The accountant of Lisbon is considering a number of transactions and events and how they should be treated in accordance with the concepts and qualitative characteristics of financial information as set out in the Conceptual Framework. During the year ended 31 March 20X6, Lisbon experienced the following transactions or events. (I) Sold an asset to a finance company and leased it back for the remainder of its useful life. The accountant has decided that this should be treated as a secured loan. (ii) The company’s statement of profit or loss prepared using historical costs showed a loss from operating its shops, but the company is aware that the increase in the value of its properties during the period far outweighed the operating loss. (iii) Inventory has up to this year been valued using FIFO but the accountant is considering changing to the weighted average method for the year to 31 March 20X6.
REQUIRED
(A)The accountant is aware that some members of the Board of Lisbon have little understanding of accounting and he is worried about his presentation of the financial statements at the Board meeting. How should he deal with this situation? B) Which concept or qualitative characteristic has influenced the decision in (I) above) In looking at issue (ii) above, the accountant decides that the properties should be revalued. Which concept or qualitative characteristic has been applied in making this decision) In applying the principle of comparability, how should the change of inventory valuation basis be accounted for?
Villa dry’s inventory includes three items for which the following details are available. Supplier’s Net realisable list price value Shas. Shas. Product A 3,600 5,100Product B 2,900 2,800Product C 4,200 4,100
The company receives a 2½% trade discount from its suppliers and it also takes advantage of a 2% discount for prompt payment.
Required:(a) Calculate the total value of products A, B and C which should be shown in inventory in the statement of financial position.(b) Explain the difference that changing from a weighted average to FIFO method of inventory valuation is likely to have on an entity’s profit or loss.
Dartmouth Games reported the following information for a three-year period:
Calculate inventory turnover, days sales in inventory, and gross profit margin.
| 2021 | 2020 | 2019 | ||||
| Ending inventory | $ 20,000 | $ 30,000 | $ 34,000 | |||
| Sales | 125,000 | 128,000 | 115,000 | |||
| Cost of goods sold | 50,000 | 51,200 | 46,000 | |||
| Profit | 30,000 | 42,000 | 40,000 |
Instructions
a. Calculate the inventory turnover, days sales in inventory, and gross profit margin for 2021 and 2020.
b. Based on this information, does the company’s liquidity appear to be improving or deteriorating?
Kumar and Sons” provided you following information on its inventory acquisitions 10 6 10 Beginning inventory as on 1s, Sharan, 2072: 1, 775 units @ Rs. 12. Purchases: Sharan 6: 12,000 units @ Rs.11 Bhadra 12 10,000 units @ Rs.10 Aswin 18: 11,000 units @ Rs.9.5 Kartik 24: 8,000 units @ Rs.9 Manghir 30: 9,000 units @ Rs.8 On Manghir 30, the company had 3,000 units in hand. The company’s operating and selling expenses was Rs.80,000 The corporate tax rate is 25%. Required: a. Calculate cost of goods sold and cost of inventory under following inventory valuation method& I. FIFO ii. LIFO iii. Weighted average. D. Which method do you recommend so that Kumar and Sons pays the least amount of tax? Explain your answer.
At the beginning of the current golf season, on April 1, 2018, the general ledger of In the Pines Golf Shop showed Cash $4,200; Inventory $19,500; Common Shares $12,000; and Retained Earnings $11,700. In the Pines Golf Shop uses a perpetual inventory system.
SECTION 1 - CASH AND INTERNAL CONTROLS 1 Internal Control in Topic 7, we viewed 2 YouTube videos on a fraud case relating to the National Australia Bank (NAB). [12.00 marks] a) Outline what the case involves, who was involved and what the 2 people were alleged to have done. (Minimum 150 words). (8 marks) b) Outline what measures you would introduce to minimise the risk of this type of fraud happening again in the future. (4 marks) 2 Control Activities Name the type of control activity (5 exist in total) that is being used in each of the following examples. (4 marks, 1 mark each) [4.00 marks] a) ABC Coy Pty Ltd stores inventory that is in a room that is monitored by cameras. b) An internal auditor reconciles the bank statement each month c) The employee who makes EFT payments is not permitted to make entries in the general ledger (T accounts). d) A pre numbered shipping document is used for each shipment to customers. 3 Petty Cash fund Swiss Wines Pty Ltd established a petty cash fund with $250.00 on 1st September 2019. Throughout September, petty cash was used for the following. $51.00 for catering $34.00 for postage $69.00 for taxis. [9.00 marks] a. Make the journal entry to establish the fund (2 marks)
b. At the end of September there was $92.00 left in the petty cash fund. Create the journal for the fund replenishment. (5 marks) c. What is one (1) reason for the difference between the total of the receipts and the amount required to replenish the fund. (2 marks) ENDS OF SECTION 1
SECTION 2 - INVENTORY 1 Inventory Answer the following questions in relation to perpetual inventory recording and periodic inventory recording [6.00 marks] a) What is an example of a retail business that would be better suited to a perpetual inventory recording system. Explain your answer. (3 marks) b) What is an example of a business that would be better suited to using the periodic inventory recording system. Explain your answer. (3 marks) 2 Inventory Explain how inventory becomes Cost of goods sold expense (COGS expense) in the accounting cycle. (2 Marks) [2.00 marks] 3 Inventory If you were opening a clothing retail store, which inventory system (perpetual or periodic) would you use and why? Max 100 words (5 marks) [5.00 marks] 4 Inventory Define what the FIFO system of inventory stands for. Why does it make sense to use this style of inventory management in a restaurant? (5 marks) [5.00 marks] 5 Cost of goods sold calculation Jazz Ltd had $7,000 worth of inventory at the beginning of June. During the month of June, it had: • Purchased $9,400 worth of inventory • Returned $800 worth of inventory • Received $100 worth of discounts • Spent $500 for delivery to the business • Ending inventory was $4,000
Calculate the cost of goods available for sale based on the information provided. (3 marks) If the business had $4,000 worth of inventory on the 30 June, what was the value of the costs of goods sold (COGS) for the month of June? (2 marks) 6 Moving average Suppose Splendour Ltd had 50 units worth $35 each and 80 units worth $40 each. Calculate the average cost of these units (to the nearest dollar). 2 marks. [2.00 marks] END OF SECTION 2
SECTION 3 - CASH FLOW 1 Cash Flow Name 4 sources of cash for a business (2 marks). Name 2 uses of cash for a business (1 mark) [3.00 marks] 2 Cash Flow Answer the following questions regarding cash flow [9.00 marks] a) Name the 3 main categories of cash flow in a business (3 marks) b) Define each of these 3 categories, and 1 example of a cash flow for each category (6 marks) 3 Cash flow interpretation If a business had a positive operating cash flow, a negative investing cash flow, and positive financing cash flows, what general inferences could you draw about the business (3 marks) [3.00 marks] 4 Cash Flow Statement During the month of July, Splendour Ltd experienced the following cash flows: • Borrowed $50,000 from a financial provider • Received $15,000 cash for the sale of its products • Made $3,500 worth payments to suppliers using cash • Paid shareholders $10,000 worth of dividends using cash • Made $2,100 worth of credit sales • Purchased $38,000 worth of inventory on account • Paid $5,000 for rent, $100 for insurance and $4,500 for wages using cash • Sold $6,200 of its own equipment [10.00 marks] a. Using the cash flow template in the Appendix complete a cash flow statement for the business that experienced the cash flows mentioned above, given that the starting cash balance for July was $30,000. 10 marks
SECTION 4 - FINANCIAL ANALYSIS 1 Financial Analysis Explain how the information and knowledge gained in this subject (ACC100, ACC101a, ACC140) will help you in your future career after graduation. (12 marks). You need to be specific with regard to the topic areas studied, and how they will help you. (minimum 250 words) [12.00 marks] 2 Horizontal analysis Horizontal analysis is used in many retain businesses. Explain how a retail clothes shop would use horizontal analysis in communicating its financial results. (2 marks) [2.00 marks] 3 Vertical analysis Vertical analysis is used by many publicly listed companies. explain how Qantas would use vertical analysis to communicate its results in an annual report. (2 marks) [2.00 marks] 4 Account receivable Turnover Ratio- Fashion Designs Ltd 30 June 2012 the owners of the business have asked you to identify how the business can improve its liquidity. Suppose the industry standard for collecting receivables is 60 days, refer to the Profit and Loss and Balance Sheet provided in section 5, appendix [9.00 marks] Calculate the Receivable Turnover (provide the formula and calculations as part of your answer) (3 marks) Calculate the Days for Receivable (provide the formula and calculations as part of your answer) (3 marks) How well is the business doing in collecting its accounts receivable compared to the industry standard? Justify your answer. (3 marks) ENDS OF SECTION 4