Accounting SSIP Grade 11 + 12

SECONDARY SCHOOL
IMPROVEMENT
PROGRAMME (SSIP) 2024
ACCOUNTING
GRADE 11 & 12
LEARNER BOOK 2 (PAPER 2)
Cover by: Molemo Masemula
© Gauteng Department of Education

TABLE OF CONTENTS
SESSION CONTENT PAGES
1 Bank Reconciliation 7 — 28
2 Creditors Reconciliation 29 — 50
3 Debtors Reconciliation 51 — 73
4 Fixed Assets 74 — 88
5 Management of Fixed Assets 89 — 105
6 Budgeting 106 — 159
7 Inventory Valuation 160 — 182
8 Inventory Valuation — Stock Identi cation 183 — 205
9 Cost Accounting 206 — 247
10 Value Added Tax & Ethics 248 — 272

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9 99165 BANK RECONCILIATION
BANK RECONCILIATION CONCEPTS AND NOTES
WHAT IS BANK RECONCILIATION?
 Bank reconciliation is the process by which the bank account balance in an entity’s books is
reconciled to the balance in the most recent bank statement. Any difference between the
two figures needs to be examined and, if appropriate, be rectified to bring the two records
into agreement.
Reasons for preparing the Bank Reconciliation
 To ensure that all entries relating to cash transactions are accurately recorded.
 Fraudulent transactions can be detected.
 Errors or omissions can be detected
It also enables the business or individual to keep track of the following:

 Outstanding Electronic Funds  Electronic transfers made by the business
transfers (EFT) or person
 Outstanding deposits  Electronic transfers /direct deposits in favour
of the business
 Bank charges/ service fees  Interest on overdrafts
 Interest earned on the credit balance
CONCEPTS UNIQUE TO BANK RECONCILIATION

Current Bank account An account from which money can be drawn immediately without
notice, payments can be made by cheque, electronic transfers or
debit card.
Bank charges Amounts deducted by the bank as payment for the services it
provides. This is reflected on the statement.
Bank overdraft The business has withdrawn more money than was deposited in the
bank account.
Interest on overdraft Represents a payment (expense) to the bank for an overdraft bank
balance.
Interest on current A receipt (income) from the bank for reflecting a favourable bank
account balance.
Credit card This is used to buy goods or services from suppliers, and the
amounts used is paid back to the bank at a later date.
Debit card This is used to buy goods/services and the amount is immediately
deducted from your bank account balance.
Deposit slip This form is used to record the total cash and cheques received for
the day and is proof of the amount deposited in the current account.
Electronic funds transfer Electronic transfer of money from one bank account to another,
(EFT) without direct interaction of the bank staff.

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COMPARISON BETWEEN THE BANK STATEMENT AND THE RECORDS OF THE BUSINESS
Records of the business Records of the bank
 Cash transactions recorded in the CRJ  A statement sent by bank to the business
and CPJ and ultimately posted to the reflects all the transactions affecting the
Bank Account. balance of the business.
 Cash received and deposited is  The Bank will CREDIT all deposits made
reflected on the DEBIT side of the Bank by the business.
Account.  Payments, withdrawals, debit orders
 Payments made by the business are made by the business are recorded on the
reflected on the CREDIT side of the DEBIT side of the bank statement.
bank account.

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FAVOURABLE AND UNFAVOURABLE BANK BALANCE
Favourable
Business Records Bank Records

A favourable balance is reflected on the A favourable bank balance is reflected on the
DEBIT side of the Bank account CREDIT side of the Bank statement.
Unfavourable
Business records
Bank Records
An unfavourable bank balance (bank An unfavourable bank balance is
overdraft ) is reflected on the CREDIT side reflected on the DEBIT side of the
of the Bank account. Bank statement.
• is an asset to the business

• is a liabilty to the bank Favourable balance
• is a liability to the business

• is an asset to the Bank Unfavourable balance

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STEPS TO FOLLOW WHEN COMPLETING THE BANK RECONCILIATION:
Steps Action and Reconciliation
Step 1: Compare the CRJ with the Credits Tick off (√) all the entries that agree in the Journals
(+) entries on the bank statement. and the Bank statement and, circle entries that only
Compare the CPJ with the Debits appear in a journal or that only appear on the bank
(-) entries on the bank statement. statement.
The above action will be classified as step one only when the entity has just opened the
current bank account or just started to operate as a business.
Step 2.1 The entries circled in the Bank Record those entries in CRJ OR CPJ
statement (except errors made by the bank)
2.2 Entries circled in the CRJ and CPJ Record entries in Bank Reconciliation
(except errors made by the business)
2.3 Total the CRJ and CPJ
Step 3: Draw up the Bank account and balance it.
Step 4: Draw up the Bank Reconciliation Statement
Assume that the above records are completed at the end of February 2021
NOTE THE FOLLOWING:
 Errors made by the business will be corrected in the Cash Journals

 Errors made by the Bank will be corrected in the Bank Reconciliation
statement

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Steps Action and Reconciliation for the end of March 2021
Step 1: Compare Bank Reconciliation If the entries appear in the Bank Statement, only ck
Statement for February 2021 with it off.
Bank statement of March 2021. If the entry does not appear on the bank statement,
circle and record the entry again in the current
month’s BRS.
Step 2.1 Entries circled in the Bank Record those entries again in Bank Reconcilia on –
reconcilia on statement for March 2021
February 2021. Entries could involve the outstanding deposit if it the
business has not taken the decision to write the
amount off.
These steps will be followed by the steps that were followed In February, check the
informa on above.

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EXAMPLE: BANK RECONCILIATION
The bookkeeper of Majozi Stores received the Bank Statement from the First Rand
Bank on 31 January 2021.
REQUIRED:
1. Compare the Bank Statement with the CRJ and the CPJ.
2. Supplement (add the relevant extra entries to Cash Journals and total the Bank
columns only)
3. Post the bank totals in the CRJ and CPJ to the bank account in the general
ledger
4. Draw up the Bank Reconciliation Statement on 31 January 2021
5. Explain one reason why it is important for a business to prepare a monthly Bank
Reconciliation Statement
INFORMATION:
A. Majozi Stores
Cash Receipt Journal for January 2021
Doc Day Details Bank Sales Cost of Sundry Accounts
sales
Amount Details
CRT 10 S. Marray 2 500 2 500 Debtors control
28 17 DF Malan 2 800 2 800 Debtors control
CRT 30 Sales 7 500 7 500 5 000
12 800 7 500 5 000 5 300
B. Cash Payment Journal for January 2021

Doc Day Details Bank Sundry Accounts
Amount Details
EFT 19 Mino 3 750 3 750 Equipment
91 Stores
EFT 20 CNA 350 350 Stationery
92
EFT 26 Faff 1 200 1 200 Creditors control
93 Traders
EFT 30 Karl 2 300 2 300 Repairs
94 Motors
7 600 7 600

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C. Bank Statement received from First Rand bank
Date Transaction details Debit Credit Balance

1 Jan Opening balance 9 200
10 Jan Deposit: S Marray 2 500 11 700
15 Jan Debit order: OBE Insurers 1 400 10 300
17 Jan DF Malan 2 800 13 100
19 Jan EFT (Mino Stores) 3 750 9 350
20 Jan EFT (CNA) 350 9 000
21 Jan Deposit (EFT by tenant: S Omar) 1 500 10 500
25 Jan Debit order: Multi choice 1 000 9 500
26 Jan EFT (Faff Traders) 1 200 8 300
29 Jan Cash deposit fee 95 8 205
31 Jan Service fee 70 8 135
31 Jan Interest income 240 8 375
ADDITIONAL INFORMATION:
1. The bank account in the General ledger has a favourable balance of R9 200 on 1
January 2021
2. The Bank Statement is received on the 28 th of each month.
EXPECTED ANSWER
Majozi Stores
1. Cash Receipt Journal for January 2021
Doc Day Details Fol Bank Sundry Accounts
Amount Details
1 Totals 12 800
B/S 31 S Omar 1 500 1 500 Rent Income
B/S 31 First Rand bank 240 240 Interest Income
14 540
2. Cash Payment Journal for January 2021

Amount Details
1 Totals 7 600
B/S 31 OBE Insurers 1 400 1 400 Insurance
B/S Multi Choice 1 000 1 000 DSTV fees
B/S First Rand Bank 165 165 Bank charges
10 165

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3. Bank account
Jan 1 Balance b/d 9 200 Jan 31 Total CPJ 10 165
payments
31 Total CRJ 14 540 Balance c/d 13 575
Receipts
23 740 23 740
Feb 1 Balance b/d 13 575
4. Bank Reconciliation Statement on 31 January 2021

Debit Credit
Cr Balance as per bank statement 8 375
Cr Outstanding deposit 7 500
Dr Outstanding EFT’s
EFT 94 2 300
Dr Balance as per bank account 13 575
15 875 15 875
5. Explain ONE reason why it is important for a business to prepare a

monthly Bank Reconciliation Statement.
 To confirm the accuracy of the bank balance in the business books with
external source, the bank statement.
 To identify errors and timeously do corrections
 To follow up on outstanding deposits and EFT’s
 To update the bank balance with the amounts that were directly deducted or
deposited to your account. e.g. bank charges, interest, debit orders etc.

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ACTIVITY 1
Use the following Cash Journals of Chloe Traders and the Bank Statement
received from AJ Bank to complete the following:
Required:
1.1 Complete the Cash Journals for January 2021. Enter the provisional totals
first.
1.2 Post to the Bank account in the General ledger.
1.3 Prepare the Bank Reconciliation Statement on 31 January 2021
Information:
Chloe Traders
Cash Receipt Journal for January 2021
Amount Details
CRT 2 Sales 1 900
23 8 H Lene 4 800
CRT 11 Sales 2 500
9 200
Cash Payment Journal for January 2021

Amount Details
EFT1 5 Icon Traders 2 200
15
EFT1 7 City Treasurer 1 900 1 900 Water &
16 Electricity
EFT1 11 S Sly 1 680
17
EFT1 20 V Batim 6 400
18
10 280 1 900
Bank Statement (Extract)

Date Transaction details Debit Credit Balance
1 Jan Balance b/f 13 890
2 Jan Deposit 1 900 15 790
5 Jan Electronic transfer (Icon Traders) 2 200 13 590
11 Jan Deposit 2 500 16 090
Electronic transfer (S Sly) 1 680 14 410
14 Jan Cash deposit fee 29 14 381
20 Jan Electronic transfer (V Batim) 6 400 8 981
28 Jan Service fee 56 8 925
Electronic transfer(tenant: S Mart) 2 400 11 325

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Additional information:
1. The bank account in the General ledger has a favourable balance of R13 890 on 1
January 2021
2. EFT payment 118 on the 20 January 2021 appeared on the January bank
statement with the correct amount of R5 400. Payment was made to a creditor in
settlement of our account.
3. The Bank Statement is received on the 25 the of each month.
ACTIVITY 1
ANSWER SHEET ONE
1.1 CASH RECEIPT JOURNAL - JANUARY 2021 CRJ 1
Doc Day Details Bank Amount Details
CASH PAYMENT JOURNAL - JANUARY 2021 CPJ 1

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1.2 GENERAL LEDGER OF CHLOE TRADERS
Bank
1.3 Prepare a Bank Reconciliation Statement for JANUARY 2021.
Debit Credit

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ACTIVITY 2 221
2.1 Indicate whether the following statements are TRUE or FALSE: (3)
2.1.1 A payment made by EFT, must be recorded in the Cash payment journal
when it reflects on the bank statement.
2.1.2 A business must record cash losses immediately when suspected according
to the materiality concept of GAAP.
2.1.3 A debit balance on the bank statement indicates a bank overdraft.
2.2 Bank Reconciliation
Lucky Jimmy, the cashier of Franco’s Deli, is in charge of collecting,
receipting and banking all cash receipts as well as all payments done via
EFT. He feels that there is no need to prepare a bank reconciliation
statement because the bank keeps accurate records of all transactions as
reflected on the bank statement.
REQUIRED:
2.2.1 Calculate the correct bank account balance in the General Ledger on 31 July (9)
2020.
2.2.2 Prepare a Bank Reconciliation Statement on 31 July 2020. (7)
2.2.3 Provide ONE reason why the internal auditor expressed concern about (2)
Lucky’s job description.
2.2.4 Explain to Lucky why it was necessary to prepare a bank reconciliation (4)
statement each month. Provide TWO points
INFORMATION:
A  Favourable balance as per bank account on 31 July 2020 was
R11 743 before receipt of the bank statement from Money Bank.
 Balance as per bank statement on 31 July 2020. R?
B Items on the July bank statement but not shown in the Cash Journals:
RAND
Service fees 45
Cash deposit fees 132
Interest income 23
Debit order payment for insurance to Xi Insurers. This 800
amount appeared twice on the statement in error
Commission income from LUVLI Pastries 522
Direct deposit by debtor, Y Knot 189
C EFT payments made on 31 July 2016, were not on the bank statement:
EFT 1 for R675 and
EFT 2 for R2 010
D Deposit on 31 July 2016 for R3 935 was not on the bank statement.

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ANSWER SHEET 2
2.1 CONCEPTS
2.1.1
2.1.2
2.1.3
3
2.2.1 Calculate the correct Bank Account balance on 31 July 2020.
2.2.2 Bank Reconciliation Statement on 31 July 2020.

Debit Credit
7
2.2.3 Provide ONE reason why the internal auditor expressed
concern about Lucky’s job description.
2
2.2.4 Explain to Lucky why it was necessary to prepare a bank
reconciliation statement each month. Provide TWO points

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9 99165 EDH 5 8 65 131 :165
LIST OF POSSIBLE ERRORS ,DIFFERENCES AND OMMISSIONS
When comparing the Cash Journals against the Bank statement the following errors, differences omissions
will be identified:
Entries on Bank Statement Records Corrected or Updated

Credit Entries
 Interest on current account  Entries appearing in the Bank Statement only,
 Direct deposits will be recorded in CRJ.
 Internet deposits
Debit Entries
 Interest on overdraft
 Stop orders and Debit orders  Entries appearing in the Bank Statement only,
 Bank charges will be recorded in CPJ.
 Service fees
 Levy on debit transactions
 Credit card costs, etc.
Entries in Cash Journals Records Corrected or Updated

Cash Receipts Journal
Amounts received or EFT’s incorrectly Overstated Understated
recorded Difference should be Difference should be
o Overstated recorded in the CPJ recorded in the CRJ
o Understated
Cash Payments Journal

Amounts or EFT’s paid incorrectly recorded Overstated Understated
o Overstated Difference should be Difference should be
o Understated recorded in the CRJ recorded in the CPJ
Bank Reconciliation Statement Entries

 Closing balance of the Bank Statement  Favourable (CR) or unfavourable balance
(DR)
 Deposits not yet credited by the Bank  Credit entry – you may have more than one
deposit
 EFTs not yet reflected  Debit outstanding EFT’s
 Debit wrongly credited amount  Correction of wrongly debited or credited
 Credit wrongly debited amount amounts by the bank does not affect our
Journals/Records, these errors will be
recorded in the BRS.
 Closing balance according to the Bank account  Favourable (DR) or unfavourable balance
(CR)

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Internal control processes that should be implemented to safeguard cash are:
 Ensure deposits are done on regular basis

 Rotate duties and times of banking to avoid creating a pattern
 Provide security when going to bank ,at least two people should go
 Divide duties ,the person who receives cash cash cannot be the person who banks or
prepare the financial records.
 Use the collection companies to collect cash on a daily/regular basis.
 Check documentation ,receipts against deposit slips
 Senior personnel should check via internet banking / deposit slips that deposits reflected daily.
 Request SMS from bank for all transactions.
 Encourage debtors to make direct transfers (EFT).
 use of electronic notification of cash/bank deposits
ACTIVITY THREE
The information was extracted from the records of Hilton Traders for June 2020.
REQUIRED:
3.1 Complete the Cash Journals for June 2020. (Note: The information from the Bank
Statement was not taken into account) (31)
3.2 Prepare the Bank Account on 30 June 2020. (6)
3.3 Prepare the Bank Reconciliation Statement on 30 June 2020. (9)
3.4 Provide TWO suggestions that the business can use to prevent a situation like the
one experience on 26 May 2020 in the future. (4)
3.5 Identify the problem that is revealed by the previous reconciliation, and list TWO
internal control measures to solve this problem. (5)
3.6 Refer to the debit order for R2 244. Provide a possible explanation how this may have
occured, and provide advise on how this can be rectified. (4)
INFORMATION:
A. Extract from the Bank Reconciliation statement on 31 May 2020:
Outstanding deposits: 17 May 2020 R32 100

26 May 2020 7 300
Outstanding EFT: No. 123 17 600
Unfavourable balance as per bank account 3 456

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NOTE:
 The outstanding deposit of R32 100 appeared on the June 2020 bank
statement.
 The outstanding deposit on the 26 May 2020 was reflected as R5 700 on
the April statement. Upon enquiry, the bank confirmed that it was because
of counterfeit notes included in the total deposit. This was cash received
for repair services rendered. It was decided to write-off this difference.
EFT 123 appeared on the Bank Statement for June 2020.
B. Provisional totals from the Cash Journals on 30 June 2020:

 Cash Receipt Journal, R56 200
 Cash Payment Journal, R67 400
C. The following information on the June 2020 Bank Statement from XXZ Bank did
not appear in the June 2020 Cash Journals:
 Debit orders:
Pro Insurers R5 890 Monthly insurance premium

Matjhabeng R6 000 R4 500 is for the business’ rates and
Metro taxes and the balance is for the
owner’s private property.
YEN Bank R5 300 Monthly repayment of loan
 EFT Fees, R189

 Cash handling fee, R112
 Service Fees, R292
 Interest on bank overdraft, R317
 A deposit from P. Nel, R11 600 for his monthly rent.
 A debit order for R2 244 appeared on the business bank statement, on 29
April 2020. This was not an account of the business and fortunately, the
owner was able to instruct the bank to cancel this entry. This reversal will be
reflected on the next statement.
 A direct deposit of R16 300 was wrongly reflected on the business Bank
Statement. The bank will rectify the error.
 A deposit from N. Botha for R3 400 in settlement of his account of R3 500.
E. The following information in the June 2020 Cash Journals did not appear on the
Bank Statement for June 2020:
 Outstanding deposit, R17 800

 EFT 654 for R5 555 to BP Suppliers for sanitizing supplies purchased.

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ACTIVITY THREE
3.1 CASH RECEIPT JOURNAL - JUNE 2020 CRJ 3
30 Total 56 200 56 200
10
CASH PAYMENT JOURNAL - JUNE 2020 CPJ 3
30 Total 67 400 67 400
21
3.2 GENERAL LEDGER OF HILTON TRADERS
Bank

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3.3 Prepare a Bank Reconciliation Statement for June 2020.
Debit Credit
3.4 Name TWO ways the business can prevente the cancellation of the deposit on 26
May 2020 in the future.
3.5 Identify the problem that is revealed by the previous reconciliation, and list TWO
internal control measures to solve this problem.
PROBLEM:
TWO CONTROL MEASURES

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3.6 Refer to the debit order for R2 244. Explain a possible reason how this may
have occured, and provide advise on how this can be rectified.
POSSIBLE EXPLANATION:
POINT OF ADVICE

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EXAMPLE 2: BANK RECONCILIATION (2022 FREE STATE)
2.2 MASALA TRADERS
The information relates to June 2022. The business receives its official bank
statements on the 25th day of each month.
REQUIRED:
2.2.1  Complete the CRJ and CPJ on 30 June 2022. (11)
 Calculate the correct bank balance in the ledger on 30 June 2022.

Indicate whether the balance is favourable or unfavourable. (5)
2.2.2 Prepare the Bank Reconciliation Statement on 30 June 2022. (9)
2.2.3 See Information H: Explain why the internal auditor would be concerned
(provide figures) and what action he or the owner should take. (4)
INFORMATION:
A. The following Bank Reconciliation Statement was prepared on

31 May 2022: Amounts can be
written in one
DEBIT CREDIT
column, you
R R
should be able to
Balance as per Bank Statement 87 150
identify debits
Outstanding deposit
and credits
(from cash sales; dated 31 May 2022) 31 600
Outstanding EFT (no. 555) 16 850
Correction of error 22 700
Balance as per bank account 49 700
104 000 104 000
B. Provisional totals on 30 June 2022: That will assist in

calculating the amount
CRJ: R47 220 CPJ: R97 860 that is not provided,
normally it’s a bank
C. When comparing the May reconciliation statement to the balance
June 2022 bank statement, the following was noticed:
(i) The outstanding EFT no. 555, outstanding deposit, and correction
of the error of were correctly reflected on the June bank statement.
D. The following items on the June 2022 bank statement did not appear in the
June Cash Journals:
 EFT received from KZN Promotions for commission earned, R36 400.
 Monthly debit order in favour of Far Call for cell-phone charges, R2 800.

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 A deposit of R23 000 appeared in the current account of Masala Traders on 24

June 2022. The deposit has been identified as an error made by the bank. The
bank has agreed to correct the error on the July bank statement.
 Cash deposit fees, R1 250.
 Service fees, R880.
 Interest on a debit balance, R2 160
 A debit card entry to withdraw cash for wages of R11 000 was recorded on the
statement.
 A debit order for R10 570 dated 24 June 2022; in favour of Vodacell for cell-
phone purchases. Masala Traders did not deal with this service provider and
informed the bank immediately. The bank agreed to rectify this entry on the July
2022 bank statement.
E. Differences noticed when journals and June’s bank statement were

compared:
 An EFT of R15 300 was recorded in the CPJ with an incorrect

beneficiary. The bank will rectify this on the next statement. Correct
the error.
 Credit card sales appear on the bank statement as R32 300, but in
Our books the CRJ as R23 200. The bank statement is correct. Correct the
are error.
understated
by 9 100 F. Items in the journals but not in the June bank statement:
 EFT no. 633 for R24 800 dated 30 June 2022 in the CPJ.
 Cash deposit of R34 620 dated 30 June 2022 for sales (CS977-986's)
in the CRJ.
G. The June 2022 bank statement reflected a balance of R?
H. In July 2022, the internal auditor discovered that CS977-986's actual total
was R44 620. The entry in the CRJ was as follows:
Doc Date Details Analysis Bank

CS977– 30 Cash R34 620 R34 620
986 June

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Always
add
figures
2.2.1 COMPLETE THE CRJ AND CPJ: printed
Cash Receipts Journal Cash Payments Journal in your
(figures only) (figures only) answer
47 220 97 860 book
36 400  2 800 
15 300  # 2 130
Two marks
# 1 250 
9 100  32 300 CRJ
23 200 CPJ # 880 
32 300 -23 200 2 160 
= 9 100 11 000 
11
108 020 115 950
Bank balance on 30 June 2022: 5

– 49 700  + 108 020 – 115 950 = – 57 630  one part correct
Unfavourable 
2.2.2 Prepare the Bank Reconciliation Statement on 30 June 2022.

Transfer
Debit Credit
Use bank
Debit balance as per bank statement 55 020 balance
the balancing figure
total to BRS
Credit outstanding deposit 34 620
from Debit amount incorrectly credited 23 000
CRJ Rectify error 10 570
and Debit outstanding EFT 633 24 800
CPJ to Credit balance as per bank account 57 630
calcula see 1.2.1
te 102 820 102 820

Both must be 9
Bank the same
balanc
e
2.2.3 Refer to Information H.
Explain why the internal auditor would be concerned (provide
figures). What actions should be taken? Provide TWO points.
Concern (with figures): 

 R10 000 less cash from sales were recorded and deposited.
Actions:
Any ONE action
 Division of duties 4
 Control deposits before going to the bank
 Apply for SMS notification to monitor movement of cash.

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Prepare the Bank Reconciliation Statement on 30 June 2022

An examiner may
Debit Credit
decide to provide a
structure that is not
written debit or credit
compare Free State,
Eastern Cape 2022
and NSC NOV 2022
CORRECTION OF ERROR
Extracted from Mpumalanga - 2022
A debit order on the 5th, R1 850 for the monthly insurance appeared twice on
the Bank Statement, but no entry has been made in the Journals. The bank
will rectify this on the Bank Statement next month.
Expected answer
CASH RECEIPTS JOURNAL CASH PAYMENT JOURNAL

Details Amount Details Amount
Provisional totals R510 600 Provisional totals R486 300
Petty Insurers 1 850 
BANK RECONCILIATION STATEMENT ON 31 JULY 2022

ONE COLUMN DEBIT CREDIT
METHOD
Balance per Bank Statement R43 310 Balancing figure R43 310 
Credit incorrect amount R1 850 R1 850 

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ACTIVITY 4: BANK RECONCILIATION

(Adapted from NSC Nov 2022)
4.1 Indicate whether the following statements are TRUE or FALSE.

Write only 'true' or 'false' next to the question numbers.
4.1.1 Debit card fees form part of bank charges.
4.1.2 Interest on current account is recorded in the Cash Payments

Journal.
4.1.3 A credit balance on the Bank Statement reflects an unfavourable

balance.
(3 x 1) (3)
4.2 BANK RECONCILIATION
The information provided relates to Super Stores. The business is owned

by Thandi Zondi.
 Thandi receives the official Bank Statement on the 26 th day of each
month. She uses this to do the bank reconciliation.
REQUIRED:
4.2.1 Use the table provided to calculate the final totals of the Cash
Journals on 31 March 2023. (10)
4.2.2 Calculate the correct bank balance in the ledger on (4)

31 March 2023.
4.2.3 Prepare the Bank Reconciliation Statement on

31 March 2023. (8)
INFORMATION:
A. On 1 March 2023, the Bank Account in the ledger reflected a

favourable balance of R55 700.
B. The Bank Reconciliation Statement prepared on 28 February 2023

showed the following outstanding deposits and EFTs:
 Deposit dated 15 February 2023 R17 500

 Deposit dated 28 February 2023 R15 600
 EFT 297 R8 600
 EFT 298 R13 300

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NOTE:
(i) The deposit on 15 February 2023 appeared on the March Bank Statement
as R13 000. An investigation revealed that the cashier at that time has
resigned. The outstanding amount must be written off.
(ii) EFT 297 was correctly reflected as R6 800 on the March Bank Statement.
(iii) The other outstanding amounts from the previous month appeared on the
March Bank Statement.
C. Before receiving the March 2023 Bank Statement, the Cash Journals
reflected the following provisional totals:
CASH RECEIPTS JOURNAL CASH PAYMENTS JOURNAL

R105 100 R137 225
D. The following items on the March Bank Statement must still be recorded:
(i) A debit card payment of R1 700 for petrol for the business vehicle.
Thandi neglected to submit the transaction document to the
bookkeeper.
(ii) The direct deposit received from debtor D Stephan, R5 500, in

settlement of his account of R5 800.
(iii) A debit order to Peace Insurers for the business insurance,

R1 900.
(iv) A direct deposit of R75 000 from Smart College. This is an error on
the statement as it does not apply to Super Stores. The bank was
notified of this error.
(v) Total bank charges, R625
(vi) Interest earned on savings account, R140
E. Entries in the Cash Journals after 26 March 2023:
 Deposit on 29 March 2023 R28 400

 EFT 350 to PNA Stationers, dated 28 March 2023 R 3 100
 EFT 351 to XY Couriers, dated 30 March 2023 R 3 200
F. Bank Statement balance at end of March 2023: R?
25

27
235
ACTIVITY 4: BANK RECONCILIATION STATEMENTS
4.1
4.1.1
4.1.2
3
4.1.3
4.2 BANK RECONCILIATION

4.2.1 CASH RECEIPTS JOURNAL CASH PAYMENT JOURNAL
Amount Amount
Total 105 100 Total 137 225
10
4.2.2 Calculate the correct bank balance in the ledger on 31 March 2023.
WORKINGS ANSWER
4.2.3 BANK RECONCILIATION STATEMENT ON 31 MARCH 2023

28
3
CREDITORS RECOCILIATION
CREDITORS RECONCILIATION
Creditors’ reconciliation is an internal control measure that highlights the differences between a
Creditor’s balance in the creditors’ ledger of a business and the monthly statement received
from a creditor (an external set of information). This process ensures that the creditors’ accounts
are properly maintained and controlled.
The second type of reconciliation involves comparing the Creditors Control account in the General
Ledger against the Creditors List and correcting differences thereof.
Creditors Control Account: The General Ledger account that contains all related totals from
the relevant Subsidiary Journals. The account balance allows one to verify the accuracy of
Creditors lists total.
CREDIT PURCHASES
Credit Purchases of goods
 Credit purchase happens when the business purchase goods or services and make the
payments later.
 When goods are purchased on credit the supplier (creditor) will send us an original invoice
and he keeps the copy of the invoice.
 The invoice will indicate the items that have been bought, the total amount owing and the
trade discount if any.
 The transaction is now entered into the Creditors’ Journal and posted to the creditor’s
personal account in the Creditors’ Ledger
Return of goods to the supplier
 When goods are returned to the supplier the debit note is completed by the business, the
original copy is sent to the creditor and the business keep the copy or duplicate.
 The debit note will also be sent to the supplier if the business has been overcharged or if the
trading discount has been omitted.
 If the supplier approve the returns, they will send to us the original credit note and they will
keep the duplicate.
 This transaction will be recorded in the Creditors Allowances Journal, the Creditors
Ledger will be debited (reduced)
Goods Purchased Goods returned

o Source document is original invoice. o Source document is duplicate debit note
o Source document of supplier is duplicate o Original credit note from supplier is a
invoice supporting document
29
4
PROCEDURE FOLLOWED WHEN GOODS ARE PURCHASED ON CREDIT
Step 1 An order form will be submitted to the supplier, indicating exactly which goods
are required. (It must be authorised by the senior personnel)
Step 2 The supplier will make up the order and send it to the business together with a
delivery note/invoice.
Step 3 The goods delivered will be checked against the delivery note to make sure that
the order is complete.
Step 4 If the invoice is correct, it will be stamped and sent to the accounts department.
Step 5 The invoice will be checked against the order form to make sure that the order
has been correctly completed. If it has not, then a follow-up must be made with
creditors.
Step 6 Record the invoice in the creditor’s journal.
Step 7 The creditor’s journal will be posted to the:

o general ledger
o creditor’s ledger
Step 8 At the end of the month a statement will be received from the supplier (creditor)
indicating how much money is owed by the business.
Step 9 o the statement will be checked against the records of the creditor’s account.
o if they are the same, an amount will be transferred /paid to the creditor.
o if they are differences between the statement and the creditors ledger that
are resulting from errors, omissions etc, they will be corrected or reconciled.
Reconciliation of creditors control account and the creditors list
 Creditors Control Account – is the general ledger account that contains all related totals
from the relevant subsidiary journals.
 The account balance verifies the accuracy of creditors lists total.
Possible reasons for differences in the control account balance and the list of creditors
are:
 Errors made on source documents
 Incorrect additions in the journal (casting errors)
 Posting incorrect amounts to the ledgers
 Posting to the incorrect side in the ledgers
 Incorrect balancing of accounts in the ledgers
30
5
ILLUSTRATIVE ACTIVITY
REQUIRED
Use the following information extracted from the records of Zizi Traders to:
 Prepare the Creditors’ Control account on 31 March 2023
 Reconcile the Creditors’ List of balances with the balance of the Creditors’ Control
account.
INFORMATION
A. Balances on 1 March 2023:

Creditors’ control 28 700
B. Totals on 31 March 2023

List of creditors 28 860
C. Totals from Journals on 31 March 2023

Creditors’ Journal 121 800
Creditors’ Allowance 2 128
Journal
Journal debits - Creditors 896
Journal credits - Creditors 462
Cash Payment Journal
Creditors’ control 117 236
Discount received 504
ADDITIONAL INFORMATION
1. The Creditors’ Journal was overcast by R800.
2. An amount of R1 200 in the Creditors’ Allowance Journal was posted to the

account of Wall Wholesalers as R2 200.
3. An amount of R42 was included by mistake in the Creditors column of the

Journal credits. This was in respect of interest that was cancelled on a
debtor’s account, B Baloyi. It has not been posted to his personal account.
31
6
Analysis of errors from above transactions:
Type of error Procedure to follow

Overcast /overstated o The creditors journal has been closed off, the
amount will be corrected in the general journal
o The list of creditors is not affected by this
transaction
Error in posting o Calculate the difference and correct only the
account of the creditor.
Incorrect entry o Correct only the area affected by the error.
32
7
EXPECTED SOLUTION
Reconcilia on of
creditors control
and creditors list is
covered in grade 10
GENERAL LEDGER OF ZIZI TRADERS
CREDITORS CONTROL
2023 2023
Mar 31 Total returns / CAJ Mar 1 Balance b/d 28 700
Creditors 2 128
allowances
Journal debits GJ 31 Sundry / Total CJ
896 purchases 121 000
(121 800- 800)
Bank and CPJ Journal credits GJ 420
discount 117 236 (462 – 42***)
Balance c/d 29 860
## 150 120 150 120
Sep 1 Balance b/d ## 29 860
***42 is only deducted in this account, it will not be deducted from the list of creditors, it affects
the list of debtors and Creditors Journal not the individual accounts
NOTE: our closing balance for control account is the same as the closing total for our Creditors
list after reconciling the two
Creditors’ list
Total 28 860
Wall Wholesalers 1 000 (2 200 -1 200)
Total ## 29 860 The error of posting was made to
the account of Wall
NOTE: The creditors control account and the creditors list are generated by the
business.
33
8
Reconciliation of creditors’ statement and the creditors’ ledger account
 The supplier keeps record of all the transactions done with the business in his books.
 The supplier sends the monthly statement to the business showing the record of transactions.
 Each month the supplier’s statement is compared to the books of the business.
 When the statement is compared against the creditors’ ledger account the difference in entries
normally arise from the following:
o Outstanding invoices o Outstanding payments o Discounts not recorded
o Outstanding credit notes o Errors o Omissions
BOOKS OF THE BUSINESS
CREDITORS LEDGER OF LANGA TRADERS

WW WHOLESALERS CI
Date Details Fol Debit Credit Balance
Mar 1 Account rendered 6 500
15 Invoice 363 2 000 8 500
27 Receipt 642 5 700 800
Discount received 800 0
Payments: Debit account of the creditor Purchases: Credit the account of the creditor
STATEMENT FROM THE SUPPLIER

WW WHOLESALERS
100 Day Road, Rosettenville, 0112
STATEMENT OF ACCOUNT
LANGA TRADERS
PO BOX 5550
JOHANNESBURG
Date Details / Doc no Debit Credit Balance
Feb 25 Account rendered 9 400
28 Invoice 098 1 100 10 500
Mar 2 Invoice 110 2 000 12 500
18 Receipt R642 5 700 6 800
25 Invoice 309 2 250 9 050
90 days 60 days 30 days Current
5 950 3 100
Terms – 5% discount if paid within 14 days
 The DEBIT side of the statement is compared with the CREDIT side of the Creditors Ledger
(sales made by the supplier are compared to purchases made by a business)
 The owner of the business (Langa Traders) is regarded as a DEBTOR by the supplier (WW Wholesalers)
34
9
Steps followed when reconciling the statement of account and the creditors’ ledger
STEP Compare the Creditor’s statement with the items in the Creditor’s Ledger account.
ONE
Tick off all similar items appearing in the Creditor’s Ledger account and the
STEP
TWO
Creditor’s Statement.
STEP Circle the amounts on the Creditor’s statement that are not appearing in the
THREE Creditor’s Ledger account.
Draw a square next to the amounts in the Creditor’s Ledger account that are not
STEP
FOUR
appearing in the Creditor’s statement.
STEP Refer to additional information to record differences

FIVE
STEP Record the differences in the Creditors Ledger account or Creditors Reconciliation
SIX Statement
Calculate the closing Balance -The Creditors’ ledger and Creditors’ statement will
STEP have similar balances at the end of month.
SEVEN
NOTE: No changes can be made by a business on the statement to address any transactions that
are not appearing in the creditors’ statement, it can be purchases or discount omitted etc. The
business can only inform the supplier through the Creditors reconciliation statement.
Remember that creditors statement is treated the same way as

the bank statement, these are external documents, and
corrections to the documents can only be effected by the
creditor or the bank. The reconciliation statements are prepared
to direct attention to the bank or creditor to the items that should
be corrected.
35
10
EXAMPLE TWO
CREDITORS RECONCILIATION
REQUIRED
Reeva Traders has received the statement from Moodley Wholesalers, a creditor.
The balance on their statement does not agree with the balance of their account in the Creditors
Ledger.
 Reconcile the statement with the ledger account of Moodley Wholesalers
INFORMATION
MOODLEY WHOLESALERS
300 Blue Road
Klip River
2090
STATEMENT OF ACCOUNT
REEVATRADERS
PO BOX 2540
TSHWANE
May 1 Account rendered 21 480
5 Receipt 702 12 000 9 480
Discount 600 8 880
7 Invoice 945 3 700 12 580
11 Invoice 1014 8 200 20 780
17 Credit note 419 810 19 970
19 Invoice 1323 7 800 27 770
22 Invoice 1495 4 700 32 470
25 Invoice 1509 5 280 37 750
Terms – 60 days
- 5% discount if paid within 30 days
Credit limit: R25 000
CREDITORS’ LEDGER OF REEVA TRADERS

MOODLEY WHOLESALERS
May 1 Balance 21 480
5 EFT 187 12 000 9 480
7 Invoice 945 3 700 13 180
11 Invoice 1014 8 200 21 380
15 Debit note 334 900 20 480
22 Invoice 1323 7 800 28 280
23 Debit note 424 780 27 500
27 Invoice 1509 5 280 32 780
Debit note 518 1 280 31 500
30 EFT 222 8 436 23 064
Discount 444 22 620
36
11
ADDITIONAL INFORMATION
A. A discount allowed by Moodley Wholesalers on 5 May was not recorded in the books of
Reeva Traders
B. Reeva Traders issued debit note 334 on 15 May, the amount qualified for a trade discount of
10%, but the trade discount was not deducted. Received credit note 419 from Moodley
Wholesalers.
C. Debit Note 424 was for goods returned to Moodley Wholesalers.
D. Invoice 1495 was erroneously charged to Reeva Traders. These goods were not ordered or
received by Reeva Traders.
E. Invoice 1509 include the amount of goods which were not delivered to Reeva Traders
they amount to R1 280.Issued Debit Note 518 to Moodley Traders.
F. An EFT payment made to Moodley Wholesalers on 30 May is not reflected in the statement.
Statement of
MOODLEY WHOLESALERS account from
300 Blue Road
Klip River a creditor
2090
REEVA TRADERS
May 1 Account rendered 21 480
5 Receipt 702 12 000 9 480
Discount 600 8 880
7 Invoice 945 1 3 700 12 580
11 Invoice 1014 2 8 200 20 780
17 Credit note 419 ** 810 19 970
19 Invoice 1323 3 7 800 27 770
22 Invoice 1495 4 700 32 470
25 Invoice 1509 4 5 280 37 750
Terms – 60 days 5% discount if paid within 30 days
Credit limit: R25 000
CREDITORS’ LEDGER OF REEVA TRADERS

MOODLEY WHOLESALERS
May 1 Balance 21 480
5 EFT 187 12 000 9 480
7 Invoice 945 1 3 700 13 180
11 Invoice 1014 2 8 200 21 380
15 Debit note 334 ** 900 20 480
22 Invoice 1323 3 7 800 28 280
23 Debit note 424 780 27 500
27 Invoice 1509 4 5 280 32 780
Debit note 518 1 280 31 500
30 EFT 222 8 436 23 064
Discount 444 22 620
37
12
Take note of the following:
o Reconciliation/comparison will consider entries that took place after determining the
balance of R9 480.
o R12 000 reflected on the Creditors Statement does not have to be reconciled, it must be
ignored, it was posted before the calculation of R9 480 (balance).
CREDITORS’ LEDGER ACCOUNT: REEVA TRADERS

Debit Credit Balance Take the
Balance 22 620 closing
balance from
Discount 600 22 020 the creditor’s
Credit note 419 (adjustment) 90 22 110 ledger
 R600 - discount omitted will reduce our debt
 The debit note of R900 did not take into consideration the 10% trade discount, the
creditor reduced our debt by R810 when he received our debit note, and we exceeded
the amount written in debit note by 90.
Explain why we credited R90 in our Creditors Ledger??

Incorrect entry in our Creditors Ledger Correction
Debit Credit Debit Credit
Debit note 900 Credit note 90
The R90 recorded on the credit side will reduce our balance of R900 to R810.
CREDITORS RECONCILIATION STATEMENT: MOODLEY WHOLESALERS

Debit Credit Balance Take the
closing
Balance 37 750
balance
Debit Note 424 780 36 970 from the
Debit Note 518 1 280 35 690 creditors
EFT 222 8 436 27 254 statement
Discount 444 26 810
Invoice 1495 (goods not received) 4 700 22 110
Reeva Traders is regarded as debtor in Moodleys’books, any payments, discounts, returns
will reduce the debt and all these transactions will be CREDITED in Moodleys’ books or
creditors’ statement.
OR
All the
CREDITORS RECONCILIATION STATEMENT: MOODLEY WHOLESALERS credit
Balance 37 750 entries are
bracketed ,
Debit note 424 (780)
they
Debit note 518 (1 280) reduce the
Payment not reflected (8 436) amount
Discount not reflected (444) owing by
Invoice 1495 incorrectly debited (4 700) the
business
Balance as per Creditors Ledger account 22 110 (Reeva)
NOTE: This activity is reconciling the Ledger of One Creditor against the statement issued
by the supplier (Creditor).
The baseline activity is reconciling the Creditors Control and the list of our creditors.
38
13
The balances are
taken from the
ledger account and
The creditors reconciliation structure below is used by examiners statement of
account. They are
closing balances.
Adjustment to the creditors Creditors
Check page 10
ledger account of Moodley reconciliation
Wholesalers’ (adjustment to the
statement)
Balance 22 620 37 750
A -600
R810 was correctly
captured in the
B +90 statement. This entry
C -780 will reduce R900 to
R810 in the creditors’
D -4 700 ledger
E -1 280
F -8 880 or (-8 436-444) R780 is only
corrected in the
G
statement
22 110 22 110
R4 700 will be
corrected in the
statement, it was
not recorded in the
An EFT payment R1 280 has been creditor’s ledger.
made on 30 May corrected in the
was not reflected on creditor’s ledger, it
the statement must be deducted in
issued on 25 May. the statement.
39
14
EXAMPLE 3
CREDITORS’ RECONCILIATION
The information relates to Kirsten Traders for 31 July 2023. Kirsten Traders buys
goods on credit from Amla Suppliers.
REQUIRED:
Use the table provided to indicate the changes that must be made:
 In the Creditors' Ledger Account in the books of Kirsten Traders
 In the Creditors' Reconciliation Statement on 31 July 2023 (9)
INFORMATION:
The following differences were discovered when comparing the account in the
Creditors' Ledger with the statement received from Amla Suppliers:
A An invoice for R14 800 was recorded incorrectly as R1 480 on the statement
received from the creditor.
B The bookkeeper of Kirsten Traders recorded an invoice for R1 350 as a credit
note.
C The discount of R850 was overstated by R350 in the Creditors’ Ledger.
D A n EFT of R7 200 transferred by Kirsten Traders did not appear on the
statement due to the statement been processed early.
E Goods for R2 700, returned by Kirsten Traders, were not recorded in the books of
the business and the books of the supplier (creditor).
CREDITORS' RECONCILIATION - WORKED EXAMPLE
Creditors' Creditors Ledger Statement

Creditors' Ledger Reconciliation Dr Cr Dr Cr
Statement reduce increase increase reduce
- + + -
Balance 28 370 25 300
+13 320 14 800 -1 480
A correct only the statement
+2 700 OR R1 350 was recorded on the debit side,
B record R1 350 x 2 on the credit side
+1 350+1 350
+R350 Discount is debited in the creditor’s
C ledger, correct by recording on credit
side.
D -7 200 Correct only the statement
E -2 700 -2 700 Omission - debit the creditors ledger and

credit the statement
28 720 28 720
40
15
CREDITORS' RECONCILIATION – ALLOCATION OF MARKS Correct signs

must be used to
Creditors' earn accuracy
Creditors' Ledger Reconciliation marks
Statement
Balance 28 370 25 300

A +13 320 Accuracy marks
+2 700  OR Accuracy marks
B
+1 350+1 350
C +R350 Accuracy marks
D -7 200 Accuracy marks
E -2 700 -2 700 Accuracy marks
28 720 28 720  Method mark for both totals

You will earn a method mark for different
totals
Always remember to also add the opening
balances to earn a method mark.
PROCEDURE FOR CORRECTING ERRORS
ERROR CORRECTION
 Incorrect entry in the Creditors Ledger , e.g.  Correct on the debit side of the
wrongly credited the account Creditors Ledger to cancel the entry
 Overstated amount on the debit side of  Calculate the difference and record
Creditors Ledger it on the credit side
 Understated amount on the debit side of  Calculate the difference and record it
Creditors Ledger on the debit side (same side)
 Returns entered as purchases in the  Double the amount and record on
creditors ledger (on credit side of Ledger ) the debit side of the Creditors
Ledger
 The creditors ledger may reflect transactions that took place after the issue date reflected
in the creditors statement,the statement should be updated with such figures by the
creditor.In our books this entry will be recorded in the Creditors Reconciliation.
 Ommissions in both records ,record the entry in both records, this is normally applicable to
the reconciliation of Creditors list and creditors control ( Internal records)
The errors suchs as understating ,overstating ,incorrect entries etc.can also be

identified on the statements received from creditors .
41
16
Internal controls relating to creditors include:
 Adequate segregation (separation) of duties with regards to creditors’ transactions, one

person should not order and receive goods.
 The clerk receiving the items from creditors must check the delivery note against the
order form to ensure that all items ordered were delivered.
 All documents (invoices; debit notes etc.) relating to credit transactions must be correctly
processed in the proper journals.
 Paying creditors on time to take advantage of settlement discounts and to avoid interest
being charged.
 Transactions involving purchase of goods from creditors should be authorised
 Check accuracy of invoices from creditors
 Invoices to be processed (stamped) before payment
42
17
ACTIVITY 1
CREDITORS’ RECONCILIATION
Dibe Stores received a statement of account from creditor, Khumalo Suppliers.

REQUIRED:
1.1 Reconcile the account of Khumalo Suppliers in the Creditors Ledger of
(16)
Dibe Stores, with the statement received. Show negative amounts in
brackets.
1.2 Invoice 780 on the 12 July 2023, was for goods purchased by the owner
for his personal use. What advice would you offer him about this (3)
transaction? Quote a relevant GAAP principle in your response.
1.3 The internal auditor wants to improve the internal control of stock and (4)
creditors. Provide TWO control measures that he may consider.
INFORMATION:
A. CREDITORS LEDGER OF DIBE STORES
KHUMALO SUPPLIERS (CL2)
DATE DETAILS FOL DEBIT CREDIT BALANCE
July 1 Account b/d 18 710
rendered/Balance
5 Invoice No. 154 CJ 3 915 22 625
8 Debit Note No. 43 CAJ 260 22 885
12 Invoice No. 780 CJ 1 250 24 135
16 EFT No. 887 CPJ 6 250 17 885
Discount received CPJ 313 17 573
27 Invoice No. 991 CJ 1 780 19 353
B Statement of account received from Khumalo Suppliers
KHUMALO SUPPLIERS
No: 1215
To : Dibe Stores
Peddie 25 July 2023
DATE DETAILS AMOUNT BALANCE
July 1 Balance 18 710
5 Invoice No. 154 4 365 23 075
8 Credit Note No. 90 (260) 22 815
16 Receipt No. 6651 (6 250) 16 565
24 Credit Note 112 (188) 16 378
25 Interest on overdue account 124 16 502
E&OE
Statement includes transactions up to 25 July 2023
43
18
C. ADDITIONAL INFORMATION:
(i) Invoice No. 154 was recorded incorrectly on the statement.
(ii) The goods returned on the 8th was posted incorrectly in the creditors’ ledger
account.
(iii) Invoice No. 780 in the creditors’ ledger was for goods purchased from another
supplier, Dobe Stores.
(iv) Khumalo Suppliers did not grant a discount for the payment on the 16th stating that
the payment was too late to qualify for the discount.
(v) Credit note no. 112 on the statement was an error on the statement. Goods were not
returned by the business.
(vi) Interest on overdue account must still be taken into account
44
19
ACTIVITY 1
RECONCILIATION AND INTERNAL CONTROLS

1.1 CREDITORS’ RECONCILIATION
Adjustment to the creditors Creditors

ledger account of KHUMALO reconciliation
Suppliers (adjustment to the
statement)
Balance 19 353 16 502
(i)
(ii)
(iii)
(iv)
(v)
(vi) 16
(vii)
1.2 What advice would you offer him about this transaction?
Quote a relevant GAAP principle in response.
1.3 The internal auditor wants to improve the internal control of

stock and creditors. Provide Two control measures that he
may consider.
45
20
ACTIVITY 2
2.1 CREDITORS' RECONCILIATION

SELAHLE TRADERS
Selahle Traders received a statement of account for June 2023 from a creditor,
Manyaka Suppliers. The creditor’s statement reflected a balance that is different
from the Creditors Ledger.
REQUIRED:
Reconcile the differences in the Creditors' Ledger Account balance with the
statement balance in the answer book provided
Write the amounts in the appropriate columns and indicate the increase or decrease
with a (+) or (-) with each amount.
Total the columns to show the correct balances at the end of June 2023. (11)
INFORMATION:
The following balances for June are provided:
Creditors' Ledger of Manyaka Suppliers in books of R16 555
SelahleTraders
Statement received from Manyaka Suppliers R10 055
A comparison between the Creditors' Ledger Account of Manyaka Suppliers and

the statement of account showed the following differences:
A. A payment of R3 500 to Manyaka Suppliers on 7 June was erroneously omitted
by the bookkeeper from the Creditors Ledger in the records of Selahle Traders
B An invoice for R6 950 received from Manyaka Suppliers was correctly recorded
in the Creditors Ledger Account. The amount was incorrectly recorded as
R9 650 on the statement.
C The statement received from Manyaka Suppliers did not reflect the discount of
8% that was allowed to Selahle Traders if the amount of R8 000 was settled
before 20 June. The amount was settled within the required period.
D Goods returned to Manyaka Suppliers were incorrectly recorded as
purchases in the Creditors Ledger, the amount was R520.
E An EFT (Electronic Funds Transfer) payment of R3 000 was recorded in the
Cash Payments Journal of Selahle Traders on 27 June 2023.The statement
from Manyaka was dated 26 June 2023.
F The goods bought from Manyaka Stores for R2 000, were incorrectly recorded
in the Creditors Ledger of Manyaka Suppliers.
G Invoice no.678 for goods bought on 27 June was not reflected in the statement
received from Manyaka Suppliers, the amount was R6 300.
46
21
ACTIVITY 2
2.1 CREDITORS’ RECONCILIATION

CREDITORS LEDGER CREDITOR’S STATEMENT
Balance 16 555 10 055
Corrected Balance
11
47
22
ACTIVITY 3: CREDITORS' RECONCILIATION

MZN Traders buys goods on credit from Styles Suppliers.
REQUIRED:
Use the table on the ANSWER sheet to indicate how the balances given, will
change when preparing the creditors' reconciliation. Indicate the figure as well as
a + for increase and a – for decrease. (14)
INFORMATION:
Balance due to Styles Suppliers on 31 July 2023 as per

12 160 (Cr)
Creditors’ Ledger account in the books of MZN Traders
Balance due by MZN Traders on 28 July 2023 as per statement
41 380 (Dr)
of account received from Styles Suppliers
ERRORS AND OMISSIONS:

A A payment of R8 700 by MZN Traders was not recorded in the Creditors' ledger
account and appear not on the statement as well.
B A discount of R950 for early payment was correctly recorded by MZN Traders. This
was not reflected on the statement.
C MZN Traders recorded a debit note of R1 540 in the Creditors’ ledger account of
Styles Suppliers in error. This was for goods returned to another supplier.
D An invoice for R28 600 received from Styles Suppliers was recorded correctly in the
Creditors’ Ledger account. The statement of account reflected this invoice as
R26 800.
E The statement of account showed an invoice for goods purchased, R5 930. This
transaction was not recorded in the books of MZN Traders.
F An invoice of R4 700 was incorrectly recorded as a payment by MZN Traders.
G A debit balance of R2 925 for repairs to a photocopier was transferred from the
account of Styles Suppliers in the Debtors Ledger to their account in the Creditors
Ledger. This transaction was not recorded by Styles Suppliers.
H A payment of R10 275 made on the 29 July 2023 by MZN Traders was not reflected
in the statement.
48
23
ACTIVITY 3: CREDITORS RECONCILIATION

3.1.1
Creditors' Ledger Statement of account
Account of Styles received from Styles
Suppliers Suppliers
Balance before
12 160 41 380
errors/omissions
A
H
Balance after
errors/omissions
14
49
24
ACTIVITY 4: CREDITORS' RECONCILIATION
MZN Traders buys goods on credit from Styles Suppliers.

REQUIRED:
Use the table on the ANSWER sheet to indicate how the balances given, will
change when preparing the creditors' reconciliation. Indicate the figure as well as
a + for increase and a – for decrease. (14)
INFORMATION:
Balance due to Styles Suppliers on 31 July 2023 as per

12 160 (Cr)
Creditors’ Ledger account in the books of MZN Traders
Balance due by MZN Traders on 28 July 2023 as per statement
41 380 (Dr)
of account received from Styles Suppliers
ERRORS AND OMISSIONS:

A A payment of R8 700 by MZN Traders was not recorded in the Creditors' ledger
account and appear not on the statement as well.
B A discount of R950 for early payment was correctly recorded by MZN Traders. This
was not reflected on the statement.
C MZN Traders recorded a debit note of R1 540 in the Creditors’ ledger account of
Styles Suppliers in error. This was for goods returned to another supplier.
D An invoice for R28 600 received from Styles Suppliers was recorded correctly in the
Creditors’ Ledger account. The statement of account reflected this invoice as R26
800.
E The statement of account showed an invoice for goods purchased, R5 930. This
transaction was not recorded in the books of MZN Traders.
F An invoice of R4 700 was incorrectly recorded as a payment by MZN Traders.
G A debit balance of R2 925 for repairs to a photocopier was transferred from the
account of Styles Suppliers in the Debtors Ledger to their account in the Creditors
Ledger. This transaction was not recorded by Styles Suppliers.
H A payment of R10 275 made on the 29 July 2023 by MZN Traders was not reflected
in the statement.
50
25
9 99165 DEBTORS RECOCILIATION
INTRODUCTION
It is normal procedure to compare the balance of the debtor’s control account with the total of the debtor’s
list at the end of each month. If the balance/total is not the same, the errors and omissions should be identified
and addressed to reconcile the books.
The debtors control account, debtor’s ledger and debtors list
 Debtors control account - general ledger account that contains all the related totals involving debtors from
the relevant subsidiary journals.
 The entries to the control account must correspond to the entries made to individual debtor’s accounts in
the debtor’s ledger.
 A list of all the debtors’ balances is compiled and the total amount owed by the debtors must then be
equal to the balance of the debtors control account.
The entry (ies) in the journal (s) will be posted daily to the debtor’s ledger and the total at
the bottom of the journal will be posted at the end of the month to the control account.
FORMAT OF THE CONTROL ACCOUNTS AND THE SUBSIDIARY LEDGERS
GENERAL LEDGER OF KIMA TRADERS GENERAL LEDGER OF KIMA TRADERS

DR + Debtors Control (asset) CR DR - Creditors Control (liability) + CR
[1800+ 850 ] [3 000 + 30]
Balance b/d 1000 Bank & discount CRJ 1 850 Bank & discount CPJ 3030 Balance b/d 5 000
Sales DJ 2800 Debtors’ allowances DAJ 250 Sundry allowances CAJ 500 Sundry purchases CJ 4 000
Journal debits GJ 65 Journal credits GJ 0 Journal debits GJ 0 Bank(refunds) CRJ 0
[interest charged and [50] [bad debts & transfers] [bad debts & transfers] Journal debits GJ 35
cancel discount] [15] [interest charged [35]
And cancel discount]
Balance c/d 1765 Balance c/d 5505
3 865 3 865 9 035 9 035
Balance b/d 1 765 Balance b/d 5505
DEBTORS LEDGER OF KIMA TRADERS CREDITORS LEDGER OF KIMA TRAD

DEBTORS LEDGER CREDITOR’S LEDGER
Debit Credit Debit Credit Bal
TRANSACTIONS Folio Balance BONGI Wholesalers Folio
+ - - +
1. Balance brought forward 1 000√ Account Rendered 5 000√
2. Invoice 222 DJ 2 800 3 800 Invoice 222 CJ 1 500 6 500
3. Credit note 89 DAJ 250 3 550 Debit note 45 CAJ 500 6 000
4. Receipt 567 CRJ 800 2 750 Cheque counter foil 66 CPJ 3 000 3 000
5. Receipt 582 CRJ 1 000 1 750 Discount received CPJ 30 2 970
6. 1% Interest charged GJ 15 1765 Invoice 345 CJ 2 500 5 470
General voucher -interest GJ 35 5 505
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26
Debit side of Debtors Control Account is compared with the debit side of the
Debtors Ledger and credit is compared to credit. This will also apply to the Creditors
Reconciliations.
Control Accounts and Creditors/Debtors Ledger are prepared internally.
The Bank Reconciliation will compare the credit side of the statement with the CRJ
and debit side with CPJ.
Creditors Ledger and the statement from the Creditor will compare opposite sides
(debit and credit)
REASONS FOR DIFFERENCES IN THE CONTROL ACCOUNT AND LIST/ ACCOUNT OF DEBTORS
AND CREDITORS
TYPE OF ERRORS /OMMISSIONS CORRECTION OF ERRORS

 Errors on source documents  Correct Control A/c and List
 Source document not recorded  Correct Control A/c and List
 Recording errors in Subsidiary Journals  Correct Control A/c and List
 Incorrect additions of TOTAL in journal  Only in the Control Account
 (overcast) or (under cast)
 Incorrect posting from journal to the control account.  Only the Control Account.
 Incorrect posting from the Journals to the list/ or the  Only the List / or the account of debtor
account of the debtor
 Entry or total recorded on the wrong side  Double the entry on the correct side
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27
EXAMPLE 1
DEBTORS RECONCILIATIONS
DEBTORS' CONTROL ACCOUNT AND DEBTORS LIST 2016 PRELIM: FREE STATE
The bookkeeper of Groenewald Stores made some mistakes and omitted certain
transactions in preparing the Debtors' Control Account and the Debtors' List on 30 June
2023. You are the internal auditor of the store and you are called upon to correct the
mistakes.
REQUIRED:
Use the format provided to reconcile the balances of the Debtors' Control and the Debtors'
List. Write in the correct amount with a + sign to show an increase and – sign to show a
decrease and 0 for no entry. Details are not required.
INFORMATION:
A. Balances on 30 June 2023

Debtors' Control Account R47 200 (Dr)
Debtors' List R53 090 (Dr)
B. ERRORS AND OMISSIONS:

1. The total of the Debtors' Allowance Journal was under cast by R4 210.
2. Issued receipt no.105 for R3 800 to N Pieterse who had made a partial
payment towards her account. Her account was mistakenly debited with
this amount.
3. Received R2 500 from a tenant for the June rent. This amount was
erroneously entered in the Debtors Control column of the Cash Receipts
Journal.
4. An invoice for R700 issued to a debtor, P Pollie was completely omitted
when books were drawn up.
5. A credit note for R850 issued to a debtor, K Kwatsman, for goods returned
by him, was entered in the Debtors' Journal in error and posted
accordingly.
INFORMATION /RECORDS USED IN THE RECONCILIATION OF DEBTORS
Debtors List
Internally
Debtors
generated
Control
accounts /lists
Account
documents
Debtors Debtors
Ledger statement of
Account OR account
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DEBTORS RECONCILIATION: EXPECTED RESPONSE
No Details Debtors' Control Debtors' List
A Pre-adjustment 47 200 53 090

balances/totals
4 210 is deducted, will reduce the
1 – 4 210 debtors control balance.
–7 600 OR The account was wrongly debited or
2 (–3 800 – 3 800) increased, double the amount that will
be deducted.
Add back the amount that was
3 + 2 500 incorrectly deducted.
Add the amount in both columns, it
4 + 700 + 700 was not recorded.
The amount was wrongly debited or
5 –1 700 –1 700 increased, double the amount that will
be deducted.
Balances One mark for both totals

44 490 44 490
A Debtors List is compiled from the

Debtor Control Debtors Ledger balances of the debtors' individual
Dr Cr Dr Cr accounts in the Debtors Ledger.
increase reduce increase reduce
+ - + -
NOTE: in grade 10, Debtors Control Account

(in the general ledger) and Debtors List are
reconciled.
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29
DEBTORS AGE ANALYSIS
INTRODUCTION:
A debtors’ age analysis is drawn up in order to manage outstanding accounts and to
identify debtors who are not performing according to their credit agreement.
The age analysis displays a breakdown of outstanding debts over a period of three to four
months.
Customers are not allowed to remain in the business books as debtors indefinitely. It cost
the business more money to carry the customer as a debtor for periods in excess of one
year without taking action, legally or otherwise with the customer
The aging of debtors is controlled by company policy. The credit control department
implements the policy and acts against defaulting debtors, by writing letters of demand
before taking legal action.
Any business must keep a careful control of all the accounts in the Debtors Ledger. The
debtor’s credit controller has the responsibility to monitor a debtor’s credit rating before
extending any credit to the debtor. The debtor’s clerk’s responsibility includes that no
debtors exceed their credit limit and that payments are regularly received according to their
agreement with them
Before any order can be dispatched to a debtor, the debtor’s clerk must first approve of the
credit sale. The debtor’s clerk must verify the balance of the debtor’s account and the agreed
credit limit allowed for that debtor.
Take into account the two rules:

Returns are subtracted from the latest sale.
Payments are subtracted from the oldest outstanding balance.
A receipt will be issued for the payment and for discount allowed.
This amount will be subtracted from the oldest amount owing by
the debtor
REASONS FOR DEBTORS AGE ANALYSIS
1. To ensure that Debtors honour the agreement of e.g. 30 days
2. To charge interest on overdue balances according to the agreement.
3. To take legal action if account is not settled within a certain period, e.g., more than 90
days
4. To ensure liquidity in the business and a proper cash flow.
5. To minimise debts to be written off.
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30
KIMA TRADERS
DEBTORS AGE ANALYSIS ON 28 FEBRUARY 2023
Credit Amount Period in arrear

DEBTORS limit Current 1 month 2 month 3 month +90 days
Due
A Azar R3 000 R2 000 R1 000 R500 R500
B Buzzer R3 000 R3 600 R1 800 R500 R500 R800
C.Cima R2 000 R3 000 R1 500 R500 R500 R500
D.Dube R1 500 R2 500 R1 250 R500 R500 R250
E.Ephrime R3 000 R1 000 R1 000
R12 100 R5 550 R2 000 R2 000 R1 550 R1 000
% Total 100% 46% 17% 17% 13% 7%
Agreement: *Credit period: 30 days. **12% p.a. Interest charged a er 2 months
Refer to the age-analysis schedule above and respond

to the following questions
Action expected from the owner of business:

Exceeding credit limit?
Discontinue to sell to debtors who have
Which debtors must be charged interest?
exceeded the limit until their accounts are paid.
Debtors whose accounts are overdue must
be charged interest.
Which debtors are adhering to credit terms?
Debtors who don’t adhere -sell to them after
they have settled the current amount owing.
What action should be taken against defaulting debtors Defaulting debtors must be handed over to
lawyers or debt collectors.
How can debtors be encouraged to pay their accounts Offer discounts for early settlement of
accounts.
Send monthly statements and SMS to remind
How can debtors be reminded to pay their accounts debtors to pay on time.
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31
THE DEBTORS CLERK /DEBTORS CREDIT CONTROLLER IS RESPONSIBLE FOR:

 Monitor debtors’ credit rating before extending any credit to the debtor.
 Monitor debtors’ accounts to avoid exceeding of credit limit.
 Ensuring that payments are received as per agreement.
 Approve the credit sales before any order is delivered to a customer.
Credit note
TWO rules applicable when calculating Age Analysis subtracted from
 Returns are subtracted from the latest sales recent invoice
 Payments are subtracted from the oldest outstanding balance
Issue a receipt for

payment and
discount
Important information for exams: Debtors Age Analysis

 Problems reflected by the Debtors Age Analysis:
Slow payers
Debtors exceeding credit limits
Continued sales to defaulting debtors
 Internal control measures OR action to be taken against problems identified
 Calculate the percentage of outstanding debtors
NB: Identify figures and quote names of debtors when responding
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32
DEBTORS AGE ANALYSIS: EXAMPLE
DELUSH LTD.
The debtors’ age analysis of Delush Ltd. on 28 February 2023, is presented.
REQUIRED:
1.1 Identify the problem with debtor G. Hugo. Quote figures.
1.2 What should the credit controller do about N. Tshabalala’s account in March 2023? Give THREE
answers
.
1.3 Explain why debtor, A. Wijn, should be handed over to the attorneys.
INFORMATION:
A. Debtors’ Age Analysis on 28 February 2023:
Debtor Credit Current 30 days 60 days 90 days > 90 days

Limit
A. Wijn 5 000 5 000
G. Hugo 5 500 4 200 1 550
B. Luus 3 000 2 150 80
N. Tshabalala 6 000 1 850 1 425 1 350 1 175
W. Morgan 3 500 1 550 800 620
L. Ntshinga 5 000 3 250
13 000 3 775 1 970 1 255 5 000
B. The terms allowed to debtors are as follows:

 If paid within 30 days, a 2% discount will be allowed.
 If not paid after 60 days, 5% p.a. interest will be charged.
 If not paid after 90 days, the account will be handed to the attorneys for collection.
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33
G Hugo has B Wijn’s account is

exceeded long overdue,
the credit above 90 days
limit
A. Debtors’ Age Analysis on 28 February 2023:
Debtor Credit Current 30 60 90 > 90 days

Limit days days days
B. Wijn 5 000 5 000
G. Hugo 5 500 4 200 1 550
B. Luus 3 000 2 150 80
N. Tshabalala 6 000 1 850 1 425 1 350 1 175
W. Morgan 3 500 1 550 800 620
L. Ntshinga 5 000 3 250
13 000 3 775 1 970 1 255 5 000
67.1% 32.9%
32account is
B Wijn’s
long overdue, Total amount owing by debtors:
above 90 days
13 000 + 3 775 +1 970+1 255 + 5 000 = R25 010
Within credit term Overdue amount
= 67.1%
= 32.9%
EXPECTED RESPONSE : DEBTORS AGE ANALYSIS

1.1 Identify the problem with debtor G. Hugo. Quote figures.
 His total debt is R5 750 (R4 200 + R1 550)

and his credit limit is R5 500, thus G. Hugo is over his credit limit.
OR 2
 G. Hugo is R250 over his credit limit
1.2 What should the credit controller do about N. Tshabalala’s account in
March 2023? Give THREE answers.
 Contact N. Tshabalala about paying R1 175 and if he does not, hand this
amount over to the lawyers.
 Charge interest on the R1 175 and R1 350.
 Ensure that no further credit sales are made to N. Tshabalala until the debt 6
is settled.
1.3 Explain why debtor, A. Wijn, should be handed over to the attorneys.
 The debtor, A. Wijn, does not pay in time (>90 days) 2
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34
ACTIVITY 1: DEBTORS RECONCILIATION AND AGE ANALYSIS
KZN PRELIM 2019 ( Adapted)
Birdswood Traders, owned By Stanley Mazibuko, sells building material for cash and
on credit. Their credit terms are 30 days, but they are budgeting that 80% of their
debtors will adhere to the credit terms.
REQUIRED:
1.3.1 Briefly explain why the balance of the debtors control account should
correspond with the total of the list of debtors. (2)
1.3.2 Calculate the correct closing balance of the debtors control account as at
30 June 2023. (5)
1.3.3 Prepare a correct list of debtors of Birdswood Traders on

30 June 2023. Show all calculations. (14)
1.3.4 Study information A and C below then answer the following questions:
 Does Birdswood Traders have effective control over their

debtors? Explain by quoting figures to motivate your answer. (3)
 State TWO actions that Birdswood Traders could take in order to

encourage debtors to settle their accounts according to the credit
terms. (4)
INFORMATION:
A. Debtors age analysis schedule for June 2019:
TOTAL CURRENT 30 DAYS 60 DAYS 90 DAYS

R187 500 R33 700 R26 300 R72 600 R54 900
B. Balance of the debtor’s control on 30 June 2019, amounted to R175

700.
C. Balance according to the debtor’s ledger on 30 June 2019.
Debtors Amount due Credit limits

S.M Mazibuko 46 500 30 000
T,G Nyembe 31 800 35 000
T.M Msweli 27 000 30 000
J.P Botha 63 200 40 000
P.S Pillay 8 600 10 000
177 100
60
35
D. The following errors and omissions were discovered and must be corrected:
(i) The debtors Journal was overcast by R4 100.
(ii) Goods sold on credit to P.S Pillay were incorrectly posted to the account of
T.G Nyembe, R7 600.
(iii) An allowance on damaged goods delivered to S.M Mazibuko, R1 400, was

posted to the wrong side of his account.
(iv) An invoice issued to T.M Msweli for, R2 300 was not entered in the books of
Birdswood Traders.
(v) A cheque for R8 700, received from P.S Pillay in settlement of an invoice for
R9 000, was returned by the bank due to insufficient fund. No entry was
made of this.
(vi) Goods sold on credit to J.P Botha for R4 700, was correctly entered in the
debtors Journal, but was posted to her account in the debtors’ ledger as R7
400.
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ACTIVITY 1: DEBTORS RECONCILIATION AND AGE ANALYSIS ( WORKSHEET)
1.3.1 Briefly explain why the balance of the debtors control account should
correspond with the total of the list of debtors.
1.3.2 Calculate the correct closing balance of the debtors control account as at 30
June 2023.
175 700 5
1.3.3 List of debtors of Birdswood Traders on 30 June 2023.
S. M Mazibuko (46 500

T.G Nyembe (31 800
T.M Msweli (27 000
J.P Botha (63 200
P.S Pillay (8 600
14
1.3.4 Does Birdswood Traders have effective control over their debtors? Explain
by quoting figures to motivate your answer.
State TWO actions that Birdswood could take in order to encourage debtors
to settle their accounts according to the terms.
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37
ACTIVITY 2: DEBTORS' RECONCILIATION AND AGE ANALYSIS
(30 marks; 25 minutes) 2021 NOV NSC

Zig Zag Traders
Zig Zag Traders sells ladies clothing on credit. Debtors are allowed a credit term of 30 days
to settle their accounts.
REQUIRED:
2.1 Provide TWO documents that Zig Zag Traders will need from potential debtors before (2)
they will be allowed to open accounts.
2.2 Refer to Information A and B.
Use the table provided in the ANSWER BOOK to calculate the following:
 The correct closing balance of the Debtors' Control Account on 30 September (9)
2021. Indicate changes with '+' for an increase, '–' for a decrease or '0' for no
change
 The correct amounts owed by the following debtors only:

– A Barnes
– C Davis
– E Foley (9)
2.3 Refer to Information C.
Explain THREE different problems highlighted by the debtors' age analysis. Provide
the name of a debtor and/or the figure(s) in EACH case. (6)
2.4 Refer to Information D.
Provide TWO points to support the internal auditor's concern that Susan's job (4)
description could lead to potential fraud
INFORMATION:
A Balances on 30 September 2021, before considering errors and omissions in

Information B:
 Debtors' Control Account: R228 000
 Extract from the debtors' list:
DEBTORS FOLIO AMOUNT

A Barnes D10 R13 500
C Davis D23 R25 000
E Foley D35 R18 300
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38
B The following errors and omissions must be considered:

(i) An invoice for R1 750 issued to A Barnes was not recorded in the books of Zig Zag
Traders.
(ii) A direct deposit of R2 500 by E Foley was correctly recorded in the journal but
incorrectly posted to the account of E Foges (another debtor) in the Debtors'
Ledgers.
(iii) The total of the Debtors' Journal, R62 500, was incorrectly recorded as R65 200 in
the Debtors' Control Account.
(iv) Merchandise sold to C Davis, R3 500, was treated as a return of goods and recorded
in the Debtors' Allowances Journal.
(v) R5 200, received from D Klein, a debtor whose outstanding balance was written off
six months ago, was recorded in the Cash Receipts Journal as a receipt from a
debtor.
(vi) Merchandise returned by A Barnes was recorded in the relevant journal as R250
instead of R700 and posted accordingly.
(vii) An EFT for R7 850, received from E Foley as part payment of his account, was
entered correctly in the relevant journal but no entries were made in the Debtors'
Ledger.
C The following age analysis was compiled on 30 September 2021:
DEBTOR CREDIT BALANCE CURRENT 30 DAYS 60 DAYS MORE THAN 90

LIMIT R DAYS
R R R R R
J Blom 52 000 45 000 18 000 7 000 20 000
Z Phi 22 000 29 000 3 000 26 000
S Sah 16 000 12 500 12 500
O Mac 6 000 6 000 2 000 4 000
Other debtors 146 300 55 244 48 192 30 148 12 716
R238 800 R90 744 R81 192 R50 148 R16 716
TOTALS
100% 38% 34% 21% 7%
D Susan, a member of the sales staff, is also responsible for:
 Collecting cash from customers who choose to pay in this way

 Receiving goods returned and issuing credit notes to customers who return goods.
The internal auditor is not happy with Susan's job description as he feels it has the potential
for fraud, which could lead to loss of cash and trading stock
30
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ACTIVITY 2 [2021 NOV NSC]
2.1 Provide TWO documents that Zig Zag Traders will need from potential
debtors before they will be allowed to open accounts.
Calculate: Correct closing balance of the Debtors' Control

Account on 30 September 2021. Indicate changes with '+'
for an increase, '–' for a decrease or '0' for no change.
PROVISIONAL 228 000

BALANCE
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
TOTAL
9
Calculate: Correct amounts owed by the following debtors

only.
DEBTOR WORKINGS ANSWER

A Barnes (13 500
C Davies (25 000
E Foley (18 300
9
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2.3 Refer to Information C.
Explain THREE different problems highlighted by the

debtors' age analysis. Provide the name of a debtor and/or
the figure(s) in EACH case.
PROBLEM NAME OF DEBTOR WITH

FIGURES
Provide TWO points to support the internal auditor's concern that

Susan's job description could lead to potential fraud.
30
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41
ACTIVITY 3: DEBTORS' CONTROL ACCOUNT AND DEBTORS LIST
The bookkeeper of Groenewald Stores made some mistakes and omitted certain
transactions in preparing the Debtors' Control Account and the Debtors' List on 30 June
2023. You are the internal auditor of the store, and you are called upon to correct the
mistakes.
REQUIRED:
Use the format provided to reconcile the balances of the Debtors' Control and the (10)
Debtors' List. Write in the correct amount with a + sign to show an increase and – sign
to show a decrease and 0 for no entry. Details are not required.
INFORMATION:
A BALANCES ON 30 JUNE 2023
Debtors' Control Account R47 200 (Dr)
Debtors' List R53 090 (Dr)
B ERRORS AND OMISSIONS

1 The total of the Debtors' Allowance Journal was under cast by R4 210.
Issued receipt no.105 for R3 800 to N Pieterse who had made a partial payment
2
towards her account. Her account was mistakenly debited with this amount.
3 Received R2 500 from a tenant for the June rent. This amount was erroneously
entered in the Debtors Control column of the Cash Receipts Journal.
An invoice for R700 issued to a debtor, P Pollie was completely omitted when books
4
were drawn up.
5 A credit note for R850 issued to a debtor, K Kwatsman, for goods returned by him,
was entered in the Debtors' Journal in error and posted accordingly.
DEBTORS RECONCILIATION ON 30 JUNE 2023

No Details Debtors Control Debtors List
A Balances 47 200 53 090
1
2
3
4
5
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ACTIVITY 4: RECONCILIATION AND AGE ANALYSIS 2022 KZN PRELIM
4.1 DEBTORS’ AGE ANALYSIS
REQUIRED:
4.1.1 Calculate the percentage of the total debts that has exceeded the credit (3)
terms of 30 days.
4.1.2 The owner, Z. Zool is concerned that the control over debtors has not been
satisfactory. She wants you as the internal auditor, to:
Explain TWO problems highlighted by the Debtors Age Analysis and

provide relevant evidence for each (Names or figures). (4)
INFORMATION:
The credit terms are 30 days.
DEBTORS’ AGE ANALYSIS ON 30 JUNE 2022

Credit 90 days
Names Balance Current 30 Days 60 days
Limit +
R R R R R R
S. Zicaba 10 000 16 140 6 030 1 350 920 7 840
N. Thabethe 13 000 9 550 9 550
D. Khumalo 9 500 9 120 5 700 3 420
A. Msomi 12 000 14 190 9 100 2 090 3 000
49 000 30 380 6 860 3 920 7 840
7
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43
ACTIVITY 4 2022 KZN PRELIM P2
4.1.1 Calculate the percentage of total debts that has exceeded the credit terms of
30 days.
4.1.2 Explain TWO problems highlighted by the Debtors Age Analysis and provide
relevant evidence for each (Names or figures).
Problem Debtor and figure
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ACTIVITY 5: RECONCILIATION AND AGE ANALYSIS

2022 GP PRELIM
RAG DOLL TRADERS
The Age Analysis below is extracted from the records of Rag Doll Traders for the
month of April 2022.
REQUIRED:
5.1.1 How does the preparation of a Debtors’ Age Analysis assist the business
in controlling their debtors? (2)
5.1.2 Identify TWO problems shown in the Age Analysis below. Quote evidence
and figures to support your answer. In each case suggest an internal
measure to correct the problem. (6)
5.1.3 The owner of Rag Doll Traders is not happy with the control of debtors.
Provide a calculation to justify his concern. (2)
INFORMATION:
 Debtors are usually allowed to settle their accounts within 30 days.
Credit Amount 90
Debtor Current 30 Days 60 days
Limit Owing days +
S. Dawood 4 000 6 800 2 600 3 000 1 200
G. Kramer 7 000 7 000 7 000
J. Boozer 3 000 500 500
B. Campher 5 000 5 500 0 1 000 2 100 2 400
19 800 10 100 4 000 3 300 2 400
10
70
45
ACTIVITY 5
5.1.1 How does the preparation of a Debtors’ Age Analysis assist the
business in controlling their debtors?
5.1.2 Identification of problem with Internal control measure

evidence and figures to correct the problem
Problem 1
Problem 2
5.1.3 The owner of Rag Doll Traders is not happy with the control of the
debtors. Provide figures to motivate your answer.
10
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ACTIVITY 6: RECONCILIATIONS (LIST) AND DEBTORS AGE ANALYSIS

E CAPE PRELIM 2020 (ADAPTED)
6.1 DEBTORS AGE ANALYSIS

Below is the age analysis of debtors on 31 May 2023.
Terms allowed to debtors:
● All accounts to be paid in 30 days and 2% discount will be granted.

● If any account is not paid in 60 days, 5% interest will be charged.
● If accounts not paid in 90 days, the account is handed over.
NAME >90 Days 90 days 60 days 30 days Current
D Daydream 90
G Goodfella 1 550 4 200
H Hastie 3 250
P Platsak 4 250
S Skinflint 880 3 500 1 525 2 185
TOTAL 4 250 970 3 500 3 075 9 635
6.1.1 How the preparation of Debtors’ Age Analysis, does assist in the control of
debtors? (3)
6.1.2 How much is owing by the debtors on 31 May 2023. (2)
6.1.3 Which debtor would you be happy to give a credit reference to? (2)
6.1.4 Which debtor would be “handed over,” and what does this mean? (3)
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ACTIVITY 6: RECONCILIATIONS (LIST) AND DEBTORS AGE ANALYSIS
6.1 DEBTORS AGE ANALYSIS
6.1.1 How does the preparation of the Debtors’ Age Analysis assist in the
control of debtors?
.
6.1.2 How much is owing by the debtors on 31 May 2023.
6.1.3 Which debtor would you be happy to give a credit reference to?
6.1.4 Which debtor would be “handed over,” and what does this mean?
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ASSET REGISTER
Is the list of assets that belong to the entity. The purpose of fixed asset register is to keep track of the
book value of assets and determine the depreciation to be calculated and recorded for management
and taxation purpose.
The business should keep every transaction relating to an asset in the fixed asset register. Each asset
owned by the business should have a detailed entry page in the register.
DETAILS OF ASSETS RECORDED IN THE ASSET REGISTER
 Date of purchase  Rate of depreciation

 Cost Price  Book value
 Details of the seller  Life expectancy
 Type and model  Method of depreciation
 Serial number  Depreciation
 Receipt/Invoice  Accumulated depreciation
A FIXED ASSET REGISTER FORMAT
D M TRADERS
NO.1
Asset register
General ledger account: Vehicle account (B 6)
Item: Nissan delivery van 2 Date 1 March 2021
litre purchased:
From whom Nissan Monument Cost price:
R180 000
purchased:
Percentage 20 % p.a. at cost price/straight line method
Depreciation:
Details of depreciation
Dates Annual depreciation Accumulated Book value
Calculations depreciation or known as
“Carrying value”
NOTE: only one asset will be recorded in this register
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137
DEPRECIATION METHODS
FIXED METHOD DIMINISHING BALANCE

 Takes place over the useful life of the  Writing off of depreciation on the
asset at a fixed rate. (e.g. over 5 years at carrying value at a fixed percentage
20% p.a.) (e.g. 15% p.a.)
 Writing off takes place over a longer
period.
Standard formula used to calculate depreciation
ART Amount x Rate (%) X Time = Depreciation
Disposal of Tangible Assets
Fixed assets are not purchased for the purpose of resale in the normal course of running a
business, however if the owner no longer requires the asset he may decide to dispose or sell it.
In an event an asset is sold the ,the business will have to derecognise or remove the assets from
the financial assets of the business.
What are the reasons for disposing Tangible Assets?

 The existing asset is too old or has outlived its useful life
 Vehicles may have been involved in accidents
 Damaged assets that cannot be used by a business anymore
 Asset may be obsolete
 The existing asset is too old or has outlived its useful life
Different methods of disposing assets
Methods of disposing Tangible Assets Account affected

 Asset can be sold for cash  Bank account
 Asset can be sold on credit  Debtors Control
 They can be donated  Donation
 Taken for personal use by the owner  Drawings
 They can be traded-in  Creditors Control
 Scrapped  Write off, no payment
 Assets can be written off because of damages  Insurance claim approved/Accrued
income
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When are the Tangible Assets disposed?
DISPOSAL OF ASSETS
In the beginning
At the end of the year During the year
of the year
Assets are disposed at a:

 Carrying Value (No profit or loss incurred)
 Profit (Above the carrying value )
 Loss (Below the carrying value )
NOTE : Carrying Value is the difference between the Cost Price and the Accumulated
Depreciation
FORMAT OF AN ASSET DISPOSAL ACCOUNT AND ASSET ACCOUNT
DR Asset Disposal CR
Mar 1 Equipment / Vehicle xxxx Mar 31 Accumulated xxx
depreciation on
equipment
Bank /Debtors xxx
Control/Creditors
Control /
Donation/Drawings
Loss on sale of asset xx
xxxx xxxx
Profit on sale of
asset is recorded
on the debit side
DR Asset Account CR
Mar 1 Balance b/d @cost xxxx Mar 31 Asset disposal @cost xxx
Bank /Creditors Balance c/d @cost xxx
Control @cost
xxxx xxxx
Balance b/d @cost xxxx xxxx
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NOTE: When assets are bought, the transaction will be recorded on the debit side and when the
sales will be recorded on the credit side.
FORMAT –NOTE ON TANGIBLE ASSETS
Note 3 - Fixed/Tangible assets

Land & Vehicles/
Buildings Equipment
Carrying value at the beginning
xxxx xxxx
of the financial year
Cost xxxx xxxx
Accumulated depreciation Nil (xxx)
Movements
Additions at cost xxxx xxxx
Disposals at carrying value (xxx) (xxx) Tangible assets are
recorded at a carrying
Depreciation Nil (xxx) value and reduce the
balance of assets
Carrying value at the end of the
xxxx xxxx
financial year
Cost xxxx xxxx These balances will
exclude the asset that
Accumulated depreciation Nil (xxx) has been disposed off
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EXAMPLE 1 - ASSETS BOUGHT AND SOLD DURING THE YEAR
INFORMATION
The financial year of BBB Traders ends on 28 February 2021.
The following balances appeared on 1 March 2020:
 Vehicles R312 000
 Accumulated depreciation on vehicles R104 000
TRANSACTIONS
 On 31 August 2020 BBB Traders sold an old vehicle to Zee Traders for R47 200 on credit. This
vehicle originally cost R76 000. The total amount of depreciation at the beginning of the year
amounted to R34 200.
 On 1 December 2020 a new delivery vehicle was bought for cash R200 000, the funds were
transferred electronically to the motor dealer.
NOTE: Depreciation is calculated at 20% per annum on the diminishing balance method.
REQUIRED
1.Prepare the following accounts in the General Ledger:
 Equipment Account
 Accumulated depreciation
 Asset Disposal
 Note on Tangible Assets
SUGGESTED ANSWER
Calculation for carrying value for new and remaining assets:
Total Assets Sold Asset Remaining Assets

Cost 312 000 - 76 000 = 236 000
Acc Depreciation (104 000) - (34 200)* = (69 800)
Carrying Value 208 000 - 41 800 = 166 200
Calculate Depreciation for each category of assets:
Sold Old New

41 800 x 20% x 6/12 = 4 180* 166 200 x 20% = 33 240 200 000 x 3/12 x 20%=10 000
Total Depreciation: 4 180 + 33 240 + 10 000 = 47 420
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GENERAL LEDGER OF BBB TRADERS
VEHICLES
2020 2021
Balance GJ
Mar 1 b/d 236 000 Feb 28 Asset disposal 76 000
2020
Bank 200 000 Balance c/d 360 000
Dec 1
436 000 436 000
2021
Mar 1 Balance b/d 360 000
Note: Each amount is recorded at cost in the Asset Account.
34 200* + 4 180* = 38 380 33 240 + 10 000

Depreciation of asset sold Remaining and new asset Depreciation of an asset sold
Accumulated depreciation on vehicles

2021 Asset 2020
Feb 28 disposal GJ **38 380 Mar 1 Balance b/d 104 000
Depreciation
Aug 31 GJ 4 180
2021
GJ
Balance c/d 113 040 Feb 28 Depreciation 43 240
151 420 151 420
2021
NOTE: When you sell an asset you need to remove the cost price of the asset and the accumulated depreciation from the books of the
business.
Asset disposal
2020 2020 Accumulated

Aug 31 Vehicle GJ 76 000 Aug 31 depreciation on GJ *38 380
vehicle
Profit on sale of
an asset GJ 9 580 Debtors control CRJ 47 200
85 580 85 580
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GENERAL LEDGER OF BBB TRADERS
VEHICLES
2020 2021
Mar 1
Balance GJ
b/d 236 000 Feb 28 Asset disposal 76 000
2020
Bank 200 000 Balance c/d 360 000
Dec 1
436 000 436 000
2021
Note: Each amount is recorded at cost in the Asset Account.
34 200* + 4 180* = 38 380 33 240 + 10 000

Depreciation of asset sold Remaining and new asset Depreciation of an asset sold
Accumulated depreciation on vehicles

2021 Asset 2020
Feb 28 disposal GJ **38 380 Mar 1 Balance b/d 104 000
Depreciation
Aug 31 GJ 4 180
2021
GJ
Balance c/d 113 040 Feb 28 Depreciation 43 240
151 420 151 420
2021
NOTE: When you sell an asset you need to remove the cost price of the asset and the accumulated depreciation from the books of the
business.
Asset disposal
2020 2020 Accumulated

Aug 31 Vehicle GJ 76 000 Aug 31 depreciation on GJ *38 380
vehicle
Profit on sale of
an asset GJ 9 580 Debtors control CRJ 47 200
85 580 85 580
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NOTE 3 ON TANGIBLE ASSETS Calculations

Vehicles
Carrying value at the beginning of the financial year 208 000
Cost 312 000
Accumulated depreciation (104 000)
Movements
Additions at cost 200 000
76 000 - 34 200 - 4 180
Disposals at carrying value (37 620) = 37 620
Depreciation (47 420) 4 180 + 33 240 + 10 000
= 47 420
Carrying value at the end of the financial year 322 960 312 000 -76 000 + 200 000
Cost 436 000 = 436 000
Accumulated depreciation (113 040) 104 000 + 47 420-34 200 – 4 180
=113 040
FULLY DEPRECIATED ASSETS (ASSETS WITH CARRYING VALUE OF R1)
EXAMPLE 2
REQUIRED
 Calculate the depreciation for the current year
 Indicate how the information provided below will appear in the Financial Statements
INFORMATION
Cost R100 000
Accumulated depreciation at the beginning of the year 95 000
NOTE –depreciation on vehicles is calculated at 10% using the cost price method.
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SUGGESTED SOLUTION - DEPRECIATION
100 000 x 10% = 9 000 This amount cannot be regarded as depreciation it is above the
Carrying value of R5 000 (R100 000 – 95 000)
The correct calculation for depreciation is Book Value LESS R1 (R5 000 –R1) = R4 999
NOTE –Assets cannot be depreciated at an amount above their cost price
CHECK- the balances provided above, there’s a small difference between the cost price and the
accumulated depreciation.R100 000 – R95 000 = R5 000
Amount to be recorded in the income statement or statement of comprehensive income
Income Statement at the end of current year Income Statement at the end of following yr.
Operating expenses Operating expenses
Depreciation R4 999 Depreciation None
Amount that will be recorded in the Note on Tangible Assets:
Note on Tangible Assets –Current year Note on Tangible Assets - Following year
Cost 100 000 Cost 100 000
Accumulated Depreciation (95 000) Accumulated Depreciation (99 999)
Carrying Value 5 000 Carrying Value 1
Movements Movements
Depreciation 4 999 Depreciation 0
Carrying Value This amount is 1 Carrying Value This amount is 1
transferred to the transferred to the
Cost Balance sheet 100 000 Cost Balance sheet 100 000
Accumulated Depreciation (99 999) Accumulated Depreciation (99 999)
NOTE: According to Historical Concept, the actual cost price of an asset will always be reflected
in the note irrespective of the decline in the value.
Balance Sheet –Current year Balance Sheet - Following year

Assets Assets
Non- Current Assets Non- Current Assets
Tangible Assets R1 Tangible Assets R1
Financial Assets Financial Assets
If we donate or sell a fully depreciated asset, R1 residual value
will not appear in the financial statements.
The asset will be reflected at R1 in the Balance sheet until the business decides to sell or dispose
the asset (in the next activities you will be introduced to asset disposal)
NOTE in most activities the business will have more than one vehicle, therefore it is unlikely for a
large business to have a carrying value of R1, this figure will be combined with the carrying value of
other vehicles.
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ACTIVITY 1
ADAPTED
NSC NOV 2018
TANGIBLE ASSETS 21 Marks
1. MINDEW LIMITED
The financial year-end is 31 May 2021.
REQUIRED:
1.1 Calculate the missing figures indicated by (i) to (v) in the table below. (17)
1.2 Explain how the internal auditor should check that movable fixed assets
were not stolen. (2)
1.3 Land and buildings were bought five years ago for R6 m. Property prices
have increased by 20% since then. The directors want to increase the
value of this asset and reflect a profit of R1 200 000 in the financial
statements.
As an independent auditor, what advice would you give? Provide ONE
point. (2)
INFORMATION FOR YEAR-END 31 MAY 2021:
A. LAND AND COMPUTER EQUIPMEN VEHICLE

FIXED ASSETS
BUILDINGS S T S
Carrying value: Begin 6 000 000 13 000 1 027 500 1 300 000
Cost 6 000 000 108 000 1 250 000 2 100 000
Accumulated
- (95 000) (222 500) (800 000)
depreciation
Movements
Additions (i) 0 172 500 0
Disposals 0 0 0 (iv)
Depreciation 0 (ii) (iii) (256 000)
Carrying value: End
Cost
Accumulated
(v)
depreciation
B. Land and buildings:

Grant Construction was paid R882 000 for building new offices
(R610 000) and repairing windows (R272 000).
C Computers:
A. The three computers were all bought on the same day at R36 000 each.
B. Depreciation is 33⅓% on cost.
These computers are expected to last another two years.
D Equipment:
A. Additional equipment was purchased on 1 February 2021.
B Depreciation is 10% p.a. on cost.
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ANSWER SHEET: TANGIBLE ASSETS
1. MINDEW LIMITED
1.1 WORKINGS ANSWER

(i)
(ii)
(iii)
(iv)
(v)
17
were not stolen.
1.3 As an independent auditor, what advice would you give? Provide ONE
point.
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ACTIVITY 2 ADAPTED NSC NOV 2017
FIXED ASSETS 22
MARKS
The following information relates to Odette Ltd. The financial year ended on
28 February 2022.
REQUIRED:
2.1 Refer to Information B.
Calculate the missing amounts denoted by (a) to (e). (22)
INFORMATION:
A. Amounts extracted from the records on 28 February 2022:
Balance Sheet accounts section R
Ordinary share capital ?
Retained income (28 February 2022) 520 000
Fixed assets (carrying value) ?
B. Fixed assets:
LAND AND
VEHICLES EQUIPMENT TOTAL
BUILDINGS
Cost 350 000 460 000
Accumulated
(315 000)
depreciation
Carrying value
(a) 35 000
(01/03/2021)
Movements:
Additions 325 000 422 550 0
Disposals 0 0 (d)
Depreciation (b) (13 766)
Carrying value (e)
2 550 000 (c) 50 994
(28/02/2022)
Cost 772 550 340 000
Accumulated
depreciation
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ACTIVITY 2
2.1
Calculate the carrying value of Land and Buildings on 1 March 2021.
(a)
2
(b) Calculate the total depreciation on Vehicles on 28 February 2022.
6
(c) Calculate the carrying value of Vehicles on 28 February 2022.
4
(d) Calculate the carrying value of Equipment sold on 31 December 2021.
6
(e) Calculate the total carrying value of Fixed Assets on 28 February 2022.
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ACTIVITY 3
ADAPTED NSC FEB 2018
FIXED ASSETS 15 Marks
MAFOKO LTD
The given information relates to Mafoko Ltd for the financial year ended
28 February 2022.
REQUIRED:
3.1 Refer to Information A and Information B.
Calculate the missing amounts denoted by (a) to (c) on the Fixed Asset Note. (15)
INFORMATION:
A. Information from the financial statements on 28 February:
2022 2021
R R
Depreciation ? ?
Interest expense 123 000 126 500
Net profit before income tax 422 500 157 500
Net profit after income tax 295 750 113 400
Fixed assets (carrying value) 4 934 450 3 993 390
B. Fixed Asset Note:

Fixed assets comprise only Buildings and Equipment.
BUILDINGS EQUIPMENT
Carrying value (01/03/2021) 2 866 990 1 126 400
Cost (01/03/2021) 2 200 000
Accumulated depreciation (01/03/2021) (1 073 600)
Movements:
Additions (a) 300 000
Disposals (c)
Depreciation (b)
Carrying value (28/02/2022) 1 058 520
Cost (28/02/2017)
Accumulated depreciation (28/02/2022)
 Additional equipment was purchased on 1 June 2021.
 Extensions to the building were completed on 31 August 2021.

 Old equipment was sold at carrying value on 28 February 2022.
 Equipment is depreciated at 20% p.a. using the diminishing-balance
method.
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ACTIVITY 3: ANSWERSHEET
WORKINGS AMOUNT
Additions to buildings
Total depreciation on equipment
Disposal of equipment at carrying value
15
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9 99165 5 / 5: 6 : 5/1 3 99 :9
INTERNAL CONTROL ON TANGIBLE ASSETS
 Purchases of assets should be authorised by management

 An internal auditor must ensure that proper records and documentation relating to fixed
assets are in place.
 Receipts /invoices should be proof of purchase for insurance and external audit purpose
 Fixed assets purchased must be labelled / bar coded or a serial number given for
identification and asset verification.
 Regular stock taking of assets and comparing against the asset register
 Signing in and out of assets to track where they are and who used them
 The movement of assets must be recorded in a logbook, e.g. vehicles
 All fixed assets must be insured against fire, theft, etc.
 All fixed assets should be recorded in a Fixed Asset Register
(check the example of a register below):
D M TRADERS
NO.1
Asset register
General ledger account: Vehicle account (B 6)
Item: Nissan delivery van 2 Date 1 March 2021
litre purchased:
From whom Nissan Monument Cost price: R180 000
purchased:
Percentage 20 % p.a. at cost price/straight line method
Depreciation:
Details of depreciation
Dates Annual depreciation Accumulated Book value
Calculations depreciation or known as
“Carrying value”
 An asset register is an internal control tool used to track the value of assets the
physical assets.
 Auditors will verify physical assets against the asset register
 The ownership of the asset can be verified by external auditors through the
information attached in the register such as name of dealer or creditor,
registration number if its vehicle.
 The auditor can verify if the calculations for depreciation, book value of assets
are accurate.
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EXAMPLE ONE
EXTRACTED FROM NSC NOV 2018
1. MINDEW LIMITED
The financial year-end is 31 May 2018.
REQUIRED:
1.1 Calculate the missing figures indicated by (i) to (v) in the table below. (17)
were not stolen. (2)
1.3 Land and buildings were bought five years ago for R6 m. Property
prices have increased by 20% since then. The directors want to
increase the value of this asset and reflect a profit of R1 200 000 in the
financial statements.
As an independent auditor, what advice would you give? Provide ONE

point. (2)
INFORMATION FOR YEAR-END 31 MAY 2018:
A. LAND AND
FIXED ASSETS COMPUTERS EQUIPMENT VEHICLES
BUILDINGS
Carrying value: Begin 6 000 000 13 000 1 027 500 1 300 000
Cost 6 000 000 108 000 1 250 000 2 100 000
Accumulated
- (95 000) (222 500) (800 000)
depreciation
Movements
Additions (i) 0 172 500 0
Disposals 0 0 0 (iv)
Depreciation 0 (ii) (iii) (256 000)
Carrying value: End
Cost
Accumulated
(v)
depreciation
B. Land and buildings:
Grant Construction was paid R882 000 for building new offices
(R610 000) and repairing windows (R272 000).
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C. Computers:
 The three computers were all bought on the same day at R36 000 each.
 Depreciation is 33⅓% on cost.
 These computers are expected to last another two years.
D. Equipment:
 Additional equipment was purchased on 1 February 2018.
 Depreciation is 10% p.a. on cost.
E. Vehicles:
 Depreciation is 20% p.a. on carrying value.
 A vehicle was sold for cash at carrying value on 31 December 2017. The
Fixed Assets Register reflected the following:
Cost R176 000

Accumulated depreciation (1 June 2017) R128 000
SUGGESTED SOLUTION
NO. WORKINGS ANSWER EXPLANATION

Buildings
(i) 882 000 - 272 000 610 000  Repairs are regarded as
expenses, will be
recorded under
operating expenses.
Note: Installation costs will
increase the cost price of
the asset.
Computers
(ii) When the asset (s) is about
Depreciation on R13 000 – (R1 x 3) to be fully depreciated the
equipment R12 997 following should be noted :
Note: it is important to  Cost price and
verify the calculations accumulated
before you conclude that depreciation figures are
the carrying value is R1. close, almost equal.
When you verify  The amount for carrying
the calculation, 331 3 ÷ 100 x 108 000 value is very small
your answer will be compared to cost and
OR
accumulated
0,333333 x 108 000
= R36 000 This is above the
depreciation.
carrying value of R13 000
Check below 33𝟏 𝟑 % is

simplified.
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Simplified depreciation rate:
33𝟏 𝟑
33𝟏 𝟑 ÷ 100
𝟏𝟎𝟎 𝟏
𝟑
𝒙 𝟏𝟎𝟎
𝟏𝟎𝟎 𝟏
𝟑𝟎𝟎
OR
𝟑
𝟏
𝟑
x 108 000
36 000 (Depreciation is above carrying value of R13 000 )
NO. WORKINGS ANSWER EXPLANATION

Equipment
(iii) New: Always categorise your
R172 500 x 10% x 4/12 calculations for
= R5 750 depreciation as follows:
Old: R130 750  Sold Asset
R1 250 000 x 10%  Old Asset (SON)
= R125 000  New Asset
Vehicles
(iv) Disposal at carrying value  In your note for tangible
176 000 – 128 000 assets the asset sold is
= 48 000 recorded at the carrying
148 000 x 20% x 7/12 value.
= 5 600
Cost - (Acc dep + Dep)
176 000- (128 000 + 5 600)
Equals to carrying value
42 400 A
Depreciation for remaining assets :Vehicles
oCost Price – cost of asset sold
oAcc Depreciation –Acc depreciation of asset sold (take opening balances)
2 100 000 -176 000 = 1 924 000 (Cost price of remaining assets)
800 000 - 128 000 = 672 000 (Acc depreciation of remaining assets )
(1 924 000 – 672 000) x 20% = 250 400 B (Current depreciation –old assets)
1 252 000
Total depreciation on vehicles is: 5 600 (A) + 250 400 (B) = 256 000
(v) Acc depreciation on vehicles at end of year:
o Acc dep at beginning PLUS Depreciation LESS Acc dep on asset sold
800 000 +256 000 – (128 000 + 5 600) = 922 400
133 600
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ACTIVITY 1: TANGIBLE ASSETS

GAUTENG PRELIM 2019
HALEY LTD
The given information relates to Hadley Ltd. The financial year ended on 28 February
2019.
Calculate the missing figures indicated by (a) to (e) in the Fixed Asset Note below. (17)
INFORMATION:
A Extract from the Income Statement for the year ended 28 February 2019
R
Depreciation ?
B Fixed Asset Note
Land and Vehicles Equipment

Building
Carrying value on 28 Feb 2018 6 800 000 840 000 (c)
Cost 6 800 000 (b) 850 000
Accumulated depreciation 0 (960 000) (180 000)
Movements
Additions at cost 900 000 400 000
Disposals (a) 0 (d)
Depreciation (171 000) (e)
Carrying value on 28 Feb 2019 5 800 000
Cost 5 800 000 2 700 000
Accumulated depreciation
Land and Building
 Part of the Land and Building was sold at carrying value during the financial year.
Vehicles
 A new delivery van was bought on 1 November 2018.

 No vehicles were sold during the financial year.
Equipment
 A printer bought for R150 000 on 1 March 2016, was sold at carrying value on 31
August 2018.
 A new printer was purchased on 31 August 2018.
 Depreciation on equipment is written-off at 10% p.a. on the cost price.
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Activity 1: GAUTENG PRELIM 2019
Calculate the missing figures indicated by (a) – (e) in the Fixed Asset Note.
CALCULATIONS AMOUNT
(a)
(b)
(c)
(d)
(e)
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ACTIVITY 2 : TANGIBLE ASSETS KZN PRELIM 2019

2.1 Calculate the missing amount denoted (a) to (d) in the Tangible/Fixed asset note: (use (16)
information A)
A. Fixed / Tangible assets
Buildings Vehicles Equipment

Carrying value at the beginning 1 100 000 (D)
Cost price 1 100 000 937 500

Accumulated depreciation (537 500) (81 000)
Movements
Additions (A) 350 000 120 000
Disposal at carrying value (C) (0)
Depreciation (B) (25 350)
Carrying value at the end 1 900 000
Cost price 1 900 000 300 000
Accumulated depreciation
Additional information in respect of fixed assets:
 An extension to the office block was undertaken during the financial year.
 Equipment of R120 000 was purchased on 1 December 2018.
 The business had three vehicles at the beginning of the year. The following
details appeared in the fixed asset register on 1 July 2018:
VEHICLE 1 VEHICLE 2 VEHICLE 3

Cost price 500 000 437 500 350 000
Accumulated depreciation (450 000) (87 500) -
Date of purchased 1 January 2014 1 July 2017 1 July 2018
NOTE:
 Vehicle 1 is old and is reaching the end of its useful life.
 Vehicle 2 was sold at its carrying value on 1 April 2019
 Depreciation: vehicles at 20% on cost
: equipment at 15% on diminished method
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QUESTION 2 KZN PRELIM 2019

2.1 Notes to the Financial Statements
Calculations Answer
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159
QUESTION 3: FIXED ASSETS NW PRELIM 2019

3.1 FIXED ASSETS
You are provided with information for the financial year ended 28 February
2019 taken from the books of Bontle Ltd a public company listed on the
Johannesburg Securities Exchange (JSE).
REQUIRED:
3.1.1 Calculate the cost price of the delivery vehicle that was traded in on
31 August 2018 (4)
3.1.2 Refer to information A (14)
Calculate the missing figures as indicated by (i)–(iv) on the fixed
asset note
INFORMATION:
A. Incomplete Fixed Asset Note on 28 February 2019:
Land and
Vehicles Equipment
buildings
CARRYING VALUE AT THE
5 715 000
BEGINNING OF THE YEAR
Cost price 5 715 000 1 120 000 200 000
Accumulated depreciation (0) (460 000) (171 000)
MOVEMENTS
Additions (ii) 450 000 65 000
Disposals (i) (iii)
Depreciation (153 000) (iv)
CARRYING VALUE AT THE END
6 015 000
OF THE YEAR
Cost price 6 015 000 1 270 000 265 000
Accumulated depreciation (0)
B. Fixed/Tangible assets
Land and buildings

A security office, cost price R400 000, was completely destroyed in a fire. Instead of repairing the
old security office, the insurance claim and additional funds were used to build a new security
office in a different place on the property.
Vehicles
A delivery vehicle bought on 1 March 2017 was traded in on 31 August 2018 for a new vehicle
costing R450 000.
Depreciation on vehicles is written off at 20% p.a. on the diminishing balance method.
Equipment
Bontle Ltd bought a printing machine on 1 June 2016. On 1 December 2018 the company bought
a new printing machine to the value of R65 000. No equipment was sold during the year.
Depreciation on equipment is written off at 18% p.a. on the cost-price method.
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QUESTION 3
3.1 FIXED ASSETS
3.1.1 Calculate the cost price of the delivery vehicle that was traded in on
31 August 2018.
Calculation Answer
3.1.2 Calculate the missing figures as indicated by (i)–(iv) on the fixed asset note.
No. Calculations Answer
(i)
(ii)
(iii)
(iv)
14
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Problem Solving –Tangible Assets
Refer to the example attached below:

Note: The first column “problem identified” is added to the question to assist you to
identify the problems.
MANAGEMENT OF FIXED ASSETS

You are the internal auditor for Kobus Hardware. Kobus is concerned that he is
spending too much on delivering goods to customers. He has provided you with
figures for a typical month, February 2021.
REQUIRED:
Identify ONE problem regarding each vehicle/driver. Quote figures to
support your answers. Give Kobus ONE point of advice for EACH problem
Identified. (9)
INFORMATION:
A. Kobus has three delivery vehicles and employs three drivers to transport
goods to his customers free of charge. The drivers are expected to work
five days per week. There are four weeks in February.
B. Some customers live close by while others live further away. None
of the customers live more than 20 km from the shop
(I.e. maximum 40 km round trip).
C. Information from the accounting records for February 2021:
Problem Iden fied VEHICLE 1 VEHICLE 2 VEHICLE 3

Name of driver LEROY FRED BHEKI
Date of purchase 1 Mar. 2019 2 Feb. 2017 1 May 2012
Carrying value R270 000 R102 000 R1
Leroy worked Number of days driver worked
few days and 12 20 20
was paid more Salary of driver per month R8 000 R5 000 R5 000
money Number of deliveries made 48 80 120
Average number of trips per day
4 4 6
Fred has high number Kilometers travelled 1 300 4 600 3 000
of kilometers above 40 Average number of 25
km but deliveries are 27 58
kilometers per trip
few
Petrol (litres) used 59 209 214
Kilometres per litre 22 22 14
Bheki’s car consume Petrol costs
more petrol R668 R2 365 R2 424
(R11,31per litre)
Petrol costs per km R0,51 R0,51 R0,81
Always quote problems and figures
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MANAGEMENT OF FIXED ASSETS

Identify ONE problem regarding each vehicle/driver. Quote figures to support your answers. Give Kobus
ONE point of advice for EACH problem identified.
Problem with figures Advice

Problem      
Figures   
VEHICLE 1  Leroy was absent for 8 days./ He is the  Investigate the reason for his
highest paid driver, R8 000 where other absence./Only pay for the
(LEROY) drivers earn R5 000. number of days at work.
 Fred is travelling too many kilometres  Possible disciplinary action
(4 600 km for 80 trips = 58 km per trip) against Fred for unauthorised
VEHICLE 2 which is higher than the maximum of 40 use of vehicle./Improve
km per customer. internal control over the use of
(FRED)
 He is travelling more km than Bheki (4 200 the vehicles.
compared to 2 800 km) but doing fewer
trips (70 compared to 110).
VEHICLE 3  Bheki is doing the most number of trips  Consider replacing this
(120) but his vehicle is the oldest and the vehicle as it is expensive to
(BHEKI) most expensive to run maintain.
(R0,81 per km).
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163
SUMMARY OF PROBLEMS ASSOCIATED WITH VEHICLES –TANGIBLE ASSETS

Type of problem Explain and quote figures, Possible Response/Answer:
percentages etc. Solution to a problem or advice
Number of days driver worked Few days worked ,but received Investigate reasons for
and the salary paid more money or highest paid absence
driver Only pay for the number of
days at work.
Kilometres travelled and More kilometres travelled but Improve internal control over
number of deliveries fewer deliveries the use of the vehicles.
Unauthorised use of vehicle Disciplinary action against the
driver
Petrol Consumption High petrol consumption Consider replacing this

because the vehicle is old vehicle as it is expensive to
Maintenance cost High maintenance cost maintain.
because the vehicle is old
Carrying value The vehicle with the lowest carrying value including R1 residual value is
normally expensive to maintain,Sale or Disposal is normally recommended.
Other problems
Date of purchase
Average number of trips per
day
Insurance
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164
ACTIVITY 4: MANAGEMENT OF TANGIBLE ASSETS Adapted from ASC 2015

4.1 TANGIBLE ASSETS
The following information relates to the fixed/tangible assets of

Jabulani Hypermarket for the year ended 28 February 2021.
REQUIRED:
4.1.1 Refer to Information A, B and C. Calculate the amounts indicated by

(i)–(iii). Show the workings in the space provided in the ANSWER
BOOK. (7)
4.1.2 Refer to Information D. Prepare the Asset Disposal Account for the
computer sold on 30 November 2020. (13)
4.1.3 Refer to Information E. You are the internal auditor of

Jabulani Hypermarket. The owner has asked you to investigate the
control of trolleys and baskets used in the business.
(a) Explain how the Fixed Assets Register will assist you in your
duties as internal auditor. Provide ONE point. (2)
(b) The stock of trolleys and baskets is classified as a fixed asset.

Give ONE suitable reason for this. (2)
(c) The owner has received numerous complaints from his customers
about the trolleys and baskets. On a busy day the business often
has up to 420 customers in the shop at the same time.
Identify and explain THREE major problems (with figures) relating

to the control of the trolleys and baskets. In EACH case, provide
a valid, practical solution to improve the control over these assets. (9)
INFORMATION:
A. Information from the financial statements for the year ended
28 February 2021:
LAND AND
FIXED/TANGIBLE ASSETS VEHICLES EQUIPMENT
BUILDINGS
Carrying value on 1 March 2020 2 500 000 264 600 (i)
Cost 2 500 000 552 000 900 000
Accumulated depreciation 0 (287 400) (224 000)
Movement
Additions (ii) 0 470 000
Disposals at carrying value 0 0
Depreciation 0 (iii)
Carrying value on 28 February 2021 3 200 000
Cost 3 200 000
Accumulated depreciation 0
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165
B. The business has two vehicles. The following details appeared in the
Fixed Assets Register:
Vehicle 1 Vehicle 2
Cost 240 000 312 000
Accumulated depreciation on 1 March 2020 (225 000) (62 400)
Carrying value on 1 March 2020 15 000 249 600
NOTE: Vehicle 1 is old and is reaching the end of its useful life.
C. The business provides for depreciation on its fixed assets as follows:

 On vehicles at 25% p.a. on cost
 On equipment at 20% p.a. on the diminishing-balance method.
Equipment comprises shopping baskets, trolleys, computers, fridges
and other general shop equipment.
D. A computer was sold for cash to Mash Crusaders on 30 November 2020.

A loss of R250 was incurred as the computer was slightly damaged.
According to the Fixed Assets Register, the computer was originally
purchased for R9 200. Accumulated depreciation on this item was R6 400
on 1 March 2020.
E. The following information refers to the trolleys and baskets of the

business:
TROLLEYS BASKETS
Number of units on hand on 1 March 2020 148 120
Additional units purchased during the
financial year at R2 000 each for the trolleys 112 35
and R250 each for the baskets
Number of damaged units written off during
14 60
the financial year
Number of units on hand as per physical
210 95
count on 28 February 2021
Repair and maintenance cost for units during
R1 800 R16 000
the financial year
33
103
166
ANSWER SHEET 4
4.1.1 NO. CALCULATIONS AMOUNT

(i)
(ii)
(iii)
4.1.2 ASSET DISPOSAL
13
NOTE: Most recent papers will not assess you on asset disposal account,
but you will calculate the carrying value of an asset sold and that will be
recorded in your note for Tangible Assets.
4.1.3 (a) Explain how the Fixed Assets Register will assist you in your
duties as internal auditor. Provide ONE point.
(b) The stock of trolleys and baskets is classified as a fixed asset.

Give ONE suitable reason for this.
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167
(c) Identify and explain THREE major problems (with figures) relating
to the control of the trolleys and baskets. In EACH case, provide
a valid, practical solution to improve the control over these
assets.
PROBLEM WITH PRACTICAL SOLUTION TO

FIGURES IMPROVE INTERNAL CONTROL
Problem 1
Problem 2
Problem 3
TOTAL
MARKS
33
105
73
9 99165 ; / :9
NOTES ON CONTENT: BUDGETS

INTRODUCTION
Grade 10 you were introduced to budgeting concepts, the content included types of budgets
such as: cash budgets, zero based budgets, capital budgets, long-term, medium-term budgets
and basic calculations. In Grade 11 the focus was the preparation of Cash Budgets, the
Debtors Collection schedule, the Creditors Payment Schedule and Projected Statements.
In Grade 12 the focus is on the analysis and interpretation of the Cash Budgets and Projected
Income Statement however the completion and calculations of the above will be implemented.
REVISION OF BUDGET CONCEPTS
BUDGET CONCEPTS FOR BASE LINE KNOWLEDGE:

Concept Defini on Purpose
• A budget that deals with expected To project or estimate the future receipts
Cash budget
inflow and outflow of cash. and payments
• It’s a forecast of cash receipts Budgeting forms an integral part of
and cash payments. planning to achieve maximum profits
To promote the smooth running of the
business
To indicate a possible cash shortage and
time to arrange bridging finance
Projected income • A budget that deals with expected

To estimate future profits and losses
statement income and expenses
• To calculate the expected
Debtors collection collection of money from debtors To estimate the receipts expected from
schedule when goods have been sold on debtors
credit
To estimate payments to be made to
creditors. Here you have to remember
Creditors payment • A plan of how the business will
that when the credit purchase is not
schedule pay its creditors
given, then total purchases is equal to
cost of sales
• A budget provides management Budgets are used by management to
Internal control
with an effective tool to monitor ensure that:
and control business activities for Future plans are followed
internal control measurement Mark-up % has been maintained
purposes. Sales targets have been achieved
Expenditure is controlled
Cash flow challenges are avoided
Future targets and objectives are
achieved
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B. DEBTORS-COLLECTION SCHEDULE:
ILLUSTRATIVE ACTIVITY ONE:

Follow the steps below to complete the debtor’s collection schedule
INFORMATION
1 60% of total sales are for cash
2 Debtors are expected to pay as follows

 50% in the current month as the credit sale transaction subject to a 10% discount allowed
 30% in the following month
 17% in the second month following the month of sales
 3% is expected to be written off
3 Total sales: Actual: Budgeted:

June 2023 R160 000 July 2023 R150 000
August 2023 R180 000
September R200 000
2023
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SOLUTION TO ILLUSTRATIVE
Follow the steps in theCOMPLETION OF THE DEBTORS COLLECTION SCHEDULE
June is not our budget period but
however some of June’s credit sales will
DEBTOR’S COLLECTION SCHEDULE be collected in July and August
Credit July August September
sales
June 2023 R64 000 30% 19 200 17% 10 880
July 2023 R60 000 50%- 27 000 30% 18 000 17% 10 200
10%
August 2023 R72 000 32 400 30% 21 600
Sept 2023 R80 000 36 000
TOTAL R46 200 R61 280 R67 800
These figures will then appear in the

Cash Budget under Budgeted Cash
Receipts as collec on from debtors
STEP 1 STEP 2 STEP 3
Calculate and enter credit salesYou should insert the % You should calculate the amount
to be collected each expected to collect from debtors
Cash sales = 60% Credit sales =
month monthly.
*40%
June : R160 000 x 40% = R64 IMPORTANT!!! June credit sales: will be calculated
000 but only for the months that effect the
collection period.
July : R150 000 x 40% = R60
June: R64 000 x 50%
000 You must first July : R64 000 x30% = R19 200
Aug : R180 000 x 40% = R72 calculate the 50% Aug: R64 000 x 17% =R 10 880
000 of the credit sales Sept: The 3% will be bad debts
Sep : R200 000 x 40% = and then subtract
the 10% discount July credit sales:
R80 000
from this figure. July : R60 000 x 50% = R30 000
R30 000 x = R27 000
Aug : R60 000 x 30% = R18 000
Assume that you were given
Sept : R60 000 x 17% = R10 200
R96 000(equal to 60%) for
cash sales but NOT total
August credit sales:
Sales . Aug : R72 000 x 50% = R36 000
Use the formula below to R36 000 x =R32 400
THAT IS WRONG
determine credit sales: Sept : R72 000 x 30% = R21 600
OR September credit sales:
𝒖𝒏𝒌𝒏𝒐𝒘𝒏 Sept : R80 000 x 50% = R40 000
%
x 96 000 =R64 000 Formula: 𝒌𝒏𝒐𝒘𝒏
or
% R40 000 x = R36 000
100% – 10% = 90%
Known unknown
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ACTIVITY 1 DEBTORS COLLECTION SCHEDULE (Adapted - FS 2018 Prelim)
Zethu Builders Hardware

You are provided with information relating to Zethu Builders Hardware for the two months ended
30 September 2023.
REQUIRED:
1.1 Complete the Debtors' Collection Schedule for the two months ending 30 September (9)
2023.
1.2 Calculate the amount of bad debts that will be written-off in September 2023. (3)
INFORMATION:
A. Sales
Monthly total sales are:
Actual Budgeted
May R350 000
June R400 000
July R500 000
August ?
September R800 000
 Credit sales amounts to 75% of the total sales.
Debtors pay according to the following trend:
 50% pay in the month following the month of sale.
 ? % pay in the second month following the month of sale.
 ? % pay in the third month following the month of sale.
 2 % is written-off as irrecoverable.
C. Cash Budget for the two months ending 30 September 2023

RECEIPTS AUGUST SEPTEMBER
Cash sales 150 000 (a)
Collection from debtors ? ?
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77
ANSWER SHEET
1.1 DEBTORS' COLLECTION SCHEDULE
MONTHS CREDIT SALES AUGUST SEPTEMBER

May 262 500 47 250
June 300 000 90 000 54 000
July 375 000
August
1.2 Calculate the amount of bad debts that will be written-off in September
2023.
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ACTIVITY 2 DEBTORS COLLECTION SCHEDULE Extract from NW 2019 Prelim
You are provided with an incomplete Cash Budget of Jackson Traders for the period 1 July 2023 to
31 August 2023. The business is owned by Terry Jackson.
REQUIRED:
Examine the Cash Budget and answer the following questions:
2.1 Complete the Debtors’ Collection Schedule for August 2023 (6)
INFORMATION:
A. Extract from the Cash Budget for the two months ending 31 August 2023
Receipts JULY AUGUST

Cash sales of merchandise 64 800 50 400
Collection from debtors 46 440
TOTAL RECEIPTS
B. Sales, cost of sales and debtors’ collection:
(a) SALES COST OF SALES

R R
Budgeted Actual Budgeted Actual
May 105 000 78 000 70 000 52 000
June 123 000 89 100 82 000 60 000
July 108 000 72 000
August 84 000 ?
(b) 60% of the total sales are for cash.
(c) Credit sales are collected as follows:
 20% collected in the month of sale to receive a 5% discount

 70% collected in the first month following the sale
 8% collected in the second month following the sale
 The balance is written off in the third month following the month of sale
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ANSWER SHEET
[NW prelim 2019] Jackson Traders
2.1 Complete the Debtors’ Collection Schedule for August 2023.

DEBTORS’ COLLECTION SCHEDULE FOR AUGUST 2023
CREDIT SALES AUGUST
May 42 000
June 49 200
July 43 200
August 33 600
6
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C. CREDITORS PAYMENT SCHEDULE (CREDITORS BUDGET):
Calculation of the expected payment to creditors when the TOTAL PURCHASES or the CREDIT
PURCHASES is not given.
ILLUSTRATIVE ACTIVITY TWO:
The preparation of the Creditors payment schedule will assist in determining the credit purchases and the
amount payable to creditors over a specific period. These calculations will assist towards the preparation of
the Cash Budget.
Follow the steps below in calculating the expected payment to creditors using credit purchases.
Information:
Information of question Explanation
1 Mark–up is 100% on cost price This information will be given when credit
purchases are not supplied, the mark-up will enable
you to calculate the Cost of Sales
∴ Cost of Sales = Total Purchases
2 Cash purchases of trading stock amount to only If Cash purchases is 20% then credit purchases will
20% of all purchases. be 80% of total purchases (Cost of Sales)
3 All credit purchases are payable in the month The balance of the Creditors control must be paid in
following the month of purchase. June and what is bought in June will be paid in July,
etc.
4 Stock replenishment will take place on a monthly That means that the stock balance, each month, will
basis and the opening balance will be be the same. This explains that:
maintained as a base stock. [opening stock
balance will be maintained at the fixed value ∴Cost of sales = Total Purchases
( FIXED BASE STOCK) ]
Additional information:
SALES FORECAST BALANCES ON 31 MAY 2023

June 2021 R 126 000 Trading stock R 75 000
July 2021 R 130 000 Creditors control R 60 000
August 2021 R 144 000
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81
Illustration of an extract from the Cash Budget:

CASH BUDGET: BUDGET MONTHS
CASH PAYMENTS JUNE JULY AUGUST
Cash Purchases [20%] 12 600 13 000 14 400
Payments to Creditors [80%] 60 000 50 400 52 000
Balance brought forward from May 2023 as Total purchases of June is R 12 600 + R 50 400 =R 63 000
payment to creditors for June See July as well
STEP 1 STEP 2 TAKE NOTE:

Calculate Cost of Sales. Calculate credit purchases Illustra on of ‘opening stock balance ‘ ,it will
be maintained as the ‘stock base’
Cost of sales = Total purchases Cash purchases
Therefore, Cost of sales = total Purchases
Mark-up is 100% on cost CREDIT PURCHASES = 80%
Payable in the next month TRADING STOCK
Payment to creditors: June:
Total Purchases: Balance b/d 75 000 Cost of sales 63 000
June: June: (payment in July) Bank [20%] 12 600
Creditors cont[80%] 50 400 Balance c/d 75 000
R126 000 X = R 63 000 63 000 x = R 50 400
138 000 138 000
July: July: (payment in August)
R130 000 X = R65 000 65 000 x = R 52 000 July
August: Balance b/d 75 000 Cost of sales 65 000
August: (payment in Sept) Bank [20%] 13 000
R144 000 X = R72 000 Creditors cont[80%] 52 000 Balance c/d 75 000
72 000 x = R 57 600
140 000 140 000
REMEMBER: CASH PURCHASES = 20% August
Paid when goods are Balance b/d 75 000 Cost of sales 72 000
Bank [20%] 14 400
purchased
When credit purchases June: 147 000 147 000
[80%] is not given but 63 000 x = R 12 600 Balance b/d 75 000
only cash purchases of July:
R12 600 [20%] is given: What if the stock is donated or withdrawn by
65 000 x = R 13 000 owner?
Make use of formula: For example: donated stock of R5 000
August: Then the dona ons + cost of sales = total
or
72 000 x = R 14 400 5 000 + 63 000 = 68000 x 20%
% 68 000 x 80%
x 12 600 = R 50 400
% Remember:
• Trade discount can be TRADING STOCK
allowed to traders and June:
• Discount can be received Balance b/d 75 000 Cost of sales 63 000
for early payments. Bank [20%] 13 600 Dona on 5 000
143 000 143 000
July
Balance b/d 75 000
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ACTIVITY 3 CREDITORS PAYMENT SCHEDULE (Adapted- 2019 NW prelim)
Jackson Traders
You are provided with an incomplete Cash Budget of Jackson Traders for the period 1 July 2023
to 31 August 2023. The business is owned by Terry Jackson
REQUIRED:
Examine the Cash Budget and answer the following questions
3.2 Calculate the missing amounts indicated by (i) to (ii) on the Cash Budget (6)
INFORMATION:
A. Extract from the Cash Budget for the two months ending 31 August 2023:
Receipts JULY AUGUST
Cash sales of merchandise 64 800 50 400
Collection from debtors 46 440
Payments
Cash purchase of trading stock 18 000 (i)
Payments to creditors (ii) 51 300
B. Sales, cost of sales and debtors’ collection:
(a) SALES COST OF SALES

R R
Months Budgeted Actual Budgeted Actual
May 105 000 78 000 70 000 52 000
June 123 000 89 100 82 000 60 000
July 108 000 72 000
August 84 000 ?
(b) 60% of the total sales are for cash.

(c) Credit sales are collected as follows:
 20% collected in the month of sale to receive a 5% discount
 70% collected in the first month following the sale
 8% collected in the second month following the sale
 The balance is written off in the third month following the month of sale.
D. Stock levels and payments to creditors
 The business uses a mark-up of 50% on cost.

 The business maintains a fixed-base stock by replacing stock on a monthly basis.
 75% of the total purchases are on credit.
 Creditors are paid in the month following the month of purchase to take
advantage of a 5% discount.
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ACTIVITY 3: CREDITORS’ PAYMENT SCHEDULE

Extract from 2019 NW prelim examination
3.2 Calculate the missing amounts indicated by (i)–(ii) on the Cash

Budget.
No. Calculations Answer
(i) Cash purchases- August
August x 50% markup on cost x 25% cash purchases (3)
(ii) Payment of creditors / credit purchases: July

Cost of sales= total purchases x 75%credit purc – 5% discount
(3)
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84
D ANALYSIS AND INTERPRETATION OF CASH BUDGETS
An extract from the Gauteng Prelim examination 2019 used to illustrate the possible approach to
analyse and calculate the missing amounts in the Debtors Collection Schedule and the Cash
Budget
ILLUSTRATIVE ACTIVITY THREE
.
ACTIVITY 3:
3.2 BRITE TRADERS
You are provided with an incomplete Cash Budget of Brite Traders for the period
1 August 2021 to 30 September 2023. Cleve Brite is the owner.
3.2.1 Calculate the credit sales for August 2023 and then complete the Debtors'
Collection Schedule for September 2023. (7)
3.2.2 Calculate the missing amounts indicated by (a) – (f) on the Cash Budget. (12)
INFORMATION: CALCULATIONS AND NOTES

Notes to record while reading the question
A Sales, cost of sales and debtors' collection
 Actual and budgeted sales and cost of sales:

TOTAL
SALES (R) COST OF SALES (R)
BUDGETED ACTUAL BUDGETED ACTUAL
June 115 500 85 800 77 000 57 200
July 135 000 98 010 90 000* 65 340
August 118 800 79 200
• 3.2.1: Credit sales for Aug:
September 92 400* ? • Total sales: R 118 800
 60% of the total sales are for cash. • Credit sales = 40% Cash sales = 60%
• 3.2.1: 118 800 x = 47 520
 Credit sales are collected as follows: • 3.2.2: September collection
o 20% in the month of sale
o 70% in the first month following the sale
o 8% in the second month following the sale
o The balance is written-off in the third month
following the month of the sale.
B Stock levels and payments to creditors
 Brite Traders uses a mark-up of 50% on cost. • Mark-up 50%: Cost price 100%
 A fixed-based stock level is maintained by replacing Mark-up 50%
stock on a monthly basis. Selling price: 150%
• Cost of sales = Total Purchases
 75% of the total purchases are on credit.
• Cash Purchases 25% [credit purchases
 Creditors are paid in the month following
75%]
the month of purchase to take advantage
of the 5% discount. • Payment after discount: x
• Payment the next month of purchases
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85
C Delivery costs
 All goods sold are delivered to customers free of
charge.
 Dell Deliveries has been contracted to render this
service. • Total sales x = delivery cost
 The delivery costs are budgeted at 10% of sales.
D Salaries • September salaries:
 Workers will receive an increase of 6% on 1 • Aug: 100%

September 2023. • Increase: 6%
• Sept 106%
E Insurance
 The insurance premium is paid at the end of each
month. • Aug: 100%
 The monthly premium will increase by 10% on 1 • Increase: 10%
September 2023. • Sept: 110%
F Extract from the Cash Budget for the two months ending 30 September 2023 Total Debtors’ collec on
schedule for Sept
Receipts August September
Cash sales of goods 71 280 55 440
The Cash purchases of July +
Collec on from debtors 51 000 credit purchases in August =
Rent income 8 250 9 075 TOTAL PURCHASES
Cost of sales = Total Purchases
Addi onal capital to be contributed 110 000
(a) Sept sales: C o S
Total receipts
92400 x = 61600
Payments
61600 x =15400
Cash purchase of trading stock 19 800 (a)
(b) Credit purchases
Payment to creditors (b) 56 430
90 000 x x
Salary: Five workers 35 200 (c)
=64 125
Telephone 5 500 6 600
Adver sing 19 800 13 200
Insurance (d) 5 808 Make use of formula:
Delivery costs (payable to Dell Deliveries) 11 880 (e) Or
Other opera ng expenses (c) Salaries
Drawings 16 500 16 500 Aug: 100%
Increase: 6%
Total payments
Sept: 106%
Cash surplus / deficit (24 860)
%
Bank balance at beginning of month (11 220) (f) x 35200 = R
%
Bank balance at end of month
(d) Insurance:
Aug: 100% ?
(e) Delivery cost: (f) Closing balance of August Increase: 10%
10% of September Sales becomes the opening balance Sept: 110% R5808
92 400 x 10% =9 240 for September
%
(24 860) + (11 220) = 36 080 x R5 808= 5280
%
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SOLUTION: ILLUSTRATIVE ACTIVITY 3

EXTRACT FROM THE GAUTENG PRELIM ACCOUNTING EXAMINATION 2019
3.2 BRITE TRADERS
3.2.1
Calculate the credit sales for August 2023 and then complete the
Debtors' Collection Schedule for September 2023.
CREDIT SALES SEPTEMBER

June 46 200
July 54 000 4 320
Check 70% of credit
(118 800 x 40%) sales 
August 47 520  
47 520 x 70% 33 264
September 36 960 36 960 x 20% 7 392 

One part
correct 44 976 
7
3.2.2
Calculate the missing amounts indicated by (a) – (e) on the Cash
Budget.
CALCULATIONS AMOUNT
61 600 (one mark) One part correct
(a) 
(92 400 x 100 ÷ 150) x 25% 15 400
67 500 (one mark) One part correct
(b) 
(90 000 x 75%) x 95% 64 125
(c) 35 200 x 106% 37 312 
(d) 5 808 x 100 ÷ 110 5 280 
(e) 92 400 x 10% = 9 240 
bracket/negative amount
(f) – 24 860 – 11 220 
(36 080)
14
119
87
ACTIVITY 4: ANALYSIS AND INTERPRETATION OF THE CASH BUDGET

(Adapted – FS 2018 Prelim)
You are provided with information relating to Zethu Builders Hardware for the two months ended 30
September 2023.
REQUIRED:
4.3 Calculate the missing amounts indicated (a) to (d) in the incomplete Cash budget provided. (14)
4.4 Calculate the percentage increase in the amount budgeted for salaries and wages for
September 2023.
The workers are threatening to go on strike for a higher wage increase. Do you think they
are justified in their grievance? Explain your answer. (5)
4.5 A local town councillor has offered to recommend Zethu Builders Hardware to supply
building material to the value of R1 000 000 in the extension of local municipality offices.
However, he will only do this, if Zwakele pays him 10% of the total value in cash.
Give TWO reasons why Zwakele should not accept this offer. (4)
INFORMATION :
A. Sales
Monthly TOTAL sales are:
Actual Budgeted
May R350 000
June R400 000
July R500 000
August ?
September R800 000
 Credit sales amounts to 75% of the total sales.
Debtors pay according to the following trend:
 50 % pay in the month following the month of sale.
 ? % pay in the second month following the month of sale.
 ? % pay in the third month following the month of sale.
 2 % is written-off as irrecoverable.
B. Purchases
Monthly total purchases are as follows:
Actual Budgeted
July R400 000
August R550 000
September R600 000
 40% of all purchases are cash.
 Creditors are paid in full after 30 days to take advantage of a 5% discount.
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C. Cash Budget for the two months ending 30 September 2023
RECEIPTS AUGUST SEPTEMBER

Cash sales 150 000 (a)
Collection from debtors ? ?
Fixed deposit: ND Bank 300 000
Interest on fixed deposit 4 000 4 000
Sundry cash income 30 000 35 000
PAYMENTS
Cash purchase of trading stock (b) 240 000
Payments to creditors 228 000 (c)
Salaries and wages 45 000 48 600
Equipment 50 000 50 000
Manager’s salary 41 000 47 150
Interest on loan 0 (d)
D. A loan of R800 000 was negotiated with BOB Investors at 18% p.a. interest on 31
December 2022. Interest is not capitalised. The interest is payable every three months on
the 31 March, 30 June, 30 September and 31 December, commencing on 31 March 2023
Notes: for own reflec on
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Adapted -2018 FS prelim
4.3 WORKINGS AMOUNT

(a) Cash sales for September
(b) Cash purchases of trading stock in August
(c) Payments to creditors for September
(d) Interest on loan for September
14
122
90
4.4 Calculate the percentage increase in the amount budgeted for salaries and wages for
September 2023.
Do you think they are justified in their grievance? Explain.

5
4.5 A local town councillor has offered to recommend Zethu Builders Hardware to supply
building material to the value of R1 000 000 in the extension of local municipality offices.
However, he will only do this, if Zwakele pays him 10% of the total value in cash.
Give TWO reasons why Zwakele should not accept this offer.
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Adapted - MP2018 Prelim
(40 marks; 24 minutes)

You are provided with information relating to Lowveld Hardware. The business is owned by Moosa
Mdluli.
REQUIRED:
5.1 Complete the following statement:
The main reason why bad debts would not appear in the Cash Budget is because it is a/an
……. (2)
5.2 Calculate the missing amounts indicated by (a) to (e) in the Cash Budget for October and
November 2023. (16)
5.3 Complete the Debtors' Collection Schedule. (9)
5.4 Calculate the percentage increase in sundry expenses. (4)
5.5 The Cash Budget for October and November 2023 indicates that this business will face
serious financial difficulties. Identify TWO items to support this statement. Quote relevant
figures. (4)
5.6 Refer to Information K.
Explain why each of the items reflects a problem for the business. State TWO points in EACH
case. (6)
INFORMATION No. 5.5, 5.6 will be dealt in Ac vity 9, 10 and 11
A. Extract from the Cash Budget

OCTOBER 2023 NOVEMBER 2023
CASH RECEIPTS
Cash sales (a) 237 600
Cash from debtors 178 600 ?
Rent income 3 300 (c)
Loan: Glad Bank - 201 600
Commission income 19 000 30 000
CASH PAYMENTS
Cash purchases of trading stock (b) 257 500
Payments to creditors for stock 32 350 28 250
Salaries and wages 61 240 61 240
Loan instalment 5 600
Interest on loan - (d)
Insurance 2 480 2 480
Drawings 19 800 19 800
Delivery expenses 31 000 31 000
Sundry expenses 87 600 89 790
Cash surplus/(deficit)
Bank: Opening balance (e)
Bank: Closing balance (82 800) (49 300)
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92
B. The business has only one supplier. Commission of 5% of sales is receivable in the month
following the sales.
C. Cash sales amount to 60% of total sales.
D. Total sales for September 2023 were R380 000.
E. 20% of the trading stock is bought on credit. The creditor is paid in full in the month following
the month of purchase.
F. Collection from debtors:
 45% settle accounts in the month of sales and receive 5% discount.

 50% settle accounts in the following month.
 Provision is made for 5% bad debts.
G. A storage room in our building has been let since 15 October 2023. The tenant was required
to pay only half the rent amount for October. He was informed that rent increases by 10% on
1 November each year.
H. Sundry expenses are expected to increase by a fixed percentage each month.
I. The loan, at 11.5% p.a. interest, will be taken out on 1 November 2023.
 The loan will be repaid in 36 equal monthly instalments commencing on 30 November

2023.
 Interest on the loan is also payable at the end of each month commencing on
30 November 2023. Interest is not capitalised.

J. The bank has granted Moosa an overdraft facility of R44 000.
K. Moosa is concerned about the following items, which were under/over budget for September
2023:
Under/over
Item Budgeted Actual
budget
Collection from debtors 174 200 61 800 Under
Drawings 19 800 57 200 Over
Insurance 2 480 0 Under
40
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93
5.1 The main reason why bad debts would not appear in the Cash Budget is because it is
a/an …….
5.2 Calculate the missing amounts indicated by (a) to (d) in the Cash Budget for October
and November 2023.
Calculation Amount
(a)
(b)
(c)
(d)
(e)
15
5.3 Complete the Debtors' Collection Schedule.
CREDIT SALES OCTOBER NOVEMBER

September 76 000
October 102 600
November 158 400
178 600
9
5.4 Calculate the percentage increase in sundry expenses.
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94
5.5 The Cash Budget for October and November 2023 indicates that this business will
face serious financial difficulties. Identify TWO items to support this statement. Quote
relevant figures.
5.6 Explain why each of the items reflects a problem for the business. State TWO points
in EACH case.
Item Explanation
Collection from
debtors
Drawings
Insurance
TOTAL MARKS
40
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95
SESSION 26: BUDGETS -ANALYSIS AND INTERPRETATION
ANALYSIS AND INTERPRETATION OF PROJECTED INCOME STATEMENT
An extract from the Gauteng Prelim examination 2019 used to illustrate the possible approach
to analyse and calculate the missing amounts in the Debtors Collection Schedule and the Cash
Budget
BASELINE KNOWLEDGE ON PROJECTED INCOME STATEMENT:
The main aim of any business is to make a profit, regular and proper planning is essential. Budgeting
is an integral part of the planning process.
ILLUSTRATIVE EXAMPLE Projected Income statement for the three months ended 31 MARCH 2023
Normal Income statement for the year Calculations Projected income statement
January February March Total
Turnover 288 000 288 000÷12 24 000
Less: Cost of sales (144 000) (12 000)
Gross profit 144 000 12 000
Plus: Other operating income 60 000 5 000
Rent Income etc. 60 000 60 000÷12 5 000
Gross operating income 204 000 17 000
Less: Operating Expenses (20 820) (1 735)
Wages 12 000 1 000
Advertising 1 800 150
Depreciation 420 35
Sundry Expenses 6 600 550
Operating profit 183 180 15 265
Plus: Interest Income 840 70
Profit before interest expense 184 020 15 335
Less: Interest Expense (1800) (150 )
Net profit before tax 182 220 15 185
Less: income tax (only ( ) ( )
companies)
Net profit for the year
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96
To prepare a basic Projected Income Statement as shown above, factors such as the
following need to be taken into consideration:
The financial statements of the previous year.
The changes are expected in respect of the following:
 Sales policy
 Purchases policy This must be considered for analysis

 Mark-up on cost of sales and interpreta on purposes.
 Will there be an increase or decrease in expenses e.g. rise in wages, rise in interest rate on
mortgage loan, decrease in telephone, etc.?
 Will there be an increase or decrease in “other income e.g. rent income, interest on fixed
deposit, etc.?
 In the case of a public company, will there be a change in respect of dividends, repurchase of
shares, tax rate, etc.?
 Will there be additional purchase of fixed assets or sale of fixed assets thereby affecting
depreciation
 Will there be an increase or decrease in the long-term loan thereby affecting interest on loan?
(capitalised of non-capitalised)
HOW TO PREPARE A MONTHLY PROJECTED INCOME STATEMENT:

Take as a starting point the actual Income statement of the past year
Divide the figures by 12 months, so as to calculate the amounts per budgeted month
The following factors, amongst others, must be taken into account:
 Increase in expenses due to inflation e.g., wages

 Increased demand of goods in a particular month (season) due to special events such as
December holidays (Christmas and New year)
 Expected decline in sale due to increased competition
 Expected gross profit i.e. mark up on cost of sales
This must be considered for analysis
and interpreta on purposes.
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ILLUSTRATIVE ACTIVITY FOUR
An extract from the EC Cape 2015/ KZN Prelim examination 2019) used to illustrate the possible
approach to analyse and calculate the missing amounts in the Projected Income Statement
QUESTION 4 PROJECTED INCOME STATEMENT (40 marks, 20 minutes)
REQUIRED
4.1 List TWO items on the Projected Income Statement provided, that would not appear on a cash
budget. (2)
4.2 Fill in the missing amounts denoted by A to E on the Projected Income Statement. (16)
4.3 Taking into account the additional information, calculate the following: (2)
4.3.1 The percentage increase in wages that the cleaners will receive in December 2023. (4)
4.3.2 The monthly salary due to the sales manager in December 2023. (4)
4.3.3 The total credit sales expected in December 2023. (3)
4.3.4 The loan balance on 1 November 2023. (3)
4.4 Refer to the actual figures for Depreciation and Trading Stock Deficit for October 2023. In each
case, provide a reason for the difference with the budgeted figures. (2)
4.5 Refer to the actual figures for October 2023. 4.4 and 4.5 will be discussed with Variances
Comment on any TWO expenses (excluding items mentioned in 2.4) that were not well controlled
by the business. In each case, quote the relevant figures and give ONE suggestion on how this
expense can be more effectively managed. (6)

A The business uses a mark-up percentage of 60% on • Mark-up 60%: Cost price 100%
cost. Mark-up 60%
Selling price: 160%
B Credit sales comprise 75% of total sales. Credit sale: 75% Cash Sales: 25%
Sales are expected to increase by 10% per month and Oct and Nov +10%
by 20% during December. Dec: +20%
C The business employs a sales manager and an • Total: 17 100 – 300 = = R8 400 each
administration manager. The sales manager earns R300
• Sales manager 8 400 +300 = 8 700 x =
more than the administration manager (per month). The
managers are entitled to an increase of 8% pa from 1 9 396
December 2023. • Admin manager 8 400 x
• 17100 x = R18 468
D Loan?
𝒖𝒏𝒌𝒏𝒐𝒘𝒏 𝒍𝒐𝒂𝒏 𝟏𝟎𝟎%
• R20 000 payable Nov
𝒌𝒏𝒐𝒘𝒏
= 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 = 𝟗%𝒕
x 7020 = R 78 000 • Interest 9% p.a. [R 585 pm x 12 =R 7020 p.a.]
𝟗 𝟏 • Nov: R 585 p.m.
OR Loan x x = 585 • Dec: R 435 p.m.
𝟏𝟎𝟎 𝟏𝟐
𝟗
Loan x 𝟏 𝟐𝟎𝟎
= R 585
𝟏𝟐𝟎𝟎
X = R 585 X
𝟗
X = R78 000
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98
E. Advertising expense per month is budgeted at a fixed • Oct: 2400: x = 2%

percentage of total sales.
• Nov: 132 000 x 2% = 2 640 [C]
F. Income tax is estimated to be 30% of the net profit before NP before tax: 100%
tax. Income tax : 30%
NP after tax : 70% [E]
INFORMATION (AMONGST OTHERS) FROM THE PROJECTED INCOME [A]

G.
STATEMENT FOR OCTOBER TO DECEMBER 2023 Sales – cost of sales = Gross profit
BUDGETED ACTUAL BUDGETED BUDGETED
120 000 – 75 000 = R 45 000
OCTOBER OCTOBER NOVEMBER DECEMBER
[B] 𝑥 =%
Sales 132
120 000 98 400 ? 𝑥 = 60%
000
Cost of sales 75 000 58 800 B 99 000 132 000 x = R 82 500
Gross profit A ? ?
Other income 20 700 18 200 20 700 21 200
Rent income 10 000 10 000 10 000 10 000
Discount received 1 200 1 000 1 200 1 200 [C] Adver sing [2 % of Sales]
Commission income 9 500 7 200 9 500 10 000 • Oct: 2400: x = 2%
Gross opera ng income Nov: 132 000 x 2% = R 2 640
Opera ng expenses 48 300 ? ?
Salaries (managers) 17 100 17 100 17 100 D
Wages (cleaners) 3 200 3 200 3 200 3 376 𝒖𝒏𝒌𝒏𝒐𝒘𝒏
[D] Salaries + 8% = Dec 𝒌𝒏𝒐𝒘𝒏
Maintenance 4 000 1 650 4 000 4 000 Nov: 100%
Telephone 2 000 4 280 2 000 2 500 Inc: 8%
Dec: 108%
Insurance 1 800 1 800 1 800 1 800
17100 x =R 18 468
Adver sing 2 400 1 900 C 3 168
Deprecia on 6 200 8 000 6 200 8 000
Trading stock deficit 0 680 0 500
Sta onery 3 150 3 100 3 200 3 250
[E] NP before tax: 100%
Sundry opera ng Income tax : 30%
8 450 8 420 8 500 8 550
expenses NP a er tax : 70%
Opera ng profit 17 400 ? ? 17625 – 585 =17 040 x = R 11 928
Interest income 225 200 200 200
Profit before interest expense 17 625 2.3.1 % increase in wages:
Interest expense 585 585 585 435 Dec Nov
Net profit before income 3376 – 3200 =176
? ? ? 𝟏𝟕𝟔
tax x 100 = 5.5%
⬚
Income tax ? ? ? 𝟑 𝟐𝟎𝟎
Net profit a er tax E ? ?
2.3.3. Total credit sales Nov Dec

I. (Nov +20% increase to Dec) 2.3.2 Salary of sales manager:
132 000 X 120%/100 =158 400 X 75%= R 118 800 • Total: 17 100 – 300 = = R8 400 each
I. OR CP 100% Mark-up 60% SP 160%
99 000 X 160/100=158 400 X 75% = R 118 800
• Sales manager 8 400 +300 = 8 700 x = R 9 396
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Make use of the formula: or abbreviated to
2.3.4. The loan balance on 1 November 2023 POSSIBLE QUESTION:

2.3.5. The loan balance on 1 December 2023 and
November: Interest: R585 p.m. [Interest 9 % p.a.]
calculate the amount paid towards the loan on
30 November 2023.
(In this ques on the amount was given)
Loan: 100% [unknown]
Interest: 9% p.a. [Known but for one month x 12] December:
Interest: R435 p.m. [Interest 9 % p.a.]
X [585 x12] = loan amount X [435 x12] = loan amount
X 7020 = R78 000 X 5 220 = R58 000

The loan instalment on 30 November:
78 000 – 58 000 = R20 000
ILLUSTRATIVE SOLUTION
EXTRACT FROM THE KZN/EC PRELIM ACCOUNTING EXAMINATION 2019
2.1 List TWO items on the Projected Income Statement provided,

that would not appear on a cash budget.
Any TWO  
 Cost of sales
 Discount received
 Depreciation
 Trading stock deficit
2
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100
2.2 Fill in the missing amounts denoted by A to E on the Projected Income Statement.
120 000 – 75 000 = 45 000 

A Gross profit
(Two marks or nothing) 2
132 000  x 100/160   = 82 500  (one part correct)
If learner divided the fraction: 100/160 = 62,5%

B Cost of sales One mark two marks
Or: 132 000 x 62, 5% or 132 000 – (132 000 x 37, 5%)
4
2 400
C Advertising /120 000 = 2%
132 000  x 2%   = 2 640  (one part correct) 4
17 100 x 108% = 18 468   (one part correct)
D Salaries 17100 x 8% = 1368
Or 17 100 + 1 368 = 18 468 2

17 040
(17 625 – 585) x 30% = 5 112
Net Profit
E
after tax 17 040 x 30% = 5112
17 040  – 5 112   = 11 928  (one part correct) 4
2.3 2.3.1 The percentage increase in wages that the cleaners will receive in
December 2023.
176 
(3 376 – 3 200) x 100 = 5,5%  (one part correct)
3 200 
4
2.3.2 The monthly salary due to the sales manager in December 2023.
(17 100 – 300) = 8 400 (8 400  + 300 ) x 108% = 9 396 

2 (one part correct)
4
2.3.3 The total credit sales expected in December 2023

(99 000  x 160% ) x 75% = 118 800  (one part correct) OR
132 000 X 120% = 158 400 X 75% = 118 800

3
2.3.4 The loan balance on 1 November 2023.
585  x 1200/9 = 78 000  (one part correct)

3
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ACTIVITY 6: ANALYSIS AND INTERPRETATION OF THE PROJECTED INCOME STATEMENT

Adapted -WS 2016Prelim
You are provided with a partially completed Projected Income Statement of Zanele Stores prepared by
the bookkeeper for the period 1 September 2023 to 31 October 2023 .The business is owned by
Zanele Mdunge.
REQUIRED:
6.1 Calculate the missing amounts marked (a) to (d) in the Projected Income Statement. (12)
6.2 Taking into account the additional information, calculate the following:
6.2.1 The monthly salary due to the sales manager in October 2023 (4)
6.2.2 The total credit sales expected in November 2023 (4)
6.2.3 The cost price of the new vehicle purchased on 1 September 2023 (4)
6.3 Comment on the control of the telephone and water and electricity. What advice would you offer
Zanele? State ONE point. (4)
6.4 Zanele wants to reduce the maintenance budget to R500 per month and then use this saving for
staff training. What should she consider before making this change? State TWO points. (4)
6.5 A new competitor started operating from a nearby shop in September 2023. Refer to the actual
figures for September 2023 and:
 Explain how Zanele responded to this threat. State THREE points. Provide
figures/calculations to support your answer. (6)
 Explain whether Zanele's response was successful or not. Provide figures. (2)
INFORMATION:
A. Salaries and wages:
 The cleaner will receive an 8% increase in October 2023.
 The business employs a sales manager and an administration manager. The sales
manager earns R600 more than the administration manager (per month).
The managers are entitled to an increase of 7% p.a. from 1 October 2023.
B. The business uses a mark-up percentage of 60% on cost.

C. Credit sales comprise 80% of total sales. Sales are expected to increase by 10% per month
and by 12% during November 2023.
D. A delivery vehicle was purchased on 1 September 2023. Vehicles are depreciated at 15% per
annum on cost. The accountant did not take this into account when preparing the Projected
Income Statement for September 2023.
E. Rent income increased by 9% on 1 October 2023.
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102
F. Information (amongst others) from the Projected Income Statement for September
20 to October 2023:
SEPTEMBER SEPTEMBER OCTOBER

BUDGETED ACTUAL BUDGETED
Sales 180 000 195 000 198 000
Cost of sales (112 500) (150 000) (b)
Gross profit 67 500
Other income 19 200
Rent income (d) 10 028
Commission income 12 500 8 000 13 000
Discount received 1 800 1 980
Gross operating income

Operating expenses (47 950)
Salaries (two managers) 20 000 20 000
Wages (cleaner) 2 100 2 100 (c)
Maintenance 5 000 2 000 5 000
Motor vehicle expenses 0 4 000 0
Administration expenses 8 450 8 420 8 500
Telephone, water and
2 000 4 880 2 000
electricity
Insurance 1 800 1 800 1 800
Advertising 2 400 9 600 2 400
Depreciation 6 200 9 000
Trading stock deficit 0 1 680
Operating profit (a)

Interest income 350 350 350
Profit before interest expense 48 800
(500) (500)
Interest expense (500)
Net profit 48 300
40
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ACTIVITY 6: ANALYSIS AND INTERPRETATION OF THE PROJECTED INCOME STATEMENT

Adapted- WC 2016 Prelim
6.1 (a) Operating profit

(2)
(b) Cost of sales
(3)
(c) Wages
(3)
(d) Rent income
(4)
12
6.2.1 Calculate the monthly salary due to the sales manager in October 2023.
6.2.2 Calculate the total credit sales expected in November 2023.
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104
6.2.3 Calculate the cost price of the new vehicle purchased on 1 September 2023.
6.3 Comment on the control of telephone and water and electricity. What advice would
you offer Zanele? State ONE point.
Comment:
Advice:
6.4 Zanele wants to reduce the maintenance budget to R500 per month and then use this
saving for staff training. What should she consider before making this change? State
TWO points.
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105
6.5 Explain how Zanele responded to this threat.

State THREE points.
Provide figures/calculations to support your answer.
6
Explain whether Zanele's response was successful or not. Provide figures.
138
106
F VARIANCE BETWEEN BUDGETED AND ACTUAL EXPENSES
Analysis and interpretation and comparison of actual and budgeted figures

Management will use the existing information to monitor and control the business’ operations, this
process involve the comparing of budgeted figures and the actual figures. The difference between
the actual and budgeted amounts will be referred to as VARIANCE.
A VARIANCE ANALYSIS REPORT

 This report identifies the gap (difference) between the BUDGETED FIGURES and ACTUAL
FIGURES.
 The report will also provide EXPLANATION or ADVICE on the future course of action.
 The variance may be NEGATIVE (unfavourable, adverse) or POSITIVE (favourable) depending
on the nature of the transaction.
POSITIVE –better than anticipated NEGATIVE –results worse than
expected
ILLUSTRATIVE ACTIVITY FIVE: extracted from the Projected Income Statement from the Prelim 2019
Maintenance Maintenance:
Posi ve results –they spent LESS than expected 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 100
𝑥 =%
Management should inves gate: 𝑏𝑢𝑑𝑔𝑒𝑡 1
 Are the figures low because of inadequate use
of funds for maintenance or minimal 2350 100
𝑥 = 58,75%
maintenance done? 4000 1
 Did the business dispose old assets and replace
with new assets?
Extract from the previous PROJECTED INCOME STATEMENT

VARIANCE ANALYSIS REPORT Telephone
Variance 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 100
Budget Actual 𝑥 =%
Amount %
𝑏𝑢𝑑𝑔𝑒𝑡 1
October October
Maintenance 4 000 1 650 2 350 58,75%
Telephone 2 000 4 280 2 280 114% 2 280 100
x = +114%
Insurance 1 800 1 800 0 0% 2 000 1
Telephone
Nega ve results –they spent MORE than expected
Management should inves gate:
 If the realistic figures were budgeted
 Check advertising figures –the business might
have decided to reduce advertising costs and
make direct calls to customers
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EGBHB A EIF CA FB D A Nega ve /unfavourable Variance
 / 3 99  Actual figures/expenses are MORE

/ / than budgeted
Income
Posi ve /Favourable Variance Nega ve /Unfavourable Variance
 Actual figures/income is MORE than  Actual figures/income is LESS than

budgeted budgeted
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108
INFORMATION EXTRACTED FROM THE PROJECTED INCOME STATEMENT FOR OCTOBER TO

G.
DECEMBER 2023.
BUDGETED ACTUAL BUDGETED BUDGETED

OCTOBER OCTOBER NOVEMBER DECEMBER
Operating expenses 48 300 ? ?

Salaries (managers) 17 100 17 100 17 100 D
Wages (cleaners) 3 200 3 200 3 200 3 376
Maintenance 4 000 1 650 4 000 4 000
Telephone 2 000 4 280 2 000 2 500
Insurance 1 800 1 800 1 800 1 800
Advertising 2 400 1 900 C 3 168
Depreciation 6 200 8 000 6 200 8 000
Trading stock deficit 0 680 0 500
Stationery 3 150 3 100 3 200 3 250
Sundry operating expenses 8 450 8 420 8 500 8 550
2.4 Refer to the actual figures for Depreciation and Trading stock deficit for
October 2023. In each case, provide a reason for the difference with the
budgeted figures.
Depreciation  Purchase of a new asset. 

 Calculation error (omission)
 Unanticipated stock loss. 
Trading
 Random stock take revealed stock shortage.
stock deficit
 Damaged goods noted and taken into account.
2
2.5 Refer to the actual figures for October 2023.

Comment on any two expenses that were not well controlled by the business. In
each case, quote the relevant figures and give ONE suggestion on how this
expense can be more effectively managed.
EXPENSE COMMENT (with figures) SUGGESTION
Any TWO of : Comment and figure  Suggestion  each
each
Maintenance Over budgeted/underspent. Adjust budget or use the money

(4 000 – 1 650) wisely to maintain the assets.
This could extend the lifespan
and productivity of the assets.
Overspent / under budgeted. Control usage or check for
Telephone (2 000 – 4 280) over 50% misuse. Budget correctly if
found to be necessary.
Underspent / over budgeted. Spend money allocated. Look at
Advertising 2 400 – 1 900 different forms of advertising.
May result in better sales/profit.
6
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109
It is useful to study the following words and use it correctly during analysis and interpreta ons
of budgets:
 Over budgeted/underspent
You budgeted too high or underspent because you did not use the necessary
allocated budget money as it should e.g. no maintenances done
 Overspent/ under budgeted

You overspent due to lack of planning, unforeseen breakages, and
your budgeted allocation of the money was not done correctly or misused.
E.g. the telephone account was too high
This could be the possible reason for variances between the budget amount and the actual
amount
ACTIVITY 7: VARIANCES BETWEEN BUDGETED AND ACTUAL EXPENSES

Extract from 2019 GP prelim
7.1 SEAGATE TRADERS
The information relates to Seagate Traders.
7.2.3 Refer to information F
(a) Cleve, the owner, decided to offer special discounts to customers during
August. The customers will be reminded weekly by telephone or sms about
this offer.
You are of opinion that this has NOT benefited the business. Provide TWO
reasons to support your opinion. Quote figures. (4)
(b) Explain what you would say to Cleve about the control of the following costs.
Quote figures to support your answer and provide ONE point of advice in
EACH case.
 Delivery costs
 Advertising (6)
F A comparison of budgeted and actual amounts revealed the following:
AUGUST 2023
BUDGETED ACTUAL
Sales R118 800 R89 400
Cost of sales 79 200 66 000
Delivery costs 11 880 13 860
Telephone costs 5 500 8 250
Advertising 19 800 21 400
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Extract from 2019 GP prelim
7.2.3 (a) Cleve, the owner decided to offer special discounts to customers during August.
The customers will be reminded weekly by telephone or sms about this offer.
You are of the opinion that this has NOT benefited the business. Provide TWO
reasons to support your opinion. Quote figures.
4
(b) Explain what you would say to Cleve about the control of the following costs.
Quote figures to support your answer and provide ONE point of advice in
EACH case.
ITEM COMMENT WITH FIGURES ADVICE
Delivery
Costs
Advertising
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111

Adapted - 2019 NW prelim
You are provided with an incomplete Cash Budget of Jackson Traders for the period 1 July 2023
to 31 August 2023. The business is owned by Terry Jackson.
REQUIRED:
8.5 Refer to Information H.
At the end of August 2023, the following figures were identified.

The owner has asked that you explain to him why the budgeted and actual amounts of
certain items differ significantly.
Comment on the control of the following items in September 2023. Provide ONE point of
advice to Terry in respect of each item.
8.5.1 Advertising
8.5.2 Packing materials
INFORMATION:
H. Budgeted and actual amounts at the end of September 2023.
Budgeted Actual Variance

Sales R80 000 R72 000 (R8 000)
Packing materials R4 000 R7 200 R3 200
Advertising R12 000 R5 000 (R7 000)
Notes: for own reflection
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Adapted - 2019 NW prelim
Refer to Information H.
At the end of August 2023 the following figures were identified.

The owner has asked that you explain to him why the budgeted and actual amounts
of certain items differ significantly.
Comment on the control of the following items in September 2023. Provide ONE
point of advice to Terry in respect of each item.
COMMENT ADVICE
8.5.1 ADVERTISING:
8.5.2 PACKING MATERIALS:
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113

Adpted - 2019 KZN and EC 2015 prelim
You are provided with a partially completed Projected Income Statement prepared by the bookkeeper of
Osizweni Distributors for the period 1 July 2023 to September 2023.
9.6 Refer to the actual figures for Depreciation and Trading stock deficit for
July 2023. In each case, provide a reason for the difference in comparison to the budgeted
figures. (2)
INFORMATION:
I. Information (amongst others) from the Projected Income Statement for July to September
2023.
July July August September

Budgeted Actual Budgeted Budgeted
Sales 120 000 98 400 132 000 ?
Cost of sales 75 000 ? 82 500 99 000
Gross profit 45 000 49 500 ?
Other income 20 700 18 200 20 700 21 200
Gross operating income
Operating expenses 48 300 ? ?
Salaries (managers) 17 100 17 100 17 100 ?
Wages (cleaners) 3 200 3 200 3 200 3 376
Maintenance 4 000 1 650 4 000 4 000
Telephone 2 000 4 280 2 000 2 500
Insurance 1 800 1 800 1 800 1 800
Advertising 2 400 1 968 A 3 168
Depreciation 6 200 8 000 6 200 8 000
Trading stock deficit 0 680 0 500
Stationery 3 150 3 100 3 200 3 250
Sundry expenses 8 450 8 420 8 500 8 550
Operating profit 17 400 ? ?
Interest Income 225 200 200 200
Profit before interest 17 625
Interest expense 585 585 585 435
Profit before income tax ? ? ?
Income tax ? ? ?
Net profit after tax B ? ?
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Extract from 2019 KZN and EC 2015 prelim
9.6 Refer to the actual figures for Depreciation and Trading stock deficit for July 2023. In
each case, provide a reason for the difference with the budgeted figures.
Depreciation:
Trading stock deficit
9.7 Refer to the actual figures for July 2023. Comment on any TWO expenses (excluding
items mentioned in QUESTION 6.6) that were not well controlled by the business. In
each case, quote the relevant figures and give ONE suggestion on how this expense
can be more effectively managed.
EXPENSE COMMENT( WITH FIGURE) SUGGESTION
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G. COMBINATION OF CASH BUDGETS AND PROJECTED INCOME STATEMENT
Introduction and reminder of what a cash budget and projected income statement
represent
Cash Budget is a forecast of how much cash will be received and what will be paid during specific
month/s in the future. Only cash receipts and payments will be included in a CASH BUDGET.
Examples of Cash Receipts and Cash Payments :
Receipts: Cash sales, Debtors paying their accounts, loan received, fixed deposit matured, interest
received, etc.
Payments: Cash purchases, payment of expenses, cash purchases of fixed assets, payment of
creditors, loans and interest payment, fixed deposit, cash Drawings by owner etc.
NON-CASH ITEMS excluded from the Cash Budget are :
Bad debts
Provision for bad debts adjustment
Depreciation
Loss/ or Profit on sale of asset
Discount Allowed/ Received
Stock deficit /stock surplus
Projected Income Statement is a forecast of only estimated income and estimated expenses for a
specific period.
ITEMS EXCLUDED from Projected Income Statement:
ALL Balance Sheet Accounts/Items including:

 Prepaid expenses
 Deferred income (income received in advance)
ILLUSTRATIVE ACTIVITY SIX:
An extract from the NSC November 2019 will used to illustrate the possible approach to analyse
and calculate the amount to be recorded in the Cash Budget and/or Projected Income Statement.
QUESTION 6: BUDGETING (40 marks; 25 minutes)
The financial year-end of Carpets Galore (Pty) Ltd is 31 October 2023. Thembi Tsomi is the sole
shareholder and director
6.1 Indicate amounts in the appropriate blocks for the Cash Budget and Projected Income
Statement for three months ending 31 January 2024
A printer costing R40 800 will be bought for cash on 30 November 23, depreciation
will be R680 per month.
On 1 January 22 R48 000 will be paid for a 12-month insurance contract
A loan of R100 000 will be received from Viva Bank on 31 December 2023. This will
be repaid in equal instalments over 20 months, commencing on 31 January 2024.
Interest at 12% p.a. is paid monthly and is not capitalised
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116
A printer costing R40 800 will be bought  Printer be bought for cash affects assets -Cash Budget
for cash on 30 November 2023  Depreciation is a non-cash expense per month-
Depreciation will be R680 per month. Projected IS
On 1 January 2024, R48 000 will be paid  Full amount to be paid in January-Cash budget
for a 12-month insurance contract  Monthly 48000 ÷ 12=4 000 pm - Projected IS
o
A loan of R100 000 will be received from  Loan to be received on 31 December -Cash Budget
Viva Bank on 31 December 2023. This  Loan to be repaid is R100 000 ÷ 20 months =5 000
will be repaid in equal instalments over
20 months, commencing on 31 January first instalment in January 2020 - Cash Budget
24 Interest at 12% p.a. is paid monthly  Interest on loan to be paid 100 000 x 12% ÷ 12months
and is not capitalised will be recorded in Cash Budget and Projected Income
Statement
Extracted from the 2019 NSC November examination
6.1 CASH BUDGET PROJECTED INCOME

STATEMENT
Nov. Dec. Jan. Nov. Dec. 2023 Jan. 2024
2023 2023 2023 2021
Printer
40800
bought
Depreciation 680 680
Insurance 48 000 4 000
100 000
Loan received

Loan
*5 000
repayments
If 1 000 left out of CB
Interest 1 000 award two marks for 1 000
1 000 in PPIS 11
11 ÷ 1, 66 = 7 minutes
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ACTIVITY 10: COMBINATION OF CASH BUDGETS AND PROJECTED INCOME STATEMENT

Adapted- GP 2019 prelim
10.1 SEAGATE TRADERS
The information relates to Seagate Traders.
REQUIRED:
Complete the table in the ANSWER BOOK by filling in only the amounts for
July 2023 in the appropriate columns.
EXAMPLE: Commission will be received on promotion items sold, R3 300.
Amount in the Cash Budget for Amount in the Projected Income

No. July 2023 Statement for July 2023
RECEIPT PAYMENT INCOME EXPENSE
Example R3 300 R3 300
Transactions for July 2023:
10.1.1 Expected cash sales will amount to R49 500 (cost of sales, R23 300).
10.1.2 Payments to creditors, R19 800, are expected to be made. Discount of

R990 will be claimed.
10.1.3 Bad debts to be written-off will amount to R1 320.
10.1.4 Depreciation for the 2023 financial year will be R36 960.
10.1.5 Directors’ fees to be paid, R55 000
10.1.6 Interim dividends to be paid to shareholders, R27 500

(10)
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Adapted - GP 2019 prelim
10.1 SEAGATE TRADERS
Complete the table by filling in only the amounts for July 2023 in the
appropriate columns.
Amount in the Projected Income

Amount in the Cash Budget for
Statement for
NO. July 2023
July 2023
e.g. R3 300 R3 300
10.1.1
10.1.2
10.1.3
10.1.4
10.1.5
12.1.6
10
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Adapted- WC 2015 prelim
11.1 CASH BUDGET AND PROJECTED INCOME STATEMENT
You are provided with information relating to Quality Traders for the period ending 31
July 2023.
REQUIRED:
Complete the table in the ANSWER BOOK by filling in only the amounts in the appropriate
columns.
EXAMPLE: Commission will be received on promotion items sold, R3 000
No Amount in the Cash Budget for Amount in the Projected Income

July 2023 Statement for July 2023
11.1.1 Interim dividends to be paid to shareholders, R25 000.
11.1.2 Expected cash sales for July 2023 will amount to R45 000 (cost of sales, R21 000)
11.1.3 Bad debts to be written off in July 2023 will amount to R1 200.
11.1.4 Payments to creditors, R18 000, are expected to be made during July 2023.
Discount of R900 will be claimed.
11.1.5 Directors’ fees to be paid in July 2023 R50 000.
11.1.6 Depreciation for the 2023 financial year will be R33 600. (12)
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Adapted : WC 2015 prelim
11.1 Amount in the Cash Budget for Amount in the Projected Income
No. July 2023 Statement for July 2023
11.1.1
11.1.2
11.1.3
11.1.4
11.1.5
11.1.6 12
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121
ACTIVITY 12: BUDGETS (35 marks; 30 minutes)

DBE 2021 TRIAL EXAM (Adapted)
You are provided with information of Fantasy Laptops, a business owned by
Ray Rennie, for the budget period December 2022 to February 2023.
The business sells various types of laptop computers and does not sell on credit.
They also repair these items for customers at a fee.
REQUIRED:
Complete the Creditors' Payment Schedule for February 2023. (7)
12.2 Refer to Information C and D.
Calculate:
 % increase expected in security costs from 1 February 2023

 % commission paid to salespersons during February 2023
 Water and electricity budgeted for December 2022
 The loan repayment to be made on 31 December 2022 (12)
12.3 Refer to Information E.
The internal auditor has noticed that packing material was R800 overspent
and consumable stores were R1 500 overspent.
Comment on the control of packing materials and consumable stores. Quote

figures or calculations. (6)
During the Coronavirus lock-down in April and May 2022, the business lost
money because there were no sales and fee income. However, Ray had to
continue making payments to keep the business afloat (as a going concern).
 Give ONE reason why he did not want to stop paying salaries and wages. (2)
 Identify ONE other payment in the list in Information D that he would not
have been able to stop and give a reason. (2)
 Identify ONE payment in the list in Information D that he would have
stopped and give a reason. (2)
12.5 Refer to Information F.
Ray Rennie, the owner, requires help in making a financial decision.
He is undecided as to whether he should lease or buy a delivery vehicle.

His two options are reflected as Option X and Option Y.
Apart from generating more sales or having the use of the vehicle, state TWO
advantages of EACH option. (4)
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INFORMATION:
A. Mark-up % and sales:
A mark-up of 75% on cost is used to set the sales prices of the laptops.
ACTUAL SALES PROJECTED SALES

October November December January February
2022 2022 2022 2023 2023
R490 000 R490 000 R770 000 R560 000 R525 000
B. Purchases and payment to suppliers (creditors):

 All stock is bought on credit.
 Stock sold is replaced in the month of sales.
 Some creditors offer a discount for payment in the month of purchase.
 50% is paid in the month of purchase to earn a 10% discount.
 30% is settled in the month after the purchase transaction month.
 20% is settled in the second month after the purchase transaction month.
C. Information on specific items from the Cash Budget:
 Security: The guards are outsourced from Keepsafe Guarding.
 Commission: Salespersons are paid commission in the same month on
sales only. They do not receive a fixed salary.
 Water and electricity: The expected increase from 1 January 2023 is 24%.
 Loan and interest: The loan from Delta Bank bears interest at 12,5% per
year. Interest is not capitalised and a fixed loan repayment is made on
31 December each year.
 Consumable stores: These are used to repair laptops for customers.
D. Extract from the Cash Budget:
December January February

2022 2023 2023
R R R
Fee income: repair services 100 000 150 000 150 000
Interest on loan (12,5% p.a.) 9 375 8 125
Repayment of loan ?
Commission to salespersons 123 200 89 600 84 000
Consumable stores for repairs 42 000 63 000 63 000
Security 18 000 18 000 28 500
Water and electricity ? 18 600 18 600
Salaries and wages
Packing materials
Insurance
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123
E. The internal auditor identified the following figures for October 2022:
Budgeted Actual Variance

R R %
Sales 490 000 400 000 -18,4%
Fee income 85 000 126 000 +48,2%
Packing materials 22 000 22 800 +3,6%
Consumable stores 24 500 26 000 +6,1%
F. Options for securing a delivery vehicle:
Ray feels that he should buy a delivery vehicle for R520 000
or lease (hire) the vehicle on a monthly basis to enable his
business to generate more sales after the Coronavirus
lockdown. He has only R100 000 in his investments that he
can use. These investments are currently earning interest
at 6,5% p.a.
He has two options to consider:
Option X (buy the vehicle):
Purchase the vehicle by using the money in his investments

and take out a new 5-year loan for R420 000 at a high interest
rate. He will have to repay the loan over five years. Interest
over the five years will be R176 000.
Option Y (hire/lease the vehicle):
Hire (lease) the vehicle from Sentinel Ltd for R15 000 per
month over 60 months.
35
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124
ACTIVITY 12
12.1 Complete the Creditors' Payment Schedule for February 2023.
Credit December January February

purchases 2022 2023 2023
R R R R
December 198 000 132 000
January 144 000
February
12.2 Calculate the % increase expected in security costs from

1 February 2023.
Workings Answer
Calculate the% commission paid to salespersons during

February 2023.
Workings Answer
Calculate the water and electricity budgeted for December 2022.

Workings Answer
Calculate the loan repayment to be made on 31 December 2022.

Workings Answer
12
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125
12.3 Comment on the control of packing materials. Quote figures or

calculations.
Comment on the control of consumable stores Quote figures or

calculations.
12.4 Give ONE reason why he did not want to stop paying salaries and
wages.
2
Identify ONE other payment in the list in Information D that he would
not have been able to stop and give a reason.
2
Identify ONE payment in the list in Information D that he would have
stopped and give a reason.
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126
12.5 Apart from generating more sales or having the use of the vehicle,
state TWO advantages of EACH option.
TWO advantages of Option X (buy the vehicle):
TWO advantages of Option Y (hire/lease the vehicle):
TOTAL MARKS
35
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89
INTRODUCTION TO INVENTORY
The session introduces inventory valuation methods and type of goods that can be suitably
valued using the specific inventory valuation methods. The grade 10 content covered the
perpetual inventory system and in grade 11 the periodic inventory system and perpetual
inventory were covered.
In grade 12 the content focus on three inventory valuation methods and two stock (inventory )
systems.
DEFINITION OF INVENTORY
Inventory refers to goods that are in various stages of production or ready for sale. The
different categories of goods are as follows:
 Raw Material –unprocessed material or goods used to produce goods, intermediate

(semi-finished goods) and finished goods.
 Work- in-progress –goods that are in the process of production, they are partially finished
goods that are awaiting completion.
 Finished goods are manufactured products in stock that are available for consumption
or sales. These goods do not require any further processing.
Cost Accounting will
cover different types
Different types of inventories of stock
Raw
Material
Work- in-
progress
Finished
goods
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90
INVENTORY
o Inventory is generally the LARGEST CURRENT ASSET, and it is expected to sell within
a period of one year.
o Businesses should do inventory count to determine the value of inventory missing, stolen
or damaged.
o The inventory count will also assist in determining the items of stock that are selling slowly,
or items that have been overstocked.
o The overstocking of items places businesses at a risk of being stuck with merchandise that
is obsolete.
o Obsolete inventory should be marked down to sell. The marking down of goods will reduce
the profit margin.
o There are two systems used to count the stock, they are Perpetual and Periodic
Inventory System.
Perpetual Inventory System

The movement of stock is recorded on an ongoing or continuous basis. The exact quantities
and types of stock items on hand are shown by the system at any point in time. This inventory
management system uses the specialized and automated software.
Periodic Inventory System

There is no continuous recording of the movement of trading stock. The value of the trading
stock on hand is worked out/counted periodically. This system is mostly preferred by small
businesses.
COMPARISON OF PERPETUAL AND PERIODIC INVENTORY SYSTEMS
PERPETUAL PERIODIC
 Cost of sales is calculated at POINT OF  Cost of sales calculated at END OF
SALE FINANCIAL PERIOD
 Stock value can be determined/identified  Stock value determined/identified by
at any time (from records) physical stock count
 Stock bought is regarded as an ASSET  Stock bought is regarded as an
EXPENSE
 Stock purchases and sales are recorded  Stock purchases and sales are recorded
in the Trading Stock Account
in the Purchases Account
 Stock deficits can easily be determined  It is very difficult to determine stock
 Better control of stock movement, stock deficits
is recorded on continuous basis  It is cost effective, it does not use
 The system requires expensive expensive equipment
equipment such as scanning equipment,  This system is suitable for businesses
computers and bar codes where it is not possible to determine the
cost price of each item, an example is a
supermarket.
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COMPARISON OF THE PERPETUAL INVENTORY SYSTEM WITH THE PERIODIC INVENTORY SYSTEM
PERPETUAL STOCK SYSTEM PERIODIC STOCK SYSTEM

No. Transaction A/c Debit A/c Credit Journal A O L A/c Debit A/c Credit Journal A O L
1. Bought merchandise Trading stock Bank CPJ 0 0 Purchases Bank CPJ _ _ 0
for cash
±
2. Bought merchandise Trading stock Creditors CJ + 0 + Purchases Creditors control CJ 0 _ +
on credit control
3. Return merchandise Creditors Trading stock CAJ _ 0 _ Creditors Creditors CAJ 0 + _
to suppliers control control Allowances or
Purchases
4 Carriage on Trading stock Bank CPJ 0 0 Carriage on Bank CPJ _ _ 0
purchases [Cash]
± purchases
5. Carriage on Trading stock Creditors CJ + 0 + Carriage on Creditors control CJ 0 _ +
purchases [Credit ] control purchases
0
6 Merchandise taken for Drawings Trading Stock GJ _ _ 0 Drawings Purchases GJ ± 0
own use
0
7. Merchandise donated Donation Trading Stock GJ _ _ 0 Donation Purchases GJ ± 0
8. Merchandise sold for Bank Sales CRJ + + 0 Bank Sales CRJ + + 0

cash
Cost of sales Trading stock CRJ _ _ 0

9. Merchandise sold on Debtors Sales DJ + + 0 Debtors Sales DJ + + 0
credit Control Control
Cost of sales Trading stock DJ _ _ 0
10. Merchandise returned Debtors Debtors DAJ _ _ 0 Debtors Debtors Control DAJ _ _ 0
by debtors Allowances Control Allowances
Trading stock Cost of sales DAJ + + 0
11 Closing Stock Trading Stock Closing stock GJ + + 0
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CALCULATION OF COST OF SALES
 Perpetual Inventory system – cost of sales calculated at POINT OF SALE

 Periodic inventory – cost of sales is calculated at the end of financial period as indicated
below:
Calculation for the cost of sales – Perpetual Inventory

Assume your sales = R500 000
Mark up is 60%
Cost of sales is : 500 000 x 100 = 312 500
160
Calculation for the cost of sales

Opening stock xxxx
Add Purchases xxxx Aways remember to
deduct purchases returned
Add Carriage on purchases xxxx Carriage on sales will
affect the profit and loss
Add import duties xxxx account or operating
Less closing stock (xxxx) expenses in the income
statement
Cost of sales xxxx
Advantages and disadvantages of each stock system:
Perpetual Inventory
Advantages Disadvantages
 The business can verify physical stock at  The system is complicated, it requires
any time more accounting entries.
 The business can prepare interim  It is very expensive to run this system
accounts
 Discrepancies, errors, shrinkage in stock
are discovered and action can be taken.
 Regular updates in stock help in avoiding
deterioration (decline in quality) in stock
and obsolescence (outdated).
 Stock can be replenished or replaced
timeously.

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Periodic Inventory
Advantages Disadvantages
 It is cost effective as there is inexpensive  Control over stock is not very effective
equipment like bar codes and scanning  Theft is not quickly detected – a stock-
equipment take is necessary to determine leakages
 It is not necessary to calculate cost of or theft
sales on a continuous basis  Trading stock deficit account is not
 This system is suitable for businesses completed, the business will forfeit the
where it is difficult to determine the cost reduction of taxable income.
price of individual items
INVENTORY VALUATION
The systems and methods applied by the entity(business) in order to validate or confirm the
value of stock on hand at the end of a particular period.
Inventory valuation allows you to evaluate your cost of goods sold and ultimately the gross
profit.
The physical stock-count is one of the processes used to determine the value of stock on
hand.
THREE INVENTORY VALUATION METHODS:

First-In-First-Out (FIFO)
Weighted Average
Specific Identification
FIFO
The stock that was bought first is sold first, and the stock on
hand will be the stock that you recently bought.
This method is preferably used to value goods with short/
limited shelf life.
Proper packing and display are essential - “old” stock should
be in the front and “new” stock at the back.
The Prudence concept is in use, the value of the stock at the
year- end is realistic because the stock is valued at the most
recent prices.
EXAMPLE
LG TV’S in Benoni sells TV’s and TV accessories. The purchases and sales for the month of
April are shown below. The business uses the FIFO method of stock valuation.
REQUIRED
A. Calculate the number of TV’s on hand on 30 April 2023
B. Calculate the value of closing stock on 30 April 2023

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Transactions during April 2023

Information Number of units Cost per unit R Total value R
Opening stock 6 1 000 6 000
Purchases during the month 27 37 500
5 April credit purchases 12 1 250 15 000
17 April credit purchases 15 1 500 22 500
24 April returns to suppliers 2 1 250 2 500
Sales during the month 18 2 700 48 600
Opening stock (30 April 2023) ? ?
SUGGESTED ANSWER
HOW TO CALCULATE THE VALUE OF CLOSING STOCK USING FIFO??
Use the BOTTOM-UP APPROACH

Available for sale Sold On hand
Opening stock 6 -6
Purchases 5 April 12 -10
Purchases 17 April 15 -2 13
Returned goods (2)
31 -18 13
31 goods available LESS 18 goods sold EQUALS to

13 goods on hand (31 -18) A
13 x R1 500 = R19 500 B
Always Check the 17 of April 17 items were bought,

adjust the units therefore our closing stock was bought at R1 500
returned per item. (start from bottom)
Note: stock bought first is sold first

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EXAMPLE 2
PACKER'S SUITCASE SHOP
Charles Packer sells travel suitcases. The year-end is 30 June 2023.
REQUIRED:
2.1 Indicate the following calculations on 30 June 2023 using the first-in-first-out
(FIFO) method.
 Value of closing stock
 Cost of Sales
 Gross Profit
2.2 Charles suspects that suitcases have been stolen. Provide a calculation to
support his concern.
2.3 Charles is concerned about the volume of stock on hand.
 Calculate for how long his closing stock is expected to last.

 State ONE problem with keeping too much stock on hand and ONE problem
with keeping insufficient stock on hand.
INFORMATION:
 Stock balances:
UNIT
UNITS TOTAL
PRICE
Opening stock 420 R2 175 R913 500
Closing stock 496 ?
 Purchases, returns and carriage:
UNIT
UNITS TOTAL
PRICE
Purchases 3 155 R8 460 850
September 2022 850 R2 250 R1 912 500
December 980 R2 670 R2 616 600
March 2023 875 R2 930 R2 563 750
June* (see returns) 450 R3 040 R1 368 000
Returns*(from June 25 R3 040 R76 000

purchases)
 Sales: 3 050 travel suitcases were sold at R4 200 each.

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SUGGESTED ANSWER
Value of closing stock
Purchases 71 Step three (496 - 425)

Purchases LESS returns 450 – 25 or 425 Step two Use Bottom-up
Closing stock 496 Step one calculations
Purchases 71 x R2 930 = 208 030

Purchases LESS returns 425 x R3 040 = 1 292 000
Closing stock R1 500 030

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Cost of sales
Opening stock + Net purchases - Closing stock

R913 500 + ( R8 460 850 - R76 000) -1 500 030 Check closing stock above
R8 384 850
= R7 798 320
Gross profit
Sales – Cost of sales

(3 050 x R4 200) - R7 798 320 Check cost of sales above
R12 810 000
= R5 011 680
Number of items stolen
Opening stock 420

Plus purchases 3 155 OR net purchases
3 130
Less returns (25)
Less closing stock (496)
Goods available for sale 3 054
Less Sales 3 050
Number of items stolen 4 units
OR T ACCOUNT
Number of items lost

Opening stock 420 Sales 3 050
Net purchases 3 130 Closing stock 496
stolen items 4
3 550 3 550

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Calculate for how long his closing stock is expected to last.
Option 1 Option 2 Option 3

Closing stock x 365 days units on hand units on hand
Cost of sales cost of sales (units) cost of sales (units)
R1 500 030 x 365 496 x 12 months 496 x 365

R7 798 320 3 050 3 050
70.2 days 1.95 months 59.4 days
Cost of sales –check calculation

above
State ONE problem with keeping too much stock on hand and ONE problem with
keeping insufficient stock on hand.
Problem of keeping too much stock Problem of keeping insufficient stock on
on hand hand
 Goods can become obsolete and will  The business will not be able to meet the
be useless to customers demands of customers and they may
 The staff may notice the less decide to buy somewhere.
movement in stock and decide to
steal
WEIGHTED AVERAGE METHOD
Weighted average method is used when lots of

stock is bought in small quantities.
The average price gives a good composite
picture of the cost of the goods.
At the end of the year when the closing stock
value is determined, the average price will be
used to calculate the value of the closing stock
The average cost of a product is calculated by
dividing the cost of the units by the total
number of the units.

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EXAMPLE 3 - WEIGHTED AVERAGE
3 HOT-WHEELS (PTY) LTD
You are provided with information relating to Hot-Wheels (Pty) Ltd for the
three months ending 30 September 2022. The business trades in motorbikes
and helmets.
Mike, the owner, wants to assess his stock records before any price increases
during the year.
REQUIRED:
Helmets:
3.1 Calculate the value of the closing stock on 30 September 2022 using
the weighted-average method. (9)
3.2 Mike suspects that helmets are being stolen from the shop despite
security cameras being installed.
 Provide a calculation to verify his suspicion. (5)
 What can Mike do to improve the internal control of stock?
State THREE points. (3)
INFORMATION:
A. Helmets:
Information for three months ended 30 September 2022:
Stock balances according to physical count:
COST PRICE
UNITS TOTAL (R)
PER UNIT (R)
1 July 2022 30 R500 R15 000
30 September 2022 12 ?
Purchases:
UNITS COST PRICE
DATE TOTAL (R)
PURCHASED PER UNIT (R)
20 July 2022 25 R510 R12 750
20 August 2022 30 R525 R15 750
20 September 2022 20 R540 R10 800
TOTAL 75 R39 300
Returns: Five defective helmets from the purchases in August 2022 were
returned to suppliers for a full refund.
Sales: 85 helmets were sold at R600 each.

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SUGGESTED ANSWER
15 000 + 39 300 - 2 625 525 x 5 =2 625

(30 + 75 – 5)
= 516.75 average price per unit
516.75 x 12 units
= R6 201 (Closing stock )
FORMULA USED:
Opening stock + Purchases – Returns (RANDS) The average will be

Opening stock + Purchases – Returns (UNITS ) multiplied by 12 units
Calculation to verify that stock is stolen
(30 + 75 - 5 - 12 - 85 = 3 units stolen Returns, closing

stock and sales are
deducted
What can Mike do to improve the internal control of stock? State THREE points.
 Do regular physical stock counts
 Place tracking devices on the products / security price tags
 Provide secure display cabinets for the stock
 Improve security at the gates / inspect items and check to sales slip
 Division of duties (if staff is suspected)
 Buy in smaller quantities / more regularly

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EXAMPLE 4
The following information was extracted from the records of Roux Traders for the financial
year ended 28 February 2023. The business uses the weighted-average method and the
periodic inventory system to value the stock of school bags.
REQUIRED:
Calculate the value of the closing stock
INFORMATION:
A. STOCK BALANCES
Date Units Total
1 March 2022 (Opening stock) 150 R11 280
28 February 2023 (Closing stock) 635 ?
B. PURCHASES
Amount
Carriage Total
Units Unit price (before
Date (per unit) amount
carriage)
Purchases 2 700 R239 400
May 2022 800 R82 R65 600 R3,00 R68 000
August 2022 900 R83 R74 700 R3,00 R77 400
January 2023 1 000 R90 R90 000 R4,00 R94 000
C. Additional information:
 40 school bags bought in May 2020 were donated to needy learners at a local
school.
 2 180 bags were sold for R130 each during the year. Fifteen (15) of these bags
were returned by debtors.
SUGGESTED ANSWER

NOTE:
11 280 + 239 400 - 3 400 Donation - 40 X85 =3 280
(150 + 2 700 -40) Donations are deducted, the actual cost of each item
82+3 (for carriage)
247 280 = R 88 Items returned by customers will not be deducted,
items returned are included in our stock
2 810 The stock returned to suppliers –there won’t be
subtraction of carriage, normally delivery costs are
R88 x 635 = R55 880 charged by a different service provider.
Rands Opening stock + purchases – returns +carriage +custom duty

(Units) opening stock +purchases -returns

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EXAM QUESTIONS
ACTIVITY 1: INVENTORY VALUATION (FREE STATE PRELIM 2019 -Adapted )
1.1 JOSE LADIES HANDBAGS
You are provided with information relating to Jose Ladies Bags. The store is situated
in Welkom and is owned by Josephine Heyns. The business trades in handbags.
Handbags are valued using the first-in-first-out method and periodic inventory
system.
REQUIRED:
1.1.1 Calculate the following:
 Value of the closing stock on 31 December 2022. (5)
 Gross profit for the year ended 31 December 2022. (8)

1.1.2 Josephine suspects that some handbags have been stolen despite the
cameras installed in the store.
 Calculate the number of handbags that are missing. (6)
 Explain to Josephine why she only discovered the loss at the end of
the year. (2)
 Suggest ONE additional measure that she can implement to
address the problem of missing items.
(2)
INFORMATION
A. Stock of handbags:
Cost price TOTAL
DATE UNITS
per unit (including transport)
1 January 2022 180 R1 200 R237 600
31 December 2022 220 ? ?
B. Purchases during the year:

Cost price TOTAL
DATE UNITS
per unit (Including transport)
February 2022 250 R1 230 R338 250
June 2022 370 R1 250 R508 750
September 2022 200 R1 275 R280 500
820 R1 127 500
Note: Carriage on purchases is charged at 10% of the cost price.

C. Returns:
20 units from September 2022 purchases were returned to suppliers. They only
covered the cost of the units returned, excluding transport costs.
D. Sales:
740 units were sold at R1 750 each, R1 295 000.

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WORKSHEET
1.1.1 Calculate the value of the closing stock on 31 December 2022.
Calculate the Gross profit for the year ended

31 December 2022.
1.1.2 Calculate the number of handbags that are missing.
Explain to Josephine why she only discovered the loss at the end
of the year.
Suggest ONE additional measure that she can implement to

address the problem of missing items.

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ACTIVITY 2: INVENTORY VALUATION
2.1 INVENTORY VALUATION (FREE STATE 2020 PRELIM)
Battery Specialist, owned by Thabo Lefo, sells two types of AA 6-pack

unit batteries, Longlast and Petcell. The business uses the periodic
inventory system to record their stock.
 FIFO method is used for Longlast

 Weighted average method is used for Petcell
REQUIRED:
2.1.1 Calculate the following for Longlast AA 6-pack units:
 The value of the closing stock on 31 October 2022. (6)
2.1.2  Calculate the average stock-holding period. Note that the

cost of sales amounted to R483 750 for the year ended
31 October 2022.
 Comment on your findings above. (6)
2.1.3 The owner is concerned about the sales of Petcell AA 6-pack

units and is considering to discontinue this product line.
Calculate the following for Petcell AA 6-pack units for the year
ended 31 October 2022:
 The value of the closing stock. (5)

 The cost of sales of the Petcell AA 6-pack units. (3)
 The stock turnover rate for the year. (5)
2.1.4 Give TWO reasons why the owner must discontinue the sales
of Petcell AA 6-pack units. (4)
INFORMATION:
A. Stock valuation methods:
 FIFO method for Longlast AA 6-pack units

 Weighted average method for Petcell AA 6-pack units

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B. Stock records showed the following balances:
Longlast AA 6-pack units Petcell AA 6-pack units
Number Price per Total Number of Price

Date Total value
of units unit value units per unit
1 Nov 2021 2 000 R20 R40 000 800 R35 R28 000
31 Oct
? ? ? 1 850 ? ?
2022
C. The following purchases and returns were reflected during the year:
Number
Price per Total Number Price per
of Total value
unit value of units unit
units
TOTALS: 35 000 756 000 3 000 120 200
Nov 2021 (1 000) R20 (20 000) 500 R35 R17 500
Jan 2022 17 000 R20 R340 000 - -
March 2022 7 000 R22,50 R157 500 1 000 R39, 70 R39 700
June 2022 9 000 R23 R207 000 - - -
June 2022 (2 000) R23 (R46 000) 1 500 R42 R63 000
Sept 2022 5 000 R23,50 R117 500 - - -
D. Sales for the year were reflected as follows:

Number of Selling Total value Number of Selling Total value
Units price units Price
23 500 R35 R822 500 1 950 R75 R146 250
E. Due to good internal control measures, there were no missing items.

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WORKSHEET
INVENTORY VALUATION:
Calculate the value of the closing stock of Longlast AA 6-

pack units on 31 October 2022.
Calculate the average stock-holding period, given the cost of

sales amounted to R483 750 for the year ended
31 October 2022.
Comment on your findings above:
The owner is concerned about the sales of Petcell AA 6-pack units,

and considers to discontinue this product line:
Calculate the value of the closing stock of Petcell AA 6-pack

units.
Calculate the cost of sales of the Petcell AA 6-pack units.

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Calculate the stock turnover rate for the year.
Give TWO reasons why the owner must discontinue the

sales of Petcell AA 6-pack units.

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ACTIVITY 3
3. INVENTORY VALUATION (GAUTENG PRELIM 2020 Adapted )
You are provided with information relating to Cases for Places for the 2020 financial
year. The business sells handbags and suitcases. You are provided with figures
relating to the Iccug handbags. They use the periodic inventory system and the
weighted average method to value stock.
REQUIRED:
3.1.1 Calculate the value of the closing stock on 28 February 2023. (10)
3.1.2 Calculate the following for the year ended 28 February 2023:
 Cost of sales (3)

 Gross profit (3)
 Average stock-holding period (in days) (5)
3.1.3 Should the owner be satisfied with the stock-holding period calculated above?
Explain. Quote figures. (3)
NOTE: The stock-holding period for 2022 was 65 days.
INFORMATION:
A. Stock balances:
TOTAL
DATE UNITS
(including carriage)
1 March 2022 90 R25 640
29 February 2023 194 ?
B. Purchases:
COST PRICE PER
DATE UNITS UNIT (excluding TOTAL
carriage)
15 March 2022 350 R280 R 98 000
20 July 2022 624 R310 R193 440
9 September 2022 1 095 R290 R317 550
10 February 2023 515 R300 R154 500
TOTAL 2 584 R763 490

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C. Carriage on purchases:
Spot-on Deliveries transports the handbags to the business at a fixed cost of

R20 per handbag. This rate remained unchanged.
D. Returns:
60 of the handbags purchased on 9 September 2022 were returned. The

supplier credited the business with the cost price per item. No refund was
received for carriage on purchases of these returns.
E. Sales: 2 420 units at R450 each
3.2 FIT & SLIM
Fit & Slim is an outlet of Sports Galore Wholesalers. Stock is valued using the FIFO
method. The following figures have been given to the owner, but he is not happy as the
actual figures as per stocktaking and the figures of the Trading Stock records in the books
do not agree.
REQUIRED:
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.
(9)
Gym
Golf caps T-shirts
towels
Opening stock in unit 120 80 150
Purchases in units 5 600 960 1 200
Sales in units for the year 4 800 840 930
Closing stock in units 810 200 420
Selling price per unit R45 R125 R350
Period of stock on hand 50 days 70 days 215 days
Cash deposited for the year R216 000 R100 000 R325 500

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WORKSHEET
3.1.1 CASES FOR PLACES
Calculate the value of closing stock on 28 February 2023.
10
3.1.2 Calculate the cost of sales.
3
Calculate the gross profit.
3
Calculate the average stock-holding period (in days).

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3.1.3 Should the owner be satisfied with the stock-holding period calculated
above? Explain. Quote figures. NOTE: The stock-holding period for 2022
was 65 days.
3.2 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 with figures Possible solution
Gym towels
Golf caps
T-shirts

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9 99165 INVENTORY VALUATION-STOCK IDENTIFICATION
9 1 1 1 5:1 1 :165
In the previous session we discussed the two inventory systems namely perpetual and periodic
inventory system. FIFO and Weighted average stock valuation methods were also covered and this
module will focus on the Specific Identification method.
The session will also focus on the problem-solving content an internal controls and activities that
are consolidated activities on stock valuation methods
Note that examiners will assess you on two of the stock valuation methods,
the third method if included might test the knowledge of concepts, therefore it is
very important to work out the examples and the attached past papers to practice.
SPECIFIC IDENTIFICATION
This is the simplest form of stock validation,
where every item is assigned a specific cost
price.
Each item sold is specifically identified as it
appeared on the purchases invoice
This system is relevant when large commodities
are sold and every unit has its own cost price,
e.g. vehicles, machinery, etc.
Specific identification is manually intensive
method in managing the stock.
Every item in stock will be recorded at the
specific original cost price.
Calculation of closing stock using Specific Identification method:
UNITS
Laptops Opening Purchases Returns Sales = Closing Stock x Cost per unit
- Model stock + - -
Stock Plus Purchases Less Returns Less Sales
Mecer 200 250 40 390 20 X R5 000 = R100 000
Toshiba - 400 - 350 50 X R5 500 = R275 000
Units on hand x Price per item

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EXAMPLE 1
INFORMATION
o Bought 5 BMW cars for R100 000 each on credit from Durban Cars. These cars are imported
from Germany and a customs duty fee of R12 000 is charged per car. Paid the customs duty
through electronic funds transfer (EFT).
o Sold 1 BMW car to a customer on credit.
REQUIRED
Calculate the value of closing stock.
EXPECTED ANSWER
(100 000 X 5) + (12 000 X 5)
= 500 000 + 60 000
= 560 0000 (cost price)
560 000 – (100 000 + 12 000)

= 560 000 – 112 000 = 448 000 closing stock

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EXAMPLE 2 : SPECIFIC IDENTIFICATION (2019 NSC NOV ADAPTED )
GEORGE GRANDE
George Grande is the majority shareholder and CEO of Grande Ltd. The year-end is 30 September
2022.
During April 2022, while George was in hospital, Bruce Swann (the chief financial officer) decided
to include television sets in their product range. He was able to secure bulk discounts from
Roseway on two TV set models, namely LYN and KYA.
REQUIRED:
Calculate the value of the closing stock of TV sets on 30 September 2022 using the specific
identification method.
A. Stock records of television sets:

MODELS UNITS UNIT PRICE TOTAL
Purchases
May 2019 LYN 800 R6 000 R4 800 000
KYA 950 R7 200 R6 840 000
July 2019 LYN 500 R6 000 R3 000 000
KYA 500 R7 200 R3 600 000
TOTAL 2 750 R18 240 000
Sales LYN 430 R8 400 R3 612 000
KYA 540 R10 080 R5 443 200
SUGGESTED ANSWER
Calculate the value of the closing stock of TV sets on 30 September 2022 using the specific
Workings Answer
(800 + 500 – 430) x 6 000 = 5 220 000 A

1300
LYN:
OR
(1 300 x 6 000) – (430 x 6 000)
7 800 000 – 2 580 000 = 5 220 000
R11 772 000
(A+B)
(950+ 500 - 540) x 7 200 = 6 552 000 B
1 450
KYA: OR
(1450 x 7 200) – (540 x 7 200)

10 440 000 – 3 888 000 = 6 552 000

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INTERNAL CONTROL – INVENTORIES
Count stock regularly/randomly and check against stock records

Order smaller quantities, but more frequently
Improve physical security e.g., controls at entrance/security cameras
Insure the stock against theft, fire and damages resulting from natural disaster
Division of duties-receiving of stock, payments and stock keeping should be done by separate
individuals to minimise the risk of fraudulent activities.
Check if records of stock received match with payments for the stock
PROBLEM SOLVING QUESTIONS

From page 46 of this session, you are introduced to problem solving questions, workout the
calculations illustrated in example 3, and follow the guidelines provided to assist you identify problems.
When analysing problems, you need to support them with figures and you should be able to provide
solutions that can be implemented.
The table presented on page 119 of this session is important for exams, the table provides
formulas and approach that can be followed when responding to calculations on inventory, 95%
PLUS of examinable calculations on inventories are addressed in the information provided.
EXAMPLE 3 AND EXPECTED ANSWER
PROBLEM SOLVING – INVENTORY 2019 FREE STATE
Ben G Mobile Traders has two branches in two different towns selling laptops. Ben,
the owner, is concerned about the performance of each branch and has
decided to investigate. Information for the two branches for March 2023 is
presented below:
REQUIRED:
Identify ONE problem in relation to each branch. Quote relevant figures
to support your answer. In each case, offer Ben advice on how to solve the (8)
problem.
INFORMATION:
A. General information for both branches (per month)

Normal time Monday to Fridays 8:30–16:30 160 hours
Overtime Mondays to Fridays 16:30–18:30 40 hours
Saturdays 9:30–12:30 12 hours
Total 52 hours

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Overtime salary/wage is 1½ times the normal rate.
Added column – to MC QWERT

assist with problem QUARTZ BRANCH
analysis BRANCH
Stock on hand (1 March 2023) 80 units 80 units
Selling price per unit R5 800 R5 800
Qwert-few units sold Units sold 58 47
Qwert- more units returns Units returned by customers 3 8
Missing cash, check Credit sales R191 400 R104 400
calculation below Cash received and deposited
from cash sales R120 000 R121 800
Qwert–normal hours are few Hours worked (normal time) 156 hours 120 hours
@75% [120/160 x100]
Qwert –more hours of Overtime hours 10 hours 50 hours
overtime @96% [50/52
x100]
Rent expense per month R8 000 R8 000
Sales-Quartz Sales-Qwert
(5800 x 58) – (5800 x3) = 319 000 (5800 x47) – (5800 x 8) = 226 200
Expected income Expected income
336 400 17 400 272 600 46 400
191 400 + 120 000 = 311 400 104 400 + 121 800 = 226 200
(Credit sales +cash received ) (Credit sales +cash received )
R7 600 is missing (319 000- 311 400) No missing cash
PROBLEM   ADVICE  
MC QUARTZ Only R120 000 deposited Division of duties
BRANCH instead of Regular check on
R127 600 – R7 600 cash is sales and deposit.
missing.
Increase cash sales/
60% of total sales is on reduce the credit sales.
credit.
QWERT 8 units were returned. Set sales targets.
BRANCH
Worked only 75% of the Calculate commission
normal time/ on net sales.
worked 96% of the
overtime Minimise overtime
hours.
R191 400 /319 000 x100 = 60%

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Structure of problem-solving questions - Inventories

Problems that relate to internal control and decision making
Closing stock  Fewer items  Order sufficient to avoid loss to
business or customers
 Excessive /high number of  Keep reasonable levels of stock
items –to avoid theft of stock
Sales compared to cash  Sales figure exceeding the  Check cash regularly before
deposit cash deposit making daily deposits
 Division of duties
Profit mark-up  High Mark-  If too high reduce it to a
up percentage NOT LOWER than
Compared to what other businesses’ charge
 Low Mark- other  Increase mark-up (reasonable
up branches %),
Should not exceed % charged
by competitors
Selling price per unit  Too low/high comparing to  Increase/reduce selling price
other competitors between R 200 and R300 or
between 25% and 40%
Number/Percentage of  Lower percentage of sales  Regular counts of stock will
sales will result to stock piling. identify items that are less
[compare purchases and sales] demanded. [purchase lesser]
 Commission should be
introduced to motivate sales
personnel to sell more items
 Introduce a differently branded
item
Missing stock  Number of units stolen  Regular counts of stock
 Increase physical security e.g.
install cameras, portable
expensive items be kept in
locked cabinets.
[refer to internal controls on inventory]

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Structure of problem-solving questions - Inventories

Problems that relate to internal control and decision making
Stock turnover rate  Low stock turnover –the  Increase stock turnover rate by
product could be unpopular to improving marketing/advertising
customers strategies
Stock holding Period  Higher stock Holding period  Improve marketing strategies for
business to reduce stock holding
period
Number of orders vs Sales  Ordered goods exceeding  Follow-up on orders to reach all
sales the targeted sales.
 Customers who place orders
should pay deposit upfront
 Order as per customer
specifications
Returns by customers  Higher returns by customers  The business should order good
quality products to reduce returns.
 Avoid cheaper goods of inferior
quality
 Possible change to new supplier
 Order as per customer
specifications
 Check quality before accepting
stock delivered
Advertising expense  High Advertising Expense but  The business should use lower
not satisfactory sales figures cost but effective methods to
advertise the products.
Rent expense  High mount of Rent expense  Look for cheaper business
compared to other stores or premises
branches
Cash Sales Vs Credit sales  Higher Credit sales, result to  Encourage cash sales by offering
cash flow problems cash discount
NOTE: The type of problems reflected above may indicate poor internal control and
inappropriate decisions taken by management.

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INVENTORIES: Calculations expected in exams

 Number of items Opening stock + Purchases – Returns –Sales –Donations – Drawings -Closing stock
stolen
 Number of items Opening Stock + Purchases +Carriage on Purchases + Import duties – Returns – Closing Stock –Donations –
on hand Drawings
 Value of stock on Specific Identification/FIFO/Weighted Average Method –Check the slide below:
hand
 Cost of sales USE Periodic/Perpetual inventory system [Periodic –check the slide three ]
 Gross profit Sales – Cost of Sales = Gross profit OR
OR T Account
[(C.stock +Sales ) - (O.Stock+Purchases+Carriage+Custom Duty )]
 Mark-up Gross Profit x 100
achieved Cost of sales
 Calculate the Opening stock + purchases – returns +carriage +custom duty The formula is used to calculate the value of
unit price units of opening stock +purchases -returns closing stock when using weighted
average method
 Calculate how Average inventory x 365 days
long (in days) it Cost of sales
is expected to OR
sell the closing
Units of stock on hand x 365 days
stock Units sold
OR OR
Stock Holding period
Closing stock x 365 days
OP stock + Purchases - Returns – Closing Stock Cost of sales

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CONSOLIDATION ACTIVITIES
ACTIVITY 1: INVENTORY VALUATION AND INTERNAL CONTROL
NSC FEB/MARCH 2018 -Adapted (35 marks)

1.1 Choose the correct word(s) from those given in brackets. Write only the word(s)
next to the question number (1.1.1–1.1.3) in the ANSWER BOOK.
1.1.1 Merchandise purchased is recorded as an (asset/expense) to the

business in the perpetual inventory system. (1)
1.1.2 The (specific identification/weighted-average) stock valuation method is

best suited for unique high-value products. (1)
1.1.3 Cost of sales is usually calculated at the end of the financial year in the
(periodic/perpetual) inventory system. (1)
1.2 MONGI TRADERS
You are provided with information relating to Mongi Traders. The

business sells one type of plastic table. Their financial year ends on
31 December. The business uses the FIFO method to value their stock. They use
the periodic inventory system.
REQUIRED:
1.2.1 Calculate the value of the closing stock according to the FIFO method on
31 December 2022. (6)
1.2.2 Calculate the following for the year ended 31 December 2022:
 Cost of sales
1.2.3 The owner considers changing the stock valuation method to the
weighted-average method.
 Calculate the value of the closing stock on 31 December 2022 by

using the weighted-average method. (6)
 What will be the effect on the gross profit if the owner changes to this
valuation method? Provide figures. (3)
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INFORMATION:
A. Inventories:
NUMBER OF TOTAL
DATE PER UNIT
UNITS VALUE
1 January 2022 540 R350 R189 000
31 December 2022 440 ? ?
B. Purchases and returns in 2022:
Purchases:
NO. TOTAL
PER TOTAL CARRIAGE TOTAL
DATE OF PURCHASE
UNIT PURCHASES PER UNIT CARRIAGE
UNITS COST
31 Mar. 550 R370 R203 500 R13 750 R217 250
30 Jun. 900 R380 R342 000 R22 850 R364 850
30 Sep. 500 R350 R175 000 R25 R12 500 R187 500
30 Nov. 300 R400 R120 000 R30 R9 000 R129 000
Totals 2 250 R840 500 R58 100 R898 600
Returns:
NO.
PER TOTAL CARRIAGE TOTAL
DATE OF
UNIT RETURNS PER UNIT CARRIAGE
UNITS
5 Jul. 50 R380 R19 000 0 0
These returns are from the purchases of June 2017. There is no refund for carriage.
C. Sales:
2 300 units at R600 each = R1 380 000
1.3 INTERNAL CONTROL
You are provided with information relating to Leno Furnishers. They sell tables,
chairs and beds for cash only. The owner is concerned that the figures provided
reflect poor internal control and decision-making.
Identify ONE problem for each product. Quote figures. In EACH case, give
advice on how to solve the problem. (9)
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INFORMATION:
Information from the records for the financial year:
TABLES CHAIRS BEDS

Opening stock (units) 50 209 300
Units purchased 670 2 390 380
Units sold 600 2 400 480
Units as per physical count at year-
90 199 200
end
Selling price per unit R1 500 R800 R3 000
Total sales (amounts deposited) R1 800 R1 440
R900 000
000 000
35
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123
WORKSHEET
1.1
1.1.1
1.1.2
1.1.3
3
1.2.1 Calculate the value of the closing stock according to the FIFO method on
31 December 2022.
1.2.2 Calculate the cost of sales.
Calculate the gross profit.
1.2.3 Calculate the value of the closing stock on 31 December 2022 by using
the weighted-average method.
6
What will be the effect on the gross profit if the owner changes to this
valuation method? Provide figures.
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1.3 You are provided with information relating to Leno Furnishers. They sell
tables, chairs and beds for cash only. The owner is concerned that the
figures provided reflect poor internal control and decision-making.
Identify ONE problem for each product. Quote figures. In EACH case, give
advice on how to solve the problem.
Product Problem (with figures) Advice
Tables
Chairs
Beds
TOTAL MARKS
35
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ACTIVITY 2: INVENTORY VALUATION AND PROBLEM SOLVING - LIMPOPO 2020

2.1 CONCEPTS:
Choose the stock system/valuation method from the list provided, that is best described
by each of the statements below. Write only the stock system/valuation method next to
each number (2.1.1 – 2.1.3) in the ANSWER BOOK.
perpetual inventory system; weighted-average method;

specific identification method; periodic inventory system; first in first out (FIFO)
2.1.1 This method assumes that stock is sold in order of date purchased.
2.1.2 This system ensures that cost of sales is calculated at the point of sale.
2.1.3 This stock system is more suited for low value goods that are purchased in bulk.
(3 x 1) (3)
2.2 SMART CARS TRADERS
Smart Cars Traders buy and sell BMW cars. The business uses the specific identification
method for stock valuation. The financial year ends 30 June 2023.
REQUIRED:
2.2.1 Calculate the selling price per BMW 3 series sold during the 2023 financial year. (2)
2.2.2 Calculate the value of the closing stock on 30 June 2023 using the specific
identification method. (6)
INFORMATION:
A. Three different models of BMW cars were sold during the 2023 financial year.
UNIT UNITS TOTAL

MODELS UNITS TOTAL
PRICE SOLD SALES
PURCHASES:
BMW 3 series 10 R310 000 R3 100 000 10 R4 340 000
BMW 4 series 15 R480 000 R7 200 000 8 R5 376 000
BMW 5 series 12 R620 000 R7 440 000 5 R4 340 000
RETURNS:
BMW 5 series 2 R620 000 (R1 240 000
)
Net R16 500
purchases 000
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2.3 DENNIS STORES
Dennis Stores sells one type of motorsport sunglasses. The financial year ends on
28 February 2023. The business uses the weighted-average method for stock valuation
and the periodic inventory system.
REQUIRED:
2.3.1 Calculate the value of the closing stock on 28 February 2023 using the weighted-
average method. (8)

2.3.2 Calculate following for the year ended 28 February 2023:
 Cost of sales
2.3.3 Calculate the average stock holding period (in days) on 28 February 2023. (5)
INFORMATION:
A. Stock:
TOTAL VALUE (INCLUDING

DATE PAIRS OF SUNGLASSES
CARRIAGE)
1 March 2022 510 R313 220
28 February 2023 320 ?
B. Purchases:
PAIRS OF COST TOTAL TOTAL COST

CARRIAGE
DATE SUN- PRICE PURCHASE (INCLUDING
PER PAIR
GLASSES PER PAIR S CARRIAGE)
25/05/2022 460 R650 R299 000 R18 R307 280
02/08/2022 700 R680 R476 000 R18 R488 600
20/10/2022 500 R710 R355 000 R30 R370 000
01/02/2023 300 R725 R217 500 R30 R226 500
TOTAL 1 960 R1 347 500 R1 392 380
C. Returns:
Twenty pairs of sunglasses from the purchases on 1 February 2023 were returned
to the supplier due to poor quality. The business account was credited with R15
100 (including carriage on purchases).
D. Sales:
2 115 pairs of sunglasses were sold at R1 400 each during the year.
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2.4 PROBLEM-SOLVING
You are provided with information relating to three sneakers shops with different
owners in Sabie. Each shop has a floor space of 100m 2.
REQUIRED:
2.4.1 Identify ONE problem in Shop 1 and ONE problem in Shop 2. Quote figures.
(6)
IN each case, give ONE point of advice.
2.4.2 Explain TWO good decisions that Frank has made in respect of Shop 3. Quote
(4)
figures.
Information per shop for December 2022:
SHOP 1 SHOP 2 SHOP 3

Managers Portia Prudy Frank
Sales R340 000 R290 000 R900 000
Returns from customers R4 320 R58 000 R18 000
Mark-up percentages 85% 50% 60%
Stock-holding period 150 days 30 days 30 days
Advertising R9 000 R5 800 R36 000
Rent expense R15 000 R20 000 R30 000
Days worked per week 6 5 7
40
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WORKSHEET 2
2.1
2.1.1
2.1.2
2.1.3
3
2.2 SMART CARS TRADERS
2.2.1 Calculate the selling price per BMW 3 series sold during the 2023 financial
year.
2.2.2 Calculate the value of the closing stock on 30 June 2023 using the specific
2.3 DENNIS STORES
2.3.1 Calculate the value of the closing stock on 28 February 2023 using the
weighted-average method.
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129
2.3.2 Calculate the following for the year ended 28 February 2023:
Cost of sales:
Gross profit:
2.3.3 Calculate the average stock holding period (in days) on 28 February 2023.
200
130
2.4 PROBLEM SOLVING
2.4.1 Identify ONE problem in Shop 1 and ONE problem in Shop 2. Quote figures.
In EACH case, state ONE point of advice.
BRANCH PROBLEM AND FIGURE ADVICE
Shop 1
Shop 2
2.4.2 Explain TWO good decisions that Frank has made in respect of Shop 3.
Quote figures.
TOTAL MARKS
40
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131
ACTIVITY 3: INVENTORY VALUATION (45 marks; 25 minutes)

NSC 2019 NOV -Adapted
George Grande is the majority shareholder and CEO of Grande Ltd. The company
supplies hotels with cabinets and lamps.
The periodic system is used. The year-end is 30 September 2022.
REQUIRED:
CABINETS
3.1 Calculate the value of closing stock for cabinets on 30 September 2022 using the
first-in first-out method. (6)
3.2 In 2022, the company decided to extend the target market and to grant trade
discounts to increase sales.
3.2.1 Calculate the % mark-up achieved in 2022. (4)
3.2.2 Provide TWO points (with figures) to prove that this decision achieved its
aims. (4)
3.2.3 The CEO feels that this decision also negatively affected the company.
 Provide TWO points (with figures) to support his opinion. (4)
 Give the directors advice to solve this problem. Explain TWO points. (2)
LAMPS
3.3 Calculate the stockholding period for lamps (use closing stock). (3)
3.4 George is concerned about the control of lamps. An investigation revealed that
the store manager was supplying local boarding houses with lamps without
documentation.
 Calculate the number of missing lamps. (5)
 Give TWO suggestions to solve this problem. (4)
TELEVISION SETS
3.5 During April 2022, while George was in hospital, Bruce Swann (the chief financial
officer) decided to include television sets in their product range. He was able to
secure bulk discounts from Roseway on two TV set models, namely LYN and KYA.
Calculate the value of the closing stock of TV sets on 30 September 2022 using
the specific identification method. (7)
3.6 An employee of Roseway told George that Bruce received a 10% 'commission'
from Roseway for buying excess stock. George wants to discuss this at the next
board meeting.
Explain THREE different concerns that George would have about this problem. (6)
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132
INFORMATION:
A. Stock records of cabinets and lamps:
CABINETS LAMPS
UNIT
UNITS TOTAL UNITS TOTAL
PRICE
Stock balances
1 Oct. 2021 370 R800 R296 000 600 R108 000
30 Sep. 2022 280 ? 265 R59 625
Purchases: 2022
January 800 R920 R736 000 1 200 R240 000
April 1 200 R990 R1 188 000 1 800 R432 000
July 250 R1 100 R275 000 800 R210 000
Total 2 250 R2 199 000 3 800 R882 000
Returns 20 R1 100
Sales 3 675
Cost of sales R930 375
B. Information relating to cabinets:

2022 2021
Sales R3 480 000 R3 375 000
Cost of sales R2 170 500 R1 950 000
Units sold 2 320 2 500
Selling price per unit R1 500 R1 400
% mark-up achieved ? 73%
Customers on record 37 26
C. Stock records of television sets:
MODELS UNITS UNIT PRICE TOTAL

Purchases
May 2019 LYN 800 R6 000 R4 800 000
KYA 950 R7 200 R6 840 000
July 2019 LYN 500 R6 000 R3 000 000
KYA 500 R7 200 R3 600 000
TOTAL 2 750 R18 240 000
Sales LYN 430 R8 400 R3 612 000
KYA 540 R10 080 R5 443 200
45
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133
WORKSHEET 3
CABINETS
3.1 Calculate the value of closing stock using FIFO.

Workings Answer
3.2.1 Calculate the % mark-up achieved in 2022.

Workings Answer
3.2.2 Provide TWO points (with figures) to prove that this decision achieved its
aims.
Point 1
Point 2
4
3.2.3 The CEO feels that this decision also negatively affected the company.
Provide TWO points (with figures) to support his opinion.
Point 1
Point 2
4
Give the directors advice to solve this problem. Explain TWO points.
Point 1
Point 2
2
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134
LAMPS
3.3 Calculate the stockholding period for lamps (use closing stock).
Workings Answer
3.4 Calculate the number of missing lamps.

Workings Answer
5
Give TWO suggestions to solve this problem.
Suggestion 1
Suggestion 2
4
TELEVISION SETS
3.5 Calculate the value of the closing stock of TV sets on

30 September 2022 using the specific identification method.
Workings Answer
3.6 Explain THREE different concerns that George would have about this
problem.
Concern 1
Concern 2
Concern 3
6
TOTAL MARKS
45/…….
205
168
MANUFACTURING CONCEPTS AND NOTES
CONCEPT EXPLANATION
Manufacturing  A manufacturing enterprise is an enterprise that manufactures

business products (completed products) from raw materials.
 It transforms raw materials into finished or completed products.
Costing It is the calculation of the costs involved in producing a product.
Unit The word used to describe a single product produced in the factory.
Direct material costs The raw material needed to produce the product – also called Direct
raw material cost.
Direct labour costs This is the payment to workers who are directly involved in
manufacturing of the product.
Indirect labour costs This is the amount paid to workers in the factory who are not directly
involved with the production process e.g. the cleaning staff)
Factory overheads  These are the expenses incurred to run the factory, but none of them
are directly involved with the production process. e.g. factory rent
 Indirect labour and indirect materials are classified as factory
overheads.
Primary production Direct material cost plus direct labour cost
cost
Total production cost It is the total cost to produce the products.
or manufacturing Prime cost plus factory overhead cost
costs (Direct material cost + Direct labour cost + Factory overhead cost)
Cost per unit or unit This is the cost of producing one product/unit
cost (Total production cost ÷ total units produced)
Fixed costs These costs do not change irrespective of the number of items
produced, the cost for rent is the same whether the quantity produced
by the factory is increased or reduced.
Variable costs These costs increase when the factory produce more products and
decrease when the factory produce less products (e.g. electricity)
Total costs Fixed costs + Variable costs
Unit costs This is the cost to produce one unit.
Marginal income The difference between the selling price per unit and the variable cost
(contribution) per unit. (SP/unit – VC/unit) It is used to work out the break-even point.
Selling and These are costs incurred in the selling of the finished goods, e.g.
distribution cost advertising and sales commission. These are variable costs.
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169
CONCEPT EXPLANATION
Administration cost These are costs incurred to run the business but are not tied to the
manufacturing or sales costs. These costs will include office rent, salaries
of office employees, depreciation of office equipment etc.
Break-even point  It is the number of units that need to be sold to cover all costs, but no
profit is made. It is when total receipts are equal to total costs.
 It is the point where there is no profit or loss incurred.
NOTE :The break-even point can be calculated in units as well as rand
value
FOUR DIFFERENT TYPES OF STOCK IN A MANUFACTURING BUSINESS

Finished goods stock Indirect materials/ consumable stores stock
Products that are completely finished and The indirect material stock that has not been
are ready for sale. These goods are used but is available for use, e.g. cleaning
same as trading stock of the retail materials.
business.
Raw material stock Work-in-progress stock
The unprocessed material used to Products that have not yet been completely
produce finished goods. turned into finished goods and are still in the
manufacturing process.
The following methods are used to allocate costs and expenses :
Rent amounting to R200 000 was paid during the year. This amount must be divided in the
ratio 3:1:1 between the factory, the office and the sales department.
Factory Office Sales department 200 000
3 1 1 5
3 x 200 000 1 x 200 000 1 x 200 000 200 000
5 5 5
=120 000 = 40 000 = 40 000
Sundry expenses amounted to R25 000. Factory accounts for 80%, Office 5% and Sales
department 15%
Factory Offices Sales department
80% 5% 15% 100%
80 x 25 000 5 x 25 000 15 x 25 000 R25 000
100 100 100
=R20 000 = R1 250 = 3 750
Rent is allocated on proportion to floor area. R72 000 Floor space: Factory 1 000 square
meters, Office 500 square meters, Sales department 500 square meters.
Factory Offices Sales department Total
1 000 500 500 2 000
1 000 x 72 000 500 x 72 000 500 x 72 000
2 000 2 000 2 000
= 36 000 = 18 000 = 18 000
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170
SUMMARY OF LEDGER ACCOUNTS
RAW MATERIALS STOCK (direct materials in the store room)

Balance (not used last year) b/d Direct mat cost (materials sent to factory) 4
Creditors control (raw materials bought) Balance (amount left in storeroom year-end) c/d
Bank (raw materials bought)
DIRECT LABOUR COST (labour costs)

Factory wages Work-in Process (direct labour) 3
INDIRECT MATERIALS
Consumable stores stock (reversal ) 9 Factory overhead cost (Indirect materials used) 2
Creditors control (bought) Consumable stores stock (left over year-end) 8
Bank (bought)
DIRECT MATERIAL COST

Raw material stock 4 Work-In –Process stock 10
CONSUMABLE STORES STOCK

Indirect materials stock (left over year-end) 8 Indirect materials (reversal of adjustment) 9
FACTORY OVERHEAD COST (total indirect costs)

Salaries, wages (indirect labour) 1 Work-in Process 5
Electricity, etc
Depreciation (on machinery)
Indirect materials 2
WORK-IN-PROCESS
Balance (unfinished tables end of last year) b/d Finished goods stock 6
(goods ready for sales)
Direct material cost 10 Balance (unfinished goods) c/d
Direct labour cost 3
Factory overhead cost 5
All direct and indirect expenses incurred in order to produce goods

FINISHED GOODS
Balance (goods not sold last year) b/d Cost of sales (goods sold this year) 7
Work-in-Process (ready to be sold) 6 Balance (goods not sold this year) c/d
COST OF SALES
Finished goods (finished goods sold this year) 7 Trading account 8
TRADING ACCOUNT
Cost of sales 8 Sales
Profit and loss account (gross profit)
xx xx
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171
MANUFACTURING ACCOUNTS –EXAMLPE 1
The following information was extracted from the accounting records of Chantel Manufacturers,
manufacturers of ladies handbags.
REQUIRED:
Draw up the following accounts in the General Ledger, properly closed/balance on 31 July 2020:
1. Raw Material stock
2. Work-In–Progress
3. Finished Goods Stock
4. Factory overheads
5. Indirect Material
INFORMATION:
Balances on 1 August 2019

Raw Material 67 224
Consumables on hand (indirect material) 1 590
Work-In-Progress 11 335
Finished Goods 39 784
Summary of transactions and other information for the year ending 31 July 2020
Raw material purchased in cash R 389 200
Raw material purchased on credit 79 332
Raw material issued for production 496 200
Wages paid: Direct labour 338 780
Indirect labour 105 600
Consumables purchased for production 70 890
Factory rent paid 48 000
Factory insurance paid 16 000
Factory maintenance paid 32 500
Depreciation on factory equipment 28 600
Cost of sales of finished goods 1 143 220
Sale of finished goods 1 829 152
Cost price of finished goods 1 136 079
Consumables on hand (indirect material) 31 July 2020 1 056
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172
EXPECTED ANSWER
Dr Raw Material stock B6 Cr

2019 1 Balance b/d 67 224 2020 31 Raw Material GJ *496 200
Aug Jul issued
2020 31 Bank CPJ 389 200 Balance c/d 39 556
Jul
Creditors control CJ 79 332
535 756 535 756
2020 1 Balance b/d 39 556
Aug
Dr Work-in-Progress Stock B7 Cr
2019 1 Balance b/ 11 335 2020 31 Finished goods GJ $1 136 079
Aug d Jul inventory
2020 31 Direct material GJ *496 200 Balance c/d 12 360
Jul costs
Direct labour costs GJ 338 780
Factory overheads GJ # 302 124
1 148 439 1 148 439
2020 1 Balance 12 360
Aug
Dr Finished Goods Stock B8 Cr

2019 1 Balance b/d 39 784 2020 31 Cost of Sales GJ 1 143 220
Aug Jul
2020 31 Work-in-progress GJ $1 136 079 Balance c/d 32 643
Jul
1 175 863 1 175 863
2020 1 Balance 32 643
Aug
Dr Factory Overheads C2 Cr
2020 31 Wages GJ 105 600 2020 31 Work-in- GJ # 302 124
Jul Jul Progress
Rent expense GJ 48 000
Insurance GJ 16 000
Maintenance GJ 32 500
Depreciation GJ 28 600
Indirect Material GJ 71 424
Indirect Material cost

Consumables on hand 1 590
Bank 70 890
Consumables on hand (1 0560)
Factory overheads 71 424
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173
THE PRODUCTION COST STATEMENT FORMAT
PRODUCTION COST STATEMENT

Note R
Direct material costs 1 xxx
Direct labour costs 2 xxx
Prime costs xxx
Factory overhead costs 3 xxx
Total manufacturing costs xxx
Work-in-process at the beginning of the year xxx
xxx
Work-in-process at the end of the year (xxx)
Cost of production of finished goods xxx
NOTES TO THE FINANCIAL

STATEMENTS
1. Direct material costs R 2. Direct labour costs R
Balance at the beginning xxx Factory wages xxx
of the year Pension fund xxx
Net purchases xxx contributions
Carriage on purchases xxx Medical aid contributions xxx
Custom duties xxx UIF contributions xxx
xxx Direct labour cost xxx
Less: Balance at the end (xxx)
of the year
Direct material costs xxx
3. Factory overhead costs R

Indirect material xxx
Indirect labour xxx
Depreciation: Machinery and equipment xxx
Maintenance: Machinery and equipment xxx
Rent for factory buildings xxx
Factory electricity and water xxx
Factory overhead cost (to be taken to the production cost statement) xxx
4. Cost of finished goods sold R

Opening stock of finished goods sold xxx
Cost of finished goods produced during the year xxx
xxx
Closing stock of finished goods (xxx)
Cost of finished goods sold xxx
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174
Flow chart indicating placement of Cost components in

the Production Cost Statement
Total Manufacturing
Prime Cost: Most
Direct Material Cost: Raw material
important cost component in Costs/Total costs of
used in the production process
the production process production
Plus (+)
Plus (+)
Plus (+) Work in process at the
Direct Labour Cost: All beginning: Semi processed work
workers in the production line on the factory floor
Factory Overhead Cost:
Additional costs in the running
of the factory Minus (-)
Work in process at the end

of the year: Semi processed work
on the factory floor
Cost of production of finished

goods
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175
ILLUSTRATIVE ACTIVITY TWO
The activity will illustrate possible transactions in the manufacturing

process and the following Accounting records
 ledger accounts
 Production Cost Statement
 Notes to the statement
REQUIRED:
1 Complete the Ledger Accounts, Production cost statement and Notes
INFORMATION:
Balances on 1 March: 2019 2020
Raw materials stock R 10 R 15

Work in process stock 150 45
Finished goods stock 100 55
Indirect material/ Consumables stores on hand 3 4
Summary of transactions for the year ended 29 February 2020

R
Sales 1 000
Raw materials bought on credit 30
Paid in cash transport cost of Raw materials purchased 20
Returned incorrect raw materials delivered 5
More consumables/indirect materials were purchased during the year; cash R4,
on credit R5 and incorrect consumables returned R3.
Wages of direct labourers and UIF contributions 85
Salaries and wages – factory indirect workers and UIF contributions 15
Salary of bookkeeper / receptionist 4
Water and electricity (to be apportioned between the factory and the office in the 6
ratio 5:1) [ R6÷5/6 = R5]
Factory Rent expense 5
Depreciation on machinery 5
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176
A. MANUFACTURING PROCESS AND THE STOCK ACCOUNTS.
Check the flow of stock through different stages up to the point of sale
1. Warehouse
2. Factory
3. Showroom in sec on ‘D’ and ‘E’
Stock accounts’ Different sta ons in Manufacturing Notes to the Produc on

cost account (gr 12)
Note 1:
1 This is the warehouse/storeroom where the Direct material Stock
Raw
materials or raw materials and indirect materials are issued R
called Direct placed before transferring the stock needed in Opening stock 10
materials the factory.
+ Purchases(net) 45
(20 +30 -5)
+ Carriage on -
purchases
-
+ Custom duties
-Closing stock
(15)
Indirect = Direct material issued

materials/ 40
2 (Direct material cost)
Consumable
stores
The stock transferred to the factory is called

Direct material issued (R40)
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177
3 Work in
PRODUCTION COST R
process STATEMENT
stock
This is in the factory where the raw material Direct materials cost 40
stock is used to manufacture the products. The
+ Direct labour cost 85
closing stock will be the incomplete stock at
year end. = Prime / Direct cost 125
+ Factory overhead 35
cost
= Total cost of 160
produc on 150
+ Work-in process at the
beginning of the year
(45)
- Work-in process at
the end of the year 265
= Cost of produc on of
finished goods
The completed stock transferred to the show
room is called ‘Cost of production of finished
goods’ (R265)
In the production factory area, the variable cost and the fixed cost can be
identified.
The number of units completed and the cost per unit can be calculated
In the production factory area, the indirect labour will be the cleaners, factory manager,
security, etc. Remember that they qualify for employers contributions as well.
Note 2: Direct labour

Note 3: Indirect Labour will be classified as Factory overheads costs incurred during the
Manufacturing process.
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178
Note 4:
4
This is the show room where the Cost of goods sold/ R
Finished goods stock completed products are transferred Cost of sales
from the factory ready to be sold.
Opening stock 100
+ Cost of Production of 265
finished goods
- Closing stock (55)
= Cost of sales 310

The stock sold and leaving the show
room will be regarded and recorded
Administra on costs and selling
as Cost of Sales. and distribu on costs can be
identified this stage
B. PROGRESSION OF CONTENT FROM GRADE 11 TO GRADE 12
Study the template below and identify the similarities

between the:
 General ledger accounts and the
 Production Statement.
If you understand the flow of the ledger accounts from the

raw materials to Work in process to finished goods account,
you will understand the format of the Production Statement.
GENERAL LEDGER ACCOUNTS (Gr. 11) PRODUCTION COST STATEMENT (Gr.12)
Dr Raw material stock Note 1: Raw material/ Direct material cost

Cr Opening stock 10
Balance b/d 10 Creditors contr. CAJ 5 +Purchases(net) (20 +30 -5) 45
20
Bank CPJ Work in process GJ 40 +Carriage on purchases -
Creditors’ contr. CJ 30
Balance c/d 15 +Custom duties -
60 60 -Closing stock (15)
Balance b/d 15 =Stock issued (Direct material cost) 40
Take note: The amount, R40, is the direct stock issued to the next station in
manufacturing and it is similar to total in note 1.
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179
GENERAL LEDGER ACCOUNTS (Gr. 11) PRODUCTION COST STATEMENT
Dr Direct labour Note 2: Direct labour cost R

Cr
Wages 77
Wages WJ 77 Work in process 85 + UIF contribution 8
UIF contribution WJ 8 GJ = Direct labour 85
85 85
R
Dr Work in process Cr PRODUCTION COST STATEMENT Note
Balance b/d 150 Finished goods GJ 265 Direct materials cost N1 40
+ Direct labour cost N2 85
Raw material issued GJ 40 Balance c/d 45
= Prime / Direct cost
Direct labour GJ 85 125
+ Factory overhead cost N3 35
Factory overheads GJ 35
= Total cost of production 160
310 310
+ Work-in process at the beginning of the year 150
Balance b/d 45
- Work-in process at the end of the year (45)
= Cost of production of finished goods 265
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180
Dr. Factory overheads Cr. Note 3 Factory overhead costs R
Consumable stores 5 Work in process 35 Consumable stores (3+4+5-3-4) 5

Indirect labour 15 + Indirect labour 15
Water and elec. 5 + Water and electricity 5
Rent expense 5 + Rent expense 5
Depreciation 5 + Depreciation 5
35 35 = Total factory overheads 35
Take note
Dr Consumable stores account Cr
Consumable stores
3 Creditors CAJ 3
on hand The Contra Account for
Bank CPJ 4 Factory overheads 5 Consumables/indirect
material USED is Factory
Consumable stores
Creditors CJ 5 4 overheads.
on hand
12 12
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181
R
Dr. Finished Goods Cr. Note 4: Cost of finished goods(Cost of sales)
Balance b/d 100 Cost of Sales GJ 310 Opening stock 100
Work in process GJ 265 Balance c/d 55 + Cost of Production of finished goods 265
365 365 -Closing stock (55)

Balance b/d = Cost of finished goods sold /Cost of sales 310
55
This is the figure that will appear in

the Trading Statement OR Trading
Account
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182
9 99165 EDH
BREAK-EVEN POINT
 It is the number of units that need to be sold to cover all costs, but no profit is made. It is a point
where total income is equal to total costs.
 It is the point where there is no profit or loss incurred
 The break-even point can be calculated in UNITS as well as RAND VALUE
REMEMBER THE FORMULA BREAK-EVEN POINT
Total Fixed Costs

𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐏𝐫𝐢𝐜𝐞 − 𝐕𝐚𝐫𝐢𝐚𝐛𝐥𝐞 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐔𝐧𝐢𝐭
OR
Total Fixed Costs
=
𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝒑𝒆𝒓 𝑼𝒏𝒊𝒕 (𝑷𝒓𝒐𝒇𝒊𝒕)
FIXED COSTS VARIABLE COSTS
Factory overheads cost (FOHC) Direct material cost (DMC)

+ +
Administration costs Direct labour cost (DLC)
+
Selling and Distribution costs (SDC)
= =
TOTAL FIXED COSTS VARIABLE COSTS
DMC +DLC+SDC Variable cost

= per unit
No. of units
produced
The following areas of Break – even analysis are assessed by most examination
papers :
 Compare Production levels and break-even point for current and past year
[More marks are allocated ]
 Compare Break-even point for current and previous year
[expressed in UNITS or RANDS –most examiners prefer units]
 Compare the number of units produced in the current and past year
 Compare profit made on units, current year and past year
[More marks are allocated]
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183
EXAMPLE -PRODUCTION COST STATEMENT
QUESTION: COST ACCOUNTING
SNAZZY HANDBAGS
The information below relates to the financial year ended 30 September

2020. The business manufactures one type of handbag.
REQUIRED:
Prepare the Production Cost Statement on 30 September 2020. Show ALL

workings (21)
INFORMATION:
A Figures provided by the bookkeeper on 30 September 2020
R
Administration cost 380 000
Direct material cost 976 000
Direct labour cost 755 000
Factory overhead cost 442 080
Selling and distribution cost 219 200
Work-in-process: 1 October 2019 74 000
30 September 2020 ?
Total cost of production of finished goods 2 187 500
B An internal audit revealed the following:
 Damaged raw material, valued at R17 000, that had been returned to
the supplier was omitted in the calculation of the direct material cost.
 The factory overhead cost total included the full amount of R62 400
for rent expense. Only 2/3 of this expense must be allocated to the
factory. The remainder must be split equally between the office
and the sales department
 The salary of a factory foreman on leave was not recorded. Details of

his salary are as follows:
Deduction for SARS: PAYE R2 560

Deduction for pension fund and UIF ?
Net salary R8 320
 The employer's contribution for pension fund and UIF amounts to R1 920.
The business contributes on a rand-for-rand basis
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SOLUTION ON REFLECTIVE ACTIVITY
SNAZZY HANDBAGS
PRODUCTION COST STATEMENT ON 30 SEPTEMBER 2020

*Direct material cost (976 000 – 17 000) 959 000
*Direct labour cost 755 000
Prime Cost 1 714 000

*Factory overhead cost 14 720 (4 marks)
(442 080 – 20 800 + 2 560 + 8 320 + 1 920+ 1 920) 436 000
12 800 (3 marks)
Manufacturing cost 2 150 000

Work-in-process (1 October 2019) 74 000
2 224 000
Work-in-process (30 September 2020) (36 500)
Operation TCOP – subtotal above; Ignore brackets
Total cost of production 2 187 500
The formula to
calculate prime cost is
DL+DM=PC
Always indicate
Calculation for work in process at the end
calculations in brackets Damaged raw
materials R2 224 000 – TCOP R2 187 500 = R36 500
returned to W-I-P at the end
suppliers should
be subtracted
from the
purchases
amount
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185
ACTIVITY 1: COST ACCOUNTING

2021 MAY- JUNE EXAM (35 marks; 25 minutes)
1.1 Choose a cost category from COLUMN B that matches a description in COLUMN A.
Write only the letter (A-E) next to the question numbers (1.1.1 to 1.1.3) in the ANSWER
BOOK, e.g., 1.1.4 F.
COLUMN A COLUMN B
1.1.1 Commission to salespersons A factory overhead cost
1.1.2 Wages of factory maintenance B administration cost
staff
1.1.3 Office stationery expenses C direct labour cost
D direct material cost
E selling and distribution
cost
(3 x 1) (3)
1.2 MEISIES OUTFITTERS
The business manufactures clothing products. The owner is Minnie Zitha. The
information relates to school dresses which is one of the products they manufacture.
Dresses are manufactured according to orders received and there is no work-in-
progress. The financial year ended on 30 April 2021.
REQUIRED:
1.2.1 Refer to Information D.
Complete the Factory Overhead Cost Note for the school dresses. (10)
1.2.2 Calculate the total cost of production of school dresses produced. (4)
1.2.3 Minnie is concerned about wastage of fabric in the dressmaking section.
Calculate the cost of this wastage to the business. (5)
1.2.4 The internal auditor expressed concern about the direct labour cost for the
school dresses.
 Explain the problem that is of concern to the auditor. Quote figures. (3)
 State TWO possible causes of this problem (2)
1.2.5 Provide a calculation to confirm that the break-even point for the current financial
year is 17 000 units. (3)
1.2.6 Comment of the level of production achieved and the break-even point
calculated above. Quote figures. (2)
1.2.7 Calculate the extra profit that would be earned if an additional 500 dresses are
made and sold. Assume that all costs are unchanged. (3)
INFORMATION:
A. Raw material stock (fabric used to make the dresses):
Fabric is issued to the factory using the weighted-average method.
UNITS COST TOTAL
(metres) per metre COST
Stock of fabric on 1 May 2020 9 000 R14,20 R 127
800
Fabric purchased during the 33 000 R17,00 R 561
year 000
42 000 R 688
800
Fabric issued to the factory 29 000 R16,40 R 475
600
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186
B. Production and sales:

 Manufacturing one dress required 1.6 metres of fabric.
 17 800 dresses were produced and sold during the financial year at
R75 per dress.
C. Direct labour cost for the year:
HOURS
WORKE PER
RATE TOTAL
RS WORKE
R
Basic wage (normal time) * R 250
8 1 250 R25
000
Total overtime worked R 259
8 720 R45
200
Total employer’s R 26
contributions 250
TOTAL R 535
1 970
450
* Normal time comprises a 5-day week of 8 hours per day. The factory
operates for 46 weeks each year.
D. Factory overhead costs:
The following costs were extracted from the records on 30 April 2021:
Factory rent expense R 122 400
Water and electricity 81 600
Insurance on factory equipment 20 720
Salary of the dressmaking supervisor 76 960
Delivery expenses 36 800
Wages of cleaners 155 760
Depreciation: dressmaking machines 30 300
Sundry factory expenses (dressmaking
10 670
section)
 Factory rent is split according to floor space occupied. The dress-
making section occupies 320 m² of the total factory space of 1 280
m².
 15% of the total water and electricity account must be allocated to
the dressmaking section.
 Insurance on factory equipment was paid up to 30 June 2021.
Dressmaking equipment comprises ⅓ of the total factory equipment.
 Only one of the six cleaners, Susan, was allocated to the
dressmaking section. Susan earns 10% less than the other five
cleaners.
E. Additional information relating to the dressmaking section:
 Total variable costs amounted to R1 094 700 (R61,50 per unit)
 Fixed costs, comprising factory overhead costs and administration
costs, totalled R 229 500
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ACTIVITY 1: MANUFACTURING
COST ACCOUNTING 2021 MAY-JUNE EXAM (35 marks; 25 minutes)
1.1 1.1.1
2.1.2
1.1.3
3
1.2 MEISIES OUTFITTERS
1.2.1 FACTORY OVERHEAD COST NOTE
Salary of dressmaking supervisor 76 960

Depreciation on machines 30 300
Sundry factory expenses 10 670
TOTAL
10
1.2.2 Calculate the total cost of production of school dresses produced

WORKINGS ANSWER
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188
1.2.3 Minnie is concerned about wastage of fabric in the dressmaking

section.
Calculate the cost of this wastage to the business.
WORKINGS ANSWER
1.2.4 The internal auditor expressed concern about the direct labour
cost for the school dresses.
Explain the problem that is of concern to the auditor. Quote figures.
3
State TWO possible causes of this problem.
1.2.5 Provide a calculation to confirm that the break-even point for the
current financial year is 17 000 units.
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189
1.2.6 Comment on the level of production achieved and the break-even

point calculated above. Quote figures.
1.2.7 Calculate the extra profit that would be earned if an additional 500
dresses are made and sold. Assume that all costs are unchanged.
WORKINGS ANSWER
TOTAL MARKS
35
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2020 NSC NOV

QUESTION 2: COST ACCOUNTING (MANUFACTURING) (50 marks; 40 minutes)
2.1 PERFECT FIT MANUFACTURERS

The business produces formal shirts. The financial year ended 28 February
2021.
REQUIRED:
2.1.1 Prepare the Production Cost Statement. (14)
2.1.2 Calculate:
 Gross profit earned on sale of shirts (5)
 Mark-up % achieved on shirts (2)

INFORMATION:
A Stock on hand:
28 FEBRUARY 2021 1 MARCH 2020
Work-in-progress ? R230 000
400 shirts, valued using 900 shirts at R380
Finished goods = R342 000
FIFO method
B The bookkeeper calculated the costs below. Some errors weremade

Direct material cost R1 575 000
Selling and distribution cost R385 000
Administration cost R256 400
Direct labour cost ?
Factory overhead cost R518 800
C Errors and omissions:

 Payment to Quick Deliveries, R75 000 for carriage on raw materials, was
incorrectly allocated to selling and distribution cost.
 The entire insurance amount of R25 200 was transferred to the Administration
Cost Account. Two-thirds (2/3) of this expense should be allocated to the
factory
 The Factory Overhead Cost Account included an amount of R117 600 for water
and electricity. The bookkeeper had incorrectly allocated this expense to
factory, administration, and selling and distribution in the ratio 6: 3: 1. The
correct ratio is 5: 4: 1.
D Prime cost: R2 550 000 (after adjustments)
E Production and sales for the year:
 7 600 shirts were produced at a unit cost of R420 each
 8 100 shirts were sold for R4 860 000.
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191
Information and Adjustments Calculations Production Cost Statement
Extracted from B Note: Carriage on goods is added to

Direct material cost R1 575 000 PRODUCTION COST STATEMENT
Direct Material cost:
Selling and distribution cost R385 000 Note R
Direct material cost R1 575 000
Administration cost R256 400 Direct material costs 1 1 650 000
Carriage R75 000
Direct labour cost ? Direct labour costs 2 900 000
1 650 000
Factory overhead cost R518 800 Prime costs 2 550 000
Direct Labour cost:
ERROR 1 Prime cost is a given figure – check the
Prime costs LESS Direct material costs
Payment to Quick Deliveries, R75 000 for answer book
2 550 000 -1 650 000 =900 000
carriage on raw materials, was incorrectly
allocated to selling and distribution cost.
ERROR 2 PRODUCTION COST STATEMENT
The entire insurance amount of R25 200 was Insurance - (Factory): R
transferred to the Administration Cost Account. 25 200 x 2/3 = 16 800** Add to FOC
Direct material costs 1 650 000
Two-thirds (2/3) of this expense should be Insurance - (Admin):
Direct labour costs 900 000
allocated to the factory. 25 200 x 1/3 = 8 400 Add to Admin Cost
Prime costs 2 550 000
ERROR 3 Water and electricity Factory Overhead Cost
The Factory Overhead Cost Account included Incorrect allocation of unknown total: 518 800 + 16 800**+ 98 000 - 117 600 516 000
an amount of R117 600 for water and Factory Admin Selling & Distr Total Manufacturing Cost 3 066 000
electricity. The bookkeeper had incorrectly 6 3 1 Work in progress at beg 230 000
allocated this expense to factory, 117 600 ? ?
administration, and selling and distribution in 3 296 000
the ratio 6: 3: 1. The correct ratio is 5: 4: 1. Unknown total = 6 + 3 +1 =10 Work in progress at end (104 000)
UK METHOD = 10 x 117 600 = 196 000 Total cost of production 3 192 000
6
(7 600 X 420)
TOTAL
3 192 000 – 3 296 000 = -104 000
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Information and Adjustments Calculations Calculations
Correct allocation of 196 000 SHORT CUT

Factory Admin Selling & Dist.
5 4 1 117 600 X 10/6 X5/10 =98 000
? ? ? OR
117 600 X 5/6 = 98 000
196 000 x 5/10 = 98 000 correct amounts
NOTE: to your factory overhead ADD
98 000 and DEDUCT 117 600
Note
CHECK ABOVE
Factory Admin Selling & Dist.
117 600 x 10/6=196 000 6 3 Incorrect 1 Correct
Admin: 196 000 x 3/10 = 58 800 Incorrect
117 600 58 800 19 600
Selling and Dist.: 196 000 x 1/10= 19 600
5 Correct 4 Correct 1 Correct
Correct Figures
98 000 78 400 19 600
196 000 x 5/10 = 98 000
196 000 x 4/10 =78 400
ADD 98 000 and LESS ADD 78 400 and LESS NO DIFFERENCE
196 000 x 1/10 =19 600
117 600 or write 58 800 or write
-19 600 +19 600
Check your abridged I/S
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193
Abridged Income Statement

Sales 4 860 000
Cost of sales 4 860 000 -1 494 000 (3 366 000)
Gross profit (check calculation) 1 494 000
Selling and distribution cost 385 000 - 75 000 (310 000)
Administration cost
256 400 – 25 200 + 8 400- 58 800 + 78 400 OR 256 400 -16 800 +19 600 (259 200)
Net profit 924 800
Information and Adjustments Calculations
Sales 4 860 000 These amounts

Gross profit earned on sale of shirts: are transferred to
Less Cost of Sales (3 366 the Abridged
28 FEBRUARY 1 MARCH 000) Income
2021 2020 Gross profit 1 494 000 Statement
Work-in-progress ? R230 000 Closing stock: (400 X 420)

400 shirts, valued 900 shirts at R380 = 168 000
Finished goods
= R342 000
Opening stock 342 000
using FIFOmethod NOTE: The stock of units on hand is
Total cost of production 3 192 000
included in the 7 600 units that were
Less closing stock (168 000)
produced at R420
3 366 000
Information and Adjustments Calculations
Calculate the mark-up % achieved on shirts
x = 44,4%
Cost of sales 3 366 000 1
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ACTIVITY 2 : COST ACCOUNTING NOV 2021 (45 marks; 35 minutes)
2.1 PRUDY MANUFACTURERS

The information relates to the financial year ended 28 February 2021. The
business produces one style of travelling bag. The owner is Prudy Sithole.
REQUIRED:
Complete the following for the year ended 28 February 2021:
2.1.1 Production Cost Statement (10)
2.1.2 Abridged Statement of Comprehensive Income (Income Statement) (11)
INFORMATION:
A. Stock balances:
29 FEBRUARY 2021 1 MARCH 2020
Finished goods stock R96 000 R72 000
There is no work-in-progress at the beginning or end of the year.
B. Raw material issued to the factory for production, R1 494 000.
C. Production wages:
Information extracted from the production wages records:
NET WAGES PAID TO PRODUCTION TOTAL DEDUCTIONS
WORKERS
R647 400 22% of gross wages
D The bookkeeper calculated the following costs for the year ended 28
February 2021: Factory overhead cost:
Factory overhead cos R520 280
Selling and distribution cost R224 960
Administration cost R187 760
It was discovered that she did not take the following into account:
 The telephone account of R22 400 was posted in error to the factory
overhead cost. This expense relates to the office.
 The entire amount of rent expense, R98 400, was posted to the factory
overhead cost. This expense should have been split in the ratio 7: 2: 1
between the factory, sales and administration departments
 The insurance expense of R26 400 was divided equally between the
factory overhead cost and the sales department in error. 60% of this
expense relates to the factory and the balance applies to the sales
department
E Sales
Total sales for the year amounted to R4 433 600.

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After completing the statements in QUESTION 2.1, the internal auditor of Prudy
Manufacturers suspects that the raw material (fabric) is not being controlled well in the
storeroom and the factory
2.2.1 Calculate:
 The metres of fabric missing from the storeroom
 The metres of fabric wasted in the factory
Apart from installing cameras, provide a specific strategy to improve internal control in
the storeroom and factory. In EACH case, provide a different point (6)
2.2.2 Calculate the total cost of fabric lost and wasted and explain how this loss should be
shown in the statements mentioned in QUESTION 2.1. (3)
INFORMATION:
A. Raw material (fabric):
Fabric used in production is issued to the factory from the storeroom, as required. The
record of fabric is as follows:
METRES TOTAL AMOUNT

Raw material issued to factory 12 450 R1 494 000
Balance on 1 March 2020 2 700 324 000
Purchase of fabric during the yea 10 800 1 296 000
Balance on 28 February 202 850 102 000
B. Additional information:
 Fabric is purchased at a fixed cost price of R120 per metre.
 It takes 1,5 metres of fabric to make one travel bag
 7 800 bags were produced during the financial year.
2.3 ROSEMARY'S TOY FACTORY
This factory manufactures toy teddy bears. There is no work-in-progress stock at the
beginning or end of each year. The financial year ends on 31 December.
Rosemary decided to address the problem of low profits made in 2020 by making some
changes to improve sales and production.
REQUIRED:
2.3.1 Provide a calculation to confirm that the break-even point for the 2021 financial year is
correct (3)
2.3.2 Explain why Rosemary is pleased with the production level, sales, and break-even
point. Quote figures. (4)
2.3.3 Explain to Rosemary why the fixed cost per unit decreased from R56, 00 to R45, 71. (2)
2.3.4 Rosemary made deliberate decisions regarding variable costs to improve the
business.
Explain the decisions that she might have taken on these costs and how these could
have had positive effects on the business. Quote figures. (6)

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196
INFORMATION:
31 DECEMBER 2021 31 DECEMBER 2020

AMOUNT UNIT AMOUNT UNIT
R COST R R COST R
Direct material cos 490 000 100,00 320 000 80,00
Direct labour cos 274 400 56,00 288 000 72,00
Selling and distribution cost 176 400 36,00 96 000 24,00
VARIABLE COST 940 800 192,00 704 000 176,00
Factory overhead costs 160 000 32,65 160 000 40,00
Administration cost 64 000 13,06 64 000 16,00
FIXED COST 224 000 45,71 224 000 56,00
Selling price per unit R255 R240
Units produced and sold 4 900 units 4 000 units

Break-even point 3 556 units 3 500 units
45

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COST ACCOUNTING –MANUFACTURING
ACTIVITY 2: ANSWER SHEET 2021 NOV NSC P2
2.1 PRUDY MANUFACTURERS
2.1.1 PRODUCTION COST STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2021
Direct material cost 1 494 000
Prime cost
Factory overhead cost 520 280
Cost of production of finished goods

10
2.1.2 ABRIDGED STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT)

FOR THE YEAR ENDED 28 FEBRUARY 2021
Sales 4 433 600
Cost of sales
Gross profit
Other expenses
Selling and distribution costs
224 960
Administration cost
187 760
Net profit for the year

11

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2.2 CONTROL OF RAW MATERIAL
2.2.1 Calculate the metres of fabric Internal control strategy

Missing from the storeroom
Wasted in the factor
2.2.2 Calculate the total cost of fabric lost and wasted.

WORKINGS ANSWER
Explain how this loss should be shown in the statements mentioned in

QUESTION 2.1.
2.3 ROSEMARY'S TOY FACTORY
2.3.1 Provide a calculation to confirm that the break-even point for the 2021 financial
year is correct.
2.3.2 Explain why Rosemary is pleased with the production level, sales and break-even
point. Quote figures.

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199
2.3.3 Explain to Rosemary why the fixed cost per unit decreased from R56, 00 to R45,
71.
2.3.4 Rosemary made deliberate decisions regarding variable costs to improve the
business.
Explain the decisions that she might have taken on these costs and how these
could have had positive effects on the business. Quote figures.
Cos Comment and positive effect (with figures)
Direct material
cost
Direct labour
cost
Selling and
distribution
cost
6
TOTAL MARKS
45

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ACTIVITY 3: MANUFACTURING AND COST ACCOUNTING

EC PRELIM 2020
3.1 CONCEPTS
Indicate whether the following statements are TRUE of FALSE. Write only ‘true’ or ‘false’
next to the question number (3.1.1 to 3.1.2) in the ANSWER BOOK.
3.1.1 Carriage on raw materials purchased increases the cost of raw materials issued for
production (1)
3.1.2 Commission on sales will be classified as an administration cost (1)
3.2 PRODUCTION COST STATEMENT

The following information was extracted from the accounting records at the end of the
2020 financial year.
REQUIRED:
3.2.1 Complete the note for Direct Material costs. (7)
3.2.2 Complete the Production cost statement on 29 February 2020. (15)
3.3.3 Complete the Income Statement for the year ended 29 February 2020. (11)
INFORMATION:
A. Railage on raw materials purchased, R180 000.

B. Salaries and wages amounted to R724 160 for the financial year. 50% of this can be
attributed to wages of the employees who work directly on the product. The rest is shared
equally between Factory overheads and Administration cost.
C. 96 000 completed units were manufactured during the financial year. The cost price of
each finished unit was R20.
D. Sales for the year amounted to R3 804 000. Goods are sold at a mark-up of 100% on
cost.
E Selling and distribution costs amounted to R594 860.
F. Administration costs are R 571 100. These do not include salaries and wages.

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201
3.3 COST ACCOUNTING
You are provided with information from the records of Healthy Living, the producers of
one type of breakfast cereal. The financial year ends on 31 August 2020.
REQUIRED:
(4)
3.3.1 Calculate the break-even point for the year ended 31 August 2020.
(3)
3.3.2 Should the business be satisfied with the number of units that they produced and sold
during the current financial year? Explain. Quote figures
(4)
3.3.3 Give TWO possible reasons for the increase in the direct material cost per unit in the
current financial year.
Tyler the owner suggests that, to improve financial results in the new financial year, the (4)
quantity of cereal per box must be reduced by 10% and the selling price must remain the
3.3.4 same. Give TWO valid reasons why he should not do this.
INFORMATION:
The following information was taken from the accounting records:
31 August 2020 31 August 2019

Total Per unit Total Per unit
Sales R1 792 000 R28,00 R1 794 000 R23,00
Variable costs R1 024 000 R16,00 R 975 000 R12,50
Fixed costs R736 000 R11,50 R 630 000 R8,08
Direct material cost R656 000 R10,25 R 592 800 R7,60
Break-even point ? 60 000 units
Number of units
64 000 units 78 000 units
produced and sold
TOTAL 50

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MANUFACTURING AND COST ACCOUNTING EC PRELIM 2020 (50 marks; 45 minutes)
3.1 Indicate whether the following statements are TRUE of FALSE. Write only
‘true’ or ‘false’ next to the question number (3.1.1 to 3.1.2).
3.1.1
3.1.2 2
3.2.1 Note for Direct Material Costs
Balance at the beginning of the year 210 000

Purchases
Railage on purchases 7
Balance at the end of the year
.
3.2.2 Production Cost statement on 29 February 2020
Direct Material 1 240 000
Total manufacturing costs
15
Work-in-progress at the end of the year (90 000)
Cost of production of finished goods

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203
INCOME STATEMENT FOR THE YEAR ENDED 29 FEBRUARY 2020

3.2.3 Sales
Administration cost
11
3.3 Cost Accounting:
3.3.1 Calculate the break-even point for 2020.
3.3.2 Should the business be satisfied with the number of units that they
produced and sold during the current financial year? Explain. Quote
figures

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204
3.3.3 Give TWO possible reasons for the increase in the direct material cost per unit
in the current financial year.
3.3.4 Tyler the owner suggests that, to improve financial results in the new
financial year, the quantity of cereal per box must be reduced by 10% and the
selling price must remain the same. Give TWO valid reasons why he should
not do this.
50

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ACTIVITY 4:
MANUFACTURING (45 marks; 35 minutes)
LIMPOPO PRELIM 2020
4.1 CONCEPTS
Give one word/term for each of the following descriptions by choosing a word/term
from the list below. Write only the word/term next to the question number (4.1.1
– 4.1.4) in the ANSWER BOOK. (4)
Direct material cost Direct labour cost

Factory overhead cost Administrative cost
Sales and distribution cost Break-even point
4.1.1 Fuel cost for the delivery of leather handbags.

4.1.2 The cost of leather for manufacturing leather handbags
4.1.3 The salary of the accountant for the business producing leather handbags.
4.1.4 The salary of the employee cutting the leather for the leather handbags.
4.2 IMPACT COVERS
Johnny Good is the owner of Impact Covers, a business that produces shockproof
cell phone covers. The financial year ended on 30 June 2020. A mark-up
of 25% on cost price is used
REQUIRED
4.2.1 Refer to Information B. Calculate the Direct Labour cost. (7)
4.2.2 Refer to Information C. Complete the correct Factory Overhead Cost note. (12)
4.2.3 Complete the missing figures in the Production Cost Statement for the year ended (9)
30 June 2020.
INFORMATION
A
List of balances on: 30 June 1 July
2020 2019
Indirect materials 5 000 6 100
Work in Process ? 52 400
Finished products 26 000 31 000
B. Factory workers:
 The factory workers worked 220 normal hours per month for the first three
quarters of the year, at a rate of R60 per hour.
 Due to the Covid-19 situation, the factory workers only worked 30 hours in
total over the last quarter of the year at the normal hourly rate.

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206
 Over the whole financial year, the workers worked 60 hours overtime at a
rate of 1,5 of the normal rates.
C. The bookkeeper calculated the factory overhead cost for the year ended
30 June 2020:
Sundry factory expenses R43 320

Indirect material R73 000
Insurance R22 100
Water and electricity R30 000
Marketing R14 700
Rent expense R163 800
Factory manager’s salary R126 800
With closer inspection, the following errors were noticed and should be
rectified:
 The balances for Indirect materials were not considered. All Indirect
materials are used in the factory.
 Insurance includes the payment for July 2020. The bookkeeper forgot that
30% of Insurance should be allocated to the administrative department.
 Only 60% of Water and electricity was allocated to the factory. It should
have been 70%.
 The Rent expense is the total amount paid for the whole year. This should
be allocated between the Factory, Sales and Administrative departments
in the ratio of 5: 3: 1.
 The factory manager received an increase of R700 per month on 1
November 2019. He will forfeit his whole salary for the last month due to
the Covid-19 pandemic. The bookkeeper was not aware of this
arrangement.
D. Sales:
 Sales for the year ended 30 June 2019 was R1 760 000.
 Sales for the year ended 30 June 2020 showed a decrease of 40% from
the previous year.

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4.3 SUNNY DESKS
Sunny Desks produces desks for children, which is sold at a mark-up of

50%. The financial year ended 31 August 2020.
REQUIRED (4)
4.3.1 Calculate the following for the year ended 31 August 2020:
(a) Variable cost per hat (4)
(b) Break-even point (5)
4.3.2 James, the owner of Sunny Hats, is concerned about the production and
cost management of the past year. Examine the information and identify
TWO different cost items that cause concern. Provide advice on how to
improve in each case. (4)
INFORMATION
2020 2019
Factory overhead cost R702 000 R640 000
Prime cost per unit R110 R70
Direct material R70 R35
Direct labour R40 R35
Fixed sales price per unit R260 R260
Sales and distribution cost R219 000 R189 000
Commission R44 000 R54 000
Fuel cost R96 000 R73 000
Maintenance of vehicles R79 000 R62 000
Administrative cost R221 000 R200 900
Salaries of office staff R151 000 R132 900
Insurance R70 000 R68 000
Units produced during the year 9 300 9 900
Units sold during the year 7 300 9 000
Break-even point ? 3 400
45

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ACTIVITY 4 ANSWER SHEET:
MANUFACTURING AND COST ACCOUNTING LIMPOPO PRELIM 2020 (45 marks; 35

minutes)
4.1 CONCEPTS
4.1.1
4.1.2
4.1.3
4
4.1.4
4.2 IMPACT COVERS

4.2.1 Refer to Information B. Calculate the Direct Labour cost.
4.2.2 Factory Overhead Cost
12
4.2.2 Production Cost Statement for the year ended 31 May 2020
Direct material
Direct labour
Prime cost
Factory overhead cost
Total production cost 849 700
Work in process
9
Work in process
Total cost of production of complete products

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4.3 SUNNY DESKS

4.3.1 Calculate the following for the year ended 31 August 2020:
(a) Variable cost per unit.
(b) The break-even point. 4
4.3.2 James, the owner of Sunny Hats, is concerned about the production and cost
management of the past year. Examine the information and identify TWO
different cost items that cause concern. Use figures to support your answer.
Provide advice on how to improve in each case.
Problem (with figures) Advice
4
45

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9 99165 3; :
INTRODUCTION
Value Added Tax is an indirect tax that is charged whenever goods are sold or when services are
rendered by a registered VAT vendor. In South Africa the Standard rate of VAT is 15%.
Concepts unique to Value Added Tax

Concepts Explanation
Vat Vendor A business that is registered for VAT, there are two categories of
registration:
 Compulsory registration: any business whose annual income
exceeds R1 Million is required to register as a VAT vendor.
 Voluntary registration: Any business whose annual income is
less than R1 Million may voluntarily register as a VAT vendor,
provided that the business has an annual income in excess of
R50 000.
Output Vat It is the VAT that is charged by the vendor when he sells goods or
renders a service. The output tax is included in the price that the
customer is charged for the goods or services.
Input Vat VAT paid by a registered vendor on purchases from another registered
vendor; as well as VAT paid on other business expenses (e.g. rent) are
known as input tax.
Standard rate The standard rate is the normal rate at which VAT is charged when
goods are sold or services are rendered by a registered VAT vendor.
The standard rate is currently at 15% .The rate is adjusted by the
minister of finance.
Standard-rated supplies Standard-rated supplies are supplies of goods and services on which
output VAT is levied at a rate of 15%. The input VAT incurred on
purchases of goods and services to generate standard-rated supplies
can be deducted from output VAT payable to SARS.
Zero rated supplies Are supplies of goods and services on which output VAT is levied at a
rate of 0%.
Tax Exempt An exempt supply is the supply of goods or services upon which
neither VAT at the standard rate or zero-rate is chargeable.
VAT 201 form Is a declaration, which you need to make at the end of every tax period
if you are a vendor, which reflects the VAT that you have charged on
supplies (output tax), and the amounts that you believe you are entitled
to deduct as input tax.
SARS The South African Revenue Service (SARS) is the nation’s tax
collecting authority they are responsible for administering the South
African tax system and customs service.
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EXAMPLES OF ZERO-RATED GOODS
 Goods export from SA  Mealie rice  Fruit and vegetables

 Brown Bread  Dried lentils  Pilchards in cans
 Brown wheaten meal  Mealies  Sardines in cans
 Maize meal  Rice  Milk
 Samp  Beans  Cultured milk
 Cooking oil  Eggs  Milk powder
 Edible legumes, pulses  Leguminous  Dairy powder blends
plants
 Petrol and diesel  International
transport
Other examples will include:
 Services supplied outside SA (Exports)

 Certain supplies made from farming
 Agricultural or pastoral purposes (provided certain requirements are met)
 Certain gold coins issued by SARB (including the Kruger Rand)
 State subsidies and donations to welfare organisations
 Transfer payments made by public authorities to vendors
VAT-EXEMPT
 SUPPLIES
The following goods and services are exempted from VAT:

 Passenger transport by road and rail
 The rental of residential accommodation
 Educational services in crèches, nursery schools,
primary and secondary schools, after school centres, universities and technikons.
 Insurance, pension and life insurance benefits
 Medical services and medicines supplied by state and provincial hospitals and local
authority clinics
 The supply of goods and services by an employee organisation to its members to the
extent that the consideration consists of membership contributions.
STANDARD - RATED SUPPLIES
With the exception of the items listed above, all items are subject to the standard VAT of 15%.
In April 2018 the rate was increased from 14% – 15%.
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50
VAT CALCULATIONS
 When a business sells goods at a mark-up, the mark-up percentage is ADDED to the cost
price to determine the selling price. ( COST PRICE + MARK-UP = SELLING PRICE )
 VAT is then calculated on the selling price to determine the price inclusive of VAT.
VAT Inclusive:
Selling Price +
VAT
EXAMPLE 1 Selling price:
Cost Price+ Mark-Up 100+15 =115
Complete the following
100 +15 = 115
Cost Selling price Selling price

price % mark-up (VAT exclusive) (VAT inclusive)
Mark-up = 500 X 20/100 VAT = R600 x 15/100 = R90

R500 20% = R100
Selling price
Selling price = R500 +R100 R600 + R90 = R690
= R600
OR
OR
Selling price = R500 X 120/100 R600 x115/100 =R690
= R600
The selling price include VAT ,
The selling price exclude VAT price charged to the customer
NOTE: The UK METHOD (unknown/known) is important for most of your calculations in this
section .
BASELINE ACTIVITY 1
Complete the following calculations :
Cost % mark-up Selling price Selling price

price (VAT exclusive) (VAT inclusive)
Example
R460 15% R460 x 115/100 = R529 R529 x 115/100 = R608,35
R1 800 20% ? ?
R1 250 40% ? ?
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BASELINE ACTIVITY 2
Cost price Selling MARKED

( VAT) mark-up Price VAT PRICE
Number (VAT excl) (VAT incl)
R % R R R
1 120 50%
2 40% 402.50
3 280 364
4 25% 200
VAT INCLUSIVE AND VAT EXCLUSIVE AMOUNTS
VAT Exclusive
 The amount does not include VAT.
 Assume that an exclusive amount of R100 does not include the VAT.
VAT Inclusive
 To determine the inclusive price : VAT Exclusive PLUS VAT = VAT Inclusive
R100 + (15% of R100) = R115
Amount 100%
(VAT exclusive)
VAT 15%
Amount 100% + 15% =

(VAT inclusive) 115%
251
52
EXAMPLE 2 - Calculate the unknown amount
INFORMATION
Bought stationery and paid R1 035, the amount include VAT.
REQUIRED
 Calculate the VAT amount
 Calculate the price exclusive of VAT
 Indicate the effect of the transaction in the relevant Journal and Ledger accounts.
SUGGESTED ANSWER
R1 035 Include VAT and it is equal to = 115% (100% + 15%)
VAT amount
VAT exclusive Amount VAT (15%) VAT inclusive Amount

100% 115%
Unknown Unknown R1 035
Known
VAT is unknown (place on top/numerator)
VAT amount:
15 x 1 035
115 1
VAT inclusive is known (place at bottom /denominator)
= R135
VAT Exclusive
100% 115%
Unknown R135 R1 035
Known Known
VAT Exclusive is unknown (place on

top/numerator)
VAT Exclusive :
100 x 1 035
115 1
VAT inclusive is known (place at bottom / denominator)
= R900
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53
ALTERNATIVE METHOD
VAT Exclusive
100% 115%
Unknown R135 R1 035
Known Known
VAT Exclusive is unknown (place on top/numerator)

VAT Exclusive :
100 x 135
15 1
VAT is known (place at bottom / denominator)
= R900
Indicate the effect of the transaction in the relevant Journal and Ledger accounts.
CASH PAYMENTS JOURNAL

Name of payee Bank Input VAT Stationery
NCA Stationery 1 035 135 900
GENERAL LEDGER
Bank Account Stationery Input VAT

Stationery 900 Bank 900 Bank 135
Input VAT 135 Only this amount will be The owner will claim
Total amount paid by business recorded as an expense. VAT from SARS on this
is R1 035 amount .
253
54
EXAMPLE 3
INFORMATION
Sold goods on credit to E. Ngwenya for R1 725 (VAT included), the business uses a mark-up of
50% on cost.
REQUIRED
 Indicate the effect of the transaction in the relevant Journal and Ledger accounts.
DEBTORS JOURNAL
Debtors Sales Output Cost of Cost
VAT Sales 1 500x 100/150
E.Ngwenya 1 500 225 1 000 =1 000
GENERAL LEDGER
Debtors Control Sales Output VAT

Sales 1 500 Debtors Debtors
VAT Output 225 Control Control
This account will debited with 1 500 225
R1 725. Only this amount will be recorded This amount is collected
as sales. onn behalf of SARS.
Summary of transactions affected by Input VAT and Output VAT
OUTPUT VAT
Transactions Subsidiary Journals Output VAT
Cash Sales CRJ Collected Credit
Credit sales DJ Collected Credit
Liabilty
Sale of equipment GJ ( on credit) CRJ for cash Collected Credit
Insurance claim CRJ Collected Credit
Creditors Allowances CAJ Collected Credit Liability
Bad debts GJ Refunded Debit Reduced
Drawings GJ Collected Credit Liability
NOTE : Ouput VAT is increased by credit entries and reduced by debit entries.
254
55
INPUT VAT
Transactions Subsidiary Journals Input VAT
Cash purchases CPJ Paid Debit
Credit purchases CJ Paid Debit VAT claimed
Equipment purchased CJ ( on credit) CPJ for Paid Debit (Asset)
cash
Creditors Allowances CAJ Claim Credit Assets reduced
cancelled
Petty Cash- PCJ Paid Debit VAT claimed
purchases (Asset)
Note : Input VAT is claimed on the amounts paid in the course of generating income for the
business.
Invoice and Receipt base
Every vendor needs to decide which method of calculating will be used when VAT is paid over to
SARS or when VAT is claimed.
The two methods are called invoice basis or receipt basis.
Invoice basis
 Pay VAT or claim VAT as soon as invoice is issued
 All vendors are registered on the invoice basis, unless they specifically ask to be
registered on the payment basis
Payment / receipt basis

 Pay VAT or claim VAT once payment is received or made
 This payment basis was implemented to assist smaller businesses with a turnover of less
than R2,5 million per year
255
56
BASELINE ACTIVITY 3
No Exclusive selling VAT @ 15% Inclusive selling price
price
1 400 60 460
2 700
3 360
4 780
5 1 240
6 290
7 44.40
8 122
9 210
EXAMPLE 4: POSSIBLE TRANSACTIONS AND SOLUTIONS ON CALCULATIONS OF

INCLUSIVE AND EXCLUSIVE VAT AMOUNTS
No Transactions VAT Calculations
1 Cash sales of R3 000 (exclusive) Exclusive (100%) R3 000
3000 x 15 = 450
VAT
100
3000 x 115 = 3450
Inclusive
100
2 Goods returned by a debtor, M Zitha, 575 x 100 = 500
R575 (inclusive) Exclusive
115
575 x 15 = 75
VAT
115
Inclusive 115% R575
3 Bought stationery, R150 (exclusive) from Exclusive (100%) 150
PAN and paid by petty cash,
150 x 15 = 22,50
VAT
100
150 x 115 = 172,50
Inclusive
100
4 Bought goods on credit from NOMSA 2 300 x 100 = 2 000
Exclusive
Foods, R2 300. (inclusive) 115
2 300 x 15 = 300
VAT
115
Inclusive (115%) R2 300
256
57
EXAMPLE 4: POSSIBLE TRANSACTIONS AND SOLUTIONS ON CALCULATIONS OF

INCLUSIVE AND EXCLUSIVE VAT AMOUNTS
No Transactions VAT Calculations
5 Unsatisfactory goods returned to 805 x 100 = 700
Exclusive
NOMSA Foods, R805. (inclusive) 115
805 x 15 = 105
VAT
115
Inclusive (115%) R805
6 The debtor, M Zitha, settled the amount 57,50 x 100 = R50
owing and allowed a discount of Exclusive (Discount)
115
R57,50 (inclusive)being 10%
Discount allowed 57,50 x 15 =
Debt: R 575 VAT (discount) R7,50
Discount (R 57,50) 115
Paid = R 517,50 Inclusive (discount)
(115%) R57,50
7 Mr W. Worry could not be traced. His Exclusive 230 x 100 = 200

account must be written off as bad 115
debts, R230 (inclusive) 230 x 15 = 30
VAT
115
Inclusive (115%) R230
257
58
Illustration of how all the entries from Output VAT Account and
Input VAT account are recorded in the VAT Control Account
VAT figures are assumed
DR OUTPUT VAT ACCOUNT B CR

2023 Debtors Control DAJ 56 2023 Bank CRJ 4 200
May 31 May 31
Discount allowed (claim VAT GJ 8 Debtors Control DJ 1 400
back from discount allowed amount)
Bad debts GJ 28 Discount allowed GJ 8

(cancel the VAT claim)
VAT control Drawings GJ 126

Donations GJ 42
Entries on the dr side reduce the VAT Payable to
SARS ( Output Tax)
 The output VAT account is a current liability.

 It is the amount owing to SARS
 The account increases on the credit side (when goods are sold or, withdrawn etc.)
DR VAT CONTROL ACCOUNT ( CL) B CR

2023 2023 CRJ 4 200
May
31 Debtors Control DAJ 56 May 31 Bank
Discount allowed (claim GJ 8 Debtors Control DJ 1 400
VAT back from discount
allowed)
Bad debts GJ 28 Discount GJ 8
allowed
(cancels VAT claim)
Bank CPJ 700 Drawings GJ 126
Creditors control CJ 280 Donations GJ 42
Petty cash PCJ 21 Creditors control CAJ 98
Balance c/d 4 781
5 874 5 874
2023 1 Balance b/d 4 781
Jun
DR. INPUT VAT CONTROL B DR

2023 Bank CPJ 700 2023 Creditors control CAJ 98
May 31 May 31
Creditors control CJ 280
Petty cash PCJ 21
Entries on the cr side reduce the VAT
claim amounts ( Input Tax)
 The Input VAT account is a current asset.

 It is amount that SARS owes the business.
 The Input VAT account increases on the debit side
258
59
INPUT AND OUTPUT VAT
SUPPLIER TRADER
CUSTOMER
SUPPLIER SELLS TO THE SALES TO

TRADER /RETAILER CUSTOMERS
INPUT VAT PAID BY THE TRADER OUTPUT VAT RECEIVED
INPUT VAT OUTPUT VAT

CLAIMED FROM SARS PAID TO SARS
SARS
VAT CONTROL ACCOUNT is used to calculate VAT receivable or payable to SARS
CR VAT CONTROL ACCOUNT DR
INPUT VAT OUTPUT VAT
ASSET (claim VAT from SARS) LIABILITY (owing to SARS)
Amount receivable from SARS is indicated by: Amount payable to SARS is indicated by:
 Debit balance of Vat Control  Credit balance
OR OR
 Input tax that is greater than output  Output tax that is greater than input
All the transactions that reduce the output vat All the transactions that reduce the input
such as returns by customers, bad debts, vat such as returns to creditors, discount
discount allowed etc. will be recorded under received etc. will be recorded under
INPUT VAT in this account. OUTPUT VAT in this account.
259
60
EXAMPLE 4
Bigshow Traders is registered for VAT. The VAT rate is 15%. The business is owned by
Des Damons.
REQUIRED:
1.1.1 Calculate the amount of VAT receivable or payable to SARS. Indicate whether it
is receivable or payable. (13)
INFORMATION:
INCLUSIVE EXCLUSIVE VAT

Total sales 368 000 (i)
Total cost of goods bought 174 560 (ii)
Goods returned by debtors 2 500
Goods returned to suppliers 11 201 9 740 (iii)
Bad debts 2 000
Goods taken by the owner
5 750 750
for personal use
Discount given to customers 1 059
SUGGESTED SOLUTION
VAT CONTROL ACCOUNT

Returns 2 500 Sales (368 000 x 15/115) (i) 48 000
Bad debts 2 000
Discount claimed 1 059 Returns- Sup (11 201- (iii) 1 461
9740)
Purchases (174 560 x (ii) 26 184 Drawings 750
15/100)
Balance c/d 18 468
50 211 50 211
50 211 – 31 743 = 18 468 Balance b/d 18 468
A debit balance will indicate that a VAT

refund is due by SARS, i.e. SARS is an A credit balance will indicate that a VAT
ASSET (i.e. a debtor) in this case. refund is due to SARS, i.e. SARS is a
LIABILITY (i.e. a creditor) in this
OR case.
INPUT: 26 184  + 2 500  + 2 000  + 1 059 
OUTPUT: 48 000  + 1 461+ 750 
50 211 - 31 743 = 18 468  operation
Receivable/Payable:
Payable to SARS 
260
61
EXAM QUESTIONS
ACTIVITY 1: VAT ( NW PRELIM 2019 –Adapted )
Pro Party Shop
You are provided with information relating to Pro Party Shop for the VAT
period ended 28 February 2023. The standard VAT rate of 15% is applicable.
REQUIRED:
1.1 Calculate the amount owing to SARS in respect of VAT at the end of
February 2023 after taking the transactions into account. (11)
1.2. Pro Party Shop is experiencing cash flow problems and there is no
money available to pay SARS. The bank account shows an overdraft
of R52 110 on 31 January 2023.The directors have asked the
accountant to reduce the sales amount so that the business will then
receive a refund from SARS.
Must the accountant go along with this suggestion? Give ONE reason
for your decision. (2)
INFORMATION:
Transactions for February:
A. Balances on 15 February:
 VAT output account, R59 325
 VAT input account, R33 585
B. Bought stationery on credit for R3 220 (VAT R420).
C. Trading stock sold for cash, R30 800 (excluding VAT).
D. Settled the amount owing, R25 300, to Dolphin Traders via EFT, less 5%
discount.
E. Bought 92 costumes @ R500 each (VAT inclusive) from Funny Clothes
Ltd received Invoice 1702.
F. Returned 10 faulty costumes together with Debit Note 87 to Funny
Clothes Ltd. The VAT on this return amounted to R560.
G. In January, 4 costumes were sold to a primary school for R1 894. The
tax invoice reflected VAT on sales as R247. This was posted to the
ledger as R427.
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62
ANSWER SHEET 1: VAT
PRO PARTY SHOP
1.1 Calculate the amount owning to SARS in respect of VAT at the end of
February 2023 after taking the transactions into account.
No. Calculation Amount owing to SARS
A
B
C
D
E
F
G
H 11
1.2 Pro Party Shop is experiencing cash flow problems and there is no money
available to pay SARS. The bank account shows an overdraft of R52 110
on 31 January 2023. The directors have asked the accountant to reduce
the sales amount so that the business will then receive a refund from
SARS.
Must the accountant go along with this suggestion?
Give ONE reason for your decision.
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63
Activity 2 : VALUE-ADDED TAX (VAT)
Longhill Traders
The information relates to Longhill Traders for the VAT period ended 30 April 2023. The
VAT rate of 15% applies to all goods and services.
REQUIRED:
Calculate the amount receivable from or payable to SARS for VAT on 30 April 2023.
Indicate whether the amount is receivable or payable. (11)
INFORMATION:
A. Amount owed to SARS on 1 April 2023, R15 890
B. VAT transactions for April 2023:
EXCLUDING INCLUDING
DETAILS VAT AMOUNT
VAT VAT
(R)
(R) (R)
Returns by debtors 1 470
Drawings by owner 3 075
Debtors' accounts written off 8 700 10 005
Total purchases (cash and credit) 224 000
Total sales 396 750
VALUE-ADDED TAX (VAT) LONGHILL TRADERS
Calculate the amount receivable from or payable to SARS for VAT on 30 April 2023.
263
64
ACTIVITY 3 : VAT GAUTENG PRELIM 2020
EKUDIBENG TRADERS
The following information was taken from the accounting records of Ekudibeng Traders. The
financial year end is 28February 2023. All goods bought and sold are subject to 15% VAT.
REQUIRED:
Use the information below to answer the following questions.
3.1 Calculate the amounts marked (A) to (C). (7)
3.2 Calculate the VAT amount payable to/receivable from SARS on

28 February 2023. Indicate if the amount will be recorded under the current assets or
current liabilities in the Balance Sheet. (7)
3.3 Give TWO reasons for the entry of R576 on the debit side of the account. (2)
INFORMATION
A. The following General Ledger account reflects a consolidation of the VAT Input and
Output accounts:
VAT CONTROL ACCOUNT

2023 Debtors’ 2023
28 GJ 576 28 Bank CRJ 15 360
Feb Control Feb
Debtors’ Debtors’
DAJ 2 304 DJ 23 040
Control Control
Creditors’
CJ (A) Drawings GJ (C)
Control
Creditors’
Bank CPJ (B) CAJ 1 800
Control
B. Additional information:
 That total credit purchases for February 2023 amounts to R138 000 (including VAT).
 Cash purchases amount to 25% of total purchases.
 The owner withdraws trading stock with a cost price of R6 000 (excluding VAT) for
personal use. The business makes use of a 60% mark-up on cost.
264
65
ANSWER SHEET 3
3. VAT
3.1 Calculate the amounts marked (A) to (C).
Workings Answer
(A)
(B)
(C)
7
3.2 Calculate the VAT amount payable to/receivable from SARS on

28 February 2023. Indicate if the amount will be recorded under the
current assets or current liabilities in the Balance Sheet.
3.3 Give TWO reasons for the entry of R576 on the debit side of the account.
265
66
9 99165 EDH 3; : 5 :01 9
VAT ETHICS
Tax evasion and tax fraud

Tax evasion occurs when you do not pay tax that is due by you or when you use illegal
means to pay less amount of tax.
When you claim a refund that you are not entitled to or even when you assist someone
else in committing tax fraud
You commit a crime when you do incorrect recordings, or complete wrong documents on
purpose or fail to disclose all the information needed or give false information.
Fraud will include claiming false deductions, claiming personal deductions as business
deductions, failing to report income etc.
Tax evasion or fraud

will result to fines,
penalties or jail term.
Internal Control Procedures

 Check if VAT is correctly calculated using the applicable rate.
 The amount on the VAT return should be checked against the General Ledger accounts to
verify if it was correctly transferred.
 All amounts on the VAT return should be re-calculated to ensure it is correct.
 All payments to SARS must be done through electronic bank transfers, an independent
person must compare the VAT return with the request payment before the EFT is
authorised.
 Ensure that the auditing firm that handles the business’s books is well accredited and free
from corruption.
 Ensure that VAT due to SARS is paid on due dates.
 Internal auditor / owner should conduct spot checks on the calculation of VAT input and VAT
output to prevent fraud.
266
67
ACTIVITY 1 : VAT
VALUE ADDED TAX
Indicate whether the following statements are TRUE or FALSE. Write only “true” or “false”
next to the question number (1.1.1-1.1.5) in the ANSWER BOOK.
1.1 VAT returns to SARS must be submitted every two months. (1)
1.2 Petrol is an example of a zero-rated VAT item. (1)

.4
5.1
1.3 The VAT collected by a business from sales, is called output VAT. (1)
1.4 The illegal non-payment or deliberate underpayment of tax is called tax

avoidance. (1)
1.5 VAT may not be claimed on refreshments for office use. (1)
1.2 HP STORES
You are provided with information relating to HP Stores for the VAT period ended 28
February 2023. The standard VAT rate of 15% is applicable.
REQUIRED:
1.2.1 After taking into account the errors and omissions, calculate the VAT amount
that is either payable to or receivable from SARS. Indicate whether this amount
is receivable or payable. (12)
1.2.2 The internal auditor discovered that the owner used the VAT collected from
customers to pay expenses of the business. Therefore, he was unable to pay
the VAT owed to SARS on the due date.
State ONE point of concern that you would offer the owner concerning this
practice. (2)
INFORMATION:
A. Amount due to SARS on 1 February 2023, R2 850.
B. Amount from the journals on 28 February 2023:
Including VAT Excluding

VAT Amount VAT
Sales R27 830 ?
Credit purchases of stock ? 12 000
Stock returned by debtors R308
Bad debts written off R4 554 ? R3 960
267
68
C. The following errors and omissions were noted:
 VAT on discounts granted to debtors were not recorded. The VAT on discount
allowed amounted to R74.
 Stock taken by the owner at cost value, R3 200 (excluding VAT), was not yet
recorded in the books.
 VAT on sales was recorded incorrectly. Certain goods with a selling price of R5 000
(excluding VAT) should have been recorded as zero-rated items.
268
69
ANSWER SHEET 1
1.1 VALUE ADDED TAX
1.1.1
1.1.2
1.1.3
1.1.4
1.1.5 5
1.2.1 After taking into account the errors and omissions, calculate the VAT amount
that is either payable to or receivable from SARS. Indicate whether this amount
is receivable or payable.
1.2.2 The internal auditor discovered that the owner used the VAT collected from
customers to pay expenses of the business. Therefore, he was unable to pay
the VAT owed to SARS on the due date.
State ONE point of concern that you would offer the owner concerning this
practice.
269
70
ACTIVITY 2: VAT
2.1. VAT CONCEPTS
REQUIRED
Indicate if the following items are VAT Exempt or Zero Rated items. (3)
2.1.1 Public road transport

2.1.2 Vegetables
2.1.3 Residential rent
2.2 WINSTON TRADERS
The following information was taken from the accounting records of Winston Traders.
The financial year end is 28 February 2022. All goods bought and sold are subject to
15% VAT.
REQUIRED
Use the information below to answer the following questions:
2.2.1 Calculate the amount that would be entered next to Debtors Control on
the credit side of the VAT Output account. (3)
2.2.2 Calculate the VAT amount owed to SARS on 28 February 2022.

(5)
2.2.3 In which section of the Balance Sheet will you record the amount
calculated in 2.2.2? (1)
INFORMATION
A The General Ledger reflects the following accounts:
VAT Input
Creditors
Feb23 28 Bank CPJ 8 600 Feb23 28 Control CAJ 150
Creditors
Control CJ 6 000
VAT Output
Debtors
Feb23 15 Control GJ 276 Feb23 28 Bank CRJ 18 000
Debtors Debtors
28 Control DAJ 350 Control DJ ?
B Additional information:
 Total cash sales for February 2023 was R120 000 (excluding VAT). 75%
of all goods were sold for cash and the rest on credit.
270
71
2.1. VAT CONCEPTS
2.1.1
2.1.2
2.1.3 3
2.2 WINSTON TRADERS
2.2.1 Calculate the amount that would be entered next to Debtors

Control on the credit side of the VAT Output account.
2.2.2 Calculate the VAT amount owed to SARS on 28 February 2023.
2.2.3 In which section of the Balance Sheet will you record the
amount calculated in 2.2.2?
271
72
ACTIVITY 3: VAT
VAT: XEGO STORES
Xego Stores accounts for VAT every alternative month. All goods and services are subjected to VAT at
the standard rate of 15%.
REQUIRED:
Calculate the final amount payable to SARS on 31 July 2023.
INFORMATION:
INCLUDING EXCLUDING VAT
VAT VAT AMOUNT
R R R
Balance due to SARS (1 July 2021) 6 665
Cash and credit sales invoices 828 000 720 000 108 000
Purchase of trading stock 534 750 465 000 ?
Stock returned to suppliers 3 200 480
Debtors accounts written off 915
Office computer bought on credit 9 800 ?
Discount allowed to debtors 10 810 ?
ACTIVITY 3: VAT
Calculate the final amount payable to SARS on 31 July 2023.
11
272

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SECONDARY SCHOOL

Cover by: Molemo Masemula

© Gauteng Department of Education

SESSION CONTENT PAGES

5 Management of Fixed Assets 89 — 105

6 Budgeting 106 — 159

7 Inventory Valuation 160 — 182

8 Inventory Valuation — Stock Identi cation 183 — 205

9 Cost Accounting 206 — 247

10 Value Added Tax & Ethics 248 — 272

© Gauteng Department of Education

9 99165 BANK RECONCILIATION

BANK RECONCILIATION CONCEPTS AND NOTES

WHAT IS BANK RECONCILIATION?

Reasons for preparing the Bank Reconciliation

It also enables the business or individual to keep track of the following:

CONCEPTS UNIQUE TO BANK RECONCILIATION

© Gauteng Department of Education

Records of the business Records of the bank

© Gauteng Department of Education

FAVOURABLE AND UNFAVOURABLE BANK BALANCE

Business Records Bank Records

• is an asset to the business

• is a liability to the business

© Gauteng Department of Education

STEPS TO FOLLOW WHEN COMPLETING THE BANK RECONCILIATION:

Steps Action and Reconciliation

Step 3: Draw up the Bank account and balance it.

Step 4: Draw up the Bank Reconciliation Statement

NOTE THE FOLLOWING:

 Errors made by the business will be corrected in the Cash Journals

© Gauteng Department of Education

Steps Action and Reconciliation for the end of March 2021

© Gauteng Department of Education

EXAMPLE: BANK RECONCILIATION

4. Draw up the Bank Reconciliation Statement on 31 January 2021

B. Cash Payment Journal for January 2021

© Gauteng Department of Education

C. Bank Statement received from First Rand bank

Date Transaction details Debit Credit Balance

2. The Bank Statement is received on the 28 th of each month.

2. Cash Payment Journal for January 2021

© Gauteng Department of Education

Feb 1 Balance b/d 13 575

4. Bank Reconciliation Statement on 31 January 2021

5. Explain ONE reason why it is important for a business to prepare a

© Gauteng Department of Education

Cash Payment Journal for January 2021

Bank Statement (Extract)

© Gauteng Department of Education

3. The Bank Statement is received on the 25 the of each month.

Doc Day Details Bank Amount Details

CASH PAYMENT JOURNAL - JANUARY 2021 CPJ 1

Doc Day Details Bank Amount Details

© Gauteng Department of Education

1.2 GENERAL LEDGER OF CHLOE TRADERS

1.3 Prepare a Bank Reconciliation Statement for JANUARY 2021.

© Gauteng Department of Education

© Gauteng Department of Education

2.2.1 Calculate the correct Bank Account balance on 31 July 2020.