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					          VICTORIA UNIVERSITY


     School of Business & Service Industries


DEPARTMENT OF FINANCIAL SERVICES


       DIPLOMA OF ACCOUNTING

                  FNB50204

   VIRTUAL BUSINESS – DIPLOMA
         Semester 2, 2006

          GROUPS: GDF, WDF & SDF




         Western Furniture Ltd.
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006



                                        Table of Contents
Particulars                                                                                  Page no.



VICTORIA UNIVERSITY                                                                                  1

Letter from Head of Department                                                                       2

Introduction: Virtual Business – Diploma 2nd semester                                                3

PROGRAM STRUCTURE – 2nd Semester Diploma                                                             4

BACKGROUND INFORMATION FOR VIRTUAL BUSINESS CLIENT                                                   5

Trial Balance of Western Furniture as at 30 June 2006, before Closing Entries                        6

Hoang Manufacturing Pty Ltd (Mark Hoang) Statement of Financial Position - for the year ended 30th
June 2006.                                                                                           7

Hoang Manufacturing Pty Ltd Statement of Financial Performance for the period 1 July 2005 to 30
June 2006                                                                                            8

Hoang Manufacturing Pty Ltd Manufacturing Statement for the year ended 30 June 2006                  9

Financial statement of Pacific Furniture Ltd for the year ended 30th June 2006                       10

Provide Financial & Business Performance Information FNSACCT501A                                     11

Prepare Income Tax Returns FNSACCT502A                                                               13

Manage Budgets & Forecasts FNSACCT503A                                                               14

Prepare Financial Reports for a Reporting Entity FNSACCT504A                                         15

Implement and Maintain Internal Control Procedures FNSACCT506A                                       17

Provide management accounting information FNSACCT507A                                                19




                                                                                                         1
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006




                                 Letter from Head of Department


Dear students

Congratulations on successfully completing the 1st semester of diploma of business in accounting. You have
now moved into the 2nd semester of diploma in accounting. We hope that the virtual business model has
given you an opportunity to learn the process of accounting in a more practical way. In the 2nd semester we
will continue to learn accounting using the same model with slight variations to accommodate the
competencies of 2nd semester.

Peter Cook
Head of Department

30 June 2006




Disclaimer:
The purpose of this document and activities related to it is solely for educational use. All the above
information is hypothetical. Any resemblance to a person living or dead or to any organization is only a
coincidence.




                                                                                                           2
   VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006

                              Introduction: Virtual Business – Diploma 2nd semester

   In the 2nd semester of the diploma, the business will virtually operate for full year that is starting on 1st July
   2006 and ending on 30th June 2007, even though the Diploma will be completed by December. Students will
   continue to operate as partners with the same team members and VB client.
   VB – Client name           Products manufactured in the factory                 Products marketed and sold from retail outlet
                                                                                 (Includes products manufactured in the factory as
                                                                                          well as purchases from outside)
Western Beverages Ltd         Apple, pineapple and orange juice                  Different varieties of beverages and juice
Western Carpet Ltd            Woollen carpet, Lino and foot rug                  Floor coverings
Western Health Services Ltd   Shampoo, conditioner and soap                      Toiletries
Western Food Ltd              Chocolate, savoury and plain biscuits              Bakery Goods
Western Furniture Ltd         Lounge Suits, Dining Suits & Wall units            Household furniture
Western Garments Ltd          Woollen shirts, coats and trousers                 Men and Women’s clothing
Western Hardware Ltd          Garden spade, rake and wheel barrow                All types of gardening tools
Western Plastics Ltd          Plastic Boxes, Condiment sets & Small Containers   Various plastic household containers
Western Shoes Ltd             Sports, casual & leather shoes                     All types of shoes
Western Stationery Ltd        Writing pads, note books and diaries               Stationery supplies
Western Chemicals Ltd         BRZ12, chlorine and Ammonia 24                     Industrial cleaning chemicals
Western Timbers Ltd           Decking treated pine, hard wood and Jarrah         Outdoor DIY supplies

   In the 2nd semester of the diploma the Virtual Business Management Firm (VB-MF) will broadly be
   required to do the following for their Virtual Business Client (VB-C):
               a. Prepare budgets and forecast for the client’s business
               b. Prepare financial reports for the client
               c. Plan and implement internal control procedures suitable to the client’s business
               d. Provide management accounting information
               e. Prepare income tax returns (Individual and sole trader)
               f. Evaluate business performance
   Most of the project work in the VB-Diploma will require day-to-day submission of tasks (similar to a
   milestone). The VB–MF will have to come up with answers and recommendations to the requirements of
   the VB–C from time to time. This is in line with what is expected of a business in a day-to-day operation.
   Assessment schedules with time line has been prepared for each competency and students are required to
   follow it closely.
   Unless advised otherwise by your teacher, required tasks have to be submitted as a hard copy to the teacher
   along with a ‘Task Submission form’ available on Docushare. Submission due dates and the maximum
   marks allocated for each question is stated at the end of the VB booklet in the assessment schedule provided
   for each competency.

   ASSESSMENT
   The assessment within VB –Diploma 2nd semester has been divided into two parts
             (i)        Competency specific individual assessment
             (ii)       Integrated VB – Diploma 2nd semester assessment
        (i)        Specific assessment– will be related to a specific competency. The teacher will decide on the
                   type of assessment a student will have to complete. This may include tests (mainly), class
                   activities, case study, etc.
        (ii)       Integrated VB - Diploma assessment- the remaining assessment will be related to virtual
                   business. Student groups (VB–MF) will be required to complete tasks related to the VB–C. The
                   tasks will be practical and will closely relate to the competencies being covered in the 2nd
                   semester. An integrated assessment will be a single business project submitted in several stages.
                   Students belonging to a particular group will get the same marks. But the marks for individual
                   competencies will depend on the quality of work submitted for each of the required tasks.




                                                                                                                                 3
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


                     PROGRAM STRUCTURE – 2nd Semester Diploma


  COMPETENCIES                Provide Financial & Business Performance Information FNSACCT501A
  DELIVERED                   Prepare Income Tax Returns FNSACCT502A
                              Manage Budgets & Forecasts FNSACCT503A
                              Prepare Financial Reports for a Reporting Entity FNSACCT504A
                              Implement and Maintain Internal Control Procedures FNSACCT506A
                              Provide Management Accounting Information FNSATTC507A

  BUSINESS
  STRUCTURE OF
  VIRTUAL BUSINESS
  CLIENT                                  Public Limited Company

  MAIN BUSINESS
  ACTIVITIES                  Manufacturing
                              Warehousing
                              Distribution
                              Retailing


  ROLE OF VB-MF               Provide Financial & Business Performance Information
                              Prepare tax returns for client
                              Prepare budgets and forecasts
                              Prepare financial reports
                              Advice on implementation and maintenance of internal control
                              Provide management accounting information




                                                                                                 4
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


        BACKGROUND INFORMATION FOR VIRTUAL BUSINESS CLIENT

                                  Western Furniture Limited

                                   DIPLOMA SEMESTER 1, 2007

After three months of successful operation Andrew decides to expand his business further by joining hands
with a local manufacturing firm Western Manufacturing owned by Mark Hoang. Mark has been operating
a manufacturing business of similar product range but with limited varieties as a sole trader for the last 3
years. They decided to convert their individual sole trading business into a public limited company Western
Furniture Limited with Andrew and Mark as two directors in the company having equal share holding.
The company directors have decided to do bookkeeping in house. Only specialised areas of accounting like
tax returns, management accounting, financial reporting, internal control evaluation, financial performance
etc. have been outsourced to Virtual Business Management Firm.

The following results after the merger of the two businesses:

Western FurnitureLimited:
   Administrative office is located on Burke Street in the CBD of Melbourne. (Renting)
   Warehouse is located on Footscray Road (owned)
   Manufacturing facilities is located in Brooklyn (owned)
   Company’s factory retail outlet is located in High Point Shopping Centre. (Renting)

For Andrew’s business the information that has been gathered from the first semester of Diploma is the
information that is going to be used in the second semester of diploma for the purpose of business
combination. This includes the following:
       i) Andrew’s sole trading financial statements (profit and loss account and balance sheet)
       ii) Nature of the business (distribution, warehousing and retailing)
       iii) Andrew has a warehouse, retail shop and an administrative office
       iv) Andrew has 8 employees: (As a result of down sizing due to business combination or merger)
               (a) 2 work in the office
               (b) 2 work in the warehouse
               (c) 2 work in the retail shop
               (d) 1 work in marketing and sales
               (e) 1 work in the purchase department

For Mark’s business the information has been provided to you from previous year’s operation. This
includes the following:
       i) Mark Hoang’s sole trading financial statement (Balance sheet)
       ii) Nature of the business (Manufacturing and distribution)
       iii) Mark has a factory in Brooklyn. The warehouse and administrative office are located within the
            factory premises.
       iv) Mark has 12 employees:
                (a) 1 work in the administrative office
                (b) 1 work in the factory warehouse
                (c) 9 work in the factory’s production area.
                (d) 1 look after sales

There are a total of 20 employees in Western Furniture Ltd after merger.




                                                                                                             5
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006

         Trial Balance of Western Furniture as at 30 June 2006, before Closing
                                   Entries

Account                                        Debit                Credit
Cash at Bank                                           134.776.70
Debtors Control                                        123,470.00
Stock                                                   64,000.00
Storage Equipment                                       46,000.00
Acc Dep St Equipment                                                             4,312.50
Furniture                                               18,000.00
Acc Dep Furniture                                                                1,350.00
Office Equipment                                         7,000.00
Acc Dep Office Equipment                                                          525.00
Delivery Vehicles                                       40,800.00
Acc Dep Delivery Vehicles                                                        1,961.75
Warehouse                                              160,000.00
Motor Vehicles                                          33,700.00
Acc Dep Motor Vehicles                                                            290.84
Creditors Control                                                             113,660.00
Sundry Creditors                                                               72,400.00
GST Collected
GST Paid
Bank Loan - bank of Victoria                                                  190,000.00
Wages Payable
Vic Super Fund Payable
Super Guarantee Payable
CSA Payable
Union Payable
PAYG Payable
Capital                                                                       125,000.00
Drawings                                                 8,330.00
Sales                                                                         592,636.36
Sales returns & Allowances                               1,800.00
Discount Revenue                                                                  363.64
Purchases                                              283,681.65
Purchases Returns & Allowances                                                 15,200.00
Discount Expense                                           409.09
Wages Expense                                          141,947.67
Advertising                                              2,500.00
VIC Roads Registration & Insurance                       1,055.55
Telephone                                                2,500.00
Fuel                                                       740.00
Interest Expense                                         4,750.00
Consulting fees                                         10,000.00
Superannuation Vic Super                                11,526.42
Commission Expense
Rent Expense                                          12,272.73
Depreciation SE                                        4,312.50
Depreciation Furniture                                   525.00
Depreciation Off Equipment                             1,350.00
Depreciation Delivery Vehicle                          1,961.75
Depreciation M Vehicle                                   290.84
                                                   1,117,700.09              1,117,700.09



                                                                                            6
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


     Hoang Manufacturing Pty Ltd (Mark Hoang) Statement of Financial Position
                     - for the year ended 30th June 2006.

Particulars                               $             $            $
Current assets
Trading goods :
 Direct Material                           116,000
  Indirect Material                            12,980
  WIP                                          98,020
  Finished Goods                           627,360      854,360


Cash at bank                                   45,000
Accounts receivable                            98,000   143,000
Total current assets                                    997,360

Non- current assets
Factory land and building                  383,000
Machinery and equipment                    128,000
Motor vehicle (2 nos.)                      61,000
Office equipments                            5,000
Total non-current assets                                    577000

Total assets                                                             1574360

Less liabilities
Current liabilities
Accounts payable                           187,000
Income Tax payable                         188,208
Total current liabilities                               375,208

Non current liabilities
Bank loan                                  450,000
Total non current liabilities                           450,000
Total liabilities                                                        825,208

Net assets                                                                749152

Represented by:
Retained Profits                                        439,152
Capital – Mark                                           309999
                                                                          749152




                                                                                   7
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


                             Hoang Manufacturing Pty Ltd
                     Statement of Financial Performance for the
                         period 1 July 2005 to 30 June 2006



          ACCOUNT
                                                           $           $
          Sales (Excluding GST)                                    2,089,870
          Cost of goods sold
           Finished Goods 1/7/04                         891,280
           Cost of production                            697,420
           Finished Goods 30/6/05                        627,360
                             COGS                                   961,340

                        GROSS PROFIT                               1,128,530

          Wage and salary expenses (excluding factory)   304,780
          Rates (excluding factory)                       14,325
          Insurance (excluding factory)                   12,468
          Rent (office and retail outlet)                 28,000
          Legal and consultancy expenses                  12,000

          Telephone expenses (excluding factory)          21,413
          Postage and stationery                           6,580
          Interest expenses                               23,567
          Entertainment expenses                          15,340
          Sales commission                                62,696    501,169

            NET PROFIT BEFORE INCOME TAX                            627,360

                   INCOME TAX EXPENSE                               188,208

                  NET PROFIT AFTER TAX                              439,152




                                                                               8
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


                             Hoang Manufacturing Pty Ltd
                        Manufacturing Statement for the year ended
                                      30 June 2006


                                                 $         $           $
Direct Materials
WIP Start                                        6,430
Stock Raw Materials Start                       15,470
Purchases Raw Materials                        351,340
Cartage Inwards                                  6,200   379,440
Less
WIP End                                          52380
Stock Raw Materials End                        116,000   168380       211060

Direct Labour
WIP Start                                        5,800
Direct Labour Paid                             225,400   231,200
Less WIP End                                              34,140       197060
Prime Cost                                                            408,120
Manufacturing Overhead
WIP Start                                                  3,240
Indirect Materials *                                      37,190
Indirect Labour                                           84,500
Electricity-Factory                                       37,690
Rent-Factory                                              13,270
Insurance-Factory                                         15,400
Telephone & Stationery-Factory                             4,350
General expenses-Factory                                  18,250
Depreciation Plant &Machinery                             86,910
                                                         300,800
Less WIP End                                              11,500      289,300

Cost of Production                                                   $697,420




* Indirect Materials
Stock at Start                                   5,670
Purchases                                       44,500
Less Stock at End                               12,980    37,190




                                                                                9
 VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006

                            Financial statement of Pacific Furniture Ltd for
                                     the year ended 30th June 2006

Pacific Furniture Ltd is a business with a similar business structure and operations. The objective of
providing the financial statements of this company is to use them for comparative study and analysis of
industry trend.
Income statement and balance sheet of Pacific Furniture Ltd for year ended 30th June 2006

        Statement of Financial Performance for the financial year ended 30 June 2006

  Revenues from ordinary activities                                          1             6,384,612
  less Expenses from ordinary activities                                     1           (4,946,355)
  less Borrowing costs expense                                                              (45,200)
  Profit (loss) from ordinary activities before income tax.                                1,393,057
  less Income tax expense                                                                    398,716
  Profit (loss) from ordinary activities after income tax.                                   994,341
  Net profit (loss) attributable to shareholders                                             994,341
  Total changes in shareholders’ equity                                                      994,341

                     Statement of Financial Position as at 30 June 2006
 Current assets
   Receivables                                                              786,000
   Inventories                                                              876,850
   Other                                                                    187,400
   Total current assets                                                                      1,850,250
 Non-current assets
   Property, plant & equipment                                              940,700
   Total non-current assets                                                                    940,700
 Total assets                                                                                2,790,950
 LIABILITIES
 Current liabilities
   Payables                                                                 916,520
   Current tax liabilities                                                  120,500
   Provisions                                                                87,600
   Other                                                                     16,000
   Total current liabilities                                                                 1,140,620
 Non-current liabilities
   Interest bearing liabilities                                             427,000
   Total non-current liabilities                                                               427,000
 Total liabilities                                                                           1,567,620
 Net assets                                                                                  1,223,330
 SHAREHOLDERS' EQUITY
   Share capital                                                            800,000
   Reserves                                                                 100,000
   Retained profits                                                         323,330
 Total shareholders’ equity                                                                    1,223,330
 Notes to the financial report     1    Profit (loss) from ordinary activities includes the following items
 Crediting as revenue
    Sales                                                                                  6,384,612
 Charging as expenses
    Cost of goods sold                                                                     4,214,125
    Depreciations                                                                            216,450
    Employee entitlements                                                                    416,580
    Rent expense                                                                              87,000
    Bad debts                                                                                 12,200
    Total                                                                                  4,946,355
    Interest expense                                                                          45,200


                                                                                                              10
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006
                Provide Financial & Business Performance Information
                             FNSACCT501A
Assessment of this competency will consist of a written test worth 70% and virtual business assessment
tasks worth 30%.

The Virtual Business management Firm (VB-MF) is required to do the following for this competency:

           Calculate and comment on all the relevant financial ratios to show the health of Western
           Furniture Limited using 30th June 2006 and 30 June 2007 financial statements.


Case Study 1
The directors of the company are considering investing in two capital projects related to their current
business for expansion and they require your assistance in making a profitable decision. They have provided
the details of each project, which are as follows:


                                         Project X                  Project Y


Outlay cost                              $13,848                     $30,972
Cash flow (after tax)
Year 1                                    $8,000                       $0
      2                                   $8,000                     $16,000
      3                                   $8,000                     $32,000


Each project is depreciated on a straight-line basis with a zero residual value. Western Furniture Limited has
a required rate of return of 12%. You are required to submit your report to the directors by ranking each
project from best to worst using the investment techniques below. In no more than 5 lines for each
investment technique, explain why you think they rank in that order.

(a)    Accounting Rate of Return (Total Investment)
(b)    Payback Period
(c)    Net Present Value
(d)    Internal Rate of Return

Show all working on your answer sheet.


Case Study 2

Western Furniture Limited has a Laser printer that cost $ 30,000 five years ago (previously owned by
Western Manufacturing before the merger). The Printer has an estimated useful life of another three years,
at which time it could be sold for $5,000. The after-tax cash flows from the future operations of the machine
will be $4,500 p.a.

The Laser Printer has a current disposal value of $16,000 and Western Garments Limited has a required rate
of return of 16%. Should the Laser Printer be kept? Explain why?

Show all working on your answer sheet.




                                                                                                           11
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


Case Study 3 – Analytical Report

                       1. Calculate each ratio for 30th June 2006 & 30th June 2007

                       2. Interpret each ratio, explaining:
                           The meaning of each ratio.
                           How each ratio compares to Financial Statements of Pacific Furniture Ltd,
                              using these reports for comparison.
                           Are the ratios calculated above for Western Furniture Ltd favourable or
                              unfavourable as compared to the bench mark set by Pacific Furniture Ltd.
                           students should compare ratios from one year to the next; and
                           students should analyse the interrelationship between the ratios and comment
                              on the significance of this relationship on the business.


                   o Liquidity Ratios
                         Current Ratios
                         Liquid Ratios
                         Working Capital Ratios
                   o Activity Ratios
                         Stock turnover
                         Average collection period
                         Asset turnover
                   o Profitability Ratios
                         Gross profit margin
                         Net profit margin
                         Return on total assets
                   o Leverage Ratios
                         Debt to Equity
                         Total debt to total assets
                         Debt to operating cash flow
                         Times Interest coverage
                   o Equity Valuation and Performance Ratios
                         Payout ratio
                         Earnings per share
                         Dividend per share
                         Earnings yield
                         Dividend yield

Show all working on your answer sheet.

Explain to Western Furniture your analysis of the Financial Statements by preparing answers to the
following questions

   What are the ‘significant items’ that should concern management? Take into account the following 2
    considerations:
       o The nature of the account; and
       o The percentage change in the account
   Explain the potential significance of the ‘significant items’ and their impact on the financial statements.
   Why is it important to prepare an analytical report for management?



                                                                                                             12
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


                               Prepare Income Tax Returns
                                    FNSACCT502A

Assessment of this competency will consist of a written test worth 50% and virtual business assessment
tasks worth 50%.

The Virtual Business management Firm (VB-MF) is required to do the following for this competency:

              1. Complete the individual tax return including the supplementary section for Andrew’s sole
                 trading business using information from 30th June 2006 profit and loss account of
                 Western Furniture.

              2. Download Individual Tax Return Form NAT1371 from www.ato.gov.au


Additional information:

   Andrew Hyde

            Andrew has a dependent spouse Mary Hyde with a separate net income of $2,000.

            Andrew made a donation to Royal Children’s Hospital for $85.

            Andrew paid $120 to a tax agent for last year’s tax return.

            Gross interest income from ANZ $148 (no tax).

            Gross income from ABC Pty Ltd is $40,833 tax withheld is $12,222 and there is also a Bona
              Fide Redundancy payment of $50,000, being for 15 years service for this employer.

            Net Dividend income from Telstra Corp. Ltd ($3,000 tax withholding) $7,000.
                                                                       th
            Andrew sold his investment property for $232,000 on 12 May 2005. Incidental selling cost
              were $8,900 for agent’s commission and advertising. He purchased the property on 8th
              March 1983 for $87,000.




                                                                                                         13
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006

                                    Manage Budgets & Forecasts
                                         FNSACCT503A

Assessment of this competency will consist of three Virtual Business assignments totalling 30%. The other
70% will be assessed on an individual basis.

          1. Prepare a Retail Sales Budget for August and September 2006 by product range and state the
               factors that may have been taken into consideration when forecasting increase in retail sales
               by the retail sales manager.

          2. Prepare budgeted financial statements for 2006-2007.

          3. Analyse the impact of the budget on the company’s cost structure and break-even point. Based
             on the budgeted financial statement what changes in business strategy will you recommend to
             the directors of the company.

          4. Explain to Western Furniture the significance of preparing a Master Budget for decision
             making purposes.

Additional information:

During the months of July 2006 the sales for the following products were:

                                      Month          Wall Unit        Lounge Suit            Dining Suit
Retail                                July           2,413            3,489                  4,120
Unit selling price - retail                          $65              $42                    $33

The sales manager has estimated that the sales in the retail outlet will increase by an average by 7% in
August 2006 and 5% in September 2006 based on July Sales.

Selling prices will increase by 4% in August and September prices will remain the same as August.


Budgets for 2006-2007

       The production manager has estimated that the cost of production will increase by around 4% due to
        factors like inflation, expected decline in Australian dollar in the next twelve months and increase in
        the cost of imported raw materials.
       As a result of increase in production cost the management will have to increase the selling price by
        4% retail.
       Total Sales in 2006- 2007 are expected to increase by 7.5% in cash and 12% on account after taking
        into account the increase in selling price.
       Non-factory wages and salary are expected to increase by 3%
       Accounts payable will increase by 2.5%
       Insurance expense is expected to increase by 11%
       Interest expense is expected to increase by 6%




                                                                                                             14
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006

                          Prepare Financial Reports for a Reporting Entity
                                         FNSACCT504A
Assessment of this competency will consist of two written tests worth 65% and virtual business assessment
tasks worth 35%
     The Virtual Business management Firm (VB-MF) is required to do the following for Prepare
     financial reports for a reporting entity FNSACCT504A:
     1.    Convert the two sole trading businesses and merge them into a single public limited company as
     per ASIC requirements and prepare journal entries required for company formation. (Use Andrew’s
     30th June 2006 balance sheet information from the Trial Balance on page 7 and Mark’s 30th June 2006
     balance sheet on page 8; (no adjustments in the book value of assets and liabilities is required). Both
     Andrew and Mark decided to own and hold equal number of fully paid ordinary shares of $1 each
     even though their individual contribution is not the same.
     2.    Prepare income statement (statement of financial performance) for Western Furniture Limited
     (using trial balance for year ended 30th June 2007; copy on page 16, and additional information and
     director’s recommendations).
     3.   Prepare Balance sheet (statement of financial position) for Western Furniture Limited (using trial
     balance for year ended 30th June 2007; copy on page 16, and additional information and director’s
     recommendations).

Additional information and directors’ recommendations:
Provide for income tax expense for the year ended 30th June 2007 at a rate of 30%
Freehold land is to be re-valued at $250,000 in accordance with independent valuation.
An interim dividend of 3% on paid up capital was paid on 26th January 2007.
A final dividend of 5% on paid up capital at 30th June 2007 has been recommended, and is to be provided
for. This is expected to be paid in September 2007.
You are required to write off $10,000 of goodwill.
The Research and Development costs qualify for 125% tax deduction.
Depreciation on Buildings and Amortisation on leasehold land and premises is not deductible for tax
purposes.
Sales for the 12 months to 30th June 2007 were $5,687,840

Western Furniture Limited: Trial balance for year ended 30th June 2007
ACCOUNT                                                                 DEBIT            CREDIT
                                                                          $                $
Freehold Land                                                              300,000
Factory                                                                    135,000
Office Building                                                            100,000
Accumulated depreciation of Factory                                                           2,700
Accumulated depreciation of Office Building                                                   2,000
Leasehold Land at cost                                                      150,000
Accumulated Amortisation of Leasehold Land                                                    3,000
Cash at bank                                                                      ?
Accounts receivable                                                       1,011,043




                                                                                                           15
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


     Western Furniture Limited: Trial balance for year ended 30th June 2007 (Continued)
ACCOUNT                                                            DEBIT        CREDIT
                                                                      $             $
Provision for doubtful debts                                                         26,700
Share capital – …………. Ordinary shares of $1 each                                          ?
Retained profit (1 July 200A)                                                            00
Bank loan                                                                           482,000
Machinery and equipments at cost                                       128,000
Accumulated depreciation on machinery and equipment                                  12,600
Office equipments at cost                                               12,000
Accumulated depreciation on office equipments                                         2,450
Storage equipments at cost                                              46,000
Accumulated depreciation on storage equipments                                        5,600
Furniture at cost                                                       18,000
Accumulated depreciation on furniture                                                 3,670
Vehicles at cost                                                       212,400
Accumulated depreciation on vehicles                                                 35,000
Warehouse                                                              160,000
Accrued expenses                                                                     56,000
Prepaid expenses                                                        12,560
Shares in XYZ Ltd                                                      180,000
Trading stock- finished goods (warehouse)                              789,600
Trading stock- finished goods (retail outlet)                          124,560
Direct material                                                        114,250
Indirect material                                                       52,350
Work in Progress                                                       360,000
Goodwill                                                                50,000
GST payable                                                                          12,600
Accounts payable                                                                    530,800
Sales (Excluding GST)                                                             5,378,940
Dividends from XYZ Ltd                                                                5,000
Cost of goods sold                                                   3,187,650
Wage and salary expenses (excluding factory)                           304,780
Depreciation expense (Buildings $15450)                                 27,860
Rates (excluding factory)                                               35,750
Insurance (excluding factory)                                           23,490
Rent (office and retail outlet)                                         51,000
Legal and consultancy expenses                                          42,000
Fuel                                                                    25,468
Telephone expenses (excluding factory)                                  20,680
Postage and stationery                                                  13,560
Interest expenses                                                       64,780
Entertainment expenses                                                  26,800
Amortisation on Leasehold Land                                           3,000
Sales commission                                                        78,600
Research and Development costs                                          20,000
 Interim Dividend                                                            ?




                                                                                              16
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


                     Implement and Maintain Internal Control Procedures
                                     FNSACCT506A

Assessment of this competency will consist of a written test worth 30% and virtual business assessment
tasks worth 50% for report and 20% for presentation.

The Virtual Business management Firm (VB-MF) is required to provide a report for incorporating the
following:

       1. Describe the current situation (strengths and weaknesses) with regards to internal control within
          the company’s operation. (Include current organizational chart and relevant procedural flow
          charts)
       2. Make recommendations to the company directors for all the internal control concerns you have
          including possible consequences as a result of those weaknesses. Include a revised organisational
          and procedural flow chart.
       3. Based on recommendations implement the internal controls within the company. This may
          include designing of forms, procedures, time frame etc.

   The above also needs to be submitted in the form of individual milestones.

Background information:
The company currently has the following:

      Administrative office is located on Burke Street in the CBD of Melbourne. (Renting)
      Warehouse located on Footscray Road, Footscray (owned)
      Manufacturing facility located in Geelong Road, Brooklyn (Owned)
      Company’s factory retail outlet is located in High Point Shopping Centre, Maidstone. (Renting)
      19 employees
            1 work in the head office looking after reception and administrative work
            1 work in the head office and does the bookkeeping including accounts receivable/payable
            1 work in the factory and looks after factory administrative work
            2 work in the warehouse in Footscray Road, Footscray.
            1 work in the warehouse in the factory in Geelong Road, Brooklyn
            9 work in factory’s production area
            2 look after sales and marketing.
            1 looks after purchase
            2 work at the High point retail outlet.

                                           CURRENT SITUATION
   WARE HOUSE
     The warehouse in Footscray Road, Footscray has got 2 employees.
     There is no segregation of duties between them.
      The warehouse manager has been moved to the production area for cost cutting.
     Both of them have the keys to the warehouse and any one who comes first has to open it.
     Each of them looks after receipt of finished goods, despatch and documentation. When one
      employee is busy with a particular work, the other takes up the required job.
     Upon receipt of goods from the factory, the employee calls up the administrative office and
      informs them of the receipt.
     Despatch is done on the basis of a copy of invoice sent by the accounts department.
     Because there is no computer in the warehouse, all documents are prepared manually.
     If a particular item is not there in stock, the warehouse employee simply changes the quantity on
      the invoice by crossing out the original quantity.


                                                                                                          17
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


   HEAD OFFICE (5 employees, besides the two directors)
     One looks after reception and administration
     One does all the bookkeeping, payroll, accounts payable and receivable
     2 people work in sales and marketing department
                   One manager
                   One field sales person
     One person works in the purchase department
     The receptionist collects all mails and after opening them sends it to relevant people.
     If a cheque payment is received, it is send to the accounts receivable clerk.
     The accounts receivable/payable clerk has the responsibility of receiving and depositing cheques,
      issuing cheques to suppliers (after signed by any one of the two directors) and issues invoices to
      customers.
     Only three copies of invoice are prepared, one is sent to the warehouse, one copy to the customer
      and one is retained in the files.
     The sales staffs get a commission of 2% on total sales. (Excluding GST)
     The company uses accounting software that was custom built by a small software development
      company in Melbourne.


   FACTORY
     The factory is currently managed by a very capable production manager. He has done a very good
      job in terms of production and meeting requirements.
     The factory has manual time card system. Each employee is required to put the card in the time
      slot located at the entrance of the factory.
     At the end of the week, the security guard collects the time cards and sends it to the administrative
      office for payroll processing.
     If an employee is absent, then he or she is required to inform the production manager who in turn
      calls up the head office and informs the receptionist.
     When raw material is required, the production supervisor calls up to the purchase officer.
     The purchase officer then places the order with the appropriate supplier and informs head office on
      phone.
     The invoice for raw material is directly received by the head office for payment.
     Daily production is sent to the warehouse in Footscray. No delivery report is prepared.
     Currently, the company is using the services of Fast Cargo Pty Ltd for despatch to customers. The
      director of the transport company is the brother of the production manager in the factory.


   RETAIL OUTLET
     The store manager banks the daily receipts and sends the bank docket to the head office.
     The store manager has not done a physical stock take of the retail outlet for the year ended 30th
      June 2006.
     Store manager does the bank reconciliation for the receipts of the retail shop.
     All the obsolete and damaged stock from the warehouse is sent to the retail outlet and sold from
      there at heavily discounted prices.
     The warehouse staffs make a list of items (obsolete and damaged) sent to retail outlet and send a
      copy each to head office and the retail outlet.

   Additional information:
   Currently there is no electronic link between warehouse, factory, and head office and retail outlet. All
   correspondence is via telephone or through exchange of paper work.




                                                                                                              18
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006

                                   Provide management accounting information
                                               FNSACCT507A
Assessment of this competency will consist of a number of individual assessments worth 70% and virtual
business assessment tasks worth 30%
The Virtual Business management Firm (VB-MF) is required to do the following for Provide management
accounting information FNSACCT507A:
             1. Prepare a manufacturing statement for the year ended 30th June 2007.
             2. Prepare Factory Payroll Register and Factory Payroll Analysis Sheet (for a given week).
             3. Prepare a Perpetual Inventory Stock Card for the thread, using the FIFO method of Inventory
                valuation and Materials Control Account for a given raw material.
             4. Explain to Western Furniture who prepares the above statements, why are they prepared and
                how they assist management in decision making.
Additional information:

        WESTERN Furniture LIMITED - Factory Manufacturing Statement information
 Balances as at 1ST July 2006                                                               $
 Stock Raw Materials                                                                     116,000
 Stock Indirect Materials                                                                 12,980
 WIP - Labour                                                                             34,140
 WIP - Materials                                                                          52380
 WIP - Overheads                                                                          11,500

 Details of transactions for the year end 30 th June 2007
 Depreciation –Machinery and equipment (factory)                                          13,700
 Freight Inwards Raw Materials                                                            37,450
 Insurance on Factory                                                                     12,410
 Interest expense (bank loan for factory - freehold)                                      17,320
 Light and Power - Factory                                                                87,670
 Purchases of Raw Materials                                                             1,937,900
 Purchases of Indirect Materials                                                         323,670
 Repairs to Machinery                                                                     12,365
 Transfer to warehouse of Finished Goods (128,900 units at @ average cost price)
 Lounge Suit                                                                           45,000 units
 Dining Suit                                                                           42,600 units
 Wall Unit                                                                             41,300 units
 Wages Paid - Direct Labour                                                              196,456
 Wages Paid - Indirect Labour                                                            189,718

 Adjustments to be made as at 30th June 2007
 Stock Raw Materials                                                                     114,250
 Stock Indirect Materials                                                                 52,350
 WIP - Labour                                                                             86,350
 WIP - Materials                                                                         215,970
 WIP - Overheads                                                                          57,680




                                                                                                          19
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006


    Western Furniture Ltd supplies VB-MF with the following payroll information for Factory:
    Western Furniture Limited employed five skilled operators, 1 Supervisor, one storeman, a
    production manager and a security guard. (Total 9 employees in the factory)
    Information for hours worked and rates of pay.
    Employee      Position             Rate of Pay                Total Hours worked
    Muhammad Supervisor                     $ 3600 Per month                45
    Patrick       Storeman/Admin               $21 per hour                 42
    Kalah         Operator                     $17 per hour                 45
    Feng          Operator                     $17 per hour                 43
    Kosiak        Operator                     $15 per hour                 45
    Rodrigo       Operator                     $16 Per hour                 45
    Vinh          Operator                     $15 Per hour                 43
    Kumartunga Security guard                $3200 Per month                40
    Rajneesh      Factory manager            $4800 Per month                45



    A summary of Daily Time tickets for the week was:

    Employee           Direct Labour - Process No (Hours)     Maintenance Overtime
                              3           4      5      6      & Repairs   Hours
    Muhammad                  2                         9          2
    Kalah                    10          10     15      5                    5          (Process no. 3)
    Feng                     10          11     12      7                    3          (Process no. 3)
    Kosiak                   10          10      7     10          3         5          (Process no. 4)
    Rodrigo                              15     14     10          1         5          (Process no. 4)
    Vinh                     12           8     15                 5         3          (Process no. 5)
    Kumartunga         Security guard
    Rajneesh
    Patrick          Storeman/Admin


    Additional information:
    The overtime hour’s column is in addition to the direct labour hours column.
    All overtime is due to production delays, and is paid at time and a half of normal rate of pay.
    The standard hours are five days at eight hours per day.
    The supervisor is not entitled to overtime payments. Any particular work he does is charged out at
    $18 per hour. All his other non-allocated wages are charged to Supervision.
    Vinh was absent on paid sick leave for one day.
    Any time not accounted for the operators are to be charged to idle time.
    The following deductions are to be made from the employees' gross earnings:
    Group income tax - flat rate of:                     30%
    Union
    Fees                             $12 Per week for all employees.




                                                                                                          20
VIRTUAL BUSINESS – 2nd SEMESTER DIPLOMA 2006
                           MATERIAL CONTROL ACCOUNT (Factory)
Western Furniture Limited purchases furnishing material ( in 50 metre rolls)for use in production of
all its product range. Details of the movements in this raw material used in factory for the year ended
30th June 2007 were as follows:
July-01        Opening balance                      338   units @                      $35 per unit
August-04      Issued to production                 210   units to process 1
September-06   Purchased                            234   units @                      $37 per unit
September-26   Issued to production                 150   Units to process 2
October-07     Purchased                            115   units @                      $39 per unit
November-12    Issued to production                 124   units to process 3
December -13   Returned to supplier                  80   units, purchased Sep 06
January-15     Purchased                            190   units @                      $40 per unit
               Returned to store from
January-20     production                            60   from process 3
February-25    Issued to production                 127   units to process 4
March-28       Purchased                            320   units @                      $41 per unit
March-29       Issued to production                 218   units to process 5
April-17       Purchased                            150   units@                       $41 Per unit
May-22         Issued to production                 300   Units to process 6
June-12        Purchased                            150   Units @                      $42 Per unit
June 18        Issued to production                 150   Units to process 7
June-30        Physical Stock take                  196




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