Student ID Number:

Student Name:

TIME-CONSTRAINED ASSESSMENT - ONLINE

Semester 2 2021
COURSE NAME: Accounting Essentials
COURSE CODE: ACCT502

TIME ALLOWED: 2 hours (To be completed in 3 hours)

DATE: Wednesday 20 October 2021

TOTAL MARKS: 100

ASSESSMENT INSTRUCTIONS, ACADEMIC INTEGRITY GUIDELINES AND ADDITIONAL

INFORMATION – READ ALL BEFORE COMMENCING

ASSESSMENT INSTRUCTIONS:

1. Please email your Course Coordinator and BEL Exam Office (cherrie.yang@aut.ac.nz, BEL:
belexams@aut.ac.nz ) immediately if you have any technical issues with your online
assessment submission on Blackboard using your AUT email address. Include in your email a
brief explanation of the issue, your Student ID, Course code, a screenshot of the issue including
the time stamp. Email subject line: (Online Submission: Course Name – Course Code - Student
ID – Student Name)
2. This is an individual assessment – there must be no discussion or collaboration with anyone
else. No component of this assessment may be shared with any person, in any manner other
than your course coordinator or BEL Exam office.
3. Open the header of the document and insert your name and ID number
4. You have one attempt to submit this assessment. Ensure frequent saving and do not leave the
assessment before clicking Save and Submit.
5. Submit as per the instructions via BB

SUMMARY:
Section Marks
Section 1: Income Statement 25
Section 2: Analysis and interpretation of financial statements 20
Section 3: Cost-volume-profit analysis 30
Section 4: Budgeting 25
Total 100

ACADEMIC INTEGRITY GUIDELINES

AUT takes Academic Integrity very seriously and you are reminded that the following actions may be
deemed to constitute a breach of the General Academic Regulations Part: Academic Discipline,
Section 2 Dishonesty During Assessment or Course of Study
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 2.1.1 copies from, or inappropriately communicates with another person

 2.1.3 plagiarises the work of another person without indicating that the work
is not the student’s own – using the full work or partial work of another person without
giving due credit to the original creator of that work
 2.1.4 collaborates with others in the preparation of material, except where this has been
approved as an assessment requirement.
 2.1.5 resubmits previously submitted work without prior approval of the assessment board
 2.1.6 using any other unfair means

ADDITIONAL INFORMATION

 Your assessment responses must be your own work. You may be required to orally defend your
responses to assessment questions.
 You must quote or paraphrase and reference any material that you take/use/adapt from
somewhere else

You are permitted to:

- Consult the textbook.
- Consult University-provided course materials on Blackboard or in printed form.
- Consult reference material from the University library or from credible online sources e.g.
recognised publishers, government, educational institutions, research organisations.
- Consult notes that you have produced yourself.

You are NOT permitted to:

- Change any question
- Have someone else do assessment questions for you.
- Receive from, help or ask another student with assessment questions or hints.
- Refer to or re-use identical or similar question solutions as might be found on social media,
chat forums, ‘study help’ type websites, study note sharing websites or via other means.
- Communicate or collaborate with another student or person in anyway during the
assessment without explicit permission from a university staff member (other than to
authorised University staff members).
- Let your assessment responses become available or visible to other students.
- Provide the assessment questions, assessment materials or assessment responses to another
student or person via any means (other than to authorised University staff members).
- Post or communicate assessment questions or other materials via forums, chat boards,
‘study help’ type websites, instant messaging platforms, photograph and send via mobile
devices to others.
- Cut and paste from any other material without referencing.

Section 1:
Income Statement (TOTAL: 25 MARKS)

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ACCT502 S2 2021 Student ID Number:
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The following are financial information from Sunshine Coast Ltd for the 12-month reporting period
ended 30 June 2021 on a cash basis:

Sales R $ 416,100
Cost of Goods Sold
COGS $ 246,000
Gross Profit COGS $ 170,100
Advertising E $ 12,840
Administration E $ 28,200
Insurance E $ 4,730
Interest E $ 7,140
Rent E $ 13,800
Salary and Wages E $ 42,600
Profit P $ 64,800
Accounts receivable
CA $7,200
Accounts payable cl $19,380
Accumulated
depreciation- cl
equipment $900
Depreciation-
equipment -ca $900
Prepayments ca 430

You have also been provided with the following additional information:

 accounts receivable and accounts payable balances at the start of the reporting period were
$24,600 and $14,700 respectively. At the end of the reporting period, accounts receivable
was $31 800 and accounts payable was $29,640.
 An advertising invoice of $4,440 had not been paid.
 The business has equipment that cost $60,600. It has a useful life of five years and an
expected residual value of $6,600.
 The insurance expense represents the 12-month premium on a policy that was purchased on
30 April 2021.

Required:
1. Prepare the Income Statement for Sunshine Coast Ltd for the year ended 30 June 2021 on an
accrual basis.

(17 marks)

Sunshine coast ltd income statement for the year ended Jun 30 2021

Revenue
Sales
Less cost of goods
sold

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ACCT502 S2 2021 Student ID Number:
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Gross profit

Less expenses
Advertising
Administration
Insurance
Interest
Rent
Salary and Wages
Total Expenses
Profit

2. Angela Joss, the CEO of Sunshine Coast Ltd is confused about cash basis and accrual basis. She is
also confused about which basis is more useful to measure financial performance in the Income
statement. She is a lawyer by profession and has limited knowledge of accounting.

Required:
Prepare a memo advising Angela on which basis is more useful to measure financial performance
and provide reasons. To support your argument, provide two examples from the income statement
that you prepared in question 1 above.

IDEA
[8 marks]
 Cash basis is when cash is received and paid, so if goods/services are provided, but cash isn’t
received it won’t be recorded
 Accrual basis is when there’s a transfer of good/services (business transaction) so if
goods/services are provided, but cash isn’t received it will be recorded because there’s been a
transfer of goods/services.

Cash basis is when cash is received and paid, so if goods/services are provided, but cash isn’t
received it won’t be recorded. Accrual basis is when there’s a transfer of good/services
(business transaction) so if goods/services are provided, but cash isn’t received it will be
recorded because there’s been a transfer of goods/services. To measure financial performance
from the income statement its more useful to use the accrual basis, because the income
statement is prepared using accrual basis, so cash basis is incompatible. In the income
statement there’s a balance day adjustment that is about accounts payable “An advertising
invoice of $4,440 had not been paid. “Accounts payable is when the goods/services are
provided, but the payment is made on credit later. This transaction can’t occur in cash
accounting because there hasn’t been a transfer of cash only goods/services, but this can be
recorded with accrual accounting. Another example is “The business has equipment that cost
$60,600. It has a useful life of five years and an expected residual value of $6,600.” This is
deprecation, which is non cash and shows the value of an non-current asset decreasing as its
used.This decrease in value can only be recorded in accrual accounting.Together these
examples show that for the income statement the accrual basis is preferred.

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ACCT502 S2 2021 Student ID Number:
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Section 2:
Analysis and interpretation of financial statements (TOTAL: 20
MARKS)

Wilson Ltd., a new medium-sized company operating in the agri-food sector, produces quality
prepared food products. The following table illustrates the average performance of other companies in
the same sector for 2020.

Industry Average Results, 2020

Return on equity (ROE) 27%

Asset turnover 2
Current ratio 6.5
Debt to equity ratio 70%

The following information has been extracted from the financial statements for 2020 and 2019 for
Wilson Ltd.

2020 $ 2019 $
Net profit for the year ended 30 June 200,000 190,000
Sales revenue for the year ended 30 June 2,100,000 1,600,000
Current assets as at 30 June 801,000 855,000
Non-current assets as at 30 June 950,000 703,000
Current liabilities as at 30 June 155,000 345,000
Non-current liabilities as at 30 June 660,000 500,000

1. Calculate the following ratios for Wilson Ltd for the year ended 30 June 2020. (all ratios must be
rounded up to 2 decimal places)

a) Return on Equity (ROE)

b) Asset turnover
c) Current ratio
d) Debt to equity ratio
(8 marks)

2. Comment on the company’s profitability and liquidity for the year ended 2020 using the relevant
ratios calculated in 1 above and the industry averages given in the question. Also, make
recommendations to improve the company’s profitability and liquidity position.
(12 marks)

Section 3:
Cost-volume-profit analysis (15 marks each * 2 = TOTAL: 30 MARKS)

1. Wormy Comp is a manufacturer of plastic worm farms. Data relating to their one product for 2020
is as follows:

Annual volume 18,000

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Selling price per unit $560
Variable manufacturing cost per unit $230
Annual fixed manufacturing costs $2,800,000
Variable marketing and distribution costs per unit $45
Annual fixed non-manufacturing costs $1,800,000

Required:

A. Calculate the break-even units for 2020.

[3 marks]
B. Calculate the margin of safety in units.
[2 marks]

C. Calculate the profit achieved in 2020 given the annual volume of 18,000 units.

[3 marks]

D. Covid-19 has increased the prices of plastic. This increased the variable manufacturing cost to
$250 per unit. However, the company has managed to reduce their factory rental by $100,000,
which has saved money on fixed manufacturing costs. Calculate the units that would need to be
sold in 2021 to achieve the same profit as 2020. Comment on the impact of Covid-19 on the
costs for 2020 using the relevant figures you calculated above.
[7 marks]

2. Safety First is a manufacturer of life jackets, life vests and buoyancy aids. They have provided the
following information relating to the sales of their products in 2020:

Life Jackets Life Vests Buoyancy

aids
Sales mix (8,500 units) 2,000 2,600 3,900
Selling price $120 $110 $85
Variable cost/unit $45 $30 $25

Total Fixed costs = $515,000

Required:
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A. Calculate the break-even point in total units and units per product for 2020, using the following
table:
[5 marks]
Life Jackets Life Vests Buoyancy Total
Aids
Unit sales
Contribution
margin
Sales mix %
Weighted Average
Contribution
Margin

B. Calculate the total profit for 2020. Show all your workings. [2
marks]

C. Safety First is rearranging its store and wants to ensure that they make the best use of the
limited space available to maximise sales possibilities. They have 150 metres of space
available, and the 3 products use up space as follows:
Life Life Buoyancy
Jackets Vests Aids
Contribution margin per product $75 $80 $60
Minimum shelf space required per 2.5 1.2 1.5
product

How should the shelf space (150 metres) be allocated to the 3 products to maximise the profits? Justify
your reasons for the space allocation using the relevant figures calculated above.
[8 marks]

Section 4: Budgeting
(TOTAL: 25 MARKS)
Bitcom Limited had undertaken the following budget planning. The budget is planned to sell 700
boxes at $700 each. The budget shows that it takes 20 kg of raw material to produce 1 box of the
product. Each kg costs $14. The direct labour costs are budgeted at 10 hours per box produced, and the
hourly rate for direct labour is $10. Fixed production and fixed administrative expenses are budgeted at
140,000 and 60,000 each. You have also been provided actual income statement information for the
month of December 2020 (See the Table below).

Required:
1. Calculate the budgets alongside the actual results for the month of December 2020, calculate the
individual variances, and indicate whether each variance is favourable or unfavourable.
[15 marks]
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Budget Data Actual Variance Favourable or

Unfavourable
Sales in units
Sales
Direct materials cost
Direct labour cost
Fixed production
cost
Fixed administrative
expense
Net Profit

2. Based on your answer in required 1. above, briefly explain the possible causes of the variances.
[10 marks]

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