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Accounting for Business Major Assignment SP3 2014




Question;Question 1;Mark Davies has started a;lawn mowing business (MD Lawnmowing) as a temporary job/business which he;intends to run until he starts his business degree at the University of South;Australia in four months.Mark has never owned or run a business before. To;start the business on 1 March 2014, he deposited $2,400 into a new bank account;opened in the name of the business. The $2,400 consisted of a $2000 loan from;his father and $400 of his own money. Mark rented some equipment, purchased;supplies, and hired friends to mow and trim his customer?s lawns.;At the end of each month Marksent;invoices to his customers. On 30thJune, he was ready to dissolve the business;and start hisuniversity studies. As he was so busy, he kept few records other;than his cheque book and a list of amounts owed to him by customers.;At 30June, Mark?s business;account cheque book shows a balance of $1,900, and his customers still owe him;$500. During the period, he collected $4,800 from customers. His cheque book;lists payments for supplies totalling $510, and he still has fuel and supplies;that cost a total of $65 on hand. He paid his employees $2,000, and he still;owes them $400 for their final week of work.;Mark rented some equipment;from Kennard?s Hire. On 1 April, he signed a six-month rental agreement on lawnmowers;and paid $720 for the full period. Kennard?s Hire will refund the unused;portion of the prepayment if the equipment is in good order when he returns it.;In order to get the refund, Mark has kept the equipment in excellent condition.;In fact during May paid $250 to repair one of the mowers.;To transport employees and;equipment to jobs, Mark used a trailer that he bought for $660. He believes;that the period?s work used up one-third of the trailer?s service potential.;The business cheque book lists a payment of $660 for private cash withdrawals;by Mark during the period. In JuneMark paid back a quarter of the amounthis;father had lent to him.;Mark estimates that he;spent approximately 80 hours working on the business during the period. He;plans to recommence operations on a similar basis during major breaks in his;university study and believes he will do better in later periods as he now has;an existing customer base to work from.;Required;1.;Prepare the business Income Statement for the period.;(9 marks);2.;Prepare the classified Balance Sheet at the end of the period.;(11 marks);3.;Was Mark?s venture successful?Give the reasons for your answer. 150 ?;250 words only.;(5 marks);Total for Question 1: 25 marks;Question 2;Harry Smith is confused about the depreciation expense in;the accounts for his shop, Kaiken, and would like you to explain the following;to him;i) Why;is depreciation charged against the income statement for the display shelving;even though Harry believes the shelving;is worth more now than when he bought it just over two years ago?;[3 marks];ii) Harry is considering closing the shop;in two years time and retiring. If Harry decides to go ahead with this decision;can he still charge the same amount of depreciation expense for the shop;shelving as has been done so in the past? Use the Going Concern Assumption in;answering Harry?s question.;[4 marks];iii) If Kaiken makes a loss in any year;Harry wants to know if he still has to include depreciation expense in the;income statement?;[3 marks];Total;for Question 2: 10 marks;Question 3;Mark Thompson submits;to you draft accounts for the year ended 30 June 2014, and a Balance Sheet as;at that date. Towards the end of the financial year his accountant resigned and;he had completed the records himself. He thinks that errors may have occurred;and asks for your help. An examination of the accounting records reveals the;following;A.;Rent expense for the premisesincludes $660 for;July and August.;B.;A payment of $1,750 for new office furniture;has been incorrectly debited to the advertising expense account. The;furniture had been purchased on 30 June 2014.;C.;Commission due to sales representatives for the;month of June, $2,000, has been not been paid or recorded.;D.;Repairs to Mark's private motor vehicle, $750;have been debited to the vehicle expense account.;E.;The unearned revenue account includes an amount;of $350 for services provided during June.;F.;A fire insurance policy covering buildings was;taken out on 01 April 2014, the annual premium of $960was paid in advance;on this date and debited to the;Insuranceexpense account.;G.;Interest of $960 on the loan held by the;business was due, but has not been recorded or paid.;H.;No depreciation has been recognised for the;year ending 30 June 2014. The draft Balance Sheet shows the following;Buildings (at cost);$120,000;Less Accumulated Depreciation;32,000;$88,000;Office Furniture & Equipment (at cost);20,000;Less Accumulated Depreciation;8,000;12,000;These amounts do not include any of the;transactions listed above.;Annual depreciation is to be calculated as;follows;Buildings: 3% of cost;Office furniture and equipment: 20% of cost;Required;1.;Ignoring GST, show the journal entries required;to make the necessary adjustments/corrections listed. Make sure that your;journal entries are complete and properly formatted.;(18 marks);2.;Calculate the effect (increase or decrease) of;each of the adjustments on the profit figure of $21,300 as shown in the;draft accounts.;(4 marks);Total for Question 3: 22 marks;Question 4;You are provided the;following financial information for Reliance Ltd;RELIANCE LTD;COMPARATIVE BALANCE SHEETS;AS AT JUNE 30;2013 2012;Current Assets;Cash on Hand $2500 $5000;Cash at Bank - 1200;Accounts Receivable (net) 5200 4500;Inventory 21000 19000;Prepaid Expenses 1650;30350800 30500;Non Current Assets;Plant and Equipment;76000 64000;less Acc. Depreciation (23000)53000(17600)46400;Total Assets 83350 76900;Current Liabilities;Bank Overdraft 6550 -;Accounts Payable 4100 3800;Accrued;Expenses 680 790;Tax Payable 720;120501200 5790;Non Current Liabilities;Bank Loan 25000 20000;Total Liabilities 3705025790;Net Assets 46300 51110;Equity;Share Capital 32000 26000;Retained Earnings 1430025110 4630051110;(continued over the page);RELIANCE LTD;INCOME STATEMENT;FOR THE YEAR ENDED JUNE 30, 2014;Net Sales $92500;Cost of Sales 55200;Gross Profit: 37300;Other Revenue;Interest Revenue 60;Discount Received 400;460;36840;Expenses;Selling & Admin Expense;21000;Doubtful Debts Expense*;250;Depreciation Expense 5400;Interest Expense 2700 29350;Profit before tax 7490;Income tax expense 2973;Profit $ 6937;*Bad;debts written off during the year amounted to $950.;REQUIRED;Answer this question on the separate question 3 pro forma provided.;Prepare a;Statement of Cash Flow in the format required by the applicable accounting;standard. Show all calculations in your answer.;[14 marks];The;owners of Reliance Limited cannot understand why there is such a;difference between the profit for the period and the total cash flows.;Briefly explain some of the factors causing this difference.;[2 marks];What;information is provided by a Statement of Cash Flow which is not provided;by other Financial Statements? (ie: Income Statement, Balance Sheet and;Statement of Changes in Equity);[2 marks];TOTAL FOR QUESTION 4: 18 Marks;Question 5;The following information has been extracted;from the financial statements and notes of Victorinox Ltd.;2013 2014;Sales revenue 595,125;600,300;Interest;expense 27,428 23,805;Income;tax expense 54,855 46,161;Profit;58,065 54,338;Total;assets 574,425 558,900;Total;liabilities 341,550 310,500;Ordinary;share capital 103,500;113,850;Retained;earnings 65,205 70,380;Preference;share capital 64,170 64,170;Preference;dividends paid 2,898 2,898;Required;1. Calculate the following ratios for 2014;A. return on total assets;B. return on ordinary equity;(2;marks each);2. Calculate the following ratios for 2013 and;2014;A. profit margin;B. debt ratio;C. times interest earned;(A;B = 3 marks C = 4 marks);3. What do these ratios show in relation to the;company's profitability and financial stability? (200 ? 250 words maximum);(5;marks);4. What are some of the limitations or;shortcomings of ratio analysis? Give at least four different examples and;provide two or three sentences explaining each example.;(6;marks);Total for Question 5: 25 marks


Paper#37637 | Written in 18-Jul-2015

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