HA1020 Accounting Principles And Practices: Liabilities and Expenses

Q1.

Miss Nancy started a lawn moving business in Gold Coast, Queensland, Australia. For this purpose, she purchased a group of new lawn mowers for $20 000. The accountant of Miss Nancy told her that she must have to decide the useful life and residual value of these new lawn mowers. After an initial consultation with the stakeholders, she decided that the mowers to last five years and have negligible resale value at that point. The business plan projects cutting 5000 lawns over five years. The yearly projection is as follows:

• 1^stYear:   500 lawns,
• 2^ndYear: 1 000 lawns,
• 3^rdYear: 1 200 lawns,
• 4^thYear: 1 800 lawns, and
• 5^thYear:  500 lawns.

Required:

1. Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases: (a) straight-line; (b) reducing balance  and (c) units-of-production.

Based on your calculations, which depreciation basis would produce the highest retained profits at the end of the second year?

Q2.

We have discussed the accounting for liabilities in Week 10 and 11. Based on this discussion, please explain the relationship between liabilities and expenses. Provide five examples where they both increase at the same time. Why are some liabilities interest-bearing and others are not

Q3.

The accountant of ABC Limited has prepared the following unadjusted trial balance of ABC Limited on 30^th June 2021.

Yellow Limited

TRIAL BALANCE

AS AT 30^th JUNE 2021 

The following additional information is available at the end of June for adjustments:

• Mr Emmanuel is working as the inventory clerk. He performs the physical count of the office supplies on 30^thJune 2021. This physical count reveals that the unused office supplies of $550 are on hand.  
• The rate of depreciation for the office equipment is 15% per annum and ABC Limited used the straight-line method of depreciation.
• Of the $1230 unearned service revenue, $300 is still unearned
• 60% of prepaid insurance is expired during this period.
• Salaries owed but not yet paid $1920.
• Provided consultancy service of $2000 on credit. This was not recorded for the month.

Required:

1. Prepare adjusting entries at the end of 30 June, 2019.
2. Calculate the balance of the total revenue of the company after adjustment.
3. Explain why accrual accounting adjustments are required?

Q4.

HARDA Limited is a retailer of office stationery and art supplies. The internal auditor of the business is concerned about the inventory management of the speciality pen (a product with the highest level of sale). The following information is extracted from the records of HARDA Limited. The company uses the perpetual inventory system to record the inventory of its products. Its monthly reporting date is 30 October.

Required:

1. Complete the inventory stock record below for the speciality pen of HARDA Limited. All transactions occurred in the month of October. Ignore GST.
2. Calculate the Cost of Sales (COS) for 30 October, assuming the FIFO Method.
3. Calculate the Ending Inventory on 30 October, assuming the FIFO Method.

Q5.

The accountant of Paul Shop Fitter Private Limited has provided the following data on the Assets, Liabilities, Equity, Income and Expense amounts as at 30th June 2021.

Required:

1. Prepare a Balance Sheet in the narrative (vertical) format as at 30^thJune 2021.
2. Explain what key information the Balance Sheet provides to users of the financial statements.

Q6.

The bank statement balance and cash account balance do not agree. The owner of E-Bite Limited has requested to prepare a bank reconciliation to reconcile these balances. For this purpose, the following information is given.

1. Deposits in transit are $9,800.
2. Outstanding cheques totalled are $3200.
3. The bank service charge is $24.
4. The collection of note by the bank is $800.
5. The bank statement balance is $9,000.
6. The cash account balance is $14,824.