Bsbfia 401-Prepare Financial Reports- Student Answer Booklet PDF

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Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

Assessment Task 1 Instructions Provide answers to all the questions below:

1.

Explain the basic principles of double entry bookkeeping.

ANS: The basic principle of the double entry bookkeeping is that there are always two entries for each and every financial transaction. One entry Is known as the debit entry and other Is known as the credit entry. The entries are often displayed in the form of ‘T’ accounts. In this system in order to carry out the double entry properly, the sum of debit entries should always equal to the sum of credit entries.

2.

Explain the three golden rules of accounting and how they apply to double entry accounting?

ANS: Three golden rules of accounting and their application to the double entry accounting is explained below: 





3.

Debit the receiver, credit the giver. This principle is used in the case of Personal accounting. These accounts are related to various individuals or companies. Debit what comes in, credit what goes out. This principle is used in the case of Real accounting. Real accounts, also known as the permanent accounts are the ones, whose balances are carried over in the next year to become the beginning balances. These accounts are not closed at the end of each year and its examples are cash, accounts receivable, accounts payable, retained earnings and fixed assets. Debit all expenses and losses, credit all incomes and gains. The above-mentioned principle is used in Nominal accounting. Nominal accounts, also known as the temporary accounts are the ones which are used by the businesses, to record incomes, losses, expenditures and gains over a specific accounting period.

Explain the purpose of a general journal in accounting and give at least two examples of transactions that may be recorded in this journal.

ANS: A general journal is a detailed account of a business which records all its financial transactions and is used in future for transferring them to other official records such as general ledger. There are four special journals in the general journals: Sales Journal It is the main entry book which is used to keep track of the sales in an accounting system. It keeps a proper records of sales of the items which are purchased by the customers.

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Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

Purchases Journal Purchases journal is another prime journal of the accounting system which is used by the companies to record the credit purchases by the customer. Cash Receipt Journal This journal helps in managing all the cash inflows of the business. Hence it is used to record all the cash coming in the business. Cash Disbursements Journal This journal is used in order to maintain the cash outflows of the business organisation.

4.

Explain the purpose of a general ledger in accounting and give at least two examples of transactions that may be recorded in this journal.

ANS:

The general ledger holds account information that is needed to prepare the company's financial statements, and transaction data is segregated by type into accounts for assets, liabilities, owners' equity, revenues, and expenses.

Examples of transactions recorded in general ledger are:  

Opening entries Purchases of non-current assets on credit

5.

Describe what is meant by “Fair Value” under AASB 116.

ANS: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accounting system it is known as the total worth of all the assests and liabilities listed on the financial statement of a corporation.

6.

When working as an accountant you will spend many hours seated at your desk and at the computer, possibly doing lots of data entry. List three OHS issues you might need to consider, ensuring you are working safely and are not at risk of accident, injury or illness.

ANS: The occupational health and security issues are: 





Psychological hazards The hazards include the ones which can have a very dangerous and adverse effect on the mental health of an employee at his/her workplace. Certain examples of these hazards are stress, workplace violence and sexual harassment. Safety Hazards These are the hazards which lead to an unsafe working environment for all the employees. Physical Hazards These hazards are due to the environmental factors that can harm the employees without even touching them. Its examples are heights, radiation, noise and pressure.

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Full Name: Cookery Student ID:

7.

SIT40516 - Certificate IV in Commercial

Research the Internet and find out how the Privacy Act 1988 will be changed in regard to storage of client data on cloud servers. What would an accounting firm need to do if it stores client data on an online/cloud accounting system?

ANS: In this case the accounting firm would need to do the following things:  

The firm must disclose it and must do it in a manner as required by the relevant legislation software. The entire code of practice must be done by the permission of the clients. The information must be disclosed by the firm to the clients about the storage of the data on the cloud server and the particular country in which the server is located.

8. Review the APES 110 Code of Ethics for Professional Accountants on the Internet. Explain what a Member of Business should do if they are not satisfied that the financial statements of an employing organisation are presented in line with Australian Accounting Standards.

ANS: In this scenario, you must inform about all the charges to the government and also declare the entire documentation while communicating with the government. You must also inform the party involved about their compliance with the reporting of the organisation and the legislation requirement.

9.

Review the APES 110 Code of Ethics for Professional Accountants on the Internet. Explain how threats to compliance with the fundamental principles occur.

ANS: Threats may be created by a broad range of relationships and circumstances. When a relationship or circumstance creates a threat, such a threat could compromise, or could be perceived to compromise, a professional accountant's compliance with the fundamental principles.

8.

Explain the Australian Securities & Investments Commission’s (ASIC’s) role in approving codes of practice for the financial services sector. List their criteria for approval.

ANS: The ASIC has a major role in approving the codes of practice for the financial services sector. The have a particular set of rules and regulations which need to be followed in order to meet the number of criteria. These set of rules have a comprehensive structure and these are mainly created and developed by the body in a consultation with the stakeholders. The criteria for the ASIC if as following:  Independent administration including the companies monitoring.  Enforcement of rules on the all the stakeholders.  In line with the court and effective administration.

9.

Explain whether financial services industry associations have to seek approval from ASIC regarding their codes of practice. Give examples of at least two financial services industry codes of practice.

Page 3 of 22

Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

ANS: ASIC never oversees the administration, and has a formal set of codes developed by the financial service industries. These are also useful for the customers. For Example : The Australian banker’s association develops the code for banking practices. 10.

List four types of laws that ASIC administers.

ANS: The role of ASIC is to regulate the financial services and the company and also to enforce laws in order to protect the Australian customers. The types of laws which ASIC administers are:     11.

Superannuation industries supervision Act 1993 Retirement saving act 1995 Corporations act 2001 Life insurance act 1995 Explain two posting methods used in computerised accounting systems.

ANS: There are two basic posting methods in computerized accounting systems: 



12.

Real time posting It is reffered to a style of processing financial transactions in a core banking system. In this one a particular transaction is posted to its specific journal, its subsidiary ledger and also to its related general ledger. Batch Posting In this system the items are transferred from journal to ledger and from there to the financial statement in a linear order. The transactions are grouped in this system and processed by subledger. The results in this entries don’t appear in the general ledger instantly. You need to prepare end of month financial reports. How would you make sure you have all the data you need?

ANS: In order to make sure that we have all the data to create the financial report at the end of the month, we will check the policies and procedures of the organisation and also go through the required documentation.

13.

Assume that you have been provided with the data for the end of financial month report. However, you have found some errors. What should you do in this situation and whom would you speak to?

ANS: In this scenario all the source documents and data would be required and it would be needed to double check the entire data with the people who provided them. It would also be very much necessary to contact the supervisor regarding the errors and also ask for the solutions for the above mentioned. All of this should be taken care of before entering the entire data in the system.

Page 4 of 22

Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

You can also conduct a website research for the data provided for all the questions and queries while preparing the end of month financial report.

14.

Explain the difference between balance day adjustments required for accruals and balance day adjustments required for prepayments. Give an example of each.

ANS: The balance day adjustments are based on the revenue recognition principle and it is based on making adjusting entries that pertain to unearned and accrued revenues under accrual-basis accounting. It will be further divided into two categories:  Accrued Expenses These are the costs incurred by the business in the current accounting systems and they have not been paid yet.  Accrued revenues These revenues have not yet been received.

balance day adjustments required for prepayments are again of two categories:

 

15.

Prepaid expenses These are the expenses paid in advance. Unearned revenue This is the revenue which is not yet received by the business but the services or the products have been provided.

Outline the reasons why an adjustment for depreciation expense is required at the end of each reporting period.

ANS: It is because the fixed assets would eventually lose their residual value due to the wear and tear of the assets because of a passage of time. It is not feasible to determine the actual value of the assets if the purchase amount of the assets is takin in the books every year. Hence depreciation is mandatory for the exact calculation.

16.

Distinguish between an allocation approach and a valuation approach to depreciation according to AASB1021 and AAS4.

ANS: Depreciation is what happens when any assets of the business loses value over a period of time. In the allocation approach the value of the non-current asset is allocated as an expense. Valuation approach is like appreciation where the value of the assets are used to generate the revenues. 17.

Explain why it is important for estimates of the useful lives and expected residual values of depreciable non-current assets to be reviewed annually.

ANS: It is important for estimates of the useful lives and expected residual values of depreciable non-current assets to be reviewed annually in order to allow the change in

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Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

residual values. Firstly, the total useful life of the asset is determined and it is very much required to make an estimate related to the events. It is needed as it is tough to be done without a prior knowledge of how the particular asset will be used, after It has been sold in the market.

Assessment Task 2 Instructions Carefully read the following: Andrew, the owner of Andrew’s Slabs, purchased a bench planer (Asset No. 346) from Mullum Machinery on 1st July 2016 that cost $18,000. It is expected to produce 5,000 items during its life in the workshop. At the end of its working life, its scrap value will be $1,000. The machine has been operating for two years. Its production in each of those years has been 800 and 1000 units respectively. It is being depreciated on the units of production method. Balance day is 30 June each year. On the 1st of July 2016, Andrew also purchased a standing drill (Asset No. 348) from Danny’s Drills. It cost $5,000 and will be used daily in the Workshop for a variety of purposes. The equipment has a useful life of 4 years and a residual value of $800. The straight-line deprecation method is used for this asset.

Complete the following activities in the Asset Register Worksheet:

1.

Prepare journal entries according to standard practice to record the purchase of assets, depreciation expense and accumulated depreciation for the years ended 30 June 2016 and 2017. Show your workings for the depreciation calculation.

ANS: Date

Accounts

1/07/2016

Plant and equipment

Dr $

Cr $

18000

Accounts payable

18000

Bench Planner being purchased (asset no. 346) 1/07/2017

Plant and equipment

5000

Accounts payable

5000

Standing drill being purchased (asset no. 348) 1/07/2017

Depreciation Depreciation

2720 2720

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Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

Depreciation of bench planner 1/07/2017

Depreciation

1050

Depreciation

1050

Depreciation of standing drill ANS: Workings for the depreciation calculation Bench planer (Asset No. 346): unit of production method Depreciable amount = original cost – residual value = 18000-1000 = 17000 Year 1 (2016 - 2017) depreciation expense = (800/5000)*17,000 = 2,720 Year 2 (2017 - 2018) depreciation expense = /2017:(1,000/5,000)*17,000 = 3,400 standing drill (Asset No. 348): straight-line method Depreciable amount = original cost – residual value = Year 1 (2016 - 2017) depreciation expense = Year 2 (2017 - 2018) depreciation expense =

Journal entries for the year ended 30 June 2018 Date

Accounts

Dr $

30/06/2018

Depreciation (2017-2018)

3400

Plant and equipment accumulated depreciation

Cr $

3400

Accumulated depreciation of bench planner 30/06/2018

Depreciation (2017-2018)

1050

Plant and equipment accumulated depreciation

1050

[To record the depreciation for standing drill (Asset No. 348)] Workings for the depreciation calculation Bench planer (Asset No. 346): unit of production method Depreciable amount = original cost – residual value = 18000-1000 = 17000 Year 1 (2016-2017) depreciation expense = (800/5000)*17,000 = 2,720 Year 2 (2017-2018) depreciation expense = 2017:(1,000/5,000)*17,000 = 3,400 Standing drill (Asset No. 348): straight-line method Depreciable amount = original cost – residual value = 1000 Year 1 (2016-2017) depreciation expense = $4,200 / 4 = $1,050 Year 2 (2017-2018) depreciation expense = $4,200 / 4 = $1,050

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Full Name: Cookery Student ID: 18.

SIT40516 - Certificate IV in Commercial

Prepare asset registers for the two items.

Andrew’s Slabs – Register of Machinery Asset Name: Bench planner Asset No: 346 Date Purchased: 1/07/2016 Location: Seven hills Total Usage: 1800 Estimated Residual Value: 1000 Depreciated Method: Unit of production

Date Sold:

Depreciation Rate: 1,800/18,000 = 0.1 Purchased from: Mullum machinery Date

Disposal Value

Details

Asset Dr $

Accumulated Depreciation

Cr $

Bal $

Dr $

Cr $

Bal $

1/07/2016

Cost Price

30/06/201 7

Depreciation Usage

2720

2720

30/06/201 8

Depreciation Usage

6120

6120

18000

18000

Andrew’s Slabs – Register of Machinery Asset Name: Standing Drill Asset No: 348 Date Purchased: 1/07/2016 Location: Seven hills Estimated Life: 4 years Estimated Residual Value: $800 Depreciated Method: Straight Line method

Date Sold:

Purchased from: Danny’s Drill

Disposal Value

Date

Details

Asset Dr $

Bal $

Dr $

Cr $

Bal $

1/07/2016

Cost price

30/06/2018

Depreciation

1050

1050

30/06/2018

Depreciation

2010

2010

19.

500

Cr $

Accumulated Depreciation

500

Prepare the correcting journal entries for the following:

Page 8 of 22

Full Name: Cookery Student ID:

SIT40516 - Certificate IV in Commercial

a) Sold goods on credit to Lennox Furniture for $3,300 (including GST of $300) and incorrectly posted the item from the Credit Sales Journal by debiting Kingscliff Kitchens. b) Timber worth $880 (including GST) purchased on credit from Shady Timber Mill was incorrectly debited to Purchases. c) A cheque for $1,210 received for a kitchen bench slab was incorrectly posted from the cash receipts journal as a credit to the Sales account. d) The bank column of the cash receipts journal was over added by $30, but the individual receipts were correctly entered and posted. No.

Particulars

1

Accounts receivable - Lennos furniture

2

Timber expense

3

Purchase Sale

Dr $

3300

Accounts receivable - kings cliff kitchen

Kitchen Slab

Cr $

3300 800 800 1210 1210

Page 9 of 22

Full Name: Cookery Student ID: 20.

SIT40516 - Certificate IV in Commercial

Calculate the following, taking into consideration the relevant procedures set out in the company’s Financial Policy and Procedures: At the end of March, there is an overdue debt of $550 (including GST) that has been outstanding for 92 days. The amount is owed by Domestic Bliss for furniture renovation. The debt was transferred to a debt collection agency, but t...