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BAE

Prepare a brief report in response to the 4 concerns raised by the partners

The assignment must be your own individual work; i.e. it is not a group assignment. If it is believed that a student has copied material from another student or any other source without appropriate referencing, the necessary action will be taken under the University’s Student Academic Misconduct Policy: (http://www.usc.edu.au/explore/policies-and-procedures/ student-academicmisconduct-academic-policy). The assignment should only be submitted electronically via Safe Assignment on the course Blackboard site. If you wish to apply for an extension to your submission date, please email Kirsty Meredith ( [email protected] ) to explain the circumstances and attach any necessary supporting documentation. Late penalties will be applied for assignments submitted after midnight on the due date without an approved extension. More details on late penalties are provided in the course outline. How the assignment will be marked Marks will be allocated to each component of the assignment as follows: Component Marks Corrections from task 2a 2 Adjustment entries 5 Closing entries 4 Ledgers and Trial Balance 5 Financial Statements 6 Ratio calculations 3 Report to partners - Academic conventions (1 mark) - Explanation of concepts/theory (incl. communication skills) (2 marks) - Application of theory to address partners concerns (2 marks) 5 Total 30 Page | 2 Case Study – Part 2 You are still working for the partnership of A Blake, C Dairy & E Ferguson. It is now the end of the financial year (30 June 2017), and the partners have notified you of the following: ï‚· The commission received relates to the period 1 June 2017 to 31 August 2017. ï‚· The 30 June 2017 stocktake revealed $7,500 worth of inventory (at cost) which included $300 of obsolete stock. Discrepency is assumed to be related to theft. ï‚· The next wages payment will occur on 9 July 2017. This payment will include wages of $3,250 for the four-week period indicated below. In addition, you are aware of the following organisational policies: ï‚· Assets are depreciated using the method that maximises the expense in the initial years (and minimises the expense in later years). ï‚· Office furniture is depreciated at a rate of 30%. ï‚· Doubtful debts are adjusted at 30 June each year, so that the provision equates to 5% of the accounts receivable balance at the end of the year. You have just received a query from E Ferguson, expressing some concerns the partners have about the business. These concerns include: 1. The partners are unhappy about the high costs of wages for their bookkeeper. E Furguson has asked you to explain whether it is necessary for the bookkeeper to prepare a bank reconciliation every month. 2. The partnership has been using a perpetual inventory system based on the average cost method of inventory valuation. The partners are concerned that this does not allow them to report their financial performance and position in the most ‘positive light’ (i.e. they feel another method may result in financial statements that are more attractive to future investors and lenders). 3. The partnership is considering making a substantial investment into manufacturing machinery which would allow them to manufacture their own inventory from rawmaterials, rather than purchase inventory ready-made. However, they are concerned about how much of their investment will be recorded as an asset and how much will be expensed. Details of the proposed purchase are as follows (assume no GST): Page | 3 a) Purchase price (before discount) $20,000 b) Trade discount ($3,000) c) Freight $2,200 d) Installation costs $650 e) Initial training costs (for machine operator) $570 f) Initial testing costs $500 g) Costs to reorganise the company’s inventory department $6,000 4. In addition, the partners are also concerned that their businesses performance is not as good as that of their competitors: G Henderson, I Johnson & K Lairy who reported a current ratio of $1.60 (p.186), a gross grofit percentage of 48% (p.242), and a days in inventory ratio of 40 days. Your task: Access the general journals, ledger and trial balance of A Blake, C Dairy & E Ferguson, which you prepared in task 2a (Case Study – Part 1). Using this information, you are now required to: a) Correct any errors that were identified in your task 2a spreadsheet (if applicable). b) Optional: some accountants find it beneficial to prepare an accounting worksheet. A worksheet does not form part of the accounting system, but is an additional tool to assist with the accounting process. It is not a mandatory requirement for this assessment task, but you may like to prepare a worksheet to assist you with steps c, d & f below (you may copy the worksheet format from the topic 4 resources on Blackboard). c) Prepare adjustment journal entries to account for the 6 dot points above (note: no adjustments are required for rent or advertising expenses; these costs relate entirely to the 2017 financial year). d) Post the adjustment journal entries (which will include updating the ledger accounts you have previously prepared, and creating new accounts as required); you will also need to update the trial balance e) Prepare closing journal entries (do not post these) f) Prepare financial statements: (1) Income Statement, (2) Statement of Changes in Equity, and (3) Balance Sheet). Note: it is recommended that you prepare and present these in Excel, using the format shown on page 240 (for the income statement and statement of changes in equity) and page 184 (for the balance sheet) of the course textbook: Nobles et al. 2016. g) Calculate the following financial ratios: (1) Current ratio, (2) Gross Profit percentage, and (3) Days in inventory ratio (note: use ending inventory balance as average inventory for this calculation). Page | 4 h) Prepare a brief report in response to the 4 concerns raised by the partners. In your report, you must directly address the concerns raised by the partners. In doing so, please briefly explain the following concepts: a. The importance of internal control b. Earnings management c. Different options for accounting for inventory d. The accounting standard and general guidelines for recording non-current assets (note: a scaffolding activity will be conducted in week 8 or week 9 computer workshops which will assist with this). e. Interpretation of the current ratio f. Interpretation of the gross profit percentage g. Interpretation of the inventory ratio Your report should be presented in a word document. It must follow academic conventions such as including appropriate referencing and be approximately 900 words in length (between 800 and 1000 words in length is acceptable). The following figure shows the usual sections to include in an academic report; the sections marked with an X are not required for this assignment. Source: adapted from USC Student Life and Learning, n.d.. Student Life and Learning, n.d.,

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