External Examination 2008

2008 ACCOUNTING STUDIES

FOR OFFICE
USE ONLY

QUESTION
BOOKLET

SUPERVISOR
CHECK

ATTACH SACE REGISTRATION NUMBER LABEL

TO THIS BOX

1
28 pages, 6 questions

RE-MARKED

Tuesday 18 November: 1.30 p.m.

Time: 3 hours

Part 1: Problem Questions

Examination material: Question Booklet 1 (28 pages)
Question Booklet 2 (11 pages)
one SACE registration number label
Approved dictionaries and calculators may be used.
Instructions to Students
1.

You will have 10 minutes to read the paper. You must not write in your question booklets or use a calculator
during this reading time but you may make notes on the scribbling paper provided.

2.

This paper is in two parts: Part 1 is in Question Booklet 1 and Part 2 is in Question Booklet 2.
Part 1: Problem Questions (Questions 1 to 6)
Answer all questions in the spaces provided in Question Booklet 1.
Part 2: Extended Written Response (Question 7)
Write your answer to Question 7 on the pages provided in Question Booklet 2.

3.

The allocation of marks and the suggested allotment of time are as follows:
Part 1
Part 2
Total

80 marks
20 marks
100 marks

145 minutes
35 minutes
180 minutes

4.

The ratio sheet is on page 3, which you may remove from this booklet before the examination begins.

5.

Remove the tear-out sheets on pages 5, 19, and 25 from this booklet, if you wish to keep the relevant
information in front of you while you write your answers.

6.

Show all working in this booklet. (You are strongly advised not to use scribbling paper. Work that you
consider incorrect should be crossed out with a single line.)

7.

Use only black or blue pens for all work other than calculations, for which you may use a sharp dark pencil.

8.

Attach your SACE registration number label to the box at the top of this page. Copy the information from
your SACE registration number label into the boxes on the front cover of Question Booklet 2.

9.

At the end of the examination, place Question Booklet 2 inside the back cover of Question Booklet 1.

STUDENTS DECLARATION ON THE USE OF

CALCULATORS
By signing the examination attendance roll I declare that:
my calculators have been cleared of all memory;
no external storage media are in use on these calculators.
I understand that if I do not comply with the above conditions
for the use of calculators I will:
be in breach of the rules;
have my marks for the examination cancelled or amended;
be liable to such further penalty, whether by exclusion from
future examinations or otherwise, as the SACE Board of
South Australia determines.

You may remove this page from the booklet by tearing along the perforations, if you wish to keep it in
front of you while you write your answers.
RATIO SHEET
Profitability (Return)

Expressed as

For all entities:

Return on equity

net profit
owners equity*

net profit + interest expense

total assets*

net profit
net sales

individual expenses
net sales

gross profit
net sales

net profit for ordinary shareholders

number of ordinary shares

earnings per ordinary share

market price per ordinary share

total ordinary dividend

number of ordinary shares

dividend per ordinary share

market price per ordinary share

current assets inventory

current liabilities

ratio

current assets
current liabilities

ratio

Debtors turnover

net credit sales

debtors*

times

Inventory turnover

cost of goods sold

inventory*

times

liabilities
total assets

liabilities
owners equity

net profit + interest expense

interest

times

Return on total assets

Net profit margin
Expense
Gross profit margin

For companies:
Earnings per ordinary share
Earnings yield
Dividend per ordinary share
Dividend yield

Financial Stability (Risk)

Short Term (Liquidity)
Quick asset (acid test)
Working capital

Long Term (Solvency)

Total debt/total assets
Debt/equity
Times interest earned

Averages are used for these values. However, the availability of information may necessitate the
use of opening or closing values.

It is acceptable also to deduct bank overdrafts from current liabilities when calculating this
ratio, as appears in some textbooks and study guides.
*

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You may remove this page from the booklet by tearing along the perforations, if you wish to keep the
information for Question 1 in front of you.
QUESTION 1
Angela DeBasio owns and operates a book store called Reading Stacks. Angela has provided the
following information for use in the preparation of the statement of cash flows for the year ended
30 June 2008:
READING STACKS
Income Statement for Year Ended 30 June 2008
Revenue
Credit sales
Cash sales

310 000
70 600

Cost of Goods Sold

Opening inventory
Credit purchases
Freight
Closing inventory

35 000
172 900
7 200
31 000

Gross Profit

196 500

Other Revenue
Rent
Discount

8 000
2 000

Expenses
Wages
Discount
Administration
Advertising
Doubtful debts
Depreciation on equipment

78 700
2 400
37 300
9 000
11 000
1 200

Net Profit

66 900

The information for Question 1 is continued on page 6.

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READING STACKS
Comparative Balance Sheets at 30 June 2008 and 30 June 2007
2008

2007

322 100
0
27 100
66 900
361 900

271 400
11 600
13 000
52 100
322 100

Assets
Current
Bank
Debtors
Allowance for doubtful debts
Prepaid advertising
Inventory

0
71 100
(11 000)
900
31 000

4 350
52 000
0
250
35 000

Non-current
Furniture
Investments
Land and buildings
Equipment
Accumulated depreciation on equipment

14 800
15 000
400 000
14 000
(5 000)

19 800
15 000
325 000
14 000
(3 800)

21 400
2 500
1 000

16 500
2 000
0

Non-current
Mortgage

144 000

121 000

Net Assets

361 900

322 100

Owners Equity
Capital
Additional capital
Drawings
Net profit

Liabilities
Current
Creditors
Accrued wages
Bank overdraft

Other Information
All acquisitions and disposals of non-current assets were for cash.
All drawings were cash drawings.

QUESTION 1
(a) Make the following calculations, which you will need in order to prepare the statement of
cash flows for Reading Stacks.
(i) Receipts from customers.

(ii) Payments to suppliers.

(iii) Advertising.

(iv) Wages.

(6 marks)
Use this space for other calculations you need to make in order to prepare the statement of cash
flows on page 8.

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(b) Prepare the statement of cash flows for Reading Stacks for the year ended 30 June 2008.
READING STACKS
Statement of Cash Flows for Year Ended 30 June 2008
CASH FLOWS FROM OPERATING ACTIVITIES

Net cash flows from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash flows from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash flows from financing activities

NET INCREASE/DECREASE IN CASH HELD
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD
(5 marks)

(c) Explain the importance of having a positive net cash inflow from operating activities.
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________

(1 mark)

TOTAL: 12 marks

End of Question 1

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QUESTION 2
Dan Johns is investigating two investment opportunities. He has been presented with the following
two balance sheet extracts to help in making his decision:
Young Modern Furniture
Owners Equity
Capital (B. Gillies)
90 000
Capital (C. Joannou)
81 500
Current (B. Gillies)
24 500
Current (C. Joannou)
43 800
239 800

Silver Chairs Pty Ltd

Shareholders Equity
Share capital issued 720 000
Retained profit
73 000
793 000

(a) Identify the ownership structure of:

(i) Young Modern Furniture.
_______________________________________________________________________________________________________

(ii) Silver Chairs Pty Ltd.

_______________________________________________________________________________________________________

(1 mark)
(b) Name the accounting entity of Young Modern Furniture.
____________________________________________________________________________________________________________

(1 mark)
(c) Name the legal entity of:
(i) Young Modern Furniture.
_______________________________________________________________________________________________________

(ii) Silver Chairs Pty Ltd.

_______________________________________________________________________________________________________

(1 mark)
(d) Explain what is meant by the term limited (Ltd) in Silver Chairs Pty Ltd.
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________

(1 mark)
10

(e) (i) Dan is considering buying shares in Silver Chairs Pty Ltd, which has provided the following
information:
Net profit
Ordinary dividend
No. of ordinary shares
Market price per ordinary share

$180 000
$130 000
320 000
$3.50

(1) Calculate the earnings per ordinary share of Silver Chairs Pty Ltd.

(2) Calculate the earnings yield of Silver Chairs Pty Ltd.

(ii) Dan has also researched Young Modern Furniture and calculated a return on owners
equity of 23%.
Explain which of the two businesses would provide the better investment.
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(iii) What is the difference between an earnings yield and a dividend yield?
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(6 marks)

TOTAL: 10 marks

End of Question 2

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QUESTION 3
Ray Storm is the owner of Water Tank Suppliers, a business that sells and installs water tanks.
Ray has been advised that the best way of controlling cash is by regularly preparing bank
reconciliation statements and cash budgets, including variance analyses.
(a) Explain why it is important for a business to control its cash.
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________

(1 mark)
(b) Describe one method, apart from preparing bank reconciliation statements and cash budgets,
that could be used to maintain internal cash control.
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________

(1 mark)
(c) Water Tank Suppliers bank statement for April 2008 showed that the business had an
overdraft of $605. When the statement was checked against the records of the business it was
found that:
$15 in bank fees had not been recorded;
cheques totalling $3800 had not been presented to the bank;
a $10 cheque book charge had not been recorded;
$4000 that the business had deposited in the bank had not been recorded.
(i) Complete the bank reconciliation statement at 30 April 2008.
WATER TANK SUPPLIERS
Bank Reconciliation Statement at 30 April 2008

12

(ii) Complete and formally balance the cash at bank account for Water Tank Suppliers.
Cash at Bank Account
1 April
30 April

Opening balance
Receipts

10 000
12 000

30 April

Payments

22 380

(4 marks)
(d) Study the following cash budget (extract) for the month ended 30 April 2008:
WATER TANK SUPPLIERS
Cash Budget (Extract) for Month Ended 30 April 2008

Wages
Advertising
Rent

Budget

Actual

Variance

1000
600
2000

1000
1500
2500

(900)
(500)

What action should be taken about:

(i) advertising?
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(ii) rent?
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(2 marks)

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(e) Water Tank Suppliers provided the following information for the preparation of the cash
budget for May and June 2008:
Sales
All sales are on credit.
Sales for April were $24 000.
It is expected that sales will be $28 000 for May and $30 000 for June.
Debtors are expected to pay 40% in the month of sale and 55% in the month after sale.
The remaining 5% is expected to become a bad debt.
Purchases
All purchases are for cash in order to receive 5% discount.
It is expected that purchases will be $25 000 for May and $27 000 for June.
Other Information
A $150 000 interest-only loan will be received on 1 June and used for renovations starting
in July.
Interest on the loan will be $1100 per month, starting in June.
The owner intends to withdraw $1500 per month.
Payments will be the same as shown in the cash budget (extract) for April in part (d),
except for wages, which are expected to increase by 10% each month.
Depreciation on office equipment is expected to be $375.
Complete the collection from debtors schedule for Water Tank Suppliers for May and June
2008.
WATER TANK SUPPLIERS
Collection from Debtors Schedule for May and June 2008
Credit Sales

Total

April

24 000

May

28 000

June

30 000

May

June

Total
(2 marks)

14

(f) Prepare the cash budget for Water Tank Suppliers for May and June 2008.
WATER TANK SUPPLIERS
Cash Budget for May and June 2008
May

June

Estimated receipts

Total estimated receipts

Estimated payments

Total estimated payments

Surplus/deficit
Opening bank balance
Closing bank balance
(6 marks)

TOTAL: 16 marks

End of Question 3

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QUESTION 4
Fine Cheese Distributors has provided the following information for use in preparing the general
journal entry to record a bad debt and in completing the debtors control account for October 2008:
Debtors Schedule at 1 October 2008
F. Etter
S. Tilton
M. Brie
B. Chinie

11 000
600
14 400
9 000
35 000

Other Information for October 2008

Credit sales were $24 000.

Cash sales were $30 000.
A discount of $100 was allowed.
Goods worth $200 were returned by a debtor.
S. Tiltons account to be written off as a bad debt.
Cash received from debtors was $29 000.

(a) Prepare the general journal entry to write S. Tiltons account off as a bad debt.
General Journal
Date

Particulars

Debit

Credit

Recording of bad debt

(1 mark)
(b) Complete and formally balance the debtors control account for Fine Cheese Distributors for
October 2008.
Debtors Control Account

(3 marks)
16

(c) The allowance for doubtful debts is to be increased from its current balance of $1000 to 4%
of the closing balance of the debtors control account.
Prepare relevant general journal entries to transfer the bad debt and to increase the allowance for
doubtful debts. Narrations are required.
General Journal
Date

Particulars

Debit

Credit

(3 marks)
(d) (i) Using the appropriate ratio, calculate the debtors turnover for October.

(ii) Fine Cheese Distributors has a 30-day credit policy.

What does this mean?
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(iii) Interpret the debtors turnover for October in relation to this credit policy.
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(3 marks)

TOTAL: 10 marks

End of Question 4

17

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18

You may remove this page from the booklet by tearing along the perforations, if you wish to keep the
information for Question 5 in front of you.
QUESTION 5
Honey Moon owns and operates the Outoor Camping Store. The following trial balance for the
business was prepared at 30 June 2008:
OUTDOOR CAMPING STORE
Trial Balance at 30 June 2008
Account
Sales wages
Debtors
Sales
Delivery vehicle
Loan (due 1 December 2015)
Interest on loan
Drawings
Creditors
Commission revenue
Bank
Freight outwards
Purchases
Land and buildings
Inventories 1 July 2007
Office expenses
Office equipment
Investment (maturing in 6 months)
Purchases returns
Customs duty
Prepaid advertising
Stationery expense
Capital
Accumulated depreciation on office equipment
Total

Debit
123 000
45 000

Credit

190 000
68 000
40 000
1 800
1 700
58 000
800
14 000
1 500
78 000
70 000
74 800
50 000
15 500
4 000
1 000
1 800
3 000
2 900

541 000

234 200
3 000
541 000

Other Information at 30 June 2008

Inventory of $121 000 was on hand at 30 June 2008.

Sales wages of $500 were outstanding.
Advertising expense was $2000.
The delivery vehicle was purchased on 1 October 2007, and is depreciated at a rate of 10% per
annum, using the straight-line method.
Commission of $200 had been received but not yet earned.
Office equipment is depreciated at a rate of 5% per annum, using the diminishing-balance
method.

19

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20

QUESTION 5
(a) Prepare the balance sheet for the Outdoor Camping Store at 30 June 2008.
OUTDOOR CAMPING STORE
Balance Sheet at 30 June 2008
OWNERS EQUITY

Represented by:
ASSETS
Current

Non-current

TOTAL ASSETS
LIABILITIES
Current

Non-current

TOTAL LIABILITIES
NET ASSETS
(8 marks)
21

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(b) The historical cost concept was used to record the land and buildings that were purchased in
1995.
(i) Define the historical cost concept.
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(ii) Describe one benefit of using the historical cost concept.

_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(2 marks)
(c) (i) What is the purpose of depreciation?
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(ii) The units-of-use method could be used in calculating depreciation on the delivery
vehicle.
Explain why the units-of-use method would be more appropriate than the straight-line
method for this particular non-current asset.
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(2 marks)

22

(d) Using the information on page 19, prepare the income statement for the Outdoor Camping
Store for the year ended 30 June 2008.
OUTDOOR CAMPING STORE
Income Statement for Year Ended 30 June 2008
REVENUE
COST OF GOODS SOLD

GROSS PROFIT/LOSS
OTHER REVENUE

EXPENSES
SELLING

ADMINISTRATIVE

FINANCIAL

NET PROFIT/LOSS
(8 marks)

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(e) The Outdoor Camping Store used the accounting process to provide the financial information
for the final reports.
Explain what is involved in the:
(i) collection step. ______________________________________________________________________________________
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(ii) processing step. _____________________________________________________________________________________

_______________________________________________________________________________________________________
_______________________________________________________________________________________________________

(2 marks)

TOTAL: 22 marks

End of Question 5

24

You may remove this page from the booklet by tearing along the perforations, if you wish to keep the
information for Question 6 in front of you.
QUESTION 6
Les Jules is a jewellery store that uses the first-in first-out perpetual method of recording inventory.
All transactions are on credit.
The following transactions for watches have been provided:
7 May
9
10
11
14

Sold three watches at $500 each.

Bought two watches at $430 each.
Returned one watch bought on 9 May.
Bought eight watches at $450 each.
Sold six watches at $550 each.
Stocktake showed seven watches on hand.

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26

QUESTION 6
(a) Complete the inventory card for the 2 weeks ended 14 May 2008, using the first-in first-out
perpetual method of recording inventory.
INVENTORY CARD
Watches
In
Date

1 May

Details

Qty

Balance

Out
Cost
($)

Qty

Cost
($)

Balance

Qty

Cost
($)

Total
($)

2
4
3

350
400
420

700
1600
1260

(3 marks)
(b) Complete and formally balance the inventory control account.
Inventory Control Account

(3 marks)

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(c) Using the perpetual method of recording inventory, prepare the income statement (extract) for
the 2 weeks ended 14 May in order to calculate the gross profit. (Inventory discrepancies are
considered in determining gross profit.)
Income Statement (Extract) for 2 Weeks Ended 14 May
Revenue

Cost of Goods Sold

Gross Profit

(3 marks)
(d) Les Jules also sells necklaces. The following information relates to the necklaces that are in
stock:
$
Cost price
Net realisable value

480 000
720 000

State the value of the inventory that should be recorded in the final reports. $

__________________

(1 mark)

TOTAL: 10 marks

End of Question 6

SACE Board of South Australia 2008

28

External Examination 2008

2008 ACCOUNTING STUDIES

SACE REGISTRATION NUMBER
FIGURES

QUESTION
BOOKLET

CHECK
LETTER

SEQ

BIN

2
ACCOUNTING STUDIES

Tuesday 18 November: 1.30 p.m.

Part 2: Extended Written Response

Write your answer to Part 2 (Question 7) in this question booklet.

11 pages, 1 question

QUESTION 7
(a) Complete the calculations on page 10 (the fold-out sheet at the end of this question booklet).
(5 marks)
(b) Using the information on the tear-out sheet (page 3) and the figures on page 10, write a
report on pages 5 to 9 in which you discuss:
profitability;
solvency;
the limitations of the concepts consistency, accounting period, and prudence
used in the preparation of the income statement and the balance sheet.
(15 marks)

Remove this page from the booklet by tearing along the perforations. Refer to this information when
completing the calculations on page 10 and when writing your report.
QUESTION 7
Sam Taclaws owns and operates a business called Really Cool Toys.
Sam has supplied the following income statement and balance sheet:
REALLY COOL TOYS
Income Statement
for Year Ended 30 June 2008

REALLY COOL TOYS

Balance Sheet at 30 June 2008

Revenue
Sales
Sales returns
Cost of goods sold

420 000
(18 500)
216 000

Gross Profit

185 500

Expenses
Wages
Administration
Advertising
Insurance
Doubtful debts
Bad debts
Interest

72 000
11 700
23 000
12 000
2 000
9 500
19 800

Net Profit

35 500

Owners Equity
Capital
Drawings
Net profit

352 000
(4 200)
35 500
383 300

Assets
Current
Inventory
Bank
Debtors
Allowance for doubtful debts
Non-current
Equipment
Vehicle
Land and buildings
Total Assets
Liabilities
Current
Creditors
Loan

116 000
12 300
65 000
(2 400)
190 900
87 000
75 000
320 000
482 000
672 900

51 600
34 000
85 600

Non-current
Mortgage

204 000

Total Liabilities

289 600

Net Assets

383 300

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Write your report below and on pages 6, 7, 8, and 9.

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Complete the following calculations for Really Cool Toys.

Calculations

2008

2007

Profitability
18.6%

Return on equity

Gross profit margin

47.7%

Net profit margin

15.2%

Solvency
71.3%

Debt/equity

Times interest earned

5.5 times

10

Open this fold-out sheet and complete the calculations on page 10.

SACE Board of South Australia 2008

11

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