What are the pros and cons of hca and cca in the context

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Reference no: EM13872822

Assessment Task

 

Question 1

 

Whenever Blue Peter Trading Pty Ltd conducts a financial transaction and issues or receives a source document, the chart of accounts dictates where that transaction is recorded in the accounting system based on its type. For example, purchases of inventory would be coded to account 1-1400, whereas a payment for staff wages would be coded to account 5-3100. You are asked to prepare a chart of accounts by classifying and coding the following accounts for Blue Peter Trading Pty Ltd.

 

How this accounts can be checked for accuracy and reliability in accordance with organizational policies and procedures.

 

Account name

$

Account name

$

Furniture and fixtures

2,000

Freight paid

200

Inventory

500

Office supplies

200

Plant and equipment

5,000

Stationery

250

Accounts Receivables

50

Bank charges

100

Motor vehicles

1,500

Delivery fee income

300

Petty cash

600

Discounts received

400

Computer equipment

500

Interest income

20

Cash drawer

400

Subscriptions and magazines

250

Cheque account

200

Motor vehicle expenses

500

Credit card balance

200

Cleaning

300

Accounts Payables

300

Electricity

210

GST payable

200

Superannuation

75

PAYG withholding payable

100

Insurance

200

Superannuation payable

50

Discounts given

100

Union fees payable

20

Photocopying

25

Loan from Commonwealth Bank

10,000

Postage

20

Capital

15,000

Purchases

5000

Drawings

200

Purchases returns

300

Sales

12,000

Telephone

23

Accounting fees

500

Travel

150

Advertising

300

Wages and salaries

5,000

 

Question 2

 

Using a Business activity statement from ATO, You are required to apply to correct GST code against the following business balances for the period January to March; the company uses the accrual basis when accounting for GST. All of these amounts include GST if applicable.

 

Account

Total amount $

BAS code

Sales invoiced (inc. GST)

 

 

Sales

370,000

 

Exports

65,000

 

Other GST-free sales

16,800

 

Purchase invoices (inc. GST)

 

 

Assets purchased

60,700

 

Purchase of materials

115,200

 

General journal bills

 

 

Advertising

800

 

Electricity

1,200

 

Freight

580

 

Petrol for company vehicle

2,200

 

Salaries

45,000

 

Wages

120,000

 

PAYG withheld from salaries and wages

33,400

 

ATO-assessed income rate

3.60%

 

 

It is important that bookkeepers are able to calculate GST amounts accurately.

 

Calculate GST on an invoice received for payment of education fees; total invoice amount is $2,200

 

Question 3

 

a) What is a Pie chart? Give two advantages and two disadvantages of  Pie chart.

 

b) Jim Morrison has invested $88,000 in commonwealth bank, $44,000 in Grocery business and $68,000 in a Italian restaurant. Using Microsoft Excel Prepare a pie chart, Use conversion and consolidation procedures to compile analysis in accordance with organisational requirements in an appropriate manner that shows the proportion of his investment at each sector of business.

 

c) What is a Bar Graph? Give two advantages and two disadvantages of  Bar Graph.

 

d) The following information provides numbers for the UK total resident population. The figures for total population at decade intervals since 1959 are  given below:

 

Year

Total UK Resident Population

1959

51,956,000

1969

55,461,000

1979

56,240,000

1989

57,365,000

1999

59,501,000

 

Using Microsoft Excel and conversion and consolidation procedures, compile analysis in accordance with organisational requirements, Prepare a Bar chart in an appropriate manner that reflects the above information.

 

e) When valuing assets and liabilities in your organization: List some of the assets and liabilities that can change  in  value over time.

 

f) Which valuation method does your organization use to value these assets and liabilities - historical cost accounting (HCA) or current cost accounting (CCA)?

 

g) What are the pros and cons of HCA and CCA in the context of providing relevant and reliable financial information?

 

h) Why is it important to adopt a consistent valuation method across all assets and liabilities rather than valuing some using HCA and others using CCA?

 

Question 4

 

Following are the accounts and Balance of Sunmoon Sunglasses Shop as on January 31 2010, following  a clear and appropriate structure and format and conform to organisation requirement to ensure that statements and data are error free and comprehensive, Prepare:

 

  • A Trial balance.

 

  • A statement of Financial Performance (profit and Loss account).

 

  • A statement of Financial Position (balance sheet.)

 

Make the report that you have prepared is cross checked against original data and accounting standard.

 

Accounts

$

Cash

41,150

Accounts Receivable

4,806

Allowance for Doubtful Accounts

58

Inventory

2,670

Prepaid Insurance

2,200

Land

20,000

Accounts Payable

1,500

Interest Payable

90

Payroll Taxes Payable

113

Wages Payable

817

Mortgage Payable

18,000

Owner's Investment

50,000

Sales

11,680

Repair Revenue

20

Cost of Goods Sold

3,504

Advertising

200

Bad Debt Expense

58

Bank Charges

50

Insurance Expense

200

Payroll Taxes

603

Rent

2,240

Supplies

150

Wages

4,357

Interest Expense

90

 

Question 5

 

Following a clear and appropriate structure and format and conform to organisation requirement to ensure that statements and data are error free and comprehensive, From the following information prepare a cash flow statement.

 

 

Jan

Feb

Mar

Apr

May

Jun

Cash Sales

600

1200

1750

2300

2600

3000

Debtors Payments

0

600

850

1300

1490

1430

Total Revenue

600

1800

2600

3600

4090

4430

Raw Materials

970

1200

1350

1380

1670

1500

Wages

800

800

800

900

900

900

Interest

220

220

220

220

220

220

Rates

40

40

40

40

40

40

Electricity

60

60

60

100

100

100

Travelling

80

80

150

150

150

150

Sundries

130

80

80

80

80

80

Exhibition Charges

150

150

250

250

300

300

 

Opening Cash Balance for the company is $750

 

Question 6

 

In the year ended 30 April 2005, the bookkeeper of V R Cross, wholesaler, made the following errors.

 

a)  He wrote off as a bad debt the amount owing by N Ever ($400). He credited $400 to the N Ever account, but debited the bad debts account with $40.

 

b) A payment of $200 made to Julie Andrews was credited to the account of Janet Andrews.

 

c) A credit note for $160 in respect of goods returned to Asif Iqbal, a supplier, was lost and no entries made in the books.

 

d) On 1 January 2005, an insurance premium of $1 200 for the period 1 January to 31 December 2005 was paid; no adjustment was made for the amount paid in advance at 30 April 2005.

 

e) The total of the purchase returns book was undercast by $100.

 

f) The total of the discount allowed column in the cash book, $250, was posted to the credit side of the discount received account.

 

g) A cheque for $ 195 received from A N Other on 16 April 2005, in full settlement of her account, was entered correctly. No cash discount was involved. The cheque was dishonoured on 27 April 2005, but no entry for this was made in the books.

 

You are asked to do the following:

 

Show the effect of each error on the trial balance and the net profit for the year ended 30 April 2005.Draw up the table, in your answer book and complete it for each of the items (a) to (g) above. Ensure that discrepancies, unusual features or queries are identified, resolved or referred to the  appropriate authority.

 

Question 7

 

Assessing Martin Manufacturing's current financial position

 

Tom, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firm's financial performance during 2007 and its financial position at year end 2007. To complete this assignment, he gathered the firm's 2007 financial statements, which follow. In addition, he obtained the firm's ratio values for 2005 and 2006, along with the 2007 industry average ratio (also applicable to 2005 and 2006).

 

Income statement Martin Manufacturing Company for the year ended 31 December 2007

Sales revenue

 

$ 5075000

Less Cost of goods sold

 

3704000

Gross profits

 

$1 371 000

Less Operating expenses

 

 

Selling expense

$650 000

 

General and administrative expenses

416 000

 

Depreciation expense

152 000

 

Total operating expenses

 

1 218 000

Operating profits

 

$153 000

Less Interest expense

 

93 000

Net profits before taxes

 

$60 000

Less Taxes (rate = 40%)

 

24 000

Net profits after taxes

 

$36 000

Less Preference dividends

 

3 000

Earnings available for ordinary shareholders

 

33 000

EPS

 

$0.33

 

Balance sheets Martin Manufacturing Company 31 December


2007

2006

Assets



Current



assets Cash

$25 000

$24,100

Accounts receivable

805 556

763 900

Inventories

700 625

763 445

Total current assets

$1 531 181

$1 551 445

Gross non-current assets (at cost)

S2 093 819

$1 691 707

Less Accumulated depreciation

500 000

348 000

Net non-current assets

$1 593 819

$1 343 707

Total assets

S3 125 000

$2 895 152

Liabilities and shareholders' equity Current liabilities

Accounts payable

$230 000

$400 500

Notes payable

311 000

370 000

Accruals

75 000

100 902

Total current liabilities

$616 000

$871 402

Non-current  debt

$1 165 250

5700 000

Total liabilities

$1 781 250

$1 571 402

Shareholders' equity Preference

$50 000

$50 000

shares Ordinary

293 750

293 750

shares Retained

1 000 000

980 000

earnings

1 343 750

$1 323 750

Total shareholders' equity

$3 125 000

$2 895 152

The firm's 100 000 issued ordinary shares closed 2007 at a price of $11.38 per share.

Historical ratios - Martin Manufacturing Company

Ratio

Actual 2005

Actual 2006

Actual 2007

Industry average 2007

Current ratio

1.7

1.8

 

1.5

Quick ratio

1.0

0.9

 

1.2

Inventory turnover (times)

5.2

5.0

 

10.2

Average collection period

50 days

55 days

 

46 days

Total asset turnover (times)

1.5

1.5

 

2.0

Debt ratio

45.8%

54.3%

 

24.5%

Times interest earned ratio

2.2

1.9

 

2.5

Gross profit margin

27.5%

28.0%

 

26.0%

Net profit margin

1.1%

1.0

 

1.2%

Return on total assets (ROA)

1.7%

1.5%

 

2.4%

Return on equity (ROE)

3.1%

3.3

 

3.2%

Price/earnings ratio

33.5

38.

 

43.4

Market/book ratio

1.0

1.1

 

1.2

 

Required

 

a) Calculate the firm's 2007 financial ratios and fill in the  table above.

 

b) Analyse the firm's current financial position from both a cross-sectional and time-series viewpoint. Break down your analysis into an evaluation of the firm's liquidity, activity, debt, profitability and market.

 

c) Provide recommendations and summarise the firm's overall financial position based on your findings in question b. Ensure recommendations are clearly structured, concise and facilitate direction and control of organization's operations.

Reference no: EM13872822

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