NCEA Scholarship Accounting free practice questions with answers

Question 1 (8 marks) [Elements of the Conceptual Framework]

(a) Use information from Resource A and the 2018 NZ Conceptual Framework. State the Framework's definitions of a liability and of income. Apply them to note 1 to decide how the cash received on 14 June 2026 should be classified at 30 June 2026.

(a) Answer: A liability (a present obligation to transfer an economic resource arising from a past event), not income

• Entry step: worth marks in the 1-4 range of the 8-point question score.

• Income is an increase in assets, or decrease in liabilities, that results in an increase in equity (other than from owner contributions). A liability is a present obligation of the entity to transfer an economic resource as a result of past events. [1 mark]

• On 14 June Rimu received cash (an asset) but has promised to build kitchens that have not been built, and must refund the cash if it fails to deliver. It has a present obligation arising from a past event (signing the contracts and taking the cash), so the $90 000 is a liability (unearned revenue / contract liability). Equity has not increased, so it is not income. [1 mark]

(b) Calculate the net profit before tax and the net profit after tax that Rimu would report if only note 1 were corrected, and explain the journal entry needed at 30 June 2026.

(b) Answer: NPBT $57 600 (after tax $41 472); Dr Other income $90 000, Cr Unearned revenue $90 000

• Scholarship band (5-6): the part needs your own method and accurate reasoning.

• Remove the $90 000 from income: net profit before tax = 147 600 − 90 000 = $57 600. Tax at 28% = $16 128, so net profit after tax = $41 472. [1 mark]

• Correcting journal: Dr Other income $90 000, Cr Unearned revenue (a current liability) $90 000. The revenue is recognised in August to October 2026 as each kitchen is delivered, so the 2027 income statement gets the $90 000. [1 mark]

(c) Using the definition of a liability and the recognition criteria in the 2018 NZ Conceptual Framework, evaluate whether the provision for roof replacement should be in the 2026 income statement.

(c) Answer: No: there is no present obligation from a past event, so no liability or expense; remove the $18 000

• Scholarship band (5-6): the part needs your own method and accurate reasoning.

• A liability needs a present obligation to transfer an economic resource arising from a past event. Rimu could avoid the replacement cost by selling the building, deferring the work or repairing the roof; no contract has been signed and no one outside the company can require payment. Wearing out of the roof is an event that reduces the asset (the building), which is reflected through depreciation, not a past event creating an obligation to a third party. [1 mark]

• Even if there were an obligation, recognition requires relevant information and a faithful representation; here the amount, timing and probability are unknown (no quote), so measurement uncertainty is high and the information would not be a faithful representation. The $18 000 should be reversed: Dr Provision for roof replacement $18 000, Cr Expense $18 000. [1 mark]