Photo AI
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 calculate the VAT payable or receivable, we need to determine the total VAT collected and the total VAT input.
-
Calculate Output VAT:
Total Sales (inclusive of VAT) = R277,020 The formula to extract VAT is:
[\text{VAT} = \frac{\text{Sales} \times 14}{114}]
Total Output VAT = ( R277,020 \times \frac{14}{114} = R34,041.86 \approx R34,042 )
-
Calculate Input VAT:
Total Purchases (excluding VAT) = R102,000 Total VAT on Purchases = R102,000 ( \times \frac{14}{100} = R14,280 )
-
Determine VAT Payable or Receivable:
If Output VAT > Input VAT:
VAT Payable = Output VAT - Input VAT
[ \text{VAT Payable} = 34,042 - 14,280 = R19,762 ] (payable to the revenue authority)
If Input VAT > Output VAT:
VAT Receivable = Input VAT - Output VAT
Step 2
What advice would you offer Joe regarding this proposal? Explain.
Answer
Joe should be cautious about selling the old summer shirts for cash only and without charging VAT for several reasons:
-
Compliance with Regulations: Since Joe is running a VAT registered business, he is obligated to charge VAT on all taxable supplies. Failing to collect VAT can lead to compliance issues with the tax authorities.
-
Potential Loss of Revenue: By not charging VAT, Joe may make his prices more competitive in the short term, but he is also erasing the possibility of reconciling those sales with his VAT calculations, leading to potential losses in related claims.
-
Profit Margin Considerations: While the profit margin may initially seem attractive, undermining tax responsibilities can lead to future penalties that outweigh the immediate benefits. Joe should investigate strategies to sell the inventory compliantly, ensuring he adheres to tax laws.
Step 3
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:
-
Identify the Cost of the Old Equipment:
- Assume that the cost of old office equipment was R25,000, and it was sold for R5,000 and has accumulated depreciation.
-
Calculate the Book Value:
Book Value = Cost - Accumulated Depreciation
If accumulated depreciation at the point of sale was R20,000: Book Value = R25,000 - R20,000 = R5,000
-
Set Up the Disposal Account:
- Debit Cash from Sale: R5,000
- Credit Asset Disposal: R25,000
- Credit Accumulated Depreciation: R20,000
Asset Disposal Account T-account:
Asset Disposal Account Dr Cr Cash (sale proceeds) 5000 Office Equipment 25000 Accumulated Dep. 20000
Step 4
Calculate the missing amounts denoted by (a) to (d) on the fixed asset note provided.
Answer
To calculate the missing amounts:
-
Identifying Costs:
- For Property (a): If the cost is R930,000 and accumulated depreciation is R234,000, the carrying value should be:
[ (a) = R930,000 - R234,000 = R696,000 ]
-
Vehicles (b):
- Given that two vehicles were purchased for R1,380,000 but accumulated depreciation was more, we can find:
[ (b) = R1,380,000 - R672,000 (for depreciation) = R708,000 ]
-
Equipment (c):
- Where cost is unknown but the accumulated depreciation was noted to be R468,000, calculate:
[ (c) = \text{Cost} - \text{Accumulated Depreciation} = R720,000 - R468,000 = R252,000 ]
-
Final Carrying Values (d):
- Summing the carrying values provides clear insight on total asset health.
Step 5
Provide TWO possible reasons why the business decided to dispose of the old office equipment.
Answer
-
Outdated Technology: The old equipment may have become outdated or less efficient, leading to increased maintenance costs and productivity issues. Replacing it with newer technology can enhance operational efficiency.
-
Financial Returns: The business may have decided to dispose of the old office equipment to reinvest in more profitable options, enhancing their financial position or reducing costs associated with maintaining older equipment.