MPA702 Financial Interpretation

Learning Outcome Details

Unit Learning Outcome (ULO)

ULO 1: Assess the financial standing of an entity by examining relevant financial information and identify how disclosure techniques can support business decisions.

DGLO1 Discipline specific knowledge and capabilities

ULO 2: Evaluate scenarios involving ethical decisions in financial accounting.

Questions 1 

Cam Smith has recently graduated with a Masters in Sports Management and has decided to set up his own business as a personal trainer. Although this is a highly competitive market, Cam has a number of existing clients and contacts so is confident he can make his business, Active Health, a success. Cam has provided the first month’s transactions for Active Health for January 2018.

a) You are required to record the following transactions into the transaction analysis chart (template provided).

January 1 Invested $80,000 of his own funds into a business bank account and took out a personal loan for $20,000, also deposited into the business account.

2 Purchased a small retail premises in Blackburn for $250,000. Cam paid a 10% deposit and the balance was financed through a mortgage with Power Banking Corporation.

3 Cam purchased fitness equipment $10,000 cash. A three-month subscription for access to professional training journals was purchased for $2,400 cash.

4 Office furniture was purchased for $2,000 cash. Paid $2,400 for professional indemnity insurance for 12 months.

5 Cam purchased computer equipment for $8,000 cash and a motor vehicle for $24,000 was acquired on 90 days credit terms.

6 Cam invoiced his first client $2,000 for a day’s work at the local swimming club.

7 Office stationery was purchased for $800 on 30 day credit terms.

8 Cam contributed fitness equipment and a massage table valued at $6,500 to the business.

15 Invoiced clients $4,800 for services performed.

17 Received full payment from his first client.

18 Hired an assistant trainer on a casual contract basis.

21 Invoiced clients $7,200 for work performed at the local health club. Cam withdrew $1,500 for personal use.

23 Paid wages to his assistant totaling $1,200, $300 of which was deducted for PAYG tax which will be remitted to the Australian Taxation Office at a later date.

24 Received $2,300 from credit customers.

26 Paid telephone for bill for March of $270.

27 The Blackburn Golf Club, impressed by Cam’s reputation, have agreed to retain his services in the future at a rate of $1,800 per day.

28 Invoiced corporate clients for work performed $8,400

30 Paid wages to assistant totaling $1,800, $500 of which was deducted for PAYG tax and will be remitted to the Australian Tax Office in the future.

31 Paid motor vehicle expenses for the month totaling $240. Received $2,500 from credit customers. Cam withdrew $2,200 from the business, of which, $1,200 was for a oneoff payment for professional membership joining fees to Fitness Australia, the relevant professional body, and $1,000 for renovations at his private residence.

Made a part payment of $200 for the office stationery.

Additional information:

• As at 31 January $400 of office supplies had been consumed.

• As at 31 January $950 interest has accrued on the mortgage.

• Utilities owing at balance date are $375

• Motor vehicle is depreciated at 20% per annum straight line.

• Computer equipment is depreciated at 30% per annum reducing balance.

• All fitness equipment is depreciated at 15% per annum straight line.

• Office Furniture is depreciated at 10% per annum straight line.

• Assume a full month for depreciation and no residual value.

• Round to nearest dollar.

• Ignore GST and income tax.

b) Prepare the fully classified Income Statement and Balance Sheet for January 2018 for Active Health.

c) Cam recently had dinner with his sister Jess, who is a senior accountant at We Fix All Ltd, a large pharmaceutical company listed on the Australian Stock Exchange. Over dinner Jess expressed her concerns about many recent complaints about one of their leading products CanFix. CanFix, which is promoted as a cure for many deadly diseases, has reportedly been responsible for many premature deaths of clients. There is to be a major investigation by authorities into the company and its practices regarding the drug CanFix and several other of their products. Cam and his parents have always supported Jess’s career decisions and consequently have invested many thousands of dollars buying shares in We Fix All Ltd. The family are now considering selling all of their shares before this news hits the financial press, which is imminent in the next few days.

Discuss the ethical or legal implications that may flow in accordance with any such provisions if Cam and his family sell their shares prior to this announcement. From your research, ensure you cite all references in your answer