Vivo City, an established retail chain store, have recently introduced a customer loyalty program. Customers are provided with points based on the d

QUESTION 1 (6 marks)

Vivo City, an established retail chain store, have recently introduced a customer loyalty program. Customers are provided with points based on the dollar amount of purchases, which entitles the customer to free vouchers when certain thresholds are reached (i.e. $5 free voucher for every $100 spent). Based on sales data in the past, the company can reliably project the proportion of points to be claimed by customers in the future. The accountant of Vivo City has approached you seeking advice on how the company should account for its customer loyalty program.

Required: Using the definition and recognition criteria of a liability, advise the accountant on whether the customer loyalty program gives rise to a liability and should be recorded on the Statement of Financial Position.

(6 marks)

Answer here:

QUESTION 2 (9 marks)

Eliza started her own business, Techno Ltd on 1 June 2023. The following transactions occurred during the month of September 2023:

5th Techno purchased a machinery for $90,200 (GST inclusive). 10% of the amount was paid in cash with the remaining balance payable in October 2023.

9th Techno sold 10 units of inventory worth $66,000 (GST inclusive) to Xenon Ltd on credit. The total cost of the inventory sold was worth $20,000.

23rd Xenon Ltd paid the half of the amount outstanding from September 9th plus $10,000 carried forward from August 2023.

29th Gross salaries for the month of September amounted to $10,000 with a PAYG deduction of $2,000. Techno paid $6,000 and the remainder will be payable to employees later in October 2023.

30th Eliza withdrew $3,000 of cash and $2,000 of inventory from the business.

Required: Record the above transactions for the month of September 2023 in the General Journal below. Narrations are not required.

(9 marks)

General Journal

Date Accounts Dr ($) Cr ($)

QUESTION 3 (6 + 2 = 8 marks)

Hill Riders is a local bicycle shop retailing and servicing mountain bikes. The following information pertains to the business for the month of August 2023.

Hill Riders purchased additional equipment for $14,850 (GST-inclusive) in March 2023. The management believes the equipment will have a useful life of five years. No depreciation on the equipment had been recorded for the month of August.

Hill Riders received $16,500 (GST-inclusive) on July 29, 2023 for bike servicing to be provided in August and September 2023. By the end of August 2023, 50% of services had been provided.

Hill Riders took out a $40,000 bank loan on August 15, 2023. The annual interest rate is 7% payable monthly. The next payment is scheduled on September 15, 2023.

Required:

Record the financial impacts of the above events in the month of August 2023 in the General Journal below. Narrations are not required.

(6 marks)

General Journal

Date Accounts Dr ($) Cr ($)

What would be the financial impact on the net profit if the three adjustments were not recorded. Provide necessary calculations.

(2 marks)

Answer here:

QUESTION 4 (7 + 1 = 8 marks)

Porcelain is a manufacturer of ceramic products. Its management has provided the following accounts and their adjusted closing balances for the year ending June 30, 2023. The net loss for the year ending June 30, 2023 is $700.

Required:

Prepare a classified Balance Sheet for Porcelain as at June 30, 2023.

(7 marks)

Accounts Balance ($) Accounts Balance ($)

Accum. Dep. Equipment 12,400 Inventory 5,100

Bank Loan (due in 2026) 16,800 Equipment 48,900

GST Collected 7,400 Bank overdraft 3,650

Bank Loan (due in 5 months) 3,200 GST Paid 4,700

Capital 39,600 PAYG Withheld 6,350

Drawings 15,000 Prepaid Rent 7,200

Accounts Payable 25,300 Accounts Receivable 29,800

Prepaid Insurance 6,500 Wages Payable 3,200

Porcelain Classified Balance Sheet as at June 30, 2023

Assets ($) ($) Liabilities and OE ($) ($)

Based on the account balances above, calculate the value of payment to or refund from the ATO in Porcelains Business Activity Statement for the year ending June 30, 2023.

(1 mark)

Answer here:

QUESTION 5 (8 marks)

The following information is provided for PPZ Brothers:

Months Actual Sales Budgeted Sales

December 2023 $50,000 January 2024 $40,000

February 2024 $30,000

Each item sells for $100 and costs $60 to acquire.

All sales are on credit. 20% of the credit sales are collected in the month of sale; 80% are collected in the month following the sale.

The business makes all inventory purchases on credit and pays 30% of purchases in the month of purchase and the remaining 70% in the month following the purchase.

The business maintains 20% of the following months expected sales as closing inventory in the current month.

Selling and administrative expenses each month are $4,500. This includes $600 per month of depreciation. These expenses are paid in full each month when they are incurred.

The business applied for a government cash grant worth $5,000 in December 2023. The business is confident it will get approved and the grant will be received in January 2024.

The owner withdraws $500 cash and $1,000 worth of inventory each month for personal use.

The cash balance on 1 January 2024 is $11,000.

Required:

Prepare a cash budget for the month of January 2024 by filling out the table below.

PPZ Brothers Cash Budget for the month of January 2024

January 2024 ($)

QUESTION 6 (6 + 3 = 9 marks)

Snoozy Suzie Ltd retails beds. Each bed currently sells for $700 and costs $200 to purchase from suppliers. On average, the business expects to sell 60 beds per month and the total annual fixed cost to be $60,000. Snoozy Suzie are considering the following options to help their business grow.

OPTION A: To increase profits, the business could increase the selling price to $800 per bed. The manager estimates that by increasing the selling price, expected sales volume would decrease to 50 beds per month. Fixed cost and the cost price per unit would remain the same.

OPTION B: Snoozy Suzie could expand the current business by launching an online store. The manager estimates that if they open for business online, sales volume would increase to 80 beds per month. However, fixed costs will also need to increase to $90,000 per year. Selling price and cost price per unit would remain the same.

Required: Calculate the annual break-even point in units and expected annual profits for both Option A and Option B. Record your answers in the box provided below.

(6 marks)

Option A:

Break-Even Point (in units):

Annual Expected Profit ($):

Option B:

Break-Even Point (in units):

Annual Expected Profit ($):

Based on your answers above, explain to the manager of Snoozy Suzie which is the better option for the business to focus on and why.

(3 marks)

Answer here:

QUESTION 7 (4 + 4 + 4 = 12 marks)

Company A is planning on acquiring its competitor, Company B. Actual financial data before the acquisition and projected financial data after the acquisition are provided for Company A below:

Before Acquisition ($) After Acquisition ($)

Total current assets 3,500,000 1,500,000

Total non-current assets 7,000,000 12,000,000

Total current liabilities 1,500,000 2,500,000

Total non-current liabilities 4,000,000 6,000,000

Total sales revenue 10,000,000 14,000,000

Total expenses 8,400,000 12,000,000

Required:

Calculate the following ratios for Company A before and after the acquisition.

(4 marks)

Before Acquisition ($) After Acquisition ($)

Net Profit Margin ROA Current Ratio Debt to asset ratio Based only on the ratios above, explain whether Company A should acquire company B.

(4 marks)

Answer here:

Calculate ROE for Company A before and after the acquisition. Has the ROE calculation changed your analysis in part (b) above? Explain why or why not.

(4 marks)

Before Acquisition ($) After Acquisition ($)

ROE Answer here: