Circle the answer you deem to be the best response to each multiple-choice question posed.

A1.      The body in Australia which issues legally enforceable accounting standards that apply

to companies is:

(a)       Australian Accounting Standards Board (AASB)

(b)       Institute of Chartered Accountants in Australia (ICA)

(c)       Financial Accounting Standards Board (FASB)

(d)       Australian Securities Exchange (ASX)

(e)       Australian Securities Investments Commission (ASIC)

A2.      Which of the following is not an Intangible asset?

(a)       Trademarks

(b)       Franchise

Patents

Research

(e)       Copyrights

A3.      In-The-Trenches Pty Ltd uses the Units-Of-Production method to depreciate assets.

They bought Equipment for a cost of $200 000 on 1 July, 2014 with a 5 year life.        The asset has an estimated residual value of $50 000 and a useful life of 25 000 hours. If the Equipment is used for 7 000 hours in year 1, what is the depreciation expense.

(a)       $40 000

(b)       $30 000

(c)       $42 000

(d)

$56 000

A4.      Chong Ltd makes all of its purchases on credit; 50% are paid in the month of purchase;

30% during the month following the purchase and 20% in the second month following the purchase.   Given the following data, determine the cash paid to creditors during month  4.

Month                                                     2                      3                      4

Credit purchase                                   $70 000           $50 000           $80 000

(a)       $69 000

(b)       $80 000

(c)

(d)       $50 000

(e)       None of the above

A5.      Assuming a positive bank balance, when reconciling the ledger with the bank statement

a returned (dishonoured cheque) should be:

(a)       Added to the bank statement balance in the reconciliation

(b)       Subtracted from the general ledger bank balance

(c)       Subtracted from the bank statement balance

(d)       Added to the general ledger bank balance

(e)       Added to the Cash Receipts Journal

A6.      Which of these is not a Profitability related ratio ?

(a)       Return On Total Assets

(b)       Return On Equity

(c)       Profit Margin

(d)       Times Interest Earned

(e)       Earnings Per Share

A7.      According to the Framework which of the following is/are essential characteristic(s) of

an asset?

(a)       It must have been acquired at a cost to the entity

(b)       There must be future economic benefits

(c)       The entity must have control over the future economic benefits (d)       All of the above

(e)       B and C only

A8.      The basic accounting entry for a revaluation decrement or fall in the value of Land is:

(a)       Debit - Expense on revaluation of Land; Credit - Land

(b)       Debit - Land; Credit - Expense on the revaluation of Land

(c)       Debit - Revaluation surplus reserve; Credit - Land

(d)       Debit - Land; Credit - Revaluation surplus reserve

(e)       None of the above

A9.      If credit purchases are $100 000 determine the cash paid for the purchase of inventory

for 2013.

Beginning accounts payable               $30 000

Ending accounts payable                    $42 000

(a)       $88 000

(b)       $112 000

(c)

(d)

(e)

A10.    The primary basis for the classification of assets and liabilities in the balance sheet is:

(a)       Profitability

(b)       Tangibility

(c)       Liquidity

(d)       Degree of Risk

(e)       Non-Tangibility

A11.    Dupont Ltd uses a periodic inventory system with the specific identification method of

cost assignment.

On 25 July, a total of 500 units from beginning inventory and 1 500 units from the 10 July purchase were sold.  What was the value of ending inventory at 31 July, 2012 ?

(a)       $10 500

(b)       $23 500

(c)

(d)       $34 500

(e)       None of the above

A12.    When prices are falling (deflation), the system with the highest value for Inventory is

most likely to be which of the following:

(a)       Specific Identification

(b)       Weighted Average

(c)       FIFO

(d)       Moving Average

(e)

A13.    Which of these would be defined as contingent liabilities?

1.         A loan from a financial institution

2.         An unresolved lawsuit brought against the entity for breach of health and safety regulations

3.         An agreement to act as guarantor for another firm’s borrowings

4.         A bank overdraft

(b)       2, 3

(c)        1, 2

(d)       1, 3

(e)        1, 2, 3

A14.    Stewart Ltd purchased a new Machine for $60 000, (net of GST).  Originally it had an

estimated useful  life  of 4 years  and  a residual  value  of $12  000.  The  straight-line method is used.  At the start of the third year, Stewart Ltd revised the estimated residual value of the Machine to nil. What depreciation  expense  should be recorded for the Machine for the third year ?

(a)

(b)

(c)

(d)

(e)

$3 000

$18 000

$12 000

$15 000

$36 000

A15.    LPG Ltd purchased a sprinkler system at the start of Year 1 (1 January, 2011).

Cost (net of GST)

Residual

Estimated Useful Life

$6 500

$1 500

4 years

Under  the  diminishing-balance  method,  using  a  rate  of  50%,  what  will  be  the depreciation expense for the 2nd year (which ends on 31 December, 2012) ?

$3 250

(b)

(c)

(d)

(e)

A16.    These are the balance sheets of Mitchell Ltd:

30 June                       30 June

2011 2012

Plant                                                        $10 000                         $15 000

Accumulated Depreciation – Plant     $  4 000                         $  5 000

The profit and loss statement for the year ended 30 June 2012 shows:

Depreciation Expense – plant                                            $1 500

Proceeds from the sale of plant                                         $1 600

Carrying value of plant sold                                          $2 500

During the year Mitchell Ltd sold plant which had cost $3 000.                        The accumulated depreciation on the plant sold by Mitchell during the year is:

(a)       $500

(b)       $1 500

(c)       $2 500

(d)

(e)       None of the above

A17.    Gladesville Ltd recorded sales of $150 000 during the year (net of GST).   Of these,

$60 000 were on credit.  Bad debts have averaged half a percent (½ %) of credit sales. The entry to estimate bad debt expense for the year using the allowance method is:

(a)

(b)

(c)

(d)

(e)

Bad Debts Expense

Allowance for Doubtful Debts

Bad Debts Expense

Accounts Receivable

Bad Debts Expense

Accounts Receivable

Allowance for Doubtful Debts

Accounts Receivable

$300

$300

$750

$750

$300

$300

$750

$750

$300

$300

A18.    How

(a) (b) (c) (d) (e)

many of these ratios are used to evaluate long-term financial stability?

1.         Debt ratio

2.          Equity ratio

3            Current ratio

4.         Quick Asset / Acid Test ratio

0

1

2

3

4

A19.    Issues in a firm’s management of its accounts receivable are:

(a)       Deciding which customers to offer credit to

(b)       Minimising the incidence of Bad Debts

(c)       Following up slow paying customers

(d)       All of the above (e)       A and C only

(c)        Accounts Receivable                            $3 300

GST Collections                                                      $300

Sales Revenue                                                     $3 000

Cash                                                        $3 000

Sales Revenue                                                     $3 000

Sales Revenue                                        $3 300

Accounts Receivable                                           $3 300

A21.    The balance sheet of Brown Ltd at 31 December 2010 shows the following:

Plant                                                                                  $50 000

Accumulated Depreciation-Plant (30 000)

$20 000

======

On 1 January 2011, based on a valuer’s estimate of fair value, it was decided to revalue the plant to $35 000.  The plant was then assessed to have a further useful life of 3 years and an expected residual amount of $5 000.  The journal entry in the books of Brown Ltd to record depreciation on plant on a straight-line basis for the half-year ending 30 June 2011 (balance date) is ?

(a)

(b)

(c)

(d)

(e)

Depreciation Expense-Plant                    Accumulated Depreciation-Plant

Depreciation Expense-Plant                    Accumulated Depreciation-Plant

Accumulated Depreciation-Plant    Depreciation Expense-Plant

Depreciation Expense-Plant

Accumulated Depreciation-Plant

None of the above

10 000

10 000

5 000

5 000

5 000

5 000

7 500

7 500

A22.    Arizona sells children’s toys.   At the beginning of April  100 units were on hand for

which the firm had paid $10 each.  Purchases and sales for the month were:

Date                               Unit purchases             Unit cost          Unit sales

April 3                                            120                     $11

April 10                                          150                     $12

April 25                                                                                             180

If Arizona uses a Periodic inventory system with a LIFO cost flow assumption, April’s cost of goods sold is:

$2 130

$2 160

$2 020

$1 880

A23.    Cody Banks Ltd bought 30 laptops on the 8 January 2012 at a cost of $1 200 each. The

laptops are sold for $1 800 each to the public. At the end of the financial year on 30 June 2012, there are still 6 laptops that have not been sold. Due to changing technology, by the end of the year, these laptops can now be sold on the market for only $750 each. What is the value of the Inventory in the Balance Sheet as at 30 June 2012 ?

$4 500

(b)

(c)       $10 800

(d)

(e)

A24.    Which type of firm would you expect to have the fastest inventory turnover?

(a)       Used car dealer

(b)       Jewellery store

(c)       Clothing store

(d)       Bakery

(e)       Retailer of computers

A25.    The income statement of Da Bom Ltd shows accrual-basis interest income for the year

ended  30  June  2012  as  $400.    The  comparative  balance  sheets  show  that  interest receivable  at  30  June  2011  and  30  June  2012  were  $45  and  $80  respectively. Determine the amount of cash received by way of interest during the year, which is to be included in the Cash Flow Statement.

(a)

(b)

(c)

(d)

(e)

$45

$365

$400

$435

$525

A26.    On 16 April, 2014 Edinburgh Ltd sells a Machine to London Ltd who agrees to pay for

it within  90  days.   On the Balance  Sheet  for Edinburgh Ltd  at  16 April, 2014 the amount owing by London Ltd would be reported as which one of the following:

(a)       Accounts payable

(b)       Accounts receivable

(c)       Loan

(d)       Inventory

(e)       Capital

A27.    The enhancing qualitative characteristics in the Conceptual Framework are:

(a)       Uniformity, reliability, materiality, consistency

(b)       Understandability, timeliness, uniformity, readability

(c)       Verifiability, timeliness, comparability, understandability

(d)       Uniformity, comparability, reliability, consistency

(e)       None of the above

A28.    Which statement about Goodwill is true?

(a)       Goodwill can be purchased or sold as a separate item

(b)        Goodwill  arises  from  many  factors,  such  as  customer  confidence,  superior

management and a favourable location

(c)       Under AASB 3 goodwill is automatically amortised

(d)       Goodwill is classified as a current asset (e)       Goodwill is a tangible asset

A29.    Under   the Conceptual Framework ‘increases   in   economic   benefits   during   the

accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants’, is the definition of:

Income

Asset

(c)       Liability

(d)       Expense (e)       Equity

A30.    Cheshire  Ltd  has  acquired  manufacturing  equipment  and  incurred

expenses in doing so -

Gross invoice price, net of GST (subject to terms of 2/10,n/30)

Transportation costs to get equipment to factory

Special permit to allow wide load on freeway

Speeding ticket incurred by company driver after delivering

equipment to the factory

The equipment should be recorded in Cheshire Ltd’s records at:

(a) (b) (c) (d) (e)

$10 450

$10 300

$10 150

$10 000

$  9 300

SECTION B: SHORT ANSWER QUESTIONS

QUESTION B1

(15 marks)

O’Connor Ltd started business activities on 31 March 2010 in the recycling industry. The company balances its accounting records at month-end and its financial period reporting date is 31 December. Ignore GST.

The following events occurred during 2010 and 2011:

2010

April 1

June 30

Aug 31

Dec 31

2011

Mar 13

Jul 1

Dec 31

Paid  $140  000  cash  for  a  second-hand  disposal  truck. Paid  $1  500  cash to recondition the truck’s engine.

Paid $12 000 for equipment. The company estimated the equipment’s useful life at 10 years and its residual value at $1 500.

Paid $600 cash for the truck’s transmission repairs and oil change.

Recorded depreciation on the truck at 40% p.a. using the diminishing balance method. The equipment is depreciated using the straight line method.

Paid $600 cash to replace a damaged bumper bar on the truck.

Installed  a  new  motor  in  the  truck  for  a  cost  of  $11  000.  The  company considered that the carrying amount of the old motor was only $600 at this date, and the old motor was written off. With the new motor installed, the truck’s depreciation rate using the diminishing balance method was revised to  30% from July 1.