COMPILED BY MRS S KHAN – EMDC EAST 1

ACCOUNTING: PROBLEM SOLVING QUESTIONS

GRADE 12 HIGHER GRADE

CLUBS (HG)
QUESTION 1

AA Motor Club has an entrance fee of R100 for new members. Membership fees are R20 per
month per member. The following membership fees account was taken from the books on 30
September 2004.
MEMBERSHIP FEES
2003 2003
Oct 1 Accrued Income 480 Oct 1 Income Received in advance 240
2004 2004
Sep 30 Income and Expenditure 48 000 Sep 30 Bank 47 280
Membership fees written off 240
_____ Accrued Income 720
48 480 48 480

INSTRUCTION

1. Describe all the transactions from which this membership fees account was
drawn up. (18)

2. How many members did the club have on 30 September 2004? (3)

3. How many members’ membership fees were in arrears on

30 September 2004? (3)

4. How many members paid their membership fees during the accounting
year? (3)
[27]
SOLUTION

1.
• October 2003 (Cr.): Membership fees for the current accounting period received during
the previous accounting period, R240. 
• October 2003 (Dr.): Membership fees still due i.r.o. the previous accounting period,
R480. 
• September 2004 (Cr.): During the accounting period R47 280 was received i.r.o.
membership fees. 
• September 2004 (Cr.): Half of the membership fees due on 1 October 2003 was not
received and therefore written off. 
• September 2004 (Cr.): Membership fees still due i.r.o. the accounting period amount to
R720. 
• September 2004 (Dr.): The actual income i.r.o. membership fees was transferred to the
Income and Expenditure Account, R48 000. 
(18)

2. R48 000 ÷ R240 = 200 members  (3)

3. R720 ÷ R240 = 3 members  (3)

4. Number of members paid their membership fees during the year.

 COMPILED BY MRS S KHAN – EMDC EAST 2

R47 280 ÷ R240 = 197 members  (3)

[27]
COMPANIES
QUESTION 1 (Mar 99 – WCED)

The following information was extracted from the books of Peninsula Stores Ltd at the end of
its financial years on 28 February.

INSTRUCTION
Answer the questions that follow. You must show all your calculations. Answers must be
rounded off to two decimal places.

INFORMATION
Extract from the Income Statement for the years ended 28 February
2005 2004
Sales 680 000 620 000
Cost of sales 425 000 387 500
Net income after tax 66 500 54 800
Ordinary share dividends 30 000 28 000

Extracts from the Balance Sheets on 28 February

2005 2004
Ordinary share capital (R2, 00 each) 250 000 200 000
Current assets 87 600 75 790
Trading sock 45 860 39 110
Current liabilities 37 910 40 750

Questions
1. Calculate the percentage mark-up on cost that is used by Peninsula Ltd for 2005. (5)

2. Calculate the acid-test ratio for 2005. Comment on this. The acid-test ratio for
2004 was 0,9 : 1. (9)

3. How long will the stock on hand on 28 February 2005 last? Answer in days. (6)

4. Calculate the earnings per share for 2005. (5)

5. Calculate the dividends per share for 2005 (3)

6. What is the main reason for the change in dividends per share, given the following for
2004?

Earnings per share: 54,8 cents

Dividends per share: 28 cents (3)

7. The debtors’ amount for 2003 is R37 690 and for 2004 was R32 410. Calculate the
average debtors’ collection period for 2005 if 50% of all sales are on credit. (6)

8. Name two methods that a business could use to get its debtors to pay sooner. (6)

9. The company issued more shares during the year. Calculate the amount of money
that the company received if the shares were issued at a premium of 25%. (4)

10. The company had a choice of either issuing more shares or taking out a loan from the
bank. Name one advantage for the company of issuing more shares. (2)
11. Would the issue of additional shares have the effect of increasing or decreasing the
solvency of the company? Give a reason for your answer. (4)
/53/
 COMPILED BY MRS S KHAN – EMDC EAST 3

SOLUTION

1. Gross profit percentage

= Gross profit X 100
Cost of Sales 1
= 255 000  X 100
425 000  1
= 60% (5)

2. Acid Test Ratio

= 87 600 – 45 860 : 37 910
= 41 740  : 37 910 
= 1,1 : 1  5

Ratio improved from 2004 to 2005. 

Better than the acceptable ratio of 1:1 
Able to meet its short term obligations.  4 (9)

3. Stock Turnover Rate

= Average stock X 365 days
Cost of Sales 1
= ½(45 860 + 39 110) X 365 days
425 000 1
= 42 485  X 365 days
425 000  1
= 36,5 days  (6)

4. Earnings per share

= Net Income after Tax
No. of shares
= 66 500 
125 000 
= 53,2 cents  (5)

5. Dividends per share

= Dividends .
Number of issued shares
= 30 000 
125 000 
= 24 cents per share  (3)

6. Increase in the number of shares issued.  (3)

7. Average debtors collection period.

= Average debtors X 365 days
Credit Sales 1
= ½(37 690 + 32 410) X 365 days
50% (680 000) 1
= 35 050  X 365 days
340 000  1
= 37,63 days  (6)

8. Give a discount for early payments. 

Charge interest on overdue accounts.  (6)
 COMPILED BY MRS S KHAN – EMDC EAST 4

9. R250 000 - R200 000 = R50 000 (share capital)

Therefore, the number of new issued shares
= R50 000
R2
= 25 000 shares 

125% of R2 = R2,50 
R2,50 X 25 000 = R62 500  (4)

10 Cheaper than borrowing money

Do not have to pay money back
Do not have to pay interest on money borrowed any 1  (2)

11. Increase 
Cash will increase Total Assets  (4)
[53]

QUESTION 2 (B/S 96 – C3)

You are provided with information extracted from the published Income Statement of West
Limited, public company, together with ratios and percentages calculated from the financial
statements.

INSTRUCTION

All comments must be brief and concise and may be in point form. Where appropriate, you
must refer to specific figures quoted in the question in order to support your answers.

QUESTIONS

1. A number of concepts of generally accepted accounting practice are used in

preparing the published financial statements of a company.

1.1 Explain the concept of materiality, with particular reference to the difference
between the published and the detailed financial statements of a public company.(6)

1.2 Explain the concept of prudence, with particular reference to its effect on the
calculation of the net income. (6)

2. Consider the operating efficiency of the company. Would you be satisfied with
the effectiveness of the directors in regard to their control of the company’s
operations? Explain briefly. (12)

3. Briefly comment on the financial gearing of the company. (Refer to the debt/
equity ratio and other relevant figures.) (12)

4. The company wishes to increase the bank overdraft from R10 000 to R40 000
as soon as possible. As the Bank manager, would you grant the additional
overdraft? (12)

5. As the shareholder, would you be satisfied with the overall performance of the
company. Your answer must focus on the financial indicators which are of
specific relevance to a shareholder. (12)
[60]
 COMPILED BY MRS S KHAN – EMDC EAST 5

WEST LIMITED
ABRIDGED INCOME STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2004
2004 2003
R R
Turnover 1 370 000 1 400 000
Net income before Disclosable expenses 534 000 475 000
Disclosable expenses (394 000) 295 000
Directors’ fees 280 000 200 000
Audit fees 16 000 15 000
Depreciation 30 000 31 000
Interest on borrowed money 68 000 49 000
Net Profit before tax 140 000 180 000
Income Tax (65 000) 81 125
Net Profit after tax 75 000 98 875

Notes to the Balance Statement

DISTRIBUTABLE RESERVES
2004 2003
R R
Balance 51 575 25 000
Net profit after tax 75 000 98 875
126 575 123 875
Distribution of ordinary share dividends (64 000) (72 500)
Balance 62 375 51 375

Additional Information
2004 2004
Number of directors 3 2
Number of employees 8 6
Market value of shares 510 cents 580 cents

Financial indicators, ratios and percentages calculated from the financial statements
2004 2003
R R
Net income before tax on turnover 10% 12%
Net income after tax on turnover 5% 7%
Interest rate on borrowed money 16% 14%
Return on total Equities and Liabilities 11% 13%
Earnings per share 47 cents 86 cents
Dividends per share 40 cents 50 cents
Par Value per share 500 cents 500 cents
Net asset value per share 545 cents 535 cents
Return on shareholders’ equity 9% 13%
Debt/Equity ratio 0,6:1 0,4:1
Solvency Ratio 2,5 :1 2,8:1
Current Ratio 1,4:1 2,1:1
Acid Test Ratio 0,4:1 0,8:1
Period for which enough stock is on hand 50 days 60 days
Debtors average collection period 40 days 30 days
Creditors average payment period 28 days 30 days
 COMPILED BY MRS S KHAN – EMDC EAST 6

SOLUTION

1.1 MATERIALITY

Transactions which are not materially in proportion to the nature and

extent of the activities of a business are normally not recorded if the
cost and effort of doing so is not warranted. 

The concept can also be applied to an item.

Important items must be specifically shown in financial statements
whereas unimportant items need not be stressed. 

Published financial statements of companies will therefore contain

less information than the detailed statements and consequently can be
understood by more people.  (6)

1.2. PRUDENCE

The concept prudence implies that financial statements be prepared

conservatively. 
Only income that has been earned without any doubt will be shown
whereas expenses will rather be shown too high than too low. 
This results in the net income being shown as low as possible.  (6)

2. OPERATING EFFICIENCY

The net income before tax decreased from 12% to 10% and the net
income after tax decreased from 7% to 5%. 
The rate of stock turnover however, increased from 6,1 to 7,3. 
The increase in the rate of stock turnover is encouraging, but the
decrease of the net income in relation to turnover is disappointing. 
The number of directors and employees has increased and this makes
the above results all the more unacceptable.  (12)

3. FINANCIAL GEARING

The debt/equity ratio decreased from 0,4:1 to 0,6:1. 

Non-current liabilities have therefore increased in relation to own capital,
but not out of proportion. 
Return on total equities and liabilities decreased from 13% to 11%. 
Interest on borrowed money increased from 14% to 16%. 
The financial gearing of the company is not good because borrowed money
costs more than what the company earns on equities and liabilities.  (12)

4. INCREASE OF BANK OVERDRAFT

Judging by the debt/equity ratio of 0,6:1, the company is creditworthy

(ratio is smaller than 1:1) 
The current ratio (1,4:1) however, is smaller than the generally accepted
2:1 and the acid test ratio (0,4:1)is smaller than the generally accepted
1:1. 
In addition to this the debtors collection period weakened from 30 days to
40 days  while the creditors are paid within 30 days (28 days). 
Judging by this, I would not grant the additional overdraft.  (12)
 COMPILED BY MRS S KHAN – EMDC EAST 7

5. OUT OF SHAREHOLEDER’S POINT OF VIEW

Return on shareholders equity decreased from 13% to 9%.

Unsatisfactory. 
The earnings per share decreased from 68 cents to 47 cents.
Unsatisfactory. 
Dividends per share decreased from 50 cents to 40 cents.
Unsatisfactory. 
As a shareholder I would not be satisfied with the overall
performance.  (12)
[60]

QUESTION 3 (B/S 92 – C4)

Ash Limited is registered with an authorised share capital of 80 000 ordinary shares of R10
each. The current financial year is from 1 March 2004 to 28 February 2005.

INSTRUCTION

Use the information given and answer the following questions: (Show all calculations where
necessary)

1. What is the total amount that the company declared as dividends for the current?
financial year? (5)

2. Calculate the amount for Income Tax which will appear in the Appropriation
Account during the current financial year. (8)

3. Calculate the amount owing to SARS on 28 February 2005. (5)

4. Calculate the interim dividend per share. (3)

5. Calculate the Retained income for the year. (5)

6. Briefly explain the concept: Retained Income”. (3)

[29]

Note: No additional shares were issued during the current year and there was no
Retained Income on 1 March 2004.

INFORMATION

1 March 2003

Total number of issued shares: 60 000

31 August 2004

Issued a cheque to SARS in respect of payment of provisional Income Tax, R24 000

Paid interim dividend of R30 000

 COMPILED BY MRS S KHAN – EMDC EAST 8

28 February 2005

A second provisional Income Tax payment of R18 000 is made

A final dividend of R10 000 is declared.

The net income before taxation amounts to R106 000, according to the Profit and Loss
Account.

The taxation rate is 40% of net income and 15% of dividends for the year.

SOLUTION

1. R30 000 + R10 000  = R40 000  (5)

2. 40% of 106 000 = 42 400 

15% of 40 000 = 6 000 
48 000  (8)

3. Paid: R24 000 + R18 000 = R42 000 

Amount owing: R48 400 – 42 000 = R6 400  (5)

4. Dividend per share: 30 000 

60 000 
= 50 cents  (3)

5. Net Income: R106 000 

Income Tax (R 48 400) 
Net Income after Tax R 57 600
Dividends on ordinary shares (R 40 000) 

Paid R 30 000
Recommended R 10 000

Retained Income R 17 600  (5)

6. The total income need not necessarily be appropriated to shareholders. Part of

income is usually retained. This amount is transferred to the Retained Income
Account.  (3)

BUDGETS
QUESTION 1 (B/S 92 – C5)

The owner of Craft Furnishers is experiencing problems in the completion of his Cash budget
for the period 1 January 2005 to 31 March 2005. he approached you at the end of December
2004 to help him with, amongst others, the calculation of certain figures.

INSTRUCTIONS

Use the information below in order to answer the questions which follow.
 COMPILED BY MRS S KHAN – EMDC EAST 9

1. Briefly explain to the owner what a cash budget is, and why it is essential that
a cash budget be prepared? (6)

2. Calculate the amounts for cash sales of goods for January and February
respectively (separately). (8)

3. What will the amount that will be paid during March to the business creditors? (2)

4. Provide a clear, step-by-step, calculation of how the amounts owing by

Debtors will be collected during January, February and March respectively. (15)

5. Calculate the total amount that will be paid for salaries and wages during March. (3)

6. Use the information from 1.1, 1.6 and 1.7 to calculate the cash in the bank at the
end of January and February respectively. (11)

INFORMATION

1.1 Cash at the bank on 32 December 2004 amounts to R8 900.

1.2 The Cash sales of goods during December 2004 amounted to R35 000. It is
expected that cash sales will increase at a rate of 10% per month.

1.3 Credit purchases of trading stock will be as follows:

January 2005 R10 000

February 2005 R12 000
March 2005 R18 000

Payments to creditors will be 60 days after purchase. Credit purchases of trading

stock for November 2004 and December 2004 amounted to R8 000 and R8 500
respectively.
1.4 Credit sales of trading stock to debtors:

January 2005 R24 000

February 2005 R30 000
March 2005 R36 000

Cash is collected from debtors in respect of credit sales as follows:

10% in the month of sale

60% in the month thereafter
30% in the third month

The business experiences no bad debts.

Credit sales of trading stock for November 2004 and December 2004 amounted
R22 000 and R23 500 respectively.

1.5 With regard to business expenses, salaries and wages will be increased on 1 March
by R3 000 per month. Total salaries and wages currently amounted to R7 000 per
month for the business’ three employees.

1.6 The total receipts (budgeted) are as follows:

January 2005 R34 000

February 2005 R50 000
March 2005 R56 000
 COMPILED BY MRS S KHAN – EMDC EAST 10

1.7 The total payments (budgeted) are as follows:

January 2005 R44 000

February 2005 R47 000
March 2005 R51 000 [45]

SOLUTION

1. The cash budget is a forecast of the effect of the activities of the business on
especially the cash position.  The cash budget is also used as a control tool to
ensure that debtors settle their debts promptly.  (6)

2. January - 35 000 X 110 ÷ 100 = R38 500  (4)

February - 38 500 X 100 ÷ 100 = R42 350  (4)

3. March - R10 000  (2)

4. DEBTORS COLLECTION SCHEDULE

Credit sales January February March

November 2004 22 000 6 600
December 2004 23 500 14 100 7 050
January 2005 24 000 2 400 14 400 7 200
February 2005 30 000 3 000 18 000
March 2005 36 000 3 600
23 100 24 450 28 800
(15)
5. R7 000 + R3 000 = R10 000 (3)

6. Cash In Bank

January February
Total Receipts 34 000 50 000
Total Payments 44 000 47 000
Cash Surplus (Shortfall)  (10 000) 3 000
Bank opening balance 8 900   (1 100)
Bank Closing balance  (1 100) 1 900
(11)
[45]

QUESTION 2 (B/S95 – C3)

BACKGROUD INFORMATION

Susan’s Dress Shop in Ladysmith, is solely owned by Susan Smith. She has been satisfied
with the results of her business to date. Within the next three months she will move premises
and the business will be required to make a loan repayment of R50 000. Susan is confident
that she will have no problem in meeting these commitments.

Her reasons for her confidence are:

• There is R28 000 in the Bank at the moment and profits over the nest three months will
improve this cash balance.
• Her creditors have allowed her 60 days to settle her accounts, but she has made a point
of settling them much earlier in order to develop a good reputation for her business.
 COMPILED BY MRS S KHAN – EMDC EAST 11

• She has granted her debtors terms of 30 days but some of them have been slow in
paying. She is confident that she can rectify this minor problem.
• She aims to keep between two and three months’ stock on hand at all times in order to
attend to the needs of all her customers.

Being an expert in Accounting, you do not share Susan’s confidence about her liquidity
situation. Susan has provided you with certain information concerning her business.
INSTRUCTION

Study the information provided by Susan to answer the following questions:

1. is Susan’s Dress Shop in a good or bad liquidity position on 28 February 2005?

Quote the appropriate liquidity ratios in your answer. (10)

2. calculate the following at 28 February 2005:

2.1 Period of stock on hand (in days) (4)

2.2 Average payment period by debtors (in days). (4)

2.3 Average creditors payment period (in days). (4)

2.4 Comment briefly on the above calculations. Are these periods appropriate for
Susan’s Dress Shop? (6)

3. Prepare the Cash Budget for the period 1 march 2005 to 31 May 2005. (50)

4. Quote from the Cash Budget in answering the following questions:

4.1 Is Susan’s Dress Shop likely to experience a liquidity problem within the next
three months? Explain the main reasons for your answer. (4)

4.2 Susan is hoping to place a full-page colour advertisement in the local press for
the entire month of March and she is hoping to open a second shop in Harrismith
in June. In your opinion, should she continue to pursue these plans? What advise
do you offer to solve her cash flow problems? (8)
[90]

INFORMATION

1. The following figures were extracted from the financial statements at the year-end
18 February:

2005 2004
Sales (half are on credit) 576 000
Cost of Sales 384 000
Interest on loan (16% p.a.) 18 600
Bad debts 10 000
Other overhead expenses 90 000
Inventories (all trading stock) 85 000 75 000
Trade debtors 30 000 38 000
Cash 31 000 15 000
Trade Creditors 29 091 39 091
Loan from Credfin: Current position 50 000 45 000
Long-term portion 55 000 105 000

2. In order to compile her cash budget, Susan has listed her expectations for the next
financial year, commencing on 1 March 2005:
 COMPILED BY MRS S KHAN – EMDC EAST 12

2.1 The 50% mark-up will be maintained. Suppliers have agreed not to increase prices
for the next three months.

2.2 Sales volumes for the year ending 28 February 2006 are expected to increase by
10%. Cash sales are expected to comprise half of the total sales.

2.3 One sixth of Susan’s sales take place in March when Ladysmith Town Council
has its annual dance; the rest of the sales occur evenly over the year.
2.4 Half the trade debtors on 28 February 2005 are expected to settle their accounts
during March. The other half will settle in April. No further bad debts are
expected from this group of debtors.

2.5 Susan aims to get her debtors to pay quicker but does not expect to have immediate
success in this regard. She will grant 5% cash discount to her future debtors if they
settle their accounts in the month following the transaction month. She expects 60%
of debtors to take advantage of this offer. 36% of debtors should pay in the second
month after their purchase and 4% are expected to be bad debts.

2.6 Trade creditors all relate to the purchase of stock. She intends to pay all the trade
creditors in the month following the purchase of stock.

2.7 All stock is purchased on credit. Whenever stock is sold, it is replaced in the same
month.

2.8 Susan draws R6 000 per month to cover household expenses.

2.9 In terms of the loan agreement, R50 000 will have to be repaid at the beginning of
May. The interest is calculated and paid monthly.

2.10 the shop will be moving to new premises in April 2005. The expected cost of the
move, R15 000, will need to be paid at the time of the move. All other expenses are
spread evenly throughout the year. No increases are expected for the next three
months.

SOLUTION

1. Current ratio
= current assets : current liabilities
= 85 000 + 30 000 + 31 000 : 29 091 + 50 000
= 146 000 : 79 091
= 1,84:1 

Acid test ratio

= Current assets – inventories : current liabilities
= 146 000 – 85 000 : 79 091
= 61 000 : 79 091
= 0,77 : 1 

Comments
The current ratio is below the acceptable ratio of 2 : 1 
The acid test ratio is below the acceptable ratio of 1 : 1 
The business will experience problems in meeting its short term obligations 
The liquidity situation is unsatisfactory  (10)

2.1 Number of day’s stock on hand

= Average stock X 365 days
Cost of sales 1
= ½(75 000 + 85 000) X 365 days
384 000 1
 COMPILED BY MRS S KHAN – EMDC EAST 13

= 80 000  X 365 days

384 000  1
= 76,04 days  (4)

2.2 Average debtors collection period

= Average debtors X 365 days
Credit sales 1
= ½(38 000 + 30 000) X 365 days
288 000 1
= 34 000  X 365 days
288 000  1
= 43,09 days  (4)

2.3 Average creditors payment period

= Average creditors X 365 days
Cost of sales* 1
= ½(39 091 + 29 091) X 365 days
384 000 1
= 34 091  X 365 days
384 000  1
= 32,4 days  (4)

* all stock is purchased on credit

2.4 Comment
• Trading stock on hand sufficient for between 60 and 90 days as planned
Acceptable period because fashions can change very quickly 
• Debtors take longer (43 days) to pay than 30 days allowed. Credit control must
be applied more strictly. 
• Creditors are paid much sooner (32 days) than the 60 days allowed. They should
rather make use of the 60 day period because this would have a favourable effect
on the liquidity.  (6)

3. CASH BUDGET FOR THE PERIOD 1 MARCH TO 31 MAY

MARCH APRIL MAY
CASH RECEIPTS
Cash sales * 52 800 24 000 24 000
Cash from debtors ** 15 000 45 096 32 688
TOTAL RECEIPTS 67 800 69 096 56 688
CASH PAYMENTS
Payments to creditors *** 29 091 70 400 32 000
Drawings 6 000 6 000 6 000
Interest on loan 1 400 1 400 733
Repayment: Loan 50 000
Move to premises 15 000
Other overhead expenses 7 500 7 500 7 500
TOTAL PAYMENTS 43 991 100 300 96 233
CASH SURPLUS (SHORTFALL) 23 809  (31 204)  (39 545)
Bank balance beginning of the year 28 000 51 809 20 605
Bank balance at the end of the year 51 809 20 605  (18 940)
(50)

Calculations
 COMPILED BY MRS S KHAN – EMDC EAST 14

* sales (01/03/04 – 28/02/05) 576 000 X 110% = 633 600

March 2005: 633 600 ÷ 6 = 105 600
Cash = credit = 52 800

Other months: (633 600 – 105 600) ÷ 6 = 48 000

Cash = credit = 24 000

** Debtors
March: (½ x 30 000) = 15 000
April: (½X 30 000) + 60% x 52 800 x 95%)
15 000 + 30 096 = 45 096
May: (36% X 52 800) + (60% X 24 00 X 95%)
19 008 + 13 680 = 32 688

*** Creditors
March (balance 28/02/05) = 29 091
April: 105 600 X 100 ÷ 150 = 70 400
May: 48 000 X 100 ÷ 150 = 32 000

4.1 It seems likely that Susan Dress Shop will experience liquidity problems
by May. 
The business will have a shortfall of R18 940 on their current account  (4)

4.2 The instalment on the loan and moving costs contribute to the cash flow problem,
but the late payment by debtors and early payment to creditors also play an
important role. 

She should put plans to open a second shop on hold until the problems at the
existing shop have been solved and the liquidity is acceptable. 

Apply for overdraft facilities.

See to it that debtors pay within 30 days
Pay creditors after 60 days
Decrease drawings
Try to increase cash sales ANY 2   (8)
[90]

PARTNERSHIPS

QUESTION 1 (B/S 96 – C5)

Broadway Traders is owned by two partners, B Broad and W Way.

INSTRUCTION

Provide the missing figures in the Balance Sheet and the accounts denoted by the letters
A – R.

INFORMATION

Refer to the following information to answer this question:

• The incomplete current account of the partners

• The incomplete Appropriation Account
 COMPILED BY MRS S KHAN – EMDC EAST 15

• The incomplete Balance Sheet

• The additional information.

GENERAL LEDGER OF BROADWAY TRADERS

CURRENT ACCOUNT: B BROAD

Dr. Cr.
2005 2004
Feb 28 Drawings: B Broad C Mar 1 Balance b/d 15 000
Balance c/d 35 000 2005
Feb 28 Salary: B Broad A
Interest on capital 18 000
Appropriation account B

2005
Mar 1 Balance b/d 35 000

CURRENT ACCOUNT: W WAY

Dr. Cr.
2005 2004
Feb 28 Drawings: W Way 20 300 Mar 1 Balance b/d 15 000
Balance c/d 45 000 2005
Feb 28 Salary: B Broad D
Interest on capital E
Appropriation account 17 300
65 300 65 300

2005
Mar 1 Balance b/d 45 000

APPROPRIATION ACCOUNT

Dr. Cr.
2005 2005
Feb 28 Interest on Capital 30 000 Feb 28 Profit and loss account F
Salary B Broad G
Salary W Way H
Current Account: B Broad I
Current Account: W Way 17 300

BALANCE SHEET AS AT 28 FEBRUARY 2005

NOTES R
ASSETS
NON-CURRENT ASSETS O
 COMPILED BY MRS S KHAN – EMDC EAST 16

Tangible assets 3 N
Financial assets 50 000
Fixed Deposit: Dollar Bank 50 000
CURRENT ASSETS R
Inventories 4 P
Trade and other receivables 5 Q
Cash and cash equivalents 6 20 000
TOTAL ASSETS ?
EQUITY AND LIABILITIES
OWNER’S EQUITY L
Capital accounts 7 J
Current accounts 8 K
NON-CURRENT LIABILITIES
Loan: Rand Bank M
CURRENT LIABILITIES 150 000
Trade and other payables 150 000
Bank Overdraft
TOTAL EQUITY AND LIABILITIES ?

ADDITIONAL INFORMATION

1. Profits/losses are share in the ratio Broad: Way = 3 : 2.

2. The total amount earned by Broad for the year was R73 950.

3. The percentage return on average equity for the business is 35%.

4. The balances on the Capital Account are as follows:

28 February 2004 28 February 2005

Broad R160 000 R200 000

Way R100 000 R140 000

5. The debt/equity ratio is 0,5 : 1

6. The current ratio is 3 : 1

7. The acid test ratio is 1,2 : 1

[60]
SOLUTION

This question is answered in the sequence to which the question is to be answered.

I R17 300 ÷ 2 X 3 = R25 950  (4)

Therefore

B R25 950 (double entry principle)  (2)

E R30 000 – R18 000 = R12 000  (3)

D R65 300 – R17 300 – R12 000 – R15 000 = R21 000   (4)

H R21 000 (double entry principle)  (2)

 COMPILED BY MRS S KHAN – EMDC EAST 17

A R73 950 – R18 000 – R25 950 = R30 000  (3)

G R30 000 (double entry principle)  (2)

C R15 000 + R30 000 + R18 000 + R25 950 – R35 000 = R53 950  (4)

F R51 000 + R30 000 + R25 950 + 17 300 = R124 250 

OR

35% of average equity

= 35% X ½(290 000 + 420 000) 
= 35% X 355 000 
= R124 250  (4)

J R200 000 + R140 000 = R340 000  (3)

K R35 000 + R45 000 = R80 000  (3)

L R340 000 + R80 000 = R420 000  (3)

M R420 000 X 0,5 = R210 000  (4)

R R150 000 X 3 = R450 000  (4)

P 1,2 X R150 000 = R180 000 

R450 000 – R180 000 = R270 000  (4)

Q R450 000 – R270 000 – R20 0000 = R160 000  (3)

O R420 000 + R210 000 R150 000 = R780 000 

R780 000 – R450 000 = R330 000  (5)

N R330 000 – R50 000 = R280 000.  (3)

[60]

QUESTION 2 (B/S95 – A1.4)

INSTRUCTION

Prepare the Appropriation Account of the partnership on 31 December 2004

and calculate the net profit. [20]

INFORMATION

1. S Stan and S Sure are partners.

2. The partnership agreement stipulates the following:

2.1 S Stan is to get 5% of the total net income as a salary.

2.2 Both partners are entitled to interest on capital at 10% per annum.
2.3 The remaining income is to be divided according to the ratio of their capital
contributions.
 COMPILED BY MRS S KHAN – EMDC EAST 18

3. On 31 December 2004 the following information was extracted from the

Partnership records.

Balances R
Capital: S Stan 30 000
Capital: S Sure 20 000
Drawings: S Stan 4 000
Drawings: S Sure 800

GENERAL LEDGER OF STANSURE TRADERS

CURRENT ACCOUNT: S SURE

Dr. Cr.
2004 2004
Dec 31 Drawings: S Sure 800 Dec 1 Balance b/d 2 400
Balance c/d 13 000 31 Interest on capital 2 000
_____ Appropriation account 9 400
13 800 13 800
2005
Jan 1 Balance b/d 13 000

SOLUTION

GENERAL LEDGER OF STANSURE TRADERS

APPROPRIATION ACCOUNT
Dr. Cr.
2004  2004 
Dec 31 Salary: S Stan 1 500 Dec 31 Profit and loss account 30 000


Interest on capital 5 000 _____
 30 000

Current account: S Stan 14 100

Current account: S Sure 9 400
30 000
[20]

SOLE TRADER

QUESTION 1 (B/S 94 – C3)

You are provided with information relating to Gateway Stores.

INSTRUCTION

Study the information provided and answer the questions which follow:

1. Is the business a Sole Trader, Partnership or Company? Give a reason

for your answer. (2)

2.1 Does this business use the perpetual inventory system or the periodic inventory
system? Explain briefly. (2)

2.2 In your opinion which inventory system offer greater internal control over stock.
Explain briefly. (4)
 COMPILED BY MRS S KHAN – EMDC EAST 19

3 What was the mark-up percentage used by Gateway Stores up to the end of July
2004? (3)

4.1 Explain how the mark-up policy of the business changed during August 2004. (5)

4.2 Provide a possible reason for this change in policy. (2)

5. Name the account which will be debited as a result of the entry of R136 000 on
the credit side of the Sales Account. (2)

6. Name the account which will be credited as the result of the entry of R60 000 on
the debit side of the Cost of Sales Account. (2)

7. The business calculates that it has always had Trading Stock on hand for 3
months. What will be the value for Trading stock as reflected in the Financial
Statements at 31 August 2004? (4)

8. Which account will be debited as a result of the entry of R31 500 on the credit
side of the Asset Disposal Account? (2)

9. In what manner was the vehicle sold, e.g. was it sold for cash, sold on credit,
Taken over by an owner or traded in? Give a reason for your answer. (2)

10. How old was the vehicle which has now been sold? State the number of years
and months. (5)

11. Calculate:

11.1 The depreciation on the remaining vehicle for the year ended 31 August 2004. (5)

11.2 The amount which will be shown as depreciation in the Income Statement for
the year ended 31 August 2004. (3)

12. Briefly explain how the Fixed Asset Register assists in maintaining internal
control over fixed assets. (5)
[48]
INFORMATION

1. The financial year of the business is 31 August.

2. The Fixed Asset Register reflected that the business had two vehicles at the start
Financial year. The following balances appeared in the General Ledger on
1 September 2003:

Vehicles (at cost) R72 000

Accumulated depreciation on vehicles R53 500

3. The depreciation rate on vehicles is 20% p.a. on cost.

4. The following accounts appeared in the general Ledger:

GENERAL LEDGER OF GATEWAY STORES

SALES (N1)
Dr. Cr.
2004
Aug 1 Balance b/d 880 000
 COMPILED BY MRS S KHAN – EMDC EAST 20

31 ? DJ8 136 000

Bank CRJ8 72 000

COST OF SALES (N2)

Dr. Cr.
2004
Aug 1 Balance b/d 660 000
31 ? DJ8 102 000
? CRJ8 60 000

ASSET DISPOSAL (N5)

Dr. Cr.
2004 2004
Aug 31 Vehicle GJ8 45 000 Aug 31 ? GJ8 31 500
Drawings: Brown GJ8 14 500

SOLUTION

1. Partnership – refer to Asset Disposal Account: Drawings: Brown  (2)

2.1 Perpetual Inventory System: use of Cost of Sales  (2)

2.2
• Perpetual inventory system the Trading Stock account is written up daily and
show how much Trading Stock should be on hand. This can be checked by
means of stocktaking. It is best used for businesses dealing with valuable items
and businesses selling large volumes of merchandise with a relatively low unit
(bar codes used)
• Periodic inventory system is used for businesses that deal in large volumes of
goods with relatively small unit price. The cost of sales can only be calculated
after a physical stock account is done.

Marks to awarded according to motivation.  (4)

3. = (880 000 – 660 000) X 100

660 000 1
= 220 000 X 100 
660 000 1 
= 33 1/3 % on cost  (3)

4.1 Credit sales

= (136 000 – 102 000) X 100

102 000 1
= 34 000 X 100
102 000 1
= 33 1/3 % on cost 

Cash sales

= (72 000 – 60 000) X 100

 COMPILED BY MRS S KHAN – EMDC EAST 21

60 000 1
= 12 000 X 100
60 000 1
= 20% on cost  (5)

4.2 Try to encourage cash sales because money is received on time and it involves
less administration is needed for cash sales  (2)

5. Debtors Control  (2)

6. Trading Stock  (2)

7. Average stock
= Cost of Sales X Number of months’ stock on hand
12
= 822 000 X 3 
12 
= R205 500  (4)

8. Accumulated depreciation on vehicles  (2)

9. Taken over by partner. Refer to entry: Drawings: Brown  (2)

10. Years = Accumulated depreciation X 100

Cost X Rate
= 31 500 X 100 
45 000 X 20 
= 3,5 years 
= 3 years  6 months  (5)

11.1 = (72 000 – 45 000) X 20 X 1

1 100 1
= 27 000  X 20  X 1 
1 100 1
= R5 400  (5)

11.2 = 72 000 X 20 X 1
1 100 1
= R14 400  (3)

12. Details of every vehicle and every item of equipment owned by the business are
in an Asset Register. This information can easily be checked. The total cost of all
the vehicles owned by the business appears in the vehicles account and the total
cost of all the equipment owned by the business appears in the Equipment account.
 (5)
[48]

ASSET DISPOSAL (HG)

QUESTION 1 (B/S 90 – F1.3)

 COMPILED BY MRS S KHAN – EMDC EAST 22

INSTRUCTION

Study the ledger accounts given below and answer the following questions:

1. Calculate the rate of depreciation applied to vehicles. (5)

2. State the method of depreciation applied to vehicles (2)

3. Calculate the book value of vehicles on 28 February 2005 (9)

4. Calculate the book value of vehicles on 31 August 2004 (4)

5. Calculate the Profit or Loss on the sale of vehicles on 31 August 2004 (4)

6. What amount will appear in respect of Depreciation in the Profit and Loss
Account on 28 February 2005? (4)
[24]
INFORMATION

GENERAL LEDGER OF WESTSTAR TRADERS

BALANCE SHEET ACCOUNTS SECTION
VEHICLES
2004 2004
Mar 1 Balance b/d 81 000 Aug 31 Asset Disposal 27 000

ACCUMULATED DEPRECIATION ON VEHICLES

2004 2004
Aug 1 Asset Disposal 22 950 Mar 1 Balance b/d 38 400
Aug 31 Depreciation 1 350

NOMINAL ACCOUNTS SECTION

ASSET DISPOSAL
2004 2004
Aug 31 Vehicles 27 000 Aug 31 Accumulated depreciation on
Vehicles ?
Debtors Control 9 000

SOLUTION

1. Depreciation for half year on vehicle sold = R1 350

Depreciation for 1 year = R1 350 X2 = R2 700

R27 000  X 100

R 2 700  1

= 10%  (5)

2. Fixed Instalment Method.  (2)

3. Balance 1 March 2004 81 000 

Disposal of asset (27 000) 
Balance 31 August 2004 54 000 
Accumulated depreciation 28 February 2005 (22 200)* 
R31 800  (9)

* Balance - accumulated depreciation 31 August 2004

(39 750 – 22 950) 16 800 
Depreciation (10% of 54 000) 5 400 
 COMPILED BY MRS S KHAN – EMDC EAST 23

R22 200 

4. Cost 27 000 
Accumulated Depreciation (22 950) 
R 4 050  (4)

5. Profit = 22 950 + 9 000 – 27 000 = R4 950 (4)

6. Depreciation for the year = 1 359 + 5 400 = R6 750 (4)

[24]

CONTROL ACCOUNTS

QUESTION 1 (B/S 94 – D6)

The General ledger of Jason traders was destroyed in a fire. Hereafter is the complete
Debtors ledger for October 2004.

DEBTORS LEDGER OF JASON TRADERS

E STRACHAN
DATE DETAILS FOL. DEBIT CREDIT BALANCE
2003
OCT 1 Account rendered b/d 660
3 Inv. 112 DJ8 260 920
6 C/N C18 DAJ8 40 880
18 Rec. 24 CRJ8 400 480
Rec. 24 Discount allowed CRJ8 20 460
20 Bank debit note CPJ8 400 860
Journal voucher – discount cancelled GJ8 20 880

S LAMBERT
DATE DETAILS FOL. DEBIT CREDIT BALANCE
2003
OCT 1 Account rendered b/d 1 420
5 Rec. 20 CRJ8 600 820
Rec. 20 – Discount allowed CRJ8 30 790
14 Inv. 114 DJ8 1 040 1 830
20 Journal voucher – interest GJ8 30 1 860
22 C/N C27 DAJ8 65 1 795

M KRIEL
DATE DETAILS FOL. DEBIT CREDIT BALANCE
2003
OCT 1 Account rendered b/d (80)
10 Inv. 113 DJ8 280 200
24 Rec. 26 CRJ8 280 (80)
28 Journal voucher – account transferred GJ8 80 0

SOLUTION
GENERAL LEDGER OF JASON TRADERS
 COMPILED BY MRS S KHAN – EMDC EAST 24

BALANCE SHEET ACCOUNT SECTION

DEBTORS CONTROL (B7)
Dr. Cr.
2004 2004
Oct 1 Balance  Oct 31 Bank and discount  
(660+1 420–80) b/d 2 000 (400+20+600+30
31 Sales   +280) CRJ8 1 330
(260+280+1 040) DJ8 1 580 Debtors allowances  
 (40+65) DAJ8 105
Bank  CPJ8 400 
Journal Debits   Balance  c/d 2 675
(20+30+80) GJ8 130 _____
4 110 4 110
2004 
Nov 1 Balance  b/d 2 675
[30]