Task 1. CONCEPTUAL FRAMEWORK
Alberto Ltd is seeking your advice on how to account for the following transactions, in line with the conceptual framework and other relevant documents. Discuss and explain your recommended treatment of each of the situations below. Prepare any journal entries where necessary:
A. CONCEPTUAL FRAMEWORK
Alberto Ltd is seeking your advice on how to account for the following transactions, in line with the conceptual framework and other relevant documents. Discuss and explain your recommended treatment of each of the situations below. Prepare any journal entries where necessary:
Q1. State the amount of revenue that should be recognised by Alberto Ltd in the year ended 31 December 2011 for each item below:
a) Alberto Ltd's net credit sales for 2011 were $400000, 75% of which were collected in 2011. Past experience indicates that about 96% of all credit sales are eventually collected.
b) Alberto Ltd received $100 000 cash from a customer in December 2011 as payment for special-purpose machinery which is to be manufactured and shipped to the customer in February 2012.
c) Alberto Ltd started renting out its excess warehouse space on 1 October 2011, on which date it received $12000 cash from the tenant for 6 months rent in advance. Ignore GST.
Q2. Alberto Ltd spends $10 000 per year to have its head office cleaned and its gardens maintained. In order to continue this maintenance, the company established a Provision for Maintenance account and classified this provision as a liability on the statement of financial Position/balance sheet
Q3. After conducting an audit of the accounts of Alberto Ltd, you discover that the following transactions and events were recorded during the current year. Alberto Ltd uses the historical cost system.
a) The company borrowed $500 000 from a bank at an interest rate of 10% to construct a new warehouse. At the completion of construction, the loan was repaid and the following entry was made:
Bank Loan 500000
Warehouse 50000
Cash at Bank 550000
b) A speed-control device was installed on each of the company's 8 delivery trucks at a cost of $300 each plus GST. The transaction was recorded as follows:
Maintenance Expense 2400
GST Outlays 240
Cash at Bank 2640
c) At the beginning of the current year, a new vehicle was purchased for $36000. The vehicle had an estimated useful life of 4 years. Depreciation expense for the year was recorded as follows in order to avoid reporting a loss:
Depreciation Expense 2000
Accumulated Depreciation 2000
Task 2. STATEMENT OF CASH FLOWS
The financial statements of PDP Ltd appear below.
PDP Ltd
Comparative balance sheet
as at 30 June 2010
|
Assets
|
2009
|
2010
|
|
Cash
|
$ 13000
|
$ 23 000
|
|
Accounts receivable
|
33 000
|
24 000
|
|
Inventory
|
27 000
|
20 000
|
|
Prepaid expenses
|
13 000
|
20 000
|
|
Land
|
40 000
|
40 000
|
|
Property, plant and equipment
|
225 000
|
200 000
|
|
Less: Accumulated depreciation
|
(67500)
|
|
(50 000)
|
|
Total assets
|
|
$283500
|
$277 000
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
Accounts payable
|
$ 18500
|
$ 9 000
|
|
Accrued expenses payable
|
7 500
|
9 500
|
|
Interest payable
|
1 500
|
1 000
|
|
Income taxes payable
|
2 000
|
3 000
|
|
Bonds payable
|
80 000
|
50 000
|
|
Share capital
|
105 000
|
123 000
|
|
Retained earnings
|
69 000
|
|
81 500
|
|
Total liabilities and shareholders' equity
|
|
$283500
|
$277 000
|
PDP Ltd
Income Statement
For the Year Ended 30 June 2010
|
Income
|
|
|
|
|
|
|
|
Sales revenue
|
$600 000
|
|
|
|
|
|
|
Gain on sale of PPE assets
|
2 500
|
|
$602 500
|
|
|
Less: Expenses
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
500 000
|
|
|
|
|
|
|
Other expenses
|
67 500
|
|
|
|
|
|
|
Interest expense
|
5 000
|
|
|
|
|
|
|
Income tax expense
|
9 000
|
|
581 500
|
|
|
Net profit
|
|
|
|
|
|
$ 21 000
|
|
Additional information:
1. Property Plant and Equipment assets were sold at a sales price of $62500.
2. Additional equipment was purchased at a cost of $60 000.
3. All sales and purchases were on account.
Required
1) Prepare a cash flow statement for PDP Ltd for the year ended 30 June 2010 using the direct method. Show all workings
2) Reconcile profit and net cash provided (used) by operating activities using the indirect method.
Task 3. PARTNERSHIPS
At the end of the financial year ended 30 June 2010, the trial balance of Huey, Duewy and Louie is as shown below.
HUEY, DUEWY AND LOUIE
Trial Balance
as at 30 June 2010
|
|
|
|
Debit
|
|
Credit
|
|
Cash at bank
|
|
$
|
162 500
|
|
|
|
Accounts receivable
|
|
|
248 620
|
|
|
|
Inventory
|
|
|
178 460
|
|
|
|
Equipment
|
|
|
1 430 800
|
|
|
|
Accumulated Depreciation - Equipment
|
|
|
|
$
|
62 600
|
|
Goodwill
|
|
|
360 000
|
|
|
|
Accounts payable
|
|
|
|
|
345 780
|
|
Advance, Louie (due for payment 31 May 2011)
|
|
|
|
|
320 000
|
|
Capital, 30 June 2009
|
|
|
|
|
|
|
Huey
|
|
|
|
|
160 000
|
|
Duewy
|
|
|
|
|
320 000
|
|
Louie
|
|
|
|
|
640 000
|
|
Drawings
|
|
|
|
|
|
|
Huey
|
|
|
60 000
|
|
|
|
Duewy
|
|
|
60 000
|
|
|
|
Louie
|
|
|
20 000
|
|
|
|
Profit and Loss Summary
|
|
|
|
|
272 000
|
|
|
|
$ 2 520 380
|
$ 2 520 380
|
Additional information:
1) Louie made his advance in the previous financial year
2) Huey and Duewy needed to pay off the Beagle Boys and withdrew $12 000 on 30 September 2009, $8 000 on 31 December 2009, $5 000 on 31 March 2010 and the rest on 30 June 2010.
3) Louie made his drawings on 30 June 2010
4) The partnership agreement contains the following provisions in relation to the allocation of profits:
A. A salary of $92,000 per year for Huey and $56,000 per year for Duewy
B. Interest of 6% p.a. on capital contributed at the start of the financial year
C. Interest on advances and drawings at 8% per annum
D. The agreement does not specify profit sharing ratios
Required to do:
1) State which method (1 or 2) the partners use and how you determined this.
2) Prepare a table showing your calculations for the distribution of profits taking into account the above details.
3) Prepare the following T-Accounts for the year ended 30 June 2010; Profit Distribution, Capital Accounts for each partner and the Cash at Bank account.