retail operations and retail inventory
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nis.docxQuestion 1 (10 marks)
Retail operations and retail inventory
Spottie Ltd began business on 1 January 2018. The business will sell ‘Spot the dog’ soft toys
via an online store. The business is not registered for GST. The following transactions
occurred during January 2018:
Date: Details:
1 Jan Spottie Ltd issued 10,000 x $2 shares to Mr Spot and Mrs Spot. $20,000
received from the share issue was deposited into the business bank account.
3 Jan Inventory purchase (400 soft toys) from Plush Toys Ltd on account for $2,400 on
terms of n/30.
6 Jan Sale of inventory (160 soft toys) to Rainbow Preschool on account for $1,600 on
terms of n/30.
9 Jan Inventory purchase (300 soft toys) from Plush Toys Ltd via EFT for $2,100.
12 Jan Paid Plush Toys Ltd for purchases made on 3 January, via EFT.
15 Jan Received $1,600 from Rainbow Preschool in payment of their account.
20 Jan Sale of inventory (200 soft toys) to Sydney Children’s Hospital for $2,000 on
terms of n/30.
22 Jan Inventory purchase (150 soft toys) from Plush Toys Ltd on account for $1,050 on
terms of 2/10, n/30.
24 Jan Paid Plush Toys Ltd for purchases made on 22 January, via EFT.
25 Jan Sale of inventory (200 soft toys) for $2,400 to online customers, with customers
31 Jan Mr & Mrs Spot completed a stocktake, and the number of soft toys on hand was
290.
Required:
i) Mr and Mrs Spot have heard of the two inventory methods – periodic and
perpetual methods, and they have also heard of the terms ‘First-in-first-out’ and
‘Weighted average cost’, but don’t really know anything more about them. Prepare a
memo to Mr and Mrs Spot explaining each of these methods/terms.
ii) After Mr and Mrs Spot received your memo above, they both agree that the ‘Firstin-
first-out’ method suits their business. They are still undecided about which
inventory method should be used (either the perpetual or periodic methods), and have
asked you to prepare journal entries for all of the company’s transactions for January
using the two different methods (using the ‘First-in-first-out’ basis), so that they can see
how the journal entries differ. Show workings where necessary.
Question 2 (10 marks)
Retail operations
This question continues on from question 1 above.
It is now January 2019, and Mr and Mrs Spot have been very busy growing the business of Spottie Ltd over the last year. The business now stocks 20 inventory lines, and employs three full-time staff.
After using a manual accounting system in Excel for Spottie Ltd’s business, Mr and Mrs Spot have come to you for advice as they consider moving to a computerised accounting system.
They believe that they have been spending too much time preparing the accounting records, and a friend recommended that they make the move to ‘Xero’ – an online accounting system.
Undertake some research into cloud-based accounting systems, and the ‘Xero’ cloud-based accounting system.
Required:
Prepare a business report (for the directors of Spottie Ltd) on cloud-based accounting systems
(explaining what they are and how they work), and the suitability of the Xero cloud-based accounting system to Spottie Ltd’s business. In your discussion, explain how a computerized system like Xero can help the business track and account for inventory. Also highlight three other useful features of Xero that will be beneficial to Mr and Mrs Spot as they seek to save time preparing their accounting records, and monitor and grow their business further.
Note: You must reference using the APA referencing format, and include a reference list at the end of your report.
(Word count: 1000-1500 words)
Question 3 (10 marks)
Internal controls- cash
This question continues on from question 1 and question 2 above.
It is now January 2020, and Mr and Mrs Spot have been very successful in growing the
business of Spottie Ltd over the last 2 years. The business now stocks over 200 inventory lines,and employs six full-time staff.
As the business continues to grow, you strongly encourage Mr and Mrs Spot to review internal controls over cash receipts and cash payments in the business, to safeguard the business’s money.
Mr and Mrs Spot are not overly concerned, as they have never had any issues with cash going missing or being stolen in the past.
Required:
Undertake some research online, looking at cases of employee fraud and/or supplier fraud in
Australia. Prepare a letter to Mr and Mrs Spot - discussing the importance of internal controls, and addressing the following:
• Provide a brief overview of 2 recent cases of employee and/or supplier fraud in
Australia, explaining how money was stolen from the business. Explain what internal
controls could have been implemented to reduce the risk of the fraud occurring.
Include a copy of an article relating each case with your letter (or provide website
links to the articles in your letter) for Mr & Mrs Spot to review;
• To help Mr & Mrs Spot as they consider reviewing internal controls, outline three
internal controls over cash receipts and three internal controls over cash payments
that can be implemented in their business immediately. In your discussion, explain
how each of these controls helps to reduce the risk of fraud or theft.
Question 4 (10 marks)
Bank reconciliations and cash
The bank reconciliation for Party Supplies at 31 July 2018 is shown below:
The August 2018 bank statement appeared as follows:
Party Supplies Ltd's accounting records for August 2018 showed the following:
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The current balance in the ‘bank’ ledger account (after the above receipts and payments have been entered) is: $17,245.00 + $18,874 deposits - $16,754.50 withdrawals = $19,364.50.
The company’s bookkeeper has come to you for help, as she is having trouble reconciling the bank account at 31 August 2018.
Required:
i) Prepare the bank reconciliation for Party Supplies Ltd at 31 August 2018.
ii) Prepare the journal entries to correct any errors made by Party Supplies Ltd, and
to record transactions that have not yet been entered into the company’s accounting
records. (Note: The correction of any errors relating to the recording of cheques should
be made to ‘Accounts payable’. The correction of any errors relating to deposits (other
than interest received) should be made to ‘Accounts receivable’.)
iii) Prepare the ‘bank’ ledger account (using the T-Account format) for August 2018,
in order to determine the balance in the account after the above journal entries have
been recorded and posted.
Question
Question 5 (10 marks)
Property, plant and equipment
Storm Ltd acquired an item of equipment on 1 July 2016 at a cost of $800,000. On 30 June 2017, Storm’s directors decide to continue using the cost model for equipment. They elect to depreciate the equipment acquired on 1 July 2016 using the straight-line method, over its useful life of five years. The estimated residual value is $40,000.
The remaining useful life is revised on 1 July 2018 – estimated to be six years from 1 July 2018.
The estimated residual value is also revised on this date – to $50,000.
The item of equipment is sold on 31 December 2019 for $500,000.
Required:
depreciation for each year, and its disposal. Show all relevant dates, narrations and workings.
