VCE-ACCT-U12 10.1 📋 – VCE Accounting Practice Exam 7

VCE Accounting Practice Exam 7

Comprehensive Review – Journals to Financial Statements

Question 1  (4 marks)

Question 2  (4 marks)

Question 3  (4 marks)

Question 4  (4 marks)

Question 5  (4 marks)

Question 6  (4 marks)

Question 7  (4 marks)

Question 8  (4 marks)

Question 9  (6 marks)

Question 10  (2 marks)

Question 11  (5 marks)

Question 12  (3 marks)

✦ Model Answer – Question 1 (4 marks)

Income Statement items: Sales $210K (revenue); COGS $126K (expense); Wages $22K (expense).
Balance Sheet items: AR $18K (current asset); Equipment $45K (non-current asset); AP $9K (current liability); Accum Dep $12K (contra asset – deducted from Equipment); GST Clearing $3K Cr (current liability – owed to ATO); Drawings $15K (reduces OE); Capital $60K (equity).
Note: Drawings is not an expense – it appears in the OE section of the Balance Sheet (or Statement of Changes in OE) as a reduction, not in the Income Statement.

✦ Model Answer – Question 2 (4 marks)

Step 1 – Close revenue to Income Summary:
Dr Sales Revenue $85,000; Dr Interest Income $2,000; Cr Income Summary $87,000
Step 2 – Close expenses to Income Summary:
Dr Income Summary $44,500; Cr Wages $28,000; Cr Rent $12,000; Cr Depreciation $4,500
Step 3 – Close Income Summary to Capital:
Net Profit = $87,000 − $44,500 = $42,500
Dr Income Summary $42,500; Cr Capital $42,500
Step 4 – Close Drawings to Capital:
Dr Capital $18,000; Cr Drawings $18,000
Closing OE = Opening OE + Capital Contributions + Net Profit − Drawings.

✦ Model Answer – Question 3 (4 marks)

Before update: Control $24,800; A $8,200 + B $11,400 + C $5,200 = $24,800 ✓
Journal entry: Dr AR $3,600; Cr Sales $3,600 (+ GST if applicable).
After update:
AR Control account: $24,800 + $3,600 = $28,400
Subsidiary ledger:
Customer A $8,200 (unchanged)
Customer B $11,400 + $3,600 = $15,000
Customer C $5,200 (unchanged)
Total subsidiary = $8,200 + $15,000 + $5,200 = $28,400 ✓
The control account and subsidiary ledger must always agree. Discrepancies indicate posting errors.

✦ Model Answer – Question 4 (4 marks)

(i) Cash sale: Dr Bank $1,100; Cr Sales $1,000; Cr GST Clearing $100
(ii) Credit purchase: Dr Inventory $2,200; Dr GST Clearing $220; Cr Accounts Payable $2,420
(iii) Wages: Dr Wages Expense $3,500; Cr Bank $3,500 (wages do not include GST)
(iv) Drawings: Dr Drawings $1,000; Cr Bank $1,000 (personal use – not a business expense; reduces Owner’s Equity)

✦ Model Answer – Question 5 (4 marks)

Trial balance: a listing of all General Ledger account balances at a point in time. It tests whether total debits equal total credits.
Purpose: (1) Verify mathematical accuracy of ledger posting; (2) First step in preparing financial statements; (3) Identify ledger errors by checking the Dr=Cr equality.
Three errors NOT detected:
1. Error of omission: transaction completely omitted – no Dr or Cr exists, so trial balance still balances.
2. Error of commission: transaction posted to wrong account of the same type (e.g., Dr Wages instead of Dr Rent) – Dr=Cr maintained, wrong account affected.
3. Compensating errors: two errors of equal amount that cancel each other out – e.g., inventory overstated $500 and AR understated $500 – trial balance balances but both are wrong.
4. Error of reversal: correct accounts but Dr and Cr reversed – amounts equal, trial balance balances.

✦ Model Answer – Question 6 (4 marks)

KIM’S CONSULTING – Balance Sheet at 30 June
Current Assets: Bank $4,200 + AR $8,600 + Supplies $900 = $13,700
Non-Current Assets: Equipment $22,000 − Accum Dep $6,000 = $16,000
Total Assets: $29,700
Current Liabilities: AP $5,400 + GST Payable $1,200 = $6,600
Non-Current Liabilities: Loan Payable $8,000
Total Liabilities: $14,600
Owner’s Equity: Capital $12,000 + Net Profit $8,100 − Drawings $5,000 = $15,100
Total L + OE: $29,700 ✓

✦ Model Answer – Question 7 (4 marks)

The Income Statement and Balance Sheet are linked through Owner’s Equity:
1. The Income Statement calculates Net Profit (Revenue − Expenses) for the period.
2. Net Profit flows into Owner’s Equity on the Balance Sheet: Closing OE = Opening OE + Capital Contributions + Net Profit − Drawings.
3. A net profit increases Owner’s Equity (assets exceed liabilities by more); a net loss decreases it.
This connection ensures the Balance Sheet always balances: Assets = Liabilities + Owner’s Equity, where OE incorporates the period’s profit.
Additionally, the Balance Sheet’s closing balances become the opening balances for the next period’s Income Statement – creating a continuous financial reporting cycle.

✦ Model Answer – Question 8 (4 marks)

Bank reconciliation: a process of comparing the balance shown on the bank statement with the balance in the Cash at Bank ledger account, explaining all differences.
Purpose: detect errors, identify unauthorised transactions, confirm timing differences, ensure accurate cash balance for reporting.
Four typical differences:
1. Unpresented cheques (outstanding cheques): issued by the business but not yet cleared through the bank.
2. Deposits in transit: cash received and recorded by the business but not yet showing on the bank statement.
3. Bank charges/fees: debited by the bank but not yet recorded in the ledger.
4. Direct credits: amounts deposited directly to the account (e.g., interest earned, debtor EFT) not yet recorded in the ledger.

✦ Model Answer – Question 9 (6 marks)

1. Source documents received/prepared: tax invoices, receipts, EFT records. Evidence of economic transactions – date, parties, amounts.
2. Journal entries: transactions recorded in the General Journal (or special journals). Identifies accounts debited and credited with narration.
3. Posting to General Ledger: journal entries transferred to individual T-accounts. Maintains running balance for each account.
4. Trial balance prepared: all account balances listed. Tests Dr = Cr equality – identifies mathematical errors.
5. Balance-day adjustments: accruals, prepayments, depreciation, inventory adjustments recorded. Ensures revenues/expenses in correct period.
6. Adjusted trial balance: balances after all adjustments – used to prepare financial statements.
7. Financial statements prepared: Income Statement (profit), Balance Sheet (position).
8. Closing entries: temporary accounts (revenue, expenses, drawings) closed to Capital. Permanent accounts carry forward.
9. Post-closing trial balance: confirms only permanent accounts remain open. Ready for next period.

✦ Model Answer – Question 10 (2 marks)

Temporary accounts (revenue, expenses, drawings) measure performance for a specific period only. They must be reset to zero at period end so the next period starts fresh.
If not closed: revenues and expenses from previous periods would accumulate in current period accounts, making it impossible to calculate profit for just the current period. Financial statements would mix multiple periods’ results, violating the accounting period assumption and making trend analysis meaningless.

✦ Model Answer – Question 11 (5 marks)

(i) GPM = ($280K−$168K)÷$280K×100 = $112K÷$280K = 40%
(ii) NPM: Net Profit = $112K−$56K = $56K. NPM = $56K÷$280K×100 = 20%
(iii) ROA = $56K÷$175K×100 = 32%
(iv) Current Ratio = $42K÷$28K = 1.5:1
(v) Working Capital = $42K−$28K = $14,000
Analysis: 40% GPM indicates reasonable pricing. 20% NPM shows expenses well controlled. 32% ROA indicates strong asset efficiency. Current Ratio 1.5:1 – adequate but below the commonly cited 2:1 benchmark. Working Capital of $14,000 provides a positive liquidity buffer.

✦ Model Answer – Question 12 (3 marks)

1. Historical data: ratios are calculated from past financial statements and may not reflect current conditions. A business facing new competition or economic changes may look healthy based on ratios but be deteriorating now.
2. No industry context without comparison: a GPM of 35% means little without knowing the industry average. Ratios must be compared to industry benchmarks or prior periods to be meaningful.
3. Accounting policy differences: businesses using different methods (e.g., different depreciation methods, inventory valuation) produce different ratios even with identical underlying economics – making cross-business comparison unreliable without adjustments.
4. Non-financial factors ignored: ratios reflect financial data only. Staff quality, customer satisfaction, reputation, and competitive environment – all critical to performance – are not captured by any ratio.