2018 ACC1AMD Assignment 1 - Monopoly Game and journal entries PDF

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Summary

This is the first assignment for Accounting for Management Decision. This assignment include multiple questions and translation of monopoly game results into accounting journals. We achieved high marks....

Description

Accounting for Management Decision (ACCAMD1) Group Assignment 1

Date: 11 April 2018

GROUP NUMBER: 5 STUDENT NAME: STUDENT ID:

Table of Contents 1.

Question 1...........................................................................................................................1

1.1.

Chart of Accounts............................................................................................................1

1.2.

Wealthlab Results (Player 1)...........................................................................................1

1.2.1.

Journal entries.............................................................................................................1

1.2.2.

Income Statement.......................................................................................................3

1.2.3.

Business Performance Analysis...................................................................................3

1.3.

Treasure Hunt Results (Player 2).....................................................................................4

1.3.1.

Journal entries.............................................................................................................4

1.3.2.

Income Statement.......................................................................................................5

1.3.3.

Business Performance Analysis...................................................................................6

1.4.

Bruch-Monopoly Results (Player 3).................................................................................7

1.4.1.

Journal entries.............................................................................................................7

1.4.2.

Income Statement.......................................................................................................8

1.4.3.

Business Performance Analysis...................................................................................8

2.

Question 2...........................................................................................................................9

2.1.

Question 2 a....................................................................................................................9

2.2.

Question 2 b....................................................................................................................9

2.3.

Question 2 c....................................................................................................................9

2.4.

Question 2 d....................................................................................................................9

2.5.

Question 2 e....................................................................................................................9

3.

Question 3.........................................................................................................................10

1. Question 1 Our group played MONOPOLY The World Online Edition. We played the game using the modified rules stated in the assignment and no additional rules were required. The game had four players including three players from our group and one computer player. Each player began with 15 million dollars as capital and played two rounds of the game. 1.1. Chart of Accounts The following chart of accounts was used No. 100 110 300 400 410 420 430 500 550

Account Name Cash Property Capital Rent Revenue Interest Revenue Pass Go Revenue Inherit Revenue Tax Expense Rent Expense

Type Asset Asset Equity Revenue Revenue Revenue Revenue Expense Expense

1.2. Wealthlab Results (Player 1) 1.2.1. Journal entries Date Refer to Turn #1 Refer to Turn #3 Refer to Turn #4 Refer to Turn #5 Refer to Turn #6 Refer to Turn #7

Account (narration) Cash Capital Invested cash in business Property Cash Bought Shanghai Property Cash Bought Athens Property Cash Bought Belgrade Property Cash Bought Riga Cash Pass Go Revenue Received Pass Go income

Account #

Debit

100 300

$’000 $’000 15,000 15,000

110 100

1,800

110 100

2,400

110 100

3,000

110 100

3,500

420 100

2,000

Credit

1,800

2,400

3,000

3,500

2,000 1

Refer to Turn #8 Refer to Turn #9 Refer to Turn #10 Refer to Turn#11

Cash Interest Revenue Received bank interest Rent expense Cash Paid rent Property Cash Bought Kyiv Cash Pass Go Revenue Received Pass Go income

410 100

50

550 100

60

110 100

1,400

420 100

2,000

50

60

1,400

2,000

2

1.2.2. Income Statement Wealthlab Statement of Profit or Loss For the month ended 30 April 2018 $’000 Revenues: Pass go revenue Other Revenue Interest revenue Expenses: Rent expense Total expense

$’000 4,000 50 60

Profit

(60) $3,990

Reconciliation: o Cash on hand at the beginning of the game = $15,000,000 o Cash on hand at the end of the game = $6,890,000 o Property purchased = $12,100,000 o Revenue = $4,050,000 o Expense = $60,000 o Balance = 15,000,000 - 12,100,000 + 4,050,000 – 60,000 = 6,890,000 (matches Cash on hand at the end of the game) 1.2.3. Business Performance Analysis Wealthlab’ had made a total profit of $3.99M with $15M of invested capital. Majority of the revenues were made from passed go revenue which was $4M. Interest revenue contributed only about 1.2% of total revenue. The business’s only expense was $0.06M rent expense. The rent expense represented less than 1.5% of revenue received. The business had mostly landed on unowned properties and it did not buy up everything in sight to maintain cash on hand. To diversify the investment, the business had purchased five properties in different colour zone worth $12.1 M. Wealthlab’s overall performance was good because in addition to $3.99M profit made, the business had five invested properties, $6.89M cash on hand and no debt.

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This means the business has capacity purchasing more properties, meeting any financial obligation and likely collecting more rent in the long run. 1.3. Treasure Hunt Results (Player 2) 1.3.1. Journal entries Date

Account (Narration)

Account #

Refer to

Cash

100

Turn # 1

Capital

Debit Credit $'000 $'000 15,000

300

15,000

Invested cash into business Refer to

Property

110

Turn # 2

Cash

100

1,000 1,000

Bought Tokyo Refer to

Property

110

Turn # 3

Cash

100

1,800 1,800

Bought Rome Refer to

Property

110

Turn # 4

Cash

100

2,400 2,400

Bought London Refer to

Property

110

Turn # 5

Cash

100

3,000 3,000

Bought Paris Refer to Turn # 6

Cash Pass Go Revenue

110

2,000

420

2,000

Received Pass Go income Refer to

Rent Expense

550

Turn # 7

Cash

100

50 50

Paid rent 4

Refer to

Cash

Turn # 8

100

Interest Revenue

60

410

60

Receive bank interest Refer to

Rent Expense

550

Turn # 9

Cash

100

72 72

Paid rent Refer to

Cash

Turn # 10

100

Interest Revenue

60

410

60

Received bank interest Refer to

Property

110

Cash

100

Turn # 11

2,000 2,000

Bought Monopoly Cruise Refer to

Cash

Turn # 12

100

Pass Go revenue

2,000

420

2,000

Received Pass Go income 1.3.2. Income Statement Treasurehunt Statement of Profit or Loss For the month ended 30 April 2018 $’000 Revenues: Pass go revenue Other Revenue Interest revenue Expenses: Rent expense Total expense Profit

$’000 4,000 120

122 (122) 3,998

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Reconciliation: o Cash on hand at the beginning of the game = $15,000,000 o Cash on hand at the end of the game = $8,798,000 o Property purchased = $10,200,000 o Revenue = $4,120,000 o Expense = $122,000 o Balance = 15,000,000 - 10,200,000 + 4,120,000 – 122,000 = 8,798,000 (matches Cash on hand at the end of the game) 1.3.3. Business Performance Analysis Treasure Hunt’s business performance after two rounds of monopoly game was good. With $15M of invested capital, the business made a total profit of $3.998M. Revenues included $4M passed go revenue and $0.12M interest revenue. The largest business expense was $0.122M rent expense. The rent expense represented less than 3% of revenue received. The business had this level of performance because it had mostly landed on owned properties with low rent expenses or unowned properties. Treasurehunt had purchased 5 properties worth $10.2M. In general, the level of performance was good because in addition to the $3.998M profit made from the transactions, in the end the business still had $8.789M cash on hand with no debt. With good liquidity, the business can afford paying more expenses, purchasing more properties and likely receiving more rent as the game continue.

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Bruch-Monopoly Results (Player 3)

1.4.

1.4.1. Journal entries Date Refer to Turn #1 Refer to Turn #2 Refer to Turn #3 Refer to Turn #4 Refer to Turn #5 Refer to Turn #6 Refer to Turn #7 Refer to Turn #8 Refer to Turn #9

Account (narration) Cash Capital Invested cash in business Cash Pass Go Revenue Received Pass Go income Tax expense Cash Paid Tax Property Cash Purchased property Property Cash Purchased property Cash Rent Revenue Received rent income Cash Rent Revenue Received rent income Cash Inherit Revenue Received inherit income Cash Pass Go Revenue Received Pass Go income

Account # 100 300

Debit

Credit

$’000 15,000

$’000 15,000

100 420

2,000

500 100

2,000

110 100

1,800

110 100

260

100 400

140

100 400

220

100 430

2,000

100 420

2,000

2,000

2,000

1,800

260

140

220

2,000

2,000

1.4.2. Income Statement Bruch-Monopoly Statement of Profit or Loss For the month ended 30 April 2018 $’000 Revenues: Rent revenue Go pass revenue Inherit revenue Expenses:

$’000 360 4,000 2,000 7

Tax expense Total expense

2,000 (2,000)

Profit

4,360

Reconciliation: o Cash on hand at the beginning of the game = $15,000,000 o Cash on hand at the end of the game = $14,960,000 o Property purchased = $ 4,400,000 o Revenue = $6,360,000 o Expense = $2,000,000 o Balance = 15,000,000 - 4,400,000 + 6,360,000 – 2,000,000 = 14,960,000 (matches Cash on hand at the end of the game) 1.4.3. Business Performance Analysis Bruch-Monopoly made a total profit of $4.36M. Two third of the income was derived from go pass revenue while inherit revenue accounted for about one third. Rent income only represented a small part of total revenue. The major expense incurred was paying incoming tax. The income tax expense represented 31.4% of total revenue which was quite large but income tax expense would not happen frequently. The business had acquired only two properties and had limited capacity of collecting rent from opponents. The overall business performance was good because in addition to $4.36M profit made, it still had $14.96M cash on hand to purchase more properties and meet other financial obligations. The business would focus on acquiring more properties to increase the likelihood of collecting more rent from opponents. 2. Question 2 2.1. Question 2 a Wealthlab, Treasurehunt and Bruch-Monopoly had sole proprietorship business structure. Sole proprietorship is owned by one person. The owner of the business has no separate legal existence from the business.

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2.2. Question 2 b Benefits: Sole proprietorship has few legal formalities and is inexpensive to establish. Limitations: It is limited by funds available to invest and owners bear full personal liability for business debts. 2.3. Question 2 c A company is a separate legal entity with unlimited owners. The owners’ interests are represented by the number of shares they own in the company. Sole proprietorship has only one owner while companies have unlimited owners. Shareholders of company would not be personally liable for business debts, while owners of sole proprietorship are personally liable for business debts. 2.4. Question 2 d Benefits: Companies have limited liability and incorporated forms of companies have indefinite lives. Limitations: companies have more regulations to comply with and are more expensive to run than unincorporated business structures. 2.5. Question 2 e Investors want to invest based on future profitability. Creditors need to determine whether to grant credit based on ability of the entity to repay debts. Customers need to know if the business will continue support its product lines. Government authorities need to know if entities comply with tax laws. Marketing managers need to know unit costs of manufacturing to determine sales price.

3. Question 3 Accounting has traditionally measured activities in dollar terms but as society evolved, the accounting processes should keep up with the changes. Currently, social and environmental disclosures are voluntary. As evident in the example used and the following cases, reducing nature to a number is not beneficial to the environment and accounting. The importance of taking into consideration of these factors is highlighted in the 2013 Rana Plaza collapse, Bangladesh’s worst industrial disaster. The Rana Plaza had been built on an extremely unstable piece of land: swampy ground as they did not want to incur extra expenses. However, they had only considered the short-term profit of the business but did not consider the long-term consequences which had resulted in the disastrous death of 1,135 9

people. This demonstrates the importance of placing more emphasis on the social and environmental aspect of accounting as the damage of land, a society and the deaths of people cannot be measured as simply a loss of profit nor can it be measured as a number. Similarly, this is also evident in the 2015 Bento Rodrigues dam disaster in which had affected the social and environmental aspect of Brazil on a greater scale leaving an aftermath. The dam disaster lead to a tidal wave of mining waste which had killed 19 people, destroyed 2 villages, left hundreds homeless, and killed the aquatic creatures as it flowed down the river and into the ocean. The impact caused on the environment would take more than a decade to repair. As for the victims they will never again have the life they did before BHP had decided that cost cutting outweighs environmental responsibility. Therefore, accountants should be more aware and place more emphasis on the importance of the environment as it is their responsibility to ensure that although corporates have the right to make profit, they should be behaving responsibly towards the environment and the society.

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