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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 ending 30 April 2016.
Answer
To calculate the VAT payable or receivable for the two-month period, first determine the total VAT collected and the total VAT paid. The VAT rate is 14%.
VAT Collected: Total Sales (inclusive of VAT): R277,020 Calculate the sales exclusive of VAT:
ext{Sales} = rac{ ext{Total Sales}}{1 + ext{VAT Rate}} = rac{R277,020}{1.14} ≈ R243,421
VAT on Total Sales:
VAT Paid: Total Purchases (excluding VAT): R102,000 Calculate the VAT paid on purchases:
Net VAT Payable/Receivable:
Since this amount is positive, it indicates that Fiji Traders must pay this amount to the revenue authority.
Step 2
6.2.2 What advice would you offer Joe regarding this proposal? Explain.
Answer
When considering the proposal to sell all the old summer shirts at a 20% markup, the following points should be taken into account:
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Market Demand: Evaluate the market demand for summer shirts. If the demand is low, a 20% markup may deter potential buyers. It is essential to analyze current market prices and competitor offerings.
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Cost Analysis: Ensure that the cost price reflects all costs incurred. Selling below cost could lead to losses. The cost price must be clearly understood to avoid underpricing.
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VAT Implications: Since the sale would be for cash, ensure that the VAT is appropriately calculated and included in pricing, as incorrect VAT handling could lead to compliance penalties.
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Financial Viability: Assess whether this sale will significantly impact cash flow. A cash-only policy may attract immediate sales but could limit broader customer access, particularly to credit buyers.
In summary, Joe should conduct thorough market research and ensure that pricing strategy aligns with both cost structure and market conditions.
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
To prepare the Asset Disposal account, consider the following entries:
Asset Disposal Account
| Date | Description | Debit | Credit |
|---|---|---|---|
| 01/12/2015 | Disposal of old equipment | R25,000 | |
| 01/12/2015 | Accumulated depreciation | R54,800 | |
| 01/12/2015 | Carrying value of the old equipment | R54,800 |
The net gain or loss on disposal is calculated as follows:
Calculation of Gain/Loss on Disposal:
- Cost of Old Equipment Sold: R54,800
- Sale Proceeds: R25,000
- Net Loss on Disposal = Carrying Value - Sale Proceeds = R54,800 - R25,000 = R29,800
Thus, record the loss in the Profit and Loss statement.
Step 4
6.3.2 Calculate the missing amounts denoted by (a) to (d) on the fixed asset note provided.
Answer
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Additions (a): The amount of R126,000 represents new equipment added to the fixed asset.
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Disposals (b): Since old equipment was sold, this should be recorded as R0.
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Depreciation (c): For the current year, calculate based on the straight-line method:
- Equipment Cost = R54,800; Depreciation Rate 20%
- Depreciation for the year = R54,800 * 0.20 = R10,960
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Accumulated Depreciation (d): Must include total depreciation across the years. Sum should match previous accumulated figures adjusted for new assets.
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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Technology Upgrades: The old office equipment may have become outdated, leading to inefficiencies. Businesses often upgrade to maintain a competitive edge and ensure productivity.
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Cost Reduction: By disposing of outdated equipment, the business can reduce maintenance costs, thus freeing up resources for more productive investments. This can also align with a strategy to improve overall financial health.