continuing with the MS Excel spreadsheet system that

ACC506 Task 2B – Semester 3, 2017 1. R REED CO PTY LTD 1.1 Recap R Reed is the sole proprietor of R Reed Co Pty Ltd – a GST-registered, high end, men’s fashion and accessories retail store in Brisbane’s Fortitude Valley. R Reed Co Pty Ltd has just completed its first quarter of operations and Ryan Reed is keen to understand the full financial picture of the company. R Reed Co Pty Ltd is continuing with the MS Excel spreadsheet system that it has been using to record the accounting transactions, complete the closing entries and prepare the financial reports for the September 2016 quarter. 1.2 Accounting policies and other details R Reed Co Pty Ltd uses the financial year: 1 July to 30 June, withholds PAYG for its employees, and pays GST on sales to the Australian Government. The business uses a GST paid (Asset account) and GST collected (Liability account) to record its GST. Unless otherwise stated, assume all transaction amounts are inclusive of GST (10%). R Reed Co Pty Ltd uses the Accounts listed in the Chart of Accounts. The following details on the accounting policies adopted by the business are required for Task 2B: R Reed Co Pty Ltd: 1. Uses the accrual accounting method. 2. Uses a perpetual inventory system. 3. Is preparing an annual Business Activity Statement (BAS) in this first year of its operation and will remit the net GST liability due to the ATO following the end of the September quarter. 4. Depreciates furniture using reducing balance method at the rate of 30%. 5. Pays wages monthly, part in arrears and part in advance, for the dates specified in the transaction list. The shop assistant is employed on a full time basis (five days a week, Monday to Friday) and the accountant on a part time basis (two days a week on Tuesday and Wednesday). 6. Adjusts Doubtful debts at the end of each quarter such that the provision equates to 5% of Accounts Receivable balance at the end of the quarter. 1.3 Adjustments (Adjustments DO NOT involve cash or GST) R Reed Co Pty Ltd must record the following end of year adjustments: a. Physical stocktake of supplies revealed Supplies used for the period: $341 b. Wages earned by T Lynch and B Brush for the period 8/9/16 to 5/10/16 were paid on 22/9/16. c. Insurance paid on Jul 25 covers period 1 Aug 2016 – 31 Jul 2017. Adjust for the expensed portion. (Note, insurance invoice total previously recorded as prepaid.) d. Calculate the Provision for Doubtful Debts and record the adjustment. e. Calculate the furniture depreciation using the 30% reducing balance method and record the adjustment. f. End of quarter stocktake reveals a $1,500 overcoat damaged and worthless. Record the adjustment to inventory. 1.4 Financial Performance Ryan Reed is eager to understand more about how his business has performed this year. His research reveals that some interstate competitors, operating a similar business model, are reporting financial ratios in the following ranges: Current ratio: 1.5 – 3.0 times Quick Ratio: 1.0 – 1.5 times Gross Profit Percentage: 38-43%  How does R Reed Co Pty Ltd compare?  Do you think the profit or loss for the company is reasonable in the circumstances and explain why?  What recommendations would you make for Ryan Reed to improve his business performance in these areas? (NB. You may need to read beyond the text to fully answer this question. For example, it is not enough to describe how a ratio is calculated, you must also interpret what that ratio indicates in the circumstances and what actions should be taken to improve the ratio.) 1.5 Calendar dates for July – September 2016 Calendar dates are actual dates so please refer to a 2016 calendar as required. 1.6 Financial Reports The business uses the following Financial Statements: Balance Sheet – Assets, Liabilities, Owners’ Equity Income Statement – Revenue, Expenses, Goss/Net Profit or Loss Statement of Changes in Equity – Capital, Drawings Task 2B Requirements (Use the Task 2B excel template that is provided. The template may not be complete and you may need to add lines or accounts as required,) Task 2B is made up of an Excel document that shows the accounts and financial reports for the entire accounting cycle for the business AND a Word document containing the financial report. The Excel template is provided for you. You must create the Word document in the format set out later in this document. Excel Analysis of Accounting Cycle Requirement – complete the following in an excel document: a. Complete the Cover Page and save the template under your name. b. Using the Worksheet – copy your Trial Balance figures into the Worksheet in columns B and C. You should do this by linking the data. c. Prepare the Adjustment General Journal entries for the adjustments listed above at 1.3 (a. to f.). Enter these into both the Worksheet (in columns E and F) and the General Journal. d. Post the adjustment journal entries to the General Ledger using new accounts as necessary. (This will change the figures in your Trial Balance but not your Unadjusted Trial Balance in your Worksheet. Check this!) e. Prepare the Closing General Journal entries but DO NOT post to the Ledger. For closing: • debit revenue accounts and credit P& L Closing Account; • credit all expense accounts and debit P& L Closing Account; • debit P & L Closing Account (if a profit) and credit Capital account; • credit Drawings and debit Capital account f. Finalise the Worksheet – return to the Worksheet to calculate balances in the Adjusted Trial Balance (columns H and I). (Check the Adj Trial Balance figures in columns X and Y with the account balances in the Trial Balance – they should be the same.) g. Prepare the Financial Statements – In the Worksheet, copy or link across the appropriate figures to the Income Statement columns and to the Balance Sheet columns. Then take these figures across to the Financial Statements sheet, and create Financial Statements according to a standard format (or follow the broad template provided in the spreadsheet). Identify Assets and Liabilities as ‘current’ or ‘non-current’ for the Balance Sheet (this was to be done in the Chart of Accounts). Financial Report (900 words maximum; Word document; structure below) Requirement – Prepare a brief report that summarises the financial position of R Reed Co Pty Ltd, addressing the following considerations: a. Financial Statements – include and summarise the Financial Statements from the Excel document (Income Statement, Balance Sheet, Statement of Changes in Equity) b. Financial Ratios – calculate the Current Ratio, Quick Ratio and Gross Profit Percentage and compare with its competitors’ position as identified above at 1.4. What actions should Ryan Reed take based on your analysis. c. R Reed Co Pty Ltd expects to invest in further assets in the coming year. Briefly describe the depreciation methods available and the main differences and benefits of each. d. The business used the weighted average Perpetual inventory method for FY 2017. What other methods could be used and how might they impact on the financial position of the business at the end of the period? e. What internal control mechanisms do you recommend (eg Bank Reconciliation; cash controls)? Report Structure: Task 2B Marking Task 2B (like Task 2A) is an individual assignment to be submitted via Safe Assign on the USC course Blackboard site. Further details relating to the assessment including late penalties, can be found in the Course Outline. For extension of submission dates, please refer to USC’s extension policies (see below), and make the request to the Course Co-ordinator. Academic misconduct, including plagiarism is taken very seriously. Please refer to USC’s Academic Misconduct Policy, available on the website and contact the Course Co-ordinator if you have any queries:
es/student-academic-misconduct-procedures Task 2B is worth 30% and will be marked out of 100 according to the table below. Marks General Journal Adjustments 6 General Journal Closing entries 15 General Ledger 10 Trial Balance 5 Worksheet 5 Financial Statements 20 Report – ratio calculation & analysis 16 – inventory method 5 – depreciation methods 5 – internal controls 3 – inclusion of reports 5 – spelling, grammar, presentation 5 Total 100

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