Problem

PSA1.3 Ultimo Travel Goods Pty Ltd was formed on 1 July 2011. At 30 June 2012, Mark Austin, the managing director and major shareholder, decided to prepare a statement of financial position, which appeared as follows:

ULTIMO TRAVEL GOODS PTY LTD
Statement of Financial Position
as at 30 June 2012
Assets	Liabilities and equity
Cash	$20 000	Accounts payable	$40 000
Accounts receivable	55 000	Notes payable	15 000
Inventory	30 000	Bank loan	160 000
Villa	300 000	Equity	55 000

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 Gold Coast and actually belongs to Mark, not to Ultimo 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 $10 000, but due to a surge in demand Mark now thinks he could sell it for $30 000. He thought it would be best to record is at $30 000.

3. Included in the accounts payable balance is $5000 that Mark owes for his personal telephone account. Mark included this in the accounts payable of Ultimo 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 Ultimo Travel Goods Pty Ltd.

(Hint: To get the statement of financial position to balance, adjust equity.)