BSBFIA401 Prepare financial reports

& Assessment Details

Jason Wilson set up his furniture business in Eskdale. Jason leases premises and has taken out a bank loan to buy a motor vehicle.

Jason has registered “Kookaburra Furniture” as his business name. He has obtained an ABN and registered for GST, reporting GST monthly on an ACCRUAL BASIS. The business expenses capital acquisitions less than $100 ex GST. Capital Acquisitions less than $1,000 ex GST are allocated to the Low-Value Pool.

An extract from the Policies and Procedures of Kookaburra Furniture are printed on the following page. Printed below is the Chart of Accounts used by Kookaburra Furniture.

CHART OF ACCOUNTS – Kookaburra Furniture

1-1110 Bank

1-1310 Trade Debtors

1-1320 Provision for Doubtful Debts

1-1330 Prepaid Expenses

1-1340 Accrued Income

1-1350 Stock on Hand [Furniture]

1-2210 Office Equipment

1-2220 Accum. Depr. Office Equipment

1-2310 Motor Vehicles

1-2320 Accum. Depr. Motor Vehicles

1-2500 Low-Value Pool

2-1200 Trade Creditors

2-1210 GST Collected

2-1220 GST Paid

2-1230 Prepaid Income

2-1240 Accrued Expenses

2-2100 Bank Loan

3-1000 Capital

3-2000 Drawings

4-1000 Sales [Furniture]

4-2000 Interest Received

5-1000 Opening Stock

5-2000 Purchases [Furniture]

5-3000 Closing Stock

6-1000 Advertising

6-2000 Accounting Fees

6-3000 Bad and Doubtful Debts

6-4000 Bank Charges

6-5000 Depreciation

6-6000 Lease of Premises

6-7000 Motor Vehicle Expenses

6-8000 Superannuation

6-9000 Wages

8-1000 Gain on Sale of Asset

9-1000 Loss on Sale of Asset

Kookaburra Furniture

[Extract from] Accounting Policies and Procedures

1 Accounting System

The business keeps an Accrual set of books, accounting for debtors and creditors. Credit purchases are paid for by cheque or electronic transfer. Cash purchases are paid for by credit card or petty cash. Both cash and credit sales are recorded. All discrepancies should be identified and resolved or referred to Jason Wilson [your supervisor] for clarification.

2 General Ledger

A Chart of Accounts has been drawn up in consultation with the accountant.

Accounts are not to be added unless there is no other account which can be used.

If accounts are added, care must be taken so that the new accounts are on the correct level so that financial reports are accurate in MYOB AccountRight.

3 General Journal Entries

General Journal Entries are to be avoided. Journals should only be used for the following transactions: prepayments and accruals, end of year adjustments and stock adjustments if needed.

General Journal Procedures [manual set of books]:

1. A General Journal sheet is used to record journals.
2. Appropriate supporting documentation should be supplied with each journal entry to justify the transaction. The supporting documents should clearly explain the reason for the journal entry and the basis of the journal entries arising.
3. The journal entry should contain:
   • the correct account from the Chart of Accounts
   • line amounts in dollars and cents
   • amounts allocated to the correct debit or credit column
   • clear distinction between numeric and alpha characters
   • the reason for the journal
   • total debits and total credits
   • errors must be neatly crossed out and initialled by the bookkeeper and the correct amount entered above
   • a batch number is written on the top of the journal. This batch number will be used as the posting reference in the General Ledger. The ledger account number is used as the posting reference in the journal.

General Journal Procedures [computerised]:

1. Appropriate supporting documentation should be supplied with each journal entry to justify the transactions. The supporting documents should clearly explain the reason for the journal entry and the basis of the journal entries arising.
2. The journal entry should contain:
   • the correct Chart of Accounts code
   • the reason for the journal
   • amounts allocated to the correct debit or credit column

3 The Journal ID should be written on the source document.

4 At the end of each month, a hard copy of journal entries for the month is printed.

4 Provision for Doubtful Debt

At the end of the financial year, at the discretion of the Director of Kookaburra Furniture, any 90-day accounts may be considered doubtful and a provision of 5% may be created.

5 Asset Register Procedures:

1 Kookaburra Furniture is not taking advantage of the Small Business Income Tax concessions.

2 All depreciating asset transactions [more than $100 ex GST] must be entered in the Asset Register and General Ledger.

There are 2 classes of assets:

1. Assets costing less than $1,000 ex GST: These assets will be pooled in the Low-Value Pool and depreciated at 18.75% in the first year and 37.5% thereafter using the Diminishing Value method of calculating depreciation.
2. Assets costing more than $1,000 ex GST: These assets will not be pooled and will be depreciated according to the recommended Effective Life of the asset.

Assets will be grouped as follows, as set out in the Chart of Accounts of the business.

• Office Equipment including printers [Effective Life 5 years, Diminishing Value Rate = 40%]
• Motor Vehicles [Effective Life 8 years, using straight-line method of depreciation.]

6 Reconciliation of Assets:

At the end of the financial year, the value of assets in the Asset Register must reconcile with the value of assets in the Balance Sheet of the business. Any discrepancies should be identified and adjustment made.

7 Disposal of Assets:

When an asset is traded-in, sold or written off, quotes must be obtained from at least 2 dealers and the final decision approved by Jason. The entry must be recorded in both the Fixed Asset Register and the General Ledger as soon as possible after the date of disposal.

8 Financial Reports:

After all transactions have been posted to the General Ledger for the financial year and all bank, accounts receivable, accounts payable and asset register accounts have been reconciled the following procedure is followed.

Financial reports [manual set of books]:

1. An Adjusted Trial Balance is drawn up.
2. Closing entries are prepared and Income and Expense Accounts are closed.
3. Trading and Profit and Loss Accounts are prepared.
4. Drawings is transferred to Capital.
5. An unclassified Profit and Loss Statement is prepared for interested parties.
6. A classified Balance Sheet is prepared for interested parties.

Financial reports [Computerised]:

1. An Adjusted Trial Balance is printed.
2. Drawings in transferred to Capital.
3. Retained Earnings are transferred to Capital
4. A Profit and Loss Statement is printed for interested parties.
5. A Balance Sheet is printed for interested parties.

9 Occupational Health and Safety

Kookaburra Furniture recognises its moral and legal responsibility, in particular to the Workplace Health and Safety Act 1995 [Qld], to provide a safe and healthy work environment for employees and customers.

Part A: Written (Question and Answer)

? TASK 1 – Australian Accounting and Auditing Standards

(a) What do the letters “AUASB” stand for?

The Letters AUASB stand for The Auditing and Assurance Standards Boards

(b) What does this board do?

This is an independent board, Statutory agency of the Australian Government, responsible for developing, issuing and maintaining auditing and assurance standards.

(c) With reference to AASB 108, many items in a financial report cannot be measured with precision but can only be estimated.

In Clause 32, what do these estimates involve [and give examples]?

1. Inventory Obsolescence- means When we hold the stock which is not need longer to be used or can’t be used.
2. Bad Debts -When you did not pay for the job and they will never pay you.
3. Warranty Obligations-When someone give a warranty or given something to you.
4. Sometimes there is no market for an asset so you need to find out the fair value of those financial assets or liabilities.
5. Find out the expected pattern of consumption or benefit lives of that depreciable assets, when you are ensuring about the useful life.

? TASK 2 – Depreciation

(a) List 3 acceptable methods of calculating depreciation in AASB 116 [IAS 16].

1. Straight line method /Prime cost Method
2. Diminishing Value Method
3. The units of production method

(b) What is the current Taxation Ruling number that lists the useful [effective] lives of depreciable assets?

TR 2019/5

? TASK 3 – Code of Conduct

As the bookkeeper, you are a member of the Institute of Certified Bookkeepers. What is the purpose of this Code of Professional Conduct?

The Purpose of this code of Professional Conduct are:

1. A member may not engage in any activities which are likely to bring themselves or the profession of bookkeeper or of the Institute into disrepute. A conviction for any criminal offence other than a road traffic offence shall for these purposes be deemed to amount to an activity which does or is likely to bring the member or the profession of bookkeeper or of the Institute into disrepute
2. A member may not engage in dishonest or otherwise discreditable activities
3. A member must not compromise their professional standards or engage in or act so as to assist or conceal any criminal act even if by doing so the member may act contrary to the instructions of their client
4. A member is not obliged to accept any work and must not accept any work which:

• the member lacks sufficient expertise or competence to complete
• would involve the member or any other person in the commission of any criminal act
• the member does not have adequate time or opportunity to complete promptly
1. A member must promptly inform their client or their employer if for any reason if it at any stage becomes apparent that the member is unable to complete any work within a reasonable time of them being instructed to do so.
2. A member must preserve the confidentiality of their client’s or employer’s affairs absolutely unless required to make such disclosure by law or by the direction of the Institute or to prevent the commission of a crime
3. A member must not hold client or trust funds for another without full accounting to the client and all funds must be separated from the business and personal funds of the member.
4. A member must not:
• give tax advice that they are not otherwise permitted to provide
• give estate planning advice
• provide investment services or sell or give advice on the appropriateness of any investment within the meaning of the Financial Services Act 1986 provided that nothing herein shall prevent a member from doing any act they would otherwise be allowed to perform through their membership of some other professional body or under any current permission or licence granted by some other competent body
5. A member must not make or prepare any account or record which they know is or may be false or misleading or the truth of which they are not satisfied on the materials or evidence before them.
6. A member must at all times be courteous to all those with whom they have professional dealings
7. A member should ensure that any advice given to a client is clearly and comprehensibly expressed
8. A member must not whether in their employment or in connection to their supply of services to the public describe themselves or allow themselves to be described as:
• holding any designation or qualification the member does not currently hold or being a member of any body, the member is not currently a member of
• being a BAS Agent unless the member is currently entitled to be so described through their registration with the Tax Practitioners Board
• being a certified bookkeeper unless the member is currently entitled to through their belonging to the appropriate grade of membership of the Institute. Subject to the other requirements of these rules, a bookkeeper must always act in the interests of his client or employer in Public Practice
9. Subject to the requirements of these rules, a bookkeeper must always act in the interest of his client or employer.

PART B: Projects

In this assessment, you will manually maintain an asset register, process general journal entries on 30/06/18, post to the General Ledger, prepare / print an adjusted Trial Balance, Profit and Loss Statement and Balance Sheet.

Before you start please familiarise themselves with the details of the case study and the chart of accounts and read the Kookaburra Furniture accounting policy and procedures.

Now let us commence the Project section.

TASK 4 – Preview Existing Data

Turn to the following pages and preview the General Ledger already prepared up to 30/06/18.

Note any errors/discrepancies (if found):

Make the following changes to the GL:

886. 3-2000 Drawings – should be $6,886.30 (debit)

GENERAL LEDGER of KOOKABURRA FURNITURE

30 June 2018

1-1110 BANK

1-1310 TRADE DEBTORS

1-1320 PROVISION FOR DOUBTFUL DEBTS

1-1330 PREPAID EXPENSES

1-1340 ACCRUED INCOME

1-1350 STOCK ON HAND [Furniture]

1-2210 OFFICE EQUIPMENT

1-2220 ACCUM. DEPR. OFFICE EQUIPMENT

1-2310 MOTOR VEHICLES

1-2320 ACCUM. DEPR. MOTOR VEHICLES

1-2500 LOW-VALUE POOL

1-2510 ACCUM. DEPR. LOW-VALUE POOL

2-1200 TRADE CREDITORS

2-1210 GST COLLECTED

2-1220 GST PAID

2-1230 PREPAID INCOME

2-1240 ACCRUED EXPENSES

2-2100 BANK LOAN

3-1000 CAPITAL

3-2000 DRAWINGS

4-1000 SALES [Furniture]

4-2000 INTEREST RECEIVED

5-1000 OPENING STOCK

5-2000 PURCHASES [Furniture]

5-3000 CLOSING STOCK

6-1000 ADVERTISING

6-2000 ACCOUNTING FEES

6-3000 BAD AND DOUBTFUL DEBTS

6-4000 BANK CHARGES

6-5000 DEPRECIATION

6-6000 LEASE OF PREMISES

6-7000 MOTOR VEHICLE EXPENSES

6-8000 SUPERANNUATION

6-9000 WAGES

8-1000 GAIN ON SALE OF ASSET

9-1000 LOSS ON SALE OF ASSET

TASK 5 – Maintaining an Asset Register

On 1 November 2016 a Toyota Ute was purchased. Tax Invoice set out below.

You are required to:

(a) Enter the above details on the Asset Register card below.

(b) Record depreciation on 30/06/17 following organisational policies and procedures.

(c) Record depreciation on 30/06/18 following organisational policies and procedures.

TASK 6 – Maintaining a Depreciation Schedule

• In Excel, open “KookaburraDepreciation 2018.xls”.

• Using the information in this template and the organisational policies and procedures, along with data from Task 5, complete the schedule. For this example, enter the depreciation for the Toyota Ute for both FY 2017 and FY 2018 on this one spreadsheet.

2 PRINTOUT 1 Print a copy of the Schedule on 30 June 2018.

• This printout must be approved by your Workplace Assessor as accurate as it forms the information for the end of year provision for depreciation.

• You are welcome to watch the recordings available in the LMS under ‘Recordings’ section of BSBFIA401 unit as those may help with understanding of how to maintain and record assets in the business books.

TASK 7 – Recording Depreciation in the General Journal

In the General Journal (located after Task 17 on one of the following pages) enter the three journals to account for depreciation on 30 June 2018, as per the above Schedule and the Asset Register in Task 5. The General Journal Batch Number for June 2018 will be 0613.

TASK 8 – Accounting for Bad and Doubtful Debts

• View the Aged Receivables [Debtors] 30/06/18.

(b) On 30 June, write off the amount owing by Eskdale Trading as a bad debt via a sales adjustment note manually using the General Journal (located after Task 17 on one of the following pages). For this exercise you do not need to settle the adjustment note against the open invoice.

(c) You are next required to follow the company policies and procedures and calculate and enter appropriate journals to provide for doubtful debts.

Note: You are required to create three (3) journal entries for this task.

• First journal entry would be to write off a debt for Eskdale Trading as requested in part (b) above.
• Second journal entry would be to transfer any bad and doubtful to provision account. Hint: Review any (credit) balance in Provision for doubtful debts ledger.
• Third journal entry would be to create a 5% provision of 90-day account as per Policies and Procedure of the business. Refer to an example in Unit 8 pages 172-173 of the prescribed textbook.
• You are welcome to watch the recordings available in the LMS under ‘Recordings’ section of BSBFIA401 unit as those may help with understanding of how to account for bad debts.

TASK 9 – Accounting for Prepaid Expenses

The following entry was processed on the Bank Statement for June.

The payment was made to pay the Tax Invoice printed below:

You are required to process a journal to account for the reporting of the July 2018 to May 2019 advertising expense in the General Ledger referring to the General Journal.

TASK 10 – Accounting for Accrued Income

Interest on Bank Account is owing but not yet processed to the Bank Account.

The calculated amount is $200.00.

• You are required to process a journal to account for the interest owing using the General Journal (located after Task 17 on one of the following pages).

TASK 11 – Accounting for Accrued Expenses

• Wages for 28th, 29th, 30th June are estimated to be $5,100 gross. You are required to enter a journal to account for this balance day adjustment entry using the General Journal.

TASK 12 – Accounting for Prepaid Income

The following sale [already recorded in Sales] included furniture which has not been received and not billed. Jason has decided that this amount should not be included in income because the matching expense “purchases” has not been recorded.

• You are required to account for the above prepaid sale.

TASK 13 – Accounting for Inventory Adjustments

A stocktake of furniture on hand was made on 30 June 2018. The value of stock on hand was $90,000.00. Complete the entries manually.

• Prepare a journal entry to transfer the stock on hand as at 01/07/17 to cost of sales.

• Prepare a journal entry to record the above stock on hand.

TASK 14 – Disposal of Asset

On 30 June 2018, the Toyota Ute was sold for $27,500.00 inc GST. A cheque for the amount was banked. This sale was approved by Jason. Complete the entries manually (in the journal sheet on the following page).

You are required to:

(a) Calculate and record the disposal on the Asset Register in Task 5.

(b) Record a journal entry to account for the disposal and any gain or loss on sale of the asset.

TASK 15 – Checking Accuracy

Check the accuracy of your journal entries and total your journal to check the accuracy of the double-entry process.

TASK 16 – Update General Ledger

• You are now required to post the journal entries to the General Ledger. Use the referencing system outlined in the policies and procedures.
• Identify any errors and make the appropriate adjustments.

TASK 17 – Preparing Adjusted Trial Balance

• You are required to prepare an adjusted Trial Balance printed on page after the General Journals page. This Trial Balance will include the journals on the previous pages.

Kookaburra Furniture

TRIAL BALANCE

AS AT 30 June 2018

TASK 18 – Prepare final General Ledger accounts

• At the end of the financial year, after all adjustments have updated the General Ledger and an Adjusted Trial Balance has been prepared, identify the steps taken to prepare final general ledger accounts to reflect gross and net profits for the reporting period in the manual set of books.

TASK 19 – Prepare final General Ledger accounts

On the following page are an Expense Account, an Income Account, Trading Account and Profit and Loss Account.

You are required to:

(a) Prepare the general journal to close the Purchases Account. [Closing all the accounts is very time consuming in a test situation.]

(b) Post this journal to the appropriate general ledger accounts.

(c) Prepare the general journal to close the Income Account.

(d) Post this journal to the appropriate general ledger accounts.

(e) Using the Adjusted Trial Balance on the previous page complete the Trading Account and Profit and Loss Account. [No journals are required]. You will have to decide which income and expense accounts are transferred to the Trading Account and Profit and Loss Account.

(f) Now complete the Equity Accounts for the financial year – journals and ledger accounts required.

TASK 19 (a)

TASK 19 (b)

5-2000 PURCHASES [Furniture]

TASK 19 (b) and (e)

9-8000 TRADING ACCOUNT

TASK 19 (c)

TASK 19 (d)

4-2000 INTEREST RECEIVED

TASK 19 (d) and (e)

9-9000 PROFIT AND LOSS ACCOUNT

TASK 19 (f)

3-1000 CAPITAL

3-2000 DRAWINGS

TASK 20 – Prepare Profit and Loss Statement for 2018 financial year

Using the information in the Adjusted Trial Balance, manually prepare the Profit and Loss Statement of Kookaburra Furniture for the 2018 financial year.

Refer to your workbook for examples of financial reports, or follow the instructions of your Workplace Assessor. Remember to identify any errors.

TASK 21 – Prepare Balance Sheet as at 30 June 2018

Using the information in the Adjusted Trial Balance, manually prepare the Balance Sheet of Kookaburra Furniture at the end of the 2018 financial year.

Refer to your workbook for examples of financial reports, or follow the instructions of your Workplace Assessor. Remember to identify any errors.