Question
Question 1 Read the case study ?Wi R Tools? below and answer the questions which follow. Wi R Tools Until recently, Winston Roberts has worked
Question 1
Read the case study ?Wi R Tools? below and answer the questions which follow.
Wi R Tools
Until recently, Winston Roberts has worked as a successful local handyman for a number of years and has developed a loyal clientele. Unfortunately, he is now finding physical activity more difficult and recently decided to invest some of his savings in a new, small retail business which would take advantage of his valuable experience, contacts and knowledge. Two and a half months ago, on Tuesday 1 July 20X1, Winston opened to the public a small shop called ?Wi R Tools? which sells tools and home improvement hardware as well as hires tools out. Most of Winston?s business has been for cash but he has given credit to a few customers he knows well. Winston has also taken advantage of the offer of credit from 2 wholesalers.
Winston is not computer literate and only keeps the minimum of financial records he thinks are needed to run his business and honour his legal responsibilities. He uses a small exercise book in the shop to record all financial transactions except for cash sales which are recorded on till slips generated by a cash register. Winston makes payments either by cash or by cheques drawn on his business bank account. He makes all his cash payments from his cash float as he does not keep a petty cash account. On Saturdays after closing the shop, starting from the 12 July 20X1, Winston totals up the till slips (cash register receipts) for the week. He then deposits his week?s cash received (net of his week?s cash payments) into his business bank account, ensuring he always retains a cash balance of 200 in the shop at the start of the following week.
Winston has a daughter, Jackie, who has recently been awarded a Professional Certificate in Accounting from a leading UK university. Jackie is about to start a training contract with an accounting practice in order to complete her professional qualification, but currently has time available to help her father run his business. Jackie has offered to produce double-entry bookkeeping records for Winston on Excel. She has convinced her father of the importance of using double-entry bookkeeping in order to produce ?true and fair? accounts. Winston is aware that he only needs to provide accounts once a year for tax purposes but thinks it might be a good idea to produce final accounts for the first two months of his new business so that he can assess how ?Wi R Tools? is progressing.
Jackie has gone through all of Winston?s records in fine detail and has produced the following list of the financial records of ?Wi R Tools? for its first two months of trading.
DateAccounting transactions
1.7.20X1Opened business bank account and paid in 8,000 of own money.
Introduced 200 of own money as opening cash balance to be kept in the shop.
Introduced own second-hand tools into the business. Those tools with a cost value of 800 were allocated for hire, while those with a cost value of 700 were allocated as tools for resale.
Bought, by cheque, hardware for resale: 995.
Bought, by cash, stationery: 40.
Bought, by cheque, tools for resale: 1,800.
Bought tools for resale from Berry Ltd on credit: 600.
Bought tools for hire from Avon plc on credit: 650.
2.7.20X1Paid, by cheque, 900 for rent for the first 3 months.
Bought, by cheque, a cash register: 182.
Bought, by cheque, insurance for the year: 408.
3.7.20X1Jim Moody opened a credit account and hired tools: 95.
Rosette Jakes opened a credit account and bought tools: 140.
9.7.20X1Bought, by cash, tea, coffee and biscuits for personal use for 7
12.7.20X1Cash sales from 1.7.20X1 to 12.7.20X1: tools, 100, and hardware, 90.
Cash hires from 1.7.20X1 to 12.7.20X1: 140
Deposited cash balance in bank account less 200 cash float kept in shop.
16.7.20X1Patricia Sim opened a credit account and hires a tool: 35.
Paid 150 for repairs to his home washing machine out of the business bank account
18.7.20X1Gave a customer a cash refund of 25 for a faulty tool they had purchased.
19.7.20X1Cash sales for week ending 19.7.20X1: tools, 72, and hardware, 60.
Cash hires for week ending 19.7.20X1: 140
Deposited cash balance in bank account less 200 cash float kept in shop.
26.7.20X1Cash sales for week ending 26.7.20X1: tools, 67, and hardware, 50.
Cash hires for week ending 26.7.20X1: 120.
Deposited cash balance in bank account less 200 cash float kept in shop.
30.7.20X1Paid, by cash, 23 for window cleaning
31.7.20X1Returned faulty tool which had been bought for 20 to Berry Ltd.
Paid, by cash, postage: 7.
2.8.20X1Cash sales for week ending 2.8.20X1: tools, 76 and hardware, 57.
Cash hires for week ending 2.8.20X1: 107.
Deposited cash balance in bank account less 200 cash float kept in shop.
4.8.20X1Paid, by cash, 45 for advertisements in local free newspaper.
5.8.20X1Paid, by two cheques, the amounts owing to Berry Ltd and Avon plc.
6.8.20X1Received payment, by cheque, of 125 from Rosette Jakes
7.8.20X1Received cash payment of 35 from Patricia Sim and hired tool for 22 to her on credit.
9.8.20X1Cash sales for week ending 9.8.20X1: tools, 197, and hardware, 90.
Cash hires for week ending 9.8.20X1: 160.
Deposited cash balance in bank account less 200 cash float kept in shop.
11.8.20X1Paul Okia opened an account and bought tools: 75.
16.8.20X1Nancy Gumid opened an account and hired tools: 35.
Cash sales for week ending 16.8.20X1: tools, 86, and hardware, 84.
Cash hires for week ending 16.8.20X1: 152.
Deposited cash balance in bank account less 200 cash float kept in shop.
23.8.20X1Cash sales for week ending 23.8.20X1: tools, 202, and hardware, 146.
Cash hires for week ending 23.8.20X1: 122.
Deposited cash balance in bank account less 200 cash float kept in shop.
26.8.20X1Paul Okia returned tool which had been sold to him on credit for 31.
27.8.20X1Paid, by cash from business cash float, 55 for lunch out with family.
30.8.20X1Cash sales for week ending 30.8.20X1: tools, 112, and hardware, 81.
Cash hires for week ending 30.8.20X1: 198.
Deposited cash balance in bank account less 200 cash float kept in shop.
31.8.20X1The shop was closed on the last day of the trading period 1.7.20X1 to 31.8.20X1. Winston did a stock take and calculated that the stock value of tools was 2,224 and that of hardware was 423. He took gas and electricity readings and estimated that the business used 73 worth of heat and light in the two months ending 31.8.20X1. Finally, Winston also decided that all fixed assets would have an estimated useful life of 4 years and no estimated residual value. Depreciation on all fixed assets will be provided on the straight line method.
After a careful look at her father?s business - as well as some lively discussions ? Jackie has designed a double-entry system using worksheets that she believes would best suit the accounting and bookkeeping requirements of ?Wi R Tools?. At the centre of the system is an account which would combine both the bank account and the cash account. Jackie decided to call this account a cash book, as her father was familiar with this term, which would serve as a book of prime entry as well as a nominal ledger account.
Jackie?s task now is to transfer all the financial records in her list above into the worksheets she has set up and which could be linked using appropriate formula.
Required
a)Using the Excel file you created called B190 ECA Qu 1 spreadsheet ans PI followed by your PI number, complete the following tasks in the spreadsheet templates provided:
WARNING: ONLY INSERT INFORMATION INTO APPROPRIATE BLANK CELLS IN THE SPREADSHEET TEMPLATES. DO NOT MAKE ANY CHANGES TO ANY OTHER CELLS.
i) In worksheet 1 of the file, entitled Books of Prime Entry (containing the cash book and the various day books), use the template provided to complete the books of prime entry (excluding the journal) for all relevant transactions for Wi R Tools between the 1/7/20X1 and 31/8/20X1. (13 marks)
ii) In worksheet 2 of the file, entitled Journal, use the template provided to complete the two journal entries for the first day of business, 1/7/20X1. (2 marks)
iii) In worksheet 3 of the file, entitled Personal Ledger Accounts, use the template provided to complete the personal ledger accounts for Wi R Tools between the 1/7/20X1 and 31/8/20X1. (All balances should be brought down to 1/9/20X1.) (5 marks)
iv) In worksheet 4 of the file, entitled Nominal Ledger Accounts, use the template provided to complete the nominal ledger accounts for Wi R Tools between the 1/7/20X1 and 31/8/20X1. (Ignore closing adjustments at this stage. All income and expense accounts, except ?Rent? and ?Insurance?, should be closed off to the profit and loss account and all relevant balances should be brought down to 1/9/20X1.) (10 marks)
v) In worksheet 5 of the file, entitled Trial Balance, use the template provided to extract the trial balance as at 31/8/20X1from the Nominal Ledger accounts prepared in iv) above. (You will need to include the balances you have transferred to the profit and loss account as well as the existing balances on the ?Rent? and ?Insurance? accounts.) (2 marks)
vi) In worksheet 2 of the file, entitled Journal, use the template provided to complete the journal entries for the period between 1/7/20X1 and 31/8/20X1. (All the information required is given in the last date (i.e. 31.8.20X1) of Jackie?s summary of the financial records, but a detailed working, in the form of an appropriate Excel formula, needs to be inserted into each of the three cells marked with double asterisks (**).) (10 marks)
vii) In worksheet 6 of the file, entitled Adjusted Nominal Ledger, use the template provided to complete the adjusted nominal ledger accounts for Wi R Tools between the 1/7/20X1 and 31/8/20X1. (All relevant accounts, including the profit and loss account, should be closed off. All relevant balances should be brought down to 1/9/20X1.) (6 marks)
viii) In worksheet 7 of the file, entitled Closing NL Balances, use the template provided to extract the closing nominal ledger balances as at 31/8/20X1. (2 marks)
ix) In worksheet 8 of the file, entitled Profit and Loss Account, use the template provided to complete the profit and loss account for Wi R Tools for the two months ended 31/8/20X1. (3 marks)
x) In worksheet 9 of the file, entitled Balance Sheet, use the template provided to complete the balance sheet for Wi R Tools as at 31/8/20X1. (3 marks)
b) Using the word document you created called B190 ECA Qu 1 and 2 answers PI followed by your PI number, complete the following tasks:
i) Explain to Winston what is meant by depreciation in accounting, and outline how depreciation should be treated in the final accounts of Wi R Tools. (5 marks)
ii) Winston does not appear to have carried out a bank reconciliation for the period ended 31 July 20X1. Explain to Winston what a bank reconciliation is and persuade him of its importance. (4 marks)
Total for Question 1: 65 marks
Question 2
Read the case study ?Henrikson Ltd? below and answer the questions which follow.
Henrikson Ltd
Henrikson Ltd sells exclusive kitchen appliances in a fashionable area of a large UK city. The business has been incorporated for three years. The sole director of the business, Peter Henrikson, also owns 75% of the shares of the company while his father, Paul Henrikson, owns the balance of the share capital. Peter keeps his own financial records using spreadsheets and gives a draft trial balance to his professionally qualified accountant and friend, Amy Reynolds, who finalises the accounts and ensures that all the legal and regulatory responsibilities of the company are met.
Amy is currently semi-retired from work as an accountant but still does the minimum continuous professional development to keep her status as a professionally qualified accountant. Much of Amy?s time currently is writing the final draft of an accounting textbook based on business case studies that Amy is familiar with. Amy is a member of a professional accounting body that signs up to the IFAC Code of Ethics for Professional Accountants.
Below is Henrikson Ltd's Trial Balance as at 31 December 20X3
DrCr
Advertising8,250
Bank79,250
Long term loan at 5%54,000
Opening stock at 1 January 20X342,500
Retained profit at 1 January 20X372,685
Creditors134,080
Debtors221,870
Provision for doubtful debts2,400
Directors remuneration90,605
VAT liability13,205
Carriage out3,352
Cost of office equipment at 1 January 20X3121,500
Depreciation on office equipment at 1 January 20X357,501
Cost of showroom equipment at 1 January 20X3112,450
Depreciation on showroom equipment at 1 January 20X331,250
Office expenses16,462
Office salaries35,680
Purchases179,125
Sales488,568
Salesforce wages41,750
Sales expenses2,562
Rent and rates18,600
Heat and light4,733
Issued share capital (at 1 per share) 125,000
978,689978,689
During the last week of the financial year Peter has finalised the following further information:
Further information:
?The closing stock at 31 December 20X3 was 36,250.
?Bad debts of 2,670 needed to be written off at the year end.
?The provision for doubtful debts at the yearend was to be kept at 2% of debtors, net of bad debts.
?Depreciation of office equipment for the year ended 31/12/20X3 was 3,750.
?Depreciation of showroom equipment for year ended 31/12/20X3 was 2,265.
?Rent paid in advance as at 31/12/20X3 was 1,800.
?Sales expenses owing as at 31/12/20X3 were 746.
?Office expenses owing as at 31/12/20X3 were 1,850.
?As at 31/12/20X3, corporation tax of 4,750 was owing.
?Interest on the long term loan had not been accounted for as at 31/12/20X3.
?A final dividend of 1p per share was approved by the shareholders but unpaid as at 31/12/20X3.
Required
a) Using the Excel file you created called B190 ECA Qu 2 spreadsheet ans PI followed by your PI number, complete the following tasks in the spreadsheet templates provided.
i) In worksheet 1 of the file, entitled Extended Trial Balance, use the template provided to complete the debit and credit columns for ?Adjustments?, ?Profit and loss account? and ?Balance sheet? for Henrikson Ltd for the year ended 31/12/20X3. (15 marks)
(In worksheet 1, an asterisk (*) in a cell indicates that a figure needs to be inserted from the information given. In the two cells marked with double asterisks (**), a detailed working, in the form of an appropriate Excel formula, need to be inserted into each. In worksheets 2 and 3 below, figures need to be inserted into appropriate blank cells.)
ii) In worksheet 2 of the file, entitled Profit and Loss Account, use the template provided to complete the profit and loss account for Henrikson Ltd for the year ended 31/12/20X3. (4 marks)
iii) In worksheet 3 of the file, entitled Balance Sheet, use the template provided to complete the balance sheet for Henrikson Ltd for the year ended 31/12/20X3. (6 marks)
b) Using the word document you created called B190 ECA Qu 1 and 2 ans PI followed by your PI number, complete the following tasks:
i) Explain why the following have an interest in the published accounts of Henrikson Ltd:
?Paul Henrikson,
?the employees of Henrikson Ltd,
?HM Revenue & Customs,
?the creditors of Henrikson Ltd. (4 marks)
ii) Based on information given in the case study above, state the three fundamental principles of the IFAC Code of Ethics for Professional Accountants with which Amy would find it most difficult to comply. For each of these principles, explain why Amy might find compliance difficult. (6 marks)
Total for Question 2: 35 marks
Total for ECA: 100 mar
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