Accounting Assignment

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ACCT 1008 Accounting for Business

Assignment – Trimester 1, 2015

DUE DATE: 14TH May (Class 1) 15th May (Class 2 and 3)

Student Name: Student ID Class Number

1._______________________________________________ ________________ ________

2._______________________________________________ ________________ ________

I/we declare the following to be my/our work as understood by the EIBT Policy on Plagiarism, unless otherwise cited.

1. Signed: _______________________________ Date ____________________

2. Signed: _______________________________ Date ____________________

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QUESTION 1 - Financial Reporting Harry’s Hardware is a hardware wholesaler owned and operated by Harry Smith. The following trial balance has been prepared at year’s end.

(continued.....)

HARRY’S HARDWARE - TRIAL BALANCE AS AT 30 JUNE 2015

Debit ($) Credit ($)

Cash 6 000

Accounts Receivable 36 000

Inventory (1 July 2014) 43 000

Prepaid Rent 1 800

Warehouse 16 000

Accumulated Depreciation – Warehouse. 3 200

Equipment 4 000

Acc’d Depreciation – Equipment 2 000

Accounts Payable 32 250

H Smith, Capital (1 July 2014) 58 000

H Smith, Drawings 12 500

Sales 207 800

Sales Returns & Allowances 2 250

Discount Allowed 400

Purchases 140 200

Discount Received 900

Freight Inwards 2 150

Freight Outwards 1 200

Sales Staff Wages Expense 24 000

Local Government Rates Expense 800

Insurance Expense 3 500

Advertising Expense 3 750

Rent Expense 6 600 . .

$304 150 $304 150

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The following additional information is also provided:

(i) $300 of the recorded sales represent payments made by customers in advance, for goods which will not be delivered until August 2015.

(ii) It is estimated that 3% of the 30 June 2015 balance of Accounts Receivable will be never be

collected from the customers.

(iii) Both the Warehouse and Equipment are expected to be used evenly over their useful lives. The expected total useful lives and residual values of both assets is as follows:

Estimated Useful life Estimated Residual

Equipment 5 years -

Warehouse 10 years $1 000

(iv) The firm’s insurance costs $250 per month. The last insurance payment made was for 3 months commencing 1 June 2015.

(v) Sales staff wages owing but not paid as at balance day equals $500.

(vi) The prepaid rent was paid on 30 June 2015 and was shop rent for the three months ending 30 September 2015.

(vii) Upon receipt of the business’s bank statement, Harry realised that the business had earned $100

interest on 30 June 2015. This amount was placed directly into the bank account so the amount has not yet been recorded by the business.

(viii) A physical stock take of inventory at 30 June 2015 revealed $46 250 on hand.

REQUIRED: a. Complete the worksheet provided to prepare the above information for assembly into financial

statements. (20 marks)

b. Prepare a fully classified Income Statement for the period in question.

(10 marks) c. Prepare a Statement of Changes in Equity for the period and a fully classified Balance Sheet in

narrative form as at the end of the period. (10 marks)

TOTAL FOR QUESTION 1: 40 Marks

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QUESTION 2 - Accounting Concepts YOU ARE REQUIRED TO ANSWER ANY THREE OF THE FOLLOWING FOUR QUESTIONS. CHOOSE ANY THREE OF QUESTIONS a., b. c. or d. WRITE BETWEEN 250 AND 300 WORDS FOR EACH ANSWER. Question 2 A

Kathy owns a small supermarket. At the start of this year the business purchased new equipment for $24,000. The equipment is expected it to have a useful life of 8 years. It is expected to have no re-sale value after 8 years. Kathy is doing her own bookkeeping and at the end of the year she has recorded the whole of the $24,000 as an expense. Required:

i. Referring to the going concern assumption and the definitions for asset and expense, explain to Kathy why it is incorrect to expense all of the equipment in the first year as her records suggest.

(4 marks)

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

(4 marks)

iii. Assume that after your advice, Kathy amended her bookkeeping and depreciated her asset on a straight-line basis. At the end of 2 years her business’s Statement of Financial Position reveals the following:

Refrigeration Equipment $24 000 Accumulated Depreciation $ 6 000 Written Down Value $18 000

Kathy thinks that “written down value” means the same as “selling (market) value”. Explain to Kathy why written down value is not the same as the selling value (explain what each value means). Also, explain to Kathy what the measurement problem is in accounting.

(4 marks)

TOTAL FOR QUESTION 2: 12 marks

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QUESTION 3 - Statement of Cash Flows You are provided with the following financial information for York Ltd:

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YORK LTD COMPARATIVE BALANCE SHEETS

AS AT DECEMBER 31

2015 2014

Current Assets

Cash on Hand $1 500 $4 000

Cash at Bank - 1 200

Accounts Receivable (net) 5 200 4 500

Inventory 20 000 18 000

Prepaid Expenses 1 650 $28 350 800 $28 500

Non Current Assets

Plant & Equipment 74 000 64 000

less Acc. Depreciation (23 000) 51 000 (17 600) 46 400

Total Assets 79 350 74 900

Current Liabilities

Bank Overdraft 5 660 -

Accounts Payable 4 000 3 800

Expenses Payable 780 790

Tax Payable 720 11 160 1 200 5 790

Non Current Liabilities

Bank Loan 20 000 20 000

Total Liabilities 31 160 25 790

Net Assets $48 190 $49 110

Equity

Share Capital 30 000 26 000

Retained Earnings 18 190 23 110

$48 190 $49 110

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REQUIRED: a. Prepare a Statement of Cash Flows in the format required by applicable accounting standard. Use the

pro forma in the exam answer booklet and show all calculations.

[15 marks] b. The owners of York Limited cannot understand why there is such a difference between the profit for

the period and the total cash flows showing in the cash flow statement. Briefly explain some of the factors causing this difference.

[4 marks]

c. What information is provided by a Statement of Cash Flow which is not provided by the other General Purpose Financial Reports (Income Statement, Statement of Changes in Equity & Balance Sheet)?

[4 marks]

TOTAL FOR QUESTION 3: 23 Marks

YORK LTD INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31 2015

Net Sales $93 000

Cost of Sales 54 200

Gross Profit: 38 800

Other Revenue:

Discount Received $400

Interest Revenue 60 460

39 260

Expenses:

Selling & Admin Expense 19 000

Doubtful Debts Expense 200

Depreciation Expense 5 400

Interest Expense 2 400 27 000

Profit before tax 12 260

Income tax expense 3 378

Profit $8 882