Accouting Practice Exam

FACULTY OF BUSINESS ACC carbon ACCOUNTING 1 Sample trial run TIME 9. 20 12. 30 Hours WRITING TIME Three (3) hours READING TIME Ten (10) minutes MATERIALS SUPPLIED BY UNIVERSITY Answer Booklets (4 x 6 page) usual Purpose Answer Sheet GPAS-200R MATERIALS PERMITTED IN EXAMINATION Writing implements, including a 2B pencil and an eraser Battery operated, baseball mitt held, no print facility calculator fare OF QUESTIONS Part A Thirty Part B Four (30) multiple choice (4) questionsINSTRUCTIONS TO CANDIDATES 1. Enter your name and student number and sign in the stead provided at the bottom of this page. You must(prenominal) as well as enter your name and number in pencil on the multiple choice answer sheet, and upon the answer booklet. This mental testing consists of THIRTY (30) multiple choice questions in Part A and FOUR (4) questions in Part B. ALL questions must be answered. Part A (Multiple choice) Students must answer questions 1 30 on the answer sheet provided.Use a black l ead pencil No 2 to fill in alone the letter box corresponding to the most correct answer. To change your answer, erase completely and remark. There are no marks deducted for incorrect answers. Candidates are cognizant to show all workings in Part B clearly labelling them as such. This examination is worth 60% of the terminal assessment. Students must pass the final exam to pass the subject. INSTRUCTIONS TO INVIGILATORS 1 QUESTION PAPER MUST NOT BE RETAINED BY THE CANDIDATE. 2. 3. savant NAME ____________________________________ STUDENT No _________________ STUDENT SIGNATURE _____________________________________________________________ MULTIPLE CHOICE (1 mark each) Record your answers in pencil on the General Purpose Answer Sheet provided. 1 Purchasing inscription for funds has the following dual effect on the accounting comparison A B C D 2 increases an asset and increases a monetary obligation increases an asset and increases an opposite asset decreases an asset and increas es owners beddour decreases an asset and increases an assetPurchasing office piece of furniture partly for change and partly on credit affects the accounting equation by A B C D increasing an asset, increasing a liability and a decreasing an asset increasing an asset, decreasing a liability and decreasing an asset decreasing an asset, increasing a liability and increasing owners equity decreasing an asset, decreasing a liability and decreasing owners equity 3All of the following equations of the basic accounting equation are correct except A B C D assets = liabilities + owners equity economic resources = claims on economic resources assets liabilities = owners equity assets + owners equity = liabilities 4 A business had assets of $260,000 and liabilities of $75,000. How much is its owners equity? A B C D $0 $185,000 $335,000 $260,000 5 The business scroll that reports assets, liabilities and owners equity is called the A B C D financial statement transaction statement of fina ncial position ( equalizer sheet) statement of financial performance (profit and pass statement) 6 Terri operates a beauty salon. During the low month of ope balancen Terri performed the following proceeding i ii 3 iv v vi invested $2,000 in the business prepaid rent of $ coulomb0 purchased $1, cholecalciferol of furniture on credit purchased $100 of supplies for interchange paid $300 on the furniture purchased in iii purchased an antique mirror for $1,000, paying cash of $500 and putting $500 on credit. Using the accounting equation, the final balance on both sides is A B C D 7 3,900 3,700 4,300 4, cdUse the following information to calculate the balance in Johns Capital account. Balance of accounts for Johns Cleaning on 31 display Accounts Payable Accounts due specie at bank Equipment Supplies Bill Payable John, Capital A B C D $20,000 $17,500 $18,000 $15,000 $ 1,000 $ 1,500 $ 500 $20,000 $ 1,000 $ 4,000 ? 8 down the stairs the cash basis of accounting A B C D sort out pr ofit is the excess of cash inflows from revenue over cash outflows for expenses tax is recognized when goods are change write offs are recognized when woos are consumed B and C 3 Judys Hairdressing Salon uses cash accounting. During 2005 the salon report $41,000 in wages paid on the income statement. At social class- finis 2005 wages owing but unpaid were $2,400. If the salon changed to accrual accounting, how much would be report as wages expense for 2005? A B C D $38,600 $41,000 $43,400 $42,600 10 Which of the following statements concerning accrual accounting is true? A B C D lettuce profit is the excess of cash inflows from revenue over cash outflows for expenses tax income is recognised when make and expenses when incurred.When there are credit proceeding the accrual approach gives a better measure of economic performance than the cash approach B and C 11 Joe uses cleaning supplies on a daily basis. Under the accrual basis of accounting these supplies should be an expen se of the period in which they are A B C D uniform Received paying(a) for Used 12 Prepaid insurance is account as A B C D An asset in the balance sheet A liability in the balance sheet An expense in the income statement B and C 13 Which of the following could be reported as a prepaid expense?A B C D A maintenance agreement paid in get on with for the following two social classs absorbs owing at the end of the period drive self-collected in advance from tenants fire income unpaid at the end of the period 14 According to an inventory count Cally Printing had office supplies amounting to $100 at year-end. It had $50 of supplies at the start of the year and had purchased $600 of supplies during the year. What was the supplies expense for the year? A B C D $650 $600 $550 $500 4 15 Which of the following statements relating to the Accumulated Depreciation account is correct? A B C D It normally is a balance on the left hand side of a T-account.It reflects the portion of the cost of an asset that has been assigned to expense since the stop was purchased It provides information to users on the market measure of assets It is classified as a liability in the balance sheet The following data relates to questions 16 to 18. Pams political machine Hire purchased a machine for $6,300 on 1 July 2008. The machine had an estimated life of 7 years, at which time it was expected to have a sales agreements value of $700. The straight-line method of depreciation was used. 16 What was the amount of depreciation charged as an expense on the machine by Pams Machine Hire for year stop 30 June 2009?A B C D 17 $771 $800 $900 $1,600 What was the balance of the Accumulated Depreciation Machine account in the books of Pams Machine Hire at 30 June 2009 following the adjusting entry? A B C D $800 $1,600 $2,400 $2,700 18 What was the book value of the machine in the books of Pams Machine Hire at 30 June 2009 following the adjusting entry? A B C D $5,600 $3,900 $5,400 $5,500 5 1 9 Tom purchased two vehicles for his business on 1 January 2009. These vehicles cost $50,000 each and have a useful life of 5 years with an expected residual of $20,000 each.The adjusting entry required for depreciation on the two vehicles on 30 June 2005 is A B C D append Accumulated Depreciation $6,000 Increase Depreciation Expense $6,000 Increase Depreciation Expense $12,000 cliff Accumulated Depreciation $12,000 Increase Accumulated Depreciation $12,000 Decrease Depreciation Expense $12,000 Increase Depreciation Expense $6,000 Decrease Accumulated Depreciation $6,000 20 Unearned revenue is an example of a(n) A B C D Accrual Liability Asset Expense 21 Rent collected from a tenant in advance is considered A B C D Unearned Revenue Prepaid Expense A liability Both A and C 2 On 1 July 2009 Zoes Bar & Bistro rented out part of its prissyty at a rate of $12,000 per year. On that date, nine months rent was collected in advance and was fileed as an increase to a liability account. At 31 December 2009, (Zoes year-end) which of the following adjusting entries should be made? A B C D Increase bullion, $6,000 Increase Rent Revenue, $6,000 Decrease Rent Revenue, $3,000 Increase Unearned Rent Revenue $3,000 Decrease Unearned Rent Revenue, $6,000 Increase Rent Revenue, $6,000 Increase Rent Receivable, $6,000 Increase Rent Revenue, $6,000 23Working capital is determined by A B C D subtracting total liabilities from total assets adding menstruation liabilities to total assets subtracting menstruation liabilities from current assets adding total liabilities to current assets 6 24 Decision-makers whitethorn use liquidity proportionalitys to measure a companys financial flexibility. An example of a liquidity ratio would be the A B C D return on total assets current ratio gross profit ratio accounts receivable turnover The following information pertains to question 25. Marias Coffee reported $56 000 for current assets and $10 500 for other assets. It also had $17 000 of current liabilities.Marias quick assets totalled $22 000, and its long-term liabilities totalled $10 000. 25 Determine Marias working capital A B C D 26 $5 000 $39 000 $56 500 $12 500 The following entry appeared in the general journal of the SoHo Realty Company Office Supplies Cash Accounts Payable 2,500 500 2,000 Which of the following statements is not true about the transaction recorded in the journal entry above? A B C D SoHos cash decreased by $500 Liabilities increased as a result of the transaction SoHos signed a note as part of the transaction The asset, office supplies, increased as a result of the transaction 27 End of year records from Sallys Boutique show $ Cash 20 Salaries Payable 10 Rent Expense 100 Interest Expense 50 Prepaid Rent 30 Salary Expense 20 Rent collected in advance 20 During the closing process the total debit to the Profit and Loss Summary account would be A B C D $90 $100 $80 $170 28 Muffy Company reported the following for 2009 and 2010 Accounts recei vable, 31 December, 2009 Accounts receivable, 31 December, 2010 Sales for 2010 $ 7 000 3 000 85 000 How much cash was collected from customers during 2010? A B C D $81 000 $85 000 $89 000 $75 000Use the following information to answer Questions 29 and 30 2010 $ 20 000 50 000 54 000 130 000 6 000 230 000 127 000 560 000 340 000 2009 $ 22 000 44 000 51 000 129 000 10 000 221 000 125 000 554 000 336 000 Cash at bank Marketable securities Accounts Receivable enumeration Prepaid expenses Plant and equipment circulating(prenominal) liabilities Sales revenue (on account) Cost of goods sold 8 29 The current ratio for 2010 is A B C D 2. 151 2. 051 1. 881 1. 751 30 Receivables turnover for 2010 is A B C D 10. 4 generation 21. 3 times 4. 10 times 10. 7 times 9 PART B (ALL QUESTIONS TO BE helpED) ANSWER QUESTION IN A crude ANSWER BOOKLET.Question 1 Part A Recording transactions (20 marks) (10 marks) Matthew James religious dish ups Pty Ltd began a business consultancy serve well on 1 J uly 2010. The company uses a perpetual inventory system. The following transactions occurred during the first month of operations July 2 Shareholders invested $46000 in the business in exchange for shares in the company. 2 paying(a) $20000 for the first six months rent. 2 pay Local Energy Corp $300 as a deposit on electricity. 3 Purchased and installed shop fittings for a total cost of $21500 by issuing a cheque for $11500 and igning a commercial loan agreement for $10000. 4 Purchased supplies for $1580 4. Purchased $20000 worth of inventory for cash 6 Paid advertising expense of $1750. 16 Recorded sales for the first half of the month of $16480 in cash and $275 on account. Cost of inventory sold during the period was $7650. 20 Paid insurance expense for the first year of $1250. 23 Received a $50 payment from customers on account. 28 Paid salaries of $1500. 31 Recorded revenue for the second half of the month of $22729 in cash and $530 on account. Cost of inventory sold during the period was $10890. 1 Paid telephone account of $110 by cheque. Use the following account titles and numbers Cash at Bank, 100 Accounts Receivable, 101 Supplies, 103 Inventory 104 Deposits, 105 stool Fittings, 110 Loan Payable, 200 Share Capital, 300 Retained Profits, 310 Dividends, 320 Sales, 400 Cost of Goods Sold, 450 Rent expense, 500 Advertising expense, 501 Insurance expense, 502 call expense, 503 Salary expense, 504. requisite 1. fake the general journal entries to record the above transactions. 10 Question 1 Part B Financial teachings (10 marks)The adjusted trial balance of crossover Australia Limited at 30 April 2009, after all adjustments, is as follows Crossing Australia Ltd Adjusted Trial Balance as at 30 April 2009 Account Cash at Bank Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation equipment Building Accumulated Depreciation edifice Land Accounts Payable Interest due Wages payable Unearned Service revenue Bill payable, non-cu rrent Share capital Service Revenue Depreciation expense equipment Depreciation expense building Wages expense Interest expense Insurance expense Electricity and gas expense Supplies expense good Dr 1,370 43,740 3,690 2,290 63,930 28,430 74,330 18,260 20,000 19,550 2,280 830 3,660 69,900 64,200 98,550 6,900 3,710 60,310 5,370 8,170 4,970 6,880 305,660 Cr 305,660 need Prepare a classified Income Statement and a Balance Sheet for Crossing Australia Limited. 11 Question 2 ANSWER QUESTION IN A NEW ANSWER BOOKLET. Question 2 Part A Financial statement analysis (15 marks) (10 marks) The following information has been extracted from the financial statements and the notes of Softwoods Ltd. 010 Cash assets Marketable securities Receivables Inventories Prepaid expenses Property vegetation and equipment veritable liabilities attribute sales Cost of Goods Sold gist liabilities Total assets Net profit $34 100 110 000 74 800 187 000 4 400 308 000 183 700 979 000 587 400 593 000 650 000 98 000 2009 $37 400 104 500 77 000 173 800 6 600 269 500 167 200 951 500 573 000 567 000 612 000 83 000 Receivables and inventories balances in 2008 were the same as 2009. Required regard the following for 2010 and 2009 1. 2. 3. 4. 5. Current ratio Inventory turnover ratio Receivables turnover ratio Net profit ratio Debt to total assets ratio What conclusions can you come to in relation to Softwoods Ltds liquidity, profitability and solvency? 12 Question 2 Part B Journalise adjusting entries (5 marks)The trial balance of Please-Pass-Me at 30 June 2010, the end of the financial year, is as follows Pass-Me-Please Trial Balance as at 30 June 2010 Account Cash at Bank Accounts Receivable Supplies Furniture and fixtures Accumulated Depreciation furniture and fixtures Building Accumulated Depreciation building Accounts Payable Salary Payable Unearned Service revenue Capital Drawings Service Revenues Salary Expense Supplies Expense Depreciation Expense furniture and fixtures Depreciation E xpense building Miscellaneous Expense Total Dr 198,000 370,000 6,000 100,000 40,000 250,000 130,000 380,000 45,000 293,000 65,000 286,000 172,000 Cr 13,000 1,174,000 1,174,000 Data needed for the adjusting entries include a. b. c. d. e. f. Supplies on hand at year-end, $2,000 Depreciation on furniture and fixtures, $20,000 Depreciation on building, $10,000 Salaries owed but not yet paid, $5,000 Accrued service revenue, $12,000 Of the $45,000 balance of Unearned Service Revenue, $32,000 was earned during the current financial year. Required Prepare the adjusting general journal entries. 13Question 3 ANSWER QUESTION IN A NEW ANSWER BOOKLET. Hardly practice Ltd (15 marks) As at 30 June 2008 the companys cash account in its GL has a debit balance of $5,815. 30. The bank statement balance as at 30 June 2008 showed a balance of $7,075. 80 Cr The following additional information was noted The bank collected a direct deposit of $1200 for Hardly habitual from a debtor and charged $10 for doing so. On 30 June the bank statement showed a debit entry of $550 for a dishonoured cheque deposited by just now Normal from IN Debt, a customer. The 30 June cash receipts of $1,819. 60 were not included in the bank deposits for June. They did not get processed until 1 July. Company cheque no. 480 issued to Joe Bloggs, a creditor, for $492 cleared the bank in June but it had been incorrectly recorded and posted in the companys records as $429. The bank service charge for June was $25. Interest of $48 was received. It had not been previously accrued for. Unpresented cheques at 30 June totalled $2,480. 10. Required 1. 2. Prepare the necessary adjusting entries to the companys GL as at 30 June 2008. Prepare the bank reconciliation statement as at 30 June 2008 (include workings for adjusting the GL). 14 Question 3 Part B Internal Control (5 marks) Fred Firkenstirker has worked for Derek Shonk Solicitors for some(prenominal) years. Fred hasnt taken a holiday in the last three years. One of Freds primary duties is to open the mail and list the cheques received.He also takes cash from clients when they leave. At times it is so hectic that Fred doesnt bother with giving clients a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. When the traffic is slow in the office Fred offers to help Mary post the payments received from clients to the accounts receivable ledger. She is always happy to receive his help, because he is a really conscientious worker. Required Identify any principles of internal control that may be violated in this solicitors office situation. 15 Question 4 Statement of Cash Flows (20 marks) ANSWER QUESTION IN A NEW ANSWER BOOKLET.Choice Brother Pty Limited Balance Sheet 30 June 2010 Current assets Cash at bank Accounts receivable Total current assets Non-current assets Property, plant and equipment at cost Accumulated depreciation Total non-current assets Total assets Curren t liabilities Accounts payable Salaries payable Total liabilities final ASSETS Owners equity Share Capital Retained Profits list OWNERS EQUITY 10,000 11,950 21,950 10,000 4,280 14,280 29,800 3,500 33,300 21,950 35,220 1,000 36,220 14,280 33,000 (17,000) 16,000 55,250 20,000 (8,000) 12,000 50,500 8,750 30,500 39,250 13,500 25,000 38,500 30 June 2009 Other information extracted from Choice Brothers Pty Limited Income Statement for the year ended 30 June 2010 as follows Sales Revenue Gain on disposal of PPE Salaries Expense Other Expenses (ex. Dep. ) Net Profit Other information 141,250 1,000 50,000 71,580 7,670 Equipment that to begin with cost the company $10,000 was sold during the year.The accumulated depreciated on the equipment sold was $4,000. Accounts payable balance relates to amounts owning that are classified under Other Expenses 16 Required 1. Calculate the following cash flows a) receipts from customers b) payments to employees c) payments for other expenses d) payment s for property, plant and equipment e) receipts from the sale of property, plant and equipment (10 marks) 2. Prepare the companys Cash Flows Statement for the year ended 30 June 2010. (10 marks) 17 Indicative examination solutions Part A Multiple Choice 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 D A D B C B C A C D D A A C B B A D A B D C C B B C D C B D 18PART B Question 1 Question 1 Part A Recording transactions Matthews James Services Pty Ltd General Journal Date 2010 2 Jul Account titles and explanation Cash Share Capital (Issued shares) Rent expense Cash (Paid first 6 months rent) Deposit Cash (Deposit on electricity) Post. Ref 100 300 Debit 46,000 46,000 Credit (20 marks) (10 marks) 2 Jul 500 100 20,000 20,000 2 Jul 105 100 300 300 3 Jul Shop Fittings 110 21,500 Loan Payable 200 10,000 Cash 100 11,500 (Purchased shop fittings paid part by cash and part intered by a loan agreement) Supplies Cash (Paid for supplies) Inventory Cash (Paid cas h for inventory) Advertising Expense Cash (Paid advertising expense) 103 100 1,580 1,580 4 Jul 4 Jul 104 100 20,000 20,000 6 Jul 01 100 1,750 1,750 16 Jul Cash 100 Accounts Receivable 101 Sales 400 Cost of Goods Sold 450 Inventory 104 (To record first half month sales) 20 Jul Insurance Expense Cash (Paid 1 year insurance policy) 502 100 16,480 275 16,755 7,650 7,650 1,250 1,250 19 23 Jul Cash 100 Accounts Receivable 101 (To record collection of accounts receivable) 28 Jul Salary Expense Cash (Paid salaries) 504 100 50 50 1,500 1,500 31 Jul Cash 100 Accounts Receivable 101 Sales 400 Cost of Goods Sold 450 Inventory 104 (To record second half month sales) 31 Jul Telephone expense Cash (Paid Telephone expense) 503 100 22,729 530 23,259 10,890 10,890 110 110 20 Question 1 Part BFinancial Statements Crossing Australia Ltd Income Statement For the Year Ended 30 April 2009 (10 marks) Revenues Service revenue Expenses Wage expense Interest expense Depreciation expense equipment Supplies ex pense Insurance expense Electricity and gas expense Depreciation expense building Total expenses Net profit $98,550 $60,310 8,170 6,900 6,880 5,370 4,970 3,710 96,310 $2,240 21 Question 1 Part B continued Crossing Australia Ltd Balance Sheet As at 30 April 2009 Assets Current Assets Cash at Bank Accounts Receivable Supplies Prepaid Insurance Total current assets Non-Current Assets Equipment Less Acc. Depreciation Building Less Acc.Depreciation Land Total Non-Current Assets TOTAL ASSETS Liabilities Current Liabilities Accounts Payable Interest Payable Wages Payable Unearned Service Revenue Total Current Liabilities Non-Current Liabilities Bill Payable TOTAL LIABILITIES NET ASSETS Owners Equity Share Capital Retained Profits OWNERS EQUITY $ 1, 370 43,740 3, 690 2, 290 $ 51,090 $63,930 (28,430) 74,330 (18,260) $35,500 56,070 20,000 111,570 $162,660 $19,550 2,280 830 3,660 26,320 69,900 96,220 $66,440 64,200 2,240 $66,440 22 Question 2 Question 2 Part A Financial statement analysis (15 marks) (10 marks) Formulae 1. Current ratio = Current assets/ Current liabilities 2. Stock turn (Inventory turnover) = COGS/ Average inventory 3. Debtors turn (Receivables turnover) = Net sales/ Average net receivables 4. Net profit ratio = net profit/net sales 5.Debt to total assets ratio = total liabilities/total assets Calculations 2010 Current assets $34,100 + $110,000 + $74,800 + $187,000 + $4,400 = $410,300 2009 Current assets $37,400 + $104,500 + $77,000 + $173,800 + $6,600 = $399,300 2010 Average inventory ($187,000 + $173,800)/2 2009 Average inventory $173, 800 * assumed 2008 and 2009 same balances 2010 Average receivables ($74,800 + $77,000)/2 = $75,900 2009 Average receivables $77,000 * assumed 2008 and 2009 same balances 1. 2. 3. 4. 5. Current ratio Stock turn Debtors turn Net profit Debt to assets 2010 410,300/183,700 = 2. 23 587,400/180,400 = 3. 26 979,000/75,900 = 12. 90 98,000/979,000 = 10% 593,000/650,000 = . 91 2009 399,300/167,200 = 2. 39 573,000/173,800 = 3. 1 9 51,500/77,000 = 12. 35 83,000/951,500 = 8. 7% 567,000/612,000 = . 92 Liquidity Although it has declined more or less in 2004, Softwoods is financially sound in the short term with more than $2 in current assets to meet every $1 in current liabilities Profitability Net profit ratio has improved marginally in 2004 with Softwoods able turning 10c of every $1 of sales into profit. For a complete picture however the ratio would need to be compared to industry. Softwoods is collecting its debtors balances at the rate of more than 12 times per year and therefore slightly better than once a month. Stock turnover however is rather slow at just over three times per year.Of course the record of the industry would need to be considered to assess whether this level of turnover was within expectations. Solvency Softwoods is carrying a high level of long term debt with barely enough assets to cover liabilities. This raises some concern about their long term viability 23 Question 2 Part B Jour nalising adjusting entries Pass-Me-Please General Journal 30 June 2010 (5 marks) a) Dr Supplies Expense Cr Supplies b) Dr Depreciation Expense Cr Acc Depreciation (F&F) c) Dr Depreciation Expense Cr Acc Depreciation (Building) d) Dr Salaries Expense Cr Salary Payable e) Dr Accounts Receivable Cr Service Revenues f) Dr Unearned Service Revenue Cr Service Revenues 4,000 4,000 20,000 20,000 10,000 10,000 5,000 5,000 12,000 12,000 32,000 32,000 24Question 3 Question 3 Part A Date Bank reconciliation Debit (15 marks) (10 marks) Credit Account Titles and Explanation June 30 Cash at Bank Bank Charges Accounts Receivable 30 Accounts Receivable IN Debt Cash at Bank 30 Accounts Payable Joe Bloggs Cash at Bank 30 Bank Charges Cash at Bank 30 Cash at Bank Interest Revenue 1,190 10 1,200 550 550 63 63 25 25 48 48 (1) Original Cash at Bank account balance Add Interest Collection of note receivable ($1,200 less collection fee $10) Less Dishonoured cheque Error in recording cheque no. 2480 Bank s ervice charge Adjusted Cash at Bank account balance $5,815. 30 48. 00 1,190. 00 ($550. 00) (63. 00) (25. 0) 1,238. 00 7,053. 30 (638. 00) $6,415. 30 Hardly Normal Limited Bank reconciliation Statement As at 30 June 2007 Balance as per bank statement Add Outstanding deposits Less Unpresented cheques Balance as per Cash at Bank Account (1) Workings $7,075. 80 1,819. 60 8,895. 40 (2,480. 10) $6,415. 30 25 Question 3 Part B Internal Control (5 marks) This may not be an exhaustive list. Additional control issues identified must actually link to the scenario provided in the question. Violations 1. It is Marys responsibility to post payments to patient accounts. In allowing Fred to advert her, the establishment of responsibility principle is violated. 2.Although it appears to be a small office, it is not appropriate that Fred opens the mail, receives and records cash receipts from clients, and also appears to have custody of cash. This situation violates the requisition of duties princi ple. By posting to clients accounts it would be possible to post credits to patient accounts and pocket the cash. 3. The documentation principle is violated when clients are not given cash receipts. Although many professional offices do not have cash registers, computerised or manual receipts are customary and necessary. 4. Independent internal verification is also beingness violated. There is no independent counting of the cash and comparison to total receipts. 5. Other controls are being violated. There is no mention of Fred being bonded. Also, personnel should be required to take olidays to increase the likelihood of fraud being detected. 26 Question 4 Required 1 Statement of Cash Flows (20 marks) Receipts from customers = Sales revenue + opening accounts receivable closing accounts receivable = 141,250 + 25,000 30,500 = 135,750 ? Payments to employees = salaries expense + opening salaries payable closing salaries payable = 50,000 + 1,000 3,500 = 47,500 ? Payments for other operational expenses = other operating expenses + opening accounts payable closing accounts payable = 71,580 + 35,220 29,800 = 77,000 ? Payment for purchases of PPE = increase in cost value of PPE + cost value of PPE sold = 13,000 + 10,000 = 23,000 ?Receipts from sale of PPE (is a two step process) = Original cost of assets accumulated depreciation = carrying value of asset sold = 10,000 4,000 = 6,000 Carrying value of asset sold + profit on disposal (OR less loss on disposal) = 6,000 + 1,000 = 7,000 Required 2 Choice Brothers Pty Limited Cash Flows Statement (Partial) For the Year Ended 30 June 2010 Cash flows from operating activities $ Cash collections From customers Cash payments To employees For other operating expenses Net cash generated by operating activities Cash flows from investing activities Cash collections From sale of PPE Cash payments For purchase of PPE Net cash generated by investing activities Net movement in cash Opening balance in cash 1 July 2009 Closing b alance in cash 30 June 2010 135,750 (47,500) (77,000) 11,250 ? 7,000 (23,000) (16,000) (4,750) 13,500 8,750 27 28