Question 1: Ethics
You are the director of financial reporting for Zimmer Mining Pty. Ltd. (Zimmer) which mines and processes coal. One of the plants of Zimmer, which is involved in coal-cleaning, produces toxic waste. Zimmer incurs a substantial amount of cost to dispose the toxic waste. This cost has been increasing at a very high rate over the past few years.
As part of Zimmer's annual reporting, an environmental report is also produced. Apart from overseeing the preparation of the financial reports, you also oversee the preparation of the environmental report.
While in the process of reviewing the relevant documents for the preparation of the environmental report, you come across a memo from one of the senior managers to the manager of the coal-cleaning plant. The memo basically encourages the plant manager to mix the toxic waste with some other refuse which is shipped to a landfill instead of disposing the toxic waste in a safe way. As per the senior manager, "Nobody notices if the waste is mixed well with the refuse and this way we can reduce cost by almost 50%".
You are bothered by the note but are unsure as to how to deal with it.
Requirement:
1. Using the American Accounting Association (AAA) model arrive at a decision for the problem above.
2. Do the same as above, but this time use "Tucker's 5-question model".
3. Is there any difference in the outcome using the different models? Discuss.
(Adapted from: Horngren, C T., Sundem G L., Burgstahler, D., Schatzberg, J. (2014), Introduction to Management Accounting (16th Edition), Pearson.)
Question 2: Problem question
Financial balances for the car hire business of John's Limos on 31 March 2017 are provided below in a table in accounting equation form.
Assets = Liabilities + Equity
Cash at Accounts Office Motor Fuel Accounts Loan John Limos,
Bank + Receivable + Equipment + Vehicles + Supplies = Payable + Payable + Capital
$11000 + $15000 + $1500 + $94000 + 0 = $3500 + $12000 + $106000
During April, the business of John's Limos entered into the following transactions.
1. Collected $8000 of the accounts receivable.
2. Paid $2000 of the accounts payable.
3. Purchased another vehicle for $48000. Paid $5000 in cash and signed a loan agreement for the balance.
4. Billed customers for services performed, $10500.
5. Fuel supplies purchased on credit, $3750.
6. Paid expenses in cash, $4250 (wages, $2400; car cleaning $1200; advertising, $650).
7. John Limos withdrew $2000 for personal use.
8. Paid parking fines of $300.
Required
A. List the 31 March balances for assets, liabilities and equity in table form as shown above.
B. Record the effects of each transaction. Show the total of each column after recording each transaction.
C. Prepare an income statement, a statement of changes in equity and a statement of cash flows for the month ended 30 April 2016, and a balance sheet (account format) as at 30 April 2016.