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Financial Accounting


Australia’s Genuine Employment Services (AGES) are finalising their financial reports for the year ending 30th June 2015. AGES is a recruiting agency which specialises in finding work for people all over the world. Income is generated by charging fees to customers in exchange for helping them find employment both in Australia and overseas. Income is also generated by running seminars to assist clients in up-skilling themselves to make them more marketable and employable. The owner of AGES has prepared the financial reports himself with the assistance of a first year accounting student. Unfortunately, the owner has not studied accounting and believes he made a number of mistakes when preparing the end of year financial reports. He has asked you for assistance in finalising the financial reports. You are given all of the information used to prepare the financial reports for the year ending 30th June 2015 (You are not required to prepare financial reports). Disregard GST for this question. The owner has also asked you to make sure you apply the rules of accrual accounting to your investigation which means you need to identify appropriate adjusting entries (eg accrued expenses and depreciation expenses) based on the information supplied. During your initial investigation you have identified the following issues which may require further action: (a) All staff for AGES work Monday to Friday. The shop does not open on Saturdays or Sundays. Disregard PAYG tax for the purposes of this question. (b) AGES controls a number of non-current assets. To make things simple, the owner decided all non-current assets should be depreciated using the straight line depreciation method*. Details relating to assets controlled by AGES are shown below: Asset Cost ($) Useful Life (Years) Residual Value ($) Office Furniture 90,000 15 0 Office Equipment 20,600** 5 0 Motor Vehicles 80,000 10 10,000 Fixtures and Fittings 96,000 20 0 Buildings 350,000 25 10,000 * Straight line depreciation is assumed knowledge from ACG11 (or equivalent). Further information relating to this method can be found in the textbook. ** The $20,600 includes $600 for a DVD player contributed to the business by the owner of AGES (discussed in (j) below). For the purposes of the assignment, assume that all office equipment has a useful life of 5 years and a residual value of $0. *** Unless indicated otherwise in the information provided, all assets shown above were already in the accounts at the beginning of the reporting period. (c) The telephone bill for the shop was paid by the owner on the 15th of June 2015 – the bill was for $540. The bill was paid using the personal bank account of the owner because he was paying some other personal bills at the same time and forgot to bring his credit card from the business to pay for the business’ telephone bill. The owner then took out $540 from the business bank account on the 30th of June to reimburse himself for the payment he made on the 15th of June. He also took out an extra $200 at the same time, on the 30th of June, from the business bank account, for personal use. Nothing had been recorded in the accounting records regarding these events. (d) On the 30th of June 2015, the owner took home a couch (furniture) for personal use. The couch has an original cost of $900 and had never been used when taken home by the owner (so the written down or carrying amount was also $900). The couch was taken out of “Office Furniture”. The owner did not record anything in the accounting records because the owner might return the furniture back to the business. (e) Additional office furniture (a wall clock) was purchased by the business on the 30th of June 2015. The amount of the purchases was $100 cash. The $100 has been recorded as a debit to the “Maintenance expense” account and a credit to “Cash at Bank” because the owner thought the amount was too small to record it as an asset. (f) Total wages of $14,400 (6 staff each paid $2,400) are paid to sales staff every fortnight. Sales staff wages had been paid and correctly recorded on the 5th and 19th of June 2015. All employees who work for AGES are paid on the 4th and 18th of June. No other entries have been processed relating to wages in June 2015. (g) A client paid $750 on the 15th of June for some seminars to be held on the 8th of July 2015. The $750 has been recorded as a credit to “Unearned Income” and a debit to “Cash at Bank”. On the 29th of June, the client decided to cancel her participation in the seminar due to illness. AGES will refund the deposit to the client once all the paperwork has been finalised (it is anticipated that the cancellation of the booking will be finalised on the 2nd of July 2015). AGES also charges a fee of 10% of any deposit received as an administration fee (recorded as General Income) if an order is cancelled (regardless of the reason for cancelling). That is, AGES will keep 10% of the $750 as an administration fee. (HINT: Use your knowledge from ACG11 relating to accrual accounting and focus on what has happened and how much cash has been received and what has happened by the 30th of June 2015). (h) The bank statement for the month of June 2015 shows that a cheque received from a customer for $1,200 had not cleared with the bank. The bank had recorded that the cheque was dishonoured on the 11th of June. The accountant for AGES was not aware of the dishonoured cheque and all you could find in the accounting records was a debit to “Cash at Bank” and a credit to “Accounts Receivable” for $1,200. (Refer to the textbook for further explanation regarding dishonoured cheques). Question Continued over the page… Question Continued (i) Rent for office space (where they conduct their seminars) for 4 months covering April – July was paid on the 1st of April 2015. The amount paid was $2,000. A debit to “Rent Expense” and a credit to “Cash at Bank” was recorded on the 1st of April. On the 30th of June AGES found a new office space and all seminar bookings for July were moved from the old office space to the new office space. The old office space was not used and was left empty for the remainder of the life of the rental agreement (ie for the whole month of July). The new office was rented for $700 per month and a 12 month agreement was signed for on the 30th of June 2015 and paid for in cash on the 30th of June 2015. (j) The owner purchased a DVD player for the business to use to play holiday DVD’s in the office as a marketing tool to convince clients to book into the seminars. He purchased the DVD player using his own personal bank account on the 1st of March 2015 and gave the DVD player to the business on the 1st of March. He recorded this contribution of the DVD player as a debit to “Office Equipment” and a credit to “Owner Contributed Income”. The DVD player cost $600. (k) AGES hired a part time assistant at the beginning of June 2015. The assistant is being paid $3,000 per month. No entry has been processed for the wages (to record the amount owing or the payment) – they were paid on the 30th of June 2015. (l) Rent for the administration office (separate to the office referred to in part (i) above) used by AGES was paid in cash on the 28th of February 2015. The amount paid was $12,000 and was for the 10 months covering 28th February 2015 – 31st December 2015. The accountant for AGES was not sure how to treat this payment and the only entry you can see which relates to this payment is on the 28th of February 2015. Details of the entry posted is shown below: Extract from the General Journal Date Details Debit Credit 2015 28th Feb Rent Expense 12,000 Cash at Bank 12,000 (m) Annual insurance for the business is overdue. Insurance is $3,000 per year and is normally paid on the 1st of June for 12 months. AGES did not receive the original renewal notice from the insurance company because it was sent to the wrong address by the insurance company. AGES has subsequently received the bill on the 20th of June and paid the $3,000 on the 30th of June 2015. As a gesture of goodwill by the insurance company, the insurance company allowed AGES to be covered for no charge for June 2015 due to the administrative error in the delivery of the bill to AGES plus an additional 2 months for no extra charge (ie 14 months coverage from 1st July 2015 – 31st August 2016 for the payment of $3,000). Question continues over the page… Question Continued IMPORTANT: STUDENTS ARE ENCOURAGED TO READ THROUGH ALL OF THE INFORMATION IN THE QUESTION ABOVE FIRST BEFORE ANSWERING THE REQUIREMENTS OF THE QUESTION. THIS WILL MAKE IT EASIER TO IDENTIFY IF SOME PARTS IMPACTS ON OTHER PARTS OF THE QUESTION. REQUIRED Prepare the general journal entries to account for the information presented to you above. (If you believe a journal entry is not required, please explain why you believe this to be the case). Make sure you use the template provided on the Unit website to answer this assignment. An assignment feedback sheet and associated guidelines have not been provided for this assignment as the assignment relies on applying assumed knowledge from ACG11.