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KURUMAN (PTY) LTD John Peters is the majority shareholder and CEO - NSC Accounting - Question 6 - 2020
Question 6
KURUMAN (PTY) LTD John Peters is the majority shareholder and CEO. You are provided with information for the period ending 31 July 2020. There are five other shareh... show full transcript
Worked Solution & Example Answer:KURUMAN (PTY) LTD John Peters is the majority shareholder and CEO - NSC Accounting - Question 6 - 2020
Step 1
Calculate the missing amounts indicated by (i) and (ii) in the Debtors' Collection Schedule.
Answer
To calculate the missing amounts, we will use the debtors' expectations diagram provided.
(i) To find the amount for May:
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From the given sales for June, we know that 60% of sales are collected in the same month. Therefore,
ext{May Amount} = R(41,250) * rac{60}{100} = R24,750.
The collection from debtors for May will be:
ext{Amount collected for May} = R41,250 - R24,750.
So, the missing amount is R16,675.
(ii) For June:
The collection for June can be derived from the June sales of R165,000:
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Substituting the given values, we will calculate:
ext{June Amount} = R23,760.
The missing total for June from previous collection would be hence R43,500.
Step 2
Calculate the percentage discount allowed to debtors who settle in the month of the sales transactions.
Answer
To find the percentage discount allowed:
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We first calculate the sales for the month of sales. Given:
ext{Total Sales in Month} = R24,750.
Calculating the required percentage discount:
egin{equation} ext{Percentage Discount} = rac{41,250 - 24,750}{41,250} imes 100 = 40\%.
This shows that 4% discount is allowed.
Step 3
Step 4
Give a valid reason for EACH overpayment identified, to support their decisions.
Answer
Reason for Overpayment 1:
- The directors might have wanted to increase sales or take advantage of special clearance sales that required immediate payment.
Reason for Overpayment 2: 2. To attain a reasonable price when the vehicle was sold, or because vehicles sold more frequently required free deliveries to increase sales.
Step 5
Why are the auditors concerned that the agreement with Tradecor is unethical or possibly a crime? Explain THREE points.
Answer
Point 1:
- The property was sold at carrying value, which is its original cost, making it a historical cost.
Point 2: 2. It was considered to hold a market-related price, thus leading to overstatement of assets during appraisal.
Point 3: 3. There might be concerns regarding whether the deal led to personal gains for John Peters, the CEO.