VCE-ACCT-U34 8.5.2 📋 – Mock Exam 5: Q2-Q8 Budgeting, Ledger, Balance Sheet, Concepts and Extended Response

Mock Exam 5 — Questions 2 and 3

Pinnacle Printing | Continue on paper

(a)4 marks

June budget figures are shown alongside May actuals. Prepare the Budgeted Cash Flow from Operating Activities for June 2026. Additional information: AR opening June $52,400, closing June budget $58,600. AP opening June $18,700, closing June budget $21,200. Inventory purchases June (credit): $88,000 incl. GST. Wages all paid in cash. GST settlement $5,500 due in June.

Tip: Use T-account method for cash from debtors and cash to creditors. Exclude depreciation. Include GST settlement.

(b)4 marks

Explain why the Budgeted Net Cash from Operating Activities for June may be lower than the Budgeted Net Profit for June, despite sales being higher than May.

Tip: Non-cash items excluded from Cash Flow (depreciation not included). Credit sales increase AR, not immediately cash. Higher sales may mean higher inventory outflows before cash is collected.

(c)4 marks

With reference to two accounting concepts, explain why Pinnacle Printing records (i) equipment at historical cost rather than replacement cost, and (ii) the advertising expense only for the month used.

Tip: (i) Historical cost. (ii) Accrual basis / accounting period.

(a)4 marks

Analyse Pinnacle Printing’s Accounts Receivable Turnover of 26 days compared to the industry average of 20 days. Include two consequences for the business.

Tip: 26 vs 20 days – 6 days slower. Cause. Two consequences: cash tied up, increased bad debt risk.

(b)3 marks

Explain how Pinnacle Printing can have both a GPM above the industry average (50% vs 45%) AND a NP Margin above the industry average (33% vs 28%).

Tip: Both above = strong pricing AND well-controlled operating expenses. Unlike Metro Interiors, the operating expense ratio is also favourable.

(c)3 marks

Sarah is considering changing from straight-line to reducing-balance depreciation for new equipment purchases. With reference to the consistency principle, discuss the implications of this change.

Tip: State consistency, apply to depreciation method change, explain the impact on comparability. Justify only if circumstances genuinely changed.

(a)6 marks

Prepare the Accounts Receivable account in the General Ledger for May 2026. Show the closing balance and confirm it agrees with the Trial Balance Extract in Question 1.

Tip: Opening $44,700 + Credit Sales $61,600 − Returns $1,100 − Bad debts $1,100 − Cash $51,700 = closing $52,400, matching the AR balance given in Question 1.

(b)4 marks

Explain why the cash received from debtors ($51,700) differs from the credit sales figure for May ($61,600 incl. GST). Refer to at least two distinct reasons.

Tip: Consider: debtors take time to pay (the 26-day AR Turnover from Question 3 means not all May sales are collected within May); opening debtors from April are being collected in May; returns reduce what is owed; bad debts are never collected.

(c)3 marks

Explain the difference between the bad debt written off during May and the balance-day Allowance for Doubtful Debts adjustment recorded in Question 1(a), with reference to the accounts affected by each.

Tip: Bad debt write-off: Dr Allowance for Doubtful Debts, Cr Accounts Receivable – removes a specific, identified uncollectable debt using the existing allowance. Balance-day adjustment: Dr Bad Debts Expense, Cr Allowance for Doubtful Debts – a general estimate topping the allowance up to 6% of the AR balance, not linked to any specific customer.

(d)3 marks

With reference to the accounting entity assumption, explain why the bad debt written off is recorded as a loss of Pinnacle Printing and not of Sarah Park personally.

Tip: State the accounting entity assumption (the business is treated as separate from its owner for reporting purposes). Apply it: the debt was owed to Pinnacle Printing for goods sold by the business. State the impact if this were ignored (business and personal finances would be misrepresented together).

(a)4 marks

With reference to relevance, explain why Pinnacle Printing prepares its Income Statement 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 Sarah. State the impact of only reporting annually (Sarah could not respond to issues such as the 26-day AR Turnover from Question 3 until it was too late in the year to act).

(b)4 marks

With reference to faithful representation, explain why the $1,840 wages accrual identified in Question 1 must be recorded at 31 May, even though the cash payment will not occur until June.

Tip: State faithful representation (reports must reflect what has actually occurred, free from bias). Apply to the wages accrual specifically. State the impact of omitting it (wages expense understated and net profit overstated for May, misrepresenting Pinnacle Printing’s performance).

(a)4 marks

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

Tip: Receipts: $58,000 − $53,200 = $4,800 U (less cash received than budgeted). Payments: $44,500 − $42,000 = $2,500 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 26-day AR Turnover versus the 20-day industry average from Question 3 — if debtors continue paying more slowly than budgeted, cash budgeted to be collected in July will instead arrive later.

(c)6 marks

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

Tip: Benefit: allows Sarah to anticipate cash shortfalls and arrange finance in advance rather than being caught out. Recommendation: tighten follow-up of overdue debtors and review credit terms to bring the AR Turnover closer to the 20-day industry average.

(a)6 marks

Discuss the financial implications of introducing this discount.

Tip: Cost: Discount Expense on any sale settled early reduces revenue collected. Benefit: faster cash collection, fewer funds tied up in receivables, and potentially fewer bad debts like the $1,100 written off in Question 4 – weigh the discount cost against these liquidity and risk benefits.

(b)6 marks

Discuss the non-financial implications of introducing this discount for Sarah and her customers.

Tip: Administrative complexity of tracking discount eligibility and payment dates; improved customer goodwill from the incentive; possible competitive advantage if rival printing suppliers do not offer similar terms.

(c)4 marks

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

Tip: A recommendation that weighs the discount cost against the liquidity and bad-debt benefits, referencing Pinnacle’s specific 26-day turnover problem, scores full marks.