MBS544 Accounting Processes- Assignment Problem

Assignment Help Financial Accounting

Reference no: EM132388856

MBS544: Accounting Processes

Murdoch University-Australia

ASSIGNMENT

Business Background

Greta’s Furniture Pty Ltd is a small retail business that has operated successfully for some years buying and selling furniture. The structure of the business is that of a small proprietary company with the owners being Greta and Roger Fitzgerald.

The owners work in the shop, and employ a part-time clerk/salesperson. Rita Steiner, who is paid fortnightly, based on an hourly rate.

The business is registered with the ATO for the goods and services tax (GST), and its Australian Business Number (ABN) is 78 303 823 798. It reports and pays amounts owing for GST quarterly via the business activity statement (BAS). The business has elected to use the accrual basis of accounting for both accounting and GST purposes.

Accounting policies

BAD AND DOUBTFUL DEBTS

The business uses the direct write-off method when accounting for bad bets as they only occur infrequently.

INVENTORY

The business maintains a periodic inventory system.

PREPAYMENTS

Expenses paid in advance for their use, such as insurance, are initially recorded as assets. Any used portion at the end of period is entered into the journal as an expense.

PROPERTY, PLANT AND EQIUPMENT

The business has adopted the ATO rates of depreciation for all depreciated assets. These rates are based on the ATO’s estimate of useful life. The straight line method is used for the calculation of depreciation on these assets. Amounts calculated are rounded to the nearest dollar.

ACCOUNTING RECORDS

The business maintains the books or original entry set out below. These have been customised to suit the operations of Greta’s Furniture.

• General journal (GJ): to record all transactions that cannot be recorded in the special journals

• Sales journal (SJ): to record all sales of goods or services on credit, and GST collected

• Purchases journal (PJ): to record all credit purchases of goods for resale, and GST paid

• Cash receipts journal (CRJ): to record all receipts of cash, including cash sales of goods or services.

• Cash payments journal (CPJ): to record all payments made on the business’s cheque account, including cash purchases of goods for resale.

• Accounts receivable and accounts payable subsidiary ledgers; separate accounts are maintained for each customer and each supplier

• General ledger: separate accounts are maintained for income, expense, asset, liability and equity accounts.

ACCOUNTING PROCEDURES

On a daily basis, all relevant source documents are collected and transactions recorded in the appropriate journals. Transactions recorded in the ‘other accounts’ columns and all entries relating to accounts or inventory items in the subsidiary ledgers are posted daily. On a monthly basis, special journals are totalled and posted after the bank statement has been received and any missing items have been recorded.

A worksheet is then prepared from the general ledger and a monthly income statement and balance sheet are produced, together with schedules of accounts receivable, accounts payable and inventory. At the endof each month, adjusting and closing general journal entries are prepared and posted to the general ledger accounts.

The chart of accounts includes the following accounts: 159 Sale of Asset, 161, Accumulated depreciation – Warehouse, 215 Interest payable, 306 P. Greta, drawings, 350 Profit or Loss summary, 401 Sales, 412 Sales returns and allowances, 415 Discount received, 417 Commission revenue, 416, Gain on Sale of Asset, 510 Purchases, 512 Purchase returns and allowances, 516 Freight inwards, 627 Sales salaries expense, 711 Depreciation expense, 722 Insurance expense, 725 Discount allowed, 726 Interest expense, 727 Office salaries expense, 728 Office supplies expense, 729 Rent expense and 730 Bad debts expense.

Greta’s Furniture Pty Ltd has the following opening account balances in its general and subsidiary ledgers on 1 December, 2019. All accounts have normal debit and credit balances.

Required:

A) Prepare a chart of accounts for the business using the following format:

Number	Account	Element	Current/NC
101	Cash	Asset	Current

B) Record the December transactions in the appropriate journal: sales, purchases, cash receipts, cash payments and general

C) Post the journals to the general and subsidiary ledgers. New accounts should be added and numbered in an orderly fashion as needed

D) Prepare a trial balance as at 31 December 2019 using a worksheet. Complete the worksheet using the following additional information.

1. Office supplies at 31 December total $900

2. Insurance cover expires on 31 September 2019

3. Equipment has a useful life of 4 years

4. Commission revenue of $39 600 has accrued during December

5. The Warehouse has a useful life of 40 years and residual value of $20,160

6. Inventory at 31 December is $28 800

7. Interest is accrued on the loan at the rate of 5% pa.

E) Prepare a fully classified statement of profit or loss for December and a classified statement of position at the end of December

F) Prepare and post the adjusting and closing entries

G) Prepare a post-closing trail balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger

H) You have been provided with the following information about two competitors.

	Furniture Mart	Furniture Bazar
Sales Revenue	$ 155834	$ 166864
Cost of Sales Gross Profit	112 781 43,053	138018 28846
Net Profit	77 305	66 900
Inventory	31 726	32 345
Current Assets	79 326	91 688
Total Assets	465255	514654
Current Liabilities	21 220	24 215
Total Liabilities	204775	225954
Total Equity	260480	288700

From this information and the results you have obtained for Greta’s Furniture Pty Ltd, you are required to calculate the following ratios for the three businesses for 2019 using the table provided (see page 7).

Additionally, you are required to write a report (see page 8) to Greta on the ratios you have calculated and your main findings. Please also include some recommendations that Greta can implement to improve business performance.

Ratio Analysis

Profitability

Gross Profit Margin

Net Profit Margin

Return on Equity

Liquidity

Current Ratio

Inventory Turnover in days

Solvency

Debt Ratio

Attachment:- Gretas Furniture Pty Ltd.rar

Reference no: EM132388856

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