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