Learning Outcomes -
- Students will identify, measure, record and communication economic transactions and events using basic accounting concepts.
- Students will prepare and adjust financial statement for a small business at the end of a financial period.
The two Dave's coffee shop is running for two years now. They decided to run the business by adopting partnership as the form of business ownership and have chosen the periodic inventory management system. They have one full time employee. Daves provide you the following unadjusted trial balance as at 31 December 2013.
|
|
Debit
|
Credit
|
|
Bank
|
4,560
|
|
|
Accounts Receivable
|
19,500
|
|
|
Inventory [31 Dec 2012]
|
42,400
|
|
|
Office equipment
|
29,500
|
|
|
Equipment Accumulated Depreciation
|
|
4,083
|
|
Shop equipment
|
7,100
|
|
|
Accounts Payable
|
|
23,670
|
|
Loans from XYZ Ltd.
|
|
17,980
|
|
Capital
|
|
49,305
|
|
Drawings
|
52,000
|
|
|
Sales income
|
|
220,855
|
|
Consultancy fees
|
|
58,250
|
|
Commission income
|
|
12,650
|
|
Purchases
|
144,585
|
|
|
Advertising
|
6,258
|
|
|
Electricity
|
1,810
|
|
|
General expenses
|
2,618
|
|
|
Insurance
|
5,450
|
|
|
Stationery
|
3,569
|
|
|
Rent
|
4,950
|
|
|
Maintenance
|
960
|
|
|
Phone and internet charges
|
3,967
|
|
|
Wages
|
53,562
|
|
|
Car expenses
|
4,004
|
|
|
|
386,793
|
386,793
|
The two Daves have also provided you with the following additional information:
a) An allowance of 5% of accounts receivable is to be made for doubtful debts.
b) Included in the commission income is $ 1,650 prepaid as at 31 December 2013.
c) On 1 Jan 2013 Dave S. introduced his private vehicle valued at $ 45,000.
d) The vehicle should be depreciated using a 25% straight line method. Assume no residual value.
e) The office equipment has a useful life of four (4) years and its residual value is $ 5,000. Use straight-line depreciation.
f) The shop equipment was purchased on 1 Oct 2013 and is to be depreciated using 33% reducing balance method.
g) The Daves have a periodic inventory management system. A stocktake done on 31 Dec 2013 showed there was $ 41,700 inventory on hand.
h) The insurance expense included $ 1,500 paid for 2014.
1) Rent owing at balance date was $ 450
j) Sent invoice for consulting services on 31 Dec $ 1,230. Payment to be collected in 2014.
Required:
1. Prepare the necessary balance day adjustments for Caffeine Fix showing the effect on the accounting. Ignore any GST implications.
2. Prepare an updated trial balance after the adjustments have been made. You are expected to construct the original trial balance and add the adjustments to it in order to obtain the Updated figures.
3. Prepare a fully classified Income Statement from the above information, including adjustments.
4. Prepare a fully classified Balance Sheet from the above information, including adjustments.
5. Prepare a Statement of Changes in Equity.
6. Explain to the Daves the concept of depreciation and amortisation and provide an example of each by looking at the financial statements of any company and elucidate the difference between them.