Victorian Certificate of Education 1999 ACCOUNTING. Common Assessment Task 3: Written examination

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1 ACCNT CAT 3A Victorian Certificate of Education 1999 ACCOUNTING Common Assessment Task 3: Written examination Friday 5 November 1999: am to 2.00 pm Reading time: am to noon Writing time: noon to 2.00 pm Total writing time: 2 hours QUESTION BOOK Structure of book Number of questions Number of questions to be answered 4 4 Materials Question book of 7 pages. Answer book of 12 pages. An approved calculator may be used. Pencils may be used. Directions to students The task Please ensure that you write your student number in the space provided on the front cover of the answer book. The marks allotted to each question are indicated at the end of the question. Mark allocation: Question 1 26 marks Question 2 25 marks Question 3 14 marks Question 4 15 marks There is a total of 80 marks available. All written responses should be in English. At the end of the task You may retain this question book. BOARD OF STUDIES 1999

2 ACCNT CAT 3A 2 Instructions to students Answer all questions. Questions may be answered in any order. Answers to all attempted questions should be written in the spaces provided in the answer book. Question 1 Henry Fong Fishing Supplies was established on 1 January 1998 by depositing into a bank account in the name of the business. The business uses the perpetual inventory recording system and adopts the accrual based accounting system. The following post adjustment trial balance (the trial balance after balance day adjustments have been made) has been prepared at the end of the first year of trading. Henry Fong Fishing Supplies Post Adjustment Trial Balance at 31 December 1998 Account Debit Credit Cash at Bank Accounts Receivable Inventory Shop Fittings Accumulated Depreciation of Shop Fittings 900 Prepaid Insurance 500 Prepaid Revenue 400 Accounts Payable Loan from QPO Bank Capital Drawings Cost of Goods Sold Selling Expenses Administrative Expenses Finance Expenses interest Occupancy Expenses (includes Insurance Expense) Depreciation of Shop Fittings 900 Credit Sales Cash Sales Additional information The Loan from QPO Bank was taken out on 30 June The loan is repayable on 30 June Accounts Payable refers to suppliers of fishing supplies only. Drawings consists of: cash and inventory 500. No stock loss or gain occurred during the year. 1.1 In relation to Henry Fong Fishing Supplies for the year ended 31 December calculate the cash inflow from customers (show all working) calculate the cash outflow to suppliers (show all working) calculate the cash outflow for expenses (show all working) calculate the cash flows for investing activities (show all working) calculate the cash flows for financing activities (show all working) complete the Statement of Cash Flows using the information calculated in to = 16 marks Question 1 continued

3 3 ACCNT CAT 3A 1.2 Complete the classified Balance Sheet of Henry Fong Fishing Supplies as at 31 December 1998 after taking into account the additional information. 6 marks 1.3 Depreciation of Shop Fittings and credit purchases of inventory are non-cash items that affect the Profit and Loss of Henry Fong Fishing Supplies for the year ended 31 December 1998, but they do not affect directly the Cash at Bank. Identify two other transactions or events that could lead to differences between profit and loss calculation and cash flow for Henry Fong Fishing Supplies for the year ended 31 December Henry Fong Fishing Supplies considered using the modified cash method of recording and reporting at the start of business on 1 January By referring to the information supplied about Henry Fong Fishing Supplies, state two reasons why the accrual approach to reporting is more appropriate for this business. Total 26 marks CONTINUED OVER PAGE TURN OVER

4 ACCNT CAT 3A 4 Question 2 James Mason imports carved wooden elephants from Africa. He uses the physical (periodic) method of recording for inventory and adopts the accrual based accounting system. The following information is extracted from his accounting records for the three months ending 30 June All purchases are on credit and all sales are for cash. Cash Sales Sales Returns 400 Inventory on Hand (1 April 1999) Purchases Returns 500 Credit Purchases Operating Expenses Additional information Cost price per elephant is 100. A stocktake at 30 June 1999 revealed wooden elephants costing a total of remained unsold. Each elephant sells for The physical (periodic) method of recording for inventory does not enable James to identify stock loss or gain. State two other disadvantages for James in using the physical (periodic) inventory method of recording for inventory. 2.2 James is aware that the perpetual inventory method is an alternative to the physical (periodic) inventory method. To make a comparison between the two methods the accountant suggests that the ledger accounts be prepared using the perpetual inventory method of recording. Assuming the use of the perpetual inventory method of accounting for inventory and using the information given above: complete the Inventory Control Account for the three months ending 30 June 1999 and balance the account at 30 June You may use either T format or Columnar format ledger presentation complete the Cost of Goods Sold Account for the three months ending 30 June 1999 and close the account at 30 June You may use either T format or Columnar format ledger presentation. 7 marks 2.3 Applying the perpetual inventory method of accounting for inventory, complete the Profit and Loss Statement of James Mason Imports for the three months ending 30 June marks Question 2 continued

5 5 ACCNT CAT 3A 2.4 James is considering importing a wider range of carved animals, such as giraffes and lions. This would involve the use of stock cards. Explain one reason why stock cards might be useful in this situation. 2.5 As at 30 June 1999 James has 10 carved elephants that were scratched during shipment. He has decided to reduce the selling price to 80 per elephant. At the point of sale of each elephant, 10 will be spent on repairing the scratches. Assume the business is using the perpetual inventory method Show the General Journal Entry required to account for the change in the value of the elephants described in 2.5 above. (Narration is not required.) Identify and explain the accounting principle which is being applied to this entry = 5 marks 2.6 James has recently placed an order for more elephants and his supplier has informed him of an increase in cost price in July to 110 per elephant and a further increase in August to 115 per elephant Explain one problem that the three different cost prices for elephants (100, 110 and 115) will present for James when he calculates closing inventory at 30 September Explain how the First In First Out System of inventory costing would be applied when determining: cost of goods sold value of end inventory = 4 marks Total 25 marks TURN OVER

6 ACCNT CAT 3A 6 Question 3 Katies Furniture sells new and second-hand furniture. The business commenced on 1 January It uses a double entry accrual based accounting system and produces half-yearly reports at 30 June and 31 December each year. 3.1 On 31 December 1998 the business purchased a cabinet for to be used in the shop to display small items for sale. Identical cabinets have been sold at auction for Explain two reasons why the increase in the value of the cabinet cannot be shown as revenue in the Profit and Loss Report for the year ended 31 December The owner has said that because the cabinet has increased in value it should not be depreciated. Explain why the cabinet should be depreciated over its life in the business. 3.3 The business was given a hand trolley at no cost. The trolley had a value of 200 and is correctly recorded as Revenue. Show the effect of this on the accounting equation by completing the table shown in the answer book. (All boxes must be completed.) 3 marks 3.4 The following Trial Balance for Katies Furniture is prepared at 30 June Katies Furniture Trial Balance at 30 June 1999 Account Debit Credit Sales New Furniture Second-Hand Furniture Direct Departmental Expenses New Furniture Second-Hand Furniture Indirect Expenses Cash at Bank Accounts Receivable Prepaid Advertising Motor Vehicle Accumulated Depreciation of Motor Vehicle Furniture and Fittings Accumulated Depreciation of Furniture and Fittings Capital Additional information Prepaid advertising refers to a payment to an advertising agency on 15 March 1999 for a general advertisement to be made in May 1999 and shown on television in June Show the General Journal Entry required to record the advertising expense for the half year ended 30 June Prepare a Profit and Loss Statement for the half year ended 30 June 1999 to show departmental contribution and net profit = 7 marks Total 14 marks

7 Question 4 7 ACCNT CAT 3A Food of the Times is a retail food business that has been in operation for five years. Some sales have been made on credit and for which an Allowance for Doubtful Debts has been provided. 4.1 The following are account balances on 30 June 1999: Accounts Receivable Allowance for Doubtful Debts Dr Cr On 30 June 1999 it was decided to adjust the Allowance for Doubtful Debts account to be 5% of existing Accounts Receivable Record in the General Journal the entry required at 30 June 1999 to adjust the Allowance for Doubtful Debts. (Narration is not required.) Referring to one accounting principle or concept, explain why an Allowance for Doubtful Debts is maintained by Food of the Times. 4.2 On 31 March 1998, Food of the Times purchased a motor vehicle for At this time a refrigeration unit was permanently added to the vehicle at a cost of It is expected that the vehicle will be sold for after it has travelled a distance of kilometres. The units of use method of depreciation is to be used to depreciate the vehicle. After an accident the vehicle was in a repair yard for six months. The vehicle was sold for cash on 10 May At that time it had travelled a total of kilometres. The accumulated depreciation of the vehicle at the time of the sale was Calculate the amount of profit or loss made on the sale of the motor vehicle on 10 May (In your answer indicate clearly whether a profit or a loss was made.) Show your working Complete the Sale of Motor Vehicle ledger account of Food of the Times to show the sale of the vehicle on 10 May You may use either T format or Columnar format of ledger presentation State one advantage and one disadvantage in using the units of use method for depreciating this vehicle = 8 marks 4.3 The accountant has advised the owner of Food of the Times that a profit and loss budget should be prepared at the end of each year State two ways in which the preparation of the profit and loss budget could assist with planning to achieve an improved Gross Profit State one advantage in preparing budgets more than once a year = 3 marks Total 15 marks END OF QUESTION BOOK