level 2 accounting, 2016 - nzqa · 2017-02-22 · cost of $8 000 and will be reported as a...

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2SUPERVISOR’S USE ONLY

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© New Zealand Qualifications Authority, 2016. All rights reserved.No part of this publication may be reproduced by any means without the prior permission of the New Zealand Qualifications Authority.

Level 2 Accounting, 201691174 Demonstrate understanding of accounting concepts

for an entity that operates accounting subsystems

2.00 p.m. Tuesday 22 November 2016 Credits: Four

Achievement Achievement with Merit Achievement with ExcellenceDemonstrate understanding of accounting concepts for an entity that operates accounting subsystems.

Demonstrate in-depth understanding of accounting concepts for an entity that operates accounting subsystems.

Demonstrate comprehensive understanding of accounting concepts for an entity that operates accounting subsystems.

Check that the National Student Number (NSN) on your admission slip is the same as the number at the top of this page.

You should attempt ALL the questions in this booklet.

If you need more room for any answer, use the extra space provided at the back of this booklet.

Check that this booklet has pages 2–14 in the correct order and that none of these pages is blank.

YOU MUST HAND THIS BOOKLET TO THE SUPERVISOR AT THE END OF THE EXAMINATION.

ASSESSOR’S USE ONLY

TOTAL

Excellence

21

2

QUESTION ONE

Wiremu owns Beachsplash, a kayak hire shop at Whatuwhiwhi Beach, Northland. Wiremu has noticed the rise in popularity of paddle boarding and wishes to add paddle board hire to his kayak hire business.

On 1 April 2015, Wiremu provided Torpedo? (a supplier of paddle boards) with a summary of Beachsplash' s Cash Flow Statements for the previous two years. Torpedo? will use this information to decide whether to approve the purchase of paddle boards on credit by Beachsplash.

(a)

Beachsplash Cash Flow Statement (summary) for the years ended 31 March

2014 2015

$ $

Total receipts 145000 170000

Total payments 137000 145000

Net increase (decrease) in cash 8000 25000

Justify how the information contained in the Cash Flow Statement (summary) above would support a decision by Torpedo 7 to approve Beachsplash's purchase of the paddle boards on credit. In your answer explain: • the purpose of a Cash Flow Statement • how the Cash Flow Statement summary for Beachsp/ash illustrates monetary

measurement

• how the qualitative characteristic of comparability would support Torpedo? in making a decision to approve Beachsp/ash's purchase of the paddle boards on credit.

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Acoounling 91174, 2016

4

In April 2015, Beachsplash purchased the paddle boards on credit from Torpedo7 for a total cost of $15 500. The paddle boards are to be reported as a non-current asset.

(b) Justify why Beachsp/ash will report the paddle boards as a non-current asset. In your answer, explain: • uslng the definition of an asset, why the paddle boards are reported as an asset • the recognition criteria of an asset, as it relates to the paddle boards • why the paddle boards are reported as non-current.

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Source: https://www.islesurfandsup.com/surfing-with-dozer-how-to-paddle-board-with-your-dog/

Accounting 91174, 2016

5

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A$S_ESSPR'S_ USE;ONLY_.:

6

QUESTION TWO

order to let the Whatuwhiwhi Beach community and visitors know that Beachsplash now hires out paddle boards as well as kayaks, Wh'emu contracted a builder to install a permanent billboard on Beachsplash' s roof. The billboard was installed in April 2015 at a cost of $8 000 and will be reported as a non-current asset.

Wiremu will use different depreciation methods for the billboard and paddle boards. He will depreciate the billboard using the straight-line depreciation method, and the paddle boards using the units-of-use depreciation method.

(a) Justify the depreciation methods chosen by Wiremu for the billboard and th$ paddle boards. In your answer: · • describe the straight-line depreciation method • describe the units-of-use depreciation method • explain why straight-line depreciation is appropriate for the billboard • explain why units-of-use depreciation is appropriate for the paddle boards.

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Source (adapted): http://www.bayis1andsup.eom.au/wp·content/uploads/20l5/05/ Bay-Island-Paddleboards_SUP-Shop--Brisbane-940x270.jpg


7

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8

In addition to the billboard (which cost $8 000), Wiremu also spent $250 purchasing a footpath sign that is placed outside Beachsplash's premises each day. The billboard and footpath sign by definition are both assets, but in the Financial Statements Wiremu intends to report the billboard as a non-current asset and the footpath sign as an advertising expense.

(b) Justify Wiremu's intention to report the footpath sign as an advertising expense in Beachsplash's Financial Statements. In your answer:

• explain how historical cost will be applied to the reporting of the footpath sign

• describe the qualitative characteristic of materiality

• explain why materiality will enable Wiremu to report the footpath sign as an

advertising expense~ e,~rw L... . .. . . •

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Source: http://www.ptownaquasports.com/wp-content/uploads/2014/12/kayaks-paddleboards.png


ASSE$SO_R'S USE ONLY

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ASSESSOR'S - USE ONLY
E7

10

QUESTION THREE

Beachsplash also provides paddle board lessons. The lessons and associated hire of paddle boards are reported as Paddle Board Hire and Lesson income. In the last week of March 2016, Beachsplash invoiced a school $500 for paddle board hire and lessons for that week.

(a) Justify why Beachsplash will report the $500 for paddle board hire and lessons as income in the Income Statement for the year ended 31 March 2016. In your answer, explain: • using the definition of income, why the $500 for paddle board hire and lessons is

income • how the qualitative characteristic of faithful representation is being met by reporting

the $500 paddle board hire and lessons as income.

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1.1

Beachsplash's Cash Flow Statement for the year ended 31 March 2016 reports paddleboard hire and lesson income as $28 000. This includes a deposit of $1000 from the local school holiday programme to secure paddle board hire and lessons for the April 2016 school holidays.

(b) Using the accrual basis, explain how and why the deposit of $1 000 from the local schoolholiday programme was reported in both the Income Statement and the Statement of Financial Position for Beachsplash for the financial year ended 31 March 2016.

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12


ASSESSOR’S USE ONLY

QUESTION NUMBER

Extra space if required.Write the question number(s) if applicable.

Annotated Exemplar

Excellence exemplar 2016

Subject: Accounting Standard: 91174 Total score: 21

Q Grade score Annotation

1 7

1 (a) The candidate has justified how the monetary measurement has been illustrated in the cash flow statement and explained how the qualitative characteristic of comparability has been applied to Beachsplash by explaining how the net increase in cash from $8 000 to $25 000 is a favourable trend that will allow Torpedo 7 to see that Beachsplash will likely be able to repay its debt.

1 (b) The candidate has correctly described why the paddle boards are an asset, using the characteristics of past transaction and future economic benefit. The candidate has explained how the recognition criteria is being met for both reliability and probability and has explained why the paddle boards are a non-current asset.

2 7

2 (a) The candidate has accurately explained the straight-line and units-of-use methods of depreciation and justified why each method is appropriate for the billboard and the paddle boards.

2 (b) The candidate has described the meaning of materiality and how the footpath sign is an immaterial amount in relation to the billboard.

3 7

3 (a) The candidate has correctly used the definition of income to describe why the $500 paddle board hire and lessons is income by correctly linking the hire and lesson income to accounts receivable increasing (or bank increasing when cash is received from the school in the future) net profit, increasing equity, and not a contribution by Wiremu. The candidate has described faithful representation by making reference to a source document and terminology but has not explained how the $500 figure is faithfully represented.

3 (b) The candidate has used the accrual basis concept to justify how and why the deposit of $1 000 is applied to the Income Statement by explaining that the paddle board hire income will decrease by $1 000, the reason being that Beachsplash has not yet earned the income. The candidate has used the accrual basis concept to justify how and why the deposit of $1 000 is applied to the Statement of Financial position by explaining that the current liability income received in advance will increase because Beachsplash has an obligation to provide the paddle board hire and lessons for the following accounting period.

level 2 accounting, 2016 - nzqa · 2017-02-22 · cost of $8 000 and will be reported as a...

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