GUIDE FOR STUDENTS
Practice questions #1 (to be held in week 2) – Introduction
to accounting
1. E1.5 Carlon et al. (2016)
26,000 + ? + 45,000 = 106,000
∴ Contributed equity = 35,000
200,000 - ? – 14,000 = 41,000
∴ COS = 145,000
35,000
45,000
145,000
41,000
12,000 + ? – 8,000 = 45,000
∴ Profit = 41,000
41,000
Make sure you understand the format of each statement (e.g. how it is laid out and what is in each)
and the links between each.
2. E1.7 Carlon et al. (2016)
non- current
Non-current
non- current
non- current
current
non- current
current
Remember that current and non-current is simply an indication of timing. When will the company
receive the cash or use the value in the asset? Type refers to each item in the list which are then
categorised as current or non-current. Note that some receivable are current in that the customers
will pay for them within the next 12 months, while others are non-current as they will be collected
after 12 months.
Always present your work so that it is readable. Highlight headings using bold and italics and indent
items to distinguish sections. There is no “right” way that you have to follow as far as formatting
goes. However, the structure should be right. Using the narrative format you should always show
that Net Assets = Equity while with the T format show Assets = Liabilities + Equity.
Some of the items you may not recognise are: Other financial assets – these could be investments
(e.g. shares) in other companies (financial assets will be covered in IFR); oil and gas assets and
exploration and evaluation assets suggest that this is an oil and gas production company. They
spend a lot on finding (exploration) oil and gas and deciding if it is worth extracting (evaluation).
Under certain condition these costs can be capitalised (recorded as an asset) as benefits will be
received in the future. Again, this will be covered in more detail in IFR, but it does not take away
from the fact you should understand these to be assets from which some future befits will be
received, and that they have a cost or value. You will notice that the main asset is property, plant
and equipment, this is not surprising for an oil and gas company when you consider this would
include oil and gas rigs, refineries etc. Deferred tax asset – again, it is suffice to know that as an
asset it obviously has some value but you will find out more about it in IFR – something for you to
look forward to 
AGL Energy Limited Ltd
Statement of financial position (Partial)
as at 30 June 2013
$M
Current assets:
Cash and cash equivalents
Receivables
Inventories
Other financial assets
Other current assets
Total current assets
Non-current assets
Receivables
Inventories
Investments (long term)
Exploration and evaluation assets
Oil and gas assets
Property, plant and equipment
Intangibles
Deferred tax assets
Other financial assets
Other non-current assets
Total non-current assets
Total assets
281.0
1844.0
133.0
186.9
391.1
2836.0
47.3
29.2
33.1
349.0
495.1
5331.6
3149.4
729.2
338.5
27.4
10529.8
$13365.8
3. PSA1.3 Carlon et al. (2016). Prepare the corrected statement using the narrative format.
(a)
1.
The accounting entity concept states that economic events can be identified with a
particular unit of accountability. Since the Sunshine Coast villa is the personal property
of Mark Austin – not Smart Travel Goods Pty Ltd – it should not be reported on the
company’s Statement of financial position. Likewise, the loan is a personal loan of Mark
Austin – not a liability of the company. Therefore, both the Villa and Bank loan should
be removed from the statement.
2.
The cost principle dictates that assets are recorded at their original cost. Therefore
reporting the inventory at $40,000 would be improper and violates the cost principle.
The inventory should be reported at $15,000 so must be reduced.
3.
Including the personal telephone account payable is a violation of the accounting entity
concept. The $6,000 payable is not a liability of Smart Travel Goods Pty Ltd. If the
company pays the telephone account on behalf of Mark Austin, it should be accounted
for as a loan to Mark. However, at this stage it has not been paid so nothing has to be
accounted for. Accounts payable should be reduced by $6,000.
(b)
Smart Travel Goods Pty Ltd
Statement of financial position
as at 30 June 2015
$
$
Assets
Cash
Accounts receivable
Inventory (restated at cost of $15,000)
Total assets
(Note Villa has been removed)
Liabilities
Accounts payable (personal account removed $30,000-$6,000)
Notes payable
Total liabilities (Note Bank loan has been removed)
30 000
23 000
15 000
68,000
24,000
12,000
36,000
Net Assets
$32,000
Equity (equity adjust to account for restatements: A-L = E)
Total equity
32,000
$32,000
Note the format, you were asked to put it in the narrative format and so need to clearly show that
Net Assets equals Total Equity. If using the T format then it should clearly show that Total Assets
equals Liabilities and Equity.
4. PSA1.9 Carlon et al. (2016)
This is very much a find the formula and plug in the numbers exercise. I haven’t given you the
formulae; you can find them and find the relevant figures. You will learn more if you have to look
that up yourself and work out where these numbers came from. Don’t forget to read up on these
and note what each measures and who might use it (what users and for what purpose).
(a)
Working capital
 474,500  250,000  224,500
(b)
Current ratio
474,500
 1.9 : 1
250,000
(c)
Current cash debt coverage ratio
(d)
Debt to total assets ratio

460,000
 0.453 : 1 or 45.3%
1,014,800
(e)
Cash debt coverage ratio

260,000
260,000

 0.7times
(460,000  300,000) / 2 380,000
(f)
Profit margin ratio
(g)
Return on assets ratio



260,000
260,000

 1.5 times
(250,000  100,000) / 2 175,000
115,000
 0.052 : 1 or 5.2%
2,200,000

115,000
115,000

 0.127 or 12.7%
(790,800  1,014,800) / 2 902,800