Interest only loan Question Help

[harshilgupta]

Can someone help me with this, this question is from a practice exam given to me at a Accounting lecture. This is the type of Question we could get this year.

Harold Jones runs a small business called stationery heaven which sells stationery products. The business has been previously using single entry accounting but has decided to move to double entry accounting. In addition, the business will introduce control accounts ans subsidiary ledgers for debtors and creditors for stock. In order to record the stock the perpetual inventory system will be used where the business is considering to use either the LIFO or FIFO Method of Cost allocation. The business will prepare reports every 6 months on 30 June and 31 December.

Stationery heaven has provided the following balances as at 1 July 2014:

Cash at bank 24000 Dr
Gst Clearing   2400   Cr
Debtors          15000
Creditors         7900
Stock               57620
Equipment       5700
Capital              ?
Loan - ABC Finance 3500


Additional information:
The loan from ABC Finance must be repaid by 15 September 2014
The loan is calculated as a Interest only Loan


(a) Prepare a general Journal to commence the double entry accounting system.

(b) Identify two benefits of using control accounts and subsidiary ledgers for debtors

(c) Explain with reference to an accounting element (characteristics & Principles), how the loan should be classified in the balance sheet and hence work out the loan amount entered into the balance sheet

(d) Explain what it is meant by double entry accounting

(e) Explain the perpetual Inventory system with Advantages and disadvantages reference to one Accounting element & compare and  Contrast the LIFO and FIFO cost assignment method and explain the most effective method to use for Jones (this question has 1 and a half pages of lines to write on)

Marks: 15

[Damoz.G]

That's interesting....You got that at a Lecture? I've done a Practice Exam that has that information - It's from Engage Education.
Question Booklet: http://engageeducation.org.au/engagedownloads/Practice%20Exams/2013/Accounting/Exam%20Question%20Booklet.pdf
Answer Booklet: http://engageeducation.org.au/engagedownloads/Practice%20Exams/2013/Accounting/Exam%20Answer%20Booklet.pdf
Solutions: http://engageeducation.org.au/engagedownloads/Practice%20Exams/2013/Accounting/Exam%20Solutions.pdf

Which parts of the Question don't you understand? May be have a go at it first, then correct it and check your mistakes. If there's something specific that you don't understand, then let me know on here.

[harshilgupta]

That's interesting....You got that at a Lecture? I've done a Practice Exam that has that information - It's from Engage Education.
Question Booklet: http://engageeducation.org.au/engagedownloads/Practice%20Exams/2013/Accounting/Exam%20Question%20Booklet.pdf
Answer Booklet: http://engageeducation.org.au/engagedownloads/Practice%20Exams/2013/Accounting/Exam%20Answer%20Booklet.pdf
Solutions: http://engageeducation.org.au/engagedownloads/Practice%20Exams/2013/Accounting/Exam%20Solutions.pdf

Which parts of the Question don't you understand? May be have a go at it first, then correct it and check your mistakes. If there's something specific that you don't understand, then let me know on here.

The Accounting lecturer at Enagage Education said that Interest only Loans was part of the Accounting exam this year, so he had modified the Engage Education Question to show us a type of Interest only loan Question we could get.  He said he was a VCAA Examiner for 2013.