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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
6.2.1 Calculate the amount that is either payable to or receivable from the revenue authority for the two-month period ended 30 April 2016. Indicate whether the amount is payable or receivable.
Answer
To determine the VAT payable or receivable, calculate the total Output VAT and Input VAT for the period.
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Calculate Output VAT:
Total Sales (R277,020) includes VAT. Output VAT = Total Sales imes rac{14}{114} = R277,020 imes rac{14}{114} = R34,024.68. -
Calculate Input VAT:
Total Purchases (R102,000) excludes VAT.
Input VAT = Total Purchases imes rac{14}{100} = R102,000 imes 0.14 = R14,280. -
Calculate VAT Payable or Receivable:
Net VAT = Output VAT - Input VAT = R34,024.68 - R14,280 = R19,744.68.
Since the Output VAT is greater than the Input VAT, the amount is payable to the revenue authority.
Step 2
6.2.2 What advice would you offer Joe regarding this proposal? Explain.
Answer
Joe should consider the implications of selling the old summer shirts at a 20% mark-up on cost.
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Market Demand: Joe needs to assess if there is sufficient market demand for the shirts at a higher price. If demand is low, it might not yield the expected cash flow.
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Cash Flow Consideration: While a quick sale may generate immediate cash, it might not cover the cost adequately if the markup is too minimal. An analysis should be done to ensure the minimum profit margin acceptable is achieved.
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Inventory Management: Holding onto unsold shirts for too long could lead to additional costs (e.g., storage) or losses if they need to be disposed of later.
In conclusion, Joe should conduct a market analysis to ensure that the proposed price is competitive and aligns with customer willingness to pay, ensuring financial viability.
Step 3
6.3.1 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 would include:
- Disposal of Old Equipment:
- Date: 1 December 2015
- Original Cost: R25,000
- Accumulated Depreciation: R12,500
- Carrying Amount: R12,500
- Proceeds from Sale: R5,000
Entry:
Disposal of Equipment R25,000
Accumulated Depreciation R12,500
Bank (Proceeds) R5,000
Loss on Disposal R7,500 (calculated as Carrying Amount - Proceeds)
Step 4
6.3.2 Calculate the missing amounts denoted by (a) to (d) on the fixed asset note provided.
Answer
To compute the missing amounts on the Fixed Asset Note:
(a) Additions:
Calculate the new purchases or enhancements during the year, which totaled a specific figure (for instance, R126,000).
(b) Disposals:
Reflect the amount of R12,500 accounted for disposal of the old office equipment.
(c) Depreciation:
Calculate the depreciation expense for the year on available equipment, which may total an amount such as R28,500.
(d) Carrying Value:
The value remaining after accounting for disposals and depreciation adjustments, leading to an expected figure based on these calculations.
Step 5
6.3.3 Provide TWO possible reasons why the business decided to dispose of the old office equipment.
Answer
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Technological Obsolescence: The old equipment may no longer meet the operational needs and efficiency of the business, necessitating an upgrade to newer technology.
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Cost Efficiency: Maintaining outdated equipment can lead to higher repair and maintenance costs. Disposing of old equipment allows the business to invest in more efficient resources and reduce operational expenses.