VCE Accounting 2025

Question 4 (16 marks): Cash from debtors and operating cash flows

Based on Question 4a, 4b and 4c (3 + 7 + 6 marks). Dizzies Metalworks sells on credit (terms 3/15, n/30), buys inventory for cash and budgets monthly. Its November budget shows Sales 123 000, Sales Returns 3 000, Wages 27 000, Advertising 1 300, Depreciation 3 200, Discount Expense 1 500, Bad Debts 4 000 and Rent 2 500 (all GST exclusive). Accounts Receivable moves from 91 000 to 94 000, the Allowance for Doubtful Debts from 3 000 to 5 000, and Prepaid Advertising from 1 000 to nil. Inventory purchases will be 55 000 plus GST, and no GST settlement occurs in November. Find the GST paid, the cash from debtors and the net cash flow from operating activities.

Step 1: GST paid in November. GST is paid only on cash purchases that attract it. Wages carry no GST. Of the 1 300 advertising expense, 1 000 was already prepaid in October, so only 300 is paid in November.

Step 2: bad debts written off. The Allowance must end at 5 000 after being increased by the 4 000 Bad Debts expense, so the amount written off is

The write-off reduces Accounts Receivable by 2 000 plus GST, that is 2 200.

Step 3: the ledger accounts (dollars).

Allowance for Doubtful Debts

Accounts Receivable

Bank is the balancing figure:

Sales and Sales Returns are posted GST inclusive ($123\,000 \times 1.1$ and $3\,000 \times 1.1$) because debtors owe the full invoice amount. Discount Expense has no GST adjustment here, as in the report.

Step 4: Operating Activities (dollars). Only cash items appear. Depreciation, Bad Debts and Discount Expense are non-cash and are left out.

Final answer: GST paid 5 780 dollars; cash from Accounts Receivable 125 300 dollars; Budgeted Net Cash Flow from Operating Activities 34 720 dollars. There is no line for GST received, because every sale is on credit and the GST is collected inside the Accounts Receivable receipts.

Question 7 (12 marks): Balance day adjustments at 454High

Based on Question 7a (12 marks). 454High reports monthly. Its Trial Balance at Friday 31 October shows Inventory 138 000, Prepaid Insurance 4 400, Equipment 272 000 and Accumulated Depreciation 122 000. Wages of 800 per day (five-day week) are paid each Thursday up to the day before. An August payment of 4 800 plus GST bought 12 months of insurance cover starting 1 September. Equipment is depreciated at 20% a year reducing balance, and new equipment costing 15 000 plus GST was bought on 1 October. Other facts: a stock count of 139 000, an unrecorded 300 plus GST electricity bill, and an 800 deposit received for goods not yet supplied. Record the adjustments.

Workings

• Inventory: count 139 000 less ledger 138 000 gives a gain of 1 000.
• Wages: Thursday's payday covered up to Wednesday, so Thursday 30 and Friday 31 October are owed: $2 \times 800 = 1\,600$.
• Insurance: one month has been used, $4\,800 \div 12 = 400$ (the GST was claimed when paid).
• Depreciation: the old equipment's carrying value is $272\,000 - 15\,000 - 122\,000 = 135\,000$, so one month is $135\,000 \times 0.2 \div 12 = 2\,250$. The new equipment adds $15\,000 \times 0.2 \div 12 = 250$. Total 2 500.
• Electricity: incurred but unpaid, so accrue the GST-exclusive 300 (GST is recorded when the bill is paid).
• Deposit: cash received before the goods are supplied is a liability, not revenue.

General Journal, 31 October (dollars)

Final answer: the six entries above, one mark for each debit and each credit. Carrying these into 7b, Current Liabilities are Accounts Payable 42 000, GST Clearing 2 350, Accrued Electricity Expense 300, Accrued Wages Expense 1 600 and Unearned Sales Revenue 800, a total of

Question 8 (10 marks): Trading in a delivery van

Based on Question 8a to 8d (1 + 4 + 3 + 2 marks). AB Gym Equipment reports at 30 June and depreciates its vans at 15% a year straight line on cost. At 30 June 2024 Delivery Vans were 90 000 with Accumulated Depreciation 52 000. On 31 December 2024 a van that cost 40 000 (carrying value 12 000 at 30 June 2024) was traded in for 10 000 on a new van costing 48 000 plus GST, with the balance paid by EFT.

(a) Depreciation on the old van to 31 December. It was held for six months of the year:

(b) Disposal account. Accumulated depreciation at 30 June 2024 was $40\,000 - 12\,000 = 28\,000$, plus 3 000 for the half year, giving 31 000. The carrying value at disposal is $40\,000 - 31\,000 = 9\,000$, so a trade-in of 10 000 gives a profit of 1 000.

Disposal of Delivery Van (dollars)

The trade-in is cross-referenced to Delivery Van, not Bank, because no cash was received for the old van.

(c) Depreciation for the year ended 30 June 2025. Three pieces:

• traded-in van, six months: 3 000
• remaining van (cost $90\,000 - 40\,000 = 50\,000$), full year: $50\,000 \times 0.15 = 7\,500$
• new van, six months: $48\,000 \times 0.15 \times \tfrac{6}{12} = 3\,600$

(d) Cash Flow Statement. Cash paid for the van is the cost less the trade-in, $48\,000 - 10\,000 = 38\,000$, an Investing outflow. The GST of $0.1 \times 48\,000 = 4\,800$ was also paid in cash and is an Operating outflow (GST Paid). The trade-in itself is not a cash inflow.

Final answer: (a) 3 000; (b) Profit on Disposal 1 000, totals 41 000; (c) 14 100; (d) Delivery Van, Investing outflow 38 000, and GST Paid, Operating outflow 4 800.

Question 3 (5 marks): Purchase and write-down of football jumpers

Based on Question 3a and 3b (2 + 3 marks). Top Sportz uses FIFO and buys 45 jumpers on credit at 80 each plus GST, with delivery of 90 plus GST. At 30 September, 30 jumpers remain. Their normal price is 110 plus GST, but the owner (Memo 63) will now sell them at 75 plus GST and give away a cup costing 5 plus GST (retail 10) with each one. Record the purchase and the memo.

(a) Purchase. Delivery is a product cost, so it is added to Inventory rather than recorded as a separate expense:

General Journal, 1 August (dollars)

(b) Write-down. Cost per jumper including delivery is $3\,690 \div 45 = 82$. Net realisable value is the selling price less the cost of making the sale, and the free cup is a cost to the business at its cost price, not its retail price: $75 - 5 = 70$. The loss per jumper is $82 - 70 = 12$:

General Journal, 30 September (dollars)

Final answer: purchase Dr Inventory 3 690, Dr GST Clearing 369, Cr Accounts Payable 4 059; write-down Dr Inventory Write-Down 360, Cr Inventory 360, with a narration naming the jumpers, net realisable value and Memo 63.

Question 5 (10 marks): Should the night shift continue?

Based on Question 5a and 5b (4 + 6 marks). Gazza's Gas, the only 24-hour service station in a regional town, averages 3 700 in daily sales on the 10 pm to 6 am shift, which one staff member works for 8 hours at 30 an hour. The gross profit margin is 12%. The owner measures shift profit as gross profit less staff wages and wants at least 60 000 a year from the shift. The night staff are mostly local university students, a 20% pay rise is being considered, and there have been drive-offs and antisocial behaviour after 10 pm.

(a) The table (dollars)

(b) Discussion and recommendation

1. Financial. At the current wage the shift clears the target (74 460 against 60 000), but with the 20% rise it falls short by $60\,000 - 56\,940 = 3\,060$. The owner's formula also ignores costs the night shift adds, such as electricity, lighting, maintenance and possibly security, so both figures overstate its contribution. On the other hand, a single 12% margin may understate night profit: food and drinks usually carry a higher margin than fuel, and with other shops closed a larger share of night sales may be food and drink.
2. Ethical. The shift is a service no one else in town provides, and it gives students income and work experience. Against that, staff working alone face antisocial behaviour and drive-offs, which is a safety duty for the owner (and drive-offs also cut profit). Running all night uses more electricity, an environmental cost, and may cause noise for neighbours.
3. Recommendation. Continue the shift, but pay the higher rate only alongside measures that protect the target and staff, for example prepay-at-night fuel to stop drive-offs, and review the product mix to lift the night gross margin. Reassess after a quarter using a shift profit that includes the extra running costs.

Marker's note: the report gave 5 to 6 marks for a detailed discussion of both options that weighs positives and negatives, uses accurate terminology and ends in a recommendation (required for full marks). High scorers used their 5a figures, questioned the owner's formula and single margin, and weighed community value against staff safety and electricity use. Weak answers restated the case study.

Question 6 (3 marks): Rising Asset Turnover, falling Return on Assets

Based on Question 6b (3 marks). Earthwrkx's chart shows Return on Assets falling from 16.5% (2023) to 16.0% (2024) to 15.6% (2025) while Asset Turnover rises (read from the chart, roughly 1.38, 1.44 and 1.47 times) and Sales grow. Explain how this can happen.

Model answer

1. A faster Asset Turnover means the business is generating more Sales from each dollar of assets, so its assets are being used more effectively to earn revenue.
2. Return on Assets depends on Net Profit, not Sales. Since ROA equals Asset Turnover times Net Profit Margin, a rising turnover with a falling ROA means the Net Profit Margin must be falling. Using the approximate chart readings:

3. A falling Net Profit Margin while Sales rise shows worsening expense control: expenses (for example Cost of Sales, wages or advertising) are growing faster than Sales, so less of each dollar of Sales is kept as profit. ROA will not recover just because Sales grow; expenses must be controlled.

Marker's note: the three marks were for the faster Asset Turnover (more Sales from assets), the falling Net Profit Margin, and worsening expense control. The report said many students understood each indicator but could not explain how they connect. The margin figures above are approximate because the turnover values are read off the chart; the argument, not the numbers, earns the marks.