VCTA
A Walk through the new exam format and
the new aspects of Unit 3
Vicki Baron
Haileybury
Celia Mara
Toorak College
New Study Design – Points to Note
Unit 3 – Area of Study 1 - Outcome 1
2007 – 2011
 On completion of this unit the student should be able to record financial data
into appropriate accounting records using a double entry accrual-based system
for a single activity sole trader, and explain related aspects of this
accounting system.
2012 – 2016
 On completion of this unit the student should be able to record financial data
for a single activity sole trader using a double entry system, and discuss the
function of various aspects of this accounting system
New Study Design – Points to Note
 Unit 3 – Area of Study 2 - Outcome 2
2007 – 2011
On completion of this unit the student should be able to record
balance day adjustments, prepare financial reports and explain
related aspects of the accounting system
2012 – 2016
On completion of this unit the student should be able to record
balance day adjustments and prepare and interpret accounting
reports.
The New Additions to 2012
 General Journal entries for
 Contribution of non-current assets by the owner at agreed value
 Use of stock for advertising purposes
 The distinction between historical cost and agreed value in relation
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to non-current assets
Posting to the general ledger from the general journal and special journals on a
monthly basis
Process of balancing the general ledger and subsidiary ledger accounts in
preparation for the next reporting period
Reasons for using control accounts
Internal control procedures and practices of this accounting system
Classified Accounting reports
 Cash Flow Statement
 Income Statement
 Balance Sheet
Key Knowledge Differences – U3,Outcome 1
2007 - 2011
2012- 2016
ALL principles and characteristics listed
APPLICABLE principles and characteristics
special journals (the amount of GST will be identified
for each relevant transaction):
GST NOT IDENTIFIED ONLY NOT APPLICABLE
in certain ledgers
contribution of non-current assets by the owner
Contribution of non current assets by the owner at
AGREED VALUE
GJ – 5 areas to cover
GJ – 6 areas – new dot point
‘use of stock for advertising purposes’
Not mentioned in old design
The distinction between historical cost and
agreed value in relation to NCA
Posting to GL from GJ and SJ’s at the END of
REPORTING PERIOD
the process of posting to the GL from the GJ and special
journals on a MONTHLY BASIS
No mention of NEXT reporting period
The process of balancing the GL and sub ledgers
in preparation for the NEXT reporting period
No mention of theory behind control accounts
‘reasons’ for control accounts for debtors,
creditors and stock;
No mention of this
Internal control procedures and practices of
this accounting system
Key Skills Differences – U3, Outcome 1
2007 - 2011
2012- 2016
Use correct accounting terminology
Use correct accounting terminology
identify, classify and record financial data and
information;
Identify, classify and record financial data
demonstrate an understanding of the
concepts and principles underlying the
recording and presentation of accounting data
and information;
Explain and apply the qualitative
characteristics and accounting principles
underlying the recording of financial data ad
presentation of accounting information
Apply theoretical knowledge to simulated
situation
Apply theoretical knowledge to simulated
situations
Explain the effect of financial
transactions on the accounting equation
Discuss the function of the various
aspects of the accounting system for a
single activity trading business
Key Knowledge Differences – U3, Outcome 2
2007 - 2011
2012 - 2016
No specific mention of Principles and Characteristics
Applicable accounting principles and
characteristics of accounting information
Balance day adjustments:
– depreciation (straight-line method)
– stock loss or gain as revealed by a physical
stocktake
– prepaid expenses (asset approach, GST to be
recorded at time of payment)
– accrued expenses (GST to be recorded at time of
payment);
The recording and reporting of Balance Day
Adjustments:
-Straight line method of depreciation
- stock loss or gain as revealed by physical stocktake;
-the asset approach to recording prepaid expenses
with GST being recorded at the time of payment;
-accrued expenses with GST being recorded at the
time of payment
Treatment of accrued expenses in subsequent
period
The payment of accrued expenses in the
subsequent reporting period
accounting reports:
– classified Cash Flow Statement (using transaction
approach)
– classified Profit and Loss Statement (gross
profit, adjusted gross profit and net profit)
– classified Balance Sheet;
Classified accounting reports: Cash Flow Statement
using transaction approach; income statement;
balance sheet
Key Knowledge Differences – U3, Outcome 2
2007 - 2011
2012- 2016
Closing entries for revenue and expenses
in the general journal and in the general
ledger
Closing entries for revenue and expenses
in GJ and in GL
The preparation of the Profit and Loss
Summary account with transfer of profit
or loss to Capital Account;
The preparation o f the Profit and Loss
summary account with transfer of profit
or loss to capital account
Transfer of Drawings to Capital account
Transfer of drawings to Capital account
Post adjustment Trial Balance
Post adjustment Trial Balance
The effect of transactions on the acc
equation and the accounting reports
The effect of transactions on the acc
equation and the acc reports
The distinction between cash and profit
The distinction between cash and profit
Key Skills Differences – U3, Outcome 2
2007 - 2011
2012- 2016
Use correct accounting terminology
Use correct accounting terminology
Identify, classify and record financial data and information;
Identify classify and record financial data and report
accounting information
demonstrate an understanding of the concepts and
principles underlying the recording, reporting and
presentation of accounting data and information;
Explain and apply the Characteristics and Principles
underlying the recording of financial data and the reporting
and presentation of accounting information
Apply theoretical knowledge to simulated situations;
Apply theoretical knowledge to simulated situations
Prepare financial reports
Prepare, explain, and interpret accounting reports
Present and communicate information in a suitable
form using a variety of methods
Discuss the effect of financial transactions on the
accounting equation and accounting reports
Distinguish between cash and profit and explain
the effect on accounting reports
Discuss the function of the various aspects of the
accounting system for a single activity trading
business
Impact on the classroom
 Teaching and Learning activities to meet NEW key knowledge
 Principles and Concepts can be introduced at APPLICABLE moments
 Students MUST be able to RECORD and REPORT BDA’s
 Students MUST be able to show knowledge of how to PAY accrued
expenses in subsequent reporting periods
 Students MUST be taught new terminology of ‘Income Statement’
Impact on the classroom
 Teaching and Learning activities to meet NEW key skills
 Students MUST be able to also REPORT accounting information
 Students MUST be able to EXPLAIN and APPLY the characteristics and
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principles underlying the recording of financial data and the reporting and
presentation of accounting information
Students MUST be able to DISCUSS the effect of financial transactions on the
accounting equation and accounting reports
Students MUST be able to PREPARE, EXPLAIN and INTERPRET
Accounting reports
Students MUST be able DISTINGUISH between cash and profit and
EXPLAIN the effect on accounting reports
Students MUST be able to DISCUSS the function of the various aspects of the
accounting system for a single activity trading business
 http://www.vcaa.vic.edu.au/vcaa/vce/studies/account/TeachingLearning
Unit3.pdf
Unit 3 – Outcome 1
Relevant points from new study design
The process of posting to the general ledger from the general journal and special
journals on a monthly basis
The process of posting to the general ledger and subsidiary ledger accounts in
preparation for the next reporting period
Different Ways we can get our students to practice this:
 Present them with already completed journals, over a 3 month period and demonstrated
the journals being posted to the General Ledger
 A prepaid expense question where expense has been prepaid quarterly in advance and
show posting to General Ledger
 An accrued expense question where outstanding accrued amount is paid at the beginning
of the quarter and there is an outstanding balance at the end of the quarter.
 Present them with a trial balance assuming a business reports quarterly
Completed Journals example
 The bookkeeper for Aaron’s Antiques provided the following
journal extract for the 3 month period ending 30 June 2012:
Prepaid Expense Example
Question 1: On 1 September 2011 Jim Laurence commenced trading
as Woodstock Neckwear. A firm that specialises in men’s formals
neckwear. Their accounting system is set up using the accrual method of
accounting and their reporting period is 30 June each year.
 On the 1st September 2011, Jim paid $1200, plus GST for 6 months
insurance on the business premises. During February 2012 he was
informed that the insurance would increase to $250 per month. On 27
February 2012, Jim paid $1650, including $150 GST, to cover insurance
for March to August 2012 (chq 123)
 Complete the Prepaid Insurance Expense account as it would appear in
the General Ledger after all adjusting and balancing entries were made
and in preparation for the commencement of the next reporting period
Prepaid Insurance Example
Cash Payments Journal would have included both of these cash payments of Insurance
Each MONTH the Cash Payments journal would have been transferred to the General
Ledger, thus 2 entries into the Prepaid Insurance Expense General Ledger
Accrued Expense Example
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Wages expense is currently $10 000 per month, paid in arrears on and up to the 15th of each month.
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The following information relates to wages for the business:
• Accrued wages at 1 October 2009 – $5 000
• Payments to employees for wages on 15 October were $10 000
• During November 2009 a wage increase of 20% was approved, effective from 16 December 2009
• Wages owing at 31 December 2009 – $6 000
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Record the wages payments in the Cash Payments Journal for
• 15 October (Chq. 473)
• 15 November (Chq. 491)
• 15 December (Chq. 522).
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Show how the
• Wages Expense account
• Accrued Wages account
would appear after all information has been recorded and posted in preparation for the next reporting period.
Trial Balance example
Additional Information:
 The business reports yearly on 30the June
 Rent is paid quarterly commencing on 1
September each year.
 The Prepaid Rent amount represents rent
paid for this financial year ($24000), plus
the balance from the previous reporting
period.
 Show how the Prepaid Rent and Rent
Expense accounts would appear after all
appropriate entries have been posted. You
are required to balance and/or close the
accounts
Trial Balance example
Changes to Exam Format
 Multiple questions
 Stand alone theory question(s)
 Higher order skills being examined
 Aspects of the accounting system
 Understanding what they are and how they function
 Strengths and weaknesses of these aspects
Changes to Exam Format
 Explain the effect of financial transactions on the accounting
equation and accounting reports
Repaid a loan $100 and interest on the loan of $10
 The repayment of the loan and interest will decrease the
Bank by $110 and reduce the current liability of the loan by
$100 and will also reduce the owner’s equity (net profit) of
the business by $100 as the interest on the loan is an expense.
Double Entry
 What is it?
 Double entry accounting means recording in ledger accounts whereby at least two ledger
accounts are affected by each transaction
 How does it operate?
 Two entries are made for each transaction – one entry as a debit to one account and the other
entry a credit to the other account. These two transactions keep the accounting equation
(A=L+OE) in balance
 What is the ‘two-fold effect’?
 The two fold effect takes the form of debits and credits. For each debit there is an equal and
opposite credit and the sum of all debits must equal the sum of all credits.
 Advantages and limitations /benefits and costs to the business
 Is double entry used when recording in subsidiary ledgers?
 No - double entry is maintained in the General Ledger only – the individual ledgers in the
subsidiary ledgers reflect only the transactions from the Control Account
 Question to consider:
 Is double entry always the best recording system for all businesses? Why/why not?
 Double entry accounting provides for
 An accurate calculation of profit/loss
 Preparation of financial reports directly from the ledger
 Easier detection of errors and fraud
 Accurate bookkeeping is required for owners and managers to understand the financial status of their business
Documents
 What is the purpose of the source document?
 describes the basic facts of the transaction and
 is the initial input to the accounting process and
 serves as verifiable evidence of the transaction
 provides the information required to analyse and classify the
transaction and to create the journal entries
Special Journals
 What is a journal?
 A chronological listing of the firm’s transactions, including the amounts, accounts that are affected
and the direction the accounts are affected. Known as the book of original entry
 What are the special journals?
 A journal which groups specific types of transactions and allows for improved efficiency and
organisation in the accounting system
 The journals provide a link between the ledger entries and the source documents
 Benefits and costs to the business / advantages and limitations
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Summarises similar transactions
Allowing totals to be posted to the general ledger
Allows for the removal of bulky detail from the general ledger
However involves additional recording which may require additional staff and increase costs
 Why are the special journals constructed differently from each other?
 Which ledger accounts are affected when special journals are balanced and transferred to the
general ledger?
 Question to consider:
 Should all recording systems include special journals for Cash Receipts, Cash Payments, Credit Sales
and Credit Purchases? Why/why not?
 It is up to each business to determine which journals to use based on their own circumstances and needs. If for
example they do not purchase or purchase limited stock on credit they may not require the need for a Purchases
Journal
The General Ledger
 What is the purpose of the general ledger?
 The general ledger is a collection of T-accounts to which debits
and credits are transferred and facilitates the tracking of
individual account balances
 What is the purpose of the subsidiary ledgers?
 To record the individual transactions which affect debtors,
creditors and stock items on the date that they occur
 Allows for the removal of this bulky detail pertaining to
individual accounts from the general ledger
The Trial Balance
 What is the purpose of the trial balance?
 To verify the accuracy of the double entry recording as the sum
of all debits in the general ledger must equal the sum of all
credits
 Used as a tool for detecting errors
 Calculated by summing the balances of all the ledger accounts
 Prepared prior to the preparation of final reports
 Can a balanced trial balance still be incorrect?
 Omission of an entry
 A journal entry posted to the wrong ledger account
 Reversal of debit and credit entries
Control Accounts
 Which areas do we have control accounts for?
 How do they operate?
 How are they reconciled?
 Advantages and limitations
 Benefits and costs to the business
 Questions to consider:
 Should control accounts always be used? Should they be limited
to debtors, creditors and stock? Justify your answers.
Process of balancing accounts
 Why should accounts be balanced?
 Assets and liabilities will exist into the future. That is, the Balance Sheet items involve a future benefit
or future sacrifice and so should not be reset to zero, but their balances should carry forward into the
next Reporting Period.
 Why do businesses need to prepare for the next reporting period? What would happen if accounts
weren’t balanced?
 Once the length of the reporting period has been established it is important for decision making to
ensure that accounts relate only to the period under consideration in order for decisions to be made
 Benefits/costs to the business
 Allows for the accounts to be prepared in preparation for the next reporting period.
 The difference between footing and balancing an account
 Footing – an informal process used to determine the balance of a ledger account
 Balancing – ruling off an A, L and OE account to determine its balance at the end of the reporting
period and transferring that balance to the next reporting period.
 Where are the balances of accounts shown in reports?
 Balance of all revenue and expense accounts are shown in the Income Statement
 Balances of all Asset, Liability and Owner’s Equity accounts are reflected in the Balance Sheet
 Question to consider:
 Are all accounts balanced? Why/why not?
Stockcards
 What is the purpose of a stock card?
 What is the First-In, First Out (FIFO) method of managing
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stock?
Definition of perpetual inventory method
How does the business check the stock record is accurate?
Costs/benefits to the business
How are details of the stock cards entered into the general
ledger?
Question to consider:
 Should all businesses use the perpetual inventory method?
Why/why not?
Changes to Exam Format
 Explain the effect of financial transactions on the accounting
equation and accounting reports
Repaid a loan $100 and interest on the loan of $10
 The repayment of the loan and interest will decrease the
Bank by $110 and reduce the current liability of the loan by
$100 and will also reduce the owner’s equity (net profit) of
the business by $10 as the interest on the loan is an expense.
Approaching extended theory
 On 30 June 2012 the owner decided to contribute his
personal vehicle to the business which he purchased in July
2011 for $55 000 including GST. The accountant has valued
the vehicle at $45 000.
Justify with reference to qualitative characteristics and
accounting principles the value at which the vehicle
should be reported in the Balance sheet
Sample solution
 The vehicle should be reported by the business at $45 000 (1) as this is the
agreed value that is regarded as the accepted value of a non-cash asset at the
time of its contribution by the owner.(1)
 Whilst $50 000 is the historical cost of the vehicle, that is the original purchase
price of the non current asset which can be verified by a source document (1)
and so provides a reliable value for the vehicle which is free from bias (1), this
value is no longer useful or relevant for decision making.(1)
 The future economic benefit the vehicle is expected to provide to the business
is less than its original purchase price and it is important to recognise this so
that when allocating the cost of the vehicle as an expense against revenue (via
depreciation expense) expenses are not overstated and net profit understated.
The reporting period principle requires that revenues earned be matched
against expenses incurred to accurately calculate net profit.
 The GST has no impact on the valuation of the vehicle as this amount was paid
by the owner and is not included in the historical cost of the vehicle.
Approaching extended theory
 The owner is convinced that if they use the FIFO method of
cost assignment that the stock on hand will reflect the most
recent purchases.
 Explain the FIFO method of cost assignment and explain to
the owner if they are correct. In your response discuss the
implications of using this system on the valuation of stock on
hand, cost of sales and net profit
Sample solution
 FIFO stock valuation assumes that the first stock purchased by the business is
the first stock that is sold by the business. Many businesses use this method for
stock valuation because it is too difficult to individually/label each individual
item of stock, especially when the stock items are small and are of relatively low
value. The owner believes it is not worth the time, effort and additional cost.
Without physically labelling every item of stock there is no way the owner can
match the stock items sold with the actual cost price.
 FIFO is applied to all transactions in the OUT column of the stock card, but it
is an assumption only. The business makes an assumption about the cost price of
stock as they have no way of knowing for certain the exact cost price for the
stock as without marking the stock there is no way of knowing the cost price
for the stock that has been sold. (Smarties task)
 In times of rising prices the valuation of stock on hand in the Balance Sheet will
be higher as the stock is reported at the most recent purchases which are the
most expensive (prices are rising). As the earlier stock purchased (which is
cheaper) is sold first under the FIFO assumption, cost of sales will be lower and
net profit will be higher.
Approaching extended theory
 The owner of a business believes that recording prepaid
expenses as assets is an unnecessary waste of time.
 Justify/explain/discuss with reference to accounting
principles and qualitative characteristics why recording
prepaid expenses as assets is necessary
Approaching extended theory
 Sandra has commenced a business from home. She works
from her spare room in her home and the firm’s only assets
are a chair, computer, desk and filing cabinet which have a
total value of $7 500. When preparing her annual Income
Statement, Sandra does not include depreciation of these non
current assets and instead writes them off as an expense in
the period of purchase.
 Discuss with reference to qualitative characteristics and
accounting principles if Sandra should change her treatment
of non current assets in the Income Statement.
Sample solution to sample exam
Solution prepared by presenters and not VCAA
approved.
Solution to sample exam
Question 1
 A double-entry accounting system means recording in
ledger accounts whereby at least two ledger accounts are affected
by each transaction
2 marks
Solution to sample exam
Question 2
Date
2011
Details
1 Feb Stock Control
Prepaid Rent Expense
Computer Equipment
Display Fittings
Loan
Capital
General Ledger
Debit
3500
4000
1500
6000
Credit
6600
8400
Subsidiary
Ledger
Debit
Credit
Solution to sample exam
Solution to sample exam
Question 3
Solution to sample exam
Question 4
a.
FIFO stock valuation assumes that the first stock purchased by the business is
the first stock that is sold by the business. Many businesses use this method for
stock valuation because it is too difficult to individually/label each individual
item of stock, especially when the stock items are small and are of relatively low
value. The owner believes it is not worth the time, effort and additional cost.
2 marks
Solution to sample exam
Question 4
c.
The use of the treadmill for advertising purposes should be treated as an expense as there has been
an outflow of economic benefit caused by the decrease in the asset (Stock Control), which reduced
owner’s equity (net Profit). That is the treadmill will not be sold and will therefore not contribute
to future economic benefit.
2 marks
Solution to sample exam
Question 4
Solution to sample exam
Question 4
Solution to sample exam
Revenue:
8 sold @ $ 1950 = $15600 + 1 sold @ $ 2250 = $2250
COGS = 8 x $1300 = $10400 + 1 @ $1500
Revenue
LESS COGS
LESS Stock Loss
$17850
$11900
$1500
Adjusted Gross Profit
$4 4 50
= $1500
Solution to sample exam
Solution to sample exam
Question 5
Solution to sample exam
Question 5
Solution to sample exam
Question 5
Solution to sample exam
Question 5
d.
Discuss benefits and limitations of using Control Accounts
 Control accounts serve a useful purpose in the recording and reporting processes and
further assist in the management of debtors and creditors for businesses that deal with
numerous customers and suppliers.
 The benefits of using control accounts and subsidiary ledgers in the accounting
system
 Allows for transactions to be summarised and removes clutter from the general ledger.
 Reporting – only one amount reported, relevant for decision making
 Management – separation of duties – checking mechanism, enhance internal control
 However there are also limitations of using control accounts and subsidiary ledgers
in the accounting system which include
 the additional record keeping required
 not suitable for all businesses to use and
 increases the costs of record keeping due to the extra specialised staff which may be
required.
Solution to sample exam
Question 6
a.
GST would have been reported as a Current Asset
This is because there are two entries in the Cash Receipts Journal pertaining to
the GST, one from the GST Column representing GST received on cash sales,
the other from the Sundries column which indicates that the business has
received a GST refund from the ATO as the GST paid and incurred in the last
period was greater than the GST earned/received.
3 marks
Solution to sample exam
Question 6
Solution to sample exam
Question 7
a.
Explanation:
The short term impact of the new cafe has been detrimental to the cash flow
of the business as evidenced by the bank overdraft position that the
business is now in.
The cost of the new café has exceeded the loan / capital that was
contributed (as evidenced by the cash flows from financing activities) and
used for its construction
Gus has injected loan and possibly additional capital to purchase the necessary
non current assets and additional stock required for the new cafe (as evidenced
by the net cash outflows from Investing Activities).
4 marks
.
Solution to sample exam
Question 7
b.
Disagree
 In order to Gus to make relevant decisions about the cash flow of the business
Gus should have access to the details of his cash flows in order to determine
why operating activities is Negative, all details of inflows and outflows should
be examined. Investing activities may be negative as a result of the purchase of
a new NCA and Gus needs to know how Financing Activities has managed to
increase, that is whether it has been due to additional capital contributed or
through loans taken out which need to be repaid and on which interest is
incurred.
3 marks
Solution to sample exam
Question 8
Last year made a loss but bank increased despite having no loans or
capital contributed
Discuss:
Under accrual accounting there is a difference between revenue earned and received
and expenses paid and incurred. Cash and profit are different resources. Whilst the
business made a loss in the previous year, the bank balance may have increased due to
Receipts from debtors being greater than credit sales, payments for expenses being
less than expenses incurred or cost of sales being greater than payments to creditors.
All of these examples will impact a net loss but have a lesser impact on the bank
balance. In addition the business may have sold non current assets for cash or
deferred a loan repayment or the owner may have reduced their drawings from the
business preferring to leave cash in the business because of the net loss incurred.
4 marks
Solution to sample exam
Solution to sample exam
Question 9
b.
Qualitative Characteristic: Relevance
Explanation: Whilst there is a stock loss in one area and a stock gain in
another, only the overall effect is reported in the income statement as the
business would use a control account for stock in the General ledger and it is
the overall impact that is relevant for decision making
3marks
Solution to sample exam
Question 9
c.
Impact of Memo 44
Explanation: The inclusion of this information will reduce Net Profit by
$1000 in the Income Statement as the operating expenses are currently
understated and this will impact on the accurate calculation of profit. In
addition, in the Balance Sheet, the Current Assets of Debtors Control will
decrease by $1100 and GST Clearing will decrease by $100. Owner’s Equity
will decrease by $1 000.
4marks
Solution to sample exam
Question 9
d.
Justification: The vehicle should be valued at $20 000 which is the agreed
value of the NCA by the Accountant at the time of contribution to the business.
Whilst Historical cost states that assets should be recorded at their original
purchase price as it can be verified by a source document, this value is no
longer relevant for decision making the accountant has valued the vehicle at
its agreed value which is lower than its historical cost as this value is far more
relevant for decision making as the asset is no longer new and its contribution
to the business is limited.
3 marks
Solution to sample exam