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tafe accountingworkbook solutions manual

poustie

financial accounting applications

Copyright © 2011 Cengage Learning Australia Pty Limited

Contents Page

Chapter 1: Partnerships 2

Chapter 2: Incomplete or single-entry systems 140

Chapter 3: Not-for-profit organisations 160

Chapter 4: Primary producers 177

Chapter 5: Statement of cash flows 191

Chapter 6: Standard financial analysis techniques 201

Chapter 7: Inventories 209


Chapter 1: Partnerships

1.1 In accordance with the Partnership Act, for a partnership to exist, the following three conditions must

be present:

1. a business must be carried on

2. the business must be carried on by persons in common

3. the business must be carried on with a view of profit.

1.2 A partnership is a group of people (normally up to 20) who have joint ownership of a business.

Members of a partnership share the responsibility for the conduct of the partnership business, as well

as the liability for partnership debts. Partners also share profits and losses made by the partnership

business.

1.3 a) An active partner is one who, as well as contributing capital to a partnership, shares the liability

for partnership debts and takes an active role in the management of the partnership business.

b) A sleeping partner is one who contributes capital and shares the liability for partnership debts,

but takes no role in the management of the partnership business.

c) A limited partner is one who contributes capital to the partnership, but has no further liability for

partnership debts and is not permitted to take an active role in the conduct of the partnership.

1.4 Advantages of partnerships (any four, with brief explanation as per text):

– Formation is simple and inexpensive.

– More capital available.

– Sharing of workload and risks.

– Specialisation of skills.

– Elimination of competition.

– Possible income tax savings for a family partnership.

Disadvantages of partnerships (any four, with brief explanation as per text):

– Unlimited liability.

– Partners’ acts binding on the other partners.

– Possibility of disputes between partners.

– Limited life (death or resignation of a partner).

– Profits must be shared.

1.5 For the purposes of accounting for partnerships, the Entity Convention is observed in the same way as

in a single ownership business. The partnership business is viewed as a separate entity to the partners,

and each partner’s equity is recorded by maintaining a separate Capital account for the partner.

1.6 Ways in which a partnership may come into existence (any two):

– Two (or more) people may decide to commence a new business together.

– An existing business owner may decide to take in a partner.

– Two existing business owners may decide to combine their businesses.

1.7

Solution in textbook.

1.8 Solution in textbook.

3


1.9 Items of importance that should be covered on a partnership agreement (any eight):

– Date of formation of the partnership.

– Name and address of each partner.

– Nature of the partnership business.

– Duration of the partnership.

– Business name of the firm.

– Partners’ capital contributions.

– Partners’ profit and other entitlements.

– Partners’ rights and duties.

– Management arrangements.

– Accounting records.

– Dissolution.

– Procedure for settling disputes.

1.10

Goode & Proper

Cash Receipts Journal (simplified)

Goode & Proper

General Ledger

Date Particulars Folio Debit

$

Credit

$

Balance

$

Capital – Charles Goode Account

2017

15 Jul Cash at bank CRJ 20 000 20 000 Cr

Capital – Cyril Proper Account

2017


Loan from Charles Goode Account

2017


Cash at Bank Account

2017

15 Jul Sundries CRJ 40 000 40 000 Dr

Date Particulars Folio Ref. Sundries GST Bank

Amount Account collected

2017 $ $ $ $ $

15 Jul Charles Goode 001 20 000 Capital – Charles Goode

Cyril Proper 002 10 000 Capital – Cyril Proper

Charles Goode 003 10 000 Loan from Charles Goode 40 000

4 TAFE Accounting: Financial Accounting Applications Solutions Manual


1.11

Peake & Thomas

Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank


2017 $ $ $ $ $

20 Mar H. Peake 001 9 000 Capital – H. Peake

B. Thomas 002 5 050 Capital – B. Thomas

B. Thomas 003 40 000 Loan from B. Thomas 54 050

General Journal Date Particulars Folio Debit Credit

2017 $ $

20 Mar Premises – at cost 95 000

Equipment – at cost 15 000

GST paid

Capital – H. Peake

11 000

121 000

Assets contributed by Hayden Peake at agreed values.

Office furniture – at cost 4 500


GST paid

Capital – B. Thomas

5 450

59 950

Assets contributed by Breanna Thomas at agreed values.

1.12


1.13

Alan & Fiona


2018 $ $

1 Feb Accounts receivable control 8 000

Stock 10 000

Franchise 10 000

Premises – at cost 8 000

Goodwill 6 000

Allowance for doubtful debts 400

Accounts payable control 10 000

Capital – Alan 31 600

Assets and liabilities contributed by Alan at agreed values.

Stock 10 000

Accounts receivable control 16 000

Motor vehicles – at cost 8 000

Goodwill 4 000


Bank overdraft 6 000


Capital – Fiona 23 200

Assets and liabilities contributed by Fiona at agreed values.

Capital – Alan 3 600

Loan from Alan 3 600

Transfer to fix capital at $40 000 as per agreement.

5


Alan & Fiona

Cash Receipts Journal (simplified)

1.14


1.15

Doors Music


2016 $ $

1 Jun Accounts receivable 2 000

Stock of sheet music 250

Grand piano – at cost 6 000

Instruments and equipment – at cost 12 000

Goodwill 7 000


Capital – Morrison 27 150

Assets and liabilities contributed by John Morrison

at agreed values.

Cash on hand 50

Accounts receivable 2 500

Stock of sheet music 350

Instruments and equipment – at cost 5 000


Goodwill 5 000



Accounts payable 3 500

Mortgage loan on premises 45 000

Capital – Densmore 12 400

Assets and liabilities contributed by James

Densmore at agreed values.

Capital – Morrison 7 900

Loan from Morrison 7 900

Transfer to fix capital at $20 000 as per agreement.

Doors Music

Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank


2016 $ $ $ $ $

1 Jun John Morrison 001 750 Capital – Morrison

James Densmore 002 2 600 Capital – Densmore 3 350

Date Particulars Folio Ref. Sundries GST Bank


2018 $ $ $ $ $

1 Feb Alan 001 12 000 Capital – Alan

Fiona 002 1 800 Capital – Fiona 13 800



1.16

Joe & Rob

Statement of Financial Position (simplified) as at 1 July 2017 $ $ $

OWNERS’ EQUITY

Capital – Joe 40 000

Capital – Rob 40 000

Total owners’ equity 80 000

This is represented by:

ASSETS

Current assets

Cash at bank 5 000


less Allowance for doubtful debts 2 000 23 000

Total current assets 28 000

Non-current assets

Property, plant and equipment

Factory premises – at cost 65 000

Furniture and equipment – at cost 32 000


Total property, plant and equipment 109 000

Total non-current assets 109 000

Total assets 137 000

less LIABILITIES

Current liabilities

Accrued expenses 7 000


Total current liabilities 9 000

Non-current liabilities


Loan from Joe 5 000

Total non-current liabilities 48 000

Total liabilities 57 000

Net assets 80 000

1.17


7


1.18

Burke & Wills


2017 $ $

30 Jun Current – Burke 80

Profit and loss 80

Interest on advance at 8% p.a. as per Partnership Agreement.

Profit and loss 420

Current – Wills 420

Interest on loan at 7% p.a. as per Partnership Act.

Profit and loss 79 390

Profit and loss appropriation 79 390

Transfer of Net Profit for the year ended 30 June 2017.

Current – Burke 340

Current – Wills 270

Profit and loss appropriation 610

Interest on drawings at 12% p.a. as per Partnership Agreement.


Salary – Burke 25 000

Salary – Wills 20 000

Transfer of salaries paid.


Current – Wills 5 000

Unpaid salary entitlement as per Partnership Agreement.


Current – Burke 4 000


Interest on capitals at 5% p.a. as per Partnership Agreement.


Current – Burke 16 000


Distribution of profit after entitlements & charges, in ratio of capitals contributed.



Burke & Wills

General Ledger (extract)

Date Particulars Folio Debit

$

Credit

$

Balance

$

Current – Burke Account

2017 $ $ $

30 Jun Balance 5 000 Dr

Profit and loss (Int. on adv.) GJ 80 5 080 Dr

P & L appro. (Int. on draw.) GJ 340 5 420 Dr

P & L appro. (Int. on cap.) GJ 4 000 1 420 Dr

P & L appro. (Profit share) GJ 16 000 14 580 Cr

Profit and Loss Account

2017

30 Jun Balance 79 730 Cr

Current – Burke (Int. on adv.) GJ 80 79 810 Cr

Current – Wills (Int. on loan) GJ 420 79 390 Cr

P & L appro. (Net profit) GJ 79 390 Nil

Current – Wills Account

2017


Profit and loss (Int. on loan) GJ 420 4 420 Cr

P & L appro. (Int. on draw.) GJ 270 4 150 Cr

P & L appro. (Unpaid salary) GJ 5 000 9 150 Cr

P & L appro. (Int. on cap.) GJ 2 000 11 150 Cr


Profit and Loss Appropriation Account

2017

30 Jun Profit and loss (Net profit) GJ 79 390 79 390 Cr

Sundries (Int. on Draw.) GJ 610 80 000 Cr

Sundries (Salaries paid) GJ 45 000 35 000 Cr

Current – Wills (Unpaid salary) GJ 5 000 30 000 Cr

Sundries (Int. on cap.) GJ 6 000 24 000 Cr

Sundries (Profit share) GJ 24 000 Nil

Salary – Burke Account

2017


P & L appro. GJ 25 000 Nil

Salary – Wills Account

2017



1.19


9


1.20 a)

Trevor & Jan

Statement of Comprehensive Income for the Year ended 30 June 2018 $ $ $ $

PROFIT AND LOSS

Income

Revenue (from ordinary activities)

Sales 268 000

less Sales returns 12 000

Total sales revenue 256 000

less Cost of sales

Stock, 1 July 2017 42 000

Purchases 96 000

less Purchases returns 6 000

Net purchases 90 000

Cost of goods available for sale 132 000

less Stock, 30 June 2018 33 600

Total cost of sales 98 400

Gross profit 157 600

add Other income (from ordinary activities)

Rent income 4 400

Commission income 2 700

Interest on advance to Jan 2 400

Total other income (from ordinary activities) 9 500

Gains (outside ordinary business activities) Nil

Total income 167 100

less Expenses and losses

Expenses (from ordinary activities)

Selling and distribution expenses

Cartage outwards 1 440

Advertising 3 900

Depreciation – vehicles (see note 1 below) 16 000

Total selling and distribution expenses 21 340

Administrative and general expenses

Printing and stationery 2 580

Donations 300

Long service leave 2 000

Legal costs 600

Office salaries 24 000

Rates and taxes 3 120

Total administrative & general expenses 32 600

Financial expenses

Bad debts (see note 1 below) 17 200

Discount expense 960

Interest expense 2 300

Doubtful debts 1 160

Interest on loan from Trevor 960

22 580

less Discount income 720

Total financial expenses 21 860

Total expenses (from ordinary activities) 75 800

Losses (outside ordinary business activities)

Loss on sale of business segment (see note 1 below) 20 000

Fire losses (see note 1 below) 12 000

Total losses (outside the ordinary activities of the business) 32 000

Total expenses and losses 107 800

Net profit 59 300

OTHER COMPREHENSIVE INCOME Gain on revaluation of premises 10 000

Comprehensive income 69 300



Notes to Statement of Comprehensive Income

Note 1 – Material items of expenses and losses Depreciation of delivery vehicles

During the year the business reassessed the effective life of its delivery vehicles resulting in an

additional amount of $10 000 depreciation.

Bad debts

Included in bad debts is an amount of $12 000 caused by the bankruptcy of a major debtor.

Loss on sale of business segment

During the year the business disposed of its branch in Bendigo at a loss of $20 000.

Fire losses

A fire in the stationery store at the firm’s head office during the year caused losses of $12 000.

1.20 b)

Trevor & Jan

Appropriation Statement for the Year ended 30 June 2018 $ $

Net profit 59 300

add Charges to partners

Interest on overdrawn current – Jan 700

60 000

less Partners’ entitlements

Salary – Trevor 15 000

– Jan 15 000

Interest on capital – Trevor 4 800

– Jan 3 200 38 000

Profit available for distribution 22 000

Distributed as follows: Trevor (60%) 13 200

Jan (40%) 8 800 22 000

11


1.20 c)

Trevor & Jan

Statement of Financial Position as at 30 June 2018 $ $ $ $ OWNERS’ EQUITY

Capital – Trevor 60 000

Current – Trevor 48 500 108 500

Capital – Jan 40 000

Current – Jan 8 900 48 900



ASSETS

Current assets

Bank 17 528

Petty cash advance 180

Stock of stationery 420



Prepaid expenses 300

Accrued income 700

Stock 33 600


Non-current assets


Vehicles – at cost 32 000

less Accumulated depreciation 24 000 8 000

Premises – at valuation 101 700


Intangibles

Goodwill 15 000

Total intangibles 15 000

Other financial assets

Advance to Jan 30 000

Total other financial assets 30 000



less LIABILITIES

Current liabilities


GST collected 7 000

less GST paid 4 500 2 500

Prepaid income 500



Loan from Trevor 12 000


Provision for long service leave 8 000



Net assets 157 400



1.21


1.22 a)

Raye & Ivan

Appropriation Statement for the Year ended 30 June 2016 $ $

Net profit 143 760

add Charges to partners

Interest on drawings – Raye 150

– Ivan 300 450

144 210

less Partners’ entitlements

Salary – Raye 40 000

– Ivan 40 000

Interest on capital – Raye 12 000

– Ivan 10 000 102 000

Profit available for distribution 42 210

Distributed as follows: Raye (50%) 21 105

Ivan (50%) 21 105 42 210

1.22 b)

Raye & Ivan

General Ledger (extract) Date Particulars Folio Debit Credit Balance

Current – Raye Account

2015 $ $ $

1 Jul Balance 4 000 Dr

2016

1 Jan Bank (Drawings) CPJ 2 000 6 000 Dr

31 Mar Bank (Drawings) CPJ 2 000 8 000 Dr

30 Jun Profit and loss (Int. on loan) GJ 1 680 6 320 Dr





1.23


13


1.24 a)

Luke, Kris & Miles


2017 $ $

30 Jun Profit and loss 1 400

Current – Kris 1 400






Current – Luke 9 000


Current – Miles 5 000




Salary entitlement as per Partnership Agreement.


Current – Kris 600

Current – Miles 200





Current – Miles 2 720


Distribution of loss after entitlements and charges, in the ratio

of capital account balances at 30 June 2016.

1.24 b)

Luke, Kris & Miles

General Ledger (extract) Date Particulars Folio Debit Credit Balance

Current – Miles Account

2016 $ $ $

1 Jul Balance 4 000 Dr

2017

30 Jun Drawings GJ 4 000 8 000 Dr



P & L appro. (Loss share) GJ 2 720 5 920 Dr



1.25 b)

Mitchell & O’Shea


2017 $ $

30 Jun Prepaid expenses 200

Advertising 200

Prepaid rates and taxes.

Insurance 100

GST paid 10

Accrued expenses 110

Accrued insurance.

Bad debts 600

GST collected 60

Accounts receivable control 660

Additional bad debt written off.

Depreciation – vehicles 14 720

Accumulated depreciation – vehicles 14 720

Depreciation charged at 20% p.a. using the reducing balance method.

Depreciation – equipment 5 400

Accumulated depreciation – equipment 5 400

Depreciation charged at 10% p.a. using the straight-line method.



Accrued long service leave.

Annual leave 1 000

Provision for annual leave 1 000

Accrued annual leave.

Accrued revenue 200

Interest on investments 200

Interest earned but not received.

Doubtful debts 360


Increase in allowance for doubtful debts.

Salaries – office 2 000


Accrued office salaries.

Sales 929 270

Purchases returns 1 740

Trading 931 010

Transfer to Trading account.

Trading 567 060

Purchases 454 960

Cartage inwards 7 000

Sales returns 1 100

Stock (1 July 2016) 104 000

Transfer to Trading account.

Stock (30 June 2017) 96 000

Trading 96 000

Stock on hand at 30 June 2017.

Trading 459 950


Transfer of Gross Profit.

Discount received 2 840



Transfer to Profit and Loss account.

15


Date Particulars Folio Debit Credit


Discount allowed 2 520

Cartage outwards 10 200

Advertising 9 400

Vehicle expenses 22 520


Insurance 1 200

Bad debts 2 400

Salaries – selling 124 000

Salaries – office 52 000

Salaries – delivery 30 000

Office expenses 15 200

Interest on mortgage loan 25 400




Annual leave 1 000

Doubtful debts 360

Transfer to Profit and Loss account.

Current – Mitchell 10 000

Current – O’Shea 12 000

Drawings – Mitchell 10 000

Drawings – O’Shea 12 000

Transfer to Current accounts.

Current – O’Shea 500

Profit and loss 500

Interest on advance at 10% p.a. as per Partnership Agreement.







Current – Mitchell 400

Current – O’Shea 480

Profit and loss appropriation 880







Salary – Mitchell 15 000

Salary – O’Shea 7 000

Transfer of salaries paid.




Unpaid salary entitlement as per Partnership Agreement.




Equal distribution of profit after entitlements and charges as per

Partnership Act.



Mitchell & O’Shea

General Ledger Date Particulars Folio Debit Credit Balance

Bank Account

2017 $ $ $


Capital – Mitchell Account

2017


Capital – O’Shea Account

2017


Current – Mitchell Account

2017


Drawings – Mitchell GJ 10 000 850 Dr

Profit and loss (Int. on loan) GJ 1 050 200 Cr

P & L appro. (Int. on draw.) GJ 400 200 Dr




Current – O’Shea Account

2017


Drawings – O’Shea GJ 12 000 17 500 Dr

Profit and loss (Int. on adv.) GJ 500 18 000 Dr



P & L appro. (Unpaid salary) GJ 3 000 12 480 Dr


Sales Account

2017


Trading GJ 929 270 Nil

Purchases Account

2017



Investments – Best Bonds Account

2017


Drawings – Mitchell Account

2017


Current – Mitchell GJ 10 000 Nil

Drawings – O’Shea Account

2017


Current – O’Shea GJ 12 000 Nil

17


Salary – Mitchell Account

2017



Salary – O’Shea Account

2007



Discount Income Account

2017


Profit and loss GJ 2 840 Nil

Discount Expense Account

2017



Accounts Receivable Control Account

2017


Bad debts & GST collected GJ 660 28 940 Dr

Accounts Payable Control Account

2017


Cartage Inwards Account

2017



Purchases Returns Account

2017



Cartage Outwards Account

2017



Sales Returns Account

2017



Interest on Investments Account

2017

30 Jun Balance 400 Cr

Accrued income GJ 200 600 Cr

Profit and loss GJ 600 Nil

Land and Buildings – at Cost Account

2017




Mortgage Loan on Land and Buildings Account

2017


Advance to O’Shea Account

2017


Loan from Mitchell Account

2017


Advertising Account

2017


Prepaid expenses GJ 200 9 400 Dr


Vehicle Expenses Account

2017



Rates and Taxes Account

2017



Insurance Account

2017


Accrued expenses GJ 100 1 200 Dr


Bad Debts Account

2017


Accounts receivable control GJ 600 2 400 Dr


Vehicles – at Cost Account

2017


Accumulated Depreciation – Vehicles Account

2017


Depreciation – vehicles GJ 14 720 33 120 Cr

Salaries – Selling Account

2017



Salaries – Office Account

2017


Accrued expenses GJ 2 000 52 000 Dr


19


Salaries – Delivery Account

2017



Office Expenses Account

2017



Equipment – at Cost Account

2017


Accumulated Depreciation – Equipment Account

2017


Depreciation – equipment GJ 5 400 27 000 Cr

Allowance for Doubtful Debts Account

2017

30 Jun Balance 800 Cr

Doubtful debts GJ 360 1 160 Cr

GST Paid Account

2017


Accrued expenses GJ 10 150 010 Dr

GST Collected Account

2017


Accounts receivable control GJ 60 249 940 Cr

Stock Account

2017

30 Jun Balance (1 July 2016) 104 000 Dr


Trading GJ 96 000 96 000 Dr

Interest on Mortgage Loan Account

2017



Prepaid Expenses Account

2017

30 Jun Advertising GJ 200 200 Dr

Accrued Expenses Account

2017

30 Jun Insurance GJ 110 110 Cr

Salaries – office GJ 2 000 2 110 Cr

Depreciation – Vehicles Account

2017

30 Jun Accum. deprec. – vehicles GJ 14 720 14 720 Dr




Depreciation – Equipment Account

2017

30 Jun Accum. deprec. – equipment GJ 5 400 5 400 Dr


Long Service Leave Account

2017

30 Jun Provision for long service leave GJ 10 300 10 300 Dr


Provision for Long Service Leave Account

2017

30 Jun Long service leave GJ 10 300 10 300 Cr

Annual Leave Account

2017

30 Jun Provision for annual leave GJ 1 000 1 000 Dr


Provision for Annual Leave Account

2017

30 Jun Annual leave GJ 1 000 1 000 Cr

Accrued Income Account

2017

30 Jun Interest on investments GJ 200 200 Dr

Doubtful Debts Account

2017

30 Jun Allowance for doubtful debts GJ 360 360 Dr

Profit and loss GJ 360 Nil

Trading Account

2017

30 Jun Sales GJ 929 270 929 270 Cr

Purchases returns GJ 1 740 931 010 Cr

Purchases GJ 454 960 476 050 Cr

Cartage inwards GJ 7 000 469 050 Cr

Sales returns GJ 1 100 467 950 Cr

Stock (1 July 2016) GJ 104 000 363 950 Cr

Stock (30 June 2017) GJ 96 000 459 950 Cr



2017

30 Jun Trading GJ 459 950 459 950 Cr

Discount income GJ 2 840 462 790 Cr

Interest on investments GJ 600 463 390 Cr

Discount expense GJ 2 520 460 870 Cr

Cartage outwards GJ 10 200 450 670 Cr

Advertising GJ 9 400 441 270 Cr

Vehicle expenses GJ 22 520 418 750 Cr

Rates and taxes GJ 2 600 416 150 Cr

Insurance GJ 1 200 414 950 Cr

Bad debts GJ 2 400 412 550 Cr

Salaries – selling GJ 124 000 288 550 Cr

Salaries – office GJ 52 000 236 550 Cr

Salaries – delivery GJ 30 000 206 550 Cr

21


Office expenses GJ 15 200 191 350 Cr

Interest on mortgage loan GJ 25 400 165 950 Cr

Depreciation – vehicles GJ 14 720 151 230 Cr

Depreciation – equipment GJ 5 400 145 830 Cr

Long service leave GJ 10 300 135 530 Cr

Annual leave GJ 1 000 134 530 Cr

Doubtful debts GJ 360 134 170 Cr

Current – O’Shea GJ 500 134 670 Cr

Current – Mitchell GJ 1 050 133 620 Cr


Profit and Loss Appropriation Account

2017

30 Jun Profit and loss GJ 133 620 133 620 Cr

Sundries (Interest on drawings) GJ 880 134 500 Cr

Sundries (Interest on capitals) GJ 7 800 126 700 Cr

Sundries (Salaries paid) GJ 22 000 104 700 Cr

Sundries (Unpaid salaries) GJ 8 000 96 700 Cr


c) Mitchell & O’Shea

Statement of Financial Position as at 30 June 2017 $ $ $ $

OWNERS’ EQUITY

Capital – Mitchell 80 000

Current – Mitchell 57 950 137 950

Capital – O’Shea 50 000

Current – O’Shea 35 870 85 870



ASSETS

Current assets

Bank 4 500



Stock 96 000

Prepaid expenses 200

Accrued income 200


Non-current assets


Land and buildings – at cost 280 000




Less Accumulated depreciation 27 000 27 000


Investments

Investments – Best Bonds 4 000

Total investments 4 000


Advance to O’Shea 5 000




less LIABILITIES

Current liabilities


GST collected 249 940



less GST paid 150 010 99 930


Provision for annual leave 1 000



Mortgage loan on land and buildings 130 000

Loan from Mitchell 15 000




Net assets 223 820

1.26 Reasons for the admission of a new partner (any four):

– Incoming partner’s capital will enable expansion of the business.

– Incoming partner may have special skills.

– A new partner may be admitted to ease the workload of the existing partners.

– Admitting a competitor into the partnership will increase market share.

– Admission of an employee into the partnership will provide career progression.

– Replacement of a retiring partner.

1.27 AASB 3 Business Combinations requires that the assets contributed by the new partner be recorded in the

books of the partnership at fair value. Any difference between the total value of the net assets contributed

by the new partner and the agreed purchase consideration paid by the new partner is treated as goodwill in

the books of the partnership. In subsequent, goodwill should be reduced in value if it can be established

that the future economic benefits arising from goodwill have been impaired in any way.

1.28 When a new partner is admitted to an existing partnership, that partner may:

1) make a personal payment to the existing partners in return for a share in the equity of the

partnership,

2) purchase a share in the equity of the partnership by contributing capital in cash, or

3) purchase a share in the equity of the partnership by contributing capital in the form of assets and

liabilities from an existing business.

1.29

Roger, Wally & Graeme


2017 $ $

1 Nov Capital – Roger 30 000

Capital – Wally 15 000

Capital – Graeme 45 000

Admission of Graeme for a one-third equity in the

partnership.

23


1.30

Pierre, Louise & Marcel

Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST

collected

Bank

Amount Account

2018 $ $ $ $ $

1 May Marcel 10 000 Capital – Marcel 10 000

1.31


1.32 It is necessary to revalue the assets of an existing partnership prior to the admission of a new partner

because:

1) The existing partners are entitled to reap the benefits of any unrecorded increase in the value of

their business.

2) It would be unfair to an incoming partner if any assets of the existing partnership were over-

valued, and that partner was required to share in any subsequent loss incurred on the disposal of

such assets.

1.33 The Capital Adjustment account is used to record any increases or decreases in the values of assets of an

existing partnership prior to the admission of a new partner, and to transfer the net gain or loss on

revaluation to the existing partners’ Capital accounts.

1.34


1.35 a)

John, Henry & Charles


2017 $ $

1 Jan Goodwill 20 000

Capital adjustment 20 000

Creation of goodwill prior to the admission of Charles.

Capital Adjustment 22 000

Stock 8 000

Accum. depreciation – motor vehicles 2 000

Allowance for doubtful debts 12 000

Decreases in asset values prior to the admission of Charles.

Capital – John 1 500

Capital – Henry 500

Capital adjustment 2 000

Loss on revaluation of assets shared in the ratio John 3:Henry 1.


Stock 34 000

Goodwill 14 000



Capital – Charles 60 000

Assets and liabilities contributed by Charles at agreed values.

Current – John 10 000


Current account balance transferred.



Capital – Henry 6 000

Current – Henry 6 000



Loan from John 8 500

Transfer of excess capital to loan account, to fix capitals in

agreed ratio.


collected

Bank

Amount Account

2017 $ $ $ $ $

1 Jan Charles Deakin 20 000 Capital – Charles

Henry Latrobe 6 500 Capital – Henry 26 500

b)

(Extract from) General Ledger

Date Particulars Folio Debit Credit Balance

Capital Adjustment Account

2017 $ $ $

1 Jan Goodwill GJ 20 000 20 000 Cr

Sundries GJ 22 000 2 000 Dr

Sundries GJ 2 000 Nil

Capital – John Account

2017

1 Jan Balance 80 000 Cr

Capital adjustment GJ 1 500 78 500 Cr

Current – John GJ 10 000 88 500 Cr

Loan from John GJ 8 500 80 000 Cr

Capital – Henry Account

2017


Capital adjustment GJ 500 79 500 Cr

Current – Henry GJ 6 000 73 500 Cr

Cash at bank CRJ 6 500 80 000 Cr

Capital – Charles Account

2017

1 Jan Cash at bank CRJ 20 000 20 000 Cr

Sundries GJ 60 000 80 000 Cr


2017


Capital – Charles CRJ 20 000 Nil

Capital – Henry CRJ 6 500 6 500 Dr

25


c) John, Henry & Charles

Statement of Financial Position as at 1 January 2017 $ $ $ $

OWNERS’ EQUITY


Capital – Henry 80 000

Capital – Charles 80 000



ASSETS

Current assets

Cash at bank 6 500



Stock 110 000


Non-current assets


Freehold land & buildings – at cost 130 000



Furniture & fittings – at cost 40 000



Intangibles

Goodwill 34 000




less LIABILITIES

Current liabilities


GST collected 6 000

less GST Paid 3 500 2 500




Loan from John 8 500



Net assets 240 000

1.36




1.37

Shelley, Norman & Ada

Statement of Financial Position as at 1 November 2017 $ $ $ $

OWNERS’ EQUITY

Capital –Shelley 288 000

Capital – Norman 192 000

Capital – Ada 96 000



ASSETS

Current assets

Cash at bank 42 400



Stock 79 200


Non-current assets







Intangibles

Goodwill 60 000




less LIABILITIES

Current liabilities







Mortgage loan 80 000



Net assets 576 000

1.38


27


1.39

Ivan, Penny & Marcus



2018 $ $ $

1 Feb Sundries (asset increases) GJ 70 000 70 000 Cr

Sundries (asset decreases) GJ 16 000 54 000 Cr

Accounts payable control GJ 24 000 30 000 Cr

Sundries (gain) GJ 30 000 Nil

Capital – Ivan Account

2018

1 Feb Balance 240 000 Cr


Current – Ivan GJ 50 000 308 000 Cr

Loan from Ivan GJ 8 000 300 000 Cr

Capital – Penny Account

2018

1 Feb Balance 160 000 Cr


Current – Penny GJ 10 000 162 000 Cr


Capital – Marcus Account

2018

1 Feb Sundries GJ 200 000 200 000 Cr

1.40

Glenn, Mark, Steve & Luke



2017 $ $ $

1 Jul Sundries (asset increases) GJ 30 000 30 000 Cr

Sundries (asset decreases) GJ 10 000 20 000 Cr

Sundries (gain) GJ 20 000 Nil

Capital – Glenn Account

2017


1 Jul Capital adjustment GJ 10 000 160 000 Cr

Capital – Mark Account

2017




Capital –Steve Account

2017



Loan from Steve GJ 15 000 80 000 Cr

Capital – Luke Account

2017

1 Jul Sundries GJ 84 000 84 000 Cr

Loan from Luke GJ 4 000 80 000 Cr



1.41

Fitzgibbon, Mullen & Mann

Statement of Financial Position as at 1 December 2016 $ $ $ $

OWNERS’ EQUITY

Capital –Fitzgibbon 156 000

Capital – Mullen 104,000

Capital – Mann 104 000



ASSETS

Current assets

Cash at bank 128 000



Stock 86 000


Non-current assets



Delivery vehicles – at cost 30 000


Furniture & equip. – at cost 24 000


Total property, plant & equipment 131 000

Intangibles

Goodwill 36 000




less LIABILITIES

Current liabilities


GST collected 7 000





Loan from Mullen 2 000



Net assets 364 000

1.42 Reasons for a general dissolution of partnership (any five):

a) The death of a partner.

b) The retirement of a partner due to age or ill-health.

c) Cessation of the partnership business due to:

– inadequate profitability

– increased competition

– difficulty in hiring employees or acquiring materials

– economic downturn

– cessation of the market for its products or services

– incompatibility of the partners.

– insolvency of one or more partners.

– a change of ownership structure to a company.

29


1.43 In a general dissolution, partnership assets must be distributed in the following order:

1. In paying the debts and liabilities of the firm to persons other than the partners.

2. In paying to each partner what is due from the firm for loans provided by the partner in addition to

capital.

3. In paying to each partner what is due from the firm in respect of capital contributed.

4. Any residue is to be distributed to partners in the proportion in which they share profits and losses.

1.44 The general dissolution process involves the following steps:

1. Partnership assets are disposed of.

2. Partnership liabilities are paid.

3. Any cash remaining is distributed to the partners.

1.45 The Realisation account is a special-purpose account that is opened when a partnership is dissolved. The

account is used to record all transactions related to the disposal of partnership assets, and to distribute the

profit or loss arising from the realisation process to partners’ Capital accounts.

1.46

Gary & Leonie


2018 $ $

1 Nov Cash at bank 2 000

Cash in registers 2 000

Transfer of balance due to dissolution of partnership.

Realisation 298 000


Stock 135 950

Shop premises – at cost 60 000


Shop furniture and equipment – at cost 16 000

Transfer of asset balances to Realisation account.


Accum. deprec. – motor vehicles 14 000

Accum. deprec. – shop furniture and equipment 8 000

Realisation 23 700

Transfer of account balances to Realisation account.

30 GST collected 50

Realisation 50

GST adjustment – uncollected debts.

GST adjusted – uncollected debts

Realisation 20 850

Capital – Gary 13 900

Capital – Leonie 6 950

Profit on realisation of assets shared between the partners in

the ratio 2:1.

Capital – Gary 6 000

Current – Gary 6 000


Current – Leonie 4 000

Capital – Leonie 4 000





collected

Bank

Amount Account

2008 $ $ $ $ $

15 Nov Realisation of assets

Accounts

receivable

55 500 Realisation

Stock 131 000 Realisation 13 100

Shop premises 88 500 Realisation 8 850

Motor vehicles 15 000 Realisation 1 500

Shop furn. & equip. 7 500 Realisation 750 321 700

297 500 24 200 321 700

Cash Payments Journal (simplified) Date Particulars Discount income Accounts

payable

control

Sundries GS

T

paid

Bank

Accounts

payable

control

GST

paid

Discount

income Amount

Account

2018 $ $ $ $ $ $ $

30 Nov Accounts

payable

550 50 500 99 450 99 450

Accrued

expenses

14 000 Accrued expenses 14 000

Realisation

expenses

2 900 Realisation 290 3 190

ATO 25 050 GST collected

(840) GST paid 24 210

Gary 135 900 Capital – Gary 135

900

Leonie 70 950 Capital – Leonie 70 950

550 50 500 99 450 223 750 290 323

490

* GST collected: $ $

Balance in account 1 November 900

GST collected to 15 November (CRJ) 24 200

GST adjustment on accounts receivable collections:

Accounts receivable balance 1 November 56 050

less Realisation proceeds (accounts receivable) 55 500

= Uncollected debts 550

divide by 11 (GST adjustment required) (50)

Final balance of account 25 050

# GST paid: $

Balance in account 1 November 600

GST paid to 30 November (CPJ) 290

GST adjustment on discount received (50)

Final balance of account 840




Realisation Account

2018 $ $ $

1 Nov Sundries (Assets) GJ 298 000 298 000 Dr

Sundries (Allow. D.D., etc.) GJ 23 700 274 300 Dr

15 Cash at bank (Asset proceeds) CRJ 297 500 23 200 Cr

30 Accounts payable control (Discount

income)

CPJ 500 23 700 Cr

Cash at bank (Realisation exp.) CPJ 2 900 20 800 Cr

GST collected (adjustment) GJ 50 20 850 Cr


Capital – Gary Account

2018

1 Nov Balance 128 000 Cr

30 Realisation (Profit) GJ 13 900 141 900 Cr

Current – Gary GJ 6 000 135 900 Cr

Cash at bank CPJ 135 900 Nil

Current – Gary Account

2018

1 Nov Balance 6 000 Dr

30 Capital – Gary GJ 6 000 Nil

Capital – Leonie Account

2018


30 Realisation (Profit) GJ 6 950 66 950 Cr

Current – Leonie GJ 4 000 70 950 Cr


Current – Leonie Account

2018


30 Capital – Leonie GJ 4 000 Nil


2018

1 Nov Balance 24 000 Dr

Cash in registers GJ 2 000 26 000 Dr

15 Realisation (Asset proc. + GST) CRJ 321 700 347 700 Dr

30 Accounts payable control CPJ 99 450 248 250 Dr

Accrued expenses CPJ 14 000 234 250 Dr

Realisation expenses + GST CPJ 3 190 231 060 Dr

GST collected CPJ 25 050 206 010 Dr

GST paid CPJ 840 206 850 Dr

Capital – Gary CPJ 135 900 70 950 Dr

Capital – Leonie CPJ 70 950 Nil


2018

1 Nov Balance 900 Cr

15 Cash at bank CRJ 24 200 25 100 Cr

30 Realisation GJ 50 25 050 Cr


127


GST Paid Account

2018

1 Nov Balance 600 Dr

30 Cash at bank CPJ 290 890 Dr

Accounts payable control CPJ 50 840 Dr

Cash at bank CPJ 840 Nil

1.47


1.48

Lyndal, Rebecca & Hayden


Accumulated Depreciation – Furniture Account

2007 $ $ $

16 Aug Balance 7 000 Cr

Realisation GJ 7 000 Nil

Accumulated Depreciation – Motor Vehicles Account

2007



Advance – Hayden Account

2007

16 Aug Balance 6 000 Dr

9 Sep Capital – Hayden GJ 6 000 Nil

Accounts Receivable Account

2007



Accounts Payable Account

2007


7 Sep Cash at bank CPJ 12 450 550 Cr

Realisation (Disc. rec. + GST)) CPJ 550 Nil

Furniture and Fittings – at cost Account

2007




2007

16 Aug Balance 500 Cr

Realisation GJ 500 Nil

Loan – Lyndal Account

2007


9 Sep Cash at bank CPJ Nil

Stock Account

2017





Land and Buildings – at cost Account

2017




2017


7 Sep Cash at bank CPJ 103 000 Nil

Capital – Lyndal Account

2017


9 Sep Realisation (Loss) GJ 8 980 31 020 Cr

Current – Lyndal GJ 1 500 32 520 Cr


Current – Lyndal Account

2017


9 Sep Capital – Lyndal GJ 1 500 Nil

Capital – Rebecca Account

2017



Current – Rebecca GJ 500 16 010 Cr


Current – Rebecca Account

2017


9 Sep Capital – Rebecca GJ 500 Nil

Capital – Hayden Account

2017



Advance – Hayden GJ 6 000 490 Dr

Current – Hayden GJ 8 000 8 490 Dr


Current – Hayden Account

2017


9 Sep Capital – Hayden GJ 8 000 Nil


2017


31 Realisation (Asset proc. + GST) CRJ 233 440 197 440 Dr

7 Sep Accounts payable CPJ 12 450 184 990 Dr

Mortgage loan CPJ 103 000 81 990 Dr

Accrued expenses CPJ 3 700 78 290 Dr

9 Realisation expenses + GST CPJ 1 100 77 190 Dr

Loan – Lyndal CPJ 16 500 60 690 Dr


GST paid CPJ 450 40 040 Dr

129


Capital – Lyndal CPJ 32 520 7 520 Dr

Capital – Rebecca CPJ 16 010 8 490 Cr

Capital – Hayden CRJ 8 490 Nil

Goodwill Account

2017




2017


7 Sep Cash at bank CPJ 3 700 Nil

Motor Vehicles – at cost Account

2017



Realisation Account

2017

16 Aug Sundries (Assets) GJ 244 000 244 000 Dr

Sundries (Accum. deprec., etc.) GJ 13 500 230 500 Dr

31 Cash at bank (Asset proceeds) CRJ 213 000 17 500 Dr

7 Sep Accounts payable control (Disc. inc.) CPJ 500 17 000 Dr

9 Cash at bank (Real. exp. + GST) CPJ 1 000 18 000 Dr

GST collected (Adjustment) GJ 40 17 960 Dr

Sundries (Loss share) GJ 17 960 Nil


2017



7 Sep Realisation GJ 40 21 100 Cr

9 Cash at bank CPJ 21 100 Nil

GST paid Account

2017

16 Aug Balance 400 Dr

7 Sep Accounts payable control CPJ 50 350 Dr

9 Cash at bank CPJ 100 450 Dr




1.49

Cheryl & John


2018 $ $

1 Jul Cash at bank 2 000

Cash on hand 2 000

Transfer of balance due to dissolution of partnership.

Realisation 500 400



Stock 84 100

Motor vehicle – at cost 36 000

Furniture and equipment – at cost 25 300

Goodwill 24 000

Transfer of asset balances to Realisation account.


Accumulated deprec. – motor vehicle 11 000

Accumulated deprec. – furniture and equip. 19 000

Realisation 33 500

Transfer of account balances to Realisation account.




Loan from Cathcart Finance 41 000

Capital – Cheryl 319 800

Liabilities taken over by Cheryl as per agreement.


Realisation 445 900

Assets taken over by Cheryl as per agreement.


Realisation 27 000

GST collected 2 700

Motor vehicle taken over by John as per agreement.

GST collected 300

Realisation 300

GST adjustment – uncollected debts.

Realisation 6 300



Profit on realisation of assets shared between the partners

in the ratio 2:1.

Loan from Cheryl 50 000


Loan balance transferred as per agreement.


Advance to John 70 000

Advance balance transferred as per agreement.

Current – Cheryl 26 500




Current – John 8 600


131



collected

Bank

Amount Account

2018 $ $ $ $ $

1 Jul John 46 200 Capital – John 46 200

46 200 46 200

Cash Payments Journal (simplified) Date Particulars Discount income Accounts

payable

control

Sundries GST

paid

Bank

Accounts

payable

control

GST

paid

Discount

income Amount

Account

2018 $ $ $ $ $ $ $

1 Jul ATO 4 400 GST collected

(1 000) GST paid 3 400

Cheryl 74 600 Capital – Cheryl 74 600

78 000 78 000

* GST collected: $ $

Balance in account 1 July 2 000

GST collected – motor vehicle 2 700

GST adjustment on debtor collections:

Accounts receivable balance 1 July 96 300


= Uncollected debts 3 300

x 10% (GST adjustment required) (300)

Final balance of account 4 400



2018 $ $ $


1 Jul Cash on hand GJ 2 000 31 800 Dr


GST paid CPJ 1 000 28 400 Dr

Capital – John CRJ 46 200 74 600 Dr

Capital – Cheryl CPJ 74 600 Nil

Capital – Cheryl Account

2018


1 Jul Sundries (Liabilities) GJ 319 800 439 800 Cr

Realisation (Assets + GST) GJ 445 900 6 100 Dr

Realisation (Profit) GJ 4 200 1 900 Dr

Loan from Cheryl GJ 50 000 48 100 Cr

Current – Cheryl GJ 26 500 74 600 Cr


Current – Cheryl Account

2018


1 Jul Capital – Cheryl GJ 26 500 Nil



Capital – John Account

2018


1 Jul Realisation (Motor vehicle + GST) GJ 29 700 30 300 Cr

Realisation (Profit) GJ 2 100 32 400 Cr

Advance to John GJ 70 000 37 600 Dr

Current – John GJ 8 600 46 200 Dr

Cash at bank CRJ 46 200 Nil

Current – John Account

2018


1 Jul Capital – John GJ 8 600 Nil

Cash on Hand Account

2018


1 Jul Cash at bank GJ 2 000 Nil


2018


1 Jul Realisation GJ 96 300 Nil


2018



Land and Buildings – at cost Account

2018




2018



Stock Account

2018



Motor Vehicle – at cost Account

2018



Accumulated Depreciation – Motor Vehicle Account

2018



Furniture and Equipment – at Cost Account

2018



133


Accumulated Depreciation – Furniture and Equipment Account

2018




2018




2018


1 Jul Capital – John GJ 2 700 4 700 Cr

Realisation GJ 300 4 400 Cr


GST Paid Account

2018


1 Jul Cash at bank CPJ 1 000 Nil


2018



Loan from Cheryl Account

2018



Goodwill Account

2018



Advance to John Account

2018


1 Jul Capital – John GJ 70 000 Nil

Loan from Cathcart Finance Account

2018



Realisation Account

2018

1 Jul Realisation (Assets) GJ 500 400 500 400 Dr

Sundries (Accum. deprec., etc.) GJ 33 500 466 900 Cr

Capital – Cheryl (Assets) GJ 445 900 21 000 Dr

Capital – John (Motor vehicle) GJ 27 000 6 000 Cr

GST collected (Adjustment) GJ 300 6 300 Cr





1.51

Janie, Edith & Gilbert


Motor Vehicles – at cost Account

2018 $ $ $

1 Jan Balance 42 000 Dr


Accumulated Depreciation – Motor Vehicles Account

2018




2018


8 Cash at bank CPJ 7 300 Nil

Goodwill Account

2018




2018


8 Sundry liabilities CPJ 32 530 104 530 Cr

31 Realisation (Asset sales + GST) CRJ 66 000 38 530 Cr

GST collected CPJ 42 440 80 970 Cr

GST paid CPJ 730 80 240 Cr

Capital – Janie CRJ 67 420 12 820 Cr

Capital – Edith CPJ 5 790 18 610 Cr

Capital – Gilbert CRJ 18 610 Nil

Capital – Janie Account

2018


Realisation (Shop prem. + GST) GJ 363 000 293 000 Dr

Mortgage loan GJ 206 000 87 000 Dr

31 Realisation (Loss) GJ 16 420 103 420 Dr

Loan from Janie GJ 33 000 70 420 Dr

Current – Janie GJ 3 000 67 420 Dr


Capital – Edith Account

2018


Realisation (Shop furniture + GST) GJ 22 000 13 000 Cr

31 Realisation (Loss) GJ 8 210 4 790 Cr

Current – Edith GJ 1 000 5 790 Cr


Capital – Gilbert Account

2018


Realisation (Accounts receivable) GJ 17 400 17 600 Cr

31 Realisation (Loss) GJ 8 210 9 390 Cr

135


Advance to Gilbert GJ 12 000 2 610 Dr

Current – Gilbert GJ 16 000 18 610 Dr


Current – Janie Account

2018


31 Capital – Janie GJ 3 000 Nil

Current – Edith Account

2018


31 Capital – Edith GJ 1 000 Nil

Current – Gilbert Account

2018


31 Capital – Gilbert GJ 16 000 Nil

Shop Premises – at cost Account

2018



Mortgage Loan on Shop Premises Account

2018


Capital – Janie GJ 206 000 Nil

Stock Account

2018



Loan from Janie Account

2018


31 Capital – Janie GJ 33 000 Nil


2018




2018




2018


8 Cash at bank CPJ 25 230 770 Cr

Realisation (Disc. rec. + GST) CPJ 770 Nil

Furniture and Equipment – at cost Account

2018





Accumulated Depreciation – Furniture and Equipment Account

2018



Advance to Gilbert Account

2018


31 Capital – Gilbert GJ 12 000 Nil

Realisation Account

2008

1 Jan Sundries (Assets) GJ 488 000 488 000 Dr


Capital – Janie (Shop premises) GJ 330 000 131 000 Dr

Capital – Edith (Shop furniture) GJ 20 000 111 000 Dr

Capital – Gilbert (Accounts

receivable)

GJ 17 400 93 600 Dr

8 Accounts payable (Discount) CPJ 700 92 900 Dr

31 Cash at bank (Asset proceeds) CRJ 60 000 32 900 Dr




2018


Capital – Janie (Shop premises) GJ 33 000 34 500 Cr

Capital – Edith (Shop. furn. &

equip.)

GJ 2 000 36 500 Cr


Realisation GJ 60 42 440 Cr


GST Paid Account

2018

1 Jan Balance 800 Dr

8 Accounts payable control (Disc.

inc.)

CPJ 70 730 Dr

31 Cash at bank CPJ 730 Nil

Workings – GST adjustment on uncollected debts:

$

Accounts receivable balance 1 January 18 060



÷ 11 (GST adjustment required) = (60)

1.52


137


1.53

Steven & Justine


Realisation Account

2017 $ $ $

1 Jul Sundries (Assets) GJ 89 600 89 600 Dr


Capital – Steven (Assets) GJ 21 000 27 800 Dr

Capital – Justine (Assets) GJ 15 000 12 800 Dr

Accounts payable (Discount) CPJ 90 12 710 Dr

31 Cash at bank (Asset proceeds*) CRJ 4 400 8 310 Dr



Capital – Steven Account

2017

1 Jul Balance 20 000 Cr



Current – Steven GJ 14 300 5 700 Cr


Capital – Justine Account

2017



Loan from Glenmark Inv. GJ 7 000 500 Cr

Advance to Justine GJ 11 100 10 600 Dr


Current – Justine GJ 3 200 16 550 Dr



2017


Cash on hand GJ 100 8 900 Cr

Sundry liabilities CPJ 2 701 11 601 Cr

31 Realisation (Accounts receivable – net) CRJ 4 370 7 231 Cr

GST collected CPJ 3 940 11 171 Cr

GST paid CPJ 321 10 850 Cr

Capital – Steven CPJ 5 700 16 550 Cr

Capital – Justine CRJ 16 550 Nil


2017

1 Jul Balance 400 Cr

Capital – Steven GJ 2 100 2 500 Cr

Capital – Justine GJ 1 500 4 000 Cr

31 Realisation # GJ 60 3 940 Cr


GST Paid Account

2017

1 Jul Balance 300 Dr

Accounts payable control (Discount) CPJ 9 291 Dr

31 Cash at bank (Realisation exp.) CPJ 30 321 Dr




*Net asset proceeds $4 700 – $300 = $4 400.

#GST adjustment on debtor collections:

$

Accounts receivable balance 1 July 5 360



divide by 11 (GST adjustment) = (60)

1.54 When a partnership is dissolved and one partner is insolvent, the Rule in Garner v. Murray states that

where the insolvent partner has a capital deficiency, the other partners should bear that deficiency in the

ratio of their capitals immediately before dissolution.

1.55

Wally, Roger & Ron a) Share of Ron’s capital deficiency: $ %

Ratio of capitals before dissolution:

Wally 50 000 62.5

Roger 30 000 37.5

80 000 100.0

Share of Ron’s deficiency:

Wally (62.5% of $16 000) 10 000

Roger (37.5% of $16 000) 6 000

16 000

b)


2018 $ $

30 Jun Capital – Wally 10 000

Capital – Roger 6 000

Capital – Ron 16 000

Transfer of Ron’s capital deficiency.

c)

Final amounts payable:

Wally $ Roger $

Capital balance (after dissolution entries) 42 500 24 000

less Share of Ron’s deficiency 10 000 6 000

= Final amount payable to partners 32 500 18 000

139


d)


Capital – Wally Account

2018 $ $ $


Capital – Ron GJ 10 000 32 500 Cr


Capital – Roger Account

2018


Capital – Ron GJ 6 000 18 000 Cr

Cash at Bank CPJ 18 000 Nil

Capital – Ron Account

2018


Sundries GJ 16 000 Nil

1.56




Chapter 2: Incomplete or single-entry systems

2.1 Naomi’s Needlework Shop

Date Particulars $ Date Particulars $

Accounts Receivable Control Account (Sales of Needlework Supplies)

2017 2018

1 Jul Balance 47 575 30 Jun Bank ($313 500 + GST) 344 850

2018 Bad debts & GST collected 9 240

30 Jun Sales of needlework

supplies & GST collected*

362 835 Balance 56 320

410 410 410 410

Sales of needlework supplies (excluding GST) = $362 835 x 10/11

= $329 850


Accounts Receivable Control Account (Alterations Income)

2017 2018


2018

30 Jun Alterations income & GST

collected*

33 000 Balance 3 300

37 400 37 400

Alterations income (excluding GST) = $33 000 x 10/11

= $30 000

2.2


2.3

Asian Gourmet Products Date Particulars $ Date Particulars $

Accounts Payable Control Account (Purchases of Stock)

2018 2017

30 Jun Bank ($14 500 plus GST) 15 950 1 Jul Balance 7 095

2018

Balance 5 665 30 Jun Purchases & GST paid* 14 520

21 615 21 615

Purchases of stock (excluding GST) = $14 520 x 10/11

= $13 200

141



Accounts Payable Control Account (Import Taxes)

2018 2017

30 Jun Bank ($5 500 plus GST) 6 050 1 Jul Balance 550

2018

Balance nil 30 Jun Import taxes & GST paid* 5 500

6 050 6 050

Import taxes (excluding GST) = $5 500 x 10/11

= $5 000


Accounts Payable Control Account (Telephone)

2018 2017


2018

Balance 1 320 30 Jun Telephone & GST paid* 13 420

14 520 14 520

Telephone (excluding GST) = $13 420 x 10/11

= $12 200

2.4 a)

Steer Stores Date Particulars $ Date Particulars $

Accounts Receivable Control Account (Sale of Stock)

2017 2018

1 Jul Balance 96 800 30 Jun Bank ($820 000 plus GST) 902 000

2018

30 Jun Sales & GST collected* 909 700 Balance 104 500

1 006 500 1 006 500

Sales of stock (excluding GST) = $909 700 x 10/11

= $827 000

b) Date Particulars $ Date Particulars $


2018 2017


2018


672 100 672 100

Purchases of stock (excluding GST) = $588 500 x 10/11

= $535 000



c) Date Particulars $ Date Particulars $

Accounts Payable Control Account (Advertising)

2018 2017

30 Jun Bank ($48 000 plus GST) 52 800 1 Jul Balance nil

2018

Balance 550 30 Jun Advertising & GST paid* 53 350

53 350 53 350

Advertising (excluding GST) = $53 350 x 10/11

= $48 500

2.5

Vin Wodeski Date Particulars $ Date Particulars $

Insurance Account

2016 2017

1 Jul Prepaid insurance 500 30 Jun Prepaid insurance 150

2017

30 Jun Bank 2 700 Profit and loss* 3 050

3 200 3 200

Prepaid Insurance Account

2016 2016

1 Jul Balance 500 1 Jul Insurance 500

2017

30 Jun Insurance 150

Insurance expense for year ended 30 June 2017 = $3 050

2.6


2.7 a)

Rayes Mini Mart Date Particulars $ Date Particulars $

Wages Account

2018 2017

30 Jun Bank 460 000 1 Jul Accrued wages 9 000

2018

Accrued wages 10 000 30 Jun Profit and loss* 461 000

470 000 470 000

Accrued Wages Account

2017 2017

1 Jul Wages 9 000 1 Jul Balance 9 000

2018

30 Jun Wages 10 000

Wages expense for year ended 30 June 2018 = $461 000

143


b) Date Particulars $ Date Particulars $

Advertising Account

2017 2018

1 Jul Prepaid advertising 1 500 30 Jun Prepaid advertising 1 800

2018

30 Jun Bank 16 000 Profit and loss* 15 700

17 500 17 500

Prepaid Advertising Account

2017 2017

1 Jul Balance 1 500 1 Jul Advertising 1 500

2018

30 Jun Advertising 1 800

Advertising expense for year ended 30 June 2018 = $15 700

c) Date Particulars $ Date Particulars $

Rent Income Account

2018 2017

30 Jun Prepaid rent income 500 1 Jul Prepaid rent income 300

2018

Profit and loss* 8 000 30 Jun Bank 8 200

8 500 8 500

Prepaid Rent Income Account

2017 2017

1 Jul Rent income 300 1 Jul Balance 300

2018

30 Jun Rent income 500

Rent income for year ended 30 June 2018 = $8 000

2.8

Milley Industries

Workings:

Sales of stock Date Particulars $ Date Particulars $

Accounts Receivable Control Account (Sales of Stock)

2017 2018

1 Jul Balance 1 760 30 Jun Bank ($80 750 plus GST) 88 825

2018 Bad debts & GST collected 440


91 465 91 465

Sales (excluding GST) = $89 705 x 10/11

= $81 550



Purchases of stock Date Particulars $ Date Particulars $


2018 2017


2018


43 340 43 340

Purchases (excluding GST) = $42 240 x 10/11

= $38 400 Advertising expense Date Particulars $ Date Particulars $

Accounts Payable Control Account (Advertising)

2018 2017

30 Jun Bank ($500 plus GST) 550 1 Jul Balance 110

2018

Balance 220 30 Jun Advertising & GST paid* 660

770 770

Purchases (excluding GST) = $660 x 10/11

= $600 Final balances of GST accounts

$

GST collected:

GST owed to ATO (extracted from BAS) 2 215

add GST included in accounts receivable balance at 30 June 2018 200

GST collected for inclusion in statement of financial position 2 415

GST paid:

GST owed by ATO (extracted from BAS) 2 050

add GST included in accounts payable balance at 30 June 2018 150

GST paid for inclusion in statement of financial position 2 200

Cash at bank

$

Bank balance 1 July 2017 1 540

add Receipts for year ended 30 June 2108 88 825

90 365

less Payments for year ended 30 June 2018 76 260

Bank balance 30 June 2018 14 105

Depreciation

$

Motor vehicles ($8 000 x 25%) 2 000

Buildings ($40 000 x 2%) 800

145


Accumulated depreciation – motor vehicles

$

Balance 1 July 2017 4 000

Depreciation for year ended 30 June 2018 2 000

Balance 30 June 2018 6 000

Accumulated depreciation – buildings

$


Depreciation for year ended 30 June 2018 800


Loan

$


Less principal repayments during the year ended 30 June 2018 1 800


2.8

a)

Milley Industries

Statement of Comprehensive Income for year ended 30 June 2018 $ $ $

PROFIT AND LOSS

Income


Sales 81 550

less Cost of sales

Stock, 1 July 2017 3 000

Purchases 37 400




Gross profit 41 270

Other income (from ordinary activities) nil

Gains (outside the ordinary activities of the business) nil

Total Income 41 270



Wages 6 700

Advertising 600

Interest on loan 200

Bad debts 400

Depreciation – motor vehicles 2 000

Depreciation – buildings 800

Total expenses from ordinary activities 10 700

Losses (outside the ordinary activities of the business) Nil


Net profit 32 750

OTHER COMPREHENSIVE INCOME Nil




b)

Milley Industries

Statement of Financial Position for year ended 30 June 2018 $ $ $ $

OWNERS’ EQUITY

Capital – A Milley 41 990

Add Comprehensive income 32 750

74 740

less Drawings – A Milley 20 000

Total owner’s equity 54 740


ASSETS

Current assets

Bank 14 105


Stock 3 300


Non-current assets








Total assets 74 805

less LIABILITIES

Current liabilities


GST collected 2 415

less GST paid 2 200 215



Loan (due 2026) 18 200



Net assets 54 740

c)

Milley Industries

General Journal Date Particulars Debit Credit

2018 $ $

1 Jul Bank 14 105


Stock 3 300



GST paid 2 200

Accumulated depreciation – motor vehicles 6 000

Accumulated depreciation – buildings 10 800


GST collected 2 415

Loan 18 200

Capital – A Milley 54 740

To convert accounting system to a double-entry system.

147


2.9


2.10

Galvin Products

Workings:



2016 2017




113 080 113 080


= $101 000

Freight income Date Particulars $ Date Particulars $

Accounts Receivable Control Account (Freight Income)

2016 2017

1 Jul Balance 220 30 Jun Bank ($4 000 + GST) 4 400

2017


4 510 4 510

Freight income (excluding GST) = $4 290 x 10/11

= $3 900

Final balances of GST accounts

GST collected:



GST paid:



Wages expense Date Particulars $ Date Particulars $

Wages Account

2017 2016

30 Jun Bank 15 000 1 Jul Accrued wages 200

2017

Accrued wages 250 30 Jun Profit and loss* 15 050

15 250 15 250




2016 2016

1 Jul Wages 200 1 Jul Balance 200

2017

30 Jun Wages 250


Mortgage loan

$


Less principal repayments during the year ended 30 June 2017 1 000


Depreciation – equipment

$

$15 000 x 10% 1 500

Accumulated depreciation – equipment

$

Balance 1 July 2016 Nil



Bank balance at 30 June 2017

$



116 200

less Payments for year ended 30 June 2017 109 000


149


a)

Galvin Products

Statement of Comprehensive Income for year ended 30 June 2017

PROFIT AND LOSS

Income


$ $ $

Sales 101 000

less Cost of sales

Stock, 1 July 2016 3 200

Purchases 48 000




Gross profit 57 700

Other income (from ordinary activities) Nil

Gains (outside the ordinary activities of the business) Nil

Total income 57 700



Wages 15 050

Interest on loan 900


Bad debts 100





Net profit 38 950



b)

Galvin Products


OWNERS’ EQUITY

Capital – P Galvin 10 800

add Comprehensive income 38 950

49 750

less Drawings – P Galvin 33 000



ASSETS

Current assets

Bank 7 200


Stock 4 000


Non-current assets






Total assets 27 780

less LIABILITIES

Current liabilities

Accrued wages 250



GST collected 2 880




Mortgage loan (due 2027) 9 000



Net assets 16 750

c)

Galvin Products


2017 $ $

1 Jul Bank 7 200


Stock 4 000


GST paid 1 100

Accumulated depreciation – equipment 1 500

Accrued wages 250

GST collected 2 880

Mortgage loan 9 000

Capital – P Galvin 16 750

To convert accounting system to double a double-entry system.

2.11

Redline Office Supplies

Workings:



2017 2017

1 Jan Balance 8 250 30 Jun Bank ($135 000 + GST) 148 500

Bad debts & GST collected 660

30 Jun Sales and GST collected* 147 180 Balance 6 270

155 430 155 430


= $133 800



2017 2017

30 Jun Bank ($86 000 + GST) 94 600 1 Jan Balance 5 390


100 760 100 760


= $86 700

151


Vehicle expenses Date Particulars $ Date Particulars $

Accounts Payable Control Account (Vehicle Expenses)

2017 2017

30 Jun Bank ($4 000 + GST) 4 400 1 Jan Balance 550

Balance 440 30 Jun Vehicle expenses & GST

paid*

4 290

4 840 4 840


= $3 900


$

GST collected:



GST paid:


add GST included in accrued power and light at 30 June 2018 42


Rent expense Date Particulars $ Date Particulars $

Rent Account

2017 2017

30 Jun Bank 5 300 30 Jun Prepaid rent 200


5 300 5 300

Prepaid Rent Account

2017

30 Jun Rent 200

Rent expense for 6 months ending 30 June 2017 = $5 100

Depreciation

$

Equipment ($15 500 x 10% x 6 months) 775

Vehicles ($10 000 x 15% x 6 months) 750

Accumulated Depreciation – equipment

$

Balance 1 Jan 2017 1 500

Depreciation for 6 months ended 30 June 2017 775




Accumulated Depreciation – vehicles

$

Balance 1 Jan 2017 Nil

Depreciation for 6 months ended 30 June 2017 750

Balance 30 June 2007 750

Bank balance at 30 June 2017

Balance 1 Jan 2017 13 500

add Receipts for 6 months ended 30 June 2017 148 500

162 000

less Payments for 6 months ended 30 June 2017 147 300


a)


Statement of Comprehensive Income for 6 months ended 30 June 2017

PROFIT AND LOSS

Income


$ $ $

Sales 133 800

less Cost of sales

Stock, 1 Jan 2017 15 800

Purchases 86 700




Gross profit 48 500

Other income (from ordinary activities) Nil


Total income 48 500



Rent 5 100

Wages 18 000

Rates 1 500

Vehicle expenses 3 900

Power and light 4 820

Depreciation – equipment 775

Depreciation – vehicles 750

Bad debts 600


Losses (outside the ordinary operations of the business) Nil


Net profit 13 055



153


b)



OWNERS’ EQUITY

Capital – A Douglas 57 580


70 635

less Drawings – A Douglas 15 000



ASSETS

Current assets

Bank 14 700


Stock 17 200

Prepaid rent 200

GST paid 3 172

less GST collected 2 820 352


Non-current assets





less Accumulated depreciation 750 9 250



Total assets 62 697

less LIABILITIES

Current liabilities


Accrued power and light 462



Net assets 55 635

2.12

Travis Stores

Workings



2017 2018



30 Jun Sales and GST collected* 188 320 Balance 5 610

192 720 192 720

Credit sales (excluding GST) = $188 320 x 10/11

= $171 200



Commission income Date Particulars $ Date Particulars $

Commission Income Account

2017 2018

1 Jul Accrued commission income

($880 x 10/11)

800 30 Jun Bank 10 500

2018 Accrued commission

income ($682 x 10/11)

620

30 Jun Profit and loss* 10 320

11 120 11 120

Accrued Commission Income Account

2017 2017

1 Jul Balance 880 1 Jul Commission income & GST

collected

880

2008

30 Jun Accrued commission income

and GST collected

682

Commission income for year ended 30 June 2018 = $10 320


$

GST collected:

Amount owed to ATO (extracted from BAS) 4 670

add GST included in accounts receivable at 30 June 2018 ($5 610 ÷ 11) 510

GST included in accrued commission at 30 June 2018 ($682 ÷ 11) 62


GST paid:

Amount owed by ATO (extracted from BAS) 2 700


Wages expense Date Particulars $ Date Particulars $

Wages Account

2018 2017

30 Jun Bank 30 000 1 Jul Accrued wages 398

Accrued wages 500 2018

30 Jun Profit and loss* 30 102

30 500 30 500


2017 2017

1 Jul Advertising & GST paid 398 1 Jul Balance 398

2018

30 Jun Wages 500


155


Loan

$


less Principal repayments during the year ended 30 June 2018 3 500


Depreciation

$

Fittings ($26 400 x 15%) 3 960

Buildings ($60 000 x 2%) 1 200

Accumulated depreciation – fittings

$




Accumulated depreciation - buildings

$




Bank balance

$



202 530

Less Payments for year ended 30 June 2018 214 670

Bank overdraft 30 June 2018 12 140

a)

Travis Stores

Statement of Comprehensive Income for the year ended 30 June 2018 $ $ $

PROFIT AND LOSS

Income


Sales 171 200

less Cost of sales

Stock, 1 June 2017 33 600

Purchases 95 000




Gross profit 76 600

Other income (from ordinary activities)

Commission income 10 320


Gains (outside the ordinary operations of the business) Nil

Total income 86 920





Advertising 4 500

Insurance 1 200

Interest 3 500

Wages 30 102

Bad debts 100

Depreciation – fittings 3 960

Depreciation – buildings 1 200




Net Profit 42 358



b)

Travis Stores


OWNERS’ EQUITY

Capital – T Beaumont 107 562




ASSETS

Current assets


Stock 34 000

Accrued commission income 682


Non-current assets


Fittings – at cost 30 000





Investments

Shares in HPL Ltd 60 000

Total investments 60 000



less LIABILITIES

Current liabilities


GST collected 5 242


Accrued wages 500 15 112

Total current liabilities


Loan (due 2050) 36 500



Net assets 149 920

157


2.13


2.14

Pina Wallis Workings



2017 2017

1 Jan Balance 2 750 30 Jun Bank ($39 000 + GST) 42 900



46 475 46 475


= $39 750

Freight income Date Particulars $ Date Particulars $

Accounts Receivable Control Account (Freight Income)

2017 2017

1 Jan Balance 220 30 Jun Bank ($4 500 + GST) 4 950

30 Jun Freight income & GST

collected*

5 060 Balance 330

5 280 5 280

Freight income (excluding GST) = $5 060 x 10/11

= $4 600

Office expenses Date Particulars $ Date Particulars $

Office Expenses Account

2017 2017

30 Jun Bank 1000 30 Jun Profit and loss* 1 030

Accrued office expenses ($33

x 10/11)

30

1 030 1 030

Accrued Office Expenses Account

2017

30 Jun Office expenses & GST

paid

33

Office expenses for the six months ended 30 June 2017 = $1 030

Depreciation – plant and equipment

$

$10 000 x 10% x 6 months 500

$3 000 x 10% x 4 months 100

600



2.14 2)

Pina Wallis

Statement of Comprehensive Income for six months ended 30 June 2017 $ $ $

PROFIT AND LOSS

Income


Sales 39 750

less Cost of sales

Stock, 1 Jan 2017 3 500

Purchases 22 500




Gross profit 17 750

Other income (from ordinary activities)

Freight income 4 600



Total income 22 350



Rates and taxes 750

Depreciation – plant and equipment 600

Discount expense 210





Net profit 19 720



2.15

Gus’s Clothing Shop

Workings

Charge account customer sales Date Particulars $ Date Particulars $

Unpaid Charge Account Customers Control Account

2018 2018

1 Jul Balance 880 31 Jul Bank 1 397


31 Jul Charge account sales & GST

collected*

1 639 Balance 1 067

2 519 2 519

Charge account sales (excluding GST) = $1 639 x 10/11

= $1 490

Total sales $

Cash sales ($1 320 + $1 595 + $1 353 + $1 650) x 10/11 5 380

Charge account sales 1 490

6 870

Sales returns

$

Cash sales returns ($44 + $22 + $33 + $11) x 10/11 100

159



Unpaid Supplier Accounts Control Account

2018 2018

31 Jul Bank 3 520 1 Jul Balance 495

Balance 440 31 Purchases & GST paid* 3 465

3 960 3 960


= $3 150

Insurance

11/12 of the GST-exclusive amount is prepaid, i.e. ($132 x 10/11) x 11/12 = $110.

Therefore insurance expense for the month of July 2018 is $10.

Advertising

The GST-exclusive amount of cheque 3547 ($80) is a prepaid expense.

Depreciation – furniture and equipment

$

$5 000 x 18% x 1 month 75

2.14 2)

Gus’s Clothing Shop

Statement of Comprehensive Income for month of July 2018 $ $ $

PROFIT AND LOSS

Income


Sales 6 870

less Sales returns 100 6 770

less Cost of sales

Stock, 1 Jul 2018 6 800

Purchases 3 150


less Stock, 31 Jul 2018 7 000


Gross profit 3 820


Total income 3 820



Advertising 90

Bad debts 50

Rent 250

Insurance 10

Wages 750

Depreciation - furniture and equipment 75




Net profit 2 595





Chapter 3: Not-for-profit organisations

3.1 Not-for-profit organisations are clubs and associations that are formed for the benefit of their

members and the community generally, and are not operated for the purpose of generating a profit.

3.2 Not-for-profit organisations are formed for a variety of purposes. They include sporting bodies

(bowling clubs, athletics clubs, etc.) and other common-interest groups (service clubs, field naturalist

clubs, etc.).


3.4 a) President:

chairperson of meetings, chief representative of the organisation.

b) Secretary:

responsible for detailed administrative matters (minutes of meetings, correspondence, etc.).

c) Treasurer:

maintains financial records, prepares financial reports.

d) Public officer:

represents an incorporated association in its dealings with the Government department

responsible for Incorporated associations (in Victoria this department is Consumer Affairs

Victoria).

3.5 Not-for-profit organisations belong to the community in general and as such are not owned by

individuals.

3.6 Accumulated funds in a not-for-profit organisation is the organisation’s accumulated ‘net worth’.

Accumulated funds change in the following circumstances:

Increase –

1. by the contribution of joining fees from new members of the organisation

2. by the organisation earning a profit on its operations.

Decrease –

1. by the refunding of joining fees to departing members

2. by the organisation incurring a loss on its operations.


3.8 The members of an unincorporated not-for-profit organisation can be held personally liable for the

debts of the organisation and for any harm caused to others by persons acting on behalf of the

organisation. On the other hand, the members of an incorporated association do not by reason of their

membership alone become liable to contribute towards the payment of the debts and liabilities of the

organisation.

3.9

161


a) Joining fees are amounts contributed by members when they first join an organisation. They are

of a non-recurrent nature and are added to Accumulated Funds in the accounting records.

b) Subscriptions are amounts paid annually by members who wish to renew their membership.

Subscriptions are treated as revenue in the accounting records.

3.10 a) A register of members is a record containing the name, address and subscription, and other details

relating to each member of an organisation.

b) A minute book is a record of the proceedings at all meetings of an organisation.

c) A correspondence file is a file containing copies of all inward and outward correspondence for an

organisation, as well as other important documents, such as the constitution and past financial

reports.

3.11 The implications of the New Tax System for not-for-profit organisations:

– Most not-for-profit organisations require an Australian Business Number (ABN).

– Organisations whose annual turnover is $150 000 or more must register for GST.

– Organisations are required to deduct PAYG Withholding from wages and salaries paid to

employees and from payments to suppliers who do not quote an ABN on an invoice.

– The above taxes must be reported by the submission of a periodic Business Activity Statement.

3.12 A cash book is a detailed record of all receipts and payments. It is the principal financial record

maintained by organisations that use a single entry recording system, and is part of the double-entry

accounting system used by other organisations.


3.14

North Sydney Chess Club


Subscriptions Income Account

2016 $ $ $

1 Jul Prepaid subscriptions income 140 140 Cr

Accrued subscriptions income 310 170 Dr

2017

30 Jun Bank (subscriptions received) 1 940 1 770 Cr

Prepaid subscriptions income 230 1 540 Cr

Accrued subscriptions income 260 1 800 Cr

The final balance in this account ($1 800 Cr) represents subscriptions income for the year ended 30

June 2017.



3.15


3.16

Mount Adelaide Gun Club



2018 $ $ $

30 Jun Loss on kiosk 600 600 Dr

Subscriptions income 4 210 3 610 Cr

Donations received 500 4 110 Cr

Profit from fund-raising 1 200 5 310 Cr

Casual wages 2 680 2 630 Cr

Rent of premises 2 600 30 Cr

Insurance 900 870 Dr

Gun hire income 3 700 2 830 Cr

Competition entry fees income 6 300 9 130 Cr

Bank interest 140 8 990 Cr

Honorariums 1 000 7 990 Cr

Administration expenses 860 7 130 Cr

Law suit costs 8 000 870 Dr

Miscellaneous expenses 330 1 200 Dr

The final balance in this account ($1 200 Dr) indicates that the Mount Adelaide Gun Club made a $1

200 operating loss for the year ended 30 June 2018.

3.17

North Sydney Chess Club

Statement of Receipts and Payments for the year ended 30 June 2017 $ $

Bank balance, 1 July 2016 580

add Receipts for year

Subscriptions 1 940

Supper takings 210

Entry fees 740

Bank interest 75

GST collected 289

Donations 200

Joining fees 80 3 534

4 114

less Payments for year

Room rental 480

Refreshments 180

Postage 375

Photocopying 620

Chess sets purchased 800

Advertising 110

Administration expenses 35

GST paid 260

GST remitted to ATO 40 2 900

= Bank balance, 30 June 2017 1 214


163


3.19

Bogong Valley View Workings:


2016 $ 2016 $

1 Jul Accrued subs. (reversal) ($330

x 10/11)

300 1 Jul Prepaid subs. (reversal) 180

2017 2017

30 Jun Prepaid subs. 220 30 Jun Bank (subs. received) 8 300

Subscriptions revenue * 8 060 Accrued subs ($110 x 10/11). 100

8 580 8 580

* Balancing item

Accounts Payable Account (Bar Purchases)

2017 2016

30 Jun Bank ($23 000 + GST) 25 300 1 Jul Balance 1 540

2017


27 060 27 060

* Balancing item


= $23 200

Accounts Payable Account (Light and Power)

2017 2016

30 Jun Bank ($380 + GST) 418 1 Jul Balance 220

2017

Balance 330 30 Jun Light & power & GST paid* 528

748 748

* Balancing item

Light and power (excluding GST) = $528 x 10/11

= $480

Bar Trading Account

2017 2017

30 Jun Bar stocks 1.7.16 13 000 30 Jun Bar sales 59 250

Purchases 23 200 Poker machine takings 6 700

Bar wages 12 000 Bar stocks 30.6.17 12 500

Profit * 30 250

78 450 78 450

* Balancing item

Note – it has been assumed that the operation of poker machines was an activity associated with the bar.

Annual Competition Trading Account

2007 2007

30 Jun Prizes 1 000 30 Jun Entry fees 4 000

Advertising 500

Profit * 2 500

4 000 4 000

* Balancing item

Rent (expense) Account

2017 $ 2017 $

30 Jun Bank 8 000 30 Jun Prepaid rent 350

Rent expense * 7 650

8 000 8 000

* Balancing item

* Balancing item



$

GST collected:

GST owed to ATO (extracted from Business Activity Statement) 2 071

add GST component of accrued subscriptions income at 30 June 2017 ($110 ÷ 11) 10


GST paid:

GST owed by ATO (extracted from Business Activity Statement) 840

add GST component of accounts payable at 30 June 2017 ($2 090 ÷ 11) 190


a)

Bogong Valley View


Bank balance, 1 July 2016 13 400


Subscriptions 8 300

Bar sales 59 250

Poker machine takings 6 700

Entry fees – annual competition 4 000

GST collected 7 875

Joining fees 500 86 625

100 025


Bar purchases 23 000

Bar wages 12 000

Rent 8 000

Light and power 380

Annual competition – prizes 1 000

– advertising 500

Investments 20 000

GST paid 3 288

GST remitted to ATO 4 186 72 354


b)

Bogong Valley View

Statement of Comprehensive Income for the Year ended 30 June 2017 $ $

PROFIT AND LOSS

Income


Subscriptions revenue 8 060

Bar profit 30 250

Profit from annual competition 2 500

Total revenue (from ordinary activities) 40 810

Gains (outside the ordinary activities of the club) Nil

Total income 40 810



Rent 7 650

Light and power 480


Losses (outside the ordinary activities of the club) Nil


Net profit 32 680


Net profit 32 680

165


c)

Bogong Valley View

Statement of Financial Position as at 30 June 2017

$ $ $ $

ACCUMULATED FUNDS

Balance, 1 July 2016 19 090

Add Joining fees 500


Total accumulated funds 52 270


ASSETS

Current assets

Cash at bank 27 671

Bar stocks 12 500

Accrued subscriptions income 110

Prepaid rent 350


Non-current assets

Investments 20 000


Total assets 60 631

less LIABILITIES

Current liabilities Accounts payable 2 090

Prepaid subscriptions income 220

GST collected 2 081




Loan 5 000



Net assets 52 270


3.21

Bullseye Rifle Club Workings:


2016 $ 2017 $


x 10/11)

20 30 Jun Bank (subs. received) 1 780

2017 Accrued subs. ($66 x 10/11) 60

30 Jun Prepaid subs. 20

Subscriptions revenue * 1 800

1 840 1 840

* Balancing item

Accounts Receivable (Shooting Equipment Sales) Account

2016 $ 2017 $



30 Jun Sales + GST collected* 7 964 Balance 792

8 657 8 657

* Balancing item

Sales of shooting equipment (excluding GST) = $7 964 x 10/11

= $7 240



Shooting Equipment Trading Account

2017 2017

30 Jun Stocks 1.7.16 7 500 30 Jun Sales 7 240

Purchases 6 200 Stocks 30.6.17 7 800

Bad debts 30

Profit * 1 310

15 040 15 040

* Balancing item

Calculation of stock loss – rental equipment:

$

Stock 1.7.16 5 300

+ Purchases 400

5 700

Stock 30.6.17 5 500

= Deficiency (stock loss) for year 200

Equipment Rental Trading Account 2017 2017

30 Jun Stock loss 200 30 Jun Rental receipts 740

Repairs 320

Profit * 220

740 740 * Balancing item

Calculation of cost of trophies used:

$

Trophies on hand 1.7.16 250

+ Purchases 510

760

Trophies on hand 30.6.17 180

= Cost of trophies used 580

Calculation of Depreciation of Furniture:

$2 000 X 12% = $240

Wages Account 2017 $ 2016 $

30 Jun Bank 700 1 Jul Accrued wages (reversal) 41

Accrued wages 50 2017

30 Jun Wages expense * 709

750 750

* Balancing item

Rent of Premises Account

2017 $ 2017 $

Jun 30 Bank 1 400 Jun 30 Prepaid rent 200

Rent expense * 1 200

1 400 1 400

* Balancing item

GST collected:

GST owed to ATO (extracted from Business Activity Statement) 181


GST component of accounts receivable at 30 June 2017 ($792 ÷ 11) 72

GST collected for inclusion in statement of financial position 259

167


GST paid:

GST owed by ATO (extracted from Business Activity Statement) 201

GST collected for inclusion in statement of financial position 201

a)

Bullseye Rifle Club


PROFIT AND LOSS

Income


Subscriptions income 1 800

Profit on equipment sales 1 310

Profit on equipment rental 220



Gains (outside the ordinary operations of the club) Nil

Total income 3 540



Cost of trophies used 580

Wages 709

Depreciation of furniture 240

Insurance 160

Rent of premises 1 200

Bank charges 10


Losses (outside the ordinary operations of the club) Nil


Net profit 641


Comprehensive income 641

b)

Bullseye Rifle Club


ACCUMULATED FUNDS



Net profit 641



ASSETS

Current assets

Cash at bank 2 501

Stocks – shooting equipment 7 800

Stocks – trophies 180

Accounts receivable 792


Prepaid rent 200


Non-current assets


Rental equipment – at cost 5 500

Furniture – at cost 2 000

less Accumulated

depreciation 240 1 760

Total property, plant & equipment 7 260




Investments 8 000



Total assets 26 799

less LIABILITIES

Current liabilities Prepaid subscriptions income 20

Accrued wages 220

GST collected 259

less GST paid 201 58

Total current liabilities 128


Loan 5 000



Net assets 21 671

3.22

Torquay Bay Sporting Club Workings:

Subscriptions Income Account 2018 $ 2018 $


x 10/11)


2019 2019

30 Jun Prepaid subs. 250 30 Jun Bank (subs. received) 13 500

Subscriptions income * 13 700 Accrued subs. ($660 x 10/11) 600

14 450 14 450

* Balancing item

Sporting Goods Trading Account 2019 2019

30 Jun Stock 1.7.18 6 500 30 Jun Sales 93 100

Purchases 54 000 Stock 30.6.19 7 300

Profit * 39 900

100 400 100 400

* Balancing item

GST collected:


add GST component of accrued subscriptions income at 30 Jun 2019 ($660 ÷ 11) 60


GST paid:

GST owed by ATO (extracted from Business Activity Statement) 1 820


Calculation of Depreciation of Plant and Equipment:

$74 000 X 15% = $11 100

Calculation of Accumulated Funds at 1 July 2018:

$ $ $

Assets at 1 July 2018


Stock of sporting goods 6 500

Cash at bank 1 800

169


Plant and equipment (carrying amount) 57 350 66 200

less Liabilities at 1 July 2018

Prepaid subscriptions revenue 350

GST collected 2 700

GST paid (1 800) 900 1 250

= Accumulated Funds at 1 July 2018 64 950

a)

Torquay Bay Sporting Club


Bank balance, 1 July 2018 1 800


Sales of sporting goods 93 100

Subscriptions 13 500


Joining fees 1 500

Levies 2 500 121 660

123 460


Purchases of sporting goods 54 000

Repairs and maintenance 3 000

Management expenses 18 000

Affiliation fees 1 200

GST paid 7 620

GST remitted to ATO 4 110

Investment in 5-year bonds 28 000 115 930


b)



PROFIT AND LOSS

Income



Profit on sales of sporting goods 39 900


Gains (outside the ordinary activities of the club) Nil

Total income 53 600



Depreciation of plant and equipment 11 100


Management expenses 18 000

Affiliation fees 1 200




Net profit 20 300





c)



$ $ $ $

ACCUMULATED FUNDS


Add Joining fees 1 500

Levies 2 500




ASSETS

Current assets


Stock of sporting goods 7 300

Cash at bank 7 530


Non-current assets


Plant and equipment

– at cost 74 000

less Accumulated

depreciation 27 750 46 250



Investments in 5 year

bonds 28 000



Total assets 89 740

less LIABILITIES


GST collected 2 060


Total current liabilities 490

Total liabilities 490

Net assets 89 250

3.23

Royal Axedale Golf Club a) Income from Subscriptions:


1 Jul Accrued subs. (reversal) (10 x

$100)

1 000 30 Jun Bank (subs. received) (140 x

$100)

14 000

2017

30 Jun Prepaid subs. (10 x $100) 1 000

Subscriptions income * 12 000

14 000 14 000

* Balancing item

Note that the above answer could also be obtained by multiplying the total number of members by the

subscription fee per member (excluding GST), i.e. 120 X $100 = $12 000.

171


b) Profit from Pro Shop trading:

Pro Shop Accounts Receivable Account 2016 2017

1 Jul Balance 2 120 30 Jun Bank 104 500

2017 Bad debts 220

30 Jun Sales + GST collected * 108 900 Balance 1 800

111 020 111 020

*Balancing item


= $99 000

Pro Shop Trading Account 2017 2017


Purchases 45 000 Stock 30.6.17 5 800

Bad debts 200

Wages of professional 25 000

Profit * 29 600

104 800 104 800

*Balancing item

Profit from pro shop trading $22 800.

c) Overall Net Profit or Net Loss for the year:

$ $

Income for year


Profit from pro shop trading 29 600

Green fees 14 700

Fund raising 1 800

Interest 750 58 850

less Expenses for year

Greenkeeper’s wages 26 800

Sundry administration costs 1 200 28 000

Net profit/Comprehensive income 30 850


3.25

Image Weight Control Club

Workings:



x 10/11)


2018 2018

30 Jun Subscriptions income * 1 560 30 Jun Bank (subs. received) 1 500

Accrued subs. (3 x $33 x

10/11)

90

1 680 1 680

* Balancing item



Diet Literature Trading Account 2018 2018

30 Jun Stock 1.7.17 85 30 Jun Sales [$800 + ($11 * 10/11) ] 810

Purchases 430 Stock 30.6.18 70

Profit * 365

880 880

*Balancing item

Accounts Payable (Prizes) Account 2018 $ 2017 $

30 Jun Bank ($1 200 + GST) 1 320 1 Jul Balance 66

Balance 77 2018

30 Jun Purchases + GST paid * 1 331

1 397 1 397

* Balancing item

Cost of Prizes Account 2018 $ 2018 $

30 Jun Stock 1.7.17 350 30 Jun Stock 30.6.18 200

Purchases

(10/11 x $1 331)

1 210

Cost of prizes * 1 360

1 560 1 560

* Balancing item

Rent (expense) Account 2018 $ 2017 $

30 Jun Bank 500 1 Jul Accrued rent (reversal) ($33 x

10/11)

30

2018

30 Jun Rent expense * 470

500 500

* Balancing item

Calculation of depreciation of furniture:

$1 000 X 15% = $150

Image Weight Control Club


PROFIT AND LOSS

Income



Profit in diet literature 365

Members’ fines 250


Gains (outside the ordinary operations of the club) Nil

Total income 2 175



Cost of prizes 1 360

Rent 470

Depreciation of furniture 150

Repairs 210


Losses (outside the ordinary operations of the club) Nil


Net profit 5


Comprehensive income 5

173


3.26

Rockers Football Club Workings:

Calculation of Accumulated Funds at 1 January 2017:

$ $

Assets at 1 January 2017 Cash at bank 1 000


Equipment (carrying amount) 11 000

Bar stock 1 200 13 497

less Liabilities at 1 January 2017

Accounts payable – bar purchases 770

Prepaid subscriptions income 300

GST collected 1 100

GST paid (1 000)

Debentures 5 500 6 670

= Accumulated Funds at 1 January 2007 6 827

Accounts Payable (Bar Purchases) Account 2017 $ 2017 $

31 Dec Bank ($12 000 + GST) 13 200 1 Jan Balance 770

Balance 990 31 Dec Purchases & GST paid* 13 420

14 190 14 190

* Balancing item

Bar purchases (excluding GST) = $13 420 x 10/11

= $12 200

Debenture Interest (expense) Account 2017 $ 2017 $

31 Dec Bank 700 31 Dec P & L (expense) 750

Accrued interest * 50

750 750

* Balancing item

Equipment: Accumulated depreciation of equipment:

$ $

Balance 1.1.17 12 500 Balance 1.1.17 1 500

+ Purchases 7 000 + Depreciation 1 150

+ Balance 31.12.17 19 500 + Balance 31.12.17 2 650

GST collected: $




GST paid:

GST owed by ATO (extracted from Business Activity Statement) 1 010

add GST component of accounts payable at 30 June 2017 ($990 ÷ 11) 90




Rockers Football Club

Statement of Financial Position as at 31 December 2017 $ $ $ $

ACCUMULATED FUNDS

Balance, 1 January 2017 6 827





ASSETS

Current assets

Cash at bank 7 366


Bar stocks 1 500


Non-current assets

Property, plant and equipment Equipment – at cost 19 500

less Accum. deprec. 2 650



Total assets 25 892

less LIABILITIES


Debenture interest accrued 50

GST collected 1 235




Debentures 5 500



Net assets 19 127

3.27

Riverside Bowling Club Workings:


1 Jul Accrued subs. (reversal) 110 1 Jul Prepaid subs. (reversal) 150

2019 2019 Bank (subs. received) 6 500

30 Jun Prepaid subs 175 30 Jun

Subscriptions income* 6 505 Accrued subs. 140

6 790 6 790

* Balancing item

Accounts Receivable (Bowling Equipment Sales) Account 2018 $ 2019 $


2019 Balance 2 090

30 Jun Sales + GST collected * 47 025

48 675 48 675

* Balancing item

Bowling equipment sales (excluding GST) = $47 025 x 10/11

= $42 750

175


Bowling Equipment Trading Account 2019 2019


Purchases 22 000 Stock 30.6.19 4 500

Sales returns 1 150

Profit 19 900

45 400 45 400

*Balancing item

Riverside Bowling Club


PROFIT AND LOSS

Income



Profit from sales of bowling equipment 19 900


Income (outside the ordinary activities of the club) Nil

Total income 26 405




Administration expenses 2 300




Net profit 21 605




3.29

Southend Golf Club

a) Subscriptions income for the year ended 30 June 2018:


1 Jul Accrued subs. (reversal) 1 650 1 Jul Prepaid subs. (reversal) 210

2018 2018

30 Jun Prepaid subs 300 30 Jun Bank (subs. received) 38 000

Subscriptions income * 37 760 Accrued subs. 1 500

39 710 39 710

* Balancing item

b) Profit from Bar Trading for the year ended 30 June 2018:

Accounts Receivable (Bar Sales) Account 2017 $ 2018 $


2018

30 Jun Sales + GST collected * 119 350 Balance 660

119 790 119 790

* Balancing item



Bar sales (excluding GST) = $119 350 x 10/11

= $108 500

Bar Trading Account 2008 2018


Purchases 88 500 Gaming machine takings 46 000

Wages 40 000 Stock 30.6.18 3 900

Profit * 26 400

158 400 158 400

*Balancing item

177


Chapter 4: Primary producers

4.1

A primary producer is a person who engages in a business of primary production. Primary production

involves farming activities and includes the growing of crops through the cultivation of the land and

the breeding of animals for the purpose of selling their bodily produce.

4.2

The three main problems in accounting for primary producers are:

1. primary production is seasonal in nature

2. the nature of the product is continually changing

3. lack of economic date on which to make comparisons.

4.3 Primary producer diary – a chronological record of things such as paddock usage, crop statistics,

weather details, livestock prices and other information considered relevant.

Livestock books – record details of purchases, sales, deaths and natural increase of livestock as well

as numbers killed for consumption on the property.

Shearers’ Tally book – records the number of sheep shorn by each shearer each day.

Wool book – records the number of bales of wool from each shearing, a description of the wool and

its class.

Wages book – records details of wages paid to employees.

4.4

A primary producer maintains the same journals as a wholesale/retail business. The column headings

are tailored to suit individual circumstances. In addition, a primary producer also maintains a Stores

Issues Journal to record issues of stores.

4.5

Agistment – one primary producer provides grazing rights to another in return for a fee.

Natural increase – offspring of livestock.

Rations – livestock killed for consumption by the owner, employees or contractors.

Stores – food, household items and other supplies kept on a primary production property.

Average cost – the method used to value livestock on hand at the end of an accounting period. It is the

weighted average cost of the livestock on hand at the beginning of the period plus purchases and

natural increase during the period.



4.6 a)

Cruickshank Farm


2017 $ $

30 Jun Rations 1 532

Cattle working 1 532

To record 24 cattle killed for rations

Skins and hides 300

Cattle working 300

To record skins and hides recovered from dead cattle

b)

Cruickshank Farm

Cattle Working Account Date Particulars Debit Credit Balance

No. $ No. $ No. $

2017

30 Jun Stock 1/7/16 1 120 78 400 1 120 78 400 Dr

Purchases 440 35 200 1 560 113 600 Dr

Natural increase 320 1 880 113 600 Dr

Sales 640 96 000 1 240 17 600 Dr

Deaths 20 1 220 17 600 Dr

Skins and hides 300 1 220 17 300 Dr

Rations 24 1 532 1 196 15 768 Dr

Missing 6 1 190 15 768 Dr

Stock 30/6/17 1 190 79 957 Nil 60 189 Cr

Profit and loss 60 189 Nil

Stock 30/6/18

No. $

Stock 1/7/17 1 120 78 400

Purchases 440 35 200

Natural increase 320 6 400

1 880 120 000

Average cost = $120 000 divided by 1 880

= $63.8298 per head

Stock 30/6/18 = 1 190 x $63.8298

= $75 957

4.7


179


4.8 a)

Argus Tuft


2017 $ $

30 Jun Wages payable 7 460

Rations 8 360

Drawings 1 980

Growing wheat 20 350

Other operating expenses 4 980

Stores 42 950

GST paid 180

Issues of stores for the year ended 30 June 2017

b)

Argus Tuft

General Ledger

Stores Account Date Particulars Debit Credit Balance

2017 $ $ $

30 Jun Stock - stores 1/7/16 11 950 11 950 Dr

Purchases of stores 42 460 54 590 Dr

Wages payable 7 460 47 130 Dr

Rations 8 360 38 770 Dr

Drawings – A Tuft 1 800 36 970 Dr

Growing wheat 20 350 16 620 Dr

Other operating expenses 4 980 11 640 Dr

Stock - stores 30/6/17 13 740 2 100 Cr


4.9 a)

Barron’s Cattle Station


2017 $ $

30 Jun Rations 6 165

Cattle working 6 165

To record cattle killed for rations

Wages payable 6 360

Accounts payable (fencing contractor) 2 120

Drawings - Barron 5 460

Rations 13 740

GST paid 200

To record issues of rations

Skins and hides 1 650

Rations 1 650

To record skins and hides recovered from cattle killed

for rations

Stock – rations 1 800

Rations 1 800

Stock of rations on hand 30/6/17



b)

Barron’s Cattle Station

General Ledger

Rations Account Date Particulars Debit Credit Balance

2017 $ $ $

30 Jun Stock – rations 1/7/16 1 510 1 510 Dr

Stores 6 200 7 710 Dr

Cattle working 6 165 13 875 Dr

Wages payable 6 360 7 515 Dr

Accounts payable (fencing contractor) 2 120 5 395 Dr

Skins and hides 1 650 3 745 Dr

Drawings - Barron 5 260 1 515 Cr

Stock – rations 30/6/17 1 800 3 315 Cr


4.10


4.11

Julie Adams

General Ledger

Wool Working Account Date Particulars Debit Credit Balance

2018 $ $ $

30 Jun Stock – wool 1/7/17 22 360 22 360 Dr

Shearing costs 19 650 42 010 Dr

Depreciation – shearing equipment 5 200 47 210 Dr

Rations 1 300 48 510 Dr

Stores 800 49 310 Dr

Sales 65 480 16 170 Cr

Freight – wool 3 100 13 070 Dr

Agents fees – sale of wool 5 250 7 820 Dr

Stock – wool 30/6/18 14 500 22 320 Dr


4.12

Goulburn Valley Cattle Grazing

General Ledger

Skins and Hides Account Date Particulars Debit Credit Balance

2017 $ $ $

30 Sep Stock – skins and hides 1/10/16 2 200 2 200 Dr

Rations 1 900 4 100 Dr

Sales – skins and hides 3 250 850 Dr

Agents fees – sales of skins and hides 260 1 110 Dr

Other expenses – sales of skins and hides 350 1 460 Dr

Stock – skins and hides 30/9/17 3 100 1 640 Cr



181


4.14

Jenny Wong

Growing Wheat (2016 Crop) Date Particulars Debit Credit Balance

2016 $ $ $

30 Jun Stock – seed 74 600 74 600 Dr

Soil preparation expenses 62 600 137 200 Dr

Stores 94 300 231 500 Dr

Planting costs 68 500 300 000 Dr

2017

30 Jun Harvesting costs 125 000 425 000 Dr

Wheat working 425 000 Nil

Wheat Working Account Date Particulars Debit Credit Balance

2017 $ $ $ 30 Jun Growing wheat – 2016 crop 425 000 425 000 Dr

Delivery expenses 12 000 437 000 Dr

Sales 810 000 373 000 Cr

Stock – seed 78 400 451 400 Cr


4.15 a)

Flashwood Farm

General Ledger

Growing Wheat Account (2017 Crop) Date Particulars Debit Credit Balance

2017 $ $ $

31 Dec Stock – seed 10 200 10 200 Dr

Stores 13 600 23 800 Dr


Planting expenses 5 100 32 700 Dr

Depreciation- plant 4 200 36 900 Dr

Depreciation – harvester 5 200 42 100 Dr

2018

31 Dec


Growing Wheat Account (2018 Crop) Date Particulars Debit Credit Balance

2018 $ $ $

31 Dec

Stock – seed 11 000 11 000 Dr

Stores 14 700 25 700 Dr


Planting expenses 4 800 34 600 Dr

Depreciation- plant 3 900 38 500 Dr

Depreciation – harvester 4 800 43 300 Dr

b)


2018 $ $ $

31 Dec

Growing wheat (2017 crop) 42 100 42 100 Dr

Stock – seed 11 200 30 900 Dr

Sales – wheat 28 000 2 900 Dr




4.16

Graham Pemberton

General Ledger

Hay and Chaff Working Account Date Particulars Debit Credit Balance

2017 $ $ $

31 Dec

Stock – hay and chaff 1/1/17 3 600 3 600 Dr

Hay cutting & baling expenses 18 450 22 050 Dr

Depreciation – equipment 6 200 28 250 Dr

Freight and storage of hay 1 600 29 850 Dr

Sales – hay and chaff 22 400 7 450 Dr

Stock – hay and chaff 31/12/17 6 300 1 150 Dr


4.17

Woolly Wilson

General Ledger

Profit and Loss Account Date Particulars Debit Credit Balance

2017 $ $ $

31 Mar Sheep working 14 935 14 935 Dr

Stores 2 880 12 055 Dr

Wool working 69 500 57 916 Cr

Skins and hides 1 010 58 926 Cr

Interest received 480 59 406 Cr

Interest 8 280 51 126 Cr

Rates and taxes 5 210 45 916 Cr

Insurance 8 680 37 236 Cr

Salaries and wages 32 000 5 236 Cr

General farm operating expenses 30 650 25 414 Dr

Vehicle expenses 8 410 33 824 Dr

Depreciation – plant & equipment 7 100 40 924 Dr

Depreciation – motor vehicles 7 978 48 902 Dr

Depreciation – buildings 4 400 53 302 Dr

Capital – W Wilson 53 302 Nil

4.18 a)

J Steer


INCOME

Income


Profit from cattle trading 220 600

Stores 2 400

Hay and chaff 25 600

Skins and hides 12 520

Agistment 23 450






General working expenses

Rations 500

Wages 48 600

Repairs and maintenance – vehicles 8 200

Repairs and maintenance – general 5 200

183



Depreciation – plant and equipment 11 200

Depreciation – fences, gates and grids 2 300


General farm expenses 4 000

Total general working expenses 100 920

Administrative expenses



Total administrative expenses 11 700

Financial expenses

Interest 9 600





Net profit 162 350



b)

J Steer


OWNER’S EQUITY

Capital – J Steer 486 560


648 910

less Drawings – J Steer 20 000



ASSETS

Current assets

Cattle on hand 325 000

Hay and chaff on hand 8 420

Stores on hand 3 640

Rations on hand 800

Prepaid expenses 5 600



Non-current assets


Land – at cost 520 000

Buildings – at cost 225 000


Plant and equipment – at cost 83 900




Fences, gates and grids – at cost 45 800




Total assets 1 180 410

Less LIABILITIES



Current liabilities








Loan – Bank of Moula (due 2030) 420 000



Net assets 628 910

4.19 a)

Ahmed Hussein

General Ledger

Sheep Working Account Date Particulars Debit Credit Balance

No. $ No. $ No. $

2017

31 Mar Sheep on hand 1/4/16 500 12 500 500 12 500 Dr

Purchases – sheep 1 500 45 000 2 000 57 500 Dr


Sales – sheep 2 000 20 000 800 37 500 Dr

Agent’s fees –sheep sales 1 000 800 38 500 Dr

Rations 5 108 795 38 392 Dr

Deaths 500 5 000 295 33 392 Dr

Missing 5 290 33 392 Dr

Sheep on hand 31/3/17 290 6 287 Nil 27 105 Dr


Sheep on hand 31/3/17

No. $

Stock 1/4/16 500 12 500

Purchases 1 500 45 000


2 800 60 700


= $21.6786 per head

Stock 31/3/17 = 290 x $21.6786

= $6 287

Rations = 5 x $21.6786

= $108

185


Cattle Working Account Date Particulars Debit Credit Balance

No. $ No. $ No. $

2017

31 Mar Cattle on hand 1/4/16 200 28 000 200 28 000 Dr

Purchases – cattle 600 87 000 800 115 000 Dr


Sales – cattle 1 000 150 000 200 35 000 Cr

Agent’s fees – cattle sales 6 300 200 28 700 Cr

Rations 5 513 195 29 213 Cr

Missing 5 190 29 213 Cr

Cattle on hand 31/3/17 190 19 475 Nil 48 688 Cr


Cattle on hand 31/3/7

No. $

Stock 1/4/66 200 28 000

Purchases 600 87 000


1 200 123 000


= $102.50 per head

Stock 31/3/17 = 190 x $102.50

= $19 475

Rations = 5 x $102.50

= $513

Wool Working Account Date Particulars Debit Credit Balance

2017 $ $ $

31 Mar Wool on hand 1/4/16 5 000 5 000 Dr

Shearing expenses 8 900 13 900 Dr

Rations 124 14 024 Dr

Depreciation – shearing plant and equipment 3 450 17 474 Dr

Sales – wool 22 000 4 526 Cr

Agent’s fees – wool sales 1 200 3 326 Cr

Wool on hand 31/3/17 4 200 7 526 Cr




b)

Ahmed Hussein

Statement of Comprehensive Income for year ended 31 March 2017 $ $ $

PROFIT AND LOSS

Income


Profit – cattle 48 688

Profit – wool 7 526

56 214

less Loss - sheep 27 105



Total income 29 109




Agistment 4 000

Power 1 890


Depreciation – fences and gates 540

Depreciation – buildings 640

Fuel, oil and lubricants 2 900

Fodder expenses 18 600

General farm operating expenses 4 200

Total general working expense 37 570


Accounting fees 1 050


Insurance 2 600



Financial expenses

Interest 8 000





Net Loss 25 391


Comprehensive income (loss) (25 391)

c)

Ahmed Hussein

Statement of Financial Position as at 31 March 2017 $ $ $ $

OWNERS’ EQUITY

Capital – A Hussein 133 380

less Comprehensive income (loss) (25 391)

107 989

less Drawings – A Hussein 19 057



ASSETS

Current assets

Cattle on hand 19 475

Sheep on hand 6 287

Wool on hand 4 200

187


GST paid 6 000

less GST collected 5 000 1 000


Non-current assets


Shearing plant and equipment – at cost 23 000






Fences and gates – at cost 18 000





Less LIABILITIES

Current liabilities

Bank 13 150



Loan – Rural Finances (due 2022) 80 000



Net assets 88 932



4.20 a)

Brian Balmer

Growing Wheat (2016 Crop) Account Date Particulars Debit Credit Balance

2016 $ $ $


2017

30 Jun Depreciation – plant and equipment 7 200 29 450 Dr

Fertilisers and chemicals 1 116 30 566 Dr

Fuel and lubricants 5 868 36 434 Dr

Crop dusting expenses 8 125 44 559 Dr


Growing Wheat (2017 Crop) Account Date Particulars Debit Credit Balance

2017 $ $ $

30 Jun Stock –wheat seed 13 300 13 300 Dr

Depreciation – plant and equipment 4 800 18 100 Dr


Fuels and lubricants 3 912 24 244 Dr


2017 $ $ $

30 Jun Growing wheat (2016 crop) 44 559 44 559 Dr

Stock – wheat seed 14 500 30 059 Dr

Selling expenses – wheat 12 000 42 059 Dr

Sales – wheat 220 000 177 941 Cr


Growing Barley (2016 Crop) Account Date Particulars Debit Credit Balance

2016 $ $ $


2017

30 Jun Depreciation – plant and equipment 4 800 19 000 Dr

Fertilisers and chemicals 744 19 744 Dr

Fuel and lubricants 3 912 23 656 Dr

Crop dusting expenses 4 375 28 031 Dr

Barley working 20 031 Nil

Growing Barley (2017 Crop) Account Date Particulars Debit Credit Balance

2017 $ $ $

30 Jun Stock – barley seed 7 900 7 900 Dr

Depreciation – plant and equipment 4 800 12 700 Dr


Fuels and lubricants 2 912 18 100 Dr

Barley Working Account Date Particulars Debit Credit Balance

2017 $ $ $

30 Jun Growing barley (2006 crop) 28 031 28 031 Dr

Stock – barley seed 8 400 19 631 Dr

Selling expenses – barley 8 000 27 631 Dr

Sales – barley 130 000 102 369 Cr


189


b)

Brian Balmer


PROFIT AND LOSS

Income


Profit – wheat 177 941

Profit – barley 102 369









Depreciation – fences 400

Fuels and lubricants 1 956

Wages 48 000

Superannuation – employees 2 400

General farm operating expenses 12 400

Total general working expenses 68 806


Accounting fees 2 100

Insurance 4 600



Financial expenses

Interest 2 000





Net profit 198 204





c)

Brian Balmer


$ $ $ $

OWNER’S EQUITY

Capital – B Balmer 125 840


324 044

less Drawings – B Balmer 38 000



ASSETS

Current assets

Bank 20 650


Stock – fuel and lubricants 2 100

Stock – fertiliser and chemicals 1 600

Stock – wheat seed 3 600

Stock – barley seed 1 700

Growing wheat (2017 crop) 24 244

Growing barley (2017 crop) 18 100


Non-current assets


Land – at cost 100 000



Buildings – at cost 25 000


Fences – at cost 12 400





less LIABILITIES

Current liabilities






Loan – Megabucks Finance Company (due 2035) 20 000



Net assets 286 044

4.21


191


Chapter 5: Statement of cash flows

5.1

ITEM CLASSIFICATION

(a) Cash sales Operating activity

(b) Payment of damages in a major law suit Operating activity

(c) Dividends received from investments Operating activity

(d) Purchase of investments Investing activity

(e) Sale of property, plant and equipment Investing activity

(f) Purchase of property, plant and equipment Investing activity

(g) Receipts from customers Operating activity

(h) Payments to suppliers Operating activity

(i) Increase in mortgage loan Financing activity

(j) Repayment of borrowings Financing activity

(k) Additional capital contributed Financing activity

(l) Interest paid Operating activity

(m) Rent paid Operating activity

(n) Wages paid Operating activity

(o) Interest received Investing activity

(p) Sale of investments Investing activity

(q) Loans given to employees Investing activity

5.2 Workings:

Bank Loans Account 2016 $ 2016 $

1 Aug Cash at bank * 5 000 1 Jul Balance 15 000

2017 2017

30 Jun Balance 20 000 1 Jun Cash at bank # 10 000

25 000 25 000

* Cash flow to repay loan: $5 000.

# Cash flow from acquisition of new loan: $10 000.

Capital – Antoinette Account $ 2016 $

1 Jul Balance 120 000

2017

2017 30 Jun Net profit 10 000

30 Jun

Balance 180 000 Cash at bank * 50 000

180 000 180 000

* Cash flow from additional capital contribution.



Payments to suppliers and employees:

$

Cost of sales 420 000

Advertising 35 000

Rates 20 000

Motor vehicle expenses 18 400

Wages 200 000

Total 693 400

Antoinette Industries

Statement of Cash Flows for the year ended 30 June 2017 $ $

Cash flows from operating activities Receipts from customers 700 000

Payments to suppliers and employees (693 400)

Cash generated from operations 6 600

Interest paid (6 600)

Net cash from operating activities Nil

Cash flows from investing activities Interest received 10 000

Payment for purchase of property, plant and equipment (40 000)

Net cash used in investing activities (30 000)

Cash flows from financing activities Proceeds from capital contributions 50 000

Proceeds from borrowings 10 000

Repayment of borrowings * (7 000)

Net cash from financing activities 53 000

Net increase in cash held 23 000

Cash at 1 July 2016 10 000

Cash at 30 June 2017 33 000

* Repayment of borrowings consists of: $ $

Repayment of bank loan 5 000

Repayment of Loan from David Ltd 2 000 7 000

Notes to the statement of cash flows

1. Cash and cash equivalents

Cash and cash equivalents included in the statement of cash flows comprises the following amounts in

the statement of financial position:

30 June 2016 30 June 2017

Cash at bank $10 000 $33 000

2. Reconciliation of net cash from operating activities to profit or loss $

Profit 10 000

Adjustments for:

Investment income

Interest income 10 000

Net cash from operating activities Nil


193


5.4 Ledger account reconstructions:


2019 $ 2018 $

30 Jun Discount income & GST paid 1 000 1 Jul Balance 13 200

Cash at bank * 510 400 2019

Balance

16 500

30 Jun Purchases & GST paid ($468

000 + GST)

514 800

528 000 528 000

Payment to accounts payable (excluding GST) = $510 400 x 10/11

= $464 000

Wages Expense Account 2019 2018

30 Jun Cash at bank * 111 500 1 Jul Accrued wages (reversal) 4 000

Accrued wages 2 500 2019

30 Jun Profit & loss (expense) 170 000

174 000 174 000

Advertising Account 2018 2019

1 Jul Prepaid advertising (reversal) 2 000 30 Jun Prepaid advertising 2 400

2019

30 Jun Cash at bank * 30 400 Profit & loss (expense) 30 000

32 400 32 400

Provision for Long Service Leave Account 2019 $ 2018 $

30 Jun Cash at bank * 6 000 1 Jul Balance 42 000

2019

Balance 50 000 30 Jun Long service leave expense 14 000

56 000 56 000

Capital – Tim Robinson Account 2019 $ 2018 $

30 Jun Drawings 43 000 1 Jul Balance 1 275 000

2019

Balance 1 532 000 30 Jun Cash at bank* 84 000

P & L (net profit) 216 000

1 575 000 1 575 000


$

Payments to accounts payable 464 000

Wages 171 500

Advertising 30 400

Long service leave paid 6 000

Rent 5 000

676 900



Tim’s Garden Supplies




Cash from operations 223 100


Net GST paid (200)

Net cash from operating activities 216 900

Cash flows from investing activities Interest received 10 000

Payment for purchase of property, plant and equipment (200 000)


Cash flows from financing activities Proceeds from capital contributions 84 000

Owner’s drawings (43 000)



Cash at 1 July 2018 (overdraft) (96 800)

Cash at 30 June 2019 (overdraft) (28 900)

Notes to the statement of cash flows 1. Cash and cash equivalents


the statement of financial position: 30 June 2018 30 June 2019

Bank overdraft $96 800 $28 900


Profit 216 000

Adjustments for:

Investment income

Interest income (10 000)

add/(subtract) Movements in current assets and current liabilities

Increase in prepaid advertising (400)

Decrease in stock 2 000

Increase in creditors 3 300

Decrease in accrued wages (1 500)

Increase in GST collected 2 500

Increase in GST paid (3 000)

Increase in provision for annual leave 8 000



195


5.6

Item

Activity Reconciliation

Operating Investing Financing Adjustments Movement

in current

assets and

current

liabilities

1 Cash sales X

2 Interest paid X

3 New capital contribution X

4 Borrowings repaid X

5 Increase in accounts receivable X

6 Net GST paid X

7 Annual leave paid X

8 Increase in GST collected X

9 Dividends received X

10 Doubtful debts expense X

11 Purchase of equipment X

12 Depreciation expense X

13 Increase in borrowings X

14 Decrease in accounts payable X

15 Increase in accrued expenses X

16 Wages paid X

17 Net GST refunded X

18 Increase in inventory X

19 Receipts from debtors X

20 Interest received X X

21 Bank loan received X

22 Loan given to employee X

23 Decrease in GST paid X

24 Proceeds from asset sale X

25 Profit on asset sale X

26 Owner’s drawings X

27 Advertising paid X

5.7 Ledger account reconstructions:

Accounts Receivable Control Account 2017 $ 2018 $

1 Jul Balance 30 800 30 Jun Cash at bank * 369 600

2018 Bad debts & GST collected

($4 000 + GST)

4 400

30 Jun Fees income & GST

collected ($385 000 + GST)

385 000 Balance

41 800

415 800 415 800

Receipts from customers (excluding GST) = $369 600 x 10/11

= $336 000

Equipment – at Cost Account 2017 2018

1 Jul Balance 150 000 30 Jun Sale of assets * 110 000

2018

1 Feb Purchase of equipment 160 000 Balance 200 000

310 000 310 000



Accumulated Depreciation - Equipment Account 2018 $ 2017 $

30 Jun Sale of assets * 5 000 1 Jul Balance 60 000

Balance 75 000 2018

30 Jun Depreciation – equip. 20 000

80 000 80 000

Sale of Assets Account 2018 $ 2018 $

30 Jun Equipment 110 000 30 Jun Accum. dep. – equip. 5 000

Loss on sale 48 000

Cash at bank * 57 000

110 000 110 000

Loan from Gould & Co Account 2017 $ 2017 $

1 Dec Cash at bank 30 000 1 Jul Balance 100 000

2018 2018

30 Jun Balance 140 000 30 Jun Cash at bank * 70 000

170 000 170 000

Capital – Peter Richardson Account 2017 $ 2017 $

31 Dec Cash at bank (drawings) 40 000 1 Jul Balance 500 000

2018 2018

30 Jun Profit & loss (loss) 40 000 Feb 12 Cash at bank * 140 000

Balance 560 000

640 000 640 000


$

Wages 296 000

Rent 15 000

311 000

The statement of cash flows can now be prepared as follows:

Richo’s Landscaping Services






Net GST paid (2 000)


Cash flows from investing activities Payment for purchase of property, plant and equipment (160 000)

Proceeds from disposal of property, plant and equipment 57 000

Payment for purchase of investment in shares (50 000)


Cash flows from financing activities Proceeds from capital contribution 140 000

Owner’s drawings (40 000)

Repayment of borrowings (30 000)




Cash at 1 July 2017 88 200

Cash at 30 June 2018 93 200

197






Cash at bank 58 200 48 200

Deposits at call 30 000 45 000

$88 200 $93 200

2. Reconciliation of net cash from operating activities profit or loss: $

Loss (40 000)

Adjustments for:

Loss on sale of equipment 48 000

Doubtful debts 2 000

Depreciation of equipment 20 000

30 000


Increase in accounts receivable (11 000)





5.9

Hoskins & Andrea

Ledger account reconstructions:

Accounts Receivable Control Account 2017 $ 2018 $

1 Jul Balance 35 530 30 Jun Cash at bank * 316 030

2018

30 Jun Sales & GST collected

($290 000 + GST)

319 000 Balance 38 500

354 430 354 430

Receipts from customers (excluding GST) = $316 030 x 10/11

= $287 300

Wages Account 2017 $ 2018 $

1 Jul Prepaid wages 200 30 Jun Prepaid wages 400

2018 P & L (wages expense) 86 000

30 Jun Cash at bank* 86 200

86 400 86 400

Provision for Annual Leave Account 2018 $ 2017 $

30 Jun Cash at bank* 24 000 1 Jul Balance 60 000

Balance 42 000 2018

30 Jun Annual leave expense 6 000

66 000 66 000



Loan from Boucher Finance Account 2017 $ 2017 $

15 Aug Cash at bank 10 000 1 Jul Balance 50 000

2018 2018

30 Jun Balance 55 000 31 May Cash at bank * 15 000

65 000 65 000

Payments to suppliers and employees: $

Purchases 91 000

Wages 86 200

Annual leave 24 000

201 200

The statement of cash flows can now be prepared as follows:

Hoskins & Andrea






Net GST paid (170)


Cash flows from financing activities Proceeds from capital contribution 20 000

Partners’ drawings (45 200)

Partners’ salaries paid (20 000)

Repayment of borrowings (10 000)


Net cash used in financing activities (40 200)


Cash at 1 July 2017 (15 725)

Cash at 30 June 2018 26 005




the statement of financial position: 30 June 2017 30 June 2018 Bank overdraft (15 725)

Cash at bank 26 005

($15 725) $26 005


Profit 80 000

Adjustments for:

Interest on loan to Hoskins (1 000)

Depreciation on vehicles 25 000


Increase in stock (1 000)

Increase in debtors (2 970)

Increase in prepaid wages (200)

Decrease in provision for annual leave (18 000)




199



5.11

Ballarat Aces Athletics Club Calculation of net GST paid for the year:

$ $

GST collected in cash 710

less GST paid in cash:

Input tax credits 495

Remitted to ATO 106 601

= Net GST received for the year 109

Payments to suppliers and employees: $

Barbecues – purchases of food/liquor 3 400

– liquor licence 125

– advertising 75

Annual carnival – trophies 300

– refreshments 120

– printing/stationery 30

Rent of premises 500

Equipment repairs 250

Affiliation fees 150

Travelling subsidies 1 800

6 750

Receipts from customers:

$ Barbecues – sales of food/liquor 4 400

– raffle proceeds 200

Annual carnival – sponsorship 900

– entry fees 600

6 100

Ballarat Aces Athletics Club




Members’ subscriptions received 1 200

Cash from operations 450

Net GST received 109

Net cash from operating activities 659

Cash flows from investing activities Interest received 50

Net cash from investing activities 50

Net increase in cash held 709

Cash at 1 July 2017 1 200

Cash at 30 June 2018 1 909







Cash at bank 1 200 1 909

$1 200 $1 909


Profit 205

Adjustments for:

Investment income

Interest income (50)

Depreciation of equipment 350


Increase in barbecue stocks (75)

Increase in prepaid rent (15)

Increase in accrued subscriptions revenue (11)

Increase in accounts payable 55

Decrease in prepaid subscriptions revenue (5)

Increase in GST collected 20

Increase in GST paid (30)

Net cash from operating activities 589

5.12


201


Chapter 6: Standard financial analysis techniques

6.1


6.2 a)

Birabella Enterprises

2016 2017 2018

Gross

profit

($400 000 – $175 000)

= $225 000

($465 000 – $180 000)

= $285 000

($440 000 – $195 000)

$245 000

Net

profit

$225 000 – $120 000

= $105 000

$285 000 – $160 000

= $125 000

$245 000 – $136 000

= $109 000

Gross

profit

ratio

1

100

000,400$

000,225$

= 56.25 %

1

100

000,465$

000,285$

= 61.29 %

1

100

000,440$

000,245$

= 55.68 %

Net

profit

ratio

1

100

000,400$

000,105$

= 26.25%

1

100

000,465$

000,125$

= 26.88%

1

100

000,400$

000,109$

= 24.77%

Return

on

owners’

equity

1

100

2)000,480$000,520($

000,105$

= 21.00%

1

100

2)000,460$000,480($

000,125$

= 26.59%

1

100

2)000,490$000,460($

000,109$

= 22.95%

b)

2017—The gross profit ratio improved by approximately 5c in the dollar during 2017 compared to

2016 due to:

– a $65 000 increase in sales

– cost of sales was only marginally higher in 2017 compared to 2016 despite the significant

increase in sales.

Despite the improvement in the gross profit ratio in 2017 (up from 56.25% in 2016 to 61.29% in

2017), the net profit ratio for that year was only marginally higher in 2017 (rising from 25.25% in

2016 to 26.88% in 2017). This was due to a significant increase of $40 000 in expenses from ordinary

activities in 2017 which means that expenses from ordinary activities as a percentage of sales were

much higher in 2017 and negated the improvement in the gross profit ratio.

The return on owners’ equity improved from 21.00% in 2016 to 26.56% in 2017. This was mainly due

to a decrease in owner’s equity of $40 000 during 2017.

2018—The gross profit ratio declined from 61.29% in 2017 to 55.68% in 2018 due to:

– a $25 000 decrease in sales

– a $15 000 increase in cost of sales despite the lower sales.



The reduction in the gross profit ratio in 2018 (of over 4 cents in the dollar) was partly offset by a

reduction in expenses from ordinary activities as a percentage of sales, meaning that the net profit

ratio declined by just over 2c in the dollar (from 26.88% in 2017 to 24.77% in 2018).

The return on owners’ equity also declined in 2018 due to the decline in profitability and an increase

in owner’s equity of $30 000 during 2018.

6.3

a)

Jay’s Pet Food Supplies 2016 2017

Gross profit ratio

1

100

000,320$

000,136$

= 42.5%

1

100

600,307$

000,146$

= 45.71%

Net profit ratio

1

100

000,320$

700,98$

= 30.84%

1

100

600,307$

400,85$

= 27.76%

b)

The gross profit ratio has increased from 42.5% in 2016 to 45.71% in 2017, despite a reduction in

sales revenue. This is due to cost of sales as a percentage of sales being less in 2017 than in 2016.

Possible reasons for this include:

– price reductions by suppliers

– better buying practices

– a combination of both of the above.

Despite the improvement in gross margins in 2017, the net profit ratio declined from 20.84% in 2016

to 27.76% in 2017. The reason for this decline was an increase in expenses from ordinary activities as

a percentage of sales. The reason for the blow-out in expenses was an increase of $18 000 in bad

debts in 2017 as compared to 2016.

6.4

a)

Radical Gear Bendigo Branch Eaglehawk Branch

2017 2018 2017 2018

Gross profit ratio

1

100

000,174$

000,96$

= 55.17%

1

100

000,187$

500,109$

= 58.56%

1

100

000,101$

000,58$

= 57.43%

1

100

000,132$

500,78$

= 59.47%

Net profit ratio

1

100

000,174$

750,11$

= 6.75%

1

100

000,187$

850,21$

= 11.68%

1

100

000,101$

900,17$

= 17.72%

1

100

000,132$

150,26$

= 19.81%

203


b) The gross profit ratio of the Bendigo branch improved slightly in 2018 (up from 55.71% in 2017 to

58.56% in 2018). This indicates that during 2018 the branch has been able to sell at higher prices or

buy at better prices or a combination of both. The net profit ratio of the Bendigo branch improved

considerably in 2018 (from 6.75% in 2017 to 11.68% in 2018). This was due to the improvement in

the gross profit ratio and also to the fact that expenses from ordinary activities as a percentage of sales

in 2018 were less than in 2017.

The gross profit ratio of the Eaglehawk branch increased from 57.43% in 2017 to 59.47% in 2018.

This also indicates that the branch has been able to sell at higher prices or buy at better prices or a

combination of both. The net profit ratio improved from 17.72% in 2017 to 19.81% in 2018 which

reflects the improvement in the gross profit ratio and therefore indicates that expenses from ordinary

activities as a percentage of sales was fairly constant in both 2017 and 2018.

The gross profit ratios for both branches are similar for both years, with the Eaglehawk branch having

a slightly higher gross margin in both years. This indicates that the relationship between buying and

selling prices is approximately the same for both branches.

However, there is a significant difference in the net profit ratios, with the Bendigo branch’s ratio

being much lower than that of the Eaglehawk branch. This indicates that expenses from ordinary

activities as a percentage of sales are much higher at the Bendigo branch that at the Eaglehawk

branch.

6.5

a) Gross profit ratio 35.6%

Net profit ratio 7.2%

Return on owner’s equity 17.6%

b)

The gross profit ratio of Quality Electricals is 35.6% compared to the industry average of 28.3%. This

indicates that the business is able to sell at higher prices or buy at lower prices than other businesses

in the industry, or a combination of both.

However, Quality Electricals’ net profit ratio is significantly less than the average of its competitors

(7.2% compared to 9.2%), despite having a better gross profit ratio. This means that the business’

expenses from ordinary activities as a percentage of sales are significantly higher than the industry

average. This has negated any advantage in gross margins.

Quality Electricals’ return on owners’ equity is also significantly below the industry average (17.6%

compared to 26.7%). This is due, in part, to the lower net profit ratio discussed in the previous

paragraph. It may also indicate that Quality Electricals has a higher than average level of owners’

equity, meaning that it places less reliance on borrowed funds to finance its operations.

c)

To improve the profitability of the business management should tighten control over expenses from

ordinary activities, which would in turn improve the net profit ratio and the return on owner’s equity.

Returns to owners could also be improved if the business made more use of borrowed funds to finance

its operations.



6.6

a) Working capital = Current assets – Current liabilities

= $274 000 - $180 000

= $94 000

b)

Working capital ratio = 1

100

000,180$

000,274$

= 152.2%

Quick asset ratio = 1

100

)000,50$000,180($

)000,110$000,274($

= 126.2%

c)

The quick asset ratio is an indicator of the business’s ability to a sudden financial emergency as it

expresses the assets that can be realised quickly as a percentage of ‘urgent liabilities’.

d)

The working capital ratio of 152.2% indicates that the business has $1.52 in current assets for every

$1 of current liabilities which indicates that the business has sufficient current assets to meet its

current liabilities. The quick asset ratio of 126.2% indicates that the business has $1.26 in liquid assets

for each $1 of urgent liabilities and so has sufficient liquid assets available to meet its immediate

commitments. Thus it appears that the business, in the short-term, should not experience difficulty

meeting its commitments as and when they fall due.

6.7

Bazza Enterprises 2018

Inventory turnover rate = 1

365

000,76$

)000,24$000,20($2

1

= 105.7 days

Accounts receivable turnover rate = 95.547$

)000,24$000,20($2

1

= 40.1 days

2019

Inventory turnover rate = 1

365

000,74$

)000,50$000,24($2

1

= 182.5 days

Accounts receivable turnover rate = 92.821$

)000,90$000,24($2

1

= 69.3 days

205


a)

The business’ management of both stock and debtors has deteriorated markedly during 2018.

Stock turnover has deteriorated from 106 days (approximately 3 times p.a.) to almost 183 days

(approximately 2 times p.a.). This means that in 2018 the business is holding a considerably higher

level of stock, relative to its sales, than in 2017.

Accounts receivable turnover has deteriorated from 40 days in 2017 to 69 days in 2018. When

compared with the business’ terms of trade, neither of these results is satisfactory. It appears that the

business’ policies and procedures in relation to granting of credit to customers and collection of

amounts outstanding have become lax.

Both of these weaknesses mean that the business has had to utilise additional working capital to

finance the blow-out in its accounts receivable and inventory. This would have an adverse effect on

the profitability of the business and on its ability to meet its commitments as they fall due.

6.8


6.9

Jack Frost

a) 2017

Proprietary ratio = 1

100

000,163$

000,88$

= 54%

2018


100

800,202$

800,94$

= 46.7%

The additional plant and equipment acquired during 2018 appears to have been financed by short-term

sources, viz. accounts payable. This has an adverse effect on the liquidity of the business and has

affected the ability of the business to meet its short-term and immediate commitments (see working

capital and quick asset ratios in the answer to 6.8).

The percentage of total funds provided by owners’ equity has fallen from 54% in 2007 to 46.7% in

2018. This is due to the large increase in accounts payable in 2018. However, with almost half the

total assets financed by owners’ equity, the business is not considered to be highly geared and

consequently its survival in the long-term is not in danger.

6.10

Commercial Business Machines

a) Working capital ratio = 1

100

850,110$

200,168$

= 151.7%

Quick asset ratio = 1

100

)400,12$850,110($

)000,82$200,168($

= 87.6%



Accounts receivable turnover = 67.287,1$

)000,80$200,78($2

1

= 61.4 days

Inventory turnover = 1

365

000,457$

)000,82$000,75($2

1

= 62.7 days


100

600,340$

350,84$

= 24.8%

The ability of the business to meet both its immediate and short-term commitments, as evidenced by

the working capital and quick asset ratios, is below the industry average. In particular, the quick asset

ratio is 87.6% compared to the industry average of 120%. This indicates that the business could

experience liquidity problems in the immediate future in attempting to meet its obligations.

The average time taken to collect debtors’ accounts, as evidenced by the accounts receivable turnover

rate, is 61.4 days compared to the industry average of 47.8 days. Offsetting the poor accounts

receivable turnover is an inventory turnover of 62.7 days compared to the industry average of 96.2

days. Overall, the operating cycle is 124.1 days (61.4 days + 62.7 days) compared to the industry

average of 144 days (47.8 days + 96.2 days), which means that the business would require less

working capital than the average for the industry.

The proportion of total assets financed by owner’s equity is 24.8% compared to the industry average

of 39.2%. This indicates that the business relies more on borrowed funds than other businesses in the

industry. An over-reliance on borrowed funds may result in the business experiencing liquidity

problems in the long-term in repaying the borrowed funds and associated interest.

b)

The financial stability of the business could be improved by the following action:

Short-term financial stability

– Review policies and procedures relating to the granting of credit to customers and follow-up of

debtors accounts so as to reduce the debtors turnover and free up working capital.

– Review stock holdings to ensure that the business is not holding excess stock. Any reduction in

stock holdings will also free up working capital.

Long-term financial stability

– Apply any surplus working capital to repayment of borrowings so as to reduce the reliance on

borrowed funds.

6.11

a)

Rate/Ratio 2017 2018

Return on owners’ equity 29.1% 28.1%

Gross profit ratio 50.0% 55.4%

Net profit ratio 33.8% 33.7%

Proprietary ratio 58.9% 61.5%

207


b) REPORT TO: The proprietor, HiTech Imports

FROM:

SUBJECT: Trend in profitability 2017 to 2018

The overall profitability of the business declined slightly during 2018. This is reflected in the return

on owner’s equity which fell from 29.1% in 2017 to 28.1% in 2018.

The decline in profitability occurred despite an improvement in the gross profit ratio from 50% in

2017 to 55.4% in 2018. This indicates that the business has been able to achieve an increase in selling

prices, a reduction in purchase prices or a combination of both.

Despite the improved gross margin in 2018, the net profit ratio declined slightly from 33.8% in 2017

to 33.7% in 2018. This indicates that, as a percentage of sales, expenses from ordinary activities were

higher in 2018. An examination of the statement of comprehensive income confirms this, with

expenses from ordinary activities increasing from $58 700 in 2017 to $79 000 in 2018, despite only a

marginal increase in sales in 2018. This indicates that control of expenses from ordinary activities has

become lax in 2018. The increase in interest expense is probably due to increased interest rates as

there does not appear to have been any additional borrowings during 2018.

Also contributing to the lower return on owner’s equity is an increased reliance on funds provided by

the proprietor. The proprietary ratio increased from 58.9% in 2017 to 61.1% in 2018.

Recommendations to improve profitability

Monitor expenses from ordinary activities to ensure that they are kept to a minimum.

Ensure borrowed funds are obtained at the lowest available interest rate.

Ensure that goods are purchased at the best possible prices and review selling prices that

profitability is maximised.

6.12

a)

Rate/Ratio 2017 2018

Working capital ratio 154.1% 150.0%

Quick asset ratio 115.3% 95.4%

Inventory turnover rate 4.3 times p.a. 3.6 times p.a.

Accounts receivable turnover rate 60.1 days 53.3 days

Proprietary ratio 56.2% 55.1%

b)

REPORT TO: The proprietor, Fantasia Wholesalers

FROM:

SUBJECT: Trend in financial stability 2017 to 2018

Short-term financial stability

The short-term financial stability of the business has deteriorated during 2018.



Although the working capital ratio (154.1% in 2017 and 150% in 2018) indicates that the business has

sufficient current assets to meet its short-term commitments, the ability of the business to meet its

immediate commitments is of some concern. The quick asset ratio has fallen from 115.3% in 2017 to

95.4% in 2018, indicating that the business does not have sufficient liquid assets to cover its

immediate commitments.

The reason for the deterioration in the ability of the business to meet its immediate commitments is

that the working capital is less liquid in 2018 due to a large increase in inventories. In other words, a

greater proportion of working capital, in 2018, is tied up in inventories which cannot be quickly and

profitably converted into cash. This is also reflected in the deterioration in the inventory turnover rate

from 4.3 times in 2017 to 3.6 times in 2018.

On the positive side, the average time taken to collect amounts owed by debtors improved from 60.1

days in 2017 to 53.3 days in 2018. However, there is still room for improvement here. Even if the

business’ terms of trade are 30 days from the end of the month in which the goods are sold, an

average collection period of 45 days is achievable.

Long-term financial stability

The balance between owners’ equity and borrowed funds has not changed significantly during 2018.

The proportion of total assets financed by owners’ equity fell marginally from 56.2% in 2017 to

55.1% in 2018. With more than half of the total funds invested in the business being provided by the

owner, the business is not considered to be highly geared and is not at risk of being unable to pay its

debts in the long-term.

Recommendations for improvement

1. Review stock holdings to ensure that the optimum level of stock is held with the aim of reducing

inventory turnover and improving the liquidity of the business’ working capital.

2. Improve the debtors collection rate by:

– reviewing procedures for the granting of credit to customers; and

– ensuring that outstanding debtors accounts are followed up and collected as quickly as possible.

6.13


209


Chapter 7: Inventories

7.1 Inventories consist of:

– goods held for sale in the normal course of business;

– work in process (i.e. goods in the course of production); and

– raw materials and supplies to be consumed in the production of goods or services for sale.

7.2

The inventories of Glad’s Bags would consist of:

– raw materials—leather, studs, clasps, buckles, threads;

– work in process— partly-completed handbags; and

– finished goods—handbags completed and ready for sale.

7.3 1. Examples of inventory include spare parts and oils and lubricants.

2. Tools and diagnostic equipment are not inventories as they are not consumed in the provision of

motor vehicle repair services. These items are non-current assets and are subject to depreciation.


7.5 $ $

Estimated realisable value 100 chairs @ $50 5 000

less Estimated additional costs

Production costs 600

Selling expenses 500 1 100

Net realisable value 3 900

As the net realisable value ($3 900) of the chairs on hand at 30 June 2019 is less than their cost ($10

500), the chairs would be valued at $3 900.

7.6 Net realisable value of an item of inventory is the estimated selling price in the ordinary course of

business the estimated costs of completion and the estimated costs necessary to make the sale.

7.7

It may be appropriate to record inventories at net realisable value in the following circumstances

where:

– the inventories are damaged

– the inventories have become wholly or partially obsolete

– selling prices have declined, or

– the estimated cost of completion or costs incurred to make the sale have increased.

7.8 $

Nicknacks – cost (1 200 @ $40) 48 000

Whatnots – net realisable value (550 @ $22.50) 12 375

Doodads – cost (3 600 @ $10) 36 000

Poopah – net realisable value (100 @ $4) 400

Total inventory value at 30 June 2018 96 775



7.9 Quantity on hand 8 August 2017 = Opening balance + Purchases – Sales

= 100 + 450 – 200

= 350

a)

Under FIFO the units on hand would consist of the latest-purchased items. $

200 @ $12 2 400

150 @ $11 1 650

4 050

b)

Under weighted average cost, the units on hand are valued at the weighted average cost of the opening

inventory and the purchases for the month. Boxes $

Opening inventory 100 1 000

Purchases

Aug 5 250 2 750

Aug 8 200 2 400

550 6 150

Average cost = $6 150 divided by 550

= $11.18

Inventory value = 350 x $11.18

= $3 913

7.10 Under absorption costing the cost of inventories includes an appropriate share of both fixed and

variable costs of production.



7.11 a)

STOCK CARD

Item No: 656 Location: Description: Fold-up chair Valuation Method: FIFO

Date Particulars Document no IN OUT BALANCE

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2017 Jul 1 Balance 200 20.00 4 000

2 Chairmakers 445 230 22.00 5 060 200 20.00 4 000 230 22.00 5 060

4 Effenberg 889 90 20.00 1 800 110 20.00 2 200 230 22.00 5 060

6 Salisbury 890 110 20.00 2 200 30 22.00 660 200 22.00 4 400

10 Chairmakers 460 190 21.00 3 990 200 22.00 4 400 190 21.00 3 990

12 Salisbury 58 (10) 22.00 (220) 210 22.00 4 620 190 21.00 3 990

15 Walters 891 210 22.00 4 620 90 21.00 1 890 100 21.00 2 100

21 Chairmakers 471 100 22.00 2 200 100 21.00 2 100 100 22.00 2 200

22 Chairmakers 26 (20) 22.00 (440) 100 21.00 2 100 80 22.00 1 760


31 Stock loss 10 21.00 210 90 21.00 1 890 80 22.00 1 760


Copyright © 2004 Nelson Australia Pty Limited

b)

STOCK CARD

Item No: 656 Location: Description: Fold-up chair Valuation Method: Weighted average cost


Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2017 Jul 1 Balance 200 20.00 4 000

2 Chairmakers 445 230 22.00 5 060 430 21.07 9 060

4 Effenberg 889 90 21.07 1 896 340 21.07 7 164

6 Salisbury 890 140 21.07 2 950 200 21.07 4 214

10 Chairmakers 460 190 21.00 3 990 390 21.036 8 204

12 Salisbury 58 (10) 21.07 (211) 400 21.038 8 415

15 Walters 891 300 21.038 6 311 100 21.04 2 104

21 Chairmakers 471 100 22.00 2 200 200 21.52 4 304

22 Chairmakers 26 (20) 22.00 (440) 180 21.467 3 864


31 Stock loss 10 21.467 215 170 21.465 3 649


Copyright © 2004 Nelson Australia Pty Limited

7.12 a)

STOCK CARD

Item No: RS100 Location: Description: Valuation Method: FIFO


Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2018 Nov 1 Balance 300 12.00 3 600

2 Issues 606 150 12.00 1 800 150 12.00 1 800

3 Purchases 569 40 13.00 520 150 12.00 1 800 40 13.00 520

4 Returns to store 254 (20) 12.00 (240) 170 12.00 2 040 40 13.00 520

15 Purchases 873 150 12.50 1 875 170 12.00 2 040 40 13.00 520 150 12.50 1 875

18 Issues 625 110 12.00 1 320 60 12.00 720 40 13.00 520 150 12.50 1 875

20 Purchases 586 30 12.50 375 60 12.00 720 40 13.00 520 180 12.50 2 250

21 Purchases returns 111 (10) 12.50 (125) 60 12.00 720 40 13.00 520 170 12.50 2 125

26 Issues 632 60 12.00 720 40 13.00 520 50 12.50 625 120 12.50 1 500

28 Purchases 591 270 14.00 3 780 120 12.50 1 500 270 14.00 3 780

Cost of sales 4 745

30 Stock gain 10 14.00 140 120 12.50 1 500 280 14.00 3 920

Note: It has been assumed that the extra units on hand, as revealed by the physical stocktake, were purchased at the latest price.


214

b)

STOCK CARD

Item No: RS100 Location: Description: Valuation Method: Weighted average cost


Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2017 Nov 1 Balance 300 12.00 3 600

2 Issues 606 150 12.00 1 800 150 12.00 1 800

3 Purchases 569 40 13.00 520 190 12.211 2 320

4 Returns to store 254 (20) 12.00 (240) 210 12.19 2 560

15 Purchases 573 150 12.50 1 875 360 12.319 4 435

18 Issues 625 110 12.319 1 355 250 12.32 3 080

20 Purchases 586 30 12.50 375 280 12.339 3 455

21 Purchases returns 111 (10) 12.50 (125) 270 12.333 3 330

26 Issues 632 150 12.333 1 850 120 12.33 1 480

28 Purchases 591 270 14.00 3 780 390 13.487 5 260

Cost of sales 4 765

31 Stock gain 10 13.487 135 400 13.488 5 395

7.13


Chapter 7: Inventories XX


7.14 a)

STOCK CARD

Item No: X1356 Location: Description: Valuation Method: Weighted average cost


Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2016 Jan 1 Balance 200 18.00 3 600

4 Suppliers Ltd 5478 200 20.00 4 000 400 19.00 7 600

12 Mavis Moore 6546 250 19.00 4 750 150 19.00 2 850

15 Suppliers Ltd 5489 100 25.00 2 500 250 21.40 5 350

16 Suppliers Ltd 55 (50) 25.00 (1 250) 200 20.50 4 100

20 Daryl’s Diner 6547 50 20.50 1 025 150 20.50 3 075

Cost of sales 5 775

31 Stock gain 10 20.50 205 160 20.50 3 280

STOCK CARD

Item No: V9087 Location: Description: Valuation Method: Weighted average cost


Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2016 Jan 1 Balance 300 40.00 12 000

2 Doug Hawk 6545 100 40.00 4 000 200 40.00 8 000

10 Davis Pty Ltd 845 300 50.00 15 000 500 46.00 23 000

21 Doug Hawk 654 (50) 40.00 (2 000) 550 45.455 25 000

28 Doug’s World X457 200 48.00 750 46.133 34 600

31 Doug Hawk 6548 150 46.133 6 920 600 46.133 27 680

Cost of sales 8 920

Stock loss 20 46.133 923 580 46.133 26 757

XX TAFE Accounting: Financial Accounting Applications Solutions Manual

216

b)

O’Connell Wholesalers

Purchases Journal Date Particulars Ref. Stock

Control Sundries GST

Paid Accounts

Payable

Control Amount Account

2016 $ $ $ $

4 Jan Suppliers Ltd 5478 4 000 400 4 400

10 Davis Pty Ltd 845 15 000 1 500 16 500

15 Suppliers Ltd 5489 2 500 250 2 750

28 Doug’s World X457 9 600 960 10 560

31 100 3 110 34 210

Purchases Returns Journal Date Particulars Ref. Stock


Paid Accounts

Payable


2016 $ $ $

16 Jan Suppliers Ltd X1356 1 250 125 1 375

Sales Journal Date Particulars Ref. Sales Sundries GST

Coll Accounts

Receivable


2016 $ $ $ $

2 Jan Doug Hawk 6545 10 000 1 000 11 000

12 Mavis Moore 6546 12 500 1 250 13 750

20 Daryl’s Diner 6547 2 500 250 2 750

31 Doug’s World 6548 15 000 1 500 16 500

40 000 4 000 44 000

Sales Returns Journal Date Particulars Ref. Sales

Returns Sundries GST

Coll Accounts

Receivable


2016 $ $ $

21 Jan Doug Hawk V9087 5 000 500 5 500


2016 $ $

31 Jan Cost of sales 14 695

Stock control 14 695

Cost of sales for January.

Stock gain/loss 718

Stock control 718

Stock loss as per physical stocktake conducted 31 January.



c)

O’Connell Wholesalers

General Ledger

Stock Control Account Date Particulars Folio Debit Credit Balance

2016 $ $ $


31 Accounts payable control PJ 31 100 46 700 Dr

Accounts payable control PRJ 1 250 45 450 Dr

Cost of sales GJ 14 695 30 755 Dr

Stock gain/loss GJ 718 30 037 Dr

Accounts Payable Control Account Date Particulars Folio Debit Credit Balance

2016 $ $ $


31 Stock control & GST paid PJ 34 210 38 210 Cr

Stock control & GST paid PRJ 1 375 36 835 Cr

GST Paid Account Date Particulars Folio Debit Credit Balance

2016 $ $ $

1 Jan Accounts payable control PJ 3 110 3 110 Dr

Accounts payable control PRJ 125 2 985 Dr

Purchases Returns Account Date Particulars Folio Debit Credit Balance

2006 $ $ $

31 Jan Accounts payable control SJ 1 250 1 250 Cr

Sales Account Date Particulars Folio Debit Credit Balance

2016 $ $ $

31 Jan Accounts receivable control SJ 40 000 40 000 Cr

GST Collected Account Date Particulars Folio Debit Credit Balance

2016 $ $ $

31 Jan Accounts receivable control SJ 4 000 4 000 Cr

Accounts receivable control SRJ 500 3 500 Cr

Accounts Receivable Control Account Date Particulars Folio Debit Credit Balance

2016 $ $ $


31 Sales & GST collected SJ 44 000 50 000 Dr

Sales returns & GST collected SRJ 5 500 44 500 Dr

Sales Returns Account Date Particulars Folio Debit Credit Balance

2016 $ $ $

31 Jan Accounts receivable control SRJ 5 000 5 000 Dr


218

Cost of Sales Account Date Particulars Folio Debit Credit Balance

2016 $ $ $

31 Jan Stock control GJ 14 695 14 695 Dr

Stock Gain/Loss Account Date Particulars Folio Debit Credit Balance

2016 $ $ $

31 Jan Stock control GJ 718 718 Dr

d)

Stock Reconciliation as at 31 January 2016 Item No. Description Total

Value

$

X1356 3 280

V9087 26 757

Total as per Stock Control account 30 037

7.15 a)

Hancock Industries

Purchases Journal Date Particulars Ref. Stock


Paid Accounts

Payable


2018 $ $ $ $

4 Jun Jack Ltd 547 6 600 660 7 260

5 Suppliers Ltd 8649 4 400 440 4 840

Nick Ltd F2546 5 200 520 5 720

16 Suppliers Ltd 8689 4 500 450 4 950

17 Nick Ltd F2591 1 680 168 1 848

22 380 2 238 24 618

Purchases Returns Journal Date Particulars Ref. Stock


Paid Accounts

Payable


2018 $ $ $

10 Jun Suppliers Ltd 6547 220 22 242

12 Nick Ltd 5741 1 300 130 1 430

1 520 152 1 672

Sales Journal Date Particulars Ref. Sales Sundries GST

Coll’d Accounts

Receivable


2018 $ $ $

3 Jun Ace Ltd X125 8 750 875 9 625

9 Daryl Ltd X126 9 800 980 10 780

10 John Ltd X127 10 000 1 000 11 000

12 Josie Ltd X128 14 000 1 400 15 400

18 Geoff Ltd X129 7 500 750 8 250

19 Ace Ltd X130 9 800 980 10 780

24 Geoff Ltd X131 4 550 455 5 005

64 400 6 440 70 840



Sales Returns Journal Date Particulars Ref. Sales

Returns Sundries GST

Coll’d Accounts

Receivable


2018 $ $ $ $

24 Jun Ace Ltd 124 1 400 140 1 540

26 Geoff Ltd 125 700 70 770

2 100 210 2 310

General Journal

Date Particulars Debit Credit

2018 $ $

30 Jun Cost of sales 34 920

Stock control 34 920

Cost of sales for June.

Stock gain/loss 542

Stock control 542

Stock loss as per physical stocktake conducted 30 June.

b)

Hancock Industries

General Ledger


2018 $ $ $


30 Accounts payable control PJ 22 380 50 280 Dr

Accounts payable control PRJ 1 520 48 760 Dr

Cost of sales GJ 34 920 13 840 Dr

Stock gain/loss GJ 542 13 298 Dr


2018 $ $ $


30 Accounts receivable control GJ 34 920 434 920 Dr


2018 $ $ $


30 Accounts receivable control SJ 64 400 664 400 Cr


2018 $ $ $


30 Accounts receivable control SRJ 2 100 12 100 Dr


2018 $ $ $


30 Stock control GJ 542 3 042 Dr

c)


220

Stock Reconciliation as at 30 June 2018 Item No. Description Total Value

$

64026 Whatnots 4 430

26697 Doodads 6 788

45987 Poopah 2 080

Total as per Stock Control account 13 298

7.16


7.17


7.18 (a)

Saeed Furniture Retailers


2017 $ $

30 Jun Loss on write-down of inventory 310

Stock control 310

Write down of inventory to net realisable value

Calculation of write down: $ $

Cost (2 x $480) + (1 x $490) 1 450

less Net realisable value

Estimated selling price (3 x $390) 1 170

less Shipping costs (3 x $10) 30 1 140

310

b)

Saeed Furniture Retailers

General Ledger

Loss on Write-Down of Inventory Account Date Particulars Folio Debit Credit Balance

2017 $ $ $

30 Jun Stock control GJ 310 310 Dr


2017 $ $ $


Loss on write-down of inventory GJ 310 51 690 Dr



c)

STOCK CARD Item No: Location: Description: Comfy Rockers Valuation Method: FIFO


Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

Qty

Unit Cost

$

Total Cost

$

2007 Jun 30 Balance 2 480 960 8 490 3 920

Loss on write-down of inventory

310 3 380* 1 140*

7 490 3 430

* Net realisable value



7.19 a)

Daggy’s Animal Supplies


2018 $ $

30 Jun Sales 142 000

Trading 142 000

Transfer to Trading account

Trading 100 150

Sales returns 1 800


Stock gain/loss 1 200

Loss on write-down of inventory 3 150

Transfer to Trading account


Trading 41 850

Transfer gross profit for the year ended 30 June 2018

General Ledger


2018 $ $ $




2018 $ $ $




2018 $ $ $




2018 $ $ $



Loss on Write-Down of Inventory Account Date Particulars Folio Debit Credit Balance

2018 $ $ $





Trading Account Date Particulars Folio Debit Credit Balance

2018 $ $ $

30 Jun Sales GJ 142 000 142 000 Cr

Sales returns GJ 1 800 140 200 Cr

Cost of sales GJ 94 000 46 200 Cr

Stock gain/loss GJ 1 200 45 000 Cr

Loss on write-down of inventory GJ 3 150 41 850 Cr


Profit and Loss Account Date Particulars Folio Debit Credit Balance

2018 $ $ $

30 Jun Trading GJ 41 850 41 850 Cr

7.20


7.21

Advantages of the physical inventory system:

– As no detailed records of inventory movements are maintained, it is the simplest and least

expensive method of accounting for inventory.

– It can be used by any business and it is totally adequate for a small business or a business with

relatively few items of inventory

Disadvantages of the physical inventory system:

– Neither the statement of comprehensive income nor the statement of financial position can be

prepared unless a business can determine the total value of its inventories at the end of the

reporting period. Under the physical inventory system, this necessitates a full physical

stocktake. Consequently, the ability of a business to prepare regular financial statements is

severely hampered.

– As no perpetual records of inventories are maintained, a physical stocktake will not reveal

any inventory shortages or gains.

– Physical stocktakes require considerable organisation and effort. It is desirable that no stock

movements occur while the count is performed. This often means that a business has to close

its doors for the period of the stocktake.

– Inventory and working capital management is difficult under a physical inventory system

as there is a lack of information available relating to inventory movements and levels.

Advantages of the perpetual inventory system:

– As the total value of inventories on hand and cost of sales can be readily ascertained, the

perpetual inventory system facilitates the preparation of regular interim financial statements.

– The results of a physical stocktake can be compared with the perpetual inventory records to

reveal any discrepancies. Stock losses or gains can arise as a result of theft, spoilage or poor

record-keeping.

– Rather than conducting a full stocktake at the end of the financial year, stocktaking can be

performed on a rolling basis throughout the year: each item of stock is counted and compared

against the relevant inventory record at least once during the year. This minimises any

disruption to the ordinary operations of the business.

– A perpetual inventory system assists a business in managing its inventories. Perpetual

inventory records can assist management in a number of ways including:

a) determining when individual inventory items should be reordered

b) highlighting items of inventory that are slow-moving or unprofitable

c) determining inventory turnover rates for individual items and groups of items as well

as the overall inventory turnover

d) assisting in the management of working capital by indicating the total funds invested

in inventories.


224

Disadvantages of the perpetual inventory system:

– A perpetual inventory system requires detailed records to be maintained of all inventory

movements and inventories on hand. To establish and maintain such a system is expensive

and time-consuming. However, modern computer accounting software has eliminated much

of the cost and effort in establishing and maintaining a perpetual inventory system.

– A greater knowledge of accounting is required than for the physical inventory system.

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