Reference no: EM132270607

Question 1 - Ultimo Travel Goods Pty Ltd was formed on 1 July 2018. At 30 June 2019, Mark Austin, the managing director and major shareholder, decided to prepare a statement of financial position, which appeared as follows:

Mark willingly admits that he is not an accountant by training. He is concerned that his statement of financial position might not be correct. He has provided you with the following additional information:

1. The villa is on the Gold Coast and actually belongs to Mark, not to Ultimo Travel Goods Pty Ltd. However, because he thinks he might allow executives to use it sometimes, he decided to list it as an asset of the company. To be consistent he also listed as a liability of the company his personal loan that he took out at the bank to buy the villa.

2. The inventory was originally purchased for $10 000, but due to a surge in demand Mark now thinks he could sell it for $30 000. He thought it would be best to record it at $30 000.

3. Included in the accounts payable balance is 55000 that Mark owes for his personal telephone account. Mark included this in the accounts payable of Ultimo Travel Goods Pty Ltd because he will probably use a company cheque to pay for it.

Required -

(a) Comment on the proper accounting treatment of the three items above.

(b) Provide a corrected statement of financial position for Ultimo Travel Goods Pty Ltd. Assume the Notes Payable is a current liability.

Question 2 - Lynn Dreise is the bookkeeper for Sanculi SpA. Lynn has been trying to get the statement of financial position of Sanculi to balance correctly. Sanculi's statement of financial position is shown as follows:

Instruction - Prepare a correct statement of financial position.