Financial Accounting
>
Pre-Chartered Accountants Program
self-assessment
Core curriculum area 1:
Financial
Accounting
questions
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Background information
All pre-Chartered Accountant Program self-assessment questions are based on the fictitious
company Pre‑CA Program Supplies Pty Ltd. Please note that this background information
is common to all questions across all core curriculum areas. Additional information may be
provided within the core curriculum areas or within an activity.
>
Pre‑CA Program Supplies Pty Ltd provides education and training support to pre‑
Chartered Accountant Program candidates, including course note preparation and
printing, sample examinations, etc.
>
It operates in all Australian capital cities, and also has overseas operations in
Singapore, Malaysia and New Zealand.
>
Pre‑CA Program Supplies Pty Ltd is 100% owned by ICAA Limited, a company which
is listed on the Australian Stock Exchange.
>
Both companies consider themselves to be socially aware, with 10% of profits donated
to charities annually; employee charity matching; employee diversity policy; disabled
staff policy; and a continuous process improvement plan, a candidate complaints
handling procedure and ‘save paper’ campaign.
>
Pre‑CA Program Supplies Pty Ltd has an 80% interest in Pre‑GMAT Program Supplies
Pty Ltd. This was acquired on 1 January 2002.
>
Pre‑CA Program Supplies Pty Ltd has a 50% joint venture interest in JV Pty Ltd, with
the other 50% interest held by Pre‑DB Program Supplies Pty Ltd.
>
ICAA Limited, Pre‑CA Program Supplies Pty Ltd and JV Pty Ltd each has its own
board of directors.
>
Pre‑CA Program Supplies Pty Ltd entered into a commercial relationship to provide
third party services to Pre‑BZ Program Supplies Pty Ltd in 2005.
Core curriculum area 1: Financial Accounting
1
Self-assessment question 1
Following a strategic review, the board of ICAA Limited is considering spinning off JV Pty
Ltd as a separately listed company. Consequently, in the interim, JV Pty Ltd is expected to
voluntarily adopt the legal and reporting standards required of a listed entity.
JV Pty Ltd has approximately 20 staff, a turnover of A$2.5 million and operations in two
overseas locations (using hedging to control its foreign exchange exposures). The company
has a current court case outstanding over a disputed contract which may result in the write‑
off of an outstanding debt of A$100,000.
Required
Using only the information above, the background information, and referring to legislative,
regulatory and accounting guidance:
Describe the legal, regulatory and accounting standards that JV Pty Ltd expects to adopt.
Also identify who has oversight of the legal, regulatory and accounting standards you have
described.
Self-assessment question 2
The internal balance sheet of JV Pty Ltd at 31 December 2005 is as follows:
A$
A$
Cash
150,000
Payables
450,000
Inventory
600,000
Contributed equity
250,000
Receivables
100,000
Retained profits
150,000
Total assets
850,000
Total liabilities & equity
850,000
The following transactions took place during the year ended 31 December 2006:
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JV Pty Ltd purchased inventory on account for A$150,000 (25,000 units at A$6 each).
Note: the company had 100,000 units in its opening inventory at A$6 each.
>
JV Pty Ltd sold 28,000 units at the selling price of A$10 per unit. Half of the sales were
for cash and the remaining units were sold on credit. JV Pty Ltd uses the perpetual
inventory system with FIFO inventory costing.
>
JV Pty Ltd collected $100,000 from customers relating to receivables. The company
paid its suppliers A$150,000 for the purchases made on account.
>
On 1 January 2006, JV Pty Ltd bought printing equipment for A$200,000 which was
financed by a bank loan. Interest of A$10,000 was paid to the bank on 31 December
2006.
>
The useful life of the equipment is estimated to be 10 years, with a nil residual value.
JV Pty Ltd uses the straight‑line method of depreciation.
>
At 31 December 2006, JV Pty Ltd determined that A$5,000 of accounts receivable will
not be collected and thus the receivables balance has to be adjusted to reflect this. Bad
debts are written off using the direct write-off method.
>
Dividends of A$7,000 were declared and paid at the end of the year.
2
Pre-Chartered Accountants Program: self-assessment questions
Required
Using only the information above and the background information, prepare journal entries,
record them in appropriate T accounts and prepare a profit and loss statement and balance
sheet for the year ended 31 December 2006.
Note: ignore income tax issues for this question.
Self-assessment question 3
As part of their long‑term growth plans, the board of Pre‑CA Program Supplies Pty Ltd (Pre‑
CA) approved the acquisition of 80% of Pre‑GMAT Program Supplies Pty Ltd (Pre‑GMAT)
for a cash payment of A$300,000 on 1 January 2003. As control will be exercised, you have
been asked as the financial controller to prepare the Pre-CA group consolidated worksheet.
You have been provided with the following additional information:
(a)
On acquisition, Pre-GMAT had contributed equity of A$200,000 and retained profits of
A$150,000.
(b)
On acquisition, all assets were stated at fair value with goodwill being amortised over
10 years.
(c)
During 2006, Pre-CA purchased inventory at a transfer price of A$150,000 from
Pre‑GMAT.
(d) At 31 December 2006, Pre-CA held inventory of A$27,000 purchased from Pre-GMAT
(which had cost Pre-GMAT A$22,000).
Required
Using only the information provided above, complete the following consolidation worksheet
as at 31 December 2006 (all figures in 000s):
Pre-CA
Pre-GMAT
Adjustments
Consolidation
Program
Program
DR
CR
A$’000
A$’000
A$’000
A$’000
A$’000
Sales
600
300
Inventory 01.01.04
(200)
(150)
Purchases
(450)
(200)
Inventory 31.12.04
250
150
Gross profit
200
100
Expenses
(75)
(40)
Operating profits
125
60
Retained profits
80
220
01.01.04
Retained profits 31.12.04
205
280
Contributed equity
800
200
Liabilities
60
50
1,065
530
Non-current assets
515
380
Inventory
250
150
Pre-GMAT investment
300
–
Goodwill
–
–
1,065
530
Ignore the income tax effects of the inter-entity sale and any adjustments required in relation to
outside equity interests.
Core curriculum area 1: Financial Accounting
Self-assessment question 4
Required
Determine whether the following are related parties of Pre‑CA Program Supplies Pty Ltd in
accordance with AASB 124 Related Party Disclosures.
(a)
ICAA Limited
(b)
Pre‑GMAT Program Supplies Pty Ltd
(c)
JV Pty Ltd
(d) Pre‑DB Program Supplies Pty Ltd
(e)
Pre‑BZ Program Supplies Pty Ltd.
Self-assessment question 5
As outlined in the background information, Pre‑CA Program Supplies Pty Ltd has overseas
operations in Singapore, Malaysia and New Zealand.
During the month of June 2005, the New Zealand operation entered into the following
transactions:
>
It purchased inventory for NZ$100,000 on 1 June. Payment for half of these supplies
was made on 15 June. The balance is still owing at 30 June.
>
It made credit sales of NZ$65,000 on 5 June.
>
It received payments for outstanding accounts receivable as follows (the balance of
NZ$30,000 is still owing at 30 June):
– NZ$15,000 on 10 June
– NZ$7,500 on 15 June
– NZ$12,500 on 30 June.
Relevant exchange rates are as follows:
A$
NZ$
1 June
1.00
=
1.05
5 June
1.00
=
1.07
10 June
1.00
=
1.08
15 June
1.00
=
1.11
30 June
1.00
=
1.10
Required
Prepare the journal entries required to translate the above transactions into Australian
dollars, including any restatements required at the end of June 2005.
End of Financial Accounting questions
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Pre-Chartered Accountants Program: self-assessment questions
