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Australian

School of Business
ACCT1501 Accounting and Financial Management 1A
Session 1 2013

TUTORIAL WEEK 5 Solutions to Tutorial Questions
Tutorial Questions:
v DQ 4.9, 4.14; P 4.18, P 4.19, Case 4A
DQ4. 9
The basic point is that accounting records and financial statements need not be complex or
expensive to be useful. Every manager needs to know how the business is performing and to
be able to explain that to bankers and others. This performance goes beyond mere sales
records, even if sales are the lifeblood of the firm. The accounting system provides
information about profitability, cash flows, debts and other factors important to the business
besides sales. Bankers and tax authorities want to know about such things, even if the
businessman claims not to.
It should be said also that the entrepreneur mentioned may well have an accounting system
that fits the modest needs of his/her business well. He/she understands cost-benefit:
accounting, like everything else, should be worth its cost. But he/she should ask
himself/herself if he/she could be a better manager if he/she had more information, and
perhaps accounting could help him/her there.
DQ4. 14
The main reason for not including human capital on the balance sheet is the measurement
problem. If we take the consulting firm, the problem is putting a dollar figure on each staff
member. Would it be based on years of past service, years to retirement, ability to generate
future revenues etc? There is also an issue of control, as you will see in later chapters. Options
for measurement include:
i Present value of future profits generated by firms
ii Amounts previously spent on training
iii Cost of obtaining a replacement and training that person.

Problem 4.18
1
Morilla Ltd
General journal
$
8,250

(a) Dr
Cr

Inventory
Accounts Payable

(b) Dr
Cr
Dr
Cr

Accounts Receivable
Sales
COGS
Inventory

11,000

(c)

Cash
Accounts Receivable

19,000

(d) Dr
Cr

Accounts Payable
Cash

11,000

(e) Dr
Cr

Misc. Expenses
Cash

1,500

(f)

Salaries Expense
Cash

2,600

Dr
Cr

Dr
Cr

$
8,250
11,000

7,700
7,700
19,000
11,000
1,500
2,600

(g) Dr
Cr

Depreciation Expense
Accumulated Depreciation

200

(h) Dr
Cr

Long-term loan
Cash

800

200
800

Posting to the ledger accounts


Cash

31/1/12
Feb/12

Opening balance
Accounts receivable

21,000

Accounts payable
Misc. expenses
Salaries expense
Long-term loan

19,000

31/1/12

Opening balance
Sales

Accounts receivable
25,000
Feb/12
Cash
11,000

31/1/12
Feb/12

Opening balance
Accounts payable

Inventory
36,000
Feb/12
8,250

31/1/12

Opening balance

Equipment
24,000

COGS

Accumulated depreciation
31/1/12
Opening balance
Feb/12
Depreciation expense

Feb/12

Cash

Feb/12

Cash

11,000
1,500
2,600
800
19,000

7,700

3,000
200

Accounts payable
11,000
31/1/12
Feb/12

Opening balance
Inventory

13,000
8,250

Long-term loan
800
31/1/12

Opening balance

49,000

Share capital
31/1/12

Opening balance

30,000

Retained profits
31/1/12

Opening balance

11,000

Accounts receivable

11,000

Sales
Feb/12
COGS
Feb/12

Inventory

7,700

Feb/12

Cash

Misc. expenses
1,500

Feb/12

Cash

Salaries expense
2,600

Depreciation expense
Feb/12

Accumulated
depreciation

200

3
Morilla Ltd
Trial balance at end February 2012

Cash
Accounts receivable
Inventory
Equipment
Accumulated depreciation
Accounts payable
Long-term loan
Share capital
Retained profits
Sales
COGS
Misc. expenses
Salaries expense
Depreciation expense

$
24,100
17,000
36,550
24,000

3,200
10,250
48,200
30,000
11,000
11,000
7,700
1,500
2,600
200
113,650

113,650

$
11,000

Preparing closing entries


Dr
Cr

Sales
Profit and loss

Dr

Profit and loss


COGS
Misc. expenses
Salaries expense
Depreciation expense

Dr
CR

Retained profits
Profit and loss

11,000
12,000
7,700
1,500
2,600
200
1,000
1,000

5
Morilla Ltd
Income Statement for February 2012
$
Sales
Cost of goods sold
Gross profit
Operating expenses
Salaries expense
Misc. expenses
Depreciation expense

$
11,000
7,700
3,300

2,600
1,500
200
4,300

Net loss
Plus opening retained profits
Closing retained profits

(1,000)
11,000
10,000

Morilla Ltd
Balance Sheet at 28 February 2012
$
Assets
Current assets
Cash
Accounts receivable
Inventory
Noncurrent assets
Equipment
Accumulated depreciation
Total assets
Liabilities and shareholders equity
Current liabilities
Account payable
Noncurrent liabilities
Long-term loan
Shareholders equity
Share capital
Retained profits
Total liabilities and shareholders equity

24,100
17,000
36,550
77,650
24,000
(3,200)
20,800
98,450

10,250
48,200
58,450
30,000
10,000
40,000
98,450

Problem 4.19

Cash
Share capital
Issue of shares for cash. (Number of shares unknown.)

Dr
$
30,000

30,000

Inventory
Accounts payable
Purchases of inventory, on credit.

5,000

Equipment
Cash
Notes payable
Purchase of equipment, partly for cash.

3,600

5,000

1,200
2,400

Supplies expense
Accounts payable
Supplies expense, not yet paid for.

700

Accounts receivable
Sales revenue
Credit sales.

900

Cost of goods sold expense


Inventory
Cost of the goods sold on credit.

540

Cash
Accounts receivable
Sales revenue
Credit sales with down payment.

1,300
1,400

Cost of goods sold expense


Inventory
Cost of the goods sold with down payment.

1,620

Cash
Accounts receivable
Collections on customer accounts.
Accounts payable
Cash
Payments to suppliers.

Cr
$

700

900

540

2,700

1,620
650
650
1,000
1,000

Supplies
Supplies expense
Supplies on hand at end of the month.

300

Interest expense
Notes payable
Cash
To record payment of interest and principal on notes.

60
500

300

560

CASE 4A
1 Likely source documents
a Sale (cash) cash register information.
b Purchase of goods for sale invoice from supplier.
c Payment to suppliers receipt issued by suppliers.
d Payment of wages payroll analysis.
e Interest expense bank statement.
2. Extract from chart of accounts for Woolworths Limited.
Assets current
1
3
3A
4
4A
6
7
9
11

3
No.
a

b

c
d
e
f

Cash
Trade debtors
Allowance for doubtful debts
Other debtors
Allowance for doubtful debts
Short-term deposits
Staff and other advances
Inventories
Prepayments

Description
Cash

Sales
Inventory
Accounts payable
Wages expense
Cash
Shop fittings
Accounts payable
Accounts receivable
Management fees revenue
Cash

21
23
24
25
31
32
33
33A
34
35
35A
41
41A
42
42A
51
52
52A
61
63
65
67

Assets noncurrent
Shares in controlled entities
Loans to controlled entities
Interest in partnerships and trusts
Semi-Government securities
Freehold land
Buildings
Other properties
Accumulated depreciation on buildings
Leasehold improvements buildings
Other leased properties
Accumulated amortisation on leasehold
Plant, equipment and shop fittings
Accumulated depreciation plant
Leased plant equipment and shop fittings
Accumulated amortisation plant
Goodwill
Liquor licences
Accumulated amortisation liquor licences
Other debtors
Borrowing costs
Advances to employees
Future income tax benefit

Debits
38

3 000
1 000 000
800 000
1 000 000
1 000 000

Credits
38

3 000
1 000 000
800 000
1 000 000
7

Accounts receivable

1 000 000