Accounting for Business

QUESTION 1: Balance Day Adjustments (20 marks) Debit ($) Credit ($) Rooftop Tea Room Trial Balance 30 June 2018 Vauxhall Delivery Van 21 100 Rooftop Cleaning Expense 18 800 Insurance Expense 12 393 Water Expense 17 814 Gas Expense 18 776 Accumulated Depreciation – Refrigeration Equipment 24 470 Repairs and Maintenance Payable 8 063 Sales Returns & Allowances 795 Electricity Expense 20 550 Shop Furniture 22 500 Discount Allowed 975 Victoria, Capital 198 357 Pastry Chef Wages Expense 36 095 Office Cleaning Expense 15 000 Refrigeration Equipment 48 000 Interest Expense 21 900 Cash at Bank 36 232 Waiting Staff Wages Expense 56 818 Discount Received 1 935 Office Supplies Expense 1 763 Unearned Sales 6 503 Oven 14 000 Victoria, Drawings 43 549 Accounts Receivable 4 900 Accounts Payable 9 378 Loan 266 915 Inventory (1 July 2017) 44 213 Purchases 189 750 Sales 180 327 Rent Expense 31 500 Advertising Expense 18 525 Totals 695 948 695 948 Victoria has very little bookkeeping experience and has emailed you the following list of account information related to the year ended 30 June 2018: (Continued next page) 1. The Refrigeration Equipment is expected to have a useful life of eight years and have a $4 000 scrap value (calculate and record the depreciation expense for the year). 2. $975 of the Unearned Sales were earned for providing morning tea at Camden Canal Boat club Annual General Meeting on 12 June 2018. 3. Rent was paid on 1 July 2017 for an 18 month period ending 31 December 2018. 4. The Office Supplies on hand at 30 June 2018 was $624. 5. The oven was purchased on 1 May 2018 and will be depreciated at a rate of 15% per annum and will have no residual value (calculate and record the depreciation expense). 6. The 12 month Insurance policy (policy # 558) of $12 393 was paid on 1 June 2018. 7. The Vauxhall Delivery Van was purchased on 1 September 2017 and is expected to have a useful life of five years and have a residual value of $300 (calculate and record the depreciation expense for the year). 8. On 30 June 2018, Victoria estimated 4% of Accounts Receivable will not be collected as this amount has been outstanding for 180 days. 9. The bank has approved an overdraft facility for $2 500 for Rooftop Tea Rooms. 10. The Pastry Chef’s wages payable but not recorded as at 30 June 2018 are $2 582. It is now the end of the financial year and Victoria requires you to undertake the following: Prepare the Balance Day Adjustment Journals for Rooftop Tea Rooms where required in the proforma provided on the next page. Include narration (explanation) for each journal entry. (20 marks) QUESTION 2: Financial Statement (10 marks) Mr Bing owns and manages a cherry farm called ‘Delicious Cherries’ specialising in the retail of cherries to the public. The following Trial Balance for Delicious Cherries has been prepared at year end by Mr Bing. DELICIOUS CHERRIES - TRIAL BALANCE AS AT 30 JUNE 2018 Debit ($) Credit ($) Accrued Accounting Wages 3 200 Cash at Bank 48 200 Depreciation Expense – Van 5 000 Accounts Receivable 76 000 Orchard Tractor 62 000 Sales 333 970 Orchard Rent Expense 24 000 Delivery Van 35 000 Freight Inwards 19 000 Unearned Revenue 3 100 Discounts Received 6 600 Accrued Van Maintenance Expense 1 900 Mr Bing, Capital (1 July 2017) 346 150 Inventory (1 July 2017) 116 000 Term Deposit 130 000 Mr Bing, Drawings 8 300 Allowance for Doubtful Debts 3 594 Prepaid Rent 2 000 Depreciation Expense – Orchard Tractor 6 000 Van Maintenance Expense 10 000 Doubtful Debts Expense 3 594 Purchases 161 467 Accounting Wages 15 898 Freight Outwards 15 947 Accumulated Depreciation – Orchard Tractor 24 000 Advertising Expense 8 223 Accumulated Depreciation – Van 17 500 Discount Allowed 900 Sales Returns and Allowances 12 370 Accounts Payable 63 000 Wages Sales Staff 66 565 Mortgage 20 000 Purchases Returns and Allowances 3 450 Total 826 464 826 464 The stocktake performed at 30 June 2018 recorded an ending inventory balance of $128 600 REQUIRED: Prepare a fully classified Income Statement for the year ending 30 June 2018. Answer question 2 on the following page QUESTION 3: Accounting Concepts (15 marks) As a graduate accountant of J2R Chartered Accountants, you are frequently required to assist in stocktakes for various clients. One of the very new clients to J2R Chartered Accountants is Mr Bing who owns and operates quite a large cherry farm and is considering opening a shop on the farm which will sell cherry pies, cherry jam and cherry chocolate bars. He has been chatting to other fruit farmers and they have asked him whether he uses a periodic or perpetual inventory system. Mr Bing does not know anything about either of these inventory systems and during a recent meeting he had with the Managing Partner of J2R Chartered Accountants (your boss) he asked if he could be sent some information regarding these two inventory systems. The Managing Partner is extremely busy so she has asked you to prepare a letter which covers the following: REQUIRED: Please write a letter in your own words to the Managing Partner of your accounting firm explaining the following: • Identify the two inventory systems. (2 marks) • How Mr Bing can determine which inventory system he is using in his cherry farm accounting system (refer to the trial balance in question 2). (2 marks) • Identify which system Mr Bing should use for the cherry farm shop and why. (4 marks) • Which inventory system would be most appropriate for Mr Bing’s cherry farm (not the cherry farm shop) and why. (4 marks) QUESTION 4: Cash Flow Statement (15 marks) You are provided with the following financial information for Dessies Delicious Cherry Deserts Ltd: DESSIES DELICIOUS CHERRY DESERTS LTD COMPARATIVE BALANCE SHEETS AS AT DECEMBER 31 Current Assets 2018 2017 Cash on Hand $1 200 $4 000 Cash at Bank 7 926 1 009 Accounts Receivable (net) 11 097 4 500 Inventory 28 000 18 000 Prepaid Expenses 1 650 $49 873 650 $28 159 Non Current Assets Plant & Equipment 83 500 64 000 less Acc. Depreciation (23 000) 60 500 (17 600) 46 400 Land 80 000 180 000 Total Assets 190 373 254 559 Current Liabilities Bank Overdraft 6 402 - Accounts Payable 2 513 2 800 Expenses Payable 780 790 Tax Payable 1 877 11 572 1 200 4 790 Non Current Liabilities Bank Loan 20 000 20 000 Total Liabilities 31 572 24 790 Net Assets $158 801 $229 769 Equity Capital 158 801 229 769 $158 801 $229 769 (continued over page) DESSIES DELICIOUS CHERRY DESERTS LTD INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31 2018 Net Sales $126 897 Cost of Sales 45 200 Discount Received 280 Gross Profit: 81 977 Other Revenue: Interest Revenue 40 40 82 017 Expenses: Selling & Admin Expense 21 087 Doubtful Debts Expense 354 Depreciation Expense 5 400 Interest Expense 3 800 30 641 Profit before tax 51 376 Income tax expense 4 365 Profit $47 011 ANSWER THIS QUESTION ON THE PRO FORMA PROVIDED REQUIRED: a. Prepare a Statement of Cash Flows in the pro forma provided below and show all calculations (an answer without supporting calculations will receive zero). (15 marks) DESSIES DELICIOUS CHERRY DESERTS LTD Cash Flow Statement for the year ended 31 December 2018 $ $ Cash Flows from Operating Activities Receipts from customers Payments to Suppliers & Employees Cash generated from operations Interest Paid Income Tax Paid Interest Received Cashflows from Operating Activities Cashflows from Investing Activities Purchase of Equipment Proceeds from Sale of Land Cashflows from Investing Activities Cashflows from Financing Activities Drawings Net Increase (decrease) in cash held Cash at start Cash at end      

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