Accounting for Business Decisions –HI5001
Trimester 2 2014
The assignment allows students to exhibit their knowledge and understanding of the subject matter of Accounting. The students will use the skills of analyzing, comparing, criticizing, evaluating and justifying their responses in answering the assignment in a report format.
The students need to be well read to answer the questions.
Requirements:
The students will be working in a group of four (Maximum) or as specified by the concerned lecturer.
Forming the group is a responsibility of the students, lecturer’s role is to facilitate the group if required.
Week 5 would be the last date for the students to submit the names of their group members to the concerned lecturer.
Assignment work load should be shared equally.
Each Group member to state and list in front of the assignment, as to what part they have completed and accomplished (i.e. Duties and Responsibilities).
Each part would be thoroughly answered. Maximum word Limit is 2500 words.
Students to download assessment criterion available in the blackboard and attach it in front of the assessment.
SECTION A: (14 MARKS)
SECTION B: (16 MARKS)
TOTAL: (30% MARKS)
Due Date: Week 10 before 5.00 pm.
Don’t forget to upload onto Safe assign, one copy per group (do not upload more than one copy). Also, one hard copy to be handed to the lecturer before the schedule time as mentioned above.
SECTION A: (14 MARKS)
Use your kills to Analyze, compare, criticize, evaluate and justify the answers in a process to solve the assignment.
RAY Limited
Balance Sheet as at 30th June
$ $
Current Assets 2013 2012
Cash 40,000 60,000
Account Receivables 650,000 300,000
Allowance for doubtful debts (50,000) (50,000)
Inventory 700,000 290,000
Non-Current Assets
Equipment 1,800,000 1,100,000
Accumulated depreciation (550,000) (100,000)
Capitalized borrowing cost 200,000 ---------
Total Assets 2,790,000 1,600,000
Current Liabilities
Account payable 670,000 556,000
Tax payable 60,000 44,000
730,000 600,000
Non- Current Liabilities
Loan 580,000 600,000
Total Liabilities 1,310,000 1,200,000
Net Assets 1,480,000 400,000
Shareholder’s Equity
Share Capital 1,150,000 250,000
Retained Profit 330,000 150,000
1,480,000 400,000
Sales (all on credit) 1000,000 640,000
Net profit after tax 200,000 128,000
EBIT 290,000 197,000
Tax expenses 41,000 32,000
Required: (Each question is 2 marks)
a. What is the interest expense for 2013?
b. How much equipment was purchased during the year?
c. What was the depreciation expense for 2013?
d. Were any share issues? If any, calculate the value.
e. How much in dividend was paid during the year 2013?
f. How much cash was received from customers during the year?
g. How much was paid in tax?
SECTION B: (16 MARKS)
(Scenario based)
Scenario 1 (5 Marks)
Deagan formed a lawn service business as a summer job. To start the business on 1 May, he deposited $1,000 in a new bank account in the name of the proprietorship. The $1,000 consisted of a $600 loan from his father and $400 of his own money. Deagan rented lawn equipment, purchased supplies, and hired fellow students to mow and trim his customer’s lawns.
At the end of each month, Deagan mailed bills to his customers. On August 31, he was ready to dissolve the business and return to University for the next semester. As he was so busy, he kept few records other than his cheque book and a list of amounts owed to him by customers.
At 31 August, Deagan’s cheque book shows a balance of $690, and his customers still owe him $500. During the summer, he collected $4,250 from customers. His cheque book lists payments for supplies totalling $400, and he still has fuel, whipper snapper cord, and other supplies that cost a total of $50. He paid his employees $1,900, and he still owes them $200 for the final week of the summer.
Deagon rented some equipment from Sea Machine Shop. On 1 May, he signed a six-month lease on mowers and paid $600 for the full lease period. Sea will refund the unused portion of the prepayment if the equipment is in good shape. In order to get the refund, Deagan has kept the mowers in excellent condition. In fact, he had to pay $300 to repair a mower.
To transport employees and equipment to jobs, Deagan used a trailer that he bought for $300. He figures that the summer’s work used up one-third of the trailer’s service potential. The business cheque book lists a payment of $460 for cash withdrawals by Deagan during the summer. Deagan paid his father back during August.
Required
a) Prepare the income statement of Deagan Lawn Service for the four months May through August.( 2 Marks)
b) Prepare the classified balance sheet of Deagan Lawn Service at 31 August.( 2Marks)
c) Was Deagan’s summer work successful? Give the reason for your answer.(1 Mark) Scenario 2 (5 Marks)
Suppose your group is opening a Billabong office in your area. You must make some important decisions—where to locate, how to advertise, and so on—and you must also make some accounting decisions. For example, how often will you need financial statements to evaluate operating performance and financial position? Will you use the cash basis or the accrual basis? When will you account for the revenue that the business earns? How will you account for the expenses?
Required
Write a report to address the following considerations:
a) Will you use the cash basis or the accrual basis of accounting? Give a complete description of your reasoning.
b) How often do you want financial statements? Why? Discuss how you will use each financial statement.
c) What kind of revenue will you earn? When will you record it as revenue? How will you decide when to record the revenue?
Scenario 3 (6 Marks)
Brent and Den worked for several years as sales representatives for Xerox Corporation.
During this time, they became close friends as they acquired expertise with the firm’s full range of copier equipment. Now they see an opportunity to put their experience to work and fulfil lifelong desires to establish their own business. The local TAFE College is expanding, and there is no copy centre within eight kilometers of the campus. Business in the area is booming—office buildings and flats are springing up, and the population of this section of the city is growing.
Brent and Den want to open a copy centre near the campus. A small shopping centre across the street from the TAFE has a vacancy that would fit their needs. Brent and Den each have $20,000 to invest in the business, but they forecast the need for $30,000 to renovate the store. Xerox will lease two large copiers to them at a total monthly rental of $4,000. With enough cash to see them through the first six months of operation, they are confident they can make the business succeed. The two work very well together, and both have excellent credit ratings. Brent and Den must borrow $80,000 to start the business, advertise its opening, and keep it running for its first six months.
Required
Assume the roles of Brent and Den, the partners who will own the Copy Centre.
1. On behalf of Brent and Den write a loan request that Brent and Den will submit to a bank with the intent of borrowing $80000 to be paid back over three years. The loan will be a personal loan to the partnership of Brent and Den, not to the Copy Centre.
The request should specify all the details of Brent’s and Den’s plan that will motivate the bank to grant the loan. Include a budgeted income statement for the first six months of the copy centre’s operation.
Note:
All answers must be brief and thoroughly explained and not one line answers. Students not to look at the marks allocated of the questions. Marks are for the concerned lecturer to mark accordingly.
Please keep in mind the Academic Policy of Misconduct (ie Plagiarism and Collusion).
Late submission of assignment by one day incurs a penalty of 10% each day. For students who enroll late, it’s their responsibility to be on the top of their work. All assignment to be submitted as on time or at the discretion of the concerned lecturer.