ch03 SM Carlon 5e

Solutions Manual
to accompany
Financial
Accounting:
Recording, Analysis
and Decision Making
Fifth Edition
Prepared by
Shirley Carlon
John Wiley & Sons Australia, Ltd 2016

Solutions manual to accompany Financial accounting: recording, analysis and decision making 5e
CHAPTER 3 – ACCRUAL ACCOUNTING CONCEPTS
ASSIGNMENT CLASSIFICATION TABLE
Brief
Learning Objectives Exercises Exercises Problems
1. Differentiate between the cash basis 1 1,9 7A
and the accrual basis of accounting.
2. Explain criteria for revenue recognition 2,3,4

and expense recognition.
3. Explain why adjusting entries are 2 5,9, 10, 1A, 2A,10A,

needed and identify the major types of 11,13 1B,2B.10B
adjusting entries.
4. Prepare adjusting entries for 3, 4 5, 6, 7, 8,9, ALL

prepayments and accruals. 10,11,12,13 PROBLEMS
5. Describe the nature and purpose of the 5 9,10,11 ALL

adjusted trial balance. PROBLEMS
6. Explain the purpose of closing entries. 6 12 3A, 4A,5A,6A,

7A,8A, 9A,10A,
3B, 4B, 5B,6B,
7B,8B,9B,10B
7. Describe the required steps in the 6, 7 3A, 5A,6A,8A,

accounting cycle. 9A,10A,3B,5B,
6B,8B,9B,10B
8. Describe the purpose and the basic 13 9A,10A

form of a worksheet. 7B,9B,10B
© John Wiley and Sons Australia Ltd, 2016 3.1

Chapter 3: Accrual accounting concepts
CHAPTER 3 – ACCRUAL ACCOUNTING CONCEPTS
ANSWERS TO QUESTIONS
1. (a) Under the accounting period concept, an accountant is required to determine

the impact of each accounting transaction or event in specific accounting
periods.
(b) An accounting time period of one year in length is referred to as a financial
year.
2. The accounting principles and the qualitative characteristics, together with

accounting standards, are collectively referred to as Australian generally accepted
accounting principles (GAAP). Generally accepted accounting principles that pertain
to adjusting the accounts include (choose two):
The revenue recognition criteria which states that revenues should be recognised in
the time period in which it is probable that any future economic benefits associated
with the revenue will flow to the entity and the revenue can be reliably measured;
The accounting period concept which states that the life of a business can be divided
into artificial periods, such as one month, six month, 12 months, and that useful
financial statements give feedback on the profitability of the business;
The expense recognition criteria which states that expenses should be recognised
when the outflow of future economic benefits associated with the expense is
probable and the expense can be measured reliably.

3. The new accounting standard for revenue recognition IFRS 15 ‘Revenue from
Contracts with Customers’, is mandatory for reporting periods commencing 1
January 2017, but earlier adoption is permitted. The main principle in this new
standard is that revenue is to be recognised to depict the transfer of goods or
services to customers in amounts which reflect the payment (ie consideration) which
the business expects to receive.
IFRS 15 sets out a five step process. Essentially revenue can be recognised when
an entity satisfies a performance obligation.
The following conditions must be met:

o the contract has been approved by parties to the contract
o each parties rights in relation to the goods to be transferred has been
identified
o the payment terms have been identified
o the contract has commercial substance; and
o it is probable that the consideration to which the entity is entitled to in
exchange for the goods will be collected.
4. Assuming the law firm uses accrual accounting it should recognise the revenue in
April as this is when the contract obligation was performed. The revenue recognition
criterion states that revenue should be recognised in the accounting period in which it
is probable that any future economic benefits associated with the revenue will flow to
the entity and the revenue can be reliably measured. If the engagement has been
completed the amount of revenue would typically be able to be measured reliably.
Applying the new criteria under IRFS15 it is assumed both parties agreed to the
conditions of the contract, the payment terms were specified so the contract has
commercial substance. The timing of the recognition is when the right were
transferred and it is probable the law firm will receive the service revenue. That is in
April.
5. Expenses of $3600 should be deducted from the revenues in April in order to match
the revenue recognised in April.
6. The financial information in a trial balance may not be up-to-date because:

(1) Some events are not journalised daily because it is unnecessary and
inexpedient to do so.
(2) The expiration of some costs occurs with the reduction in an asset with the
passage of time.
(3) Some items may be unrecorded because the transaction data are not known.

7. The two categories of adjusting entries are prepayments and accruals. Prepayments
are either revenues received in advance or prepayments of amounts that provide
economic benefit for more than one period, e.g. prepaid rent. Accruals consist of
revenues and expenses earned or incurred but which have not been recorded
through daily recording of transactions.
In this text we teach you to recognise a transaction which affects more than 1
reporting [period as an asset. Therefore in a prepaid expense adjusting entry,
expenses are debited and assets are credited, to reflect the expiry of the asset. In a
revenue received in advance adjusting entry liabilities are debited and revenues are
credited.
8. Depreciation expense is an expense account whose normal balance is a debt. This

account shows the cost that has expired during the current accounting period.
Accumulated depreciation is a contra asset account whose normal balance is a
credit. The balance in this account is the depreciation that has been recognised from
the date of acquisition to the reporting date.
9. Liability and revenue. The revenue account is debited and liability account (Revenue
Received in Advance) is credited. This is the nature of the adjusting entry if the
original entry was to record the amount received as revenue.
10. An asset (Prepayments) is debited and an expense is credited by the adjusting entry.
11. (a) Prepaid expenses (if initially recorded as an expense)

or Accrued revenue.
(b) Revenues received in advance.
(c) Accrued expenses
or revenue received in advance (if initially recorded as revenue).
(d) Accrued expenses or prepaid expenses (if initially recorded as an asset).
(e) Prepaid expenses (if initially recorded as an asset).
(f) Accrued revenues or revenues received in advance (if initially recorded as a
liability).
12. A worksheet is a multi-columned form. The columns of the worksheet from left to
right are two columns each for the trial balance, adjustments, adjusted trial balance,
statement of profit or loss and other comprehensive income and statement of
financial position.

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3.1
Cash Retained Earnings

$ $
(a) -120 0
(b) 0 -60
(c) 0 +1,200
(d) +960 0
(e) -3,000 0
(f) 0 -1,200
(g) 0 0
BRIEF EXERCISE 3.2

Riko Ltd
(1) (2)
Item Type of Adjustment Accounts Before Adjustment
(a) Prepaid Expense Asset Overstated

Expense Understated
(b) Accrued Revenue Asset Understated
Revenue Understated
(c) Accrued Expense Expense Understated
Liability Understated
(d) Revenue Received in Advance Liability Overstated
Revenue Understated.
BRIEF EXERCISE 3.3

Shah Ltd
June 30 Depreciation Expense - Equipment 3 000

Accumulated Depreciation – Equipment 3 ,000
(Depreciation for the year )
Depreciation Expense – Equipment

30/6 Accumulated Depreciation 3 000
Accumulated Depreciation – Equipment

30/6 Depreciation Expense 3 000
FINANCIALSTATEMENT PRESENTATION IS NET
Equipment 25 000
Less Accumulated depreciation (3 000)
$22 000

BRIEF EXERCISE 3.4

DeVoe Ltd
General Journal
G 15
Date Account name(narration) Debit $ Credit $
(a) June 30 Interest Expense 200
Interest Payable 200
(Accrual of interest on loan)
(b) June 30 Service Revenue Receivable 700
Service Revenue 700
(Accrual of revenue)
(c) June 30 Salaries Expense 350
Salaries Payable 350
(Accrual of salaries)
BRIEF EXERCISE 3.5

Hoi Ltd
(1) (2)
Item Account Type of Adjustment Related Account
(a) Accounts Receivable Accrued Revenue Service Revenue

(b) Prepaid Insurance Prepaid Expense Insurance Expense
(c) Equipment Depreciation refer item (d)
(d) Accum. Depreciation – Prepaid Expense Depreciation Expense
Equipment
(e) Bank Loan Accrue interest refer item (f)
(f) Interest Payable Accrued Expense Interest Expense
(g) Service Revenue Received in Revenue Received in Advance Service Revenue
Advance
(h) Interest Receivable Accrued revenue Interest Revenue
(i) Wages Payable Accrued expense Wages Expense
BRIEF EXERCISE 3.6

Khanna Ltd
Account Financial Statement Post Closing
Trial Balance
(a) Accumulated Depreciation Statement of financial position Yes
(b) Depreciation Expense Statement of profit or loss No
(c) Retained Earnings Statement of financial position (and Yes
statement of changes in equity)
(d) Dividends Statement of changes in equity No
(e) Service Revenue Statement of profit or loss No
(f) Supplies Statement of financial position Yes
(g) Accounts Payable Statement of financial position Yes

BRIEF EXERCISE 3.7
The proper sequencing of the required steps in the accounting cycle is as follows:
1. (e) Analyse business transactions.

2. (a) Journalise the transactions.
3. (b) Post to ledger accounts.
4. (i) Prepare a trial balance.
5. (g) Journalise and post adjusting entries.
6. (d) Prepare an adjusted trial balance.
7. (h) Prepare financial statements.
8. (f) Journalise and post closing entries.
9. (c) Prepare a post-closing balance.

SOLUTIONS TO EXERCISES
EXERCISE 3.1
Tang Pty Ltd
(a)
Cash Basis Accrual Basis
$ $
Service Revenue 66,000 78,000
- Operating Expenses 40,500 45,000
- Insurance Expense 6,500 -
Profit $19,000 $33,000
(b) Both accrual basis and cash basis provide useful information. However, it can be
argued that the accrual basis of accounting provides more useful information about
performance for decision makers because it recognises the impact of accounting
transactions or events on specific accounting periods. The cash basis of accounting
only recognises cash transactions. The accrual basis of accounting provides a more
comprehensive picture of the business activities in the records. For example, accrued
basis profit takes account of all revenues and expenses for a period whether or not
cash is received or paid (provided recognition criteria are met). It also takes account
of internal events, such as the consumption of supplies or the depreciation of plant
assets.
However, cash basis accounting is also useful. For example, the statement of cash
flows shows how much cash is generated from ordinary operating activities (which will
invariably be greater or less than accrual basis profit).
EXERCISE 3.2
(a) 6. Going concern principle.

(b) 1. Accounting entity concept.
(c) 5. Full disclosure principle.
(d) 8. Monetary principle.
(e) 7. Materiality.
(f) 2. Accounting period concept.
(g) 4. Expense recognition criteria.
(h) 3. Cost principle.
EXERCISE 3.3
(a) Revenue recognition criteria.

(b) Accounting period concept.
(c) No violation (not a violation of cost as the principle used for inventory is
measurement at the lower of cost and net realisable value).
(d) Going concern principle.
(e) Cost principle.
(f) Accounting entity concept.

EXERCISE 3.4
(a) 9. Materiality.
(b) 7. Expense recognition criteria.
(c) 3. Monetary principle.
(d) 4. Accounting period concept.
(e) 8. Cost principle.
(f) 1. Accounting entity concept.
(g) 5. Full disclosure principle.
(h) 6. Revenue recognition criteria.
EXERCISE 3.5
Zimbabwe Ltd
(1) (2) (b)

Item Type of Adjustment Accounts Before Effect on profit
Adjustment Overstated
/(understated)
(a) Accrued Revenue Asset Understated Understated
Revenue Understated
(b) Prepaid Expense Asset Overstated Overstated

Expense Understated
(c) Accrued Expense Expense Understated Overstated

Liabilities Understated
(d) Revenue Received in Advance Liability Overstated Understated

Revenue Understated
(e) Accrued Expense Expense Understated Overstated

Liability Understated
(f) Prepaid Expense Asset Overstated Overstated

Expense Understated

EXERCISE 3.6
Uniform Ltd
General Journal
Post $ $
Date Account name(narration) Ref. Debit Credit
1. June 30 Depreciation Expense 420 4 800

Accumulated Depreciation – Equipment 121 4 800
(Depreciation for the quarter ($1600 x 3))
2. 30 Revenue Received in Advance 210 12 090
Rent Revenue 300 12 090
(Rent Revenue April-Jun now earned($36270 /
9 x 3))
3. 30 Interest Expense 400 975
Interest Payable 220 975
(Accrued interest)
4. 30 Supplies Expense 440 5 600
Supplies 110 5 600
(supplies used $8400-$2800)
5. 30 Insurance Expense 430 3 510
Prepaid Insurance 100 3 510
(Interest expense for the 3 months to June
($1170 x 3))
NB. Adjusting entries are made quarterly (i.e. every 3 months).

EXERCISE 3.7
Con James Dental Practice
General Journal
$ $
Date Account name(narration) Debit Credit
2016
a Jan 31 Accounts Receivable 1 500
Service Revenue 1 500
(Service preformed January)
b 31 Electricity Expense 1 040
Electricity Payable 1 040
(Accrued electricity)
c 31 Depreciation Expense 1 600
Accumulated Dep’n – Dental Equipment 1 600
(Depreciation for the month)
31 Interest Expense 500
(Accrued interest)
d 31 Insurance Expense 2 000
Prepaid Insurance 2 000
(January insurance exp $24000/12)
e 31 Supplies Expense 2 500
Supplies ($3200 - $700) 2 500
(Supplies used January)

EXERCISE 3.8
Wong Pty Ltd

General Journal
Date Account name (narration) Post $
ref Credit
2016
1. Oct. 31 Advertising Supplies Expense 505 900
Advertising Supplies ($2,500 - $1,600) 110 900
(Supplies used October )
2. 31 Insurance Expense 515 100
(Insurance expense October)
3. 31 Depreciation Expense 520 60
Accumulated Depreciation – Office Equipment 131 60
(Depreciation expense October)
4. 31 Service Revenue Received in Advance 213 300
(Revenue now performed)
5. 31 Accounts Receivable 104 700
(Accrued revenue)
(Accrued interest)
7. 31 Salaries Expense 500 1 300
Salaries Payable 215 1 300
(Accrued salaries)
EXERCISE 3.9
Wolfmother Ltd
Statement of profit or loss
for the month ended 31 July 2017
Revenues: $ $
Service revenue ($5 500 + $800) 6 300
Expenses:
Wages expense ($2 300 + $300) 2 600
Supplies expense ($1 200 - $400) 800
Electricity expense 600
Insurance expense 300
Depreciation expense 150
Total expenses 4 450
Profit $1 850

EXERCISE 3.10
Darcy Designs Pty Ltd
Answer Calculation/Account Reconstruction
(a) Supplies balance 1/7= $1 400 Supplies expense $1220

Add: Supplies (31/7) 1500
Less: Supplies purchased (1320)
Supplies (1/7) $1400
Supplies
1/7* Bal. 1400 Expense 1220
Purchases 1320 31/7 Bal. 1500
2720 2720
(b) Total premium = $9 600 Total premium = Monthly premium x 12; $800 x 12 =$9 600
Purchase date = 1 Nov 2015 Purchase date: On 31 Julybalance is $2400 so there is 3

months coverage remaining ($800 x 3). Thus, the
purchase date was 9 months earlier on 1 November 2015.
(c) Salaries payable = $1 700 Cash paid $7500

Salaries payable (31/7 ) 1500
$9000
Less: Salaries expense 7300
Salaries payable (1/7 or 30/6) $1700
Salaries Payable
Salaries 7500 1/7 Bal 1700
paid
31/7 Bal 1500 Salaries exp. 7300
9000 9000
31/7 Bal 1500
(d) Service revenue = $1 725 Service revenue $3000

Amount received for July services 2400
Revenue received in Advance now recognised 600
Service Revenue Received in Advance

Services 600 1/7 Bal. 1725
Performed
31/7 Bal. 1125
1725 1150
31/7 Bal 1125

EXERCISE 3.11
Martin Pty Ltd
Answer Calculation/Account Reconstruction
(a) Supplies balance 1/3= $800 Supplies expense $950

Add: Supplies (31/3) 700
Less: Supplies purchased (850)
Supplies (1/3) $800
Supplies
1/3* Bal. 800 Expense 950
Purchases 850 31/3 Bal. 700
1650 1650
(b) Total premium = $4 800 Total premium = Monthly premium x 12; $400 x 12 =
$4,800 (2400:4800 = 50%)
At 31 March the prepaid amount is half the annual
premium so policy was purchased six months earlier on 1
October 2016
Purchase date = 1 Oct 2016
(c) Salaries payable = $1 500 Cash paid $2500

Salaries payable (31/3 ) 800
$3300
Less: Salaries expense 1800
Salaries payable (1/3) $1500
Salaries Payable
Salaries 2500 1/3 Bal 1500
paid
31/3 Bal 800 Salaries exp. 1800
3300 3300
31/3 Bal 800
(d) Service revenue = $1 150 Service revenue $2000

Amount received for March services 1600
Revenue received in Advance now recognised 400
Service Revenue Received in Advance

Services 400 1/3 Bal. 1150
Performed
31/3 Bal. 750
1150 1150
31/3 Bal 750

EXERCISE 3.12
Snowmass Ltd
General Journal
Date Account name (narration) $ $

Debit Credit
(a) July 10 Supplies 200
Cash 200
14 Cash 3 000
15 Salaries Expense 1 200

Cash 1 200
20 Cash 700
Service Revenue Received in Advance 700
(b) July 31 Supplies Expense 500

Supplies 500

Salaries Payable 1 200
31 Service Revenue Receivable 500

Service Revenue 500
31 Service Revenue Received in Advance 900

Service Revenue 900

EXERCISE 3.13
Monkey Ltd
General Journal
Date Account name (narration) $ $
Debit Credit
2016
1. June 30 Insurance Expense 15 855
Insurance Payable 15 855
Calculations:
$33300 ÷ 3 yrs = $11 100 per annum, 1.5 yrs remain
$9510 ÷ 2 yrs= 4 755 per annum, 1 year remains
$15 855
Prepayment of B4564 at 30/6/16 is $16 650
Prepayment of A2958 at 30/6/16 is 4 755
$ 21 405
Pre adjustment balance $ 37 260
Adjustment required to expense $ 15 855
2. 30 Subscription Revenue Received in Advance 18 850

Subscription Revenue 18 850
Calculations:
Apr 200 x $130 x 3/12 = $6 500
May 300 x $130 x 2/12 = 6 500
Jun 540 x $130x 1/12 = 5 850
Subscriptions earned and to
be recognised as revenue $18 850

Calculation:
$100,000 x 6% x 3/12 = $1 500
4. 30 Salaries Expense 3 300

Calculations:
4 x $1050 x 2/5 = $1 680
3 x $1350 x 2/5 = 1 620
$3 300
(b) Subscriptions are usually paid in advance and for revenue to be recognised it needs to
meet the revenue recognition criteria. The revenue is recognised as the work is performed
not when the cash is received.

SOLUTIONS TO PROBLEM
SET A
PROBLEM SET A 3.1

Ewok Ltd
General Journal
(a).
Post $ $
Date Account Titles (Narration) Ref. Debit Credit
2015
1. June 30 Supplies Expense 505 6 400
Supplies 113 6 400
(To adjust supplies account to reflect supplies used
($13600 - $7200))
2. 30 Electricity Expense 530 1 200

Electricity Payable 218 1 200

(Prepaid insurance expired ($9600 ÷ 12 mth x 2)
4. 30 Service Revenue Received in Advance 213 3 000

Service Revenue 400 3 000
(Services performed in relation to revenue received
in advance)

(Accrued salaries)
6. 30 Depreciation Expense 520 2 880

Accumulated Depreciation – Office 131 2 880
Equipment
(Record depreciation expense ($1440 x 2 ))
7. 30 Accounts Receivable 104 8000

(Accrued revenue)
Students need to look and see what has been recorded in the ledgers to work out if one or two
months adjustments are required. For insurance and depreciation no expense had been
recorded to date.

(b) Ewok Ltd General ledger

Cash 100
30/6 Balance 34 560
Accounts Receivable 104

30/6 Balance 26 040 30/6 Balance 34 040
30/6 Service Revenue 8 000
34 040 34 040
1/7 Opening Balance 34 040
Prepaid Insurance 112

30/6 Balance 9 600 30/6 Insurance Expense 1 600
30/6 Closing Balance 8 000
9 600 9 600
Supplies 113
30/6 Balance 13 600 30/6 Supplies Expense 6 400
13 600 13 600
Office Equipment 130

30/6 Balance 86 400
Accumulated Depreciation – Office Equipment 131

Accounts Payable 200

30/6 Balance 19 800

30/6 Service Revenue 3 000 30/6 Balance 4 800
4 800 4 800


30/6 Salaries Expense 6 400
Electricity Payable 218

30/6 Electricity Expense 1 200
Share Capital 300

30/6 Balance 100 000
Service Revenue 400

30/6 Balance 76 600
30/6 Service Rev in Adv 3 000
30/6 Closing Balance 87 600 30/6 Accounts Receivable 8 000
87 600 87 600
Salaries Expense 500

30/6 Balance 23 800
30/6 Salaries Payable 6 400
30 200
Supplies Expense 505

30/6 Supplies 6 400
Rent Expense 510

30/6 Balance 7 200
Insurance Expense 515

30/6 Prepaid Insurance 1 600
Depreciation Expense 520

Electricity Expense 530

30/6 Electricity Expense 1 200

(c)
Ewok Ltd
Adjusted Trial Balance
as at 30 June 2015
No. Account Name Debit Credit

$ $
100 Cash 34 560
104 Accounts Receivable 34 040
112 Prepaid Insurance 8 000
113 Supplies 7 200
130 Office Equipment 86 400
131 Accumulated Depreciation – Office Equipment 2 880
200 Accounts Payable 19 800
213 Service Revenue Received in Advance 1 800
215 Salaries Payable 6 400
218 Electricity Payable 1 200
300 Share Capital 100 000
400 Service Revenue 87 600
505 Supplies Expense 6 400
510 Rent Expense 7 200
515 Insurance Expense 1 600
520 Depreciation Expense 2 880
530 Electricity Expense 1 200
$219 680 $219 680
(d) Profit for the month

Revenues $87 600 less expenses ($30200+6400+7200+1600+2880+1200) = $38 120
(e) If the cost of the equipment was allocated over the two years then the annual
depreciation expense would be $43 200 ($86 400/2) instead of $17 280 which means
profit in the first 2 years would be $25 920 ($43 200-$17280) less than if the depreciation
was charged over the useful life and this would mean the profit in year 3 4 and 5 would
be $17 280 more as no depreciation would be charged.
Note over the 5 years total depreciation is the same is $86 400 either rate used.

PROBLEM SET A 3.2

(a)
Maxi Services Ltd

General Journal
Date Account Name (narration) Post $ $

Ref. Debit Credit
2017
1. June 30 Supplies Expense 505 500
Supplies 113 500
(Supplies used $1500-$1000)
2. 30 Electricity Expense 530 300

(Accrued expense)

(Prepaid insurance expired)
4. 30 Revenue Received in Advance 213 3 000


(Accrued salaries)

Accumulated Depreciation 131 4 000
(Depreciation expense)
7. 30 Accounts Receivable 104 4 400

(Accrued revenue)

(b) MAXI SERVICES LTD GENERAL LEDGER
Cash 100

30/6 Service Revenue 4 400 30/6 Closing Balance 19 400
19 400 19 400

30/6 Opening Balance 3 200 30/6 Insurance Expense 1 600
____ 30/6 Closing Balance 1 600
3 200 3 200
Supplies 113
30/6 Opening Balance 1 500 30/6 Supplies Expense 500
____ 30/6 Closing Balance 1 000
1 500 1 500

Accumulated Depreciation 131

30/6 Closing Balance 24 000 30/6 Opening Balance 20 000
24 000 24 000



30/6 Service Revenue 3 000 30/6 Opening Balance 4 000
30/6 Closing Balance 1 000 ........
4 000 4 000

30/6 Electricity Expense 300
Share Capital 300

Retained Earnings 310

Service Revenue 400

30/6 Serv. rev rec’d in advance 3 000
30/6 Accounts Receivable 4 400
54 200
30/6 Opening balance 34 000
38 600
30/6 Supplies 500
Rent Expense 510


2 800



30/6 Opening balance 4 000
30/6 Electricity Payable 300
4 300
(c)
Maxi Services Ltd
as at 30 June 2017
No. Account name Debit $ Credit $

100 Cash 54 800
113 Supplies 1 000
131 Accumulated Depreciation 24 000

Service Revenue Received in
213 1 000
Advance
218 Electricity Payable 300
310 Retained Earnings 7 500

505 Supplies Expense 500
530 Electricity Expense 4 300 _______

$159 000 $159 000

(d) Profit for the year:

$ $
Service revenue 54 200
Less Expenses:
Salaries expense 38 600
Supplies expense 500
Rent expense 2 000
Insurance expense 2 800
Depreciation expense 4 000
Electricity expense 4 300 52 200
Profit $ 2 000
(e) To report a higher profit the expense adjustments would be avoided therefore adjustment
numbers 1, 2, 3, 5, and 6.

PROBLEM SET A 3.3

(a)
Auckland Consulting Ltd
General Journal
Date Account name (narration) Post Ref Debit $ Credit $
2016
Sept 30 Rent Expense 510 4 500
Prepaid Rent 120 4 500
(To record expired rent)

Supplies 130 450
(To record supplies consumed)
30 Depreciation Expense – Equipment 520 2 250

(To record depreciation expense)
30 Accounts Receivable 110 18 600

Commission Revenue 400 18 600
(To record commission revenue not yet received)
30 Interest Expense 550 300

(To record interest accrued)
30 Rent Revenue Received in Advance 230 2 400

(To record services provided for revenue)
30 Salaries Expense 500 4 200

(To record accrued salaries)

(b)
for the three months ended 30 September 2016
$ $
Revenues:
Rent revenue 32 400
Commission revenue 22 200
Total revenues 54 600
Expenses:
Rent expense 19 500
Electricity expense 1 530
Interest expense 300
Profit $ 2 370

Calculation of retained earnings
Retained earnings, 1 July $ -

Add: Profit 2 370
2 370
Less: Dividends (1 800)
Retained earnings, 30 September $ 570


Statement of financial position
as at 30 September 2016
$ $
Assets
Current assets
Cash 4 950
Accounts receivable 19 800
Supplies 900
Total current assets 25 650
Non-current assets
Equipment 45 000
Less: Accumulated depreciation – equipment (2 250) 42 750
Total assets 68 400
Liabilities
Accounts payable 4 530
Salaries payable 4 200
Interest payable 300
Rent revenue received in advance 1 800
Bank loan* 15 000
Total liabilities 25 830
Net Assets $42 570
Equity:
Share capital 42 000
Retained earnings 570
Total equity $42 570
* bank loan could also be classified as non-current
(c) The following accounts would be closed: Commission Revenue, Rent Revenue,
Salaries Expense, Rent Expense, Depreciation Expense, Supplies Expense, Electricity
Expense, Interest Expense, Dividends.
(d) 1 August 2016. Interest of 12% per year equals a monthly rate of 1%; monthly interest is
$150 ($15000 x 1%). Since total interest expense is $300, the loan has been
outstanding for two months.

PROBLEM SET A 3.4

(a)
Frog Ltd
General Journal
2015
June 30 Accounts Receivable 110 900
Revenue 400 900
(To record revenue not yet received)
30 Office Supplies Expense 510 2 400

Office Supplies 120 2 400
30 Insurance expense 530 2 250

(To record insurance expense)


30 Rent Revenue Received in Advance 220 1 200


(b)
Frog Ltd
for the year ended 30 June 2015
$ $
Revenues:
Rent revenue 17 700
Expenses:
Office Supplies expense 2 400
Rent expense 22 000
Profit $14 000
Frog Ltd
Retained earnings, 1 July 5 600

Add: Profit 14 000
19 600
Less: Dividends (-)
Retained earnings, 30 September $19 600

Frog Ltd
as at 30 June 2015
$ $
Assets
Current assets
Cash 14 500
Office supplies 1 050
Prepaid insurance 3 750
Non-current assets
Equipment 18 000
Less: Accumulated depreciation – equipment (5 400)
Total non-current assets 12 600
Total assets 46 000
Liabilities
Net Assets $34 600
Equity
Retained earnings 19 600

(c)
Frog Ltd
General Journal
2015
June 30 Service Revenue 400 51 900
Rent revenue 410 17 700
Profit or loss summary 330 69 600
(To close revenue accounts)
30 Profit or loss summary 330 55 600

Salaries expense 500 27 150
Office Supplies expense 510 2 400
Rent expense 520 22 000
Insurance expense 530 2 250
Depreciation expense 540 1 800
(To close expense accounts)

Retained earnings 310 14 000
(To close profit to retained earnings)

PROBLEM SET A 3.5

(a)
Nathan Ltd
General Journal
Date Account name (narration) Post Ref $ $

Debit Credit
2016
Sept 30 Accounts Receivable 110 7 500
Sales Revenue 400 7 500
(To record Sales revenue)
30 Rent Expense 510 7 500

(To record expired rent )
30 Supplies Expense 530 4 500

Supplies 130 4 500



30 Comm Revenue Received in Advance 230 6 600

Commission Revenue 410 6 600

(b)
Nathan Ltd
$ $
Revenues:
Sales revenue 85 200
Expenses:
Rent expense 22 500
Supplies expense 4 500
Profit $32 550
Nathan Ltd
Retained earnings, 1 July $ -

Add: Profit 32 550
32 550
Retained earnings, 30 September $29 550

Nathan Ltd
$ $
Assets
Current assets
Cash 114 450
Prepaid Rent 15 000
Supplies 4 500
Non-current assets
Equipment 120 000
Less: Accumulated depreciation – equipment (6 000) 114 000
Total assets 260 850
Liabilities
Commission revenue received in advance 5 400
Bank loan* 90 000
Net Assets $134 550
Equity
* bank loan could also be classified as non-current
(c) The following accounts would be closed: Sales Revenue, Commission Revenue,
Salaries Expense, Rent Expense, Depreciation Expense, Supplies Expense, Electricity
Expense, Interest Expense, Dividends.
(d) 1 August 2016. Interest of 6% per year on loan $90 000 = $5 400. Monthly interest is
$450 ($5400/12) Since total interest expense is $900, the loan has been outstanding for
two months.
(e) Useful live-need to calculate the depreciation rate.

Three months depreciation was $6 000 or $24 000 annually.
Useful life = cost/annual depreciation = $120 000/$24 000= Five years

PROBLEM SET A 3.6

(a)
Characters Ltd
General Journal

2017
June 30 Insurance Expense 505 950
(To record expired insurance)
30 Supplies Expense 530 3 800

Supplies 130 3 800


Revenue 400 1 680
(To record commission revenue not yet received)

30 Revenue Received in Advance 230 1 570

Revenue 400 1 570


(b)
Characters Ltd
$ $
:
Revenue 68 880
Expenses:
Rent expense 4 480
Profit $38 490
Characters Ltd
Retained earnings, 1 July 2016 $6 160

Add: Profit 38 490
44 650
Retained earnings, 30 June 2017 $31 210

Characters Ltd
as at 30 June 2017
$ $
Assets
Current assets
Cash 24 520
Supplies 5 600
Non-current assets
Equipment 67 200
Less: Accumulated depreciation (39 200)
Total assets 85 000
Liabilities
Current liabilities
Revenue received in advance 6 270
Total current liabilities 13 390
Non-current liabilities
Bank loan 18 000
Net Assets $53 610
Equity
(c) The following accounts would be closed: Revenue, Salaries Exp, Insurance Exp, Interest
Exp, Depreciation Exp, Supplies Exp, Rent Exp, and Dividends.
(d) The total interest expense for the six months is $720. So annually the interest is $1440.
Rate is $1 440 ÷ $18 000 = 8%.
(e) O/B? + exp$12 600 –Paid $13 400 = C/B $1 400

Opening balance 30 June 2016 = $2 200
(f) The effect on profit was to reduce profit by $10 860 ( $950+3800+7840 - 1680 +120 –
1570 + 1400).

(g) Information concerning the future forecast for the next year. What has been budgeted for
sales and expenses? Any new markets for the business? Who are the major
competitors? and what are the general economic conditions?

PROBLEM SET A 3.7

Smart Rentals Ltd
Worksheet as at 30 June 2017
(a)
Trial Balance Adjustments Adjusted Trial Statement of Statement of financial
Balance. profit or loss position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ C $r Dr $ Cr $ Dr $ Cr $
100 Cash 15 000 15 000 15 000
112 Prepaid Insurance 10 800 2 700 1 8 100 8 100
113 Supplies 11 400 4 200 2 7 200 7 200
120 Land 90 000 90 000 90 000
122 Building 420 000 420 000 420 000
123 Acc’d Depn – Building 5 400 3 5 400 5 400
130 Furniture 100 800 100 800 100 800
131 Acc’d Depn –Furniture 4 500 3 4 500 4 500
200 Accounts Payable 28 200 28 200 28 200
212 Rent Rev Rec’d in Adv 21 600 9 000 5 12 600 12 600
214 Salaries Payable 1 800 6 1 800 1 800
215 Interest Payable 3 150 4 3 150 3 150
220 Mortgage Payable 210 000 210 000 210 000
300 Share Capital 360 000 360 000 360 000
400 Rent Revenue 55 200 9 000 5 64 200 64 200
505 Advertising Expense 3 000 3 000 3 000
506 Depreciation Expense 9 900 3 9 900 9 900
510 Electricity Expense 6 000 6 000 6 000
512 Insurance Expense 2 700 1 2 700 2 700
515 Interest Expense 3150 4 3 150 3 150
525 Salaries Expense 18 000 1 800 6 19 800 19 800
530 Supplies Expense 4 200 2 4 200 4 200
$675 000 $675 000 $30 750 $30 750 $689 850 $689 850
Profit 15 450 15 450
$64 200 $64 200 $641 100 $641 100

(b)
Smart Rentals Ltd
General Journal

2017
1 June 30 Insurance expense 512 2 700
2 30 Supplies Expense 530 4 200

Supplies 113 4 200
3 30 Depreciation Expense 506 9 900

Accumulated Depreciation – Building 123 5 400
Accumulated Depreciation – Furniture 131 4 500
(To record depreciation expense for 3 months)
4 30 Interest Expense 512 3 150

Interest Payable 215 3 150
(To record interest accrued ($210,000 x6%)x3/12)
5 30 Rent Revenue Received in Advance 212 9 000

(To record June rent)
6 30 Salaries Expense 525 1 800


(c) Smart Rentals Ltd General Ledger

Cash 100
30/6 Balance 15 000

10 800 10 800
Supplies 113
11 400 11 400
Land 120
30/6 Balance 90 000
Building 122
30/6 Balance 420 000
Accumulated Depreciation – Building 123

Furniture 130
30/6 Balance 100 800
Accumulated Depreciation – Furniture 131


30/6 Balance 28 200
Rent Revenue Received in Advance 212
30/6 Rent Revenue 9 000 30/6 Balance 21 600
21 600 21 600


30/6 Interest Expense 3 150
Mortgage Payable 220

30/6 Balance 210 000
Share Capital 300

30/6 Balance 360 000
Rent Revenue 400

30/6 Balance 55 200
30/6 Rent Revenue in Advance 9 000
64 200
Advertising Expense 505
30/6 Balance 3 000
30/6 Balance 6 000
512
Insurance Expense
515
Interest Expense
30/6 Interest Payable 3 150
525
Salaries Expense
30/6 Balance 18 000
19 800
30/6 Supplies 4 200

(d) Smart Rentals Ltd

as at 30 June 2017
No. Account names Debit $ Credit $
100 Cash 15 000
113 Supplies 7 200
120 Land 90 000
122 Building 420 000
123 Accumulated Depreciation – Building 5 400
130 Furniture 100 800
131 Accumulated Depreciation – Furniture 4 500
212 Rent Revenue Received in Advance 12 600
215 Interest Payable 3 150
220 Mortgage Payable 210 000
400 Rent Revenue 64 200
505 Advertising Expense 3 000
530 Supplies 4 200
$689 850 $689 850

(e)
Smart Rentals Ltd
for the three months ended 30 June 2017
$ $
Revenues:
Rent revenue 64 200
Expenses:
Advertising expense 3 000
Interest expense 3 150
Profit $ 15 450
Smart Rentals Ltd

for the three months ended 30 June 2017
Retained earnings, 1 April $ -

Add: Profit 15 450
Retained earnings, 30 June 2017 $15 450

Smart Rentals Ltd

as at 30 June 2017
$ $
Assets
Current Assets
Cash 15 000
Supplies 7 200
Non-current assets
Land 90 000
Building 420 000
Less: Accumulated depreciation (5 400) 414 600
Furniture 100 800
Less: Accumulated depreciation (4 500) 96 300
Liabilities
Current Liabilities
Interest payable 3 150
Non-current Liabilities
Mortgage Payable 210 000
Net Assets $375 450
Equity
(f) The following accounts would be closed: Rent Revenue, Advertising expense,
Depreciation Expense, Electricity Expense, Insurance Expense, Interest Expense,
Salaries Expense, Supplies Expense.

PROBLEM SET A 3.8

(a)
Central Cleaning Ltd
General Journal
Date Account name (narration) Post Debit $ Credit $
Ref
2016
July 1 Cash 100 60 000
Share Capital 300 60 000
(Issued shares for cash)
1 Truck 170 48 000

Cash 100 15 000
Accounts Payable 200 33 000
(Purchased truck)
3 Cleaning Supplies 120 3 600

(Purchased cleaning supplies)
5 Prepaid Insurance 130 14 400

Cash 100 14 400
(Paid insurance annual policy July 1)

(Invoiced customers)
18 Accounts Payable 200 11 400

Cash 100 11 400
(Paid accounts payable)

Cash 100 9 600
(Paid salaries)
21 Cash 100 12 000

Accounts Receivable 110 12 000
(Collected cash from customers on account)

31 Petrol & Oil Expense 500 1 200
Cash 100 1 200
(Paid for petrol and oil)
31 Dividends 315 2 250
Cash 100 2 250
(Paid cash dividend)

(b), (e) & (h)
Cash 100
1/7 Share Capital 60 000 1/7 Motor Vehicles 15 000
21/7 Accounts Receivable 12 000 5/7 Prepaid Insurance 14 400
18/7 Accounts Payable 11 400
31/7 Petrol & Oil 1 200
Expense
31/7 Dividends 2 250
72 000 72 000

12/7 Service Revenue 15 720 21/7 Cash 12 000
31/7 Service Revenue* 6 000 31/7 Closing Balance 20 520
32 520 32 520
* (e) adjusting entry, balance was $14520 dr before adjusting entry
Cleaning Supplies 120

3/7 Accounts Payable 3 600 31/7 Cleaning Supplies Expense* 2 400
3 600 3 600

5/7 Cash 14 400 31/7 Insurance Expense* 1 200
14 400 14 400
* (e) adjusting entry, balance was $14 400 dr before adjusting entry
Truck 170
1/7 Cash/Accounts 48 000
Payable
Accumulated Depreciation – Trucks 171

31/7 Depreciation Expense* 750
* (e) adjusting entry, nil balance before adjusting entry


18/7 Cash 11 400 1/7 Motor Vehicles 33 000
31/7 Closing Balance 25 200 3/7 Cleaning Supplies 3 600
36 600 36 600

31/7 Salaries Expense* 900
Share Capital 300

1/7 Cash 60 000

31/7 Dividends 2 250 31/7 Profit or loss summary 16 470
16 470 16 470
Dividends 315
31/7 Cash 2 250 31/7 Retained Earnings 2 250
Profit or loss summary 320

31/7 Expenses 16 050 31/7 Revenue 32 520
31/7 Retained Earnings 16 470
35 520 35 520
Entries to this account are closing entries. It has a nil balance before and after closing entries
because the balance, profit, is closed to retained earnings,
Service Revenue 400

31/7 Profit or loss summary 32 520 12/7 Accounts Receivable 15 720
31/7 Accounts Rec’ble* 6 000
32 520 32 520
* (e) Adjusting entry,$26 520 cr balance before adjusting entry, $32 520 cr after adjustment,
before closing
Petrol & Oil Expense 500

31/7 Cash 1 200 31/7 Profit or loss summary 1 200

Cleaning Supplies Expense 510

31/7 Cleaning Supplies* 2 400 31/7 Profit or loss summary 2 400
* (e) Adjusting entry, nil balance before adjusting entry, $2400 dr after adjustment, before
closing
6
31/7 Accumulated Depreciation* 750 31/7 Profit or loss summary 750

31/7 Prepaid Insurance* 1 200 31/7 Profit or loss summary 1 200
closing

31/7 Salaries Payable* 900
10 500 10 500
* (e) adjusting entry, $9600 dr balance before adjusting entry, $10 500 dr after adjusting entry
before closing.

(c) & (f)

Trial Balance
as at 31 July 2016
(c) Unadjusted (f) Adjusted
No. Account name Debit $ Credit $ Debit $ Credit $
100 Cash 18 150 18 150
110 Accounts Receivable 14 520 20 520
120 Cleaning Supplies 3 600 1 200
130 Prepaid Insurance 14 400 13 200
170 Trucks 48 000 48 000
171 Accumulated Depreciation – Trucks 750
200 Accounts Payable 25 200 25 200
210 Salaries Payable 900
300 Share Capital 60 000 60 000
310 Dividends 2 250 2 250
400 Service Revenue 26 520 32 520
500 Petrol & Oil Expense 1 200 1 200
510 Cleaning Supplies Expense 2 400
520 Depreciation Expense 750
540 Salaries Expense 9 600 10 500
$111 720 $111 720 $119 370 $119 370
(d) Central Cleaning Ltd

General Journal
Date Account name (narration) Post Ref. Debit $ Credit $
1. July 31 Accounts Receivable 110 6 000
(Accrued revenue)
Accumulated Depreciation 172 750
4. 31 Cleaning Supplies Expense 510 2 400
Cleaning Supplies 120 2 400
(Supplies used)
(Accrued salaries)

(g)
$ $
Revenues:
Expenses:
Cleaning supplies expense 2 400
Petrol & Oil expense 1 200
Profit $16 470

Retained earnings 1 July $ -

Add: Profit 16 470
16 470
Retained earnings 31 July $14 220


as at 31 July 2016
$ $
ASSETS
Current assets
Cash 18 150
Cleaning supplies 1 200
Non-current assets
Property, plant and equipment:
Motor Vehicles 48 000
Less: Accumulated depreciation (750)
LIABILITIES
Current liabilities
Salaries payable 900
NET ASSETS $74 220
EQUITY
TOTAL EQUITY $74 220

(h) Central Cleaning Ltd

General Journal

Ref
July 31 Service Revenue 400 32 520
(Close revenue accounts)

Petrol & Oil Expense 500 1 200
Cleaning Supplies Expense 510 2 400
Depreciation Expense 520 750
Insurance Expense 530 1 200
Salaries Expense 540 10 500
(Close expense accounts)

Retained Earnings 310 16 470
(Close Profit or loss summary account)
31 Retained Earnings 310 2 250

Dividends 315 2 250
(Close dividends account)
(i)
Post-Closing Trial Balance
as at 31 July 2016
100 Cash 18 150
120 Cleaning Supplies 1 200
170 Trucks 48 000
171 Accumulated Depreciation – Trucks 750
$101 070 $101 070

(j) Today’s society is aware of their social responsibility and as such business’s can only
operate successfully if they meet society’s expectations and as such are willing to take
actions which is socially responsible. This means using environmentally friendly
resources even though it may not be the cheapest. Triple bottom line reporting means
measuring success not only the economic return but also the environment and the social
dimensions.

PROBLEM SET A 3.9
(a) Chart of accounts: students may have different account numbers as long as they are
grouped to sections of the ledger.
100 Cash
110 Accounts receivable
120 Supplies
130 Prepaid rent
150 Store equipment
151 Accumulated Depreciation
200 Accounts Payable
210 Service Revenue Received in Advance
215 Salaries Payable
300 Share Capital
310 Retained earnings
400 Service Revenue
510 Depreciation Expense
515 Supplies Expense
520 Salaries Expense
525 Rent Expense
(b), (d) and (f)

Bulwara Ltd
General Ledger
Cash 100
1/7 Opening Balance 5 000 8/7 Salaries Expense/Payable 3 000
10/7 Accounts Receivable 2 000 24/7 Accounts Payable 2 000
12/7 Service Revenue 800 24/7 Rent Expense/prepaid 800
27/7 Revenue Rec’d in Advance 1 300 25/7 Salaries Expense 3 000
31/7 Closing Balance 300
9 100 9 100
1/8 Opening Balance 300

1/7 Opening Balance 5 600 10/7 Cash 2 000
7 900 7 900

Supplies 120
1/7 Opening Balance 2 000 31/7 Supplies Expense 2 200
17/7 Accounts Payable 3 400 31/7 Closing Balance 3 200
5 400 5 400
Balance before adjusting entry $2000 + $3400 = $5400
Prepaid rent 130
24/7 Cash 400
Store Equipment 150

1/7 Opening Balance 20 000 31/7 Closing Balance 28 000
28 000 28 000
Accumulated Depreciation – Store Equipment 151

31/7 Closing Balance 1/7 Opening Balance 1 000
31/7 Depreciation Expense 240
1 240 1 240
Balance before adjusting entry $1000

24/7 Cash 2 000 1/7 Opening Balance 4 200
15/7 Store Equipment 8 000
31/7 Closing Balance 13 600 17/7 Supplies 3 400
15 600 15 600

31/7 Service Revenue 600 1/7 Opening Balance 800
31/7 Closing Balance 1 500 27/7 Cash 1 300
3 100 3 100


31/7 Closing Balance 1 000 31/7 Salaries Expense 1 000
1 000 1 000
Balance before adjusting entry, $1000 - $100 = $0
Share Capital 300

Service Revenue 400

12/7 Cash 800
31/7 Service Revenue in Advance 600
3 700
Balance before adjusting entry $800+ $2300 = $3100

31/7 Accumulated Depreciation 240
Nil balance before adjusting entry

31/7 Supplies 2 200
Nil balance before adjusting entry
8/7 Cash 2 000
25/7 Cash 3 000
6 000
Rent Expense 525

24/7 Cash 400

(c) Bulwara Ltd General Journal

Ref
2016
July 8 Salaries Payable 215 1 000
Cash 100 3 000
(Payment of salaries for June and July)
10 Cash 100 2 000

(Cash received from customers on account)
12 Cash 100 800

(To record service revenue)
15 Store Equipment 150 8 000

Accounts Payable 8 000
(Purchased store equipment on account)
17 Supplies 120 3 400

(Purchased supplies on account)

Cash 100 2 000
(Paid creditors on account)

Prepaid rent 130 400
Cash 100 800
(Paid July/August rent)

Cash 100 3 000
(Paid salaries)
July 27 Accounts Receivable 110 2 300

27 Cash 100 1 300

Service Revenue Received in Advance 210 1 300
(Received cash from customers in advance)

(e) and (g)

Bulwara Ltd
Trial Balance
as at 31 July 2016
Unadjusted Adjusted
No Account names Debit $ Credit $ Debit $ Credit4
100 Cash 300 300
120 Supplies 5 400 3 200
130 Prepaid Rent 400 400
150 Store Equipment 28 000 28 000
151 Accumulated Depreciation 1 000 1 240
210 Service Revenue Received in Advance 2 100 1 500
300 Share Capital 20 000 20 000
310 Retained Earnings 5 600 5 600
$45 400 $45 400 $46 640 $46 640

(f) Bulwara Ltd

General Journal
Date Account names (narration) Post Debit Credit

Ref $ $
1. July 31 Supplies Expense 515 2 200
Store Supplies ($5400 - $3200) 120 2 200
(To record supplies used)


Accumulated Depr. – Store Equipment 151 240
(To record one month’s depreciation expense)

(To record revenue)
(h)
Bulwara Ltd
Revenues: $ $
Expenses:
Rent expense 400
Loss ($5 140)
Bulwara Ltd
$
Retained earnings 1 July 5 600
Less: Loss (5140)
Retained earnings 31 July $ 460

Bulwara Ltd
as at 31 July 2016
$ $
ASSETS
Current Assets
Cash 300
Supplies 3 200
Prepaid Rent 400
Non-current assets
Store equipment 28 000
Total assets 36 560
LIABILITIES
Service revenue received in advance 1 500
NET ASSETS $20 460

EQUITY
Retained earnings 460

PROBLEM SET A 3.9 (i)

Bulwara Ltd
Worksheet as at 31 July 2016
.
Trial Balance Adjustments Adjusted Statement of profit Statement of Financial
Trial Balance. or loss Position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $
100 Cash 300 300 300
110 Accounts 5 900 5 900 5 900
receivable
120 Supplies 5 400 2 200 3 200 3 200
130 Prepaid rent 400 400 400
150 Store equipment 28 000 28 000 28 000
151 Accumulated 1 000 240 1 240 1 240
Depreciation
210 Service Rev Rec’d 2 100 600 1 500 1 500
in Advance
215 Salaries Payable 1 000 1 000 1 000
300 Share Capital 20 000 20 000 20 000
310 Retained earnings 5 600 5 600 5 600
400 Service Revenue 3 100 600 3 700 3 700
510 Depreciation Exp 240 240 240
515 Supplies Expense 2 200 2 200 2 200
520 Salaries Expense 5 000 1 000 6 000 6 000
525 Rent Expense 400 400 400
Loss 5 140 5 140

_______ _______ _______ _______ _______ _______ ______ ______ _______ ______
Totals $45 400 $45 400 $4 040 $4 040 $46 640 $46 640 $8 840 $8 840 $42 940 $42 940

PROBLEM SET A 3.10

(a) Willard Cleaning Ltd
General Journal
Ref.
2017
April 1 Cash 100 37 500
1 Motor Vehicles 171 22 500

Cash 100 12 500
(Purchased truck)


Cash 100 5 820
(Paid insurance annual policy July 1)


Cash 100 12 125

Cash 100 3 400
(Paid salaries)
23 Cash 100 2 750


30 Petrol & Oil Expense 500 432

Cash 100 432
30 Dividends 315 600
Cash 100 600
(b), (e) & (h)

Willard Cleaning Ltd General Ledger
Cash 100
30/4 Petrol & Oil Exp 432
30/4 Dividends 600
40 250 40 250

13 975 13 975

5/4 Accounts Payable 4 875 30/4 Cleaning Supplies Exp* 4 125
4 875 4 875

7/4 Cash 5 820 30/4 Insurance Expense* 485
5 820 5 820
Motor vehicle 171

Payable



14 875 14 875

30/4 Salaries Expense* 1 200
Share Capital 300

1/4 Cash 37 500

30/4 Dividends 600 30/4 Profit or loss summary 3 958
3 958 3 958
Dividends 315
30/4 Cash 600 30/4 Retained Earnings 600

13 975 13 975
Service Revenue 400

13 975 13 975
* (e) Adjusting entry,$12825 cr balance before adjusting entry, $13975 cr after adjustment,
before closing

30/4 Cash 432 30/4 Profit or loss summary 432


* (e) Adjusting entry, nil balance before adjusting entry, $4 125 dr after adjustment, before
closing

30/4 Accumulated Depreciation* 375 30/4 Profit or loss summary 375

30/4 Prepaid Insurance* 4850 30/4 Profit or loss summary 485
* (e) Adjusting entry, nil balance before adjusting entry, $485 dr after adjustment, before closing

30/4 Salaries Payable* 1 200
4 600 4 600
* (e) adjusting entry, $3400 dr balance before adjusting entry, $4600 dr after adjusting entry
before closing.

(c) & (f)

Willard Cleaning Ltd
Trial Balance
as at 30 April 2017
100 Cash 5 373 5 373
171 Motor Vehicles 22 500 22 500
172 Accumulated Depreciation – Motor 375
vehicles
300 Share Capital 37 500 37 500
530 Insurance Expense 485
$53 075 $53 075 $55 800 $55 800

(d) Willard Cleaning Ltd

General Journal
Date Account name (narration) Post ref. Debit $ Credit $
1. April 30 Accounts Receivable 110 1 150
(Accrued revenue)
(Supplies used)
(Accrued salaries)

(g)
for the month ended 30 April 2017
$ $
Revenues:
Expenses:
Petrol & Oil expense 432
Profit $3 958

for the month ended 30 April 2017
Retained earnings 1 April $ -

Add: Profit 3 958
3 958
Less: Dividends ( 600)
Retained earnings 30 April $3 358


as at 30 April 2017
$ $
ASSETS
Current assets
Cash 5 373
Cleaning supplies 750
Non-current assets
Total assets 44 808
LIABILITIES
Current liabilities
NET ASSETS $40 858
EQUITY

(h) Willard Cleaning Ltd

General Journal

Ref

Petrol & Oil Expense 500 432
Insurance Expense 530 485


Dividends 315 600
(i)
as at 30 April 2017
100 Cash 5 373
120 Cleaning Supplies 750
171 Motor vehicles 22 500
172 Accumulated Depreciation – MV 375
$45 183 $45 183

PROBLEM SET A 3.10 (j)

Worksheet as at 30 April 2017
Prepare +adjusting entries and adjusted trial balance using a worksheet.
Trial Balance Adjustments Adjusted Statement of Statement of
Trial Balance. profit or loss Financial Position
100 Cash 5 373 5 373 5 373
110 Accounts receivable 10 075 1 150 11 225 11 225
120 Cleaning Supplies 4 875 4 125 750 750
130 Prepaid insurance 5 820 485 5 335 5 335
171 Motor vehicles 22 500 22 500 22 500
172 Accumulated Depreciation 375 375 375
300 Share Capital 37 500 37 500 37 500
315 Dividends 600 600 600
320 Profit or loss summary
400 Service Revenue 12 825 1 150 13 975 13 975
500 Petrol & oil expense 432 432 432
510 Cleaning Supplies Expense 4 125 4 125 4 125
520 Depreciation Expense 375 375 375
530 Insurance Expense 485 485 485
Profit 3 958 3 958
Totals $53 075 $53 075 $7 335 $7 335 $55 800 $55 800 $13 975 $13 975 $45 783 $45 783

SOLUTIONS TO PROBLEM
SET B
PROBLEM SET B 3.1

(a).
Solo Ltd
General Journal
Post $ $
Date Account name (narration) Ref. Debit Credit
2016
1. June 30 Supplies Expense 505 700
Supplies ($2000 - $1300) 113 700
(To adjust supplies account to reflect supplies
used)


(Prepaid insurance ($2400 ÷ 12 months)
4. 30 Service Revenue Received in Advance 213 2 500

(Services performed in relation to revenue received
in advance)

(Accrued salaries)

Accumulated Depreciation – Office 131 250
Equipment ($15,000 ÷ 60 months)
(Record depreciation expense for month)
7. 30 Service revenue Receivable 104 3 000

(Accrued revenue)

(b) General Ledger Solo Ltd

Cash 100
30/6 Balance 7 750

30/6 Balance 6 000 30/6 Balance 9 000
9 000 9 000

30/6 Balance 2 400 30/6 Insurance Expense 200
2 400 2 400
Supplies 113
30/6 Balance 2 000 30/6 Supplies Expense 700
2 000 2 000

30/6 Balance 15 000


30/6 Balance 4 500

30/6 Service Revenue 2 500 30/6 Balance 4 000
4 000 4 000



Share Capital 300

30/6 Balance 21 750
Service Revenue 400

30/6 Balance 7 900
30/6 Service Revenue in Advance 2 500
13 400

30/6 Balance 4 000
5 500

30/6 Supplies 700
Rent Expense 510

30/6 Balance 1 000

30/6 Prepaid Insurance 200



(c)
Solo Ltd
as at 30 June 2016
No. Account name Debit Credit

$ $
100 Cash 7 750
113 Supplies 1 300
131 Accumulated Depreciation – Office Equipment 250
213 Service Revenue Received in Advance 1 500
530 Electricity Expense 150
$43 050 $43 050
(d) Profit for the month

Revenues $13 400 less expenses ($5500 +$700 +$10500+ $200+ $250 + $150) =
$5 600
(e) If the cost of the equipment was allocated over the two years then the annual
depreciation expense would be $7 500 ($15000/2) instead of $3 000 which means
profit in the first 2 years would be $4 500 ($7500-$3000 ) less than if the depreciation
was charged over the useful life and this would mean the profit in year 3 4 and 5
would be $4 500 more as no depreciation would be charged.
Note over the 5 years total depreciation is the same is $15 000 either rate used.

PROBLEM SET B 3.2

(a).
Brothers Ltd
General Journal
Post $ $
Date Account name (narration) Ref. Debit Credit
2016
1. June 30 Supplies Expense 505 1 860
Supplies ($2350 - $490) 113 1 860
(To adjust supplies account to reflect supplies
used)


(Prepaid insurance( ($2520 ÷ 12 months)x 5
months))

(Services performed in relation to revenue
received in advance)

(Accrued salaries)

Accumulated Depreciation – Office 131 1 875
Equipment ($22500 ÷ 60 months x 5)
(Record depreciation expense)
7. 30 Accounts Receivable 104 1 500

(Accrued revenue)

(b) Brothers Ltd General Ledger
Cash 100
30/6 Balance 9 480

30/6 Balance 3 150 30/6 Balance 4 650
4 650 4 650

2 520 2 520
Supplies 113
2 350 2 350

30/6 Balance 22 500


30/6 Balance 1 550

30/6 Service Revenue 800 30/6 Balance 1 500
1 500 1 500

30/6 Salaries Expense 770


Share Capital 300

30/6 Balance 20 000
Service Revenue 400

30/6 Balance 25 495
30/6 Service Revenue in
Advance 800
27 795

30/6 Balance 3 295
30/6 Salaries Payable 770
4 065

30/6 Supplies 1 860
Rent Expense 510

30/6 Balance 5 250




(c)
Brothers Ltd
as at 30 June 2016
No. Account name Debit Credit

$ $
100 Cash 9 480
113 Supplies 490
131 Accumulated Depreciation – Office Equipment 1 875
213 Service Revenue Received in Advance 700
530 Electricity Expense 110
$52 800 $52 800
(d) To report the higher profit the adjustments to accrue expense and not write down
assets would be avoided hence depreciation, writing down supplies and the prepaid
insurance, recognising salaries and electricity expense. The shareholders old and
potential new shareholders and the creditors would be affected as they would make
incorrect assumptions about the profitability and liquidity of the business

PROBLEM SET B 3.3

(a)
Matrix Ltd
General Journal

Ref.
2016
Sept. 30 Commission Receivable 110 780
Commission Revenue 400 780
(To record accrued commission revenue)

Prepaid Rent 120 780
(To record expired prepaid rent)

Supplies 130 260

Accumulated Depreciation – 151 455
Equipment


(To record accrued interest)

Rent Revenue 410 390
(To record revenue)

(b)
Matrix Ltd
for the quarter ended 30 September 2016
$ $
Revenues:
Rent revenue 910
Total revenues 19,890
Expenses:
Rent expense 1 950
Interest expense 65
Profit $4 277
Matrix Ltd
for the quarter ended 30 September 2016
$
Retained earnings 1 July 0
Add: Profit 4 277
4 277
Less: Dividends (780)
Retained earnings 30 September $3 497

Matrix Ltd
$ $
ASSETS
Current assets
Cash 8 710
Prepaid rent 1 170
Supplies 1 300
Total Current assets 12 480
Non-current assets
Equipment 19 500
Less: Accumulated depreciation – equipment (455) 19 045
Total assets 31 525
LIABILITIES
Liabilities:
Interest payable 65
Rent revenue received in advance 780
Bank loan 6 500
NET ASSETS $21 697
EQUITY
*bank loan could also be classified as non-current
(c) The following accounts would be closed: Commission Revenue, Rent Revenue,
Salaries Expense, Rent Expense, Depreciation Expense, Supplies Expense,
Electricity Expense, Interest Expense, Dividends.
(d) 31 August 2016. Interest of 12% per year equals a monthly rate of 1%; monthly
interest is $65 ($6,500 x 1%). Since total interest expense is $65, the loan has been
outstanding one month.
OR
Monthly interest is [$6,500 x .12) x 1/12] = $65
Since the total interest expense is $65, the company must have taken out the loan
one month ago on 31 August 2016. (Alternatively, 1 September 2016)

PROBLEM SET B 3.4

(a)
Aurora Pty Ltd
General Journal
Date Account name (narration) Ref $ $
# Debit Credit
June 30 Accounts Receivable 110 300

(To accrue revenue)
30 Office Supplies Expense 510 800
Office Supplies 120 800
(Record use of supplies)
(to write down prepaid insurance)
Accumulated Depreciation – Office Equipment 141 600
( To record depreciation)
(to accrue salaries)
Rent Revenue 410 400
(to record rent revenue now earned)
(b)
Aurora Pty Ltd
for the year ended June 30 2017
$ $
Revenues:
Rent revenue 5 900
Total revenue 23 200
Expenses:
Office supplies expense 800
Rent expense 7 500
Profit $4 500

Aurora Pty Ltd

Calculation of Retained Earnings
for the year ended June 30 2017
$
Retained earnings, 1 July 2016 2 800
Add: Profit 4 500
Retained earnings, 30 June 2017 $ 7 300
Aurora Pty Ltd

as at 30 June 2017
$ $
ASSETS
Current Assets
Cash 5 200
Service revenue receivable 4 700
Office supplies 350
Non-Current Assets
Office equipment 7 000
Less: Accumulated depreciation – office equipment (2 400) 4 600
Total assets 16 100
LIABILITIES
Rent received in advance 350
NET ASSETS $12 300
EQUITY
Share capital 5 000

(c)
Aurora Pty Ltd
General Journal
Date Account name (narration) Ref Debit $ Credit $
#
June 30 Service Revenue 17 300
Rent Revenue 5 900
Profit or loss summary 23 200
(Closing entry)
30 Profit or loss summary 18 700
Salaries Expense 9 050
Office Supplies Expense 800
Rent Expense 7 500
(Closing entry )
30 Profit or loss summary 4 500
Retained Earnings 4 500
(Closing Entry)

PROBLEM SET B 3.5

(a)
McPherson Ltd
General Journal
Date Account name (narration) Post Ref Debit Credit

2015
Mar 31 Accounts Receivable 110 5 500
Sales Revenue 400 5 500
(Accrues revenue)
Supplies 4,760
(Supplies used)
31 Rent Expense 510 2 000
(Rent now expensed)
Acc’d Depreciation - Equipment 151 1 750
(to record depreciation)
(Interest accrued)
Rent Revenue 410 1,960
(Rent revenue now earned)
(Accrued salaries)
(b)
McPherson Ltd
for the 3 months ended 31 March 2015
$ $
Revenues:
Sales revenue 18 600
Rent revenue 12 000
30 600
Expenses:
Rent expense 6 000
Profit $ 9 610

McPherson Ltd
for the 3 months ended 31 March 2015
Retained earnings, 1 January $ -

Add: Profit 9 610
9 610
Less: Dividends (600)
Retained earnings, 31 December $9 010
McPherson Ltd
as at 31 March 2015
$ $
ASSETS
Current Assets
Cash 15 750
Supplies 600
Total Current Assets 23 150
Non-Current Assets
Equipment 32 000
Less: Accumulated Depreciation (1 750)
Total Non-Current Assets 30 250
Total Assets 53 400
LIABILITIES
Current Liabilities
Total Current Liabilities 4 390
Non-Current Liabilities
Bank Loan 15 000
Total Non-Current Liabilities 15 000
Total Liabilities 19 390
NET ASSETS $34 010
EQUITY
Share Capital 25 000

(c) Accounts to be closed:

Sales Revenue and Rent Revenue, Salaries Expense, Rent Expense, Depreciation
Expense, Supplies Expense, Electricity Expense, Interest Expense,
(d) Loan was taken out 31 January 2015 or 1 February 2015.

Bank loan $15 000 x 10%= $1,500 annually or $125 monthly. Interest expense is
$250 so the loan was taken out 2 months before reporting date.

PROBLEM SET B 3.6

(a)
Lou’s Advertising Agency Pty Ltd
General Journal

2017
Dec 31 Accounts Receivable 110 4 200
Advertising Revenue 400 4 200
(accrue revenue)
31 Art Supplies Expense 530 9 520
Art Supplies 130 9 520
(supplies used)
31 Insurance Expense 505 2 380
(insurance expired)
Acc’d Depreciation - Equipment 151 19 600
(depreciation for year)
(Interest expense accrued)
31 Advertising Revenue Received in Advance 230 3 920
Advertising Revenue 400 3 920
(Revenue now earned)
(Salaries accrued)
(b)
for the year ended 31 December 2017
$ $
Revenues:
Advertising revenue 172 200
Expenses:
Rent expense 11 200
Art supplies expense 9 520
Interest expense 1 400
Profit $96 460


for the year ended 31 December 2017
Retained earnings, 1 January $ 15 400

Add: Profit 96 460
111 860
Retained earnings, 31 December $78 260

as at 31 December 2017
ASSETS $ $ $
Current Assets
Cash 30 800
Art supplies 14 000
Total Current Assets 112 000
Non-Current Assets
Printing Equipment $168 000
Less: Accumulated Depreciation (98 000)
Total Non-Current Assets 70 000
Total Assets 182 000
LIABILITIES
Current Liabilities
Advertising Revenue Received in Advance 15 680
Total Current Liabilities 33 740
Non-Current Liabilities
Bank Loan 14 000
Total Non-Current Liabilities 14 000
Total Liabilities 47 740
NET ASSETS $134 260
EQUITY
Share Capital $56 000

(c) Accounts to be closed:

Advertising Revenue, Salaries Expense, Depreciation Expense, Rent Expense, Art
Supplies Expense, Insurance Expense, Interest Expense, Dividends
(d) Annual Interest Rate on Bank Loan:
Interest Expense for 10 months = $1 400

Interest Expense for 12 months = $1 680
Interest Rate =1 680 ÷ 14,000
Interest Rate = 12%
(e) Salaries Payable on 31 December 2016:
Salaries paid in 2017 $31 200

Salaries Payable 31 December 2017 3 640
34 840
Salaries Expense for 2017 (31 640)
Salaries Payable 31 December 2016 $ 3 200
(f) The effect of profit from the adjustments is a net decrease of $ 27 440.

PROBLEM SET B 3.7

(a)
Palpatine Hotel Ltd
Worksheet for month ended 31 May 2016
Trial Balance Adjustments Adjusted Trial Statement of Statement of financial
Balance. profit or loss position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ C $r Dr $ Cr $ Dr $ Cr $
100 Cash 4 500 4 500 4 500
112 Prepaid Insurance 2 520 210 1 2 310 2 310
113 Supplies 2 660 980 2 1 680 1 680
120 Land 21 000 21 000 21 000
122 Building 98 000 98 000 98 000
123 Acc’d Depn – Building 420 3 420 420
130 Furniture 23 520 23 520 23 520
131 Acc’d Depn –Furniture 350 3 350 350
212 Rent Rev Rec’d in Adv 5 040 2 100 5 2 940 2 940
214 Salaries Payable 420 6 420 420
215 Interest Payable 500 4 500 500
220 Mortgage Payable 50 000 50 000 50 000
300 Share Capital 84 000 84 000 84 000
400 Rent Revenue 12 880 2 100 5 14 980 14 980
505 Advertising Expense 700 700 700
506 Depreciation Expense 770 3 770 770
510 Electricity Expense 1 400 1 400 1 400
512 Insurance Expense 210 1 210 210
515 Interest Expense 500 4 500 500
530 Supplies Expense 980 2 980 980
$158 500 $158 500 $4 980 $4 980 $160 190 $160 190
Profit 5 800 5 800
$14 980 $14 980 $151 010 $151 010

PROBLEM SET B 3.7 CONTINUED

(b)
The Palpatine Hotel Ltd
General Journal
Date Account Name (narration) Post Debit $ Credit
ref $
2016
1. May 31 Insurance Expense 512 210
2. 31 Supplies Expense 530 980

Supplies 113 980

Accumulated Depreciation – Building 123 420
Accumulated Depreciation –Furniture 131 350
(To record monthly depreciation expense)

Interest Payable [($50,000 x 12%) x 215 500
1/12]
5. 31 Rent Revenue Received in Advance 212 2 100


(c) General ledger
Cash 100
31/5 Balance 4 500

31/5 Balance 2 520 31/5 Insurance Expense 210
2,520 2 520

Supplies 113
31/5 Balance 2 660 31/5 Supplies Expense 980
2 660 2 660
Land 120
31/5 Balance 21 000
Building 122
31/5 Balance 98 000
Accumulated Depreciation – Building 123

Furniture 130
31/5 Balance 23 520
Accumulated Depreciation – Furniture 131


31/5 Balance 6 580

31/5 Rent Revenue 2 100 31/5 Balance 5 040
5 040 5 040

31/5 Salaries Expense 420

31/5 Interest Expense 500
Mortgage Payable 220

31/5 Balance 50 000

Share Capital 300

31/5 Balance 84 000
Rent Revenue 400

31/5 Balance 12 880
31/5 Rent Revenue in Advance 2 100
14 980
Advertising Expense 505

31/5 Balance 700


31/5 Balance 1 400

31/5 Prepaid Insurance 210
Interest Expense 515

31/5 Interest Payable 500

31/5 Balance 4,200
4 620

31/5 Supplies 980

(d)
as at 31 May 2016

$ $
100 Cash 4 500
113 Supplies 1 680
120 Land 21 000
122 Building 98 000
123 Accumulated Depreciation – Building 420
130 Furniture 23 520
131 Accumulated Depreciation – Furniture 350
215 Interest Payable 500
220 Mortgage Payable 50 000
400 Rent Revenue 14 980
505 Advertising Expense 700
515 Interest Expense 500
$160 190 $160 180

(e)
for the month ended 31 May 2016
$ $
Revenues:
Rent revenue $14 980
Expenses:
Advertising expense 700
Profit $5 800

for the month ended 31 May 2016
$
Retained earnings, 1 May 2016 0
Add: Profit 5 800
Retained earnings, 31 May 2016 $5 800


as at 31 May 2016
$ $
ASSETS
Current assets
Cash 4 500
Supplies 1 680
Non-current assets
Land 21 000
Buildings 98 000
Less: Accumulated depreciation – building (420) 97 580
Furniture 23 520
Less: Accumulated depreciation – furniture (350) 23 170
Total non-current 141 750
LIABILITIES
Current Liabilities
Non-current liabilities
Mortgage payable 50 000 50 000
NET ASSETS $89 800
EQUITY
TOTAL EQUITY $89,800
(f) The following accounts would be closed:
Rent Revenue, Salaries Expense, Electricity Expense, Advertising Expense, Interest

Expense, Insurance Expense, Supplies Expense, Depreciation Expense

PROBLEM SET B 3.8

(a)
Contract Cleaning Pty Ltd
General Journal
Date Account name (narration) Post $ $
Ref. Debit Credit
2015
July 1 Cash 100 27 000

Cash 100 9 000
(Purchased truck)


Cash 100 3 600
(Paid insurance)


Cash 100 4 500

Cash 100 3 600
(Paid salaries)
21 Cash 100 4 200



Cash 100 600
31 Dividends 315 1 800

Cash 100 1 800

(b), (e) & (h)
Cash 100
31/7 Petrol & Oil Expense 600
31/7 Dividends 1 800
31 200 31 200

16 16 800
800
600

3/7 Accounts Payable 2 700 31/7 Cleaning Supplies Expense* 900
800
2 700 2
700

5/7 Cash 3 600 31/7 Insurance Expense* 300
3 600 3 600
Motor Vehicles 171
Payable
Accumulated Depreciation – Motor Vehicles 172



11 700 11 700


Share Capital 300
1/7 Cash 27 000

31/7 Dividends 1 800 31/7 Profit or loss summary 9 600
9 600 9 600
Dividends 315
31/7 Cash 1 800 31/7 Retained Earnings 1 800

31/7 Retained Earnings 9
600
16 16 800
800
Entries to this account are closing entries. It has a nil balance before and after closing
entries because the balance, profit, is closed to retained earnings,
Service Revenue 400
31/7 P & L Summary 16 800 12/7 Accounts Receivable 7 500
31/7 Accounts Receivable* 3 300
16 800 16 800
* (e) Adjusting entry,$13 500 cr balance before adjusting entry, $16 800 cr after adjustment,
before closing

31/7 Cash 600 31/7 P & L Summary 600


31/7 Cleaning Supplies* 900 31/7 P & L Summary 900
closing

31/7 Accumulated 600 31/7 P & L Summary 600
Depreciation*

31/7 Prepaid Insurance* 300 31/7 P & L Summary 300
closing
20/7 Cash 3 600 31/7 P & L Summary 4 800
4 800 4 800
* (e) adjusting entry $3 600 dr balance before adjusting entry, $4 800 dr after adjusting entry
before closing
(c) & (f)

Trial Balance
as at 31 July 2015

100 Cash 8 100 8 100
172 Acc’ed Depreciation – M. Vehicles 600
300 Share Capital 27 000 27 000
310 Dividends 1 800 1 800
510 Cleaning Supplies Expense 900
$47 700 $47 700 $52 800 $52 800

(d)
General Journal Contract Cleaning Pty Ltd
Date Account name (narration) Post Debit Credit
Ref.
1. July 31 Accounts Receivable 110 3 300
(Accrued revenue)


4. 31 Cleaning Supplies Expense 510 900

Cleaning Supplies 120 900
(Supplies used)

(Accrued salaries)
(g)
$ $
Revenues:
Expenses:
Cleaning supplies expense 900
Petrol & Oil expense 600
Profit $9 600

Retained earnings 1 July $-

Add: Profit 9 600
9 600
Retained earnings 31 July $7 800


as at 31 July 2015
$ $
ASSETS
Current assets
Cash 8 100
Non-current assets:
Total assets 43 200
LIABILITIES
Current liabilities:
NET ASSETS $34 800
EQUITY:

(h)
General Journal closing entries

Ref

Petrol & Oil Expense 500 600
Cleaning Supplies Expense 510 900
Insurance Expense 530 300

31 Retained Earnings 310 1 800

Dividends 315 1 800
(i)
as at 31 July 2015
No. Account name Debit $ Credit

$
100 Cash 8 100
150 Motor Vehicles 18 000
151 Accumulated Depreciation – Motor Vehicles 600
$43 800 $43 800
(j) After the adjusting entries reported profit increased by $300.

PROBLEM SET B 3.9
(a) Chart of accounts: students may have different account numbers as long as they are
grouped to sections of the ledger.
100 Cash
110 Accounts receivable
120 Supplies
150 Store equipment
151 Accumulated Depreciation
200 Accounts Payable
210 Service Revenue Received in Advance
215 Salaries Payable
300 Share Capital
400 Service Revenue
510 Depreciation Expense
515 Supplies Expense
520 Salaries Expense
525 Rent Expense

Naboo Equipment Ltd

General Ledger
(b), (d) and (f)
Cash 100
1/11 Opening Balance 3 348 8/11 Salaries Expense/Payable 1 320
10/11 Accounts Receivable 1 440 20/11 Accounts Payable 3 000
12/11 Service Revenue 1 680 22/11 Rent Expense 360
29/11 Revenue Rec’d in 660 25/11 Salaries Expense 1 200
Advance
7,128 7,128

1/11 Opening Balance 3 012 10/11 Cash 1 440
4,092 4 092
Supplies 120
1/11 Opening Balance 1 200 30/11 Supplies Expense 1 080
17/11 Accounts Payable 1 800 30/11 Closing Balance 1 920
3 000 3 000
Store Equipment 150

1/11 Opening Balance 12 000 30/11 Closing Balance 15 600
15 600 15 600

30/11 Closing Balance 744 1/11 Opening Balance 600
744 744
15/11 Store Equipment 3 600
30/11 Closing Balance 4 920 17/11 Supplies 1 800
7 920 7 920


30/11 Service Revenue 360 1/11 Opening Balance 480
30/11 Closing Balance 780 29/11 Cash 660
1 140 1 140

8/11 Cash 600 1/11 Opening Balance 600
30/11 Closing Balance 600 30/11 Salaries Expense 600
1,200 1,200
Share Capital 300


Service Revenue 400

12/11 Cash 1 680
30/11 Service Revenue in Advance* 360
3 120
 Adjusting entry balance before adjusting entry $ 2 760


30/11 Supplies 1 080

8/11 Cash 720
25/11 Cash 1 200
2 520
*balance before adjusting entry $ 1 920
Rent Expense 525
22/11 Cash 360
(c)
Naboo Equipment Ltd

General Journal

ref
2015
Nov 8 Salaries Payable 215 600
Salaries Expense 520 720
Cash 100 1 320
(Payment of salaries for October &
November)
10 Cash 100 1 440

(Cash received from customers on account)
12 Cash 100 1 680

15 Store Equipment 150 3 600

(Purchased store equipment on account)
17 Supplies 120 1 800
(Purchased supplies on account)

Cash 100 3 000
(Paid creditors on account)

Cash 100 360
(Paid November rent)

Cash 100 1 00
(Paid salaries)

29 Cash 100 660

Service Revenue Rec’d in Advance 210 660
(Received cash from customers for future
services)

(e) & (g)

Naboo Equipment Ltd
Trial Balance
as at 30 November 2015
Unadjusted Adjusted
Account name s Debit Credit Debit Credit
Cash $1 248 $1 248

Accounts Receivable 2 652 2 652
Supplies 3 000 1 920
Store Equipment 15 600 15 600
Accumulated Depreciation $ 600 $ 744
Accounts Payable 4 920 4 920
Service Revenue Received in Advance 1 140 780
Share Capital 12,000 12 000
Retained Earnings 3 360 3 360
Service Revenue 2 760 3 120
Supplies Expense 1 080
Salaries Expense 1 920 2 520
Rent Expense 360 360
$24 780 $24 780 $25 524 $25 524
(f)
Naboo Equipment Ltd
General Journal
Date Account name (narration) Post ref Debit $ Credit $

2015
1. Nov. 30 Supplies Expense 515 1 080
Supplies ($3,000 - $1,920) 120 1 080


Accum Depreciation. 151 144
(To record one month’s depreciation
expense)

(To record revenue)

(g)
Naboo Equipment Ltd
for the month ended 30 November 2015
Revenues:
Service revenue $3 120
Expenses:
Salaries expense $2 520
Rent expense 360
Loss ($ 984)
Naboo Equipment Ltd

For the month ended 30 November 2015
Retained earnings 1 November $3 360

Less: Loss (984)
Retained earnings 30 November $2 376
Naboo Equipment Ltd

as at 30 November 2015
ASSETS $ $
Current Assets
Cash 1 248
Supplies 1 920
Total Current assets 5 820
Non-current assets
Store equipment 15 600
Less: Accumulated depreciation (744) 14 856
Total assets 20 676
LIABILITIES
Service revenue received in advance 780
NET ASSETS $14 376
EQUITY

PROBLEM SET B 3.9 (i)

Naboo Equipment Ltd
Worksheet as at 30 November 2015
Trial Balance Adjustments Adjusted Statement of Statement of

Trial Balance. profit or loss Financial
Position
100 Cash 1 248 1 248 1 248
110 Accounts receivable 2 652 2 652 2 652
120 Supplies 3000 1 080 1 920 1 920
150 Store equipment 15 600 15 600 15 600
151 Acc’d Depreciation 600 144 744 744
210 Service revenue rec’d in 1 140 360 780 780
advance
215 Salaries Payable 600 600 600
300 Share Capital 12 000 12 000 12 000
310 Retained earnings 3 360 3 360 3 360
400 Service Revenue 2 760 360 3 120 3 120
515 Supplies Expense 1 080 750 750
520 Salaries Expense 1 920 600 2 520 2 520
525 Rent Expense 360 9 200 9 200
Loss 984 984
Totals $24 780 $24 780 $2 184 $2 184 $25 524 $25 524 $4 104 $4 104 $22 404 $22 404

PROBLEM SET B 3.10

On Call Services Ltd
General Journal
Ref.
2015
Sept 1 Cash 100 150 000
300 150 000

Cash 100 45 000
(Purchased truck)


Cash 100 27 000
(Paid insurance annual policy Sept1)


Cash 100 55 500

Cash 100 15 300
(Paid salaries)
23 Cash 100 18 000



Cash 100 1980
Cash 100 900
3.115
(b), (e) & (h)

General Ledger
Cash 100
30/9 Petrol & Oil Exp 1 980
30/9 Dividends 900
168 000 168 000

60 600 60 600

5/9 Accounts Payable 18600 30/9 Cleaning Supplies Exp* 15 000
18 600 18 600

7/9 Cash 27 000 30/9 Insurance Expense* 2 250
27 000 27 000
Motor vehicle 171

Payable

30/9 Depreciation Expense* 1 500


63 600 63 600

Share Capital 300

1/9 Cash 150 000

30/9 Dividends 900 30/9 Profit or loss summary 19 170
19 170 19 170
1/10 Opening Balance
Dividends 315
30/9 Cash 900 30/9 Retained Earnings 900

60 600 60 600
Service Revenue 400

60 600 60 600
* (e) Adjusting entry,$55 200 cr balance before adjusting entry, $20200 cr after adjustment,
before closing

3.117

closing

30/9 Accumulated Depreciation* 1 500 30/9 Profit or loss summary 1 500

30/9 Prepaid Insurance* 2 250 30/9 Profit or loss summary 2 250
* (e) Adjusting entry, nil balance before adjusting entry, $750 dr after adjustment, before closing

20 700 20 700
* (e) adjusting entry, $15 30 dr balance before adjusting entry, $20 700 dr after adjusting entry
before closing.

(c) & (f)

Trial Balance
100 Cash 22 320 22 320
172 Accumulated Depreciation – Motor 1 500
vehicles
300 Share Capital 150 000 150 000
500 Petrol & Oil Expense 1 980 1 980
$213 300 $213 300 $225 600 $225 600
(d) General Journal

Date Account name (narration) Post $ $
Ref. Debit Credit
1. Sept 30 Accounts Receivable 110 5 400
(Accrued revenue)
Accumulated Depreciation 172 1 500
(Supplies used)
(Accrued salaries)
3.119
(g)
for the month ended 30 September 2015
$ $
Revenues:
Expenses:
Petrol & Oil expense 19 800
Profit $19 170

for the month ended 30 September 2015
Retained earnings 1 September $-

Add: Profit 19 170
19 170
Less: Dividends ( 900)
Retained earnings 30 September $18 270


$ $
ASSETS
Current assets:
Cash 22 320
Non-current assets:
LIABILITIES
Current liabilities:
NET ASSETS $168 270
EQUITY
3.121
(h) On Call Services Ltd

General Journal
Ref

Petrol & Oil Expense 500 1 980
Depreciation Expense 520 1 500
Insurance Expense 530 2 250


Dividends 315 300
(i)
100 Cash 22 320
171 Motor vehicles 90 000
172 Accumulated Depreciation – MV 1 500
$183 270 $183 270

PROBLEM SET B 3.10 (j)

Worksheet as at 30 September 2015
Trial Balance Adjustments Adjusted Statement of profit Statement of
Trial Balance. or loss Financial Position
100 Cash 22 320 22 320 22 320
110 Accounts receivable 37 200 5 400 42 600 42 600
120 Cleaning Supplies 18 600 15 000 3 600 3 600
130 Prepaid insurance 27 000 2 250 24 750 24 750
171 Motor vehicles 90 000 90 000 90 000
172 Accumulated 1 500 1 500 1 500
Depreciation
300 Share Capital 150 000 150 000 150 000
315 Dividends 900 900 900
320 Profit or loss summary
400 Service Revenue 55 200 5 400 60 600 60 600
500 Petrol & oil expense 1 980 1 980 1 980
510 Cleaning Supplies Exp 15 000 15 000 15 000
520 Depreciation Expense 1 500 1 500 1 500
530 Insurance Expense 2 250 2 250 2 250
Profit 19 170 19 170
Totals $213 300 $213 300 $29 550 $29 550 $225 600 $225 600 $60 600 $60 600 $61 390 $61 390
3.123
BUILDING BUSINESS SKILLS
FINANCIAL REPORTING AND ANALYSIS
BUILDING BUSINESS SKILLS 3.1 FINANCIAL REPORTING PROBLEM
Domino’s Pizza Enterprises Ltd
(a) Items that may have resulted in adjusting entries for accruals are:
 Franchise income (accrued, note 3.8.2)

 Royalties (accrued, note 3.8.4)
 Interest revenue (accrued, note 3.8.5)
 Income tax expense (accrued note 3.10 but explanation is somewhat obscure for
introductory students)
 Employee benefits(Wages, salaries and annual leave) (accrued, note 3.21)
 Provisions (accrued, note 3.22)
(b) The employee benefits provision was $3,383,000. The split between current and non-
current is unclear .Other provisions of $167,000 are included and of total provisions
$3,550,000 ($3,383,000 +$167,000) -- $3,109,000 is classified as current and $441,000
as non-current.
There is also a note stating that $2,715,000 of the current employee benefit provisions
relates to annual leave and long service leave which is not expected to be paid out
within the next twelve months ( that is it is technically current but Dominos do not expect
all employees to claim their leave entitlements within the next year.).
(c) The statement of cash flows reports income taxes paid in 2013 of $11,796,000. The
consolidated statement of profit or loss and other comprehensive income reports income
tax expense of $12,108,000.

BUILDING BUSINESS SKILLS 3.2 FINANCIAL REPORTING PROBLEM
Domino’s Pizza Enterprises Ltd
(a) The different forms of revenue recorded by Domino’s are:
Extract from Note 3.8 Revenue recognition of the 2013 Domino’s financial report:
“3.8 REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received or receivable.
3.8.1 Sale of goods

Revenue from the sale of goods is recognised when the Consolidated entity has
transferred to the buyer the significant risks and rewards of ownership of the goods.
3.8.2 Franchise income

Franchise income is recognised on an accrual basis in accordance with the substance of
the relevant agreement.
3.8.3 Rendering of services

Service revenue relates primarily to store building services and is recognised by
reference to the stage of completion of the contract.
3.8.4 Royalties
Royalty revenue is recognised on an accrual basis in accordance with the substance of
the relevant agreement (provided that it is probable that the economic benefits will flow
to the Consolidated entity and the amount of revenue can be measured reliably).
Royalties determined on a time basis are recognised on a straight-line basis over the
period of the agreement. Royalty arrangements that are based on sales and other
measures are recognised by reference to the underlying arrangement.
3.8.5 Dividend and interest revenue

Dividend revenue from investments is recognised when the shareholder’s right to
receive payment has been established (provided that it is probable that the economic
benefits will flow to the Consolidated entity and the amount of revenue can be reliably
measured).
Interest revenue is recognised when it is probable that the economic benefits will flow to
the Consolidated entity and the amount of revenue can be measured reliably. Interest
revenue is accrued on a time basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset to that asset’s net carrying
amount on initial recognition.”
3.125
(b) The recognition of revenue for the sale of goods is consistent with the principles of
recognition discussed in the chapter.
As stated in the chapter:

IAS 18 ‘Revenue’ prescribes principles for the recognition of revenue for the sale of
goods. Revenue is recognised on the sale of goods when all of the following conditions
are satisfied:
(a) the entity has transferred to the buyer the significant risks and rewards of
ownership of the goods;
(b) the entity retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold;
(c) the amount of revenue can be recognised reliably;
(d) it is probable that the economic benefits of the revenue will flow to the entity; and
(e) the costs incurred or to be incurred in respect of the transaction can measured
reliably.’
Students should notice that the wording in the Dominos accounts are similar to the
accounting standard applicable at the date the accounts were prepared. .
Note the new accounting standard for revenue recognition was released in May 2014
and is IFRS 15 ‘Revenue from Contracts with Customers’ which is effective from
reporting periods 1 January 2017 but may be adopted earlier. In the new standard a five
step model framework is used. Essentially revenue is recognised when an entity satisfies
a performance obligation.
The following conditions must be met:

o the contract has been approved by parties to the contract
o each parties rights in relation to the goods to be transferred has been identified
o the payment terms have been identified
o the contract has commercial substance; and
o it is probable that the consideration to which the entity is entitled to in exchange
for the goods will be collected.

(c) The distinction between revenue and other income flows from the source. In Chapter 1
the textbook explains the definition from the conceptual Framework. Income
encompasses both revenue and other gains. Revenue arises in the course of the
ordinary activities of an entity and is referred to by a variety of different names including
sales, fees, interest, dividends, royalties and rent. You examined the definition and
recognition criteria for these items in your answer to part (a) .
Gains represent other items that meet the definition of income and may, or may not,
arise in the course of the ordinary activities of an entity. Gains represent increases in
economic benefits and as such are no different in nature from revenue. Hence, they are
not regarded as constituting a separate element in this Framework. Gains include, for
example, those arising on the disposal of non-current assets. See Note 8 of the
Domino’s financial statements.
3.127
BUILDING BUSINESS SKILLS 3.3 INTERPRETING FINANCIAL STATEMENTS
Micro Ltd
General Journal
(a) (Amounts in millions)
Account name (narration) Debit $ Credit $

$M $M
1. Depreciation Expense 50
(Depreciation for the year)
2. Office Supplies Expense 2
Office Supplies 2
(To record office supplies used)
3. Administrative Salaries Expense 15
R&D salaries Expense 15
Salaries Payable 30
(To accrue salaries)
4. Insurance Expense 4
Prepaid Insurance 4
(balance of Prepaid Insurance now expired))
5. Rent Expense 12
Prepaid Rent 12
(Prepaid rent now expensed)
6. Interest Expense 20
Interest Payable 20
(To accrue interest expense)

(b) The accounts are considered in the order of the journal entries:
General Ledger Account Statement of profit or loss Item Increased

(Decreased)
Depreciation Expense Selling general and administrative Increased
Accumulated Depreciation N/A (statement of financial position)
Office Supplies Expense Selling, general and administrative Increased
Office Supplies N/A (statement of financial position)
Administrative Salaries Selling, general and administrative Increased
Expense
R&D Salaries Expense Research and development Increased
Salaries Payable N/A (statement of financial position)
Insurance Expense Selling, general and administrative Increased
Prepaid Insurance N/A (statement of financial position)
Rent Expense Selling, general and administrative Increased
Prepaid Rent N/A (statement of financial position)
Interest Expense Interest expense Increased
Interest Payable N/A (statement of financial position)
(c) Micro Ltd

Statement of profit or loss (partial)
For the year ended 30June 2016
Revenues:
Net sales $8607
Interest revenue and other 418
9025
Expenses:
Cost of sales 7050
Selling, general and administrative 1204 (1)
Research and development 351 (2)
Interest expense 380 (3)
8985
Profit before income tax $40
(1) Original figure $1121 million + 50, depreciation, + 2, office supplies, +

15, salaries, +4, insurance expense, + 12, rent expense, = $1204 million.
(2) Original figure $336 million + $15, salaries, = $351 million
(3) Original figure $360 million + $20 million not recorded = $380 million.
3.129
(d) Useful information to disclose would be the basis of accounting for the items. For
example: when is revenue recognised? The statement of profit or loss has categories of
expenses which are classified according to areas within the business. It may be useful to
further split the expense between administrative and selling. The accounts are usually
prepared using last year as a comparative.

BUILDING BUSINESS SKILLS 3.4 FINANCIAL ANALYSIS ON THE WEB
Fairfax Media Limited
This solution is based on the 2014 Annual Report of Fairfax Media Limited
See p79 part note 1 to the financial statements
“G REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the
Group and the amount of the revenue can be reliably measured. Revenue from advertising,
circulation, subscription, online services, radio broadcasting and printing is recognised when
control of the right to be compensated has been obtained and the stage of completion of the
contract can be reliably measured. For newspapers, magazines and other publications the right
to be compensated is on the publication date. Revenue from the provision of online advertising
on websites is recognised in the period the advertisements are placed or the impression occurs.
Amounts disclosed as revenue are net of commissions, rebates, discounts, returns, trade
allowances, duties and taxes paid.
Dividend revenue is recognised when the Group’s right to receive the payment is established,
which is generally when the dividend has been declared.
Interest revenue is recognised as it accrues, based on the effective yield of the financial asset. “
(b)Which items referred to in the revenue recognition policy require accrual adjustments and
which items require adjustments for prepaid revenue?
Items which need accrual would be the interest and the dividend revenue.
Items which would need adjustment for prepaid revenue could be if advertising is paid ahead of
the publication or the online impression. It is assumed here revenue is before Fairfax completes
the contract. For example it may be a twelve month subscription to a publication. So Fairfax
would recognise the revenue when they meet their obligation under the contract ie when the
monthly publication is produced and send to the customer.
(c) Is the way that Fairfax Media recognises revenue consistent with the revenue recognition
criteria discussed in the chapter?
The revenue recognition is consistent with the conceptual framework in that the revenue amount
must be reliably measured and it is probable that the economic benefits will flow to the group. It
is also consistent with old IAS 18 Revenue, where Fairfax states it will only recognise when
control of the right to be compensated has been obtained and the stage of completion of the
contract can be reliably measured.
Although the new recognition criteria uses different wording, I do not expect any change to the
method of revenue recognition at Fairfax.
The five step process would be in place:

1. the parties to the contract are committed to perform the respective obligation
2. Fairfax can identify each party’s rights
3. the payment terms can be identified
4. the contracts have commercial substance (ie Fairfax expects to receive the revenue) and
5. it is probable Fairfax will receive the consideration.
3.131
CRITICAL THINKING
BUILDING BUSINESS SKILLS 3.5 GROUP DECISION CASE
(a)
Holiday Travel Australasia
for the year ended 31 March 2017
$ $
Revenues:
Service revenue ($150000 - $16000) 134 000
Expenses:
Advertising expense
(8700 +15000 – 5200+3200) 18 800
Wages expense ($56400 + $300) 56 700
Electricity expense ($4600 + $320) 4 920
Repair expense ($4000 + $2000) 6 000
Insurance expense ($21000 x 9/12) 15 750
Interest expense ($20000 x 10%x 3/12) 500
Profit $19 330
(b) Accrual accounting was not followed with respect to several items of revenue and
expense. Revenue recognition criteria had not been followed as revenue of $16,000 had
been recognised for services not yet performed.
Similarly, expense recognition principles were not followed. Expenses were not recorded
even though a decrease in economic benefits had occurred (consumption of supplies,
expiry of insurance) and they could be measured reliably.
Likewise not recording the advertising, electricity and repair expenses (and
corresponding liabilities), was inconsistent with the expense and recognition criteria; it is
probable that an outflow will occur because the parties who have invoiced Holiday Travel
Australasia have a valid and enforceable claim, and the amount can be recognised
reliably as the invoice has been received. Similarly, the expense recognition criteria were
not followed with respect to wages expense and interest expense. While these amounts
were not invoiced they could be measured reliably by calculating the unpaid wages and
interest.

BUILDING BUSINESS SKILLS 3.6 COMMUNICATION ACTIVITY
Sam Portafello
(a) – (d)
Report on Comparison of Cash-Based and Accrual Accounting
Executive Summary
This report examines two alternative forms of accounting: cash-based and accrual accounting.
Adoption of accrual accounting is recommended because it provides more information about the
financial position of the business, in particular, assets and liabilities, and results in a more
inclusive measure of profit that reflects increases and decreases in all assets and liabilities, and
not only movements in cash.
Detailed Report
Accrual accounting records the events in the periods in which the events occur, rather than in
the periods in which the entity receives or pays cash. This report presents an argument in
favour of the use of accrual accounting for business reporting.
Cash-based accounting records transactions when cash is paid or received. Thus some items
that may be relevant to assessing how the business has performed during the period may be
omitted because the resulting cash is received or paid in a different period. For example, wages
and other expenses, such as telephone and electricity expenses, are omitted to the extent that
they are unpaid at the end of the period. Further, revenues for which the customer has not yet
paid are omitted by cash-based accounting.
Some items are included as revenues and expenses under cash-based accounting that would
be separately identified as assets and liabilities under accrual accounting. For example, a
receipt for rent revenue in advance is accounted for as revenue under cash-based accounting.
Under accrual accounting only that portion of the rental receipt that pertains to the current
reporting period is recognised as revenue; and the amount of the rental payment received for a
rental period that has not expired at the reporting date, is recognised as a liability (rent received
in advance). Examples of omitted assets include prepaid insurance and prepaid rent. Under
cash-based accounting, all insurance premiums and rental paid are treated as expenses even
though the periods covered by the premiums and rentals may not have expired.
Another omitted item under cash-based accounting is depreciation. Accrual accounting

allocates the cost of long-lived assets over their useful life. Under cash-based accounting the
asset is expensed in the period in which it is paid for. Depreciation spreads the cost of the asset
over the periods in which the economic benefits are consumed. In doing so, it provides better
performance measurement because the consumption of economic benefits is spread over the
periods in which the benefits are realised through using the asset.
The differences between accrual accounting and cash-based accounting are more pronounced
when non-current assets are involved. Non-current assets involve large payments and benefits
which extend over more reporting periods than other forms of prepayments (such as insurance
premiums). Accordingly, the acquisition of non-current assets causes greater distortion of profit
3.133
in a single period, thus making the use of accrual accounting more appropriate for the
measurement of profitability.
Information presented on an accrual basis is useful because it reveals relationships that are
likely to be important in predicting future results. Conversely, under cash basis accounting,
revenue is recorded only when cash is received, and an expense is recognised only when cash
is paid. This results in the omission of assets and liabilities. As a result, the cash basis of
accounting often leads to misleading financial statements. Accordingly, accrual accounting is
recommended for your business to provide more comprehensive information about its financial
position and financial performance to assist decision makers.

BUILDING BUSINESS SKILLS 3.7 ETHICS CASE
Wellcovered Insurance Ltd
(a) The stakeholders in this situation include anyone who relies on the press release.
(b) Ed’s application of the timeliness constraint is inappropriate. The constraint refers to
situations where delaying the reporting of information until all aspects of a transaction or
event are known may cause loss of relevance. Thus it may be necessary to report
information before all aspects of a transaction are known. In the case of Wellcovered
Insurance, Ed Honcho is suggesting that the information be reported before ANY
aspects of the relevant transactions are known.
(c) Ed’s actions are inconsistent with reliability, which is one of the principal qualitative
characteristics identified in the Framework for the Preparation and Presentation of
Financial Statements. One aspect of reliability is that the information is free of material
error. Ed and Ben are unable to determine the reliability of the information due to the
effects of the computer virus. Accordingly the estimated numbers may be very
misleading,
(d) It would be unethical to report the financial results without full disclosure that they are
estimates, and that actual figures are unavailable due to the computer virus. Users
relying on the information should be aware of its inherent uncertainty and the associated
risks.
(e) A significant overestimation of profit is likely to increase the share price. However, this
would be a temporary gain because the share price would fall when the actual information
is disclosed. Shareholders who sold while the price was high would make a gain at the
expense of those who purchased them. More long-term damage to the company (in the
form of share price and reputation) may occur when shareholders and investors observe
that the company disclosed information that was subsequently found to be materially in
error; they may have less confidence in information provided by the company in future.
3.135
BUILDING BUSINESS SKILLS 3.8 COMMUNICATION ACTIVITY
Woolworths Limited Sustainability Report
Note to instructor the response will depend on which sustainability report the student accesses.
You can vary the question depending on what you wish to student to concentrate their research
on.
Woolworths: http://www.woolworthslimited.com.au/
Students were asked to outline Woolworths the priority of the environmental sustainability
issues. This is contained on pp 10 and 11 of the report.
Priority issues for Woolworths Limited
1. Climate change:
 Use of energy and greenhouse gas emissions.
 Use of fuel and associated greenhouse gas and other emissions in our distribution
network (trucks) and our company cars/business travel.
2. Direct use of water and the effect of drought.
3. Sourcing of our private label products and ingredients as well as other products and services.
4. Packaging – including consumer packaging in our private label products and distribution
packaging.
5. Waste generation from all our stores.
6. Store development (design, construction, equipment and materials specification).
The students were then required to access the latest annual sustainability report and
summarise the achievements in contribution to the community and environmental
stewardship.
It would be expected that the students would then list the goal and how it was measured and
how the achievement in that area was measured.
The following is the link to the 2103 CR report:

http://www.woolworthslimited.com.au/CRReport/2013/downloads/Woolworths_Limited_Corporat
e_Responsibility_Report_2013.pdf
Page 52 outlines the approach which refers to the strategic document given in the questions.
“Woolworths has set targets and made commitments to be a responsible and sustainable
business; this can only be achieved with the support of our people at all levels of our business.

As any business should, Woolworths gives priority to issues that are material to the business
and which align with our strategic pillars.
The Destination Zero safety strategy and the Sustainability Strategy 2007–2015 provide the
direction and focus for practices, policies and investment.”
CONTRIBUTION TO THE COMMUNITY
Woolworths target was the equivalent of 1% of pre-tax profit going towards supporting
communities in which it operates.
In 2013 Woolworth’s invested the equivalent $63.6 Million to support community partners
programs such as the Salvation Army Legacy, plus various other charities in Australia. In New
Zealand the Countdown supermarkets contributed by running the Countdown kids hospital
appeal , Countdown food Rescue programs and giving in other local programs.
The $63,3 M was comprised of $33.2 m in cash donation; $19.6 raised by staff and customers;
$1.6m in kind; and $9.2m in staff and management’s time.
Under the heading of ENVIRONMENTAL STEWARDSHIP, the company reported (p34)

The priority was to minimise the carbon footprint Woolworth used aa a baseline the 2007
financial year and the reduction targets are reductions from projected growth based on
a business-as-usual model.
Based on that the 2013 performance was “Woolworths’ total carbon emissions in Australia and
New Zealand were 4.33 Mt, a 5.8% increase from the previous year. Emissions from our
buildings totalled 3.6 Mt, which was a 7.8% increase in emissions.
The report continued with more positive achievements: “Despite this, our carbon emissions are
still 570,000 tonnes lower than they would have been without our investment in energy efficient
and low carbon technology.
Our positive results extend to:

– 13.7% reduction in carbon emissions in 2013 (compared to projected emissions from
business-as-usual growth).
– $141.7 million in estimated operational cost savings by 2015,from $87 million invested
in energy efficiency since 2009.
– 25% reduction in carbon emissions generated per square metre of floor space for new
supermarkets built in Australia in 2013.
– 20.2% reduction in carbon emissions per carton delivered in 2013.
We implemented 22 new projects in 2013, which reduced electricity usage by 16,022 MWh and
reduced carbon emissions by 14,580 tonnes during the year.
Photovoltaic systems at Petrol sites in Hume and Belconnen in the Australian Capital Territory
generated 86,641 kWh, reducing carbon emissions by 92 tonnes – the equivalent of taking 21
cars off the road.
Most of Woolworths’ company car fleet comply with the high environmental standards set for
fuel efficiency and emissions. Annual car emissions have been reduced by 6,438 tonnes
compared to 2007, which is equivalent to taking almost 1,500 vehicles off the road.”
3.137
Other points noted were:

 Water usage and wastage and use of recycled water had improved.
 Reviewed packaging used on 1,349 Own Brand products in Supermarkets, using an
estimated 24,460 tonnes of material; and
 Prevented 9,340 tonnes of unsold food from going to landfill through donations to food
relief organisations, and diverting food waste to composting and waste to energy.

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Solutions Manual

John Wiley & Sons Australia, Ltd 2016

CHAPTER 3 – ACCRUAL ACCOUNTING CONCEPTS

ASSIGNMENT CLASSIFICATION TABLE

2. Explain criteria for revenue recognition 2,3,4

3. Explain why adjusting entries are 2 5,9, 10, 1A, 2A,10A,

4. Prepare adjusting entries for 3, 4 5, 6, 7, 8,9, ALL

5. Describe the nature and purpose of the 5 9,10,11 ALL

6. Explain the purpose of closing entries. 6 12 3A, 4A,5A,6A,

7. Describe the required steps in the 6, 7 3A, 5A,6A,8A,

8. Describe the purpose and the basic 13 9A,10A

© John Wiley and Sons Australia Ltd, 2016 3.1

CHAPTER 3 – ACCRUAL ACCOUNTING CONCEPTS

1. (a) Under the accounting period concept, an accountant is required to determine

2. The accounting principles and the qualitative characteristics, together with

© John Wiley and Sons Australia Ltd, 2016 3.2

The following conditions must be met:

6. The financial information in a trial balance may not be up-to-date because:

© John Wiley and Sons Australia Ltd, 2016 3.3

8. Depreciation expense is an expense account whose normal balance is a debt. This

11. (a) Prepaid expenses (if initially recorded as an expense)

© John Wiley and Sons Australia Ltd, 2016 3.4

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3.1

Cash Retained Earnings

BRIEF EXERCISE 3.2

(a) Prepaid Expense Asset Overstated

BRIEF EXERCISE 3.3

June 30 Depreciation Expense - Equipment 3 000

Depreciation Expense – Equipment

Accumulated Depreciation – Equipment

© John Wiley and Sons Australia Ltd, 2016 3.5

BRIEF EXERCISE 3.4

BRIEF EXERCISE 3.5

(a) Accounts Receivable Accrued Revenue Service Revenue

BRIEF EXERCISE 3.6

© John Wiley and Sons Australia Ltd, 2016 3.6

BRIEF EXERCISE 3.7

1. (e) Analyse business transactions.

© John Wiley and Sons Australia Ltd, 2016 3.7

(a) 6. Going concern principle.

(a) Revenue recognition criteria.

© John Wiley and Sons Australia Ltd, 2016 3.8

(1) (2) (b)

(b) Prepaid Expense Asset Overstated Overstated

(c) Accrued Expense Expense Understated Overstated

(d) Revenue Received in Advance Liability Overstated Understated

(e) Accrued Expense Expense Understated Overstated

(f) Prepaid Expense Asset Overstated Overstated

© John Wiley and Sons Australia Ltd, 2016 3.9

1. June 30 Depreciation Expense 420 4 800

NB. Adjusting entries are made quarterly (i.e. every 3 months).

© John Wiley and Sons Australia Ltd, 2016 3.10

© John Wiley and Sons Australia Ltd, 2016 3.11

Wong Pty Ltd

© John Wiley and Sons Australia Ltd, 2016 3.12

Answer Calculation/Account Reconstruction

(a) Supplies balance 1/7= $1 400 Supplies expense $1220

Purchase date = 1 Nov 2015 Purchase date: On 31 Julybalance is $2400 so there is 3

(c) Salaries payable = $1 700 Cash paid $7500

(d) Service revenue = $1 725 Service revenue $3000

Service Revenue Received in Advance

© John Wiley and Sons Australia Ltd, 2016 3.13