ACW 1000

ASSIGNMENT 2014 Semester 1

Question 1 (a)
1. Dan shouldnt record the motorcycle as an asset under Julius Corporations balance
sheet because under the separate entity concept of accounting, transactions made by
the business and transactions made by the owners are two separate entities and not to
be considered as a single entity as because if a business owner bought an asset for
own personal use, then it shouldnt be listed as an asset or a liability of the company
as it causes undocumented cash to appear in the business of the company. Therefore,
the motorcycle shouldnt be listed as an asset or a liability of Julius Corporation.
2. The truck was originally purchased for $18000, but due the sticker price, he thought it
was best to list it as $20000. The inventory should be listed as its original price,
$18000 because in some cases assets should be listed at their historical cost or the
original monetary value of an economic item under the generally accepted accounting
principles (GAAP). It is because there was no change of value of the truck since the
date of acquisition. Therefore the truck should be listed at $18000 in the balance sheet
instead.
3. Dan includes accounts receivable balance is $8000 in the receivables of Julius
Corporation as he expects to collect from a customer for a sale that he anticipates will
occur in January. Under the accrual-accounting basis defined as income and expenses
are recorded as they occur, regardless of whether or not cash has actually changed
hands; therefore the amount of $8000 should not be recorded under the accounts
receivable as the amount of cash has not been obtained nor received yet.

Question 1(b)

Julius Corporation
Balance Sheet as at 31st December 2013

Current Asset
Cash

$20,000

Accounts Receivable

$31,000

Non-current Asset
Truck

$18,000

Total Assets

$69,000

Current Liability
Accounts Payable

$40,000

Notes Payable

$15,000

Total Liability

$55,000

Equity
Stockholders Equity

$14,000
$69,000

Question 2
(a) Examples of business structures are sole proprietorship, partnership, Limited Liability
Company (LLC), and corporations. Four factors that should considered before deciding
on what form of business structure to operate under are the type of business being
operated, size of the business, financing and liabilities, and taxation.
The type of business is a large factor in determining the business structure that is best for
a new company. A small laundry service company is very different from a large
commercial laundry service company. Each company performs the same type of service
and have similar responsibilities; however, because of the size of each business and the
number of clients each business has, they each benefit from a different business structure.
The size of the business can also affect what form of business structure is suitable as
depends on the market share of the business, the level of sales turnover, the number of
employees, the value of the business, and the value of capital employed.
Financing and liabilities is also an important factor as choosing a business structure is
how the business will handle funding, assets and liabilities to profit from the business.
Lastly, taxation; regardless which business structure is chosen because taxation which
always be applied but the amount of taxation differs on each of the business structure.
(b) Proprietary companies can be divided into two sub-categories: companies which are
limited by shares and companies which are unlimited with share capital.
When a company is limited by shares, shareholders can only be held liable for the
unpaid cost of the shares in the company they hold. If the company is in debt or goes into
liquidation, shareholders are not personally liable for those debts.
Proprietary company can have no more than 50 non-employee shareholders. A public
company on the other hand may have more than 50 non-employee shareholders.
A proprietary company cannot engage in any fundraising activities which requires legal
documents but a public company can engage in fundraising activities which requires legal

documents. Proprietary companies have fewer financial disclosure requirements than

public companies.

(c) The assessment might be highly inaccurate because due to the previous incorrect values
of the balance sheet due to one of the asset being stated at the sticker price instead of its
historical cost. Besides that, balance sheet only provides information such as fixed assets,
current assets, current liabilities, and long-term liabilities. Information that are not
provided by a balance sheet; for example, non-financial data such as performance of
workers, quality, and customer feedback. Therefore, questions should be provided for the
seller of the respective business regarding the balance sheet. The types of questions that
should be provided to the seller are as shown below:

How much is the depreciation rate on the assets?

Liquidity of the assets
The current market value of all the assets
The economic condition of the company
Profitability of the asset
Provision for doubtful debts
Provision for discount on debtors
Interest on capital

(d) A balance sheet only provides information on total current assets, total non-current asset,
total current liabilities, total non-current liabilities and shareholder equity. For a more
wide spread of information, financial data such as cash flow statement and income
statement should be included as well.

Cash flow statement, which shows the amount of cash generated and used by a company
in a given period. It is calculated by adding noncash charges such as depreciation to net
income after taxes. Cash flow statement can presented as a record of something that has
happened in the past, such as the sale of a particular product, or forecasted into the future,
representing what a business or a person expects to take in and to spend.
Income statement is a financial statement that measures a company's financial
performance over a specific accounting period. Financial performance is assessed by
giving a summary of how the business incurs its revenues and expenses through both
operating and non-operating activities. It also shows the net profit or loss incurred over a
specific accounting period, typically over a fiscal quarter or year. The income statement is
divided into two parts: the operating and non-operating sections.
Income statement that deals with operating items is interesting to investors and analysts
alike because this section discloses information about revenues and expenses that are a
direct result of the regular business operations. On the other hand, non-operating items
section discloses revenue and expense information about activities that are not tied
directly to a company's regular operations.

Question 3(a)

There are a large number of financial ratios to determine the financial health of a business and to
provide an analysis of a business. The more common types of ratio used in everyday life by
accountants are quick ratio, current ratio, return on assets, inventory turnover, days receivable
ratio, and debtors turnover.

The reason to focus on more than one of ratio is because a single ratio may not provide enough
information, therefore using multiple ratios, several information of a business are gathered.
The types of information that can collected are the liquidity, companys ability to pay off its
short-terms debts obligations; solvency, assumption of the companys cash flow to meet its shortterm and long-term liabilities to prevent bankruptcy; efficiency, how well a company uses its
assets and liabilities internally; and business's ability to generate earnings as compared to its
expenses and other relevant costs incurred during a specific period of time.

COMPRE LTD
Balance Sheet
as at year end 2010
Change

Change

($)

(%)

2010

2009

Cash assets

178

2 120

Receivables

1 356

1 700

(344)

(20.24)

Inventories

996

362

634

175.14

Other current assets

1 305

3 354

(2049)

(61.09)

Total Current Assets

3 835

7 536

(3701)

(49.11)

Receivables

55

102

(47)

(46.08)

Inventories

150

158

(8)

(5.06)

Property, plant and

equipment

3 232

9 200

(5968)

(64.87)

Agricultural assets

20 612

59 910

(39298)

(65.60)

Intangible assets

1 563

(1563)

(100)

Deferred tax assets

20

47

(27)

(57.45)

Other non-current assets

40

40

100

Total Non-Current Assets

24 109

70 980

(46871)

(66.03)

Total Assets

27 944

78 516

(50572)

(64.41)

Payables

943

3 872

(2929)

(75.65)

Interest bearing liabilities

2 730

1 158

(1572)

(135.75)

Current tax liabilities

1 138

1 216

(78)

(6.41)

Provision

1 430

278

1152

(414.39)

Total Current Liabilities

6 241

6 524

(283)

(4.34)

Current Assets
(1942)

(91.60)

Non-Current Assets

Current Liabilities

Question 3(b) (CONT)

Assets
From the balance sheet shown, it shows that there is a fall in total current asset from $7536 to
$3835 in the year 2009 to year 2010 which mean a change of $3701 or (49.11%) in change.
Besides that, there is also a decrease in non-current asset from $70980 to $24109 or $46871 in
difference or (66.03%) in change. The decrease in total assets possibly mean that the owner is
selling the companys asset to gain capital appreciation.
Liabilities
Based on the liabilities, a decrease of total current liabilities from $6524 to $6241 or $283,
(4.34%) in change; and also decrease in non-current liabilities from $27415 to $7951 or $19464,
(71%) in change; could possibly mean that the owner is using the capital gained from selling
assets of the business to pay off debts such as accounts payable, interest payable and long or
short term loans.
Equity
Lastly; equity decreased from year 2009 to year 2010 from $44577 to year $13752, $31005 or
(69.55%) in change; which could possibly mean that the respective business owner was liquidate
the business by selling off all its assets and paying off all its debts or downsizing the business to
continue or end the business.