Posted: October 18th, 2021

GB518 | Assignment 4 Income Statement and Changes in Owner’s Equity

GB518 | Assignment
4
Income Statement and
Changes in Owner’s EquityTotal marks60 marksWeight10%Due dateWednesday of Week 6 (25th June 2014)
by 5 PMPLEASE NOTE THE FOLLOWING
INSTRUCTIONS·
The portal will close at 5 PM AEST – Students in Adelaide and Brisbane
please note to adjust for the time difference accordingly).·
This assignment must be completed individually.·
Submission: The assignment must be submitted electronically through the
student portal – use the link under “Assessments” to submit your assignment.·
This assignment consists of 5 questions and you are required to answer
all of the questions. Please use this word document to complete the assignment
and upload it on the portal.·
Please make sure you follow the guidelines noted in your subject outline
especially those relating to presentation of written work, late policy and
academic integrity.Question 1 (10
marks | Word limit: 300)The owner of a business reviews the income statement prepared by you and
asks, “Why do you report a profit of only $30,000 when cash collections of
$100,000 were received and cash payments for the period totalled only $50,000
for expenses?” How would you respond to
the owner’s question?
Accrued income 50,000 to save owner paying tax nQuestion 2 (10 marks | Word limit: 300)On 31 March, Padbury Publishers received a subscription of $240 for the
supply of twelve monthly magazines, beginning in April. At the end of the reporting period, 30 June,
the accountant suggested that the owner make an adjusting entry to defer the
revenue on nine issues until the next financial year. The owner of the business was reluctant to do
so, claiming that he had already received the subscriptions in cash and could
see no reason for the delay in recognising the revenue. Do you agree with the owner or the
accountant? Respond to the owner,
explaining the accountant’s position. Ignore GST.$240divide 12 =20 for month, magazines already delieverd for april,
may ,june,$60,240-60=180
After 3 months subscription the finance manager says the owner that
will the remaining 9 months subscription money as liability. As 30th
is end of financial year, so he wants to play it around, suggesting $180 for
9months in next year statement.
The revenue already has been received so, he is differing with other
things,, revenue as expense
(Differed income in Wikipedia )Question 3 (10 marks | Word limit: 300)Depreciation is a process of allocation and not valuation. What do you think
is meant by this statement? Give examples to support your answer.Chalmers and oliver (2014, p.213) describes
‘depreciation as an allocation or what it is now called amortisation of the
depreciable amount of a depreciable asset over its estimated useful life’. The
nature of depreciation and amortisation is same because they both the
expenses incurred in the income statement which further do not involve any
outflow of cash as such. (Rama Rao 2010) further contribute to the statement
of depreciation being an allocation process as it caters to spreading the
cost of a fixed asset over its useful life less salvage value. So, a portion
of that cost is recognised as an expense in each period that the asset is in
service. For example:
A piece of machinery cost $ 11,000 with a
serviceable life of 5 years.
The scrap value of the machine at the end 5th
year is going to be $1,000
not $10,000 (i.e. $11,000 less $1,000) will
be allocated over 5 years on rational basis.
(Accounting allocation 2011) fair value or
valuation on the other hand, reflects the overall value of the remaining
equipment, machinery etc., which is expected to be consumed by next 12 recognised
months or so on. The net book value may not represent the actual market value
of the asset. Many authors claimed that this approach is employed because the
value/valuation of asset may fluctuate due to the time span when that has
been purchased and the time it is sold. Also, values are difficult to measure
where the allocation of price is rather straightforward. However, it is not a
matter of valuation but a means of allocating the cost..accountingexplanation.com/depreciation_a_means_of_cost_allocation.htm">http://www.accountingexplanation.com/depreciation_a_means_of_cost_allocation.htm.citeman.com/8284-concept-of-depreciation.html">http://www.citeman.com/8284-concept-of-depreciation.htmlQuestion 4 (10 marks)Prepare an income statement for the year ended 30th June 2014
given the following account balances. Note: Some accounts may not be relevant.Cash$3,000Sales$280,000Salary and wages$37,000Accounts receivable$15,000Loan interest$4,000Insurance$2,000Loan$40,000Telephone and postage$1,500Rent and rates$12,400Cost of sales$160,000Inventory$11,000Accounts payable$9,100Heat and light$3,700Motor vehicles$32,000Equipment repairs$1,600Depreciation- motor vehicles$4,500Motor vehicle running costs$1,700Depreciation-equipment$3,200Royalties received$1,700Accounting and audit$3,400Bad and doubtful debts$800Income/account
payable/receivable ?Question 5 (20 marks)The following is the statement of financial position of TT Ltd. at the
end of the first year of tradingStatement of Financial Position as at 31st
December 2013Current AssetsCash At Bank$750Prepaid Expenses$5 300Accounts Receivable$19,600Inventory$65,000$90,650Non-Current AssetsMotor Vehicles- Cost$12,000Accumulated Depreciation($2,500)$9,500TOTAL ASSETS$100,150Current LiabilitiesAccrued Expenses$1,250Accounts Payable$22,000$23,250Owner’s EquityOriginal$50,000Retained Profit$26,900$76,900Total Liabilities And Owner’s Equity$100,150·
Prepaid expenses
included $5,000 for rent and $300 for rates.
·
Accrued expenses
included wages of $630 and electricity of $620.During 2014, the following transactions took place:·
The owner’s withdrawal
capital In the form of cash of $20,000·
A premise continues to
be rented at an annual rental of $20,000. During the year, rent of $15,000 was
paid to owner of the premises.·
Rates on the premises
were paid during the year for period 1st April 2014 to 31st
March 2015, $1,300.·
A second delivery
vehicle was bought on 1st January for $13,000. This is expected to be used in
business for four years and then be sold for $3,000.·
Wages totalling $36,700
were paid during the year. At the end of the year the business owed $860 of
wages for the last week of the year,·
Electricity bills
totalling $1,820 for the first three quarters of the year were paid. After 31st
December 2014, once the accounts had been finalised for the year, the bill for
the last quarter arrived showing a charge of $690.·
Inventory totalling
$67,000 was bought on credit.·
Inventory totalling $8,000
was bought for cash.·
Sales on credit totalled
$179,000 (cost $89,000).·
Cash sales totalled
$54,000 (cost $25,000).·
Receipts from accounts
receivable totalled $178,000.·
Payments to accounts
payable totalled $71,000.·
Vehicle running expenses
paid totalled $16,200.REQUIREDPrepare a Statement of Financial Position as at 31st December 2014 and a
Statement of Comprehensive Income for the year to date.GB518 | Assignment 4 | Marking SheetRequirementMaximum
MarksMarks
AwardedQ1:
Profits vs. Cash collections.10Q2:
Revenue recognition10Q3:
Depreciation is a process of allocation and not valuation. Discuss.10Q4:
Prepare an income statement10Q5:
Prepare a Statement of Financial Position as at 31st December 2014
and a Statement of Comprehensive Income for the year ending 201420Total
above60Weighted down10Marker’s
general commentsMarker’s
nameMarker’s
signatureDate
markedCampus

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