This question paper must be returned.

Candidates are not permitted to remove any part of it from the examination room.

SEAT NUMBER:..ROOM: FAMILY NAME. OTHER NAMES. STUDENT NUMBER.

Unit: ACCG 611 / Principles of Accounting Date: Time Allowed: Total Number of Questions: 3 hours plus 10 minutes reading time 6

Instructions & Materials Permitted: (i) (ii) (iii) (iv) All questions must be answered on the examination paper. Calculators without text storage capabilities are permitted. Dictionaries are not permitted for use. This is a closed-book examination.

(Office Use Only Do Not Write Here) SECTION Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 TOTAL MARKS /15 /15 /20 /15 /20 /15 /100

QUESTION 1: ACCOUNTING FOR PARTNERSHIP (15 MARKS) The financial position of WPJ legal firm as at 30 June 2011 is shown below. Wong, Prince and Jenney agree to share profits and losses in a ratio of 2:5:3 respectively.

Cash at bank Inventory Land Building Total assets

$95 000 $65 000 $500 000 $300 000 $960 000

Total liabilities Wong, Capital Prince, Capital Jenney, Capital

$750 000 $40 000 $105 000 $65 000

Total liabilities and capital $960 000

Required:

(a) Prepare journal entries to recognize the withdrawal of Wong at 30 June 2011 under each of the following independent assumptions. (10 marks)

(1) Each of the remaining partners agree to pay $25 000 in cash from personal funds to purchase Wongs interest. Each receives 50% of Wongs interest. (2 marks)

(2) Prince and Jenney agree to pay Wong $50 000 from partnership assets in exchange for

his interest. $40 000 cash is paid to Wong on 30 June 2011. (3 marks)

(Space for working is provided at the end of the examination paper)

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(3) Prince and Jenney agree to pay Wong $75 000 from partnership assets in exchange for

his interest. The partnership agreement prescribes that the amount paid should be based on the fair value of the assets at the time of the partners withdrawal. An independent valuation shows that the net realisable value of inventory is $70 000 and the fair value of land is $750 000 on 30 June 2011. (5 marks)

(b) The partners of the WPJ seek for professional accounting advice from you in regard to the requirement of preparing general-purpose financial statements. Total service revenue of $850 000 was reported for the year ended 30 June 2011. There are three partners and six legal clerks working in the firm. Is the firm required to prepare a general-purpose financial report? Explain your answer. (5 marks)

(Space for working is provided at the end of the examination paper)

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QUESTION 2: ACCOUNTING FOR RECEIVABLES (15 MARKS) The accounts receivable ageing schedule for Diego Ltd as at 30 June 2011 is presented below: Customer Total Not yet Number of days overdue 1-30 31-60 61-90 Over 90 due Jones $ 22 000 $10 000 $12 000 King 40 000 $ 40 000 Liu 57 000 16 000 6 000 $35 000 Wong 34 000 $34 000 Others 126 000 96 000 16 000 14 000 $279 000 $152 000 $32 000 $26 000 $35 000 $34 000 Estimated percentage 4% 7% 13% 25% 50% uncollectable At 30 June 2011 the unadjusted balance in Allowance for Doubtful Debts is credit of $12 000 (ignore GST). Required:
(a) Prepare necessary general journal entries for each of the following transactions. (1) Prepare the general journal entry to adjust the Allowance for Doubtful Debts account at

30 June 2011 using the ageing of accounts receivable method. (2 marks)

(2) On the 2 July, Diego Ltd received 80% of the balance owed by King and wrote off the remaining as uncollectable. (2 marks)

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(3) On the 13 July, a cheque for $1 520 is received from the customer whose account was written off earlier as uncollectable. (3 marks)

(4) Prepare T accounts for Accounts Receivable and Allowance for Doubtful Debt including

the opening balances and post the above transactions to the T accounts to calculate the value of net Accounts Receivable as at 31 July 2011. (4 marks)

(b) There are two methods to account for bad debts: Allowance method (indirect method) and

direct write-off method. Discuss the impacts of each method on Accounts Receivable and net profit of the entity. (4 marks)

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QUESTION 3: ACCOUNTING FOR NON-CURRENT ASSETS (20 MARKS) PART A (10 marks)

Included in the non-current assets of Domino Pty Ltd is delivery equipment purchased for $85 000 with a residual value of zero. Its carrying amount as at 30 June 2010 is $34 000. Included in the notes to the financial statements is the following delivery equipment is depreciated using the straight-line method over its estimated useful lives. If the annual depreciation expense for the above mentioned delivery equipment is $17 000, calculate the following: (ignore GST)

Required:

(1) Estimate the useful life of delivery equipment. (1 mark)

(2) Estimate the age of delivery equipment on 30 June 2010. (1 mark)

(3) On 2 July 2010, Domino Pty Ltd decide to replace the major parts of delivery equipment

at a cost of $10 202, after which the delivery equipment will last for 3 more years with zero residual value. Prepare extract from the balance sheet showing the value of delivery equipment on 30 June 2011. (4 marks)

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(Space for working is provided at the end of the examination paper)

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(4) The delivery equipment is sold on 30 June 2011 at $40 000. Prepare journal entries to

record the sale. (4 marks)

PART B (10 marks)

Wells Ltd acquired a packaging machine from Germany on 1 July 2010 for consideration of A$1 600 000. Other costs that Wells Ltd incurred include:
-

Freight-Inwards & Insurance $135 000 Customs duty $175 000 Installation costs $95 000

The machine is expected to operate for 15 years and will have a scrap value of $20 000. The machine will be installed in a new facility that Wells Ltd has just leased. The lease contract is for 12 years commencing 1 July 2010. A make-good clause in the lease agreement requires Wells Ltd to remove any equipment or fittings installed and restore the facility to its original condition at the end of the lease term. The estimated removal cost is $35 000. Wells Ltd has no plans to renew the lease at its expiry (ignore GST).

(1) Calculate the cost of machine on 1 July 2010. (3 marks)

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(2) Prepare journal entries to record the depreciation expense of machine for the year ended

30 June 2011 and 30 June 2012 under Sum-of-years-digits method. Show your working. (4 marks)

(3) Discuss how a change from Sum-of-years-digits method to Straight-line method would

affect net profit of Wells Ltd? (3 marks)

(Space for working is provided at the end of the examination paper)

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QUESTION 4: FINANCIAL STATEMENTS AND ACCOUNTING FOR INVENTORY (15 MARKS) PART A (10 marks) The adjusted trial balance for Dunmore Ltd as at 30 June 2011 is given below. Account names $ Debit $ Credit Cash at Bank Accounts Receivable Inventory Land Factory Building Accumulated Depreciation Factory Building Office Equipment Accumulated Depreciation Office Equipment Accounts Payable Unearned Revenue Mortgage Payable Share Capital Drawings Sales Sales Returns and Allowances Other Revenue Insurance Expense Salaries Expense Electricity Expense Telephone Expense Cost of Goods Sold Depreciation Expense Factory Building Depreciation Expense Office Equipment Prepaid Insurance Interest Payable Telephone Expense Payable Totals 445 954 993 87 940 760 1 905 81 414 8 760 2 140 667 170 165 445 954 7 800 45 000 3 000 187 070 13 500 8 560 7 960 3 359 58 600 82 510 6 000 9 260 50 215 25 600 146 000 52 560

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Required
(1) Prepare the balance sheet for Dunmore Ltd as at 30 June 2011, classifying the assets and

liabilities into current and non-current categories. Note: All unearned revenues are expected to be earned in 2012. 10% of mortgage is due on 20 August 2011. Prepaid insurance is due to expire at the year ended 30 June 2012. (5 marks)

(Space for working is provided at the end of the examination paper)

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(2) Based on the above information, calculate the following ratios for the year ending 30 June

2011.
a) Gross profit ratio (1 mark)

b) Accounts receivable turnover, assuming opening balance of Accounts Receivable is $8

500 and 100% credit sales. (1 mark)

c) Inventory turnover, assuming opening balance of Inventory is $80 150. (1 mark)

(3) The ratios for the year ending 30 June 2010 were as follows:

Gross profit: 60% Accounts receivable turnover: 16 times Inventory turnover: 1 time Comment on the profitability and liquidity position of Dunmore Ltd as at 30 June 2011. (2 marks)

PART B (5 marks) The following information applies to the inventory of Camera House as at 31 March 2011 (ignore GST).

Unit price (Space for working is provided at the end of the examination paper)
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Model number Cameras A-40 C-27 G-16 Video equipment BD-05 FT -90 Required:

Quantity

Original cost

Estimated selling price 75 110 68 178 240

Estimated selling cost 5 5 6 12 8

18 12 20 15 10

80 100 65 175 230

(1) Calculate the ending inventory value of cameras and video equipment as at 31 March 2011.

(2 marks)

(2) Assume that at the end of April 2011, 12 units of A-40 are still on hand and the estimated

selling price increases to $86 with the same estimated selling cost. How would this increase in estimated selling price affect the inventory value of A-40? (2 marks)

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(3) Prepare journal entry to record the change in the inventory value of A-40 as at 30 April

2011? (1 marks)

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QUESTION 5: CASH AND CASH CONTROL (20 MARKS) PART A (14 marks)

The following information relates to the business of Laiki and Associates for May 2011.

Bank Reconciliation Statement 30 April 2011 Balance as per bank statement Less unpresented cheques No: 391 No: 392 600.00 200.00 800.00 600.00 Add outstanding deposits Balance as per Cash at Bank account 1 500.00 $ 2 100.00 DR $ 1 400.00 CR

Cash Receipts Journal Date May 2011 3 5 9 12 16 20 25 30 Account Debits Cash Bank 405.00 500.00 660.00 880.00 1208.00 770.00 750.00 800.00 Credits Accounts Receivable 420.00 500.00 600.00 800.00 29.09 2.91 1240.00 700.00 681.82 800.00 70.00 68.18 60.00 80.00

at Discount Allowed 13.64

GST Collected 1.36

Sales

GST Collected

Other

J Craig A Jasper Sales Sales R Christ Sales Sales V Tong

(Space for working is provided at the end of the examination paper)

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Cash Payments Journal

Date May 2011 Chq # Account Debits Accounts Payable Wages GST Paid Other Credits PAYG w/holding Cash at Bank

1 6 12 15 20 26 26 30

395 396 397 398 399 400 401 402

Rent K Wright 1 040.00 Wages D Cheung 1 670.00 Advertising R Taylor 1 200.00 Wages Sundry Exp.

600.00 1 000.00 40.00 1 200.00 23.64

60.00 300.00 400.00 400.00 236.36

660.00 1 040.00 700.00 1 670.00 440.00 1 200.00 800.00 260.00

Bank Statement from Asia Pacific Bank Account Names: Laiki and Associates Date Transaction Description May 2010 1 Balance 1 Cash/cheques 3 391 4 Cheque 5 395 6 Cheque 10 Ade Energy 10 Cash Debit Account Number: 9038 215 Credit Balance 1 500.00 600.00 405.00 660.00 500.00 400.00 660.00 1 400.00 2 900.00 2 300.00 2 705.00 2 045.00 2 545.00 2 145.00 2 805.00 CR CR CR CR CR CR CR CR
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(Space for working is provided at the end of the examination paper)

12 396 1 040.00 1 765.00 CR 12 397 700.00 1 065.00 CR 13 Cash/cheques 880.00 1 945.00 CR 16 Bank Fees 12.00 1 933.00 CR 16 Government Duties 8.00 1 925.00 CR 17 Cheque 1 208.00 3 133.00 CR 21 Cash 770.00 3 903.00 CR 22 398 1 760.00 2 143.00 CR 22 399 440.00 1 703.00 CR 26 Cash/cheques 750.00 2 453.00 CR 26 401 800.00 1 653.00 CR 30 Interest Revenue 120.00 1 773.00 CR 31 Balance 1 773.00 CR [Note: the details on the bank statement issued by Asia Pacific Bank are correct.] Required:
(1) Complete the above cash journals for May 2011 (5 marks).

(2) Complete the Cash at Bank ledger account (3 marks) Date Debit Credit Balance

(3) Prepare a bank reconciliation statement as at 31 May 2011. (6 marks)

PART B (6 marks)

(Space for working is provided at the end of the examination paper)

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Joe Richard is concerned about control over cash receipts in his fast-food restaurant. The restaurant has two cash registers. At no time are there more than two employees who take customer orders. Employees work shifts range from 4 to 8 hours.

(1) Provide two internal control principles that relate to cash receipts (2 marks)

(2) Provide an explanation as to how to apply the above internal control principles to the cash

receipts system of Joes business? (4 marks)

(Space for working is provided at the end of the examination paper)

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QUESTION 6: ACCOUNTING FOR RETAILING (15 MARKS) Golf World had an inventory balance of $7 000 at the beginning of April 2011. The following transactions occurred during April 2011, assuming the business is registered for the GST. All prices below include GST.

Apr. 5 Purchased golf bags, and balls on account from Golfing Ltd $3 740, terms 2/10, n/60. 7 Returned unsatisfactory inventory purchased on 5 April to Golfing Ltd $440. 10 Sold inventory on account to J George $2 090, terms n/30. 12 Purchased golf shoes, clothing and other accessories on account from Arrow Sportswear $1 320, terms 1/10, n/30. 14 Paid Golfing Ltd in full. 15 J George returned clothing that did not fit properly $275 and paid the remaining in full. 25 Paid Arrow Sportswear in full.

Required:

(1) Prepare journal entries to record the April transactions using a periodic inventory system.

(10 marks) Date Debit Credit

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Date

Debit

Credit

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(2) Prepare an income statement up to gross profit, assuming inventory on hand as at 30 April is

$10 048. (5 marks)

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WORKING PAPER (THIS WILL NOT BE MARKED)

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WORKING PAPER (THIS WILL NOT BE MARKED)

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WORKING PAPER (THIS WILL NOT BE MARKED)

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