MARKER CODE

Student Personal Identification Number

TONGA GOVERNMENT MINISTRY OF EDUCATION AND TRAINING

TONGA FORM SIX CERTIFICATE 2014

ACCOUNTING

Time allowed: 3 Hours

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

QUESTION AND ANSWER BOOKLET

INSTRUCTIONS

1. Write your Student Personal Identification Number (SPIN) on the box on the right corner of this booklet and on page 27.

2. There are SIX SECTIONS to this paper, all of which are COMPULSORY. Answer ALL questions and allocate your time as follows: Marks Time

18 minutes Section 1:

Multiple Choice Questions 20

Section 2: Conceptual Basis of Accounting 20 18 minutesSection 3: Processing 33 30 minutesSection 4: Accounting System 53 47 minutesSection 5: Accounting Reports 50 45 minutes

Analysis, Interpretation and 24 22 minutesSection 6: Decision Making --------- --------------

200 180minutes ======= =========

3. Answer the questions in the spaces provided in this booklet. If you need more space for your answers, ask the supervisor for extra paper. Write your SPIN on all extra sheets used and number the questions clearly.

4. Check that this booklet contains pages 2-27 in the correct order and that none of the pages is blank.

200 TOTAL MARKS

2 SECTION 1 MULTIPLE CHOICE (20 MARKS)

ALL ten questions are compulsory. Each question is worth 2 marks. Write the letter of the best answer to each question in the space provided on the

back flap of this booklet. 1. A sole trader would decide to form a partnership so that :

A. his profits and customers would automatically increase. B. the capital of the business, skills and experiences would increase.

C. the business has unlimited life. D. he can correctly value inventories sold during the year. 2. A business has reported a gross profit of $40,000 on 30 June 2013. After the accounts were prepared, it was discovered that sales returns was

incorrectly overstated by $10,000. The new gross profit after correction should be _________________. A. $35,000 B. $30,000 C. $60,000 D. $50,000

3. The following transactions relate to the business of Lucy Retail Shop for the month of October 2014.

October 1 Balance 50 units @$10 10 Purchases 10 units @$15

25 Sales 54 units

Using the FIFO valuation method, the closing inventory on October 25 2014, is ___________________.

A. $90 B. $540 C. $440 D. $675

4. A payment made by a customer for interest charged on overdue account is recorded in the ________________. A. Sales Journal

B. General Journal C. Purchases Journal D. Cash Payments Journal 5. An example of capital expenditure is: A. freight and wharf ages charges. B. insurance over the business premises. C. installation of new equipment before used. D. buying a new tyre for the business vehicle.

3 6. Which of the following is a use of fund?

A. Short Term Loans B. Accrued Expenses C. Inventories D. Prepaid Income

7. ABC Falekoloa is a legal entity, having unlimited life and limited liability. This type of business ownership is a/an ____________________.

A. sole proprietorship B. partnership C. incorporated club and societies D. company

8. ABC Falekoloa has the following information available at the end of the month ,30 July 2014. Balance as of the bank Statement $4000 Dr Cheques not yet presented to the bank $1500 Deposits not yet credited by the bank $6 000 Direct Deposits into the bank by customers $1000 A completion of the business Bank Reconciliation Statement should show that the balance as per Cash at Bank account balance for the end of the month should be ________________________________________________. A. a debit balance of $500 B. a credit balance of $500 C. a credit balance of $1500 D. a debit balance of $8 500 9. A rental payment on a one year contract with Nuku’alofa Limited cost

$6000. The contract was entered on 1 March 2014. The rent expense value recorded in the Income Statement at the balance date 30 June 2014 will be:

A. $4000 B. $6000 C. $2000 D. $3000

10. EXY Ltd petty cash fund was $400. For the month of June they have spent $340. You are required to determine the amount of the reimbursement cheque that has to be prepared at the end of month. A. $60 B. $400 C. $740 D. $340

4 SECTION 2: CONCEPTUAL BASIS OF ACCOUNTING (20 MARKS) a) Explain the difference between Financial Accounting and Management

Accounting. ___________________________________________________________________________

___________________________________________________________________________

___________________________________________________________________________

___________________________________________________________________________

(2 marks)

b) Complete the table below to show the classification of users of accounting reports and state the reason for their being interested in financial information about the business.

Users Type of Users (Internal/or External)

Reason for being interested

1. Commercial Bank

2. Owners

3. Government

(6 marks)

P4

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5 c ) Nonu Mechanic of Tofoa has his Statement of Financial Position for the year

ending 30 June 2014 as below:

Nonu Mechanic Statement of Financial Position as at 30 June 2014

-------------------------------------------------------------------------------------------------------- Assets:

Bank 1 200 Accounts Receivable 500 Vehicles 26 000 Buildings 40 000 Equipment 13 000 80 700

Less Liabilities

Short Term Loan 3 000 Accounts Payable 1 200 Bank Loan (10 years) 10 000 14 200 66 500 -------------------------------------------------------------------------------------------------------

Represented by: Equity –Nonu (beg) 60 000 Net Profit 10 500 Drawings 4 000 Equity -Nonu (end) 66 500

----------------------------------------------------------------------------------------------- i) From the list of accounting concepts given below ,you are to select TWO (2)

Concepts and explain clearly how the application of the concept shown in the recording of the financial activities of the business.

List : Accounting entity, Accounting Period, Consistency, Continuity,

Monetary, Conservatism

Selected Accounting Concepts

Application to Nonu Mechanic

i. …………………………..

ii. ………………………….

(4 mark)

ii) Identify TWO (2) non-monetary information relating to Nonu Mechanic Financial reports.

1) ______________________________________________________________________

2) ______________________________________________________________________

(2 marks)

P.5

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6 iii) From the list of characteristics of financial information given below, you are

required to select TWO (2) characteristics of financial information, give the definition of the characteristic and explain how it has been applied in the preparation of the given Statement of Financial Position.

List : timeliness, relevant, reliability, comparability, understandability, verifiability, objectivity and neutrality

1) Selected Characteristic: ____________________________________________

Definition: __________________________________________________________

_____________________________________________________________________

Application: __________________________________________________________

______________________________________________________________________

2) Selected Characteristic:_____________________________________________

Definition: ___________________________________________________________

_____________________________________________________________________

Application: __________________________________________________________

______________________________________________________________________

(4 marks) d) Explain TWO (2) limitations of Nonu’s Statement of Financial Position. 1) ______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

(1 mark)

2) ______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

(1 mark)

6

P.6

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S.2

7 SECTION 3: ACCOUNTING PROCESS (33 MARKS) 1) Transaction Analysis /Accounting Equation (8 marks)

Filipe Enterprise of Fanga has the following information in the business books during the financial year ending 30 June 2014.

Transactions/ Documents

Bank Accounts Receivable

Inventories Shop Equipment

Buildings Accounts Payable

Mortgage Capital

a.

-1000

+2000 +1000

b.

+3000

-3500

-500

c.

+3000

+3000

d.

-15000

+30000

+15000

You are required to fully describe each of the transactions that has resulted in the effect shown in the equation grid above.

Transactions/ Documents

Description of the Transactions

a.

b.

c.

d.

(8 marks)

P.7

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8 2) Journal and Ledgers (11 marks)

Loni’s Shops at Veitongo has the following information on its General Journal books during the month of July 2014.

General Journal

Date Particulars DR CrJuly 1 Inventories 15,000 Furniture 6,000 Premises 4,500 Goodwill 10 000 Cash at Bank 7 500 Si’i Kaeola 900 Tonga Morris 1,500 Pita 900 Capital - Loni 24 700 July 10 New Furniture 10 000 Tonga Morris 10 000 (purchased new furniture) July 12 Tonga Morris 500 Tonga Morris 500 (contra) July 13 Fung Sing 2000 Furniture 2000 (Sold Furniture at book value)

Additional Information: i) Total Cash Receipt Journal $4500 ii) Total Cash Payment Journal $1100 iii) Total Sales Journal $3240 iv) Total Purchases Journal $4350 You are required to use the given information above relating to Loni’s Shop to prepare the following ledger accounts below. Use the THREE (3) column format.

i) Cash at Bank Account ii) Furniture Account iii) Tonga Morris

9

(i) Cash at Bank Account

Cash at Bank Control Account Date Particulars Dr Cr Balance

(4 marks)

(ii) Furniture Account

Furniture Account Date Particulars Dr Cr Balance

(3 marks) (iii) Tonga Morris

Tonga Morris Account

Date Particulars Dr Cr Balance

(4 marks) P.9 11

10 3) Closing Entries and Reversing Entries (12 marks)

On the business balance date, 30 June 2014, the business of ABC Store closed all its revenue and expense after completing the required balance day adjustments. Then, on the 1st July 2014, the first day of the new financial year, ABC Store prepare the reversing entries to reverse adjusting entries previously made at the end of the financial year.

You are given the following information regarding the revenues and expenses

of ABC Store for the year ended 30 June 2014 Trial Balance (Extract) 30 June 2014

Accounts Dr Cr Rent Revenue 30 000 Advertising 10000 Insurance 24000 Service Fee Received 25 000

Adjustments: 1. Rent Revenue not yet received $5000 2. Advertising due to be paid $4000 3. Insurance Prepaid $6000 4. Service Fee received in advance $2500 You are required to complete the table below showing the required closing entries and the appropriate reversing entries that ABC Store should have made. Narration is not needed.

Adjustments

Closing Entries

Reversing entries Suggested Answer as an Example :

Dr Profit and Loss Account $25 000 Cr Wages $25 000

Dr Wages Accrued 10 000 Cr Wages 10 000

No.1

No.2

No.3

No.4

(12 marks)

P.10

12

11 4) Computers in Accounting (2 marks) In financial recording and reporting, explain TWO (2) advantages of using a

computer system over a manual system. 1) ______________________________________________________________________

______________________________________________________________________

2) ______________________________________________________________________

______________________________________________________________________

(2 marks)

2

P.11

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S.3

12 SECTION 4: ACCOUNTING SYSTEMS (53 MARKS) 1) Internal controls (8 marks)

a) Explain the importance for a business to have a good internal control system. ______________________________________________________________________

______________________________________________________________________

______________________________________________________________________ (2 marks)

b) For each of the situations given in the table below, give an internal control procedure that would work in each given situation and state the internal control principle that is being applied in the given internal control procedure.

An example has been done for you:

Situation

Internal Control Procedure Built-in

Internal Control Principle Applied

Example: Payments of minor expenditures

Operating a Petty Cash Imprest System

Objectivity

1. Business Payments

2. All cash receipts

3. Business Debtors

(6 marks)

P.12 8

13 2. Accounting for Credits (15 marks) a) You are required to use the extract relevant information given below to

prepare the business Accounts Receivable Control Account. Use the 3-column format for ledger presentation.

Date Related Transactions

1 January 2013 Accounts Payable opening balances $19 000 Accounts Receivable opening balances $30 000

31 January 2013 Cash Sales $40 000 Cash Purchases $13 700 Credit Sales $50 000 Cash Discount Received $ 2 000 Sales Returns $ 500 Contra Account $ 1 500 Customers settlement of accounts $29 000 Interest charged to customers $ 3 000

Accounts Receivable Control Account

Date Particulars Dr Cr Balance

(7 marks) b) Explain TWO (2) advantages of using the subsidiary ledgers system.

1. 2.

(4 marks)

P.13 11

14 c) Doubtful Debts (4 marks) The WXY Enterprises general ledger shows: Account Receivable $3 000 Dr Provision for doubtful debts $200 Cr Balance Date Required Adjustments: i) Accounts Receivable is to be written off as irrecoverable $350 ii) Adjust the provision for doubtful debts to be 4 % of Accounts Receivable. You are required to give the general journal entry to adjust the provision for doubtful debts to be 4% of Accounts Receivable.

(4 marks)

3. Accounting for Inventories (12 marks) a) Explain the reason for closing stock on balance day to be found in both the

Statement of Financial Performance and in the Statement of Financial Position.

____________________________________________________________________________

____________________________________________________________________________

____________________________________________________________________________ (2 marks) P.14 6

15 b) Complete the table below to show differences in the Periodic Inventory and

Perpetual Inventory system.

Periodic Inventory

System Perpetual Inventory system

a) How often profit is being determined? (2 marks) b) Formula for determining of Cost of Good sold (2 marks) c) General Journal entry to record selling of Inventories from the business of ABC stores. Sold 50 units for $1000, unit costs $30. (4 marks)

(8 marks)

c) Under the Perpetual Inventory systems, apart from FIFO, name TWO (2) other

costing methods commonly used for assigning costs to inventory items.

i) ______________________________________________________________________

ii) ______________________________________________________________________ (2 marks)

P.15

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16 4) Accounting for Fixed Asset (10 marks) a) Explain the difference between Fixed Asset and Inventory. ____________________________________________________________________________

____________________________________________________________________________ (2 marks)

b) Explain fully the reasons for creating of a depreciation account ____________________________________________________________________________

____________________________________________________________________________ (2 marks)

c) The following information relates to the Fixed Asset of the Tofoa Stores

A new Vehicle was bought by the Tofoa Store on the 1 January 2013, The vehicle costed $25000 and had an estimated life of 5 years with a residual value of $2000. The business balance date is June 30.

Tofoa Store installed a safety bumper costs $2000 before the vehicles was

used for operations. The business policy is to depreciate fixed asset using the Straight Line Method

You are required to calculate the Book Value of the Vehicles at the end

of 30 June 2014.

(6 marks) P.16 10

17 5) Accounting for Cash (8 marks) a) Explain the purpose of creating a petty cash ledger account.

____________________________________________________________________________

____________________________________________________________________________ (2 marks)

b) Explain the purpose of bank reconciliation statement. ____________________________________________________________________________

____________________________________________________________________________ (2 marks)

c) You are required to determine the net pay for Riki at the end of the pay

period 30 September 2014. Employee Payroll Details :

• Wage rate : $30 per hour • Overtime rate : normal rate at double time • Deductions : PAYE $100 ,superannuation is 5 % of ordinary

earnings. • Riki has worked 50 hours for the week ending 30 September 2014. • Employment is for 5 working days a week and with 8 working hours

a day.

(4 marks)

8

P.17

53

S.4

18 SECTION 5: ACCOUNTING REPORTS (50 MARKS)

1) Community Organization :

The information below relates to Fungafonua Golf Club at ‘Eua Assets, Liabilities and Members’ Funds as at 30 June 2012

Assets Cash at Bank – PICB $2 000 Refreshments Stocks $1 400 Subscription in arrears $ 350 Equipment $4 000 Accumulated depreciation on Equipment $1 600 Liabilities Refreshments- Accounts payable $1 560 Subscription in advance $ 340

Receipts and Payments recorded for the year ended 30 June 2013

Receipts

Entrance Fees $1 000 Competition fees $1 200 Subscriptions $5 000 Refreshment Sales $8 400 Donations $ 400 Sponsorships $1 100

Payments Refreshment -Accounts payable $ 400 Insurance $ 500 Postage and Stationery $ 200 Telephone $ 360 Refreshment –Wages $500 Trophies for competition $ 300 Refreshment Purchases $2200 Equipment $2000

Additional Information

• Refreshment Stocks (30 June 2013) $1200 • Subscription in arrears $ 300 • Subscription in advance $ 250 • Wages owing $ 100 • Insurance prepaid $ 50 • Depreciation on equipment is at 10 % straight line method • Refreshment -Accounts payable $1500 • The new equipment was bought on 1/07/2012 • The club operates a Refreshment Shop at the clubrooms to raise funds

19 a) Prepare the Refreshment Trading Statement for the year ending 30 June

2013. Fungafonua Golf Club

Refreshment Trading Statement for the year ended 30 June 2013

$ $ $

(4 marks) b) Prepare the Subscription Account for the year ending 30 June 2013.

Fungafonua Golf Club Subscription Account

$ Debit

$ Credit

$ Balance

(4 marks)

P.19

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20 c) Prepare the Fungafonua Golf Club Statement of Income and Expenditure for the year ending 30 June 2013.

Fungafonua Golf Club

Statement of Income and Expenditure for the year ending 30 June 2013 $ $ $

(13 marks)

P.20

13

21 2. Business Organization (23 marks)

‘Ofa Moala of Pea has the following Trial Balances at the end of the financial year, 30 June 2014.

Trial Balance- ‘Ofa Moala as at 30 June 2014 Debit $ Credit $ Inventory at 1 July 2013 50 000

Purchases 420 000

Shop Expenses 6 200

Wages 33 500

Rent Paid 750

Telephone Expenses 500

Interest Paid 4 500

Travel Expenses 550

Premises 200 000

Shop fitting 40 000

Debtors 10 100

Bank 5 850

Cash 50

Capital 40 000

Drawings 27 000

Loan from Bank 130 000

Creditors 16500

Sales 557 500

Accumulated Depreciation-premises 50 000

Accumulated Depreciation-shop

fitting

5000

799 000 799 000

Additional Information : i) Inventory on hand 30 June 2014 $42 000

ii) Prepaid Rent Expense $200

iii) Wages unpaid $3000

iv) Depreciation on fixed assets will be 10 % of asset’s Reducing Value

v) The reported Net Profit for the year is $62 200

22 a) You are required to give the Adjusting entries for adjustments (i) to (iv)

and comment on the effect of the adjustments on the business reported net profit.

Adjustments

Adjusting Entry

Effect on Net Profit (Increase ,Decrease or

No Effect)

Example

Additional Furniture bought $1000

Dr Furniture 1000

Cr Suppliers 1000

No Effect

i)

ii)

iii)

iv) a)

iv) b)

(10 marks)

P.22

10

23 b) You are required to prepare a fully classified Statement of Financial

Position for the year ending 30 June 2014.

‘Ofa Moala of Pea Statement of Financial Position as at 30 June 2014

$ $ $

(13 marks)

P.23

13

24 3. Cash Flow Statement (6 marks)

The information below relates to the business of Vaiola Taxi. The business transactions for the October month of 2014 are given below:

October 1 Bank Balance $ 2 500 DR

2 Wages payments $ 2 500 4 Owner’s Cash Investment in business $5 000 6 Depreciation charges $ 2 300 8 Payments to Suppliers $ 4 500 12 Settlements of accounts by customers $ 3 000 18 Payment of interest on loans $ 240

24 Cash sale of business fixed asset $ 1 800

You are required to prepare the business Cash Flow Statement for the month of October.

Vaiola Taxi Statement of Changes in Cash Position

(CASH FLOW Statement)as at end of October 2014 $ $ $

(6 marks)

6

P.24

50

S.5

25 SECTION 6: ANALYSIS, INTERPRETATION AND DECISION MAKING

(24 MARKS) You are required to examine the table below and then answer questions followed:

Name of Business

Cost of Good Sold Net Profit Capital

Sports Tonga $44 000 $21 000 $45 000

Foods Havelu $100 000 $40 000 $100 000

……….. Important Information : The Net Profit ratio is 25 % of Total Sales a) You are required to :

i) Work out the two businesses Total Sales for the year. (all workings must be shown)

Name of Business Working Answers Sports Tonga

Total Sales : ……………………

Foods Havelu

Total Sales :

………………….

(2 marks)

ii) Work out the Gross Profit Ratio for both business. (all workings must be shown)

Name of Business Formula and Working Answers Sports Tonga

Foods Havelu

(6 marks)

P.25

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iii) Work out the Return on Equity for both business (all workings must be shown)

Name of Business Formula and Working Answers Sports Tonga

Foods Havelu

(6 marks)

iv) If you were to INVEST in one of the businesses mentioned in a) on page 25, which one would you choose? Explain a reason for your answer.

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

(2 marks)

b) Name TWO (2) users who would interest in examining business final reports. 1) ______________________________________________________________________

2) ______________________________________________________________________

(2 marks) c) Name a financial ratio that tests the given business situation in the table

below. For each ratio named, give the formula that will be used for calculation.

Business Situation Ratio Name Formula Safe Liquid Position

Effective Business Management

(6 marks)

Capital Funding Structure

5

16

P.26

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S.6

Student Personal Identification Number

TONGA NATIONAL FORM SEVEN CERTIFICATE

2014 ACCOUNTING

Answer Sheet QUESTION TOTALS Remember you are to write the letter (Marker Only) of the correct answer only. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Number Correct x 2 =

SECTION NUMBER

EXAM MARK

CHECK MARK

TOTAL

MULTIPLE CHOICE

20

2

20

3

33

20

4

53

5

50

6

24

TOTAL

200