Solved by verified expert :Question 1 – 10 Marks
The following is the unadjusted trial balance for James
Trading Pty Ltd as at the close of the financial year ended 30 June 2011. In
addition the following entries had not been applied to the general ledger.
1.
Rent had been prepaid to the extent of 3 months
on June 1st. The monthly rent is $1,000
2.
Interest income on a loan made to J Harris had
not been taken to account
3.
Expenses of $20,000 for legal fees were
estimated to be incurred but had not been invoiced by the solicitor
4.
A stock take was undertaken as at the close of
June and $8,500 was the value of stock on hand
5.
The company received $20,000 for services which
will be delivered over the next four months. The first services were provided
in the current month of June.
On the attached worksheet
a.
Complete the entries to adjust the trial balance
for the closing entries
b.
Prepare an statement of income and statement of
financial position
Question2 – 15 Marks
The following is the Statement of financial Position and
Profit and Loss statement for Luke Incorporated Pty Ltd. You have been retained
by your client to review the business and provide a financial analysis of the
business for your client.
Undertake an analysis of the company and prepare a short
report on your findings to a prospective purchaser.
Your analysis should cover the liquidity and performance of
the company. Your report should clearly indicate the ratios and other methods
used to evaluate the business for your client.
Your analysis must be in report format. With a suitable explanation
of the specific ratios you have applied and why you used them.
Provide a recommendation to your client based on your
analysis.
Question 3 – 15 Marks
Part a) – 7 marks
Advanced Radio repairs make all sales on account. Cash
receipts arrive by mail. James opens the envelopes and separates the cheques
from the accompanying remittance advices. James forwards cheques to another
employee, who makes the daily bank deposit but has no access to the accounting
records. James sends the remittance advices, which show the cash received, to
the accounting department for entry into the accounts. James’ other duty is to
grant sales allowances to customers ( a sales allowance decreases the amount
receivable). When he receives a customer’s cheque for less than the full amount
of the invoice, he records the sales allowance and forwards the document to the
accounting department.
Required
You are the new Financial Controller of Advanced Radio
repairs. Write a memo to the company Chairperson identifying the internal
Control weakness in this situation. State the steps to be taken to correct the
weakness.
Part b)- 8 marks
You are the Financial Controller for Lukes’ Manufacturing
and you have been approached by the Chief Executive Officer in relation to the
purchase of a new item of equipment. Not having an accounting background, the
owner Joe Logs, does not understand the concept of depreciation and is under
the impression that depreciation is a process of creating a cash fund to
replace an asset.
Write a note explaining the concept and using the
information regarding the asset below illustrate the difference in various depreciation
methods and the effect on the financial performance of the organisation if any.
Machine Cost $45,000
Delivery to site $500
Cost of set up ready for production $2,500
Salvage value estimated to be $3,000
Maximum units of production 5,000
in the first year
4,500
in the second year
And reducing by 500 units each until the end of its useful
life
Effective Useful life 5
years
Show all calculations and a depreciation schedule in your
report to demonstrate fully the impact to Joe Logs.
Question 4 – 10 marks
Part a)
Alpha Ltd had the following equity balance at July 1, the
beginning of the year
Share
capital 10,000 $10 shares $100,000
Reserves $80,000
Retained
Earnings $50,000
Alpha Ltd’s profit for the year was $40,000. During the year
the following events and transactions occurred;
Dec 30 Declared interim cash dividend
of $1 per share
Jan 15 Paid
interim cash dividend
Mar 31 4-for
1 share split
June 30 declared
cash dividend o0f $1 per share
June 30 transferred
$15,000 to general reserve
Required
a)
Prepare journal entries to record the
transactions affecting equity during the period
b)
Prepare a statement showing the changes in
retained earnings during the year
c)
Prepare the equity section of the balance sheet
d)
Calculate the dividend payout ratio and return
on shareholders’ equity
Part b)
Investors Ltd Shareholders equity is as follows
Share Capital $4,000,000
Retained earnings and reserves $1,000,000
Investor ltd plans to expand its operations by establishing
a branch in Singapore. The new branch will cost $2.5million. Expected profits
before tax and interest when the new branch is operational are $1.2 million.
The tax rate is 30%. Investors Ltd is considering 2 financing options;
a)
Borrow $2.5million at 8% interest
b)
Issue 100,000 shares at $25
Required; Which funding
alternative yields the higher return on equity. What other factors should be
considered.
Question 5 – 10 marks
CVP Analysis
Unique Manufacturing had a bad year in 2007. Having operated
at a loss. The income statement showed the following results from selling 60,000:
net sales $2,250,000, total costs and expenses $2,835,000; and loss $385,000.
Costs and expenses consisted of the following
Total variable fixed
Cost of Goods sold 2,025,000 1,395,000 $630,000
Selling Expenses 630,000 110,000 520,000
Administrative expenses 180,000 70,000 110,000
Total 2,835,000 1,575,000 1,260,000
Management is considering the following independent
alternatives for 2008
Increase the unit selling
price to $52.50 with no change in
costs , expenses and sales volume
Change in compensation of
salespersons from fixed annual salaries totalling $300,000 to total
salaries of $75,000 plus 5% commission on net sales
Purchase new high tech
factory that will change the proportion between variable and fixed cost of
goods sold to 50:50
Required
a)
Calculate the break -even point for the year
2007
b)
Calculate the break -even point under each
alternative course of action above.
