HI5001 Accounting For Business Decisions Management

Question 1

Phoenix Ltd’s sells silk scarfs. It uses the Periodic Inventory System and prepares financial statements at the end of each month. The following information is provided in relation to its inventory at the beginning of the month September 2021 and all purchases during the month. Ignore GST.

A physical count at the end of the month verified that 1,100 scarfs were on hand.

1. Determine the cost of the ending inventory and the cost of sales for the month of September, using the Average Costing method.
2. Assume that on 5 September, inventory was sold for $2,000 on credit. What would be the journal entry/entries to record the sales transaction? What would be the entry/entries to record the purchase of inventory on 10 September?
3. Explain how the entries in requirement B would differ if the entity had used the perpetual inventory system?
4. Assume that the perpetual inventory system is used, the entity’s inventory records show that 1,150 scarfs should be on hand. Given the physical count of inventory mentioned in the question is accurate, what accounting adjustment would be needed (assuming FIFO method is used) and what might the need for this adjustment indicate about the business’s operations?

Question 2

Safe Security Doors Ltd. undertakes bank reconciliation at the end of each month before preparing its monthly financial statements. The following information is produced by comparing the cash deposits and withdrawals recorded by the business in August with their bank statement received for the month ending 31 August 2021:

The bank statement for the month of August shows a credit balance of $134,700 as at 31 August 2021.

Safe Security Doors Ltd.’s cash at bank ledger account has a debit balance of $131,076 at 31 August 2021.

$9,420 cash received from a customer Adam on 30 August (invoice no. 311) and $13,254 cash received from another customer Brian on 31 August (invoice no. 313) are recorded in the entity’s accounting record but are not shown in the bank statement.

Interest earned on bank account is $102.

Cheque no. 212 and 213 are not included in the bank statement.

# 212    $ 9,654

# 213    $ 8,340

1. Bank deducted transaction fees of $18 for an overseas transfer by the entity.
2. Safe Security Doors Ltd. incorrectly recorded a payment for wages expenses as $2,900 in its record. The correct amount for the cheque issued is $3,900 instead.
3. A dishonoured cheque written by a customer Cindy Davis, $5,000.
4. Bank statement shows a direct electronic transfer from a customer of $14,220 that has not been recorded by the entity.

The business doesn’t use special journals for record keeping. All transactions are recorded in the general journal and posted to ledgers immediately.

Question 3

AU Removals’ financial year ends on 30 June each year. On 1 July 2020, AU Removals purchased a truck for $156,000. You are the accountant of the business and you have estimated that the truck is to last 10 years and to have $6,500 residual value at that point. As per the business plan, the truck can be used to drive 320,000 kilometres over the 10 years, with per-year projections of 19,500 km, 26,000 km, 23,400 km, respectively over the first three years.

Straight-line

Diminishing balance (27 per cent rate)

Units-of-production.

Discuss the nature of depreciation.

Question 4

The following data is extracted from the financial records of AU Tiles. The data is in relation to the financial year ending 30 June 2019 and 30 June 2020

The business uses the Income Statement method to estimate its’ doubtful debts each year. It has been estimated that 1% of the sales revenue of the year will be the bad debts expense for the year. At the beginning of the financial year of 2019, the Allowance for Doubtful Debts account has a credit balance of $18,000.

1. Determine the amounts of the following accounts. Show your workings for each item.
2. Bad debts expenses for the year ending 30 June 2019
3. Allowance for doubtful debts at 30 June 2019
4. Bad expenses for the year ending 30 June 2020
5. Allowance for doubtful debts at 30 June 2020
6. Calculate the receivable turnover ratio for year 2020 and comment on the ratio.
7. Discuss the differences between ageing method and percentage of net credit sales method.
8. Using the information provided in the question and your calculation from requirement A, prepare the Current Assets section of the balance sheet as at 30 June 2020.

Question 5

Apply the definition and recognition criteria of liabilities, discuss why, or why not, each of the following items is recognised as a liability in the financial statement.

1. Fees received in advance
2. Provision for long service leave
3. GST collection
4. GST outlays
5. Allowance for doubtful debts
6. An unresolved legal case
7. Discount received
8. Debentures

Question 6

Tidy & Cleaning Services provides cleaning and housekeeping services to both households and businesses. The entity prepares financial statements at the end of each month. The following information is provided in relation to the business’s operations in the month of June 2021.

1. On 1 June, annual rent of $60,000 is paid for the period from 1 June 2021 to 31 May 2022.
2. The business signed an advertising agreement, that costs $9,600 for six (6) months plus $1.50 per each click on their advertisements, with an online website on 1 June 2021 to promote its business for the next six months. The agreement stated $1,600 per month will need to be paid in advance at the beginning of each month, $1.50 per each click on their ads will be paid at the end of the 6^th month agreement. A $1,600 advance was paid on 2 June.
3. On 5 June, Marco Motel paid the business $40,000 in advance to do the cleaning of their guest rooms for the next four months. By the end of June, 20% of the cleaning work has been completed.
4. Cleaning supplies account had a debit balance of $650 at the beginning of the month. On 10 June, the business purchased $5,680 cleanings supplies. At the end of the month, a physical count shows that $950 of supplies are still on hand.
5. The business has 10 part-time employees who each earn $288 per day. They all worked 20 days in the month of June. They were paid for 18 days on 30 June, but not for the last two days in June for which they have worked.