CPAP STUDY GUIDE TO VCE ACCOUNTING

ANSWERS TO MINI EXAMINATIONS

SOLUTIONS UNIT 3: MINI EXAM NO. 1

Question 1
a. An appropriate accounting system that Michael Wild may use is a double-entry, accrual based recording and
reporting system. This system requires the use of special journals and ledger accounts so that each transaction
undertaken will be recorded in a manner that recognises the two-fold effect on the accounting equation. Revenue and
expenses will be reported as they are earned and incurred, rather than when cash is exchanged, so that a more
accurate figure for profit can be determined. This will allow better decision-making by the owner as the information
presented is more relevant. In addition, Michael should use a system of Control Accounts and subsidiary records as a
means of cross-checking information, summarising some details so only totals are presented in reports. This ensures
reliability and understandbility.

 1 mark for double-entry system

 1 mark for accrual system
 1 mark for Relevance
 1 mark for Control accounts
 1 mark for reliability and understand ability
 May also discuss perpetual system and FIFO

b.
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit

1-Jul Cash at Bank 5 600

Debtors Control 3 400

Stock Control 11 200

Shop Fittings 14 000

Land & Buildings 160 000

Creditors Control 8 900

GST Clearing 1 300

Loan - HiFinance 35 000

Capital - E. Baxter 149 000

Establishment of a double-entry
recording system
3 marks
 1 mark for Assets
 1 mark for Liabilities
 1 mark for Capital
 -1 if narration not included

a.
Relevance
The value of the Shop Fittings to the new business is only $14,000 as this is the value of the asset that will provide a
future economic benefit to the business. The value of $20,000 was what the previous business’ valuation of the asset.
This amount has no relevance for decision making for the new owner.

 1 mark for Relevance

1 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
  1 mark for current value useful for decision making
 1 mark for Accumulated Depreciation/Historical Cost not relevant for new business.

Students who select Reliability for their characteristic must value asset at $20,000 and include Accumulated
Depreciation in their entry.

Question 2
a.
FIFO operates on the assumption that the first stock purchased by the business will be the first stock that the
business sells.

b. Stock item: Equal Exercise

Bike

Date Details IN OUT BALANCE

Unit Total Unit Total Total
2016 Qty Cost Cost Qty Cost Cost Qty Unit Cost Cost
1-Aug Balance 12 150 1 800

9-Aug Inv EE16 5 150 750 7 150 1 050

15-Aug Rec 37 1 150 150 6 150 900

6 150
21-Aug Inv HH21 10 160 1 600 10 160 2 500
3 150
23-Aug Rec 40 3 150 450 10 160 2 050
3 150
24-Aug Inv EE17 2 160 770 8 160 1 280
 1 mark for each entry in the Stock Card
 -1 (max) if Selling Price used
 -1 (max) if GST included in cost
 -1 (max) if documents not used

2 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Cash Receipts Journal
Date Rec. Disc. Debtors Cost of
2016 Details No. Bank Exp Control Sales Sales Sundries GST
2-Aug Sales 35 462 210 420 42
Rye Sporting
12-Aug Club 36 3 900 100 4 000
15-Aug Sales 37 330 150 300 30
17-Aug L. Watkins 38 500 500
22-Aug Sales 39 1 188 540 1 080 108
23-Aug Sales 40 990 450 900 90
Ferns
24-Aug Gymnasium 41 1 000 1 000
8 370 100 5 500 1 350 2 700 270
 1 mark for each entry in the journal
 -1 mark if no total for ALL columns

Sales Journal
Date Inv. Cost of Debtors
2016 Debtor No. Sales Sales GST Control
9-Aug Chelsea Gymnasium EE16 2 100 4 200 420 4 620

24-Aug Ferns Gymnasium EE17 3 150 6 300 630 6 930

26-Aug Pulse Gymnasium EE18 2 100 4 220 422 4 642

7 350 14 720 1 472 16 192

 1 mark for each entry

Cash Payments Journal

Creditor Stock
Date Chq Disc. s Contro
2016 Details No. Bank Rev Control l Wages Sundries GST
3-Aug GetFit Ltd 74 2 200 2 200
21-Aug Ace Equipment 85 4 000 4 000
29-Aug GetFit Ltd 91 1 900 100 2 000
GST Clearing 92 750 750
8 850 100 8 200 - - 750 -
 1 mark for each entry
 Payment for GST MUST be in the Sundries column

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
31-Aug Stock Loss 220
Stock Control 220

 1 mark for each line of the entry

 Narration is not required
   

3 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 Stock Control
Date Cross-reference Amount Date Cross-reference Amount
1-Aug Balance 8 880 30-Aug Drawings 220
31-Aug Creditors Control 6 600 Advertising 210
Cost of Sales 7 350
Cost of Sales 1 350
Stock Loss 220
Balance 6 130
15 480 15 480
1-Sep Balance 6 130

 1 mark for Creditors Control

 1 mark for Drawings
 1 mark for Advertising
 1 mark for each Cost of Sales entry
 1 mark for Stock Loss
 1 mark for balancing account – must bring Opening Balance forward
 -1 for incorrect titles – Cost of Goods Sold
 No abbreviations

Creditor – GetFit
Date Cross-reference Amount Date Cross-reference Amount
3-Aug Bank 2 200 1-Aug Balance 4 200
Bank/Discount Stock Control/GST
29-Aug Revenue 2 000 21-Aug Clearing 7 260

 1 mark for the entries on the debit side

 1 mark for entry on credit side

Creditors Schedule at 31 August 2016

GetFit Ltd $7260
Ace Equipment $1600
HiSense $1400
$10260

 1 mark for GetFit Ltd and Ace Equipment

 1 mark for HiSense and Total

c.
The Stock donated to a school raffle has been treated as an advertising expense. An Expense is an outflow of
economic benefits in the form of a decrease in assets that lead to a decrease in owner’s equity, except drawings.
As stock has decreased, as well as Owners Equity, this transaction is an expense.

 1 mark for decrease in assets (Stock)

 1 mark for decrease in Owners’ Equity

4 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 d.

Assets (Bank) Decrease $1,900

Liabilities (Creditors Control) Decrease $2,000
Owners Equity (Net Profit -> Discount Revenue) Increase $100

 1 mark for each line.

e.

Reliability
Documents provide reliable evidence that is free from bias about financial transactions of the business. They allow for
information to be cross-checked.

 1 mark for Reliability

 1 mark for ‘free from bias’
 1 mark for cross-checking

f.
Subsidiary ledgers contain all relevant information about each individual debtor, creditor or stock item. It allows cross
checking with the Control account and assists in keeping bulky detail out of the General ledger. Also allows for
specialisation of duties with staff allocated responsibility for maintaining subsidiary records.

 1 mark for containing information about individual debtors, creditors and stock.
 1 mark for any other point.

g.

 Theft
 Undersupply from supplier
 Stocktake error, where stock counted is less than what is actually on hand
 Oversupply to customer
1 mark for each reason given

At the end of August 2016 the business was holding less stock. Identify one advantage and one
disadvantage of holding less stock.

Advantage – less cost of managing stock, such as insurance. Not as much cash ‘tied up’ in stock
Disadvantage – continually having to reorder stock, costly. May miss out on sales if stock runs out.

 1 mark for an advantage

 1 mark for a disadvantage

h.
 Stock Cards can be used to identify re-order points
 Stock Cards monitor the flow of stock in and out of the business
 Stock Cards help identify fast and slow moving stock to assist in ordering/purchasing decisions.

 1 mark for each relevant point

5 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Question 3
a.
Entry (1) – settlement of GST liability to the ATO because GST collected and charged was greater than GST
paid and incurred
Entry (2) – GST paid on the purchase of stock, Non-current asset and payment of expenses. Item from CPJ

 1 mark for each explanation

b. The GST is recorded at the time of the credit purchases in the Purchases Journal

c.

The GST Clearing account will have a credit balance at 31 October 2016. This means the account is a Current Liability
and represents a present obligation of the entity arising from past transactions, the settlement of which is expected to
result in an outflow from the entity of economic benefits to the ATO within the next reporting period (or within 12
months).

 1 mark for recognition it is a Current Liability

 1 mark for obligation of the business

d.

GST Clearing can have a debit balance if the amount of GST paid on stock, non-current asset purchase and payment
of expenses plus GST incurred on credit purchases exceeds the amount of GST collected on cash sales and earned
from credit sales.

 1 mark for GST paid and incurred

 1 mark for collected and owed
 If no mention of incurred and/or owed, then 1/2.

Question 4
On 1 September 2016, Sigourney Wilson decided to transfer ownership of her Motor Vehicle to the business. The
details of this asset were as follows:
Purchase date: 1 February 2008
Purchase price: $35 000
Payment method: $15 000 cash and $20 000 loan through Wiz Car Loans
Current agreed market value: $23 000
Current balance of Loan: $13 000

6 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 a.
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit

1-Sep Motor Vehicle 23 000

Loan – Wiz Car Loans 13 000

Capital - E. Baxter 10 000

Owner contributed own vehicle and
took on loan [Memo 12]

 1 mark for each line of the entry

 1 mark for narration – must show document number
 Allow for consequential errors in amounts

b.
Historical Cost states that assets should be valued at their original verifiable cost.
Relevance states that all items in reports should be useful for decision-making.
While $35,000 (Historical Cost) is verifiable it is not relevant to this business as it no longer represents the current
future economic benefit that the asset will provide to this business. It was relevant to the owner, who has used the
asset but for this ‘new’ owner, they will only be able to depreciate the asset from $23,000 so this is the amount that is
relevant and useful for decision-making and should be reported. Relevance overrules Historical Cost
 1 mark for definition of Historical Cost
 1 mark for definition of Relevance
 1 mark for relevant value for this business
 1 mark for useful for decision-making.

c.

The agreed value of an asset is the value of an asset determined by the business when the owner contributes an
asset to the business. This may be different from the original purchase price of the asset as evidenced by the
purchase invoice. Historical Cost is an accounting principle requiring assets to be reported at their original, verifiable
purchase price. However, as the business will not enjoy the full benefit of the asset over the life of the asset, the
agreed value is more useful for the business for decision-making. It is this value that will be depreciated and reported
in the financial reports of the business.
Total 80 Marks

7 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 SOLUTIONS UNIT 3:
MINI EXAM NO. 2

Question 1
a.

Business Name
Balance Sheet as at 1 July 2016

Assets Equities
Current Assets Current Liabilities
GST Clearing 1 700 Cash at Bank 4 600
Prepaid Insurance Expense 10 000 Accrued Wages 4 500
Debtors Control 23 400 Creditors Control 38 900
Stock Control 41 900 Loan - HiFiNance 12 000
77 000 60 000
Non-Current Assets Non-Current Liabilities
Shop Fittings (at cost) 32 000 Loan - HiFinance 83 000
Accumulated Depreciation (8 000) 143 000
Land & Buildings 240 000
Motor Vehicle (at cost) 40 000
Accumulated Depreciation (12 000) Owners Equity
292 000 Capital – E. Baxter 186 000

Total Assets 329 999 Total Equities 329 000

 1 mark for each of the 5 sections of the report

 -1 for incorrect titles – must have ‘Control’, ‘Clearing’

b.

GST Clearing can have a debit balance if the amount of GST paid on stock, non-current asset purchase and payment
of expenses plus GST incurred on credit purchases exceeds the amount of GST collected on cash sales and owed from
credit sales.
 1 mark for GST paid and incurred
 1 mark for collected and owed
 If no mention of incurred and/or owed, then 1/2.

c.
Relevance states that all information should be recorded but only the information that is useful for decision-making
should be reported. It is not necessary or relevant to list all debtors in the Balance Sheet. The total of Debtors
(balance of Control Account) is the item to be used for decision-making so only that item need be reported. All
information about individual debtors can be found (if needed) in the subsidiary records.

 1 mark for definition of Relevance

 1 mark for explanation of how Debtors Control meets characteristic

d.

Reporting Period – Balance Sheet shown at a point in time (...as at 1 July 2016). Also, recognition of Accrued Wages
suggests an expense for a future reporting period.

8 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Going Concern – Accumulated Depreciation indicates that the business has been operating for a number of reporting
periods and will continue to operate into the future
Historical Cost – Two Non-current Assets (Motor Vehicle and Shop Fittings) are shown at their Historical Cost. Other
assets such as Stock Control are shown at their original price rather than at their realisable value.

 1 mark for identification of an item from the Balance Sheet for each principle
 1 mark for explanation of each item in reference to the principle.

Question 2

a.
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Insurance Expense 12 400
Prepaid Insurance Expense 12 400

 1 mark for each line of the entry

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Commission Expense 1 000
Accrued Commission Expense 1 000

 1 mark for each line of the entry

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Depreciation – Shop Fittings 3 200
Accumulated Depreciation – Shop Fittings 3 200

 1 mark for each line of the entry.

 Must have amount correct

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Depreciation – Motor Vehicle 4 000
Accumulated Depreciation – Motor Vehicle 4 000

 1 mark for whole entry.

 Must have amount correct

9 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Stock Control 200
Stock Gain 200

 1 mark for each line of the entry.

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Bad Debts 550
Debtors Control 550
Debtor – L. Lynch 550

 1 mark for debit entry.

 1 mark for both credit entries

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Drawings 1 100
Other Expenses 1 000
GST Clearing 100

 1 mark for each line of the entry

b.
Ben’s Beds
Post-adjustment Trial Balance as at 30 June 2016
ACCOUNT DR CR
$ $
Cash at Bank 8 450
Shop Fittings 32 000
GST Clearing 2 730
Sales 368 000
Capital 236 420
Drawings 42 100
Stock Control 43 980
Discount Revenue 3 200
Cost of Sales 184 000
Motor Vehicle 40 000
Accumulated Depreciation – Shop Fittings 15 200
Debtors Control 27 050
Creditors Control 35 780
Accumulated Depreciation – Motor Vehicle 16 000
Interest Expense 6 000
Discount Expense 2 400
Land & Buildings 240 000
Loan - HiFinance 83 000
Customs Duty 9 200
Prepaid Insurance Expense 12 000
Office Expenses 27 100
10 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 Commission Expense 4 000
Wages 80 000
Insurance Expense 12 400
Accrued Commission Expense 1 000
Depreciation – Shop Fittings 3 200
Depreciation – Motor Vehicle 4 000
Stock Gain 200
Bad Debts 550
769 980 769 980
 1 mark for GST Clearing/Drawings/Other Expenses
 1 Mark for Debtors Control/Bad Debts
 1 mark for Stock Control/Stock Gain
 1 mark for Depreciation/Accumulated Depreciation (both assets)
 1 mark for Accrued Commission/Commission Expense
 1 mark for Prepaid Insurance/Insurance Expense

c.
Office Expenses
Date Cross-reference Amount Date Cross-reference Amount
30-Jun Balance 28 100 30-Jun Drawings 1 000
Profit & Loss Summary 27 100
28 100 28 100

 1 mark for each entry on the credit side

Drawings
Date Cross-reference Amount Date Cross-reference Amount
30-Jun Balance 41 000 30-Jun Capital 42 100
Office Expenses/GST
Clearing 1 100
42 100 42 100
 1 mark for debit side entry
 1 mark for credit side entry
Commission Expense
Date Cross-reference Amount Date Cross-reference Amount
30-Jun Balance 3 000 30-Jun Profit & Loss Summary 4 000
Accrued Commission
Expense 1 000
4 000 4 000
 1 mark for debit side entry
 1 mark for credit side entry

d.
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Jun 30 Sales 368 000
Stock Gain 200
Discount Revenue 3 200
Profit & Loss Summary 371 400

11 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
  1 mark for debit entries
 1 mark for credit entry
 Allow for consequential

e.

Relevance
Balance day adjustments are required to ensure that the revenue earned and the expenses incurred for the period are
reported. This ensures that the profit or loss made by the business is accurate and hence relevant for decision
making.
 1 mark for Relevance
 1 mark for revenue earned and expenses incurred
 1 mark for link to decision making

f.

It is necessary to close revenue and expense accounts at the end of each reporting period to allow for the calculation
of Net Profit in the records and the preparation of reports. The Going Concern principle recognises that a business’ life
is continuous and it must be broken up into equal periods of time to allow for profit determination to occur. This
report preparation allows business owners to assess performance, identify problem areas and plan for the future. If
these accounts were not closed then it would not be possible to determine the success or otherwise of the business.
Closing these accounts will zero off accounts, allow preparation of reports and establish the records in preparation for
the next reporting period
 1 mark for calculation of profit
 1 mark for Going Concern
 1 mark for Reporting Period
 1 mark for performance evaluation
 1 mark for prepare accounts for next period

g.
 Theft
 Undersupply from supplier
 Stocktake error, where amount counted is less than amount actually on hand
 Oversupply to customer

 1 mark for each reason given

h.

Residual value is the amount expected to be received when the business disposes of the asset at the end of its Useful
Life. The new owner will earn revenue using that asset. Thus this business will not use that part of the asset in its
revenue earning therefore it should not be expensed by this business.
 1 mark for not used by this business in earning revenue
 1 mark for not expense that amount

i.

Unallocated cost refers to the amount of Historical Cost not yet depreciated PLUS the Residual Value of the asset.
Found by HC – (AD + RV)
 1 mark for amount not yet depreciated
 1 mark for plus Residual Value

12 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Question 3
a.
Cash Payments Journal
Creditor
Date Chq Disc. s Stock
2016 Details No. Bank Rev Control Control Wages Sundries GST
Commission
30 Sep Expense 34 2 000 1 000
Accrued
Commission
Expense 1 000
 1 mark for each line

b.

The payment of $2,000 in Commission Revenue will result in a decrease in the amount of cash held in the Bank. This
is an Asset and so the Assets decrease by $2,000 (the amount paid). Some of this payment will be used to pay back a
Liability – an amount owed by the business to employees for commission earned. This decreases Liabilities by $1,000.
The remaining $1,000 is the payment of an Expense and so Owner’s Equity, through profit, is decreased as an
expense has increased.
Overall, the accounting equation remains balanced as the effects balance each side of the equation.
Liabilities - Accrued Commission Expense Decrease $1,000
Owners Equity – Net Profit (Commission Expense) Decrease $1,000
 1 mark for each effect on each element of the accounting equation
 1 mark for the $ value of the effects
 1 mark for the overall effect – Accounting Equation still remains balanced

Question 4
a.

Cash Receipts Journal

Re
Date cN Disc. Debtors Cost of Sundrie
2016 Details o. Bank Exp Control Sales Sales s GST
June Totals to date 385 500 2 500 180 000 90 000 180 000 10 000 18 000

Cash Payments Journal

Ch Creditor
Date qN Disc. s Stock Sundrie
2016 Details o. Bank Rev Control Control Wages s GST
June Totals to date 392 430 200 143 000 40 000 80 000 117 830 11 800
 1 mark for each amount

13 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
b.
Harry’s Hats
Cash Flow Statement for month ended 30 June 2016

Inflows
Cash Sales 180 000
Receipts from Debtors 177 500
GST Collected 18 000 375 500
Outflows
GST Settlement (2 630)
GST Paid (11 800)
Payments to Creditors (142 800)
Purchases of Stock (40 000)
Prepaid Rent Expense (12 000)
Wages (80 000)
Commission Expense (3 000)
Office Expenses (32 000)
Loan Interest (7 000) 331230
Net cash from Operating Activities 44 270
Cash Flows from Investing Activities
Net cash from Investing Activities
Cash Flows from Financing Activities
Inflows
Capital contribution 10 000
Outflows
Loan repayment (15 000)
Drawings (46 000)
Net cash from Financing Activities (51000)
Change in cash held (6 730)
Cash at 1/06/16 (8 450)
Cash at 30/06/16 (15 180)

 1 mark for Operating Inflows

 1 mark for Operating Outflows – GST Settlement + GST Paid
 1 mark for Operating Outflows – Payments to Creditors + Stock Control + Prepaid Rent
 1 mark for Operating Outflows – Wages, Commission, Interest and Office expenses
 1 mark for Investing Inflows
 1 mark for Investing Outflows – Drawings + Loan Repayment
 1 mark for ‘finishing report’
 -1 for incorrect titles
 -1 for ‘Aliens’
c.
 Not all Revenue is cash
 Not all Cash Payments are expenses
 If the business has a large amount of credit sales yet does not collect all debts from debtors, the business can
earn a profit but still have poor cash flow.
 Payments such as Drawings, Loan Repayments and Prepaid Rent all reduce the amount of cash held but do
not affect profit.
 1 mark for each example given.
 1 mark for cash payments do not equal expenses
 1 mark for not all revenue increases cash
 Examples must be from information in report.
Total 75 Marks
SOLUTIONS UNIT 4: MINI EXAM NO. 1
14 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 AREA OF STUDY 1
Total marks = 80

ERIN’S EXERCISE BIKES

Question 1
a.

Net Realisable Value is the estimated selling price of stock (Realisable Value) less the estimated selling, distributing
and marketing costs associated with selling the stock.
 1 mark for estimated selling price
 1 mark for estimated selling costs

b.

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
2 Mar Stock Write Down 480
Stock Control 480
Write down of 12 Elite Exercise
Bikes – Memo 13
 1 mark for debit entry
 1 mark for credit entry
 1 mark for narration. Narration must include the document number and the number of units

c.

Stock card: Item – Excel Exercise Bike

BALANC
Date Details IN OUT E
Unit Total Unit Total Unit Total
2016 Qty Cost Cost Qty Cost Cost Qty Cost Cost

2 Mar Balance 12 220 2640

2 Mar Memo 13 12 40 480 12 180 2160
1 mark for whole line of Stock Card

d.

Cost refers to the original purchase price of a unit of stock and all product costs. It is to this price that a mark-up is
added that determines the selling price. However, on occasions it is not possible to sell stock at a price above cost—
due to damage or obsolescence of the stock. This is the net realisable value of the stock and is the estimated selling
price of stock less any estimated expenses involved in selling the stock.
On these occasions it is important to recognise this loss in value and to write the stock down. This is done as soon as
it is known that this write down will occur—conforming to the principle of conservatism where losses are recorded as
soon as they are recognised as having occurred.
By recording the write down and valuing stock in the records at the lower value, the owner is conforming to relevance
whereby the value of stock is more accurate and more useful for decision-making as the stock value has fallen below
the original purchase price.

 1 mark for definition of cost

 1 mark for calculation of selling price
 1 mark for definition and reason for net realisable value
15 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
  1 mark for Conservatism
 1 mark for Relevance

e.

Conservatism
The adjustment is required to ensure that the expenses incurred for the period are accurate and reflect the true
position of the business.
Hence the business should recognise losses as soon as it becomes apparent that a loss exists so as not to overstate
assets and net profit.

 1 mark for Conservatism

 1 mark for accurate calculation of profit
 1 mark for recognising losses when they become apparent

Question 2
a.

Product costs – costs associated with getting stock into a position and condition for sale that can be logically linked to
each unit of stock. In the Invoice given, Cartage is considered a product cost as it can be linked to each individual
item of stock on a logical basis. Whereas period costs are costs associated with getting stock into a position and
condition for sale that can’t be logically linked to each unit of stock. In the Invoice, Insurance is considered a period
cost as it can’t be linked logically to each individual item of stock and relates to the delivery as a whole.

 1 mark for linked to each item of stock

 1 mark for Cartage as a product cost
 1 mark for not linked to each item of stock
 1 mark for Insurance as a period cost

b.

$300 + $5 Cartage = $305 unit cost of 1 Fittest Exercise Bike

 1 mark for correct calculation

c.

GST is a tax on goods and services sold. As such it represents an obligation of businesses to the ATO. Hence it is not
considered part of the cost of stock as it is not a resource controlled by the business that will bring future economic
benefit to the business, but a decrease to the GST Liability account

 1 mark for represents an obligation to the ATO

 1 mark for not providing an economic benefit to the business

d.

Once cost is determined a mark-up per unit is applied to determine the selling price of the stock. The mark-up in this
instance is 100%. As the cost price is $305 (from above, using product costing), then the selling price is $610 plus
GST. With 7 units sold, this would result in revenue of $4,270. Cost of Sales would be $2,135 and the Insurance of
$70 would be expensed. This would result in a profit on the sale of the Fittest Exercise Bikes of $2,065. However, if
the Cartage was also treated as a period cost, then the cost price of the stock would be $300 and the selling price
only $600. Revenue would be $4,200 and Cost of Sales would be $2,100. The total cost of the Cartage ($200) as well

16 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
as the Insurance ($70) would be expensed at this time, resulting in a profit of $1,830. Treating all costs as period
costs would result in a lower profit in situations where not all stock is sold.

 1 mark each for each COGS amount

 1 mark each for each Revenue amount
 1 mark for overall effect on profit

e.

Relevance – an accurate calculation for cost is important for decision making so that an appropriate mark up can be
applied to ensure expenses are covered and a net profit earned.

 1 mark for Relevance

 1 mark for calculation of mark up
 1 mark for covering expenses and earning Net Profit

Question 3
a.
Sales Journal
Date Debtor Inv. No Cost of Sales GST Debtors
2016 Sales Control
May 4 NOW Gymnasium EE61 2,280 4 560 456 5 016

 1 mark or first 4 columns

 1 mark for last 3 columns

Purchases Journal
Date Creditor Inv. Stock GST Creditors
2016 No. Control Control
May 8 GetFit Limited GF34 2900 290 3190

 1 mark for first 3 columns

 1 mark for last 3 columns
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
May 11 Sales Returns 1 140
GST Clearing 114
Debtors Control 1 254
Dr – NOW Gymnasium 1 254
Stock Control 570
Cost of Sales 570

 1 mark for Sales Returns/GST Clearing

 1 mark for Debtors Control/Dr – NOW Gymnasium
 1 mark for Stock Control
 1 mark for Cost of Sales

17 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
May 13 Creditors Control 627
Cr – GetFit Limited 627
Stock Control 570
GST Clearing 57
 1 mark for Creditors Control/Cr – GetFit
 1 mark for Stock Control/GST Clearing
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
May 17 Drawings 285
Stock Control 285
 1 mark for each entry
Cash Receipts Journal
Date Details Rec. Bank Disc. Debtors Cost of Sales Sundries GST
2016 No. Exp. Control Sales

May 22 Sales 68 1881 855 1710 171

1 mark for first 4 columns

1 mark for Cost of Sales/Sales/GST columns

General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
May 30 Stock Loss 290
Stock Control 290
 1 mark for each entry
b.
Stock card: Item – Elite Exercise Bike
BALANC
Date Details IN OUT E
Unit Total Unit Total Unit Total
2016 Qty Cost Cost Qty Cost Cost Qty Cost Cost

May 1 Balance 12 285 3420

May 4 Inv EE61 8 285 2280 4 285 1140

4 285
May 8 Inv GF34 10 290 2900 10 290 4040
6 285
May 11 CN 32 2 285 570 10 290 4610
4
May 13 CN 8 2 285 570 10 28290 4040
3 285
May 17 Memo 3 1 285 285 10 290 3755

May 22 Rec 68 3 285 855 10 290 2900

May 30 Memo 4 1 290 290 9 290 2610

 1 mark for each line of the Stock Card (except balance)
18 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 c.

May 11 – Sales Return. This will reduce revenue by $1 140 as well as reducing Cost of Sales by $ 570. However,
Revenue will decrease by more – an overall decrease in Net Profit of $570
May 17 – Drawings. This will have no effect on Net Profit as it is not an expense of the business.

 1 mark for reduction in revenue and CoS

 1 mark for overall decrease in Net Profit
 1 mark for recognition of Drawings
 1 mark for no effect on Net Profit

d.

May 11 - Item delivered was damaged/faulty

May 30 – Theft/recording error/undersupply by supply/Stocktake error

 1 mark for each valid reason

Question 4

a.

$6000 – Invoice cost plus installation

 1 mark for correct answer

b.
General Journal
Date Details General Ledger Subsidiary Ledger
2016 Debit Credit Debit Credit
Oct 1 Depreciation – Computer Equipment 90 1
Accumulated Depreciation –
90 1
Computer Equipment
Disposal of Computer Equipment 3 600 1
Computer Equipment 3 600 1
Accumulated Depreciation –
3 190 1
Computer Equipment
Disposal of Computer Equipment 3 190 1
Computer Equipment 6 000 1
GST Clearing 600 1
Sundry Creditor – Asious
6 600 1
Computing
Sundry Creditor – Asious Computing 300 1
Disposal of Computer
300 1
Equipment
Loss on Disposal of Computer
110 1
Equipment
Disposal of Computer
110 1
Equipment

 1 mark for each line in the General Journal

   

19 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 Cash Payments Journal
Ch Credito
Date qN Ban Disc. rs Stock Sundrie
2016 Details o. k Rev Control Control Wages s GST
Sundry Creditor –
Oct 1 Asious Computing 500 500

 1 mark for the entry as shown

c.

Carrying Value is the amount found from deducting Accumulated Depreciation from Historical Cost. As depreciation is
charged annually, this figure will change each reporting period – it will decrease. As depreciation is based on
estimates – estimated useful life and estimated residual value, depreciation cannot be accurate and so it is not
expected that Carrying Value will reflect the current market value of an asset at any given time. Carrying Value
doesn’t reflect the market value of the asset as the market value may be affected by supply, wear and tear on asset,
new models available.

 1 mark for how Carrying Value is determined.

 1 mark for carrying value changes each reporting period
 1 mark for depreciation based on estimates
 1 mark for factors that affect the value of an asset.

d.

Loss on Sale of Asset occurs when the proceeds from sale is less than the Carrying Value of the asset. This may be
because the asset may have been under depreciated as the estimate of life or residual value may have been
overstated. Depreciation is the allocation of the cost of the asset over its useful life. It matches the expense of the
asset against the revenue it helps to earn.

 1 mark for Proceeds less than carrying Value

 1 mark for over depreciation
 1 mark for allocation of cost over the useful life
 1 mark for matching revenue and expenses

Total 80 Marks

20 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 SOLUTIONS UNIT 4: MINI EXAM NO. 2
AREA OF STUDY 2
Total marks = 85

ERIN’S EXERCISE BIKES

Question 1

a.

Liquidity refers to the ability of a business to meet its short term financial commitments as they fall due in the short
term.
 1 mark for meet short term commitments
 1 mark for as they fall due

b.

Deteriorated as both ratios have declined over the period shown

c.

 A worsening Cash Flow Cover suggests an increase in Creditors or other Current Liabilities or a decline in Net
cash Flow from Operations.
 Taking out a short-term Loan or a slowing Creditors Turnover will increase Current Liabilities.
 A slowing Debtors Turnover or lower Cash Sales may mean a lower Net Cash from Operating Activities.

d.

If the decline in Cash Flow Cover is the result of the business borrowing more, then increased interest payments will
worsen profitability.
If the change in Cash Flow is due to a decline in cash sales or a worsening Debtors Turnover, revenue will fall and/or
Bad Debts may rise, worsening profitability.

e.

• Working Capital Ratio/Quick Asset Ratio

• Industry Average
• Budgeted and Variance Report

These ratios may show the business is able to meet its short term debts by comparing CA with CL or QA with QL.
Industry Averages may show that the business is performing better than other businesses in the same industry
Variance reports compare actual with budgeted figures – the variances may show that the business has performed
better than expected.

 1 mark for each measure identified.

 1 mark for each explanation.

21 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Question 2
a.
Debtors Control
Date Date
2017 Cross-reference Amount 2017 Cross-reference Amount
1 Jan Balance 18 000 31 Dec Bank 164 700
31 Dec Sales 150 000 Discount Expense 3 000
GST Clearing 15 000 Bad Debts 1 500
Balance 13 800
183 000 183 000

 1 mark for Opening Balance/Sales/GST Clearing

 1 mark for Bank
 1 mark for Discount Expense/Bad Debts
 1 mark for Closing Balance

Creditors Control
Date Date
2017 Cross-reference Amount 2017 Cross-reference Amount
31 Dec Bank 99 300 1 Jan Balance 24 000
Discount Revenue 7 000 31 Dec Stock Control 93 000
Balance 20 000 GST Clearing 9 300
126 300 126 300

 1 mark for Bank/Discount Revenue

 1 mark for Opening & Closing Balances

Stock Control
Date Date
2017 Cross-reference Amount 2017 Cross-reference Amount
1 Jan Balance 28 000 31 Dec Stock Loss 750
31 Dec Creditors Control 93 000 Drawings 2 000
Bank 55 000 Cost of Sales 149 250
Advertising 2 000
Balance 22 000
176 000 176 000
 1 mark for Cost of Sales
 1 mark for Drawings/Advertising
 1 mark for Bank/Creditors Control
 1 mark for Stock Loss

22 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
b.
Erin’s Exercise Bikes
Budgeted Cash Flow Statement for Year Ended 31 December 2017 [Extract]
$ $
Cash Flow from Operating Activities

Cash sales 148 500

Interest Revenue 2 000

GST Collected 14 850

Cash received from Debtors 164 700 330 050

Payments to Creditors 99 300

Wages (45 000)

GST paid (9 445)

Stock Control (55 000)

Prepaid Rent Expense (30 000)

Advertising (6 300)

Interest Expense (4 200)

Office expenses (9 450) 258 695

NET CASH FROM OPERATING ACTIVITIES 71 355

 1 mark Receipts
 1 mark for Payments to Creditors/Stock Control/GST Paid
 1 mark for Wages
 1 mark for Prepaid Rent/Office Expenses
 1 mark for Advertising/Interest Expense

23 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
c.
Erin’s Exercise Bikes
Budgeted Income Statement for Year Ended 31 December 2017
Revenue $ $

Cash sales 148 500

Credit Sales 150 000 298 500

Less Cost of Goods Sold

Cost of Sales 149 250 149 250

Gross Profit 149 250

Less Stock Loss 750

Adjusted Gross Profit 148 500

Add Other Revenue

Discount Revenue 7 000

Interest Revenue 2 000 9 000

157 500

Less Expenses

Rent Expense 29 000

Advertising 8 300

Wages 47 000

Discount Expense 3 000

Bad Debts 1 500

Depreciation - Equipment 8 000

Interest Expense 4 200

Office Expenses 9 450

110 450

Net Profit 47 050

 1 mark for Revenue

 1 mark for Cost of Sales
 1 mark for Stock Loss
24 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
  1 mark for Other Revenue
 1 mark for Discount Expense/Bad Debts
 1 mark for Advertising/Wages
 1 mark for Depreciation/Rent Expense
 1 mark for Interest Expense/Other Expenses

d.
Bank
Date Date
2017 Cross-reference Amount 2017 Cross-reference Amount
31 Dec Interest Revenue 2 000 1 Jan Balance 2 140
Debtors Control 164 700 Drawings 34 000
Sales 148 500 Wages 45 000
GST Clearing 14 850 Stock Control 55 000
Advertising 6 300
Loan – Eastpac 12 000
Creditors Control 90 000
Interest Expense 4 200
Other Expenses 9 450
Prepaid Rent 30 000
GST Clearing 9 445
Balance 32 515

330 050 330 050

 1 mark for Debit entries

 1 mark for Drawings/Wages
 1 mark Loan/GST Clearing
 1 mark for Stock Control/Creditors Control/Advertising
 1 mark for Interest Expense/Other Expenses/Prepaid rent

e.

Erin’s Exercise Bikes

Budgeted Balance Sheet as at 31 December 2017 [Extract]

Current Assets Current Liabilities

Debtors Control $12 300 GST Clearing $11 105
Stock Control $22 000 Creditors Control $20 000
Cash at Bank $32 515 Accrued Wages $ 2 000
Prepaid Rent Expense $5 000 Loan – Eastpac $ 8 000
$71 815 $41 105

• 1 mark for Cash at Bank

• 1 mark for Debtors/Stock Control
• 1 mark for Prepaid Rent
• 1 mark for Creditors Control
• 1 mark for Accrued Wages/Loan

25 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Question 3
Carrying Value is the amount found from deducting Accumulated Depreciation from Historical Cost. As depreciation is
charged annually, this figure will change each reporting period – it will decrease. As depreciation is based on
estimates – estimated useful life and estimated residual value, depreciation is unlikely to be accurate and so it is not
expected that Carrying Value will reflect the current market value of an asset at any given time. Carrying Value
doesn’t reflect the market value of the asset as the market value may be affected by supply, wear and tear on asset,
new models available.

 1 mark for how Carrying Value is determined.

 1 mark for carrying value changes each reporting period
 1 mark for depreciation based on estimates
 1 mark for factors that affect the value of an asset.

Question 4
a.

Item Budget Actual Variance F/U

$ $ $
Credit Sales 150 000 165 000 15 000 F
Debtors at End 12 300 21 500 9 200 F
Discount Expense 3 000 1 000 2 000 F
Discount Revenue 7 000 4 000 3 000 U

• 1 mark for each line of the report

b.

Debtors may not have taken advantage of the credit terms offered.
Credit terms are very tight and discount only 1% so many Debtors may not consider it worthwhile.
Poor cash flow may have meant the business was receiving cash slower and unable to take advantage of the discount
offered by suppliers.
Less credit purchases of stock – bought for cash to receive a reduced price.

 1 mark each for any valid reason for Discount Expense and Discount Revenue

c.

Discount Expense
If Debtors are not taking advantage of the discount offered then the business is incurring less expenses. This will lead
to a larger Net Profit and hence improved profitability.
However, if Debtors are not taking advantage of the discount offered, then there is no reason for them to pay
promptly. Hence our Debtors Turnover may slow meaning the businesses efficiency is worsening.
 1 mark for linking reason to profitability
 1 mark for linking reason to efficiency

Discount Revenue
If the business is buying stock for cash rather than credit then the business will have less Creditors. The business will
be spending a lot of cash on stock and may defer paying Creditors, worsening the Creditors Turnover and worsening
efficiency.
Also, by paying Creditors later the business is foregoing the Discount offered, losing revenue and worsening
profitability.
 1 mark for linking reason to profitability
26 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
  1 mark for linking reason to efficiency

d.

Budgets allow the business to plan for the future, setting targets and goals for the business. It helps the business
determine if their plans will be successful.
May improve decision making as business can see how plans may unfold and whether the business should go ahead
with plans.
Variance reports are useful for evaluating how well the business has done relative to their budget. They help to
identify areas of strength (or weakness) for the business, as well as showing areas for improvement.

 1 mark for budgets help planning.

 1 mark for setting targets
 1 mark for review of budgets
 1 mark for identifying strengths/weaknesses

Question 5
a.

Efficiency is the ability of the business to manage debtors, stock and creditors. It refers to the speed of the trading
cycle. It involves ensuring Debtors pay their accounts, that there is an adequate level and variety of stock and that
Creditors are paid in a timely manner.

 1 mark for manage Debtors, Stock and Creditors

 1 mark for Debtors paying promptly/adequate levels of Stock/Creditors paid promptly.

b.

Deteriorated

c.
Increased chance of Bad Debts which decreases net profit
Cash flow slows which may mean the business defers paying Creditors or needs to borrow money to meet short term
financial commitments

 1 mark for each reason provided

d.
Debtors Turnover – change credit terms. Offer 2% discount if payments received within 14 days. This will provide
more incentive for Debtors to pay in a timely manner. Also, reminder notices, follow up calls to encourage Debtors to
pay.
Stock Turnover – find a cheaper supplier. This will lower the cost of sales and allow the business to sell stock at a
lower price, thus generating more sales. Hold less stock and/or remove slow moving lines of stock.
Creditors Turnover – as Creditors Turnover is above Debtors Turnover and below Industry Average, the business does
not need to make any significant changes to its handling of Creditors.

 1 mark for each action linked to a measure.

 1 mark for each outline

27 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
Question 6
a.

Profitability refers to the ability of a business to generate a profit. It can be measured by comparing Net Profit against
items that contribute to the generation of profit – assets, sales, and owner’s investment.

 1 mark for ability to generate profit

 1 mark for compared to assets/sales/owners investment

b.

Improved
c.

The business made more profit in 2016 than 2016 – the ratios do not measure Profit, but rather the relationship of
Profit to another item. In this case, Sales may have declined, with Net Profit remaining stable. This would cause the
Net Profit Rate to improve, with no change to Net Profit. (Can discuss ROI or GP Rate).

 1 mark for ratios not measuring profit

 1 mark for reason why ratio may improve but not Profit

The business has a healthy cash position – profit and cash are different resources. A change in profit is not
necessarily mirrored by a similar change in cash. The business may earn a significant profit but large amounts of cash
Drawings, cash purchase of Non-Current Assets or repayments of a Loan will adversely affect the cash position.

 1 mark for cash and profit are different

 1 mark for reason why cash may decline despite a profit.

d.

Performance indicators assist the business in determining whether or not the business is operating efficiently and
providing an adequate return for the owner.
It also allows the business to set targets and plan and review their performance in relation to those targets.

 1 mark for assessing performance

 1 mark for setting targets and reviewing target performance

e.
Return on Assets or Industry Average

Question 7
At 31 December 2017 the accountant provided the following information to the owner:

2016 2017
Net Profit $45,800 $49,500

Net Profit Rate Net Profit 13% 11%

Sales

a.
Deteriorated

28 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS 
 b.

Net Profit may increase due to an increase in sales. The increase in sales may also lead to an increase in expenses.
The increase in expenses is greater in % terms than the % increase in sales [A 10% increase in sales and a 20%
increase in expenses]. This can lead to a higher Net Profit figure, but as a proportion of sales, net profit is lower.

1 mark for increase in sales

1 mark for increase in expenses
1 mark for % increase in expenses greater than % increase in sales
1 mark for outcome

Total 85 marks

29 
th
The CPAP Study Guide to VCE Accounting, 4  Edition (2013) by Vicki Baron and Simon Phelan SOLUTIONS TO MINI EXAMS