2019 VCE Accounting examination report
Question 1d.
Marks 0 1 2 3 Average
% 52 17 15 16 1
Income Statement: An increase in expenses of $226 – inventory writedown, which will lower gross
profit and net profit by $226.
Balance Sheet: Current Asset – Inventory would be decreased by $226 and owner’s equity would
decrease by $226 because of the decrease in net profit.
Cash Flow Statement: No effect as an inventory writedown is a non-cash item.
This question required students to describe the effect of an inventory writedown on each of the
three financial reports. Students are advised to consider all three reports in this type of question
and, when describing the changes in the balance sheet, should clearly describe both sides of the
report. That is, the effect on assets and owner’s equity in this case.
Question 1e.
Marks 0 1 2 3 Average
% 58 20 15 7 0.7
The Working Capital Ratio (WCR) and Quick Asset Ratio (QAR) are both measures of liquidity but
are based on different financial data. The WCR includes all current assets but the QAR excludes
inventory and prepaid expenses. For the WCR to decrease without impacting on the QAR, the
owner may have decided to drastically reduce the level of inventory being carried. This change
could also be affected by inventory writedowns and the consumption of prepaid expenses. These
three factors all decrease the WCR, without affecting the QAR.
Some responses to this question referred to the slow inventory turnover rate, which would lead to
an increase in current assets, resulting in an increase in the WCR. This type of response
contradicted the data provided in the question, as the WCR decreased over time. Students are
reminded to read questions carefully so their responses are in line with the data provided by
indicators.
Question 2a.
Marks 0 1 2 3 4 5 6 7 Average
% 30 11 8 8 10 10 13 9 2.9
Students are expected to use their knowledge of double entry to find ‘missing information’ in the
ledger accounts. Marks were allocated as follows:
• two marks for the accounts receivable account
• three marks for the inventory account
• two marks for the accounts payable account.
Students are reminded that correctly determining the cash outflow to accounts payable usually
requires that the inventory account is completed first, followed by accounts payable.
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2019 VCE Accounting examination report
Freja’s Furniture
General Ledger
Accounts Receivable
Date Cross-reference Amount Date Cross-reference Amount
2019 2019
1/10 Balance 28 000 31/12 Bank 98 000
31/12 Sales/GST Clearing 88 000 31/12 Balance 18 000
116 000 116 000
1/1 Balance 18 000
Accounts Payable
Date Cross-reference Amount Date Cross-reference Amount
2019 2019
31/12 Inventory/GST 6600 1/10 Balance 60 000
Clearing
Bank 222 015 31/12 Inventory/GST 245 300
Clearing
Discount Revenue 11 685
Balance 65 000
305 300 305 300
1/1 Balance 65 000
Inventory
Date Cross-reference Amount Date Cross-reference Amount
2019 2019
1/10 Balance 22 000 31/12 Cost of Sales 210 000
31/12 Accounts Payable 223 000 Inventory Loss 4 000
Accounts Payable 6 000
Balance 25 000
245 000 245 000
1/1 Balance 25 000
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2019 VCE Accounting examination report
Question 2b.
Marks 0 1 Average
% 88 12 0.1
Working space
GST on advertising $1 500
GST on Prepaid advertising $ 450
Total GST paid $1 950
GST paid on cash payments $1 950
Many students did not accurately determine the GST paid on cash payments. The GST settlement
is not included as part of this calculation. Students should note that there is no GST recorded on
cost of sales or on the inventory loss.
Question 2c.
Marks 0 1 2 3 4 5 6 Average
% 39 10 11 11 13 10 8 2.1
Freja’s Furniture
Cash Flow Statement (extract) for the three months ended 31 December 2019
Cash Flows from Operations $ $
Cash Sales 320 000
GST received 32 000
Accounts Receivable 98 000
Accounts Payable (222 015)
Advertising (19 500)
Wages (55 200)
GST Paid (1 950)
GST Settlement (31 350)
Net Cash Flow from Operations $119 985
The six marks available on this question were allocated as follows:
• one mark for both cash sales and GST received
• one mark for both accounts receivable and accounts payable
• one mark for each of advertising, wages, GST paid and GST settlement.
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2019 VCE Accounting examination report
Students should be reminded to include all information determined in Question 2a. in the Cash
Flow Statement, as consequential errors are not penalised when information is transferred from
one part of a question to the next. When preparing accounting reports, students should note that
headings are expected as part of the format of these reports and marks may be lost if these formal
headings are not included.
Question 2d.
Marks 0 1 2 3 4 Average
% 48 15 17 11 9 1.2
Net profit is based on accrual concepts and only revenue earned and expenses incurred are
considered. The Cash Flow statement only includes cash in and cash out and does not consider
the concept of profit under accrual accounting. An income statement also includes non-cash items
such as inventory loss, which is not a cash flow and is therefore not included in the calculation of
net cash from operating activities. This could result in cash from operating activities being greater
than the net profit earned for the period. If there are significant accruals then expenses incurred
may be more than the cash paid for expenses and cash from operations could then exceed net
profit. Also, the receipts from accounts receivable could also be greater than the current period’s
credit sales as collections could include receipts from the previous period’s sales. This too could
cause net cash from operating activities to be greater than the net profit reported for the period.
Question 3a.
Marks 0 1 2 Average
% 24 37 39 1.2
The Cash Flow Cover shows the number of times the business’s cash from operations can cover
the current liabilities in a reporting period. Going 321 has seen a decline in this indicator from
seven times to four times to 0.6 times over the three-month period. This represents deterioration in
the liquidity of the business, as at the end of June it cannot cover its current liabilities. This means
that the business will have great difficulty in meeting its short-term debts as they fall due.
Students are advised that in responding to this type of question they should focus on identifying the
trend and then explaining fully what the trend indicates for the business under consideration. A full
explanation is required, rather than simply stating that a number went from seven to four to 0.6.
Question 3b.
Marks 0 1 2 Average
% 22 28 50 1.3
Reason 1: The business took out a new loan, which would lead to an increase in the current
liabilities of the business.
Reason 2: The business may have suffered from a significant decrease in cash sales, which would
lead to a decline in the amount reported as cash flows from operating activities.
Question 3c.
Marks 0 1 2 3 Average
% 28 22 24 26 1.5
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