ACC5202- Accounting

Task

Question 1 

A. A student was overheard to say “The trial balance is a very important report. If the Trial Balance ‘balances’ the books are correct!” Comment on the statement

(i) that the Trial Balance is a very important report and why, and

(ii) whether it is correct to assume that the books are correct. Give 2 examples to either support or disprove this statement. 

B. As a graduate accountant you are confronted with the following task in your first job. Your boss informs you that the Trial Balance as at 31st December 2018 does not balance and asks why? You discover a number of errors and in order to correct the Trial Balance complete the table below:

Question 2 

A. What impact does the matching principle have on the method of accounting i.e. cash vs accrual. Describe each method and discuss. (2 marks)

B. J. Jackson has calculated profit on the 30th June 2018 to be $3281001 when the following was discovered (the firm uses accrual accounting).

(i) The weekly wages bill for the firm is $21000. The last payment for wages was on Friday 26th June. The next payment will be on Friday 3rd July.

(ii) Income of $1520 for commission fees had been earned but not yet recorded.

(iii) A full year’s rent of $36000 was paid for the premises from which the firm operates on 1st February 2018.

(iv) The firm has $25000 invested. It earns interest of 6% per annum payable quarterly. Interest was last received on 1st April for the quarter (January, February, March).

(v) The firm had received funds of $12000 on 1st March 2018 for work to be completed by end of October 2018. 30% of the work has been completed by June 30th 2018.

(vi) An amount of $6000 paid for new Office Furniture had been incorrectly coded and entered as Office Expenses.

(vii) Office Supplies had a balance at the beginning of the year (after adjustments) of $800.Throughout the year $5200 in office supplies was purchased. At June 30th 2018 the value of office supplies remaining was $1500.

(viii) The firm had recorded in the GST Control account GST Collected of $7960 and GST Paid of $8540. Make the entry that would be necessary to account to the ATO.

Required:

(i) Make the journal entries to adjust the accounts affected where necessary (include narrations to explain the entry and any calculations).

(ii) What would be the new profit figure after taking into account the above entries? (You must show calculations to get full marks). 

Question 3 

a. According to the IASB’s conceptual framework there are four qualitative characteristics that enhance the usefulness of information that is relevant and represented in reports. Name and describe each of those characteristics. 

b. B. Bright presents you with the following partially completed worksheet. He asks you to:

(i) Complete the worksheet. 

(ii) Prepare closing entries in a journal (Narrations not required)

Question 4 (22 Marks)

A. You overhear an advisor discussing offering credit to clients “With the existence of credit cards and factor businesses, it is now possible for businesses not to have to worry about offering credit and monitoring accounts receivable. Bad debts will become a thing of the past and there will be no need to an allowance for bad debts account”.

Discuss: a. Will the way credit is offered change and what additional costs and processes or controls will/should occur?

b. Will firms no longer have to monitor accounts receivable and what does factoring mean?

c. What could be the impact of not allowing for bad and doubtful debts on the profits recorded by the firm? 

B. The following balances appeared in the ledger of Homewares Company Ltd for the year to date on 31st May, 2018.

The transactions for June were:

(i) A review of accounts receivable revealed that accounts for debtors amounting to $11510 are to be written off.

(ii) Sales $99550 (inclusive of GST) 80% on credit.

(iii) Cash collected from customers $121600

(iv) $1870 (not included in (iii)) was received from a debtor whose debt of $1870 had been previously written off.

(v) Investigation of a credit balance in a debtor’s account showed that a credit sale of $2200 for goods had not been recorded.

(vi) At the end of June a decision was made to increase balance of allowance for Doubtful Debts to $19000.

Required:

(i) Make journal entries for the transactions for June. Include entries for GST where appropriate. 

(ii) Set up ledger accounts for Account Receivable, Allowance for Doubtful Debts, Cash at Bank and Sales to record the balances at beginning. Create extra accounts as necessary (either T or three column) and post the entries from (i) – (vi) above. 

(iii) Illustrate in an extract from a classified Income Statement and Balance sheet how the relevant accounts and their balances would appear at 30th June, 2018.

(iv) Discuss two methods that the firm might use to calculate allowance for bad debts.

A. Hectic Ltd acquires a new piece of machinery for the following amounts:

Initial price paid to the supplier $65000

Cost to deliver the machine to the site $3500

Amount to paint the company name on the machine $2500

Amount paid to an engineer to fit the machine ready for work $14500

Repairs to the factory door damaged when bringing in the machine $5000

Repairs made to replace bolts which had dislodged during transit $1500

The machine was estimated to have a useful life of 10 years or 100,000 hours and a residual value at

the end of its useful life of $7000.

Required:

(i) Calculate the value of the machine for depreciation purposes (ignore GST). Explain your reasons for including or excluding certain items in the calculation;

(ii) Choose a method of depreciation given the information above and taking into consideration the impact of each available method on yearly profits;

(iii) Discuss when and why you might consider revaluing this asset.

B. Hectic Ltd also runs a small fleet of delivery trucks. Each one is depreciated on the reducing balance method (rate 25%). Truck 2 was purchased on the 1st July 2014 for $108000 (GST excluded) financed by a loan payable. Residual value was estimated at $12000 and useful life 8 years. On 30th June, 2016 repairs costing $7000 (GST excluded) were made to Truck 2 after an accident. It was sold on 31st March, 2018 for $44000 (GST included). On 1st March, 2018

Truck 3 was purchased at a cost of $143000 (including GST). The company paid $30000 in cash and took a Loan Payable for the balance. The truck will have a useful life of 10 years and a residual value of $13000. It is to be depreciated using straight line method.

The company’s financial year ends on 30th June each year.

(i) Make journal entries to record the transactions above for Trucks 2 and 3 to 30th June, 2018. (Hint: Use a table to show depreciation calculations). (10 marks)

(ii) If the accountants at Hectic decide to change to the straight line method of depreciation for Truck 2 what would be the depreciation charges at years ended 2015 to 2018 when disposal took place. (Hint: Use a table to show depreciation calculations).

(iii) If revenue was $212,000 for 30th June, 2017, calculate the difference of the two depreciation methods on the company’s Profits for 2017. Ignore tax effects.

A. Amex limited is deciding whether it will use the periodic or perpetual method of accounting for inventory. The firm uses FIFO and has 100 units of inventory worth $48 each on hand at the start of the period. The following information is provided:

1. Purchased 32 units of inventory at $55 each on credit from suppliers.

2. Returned 2 of those units of inventory to suppliers.

3. Sold 58 units on credit to customers for $180 each.

4. A customer returned 2 units that had arrived damaged. They were destroyed.

5. A stocktake revealed 70 units on hand at the end of the period.

Required:

(i) Prepare relevant journal entries for both the perpetual and periodic inventory methods.(Note: you might like to use a Table as below). Ignore GST implications.

(ii) Prepare income statements for each inventory method. 

(iii) Which method is preferable and why? 

(iv) What do the lower of cost and net realisable value mean in relation to inventory?