VCE-ACCT-U34 4.1.2 📋 – Mock Exam 1: Q2-Q8 Ledger, Statements, Concepts, Budget and Extended Response

Mock Exam 1 — Questions 2 and 3

Bellbird Hardware | Continue on paper

(a)5 marks

Prepare the Accounts Receivable account in the General Ledger for May 2026. Show the closing balance.

Tip: Opening $14,300 + Sales $22,880 − Returns $660 − Bad debts $440 − Cash $18,700 = closing $17,380. Note AR is posted at GST-inclusive amounts.

(b)4 marks

Explain why the cash received from debtors ($18,700) differs from the credit sales figure for May ($22,880 incl. GST). Refer to at least two distinct reasons.

Tip: Consider: credit terms mean customers don’t pay in the same month; opening debtors paying relates to prior months’ sales; returns reduce what is owed; bad debts are never collected.

(c)3 marks

With reference to the historical cost concept, explain why Bellbird Hardware records inventory at its cost price rather than the current retail selling price.

Tip: State historical cost, apply to inventory specifically, explain why retail price is inappropriate (not yet earned, subjective, changes frequently).

(a)4 marks

Analyse the likely effects on Bellbird Hardware of having an inventory turnover significantly slower than the industry average.

Tip: Trend (72 vs 45 days). Cause (over-purchasing / slow-moving lines). Two consequences (cash tied up, holding costs – link to $1,600 inventory loss).

(b)3 marks

Explain how a Gross Profit Margin above the industry average can coexist with a slow inventory turnover.

Tip: High GPM = high margin per unit (premium pricing). But slow turnover = fewer sales cycles per year. Total GP depends on both margin AND volume.

(c)3 marks

Sophie is considering hiring a full-time inventory manager at a cost of $55,000 per year. With reference to financial and non-financial considerations, discuss this decision and make a recommendation.

Tip: Financial: will savings from lower holding costs, fewer inventory losses ($1,600/month = $19,200/year), and reduced stockouts exceed $55,000? Non-financial: expertise, supplier relationships, Sophie’s freed-up time. Recommendation required.

(a)6 marks

Calculate the Gross Profit for May, showing Net Sales and Cost of Sales as separate line items.

Tip: Gross Profit = Net Sales − Cost of Sales = $46,200 − $23,100 = $23,100.

(b)4 marks

Prepare the Other Revenue and Expenses sections of the Income Statement, listing each item and its subtotal.

Tip: Other Revenue: Interest Revenue $200. Total Expenses: Wages $8,200 + Rent $3,500 + Insurance $900 + Depreciation $650 + Advertising $380 = $13,630.

(c)3 marks

Calculate Net Profit for May.

Tip: Net Profit = Gross Profit + Other Revenue − Total Expenses = $23,100 + $200 − $13,630 = $9,670.

(d)3 marks

Explain why depreciation of the store equipment is recorded as an expense even though no cash is paid in May.

Tip: State the concept (assets provide benefits over multiple periods, so their cost is allocated over their useful life). Apply to the store equipment specifically. State the impact if depreciation were ignored (expenses understated, net profit and asset value overstated).

(a)4 marks

With reference to relevance, explain why Bellbird Hardware’s Income Statement is prepared monthly rather than only at the end of the year.

Tip: State relevance (information must be capable of influencing decisions, which requires it to be timely). Apply to monthly reporting for Sophie. State the impact of only reporting annually (Sophie could not respond to problems – like the slow inventory turnover – until it was too late to act).

(b)4 marks

With reference to faithful representation, explain why the $1,600 inventory loss identified at the 31 May stocktake must be recorded, even though it reduces reported profit.

Tip: State faithful representation (reports must reflect what has actually occurred, free from bias). Apply to the inventory loss specifically. State the impact of omitting it (assets and profit would be overstated, misleading Sophie and any external users).

(a)4 marks

Calculate the variance for Cash Receipts and for Cash Payments, stating whether each is favourable (F) or unfavourable (U).

Tip: Receipts: $52,000 − $47,500 = $4,500 U (less cash received than budgeted). Payments: $41,200 − $38,000 = $3,200 U (more cash paid than budgeted).

(b)4 marks

Explain one likely cause of the unfavourable Cash Receipts variance, with reference to information given earlier in this exam.

Tip: Link to the slow inventory turnover (72 days) and AR turnover (28 days vs 22 industry) from Question 3 — if debtors and inventory both move more slowly than planned, budgeted cash inflows will not arrive on schedule.

(c)6 marks

Discuss how preparing a Cash Budget benefits Sophie’s decision-making, and recommend one action she should take in response to the June variances.

Tip: Benefit: allows Sophie to anticipate cash shortfalls and arrange finance in advance rather than being caught out. Recommendation: tighten credit terms or follow up overdue debtors, and review purchasing to reduce slow-moving stock — justify with reference to the receipts shortfall.

(a)6 marks

Discuss the financial implications of this change, with reference to the information Sophie currently uses to manage inventory turnover and stock levels.

Tip: Under periodic, Sophie loses the up-to-date Inventory balance and Cost of Sales figure used throughout the month (needed for the 72-day turnover analysis in Q3 and the stocktake comparison in Q1); inventory losses would only be discovered at stocktake, delaying corrective action.

(b)6 marks

Discuss the non-financial implications of this change for Sophie and her staff.

Tip: Less time spent on data entry frees staff for customer service, but staff lose real-time visibility of stock on hand, which could lead to more stockouts and frustrated customers.

(c)4 marks

Make a recommendation to Sophie, justified by reference to both the financial and non-financial considerations above.

Tip: A clear recommendation (“should” / “should not” switch) that weighs the loss of timely inventory information against the time saved, referencing Bellbird’s specific turnover problem, scores full marks.