Accounting Tuesday 8 November 2011 Paper One Question book

2011 Senior External Examination

Accounting

Tuesday 8 November 2011

Paper One — Question book

9 am to 12:10 pm

Time allowed

• Perusal time: 10 minutes • Working time: 3 hours

Examination materials provided

Equipment allowed

• QSA-approved equipment • non-programmable calculator

Directions

You may write in this book during perusal time. Paper One has three parts, each of equal value:

• Part A — Knowledge, interpretation and evaluation • Part B — Routine practical procedures

• Part C — Challenging practical application Attempt all questions.

Suggested time allocation

• Part B: 50 minutes • Part C: 70 minutes

Assessment

Assessment standards are at the end of this book.

After the examination session

Part A — Knowledge, interpretation and evaluation

Part A has three questions. Respond to all questions.

Write your responses in the response book. Suggested time allocation: 60 minutes.

Question 1

K Doyle is the sole proprietor of a clothing store. She often buys and sells on credit and records all transactions as soon as they occur, despite the fact that her accounts receivable often take over a month to pay her. A business associate mentioned to Ms Doyle that he had heard of a simpler method of accounting, but could not really tell her anything about it. She has asked you for advice about her method of accounting.

You are to prepare a memorandum of approximately 200–250 words for Ms Doyle, clearly outlining your advice on the matters below:

• Clearly identify and explain the two common methods of accounting. Identify the method of accounting Ms Doyle is currently using. Recommend the method Ms Doyle should adopt if she wishes to obtain a more accurate profit/loss figure. Make sure you justify your

recommendation.

• Why is recognition of revenue a particular problem for Ms Doyle?

• Explain what prepaid expenses and accrued revenues are. State which financial report they appear in and how they would be classified.

• Define balance day adjustments and explain their relationship to the matching principle.

Question 2

Read the newspaper article below.

Respond to the following questions.

a. What is the banks’ attitude toward fraud? Is this sufficient?

b. Identify two strategies from the article that banks could adopt to improve their e-business processes.

c. Using the strategies you identified, outline two recommendations that banks could implement to improve their controls over cash.

Banks to pay out on fraud

Banks have vowed to reimburse customers who are the victims of fraud, following a police investigation into alleged breaches of phone and internet banking security.

Account holders have reportedly been swindled out of millions of dollars through major security flaws.

Australian Bankers’ Association chief executive David Bell said banks took fraud very seriously.

Mr Bell said customers were fully reimbursed if it could be proven they were victims of outright fraud. Australian Consumers’ Association finance policy officer Catherine Wolthuizen said banks had a

responsibility to ensure their customers’ funds were protected because they had encouraged people to switch to electronic banking.

“Banks have urged customers to take up electronic banking by charging them lower fees (and saying) that the security of those transactions is the same as if they went into a branch,” she said.

Ms Wolthuizen said the breach of security was not a cause of panic, because “the overwhelming majority of transactions will still be secure”.

ACA are investigating how procedures could be adjusted.

Question 3

George Williams owns and operates a wholesale business at Southport that specialises in selling costume jewellery such as watches, necklaces and earrings to retail outlets, but also sells directly to the public. He employs an accountant, an accounts clerk, two cash register operators, a part-time sales assistant, and a student who works Thursday nights and Saturdays.

George has a number of concerns relating to his controls over cash, inventory and accounts receivable and payable, and has asked you for some advice.

He provides you with the following information about his business trading practices: • The accountant prepares and signs cheques for payments at the end of each month.

• The accounts clerk is responsible for banking the cash daily. However, if he is busy he will sometimes lock the cash in the safe and take it to the bank when he has time the next day. • The business has many credit customers, some of whom seem to take too long to pay their

accounts.

• Detailed records of stock are not kept as George feels his years of experience in the industry allow him to estimate the appropriate levels of stock on hand and profits to be expected. • When the stock arrives, George, or one of his employees (whoever is available), unpacks and

stores the jewellery on the shelves, wherever a space can be found. The invoices are put into a special folder for payment when the accountant has time to write out the cheques.

Write 300–400 words to George in well-structured paragraphs outlining three weaknesses of his present system of controls over his assets. Include valid recommendations on how he can improve his controls in order to minimise loss. Comprehensively explain the weaknesses outlined and your proposed recommendations.

Part B — Routine practical procedures

Part B has two questions. Respond to both questions. Suggested time allocation: 50 minutes.

Write your responses in the response book.

Question 1

You are the bookkeeper for Thomas Electrical Store in Brisbane. The business buys and sells on credit only. It uses the perpetual inventory system to manage its two lines of stock — Product AAA and Product BBB.

Use the information below to:

a. Prepare the Stock Ledger Card for Product AAA using the FIFO method.

b. Prepare the Stock Ledger Card for Product BBB using the Weighted Average method. Round Unit cost and Total cost columns to two decimal places.

Product AAA (FIFO method):

Product BBB (Weighted Average method): 2011

June 1 Inventory Balance 200 units @ $4 per unit 10 Purchased 600 units @ $4.50 per unit 12 Sold 300 units

15 Purchased 200 units @ $5 per unit

17 Returned 50 units that were purchased on 10 June 27 Sold 500 units

29 Customer returned 10 units (sold on 27 June)

30 Stocktake revealed 145 units in stock

2011

June 1 Inventory Balance 200 units @ $6 per unit 8 Purchased 300 units @ $5.40 per unit 17 Sold 255 units

20 Purchased 185 units @ $6.20 per unit 22 Returned 50 units (purchased on 8 June) 25 Sold 200 units

28 Customer returned 20 units (sold on 25 June)

Question 2

Use the following documentation to: a. Complete the Cash Journal extracts. b. Prepare the Cash at Bank A/c.

c. Complete a Bank Reconciliation Statement. M Curtis

Cash Receipts Journal (extract)

Date Rec. No. Particulars Bank

2011

July 2 CRS Sales 500.00

3 CRS EFTPOS Sales 300.00

12 123 Accounts Receivable (T Smith) 700.00

17 CRS Sales 390.00

CRS EFTPOS Sales 470.00

22 CRS Sales 670.00

28 124 Accounts Receivable (M Love) 350.00 M Curtis

Cash Payments Journal (extract)

Date Chq. No. Particulars Bank

2011

July 3 331 Accounts Payable (K Bignell) 450.00

7 332 Drawings 220.00 11 333 Equipment 1544.00 15 334 Purchases 235.00 24 335 Wages 500.00 28 336 Sales Returns 38.00 M Curtis

General Ledger (extract) Cash at Bank A/c

Date Particulars Debit Credit Balance

2011

End of Part B

Bank Reconciliation Statement as at 30 June 2011

$ $

Credit balance as per bank statement 2567.00

Add: Deposits not yet credited 33.00

2600.00

Less: Unpresented cheques: No. 322 300.00

329 200.00

330 100.00 600.00

Debit balance as per Cash at Bank A/c $2000.00

Bank of Australia Bank Statement

Account Name: M Curtis Account No. 4998 7356

Date Transaction Debit Credit Balance

2011 $ $ $ July 1 Balance 2567.00 Cr Deposit 33.00 2600.00 Cr 2 Deposit 500.00 3100.00 Cr 3 EFTPOS deposit 300.00 3400.00 Cr 6 330 100.00 3300.00 Cr 10 332 220.00 3080.00 Cr 12 Deposit 700.00 3780.00 Cr 331 450.00 3330.00 Cr 16 329 200.00 3130.00 Cr Bank fee 3.00 3127.00 Cr 17 Deposit 390.00 3517.00 Cr EFTPOS deposit 470.00 3987.00 Cr 22 Deposit 670.00 4657.00 Cr 25 335 500.00 4157.00 Cr

28 Reversal — insufficient funds (T Smith) 700.00 3457.00 Cr

Unpaid cheque fee 25.00 3432.00 Cr

EFTPOS fee 10.00 3422.00 Cr

Part C — Challenging practical application

Part C has one question.

Suggested time allocation: 70 minutes. Write your responses in the response book.

Question 1

Use the information of J Green (a GST-inclusive trading business) below to: a. Complete the General Journal. (Narrations are not required.)

b. Complete the Cash Receipts Journal. c. Post to the Accounts Receivable Ledger.

d. Post to the following accounts in the General Ledger: i. Accounts Payable Control A/c

ii. Accounts Receivable Control A/c.

e. Prepare the Schedule of Accounts Receivable. Balance of Ledger Accounts as at 1 November 2011 Accounts Receivable Control A/c $7410

• T Willis $2200, W Mackay $1500, R Ryan $2110, R Jackson $1600 Accounts Payable Control A/c $1540

Provision for Doubtful Debts A/c $200

Transactions to be recorded on 30 November 2011:

• Received $440 from B Travis whose account was previously written off as a bad debt. • Charged R Jackson $100 interest on his overdue account.

• T Willis was declared bankrupt. Received part payment of 30c in the dollar. The remainder to be written off as a bad debt.

• D Francis charged J Green $25 interest on an overdue account.

• It was realised that the sale made on 10 November to S Black was for $330 (GST inclusive). • Create a new provision for doubtful debts of 7% of the closing Accounts Receivable balance.

(Round to the nearest dollar.)

J Green Sales Journal

Date

Tax Inv.

No. Accounts Receivable

Post

Ref. Sales GST Clearing

Accounts Receivable Control 2011 Cr Cr Dr Nov 3 234 W Mackay 600.00 60.00 660.00 10 235 S Black 400.00 40.00 440.00 30 $1000.00 $100.00 $1100.00

J Green Purchases Journal

End of Part C

End of Paper One

Ref.

No. Accounts Payable

Post Ref. Inventories GST Clearing Accounts Payable Control 2011 Dr Dr Cr Nov 6 183 D Francis 300.00 30.00 330.00 18 AA10 M Curtis 100.00 10.00 110.00 30 $400.00 $40.00 $440.00 J Green

Cash Receipts Journal

Date

Rec.

No. Particulars

Post

Ref. Sales Other

Accounts Receivable Control GST Clearing Bank 2011 Nov 1 139 R Ryan 2000.00 2000.00 6 140 Rent Revenue 200.00 20.00 220.00 12 CRS Sales 900.00 90.00 141 W Mackay 1489.00 2479.00 24 CRS Sales 1000.00 100.00 1100.00 28 142 Interest Revenue 40.00 40.00 J Green

Cash Payments Journal

Date Chq. No. Particulars Post Ref. Inven-tories Other Accounts Payable Control GST Clearing Bank 2011 Nov 2 301 Electricity 1600.00 160.00 1760.00 5 302 P Jones 200.00 200.00 15 303 Furniture 3200.00 320.00 3520.00 21 304 Purchases 2180.00 218.00 2398.00 $2180.00 $4800.00 $200.00 $698.00 $7878.00

A

ssessment st

and

ards from

the 2007 senio

r external

syllabus for Accounting

Cr iterio n St and ard A St and ard B Stan dard C St andar d D Stan dard E owled ge, terp retat ion an d Th e candidate: •r

ecalls, describes and e

xplains a

comprehensive range of relevant facts, concep

ts, and principles •a pp lies an extensive kn owledge of accounting con

cepts and principles

to

analyse

and interpret information

to

solve problems and make valid

de

cisions and reco

mmendations

•c

ommunicates a comprehensive _{range of accountin}

g information

an

d understandings clearly,

accurat

ely and cohesively in

written form, using

appropria

te

te

rminology.

The candidate: •recalls, describes and explain

s

a substantial range of relevant facts, concepts and prin

ciples

•applies knowledge

of

accounting concepts and principles o

n most occasions to

analyse

and interpret

information to solve pro

blems

and make valid decision

s and

recommendations _•commu

nicates a substantial

range of accounting information and und

erstandings which are

usually expre

ssed clearly,

accurately and cohesively in written form, using appropriate terminology.

The can

didate:

•r

ecalls and describes relevant _{facts and generally explains concepts and principles} •analyses and generally interpre

ts accounting

information to make valid decisio

ns

•c

ommunicates a range of _{accounting information and understandings in written form, in a manner which is generally clear and accurate, using some appropriate terminology.} The candidate: •states

some

relevant facts

and concepts _•identifies relevant facts from accoun

ting information

•c

ommunicates some _accoun

ting information in written form, although t he communicati on sometimes

lacks clarity and accuracy.

The candidate: •states some fact

s

•c

ommunicates little _accounting

in

formation in

written form, and this communication l

acks

clarity and accuracy.

practical

Th

e candidate:

•a

ccurat

ely applies fundamental

accounting concepts to select and organise relevant data to record a wide range of routine transactions _•consistently demonstrat

es

knowledge o

f fundamental

accounting concepts to correctly process accountin

g information in

usual situations _•accurat

ely prepares and effectively

presents accounting rep

orts.

The candidate: •applies fundamental accounting concepts

to select and organise

relevant data

to record a

wide

range of routine transactions in most situatio

ns •u sually demo nstrates knowledge of fund amental

accounting concepts to correctly process accou

nting

information in usual situations _•accurately prepares and presents accounting reports on most oc

ca si ons . The can didate:

•applies fundamental accounting concepts

to select and organise relevant data to re cord a rang e

of routine transactions _{•generally processes}

accounting

information correctly in usual situations _•prepares and presents accounting reports with some inaccuracies. The candidate: •selects relevant data and re

cords routine tra

nsactions

on some occasions _•occasionally processes some accoun

ting information

correct

ly in usual situations

•p

repares and presents _accoun

ting report

s which

frequently lack accuracy.

The candidate: •seldom records

routine

transa

ctions accurately

•r

arely processes _accounting

information

correctly in usual situations _•rarely prepares and prese

nts accounting

(contin ued) C riterio n St and ard A St and ard B St and ard C St and ard D St and ard E

Challenging practical application

The candid

ate:

•e

ffectively applies

accounting

knowledge and conce

pts to

accurately record a variety of transactions which include complex elements _{•applies accounting}

knowledg

e

and conce

pts to consistently

and correctly process accounting informatio

n which

includes co

mple

x elements

•a

ccurately prepares and _{effectively presents accounting reports involving complex processing}

•c

onsistently and effectively _{solves problems invo}

lving

complex practical processe

s.

The candida

te:

•u

sually applies account

ing

kn

owledge and concep

ts to

accurately record a variety of transactions which include comple

x elements

•applies accounting

knowledge

and concept

s to correctly

process, in most situations, accounting information

which

in

cludes complex elements

•a

ccurately prepares and _{effectively presents, on most occasions, accounting reports in}volving complex processing

•u

sually solves problems _involving complex practical _processes.

The candidate

:

•generally applies accounting kno

w

ledge and concepts to

accurately record transactions which include complex elements _•follows a given procedure to process accounting info

rmation wh

ich includes

complex elements _•prepares and presents accounting reports involving complex proce

ssing with

varying d

egrees of accuracy

•s

olves problems involving _{complex pract}

ical processes

on some occasions.

The candidate: •occasionally records accurately transactions which include complex elements •follows a given procedure, in part, to process accounting information which includes complex elements •prepares and presents accounting reports involvin

g

complex processing with little accuracy.

The can

didate:

•s

eldom records tra

nsactions

or processes information which include complex elements _•rarely prepares or presents accounting reports involving complex processin

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