2019 Accounting Written examination · Cost inventory cost assignment method and all inventory is...

ACCOUNTINGWritten examination

Friday 8 November 2019 Reading time: 11.45 am to 12.00 noon (15 minutes) Writing time: 12.00 noon to 2.00 pm (2 hours)

QUESTION BOOK

Structure of bookNumber of questions

Number of questions to be answered

Number of marks

9 9 100

• Studentsarepermittedtobringintotheexaminationroom:pens,pencils,highlighters,erasers,sharpeners,rulersandonescientificcalculator.

• StudentsareNOTpermittedtobringintotheexaminationroom:blanksheetsofpaperand/orcorrectionfluid/tape.

Materials supplied• Questionbookof10pages• Answerbookof23pages

Instructions• Writeyourstudent numberinthespaceprovidedonthefrontcoveroftheanswerbook.• Answerallquestionsintheanswerbook.• AllwrittenresponsesmustbeinEnglish.

At the end of the examination• Youmaykeepthisquestionbook.

Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room.

©VICTORIANCURRICULUMANDASSESSMENTAUTHORITY2019

Victorian Certificate of Education 2019

2019ACCOUNTINGEXAMQB 2

Question 1–continued

Question 1 (13marks)MaxxGamessellsawiderangeofvideogamesandgameconsoles.ThebusinessusestheIdentifiedCostinventorycostassignmentmethodandallinventoryismarkedupby50%.

Inventory Card

Item: Racing Plus video game Code: RP2018 Supplier: XA Imports

Cost Assignment Method: Identified Cost

Date 2019

Document IN OUT BALANCE

Qty Cost Total Qty Cost Total Qty Cost Total

Mar.1 Balance 10 5

45 47

450 235

3 CrN.23 1 45 45 11 5

45 47

495 235

6 Inv.564 3 2

45 47

135 94

8 3

45 47

360 141

12 Memo43 8 3

20 22

160 66

11

25

275

a. RecordthefollowingtransactionsintheInventoryCardprovided:• 14March AcashpurchaseofthreecopiesoftheRacingPlusvideogamefor$20

(plusGST)wasmadeatatradeshow(Chq.355).• 22March TheownerwithdrewtwocopiesoftheRacingPlusvideogametouseasgifts

forhisfriends(Memo46).Thesewerefromthecopiesthatwerevaluedat$25.• 30March Aphysicalstocktakerevealedthattherewere13copiesoftheRacingPlus

videogameonhand(Memo47).Thisincludedthethreecopiespurchasedon14March. 3marks

b. DescribethetransactionsthathaveledtotheentriesintheInventoryCardon:• 3March• 12March. 2marks

c. LabeltheledgeraccountsandpreparetheledgerentriestorecordMemo43. 2marks

d. DescribetheeffectsthatMemo43wouldhaveonthefinancialreportsofMaxxGames. 3marks

3 2019ACCOUNTINGEXAMQB

TURN OVER

e. TheownerofMaxxGamesisbecomingconcernedabouttheliquidityofthebusiness.Thefollowingdatahasbeenprovidedfortheyearended30June.

2017 2018 2019

Inventory Turnover 29days 35days 45days

Working Capital Ratio 1.5:1 1.1:1 0.8:1

Quick Asset Ratio 2.3:1 2.3:1 2.3:1

TheownerdoesnotunderstandhowtheWorkingCapitalRatiocanbedecliningwhiletheQuickAssetRatioisnot.

Provideanexplanationtotheowner. 3marks


Question 2 (18marks)Freja’sFurniturereportseverythreemonths.ThebusinessispreparingitsCashFlowStatementforthethreemonthsended31December2019.Thebusinessprovidesthefollowinginformation.

Freja’s FurnitureBalance Sheet (extract) as at 30 September 2019 31 December 2019AccountsReceivable $28000 $18000Inventory 22000 25000PrepaidAdvertising – 4500AccountsPayable 60000 65000GSTClearing 22000cr 7000crAccruedWages 1000 800

Details for the three months ended 31 December 2019Sales(80%cash) $400000CostofSales $210000WagesExpense $55000AdvertisingExpense $15000Drawings(cash) $8000InventoryLoss $4000

Additional information• Allpurchasesofinventorywereoncreditterms5/10,n/30.Thediscountwasalwaystaken.• PurchasesReturnswere$6000(plusGST).• GSTreceivedfromcashsaleswas$32000.• Apaymentof$31350wasmadetotheAustralianTaxationOffice(ATO)inDecember

2019asaGSTsettlement.

a. Reconstructthefollowingledgeraccountsforthethreemonthsended31December2019:• AccountsReceivable–toidentifythecashreceivedfromaccountsreceivable• AccountsPayableandInventory–todeterminethepaymentstoaccountspayable 7marks

b. CalculatetheamountofGSTpaidoncashpayments. 1mark

c. PreparetheoperatingsectionoftheCashFlowStatementforthethreemonthsended 31December2019. 6marks

d. Explain,givingtwoexamples,howtheNetCashFlowfromOperationscanbehigherthantheNetProfitforthesameperiod. 4marks


TURN OVER

Question 3 (7marks)Going321hasconcernsaboutitsliquidity.ThebusinessisexaminingitsBudgetedCashFlowCoverbecauseitisconcernedaboutitsincreasinglevelofCurrentLiabilities.TheformulaforcalculatingtheCashFlowCoveris

Net Cash Flow from Operating ActivitiesAverage Current Liabilitiess

ThefollowingBudgetedCashFlowCoverisprovided.

April May June

Budgeted Cash Flow Cover (times per period)

7 4 0.6

a. DescribetheeffectthatthetrendshowninthetableabovewillhaveonGoing321’sliquidity. 2marks

b. SuggesttwopossiblereasonsforthistrendintheBudgetedCashFlowCover. 2marks

c. ExplainandjustifyonestrategytoimprovetheCashFlowCoverandtoavoidachievingthisBudgetedCashFlowCover. 3marks


Question 4 (18marks)KlapperBikessellscustomisedmotorcycles.Thebusinesscommencedoperationson1June2019andwillreportmonthly.

Klapper Bikes Pre-adjusted Trial Balance as at 30 June 2019

Debit CreditCashatBank 300000GSTClearing 71500Vehicles 180000Inventory 70000PrepaidAdvertising 15000AccountsPayable 225000SalesRevenue 900000TermDeposit 240000CostofSales 450000Wages 190000Capital 391500 $1 516 500 $1 516 500

Additional information• Advertisingof$15000(plusGST)wasprepaidforsixmonthson1June2019.• Rentof$5500(plusGST)permonthispaidattheendofeachmonthforthefollowing

month.DuetoanoversighttherentforJunewillbepaidon7July2019.• On30June2019,wagesowingtoemployeeswere$2000.• Thebusinesshasamark-upof100%oncost.• Thebusinessinvestedexcesscashina12-monthtermdepositon15June2019,whichis

earning3%perannum.Theinterestispayableannuallyon31December.• Thevehicleswerepurchasedon1Juneandaretobedepreciatedat20%perannumusing

thereducingbalancemethod.

a. PreparetheGeneralJournalentriesrequiredon30June2019torecordtheadditionalinformation.

Narrationsarenotrequired. 10marks

b. Withreferencetooneaccountingassumption,explainwhyitisnecessarytorecordtheadditionalinformation. 3marks

c. PreparetheIncomeStatementforthemonthended30June2019. 5marks


TURN OVER

Question 5 (8marks)OutsideClimbersellshikingequipmenttoclubsandthegeneralpublic.Itreportsmonthly.Forthemonthended30June2019,creditsaleswere$95000andsalesreturnswere$5000.ThebalanceofAccountsReceivableasat30June2019was$122000.On30June2019,theaccountantwasconcernedaboutadecliningAccountsReceivableTurnoverandaboutpossiblebaddebts,anddecidedtoraiseanAllowanceforDoubtfulDebtsequalto2%ofnetcreditsales(Memo12).

a. PreparetheGeneralJournalentryrequiredon30June2019torecordtheallowance. Anarrationisnotrequired. 2marks

On18July,accountsreceivabletotalling$2750werewrittenoffasunrecoverable(Memo62).NetcreditsalesforJulywere$110000andthebalanceofAccountsReceivableasat31July was$135000.On31July,theaccountantdecidedtoincreasetheAllowanceforDoubtfulDebtsto3%ofnetcreditsales(Memo68).

b. PreparetheGeneralJournalentriesrequiredon:• 18July2019torecordthewrite-off• 31July2019torecordthenewallowance.

Narrationsarenot required. 4marks

c. ShowhowAccountsReceivablewouldbereportedintheBalanceSheetasat31July2019. 2marks


Question 6 (12marks)YYYreportsannuallyon30June.On1April2019,thebusinesspurchasedmachineryfor $220000(incl.GST)(Chq.4530).Installationofthemachinerycost$6600(incl.GST)andwaspaidon1April(EFT160187).Themachineryhadanestimatedusefullifeof10yearsandaresidualvalueof$11600.

a. PreparetheGeneralJournalentryorentriestorecordthetransactionson1April2019. Narrationsarenot required. 4marks

Thebusinessisdecidingwhethertodepreciatethemachineryusingthestraight-linemethodorthereducingbalancemethodat25%perannum.

b. Calculatetheamountofdepreciationthatwouldberecordedat30June2019usingthe:• straight-linemethod• reducingbalancemethod. 4marks

c. Theaccountantrecommendedthereducingbalancemethod,saying,‘Itdoesn’tmattermuchwhichmethodisused,asitallworksoutthesameintheend’,andprovidedthefollowingchart.

straight-line method reducing balance method

Key

0 1 2 3 4 5 6 7 8 9 10

$250000

$200000

$150000

$100000

$50000

0

Accumulated depreciation

year

Explaintheaccountant’scomment. 4marks


TURN OVER

Question 7 (9marks)Health900sellshealthproductstoagrowingmarket.Theownerisconsideringsellingthebusinessanddecidesthatahigherprofitisneeded.However,theownerdoesnotwishtochangethebusinessmodel,exceptforchangingfromusingtheFirstIn,FirstOut(FIFO)inventorycostassignmentmethodtousingtheIdentifiedCostinventorycostassignmentmethod.Thebusinesspurchasedmuchmoreinventorythanitneededduringthepreviousyear.Inventoryboughtearlyintheyearwasoftenmoreexpensivethaninventoryboughtlaterintheyear.Forthecurrentfullreportingperiod,thebusinessdeliberatelystackedtheitemsboughtatthelowestpricesatthefrontoftheshelvessothattheseitemswouldbesoldfirst.Bydoingthis,thebusinesshopedtoreportahigherprofitandgreaterassetvaluesthanwouldhavebeenpossibleusingtheFIFOinventorycostassignmentmethod.

a. Explainhowtheownerwouldachieveahigherprofitandgreaterassetvalues. 4marks

b. Discussanyethicalissuesthattheownershouldconsider.Refertoonequalitativecharacteristicthatmaybebreachedasaresultofinventorybeingstackedinthisway. 5marks

Question 8 (5marks)AbusinesspreparedaTrialBalanceattheendofJune2019.However,itsaccountantnoticedacashentryof$1000intheWagesaccountthatshouldhavebeenrecordedasDrawings(MemoX4).

a. PreparetheGeneralJournalentrytocorrectthiserror. Anarrationisrequired. 3marks

b. DescribetheeffectsthiscorrectingentrywillhaveonOwner’sEquity. 2marks


Question 9 (10marks)ABudgetedIncomeStatement(andaccompanyingnotes)for2020hasbeenpresentedtotheownerofabusiness.Itshowsthefollowinginformation.

$ $ Notes

RevenueSales 700 000 basedonsalesof100000unitsat$7perunitlessCostofSales 315000 45%ofsalesGross Profit 385000 55%ofsalesExpensesRent 45000 currentpremisesWages 140000 20%ofsalesAdvertising 70 000 10%ofsalesTotalexpenses 255000Budgeted Net Profit 130 000

Theownerwouldliketoexpandoperationsandaskstheaccountanttoinvestigatethefollowingtwooptions:• OptionA–remaininthecurrentpremisesandincreasethesalesvolumeto120000units• OptionB–movetolargerpremisesandincreasethesalesvolumeto140000units

Thesellingpriceperunitwillremainconstant.Theaccountantprovidesthefollowingdata.Notethatallpercentagesinthetablebelowarepercentagesoftotalsales.

Current budget 100 000 units

Option A 120 000 units

Option B 140 000 units

RevenueSaleslessCostofSalesGross ProfitExpensesRentWagesAdvertising

100%45%55%

$4500020%10%

100%43%57%

$4500022%11%

100%40%60%

$6500025%13%

Budgeted Net Profit $130 000

a. CompletethetableprovidedtoshowthefinancialdataforOptionAandOptionB. 4marks

b. Analysetheresultsandmakearecommendationtotheowner.Givereasonsforyourrecommendation. 6marks

END OF QUESTION BOOK

Instructions

• Aquestionbookisprovidedwiththisanswerbook.• Answerallquestionsinthespacesprovidedinthisbook.• Writeyourstudent numberinthespaceprovidedaboveonthispage.• RefertoInstructionsonthefrontcoverofthequestionbook.

Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room.

©VICTORIANCURRICULUMANDASSESSMENTAUTHORITY2019

ACCOUNTINGWritten examination

Friday 8 November 2019 Reading time: 11.45 am to 12.00 noon (15 minutes) Writing time: 12.00 noon to 2.00 pm (2 hours)

ANSWER BOOK

SUPERVISOR TO ATTACH PROCESSING LABEL HEREVictorian Certificate of Education 2019

STUDENT NUMBER

Letter

2019ACCOUNTINGEXAMAB 2

THIS PAGE IS BLANK

3 2019ACCOUNTINGEXAMAB

TURN OVER

THIS PAGE IS BLANK


Question 1 –continued

Question 1 (13marks)a. 3marksInventory Card

Item: Racing Plus video game Code: RP2018 Supplier: XA Imports

Cost Assignment Method: Identified Cost

Date 2019

Document IN OUT BALANCE

Qty Cost Total Qty Cost Total Qty Cost Total

Mar.1 Balance 10 5

4547

450235

3 CrN.23 1 45 45 11 5

4547

495235

6 Inv.564 32

4547

135 94

83

4547

360141

12 Memo43 83

2022

160 66

11

25

275

b. 2marks

3 March

12 March


Question 1 –continuedTURN OVER

c. 2marks

Date 2019

Cross-reference Amount Date 2019

Cross-reference Amount

Date 2019



d. 3marks

Description


e. 3marks

Explanation


TURN OVER

CONTINUES OVER PAGE



Question 2 (18marks)a. 7marksFreja’s FurnitureGeneral Ledger

Accounts Receivable

Date 2019



Accounts Payable

Date 2019



Inventory

Date 2019




Question 2–continuedTURN OVER

b. 1mark

Working space

GST paid on cash payments $

c. 6marks

Working space

Freja’s FurnitureCash Flow Statement (extract) for the three months ended 31 December 2019

$ $


d. 4marks

Explanation


TURN OVER

Question 3 (7marks)a. 2marks

Description

b. 2marks

Reason 1

Reason 2

c. 3marks

Explanation and justification




Working space

Klapper BikesGeneral Journal

Date 2019

Details Debit Credit


TURN OVER

b. 3marks

Accounting assumption

Explanation

c. 5marksKlapper Bikes

Income Statement for the month ended 30 June 2019

$ $



Question 5 (8marks)

Working space

a. 2marksOutside ClimberGeneral Journal

Date 2019


b. 4marksOutside ClimberGeneral Journal

Date 2019



TURN OVER

c. 2marksOutside Climber

Balance Sheet (extract) as at 31 July 2019

Current Assets $ $



Question 6 (12marks)a. 4marksYYY General Journal

Date 2019


b. 4marks

Straight-line method Reducing balance method

$ $


TURN OVER

c. 4marks

Explanation




Explanation


TURN OVER

b. 5marks

Discussion


Question 8 (5marks)a. 3marksGeneral Journal

Date 2019


b. 2marks

Description


TURN OVER

CONTINUES OVER PAGE




Current budget 100 000 units

Option A 120 000 units

Option B 140 000 units

Revenue

Sales $700000

lessCostofSales $315000

Gross Profit $385000

Expenses

Rent $45000

Wages $140000

Advertising $70000

Totalexpenses $255000

Budgeted Net Profit $130 000


b. 6marks

Analysis and recommendation

END OF ANSWER BOOK

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