Mount Lawley Senior High School Year 11 ATAR Accounting and Finance Practice Test Notes

OFFICIAL Mount Lawley Senior High School Year 11 ATAR Accounting and Finance PRACTICE Test: Concepts and the Balance Sheet

Weighting – nil (practice only)
Student name: __
Time allowed for this practice assessment: 42 minutes
TOTAL MARKS: 33

Materials Required for This Assessment

• ### This practice question/answer booklet
• Standard items:
  • Pens
  • Pencils
  • Correction tape/fluid
  • Eraser
  • Ruler
  • Highlighters
• Special items:
  • Non-programmable calculators

Syllabus Content Assessed

• Accepted Accounting Principles and Conventions, including:

  • Accounting Entity: The principle that states the business's financial activities are separate from the personal financial activities of its owners.
  • Monetary: Transactions must be recorded in a common monetary unit, such as the Australian dollar.
  • Historical Cost: Assets should be recorded at their purchase price, not at their current market value.
  • Materiality: All significant information should be represented in financial statements; insignificant information can be ignored.
  • Accounting Period: Financial performance and position are measured over specific periods, usually annually.
  • Going Concern: The assumption that the business will continue to operate for the foreseeable future.

• Factors Considered by Financial Institutions When Approving Finance

  • Risk:
  • Collateral: Security offered against loans, such as assets.
  • Liquidity: The ability to meet short-term obligations.
  • History: Past financial performance and reliability of the business.
  • Guarantors: Others who will take responsibility for the loan if the borrower defaults.
  • Return:
  • Interest Rate: The cost of borrowing expressed as a percentage of the loan.
  • Future Business: Expected profitability and cash flow potential.

• Purpose of Financial Statements, including:

  • Performance: To assess how well the business has done over a period.
  • Financial Position: To provide a snapshot of the business’s assets, liabilities, and equity at a certain point in time.
  • Liquidity: To verify if the business can meet its short-term financial obligations.

• Legislation Relating to the Formation of Sole Traders and Partnerships, including:

  • Business Names Registration Act 2011 (Cth): Governs the registration of business names in Australia.
  • Partnership Act 1895 (WA): Regulates the formation and operation of partnerships in Western Australia.

• ### Manual Preparation of Simple Classified Financial Statements for a Sole Trader Excluding Balance Day Adjustments

  • Preparation of a Balance Sheet (statement of financial position) for trading, merchandising, or service businesses.

Assessment Overview

Section One: Multiple Choice [5 marks]

• This section has been omitted from this practice test.
• Students should prepare for these short answer questions by revising the content covered in class.

Section Two: Short Answer [14 marks]

1. Case Study: Sienna Harper and Urban Threads

   • Sienna Harper owns a boutique clothing store called Urban Threads.
   • She prepares financial statements every 12 months to evaluate the performance of her business.
   • Throughout the year, Sienna records all sales and expenses in Australian dollars, ensuring correct currency handling even for overseas purchases.
   • During the year, Sienna accidentally overcharged a customer $4.50 but chose not to adjust her records, deeming the amount too minor to impact financial results.
   • Sienna also ignored recording a $25 decorative plant purchase, considering it insignificant compared to total annual expenses.

   a) #### Accounting Principles and Conventions Applied/Breached: [6 marks]

   • Monetary Principle: Sienna complies by recording all transactions in Australian dollars.
   • Materiality Principle:
     • Breached by not adjusting for a $4.50 overcharge.
     • Breached by ignoring the $25 plant purchase.

   b) #### Main Financial Statements and Their Purposes: [6 marks]

   • Income Statement:
     • Purpose: Reports revenues and expenses, showing profitability over a period.
   • Balance Sheet:
     • Purpose: Presents assets, liabilities, and equity, providing a financial position snapshot at a specific date.
   • Cash Flow Statement:
     • Purpose: Shows how cash moves in and out of the business, demonstrating liquidity.

   c) #### Return Factors for Financial Institutions: [2 marks]

   • i) Interest Rate: The percentage charged on borrowed funds, representing the cost of financing for the borrower.
   • ii) Future Business: Assessment of potential profitability and cash flow to determine the ability to repay borrowed funds.

Section Three: Practical [19 marks]

1. Case Study: Olivia Nguyen and Liv’s Graphic Design Studio

   • Olivia Nguyen established her business as Liv’s Graphic Design Studio and provides the following account balances as of 30 June 2024:
     • Account Balances:
     • Cash at Bank: $48,000
     • Accounts payable – PrintCo: $12,500
     • Capital: ?
     • Computer Equipment: $38,000
     • Drawings: $16,000
     • Profit: $72,000
     • Loan (due 2028): $20,000
     • Investments (due December 2024): $18,000
     • GST payable: $14,200
     • GST credits: $6,800
     • Motor Vehicle: $30,000
     • Accounts receivable – J. Banner: $21,000

   a) #### Business Name Registration According to the Business Names Act 2011: [3 marks]

   • Explanation: Olivia likely required to register her business name under the Business Names Act 2011 since operating under a business name that is not her own personal name necessitates registration with the relevant authorities.

   b) #### Prepare a Balance Sheet for Liv’s Graphic Design Studio: [16 marks]

   • Liv’s Graphic Design Studio Balance Sheet
   • Assets:
     • Cash at Bank: $48,000
     • Computer Equipment: $38,000
     • Motor Vehicle: $30,000
     • Accounts receivable – J. Banner: $21,000
     • Investments (due December 2024): $18,000
   • Total Assets = $48,000 + $38,000 + $30,000 + $21,000 + $18,000 = $155,000
   • Liabilities:
     • Accounts payable – PrintCo: $12,500
     • Loan (due 2028): $20,000
     • GST payable: $14,200
   • Total Liabilities = $12,500 + $20,000 + $14,200 = $46,700
   • Equity Calculation:
     • Capital = Total Assets - Total Liabilities
     • Capital = $155,000 - $46,700 = $108,300
   • Balance Sheet Format:
   • Assets: $155,000
   • Liabilities: $46,700
   • Capital: $108,300
   • Confirming Sienna’s performance through balance sheet preparation consolidates financial standing assessment.

Extra Writing Space:

• OFFICIAL
• Page 7

Page 8

• OFFICIAL
• Additional Notes or Calculations