PREPARATORY EXAMINATION

2017
MARKING GUIDELINES

ACCOUNTING (10710)

MARKING PRINCIPLES

1. Penalties for foreign items are applied only if the candidate is not losing marks elsewhere in the
question for that item (no penalty for misplaced items). No double-penalty is applied.
2. Penalties for placement or poor presentation (e.g. details) are applied only if the candidate is
earning marks on the figures for that item.
3. Full marks for correct answer. If the answer is incorrect, mark the workings provided.
4. If a pre-adjustment figure is shown as a final figure, allocate the part-mark for the working for that
figure (not the method mark for the answer).
5. Unless otherwise indicated, the positive or negative effect of any figure must be considered to
award the mark. If no + or – sign or bracket is provided, assume that the figure is positive.
6. Where indicated, part-marks may be awarded to differentiate between differing qualities of
answers from candidates.
7. Where penalties are applied, the marks for that section of the question cannot be a final negative.
8. Where method marks are awarded for operation, the marker must inspect the reasonableness of
the answer and at least one part must be correct before awarding the mark.
9. In awarding method marks, ensure that candidates do not get full marks for any item that is
incorrect at least in part.
10. Be aware of candidates who provide valid alternatives beyond the marking guideline.
11. Codes: F = foreign item; P = placement/presentation.
12. This memorandum is not for public distribution, as certain items might imply incorrect treatment.
The adjustments made are due to nuances in certain questions.

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GAUTENG DEPARTMENT OF EDUCATION

PREPARATORY EXAMINATION – 2017

ACCOUNTING

MEMORANDUM

QUESTION 1: RECONCILIATION

1.1 BANK RECONCILIATION

1.1.1 Provide ONE reason why Bank Reconciliation is important for a

business.
ANY ONE REASON 

• Ensures that the Bank Statement agrees with the Bank Account 2
• Ensures that there are no errors and omission of transactions
• Helps to detect fraudulent activities and reduce theft
• Internal control measure to ensure that all transactions are captured
accurately

1.1.2 Identify the cheque that is incorrectly entered in the Bank Reconciliation
Statement for August 2017.
Cheque 900

Provide ONE reason for your choice. 2

It is a stale cheque/ cheque is 6 months old.

Show the correction of the error by completing the table below.

General Ledger Effect on Accounting equation
Account Debit Account Credit A = E + L
  4
+1 980 0 +1 980
Bank Creditors’ Control

Calculate the correct balance as per the Bank Account in the General
Ledger after taking the error into account.

R12 000  + R7 300  + R1 400  – R10 200  – R7 354 

= R3 146  one part correct 7

Indicate whether it is a favourable or unfavourable balance.

Favourable balance

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1.2 DEBTORS’ RECONCILIATION AND AGE ANALYSIS

1.2.1 Show the corrections that must be made to the Debtors’ Control
Account and the Debtors’ List to reconcile the differences noted.

No. Debtors’ Control Debtors’ List 7

83 750 88 550
(i)   ( 4 800)
(ii) 150 150
(iii) 10 000 10 000
 Both Totals 93 900 93 900

1.2.2 Zoxolo feels that the debtors are not effectively controlled.
Provide ONE reason why you think he feels this way.
Do a calculation to support your answer
Calculation 
Explanation  5

• Dali has been allowed to purchase for R23 250 when his credit limit is only
R15 000. His account has insufficient funds. Cheque for R10 000 returned
by the bank.
• 35% of debtors are complying with the credit terms of 30 days.
Other Possible answers
 R27 450 
• 28 %   owing by debtors is 90 days overdue.
 R98 750 
R63 750
• 65% (R36 300 + R27 450 = ) owing by debtors is more than 60
R98 750
days overdue.
State TWO actions that Zoxolo Traders could take in order to encourage
debtors to settle their accounts according to the terms.

ANY TWO  
2
• Issue monthly statements in good time/timeously.
• Stop selling to debtors until overdue accounts are settled.
• Send reminders through text messages (SMS).
• Offer discounts to debtors for paying within the 30-day period.
• Charge interest on overdue accounts.

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1.3 ETHICS AND INTERNAL CONTROL

1.3.1 Explain ONE measure that the business must put in place to avoid the
unethical practice that occurred with Invoice BT101.
Possible answer 
 Proper authorisation for purchases
 Division of duties where one person orders the goods and another pays 2
for the goods
 Control over stationery (order books) – only authorised persons

1.3.2 Refer to Invoice BT109.

State ONE case when the above transaction will constitute ethical
behaviour.
 4

The owner pays for it using a personal cheque.

The owner’s withdrawals will be debited to the Drawings account.

State ONE case when the above transaction will constitute unethical
behaviour.

Possible answer

 When the owner expects the business to pay for the goods
 When it is not recorded as drawings
 The VAT is claimed as input tax.

TOTAL MARKS

35

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QUESTION 2: MANUFACTURING, CONCEPTS AND NOTES

CONCEPTS

2.1 Choose the cost category.

2.1.1 Direct labour cost 

2.1.2 Factory overhead cost 

4
2.1.3 Administration cost 

2.1.4 Direct material cost 

2.2 THE NUTTY DELIGHT FACTORY SHOP

2.2.1 Calculate the value of the raw materials that were issued to the factory
for the year ended 30 June 2017.

325 000 + 1 093 400 + 31 600 – 310 000

(22 000 + 2 200 + 7 400) accuracy and one part correct 9
(2 marks)
= 1 140 000 one part correct

2.2.2 Prepare the Production Cost Statement for the year ended 30 June 2017.
THE NUTTY DELIGHT FACTORY SHOP
PRODUCTION COST STATEMENT FOR THE YEAR ENDED
30 JUNE 2017
R 14
Direct material costs see 2.1  1 140 000
Direct labour costs R400 000 x 65%  260 000
Prime Cost operation  1 400 000
Factory overhead costs R280 750 + 31 250  312 000
(50 000 x 5
8
)
one part correct
Total cost of production operation  1 712 000
Add: Work-in-process at beginning of the year balancing figure  82 000
1 794 000
Less: Work-in-process at end of the year (94 000)
Cost of production of finished goods 80 000 x R21,25   1 700 000

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2.2.3 The Nutty Delight Factory shop buys mainly from overseas suppliers.
Upon investigation, it was found that most of the nuts used in the
production process can be obtained from local suppliers.
Explain ONE possible reason why a local supplier should be used. 2
Any one valid reason e.g. 
• Support for local business
• No Import Duties
• Lower Transport Costs
• Exchange rate varies – variation in profits

2.2.4 Romi Goni plans to increase profits by decreasing costs. Romi intends to
replace the more expensive nuts with peanuts but still sell the snacks at
R40 each.
Should Romi carry out this plan? 3

No

Explain ONE valid reason for your decision.

Any one valid reason e.g. 
• It is unethical to replace the expensive nuts with peanuts.
• They must not mislead the customers by charging R40 for cheaper nuts.
• The customers will notice the difference and stop buying from her – loss of
goodwill.
• Quality will be compromised.

2.3 JADEN STORES

2.3.1 Calculate the break-even point for 2017.
𝑅𝑅1 620 000
𝑅𝑅1 026 000 + 𝑅𝑅594 000
𝑅𝑅693,00 − 𝑅𝑅303,30
𝑅𝑅389,70 5
= 4 158 units  One part correct accept 4157

2.3.2 Explain whether the owner should be concerned. Provide figures.

Yes / No is part of the explanation (No marks)
Comment comparing BEP to level of production 
Comparative figures (Refer to answer above; must compare BEP to production)
3
Possible answers:
• The owner should not be concerned as the business produced
(4 600 – 4 157) 443 units more than the break-even point.
• The owner should be concerned as the business produced
(4 600 – 4 157) only 443 units more than the break-even point.
• Owner should be concerned because they make a profit on only 443 units

TOTAL MARKS

40

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QUESTION 3: COMPANY FINANCIAL STATEMENTS AND AUDIT REPORT

3.1 CONCEPTS

Match the concepts in Column A with the descriptions in Column B.

3.1.1 C 
3.1.2 E 
3.1.3 B 
3.1.4 A  5
3.1.5 D 

3.2 AMARA LIMITED

3.2.1 Calculate the Net Profit after Tax.

R
Incorrect Net Profit before Tax 1 024 400 10
Telephone  (3 000)
Insurance  4 500
220 177 600  (26 400)
Rent Income x
1 480 1
Stationery  500
Net profit before tax one part correct 1 000 000
Income Tax NPBT X 0,28  (280 000)
Net Profit after tax tax must be deducted one part correct 720 000

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3.2.2 ORDINARY SHARE CAPITAL

AUTHORISED
Number of authorised ordinary shares: 400 000 shares

ISSUED R
160 000 Ordinary shares at the beginning of the year 4 000 000
50 000 Ordinary shares repurchased at the average  (1 250 000)
share price *R25 any one part correct
9
100 000  Ordinary shares issued during the financial 1 750 000
year at @R17,50 each operation
210 000 Ordinary shares in issue at the end of the year  4 500 000
one part correct operation
4 000 000
= 𝑅𝑅25
160 000

RETAINED INCOME R
Balance at the beginning of the year 540 000
Net profit after tax for the year see 3.2.1  720 000
Repurchase of 50 000 ordinary shares @R5,00   (250 000)
one part correct
Dividends on ordinary shares operation  (264 000)
Paid  96 000 10
80 210 000  168 000
Recommended  𝑋𝑋  one part correct
100 1

Balance at the end of the year one part correct  746 000

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3.2.3 AMARA LIMITED

BALANCE SHEET AS AT 28 FEBRUARY 2017

ASSETS R
NON-CURRENT ASSETS  5 872 000
Fixed/Tangible Assets
5 002 000 + 700 000 + 250 000 – 263 750 – 76 250  5 612 000
Financial Assets  260 000 (8)

CURRENT ASSETS operation  1 058 000

Inventories balancing figure 325 500
Trade and other receivables 696 000 + 20 000 + 4 500 see 3.2.1  720 500
Cash and Cash equivalent  12 000
TOTAL ASSETS calculation  6 930 000 (7)

EQUITY AND LIABILITIES

SHAREHOLDERS’ EQUITY operation  5 246 000
Ordinary Share Capital see 3.2.2  4 500 000
Retained Income see 3.2.2  746 000 (3)
NON-CURRENT ASSETS 780 000
Loan from 1 140 000  – 360 000  (517 500 – 157 500)  780 000 (4)
CURRENT LIABILITIES operation  904 000
Trade and other payables see 3.2.1 see 3.2.2 – SHFD can be shown separately  492 000
294 600  + 3 000  + 26 400  + 168 000  one part correct

Bank overdraft  52 000

Current loan portion see loan above  360 000

TOTAL EQUITY AND LIABILITIES operation  6 930 000 (9)

31

TOTAL MARKS

65

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QUESTION 4: CASH FLOW STATEMENT AND RATIO ANALYSIS

4.1 CONCEPTS

Write down only the answer next to the question number (4.1.1 – 4.1.3).

4.1.1 Liquidity 
4.1.2 Solvency 
 3
4.1.3 Gearing

4.2 NKOSI LIMITED

CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRAURY 2017

R
Cash effects of operating activities operation  455 032
Cash generated from operations 926 422
Interest paid (144 000)
Dividends paid 120 000 +16 800 one part correct  (136 800)
Income Tax paid 198 240+ 4 800– 12 450 one part correct  (190 590) (9)
CASH EFFECTS FROM INVESTING ACTIVITIES operation  (145 542)

Fixed assets purchased 1 175 328 - 23 316  - 19 974- 977 760

See proceeds on sale of asset one part correct  (240 858)
Proceeds from sale of fixed assets 48 000 – 24 684
  23 316
Fixed deposit matured 228 000 – 156 000 (10)
 72 000
CASH EFFECTS FROM FINANCING ACTIVITIES operation
 756 000
Proceeds from the sale of shares
2 850 000  + 200 000  - 1 200 000  one part correct  1 850 000
Repurchase of shares 10 000 X R23
 (230 000)
Repayment of loan (10)
1 284 000 – 420 000 / 1 008 000 – 144 000  (864 000)
1 065 490
Net change in cash and cash equivalents operation

Cash and cash equivalents at the beginning of the year 80 130 - 30 (80 100)

Cash and cash equivalents at the end of the year 985 390 (3)

32

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4.3 FINANCIAL INDICATORS OF TWO COMPANIES:

4.3.1 Calculate the following financial indicators:

Net Asset Value of Talk Ltd.

2 116 800
189 000

= 1 120 cents

Debt=Equity Ratio of Data Ltd.

202 230 : 1 011 150 6

0,2 : 1

4.3.2 Your friend is of the opinion that the liquidity position of Talk Ltd. is better than
that of Data Ltd. Quote and explain (with figures) to support her opinion.

Quote TWO financial indicators.

Any two with figures Ratio  Figures 

• Current ratio of Data Ltd is 3,6 : 1 and Talk Ltd. is 2,4 : 1
6
• Acid-test ratio of Data Ltd is 0,6 :1 and Talk Ltd. is 1,2 : 1
• The stock turnover rate of Data Ltd. is 4 times and Talk Ltd. is 8 times

Explanation 
• Talk Ltd. has a better current ratio and is able to cover current liabilities
whereas Data Ltd’s. ratio is too high – funds tied up in stock (current
assets)/not used profitably
• Talk Ltd. has a better Acid-Test Ratio than Data Ltd. Data Ltd. has too
much stock on hand which resulted in the poor Acid-Test Ratio
• Talk Ltd. is selling its stock faster (8 times) during the year as compared to
Data Ltd. (4 times).

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4.3.3 Data Ltd. paid off a large portion of its loan during the financial year.
Quote TWO financial indicators with relevant figures to show why this
was not a good decision taken by the directors.

Financial indicators and figures  

Valid comment 

Relevant financial indicators:

Debt: equity is 0,2 : 1 (check 4.3.1)
7
ROTCE: is 18,4%

Comment
The company is at low risk. Therefore there was no need to pay a large
portion of the loan.
It is also positively geared. The ROTCE (18,4%) is higher than the interest rate
of 10,5%.

4.3.4 Will the shareholders be satisfied with the price at which the new shares were
issued for both companies? Explain. Quote relevant financial indicators and
figures for each company.

Data Ltd. Talk Ltd.

Yes/No
NO YES 6
They sold the shares at 260 They sold the shares at 280
cents under the market price cents above the market price
(450 cents compared to 710 (1200 cents compared to 910
Relevant cents). cents).
indicator
and Selling price is also 85 cents Selling price is also 80 cents
comment less than the NAV of 535 more than the NAV of 1 120
cents. cents.
Explanation
  Existing shareholders are Existing shareholders and
Figures being disadvantaged directors should be happy to
  (260 x 189 000= R491 000). raise additional income
Must indicate MP &
NAV
Could have raised more (280 x 189 000= R529 200).
money if they increased the
price

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4.3.5 Your friend owns 30 000 shares in each of the companies.

Data Ltd. Talk Ltd.
Calculate the
dividends that 30 000 x R2,30 30 000 x R2,45
she earned from = R69 000 =R73 500
each company.
Compare and 10
comment on the DPS 230 cents DPS 245 cents
dividend pay-out EPS 350 cents EPS 285 cents
policies of the Distributes 66%  Distributes 86% 
two companies. (230/350) of earnings (245/285) of earnings
Provide OR OR
calculations in Data Ltd. decided to retain Talk Ltd. decide to retain
your 34% of its EPS only 14% of its EPS
explanation.
Explain ONE Data Ltd. appears to have
Talk Ltd. appears to keep
reason for the plans for growth (better
shareholders satisfied by
dividend pay-out long-term benefits) /
giving them good
of each equalisation of dividends
dividends.
company. over time. 

TOTAL MARKS

70

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QUESTION 5: INVENTORY VALUATION AND PROBLEM-SOLVING

INVENTORY CALCULATIONS
5.1.1 Calculate the number of hats on-hand on 28 February 2017, the financial
year-end.

(100 + 500) – (100 + 410)

600 - 510
= 90 hats two marks or nothing 3

5.1.2 Calculate the following using the weighted average method:

Value of the final stock on-hand on 28 February 2017

𝑅𝑅38 000 + 𝑅𝑅4 000

600
See 5.1.1
𝑅𝑅42 000 7
600

= R70,00 one part correct

R70 x 90 
= R6 300 one part correct

Gross profit
(510 X R70) / (4 000 + 38 000 – 6 300)
one part correct
R76 500 – R35 700
= R40 800 one part correct 5

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5.1.3 The owner wants to alternate between using the weighted average method
and the First-In-First-Out (FIFO) method, depending on which will result in
a higher profits.

Calculate the following using the FIFO method:

Value of the final stock on-hand-on 28 February 2017
5
(40 x R90)
R6 000 + R3 600 = R9 600

Gross profit percentage on cost of sales

See above
R76 500 + R9 600  – R42 000 = R44 100 6

44 100 100
𝑋𝑋 = 136,11% 𝑜𝑜𝑜𝑜 136%  one part correct
32 400 1

Provide TWO reasons why alternating between the two methods of valuing stock
does not comply with the requirements of International Financial Reporting
Standards (IFRS).
4
Two valid reasons  

The business must stay consistent from one year to the next in order to compare
results.

Not ethically correct to manipulate profit by changing policies

Not acceptable practice – SARS will not approve

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5.2 GYM TRIM

5.2.1 Calculate the number of days of stock on-hand for Gym Bags. Gym Bags
are sold at a mark-up of 25% on cost. The average stock amounted to
R153 600.

𝑅𝑅153 600 365

𝑋𝑋
𝑅𝑅260 400  1
6
100
930 X 350 X
125

= 215,3  one part correct accept 216 days

5.2.2 Identify ONE different problem in respect of the manner in which each
product is managed. Quote figures to support your answer. In each case
offer practical advice.

Problem    Possible solution  

figures   One per item 9
Sweatbands 120 + 5 600 – 4 800 • Internal control measures to
= 920 – 810 = 110 safeguard the stock e.g.
missing Security tags, cameras,
display close to paying point,
physical stock-taking on a
continuous basis
Towels 840 X R125 = • Investigate and apply
R105 000 disciplinary measures.
R105 000 – R100 00 = • Check at exit that the
R5 000 cash missing payment for the towels
appears on the pay slip /
invoice.
• Check money before
banking.
• Division of duties
Gym Bags Too much stock on • Revisit sales policy and
hand - 215 / 216 days implement measures to
See 5.2.1 encourage sales.
• Discontinue selling gym bags
since sales are low even
though the mark-up
percentage is only 25%.

TOTAL MARKS

45

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QUESTION 6: VAT AND BUDGETS

6.1 VAT

Complete the following sentences by writing down the missing words or

figures.

6.1.1 Output 

6.1.2 Owing to / payable to 

𝑅𝑅36 000 14 
x = 𝑅𝑅5 166 6
6.1.3 1 100

𝑅𝑅7 410 14 
x = 𝑅𝑅910
6.1.4 1 114

6.2 CASH BUDGET

6.2.1 Provide ONE reason why it is essential for the business to prepare a Cash
Budget.

Any One 

• To predict cash flows / determine receipts & payments for the future 2
• To control cash / Calculate bank balance

6.2.2 Complete the Debtors’ Collection Schedule.

MONTH CREDIT SALES NOVEMBER DECEMBER
November 144 000 34 200  97 920
7
December 168 000  Cost of sales X  39 900
0,25 X 0,95
34 200 137 820
One part correct

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6.2.3 Calculate the missing figures for cash surplus/deficit and bank balances
(A – E) on the Cash Budget.
Calculations Answer
100 𝑅𝑅288 000
A x = 𝑅𝑅192 000 x 75% one part correct  R144 000
150 1
R64 000 – R12 000 = R52 000 ÷ 10 = R5 200 + R520 16
= R5 720 x 10 = R57 200
B  R73 400
R12 000 x 1.35 = R16 200
57 200  + 16 200  one part correct
15 1
C 𝑅𝑅800 000 − 𝑅𝑅200 000 = 𝑅𝑅600 000 x x   R7 500
100 12
one part correct
D R598 264

E (R124 684) + R598 264 R473 580

6.2.4 Comment briefly on the bank balances. Quote figures.

Comment 
Quote figures.
8
The overdraft (R195 308) has been eliminated / removed and they are now in a
positive/favourable situation (R473 580 in December).

Explain TWO significant measures they have used to improve the cash
flow. Quote figures.
Measure  
Quote figures.  

• Additional capital contribution in October, R370 000

• Sale of shop premises for R1 000 000
• Selling goods on credit increased sales to R360 000 in November and to
R420 000 in December.

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6.2.5 The owner feels that there is a problem regarding some of the income and
expense items. Comment on the control of each item and give ONE
specific point of advice in each case.
ITEM ADVICE   
 Increase advertising / change methods.
Cash sales
 Incentives to buyers e.g. discount, clearance sales 6
Rent  Investigate if premises were unoccupied.
income  Investigate why the rent has not been collected.
 Obtain a more reliable tenant.
 Improve collection / Insist on payment in advance or by
debit order
Delivery  Investigate possible abuse of vehicle e.g. private use.
vehicle  Charge clients for delivery of goods.
expenses  Investigate whether budget is adequate.
 Investigate whether vehicles should be replaced.
 Improve internal control procedures e.g. log books.
 Plan deliveries properly.

TOTAL MARKS

45

TOTAL: 300

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