Choose the Most Correct Answer from Each of the Following Statements
2014 ACCOUNTING OLYMPIAD
QUESTION 1 - THEORY
Choose the most correct answer from each of the following statements:
1 / The owners of a Close Corporation are referred to as:A / Members
B / Shareholders
C / Partners
D / Traders
2 / The word LTD after the name of a company means:
A / The number of owners is limited
B / The capital is limited
C / The rights of the owners is limited
D / The liability of the owners is limited to what they invest in the company
3 / The Companies Act regulating companies in South African is:
A / Companies Act of 1973
B / Companies Act of 2008
C / Companies Act of 2011
D / Companies Act of 1998
4 / Under the new Companies Act there are two basic types of companies:
A / Public and private companies
B / Companies and Close Corporations
C / For profit companies and non-profit companies
D / Registered and non-registered companies
5 / Which of the following is not a characteristic of a public company?
A / The shares of the company are not freely transferable
B / The public may buy shares in the company
C / Financial statements must be disclosed (published)
D / The company must have at least three directors
6 / The three main cost components of a manufacturing business are:
A / Direct materials, direct labour and factory overheads
B / Raw materials, direct labour and selling costs
C / Raw materials, direct labour and administration costs
D / Labour, raw materials and taxes
7 / Which of the following statements is the most correct:
A / A cash budget is drawn up to ascertain the income and expenses of a business
B / A cash budget is drawn up to determine the future profit of a business
C / A cash budget is drawn up as part of internal control
D / A cash budget is drawn up as a control measure to monitor inflows and outflows of cash in order to determine if a business has enough cash on hand
8 / The document that is required to form a company under the present Companies Act is:
A / Prospectus
B / Memorandum of Incorporation
C / Memo of Registration
D / Initial Public Offering
9 / The market place where shares are traded is:
A / Bank
B / Trading company
C / Brokerage
D / Security exchange
10 / Which one of the following statements is incorrect:
A / Under the perpetual stock system cost of sales is calculated at the point of sale
B / Carriage on purchases increases the cost of trading stock bought
C / Under the periodic stock system cost of sales can only be calculated after a physical stock taking has taken place
D / Physical stocktaking is only carried out when the periodic stock system is used
Companies: Questions 11 – 14 are independent of each other.
11 / SARS (Income tax) account shows a debit of R480000 on the Pre-adjustment Trial Balance on 28 February 2014. Actual income tax for the year ended 28 February 2014 amounted to R410000. The SARS (Income tax) amount to be shown in the Balance Sheet on 28 February 2014 is:A / R410000 will be shown under current liabilities
B / R70000 will be shown under current liabilities
C / R480000 will be shown under current assets
D / R70000 will be shown under current assets
12 / The net profit after tax amounted to R662400. Tax was levied at 28% of net profit before tax. The net profit before tax was:
A / R847 872
B / R920 000
C / R476 928
D / R861 120
13 / On the 1 June 2013 (beginning of the financial year) a company had issued 60% of their authorised share capital of 3000000 shares. On the 30 November 2013 the company announced they will be issuing another 20% of the authorised shares. A shareholder owns 950 000 shares of the original shares sold. What is the minimum number of shares that the shareholder will need to purchase in the issue on the 30 November 2013 in order to be the majority shareholder?
A / 580 000 shares
B / 1530000 shares
C / 250 100 shares
D / 850000 shares
14 / Mr Jones owns 45% of the issued share capital of 500000 ordinary shares and does not intend selling them back to the company. However, the company has agreed to buy back 15% of the issued shares on request of some of the shareholders. What % will Mr Jones own after the company has bought back 15% of the issued shares?
A / 45%
B / 30%
C / 52.9%
D / 38.25%
The following information relates to questions 15–21:
The authorised share capital amounted to 5000000 ordinary shares.
The issued share capital for the financial year ended 28 February 2014:
· Balance on 1 March 2013 2000000 ordinary shares @ 220 cents each.
· 30 June 2013 1100000 ordinary shares sold @ 265 cents each.
· 31 October 2013 900000 ordinary shares sold @ 272 cents each.
· 31 December 2013 50000 ordinary shares were bought back from a deceased estate for 276 cents per share.
Dividends paid and declared during the year ended 28 February 2014:
· The balance on the Shareholders for dividends account on 1 March 2013 of R300000 was paid.
· An interim dividend of 30 cents per share was paid on 30 November 2013.
· A final dividend of 45 cents per share was declared on 28 February 2014.
The balance on the retained income account on 1 March 2013 was R3 950000. Net profit after tax was R640000.
15 / The weighted average issue price of the shares re-purchased by the company (rounded off to the nearest cent) is:A / 276 cents
B / 252 cents
C / 244 cents
D / 220 cents
16 / The weighted average number of shares for the year ended 28 February 2014 is:
A / 4000000 shares
B / 3025000 shares
C / 3262500 shares
D / 3950000 shares
17 / The dividends paid for the financial year ended 28 February 2014 to be shown in the Cash flow statement will be:
A / R1500 000
B / R2977 500
C / R1200 000
D / R1777 500
18 / The share capital account in the Balance Sheet on 28 February 2014 would show an amount of:
A / R9763 000
B / R4400 000
C / R5363 000
D / R9641 000
19 / The balance on the retained income account on 28 February 2014 is:
A / R4590 000
B / R1612 500
C / R1596 500
D / R2796 500
20 / Choose the most correct statement when shares are bought back by a company at a price higher than the weighted average price is:
A / The full amount of the buy-back of shares is debited to the share capital account.
B / The excess between the weighted average price of shares and the amount paid is debited to the retained income account.
C / The full amount of the buy-back of shares is debited to the retained income account.
D / The excess between the weighted average price of shares and the amount paid is credited to the retained income account.
21 / The net effect from the movement of shares as shown in the Cash Flow statement for the year ended 28 February 2014 is:
A / R5225000 inflow
B / R9763000 inflow
C / R9641000 inflow
D / R5241000 inflow
CREDITORS RECONCILIATION:
Use the following information to answer questions 22 - 26:
CREDITORS LEDGER OF BOSCH STORES
CREDITOR: AB WHOLESALERS
Dr / Cr / BalanceMar / 1 / Balance / 18 000
3 / Invoice 125 / 2 200 / 20 200
8 / Debit note 15 / 510 / 20 710
20 / Invoice 139 / 3780 / 24 490
26 / Cheque 149 / 5000 / 19 490
Discount / 500 / 18 990
28 / Invoice 145 / 4 000 / 22 990
STATEMENT RECEIVED FROM AB WHOLESALERS
DEBTOR: BOSCH STORES
Dr / CrMar / 1 / Balance / ? / ?
3 / Invoice 125 / 2 200
5 / Receipt 85 / 5450
Discount / 150
9 / Credit note 24 (Debit note 15) / 510
16 / Invoice 134 / 3100
20 / Invoice 139 / 3 990
ADDITIONAL INFORMATION:
· Receipt 85 was for a payment made on 27 February 2014. Bosch Stores did not make an entry the discount.
· AB Wholesalers only allowed 5% trade discount on invoice 139.
· Invoice 134 was for goods that AB Wholesalers sold to Brown Stores.
· Invoice 145 was for goods bought by Bosch Stores from Willows and Sons.
22 / What double entry in the creditor’s ledger should Bosch Stores make to correct the error on invoice 145?A / Dr Willows and Sons; Cr AB Wholesalers
B / Dr Creditors control; Cr Trading stock
C / Dr AB Wholesalers; Cr Willows and Sons
D / Dr Trading stock; Cr Creditors control
23 / What does the bookkeeper need to do to correct the error on debit note 15?
A / Deduct R510 from the Creditors Ledger
B / Deduct R1020 from the Creditors Ledger
C / Add R510 to the Creditors Ledger
D / Add R1020 to the Creditors Ledger
24 / What entry should Bosch Stores record in the Creditors Ledger for the R5450?
A / Debit with R5 450
B / Credit with R5 450
C / Debit with R10 900
D / No entry
25 / What entry should be made by Bosch Stores to correct the error on invoice 139?
A / Credit of R210 in the Creditors Ledger
B / Debit of R210 in the Creditors Ledger
C / Credit of R210 on the Creditors Reconciliation statement
D / Debit of R210 on the Creditors Reconciliation Statement
26 / The correct reconciled balance on the Creditors Ledger and the Creditors Reconciliation Statement is:
A / R22 990
B / R18 030
C / R18 540
D / R18 270
BANK RECONCILIATION: Use the following information to answer questions 27 - 34:
BANK RECONCILIATION OF JACOBS STORES AS AT 31 MARCH 2014
Unfavourable balance as per bank statement / 12 650Outstanding deposit / 4 120
Outstanding cheques: No 220 (dated 10 October 2013) / 1 890
No 254 (dated 4 March 2014) / 2 660
No 262 (dated 7 May 2014) / 3 190
Correction of incorrect credit by the bank / 850
Balance as per bank account / ?
27 / The balance on the bank account on 1 April 2014 is:
A / R17120 credit
B / R15420 credit
C / R17120 debit
D / R15420 debit
28 / The April bank statement showed that of the outstanding cheques only cheque no 254 had been presented for payment. How must the business treat cheque no 220?
A / Put it in the bank reconciliation statement as an outstanding cheque
B / Make an entry in the Cash Receipts Journal
C / Make an entry in the Cash Payments Journal
D / Make no entry
29 / How must the business treat cheque no 262 at the end of April 2014?
A / Put it in the bank reconciliation statement as an outstanding cheque
B / Enter in the Cash Receipts Journal
C / Enter in the Cash Payments Journal
D / Make no entry
30 / The financial year end for the business is 30 April 2014. How should cheque no 262 be treated in the financial statements? Note that the bank is in overdraft at this stage.
A / Increase the bank overdraft; add to creditors control
B / No entry
C / Decrease the bank overdraft; decrease creditors control
D / Decrease the bank overdraft; add to creditors control
31 / During April the business received a cheque (dated 20 May 2014) from A Mboni for R650. Which statement is correct on how the business should treat this cheque?
A / No entry
B / Enter in the CRJ and treat as an outstanding deposit in the bank reconciliation statement
C / Enter in the CRJ only
D / Enter in the bank reconciliation statement as an outstanding deposit only
32 / Which of the following is not a bank charge?
A / ATM fees
B / Interest
C / Sundry debits
D / Service fees
33 / Which GAAP principle is applied in answering no 32?
A / Prudence
B / Faithful representation
C / Matching
D / Materiality
34 / Which statement could explain the entry of R850 on the bank reconciliation statement at the end of March above?
A / A cheque was wrongly deducted from the business account
B / Too much was deducted for a stop order
C / A transfer was wrongly entered in the business account
D / Bank overcharged on bank charges
COST ACCOUNTING: use the following information to answer questions 35 - 39:
Extract from the books of JB Stores who made and sold 50 000 units during the year ended
30 April 2014.
COST ITEMS / TOTAL COST / UNIT COSTDirect material / 420 000 / ?
Direct labour / ? / R13.80
Factory overheads / 720 000 / R14.40
Administration costs / 280 000 / 5.60
Selling and distribution costs / R340 000 / 6,80
Selling price / ? / R75.00
35 / Which of the following is not a variable cost:
A / Direct material cost
B / Direct labour cost
C / Factory overhead cost
D / Selling and distribution cost
36 / The prime cost per unit is:
A / R22.20
B / R36.60
C / R42.20
D / R49.00
37 / The unit cost of production is:
A / R22.20
B / R36.60
C / R42.20
D / R49.00
38 / The break-even sales units is:
A / 29131 units
B / 20409 units
C / 21740 units
D / 26042 units
39 / Which of the following would not be a possible reason for a decrease in the unit cost of direct material?
A / Decrease in transport costs
B / Reduction in the VAT rate for a registered VAT vendor
C / Cheaper material sourced
D / Control of wastage
PRODUCTION COST: use the following information to answer questions 40 - 43:
Direct material cost / 550 000Direct labour cost / 620 000
Factory overhead cost / 290 000
Work-in-progress at the beginning of the year / ?
Work-in-progress at the end of the year / 50 000
Finished goods at the beginning of the year / 170 000
Finished goods at the end of the year / 98 000
Sales (mark-up on cost = 80%) / 2739 600
40 / The cost price of the goods sold is:
A / R1522 000
B / R2191 680
C / R1217 600
D / R2283 000
41 / The total cost of production for the year amounted to:
A / R1460 000
B / R1450 000
C / R1522 000
D / R1410 000
42 / The total cost of finished goods produced during the year amounted to:
A / R1460 000
B / R1450 000
C / R1522 000
D / R1410 000
43 / Which statement is most correct (assume there are no increase in costs):
A / If the units produced increase the factory overhead cost per unit will stay the same
B / If the units produced increase the factory overhead cost per unit will decrease due to economy of scale
C / If the units produced increase the factory overhead costs will increase in direct proportion to the number of units produced
D / If the units produced increase the factory overhead cost per unit will increase due to economy of scale
VAT: use the following information to answer questions 44 - 49: