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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 for the two-month period ended 30 April 2016. Indicate whether the amount is payable or receivable.
Answer
To calculate the VAT payable or receivable, we first determine the output VAT and the input VAT for the two-month period.
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Output VAT Calculation:
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Total sales (inclusive of VAT): R277,020
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To find out the VAT included in sales, we use the formula:
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Thus,
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Input VAT Calculation:
- Calculate input VAT from the purchases:
- Total Purchases (excluding VAT): R102,000
- Apply VAT, we have:
- Calculate input VAT from the purchases:
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Net VAT Calculation:
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Now we calculate the difference between output VAT and input VAT:
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Substituting the values:
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This means the business collected more VAT on its sales than it paid on its purchases. Therefore, this amount is payable to the revenue.
Step 2
6.2.2 Joe Fiji, the owner of Fiji Traders, proposed to sell all the old summer shirts at a profit mark-up of 20% on cost. These transactions are to be for cash only and not credit. What advice would you offer Joe regarding this proposal? Explain.
Answer
When considering Joe's proposal to sell old summer shirts at a 20% profit mark-up, several aspects need to be addressed:
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Pricing Strategy: The proposed mark-up should be evaluated against market conditions. If the price after a 20% mark-up is competitive, it could lead to sales. Conversely, if similar shirts are available at lower prices, this could result in low sales volume.
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Cash Transactions: Selling for cash only can ensure immediate revenue, which is advantageous. However, it may limit the customer base, as some consumers might prefer options for credit purchases. Joe should consider whether cash-only limits his sales potential.
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Inventory Clearance: Focusing on liquidating old inventory can free up capital for newer stock. This could be an effective strategy in cyclical markets. However, if the shirts are out of season, Joe might need to consider deeper discounts to spur purchases.
In conclusion, while the proposal has benefits like generating immediate cash flow, Joe should ensure that the pricing is competitive and consider the implications of a cash-only policy.
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, we will record the costs associated with the disposal of the old office equipment:
Asset Disposal Account:
| Date | Description | Debit (R) | Credit (R) |
|---|---|---|---|
| 1 December 2015 | Old Equipment Cost | 54,800 | |
| 1 December 2015 | Accumulated Depreciation | 25,200 | |
| 1 December 2015 | Sale Proceeds | 25,000 | |
| Balance | 54,800 | 50,200 |
In summary, the asset disposal transaction reflects the cost of the equipment, the related accumulated depreciation, and the proceeds received from the sale.
Step 4
6.3.2 Calculate the missing amounts denoted by (a) to (d) on the fixed asset note provided.
Answer
To find the missing amounts (a) to (d), we can rely on the provided fixed asset schedule and fill in the necessary calculations. Here’s the breakdown:
- (a) Additions: Assuming new purchases were made, we will sum this to the previous carrying values.
- (b) Disposals: Based on the disposal account calculations, this amount will equal the cost of the assets sold (R54,800).
- (c) Depreciation: Calculate the year-end depreciation based on straight-line or relevant percentages from the cost and accumulated values provided.
- (d) Carrying Value Calculation: This should be determined by subtracting accumulated depreciation from the cost.
This way, we will derive the values by applying standard accounting principles to the asset note details.
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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Outdated Equipment: The business may have found that the old office equipment was no longer efficient or compatible with newer technology, burdening operational efficiency.
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Cost Savings: Disposing of old equipment implies a reduction in maintenance costs. The firm recognizes that newer equipment can lower repair expenses and enhance productivity.