UNIVERSITY OF NEW ENGLAND

NAME:___________________________________
STUDENT NUMBER:_______________________

UNIT CODE: AFM211

PAPER TITLE: Intermediate Financial Accounting

PAPER NUMBER: First and Only

DATE: Tuesday 13 October 2015 TIME: 1:45 PM TO 4:00 PM

TIME ALLOWED: 2 hours and 15 minutes

NUMBER OF PAGES IN PAPER: TWELVE (12)

NUMBER OF QUESTIONS ON PAPER: TWENTY ONE (21)

NUMBER OF QUESTIONS TO BE ANSWERED: TWENTY ONE (21)

STATIONERY 1 6 PAGE ANSWER BOOKS 0 GENERAL PURPOSE ANSWER SHEET

PER
CANDIDATE: 0 GRAPH PAPER SHEETS 0 GEOLOGY SAMPLES

OTHER AIDS REQUIRED: ANSWER SHEET IS ON PAGE 2; CHART OF ACCOUNTS IS

ON PAGE 12
CALCULATORS: PERMITTED (APPROVED MODELS ONLY)
TEXTBOOKS OR NOTES: NOT PERMITTED

INSTRUCTIONS FOR CANDIDATES:

• Candidates MAY NOT start writing until instructed to do so by the supervisor
• Please pay attention to the announcements and read all instructions carefully before
commencing the paper
• Candidates MUST write their name and student number on the top of this page and
on Page 2
• There are TWO (2) Parts to this examination paper
• PART A: Candidates MUST answer all FOURTEEN (14) multiple-choice questions on
the Answer sheet provided on Page 2
• PART B: Candidates MUST answer all SEVEN (7) extended response questions in
the answer book provided
• Page 12 contains a Chart of Accounts. Candidates MUST only use the account
names listed in this chart if they are answering questions that require the creation of
journal entries
• This examination paper MUST BE HANDED IN along with all supplied stationery.
Failure to do so may result in the cancellation of all marks for this examination
REMEMBER TO WRITE YOUR NAME AND STUDENT NUMBER AT THE TOP OF THIS PAGE
AND ON THE ANSWER SHEET ON PAGE 2

THE UNIVERSITY CONSIDERS IMPROPER CONDUCT IN EXAMINATIONS TO BE A SERIOUS OFFENCE.

PENALTIES FOR CHEATING ARE EXCLUSION FROM THE UNIVERSITY FOR ONE YEAR AND/OR CANCELLATION
OF ANY CREDIT RECEIVED IN THE EXAMINATION FOR THAT UNIT.
 AFM211, Trimester 2 2015
Name:__________________________

Student Number:__________________________

PART 1 - Answer sheet for multiple-choice questions

Question 1: A B C D E F

Question 2: A B C D E F

Question 3: A B C D E F

Question 4: A B C D E F

Question 5: A B C D E F

Question 6: A B C D E F

Question 7: A B C D E F

Question 8: A B C D E F

Question 9: A B C D E F

Question 10: A B C D E F

Question 11: A B C D E F

Question 12: A B C D E F

Question 13: A B C D E F

Question 14: A B C D E F

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 AFM211, Trimester 2 2015
Part A – Multiple Choice Questions

(Each question is worth 1.5 marks, for a total of 21 marks)

Candidates MUST answer all FOURTEEN (14) multiple choice questions on the Answer
Sheet on Page 2. Circle the letter which corresponds to the most correct answer of each
question.

1) The recognition of an item as an asset requires:

A: that the useful life of the item can be determined reliably

B: that a flow of future economic benefits to the entity is probable
C: that the item’s cost or value can be measured reliably
D: that the entity has legal ownership of the item
E: all of the above
F: B and C

2) An asset is likely to be a current asset if:

A: it is primarily held for the purpose of trading

B: the asset will be consumed within twelve months of the reporting date
C: it is sold within the entity’s normal operating cycle
D: the asset in question is a short term (1 month) bank deposit
E: all of the above
F: A and C

3) An entity has constructed a new building on a leased block of land. The lease contract
states that any improvements to the land must be removed when the lease expires.
The construction project has the following characteristics:

• The building was financed and will be paid off in 18 years

• The entity estimates that the building could be used for 25 years
• The entity plans to move its operations to a different location after 23 years of
occupying the building
• The lease of the land on which the building is constructed will expire in 22 years
and the owners have indicated that the lease will not be renewed under any
circumstances
What period of time should be used as the building’s useful life when depreciation is
calculated?

A: 30 years
B: 25 years
C: 22 years
D: 18 years
E: 23 years
F: none of the above

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 AFM211, Trimester 2 2015

4) Australian Accounting Standards (AASBs) currently allow entities to value some assets
at cost and other assets in the same balance sheet at fair value. This means that the
Australian Accounting Standards Board has:

A: ensured that the financial statements of multiple firms are easily comparable
B: created a situation where entities are able to influence their financial position by
choosing different valuation methods for different types of assets
C: forced entities to accurately reflect their true financial position at any point in time
D: specified the accounting treatment for each type of asset in the Australian
Accounting Standards
E: C and D
F: none of the above

5) An entity purchases a machine for a direct cost of $100,000. In addition, the entity pays
$15,000 for assembly of the machine and $5,000 for modifications which are necessary
to use the machine as intended by the entity. The machine has a useful life of 6 years
and a residual value of $10,000 at the end of this period. What is the amount (rounded
to the closest full $ amount) by which the asset is depreciated in the SECOND year of
the assets useful life, using the sum-of-digits method?

A: $13,750
B: $21,380
C: $24,444
D: $26,190
E: $37,940
F: none of the above

6) If an entity adopts the revaluation model for one class of assets (for example all
Buildings), AASB 116 requires that:

A: all assets in this class are only revalued when the board of directors thinks that
this is most beneficial for the entity
B: all assets in the class of assets are revalued every 10 years
C: all assets in the class of assets are revalued every 5 years
D: subsequent revaluations are conducted as infrequently as possible to ensure that
asset values remain comparable over time
E: revaluations are undertaken with sufficient regularity to ensure that the carrying
amount of each asset in the class of assets does not differ materially from its fair
value on all future reporting dates
F: none of the above

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 AFM211, Trimester 2 2015

7) An entity purchases a machine for its factory on 1 July 20x0 for $90,000. It is estimated
that the machine has a useful life of 8 years, and straight-line depreciation is used to
depreciate the machine. On 1 July 20x2, the entity receives an unexpected offer to
exchange the machine for a truck which originally costs $70,000 and has a current
market value of $20,000. Which of the following journal entries is most appropriate
when accounting for the sale of the machine and the receipt of the truck as payment?

A: 1 July 20x2
Dr Motor Vehicles 70,000
Dr Acc. Dep. Machinery/Equipment 22,500
Cr Gain on Sale 2,500
Cr Machinery/Equipment 90,000

To record purchase of the truck

B: 1 July 20x2
Dr Motor Vehicles 20,000
Dr Loss on Sale 67,500
Cr Machinery/Equipment 90,000

To record purchase of the truck

C: 1 July 20x2
Dr Motor Vehicles 70,000
Cr Gain on Sale 2,500
Cr Machinery/Equipment 67,500

To record purchase of the truck

D: 1 July 20x2
Dr Motor Vehicles 20,000
Dr Loss on Sale 47,500
Dr Acc. Dep. Motor Vehicles 22,500
Cr Machinery/Equipment 90,000

To record purchase of the truck

E: 1 July 20x2
Dr Motor Vehicles 70,000
Dr Acc. Dep. Motor Vehicles 33,750
Cr Gain in Sale 13,750
Cr Machinery/Equipment 90,000

To record purchase of the truck

F: none of the above

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 AFM211, Trimester 2 2015

8) Which of the following procedures must be used to determine the recoverable amount
of a machine which is included in the Machinery/Equipment account of an entity?

A: determine the higher of the present value of the future cash flows that the
machine will generate for the entity, and the price for which the machine could be
sold less any selling costs
B: determine the price for which the item could be sold plus any selling costs
C: determine the present value of the future cash flows that the item will generate for
the entity, plus all accumulated depreciation of the machine
D: determine the lower of the item’s net selling price and its value in use
E: determine how much the entity would have to pay to purchase the item today
F: none of the above

9) Deferred tax assets and deferred tax liabilities arise when the carrying amount of an
asset or liability differs from its tax base. Which of the following answers is most
correct?

A: a deferred tax asset arises when the tax base of an asset is larger than its
carrying amount
B: a deferred tax liability arises when the tax base of a liability is larger than its
carrying amount
C: a deferred tax asset arises when the carrying amount of an asset is larger than its
tax base
D: a deferred tax liability arises when the carrying amount of a liability is larger than
its tax base
E: C and D
F: A and B

10) Calculate the present value (rounded to the nearest full $ amount) of a one-off payment
of $150,000 which an entity will receive in 6 years, based on a discount rate of 8%.

A: $87,236
B: $98,531
C: $94,525
D: $103,698
E: $163,257
F: none of the above

11) The inventory of an entity consists of:

A: cash in cash registers used to provide change to customers

B: assets held for sale in the ordinary course of an entity’s business
C: assets that are used over a long period of time to deliver a service to multiple
customers
D: items currently undergoing the production process which will be sold once they
are completed
E: B and D
F: B, C and D

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 AFM211, Trimester 2 2015

12) When calculating the net-realisable value of inventory, which of the following items
must be taken into account?

A: expected sales proceeds

B: expected discounts for early payment
C: marketing expenditures
D: expenditures required to complete the production of the items in question
E: all of the above
F: A, C and D

13) The existence of a finance lease requires that the risks and rewards of ownership of an
item have been transferred from the lessor to the lessee. Which of the following items
would provide an indication that a finance lease exists?

A: the lease term is for a major part of the item’s economic life
B: the lease cannot be cancelled by the lessee
C: a substantial part of the lease payments are made as an up-front payment when
the lease is signed
D: the lease agreement includes a bargain purchase option
E: all of the above
F: A, B and D

14) Which of the following transactions are included in the operating section of a cash flow
statement?

A: payment of wages
B: payment of dividends
C: purchase of PPE
D: all of the above
E: A and C
F: B and C

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 AFM211, Trimester 2 2015
Part B

(Each question is worth different marks, for a total of 39 marks)

Some of the following questions will require the creation of journal entries. You MUST use
the account names provided in the chart of accounts (see last page of this exam paper) for
all journal entries that are required in this exam.

Question 15 (4 marks)

During the month of June 20x1, employees of Armidale Cleaners (AC) have spent 100 hours
cleaning the Large Mart Store in Armidale. On 30 June 20x1, the Large Mart store manager
received a phone call from AC in which AC asked Large Mart to pay $50 for each hour of
cleaning. The Large Mart store manager promises to make the payment in 14 days.

Required:

a) State whether the promise made by the Large Mart store manager creates an asset, a
liability, income, an expense or equity in the 30 June 20x1 financial statements of Large
Mart (1 mark)

b) Explain your decision based on the criteria that the conceptual framework uses to
define the item that is created by this promise, and describe how each criterion is
fulfilled by the outlined situation (3 marks)

Question 16 (4 marks)

Large Mart owns a computer which is used to track the inventory in its warehouse in
Armidale (the computer is a non-current asset). On 1 June 20x1, the carrying value of the
computer in the accounts of Large Mart was $100,000. On the same day, Sydney
Electronics offered Large Mart $150,000 for the computer, Large Mart agreed to sell the
computer, and Sydney Electronics made the required payment on that day.

Required:

a) State whether the sale of the computer (with a value of $100,000) for $150,000 creates
an asset, a liability, income, an expense or equity in the Large Mart financial
statements for the year ended 30 June 20x1 (1 mark)

b) Explain your decision based on the criteria that the conceptual framework uses to
define the item that is created by this sale, and describe how each criterion is
fulfilled by the outlined situation (3 marks)

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 AFM211, Trimester 2 2015
Question 17 (6 marks)

On 21 June 20x1, the Large Mart store in Armidale purchased a new company car for its
customer service department (called the “Nerd Herd”). The car was purchased from a car
dealer in Brisbane and Large Mart asked the car dealer to paint large “Nerd Herd” signs on
both sides of the car before delivering it to Armidale.

On 1 July 20x1, Large Mart received the car as well as an invoice with the following
information:

Price of the car

Purchase price of the car $25,000
Painting of “Nerd Herd” signs $10,000
Total price of the car $35,000

Fees/Charges
Delivery fee $5,000

Total Payable $40,000

Large Mart will use the new car for 3 years and depreciate the car using straight-line
depreciation. Large Mart expects that the car will have a residual value of $1,000 at the end
of its useful life. Large Mart will pay the invoice from the car dealer in 10 days.

Required:

a) Determine if the “painting of the Nerd Herd” sign and the delivery fee of the car are part
of the cost of the car, AND explain your decision (1 mark)

b) Provide all journal entries that are necessary in the books of Large Mart to account for
the receipt of the car (and the invoice) on the 1 July 20x1 (1 mark)

c) Identify the day on which the depreciation for the car starts, AND provide an
explanation why you have chosen this day (2 marks)

d) Provide all journal entries that are necessary in the books of Large Mart to account for
the depreciation of the car for the month of July 20x, AND outline all required
calculations (2 marks)

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 AFM211, Trimester 2 2015
Question 18 (6 marks)

On 1 July 20x1, Large Mart purchases a new building (and the associated land) in Sydney.
Large Mart paid $500,000 for the land and $600,000 for the building.

Large Mart will use the building for 20 years, after which time the building will have a residual
value of zero. All Large Mart buildings are depreciated using the declining balance method,
and the yearly depreciation percentage for this building will be 10%.

On 1 July 20x4, Large Mart decides to revalue the building to its fair value of $580,000.

Required:

a) Calculate the yearly amount of depreciation for the building for the year ended 30
June 20x4, AND provide an outline of your calculations (2 marks)

b) Provide all journal entries that are necessary to record the revaluation of the building on
1 July 20x4, AND provide a detailed outline of all required calculations (4 marks)

Question 19 (9 marks)

On 1 July 20x2, Large Mart signs a four (4) year non-cancellable lease contract for a photo
copier for its office. At the end of the lease period Large Mart will have the option to
purchase the photo copier for $100 (but the expected fair value of the photo copier at the
end of the lease term is $500). As a result, Large Mart is planning to exercise the purchase
option in the lease contract. Large Mart expects that the useful life of the photo copier is five
(5) years.

The lease contract requires Large Mart to make the following payments: $1,000 when the
contract is signed (1 July 20x2), and $3,000 at the end of each year (30 June) during the
lease term. The Large Mart accounting department has determined that the interest rate
implicit in the lease is 10%. Large Mart leased the photo copier (instead of purchasing it)
because the price of the photo copier at the time the lease contract was signed was
$10,577.90 and Large Mart did not have sufficient cash to purchase the photo copier
directly.

Required:

a) Calculate the present value of the minimum lease payments, and explain your
calculations (2 marks)

b) Determine if the lease is a finance lease or an operating lease, and provide a

DETAILED explanation for your decision (2 marks)

c) Provide all journal entries that are necessary in the books of Large Mart to account for
the signing of the lease contract AND all lease payments that Large Mart makes during
the financial year ended 30 June 20x3, AND provide an outline of all required
calculations (5 marks)

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 AFM211, Trimester 2 2015
Question 20 (4 marks)

The statement of cash flows is an important part of every financial report.

Required:

a) Describe the purpose of the statement of cash flows (2 marks)

b) Explain the difference between cash flow from operating activities and cash flow from
investing activities (2 marks)

Question 21 (6 marks)

On 1 July 20x2 (the first day of the financial year), Large Mart decides to start selling electric
bicycles (e-bikes). Initially, Large Mart places an order for 100 e-bikes (for $500 per e-bike),
and the first e-bikes arrive at Large Mart on 5 July 20x2. Following an advertising campaign,
the e-bikes become a big seller and Large Mart makes the following sales and purchase
transactions during the year ended 30 June 20x3:

Sale (10 August 20x2) of 50 e-bikes for a price of $900 per e-bike
Purchase (1 September 20x2) of 50 e-bikes for $450 per e-bike
Sale (5 September 20x2) of 60 e-bikes for $800 per e-bike
Sale (12 November 20x2) of 20 e-bikes for $910 per e-bike

Large Mart accounts for its inventory using the first-in-first-out cost flow assumption and
the perpetual inventory system.

Required:

a) Calculate the cost of all e-bikes sold during the year ended 30 June 20x3, AND outline
all necessary calculations (2 marks)

b) Calculate the value of all e-bikes that remain in the inventory account on 30 June 20x3,
AND outline all necessary calculations (2 marks)

c) Calculate the amount of revenue that the e-bikes have generated for Large Mart during
the year ended 30 June 20x3, AND outline all necessary calculations (2 marks)

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 AFM211, Trimester 2 2015
Chart of Accounts for Part B of your exam

Please remember - This examination question paper MUST BE HANDED IN. Failure to do so may
result in the cancellation of all marks for this examination.
Writing your name and number on the front will help us confirm that your paper has been returned.

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