6222 Accounting Systems and Practices Assignment

PART A

Scenario Question 1

15 Marks

Refer to the consolidated financial statements and their notes in the latest financial report of Coles Ltd on its website, https://www.colesgroup.com.au, and answer the following questions.

1. How is property, plant and equipment reported in the consolidated statement of financial position? What is the total carrying amount for property, plant and equipment as disclosed at the end of the financial year? 2 Marks
2. What was the composition of Wesfarmers Ltd’s property, plant and equipment at the end of the reporting period? How have these assets been valued? 2 Marks
3. What methods of depreciation have been used for the various categories of property, plant and equipment? 2 Marks
4. Has the group disclosed the rates of depreciation or the useful lives of these assets? 2 Marks
5. What was the amount of depreciation charged on these assets for the current and prior years? 2 Marks
6. Were any items of property, plant and equipment purchased during the year? Were any such items constructed or under construction? How has the company treated borrowing costs incurred on properties under development? Does the company have any commitments for future capital expenditure not provided for in the financial statements? Provide details of any financial amounts involved.5 Marks

Scenario Question 2

10 Marks

The Old Brooke Historical Village is located in rural New South Wales. It has preserved historical village structures and cultural practices dating back several centuries. The village has a central library with old books, a museum with relics and artifacts stored for people to view. The library and museum charge their customers a fee and enable the customers to view the historical artifacts and take rounds within historical structures.

The Old Brook Historical Village is managed by Randall and Co. They charge an appropriate fee for adult, concession, and child customer tickets. They charge a fee for group tour tickets and corporate outings. On receipt of cash payment, the cashier in the ticket booth enters the details of in a computer system, which then prints out a receipt. The customers take the receipts to a separate counter where the attendant takes the receipt and authorizes the printing of the tickets. The individual tickets are white in colour. The ticket is printed with the price, and the applicable GST, and the described category includes adult, concession, child, or group. For corporate customers, payment from corporate customers is received via online payment or through cheques, and an email with an invoice is sent. And a special greencoloured ticket is printed. In the case of corporate visits, the customers provide payment invoices to the ticket attendant, and based on the invoices, the attendant prints the tickets for corporate customers. The printed tickets are then handed over to the customers. The ticket has three parts, one for the museum, one for the library, and one for village structures.

There are attendants at the entrance of the museum, library, and village. The customer takes the tickets to the attendant who stands at the entrance of the library, museum, and village.

The attendant collects the ticket, is supposed to cross it with a pen, and puts the ticket in the bin. At the end of the day, the manager counts the money in the ticket booth and compares them with what has been entered into the computer to print the tickets. If there are any corporate tickets printed during the day, the manager collects and records them separately. At the end of the month, the accountant compares the deposits as per bank statements with the ticket sales registers and money received through interbank transfers and ETFs.

Q1. What are the most internal control principles and procedures used by Randall and Co. to ensure control over cash receipts? Do Randall and Co have an adequate system of internal control?

Q2. Is it possible for the cashier, the ticket attendant, and the venue attendant to misappropriate cash, and print additional tickets through collusion? If so, how could the system be improved to prevent this?

Part B

Discussion Questions

1. Anna, a student of accounting, posed the following question: ‘When one looks at the disposal of accounts receivable, there are three different accounting methods for what is essentially the same thing. How can this be?’ Discuss. 5 Marks
2. Smithsonian Diary Farms, a family-owned and operated company, which had been operating successfully for three generations, continues to maintain a policy of raising money only through equity finance and never through debt. Discuss the advantages and disadvantages of adopting this policy. Would you recommend a continuation of this policy? 5 Marks

Part C

Question No 1

35 Marks

On 1 July 2023, Epic Sound Services, a retailer and installer of car stereo systems, commenced trading. The following transactions occurred during the first month of operations.

July 2 Purchased 12 stereo systems at cost of $450 plus GST each

7 Sold and installed 8 stereo systems for $950 plus GST each.

12 Returned 2 defective systems purchased on 2 July.

18 Purchased 15 stereo systems at a cost of $455 plus GST each.

21 Sold and installed 11 systems for $950 plus GST each.

23 Purchased 25 stereo systems at a special price of $420 plus GST each.

25 Sold and installed 16 stereo systems for $950 plus GST each.

26 Purchased 18 stereo systems at a cost of $460 plus GST each.

29 Sold and installed 23 stereo systems for $950 plus GST each.

30 During one of the installations, one of the technicians identified one of the stereo systems was faulty. This system was purchased on 25 July. The manager contacted the Company, returned the faulty system, and received a credit to the business's account. Other expenses for the month were $2500.

Required

1. Record the information on a perpetual inventory record using each of the following methods:
   1. FIFO
   2. moving average
   3. LIFO.
2. Prepare a statement of profit or loss based on each of the three methods of inventory cost flows.
3. Provide a rationale to the manager of Epic Sound Services for the variation in the values for the cost of sales and net profit presented under each method in the statement of profit or loss.
4. List the factors that management should consider when choosing an inventory cost flow method. Which method do you recommend is the most appropriate for adoption by Wired for Sound?

Question No 2.

20 Marks

Ben Hawker of Hawker Cutlery and Dishware wishes to prepare a cash budget for the 6 months ending 30 June 2023 so he can arrange for overdraft drawings facilities if required. The following information is available.

1. The business has consistently marked up its goods so as to realize a gross margin of 40% on sales (excluding GST). The policy is to have sufficient inventory on hand at the end of each month to cover the next 2 months’ sales. This was the situation on 31 December 2022, when the inventory was $160?500 (cost).
2. All sales are on credit and are subject to GST. Debtors pay their accounts 50% in the month of sale and 50% in the following month.
3. All creditors are paid in the month following purchase.
4. The bank overdraft on 31 December 2022 was $10?800. Purchases in December of goods for resale amounted to $86?400.
5. Estimated quarterly payments of GST to the ATO are to be made in January for $14?000 and in April for $6900.
6. Sales in November and December 2022 were $72?000 and $86?000 respectively. A growth of $14?000 per month (before GST) is expected over the next 6 months. (GST has yet to be added to these amounts.)
7. The estimated payments for expenses are:
   1. Salaries $10 800 per month (GST-free)
   2. Administration $3300 per month (includes GST)
   3. Rent $19 800 (including GST) for the year to 31 December 2022; this is to be paid as a lump sum in January 2023.
8. On 1 January 2023, a new machine costing $90 000 plus GST is to be purchased and paid for. It is expected that this machine will last 10 years and have no resale value. All existing plant was scrapped in December 2022.

Required

1. Prepare a separate cash budget for each of the 6 months, January to June 2023.
2. Prepare the projected income statement for the 6 months ending 30 June 2023.

Question No 3.

10 Marks

Eagle Hawk Constructions Limited operates three different types of machinery. The management has reviewed the nature of each item of machinery and has chosen the depreciation method which best represents the machinery usage within the entity. The table below presents relevant information for each item of machinery. Use of equipment type 2 was 11000 hours in the year ended 30 June 2023; 14 800 hours in 2024; 15 400 hours in 2025 and 17 200 in 2026.

Required

Assuming the financial year ends on 30 June and that depreciation is recorded to the nearest month, calculate the depreciation charges for 2023, 2024, 2025 and 2026 by preparing a schedule with the following headings.