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STAGE 2 ACCOUNTING ASSESSMENT TYPE 1: SKILLS AND APPLICATIONS TASK STATEMENT OF CASH FLOWS Angela owns and operates a book store called Reading Stacks. She has provided you with the following information for use in the preparation of the statement of cash flows for the year ended 30 June 2008. READING STACKS Income Statement for Year Ended 30 June 2008 Revenue Credit Sales Cash Sales 310 000 70 600 Cost of Goods Sold Opening inventory Credit Purchases Freight Closing inventory 35 000 172 900 7 200 31 000 Gross Profit 196 500 Other Revenue Rent Discount 8 000 2 000 Expenses Wages Discount Administration Advertising Doubtful Debts Depreciation on equipment Net Profit Page 1 of 6 78 700 2 400 37 300 9 000 11 000 1 200 66 900 Stage 2 Accounting annotated student work Ob Ref: A150522 (January 2012) © SACE Board of South Australia 2012 READING STACKS Comparative Balance Sheets as at 30 June 2008 and 30 June 2007 2008 2007 322 100 0 27 100 66 900 361 900 271 400 11 600 13 000 52 100 322 100 Assets Current Bank Debtors Allowance for doubtful debts Prepaid advertising Inventory 0 71 100 (11 000) 900 31 000 4 350 52 000 0 250 35 000 Non-current Furniture Investments Land and buildings Equipment Accumulated depreciation on equipment 14 800 15 000 400 000 14 000 (5 000) 19 800 15 000 325 000 14 000 (3 800) Liabilities Current Creditors Accrued wages 21 400 2 500 16 500 2 000 Bank overdraft 1 000 0 Non-current Mortgage 144 000 121 000 NET ASSETS 361 900 322 100 Owner’s Equity Capital Additional Capital Drawings Net Profit Other Information All acquisitions and disposals of non-current assets were for cash. All drawings were cash drawings. Page 2 of 6 Stage 2 Accounting annotated student work Ob Ref: A150522 (January 2012) © SACE Board of South Australia 2012 1 Use this page to prepare relevant calculations necessary in the preparation of the cash flow statement. a) Calculate Receipts from Customers Opening balance + sales -discount -closing balance 52000 310000 2400 71100 ****bank 288500 (3 Marks) b) Calculate Payments to Suppliers Opening creditors + purchases -discount -closing balance 16500 172900 2000 21400 ****bank 166000 (3 Marks) c) Calculate Payments for Advertising Expense + prepaid ‘08 9000 900 - prepaid ‘07 9900 250 8350 (2 Marks) d) Calculate Payments for Wages Expense - owing ‘07 + owing ‘08 78700 2000 2500 79200 (2 Marks) Page 3 of 6 Stage 2 Accounting annotated student work Ob Ref: A150522 (January 2012) © SACE Board of South Australia 2012 Application Appropriate application of the process required to maintain financial information in order to report the results of business activity. 2 Prepare the Statement of Cash Flows for Reading Stacks for the year ended 30 June 2008 (10 Marks) READING STACKS Statement of Cash Flows for Year Ended 30 June 2008 CASH FLOWS FROM OPERATING ACTIVITIES Inflows Receipts from Customers Cash Sales Rent Revenue Outflows Payment to Suppliers Other operating activities: Advertising Wages Admin Freight Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Inflows Outflows Land and Building $ $ 288 500 70 600 8 000 367 100 166 000 9 900 79 200 37 300 7 200 299 600 $ 67 500 Competent understanding of the process required to maintain financial information in order to report the results of business activity. 75 000 ( 75 000) Net cash flows from investing activities Application Appropriate application of the process required to maintain financial information in order to report the results of business activity. CASH FLOWS FROM FINANCING ACTIVITIES Inflows Capital 50 700 50 700 Outflows Drawings Mortgage Bank Overdraft 25 800 23 000 1 000 (29 100) Net cash flows from financing activities 21 600 NET INCREASE/DECREASE IN CASH HELD 14 100 CASH AT BEGINNING OF PERIOD 4 350 CASH AT END OF PERIOD 18 450 Page 4 of 6 Understanding Informed recognition, understanding and recording and reporting of financial information in a manner appropriate to the identified needs of the user. Stage 2 Accounting annotated student work Ob Ref: A150522 (January 2012) © SACE Board of South Australia 2012 3 With reference to your calculations in the Statement of Cash Flows explain the significance of the net cash flows from : (i) Operating activities It is important to have a positive cash flow from operating cash flows as this is predominantly where revenue comes from (ii) Investing activities Analysis and Interpretation Considered analysis of financial and nonfinancial information for decision-making and problemsolving. It is important for the business to have investment in non-current assets for future operation (iii) Financing activities Financing shows the Capital, that is, what the business owes the owner. (6 Marks) 4 Explain the importance of having a positive net cash inflow from operating activities. Operating expenses are usually the ‘main’ activity of a business and it is important that the cash flow is positive to support other operations if needed (2 Marks) 5 Using examples, explain how it is possible for the Statement of Cash flows for Reading Stacks to have this Negative Balance at the end of the period, when they recorded a Net Profit in the Income Statement. The Income Statement includes Stock and other items that are not shown in the Statement of Cash Flows, that is why they will always have different answers. For example “Closing Stock” is valued at cost price or what it can be sold for, whichever is the lowest. This is $31 000 and therefore would make a difference to the Cash at end of the period in the Statement of Cash Flows. (4 Marks) Additional comments A review of the response provides evidence of: Communication informed communication of some financial information in a mostly clear manner appropriate to the identified needs of the user. Page 5 of 6 generally appropriate and informed use of accounting terminology. Stage 2 Accounting annotated student work Ob Ref: A150522 (January 2012) © SACE Board of South Australia 2012 Analysis and Interpretation Considered interpretation of financial and nonfinancial information. Performance Standards for Stage 2 Accounting A Understanding Analysis and Interpretation Application Communication Astute identification of various accounting entities and the main users of financial information. Astute analysis of financial and nonfinancial information for decision-making and problemsolving. Comprehensive, logical, and astute application of identified accounting concepts to generate financial reports. Astute communication of financial information in a coherent manner most appropriate to the identified needs of the user. Comprehensive recognition, understanding, recording, and reporting of financial information in a manner appropriate to the identified needs of the user. Insightful recognition that accounting concepts and standards determine the responsibilities and obligations of accounting entities to report financial information. Comprehensive and well-informed understanding of the process required to maintain financial information in order to report the results of business activity. Perceptive and critical interpretation of financial and nonfinancial information. Perceptive application of the process required to maintain financial information in order to report the results of business activity. Highly appropriate and well-informed use of a range of accounting terminology. Insightful and well-informed recognition of how social, legal, regulatory and ethical issues both influence and are influenced by business and accounting decisions. B Well-considered identification of various accounting entities and the main users of financial information. Detailed recognition, understanding, recording, and reporting of financial information in a manner appropriate to the identified needs of the user. Clear recognition that accounting concepts and standards determine the responsibilities and obligations of accounting entities to report financial information. Detailed understanding of the process required to maintain financial information in order to report the results of business activity. Well-informed recognition of how social, legal, regulatory and ethical issues both influence and are influenced by business and accounting decisions. C Considered identification of a range of accounting entities and main users of financial information. Informed recognition, understanding, recording, and reporting of financial information in a manner appropriate to the identified needs of the user. Informed recognition that accounting concepts and standards determine the responsibilities and obligations of accounting entities to report financial information. Competent understanding of the process required to maintain financial information in order to report the results of business activity. Informed recognition of how social, legal, regulatory and ethical issues both influence and are influenced by business and accounting decisions. D Identification of some accounting entities and/or the main users of financial information. Recognition, recording, and reporting of some basic financial information. Some recognition that accounting concepts and standards determine the responsibilities and obligations of accounting entities to report financial information. Some understanding of the process required to maintain financial information in order to report the results of business activity, with evidence of some inconsistencies. Some recognition that social, legal, regulatory and/or ethical issues both influence and are influenced by business and accounting decisions. E Limited identification of accounting entities or main users of financial information. Limited recognition, recording, or reporting of basic financial information. Emerging awareness of the role of accounting concepts and standards. Emerging awareness of the process required to maintain financial information in order to report the results of business activity. Emerging awareness of how social, legal, regulatory and/or ethical issues influence business and accounting decisions. Page 6 of 6 Thoughtful analysis of financial and non-financial information for decision-making and problemsolving. Well-considered and critical interpretation of financial and nonfinancial information. Considered analysis of financial and non-financial information for decision-making and problemsolving. Considered interpretation of financial and nonfinancial information. Some recognition and basic use of financial and nonfinancial information for decision-making and problemsolving. Some endeavour to interpret financial and non-financial information. Limited recognition or use of financial and non-financial information for decision-making and problemsolving. Description of some financial or non-financial information. Capable and wellinformed application of identified accounting concepts to generate financial reports. Thoughtful application of the process required to maintain financial information in order to report the results of business activity. Competent application of identified accounting concepts to generate financial reports. Appropriate application of the process required to maintain financial information in order to report the results of business activity. Basic application of some identified accounting concepts to generate one or more financial reports. Partial application of the process required to maintain financial information in order to report the results of business activity. Attempted application of one or more identified accounting concepts to generate a financial report. Recognition of one or more aspects of the process required to maintain financial information in order to report the results of business activity. Stage 2 Accounting annotated student work Ob Ref: A150522 (January 2012) © SACE Board of South Australia 2012 Well-informed communication of financial information in a clear manner appropriate to the identified needs of the user. Appropriate and wellinformed use of accounting terminology. Informed communication of some financial information in a mostly clear manner appropriate to the identified needs of the user. Generally appropriate and informed use of accounting terminology. Some clarity of communication about some aspects of financial information. Inconsistent use of some accounting terminology. Limited communication of one or more aspects of financial information. Attempted use of a limited range of accounting terminology.