tafe accounting workbook solutions manual

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1 tafe accounting workbook solutions manual financial accounting applications poustie Australia Brazil Japan Korea Mexico Singapore Spain United Kingdom United States

2 Contents Page Chapter 1: Partnerships 2 Chapter 2: Incomplete or single-entry systems 140 Chapter 3: Not-for-profit organisations 160 Chapter 4: Primary producers 177 Chapter 5: Statement of cash flows 191 Chapter 6: Standard financial analysis techniques 201 Chapter 7: Inventories 209

3 Chapter 1: Partnerships 1.1 In accordance with the Partnership Act, for a partnership to exist, the following three conditions must be present: 1. a business must be carried on 2. the business must be carried on by persons in common 3. the business must be carried on with a view of profit. 1.2 A partnership is a group of people (normally up to 20) who have joint ownership of a business. Members of a partnership share the responsibility for the conduct of the partnership business, as well as the liability for partnership debts. Partners also share profits and losses made by the partnership business. 1.3 a) An active partner is one who, as well as contributing capital to a partnership, shares the liability for partnership debts and takes an active role in the management of the partnership business. b) A sleeping partner is one who contributes capital and shares the liability for partnership debts, but takes no role in the management of the partnership business. c) A limited partner is one who contributes capital to the partnership, but has no further liability for partnership debts and is not permitted to take an active role in the conduct of the partnership. 1.4 Advantages of partnerships (any four, with brief explanation as per text): Formation is simple and inexpensive. More capital available. Sharing of workload and risks. Specialisation of skills. Elimination of competition. Possible income tax savings for a family partnership. Disadvantages of partnerships (any four, with brief explanation as per text): Unlimited liability. Partners acts binding on the other partners. Possibility of disputes between partners. Limited life (death or resignation of a partner). Profits must be shared. 1.5 For the purposes of accounting for partnerships, the Entity Convention is observed in the same way as in a single ownership business. The partnership business is viewed as a separate entity to the partners, and each partner s equity is recorded by maintaining a separate Capital account for the partner. 1.6 Ways in which a partnership may come into existence (any two): Two (or more) people may decide to commence a new business together. An existing business owner may decide to take in a partner. Two existing business owners may decide to combine their businesses. 1.7 Solution in textbook. 1.8 Solution in textbook.

4 3 1.9 Items of importance that should be covered on a partnership agreement (any eight): Date of formation of the partnership. Name and address of each partner. Nature of the partnership business. Duration of the partnership. Business name of the firm. Partners capital contributions. Partners profit and other entitlements. Partners rights and duties. Management arrangements. Accounting records. Dissolution. Procedure for settling disputes Goode & Proper Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected 15 Jul Charles Goode Capital Charles Goode Cyril Proper Capital Cyril Proper Charles Goode Loan from Charles Goode Goode & Proper General Ledger Date Particulars Folio Debit Credit Balance Capital Charles Goode Account 15 Jul Cash at bank CRJ Cr Capital Cyril Proper Account 15 Jul Cash at bank CRJ Cr Loan from Charles Goode Account 15 Jul Cash at bank CRJ Cr Cash at Bank Account 15 Jul Sundries CRJ Dr

5 4 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.11 Peake & Thomas Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected 20 Mar H. Peake Capital H. Peake B. Thomas Capital B. Thomas B. Thomas Loan from B. Thomas General Journal Date Particulars Folio Debit Credit 20 Mar Premises at cost Equipment at cost GST paid Capital H. Peake Assets contributed by Hayden Peake at agreed values. Office furniture at cost Equipment at cost GST paid Capital B. Thomas Assets contributed by Breanna Thomas at agreed values Solution in textbook Alan & Fiona General Journal Date Particulars Folio Debit Credit 1 Feb Accounts receivable control Stock Franchise Premises at cost Goodwill Allowance for doubtful debts 400 Accounts payable control Capital Alan Assets and liabilities contributed by Alan at agreed values. Stock Accounts receivable control Motor vehicles at cost Goodwill Allowance for doubtful debts 800 Bank overdraft Accounts payable control Capital Fiona Assets and liabilities contributed by Fiona at agreed values. Capital Alan Loan from Alan Transfer to fix capital at as per agreement.

6 5 Alan & Fiona Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected 1 Feb Alan Capital Alan Fiona Capital Fiona Solution in textbook Doors Music General Journal Date Particulars Folio Debit Credit Jun Accounts receivable Stock of sheet music 250 Grand piano at cost Instruments and equipment at cost Goodwill Allowance for doubtful debts 100 Capital Morrison Assets and liabilities contributed by John Morrison at agreed values. Cash on hand 50 Accounts receivable Stock of sheet music 350 Instruments and equipment at cost Premises at cost Goodwill Allowance for doubtful debts 500 Bank overdraft Accounts payable Mortgage loan on premises Capital Densmore Assets and liabilities contributed by James Densmore at agreed values. Capital Morrison Loan from Morrison Transfer to fix capital at as per agreement. Doors Music Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected Jun John Morrison Capital Morrison James Densmore Capital Densmore 3 350

7 6 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.16 Joe & Rob Statement of Financial Position (simplified) as at 1 July OWNERS EQUITY Capital Joe Capital Rob Total owners equity This is represented by: ASSETS Current assets Cash at bank Accounts receivable less Allowance for doubtful debts Total current assets Non-current assets Property, plant and equipment Factory premises at cost Furniture and equipment at cost Motor vehicles at cost Total property, plant and equipment Total non-current assets Total assets less LIABILITIES Current liabilities Accrued expenses Mortgage loan on premises Total current liabilities Non-current liabilities Mortgage loan on premises Loan from Joe Total non-current liabilities Total liabilities Net assets Solution in textbook.

8 Burke & Wills General Journal Date Particulars Folio Debit Credit 30 Jun Current Burke 80 Profit and loss 80 Interest on advance at 8% p.a. as per Partnership Agreement. Profit and loss 420 Current Wills 420 Interest on loan at 7% p.a. as per Partnership Act. Profit and loss Profit and loss appropriation Transfer of Net Profit for the year ended 30 June. Current Burke 340 Current Wills 270 Profit and loss appropriation 610 Interest on drawings at 12% p.a. as per Partnership Agreement. Profit and loss appropriation Salary Burke Salary Wills Transfer of salaries paid. Profit and loss appropriation Current Wills Unpaid salary entitlement as per Partnership Agreement. Profit and loss appropriation Current Burke Current Wills Interest on capitals at 5% p.a. as per Partnership Agreement. Profit and loss appropriation Current Burke Current Wills Distribution of profit after entitlements & charges, in ratio of capitals contributed.

9 8 TAFE Accounting: Financial Accounting Applications Solutions Manual Burke & Wills General Ledger (extract) Debit Date Particulars Folio Credit Balance Current Burke Account 30 Jun Balance Dr Profit and loss (Int. on adv.) GJ Dr P & L appro. (Int. on draw.) GJ Dr P & L appro. (Int. on cap.) GJ Dr P & L appro. (Profit share) GJ Cr Profit and Loss Account 30 Jun Balance Cr Current Burke (Int. on adv.) GJ Cr Current Wills (Int. on loan) GJ Cr P & L appro. (Net profit) GJ Nil Current Wills Account 30 Jun Balance Cr Profit and loss (Int. on loan) GJ Cr P & L appro. (Int. on draw.) GJ Cr P & L appro. (Unpaid salary) GJ Cr P & L appro. (Int. on cap.) GJ Cr P & L appro. (Profit share) GJ Cr Profit and Loss Appropriation Account 30 Jun Profit and loss (Net profit) GJ Cr Sundries (Int. on Draw.) GJ Cr Sundries (Salaries paid) GJ Cr Current Wills (Unpaid salary) GJ Cr Sundries (Int. on cap.) GJ Cr Sundries (Profit share) GJ Nil Salary Burke Account 30 Jun Balance Dr P & L appro. GJ Nil Salary Wills Account 30 Jun Balance Dr P & L appro. GJ Nil 1.19 Solution in textbook.

10 a) Trevor & Jan Statement of Comprehensive Income for the Year ended 30 June PROFIT AND LOSS Income Revenue (from ordinary activities) Sales less Sales returns Total sales revenue less Cost of sales Stock, 1 July Purchases less Purchases returns Net purchases Cost of goods available for sale less Stock, 30 June Total cost of sales Gross profit add Other income (from ordinary activities) Rent income Commission income Interest on advance to Jan Total other income (from ordinary activities) Gains (outside ordinary business activities) Nil Total income less Expenses and losses Expenses (from ordinary activities) Selling and distribution expenses Cartage outwards Advertising Depreciation vehicles (see note 1 below) Total selling and distribution expenses Administrative and general expenses Printing and stationery Donations 300 Long service leave Legal costs 600 Office salaries Rates and taxes Total administrative & general expenses Financial expenses Bad debts (see note 1 below) Discount expense 960 Interest expense Doubtful debts Interest on loan from Trevor less Discount income 720 Total financial expenses Total expenses (from ordinary activities) Losses (outside ordinary business activities) Loss on sale of business segment (see note 1 below) Fire losses (see note 1 below) Total losses (outside the ordinary activities of the business) Total expenses and losses Net profit OTHER COMPREHENSIVE INCOME Gain on revaluation of premises Comprehensive income

11 10 TAFE Accounting: Financial Accounting Applications Solutions Manual Notes to Statement of Comprehensive Income Note 1 Material items of expenses and losses Depreciation of delivery vehicles During the year the business reassessed the effective life of its delivery vehicles resulting in an additional amount of depreciation. Bad debts Included in bad debts is an amount of caused by the bankruptcy of a major debtor. Loss on sale of business segment During the year the business disposed of its branch in Bendigo at a loss of Fire losses A fire in the stationery store at the firm s head office during the year caused losses of b) Trevor & Jan Appropriation Statement for the Year ended 30 June Net profit add Charges to partners Interest on overdrawn current Jan less Partners entitlements Salary Trevor Jan Interest on capital Trevor Jan Profit available for distribution Distributed as follows: Trevor (60%) Jan (40%)

12 c) Trevor & Jan Statement of Financial Position as at 30 June OWNERS EQUITY Capital Trevor Current Trevor Capital Jan Current Jan Total owners equity This is represented by: ASSETS Current assets Bank Petty cash advance 180 Stock of stationery 420 Accounts receivable less Allowance for doubtful debts Prepaid expenses 300 Accrued income 700 Stock Total current assets Non-current assets Property, plant and equipment Vehicles at cost less Accumulated depreciation Premises at valuation Total property, plant and equipment Intangibles Goodwill Total intangibles Other financial assets Advance to Jan Total other financial assets Total non-current assets Total assets less LIABILITIES Current liabilities Accounts payable GST collected less GST paid Prepaid income 500 Total current liabilities Non-current liabilities Loan from Trevor Mortgage loan on premises Provision for long service leave Total non-current liabilities Total liabilities Net assets

13 12 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.21 Solution in textbook a) Raye & Ivan Appropriation Statement for the Year ended 30 June 2016 Net profit add Charges to partners Interest on drawings Raye 150 Ivan less Partners entitlements Salary Raye Ivan Interest on capital Raye Ivan Profit available for distribution Distributed as follows: Raye (50%) Ivan (50%) b) Raye & Ivan General Ledger (extract) Date Particulars Folio Debit Credit Balance Current Raye Account Jul Balance Dr Jan Bank (Drawings) CPJ Dr 31 Mar Bank (Drawings) CPJ Dr 30 Jun Profit and loss (Int. on loan) GJ Dr P & L appro. (Int. on draw.) GJ Dr P & L appro. (Unpaid salary) GJ Cr P & L appro. (Int. on cap.) GJ Cr P & L appro. (Profit share) GJ Cr 1.23 Solution in textbook.

14 a) Luke, Kris & Miles General Journal Date Particulars Folio Debit Credit 30 Jun Profit and loss Current Kris Interest on loan at 7% p.a. as per Partnership Act. Profit and loss Profit and loss appropriation Transfer of Net Profit for the year ended 30 June. Profit and loss appropriation Current Luke Current Kris Current Miles Interest on capitals at 10% p.a. as per Partnership Agreement. Profit and loss appropriation Current Luke Salary entitlement as per Partnership Agreement. Current Luke Current Kris 600 Current Miles 200 Profit and loss appropriation Interest on drawings at 5% p.a. as per Partnership Agreement. Current Luke Current Kris Current Miles Profit and loss appropriation Distribution of loss after entitlements and charges, in the ratio of capital account balances at 30 June b) Luke, Kris & Miles General Ledger (extract) Date Particulars Folio Debit Credit Balance Current Miles Account Jul Balance Dr 30 Jun Drawings GJ Dr P & L appro. (Int. on cap.) GJ Dr P & L appro. (Int. on draw.) GJ Dr P & L appro. (Loss share) GJ Dr

15 14 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.25 b) Mitchell & O Shea General Journal Date Particulars Folio Debit Credit 30 Jun Prepaid expenses 200 Advertising 200 Prepaid rates and taxes. Insurance 100 GST paid 10 Accrued expenses 110 Accrued insurance. Bad debts 600 GST collected 60 Accounts receivable control 660 Additional bad debt written off. Depreciation vehicles Accumulated depreciation vehicles Depreciation charged at 20% p.a. using the reducing balance method. Depreciation equipment Accumulated depreciation equipment Depreciation charged at 10% p.a. using the straight-line method. Long service leave Provision for long service leave Accrued long service leave. Annual leave Provision for annual leave Accrued annual leave. Accrued revenue 200 Interest on investments 200 Interest earned but not received. Doubtful debts 360 Allowance for doubtful debts 360 Increase in allowance for doubtful debts. Salaries office Accrued expenses Accrued office salaries. Sales Purchases returns Trading Transfer to Trading account. Trading Purchases Cartage inwards Sales returns Stock (1 July 2016) Transfer to Trading account. Stock (30 June ) Trading Stock on hand at 30 June. Trading Profit and loss Transfer of Gross Profit. Discount received Interest on investments 600 Profit and loss Transfer to Profit and Loss account.

16 15 Date Particulars Folio Debit Credit Profit and loss Discount allowed Cartage outwards Advertising Vehicle expenses Rates and taxes Insurance Bad debts Salaries selling Salaries office Salaries delivery Office expenses Interest on mortgage loan Depreciation vehicles Depreciation equipment Long service leave Annual leave Doubtful debts 360 Transfer to Profit and Loss account. Current Mitchell Current O Shea Drawings Mitchell Drawings O Shea Transfer to Current accounts. Current O Shea 500 Profit and loss 500 Interest on advance at 10% p.a. as per Partnership Agreement. Profit and loss Current Mitchell Interest on loan at 7% p.a. as per Partnership Act. Profit and loss Profit and loss appropriation Transfer of Net Profit for the year ended 30 June. Current Mitchell 400 Current O Shea 480 Profit and loss appropriation 880 Interest on drawings at 8% p.a. as per Partnership Agreement. Profit and loss appropriation Current Mitchell Current O Shea Interest on capitals at 6% p.a. as per Partnership Agreement. Profit and loss appropriation Salary Mitchell Salary O Shea Transfer of salaries paid. Profit and loss appropriation Current Mitchell Current O Shea Unpaid salary entitlement as per Partnership Agreement. Profit and loss appropriation Current Mitchell Current O Shea Equal distribution of profit after entitlements and charges as per Partnership Act.

17 16 TAFE Accounting: Financial Accounting Applications Solutions Manual Mitchell & O Shea General Ledger Date Particulars Folio Debit Credit Balance Bank Account 30 Jun Balance Dr Capital Mitchell Account 30 Jun Balance Cr Capital O Shea Account 30 Jun Balance Cr Current Mitchell Account 30 Jun Balance Cr Drawings Mitchell GJ Dr Profit and loss (Int. on loan) GJ Cr P & L appro. (Int. on draw.) GJ Dr P & L appro. (Int. on cap.) GJ Cr P & L appro. (Unpaid salary) GJ Cr P & L appro. (Profit share) GJ Cr Current O Shea Account 30 Jun Balance Dr Drawings O Shea GJ Dr Profit and loss (Int. on adv.) GJ Dr P & L appro. (Int. on draw.) GJ Dr P & L appro. (Int. on cap.) GJ Dr P & L appro. (Unpaid salary) GJ Dr P & L appro. (Profit share) GJ Cr Sales Account 30 Jun Balance Cr Trading GJ Nil Purchases Account 30 Jun Balance Dr Trading GJ Nil Investments Best Bonds Account 30 Jun Balance Dr Drawings Mitchell Account 30 Jun Balance Dr Current Mitchell GJ Nil Drawings O Shea Account 30 Jun Balance Dr Current O Shea GJ Nil

18 17 Salary Mitchell Account 30 Jun Balance Dr P & L appro. GJ Nil Salary O Shea Account Jun Balance Dr P & L appro. GJ Nil Discount Income Account 30 Jun Balance Cr Profit and loss GJ Nil Discount Expense Account 30 Jun Balance Dr Profit and loss GJ Nil Accounts Receivable Control Account 30 Jun Balance Dr Bad debts & GST collected GJ Dr Accounts Payable Control Account 30 Jun Balance Cr Cartage Inwards Account 30 Jun Balance Dr Trading GJ Nil Purchases Returns Account 30 Jun Balance Cr Trading GJ Nil Cartage Outwards Account 30 Jun Balance Dr Profit and loss GJ Nil Sales Returns Account 30 Jun Balance Dr Trading GJ Nil Interest on Investments Account 30 Jun Balance 400 Cr Accrued income GJ Cr Profit and loss GJ 600 Nil Land and Buildings at Cost Account 30 Jun Balance Dr

19 18 TAFE Accounting: Financial Accounting Applications Solutions Manual Mortgage Loan on Land and Buildings Account 30 Jun Balance Cr Advance to O Shea Account 30 Jun Balance Dr Loan from Mitchell Account 30 Jun Balance Cr Advertising Account 30 Jun Balance Dr Prepaid expenses GJ Dr Profit and loss GJ Nil Vehicle Expenses Account 30 Jun Balance Dr Profit and loss GJ Nil Rates and Taxes Account 30 Jun Balance Dr Profit and loss GJ Nil Insurance Account 30 Jun Balance Dr Accrued expenses GJ Dr Profit and loss GJ Nil Bad Debts Account 30 Jun Balance Dr Accounts receivable control GJ Dr Profit and loss GJ Nil Vehicles at Cost Account 30 Jun Balance Dr Accumulated Depreciation Vehicles Account 30 Jun Balance Cr Depreciation vehicles GJ Cr Salaries Selling Account 30 Jun Balance Dr Profit and loss GJ Nil Salaries Office Account 30 Jun Balance Dr Accrued expenses GJ Dr Profit and loss GJ Nil

20 19 Salaries Delivery Account 30 Jun Balance Dr Profit and loss GJ Nil Office Expenses Account 30 Jun Balance Dr Profit and loss GJ Nil Equipment at Cost Account 30 Jun Balance Dr Accumulated Depreciation Equipment Account 30 Jun Balance Cr Depreciation equipment GJ Cr Allowance for Doubtful Debts Account 30 Jun Balance 800 Cr Doubtful debts GJ Cr GST Paid Account 30 Jun Balance Dr Accrued expenses GJ Dr GST Collected Account 30 Jun Balance Cr Accounts receivable control GJ Cr Stock Account 30 Jun Balance (1 July 2016) Dr Trading GJ Nil Trading GJ Dr Interest on Mortgage Loan Account 30 Jun Balance Dr Profit and loss GJ Nil Prepaid Expenses Account 30 Jun Advertising GJ Dr Accrued Expenses Account 30 Jun Insurance GJ Cr Salaries office GJ Cr Depreciation Vehicles Account 30 Jun Accum. deprec. vehicles GJ Dr Profit and loss GJ Nil

21 20 TAFE Accounting: Financial Accounting Applications Solutions Manual Depreciation Equipment Account 30 Jun Accum. deprec. equipment GJ Dr Profit and loss GJ Nil Long Service Leave Account 30 Jun Provision for long service leave GJ Dr Profit and loss GJ Nil Provision for Long Service Leave Account 30 Jun Long service leave GJ Cr Annual Leave Account 30 Jun Provision for annual leave GJ Dr Profit and loss GJ Nil Provision for Annual Leave Account 30 Jun Annual leave GJ Cr Accrued Income Account 30 Jun Interest on investments GJ Dr Doubtful Debts Account 30 Jun Allowance for doubtful debts GJ Dr Profit and loss GJ 360 Nil Trading Account 30 Jun Sales GJ Cr Purchases returns GJ Cr Purchases GJ Cr Cartage inwards GJ Cr Sales returns GJ Cr Stock (1 July 2016) GJ Cr Stock (30 June ) GJ Cr Profit and loss GJ Nil Profit and Loss Account 30 Jun Trading GJ Cr Discount income GJ Cr Interest on investments GJ Cr Discount expense GJ Cr Cartage outwards GJ Cr Advertising GJ Cr Vehicle expenses GJ Cr Rates and taxes GJ Cr Insurance GJ Cr Bad debts GJ Cr Salaries selling GJ Cr Salaries office GJ Cr Salaries delivery GJ Cr

22 21 Office expenses GJ Cr Interest on mortgage loan GJ Cr Depreciation vehicles GJ Cr Depreciation equipment GJ Cr Long service leave GJ Cr Annual leave GJ Cr Doubtful debts GJ Cr Current O Shea GJ Cr Current Mitchell GJ Cr P & L appro. GJ Nil Profit and Loss Appropriation Account 30 Jun Profit and loss GJ Cr Sundries (Interest on drawings) GJ Cr Sundries (Interest on capitals) GJ Cr Sundries (Salaries paid) GJ Cr Sundries (Unpaid salaries) GJ Cr Sundries (Profit share) GJ Nil c) Mitchell & O Shea Statement of Financial Position as at 30 June OWNERS EQUITY Capital Mitchell Current Mitchell Capital O Shea Current O Shea Total owners equity This is represented by: ASSETS Current assets Bank Accounts receivable less Allowance for doubtful debts Stock Prepaid expenses 200 Accrued income 200 Total current assets Non-current assets Property, plant and equipment Land and buildings at cost Vehicles at cost less Accumulated depreciation Equipment at cost Less Accumulated depreciation Total property, plant and equipment Investments Investments Best Bonds Total investments Other financial assets Advance to O Shea Total other financial assets Total non-current assets Total assets less LIABILITIES Current liabilities Accounts payable GST collected

23 22 TAFE Accounting: Financial Accounting Applications Solutions Manual less GST paid Accrued expenses Provision for annual leave Total current liabilities Non-current liabilities Mortgage loan on land and buildings Loan from Mitchell Provision for long service leave Total non-current liabilities Total liabilities Net assets Reasons for the admission of a new partner (any four): Incoming partner s capital will enable expansion of the business. Incoming partner may have special skills. A new partner may be admitted to ease the workload of the existing partners. Admitting a competitor into the partnership will increase market share. Admission of an employee into the partnership will provide career progression. Replacement of a retiring partner AASB 3 Business Combinations requires that the assets contributed by the new partner be recorded in the books of the partnership at fair value. Any difference between the total value of the net assets contributed by the new partner and the agreed purchase consideration paid by the new partner is treated as goodwill in the books of the partnership. In subsequent, goodwill should be reduced in value if it can be established that the future economic benefits arising from goodwill have been impaired in any way When a new partner is admitted to an existing partnership, that partner may: 1) make a personal payment to the existing partners in return for a share in the equity of the partnership, 2) purchase a share in the equity of the partnership by contributing capital in cash, or 3) purchase a share in the equity of the partnership by contributing capital in the form of assets and liabilities from an existing business Roger, Wally & Graeme General Journal Date Particulars Folio Debit Credit 1 Nov Capital Roger Capital Wally Capital Graeme Admission of Graeme for a one-third equity in the partnership.

24 Pierre, Louise & Marcel Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected 1 May Marcel Capital Marcel Solution in textbook It is necessary to revalue the assets of an existing partnership prior to the admission of a new partner because: 1) The existing partners are entitled to reap the benefits of any unrecorded increase in the value of their business. 2) It would be unfair to an incoming partner if any assets of the existing partnership were overvalued, and that partner was required to share in any subsequent loss incurred on the disposal of such assets The Capital Adjustment account is used to record any increases or decreases in the values of assets of an existing partnership prior to the admission of a new partner, and to transfer the net gain or loss on revaluation to the existing partners Capital accounts Solution in textbook a) John, Henry & Charles General Journal Date Particulars Folio Debit Credit 1 Jan Goodwill Capital adjustment Creation of goodwill prior to the admission of Charles. Capital Adjustment Stock Accum. depreciation motor vehicles Allowance for doubtful debts Decreases in asset values prior to the admission of Charles. Capital John Capital Henry 500 Capital adjustment Loss on revaluation of assets shared in the ratio John 3:Henry 1. Accounts receivable control Stock Goodwill Allowance for doubtful debts Accounts payable control Capital Charles Assets and liabilities contributed by Charles at agreed values. Current John Capital John Current account balance transferred.

25 24 TAFE Accounting: Financial Accounting Applications Solutions Manual Capital Henry Current Henry Current account balance transferred. Capital John Loan from John Transfer of excess capital to loan account, to fix capitals in agreed ratio. Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected 1 Jan Charles Deakin Capital Charles Henry Latrobe Capital Henry b) (Extract from) General Ledger Date Particulars Folio Debit Credit Balance Capital Adjustment Account 1 Jan Goodwill GJ Cr Sundries GJ Dr Sundries GJ Nil Capital John Account 1 Jan Balance Cr Capital adjustment GJ Cr Current John GJ Cr Loan from John GJ Cr Capital Henry Account 1 Jan Balance Cr Capital adjustment GJ Cr Current Henry GJ Cr Cash at bank CRJ Cr Capital Charles Account 1 Jan Cash at bank CRJ Cr Sundries GJ Cr Cash at Bank Account 1 Jan Balance Cr Capital Charles CRJ Nil Capital Henry CRJ Dr

26 25 c) John, Henry & Charles Statement of Financial Position as at 1 January OWNERS EQUITY Capital John Capital Henry Capital Charles Total owners equity This is represented by: ASSETS Current assets Cash at bank Accounts receivable less Allowance for doubtful debts Stock Total current assets Non-current assets Property, plant and equipment Freehold land & buildings at cost Motor vehicles at cost less Accumulated depreciation Furniture & fittings at cost less Accumulated depreciation Total property, plant and equipment Intangibles Goodwill Total intangibles Total non-current assets Total assets less LIABILITIES Current liabilities Accounts payable GST collected less GST Paid Total current liabilities Non-current liabilities Mortgage loan on land and buildings Loan from John Total non-current liabilities Total liabilities Net assets Solution in textbook.

27 26 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.37 Shelley, Norman & Ada Statement of Financial Position as at 1 November OWNERS EQUITY Capital Shelley Capital Norman Capital Ada Total owners equity This is represented by: ASSETS Current assets Cash at bank Accounts receivable less Allowance for doubtful debts Stock Total current assets Non-current assets Property, plant and equipment Premises at cost Equipment at cost less Accumulated depreciation Motor vehicles at cost Total property, plant and equipment Intangibles Goodwill Total intangibles Total non-current assets Total assets less LIABILITIES Current liabilities Accounts payable GST collected less GST paid Accrued expenses Total current liabilities Non-current liabilities Mortgage loan Total non-current liabilities Total liabilities Net assets Solution in textbook.

28 Ivan, Penny & Marcus General Ledger Date Particulars Folio Debit Credit Balance Capital Adjustment Account 1 Feb Sundries (asset increases) GJ Cr Sundries (asset decreases) GJ Cr Accounts payable control GJ Cr Sundries (gain) GJ Nil Capital Ivan Account 1 Feb Balance Cr Capital adjustment GJ Cr Current Ivan GJ Cr Loan from Ivan GJ Cr Capital Penny Account 1 Feb Balance Cr Capital adjustment GJ Cr Current Penny GJ Cr Cash at bank CRJ Cr Capital Marcus Account 1 Feb Sundries GJ Cr 1.40 Glenn, Mark, Steve & Luke General Ledger Date Particulars Folio Debit Credit Balance Capital Adjustment Account 1 Jul Sundries (asset increases) GJ Cr Sundries (asset decreases) GJ Cr Sundries (gain) GJ Nil Capital Glenn Account 30 Jun Balance Cr 1 Jul Capital adjustment GJ Cr Capital Mark Account 30 Jun Balance Cr 1 Jul Capital adjustment GJ Cr Cash at bank CRJ Cr Capital Steve Account 30 Jun Balance Cr 1 Jul Capital adjustment GJ Cr Loan from Steve GJ Cr Capital Luke Account 1 Jul Sundries GJ Cr Loan from Luke GJ Cr

29 28 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.41 Fitzgibbon, Mullen & Mann Statement of Financial Position as at 1 December 2016 OWNERS EQUITY Capital Fitzgibbon Capital Mullen 104,000 Capital Mann Total owners equity This is represented by: ASSETS Current assets Cash at bank Accounts receivable less Allowance for doubtful debts Stock Total current assets Non-current assets Property, plant and equipment Land and buildings at cost Delivery vehicles at cost less Accumulated depreciation Furniture & equip. at cost less Accumulated depreciation Total property, plant & equipment Intangibles Goodwill Total intangibles Total non-current assets Total assets less LIABILITIES Current liabilities Accounts payable GST collected less GST paid Accrued expenses Total current liabilities Non-current liabilities Loan from Mullen Total non-current liabilities Total liabilities Net assets Reasons for a general dissolution of partnership (any five): a) The death of a partner. b) The retirement of a partner due to age or ill-health. c) Cessation of the partnership business due to: inadequate profitability increased competition difficulty in hiring employees or acquiring materials economic downturn cessation of the market for its products or services incompatibility of the partners. insolvency of one or more partners. a change of ownership structure to a company.

30 In a general dissolution, partnership assets must be distributed in the following order: 1. In paying the debts and liabilities of the firm to persons other than the partners. 2. In paying to each partner what is due from the firm for loans provided by the partner in addition to capital. 3. In paying to each partner what is due from the firm in respect of capital contributed. 4. Any residue is to be distributed to partners in the proportion in which they share profits and losses The general dissolution process involves the following steps: 1. Partnership assets are disposed of. 2. Partnership liabilities are paid. 3. Any cash remaining is distributed to the partners The Realisation account is a special-purpose account that is opened when a partnership is dissolved. The account is used to record all transactions related to the disposal of partnership assets, and to distribute the profit or loss arising from the realisation process to partners Capital accounts Gary & Leonie General Journal Date Particulars Folio Debit Credit 1 Nov Cash at bank Cash in registers Transfer of balance due to dissolution of partnership. Realisation Accounts receivable control Stock Shop premises at cost Motor vehicles at cost Shop furniture and equipment at cost Transfer of asset balances to Realisation account. Allowance for doubtful debts Accum. deprec. motor vehicles Accum. deprec. shop furniture and equipment Realisation Transfer of account balances to Realisation account. 30 GST collected 50 Realisation 50 GST adjustment uncollected debts. GST adjusted uncollected debts Realisation Capital Gary Capital Leonie Profit on realisation of assets shared between the partners in the ratio 2:1. Capital Gary Current Gary Current account balance transferred. Current Leonie Capital Leonie Current account balance transferred.

31 30 TAFE Accounting: Financial Accounting Applications Solutions Manual Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected Nov Realisation of assets Accounts Realisation receivable Stock Realisation Shop premises Realisation Motor vehicles Realisation Shop furn. & equip Realisation Cash Payments Journal (simplified) Date Particulars Discount income Accounts Sundries GS Bank Accounts payable control GST paid Discount income payable control Amount Account T paid 30 Nov Accounts payable Accrued Accrued expenses expenses Realisation Realisation expenses ATO GST collected (840) GST paid Gary Capital Gary Leonie Capital Leonie * GST collected: Balance in account 1 November 900 GST collected to 15 November (CRJ) GST adjustment on accounts receivable collections: Accounts receivable balance 1 November less Realisation proceeds (accounts receivable) = Uncollected debts 550 divide by 11 (GST adjustment required) (50) Final balance of account # GST paid: Balance in account 1 November 600 GST paid to 30 November (CPJ) 290 GST adjustment on discount received (50) Final balance of account 840

32 126 TAFE Accounting: Financial Accounting Applications Solutions Manual General Ledger Date Particulars Folio Debit Credit Balance Realisation Account 1 Nov Sundries (Assets) GJ Dr Sundries (Allow. D.D., etc.) GJ Dr 15 Cash at bank (Asset proceeds) CRJ Cr 30 Accounts payable control (Discount income) CPJ Cr Cash at bank (Realisation exp.) CPJ Cr GST collected (adjustment) GJ Cr Sundries (Profit share) GJ Nil Capital Gary Account 1 Nov Balance Cr 30 Realisation (Profit) GJ Cr Current Gary GJ Cr Cash at bank CPJ Nil Current Gary Account 1 Nov Balance Dr 30 Capital Gary GJ Nil Capital Leonie Account 1 Nov Balance Cr 30 Realisation (Profit) GJ Cr Current Leonie GJ Cr Cash at bank CPJ Nil Current Leonie Account 1 Nov Balance Cr 30 Capital Leonie GJ Nil Cash at Bank Account 1 Nov Balance Dr Cash in registers GJ Dr 15 Realisation (Asset proc. + GST) CRJ Dr 30 Accounts payable control CPJ Dr Accrued expenses CPJ Dr Realisation expenses + GST CPJ Dr GST collected CPJ Dr GST paid CPJ Dr Capital Gary CPJ Dr Capital Leonie CPJ Nil GST Collected Account 1 Nov Balance 900 Cr 15 Cash at bank CRJ Cr 30 Realisation GJ Cr Cash at bank CPJ Nil

33 127 GST Paid Account 1 Nov Balance 600 Dr 30 Cash at bank CPJ Dr Accounts payable control CPJ Dr Cash at bank CPJ 840 Nil 1.47 Solution in textbook Lyndal, Rebecca & Hayden General Ledger Date Particulars Folio Debit Credit Balance Accumulated Depreciation Furniture Account Aug Balance Cr Realisation GJ Nil Accumulated Depreciation Motor Vehicles Account Aug Balance Cr Realisation GJ Nil Advance Hayden Account Aug Balance Dr 9 Sep Capital Hayden GJ Nil Accounts Receivable Account Aug Balance Dr Realisation GJ Nil Accounts Payable Account Aug Balance Cr 7 Sep Cash at bank CPJ Cr Realisation (Disc. rec. + GST)) CPJ 550 Nil Furniture and Fittings at cost Account Aug Balance Dr Realisation GJ Nil Allowance for Doubtful Debts Account Aug Balance 500 Cr Realisation GJ 500 Nil Loan Lyndal Account Aug Balance Cr 9 Sep Cash at bank CPJ Nil Stock Account 16 Aug Balance Dr Realisation GJ Nil

34 128 TAFE Accounting: Financial Accounting Applications Solutions Manual Land and Buildings at cost Account 16 Aug Balance Dr Realisation GJ Nil Mortgage Loan on Land and Buildings Account 16 Aug Balance Cr 7 Sep Cash at bank CPJ Nil Capital Lyndal Account 16 Aug Balance Cr 9 Sep Realisation (Loss) GJ Cr Current Lyndal GJ Cr Cash at bank CPJ Nil Current Lyndal Account 16 Aug Balance Cr 9 Sep Capital Lyndal GJ Nil Capital Rebecca Account 16 Aug Balance Cr 9 Sep Realisation (Loss) GJ Cr Current Rebecca GJ Cr Cash at bank CPJ Nil Current Rebecca Account 16 Aug Balance 500 Cr 9 Sep Capital Rebecca GJ 500 Nil Capital Hayden Account 16 Aug Balance Cr 9 Sep Realisation (Loss) GJ Cr Advance Hayden GJ Dr Current Hayden GJ Dr Cash at bank CPJ Nil Current Hayden Account 16 Aug Balance Dr 9 Sep Capital Hayden GJ Nil Cash at Bank Account 16 Aug Balance Cr 31 Realisation (Asset proc. + GST) CRJ Dr 7 Sep Accounts payable CPJ Dr Mortgage loan CPJ Dr Accrued expenses CPJ Dr 9 Realisation expenses + GST CPJ Dr Loan Lyndal CPJ Dr GST collected CPJ Dr GST paid CPJ Dr

35 129 Capital Lyndal CPJ Dr Capital Rebecca CPJ Cr Capital Hayden CRJ Nil Goodwill Account 16 Aug Balance Dr Realisation GJ Nil Accrued Expenses Account 16 Aug Balance Cr 7 Sep Cash at bank CPJ Nil Motor Vehicles at cost Account 16 Aug Balance Dr Realisation GJ Nil Realisation Account 16 Aug Sundries (Assets) GJ Dr Sundries (Accum. deprec., etc.) GJ Dr 31 Cash at bank (Asset proceeds) CRJ Dr 7 Sep Accounts payable control (Disc. inc.) CPJ Dr 9 Cash at bank (Real. exp. + GST) CPJ Dr GST collected (Adjustment) GJ Dr Sundries (Loss share) GJ Nil GST Collected Account 16 Aug Balance 700 Cr 31 Cash at bank CRJ Cr 7 Sep Realisation GJ Cr 9 Cash at bank CPJ Nil GST paid Account 16 Aug Balance 400 Dr 7 Sep Accounts payable control CPJ Dr 9 Cash at bank CPJ Dr Cash at bank CPJ 450 Nil

36 130 TAFE Accounting: Financial Accounting Applications Solutions Manual 1.49 Cheryl & John General Journal Date Particulars Folio Debit Credit 1 Jul Cash at bank Cash on hand Transfer of balance due to dissolution of partnership. Realisation Accounts receivable control Land and buildings at cost Stock Motor vehicle at cost Furniture and equipment at cost Goodwill Transfer of asset balances to Realisation account. Allowance for doubtful debts Accumulated deprec. motor vehicle Accumulated deprec. furniture and equip Realisation Transfer of account balances to Realisation account. Accounts payable control Accrued expenses Mortgage loan on land and buildings Loan from Cathcart Finance Capital Cheryl Liabilities taken over by Cheryl as per agreement. Capital Cheryl Realisation Assets taken over by Cheryl as per agreement. Capital John Realisation GST collected Motor vehicle taken over by John as per agreement. GST collected 300 Realisation 300 GST adjustment uncollected debts. Realisation Capital Cheryl Capital John Profit on realisation of assets shared between the partners in the ratio 2:1. Loan from Cheryl Capital Cheryl Loan balance transferred as per agreement. Capital John Advance to John Advance balance transferred as per agreement. Current Cheryl Capital Cheryl Current account balance transferred. Capital John Current John Current account balance transferred.

37 131 Cash Receipts Journal (simplified) Date Particulars Folio Ref. Sundries GST Bank Amount Account collected 1 Jul John Capital John Cash Payments Journal (simplified) Date Particulars Discount income Accounts Sundries GST Bank Accounts GST Discount payable paid payable control paid income control Amount Account 1 Jul ATO GST collected (1 000) GST paid Cheryl Capital Cheryl * GST collected: Balance in account 1 July GST collected motor vehicle GST adjustment on debtor collections: Accounts receivable balance 1 July less Realisation proceeds (accounts receivable) = Uncollected debts x 10% (GST adjustment required) (300) Final balance of account General Ledger Date Particulars Folio Debit Credit Balance Cash at Bank Account 30 Jun Balance Dr 1 Jul Cash on hand GJ Dr GST collected CPJ Dr GST paid CPJ Dr Capital John CRJ Dr Capital Cheryl CPJ Nil Capital Cheryl Account 30 Jun Balance Cr 1 Jul Sundries (Liabilities) GJ Cr Realisation (Assets + GST) GJ Dr Realisation (Profit) GJ Dr Loan from Cheryl GJ Cr Current Cheryl GJ Cr Cash at bank CPJ Nil Current Cheryl Account 30 Jun Balance Cr 1 Jul Capital Cheryl GJ Nil

38 132 TAFE Accounting: Financial Accounting Applications Solutions Manual Capital John Account 30 Jun Balance Cr 1 Jul Realisation (Motor vehicle + GST) GJ Cr Realisation (Profit) GJ Cr Advance to John GJ Dr Current John GJ Dr Cash at bank CRJ Nil Current John Account 30 Jun Balance Dr 1 Jul Capital John GJ Nil Cash on Hand Account 30 Jun Balance Dr 1 Jul Cash at bank GJ Nil Accounts Receivable Control Account 30 Jun Balance Dr 1 Jul Realisation GJ Nil Accounts Payable Control Account 30 Jun Balance Cr 1 Jul Capital Cheryl GJ Nil Land and Buildings at cost Account 30 Jun Balance Dr 1 Jul Realisation GJ Nil Allowance for Doubtful Debts Account 30 Jun Balance Cr 1 Jul Realisation GJ Nil Stock Account 30 Jun Balance Dr 1 Jul Realisation GJ Nil Motor Vehicle at cost Account 30 Jun Balance Dr 1 Jul Realisation GJ Nil Accumulated Depreciation Motor Vehicle Account 30 Jun Balance Cr 1 Jul Realisation GJ Nil Furniture and Equipment at Cost Account 30 Jun Balance Dr 1 Jul Realisation GJ Nil

39 133 Accumulated Depreciation Furniture and Equipment Account 30 Jun Balance Cr 1 Jul Realisation GJ Nil Accrued Expenses Account 30 Jun Balance Cr 1 Jul Capital Cheryl GJ Nil GST Collected Account 30 Jun Balance Cr 1 Jul Capital John GJ Cr Realisation GJ Cr Cash at bank CPJ Nil GST Paid Account 30 Jun Balance Dr 1 Jul Cash at bank CPJ Nil Mortgage Loan on Land and Buildings Account 30 Jun Balance Cr 1 Jul Capital Cheryl GJ Nil Loan from Cheryl Account 30 Jun Balance Cr 1 Jul Capital Cheryl GJ Nil Goodwill Account 30 Jun Balance Dr 1 Jul Realisation GJ Nil Advance to John Account 30 Jun Balance Dr 1 Jul Capital John GJ Nil Loan from Cathcart Finance Account 30 Jun Balance Cr 1 Jul Capital Cheryl GJ Nil Realisation Account 1 Jul Realisation (Assets) GJ Dr Sundries (Accum. deprec., etc.) GJ Cr Capital Cheryl (Assets) GJ Dr Capital John (Motor vehicle) GJ Cr GST collected (Adjustment) GJ Cr Sundries (Profit share) GJ Nil 1.50 Solution in textbook.