ASSIGNMENT

Financial Accounting Assignment



Financial Accounting Assignment

Question 1

(A)

Olympics Inc.

Income Statement

Year End 30 June 20X1

 

 

£

£

£

 

Sales

414,640

Less:

Return Inwards

7,384

 

Net Sales

407,256

 

 

Less:

Cost of Sales

 

 

Opening Stock

21,442

 

 

Purchases

192,552

 

Less:

Return Outwards

19,596

 

Add:

Carriage Outwards

21,300 194,256

 

 

Goods Available for Sales

215,698

 

Less:

Closing Stock

23,004

 

 

Cost of Sales

192,694

 

 

 

Gross Profit

214,562

 

 

Less:

Operating Expenses

 

 

Depreciation: Fixtures and Fittings

25,624

 

 

Depreciation: Motor Vehicles

13,561

 

 

Insurance Expense

5,822

 

 

Rent and Rate Expense

27,406

 

 

Gas Expense

1,278

 

 

Electricity Expense

682

 

 

Motor Expense

23,572

 

 

Bad Debt Expense

3,380

 

 

Salaries and Wages

52,824

 

 

Total Operating Expenses

154,148

 

 

 

Net Profit

60,414

 

 

 

 

 

Support Calculations

 

Bad Debt Expense Calculation

 

 

 

 

 

 

Bad Debt

3,124

 

Add:

New provision for bad debt

681.6

(2% of debtors)

Less:

Old provision for bad debt

426

 

 

 

 

Bad Debt Expense

3,380

 

 

 

 

 

 

Depreciation: Fixtures and Fittings

 

 

 

 

 

Fixtures and Fittings Cost

170,826

 

Depreciation Rate

15%

straight line method

Annual Depreciation

25,624

pounds

 

Depreciation: Motor Vehicles

 

 

 

 

 

 

Motor Vehicle Cost

59,640

 

Accumulated Depreciation

5,396

 

Book Value

54,244

 

Depreciation Rate

0

reducing balance method

Annual Depreciation

13,561

pounds

 

 

 

Insurance Expense

 

 

 

 

Prepaid Insurance: Beginning

8,094

Less:

Prepaid Insurance: year end

2,272

 

Annual Insurance Expense

5,822

 

Rate & Rent Expense

 

 

 

 

Prepaid Rate & Rent: Beginning

29,678

Less:

Prepaid Rate & Rent: Year End

2,272

 

Annual Rent Expense

27,406

Balance Sheet

Olympics Inc.

Balance Sheet

Year End 30 June 20X1

 

£

£

Current Assets

 

 

 

Cash

852

Trade Debtors

34,080

 

Less: Provision for Bad Debts

682

 

Net Trade Debtors

33,398

Closing Stock

23,004

Advertising

8,520

Electricity and Gas

15,762

 

Less: Accrued

1,960

 

Net Electricity and Gas

13,802

Insurance

8,094

 

Less: Accrued

5,822

 

Net Insurance

2,272

Postage and Stationery

3,408

Rent and Rates

29,678

 

Less: Accrued

27,406

 

Net Rent and Rates

2,272

Total Current Assets

87,529

 

 

Fixed Assets

 

 

 

Fixtures and Fittings

170,826

 

less: Accumulated Depreciation

115,084

 

Net Fixtures and Fittings

55,742

Motor Vehicle

59,640

 

less: Accumulated Depreciation

18,957

 

Net Motor Vehicle

40,683

 

 

Total Fixed Assets

96,425

 

 

Total Assets

183,954

 

 

 

Olympics Inc.

Balance Sheet

Year End 30 June 20X1

 

£

£

Current Liabilities

 

Trade Creditors

29,110

 

 

Long-term Liabilities

 

 

 

Bank

7,952

 

 

Total Liabilities

37,062

 

 

Owners Equity

 

 

 

Capital

118,996

Net Profit

60,414

Less: Drawings

32,518

 

 

Total Owner's Equity

146,892

 

 

 

 

Capital Employed

183,954

 

 

 

(B)

Accruals

The accrued income / accrued liabilities are amounts that have not yet been recorded, and the remaining due at the end of the period or year. If the amount is not known, estimates are needed and are added to the charges in order to give a more accurate representation in the income statement (Helfert, 2002). According to the hypothesis of accrual accounting events are recognized when they occur rather than when cash is received or paid; revenues and expenses are to be computed when there is actual flow (revenues: when there are goods and services expenses: when resources are consumed). Accrual represents a system of accounting in which recorded revenues are earned; outlays are recorded when goods or services are received, even though the actual receipt of payment for revenue and goods or services arise, in whole or in part, at a different time (Lasher, 2010). 

Accrued expenses are considered from the time the transactions are concluded by the receipt of services or goods to the satisfaction, regardless of the date of payment. In the given case, expenses for gas, expenses for electricity, and expenses for salaries and wages have been recorded on accrual basis (Ehrhardt, ...