NCEA LEVEL 1 ACCOUNTING

Transcription

1 NCEA LEVEL 1 ACCOUNTING By Elizabeth Pitu (Updated April 2011) BOOK 3 & Balance Day Adjustments, & Interpretation ANSWER BOOK

2 Achievement Standard External 5 credits Subject reference: Accounting 1.3 Title: Prepare financial statements for sole proprietors Achievement Criteria Achievement Achievement with Merit Achievement with Excellence Prepare financial statements for sole proprietors. Prepare in-depth financial statements for sole proprietors. Prepare comprehensive financial statements for sole proprietors. Note: Cash budgets included as a financial statement in AS90978 are covered in a separate section. Achievement Standard External 3 credits Subject reference: Accounting 1.1 Title: Demonstrate understanding of accounting concepts for small entities Achievement Criteria Achievement Achievement with Merit Achievement with Excellence Demonstrate understanding of accounting concepts for small entities. Demonstrate in-depth understanding of accounting concepts for small entities. Demonstrate comprehensive understanding of accounting concepts for small entities.

3 & Balance Day Adjustments, NOTES, EXAMPLES AND EXERCISE ANSWERS

4 Activity one Calculating depreciation page 4 (a) 22,000-2,000 = 20,000/8 = $2,500 depreciation expense p.a. (b) 42,000-12,000 = 30,000/6 = $5,000 depreciation expense p.a. (c) 15,000 x 10% = $1,500 depreciation expense p.a. Activity Two page 7 (a) Year Cost Depreciation Expense Accumulated Depreciation Carrying Amount 1 22,000 2,500 2,500 19, ,000 2,500 5,000 17, ,000 2,500 7,500 14,500 Year Cost Depreciation Expense Accumulated Depreciation Carrying Amount 1 42,000 5,000 5,000 37, ,000 5,000 10,000 32, ,000 5,000 15,000 27,000 Year Cost Depreciation Expense Accumulated Depreciation Carrying Amount 1 15,000 1,500 1,500 13, ,000 1,500 3,000 12, ,000 1,500 4,500 10,500 (b) OPTIONAL General Journal Date Particulars Debit Credit 31/3/-- Depreciation on shop fittings 2,500 Accumulated depreciation on shop fittings 2,500 To record depreciation on shop fittings 31/3/-- Depreciation on vehicles 5,000 Accumulated depreciation on vehicles 5,000 To record depreciation on vehicles 31/3/-- Depreciation on office equipment 1,500 Accumulated depreciation on office equipment 1,500 To record depreciation on office equipment Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 1

5 (c) OPTIONAL Depreciation on Shop Fittings 31/3/ Accumulated depreciation on shop fittings 2,500 2,500 Dr (transfer to) Income statement 2,500 0 Accumulated Depreciation on Shop Fittings 1/04/ Balance 2,500 Cr 31/3/ Depreciation on shop fittings 2,500 5,000 Cr Depreciation on Vehicles 31/3/ Accumulated depreciation on vehicles 5,000 5,000 Dr (transfer to) Income statement 5,000 0 Accumulated Depreciation on Vehicles 1/04/ Balance 5,000 Cr 31/3/ Depreciation on vehicles 5,000 10,000 Cr Depreciation on Office Equipment 31/3/ Accumulated depreciation on office equip. 1,500 1,500 Dr (transfer to) Income statement 1,500 0 Accumulated Depreciation on Office Equipment 1/04/ Balance 1,500 Cr 31/3/ Depreciation on office equipment 1,500 3,000 Cr (d) Income Statement Year Two (extract) Distribution Costs Depreciation on shop fittings 2,500 Depreciation on vehicles 5,000 Administrative Expenses Depreciation on office equipment 1,500 (e) Balance Sheet Year Two (extract) Non-current Assets Property, plant and equipment Total carrying amount Note 1 61,000 Note to the Balance Sheet 1. Property, plant and equipment Shop Fittings Vehicles Office Equipment Total Cost 22,000 42,000 15,000 79,000 Accumulated Depreciation 5,000 10,000 3,000 18,000 Carrying Amount 17,000 32,000 12,000 61,000 Depreciation is calculated on a straight-line basis at the following rates: Shop Fittings 8 years Vehicles 6 years Office Equipment 10% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 2

6 YOUR TURN Fully worked exercise page 10 (a) Trial Balance of Fast First Couriers as at 31 March 2012 Bank 300 Capital 40,000 Delivery Vehicles 50,000 GST Payable 400 Office Equipment 15,000 Loan (10%, due 2014) 7,000 Goodwill 6,000 Accumulated Depreciation: Driver's Wages 12,000 - Delivery Vehicles 2,000 12,000 Office Expenses 10,700 Accumulated Depreciation: Vehicle Expenses 4,000 - Office Equipment 3,000 4,500 Interest on Loan 700 Courier Fees 68,300 Drawings 22,000 Depreciation on delivery vehicle 10,000 Depreciation on office equipment 1,500 $132,200 $132,200 (b) OPTIONAL Fast First Couriers General Journal 31/03/12 Depreciation on delivery vans 10,000 Accumulated depreciation on delivery vans 10,000 To record depreciation on delivery vans 31/03/12 Depreciation on office equipment 1,500 Accumulated depreciation on office equipment 1,500 To record depreciation on office equipment Fast First Couriers General Ledger Depreciation on delivery vans 31/03/12 Accumulated depreciation on delivery vans 10,000 10,000 Dr (transfer to) Income statement 10,000 0 Accumulated Depreciation on delivery vans 1/4/2011 Balance 2,000 Cr 31/03/12 Depreciation on delivery vans 10,000 12,000 Cr Depreciation on Office Equipment 31/03/12 Accumulated depreciation on office equip. 1,500 1,500 Dr (transfer to) Income statement 1,500 0 Accumulated Depreciation on Office Equipment 1/4/2011 Balance 3,000 Cr 31/03/12 Depreciation on office equipment 1,500 4,500 Cr Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 3

7 (c) Fast First Couriers Income Statement for the year ended 31 March 2012 Courier fees 68,300 Less Delivery Expenses Driver's Wages 12,000 Vehicle Expenses 4,000 Depreciation on delivery vehicles 10,000 26,000 Administrative Expenses Office Expenses 10,700 Depreciation on office equipment 1,500 12,200 Finance Costs Interest on loan 700 Total expenses 38,900 Profit for the year $29,400 Fast First Couriers Statement of Financial Position as at 31 March 2012 Current Assets Bank 300 Non-current Assets Property, plant and equipment Total carrying amount (Note 1) 48,500 Intangible Asset Goodwill 6,000 Total non-current assets 54,500 Total assets 54,800 Less Liabilities Current Liabilities GST Payable 400 Non-current Liability Loan (10%, due 2014) 7,000 Total liabilities 7,400 Net Assets $47,400 Equity Opening Capital 40,000 Plus Profit for the year 29,400 Less Drawings -22,000 Closing Capital $47,400 Note to the Statement of Financial Position 1. Property, plant and equipment Delivery Vehicles Office Equipment Total Cost 50,000 15,000 65,000 less Accumulated Depreciation -12,000-4,500-16,500 Carrying amount $38,000 $10,500 $48,500 Depreciation is calculated on a straight-line basis at the following rates: Delivery Vehicles 20% pa Office Equipment 10% pa Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 4

8 FOCUS ON DEPRECIATION Exercise One page 13 (a) OPTIONAL An answer is not available for the OPTIONAL question. The answer would be the same as that provided for Fast First Couriers except for the asset names and amounts for depreciation and accumulated deprecation. The correct numbers and balances for these accounts can be checked in the income statement and note to the statement of financial position. (b) Regina's Real Estate Agency Income Statement for the year ended 31 March 2012 Revenue Commission Received 97,000 Less Selling Expenses Depreciation on Company Car 5,000 Car Expenses 14,000 Advertising 14,500 33,500 Administrative Expenses Office Expenses 21,400 Depreciation on Office Equipment 7,000 28,400 Finance Costs Interest on Loan 1,000 1,000 Total Expenses 62,900 Profit for the year $34,100 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 5

9 (c) Regina's Real Estate Agency Statement of Financial Position as at 31 March 2012 Current Assets Bank 1,200 GST 400 Accounts Receivable 27,000 Total current assets 28,600 Non-current Assets Property, plant and equipment Total carrying amount (Note 1) 45,000 Intangible Asset Goodwill 12,000 Total non-current assets 57,000 Total assets 85,600 Less Liabilities Current Liabilities Accounts Payable 1,500 Loan (10% due October 2012) 10,000 Total (current) liabilities 11,500 Net assets $74,100 Equity Opening Capital 79,000 Plus Profit for the year 34,100 Less Drawings -39,000 Closing Capital $74,100 Note to the Balance Sheet 1. Property, plant and equipment Company Car Office Equipment Total Cost 35,000 28,000 63,000 less Accumulated Depreciation -7,500-10,500-18,000 Carrying amount $27,500 $17,500 $45,000 Depreciation is calculated on a straight-line basis at the following rates: Company Car 4 years Office Equipment 25% pa Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 6

10 Exercise Two page 14 (a) OPTIONAL Answer not provided see comments on Exercise One. (b) Mere's Mechanics Income Statement for the year ended 31 March 2012 Revenue Repair Revenue 130,000 Less Workshop Expenses Mechanics Wages 22,000 Workshop Rent 11,000 Parts Expense 35,000 Vehicle expenses 6,500 Depreciation on Tools and Equipment 2,000 Depreciation on Tow Wagon 7,000 83,500 Administrative Expenses Office Expenses 7,400 Telephone and Fax rental 1,200 8,600 Finance Costs Interest on loan 900 Total Expenses 93,000 Profit for the year $37,000 (c) See page 8 (d) Depreciation on the tow wagon is an expense of Mere's Mechanics because it represents the use of/decrease in the economic benefits of the tow wagon in the form of a depletion of the tow wagon during the year. The depreciation decreases the asset tow wagon and decreases equity by more expenses and so less profit (and is not drawings). Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 7

11 (c) Mere's Mechanics Statement of Financial Position as at 31 March 2012 Current Assets Bank 10,000 Accounts Receivable 8,000 Parts on Hand 4,000 Total current assets 22,000 Non-current Assets Property, plant and equipment Total carrying amount (Note 1) 40,000 Total Assets 62,000 Less Liabilities Current Liabilities Accounts Payable 3,000 GST Payable 1,000 Total current liabilities 4,000 Non-current Liability Loan (9%, due 2014) 10,000 Total liabilities 14,000 Net Assets $48,000 Equity Opening Capital 40,000 Plus Profit for the year 37,000 Less Drawings -29,000 Closing Capital $48,000 Note to the Balance Sheet 1. Property, plant and equipment Tow Wagon Tools and Equipment Total Cost 35,000 25,000 60,000 less Accumulated Depreciation -14,000-6,000-20,000 Carrying amount $21,000 $19,000 $40,000 Depreciation is calculated on a straight-line basis at the following rates: Tow Wagon 20% pa Tools and Equipment 10 years Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 8

12 Exercise Three page 15 (a) OPTIONAL Answer not provided see comments on Exercise One. (b) Superior Insurance Agency Income Statement for the year ended 31 March 2012 Revenue Premium Income 179,000 Other Income Rent Received 23, ,000 Less Sales and Travelling Expenses Agents Salaries and Commission 75,000 Advertising 4,000 Car expenses 5,000 Depreciation on Agency Car 4,000 88,000 Administrative Expenses Office Expenses 14,000 Rates and Insurance 10,000 Telephone Expense 7,000 Depreciation on Buildings 2,000 Depreciation on Office Equipment 2,000 35,000 Finance Costs Interest on Mortgage 7,000 Total Expenses 130,000 Profit for the year $72,000 (c) See page 10 (d) The Statement of Financial Position records the historical cost which is the purchase cost of the land and buildings, six years ago. The current value of the land and buildings is likely to have increased substantially over six years. This means the current value of equity for Superior Insurance Agency, is higher than the amount stated in the Statement of Financial Position. The value of the business will be greater than that recorded based on historical cost, if the Land and Buildings have increased in value over the last six years. (e) The agency car is recorded as an asset of Superior Insurance agency because Superior Insurance Agency purchased the car in the past. Only Superior Insurance Agency can use it to provide economic benefit for the Agency. The car is therefore controlled by Superior Insurance Agency. When the agents use the car to go and meet people to sell insurance and earn income economic benefit will flow in through cash received from the income which increases the bank asset. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 9

13 (c) Superior Insurance Agency Statement of Financial Position as at 31 March 2012 Current Assets Petty Cash 200 GST 1,800 Total current assets 2,000 Non-current Assets Property, plant and equipment Total carrying amount (Note 1) 190,000 Total Assets 192,000 Less Liabilities Current Liabilities Bank 1,000 Non-current Liability Mortgage on Buildings (10% due 2015) 70,000 Total Liabilities 71,000 Net Assets $121,000 Equity Opening Capital 85,000 Plus Profit for the year 72,000 Less Drawings -36,000 Closing Capital $121,000 Note to the Statement of Financial Position 1. Property, plant and equipment Land Buildings Agency Office Car Equipment Total Cost 60, ,000 32,000 20, ,000 Accumulated Depreciation -12,000-4,000-6,000-22,000 Carrying amount 60,000 88,000 28,000 14,000 $190,000 Depreciation is calculated on a straight-line basis at the following rates: Buildings 2% pa Office Equipment 10% pa Agency Car 6 years Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 10

14 Class example Expense/Income adjustments Max s Business Consultancy Income and Expense adjustments. Adjustments should be made for the following: 1. Invoices issued and on hand for Fees Received $8,280 including GST. Add to fees received and GST create Accounts Receivable 2. Invoice on hand for purchase of Stationery $920 including GST. Add to Purchases subtract from GST, create Accounts Payable 3. Office Wages owing $2,000 Add to Office Wages, create Accrued Expenses 4. Dividends Received owing $1,400 Add to Dividends Received, create Accrued Income 5. Rent Received in advance $3,000 Subtract from Rent Received, create Income in Advance 6. Insurance paid in advance $1,500 Subtract from Insurance, create Prepayments 7. Depreciation on office equipment is $3,500. Add to Accumulated Depreciation on Office Equipment, create Depreciation on office equipment Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 11

15 OPTIONAL Show the accounting entries for the adjustments in the spaces provided. Max s Business Consultancy General Journal 31-Mar Accounts Receivable 8,280 Fees Received 7,200 GST 1,080 To record amounts owing for fees received 31-Mar Stationery Expense 800 GST 120 Accounts Payable 920 To record amount owing for purchase of stationery 31-Mar Office Wages 2,000 Accrued Expense 2,000 To record office wages owing on balance day 31-Mar Accrued Income 1,400 Dividends Received 1,400 To record dividends received owing 31-Mar Rent Received 3,000 Income Received in Advance 3,000 To record rent received in advance on balance day 31-Mar Prepayments 1,500 Insurance 1,500 To record insurance prepaid on balance day 31-Mar Depreciation on office equipment 3,500 Accumulated depreciation on office equipment 3,500 To record depreciation on office equipment Max s Business Consultancy General Ledger Fees Received 31-Mar Balance 255,000 Cr Accounts Receivable 7, ,200 Cr (transfer to) Income Statement 262,200 0 Accounts Receivable 31-Mar Fees Received plus GST 8,280 8,280 Dr GST 31-Mar Balance 4,800 Cr Accounts Receivable 1,080 5,880 Cr Accounts Payable 120 5,760 Cr Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 12

16 Stationery Expense 31-Mar Balance 27,300 Dr Accounts Payable ,100 Dr (transfer to) Income Statement 28,100 0 Accounts Payable 31-Mar Stationery Expense plus GST Cr Office Wages 31-Mar Balance 58,000 Dr Accrued Expense 2,000 60,000 Dr (transfer to) Income Statement 60,000 0 Accrued Expense 31-Mar Office Wages 2,000 2,000 Cr Insurance 31-Mar Balance 7,800 Dr Prepayments 1,500 6,300 Dr (transfer to) Income Statement 6,300 0 Prepayments 31-Mar Insurance 1,500 1,500 Dr Dividends Received 31-Mar Balance 1,000 Cr Accrued Income 1,400 2,400 Cr (transfer to) Income Statement 2,400 0 Accrued Income 31-Mar Dividends received 1,400 1,400 Dr Rent Received 31-Mar Balance 21,000 Cr Income in Advance 3,000 18,000 Cr (transfer to) Income Statement 18,000 0 Income in Advance 31-Mar Rent Received 3,000 3,000 Cr Depreciation on Office Equipment 31-Mar Accumulated depreciation on office equip. 3,500 3,500 Dr (transfer to) Income statement 3,500 0 Accumulated Depreciation on Office Equipment 31-Mar Balance 4,000 Cr Depreciation on office equipment 3,500 7,500 Cr Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 13

17 Max's Business Consultancy Income Statement for the year ended 31 March 2012 Revenue Fees Received 262,200 Other Income Dividends Received 2,400 Rent Received 18,000 20, ,600 Less Administration Expenses Insurance 6,300 Office Expenses 74,300 Stationery Expense 28,100 Office Wages 60,000 Depreciation on office equipment 3, ,200 Finance Costs Interest on Loan 3,000 Total expenses 175,200 Profit for the year $107,400 Max's Business Consultancy Statement of Financial Position as at 31 March 2012 Current Assets Bank 3,400 Accounts Receivable 8,280 Accrued Income 1,400 Prepayments 1,500 Total current assets 14,580 Non-current Assets Investment Shares in AMP 12,000 Property, plant and equipment Total carrying amount (note 1) 277,500 Total non-current assets 289,500 Total Assets 304,080 Less Liabilities Current Liabilities GST 5,760 Accounts Payable 920 Accrued Expenses 2,000 Income in Advance 3,000 11,680 Non-current Liability Loan (6%, due 2014) 50,000 Total Liabilities 61,680 Net Assets $242,400 Equity Opening Capital 210,000 Plus Profit for the year 107,400 Less Drawings -75,000 Closing Capital $242,400 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 14

18 Note to the Statement of Financial Position 1. Property, plant and equipment Buildings Office Equipment Total Cost 250,000 35, ,000 less Accumulated Depreciation -7,500-7,500 Carrying amount 250,000 27,500 $277,500 Depreciation is calculated on a straight-line basis at the following rate: Office Equipment 10% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 15

19 PRACTICE EXERCISES Exercise Four page 32 OPTIONAL Nightingale's Truck Hire General Journal 31 Mar Accounts Receivable 12,650 Hire Fees 11,000 GST 1,650 to record accounts receivable for hire fees on balance day 31 Mar Petrol and Oil 1,400 GST 210 Accounts Payable 1,610 to record accounts payable for petrol and oil on balance day 31 Mar Mortgage Interest 1,600 Accrued Expenses 1,600 for mortgage interest owing on balance day 31 Mar Accrued Income 200 Dividends Received 200 for dividends owing on balance day 31 Mar Rent Received 600 Income in Advance 600 for rent received in advance on balance day 31 Mar Prepayments 400 Insurance - vehicles 400 for vehicle insurance paid in advance on balance day 31 Mar Depreciation on Vehicles 40,000 Accumulated Depreciation - Vehicles 40,000 to record depreciation on shop fittings 31 Mar Depreciation on buildings 3,900 Accumulated Depreciation - Buildings 3,900 to record depreciation on buildings Nightingale's Truck Hire General Ledger Hire Fees 31-Mar Balance 207,600 Cr 31-Mar Accounts Receivable 11, ,600 Cr (transfer to) Income Statement 218,600 0 Accounts Receivable 31-Mar Hire Fees plus GST 12,650 12,650 Dr GST 31-Mar Balance 1,200 Cr Accounts Receivable 1,650 2,850 Cr Accounts Payable 210 2,640 Cr Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 16

20 Petrol and Oil 31-Mar Balance 16,600 Dr Accounts Payable 1,400 18,000 Dr (transfer to) Income Statement 18,000 0 Accounts Payable 31-Mar Petrol and Oil plus GST 1,610 1,610 Cr Interest on Mortgage 31-Mar Balance 8,000 Dr Accrued Expense 1,600 9,600 Dr (transfer to) Income Statement 9,600 0 Accrued Expense 31-Mar Interest on Mortgage 1,600 1,600 Cr Insurance - Vehicles 31-Mar Balance 5,000 Dr Prepayments 400 4,600 Dr (transfer to) Income Statement 4,600 0 Prepayments 31-Mar Insurance - Vehicles Dr Dividends Received 31-Mar Balance 200 Cr Accrued Income Cr (transfer to) Income Statement Accrued Income 31-Mar Dividends received Dr Rent Received 31-Mar Balance 7,800 Cr Income in Advance 600 7,200 Cr (transfer to) Income Statement 7,200 0 Income in Advance 31-Mar Rent Received Cr Depreciation on Vehicles 31-Mar Accumulated depreciation on vehicles 40,000 40,000 Dr (transfer to) Income statement 40,000 0 Accumulated Depreciation on Vehicles 31-Mar Balance 20,000 Cr Depreciation on vehicles 40,000 60,000 Cr Depreciation on Buildings 31-Mar Accumulated depreciation on buildings 3,900 3,900 Dr (transfer to) Income statement 3,900 0 Accumulated Depreciation on Buildings 31-Mar Balance 7,600 Cr Depreciation on buildings 3,900 11,500 Cr Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 17

21 90976 answers Nightingale s Truck Hire (a) Jack the owner of Nightingale s Truck Hire is interested in the income statement because it tells him the profit for the year (or if his truck hire business made a loss). He can compare this year s profit to last year s profit to see if he is increasing his profit. He can see if any of his expenses such as petrol and oil have increased significantly may be because the price of petrol has risen. (b) The purpose of preparing a statement of financial position is to show Nightingale s assets, liabilities and equity at a point in time balance day. It allows Jack to see what assets Nightingale s Truck Hire has to operate his business going forward. He can also see how much his current debts (liabilities) are that he will need to pay off in the next year and how much his long term debt is. He can see his equity in the business and if this is sufficient to remain in a sound financial position. Nightingale's Truck Hire Income Statement for the year ended 31 March 2012 Income Hire fees 218,600 Add Other Income Rent Received 7,200 Dividends Received 400 7,600 Vehicle Operating Expenses Insurance - Vehicles 4,600 Petrol and Oil 18,000 Vehicle Repairs 7,200 Depreciation - vehicles 40,000 69,800 Administrative Expenses Office Expenses 13,700 Office Wages 27,800 Telephone and Internet 3,700 Depreciation - buildings 3,900 Rates 5,800 54,900 Finance Costs Interest on loan 4,000 Interest on Mortgage 9,600 13, ,200 Total Expenses 138,300 Profit for the year $87,900 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 18

22 Nightingale's Truck Hire Statement of Financial Position as at 31 March 2012 Current Assets Accounts Receivable 12,650 Accrued Income 200 Prepayments 400 Total current assets 13,250 Non-current Assets Investment Shares in Mobil 5,000 Property, plant and equipment Total carrying amount (Note 1) 448,500 Total non-current assets 453,500 Total Assets 466,750 Less Liabilities Current Liabilities Bank overdraft 1,400 GST Payable 2,640 Accounts Payable 1,610 Accrued Expenses 1,600 Income in Advance 600 7,850 Non-current Liabilities Loan (8%, due 2014) 50,000 Mortgage (10%, due 2017) 96, ,000 Total Liabilities 153,850 Net Assets $312,900 Equity Opening Capital 270,000 Plus Profit for the year 87,900 Less Drawings -45,000 Closing Capital $312,900 Note to the Statement of Financial Position 1. Property, plant and equipment Land Buildings Vehicles Total Cost 125, , , ,000 less Accumulated Depreciation -11,500-60,000-71,500 Carrying amount $125,000 $183,500 $140,000 $448,500 Depreciation is calculated on a straight-line basis at the following rate: Buildings 2% p.a. Vehicles 20% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 19

23 Exercise Five page 33 OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for similar answers (a) Tour expenses are those expenses directly related to actually doing the tramping tours such as tour food expense the people on the tour are provided with food so this is an expense of doing the tramping tour. (Note any of the examples could be used need to link to the expense being required to actually undertake the tramping tour). (b) Administrative expenses are those expenses related to the office work and keeping the Tihoi Tramping Tours going, such as telephone so tour bookings can be taken. (c) A current asset is cash or will be turned into cash or used up by Tihoi Tramping Tours in the next year. For example Tour Food on Hand is a current asset of Tihoi Tramping Tours because the food will be used in the next month or two on tramping tours. (Other examples could be used such as accounts receivable is a current asset because it represents debtors who owe money for tours and it is expected they will pay the money owing in the next month or two.) (d) Tihoi Tramping Tours income statement is prepared at least annually as the continuing life of the business is divided into time periods over which financial performance and profit can be measured. The year ended 31 March 2012 is the period for this Income Statement. The profit has been measured for the year ended 31 March 2012 and can then be compared with the profit of previous years. Tihoi Tramping Tours Income Statement for the year ended 31 March 2012 Income Tour Revenue 163,000 Less Tour Expenses Van expenses 27,500 Tour Food Expense 42,200 Hut and Track Fees 11,000 Equipment Repairs 1,400 Depreciation on Tents and Equipment 5,000 Depreciation on Tour Van 10,800 97,900 Administrative Expenses Office Expense 9,700 Telephone expense 4,300 14,000 Finance Costs Interest on Loan 1,600 1,600 Total Expenses 113,500 Profit for the year $49,500 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 20

24 Tihoi Tramping Tours Statement of Financial Position as at 31 March 2012 Current Assets Cash on Hand 100 Accounts Receivable 4,600 Tour Food on Hand 1,400 Prepayments 1,500 Total current assets 7,600 Non-current Assets Property, plant and equipment (Note 1) Total carrying amount 68,600 Intangible Asset Goodwill 15,000 Total non-current assets 83,600 Total Assets 91,200 Less Liabilities Current Liabilities GST Payable 500 Accounts Payable 2,300 Bank 600 Accrued Expense 100 Revenue in advance 7,000 Total current liabilities 10,500 Non-current Liability Loan (9%, due 2014) 18,000 Total Liabilities 28,500 Net Assets $62,700 Equity Opening Capital 51,200 Plus Profit for the year 49,500 Less Drawings -38,000 Closing Capital $62,700 Note to the Statement of Financial Position 1. Property, plant and equipment Tour Van Tents and Equipment Total Cost 54,000 38,000 92,000 less Accumulated Depreciation -14,400-9,000-23,400 Carrying amount $39,600 $29,000 $68,600 Depreciation is calculated on a straight line basis at the following rates: Tour Van 20% Tents and Equipment 6 years Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 21

25 Exercise Six page 34 OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for similar Questions (a) Plumbing Supplies on Hand is a current asset because the plumbing supplies will be used on plumbing jobs in the near future/next month or two/next year. The plumbing supplies will benefit Plumbing Fix when they are used on jobs in the next year/month. (b) Shares in FCL are an investment non-current asset as the shares will benefit Plumbing Fix over more than one year. Plumbing Fix will continue to earn dividends from the shares over more than one year so the shares are a non-current asset. (c) Plumbing Fix s apprentice wages are an expense because when the wages are paid the bank asset decreases (outflow of cash or economic benefit). The wages also decrease equity by decreasing the profit for the year. The apprentice wages are paid to the apprentice not the owner so they are not owner s drawings. (d) Apprentice wages owing is a liability because the apprentice has already done the work (past event). Plumbing Fix currently owes the wages to the apprentice. In the next week or two/next period/future Plumbing Fix will use cash from the bank decreasing the asset bank to pay the wages owing to the apprentice. Plumbing Fix Income Statement for the year ended 31 March 2012 Income Plumbing Fees Received 139,800 Other Income Dividends Received 1,200 Less Plumbing and Vehicle Expenses Vehicle expenses 8,700 Depreciation on van 8,400 Depreciation on plumbing equipment 5,600 Mobile Phone Expense 6,700 Plumbing Supplies Used 27,300 Wages - apprentice 26,500 83,200 Administrative Expenses Office expenses 6,100 Accountancy fees 3,200 Insurance 4,600 13,900 Finance Costs Interest on Loan ,000 Total Expenses 97,900 Profit for the year $43,100 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 22

26 Plumbing Fix Statement of Financial Position as at 31 March 2012 Current Assets Petty Cash Imprest 200 Bank 7,300 Accounts Receivable 6,900 Plumbing Supplies on Hand 4,400 Accrued Income 700 Prepayments 800 Total current assets 20,300 Non-current Assets Investment Shares in FCL 12,000 Property, plant and equipment Total carrying amount (Note 1) 43,300 Total non-current assets 55,300 Total Assets 75,600 Less Liabilities Current Liabilities Accounts Payable 2,300 GST 4,300 Loan (8%, due July 2012) 10,000 Accrued Expenses 900 Total current liabilities 17,500 Total Liabilities 17,500 Net Assets $58,100 Equity Opening Capital 54,000 Plus Profit for the year 43,100 Less Drawings -39,000 Closing Capital $58,100 Note to the Statement of Financial Position 1. Property, plant and equipment Van Plumbing Equipment Total Cost 42,000 35,000 77,000 less Accumulated Depreciation -23,100-10,600-33,700 Carrying amount $18,900 $24,400 $43,300 Depreciation is calculated on a straight line basis at the following rates: Van 20% Plumbing Equipment 5 years Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 23

27 Exercise Seven page 35 OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for similar Questions (a) Ranui Drycleaning s factory lease paid in advance relates to next year so is not included in the income statement this year. The factory lease paid in advance is subtracted from factory lease expense in the trial balance so only this year s lease expense is included in the income statement. The factory lease prepaid is a current asset (prepayment) in the statement of financial position as it represents benefit of using the factory to be received next year. (b) Ranui Drycleaning s loan is a non-current liability because it is not due to be repaid until 2015 it will take three more years to pay off the loan. The loan will take more than one year to pay off so it is a non-current liability. (c) (i) Non-cash items which may affect Ranui Drycleaning include - the ability of the drycleaning staff, the quality of the drycleaning, the prompt service provided for people needing drycleaning returned quickly, the location so it is easy for people to take their drycleaning (ii) These non-cash items mean that Ranui Drycleaning may actually be worth more than the statement of financial position suggests - if it was for sale there could be goodwill which would add to the value of the business. Ranui Drycleaning Income Statement for the year ended 31 March 2012 Income Drycleaning Revenue 205,000 Add Other Income Interest Received 1,000 Less Dry Cleaning and Delivery Expenses Drycleaners' Wages 30,100 Electricity - Drycleaning 13,100 Delivery Van Expenses 14,900 Drycleaning Supplies 17,900 Factory lease expense 30,000 Depreciation on Delivery Van 7,200 Depreciation - Drycleaning Equipment 10, ,200 Administrative Expenses Accountancy Fees 5,800 Office Expenses 9,700 Insurance 7,300 22,800 Finance Costs Interest on loan 3, ,000 Total Expenses 149,000 Profit for the year $57,000 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 24

28 Ranui Drycleaning Statement of Financial Position as at 31 March 2012 Current Assets Petty Cash 100 Bank 21,200 Accounts Receivable 3,910 Prepayments 2,500 Accrued Income 200 Total current assets 27,910 Non-current Assets Investment Term Investment (5% due 2014) 20,000 Property, plant and equipment Total carrying amount (note 1) 124,800 Total non-current assets 144,800 Total assets 172,710 Less Liabilities Current Liabilities Accounts Payable 1,610 GST 3,000 Accrued Expenses 1,100 5,710 Non-current Liability Loan (7.5%, due 2015) 40,000 Total Liabilities 45,710 Net Assets $127,000 Equity Opening Capital 122,000 Plus Profit for the year 57,000 Less Drawings -52,000 Closing Capital $127,000 Note to the Statement of Financial Position 1. Property, plant and equipment Delivery Van Drycleaning Equipment Total Cost 36, , ,000 less Accumulated Depreciation -13,200-18,000-31,200 Carrying amount $22,800 $102,000 $124,800 Depreciation is calculated on a straight-line basis at the following rates: Delivery Van 20% Drycleaning Equipment 9 years Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 25

29 Exercise Eight page 36 OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for similar Questions (a) One limitation of Fresh Clean s Income Statement is that it doesn't show the quality of the cleaning that Fresh Clean does. Another limitation is that depreciation is only the best estimate of the use of the cleaning equipment and vehicle during the year meaning the profit is based to some extent on estimates and judgements. (b) The amount owing for the assistant s wages is added to wages expense so it is included in the income statement because it relates to this period/year the assistant has already earned the wages. There is a current liability accrued expense in the balance sheet representing an obligation to pay $540 to the assistant for the wages owing from the bank in the future. (c) The reporting period is necessary so financial statements to measure the financial performance and financial position of Fresh Clean can be prepared on a regular/timely basis to allow for the measurement of profit and for comparisons to be made from one year to the next. Fresh Clean Income Statement for the year ended 31 March 2012 Revenue Cleaning Revenue 119,100 Other Income Dividends Received ,520 Less Cleaning and Vehicle Expenses Cleaning Supplies Expense 29,400 Van Expenses 17,680 Assistant's Wages 28,080 Depreciation on Van 7,600 Depreciation - Cleaning Equipment 3,000 85,760 Administrative Expenses Telephone and Internet 7,400 Office Expenses 8,340 Donation to Red Cross 500 Accountancy Fee 1,250 Insurance 3,220 20,710 Finance Costs Interest on Loan Total Expenses 107,430 Profit for the year $12,090 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 26

30 Fresh Clean Statement of Financial Position as at 31 March 2012 Current Assets Accounts Receivable 1,380 Bank 1,700 Cleaning Supplies on Hand 270 Accrued Income 240 Prepayments 420 Total current assets 4,010 Non-current Assets Investment Shares in TWL 6,000 Property, plant and equipment Total carrying amount (Note 1) 42,000 Total non-current assets 48,000 Total Assets 52,010 Less Liabilities Current Liabilities Accounts Payable 8,050 GST 1,030 Accrued Expenses 540 total current liabilities 9,620 Non-current Liability Loan (8%, due July 2016) 12,000 Total Liabilities 21,620 Net Assets $30,390 Equity Capital 50,300 Plus Profit for the year 12,090 Less Drawings -32,000 $30,390 Note to the Statement of Financial Position 1. Property, plant and equipment Van Cleaning Equipment Total Cost 38,000 32,000 70,000 less Accumulated Depreciation -19,000-9,000-28,000 Carrying amount $19,000 $23,000 $42,000 Depreciation is calculated on a straight line basis at the following rates: Van 20% p.a. Cleaning Equipment $3,000 p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 27

31 Exercise Nine page 37 OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for similar Questions (a) GST is classified as a current liability because Key Real Estate has to pay the GST to the IRD/government within the next two months/year. Money will be used to pay the GST owing in the near future, making this a current liability. (b) One limitation of Key Real Estate s Statement of Financial Position is that the land and buildings are reported at their historical cost which is how much they cost to purchase. This amount may be out of date if it is a number of years ago that the land and buildings were purchased. The current value of the land and buildings is likely to have increased over time and therefore the value of the business as shown in the Statement of Financial Position may also be dated. The real current value of the assets may be higher meaning the equity would also be higher than that shown. Other limitations include any nonmoney item related to an asset or liability such as the Statement of Financial Position does not show the quality of the office equipment or vehicles. (c) Rates and insurance paid in advance is subtracted from rates and insurance expense in the trial balance and not included in the income statement as it relates to next year. There is a current asset prepayment in the statement of financial position to indicate the benefit Key Real Estate will receive from the rates and insurance, already paid, in the future. (d) Commission received is income for Key Real Estate because the commission received increases the asset bank so is an inflow of economic benefit increasing an asset. The commission received will increase the profit which increases the equity of Key Real Estate. The commission received came from clients not the owner. Key Real Estate Income Statement for the year ended 31 March 2012 Revenue Commission Received 291,000 Other Income Rent Received 36, ,000 Less Selling and Vehicle Costs Depreciation on Vehicles 6,200 Vehicle Expenses 14,000 Advertising 22,900 Agents Salaries 46,000 Agents Commission 30, ,100 Administrative Expenses Accountancy Fee 3,200 Office Expenses 12,600 Rates and Insurance 15,800 Telephone and Internet 11,700 Depreciation on Buildings 1,000 Office Salary 27,000 Depreciation on Office Equipment 2,600 73,900 Finance Costs Interest on Mortgage 9,000 9,000 Total Expenses 202,000 Profit for the year $125,000 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 28

32 Key Real Estate Statement of Financial Position as at 31 March 2012 Current Assets Bank 3,000 Accounts Receivable 13,800 Prepayments 1,000 Total current assets 17,800 Non-current Assets Property, plant and equipment Total carrying amount (Note 1) 345,000 Total assets 362,800 Less Liabilities Current Liabilities GST 3,750 Accounts Payable 8,050 Income in advance 4,000 Total current liabilities 15,800 Non-current Liability Mortgage on buildings 100,000 (9%, due 2015) Total liabilities 115,800 Net assets $247,000 Equity Opening Capital 185,000 Plus Profit for the year 125,000 Less Drawings -63,000 Closing Capital $247,000 Note to the Statement of Financial Position 1. Property, plant and equipment Land Buildings Vehicles Office Equipment Total Cost 80, ,000 62,000 33, ,000 less Accumulated Depreciation -7,000-15,200-7,800-30,000 Carrying amount $80,000 $193,000 $46,800 $25,200 $345,000 Depreciation is calculated on a straight line basis at the following rates: Buildings 0.5% p.a. or $1,000 p.a. Vehicles 10% p.a. or $6,200 p.a. Office Equipment 10% p.a. or $2,600 p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 29

33 Exercise Ten page 38 OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for similar questions (a) Business Assist s business car is an asset because it was purchased in the past by Business Assist. Only Business Assist can use the car to visit clients to help them with their businesses/provide advice to clients by visiting them. In the future Business Assist will use the car to visit clients and help them with their businesses/provide them with advice which earns Business Assist income that brings money into the bank account (economic benefit provided in the future). (b) When Jess uses the business car for personal use, this is not a business expense as it is a transaction with the owner Jess and expenses cannot be transactions with the owner. This means when Jess uses the business car for her own use she has to record it as drawings and not as an expense of Business Assist. The entity concept states that the business transactions and the owner s personal transactions need to be kept separate and this is done by recording personal use of business assets as drawings. Business Assist Income Statement for the year ended 31 March 2012 Revenue Fees Received 236,000 Other Income Rent Received 21,000 total income 257,000 Less Expenses Service Delivery Expenses Advisors Salaries 75,000 Advertising 6,000 Car expenses 14,000 Depreciation business car 5, ,500 Administrative Expenses Office Expenses 19,000 Rates and Insurance 8,800 Telephone Expense 12,800 Depreciation buildings 1,500 Depreciation office equipment 4,200 46,300 Finance Costs Interest on Mortgage 9,000 Total expenses 155,800 Profit for the year 101,200 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 30

34 Business Assist Statement of Financial Position as at 31 March 2012 Current Assets Petty Cash 200 GST 1,320 Prepayment 1,200 Accounts Receivable 4,600 7,320 Non-current Assets Property, plant and equipment (Note 1) 258,800 Total assets 266,120 Less Liabilities Current Liabilities Bank 3,000 Accounts Payable 920 Income in advance 2,000 5,920 Non-current Liability Mortgage on Buildings 90,000 Total liabilities 95,920 Net assets 170,200 Equity Opening Capital 121,000 Plus Profit for the year 101,200 Less Drawings -52,000 Closing Capital 170,200 Note to the Statement of Financial Position Note 1 Property, plant and equipment Land Buildings Office Equipment Business Car Total Cost 60, ,000 42,000 32, ,000 Accumulated Depreciation -11,500-8,200-5,500-25,200 Carrying amount 60, ,500 33,800 26, ,800 Depreciation is calculated on a straight line basis at the following rates: Buildings 1% p.a. Office Equipment 10% p.a. Business Car 4 years Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 31

35 Trading Firms Exercise Eleven page 39 OPTIONAL Huia Book Store General Journal March 31 Prepayments 1,800 Rates and Insurance 1,800 for rates and insurance paid in advance on balance day Rent Received 2,200 Income in Advance 2,200 for rent received in advance on balance day Office Salary 1,300 Accrued Expenses 1,300 for office salary owing on balance day Accounts Receivable 13,570 Sales 11,800 GST 1,770 invoices on hand for sales Purchases 7,800 GST 1,170 Accounts Payable 8,970 invoices on hand for purchases Huia Book Store General Ledger Rates and Insurance 30-Mar Balance 10,400 Dr Prepayments 1,800 8,600 Dr (transfer to) Income Statement 8,600 0 Prepayments 30-Mar Rates and Insurance 1,800 1,800 Dr Rent Received 30-Mar Balance 8,200 Cr Income in Advance 2,200 6,000 Cr (transfer to) Income Statement 6,000 0 Income in Advance 30-Mar Rent Received 2,200 2,200 Cr Office Salary 30-Mar Balance 29,200 Dr Accrued Expense 1,300 30,500 Dr (transfer to) Income Statement 30,500 0 Accrued Expense 30-Mar Office Salary 1,300 1,300 Cr Sales 30-Mar Balance 471,000 Cr 30-Mar Accounts Receivable 11, ,800 Cr (transfer to) Income Statement 482,800 0 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 32

36 Accounts Receivable 30-Mar Sales plus GST 13,570 13,570 Dr GST 30-Mar Balance 1,700 Cr Accounts Receivable 1,770 3,470 Cr Accounts Payable 1,170 2,300 Cr Purchases 30-Mar Balance 187,200 Dr Accounts Payable 7, ,000 Dr (transfer to) Income Statement 195,000 0 Accounts Payable 30-Mar Purchases plus GST 8,970 8,970 Cr Huia Book Store Income Statement for the year ended 31 March 2012 Sales 482,800 Less Cost of Goods Sold Opening Inventory 27,000 Plus Purchases 195,000 Goods Available for sale 222,000 Less Closing Inventory -24,000 Cost of Goods Sold 198,000 Gross Profit 284,800 Add Other Income Rent Received 6, ,800 Distribution Costs Advertising 9,800 Sales Salaries 62,000 Shop Electricity 7,600 Depreciation on Shop Fittings 4,800 84,200 Administrative Expenses Office Expenses 17,900 Office Salary 30,500 Rates and Insurance 8,600 Telephone and Fax Rental 8,400 Depreciation on Office Equipment 3,900 69,300 Finance Costs Interest on Mortgage 10,000 10,000 Total expenses 163,500 Profit for the year $127,300 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 33

37 Huia Book Store Statement of Financial Position as at 31 March 2012 Current Assets Bank 2,700 Accounts Receivable 13,570 Inventory 24,000 Prepayments 1,800 Total current assets 42,070 Non-current Assets Property, plant and equipment Total carrying amount (Note 1) 337,700 Intangible Asset Goodwill 12,000 Total non-current assets 349,700 Total Assets 391,770 Less Liabilities Current Liabilities Accounts Payable 8,970 GST 2,300 Income in Advance 2,200 Accrued Expenses 1,300 Total current liabilities 14,770 Non-current Liability Mortgage (10%, due 2018) 125,000 Total Liabilities 139,770 Net assets $252,000 Equity Opening Capital 177,700 Plus Profit for the year 127,300 Less Drawings -53,000 Closing Capital $252,000 Note to the Statement of Financial Position 1. Property, plant and equipment Shop Fittings Office Equipment Buildings Total Cost 48,000 26, , ,000 less Accumulated Depreciation -8,400-7,900-16,300 Carrying amount $39,600 $18,100 $280,000 $337,700 Depreciation is calculated on a straight-line basis at the following rates: Shop Fittings 10% Office Equipment 15% Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 34

38 Exercise Twelve page 40 OPTIONAL Kea Scene General Journal Mar 31 Accrued Income 400 Dividends Received 400 for dividends owing on balance day Mar 31 Depreciation on Office Equipment 3,000 Accumulated Depreciation - Office Equipment 3,000 to record depreciation on office equipment Mar 31 Shop Fittings 10,000 GST 1,500 Accounts Payable 11,500 to record accounts payable for shop fittings on balance day Kea Scene General Ledger Dividends Received 30-Mar Balance 300 Cr Accrued Income Cr (transfer to) Income Statement Accrued Income 30-Mar Dividends received Dr Depreciation on Office Equipment 30-Mar Accumulated depreciation on office equip. 3,000 3,000 Dr (transfer to) Income statement 3,000 0 Accumulated Depreciation on Office Equipment 30-Mar Balance 2,000 Cr Depreciation on Office Equipment 3,000 5,000 Cr Shop Fittings 30-Mar Balance 80,000 Dr Accounts Payable 10,000 90,000 Dr Accounts Payable 30-Mar Shop Fittings plus GST 11,500 11,500 Cr GST 30-Mar Balance 2,000 Cr Accounts Payable 1, Cr Questions (a) The historical cost measurement base is applied to Kea Scene s purchase of the new shop fittings by recording and reporting the shop fittings at their purchase price of $10,000. (b) The new electronic advertising display board for the shop window is an asset because it was purchased by Kea Scene (past transaction). Only Kea Scene can use the display board to advertise its products in the shop window. Kea Scene also has control over the benefit of the display board by deciding what to advertise and how to present the advertising. When the display board attractively advertises Kea Scene s products customers will notice when they pass the shop window and are more likely to come in and purchase items from Kea Scene bringing cash into the bank account via the sale of the items (future economic benefit from the display board). Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 35

39 (c) The different items of shop fittings purchased by Kea Scene are all assigned a dollar value which is what Kea Scene paid for them. When recorded in the accounting records the different items dollar values are added up to make one total for shop fittings. The dollar amount of the purchase will also be added to the dollar amount of shop fittings already owned by Kea Scene. The different items are not recorded by quantity for example but by the dollar amount of their cost so that different items can be added together via the unit common to them dollars. This is the monetary measurement notion that in accounting we record everything in dollar terms as dollars (New Zealand dollars in this case) is the unit common to them all. Kea Scene Income Statement for the year ended 31 March 2012 Sales 320,000 Less Sales Returns -3,000 Net Sales 317,000 Less Cost of Goods Sold Opening Inventory 20,000 Plus Purchases 180,000 Less Purchase returns -5, ,000 Freight In 2000 Goods Available for sale 197,000 Less Closing Inventory -18,000 Cost of Goods Sold 179,000 Gross Profit 138,000 Add Other Income Dividends Received 700 Distribution Costs Wages- shop 30,000 Depreciation on Shop Fittings 8,000 38,000 Administrative Expenses Office Expenses 24,000 Depreciation on Office Equipment 3,000 27, ,700 Total expenses 65,000 Profit for the year $73,700 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 36

40 Kea Scene Statement of Financial Position as at 31 March 2012 Current Assets Bank 4,300 Inventory 18,000 Accrued Income 400 Total current assets 22,700 Non-current Assets Investment Shares in Solo Ltd 7,000 Property, plant and equipment Total carrying amount (Note 1) 101,000 Total non-current assets 108,000 Total Assets 130,700 Less Liabilities Current Liabilities Accounts Payable 11,500 GST 500 Total current liabilities 12,000 Total Liabilities 12,000 Net assets $118,700 Equity Opening Capital 70,000 Plus Profit for the year 73,700 Less Drawings -25,000 Closing Capital $118,700 Note to the Statement of Financial Position 1. Property, plant and equipment Shop Fittings Office Equipment Total Cost 90,000 30, ,000 less Accumulated Depreciation -14,000-5,000-19,000 Carrying amount $76,000 $25,000 $101,000 Depreciation is calculated on a straight-line basis at the following rates: Shop Fittings 10% Office Equipment 10% Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 37

41 Exercise Thirteen page 41 OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar. Tui Music Income Statement for the year ended 31 March 2012 Sales 437,500 Less Cost of Goods Sold Opening Inventory 32,000 Plus Purchases 221,800 Less Purchase Returns -3, ,800 Freight inwards 9,700 Customs duty 8,500 Goods Available for sale 269,000 Less Closing Inventory -27,000 Cost of Goods Sold 242,000 Gross Profit 195,500 Add Other Income Dividends Received 900 Rent Received 14,000 14, ,400 Distribution Costs Advertising 6,300 Sales Salaries 54,000 Shop Electricity 5,800 Depreciation - Shop Fittings 4,500 70,600 Administrative Expenses Office Expenses 12,600 Office Salary 19,700 Rates and Insurance 7,100 Depreciation on Buildings 2,400 Telephone expense 3,500 45,300 Financial Expenses Interest on Mortgage 7,500 7,500 Total expenses 123,400 Profit for the year $87, Questions (a) Rent received in advance by Tui Music is an example of accrual basis as the amount received in advance is not included in the income statement as it belongs to next year. The amount of rent received in advance is a current liability in the statement of financial position as Tui Music owes its tenant the right to use the rented space in the future. (b) Dividends received owing is an asset of Tui Music as the dividends have been declared (past event), only Tui Music can benefit from the dividends when they are paid and in the future the cash will come into Tui Music s bank account (future economic benefit). (c) Depreciation on shop fittings is an expense as it represents a reduction in the asset shop fittings that decreases equity by decreasing profit. Depreciation is not drawings of Tui Music s owner, rather it recognises the use of the future economic benefit contained in the shop fittings in each year they are used by Tui Music. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 38

42 Tui Music Statement of Financial Position as at 31 March 2012 Current Assets GST 1,700 Accounts Receivable 9,200 Inventory 27,000 Prepayments 1,600 Accrued Income ,800 Total current assets Non-current Assets Investments Shares in AMI 15,000 Property, plant and equipment Total carrying amount (Note 1) 267,100 Total non-current assets 282,100 Total assets 321,900 Less Liabilities Current Liabilities Accounts Payable 13,800 Bank 2,800 Income in Advance 2,000 Accrued Expenses 1,300 Total current liabilities 19,900 Non-current Liability Mortgage 75,000 Total liabilities 94,900 Net assets $227,000 Equity Opening Capital 197,000 Plus Profit for the year 87,000 Less Drawings -57,000 Closing Capital $227,000 Note to the Statement Financial Position 1. Property, plant and equipment Land Buildings Shop Fittings Total Cost 70, ,000 50, ,000 less Accumulated Depreciation -6,400-6,500-12,900 Carrying amount $70,000 $153,600 $43,500 $267,100 Depreciation is calculated on a straight-line basis at the following rates: Buildings 1.5% p.a. Shop Fittings $4,500 p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 39

43 Exercise Fourteen page 42 OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar answers (a) The financial statements of Village Sports only include the assets, liabilities, incomes and expenses of the business Village Sports. They do not include Stuart s personal assets, liabilities, incomes or expenses. When Stuart uses business assets for himself it is recorded as drawings to keep his personal transactions separate to the business transactions of Village Sports. (b) Stuart took a hockey stick home for his daughter s birthday present. (Note any sport example and any relation or friend or other reference to personal use answer must have a specific sport example, be noncash and clearly indicate personal use by Stuart.) (c) Even though the Shares in JHL have a current market value of $5,800 they are recorded at their original purchase cost of $5,000 in the accounting records. The Shares in JHL are reported in the statement of financial position at their purchase cost of $5,000, not their current market value of $5,800. Village Sports Income Statement for the year ended 31 March 2012 Sales 202,100 Less Sales Returns -3,000 Net Sales 199,100 Less Cost of Goods Sold Opening Inventory 24,000 Plus Purchases 75,000 Goods Available for sale 99,000 Less Closing Inventory -25,000 Cost of Goods Sold 74,000 Gross Profit 125,100 Add Other Income Dividends Received ,500 Distribution Costs Advertising 7,000 Sales Staff Wages 28,300 Depreciation on Shop Fittings 2,600 37,900 Administrative Expenses Office Expenses 8,100 Insurance 3,600 Depreciation on Office Equipment 2,400 14,100 Finance Costs Interest on Loan 1,500 Total expenses 53,500 Profit for the year $72,000 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 40

44 Village Sports Statement of Financial Position as at 31 March 2012 Current Assets Bank 5,000 Accounts Receivable 1,000 Inventory 25,000 Prepayments 400 Accrued Income 100 Total current assets 31,500 Non-current Assets Investments Shares in JHL 5,000 Property, plant and equipment Total carrying amount (Note 1) 62,000 Total non-current assets 67,000 Total Assets 98,500 Less Liabilities Current Liabilities Accounts Payable 5,000 GST 2,200 Accrued Expenses 1,300 8,500 Non-current Liability Loan (10%, due 2014) 15,000 Total Liabilities 23,500 Net assets $75,000 Equity Opening Capital 40,000 Plus Profit for the year 72,000 Less Drawings -37,000 Closing Capital $75,000 Note to the Statement of Financial Position 1. Property, plant and equipment Shop Fittings Office Equipment Total Cost 52,000 24,000 76,000 less Accumulated Depreciation -8,600-5,400-14,000 Carrying amount $43,400 $18,600 $62,000 Depreciation is calculated on a straight-line basis at the following rates: Shop Fittings 5% p.a. Office Equipment 10% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 41

45 Exercise Fifteen page 43 OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar. Handy Hardware Income Statement for the year ended 31 March 2012 Sales 281,000 Less Sales Returns -3, ,000 Less Cost of Goods Sold Opening Inventory 20,000 Plus Purchases 122,300 Less Purchase Returns -4, ,300 Freight In 2,000 Goods Available for sale 140,300 Less Closing Inventory -23,000 Cost of Goods Sold 117,300 Gross Profit 160,700 Add Other Income Interest Received 700 Rent Received 16,000 16, ,400 Distribution Costs Advertising 7,000 Sales Salaries 36,800 Delivery Expenses 4,600 Shop Electricity 3,400 Van Expenses 8,100 Depreciation - Delivery Van 7,600 67,500 Administrative Expenses Office Wages 16,000 Depreciation on Equipment and Fittings 7,000 Rates and Insurance 4,500 27,500 Finance Costs Interest on Mortgage 5,200 5,200 Total expenses 100,200 Profit for the year $77,200 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 42

46 Handy Hardware Statement of Financial Position as at 31 March 2012 Current Assets Accounts Receivable 10,350 Inventory 23,000 Prepayments 1,000 Accrued Income 200 Total current assets 34,550 Non-current Assets Investments Term Investment 14,000 Property, plant and equipment 180,600 Total non-current assets 194,600 Total assets 229,150 Less Liabilities Current Liabilities Bank Overdraft 1,600 Accounts Payable 8,050 GST 3,000 Income in Advance 2,000 Accrued Expenses 1,800 Total current liabilities 16,450 Non-current Liability Mortgage (10%, due 2016) 52,000 Total liabilities 68,450 Net assets $160,700 Equity Opening Capital 119,000 Plus Profit for the year 77,200 Less Drawings -35,500 Closing Capital $160,700 Note to the Statement of Financial Position 1. Property, plant and equipment Land and Delivery Equipment Buildings Van and Fittings Total Cost 82,000 38,000 79, ,000 less Accumulated Depreciation -9,400-9,000-18,400 Carrying amount $82,000 $28,600 $70,000 $180,600 Depreciation is calculated on a straight-line basis at the following rates: Delivery Van 20% p.a. Equipment and Fittings $7,000 p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 43

47 Exercise Sixteen page 44 OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar. Whatipu Organics Income Statement for the year ended 31 March 2012 Sales 462,000 Less Cost of Goods Sold Opening Inventory 45,000 Plus Purchases 193,300 Plus Freight inwards 4,800 Goods Available for sale 243,100 Less Closing Inventory -42,000 Cost of Goods Sold 201,100 Gross Profit 260,900 Add Other Income Rent Received 30, ,900 Distribution Costs Advertising 14,800 Delivery Expenses 17,300 Wages- shop 72,000 Shop Electricity 13,400 Depreciation on Fittings and Equipment 7,500 Depreciation on Buildings 3, ,675 Administrative Expenses Wages - Office 28,000 Accountancy Fee 5,900 Rates and Insurance 12,000 Depreciation on Fittings and Equipment 2,500 Depreciation on Buildings 1,225 49,625 Finance Costs Interest on mortgage 9,600 9,600 Total expenses 187,900 Profit for the year $103,000 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 44

48 Whatipu Organics Statement of Financial Position as at 31 March 2012 Current Assets Accounts Receivable 28,750 Inventory 42,000 Prepayments 3,200 Total current assets 73,950 Non-current Assets Property, plant and equipment (note 1) 390,600 Total assets 464,550 Less Liabilities Current Liabilities Bank 3,400 Accounts Payable 20,700 GST 2,750 Income in Advance 7,500 Accrued Expenses ,150 Non-current Liability Mortgage (8%, due 2018) 120,000 Total liabilities 155,150 Net assets $309,400 Equity Opening Capital 259,400 Plus Profit for the year 103,000 Less Drawings -53,000 Closing Capital $309,400 Note to the Statement of Financial Position 1. Property, plant and equipment Land Buildings Fittings & Equipment Total Cost 90, ,000 80, ,000 less Accumulated Depreciation -9,900-14,500-24,400 Carrying amount $90,000 $235,100 $65,500 $390,600 Depreciation is calculated on a straight-line basis at the following rates: Buildings 2% p.a. Fittings & Equipment 12.5% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 45

49 Exercise Seventeen OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar answers Creative Fun sells a range of fun puzzles, board games, toys and models. (a) Puzzles imported from China are recorded in New Zealand dollars in the accounting records so they can be added to puzzles and other inventory items using the same unit of currency - $NZ. The notion of monetary measurement means all transactions, assets, liabilities, incomes and expenses are recorded in dollar terms in the same (New Zealand) currency. This is the reporting currency for Creative Fun. (b) The reporting entity is applied to Naomi, the owner of Creative Fun, taking a board game home for her niece s birthday by recording this as drawings. This is not a business expense of Creative Fun as it is a transaction with the owner, Naomi, meaning it must be kept separate from business transactions by recording it as drawings. (c) Creative Fun s financial statements are prepared on the assumption that Naomi will continue operating Creative Fun as a shop selling fun puzzles, board games, toys and models into the foreseeable future. Naomi does not know of any reason to stop trading or cut back her operations and she doesn t have any need to. Creative Fun Income Statement for the year ended 31 March 2012 Sales 242,000 Less Cost of Goods Sold Opening Inventory 19,000 Plus Purchases 93,000 Goods Available for sale 112,000 Less Closing Inventory -23,000 Cost of Goods Sold 89,000 Gross Profit 153,000 Add Other Income Dividends Received ,600 Distribution Expenses Advertising 8,000 Depreciation - shop fittings 4,300 Shop Rent 27,500 Sales Salaries 38,100 77,900 Administrative Expenses Telephone and Internet 3,900 Accountancy Fee 2,400 Insurance 6,800 Depreciation - office equipment 5,000 18,100 Financial Expenses Interest on loan Total expenses 96,900 Profit for the year $56,700 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 46

50 Creative Fun Balance Sheet as at 31 March 2012 Current Assets Cash on hand 100 Bank 2,100 Accounts Receivable 16,100 Inventory 23,000 Prepayments 1,400 Accrued Income 400 Total current assets 43,100 Non-current Assets Investments Shares in WEL 9,000 Property, plant and equipment Total carrying amount (Note 1) 53,200 Total non-current assets 62,200 Total assets 105,300 Less Liabilities Current Liabilities Accounts Payable 10,350 GST 2,150 Loan (7.5% due October 2012) 12,000 Accrued Expenses 1,100 Total current liabilities 25,600 Total liabilities 25,600 Net Assets $79,700 Equity Opening Capital 70,000 Plus profit for the year 56,700 Less Drawings -47,000 Closing Capital $79,700 Note to the Balance Sheet 1. Property, plant and equipment Office Equipment Shop Fittings Total Cost 27,000 43,000 70,000 less Accumulated Depreciation -7,500-9,300-16,800 Carrying amount $19,500 $33,700 $53,200 Depreciation is calculated on a straight-line basis at the following rates: Office Equipment 4 years Shop Fittings 10% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 47

51 Exercise Eighteen page 46 OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar answers (a) Sun glasses sales for cash is income because it represents an inflow of economic benefit in the form of cash coming into Beach Stuff s bank account asset. The sunglass sales increase which increases profit and this increases equity. The sales of sunglasses are to customers not the owner so this is not a transaction with Matt/not Matt s contribution. (b) Shop rent paid is an expense as it represents an outflow of economic benefit it the form of cash going out of Beach Stuff s bank account asset. The shop rent expense decreases profit which decreases equity. The shop rent is paid to the landlord, not to Matt so it is not Matt s drawings/not a transaction with Matt (the owner). (c) The computer included in office equipment is an asset as it was purchased by Beach Stuff in the past. Only Beach Stuff can use the computer for its benefit including maintaining a website, a Facebook presence and sending s to customers. This helps Beach Stuff s presence in the market place to be known to a wider audience and will encourage customers to come and buy stuff in the future thus bringing economic benefit in the form of cash from the sales. (d) The loan is a liability as the money was received by Beach Stuff in the past. Beach Stuff is currently obliged to pay back the loan (to the bank). When Beach Stuff repays the loan there will be a decrease in cash from the asset bank decreasing economic benefit. (e) I classified the loan as a current liability. At 31 March the loan is due in five months time (end of August) so it will have to be paid back within the next year. Amounts owing that have to be paid back in less than one year are classified as current liabilities. Beach Stuff Income Statement for the year ended 31 March 2012 Sales 349,000 Less Sales Returns -1, ,000 Less Cost of Goods Sold Opening Inventory 37,000 Plus Purchases 242,000 Less Purchase Returns -5, ,000 Goods Available for sale 274,000 Less Closing Inventory -40,000 Cost of Goods Sold 234,000 Gross Profit 114,000 Add Other Income Interest Received ,200 Distribution Costs Advertising 3,600 Sales Salaries 24,000 Delivery Expenses 8,900 Depreciation - Shop Fittings 3,600 40,100 Administrative Expenses Office Expenses 9,000 Rent 6,000 Insurance 1,000 Accountancy Fee 1,500 Depreciation on Office Equipment 2,500 20,000 Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 48

52 Financial Expenses Interest on Loan 1,200 1,200 Total expenses 61,300 Profit for the year $52,900 Beach Stuff Statement of Financial Position as at 31 March 2012 Current Assets Bank 2,300 Accounts Receivable 8,050 Inventory 40,000 GST 1,100 Prepayments 1,000 Total current assets 52,450 Non-current Assets Investments Term Investment 4,000 Property, plant and equipment Total carrying amount (Note 1) 40,900 Total non-current assets 44,900 Total assets 97,350 Less Liabilities Current Liabilities Accounts Payable 3,450 Accrued Expenses 300 Loan (10%, due August 2012) 12,000 Total current liabilities 15,750 Total liabilities 15,750 Net assets $81,600 Equity Opening Capital 62,700 Plus Profit for the year 52,900 Less Drawings -34,000 Closing Capital $81,600 Note to the Statement of Financial Position 1. Property, plant and equipment Office Equipment Shop Fittings Total Cost 20,000 36,000 56,000 less Accumulated Depreciation -7,500-7,600-15,100 Carrying amount $12,500 $28,400 $40,900 Depreciation is calculated on a straight-line basis at the following rates: Office Equipment 12.5% p.a. Shop Fittings 10% p.a. Level 1 Accounting Financial Statements & BDA Notes, Examples and Exercise Answers Page 49

53 CASH BUDGETS NOTES, EXAMPLES AND EXERCISE ANSWERS