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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)

Answerallquestions 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 80 marks 145 minutes

Part 2 20 marks 35 minutes

Total 100 marks 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.

2008 ACCOUNTING STUDIES

QUESTION

BOOKLET

128 pages, 6 questions

External Examination 2008

FOR OFFICE

USE ONLY

SUPERVISOR

CHECK

RE-MARKED

ATTACH SACE REGISTRATION NUMBER LABEL

TO THIS BOX

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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.

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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)

For all entities:

Return on equity

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

Debtors turnover

Inventory turnover

Long Term (Solvency)

Total debt/total assets

Debt/equity

Times interest earned

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

current assets

current liabilities

net credit sales

debtors*

cost of goods sold

inventory*

liabilities

total assets

liabilities

owners equity

net profit + interest expense

interest

Expressed as

%

%

%

%

%

$

%

$

%

ratio

ratio

times

times

%

%

times

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

It is acceptable also to deduct bank overdrafts from current liabilities when calculating thisratio, 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 cashfl

ows for the year ended30 June 2008:

READING STACKS

Income Statement for Year Ended 30 June 2008

Revenue

Credit sales 310 000

Cash sales 70 600

Cost of Goods Sold

Opening inventory 35 000

Credit purchases 172 900Freight 7 200

Closing inventory 31 000

Gross Profit 196 500

Other Revenue

Rent 8 000

Discount 2 000

Expenses

Wages 78 700

Discount 2 400

Administration 37 300

Advertising 9 000

Doubtful debts 11 000

Depreciation on equipment 1 200

Net Profit 66 900

The information for Question 1 is continued on page 6.

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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)

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(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 Silver Chairs Pty Ltd

Owners Equity Shareholders Equity

Capital (B. Gillies) 90 000 Share capital issued 720 000

Capital (C. Joannou) 81 500 Retained profit 73 000

Current (B. Gillies) 24 500 793 000

Current (C. Joannou) 43 800

239 800

(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)

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(e) (i) Dan is considering buying shares in Silver Chairs Pty Ltd, which has provided the following

information:

Net profit $180 000

Ordinary dividend $130 000

No. of ordinary shares 320 000

Market price per ordinary share $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

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(ii) Complete and formally balance the cash at bank account for Water Tank Suppliers.

Cash at Bank Account

1 April Opening balance 10 000 30 April Payments 22 380

30 April Receipts 12 000

(4 marks)

(d) Study the following cash budget (extract) for the month ended 30 April 2008:


Cash Budget (Extract) for Month Ended 30 April 2008

Budget Actual Variance

Wages 1000 1000

Advertising 600 1500 (900)

Rent 2000 2500 (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.


Collection from Debtors Schedule for May and June 2008

Credit Sales Total May June

April 24 000

May 28 000

June 30 000

Total

(2 marks)

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(f) Prepare the cash budget for Water Tank Suppliers for May and June 2008.


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 11 000

S. Tilton 600

M. Brie 14 400

B. Chinie 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)

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(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

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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 Debit Credit

Sales wages 123 000

Debtors 45 000

Sales 190 000

Delivery vehicle 68 000

Loan (due 1 December 2015) 40 000

Interest on loan 1 800

Drawings 1 700

Creditors 58 000

Commission revenue 800

Bank 14 000

Freight outwards 1 500

Purchases 78 000

Land and buildings 70 000

Inventories 1 July 2007 74 800

Office expenses 50 000

Office equipment 15 500

Investment (maturing in 6 months) 4 000

Purchases returns 1 000

Customs duty 1 800

Prepaid advertising 3 000

Stationery expense 2 900

Capital 234 200

Accumulated depreciation on office equipment 3 000

Total 541 000 541 000

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.

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QUESTION 5

(a) Prepare the balance sheet for the Outdoor Camping Store at 30 June 2008.


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)

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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 deliveryvehicle.

Explain why the units-of-use method would be more appropriate than the straight-line

method for this particular non-current asset.

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(2 marks)

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(d) Using the information on page 19, prepare the income statement for the Outdoor Camping

Store for the year ended 30 June 2008.


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

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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 Sold three watches at $500 each.

9 Bought two watches at $430 each.

10 Returned one watch bought on 9 May.

11 Bought eight watches at $450 each.

14 Sold six watches at $550 each.

Stocktake showed seven watches on hand.

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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

Date Details

In Out Balance

Qty Cost

($)

Qty Cost

($)

Qty Cost

($)

Total

($)

1 May Balance 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 instock:

$

Cost price 480 000

Net realisable value 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

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2008 ACCOUNTING STUDIES

QUESTION

BOOKLET

211 pages, 1 question

Tuesday 18 November: 1.30 p.m.

Part 2: Extended Written Response

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

SACE REGISTRATION NUMBER

FIGURES

ACCOUNTING STUDIES

CHECK

LETTER

SEQ BIN

External Examination 2008

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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)

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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

Gross Profit

Expenses

Wages

Administration

Advertising

Insurance

Doubtful debts

Bad debts

Interest

Net Profit

420 000

(18 500)

216 000

185 500

72 000

11 700

23 000

12 000

2 000

9 500

19 800

35 500

Owners Equity

Capital

Drawings

Net profit

Assets

Current

Inventory

Bank

Debtors

Allowance for doubtful debts

Non-current

Equipment

Vehicle

Land and buildings

Total Assets

Liabilities

Current

Creditors

Loan

Non-current

Mortgage

Total Liabilities

Net Assets

352 000

(4 200)

35 500

383 300

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

204 000

289 600

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

Return on equity18.6%

Gross profit margin 47.7%

Net profit margin 15.2%

Solvency

Debt/equity71.3%

Times interest earned 5.5 times

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

Documents

sam 2008 exam