QUESTION 1: Financial Reporting - Worksheet (20 marks)

Ollivanders Magic Emporium is owned and run by Garrick Ollivander. The following trial balance has been prepared at years end.

	Debit ($)	Credit ($)
Cash on Hand	12 000
Accounts Receivable	31 000
Inventory (30 June 2015)	32 000
Prepaid Shop Rent	24 000
Display Cabinet	73 000
Accd Depreciation Display Cabinet		13 800
Bank Overdraft		1 000
Accounts Payable		1 600
G. Ollivander, Capital (1 July 2014)		133 600
G. Ollivander, Drawings	12 500
Sales		271 000
Sales Returns & Allowances	1 200
Discount Received		1 000
Cost of sales	128 000
Sales Staff Salaries	42 000
Advertising	1 000
Discount Allowed	740
Freight Outwards	360
Interest	1 000
Council Rates	1 400
Administrative Salaries	27 000
Shop Rent	32 000
Sundry Administration	2 800	. .
	$422 000	$422 000

OLLIVANDERS MAGIC EMPORIUM - TRIAL BALANCE

AS AT 30 JUNE 2015

(continued.....)

The following additional information is also provided for the year ended 30 June 2015:

(1) A physical stock take of inventory as at 30 June 2015 revealed $32 500 on hand.

(2) It is estimated that 3.5% of the balance of Accounts Receivable will never be received.

(3) Sales staff salaries owing but not paid as at balance date total $4 300.

(4) The Prepaid shop rent is for rent paid eight months in advance and covers the rent until 31 August 2015.

(5) $5 400 of the recorded sales represent payments for Magic Wands which will not be delivered until 1 July 2015.

(6) Sales of Magic Swords Boxes for $7 000 were delivered on 29 June 2015. This sale was not recorded (or cash received) by balance date.

(7) The Jewellery Display Cabinet is expected to have a useful life of eight years and then be sold for an estimated amount of $600.

(8) Upon receipt of the businesss bank statement, Garrick realised that the business had earned $50 interest on 30 June 2015. This amount was paid directly into the bank account. The accounting records need to be updated for this transaction.

REQUIRED:

Complete the worksheet provided to prepare the above information for assembly into financial statements.

(Please note: you are NOT required to prepare any financial statements for this question. You are only required to complete the worksheet).

Question 1 OLLIVANDERS MAGIC EMPORIUM, END OF PERIOD WORKSHEET -YEAR ENDED 30 JUNE 2015

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance		Income Statement		Balance Sheet
Account Name	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr
Cash on Hand	12 000
Accounts Receivable	31 000
Inventory (30 June 2015)	32 000
Prepaid Shop Rent	24 000
Display Cabinet	73 000
Accd Depr Display Cabinet		13 800
Bank Overdraft		1 000
Accounts Payable		1 600
G. Ollivander, Capital (1 July 2014)		133 600
G. Ollivander, Drawings	12 500
Sales		271 000
Sales Returns & Allowances	1 200
Discount Received		1 000
Cost of sales	128 000
Sales Staff Salaries	42 000
Advertising	1 000
Discount Allowed	740
Freight Outwards	360
Interest	1 000
Council Rates	1 400
Administrative Salaries	27 000
Shop Rent	32 000
Sundry Administration	2 800
	422 000	422 000
Profit/Loss

QUESTION 2: Financial Reporting - Statements (20 marks)

The following Trial Balance for Ronalds Bird Cage Menagerie (wholesaler of Owl Cages) has been prepared at year end by Ronald but he realises it is not in the correct order.

REQUIRED:

Using the Trial Balance provided for the period in question below, prepare the following:

Fully classified Income Statement

Ronalds Bird Cage Menagerie - TRIAL BALANCE AS AT 30 JUNE 2015

	Debit ($)	Credit ($)
Cash at Bank	153170
Electricity Expense	420
Accounts Receivable	12690
Inventory - 1 July 2014	12000
Unearned Bird Cage Construction Fees		610
Bird Cage Sales		22000
Interest Revenue		200
Prepaid insurance	2640
Office Equipment	18700
Ronalds, Capital 1 July 2014		240000
Owl food Sales		3800
Office supplies on hand	1280
Electricity Account Payable		370
Interest Expense	1250
Salaries Payable		1980
Depreciation Expense Office Equipment	350
Salaries Expense	9580
Freight Outward	2000
Telephone Expense	510
Purchases	19500
Land	100000
Depreciation Expense Showroom	350
Building	180500
Accounts Payable		8800
Insurance Expense Office Equipment	70
Accumulated Depreciation Showroom		350
Interest Payable		1500
Advertising Expense	200
Freight Inward	50
Bird Cage Construction fees		1500
Accumulated Depreciation office equipment		350
Mortgage payable		242000
Ronalds, Drawings	1200
	516 460	516 460

(continued.....)

Telephone expense is split with 70% office and 30% showroom.

Electricity Expense is split with 40% office and 60% showroom.

$5 000 of the mortgage is payable by 31^st December 2015.

The Prepaid Insurance is for a 2 year policy that commences in 1^st July 2015.

The salaries expense is $3 580 for Showroom Staff, $4 000 for Office Staff, $1 000 for the Bookkeeper and $1 000 for the Cleaner.

Closing Inventory balance is $10 000

Answer on following pages

QUESTION 3: Financial Report Analysis (16 marks)

Part of your role at Numbers Up Accountants is to make recommendations to clients about potential investments. You have been asked to provide a recommendation on the best investment regarding two jewellery businesses detailed below. The only information that you have to work with is the following ratio values.

Ratio	Bling Bling (BB)	Alchemy Matters (AM)
Return on Equity	24%	35%
Return on Assets	18%	20%
Average Collection Period	52 days	39 days
Inventory Turnover	10 times	7 times
Gross Profit Margin	59%	70%
Profit Margin	16%	12%
Times Interest Earned	10 times	17 times

REQUIRED:

Write a short report to the owner in your own words in relation to the profitability, liquidity and financial stability of the businesses (BB and AM) based on the ratio results in the table above. In your report, consider what commercial or market factors might have impacted on the results (i.e. competition, suppliers, etc.) and which business would make the better investment based on the information provided (maximum 400 words)

Answer on following page

Q3

QUESTION 4: Accounting Concepts (10 marks)

In your own words and using referencing where applicable please answer the following (maximum 400 words for each section 1, 2 and 3)

Of the two methods for recording inventory transactions which have been discussed in ACG11:

Which method provides the higher gross profit figure?

Which method provides the most information for control purposes?

Explain how cost of sales is calculated under the periodic system. (3 marks)

Explain the impact on the valuation of inventory if the net realisable value is lower than historic cost. What is the name of the applicable inventory valuation rule? (3 marks)

Explain why adjusting entries such as depreciation and doubtful debts expense are necessary under the conceptual framework using the relevant concepts of accrual accounting, accounting period and materiality. (4 marks)

QUESTION 5: Statement of Cash Flows (16 marks)

You are provided the following financial information for Madam Malkins Exquisite Robes, an exclusive fashion manufacturing and retailing company:

Madam Malkins Exquisite Robes

Comparative Balance Sheets

As at 30^th June

2015 2014

	$'000's		$,000's
Current Assets
Cash on Hand	48		112
Cash at Bank	-		288
Accounts Receivable (net)	240		432
Inventory	368		288
Prepaid Advertising Expense	144	800	48	1 168
Non-Current Assets
Manufacturing Equipment	5 088		4 960
less Acc. Depreciation	1 120	3 968	2 400	2 560
Investments		672	-	. .
Total Assets		5 440		3 728
Current Liabilities
Overdraft Accounts Payable	320 288		512
Accrued Rent Expense	48		16
Interest Payable	144	800	320	848
Non-Current Liabilities
Loan		2 400		800
Total Liabilities		3 200		1 648
Net Assets		2 240		2 080
Equity
M. Malkin, Capital		2 240		2 080

(continued .........)

Madam Malkins Exquisite Robes

Income Statement

For the year ended 30^th June 2015

	$'000's
Net Sales	11 776
Less: COS Gross Profit:	5 856	5 920
Other Revenue:
Gain from Sale of Assets	16
Dividend Revenue	32
Discount Received	64	112
		6 032
Expenses:
Selling & Admin Expense	4 864
Discounts Allowed	112
Depreciation Expense	320
Interest Expense	176	5 472
Profit		560

Additional Information:

Manufacturing Equipment with an historic cost of $1,760,000 was sold for $176,000 cash and made the company a profit of $16,000.

M. Malkin contributed no additional capital to the business during the year.

REQUIRED:

Answer this question on the pro forma provided below.

Prepare a statement of cash flows for the year ended 30^th June 2015 in accordance with the direct method. Show all calculations on the pro forma provided. [10 marks]

Below are the summarised cash flow statements for two other fashion manufacturers. In your own words, comment on which one has a healthier cash flow situation. Justify your answer by explaining the significance of each of the three types of cash flows for each business:

	Hermione Designs	Simply Luna
Cash flow from Operating Activities	915	(460)
Cash flow from Investing Activities	(785)	300
Cash flow from Financing Activities	500	420
Net increase / (decrease) in cash held	630	260
Cash at the beginning of the year	50	100
Cash at the end of the year	680	360

[Approximately 200 words expected in your answer]

[6 marks]

A)

Madam Malkins Exquisite Robes Statement of Cash Flows for the year ended 30 June 2015
Cash flows from operating activities:
Receipts from customers	11 856
Payments to suppliers and employees
Dividends received	32
Interest received
Interest paid	(352)
Net cash from operating activities
Cash flows from investing activities:
Purchase of Equipment
Purchase of Investments
Proceeds from sale of assets
Net cash from investing activities
Cash flows from financing activities:
Loan
Drawings	(400)
Net cash used in financing activities
Net increase/decrease in cash held
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

*Calculations must be provided below. Failure to provide supporting calculations will result in ZERO marks awarded for this question.

Calculations:

B)