Professional Documents
Culture Documents
BSB110 ACCOUNTING
241000
(221000)
20000
(3000)
(10000)
(13000)
3000
30000
(40200)
(7200)
(200)
5200
5000
(b) --cash is not related to profitprofit of $1600 and cash decreased by $200
--profit is based on accrual accounting measured as revenue earned less expenses incurred
not cash in or cash out
--need to be clear about difference between cash balance and profit
--best way to explain to Gary is via the Cash Flow Statement
--the cash provided by operating activities ie. Related to profit activities is $20,000 ie. the
cash inflows from profit activities is much greater than the accrual profit of $1600.
--need to explain how cash decreasedhe invested in additional assets equipment and land
total of $13,000
--he withdrew $40,200 and this is the major contributor to decline in cash balancethis
amount does not affect profit but does affect cash balance
--he increased the mortgage and did contribute additional capital but only to the extent of total
of $33,000
--so overall the major factor causing the decrease in cash is the drawings he made
QUESTION 2
(a)
Kody Anthony
Cash Flow Statement for the year ended 30 June 2006
39,300
(35,700)
(15,000)
(3,300)
9,000
12,000
(3,600)
3,600
(18,300)
17,400
2,700
(1,200)
$1,500
Louisa Hannah
Cash Flow Statement for the year ended 30 June 2006
2560
(3650)
1370
________________
280
______(100)_____
______$180______
Can a company have a good net profit and little cash generated from operations in the
same year? Provide an explanation including examples to justify your answer.
Yes net profit based on accrual accounting - if large amounts of sales on credit but
little amount of collections from customers
Also if payments to suppliers is greater then purchases on credit
Then there will be little cash generated from operations but large profit
Cash flow Statement based on CASH flowsnot accrual accounting.
QUESTION 5
(1)
Date
Explanation
Un
it
Jan 1
Balance
Mar 3
Purchase 5
Apr 9
Sold 6
May10
Aug 22
Purchase 6
Sold 4
Purchases
Unit
Total
Cost
Cost
1608
1620
1500
6000
1560
14040
9360
1560
4680
6400
9
5
1600
1600
14400
8000
8040
6
Un
it
Balance
Unit
Total
Cost
Cost
1560
9720
4
1600
Total
$15760
Explanation
Jan 1
Balance
Mar 3
Purchase
Apr 9
May
10
Aug
22
INVENTORY CARD--FIFO
Purchases
Cost of Goods Sold
Unit Unit
Total
Unit Unit
Total
Cost
Cost
Cost
Cost
5
1608
8040
Sales--6
Purchase
1620
1500
6000
1608
3216
9720
Sales4
TOTAL
17760
1608
4824
1620
1620
Balance
Unit
Total
Cost
Cost
1500 6000
1500
6000
1608
8040
1608
4824
1608
4824
1620
9720
1620
8100
Unit
15660
(4) The best valuation of inventory depends on what management wants to achieve and its
goals for the firm.
Because, the costing method used affects assets and profits
Management must choose the most appropriate method
Depending on the type of inventory that the firm is selling
This then in an important decision for Management
The items affected by the inventory costing method are:
*COGS
*Gross Profit
*Net Profit
*Inventory in the Balance Sheet and
*Owners Equity (as net profit is affected)
--The specific unit cost method assigns each inventory item its particular cost. The specific
unit cost method is used for inventory items that are individually identifiable, like jewels and
motor vehicles.
--The average cost method assigns the weighted-average cost of inventory available during
the period to ending inventory and cost of goods sold.
--Under the first-in, first-out (FIFO) method, the first inventory costs incurred during the
period are assigned to cost of goods sold. The latest unit costs are assigned to ending
inventory. When prices are rising, FIFO produces the highest reported profit.
--Under the last-in, first-out (LIFO) method, the last inventory costs incurred during the period
are the first to be assigned to cost of goods sold. The earliest unit costs of the period are
assigned to ending inventory. When prices are rising, LIFO produces the lowest
reported profit.
In general: FIFO results in the ending inventory being valued at the most current cost. The
earliest costs of the period are assigned to cost of goods sold, leaving the last (that is, the most
current) costs for ending inventory. LIFO results in the cost of goods sold amount being
valued at the last (the most current) cost.
QUESTION 6
Date
Apr 1
2
10
18
22
Explanation
Balance
Purchase
12
225
2700
Sales--10
Purchase
Sales--16
Sales--4
14
230
220
1540
225
675
3220
220
1540
12
225
2700
225
2025
225
2025
14
230
3220
Unit
225
2025
230
1610
230
1610
230
920
230
690
TOTAL
Ending Inventory = $ 690
Balance
Unit
Total
Cost
Cost
220
1540
6770
Cost of Goods Sold = $ 6770
Date
Apr 1
Explanation
Balance
Purchase
Sales--10
7
12
225
2700
19
10
10
Purchase
18
Sales--16
16
22
Sales--4
14
230
14/4
(b)
11/3
16/3
5228.42
227.3
226
681.97
227.32 3637.16
26
909.29
2008.42
1591.26
6778.03
Highest profit for April is the method with the LOWEST cost of goods sold = FIFO.
1,400
1,400
250
1,150
250
1,150
900
300
150
Inventory
Cost of Goods Sold
21/3
4240
QUESTION 7
(a)
5/4
Inventory
Accounts PayableGolden Ltd
10/4
223.1
579
23
5920
223.15 2231.58
79
3220
TOTAL
(3)
Unit
Balance
Unit Total
Cost Cost
220
1540
Cash
900
300
150
50
50
750
Accounts Receivable
750
(c) 1. Sales - Sales Returns & Allowances = Net Sales = $21,500 - $165 = $21,335
2. Net Sales - Cost of Goods Sold = Gross Profit = $21,335 - $15,975 = $5,360
3. Gross Profit - Operating Expenses = Net Profit = $5,360 - $1,650 = $3,710
QUESTION 8
(EXTRACT) CASH RECEIPTS
JOURNAL
Total to date
56,431
Total to date
NSF
(540)
Bank Charges
Note Receivable
2,650
Interest earned
74
TOTAL
$58,615
TOTAL
$68,833
PR
1 Oct
Bal
31 Oct
CRJ
31 Oct
CPJ
Debit
Credit
Debit
Credit
2,287
58,615
60,902
68,833
7,931
6,484 CR
2,937
9,421
18,432
9011 o/d
1080
7,931 CR
QUESTION 9
Cash Receipts Journal
Total to date
Bill Receivable
NSF
$
4778
650
(100)
$5328
$
3896
25
$3921
BALANCE
13641
18969
15048
5328
3921
Bank Reconciliation
As at 30 April
Balance as per Bank Statement 30 April
Add outstanding deposit
15405 CR
570
15975
100
15875
827
$15048 DR
QUESTION 10
CREDIT SALES
April $15600
May $14500
June $12800
July $16100
August $11200
TOTAL
$14620
SEPTEMBER
1280
6440
5600
$13320
QUESTION 11
Hannah's Hair Fashions--Cash Budget for May
Cash balance at 1 May
775
Add receipts
Collections from customers
60% of May sales 2200
1320
40% of April sales 1760
704
Cash available
2799
Less payments
Purchases
70% of May 1320
924
30% of April 1020
306
Rates
Rent
Wages
New equipment
Total payments
Cash balance at 31 May
(ii)
270
150
550
180
2380
$419
If Hannah wants to maintain a cash balance of $600 she will need to CONTRIBUTE
additional cash of ($600 419) = $181
QUESTION 12
(a)
Cash Receipts Journal
Total to date
Dividend received
NSF
387
100
(22)
$465
465
551
17
16
$
459
10
82
$551
BALANCE
3742 CR
3277 CR
3828 CR
3532DR
356
3888
33
3855
27
$3828 CR
10
(c)
September
(5%) 1820
(15%) 5775
(80%) 32480
October
(5%) 1925
(15%) 6090
(80%) 33600
$41615
$40075
Schedule of Cash Receipts
September
18 000
40075
$58075
QUESTION 13
(a)
Cost = 160000 RV = 20000 Depreciable Amount = 140000
Straight line
140000
4
for 2000
for 2001
Reducing balance =
for 2000
for 2001
October
18 600
41615
2 000
$62215
EUL = 4 years
= 35000 p.a.
= 35000
= 35000
=
=
=
=
40% of 160000
64000
40% of 96000
38400
140000
= 200000 = 70c/unit
= $56000
= $42000
11
Reducing Balance
Depn
Book value
4800
11200
3360
7840
Depn
3750
3750
Straight Line
Book Value
12250
8500
Depn
3750
3000
Units of Use
Book Value
12250
9250
(c)
1. Alex says price of truck NOW = price of truck 1 year ago
BUT depreciation does NOT equal market price or decrease in market
Price, hence, Alex is WRONG. Depreciation is not a valuation technique.
2. Alex says in 2nd year VALUE will drop---WRONG again.
12
Year 1
2
3
4
Straight line
Depreciation
Carrying
amount
7500
32500
7500
25000
7500
17500
7500
10000
Units of Production
Depreciation
Carrying
amount
8250
31750
9000
22750
6750
16000
6000
10000
Workings
13
QUESTION 16
Sales Budget - 2nd Quarter
1st month
2nd month
3rd month
$4,200
$5,400
$7,200
Multiply number of units by unit cost.
Total
$16,800
+
=
1
2
3
4
5
1st month
$2,100
1,080
3,180
6004
$2,580
2nd month
$2,700
1,440
4,140
1,080
$3,060
3rd month
$3,600
1,2005
4,800
1,440
$3,360
QUESTION 17
(a)
(i)
(ii)
breakeven (units)
=
fixed expenses / contribution margin
=
$15,000 / $10.50 = 1,428.5714 units
=
1,429 units (rounded to nearest unit)
Breakeven (dollars) = breakeven (units) x selling price per unit
= 1,429 x $20
= $28,580
40,000
20,000
20,000
15,000
5,000
Total
$8,400
1,200
9,600
600
$9,000
14
Check calculation: if sell 2,000 balls then that is 500 above the break even point. Every sale
above the break even point earns the CM per unit in profit. 500 x $10 = $5000 = profit as
per the profit and loss statement.
QUESTION 18
Cayden Kent
Fixed expenses
Contribution margin per unit
$1200
$6
200 meals
=
=
=
c. Breakeven sales in $
d.
Sales revenue (200 $9)
Less Variable expenses (200 $3)
Contribution margin
Less Fixed expenses
Profit
e. Target sales in units
9
3
$6
200 x $9
= $1800
$1800
600
1200
1200
$ 0
$280,000
$120,000
24,500
35,000
179,500
100,500
10,500
15
General Expense
Net Profit
35,000
45,500
$ 55,000
16
QUESTION 20
(a)
Clarence Enterprises
Purchases, Cost of Goods Sold and Inventory Budget
August
September
Total
68000
62400
130400
+ ending Inv. **
42440
49160
49160
110440
111560
179560
- Beginning Inv
69000
42440
69000
Total Purchases
41440
69120
110560
** ending inventory = 5000 plus 60% of the budgeted cost of good sold for the
following month
August = 5000 + 60% of 62400
September = 5000 + 60% of (80% of 92000)
(b)
Budgeted Income Statement
for the month of September
Sales
78000
62400
Gross Profit
15600
15000
Net Profit
600
QUESTION 21
(a)
Liquidity = ability to pay debts in short term
Current Ratio = amount of CA available to pay CL --Rule of thumb is 2:1.
For 2000 good just above rule of thumb
--Improved since 1999 = good
Acid Test Ratio = amount of very liquid assets available to pay CL
--A mere stringent test of liquidity--Rule of thumb is 1:1.
For 2000 good just above rule of thumb
--Improved since 1999 = good
Inventory T/O very industry dependent
no information here as to what industry, difficult to comment higher the better
increased since 1999= good
at 3.75 times not a fruit shop which should have T/O of roughly 185 times
approximately
must be selling slow moving items that have long shelf life
17
365
The profit ratio measures the profit per dollar of sales. Profitability has fallen sharply
from 15.00% in 1998 to 6.67% in 1999 as indicated by the profit ratio. In other words,
for every dollar of sales, the company is only earning 6.67 cents. This is of major
concern.
The rate of return on net assets measures the return earned by management through
activities; shows the success a company has in using its assets to earn a profit. This ratio
has also dropped from 15.52% to 9.04% indicating that the ability of the assets to
generate profits has declined. This, too, is of major concern.
Liquidity Analysis:
The current ratio measures the company's ability to satisfy its obligations in the shortterm. The company's current ratio has fallen from 7.00 times to 2.33 times, indicating
that it is finding it more difficult to pay its debts as and when they fall due. This is an
area of concern, although 2.33 times is satisfactory - a rule of thumb is usually 2:1.
The quick ratio tells us whether the company could pay all of its current liabilities if
they became due and payable immediately. The company's quick ratio has fallen
18
dramatically from 4.00 times to 1.11 times. This is an area of concern, although 1.11
times is satisfactory - a rule of thumb is usually 1:1.
The inventory turnover ratio is a measure of the adequacy of inventory and how
efficiently it is being managed. Inventory turnover has increased slightly between 1998
and 1999. The higher the turnover, the better, as it means that inventory is being turned
over more frequently. Steps should be taken to try to increase this.
The debt ratio measures the proportion of the company's assets financed by debt. The
debt ratio is a measure of the relationship between total liabilities and total assets. The
company's debt position has deteriorated dramatically between 1998 and 1999. In 1998
only 9.09% of the entity was debt financed, whereas in 1999, this amount has increased
to 35.14%. Upon further investigation, a long term loan of $24,000 was taken out to
purchase non-current assets. This is a perfectly acceptable strategy. Also, the ratio is
well below 50% so there is no need for alarm at this stage.
QUESTION 23
(i)
PROFITABILITY shows the ability of the firm to earn profits
Profit Margin has improved from 97 to 98. Shows the % of each $ of
sales that is profit.
LIQUIDITY shows the ability of the firm to pay its debts in the short term
Current ratio current assets to current liabilities has decreased from 97
to 98. Rule of thumb is usually 2:1; was OK for 97 at 2.3:1 and has
declined in 98 to below the 2:1 benchmark. But beware of Rules of Thumb
as they are only averages and should look at the industry. Also the more
liquid the firm, the less profitable. As liquid assets are not usually
profitable.
Quick ratio more stringent test of liquidity only "quick" assets included in
numerator rule of thumb 1:1; OK for 97 and then decreased to 0.67:1. Not
too bad though.
Inventory T/O measures number of times inventory is turned over during
year. Has decreased from 97 to 98. Industry dependent.
Receivables T/O measures how quickly the cash is received from
receivables has decreased. Compare to average credit period of 30
days.
FINANCIAL STABILITY shows the ability of the firm to survive in long run
security
Debt Ratio shows % of assets funded by outside debt. In Australia, 60%
is the maximum preferred Rose Wines very stable with only 30%+ then
increase to 34.3% therefore very secure.
(ii)
(iii)
19
(iv)
would expect this to be the case
ie. profit margin increased and inventory T/O decreased
profitability versus liquidity
they usually move in opposite directions
though an increased inventory T/O would likely lead to increased profits as selling more
but perhaps cost of sales is too high to allow for much increase in profits
(v) Other info
(vi)
Profit margin
Rate of return on assets
Times Interest Earned
Debt Ratio
QUESTION 24
(a)
Inventory T/O increase means good newsinventory was sold more quickly therefore better
liquiditymore sales alsowould also expect this would lead to higher potential profits
Receivables T/O increase means good newscollected money from customers more quickly
quicker cash collectionbetter liquidityless problems with bad debts perhapsthis does
not affect profitability
BUT net profit decreasedtherefore COGS must have been increased at a GREATER rate
than sales OR operating expenses have increased at a greater rate than sales
Overall any kind of expense must have risen at a greater rate than the increased turnover
(b) PART (i) FOR THIS SECTION NEED TO LOOK JUST AT THE RATIOS GIVEN
CANNOT DO COMPLETE DISCUSSION BECAUSE OF THE LACK OF DATA AND
THE LIMITATIONS AS PER SECTIONS (ii) and (iii)
PROFITABILITY
Ability of firm to generate profits
Profit Margin=the return on sales
Has decreased from 10% to 7% --on the face of itnot a good signbut at least profits are
being earned
20
21