Sample/practice exam 2017, questions and answers PDF

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Sample exam for Accounting for Business Decisions B. Everything you need to know for you exam will be in the document....

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Autumn 2017 – Accounting for Business Decisions B - Practice Final Exam Paper The final exam is 2 hours and 10 minutes (including 10 minutes reading time) and covers Topics 1 -10. Part A contains 15 multiple choice questions. Part B contains 9 questions worth a total of 85 marks. This practice exam paper is designed to be of a similar length and style to Part B of the final exam (9 questions worth 85% of the total final exam). However, studying this practice paper on its own will NOT be enough to do well in the final exam. The actual exam will be different, and the questions will not be exactly the same. To succeed in the final exam, you should have completed all the Tutorial Extension questions, and the Practice exam questions available on UTSOnline in addition to having studied lecture and tutorial material. Please attempt the practice exam without viewing the solutions first. Students who simply learn the solutions, won’t find it beneficial in the actual exam. You need to be able to understand what you are doing, and why choices are being made. Best of luck in the final exam! Matt Grosse.

Part B (85 Marks) Question 1: Non-Current Assets (10 Marks)

Harry owns Viennese Saussage (VS), a gourmet hot dog shop on the north shore. The VS statement of financial position on 30 June 2011 is as follows: Viennese Saussage Pty Ltd Statement of Financial position as at 30 June 2011 Current Assets Cash Inventory

Current Liabilities 30,000 Accounts payable 20,000 Non-current liabilites 50,000 Bank loan

Non-current Assets (Net of depreciation) Total Liabilities Motor Vehicle (bike) 5,100 Plant & Equipment 50,000 Equity Land 120,000 Owners Equity 175,100 Asset Revaluation Reserve (Land) Retained Earnings Total Equity Total Assets 225,100 Total Liabilities & Equity

50,000 45,000 95,000

55,000 20,000 55,100 130,100 225,100

In July 2011, Harry purchases a used Mini-Cooper car for $12,000. He spends $2,000 fixing a giant hot dog on top of the roof of the car, $500 for re-painting & adding his logo to the side of the car, $1,200 for stamp duty and $1,000 in optional insurance renewable every year. He expects to drive the car another 70,000km over the next 4 years. To attract attention when driving around he plans to play the song “Who let the dogs out”. He engages a lawyer to purchase the copyright, costing $1,000 for 5 years. He pays his lawyer a fee of $200 for her legal services and plays the song from 1 January 2012. Without the legal fees, the copyright would not have been able to be purchased.

It is also time to replace the motor bike he uses for take-away deliveries. The original cost of the bike was $10,000 with an expected residual value of $3,000. He originally planned to drive the bike 70,000km and depreciate it according to the kilometers driven each year. When trading it in on 30 September 2011 he had driven 5,000km in the current financial year. The new bike costs $15,000, and the dealer allows him to trade in the old motor bike for $4,000. Harry will therefore only pay the difference of $11,000.

Required: a) What is the maximum cost that can be included as part of the car’s purchase cost, as allowed by the accounting standards? Make the appropriate journal entry(ies) for all costs paid in July 2011 relating to the car. b) Journalise the purchase of the copyright, and calculate and journalise its amortisation for the current year ending 30 June 2012. c) Journalise the disposal of the old motor bike & purchase of the new one. Show all workings for all your calculations.

Question 2: Partnerships – 10 marks: Chan Tatum, Arnie Shwarz and Sydney Hilton go into partnership, setting up Moviestars, a movie production facility. Arnie contributes $20,000 cash to the business, and a motor vehicle purchased for $50,000, with a current book value of $30,000 and market value of $40,000. Tatum contributes $50,000 cash and land purchased for $100,000, with a current book value of $80,000 and a market value of $70,000. Finally, Hilton contributes $10,000 cash and film-making equipment previously purchased for $45,000, with a current book value of $25,000 and a market value of $60,000. In the partnership deed, all three agree that profits and losses will be split based on the capital contributions of each partner at the time of the profit distribution.

These include any gains or losses on the sale of non-cash assets.

Unfortunately, while all three were wonderful actors, their management skills were quite sub-standard, and Moviestars incurred a $40,000 loss in their first year of operation. Required: 1. Calculate and journalise the contributions of the partners into Moviestars. 2. Journalise the distribution of the first year loss to the capital accounts of each of the partners.

Question 3: Financial Statement Analysis (8 Marks) The following information is on Jim’s Pty Ltd performance in the previous two (2) financial years: Sales 2012: $125,000 2013: $130,000 Net Profit 2012: $25,000 2013: 35,000 The cost of goods sold (COGS) margin in both years was 40% of revenues. The tax rate is 30% and the interest expense was $5,000 each year. The company has had ten thousand shares on issues since 2011, with a share price of $13 on 30 June 2012 and $14 on 30 June 2013. Jim’s Pty Ltd

Assets Cash Short term Investments Accounts Receivable Inventory Prepaid Rent Net Motor Vehicle Net Plant & Equipment Land Total Assets Accounts Payable 10 year - Mortgage Total Liabilities Equity Owner’s Equity Retained Earnings Total Equity Total Liabilities & Equity

Statement of Financial Position as at 30 June 2013

Statement of Financial Position as at 30 June 2012

650,000 20,000 15,000 25,000 10,000 15,000 45,000 85,000 865,000 55,000 690,000 745,000

13,000 22,000 15,000 10,000 15,000 20,000 50,000 85,000 230,000 60,000 55,000 115,000

85,000 35,000 120,000 865,000

70,000 45,000 115,000 230,000

Required a. Calculate three profitability ratios for 2013 and comment on the firm’s performance. b. Please provide at least two liquidity ratios for 2013 and comment on the liquidity of the firm

Question 4: Shareholders Equity Accounting (10 Marks) During 2012 the following selected transactions affecting shareholders’ equity occurred for Italy Company Ltd: a.

1 Feb

b.

5 Mar

c. d. e. f.

31 Mar 25 Apr 30 May 1 July

Invited applications for 25 000 company shares. The shares were to be issued at $60 per share, payable $20 on application and $30 on allotment and $10 on call By 25 February, applications for 26 000 shares had been received. Directors resolved to allot the shares, with excess application money to be applied to allotment. Allotment monies were received in full. Directors make a call on shareholders for the remaining $10. Calls are received from all shareholders Directors declare a dividend of $1 per share, to shareholders of record on 1 August, Payable on 1 September

Required: Give the journal entries for each of the transactions.

Question 5: Cash Flows (15 Marks) Pearce Pty Ltd reports a profit for the year ended 30 June 2013 of $200,000. However, a disgruntled online customer illegally hacked into her systems, eliminating all her business records except those given below. The CEO, Linda Pearce wishes to piece together the ending bank account balance of the company, on 30 June 2013 (denoted by the question mark “?” symbol below). Following are summary comparative balance sheet accounts for the company:

Cash Ac’s Receivable Inventory Accounts Payable Unearned Revenue Prepaid Insurance Salary Payable Machine Equipment Acc Dep’n Machine Equipment

30 June 2013

1 July 2012

? $30,000 $30,000 $15,000 $12,000 $18,000 $26,000 $300,000 $150,000

$20,000 $25,000 $40,000 $30,000 $15,000 $33,000 $12,000 450,000 $160,000

The company holds numerous machine equipment, all recorded in the “Machine Equipment” account. No machine equipment was purchased in the 2012-2013 financial year, and there were no upwards or downwards revaluations of machine equipment during this period. There was, however, a sale of one machine equipment on 30 June 2013. This piece of machine equipment had an accumulated depreciation of $50,000 as at 30 June 2013 and was purchased for $150,000. The machine equipment was sold for $115,000. Pearce paid dividends of $10,000, and $15,000 in loan repayments were made, with 80% relating to the repayment of the loan itself (principal), while the remainder was the interest component of the loan repayment. Required: a) Prepare a Cash Flow Statement, use the indirect method to calculate the cash flow from operations. Then, determine the total cash change for the year, and provide your estimate of the ending cash balance on 30 June 2013

Question 6: Budgets (6 Marks) Kenny Pty Ltd manufactures candles and is preparing a budget for the three months of July, August and September 2017. Forecast sales are as follows: x x x x x

July: 20,000 August: 22,000 September: 24,500 October: 25,000 November: 27,000

The company aims to carry finished goods stock equal to 30% of the following month’s sales at the end of each month. The company aims to maintain raw material stocks at the end of each month equal to 20% of next month’s productions requirements. Finished goods are expected to be 6,000 units as at June 30th. Raw materials are expected to be 1,000 kg as at June 30th.

Standard product details are as follows: Raw material: $5 per kg Direct labour 1 hour at $20 per hour Variable productions overheads $2 per labour hour Forecast sales price $50 Fixed overhead: $10,000 Required: Prepare a production budget for Kenny Pty Ltd for July, August and September and the total 1st quarter.

Question 7: Flexible budgets and variance analysis (8 Marks) Tim has asked his company’s financial controller to accumulate data on the sale of the company’s products. The following data was gathered: x x x x x

Budgeted production and sales: 5,000 Actual production and sales: 6,000 The standard requires 1.5kg of material at a budgeted cost of $1.52 per kg and two hours of assembly time and testing time at a cost of $12.50 per hour. The product sells for $32 each Actual production costs for the 6,000 products totalled $12,900 for 8,600kg and $161,700 for 13,200 labour hours

Required: a) Calculate the material variances for Tim b) Calculate the labour variances for Tim

Question 8: Performance management systems (8 Marks) Kristina Food Pty Ltd operates a food business with two divisions; there is a restaurant and a catering service. A segmented profit and loss statement for the company’s most recent year is as follows:

Sales Less: Variable expenses Contribution margin Less: Traceable fixed costs Division segment margin Less common fixed costs Net profit

Total company

Restaurant

Catering

$500,000 $275,000 $225,000 $145,000 $80,000 $130,000 -$50,000

$375,000 $187,500 $187,500 $45,000 $142,500

$125,000 $87,500 $37,500 $100,000 -$62,500

Required: a) If the restaurant division increased its sales by $65,000, calculate the division segment margin for the Restaurant division, and net profit for the total company. Assume that all fixed costs and cost behaviour patterns remained constant. (3 marks) b) Calculate the contribution margin ratio and division segment margin ratio for the Restaurant division before and after the change in sales. Explain the changes. (3 marks) c) Based upon the segment information above, what could Kristina do to return her business to profitability? (2 marks)

Question 9: Ethics (10 Marks) You are a partner in a three-partner firm of accountants. The firm generates fees of approximately $1.4 million per annum. Within your portfolio of clients is Company A, which has been very successful since it first came to your firm five years ago. It now has an annual turnover in excess of $15 million. Company A has a financial year end in July 2014. The audit work commenced in June 2014, and the audit report was finally signed in August 2014. By the end of August, the tax return had been submitted to the taxation authority, and the firm’s invoice for both the audit and taxation work had been issued to Company A for a total of $150,000 In September a significant customer of Company A went into receivership, and Company A suffered a large bad debt. The directors approached you immediately, and were very open about the company’s short-term cash flow problem. Therefore, you agreed that payment of the firm’s invoice of $150,000 could be spread over 12 months, commencing in October 2014 until October 2015. To overcome their short term debt problems, Company A needed the support of its bank. In September 2014, it negotiated a large increase in its overdraft facility using the August 2014 audited financial statements. In March 2015 the bank requested audited financial statements to renegotiate the overdraft facility. The audit is well underway, and you have promised the directors of Company A that the bank will have the audited accounts on time. You note that the audit manager has correctly identified going concern as the area of the audit attracting greatest risk. However, at the time of planning the audit, the manager was unaware of the credit agreement reached with regard to the payment of last year’s fees. You check your firm’s records, and determine that Company A still owes the firm $125,000. Required: 1. List the 5 principles of ethical behaviour, and 5 threats to ethical behaviour as per APESB 110. 2. Discuss the ethical principles that are relevant to the above case, and which threats may have have caused breaches of ethical standards....