In: Accounting
Retail operations and retail inventory ‘Splash Out The Back’
began business on 1 November 2019. The business has been set up as
a partnership between Mr. and Mrs. Fisher. It operates an online
store, selling inflatable swimming pools to the public, for use in
back yards. The business began by selling one particular model of
inflatable swimming pool but will look to expand the product lines
that it sells within the next year. The business is registered for
GST. The following transactions occurred during November
2019:
Date Details
1 Nov Mr. and Mrs. Fisher deposited $20,000 into the business bank
account ($10,000 each).
1 Nov ‘Splash Out The Back’ rented a small warehouse for the
business, to store inventory that is purchased. The warehouse rent
costs $330 per month (including GST). ‘Splash Out The Back’ pays
the landlord $990 from the bank account, for rent for November,
December, and January.
8 Nov ‘Splash Out The Back’ purchased 30 of the inflatable swimming
pools on account for $88 per pool, including GST, from the pool
manufacturer, Intex Pools Ltd. Intex Pools Ltd also charged a
delivery fee on the invoice of $55, including GST (to deliver the
swimming pools to ‘Splash Out The Back’). The invoice is due for
payment on 20 November.
15 Nov ‘Splash Out The Back’ paid the invoice from Intex Pools Ltd
(for purchases made on 8 November) from the business bank
account.
16 Nov ‘Splash Out The Back’ sold 12 of the swimming pools via its
online store, at $165 each (including GST). All of the customers
paid by Paypal and the money was received in the business bank
account by the end of the day. Note: ‘Splash Out The Back’ does not
pay any PayPal fees when customers pay by PayPal.
20 Nov One of the customers who purchased a swimming pool on 16
November returned their swimming pool for a refund. The swimming
pool was returned in an original, brand new condition (unopened).
The customer paid for the freight to return the swimming pool, and
‘Splash Out The Back’ refunded the customer $165 from the business
bank account.
22 Nov ‘Splash Out The Back’ purchased 40 of the inflatable
swimming pools on account for $99 per pool, including GST, from the
pool manufacturer, Intex Pools Ltd. Intex Pools Ltd also charged a
delivery fee on the invoice of $55, including GST, to deliver the
swimming pools to ‘Splash Out The Back’. The invoice is due for
payment on 5 December.
23 Nov ‘Splash Out The Back’ had a 24-hour sale, and sold 34 of the
swimming pools via its online store, at $143 each (including GST).
All of the customers paid by Paypal and the money was received in
the business bank account by the end of the day.
25 Nov ‘Splash Out The Back’ was contacted by a primary school. The
primary school wanted to purchase 10 of the inflatable swimming
pools for their school water fun day. ‘Splash Out The Back’ agreed
to sell 10 of the swimming pools to the primary school for $154
each (including GST). The sale was made on credit terms of 2/10,
n/30.
27 Nov ‘Splash Out The Back’ received the money in the business
bank account from the primary school that purchased swimming pools
on 25 November. The amount received was the invoiced amount, less
the sales discount.
30 Nov Mrs. Fisher accidentally damaged one of the swimming pools
in the warehouse, and the swimming pool needs to be written
off.
30 Nov ‘Splash Out The Back’ received an invoice from Telstra (for
telephone and internet used by the business), with an amount
payable of $88 (including GST). The due date for payment is 16
December.
30 Nov ‘Splash Out The Back’ received an invoice from Australia
Post for postage costs re. delivering swimming pools to customers.
Australia Post charges $9.90 postage per swimming pool delivered
(including GST). The invoice is due for payment on 20
December.
Mr & Mrs. Fisher don’t have any experience keeping inventory
and accounting records. They have come to you for assistance.
Required:
i. Prepare a business report*for ‘Splash Out The Back’ to help the
owners understand the different inventory accounting systems
(periodic and perpetual), and costing methods (specific unit cost;
first-in-first-out (FIFO); last-in-first-out (LIFO); and average
cost methods). In your report, also discuss any advantages and
disadvantages of these different systems and methods. Given your
knowledge of the business and your knowledge of the regulatory
requirements that will apply to ‘Splash Out The Back’, include a
recommendation on the inventory system and costing method/s that
‘Splash Out The Back’ should consider adopting. (Word guide: 1,000
words)
ii. Prepare Excel worksheets for the swimming pools for November using the perpetual inventory system and the FIFO, LIFO, and average-cost methods. In your spreadsheets, keep track of the number of swimming pools purchased, swimming pools sold, swimming pools on hand, cost of goods sold, and gross profit made.
iii. Now assume that ‘Splash Out The Back’ has adopted the perpetual inventory system and the FIFO costing method. Prepare journal entries (including any adjusting entries) for all of the business’s transactions for November. Include dates, references, and narrations. (4.5 marks)
iv. Prepare T-accounts in an Excel spreadsheet, and post all of
the above journal entries
to the T-accounts. Include dates and references for each entry.
Total all of the T accounts to determine their balances at the end
of November 2019. (1 mark)
v. Prepare the ‘Adjusted Trial Balance’ in an Excel spreadsheet as at 30 November 2019. Use formulas to generate all of the figures in the ‘Adjusted Trial Balance’ from the balances in the T-Accounts. (1 mark)
vi. Prepare the income statement, balance sheet, and statement of changes in equity in Excel. Use formulas to generate all of the figures in the financial statement reports from the ‘Adjusted Trial Balance’.
vii. Assume that ‘Splash Out The Back’ has a year-end date of 30
November. Prepare the closing entries as at 30 November 2019. (1.5
marks)
Please also refer to the 'Requirements' section below for
additional submission and spreadsheet requirements. *Note: a
business report includes:
• a coverage addressed to your desired audience; • an executive
summary(refer to the note below regarding an executive summary); •
a table of contents (linked to the headings in the report); •
headings and subheadings clearly identify what is being discussed;
• conclusion, • recommendations; and • reference list (using APA
style - either the 6th or 7th edition). Note: an Executive Summary
is not an introduction. An Executive Summary should be an overview
of the entire report, including recommendations, and no longer than
one (1) page in length. This may be the only page read by busy
managers.
The word count guide does not include your:
• cover page; • executive summary; • table of contents; •
tables/calculations; and • reference list (in-text citations and
reference list).
Please find below the complete solution for the required questions -
1. Balance sheet as on 30th November 2019
Balance Sheet as on 30th November 2019 | |||
Liability | Amount | Assets | Amount |
Partners Capital | |||
Mr. Fisher | $ 10,945 | ||
Mrs. Fisher | $ 10,945 | ||
Current Liabilities | Current Assets | ||
Sundry Creditors | $ 4,015 | Prepaid Expenses | $ 660 |
Exp Payable | $ 88 | Bank A/c | $ 24,501 |
To Postage Payable | $ 554 | Closing Stock | $ 1,386 |
$ 26,547 | $ 26,547 |
2. Profit and Loss A/c for the period ended 30th November 2019
Profit & Loss A/c for the period ended 30th November 2019 | |||
Particualrs | Amount | Particualrs | Amount |
To Purchase | $ 2,640 | By Sales | $ 1,980 |
To Delivery Charge | $ 55 | By Sales return | $ (165) |
To Purchase | $ 3,960 | By Sales | $ 4,862 |
To Delivery Charge | $ 55 | By Sales | $ 1,540 |
To Gross Profit c/d | $ 2,893 | By Closing Stock | $ 1,386 |
$ 9,603 | $ 9,603 | ||
To Gross Profit b/d | $ 2,893 | ||
To Rent | $ 330 | ||
To Telephone & Internet Exp | $ 88 | ||
To Postage Exp | $ 554 | ||
To Discount Exp | $ 31 | ||
To Net Profit c/d | $ 1,890 | ||
$ 2,893 | $ 2,893 |
3. Bank A/c for the period ended 30th November 2019
Bank A/c | |||
Particualrs | Amount | Particualrs | Amount |
To balance B/d | $ - | ||
To Cash | $ 20,000 | By Intex Pools Ltd | $ 2,695 |
To Customers | $ 1,980 | By Customer | $ 165 |
To Customers | $ 4,862 | By Rent | $ 990 |
By Primary school | $ 1,509 | ||
By balance c/d | $ 24,501 | ||
Total | $ 28,351 | Total | $ 28,351 |
4. Partner's Capital as on 30th Novemeber 2019
Partners Capital | |
Op Balance | $ 20,000 |
Mr. Fisher (Profit in 1:1) | $ 945 |
Mrs. Fisher (Profit in 1:1) | $ 945 |
Balance | $ 21,890 |
Mr. Fisher (Profit in 1:1) | $ 10,945 |
Mr. Fisher (Profit in 1:1) | $ 10,945 |
5. Stock Register as on 30th November 2019
Stock register | ||
Particualrs | Quantity | Balance |
Purchase | 30 | 30 |
Sold | -12 | 18 |
Sales Return | 1 | 19 |
Purchase | 40 | 59 |
Sold | -34 | 25 |
Sold | -10 | 15 |
Damaged (Write Off) | -1 | 14 |
Balance | 14 |
6. If we maintain stock as on following three different method of inventory valuation it would be as follows -
FIFO | Cost | $ 1,386 | (14 X 99) |
LIFO | Cost | $ 1,232 | (14 X 88) |
WA | Cost | $ 1,316 | (14 X 94) |
7. Journal Entries -
Date | Particulars | Dr. | Cr. |
01st Nov 19 | Mr. Fisher A/c Dr. | $ 10,000 | |
Mrs. Fisher A/c Dr. | $ 10,000 | ||
To Bank A/c | $ 20,000 | ||
01st Nov 19 | Rent A/c Dr. | $ 330 | |
Prepaid Rent A/c Dr. | $ 660 | ||
To Bank A/c | $ 990 | ||
08th Nov 19 | Purchase A/c Dr. | $ 2,640 | |
Delivery Charges A/c Dr. | $ 55 | ||
To Intex Pools Ltd. A/c | $ 2,695 | ||
15th Nov 19 | Intex Pools Ltd. A/c Dr. | $ 2,640 | |
To Bank A/c | $ 2,640 | ||
16th Nov 19 | Customer's A/c Dr. | $ 1,980 | |
To Sales A/c | $ 1,980 | ||
16th Nov 19 | Bank A/c Dr. | $ 1,980 | |
To Customer's A/c | $ 1,980 | ||
20th Nov 19 | Sales A/c Dr. | $ 165 | |
To Customer's A/c | $ 165 | ||
22nd Nov 19 | Purchase A/c Dr. | $ 3,960 | |
Delivery Charges A/c Dr. | $ 55 | ||
To Intex Pools Ltd. A/c | $ 4,015 | ||
23rd Nov 19 | Customer's A/c Dr. | $ 4,862 | |
To Sales A/c | $ 4,862 | ||
25th Nov 19 | Primary School's A/c Dr. | $ 1,540 | |
To Sales A/c | $ 1,540 | ||
27th Nov 19 | Bank A/c Dr. | $ 1,509 | |
Discount on Sales A/c Dr. | $ 31 | ||
To Primary School's A/c | $ 1,540 | ||
30th Nov 19 | Telephone & Internet A/c Dr. | $ 88 | |
Postage Exp. A/c Dr. | $ 554 | ||
To Bank A/c | $ 642 |
8. Trail balance -
Trial Balance | ||
Particulars | Debit | Credit |
Partners Capital | ||
Mr. Fisher | $ 10,945 | |
Mrs. Fisher | $ 10,945 | |
Sundry Creditors | $ 4,015 | |
Exp Payable | $ 88 | |
To Postage Payable | $ 554 | |
Prepaid Expenses | $ 660 | |
Bank A/c | $ 24,501 | |
Closing Stock | $ 1,386 | |
By Sales | $ 1,980 | |
By Sales return | $ (165) | |
By Sales | $ 4,862 | |
By Sales | $ 1,540 | |
To Purchase | $ 2,640 | |
To Delivery Charge | $ 55 | |
To Purchase | $ 3,960 | |
To Delivery Charge | $ 55 | |
To Rent | $ 330 | |
To Telephone & Internet Exp | $ 88 | |
To Postage Exp | $ 554 | |
To Discount Exp | $ 31 | |
To W/Off | $ 504 | |
$ 34,764 | $ 34,764 |