NATIONAL SENIOR CERTIFICATE EXAMINATION

NOVEMBER 2023

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.

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QUESTION 1 BUDGETS

1.1 Complete the debtors' collection schedule for November and December.

Debtors' collection schedule for November and December 2023.

Credit sales November December

September 159 750 79 875 –
October 162 000 59 616 81 000
155 250 × 40% × 92%
November 155 250 – 57 132
Do not calculate Do not calculate

1.2 Calculate the missing amounts labelled 'A' to 'G' in the cash budget. Do not calculate
the '?'. Show your calculations.

A 155 250 (from 1.1) × 10/90 = 17 250

700 × 250 = 175 000
B
175 000 × 10% = 17 500
13 800 × 75/25 = 41 400
C
41 400 × 95/100 = 39 330
155 250 × 100/90 = 172 500 OR 17 250 × 100/10 = 172 500
D 172 500 ÷ 250 = 690 OR 17 250 + 155 250 = 172 500
690 × 18 = 12 420
E 45 000 + 70 000 = 115 000

F 3 680 × 26/23 = 4 160

G 8 900 + 700 = 9 600

1.3 The embroidery machine was purchased on 1 March 2020 and it is depreciated on
cost at 9% p.a. Its monthly depreciation is R975. Calculate the cost of the embroidery
machine.

975 × 100/9 × 12/1 = 130 000

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1.4 Nobuhle is considering expanding her factory. One of the things she is looking at is
buying a DTG (digital garment printing) machine so she can print T-shirts. She thinks
more people will buy printed shirts than embroidered shirts. She will then get rid of
the embroidery machine.

The DTG machine costs R491 760 and should last 15 years. It will be depreciated
on a fixed cost basis. The ink costs per shirt will be 80 cents.

1.4.1 Calculate the NEW monthly breakeven number of units should iNkankane
Clothing change the embroidery for printing. The selling price will remain at
R250 per shirt.

Fixed costs: 84 242 – 975 + 2 732 = 85 999

94,80
Contribution per unit: 250 – (104 – 10 + 0,80) = 155,20

85 999
155,20

= 554,12 so 555 units

1.4.2 Discuss in detail whether it will be a good decision financially for iNkankane
Clothing (Pty) Ltd to purchase and start using the printing machine instead of
carrying on with embroidering.

• The breakeven if they were to switch to printing instead of embroidering

would drop by 22 units.
• It is financially sound to buy the DTG machine.
• Although the DTG machine is very expensive, and therefore the
depreciation makes the factory overheads much higher, the ink is much
cheaper than the embroidery thread, and therefore the contribution per unit
is higher.

1.4.3 Write down two other items Nobuhle would need to consider before she
purchases the DTG machine.

• How much will it cost to train someone to use it;

• How often it needs to be serviced;
• How much more will insurance on the DTG machine cost;
• The demand for the new shirts;
• The speed – printing is probably faster per shirt than embroidery.

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1.5 Nobuhle is scared that if she expands the company's operations and hires more
workers, she will lose touch with the staff she already employs, and her factory could
then be subject to strike action. Read the quotes about employees.

1.5.1 Discuss whether she should increase the workers' wages by starting to pay
contributions like medical aid or pension fund. Motivate your answer with
reasons. You need to discuss three points in your answer.

• Nobuhle should because anyone getting a minimum wage will not be able
to afford pension or medical aid. It is ethical to pay a pension fund so that
your workers will be able to retire one day. Also, you want your workers to
be well so that they can work well. They therefore should have the means
to go to the doctor as soon as they get sick.
• The increase in wages could motivate them to increase performance
making them more productive.
• The company has the potential of making more profit when the workers
are more productive.

1.5.2 Advise Nobuhle on how to keep her current workers motivated and productive,
should she need to hire more workers.

• Send them for training/upskill them.

• Give incentives for excellent work or beating deadlines, e.g. share options
to the most productive employees.
• Know their names.
• Praise good work.

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QUESTION 2 COMPANY ANALYSIS

2.1 Looking at the profitability of both companies, it appears as though Mr Price is more
profitable than Foschini.

2.1.1 (a) State one area of profitability in which Foschini fared better than Mr Price.
Give two reasons for your answer.

• Sales
• Foschini sold more than the previous year.
• Foschini's mark-up has improved from the previous year while
Mr Price's has not.
• Foschini's mark-up is higher.
• (Any reasonable point based on sales/gross profit/mark-up.)

(b) State the main reason why Mr Price is more profitable than Foschini.

Mr Price has better control over their operating expenses.

2.1.2 (a) Describe what the financial indicator/ratio 'net profit on sales' shows.

• The possible amount available to shareholders should the company

wish to pay a portion in dividends.
• The percentage of the sales that is left as net profit after subtracting
all the expenses.

(b) Who do you think would be most pleased with their 2022 net profit?
The directors of Mr Price or the directors of Foschini? Explain your
reasoning.

• Although Mr Price's net profit is higher, their net profit on sales has
only improved by 0,2%, while Foschini's is 12,4% more than 2021.
 This is an excellent improvement.
• Mr Price's net profit increased by R691 million (26% increase) vs
Foschini's R4 772 million (256,28%) increase. Foschini's directors
will be most pleased.

2.2 2.2.1 Mr Price's advantage over competitors is that 84% of their sales are cash
sales. Explain, by studying the current assets only, how this has affected their
liquidity compared to Foschini. Quote calculations in your explanation.

• Mr Price's Trade and Other Receivables are only 24,15% of their total
current assets, whereas it makes up 37,29% of Foschini's.
• The cash and cash equivalents make up 41,09% of Mr Price's current
assets, but only 23,87% of Foschini's.

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2.2.2 In the financial year ending 31 March 2023, Mr Price saw an increase in
customers wanting to buy on credit. They said that they will be cautious when
considering whether to grant credit to customers.

(a) Calculate the debtor's collection period for Mr Price for 2022.

(2 749 + 2 316) ×1/2 × 365

26 685 × 16%

2 532,5 × 365
4 269,6

= 216,5 days

(b) Explain why you think Mr Price has been/not been cautious (careful)
when granting credit.

• Mr Price's debtors are taking 216,5 days to pay. This is more than
seven months. If they were being careful in selecting their debtors,
their debtors should be paying faster.

2.2.3 (a) Calculate Foschini's stock turnover rate for 2022.

22 343 _
(9 349 + 8 336) × ½
22 343/8 842,5
= 2,53 times

(b) Foschini reports that their inventory is at a sensible level. Discuss, by

providing reasons, whether or not you agree with this statement.

• Foschini only gets new stock twice a year. This is not a lot for the
products they sell. There are more chances of theft and having to
sell their products on sales.

2.3 2.3.1 Calculate the net asset value for Mr Price for 2021.

10 838 000 000 ÷ 257 857 140 = 4 203 cents / R42,03

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2.3.2 Why would an investor also consider the net asset value when studying the
market value of Mr Price's shares?

• Indicates whether the shares are overvalued or undervalued, and this in

turn affects the investor confidence in the company.
• It is the book value of the shares so an investor can see by how much
more (or less) the shares are trading on the JSE.

2.4 Foschini did not issue any dividends in 2021. Discuss whether or not this was a good
decision.

• This was a good decision.

• They made a loss R1 862 million (–5,7 EPS). Giving dividends would have made
the equity worse (or retained profit worse).
• (Their liquidity and solvency is fine, so that would not be the reason.)

OR

• No, this was not a good decision.

• The investors would have wanted dividends and may sell their shares because
they did not get any. (Only 1 mark for a no.)

2.5 Calculate Foschini's solvency ratio for 2022 and then comment on it.

43 313 : 11 427 + 12 748

43 313 : 24 175
1,79 : 1

• The assets are nearly twice the total liabilities so they are not at risk of going
insolvent.

2.6 2.6.1 Foschini wants to carry on buying manufacturing plants in South Africa. By
providing an in-depth analysis of the risk, gearing and return of The Foschini
Group, would you, as a bank representative, lend them the money?

• Their debt-equity ratio is 0,6 : 1. This is still fairly low to medium risk.
• Foschini has a return on capital employed of 9,5%. The average interest
rate is also 9,5%. This means that they are neither positively nor negatively
geared.
• Foschini's return has increased from –6,8% to 9,5%.
• Their return went up by 16,3%. This is a large increase and hopefully they
will carry on increasing their profit and return.
• Conclusion: I would take the chance and lend them the money.
Any conclusion that makes sense.

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2.6.2 The other option of financing is to issue more shares.

(a) Write down one advantage of issuing more shares over expanding the
loan.

• The debt-equity ratio will be positively affected.

• Save on interest.

(b) It is said that issuing shares is a more expensive way of financing than
taking out a loan. Discuss, by providing two reasons, why some people
think this.

• Investors expect dividends on a regular basis. The dividends could

be more than the interest. When the loan is paid off, the interest
decreases, whereas the shares stay issued, and the dividends are
expected to increase every year.

2.7 The director's report states that Foschini continues to suffer from crime-related
incidents in South Africa. Discuss the role that the internal auditor has in preventing
crime from within the business.

• The internal auditors analyse where the problem areas or weak points are, and
then put controls in place to fix it.

2.8 198 Foschini stores were damaged in the civil unrest. The Group performed an
assessment to identify if the losses related to store assets should be capitalised or
treated as repairs and maintenance.

Explain how they would decide whether the cost of repairs to the stores would be
added to Land and Buildings (capitalised) or treated as Repairs and Maintenance.

• If it increases the value of the store then the costs should be capitalised.
• If the value of the store stays the same as it was before it was damaged, then it
should be treated as repairs and maintenance.

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QUESTION 3 RECONCILIATIONS

3.1 Study the statement from Kitchenware Suppliers. They have three terms and
conditions. Analyse whether Kitchenware Suppliers enforced these. Also analyse
whether Lavender Cottage adhered/kept to them.

• They granted discount when there was still an outstanding amount owing from
more than 30 days. Did not stick to them.
• They granted interest after 60 days – stuck to the terms.
• They did not enforce the credit limit. Did not stick to them.

3.2 Fill in the age analysis as it would appear at the bottom of the statement from
Kitchenware Suppliers. Ignore all errors and omissions and use only the figures
given in the statement. Show all the figures that go into each block. You do not need
to total each block.

90 Days 60 Days 30 Days Current

54 240 + 42 480 49 700 379 1 412
(96 720) – 12 500 + 63 200
– 31 500
– 47 411
One mark for the invoices over 90, 60 and 30 days: 96 720, 49 700, 63 200

3.3 If you worked for Lavender Cottage and were in charge of paying the creditors,
explain a change you would make to how Lavender Cottage pays their creditors
(based on how they pay Kitchenware Suppliers). Explain why you would make this
change.

• Any suggestion that will either ensure Lavender Cottage pays more regularly to
help the cash flow, or a suggestion that will prevent Lavender Cottage from
breaking the credit terms and getting a bad reputation, and to prevent being
charged more interest.
• 1 mark for the suggestions, and 1 mark for the reason.

3.4 Reconcile the statement received from Kitchenware Suppliers to their account in the
creditors' ledger of Lavender Cottage by taking the errors and omissions into
consideration. Show the amounts that would go into the creditor's reconciliation
statement and the amounts that would be entered into their creditors' ledger account.

Creditors Reconciliation
Creditors Ledger
Statement
Incorrect balance 120 000 119 188
1. Invoice 63 (1 800)
2. Discount 1 500
3. Credit note 37 (2 700)
1 087 – 1 412
4. Interest 1 087
(325)
Do not calculate Do not calculate

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3.5 Liyah sends employees to the shops with the business credit card to purchase
packing material, refreshments, and small items of trading stock. A whistle-blower
told her that some of these employees are buying things for themselves with
Lavender Cottage's credit card.

Discuss a control system that the internal auditors could put in place to stop
employees from buying personal items with the business' credit card.

Marked with rubric

1 mark 2 marks 3 marks

Has a slight chance of Expensive or time- Cheap and easy, and
working. consuming but should should stop employees
stop employees using the using the credit card for
credit card for their own their own purchases.
purchases, or one gap
but generally should
work.

Example of an answer that would earn 3 marks:

• Only one employee should be authorised to use the business credit card.
• They should have a list of items they need to buy signed by Liyah or a manager.
• When they get back, Liyah or someone in finance should compare the till slip with
the list.

Example of an answer that would earn 2 marks:

• The till slips from the credit card purchases will be sent to the accounting
department who will check the slips.

OR

• Only one employee will be allowed to use the credit card. They will get a list of
items to buy from the manager.

Example of an answer that would earn 1 mark:

• The manager will give a list of items to be purchased to the employee.

OR

• Only one person is allowed to use the credit card.

Total: 100 marks

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