ACCOUNTING

Senior Secondary

Subject Code: ACC315116

Internal Examination

Term 2, 2016

Time allowed: Two hours and thirty minutes

Candidate Instructions

  1. This paper consists of FOUR questions and all FOUR questions must be answered.
  1. Each question must be completed in the answer booklet provided for that question. If additional working space is required write on the back of one of the pages in the answer book.
  1. It is recommended that calculators be used.
  1. It is acceptable to use pencil.
  1. You must ensure that you have addressed all of the externally assessed criteria on this examination paper.
  1. Reading time of fifteen (15) minutes is allowed prior to the commencement of the exam. During this time students must enter their name on each of the answer booklets and they may also highlight or underline any information on the exam paper.

SECTION A: Financial Knowledge(35 minutes)

  • This section assesses Criterion 1 and Criterion 6 and is worth 34 marks.
  • It is recommended that you spend a maximum of 30 minutes on this question.
  • This section contains FOURquestions. Answer ALL FOUR questions as instructed.
  • Your answers must be written in the space provided on the answer booklet.

QUESTION 1

Define ANY 5 (FIVE)of the following terms. Support each of your definitions with a brief example. Clearly identify each of your choices with the correct number.

(i)Unearned Revenue (Prepaid Revenue);

(ii)Source document;

(iii)Cost of Goods Sold;

(iv)Accounting entity assumption;

(v)Chart of accounts;

(vi)GST credits received;

(vii)Matching principle;

(viii)Sole trader.

(5 x 2marks = 10 marks, approximately 10 minutes)

QUESTION 2

Answer 2 (TWO) of the following:

(i)Explain the difference between expenses and revenues;

(ii)Explain the difference between current liabilities and non-current liabilities;

(iii)Explain the difference between a service entity and a trading entity;

(iv)Explain the difference between selling expenses and finance expenses;

(v)Explain the relationship between balance day adjustments and the matching principle

(2 x 4 marks = 8 marks, approximately 8 minutes)

QUESTION 3

Identify the accounting assumption that has been breached in TWOof the following situations and explain why it has been breached. Outline a likely implication of the breach. Clearly identify each of your choices with the correct number.

(i)The business owner purchases life insurance worth $1200 for himself and his family and records it as an expense of the business.

(ii)The Tyrell Service Station records its stock of petrol in litres in the Balance Sheet.

(iii)The owner has been very busy organising the building of an extension to the existing premises and decides to complete the final reports in two years’ time when life is less hectic.

(iv)The business owner decides to revalue all his non-current assets upwards by 2.5 % to reflect the rate of inflation.

(2 x 3 marks = 6 marks, approximately 6 minutes)

QUESTION 4

Answer ANY ONE of the following. Clearly identify your choice.

  1. Why is it necessary for a business to have a good system of internal control? Explain what is meant by the term ‘internal control’ of a business enterprise, giving two examples of effective internal controls over cash.
  1. Assets are classified as either current or non-current. Explain the difference between current and non-current assets and give an example of each. Outline the main reasons for classifying assets as either current or non-current.
  1. What is a Trial Balance? Why is it regarded as a valuable tool in accounting? List three errors not disclosed by the trial balance. Explain whether the following error will or will not be disclosed by a Trial Balance: an amount of $625 was posted to the credit of the Rent Revenue Account instead to the credit of the Interest Revenue Account.

(1 x 10 marks = 10 marks, approximately 10 minutes)

SECTION B: Financial Reasoning - Recording(40 Minutes)

  • This section assesses Criterion 2 and Criterion 6 and is worth 40 marks.
  • It is recommended that you spend a total of40 minutes on this section.
  • This section containsTHREE questions.You must answer ALLquestions.
  • Your answers must be written in the space provided on the answer booklet for this section.

QUESTION 1

The following are some of the transactions relating to the operations of Garden Fashions, abusiness selling garden and nursery supplies. It was commenced and operated by Sam Selwood during the 2016 financial year.

The perpetual inventory system is used, but accounts receivable and accounts payable control accounts are not used. Balance date is 30 June, 2016.

The following is a list of some of the transactions that occurred during the financial year ended 30 June 2015. GST of 10% is included where indicated.

Date / Transaction
6 January / Selwood commenced business with $10 000 in cash, whichhe deposits into the business account, and a utility vehicle valued at $15 000 which he will use entirely for business purposes.
12 January / Purchased inventory for cash of $1 210 (GST included) with cheque number 034.
14 January / An amount of $14 000 was borrowed from ABC bank and deposited in the business bank account.
6 February / Purchased a rotary hoe to use in the business for $726 (GST included) with cheque number 059.
21 March / Sold 6 planter boxes to Logan Landscapes on credit for a total of $660 (GST included). The inventory value of the boxes was $300. Tax invoice no. 023 was issued.
6 April / Selwood found that an amount of $480 had been posted in error to interest expense when it should have been posted to insurance expense. It requires a correcting entry.
30 April / One of the planter boxes sold in March was returned by Logan Landscapes, as it was cracked. Samantha offered full credit. The box had cost $55 (GST inclusive) and been sold for $110 (GST inclusive). Credit note 617.
10 May / Samantha took a garden bench out of inventory for personal use. The bench had a cost of $330 (GST inclusive).
30 June / A stocktake revealed an inventory shortage of $200.
30 June / Interest expense of $120 has accrued on the bank loan but has not yet been recorded. A balance day adjustment is required.

You are required to provide General Journal entries for the transactions shown above (using the answer booklet).

Make sure you:

  • Record GST in all applicable entries
  • Enter dates and narrations for each entry
  • Ensure debit entries are shown first and credit entries are offset to the right.

(20marks, approximately 20 minutes)

QUESTION 2

Examine the following General Ledger accounts.

Accounts Receivable

2016 / 2016
June 30 / Balance b/d / 35 000 / June 30 / Bad and doubtful debts exp. (A) / 1 000
GST Collected (A) / 100

Bad and doubtful debts expense

2016 / 2016
June 30 / Balance b/d / 12 000
Accounts receivable (A) / 1 000
Provision for doubtful debts (B) / 500

Provision for Doubtful Debts

2016 / 2016
June 30 / Balanceb/d / 2 200
Bad and doubtful debts (B) / 500

GST Collected

2016 / 2016
June 30 / Accounts receivable (A) / 100 / June 30 / Balanceb/d / 6 900

You are required to answer each of the following (using the answer booklet):

(i) Explain the entries marked (A).

(ii) Explain the entries marked (B).

(iii) Why is it necessary to account for bad and doubtful debts?

(2 + 2 + 3 marks = 7 marks, approximately 7 minutes)

QUESTION 3

The owner of Jolly Roger Sailing School presents you with the following financial information:

Jolly Roger Sailing School
Bank Reconciliation Statement
as at 30 April 2016
$ / $
Credit balance as per bank statement / 6,210.00
Add deposits not yet credited / 2,051.00
8,261.00
Less unpresented cheques / No.
468 / 805.00
469 / 1,248.00
470 / 1,010.00 / 3,063.00
Debit balance as per cash at bank account / 5,198.00

Summary of computerised accounting records for cash receipts and cash payments for the month of May 2016:

Jolly Roger Sailing School
Cash Receipts Journal
Date / Rec. No. / Particulars / Bank (Dr)
2016
May / 3 / Capital / 3,000.00
5 / Sales / 1,920.00
12 / Sales / 3,235.00
19 / Sales / 2,177.00
23 / Sales / 2,145.00
29 / Sales / 2,459.00
30 / Sales / 905.00
Jolly Roger Sailing School
Cash Payments Journal (extract)
Date / Chq. No. / Particulars / Bank (Cr)
2016
May / 1 / 471 / T Tugrah / 1,170.00
10 / 472 / Office equipment / 3,550.00
13 / 473 / Wages / 2,964.00
19 / 474 / Commission / 1,350.00
21 / 475 / Advertising / 250.00
25 / 476 / F Forest / 1,220.00
27 / 477 / Drawings / 3,552.00
29 / 478 / B Buelah / 1,288.00
31 / 479 / Rent / 860.00
Jolly Roger Sailing School Ltd Statement of Account with
The Big Bank Burnie TAS 7320
Date / Transactions / Debit / Credit / Balance
2016
May / 1 / Opening Balance / 6,210.00 / CR
1 / Deposit / 2,051.00 / 8,261.00 / CR
3 / Deposit / 3,000.00 / 11,261.00 / CR
4 / 468 / 805.00 / 10,456.00 / CR
5 / Deposit / 1,920.00 / 12,376.00 / CR
7 / 471 / 1,170.00 / 11,206.00 / CR
8 / 470 / 1,010.00 / 10,196.00 / CR
11 / Bank charges / 10.00 / 10,186.00 / CR
13 / Deposit / 3,235.00 / 13,421.00 / CR
13 / 473 / 2,964.00 / 10,457.00 / CR
15 / 472 / 3,550.00 / 6,907.00 / CR
17 / Direct deposit - T Cape / 200.00 / 7,107.00 / CR
19 / Deposit / 2,177.00 / 9,284.00 / CR
19 / 474 / 1,350.00 / 7,934.00 / CR
23 / Deposit / 2,145.00 / 10,079.00 / CR
27 / 477 / 3,552.00 / 6,527.00 / CR
27 / 476 / 1,220.00 / 5,307.00 / CR
29 / Deposit / 2,459.00 / 7,766.00 / CR
31 / Dishonoured cheque - S Smithton / 150.00 / 7,616.00 / CR

You are required to (using the answer booklet):

(i)Complete the Cash journals and the Cash at Bank account in the General Ledger of Jolly Roger Sailing School for the month of May 2016.

(5 marks)

(ii)Prepare the Bank Reconciliation Statement of Jolly Roger Sailing School as at 31 May 2016.

(8 marks)

(Total 13 marks, approximately 13 minutes)

SECTION C: Financial Reasoning - Reporting(50 Minutes)

  • This section assesses Criterion 3 and Criterion 6and is worth 50 marks.
  • It is recommended that you spend 50 minutes on this question.
  • This question contains THREEparts. You must answer ALLparts.
  • Your answers must be written in the space provided on the answer booklet for this question.

The following trial balance was extracted from the General Ledger of Tamar Events Supplies and Management on 30 June 2016:

Debit ($) / Credit ($)
Advertising / 5,400
Cost of goods sold / 180,000
Capital - Jim Marks / 150,200
Accounts receivable / 22,000
Sales / 435,800
Inventory / 27,000
GST credits received / 3,000
Accounts payable / 25,000
Sales wages / 58,000
Bank charges / 300
Sales returns / 3,000
Office wages / 47,000
Drawings / 30,000
Delivery expenses / 6,000
GST collected / 7,000
Interest - mortgage loan / 8,000
Term deposit (ABC Bank) - 5 years / 55,000
Cash at bank / 3,400
Mortgage Loan / 152,000
Insurance / 4,000
Interest on term deposit / 2,300
Office expenses / 2,200
Accumulated depreciation on office equipment / 5,200
Office equipment (cost) / 18,200
Land and buildings / 305,000
777,500 / 777,500

Additional Information

  1. Interest accrued on mortgage loan is $400.
  2. An amount of $10,000 has been recorded in sales which is a deposit for an event to be held in July 2016.
  3. Depreciation on office equipment is 15% diminishing balance.
  4. A stocktake reveals inventory of $26,500.
  5. Accounts need to be cleared to GST clearing.

You are required to (using the answer booklet):

  1. In the space below the trial balance, record the adjusting and clearing entries required (narrations are not required);
  2. Prepare a properly classified Income Statement in narrative form for Tamar Events Supplies and Management for the year ended 30 June 2016;
  3. Prepare a properly classified balance sheet in narrative form for Tamar Events Supplies and Management as at 30 June 2016.

(50 marks, approximately 50 minutes)

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