EDITH COWAN UNIVERSITY room perro serait Semester Two, 2603 UetcatemaTie | ACC 1100 Accounting 1 STANDARD Pars Satter ‘SURO ANLY NaN onexonavenens — | C Phe pica Duration Reoding time 10 minutes Working time 3 hours Total time 3 hows 10 minutes, Attempt All questions Marks As indicated on paper ‘Type of Exam Closed Book exam — unit guide and reader are not permitted Special Instructions * This examination paper consists of 6 pages and a worksheet * Please use the attached worksheet for the complesiem of Question 1. Detach it and submit it with your answer booklet. Please ensure that your name ané student number appear on the worksheet provided. Students are not permitted to write on the examination paper or any other paper during reading time. ‘Do not commence the examination until you are told to do so.QUESTION 1 — (20 marks) Mr Geotge has recently gone into business selling industrial vacuum cieeners, Dexlls ‘of his transactions forthe frst month of January are given below. = * Jan 1 1 1 4 Deposited $50 000 into a business bank account to commence the business, ‘Transferred the ownership of his car to the business at an agreed price of $9 000, Paid four months rent in advance for $3 200. Bought a desk, computer, answering mackioe and sundry ofce equipment at & cost of $3 600, with payment due in 60 days. ‘Bought 100 vacuum cleaners ata price of $140 per vacuum cianer and pa for ‘hem immediately. 5. Received delivery of the vacuum cleaners. Placed an advertisement in the local newspaper offering the vacuum cleaners for uM 2 18 18 a 23 un ‘ale. The advertisement cost $500 and was paid for immedistely. Received orders for 14 vacuum cleaners at $200 each, togetber with accompanying cheques. Despatched the vacuum cleaners. The deivery costs were $:35 in total and were paid straight away. Mr George took home one vacuum cleanes for his personal use. ‘Pld shop assistant two week's wages amounting to $1 000, Sold 6 vacuum cleaners for a total price of $1 150 t0 2 custcmer who walked into the shop, The customer paid $600 in cash. The balance was 0 be paid in a month's time. ‘A oustomer peid $2 000 in advance for 10 vacuum cleaners to be supplied over @ period of'six weeks. ‘Paid $280 for car repairs. ‘Delivered 2 of the vacuum cleaners ordered on 21 January, with the balance to be supplied ate, Received account for water use for January $400. Additional Information “eA stockiake reveals that 77 vacuum cleaners are on hand as at 31 Casuary, Two weeks wages are owing lo the cleaning esistant, amounting to $1 000 as at 31 Jemaary, ‘+ Depresition om the motor vehicle and offce equipment is atthe rate of 10% er anoum, Required: i) ‘Using the worksheet provided, record all transaetions for January and ‘then total each column at the end of the last transaction. i) Taking into account the additional information supplied above, and sssuming the accrual basls of accounting, record on the worksheet any ‘dditioual information required for the proper matching of expenses and revenues for the month ending 31 January. NOTE: Please usc the attached worksheet for the comoletion of and iQUESTION 2 = (20 marks) PARTA (12 marks) Bones Ltd has budgeted sales revenue as follows: Tne Tray Credit sales $18 000 $16 000 Cash sales $12 000 = 336 000 Total sales $30 000 $52 000 Past experience indicates that 60% of the credit sales wil be collected in the month o sale, and the remaining 40% will be collected in the following month. Purchases of inveatory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase, Budgeted inventory purchases are: Tune 340.000 July $30 000, Other cash disbursements budgeted: (@) selling and administrative expenses of $5 000 each month and () dividends of $13 800 paid in July. ‘The company wishes to maintain a minimum cash balance of $10 000 at the end of each month. If necessary, the company borrows money from the bank at 8% interest to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on | July wes $10 000. Required: i} Prepare a schedule for expected collections from customers. ii) Prepare a schedule for expected payments for purchases of inventory. it) Propare a cash budget for the month of July PARTB (8 marks) i) What are the main advantages and disadvantages of using a budget? (Gmarks) ii) Explain, giving examples, the main advantages of identifying cash surpluses and deficits in a cash budget. (3 marks)QUESTION 3 (20 marks) PARTA — (15 marks) ‘The following account balances were extracted from Badman Trading, 9s at 30 June 203: Aldotat Account $ Stock of Inventory (1 July 20x2) 78.000 Accounts Receivable 7 517000 Provision for Doubtfiil Debts 1200 ‘Cash at Bank 90 000 Office Equipment 90.000 Accumulated Depreciation 30.000 Sales 492.000 Sales Retums 12.000 Purchases 210 000 Purchase Returns 19.200 Accounts Payable 48.000 Advertising “24.000 Salaries 144.000 Light and Power 24.000 Discount Allowed 13200 Drawings 57000 BADMAN, Capital (1 July 20x2) 202 800 Additional Information: @ _ Astocktake as at 30 June 2033, revealed that stock valued at $30,000 was on hend. (b) Salaries due, but not paid or recorded, amount to $3 000. (©) Depreciation is to be charged at the rate of 15% per annum based os the reducing balance method of depreciation. (@) Advertising, paid in advance and not adjusted, amounts to $7 200_ (©) Amaged analysis of the accounts receivable has resulted in a decision to create provision for doubtful debis representing 3% of the accounts receivable balance, Required: ) Prepare a Statement of Financial Performanee for Badman Trading for the year ending 30 June 20x3 which discloses cost of goods available for sale, cost of gonds sold, gross profit from trading and net profit for the year, (7 marks) ii) _ Prepare a statement of owner’s equity for Badman Trading for the year ending 30 June 20x3. marks) iti) Prepare a classified Statement of Financial Position as at 30 June 20x3. (6 marks) PARTB (6 marks) 1) What are fhe reacans for remniring a statement nf each finwe?QUESTION 4 (20 marks) PARTA — (8 marks) ‘The following data has been taken from the financia) statements of Macerena Ltd: Accounts payable $22 000 ‘Accounts receivable $40 000, Total assets $250,000 Cash $35 000 Gross profit $190,000 Inventory $15 000 Net profit $40 000 Net sales 5 $400,000 Other current Tabiities $12,000 Salaries payable $6,000 Shareholders” equity ‘$100 000 Required: — Calculate the following: ) Current ratio. if) Debt to total asset ratio. fii) Profit margin ratio, iv) Return om shareholders’ equity ratio PARTB 2 marks) ‘What are the limitations to analysis which are inherent in the accounting data ~¥e are using? PARTC (10 marks) Joe Ltd uses the periodic inventory method and had the following inventory information available for the month of November. Date ‘Transaction Tits Tait Cost int Opening inventory | 400 33 SA Purchase No.1 | 600. 35 Twi Sale No.l G00) isl Purchase No | 500 $6 25 Sale No? (a) Required: Assume that the company uses the average cost method. i) Whatis the dollar vatue of the ending inventory on 30 November? Assume thot the company uses the LIFO (Last In First Out) cost method ii) What is the dollar value of the cost of goods sold during November? Assume that the company uses the FLPO (First In First Oud) cost method Bi Whatée the dolar value af the onding Inventary an 2 Navemhar?QUESTIONS (20 marks) PARTA — (10 marks) Jack Pty Ltd reports the following results for the month of November: Sales (12 000 units) $600 000 ‘Variable costs 450,000 Contribution margin 150 000 Fixed costs ~ 1110000 Net profit $_40.000 ‘Managemeat is considering the following independent courses of action tc increase profit. a) Increase selling price by 10% with no change in total variable costs. b) Reduce variable costs to 67% of sales. ©) Reduce fixed costs by $30 000 Required: Af maximising net profit is the objective, which is the best course of action? PARTB (10 marks) i) ABC Ltd is being sued by a client for $100 000. The company’s legal -advisers say there is only a 35 per cent chance of an unfavourable outcome. At the end of the financial year the case has still 1o go to court. Should the $100 000 be reported as a liability? Explain. ii) What are the deficiencies, if any, in the following definition of an asset? ‘Assets are the things a business owns.” iif) Explain in your own words, the difference between non-current assets and eurrent assets and why it is important to classify assets into subgroups. iv) At what point should revenue be recognised? End of Exam Paper