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BALANCE SHEET
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PROFIT AND LOSS
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Current Assets
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Cash and cash equavents
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$ 270
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Trade Receivables /debtors
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$ 711
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Sales
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$ 23,739
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Inventories
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$ 2,905
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Cost of Sales
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$ 17,824
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other current asets
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$ 66
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Gross Profit
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$ 5,915
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$ 3,953
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Non Current Assets
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Other income
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$ 1,012
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Loans Receivable
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$ 174
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Finance Costs
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-$ 125
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Investment heald
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$ 108
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Selling and Occupancy Cost
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-$ 5,375
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property plant and erquipment
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$ 3,464
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Administrative expenses
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-$ 1,222
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deferred tax assets
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$ 232
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$ 205
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Intagiable
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$ 313
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Tax
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-$ 58
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Other non current assets
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$ 42
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Net Profit after tax
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$ 147
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$ 4,334
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TOTAL ASSETS
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$ 8,287
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Current Liabilities
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Trade and other payables
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$ 2,183
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Short Term Borrowings
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$ 12
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Current portion of long term borrowings
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$ 69
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TaXx Liability
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$ 40
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short term provisions
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$ 662
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$ 2,966
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Non Current Liabilities
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long term Borrowings
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$ 1,671
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Tax Liabilities
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$ 220
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Long Term Provisions
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$ 110
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Other non current libilities
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$ 52
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$ 2,053
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TOTAL LIABILITIES
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$ 5,019
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NET ASSETS
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$ 3,268
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EQUITY
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Share Capital
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$ 1,976
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Reserves
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$ 411
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Retained earnings
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$ 734
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current year earnings
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$ 147
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TOTAL EQUITY
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Question 1
The following is the unadjusted trial balance for James Trading Pty Ltd as at the close of the financial year ended 30 June 2011. In addition the following entries had not been applied to the general ledger.
1. Rent had been prepaid to the extent of 3 months on June 1st. The monthly rent is $1,000
2. Interest income on a loan made to J Harris had not been taken to account
3. Expenses of $20,000 for legal fees were estimated to be incurred but had not been invoiced by the solicitor
4. A stock take was undertaken as at the close of June and $8,500 was the value of stock on hand
5. The company received $20,000 for services which will be delivered over the next four months. The first services were provided in the current month of June.
On the attached worksheet
a. Complete the entries to adjust the trial balance for the closing entries
b. Prepare an statement of income and statement of financial position
Question 2
The following is the Statement of financial Position and Profit and Loss statement for Luke Incorporated Pty Ltd. You have been retained by your client to review the business and provide a financial analysis of the business for your client.
Undertake an analysis of the company and prepare a short report on your findings to a prospective purchaser.
Your analysis should cover the liquidity and performance of the company. Your report should clearly indicate the ratios and other methods used to evaluate the business for your client.
Your analysis must be in report format. With a suitable explanation of the specific ratios you have applied and why you used them.
Provide a recommendation to your client based on your analysis.
Question 3
Part a)
Advanced Radio repairs make all sales on account. Cash receipts arrive by mail. James opens the envelopes and separates the cheques from the accompanying remittance advices. James forwards cheques to another employee, who makes the daily bank deposit but has no access to the accounting records. James sends the remittance advices, which show the cash received, to the accounting department for entry into the accounts. James' other duty is to grant sales allowances to customers ( a sales allowance decreases the amount receivable). When he receives a customer's cheque for less than the full amount of the invoice, he records the sales allowance and forwards the document to the accounting department.
Required
You are the new Financial Controller of Advanced Radio repairs. Write a memo to the company Chairperson identifying the internal Control weakness in this situation. State the steps to be taken to correct the weakness.
Part b)
You are the Financial Controller for Lukes' Manufacturing and you have been approached by the Chief Executive Officer in relation to the purchase of a new item of equipment. Not having an accounting background, the owner Joe Logs, does not understand the concept of depreciation and is under the impression that depreciation is a process of creating a cash fund to replace an asset.
Write a note explaining the concept and using the information regarding the asset below illustrate the difference in various depreciation methods and the effect on the financial performance of the organisation if any.
Machine Cost $45,000
Delivery to site $500
Cost of set up ready for production $2,500
Salvage value estimated to be $3,000
Maximum units of production 5,000 in the first year
4,500 in the second year
And reducing by 500 units each until the end of its useful life
Effective Useful life 5 years
Show all calculations and a depreciation schedule in your report to demonstrate fully the impact to Joe Logs.
Question 4
Alpha Ltd had the following equity balance at July 1, the beginning of the year
Share capital 10,000 $10 shares $100,000
Reserves $80,000
Retained Earnings $50,000
Alpha Ltd's profit for the year was $40,000. During the year the following events and transactions occurred;
Dec 30 Declared interim cash dividend of $1 per share
Jan 15 Paid interim cash dividend
Mar 31 4-for 1 share split
June 30 declared cash dividend o0f $1 per share
June 30 transferred $15,000 to general reserve
Required
a) Prepare journal entries to record the transactions affecting equity during the period
b) Prepare a statement showing the changes in retained earnings during the year
c) Prepare the equity section of the balance sheet
d) Calculate the dividend payout ratio and return on shareholders' equity
Part b)
Investors Ltd Shareholders equity is as follows
Share Capital $4,000,000
Retained earnings and reserves $1,000,000
Investor ltd plans to expand its operations by establishing a branch in Singapore. The new branch will cost $2.5million. Expected profits before tax and interest when the new branch is operational are $1.2 million. The tax rate is 30%. Investors Ltd is considering 2 financing options;
a) Borrow $2.5million at 8% interest
b) Issue 100,000 shares at $25
Required; Which funding alternative yields the higher return on equity. What other factors should be considered.
Question 5
CVP Analysis
Unique Manufacturing had a bad year in 2007. Having operated at a loss. The income statement showed the following results from selling 60,000: net sales $2,250,000, total costs and expenses $2,835,000; and loss $385,000. Costs and expenses consisted of the following
Total variable fixed
Cost of Goods sold 2,025,000 1,395,000 $630,000
Selling Expenses 630,000 110,000 520,000
Administrative expenses 180,000 70,000 110,000
Total 2,835,000 1,575,000 1,260,000
Management is considering the following independent alternatives for 2008
Increase the unit selling price to $52.50 with no change in costs , expenses and sales volume
Change in compensation of salespersons from fixed annual salaries totalling $300,000 to total salaries of $75,000 plus 5% commission on net sales
Purchase new high tech factory that will change the proportion between variable and fixed cost of goods sold to 50:50
Required
a) Calculate the break -even point for the year 2007
b) Calculate the break -even point under each alternative course of action above.