Download - 2005 Updated
-
8/9/2019 2005 Updated
1/29
The following exam has been revised by the VCTA for usewith the re-accredited Study Design for 2007-2010
2005
ACCOUNTING
Written Examination 2
QUESTION BOOK
-
8/9/2019 2005 Updated
2/29
Question 1
Collins Camping
Collin Campbell owns and operates a small trading business called Collins Camping , which
sells camping equipment. His accounting system is based on the double-entry accrual system
of recording and reporting. Collin maintains a perpetual stock recording system and control
accounts for Debtors, Creditors and Stock.
1.1The following account balances were taken from the Trial Balance on 5 December2005.
$Stock Control 36 000 DrDebtors Control 9
800 Dr
The Debtors Schedule at this date showed:
Simons Sports Club 4 900City West Primary 2 600Mitch Davies 2 300
9 800
The following Journals have been prepared for the week ending 12 December 2005.
Sales JournalDate2005
Debtor InvNo
CostPrice
SellingPrice
GST TotalDebtors
9 Dec City West Primary 64 450 880 88 96810 Dec A Franklin 65 330 590 59 649
12 Dec Simons SportsClub 66 950 1 680 168 1 848
Total 1 730 3 150 315 3 465
Purchases JournalDate2005
Creditor InvNo
Stock GST TotalCreditors
12 Dec Total 6 300 630 6 930
General Journal
Date
General Ledger SubsidiaryLedger
2005
Particulars Debit Credit Debit Credit
Dec
10 Sales Returns 800
GST Clearing Account 80
Debtors Control 880
Debtor City WestPrimary
880
Stock Control 450
Cost of Sales 450
Customer returns
damaged stock
-
8/9/2019 2005 Updated
3/29
- Credit Note A11
The following information relates to the week ending 12 December 2005 and has yet beenrecorded.
Cash ReceiptsReceipt 83 Cash Sale on 7 December for $1 320 + $132 (cost price $780)Receipt 84 City West Primary settled their account on 8 December, taking full
advantage ofa 4% discount.
Receipt 85 Cash Sale on 11 December for $940 + $94 (cost price $460).
Receipt issues as follows.
Collins Camping Receipt No. 86Glenferrie RoadMalthorn 12 December 2005
Received from: Simons Sports Club12 Sports ParadeFitnessville
Payment of Invoice No. 37 $2 250Total $2 250
Memo
Collins Camping Memo 31Glenferrie RoadMalthorn 12 December 2005
Comment: Debtor, Mitch Davies, has been declaredBankrupt. The business has received .40 cents in the dollar(Rec 87) of the amount owing.Action: Record the receipt and write off the balanceof the account.Signed:
Required
1.1.1 Record the receipts above in the Cash Receipts Journal.
(Total the Cash Receipts Journal.)
4 marks
1.1.2 Prepare the journal entries to record the information contained in Memo 31
(Narration is required)5 marks
1.1.3 Show how the Debtors Control account would appear in the General
-
8/9/2019 2005 Updated
4/29
Ledger after all the above information has been recorded. Balance theaccount at 12 December 2005
7 marks1.1.4 Show how the City West Primarys account would appear in the Debtors
Subsidiary Ledger after all the above information has been recorded.(Youare not required to balance the account)
3marks1.1.5 Show how the Stock Control account would appear in the General Ledger after all
the above information has been recorded. Balance the account at 12 December2005
4 marks
1.1.6 Explain how the use of the Debtors Control account and Debtors SubsidiaryLedger assists in
managing debtors.
2 marks
1.2 Collin plans to introduce a new type of tent. Purchases will be made in lots ofapproximately 50 units from an existing supplierOther details are:
$ Selling Price (per unit) 800 + $80 GST
Suppliers invoice price (per unit) 460
Waterproofing of tents before sale (per unit) 30
Advertising costs for new tent (per 50 units) 600
Packaging costs before sale (per unit) 10
Delivery out (optional) (per unit) 15 The delivery of tents from the supplier will be part of a larger, monthly delivery. Costs
of each delivery is $800 and is treated as a period cost.
Required1.2.1Explain why the $800 delivery cost is treated as a period cost.
2 marks1.2.2State the cost at which the new tents should be recorded in the stock
cards.3 marks
1.2.3Justify your treatment of the
Packaging costs Advertising costs
2 + 1 = 3 marks1.2.4State the effect on reported Net Profit, of treating the delivery cost of
$800 as a period cost, if all stock has not been sold by the next reportingdateExplain your answer
1 + 2 = 3marks1.3 At 31 December 2005 the accountant provided the following information relating tostock.
2004 2005Average Stock x 365
Stock turnover Cost of Goods Sold 61 days 74 days
-
8/9/2019 2005 Updated
5/29
RequiredExplain how the change in stock turnover could have a
Negative effect on Liquidity
Positive effect on Net Profit2 + 2 = 4 marks
1.4 Collin has been concerned about the profitability of his business. Hisaccountant however says that profitability has been improving and provides him withfollowing information.
Year Ended 30/6/2005 Quarter Ended 30/9/2005$ % $ %
Sales 220 000 100 66 000 100Cost of Sales 88 000 40 24 000 36Gross Profit 132 000 60 42 000 64Expenses 44 000 20 13 000 20Net Profit 88 000 40 29 000 44
Required1.4.1 Explain what is meant by the term profitability.
2 marks
1.4.2 Identify two possible reasons for the improvement in profitability.2 marks
1.4.3 State one reason why Collin should be happy with the level of sales for thequarter. 1 mark
Question 2
Slumber LandMelissa Snooze owns and operates a small trading business called Slumber Land. Itsells bed linen and mattresses. Her accounting system is based on the double-entryaccrual system of recording. Melissa maintains a perpetual stock recording systemand control accounts for Debtors, Creditors and Stock.
2.1 The following information relates to transactions in December 2005
Cash Receipts JournalDate2005
Details Rec
No
Bank DiscExp
Debtors
Costof
Sales
Sales GST Sundries
31Dec
TOTAL 68200
500 17000
24 000 47000
4700
0
Cash Payments JournalDate2005
Details Chq
No
Bank DiscRev
Creditors
Stock GST Sundries
31Dec
TOTAL 59000
300 26 300 8 000 2 000 23 000
-
8/9/2019 2005 Updated
6/29
Sales JournalDate2005
Debtor InvNo
CostPrice
Selling
Price
GST TotalDebto
rs31
Dec
TOTAL 11 000 23 000 2
300
25 300
Purchases JournalDate2005
Debtor InvNo
Stock GST TotalCredito
rs31Dec
TOTAL 29 000 2900
31 900
At 30 November 2005 the GST Clearing Account had a debit balance of $600
Required2.1.1 Prepare the GST Clearing Account in the General ledger at 31 December
2005 after all journals have been posted. Balance the account at 31December 2005.
5 marks2.1.2 Explain why the GST on sales is not treated as revenue in the Profit and
Loss Statement2 marks
2.2 Melissa has provided the accountant with the following estimates for the 3
months (quarter) ending 31 March 2006. Bank ledger account balance at 1 January 2006 is $16 000 (credit) Sales for the quarter are expected to be $230 000 + $23 000 GST, of which
30% will be credit. Cost of Sales will be 50% of sales Stock purchases for the quarter are expected to be $150 000 + $15 000 GST.
80% of stock purchases are on credit. Creditors are owed $40 000 at 1 January 2006 and the expected balance at
31 March is $30 000 The Debtors balance at 1 January 2006 is $24 000. This balance is expected
to increase by $10000 over the quarter Expenses are budgeted to include:
Depreciation expense on Fixtures and Fittings of $40 000 Bad Debts expense of $2 000 Customs Duty on stock purchases of $1 000 + $100 GST Interest on Loan and Bank Overdraft of $6 000 Wages paid of $29 300 (Accrued wages at 1 January 2006 are $800
and at 31 March 2006 are $500) Office Expenses of $4 000 + $400 GST
Apart from wages, there are no other prepayments or accruals In addition to the interest payments, a further $5 000 is repaid each month
from an existing loan Drawings for the quarter are expected to be $22 000 (cash) and $2 000
(stock)
-
8/9/2019 2005 Updated
7/29
Required2.2.1Prepare a Budgeted Cash Flow Statement for the quarter ended 31 March2006
6 marks2.2.2Prepare a Budgeted Profit and Loss Statement, for the quarter ended 31
March 2006, which shows budgeted gross profit and budgeted net profit.5 marks
2.2.3 Explain to the owner how they have estimated a net profit yet expect tohave a cash deficit at
the end of the March quarter.2 marks
2.3 The accountant is concerned about the liquidity of the business and hasprepared the following performance indicators for discussion with MelissaLiquidity 31 December 2004 31 December
2005Cash Balance ($14 000) ($16 000)
Working Capital RatioCurrent AssetsCurrent Liabilities 1: 1.42 1: 1.45
Quick Assets RatioCurrent Assets (Stock + Prepayments)Current Liabilities Bank Overdraft 1: 1.07 1: 0.70
Required
2.3.1Apart from the increasing overdraft, explain why the accountant isconcerned about the business liquidity
2 marks2.3.2Explain why stock and prepayments are excluded from the calculation of
the Quick Assets Ratio.2 marks
2.3.3Excluding the ratios shown in 2.3, identify two other ways of monitoringbusiness liquidity
1 + 1 = 2 marks
2.4 The following information relates to one item of stock.
Stock Item 64: Orthopaedic PillowsDate Details IN OUT BALANCEApril2006
Qty
UnitCost
TotalCost
Qty UnitCost
TotalCost
Qty UnitCost
Total
Cost1 Balance 20 18 360
8 Inv.2441
12 20 2402012
1820 600
12 Inv. 126 14 18 252612
1820 348
-
8/9/2019 2005 Updated
8/29
On 18 April, 3 units from the purchases on 8 April were returned to the supplier (PJLinen). Credit Note 44 was issued. GST on the goods returned was $2 per unit
Required2.4.1Record the purchases return in the stock card
2 marks
2.4.2Record the purchases return in the General Journal(Narration is not required)
3 marks
2.5 At 30 April 2006, the following information was provided about a stock itemwhich had been replaced by a new modelStock Item Quantity Cost Estimated
SellingPrice
DirectSellingCosts
B12Mattress
14 $250 $220 $20
Required2.5.1State the total value of this stock item at 30 April if the lower of cost or
net realisable value rule is applied correctly1 mark
2.5.2Prepare the General Journal entry required on 30 April 2006 to adjust thestock records
2 marks2.5.3Complete the table to show the effect on net profit, assets and owners
equity in the Profit and Loss Statement for the year ended 30 April 2006 Balance Sheet as at 30 April 2006if the General Journal entry in 2.5.2 was not made.
3 marks2.6 On 1 May 2006, Melissa rented part of her showroom to another business for $1
000 + $100 GST per month. On 12 May, she received three months rent inadvance.
RequiredAssuming reports are placed on a monthly basis, prepare the General Journalentry required to be made at 31 May 2006.
(A narration is not required) 2 marks
2.7 The Computer Equipment will be shown in the Balance Sheet as at 30 June 2005 as
follows:
Non-Current Asset $ $Computer Equipment (at cost) 3 000Less Accumulated Depreciation - Computer Equipment 2 000 1 000
At 1 July 2005, the computer equipment was sold privately to an employee. A new
computer waspurchased from Computer Works (costing $5 000 + $500 GST). The sale and purcha
details are
-
8/9/2019 2005 Updated
9/29
as follows.$
Proceeds from sale of existing computer (Receipt 42) 300Cash deposit paid on purchase (Cheque 237) 1 000Amount owing - Computer Works (Invoice 96) 4 500
Required
Prepare the entries required to record the disposal of the existing computer the purchase of the new computer.
(Narrations are not required.)4+1+1=6marks
ACCOUNTING
Written Examination 2
SOLUTION BOOK
-
8/9/2019 2005 Updated
10/29
Question 1 Collins Camping
1.1.1 Cash Receipts JournalDate2005
Details Rec
No
Bank DiscExp
Debtors
Costof
Sales
Sales GST Sundries
7/12 Sales 83 1 452 780 1 320 1328/12 City West
Primary84 2 496 104 2 600
11/12 Sales 85 1 034 460 940 9412/12 Simons
Sports Club86 2 250 2 250
12/12 Alan
Johnson
87 920 920
8 152 104 5 770 1 240 2 260 226
4 marks1.1.2Date Particulars General Ledger Subsidiary Ledger2005 Debit
$Credit
$Debit
$Credit
$12/12 Bad Debts 1 380
Debtors Control 1 380Mitch Davies 1 380
A. Johnson declaredbankrupt and debt
writtenoff as unrecoverableMemo 31
5 marks1.1.3
Debtors Control7 marks
Date2005
Cross Reference $ Date2005
Cross Reference $
5/12 Balance 9 800 12/12 Bad debts 1 380
12/12 Sales/GST 3 465 Bank/Discount expense 5 770Sales Returns/GST 880Balance 5 235
13 265 13 265
-
8/9/2019 2005 Updated
11/29
1.1.4Subsidiary Ledger (extract)DEBTOR City West Primary
Date2005
Cross Reference $ Date2005
Cross Reference $
5/12 Balance 2 600 8/12 Bank/Discount Expense 2 6009/12 Sales/GST 968 10/12 Sales returns/GST 880
3 marks1.1.5
Stock ControlDate2005
Cross Reference $ Date2005
Cross Reference $
5/12 Balance 36 000 12/12 Cost of Sales 1 73012/12 Creditors Control 6 300 Cost of Sales 1 240
Cost of Sales 450 Balance 39 78042 750 42750
4 marks1.1.6
2 marks1.2.1
2 marks1.2.2Calculation
Suppliers price $460 + Waterproofing $30 + Packaging $10 = $500
Cost $ 5003 marks
1.2.3
2 + 1 = 3 marks
Explanation: The subsidiary ledger provides the detail required for each individual
debtosAllows for the preparation of a Debtors Ageing AnalysisProvides a cross checking mechanism to ensure that recording is accurateAllows for the separation of duties enabling staff to manage debtors
Explanation: Because it cannot be directly linked to a particular line of stockThe amount is immaterial to the cost of the stock
Justification Packaging CostsProduct costs: costs involved in getting the product into a position ready to sell which
can be directlyLinked to the stock item.
Justification Advertising CostsSelling expense not a cost associated with the purchase/buying of stock
-
8/9/2019 2005 Updated
12/29
1.2.4Item Increase/Decreas
e
Net ProfitDecrease
1 + 2 = 3 marks1.3
2 + 2 = 4 marks
1.4.1
2 marks
Explanation: As it is regarded as a period cost, the entire expense is written off in the
reporting period inwhich it was incurred regardless of the quantity of stock sold.
Explanation - LiquidityWill deteriorate as cash is tied up in stock not being soldLess sales, therefore less cash being received through cash sales and receipts from
debtorsThe business bought more stock for cash therefore increasing cash outflows
Explanation Net ProfitCould improve if longer STO is due to carrying a better stock mix/variety of stock which
leads to anIncrease in sales.Bought stock cheaper in bulk and able to earn a greater profit margin on sales
Explanation: Profitability measures the performance of the businesss profit against
the assets, salesAnd owners equity OR Profitability is the ability of the business to make a profit
-
8/9/2019 2005 Updated
13/29
1.4.2
2 marks
1.4.3
1 mark2.1.1
GST Clearing AccountDate2005
Cross Reference $ Date2005
Cross Reference $
30/11 Balance 600 31/12 Bank 4 70031/12 Bank 2 000 Debtors Control 2 300
Creditors Control 2 900Balance 1 5007 000 7 000
5 marks2.1.2
2 marks
Reason 1: Increase in salesOR increase in profit marginReason 2: cheaper stock purchases, that is lower cost of sales
Reason: Any of the following are acceptable: Significant increase in sales
compared to the previousQuarter/ sales are higher than the previous quarter/NPR has increased/GPR has
increased/ expenses haveRemained proportional to sales, causing net profit to increase/ only a quarter of the
way through the yearAnd already earned 30% of last years sales.
Explanation: GST is not a revenue because it does not increase owners equity, even
though it may increaseAssets or decrease liabilities as the business has collected GST on behalf of the ATO
and now owes the ATOthe money
-
8/9/2019 2005 Updated
14/29
2.2.1 SLUMBER LANDBUDGETED CASH FLOW STATEMENTFOR QUARTER ENDED 31 MARCH 2006
$ $OPERATING ACTIVITIESCash Sales 161 000
Receipts from Debtors 57 000GST Collected 16 100 234 100Stock Purchases (30 000)Payments to Creditors (130 000)Customs Duty (1 000)Interest (6 000)Office Expenses (4 000)Wages (28 500)Accrued Wages (800)GST Paid (3 500) (203 800)
Est. Net Cash Flows from Operating
Activities
30 300
FINANCING ACTIVITIESLoan (15 000)Drawings (22 000)Est. Net Cash Outflows from
Financing Activities
(37 000)
Est. Cash Flows (6 700)
plus Cash at Bank (1/1/06) (16 000)Estimated Bank balance (31/03/06) (22 700)6 marks
-
8/9/2019 2005 Updated
15/29
2.2.2 SLUMBER LANDBUDGETED PROFIT AND LOSS STATEMENT FOR
QUARTER ENDED 31 MARCH 2006Revenue $ $Cash Sales 161 000Credit Sales 69 000 230 000
Less Cost of Goods SoldCost of Sales 115 000Customs Duty 1 000 116 000Gross Profit 114 000less Other ExpensesDepreciation on Furniture and Fittings 4 000Bad Debts 2 000Interest on loan 6 000Wages 29 000Office Expenses 4 000 45 000
Net Profit 69 0005 marks
2.2.3
2 marks2.3.1
2 marks
Explanation: The business has an estimated cash deficit yet has earned a net profit
because estimatedreceipts from debtors are lower than credit sales and estimated payments to creditors
are higher than theestimated cost of sales.
Explanation: The QAR has decreased unfavourably and/or is below 1:1 and is unable
to meet immediateLiabilities. The increase in working capital suggests that the business has a large
investment in stock whichcannot be converted into cash quickly
-
8/9/2019 2005 Updated
16/29
2.3.2
2 marks2.3.3
1 + 1 = 2 marks
2.4.1Stock Item 64: Pillow SlipsDateApril
Details IN OUT BALANCE
Qty Unit Total
Qty Unit Total
Qty Unit Total
2005
Cost Cost Cost Cost Cost Cost
1 Balance 20 18 360
8 Inv.2441
12 20 240 2012
1820
600
12 Inv. 126 14 18 252 612
1820
348
18 CN 44 3 6 18 69
56
84
2 marks
2.4.2 GENERAL JOURNALDate
Particulars General Ledger Subsidiary Ledger
2006
Debit$
Credit$
Debit$
Credit$
18/4 Creditors Control 18Creditor P. J. Liner 18
Stock Control 18
3 marks2.5.1Calculation
220 20 = 200 x 14 = $2 800
Value of Stock $ 2 8001 mark
Explanation: Stock is not always able to be converted into cash quicklyPrepaid items are not able to be recovered
First way: Timing of cash flows resulting from STOBudgeted Cash flow Statement or cash variance reportSecond way: Debtors Turnover and how quickly they are paying their accountsThe percentage of Cash sales
-
8/9/2019 2005 Updated
17/29
2.5.2 GENERAL JOURNALDate
Particulars General Ledger Subsidiary Ledger
2006
Debit$
Credit$
Debit$
Credit$
30/4 Stock Write Down 700
Stock Control 7002 marks
2.5.3Item Increase/Decrease Amount
$Net Profit Increase 700
Assets Increase 700Owners Equity Increase 700
3 marks2.6 GENERAL JOURNAL GJ5
Date
Particulars General Ledger Subsidiary Ledger
2006
Debit$
Credit$
Debit$
Credit$
31/5 Prepaid Rent
Revenue
1 000
Rent Revenue 1 0002 marks
2.7 GENERAL JOURNAL
Date2005
Particulars Debit$
Credit$
1/7 Disposal of Computer 3 000
Computer 3 000
Accumulated depreciation of Computer 2 000
Disposal of Computer 2 000
Loss on disposal of Computer 700
Disposal of Computer 700Computer 4 000
GST Clearing Account 500
Sundry Creditor Computer Works 4 500
-
8/9/2019 2005 Updated
18/29
Cash Receipts Journal
Date2005
Details Rec.No.
Bank Disc.Exp.
Debtors
CostofSales
Sales
GST Sundries
1/7 Disposalof
Computer
42 300
Cash Payments Journal
Date2005
Details Chq.No.
Bank
Disc.Rev.
Creditors
Stock Wages GST Sundries
1/7 Computer
237 1000
1 000
4 + 1 + 1 = 6 marks
-
8/9/2019 2005 Updated
19/29
ACCOUNTING
Written Examination 2
ANSWER BOOK
-
8/9/2019 2005 Updated
20/29
Question 1 Collins Camping
1.1.1 Cash Receipts JournalDate2005
Details Rec
No
Bank DiscExp
Debtors
Costof
Sales
Sales GST Sundries
4 marks1.1.2Date
Particulars General Ledger Subsidiary Ledger
2005
Debit$
Credit$
Debit$
Credit$
5 marks1.1.3
Debtors Control7 marks
Date2005
Cross Reference $ Date2005
Cross Reference $
-
8/9/2019 2005 Updated
21/29
1.1.4Subsidiary Ledger (extract)DEBTOR City West Primary
Date2005
Cross Reference $ Date2005
Cross Reference $
3 marks1.1.5
Stock ControlDate2005
Cross Reference $ Date2005
Cross Reference $
4 marks1.1.6
2 marks1.2.1
2 marks1.2.2Calculation
Cost $3 marks
1.2.3
2 + 1 = 3 marks
1.2.4Item Increase/Decreas
Explanation
Explanation
Justification Packaging Costs
Justification Advertising Costs
-
8/9/2019 2005 Updated
22/29
e
Net Profit
1 + 2 = 3 marks1.3
2 + 2 = 4 marks
1.4.1
2 marks1.4.2
2
marks1.4.3
1 mark2.1.1
GST Clearing Account
Date2005
Cross Reference $ Date2005
Cross Reference $
Explanation
Explanation - Liquidity
Explanation Net Profit
Explanation
Reason 1
Reason 2
Reason
-
8/9/2019 2005 Updated
23/29
5 marks
-
8/9/2019 2005 Updated
24/29
2.1.2
2 marks
2.2.1BUDGETED CASH FLOW STATEMENTFOR QUARTER ENDED 31 MARCH 2006
$ $
Estimated Cash Flowsplus Cash at Bank (1/1/06)Estimated Bank balance (31/03/06)
6 marks
Explanation
-
8/9/2019 2005 Updated
25/29
2.2.2 SLUMBER LANDBUDGETED PROFIT AND LOSS STATEMENT FOR
QUARTER ENDED 31 MARCH 2006Revenue $ $
Gross Profitless Other Expenses
Net Profit5 marks
2.2.3
2 marks2.3.1
2 marks
Explanation:
Explanation
-
8/9/2019 2005 Updated
26/29
2.3.2
2 marks
2.3.3
1 + 1 = 2 marks
2.4.1Stock Item 64: Pillow SlipsDate
April
Details IN OUT BALANCE
Qty Unit Total
Qty Unit Total
Qty Unit Total
2005
Cost Cost Cost Cost Cost Cost
1 Balance 20 18 360
8 Inv.2441
12 20 240 2012
1820
600
12 Inv. 126 14 18 252 612
1820
348
2 marks
2.4.2 GENERAL JOURNALDate
Particulars General Ledger Subsidiary Ledger
2006
Debit$
Credit$
Debit$
Credit$
3 marks
Explanation
First way
Second way
-
8/9/2019 2005 Updated
27/29
2.5.1Calculation
Value of Stock $1 mark
2.5.2 GENERAL JOURNALGJ5
Date
Particulars General Ledger Subsidiary Ledger
2006
Debit$
Credit$
Debit$
Credit$
2 marks2.5.3
Item Increase/Decrease Amount$
Net ProfitAssets
Owners Equity3 marks
2.6 GENERAL JOURNAL GJ5Date
Particulars General Ledger Subsidiary Ledger
2006
Debit$
Credit$
Debit$
Credit$
2 marks
-
8/9/2019 2005 Updated
28/29
2.7 GENERAL JOURNAL
Date2005
Particulars Debit$
Credit$
Cash Receipts Journal
Date2005
Details Rec.No.
Bank Disc.Exp.
Debtors
CostofSales
Sales
GST Sundries
Cash Payments Journal
Date2005
Details Chq.No.
Bank
Disc.Rev.
Creditors
Stock Wages GST Sundries
4 + 1 + 1 = 6 marks
-
8/9/2019 2005 Updated
29/29