911740

2SUPERVISOR’S USE ONLY

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© New Zealand Qualifications Authority, 2016. All rights reserved.No part of this publication may be reproduced by any means without the prior permission of the New Zealand Qualifications Authority.

Level 2 Accounting, 201691174 Demonstrate understanding of accounting concepts

for an entity that operates accounting subsystems

2.00 p.m. Tuesday 22 November 2016 Credits: Four

Achievement Achievement with Merit Achievement with ExcellenceDemonstrate understanding of accounting concepts for an entity that operates accounting subsystems.

Demonstrate in-depth understanding of accounting concepts for an entity that operates accounting subsystems.

Demonstrate comprehensive understanding of accounting concepts for an entity that operates accounting subsystems.

Check that the National Student Number (NSN) on your admission slip is the same as the number at the top of this page.

You should attempt ALL the questions in this booklet.

If you need more room for any answer, use the extra space provided at the back of this booklet.

Check that this booklet has pages 2–14 in the correct order and that none of these pages is blank.

YOU MUST HAND THIS BOOKLET TO THE SUPERVISOR AT THE END OF THE EXAMINATION.

ASSESSOR’S USE ONLY

TOTAL

Merit

155

2

QUIEST!ON ONIE

Wiremu owns Beachsplash, a kayak hire shop atWhatuwhiwhi Beach, Northland. Wiremu has noticed the rise in popularity of paddle boarding and wishes to add paddle board hire to his kayak hire business.

On 1 April 2015, Wiremu provided Torpedo7 (a supplier of paddle boards) with a summary of Beachsplash's Cash Flow Statements for the previous two years. Torpedo7 -will use this information to decide whether to approve the purchase of paddle boards on credit by Beachsplash.

Beachsplash Casll Flow Statement (summary) for tile years ended 31 Marcil

2014 2015

$ $

Total receipts 145000 170000

Total payments 137000 145000

Net increase (decrease) in cash 8000 .- r' ;;.,..- 25000

(a) Justify how the information contained in the Cash Flow Statement (summary) above would support a decision by Torpedo? to approve Beachsp/ash's purchase of the paddle boards on credit. In your answer explain:

• the purpose of a Cash Flow Statement

how the Cash Flow Statement summary for Beachsp/ash illustrates monetary measurement

• how the qualitative characteristic of comparability would support Torpedo?~in making a decision to approve Beachsp/ash's purchase of the paddle boards on credit.

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3

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ASSESSOR'S USE ONLY

4

In April 2015, Beachsplash purchased the paddle boards on credlit from Torpedo7 for a total cost of $15 500. The paddle boards are to be reported as a non-current asset.

(b) Justify why Beachsp/ash will report the paddle boards as a non-current asset. In your . answer, explain:

using the dlefirnutkm of an asset why the paddle boards ar(3 rep.o.rted,as an asset

the recognutilm criteria of an asset, as it relates to the paddle boards

why the paddle boards are reported as rn:m-rcummt.

ASSESSOR'S USE ONLY

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L ·-\-\.,e ""'v o,ce.')/ Source: https://www.islesurfandsup.com/surfing-with-dozer-how-to-paddle-board-with-yoiu-dog/

5

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QlBIESTIOD\ll TWO

6

In order to let the Whatuwhiwhi Beach community and visitors know that Beachsplash

now hires out paddle boards as well as kayaks, Wiremu contracted a builder to install a permanent billboard on Beachsplash' s roof. The billboard was installed in April 2015 at a cost of $8 OOO and will be reported as a non-current asset.

Wiremu will use different depreciation methods for the billboard and paddle boards. He will depreciate the billboard using the straight-line depreciaticm •. method, and the paddle boards using the units-of-use depreciation method.

(a) Justify the depreciation methods chosen by Wiremu for the billboard and the paddle boards.In your answer:

describe the strangJhUiirne depreciation method describe the l!.llll1Uts-of-use depreciation method

0 explain why straight-line depreciation is appropriate for the billboard explain why units-of-use depreci'?tion is appropriate for the paddle boards.

: .... �i -) ,

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Source (adapted): http://www.bayislandsup.eom.au/wp-content/uploads/2015/05/ Bay-Island-Paddleboards_SUP-Shop-Brisbane-940x270.jpg

ASSESSOR'S

USE ONLY

7

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8

In addition to the billboard (which cost $8 OOO), Wiremu also spent $250 purchasing a footpath sign that is placed outside Beachsplash' s premises.each day. The billboard and footpath sign by definition are both assets, but in the Financial Statements Wiremu intends to report the billboard as a mm-current asset and the footpath sign as an adv~rHs:ing e)(pense.

(b) Justify Wiremu's intention to report the footpath sign as an advertising expense in Beachsp/ash's Financial Statements. In your answer:

explain how historocai cost will be applied to the reporting of the footpath sign

describe the qualitative characteristic of materuamy

explain why malteriamy will enable Wiremu to report the footl)J'i!ltll sugni as an advertising expense. ·· • ...

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Source: http://www,ptownaquasports.com/wp-content/uploads/2014/12/kayaks-paddleboards.png '•

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ASSESSOR'S USE ONLY

10

QIJJ!ES"f!O~ "fHIRIEIE

Beachsplash also provides paddle board lessons. The lessons and .associated hire of paddle boards are reported as Paddle Board Hire and Lesson income. In the last week of March 2016, Beachsplash invoiced a school $500 for paddle board hire and lessons for that week.

(a) Justify why Beachsplash will report the $500 for paddle board hire and lessons as income in the Income Statement for the year ended 31 Marc.h 2016. In your answer, explain:

using the clefiH"Ilm«:m of um:ome, why the $500 for paddle board hire and lessons is income how the qualitative characteristic of fautlifoi rn1nesimfatim1 is being met by reporting the $500 paddle board hire and lessons as income.

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1'1

Beachsplash' s Cash Flow Statement for the year ended 31 March 2016 reports paddle board hire and lesson income as $28 OOO. This indudes a deposit of $1 OOO from the local school holiday programme to secure paddle board hire and lessons for the April 2016 school holidays.

(b) Using the m:crnai roasus, explain how and why the deposit of $1 OOO from the local school holiday programme was reported in both the lrncome Statemernt and the Statemernt of Furn.am:ual Positiorn for Beachsp/ash for the financial year ended 31 March 2016.

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ASSESSOR'S USE ONLY

12

Accounting 91174, 2016

ASSESSOR’S USE ONLY

QUESTION NUMBER

Extra space if required.Write the question number(s) if applicable.

Annotated Exemplar

Merit exemplar 2016

Subject: Accounting Standard: 91174 Total score: 15

Q Grade score Annotation

1 M5

1 (a) The candidate has identified a purpose of the cash flow statement, explained how the monetary measurement has been illustrated in the cash flow statement, and described comparability with an attempt to link to the context of Beachsplash’s cash flow statement.

1 (b) The candidate has correctly described why the paddle boards are an asset using the characteristics of past transaction, present control and future economic benefit. The candidate has explained how the recognition criteria is being met for reliability and has described that the paddle boards are a non-current asset.

2 M5

2 (a) The candidate has accurately explained the straight-line and units-of-use methods of depreciation, and explained why the straight-line method is appropriate for the billboard.

2 (b) The candidate has described historical cost in the context of the footpath sign, the meaning of materiality, and how the footpath sign is immaterial in amount.

3 M5

3 (a) The candidate has correctly used the definition of income to describe why the $500 paddle board hire and lessons is income by correctly linking the hire and lesson income to accounts receivable increasing, net profit increasing equity, and not a contribution by the owner but the school. The candidate has described faithful representation by making reference to terminology but has not explained how the $500 figure is faithfully represented.

3 (b) The candidate has used the accrual basis concept to justify how and why the deposit of $1 000 is applied to the Income Statement by explaining that the paddle board hire income will decrease by $1 000, the reason being that the deposit doesn’t relate to the current financial year for Beachsplash. The candidate has described the accrual basis concept in the context of the Statement of Financial Position by describing how the current liability income received in advance will increase, but has not explained why.