Accounts Receivable
Garden Warehouse
Trial Balance as at 31 March 2013
32,460
Capital
190,000
Accountancy fee
15,000
Accounts Payable
28,000
Advertising
19,000
Mortgage
60,000
Bad Debts
Bank
Cost of goods sold
500
2,000
430,000
Dividends Received
Accumulated Depreciation
- Warehouse equipment
50,000
30,000
Delivery vehicles
70,000
Delivery vehicle expenses
34,000
Accumulated Depreciation
- Delivery vehicles
Drawings
59,000
GST
Electricity
7,000
Shares in Briscoe Group Ltd
Interest on mortgage
30,000
3,300
Inventory
40,000
Office wages
22,000
Office expenses
19,000
Warehouse buildings
1,000
4,360
Allowance for Doubtful Debts
Sales
900
725,000
Gain on sale of delivery vehicle
1,000
150,000
Warehouse equipment
90,000
Warehouse wages
67,000
1,090,260
1,090,260
Additional information
 Shares in Briscoe Group Ltd have a current market value considered to be fair value of $34,000
 Dividends are owing $1,200
 Write off additional bad debts $460 including GST
 Adjust the allowance for doubtful debts to 5% of accounts receivable
 Office wages owing $1,000
 An annual advertising contract of $9,000 excluding GST was paid on 1 August 2012.
 Electricity is charged 90% to distribution costs, 10% to administrative expenses
 Inventory with a cost of $7,000 has a net realisable value of $3,000
 Invoice on hand for delivery vehicle expenses $2,300 including GST
 Interest is owing on the mortgage at 6% p.a. The mortgage is due on 30 November 2013.
 Depreciation on delivery vehicles 20% p.a. DV (use the balances in the trial balance)
 Depreciation on warehouse equipment 10% p.a. straight line
 A vehicle, which cost $20,000, with a carrying amount of $15,000 was sold in April 2012
 A new vehicle costing $34,500 including GST was purchased in April
You are required to
1. Prepare general journal entries for the following:
(a) Dividends are owing $1,200
(b) Adjust the allowance for doubtful debts to 5% of accounts receivable
(c) An annual advertising contract of $9,000 excluding GST was paid on 1 August 2013.
(d) Depreciation on warehouse equipment is 10% p.a. straight line.
(e) Close the bad debts account
(f) Close the gain on sale of delivery vehicle account
2. Prepare the following general ledger accounts at 31 March 2013, including any closing entries where
relevant
(a) Office wages
(b) Allowance for doubtful debts
(c) Prepayments
(d) Depreciation on delivery vehicles
(e) Accumulated depreciation on warehouse equipment
(f) Capital (Hint: you will need to complete the income statement before completing the capital
account)
3. Complete the income statement for the year ended 31 March 2013
4. Complete the statement of financial position and accompanying notes as at 31 March 2013.
Notes to include: Accounts Receivable, Property, plant and equipment, Investments, Mortgage
5. If you are doing the concepts paper complete the following:
a. Identify and explain where historical cost and relevance have been used in the preparation of
the Statement of Financial Position and accompanying notes.
b. Identify and explain one example of the application of the accrual basis on both the income
statement and the statement of financial position
c. Identify and explain the reporting of drawings with reference to the entity concept and the
characteristics of an expense.
The cash flow statement (including GST) for the year shows the sale of delivery vehicle $18,400,
purchase of delivery vehicle $34,500 and delivery vehicle expenses $28,750.
d. Explain the purpose of the cash flow statement.
e. Explain why the cash flow statement includes both capital and revenue expenditure, using the
delivery vehicle as an example.
f. Explain why the purchase of the delivery vehicle is capital expenditure, while delivery vehicle
expenses are revenue expenditure. Include in you answer how each of these items is reported
in the financial statements other than the cash flow statement.
Answers (not in order of questions)
Garden Warehouse
Income Statement for the year ended 31 March 2013
Sales
725,000
Less Cost of Goods Sold
-434,000
Gross profit
Add other income
Dividends Received
2,200
Gain on sale of delivery vehicle
1,000
291,000
3,200
294,200
Distribution costs
Advertising
Electricity
Delivery vehicle expenses
Warehouse wages
Depreciation on delivery vehicles
Depreciation on warehouse equipment
16,000
6,300
36,000
67,000
8,000
9,000
142,300
Administrative expenses
Accountancy fee
Electricity
Bad debts
Doubtful debts
Office wages
Office expenses
15,000
700
900
700
23,000
19,000
59,300
Finance costs
Interest on mortgage
Total expenses
Profit for the year
3,600
3,600
-205,200
89,000
Garden Warehouse
Statement of Financial Position as at 31 March 2013
Current Assets
Bank
Accounts Receivable
Prepayments
Accrued Income
Inventory
2,000
30,400
3,000
1,200
36,000
72,600
Non-current assets
Property, plant and equipment
Investment
Shares in Briscoe Group Ltd
213,000
30,000
243,000
Total assets
315,600
Current Liabilities
Accounts Payable
GST
Accrued expenses
Mortgage
Total liabilities
Net assets
Equity
Capital
Profit for the year
Less Drawings
30,300
4,000
1,300
60,000
95,600
220,000
190,000
89,000
-59,000
220,000
Notes to the financial statements
Accounts Receivable
Accounts Receivable
Less Allowance for doubtful debts
32,000
-1,600
30,400
Investment
The Shares in Briscoe Group Ltd have a current market value, considered to be fair value of
$34,000
Property, plant and equipment
Warehouse
Buildings
For the year ended 31 March 2013
Opening carrying amount
Additions
Disposals
Depreciation
Closing carrying amount
As at 31 March 2013
Cost
Accumulated depreciation
Closing carrying amount
Depreciation is based on the following
Delivery Vehicles 20% p.a. diminishing value
Warehouse Equipment 10% p.a. straight line
150,000
150,000
150,000
150,000
Delivery
Vehicles
Warehouse
Equipment
25,000
30,000
-15,000
-8,000
32,000
40,000
70,000
-38,000
32,000
90,000
-59,000
31,000
Total
-9,000
31,000
Mortgage
The mortgage has an interest rate of 6%p.a. It is due for repayment on 30 November 2013.
213,000
Note re general journal and general ledger questions:
There is no reason why students couldn’t complete a much wider range of general journal and general
ledger entries for revision. These are presented as a ‘random’ selection of each, similar in approach to the
examination questions.
General Journal
31-Mar Accrued Income
Dividends Received
1,200
1,200
Doubtful debts
Allowance for doubtful debts
700
700
Prepayments
Advertising
3,000
Depreciation warehouse equipment
Accumulated depreciation warehouse equipment
9,000
3,000
Income summary
Bad debts
900
900
Gain on sale of delivery vehicle
Income summary
General Ledger
Office Wages
31-Mar Balance
Accrued expense
Income summary
Allowance for doubtful debts
31-Mar Balance
Doubtful debts
Prepayments
31-Mar Advertising
Depreciation on delivery vehicles
31-Mar Accum dep delivery veh.
Income summary
Accumulated depreciation warehouse equipment
31-Mar Balance
Dep warehouse equip
Capital
31-Mar Balance
Drawings
Income summary
9,000
1,000
1,000
23,000
22,000 Dr
23,000 Dr
0
700
900 Cr
1,600 Cr
1,000
3,000
3,000 Dr
8,000
8,000
8,000 Dr
0
9,000
50,000 Cr
59,000 Cr
89,000
190,000 Cr
131,000 Cr
220,000 Cr
59,000
Concepts answers
(a) Historical cost has been used to report the investment Shares in Briscoe Group Ltd in Garden
Warehouse’s Statement of Financial Position where they are reported at their original purchase
cost of $30,000. Relevance has been used in the Note for the Investment where the current
market value of the shares, $34,000 is reported as this is the up-do-date value of the shares which
is a better reflection of their value for the purposes of making decisions about the investments and
the impact of the investments on the statement of financial position and equity of the business.
(b) Office wages $1,000 owing is an example of the accrual basis where the expense incurred for the
year includes the amount owing for work the office person has done during the year ended 31
March 2013. So the $1,000 is included in the office wages expense of $23,000 in the income
statement because it relates to the current year. The $1,000 is included in accrued expense current
liability in the statement of financial position because the amount is owing to the employees on
balance day so has to be reported as a liability of Garden Warehouse as at 31 March 2013.
(c) Drawings is reported directly in equity as drawings is the owner’s personal use of business funds
(cash or assets) which according to the entity concept must be kept separate from the business
expenses of Garden Warehouse. Drawings is not a business expense as one of the characteristics
of an expense is that it is not a distribution to the owner (not owner’s drawings) so therefore
drawings cannot be reported in the income statement as an expense, it must be reported as a
direct reduction in equity which is a distribution to the owner.
(d) The purpose of the cash flow statement is to show what money has been spent on during the year
and where the money has come from. The cash flow statement shows how the cash at bank has
changed from the beginning of the year to the end of the year, whether there has been an overall
increase in cash at bank or an overall decrease in cash at bank.
(e) The cash flow statement includes both capital expenditure and revenue expenditure as both
represent an outflow of cash so are reported in the cash flow statement as payments. Money from
the sale of an asset is reported in the cash flow statement as a receipt even though it is not
reported in the income statement as it is not revenue.
(f) The purchase of the delivery vehicle is capital expenditure because the purchase is a one-off cost,
which will provide benefit over several years – Garden Warehouse will use the delivery vehicle for a
number of years. The delivery vehicle cost is reported as an asset in the Property, plant and
equipment part of non-current assets in the statement of financial position.
The delivery vehicle expenses are on going day-to-day expenses like petrol and maintenance, which
Garden Warehouse uses up each year so these expenses are reported in the income statement of
Garden Warehouse.