Task 2C - GST Basics Solutions
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This document discusses balance sheets and GST basics for a trading business. It contains sample questions and explanations about classifying transactions related to GST on a balance sheet. Specifically, it addresses situations where a business has collected more or less GST than paid to suppliers, and whether GST paid on purchases meets the definition of an expense. The document explains that GST owed is a liability, as the business has an obligation to repay the tax office, and that GST paid increases assets but not equity so it is classified as a liability rather than an expense. It also addresses how a GST refund would be classified as a current asset on the balance sheet.
Task 2C - GST Basics Solutions
- 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. 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