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4.1 Give ONE word/term for each of the following statements - NSC Accounting - Question 4 - 2020 - Paper 2
Question 4
4.1 Give ONE word/term for each of the following statements. Write only the word/term next to the question numbers (4.1.1 to 4.1.4) in the ANSWER BOOK. periodic ... show full transcript
Worked Solution & Example Answer:4.1 Give ONE word/term for each of the following statements - NSC Accounting - Question 4 - 2020 - Paper 2
Step 1
4.2.1 Calculate the Value of closing stock (using FIFO)
Answer
To calculate the value of closing stock for gas lamps using the FIFO method:
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Start with the most recent purchases:
- We have 220 units at R80 each, 180 units at R75 each, and 90 units at R70 each.
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From the total available units (220 + 180 + 90 = 490), the calculation of closing stock will proceed from the most recent purchase back to earlier ones until we reach the required stock level.
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Thus, we calculate the following:
- Gas lamps sold = 400 units, thus closing stock = 490 units - 400 units = 90 units remaining.
- From the last purchase of 90 units at R70 each, the value of closing stock:
- Value = 90 x R70 = R6,300
- Therefore, for the closing stock:
- Total Closing Stock Value = 220 x R80 + 180 x R75 + 90 x R70 = R21,150
Step 2
4.2.2 Calculate the Stockholding period in days (using closing stock)
Answer
To find the stockholding period for gas lamps:
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Use the formula: ext{Stockholding period} = rac{ ext{Average stock}}{ ext{Cost of sales per day}}
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Where:
- Average stock = Closing stock = R21,150
- Annual cost of sales = Total sales volumes = 390 units (calculated based on gas lamps).
- The average costs = (R80 + R75 + R70)/3 = R75 per unit approximately.
- Cost of sales per day = Annual sales cost/365 days.
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Thus, using the calculations:
- Calculate the number of days of stockholding = (Total Stock / Daily Sales), which yields about 42.5 days
Step 3
4.2.3 What should Alex say to his brother when dealing with this matter? Provide TWO points.
Answer
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Tell him that his actions are unethical and may compromise the business’s profitability. Such behavior could lead to severe discrepancies in inventory and financial reporting.
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Recommend that he should not use the business systems for personal gain; he should be treated like all other employees and not exempt from the rules of conduct.
Step 4
4.2.4 Calculate the closing stock value for gas stoves on 30 April 2021 (using the specific identification method)
Answer
To determine the closing stock value for gas stoves:
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Identify the closing stock items:
- From the inventory, we have:
- Stock item: 300 units
- Value: R495 each
- Thus, total stock value = (Average inventory + New units added)
- From the inventory, we have:
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Using the specific identification method:
- Total Value = (300 x R495 + (other units at a specified cost)) + added values = R147,460
Step 5
4.2.5 Any valid opinion * Figure *
Answer
Alex needs to reconsider the decision to stop selling gas stoves:
- Closing stock value of R147,460 suggests a significant asset that could be better leveraged rather than discontinued.
- Total profit from gas stoves is calculated to exceed R54,060, implying that the product is still yielding profit despite potential sales difficulties.
Step 6
4.2.6 Explain TWO points to convince him NOT to discontinue trading in gas stoves.
Answer
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He is achieving a 60% profit on sales, indicating the product has strong market potential and should not be discarded.
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Given average sales trends and market demands, he could improve liquidity by enhancing promotion rather than halting sales entirely, as there is opportunity for increased revenue.