VCE ACCOUNTING Unit 4

Test 1

Time Allowed: 50 Minutes

Marks: 25

Write the answers in the spaces provided on this paper. Use pencil to complete the answers. Show workings where necessary.

 

Question 1

The following records are of Blix Trading: Stock Control Balance as at 30/4/03 was $3200 (see stock card below). Physical Stock Take on 30 April 2003 revealed 81 watches on hand.

Required:

(a)    Make a General Journal entry to adjust stock. (½ Mark)

30/4	Stock Control	40
	Stock Gain		40

(b)   Update the stock card. (½ Mark)

 

Stock Card: Casio Watch                                  Method: FIFO
		IN			Out			Balance
		Qty	Cost	Value	Qty	Cost	Value	Qty	Cost	Value
30/4/03	Balance							80	40	3200
30/4	Stock Gain	1	40	40				81	40	3240

(c)     Correct and/or show the effect on the Financial Reports. (1 Mark)

 

Statement of Financial Performance			Statement of Financial Position
Revenue			Current Asset	Liability
Sales	10,000		Stock Control        $3,200
Less COGS	4,000		$3240
Gross Profit	6,000			Owner’s Equity
Add Stock Gain	40			Capital                    $23400
				$23440

# Stock Gain is added (stock loss is deducted) to adjust the Gross Profit. The Value of stock is changed in the Statement of Financial position accordingly. This increases the equity. The reports are more RELEVANT now.

Question 2

Records of Gramma Trading as at 31/12/02:

Stock Sheet
Item	Cost $	Qty(units)	Value $
A1	10	200	2000
B2	12  8	200	2400 1600
C2	11	200	2200
Total Stock			6600 5800

It is estimated the NRV of the stock items are:

Item	NRV $
A1	20
B2	8
C2	15

Required

(a)    Find the value the stock using the Lower of cost and net realisable value. (1 Mark)

            Value of Stock is:         $ 5800

(b)   Make a journal entry to adjust stock. (½ Mark)

31/12/02	Stock Write Down	800
	Stock Control		800

# Stock is not lost but decreased in value, hence, Write Down.

(c)    Show the effect in the financial reports using extracts. (1 Mark)

 

Statement of Financial Performance			Statement of Financial Position
Revenue			Current Asset	Liability
Sales	12800		Stock Control        $5800
Less COGS	7,400
Gross Profit	5,400
Less Stock Write Down	800			Owner’s Equity

 

(d)   Why the stock is valued using the lower of cost and NRV method. (1 Mark)

The principle of conservatism states that losses shall be recognised as soon as they become evident. This is in view of being prudent so as not to overstate the profit. Also, this value is more relevant and would assist the users to make informed judgements on the decisions they take.

 

Question 3

(a)    20 Nov 02 - Received bus fare in advance $2000. Journalise this transaction. (½ Mark)

 

20/11	Cash at Bank	2000
	Prepaid Revenue		2000

#The revenue has not been earned yet. Revenue is earned when all obligations are met – seller has provided the products and the buyer has paid or signed an invoice for credit supply.

(b)   Made a term deposit of $20,000 at 10% pa on 1/11/02. Interest is paid every six months. Today is 31/12/02. Make an adjusting Journal entry to this effect as at 31/12/02.  (1 Mark)

Show your working here:    Interest = 20000 x 10% = $2000 pa

                                          For 1 month = $2000/12 = 166.66

                                          For 2 months (Nov & Dec) = 166.66 x 2 = 333.32

 

31/12	Accrued revenue	333.32
	Interest Revenue		333.32

# interest has been earned but not received. Bank owes the business 333.32 – hence a Sundry Debtor.

Question 4

Slimex Trading buys and sells goods on credit. It provides 30 day credit terms to its customers. The suppliers provide goods to Slimex on credit on a strictly 45 day term. The following table provides the relevant ratios in terms of Stock, Debtors and Creditors.

 

	Turnover Ratios
	Stock	Debtors	Creditors
Ratios (times per year)	10	10	7
In Days	37	37	52

                                                                        #Conversion: 365/Ratio

Required:

(a)    Converts the Turnover ratio to days by completing the table above. (½ Mark)

(b)   How many days does it take Slimex to collect the cash from the day of purchase? 74 days. (½ Mark)

(c)    What is the Cash Cycle of the business? 74 days. (½ Mark)

(d)   State one reason why Slimex is not able to pay its creditors in 45 days as per the term of credit? It is taking 74 days to collect cash from the date of purchase. This may be creating Cash Flow problems for the business. (½ Mark)

(e)    State two reasons why Slimex is not able to collect cash in 30 days from its debtors? 1. Bad choice of debtors – no credit check done. Poor Debtor management – not reminding, no incentives (discounts), no follow up on defaulters, etc . (1Mark)

(f)     State one factor that can reduce the Cash Cycle. Fast moving stock, better debtor management etc. (½ Mark)

 

Question 5

The following transactions relate to the business of Footscray Gifts.

2002
July 2	Bought goods for cash$1375, including GST of $125.
14	The proprietor cashed a cheque and withdrew $600.
17	Paid cash for purchases of stock $671, including the GST.
28	Paid creditor $1250 after receiving a discount of $50

 

Required:        Record the above transactions in the Cash payments Journal.  (1 Mark)

Cash Payments Journal
Date	Details	Chq No	Bank	Discount Rev	Creditors	Stock	GST Paid	Drawings	Sundries
2/7	Stock		1375			1250	125
14	Drawings		600					600
17	Stock		671			610	61
28	Creditor		1250	50	1300
31/7	TOTAL		3896	50	1300	1860	186	600

Question 6

Wilson’s Wallpapers had the following trades in the first week of its operations.

2002
July 2	Bought stock on credit from Jeremy Trading worth $6000 plus GST.
4	Sold goods to T Decorators for $385 including GST $35. (CP $160)

Required:        Record the above transactions in the appropriate Journals. (1 Mark)

Question 7

 

 

Required:        Post the CRJ to the General Ledger (2 Marks)

 

Bank

Discount Expense

Date

Detail

$

Date

Detail

$

Date

Detail

$

Date

Detail

$

Aug 1

Balance

10000

7/8

CAB

50

7

Cash Receipts

3400

 

Debtors

GST Clearing

Date

Detail

$

Date

Detail

$

Date

Detail

$

Date

Detail

$

Aug

Balance

3900

7/8

CAB & Dis Ex

1250

Aug 1

Balance

1800

7/8

CAB

200

 

Cost of Sales

Stock

Date

Detail

$

Date

Detail

$

Date

Detail

$

Date

Detail

$

Aug

Balance

9800

Aug 1

Balance

22900

7/8

Cost of Sales

1000

7/8

Stock

1000

 

Sales
Date	Detail	$	Date	Detail	$
			Aug	Balance	9800
			7/8	Cab	2000

 

Question 8

Sloan Trading has provided the following information: Balance in the GST Clearing Account has a debit balance of $2000 as at 1 August 2002. In August the business paid $3800 in GST to the suppliers and received a total of $4900 in GST from its customers.

 

Required:

(a)    Record the above information in the GST Clearing Account and balance the account. (1 Mark)

(b)   Would the business receive a refund or make a payment to the ATO on the GST transactions at the end of the month. Explain. Refund. The business paid out more GST than it collected. (1Mark)

(c)    Show where the GST Clearing account would appear on the Statement of Financial Position. (1 Mark)

Statement of Financial Position
Current Asset		Current Liability
GST Clearing	900
Non Current Asset		Non Current Liability
		Owner’s Equity

            # A debit balance in the GST account denotes an asset. A credit balance means a liability. Why?

(d)   In the month ending 30 September 2002 the business paid $2300 in GST from suppliers and received $6780 in GST from customers. Show this on the Statement of Cash Flow. (1 Mark)

Statement of Cash Flow
Cash Flow from Operating Activities
GST from Customers	6789
GST paid to Suppliers	(2300)
Cash Flow from Investing Activities
Cash Flow from Financing Activities

#GST is created by the ordinary operations of the business and hence recorded under operating activities. A net value can also be recorded rather than stating both figures (paid and collected)

 

 

Question 9

Trida Trading has provided the following information: Balance day of Trida Trading is 31 December. At balance date wages of $450 owed for the reporting period 31 December, 2002 which was recorded in the Accrued Wages account. On 15 January 2003 a wages payment of $900 was made.

 

Required:

(a)    Make a general Journal entry to show the correct effect on Accrued Wages and Wages Account in the subsequent period. (1 Mark)

 

Date	Particulars	Debit	Credit
15/1	Accrued Wages	450
	Wages Expense	450
	Cash at Bank		900

# Accrued wages is the unpaid wages from the previous period. This was paid in this period as part of the $900. This period’s wage (from 1/1 to 15/1) is assumed to be the balance left from the $900. Total cash paid out is $900.

(b)   If the adjustment is not made to the Accrued wages in the subsequent period, state one effect this would have on the financial reports? The wages expense would be $900 hence reducing the profit for the period (understated) and a liability would still exist. The Equity is reduced twice by the same amount.  (1 Mark)

 

Question 10

The following information is provided by Wholesale Trading, an electrical cable seller:

Balances as at 31 March 2003:

General Ledger:            Debtors Control $4800 Creditors Control $3500, Stock Control $5100

Subsidiary Ledgers:      Debtors - Kim Electrical $2000, Pat Trading $2800   

Creditors:  Amtex Ltd $2200 Kim Electrical $1300

Stock Card (Cables)    Qty      Cost     Value

                                    100      110     

                                    400      10       5100

 

Wholesale Trading						Amtex Ltd
Credit Note No 26						Credit Note No GY22
TO:	Pat Trading					TO:	Wholesale Trading
			Date:	3/04/2003					Date:	4/04/2003
Quantity	Item	Price	GST	Total		Quantity	Item	Price	GST	Total
1	Cable	220	22	242		1	Cable	110	11	121
	Damaged						(Damaged)
Total		220	22			Total		110	11
Total including GST				242		Total including GST				121

 

Required:

(a)    The data from the source documents has not been recorded yet. Make GJ entries for the source documents. It is the same damaged cable in both the documents.      ( 2 Marks)

¾	Sales Returns	220
	Debtors Control		242
	Cost of sales		110
	Stock	110
	GST Clearing	22
	( Sales returns)
¾	Creditors Control	121
	Purchase returns		110
	GST Clearing		11
	(Purchases returns)

(b)   Post the journal to the following general ledgers and subsidiary ledgers. ( 1 Mark)

General Ledgers

Debtors							Creditors
Date	Detail	$	Date	Detail	$		Date	Detail	$	Date	Detail	$
3 /4	Balance	4800		Sales Return&Gst	242			Purchase Returns	121		Balance	3500
				Balance	4558			Balance	3379
		4800			4800				3500			3500
	Balance	4558									Balance	3379

 

 

 

 

Debtors Subsidiary Ledger

Kim Electrical							Pat Trading
Date	Detail	$	Date	Detail	$		Date	Detail	$	Date	Detail	$
	Balance	2000						Balance	2800		S. Ret & Gst	242
												2558
									2800			2800
								Balance	2558

 

Creditors Subsidiary Ledger

Amtex Ltd							Kim Electrical
Date	Detail	$	Date	Detail	$		Date	Detail	$	Date	Detail	$
	Purchase Ret	121		Balance	2200						Balance	1300
	Balance	2079
		2200			2200
				Balance	2079

 

(c)    Prepare the Debtors and Creditors Schedule. (½ Mark)

 

Debtors Schedule
Kim Electrical	2000
Pat Trading	2558
Balance as per Debtors Control Account	4558

 

Creditors Schedule
Amtex Ltd	2079
Kim Electrical	1300
Balance as per Creditors Control Account	3370

 

(d)   Using contra entry offset the common Debtor and Creditor. (Journal entry only) (½ Mark)

 

Date	Particulars	Debit	Credit
	Kim Electrical - Creditor	1300
	Kim Electrical - Debtor		1300

# For a Debtor and a Creditor who are the same: use the smaller amount to offset. In this case $1300 (creditor -Kim) was a smaller amount than $2000 (Debtor – Kim)

(e)    A note from a solicitor says that Pat Trading has gone bankrupt and as a result debt can’t be recovered. Make a journal entry to record the event. (½ Mark)

Date	Particulars	Debit	Credit
	Bad Debt	2558
	Debtor – Pat		2558