OFFICE USE ONLY

Semester Two 2015

Examination Period
Faculty of Business and Economics
Department of Accounting
EXAM CODES: ACC2851 / ACF2851

TITLE OF PAPER: Accounting Information Systems and Financial Modelling –

PAPER 1

EXAM DURATION: 3 hours writing time

READING TIME: 10 minutes

THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable)

 Berwick Clayton  Malaysia  Off-Campus Learning  Open Learning
 Caulfield  Gippsland  Peninsula  Enhancement Studies  Sth Africa
 Parkville  Other (specify)

During an exam, you must not have in your possession, a book, notes, paper, electronic device/s, a
calculator, pencil case, mobile phone, smart watch/device or other material/item that has not been
authorised for the exam or specifically permitted as noted below. Any material or item on your desk, chair
or person will be deemed to be in your possession. Possession of unauthorised materials, attempting to cheat,
and cheating in an exam are discipline offences under Part 7 of the Monash University (Council) Regulations.

No exam paper or other exam material is to be removed from the room.

AUTHORISED MATERIALS

OPEN BOOK  YES  NO

CALCULATORS  YES  NO
(If YES, only calculators with an 'approved for use' Faculty label are permitted)

SPECIFICALLY PERMITTED ITEMS  YES  NO

If yes, items permitted are:

This paper consists of twenty (20) multiple choice questions and five (5) sets of short answer questions
printed on a total of thirteen (13) pages. Students must attempt to answer ALL questions.

Candidates must complete this section if required to write answers within this paper.

STUDENT ID: ___ ___ ___ ___ ___ ___ ___ ___ DESK NUMBER: ___ ___ ___ ___

PLEASE CHECK THE PAPER BEFORE COMMENCING. THIS IS A FINAL PAPER. THIS EXAMINATION

ACC2851 / ACF2851 Page 1 of 12

 Part B – Short Answer Questions (75 marks)
Question B1

Read the case below and then answer the questions using the ethical analysis
framework used throughout the semester

You are the Financial Controller for a medium-sized wholesaler of electrical goods. The
‘Days Inventory on Hand’ report that one of your staff prepares each month for senior
managers shows a significant number of products that are not currently selling, and which
have not sold in the past 9 months. The book value of these items is approximately one
third of the total value of stock, and so is a significant amount. Further investigation has
revealed that the products are obsolete and will never be sold. According to the relevant
accounting standard (IAS 2), inventories must be valued at the lower of cost and net
realisable value. Because the stock in question is obsolete, it therefore needs to be written
down to scrap value and disposed of.
However, the owners are trying to sell the company, and the managing director (who is one
of the owners) has told you to value the stock at cost in the year end accounts and delay
revaluation and disposal until the next financial year, which is seven months away. You are
sure that the managing director wants the financial statements to carry an inflated stock
valuation and profit figure because he has found a prospective buyer. The buyer has no way
of knowing that the stock in question is obsolete without a detailed inspection, which the
managing director is unlikely to permit. The managing director has told all employees that,
if the proposed deal is successful, everyone will keep their job and receive a salary bonus.
Any employee who hinders the sale in any way, however, will be dismissed and sued for
damages.
a) What is the ethical issue?
b) Which parties (stakeholders) may be harmed?
c) Which specific interests are in conflict?
d) What are the options and what are the consequences of each option?

(2 + 2 + 6 + 10 = 20 marks)
Question to ask Decision
a) What is the 1. Recognise the ethical issue or dilemma.
ethical issue? Award 2 marks for something similar to either of the
(2 marks) points below:
The managing director wants the Financial Controller to
inflate the value of the company, effectively falsifying
records, by not revaluing inventory on a timely basis.

Management has a legal and moral responsibility to provide a

true and fair report of the organisation, particularly to inform
current and potential shareholders who are putting their
scarce capital at risk by investing in the business. Private
market-sensitive information (i.e. information that will affect
the value of the investment) held by managers should be
disclosed as quickly as possible, and executives must not
profit from any failure to disclose.

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b) What parties Any four from the list below (½ mark each)
(stakeholders)
• You (the financial controller)
may be harmed?
• The managing director
(2 marks)
• Employees
• New Shareholders
• Financiers
• Board of Directors
• Accounting body
c) Which specific Any three from the list below (2 marks each)
interests are in The managing director’s desire to maximise the value of the
conflict? company prior to its sale, and possibly the desire of
(6 marks) employees to receive a salary bonus conflicts with
(i) The Financial Controller’s professional obligations. To
deliberately not make a necessary revaluation of
inventory on the balance sheet and therefore overstate
net profit for the year is dishonest and unethical; it
contravenes most of the fundamental principles of the
Code of Ethics for Professional Accountants: Integrity,
Objectivity, Professional Competence and Due Care, and
Professional Behaviour.
(ii) The rights of prospective owners and financiers to a true
and fair view of the company,
(iii) The rights of prospective owners and financiers to be
updated with information that has a material effect on
the value of the company
(iv)The MD’s desire to sell the business. Failure to disclose
may constitute grounds for the purchaser rescinding the
sale contract

d) What are your Five marks for each alternative up to a max of 10

options and what marks. Alternatives (not exhaustive)
are the
consequences? 1. Follow professional standards. Advise the managing
(10 marks) director that you have a professional obligation to revalue
inventory consistent with IAS2. If the MD insists on
withholding the inventory write-off adjustments, your only
option may be to resign.

2. Delay the revaluation. This may be grounds for a

professional standards complaint, and may also create an
impediment to the sale of the business. However, it is also
possible that the purchaser has no legal recourse when the
incorrect valuation is discovered. Employees may receive a
bonus if the MD’s promise is to be believed (but it is unclear
why the owners would pay a bonus to employees from the
proceeds of the sale, and the MD’s behaviour casts doubt on
the likelihood of this promise being kept). The MD cannot
promise job security once the business is sold.

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Question B2
In what aspects of the selection, purchase, and implementation process for an Enterprise
Resource Management (ERP) system is an accountant likely to provide a useful
contribution? Provide at least four (4) separate points in your answer.
(4 marks)
The accountant is a key information user of an ERP, and so should provide input into the
selection process to ensure that the system is capable of providing the information needed
to run the business effectively.
As a user, the accountant should also be involved in the testing process to ensure that the
system processes transactions as expected
Answers might be more specific about the role of the accountant in selection
• The financial accountant can provide information about how to configure the
ERP to reflect the ownership or organisational structure of the business
• The management accountant can ensure that the system supports the costing
methods needed
• The systems accountant can configure business processes and ensure that
appropriate internal controls are in place
• The internal auditor can ensure that appropriate controls are in place
Should be involved in cost-benefit analysis prior to purchase
Should monitor implementation costs to ensure the process does not get out of control
Has a role in ensuring the necessary application controls are built into the new system
Will be overseeing the processing activities of the new system

With these responsibilities, the accountant must be actively involved in the computer
acquisition process. The accountant's role is probably best carried out by participating on a
team or committee together with computer experts, systems analysts, production
personnel, engineers, managers, and others whose functions are closely related to the
information systems activity.

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Question B3

Please read the scenario below and answer the questions that follow.

Otel Company, which assembles and supplies office telephones to businesses in Clayton and
Caulfield, has recently changed its production process from Materials Requirements
Planning (MRP) to Just In Time (JIT). The majority of Otel’s customers want custom features
on their office phones, and management was expecting that the production system change
would reduce the amount of finished goods inventory on hand.

Following the change-over, the management accountant has reported that scrap and
finished goods inventory on hand have decreased, but warehouse and manufacturing costs
have increased. Increased costs have been traced to three main problems:
• the number of assembly line setups has increased;
• material, labour hour, and machine hour variances (all unfavourable) have increased;
• to provide a faster response to customer requests, the production manager has doubled
the stock of parts on hand.
Having a large parts inventory is a problem because the parts are mainly high-cost
electronic components. To manage this resource, the following procedures are in place:
• Parts are kept on shelves in a corner of the assembly area to allow fast and easy access.
The exact number of each type of part required for an order is taken directly from the
shelves by the production supervisor just before assembly begins. In the event that
parts are left over, they are returned to the shelves after assembly is completed.
• Whenever a part is used in production, a purchase requisition is produced by the
production supervisor for the quantity used. Based on the requisition, the accounts
payable clerk prepares a purchase order for each item on the list and emails it to the
supplier from whom the part was last purchased.
• The storeroom clerk receives the ordered materials upon their arrival. The clerk counts
all items and verifies that the count of each item agrees with the quantities on the bill of
lading. The bill of lading is then initialled, dated, and filed in the storeroom to serve as a
receiving report.

Required
a. Recommend and briefly explain the operation of three (3) control plans to address
problems with the JIT process. Each control plan must be different, and may be
designed to reduce the amount of stock on hand or improve the efficiency of the JIT
manufacturing process.

Stock-related controls
o Only bring in stock in response to a confirmed order. Under a JIT system,
inventory holdings should be close to zero because the system responds to
orders received rather than forecast orders. Holding a large amount of parts
inventory is contrary to the underlying principles of JIT

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o Vendor managed inventory:

MANUFACTURERS BENEFITS:
• Visibility of the Distributor’s usage data makes forecasting easier.
• Promotions can be more easily incorporated into the inventory plan.
• A reduction in Distributor ordering errors (which in the past would probably
lead to a return)
• Visibility of Stock Levels helps to identify priorities (replenishing for stock or
a stock-out?). Before VMI, a manufacturer has no visibility of the quantity and
the products that are ordered. With VMI, the manufacturer can see the
potential need for an item before the item is ordered.
• Data entry errors are reduced due to computer to computer communications.
Speed of the processing is also improved.
• Both parties are interested in giving better service to the end customer.
Having the correct item in stock when the end customer needs it, benefits all
parties involved.
• Stabilize the timing of Purchase Orders - PO's are now generated on a
predefined basis.
o Select suppliers on the basis of re-stocking time. The most effective suppliers are
those who offer products or services that match - or exceed - the needs of your
business. For example, if you want to cut down the time it takes you to serve
your customers, suppliers that offer you faster delivery will rate higher than
those that compete on price alone.
o Re-engineer/redesign products so that they use fewer parts (i.e. design for
manufacturability or design products in such a way that they are easier to
manufacture). This improves efficiency directly because fewer parts need to be
assembled, and indirectly because there are fewer parts that can fail.
o Institute total quality control procedures. Scrap and rework are major drains on
efficiency. Reducing the defect rate will improve most efficiency measures.

Many controls over manufacturing to improve efficiency are possible, including the
following:
o Limit Check - Production Quantity
o Field Check - Production Date
o Field Check - Quantity
o Completeness Test - Each Record
o Separate production lines
o Using a U shaped production process as described in the tutorial case
The idea of these controls is to limit the amount of time wasted on simple mistakes
such as miscounting the number of items to produce in a batch.

b. For each of the three (3) inventory management procedures described in the scenario,
identify the underlying problem and recommend a different control plan to address
the problem.

Identify problem: 2 marks

Solution: 2 marks
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1. Parts are kept on shelves in a corner of the assembly area to allow fast and easy
access.
P: There seems to be little or no restriction on physical access to inventory.
S: Only warehouse personnel should have access to inventory.
P: That parts are sometimes left over suggests a lack of control over how many parts are
used. It is possible that required parts are not being incorporated into products.
S: No parts should be left over following assembly as a check that all parts required
have been used (and therefore the all items have been assembled correctly)

2. the accounts payable clerk prepares a purchase order for each item on the list and
emails it to the supplier from whom the part was last purchased
P: Vendor selection is based on convenience and no there is no effort to ensure that prices
are competitive or that quality is maintained.
S: It is not reasonable to obtain quotes for every purchase, but there needs to be some
systematic method for selecting the vendor that will best meet organisational needs,
otherwise the purchasing process can easily become uncompetitive or the basis for fraud.
P: There is a lack of segregation of duties in vendor selection and payment. Vendor
selection and vendor payment should not be performed by the same person.
S: These duties should be separated to ensure that the type of problem mentioned in the
previous paragraph does not occur.

3. The storeroom clerk receives the ordered materials upon their arrival. The clerk
counts all items and verifies that the count of each item agrees with the quantities on
the bill of lading.
P: Having access to the bill of lading creates expectations about the quantity that should
be present and can lead to miscounting.
S: The bill of lading should be blinded to ensure an independent count.

(12 + 9 = 21 marks)

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Question B4
A B C D E F G H I

1
Weekly Employee Timesheet
2 Accountant Educators Inc. Employee Number: 184479
3 Moneywell Building Employee Name: Andrew Luu
4 21 Erstwhile Street Supervisor Name: Gerry Mclean
5 Caulfield, VIC 3145 Week of: 25/07/2011
6 +613 99034569
7 [42]
8 Hours claimed
Unpaid
Day of Week Regular Overtime Sick Vacation Service Other TOTAL
9 Leave
10 Mon 7/25 8.00 8.00
11 Tue 7/26 8.00 0.43 8.43
12 Wed 7/27 8.00 8.00
13 Thu 7/28 8.00 8.00
14 Fri 7/29 8.00 8.00
15 Total Hrs: 32.00 0.43 8.00 0.00 0.00 0.00 0.00 40.43
16

17
18 29/07/2011 29/07/2011

19 Employee Signature Date Supervisor Signature Date

Figure 1: Sample employee timesheet as it appears in the spreadsheet application

Control goals of the

Control goals of the operations process information process
Ensure timely Ensure
payments Ensure efficient security of
Recommended control (effectiveness use of resources resources
plans of operations) (people and IT) (funds, data) IV IC IA UC UA
P1 Enter time data close
P1 P1 P1 P1
to source activity
P2 Reject out-of-range
hour data and incorrect P2
employee IDs
P3 Use of batch totals P3 P3
P4 Approval of job time
P4 P4
and attendance data
P5 At least one source
document must be cross-
P5 P5
referenced in each entry
to the payroll register.
IV Input validity UC Update completeness
IC Input completeness UA Update accuracy
IA Input accuracy
Figure 2: Partial control matrix for the timesheet data collection activity

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Required
The Control matrix in Figure 2 shows five of the control plans that can be used to manage
the payroll process and indicates which control goals each helps to achieve.
(a) Explain why control plan P1 ensures completeness and accuracy but does NOT ensure
input validity.
Entering close to the activity helps to ensure that data is complete and accurate because
details are less likely to be forgotten when entered immediately. Entering close to the
activity also means that data is entered just once by someone connected with the event,
and that connection means that errors are more likely to be detected and corrected
immediately. Because forms are not transported to a data entry location, there is less
risk that data will be lost.
(2 marks)
Just because an event has been recorded does not mean it occurred or was authorised
(i.e. may not be a valid event).
(1 mark)
(b) How does control plan P3 ensure that updates are complete and accurate?
Provide an example in your answer.
A batch total is a control total to ensure that all data has been entered into the computer
and that the data entry is accurate. For example, using employee number as a hash total
will ensure that all IDs are entered and that data entry is accurate if the manually
calculated total agrees with the total of the data actually entered.
(2½ marks for definition, 2½ for example)

(c) Justify how control plan P4 helps to ensure that pay claims are valid and that the data
on the timesheets is accurate.
Approval of job time and attendance data should only be given for claims that are valid.
The approver needs to be someone who can verify that the event took place.
If the data needs to be approved, then it is likely that any claim will be for work that was
required and actually took place.
Approval also involves checking data before it is sent through.
(3 marks)
(d) The timesheet in Figure 1 is an Excel spreadsheet. Describe two (2) methods that could
help to ensure that data input into the hours claimed cells is accurate (control goal P2).
Automated data capture through an electronic timesheet system
A limit check on each cell or even the total hours worked via the data validation
command to flag/prevent out-of-range or excessive amounts. For example, the
comparison could be with award or normal hours
A comparison with contracted hours
(4 marks)
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(e) If cells AA1:AC30 on the same sheet as the timesheet contain a list of employee IDs (AA),
employee names (AB), and the name of the employee’s supervisor (AC), show a function
that can make use of that data to automatically place a value in Cell G4 of the timesheet
based on the value entered in Cell G2.
=INDEX(AB1:AB30,MATCH(G2,AA1:AA30,0),1)
1 1 1 1 1 optional
= VLOOKUP( G2, AA1:AC30, 2, False)
1 1 1 1 1
(3 + 5 + 3 + 4 + 5 = 20 marks)

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Question B5
A B C D E F G H I

1
Depreciation Schedule 2017 Monthly Depreciation
Purchase Useful End of Salvage
2 Asset date Life (yrs) Useful Life Cost Value Jan-17 Feb-17 Mar-17
3 IT equipment 30-Jun-14 3 29-Jun-17 $3,900 $300 $100 $100 $100
4 Filing cabinet 01-Mar-13 4 28-Feb-17 $40,000 $5,000 $729 $729 -
5 Switchboard 01-Feb-17 25 31-Jan-42 $200,000 $0 - $667 $667

6 Car park signage 01-Sep-17 15 31-Aug-32 $5,000 $0 - - -

7 Delivery Truck 01-Nov-07 10 31-Oct-17 $71,000 $5,000 $550 $550 $550
Figure 3: Depreciation schedule spreadsheet

The spreadsheet shown in Figure 3 is a partial depreciation schedule for five assets.
Points to note about this schedule:
• All assets are depreciated using the straight line method. The formula to calculate
(𝐶𝑜𝑠𝑡−𝑆𝑎𝑙𝑣𝑎𝑔𝑒)
the monthly depreciation charge is: 𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 ×12 .
• The dates in columns B and D are numbers formatted as dates (not text) and so can
be compared using standard comparison operators (e.g. 30-Jun-14 is less than 29-
Jun-17). The dates in Row 2 (G2:I2 shown) are also numbers but formatted to show
only month and year.
• A depreciation charge is only made if the month in the relevant column of Row 2 is
on or after the purchase date, and before the end of the asset’s useful life.

Show the formula for monthly depreciation in Cell G3. The formula should be constructed
so that it can be copied to other cells without modification.

Any one of these formulas or the equivalent is worth full marks. Mark the conditional logic
and the depreciation formula separately. The depreciation formula is provided so you are
just assessing whether the student can translate the formula into Excel format.

There are too many variants on the correct answer to list them comprehensively here.

Be particularly careful when marking the conditional logic. Students often leave out one or
both of the IF result parameters. That actually still works here. Deduct one mark because it
is not ideal, but it is not strictly incorrect.

Note that you only need the Boolean functions or the comparisons for the calculation to
work so it is possible that an answer might be strange but still work.
Half marks for nearly correct parts that don’t work. E.g. slight mistake on the IF that is
actually wrong

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=IF(AND(G$2>=$B3,G$2<=$D3),1,0)*($E3-$F3)/($C3*12)
=IF(OR(G$2<=$B3,G$2>=$D3),0,1)*($E3-$F3)/($C3*12)
=IF(G$2>=$B3,IF(G$2<=$D3,1,0),0)*($E3-$F3)/($C3*12)
=AND(G$2>=$B3,G$2<=$D3)*($E3-$F3)/($C3*12)
=OR(G$2<=$B3,G$2>=$D3)*($E3-$F3)/($C3*12)

IF
Correct lower date range test (G2>=B3) 2 marks
Correct upper date range test (G2<=D3) 2 marks
Nested IF or IF(AND()) or IF(OR())) or other that works 2 marks
Correct mixed references on row 2 (i.e. $G2) 1 mark
Correct mixed references on columns B and D ($B3, $G3) 1 mark

Depreciation
(E3-F3)/(C3*12) or equivalent 1 mark
Correct mixed addressing ($E3-$F3)/($C3 1 mark
(10 marks)

END OF EXAMINATION

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