Question 1
Billy Bristol has a job working as a skilled labourer for a business which builds home extensions and does renovations. He earns $25 per hour and works for 40 hours per week Monday to Friday. Billy enjoys the type of work that he does, and is very good at his job but he is not really happy working for other people. He would prefer to work for himself.
Billy has always been a handyman. He enjoys making and fixing things and has learned many skills whilst working for the building firm. During April 2014 he has decided to leave his job and start his own home maintenance business (Bristol Maintenance). Billy is trying to earn as much money as possible as he would like to buy a new car.
Billy has never owned or run a business before. To start the business on 1st May 2014, he deposited $1,500 of his own money into a new bank account opened in the name of the business. He also contributed $2,400 worth of his personal tools and equipment to the business, Billy believes that these will last four years after which they will have no value. He was not sure that his $1,500 would be enough cash to get the business started so on 2nd May he borrowed a further $1,500 from his mother and added this money to the business bank account. Billy does not have to pay any interest to his mum but has agreed that he will repay her the $1,500 at the start of September 2015.
Before long Billy has lots of work to do. As he is so busy, he keeps few records other than his business cheque book and a list of amounts owed to him by customers. Twice a month Billy sends invoices to his customers for the work he has done. One customer insisted on paying in cash at the time the job was done, this customer paid $260 and Billy decided that it was not worth producing an invoice for an amount which had already been received. All work done during the period has been invoiced. By 30th June invoices totalling $13,300 had been issued.
At 30th June his customers still owe him $1,500. His business cheque account shows payments for building supplies totalling $3,700, he used $80 worth of supplies to fix some taps at his own flat and he still has supplies that cost $450 on hand. He paid some contractors $2,400 for work that he was unable to do himself, and he still owes them a further $270. He has also paid $127 for various sundry expenses.
Billy rented a cement mixer from Marsden Hire Co. On 1st May, he signed a twelve-month rental agreement and paid $1,200 for the full period. The agreement states that Billy must keep the equipment that he has hired in good working condition. To do this during June he had to have repair and service work performed on cement mixer at a cost of $300, he has not paid for this work yet.
To transport equipment to jobs, Billy used an old van that he bought on 1st May for $2,000. He believes that the period’s work used up 5% of the van’s service potential. The business cheque book lists a payment of $1,960 for private cash withdrawals by Billy during the period. On 30th June Billy paid his mobile telephone bill of $270 from his personal bank account. He estimates that 70% of the calls made were for business use.
Billy believes that his business will do better in subsequent periods as he now has an existing customer base to work from and has started to receive enquiries from family and friends of his people he has already worked for.
Imagine that you are an accounting student on a work experience assignment during your final year of study. One of the partners at the firm where you are engaged has asked you to prepare some financial reports for a new client (Billy Bristol). She has also asked you to use the reports you have prepared to assist in the preparation of a decision making case which she can present to Billy. She would like to do this because Billy is unsure whether he is financially any better off running his business compared to working as an employee. He wonders if he should continue with Bristol Maintenance or return to working for somebody else.
Required
1. Prepare the business Income Statement for the period.
(14 marks)
2. Prepare the business Statement of Changes in Equity for the period
(6 marks)
3. Prepare a classified Balance Sheet at the end of the period.
(16 marks)
4. Using the steps outlined in the decision making model you studied at the beginning of this course explore whether the venture has been successful? In the final step (review/feedback) provide some discussion points which your boss can use to assist Billy in his decision making.
(9 marks)
Total for Question 1: 45 marks
Question 2
1. The owner of a business reviews the Income Statement prepared by you and asks, “Why do you report a profit of only $70,000 when cash collections of $180,000 were received and cash payments for expenses during the period totaled only $80,000?” How would you respond to the owner’s question?
(7 marks)
2. Give two examples which support your answer to part 1 of this question.
(5 marks)
Total for Question 2: 12 marks
Question 3
Michael Stone’s accountant moved interstate in April 2014 leaving Michael to complete his draft accounts for the year ended 30 June 2014, and a Balance Sheet as at that date. He thinks that he may have made a few mistakes and asks for your help. An examination of the accounting records reveals the following:
 |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Buildings: 2% of cost
Office furniture and equipment: 20% of cost
|
|
|
||||||||||
Total for Question 3: 23 marks
Answer on following pages please.
Answer Question 3
1.
|
Date
|
Details
|
Debit
|
Credit
|
|
|
|
|
|
|
|
Question
4
Brisbane
Ltd Perth Ltd
Income
statement data for the year ended 30th June 2014
|
Net
sales
|
$260,000
|
$415,000
|
||
|
Cost
of sales
|
161,000
|
311,000
|
||
|
Gross
profit
|
99,000
|
104,000
|
||
|
Selling
and admin expenses
|
50,000
|
65,000
|
||
|
Interest
expense
|
22,000
|
10,000
|
||
|
Other
expenses
|
2,000
|
4,000
|
||
|
Profit
before tax
|
25,000
|
25,000
|
||
|
Income
tax expense
|
7,500
|
7,500
|
||
|
Profit
after tax
|
17,500
|
17,500
|
||
Balance
Sheet Data as at 30th June 2014
|
Current
assets
|
||||
|
Cash
|
$8,000
|
$15,000
|
||
|
Accounts
receivable
|
41,000
|
30,000
|
||
|
Inventory
|
24,000
|
25,000
|
||
|
73,000
|
70,000
|
|||
|
Non-current
assets
|
||||
|
Plant
and equipment (net)
|
90,000
|
110,000
|
||
|
Total
assets
|
163,000
|
180,000
|
||
|
Current
liabilities
|
||||
|
Accounts
payable
|
20,000
|
24,000
|
||
|
Non-current
liabilities
|
||||
|
Loans
|
120,000
|
80,000
|
||
|
Total
liabilities
|
140,000
|
104,000
|
||
|
Equity
|
||||
|
Total
shareholders’ equity
|
23,000
|
76,000
|
The
following balances were recorded as at 30 June 2013 for each company:
Brisbane
Ltd Perth Ltd
$ $
|
Accounts
receivable
|
35,000
|
24,000
|
||
|
Inventory
|
30,000
|
20,000
|
||
|
Total
assets
|
170,000
|
195,000
|
Required
1. Calculate the following
ratios (for each company):
A.
Gross Profit Margin B.
Profit Margin
C.
Return on Assets D.
Current Ratio
E.
Quick Ratio F.
Receivables Turnover
G.
Inventory Turnover
(28
marks)
2. Write
a short report (300 – 400 words only) which uses the ratios your have
calculated in part 1 of this question to compare the profitability and
liquidity of the two companies.
(12 marks)
Total for Question 4: 40 marks
No comments:
Post a Comment