Professional Documents
Culture Documents
2020
1
Question booklet 1
Section 1 (Questions 1 to 3) 60 marks
• Answer all questions
• Write your answers in this question booklet
• Allow approximately 80 minutes
Examination information
Materials
• Question booklet 1
• Question booklet 2
• Information booklet
• SACE registration number label
Instructions
• Use black or blue pen
• You may use a sharp dark pencil for calculations
• Show appropriate working for calculations
• Approved calculators may be used
(a) Perform the following calculations in order to prepare a statement of cash flows for Lincoln Parks
Garden Centre for the year ended 30 June 2020.
(6 marks)
page 2 of 11
(b) Prepare a statement of cash flows for Lincoln Parks Garden Centre for the year ended
30 June 2020.
(9 marks)
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(d) (i) Calculate the 2020 quick ratio for Lincoln Parks Garden Centre.
(1 mark)
(ii) Comment on the result of the quick ratio that you calculated in part (d)(i).
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page 4 of 11
Question 2 begins on page 6.
(a) Complete the following inventory card for July 2020, using the first-in first-out method of recording
inventory. Record any inventory discrepancy.
INVENTORY CARD
Small panda toys
In Out Balance
Date Details
Qty Cost Total Qty Cost Total Qty Cost Total
1 July Balance 20 16
FINAL BALANCE
(6 marks)
(b) State one disadvantage of using the first-in first-out method of recording inventory.
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page 6 of 11
(c) Zara sells two sizes of panda toy: large for $50 each and small for $25 each. The inventory
turnover for the large panda toys is 1.2 times per week.
(i) Using the information from the inventory card in part (a), calculate the weekly inventory
turnover for the small panda toys. (Stock losses or gains are included when calculating cost
of goods sold.)
(2 marks)
(ii) Zara has decided to sell only one size of panda toy in the future.
Advise Zara on which size of panda toy — large or small — she should choose to sell, giving
one reason.
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(iii) Explain one way in which holding higher stock levels may impact on the liquidity of this
business, and identify one risk of Nature and Nurture Zoo holding too much stock.
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(d) The debtors’ account balance is $2800. Zara has a number of slow-paying debtors, and has
decided to create an allowance for doubtful debts of 5% of the debtors’ account balance.
(i) Complete the general journal entry to create an allowance for doubtful debts.
GENERAL JOURNAL
7 July
(2 marks)
ASSETS
Current assets
Cash 1 800
Inventory 12 500
(2 marks)
(iii) Suggest one way in which Zara could minimise her bad debts in the future.
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(iv) Zara is investigating a new technology that will allow customers to purchase an item by
scanning the item with their smart device and paying online rather than waiting at a checkout.
Identify one potential advantage and one potential disadvantage to the business of
implementing this technology.
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page 8 of 11
Question 3 (20 marks)
(a) Show the calculation for the depreciation of the delivery vehicle.
(2 marks)
(b) (i) Complete the general journal entry to record the adjustment shown.
GENERAL JOURNAL
(1 mark)
(ii) Complete and formally balance the general ledger to update the allowance for doubtful debts.
GENERAL LEDGER
Allowance for doubtful debts
(3 marks)
Revenue
Gross profit
Other revenue
Expenses
Selling
Administrative
Financial
Profit / loss
(8 marks)
page 10 of 11
(ii) Prepare the statement of changes in equity for Aerial Manufacturing Solutions for the year
ended 30 June 2020.
(2 marks)
(d) Prior to balance-day adjustments, the profit for the business was calculated as $53 200.
Using one item from the income statement on the opposite page as an example, explain why the
concept of faithful representation requires balance-day adjustments.
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(e) Outline one social consideration of supplying these drones to the public.
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CHECK
SEQ FIGURES LETTER BIN
SECTION 2 (40 marks)
(a) Using specific examples from the three budgeted statements in the information booklet, explain to
Chris how budgeting operates:
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page 2 of 9
Chris calculated his return on equity for 2019 and 2020, and predicted a result of around 83% for 2021.
He based this 40% increase on the following assumptions:
• this increase is the same as the increase from 2019 to 2020
• this trend will continue.
(b) Using the table of financial analysis ratios and the budgeted figures provided in the information
booklet, calculate a more realistic budgeted return on equity for 2021 and write it in the table below.
You may use the space below for calculations.
(2 marks)
(c) Provide Chris with advice on why the figure that you calculated in part (b) is different from his
prediction, including why a trend analysis cannot be performed after only 2 years. Use accounting
concepts to support your advice where appropriate.
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page 4 of 9
(e) Write a letter, report, or email that provides Chris with detailed accounting advice that addresses:
• the current position of the business by referring to the ratios calculated and the reports provided,
and whether or not Chris’s plan to take on a new partner is sensible (10 marks)
• the advisability of Chris making the budgeted cash withdrawal of $90 000 in the first
2 months of the 2021 financial year (5 marks)
• the impact of external factors on budgeting, and how specific numbers in the budget
that Chris created would be impacted by these factors. (5 marks)
Credit will be given for answers that demonstrate clear and concise communication,
and contain only relevant information. Advice may be provided as dot points. (5 marks)
There is space on page 9 for any calculations that you may wish to do to support your advice.
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page 6 of 9
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page 8 of 9
You may use the space below for any calculations that you may wish to do to support your
answer to Question 4(e); however, these calculations will not be assessed.
Profitability (return)
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Averages are used for these values. However, the availability of information may necessitate the use of
opening or closing values.
Net sales should be used, except in the case where a business only provides service.
Question 1
2020 2019
ASSETS
Current assets
Bank 2 600 0
Debtors 16 500 14 200
Inventory 19 100 13 200
Prepaid advertising 300 900
38 500 28 300
Non-current assets
Investments 10 000 45 000
Tools 47 500 47 500
Accumulated depreciation (7 500) 40 000 (5 000) 42 500
Workshops 160 000 130 000
210 000 217 500
LIABILITIES
Current liabilities
Creditors 6 000 8 300
Accrued wages 1 500 1 000
Bank overdraft 0 4 000
7 500 13 300
Non-current liabilities
Mortgage 34 000 14 000
34 000 14 000
page 4 of 10
LINCOLN PARKS GARDEN CENTRE
Income statement for the year ended 30 June 2020
Revenue
Credit sales 83 100
Cash sales 52 000 135 100
Other revenue
Commission received 1 000
Expenses
Advertising 9 800
Sales staff wages 23 000
Depreciation on tools 2 500
Water expense 11 000
Office expenses 15 600
Bad debts 1 300
Interest on mortgage 2 100 65 300
Additional information
• All acquisitions and disposals of non-current assets were for cash.
• All drawings were taken as cash.
Zara owns and operates Nature and Nurture Zoo, a wildlife zoo that also sells merchandise. During
the first week of July 2020, the following transactions were recorded for small panda toys (all
purchases and sales are on credit).
The zoo began July with 20 small panda toys in stock.
page 6 of 10
Question 3
Manon Jeanot owns and operates Aerial Manufacturing Solutions, which manufactures and sells
flying drones that can make aerial video recordings. The following trial balance for the business was
prepared as at 30 June 2020.
Question 4
Tinnsell Town is a small business run by Chris Marstime that manufactures and sells toys for young
children. The business began in 2018 and, after a successful first year, has continued to grow.
Tinnsell Town currently operates under a sole-trader structure, as Chris set up the business with
money received through an inheritance. The business is located outside of a major city, and includes
a large shed (in which manufacturing takes place) and a small shop in front of the shed (from which all
sales are made). Chris imports all of the materials that he uses to manufacture his toys from a cheap
international supplier.
Based on the first 2 years’ results Chris has budgeted for further growth, but he is seeking your advice.
Chris is planning on selling some of his products to the international market in 2021, and used only the
figures from 2019 and 2020 to make his budget estimates. Chris did not conduct any research or seek
any other advice when calculating his figures.
As part of Chris’s plan to expand his business, he is considering taking on an international partner.
The partner would contribute $100 000 to help set up shops internationally. The budgeted figures are
based on Chris’s projections of the increased sales that would be achieved in the international market,
but do not include the additional cash and equity that would be contributed by the partner.
TINNSELL TOWN
Cash budget for the year ended 30 June 2021
Cash received
Receipts from debtors 311 850
Cash 148 500
Total receipts 460 350
Cash paid
Wages 128 630
Rent 9 690
Insurance 13 200
Telephone and internet 6 480
Interest 4 900
Investments 60 000
Drawings 90 000
Payments to creditors 103 900
Total payments 416 800
Opening bank balance 26 000
Receipts less payments 43 550
Closing bank balance 69 550
page 8 of 10
TINNSELL TOWN
Comparative balance sheets as at 30 June
ASSETS
Current assets
Cash at bank 7 800 26 000 69 550
Debtors 7 000 4 000 6 000
Stock 52 000 34 000 34 000
Prepaid rent 200 2 400 930
67 000 66 400 110 480
Non-current assets
Machinery 129 150 160 650 160 650
Accumulated depreciation for machinery (6 150) (7 650) (22 950)
Vehicles 68 000 68 000 68 000
Accumulated depreciation for vehicles 0 (6 800) (12 600)
Warehouse 20 000 50 000 50 000
Accumulated depreciation for warehouse 0 (5 000) (10 000)
Investments 6 000 0 60 000
217 000 259 200 293 100
LIABILITIES
Current liabilities
Creditors 31 800 46 950 62 100
Accrued wages 0 12 350 6 120
31 800 59 300 68 220
Non-current liabilities
Loan 110 000 70 000 70 000
110 000 70 000 70 000
Revenue
Sales 205 000 350 000 495 000
Discount allowed 900 1 300 1 700
Other revenue
Consulting revenue 1 500 1 250 1 000
Expenses
Insurance 11 000 11 000 13 200
Rent 8 300 9 300 11 160
Depreciation 1 300 13 300 27 100
Telephone and internet 5 000 5 400 6 480
Wages 79 500 102 000 122 400
Interest 4 000 4 450 4 900