Examination combination response (25%) This sample has been compiled by the QCAA to assist and support teachers to match evidence in student responses to the characteristics described in the instrument-specific marking guide (ISMG). s This assessment instrument is used to determine student achievement in the following objectives: 1. comprehend accounting concepts, principles and/or processes relating to fully classified financial statement reporting for a trading GST business 3. analyse and interpret financial data and information relating to fully classified financial statement reporting for a trading GST business 4. evaluate accounting practices relating to fully classified financial statement reporting for a trading GST business to make decisions and propose recommendations 5. synthesise and solve an accounting problem relating to fully classified financial statement reporting for a trading GST business 6. create a business report (extract) that communicates meaning to the business owner of a trading GST business. Note: Objective 2 is not assessed in this instrument. 171535
Instrument-specific marking guide (ISMG) Criterion: Comprehending 1. comprehend accounting concepts, principles and/or processes relating to fully classified financial statement reporting for a trading GST business identification of significant characteristics in the response thorough understanding of accounting concepts, principles and/or processes perceptive use of accounting terminology. identification of appropriate characteristics in the response adequate understanding of accounting concepts, principles and/or processes adequate use of accounting terminology. identification of inappropriate characteristics in the response vague or partial understanding of accounting concepts, principles and/or processes inconsistent and/or narrow use of accounting terminology. 4 5 2 3 1 Criterion: Synthesising and solving 5. synthesise and solve an accounting problem relating to fully classified financial statement reporting for a trading GST business effective application of significant and relevant accounting principles and processes to identify errors relating to fully classified financial statement reporting for a trading GST business effective application of accounting principles and processes to correct the errors solution produced that thoroughly solves the problem. appropriate application of relevant accounting principles and processes to identify substantial errors relating to fully classified financial statement reporting for a trading GST business appropriate application of accounting principles and processes to correct the errors solution produced that effectively solves the problem. fundamental application of accounting principles and processes to identify minimal errors relating to fully classified financial statement reporting for a trading GST business application of fundamental accounting principles and processes to correct minimal errors solution produced that solves elements of the problem. inconsistent application of accounting principles and processes to identify superficial errors rudimentary application of accounting principles and processes to correct aspects of the errors inappropriate or partial solution produced. 6 7 4 5 2 3 1 Page 2 of 9
Criterion: Analysing 3. analyse and interpret financial data and information relating to fully classified financial statement reporting for a trading GST business examines financial data and information through the identification of significant and relevant relationships thorough interpretation of trends in the financial data and information thorough and logical explanation of issues for one area of performance. examines financial data and information through the identification of relationships interpretation of trends in the financial data and information explanation of issues for one area of performance. examines financial data or information through the identification of superficial relationships superficial interpretation of financial data or information narrow or partial statements about the issues. 5 6 3 4 1 2 Criterion: Evaluating 4. evaluate accounting practices relating to fully classified financial statements reporting for a trading GST business to make decisions and propose recommendations perceptive judgments for proposed changes to accounting practices relating to one area of performance thoroughly justified decisions for the area of performance relevant to the accounting context convincing recommendations for the area of performance pertinent to the accounting context. judgments for proposed changes to accounting practices relating to one area of performance decisions for the area of performance relevant to the accounting context recommendations for the area of performance suitable for the accounting context. rudimentary or partial judgments for proposed changes to accounting practices relating to one area of performance inconsistent or partial decisions for the accounting context inconsistent or partial recommendations for the accounting context. 3 4 2 1 Page 3 of 9
Criterion: Communicating 6. create a business report (extract) that communicates meaning to the business owner of a trading GST business succinct, with effective language choices to communicate analysis, interpretation and evaluation to the business owner logical sequencing and organisation of ideas in a business report (extract) minimal errors in spelling, grammar and punctuation. appropriate language choices to communicate analysis, interpretation and evaluation to the business owner clear sequencing and organisation of ideas in a business report (extract) some errors in spelling, grammar and punctuation evident. inappropriate language choices to communicate business data, information or advice unclear or fragmented sequencing of ideas in a business report (extract) frequent errors in spelling, grammar and punctuation. 3 2 1 Page 4 of 9
Task See the sample assessment instrument for IA2: Examination combination response (25%) (available on the QCAA Portal). Sample response Criterion allocated Result Comprehending (Part A) 1 Synthesising and solving (Part B) 5 Analysing (Part C) 3 Evaluating (Part C) 4 Communicating (Part C) 6 5 5 7 7 6 6 4 4 3 3 Total 25 25 The annotations show the match to the instrument-specific marking guide (ISMG) performancelevel descriptors. Comprehending [4 5] thorough understanding Question 1: the effect of historical cost on financial statements Question 2: the relationship between accounts receivable and provision for doubtful debts Question 1 The usefulness of financial statements is limited if users believe the values of assets are absolute. The historical cost of an asset is its purchase price. This value, over many years, does not consider the changing value of the dollar especially in times of inflation. Most non-current assets lose value, being used up over their life, therefore the concept of depreciation addresses this issue. Depreciation considers the residual value and estimated life. As both of these elements are estimated, the accuracy of the net value for any asset is contestable. identification of significant characteristics Question 1: changing value of the dollar, net value Question 2: revenue being offset with relevant expense, estimated bad debts affecting profit figure Page 5 of 9
Comprehending [4 5] perceptive use of accounting terminology Question 1: financial statements, assets, historical cost, inflation, depreciation Question 2: provision for doubtful debts, credit sales, accounting period, contra entry Question 2 The provision for doubtful debts account allows revenue recorded in the period (net credit sales) to be offset against a relevant expense (bad debts) in the same period. Provision for doubtful debts is an estimated figure only based on accounts receivable who may or may not be able to pay their debts in the next accounting period (bad debts). This estimate is based on past experience regarding unpaid accounts. Provision for doubtful debts is a contra entry (negative asset) that offsets the balance of accounts receivable (asset) in the Statement of Financial Position. Question 3 Synthesising and solving [6 7] effective application of accounting principles to identify errors Three errors have been identified. effective application of accounting principles to correct the errors Three errors have been corrected. Page 6 of 9
solution produced Financial data and information has been used to correctly complete the Statement of Profit or Loss. Page 7 of 9
effective application of accounting principles to identify errors Four errors have been identified. effective application of accounting principles to correct the errors Four errors have been corrected. solution produced Financial data and information has been used to correctly complete the Statement of Financial Position. Analysing [5 6] thorough and logical explanation of issues cost of goods sold and bad debts identification of significant and relevant relationships cost of goods sold, bad debts and sales returns, and profit; inventory turnover and cost of goods sold; accounts receivable turnover and bad debts; advertising and inventory turnover, and net sales; net profit and rate of return on investment Question 4 Issues identified A $20 000 decrease in gross profit and a $30 000 decrease in net profit indicate issues with profitability. Analysis indicates the increase in the cost of the goods sold and bad debts is responsible for the downturn in profit this year. The cost of goods sold has increased relative to last year resulting in gross profit decreasing 8%; for every dollar of sales, approximately 54 cents roughly represents cost of goods sold indicated by the gross profit ratio of 46%, 6% lower than the industry average. The increase in inventory purchases is also evidenced by accounts payable increasing a little over 55% so that 16.50 cents in each dollar of assets was attributable to accounts payable compared with 11.39 cents in the past year, and this is not due to inventory build-up as the balance of inventories has decreased nearly 8%. This indicates the goods sold have cost more to purchase. The increase in sales returns indicates quality issues with the goods as there is a no refund policy. Page 8 of 9
thorough interpretation of trends all profitability ratios below industry averages and previous year s figures Turnover of inventories has been faster by 10 days in the current year due to the 100% increase in credit sales. An increase of 37.5% in advertising also relates to this change in the sales mix. Increased advertising and turnover, however, have not resulted in an effective increase in total net sales. Secondly, the 4.6% or $10 000 increase in operating expenses can be levelled at the 1000% increase in bad debts and directly related to the 75% increase in accounts receivable over the past year evidence of a push for increased credit sales. While these may be prior debts, their timing, given the large increase in credit sales ($55 000), would not appear to be a coincidence. The turnover of accounts receivable days increasing from 88 days to 96 days, while impacting more significantly on cash flow, is further indication of poor management of the credit function. The rate of return on investment, is currently unsustainable at less than 1%, indicative of overcapitalisation, and is significantly lower than the industry average of 5%. Evaluating [3 4] perceptive judgment for proposed changes bad debts and cost of goods sold reduced to improve net profit and rate of return on investment thoroughly justified decisions lower cost of goods sold and better debtor control convincing recommendations negotiation of better terms; a new supplier; outsource credit function or employ a credit manager Proposed changes Cost of goods sold and bad debts must be reduced to improve net profit which will increase the rate of return on investment. Investigation into the current purchasing terms is required to decrease costs of goods sold. The business should negotiate better prices with current suppliers, if possible, or choose new suppliers who can offer bulk purchasing discounts without sacrificing quality. Customer satisfaction will affect future sales. A review of the control of debtors is required to decrease the bad debts with possible consideration of outsourcing of the credit function or hiring of a credit manager if the business is to continue to offer credit. The business would need to consider the costs involved with both options. If a credit manager is employed, the policy regarding control of debtors would need to be broadened. Checking the credit worthiness of all potential credit customers, reducing the current credit terms from 60 days to 30 days and implementing an aged debtors analysis would significantly decrease the possibility of bad debts occurring resulting in an improved net profit. Communicating [3] The response is succinct, with effective language choices to communicate analysis, interpretation and evaluation to the business manager. The business report (extract) contains logical sequencing and organisation of ideas. Minimal errors in spelling, grammar and punctuation are present. Page 9 of 9