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:
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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
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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
