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
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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
2019ACCOUNTINGEXAMQB 4
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
5 2019ACCOUNTINGEXAMQB
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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
2019ACCOUNTINGEXAMQB 6
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
7 2019ACCOUNTINGEXAMQB
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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
2019ACCOUNTINGEXAMQB 8
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
9 2019ACCOUNTINGEXAMQB
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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
2019ACCOUNTINGEXAMQB 10
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 4
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
5 2019ACCOUNTINGEXAMAB
Question 1 –continuedTURN OVER
c. 2marks
Date 2019
Cross-reference Amount Date 2019
Cross-reference Amount
Date 2019
Cross-reference Amount Date 2019
Cross-reference Amount
d. 3marks
Description
2019ACCOUNTINGEXAMAB 8
Question 2 –continued
Question 2 (18marks)a. 7marksFreja’s FurnitureGeneral Ledger
Accounts Receivable
Date 2019
Cross-reference Amount Date 2019
Cross-reference Amount
Accounts Payable
Date 2019
Cross-reference Amount Date 2019
Cross-reference Amount
Inventory
Date 2019
Cross-reference Amount Date 2019
Cross-reference Amount
9 2019ACCOUNTINGEXAMAB
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
$ $
11 2019ACCOUNTINGEXAMAB
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Question 3 (7marks)a. 2marks
Description
b. 2marks
Reason 1
Reason 2
c. 3marks
Explanation and justification
2019ACCOUNTINGEXAMAB 12
Question 4 –continued
Question 4 (18marks)a. 10marks
Working space
Klapper BikesGeneral Journal
Date 2019
Details Debit Credit
13 2019ACCOUNTINGEXAMAB
TURN OVER
b. 3marks
Accounting assumption
Explanation
c. 5marksKlapper Bikes
Income Statement for the month ended 30 June 2019
$ $
2019ACCOUNTINGEXAMAB 14
Question 5–continued
Question 5 (8marks)
Working space
a. 2marksOutside ClimberGeneral Journal
Date 2019
Details Debit Credit
b. 4marksOutside ClimberGeneral Journal
Date 2019
Details Debit Credit
15 2019ACCOUNTINGEXAMAB
TURN OVER
c. 2marksOutside Climber
Balance Sheet (extract) as at 31 July 2019
Current Assets $ $
2019ACCOUNTINGEXAMAB 16
Question 6–continued
Question 6 (12marks)a. 4marksYYY General Journal
Date 2019
Details Debit Credit
b. 4marks
Straight-line method Reducing balance method
$ $
2019ACCOUNTINGEXAMAB 20
Question 8 (5marks)a. 3marksGeneral Journal
Date 2019
Details Debit Credit
b. 2marks
Description
2019ACCOUNTINGEXAMAB 22
Question 9–continued
Question 9 (10marks)a. 4marks
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