7 2003 SAMPLE ACCOUNTING EXAM The following Unit 3 sample question (45 marks) has been prepared in order to provide users with an illustration of the new areas to be examined in Unit 3. The mid-year examination will assess a representative sample of the key knowledge and skills in Unit 3.Question 1Brian’s Big ByteBrian Lee owns and operates a small business selling computers. His records are kept using the perpetual inventory method of recording with the FIFO (First In First Out) method of recording stock movements. All recording and reporting is carried out using the double entry accrual-based system of recording and reporting.Below is an extract of his Statement of Financial Position prepared at 30 June 2003.Brian’s Big ByteStatement of Financial Position (extract) as at 30 June 2003Non-Current Assets $ $Buildings (at cost) 300 000– Accumulated Depreciation (60 000) 240 000Motor Vehicle (at cost) 40 000– Accumulated Depreciation (14 000) 26 000Shop Fittings (at cost) 15 000– Accumulated Depreciation (6 000) 9 0001.1 The buildings were purchased on 1 July 1999 for $300 000. On 30 June 2003, Brian had two independent valuations made of the buildings in order to determine fair value. The valuations were $350 000 and $370 000 respectively.Required1.1.1 State what is meant by the term ‘fair value’.1 mark1.1.2 Brian decides to revalue the buildings to $350 000. State the accounting principle that supports this valuation. 1 mark1.1.3 State the new qualitative characteristic which the revaluation of Brian’s buildings brings to the accounting reports. Justify your answer.2 marks1.1.4 Show the effect on the Statement of Financial Position at 30 June 2003 if the revaluation of Brian’s buildings is made.2 marks2003 SAMPLE ACCOUNTING EXAM 8 1.2. On the 30 June 2003, Brian sold the Motor Vehicle for $20 000 cash. The cash proceeds have already been entered in the following Cash Receipts Journal (extract only).DateDetailsPost.Ref.Rec.No.BankDisc.Exp.DebtorsCost ofSalesSalesSundries30 JuneProceeds – sale of M.V.20 00020 000Required1.2.1 Prepare the General Journal entries required to complete the sale of the Motor Vehicle. Narrations are not required.4 marks1.2.2 State how the receipt for $20 000 would be classified in the Statement of Cash Flows. Justify your answer.2 marks1.3 Brian replaced the Motor Vehicle with a newer model purchased on 1 July 2003. The following source documents relate to the purchase of this vehicle.MC MOTORSABN 91 265 348 186 Tax Invoice A323 Date 1/7/2003Charge to: Brian’s Big ByteFor: Purchase of vehicle Amount $ 45 000 Total Charge $ 45 000MC MOTORSABN 91 265 348 186 Tax Invoice A324 Date 1/7/2003Charge to: Brian’s Big ByteFor: Shelving installed in vehicle Amount $ 5 000 Total Charge $ 5 000BAB Cheque ButtDate: 1 July 2003For: Annual Registration & Insurance for motor vehicle purchased 1/7/03Balance b/f $ 9 600Amount $ 2 400Balance c/f $ 7 2009 2003 SAMPLE ACCOUNTING EXAM Required1.3.1 Calculate the Historical Cost of the new vehicle.1 mark1.3.2 Justify your treatment of the payment for Registration and Insurance expense of $2 400.2 marks1.4 In February 2004 Brian paid $7 200 for advertising in a national magazine. The advertisements are to run once a month for 6 months. The first advertisement will appear in the March 2004 edition.Required1.4.1 Show how the Prepaid Advertising account in the General Ledger would appear after necessary adjusting entries have been completed at 30 June 2004. (You are required to balance the account.) 3 marks1.4.2 Show the effect on the Statement of Financial Position at 30 June 2004 if the adjustment had not been made.2 marks1.5 At 30 June 2004, the Statement of Financial Position showed the following.Brian’s Big ByteStatement of Financial Position (extract) as at 30 June 2004Non-Current Assets $ $Office equipment at cost 15 000– Accumulated Depreciation (3 000) 12 000Brian has been using the Straight Line method of depreciation at 10% per annum on cost.Required1.5.1 Calculate how long the business has owned the Office Equipment as at 30 June 2004.1 mark Brian’s new accountant suggests that he should be using the Reducing Balance method of depreciation at 15% per annum.Required1.5.2 Calculate the Depreciation Expense for the year ending 30 June 2005 using the Reducing Balance method.2 marks1.5.3 Show the effect on Assets and Owner’s Equity at 30 June 2005 if Brian adopted the Reducing Balance method of depreciation instead of continuing with the Straight Line method.3 marks2003 SAMPLE ACCOUNTING EXAM 10 1.6 At 30 June 2004, Brian identified the following errors/omissions when preparing the Trial Balance for Big Byte.• In June 2004, Brian had contributed a fax machine to the business which had originally cost him $900 but now had a fair value of $700. This contribution has not yet been recorded.• Depreciation on the new vehicle had been overstated by $300.• An invoice made out to A Smith (Inv. No. 123A) for a sale of a printer for $1 000 (cost $600) made in June 2004 had not been recorded. This omission was detected before a physical stocktake was conducted. • A laptop computer (cost $2 500) taken from stock by Brian in May 2004 was recorded as drawings. In fact, Brian had taken the computer for product testing and it was returned later the same month.Required1.6.1 Prepare the necessary journal entries to correct the errors/omissions made. (Narrations are not required).2 + 2 + 2 + 2 = 8 marks1.6.2 Explain the purpose of preparing Balance Day adjustments.2 marks1.7 Included in the Selling Expenses at 30 June 2004 was Wages Expense of $40 000. At 1 July 2003 Accrued Wages Expense was $400. At 30 June 2004 Accrued Wages Expense was $600. Required1.7.1 Calculate the amount paid for wages for the 12 months ending 30 June 2004.2 marks The next date for payment of wages is 7 July 2004 when $1 500 will be paid.Required1.7.2 Show how the payment of wages of $1 500 (Chq 561) on 7 July 2004 would be recorded in the Cash Payments Journal.2 marks11 2003 SAMPLE ACCOUNTING EXAM 1.8 Having considered all the questions above, Brian presents you with an extract of the Post-Adjustment Trial Balance.Brian’s Big BytePost-Adjustment Trial Balance (extract) as at 30 June 2004 Acc. No. Debit Credit $ $2030 Accrued Wages 6004010 Credit Sales 450 0004020 Discount Revenue 1 0004030 Stock Gain 1 0004040 Proceeds from Sale of Shop Fittings 2 0005000 Cost of Sales 200 0005010 Selling Expenses 56 0005020 Discount Expense 1 0005030 Motor Vehicle Expenses 27 0005040 Office Expenses 20 7005050 Carrying Value of Shop Fittings 6 000The accounts are listed as per the business’s Chart of Accounts.Required1.8.1 State how a Chart of Accounts assists in the preparation of financial reports.1 mark1.8.2 Prepare an appropriately classified Statement of Financial Performance for the year ended 30 June 2004 which shows both Gross Profit, Adjusted Gross Profit and Net Profit (further classification is not required).4 marksTotal 45 marks2003 SAMPLE ACCOUNTING EXAM 12 The following Unit 4 sample question (45 marks) has been prepared in order to provide users with an illustration of the new areas to be examined in Unit 4. The examination will assess a representative sample of key knowledge and skills in Unit 4.Question 1For the purposes of this sample question, implications of the GST are only to be considered in Questions 1.5 and 1.6.Great Garden SuppliesJenny Joseph owns and operates a small trading business that sells garden supplies. Her records are kept using the perpetual inventory method of recording. Her accounting system is based on the double entry accrual-based system of recording and reporting.1.1 Jenny sells a popular wheelbarrow known as ‘The Big Barrow’ (retails for $240). For the month of November 2003 the following details were entered in the stock card of The Big Barrow.Great Garden SuppliesStock Item: The Big BarrowStock Code: XW41200DATENov2003DETAILSINQTYINUNITCOSTINTOTALOUTQTYOUTUNITCOSTOUTTOTALBALQTYBALUNITCOSTBALTOTAL1 NovBalance 251604 0003 NovInv. 112(R Red)101651 650 25 101601655 6508 NovInv. GG19(A Black) 15 160 2 400 10 101601653 25015 NovInv. A129(B White)201653 300 10 301601656 55016 NovC/N 13(R Red) 1 160 160 9 301601656 55030 NovStockwritedown 9 30 270 9 301301656 120Required1.1.1 Prepare the Journal entries that would have been used to record the transactions on 8 November and 15 November 2003. (Narration is not required.)3 + 2 = 5 marks1.1.2 Prepare the General Journal entry required to record the stock write down. (A narration is required.)3 marks1.1.3 State one reason why the stock may have been written down.1 mark1.1.4 Prepare the General Journal entry that would have been used to record the transaction on 16 November 2003. (A narration is not required.)2 marks13 2003 SAMPLE ACCOUNTING EXAM 1.2 Jenny purchases a special type of plant from a nursery in Western Australia. The following costs apply.• Suppliers Price: $200 per tray of 50 plants.• Plant Identification Tags: 2 cents per tag. Each plant sold will have a tag attached. These plants are later transplanted into individual pots at a cost of $1.20 each prior to being made available for sale. Upon arrival, all plants are sprayed to prevent disease. The annual cost of spraying is $720. Required1.2.1 Jenny has decided to treat the tags as a period cost. Justify this decision with reference to materiality.1 mark1.2.2 Calculate the cost price of each plant.2 marks1.3 Jenny’s accountant has provided her with the following figures showing recent trends in two key ratios. 2001 2002 Stock Turnover 11.2 times p.a. 8.7 times p.a. Debtors Turnover 34 days 32 daysRequired1.3.1 Explain the effect these trends will have on the business cash cycle.2 marks1.3.2 State one action Jenny could take to increase stock turnover without reducing business profit margins.1 mark1.4 Jenny has a policy of paying creditors within 7 days of receiving the invoice to ensure discounts are obtained and that the business maintains a good credit rating.Required1.4.1 Explain one reason why this policy may not be appropriate and may result in the business experiencing liquidity problems.2 marksImplications of GST are to be considered in Questions 1.5 and 1.6 below.1.5 Below is a summary of Great Garden Supplies Cash Receipts Journal for November 2003.DateDetailsPost.Ref.Rec.No.BankDisc.Exp.DebtorsCost ofSalesSalesGSTSundries30NovTotals11 8001002 0006 0009 000900-Required1.5.1 Post the Cash Receipts Journal totals into the General Ledger accounts provided in the answer book.4 marks2003 SAMPLE ACCOUNTING EXAM 14 1.6 Below is the GST Clearing account at 31 December 2003.GST Clearing Account31 Dec Bank 600 Creditors Control 2001 Dec Open Balance 1 000 Bank 700 Debtors Control 400Required1.6.1 In terms of GST, state what the credit entry for $400 represents.1 mark1.6.2 Balance the GST Clearing Account at 31 December 2003.1 mark1.6.3 State how the GST Clearing Account would be classified in the Statement of Financial Position of Great Garden Supplies at 31 December 2003.1 mark1.6.4 Show how the details from the GST Clearing Account would appear in the Statement of Cash Flows for December 2003.2 marks1.7 On 15 December, Landscape Projects (a debtor) returns plants purchased in November 2003 for $1 120 ($700 cost). On 31 December 2003, Jenny was advised that Landscape Projects would be unable to pay their account now or in the future. On this day Jenny advises her accountant to write off the outstanding amount of $3 500.Required1.7.1 Prepare the General Journal entry to record the transaction on the 15 December. (A narration is not required.)4 marks1.7.2 Prepare the General Journal entry to record the writing off of this debtor at 31 December 2003. (A narration is not required.)2 marks15 2003 SAMPLE ACCOUNTING EXAM 1.8 Jenny decides to rent part of the business property to Kevin’s Garden Constructions. Kevin has agreed to pay quarterly rental payments of $3 000 in advance. The first payment is made on 1 January 2004 when the rental agreement commences.Required1.8.1 Record the receipt of rent in the Cash Receipts Journal at 1 January 2004.1 mark At 31 January 2004, Jenny’s accountant prepares a Statement of Financial Performance for January 2004 and a Statement of Financial Position at 31 January 2004.Required1.8.2 Prepare the required adjusting entry to record Rent Revenue earned in January 2004. (A narration is not required.)2 marks1.8.3 Show the effect on the Statement of Financial Position if this adjustment was not recorded.3 marks1.8.4 Prepare the General Journal entry required at 31 January 2004 if the rent revenue was to be paid at the end of the 3 month rental period. (A narration is not required.)3 marks1.8.5 If the $3 000 rent was paid at the end of the 3 month rental period rather than at the start, show how this receipt would appear in the Cash Receipts Journal on 31 March 2004.2 marksTotal 45 marks