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1
SECONDARY SCHOOL IMPROVEMENT PROGRAMME
(SSIP) 2016
GRADE 12
SUBJECT:
ACCOUNTING
LEARNER NOTES
(Page 1 of 63)
© Gauteng Department of Education
2
TABLE OF CONTENTS
SESSION
TOPIC
PAGE
6
Fixed Assets
3 - 15
7
Inventory Valuation
16 -36
8
Reconciliations
37 - 56
© Gauteng Department of Education
3
SESSION 6
TOPIC: FIXED ASSETS
SECTION A:
TYPICAL EXAM QUESTIONS
QUESTION 1: FIXED ASSETS, VALUATION AND INTERNAL CONTROL
(24 marks;18 minutes)
1.1
FIXED ASSETS
You are provided with details of the fixed assets of Ulwazi Ltd. The financial year
ends on 31 March 2013.
REQUIRED:
1.1.1
Calculate the missing figures indicated by A, B and C in the Fixed Assets
Note below.
1.1.2
Prepare the Asset Disposal Account for the computer sold on 31 January
2013.
1.1.3
You are the internal auditor. State TWO concerns that you would voice in
respect of the fixed assets with the board of directors. Explain in EACH
case why you are concerned.
INFORMATION:
1.
Fixed Assets Note:
Cost
Accumulated depreciation
Carrying value (1 April 2012)
Movements:
Additions (cost)
Disposals (carrying value)
Depreciation
Carrying value (31 March 2013)
Cost
Accumulated depreciation
2.
Land and
buildings
3 000 000
(
)
3 000 000
Equipment
258 000
184 000
Vehicles
780 000
(220 000)
560 000
360 000
A
B
2 100 000
2 100 000
(
)
240 000
1 140 000
C
Unused land was sold for cash at cost to solve cash-flow problems. This
property was bought by Pedoma (Pty) Ltd. The majority shareholder in this
company is Betty Benson, the CEO's wife.
© Gauteng Department of Education
(9)
(11)
(4)
4
INFORMATION ;
3.
A computer (equipment) was sold for R800 cash to the CEO, Ben Benson,
on 31 January 2013.
FIXED ASSET REGISTER
Item:
IT3 Laptop
Cost:
R18 000
Date purchased:
1 October 2010
Rate of depreciation:
25% p.a. on cost
31 March 2011
31 March 2012
31 January 2013
E22189
DEPRECIATION
ACCUMULATED
DEPRECIATION
CARRYING VALUE
R2 250
R4 500
?
R2 250
R6 750
?
R15 750
R11 250
?
4.
A new vehicle costing R360 000 was purchased on 30 June 2012.
5.
Depreciation is written off on Vehicles at 20% p.a. on the diminishingbalance method.
1.2
MASTER LIMITED
You are provided with information relating to Master Ltd for the financial year
ended 30 June 2012.
REQUIRED:
1.2.1 Use Information 2 to complete the Note for Fixed/Tangible Assets by filling
in the missing figures indicated by an *
© Gauteng Department of Education
(17)
5
INFORMATION:
1.
Note to the Balance Sheet on 30 June 2012
FIXED/TANGIBLE ASSETS
Cost
Accumulated depreciation
Carrying value – 1 July
2011
Movements
Additions at cost
Disposal at carrying value
Depreciation
Carrying value – 30 June
2012
Cost
Accumulated depreciation
2.
LAND AND EQUIPMENT VEHICLES
BUILDINGS
930 000
561 000
814 000
0
(341 000)
(294 800)
930 000
220 000
519 200
*
0
0
1 580 000
*
0
*
*
0
*
(98 890)
*
1 580 000
0
616 000
*
*
*
Details of fixed assets
 Land and buildings were bought during the year and are not depreciated.
 New equipment was bought for R55 000 halfway through the financial year.
This transaction has been correctly recorded.
 Provide for depreciation on equipment at 10% p.a. on cost price.
 A vehicle was sold for cash at carrying value on 31 March 2012. This has
been properly recorded. The details of the asset sold from the Fixed Asset
Register were as follows:
- Cost price, R165 000
- Accumulated depreciation at beginning of financial year, R66 000
- Depreciation rate of 20% p.a. on the diminishing-balance method
 Depreciation on all the vehicles is R98 890 for the year.
QUESTION 1:
1.1
1.1.1
ANSWER SHEET
FIXED ASSETS
Calculate the missing figures indicated by A, B and C in the
Fixed Asset Note:
© Gauteng Department of Education
6
CALCULATION
ANSWER
A
B
C
1.1.2
9
LEDGER OF ULWAZI LTD
ASSET DISPOSAL ACCOUNT
11
1.1.3
You are the internal auditor. State TWO concerns that you would voice in
respect of the fixed assets with the board of directors. Explain in EACH case
why you are concerned. Reason must correspond to the concern.
CONCERN
REASON
4
© Gauteng Department of Education
7
1.2
MASTER LIMITED
1.2.1 NOTE TO THE BALANCE SHEET ON 30 JUNE 2012
FIXED/TANGIBLE ASSETS
Land and
Equipment
Buildings
Carrying value – 1 July 2011
930 000
220 000
Cost
930 000
561 000
Accumulated depreciation
0
(341 000)
Vehicles
519 200
814 000
(294 800)
Movements
0
0
0
0
Carrying value – 30 June
2012
1 580 000
Cost
1 580 000
Accumulated depreciation
SECTION B:
(98 890)
616 000
0
17
NOTES ON CONTENT
5.1
TANGIBLE ASSETS
Tangible/Fixed assets such as land and buildings, vehicles and equipment are fixed assets
with normally a high value. These fixed assets must be

These fixed assets must be used in the business to generate income

These fixed assets are purchased to use for a long period

These fixed assets are not purchased for the purpose of resale, in the normal
course of business activities.

These fixed assets must have actual physical existence
DEPRECIATION
These tangible (fixed) assets lose their value as a result of wear and tear. The loss of
the value of the asset must be brought into account at the end of the financial year as
an expense. This loss of value is known as depreciation.
© Gauteng Department of Education
8
This is done in accordance with the MATCHING CONCEPT, i.e. all expenses
relating to the accounting period must be matched with the accounting period under
review
Depreciation is an IMPUTED EXPENSE (non-cash expense). The cost of a tangible
asset (e.g. motor vehicle) must be distributed fairly over the whole life of the asset.
The methods of accounting for depreciation are:
 Fixed installment method (percentage on cost price)
 Diminishing balance method (percentage on carrying value/ book value)
The above methods were dealt with in detail in Grade 10 and 11.
REVISION OF GRADE 11: Calculation of Depreciation on cost price and carrying value
PJ SCIE TRADERS
NO.1
Asset register
Percentage Depreciation: 20 % p.a. at cost price/straight line method
Details of depreciation [purchased at the beginning of the year]
Details
Annual depreciation
Accumulat
Book value or
Calculations
ed
“Carrying value”
depreciati
on
Cost price
(80 000 – 16 000)
R80 000
80 000 x 20% x12/12= 16 000 16 000
64 000
End of first year
End of second
year
80 000 x 20% x12/12= 16 000 32 000
(80 000 – 32 000)
48 000
End of third year
80 000 x 20% x12/12= 16 000 48 000
32 000
End of fourth
year
80 000 x 20 x12/12%= 16 000 64 000
16 000
80 000 x 20% x12/12= 16 000
Cannot depreciate R16 000,
79 999
because of the scrap value of
R1.Therefore can only
depreciate R15 999
(80 000 – 79 999)
End of fifth year
© Gauteng Department of Education
R1
9
PJ SCIE TRADERS
NO.2
Asset register
Percentage Depreciation: 10 % p.a. at carrying value/ book value or called diminishing value
Details of depreciation
[purchased 6 months into the year]
Details
Annual depreciation
Accumulated
Book value or
Calculations
depreciation
“Carrying value”
Cost price R20
000
20 000 X 10% x 6/12= 1 000
1 000
19 000
End of first year
End of second
year
19 000 X 10% x12/12= 1 900
(1 000 + 1 900)
2 900
(20 000 – 2 900)
17 100
End of third year
17 100 x 10% x12/12= 1 710
4 610
15 390
End of fourth
year
15 390 x10% x12/12= 1 539
6 149
13 851
End of fifth year
13 851 x 10% x12/12- 1 385,
10
7 534,10
12 465,90
WEAR AND TEAR ALLOWANCES
Wear and tear can be calculated on a straight-line basis provided the taxpayer/business
complies with certain requirements:
 adequate records must be maintained
 the method must be applied to all assets in the same class
 The taxpayer/the business must be able to provide a detailed schedule of
assets disposed of, including date of acquisition, tax value in the previous tax
year, the price on disposal or scrapping, the final written down value of the
asset to be reflected at R1, the records must be maintained so that each
asset’s value can be established at any point in time
 The asset must be used in the business.
© Gauteng Department of Education
10
The following, amongst others, rates for wear and tear allowances are allowed by SARS:
The most common of which are:
Item
Cellular telephones
Computers (mainframe or
servers)
Computers (personal
computers)
Delivery vehicles
Fax machines
Furniture & fittings
Number Item
of
years
2
Office equipment –
mechanical
5
Office equipment – electronic
Number
of
years
5
3
3
Passenger cars
5
4
3
6
Photocopying equipment
Trucks (heavy-duty)
Trucks (other)
5
3
4
Assets costing R7 000 or less can be written off in full in the year of acquisition
The wear and tear may be claimed on either the DIMINISHING BALANCE METHOD
or on COST PRICE, in which certain requirements apply
LIFESPAN OF ASSETS
If the estimated life of an asset extends beyond the current financial year, future
financial periods will benefit from the use of the asset. Thus, the need for
depreciation arises. Depreciation is the process of systematic distribution of the
cost of the asset over its useful life
The life span of the asset cannot be determined with accuracy. It must therefore
be estimated. It may be measured in terms of time, production or service.
Factors in a business which play a part to determine the life span are:

experience with similar assets in the past

current condition of the asset

policy with regard to replacement of fixed assets
The wear and tear allowances table as provided by SARS will assist the business
to determine the life span of the asset, when the usefulness of the asset comes to
an end and what measures must be taken to dispose and/or replace the asset
concerned
AGE OF ASSETS
The age of an asset will be influenced by the recommendations from SARS. It would
be useful for the company to determine the age by looking at the rate of depreciation
by SARS. The METHOD OF DEPRECIATION will also influence the age of the asset.
However, an asset will still be useful after it has been written off.
© Gauteng Department of Education
11
For example:
SARS recommends 33, 33% depreciation rate p.a. for computers, fax machines, etc.
It means the asset has a useful life of 3 years. After 3 years the computer may still be
used, and at a profit if it is sold. The sale will be recorded as a profit on sale of asset.
REPLACEMENT RATE
This is also linked to the above explanation. It will be advisable for businesses to use
the rate of depreciation recommended by SARS as shown under 5.3. An asset
should be replaced after additional depreciation has been made for the accumulated
depreciation. This process also assists the business in the budgeting process. The
accountant will provide for the replacement in the budget over a period to cushion the
actual purchase when the replacement time falls due.
CARRYING VALUE OF ONE RAND
When Accumulated Depreciation EXCEEDS the cost of the asset, then the carrying
value must be equal to R1, 00 (One rand) e.g.
Cost
= R100 000
Accumulated depreciation at beginning
Plus Depreciation = current year
= R 98 000
= R 5 000
= Accumulated depreciation
= R103 000
= R –3 000
∴Carrying value
(Cannot be negative)

Annual depreciation must be reduced to R1 999 instead of R5 000 so that the
carrying value will be R1,00

The accumulated depreciation must be shown as R99 999.
Cost
R100 000
Accumulated depreciation
R 99 999
Carrying value (closing date)
R
1
DISPOSAL OF TANGIBLE ASSETS
Tangible assets are possessions with a relatively long lifespan, which are not
purchased for the purpose of resale.
Tangible assets, such as vehicles, equipment and buildings are purchased for use by
the business
However, the business may find that they no longer require a particular asset, e.g. an
old vehicle and may thus decide to sell the asset.
These disposals can take place at any time during the accounting period. (The
financial year).
Before disposal, proper authorisation is required for the sale of the asset.
In the case of a sole trader, the owner himself would conclude the transaction and he
has the required authority to enter into the transaction.
© Gauteng Department of Education
12
The ASSET CAN BE DISPOSED in one of the following ways:
Method of disposing
Journal
Account debited
Account
credited
On credit
General Journal
Debtors control
Asset disposal
For cash
Cash Receipts Journal
Bank
Asset disposal
Trade-in (for new asset)
General Journal
Creditors Control
Asset disposal
For personal use
General Journal
Drawings
Asset disposal
Given away as donation
General Journal
Donation
Asset disposal
This disposal can take place at

The beginning of the accounting period

The end of the accounting period

During the accounting period
THE ABOVE HAS BEEN DEALT WITH IN GRADE 11
REVISION ON GRADE 11: STEPS TO FOLLOW WHEN DISPOSING A FIXED ASSET
Steps
1
Find the cost price of fixed asset sold and move/transfer it to the Asset Disposal
account.
2
Calculate any additional depreciation on fixed asset sold
3
Move/Transfer the total depreciation on fixed asset sold to Asset Disposal
account
4
Record the selling price of fixed asset sold in the Asset Disposal account.
5
Calculate the profit or the loss on sale of fixed asset sold.
At end of year, record the depreciation of the remaining fixed assets and new assets at the
end of financial year.
© Gauteng Department of Education
13
GENERAL LEDGER
ASSET DISPOSAL (calculation)
2016
Feb
GJ
28
Vehicles
2016
100 000 Feb

GJ
Profit on
sale of
asset
31
5 000
Accumulated
depreciation on
vehicles
(20 000+5000)
GJ
25 000
Debtors control / or GJ
Bank/ or Creditors
control / Drawings/
or Donation
80 000
105 000
105 000
*This account CANNOT have a balance. The difference between the debit side and credit
side is either a profit on sale of asset or a loss on sale of asset.
SECTION C:
QUESTION 1:
HOMEWORK ACTIVITIES
EXTRACT FROM AN EXAM QUESTION
(16 MARKS: 10 MINUTES)
FIXED ASSETS / DISPOSALS
You are provided with information relating to PK Limited, a public company.
The financial year – end is on 30 June 2010.
REQUIRED:
Study the information provided and answer the questions that follow.
1.1
1.2
Prepare the Asset Disposal Account on 31 December 2009 in the General
Ledger.
Complete the Note for Fixed (Tangible) Assets on 30 June 2010.
INFORMATION:
1.
Equipment bought on 30 June 2007 for R40 000 was sold for cash on 31 December
2009 at carrying value. New equipment was purchased on 1 February 2010 for
R160 000. Depreciation on equipment is written off at 15% p.a. on cost price.
© Gauteng Department of Education
(9)
(15)
14
2.
The following totals were extracted from the financial statements on 30 June
2010:
Balance Sheet
2010
2009
Land and buildings
2 764 000
4 139 000
420 000
300 000
?
135 000
Equipment at cost
Accumulated depreciation on equipment
QUESTION 1:
ANSWER SHEET
1.1
2.
ASSET DISPOSAL
FIXED (TANGIBLE) ASSETS
Land and Buildings
Cost
Accumulated depreciation
Carrying value at beginning of year
Equipment
R
R
4 139 000
300 000
0
(135 000)
4 139 000
165 000
0
160 000
Movements
Additions at cost price
Carrying value at end of year
Cost
Accumulated depreciation
© Gauteng Department of Education
2 764 000
15
QUESTION 2:
EXTRACT FROM EXAM QUESTION
(9 MARKS: 6 MINUTES)
You are provided with the Pre-adjustment Trial Balance of Khachwee Limited
for the year ended 30 June 2011.
REQUIRED:
2.1 Prepare the Asset Disposal Account to record the sale of vehicles. See
information G and H under Adjustments below.
(9)
INFORMATION:
1.
KACHWEE LTD:
EXTRACT FROM THE PRE-ADJUSTMENT TRIAL BALANCE AS AT 30 JUNE 2011
Balance Sheet Accounts Section
Land and buildings
Vehicles
Equipment
Accumulated depreciation on vehicles
Accumulated depreciation on equipment
2.
DEBIT
R
2 097 000
814 000
616 000
CREDIT
R
294 800
341 000
ADJUSTMENTS:
A.
A vehicle was sold on credit for R90 000 on 31 December 2010. The fixedasset register revealed the following regarding this vehicle:
R
Cost price
235 000
Accumulated depreciation on 1 July 2010
105 750
This transaction has not yet been recorded by the bookkeeper.
B.
Make provision for depreciation as follows:

Vehicles at 15% p.a. on cost price

Equipment at 10% p.a. on the diminishing balance method.
NOTE: New equipment to the value of R48 000 was purchased on 1
September 2010. This has been correctly recorded.
© Gauteng Department of Education
16
QUESTION 2:
DR
ANSWER SHEET
ASSET DISPOSAL
© Gauteng Department of Education
CR
17
SESSION 7
TOPIC: INVENTORY VALUATION
SECTION A:
TYPICAL EXAM QUESTIONS
QUESTION 1:
STOCK VALIDATION
[JUNE 2015 GAUTENG ]
( 50 marks; 30 minutes)
1.1
STOCK VALIDATION METHODS
(5)
REQUIRED
1.1
Complete the following statements by writing down the correct answer on
the answer book provided.
1.1.1
When stock is valued at the end of year, all the stock on hand has been
recorded at the original cost price to determine the value of the closing
stock. This stock validation method is called ….
(1)
1.1.2
First in First out means that ………………….
(2)
1.1.3
When calculating the weighted average method you need to calculate the
average price per …….. to determine the value of the closing stock.
(1)
1.1.4
Which of the following costs DO NOT form part of the calculation of stock
validation? Carriage on purchases; carriage on sales; import duties;
custom duties; freight cost.
1.2 FIFO AND WEIGHTED AVERAGE METHODS
You are provided with information from CAELI AND MPHO Wholesalers who sells
gym weights and gym equipment to all sport clubs in Gauteng. They make use of
the periodic stock system and value their stock as follows:

Gym weights at weighted average method.

Gym Equipment at FIFO.
© Gauteng Department of Education
(1)
(45)
18
INFORMATION
1.
2.
Inventories of gym weights
Stock
Date
Opening stock
Closing stock
1 March 2014
28 February 2015
No of
units
40
50
Per unit
R250
?
Total
value
R10 000
Purchases of gym weights
During the financial year ended 28 February 2015, the following stock units were
purchased.
Date
No. of
units
100
200
120
80
500
April 2014
August 2014
November 2014
January 2015
Total unit purchased
3.
Cost price
per unit
R250
R260
R270
R280
Total
R25 000
R52 000
R32 400
R22 400
131 800
Returns on gym weights
During January 2015 the owners returned 40 weights that were ordered but not
according to the correct sizes. The suppliers accepted the returned units and
credited them according to the unit price in January 2015.
4.
Sales of gym weights
430 units sold at R800 each: R344 000 for the year.
5.
STOCK, PURCHASES AND SALES OF GYM EQUIPMENT
Details
Date
No.
of
units
Cost
price per
unit
Total
Opening stock
Total purchases
1 March 2014
20
140
R15 000
R300 000
R2 230 000
Purchases during
the year
April 2014
August 2014
November 2014
January 2015
10
30
40
60
R16 000
R17 000
R18 000
R14 000
R160 000
R510 000
R720 000
R840 000
© Gauteng Department of Education
Carriage on
purchases
Closing stock
Sales for the
financial year
QUESTION 1:
REQUIRED
1.1
April 2014 to Jan
2015
28 February 2015
1 Mar 2014–28 Feb
2015
R 2 000
65
95
?
R40 000
19
R 280 000
?
R3 800 000
ANSWER SHEET
Do the following questions on the information supplied
CONCEPTS
(5)
Match the correct description in the first column with the concept in the second
column
1.2
1.1.1
1
1.1.2
2
1.1.3
1
1.1.4
1
FIFO AND WEIGHTED AVERAGE METHODS
5
(55)
GYM WEIGHTS AT WEIGHTED AVERAGE METHOD GIMNASIUM
1.2.1
Calculate the weighted average per unit.
5
1.2.2
Calculate the value of the closing stock of the gym weights according
to the weighted average method on 28 February 2015.
3
© Gauteng Department of Education
20
1.2.3
Caeli and Mpho suspect that gym weights disappeared from their
storeroom during the last two months. Show the calculation of the
number of weights missing.
6
1.2.4
Calculate the Cost of sales at year end 28 February 2015
6
© Gauteng Department of Education
21
1.2.5
What internal control measures can Caeli and Mpho put in place to
avoid the disappearance of stock in future? Name TWO.
2
1.2.6
The business considers changing their stock validation method.
They want to do it legally and follow the correct root of changing from
weighted average to FIFO.
1.2.6.1
Why do you think do they want to change from Weighted to
FIFO? Give ONE explanation
2
1.2.6.2 Give ONE advice how to go about doing the changeover
legally
2
© Gauteng Department of Education
22
GYM EQUIPMENT AT FIFO
1.2.7
Calculate the value of the closing stock of gym equipment on 28
February 2015.
7
1.2.8
GENERAL LEDGER OF CAELI AND MPHO
Dr
TRADING ACCOUNT: GYM EQUIPMWENT (F1)
2014
Opening stock
Mar
1
2015
28
GJ
2015 28
Cr
Closing stock
GJ
Sales(net)
GJ
Feb
Purchases(net)
GJ
Feb
GJ
.........................
..
Profit and
loss(gross
profit)
GJ
7
© Gauteng Department of Education
23
1.2.9
Use the figures calculated in 5.2.8 to calculate the COST OF SALES
of the Gym equipment.
5
50
© Gauteng Department of Education
24
SECTION B:
NOTES ON CONTENT
INTRODUCTION
The proper valuation of the closing stock at the end of the financial year is very
important as it influences the financial statements, and also because the investment
in stock normally constitutes a large percentage of total assets. Millions of rand are
invested in raw materials, work-in-process and finished goods. It is therefore
important for a company to decide which method of stock valuation to use.
Stock validation is how to validate and calculate inventories at the end of the financial
year using the weighted average, FIFO or Specific identification method
In simple English, this topic is all about at what value are you going to record the
closing stock? You have bought stock during the year at different prices and now at
the end of the financial year you have to take stock and put a value to the closing
stock.
To ensure that you understand the aim of this topic, you need to revise on the
perpetual and periodic stock methods.
REVISION ON PERIODIC AND PERPETUAL STOCK METHODS
Ensure that you revise the Grade 11 work on periodic and perpetual stock methods.
The following summary can be used to refresh yourself with the two stock methods.
CALCULATION OF COST OF SALES
PERIODIC INVENTORY
PERPETUAL INVENTORY
e.g. Opening stock
10 000
Sales is R200 000
Plus Purchases (net)
(Purchases minus creditors
allowances)
( 108 000 - 8 000 )
100 000
Cost of sales is 60 % on cost
Plus Carriage on Purchases
18 000
160
Plus Custom / Import duties
12 000
Cost of Sales = R125 000
200 000 x 100 = R125 000
140 000
Less Closing Stock
( 15 000)
= COST OF SALES
125 000
CALCULATION OF GROSS PROFIT
© Gauteng Department of Education
25
Memorise the format and do activities to revise the TRADING ACCOUNT and
PURCHASES ACCOUNT before calculating the value of the closing stock using the
three stock validation methods
PERIODIC INVENTORY
PERPETUAL INVENTORY
TRADING ACCOUNT (F1)
N
+Opening
- Closing
10 000
15 000
stock
stock
+Purchases 100 000
-Sales (net)
200 000
+Carriage on 18 000
Purchases
+Custom
12 000
duties
=Profit and
loss
75 000
(gross
profit)
215 000
215 000
(closing stock +sales)- (opening stock+ purchases +
carriage on purchases + custom duties) = gross
profit
TRADING ACCOUNT (F1)
Cost of sales
125 000 Sales
Profit and loss 75 000
(gross profit)
200 000
STOCK VALUATION METHODS
There are generally 3 methods used to valuate stock. The 3 methods are
The three methods most generally used to determine cost of stock on hand at the
end of the financial period are:
First-in-first-out method (FIFO)

Weighted average method

Specific identification method
200 000
Sales(net) minus cost of sales = Gross
profit
200 000 - 125 000 = 75 000
(15 000 + 200 0000) – (10 000 + 100 000 + 18 000
+ 12 000) = 75 000

N
200 000
FIFO - FIRST IN FIRST OUT

This is the simple and easy way of doing it.

The stock that was bought first is sold first, and the stock on hand at stock
taking, will be the stock that you recently bought.

So you sell the goods in the order that you bought the stock.
© Gauteng Department of Education
26

The system can be used for any type of business

The trader that stocks products that do not have a long life (short/ limited shelf
life) will preferably use this method.

Proper packing and display is essential - “old” stock should be in the front and
“new” stock at the back.
FIFO - FIRST IN FIRST OUT
EXAMPLE 1:
INSTRUCTION
Use the FIFO method to determine the following:
1. The number of boots on hand at the end of the year.
2. Value of stock on hand at the end of the period
3. The closing stock
4. Gross profit
5. Cost of sales
INFORMATION:
Extracted from invoices, delivery notes and stock control records for 2016
Details
Purchased for the year
Sold for the year
Month
January
June
November
Quantity
120 boots
80 boots
40 boots
Price
at R120 each
at R140 each
at R160 each
168 boots
at R100 each
Stock on hand at year end
STOCK REGISTER
© Gauteng Department of Education
?
27
Date
Stock
numbe
Amount
on
r sold
hand
Quantit
y
Unit
price
120
R120
R14 400
120
NIL
0
80
R140
R11 200
48
32
R4 480
40
R160
R6 400
-
40
R6 400
R32 000
168
72
R10 880 R10 880
Jan 2016
June 2016
Nov 2016
Total
240
Total sold
168
R200
R10 880
R21 120
R12 480
Stock on hand
Closing stock:
* 120 + 80 + 40 = 240 – 168 = 72
*72
R10 800
SOLUTIONS AND CALCULATIONS:
1. Trading account to determine closing stock and gross profit
Trading account
nil Sales
32 000 Closing stock
Opening stock
Purchases
Profit and loss
(Gross profit)
33 600
10 880
12 480
44 480
44 480
2. Calculations to determine the cost of sales and gross profit
COST OF SALES
GROSS PROFIT
120 boots at R120 each
14 400
48 boots at R140 each
Cost of sales
Profit
R33 600
R32 000 – R10 880=
Cost of sales
Value
total
of
value of
unsol
unsold
d
stock
stock
Sales
33 600
6 720
Cost of sales
(21 120)
21 120
Gross Profit
© Gauteng Department of Education
12 480
28
3. Value of stock on hand at the end of the financial year.
Details
Month
Bought
January
June
November
Quantity
Price
Amount
120 boots at R120 each
80 boots at R140 each
40 boots at R160 each
14 400
11 200
6 400
Sold for the year
168 boots at R200 each
33 600
Stock on hand at year end
72 boots
Stock on hand
nil
32
40
?
72
Calculations:
Stock purchased
120 boots
bought
Stock sold
Calculation of the
value of closing
stock
0
0
120 all boots
sold
80 boots bought
48 sold
40 boots bought
0 sold
Totals
Stock not sold
168 boots sold
Value of
closing
stock
0
80-48=32 not sold
32 x R140= R4 480
R 4 480
40 boots not sold
40 x R160 = R6 400
R 6 400
72 boots not
sold
R10 880
Alternative method to do the calculations to find all the answers on stock validations
1. Trading account to determine closing stock and gross profit.
Draw the trading account with a column for the amount and units. All the questions can be
answered from using the information from the TRADING ACCOUNT.
+Opening stock
+Purchases
Jan @R120
June@R140
Nov @R160
Trading account
Rand Units
Rand
nil
-Closing stock
10 880
Nov @R160 6 400
32 000
240
14 400
120
June@R140 4 480
11 200
80
6 400
40
-Sales [168 xR200] 33 600
=Total purchased
32 000
240
© Gauteng Department of Education
Units
72
40
32
168
=C o S
=Gross
profit
29
1.
The number of boots(units) on hand at the end of the year
FIFO: first in first out
Total purchased: 240 units
2.
Total sold
:168 units
=Unsold units
: 72 units
Value of stock on hand at the end of the period. (closing stock)
FIFO: Last stock will be sold last:
72 unsold stock will be the last 40 units x R160 = R6 400
And the rest will (72 – 40 )
32 units x R160 = R4 480
R10 880
3.
Calculate of Cost of sales
Opening stock
4.
+ Purchases
- Closing stock
= Cost of sales
0
+R32 000
-
- R10 880
= R 21 120
0
+ 240 units
-
- 72 units
= 168 sold
Calculate of Gross profit
Sales
-Cost of sales
= Cost of sales
R33 600
- R 21 120
= R12 480
WEIGHTED AVERAGE METHOD

The weighted average method does not take quantities into account but
average price into account. With the receipt of goods the average cost of each
item is recalculated or calculated at the end of the financial year.
Total stock purchased divide by the number purchased. e.g. R20 000 ÷ 1600  =
12,50  . Use the R12, 50 per unit to find the value of the closing stock.

Weighted average method is used when lots of stock is bought in small
quantities.
© Gauteng Department of Education

30
The average price gives a good composite picture of the cost of the goods.
EXAMPLE
The following transactions were concluded in respect of boots bought and sold by Jonnie
Boots Traders for 20.10
INSTRUCTION:
Use the Weighted Average method to determine the following:
1
The no. of boots on hand at the end of the period
2
Value of stock on hand at the end of the period
3
The closing stock
4
Gross profit
5
Cost of sales
INFORMATION:
Extracted from invoices, delivery notes and stock control records for 2016
Details
Purchased for the year
Month
January
June
November
Sold for the year
Quantity
120 boots
80 boots
40 boots
Price
at R120 each
at R140 each
at R160 each
168 boots
at R100 each
?
Stock on hand at year end
STOCK REGISTER AND CALCULATIONS
Date
Jan 2016
June 2016
Nov 2016
Total
Average cost
price
Total sold
Cost of sales
Quantity
Unit
price
numbe
Amount
r sold
120
80
40
R120
R140
R160
R14 400
R11 200
R6 400
120
48
-
Stock
on
hand
NIL
32
40
R32 000
168
72
240
R32 000 divide by 240 units
= R133,33 per boots
168
R200
R33 600
Total purchased – closing
stock
R32 000 – R9 600=
R22 400,24
72
Value of
unsold stock
Profit
R9 600 rounded
off
R11 200
72 X R133,33 =R9 599,76
R9 600 rounded off
Sales – cost of sales =gross
profit
33 600 – 22 400 = 11 20
© Gauteng Department of Education
R11 200
Stock on
hand
Closing stock:* 120 + 80 + 40 = 240 – 168 = 72
© Gauteng Department of Education
*72
31
72 X R133,33 =R9 599,76
R9 600 rounded off
32
SOLUTIONS AND CALCULATIONS:
1. Trading account to determine closing stock and gross profit
Trading account
Opening stock
Purchases
nil
Sales
32 000
33 600
Closing stock
9 600
Profit and loss
(Gross profit)
12 480
43 200
43 200
2. Calculations to determine the cost of sales and gross profit
COST OF SALES
GROSS PROFIT
168 boots at R133,33 each
R22 399,44
Sales
33 600
Cost of sales
R22 399,44
Cost of sales
(22 400)
Rounded off
R22 400
Gross Profit
R11 200
3. Comparison between FIFO and Weighted Average
FIFO
WEIGHTED
Closing Stock value
10 880
9 600
Gross Profit
12 480
11 200
Cost of sales
21 120
22 400
© Gauteng Department of Education
33
Alternative method to do the calculations to find all the answers on stock validations
using Weighted average method.
4. Trading account to determine closing stock and gross profit.
Draw the trading account with columns for the amount and units. All the questions can be
answered from using the information from the TRADING ACCOUNT.
+Opening stock
+Purchases
Jan @R120
June@R140
Nov @R160
Rand
nil
32 000
14 400
11 200
6 400
Trading account
Units
Rand
Units
-Closing stock
9 600
72
=C o S
240
72 units x R133,33 = R9599,76 [R9 600 rounded]
120
80
40
-Sales [168 xR200]
33 600
168 =Gross
profit
=Total purchased 32 000
240
Average price: 32 000 ÷ 240 =R133,33
1.
The number of boots(units) on hand at the end of the year
Weighted average:
Total purchased: 240 units
2.
Total sold
:168 units
=Unsold units
: 72 units
Value of stock on hand at the end of the period. (closing stock)
Weighted average :
72 units x R133,33 = R9599,76 [R9 600 rounded off]
3.
Calculate of Cost of sales
Opening stock
+ Purchases
- Closing stock
= Cost of sales
0
+R32 000
-
- R9 600
= R 22 400
0
+ 240 units
-
- 72 units
= 168 sold
© Gauteng Department of Education
34
4.
Calculate of Gross profit
Sales
R33 600
-Cost of sales
- R 22 400
= Cost of sales
= R11 200
Specific Identification method

This is the simplest form of stock validation, where every item is assigned a
specific cost price.

This system is relevant when large commodities are sold and every unit has its
own cost price, e.g. vehicles, machinery, etc.

That means that this system requires that the cost price must be identified of
every commodity sold or when stocktaking is done.

Specific identification is a more manually intensive method in managing the
stock.

So every item in stock will be recorded at the specific price originally bought.
EXAMPLE:
Specific identification method of inventory valuation
You are provided with information relating to AA Car Dealers. The business uses the
specific identification method of valuing stock.
The following items are in stock at the beginning of May 2013:
Item 1
Item 2
Item 3
Item 4
Description
Audi A1 (1.2 litre engine)
Audi A3 (2.0 litre engine)
Audi A6 (1.8 litre engine)
Audi A8 (3.0 litre engine)
Cost price
R170 000
R270 000
R330 000
R580 000
Published selling price
R215 000
R324 000
R380 000
R650 000
Transaction:
Items 1 and 3 are sold for cash during May 2013 at their published selling prices.
Required:
(a) Calculate the following:
 Value of trading stock on 31 May 2013
Gross profit earned during May 2013
(b) Explain why it would be unreasonable for this business to value its stock items on the
basis of FIFO or Weighted Average
(c) Explain why it would be unreasonable for certain other businesses to use the specific
identification method e.g. a fruit shop which sells apples.
© Gauteng Department of Education
35
(d)
AA Car Dealers do not want the cost prices of stock items to be public knowledge.
What strategies could they use to keep the cost prices confidential?
SOLUTIONS
(a) Unsold
stock
Item 2
Item 4
TOTAL
(b)
Value of closing
stock
R270 000
R580 000
R850 000
Sold
stock
Item 1
Item 3
Sales
- Cost price
=Gross profit
R215 000
R380 000
R595 000
R170 000
R330 000
R500 000
R95 000
Explain why it would be unreasonable for this business to value its stock
items on the basis of FIFO or Weighted Average.
They sell discrete (separate) items (i.e. cars) that are very different from each
other in terms of price and character. It would be inappropriate to value the cars
based on the last two items bought or the weighted average because the cost
prices vary considerably. Also they sell low volumes of these large articles. This
makes it easier to identify the specific cost on each car.
(c)
Explain why it would be unreasonable for certain other businesses to use the
specific identification method e.g. a fruit shop which sells apples.
Apples comprise numerous similar articles sold at similar prices. Cost prices might
change from day to day, or from supplier to supplier, the articles would all be
placed in containers for customers to select. Difficult to apply a specific price to
any one apple.
(d)
AA Car Dealers do not want the cost prices of stock items to be public
knowledge. What strategies could they use to keep the cost prices
confidential?

Keep the cost prices in a catalogue which can be secured in the manager’s
office.
 Secret cost code e.g. a 10-letter word such as BLACKHORSE where B=1, L=2
etc.
Allocate separate product numbers to each item and record them on the computer
system together with the specific cost prices.
© Gauteng Department of Education
36
SECTION C:
HOMEWORK ACTIVITIES
QUESTION 6:
6.1
STOCK SYSTEMS
(35 marks; 20 minutes)
[2015 GAUTENG PRELIM]
JUST LEATHER
You are provided with information relating to Just Leather. The business is
owned and managed by the owner I. Skin. Skin buys and sells leather jackets and
exclusive handbags.
REQUIRED:
6.1.1
Calculate the value of the closing stock as follows:


Leather jackets (use the weighted average method)
Handbags (use the FIFO method)
(5)
(5)
6.1.2
Skin suspects that a number of handbags have been shop-lifted. Calculate
the number of bags stolen. The stock that are missing was bought on 25
June 2014
6.1.3
Calculate the following for the handbags:
 Cost of sales
 Gross profit
 Mark-up % achieved
(7)
(3)
(3)
INFORMATION:
A.
The leather jackets are bought from a South African supplier, and the
handbags are imported from the USA.
B.
The leather jackets are valued using the Weighted Average method and
the handbags are valued using the First-in First-out method (FIFO).
C.
The stocks were valued as follows at the beginning and at the end of the
financial year.
Leather jackets
1 Mar
2014
28 Feb
2015
(3)
Handbags
No. of
units
Per
unit
Exchange
rate
TOTAL
(Including
purchase
expenses)
R11.50=$1
R51 750
No. of
units
Per
unit
TOTAL
(Including
carriage)
80
R550
R44 000
100
$45
200
?
?
240
?
© Gauteng Department of Education
?
37
D.
Purchases during the financial year
Leather jackets
TOTAL
No. of
Unit
COST
units
cost
(excluding
transport)
07/03/2014 200
R560 R112 000
25/06/2014 250
R620 R155 000
02/02/2015 150
R700 R105 000
TOTALS
E.
R372 000

Unit
cost
Exchange
rate
80
220
100
$50
$50
$55
R11,00=$1
R11,50=$1
R11,90=$1
400
TOTAL COST
(excluding
purchases
expenses)
R44 000
R126 500
R65 450
R235 950
Carriage on purchases for the leather jackets was R13 000 and handbags
were imported at carriage of R20 per handbag.
Customs and import duties on handbags paid during the accounting period,
R12 000.
During the financial year, the following sales were made:
Leather jackets:
Handbags:
G.
No. of
units
Purchases expenses:

F.
600
Handbags
480 units at R1 000 each = R480 000
235 units at R900 each = R211 500
Skin has started to prepare the following information:
Sales
Cost of sales
Gross profit
Mark-up % on cost
Leather jackets
R480 000
R321 750
R158 250
49,18%
Handbags
R211 500
?
?
?
6.2 EYE SPY TRADERS
Eye Spy Traders sells one type of camera. The owner, Mrs. I. Watch, has three
branches situated in Soweto, Kagiso and Hillbrow. The three branches are managed
by Thembi, Diane and Karabo respectively.
Mrs I. Watch has obtained the annual figures/amounts from the three branches for
the financial period ending 28 February 2015.
REQUIRED:
Identify ONE problem in relation to each branch, quoting figures/amounts to support
each problem. In each case, offer the owner advice on how to solve the problem.
Note: All cameras are sold for cash.
© Gauteng Department of Education
(9)
38
INFORMATION
SOWETO
(Thembi)
CAMERAS
KAGISO
(Diane)
HILLBROW
(Karabo)
Cameras available for sale
1 960
1 600
1 160
Cameras sold during the year
1 560
300
1 000
20
20
0
340
1 280
160
R18 720 000
R3 600 000
R11 360 000
R8 000
R8 000
R8 000
Selling price per camera
R12 000
R12 000
R12 000
Advertising costs per year
R40 000
R40 000
R40 000
Salary of manager per month
R25 000
R25 000
R25 000
Cameras returned during the year
Stock on 28 February 2015
Total cash sales
Cost price per camera
35
QUESTION 6:
6.1.1
ANSWER SHEET
Calculate the stock values that will appear in the Balance Sheet. Show
all workings using the number of units and the appropriate unit value.
Leather jackets (use the weighted average method)
5
Handbags (use the FIFO method)
© Gauteng Department of Education
39
5
6.1.2
Skin suspects that a number of handbags have been shop-lifted.
Calculate the number of bags stolen.
3
6.1.3
Calculate the following for the handbags:
Cost of sales





COST OF SALES

7
© Gauteng Department of Education
40
Gross profit
3
Mark-up % achieved
3
6.2
Identify ONE problem in relation to each branch, quoting
figures/amounts to support the problem. In each case, offer the owner
advice on how to solve the problem.
Branch
Comment and figures
Advice
Soweto
Thembi
Kagiso
Diane
9
© Gauteng Department of Education
41
Hillbrow
Karabo
35
© Gauteng Department of Education
42
SESSION 8
TOPIC: RECONCILIATIONS
IMPORTANT CONCEPTS TO CONCENTRATE ON:
Ensure that you take note of the following as part of revision previously learnt in Gr. 11
Bank Reconciliation
Creditors Reconciliation
Debtors reconciliation
Bank Statement
Bank reconciliation
statement
Cash journals
Bank charges
Stop orders/ debit orders
Internet payments
Overcast/ under cast
Creditors Control account
Creditors List
Debtors Control account
Debtors List
Creditors Statement
Source documents:
Payments: cheques
Purchases: invoices
Returns: debit notes
Source documents:
Receive money: receipts
Sell on credit; invoices
Returns: credit notes
Analysis and interpretations of accounts
Analysis and interpretations of statements
SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1:
RECONCILIATIONS
DEBTORS RECONCILIATION
1.1
[NOV 2013 ]
( 17 marks; 12 minutes)
DEBTORS' RECONCILIATION
You are the internal auditor of Rose's Boutique. The Debtors' Control account and
the Debtors' List for September 2013 were prepared by the bookkeeper, but there
are some errors and omissions.
REQUIRED:
1.1.1 Indicate the corrections that must be made to the Debtors' Control account in
the General Ledger by showing the amounts with:
+ for increase; – for decrease OR write 'no change'.
(7)
1.1.2 Prepare the correct Debtors' List on 30 September 2013.
Show workings with the relevant amounts in brackets to earn part-marks.
© Gauteng Department of Education
(10)
43
INFORMATION
1
Pre-adjustment figures on 30 September 2013
Debtors' Control account balance
Debtors' List total from Debtors' Ledger
2.
Debtors' List on 30 September 2013
Debit
3 800
7 400
T Stoffels
E Khune
S Mashele
M Devnarain
3.
R
20 100
19 900
Credit
1 900
10 600
21 800
1 900
Errors and omissions:
A
The total of the Debtors' Journal was overcast by R1 800.
B
Interest of R200 must be charged on the overdue account of E Khune.
C
An amount of R3 200 received from T Stoffels was incorrectly
recorded as R2 300 in the Cash Receipts Journal and posted
accordingly to the Debtors' Ledger and the General Ledger.
D
Merchandise returned by M Devnarain, R800, was posted to the
wrong side of his account in the Debtors' Ledger.
E
No entry was made for an invoice issued to S Mashele, R1 400.
17
© Gauteng Department of Education
44
QUESTION 1:
1.3
ANSWER SHEET
DEBTORS' RECONCILIATION
1.3.1 CORRECTIONS TO THE DEBTORS' CONTROL ACCOUNT
Current Debtors' Control Account balance
20 100

Correct Debtors' Control Account balance
1.3.2
7
DEBTORS' LIST ON 30 SEPTEMBER 2013
T Stoffels
E Khune
S Mashele
M Devnarain

Correct total of Debtors' List
QUESTION 2:
10
RECONCILIATIONS
RECONCILIATION AND DEBTORS' AGE ANALYSIS
(30 marks; 20 minutes)
[NOV 2012]
2.1 REQUIRED:
Complete the following sentences in your own words:


It is important to prepare a Bank Reconciliation Statement each month
because …
It is important to prepare a Debtors' Age Analysis each month because …
2.2 You are provided with information relating to Cravenby Traders.
© Gauteng Department of Education
(2)
(2)
45
REQUIRED:
2.2.1 Refer to Information B. The bookkeeper has decided to write off the
amount of R40 000.
 Which GAAP principle will the bookkeeper apply in this case? Briefly
explain this principle.
 The bookkeeper wants to prevent a problem such as this in future.
Give TWO solutions to improve internal control in this regard.
2.2.2 Prepare the BANK RECONCILIATION STATEMENT on 31 May 2012.
INFORMATION:
A
The following balances were identified in the books of the business and
the Bank Statements:
Bank account in Ledger
Bank Statement
2.3
30 APRIL 2012
R12 720
R24 700
31 MAY 2012
?
R19 310 (overdraft)
B
Items appearing in the Bank Reconciliation Statement on 30 April 2012:
 A deposit of R40 000, dated 2 April 2012, does not appear on any
Bank Statement. This money cannot be traced and the cashier has
disappeared.
 Cheque No. 962, for R2 340, dated 10 April 2012, appeared on the
Bank Statement on 2 May 2012.
 Cheque No. 967, for R4 790, dated 20 April 2012, has still not been
presented at the bank by the payee, S Smit.
C
The Bank Statement for May reflected bank charges, R1 850 and
interest on an overdraft, R920.
D
Items appearing in the Cash Journals but not in the Bank Statement:
 Cheque No. 1122 for R4 650, dated 18 May 2012
 Cheque No. 1129 for R8 540, dated 25 August 2012
 A deposit of R11 550, dated 31 May 2012
E
The bank overcharged on the bank charges for May by R960. The bank
has agreed to correct the error during June 2012.
You are provided with the DEBTORS' AGE ANALYSIS of Cravenby
Traders on 31 May 2012
INFORMATION:
© Gauteng Department of Education
(3)
(4)
(13)
46
REQUIRED:
Identify TWO different problems shown by the Age Analysis and quote
evidence from the question to support your answer. In each case suggest an
internal control measure to correct the problem
(6)
DEBTORS' AGE ANALYSIS ON 31 MAY 2012
C Credit Policy:
 Debtors will be given 30 days in which to settle their debts.
NAME
CREDIT LIMIT
J Arrakal
P Fakude
J Martin
H Howard
P Pomani
R5 000
R3 500
R1 500
R1 500
R2 000
TOTAL
CURRENT 30 DAYS
MONTH
R2 100
R1 000
R500
R4 200
R1 200
R2 004
R704
R1 500
R700
R700
R10 504
R1 700 R2 404
100%
16%
23%
60 DAYS 60 DAYS+
R600
R1 800 R1 200
R1 300
R1 000 R500
R4 700 R1 700
45%
16%
30
QUESTION 2:
2.1
ANSWER SHEET
Complete the following sentences in your own words:
It is important to prepare a Bank Reconciliation Statement each month
because
It is important to prepare a Debtors' Age Analysis each month because
4
© Gauteng Department of Education
47
2.2 2.2.1
Which GAAP principle will the bookkeeper apply when writing off
the amount of R40 000? Briefly explain this principle.
3
The bookkeeper wants to prevent a problem such as this in future.
Give TWO solutions to improve internal control in this regard.
4
© Gauteng Department of Education
48
2.2.2
BANK RECONCILIATION STATEMENT ON 31 MAY 2012
13
2.3
Internal control measure to
correct each problem
Problem 1
Identification of TWO different
problems, with evidence from the
question
6
© Gauteng Department of Education
Problem 2
49
30
SECTION B:
NOTES ON CONTENT
BANK RECONCILIATION
In the business world, control of cash is facilitated by depositing cash sales and other
receipts intact into the current bank account and ensuring that all payments are made by
cheque. This makes it easy to verify the balance on the bank statement (an external
document) with the bank account, (internal record)
Regular checking of accounting entries is essential to ensure that records are accurate.
The reconciliation procedure can be summarized as follows:

All deposits and cheque payments are checked manually against the bank
statement.
 The bank columns of the CRJ and CPJ (our records) should therefore correspond
with the columns in the bank statement (bank’s records)
Note the following two viewpoints. The business regards each transaction from its own
point of view, while the bank regards it from an opposite point of view: these two
viewpoints represent a debtor-creditor relationship. This can be illustrated by studying
the following examples
OUR RECORDS
 We have money with the bank.
(favourable) – debit balance
 Bank is an Asset in our records
 If we owe the bank money
(overdraft) – liability
 Deposits (into the bank account) are
debits – they increase assets
 Cheque payments decrease our
assets- (credit entry)
BANK RECORDS (financial institution)
 The bank owes us the money – credit
balance.
 Our Bank account is a Liability in the banks’
records
 If we are in overdraft, we are debtors to the
bank – asset
 Deposits are credited because they
increase the banks’ liability
 Cheque payments decrease the banks
liability – (debit entry)
© Gauteng Department of Education
50
My books/ B Cool
Dr.
Bank account
Cr.
1. + 1 000
2
-200
CONCLUSION:
My books
1. The Bank account in the books of the
business increases on the DEBIT SIDE.
2. Payments by cheque, decreases the
balance on the CREDIT SIDE
Books of the Bank
Dr.
B Cool’s account
Cr.
+ 1 000
-200
Books of the Bank
The Bank records the entry on the credit
side of the business’ Bank Statement as an
increase. Therefore the bank statement
increases on the CREDIT SIDE
The Bank records the entry on the debit
side, therefore the bank statement
decreases on the DEBIT SIDE
From the above we can see clearly that the business’s entries and the bank’s entries
are mirror images of each other.
It is necessary for us to compare these separate records to ensure that errors or
omissions (either by the business or the bank may be corrected).
DIFFERENCES IN BALANCE BETWEEN THE BANK ACCOUNT AND BANK
STATEMENT
The difference between the balance of the bank account and the bank statement is
caused by the following items:
1
Bank charges:
Service fees.
Cash deposit fee:
Deposit books.
Duty
Commission (levy) on credit card sales
These five items constitute bank charges. They appear separately on the bank
statement. The business can identify these charges only upon receipt of the bank
statement. As soon as the business receives its bank statement, the different bank
charges are added together and entered as one amount in the Bank column of the
CPJ as Bank Charges’. A Bank Charges account is also opened in the General
Ledger and this account is debited with the total of the bank charges. The source
document for this transaction is the bank statement.
2
3
4
5
6
7
8
Interest on an overdraft
Deposits outstanding
Cheques not presented for payment
Dishonoured cheques
Stop orders and debit orders
Direct bank deposits made by debtors/tenants
Interest on a current account
© Gauteng Department of Education
51
9
10
Errors / under cast or overcast
Internet/telephone and cell phone banking
PROCEDURE IN RECONCILING THE BANK STATEMENT AND THE CASH
JOURNALS (CRJ AND CPJ)
Before the CRJ and CPJ are closed off, entries in these journals must be compared with
entries on the bank statement for that month. The following procedure should be adopted for
the process of reconciliation.
1 Credit entries (credit column) in the bank statement must be compared with the entries in
the bank column of the CRJ. Tick off or mark the entries that appear in both.
2
3
4
5
Debit entries (debit column) in the bank statement must be compared with the entries in
the bank column of the CPJ. Tick off or mark entries that appear in both.
The unmarked entries in the bank statement reflect transactions that have not yet been
recorded in the Cash Journals. These must now be recorded in the CRJ and CPJ.
All unmarked items in the debit column of the bank statement must be recorded in the
CPJ. Examples of such transactions are bank charges, dishonoured cheques and
stop orders.
All unmarked items in the credit column of the bank statement must be recorded in the
CRJ. An example of such a transaction is a direct deposit by a debtor.
Now cast and cross-cast the Cash Journals and post the totals to the Bank account in
the Ledger. Balance this account.
The unmarked entries in the Cash Journals are used to draw up a Reconciliation
Statement.
A Reconciliation Statement is a calculation that proves that although the balances of the bank
statement and the bank account differ, they are nevertheless in agreement. They must reconcile.
Summary of all the possible differences between the Bank statement and the Cash Journals. Revise
all the differences learnt in grade 11 so that proper analysis and interpretations can be achieved that
is part of the Grade 12 curriculum.
Possible differences
CASH RECEIPTS JOURNAL - MAY
Doc no Details
Bank R Details
1 The ABSA Bank charged the following:
Tax levy
R10
Total
Service
fees
R20
b/d
Cash deposit fee R30
BS 2 ABSA
50
50 Interest on current
Interest
R40
acc.
BS 3 E Baloyi
800 800 Rent Income
2 The bank statement showed interest received
on current account, R50
120 10 Shezi Stat (cancel
100 100 Stationery
3 A tenant, E Baloyi, paid his rent directly into the
stale cheque issued)
bank account, R800.
255 12a PNA(cancel lost
500 500 Printing
4 The bank statement showed a stop order,
cheque issued)
R367, in favour of Santam for a payment on an
insurance premium.
© Gauteng Department of Education
244 14 Investec(overstated258 – 250=8)
8
8
Rent Expense
5
6
CASH PAYMENTS JOURNAL -MAY
Doc
Bank
Details
7
R
Details
Total b/d
8
BS
1
ABSA(10+20+30)
60
60
Bank charges
BS
1
ABSA
40
40
Interest on
overdraft
9
BS
4
SANTAM
367
367
Insurance
10
BS
BS
7
8
P Pillay (RD)
P Nyathi (RD)
170
157
170
157
Debtors Control
Rent Income
11
BS
11 J Nel ((RD)
160
160
Debtors Control
365
12 PNA
b
500
500 Printing
253
13 Makro
(understated
664-646=18)
18
18
Trading Stock
52
The following cheques do not appear on the
bank statement no. 67, R200 and no. 69, R300.
The deposit made on the last day of month
does not appear on the bank statement,
R9000
Unpaid cheque, R170 – this cheque was
received from P Pillay in settlement of his
account of R183 and deposited on 24 May
2002. It was dishonoured because of
Unpaid cheque, R157 – this cheque was
received from a tenant, B Bud and
deposited inadvertently on 21 May 2014 It
was dishonoured because it was dated21 July
2014
The business issued a post-dated cheque no.
303 to a Factory to secure the popular stock to
be delivered, R6 000. Dated 25 July
Cheque no 120 was issued to Shezi Stat on
20 November 2013 for Stationery, R100.
Unpaid cheque, R160 – this cheque was
received from a debtor, J. Nel and deposited
12inadvertently on 25 May 201314. It was
dishonoured beca14use it was dated 25 May
2013 15.
12 Cheque 16no. 255, R500 was lost by PNA and
they asked for a new cheque. Cheque no 255
to be cancelled and replaced by
Cheque 365
The cheque was a payment for Printing made
a. cancel lost cheque in CRJ
BANK RECONCILIATION
STATEMENT- MAY
6
Dr or Cr Balance as per bank
statement
Credit late deposit
5
Debit Outstanding Cheques
No. 67
No. 69
DR
CR
b. issue new cheque in CPJ
unfavourable favourable
c. Record new cheque as “debit outstanding
cheque” in the BRS.
9 000 13 Cheque no 253 on Bank Statement showed
and amount of R664, while the amount in the
CPJ was R646. It was a payment
to Makro for goods.
14 Cheque no 244 on Bank Statement showed
and amount of R250, while the amount in the
CPJ was R258.
300
It was a payment to Investec for rent
© Gauteng Department of Education
5
6
9
53
15 Cheque no.2 230, R1500, on the Bank
Statement was a cheque drawn by another
client, ZITHA Stores, debited to
our account
No. 303 (post-dated)
No. 365 (new cheque)
12c
15 Credit cheque wrongly debited
16 Debit deposit wrongly credited
1 500
2 000
16 The deposit on the 15 May 2014, R2000,
showed on the Bank Statement was a deposit
made by the owner into
Dr or Credit balance as per Bank favourable unfavourable
his own bank account and the Bank has
account
erroneously recorded the deposit in his
business’ Bank account
TOTAL
TOTAL
CREDITORS RECONCILIATION
RECONCILIATION OF CREDITORS ACCOUNT WITH STATEMENT OF ACCOUNT
At the end of each month a statement is received from creditors. The statement shows the
transactions that have taken place during the month. This statement must be compared
to the creditors ledger account to ensure that the details of all invoices and other
transactions reflected on it are correct before payment can be made
Procedure to follow:
Compare the monthly statement against the creditors ledger account in the Creditors
Ledger.
The debit column of the statement is compared to the credit side of the ledger account
and the credit column on the statement is compared with the debit side of the ledger
account.
If there are any errors or omissions in the books of the business receiving the statement,
they must be corrected. (It is important to verify the entry before recording)
If the creditor made any errors (arithmetical, omissions), the business receiving the
statement must notify the creditor so that the necessary corrections can be made by the
creditor. The business can arrive at the correct balance by preparing a Creditors
Reconciliation Statement
Ensure that you are aware that in the books of the creditor you are a debtor. So when you
interpret the statement received form the Creditor, you read it as if you read a Debtors
control account. In that way this section becomes very easy. Look and see that every
debit entry in your books, the creditor will credit the transaction. So, know the FORMAT of
both the CONTROL ACCOUNTS and know the SOURCE DOCUMENTS
Remember the source documents will not be the same used by the debtor and the
© Gauteng Department of Education
54
creditor. The one receives and the other one issues.
Differences that can arise:

The creditor may have prepared the statement on a different date from the date on
which the business receiving the statement.

Invoices omitted/entered incorrectly

Credit/Debit notes omitted/ entered incorrectly

Entries recorded on the wrong side
(need to double the amount on the right side)
Ensure that you know the procedure of Tick off (√) all the entries that agree in the
Creditors Ledger and the Creditors statement and circle those entries that only
appear in Creditors ledger or that only appear on the Creditor’s statement.
CREDITORS RECONCILIATION WITH STATEMENT OF ACCOUNT
Summary of all the possible differences between the Creditors list/ Creditors ledger account and the Statement of
account from the Creditor. Revise all the differences learnt in grade 11 so that proper analysis and interpretations can be
achieved that forms part of the Grade 12 curriculum.
Statement of account from Mpho Wholesalers:
Possible differences
Debtor: MapulaTraders
Date no Details
Debit + Credit - Balance 1 Errors: over cast or under cast
Balance
2 000
Invoice 125 of R1500 was recorded incorrect by
√
Invoice 125
1 500
3 500
Mapula Traders as R1 000
√
Receipt 60
x
√
√
x
Invoice 180
Credit note 33
Receipt 71
Invoice 199
1 600
1 900
400
500
800
3 900
3 500
3 000
2 200
2 000
2 Incorrect client
Invoice 180 for R2 000 was not for Mapula Traders
but for Mapule Stores
3 Recorded on the credit side instead of debit side,
or the other way around
Invoice 199 of R800 on the Statement was recorded
The reconciliation statement is a
on the credit column instead of the debit column
continuation of the statement
4 Disagreements
received from the creditor
Mpho wholesaler did not allow the discount of R100
Creditors Ledger account in CL of Mapula Traders
Because they did not receive the payment within 14
Creditor: Mpho Wholesalers
days as agreed. Cancel the discount.
Date
Debit
Credit Balance 5 Late/outstanding transactions:
Details
-
x
√
√
√
Balance
Invoice 125
Cheque 100
Debit note 16
Cheque 120
+
1 000
1 600
400
500
2 000
Invoice 210 and Receipt 144 will only appear on the.
3 000
following statement for June
1 400
1 000
ADVICE:
500 a
© Gauteng Department of Education
55
x
Cheque 120
(discount)
√
?
Invoice 199
Invoice 210
?
Cheque 144
100
400
800
2500
1 500
1 Correction
4
500
Invoice 125
(15001000=500)
Cancel the
discount
(100
CREDITORS RECONCILIATION
STATEMENT- MAY
2
3
5
5
=
=
DR
+
Balance on 31 May 2016 (dr.)
Incorrect client: cancel Invoice
180
2 800
1600
2 500
(1 500)
√ (same)
√
+Sales
DJ
-Debtors allow DAJ (credit
(invoice)
note)
+Bank(RD) CPJ
-Cancel discount GJ
+Charged interest G J
Closing balance on the statement of
account from Mpho Wholesalers
CR
-
2 200
(2 000)
Correction: Invoice
199[800+800]
Outstanding Invoice 210
Outstanding payment cheque
144
New Balance of recon
statement
Balance of the creditors
account
Make sure that you know the Debtors control
account and the Creditors control account to
establish which side to correct.
1 200 b. Know the source documents involved between
them:
3 700
Payments: cheque versa receipts
Returns: debit notes versa credit notes
2 200 c Statement of account is like the Debtors Control
account, increase on the debit side and decrease
on the credit side
DR + DEBTORS CONTROL ACCOUNT - CR
2 700
Balance b/d
-Bank and discount CRJ
(receipt)
d. Creditors ledger account in Creditors Ledger/ or
Creditors List is
the same as the Creditors Control account
DR - CREDITORS CONTROL ACCOUNT + CR
-Bank and discount
+Balance b/d
CPJ(cheque)
-Sundry allow CAJ (debit
note)
-Cancel discount GJ
2 800
2 800
© Gauteng Department of Education
+Purchases CJ
(invoice)
+ interest charged GJ
56
RECONCILIATION OF DEBTORS
Debtors represent amounts owing to the business. The collection of amounts due must be
evaluated. The recoverability weakens as debtor’s age.
The credit policy must be strictly adhered to and the management must keep an eye on
aging debtors’ accounts and thus avoid possible losses (bad debts). Analysis of every
debtor must be done by way of ageing debtors must be done regularly.
AGE ANALYSIS OF DEBTORS
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 takes action 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 despatched 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
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 minimise debts to be written off.
© Gauteng Department of Education
57
Prepare an ageing-schedule in the following format for the accounts given below.
The terms offered to customers are 30 days.
DEBTORS
A.Ash
P.Pine
C.Crabtree
D.Daniel
E.Edgar
% Total
UZI TRADERS
DEBTORS AGE ANALYSIS AT 31 DECEMBER 2014
Period in arrear
Amount Due
Current
1 month 2 month
3 month
R2 000
R1 000
R500
R500
R3 600
R1 800
R500
R500
R800
R3 000
R1 500
R500
R500
R500
R2 500
R1 250
R500
R500
R250
R1 000
R12 100
R5 550 R2 000 R2 000
R1 550
100%
46%
17%
17%
13%
+90 days
R1 000
R1 000
7%
The CREDIT CONTROL DEPARTMENT can make use of the above information to:

Sent out statements

Charge interest on outstanding accounts

Determine bad debts

Determine provision for bad debts

Encourage debtors to pay accounts
promptly and offer discounts
SECTION C:
QUESTION 6:
HOMEWORK
RECONCILIATIONS
(20 marks; 12 minutes)
[JUNE 2015]
BANK RECONCILIATION
The following information was extracted from the accounting records of RETIEF AND
RAVY STORES on 28 February 2015. Their financial year ends on 28 February 2015.
RETIEF AND RAVY STORES have their current banking account at CAPITIK Bank
REQUIRED:
6.1.
Study TABLE A and TABLE B. Match the entry in TABLE A with the explanation
in TABLE B.
© Gauteng Department of Education
58
INFORMATION:
1.
TABLE A
BANK RECONCILIATION STATEMENT AS AT 28 FEBRUARY 2015
No
A
B
C
D
E
F
G
H
I
J
K
ENTRY
Debit
Debit Balance as per Bank Statement
Outstanding deposit – 28 Feb 2015
Outstanding deposit – 10 Feb 2015
Outstanding cheques
No. 20 ( 10 August 2014)
No. 200 (6 January 2015)
No. 291 (21 February 2015)
No. 200 ( 4 June 2015)
Amount wrongly credited
Amount wrongly debited
Cancel bank charges wrongly debited
Debit Balance as per Bank account
4 000
15 000
9 500
2 000
3 000
1 000
7 000
5 000
2 500
500
5 500
27500
2.
Credit
27 500
TABLE B
No.
TREATMENT OR EXPLANATION
6.1.1
This balance indicates a favourable balance.
(2)
6.1.2
This balance indicates an unfavourable balance.
(2)
6.1.3
CAPITIK Bank recorded another client’s deposit in the account of RETIEF (2)
AND RAVY STORES in error.
6.1.4
This cheque appeared in the CPJ for January 2015 and not yet presented
for payment.
(2)
6.1.5
The auditor could be concerned about this entry and could expect fraud or
possible rolling of cash.
(2)
6.1.6
This entry indicates a stale cheque and should be cancelled in the CRJ and (2)
should not be recorded in the Bank reconciliation statement for February
2015.
6.1.7
RETIEF AND RAVY STORES was charged with cost in error and will (2)
be reversed by CAPITIK Bank.
6.1.8
This amount will be recorded in the financial statements where the (2)
amount will be added to Trade Creditors and to the Bank amount.
6.1.9
CAPITIK Bank recorded another client’s cheque in the account of (2)
RETIEF AND RAVY STORES in error.
6.1.10
This cheque was recorded in the CPJ for February 2015 but does not (2)
appear in the Bank statement received from CAPITIK Bank.
© Gauteng Department of Education
59
QUESTION 6:
6.1
ANSWER SHEET
Match TABLE A with TABLE B and record next to 6.1.1 - 6.1.10 only the letters
A to K
6.1.1
(2)
6.1.2
(2)
6.1.3
(2)
6.1.4
(2)
6.1.5
(2)
6.1.6
(2)
6.1.7
(2)
6.1.8
(2)
6.1.9
(2)
6.1.10
(2)
© Gauteng Department of Education
60
QUESTION 2:
RECONCILIATIONS
(35 marks; 20 minutes)
[NOV 2011]
2.1 BANK RECONCILIATION
You are provided with information relating to Ace Traders for
2011.
September
REQUIRED:
2.1.1 Indicate whether the following statements are TRUE or FALSE:
(a) An internal auditor will want to inspect the Bank Reconciliation
Statement at the end of each month.
(2)
(b) A debit balance on the Bank Statement reflects an unfavourable
balance.
(2)
(c) Service fees and interest on an overdraft will be recorded as Bank
Charges in the Cash Payments Journal.
(2)
(d) A post-dated cheque issued by Ace Traders in
September
2011, but dated February 2012, will only be entered in the Cash
Payments Journal of Ace Traders in February 2012.
(2)
2.1.2 Calculate the correct bank balance of Ace Traders on 30 September
2011, using figures that should be entered in the Cash Journals. Show
ALL workings.
(5)
2.1.3 Use the information below to prepare the Bank Reconciliation Statement
of Ace Traders on 30 September 2011.
(7)
2.1.4 Refer to the outstanding deposit of R43 000, dated
11 September
2011. Why should the internal auditor be concerned? State TWO points.
(4)
INFORMATION ON 30 SEPTEMBER 2011:

Balances prior to doing the bank reconciliation:
Balance of the Bank Account in the Ledger on
30 September 2011
Balance per Bank Statement on 30 September
2011
Difference
© Gauteng Department of Education
R60 000
Favourable
R17 600
R42 400
Favourable
61

Individual differences noticed between the books of Ace Traders and the Bank
Statement for September 2011:
DETAILS
1.
Cheque No. 657, dated 2 March 2011, still not reflected in Bank
Statement
2.
Deposit, dated 11 September 2011, not reflected in Bank
Statement
3.
Dishonoured cheque, originally received from a debtor on
15 September 2011, reflected in Bank Statement but not in
Journals
4.
Cheque No. 931, dated 18 September 2011, not reflected in
Bank Statement
5.
Cheque No. 936, dated 30 October 2011, not reflected in Bank
Statement
6.
7.
2.2
Deposit, dated 28 September 2011, not reflected in Bank
Statement
Bank charges in Bank Statement, but not in Journals
AMOUNT
R2 000
R43 000
R9 500
R4 800
R10 200
R5 700
R1 200
CREDITORS' RECONCILIATION
A statement received from a creditor, Kairo Suppliers, on 28 February 2011,
reflects that Ace Traders owes them R11 390. According to Ace Traders, the
amount outstanding is only R7 910.
REQUIRED:
Use the table in the ANSWER BOOK to indicate the differences that were
discovered when comparing the account in the Creditors' Ledger with the
statement received from Kairo Suppliers.
Write only the amounts in the appropriate column and a plus (+) or minus (-) sign
to indicate an increase or decrease in the balance. Calculate the correct
balance/total at the end.
INFORMATION:
On investigation, it was found that:
1.
A cheque for R3 000 issued by Ace Traders has not yet been recorded
in the statement received from Kairo Suppliers.
© Gauteng Department of Education
(11)
62
2.
The cheque in settlement of the January account was not received by
Kairo Suppliers within 7 days; therefore the discount of R500 recorded
by Ace Traders in the Creditors' Ledger must be cancelled.
3.
Returns recorded as R810 in the Creditors' Ledger of Ace Traders were
recorded as R900 in the statement received from Kairo Suppliers. Ace
Traders had miscalculated the cost of goods returned.
4.
An invoice received from Kairo Suppliers was correctly recorded as
R7 700 by Ace Traders. However, in the statement received from Kairo
Suppliers it was incorrectly recorded as R770.
5.
An invoice for R3 500 received from Kairo Suppliers was incorrectly
recorded as a credit note by Ace Traders.
35
QUESTION 2:
ANSWER SHEET
2.1.1 Indicate whether the statements are TRUE or FALSE.
(a)
(b)
(c)
(d)
8
2.1.2 Calculate the correct bank balance of Ace Traders on 30 September
2011.
Balance prior to doing the bank reconciliation
R60 000
Correct balance on 30 September 2011
5
© Gauteng Department of Education
63
2.1.3
BANK RECONCILIATION STATEMENT ON 30 SEPTEMBER 2011
7
2.1.4 Refer to the outstanding deposit of R43 000, dated
11 September 2011. Why should the internal auditor be concerned?
State TWO points.
4
© Gauteng Department of Education
64
2.2
Use the table to indicate the differences that were discovered when
comparing the account in the Creditors' Ledger with the statement
received from Kairo Suppliers.
Write only the amounts in the appropriate column and a plus (+) or
minus (-) sign to indicate an increase or decrease in the balance.
Calculate the correct balance/total at the end.
Balance
Creditors' Ledger of
Ace Traders
Statement from
Kairo Suppliers
R7 910
R11 390
1
2
3
4
5
Balance/Total
11
35
© Gauteng Department of Education