AF101: INTRODUCTION TO ACCOUNTING AND

FINANCIAL MANAGEMENT PART I

SCHOOL OF ACCOUNTING AND FINANCE

Final Examination
Semester 1, 2018

On-Campus & Online Mode

Duration of Exam: 3 hours + 10 minutes

Reading Time: 10 minutes

Writing Time: 3 hours

Instructions:

1. This paper has 2 sections. All questions are compulsory.

2. Answer all your questions in the answer booklet provided. Multiple Choice
questions to be answered on extra paper provided and attached to answer
booklet.
3. This examination comprises 50 % of overall mark.
4. There are 16 pages to this examination paper.
5. This is a closed book examination.
6. Materials allowed (Only calculator )
7. Assume GST of 10% in all GST related questions.
8. Relevant formulae is provided on page 16.
SECTION A MULTIPLE CHOICE QUESTIONS 25 MARKS
Answer in the ‘multiple choice grid’ provided by circling the correct answer.

[Suggested Time: 45 minutes]

1. Which statement relating to inventory is not correct?

a. It makes up a significant portion of a retailer’s assets

b. It is a very active asset, continually being acquired, sold and replaced
c. Another name for inventory is stock-in-trade
d. It is classified as a non-current asset in the balance sheet
2. MT Ltd sold goods to Hop Tiy Ltd for $3,300 including GST. Hop Tiy Ltd paid their account
within the discount period and received a settlement discount of 2%. Using the gross method
the entry in MT Ltd’s books to record the payment from Hop Tiy Ltd is:

a. Debit Bank $3,234, Debit Discount Allowed $60, Debit GST Payables $6; Credit
Accounts Receivable $3,300

b. Debit Bank $3,234, Debit Discount Allowed $66; Credit Accounts Receivable $3,300

c. Debit Bank $3,240, Debit Discount Allowed $60; Credit Accounts Receivable $3,300
d. Debit Bank $3,234, Debit Discount Allowed $66, Debit GST Payables $6; Credit
Accounts Receivable $3,306

3. Which of these is not an advantage of the perpetual inventory system?

a. Allows stock losses to be identified

b. A stock-take never has to be carried out

c. Allows cost of sales to be calculated at any time

d. Provides reordering information

4. Z, sold goods to X on credit at a price of $4,400 including GST. The entry to record this
transaction in Z’s books under either the perpetual or periodic inventory system is (ignore the
transfer to COS required under the perpetual system):
a. Debit accounts receivable $4,400, credit sales $4,400

b. Debit accounts receivable $4,000, credit sales $4,000

c. Debit accounts receivable $4,400; credit sales $4,000, credit GST Payable $400
d. Debit accounts receivable $4,000, debit GST Payable $400; credit sales $4,400

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5. Calculate purchases for 2017:
 Inventory 31/12/2016 $32 500
 Inventory 31/12/2017 34 000
 Cost of sales during 2017 $128 000

a. $126 500

b. $123 500

c. $129 500

d. $132 500

6. With the periodic inventory system what does the opening balance in the inventory account
represent?

a. Inventory on hand at the end of the previous period as determined by a physical stocktake
b. Inventory on hand at the end of the current period as determined by a physical stocktake
c. The book figure for current inventory adjusted for all purchases and sales
d. Inventory loss

7. Vaka Ltd uses a periodic inventory system with the specific identification method of cost
assignment.
Date Units Unit Cost

Beginning Inventory July 1 1000 10

Purchase 10 2000 11

Purchase 20 1000 13

On 25 July 500 units from beginning inventory and 1500 units from the 10 July purchase
were sold. What was the value of ending inventory at 31 July?

a. $10 500

b. $23 500

c. $26 000

d. $34 500

Page 3 of 16
8. Tutee Ltd uses the FIFO assumption with the periodic inventory method.
Units Unit Total

Cost Cost

Beginning Inventory 10 $10 $100

Purchase 10 $12 $120

Purchase 8 $9 $72

Sales during year were 14 units. What was the value assigned to the closing stock of this item at the
end of the period?

a. $84

b. $98

c. $108

d. $144

9. If inventory prices are rising the method of inventory valuation that gives the highest profit and
the highest ending inventory is:
a. Weighted average

b. Periodic method

c. FIFO

d. LIFO

10. The statement relating to the moving average method of costing inventories, used with the
perpetual inventory system, that is true is:
a. A new average cost is calculated after each sale and each purchase
b. A new average cost is calculated after each sale
c. A new average cost is calculated at the end of each month
d. A new average cost is calculated after each purchase

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11. These are the purchases and sales of Commodity C during the month of May. A perpetual
inventory system is used.
Balance on hand 1 May: 10 units @ $10 each.

Purchases:

May 3 10 units @ $12

May 12 6 units @ $13

May 25 12 units @ $10

Sales:

May 7 14 units

May 27 10 units

The value of the stock of Commodity C at 31 May using the FIFO method of costing
inventory is:

a. $140

b. $146

c. $168

d. $182

12. The inventory on hand at year-end for Nads Enterprises is:

Inventory Item No. of Units Original Unit Current Net Current

Cost $ Selling Price per Replacement
Unit $ Cost per Unit $
A 10 40 60 50
B 8 70 60 65

At what amount should Nads Enterprises report ending inventory if the lower of cost or net
realisable value rule is applied to individual items?

a. $880

b. $960

c. $1020

d. $1160

Page 5 of 16
13. Mikey uses a periodic inventory system and committed an error that understated inventory at the
end of Year One. If no further errors occur, at the end of Year Two:
a. Profit is overstated; equity is overstated

b. Profit is overstated; equity is correct

c. Profit is understated; equity is understated

d. Profit is understated; equity is overstated

14. LJ Company calculates that this year’s estimated bad debts expense will be $7500. When LJ
Company makes the adjusting entry the effect will be:
Bad Debt Allowance for Doubtful Debts Gross Accounts

Expense Receivable

a. No affect Increase Decrease

b. No affect Decrease No affect

c. Increase Increase No affect

d. Increase No effect Decrease

15. Trinity Ltd recorded sales of $180 000 during the year (net of GST). Of these, $80 000 were on
credit. Bad debts have averaged one half of one percent of credit sales. The entry to estimate bad
debt expense for the year is:
$ $

a. Bad Debts Expense 400

Allowance for Doubtful Debts 400

b. Bad Debts Expense 900

Allowance for Doubtful Debts 900

c. Bad Debts Expense 400

Accounts Receivable 400

d. Bad Debts Expense 900

Accounts Receivable 900

Page 6 of 16
16. On 31 December 2017 Sicuro Enterprises decided that it needed to finally write off as a bad
debt a receivable of $4400 (including $400 GST) from Simone Pty Ltd (in liquidation). If
Sicuro uses the allowance method the entry to achieve the write off is:
a. Debit Bad Debts Expense $4400; credit Accounts Receivable $4400

b. Debit Allowance for Doubtful Debts $4000, debit GST Payable $400; credit Accounts
Receivable $4400

c. Debit Bad Debts Expense $4400; credit GST Payable $400; credit Accounts Receivable
$4000

d. Debit Allowance for Doubtful Debts $4000; credit Bad Debts Expense $4000

17. The selling of accounts receivable as a means of quickly raising cash, minimising debt
collecting expenses and minimising bad debt losses is known as:
a. Debt factoring

b. Ageing of debtors

c. Establishing a bill receivable

d. Discounting

Use the information below to answer questions 18 - 20.

Kado Advertising’s Accounts Receivable is currently $213 200 with a balance in the allowance for
doubtful debts account of $430 Cr, before the adjustment at the year ended 30th June 2018 for debts
not expected to be recovered. Ignore GST.

Aged Schedule of accounts receivable at 30th June 2018

Accounts Receivable Estimated % Uncollectable

Not yet due $60 000 1.0%
1-30 days overdue 100 000 1.5%
31-60 days overdue 45 000 2.0%
Over 60 day overdue 8 200 15.0%

18. Using the Ageing (balance sheet) method calculate the closing balance in the Allowance for
Doubtful Debts account at 30th June 2018.
a. $600

b. $1 500

c. $900

d. $4 230

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19. Calculate the estimated bad debts expense for 30th June 2018 from the above information.
a. $4 230
b. $430
c. $3 800
d. $4 660
20. What will be the balance of accounts receivable that will appear in the balance sheet as at 30th
June 2018?
a. $213 200
b. $208 970
c. $212 700
d. $209 400
21. Mountainview car sales provides a one year labour and parts warranty with every car sold
and at the start of 2018 had a provision of $13 500 to cover warranty claims. On 30 March
2018 $4 600 was paid out for repairs for vehicles under warranty. The correct accounting
entry to record the payment of the claims is:

a. Debit warranty expense $4 600; credit provision for warranties $4 600

b. Debit provision for warranties $4 600; credit bank $4 600
c. Debit provision for warranties $4 600; credit warranty expense $4 600
d. Debit warranty expense $4 600; credit bank $4 600

22. Power Consultancy reports:

Total assets $ 950 000

Profit 30 000

Current liabilities 285 000

If current assets = 60% of total assets Power's current ratio is:

a. 1 to 2

b. 3 to 2

c. 2 to 1

d. 2 to 3

Page 8 of 16
23. The quick ratio (acid test ratio) reflects:
a. The belief that not all current assets can be liquidated immediately

b. The same information as the debt ratio

c. The relationship of quick assets to fixed assets

d. Management's reaction time to avoid losses

24. An increase in the inventory turnover ratio is normally considered to be favourable but could
be unfavourable if it means:
a. Inventory is less likely to become obsolete
b. Liquidity is greater
c. The firm not carrying enough inventory to meet its customer’s needs
d. Storage costs of inventory are lower

25. Leverage measures:

a. Whether the firm can pay its current liabilities

b. Profit as a portion of equity

c. Whether the firm can pay its long-term liabilities

d. The proportion of borrowed funds compared to equity

~ Continue to Section B~

Page 9 of 16
SECTION B PROBLEM SOLVING QUESTIONS 75 MARKS
_____________________________________________________________________________________

--- Clearly show ALL workings done for Questions 26 - 28

QUESTION 26 NON-CURRENT ASSETS 30 MARKS

PART A: DEPRECIATION, DISPOSAL & OVERHAUL 16 MARKS

The Accounting Department purchased a new photocopying machine on 1 January 2016.

 The amount shown on the invoice was $10,000.

 In addition, the department incurred transportation costs of $1,500 and constructed a
special stand for the machine, costing $500.
 The supplier indicated that the machine could be used for 3 years and traded-in for
$3,000 at the end of the 3rd year.
 Ignore GST.

Required:

i. Using the Sum of Years Digits method, calculate depreciation for 31 December 2016 and
2017.
[3 marks]

Assume, the machine was sold for $4,500 on 30 April 2018 and payment was received by
cheque.

ii. Calculate Depreciation expense for 2018.

[2 marks]
iii. Show all journal entries relating to the disposal of the machine.
[5 marks]
iv. Calculate the Gain or Loss on disposal.
[1 mark]

Instead of selling the machine, the department could have conducted a major overhaul
costing $2 000 on 31 December 2017. This would have extended the life of the asset to the
end of 2019. Assume, the straight-line method of depreciation is used.

v. Show all relevant journal entries at 31 December, 2017.

[5 marks]

[Suggested Time: 29 minutes]

Page 10 of 16
PART B: REVALUATIONS 14 MARKS

Vaka Ltd has disclosed the following non-current asset classes as at 30 June 2018:

Machinery $420 000

Less: Accumulated depreciation 180 000 $240 000
Buildings $800 000
Less: Accumulated depreciation 240 000 $560 000

At 1 July 2018, the directors of Vaka Ltd decide to adopt the revaluation model and revalue the
non-current asset classes to the following fair values:

Machinery $ 200 000

Buildings 720 000

Required:

(i.) Prepare general journal entries to record the revaluations, including any closing entries at
the end of the reporting period.
[10 marks]

(ii.) One of the directors was not clear how did the company come up with the fair values of
the non-current assets and why can’t the company just value few of the non-current
assets using fair value instead of applying it to all.
Explain.
[4 marks]
[Suggested Time: 25 minutes]

Page 11 of 16
 QUESTION 27 20 MARKS

PART A: COMPANIES 12 MARKS

Listed below are selected journal entries for White Company Ltd. Use them to answer the
questions that follow.

2017
June 1 Dr. Cash Trust 3 300 000
Cr. Application 3 300 000
(1 100 000 shares)

July 1 Dr. Application A

Cr. B A
(1 000 000 shares)

Dr. Allotment 1 500 000

Cr. B 1 500 000

Dr. Application C
Cr. D C
( D )

Dr. Cash E
Cr. Cash Trust E

July 30 Dr. Cash F

Cr. Allotment F

(i.) What is the value of A? [1 mark]

(ii.) Name the account labelled B. [1 mark]
(iii.) What is the value of C? [1 mark]
(iv.) What account should be credited in D if narration reads “Refund all excess Cash on
Application to unsuccessful applicants”? [Show workings] [2 marks]
(v.) What is the value of E, assuming excess Cash is refunded to unsuccessful applicants?
[1 mark]
(vi.) What is the expected value of F, assuming all applicants receive some shares and excess
cash is not refunded? [1 mark]
st
(vii.) On 1 November, the Directors called up the $0.50 remaining on each share. Only 95%
of the Call Money was received by December 31.
Show the journal entries to record these transactions. [4 marks]
(viii.) What is the value of each share?
[1 mark]
[Suggested Time: 22 minutes]

Page 12 of 16
PART B: RATIO ANALYSIS 8 MARKS

White Company Ltd.’s Profit for the first financial year is $400 000. The company’s shares are
now being traded at $6.00 each. [Use the information provided in Part A]

(i.) Record the journal entry to provide a final dividend of 15 cents per share on July 31,
2018.
[2 marks]
(ii.) Calculate the Dividend Payout Ratio and provide a one sentence interpretation.
[2 marks]
(iii.) Calculate the Dividend Yield Ratio and provide a one sentence interpretation.

[2 marks]

(iv.) Calculate the Earnings Per Share and provide a one sentence interpretation.
[2 marks]

[Suggested Time: 14 minutes]

Page 13 of 16
QUESTION 28 25 MARKS

PART A: STATEMENT OF CASH FLOWS 16 MARKS

Selected information for Forest Green Ltd is shown below. Use it to answer the questions that
follow.

2018 2017
$ $
Credit Sales 1 250 000
Discount Received 32 000
Cost of Goods Sold 687 000
Operating Expenses 243 000
Income Tax Expenses 27 000

Cash 479 000 249 000

Accounts Receivable 140 000 152 000
Inventory 73 000 68 000
Prepaid Expenses 28 000 25 000
Accounts Payable 63 000 51 000
Expenses Payable 11 000 17 000
Taxes Payable 6 000 5 000

Note Operating Expenses include Depreciation of $30 000 and Discount Allowed of $20 000.

(i.) Calculate the value of Inventory Purchases during 2018.

[2 marks]
(ii.) Calculate payments to Inventory Suppliers in 2018.
[2 marks]
(iii.) Calculate the value of cash received from customers in 2018.
[2 marks]
(iv.) What was the value of payments for Operating Expenses during 2018?
[3 marks]
(v.) What was the value of payments for Income Tax Expenses in 2018?
[2 marks]
(vi.) Calculate and show the ‘Cash flows from Operating Activities’ section only.
[5 marks]

[Suggested Time: 29 minutes]

Page 14 of 16
PART B: LIABILITIES 9 MARKS

For each part of the following questions, write a short paragraph of up to 4 to 6

sentences.

29. Preference shares are often deemed to be financial 6 marks

liabilities of an entity rather than part of its equity.

Explain whether you agree or disagree with the statement

above in line with the liability definition and recognition
criteria in the Conceptual Framework of Accounting.

30. Define ‘Provisions’ and provide one example. 3 marks

[Suggested Time: 16 minutes]

~ The End ~

Page 15 of 16
 Relevant Formulae

1) Profit Margin = Profit (after income tax)

Revenues

2) Current ratio = Current assets

Current liabilities

3) Quick ratio = Cash assets + Receivables

Current liabilities

4) Debt ratio = Total liabilities

Total assets

5) Dividend Yield = Dividend per share

Market price per share

6) Dividend Payout = Total Dividends

Profit

7) Earnings per share = Profit____________

No. of shares issued

Page 16 of 16