Accounting for Business Major Assignment SP3 2014 Instructions Due Date Monday 5th January 2015 1.00pm Assignments must be submitted through the Turnitin link on the subject portal Groups up to 3 students maximum are permitted. Assignment must be in word format only. All calculations and workings must be shown to receive any marks for each question Do not include the question in your answers! Question 1 Mark Davies has started a lawn mowing business (MD Lawnmowing) as a temporary job/business which he intends to run until he starts his business degree at the University of South Australia in four months. Mark has never owned or run a business before. To start the business on 1 March 2014, he deposited $2,400 into a new bank account opened in the name of the business. The $2,400 consisted of a $2000 loan from his father and $400 of his own money. Mark rented some equipment, purchased supplies, and hired friends to mow and trim his customer’s lawns. At the end of each month Mark sent invoices to his customers. On 30th June, he was ready to dissolve the business and start his university studies. As he was so busy, he kept few records other than his cheque book and a list of amounts owed to him by customers. At 30 June, Mark’s business account cheque book shows a balance of $1,900, and his customers still owe him $500. During the period, he collected $4,800 from customers. His cheque book lists payments for supplies totalling $510, and he still has fuel and supplies that cost a total of $65 on hand. He paid his employees $2,000, and he still owes them $400 for their final week of work. Mark rented some equipment from Kennard’s Hire. On 1 April, he signed a six-month rental agreement on lawnmowers and paid $720 for the full period. Kennard’s Hire will refund the unused portion of the prepayment if the equipment is in good order when he returns it. In order to get the refund, Mark has kept the equipment in excellent condition. In fact during May paid $250 to repair one of the mowers. To transport employees and equipment to jobs, Mark used a trailer that he bought for $660. He believes that the period’s work used up one-third of the trailer’s service potential. The business cheque book lists a payment of $660 for private cash withdrawals by Mark during the period. In June Mark paid back a quarter of the amount his father had lent to him. Mark estimates that he spent approximately 80 hours working on the business during the period. He plans to recommence operations on a similar basis during major breaks in his university study and believes he will do better in later periods as he now has an existing customer base to work from. Required 1. Prepare the business Income Statement for the period. (9 marks) 2. Prepare the classified Balance Sheet at the end of the period. (11 marks) 3. Was Mark’s venture successful? Give the reasons for your answer. 150 – 250 words only. (5 marks) Total for Quest.

1. Accounting for Business Major Assignment SP3 2014
Instructions
Due Date Monday 5th January 2015 1.00pm Assignments must
be submitted through the Turnitin link on the subject portal
Groups up to 3 students maximum are permitted.
Assignment must be in word format only.
All calculations and workings must be shown to receive any
marks for each question
Do not include the question in your answers!

2. Question 1
Mark Davies has started a lawn mowing business (MD
Lawnmowing) as a temporary job/business which he intends to
run until he starts his business degree at the University of South
Australia in four months. Mark has never owned or run a
business before. To start the business on 1 March 2014, he
deposited $2,400 into a new bank account opened in the name of
the business. The $2,400 consisted of a $2000 loan from his
father and $400 of his own money. Mark rented some
equipment, purchased supplies, and hired friends to mow and
trim his customer’s lawns.
At the end of each month Mark sent invoices to his customers.
On 30th June, he was ready to dissolve the business and start

3. his university studies. As he was so busy, he kept few records
other than his cheque book and a list of amounts owed to him by
customers.
At 30 June, Mark’s business account cheque book shows a
balance of $1,900, and his customers still owe him $500. During
the period, he collected $4,800 from customers. His cheque
book lists payments for supplies totalling $510, and he still has
fuel and supplies that cost a total of $65 on hand. He paid his
employees $2,000, and he still owes them $400 for their final
week of work.
Mark rented some equipment from Kennard’s Hire. On 1 April,
he signed a six-month rental agreement on lawnmowers and
paid $720 for the full period. Kennard’s Hire will refund the
unused portion of the prepayment if the equipment is in good
order when he returns it. In order to get the refund, Mark has
kept the equipment in excellent condition. In fact during May
paid $250 to repair one of the mowers.
To transport employees and equipment to jobs, Mark used a
trailer that he bought for $660. He believes that the period’s
work used up one-third of the trailer’s service potential. The
business cheque book lists a payment of $660 for private cash
withdrawals by Mark during the period. In June Mark paid back
a quarter of the amount his father had lent to him.
Mark estimates that he spent approximately 80 hours working
on the business during the period. He plans to recommence
operations on a similar basis during major breaks in his
university study and believes he will do better in later periods
as he now has an existing customer base to work from.
Required
1. Prepare the business Income Statement for the period.

4. (9 marks)
2. Prepare the classified Balance Sheet at the end of the period.
(11 marks)
3. Was Mark’s venture successful? Give the reasons for your
answer. 150 – 250 words only.
(5 marks)
Total for Question 1: 25 marks
Question 2
Harry Smith is confused about the depreciation expense in the
accounts for his shop, Kaiken, and would like you to explain the
following to him:
i) Why is depreciation charged against the income statement
for the display shelving even though Harry believes the
shelving is worth more now than when he bought it just over
two years ago?
[3 marks]
ii) Harry is considering closing the shop in two years time
and retiring. If Harry decides to go ahead with this decision can
he still charge the same amount of depreciation expense for the
shop shelving as has been done so in the past? Use the Going
Concern Assumption in answering Harry’s question.
[4 marks]
iii) If Kaiken makes a loss in any year Harry wants to know if
he still has to include depreciation expense in the income
statement?
[3 marks]

5. Total for Question 2: 10 marks
Question 3
Mark Thompson submits to you draft accounts for the year
ended 30 June 2014, and a Balance Sheet as at that date.
Towards the end of the financial year his accountant resigned
and he had completed the records himself. He thinks that errors
may have occurred and asks for your help. An examination of

6. the accounting records reveals the following:
A.
Rent expense for the premises includes $660 for July and
August.
B.
A payment of $1,750 for new office furniture has been
incorrectly debited to the advertising expense account. The
furniture had been purchased on 30 June 2014.
C.
Commission due to sales representatives for the month of June,
$2,000, has been not been paid or recorded.
D.
Repairs to Mark's private motor vehicle, $750, have been
debited to the vehicle expense account.
E.
The unearned revenue account includes an amount of $350 for
services provided during June.
F.
A fire insurance policy covering buildings was taken out on 01
April 2014, the annual premium of $960 was paid in advance on
this date and debited to the Insurance expense account.
G.
Interest of $960 on the loan held by the business was due, but
has not been recorded or paid.
H.
No depreciation has been recognised for the year ending 30 June
2014. The draft Balance Sheet shows the following:

7. Buildings (at cost)
$120,000
Less Accumulated Depreciation
32,000
$88,000
Office Furniture & Equipment (at cost)
20,000
Less Accumulated Depreciation
8,000
12,000
These amounts do not include any of the
transactions listed above.
Annual depreciation is to be calculated as follows:
Buildings: 3% of cost
Office furniture and equipment: 20% of cost

8. Required
1.
Ignoring GST, show the journal entries required to make the
necessary adjustments/corrections listed. Make sure that your
journal entries are complete and properly formatted.
(18 marks)
2.
Calculate the effect (increase or decrease) of each of the
adjustments on the profit figure of $21,300 as shown in the
draft accounts.
(4 marks)
Total for Question 3: 22 marks
Question 4
You are provided the following financial information for
Reliance Ltd:

9. RELIANCE LTD
COMPARATIVE BALANCE SHEETS
AS AT JUNE 30
2013
2012
Current Assets
Cash on Hand $2500
$5000
Cash at Bank -
1200
Accounts Receivable (net) 5200
4500
Inventory 21000 19000
Prepaid Expenses 1650 30350800
30500
Non Current Assets
Plant and Equipment 76000
64000
less Acc. Depreciation (23000)53000
(17600)46400
Total Assets 83350
76900
Current Liabilities
Bank Overdraft 6550 -
Accounts Payable 4100 3800
Accrued Expenses 680 790
Tax Payable 720 12050
1200 5790
Non Current Liabilities
Bank Loan 2500020000
Total Liabilities3705025790
Net Assets46300 51110
Equity

10. Share Capital 32000
26000
Retained Earnings
14300251104630051110
(continued over the page)
RELIANCE LTD
INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 2014
Net Sales $92500
Cost of Sales 55200
Gross Profit: 37300
Other Revenue:
Interest Revenue 60
Discount Received 400 460
36840
Expenses:
Selling & Admin Expense 21000
Doubtful Debts Expense* 250
Depreciation Expense 5400
Interest Expense 270029350
Profit before tax 7490
Income tax expense 2973
Profit $ 6937

11. *Bad debts written off during the year amounted to $950.
REQUIRED:
Answer this question on the separate question 3 pro forma
provided.
a. Prepare a Statement of Cash Flow in the format required by
the applicable accounting standard. Show all calculations in
your answer.
[14 marks]
b. The owners of Reliance Limited cannot understand why there
is such a difference between the profit for the period and the
total cash flows. Briefly explain some of the factors causing
this difference.
[2 marks]
c. What information is provided by a Statement of Cash Flow
which is not provided by other Financial Statements? (ie:
Income Statement, Balance Sheet and Statement of Changes in
Equity)
[2 marks]
TOTAL FOR QUESTION 4: 18 Marks

12. Question 5
The following information has been extracted from the financial
statements and notes of Victorinox Ltd.
20132014
Sales revenue 595,125 600,300
Interest expense 27,428
23,805
Income tax expense 54,855
46,161
Profit 58,065
54,338
Total assets 574,425
558,900
Total liabilities 341,550
310,500
Ordinary share capital 103,500
113,850
Retained earnings 65,205
70,380
Preference share capital 64,170
64,170
Preference dividends paid 2,898
2,898

13. Required
1. Calculate the following ratios for 2014:
A. return on total assets
B. return on ordinary equity
(2 marks each)
2. Calculate the following ratios for 2013 and 2014:
A. profit margin
B. debt ratio
C. times interest earned
(A & B = 3 marks C = 4 marks)
3. What do these ratios show in relation to the company's
profitability and financial stability? (200 – 250 words
maximum)
(5 marks)
4. What are some of the limitations or shortcomings of ratio
analysis? Give at least four different examples and provide two
or three sentences explaining each example.
(6 marks)
Total for Question 5: 25 marks
ACCT1008 Accounting for Business Assignment SP3 2014