Professional Documents
Culture Documents
2014S1
The rules, standards and usual practices that companies are expected to follow in
preparing their financial statements.
2 marks must refer to both of (1) rules/standards (or like term e.g. laws) and (2)
practices and relate to accounting reports or financial statements or financial
accounting
1 mark must refer to one of rules/standards/practices and relate to accounting
reports or financial statements or financial accounting
2. If you have a good idea and expect to make a lot of money from the idea is
that a sufficient reason to recognise an asset? Explain why or why not. (2
Marks)
1
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
2
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
Return on Assets
Financial Leverage
Total Assets
Total Shareholders Equity
Profit Margin
Asset Turnover
Sales
Total Assets
Days in Inventory
Days in Debtors
Current Ratio
Current Assets
Current Liabilities
Quick Ratio
3
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
Required
Analyse BPSs profitability, asset management, liquidity and financial
structure for 2012 using the ratio information shown above.
Profitability
ROE has increased from 12 per cent to 13 per cent while the return on assets has
fallen from 9 per cent to 8 per cent. Given that ROA = Profit Margin Asset
Turnover (e.g. 20 x 0.4 per cent = 8 per cent for 2012), the fall in ROA is due to the
fall in asset turnover. While the profit margin has increased from 18 per cent to 20
per cent, asset turnover has decreased from 0.50 to 0.40, thus overall ROA has
decreased.
[2 marks fully correct; 1 mark partially correct]
Asset management:
The average time to collect debtors has stayed constant. However, the days in
inventory has increased from 55 days to 72 days, meaning that, on average, it is
taking much longer to sell inventory. These extra days need to be financed by the
company. The reasons for the build up in inventory should be investigated (e.g.
stocking up for some large orders, as opposed to lack of demand, for the product,
require very different actions).
[2 marks fully correct; 1 mark partially correct]
Liquidity:
The current ratio has increased (mainly due to the build up in inventory, see above)
while the quick ratio has dropped below 1 to 0.7 indicating the company may have
problems paying their bills in the short term.
[2 mark fully correct; 1 mark partially correct]
Financial structure:
Debt-to-equity ratio has increased substantially from 1 to 1.4. The ability of the
company to pay its interest bill needs to be considered, particularly given the
decrease in profitability as indicated by the lower ROA.
[2 marks fully correct; 1 mark partially correct]
4
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
QUESTION 3
(7 marks)
2014S1
Accounts Receivable
On 1st January 2011, Parker Company has a debit balance of $21,000 in Accounts
Receivable and a credit balance of $1,550 in the Allowance for Doubtful Debts.
During the year to 31st December 2011, Parker made sales on credit terms for $99,100
and collected cash from customers on accounts receivable amounting to $82,000. On
1st August 2011, Parker wrote off a bad debt on an account for $230. An ageing
analysis at 31st December 2011 indicates that the allowance for doubtful debts account
should have a credit balance of $2,150.
Parker Companys financial year ends on 31st December 2011.
Required:
a)
(1 mark)
Debit
99,100
Accounts receivable
Sales revenue
[1 mark: entries and amount correct]
Credit
99,100
(ii) Prepare the journal entry to record cash collected from customers
Debit
82,000
Cash
Accounts receivable
[1 mark: entries and amount correct]
(1 mark)
Credit
82,000
(iii) Prepare the journal entry to write off the uncollectible account of $230
against the allowance for doubtful debts
(1 mark)
Debit
Credit
230
Accounts receivable
[1 mark: entries and amount correct]
230
5
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
(iv) Prepare the adjusting journal entry to the allowance for doubtful debts
based on the ageing analysis at 31st December 2011
(2 marks)
Debit
Credit
830
830
(v) Prepare the closing journal entry for bad debts expense
(2 marks)
Debit
Profit and loss summary
Credit
830
830
6
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
CR
10,000
Accounts Receivable
200,000
1,000
Inventory
100,000
Prepaid Rent
10,000
450,000
200,000
Accounts Payable
60,000
Bank loan
50,000
Contributed Capital
310,000
34,000
Sales
450,000
265,000
Interest Expense
5,000
Wages Expenses
80,000
Rent Expense
5,000
1,115,000
1,115,000
The following information is given which may give rise to year end adjustments:
Depreciation on Property, Plant and Equipment is provided for on a straight line
basis at 10% per annum, and it is assumed that it will have no salvage value.
The balance in Prepaid Rent relates to the 12 month period from 1 January 2014 to
31 December 2014.
An ageing analysis shows that $4,000 of Accounts Receivable is estimated to be
uncollectible.
On 30 June 2014, the directors declared a dividend of $5,000, which the
shareholders authorised. The dividend is to be paid on 15 September 2014.
7
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
It is discovered that $10,000 cash received during the year and credited to sales are
actually related to services to be delivered in July 2014.
$5,000 of wages relating to June 2014 have not been paid and need to be accrued.
Part A (12 Marks)
Prepare journal entries for the necessary end of period adjustments.
Debit
Depreciation Expense PPE
Accumulated Depreciation PPE
(1 mark for each entry)
45 000
Rent Expense
Prepaid Rent
(1 mark for each entry)
5 000
3 000
Retained Profits
Dividend Payable
(1 mark for each entry)
5 000
Sales
10,000
Credit
45 000
5 000
3 000
5 000
Unearned revenue
(1 mark for each entry)
10,000
Wages Expense
Wages Payable
(1 mark for each entry)
5,000
5,000
8
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
Part B (6 Marks)
Prepare an Income Statement for the year ended 30 June 2014:
Sydney Company
Income Statement for year ended 30 June 2014
440 000
265 000
175 000
Sales
(1 mark)
Less COGS ( 1 mark if COGS is in correct place)
Gross Profit
Less Operating Expenses
Interest expense
Depreciation expense
(1 mark)
Rent expense
(1 mark)
Bad debts expense
(1 mark)
Wages expense
(1 mark)
5 000
45 000
10 000
3 000
85 000
148 000
$27 000
Net Profit
Part C (4 Marks)
In the Balance Sheet as at 30 June 2014, what would be the closing balance of
retained profits? Show all workings.
Opening Balance
Plus Net Profit for Period
Less Dividends declared
Closing Balance
34 000 (1 mark)
27 000 (1 mark)
5 000 (1 mark)
$56 000 (1 mark)
9
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
The following information is taken from the accounting records of Noiseworks Ltd
for the year ended 30 June 2011.
$
Inventory 1 July 2010
50,000
300,000
360,000
90,000
Inventory
Accounts payable
[1 mark: entries and amount correct]
Credit
300,000
COGS
Inventory
[1 mark: entries and amount correct]
240,000
20,000
260,000
240,000
20,000
240,000
20,000
10
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
Purchases
Accounts payable
[1 mark: entries and amount correct]
Credit
300,000
260,000
90,000
300,000
50,000
50,000
50,000
90,000
90,000
b) Prepare an extract of income statements for the year ended 30 June 2011
showing sales, cost of sales and gross profit based on:
i. Perpetual inventory method (2 marks)
Noiseworks Ltd
Extract of Income Statement for year ended 30 June 2011
$
Sales
$
360,000
240,000
Inventory shortage
20,000
Gross profit
260,000
100,000
11
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
$
360,000
50,000
Purchases
300,000
350,000
90,000
Gross profit
260,000
100,000
12
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
Sold after 4 years. Since we are depreciating the car on a straight-line basis over 4
years, the book value at the end of the fourth year will be the residual value.
Accumulated depreciation on the car at 31 Dec 2012 = 40,000 (50k 10k)
(1 mark)
Loss on sale = Sale price Carrying value
= 8,000 10,000 = -2,000 (1 mark. Do not penalize for carry-on errors)
Journal Entry to record the sale:
Dr Cash at bank 8 000
Dr Accumulated Depreciation Car 40 000
Dr Loss on sale 2000
Cr Car
50 000
(2 marks = 0.5 for each part of the journal entry)
13
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
30 June 2011
$236,000
$220,000
$95,000
During June, cost for direct labour amounted to $350,000, new purchases for raw
materials were $200,000 on 6 June and $300,000 on 27 June. The total overhead cost
was $1,200,000.
Prepare a cost of goods manufactured statement for June 2011.
Earth Ltd.
Statement of Cost of Goods Manufactured
For the Month Ended June 30, 2011 (correct title 0.5)
Direct materials:
Beginning raw materials
inventory
Add: Purchases
Materials available
Less: Ending inventory
Direct materials used
Direct labour
Manufacturing overhead
Manufacturing costs added
Add: Beginning work in process
Total manufacturing costs
Less: Ending work in process
Cost of goods manufactured
14
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1
Part B (2 marks)
Tree & Woods Corp., an international furniture company, manufactures and sells
furniture of unique natural material. In 2010, the company sold all 25,000 chairs that
it produced at $200 each. Total costs amounted to $3,300,000 comprised of
$1,300,000 variable costs and $2,000,000 fixed costs. In 2011, the company purchases
a new saw mill for $110,000. The useful life is estimated to be 5 years with a salvage
value of $10,000. Each year, the same amount of depreciation expense is recorded.
The usage of the new saw mill allows Tree & Woods to reduce variable costs for
producing one chair by $7. All other costs remain the same as in 2010.
What was Tree & Woods Corp.s break-even point in number of units in 2010?
Production and sale of 25,000 units => UVC = $52 (1,300,000 / 25,000)
BEP = FC/(Price UVC) = 13,513.51 => 13,514 units
Calculation 2 marks
UVC 1 mark, correct result 1 mark
[Note: allow 0.5 marks if wrong figures but correct formula written down
somewhere]
15
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
16
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)
2014S1