Year 12 ACCOUNTING UNIT 3 PRACTISE SAC 3 QUESTIONS FOR
PREPAID/ACCRUED/DEPRECIATION EXPENSES
Question One
Carl Rackemann owns and operates Roof Rack-e-man, a shop that sells roof racks and car storage
equipment. The business buys and sells on both a credit and cash basis. Reports are prepared
quarterly. Carl provided the following journal information for the quarter ended 30 June 2015:
Rent of $1320 including GST was paid on 16 May 2015 to cover 1 June to 30 November 2015.
Required
1.1.1
Explain why this payment was recorded as Prepaid Rent Expense in the Cash Payments
Journal. 2 marks
1.1.2
Complete the Prepaid Rent Expense account in the General Ledger of Roof Rack-e-man as
at 30 June 2015. 3 marks
1.1.3
State the effect on the accounting equation of Roof Rack-e-man if the Prepaid Rent
Expense account was not adjusted as at 30 June 2015. 3 marks
Question 2
On 1 July 2015 Roof Rack-e-man paid $27 940 (including $2 540 GST) for new security cameras.
The cameras were delivered that same day, but not installed until 1 August 2015 at a cost of $600
(plus $60 GST). The security cameras are expected to have a useful life of 10 years, and a residual
value of $2 000.
Required
2.1
Calculate depreciation of security cameras for the quarter ended 30 September 2015. 3
marks
2.2
Referring to your answer to 2.1 justify your treatment of the installation cost. 1 mark
Question 3
Fatima Blusch owns and operates Spyware, which sells surveillance equipment to large retail stores.
Reports are prepared monthly.
In July 2014, 6 months rent was paid in advance to cover August 2014 to January 2015.
In December 2014, Fatima was notified that starting in February 2015, rent would rise to $900 (plus
$90 GST) per month. Rent for February–July 2015 was paid in advance on
8 January 2015. Total rent paid during the year ended 30 June 2015 amounted to $9 720.
Required
3.1
Calculate rent expense for January 2015. 2 marks
3.2
As at 30 June 2015 the Pre-adjustment Trial Balance of Spyware showed the following:
SPYWARE
Pre-adjustment Trial Balance as at 30 June 2015
Account
Debit $
Accumulated Depreciation of Shelving
Bank
Credit $
12 700
1 290
Capital – Blusch
Cost of Sales
45 680
23 650
Creditors Control
Debtors Control
14 500
16 300
Delivery Expense
1 100
Discount Expense
270
Discount Revenue
Drawings
320
800
GST Clearing
Prepaid Rent Expense
910
1 800
Sales
39 000
Shelving
36 000
Stock Control
29 300
Wages
2 600
Total
113 110
113 110
Additional information:

A stocktake on 30 June 2015 revealed $29 500 worth of stock on hand.

Depreciation of shelving is calculated at 15% p.a.

Delivery expense incurred (for deliveries to Spyware) for June 2015 was $1 500.
Required
3.2.1
Referring to one accounting principle, explain the purpose of making balance day
adjustments. 2 marks
3.2.2
Show the General Journal entries necessary to record the balance day adjustments for June
2015. (Narrations are required.) 9 marks
3.2.3
Complete the Delivery Expense account in the General Ledger of Spyware as at 30 June
2015. 3 marks
3.2.4
Prepare an Income Statement for Spyware for June 2015. 6 marks
3.2.5
Explain the purpose of preparing an Income Statement. 2 marks
3.3
Fatima is keen to report the firm’s assets in the Balance Sheet at their market value.
Required
3.3.1
Explain how depreciable non-current assets are valued in the Balance Sheet. Identify one
qualitative characteristic that supports your answer. 2 + 1 = 3 marks
3.3.2
Show how the shelving would be reported in the Balance Sheet of Spyware as at 30 June
2016. 2 marks
Question 4
On 31 July 2015, Fatima wrote a business cheque for $1 600 (plus $160 GST) for deliveries made
to Spyware for June and July 2015 (Cheque 95).
Required
4.1
Record Cheque 95 in the Cash Payments Journal of Spyware. 2 marks
ANSWER BOOK 1.1
Explanation
2 marks
1.1.2
General Ledger
Prepaid Rent Expense
Date
2015
Cross-reference
Amount
$
Date
2015
Cross-reference
Amount
$
3 marks
1.1.3
Overstated/Understated/No effect
Amount
$
Assets
Liabilities
Owner’s
Equity
3 marks
QUESTION 2
2.1
Calculation
Depreciation of security cameras $
3 marks
2.2
Justification
1 mark
Question 3
3.1
Calculation
Rent expense $
2 marks
3.2.1
Explanation
2 marks
3.2.2
General Journal
General
Ledger
Date
2015
Details
Debit
$
Credit
$
Subsidiary
Ledger
Debit
Credit
$
$
3+3+3 = 9 marks
3.2.3
General Ledger
Delivery Expense
Date
2015
Cross-reference
Amount
$
Date
2015
Cross-reference
Amount
$
3 marks
3.2.4
SPYWARE
Income Statement for June 2015
$
$
6 marks
3.2.5
Explanation
2 marks
3.3.1
Explanation
Qualitative characteristic
2 + 1 = 3 marks
3.3.2
SPYWARE
Balance Sheet (extract) as at 30 June 2016
Non-Current Assets
$
$
2 marks
4.1
Cash Payments Journal
Date
2015
Details
Ch. No.
Bank
Disc.
Rev.
Creditors Stock
Control Control
Wages
Sundries
GST
2 marks
ANSWERS 1.1.1
Explanation
It was paid in advance but not yet used up/consumed In this situation it is a current asset known as a prepaid
because it is an economic resource controlled by the business from which economic benefits are expected in
the next 12 months. So it cannot be reported as an expense when paid as it has not yet been consumed
2 marks
1.1.2
General Ledger
Prepaid Rent Expense
Date
2015
Cross-reference
Amount
$
June 30 Bank
Date
2015
Cross-reference
1 200 June 30 Rent Expense
Balance
200
1 000
$1 200
July 1 Balance
Amount
$
$1 200
1 000
3 marks
1.1.3
Amount
$
Overstated/Understated/No effect
Assets
Overstated (Prepaid Rent Expense)
200
Liabilities
No effect
Owner’s
Equity
Overstated (understate Rent Expense means overstate Net Profit)
200
3 marks
2.1
Calculation
26 000 1 – 2 000 1
10
=
$2 400
x
2
/12
=
400
Depreciation of security cameras $ 400
3 marks
2.2
Justification
Included or built in to the historical cost of the asset as it is a one off cost incurred to get the asset
available and ready for use in my business that will add to the future economic benefit of the asset.
1 mark
Question 3
Spyware 3.1
Calculation
Total paid
less Prepayment – 15 Dec. 2009
Prepayment – July 2009
$9 720
4 320
5 400
6 months
4 320
=
$720/month
Rent expense $ 720
2 marks
3.2.1
Explanation
Reporting Period principle divides the life of the business up into specific time periods for reporting
periods to MATCH expenses incurred for the period against revenue earned for that reporting
period to ensure that a relevant profit is calculated – a profit figure that is useful for decision
making. BDA’s undertake the necessary calculations and adjustments to items such as Prepaid
expense amounts are made to ensure that all expenses actually used up in the reporting period are
recorded not the cash amounts paid or not paid (e.g. accrued expenses and depreciation expense).
2 marks
3.2.2
General Journal
Date
2015
General Ledger
Debit
Credit
$
$
Details
June 30 Stock Control
Subsidiary Ledger
Debit
Credit
$
$
200
Stock Gain
200
30 Depreciation of Shelving
450
Acc. Dep. of Shelving
450
30 Delivery Expense
400
Accrued Delivery Expense
400
30 Rent Expense
900
Prepaid Rent Expense
900
2 + 2 + 2 + 2 = 8 marks
3.2.3
Date
2015
General Ledger
Cross-reference
June 30 Bank
Accrued Delivery Exp.
Amount
$
Delivery Expense
Date
2015
Cross-reference
1 100 June 30 Profit and Loss Summary
Amount
$
1 500
400
$1 500
$1 500
3 marks
3.2.4
SPYWARE
Income Statement for June 2015
$
$
Revenue
Sales
39 000
less Cost of Goods Sold
Cost of Sales
Delivery Expense
23 650
1 500
25 150
13 850
Gross Profit
add Stock Gain
200
14 050
Adjusted Gross Profit
add Other Revenue
Discount Revenue
320
14 370
less Other Expenses
Discount Expense
Wages
270
2 600
Depreciation of Shelving
450
Rent Expense
900
Net Profit (Loss)
4 220
$10 150
6 marks
3.2.5
Explanation
To identify the performance of the business in relation to its Net Profit – as a result make
decisions in relation to this outcome. Specifically to look at revenue earning and expense control.
Decisions can be made about sales, pricing suitability, mark up, looking for cheaper suppliers
and reducing other expenses if the gross and net profit are a concern.
2 marks
3.3.1
Explanation
The business initially identifies Historical Cost and then subtracts the Accumulated Depreciation
on the NCA to identify and value the item at its WRITTEN DOWN OR CARRYING VALUE. This is
the value of the asset yet to be consumed by the business (plus residual value ). This figure is more
useful for decision making as without accumulated depreciation we could be misled regarding the
value of Non Current Assets in the business.
Qualitative characteristic Relevance
2 + 1 = 3 marks
3.3.2
SPYWARE
Balance Sheet (extract) as at 30 June 2016
Non-Current Assets
$
$
Shelving
36 000
less Accumulated Depreciation
18 550
17 450
2 marks
4.1
Cash Payments Journal
Date
2015
Details
July 31 Accrued Delivery Exp./
Delivery Expense
Ch.
No.
Bank
95
1 760
Disc.
Rev.
Creditors Stock Wages Sundries
Control Control
GST
400 1
160
1 200 1
2 marks