner Note: 14% VAT included in all items Code Qty Description Unit price Net 01 1 Service fee for August 2013 Add VAT (14%) 11 200 1 568 12 768 DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 10 OF 13
Brian's Photo Shop DUPLICATE TAX INVOICE 108 Pluto Road VAT Reg No: 5555551 Wynberg Invoice No: I0002 7200 Phone: (021) 703 5511 Fax: (086) 626 5889 12 August 2013 Client: John Smith Note: 14% VAT included in all items Code Qty Description Unit price Net PH PH 50 10 Black & White Photographs Colour Photographs 10,00 15,20 500,00 152,00 Add VAT (14%) 91,28 743.28 [20] [20] Section A: 30 marks Section B: 50 marks Section C: 20 marks TOTAL: 100 MARKS DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 11 OF 13
FOR YOUR NOTES DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 12 OF 13
ANSWERS TO QUESTION 2 OF SECTION C STUDENT NAME: STUDENT NUMBER: CREDIT SALES JOURNAL AUGUST 2013 SJ15 Invoice Number Date Debtor Folio Invoice total Vat Output Standard rated sales Zero rated sales CREDIT PURCHASES JOURNAL AUGUST 2013 PJ15 Invoice Number Date Creditor folio Invoice total Vat Input Standard rated Purchases Zero rated Purchases REMEMBER TO DETACH THIS PAGE AND HAND IT IN WITH YOUR ANSWER BOOK. DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 13 OF 13