Acct1501 Exam

Topics: Accounts receivable, Generally Accepted Accounting Principles, 2003 Pages: 17 (5210 words) Published: May 12, 2013

School of Accounting
ACCT 1501: Accounting and Financial Management 1A

INCLUDES SOLUTIONS INCLUDES MARKERS’ REPORTS This is a three (3) hour paper. You have ten (10) minutes reading time. There are seven (7) questions. There are eight (8) pages, including this one. You must answer all parts of all questions. The questions are not of equal value. All answers must be written in blue or black ink. Show all relevant working.

This paper forms 60% of the assessment in this course. This paper may be retained by the candidate.

Do not turn the page until instructed by the examination supervisor.


QUESTION 1 Owners’ Equity

(10 marks)

HJK Financial Solutions Ltd. issued a prospectus on Friday, 5th March 2004. The prospectus outlined the details of its Initial Public Offer. The purpose of the issue is to provide HJK with the working capital to complete its research and development work to commercialise its new financial software and expand its existing products. A summary of key information is provided below: Summary: The prospectus is for the issue of 6,000,000 ordinary shares at $1.00 each to raise $6,000,000. Oversubscriptions of a further 1,000,000 ordinary shares at $1.00 each to raise a further $1,000,000 may be accepted. The minimum subscription to be raised pursuant to the prospectus is $5,000,000. No shares will be allotted or issued until the minimum subscription has been received. The sponsoring broker will be paid a fee of 4% of the amount subscribed (and accepted by the company). The following are the accounts under the heading Owners’ Equity and are taken from the consolidated Statement of Financial Position in the prospectus issued by HJK Financial Solutions Ltd. Owners’ Equity Consolidated 28th Feb 2004 $ 2,875,000 (18,557) 2,084,119 4,940,562

Share Capital Reserves Retained Profits Total Owners’ Equity

Required: (a) Using the information above record the following transactions in the general journal: (7 marks) (i) April 2nd: applications were received for 6,234,000 shares (ii) April 3rd: all successful applications are allotted (iii) April 4th: Sponsoring broker is paid in cash (iv) April 12th: HJK Financial Solutions Ltd. lists on the ASX (b) Prepare the Owners’ Equity section of the HJK Financial Solutions Ltd. Statement of Financial Position as at 30th April 2004. Do not close retained profits. (3 marks)


Solution – QUESTION 1 (written by Asher Curtis) - 10 Marks 1. a. April 2nd 2004 DR. Cash Trust 6,234,000 CR. Application 6,234,000 (Receipt of applications for 6,234,000 shares @ $1 per share) b. April 3rd 2004 DR. Application 6,234,000 CR. Share Capital 6,234,000 April 3rd 2004 DR. Cash at Bank 6,234,000 CR. Cash Trust 6,234,000 (Allottment of 6,234,000 shares @ $1 per share) c. April 4th 2004 DR. Sponsoring Broker Expense 249,360 CR. Cash 249,360 (Cost of sponsoring broker at 4% per share Allotted 4% of 6,234,000 $249,360) d. No journal entry. 2. Owners’ Equity

Share Capital Reserves Retained Profits Total Owners’ Equity

Consolidated 28th Feb 2004 $ 2,875,000 (18,557) 2,084,119 4,940,562



Consolidated 30th Feb 2004 $ 9,109,000 (18,557) 2,084,199 11,174,562


QUESTION 2 Intercorporate Transactions Consider the following statement:

(10 marks)

“In the long-run, the properties of accounting are such that any short-term differences created by choosing between accounting methods are reversed. Therefore, choice between accounting methods is irrelevant.” Required: Discuss this statement in light of the choice between accounting for the same investment using either the cost or equity method. For the purpose of this question, short-term differences are due to periodic reporting (i.e. yearly reporting) and the long-run is the entire period the investment is held (i.e. from its purchase until its sale). Your discussion is to be around the following points: (a)...
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