NATIONAL SENIOR CERTIFICATE EXAMINATION

NOVEMBER 2020

ACCOUNTING: PAPER II

MARKING GUIDELINES

Time: 2 hours 100 marks

These marking guidelines are prepared for use by examiners and sub-examiners,
all of whom are required to attend a standardisation meeting to ensure that the
guidelines are consistently interpreted and applied in the marking of candidates'
scripts.

The IEB will not enter into any discussions or correspondence about any marking
guidelines. It is acknowledged that there may be different views about some
matters of emphasis or detail in the guidelines. It is also recognised that, without
the benefit of attendance at a standardisation meeting, there may be different
interpretations of the application of the marking guidelines.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 2 of 11

QUESTION 1 CASH BUDGETS (31 Minutes)

1.1 Complete the debtors' collection schedule for January to February 2021.

Credit sales January February

131 040 × 100/104 Nov × 15%
November 126 000 18 900 
December 131 040 32 760 19 656
122 700 × 25%
January 122 700 69 939 30 675
February 108 100 61 617
Do not calculate Do not calculate

1.2 Calculate the percentage discount given to the debtors who pay in the month
of sale.

100 – 25 – 15 = 60%
122 700 × 60% = 73 620
73 620 – 69 939 = 3 681
3 681 ÷ 73 620 × 100 = 5%

1.3 Timeless Read uses the perpetual stock method. Discuss two reasons why
this is the best method for a bookshop to use.

• Books are printed with bar codes on them so it is very easy to scan them
and keep a perpetual record.
• Keeping track of what is sold is good to be able to know the popular items
and order more of those. Do not order items that do not sell.
• Keeping track means with stock takes one can see how much and what
is missing – so what has been stolen – and put controls in place.

1.4 One of the biggest expenses is the trading stock deficit due to 80% of the
self-help books being stolen. Discuss one detailed solution that Lwandi can
implement to stop this theft. Remember that Timeless Read's cash is tight,
so the cheaper the solution, the better.

1 Mark 2 Marks 3 Marks

Very partial solution that Fairly inexpensive Fairly inexpensive
will not solve the theft solution that partly solves solution that will (mainly)
problem. the problem. solve the theft problem.
OR
An expensive solution
that mainly solves the
theft problem.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 3 of 11

Examples for 3 marks:

• Lwandi can keep the books in a secure store room and display an
example of each book behind glass on shelves. When a customer wants
one of the books she can give them one from the store room.
• She can display the self-help books behind the cashier, so if a customer
wants one they have to ask the cashier for one.
• Have IPads attached to the counter with no books on the shelves. The
customer can browse the books on the IPad and if they choose to buy
one, they will be given it from the store room.
Examples for 2 marks:
• Install a sensomatic machine (beeps when the tag goes through the
sensors). Extremely expensive and ways of getting around it.
• Hire a security firm / person to watch cameras that will need to be
installed. Paying salaries or hiring security is expensive and they will not
necessarily catch the person.

1.5 Complete the given part of the cash budget for January 2021.
(Show your calculations next to each item!)

January
Receipts Do not calculate

Cash sales 122 700 × 60/40 184 050

Cash from debtors Do not calculate

Payments (438 930)

Payments to creditors (252 000 + 63 000) × 0,98 308 700
Salaries 46 350 – 5 000 41 350
Marketing (3 600 – 1 450) × 3 = 6 450 6450 + 1 450 7 900
Rent Do not calculate

Water and electricity Do not calculate

Other Do not calculate

Cash surplus / deficit (133 280)

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 4 of 11

1.6 Study the research that Lwandi did on the book industry and answer the
following questions.

1.6.1 Lwandi really would like to make Timeless Read a success and a
going concern, and knows that she must increase her sales to do so.
Remembering that she already utilises all the space in her shop,
discuss two solutions for her to improve her sales.
• Concentrate on children's books and develop a reputation for
providing these.
• Start sourcing textbooks for schools – so being the middle man
between the publishers and the schools.
• Use social media to market the shop.
• Could buy a house – cut down on the rent quite substantially, then
there will be space to start stocking and selling textbooks.

1.6.2 Lwandi would like to reach out to the community and impact them in a
positive way while promoting Timeless Read. Suggest one project she
could implement to achieve this.
• Run literacy classes from the shop and provide easy story books
they can start reading.
• Run competitions for the best original written stories in African
languages. Offer prizes and compile a book of the best entries.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 5 of 11

QUESTION 2 COMPANY ANALYSIS (48 Minutes)

2.1 2.1.1 Study the operating expenses. Discuss whether Stor-Age controlled
their operating expenses well. Supply a suitable calculation and a
reason for your opinion.
Yes
• Operating expenses increased by 58,13% while the property
revenue increased by 69,04%.
• The operating expenses increased less than the property revenue.
OR
• Operating expenses on property revenue for 2019 is 36,98%
• The operating expenses on revenue decreased by 2,55%
• (Can look at individual expenses. But must link to the expansion of
Stor-Age to get all 3 marks.)

OR No, operating expenses increased by 58,13%

1 Mark for the calculation. 1 Mark for the comment. 2 Marks if they
have linked it to the increase in property revenue.

2.1.2 Stor-Age has tenant bad debts on its statement of profit or loss.
Explain how Stor-Age could recover some of the money owed to them,
should the tenant become a bad debt.
• Stor-Age could sell whatever they stored in the storage to cover
their debts.

2.1.3 Although the property revenue increased by 69%, the net profit for
2019 decreased by 55,4%. Identify the two most material reasons for
this.
• The other revenue in 2018 (fair value adjustment to investment
properties) was much larger than in 2019.
• In 2018 there was a gain in investment instruments while in 2019
there was a loss.

2.1.4 (a) Stor-Age revalues their investment properties annually. Write

down the name of the GAAP principle that seems to contradict
this revaluation.
• The historical price principle / prudence.

(b) Write down one advantage and one disadvantage for Stor-Age
to adjust the fair value of their investment properties every year.
Advantage:
• Records a higher value for the tangible assets. Easier to get
financing.
Disadvantage:
• Pay income tax on the increased profits.
• Pay a valuator to revalue the properties every year – an
extra expense.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 6 of 11

(c) During an external audit the investment properties would be

audited. Write down the reason this would be audited, and give
two pieces of audit evidence the auditor could use.
The reason this is audited:
• It is a material amount in the financial statement.
• So the auditors can verify this amount for the shareholders.
• That the property actually exists.
Two pieces of audit evidence:
• Go to the properties and make sure they really exist. (Look
on Google Maps.)
• Contact the valuators to get copies of the valuation
certificates.
• Compare the valuation certificates to the recorded values of
the properties.
• Title deeds.
• Look at the mortgage bond.

2.2 2.2.1 (a) Show how the return on total capital employed was calculated
to be 6,44%

260 293 + 81 786

 100
( 4 624 751 + 3 494 259 + 1 706 902 + 801598 )  ½
342 079
=  100
5 313 755

(b) Besides the drop in profit, write down two other factors that
caused the percentage return to decrease from 13,46% in
2018.
• Increase in capital
• Increase in non-current liabilities

2.2.2 In article A, Stor-Age said that its low gearing left it with headroom to
pursue more development and acquisition opportunities. Explain what
Stor-Age means by this.
• This means that Stor-Age has low levels of debt and can finance
further acquisitions with more loans.

2.2.3 With reference to positive or negative gearing, discuss whether Stor-

Age should acquire further properties using loans. Quote figures or
calculations.
• They are negatively geared. The 6,44% return is less than the 9%
average interest rate. They should not take out another loan unless
they can improve their return.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 7 of 11

2.3 All tenants need to pay one month's rental as a deposit, which they get back
once their rental term is finished. Write down under which item in the
Financial Statements the deposits would be recorded at year-end.
• Trade and other payables
• (Will also accept current / non-current liabilities).

2.4 In article B, Stor-Age states that they always have sufficient liquidity to meet
their liabilities when due.

2.4.1 Calculate the current ratio for 2019.

• 384 085 : 697 213
0,55 : 1

2.4.2 By analysing the individual current assets and current liabilities,

discuss three reasons they may be able to pay their debts timeously.

• Most investors will probably choose to receive more shares rather

than dividends, freeing up the liquidity for paying the creditors.
• Paying off the dividends should not use a lot of cash due to this.
• They should receive their debts before having to pay their
creditors, although it is not enough.
• However, there is enough cash in the bank to pay back their
creditors.
• They should be receiving monthly cash payments into their bank
from the monthly rental income.
• This would not be enough if the debts needed to be settled
immediately, but spread throughout the year, Stor-Age should be
able to settle their debts.
• Cannot use inventories to pay off debt as they will not be sold.

2.5 2.5.1 Study Stor-Age's dividend history for the past two years. Explain two
reasons as to whether you agree with their dividend policy. Quote
figures.
• The EPS decreased by 170 cents (68%) but dividends increased
by 9 cents.
• This grew their accumulated loss as their dividends were larger
than the earnings.
• Bad liquidity – should not be giving dividends.
• One mark for Figures
• The dividends declared at year-end 2019 were the largest although
by then the directors would have been aware of their reduced net
profit.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 8 of 11

2.5.2 Explain what a zero percent growth in the market share price means
and give a possible reason for this happening.
0% means:
• The price on the JSE at the beginning of the year and end of the
year was the same price.
Possible reason:
• The demand for the share did not increase during the year. (This
was probably due to Stor-Age issuing more shares during the
year.)
• The shares are owned by a limited number of people who are
holding onto their shares, so the price is neither increasing nor
decreasing as they are not buying or selling shares.

2.5.3 Altogether, seven different investment companies own 42% of Stor-

Age. Explain why they may consider Stor-Age to be a good
investment. Give two points.
• It previously had a return of 16,55% which beats the average
return.
• Stor-Age pays extremely high dividends.
• Stor-Age pays interim dividends as well as final dividends.
• Different type of investment to a trading enterprise.
• Hedged – in the UK.
• New company with potential for more growth and expansion.
• Largest property company on the JSE.
• Easy business model.
• Can get more shares in place of dividends.
• Owns a lot of property and property prices generally increase over
the long term.

2.5.4 Discuss two reasons why the investment companies may consider
selling their shares in Stor-Age for the 2020 financial year.
• Drop in profit / Drop in EPS.
• Drop in ROCE / ROSE.
• The return is lower than a fixed deposit.
• Liquidity issues.
• Shareholding diluted with the dividends being paid out in shares.
• The share price on the JSE stayed the same.

2.6 Explain why it is good for Stor-Age's reputation to follow the principles laid
out in the King Code.
• The King Code lays out how to run a company ethically (corporate
governance), so they are accountable and can be trusted.
• If they are transparent in their reporting, then shareholders will have more
confidence in their investment.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 9 of 11

QUESTION 3 RECONCILIATIONS (41 Minutes)

3.1 Pablo has drawn up his age analysis for all his debtors together on
30 November 2020. Some errors and omissions were discovered and the
age analysis must still be adjusted. Correct the debtors age analysis given
below with the errors found in the Information Booklet.

150 + 120 days 90 days 60 days 30 days Current

days
345 000 86 300 74 650 82 170 79 330 88 490
– 15 300 – 7 700 – 2 300 + 27 000 + 6 900
– 2000

345 000 71 000 66 950 79 870 104 330 95 390

Calculation box for interest:

345 000 × 5% = 17 250 – 10 350 = R6 900

OR 345 000 x 2% = R 6 900

3.2 Calculate the total debtors owing on 30 November 2020.

R762 540

3.3 Calculate the average number of days the debtors are taking to pay back The
Polka Dot Chair.

686 500
(762 540 + 610 460)½ × 365
1 332 810

= 188 days

3.4 Pablo has come to the conclusion that his customers are not managing to
pay off their debt within the 4 months that he has given them. He is thinking
of changing to a hire-purchase method where he will add 20% interest onto
the total credit amount, and then make them sign a debit order so that they
pay it off in equal instalments over 12 months. He will advertise the furniture
as a monthly amount rather than the full amount.

Explain in detail two advantages of the hire-purchase method.

• Cheaper payments – more affordable for more people, so hopefully more
customers and sales.
• 20% interest on each sale is guaranteed, whereas it was only interest on
overdue accounts previously. More profit.
• Debit order is more secure. Much better chance of receiving the payment.
• Receiving cash at a consistent rate every month – much easier to budget.
• Less administration costs due to debit orders rather than sending
reminders to pay.

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 10 of 11

• The furniture belongs to the Polka Dot Chair until the customer pays the
last debit order. Pablo can therefore take the furniture back should they
not finish paying, unlike a normal debtor.

3.5 Should Pablo decide to go ahead with the hire-purchase method, suggest
what payment terms Pablo would now need to negotiate with his creditors.
Explain why you have suggested these payment terms.

Payment terms:
• 6 months or the longest time possible that the creditors will agree to.
Reason:
• The debtors pay off the cost price after 5½ months. They pay the selling
price after 10 months and the remaining 2 months is interest they are
paying.

3.6 Complete the Creditors Reconciliation Statement on 30 November 2020.

Creditors Reconciliation Statement on 30 November 2020

Incorrect balance on 30 November 164 353
Credit note 9 1 800
Invoice 40 3 600
Invoice 45 (101 340)
Discount omitted 54 537 × 2/98 (1 113)
Do not calculate

3.7 There is a cause for concern in the Bank Reconciliation Statement as well as
a mistake. Study the Bank Reconciliation Statement and then answer the
following questions.

3.7.1 Describe what item Pablo should be concerned about. Give a reason.
Item: The outstanding deposit dated 5 November
Reason: The deposits should be deposited daily for safekeeping.
• A deposit that has not been deposited for 3 weeks could have been
stolen or lost.

3.7.2 Explain the error made in the Bank Reconciliation Statement and
describe what should have been done instead.
Error: Cheque 54 should not be in the Reconciliation Statement (stale
cheque)
It should have been cancelled in the CRJ instead.

3.7.3 Calculate the amount of cheque 92.

• R36 700

3.7.4 Explain the entry that would be made in the December Bank
Reconciliation statement in the following instances:

(a) If cheque 92 appears in the Bank Statement in December.

• Do nothing

IEB Copyright © 2020 PLEASE TURN OVER

NATIONAL SENIOR CERTIFICATE: ACCOUNTING: PAPER II – MARKING GUIDELINES Page 11 of 11

(b) If cheque 92 does not appear in December's Bank Statement.

• Put it into December's Bank Reconciliation Statement

3.7.5 (a) Explain why, although cheque 99 was given to Leather Worx
on 20 November along with cheque 98, it does not show in the
Creditor's Statement from Leather Worx.
• It is a post-dated cheque.
• Leather Worx should have put it in their safe. It can only be
recorded on or after the date on the cheque.

(b) Explain how cheque 99 will be treated in the financial

statements at the year-end.
• It will be subtracted from the bank overdraft and added to
creditors (trade and other payables)

3.7.6 Explain why the bank statement shows a positive balance, yet The
Polka Dot Chair's bank balance is in overdraft.
• The outstanding cheques have been entered into the CPJ credited
in the bank account, resulting in an overdraft. They have not yet
appeared and been subtracted on the bank statement. The value
of these cheques is bigger than the value of the outstanding
deposits.

Total: 100 marks

IEB Copyright © 2020