Question 1

Preparation of financial statements

Home Designs Ltd, a homewares manufacturing company, commenced operations on 1 July 2018. You are the company’s financial accountant.

The accounting records for the year ended 30 June 2019 showed the following accounts and balances:

 

Home Designs Ltd
Account balances at 30 June 2019
$
Advertising expense 46,000
Accounts payable 56,300
Accumulated depreciation – buildings 20,000
Accumulated depreciation – plant and equipment 40,000
Allowance for doubtful debts 1,600
Annual leave expense 25,000
Bank account 143,000
Bank loan 200,000

 

Buildings 800,000
Cost of goods sold 780,000
Current tax liability 274,000
Depreciation expense 60,000
Dividends paid 200,000
Doubtful debts expense 2,000
Finished goods inventory 322,000
Income tax expense 274,000
Interest expense 22,000
Interest income 3,100
Land 609,000
Other expenses 36,000
Plant and equipment 900,000
Provision for annual leave 23,000
Provision for warranty 34,000
Raw materials inventory 126,000
Salaries and wages 286,000
Sales revenue 2,205,000
Share capital 2,000,000
Trade receivables 185,000
Warranty expense 41,000

Additional information:

  • The bank loan is repayable over 10 years ($20,000 of the loan is repayable within the next 12 months).
  • The provision for annual leave is payable within 12 months.
  • The provision for warranty is in respect of 12-month warranties given on all products sold.
  • Share capital consists of 1,000,000 ordinary shares, fully paid to $2.00 each.
  • Home Designs Ltd is a reporting entity.

Required:

Enter the data shown above into a spreadsheet.

In your spreadsheet, prepare the balance sheet (statement of financial position) as at 30 June 2019, and income statement (statement of profit or loss and other comprehensive income) of Home Designs Ltd for the year ended 30 June 2019, using the line items and format that a listed company is likely to use. (Note: Enter the account balances shown above as your ‘data’, and use formulas to generate the figures in your income statement and balance sheet from this ‘data’). In the balance sheet, classify assets and liabilities as current or non-current.

Use the ‘IF function’ to check that the balance sheet balances.

Question 2

Accounting for inventory

Aussie Campers Ltd sells camping trailers. The beginning inventory of camping trailers on 1 July 2019 was 20 trailers, which had a cost of $1,200 each. Purchases and sales for July – September were as follows:

Date Transaction Number of units Purchase price per unit
$
Selling price per unit
$
5/07/2019 Purchase 4 1,250
8/07/2019 Sale 6 2,900
11/07/2019 Sale 2 2,900
20/07/2019 Purchase 5 1,230
4/08/2019 Sale 4 2,950
7/08/2019 Sale 8 2,950
20/08/2019 Purchase 10 1,260
27/08/2019 Sale 2 2,950
5/09/2019 Sale 6 2,990

 

12/09/2019 Sale 2 2,990
16/09/2019 Purchase 12 1,300
26/09/2019 Sale 3 2,990

Required:

Enter the data shown above into a spreadsheet.

(i) Prepare worksheets for July – September 2019, using each of the three inventory costing models (FIFO, LIFO and weighted average cost methods) to keep track of the number of trailers purchased, trailers sold, trailers on hand, cost of goods sold and gross profit made.

(ii) The directors of Aussie Campers Ltd have contacted you to ask two questions: Which of the three inventory costing methods best reflects the replacement cost of the inventory on the balance sheet on 30 September 2019? Which inventory costing method would be best for income tax purposes, and why?

Question 3

Analysis and interpretation of financial reports

Accor Australia Ltd, Marriott Australia Ltd and Mantra Australia Ltd are three major owners and managers of hotels and resorts in Australia.

The following information has been extracted from the income statement of each company, for the year ended 30 June 2019:

Accor Marriott Mantra
$ $ $
(in millions) (in millions) (in millions)
Income from operations before interest and tax 229 725 155
Interest expense (60) (180) (54)
Income before income tax 169 545 101
Income tax (51) (165) (30)
Net income 118 380 71

The following information has been extracted from the balance sheet of each company, as at 30 June 2019:

Accor Marriott Mantra
$ $ $
(in millions) (in millions) (in millions)
Total liabilities 2,600 6,400 2,128
Total equity 3,260 2,600 5,120
Total liabilities and equity 5,860 9,000 7,248

The average liabilities, average equity, and average total assets were as follows:

Accor Marriott Mantra
$ $ $
(in millions) (in millions) (in millions)
Average total liabilities 2,630 6,100 2,125
Average total equity 3,220 2,370 5,065
Average total assets 5,850 8,470 7,190

Required:

(i) Calculate the following ratios for each company:

  • Return on total assets
  • Return on equity
  • Debt to equity ratio on 30 June 2019

(ii) Analyse and compare the three companies, using the information calculated in part (i)

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