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Task 2C - GST Basics Solutions

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Task 2C - GST Basics Solutions

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Task 2C - GST Basics Solutions

  1. 1. VCE ACCOUNTING UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS CHAPTER 2 – BALANCE SHEETS © Michael Allison Author’s express permission required for external or professional use Page | 1 Student50 Task 2C GST Basics Question 1 For each of the following situations, complete the missing information in the table below. GST collected/ charged to customers GST paid/ charged by suppliers GST Refund or Liability Amount $ a) 1950 760 GST Liability 1190 b) 790 1490 GST Refund 700 c) 800 480 GST Liability 320 d) 570 1000 GST Refund 430 e) 540 740 GST Refund 200 f) 1220 520 GST Liability 700 6 marks Question 2 At the end of the current period, a business reported a GST Liability of $450 in its Balance Sheet. Explain how GST owing to the tax office meets the definition of a Liability. Explanation GST owing is a Liability because: 1 mark  The firm has a present obligation – in this case, the obligation to repay the Tax Office the amounts owed. 1 mark  There is a past event (transaction) – in this case, the firm engaged in transactions which included GST. 1 mark  It will result in an outflow of future economic benefits – in this case, the firm will pay cash to the Tax Office. 3 marks
  2. 2. VCE ACCOUNTING UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS CHAPTER 2 – BALANCE SHEETS © Michael Allison Author’s express permission required for external or professional use Page | 2 Question 3 During the current period a firm paid $800 in GST on $8,000 stock it had purchased. With reference to the elements of accounting, explain whether this payment of meets the definition of an Expense. Explanation GST paid is NOT an Expense because: 1 mark  While there is an outflow of economic benefits – in this case, the firm has paid cash.  And while there is an increase in Assets – in this case, the firm’s cash balance will increase. 1 mark  There is NOT an increase in Owner’s Equity.  Instead, there is an increase in Liabilities – the firm’s GST Liability has increased. 2 marks Question 4 With reference to the elements of accounting, explain how GST will be classified in the Balance Sheet of the business at the end of the period. Explanation Identify 1 mark  The firm has a Current Asset called GST Refund for $400. Define/Relate 3 marks This is because:  There is a resource controlled by the entity – the firm has a legal claim to the $400 from the government.  There was a past event (transaction) – as the firm engaged in transactions which included GST.  Which will result in an expected future economic benefit – the firm will receive $400 cash. 1 + 3 = 4 marks Total /15 marks

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