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Session 2402: Unit 3 Exam feedback Neville Box Victoria University Secondary College

Session 2402: Unit 3 Exam feedback Neville Box Victoria University Secondary College. Q1a GJ entry to commence double entry Ave. mark 1.7 / 4 Zero marks 24%. General journal. 1 1 1 1. Common errors:

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Session 2402: Unit 3 Exam feedback Neville Box Victoria University Secondary College

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  1. Session 2402: Unit 3 Exam feedback Neville Box Victoria University Secondary College

  2. Q1a GJ entry to commence double entry Ave. mark 1.7 / 4 Zero marks 24% General journal 1 1 1 1 • Common errors: • Including the “Bank overdraft facility” as a liability • Omission of the subsidiary ledger account • Omission of the Capital account • Using historical cost rather than agreed value for the computer

  3. Q1b Explain, with reference to one principle and two QCs, the issues involved in the valuation of the computer.Ave. mark 1.4 / 3 Zero marks 29% • Usually NCAs are values at HC, which is the original cost at the time of purchase. • However, the owner bought the computer privately and HC is not the value when it was contributed. • The future economic benefit of the asset should be considered as it is more relevant. • Agreed value does not, however, satisfy reliability as there is no supporting document. • Note: some students prepared excellent responses and cited either Entity or Conservatism

  4. Q1c With reference to the definition of a liability, explain how the bank overdraft would be treated.Ave. mark 1.3 / 2 Zero marks 23% A liability requires a present obligation of future outflow of economic benefits. As the bank overdraft has not yet been used, no liability exists. The overdraft facility simply represents an ability to withdraw funds from the bank in the future if needed by the business. Common error: Despite omitting the overdraft in the general journal, some students stated in this question why it is a liability.

  5. Q2a Calculate the missing figures in the CRJ and record these amounts.Ave. mark 1.2 / 2 Zero marks 28% Cost of sales: 9000 x 100/150 = 6000 Sundries: 26000 = 11100 + 9000 + 900 + 5000 Common errors: • 50% mark-up: some students simply divided the selling price by two, thus applying a 100% mark-up • Some students correctly determined one or both amounts but failed to record these amounts in the journal

  6. Q2b Record the additional transactions in the journals providedAve. mark 1.5 / 3 Zero marks 28% Cash receipts journal (extract) • Common errors: • Recording 3300 in the Bank column • Incorrectly calculating discount expense • Omitting the discount completely • Incorrect titles e.g. Debtors control • Recording GST on the amount received

  7. Q2b Record the additional transactions in the journals providedAve. mark 1.5 / 3 Zero marks 28% Cash payments journal • Common errors: • Recording 8250 in the Sundries column and 825 in the GST column • Incorrect titles e.g. Rent expense

  8. Q2b Record the additional transactions in the journals providedAve. mark 1.5 / 3 Zero marks 28% Sales journal • Common errors: • Recording incorrect amounts for Cost of sales and Sales • Incorrect titles e.g. Debtors control

  9. Q2c Complete the Creditors control and Stock control accounts. Balance the accounts.Ave. mark 2.2 / 4 Zero marks 27% Creditors control • 1 mark 1 mark • Common errors: • Rather than Bank, some students used Bank/Discount revenue • Incorrect posting date (end of month must be used) • Incorrect balancing procedures lost 1 mark

  10. Q2c Complete the Creditors control and Stock control accounts. Balance the accounts.Ave. mark 2.2 / 4 Zero marks 27% Stock control • 1 mark 1 mark • Common errors: • Rather than two Cost of sales entries, some students combined the two entries into one • Incorrect titles: Creditors control must always be used • Incorrect balancing procedures lost 1 mark

  11. Q2d Explain how part of the rent payment will be reported in the balance sheet. Justify your explanation.Ave. mark 2.5 / 4 Zero marks 20% • $5000 would be reported as Prepaid rent expense under the heading of current assets. Not all rent has been used in the current reporting period. It still has future economic benefits for the business and it’s expected to be used up within 12 months. Common errors: • Insufficient detail, given that the question was allocated four marks in total

  12. Q2e Discuss arguments for and against Shade Designs using control accounts.Ave. mark 1.7 / 5 Zero marks 37% • Unnecessary detail is removed from the general ledger • Preparation of the balance sheet is easier as there is only one account • A checking mechanism is provided whereby the control account is checked against the subsidiary ledger • Separation of duties is achieved which reduces the likelihood of fraud • As Shade Designs only has one supplier there is little point in maintaining a control account for Creditors. Common error • Lack of detail, with many answers having 2 short points

  13. Q3a Stock card under FIFOAve. mark 4.7 / 5 Zero marks 3%

  14. Q3b Prepare GJ entries for Memo 6 & 9.Ave. mark 2.5 / 3 Zero marks 9% General journal 1 mark for Drawings, 1 for Advertising and 1 for the two credits to Stock control Common error: making an entry based on the wrong memo in the stock card

  15. Q3c Calculate the adjusted gross profit made on the Jazz 16GB USB for June.Ave. mark 1.9 / 3 Zero marks 21% Sales 100 x 20 = 2000 68 x 22 = 1496 3496 1 mark • Cost of sales 1100 + 784 1884 1 mark Gross profit 1612 • Stock loss 60 1 mark Adjusted gross profit 1552 Common errors: - Including the drawings of stock and the cost of stock used for advertising

  16. Q3d Explain why it is necessary for businesses to use a cost assignment method.Ave. mark 0.6 / 2 Zero marks 54% • It may not be possible to identify the actual cost price of each stock item • A cost assignment method may therefore have to be used to determine the cost of sales for a period. This has to be done in order to determine a gross profit for the period Common errors: • FIFO is used so that the oldest stock is sold first. • Cost assignment methods are used so that stock does not go off.

  17. Q3e Explain the effects on the Income Statement if Memo 9 were not recorded.Ave. mark 1.3 / 3 Zero marks 29% • Advertising expense would be understated. However, as the stock has been used it will not be counted in the physical stocktake and therefore a stock loss would be revealed. This means that net profit will be unaffected, as advertising would be understated, but stock loss would be overstated.

  18. Q4a Calculate the cash paid for advertisingAve. mark 0.5 / 2 Zero marks 69% (2 x 1200) + (10 x 1440) = 2400 + 14400 = 16800 1 mark for each of the two calculations Common errors: Students made calculations for 13, 14, 15 and even 18 months!

  19. Q4b Calculate the advertising expense for the yearAve. mark 0.4 / 2 Zero marks 74% (3 x 1200) + (9 x 1440) = 3600 + 12960 = 16560 1 mark for each of the two calculations. * Disappointing responses to these two questions. Students need to revise this area very carefully.

  20. Q4c With reference to a principle, explain why advertising expense is not the same as the amount paid.Ave. mark 1.2 / 3 Zero marks 36% The amount paid was $16800, whilst the amount consumed during the reporting period was $16560. This occurred because the business pays for its advertising a month in advance. The business has already made a payment in advance for the next period but this should not be treated as an expense until it is used up. As the cost has increased, the amounts paid do not equal the amount incurred for the period.

  21. Q5 Explain whether it is appropriate to us a pre-adjusted trial balance to prepare income statements and cash flow statements. Ave. mark 1 / 4 Zero marks 46% Income statements: it is not appropriate to use a pre-adjusted trial balance as net profit would be inaccurate. Some revenues and expenses would need adjustment in order to get revenues earned and expenses incurred. Prepaid and accrued expenses, stock losses and depreciation all need to be adjusted in order to determine an accurate profit. Cash flow statements: the information required is shown in cash journals: not a trial balance. Items such as cash received from debtors, cash paid to creditors, cash drawings, loan repayments and capital injections are not shown in a trial balance. As many items would remain “hidden” in a trial balance, it is inappropriate to use it to prepare a cash flow statement. Common error: balance day adjustments have to be done in order to prepare a cash flow statement.

  22. Q6 Record the necessary BDAs and correcting entries in the General journal. Ave. mark 6.1 / 9 Zero marks 10% General journal

  23. Q6b Identify the effect on the reports if depreciation were not recorded. Ave. mark 1.5 / 3 Zero marks 27% Cash flow statement: no effect as depreciation is not a cash flow. Income statement: Expenses understated, therefore profit overstated. Balance sheet: NCAs overstated, Owners equity overstated, as profit would be overstated. Comment: When asked for the effect on a balance sheet, students should always comment on the two-fold effect. That is, a full explanation of the effects on the balance sheet.

  24. Q6c Prepare a classified Income StatementAve. mark 3.4 / 6 Zero marks 15% 1 1 1 1

  25. Q6c cont. 1 1 • Common errors: • Using pre-adjusted figures, despite having the correct adjustments in the general journal • Omission of some items, particularly depreciation and freight inwards

  26. Q6d Prepare the liabilities section of the balance sheetAve. mark 0.8 / 2 Zero marks 42% 1 1 • Common errors: • Omitting the bank overdraft • Omitting the GST Clearing account • Incorrect splitting of the loan

  27. Q6e Explain how discount revenue and sales meet the definition of revenue.Ave. mark 1.3 / 3 Zero marks 43% Sales results in an inflow of economic benefits that either increases cash at bank or debtors, which leads to an increase in owners equity. Discount revenue results in a saving in outflows of economic benefits to creditors. That is, a reduction in cash payments to suppliers, which leads to an increase in owners equity. Common error: rote learned responses which did not distinguish between the two different types of revenues.

  28. Q7 Show the completed P&L summary account.Ave. mark 1.4 / 3 Zero marks 42% Profit and Loss Summary • To gain the three marks available, students had to correctly record revenues, expenses, net profit & correctly close off the account. • Common errors: • Incorrect titles • Incorrect amounts, despite details being provided • Incorrectly recording drawings in the P&L summary

  29. Q8a Prepare Cash Flows from Operating ActivitiesAve. mark 0.7 / 2 Zero marks 23% 1 1 1 1 1

  30. Q8b Is the cash position strong? Explain.Ave. mark 0.7 / 2 Zero marks 55% Mel is incorrect as cash flows from operations is a negative result. Her cash balance only increased due to her capital contribution and taking out a loan. It is important that cash from day to day operations is positive for the long term future of the business. Comment: this question required students to interpret accounting information and proved to be a good test of their knowledge.

  31. Q9 Show the effect of the payment of wages on the accounting equation.Ave. marks 0.9 / 3 Zero marks 51% • Common errors: • Incorrect titles • Illogical amounts, whereby the account equation does not balance

  32. Questions……… Feel free to email anytime….. box.neville.n@edumail.vic.gov.au Thank you and good luck for 2013!

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