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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

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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

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- 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

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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

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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

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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)

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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

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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

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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


SOLUTION BOOK

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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

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1.1.4Subsidiary Ledger (extract)DEBTOR City West Primary

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 $

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

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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

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1.4.2

2 marks

1.4.3

1 mark2.1.1

GST Clearing AccountDate2005


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

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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

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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

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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


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

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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


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

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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

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ACCOUNTING


ANSWER BOOK

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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


2005

Debit$

Credit$

Debit$

Credit$

5 marks1.1.3

Debtors Control7 marks

Date2005


Cross Reference $

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1.1.4Subsidiary Ledger (extract)DEBTOR City West Primary

Date2005


Cross Reference $

3 marks1.1.5

Stock ControlDate2005


Cross Reference $

4 marks1.1.6

2 marks1.2.1


Cost $3 marks

1.2.3

2 + 1 = 3 marks

1.2.4Item Increase/Decreas

Explanation

Explanation

Justification Packaging Costs

Justification Advertising Costs

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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 $

Explanation

Explanation - Liquidity

Explanation Net Profit

Explanation

Reason 1

Reason 2

Reason

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5 marks

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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

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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

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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



2006

Debit$

Credit$

Debit$

Credit$

3 marks

Explanation

First way

Second way

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2.5.1Calculation

Value of Stock $1 mark

2.5.2 GENERAL JOURNALGJ5

Date


2006

Debit$

Credit$

Debit$

Credit$

2 marks2.5.3

Item Increase/Decrease Amount$

Net ProfitAssets

Owners Equity3 marks

2.6 GENERAL JOURNAL GJ5Date


2006

Debit$

Credit$

Debit$

Credit$

2 marks

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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

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2005 updated

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