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ACCOUNTING UNITS 3 AND 4

Accounting Units 3 and 4 practice


exam 2014 and suggested solutions
Simon Phelan
Rosehill Secondary College

The following VCE Accounting Units 3 and 4 practice exam conforms to the
examination specifications provided by the Victorian Curriculum Assessment
Authority (VCAA) on its website. The examination covers Units 3 and 4 and
consists of nine questions. The total marks for the exam are 100. An answer
book and suggested solutions follow the question book.
The practice exam and solutions are based on the authors interpretation of
the VCE Accounting Study Design (20132016).
Please note that the following questions and solutions have no official
status.
Teachers should refer to the VCAA website http://www.vcaa.vic.edu.au for
further information.

Disclaimer: This resource has been written by the author (Simon Phelan) for use with students of VCE
Accounting. This does not imply that it has been endorsed by the Victorian Curriculum and Assessment Authority
(VCAA). While every care is taken, we accept no responsibility for the accuracy of information or advice
contained in Compak. Teachers are advised to preview and evaluate all Compak classroom resources before
using or distributing them to students.

VCTA

Published September 2014

page 1

ACCOUNTING UNITS 3 AND 4

ACCOUNTING UNITS 3 AND 4


Practice written examination 2014

Reading time: 15 minutes


Writing time: 2 hours

QUESTION BOOK
Structure of book
Number of questions
9

Number of questions to
be answered
9

Number of marks
100

Students are permitted to bring into the examination room: pens, pencils, highlighters, erasers,
sharpeners, rulers and one scientific calculator.
Students are NOT permitted to bring into the examination room: blank sheets of paper and/or
white-out liquid/tape.
Materials supplied
Question book
Answer book
Instructions
Write your name and your teachers name in the spaces provided on the front page of the answer
book.
Answer all questions in the answer book.
All written responses must be in English.

Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic
devices into the examination room.

NOTE: This practice examination has no official status and represents an indication only of the
types of questions that VCAA examiners may set.

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 1 (7 marks)
Mitchell Santucci sells herbal teas and coffee, which he has been importing from China and Indonesia
for the last four years. He operates his business from home on a part-time basis. The business has
grown to the point where Mitchell is ready to resign from his full-time job and open a store selling his
own brand of tea and coffee.
On 1 March 2014, Mitchell moved into new premises and contributed the following items:
Computer Equipment

$5 600 (historical cost) with an agreed value of $3 000

Stock

$24 600

Cash at Bank

$2 670

Creditors:
Hizheng Teas

$4 800

Basic Beans

$8 720

a. Prepare the General Journal entry necessary to record the above information.
A narration is not required.
4 marks
b. Explain what is meant by the term historical cost in relation to the Computer Equipment.
2 marks
c. Mitchell paid $5 940 (including GST) on a 6-month rental agreement on the business
premises on 1 March 2014 (Chq 001).
Record this transaction in the Cash Payments Journal.
1 mark

Question 2 (5 marks)
Hannah Stefanou has just commenced operating her small business, Hannahs Hats. She sought
advice from an accountant about how to establish a suitable system of recording financial information.
The accountant provided the following advice.
An accounting system based on the double-entry system of recording and using the accrual basis for
reporting will provide the most accurate and useful information.
Explain the accountants statement with reference to appropriate accounting principles and qualitative
characteristics.

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 3 (23 marks)


Theo Potter has been operating his business for the past 3 months and is unsure of the process of
posting his journal information to the ledger accounts prior to report preparation. You have informed
him that journals should be posted monthly. He has provided the following journal summaries.
Sales Journal
Date
2014

Debtor

Inv.
No.

Cost of
Sales

Sales

Debtors
Control

GST

Jan. 31

Totals to date

5 295

10 590

1 059

11 649

Feb. 28

Totals to date

6 200

12 400

1 240

13 640

Mar. 31

Totals to date

6 540

13 080

1 308

14 388

Purchases Journal
Date
2014

Stock
Control

Inv.
No.

Creditor

GST

Creditors
Control

Jan. 31

Totals to date

5 800

580

6 380

Feb. 28

Totals to date

3 200

320

3 520

Mar. 31

Totals to date

4 700

470

5 170

Cash Receipts Journal


Date
2014

Details

Rec.
No.

Bank

Disc.
Exp.

Debtors
Control

Cost of
Sales

Sales

Sundries

GST

Jan. 31

Totals to date

55 270

65

9 395

2 700

5 400

30 000

540

Feb. 28

Totals to date

17 821

120

10 540

3 200

6 400

361

640

Mar. 31

Totals to date

21 790

220

11 450

4 800

9 600

960

Note: Sundries includes a refund from the ATO on 4 February 2014 for $361.
Cash Payments Journal
Date
2014

Details

Chq
No.

Bank

Disc.
Rev.

Creditors
Control

Stock
Control

Wages

Sundries

GST

Jan. 31

Totals to date

21 310

50

2 730

4 900

800

11 550

1 380

Feb. 28

Totals to date

20 460

80

3 180

9 000

900

6 340

1 120

Mar. 31

Totals to date

25 010

140

4 450

9 600

900

8 760

1 440

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

General Journal
Date
2014

Details

General Ledger
Debit
$

Jan. 25

Drawings

Credit
$

Debit
$

Bad Debts

400

800
Debtors Control

800

A. Muscat

Feb. 25

Credit
$

400
Stock Control

Feb. 3

Subsidiary Ledger

800

Sales Returns

750

GST Clearing

75
Debtors Control

825

DebtorM. Osoba
Stock Control

825
375

Cost of Sales

375

a. Using the information above, post the relevant information to the following General Ledger
accounts and complete the accounts.
Stock Control
GST Clearing
Wages
Sales Returns.
6 + 6 + 3 + 2 + 1 = 18 marks
b. Explain the role of the General Ledger in the recording process.
2 marks
c. With reference to an accounting principle, explain why ledger accounts are closed or
balanced periodically.
3 marks

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 4 (20 marks)


Carl Lane owns and operates Fairways, a small business selling golf equipment and clothing. During
June 2014 the business began stocking a new itemthe Woods Driver. At 30 June 2014, the
following incomplete Stock Card was provided.
Stock Item:

Supplier:

Woods Driver
IN

Date

Details

June 1

Chq 632

Qty

25

Unit
Cost
85

OUT
Value
$

Chq 667

13

Inv. D97

15

Recs 447475
(1)

Qty

Unit
Cost

19

50

90

BALANCE
Value
$

2 125

Recs 324346

10

Niklete Sports

85

1 615

Qty

Unit
Cost

25

85

2 125

85

510

46

90

4 140

38

90

3 420

4 500

90

720

As of 30 June 2014, the following transactions had not been recorded.


17 June

Northern Golf Club returned 4 units purchased on 13 June due to damage. Units were
sold for $200 each plus GST (CN V37)

19 June

These 4 units were returned to the supplier for a full credit (CN 82)

23 June

Donated 2 units to a local golf club as part of a raffle (Memo 9)

29 June

Cash sale of 1 unit for $220 including GST (Rec. 516)

30 June

A physical stocktake revealed 33 units on hand (Memo 10)


The supplier announced on this date that the line of stock was to be redesigned and remarketed as the Scott Driver. The business decided to reduce the selling price of the
remaining units to $80 per unit plus GST. In addition, all customers buying this line of
stock at the reduced price would receive a poster of Adam Scott that costs the business
$2 per unit (Memo 11)

a. Complete the Stock Card by filling in the missing numbers.


1 + 1 = 2 marks
b. Enter the transactions above into the Stock Card for June 2014.
7 marks

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Value
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Published September 2014

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ACCOUNTING UNITS 3 AND 4

c. Explain how the FIFO cost assignment method is demonstrated in the transaction on 13 June
2014 in the Stock Card.
2 marks
d. Identify the transactions in the Stock Card represented by the number (1).
1 mark
e. State the accounting principle that required the transaction in Memo 11.
1 mark
An assessment of stock movements for the year ended 30 June 2014 revealed the following
information.

f. Explain how the trend in Stock Turnover (All) might impact on the liquidity of the business.
3 marks
g. Explain what the graph is showing and what advice you would provide to Carl regarding his
management of stock.
4 marks

Question 5 (6 marks)
On 31 December 2013, the owner of Farrers Farmgoods decided to remodel the premises at which
the business operates. This remodel required the business to borrow a significant amount of money
from the National Bank as well as contribute some additional capital. These additional funds were
required to finance the new assets purchased by the business.
At 31 December 2014 the following information was provided.
Ratio

Year Ended 31 December 2013

Year Ended 31 December 2014

Return on Owners
Investment

19%

8%

Debt Ratio

40%

60%

Explain what is shown by the information in the table. In your answer, identify possible causes of the
trends shown and outline why the owner need not be concerned about the results.

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 6 (17 marks)


After all transactions for the year for The Wool Barn were recorded, a Pre-adjustment Trial Balance
was prepared at 31 December 2014.
THE WOOL BARN
Pre-adjustment Trial Balance as at 31 December 2014
Account

Debit
$

Credit
$

Accumulated DepreciationDelivery Vans


Advertising

14 000
5 200

Bank

7 820

Buildings

200 000

Buying Expenses

2 500

Capital

200 920

Cost of Sales

420 000

Creditors Control

39 180

Debtors Control

25 430

Delivery Vans

80 000

DepreciationDelivery Van

2 880

Discount Expense

4 600

Discount Revenue

3 700

Drawings

52 000

GST Clearing

4 870

Interest Expense

6 000

Loan

45 000

Office Expenses

47 300

Prepaid Insurance Expense

18 000

Profit on Disposal of Delivery Van

4 000

Sales

700 000

Sales Returns

1 180

Stock Control

57 000

Term Deposit

15 000

Wages

82 400

Totals

1 019 490

1 019 490

The following items require attention:


Stock on hand at 30 June 2014 was $59 700. (Memo 7)
Depreciation on Delivery Vans is 20% per annum using the reducing-balance method (Memo
8). On 1 July 2014 a Delivery Van with an historical cost of $45 000 and a carrying value of
$25 920 was sold for $29 920. A new Vehicle costing $55 000 plus GST was purchased on the
same day

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

An amount of $600 for stock withdrawn by the owner was incorrectly posted to the Advertising
account. (Memo 9)
Wages owing$1 200. (Memo 10)
$2 000 insurance is still prepaid at 31 December. (Memo 11)
The Term Deposit was opened on 1 August 2014. Interest is earned at the rate of 6% per
annum and is payable every 6 months on 31 January and 31 July each year. (Memo 12).
a. Prepare the General Journal entries to record the necessary adjustments and corrections at 31
December 2014.
Narrations are not required.
11 marks
b. Prepare the General Journal entries necessary to:
close the revenue accounts
transfer Drawings to the Capital account.
Narrations are not required.
4 marks
c. The accountant queried why the buildings were not depreciated and the owner replied: I didnt
think I needed to depreciate this asset.
Explain why it is necessary to depreciate buildings and other non-current assets.
2 marks

Question 7 (3 marks)
The following information relates to the dealings between Fargoes, a small business selling camping
equipment and Outdoor Incorporated, which is a customer.
17 April 2014

Paid $500 as a deposit on goods to be delivered in May 2014 (Rec. B63)

4 May 2014

Goods with a selling price of $4 000 plus GST were delivered to the customer. Stock
is sold at a mark-up of 100% (Inv. F384)

9 May 2014

Outdoor Incorporated paid the amount owing, taking advantage of the 1/14, n30
terms (Rec. C09)

a. Record Receipt B63 in the Cash Receipts Journal.


1 mark
b. Show how the DebtorOutdoor Incorporated account would appear at 31 May 2014 after all
entries had been posted.
You are not required to balance the account.
2 marks

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 8 (8 marks)
The following information for Volcamp was provided:
Debtors at 1 July 2014 is $25 680
Credit Sales for the 6 months ended 31 December 2014 are expected to be $143 000 plus GST
Sales Returns for the 6 months ended 31 December 2014 are expected to be 1% of credit
sales
Discount Expense for the 6 months ended 31 December 2014 is expected to be $5 500
Bad debts are generally 0.5% of credit sales.
The owner would like to decrease the Debtors balance at 31 December 2014 to $20 000.
a. Reconstruct the Debtors Control account to find expected receipts from Debtors for the 6
months ended 31 December 2014.
5 marks
Based on the information above, the owner expected Debtors Turnover for the period to be 29 days.
When calculated at 31 December 2014 it was determined that actual Debtors Turnover was 34 days.
b. Explain the impact of this change in Debtors Turnover on the profitability of the business and
outline one strategy the owner could implement to correct this trend.
3 marks

Question 9 (11 marks)


Sarah Genovese owns and operates Jeanius, a small clothing business. She has decided to
introduce her own brand of jeans and shirts branded as GenS. The clothes will be made by Ghou
Clothing and re-branded upon arrival in Australia.
Details of the first purchase of 100 pairs of jeans and 60 shirts on 1 May 2014 were:
Invoice price $60 per pair of jeans and $20 per shirt (Inv. GV25)
Customs duty 15% of invoice price (Inv. GV25)
Delivery expenses $300delivery supplied by Fasttrack Couriers (Inv. H83)
Labelling $1 per item (Chq S259)
GST 10% where applicable.
a. Calculate the cost of one pair of GenS jeans.
1 mark
b. Record the information contained above in the relevant journals and the Stock Card for GenS
jeans.
1 + 1 + 3 + 1 = 6 marks
During the month ending 31 May 2014 the business sold 47 pairs of jeans (@ $110 per pair, inclusive
of GST) and 21 shirts (@ $40 plus GST each).
c. Complete the extract of the Income Statement for the month ending 31 May 2014 (up to Gross
Profit) for these lines of stock using product costing.
4 marks
Total 100 marks
END OF QUESTION BOOK

VCTA

Published September 2014

page 10

ACCOUNTING UNITS 3 AND 4

Name: ______________________________

Teacher: ______________________________

ACCOUNTING UNITS 3 AND 4


Practice written examination 2014

Reading time: 15 minutes


Writing time: 2 hours

ANSWER BOOK

Instructions
A question book is provided with this answer book.
Answer all questions in the spaces provided in this book.
Write your name and your teachers name in the spaces provided above on this page.
Refer to the Instructions on the front cover of the question book.

Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic
devices into the examination room.

VCTA

Published September 2014

page 11

ACCOUNTING UNITS 3 AND 4

Question 1 (7 marks)
a.

4 marks

General Journal
Date
2014

Details

General Ledger
Debit
$

Credit
$

Subsidiary Ledger
Debit
$

Credit
$

2 marks

b.
Explanation

c.

1 mark

Cash Payments Journal


Date
2014

VCTA

Details

Chq
No.

Bank

Disc.
Rev.

Creditors
Control

Published September 2014

Stock
Control

Wages

Sundries

page 12

GST

ACCOUNTING UNITS 3 AND 4

Question 2 (5 marks)
Explanation

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 3 (23 marks)


a.

6 + 6 + 3 + 2 + 1 = 18 marks
Stock Control

Date
2014

VCTA

Cross-reference

Amount

Date
2014

Published September 2014

Cross-reference

Amount

page 14

ACCOUNTING UNITS 3 AND 4

GST Clearing
Date
2014

Cross-reference

Amount

Date
2014

Cross-reference

Amount

Date
2014

Cross-reference

Amount

Cross-reference

Amount

Wages
Date
2014

Cross-reference

Amount

Sales Returns
Date
2014

VCTA

Cross-reference

Amount

Date
2014

Published September 2014

page 15

ACCOUNTING UNITS 3 AND 4

b.

2 marks

Explanation

3 marks

c.
Explanation

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 4 (20 marks)


a.

1 + 1 = 2 marks

b.

7 marks

Stock Item:

Supplier:

Woods Driver
IN

Date

Details

June 1

Chq 632

Qty

25

Unit
Cost
85

OUT
Value
$

Chq 667

13

Inv. D97

15

Recs 447475
(1)

VCTA

Qty

19

50

90

Unit
Cost

BALANCE
Value
$

2 125

Recs 324346

10

Niklete Sports

85

1 615

Qty

Unit
Cost

Value
$

25

85

2 125

85

510

46

90

4 140

38

90

3 420

4 500

Published September 2014

90

720

page 17

ACCOUNTING UNITS 3 AND 4

2 marks

c.
Explanation

1 mark

d.
Transactions

1 mark

e.
Accounting principle

3 marks

f.
Explanation

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ACCOUNTING UNITS 3 AND 4

4 marks

g.
Explanation

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Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 5 (6 marks)
Explanation

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Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 6 (17 marks)


a.

11 marks

General Journal
Date
2014

VCTA

Details

General Ledger
Debit
$

Published September 2014

Credit
$

Subsidiary Ledger
Debit
$

Credit
$

page 21

ACCOUNTING UNITS 3 AND 4

b.

4 marks

General Journal
Date
2014

Details

General Ledger
Debit
$

c.

Credit
$

Subsidiary Ledger
Debit
$

Credit
$

2 marks

Explanation

VCTA

Published September 2014

page 22

ACCOUNTING UNITS 3 AND 4

Question 7 (3 marks)
1 mark

a.
Cash Receipts Journal
Date
2014

Details

Rec.
No.

Bank

Disc.
Exp.

Debtors
Control

Cost of
Sales

Sales

Sundries

2 marks

b.
DebtorOutdoor Incorporated
Date
2014

VCTA

Cross-reference

Amount

Date
2014

Published September 2014

Cross-reference

Amount

page 23

GST

ACCOUNTING UNITS 3 AND 4

Question 8 (8 marks)
a.

5 marks
Debtors Control

Date
2014

Cross-reference

Amount

Date
2014

Cross-reference

Amount

3 marks

b.
Explanation

VCTA

Published September 2014

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ACCOUNTING UNITS 3 AND 4

Question 9 (11 marks)


1 mark

a.

Cost: $

b.

1 + 1 + 3 + 1 = 6 marks

Purchases Journal
Date
2014

Creditor

Inv.
No.

Stock
Control

GST

Creditors
Control

Stock
Control

Wages

Cash Payments Journal


Date
2013

Details

Chq
No.

Bank

Disc.
Rev.

Creditors
Control

Sundries

General Journal
Date
2014

VCTA

Details

General Ledger
Debit
$

Published September 2014

Credit
$

Subsidiary Ledger
Debit
$

Credit
$

page 25

GST

ACCOUNTING UNITS 3 AND 4

Stock Item:

Supplier:

GenS Jeans
IN

Date

Details

Qty

Unit
Cost

Ghou Clothing
OUT

Value
$

Qty

Unit
Cost

BALANCE
Value
$

Qty

Unit
Cost

c.

4 marks
JEANIUS
Income Statement (extract) for the month ending 31 May 2014
$

Revenue

END OF ANSWER BOOK

VCTA

Published September 2014

page 26

Value
$

ACCOUNTING UNITS 3 AND 4

Solutions to Accounting Units 3 and 4 practice exam 2014


Question 1 (7 marks)
a.

4 marks

General Journal
Date
2014

Mar. 1

Details

General Ledger
Debit
$

Computer Equipment

Credit
$

Subsidiary Ledger
Debit
$

Credit
$

3 000

Stock Control

24 600

Cash at Bank

2 670
Creditors Control

13 520

Hizheng Teas

4 800

Basic Beans

8 720

Capital

16 750

1 mark for Assets (must state Control when including Stock)


1 mark for Creditors Control
1 mark for Creditor accounts in the Subsidiary Ledger column
1 mark for Capital (amount consequential)
2 marks

b.
Explanation

Historical cost refers to the original price paid for a particular item, in this case the Computer Equipment
(1 mark). It is a reliable figure as there is a document available to support this valuation (1 mark)

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Published September 2014

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ACCOUNTING UNITS 3 AND 4

1 mark

c.
Cash Payments Journal
Date
2014
Feb. 2

Details
Prepaid Rent
Expense

Chq
No.
001

Bank

Disc.
Rev.

Creditors
Control

Stock
Control

5 940

Wages

Sundries

GST

5 400

540

1 mark for entry as shownmust state Prepaid

Question 2 (5 marks)
Explanation
A double-entry recording system is one where each transaction results in a double entrya debit entry and
a corresponding credit entry. This means that after each transaction the accounting equation is still equal
and so errors can be detected, thereby satisfying the reliability characteristic.
The accrual basis for the preparation of accounting reports means that transactions are recorded when they
occur; in other words, credit transactions are recognised and recording doesnt have to wait for cash to be
received or paid. By recognising transactions when they occur the business is able to accurately determine
profit, recognising that for tax purposes profit must be reported periodically. The accounting principle of
reporting period requires that the life of the business be broken into regular periods of time for reporting
purposes. The recognition of transactions when they occur allows for more accurate reporting of profit
(revenue earned less expenses incurred), so better information is provided and better decisions can be
made, which conforms to the relevance characteristic.

Mark globally. Assess students responses in terms of their understanding of the concepts involved
and their reference to accounting principles and qualitative characteristics that link to the statement by
the accountant

VCTA

Published September 2014

page 28

ACCOUNTING UNITS 3 AND 4

Question 3 (23 marks)


a.

6 + 6 + 3 + 2 + 1 = 18 marks
Stock Control

Date
2014
Jan. 31

Feb. 28

Mar. 31

Cross-reference

Amount

Bank

4 900

Creditors Control

5 800

Cost of Sales

Date
2014
Jan. 31

375

Bank

9 000

Creditors Control

Cross-reference

Amount

Cost of Sales

5 295

Cost of Sales

2 700

Drawings
Feb. 28

Cost of Sales

6 200

3 200

Cost of Sales

3 200

Bank

9 600

Cost of Sales

6 540

Creditors Control

4 700

Cost of Sales

4 800

Balance

8 440

Mar. 31

37 575
Apr. 1

400

Balance

37 575

8 440

1 mark for all entries for each date on the debit side of account (excluding balance)3 marks
1 mark for all entries for each date on the credit side of account (excluding balance)3 marks

VCTA

Published September 2014

page 29

ACCOUNTING UNITS 3 AND 4

GST Clearing
Date
2014
Jan. 31

Cross-reference

Bank

Mar. 31

Date
2014

1 380

Creditors Control
Feb. 28

Amount

Bank

580
1 120

Creditors Control

320

Debtors Control

75

Bank

Jan. 31

1 440

Creditors Control

470

Balance

723

Cross-reference

Amount

Bank

540

Debtors Control
Feb. 28

1 059

Bank

361

Bank

640

Debtors Control
Mar. 31

1 240

Bank

960

Debtors Control

1 308

6 108

6 108
Apr. 1

Balance

723

1 mark for all entries for each date on the debit side of account (excluding balance)3 marks
1 mark for all entries for each date on the credit side of account (excluding balance)3 marks
Wages
Date
2014

Cross-reference

Amount

Jan. 31

Bank

800

Feb. 28

Bank

900

Mar. 31

Bank

900

Date
2014
Mar. 31

Cross-reference

Profit & Loss Summary

2 600

Amount

2 600

2 600

1 mark for 31 Jan. entry


1 mark for 28 Feb. entry
1 mark for both entries dated 31 Mar.
Sales Returns
Date
2014
Feb. 28

Cross-reference

Debtors Control

Amount

750

Date
2014
Mar. 31

Cross-reference

Profit & Loss Summary

750

Amount

750
750

1 mark for all entries for each date in the account2 marks
1 mark for balancing/closing all accounts
Entries must be in date order (as shown) to demonstrate understanding of posting

VCTA

Published September 2014

page 30

ACCOUNTING UNITS 3 AND 4

b.

2 marks

Explanation
The General Ledger shows a summary of all transactions relating to each item (asset, liability, expense,
revenue or owners equity) (1 mark), It allows these transactions to be grouped together so the balance
of the account can be determined periodically (1 mark).

c.
Explanation
The life of a business is assumed to be continuous, according to the going concern principle (1 mark) and
as such, unless the business periodically closes and balances accounts, it is not possible to determine
profit and assess the performance of the business (1 mark). By closing the accounts we are able to
determine profit, and balancing accounts allows preparation of the Balance Sheet to determine the financial
position of the business (1 mark).

3 marks

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Published September 2014

page 31

ACCOUNTING UNITS 3 AND 4

Question 4 (20 marks)


a.

1 + 1 = 2 marks

b.

7 marks

Stock Item:

Supplier:

Woods Driver
IN

Date

Details

June 1

10

Chq 632

Qty

25

Unit
Cost
85

OUT
Value
$

Qty

19

50

90

Unit
Cost

BALANCE
Value
$

2 125

Recs 324346

Chq. 667

Niklete Sports

85

1 615

4 500
6

85

Qty

Unit
Cost

Value
$

25

85

2 125

85

510

85

50

90

5 010

13

Inv. D97

90

870

46

90

4 140

15

Recs 447475
(1)

90

720

38

90

3 420

17

CN V37

42

90

3 780

19

CN 82

90

360

38

90

3 420

23

Memo 9

90

180

36

90

3 240

29

Rec. 516

90

90

35

90

3 150

30

Memo 10

90

180

33

90

2 970

Memo 11

33

12

396

33

78

2 574

90

360

1 mark for completing entry on 10 June


1 mark for completing entry on 13 June
1 mark for each entry required for part b (6 marks)
1 mark for amount of write-down ($12) (1 mark)

VCTA

Published September 2014

page 32

ACCOUNTING UNITS 3 AND 4

c.
2 marks
Explanation
On 13 June the business sold 10 units of stock. FIFO is demonstrated in this transaction, as prior to the
sale the business had stock with two different cost prices, resulting from two different purchases (1 mark).
The stock sold comprised the older stock and once that stock was exhausted, the newer, more expensive
stock was used to make up the numbers for the sale (1 mark).

1 mark

d.
Transactions Cash sales of stock

1 mark

e.
Accounting principle Conservatism

3 marks

f.
Explanation

The trend in the overall Stock Turnover for the business shows a deterioration over the period; that is, for
the year ended June 2012 stock was turned over every 54 days. This increased to 58 days and then 61
days for the year ended 30 June 2014 (1 mark).
This trend means stock is turned into cash at a slower rate, resulting in the business perhaps being less
able to meet its short-term debts, such as paying Creditors (1 mark). As a result, the business may go
into overdraft or have to borrow money to meet these commitments, further worsening liquidity (1 mark).

VCTA

Published September 2014

page 33

ACCOUNTING UNITS 3 AND 4

4 marks

g.
Explanation

The graph shows the Stock Turnover for the business in general and for two particular items of stock. The
overall Stock Turnover of the business has deteriorated while the turnover for the two individual lines of
stock has improved. In both cases, the turnover is better than the turnover for the business in general.
This information suggests the business is holding some stock that is not selling well, perhaps due to
excessive holdings of these lines of stock as a result of the stock being obsolete (for example, there may
have been changes in technology since these items were produced).
In this situation, the business should identify other lines of stock that are selling well and continue to hold
those lines, while identifying the lines that are not selling well and reducing its holdings of those lines. It
could hold a sale or lower the selling price to clear this stock. In general, a better stock mix is required.

Mark globally. Assess the response in terms of students understanding of the concepts involved and
how Stock Turnover is calculated

VCTA

Published September 2014

page 34

ACCOUNTING UNITS 3 AND 4

Question 5 (6 marks)
Explanation
The table shows the Return on Owners Investment (ROI), which is the percentage of the owners
investment in the business returned to the owner as profit. This indicator has shown a deterioration over the
relevant period. The likely cause of this deterioration is the increase in Owners Equity that probably
resulted from the owner contributing additional capital in 2014 to partly fund the remodelling of the business
premises. In addition to this indicator, the table also shows the Debt Ratio, which is the percentage of
businesss assets financed by external funds (liabilities). This ratio has also shown a deterioration, again
related to the remodelling of the business premises. This required an additional loan, thus increasing the
value of the liabilities. As the premises are valued at their historical cost, it is possible the value of the
premises were not changed to reflect the remodelling. Hence the value of assets have remained the same
while liabilities have increased, thus leading to a higher Debt Ratio.
The ROI may also have been affected by the increase in Interest Expense resulting from the new
Loan as well as other expenses associated with the remodelling. This will have lowered profit, leading
to a deterioration in the ROI.
Despite this, the owner should not be overly concerned as the remodelling is now complete and the layout
of the premises is likely to be more efficient, more welcoming and easier to use. Customers should
therefore find the business more appealing and that might lead to an increase in sales in the future, thus
offsetting the increased expenses, and ultimately leading to an improvement in profit and profitability.

Mark globally. Assess the response in terms of students understanding of the concepts involved and
whether students link the additional borrowing and capital contribution to the increase in the value of
the assets due to the remodelling of the business premises and the change in the performance
indicators. Response must include an outline of why the owner need not be concerned about the
results

VCTA

Published September 2014

page 35

ACCOUNTING UNITS 3 AND 4

Question 6 (17 marks)


a.
General Journal

11 marks

Date
2014

Dec. 31

Details

General Ledger
Debit
$

Stock Control

Subsidiary Ledger

Credit
$

DepreciationDelivery Van

2 700

Drawings

7 700

Wages

600

Insurance Expense

1 200
1

16 000

Prepaid Insurance Expense


Accrued Interest Revenue

1
1

1 200
Accrued Wages

1
1

600
Advertising

1
1

7 700

Accumulated Depreciation
Delivery Van

Credit
$
1

2 700
Stock Gain

Debit
$

16 000

375

Interest Revenue

375

1 mark for each line in the General Journal except Wages/Accrued Wages, which should be 1 mark
for both lines of entry

VCTA

Published September 2014

page 36

ACCOUNTING UNITS 3 AND 4

b.
4 marks
General Journal
Date
2014

Dec 31

Details

General Ledger
Debit
$

Stock Gain

Credit
$

Subsidiary Ledger
Debit
$

Credit
$

2 700

Interest Revenue

375

Discount Revenue

3 700

Profit on Disposal of Delivery Van

4 000

Sales

700 000
Profit and Loss Summary

Capital

710 775
52 600

Drawings

52 600

1 mark for Stock Gain/Interest Revenue entryamounts are consequential to part a.


1 mark for the other three revenue entries
Profit and Loss Summary entry is consequential to other entries. No mark is awarded but deduct 1
mark if omitted
1 mark for each line of entry to close Drawings to Capital
c.

2 marks

Explanation
Non-current assets require depreciation so the business is able to match the cost of each asset against the
revenue it helps to earn over its useful life (1 mark). This allows for a more accurate and relevant profit
figure to be determined and indirectly retains funds in the business to assist in purchasing new assets in the
future (1 mark).

VCTA

Published September 2014

page 37

ACCOUNTING UNITS 3 AND 4

Question 7 (3 marks)
1 mark

a.
Cash Receipts Journal
Date
2014
Dec. 31

Details
Prepaid Sales
Revenue

Rec.
No.
B63

Bank

Disc.
Exp.

Debtors
Control

Cost of
Sales

Sales

500

Sundries

500

2 marks

b.
DebtorOutdoor Incorporated
Date
2014
May 31

Cross-reference

Sales/GST Clearing

Amount

3 900

Date
2014

Cross-reference

May 31

Bank/Discount Expense

Amount

3 900

1 mark for each entry in account

VCTA

Published September 2014

page 38

GST

ACCOUNTING UNITS 3 AND 4

Question 8 (8 marks)
a.

5 marks
Debtors Control

Date
2014
July 1
July 31

Cross-reference

Balance
Sales
GST Clearing

Amount

25 680

Date
2014
Jul 31

143 000
14 300

Cross-reference

Amount

Sales Returns

1 430

GST Clearing

143

Discount Expense
Bad Debts
Bank
Balance

182 980

5 500
715
155 192
20 000
182 980

1 mark for the two balances


1 mark for Sales/GST Clearing
1 mark for Sales Returns/GST Clearing
1 mark for Discount Expense
1 mark for Bad Debts
No mark for Bank figure consequential to other amounts included
b.

3 marks

Explanation
The Debtors Turnover was worse than expected, meaning that it was taking longer for the business to
receive cash from its Debtors (1 mark). When this occurs it can suggest poor collection methods, which
may result in higher bad debts or an inability to meet short-term debts, leading to an overdraft or the
need for a loan, thus increasing Interest Expense (1 mark). This worsens the profitability of the business.
To improve this situation the business could increase the discount offered to Debtors for early payment or
be more proactive in chasing debts by sending reminder notices (1 mark).

VCTA

Published September 2014

page 39

ACCOUNTING UNITS 3 AND 4

Question 9 (11 marks)


1 mark

a.
Invoice Price + Customs Duty + Labelling
$60 + $9 + $1

Cost: $ 70

b.

1 + 1 + 3 + 1 = 6 marks

Purchases Journal
Date
2014
May 1

Creditor

Inv.
No.

Ghou Clothing

Stock
Control

GV25

GST

8 280

Creditors
Control

828

9 108

Cash Payments Journal


Date
2013
May 1

Details

Chq
No.

Stock Control

S259

Bank

Disc.
Rev.

Creditors
Control

Stock
Control

176

Wages

Sundries

160

16

General Journal
Date
2014

May 1

Details

General Ledger
Debit
$

Delivery Expenses

Debit
$

Credit
$

300

GST Clearing

30
Creditors Control

CreditorFasttrack Couriers

VCTA

Subsidiary Ledger

Credit
$

Published September 2014

GST

330
330

page 40

ACCOUNTING UNITS 3 AND 4

Stock Item:

Supplier:

GenS Jeans
IN

Date

May 1

Details

Qty

Unit
Cost

Ghou Clothing
OUT

Value
$

Inv. GV25

100

69

6 900

Chq S259

100

100

Qty

Unit
Cost

BALANCE
Value
$

Qty

Unit
Cost

100

70

1 mark for entry in PJ


1 mark for entry in CPJ
1 mark for Delivery Expenses entry in GJ
1 mark for GST Clearing entry in GJ
1 mark for Creditors Control/Fasttrack Couriers entry in GJ
1 mark for full entry in Stock Card
Amounts are consequential to response to part a.
4 marks

c.
JEANIUS
Income Statement (extract) for the month ending 31 May 2014
$

Revenue
Sales

5 540

Less Cost of Goods Sold


Cost of Sales

3 794

Delivery Expenses

300

Gross Profit

4 094
1 446

1 mark for Sales


1 mark for Cost of Sales
1 mark for Delivery Expenses
1 mark for format of report extract

VCTA

Published September 2014

page 41

Value
$

7 000