Reference no: EM13872822

Assessment Task

 

Question 1

 

Whenever Blue Peter Trading Pty Ltd conducts a financial transaction and issues or receives a source document, the chart of accounts dictates where that transaction is recorded in the accounting system based on its type. For example, purchases of inventory would be coded to account 1-1400, whereas a payment for staff wages would be coded to account 5-3100. You are asked to prepare a chart of accounts by classifying and coding the following accounts for Blue Peter Trading Pty Ltd.

 

How this accounts can be checked for accuracy and reliability in accordance with organizational policies and procedures.

 

Account name	$	Account name	$
Furniture and fixtures	2,000	Freight paid	200
Inventory	500	Office supplies	200
Plant and equipment	5,000	Stationery	250
Accounts Receivables	50	Bank charges	100
Motor vehicles	1,500	Delivery fee income	300
Petty cash	600	Discounts received	400
Computer equipment	500	Interest income	20
Cash drawer	400	Subscriptions and magazines	250
Cheque account	200	Motor vehicle expenses	500
Credit card balance	200	Cleaning	300
Accounts Payables	300	Electricity	210
GST payable	200	Superannuation	75
PAYG withholding payable	100	Insurance	200
Superannuation payable	50	Discounts given	100
Union fees payable	20	Photocopying	25
Loan from Commonwealth Bank	10,000	Postage	20
Capital	15,000	Purchases	5000
Drawings	200	Purchases returns	300
Sales	12,000	Telephone	23
Accounting fees	500	Travel	150
Advertising	300	Wages and salaries	5,000

 

Question 2

 

Using a Business activity statement from ATO, You are required to apply to correct GST code against the following business balances for the period January to March; the company uses the accrual basis when accounting for GST. All of these amounts include GST if applicable.

 

Account	Total amount $	BAS code
Sales invoiced (inc. GST)
Sales	370,000
Exports	65,000
Other GST-free sales	16,800
Purchase invoices (inc. GST)
Assets purchased	60,700
Purchase of materials	115,200
General journal bills
Advertising	800
Electricity	1,200
Freight	580
Petrol for company vehicle	2,200
Salaries	45,000
Wages	120,000
PAYG withheld from salaries and wages	33,400
ATO-assessed income rate	3.60%

 

It is important that bookkeepers are able to calculate GST amounts accurately.

 

Calculate GST on an invoice received for payment of education fees; total invoice amount is $2,200

 

Question 3

 

a) What is a Pie chart? Give two advantages and two disadvantages of  Pie chart.

 

b) Jim Morrison has invested $88,000 in commonwealth bank, $44,000 in Grocery business and $68,000 in a Italian restaurant. Using Microsoft Excel Prepare a pie chart, Use conversion and consolidation procedures to compile analysis in accordance with organisational requirements in an appropriate manner that shows the proportion of his investment at each sector of business.

 

c) What is a Bar Graph? Give two advantages and two disadvantages of  Bar Graph.

 

d) The following information provides numbers for the UK total resident population. The figures for total population at decade intervals since 1959 are  given below:

 

Year	Total UK Resident Population
1959	51,956,000
1969	55,461,000
1979	56,240,000
1989	57,365,000
1999	59,501,000

 

Using Microsoft Excel and conversion and consolidation procedures, compile analysis in accordance with organisational requirements, Prepare a Bar chart in an appropriate manner that reflects the above information.

 

e) When valuing assets and liabilities in your organization: List some of the assets and liabilities that can change  in  value over time.

 

f) Which valuation method does your organization use to value these assets and liabilities - historical cost accounting (HCA) or current cost accounting (CCA)?

 

g) What are the pros and cons of HCA and CCA in the context of providing relevant and reliable financial information?

 

h) Why is it important to adopt a consistent valuation method across all assets and liabilities rather than valuing some using HCA and others using CCA?

 

Question 4

 

Following are the accounts and Balance of Sunmoon Sunglasses Shop as on January 31 2010, following  a clear and appropriate structure and format and conform to organisation requirement to ensure that statements and data are error free and comprehensive, Prepare:

 

• A Trial balance.

 

• A statement of Financial Performance (profit and Loss account).

 

• A statement of Financial Position (balance sheet.)

 

Make the report that you have prepared is cross checked against original data and accounting standard.

 

Accounts	$
Cash	41,150
Accounts Receivable	4,806
Allowance for Doubtful Accounts	58
Inventory	2,670
Prepaid Insurance	2,200
Land	20,000
Accounts Payable	1,500
Interest Payable	90
Payroll Taxes Payable	113
Wages Payable	817
Mortgage Payable	18,000
Owner's Investment	50,000
Sales	11,680
Repair Revenue	20
Cost of Goods Sold	3,504
Advertising	200
Bad Debt Expense	58
Bank Charges	50
Insurance Expense	200
Payroll Taxes	603
Rent	2,240
Supplies	150
Wages	4,357
Interest Expense	90

 

Question 5

 

Following a clear and appropriate structure and format and conform to organisation requirement to ensure that statements and data are error free and comprehensive, From the following information prepare a cash flow statement.

 

	Jan	Feb	Mar	Apr	May	Jun
Cash Sales	600	1200	1750	2300	2600	3000
Debtors Payments	0	600	850	1300	1490	1430
Total Revenue	600	1800	2600	3600	4090	4430
Raw Materials	970	1200	1350	1380	1670	1500
Wages	800	800	800	900	900	900
Interest	220	220	220	220	220	220
Rates	40	40	40	40	40	40
Electricity	60	60	60	100	100	100
Travelling	80	80	150	150	150	150
Sundries	130	80	80	80	80	80
Exhibition Charges	150	150	250	250	300	300

 

Opening Cash Balance for the company is $750

 

Question 6

 

In the year ended 30 April 2005, the bookkeeper of V R Cross, wholesaler, made the following errors.

 

a)  He wrote off as a bad debt the amount owing by N Ever ($400). He credited $400 to the N Ever account, but debited the bad debts account with $40.

 

b) A payment of $200 made to Julie Andrews was credited to the account of Janet Andrews.

 

c) A credit note for $160 in respect of goods returned to Asif Iqbal, a supplier, was lost and no entries made in the books.

 

d) On 1 January 2005, an insurance premium of $1 200 for the period 1 January to 31 December 2005 was paid; no adjustment was made for the amount paid in advance at 30 April 2005.

 

e) The total of the purchase returns book was undercast by $100.

 

f) The total of the discount allowed column in the cash book, $250, was posted to the credit side of the discount received account.

 

g) A cheque for $ 195 received from A N Other on 16 April 2005, in full settlement of her account, was entered correctly. No cash discount was involved. The cheque was dishonoured on 27 April 2005, but no entry for this was made in the books.

 

You are asked to do the following:

 

Show the effect of each error on the trial balance and the net profit for the year ended 30 April 2005.Draw up the table, in your answer book and complete it for each of the items (a) to (g) above. Ensure that discrepancies, unusual features or queries are identified, resolved or referred to the  appropriate authority.

 

Question 7

 

Assessing Martin Manufacturing's current financial position

 

Tom, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firm's financial performance during 2007 and its financial position at year end 2007. To complete this assignment, he gathered the firm's 2007 financial statements, which follow. In addition, he obtained the firm's ratio values for 2005 and 2006, along with the 2007 industry average ratio (also applicable to 2005 and 2006).

 

Income statement Martin Manufacturing Company for the year ended 31 December 2007
Sales revenue		$ 5075000
Less Cost of goods sold		3704000
Gross profits		$1 371 000
Less Operating expenses
Selling expense	$650 000
General and administrative expenses	416 000
Depreciation expense	152 000
Total operating expenses		1 218 000
Operating profits		$153 000
Less Interest expense		93 000
Net profits before taxes		$60 000
Less Taxes (rate = 40%)		24 000
Net profits after taxes		$36 000
Less Preference dividends		3 000
Earnings available for ordinary shareholders		33 000
EPS		$0.33

 

Balance sheets Martin Manufacturing Company 31 December
	2007	2006
Assets
Current
assets Cash	$25 000	$24,100
Accounts receivable	805 556	763 900
Inventories	700 625	763 445
Total current assets	$1 531 181	$1 551 445
Gross non-current assets (at cost)	S2 093 819	$1 691 707
Less Accumulated depreciation	500 000	348 000
Net non-current assets	$1 593 819	$1 343 707
Total assets	S3 125 000	$2 895 152
Liabilities and shareholders' equity Current liabilities
Accounts payable	$230 000	$400 500
Notes payable	311 000	370 000
Accruals	75 000	100 902
Total current liabilities	$616 000	$871 402
Non-current  debt	$1 165 250	5700 000
Total liabilities	$1 781 250	$1 571 402
Shareholders' equity Preference	$50 000	$50 000
shares Ordinary	293 750	293 750
shares Retained	1 000 000	980 000
earnings	1 343 750	$1 323 750
Total shareholders' equity	$3 125 000	$2 895 152
The firm's 100 000 issued ordinary shares closed 2007 at a price of $11.38 per share.

Historical ratios - Martin Manufacturing Company
Ratio	Actual 2005	Actual 2006	Actual 2007	Industry average 2007
Current ratio	1.7	1.8		1.5
Quick ratio	1.0	0.9		1.2
Inventory turnover (times)	5.2	5.0		10.2
Average collection period	50 days	55 days		46 days
Total asset turnover (times)	1.5	1.5		2.0
Debt ratio	45.8%	54.3%		24.5%
Times interest earned ratio	2.2	1.9		2.5
Gross profit margin	27.5%	28.0%		26.0%
Net profit margin	1.1%	1.0		1.2%
Return on total assets (ROA)	1.7%	1.5%		2.4%
Return on equity (ROE)	3.1%	3.3		3.2%
Price/earnings ratio	33.5	38.		43.4
Market/book ratio	1.0	1.1		1.2

 

Required

 

a) Calculate the firm's 2007 financial ratios and fill in the  table above.

 

b) Analyse the firm's current financial position from both a cross-sectional and time-series viewpoint. Break down your analysis into an evaluation of the firm's liquidity, activity, debt, profitability and market.

 

c) Provide recommendations and summarise the firm's overall financial position based on your findings in question b. Ensure recommendations are clearly structured, concise and facilitate direction and control of organization's operations.