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HI5001
ACCOUNTING FOR BUSINESS DECISIONS
TUTORIAL ASSIGNMENT
TRIMESTER 2, 2021

Assessment Weight: 50 total marks

Instructions:
 All questions must be answered in this paper.
 Completed answers must be submitted to Blackboard by the published due date
and time.

Please strictly follow the submission instructions posted in the announcement

Purpose:
This assessment consists of six (6) questions and is designed to assess your level of
knowledge of the key topics covered in this unit

HI5001S Tutorial T2 2021

Question 1 (8 marks)
Phoenix Ltd’s sells silk scarfs. It uses the Periodic Inventory System and prepares financial
statements at the end of each month. The following information is provided in relation to its
inventory at the beginning of the month November 2021 and all purchases during the month.
Ignore GST.
Units Total cost ($)
1/11 Beginning inventory 1105 22,100
10/11 Purchase 1300 26,650
20/11 Purchase 1235 25,935
25/11 Purchase 1053 23,166
Totals 4,693 $97,851

A physical count at the end of the month verified that 1,200 scarfs were on hand.

Required:
A. Determine the cost of the ending inventory and the cost of sales for the month of
November, using the Average Costing method. (2 marks)
Average cost per unit = 97,851/4693
= $20.85 /units
Ending inventory = 1200 × $20.85
= $25,020
Cost of sales = (4693 – 1200) × $20.85
= $72,829.05

B. Assume that on 5 November, inventory was sold for $2,800 on credit. What would be the
journal entry/entries to record the sales transaction? What would be the entry/entries to
record the purchase of inventory on 10 November? (2 marks)
Date Account title and description Debit Credit
11/5 Purchases: silk scarfs $2,800
Sales revenue $2,800
(To recognize sales of inventory on credit)

HI5001S Tutorial T2 2021

 Date Account title and description Debit Credit
11/10 Purchases $26,650
Accounts Payable $26,650
(Purchased inventory)

C. What would be the entries for the two transactions in requirement B if the business had used
the perpetual inventory system? (2 marks)
Date Account title and description Debit Credit
11/5 Accounts receivable $2,800
Sales revenue $2,800

Cost of goods sold xxx

Inventory xxxx
(to record removal of inventory)
(could not calculate the cost of goods sold with from the information provided: That is, not
number of units solds or their costs)

Date Account title and description Debit Credit

11/10 Inventory $26,650
Accounts payable $26,650
(Purchased inventory)

D. Assume that the perpetual inventory system is used, the entity’s inventory records show
that 1,300 scarfs should be on hand. Given the physical count of inventory mentioned in the
question is accurate, what accounting adjustment would be needed (assuming FIFO method
is used) and what might the need for this adjustment indicate about the business’s
operations? (2 marks)

Even though perpetual systems continually track the flow of inventory, Phoenix Ltd must still
perform periodic physical inventory counts to account for the spoilage of inventory. The
following adjustement should be made.

entity’s inventory records = 1300

HI5001S Tutorial T2 2021

physical count of inventory = 1200
difference = 1000
Loss on Inventory Write-Down $20,850
Inventory $20,850

Question 2 (10 marks)

Safe Security Doors Ltd. undertakes bank reconciliation at the end of each month before
preparing its monthly financial statements. The following information is produced by comparing
the cash deposits and withdrawals recorded by the business in October with their bank
statement received for the month ending 31 October 2021:

a. The bank statement for the month of October shows a credit balance of $157,150 as at
31 October 2021.
b. Safe Security Doors Ltd.’s cash at bank ledger account has a debit balance of $152,922 at
31 October 2021.
c. Bank statement shows a direct electronic transfer from a customer of $16,590 that has
not been recorded by the entity.
d. $10,990 cash received from a customer Adam on 30 October (invoice no. 511) and
$15,463 cash received from another customer Brian on 31 October (invoice no. 513) are
recorded in the entity’s accounting record but are not shown in the bank statement.
e. Cheque no. 412 and 413 are not included in the bank statement.
# 412 $ 11,263
# 413 $ 9,730
f. Safe Security Doors Ltd. incorrectly recorded a payment for supplies expenses as $3,100
in its record. The correct amount for the cheque issued is $4,400 instead.
g. A dishonoured cheque written by a customer Cindy Davis, $5,700.
h. Interest earned on bank account is $119
i. Bank deducted transaction fees of $21 for an overseas transfer by the entity.

The business doesn’t use special journals for record keeping. All transactions are recorded in the
general journal and posted to ledgers immediately.

HI5001S Tutorial T2 2021

Required:
A. Prepare a bank reconciliation statement for Safe Security Doors Ltd as at 31 October 2021.
You should show both the adjusted cash balance per book and per bank and also indicate
clearly whether the balance is a debit or credit. (7 marks)

Bank reconciliation
Particulars Cr Dr
Balance as per the bank statement $157,150
Add:
Cash payments invoice no. 511 (Customer Adam) $10,990
invoice no. 513 (Customer Brian) $15,463
Unpresented cheques: invoice no. 412 $11,263
invoice no. 413 $9,730
Bank charges unrecorded $21
Correct record $4,400 $51867
Adjusted cash balance per bank $209,017
Less:
Direct electronic transfer $16,590
Incorrect record $3,100
Bank interest received but unrecorded in the book $119
Dishonoured cheque $5,700 $25,509
Adjusted cash balance per book $183508
$152,922
Bank Reconciliation statement
Cash balance per bank statement $67860.00
Add: Mistakenly check cleared $ 4700.00
Less: Outstanding check $ 1260.00
Adjusted cash balance as per bank $68,21.00
Balance as per cash book $68,352.00
Add: interest earned $ 310.00
Less: Safety deposit box $ 590.00
Less: Printed check fees $ 1140.00
Adjusted cash balance as per book $79210.00

HI5001S Tutorial T2 2021

B. Discuss three (3) internal control principles for cash payments. Provide corresponding
examples of procedures that are applicable to each principle. (3 marks)
1. Establishment of Responsibility
Internal control is primarily reliant on delegating authority to specific persons. When just one
person is in charge of a job, control is most effective. Authorizing and authorising transactions is a
part of creating accountability.
2. Segregation of Duties
In an internal control system, it is critical that roles are clearly defined and separated. A common
argument in favour of task separation is that the work of one employee should provide a sound
foundation for evaluating the work of another employee, thereby eliminating the need for
double-counting time and effort.
3. Physical, mechanical, and electronic controls
Physical controls are primarily concerned with asset protection. Mechanical and electronic
controls are also concerned with asset protection. Mechanical and electronic controls help to
protect assets while also improving the reliability and accuracy of financial accounting records
and records. Physical, mechanical, and electrical controls must all be used in conjunction with
one another.

Question 3 (10 marks)

AU Removals’ financial year ends on 31 December each year. On 1 January 2019, AU Removals
purchased a truck for $144,000. You are the accountant of the business and you have estimated
that the truck is to last 10 years and to have 6,000 residual value at that point. As per the
business plan, the truck can be used to drive 315,000 kilometres over the 10 years, with per-year
projections of 18,000 km, 24,000 km, 21,000 km, respectively over the first three years.

Required:
A. Calculate the accumulated depreciation balance at the end of the second year using each of
the following depreciation bases. Show your workings. Your calculations should be rounded
to the nearest whole number dollar amount. (6 marks)
a. straight-line
Year Book Value Depreciation Accumulated Book Value
Year Start Expense Depreciation Year End
2019 $144,000 $13,800.00 $13,800 $130,200
2020 $130,200 $13,800.00 $27,600 $116,400

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 b. diminishing balance (27 per cent rate)
Year Beginning Depreciation Depreciation Accumulated Ending
Book Value Percent Amount Depreciation Book Value
Amount
2019 $144,000 2.70% $3,888 $3,888 $140,112
2020 $140,112 2.70% $3,783 $7,671 $136,329

c. units-of-production.
Year Depreciation per Depreciation for Accumulated Depreciable Base
Unit Period Depreciation
Amount
2019 $0.44 $7,920.00 $7,920.00 $138,000.00
$0.42 $10,080.00 $18,000 $132,000.00

B. Discuss the nature of depreciation. (2 marks)

Noncurrent, nonmonetary assets are purchased in order to accumulate future advantages. With
the exception of site property, all of these assets eventually lose their value when employed to
create money. Depreciation is the technique of allocating the cost of plant and equipment to the
time during which they create revenue for the company. Depletion refers to the process of
dispersing the cost of natural resources, whereas amortisation refers to the process of assigning
the cost of intangible assets.
C. Suppose that, on 31 December 2020, the truck is sold for $125,000 in cash. Assuming the
straight-line method is used, record the transaction in the general journal. (2 marks)

Cr Dr
Depreciation expense $27,600
Accumulated depreciation $27,600

HI5001S Tutorial T2 2021

Question 4 (8 marks)
The following data is extracted from the financial records of AU Tiles. The data is in relation to the
financial year ending 31 December 2018 and 31 December 2019.
31 December 2018 31 December 2019
$ $
Cash at bank 17,600 20,800
Inventories 1,046,400 1,209,600
Accounts receivable 810,000 832,000
Bills receivable 13,600 15,680
Bad debts written off during the year 9,920 -
Sales revenue for the year 2,912,000 4,160,000
Discount allowed 5,120 4,480

The business uses the Income Statement method to estimate its’ doubtful debts each year. It has
been estimated that 1% of the sales revenue of the year will be the bad debts expense for the
year. At the beginning of Year 2018, the Allowance for Doubtful Debts account has a credit
balance of $19,000.

Required:
A. Determine the amounts of the following accounts. Show your workings for each item. (2
marks)
a) Bad debts expenses for the year ending 31 December 2018
= sales revenue × estimated percentage
= $2,912,000 × 0.01
= $29,120
b) Allowance for doubtful debts at the end of year 2018
Bad dept expences = allowance for doubtful depts.
Therefore; Allowance for doubtful debts at the end of year 2018 = $29,120
c) Bad expenses for the year ending 31 December 2019
sales revenue × estimated percentage
= $4,160,000 × 0.01
= $416,000
d) Allowance for doubtful debts at the end of year 2019
Bad dept expences = allowance for doubtful depts.

HI5001S Tutorial T2 2021

 Therefore; Allowance for doubtful debts at the end of year 2019 = $416,000
B. Calculate the receivable turnover ratio for year 2019 and comment on the ratio. (2 marks)
Receivables turnover ratio = annual credit sales / Average accounts receivable
= 4,160,000 /( 810,000 + 832,000)/2
= 4,160,000/821,000
= 9.26
C. Discuss the differences between ageing method and percentage of net credit sales method.
(2 marks)
Assessing how much of an allowance to set aside for questionable debts is appropriate can
be time consuming and complex, requiring experts with specialised knowledge. Accountants
can use either of the two methods listed below to determine sales volume.
With this method, a high percentage relationship between net credit sales and bad debts is
attempted to be predicted.
By using the ageing method, outstanding account receivable balances are classified and
customer credit periods are analysed. The focus of this approach is on financial statement
analysis.
D. Using the information provided in the question and your calculation from requirement A,
prepare the Current Assets section of the balance sheet as at 31 December 2019. (2 marks)

Cash $20,800 Accounts payable $15,680

Accounts receivable 32,000 Bad debt expences $416,000
Inventory 1,209,600 Discount allowed $4,480
sales 4,160,000

Question 5 (4 marks)
Apply the definition and recognition criteria of liabilities, discuss why, or why not, each of the
following items is recognised as a liability in the financial statement.
a) Provision for doubtful debts
It is considered a liability because to the company, the loss from the debt is lickly to occur
b) Provision for warranty
Provision fro warranty is a liability because it creates responsibility to fix or replace a

HI5001S Tutorial T2 2021

 defective goods creates a liability at the time the product is sold, as the firm incurs liability at
that point.
c) Pre-collected fees from customer
c) Pre-collected fees from customer are liabilities since they represents unearned income and
goods or services due to a client.
d) GST receivable
When a GST relevant sale is made, whether in cash or in credit, the GST becomes an
accumulated current liability because they have to be submitted to the government.
e) GST collection
This is also a liability because when a business has a purchase obligation to one of its
suppliers, a current liability is recorded and then forwarded to the government.
f) A disputable lawsuit
It is a contigent liability because the loss or gain from the lawsuit depends on the rulling by a
court.
g) 10-years Mortgage
A home loan is a liability for a borrower because the bank that has lend money for the
purchase a home expects it to b paid by the borrower after some time.
h) Notes payable
It is an obligation for a borrower since it is a written commitment to repay the lender an
amount of money

Question 6 (10 marks)

Tidy & Cleaning Services provides cleaning and housekeeping services to both households and
businesses. The entity prepares financial statements at the end of each month. The following
information is provided in relation to the business’s operations in the month of August 2021.

1. On 1 August, a 5-month rent of $35,000 is paid for the period from 1 August to 31 December
2021.
2. On 2 August, the business signed an advertising agreement, that costs $4,500 for three (3)
months plus $1 per each click on their advertisements, with an online website to promote its
business for the next three months. The agreement stated $1,500 per month will need to be
paid in advance at the beginning of each month, $1 per each click on their ads will be paid at
the end of the 3rd month agreement. A $1,500 advance was paid on 2 August.
3. On 10 August, Marco Motel paid the business $35,000 in advance to do the cleaning of their
HI5001S Tutorial T2 2021
 guest rooms for the next five months. By the end of August, 20% of the cleaning work has
been completed.
4. Cleaning supplies account had a debit balance of $550 at the beginning of the month. On 20
August, the business purchased $5,200 cleanings supplies. At the end of the month, a
physical count shows that $1,250 of supplies are still on hand.
5. The business has 15 part-time employees who each earn $210 per day. They all worked 20
days in the month of August. They were paid for the 20 days on 31 August.
6. A 1-year insurance policy of $4,200 was purchased on 1 January 2021.

Required:
A. Record the transactions occurred in the month of August in the general journal. (5 marks)
General ledger
Ref Date Description Cr Dr
1 August Rent expences; 5-month rent $35,000
2 August Marketing expences: advertising agreement $4,500
2 August Advance for the one clik payments $1,500
10 August Advance for a cleaning job $35,000
20 August Supply Purchases $5,200
31 August Wages $63,000

B. Prepare the necessary adjusting entries at the end of the month. (5 marks)

Description Dr Cr
5-month rent paid in advance $28,000
$28,000
Marketing expences: Advance for the one clik $1,500
payments
$1,500
Advance for a cleaning job 80% not done $28,000
$28,000

HI5001S Tutorial T2 2021

 END OF TUTORIAL ASSIGNMENT

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HI5001S Tutorial T2 2021