SCHEDULE OF ACCOUNTS RECEIVABLEas at 30 June, 2010Acc. No. AccountAmount1001Sunshine Book stores21,5201003ST Mary’s8,8001004USQ9,240Accounts Payable SUBSIDIARY LEDGERNAME: EDUCATION SUPPLIES OZADDRESSACC. NO. 2001DateParticularsRef. DebitCreditBalanceJune 1Entries to date71,218 Cr28Inventories & materials2,27728Cash at bank36,798NAME: CHINA IMPORTSADDRESSACC. NO. 2002DateParticularsRef. DebitCreditBalanceJune 1Entries to date16,425 Cr1Cash at bank16,425NAME: BOOK MARTADDRESSACC. NO. 2003DateParticularsRef. DebitCreditBalance28Inventories & materials158.4SCHEDULE OF ACCOUNTS PAYABLEAs at 30 June, 2010Acc. No. AccountAmount2001Educational supplies OZ36,7972003Book Mart158.4Bank Reconciliation Statement As at 30 June, 2010$$ Bank statement balance as at 30th June 201059,415Less: unrepresented cheques 1003946 10069,100 100736,798 100839610003000(50,240)Balance as per the cash at bank9,175financial reportsBrightBooksIncome Statement FOR THE YEAR ENDED 30 June, 2010$$$Sales revenue430,786Subscriptions revenue35,700Interest revenue3600470,086COST OF SALESOpening stock148,000purchases152,492Closing stock(90,900)209,592Gross profit260,494EXPENSESBank charges615Advertising and promotions1,619Delivery costs2,120Depreciation of m/vehicles31,800electricity5,600Internet and web expense1,800Motor vehicle repairs5,722Fuel-vehicles3,710Motor vehicle insurance10,000Motor vehicle registration3,500Telephone 1,325Wages61,745Supplies expense851interest19,425Suspense60,906lease57,800268,538Net loss(8,044)BrightBooksBalance Sheet As at 30 June, 2010$$$FIXED ASSETSCOSTAccumulated depreciationNet book valueMotor vehicle229,00045,900183,100Office equipment2,4752,475Investment in Bonds80,00080,000CURRENT ASSETSAccounts receivables30,760Books and inventory materials90,000Supplies at hand900Prepaid lease22,800Prepaid insurance600Cash at bank12,500Accrued revenue300157,860CURRENT LIABILITIESAccounts payable36,955GST control2,110Sundry payable1,750Unearned membership fee20,825Accrued expenses2,145PAYG withholding payable50(63,835)Net current assets94,025359,600LONG-TERM LIABLITIESBank loan200,000Capital- D. Bailey164,500Drawings- D. Bailey(25,360)Profit or loss(8,044)331,096BRIGHTBOOKS - JUNEWorksheet for year ended 30 June, this financial yearAcc.
No. AccountTrial BalanceDebitCreditAdjustmentsDebitAdjusted Trial BalanceCreditProfit & LossDebitCreditBalance Sheet100Cash at Bank9,175 3,32512,500 12,500 110Accounts Receivable Control30,760 30,760 30,760 125Books Inventory148,806 58,80690,000 90,000 130Supplies on Hand 3,000 2,100900 900 140Prepaid Lease 22,80022,800 22,800 146Prepaid Insurance 600600 600 148Accrued Revenue 300300 300 150Motor Vehicles229,000 229,000 229,000 155Accumulated Depreciation - Vehicles 49,0003,10045,900 45,900160Office Equipment2,475 2,475 2,475 165Accumulated Depreciation - Equipment 170Investments in Bonds80,000 80,000 80,000 200Accounts Payable Control 36,955 36,955 36,955205GST Control 2,110 2,110 2,110206Sundry Payables 1,750 1,750 1,750210Unearned Membership Fees 20,825 20,825 20,825230Accrued Expenses 2,145 2,145 2,145235PAYG Withholding Payable 50 50 50255Bank Loan 200,000 200,000 200,000305Capital – D.
Bailey 164,500 164,500 164,500309Drawings - D. Bailey25,360 25,360 25,360 Acc. No. AccountTrial BalanceDebitCreditAdjustmentsDebitAdjusted Trial BalanceCreditProfit & LossDebitCreditBalance Sheet400Sales Revenue 430,786 430,786 430,786415Subscriptions Revenue 32,3753,325 35,700 35,700430Interest Revenue 3,300300 3600 3600500Purchases 152,493 152,493 152,493 505Bank Charges615 615 615 510 Advertising and Promotions1,619 1,619 1,619 515Delivery Costs2,120 2,120 2,120 520Depreciation - Motor Vehicles34,900 3,10031,800 31,800 525Depreciation – Equipment 530Electricity 5,600 5,600 5,600 535Internet and Web expenses1,800 1,800 1,800 540Motor Vehicle Repairs5,722 5,722 5,722 545Fuel – Vehicles3,710 3,710 3,710 555Motor Vehicle Insurance Expense10,600 60010,000 10,000 560Motor vehicle Registration3,500 3,500 3,500 565Telephone1,325 1,325 1,325 570Wages61,100 64561,745 61,745 575Supplies expense851 851 851 580Interest17,925 1,50019,425 19,425 585Lease - Premises80,600 22,80057,800 57,800 600Profit and Loss Summary 85,807 suspense 941,651941,651 60,90660,906 60,906 NET PROFIT (LOSS) 8,04493,17693,17693,176Q6 b)RATIOS200820092010Profitability Gross profit margin58.20%61.78%55.41%Net profit margin11.40%10.03%-2%ROA9.58%11.63%2.24%ROE20.60%24.80%-4.89%Liquidity Current1.82:12.16:12.47/1Quick. 87:1.80:11.05/1Operating Efficiency Accounts Receivable Turnover4.8 times or 75.92 days6.87 times or 53.12 days15.28 timesInventory Turnover1.48 times or 247 days1.35 times or 270.37 days 2.3 timesFinancial Flexibility Debt Ratio50.77% or. 507:168.56% or. 686:11.22/1Equity Ratio49.22% or. 492:131.41% or. 314:149.68%Times Interest Earned4.12 times3.35 times0.41 timesIndustry averages Gross profit margin 40-50% of salesNet profit margin 9.1% of sales6 c)The profitability of the current year seems to be lower compared to that of the previous two years.
On the other hand the liquidity of the current year is higher compared to previous years and this means that the company is in a better position to settle its dues.
The operating efficiency is also high meaning that the business is running its resources well. Finally, the financial flexibility of the company is also high meaning that the company is less to vulnerability to risk. 6 d) BenchmarkingBenchmarking is a process of measuring a company’s performance by making a comparison with the performance of other companies in the same industry. The benefits associated with benchmarking are that a firm is able to adopt the best practices such as management and training that other firms are using. It also helps companies carry out a self assessment about their performance and it leads to greater productivity.
The disadvantage associated with benchmarking is that what works for other businesses may not work for your company. Q7Ethical issueThe financial statements are very useful in providing the information to various users on the financial position of a company. Examples of users of the financial statements are the shareholders, financial institutions such as the banks and the creditors. In our case, the bank from which Dylan Bailey wants to borrow an additional loan is the user.
Therefore, the bank will use the recent financial statement dated as at 30th June 2010 to determine whether to extend the loan. Bailey is suggesting to his accountant that he should include some of the sales invoices pre-dated July in the current financial year which is supposed to end at 30th June. According to the generally accepted accounting standards (GAAP’s), only transactions relating to the current accounting period are to be reflected in the financial statements. Therefore, if the accountant accounts for the invoices stated as at July, then he will not be conforming to the generally accepted accounting standards (GAAP’s).
We can also say that the accountant will have breached the professional ethics for not following the required accounting standards and if the mistake is discovered, he would be accountable. The financial statements according to the generally accepted accounting standards (GAAP’s) should be transparent in such a way that the information given should be true and fair. Therefore, if the bank finds out that the information in the financial statement has been misstated, then it will not extend its credit regarding the applied loan by the company, since the information is untrue and unfair.
The bank in most cases uses the auditors to determine whether the financial statements reflect a true and fair view. It’s also unethical to mix the professional interests or objectives with personal goals (Ferrell, 2006). The accountant will be said to have mixed his profession with personal interests if he accepts to follow what he has been told to do by Dylan because they are already long time friends.