NCEA LEVEL 1 ACCOUNTING - Learning on the...

NCEA LEVEL 1 ACCOUNTING By Elizabeth Pitu

2012

BOOK 5

& Balance Day Adjustments, and

Solutions

Achievement Standard 90978

External 5 credits

Subject reference: Accounting 1.3

Title: Prepare financial statements for sole proprietors

Achievement Criteria Achievement Achievement with Merit Achievement with Excellence

Prepare financial statements

for sole proprietors.

Prepare in-depth financial

statements for sole proprietors.

Prepare comprehensive

financial statements for sole

proprietors.

Note: Cash budgets included as a financial statement in AS90978 are covered in a separate section.

Achievement Standard 90976

External 3 credits

Subject reference: Accounting 1.1

Title: Demonstrate understanding of accounting concepts for small entities

Achievement Criteria Achievement Achievement with Merit Achievement with Excellence

Demonstrate understanding of

accounting concepts for small

entities.

Demonstrate in-depth

understanding of accounting

concepts for small entities.

Demonstrate comprehensive

understanding of accounting

concepts for small entities.

& Balance Day Adjustments,

Notes, Examples and Exercises

Level 1 Accounting Financial Statements & BDA – Notes, Examples and Exercise Answers Page 1

Activity one – Calculating depreciation – page 4

(a) 22,000-2,000 = 20,000/8 = $2,500 depreciation expense p.a.

(b) 42,000-12,000 = 30,000/6 = $5,000 depreciation expense p.a.

(c) 15,000 x 10% = $1,500 depreciation expense p.a.

Activity Two – page 7

(a)

Year Cost

Depreciation

Expense

Accumulated

Depreciation

Carrying

Amount

1 22,000 2,500 2,500 19,500

2 22,000 2,500 5,000 17,000

3 22,000 2,500 7,500 14,500

Year Cost

Depreciation

Expense

Accumulated

Depreciation

Carrying

Amount

1 42,000 5,000 5,000 37,000

2 42,000 5,000 10,000 32,000

3 42,000 5,000 15,000 27,000

Year Cost

Depreciation

Expense

Accumulated

Depreciation

Carrying

Amount

1 15,000 1,500 1,500 13,500

2 15,000 1,500 3,000 12,000

3 15,000 1,500 4,500 10,500

(b) OPTIONAL

General Journal

Date Particulars Debit Credit

31/3/-- Depreciation on shop fittings 2,500

Accumulated depreciation on shop fittings 2,500

To record depreciation on shop fittings

31/3/-- Depreciation on vehicles 5,000

Accumulated depreciation on vehicles 5,000

To record depreciation on vehicles

31/3/-- Depreciation on office equipment 1,500

Accumulated depreciation on office equipment 1,500

To record depreciation on office equipment


(c) OPTIONAL

Depreciation on Shop Fittings

31/3/… Accumulated depreciation on shop fittings 2,500 2,500 Dr

(transfer to) Income statement 2,500 0

Accumulated Depreciation on Shop Fittings

1/04/… Balance 2,500 Cr

31/3/… Depreciation on shop fittings 2,500 5,000 Cr

Depreciation on Vehicles

31/3/… Accumulated depreciation on vehicles 5,000 5,000 Dr


Accumulated Depreciation on Vehicles

1/04/… Balance 5,000 Cr

31/3/… Depreciation on vehicles 5,000 10,000 Cr

Depreciation on Office Equipment

31/3/… Accumulated depreciation on office equip. 1,500 1,500 Dr


Accumulated Depreciation on Office Equipment

1/04/… Balance 1,500 Cr

31/3/… Depreciation on office equipment 1,500 3,000 Cr

(d) Income Statement Year Two (extract)

Distribution Costs

Depreciation on shop fittings 2,500

Depreciation on vehicles 5,000

Administrative Expenses

Depreciation on office equipment 1,500

(e) Balance Sheet Year Two (extract)

Non-current Assets

Property, plant and equipment

Total carrying amount Note 1 61,000

Note to the Balance Sheet

1. Property, plant and equipment

Shop Fittings Vehicles Office

Equipment Total

Cost 22,000 42,000 15,000 79,000

Accumulated Depreciation 5,000 10,000 3,000 18,000

Carrying Amount 17,000 32,000 12,000 61,000

Depreciation is calculated on a straight-line basis at the following rates:

Shop Fittings 8 years

Vehicles 6 years

Office Equipment 10% p.a.


YOUR TURN – Fully worked exercise – page 10

(a) Trial Balance of Fast First Couriers as at 31 March 2012

Bank 300 Capital 40,000

Delivery Vehicles 50,000 GST Payable 400

Office Equipment 15,000 Loan (10%, due 2014) 7,000

Goodwill 6,000 Accumulated Depreciation:

Driver's Wages 12,000 - Delivery Vehicles 2,000 12,000

Office Expenses 10,700 Accumulated Depreciation:

Vehicle Expenses 4,000 - Office Equipment 3,000 4,500

Interest on Loan 700 Courier Fees 68,300

Drawings 22,000

Depreciation on delivery

vehicle 10,000

Depreciation on office

equipment 1,500

$132,200 $132,200

(b) OPTIONAL

Fast First Couriers General Journal

31/03/12 Depreciation on delivery vans 10,000

Accumulated depreciation on delivery vans 10,000

To record depreciation on delivery vans

31/03/12 Depreciation on office equipment 1,500



Fast First Couriers General Ledger

Depreciation on delivery vans

31/03/12 Accumulated depreciation on delivery vans 10,000 10,000 Dr


Accumulated Depreciation on delivery vans

1/4/2011 Balance 2,000 Cr

31/03/12 Depreciation on delivery vans 10,000 12,000 Cr


31/03/12 Accumulated depreciation on office equip. 1,500 1,500 Dr



1/4/2011 Balance 3,000 Cr

31/03/12 Depreciation on office equipment 1,500 4,500 Cr


(c) Fast First Couriers Income Statement for the year ended 31 March 2012

Courier fees 68,300

Less

Delivery Expenses

Driver's Wages 12,000

Vehicle Expenses 4,000

Depreciation on delivery vehicles 10,000 26,000


Office Expenses 10,700

Depreciation on office equipment 1,500 12,200

Finance Costs

Interest on loan 700

Total expenses 38,900

Profit for the year $29,400

Fast First Couriers Statement of Financial Position as at 31 March 2012

Current Assets

Bank 300

Non-current Assets


Total carrying amount (Note 1) 48,500

Intangible Asset

Goodwill 6,000

Total non-current assets 54,500

Total assets 54,800

Less Liabilities

Current Liabilities

GST Payable 400

Non-current Liability

Loan (10%, due 2014) 7,000

Total liabilities 7,400

Net Assets $47,400

Equity

Opening Capital 40,000

Plus Profit for the year 29,400

Less Drawings -22,000

Closing Capital $47,400

Note to the Statement of Financial Position


Delivery

Vehicles

Office

Equipment Total

Cost 50,000 15,000 65,000

less Accumulated Depreciation -12,000 -4,500 -16,500

Carrying amount $38,000 $10,500 $48,500


• Delivery Vehicles 20% pa

• Office Equipment 10% pa


FOCUS ON DEPRECIATION

Exercise One – page 13

(a) OPTIONAL

An answer is not available for the OPTIONAL question. The answer would be the same as that

provided for Fast First Couriers except for the asset names and amounts for depreciation and

accumulated deprecation. The correct numbers and balances for these accounts can be checked in the

income statement and note to the statement of financial position.

(b)

Regina's Real Estate Agency

Income Statement

for the year ended 31 March 2012

Revenue

Commission Received 97,000

Less

Selling Expenses

Depreciation on Company Car 5,000

Car Expenses 14,000

Advertising 14,500 33,500



Depreciation on Office Equipment 7,000 28,400

Finance Costs

Interest on Loan 1,000 1,000

Total Expenses 62,900



(c)

Regina's Real Estate Agency

Statement of Financial Position

as at 31 March 2012

Current Assets

Bank 1,200

GST 400

Accounts Receivable 27,000

Total current assets 28,600

Non-current Assets



Intangible Asset

Goodwill 12,000


Total assets 85,600

Less Liabilities

Current Liabilities

Accounts Payable 1,500

Loan (10% due October 2012) 10,000

Total (current) liabilities 11,500

Net assets $74,100

Equity







Company

Car

Office

Equipment Total

Cost 35,000 28,000 63,000


Carrying amount $27,500 $17,500 $45,000


Company Car 4 years

Office Equipment 25% pa


Exercise Two – page 14

(a) OPTIONAL Answer not provided – see comments on Exercise One.

(b)

Mere's Mechanics

Income Statement


Revenue

Repair Revenue 130,000

Less

Workshop Expenses

Mechanics Wages 22,000

Workshop Rent 11,000

Parts Expense 35,000

Vehicle expenses 6,500

Depreciation on Tools and Equipment 2,000

Depreciation on Tow Wagon 7,000 83,500



Telephone and Fax rental 1,200 8,600

Finance Costs




(c) See page 8

(d) Depreciation on the tow wagon is an expense of Mere's Mechanics because it represents the use

of/decrease in the economic benefits of the tow wagon in the form of a depletion of the tow wagon

during the year. The depreciation decreases the asset tow wagon and decreases equity by more

expenses and so less profit (and is not drawings).


(c)

Mere's Mechanics


as at 31 March 2012

Current Assets

Bank 10,000


Parts on Hand 4,000


Non-current Assets



Total Assets 62,000

Less Liabilities

Current Liabilities


GST Payable 1,000

Total current liabilities 4,000


Loan (9%, due 2014) 10,000


Net Assets $48,000

Equity







Tow

Wagon

Tools and

Equipment Total

Cost 35,000 25,000 60,000


Carrying amount $21,000 $19,000 $40,000


Tow Wagon 20% pa

Tools and Equipment 10 years


Exercise Three – page 15

(a) OPTIONAL Answer not provided – see comments on Exercise One.

(b)

Superior Insurance Agency

Income Statement


Revenue

Premium Income 179,000

Other Income

Rent Received 23,000 202,000

Less

Sales and Travelling Expenses

Agents Salaries and Commission 75,000

Advertising 4,000

Car expenses 5,000

Depreciation on Agency Car 4,000 88,000



Rates and Insurance 10,000

Telephone Expense 7,000

Depreciation on Buildings 2,000


Finance Costs

Interest on Mortgage 7,000



(c) See page 10

(d) The Statement of Financial Position records the historical cost which is the purchase cost of the land

and buildings, six years ago. The current value of the land and buildings is likely to have increased

substantially over six years. This means the current value of equity for Superior Insurance Agency, is

higher than the amount stated in the Statement of Financial Position. The value of the business will be

greater than that recorded based on historical cost, if the Land and Buildings have increased in value

over the last six years.

(e) The agency car is recorded as an asset of Superior Insurance agency because Superior Insurance

Agency purchased the car in the past. Only Superior Insurance Agency can use it to provide economic

benefit for the Agency. The car is therefore controlled by Superior Insurance Agency. When the

agents use the car to go and meet people to sell insurance and earn income economic benefit will flow

in through cash received from the income which increases the bank asset.


(c)

Superior Insurance Agency


as at 31 March 2012

Current Assets

Petty Cash 200

GST 1,800


Non-current Assets



Total Assets 192,000

Less Liabilities

Current Liabilities

Bank 1,000


Mortgage on Buildings

(10% due 2015) 70,000

Total Liabilities 71,000

Net Assets $121,000

Equity







Land Buildings Agency

Car

Office

Equipment Total

Cost 60,000 100,000 32,000 20,000 212,000

Accumulated Depreciation -12,000 -4,000 -6,000 -22,000

Carrying amount 60,000 88,000 28,000 14,000 $190,000


Buildings 2% pa

Office Equipment 10% pa

Agency Car 6 years


Class example – Expense/Income adjustments

Max’s Business Consultancy Income and Expense adjustments.

Adjustments should be made for the following:

1. Invoices issued and on hand for Fees Received $8,280 including GST.

Add to fees received and GST create Accounts Receivable

2. Invoice on hand for purchase of Stationery $920 including GST.

Add to Purchases subtract from GST, create Accounts Payable

3. Office Wages owing $2,000

Add to Office Wages, create Accrued Expenses

4. Dividends Received owing $1,400

Add to Dividends Received, create Accrued Income

5. Rent Received in advance $3,000

Subtract from Rent Received, create Income in Advance

6. Insurance paid in advance $1,500

Subtract from Insurance, create Prepayments

7. Depreciation on office equipment is $3,500.

Add to Accumulated Depreciation on Office Equipment, create Depreciation on office equipment


OPTIONAL Show the accounting entries for the adjustments in the spaces provided.

Max’s Business Consultancy General Journal

31-Mar Accounts Receivable 8,280

Fees Received 7,200

GST 1,080

To record amounts owing for fees received

31-Mar Stationery Expense 800

GST 120

Accounts Payable 920

To record amount owing for purchase of stationery

31-Mar Office Wages 2,000

Accrued Expense 2,000

To record office wages owing on balance day

31-Mar Accrued Income 1,400

Dividends Received 1,400

To record dividends received owing

31-Mar Rent Received 3,000

Income Received in Advance 3,000

To record rent received in advance on balance day

31-Mar Prepayments 1,500

Insurance 1,500

To record insurance prepaid on balance day

31-Mar Depreciation on office equipment 3,500



Max’s Business Consultancy General Ledger

Fees Received

31-Mar Balance 255,000 Cr

Accounts Receivable 7,200 262,200 Cr

(transfer to) Income Statement 262,200 0

Accounts Receivable

31-Mar Fees Received plus GST 8,280 8,280 Dr

GST



Accounts Payable 120 5,760 Cr


Stationery Expense

31-Mar Balance 27,300 Dr

Accounts Payable 800 28,100 Dr


Accounts Payable

31-Mar Stationery Expense plus GST 920 920 Cr

Office Wages


Accrued Expense 2,000 60,000 Dr


Accrued Expense

31-Mar Office Wages 2,000 2,000 Cr

Insurance


Prepayments 1,500 6,300 Dr


Prepayments

31-Mar Insurance 1,500 1,500 Dr

Dividends Received


Accrued Income 1,400 2,400 Cr


Accrued Income

31-Mar Dividends received 1,400 1,400 Dr

Rent Received


Income in Advance 3,000 18,000 Cr


Income in Advance

31-Mar Rent Received 3,000 3,000 Cr


31-Mar Accumulated depreciation on office equip. 3,500 3,500 Dr




Depreciation on office equipment 3,500 7,500 Cr


Max's Business Consultancy

Income Statement for the year ended 31 March 2012

Revenue

Fees Received 262,200

Other Income



282,600

Less Administration Expenses

Insurance 6,300


Stationery Expense 28,100

Office Wages 60,000

Depreciation on office equipment 3,500 172,200

Finance Costs

Interest on Loan 3,000



Max's Business Consultancy

Statement of Financial Position as at 31 March 2012

Current Assets

Bank 3,400


Accrued Income 1,400

Prepayments 1,500


Non-current Assets

Investment

Shares in AMP 12,000


Total carrying amount (note 1) 277,500



Less Liabilities

Current Liabilities

GST 5,760


Accrued Expenses 2,000

Income in Advance 3,000 11,680


Loan (6%, due 2014) 50,000


Net Assets $242,400

Equity








Buildings

Office

Equipment Total

Cost 250,000 35,000 285,000

less Accumulated Depreciation -7,500 -7,500

Carrying amount 250,000 27,500 $277,500

Depreciation is calculated on a straight-line basis at the following rate:



PRACTICE EXERCISES

Service Firm Exercises

Exercise Four – page 32

OPTIONAL

Nightingale's Truck Hire

General Journal

31 Mar Accounts Receivable 12,650

Hire Fees 11,000

GST 1,650

to record accounts receivable for hire fees on balance day

31 Mar Petrol and Oil 1,400

GST 210


to record accounts payable for petrol and oil on balance day

31 Mar Mortgage Interest 1,600


for mortgage interest owing on balance day

31 Mar Accrued Income 200

Dividends Received 200

for dividends owing on balance day

31 Mar Rent Received 600

Income in Advance 600

for rent received in advance on balance day

31 Mar Prepayments 400

Insurance - vehicles 400

for vehicle insurance paid in advance on balance day

31 Mar Depreciation on Vehicles 40,000

Accumulated Depreciation - Vehicles 40,000

to record depreciation on shop fittings

31 Mar Depreciation on buildings 3,900

Accumulated Depreciation - Buildings 3,900

to record depreciation on buildings

Nightingale's Truck Hire General Ledger

Hire Fees


31-Mar Accounts Receivable 11,000 218,600 Cr


Accounts Receivable

31-Mar Hire Fees plus GST 12,650 12,650 Dr

GST



Accounts Payable 210 2,640 Cr


Petrol and Oil


Accounts Payable 1,400 18,000 Dr


Accounts Payable

31-Mar Petrol and Oil plus GST 1,610 1,610 Cr

Interest on Mortgage




Accrued Expense

31-Mar Interest on Mortgage 1,600 1,600 Cr

Insurance - Vehicles


Prepayments 400 4,600 Dr


Prepayments

31-Mar Insurance - Vehicles 400 400 Dr

Dividends Received

31-Mar Balance 200 Cr

Accrued Income 200 400 Cr

(transfer to) Income Statement 400 0

Accrued Income

31-Mar Dividends received 200 200 Dr

Rent Received


Income in Advance 600 7,200 Cr


Income in Advance

31-Mar Rent Received 600 600 Cr

Depreciation on Vehicles

31-Mar Accumulated depreciation on vehicles 40,000 40,000 Dr


Accumulated Depreciation on Vehicles


Depreciation on vehicles 40,000 60,000 Cr

Depreciation on Buildings

31-Mar Accumulated depreciation on buildings 3,900 3,900 Dr


Accumulated Depreciation on Buildings


Depreciation on buildings 3,900 11,500 Cr


90976 answers – Nightingale’s Truck Hire

(a) Jack the owner of Nightingale’s Truck Hire is interested in the income statement because it tells him

the profit for the year (or if his truck hire business made a loss). He can compare this year’s profit to

last year’s profit to see if he is increasing his profit. He can see if any of his expenses such as petrol

and oil have increased significantly – may be because the price of petrol has risen.

(b) The purpose of preparing a statement of financial position is to show Nightingale’s assets, liabilities

and equity at a point in time – balance day. It allows Jack to see what assets Nightingale’s Truck Hire

has to operate his business going forward. He can also see how much his current debts (liabilities) are

that he will need to pay off in the next year and how much his long term debt is. He can see his equity

in the business and if this is sufficient to remain in a sound financial position.



Income

Hire fees 218,600

Add Other Income

Rent Received 7,200

Dividends Received 400 7,600

226,200

Vehicle Operating Expenses

Insurance - Vehicles 4,600

Petrol and Oil 18,000

Vehicle Repairs 7,200

Depreciation - vehicles 40,000 69,800



Office Wages 27,800

Telephone and Internet 3,700

Depreciation - buildings 3,900

Rates 5,800 54,900

Finance Costs

Interest on loan 4,000

Interest on Mortgage 9,600 13,600






Current Assets


Accrued Income 200

Prepayments 400


Non-current Assets

Investment

Shares in Mobil 5,000





Less Liabilities

Current Liabilities

Bank overdraft 1,400

GST Payable 2,640



Income in Advance 600 7,850

Non-current Liabilities

Loan (8%, due 2014) 50,000

Mortgage (10%, due 2017) 96,000 146,000


Net Assets $312,900

Equity







Land Buildings Vehicles Total

Cost 125,000 195,000 200,000 520,000


Carrying amount $125,000 $183,500 $140,000 $448,500

Depreciation is calculated on a straight-line basis at the following rate:

Buildings 2% p.a.

Vehicles 20% p.a.


Exercise Five – page 33

OPTIONAL accounting entries not provided. Refer to the class example and Exercise Four answers for

similar.

90976 answers

(a) Tour expenses are those expenses directly related to actually doing the tramping tours such as tour food

expense – the people on the tour are provided with food so this is an expense of doing the tramping tour.

(Note any of the examples could be used – need to link to the expense being required to actually

undertake the tramping tour).

(b) Administrative expenses are those expenses related to the office work and keeping the Tihoi Tramping

Tours going, such as telephone so tour bookings can be taken.

(c) A current asset is cash or will be turned into cash or used up by Tihoi Tramping Tours in the next year.

For example Tour Food on Hand is a current asset of Tihoi Tramping Tours because the food will be

used in the next month or two on tramping tours. (Other examples could be used such as accounts

receivable is a current asset because it represents debtors who owe money for tours and it is expected

they will pay the money owing in the next month or two.)

(d) Tihoi Tramping Tours income statement is prepared at least annually as the continuing life of the

business is divided into time periods over which financial performance and profit can be measured. The

year ended 31 March 2012 is the period for this Income Statement. The profit has been measured for the

year ended 31 March 2012 and can then be compared with the profit of previous years.

Tihoi Tramping Tours

Income Statement


Income

Tour Revenue 163,000

Less

Tour Expenses

Van expenses 27,500

Tour Food Expense 42,200

Hut and Track Fees 11,000

Equipment Repairs 1,400

Depreciation on Tents and Equipment 5,000

Depreciation on Tour Van 10,800 97,900


Office Expense 9,700

Telephone expense 4,300 14,000

Finance Costs





Tihoi Tramping Tours


Current Assets

Cash on Hand 100


Tour Food on Hand 1,400

Prepayments 1,500


Non-current Assets

Property, plant and equipment (Note 1)

Total carrying amount 68,600

Intangible Asset

Goodwill 15,000


Total Assets 91,200

Less Liabilities

Current Liabilities

GST Payable 500


Bank 600

Accrued Expense 100

Revenue in advance 7,000



Loan (9%, due 2014) 18,000


Net Assets $62,700

Equity







Tour Van

Tents and

Equipment Total

Cost 54,000 38,000 92,000


Carrying amount $39,600 $29,000 $68,600

Depreciation is calculated on a straight line basis at the following rates:

Tour Van 20%

Tents and Equipment 6 years


Exercise Six – page 34


similar.

90976 Questions

(a) Plumbing Supplies on Hand is a current asset because the plumbing supplies will be used on plumbing

jobs in the near future/next month or two/next year. The plumbing supplies will benefit Plumbing Fix

when they are used on jobs in the next year/month.

(b) Shares in FCL are an investment non-current asset as the shares will benefit Plumbing Fix over more

than one year. Plumbing Fix will continue to earn dividends from the shares over more than one year so

the shares are a non-current asset.

(c) Plumbing Fix’s apprentice wages are an expense because when the wages are paid the bank asset

decreases (outflow of cash or economic benefit). The wages also decrease equity by decreasing the

profit for the year. The apprentice wages are paid to the apprentice not the owner so they are not

owner’s drawings.

(d) Apprentice wages owing is a liability because the apprentice has already done the work (past event).

Plumbing Fix currently owes the wages to the apprentice. In the next week or two/next period/future

Plumbing Fix will use cash from the bank –decreasing the asset bank – to pay the wages owing to the

apprentice.

Plumbing Fix

Income Statement


Income

Plumbing Fees Received 139,800

Other Income


141,000

Less

Plumbing and Vehicle Expenses


Depreciation on van 8,400

Depreciation on plumbing equipment 5,600

Mobile Phone Expense 6,700

Plumbing Supplies Used 27,300

Wages - apprentice 26,500 83,200


Office expenses 6,100

Accountancy fees 3,200

Insurance 4,600 13,900

Finance Costs

Interest on Loan 800 800




Plumbing Fix


as at 31 March 2012

Current Assets

Petty Cash Imprest 200

Bank 7,300


Plumbing Supplies on Hand 4,400

Accrued Income 700

Prepayments 800


Non-current Assets

Investment

Shares in FCL 12,000




Total Assets 75,600

Less Liabilities

Current Liabilities


GST 4,300

Loan (8%, due July 2012) 10,000

Accrued Expenses 900



Net Assets $58,100

Equity







Van

Plumbing

Equipment Total

Cost 42,000 35,000 77,000


Carrying amount $18,900 $24,400 $43,300


• Van 20%

• Plumbing Equipment 5 years


Exercise Seven – page 35


similar.

90976 Questions

(a) Ranui Drycleaning’s factory lease paid in advance relates to next year so is not included in the income

statement this year. The factory lease paid in advance is subtracted from factory lease expense in the

trial balance so only this year’s lease expense is included in the income statement. The factory lease

prepaid is a current asset (prepayment) in the statement of financial position as it represents benefit of

using the factory to be received next year.

(b) Ranui Drycleaning’s loan is a non-current liability because it is not due to be repaid until 2015 – it will

take three more years to pay off the loan. The loan will take more than one year to pay off so it is a

non-current liability.

(c) (i) Non-cash items which may affect Ranui Drycleaning include - the ability of the drycleaning staff,

the quality of the drycleaning, the prompt service provided for people needing drycleaning

returned quickly, the location so it is easy for people to take their drycleaning

(ii) These non-cash items mean that Ranui Drycleaning may actually be worth more than the

statement of financial position suggests - if it was for sale there could be goodwill which would

add to the value of the business.

Ranui Drycleaning

Income Statement


Income

Drycleaning Revenue 205,000

Add Other Income

Interest Received 1,000

206,000

Less

Dry Cleaning and Delivery Expenses

Drycleaners' Wages 30,100

Electricity - Drycleaning 13,100

Delivery Van Expenses 14,900

Drycleaning Supplies 17,900

Factory lease expense 30,000

Depreciation on Delivery Van 7,200

Depreciation - Drycleaning Equipment 10,000 123,200


Accountancy Fees 5,800



Finance Costs

Interest on loan 3,000




Ranui Drycleaning


as at 31 March 2012

Current Assets

Petty Cash 100

Bank 21,200


Prepayments 2,500

Accrued Income 200


Non-current Assets

Investment

Term Investment (5% due 2014) 20,000


Total carrying amount (note 1) 124,800


Total assets 172,710

Less Liabilities

Current Liabilities


GST 3,000

Accrued Expenses 1,100 5,710


Loan (7.5%, due 2015) 40,000


Net Assets $127,000

Equity







Delivery

Van

Drycleaning

Equipment Total

Cost 36,000 120,000 156,000


Carrying amount $22,800 $102,000 $124,800


• Delivery Van 20%

• Drycleaning Equipment 9 years


Exercise Eight – page 36


similar.

90976 Questions

(a) One limitation of Fresh Clean’s Income Statement is that it doesn't show the quality of the cleaning that

Fresh Clean does. Another limitation is that depreciation is only the best estimate of the use of the

cleaning equipment and vehicle during the year meaning the profit is based to some extent on estimates

and judgements.

(b) The amount owing for the assistant’s wages is added to wages expense so it is included in the income

statement because it relates to this period/year – the assistant has already earned the wages. There is a

current liability accrued expense in the balance sheet representing an obligation to pay $540 to the

assistant for the wages owing from the bank in the future.

(c) The reporting period is necessary so financial statements to measure the financial performance and

financial position of Fresh Clean can be prepared on a regular/timely basis to allow for the measurement

of profit and for comparisons to be made from one year to the next.

Fresh Clean

Income Statement


Revenue

Cleaning Revenue 119,100

Other Income


119,520

Less

Cleaning and Vehicle Expenses

Cleaning Supplies Expense 29,400

Van Expenses 17,680

Assistant's Wages 28,080

Depreciation on Van 7,600

Depreciation - Cleaning Equipment 3,000 85,760




Donation to Red Cross 500

Accountancy Fee 1,250


Finance Costs

Interest on Loan 960 960




Fresh Clean


as at 31 March 2012

Current Assets


Bank 1,700

Cleaning Supplies on Hand 270

Accrued Income 240

Prepayments 420


Non-current Assets

Investment

Shares in TWL 6,000




Total Assets 52,010

Less Liabilities

Current Liabilities


GST 1,030


total current liabilities 9,620


Loan (8%, due July 2016) 12,000


Net Assets $30,390

Equity

Capital 50,300



$30,390



Van

Cleaning

Equipment Total

Cost 38,000 32,000 70,000


Carrying amount $19,000 $23,000 $42,000


Van 20% p.a.

Cleaning Equipment $3,000 p.a.


Exercise Nine – page 37


similar.

90976 Questions

(a) GST is classified as a current liability because Key Real Estate has to pay the GST to the

IRD/government within the next two months/year. Money will be used to pay the GST owing in the near

future, making this a current liability.

(b) One limitation of Key Real Estate’s Statement of Financial Position is that the land and buildings are

reported at their historical cost which is how much they cost to purchase. This amount may be out of

date if it is a number of years ago that the land and buildings were purchased. The current value of the

land and buildings is likely to have increased over time and therefore the value of the business as shown

in the Statement of Financial Position may also be dated. The real current value of the assets may be

higher meaning the equity would also be higher than that shown. Other limitations include any non-

money item related to an asset or liability such as the Statement of Financial Position does not show the

quality of the office equipment or vehicles.

(c) Rates and insurance paid in advance is subtracted from rates and insurance expense in the trial balance

and not included in the income statement as it relates to next year. There is a current asset prepayment in

the statement of financial position to indicate the benefit Key Real Estate will receive from the rates and

insurance, already paid, in the future.

(d) Commission received is income for Key Real Estate because the commission received increases the asset

bank so is an inflow of economic benefit increasing an asset. The commission received will increase the

profit which increases the equity of Key Real Estate. The commission received came from clients not

the owner.

Key Real Estate


Revenue

Commission Received 291,000

Other Income

Rent Received 36,000

327,000

Less

Selling and Vehicle Costs

Depreciation on Vehicles 6,200

Vehicle Expenses 14,000

Advertising 22,900

Agents Salaries 46,000

Agents Commission 30,000 119,100







Office Salary 27,000


Finance Costs





Key Real Estate


Current Assets

Bank 3,000


Prepayments 1,000


Non-current Assets




Less Liabilities

Current Liabilities

GST 3,750


Income in advance 4,000



Mortgage on buildings 100,000

(9%, due 2015)


Net assets $247,000

Equity







Land Buildings Vehicles

Office

Equipment Total

Cost 80,000 200,000 62,000 33,000 375,000

less Accumulated

Depreciation -7,000 -15,200 -7,800 -30,000

Carrying amount $80,000 $193,000 $46,800 $25,200 $345,000


Buildings 0.5% p.a. or $1,000 p.a.

Vehicles 10% p.a. or $6,200 p.a.

Office Equipment 10% p.a. or $2,600 p.a.


Exercise Ten – page 38


similar.

90976 questions

(a) Business Assist’s business car is an asset because it was purchased in the past by Business Assist. Only

Business Assist can use the car to visit clients to help them with their businesses/provide advice to clients

by visiting them. In the future Business Assist will use the car to visit clients and help them with their

businesses/provide them with advice which earns Business Assist income that brings money into the

bank account (economic benefit provided in the future).

(b) When Jess uses the business car for personal use, this is not a business expense as it is a transaction with

the owner Jess and expenses cannot be transactions with the owner. This means when Jess uses the

business car for her own use she has to record it as drawings and not as an expense of Business Assist.

The entity concept states that the business transactions and the owner’s personal transactions need to be

kept separate and this is done by recording personal use of business assets as drawings.

Business Assist


Revenue

Fees Received 236,000

Other Income


total income 257,000

Less Expenses

Service Delivery Expenses

Advisors’ Salaries 75,000

Advertising 6,000

Car expenses 14,000

Depreciation business car 5,500 100,500




Telephone Expense 12,800

Depreciation buildings 1,500

Depreciation office equipment 4,200 46,300

Finance Costs

Interest on Mortgage 9,000


Profit for the year 101,200


Business Assist


Current Assets

Petty Cash 200

GST 1,320

Prepayment 1,200

Accounts Receivable 4,600 7,320

Non-current Assets

Property, plant and equipment (Note 1)

Total Carrying Amount 258,800


Less Liabilities

Current Liabilities

Bank 3,000


Income in advance 2,000 5,920


Mortgage on Buildings 90,000


Net assets 170,200

Equity




Closing Capital 170,200


Note 1 Property, plant and equipment

Land Buildings

Office

Equipment

Business

Car Total

Cost 60,000 150,000 42,000 32,000 284,000

Accumulated Depreciation -11,500 -8,200 -5,500 -25,200

Carrying amount 60,000 138,500 33,800 26,500 258,800


Buildings 1% p.a.


Business Car 4 years


Trading Firms

Exercise Eleven – page 39

OPTIONAL

Huia Book Store General Journal

March 31 Prepayments 1,800


for rates and insurance paid in advance on balance day

Rent Received 2,200

Income in Advance 2,200

for rent received in advance on balance day

Office Salary 1,300


for office salary owing on balance day


Sales 11,800

GST 1,770

invoices on hand for sales

Purchases 7,800

GST 1,170


invoices on hand for purchases

Huia Book Store General Ledger

Rates and Insurance


Prepayments 1,800 8,600 Dr


Prepayments

30-Mar Rates and Insurance 1,800 1,800 Dr

Rent Received


Income in Advance 2,200 6,000 Cr


Income in Advance

30-Mar Rent Received 2,200 2,200 Cr

Office Salary




Accrued Expense

30-Mar Office Salary 1,300 1,300 Cr

Sales


30-Mar Accounts Receivable 11,800 482,800 Cr



Accounts Receivable

30-Mar Sales plus GST 13,570 13,570 Dr

GST



Accounts Payable 1,170 2,300 Cr

Purchases




Accounts Payable

30-Mar Purchases plus GST 8,970 8,970 Cr

Huia Book Store

Income Statement


Sales 482,800

Less Cost of Goods Sold

Opening Inventory 27,000

Plus Purchases 195,000

Goods Available for sale 222,000

Less Closing Inventory -24,000

Cost of Goods Sold 198,000

Gross Profit 284,800

Add Other Income

Rent Received 6,000

290,800

Distribution Costs

Advertising 9,800

Sales Salaries 62,000

Shop Electricity 7,600

Depreciation on Shop Fittings 4,800 84,200





Telephone and Fax Rental 8,400


Finance Costs





Huia Book Store


as at 31 March 2012

Current Assets

Bank 2,700


Inventory 24,000

Prepayments 1,800


Non-current Assets



Intangible Asset

Goodwill 12,000



Less Liabilities

Current Liabilities


GST 2,300





Mortgage (10%, due 2018) 125,000


Net assets $252,000

Equity







Shop

Fittings

Office

Equipment Buildings Total

Cost 48,000 26,000 280,000 354,000


Carrying amount $39,600 $18,100 $280,000 $337,700


• Shop Fittings 10%

• Office Equipment 15%


Exercise Twelve – page 40

OPTIONAL

Kea Scene General Journal

Mar 31 Accrued Income 400


for dividends owing on balance day

Mar 31 Depreciation on Office Equipment 3,000

Accumulated Depreciation - Office Equipment 3,000

to record depreciation on office equipment

Mar 31 Shop Fittings 10,000

GST 1,500


to record accounts payable for shop fittings on balance day

Kea Scene General Ledger

Dividends Received

30-Mar Balance 300 Cr

Accrued Income 400 700 Cr

(transfer to) Income Statement 700 0

Accrued Income

30-Mar Dividends received 400 400 Dr


30-Mar Accumulated depreciation on office equip. 3,000 3,000 Dr




Depreciation on Office Equipment 3,000 5,000 Cr

Shop Fittings



Accounts Payable

30-Mar Shop Fittings plus GST 11,500 11,500 Cr

GST


Accounts Payable 1,500 500 Cr

90976 Questions

(a) The historical cost measurement base is applied to Kea Scene’s purchase of the new shop fittings by

recording and reporting the shop fittings at their purchase price of $10,000.

(b) The new electronic advertising display board for the shop window is an asset because it was purchased

by Kea Scene (past transaction). Only Kea Scene can use the display board to advertise its products in

the shop window. Kea Scene also has control over the benefit of the display board by deciding what to

advertise and how to present the advertising. When the display board attractively advertises Kea Scene’s

products customers will notice when they pass the shop window and are more likely to come in and

purchase items from Kea Scene bringing cash into the bank account via the sale of the items (future

economic benefit from the display board).


(c) The different items of shop fittings purchased by Kea Scene are all assigned a dollar value which is what

Kea Scene paid for them. When recorded in the accounting records the different items’ dollar values are

added up to make one total for shop fittings. The dollar amount of the purchase will also be added to the

dollar amount of shop fittings already owned by Kea Scene. The different items are not recorded by

quantity for example but by the dollar amount of their cost so that different items can be added together

via the unit common to them – dollars. This is the monetary measurement notion that in accounting we

record everything in dollar terms as dollars (New Zealand dollars in this case) is the unit common to

them all.

Kea Scene

Income Statement


Sales 320,000

Less Sales Returns -3,000

Net Sales 317,000




Less Purchase returns -5,000 175,000

Freight In 2000





Add Other Income


138,700

Distribution Costs

Wages- shop 30,000








Kea Scene


as at 31 March 2012

Current Assets

Bank 4,300

Inventory 18,000

Accrued Income 400


Non-current Assets

Investment

Shares in Solo Ltd 7,000





Less Liabilities

Current Liabilities


GST 500



Net assets $118,700

Equity







Shop Fittings

Office

Equipment Total

Cost 90,000 30,000 120,000


Carrying amount $76,000 $25,000 $101,000


• Shop Fittings 10%

• Office Equipment 10%


Exercise Thirteen – page 41

OPTIONAL accounting entries not provided. Refer to Exercises Eleven and Twelve answers for similar.

Tui Music


Sales 437,500




Less Purchase Returns -3,000 218,800

Freight inwards 9,700

Customs duty 8,500





Add Other Income



210,400

Distribution Costs

Advertising 6,300



Depreciation - Shop Fittings 4,500 70,600






Telephone expense 3,500 45,300

Financial Expenses




90976 Questions

(a) Rent received in advance by Tui Music is an example of accrual basis as the amount received in advance

is not included in the income statement as it belongs to next year. The amount of rent received in

advance is a current liability in the statement of financial position as Tui Music owes its tenant the right

to use the rented space in the future.

(b) Dividends received owing is an asset of Tui Music as the dividends have been declared (past event), only

Tui Music can benefit from the dividends when they are paid and in the future the cash will come into

Tui Music’s bank account (future economic benefit).

(c) Depreciation on shop fittings is an expense as it represents a reduction in the asset shop fittings that

decreases equity by decreasing profit. Depreciation is not drawings of Tui Music’s owner, rather it

recognises the use of the future economic benefit contained in the shop fittings in each year they are used

by Tui Music.


Tui Music


Current Assets

GST 1,700


Inventory 27,000

Prepayments 1,600

Accrued Income 300 39,800

Total current assets

Non-current Assets

Investments

Shares in AMI 15,000





Less Liabilities

Current Liabilities


Bank 2,800





Mortgage 75,000


Net assets $227,000

Equity





Note to the Statement Financial Position


Land Buildings

Shop

Fittings Total

Cost 70,000 160,000 50,000 280,000


Carrying amount $70,000 $153,600 $43,500 $267,100


• Buildings 1.5% p.a.

• Shop Fittings $4,500 p.a.


Exercise Fourteen – page 42


90976 answers

(a) The financial statements of Village Sports only include the assets, liabilities, incomes and expenses of

the business Village Sports. They do not include Stuart’s personal assets, liabilities, incomes or

expenses. When Stuart uses business assets for himself it is recorded as drawings to keep his personal

transactions separate to the business transactions of Village Sports.

(b) Stuart took a hockey stick home for his daughter’s birthday present. (Note any sport example and any

relation or friend or other reference to personal use – answer must have a specific sport example, be non-

cash and clearly indicate personal use by Stuart.)

(c) Even though the Shares in JHL have a current market value of $5,800 they are recorded at their original

purchase cost of $5,000 in the accounting records. The Shares in JHL are reported in the statement of

financial position at their purchase cost of $5,000, not their current market value of $5,800.

Village Sports

Income Statement


Sales 202,100


Net Sales 199,100








Add Other Income


125,500

Distribution Costs

Advertising 7,000

Sales Staff Wages 28,300




Insurance 3,600


Finance Costs

Interest on Loan 1,500




Village Sports


as at 31 March 2012

Current Assets

Bank 5,000


Inventory 25,000

Prepayments 400

Accrued Income 100


Non-current Assets

Investments

Shares in JHL 5,000




Total Assets 98,500

Less Liabilities

Current Liabilities


GST 2,200

Accrued Expenses 1,300 8,500


Loan (10%, due 2014) 15,000


Net assets $75,000

Equity







Shop

Fittings

Office

Equipment Total

Cost 52,000 24,000 76,000


Carrying amount $43,400 $18,600 $62,000


• Shop Fittings 5% p.a.

• Office Equipment 10% p.a.


Exercise Fifteen – page 43


Handy Hardware

Income Statement


Sales 281,000

Less Sales Returns -3,000 278,000





Freight In 2,000





Add Other Income

Interest Received 700


177,400

Distribution Costs

Advertising 7,000


Delivery Expenses 4,600


Van Expenses 8,100

Depreciation - Delivery Van 7,600 67,500


Office Wages 16,000

Depreciation on Equipment and Fittings 7,000

Rates and Insurance 4,500 27,500

Finance Costs





Handy Hardware


Current Assets


Inventory 23,000

Prepayments 1,000

Accrued Income 200


Non-current Assets

Investments

Term Investment 14,000


Total Carrying Amount 180,600



Less Liabilities

Current Liabilities

Bank Overdraft 1,600


GST 3,000





Mortgage (10%, due 2016) 52,000


Net assets $160,700

Equity







Land and

Buildings

Delivery

Van

Equipment

and Fittings Total

Cost 82,000 38,000 79,000 199,000


Carrying amount $82,000 $28,600 $70,000 $180,600


• Delivery Van 20% p.a.

• Equipment and Fittings $7,000 p.a.


Exercise Sixteen – page 44


Whatipu Organics

Income Statement


Sales 462,000




Plus Freight inwards 4,800





Add Other Income


290,900

Distribution Costs

Advertising 14,800


Wages- shop 72,000


Depreciation on Fittings and Equipment 7,500

Depreciation on Buildings 3,675 128,675


Wages - Office 28,000



Depreciation on Fittings and Equipment 2,500

Depreciation on Buildings 1,225 49,625

Finance Costs

Interest on mortgage 9,600 9,600




Whatipu Organics


as at 31 March 2012

Current Assets


Inventory 42,000

Prepayments 3,200


Non-current Assets

Property, plant and equipment (note 1)

Carrying Amount 390,600


Less Liabilities

Current Liabilities

Bank 3,400


GST 2,750


Accrued Expenses 800 35,150


Mortgage (8%, due 2018) 120,000


Net assets $309,400

Equity







Land Buildings

Fittings &

Equipment Total

Cost 90,000 245,000 80,000 415,000


Carrying amount $90,000 $235,100 $65,500 $390,600


• Buildings 2% p.a.

• Fittings & Equipment 12.5% p.a.


Exercise Seventeen


90976 answers

Creative Fun sells a range of fun puzzles, board games, toys and models.

(a) Puzzles imported from China are recorded in New Zealand dollars in the accounting records so they can

be added to puzzles and other inventory items using the same unit of currency - $NZ. The notion of

monetary measurement means all transactions, assets, liabilities, incomes and expenses are recorded in

dollar terms in the same (New Zealand) currency. This is the reporting currency for Creative Fun.

(b) The reporting entity is applied to Naomi, the owner of Creative Fun, taking a board game home for her

niece’s birthday by recording this as drawings. This is not a business expense of Creative Fun as it is a

transaction with the owner, Naomi, meaning it must be kept separate from business transactions by

recording it as drawings.

(c) Creative Fun’s financial statements are prepared on the assumption that Naomi will continue operating

Creative Fun as a shop selling fun puzzles, board games, toys and models into the foreseeable future.

Naomi does not know of any reason to stop trading or cut back her operations and she doesn’t have any

need to.

Creative Fun

Income Statement


Sales 242,000








Add Other Income


153,600

Distribution Expenses

Advertising 8,000

Depreciation - shop fittings 4,300

Shop Rent 27,500

Sales Salaries 38,100 77,900




Insurance 6,800

Depreciation - office equipment 5,000 18,100

Financial Expenses

Interest on loan 900 900




Creative Fun

Balance Sheet

as at 31 March 2012

Current Assets

Cash on hand 100

Bank 2,100


Inventory 23,000

Prepayments 1,400

Accrued Income 400


Non-current Assets

Investments

Shares in WEL 9,000





Less Liabilities

Current Liabilities


GST 2,150

Loan (7.5% due October 2012) 12,000




Net Assets $79,700

Equity


Plus profit for the year 56,700





Office

Equipment

Shop

Fittings Total

Cost 27,000 43,000 70,000


Carrying amount $19,500 $33,700 $53,200


• Office Equipment 4 years



Exercise Eighteen – page 46


90976 answers

(a) Sun glasses sales for cash is income because it represents an inflow of economic benefit in the form of

cash coming into Beach Stuff’s bank account asset. The sunglass sales increase which increases profit

and this increases equity. The sales of sunglasses are to customers not the owner so this is not a

transaction with Matt/not Matt’s contribution.

(b) Shop rent paid is an expense as it represents an outflow of economic benefit it the form of cash going

out of Beach Stuff’s bank account asset. The shop rent expense decreases profit which decreases equity.

The shop rent is paid to the landlord, not to Matt so it is not Matt’s drawings/not a transaction with Matt

(the owner).

(c) The computer included in office equipment is an asset as it was purchased by Beach Stuff in the past.

Only Beach Stuff can use the computer for its benefit including maintaining a website, a Facebook

presence and sending emails to customers. This helps Beach Stuff’s presence in the market place to be

known to a wider audience and will encourage customers to come and buy stuff in the future – thus

bringing economic benefit in the form of cash from the sales.

(d) The loan is a liability as the money was received by Beach Stuff in the past. Beach Stuff is currently

obliged to pay back the loan (to the bank). When Beach Stuff repays the loan there will be a decrease in

cash from the asset bank decreasing economic benefit.

(e) I classified the loan as a current liability. At 31 March the loan is due in five months time (end of

August) so it will have to be paid back within the next year. Amounts owing that have to be paid back

in less than one year are classified as current liabilities.

Beach Stuff


Sales 349,000


348,000









Add Other Income

Interest Received 200

114,200

Distribution Costs

Advertising 3,600



Depreciation - Shop Fittings 3,600 40,100



Rent 6,000

Insurance 1,000




Financial Expenses




Beach Stuff


Current Assets

Bank 2,300


Inventory 40,000

GST 1,100

Prepayments 1,000


Non-current Assets

Investments

Term Investment 4,000




Total assets 97,350

Less Liabilities

Current Liabilities



Loan (10%, due August 2012) 12,000



Net assets $81,600

Equity







Office

Equipment

Shop

Fittings Total

Cost 20,000 36,000 56,000


Carrying amount $12,500 $28,400 $40,900


• Office Equipment 12.5% p.a.


CASH BUDGETS

Notes, Examples and Exercises

Level 1 Accounting Analysis and Interpretation – Notes, Example and Exercise Answers Page 53

Class example – page 51

Lots of Pots

Cash budget for April 2012

Estimated cash receipts

Cash sales 26,000

Sale of equipment 500

Total estimated cash receipts 26,500

Less

Estimated cash payments

Wages 5,000

Purchases 8,000

Electricity 600

Telephone 200

New Equipment 7,500


Loan Repayments 1,000

Total estimated cash payments 22,600

Surplus of cash 3,900

Add bank balance at beginning 1,000

Estimated bank balance at the end 4,900

Exercise Nineteen – page 52

(a)

Garden Tidy (b) Mati might not be concerned with

his bank overdraft as he only has

two more payments to make on

the van then he will not be paying

out the $11,000 each month. His

cash from sales covers his

expenses and drawings. However

Mati will need to have some

saving from this to make the next

two payments on the van. He

may have to watch his cash

drawings until the van is paid off.

Cash Budget for May 2012


Cash Sales 4,500

Cash from customers 9,400

Sale of old van 7,000 20,900

Less


Wages 3,700

Van Expenses 2,300

New Van 11,000

Telephone 400

Insurance 700

Drawings 4,000 22,100

Deficit in cash -1,200

Add bank balance at beginning -1,300

Estimated bank balance at end -2,500


Exercise Twenty – page 53

Crazy About Hockey

Cash budget

for two months ended 31 July 2012


hockey sticks 16,000

hockey gear 11,000

hockey souvenirs 2,000

interest received 500 29,500

Less


hockey sticks 6,000

hockey gear 4,000

new shop fittings 8,000

drawings 3,000

cell phone expense 1,700

electricity 1,000

wages 4,000

bank fees 200 27,900

Cash surplus 1,600


Estimated ending bank balance 2,800

AS 90976 questions

(a) Explain why Stu the owner of Crazy About Hockey is interested in the cash budget.

Stu is interested in Crazy About Hockey’s cash budget because he can use it to see if he can afford the

new shop fittings for example. This cash budget shows he is expecting to receive sufficient cash from his

sales to cover his day to day expenses and purchases and have enough to pay $8,000 for the new shop

fittings. He has also estimated that he can pay himself (drawings) $3,000 so his cash budget helps him

make decisions about purchasing new assets and about his own drawings

(b) Explain why you have not included the depreciation on fittings and equipment in your cash budget?

(Check you didn’t!)

Depreciation on fittings and equipment is a non-cash transfer of the cost of the fittings and equipment. It

does not involve any cash flow so it is not recorded in a cash budget which is only concerned with cash

coming into and going out of the bank account.

(c) Explain how hockey gear Stu takes for personal use will be recorded and reported according to the

notion of accounting entity.

Hockey gear Stu takes for personal use will be recorded and reported as drawings – a direct reduction

in equity. This is to keep the transactions of Crazy About Hockey separate from Stu’s personal

transactions which is required based on the notion of accounting entity. Stu’s personal use of hockey

gear is not an expense of Crazy About Hockey as it is a transaction with the owner, Stu


Exercise Twenty One – page 54

Orange Electronics

Cash Budget

for the quarter ended 30 September 2012


cash sales 232,000


old shop fittings 2,100

277,300

Less


Wages and expenses 109,000

Drawings 14,700


New shop fittings 27,000

loan repayments 8,500

telephone 9,400

electricity 12,700

238,300


Add bank balance at beginning -600

Estimated bank balance at end 38,400

Exercise Twenty Two – page 55

(a) Fergusson Lawnmowing (b) To ensure he does not have an

overdraft at the end of the

year Fergusson could reduce

his personal expenses. He is

planning to take $12,000 in

drawings and his estimated

overdraft as a result is $6,000.

If he was to halve his

drawings he would have no

estimated overdraft at the end

of the year. He could also

consider whether he needs a

new trailer or not or whether

he could negotiate less

repayments on his loan but

these are not as simple as

cutting his estimated

drawings.

Cash Budget

for the year ended 30 June 2012


mowing lawns 40,000

Less



Lawnmower repairs 2,000

Tip fees 7,000

New trailer 3,000

New lawn mower 1,000

Drawings 12,000

GST to IRD 1,600

Bank fees 600

insurance 1,300

Loan 5,000 46,500

Deficit of cash -6,500

Add bank balance at beginning 500

Estimated bank balance at end -6,000


Exercise Twenty Three – page 55

Computer Wise

Cash Budget

for the month of August 2012


owner's contribution (Capital) 5,000

computer sales 15,800

cash from customers 7,500

repairs to computers 7,400 35,700

Less


Loan repayments 1,800

new fittings and shelves 1,400

computer components 7,900

assistant's wages 4,000

drawings 2,500

rent of premises 6,000

GST to IRD 2,100

telephone and electricity 3,100

28,800

Cash surplus 6,900

Exercise Twenty Four – page 56

(a) Ready Plumbing and Electrical (b) The purpose of preparing a cash budget is to

help the business owner see if expected cash

inflows will exceed expected cash outflows in

the budget period. If a deficit is expected the

owner can organize in advance to have a bank

overdraft which will be on better terms than if

it is not planned. The cash budget may help

the owner to plan when to make purchases of

new assets or when to keep drawings in check

so cash problems are avoided.

Cash budget

for the two months ended 31 July 2014


plumbing work 13,900

electrical work 17,000

owner contribution

(capital) 3,000 33,900


plumbing supplies 9,200

electrical supplies 10,700

new tools 4,000 (c) Under the heading estimated cash receipts is

included all cash flows into the bank account

during the budget period. The cash flows can

come from normal service income from

electrical or plumbing work or from the owner

or from selling an asset or borrowing money.

vehicle expenses 2,300

wages 3,200

insurance 500

cell phone 1,800

loan 1,000

interest on loan 300 (d) Under the heading estimated cash payments is

included all the cash outflows from the bank

account during the budget period. The cash

outflows can be for expenses, purchases of

supplies, drawings, purchasing an asset or

paying off a loan or other liability.

bank fees 100 33,100

Surplus of cash 800

Add bank balance at beginning -1,220

Estimated ending bank balance -420


Exercise Twenty Five – page 57

High Time

Cash Budget

for two months ended 31 July 2012


Mountain tour revenue 27,000

Mountain gear sales 21,000

Mountain transport revenue 14,000

total estimated receipts 62,000

Less



Tour expenses 13,000

Deposit on new vehicle 7,000

Drawings 4,000

Gear purchases 9,700

telephone 1,000

wages 8,000

bank fees 200

Total estimated payments 51,200




Exercise Twenty Six – page 57

Stoneware

Cash Budget

for the quarter ended 31 December 2012


cash sales 74,000


dividends received 2,300

van sold 6,000



cash purchases 42,000

new van 14,100

loan 4,000

telephone 1,500

electricity 1,200

insurance 1,800

wages 15,000

drawings 12,000

total estimated payments 91,600





Exercise Twenty Seven – page 58

Kayak World

Cash Budget

for the month of August 2012


owner's contribution (capital) 5,000


kayak sales 27,200

kayak hire 7,500


Less


Loan 1,400

van and trailer deposit 10,400

purchase of kayaks 17,800

assistant's wages 3,500

drawings 400

rent of premises 9,000

GST paid to the IRD 4,200

general expenses 7,700


Deficit of cash -5,200

Exercise Twenty Eight – page 58

Bright Cleaners

Cash Budget

for the year ended June 2012


Cleaning fees 4,800

sale of vacuum cleaner 100

Loan received 8,000


Less


wages 1,500

telephone 300

cleaning supplies 600

vehicle expenses 700

office expenses 100

new vacuum cleaner 200

drawings 1,200



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