Financial Analysis Issues - Assignment Example

UNIVERSITY OF SOUTH AUSTRALIA Assignment Cover Sheet An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly. When submitting the assignment online, please ensure this cover sheet is included at the start of your document. (Not as a separate attachment.) Please check your Course Information Booklet or contact your School Office for assignment submission locations. Name: Student ID                 Name: Student ID                 Email: Course code and title: School: Program Code: Course Coordinator: Tutor: Day, Time, Location of Tutorial/Practical: Assignment number: Due date: Assignment topic as stated in Course Information Booklet: Further Information: (e.g. state if extension was granted and attach evidence of approval, Revised Submission Date)   I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made. I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. I understand that I can obtain further information on this matter athttp://www.unisanet.unisa.edu.au/learningconnection/student/studying/integrity.asp Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date: Signed: Date: Date received from student Assessment/grade Assessed by: Recorded: Dispatched (if applicable): Question 1 1. Clear View Cleaning Income Statement From 1st May To 30th June 2013 Sales (Invoices) $ 8,300 Less Expenses Salaries And Wages $ 2,900 Telephone Bills $ 168 Rental Equipments $ 200 Loan Expense $ 200 Depreciation $ 150 Total Expenses $ 3,618 $ 3,618 Profit $ 4,682 Workings Telephone bills = 60% x $280 = $168 Rental equipments = $400 - $200 = $200 Depreciation = ($3000 - $300)/36 months = $75 = $75 x 2 months = $150 Loan expenses = $2,400/24 months = $100 every month The sales are from the invoices issued by the business for the period. The cash paid has been treated as cash in hand and taken to balance sheet. The rental agreement has only gone for two months and therefore half the amount is rental expenses (income statement) and the other half is rent prepaid (balance sheet). The expense is the payment of loan which is $100 every month. This is treated as an expense and reduces the loan amount in the balance sheet ($2400 - $200 = $2200). The method of depreciation used is the straight line method. The total profit is taken to the balance sheet and the statement of changes in equity. The telephone bills included is for business only. Answer Question 1 2. Clear View Cleaning Statement Of Changes In Equity From 1st May To 30th June 2013 Retained Earnings Capital Drawings Total Equity 1st May - - - Profit For The Year $ 4,682 $ 1,078 $ 5,760 Drawings $ 970 $ 970 31st May $ 4,682 $ 1,078 $ 970 $ 6,730 The drawings are a total of the cash and cleaning expenses. Answer Question 1 3. Clear View Cleaning Balance Sheet From 1st May To 30th June 2013 Assets Current Assets Cash At Hand $ 120 Cash At Bank $ 2,600 Account Receivables $ 900 Prepaid Rent $ 200 Inventory $ 60 Total Current Assets $ 3,880 Noncurrent Assets Van $ 2,850 Total Assets $ 6,730 Liabilities Current Liabilities Account Payables $ 380 Accrued Telephone Bill $ 125 Accrued Wages $ 320 Total Current Liabilities $ 825 Noncurrent Liabilities Loan $ 2,200 Total Liabilities $ 3,025 Net Assets $ 3,705 Equity Drawings $ 970 Capital $ 1,078 Profit For The Year $ 4,682 Total Equity $ 6,730 The van is recorded at its net value (cost – accumulated depreciation). Question 2 Answer Question 2 1. Periodic method of inventory recording Mayo Enterprises Calculation Of Gross Profit Periodic Inventory Recording Total Units Opening Inventory 900 Purchases 3000 Closing Inventory 370 Total Units Sold 3530 Sales $ 7,100 Less Costs Of Sales $ 5,000 Gross Profit $ 2,100 Perpetual method of inventory recording Date Purchases Sales Balance Units Unit Cost Total Units Selling price Total Units Unit Cost Total 1-Jul 900 0.6 540 11-Jul 400 2.5 1000 500 0.6 300 3-Aug 240 2.5 600 260 0.6 156 12-Sep 1200 0.6 720 1460 0.6 876 30-Sep 520 2.5 1300 940 0.6 564 2-Dec 900 0.6 540 1840 0.6 1104 6-Dec 160 2.5 400 1680 0.6 1008 3-Feb 280 2.5 700 1400 0.6 840 22-Mar 900 0.6 540 2300 0.6 1380 19-Apr 920 2.5 2300 1380 0.6 828 26-May 320 2.5 800 1060 0.6 636 Total 1800 7100 Sales 7100 Cost Of Sales 1800 Gross Profit 5300 Answer Question 2 2. i) Perpetual method of inventory recording provides the highest gross profit ii) Again, perpetual method of inventory recording the most information for control purposes, this is because of recording of each and every transaction when it occurs. iii) Considering the circumstances, the method that would be the most appropriate for Jane’s business is perpetual. This is because it keeps track of the movement of stocks and thus will be able to account for the stocks. She will be able to know in advance when to replenish, when to order and the lead time required for the control of stocks. She will be able to know the buffer stocks needed as well, (Carnegie 2003). Question 3 Answer Question 3 Sometimes there are estimates made on the cost of invoices or in payment of goods or services. Processing of adjusting journal entries is done in order to prepare financial statements with the correct information and to apply some accounting for the adjusting entries made. Hence processing adjusting journal entries is made to update the respective entries with accurate figures and numbers in the financial statements. This statement is not correct. This is because adjusting entries indicate the real time when expenses and or income was actually received and or paid. They may be misstated and thus adjusting entries serves to correct them. The original entries may have been misstated with significant amounts. Types of adjusting entries are such as unearned revenue, accrued revenues, prepaid expenses and depreciation. Current account balances of these accounts may not currently indicate the correct balances owing to accountants’ fault in preparing the journal entries or their failure to update the account balances to reflect new happening changes in the previous transactions concerning the accounts. Example A business made cash sales worth $1,000 in the month of September 2013. However, the accounting clerk recorded the cash sales amount as $100. In this case, the adjusting journal entry for correction of this mistake is as follows; This is the recorded amount of $100   Debit Credit Cash $100      Sales   $100 Identifying the account balances and recording the correct amount of $1,000   Debit Credit Cash $1,000      Sales   $1,000 The last step is incorporating the difference between the correct and the current balances and entering them in the journal entry do show the difference   Debit Credit Cash $900      Sales   $900 This is equal to correct amount – recorded amount = 1000 – 100 = $900 Question 4 Answer Question 4 1. Triple S Services Income Statement As At 30th June 2013 Sales $ 38,400 Less Expenses Telephone Expense $ 2,300 Supplies Expense $ 4,840 Repairs & Maintenance $ 2,560 Repairs $ 270 Other Expenses $ 540 Total Expenses $ 10,510 $ 10,510 Net Income $ 27,890 2. Triple S Services Income Statement As At 30th June 2013 Sales $ 38,400 Less Expenses Telephone Expense $ 2,300 Supplies Expense $ 4,840 Repairs & Maintenance $ 2,560 Other Expenses $ 540 Total Expenses $ 10,240 $ 10,240 Net Income $ 28,160 Answer Question 4 3. According to the information provided, Susan should use accrual accounting. This is because accrual accounting matches revenue and expenses thereby providing her with a better idea of how much the business is spending to operate as well as the amount of profits generated from the operations, (Robinson 2002). Revenues are expenses are recorded and recognised the month or time they are earned and incurred respectively thereby marching them well. In addition to this, accrual method of accounting she has used is more accurate that the cash accounting method, (Ryan 1998). It gives a true depiction of the financial responsibility and this will help her to manage the business finances well. This is not forgetting that accrual accounting is done in real time unlike the cash accounting which happens after the events leading to the transactions have already passed. Question 5 1. Ben Bournemouth Income Statement For The Year Ended 30 June 2013 Sales $ 900,000 Purchases $ 675,000 Gross Profit $ 225,000 Profit $ 135,000 Answer Question 5 2. Ben Bournemouth Balance Sheet As At 30 June 2013 Current Assets Accounts Receivable $ 90,000 Total Current Assets $ 90,000 Noncurrent Assets $ 810,000 Total Assets $ 900,000 Liabilities Accounts Payable $ 270,000 Equity $ 450,000 Profit For The Period $ 135,000 Reserves $ 45,000 Equity And Liabilities $ 900,000 References Carnegie, G, D, & West, B, P, (2003), how well does accrual accounting fit the public sector? Australian Journal of Public Administration, 62(2), 83-86. Robinson, M, (2002), Accrual accounting and Australian fiscal policy, Fiscal Studies, Sydney. Ryan, C. (1998), the introduction of accrual reporting policy in the Australian public sector: an agenda setting explanation, Accounting, Auditing & Accountability Journal, 11(5), 518-539. Read More