OFFICE USE ONLY

Monash University
Semester One Examination 2014
Faculty of Business and Economics
Department of Accounting and Finance
EXAM CODES:

ACW1000

TITLE OF PAPER:

PRINCIPLES OF ACCOUNTING AND FINANCE

EXAM DURATION:

3 hours

READING TIME:

10 minutes

THIS PAPER IS FOR STUDENTS STUDYING AT: (office use only - tick
where applicable)
Berwick Clayton
Peninsula
Education Other (specify)

Distance

Caulfield
Open Learning

Sunway

Gippsland
South Africa

During an exam, you must not have in your possession, a book, notes,
paper, calculator, pencil case, mobile phone or any other material/item
which has not been authorised for the exam or specifically permitted as
noted below. Any material or item on your desk, chair or person will be
deemed to be in your possession. You are reminded that possession of
unauthorised materials in an exam is a disciplinable offence under Monash
Statute 4.1.
AUTHORISED MATERIALS
CALCULATORS
YES
NO
(If YES, only calculators with an 'approved for use' Faculty label are
permitted)
OPEN BOOK

YES

NO

SPECIFICALLY PERMITTED ITEMS

if yes, items permitted are:

YES

NO

This paper consists of seven (7) questions printed on a total of nine (9)
pages.
Students must attempt to answer ALL questions.

ACFW1000 Ravichandran. S
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STUDENT ID: ...

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DESK NUMBER:

PLEASE CHECK THE PAPER BEFORE COMMENCING. THIS IS A FINAL

PAPER. THIS EXAMINATION PAPER MUST BE INSERTED INTO THE
ANSWER BOOK AT THE COMPLETION OF THE PAPER. NO
EXAMINATION PAPERS SHOULD BE REMOVED FROM THE
EXAMINATION ROOM

AFCW1000

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Question 1: Multiple Choice Questions

Required: There are ten (10) multiple-choice questions and you are to
choose the most appropriate answer, only one (1) and record your choice
on the answer sheet provided at the end of the examination paper.
1. Which of these would be classed as a credit transaction?
a. Payment of salaries
b. Depreciation of office equipment
c. Withdrawal of capital
d. Sale of goods on account
e. B and D
Feedback: Section: Recognising business transactions
2.28. A present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits is the definition of:
a. Income
b. An expense
*c. A Liability
d. Equity
3.e. An asset
Feedback: Section: The accounting equation
29. Omitting a transaction for a cash sale for $6,000 from a worksheet will
cause:
a. the liabilities & equity side of the worksheet to be $6,000 more than
the assets side
b. the liabilities & equity side of the worksheet to be $12,000 more
than the assets side
c. The assets side of the worksheet to be $6000 more than the
liabilities & equity side
d. The assets side of the worksheet to be $12000 more than the
liabilities & equity side
*de. The assets and liabilities & equity sides of the worksheet will
balance, i.e. they will have equal totals

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4. Determine the value of inventory using the 'lower of cost or net realisable
value' rule.
Numbe Cost
Net
r
Each realisable
value each
Item LA
Item FA
Item GA

15
3
1

$20
$25
$18

$35
$38
$10

a. $393
b. $385
c. $649
d. $657

5. The statement concerning goodwill that is not true is:

a. Internally generated goodwill cannot be recognised
b. Goodwill can be revalued upwards
c. Goodwill must be tested for impairment at least annually
d. Goodwill is an unidentifiable intangible asset

6. Office supplies purchased in bulk are initially charged to an asset account

and are used on a daily basis. An expense will normally be recorded when:
a. supplies are ordered.
b. supplies are paid for.
c. at the end of the accounting period when a balance day adjustment
is prepared for supplies used.
d. on a daily basis.
7. A machine is purchased for $130000. It is estimated that it has a useful
life of 8 years and will then be sold for $10000. Using the straight-line
method calculate the amount of depreciation to be charged for each year
of useful life.
a. $1,625
b. $10,000
c. $16,250
d. $15,000
8. If a legitimate expense is not accrued at the end of the accounting period,
the result will be an
a. understatement in liabilities and an overstatement in profit.
b. overstatement in liabilities and an understatement in profit.
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c. overstatement in assets and profit.

d. understatement in assets and profit.
9. The Pizza Place is considering investing $80,000 in a new pizza oven. If it
is estimated that, as a result of the investment, net cash inflow will
increase by $21,000 pa. for 6 years, the payback period for the oven is:
a. 4 years
b. 3.8 years
c. 5 years
d. 6 years
10. If calculations show that the break-even point is too high for the period
which of these is not a possible course of action?
a. Consider reducing prices
b. Consider changing the cost mix between fixed and variable costs
c. Consider changing the sales mix
d. Recheck the assumptions on which the analysis is based

Question 21
a)

The following account balances for the year ended 30 th June 2013,
relate to Endeavour Enterprises.

Wages and salaries

Debtors
Drawings
Other operating expenses
Rent expense
Computer operating expenses
Interest on loan
Loan from bank (payable 30 October 2015)
Inventory on hand (at cost)
Equipment (cost)
Accumulated depreciation equipment
Depreciation equipment
Capital - 1 July 2012
Bank

$88 000
$45 000
$21 000
$4 000
$14 000
7 100
$2 000
$50 000
$23 000
$40 000
$10 000
$5000
$37 800
$52 000
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Sales
Cost of sales
Creditors

$280 000
$75 000
$1 800

Additional information at 30 June 2013:

Wages and salaries of $88 000 include an amount of $2500 prepaid to
employees for July 2013.
Rent expense of $14 000 does not include an amount of $1000 owing as
at 30 June 2013.
Sales of $280 000 include $5000 which is an advance payment for a job
which had not been started on 30 June 2013.
REQUIRED:
Prepare an income statement for Endeavour Enterprises for the year ending
30 June 2013 using the accrual approach.
b.

i)

A machine is purchased for $120 000. It is estimated that it has a

useful life of five years and will then be sold for $10 000. Using the
straight-line method calculate the amount of depreciation to be
charged each year and the carrying value of the machine at the end
of the second year of its life.
ii) Explain the difference between depreciation and accumulated
depreciation.
iii) If, due to an oversight, interest revenue of $2500 has been earned
but has not been received in cash and is not recorded at the end of
the accounting period, what is the effect on net profit and current
assets or liabilities of this omission?
iv) If equity at the beginning of the accounting period was $110 000 and
at the end of the period $185 000, and drawings by the owner during
the period were $40 000, calculate the amount of net profit that was
earned during the period.
(Total marks 9 +

2+4+1+2 = 18)

McEnroe owns a proprietary company called Bakehouse Pty Ltd that runs a
busy pie shop. At the end of the 2013 financial year, McEnroe asked his son,
Cash, who is a first year accounting student to help him prepare the balance
sheet and income statement for Bakehouse Pty Ltd.
Due to lack of
knowledge and experience, Cash has incorrectly prepared the Statement of
Financial Position and Income Statement as follows:
Bakehouse Pty Ltd
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Statement of Financial Position for the year ended 30 June 2013

Assets
Current Assets
Accounts Payable
30 000
Furniture
12 000
Depreciation Expense 1 200
10 800
Furniture
Building
45 750
Total Current
86 550
Assets
Non-Current Assets
Cash
15 500
Equipment
35 000
Depreciation Expense 3 500
31 500
Equipment
Total Non-Current
47 000
Assets
Total Assets
133 550
Liabilities and Shareholders Equity
Current Liabilities
Bank Loan due 2017
Accounts Receivable
Total Current
Liabilities
Non-Current Liabilities
Retained Earnings
Total Liabilities

53 000
22 000
75 000
11 950
86 950

Shareholders Equity
McEnroe, Capital
Cost of Goods Sold
Total Shareholders Equity
Total Liabilities and Equity

Income
Pie Sales
Operating Expenses
Insurance Expense

20
37
57
144

000
500
500
450

Bakehouse Pty Ltd

Income Statement
As at 30 June 2013
93 000
10 000
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Advertising
Wages and Salaries
Accumulated Depreciation Equipment
Accumulated Depreciation Furniture
Net Profit Before Tax
Income Tax Expense (30%)
Net Profit After Tax

4 500
25 000
10 500
4 800

54 800
38 200
11 460
26 740

Required
Help McEnroe to prepare the correct Statement of Financial Position and
Income Statement for Bakehouse Pty Ltd for the year ended 30 th June 2013.
(16 marks)

Question 2
Greenwich Pty Ltd is preparing a cash budget for the three months ended 30
June 2013. Relevant data for the budget are as follow:
April
May
June
Sales
260 000
300 000
350 000
Materials Purchases
150 000
185 000
220 000
Salaries and Wages
30 000
30 000
35 000
Selling Expenses
14 500
19 000
22 000
Administration
Expenses
20 500
24 800
27 600
Additional information:
All sales are on account. Collections are expected to be 50% in the
month of sale, 30% in the first month following the sale, and 20% in
the second month following the sale.
60% of materials purchases are paid in the month of purchase, and the
rest in the following month.
Administration expense includes $7000 depreciation of equipment
each month.
Sales in February and March 2013 were $210,000 and $235,000
respectively.
Materials purchases in February and March 2013 were $100,000 and
$125,000 respectively.
In April, the company received $4000 interest from its term deposit.
In May, the company sold 1000 of its shares for $2.50 per share.
In June, the company paid $1500 dividends.

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The companys manager plans to purchase new equipment in May for

$5,000.
The companys beginning cash balance was $17,800 in April.

Required
Prepare a schedule of receipts from debtors, a schedule of expected
payment for materials purchases, and a cash budget for Greenwich Pty Ltd
for the three months ending 30 June 2013.
(15 marks)
Question 3
Papas Company prepares monthly cash budgets. Provided below is a set of
relevant data extracted from existing reports, and the sub-budgets for the
two months of September and October 2013.

All sales are on credit. Collections from debtors normally have the following
pattern: 60 per cent in the month of sale, 30 per cent in the month following
the sale, and 10 per cent in the second month following the sale.
Fortunately, Papas does not have much trouble with bad debts.
Sales in June, July and August were $295 000, $266 000 and $302 000
respectively. Direct material purchases are paid for in the month following
the purchase and all other expenses are assumed to be paid in the month
they are incurred. Purchases in August were $182 000. Manufacturing
overhead includes $12 500 for depreciation expense, while the marketing
and administration expenses include an amount off $5600 for depreciation
expenses. Papas expects to be able to repay the principal on a $50 000 loan
in October.
Required:
a.
Prepare a schedule of receipts from debtors for the two months ending
31 October 2013.
(3 marks)

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b.

Prepare a cash budget for September and October 2013. The cash
balance at 31 August 2013 was $12 600.
(8 marks)
c.
As part of its longer term plans, Papas was hoping to commence a
product reinvention program for one of its core products. The project
would require an initial cash commitment of $30 000. Management
was hoping to fund this from the cash flows of the business. Does this
seem feasible?
(4 marks)
(Total marks 15)
Question 4
Ryans Music provides individual music lessons in the homes of clients. The
following data is provided with respect to the last 12 months of activity
ending 30 June 2013:

Each unit is equal to one half-hour lesson.

a. Assuming selling prices and costs remain the same as for 2013, calculate
the number of units that are required to be sold in 2014 to break even.
(2 marks)
b. If 4000 units were sold in 2014, what profit would be achieved?
(3 marks)
c.

For 2014, Ryans expects the unit labour cost to increase by $2 but,
because of local competitive forces, does not wish to increase the unit
selling price. With some careful management, Ryans hopes to reduce
annual fixed costs to $15 000. Calculate the number of music lessons
that would need to be performed in 2013 in order to match the profit
calculated in (b) above.
(3 marks)
d. Outline some possible options when the break-even units appear too
difficult to achieve.
(4
marks)
(Total marks
12)Joanne sells a single product, Fortune Crystals, at the local markets and
over the internet. Estimated data relating to 2013 is:
Annual sales
Selling price per crystal
$30
Purchase price per crystal
Annual fixed marketing costs
Variable marketing costs per crystal

2500 crystals
$8
$2000
$3
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Annual fixed administration costs

$9500

REQUIRED:
a)

Calculate total fixed costs and unit contribution margin per crystal.
(3 marks)

b)

Calculate the breakeven point in units for 2013.

(2 marks)

c)

Calculate the number of crystals that Joanne would need to sell to

make a profit of $20 000 for the year.
(2 marks)

d)

If Joanne can buy the Fortune Crystals for less than the current
purchase price will the breakeven point increase or decrease?
Explain the reason for your answer. (3 marks)

e)

State two assumptions underlying cost-volume-profit analysis.

(2 marks)
(12 Marks)

Question 45
The following information as been prepared for In Style Pty Ltd by their
assistant accountant.
2013

2012

Industry
Average
2013

Net profit margin

2.1%

2.6%

Gross profit margin

43%

40%

Return on assets

2.5%

2.8%

Inventory turnover period

58 days

71 days 55 days

Average debtors period

76 days

81 days 48 days

3.9%

The risk free rate of interest on government securities in 2013 is 7.3%

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REQUIRED:
a)
Prepare a report for the directors of In Style Pty. Ltd assessing its:
i) Profitability.
ii) Efficiency.
(12
marks)
b)
Discuss two limitations on the usefulness of financial accounting
reports.
c)

(5 marks)
Explain why debt is a riskier form of finance for a business than equity
(5 marks)
(Total marks
22)

Question 6
Smith & Sons is a firm that makes custom built bookcases for customers. At
the beginning of the year it estimates its overhead costs will be $7000 each
month and that it will use a total of 3400 direct labour hours on all its jobs
over the year. Overheads are to be charged to jobs on the basis of number
of direct labour hours used.
The information below is available for job No. 181 that the firm has just
completed:
Direct materials
$275
Direct labour
28 hours
Wage rate
$15 per hour
REQUIRED:
a.
i.
Calculate the overhead recovery rate for Smith and Sons.
ii.
Calculate the full cost of job No 181.
(5 marks)
b.
i. List the four types of responsibility centre.
ii. Distinguish between two of these types, give an example of each type
and explaining how performance in each would be evaluated.
(8 marks)
(Total 13
marks)
Question 7
a) You are considering purchasing a commercial investment property costing
$2,000,000 (today), which will generate the following cash inflows
(totalling $3,000,000) over the next four years: $600,000 in 1 year,
$700,000 in 2 years, $ 800,000 in 3 years, $900,000 in 4 years.
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If your required rate of return is 12%, what is the Net Present Value (NPV)
of the cash flows above? (Hint: NPV includes both cash inflows and
outflows)
(8 marks)
b) Should the planned investment be accepted or rejected, and why?
(2 marks)
(Total 10
marks)

Fly High Ltd has an opportunity to invest in a project that would operate for
four
years. The capital contribution required is $20,000 and the following
estimates have been made.

Cash
inflows
Cash
outflows

2013
$
16 000

2014
$
64 000

2015
$
80 000

2016
$
22 000

13 000

52 000

67 000

18 000

An alternative proposition is the purchase of new equipment for $20 000

which would result in an estimated annual saving of $7500 over a four year
period. Fly High uses a discount rate of 16% p.a.
REQUIRED:
a)

Calculate the net present value for each option. Ignore tax
considerations.

b)

Calculate the payback period for each option.

c)

Advise Fly High Ltd, with reasons, which project you would
recommendation they undertake.

Additional information:

Periods
1
2
3
4

Present Value Tables

Present Value of $1.00

12%
14%
0.893
0.877
0.797
0.769
0.712
0.675
0.636
0.592

16%
0.862
0.743
0.641
0.552
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0.567

Present Value of a series

Periods
12%
1
0.893
2
1.690
3
2.402
4
3.037
5
3.605

0.519

0.476

of $1.00 cash flows

14%
16%
0.877
0.862
1.647
1.605
2.322
2.246
2.914
2.798
3.433
3.274

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Formulae Sheet
Gross Profit Margin =

Gross profit
x 100
Net sales revenue
1
Profit Margin =
Net profit
x 100
Net sales revenue
1
ROA =
Net profit
x 100
Average total assets
1
ROE =
Net profit
x 100
Average equity
1
ROI =
Net profit
Average investment
Asset Turnover Ratio =
Sales revenue
x 100
Average total assets
1
Current Ratio = Current assets
Current liabilities
Acid test [quick] ratio = Cash + short term investments +
receivables
Current
liabilities
Cash Debt Coverage = Net cash flow from operating activities x
100
Average liabilities
1
Receivables Turnover (times per year) =
Net credit sales
Average
receivables
Inventory Turnover (times per year) =
Cost of sales
Average
inventory
Days Inventory = Average Inventory x 365
Cost of Sales
Creditors Turnover (times per year) =
Net Credit purchases
Average trade
creditors
Debt to total assets ratio =
Total debt
Total assets
Interest Coverage Ratio = Net profit (before interest & taxes)
Interest
Residual Income = Profit (required rate of return x investment)
NPV = CF1 /(1 +i)1 + CF2 /(1 + i)2 + CF3 /(1 + i)3 +..+ CFn /(1 + i)n
INV
FV = PV (1 + i)n
Break Even Point (units) =

Fixed costs
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contribution margin per unit

Target Sales (units) = Fixed costs + target profit
contribution margin per unit
CM% = Contribution margin per unit
Selling price per unit

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PLEASE USE THIS PAGE TO INDICATE YOUR MULTIPLE-CHOICE

RESPONSES FOR QUESTION 1 BY CIRCLING YOUR SELECTION.
Student ID:

______________________________________________

QUESTION 1: MULTIPLE-CHOICE ANSWER SHEET

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

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