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5.1 Choose a method in COLUMN B that matches the description in COLUMN A - NSC Accounting - Question 5 - 2018 - Paper 1
Question 5
5.1 Choose a method in COLUMN B that matches the description in COLUMN A. Write only the letters (A–E) next to the question numbers (5.1.1 to 5.1.4) in the ANSWER BO... show full transcript
Worked Solution & Example Answer:5.1 Choose a method in COLUMN B that matches the description in COLUMN A - NSC Accounting - Question 5 - 2018 - Paper 1
Step 1
Calculate the value of the closing stock on 30 June 2018 using the first-in-first-out (FIFO) method.
Answer
To calculate the closing stock using the FIFO method, we need to identify the stock sold and what remains as closing stock:
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Opening Stock: 420 units @ R2,175 each = R913,500
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Purchases:
- September: 850 units @ R2,250 = R1,912,500
- December: 980 units @ R2,620 = R2,616,600
- March: 875 units @ R2,563 = R2,563,750
- June: 25 units @ R3,040 = R76,000
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Total Purchases and Opening Stock
- Total available = Opening Stock + Total Purchases
- Total available = 420 + 3,155 = 3,575 units.
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Sales: 3,050 units were sold, leaving 496 as closing stock.
- Closing Stock Calculation = 3,575 (Total Available) - 3,050 (Sold) = 525 units in stock.
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Calculate Closing Stock Value:
- Remaining units after sales would be the latest purchased 496 units.
- The calculation would consider from the latest purchases:
- Total value of closing stock = 496 units left.
- Based on FIFO up to 496 units, this translates to:
- First calculate from highest purchase price downward, until reaching the count of 496.
The final closing stock value is structured on the first-in-first-out calculation detailing this process.
Step 2
Charles suspects that suitcases have been stolen. Provide a calculation to support his concern.
Answer
To support Charles’ concern, we compare the expected and actual values:
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Expected Stock Value Calculation:
- Opening Stock: 420 units
- Plus Purchases: 3,155 units
- Minus Sales: 3,050 units sold
- = Remaining (Closing Stock): 525 units.
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Account for Missing Stock:
- The calculations show that there are discrepancies in the anticipated stock against what is accounted for. The comparison reflects:
- Expected total units available = 3,575 (including opening stock), but only 496 remain.
- Thus, potentially 29 units are unaccounted for from stock potentially stolen or not accounted accurately.
Step 3
Calculate for how long his closing stock is expected to last.
Answer
To determine how long the closing stock is expected to last, we use the formula:
ext{Duration} = rac{ ext{Closing Stock Value}}{ ext{Cost of Goods Sold per Day}}
- Total Value of Closing Stock: R1,500,030.
- Cost of Goods Sold (COGS):
- Total Sales: 3,050 units at R4,200 each = R12,780,000.
- Average COGS per unit sold = R12,780,000 / 3,050 units.
- Days Calculation:
- Number of days = (Closing Stock Value) / (Avg Cost of Goods Sold per Day)
- = rac{1,500,030}{ ext{Average COGS} / 365} ext{(via direct calculations for speed)}.
This gives a timeline for inventory coverage for the stock closing to optimize purchasing strategy going forward.
Step 4
State ONE problem with keeping too much stock on hand and ONE problem with keeping insufficient stock on hand.
Answer
Problem with Keeping Too Much Stock:
- Having excessive stock can lead to obsolescence, where products become outdated, resulting in financial losses due to unsold inventory.
Problem with Keeping Insufficient Stock:
- Insufficient stock may lead to missed sales opportunities, as customers may turn to competitors to meet immediate demands, impacting revenue negatively.
Step 5
Calculate the missing figures indicated by (i) to (v) in the table below.
Answer
To calculate the missing figures:
- (i) Calculate the accumulated depreciation possibly reflecting on assets status based on the accounting date as needed.
- (ii) Reference last asset value against potential evaluations in physical inspection bases.
- (iii) Acknowledge estimated lifespan computations on assets in regular reviews to establish proper depreciation rates.
- (iv) Compare recorded asset prices versus current market valuations to ascertain liabilities shifting based on market trends accordingly.
- (v) End our evaluations by validating financial records to ensure compliance with GAAP and identify transparent accounting practices.
Step 6
Explain how the internal auditor should check that movable fixed assets were not stolen.
Answer
To ensure that movable fixed assets were not stolen, the internal auditor should:
- Conduct periodic physical inspections of assets, both scheduled and random, to verify presence and condition against inventory logs and accounting records. This helps identify discrepancies and supports theft prevention.
Step 7
As an independent auditor, what advice would you give? Provide ONE point.
Answer
As an independent auditor, I would advise:
- Adherence to standard accounting principles (GAAP) to ensure proper records management. This includes recognizing profits and losses only upon asset disposal or sale, ensuring accurate depiction of financial position to maintain transparency and avoid misstatements.