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6.1 Indicate whether the following statements are True or False - NSC Accounting - Question 6 - 2016 - Paper 1
Question 6
6.1 Indicate whether the following statements are True or False. Write only True or False next to each number (6.1.1 – 6.1.3) in the ANSWER BOOK. 6.1.1 All goods an... show full transcript
Worked Solution & Example Answer:6.1 Indicate whether the following statements are True or False - NSC Accounting - Question 6 - 2016 - Paper 1
Step 1
Calculate the amount that is either payable to or receivable from the revenue authority for the two-month period ended 30 April 2016.
Answer
To determine the VAT that is either payable or receivable, we need to calculate the Output VAT and the Input VAT for the period:
Output VAT:
- Total sales (inclusive of VAT) = R277,020
- VAT rate = 14%, so VAT amount = Total sales × (14/114) = R277,020 × 0.1228 = R34,000.
Input VAT:
- Total purchases (exclusive of VAT) = R102,000
- Input VAT on purchases = R102,000 × (14/100) = R14,280.
- VAT adjustments: VAT on total returns R490, VAT on goods returned R553, VAT on goods taken for personal use R12, VAT on bad debtors R406.
- Total Input VAT = R14,280 + R490 + R553 + R12 + R406 = R15,741.
Calculate Payable or Receivable:
- Output VAT - Input VAT = R34,000 - R15,741 = R18,259 (This means VAT is payable to the revenue authority).
Step 2
What advice would you offer Joe regarding this proposal? Explain.
Answer
When Joe intends to sell the old summer shirts at a profit mark-up of 20%, it is crucial to consider market demand and whether there is sufficient interest in the product. Here are some points of advice:
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Assess Market Conditions: Ensure that there is a demand for summer shirts. It might be beneficial to conduct market research or surveys to gauge customer interest before proceeding with the sale.
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Pricing Strategy: While a 20% mark-up on cost could yield profit, Joe should also consider competitor pricing to ensure his shirts remain attractive to potential buyers.
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Cash Flow Management: Since these transactions will be cash only, Joe should prepare for immediate invoicing and ensure quick turnover of stock to maintain healthy cash flow.
Step 3
Prepare the Asset Disposal account to take into account the disposal of the old office equipment on 1 December 2015.
Answer
The Asset Disposal Account needs to account for the sale of the old office equipment and reflect any gain or loss on the disposal:
Asset Disposal Account
| Date | Details | Debit (R) | Credit (R) |
|---|---|---|---|
| 01 Dec 2015 | Old office equipment (cost) | R54,800 | |
| 01 Dec 2015 | Accumulated Depreciation | R(X) | |
| 01 Dec 2015 | Sale Proceeds (Credit Sale) | R25,000 | |
| 01 Dec 2015 | Gain/Loss on Disposal | R(Y) |
Where R(X) is the accumulated depreciation value of the old equipment and R(Y) represents any gain or loss determined in the account.
Step 4
Calculate the missing amounts denoted by (a) to (d) on the fixed asset note provided.
Answer
To find the missing amounts, we need to analyze the information from the fixed asset note:
- Additions (a): Given that the carrying amount increased, we must derive the missing total for additions. Let's assume additions equal to R126,000 as indicated.
- Disposals (b): This would be calculated by subtracting the remaining carrying value from the total cost which must ensure that the company's records show R25,000 as received from the disposal of office equipment.
- Depreciation (c): Apply the depreciation method used previously for calculating yearly depreciation here to fill this entry.
- Calculate the carrying value (d): The carrying value can be calculated by subtracting the accumulated depreciation from the gross cost of the asset after the adjustments of additions and disposals have been recognized.
Step 5
Provide TWO possible reasons why the business decided to dispose of the old office equipment.
Answer
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Outdated Technology: The old equipment may have become outdated, resulting in inefficiency and increased maintenance costs. By selling it, the business can reinvest the funds into more modern technology that might enhance productivity.
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Cost Reduction: Disposing of the old equipment may be part of a broader strategy to reduce operational costs. This could include eliminating expenses related to maintenance and repairs associated with older equipment.