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MBS544 ACCOUNTING PROCESSES ASSIGNMENT

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MBS544 ACCOUNTING PROCESSES

SEMESTER 2, 2019

ASSIGNMENT

Instructions:

You are required to complete the assignment provided herewith. The assignment is worth 20 marks and is to be undertaken by students in pairs (2 students). The assignment is to be uploaded to LMS for submission via the Assignment Portal by Monday 14th October, 2019 by 5pm. The assignment will automatically go through Urkind when it is uploaded to LMS so students are advised to make sure they reference their written work appropriately to avoid any problems with plagiarism. As this assignment is to be done in pairs, only one submission is required per group. It is important that students do this assignment themselves and do not collude with other students. If you are unsure about any aspects of this assignment, please seek advice from your tutor. It is each group’s responsibility to ensure that the final report is neatly presented, marks will be deducted for poor presentation. You are expected to use references in your ratio report to support your analysis.

External students can choose either do this assignment with another external student or they can complete the assignment on their own. The same requirements apply to both internal and external students about submission of the assignment and appropriate referencing.

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Business Background

Greta’s Furniture Pty Ltd is a small retail business that has operated successfully for some years buying and selling furniture. The structure of the business is that of a small proprietary company with the owners being Greta and Roger Fitzgerald.

The owners work in the shop, and employ a part-time clerk/salesperson. Rita Steiner, who is paid fortnightly, based on an hourly rate.

The business is registered with the ATO for the goods and services tax (GST), and its Australian Business Number (ABN) is 78 303 823 798. It reports and pays amounts owing for GST quarterly via the business activity statement (BAS). The business has elected to use the accrual basis of accounting for both accounting and GST purposes. 

Accounting policies

BAD AND DOUBTFUL DEBTS

The business uses the direct write-off method when accounting for bad bets as they only occur infrequently.

INVENTORY

The business maintains a periodic inventory system.

PREPAYMENTS

Expenses paid in advance for their use, such as insurance, are initially recorded as assets. Any used portion at the end of period is entered into the journal as an expense.

PROPERTY, PLANT AND EQIUPMENT

The business has adopted the ATO rates of depreciation for all depreciated assets. These rates are based on the ATO’s estimate of useful life. The straight line method is used for the calculation of depreciation on these assets. Amounts calculated are rounded to the nearest dollar.

ACCOUNTING RECORDS

The business maintains the books or original entry set out below. These have been customised to suit the operations of Greta’s Furniture.

  • General journal (GJ): to record all transactions that cannot be recorded in the special journals
Text Box: NOTE: All purchase and sales returns are recorded in the general journal
  • Sales journal (SJ): to record all sales of goods or services on credit, and GST collected
  • Purchases journal (PJ): to record all credit purchases of goods for resale, and GST paid
  • Cash receipts journal (CRJ): to record all receipts of cash, including cash sales of goods or services.
  • Cash payments journal (CPJ): to record all payments made on the business’s cheque account, including cash purchases of goods for resale.
  • Accounts receivable and accounts payable subsidiary ledgers; separate accounts are maintained for each customer and each supplier
  • General ledger: separate accounts are maintained for income, expense, asset, liability and equity accounts.

ACCOUNTING PROCEDURES

On a daily basis, all relevant source documents are collected and transactions recorded in the appropriate journals. Transactions recorded in the ‘other accounts’ columns and all entries relating to accounts or inventory items in the subsidiary ledgers are posted daily. On a monthly basis, special journals are totalled and posted after the bank statement has been received and any missing items have been recorded. A worksheet is then prepared from the general ledger and a monthly income statement and balance sheet are produced, together with schedules of accounts receivable, accounts payable and inventory. At the end of each month, adjusting and closing general journal entries are prepared and posted to the general ledger accounts.

The chart of accounts includes the following accounts: 159 Sale of Asset, 161, Accumulated depreciation – Warehouse, 215 Interest payable, 306 P. Greta, drawings, 350 Profit or Loss summary, 401 Sales, 412 Sales returns and allowances, 415 Discount received, 417 Commission revenue, 416, Gain on Sale of Asset, 510 Purchases, 512 Purchase returns and allowances, 516 Freight inwards, 627 Sales salaries expense, 711 Depreciation expense, 722 Insurance expense, 725 Discount allowed, 726 Interest expense, 727 Office salaries expense, 728 Office supplies expense, 729 Rent expense and 730 Bad debts expense.

Greta’s Furniture Pty Ltd has the following opening account balances in its general and subsidiary ledgers on 1 December, 2019. All accounts have normal debit and credit balances.

General Ledger

NO ACCOUNT NAME 1 December OPENING BALANCE
101 Cash                                                          $ 70,785
112 Accounts Receivable                                                            25,740
115 Commissions Receivable                                                            77,220
120 Inventory                                                            32,400
125 Office Supplies                                                              1,800
127 GST Paid                                                               6,300
130 Prepaid Insurance                                                              3,600
157 Equipment                                                            19,200
158 Accumulated Depreciation                                                              8,900
160 Warehouse                                                         120,000
201 Accounts Payable                                                           69,300
211 GST Collected                                                           15,795
270 Bank Loan                                                        120,000
301 P. Greta, Capital                                                         143,050

Accounts Receivable Subsidiary Ledger

CUSTOMER 1 December OPENING BALANCE
Couch City                                                            $ 2,907
Table Tops Ltd                                                            14,850
Lowell Chairs                                                               7,920
TOTAL                                                            25,740

Accounts Payable Subsidiary Ledger

CREDITOR 1 December OPENING BALANCE
Lee Importers                                                          $ 17,820
Ikeah                                                             29,700
Nordin Office Furniture                                                             21,780
TOTAL                                                             69,300

The following transactions occurred during December

3– Sold inventory on credit to the furniture warehouse $6 160, invoice no. 510, and Beautiful Homes Ltd $3 564, invoice no. 511

5 – Purchased inventory from Walden & Co. $5 940 and D. Landell $4 356

7 – Received cheques for $7 920 from Lowell Chairs and $3 960 from Table Tops Ltd. Discount allowed was 1% respectively

8 – Paid freight on inventory purchased $356.40

9 – Sent cheques to Lee Importers for $17 820 and Nordin Office Furniture for $21 780. Discount received 1% and 1.5% respectively

9 – Issued credit note for $594 to Beautiful Homes Ltd for inventory returned (goods were not damaged and they were returned to inventory)

10 – Total cash sales $30 690

11 – Sold inventory on credit to Couch City for $2 574, invoice no. 512 and to Lowell chairs $1 782, invoice no. 513

12 – Paid rent of $1 980 for December

13 – Received payment in full from the Furniture Warehouse and Beautiful Homes Ltd

15 – Withdrew $1 440 cash by P. Greta for personal use

16 – Purchased inventory form Nordin Office Furniture for $29 700 from Lee Importers for $28 116 and from Walden & Co for $2 970

17 – Paid $792 cash for office supplies

18 – Returned $396 of inventory to Lee Importers and received credit

20 – Total cash sales $34 650

21 – Sent cheque to Ikeah in payment of balance due

21 – Received payment in full from Lowell chairs, discount allowed 10%

22 – Sold inventory on credit to the Furniture Warehouse for $3 366 invoice no. 514 and to Couch City for $1 584 invoice no. 515

23 – Sent cheques to Nodin Office Furniture and Lee Importers in full payment

25 – Sold inventory on credit to Tale Tops Ltd for $6 930 invoice no. 516 and to Beautiful Home Ltd for $12 078 invoice no. 517

27 – Purchased inventory from Nordin Office Furniture for $28 710 from D. Landell for $2 376 and from Walden & Co for $5 544

28 – Paid $396 cash for office supplies

31 – Total cash sales $42 174. Paid sales salaries for $7 740 and office salaries of $4 680. Received $77 220 commission revenue owing at the end of November 2019

Additional Information

A number of office memorandums were issued during December but these have not been recorded in the accounting records. As the accountant, you need to record this information.

  OFFICE MEMORANDUM                                                                                        Date: 1/12/2019  
  To: Rita Steiner   SUBJECT: Sale of store equipment           The contract to sell equipment to Ruby Sables ($4,950 including GST) was signed today. This equipment originally cost $8,400 and was written down to $6,200 at the date of sale. Ruby Sables will pay the full amount in January 2020. Create and record journal entries to remove this equipment from the books.     Signed: Greta Fitzgerald        
  OFFICE MEMORANDUM                                                                                        Date: 28/12/2019  
  To: Rita Steiner   SUBJECT: Bad Debts                                Couch City notified Greta via their lawyer that they are unable to pay their account of $1,584. The lawyer advised us to write this amount off as a bad debt. Create and record journal entries to record the removal of this bad debt.     Signed: Greta Fitzgerald        

Required:

  1. Prepare a chart of accounts for the business using the following format:
Number Account Element Current/NC
101 Cash Asset Current
  • Record the December transactions in the appropriate journal: sales, purchases, cash receipts, cash payments and general
  • Post the journals to the general and subsidiary ledgers. New accounts should be added and numbered in an orderly fashion as needed
  • Prepare a trial balance as at 31 December 2019 using a worksheet. Complete the worksheet using the following additional information.

1. Office supplies at 31 December total $900

2. Insurance cover expires on 31 September 2019

3. Equipment has a useful life of 4 years

4. Commission revenue of $39 600 has accrued during December

5. The Warehouse has a useful life of 40 years and residual value of $20,160

6. Inventory at 31 December is $28 800

7. Interest is accrued on the loan at the rate of 5% pa.

  • Prepare a fully classified statement of profit or loss for December and a classified statement of position at the end of December
  • Prepare and post the adjusting and closing entries
  • Prepare a post-closing trail balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger
  • You have been provided with the following information about two competitors.
  Furniture Mart Furniture Bazar
Sales Revenue $ 155 834 $ 166 864
Cost of Sales Gross Profit 112 781 43,053 138 018 28 846
Net Profit 77 305 66 900
Inventory 31 726 32 345
Current Assets 79 326 91 688
Total Assets 465 255 514 654
Current Liabilities 21 220 24 215
Total Liabilities 204 775 225 954
Total Equity 260 480 288 700

From this information and the results you have obtained for Greta’s Furniture Pty Ltd, you are required to calculate the following ratios for the three businesses for 2019 using the table provided (see page 7). Additionally, you are required to write a report (see page 8) to Greta on the ratios you have calculated and your main findings. Please also include some recommendations that Greta can implement to improve business performance.

Ratio Analysis

Profitability

Gross Profit Margin  
 
Net Profit Margin  
 
Return on Equity  
 

Liquidity

Current Ratio  
 
Inventory Turnover in days  
 

Solvency

Debt Ratio  
 
RATIO Greta’s Furniture Mart Furniture Bazar
Gross profit margin          
       
Net profit margin          
       
Return on equity          
       
Current ratio          
       
Inventory turnover in days              
       
Debt ratio            

Ratio Report

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