Smart Travel Goods Pty Ltd was formed on 1 July 2014. At 30 June 2015, Mark Austin, the managing director and major shareholder, decided to prepare a statement of financial position, which appeared as follows: 

Mark willingly admits that he is not an accountant by training. He is concerned that his statement of financial position might not be correct. He has provided you with the following additional information: 

1. The villa is on the Sunshine Coast and actually belongs to Mark, not to Smart Travel Goods Pty Ltd. However, because he thinks he might allow executives to use it sometimes, he decided to list it as an asset of the company. To be consistent he also listed as a liability of the company his personal loan that he took out at the bank to buy the villa.

2. The inventory was originally purchased for $15 000, but due to a surge in demand Mark now thinks he could sell it for $40 000. He thought it would be best to record it at $40 000.

3. Included in the accounts payable balance is $6000 that Mark owes for his personal telephone account. Mark included this in the accounts payable of Smart Travel Goods Pty Ltd because he will probably use a company cheque to pay for it.

Required

(a) Comment on the proper accounting treatment of the three items above.

(b) Provide a corrected statement of financial position for Smart Travel Goods Pty Ltd.  

Transcribed Image Text:

Assets Cash Accounts receivable Inventory Villa SMART TRAVEL GOODS PTY LTD Statement of financial position as at 30 June 2015 $ 30 000 23 000 40 000 450 000 Liabilities and equity Accounts payable Notes payable Bank loan Equity $ 30000 12 000 350 000 151 000