Assessment Task
Task 1 -
In a single process, AJ Powders Pty Ltd refines and packages a chemical called Tipsyandgone (TTH) as a snail bait. The standard cost per 1 kg pack is as follows.
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$
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Materials: 1 kg TTH @ $1.50 per kilogram
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1.50
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Labour: 0.25 hours @ $16.00 per hour
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4.00
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Overhead: 150% direct labour cost
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6.00
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11.50
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Budgets for the year using this standard include the following:
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$
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Fixed Factory Overhead
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240,000
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Variable Factory Overhead
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120,000
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Direct Labour Cost
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240,000
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Production
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kg
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Work in process as at 1 September (50% complete)
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1,200
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Number of good packs produced
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6,000
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Work in process as at 30 September (60% complete)
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1,000
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Transactions
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$
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TTH purchased: 5,500 kg @ $1.55 per kilogram
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8,525
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TTH used: 6000 kg
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Direct labour incurred: 1,560 hours @ $11.90 per hour
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18,564
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Fixed overhead incurred
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20,590
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Variable overhead incurred
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9,540
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Sales: 6,100 packs @ $13.50 per pack
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82,350
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Required:
a) Prepare a schedule of equivalent units produced in September and the resulting standard quantities and hours. Assume that conversion costs are incurred uniformly throughout the process.
b) Calculate all variances.
c) Prepare September entries in journal form for entry into a cost ledger.
d) Show the work in process account for September.
Task 2 -
1. Plantations Ltd is exploring the possibility of replacing its semi-automatic tree planter with an improved model which would cost $75,000, have a productive life of 5 years and a scrap value of $10,000. In addition, the new model would save $15,000 per annum on labour costs.
The present machine, now beginning to cause problems, cost $72,000 five years ago and was expected to last for 10 years. The company believes that if repairs costing $4,000 were carried out now, it could be sold for $15,000. If kept, the company would need to spend $7,000 on repairs.
Depreciation is calculated on a prime cost basis. The cost of capital is 10% and tax is payable at 30% in the year of income.
Should the company keep the machine and undertake repairs, or replace it? Show all calculations for both options (NOTE: A financial calculator is required for this question).
2. Mac. Ltd plans to raise an additional $500,000 for long-term investment, and the following propositions have been submitted to you for evaluation.
(i) An issue of 400,000 ordinary shares at $1.25 per share.
(ii) An issue of $500,000 9% debentures.
(iii) An issue of 250,000 ordinary shares at $1.00 per share plus $250,000 9% debenture shares.
The capital structure of the company presently consists of 500,000 ordinary shares of $1 each fully paid, 100,000 8% preference shares of $1 each fully paid and $400,000 10% debentures. It is expected that the earnings before interest and tax of Mac Ltd will be $500,000. The company pays income tax at a rate of 30%.
a) Which of the three propositions should be implemented, using earnings per share as the basis of your decision? Show all calculations.
b) Should your decision be based exclusively on earnings per share, or should other factors be considered?
c) At what level of earnings before interest and tax would Mac Ltd be indifferent as to the choice between all shares proposition and the all debentures proposition?
Task 3 -
You are an accountant at Bell Partners in Wyong NSW and have an appointment with a client, Matthew Gordon. Matthew has brought along all his documents and receipts and asks you to prepare his tax return for 2017. His wife, Sarah, has already completed her tax return for 2017 (see below).
Matthew's Personal Details -
Date of Birth: 11/03/1985
Occupation: Financial Planner
Address: 2 Gold Street, Terrigal NSW 2260
Residency Status: Australian
Spouse Details -
Name: Sarah Gordon
Date of Birth: 22/07/1986
Taxable Income: $51,356 and $14,000 reportable fringe benefits
Residency Status: Australian
Dependent children: Ryan (aged 5) and Melissa (aged 3)
Matthew's Income for 2016/17 financial year
a) Non-Business Individual Payment Summary
- Gross Payments: $107,692
- Tax Withheld: $29,484
- Allowances: $200 (Meals)
- Reportable Fringe Benefits: $24,650
b) Interest Income (Tax File Number already supplied)
- Westpac Savings Account: $1,610 (Joint Account)
c) Dividend Income
- Telstra: Franked amounts - $782, Imputation Credits - $335
- Westfield: Franked amounts - $920, Imputation Credits - $394
- BHP Billiton: Franked amounts - $1,265, Imputation Credits - $542
d) Legacy
- Inherited $25,000 due to death of his father in June 2017. The money was put into a BT Property Managed Fund on 12/08/2017.
e) Foreign Income (converted to $AU)
- U.S. Interest Income from the Bank of America Investment Account: $1,600 (No U.S. tax withheld)
- U.K. Interest Income from the Barclays Investment Account: $960 (No U.K. tax withheld)
Matthew's Motor Vehicle and Work Expense Details for 2016/17 financial year
a) Mileage - Matthew drove a 2016 HSV Clubsport R8 (Engine capacity 5967cc) throughout the financial year to visit clients from the office at Gosford. The vehicle has been under a full novated lease for more than 15 months. Total business kilometers travelled during the financial was 4,650 km.
b) Train Tickets - Matthew travelled to the head office in the Sydney CBD from Gosford four times during the financial year by train. Total amount was $56.
c) Parking & Traffic Expenses - Total car parking expenditure while visiting clients was $140. Was issued a $79 parking fine while attending a meeting at a client's office. Paid $256 for a red light & speeding offence that occurred while travelling to see a client.
d) Clothing - Matthew spent a total of $450 for dry cleaning his Giorgio Armani suits. The suit has no corporate logo.
e) Memberships
- Renewal of Financial Planning Association of Australia (FPAA) Membership - $1,095
- Renewal of Institute of Chartered Accountants of Australia Membership - $699. Though Matthew is a member of the ICAA, his job responsibilities do not usually involve accountancy work and primarily involve financial planning.
f) iPad - Purchased on 18/11/2016 for $849 and estimated work percentage usage is 80%. Effective lifespan is 3 years.
g) MacBook Pro - Purchased on 15/10/2016 for $3,299 and estimated work percentage usage is 75%. Effective lifespan is 3 years.
h) Mobile Phone - Matthew used a separate mobile phone specifically for work purposes for the entire financial year. The mobile phone was on a $119 monthly plan for 18 months and was paid by his employer.
i) Internet & Home Office - Matthew paid $80 a month for the home internet. Both Matthew and Sarah used the internet for work purposes throughout the financial year. Matthew's uses the internet 40% of the time for work purposes. Matthew spends at least ten hours a week at home doing research on financial markets and investment products on the internet.
j) Stationery - Matthew purchased a diary for $20, pens for $15 and paper pads for $15.
k) Subscriptions - Matthew had yearly subscriptions to the Daily Telegraph newspaper for $100, the Financial Review newspaper for $120 and the Smart Investor magazine for $110.
l) Income Protection Insurance - Every month, Matthew paid a $240 premium to Westpac for income protection insurance.
m) Donations - Matthew gave to the following charities and organisations:
- World Vision - $750
- Guide Dogs - $400
- Ronald McDonald House charity dinner - $150, in which he attended held in July 2015.
- Gosford City Council Library - $100.
n) Managing Tax Affairs - Fee for preparing last year's tax return at Bells Partners - $270. Matthew travelled to the appointment at Bells Partners in the family's second car, a 2011 Subaru WRX STI (Engine capacity: 2457cc). Distance between Terrigal to Wyong is 22 km.
Rental Property Details
17/52 Rainbow Street, Coomera QLD 4209. Property was purchased brand new on 15/09/2007 for $320,000 and has been rented out all year. Matthew and Sarah have joint ownership of the property.
a) Rental Income: $24,000
b) Rental Expenses:
- Body Corporate: $2,200
- Council Rates: $1,250
- Landlord's Insurance: $1,320
- Interest on loan: $12,700
- Property Management Fees: $986
- Repairs & Maintenance: $600
Travel Expenses:
Travelled to the Gold Coast along with his wife and children to inspect the property and stayed for 4 nights at The Soul in Surfers Paradise from 04/02/2017 to 07/02/2017. Inspected the property in Coomera on 06/02/2017.
Distance between Terrigal and Surfers Paradise is 788 km, and between Surfers Paradise and Coomera is 24 km.
Accommodation expenses were $180 per night for a 2 bedroom apartment.
The family used the Subaru WRX STI to travel to and from the Gold Coast.
Water Charges: $950
Matthew also has a depreciation schedule for the rental property that was prepared by a quantity surveyor. For the financial year, the Division 40 amount is $4,200 and the Division 43 amount is $8,000.
Medical Expenses -
Matthew and Sarah have spent on the following medical expenses throughout the year:
- Prescribed Medications: $860
- Non-prescribed Medications: $235
- Prescribed Eyeglasses for Sarah: $720
- Dentist Costs: $485
- Surgery Costs for Matthew's leg injury while playing soccer in August 2015: $1,950
- Doctors Fees: $760 ($320 Medicare Refund)
- Physiotherapist: $1265
Matthew did not claim the medical expenses tax offset on his 2016 tax return.
Private Health Insurance - Matthew and his family do not have private health insurance.
Required: Based on the supplied information and by applying the tax legislation for the 2016/17 financial year, calculate Matthew's tax refund/payable for 2017. Assume that Matthew's Tax File Number has already been supplied to his employer. In your answer, show all workings.
Task 4 -
HUS Industries manufactures a single product. The master budget for February is about to be prepared, based on the following information.
Sales:
- Estimated sales in units for February are 9,800.
- Selling price will be $90 per unit.
- Sales are 30% for cash with the rest on credit.
- Money owing from customers is normally collected 10% in the month of sale and 90% in the month after sale.
Inventories:
- Finished goods: opening inventory 400 units valued at $23,600; desired closing inventory is 520 units.
- Direct materials: opening inventory is 1,250 kg valued at $11,250; desired closing inventory is 1,000 kg. All materials are bought on credit, with payment in the month following purchase attracting a 5% cash discount. All accounts are paid in this time period.
Cost of production:
- Direct materials: 2.0 kg of materials are needed to produce each unit of finished goods at a cost of $9 per kg.
- Direct labour: 1.5 hours required for each finished unit at $22 per hour.
- Factory overhead: variable overhead for February will be $5 per unit (all cash-based expenses) and fixed overhead $32,240 (including depreciation of plant of $7,500, supervisors'' salaries of $10,000, and an allowance for rent of $2,500 per month but which is paid six-monthly in advance in January and July). Factory overhead is applied on the basis of labour hours.
Other details:
- General operating expenses are estimated to be $132,000 in February. This includes depreciation of office furniture and equipment $2,500 and salaries $65,000.
- Accounts receivable at 1 February is $525,000.
- Accounts payable (materials) at 1 February is $165,000.
- Also owing is $10000 GST payable to the ATO for the quarter ending 31 December last year and $13000 accrued from January.
- There is a mortgage currently standing at $100,000 on which principal repayments of $3000 are made monthly.
- Non-current assets at 1 February are plant $200,000 less accumulated depreciation of $75,000, and office furniture and equipment $64,000 less accumulated depreciation of $18,000.
- Opening cash balance is a bank overdraft of $91,000.
- All figures are net of GST. GST is calculated on a 'cash' basis and is paid quarterly.
Prepare the following budgets for the month of February:
a) Sales budget
b) Production budget
c) Direct materials budget
d) Direct labour budget
e) Factory overhead budget
f) Cost of goods sold budget
g) Cash budget
h) Budgeted income statement
i) Budgeted balance sheet
Task 5 -
On 1 July 2016 Parent Ltd acquired all share capital of Controlled Pty Ltd for $457,500. At that date, equity of Controlled Ltd was:
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$
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Share capital - 300,000 shares issue price $1
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300,000
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General reserve
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60,000
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Retained earnings
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70,000
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Additional Information
1. Sales by Controlled Ltd to Parent Ltd were $60,000
2. Unrealised profit in the opening inventory of Controlled Ltd for goods sold by Parent Ltd was $2,000.
3. Unrealised profit in the closing inventory of Parent Ltd for goods sold by Controlled Ltd was $4,000.
4. On 1 July 2017 Controlled Ltd sold plant to Parent Ltd for $60,000. At the date of sale, the plant had a written-down value of $54,000. Parent Ltd depreciates plant at 10% per annum on cost using the straight line method.
5. Included in the payables of Controlled Ltd is $16,000 owing to Parent Ltd.
6. Impairment of goodwill:
Year ended 30 June 2017 $5,500
Year ended 30 June 2018 $5,500
Required: For the year ended 30 June 2018, complete:
a) Consolidated journal entries
b) The consolidated worksheet, and
c) Consolidated financial statements
Task 6 -
Using the information below, complete the following:
- General Journal entries. No narrations are necessary.
- Cash Receipts and Cash Payments Journals (receipt numbers start at 100 and cheque numbers at 50).
- Account Receivable Ledger.
- Account Receivable Control, Account Payable Control, Bad and Doubtful Debts and the Provision for Doubtful Debts accounts in the General Ledger (Extract).
B Buckland had the following balances as at 1 June 2017:
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Accounts Receivables
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S Smithfield
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$1,100
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M Johnson
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$5,000
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S Hipson
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$2,000
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A/C Receivable Control
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$8,100
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Other accounts
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A/C Payable Control
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$2,000
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Provision for Doubtful Debts
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$600
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Transactions for June 2017, inclusive of GST where applicable, were:
June 2 Cash sales $9,900. The Cost price was $5,250.
June 8 S Hipson paid $2,000
June 9 Charged M Johnson $30 interest on overdue account
June 10 Cash purchases $5,500
June 19 S Smithfield was declared bankrupt. We agreed to accept 50¢ in the $1 from him. Write the balance off as a bad debt.
June 20 Paid T Peters $970
June 21 Received $2,200 from D Dickson for Rent
June 25 Commission revenue received $3,300
June 28 Paid electricity $605
June 29 Paid wages $800
June 30 Incorrectly charged M Johnson $30 interest on 9 June instead of $40. Correct the error.
Additional information: The desirable closing balance for Provision for Doubtful Debts is to be $300 in the next accounting period.