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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 for gas lamps on 30 April 2021 (using FIFO)
Answer
To calculate the value of closing stock using FIFO:
- Start with the opening stock and consider all inventory purchased up until the financial year-end:
- Opening Stock: 220 lamps for R80 each: 220 x 80 = R17,600
- Purchases: 180 lamps for R90 each: 180 x 90 = R16,200
- Therefore, total stock available = 220 + 180 = 400 lamps.
- Total Cost: R17,600 + R16,200 = R33,800
- Since 270 lamps were sold, we will take the cost of the remaining 130 lamps:
- From the remaining stock, we have:
- 130 lamps at R90 (last 180 purchased, 110 at R90 and 20 at R80)
- Cost of remaining stock: 130 x 90 = R11,700
- From the remaining stock, we have:
Thus, the value of the closing stock for gas lamps is R21,150.
Step 2
4.2.2 Stockholding period in days (using closing stock)
Answer
To calculate the stockholding period:
- Formula for Stockholding Period (in days) = (Average Stock / Cost of Sales) x 365:
- Average Stock:
- Beginning Stock: 220 at R80 = R17,600
-
- Purchases made = 400 lamps
- Closing Stock: R21,150
- Therefore, Average Stock: (R17,600 + R21,150) / 2 = R19,375.
- Average Stock:
- Cost of Sales = Opening Stock + Purchases - Closing Stock
- Cost of Sales = R33,800 - R21,150 = R12,650.
- Now substituting into the formula:
Stockholding Period = (R19,375 / R12,650) x 365 = 42.5 days.
Step 3
4.2.3 What should Alex say to his brother when dealing with this matter? Provide TWO points.
Answer
- Discuss ethical concerns: Explain that selling gas lamps personally using store resources is unethical and can harm the business reputation.
- Discuss business policy: Inform him that all sales should go through official channels as per company policy to ensure proper accounting and inventory management.
Step 4
4.2.4 Calculate the closing stock value for gas stoves on 30 April 2021 (using the specific identification method)
Answer
Using the specific identification method, we calculate:
- Stock of gas stoves:
- 59 gas stoves at R400 = R23,600
- 42 gas stoves at R950 = R39,900
- 80 gas stoves at R1,350 = R108,000 Total Closing Stock = R23,600 + R39,900 + R108,000 = R171,500.
Step 5
4.2.5 Provide figures to support Alex's opinion regarding discontinuing gas stoves.
Answer
Alex believes he should stop selling gas stoves because of a liquidity problem and low profit:
- Total cash tied up: Closing stock of gas stoves is R171,500.
- Total profit from gas stoves: Profit margins = R54,060 (profit earned on gas stoves in the past) This demonstrates that liquidity ties up significant resources.
Step 6
4.2.6 Explain TWO points to convince him NOT to discontinue trading in gas stoves.
Answer
- Revenue Potential: The gas stoves can continue to generate revenue and may become more profitable if demand increases.
- Customer Retention: By continuing to sell gas stoves, they enhance customer loyalty through diverse product offerings, potentially increasing sales of gas lamps.