Level 2 Accounting Learning Workbook Full Answers to Workbook

161 Pages·2012·0.44 MB·English

Level 2 Accounting Learning Workbook
Full Answers to Workbook Activities
Anne Dick
Level 2 Accounting Learning Workbook
Full Answers to Workbook Activities
Anne Dick
ESA Publications (NZ) Ltd
ISBN 978-1-927194-34-8
First published in 2008 by ESA Publications (NZ) Ltd
This edition published in 2012
Copyright © Anne Dick, 2012
Copyright © ESA Publications (NZ) Ltd, 2012
Copyright © NZQA in the NCEA exam questions used
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Editor: Glennis Moriarty
Compositor: Angus Mackenzie
Illustrator/Cover Designer: Jane Meder
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Chapter 1
Activity 1A: Analysing transactions (page 3)
1. Bank A Inventory A Loan L
Insurance Ex Rent received I Accounts receivable A
Shop wages Ex Accounts payable L Advertising Ex
Mortgage L Purchases Ex Drawings, Eq
Sales I Vehicles A Fees received I
Interest on mortgage Ex Interest on term deposit I Depreciation on vehicles Ex
GST payable L Furniture A Accrued expenses L
Bank overdraft L GST receivable A Accountancy fees Ex
Prepayments A Goodwill A Capital Eq
2. a. Bank Accounts Furniture/ Expenses Accounts Loan Capital Income
receivable Equipment payable
i. +3 000 +1 000 +4 000
ii. –276 +276
iii. –300 +300
iv. +4 600 +4 600
v. +368 +368
vi. –500 –500
vii. –184 +184
viii. +92 +92
ix. +138 +138
x. –600 +200 –400
xi. –480 –500 +20
xii. +90 +90
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4 Level 2 Accounting Learning Workbook
b. Increase/ Debit/
Account name Element Decrease Credit Amount $
i. Bank Asset Inc Dr 3 000
Furniture Asset Inc Dr 1 000
Capital Equity Inc Cr 4 000
ii. Furniture Asset Inc Dr 240
GST Liability Dec Dr 36
Bank Asset Dec Cr 276
iii. Wages Expense Inc Dr 300
Bank Asset Dec Cr 300
iv. Bank Asset Inc Dr 4 600
GST Liability Inc Cr 600
Fees received Income Inc Cr 4 000
v. Supplies Expense Inc Dr 320
GST Liability Dec Cr 48
Accounts payable Liability Inc Dr 368
vi. Drawings Equity Dec Dr 500
Bank Asset Dec Cr 500
vii. Electricity Expense Inc Dr 160
GST Liability Dec Dr 24
Bank Asset Dec Cr 184
viii. Telephone Expense Inc Dr 80
GST Liability Dec Dr 12
Accounts payable Liability Inc Cr 92
ix. Accounts receivable Asset Inc Dr 138
GST Liability Inc Cr 18
Fees received Income Inc Cr 120
x. Loan Liability Dec Dr 400
Interest on loan Expense Inc Dr 200
Bank Asset Dec Cr 600
xi. Accounts payable Liability Dec Dr 500
Discount received Income Inc Cr 20
Bank Asset Dec Cr 480
xii. Dividends Income Inc Cr 90
Bank Bank Dec Dr 90
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Full answers 5
3. Transaction Capital Revenue
Purchase new cash register ü
Paid for installation of cash register ü
Paid shop assistant’s wages ü
Painted wall to remove graffi ti ü
Paid for new shelves to display the books ü
Paid for monthly advertising ü
Paid for new sign for the front of the store ü
Activity 1B: Preparation of fi nancial statements (page 20)
1. Petra’s Picture Framing
Income Statement
for the year ended 30 June 2012
Revenue
Fees received 136 800
Other income
Discount received 620
137 420
Less Expenses
Framing expenses
Advertising 1 260
Wages – framers 35 500
Supplies used 50 000
Depreciation on framing equipment 9 000
Rent – framing 17 500 113 260
Administrative expenses
General expenses 800
Electricity 650
Insurance 900
Rent – offi ce 7 500
Stationery 3 000
Telephone and fax 1 070
Depreciation on offi ce furniture 1 950 15 870
Finance costs
Interest on loan 1 100 1 100
Total expenses (130 230)
Profi t for the year $7 190
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6 Level 2 Accounting Learning Workbook
Petra’s Picture Framing
Statement of Financial Position
as at 30 June 2012
Assets
Current assets
Accounts receivable 2 900
Bank 3 000
GST 3 218
Supplies on hand 1 500
Prepayments 240 10 858
Non-current assets
Intangible assets
Goodwill 4 000
Property, plant and equipment (Note 1) 39 650 43 650
Total assets 54 508
Less Liabilities
Current liabilities
Accounts payable 1 938
Accrued expenses 500
Income in advance 3 200 5 638
Non-current liabilities
Loan 5 000 5 000
Total liabilities (10 638)
Net assets $ 43 870
Equity
Opening capital 45 680
+ Profi t for the year 7 190
– Drawings (9 000)
Closing capital $ 43 870
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Full answers 7
Note 1 – Property, plant and equipment
Framing Offi ce
Total
equipment furniture
Cost 65 000 13 000 78 000
Accumulated depreciation (32 800) (5 550) (38 350)
Carrying amount 32 200 7 450 39 650
Depreciation is calculated on the straight-line basis at the following rates:
(cid:129) Framing equipment $9 000 p.a. (cid:129) Offi ce furniture at 15% of cost p.a.
2. Cross Town Couriers
Income Statement
for the year ended 31 March 2012
Revenue
Fees received 164 000
Other income
Gain on sale of furniture 600
Dividends 420 1 020
165 020
Less Expenses
Courier expenses
Advertising 1 500
Supplies used 20 000
Insurance – vehicles 6 450
Petrol and oil 45 360
Wages – courier drivers 45 000
Depreciation on vehicles 9 600 127 910
Administrative expenses
Electricity 1 110
Insurance – general 2 150
Telephone and fax 1 050
General expenses 2 500
Discount allowed 1 000
Depreciation on furniture and fi ttings 800
Depreciation on buildings 1 750 10 360
Finance costs
Interest on overdue account 150
Interest on mortgage 1 100 1 250
Total expenses (139 520)
Profi t for the year $ 25 500
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8 Level 2 Accounting Learning Workbook
Cross Town Couriers
Statement of Financial Position
as at 31 March 2012
Current assets
Accounts receivable 6 200
Bank 4 130
Supplies on hand 500
Accrued income 120
Prepayments 540 11 490
Non-current assets
Intangible assets
Goodwill 2 000
Property, plant and equipment (Note 1) 74 350
Investment assets
Shares in Drivers Ltd 15 000 91 350
Total assets 102 840
Less Liabilities
Current liabilities
Accounts payable 1 984
Accrued expenses 1 100
GST 816 3 900
Non-current liabilities
Mortgage 25 000 25 000
Total liabilities (28 900)
Net assets $73 940
Equity
Opening capital 60 440
+ Profi t for the year 21 500
– Drawings (12 000)
Closing capital $ 73 940
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Full answers 9
Note 1 – Property, plant and equipment
Furniture
Vehicles Buildings Total
and fi ttings
Cost 48 000 8 000 35 000 91 000
Accumulated depreciation (11 400) (3 500) (1 750) (16 650)
Carrying amount 36 600 4 500 33 250 74 350
Depreciation is calculated on the straight-line basis at the following rates:
(cid:129) Vehicles – 20% p.a.
(cid:129) Furniture and fi ttings – $800 per year
(cid:129) Buildings – 5% of cost per year
3. Blooming Nice Flowers
Cash Flow Statement
for the month ended 30 September 2013
Receipts
Interest received 150
Cash sales 12 000
Cash from debtors 250 12 400
Payments
Cash to suppliers 4 300
Electricity 360
Wages 1 800
Drawings 3 000
Van insurance 180 (9 640)
Net increase in cash 2 760
Opening bank balance 2 700
Closing bank balance 5 460
Chapter 2
Activity 2A: Accounting notions and assumptions (page 20)
1. The period reporting concept requires a business, such as Ruth’s Records and Relics, to divide its trading ‘life’
into equal periods. This means that the profi t for the year for Ruth’s Records and Relics can be calculated and
compared with that of previous years. This information will indicate, for example, whether the business’s
performance has improved.
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10 Level 2 Accounting Learning Workbook
2. The period reporting concept requires a business, such as Ruth’s Records and Relics, to divide its trading ‘life’
into equal periods. By reporting the business’s Statement of Financial Position on the same day each year,
Ruth can compare the fi nancial position of Ruth’s Records and Relics with its position the previous year, and
see whether the value of the equity, assets or liabilities has increased or decreased.
3. Ruth will need to record the business insurance as a business expense that will be reported in the Income
Statement of Ruth’s Records and Relics. The personal insurance needs to be recorded as ‘drawings’, and will
appear in the equity section of the Statement of Financial Position. This is because the accounting entity
concept requires Ruth to keep her personal fi nancial transactions separate from those of the business.
Doing this ensures that the Income Statement reports expenses of only Ruth’s Records and Relics, and not the
owner’s personal expenses.
4. The monetary measurement concept requires Ruth to record the inventory amount ($3 750) in New Zealand
dollars.
5. Either: In terms of the going concern concept, because Ruth has no intention of selling Ruth’s Records and
Relics in the foreseeable future, the equipment should be recorded at its historical cost (that is, its original
purchase price) of $5 600.
Or: In terms of the historical cost concept, all assets are required to be recorded at their original acquisition
cost, which means the equipment must be recorded at $5 600.
6. The accrual basis concept requires transactions to be reported in the fi nancial statements of the period to
which they relate regardless of whether cash has been received or paid. As the wages were incurred in
this period, they must be reported as a ‘wages’ expense in the Income Statement, increasing the wages by
the amount owed of $140. The amount owing is recorded as the current liability accrued expenses in the
Statement of Financial Position in order to report liabilities accurately on balance date.
7. The accrual basis concept requires transactions to be reported in the fi nancial statements of the period to
which they relate. The money received for the orders has not yet been earned, so the amount of ‘sales’ must
be reduced to report the amount actually earned in this period in the Income Statement. The amount received
in advance is recorded as the current liability ‘income in advance’ in the Statement of Financial Position in
order to report liabilities accurately on balance date.
Activity 2B: Qualitative characteristics of Accounting (page 22)
1. The information may not be in a form that can be easily understood, therefore is not useful for decision
making.
2. The concept of faithful representation has been met since the information is free from bias – the shoebox of
receipts provides independent verifi cation (evidence/proof) that transactions took place (i.e. the information is
neutral) and that the information in the fi nancial statements faithfully represents the events and transactions
of this fi nancial year.
3. The concept of Faithful Representation might have been broken because your friend has provided you with
the information and the friend is not independent and therefore not free from bias. Your friend might have
deliberately left out information showing negative aspects of the business’s performance.
4. The concept of relevance requires information to be useful for decision making. As the information is six
months old, it is now out of date and will not be good for providing information to evaluate present or future
events.
5. For comparability, it is important to have fi nancial information from the previous fi nancial year in order to
identify trends and judge similarities in and differences between the business’s position then and now. The
business should have provided fi nancial statements with at least two years’ information.
6. The concept of materiality allows the desk to be recorded as an expense because the value of the desk,
$120, is small and the desk is not important in nature; therefore, how the desk is treated (recorded) will not
infl uence the decisions being made by users of the accounting records.
7. a. The van should be recorded at $18 000 because this is the original acquisition cost of the vehicle.
b. For the information to be most useful for decision making, the most up-to-date value ($3 000) should be
recorded. This gives the most relevant information when evaluating present or future events.
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