Directorate: Curriculum FET

TELEMATICS 2017

ACCOUNTING
Grade 11
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Accounting Telematics: Grade 11 - 2017

Dear Grade 11 Accounting learner

Welcome to the Telematics project. This programme will support your revision and
study programme in preparation for your final Grade 11 Accounting examination.

This is an opportunity for you to consolidate what you have been taught in class. The
Telematics presenters will not be able to cover all aspects of the curriculm but will
rather focus on aspects learners usually find difficulty with.

Tips for success in Accounting

In order to succeed in Accounting you need to take heed of the following:

ƒ Start working from day 1
ƒ Pay careful attention in class to ensure that you understand
ƒ Complete Accounting homework/exercises daily
PRACTICE…PRACTICE…PRACTICE
ƒ Work neatly and accurately
ƒ Show calculations in brackets
ƒ Read instructions to questions/activities carefully to ensure you know what is
being asked
ƒ Complete tasks and assessment activities including tests diligently as if
preparing for your final examination
ƒ Use past examination papers and tests for revision
ƒ Refine your examination technique: when you revise, choose questions that
will extend you in your weaker areas. Use the time allocations provided in the
question to judge whether you are completing the question in the time
available.

All the best with your Grade 11 year.

Dr GR Schreuder
Senior Curriculum Planner: Accounting
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Accounting Telematics: Grade 11 2017

TELEMATICS TEACHING: ACCOUNTING TIME TABLE – GRADE 11

Date Time Topic By the end of this lesson you should know:
Monday, 6 February 16:00 – 17:00 Fixed assets: ƒ How to calculate depreciation using the straight line method
2017 Asset disposal (on cost price) and the diminishing balance method
ƒ How to record the disposal of a fixed asset
*at the beginning of a financial year
*during a financial year
*at the end of a financial year
ƒ The format of the Asset Disposal account
Monday, 20 February 16:00 – 17:00 Fixed assets: ƒ The format of the Asset Disposal account
2017 Asset disposal and fixed ƒ The format of the Fixed Asset Note
asset note
Wednesday, 1 March 16:00 – 17:00 Partnerships: ƒ The purpose of an Income Statement
2017 Format of Balance Sheet and ƒ The purpose of a Balance Sheet
Notes ƒ The format of the Balance Sheet and Notes to the Balance
Sheet
ƒ How to prepare a Balance Sheet and Notes to the Balance
Sheet
ƒ The process you need to follow when preparing the Income
Statement and Balance Sheet
Thursday, 18 May 2017 16:00 – 17:00 Partnerships: ƒ The purpose of an Income Statement
Format of Balance Sheet and ƒ The purpose of a Balance Sheet
Notes ƒ The format of the Balance Sheet and Notes to the Balance
Sheet
ƒ How to prepare a Balance Sheet and Notes to the Balance
Sheet
ƒ The process you need to follow when preparing the Income
Statement and Balance Sheet
Tuesday, 10 October 16:00 – 17:00 Partnerships ƒ The purpose of calculating and analysing financial indicators
2017 Analysis and interpretation of ƒ Where to find the information
financial statements ƒ How to calculate financial indicators/ratio’s
ƒ How to analyse financial indicators/ratio’s
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Accounting Telematics: Grade 11 2017
Tangible/Fixed Assets
Important concepts/skills ƒ Depreciation
ƒ Purpose of writing off depreciation
ƒ What happens when a fixed asset is fully written off
ƒ GAAP principles related to fixed assets:
*Historical Cost concept – fixed assets are recorded at their
original cost price
*Prudence – assets that lose value should be depreciated
*Matching – depreciation is allocated to the appropriate
financial year
ƒ Calculation of depreciation on cost price (straight-line)
ƒ Calculation of depreciation on diminishing balance
ƒ Asset disposal – can be regarded as either a nominal or a
balance sheet account. It will not go into Income Statement
or Balance Sheet. It is an interim account used to calculate
the profit or loss on the sale of a fixed asset.
Disposal of fixed assets ƒ Beginning of year
ƒ During the year
ƒ End of year
Steps involved in the Step 1: Transfer cost price Dr Asset disposal
disposal of a fixed asset Cr Fixed asset (Vehicles or
Equipment)
Step 2: Write off depreciation Dr Depreciation
(during and end of year) Cr Accumulated depreciation on
Equipment/Vehicles
Step 3: Transfer accumulated Dr Accumulated depreciation
depreciation Cr Asset disposal
Step 4: Record sale Cash sale:
Dr Bank
Cr Asset disposal
Credit sale:
Dr Debtors control
Cr Asset disposal
Trade in:
Dr Creditors control
Cr Asset disposal
Step 5: Calculate/Record Profit:
profit/loss Dr Asset disposal
Cr Profit on sale of asset (I/S)
Loss:
Dr Loss on sale of asset (I/S)
Cr Asset disposal
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Accounting Telematics: Grade 11 2017

Dr Vehicles/Equipment B Cr

Balance b/d Asset disposal

(transfer of cost price of
asset sold/traded in)

Bank/ Balance c/d

Creditors’
control
(purchases of fixed
asset)

Balance b/d

Dr Accumulated depreciation on equipment/vehicles B Cr

Asset disposal Balance b/d
(transfer of
accumulated
depreciation on
asset sold/traded
in)

Balance c/d Depreciation

(depreciation
written off)

Balance b/d

Dr Depreciation N Cr
Accumulated Profit and loss
depreciation on
equipment
Accumulated
depreciation on
Vehicles
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Accounting Telematics: Grade 11 2017

Dr Asset disposal Cr
Equipment/ Accumulated
Vehicles depreciation on
(transfer of cost price) equipment/vehicles
(transfer of accumulated
depreciation)

Profit on sale of Creditors’ control/

asset Debtors’ control/
(when the asset is sold Bank
at more than carrying (record the sale)
value)

Loss on sale of
asset
(when the asset is sold at
less than carrying value)

TANGIBLE ASSETS / Land & Equipment Vehicles Total

FIXED ASSETS buildings

Carrying value at beginning

of year
Cost
Accumulated depreciation
Movements:
Additions
Disposals at carrying value
Depreciation
Carrying value on at end of
year
Cost
Accumulated depreciation
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Accounting Telematics: Grade 11 2017

Activity 1

Use the information extracted from the accounting records of Josh Traders to prepare the following
accounts in the General Ledger:
ƒ Vehicles
ƒ Accumulated depreciation on vehicles
ƒ Asset disposal
ƒ Depreciation
Balance/close off the accounts on 29 February 2016

Information:
1. On 1 March 2015 the following balances appeared, amongst others, in the books of Josh
Traders:
ƒ Vehicles R759 000
ƒ Accumulated depreciation on vehicles R297 750

2. On 31 August 2015 a vehicle with an original cost price of R180 000 was sold on credit for
R100 000. The accumulated depreciation on this vehicle on 1 March 2015 amounted to
R60 000.

3. On 1 December 2015 a new vehicle was purchased on credit for R200 000.

4. Depreciation is provided at 20% p.a. on the diminishing balance method.

Activity 2

You are provided with a partially completed note to the Balance Sheet of LauJen Traders on
28 February 2017.

REQUIRED:
2.1 Use the additional information below to complete the Fixed Asset Note to the
Balance Sheet on 28 February 2017.

2.2 Prepare the Asset Disposal Account to record the sale of the Equipment.

ADDITIONAL INFORMATION:
1. Depreciation is written off as follows:
ƒ Vehicles at 15% p.a. on cost price
ƒ Equipment at 20% p.a. on diminishing balance method
2. During the year an invoice was received from Hermanus Wholesalers for the
following:
ƒ Repairs R12 000
ƒ A garage built R50 000
The full amount had incorrectly been debited to repairs.
3. A new vehicle was bought on credit for R180 000 on 1 November 2016. The owner
also paid for the installation of a sound system costing R12 000 and for the license
of R540.
4. On 31 August 2016 equipment was traded in against new equipment which cost
R240 000 at a loss of R12 160. The equipment that was traded in was bought on 1
March 2015 for R160 000.
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Accounting Telematics: Grade 11 2017

PARTNERSHIPS

ƒ Concepts unique to partnerships (Interest on capital; Bonus to partners; Appropriation of

profits)
ƒ General Ledger: (Capital accounts; Current accounts; Appropriation account)
ƒ Adjustments
ƒ Preparation of financial statements: Income Statement; Balance Sheet with Notes
ƒ Analysis and interpretation of financial statements

It is important that you know the formats of the

financial statements and notes

FORMAT OF INCOME STATEMENT

Sales

Cost of sales ( )

Gross profit

Other operating income

Gross operating income

Operating expenses ( )

Operating profit

Interest income

Profit before interest expenses/Finance cost

Interest expense ( )

Net profit
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Accounting Telematics: Grade 11 2017

FORMAT OF BALANCE SHEET

ASSETS

NON-CURRENT ASSETS

Fixed/Tangible assets (carrying value)

Financial assets

CURRENT ASSETS

Inventories

Trade and other receivables

Cash and cash equivalents

TOTAL ASSETS

EQUITY AND LIABILITIES

OWNERS’ EQUITY

Capital

Current accounts

NON-CURRENT LIABILITIES

Loan

CURRENT LIABILITIES

Trade and other payables

Bank overdraft

Current portion of loan

TOTAL EQUITY AND LIABILITIES

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Accounting Telematics: Grade 11 2017

NOTES TO THE FINANCIAL STATEMENTS

FIXED/TANGIBLE ASSET NOTE

FIXED ASSETS Land and Vehicles Equipment Total

buildings
Carrying value at the beginning of
the year
Cost price
Accumulated depreciation ( ) ( ) ( ) ( )

Movements
Additions
Disposal at carrying value ( ) ( ) ( ) ( )
Depreciation ( ) ( ) ( ) ( )

Carrying value at the end of the year

Cost price
Accumulated depreciation ( ) ( ) ( ) ( )

TRADE AND OTHER RECEIVABLES

Trade debtors
Provision for bad debts ( )
Net trade debtors
Expenses prepaid
Income accrued (receivable)
Deposit for water and electricity

CASH AND CASH EQUIVALENTS

Fixed deposits (maturing within 12 months)

Savings account
Bank
Cash float
Petty cash
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Accounting Telematics: Grade 11 2017

TRADE AND OTHER PAYABLES

Trade creditors.
Expenses payable (accrued)
Income received in advance
Pension Fund
Medical Aid Fund
SARS (PAYE)

CAPITAL Partner A Partner B Total

Balance at beginning of year
Contributions during the year
Withdrawals during the year ( ) ( ) ( )

CURRENT ACCOUNTS Partner A Partner B Total

Net profit as per Income Statement
Partners’ salaries
Interest on capital
Partners’ bonuses
Primary distribution of profit
Final distribution of profit
Drawings for the year ( ) ( ) ( )
Undrawn (Retained) profits for the year
Balance at the beginning of the year

Balance at the end of the year

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Accounting Telematics: Grade 11 2017
Activity 3
You are provided with information relating to GoGold Traders as at 28 February 2017.
REQUIRED:
3.1 Prepare the note for the current accounts.
3.2 Prepare the Balance Sheet as at 28 February 2017. Where notes are not required,
show workings in brackets.
INFORMATION: The following figures were extracted from the books on 28 February 2017:

Capital: Goliath 900 000

Capital: Goldworth 1 020 000
Drawings: Goliath 450 000
Drawings: Goldworth 391 500
Current account: Goliath (Cr) 94 800
Current account: Goldworth (Cr) 73 500
Mortgage bond: Worthy Bank 480 000
Loan: XYZ Bank 108 000
Land and buildings 1 708 000
Equipment 584 800
Accumulated depreciation on equipment 76 740
Trading stock 427 480
Consumable stores on hand 22 140
Debtors’ control 61 640
Provision for bad debts 2 325
Creditors’ control 168 395
Bank (Cr) 7 800
Savings account 60 000
Accrued income 11 580
Income received in advance 2 280
Accrued expenses 7 560
Prepaid expenses 2 760
Petty cash 900
Cash float 600

Additional information
1. The Income Statement showed a net profit of R780 000.
2. 20% of the loan from XYZ Bank is repayable within the next financial year.
3. The entries for the partnership agreement is still to be made. The partnership agreement
stipulates the following:
ƒ Mr Goliath earns an annual salary of R180 000 while Mr Goldworth earns R24 000
per month
ƒ The partners earn interest of 12% p.a. The capital balances have remained
unchanged for the year.
ƒ Mr Goliath earned a bonus of R25 000
ƒ The remaining profit is divided equally between the partners
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Accounting Telematics: Grade 11 2017

Activity 4

The following information was taken from the books of Royal Traders. The business is owned by
partners B Prins and K King.

REQUIRED:

4.1 Prepare the following notes to the financial statements for the year ended 28 February
2017:
ƒ Fixed Assets
ƒ Trade and other receivables
ƒ Cash and cash equivalents
ƒ Current accounts

4.2 Prepare the Balance Sheet of Royal Traders on 28 February 2017. Where notes are NOT
required, show calculations in brackets.

INFORMATION:

A. BALANCES ON 1 MARCH 2016:

Capital: B Prins 936 000

Capital: K King 655 200
Current account: B Prins Cr. 73 800
Current account: K King Dr. 49 200
Vehicles 1 392 000
Equipment 384 000
Accumulated depreciation on vehicles 679 260
Accumulated depreciation on equipment 153 600

B. BALANCES ON 28 FEBRUARY 2017:

Fixed deposit: Good Bank (16% p.a.) 600 000

Trading stock 142 760
Consumable stores on hand 9 600
Debtors’ control 205 200
Provision for bad debts 10 260
Creditors’ control 320 560
Bank Dr. 73 200
Savings account 265 800
Accrued income / Income receivable 7 200
Income received in advance 4 800
Accrued expenses / Expenses payable 10 140
Prepaid expenses 18 360

C. ADDITIONAL INFORMATION:

C.1 One of the fixed deposits with Good Bank for R180 000 matures on 31 May 2017.
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Accounting Telematics: Grade 11 2017

C.2 The net profit was appropriated between the partners as follows:

B Prins K King
Annual salaries 550 000 440 000
Interest on capital 210 000 147 000
Bonuses 62 000 46 000
Remaining profit 54 000 108 000

C.3 The drawings by the partners for the year amounted to

ƒ B. Prins – R900 000

ƒ K. King – R660 000

C.4 There was no change in capital throughout the year.

C.5 A vehicle was sold for cash on 28 February 2017 and was properly recorded:
ƒ Cost price R224 000
ƒ Accumulated depreciation (28 February 2017) 142 900
ƒ Selling price 90 000

C.6 Equipment worth R120 000 was purchased on credit from Durable Steel on 28 February
2017 and was properly recorded.

C.7 Depreciation for the year:

Vehicles R208 800
Equipment 76 800

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS

ƒ Know how to calculate financial indicators

ƒ Know how to interpret financial indicators

1. Profitability How efficient is the business in its normal operating activities

Financial indicators:
* % Gross profit on sales * % Operating profit on sales
* % Net profit on sales * % Gross profit on sost of sales (Mark-up)
* % Operating expenses on sales
ANSWERS MUST BE IN % ALL AMOUNTS COMES FROM INCOME STATEMENT

2. Liquidity The ability of a business to pay of its short-term or immediate debt.

Financial indicators:
* Current ratio - Ratio x : 1 * Debtors collection period - Days
* Acid test ratio - Ratio x : 1 * Creditors payment period - Days
* Net current assets - Rand * Average period of stock on hand - Days
* Turnover rate of stock - Times per year
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Accounting Telematics: Grade 11 2017
3. Solvency The ability of a business to pay off all its debt
Financial indicator: * Total assets : Total liability

4. Risk and Gearing To what extent is the business financed by loans compared to
its own capital.
Financial indicators: * Debt equity ratio (the lower the ratio, the lower the risk)

* Return on total capital employed

If ROTCE is higher than interest rate on loans, then company shows positive gearing.
If ROTCE is lower than interest rate on loans, then company shows negative gearing.

5. Returns How profitable is the owner’s investment in the business

Financial indicators: *Return on average owners’ equity - %
*Return earned by each partner

Activity 5: Basic questions asked by readers of financial statements

The financial indicators you will need to calculate answer certain questions about the financial
statements of a business. There are 5 questions readers ask. Match the questions in Column B
with the category in Column A. Write the correct question next to the category in Column A.

Column A Column B
A Can the business pay off its current or immediate
5.1 Profitability
debts comfortably?
B Are the owners (partners) earning a good return on
5.2 Solvency
their investment?
C To what extent is the business financed by loans in
5.3 Liquidity
comparison to own capital?
D Is the business efficient in its normal operating
activities? In other words, are they able to make a
5.4 Return
profit and how well are they controlling their
expenses?
5.5 Financial risk / gearing E Can the business pay off all its debts comfortably?
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Accounting Telematics: Grade 11 2017
Activity 6: Financial indicators
You need to be able to calculate and interpret the following financial indicators. You should NOT
need to memorise these as the way to calculate them can be read from the financial indicator. It is
more important to understand what the financial indicators are telling you about the business.

Category Financial indicator How to calculate

% Gross profit on sales

(turnover)

% Gross profit on cost of sales

(mark-up %)
Profitability &
operating % Operating expenses on
efficiency sales (turnover)

% Operating profit on sales

(turnover)

% Net profit on sales (turnover)

Net Assets

Solvency
Solvency ratio

Net current assets or net

working capital

Current ratio

Acid test ratio

Liquidity Stock turnover rate

Stock holding period

Debtors collection period

Creditors payment period

Gearing / Risk Debt-equity ratio

% Return on average owners’

equity
Return
% Return earned by each
partner
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Accounting Telematics: Grade 11 2017
Activity 7

You are provided with information relating to Look Good Clothing. The business is owned by Lisa
Looks and George Good.

REQUIRED:

7.1 Calculate the financial indicators as indicated in Information D.

7.2 Comment on whether the partners should be satisfied with each of the following aspects.
Quote financial indicators with actual figures/ratios/percentages to support your answers.
7.2.1 The mark-up percentage
7.2.2 The liquidity
7.2.2 The return earned by the business.
7.2.3 The return earned by each partner
7.2.4 The risk and gearing

INFORMATION:

A. INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2017

2017 2016
Sales (60% on credit) 2 176 000 2 880 000
Cost of sales (all on credit) (1 280 000) (1 920 000)
Gross profit 896 000 960 000
Other income 108 000 97 600
Operating expenses (680 000) (724 000)
Operating profit 324 000 333 600
Interest income 15 200 6400
Interest expense (124 320) (71 680)
Net profit 214 880 268 320
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Accounting Telematics: Grade 11 2017

B. BALANCE SHEET AS AT 28 FEBRUARY 2017

2.2 ROYAL TRADERS

BALANCE SHEET ON 28 FEBRUARY 2016
ASSETS 2017 2016
Non-current assets 2 299 280 2 628 800
Fixed assets 2 131 280 2 372 800
Financial assets (12% p.a.) 268 000 256 000

Current assets 673 600 539 200

Inventories (all trading stock) 424 000 336 000
Trade and other receivables (all debtors) 241 600 176 000
Cash and cash equivalents 8 000 27 200

TOTAL ASSETS 2 972 880 3 168 000

EQUITY AND LIABILITIES

Owners equity 1 868 880 2 440 000
Capital 1 920 000 2 400 000
Current accounts (51 120) 40 000

Non-current liabilities 680 000 512 000

Loan: Credit Bank (15% p.a.) 680 000 512 000

Current liabilities 424 000 216 000

Trade and other payables (all creditors) 176 000 216 000
Bank overdraft (18% p.a.) 248 000 0

TOTAL EQUITY AND LIABILITIES 2 972 880 3 168 000

C. NOTES TO THE BALANCE SHEET

CAPITAL Prins King Total

Balance at beginning of year 1 200 000 1 200 000 2 400 000
Movements 320 000 (800 000) (480 000)
Balance at end of year 1 520 000 400 000 1 920 000
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Accounting Telematics: Grade 11 2017

CURRENT ACCOUNTS Prins King Total

Profit as per Income Statement 116 440 98 440 214 880
Salaries 48 000 56 000 104 000
Interest on capital 68 000 50 000 118 000
Bonus 8 000 0 8 000
Primary distribution of profits 124 000 106 000 230 000
Final share of profits (7 560) (7 560) (15 120)
Drawings (66 000) 240 000 (306 000)
Retained income for the year 50 440 (141 560) (91120)
Balance at beginning of year 20 000 20 000 40 000
Balance at end of year 70 440 (121 560) (51 120)

D. FINANCIAL INDICATORS

2017 2016
Mark-up % 7.1.1 50,0%
% Gross profit on sales 41,2% 33,3%
% Operating expenses on sales 31,3% 25,1%
% Operating profit on sales 7.1.2 11,6%
% Net profit on sales 9,9% 9,3%
Solvency ratio 2,7 : 1 4,4 : 1
Current ratio 1,6 : 1 2,5 : 1
Acid test ratio 7.1.3 0,9 : 1
Stock turnover rate 7.1.4 5,7 times
Period of stock on hand 108 days 64 days
Debtors’ collection period 7.1.5 56 days
Creditors’ payment period 56 days 41 days
Debt equity ratio 7.1.6 0,2 : 1
% Return on total capital employed 12,3% 11,5%
% Return earned by the business 7.1.7 12,2%
% Return earned by Prins 8,3% 12,5%
% Return earned by King 7.1.8 11,9%
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Accounting Telematics: Grade 11 2017
Activity 8: You are provided with information relating to Better & Best, a clothing store
owned by Mr Better and Mrs Best on 28 February 2017.
REQUIRED:

8.1 Calculate the following financial indicators on 28 February 2017.

8.1.1 Operating expenses on turnover (3)
8.1.2 Acid test ratio (4)
8.1.3 % Return on average owners’ equity (8)
8.1.4 Stock turnover rate (5)
8.2 Comment on the liquidity position for 2017. Quote THREE relevant financial
indicators (actual ratios or figures) to support your answer. (8)
8.3 The owners are not satisfied with the rate at which the stock is being sold.
Explain why they feel this way by quoting a relevant financial indicator to
support your explanation. (4)
8.4 Discuss THREE reasons why a business should not have too much stock. (6)
8.5 Will the owners of this business be satisfied with the return on equity? Explain
by quoting a financial indicator to support your opinion. (4)
INFORMATION

A. Extract from the Post Closing Trial Balance 2017 2016

Capital: Incredible 900 000 1 050 000
Capital: Trendy 540 000 540 000
Current account: Incredible 138 150 108 000
Current account: Trendy (36 000) (17 100)
Trading stock 480 000 450 000
Debtors’ control 126 000 90 000
Bank - 108 000
Creditors control 216 000 171 000
Bank overdraft 360 000 -

B. Extract from Income Statements 2017 2016

Sales 2 700 000 2 430 000
Cost of sales 1 080 000 1 080 000
Gross profit 1 620 000 1 350 000
Operating expenses 972 000 720 000
Net profit 648 000 630 000

C. Financial indicators 2016 2015

Net profit on sales 24% 25,9%
Operating expenses on turnover ? 29,6%
Current ratio 1,1 : 1 3,4 : 1
Acid test ratio ? 1,2 : 1
Stock turnover rate ? 3,9 times
Debtors’ collection period 48,7 days 40 days
% Return on average owners’ equity ? 44%