Harry’s Hardware is a hardware wholesaler owned and operated by Harry Smith.

Harry’sHardwareisa hardwarewholesalerownedandoperatedbyHarrySmith.Thefollowingtrial balance hasbeenpreparedat year’send.

HARRY’SHARDWARE-TRIALBALANCEASAT30JUNE2015

Thefollowingadditionalinformationisalsoprovided:

(i)        $300oftherecordedsalesrepresentpaymentsmadebycustomersin advance,forgoodswhichwill notbedelivereduntilAugust2015. 

(ii)       Itisestimatedthat 3%ofthe30June2015balanceofAccountsReceivablewillbeneverbe collected fromthecustomers. 

(iii)      BoththeWarehouseandEquipmentareexpectedtobeusedevenlyovertheirusefullives.The expectedtotal usefullivesandresidualvaluesofbothassetsisasfollows: 

(iv)       Thefirm’sinsurancecosts$250permonth.Thelast insurancepaymentmadewasfor3months commencing1June2015. 

(v)        Salesstaffwagesowingbutnotpaidasat balancedayequals$500. 

(vi)       Theprepaidrentwaspaidon30 June2015andwasshoprentforthethree monthsending30

September2015. 

(vii)      Uponreceipt ofthebusiness’sbankstatement,Harryrealisedthat thebusinesshadearned$100 intereston30June2015.Thisamountwasplaceddirectlyintothebankaccountsotheamounthas notyetbeenrecordedby thebusiness. 

(viii)     Aphysicalstocktakeofinventoryat 30June2015revealed$46250onhand. 

REQUIRED:

a.         Completetheworksheetprovidedtopreparetheaboveinformationforassemblyintofinancial statements.

(20marks)

b.         Preparea fullyclassifiedIncomeStatementfortheperiodinquestion. (10marks) 

c.         Preparea StatementofChangesinEquityfortheperiodanda fullyclassifiedBalanceSheetin narrativeformasat theendoftheperiod.

(10marks)

TOTALFORQUESTION1:40Marks

QUESTION2-AccountingConcepts

YOUAREREQUIREDTOANSWERANYTHREEOFTHEFOLLOWINGFOURQUESTIONS. CHOOSEANYTHREEOFQUESTIONSa.,b.c.ord.

WRITEBETWEEN250AND300WORDSFOREACHANSWER.

Question2A

Kathyownsa small supermarket.Atthestartofthisyearthebusinesspurchasednewequipmentfor$24,000. Theequipment isexpectedittohaveausefullifeof8years.Itisexpectedtohavenore-salevalueafter8 years.

Kathyisdoingherown bookkeepingandattheendofthe yearshehasrecordedthewhole ofthe$24,000 as anexpense.

Required:

i.    Referringtothegoingconcernassumptionandthedefinitionsforassetandexpense,explainto

Kathywhyitisincorrecttoexpenseall oftheequipmentinthefirstyearasherrecordssuggest.

(4marks)

ii.   Explain  to  Kathy  the  term  “depreciation”as  it  is  used  in  accounting,and  why  we  use  it  in accounting.

(4marks)

iii.  Assumethatafteryouradvice,Kathyamendedherbookkeepinganddepreciatedherassetona straight-line basis.Attheendof2yearsherbusiness’sStatementofFinancialPositionrevealsthe following:

Kathythinksthat“writtendownvalue”meansthesameas“selling(market)value”.Explainto Kathywhywrittendownvalueisnotthesameastheselling value (explainwhateachvalue means). Also,explaintoKathywhatthemeasurementproblemisinaccounting.

(4marks)

QUESTION3- StatementofCashFlows

YouareprovidedwiththefollowingfinancialinformationforYorkLtd: 

CurrentAssets

YORKLTDCOMPARATIVE BALANCESHEETSASAT DECEMBER31

2015                          2014

CashonHand                                   $1 500                                 $4 000

Cashat Bank                                             -                                   1 200

AccountsReceivable(net)                   5200                                   4 500

Inventory                                          20 000                                 18 000

PrepaidExpenses                                1 650         $28350                800       $28500

NonCurrentAssets

Plant&Equipment                           74000                                 64000

lessAcc.Depreciation                     (23000)           51000         (17600)         46400

TotalAssets                                                            79 350                               74 900

CurrentLiabilities

BankOverdraft                                   5660                                                                                       - AccountsPayable                                                          4000                                                          3 800

ExpensesPayable                                   780                                     790

TaxPayable                                          720           11160             1200           5 790

NonCurrentLiabilities

BankLoan                                                             20000                              20000

TotalLiabilities                                                      31160                              25790

Net Assets                                                             $48 190                              $49110

Equity

ShareCapital                                                          30 000                               26 000

RetainedEarnings                                                  18190                              23110

$48 190                             $49110

(continued.........)